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LOGO
ATI Reports 34 Per Cent Sequential Revenue Increase in First Quarter
Rapidly expanding position in enthusiast, mainstream and value markets
Markham, Ontario - December 18, 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 its financial
results for the first quarter of its 2003 fiscal year ended November 30, 2002.
Revenues for the first quarter were $322.0 million, up 34.5 per cent from
$239.5 million in the fourth quarter of fiscal 2002, and up 28.8 per cent from
$250.0 million in the first quarter of fiscal 2002. Gross margins were 27.3
per cent, down from 30.1 per cent in the fourth quarter of fiscal 2002.
Operating expenses, excluding amortization of intangible assets, increased to
$79.6 million from $70.1 million in the previous quarter.
Net income for the first quarter was $5.0 million or $0.02 per share compared
to a net loss of $32.2 million or $0.14 per share for the fourth quarter of
2002 and a net loss of $10.3 million or $0.04 per share for the same period a
year ago. Adjusted net income(1) for the quarter was $7.0 million or $0.03 per
share compared to $2.4 million or $0.01 per share for the previous quarter,
and $10.4 million or $0.04 per share for the same period a year ago.
(/1/)Adjusted net income excludes the after-tax effect of gain (loss) on
investments (net), amortization of goodwill and intangible assets related to
the Company's acquisitions, and the deferred tax recovery of future tax
liability pertaining to goodwill and 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 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.
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"We were pleased with the strength of our PC business in our first quarter,"
said David Orton, President and Chief Operating Officer, ATI Technologies Inc.
"We obtained key design wins in every product category and our product
strength helped ATI to gain share in all major channels and geographies. We
continue to invest in R&D in order to maintain the momentum that we have
created."
In the first quarter, the RADEON(TM) 9700 and RADEON(TM) 9000 family of
products along with ATI's integrated graphics products, drove revenue growth.
ATI's add-in-board partners delivering RADEON(TM)-based technology to the
system builder market also contributed to the Company's revenue growth this
quarter.
"Over the last few quarters, ATI has achieved undisputed technology leadership
in PC graphics, and delivered compelling visual solutions to every market
segment," said K.Y. Ho, Chairman and Chief Executive Officer, ATI Technologies
Inc. "Moreover, ATI is committed to executing on an aggressive product roadmap
to deliver and expand our industry-leading visual processing solutions."
Outlook
Because of the seasonal strength in the first quarter, ATI believes that
revenues in the second quarter will be approximately 10 per cent lower than
the first quarter. During the second quarter, gross margins as a per cent of
revenues should improve somewhat, while total operating expenses are expected
to increase primarily due to research and development costs related to higher
prototyping expenses. Based on these factors, the Company is targeting to
achieve second quarter adjusted net income that is approximately the same as
the first quarter.
"Looking into the back half of the year, we are focusing on improving margins
in our PC business and realizing a contribution from our consumer business,
where a soft market has delayed the start of some of our customers' programs,"
said Terry Nickerson, Senior Vice President and Chief Financial Officer, ATI
Technologies Inc. "Our challenge is to translate our product strength and top-
line success into equal success on our bottom line."
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Operational Highlights
During the first quarter, ATI enjoyed rapid adoption of the RADEON(TM) 9700
and RADEON(TM) 9000 family of products by the OEM, system builder and retail
channels. The RADEON(TM) 9700 and RADEON(TM) 9700 PRO began shipping in the
flagship models of the major OEMs worldwide including Dell, eMachines,
Fujitsu, Founder, Gateway, HP and NEC. ATI continued to maintain a strong
position in the notebook market during the quarter with more than 20 design
wins for the MOBILITY(TM) RADEON(TM) 9000. Major design wins included models
from Dell, HP and Apple.
Other operational highlights during the quarter:
. The RADEON(TM) 9000 PRO began shipping in consumer desktop PCs from
major OEMs including Apple, Fujitsu Siemens, HP and NEC.
. ATI set a new standard for the performance mainstream desktop market
with the introduction of the RADEON(TM) 9500 and RADEON(TM) 9500 PRO.
. ATi delivered the ultimate visual and home entertainment experience on a
PC with the introduction and shipment of the ALL-IN-WONDER(R) 9700 PRO.
. ATI's FIRE GL(TM) X1 workstation graphics board - based on the
RADEON(TM) 9700 visual processing unit - began shipping into Dell's
high-end workstation, the Precision 650.
. ATI had a successful ramp of its integrated graphics chip products in
the value segment of the PC market with the RADEON(TM) IGP 320M and IGP
340M.
. ATI broadened its reach into Asia-Pacific with design wins with Legend
and Founder - the top computer manufacturers in China.
. ATI won the PC Magazine Award for Technical Excellence for the
RADEON(TM) 9700 PRO.
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Management's Discussion and Analysis of Interim Financial Results
Revenues
Revenues for the first quarter were $322.0 million, up 34.5 per cent from
$239.5 million in the fourth quarter of fiscal 2002, and up 28.8 per cent from
$250.0 million in the first quarter of fiscal 2002. Among the factors
contributing to this increase in revenues were a broad-based market demand for
ATI's visual processing units led by the RADEON(TM) 9700 and the RADEON(TM)
9000 product families and a strong launch into the value segment of the PC
market with ATI's new line of integrated chipset products.
Gross Margins
Gross margins for the first quarter were 27.3 per cent of sales compared to
30.1 per cent in the fourth quarter and 32.0 per cent in the same quarter a
year earlier. The decrease in gross margins sequentially and year-over-year
resulted primarily from the writedown in the inventory value of certain
products which was responsible for 3 percentage points of the decline.
Additionally, 2 percentage points of the decline can be attributed to a slower
transition in the implementation of cost reductions. Nintendo royalty
revenues, however, were stronger than expected. Although the Company believes
that gross margins should improve somewhat in the second quarter, it currently
does not expect to approach margins in its target range of 32 - 35 per cent
until the fourth quarter of fiscal 2003.
Operating Expenses
Operating expenses, excluding amortization of intangibles, were $79.6 million,
up 13.5 per cent from $70.1 million in the fourth quarter of fiscal 2002, and
up 15.1 per cent from $69.1 million for the first quarter of fiscal 2002. The
sequential and year-over-year quarterly increase in research and development
was largely due to higher costs related to prototyping, tools and licensing
fees. Higher variable selling costs due to increased revenues were responsible
for $2.5 million of the increase in selling and marketing expenses in the
first quarter compared to the fourth quarter of fiscal 2002.
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Total operating expenses decreased $20.9 million, or 20.1 per cent in the
first quarter to $82.8 million compared to the fourth quarter of fiscal 2002
and decreased 8.4 per cent for the same period a year earlier. These decreases
were largely the result of the adoption of the accounting policies relating to
the treatment of goodwill and intangible assets (CICA Handbook Section 3062)
somewhat offset by higher research and development as well as selling
expenses. The decrease in operating expenses compared to the fourth quarter of
2002 is also related to the fourth quarter writedown in the core technology
and goodwill associated with the prior acquisitions of intangible assets of
ArtX and Chromatic Research.
Net Income
Net income in the first quarter of fiscal 2003 was $5.0 million or $0.02 per
share compared to a net loss of $32.2 million or $0.14 per share for the
fourth quarter of fiscal 2002 and a net loss of $10.3 million or $0.04 per
share for the same quarter a year ago. The increase in net income compared to
the prior quarters is attributable to lower operating expenses resulting from
the adoption of the accounting policies relating to the treatment of goodwill
and intangible assets (CICA Handbook Section 3062) somewhat offset by higher
research and development and selling, marketing and administrative expenses.
Adjusted net income(/1/) for the quarter was $7.0 million or $0.03 per share
compared to $2.4 million or $0.01 per share for the previous quarter, and
$10.4 million or $0.04 per share for the same period a year ago. Significantly
higher revenues, offset somewhat by a decrease in gross margin per cent and
increased research and development expenses, drove the increase in adjusted
net income relative to the fourth quarter of 2002. The decrease in adjusted
net income for the quarter compared to the first quarter a year ago is a
result of decreased gross margin percentage realized on higher revenues and
increased research and development expenses.
(/1/)Adjusted net income excludes the after-tax effect of gain (loss) on
investments (net), amortization of goodwill and intangible assets related to
the Company's acquisitions, and the deferred tax recovery of future tax
liability pertaining to goodwill and 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" below for the
reconciliation between adjusted net income and net income which is determined
in accordance with GAAP.
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Liquidity and Financial Resources
ATI's cash used in operations was $31.0 million in the first quarter of fiscal
2003, compared to cash used in operations of $2.7 million in the fourth
quarter of fiscal 2002. The increase in cash used in operations during the
quarter was primarily a result of the increase in accounts receivable
associated with the strong revenue performance.
Inventory levels declined slightly to $172.4 million at the end of the first
quarter compared with $175.3 million at the end of the fourth quarter in spite
of a higher level of sales.
As of November 30, 2002, ATI had working capital of $381.5 million, compared
to $361.7 million at the end of the fourth quarter of fiscal 2002. The
Company's cash position was $200.1 million as of November 30, 2002, compared
to $236.9 million at August 31, 2002. The decline was largely due to an
increase in accounts receivable as a result of a sharp increase in sales in
the quarter.
Intangible assets other than goodwill declined to $16.4 million at the end of
the first quarter of fiscal 2003, from $21.9 million in the fourth quarter of
fiscal 2002. The decline in these assets was due to the continued amortization
of intangible assets of prior acquisitions. In addition, as a result of the
adoption of CICA Handbook Section 3062, the Company reclassified $2.3 million
relating to workforce from intangible assets to goodwill.
In the first quarter, ATI adopted the new accounting policies relating to the
treatment of goodwill and intangible assets (CICA Handbook Section 3062) and
therefore there will be no further amortization of goodwill. Goodwill, which
is associated primarily with the prior acquisition of ArtX, is currently
$190.1 million and will be tested for impairment on an annual basis.
Accounts receivable increased by $49.6 million during the quarter to $213.9
million. This increase was primarily due to the sharp increase in sales during
the quarter. Accounts payable declined by $3.1 million in the first quarter to
$169.0 million.
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Adjusted Net Income - Reconciliation
The table below presents adjusted net income and adjusted net income per
share, which excludes the after-tax effect of gain on investments,
amortization of goodwill(/1/) and 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.
(Thousands of US dollars, except per share amounts)
- ---------------------------------------------------------------------
Three months
ended
November 30
2002 2001
- ---------------------------------------------------------------------
(unaudited)
Net Income (loss) - GAAP basis $ 4,988 $(10,319)
Gain on investments (32) --
Amortization of intangible assets(/1/) 3,165 21,190
Net tax on sale of investments 6 --
Deferred tax recovery of future tax liability on
intangible assets (1,141) (486)
- ---------------------------------------------------------------------
Adjusted net income $ 6,986 $ 10,385
- ---------------------------------------------------------------------
Adjusted net income per share
Basic and diluted $ 0.03 $ 0.04
- ---------------------------------------------------------------------
Weighted average number of shares (000's):
Basic 236,947 232,496
Diluted 243,298 244,916
- ---------------------------------------------------------------------
(/1/)Effective September 1, 2002, the Company no longer amortizes goodwill. See
Note 2 to the Consolidated Financial Statements.
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 2002 Annual Report and
2001 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
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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 first quarter financial results today at 10:00 AM (EST) (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 2003 Conference Calls--Q1 2003.
Replays of the conference call will be available through December 25, 2002.
Please call 416-695-5800, passcode 1293372.
A web cast replay will be available at the web site 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 $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).
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 relations, please contact:
Sarah Coombs, Fleishman-Hillard
at (416) 214-0701 x 307, (416) 606-0428 or coombss@fleishman.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 --
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ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Thousands of US dollars, except per share amounts)
- -------------------------------------------------------------------------------
Three months ended
November 30 November 30
2002 2001
- ------------------------------------------------------------------------------
Revenues $322,020 100.0% $250,038 100.0%
Cost of goods sold 234,015 72.7% 169,960 68.0%
- ------------------------------------------------------------------------------
Gross Margin 88,005 27.3% 80,078 32.0%
Expenses
Selling and marketing 21,938 6.8% 20,289 8.1%
Research and development 48,450 15.0% 40,070 16.0%
Administrative 9,212 2.9% 8,781 3.5%
Amortization of intangible assets 3,165 1.0% 21,190 8.5%
- ------------------------------------------------------------------------------
82,765 25.7% 90,330 36.1%
- ------------------------------------------------------------------------------
Income (loss) from operations 5,240 1.6% (10,252) (4.1%)
Interest and other income 540 0.2% 1,729 0.7%
Gain on investments, net 32 -- -- --
Interest expense (426) (0.1%) (2) --
- ------------------------------------------------------------------------------
Income (loss) before income taxes 5,386 1.7% (8,525) (3.4%)
Income taxes 398 0.2% 1,794 0.7%
- ------------------------------------------------------------------------------
Net income (loss) $ 4,988 1.5% $(10,319) (4.1%)
- ------------------------------------------------------------------------------
Net income (loss) per share (Note 6)
Basic and diluted $ 0.02 $ (0.04)
- ------------------------------------------------------------------------------
Weighted average number of shares (000's)
Basic 236,947 232,496
Diluted 243,298 232,496
Outstanding number of shares at the end
of the quarter (000's) 236,989 232,787
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. These financial
statements should be read in conjunction with the Company's most recent annual
consolidated financial statements, as at and for year ended August 31, 2002.
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ATI TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of US dollars)
- ----------------------------------------------------------------
August
November 30 31
2002 2002
- ----------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $200,123 $187,126
Short-term investments -- 49,801
Accounts receivable 213,899 164,259
Inventories 172,405 175,348
Prepayments and sundry receivables 23,579 21,131
Income taxes receivable 4,206 --
Future income tax assets 3,662 3,630
- ----------------------------------------------------------------
Total current assets 617,874 601,295
Capital assets 92,887 95,838
Intangible assets (Note 2) 16,413 21,858
Goodwill (Note 2) 190,095 187,815
Long-term investments 7,405 7,405
Future income tax assets 831 844
- ----------------------------------------------------------------
Total Assets $925,505 $915,055
- ----------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ -- $ 12,015
Accounts payable 169,009 172,093
Accrued liabilities 61,685 51,087
Deferred revenue 126 250
Income taxes payable -- 170
Current portion of long-term debt (Note 3) 1,174 568
Future income tax liabilities 4,357 3,459
- ----------------------------------------------------------------
Total current liabilities 236,351 239,642
Long-term debt (Note 3) 25,772 15,798
Future income tax liabilities 11,074 12,588
- ----------------------------------------------------------------
Total liabilities 273,197 268,028
Shareholders' equity:
Share capital 561,770 561,477
Contributed surplus 4,630 4,630
Retained earnings 77,634 72,646
Currency translation adjustment 8,274 8,274
- ----------------------------------------------------------------
Total shareholders' equity 652,308 647,027
- ----------------------------------------------------------------
Total Liabilities and Shareholders' Equity $925,505 $915,055
- ----------------------------------------------------------------
See accompanying notes to consolidated financial statements. These financial
statements should be read in conjunction with the Company's most recent annual
consolidated financial statements, as at and for year ended August 31, 2002.
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ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of US dollars)
- -------------------------------------------------------------------------------
Three months ended
November 30
2002 2001
- -------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income (loss) $ 4,988 $(10,319)
Add items not affecting working capital:
Future income taxes (635) (1,295)
Depreciation and amortization 9,243 26,487
Gain on investments (32) --
Foreign exchange loss 320 24
Net changes in non-cash working capital balances relating
to operations:
Accounts receivable (49,640) (43,465)
Inventories 2,943 7,423
Prepayments and sundry receivables (1,179) 201
Income taxes receivable (4,376) (1,096)
Accounts payable (3,084) 26,862
Accrued liabilities 10,598 5,397
Deferred revenue (124) (125)
- -------------------------------------------------------------------------------
(30,978) 10,094
- -------------------------------------------------------------------------------
Financing activities:
Increase (decrease) in bank indebtedness (12,015) 496
Increase in long-term debt 10,709 --
Principal payment under capital lease obligation (275) --
Settlement of swap contract (1,365) --
Issuance of common shares 293 1,306
- -------------------------------------------------------------------------------
(2,653) 1,802
- -------------------------------------------------------------------------------
Investing activities:
Purchase of short-term investments -- (4,601)
Maturity of short-term investments 49,649 25,000
Additions to capital assets (3,127) (4,738)
Proceeds from sale of investments 280 --
Acquisitions, net of cash acquired -- (2,067)
- -------------------------------------------------------------------------------
46,802 13,594
- -------------------------------------------------------------------------------
Foreign exchange loss on cash held in foreign currency (174) (24)
- -------------------------------------------------------------------------------
Increase in cash and cash equivalents 12,997 25,466
Cash and cash equivalents - beginning of period 187,126 171,455
- -------------------------------------------------------------------------------
Cash and cash equivalents - end of period 200,123 196,921
Short-term investments -- 24,601
- -------------------------------------------------------------------------------
Cash position - end of period 200,123 $221,522
- -------------------------------------------------------------------------------
Cash position is defined as cash and cash equivalents and short-term
investments. See accompanying notes to consolidated financial statements.
These financial statements should be read in conjunction with the Company's
most recent annual consolidated financial statements, as at and for year ended
August 31, 2002.
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
The principal business activities of ATI Technologies Inc. (the "Company") are
the design, manufacture and sale of 3D graphics and digital media silicon
solutions. 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. These 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, 2002.
These 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) CICA Handbook Section 3870, Stock-based Compensation and Other Stock-based
Payments:
Effective September 1, 2002, the Company adopted Stock-based Compensation
and Other Stock-based Payments in CICA 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 with the addition of pro forma
information. The Company has applied the pro forma disclosure provisions of
the new standard to awards granted on or after September 1, 2002. No
restatement of prior periods was required as a result of the adoption of
the new standard. Consideration paid by employees on the exercise of stock
options is recorded as share capital. See Note 9 for the pro forma
disclosure as required by this standard.
(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 Company has fully adopted these new standards as of September 1, 2002,
and has discontinued amortization of all existing goodwill. The Company has
also reviewed existing intangible assets, including estimates of remaining
lives, and has reclassified $2.3 million from workforce to goodwill as of
September 1, 2002 to conform with the new criteria.
15 of 22
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) CICA Handbook Section 1581, Business Combinations, and Section 3062,
Goodwill and Other Intangible Assets (continued):
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.
Effective September 1, 2002, the Company had unamortized goodwill of $190.1
million which is no longer being amortized. This change in accounting
policy is not applied retroactively and the amounts presented for prior
periods have not been restated for this change. The impact of this change
is as follows:
--------------------------------------------------------------
Three months
ended
November 30
(Thousands of US dollars, except per share
amounts) 2002 2001
---------------------------------------------------------------
Net income (loss) $4,988 $(10,319)
Add back: goodwill amortization -- 19,132
---------------------------------------------------------------
Net income before goodwill amortization $4,988 $ 8,813
---------------------------------------------------------------
Basic and diluted income (loss) per share:
Net income (loss) $ 0.02 $ (0.04)
Net income before goodwill amortization 0.02 0.04
---------------------------------------------------------------
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
2. GOODWILL AND INTANGIBLE ASSETS
The net book values of goodwill and intangible assets acquired related to
NxtWave Communications, FGL Graphics, ArtX and Chromatic Research Inc. at
November 30, 2002 and August 31, 2002 are as follows :
---------------------------------------------------------------------------
Cost Accumulated Net book Net book value
amortization value
(Thousands of US dollars) November 30, 2002 August 31, 2002
---------------------------------------------------------------------------
Purchased in-process R & D $105,550 $102,458 $ 3,092 $ 4,417
Workforce -- -- -- 2,280
Core technology 32,544 19,223 13,321 15,161
---------------------------------------------------------------------------
Total intangible assets $138,094 $121,681 $ 16,413 $ 21,858
---------------------------------------------------------------------------
Goodwill $392,357 $202,262 $190,095 $187,815
---------------------------------------------------------------------------
Amortization expense related to intangible assets amounted to $3.2 million for
the three months ended November 30, 2002 (2002 - $2.1 million). Amortization
expense related to goodwill was nil for the three months ended November 30,
2002 (2002 - $19.1 million).
$2.3 million was reclassified from workforce to goodwill as of September 1,
2002 to conform with the new accounting standards as required by the CICA
Handbook Section 3062 "Goodwill and Other Intangible Assets".
3. LONG-TERM DEBT
---------------------------------------------------------------------
Interest November 30 August 31
(Thousands of US dollars) rate 2002 2002
---------------------------------------------------------------------
Obligation under capital lease (i) 6.31% $16,163 $16,366
Mortgage payable (ii) 6.96% 10,783 --
---------------------------------------------------------------------
26,946 16,366
Current portion of long-term debt 1,174 568
---------------------------------------------------------------------
Total $25,772 $15,798
---------------------------------------------------------------------
(i) Obligation under capital lease :
The Company's obligation under capital lease represents the lease on the
building facility in Markham, Ontario.
17 of 22
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
3. LONG-TERM DEBT (CONTINUED)
(ii) Mortgage payable :
On September 10, 2002, the joint venture, Commerce Valley Realty Holding
Inc. ("CVRH"), in which the Company has a 50 per cent ownership interest
entered into a mortgage agreement with a lender to finance the building
facility in Markham, Ontario. The Company's proportionate share of the
mortgage amounted to $10.8 million (Cdn. $16.9 million), and the
mortgage has a repayment term of 12 years bearing interest at a rate of
6.96 per cent per annum. The underlying mortgage is denominated in
Canadian dollars. Funding under the mortgage was received in October
2002.
4. GUARANTEE
The Company and other owners of CVRH have jointly and severally provided a
guarantee for the mortgage payment of the building facility in Markham,
Ontario. In the event that CVRH is unable to meet the underlying mortgage
payment to the lender, the Company and other owners of CVRH will be jointly
and severally responsible for it under this guarantee. The monthly mortgage
interest and principal payment amounts to approximately $0.2 million. The
mortgage has a repayment term of 12 years with a maturity date on November 1,
2014. As of November 30, 2002, the outstanding amount of the mortgage stood at
$21.6 million.
In addition, the Company posted a letter of credit in the amount of $1.9
million in favour of CVRH and CVRH, in turn, assigned this letter of credit
for the exclusive benefit of the lender as additional security of the
mortgage. The letter of credit has a term of 5 years and will expire on
November 5, 2007. In the event of a lease default by the Company, the proceeds
of the letter of credit will be paid to the lender.
5. LOSS ON INTEREST RATE SWAP
In fiscal 2001, CVRH entered into an interest rate swap contract to hedge its
exposure to the interest rate risk applicable to its mortgage for the building
facility in Markham, Ontario. This interest rate swap contract closed on
September 10, 2002 resulting in a proportionate loss of $1.4 million to the
Company. The loss is treated as a deferred expense item in the balance sheet
and is charged to the consolidated statements of operations and retained
earnings as a yield adjustment to the interest expense, over the term of the
mortgage.
18 of 22
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
6. NET INCOME (LOSS) PER SHARE
The following table presents a reconciliation of the numerators and
denominators used in the calculations of the basic and diluted income (loss)
per share:
-------------------------------------------------------------------------
Three months
ended
November 30
(Thousands of US dollars, except per share amounts) 2002 2001
--------------------------------------------------------------------------
Net income (loss) $ 4,988 $(10,319)
--------------------------------------------------------------------------
Weighted average number of common shares outstanding:
Basic 236,947 232,496
Effect of stock options 6,351 --
--------------------------------------------------------------------------
Diluted 243,298 232,496
--------------------------------------------------------------------------
Net income (loss) per share:
Basic and diluted $ 0.02 $ (0.04)
--------------------------------------------------------------------------
7. SUPPLEMENTAL CASH FLOW INFORMATION
--------------------------------------------------------------------------
Three months
ended
November 30
(Thousands of US dollars) 2002 2001
--------------------------------------------------------------------------
Cash paid for:
Interest $ 358 $ 3
Income taxes $ 211 $ 110
Interest received $ 1,084 $ 1,626
19 of 22
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
8. SEGMENTED INFORMATION
The Company operates in one operating segment, that being the design,
manufacture and sale of 3D graphics and digital media silicon solutions.
The following tables provide revenues by geographic area and by product, as
well as capital assets, intangible assets and goodwill by geographic area:
----------------------------------------------------------------------
Three months
ended
November 30
(Thousands of US dollars) 2002 2001
-----------------------------------------------------------------------
Revenues:
Canada $ 6,721 $ 4,695
United States 67,485 74,119
Europe 31,448 41,192
Asia-Pacific 216,366 130,032
-----------------------------------------------------------------------
Consolidated revenues $322,020 $250,038
-----------------------------------------------------------------------
Product revenues:
Components $202,436 $123,312
Boards 105,394 119,593
Others 14,190 7,133
-----------------------------------------------------------------------
Consolidated revenues $322,020 $250,038
-----------------------------------------------------------------------
Capital assets, intangible assets and goodwill:
Canada $ 76,818 $ 53,967
United States 217,144 277,986
Europe 4,551 4,950
Asia-Pacific 882 771
-----------------------------------------------------------------------
Consolidated capital assets, intangible assets and
goodwill $299,395 $337,674
-----------------------------------------------------------------------
20 of 22
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
9. STOCK-BASED COMPENSATION
For stock options granted to employees, had the Company determined
compensation costs based on the "fair value" of the stock options at grant
dates consistent with the method prescribed under CICA Handbook Section 3870,
the Company's net income per share would have been reported as the pro forma
amounts indicated below:
-----------------------------------------------------------------
Three months
ended
(Thousands of US dollars, except per share November 30,
amounts) 2002
-----------------------------------------------------------------
Net income for the period, as reported $4,988
Pro forma adjustment for stock-based compensation (18)
-----------------------------------------------------------------
Pro forma net income $4,970
-----------------------------------------------------------------
Pro forma net income per share - basic and diluted $ 0.02
-----------------------------------------------------------------
The weighted average estimated fair value at the date of grant for the options
granted for the three months ended November 30, 2002 was $3.55 per share. The
"fair value" of each option granted was estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
--------------------------------------------------------------------
Three months
ended
November 30,
2002
--------------------------------------------------------------------
Risk-free interest rate 3.81%
Dividend yield 0%
Volatility factor of the expected market price of the
Company's common shares 69.75%
Weighted average expected life of the options 4.13 years
--------------------------------------------------------------------
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period on a straight-line
basis.
21 of 22
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
(Unaudited)
10. U.S. GAAP
The following table reconciles the net income (loss) as reported on the
consolidated statements of operations prepared in accordance with Canadian
GAAP to the consolidated net income (loss) that would have been reported had
the financial statements been prepared in accordance with U.S. GAAP:
---------------------------------------------------------------------------
Three months
ended
November 30
(Thousands of US dollars, except per share amounts) 2002 2001
---------------------------------------------------------------------------
Net income (loss) in accordance with Canadian GAAP $ 4,988 $(10,319)
Tax effect of stock options exercised (64) (73)
Amortization of purchased in-process research and
development 1,325 --
Amortization difference between Canadian and U.S. GAAP (200) 602
Stock compensation expenses (4,308) (3,192)
---------------------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP $ 1,741 $(12,982)
---------------------------------------------------------------------------
Net income (loss) per share:
Basic and diluted $ 0.01 $ (0.06)
---------------------------------------------------------------------------
Weighted average number of shares (000's):
Basic 236,947 232,496
Diluted 243,298 232,496
---------------------------------------------------------------------------
22 of 22
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: December 18, 2002 By: /s/ Terry Nickerson
-----------------------------------------
Name: Terry Nickerson
Title: Senior Vice President, Finance and
Chief Financial Officer