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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 December, 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
-------------- ---------------
Page 1 of 25 Pages
Index is located on Page 2
2 of 25
INDEX
Document Page Number
- -------- -----------
Press Release dated December 19, 2003 3
Signature Page 25
ATI Reports Record Revenues in the First Quarter 3 of 25
[ATI Technologies LOGO]
For more information, please contact:
Chris Evenden, Director, Public Relations
905-882-2600 xtn 8107 or cevenden@ati.com
----------------
ATI Reports Record Revenues in the First Quarter
Markham-- December 19, 2003-- ATI Technologies Inc. (TSX: ATY, NASDAQ: ATYT),
today announced its financial results for the first quarter of fiscal 2004,
ending November 30, 2003. ATI reported record revenues(1) of U.S. $469.7
million, a 40% increase relative to the first quarter of fiscal 2003. Gross
margin showed continued strength at 35.9%. Net income per share for the quarter
was $0.19 compared to $0.03 for the same period last year. Adjusted net
income(2) per share for the quarter was $0.19.
Strong performance in desktop discrete products, based on increasing penetration
of the add-in-board and system integrator (SI) channel led the revenue growth.
Gross margin percentage showed continued strength throughout the quarter based
on ATI's competitive product line-up.
Other highlights included: initiating volume shipments of desktop integrated
graphics processors; sampling the world's first PCI Express video processor in
anticipation of the PC market transition in 2004; and continuing volume
shipments of the IMAGEON multimedia coprocessor.
"Product leadership is enabling ATI to win new customers and penetrate new
markets today," said KY Ho, Chairman and Chief Executive Officer of ATI. "Our
focused execution on delivering our product roadmap is attracting new channel
partners and establishing broader distribution for the future."
- ---------------------------
(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) 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.
ATI Reports Record Revenues in the First Quarter 4 of 25
Outlook
Based on the strength of the Company's product line, increased SI channel
penetration, and an improving PC market, the Company anticipates that its
results for the second quarter of fiscal 2004 will be stronger than typical
seasonality. ATI expects revenues to be in the range of $430 - $470 million.
Gross margin, as a percentage of revenues, is expected to be in the upper half
of its target range of 32 - 35%. Operating expenses, excluding amortization of
intangible assets and other charges, are expected to be approximately the same
as the first quarter of fiscal 2004.
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.
Revenues
- --------
ATI's revenues for the first quarter of fiscal 2004 were $469.7 million, a 23%
increase over the fourth quarter of fiscal 2003 and a 40% increase over the
first quarter a year ago.
The increase in revenues compared to the fourth quarter of 2003 was primarily
due to increased shipments of desktop discrete products.
The increase in revenues compared to the first quarter a year ago was the result
of increased sales of ATI's desktop discrete products; greater penetration of
AIB and ODM channels; improved sales of notebook discrete and integrated
processors due to continued growth of the notebook market and a growing
contribution from the consumer business.
Gross Margin
- ------------
Gross margin for the first quarter improved 30 basis points to 35.9% of revenues
compared to the fourth quarter of fiscal 2003 and increased by 8.7 percentage
points over the same period last year. Gross margin grew compared to the same
period last year as a result of improved margins on sales of desktop discrete,
notebook integrated and consumer products. Gross margin in the first quarter of
fiscal 2003 was also negatively affected by a writedown in inventory, as well as
a slower than anticipated transition in the implementation of cost reductions
during the quarter.
ATI Reports Record Revenues in the First Quarter 5 of 25
Operating Expenses
- ------------------
Operating expenses, excluding the amortization of intangibles and other charges,
were $106.7 million in the first quarter, up from $99.5 million in the fourth
quarter of fiscal 2003, and up from $79.9 million in the first quarter a year
ago. Operating expenses in the fourth quarter of fiscal 2003 included a
non-recurring charge of approximately $6.0 million, consisting of incentive
compensation and other expenses associated with the signing of a development
agreement.
The increase relative to the prior quarter was largely the result of an increase
in expenses related to the Company's recently adopted Restricted Share Unit
(RSU) program. A component of the program was a one-time cash payment to
non-executive employees. Expenses during the first quarter also reflected higher
CAD-related licensing fees, higher advertising and marketing expenditures as
well as incentive-based compensation expenses.
The increase in operating expenses relative to the first quarter of fiscal 2003
was largely due to the factors noted above as well as an increase in staffing
levels to support the Company's growth and the impact of foreign currency
exchange resulting from the rise of the Canadian dollar relative to the U.S.
dollar. A substantial portion of the Company's operating expenses are incurred
in Canadian dollars.
Other Charges
- -------------
The Company incurred other charges during the quarter that have been excluded
from the Company's adjusted net income calculation totaling $0.2 million. Please
see Note 7 to the consolidated financial statements for further disclosure.
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 3 to the consolidated financial statements.
Interest and Other Income (Loss)
- --------------------------------
Interest and other income recorded a loss of $1.8 million in the first quarter
compared to a gain of $0.7 million in the fourth quarter of fiscal 2003, and a
gain of $0.5 million for the same period a year ago, due to the writedown of
fixed assets.
ATI Reports Record Revenues in the First Quarter 6 of 25
Net Income
- ----------
Net income in the first quarter of fiscal 2004 was $47.4 million or $0.19 per
share compared to net income of $22.3 million or $0.09 per share for the fourth
quarter of fiscal 2003 and net income of $7.3 million or $0.03 per share for the
first quarter last year.
The increase in net income sequentially was primarily the result of higher
revenues and gross margin. The $40.1 million increase in net income compared to
the same period a year ago was primarily due to higher revenues and gross
margin, partly offset by higher total operating expenses.
Adjusted net income(3) for the first quarter was $49.0 million or $0.19 per
share compared to $29.0 million or $0.12 per share for the previous quarter and
$9.3 million or $0.04 per share recorded in the same period last year. Increased
revenues and associated gross margin, partly offset by higher operating
expenses, were largely responsible for the increase in adjusted net income
relative to both comparative periods.
Liquidity and Financial Resources
Inventory levels increased to $224.6 million at the end of the first quarter of
2004 from $176.5 million at the end of the fourth quarter of fiscal 2003. Higher
inventory levels generally reflect the higher current level of sales.
Receivables were $269.0 million at the end of the first quarter, up $34.4
million from the end of fiscal 2004, consistent with the increase in sales in
the quarter.
- ------------------------
(3) 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 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.
ATI Reports Record Revenues in the First Quarter 7 of 25
As of November 30, 2003, ATI had working capital of $478.9 million, compared to
$430.3 million at August 31, 2003. ATI's cash flow from operations was $37.3
million in the first quarter of fiscal 2004. The Company's cash position,
including short-term investments, was $380.0 million as of quarter-end, compared
to $350.7 million at the end of fiscal 2003. ATI's cash position increased as a
result of an increase in earnings, offset by purchases of shares related to the
recently adopted RSU program.
Intangible assets other than goodwill increased slightly to $10.1 million at the
end of the first quarter of fiscal 2004, from $8.8 million at August 31, 2003.
The increase in these assets was due to the acquisition of AMI Technologies
Inc., of which $2.9 million of the purchase price was allocated to intangible
assets.
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, after-tax effect of
other charges, amortization of intangible assets related to the Company's
acquisitions, and deferred tax recovery of future tax liability pertaining to
intangible assets acquired, related to the Company's acquisitions.
(Thousands of US dollars, except per share amounts)
--------------------------------------------------------------------------------------------
Three months ended
November 30
2003 2002
(Unaudited)
--------------------------------------------------------------------------------------------
(Restated)
Net income - GAAP basis $ 47,439 $ 7,344
Amortization of intangible assets 1,542 3,165
Other charges 173 -
Gain on investments - (32)
Tax recovery of other charges (62) -
Net tax on sale of investments - 6
Deferred tax recovery of future tax liability on intangible assets (132) (1,141)
--------------------------------------------------------------------------------------------
Adjusted net income $ 48,960 $ 9,342
--------------------------------------------------------------------------------------------
Adjusted net income per share
Basic $ 0.20 $ 0.04
Diluted $ 0.19 $ 0.04
--------------------------------------------------------------------------------------------
Weighted average number of shares (000's):
Basic 242,998 236,947
Diluted 253,792 243,298
--------------------------------------------------------------------------------------------
ATI Reports Record Revenues in the First Quarter 8 of 25
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
2003 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 growth or
declines 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 and reduced gross margins 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 or lack of acceptance by customers of these products,
delays in manufacturing, unfavourable manufacturing yields or capacity
shortfalls 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 results today, Friday, December 19, 2003 at 8:30
AM (EDT) (5:30 AM Pacific, 6:30 AM Mountain, 7:30 AM Central). 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, 2004 Conference Calls - Q1 2004. Replays of the conference
call will be available through December 26, 2003. Replay information is as
follows: Replay: 416-695-5800 Passcode: 1494142. 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
-------------
-30-
-FINANCIAL STATEMENTS ATTACHED-
9 of 25
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(Thousands of US dollars, except per share amounts)
- -----------------------------------------------------------------------------------------------
Three months ended
November 30 November 30
2003 2002
- -----------------------------------------------------------------------------------------------
(Restated)
Revenues $ 469,705 100.0% $ 335,436 100.0%
Cost of goods sold 301,083 64.1% 244,251 72.8%
- ----------------------------------------------------------------------------------------------
Gross margin 168,622 35.9% 91,185 27.2%
Expenses
Selling and marketing 31,246 6.7% 22,247 6.6%
Research and development 63,793 13.6% 48,450 14.4%
Administrative 11,607 2.5% 9,212 2.8%
Amortization of intangible assets 1,542 0.3% 3,165 1.0%
Other charges (Note 7) 173 - - -
- ----------------------------------------------------------------------------------------------
108,361 23.1% 83,074 24.8%
- ----------------------------------------------------------------------------------------------
Income from operations 60,261 12.8% 8,111 2.4%
Interest and other income (loss) (1,754) (0.4%) 540 0.2%
Gain on investments - - 32 -
Interest expense (515) (0.1%) (426) (0.1%)
- ----------------------------------------------------------------------------------------------
Income before income taxes 57,992 12.3% 8,257 2.5%
Income taxes 10,553 2.2% 913 0.3%
- ----------------------------------------------------------------------------------------------
Net income $ 47,439 10.1% $ 7,344 2.2%
Retained earnings, beginning of period 104,026 68,797
- ----------------------------------------------------------------------------------------------
Retained earnings, end of period $ 151,465 $ 76,141
- ----------------------------------------------------------------------------------------------
Net income per share (Note 8)
Basic $ 0.20 $ 0.03
Diluted $ 0.19 $ 0.03
- ----------------------------------------------------------------------------------------------
Weighted average number of shares (000's)
Basic 242,998 236,947
Diluted 253,792 243,298
Outstanding number of shares at the end of the quarter
(000's) 242,771 236,989
- ----------------------------------------------------------------------------------------------
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, 2003.
10 of 25
ATI TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of US dollars)
- ------------------------------------------------------------------ -------------
November 30 August 31
2003 2003
- ------------------------------------------------------------------ -------------
(audited)
Assets
Current assets:
Cash and cash equivalents $ 379,977 $ 300,905
Short-term investments - 49,784
Accounts receivable 268,990 234,548
Inventories 224,607 176,494
Prepayments and sundry receivables 25,366 31,753
Future income tax assets 4,415 3,772
- ------------------------------------------------------------------ -------------
Total current assets 903,355 797,256
Capital assets 82,711 86,890
Intangible assets (Note 3) 10,131 8,811
Goodwill (Note 3) 190,095 190,095
Long-term investments 3,960 3,960
Tax credits recoverable 18,964 21,181
Future income tax assets 8,373 7,865
- ------------------------------------------------------------------ -------------
Total Assets $ 1,217,589 $ 1,116,058
- ------------------------------------------------------------------ -------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 229,885 $ 191,196
Accrued liabilities 152,278 136,709
Deferred revenue 40,773 37,669
Current portion of long-term debt (Note 5) 1,511 1,394
- ------------------------------------------------------------------ -------------
Total current liabilities 424,447 366,968
Long-term debt (Note 5) 29,538 28,073
Future income tax liabilities 21,981 21,408
- ------------------------------------------------------------------ -------------
Total liabilities 475,966 416,449
Shareholders' equity:
Share capital 598,458 582,454
Treasury stock (Note 11) (22,100) -
Contributed surplus 5,526 4,855
Retained earnings 151,465 104,026
Currency translation adjustment 8,274 8,274
- ------------------------------------------------------------------ -------------
Total shareholders' equity 741,623 699,609
- ------------------------------------------------------------------ -------------
Total Liabilities and Shareholders' Equity $ 1,217,589 $ 1,116,058
- ------------------------------------------------------------------ -------------
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, 2003.
11 of 25
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of US dollars)
- ---------------------------------------------------------------------------------------------------
Three months ended
November 30
2003 2002
- ---------------------------------------------------------------------------------------------------
(Restated)
Cash provided by (used in):
Operating activities:
Net income $ 47,439 $ 7,344
Add items not affecting working capital:
Tax credits recoverable 2,217 (4,536)
Future income taxes (578) (635)
Stock based compensation 671 -
Depreciation and amortization 6,602 9,243
Gain on investments - (32)
Gain on sale of long-lived assets (Note 7) (538) -
Foreign exchange loss 1,331 182
Net changes in non-cash working capital balances relating to operations:
Accounts receivable (34,442) (63,756)
Inventories (48,113) 13,179
Prepayments and sundry receivables 6,387 (504)
Accounts payable 38,689 (3,084)
Accrued liabilities 14,527 11,607
Deferred revenue 3,104 (124)
- ---------------------------------------------------------------------------------------------------
37,296 (31,116)
- ---------------------------------------------------------------------------------------------------
Financing activities:
Decrease in bank indebtedness - (12,015)
Addition to long-term debt - 10,709
Principal payment on long-term debt (344) (137)
Settlement of swap contract - (1,365)
Issuance of common shares 16,004 293
Repurchase of common shares (Note 11) (22,100) -
- ---------------------------------------------------------------------------------------------------
(6,440) (2,515)
- ---------------------------------------------------------------------------------------------------
Investing activities:
Maturity of short-term investments 49,784 49,649
Additions to capital assets (2,583) (3,127)
Proceeds from sale of investments - 280
Proceeds from sale of long-lived assets (Note 7) 2,489 -
Acquisitions, net of cash acquired (Note 2) (2,069) -
- ---------------------------------------------------------------------------------------------------
47,621 46,802
- ---------------------------------------------------------------------------------------------------
Foreign exchange gain (loss) on cash held in foreign currency 595 (174)
- ---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 79,072 12,997
Cash and cash equivalents - beginning of period 300,905 187,126
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period 379,977 200,123
- ---------------------------------------------------------------------------------------------------
Cash position - end of period $ 379,977 $ 200,123
- ---------------------------------------------------------------------------------------------------
12 of 25
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, 2003.
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
The principal business activities of ATI Technologies Inc. (the "Company") are
the design, manufacture and sale of innovative 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. Certain information and note disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed to include only the notes related to
elements which have significantly changed in the interim period. As a result,
these interim consolidated financial statements do not contain all disclosures
required to be included in the annual financial statements and should be read in
conjunction with the most recent audited annual consolidated financial
statements and notes thereto for the year ended August 31, 2003.
The financial information included herein reflects all adjustments (consisting
only of normal recurring adjustments), which, in the opinion of management, are
necessary for a fair presentation of the results for the interim periods
presented. The results of operations for the three months ended November 30,
2003 are not necessarily indicative of the results to be expected for the full
year.
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 presented for
comparative purposes have been restated to give effect to this change.
13 of 25
The impact of this change on the first quarter of fiscal 2003 is as follows:
(Thousands of US dollars, except per share amounts)
------------------------------------------------------------------
Three months ended
November 30, 2002
------------------------------------------------------------------
Revenues
As previously reported $ 322,020
As restated 335,436
Net income
As previously reported $ 4,988
As restated 7,344
Net income per share Basic and diluted:
As previously reported 0.02
As restated 0.03
------------------------------------------------------------------
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
2. ACQUISITIONS
In September 2003, the Company acquired certain assets located in Taiwan and
China from AMI Technologies Inc.. The purchase price for this acquisition was
financed with cash and allocated to the net assets acquired, including
intangible assets of $2.9 million, based on their relative fair values at the
date of acquisition. The useful life of the intangible assets acquired is
approximately one year.
14 of 25
3. GOODWILL AND INTANGIBLE ASSETS
The net book values of goodwill and intangible assets acquired at November 30,
2003 and August 31, 2003 are as follows :
(Thousands of US dollars)
------------------------------------------------------------------------------------
Cost Accumulated Net book Net book value
amortization value August 31,
November 30, 2003 2003
------------------------------------------------------------------------------------
Purchased in-process R & D $ 56,250 $ 56,250 $ - $ -
Core technology 23,670 15,685 7,985 8,811
Other 2,862 716 2,146 -
------------------------------------------------------------------------------------
Total intangible assets $ 82,782 $ 72,651 $ 10,131 $ 8,811
------------------------------------------------------------------------------------
Goodwill $376,788 $186,693 $190,095 $190,095
------------------------------------------------------------------------------------
Amortization expense related to intangible assets amounted to $1.5 million for
the three months ended November 30, 2003 (2003 - $3.2 million).
4. CREDIT FACILITY
The Company maintains demand bank credit facilities aggregating $26.4 million
with a single financial institution. There are no borrowings outstanding under
these facilities.
15 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
5. LONG-TERM DEBT
(Thousands of US dollars)
---------------------------------------------------------------------------
Interest November 30 August 31
rate 2003 2003
---------------------------------------------------------------------------
Obligation under capital lease (i) 6.31% $ 18,781 $ 17,785
Mortgage payable (ii) 6.96% 12,268 11,682
---------------------------------------------------------------------------
31,049 29,467
Current portion of long-term debt 1,511 1,394
---------------------------------------------------------------------------
Total $ 29,538 $ 28,073
---------------------------------------------------------------------------
(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 November 30, 2003 amounted to $12.3 million (Cdn. $15.9
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.
6. 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 $0.3 million. The mortgage has a repayment term of 12 years with a
maturity date on November 1, 2014. As of November 30, 2003, the outstanding
amount of the mortgage stood at $24.5 million (Cdn. $31.9 million).
In addition, the Company posted a letter of credit in the amount $2.3 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.
16 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
7. OTHER CHARGES
Other charges are comprised of the following items:
(Thousands of US dollars)
----------------------------------------------------------------------
Three months ended
November 30
2003 2002
----------------------------------------------------------------------
Regulatory matters (i) $ 711 $ -
Restructuring charge - European operations (ii) (538) -
----------------------------------------------------------------------
Total $ 173 $ -
----------------------------------------------------------------------
(i) 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 hearing has been set for February - March
2004. The Board of Directors set up a special committee and retained
advisors to conduct an independent review of the concerns raised by
OSC staff.
The Company has incurred external charges in connection with this
matter totaling $0.7 million during the three months ended November
30, 2003 (2003 - nil).
17 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
7. OTHER CHARGES (CONTINUED)
(ii) Restructuring charge - European operations
The following table details the activity through the restructuring
liabilities accrual for the interim period ended November 30, 2003:
(Thousands of US dollars)
-----------------------------------------------------
Three months ended
November 30
2003 2002
-----------------------------------------------------
Balance at September 1, 2003 $ 4,246 $ -
Provision - -
Cash payments (3,237) -
-----------------------------------------------------
Balance at November 30, 2003 $ 1,009 $ -
-----------------------------------------------------
(a) During the second quarter of fiscal 2003, the Company announced
the closure of ATI Technologies (Europe) Limited ("ATEL"), its
subsidiary in Dublin, Ireland and recorded a pre-tax charge of
$2.8 million. The charge included a $1.4 million write-down of the
building facility in Dublin, Ireland to fair value less cost to
sell. The Company completed the major components of the exit plan
for ATEL in July 2003.
During the current quarter, the Company was able to sell the
building facility at a higher price resulting in a recovery of
$0.5 million from the restructuring charge. The Company also paid
out the remaining cash portion of the restructuring charge of $0.5
million during the quarter.
(b) During the fourth quarter of fiscal 2003, 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.
During the current quarter, the Company made cash payments of
$2.7 million relating to the pre-tax charge set-up in the fourth
quarter of fiscal 2003. The Company expects to complete the major
components of its exit plan for ATI Research GmbH by December
2003.
18 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
8. NET INCOME PER SHARE
The following table presents a reconciliation of the numerators and denominators
used in the calculations of the basic and diluted net income per share:
(Thousands of US dollars, except per share amounts)
-----------------------------------------------------------------------------------------
Three months ended
November 30
2003 2002
-----------------------------------------------------------------------------------------
(Restated)
Net income $ 47,439 $ 7,344
-----------------------------------------------------------------------------------------
Weighted average number of common shares outstanding (000's):
Basic 242,998 236,947
Effect of dilutive securities 10,794 6,351
-----------------------------------------------------------------------------------------
Diluted 253,792 243,298
-----------------------------------------------------------------------------------------
Net income per share
Basic $ 0.20 $ 0.03
Diluted $ 0.19 $ 0.03
-----------------------------------------------------------------------------------------
Certain options that are anti-dilutive were excluded from the calculation.
19 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
9. SUPPLEMENTAL CASH FLOW INFORMATION
(Thousands of US dollars)
---------------------------------------------------
Three months ended
November 30
2003 2002
---------------------------------------------------
Cash paid for:
Interest $ 484 $ 358
Income taxes 243 211
Interest received $1,012 $1,084
---------------------------------------------------
20 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
10. SEGMENTED INFORMATION
The Company operates in one primary operating segment, that being the design,
manufacture and sale of innovative 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 is based on
customer and royalty payer location, whereas the breakdown in capital assets,
intangible assets and goodwill is based on physical location.
(Thousands of US dollars)
---------------------------------------------------------------------------------------
Three months ended
November 30
2003 2002
---------------------------------------------------------------------------------------
(Restated)
Revenues:
Canada $ 6,293 $ 6,717
United States 49,478 67,913
Europe 40,283 30,961
Asia-Pacific 373,651 229,845
---------------------------------------------------------------------------------------
Consolidated revenues $ 469,705 $ 335,436
---------------------------------------------------------------------------------------
Product revenues:
Components $ 373,989 $ 214,126
Boards 82,250 107,120
Others 13,466 14,190
---------------------------------------------------------------------------------------
Consolidated revenues $ 469,705 $ 335,436
---------------------------------------------------------------------------------------
Capital assets, intangible assets and goodwill:
Canada $ 72,320 $ 76,818
United States 207,347 217,144
Europe 234 4,551
Asia-Pacific 3,036 882
---------------------------------------------------------------------------------------
Consolidated capital assets, intangible assets and goodwill $ 282,937 $ 299,395
---------------------------------------------------------------------------------------
21 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
11. STOCK-BASED COMPENSATION
(i) Stock options
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:
(Thousands of US dollars, except per share amount)
--------------------------------------------------------------------------
Three months ended
November 30
2003 2002
--------------------------------------------------------------------------
(Restated)
Net income for the period, as reported $ 47,439 $ 7,344
Pro forma adjustment for stock-based compensation (1,502) (18)
--------------------------------------------------------------------------
Pro forma net income $ 45,937 $ 7,326
--------------------------------------------------------------------------
Pro forma net income per share:
Basic $ 0.19 $ 0.03
Diluted $ 0.18 $ 0.03
--------------------------------------------------------------------------
The weighted average estimated fair values at the date of grant for the
stock options granted for the three months ended November 30, 2003 and
November 30, 2002 were $8.34 and $3.55 per share respectively. 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
2003 2002
----------------------------------------------------------------------------
Risk-free interest rate 3.4% 3.8%
Dividend yield 0% 0.0%
Volatility factor of the expected market price of the
Company's common shares 72.6% 69.8%
Weighted average expected life of the options 4.2 years 4.1 years
----------------------------------------------------------------------------
22 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
11. STOCK-BASED COMPENSATION (CONTINUED)
(i) Stock options (continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
(ii) Restricted share units
During the current quarter, the Company announced that it adopted a
plan to grant restricted share units ("RSUs") as part of its overall
stock-based compensation plan. Under this plan, certain employees will
receive an award in the form of an RSU. Each RSU entitles the holder
to receive one common share on the vesting date of the RSUs. The RSUs
vest on each anniversary of the grant in equal one-third instalments
over a vesting period of three years. Stock-based compensation
representing the underlying value of $14.17 per common share of the
Company at the date of grant of the RSUs is being recognized evenly
over the three-year vesting period. On the vesting dates, the RSUs are
settled by the delivery of common shares of the Company to the
participants except for the participants residing outside of North
America who will receive cash equivalent market value of the shares.
Grants of RSUs to participants residing outside of North America are
accounted for using variable plan accounting whereby the value of the
RSUs and their related amortization are adjusted based on the
underlying value of the Company's common shares at the end of each
fiscal quarter. As at November 30, 2003, there were 1,556,239 RSUs
awarded and outstanding of which none were vested.
The issuance of RSUs replaced the annual grant of options for the 2003
calendar year. In addition, a one-time cash payment of $7.8 million
was also awarded to the non-executive employees who were eligible for
the RSU plan. This amount was expensed in the current quarter. The
total expenses by functional areas incurred for the three months ended
November 30, 2003 pertaining to the cash payment and amortization of
RSUs are as follows:
(Thousands of US dollars)
------------------------------------------------------
Three months ended
November 30, 2003
------------------------------------------------------
Selling and marketing $ 1,176
Research and development 6,530
Administrative 841
------------------------------------------------------
$ 8,547
------------------------------------------------------
During the quarter, the Company advanced $22.1 million to the trustee
of the RSU plan to enable the trustee to purchase the Company's common
shares in the open market. These shares are being held by the trustee
in order to deliver such shares to the participants on the vesting
dates of the RSUs.
23 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2003
(Unaudited)
12. U.S. GAAP
The following table reconciles the net income as reported on the consolidated
statements of operations prepared in accordance with Canadian GAAP to the
consolidated net income that would have been reported had the financial
statements been prepared in accordance with U.S. GAAP:
(Thousands of US dollars, except per share amounts)
-----------------------------------------------------------------------------------------
Three months ended
November 30
2003 2002
----------------------------------------------------------------------------------------
(Restated)
Net income in accordance with Canadian GAAP $ 47,439 $ 7,344
Tax effect of stock options exercised (2,230) (64)
Loss on hedging transactions 28 9
Amortization of purchased in-process research and development - 1,325
Stock compensation expenses (i), (ii) (2,879) (4,308)
----------------------------------------------------------------------------------------
Net income in accordance with U.S. GAAP $ 42,358 $ 4,306
----------------------------------------------------------------------------------------
Net income per share:
Basic $ 0.17 $ 0.02
Diluted $ 0.17 $ 0.02
----------------------------------------------------------------------------------------
Weighted average number of shares (000's):
Basic 242,998 236,947
Diluted 253,792 243,298
----------------------------------------------------------------------------------------
24 of 25
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 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. There
were no such options granted after February 28, 2002.
(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 specified business arrangement
were determined to have been met. The compensation expense is
recognized over the vesting period of the options. Under Canadian
GAAP, there is no equivalent requirement.
25 of 25
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 19, 2003 By: //Terry Nickerson//
------------------------------------------
Name: Terry Nickerson
Title: Senior Vice President, Finance and
Chief Financial Officer