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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, 2003
----------------
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
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Page 1 of Pages 30
Index is located on Page 2
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INDEX
Document Page Number
Press Release dated October 3, 2003 3
Signature Page 30
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LOGO
For more information, please contact:
Chris Evenden, Director, Public Relations
905-882-2600 xtn8107 or cevenden@ati.com
ATI Reports Fourth Quarter Financial Results
Notebook and cell phone sales lead strong results
Markham, Ontario -- October 3, 2003 -- 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 fourth quarter of its 2003 fiscal year ended August 31, 2003.
Revenues for the fourth quarter were $380.7/1/ million compared to $355.7/2/
million in the third quarter of fiscal 2003 and 70.8% higher than the same
quarter a year ago. Gross margin was 35.6%, rising 3.0 percentage points from
32.6% in the third quarter. Operating expenses, excluding amortization of
intangible assets and other charges/3/, increased $9.7 million to $99.5 million
compared to the third quarter.
Net income for the fourth quarter was $22.3 million or $0.09 per share compared
to net income of $15.0 million or $0.06 per share for the third quarter of 2003
and a net loss of $34.6 million or $0.15 per share for the same period a year
ago.
Adjusted net income/4/ for the fourth quarter was $29.0 million or $0.12 per
share compared to $20.1 million or $0.08 per share for the previous quarter, and
an adjusted net loss of $0.1 million or $0.00 per share for the same period a
year ago.
..2
/1/All dollar amounts are stated in U.S. dollars unless otherwise noted. All
per share amounts are stated on a diluted basis unless otherwise noted.
/2/Revenue, net income and net income per share and adjusted net income of prior
periods have been restated. See Note 1 to the consolidated financial statements
for an explanation of this change.
/3/The Company incurred other charges during the quarter that are not considered
to be part of the Company's normalized operations and in aggregate represent
$10.4 million. (See Note 7 to the consolidated financial statements.)
/4/Please see the table titled "Adjusted Net Income -- Reconciliation" in
Management's Discussion and Analysis of Interim Financial Results in this
release for the reconciliation between adjusted net income and net income, which
is determined in accordance with generally accepted accounting principles or
GAAP.
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"All of our product lines contributed to our revenue strength this quarter,"
said K. Y. Ho, Chairman and Chief Executive Officer, ATI Technologies Inc. "In
particular, our consumer business made a material contribution to our sales for
the first time, and all of our business areas contributed to margin growth. With
performance leadership in every PC segment and growth in our cell phone
business, we are well-positioned as we enter fiscal 2004."
"We are delivering on our four corporate strategies," said David Orton,
President and Chief Operating Officer, ATI Technologies Inc. "We have technology
leadership in both our desktop and notebook discrete segments, we have followed
up our success in notebook integrated with the introduction of our desktop
integrated chipsets, and most significantly, we've made major inroads beyond the
PC with our handheld business."
Accounting Change
During fiscal 2003, the Company reviewed its revenue recognition accounting
policy as it is applied to the shipment of products to its customers. Following
this review, the Company corrected its revenue recognition accounting policy by
revising the timing of when revenue is recognized to more clearly identify the
point in the shipping process when the risk and rewards of ownership have been
transferred to the customer. This change and the related income tax effect have
been applied retroactively. The financial statements of all prior periods
presented for comparative purposes have been restated to give effect to this
change. Details are provided in Note 1 in the accompanying financial statements.
There is no impact from this change on the fourth quarter of fiscal 2003.
Outlook
ATI expects revenues in the first quarter of fiscal 2004 to be between $400 and
$430 million. Gross margin for the first quarter, as a percentage of revenues,
is expected to be within ATI's target range of 32 - 35%. Operating expenses,
excluding amortization of intangibles and other charges, are expected to be
about the same as the fourth quarter. As a result of the above, adjusted net
income should be flat to marginally higher in the first quarter of fiscal 2004
relative to the fourth quarter of fiscal 2003.
ATI continues to be optimistic about its outlook for fiscal 2004, and
anticipates traditional seasonality, whereby the strongest quarter is the first
quarter, followed by a relatively constant to slightly weaker revenue and profit
profile until the fourth quarter.
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Operational Highlights
Subsequent to quarter end, on September 30, 2003 ATI introduced its new
enthusiast and performance mainstream desktop products, the RADEON(TM) 9800 XT
and RADEON(TM) 9600 XT. Each has a considerable performance lead in its segment,
and the RADEON 9600 XT breaks new ground as the world's first enhanced .13
micron low-k VPU (Visual Processing Unit). On the same day, ATI announced a
major co-marketing agreement with Valve(R), developers of Half-Life(R) 2. The
game, named "Best of E3", is expected to be a best-selling title and will be
bundled with RADEON 9800 XT and other high-end products. Also on September 30,
ATI announced that ASUSTek Computer Inc., the world's largest manufacturer of
add-in graphics boards, will build and market boards based on ATI VPUs.
Subsequent to quarter end, ATI acquired certain assets of AMI Technologies
Corp., its exclusive sales organization for Taiwan and China since 1992, for
cash consideration of $3.0 million. This acquisition strengthens ATI's direct
presence in the Far East - a critical and rapidly growing market.
Highlights of the fourth quarter include:
o ATI launched two new workstation products. Both the FireGL(TM) X2-256 and
FireGL(TM) T2-128 have a considerable price/performance lead in their
respective segments.
o ATI unveiled the latest in its award-winning ALL-IN-WONDER(TM) product
line, the ALL-IN-WONDER(TM) 9600 PRO.
o The first notebooks using ATI's MOBILITY(TM)RADEON(TM)9600 VPU hit the
market, stunning reviewers with their desktop-level graphics performance.
o ATI announced an agreement with Microsoft(R) for future Xbox(R) related
products, technologies and services. ATI now has future technology
agreements with two of the three major console makers.
o A major cell phone manufacturer moved into volume production of cell phones
using ATI's IMAGEON(TM) graphics processor.
o ATI started shipping its RADEON(TM) 9100 IGP at the end of the quarter to
some of the world's largest motherboard manufacturers.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL RESULTS
The following discussion and analysis should be read in conjunction with the
attached consolidated financial statements and accompanying notes that reflect
the accounting change and restatement referred to above.
Revenues
ATI's revenues for the fourth quarter relative to the third quarter and the same
period a year ago increased 7.0% and 70.8% respectively, to $380.7 million. The
increase both sequentially and year-over-year was a result of strong notebook
sales for both the Company's discrete and integrated products, sales of the
Company's consumer products, as well as growth year-over-year in the Company's
desktop products.
Gross Margin
Gross margin for the fourth quarter improved 3.0 percentage points to 35.6%
compared to the third quarter and 4.7 percentage points over the same period
last year.
The improvements were primarily a result of:
o Increased margins for board-level products reflecting the strength of the
Company's high-end products;
o Improvements in desktop chip margins largely due to higher margins from the
RADEON(TM) 9800 family of products; and
o Contribution from the Company's consumer products - particularly the
IMAGEON product - for use in cell phones.
Operating Expenses
Operating expenses, excluding the amortization of intangibles and other charges,
were $99.5 million in the fourth quarter, up from third quarter levels of $89.7
million.
The increase in expense was primarily attributable to:
o A non-recurring charge of about $6.0 million, consisting of incentive
compensation and other charges associated with the signing of a development
agreement;
o Foreign exchange impact of about $2.1 million related to the substantial
rise in the Canadian dollar relative to the US dollar; and
o A slight increase in variable sales and prototyping expenses.
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On a year-over-year basis for the fourth quarter, total operating expenses,
excluding the amortization of intangibles and other charges as a percentage of
sales, decreased slightly but increased 42.6% on an absolute basis.
The increase is primarily attributable to:
o Increased R&D investment mostly related to the Company's consumer and
desktop product groups. The increased investment includes higher
prototyping costs, headcount related expense, and tools;
o Volume related selling expense due to higher sales; and
o The expense variances noted above.
Other Charges
The Company incurred other charges during the quarter that have been excluded
from the Company's adjusted net income calculation, totaling $10.4 million.
Please see Note 7 to the consolidated financial statements for further
disclosure on the other charges.
Total Operating Expenses
Total operating expenses reflect the operating expenses detailed earlier, as
well as the amortization of intangible assets and other charges. For further
information on the treatment of the amortization of intangible assets please see
Note 2 to the consolidated financial statements.
Non-Operating Income
Interest and other income for the fourth quarter increased about $2.1 million to
$0.7 million relative to the loss of $1.4 million in the third quarter of fiscal
2003. The loss in the third quarter resulted primarily from the writedown of
fixed assets.
ATI also realized a $3.8 million gain on the sale of long-term investments
during the quarter.
Net Income
Net income for the fourth quarter was $22.3 million or $0.09 per share compared
to net income of $15.0 million or $0.06 per share for the third quarter of 2003
and a net loss of $34.6 million or $0.15 per share for the same period a year
ago.
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The sequential increase in quarterly net income was largely a result of higher
revenues and margin, partially offset by higher total operating expenses as
outlined above. On a year-over-year basis, net income for the fourth quarter
rose $56.9 million as a result of higher revenues.
Adjusted net income/5/ for the fourth quarter was $29.0 million or $0.12 per
share compared to $20.1 million or $0.08 per share for the previous quarter, and
$0.1 million or $0.00 per share for the same period a year ago. Increased
revenue and improving gross margin, somewhat offset by increased operating
expenses, were largely responsible for the increase in adjusted net income
relative to both prior periods.
Liquidity and Financial Resources
ATI's cash flow from operations was $48.1 million in the fourth quarter of
fiscal 2003, reflecting cash generation similar to the previous quarter.
Although inventory levels as of August 31, 2003 increased relative to the third
quarter of 2003, they decreased slightly when compared to August 31, 2002, when
revenues, by comparison, were materially lower. ATI believes that inventory
levels are at an appropriate level to support sales.
Receivables were $234.5 million, up $93.4 million from the end of fiscal 2002
consistent with the growth in sales over last year's fourth quarter.
As of August 31, 2003, ATI had working capital of $426.5 million, compared to
$357.6 million at August 31, 2002. The Company's cash position, including
short-term investments, grew to a new high of $350.7 million as of quarter end,
compared to $285.2 million in the third quarter. ATI's cash position increased
during the quarter as a result of positive earnings and pre-payments of $8.0
million recorded in deferred revenue associated with a development contract,
/5/Adjusted net income excludes the after-tax effect of gain on investments,
after-tax effect of other charges described in Note 7 to the consolidated
financial statements, amortization of goodwill 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.
Each of these items has been excluded from adjusted net income as they are not
considered to be part of the Company's normalized 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" at the end of this release for
the reconciliation between adjusted net income and net income which is
determined in accordance with GAAP.
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$14.4 million from the exercise of options, and $9.7 million from the sale of
long-term investments. The Company's cash position as at August 31, 2003 also
increased compared to its levels at August 31, 2002.
Intangible assets other than goodwill declined to $8.8 million at the end of the
fourth quarter of fiscal 2003, from $21.9 million at August 31, 2002. The
decline in these assets was due to continued amortization. During the first
quarter of 2003 the Company reclassified $2.3 million relating to workforce from
intangible assets to goodwill as a result of the adoption of CICA Handbook
Section 3062.
As discussed previously, beginning in the first quarter of fiscal 2003, the
Company adopted the new accounting policies relating to the treatment of
goodwill and intangible assets (CICA Handbook Section 3062) and therefore is no
longer amortizing goodwill. Goodwill, which is associated primarily with the
prior acquisition of ArtX, is currently $190.1 million and is tested for
impairment on an annual basis. The Company completed the transitional goodwill
impairment and annual assessment during the second and fourth quarter of 2003
respectively, and has determined no impairment existed.
Claims and Proceedings
On May 16, 2003, Cirrus Logic, Inc. filed in the United States District Court,
Western District of Texas, a patent infringement lawsuit against ATI
Technologies Inc. The suit claimed infringement of US Patent No. 5,841,418
issued on November 24, 1998 entitled "Dual displays having independent
resolutions and refresh rates". On October 1, 2003, ATI Technologies announced
that it had entered into a cross-license agreement with Cirrus Logic and has
settled all outstanding litigation between the companies.
Under the settlement agreement, all outstanding claims and counterclaims in both
lawsuits between Cirrus and ATI have been dismissed. In connection with the
settlement, Cirrus Logic transferred to ATI a portion of its patent portfolio
relating to the former graphics products group of its PC products division, a
business that Cirrus exited several years ago.
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Adjusted Net Income - Reconciliation
Adjusted net income excludes the after-tax effect of gain on investments,
after-tax effect of other charges described in Note 7 to the consolidated
financial statements, amortization of goodwill 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.
Each of these items has been excluded from adjusted net income as they are not
considered to be part of the Company's normalized operations. While the Company
recognizes that adjusted net income does not have any standardized meaning
according to 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.
(Thousands of US dollars, except per share amounts)
----------------------------------------------- ---- ---------------------------- ----------------------------
Three months ended Twelve months ended
August 31 August 31
2003 2002 2003 2002
(Unaudited) (Unaudited)
----------------------------------------------- ---- ---------------------------- ----------------------------
(Restated) (Restated)
Net income (loss) - GAAP basis $ 22,294 $ (34,634) $ 35,229 $ (49,079)
Amortization of intangible assets(1) 1,271 33,468 10,767 97,501
Other charges 10,440 28,724
- -
Loss (gain) on investments (3,844) 3,355 (3,876) 3,355
Tax recovery of other charges (992) (2,156)
- -
Net tax on sale of investments (152) 6 (152)
-
Deferred tax recovery of future tax liability (180) (2,090) (1,679) (3,547)
on intangible assets
----------------------------------------------- ---- ------------- -------------- -------------- -------------
Adjusted net income (loss) $ 28,989 $ (53) $ 67,015 $ 48,078
----------------------------------------------- ---- ------------- -------------- -------------- -------------
Adjusted net income per share
Basic $ 0.12 $ 0.28 $ 0.20
-
Diluted $ 0.12 $ 0.27 $ 0.19
-
----------------------------------------------- ---- ------------- -------------- -------------- -------------
Weighted average number of shares (000's):
Basic 240,647 236,848 238,251 234,895
Diluted 249,525 236,848 244,353 246,872
----------------------------------------------- ---- ------------- -------------- -------------- -------------
(1) Effective September 1, 2002, the Company no longer amortizes goodwill. See
Note 1 to the consolidated financial statements.
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Forward-looking Statements and Uncertainties
Certain statements in this release constitute "forward-looking statements." When
used in this 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 release and in the Company's
2002 Annual Report and 2002 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 today at 8:30 a.m. EDT to
discuss its financial results for the fourth quarter and year-end of its 2003
fiscal year, ended August 31, 2003. 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, 2003 Conference Calls - Q4 2003. Replays of the conference
call will be available through October 10, 2003. Please dial 416-695-5800 and
enter the passcode 1433482. 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 2003 revenues in excess of
$1.3 billion, ATI has more than 2,200 employees in the Americas, Europe and
Asia. ATI common shares trade on NASDAQ (ATYT) and the Toronto Stock Exchange
(ATY).
Copyright 2003 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:
Chris Evenden, Director, Public Relations, ATI Technologies Inc.,
at (905) 882-2600, Ext. 8107 or cevenden@ati.com
----------------
For investor relations support, please contact:
Janet Craig, Director, Investor Relations, ATI Technologies Inc.,
at (905) 882-2600, Ext. 2631 or janet@ati.com
-------------
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Financial Statements Attached
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ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(Thousands of US dollars, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Twelve months ended
August 31 August 31 August 31 August 31
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
Revenues $ 380,674 100.0% $ 222,865 100.0% $ 1,385,293 100.0% $ 1,015,779 100.0%
Cost of goods sold 245,191 64.4% 154,088 69.1% 952,001 68.7% 682,385 67.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Margin 135,483 35.6% 68,777 30.9% 433,292 31.3% 333,394 32.8%
Expenses
Selling and marketing 27,628 7.3% 18,233 8.2% 96,925 7.0% 77,920 7.7%
Research and development 61,285 16.1% 42,850 19.3% 212,976 15.4% 164,609 16.2%
Administrative 10,557 2.8% 8,672 3.9% 39,413 2.8% 35,662 3.5%
Amortization of intangible assets 1,271 0.3% 33,468 15.0% 10,767 0.8% 97,501 9.6%
Other charges (Note 7) 10,440 2.7% - - 28,724 2.1% - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
111,181 29.2% 103,223 46.4% 388,805 28.1% 375,692 37.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 24,302 6.4% (34,446) (15.5%) 44,487 3.2% (42,298) (4.2%)
Interest and other income 714 0.2% 1,321 0.6% 506 - 4,087 0.4%
Gain (loss) on investments 3,844 1.0% (3,355) (1.5%) 3,876 0.3% (3,355) (0.3%)
Interest expense (516) (0.1%) (408) (0.2%) (1,899) (0.1%) (659) (0.1%)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 28,344 7.5% (36,888) (16.6%) 46,970 3.4% (42,225) (4.2%)
Income taxes 6,050 1.6% (2,254) (1.1%) 11,741 0.9% 6,854 0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 22,294 5.9% $ (34,634) (15.5%) $ 35,229 2.5% $ (49,079) (4.8%)
Retained earnings, beginning of period 81,732 103,431 68,797 117,876
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 104,026 $ 68,797 $ 104,026 $ 68,797
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share (Note 8)
Basic $ 0.09 $ (0.15) $ 0.15 $ (0.21)
Diluted $ 0.09 $ (0.15) $ 0.14 $ (0.21)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
(000's)
Basic 240,647 236,848 238,251 234,895
Diluted 249,525 236,848 244,353 234,895
Outstanding number of shares at the end
of the quarter (000's) 241,742 236,871 241,742 236,871
- -----------------------------------------------------------------------------------------------------------------------------------
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.
13 of 30
ATI TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of US dollars)
- ---------------------------------------------------------------------- --------------------- -------------------
August 31 August 31
2003 2002
- ---------------------------------------------------------------------- --------------------- -------------------
- ---------------------------------------------------------------------- --------------------- -------------------
(Restated)
Assets
Current assets:
Cash and cash equivalents $ 300,905 $ 187,126
Short-term investments 49,784 49,801
Accounts receivable 234,548 141,126
Inventories 176,494 192,121
Prepayments and sundry receivables 31,753 21,806
Future income tax assets 3,772 3,630
- ---------------------------------------------------------------------- --------------------- -------------------
Total current assets 797,256 595,610
Capital assets 86,890 95,838
Intangible assets (Note 2) 8,811 21,858
Goodwill (Note 2) 190,095 187,815
Long-term investments 3,960 7,405
Tax credits recoverable 21,181
-
Future income tax assets 7,865 844
- ---------------------------------------------------------------------- --------------------- -------------------
- ---------------------------------------------------------------------- --------------------- -------------------
Total Assets $ 1,116,058 $ 909,370
- ---------------------------------------------------------------------- --------------------- -------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $12,015
Accounts payable 191,196 172,093
Accrued liabilities 136,709 49,421
Deferred revenue 37,669 250
Current portion of long-term debt (Note 4) 1,394 568
Future income tax liabilities - 3,459
- ---------------------------------------------------------------------- --------------------- -------------------
Total current liabilities 366,968 237,806
Long-term debt (Note 4) 28,073 15,798
Future income tax liabilities 21,408 12,588
- ---------------------------------------------------------------------- --------------------- -------------------
- ---------------------------------------------------------------------- --------------------- -------------------
Total liabilities 416,449 266,192
Shareholders' equity:
Share capital 582,454 561,477
Contributed surplus 4,855 4,630
Retained earnings 104,026 68,797
Currency translation adjustment 8,274 8,274
- ---------------------------------------------------------------------- --------------------- -------------------
- ---------------------------------------------------------------------- --------------------- -------------------
Total shareholders' equity 699,609 643,178
- ---------------------------------------------------------------------- --------------------- -------------------
- ---------------------------------------------------------------------- --------------------- -------------------
Total Liabilities and Shareholders' Equity $ 1,116,058 $ 909,370
- ---------------------------------------------------------------------- --------------------- -------------------
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.
14 of 30
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of US dollars)
- -------------------------------------------------------------- ----------------------------- -----------------------------
Three months ended Twelve months ended
August 31 August 31
2003 2002 2003 2002
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Cash provided by (used in): (Restated) (Restated)
Operating activities:
Net income (loss) $ 22,294 $ (34,634) $ 35,229 $ (49,079)
Add items not affecting working capital:
Tax credits recoverable (130) - (21,181) -
Future income taxes 720 5,083 (1,802) 1,223
Depreciation and amortization 6,276 40,037 34,705 120,422
Other charges (Note 7) - - 1,400 -
Loss (gain) on investments, net (3,844) 3,355 (3,876) 3,355
Foreign exchange loss (gain) (93) (164) 3,637 620
Net changes in non-cash working capital balances relating
to operations:
Accounts receivable (29,568) 14,910 (93,422) (23,109)
Inventories (40,064) (60,822) 15,627 (80,203)
Prepayments and sundry receivables (6,129) 1,435 (8,678) (678)
Accounts payable 33,013 46,990 19,103 91,916
Accrued liabilities 46,511 (11,005) 87,288 1,662
Deferred revenue 19,067 (88) 37,419 (104)
Income taxes payable - (7,780) - (9,083)
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
48,053 (2,683) 105,449 56,942
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Financing activities:
Increase (decrease) in bank indebtedness - (243) (12,015) 3,266
Addition to long-term debt - - 10,700 -
Principal payment on long-term debt (335) (131) (1,064) (312)
Settlement of swap contract (Note 6) - - (1,365) -
Issuance of common shares 14,373 241 20,977 12,495
Repayment of share purchase loans - 225 362
-
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
14,038 (133) 17,467 15,811
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Investing activities:
Purchase of short-term investments - - (49,784) (54,233)
Maturity of short-term investments - - 49,649 49,584
Additions to capital assets (3,667) (5,841) (16,390) (30,111)
Purchase of long-term investments (2,460) - (2,460) -
Proceeds from sale of investments 9,749 - 10,029 -
Acquisitions, net of cash acquired - (20,050) - (22,118)
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
3,622 (25,891) (8,956) (56,878)
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Foreign exchange loss on cash held in foreign currency (266) (175) (181) (204)
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Increase (decrease) in cash and cash equivalents 65,447 (28,882) 113,779 15,671
Cash and cash equivalents - beginning of period 235,458 216,008 187,126 171,455
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Cash and cash equivalents - end of period 300,905 187,126 300,905 187,126
Short-term investments 49,784 49,801 49,784 49,801
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
Cash position - end of period $ 350,689 $ 236,927 $ 350,689 $ 236,927
- -------------------------------------------------------------- ------------- --------------- -------------- --------------
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.
15 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(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 the Asia-Pacific region.
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 the CICA Handbook Section
3870, "Stock-based Compensation and Other Stock-based Payments", 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. 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 11
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:
Effective September 1, 2002, the Company fully adopted The Canadian
Institute of Chartered Accountants' ("CICA") Handbook Sections 1581,
"Business Combinations", and 3062, "Goodwill and Other Intangible Assets".
From that date, the Company discontinued amortization of all existing
goodwill. The Company 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.
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 completed the transitional
goodwill impairment assessment during the second quarter of 2003 and has
determined that no impairment existed as of September 1, 2002.
16 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) CICA Handbook Section 1581, Business Combinations, and Section 3062,
Goodwill and Other Intangible Assets (continued):
Upon adopting these standards on September 1, 2002, the Company is required
to evaluate goodwill annually or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Impairment is tested at the reporting unit level by comparing the reporting
unit's carrying value to its fair value. The fair values of the reporting
units are estimated using a discounted cash flow approach. To the extent a
reporting unit's carrying amount exceeds its fair value, an impairment of
goodwill exists. Impairment is measured by comparing the fair value of
goodwill, determined in a manner similar to a purchase price allocation, to
its carrying amount. During the fourth quarter of fiscal 2003, the Company
performed its annual goodwill impairment test in accordance with the new
goodwill standards of Section 3062 and determined that there was no
occurrence of goodwill impairment in fiscal 2003.
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 Twelve months ended
August 31 August 31
(Thousands of US dollars, except per share amounts) 2003 2002 2003 2002
---------------------------------------------------------- ------------ ------------- ------------ -------------
---------------------------------------------------------- ------------ ------------- ------------ -------------
(Restated) (Restated)
Net income (loss) $ 22,294 $ (34,634) $ 35,229 $ (49,079)
Add back: goodwill amortization - 15,727 - 74,014
---------------------------------------------------------- ------------ ------------- ------------ -------------
---------------------------------------------------------- ------------ ------------- ------------ -------------
Net income (loss) before goodwill amortization $ 22,294 $ (18,907) $ 35,229 $ 24,935
---------------------------------------------------------- ------------ ------------- ------------ -------------
---------------------------------------------------------- ------------ ------------- ------------ -------------
Basic net income (loss) per share:
Net income (loss) $ 0.09 $ (0.15) $ 0.15 $ (0.21)
Net income (loss) before goodwill amortization 0.09 (0.08) 0.15 0.11
Diluted net income (loss) per share:
Net income (loss) $ 0.09 $ (0.15) $ 0.14 $ (0.21)
Net income (loss) before goodwill amortization 0.09 (0.08) 0.14 $ 0.10
---------------------------------------------------------- ------------ ------------- ------------ -------------
During the fourth quarter, the Company performed its annual goodwill
impairment test in accordance with the new goodwill standards, Section 3062
and determined that there was no occurrence of goodwill impairment in the
fiscal year of 2003.
17 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c) During fiscal 2003, the Company reviewed its revenue recognition
accounting policy as it is applied to the shipment of products to its
customers. Following this review, the Company corrected its revenue
recognition accounting policy by revising the timing of when revenue is
recognized to more clearly identify the point in the shipping process
when the risks and rewards of ownership have been transferred to the
customer. This change, and the related income tax effect, have been
applied retroactively. The financial statements of all prior periods
presented for comparative purposes have been restated to give effect to
this change.
The impact of this change on prior years is as follows:
(Thousands of US dollars, except per share amounts)
-------------------------------------------- -------------------- -------------------- -------------------
Three months ended Twelve months ended Twelve months
ended
August 31, 2002 August 31, 2002 August 31, 2001
-------------------------------------------- -------------------- -------------------- -------------------
-------------------------------------------- -------------------- -------------------- -------------------
Revenue
As previously reported $ 239,480 $ 1,021,722 $ 1,037,809
As restated 222,865 1,015,779 1,040,365
Net loss
As previously reported $ (32,156) $ (47,465) $ (54,205)
As restated (34,634) (49,079) (53,789)
Net loss per share
Basic and diluted:
As previously reported $ (0.14) $ (0.20) $ (0.23)
As restated (0.15) (0.21) (0.23)
-------------------------------------------- -------------------- -------------------- -------------------
For the year ended August 31, 2003, as a result of this change, revenue,
net income, basic net income per share and diluted net income per share
have been increased by $22.0 million, $3.8 million, $0.02 basic and $0.01
diluted per share, respectively. Opening retained earnings for the
Company's 2001 financial year has been decreased by $2.7 million to give
effect to this change.
18 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) The impact of this change on each of the first three quarters of fiscal
2003 is as follows:
(Thousands of US dollars, except per share amounts)
--------------------------------- ------------------ ------------------ ------------------
Three months Three months Three months
ended ended ended
November 30, 2002 February 28, 2003 May 31, 2003
--------------------------------- ------------------ ------------------ ------------------
--------------------------------- ------------------ ------------------ ------------------
Revenue
As previously reported $ 322,020 $ 318,482 $ 342,131
As restated 335,436 313,492 355,691
Net income (loss)
As previously reported $ 4,988 $ (8,337) $ 12,435
As restated 7,344 (9,417) 15,008
Net income (loss) per share
Basic and diluted:
As previously reported 0.02 (0.04) 0.05
As restated 0.03 (0.04) 0.06
--------------------------------- ------------------ ------------------ ------------------
This change had no impact on the quarter ended August 31, 2003.
19 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
2. GOODWILL AND INTANGIBLE ASSETS
The net book values of goodwill and intangible assets acquired at August 31,
2003 and August 31, 2002 are as follows :
------------------------------------- --------------- ----------------- -------------- --------------------
Cost Accumulated Net book Net book value
amortization value
(Thousands of US dollars) August 31, 2003 August 31, 2002
------------------------------------- ------------------------------------------------ --------------------
------------------------------------- --------------- ----------------- -------------- --------------------
Purchased in-process R & D $ 56,250 $ 56,250 $ 4,417
$ -
Workforce - - 2,280
-
Core technology 31,144 22,333 8,811 15,161
------------------------------------- --------------- ----------------- -------------- --------------------
------------------------------------- --------------- ----------------- -------------- --------------------
Total intangible assets $ 87,394 $ 78,583 $ 8,811 $ 21,858
------------------------------------- --------------- ----------------- -------------- --------------------
------------------------------------- --------------- ----------------- -------------- --------------------
Goodwill $ 376,788 $ 186,693 $ 190,095 $ 187,815
------------------------------------- --------------- ----------------- -------------- --------------------
Amortization expense related to intangible assets amounted to $ 1.3 million and
$ 10.8 million for the three months and twelve months ended August 31, 2003
respectively (2002: $2.6 million and $9.0 million). Amortization expense related
to goodwill was nil for the three months and twelve months ended August 31, 2003
(2002 - $15.5 million and $73.1 million).
3. CREDIT FACILITY
The Company maintains demand bank credit facilities aggregating $25.4 million
with a single financial institution. There are no borrowings outstanding under
these facilities.
4. LONG-TERM DEBT
------------------------------------------------------- ------------ ---------------- -----------------
(Thousands of US dollars) Interest August 31 August 31 2002
rate 2003
------------------------------------------------------- ------------ ---------------- -----------------
Obligation under capital lease (i) 6.31% $ 17,785 $ 16,366
Mortgage payable (ii) 6.96% 11,682
-
------------------------------------------------------- ------------ ---------------- -----------------
------------------------------------------------------- ------------ ---------------- -----------------
$ 29,467 16,366
Current portion of long-term debt 1,394 568
------------------------------------------------------- ------------ ---------------- -----------------
------------------------------------------------------- ------------ ---------------- -----------------
Total $ 28,073 $ 15,798
------------------------------------------------------- ------------ ---------------- -----------------
20 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
4. LONG-TERM DEBT (CONTINUED)
(i) Obligation under capital lease :
The Company's obligation under capital lease represents the lease on
the building facility occupied by the Company in Markham, Ontario
("Building Facility").
(ii) Mortgage payable :
On September 10, 2002, Commerce Valley Realty Holding Inc. ("CVRH"), a
joint venture in which the Company has a 50 per cent ownership
interest, entered into a mortgage agreement with a lender to finance
the Building Facility. The Company's proportionate share of the
mortgage as at August 31, 2003 amounted to $11.7 million (Cdn. $16.2
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.
5. GUARANTEE
The Company and other owners of CVRH have jointly and severally provided a
guarantee for the mortgage payment of the Building Facility. 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 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 August 31, 2003, the outstanding amount
of the mortgage stood at $23.4 million (Cdn. $32.4 million).
In addition, the Company posted a letter of credit in the amount $2.2 million
(Cdn. $3.0 million) in favour of CVRH. CVRH has assigned this letter of credit
to 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.
6. 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. 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.
21 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
7. OTHER CHARGES
Other charges are comprised of the following items:
(Thousands of US dollars)
------------------------------------------------------------ -------------------- --------------------
Three months ended Twelve months ended
August 31, 2003 August 31, 2003
------------------------------------------------------------ -------------------- --------------------
------------------------------------------------------------ -------------------- --------------------
Settlement of class action lawsuits (i) $ (3,330) $ 4,670
Regulatory matters (ii) 728 5,828
Restructuring charge - European operations (iii) 3,777 6,542
Lease exit charge (iv) 265 2,684
Settlement of patent litigation with Cirrus Logic, Inc. (v) 9,000 9,000
------------------------------------------------------------ -------------------- --------------------
------------------------------------------------------------ -------------------- --------------------
Total $ 10,440 $ 28,724
------------------------------------------------------------ -------------------- --------------------
(i) Settlement of class action lawsuits
On February 7, 2003, the Company announced that it had reached an
agreement for the full and complete settlement of all remaining claims
alleged in the shareholder class action lawsuits filed in May 2001 in
the United States District Court for the Eastern District of
Pennsylvania for a cash payment of $8.0 million. This litigation
relates to alleged misrepresentations and omissions made by the Company
and certain directors and officers during a period preceding its May
2000 earnings warning. The terms of the Stipulation and Agreement of
Settlement received final court approval on April 25, 2003 included no
admission of liability or wrongdoing by the Company or other
defendants. No party timely appealed from the Court's order.
During the fourth quarter of fiscal 2003, the Company received $3.3
million from its insurer as its contribution towards the settlement.
(ii) Regulatory Matters
In January 2003, the Company announced that Staff of the Ontario
Securities Commission ("OSC") had filed a Notice of Hearing and
Statement of Allegations ("Notice") in relation to ATI and others. The
Notice alleged that ATI failed to disclose information concerning the
shortfall in revenues and earnings that occurred in the third quarter
of fiscal 2000, as required by the listing rules of the Toronto Stock
Exchange. The Notice also alleged that ATI made a misleading statement
to Staff of the Commission in August 2000 regarding the events leading
up to the disclosure on May 24, 2000 of the shortfall. Seven
individuals are also named in the Notice. The Notice alleged that six
of these individuals, including K.Y. Ho, the Chairman and Chief
Executive Officer of the Company, engaged in insider trading contrary
to the Securities Act. The Board of Directors set up a special
committee and retained advisors to conduct an independent review of the
concerns raised by OSC staff. A hearing date has now been set for
February - March 2004.
22 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
7. OTHER CHARGES (CONTINUED)
(ii) Regulatory Matters (continued)
The Company has incurred external charges in connection with this
matter totaling $0.7 million and $5.8 million during the three months
and twelve months ended August 31, 2003 respectively.
(iii) Restructuring charge - European operations
The following table details the activity through the restructuring
liabilities accrual:
(Thousands of US dollars)
------------------------------------------------ ------------------- ------------------
Three months ended Twelve months
ended
August 31, 2003 August 31, 2003
------------------------------------------------ ------------------- ------------------
Balance, opening $ 1,127 $
Provision 3,777 5,142
Cash payments (658) (896)
------------------------------------------------ ------------------- ------------------
------------------------------------------------ ------------------- ------------------
Balance at August 31, 2003 $ 4,246 $ 4,246
------------------------------------------------ ------------------- ------------------
(a) During the second quarter, the Company announced the closure of
ATI Technologies (Europe) Limited ("ATEL"), its subsidiary in
Dublin, Ireland. The Company has shifted its European business
model from direct selling to marketing its graphic chip technology
to original design manufacturers and add-in-board partners serving
European original equipment manufacturers, system builders and
distribution channels. The transition has resulted in the
redundancy of the operations in Dublin.
The Company recorded a pre-tax charge of $2.8 million related to
the closure of ATEL in the second quarter of Fiscal 2003. The
following table details the components of the charge:
(Thousands of US dollars)
------------------------------------------- ------------------- ------------------
Three months ended Twelve months
ended
August 31, 2003 August 31, 2003
------------------------------------------- ------------------- ------------------
Exit and other costs $ 1,365
$ -
Asset impairment (non-cash) 1,400
-
------------------------------------------- ------------------- ------------------
------------------------------------------- ------------------- ------------------
Total $ 2,765
$ -
------------------------------------------- ------------------- ------------------
23 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
7. OTHER CHARGES (CONTINUED)
(iii) Restructuring charge - European operations (continued)
(a) The asset impairment is due to the write-down of the
building facility in Dublin, Ireland to fair value less
cost to sell. The building facility in Dublin, which has a
fair value of $1.9 million, is included in the capital
assets for financial statement presentation purposes.
The Company completed the major components of its exit
plan for ATEL in July 2003 and expects to pay out the cash
portion of the restructuring charge by September 2003.
(b) During the fourth quarter, the Company decided to
discontinue the operations of ATI Research GMBH, its
FireGL product division located in Starnberg, Germany, in
order to consolidate its research and development
activities. As a result, the Company recorded a pre-tax
charge of $3.8 million for the quarter pertaining to the
closure of ATI Research GMBH.
The Company expects to complete the major components of
its exit plan for ATI Research GMBH by December 2003.
(iv) Lease exit charge
During the second quarter, the Company determined that it
would exit certain leased properties located in Markham,
Ontario. As a result, the Company recognized the fair
value of the future net costs related to the leases in the
amount of $2.4 million as a charge for the second quarter.
During the fourth quarter, the Company recorded an
additional charge of $0.3 million related to the exit
costs of the above-mentioned lease properties due to a
change in estimate of the fair value of the future net
costs.
(v) Settlement of patent litigation with Cirrus Logic, Inc.
In May 2003, Cirrus Logic, Inc. ("Cirrus") brought suit
against the Company in the United States District Court for
the Western District of Texas, Austin Division, for
infringement of a Cirrus patent relating to graphics
processor technology. In addition, a separate patent
infringement suit relating to a different Cirrus patent
has been pending in the United States District Court for
the Northern District of California, San Francisco
Division, since July 1998.
Subsequent to the year end, the Company and Cirrus announced
that they have entered into a cross-license agreement and
have settled all outstanding litigation between the
Companies.
Under the settlement agreement, all outstanding claims and
counterclaims in both lawsuits between the Company and
Cirrus were dismissed. In connection with the settlement,
Cirrus will transfer to the Company a portion of its patent
portfolio relating to the former graphics products group of
its PC products division, a business that Cirrus exited
several years ago, and the Company will pay Cirrus $9
million.
24 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
8. 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 net income (loss) per share:
--------------------------------------------------------- --------------------------- ---------------------------
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars, except per share amounts) 2003 2002 2003 2002
--------------------------------------------------------- --------------------------- ---------------------------
(Restated) (Restated)
Net income (loss) $ 22,294 $ (34,634) $ 35,229 $ (49,079)
--------------------------------------------------------- ------------- ------------- ------------- -------------
--------------------------------------------------------- --------------------------- ------------- -------------
Weighted average number of common shares outstanding:
Basic 240,647 236,848 238,251 234,895
Effect of stock options 8,878 - 6,102 -
--------------------------------------------------------- ------------- ------------- ------------- -------------
--------------------------------------------------------- ------------- ------------- ------------- -------------
Diluted 249,525 236,848 244,353 234,895
--------------------------------------------------------- ------------- ------------- ------------- -------------
--------------------------------------------------------- --------------------------- ------------- -------------
Net income (loss) per share:
Basic $ 0.09 $ (0.15) $ 0.15 $ (0.21)
Diluted 0.09 (0.15) 0.14 (0.21)
--------------------------------------------------------- ------------- ------------- ------------- -------------
25 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
9. SUPPLEMENTAL CASH FLOW INFORMATION
--------------------------------------------------------- -------------------------- --------------------------
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars) 2003 2002 2003 2002
--------------------------------------------------------- -------------------------- --------------------------
Cash paid for:
Interest $ 485 $ 484 $ 1,739 $ 573
Income taxes 96 98 2,127 893
Interest received $ 610 $ 724 $ 2,902 $ 4,889
Non-cash investing and financing activities:
Acquisition of building through capital lease - - - $ 16,262
--------------------------------------------------------- ------------- ------------ ------------ -------------
26 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
10. SEGMENTED INFORMATION
The Company operates in one primary 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. The
breakdown in revenues by geographic area in the following table represent the
geographic region where the revenue is booked:
------------------------------------------------------ --------------------------- ----------------------------
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars) 2003 2002 2003 2002
------------------------------------------------------ ------------- ------------- ------------- --------------
------------------------------------------------------ --------------------------- ----------------------------
(Restated) (Restated)
Revenues:
Canada $ 5,076 $ 2,699 $ 20,065 $ 15,441
United States 55,615 60,689 258,545 290,575
Europe 21,800 23,880 113,193 154,712
Asia-Pacific 298,183 135,597 993,490 555,051
------------------------------------------------------ ------------- ------------- ------------- --------------
------------------------------------------------------ ------------- ------------- ------------- --------------
Consolidated revenues $ 380,674 $ 222,865 $ 1,385,293 $ 1,015,779
------------------------------------------------------ ------------- ------------- ------------- --------------
------------------------------------------------------ --------------------------- ------------- --------------
Product revenues:
Components $ 299,428 $ 131,231 $ 962,735 $ 537,756
Boards 77,682 83,191 397,533 450,008
Others 3,564 8,443 25,025 28,015
------------------------------------------------------ ------------- ------------- ------------- --------------
------------------------------------------------------ ------------- ------------- ------------- --------------
Consolidated revenues $ 380,674 $ 222,865 $ 1,385,293 $ 1,015,779
------------------------------------------------------ ------------- ------------- ------------- --------------
------------------------------------------------------ --------------------------- ------------- --------------
Capital assets, intangible assets and goodwill:
Canada $ 74,332 $ 78,842
United States 208,764 220,811
Europe 2,277 4,644
Asia-Pacific 423 1,214
------------------------------------------------------ ------------- ------------- ------------- --------------
------------------------------------------------------ ------------- ------------- ------------- --------------
Consolidated capital assets, intangible assets and
goodwill $ 285,796 $ 305,511
------------------------------------------------------ ------------- ------------- ------------- --------------
27 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
11. STOCK-BASED COMPENSATION
For stock options granted to employees after September 1, 2002, 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 Twelve months ended
(Thousands of US dollars, except per share amount) August 31, 2003 August 31, 2003
============================================================
------------------------------------------------------------ ------------------------ -------------------------
Net income for the period, as reported $ 22,294 $ 35,229
Pro forma adjustment for stock-based compensation (205) (525)
------------------------------------------------------------ ------------------------ -------------------------
------------------------------------------------------------ ------------------------ -------------------------
Pro forma net income $ 22,089 $ 34,704
------------------------------------------------------------ ------------------------ -------------------------
------------------------------------------------------------ ------------------------ -------------------------
Pro forma net income per share:
Basic $ 0.09 $ 0.15
Diluted $ 0.09 $ 0.14
------------------------------------------------------------ ------------------------ -------------------------
The weighted average estimated fair values at the date of grant for the stock
options granted for the twelve months ended August 31, 2003 was $2.65 per share.
No options were issued in the three months ended August 31, 2003. 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:
---------------------------------------------------------------------- -------------------------
Twelve months ended
August 31, 2003
---------------------------------------------------------------------- -------------------------
Risk-free interest rate 3.1%
Dividend yield 0.0%
Volatility factor of the expected market price of the Company's
common shares 71.1%
Weighted average expected life of the options 4.15 years
---------------------------------------------------------------------- -------------------------
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.
28 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
12. 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 Twelve months ended
August 31 August 31
(Thousands of US dollars, except per share amounts) 2003 2002 2003 2002
-------------------------------------------------------- ------------ ------------- ------------- -------------
(Restated) (Restated)
Net income (loss) in accordance with Canadian GAAP $ 22,294 $ (34,634) $ 35,229 $ (49,079)
Tax effect of stock options exercised (1,704) (60) (2,083) (1,868)
Loss on hedging transactions 28 - 94 (1,365)
Write-off of purchased in-process R & D - (5,300) - (5,300)
Amortization of purchased in-process research and 442 883 4,417
development 883
Goodwill amortization difference - 6,135 - 7,941
Stock compensation expenses (i), (ii) (21,879) 4,738 (25,486) 997
Restructuring charges not yet incurred (270) - - -
-------------------------------------------------------- ------------ ------------- ------------- -------------
-------------------------------------------------------- ------------ ------------- ------------- -------------
Net income (loss) in accordance with U.S. GAAP $ (1,089) $ (28,238) $ 12,171 $ (47,791)
-------------------------------------------------------- ------------ ------------- ------------- -------------
-------------------------------------------------------- ------------ ------------- ------------- -------------
Net income (loss) per share:
Basic $ (0.00) $ (0.12) $ 0.05 $ (0.20)
Diluted $ (0.00) $ (0.12) $ 0.05 $ (0.20)
-------------------------------------------------------- ------------ ------------- ------------- -------------
-------------------------------------------------------- ------------ ------------- ------------- -------------
Weighted average number of shares (000's):
Basic 240,647 236,848 238,251 234,895
Diluted 240,647 236,848 244,353 234,895
-------------------------------------------------------- ------------ ------------- ------------- -------------
29 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
(Unaudited)
12. U.S. GAAP (CONTINUED)
(i) 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 no equivalent requirement.
(ii)Under U.S. GAAP, the intrinsic value of the stock options issued under
an incentive plan entered into in July 2002 is calculated as the
increase in the Company's stock price between the grant date and the
date on which all the conditions of the incentive plan were met. This
expense is amortized over the vesting period of the options. Under
Canadian GAAP, there is no equivalent requirement.
13. SUBSEQUENT EVENT
On September 2, 2003, the Company announced the acquisition of certain assets of
AMI Technologies Corp., its sales organization for Taiwan and China for cash
consideration of $3.0 million.
30 of 30
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 3, 2003 By: //Terry Nickerson//
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Name: Terry Nickerson
Title: Senior Vice President, Finance and
Chief Financial Officer