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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, 2004
-------------
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 26 Pages
Index is located on Page 2
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INDEX
Document Page Number
- -------- -----------
Press Release dated October 7, 2004 3
Signature Page 26
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[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 of US $572.2 million in Q4
2004 revenues up 44.1% to $2.0 billion
MARKHAM, ON - October 7, 2004 - ATI Technologies Inc. (TSX: ATY, NASDAQ: ATYT)
today announced its second consecutive record revenue quarter, driven by sales
increases in both the personal computer and consumer product lines.
ATI reported revenues/1/ of $572.2 million for the fourth quarter of fiscal 2004
(ended August 31, 2004), a 50.3% increase over the fourth quarter a year
earlier. Gross margin declined 1.8 percentage points to 33.8% over the same
period of the previous year as a result of costs associated with the ramp of a
number of new desktop products. Net income/2/ per share was $0.24 for the
quarter compared to $0.09 last year. ATI's cash position increased $40.9 million
during the quarter to $548.9 million as of August 31, 2004.
ATI's fiscal 2004 annual results also produced significant revenue and earnings
growth over fiscal 2003. Revenues for the full 2004 fiscal year grew 44.1% to
$2.0 billion. Net income for the year increased nearly six-fold to $0.80 per
share from $0.14 per share in fiscal 2003.
"Our corporate strategy continues to produce returns," said David Orton, ATI's
Chief Executive Officer. "Our PCI Express desktop product line-up is the most
competitive product family on the market, resulting in tremendous customer
acceptance. In addition, the growth rate of our digital consumer business
continues to outpace the market, based on ATI's innovative products for use in
cell phones and digital televisions."
- -----------------
1 All dollar amounts are in U.S. dollars unless otherwise
noted. All per share amounts are stated on a diluted basis unless otherwise
noted. ATI Technologies Inc. reports under Canadian generally accepted
accounting principles (GAAP).
2 Net income is reported according to Canadian GAAP. ATI is not reporting
adjusted or proforma net income.
4 of 26
Outlook
We expect our leadership in graphics and multimedia technologies for both
digital consumer products and PCI Express-based PCs to continue driving growth
for ATI in fiscal 2005. As a result, ATI currently expects revenue for the first
quarter of fiscal 2005 to be in the range of $600 to $640 million. Gross margin,
as a percentage of revenues, is expected to be between 33 and 34%. Operating
expenses in the first quarter (excluding the expensing of stock options) are
expected to grow between 5 and 10% relative to the fourth quarter of fiscal
2004. In accordance with Canadian generally accepted accounting principles,
beginning with the first quarter of fiscal 2005, ATI will expense compensation
costs associated with stock options granted to employees after September 1,
2002. The charge in the first quarter of fiscal 2005 will be approximately $7.0
million.
ATI continues to be optimistic about its outlook for fiscal 2005, but
anticipates some seasonality, where the first quarter is strong, followed by a
slightly weaker revenue and profit profile for the second and third quarters.
The fourth quarter is expected to build off of the third quarter.
Management's Discussion and Analysis of Interim Financial Results
In this Management's Discussion and Analysis (MD&A), ATI, we, us and our, mean
ATI Technologies Inc. and its subsidiaries.
About forward-looking statements:
Forward-looking statements look into the future and provide an opinion as to the
effect of certain events and trends on the business. Forward-looking statements
may include words such as "plans," "intends," "anticipates," "should,"
"estimates," "expects," "believes," "indicates," "targeting," "suggests" and
similar expressions.
This MD&A and other sections of this news release contain forward-looking
statements about ATI's objectives, strategies, financial condition and results.
These "forward-looking" statements are based on current expectations and entail
various risks and uncertainties. Our actual results may materially differ from
our expectations if known and unknown risks or uncertainties affect our
business, or if our estimates or assumptions prove inaccurate. Therefore we
cannot provide any assurance that forward-looking statements will materialize.
We assume no obligation to update or revise any forward-looking statement,
whether as a result of new information, future events or any other reason.
Additional information concerning risks and uncertainties affecting our business
and other factors that could cause our financial results to fluctuate is
contained in our filings with Canadian and U.S. securities regulatory
authorities, including our 2003 Annual Information Form and Annual Report.
Any reference to "year-over-year" in this MD&A refers to a comparison of this
year's fourth quarter results versus the fourth quarter of the prior year unless
otherwise noted.
5 of 26
Financial Results Analysis
Revenues
- --------
Fourth quarter revenues of $572.2 million grew by 50.3% from $380.7 million in
the same period a year ago. The gains in the fourth quarter were largely driven
by revenue increases in all of our main business lines. Desktop discrete chip
revenues grew about 40% as a result of PCI Express business with OEMs and
expanded sales in the add-in-board (AIB) channel. Total notebook chip revenues
(integrated and discrete) increased almost 20% resulting from market growth that
was partially offset by market share declines in the notebook integrated market.
Handset chip revenues more than doubled for a number of reasons -- increased
demand from cell phone manufacturers, a growing number of design wins, a growing
cell phone market overall, and the increasing proportion of the market claimed
by camera phones. Our digital television revenues grew dramatically based on
market growth and continued penetration of our products among top digital TV
manufacturers.
Gross Margin
- ------------
Our gross margin for the fourth quarter of fiscal 2004 was 33.8% -- down 1.8
percentage points from 35.6% in the same period a year ago. The margin for our
desktop discrete products declined relative to the fourth quarter of the
previous year primarily due to early production costs associated with the
introduction and ramp of our new PCI Express products. Gross margin for the
fourth quarter of fiscal 2003 also benefited from higher margins in desktop
discrete. The overall margin decline of our PC products was slightly offset by
increases in our consumer products, which have margins that are typically higher
than our corporate average.
Our royalty income from Nintendo, and our non-recurring engineering revenues,
are reported under "Other" in our segmented reporting. Please see Note 11 to our
unaudited consolidated interim financial statements for further information on
our segmented reporting.
Operating Expenses
- ------------------
Selling and marketing expenses increased by 10.6% year-over-year to $30.5
million. The increase in expenses related primarily to increased staff for sales
and technical sales support, an increased investment in advertising designed to
improve ATI's brand awareness and to create demand in the PC market, as well as
increased marketing activities to support our brands, product launches, and
participation in industry trade shows.
6 of 26
Administrative expenses were up 11.3% year-over-year to $11.7 million due to
increased staffing levels to support a growing business, and incentive-based
compensation.
Research and development expenses increased 25.8% year-over-year to $77.1
million. This increase was largely a result of additional headcount to support
broader programs in growing business areas, and increased prototyping costs -
primarily in the desktop, integrated and notebook business units. These efforts
have led to a number of design wins which we believe will result in continued
growth in our business. Higher costs associated with licensing fees also added
to the increase in R&D.
Other Charges
- -------------
We recorded other charges totaling $0.2 million in the fourth quarter. This
compares favorably to other charges of $10.4 million for the fourth quarter last
year. Last year's charges related largely to the settlement of patent litigation
and restructuring charges related to the closure of our European R&D operations.
Please see Note 8 to our unaudited consolidated interim financial statements for
further information.
Total Operating Expenses
- ------------------------
Our total operating expenses reflect the operating expenses detailed earlier, as
well as amortization of intangible assets. For further information on the
treatment of the amortization of intangible assets, please see Note 4 to our
unaudited consolidated interim financial statements.
Interest and Other Income
- -------------------------
Our interest and other income was $2.8 million in the fourth quarter of 2004,
compared with $0.7 million for the comparable period in fiscal 2003. Interest
and other income in 2004 was derived principally from interest on our higher
cash balances.
Net Income
- ----------
Net income almost tripled to $61.2 million in the fourth quarter of 2004 from
$22.3 million in the same quarter last year as a result of the significant
increase in sales.
7 of 26
Liquidity and Financial Resources
Fourth quarter inventory levels were steady relative to the third quarter of
2004 at $254.9 million. Inventory is up 44.4% since the end of the last fiscal
year, August 31, 2003. The increase relative to August 31, 2003 is a direct
result of our substantially increased sales.
Accounts receivable were up 55.9% to $365.6 million from the year ended August
31, 2003. Accounts payable are up 43.7% to $274.8 million from the year ended
August 31, 2003. Both accounts receivable and accounts payable are within our
target range for current sales levels.
Deferred revenue for the fourth quarter was $29.1 million, a decrease of $0.2
million from the third quarter and down $8.5 million from the end of fiscal
2003. Deferred revenue primarily relates to payments associated with development
contracts where revenue is recognized on a percentage of completion basis, but
payments are made according to contract terms.
As of August 31, 2004 we had working capital of $694.7 million compared to
$430.3 million at August 31, 2003. Cash flows from operations were $35.9 million
in the fourth quarter. Our cash position was $548.9 million at the end of the
fourth quarter, up from $350.7 million at the end of fiscal 2003. Our cash
position increased mainly as a result of increased earnings throughout the
fiscal year.
Conference Call Information
ATI Technologies Inc. will host a conference call today to discuss its financial
results for the fourth quarter of its 2004 fiscal year ended August 31, 2004. To
participate in the conference call, please dial 416-405-9310 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 - Q4 2004. Replays of the conference
call will be available through October 14, 2004 by calling 416-695-5800. The
passcode is 3098802. 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 2004 revenues of US $2
billion, ATI has more than 2,700 employees in the Americas, Europe and Asia. ATI
common shares trade on NASDAQ (ATYT) and the Toronto Stock Exchange (ATY).
8 of 26
Copyright 2004 ATI Technologies Inc. All rights reserved. ATI and ATI product
and product feature names are trademarks and/or registered trademarks of ATI
Technologies Inc. All other company and product names are trademarks and/or
registered trademarks of their respective owners. Features, pricing,
availability and specifications are subject to change without notice.
For media or industry analyst support, visit our Web site at http://www.ati.com
------------------
Other ATI Contacts:
Trevor Campbell, Director, Porter Novelli Canada, at (416) 422-7202 or
trevor.campbell@porternovelli.com
- ---------------------------------
For investor relations support, please contact:
Janet Craig, Director, Investor Relations, ATI Technologies Inc., at (905)
882-2631 or janet@ati.com
-------------
- 30 -
- FINANCIAL STATEMENTS ATTACHED -
9 of 26
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
2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
Revenues $ 572,218 100.0% $ 380,674 100.0% $ 1,996,717 100.0% $ 1,385,293 100.0%
Cost of goods sold 378,792 66.2% 245,191 64.4% 1,299,597 65.1% 952,001 68.7%
- ------------------------------------------------------------------------------------------------------------------------------
Gross margin 193,426 33.8 % 135,483 35.6% 697,120 34.9% 433,292 31.3%
Expenses
Selling and marketing 30,543 5.3% 27,628 7.3% 122,802 6.2% 96,925 7.0%
Research and development 77,073 13.5% 61,285 16.1% 269,909 13.5% 212,976 15.4%
Administrative 11,745 2.0% 10,557 2.8% 48,867 2.4% 39,413 2.8%
Amortization of intangible
assets 1,486 0.3% 1,271 0.3% 6,115 0.3% 10,767 0.8%
Other charges (recoveries)
(Note 8) 155 - 10,440 2.7% (304) - 28,724 2.1%
- ------------------------------------------------------------------------------------------------------------------------------
121,002 21.1% 111,181 29.2% 447,389 22.4% 388,805 28.1%
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations 72,424 12.7% 24,302 6.4% 249,731 12.5% 44,487 3.2%
Interest and other income 2,815 0.5% 714 0.2% 4,257 0.2% 506 -
Gain (loss) on investments - - 3,844 1.0% (1,307) - 3,876 0.3%
Interest expense (499) (0.1%) (516) (0.1%) (2,058) (0.1%) (1,899) (0.1%)
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 74,740 13.1% 28,344 7.5% 250,623 12.6% 46,970 3.4%
Income taxes 13,584 2.4% 6,050 1.6% 45,824 2.3% 11,741 0.9%
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 61,156 10.7% $ 22,294 5.9% $ 204,799 10.3% $ 35,229 2.5%
Retained earnings, beginning of
period 247,669 81,732 104,026 68,797
- ------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 308,825 $ 104,026 $ 308,825 $ 104,026
==============================================================================================================================
Net income per share (Note 9)
Basic $ 0.25 $ 0.09 $ 0.84 $ 0.15
Diluted 0.24 0.09 0.80 0.14
==============================================================================================================================
Weighted average number of shares
(000's)
Basic 247,699 240,647 245,257 238,251
Diluted 256,849 249,525 255,092 244,353
Outstanding number of shares at the
end of the quarter (000's) 249,287 241,742 249,287 241,742
==============================================================================================================================
See accompanying notes to unaudited consolidated interim 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 26
ATI TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of US dollars)
------------------------------------------------------------- ------------------ ----------------
August 31 August 31
2004 2003
------------------------------------------------------------- ------------------ ----------------
(Audited)
Assets
Current assets:
Cash and cash equivalents $ 446,808 $ 300,905
Short-term investments 102,108 49,784
Accounts receivable 365,644 234,548
Inventories 254,867 176,494
Prepayments and sundry receivables 21,873 31,753
Future income tax assets 8,076 3,772
------------------------------------------------------------- ------------------ ----------------
Total current assets 1,199,376 797,256
Capital assets 85,943 86,890
Intangible assets (Note 4) 5,558 8,811
Goodwill (Note 4) 190,095 190,095
Long-term investments 2,751 3,960
Tax credits recoverable 9,193 21,181
Future income tax assets 20,570 7,865
------------------------------------------------------------- ------------------ ----------------
Total Assets $ 1,513,486 $ 1,116,058
============================================================= ================== ================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 274,772 $ 191,196
Accrued liabilities 199,129 136,709
Deferred revenue 29,131 37,669
Current portion of long-term debt (Note 6) 1,571 1,394
Future income tax liabilities 54 -
------------------------------------------------------------- ------------------ ----------------
Total current liabilities 504,657 366,968
Long-term debt (Note 6) 28,053 28,073
Future income tax liabilities 36,088 21,408
------------------------------------------------------------- ------------------ ----------------
Total liabilities 568,798 416,449
Shareholders' equity:
Share capital 638,985 582,454
Treasury stock (Note 12) (22,100) -
Contributed surplus 10,704 4,855
Retained earnings 308,825 104,026
Currency translation adjustments 8,274 8,274
------------------------------------------------------------- ------------------ ----------------
Total shareholders' equity 944,688 699,609
------------------------------------------------------------- ------------------ ----------------
Total Liabilities and Shareholders' Equity $ 1,513,486 $ 1,116,058
============================================================== ================== ================
See accompanying notes to unaudited consolidated interim 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 26
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of US dollars)
- ------------------------------------------------------ ----------------------------- --------------------------
Three months ended Twelve months ended
August 31 August 31 August 31 August 31
2004 2003 2004 2003
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Cash provided by (used in):
Operating activities:
Net income $ 61,156 $ 22,294 $ 204,799 $ 35,229
Items which do not involve cash:
Tax credits recoverable 6,435 (130) 11,988 (21,181)
Future income taxes (5,604) 720 (2,275) (1,802)
Stock-based compensation 1,670 - 5,849 -
Depreciation and amortization 6,177 6,276 26,031 34,705
Other charges (Note 8) - - - 1,400
Loss (gain) on investments - (3,844) 1,307 (3,876)
Gain on sale of long-lived assets (Note 8) - - (538) -
Foreign exchange loss (gain) 826 (93) 961 3,637
Change in non-cash operating working capital:
Accounts receivable (69,018) (29,568) (131,096) (93,422)
Inventories (2,085) (40,064) (78,373) 15,627
Prepayments and sundry receivables 7,387 (6,129) 9,880 (8,678)
Accounts payable 5,028 33,013 83,576 19,103
Accrued liabilities 24,117 46,511 61,380 87,288
Deferred revenue (215) 19,067 (8,538) 37,419
- ------------------------------------------------------ ------------- ------------- ------------- -------------
35,874 48,053 184,951 105,449
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Financing activities:
Decrease in bank indebtedness - - - (12,015)
Addition to long-term debt - - - 10,709
Principal payment on long-term debt (367) (335) (1,442) (1,064)
Settlement of swap contract - - - (1,365)
Issuance of common shares 11,843 14,373 56,531 20,977
Repurchase of common shares (Note 12) - - (22,100) -
Repayment of share purchase loans - - - 225
- ------------------------------------------------------ ------------- ------------- ------------- -------------
11,476 14,038 32,989 17,467
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Investing activities:
Purchase of short-term investments (102,108) - (142,015) (49,784)
Maturity of short-term investments - - 89,691 49,649
Additions to capital assets (6,738) (3,667) (20,671) (16,390)
Purchase of long-term investments - (2,460) (98) (2,460)
Proceeds from sale of investments - 9,749 - 10,029
Proceeds from sale of long-lived assets (Note 8) - - 2,489 -
Acquisitions, net of cash acquired (Note 3) - - (2,071) -
- ------------------------------------------------------ ------------- ------------- ------------- -------------
(108,846) 3,622 (72,675) (8,956)
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Foreign exchange gain (loss) on cash held in foreign
currency 280 (266) 638 (181)
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (61,216) 65,447 145,903 113,779
Cash and cash equivalents - beginning of period 508,024 235,458 300,905 187,126
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Cash and cash equivalents - end of period 446,808 300,905 $ 446,808 300,905
Short-term investments 102,108 49,784 102,108 49,784
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Cash position - end of period $ 548,916 $ 350,689 $ 548,916 $ 350,689
====================================================== ============= ============= ============= =============
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ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Cash position is defined as cash and cash equivalents and short-term
investments. See accompanying notes to unaudited consolidated interim 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.
13 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(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.
These consolidated condensed financial statements are prepared following
accounting policies consistent with the Company's audited annual consolidated
financial statements and notes thereto for the year ended August 31, 2003,
except for the following accounting policy adopted during the fiscal quarter
ended May 31, 2004:
(a) The Company adopted CICA Accounting Guideline No. 13, "Hedging
Relationships", for its derivative instruments. Commencing in the third
quarter of fiscal 2004, the Company engaged in activities to purchase
certain derivative financial instruments, principally forward foreign
exchange contracts ("Forwards"), to manage its foreign currency exposures.
The Company's policy is not to utilize derivative financial instruments for
trading or speculative purposes.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives to specific assets and liabilities on the balance
sheet or to specific firm commitments or anticipated transactions. The
Company also formally assesses, both at the hedge's inception and on an
ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or
cash flows of hedged items.
The Company purchases Forwards to hedge anticipated Canadian dollar
expenses pertaining to its operations in Canada. These instruments are not
recognized in the consolidated financial statements at inception. Foreign
exchange gains and losses on these contracts are deferred off-balance sheet
and recognized as an adjustment to the operating expenses when the
operating expenses are incurred.
Realized and unrealized gains or losses associated with derivative
instruments, which have been terminated or cease to be effective prior to
maturity, are deferred under other current, or non-current, assets or
liabilities on the balance sheet and recognized in income in the period in
which the underlying hedged transaction is recognized. In the event a
designated hedged item is sold, extinguished or matures prior to the
termination of the related derivative instrument, any realized or
unrealized gain or loss on such derivative instrument is recognized in
income.
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.
14 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
2. FINANCIAL INSTRUMENTS
The Company enters into Forwards to hedge its foreign currency exposure on
expenses incurred for its Canadian operations. The Forwards obligate the Company
to sell US dollars for Canadian dollars in the future at predetermined exchange
rates and are matched with anticipated future operating expenses in Canada. The
Forwards do not subject the Company to risk from exchange rate movements because
gains and losses on such contracts offset losses and gains on exposures being
hedged. The counterparties to the Forwards are multinational commercial banks
and, therefore, the credit risk of counterparty non-performance is low.
During the fourth quarter fiscal 2004, the Company purchased Forwards to buy
$35.0 million Canadian dollars in the next three months at an average exchange
rate of 1.3793. All of the Forwards have become favourable to the Company since
their inception and have a fair value of $1.3 million at August 31, 2004.
3. ACQUISITIONS
On September 2, 2003, the Company acquired certain assets located in Taiwan and
China from AMI Technologies Corp., its exclusive sales organization for Taiwan
and China since 1992, for consideration of $3.1 million. The purchase price was
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.
4. GOODWILL AND INTANGIBLE ASSETS
The net book values of goodwill and intangible assets at August 31, 2004 and
August 31, 2003 are as follows :
(Thousands of US dollars)
----------------------------- ------------ ----------------- -------------- -----------------
Cost Accumulated Net book Net book value
amortization value
August 31, 2004 August 31, 2003
----------------------------- ------------ ----------------- -------------- -----------------
Purchased in-process R & D $ 56,250 $ 56,250 $ - $ -
Core technology 23,670 18,112 5,558 8,811
Other 2,862 2,862 - -
----------------------------- ------------ ----------------- -------------- -----------------
Total intangible assets $ 82,782 $ 77,224 $ 5,558 $ 8,811
============================= ============ ================= ============== =================
Goodwill $ 376,788 $ 186,693 $ 190,095 $ 190,095
============================= ============ ================= ============== =================
Amortization expense related to intangible assets amounted to $1.5 million and
$6.1 million for the three months and twelve months ended August 31, 2004
respectively (2003 - $1.3 million and $10.8 million).
During the fourth quarter of fiscal 2004, the Company performed its annual
goodwill impairment test in accordance with the CICA Handbook Section 3062
"Goodwill and Other Intangible Assets" and determined that there was no goodwill
impairment in fiscal 2004.
15 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
5. CREDIT FACILITIES
The Company maintains committed operating credit facilities aggregating $43.0
million with a single financial institution. There are no borrowings outstanding
under these facilities.
6. LONG-TERM DEBT
(Thousands of US dollars)
------------------------------------- ------------ ------------- ------------
Interest August 31 August 31
rate 2004 2003
------------------------------------- ------------ ------------- ------------
Obligation under capital lease (i) 6.31% $ 18,049 $ 17,785
Mortgage payable (ii) 6.96% 11,575 11,682
------------------------------------- ------------ ------------- ------------
29,624 29,467
Less : Current portion 1,571 1,394
------------------------------------- ------------ ------------- ------------
Long-term portion $ 28,053 $ 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"). The capital lease is denominated
in Canadian dollars. As at August 31, 2004, the remaining amount
outstanding on the capital lease was $18.0 million (Cdn. $23.7
million).
(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, 2004
amounted to $11.6 million (Cdn. $15.2 million). The mortgage has
a repayment term of 12 years and is denominated in Canadian
dollars.
7. 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.
In addition, the Company posted a letter of credit in the amount of $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 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
8. OTHER CHARGES (RECOVERIES)
Other charges (recoveries) include the following items:
(Thousands of US dollars)
-------------------------------------------------------------- ------------------------ ----------------------
Three months ended Twelve months ended
August 31 August 31
2004 2003 2004 2003
-------------------------------------------------------------- ---------- ----------- ----------- ------------
Settlement of class action lawsuits (i) $ - $ (3,330) $ - $ 4,670
Regulatory matters (ii) 342 728 1,885 5,828
Restructuring charge (recovery) - European operations (iii) (187) 3,777 (725) 6,542
Lease exit charge (recovery) (iv) - 265 (1,464) 2,684
Settlement of patent litigation with Cirrus Logic, Inc. (v) - 9,000 - 9,000
-------------------------------------------------------------- ---------- ----------- ----------- ------------
Total $ 155 $ 10,440 $ (304) $ 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 28,
2003 and 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 the Company and
others. The Notice alleged that the Company 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 the Company made a misleading statement to Staff of the OSC in
August 2000 regarding the events leading up to the disclosure on May
24, 2000 of the shortfall. Seven individuals were also named in the
Notice. The Notice alleged that six of these individuals, including
K.Y. Ho, the then Chairman and Chief Executive Officer of the
Company, engaged in insider trading contrary to the Securities Act.
The hearing originally set for February - March 2004 has been
rescheduled to October - November 2004.
17 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
8. OTHER CHARGES (RECOVERIES) (CONTINUED)
(iii) Restructuring charge (recovery) - 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 August 31
2004 2003 2004 2003
-------------------------------- --------- ------------- ------------ -------------
Balance, beginning of period $ 778 $ 1,127 $ 4,246 $ -
Provision (recovery) (187) 3,777 (187) 5,142
Cash payments (573) (658) (4,041) (896)
-------------------------------- --------- ------------- ------------ -------------
Balance, end of period $ 18 $ 4,246 $ 18 $ 4,246
================================ ========= ============= ============ =============
(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, to estimated fair
value less cost to sell. The Company completed the major
components of the exit plan for ATEL in July 2003.
During the first quarter of fiscal 2004, the Company was able
to sell the building facility at a higher price than
originally estimated 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 same 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 fourth quarter of fiscal 2004, the Company
recovered $0.2 million relating to the restructuring charge of
ATI Research GmbH.
During the three months and twelve months ended August 31,
2004, the Company made cash payments of $0.6 million and $3.5
million respectively relating to the pre-tax charge setup in
the fourth quarter of fiscal 2003. The Company completed the
major components of its exit plan for ATI Research GmbH in
December 2003. The remaining balance relates to unpaid
facility costs and legal fees.
18 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
8. OTHER CHARGES (CONTINUED)
(iv) Lease exit charge (recovery):
During the second quarter of fiscal 2003, the Company determined
that it would exit the two 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 of fiscal 2003, 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.
During the second quarter of fiscal 2004, the Company determined that
it would re-occupy one of the two leased properties due to an
expansion of business. This resulted in a reduction of the previously
accrued exit charge liability in the amount of $0.6 million for the
quarter.
During the third quarter of fiscal 2004, the Company determined that
it would re-occupy the remaining leased property resulting in a
reduction of the previously accrued exit charge liability of $0.9
million.
(v) Settlement of patent litigation with Cirrus Logic, Inc.:
Subsequent to the year end of fiscal 2003, the Company and Cirrus
announced that they had entered into a cross-license agreement and
had settled all outstanding litigation between the Companies related
to certain patent infringement lawsuits.
Under the settlement agreement, all outstanding claims and
counterclaims in the lawsuits between the Company and Cirrus were
dismissed. In connection with the settlement, Cirrus would 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, for a cash payment of $9.0 million
from the Company.
19 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
9. 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 Twelve months ended
August 31 August 31
2004 2003 2004 2003
---------------------------------------------- ---------- ------------ ------------ -----------
Net income $ 61,156 $ 22,294 $ 204,799 $ 35,229
============================================== ========== ============ ============ ===========
Weighted average number of common shares
outstanding (000's):
Basic 247,699 240,647 245,257 238,251
Effect of dilutive securities 9,150 8,878 9,835 6,102
---------------------------------------------- ---------- ------------ ------------ ------------
Diluted 256,849 249,525 255,092 244,353
============================================== ========== ============ ============ ===========
Net income per share
Basic $ 0.25 $ 0.09 $ 0.84 $ 0.15
Diluted $ 0.24 $ 0.09 $ 0.80 $ 0.14
============================================== ========== ============ ============ ===========
Certain options that are anti-dilutive were excluded from the calculation.
10. SUPPLEMENTAL CASH FLOW INFORMATION
(Thousands of US dollars)
--------------------------- ---------------------------- ----------------------
Three months ended Twelve months ended
August 31 August 31
2004 2003 2004 2003
--------------------------- ------------------------- -------------------------
Cash paid for:
Interest $ 472 $ 485 $ 1,946 $ 1,739
Income taxes 187 296 1,653 2,127
Interest received $ 1,409 $ 610 $ 4,358 $ 2,902
--------------------------- ------------ ------------ ------------ ------------
20 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
11. 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 Twelve months ended
August 31 August 31
2004 2003 2004 2003
--------------------------------------------------- ------------- ------------- -------------- --------------
Revenues:
Canada $ 4,990 $ 5,076 $ 22,439 $ 20,065
United States 82,212 55,615 257,542 258,545
Europe 17,332 21,800 95,287 113,193
Asia-Pacific 467,684 298,183 1,621,449 993,490
--------------------------------------------------- ------------- ------------- -------------- --------------
Consolidated revenues $ 572,218 $ 380,674 $ 1,996,717 $ 1,385,293
=================================================== ============= ============= ============== ==============
Product revenues:
Components $ 449,391 $ 299,428 $ 1,581,413 $ 962,735
Boards 111,905 77,682 364,335 397,533
Others 10,922 3,564 50,969 25,025
--------------------------------------------------- ------------- ------------- -------------- --------------
Consolidated revenues $ 572,218 $ 380,674 $ 1,996,717 $ 1,385,293
=================================================== ============= ============= ============== ==============
Capital assets, intangible assets and goodwill:
Canada $ 73,863 $ 74,332
United States 206,147 208,764
Europe 165 2,277
Asia-Pacific 1,421 423
--------------------------------------------------- -------------- --------------
Consolidated capital assets, intangible assets
and goodwill $ 281,596 $ 285,796
=================================================== ============== ==============
21 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
12. 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 Twelve months ended
August 31 August 31
2004 2003 2004 2003
---------------------------------------- ----------- ----------- ------------- ------------
Net income for the period, as reported $ 61,156 $ 22,294 $ 204,799 $ 35,229
Pro forma adjustment for stock-based
compensation (6,100) (205) (13,318) (525)
---------------------------------------- ----------- ----------- ------------- ------------
Pro forma net income $ 55,056 $ 22,089 $ 191,481 $ 34,704
======================================== =========== ============ ============ ============
Pro forma net income per share:
Basic $ 0.22 $ 0.09 $ 0.78 $ 0.15
Diluted $ 0.21 $ 0.09 $ 0.75 $ 0.14
======================================== =========== ============ ============ ============
The weighted average estimated fair values at the date of grant for the
stock options granted for the three months and twelve months ended
August 31, 2004 were $9.20 and $8.96 per share respectively. No options
were issued during the three months ended August 31, 2003 and the
weighted average estimated fair value of the stock options granted for
the twelve months ended August 31, 2003 was $2.65 per share. The "fair
value" of each option granted was estimated on the date of the grant
using the Black-Scholes option pricing model with the following
assumptions:
----------------------------------------------- -------------------------- --------------------------
Three months ended Twelve months ended
August 31 August 31
2004 2003 2004 2003
----------------------------------------------- ------------- ------------ ------------- -------------
Risk-free interest rate 3.4% - 3.7% 3.1%
Dividend yield 0.0% - 0.0% 0.0%
Volatility factor of the expected market
price of the Company's common shares 67.8% - 69.2% 71.1%
Weighted average expected life of the options 4.1 years - 4.2 years 4.2 years
----------------------------------------------- ------------- ------------ ------------- -------------
22 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
12. 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 on a straight line basis over the
options' vesting period.
(ii) Restricted share units
During the first quarter of fiscal 2004, the Company 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 its related
amortization are adjusted based on the underlying value of the
Company's common shares at the end of each fiscal quarter. As at August
31, 2004, there were 1,514,450 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 during the first quarter of fiscal 2004. The full amount of
the cash payment was expensed in the first quarter. The total expenses
by functional areas incurred for the three months and twelve months
ended August 31, 2004 pertaining to the cash payment and amortization
of RSUs are as follows:
(Thousands of US dollars)
-------------------------------- ------------------- ---------------------
Three months ended Twelve months ended
August 31, 2004 August 31, 2004
-------------------------------- ------------------ ----------------------
Selling and marketing $ 256 $ 2,064
Research and development 1,207 10,454
Administrative 200 1,685
-------------------------------- ------------------ -------------------
$ 1,663 $ 14,203
-------------------------------- ------------------ -------------------
During 2004, 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. At August 31, 2004 1,467,304 shares are being held by the
trustee in order to deliver such shares to the participants on the
vesting of the RSUs.
The cost of the purchase of these shares is classified as treasury stock
and presented as a reduction of shareholders' equity in the Company's
consolidated balance sheet.
23 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
12. STOCK-BASED COMPENSATION (CONTINUED)
(iii) Deferred share units
During the second quarter of fiscal 2004, the Company established a
plan to grant deferred share units ("DSUs") to its non-management
directors. Under this plan, the directors will receive DSUs, in
addition to cash payments, as part of their annual compensation
package. A DSU is a unit equivalent in value to one common share of
the Company based on the five-day average trading price of the
Company's common shares on the Nasdaq Stock Market (the "Weighted
Average Price") immediately prior to the date on which the value of
the DSU is determined. DSUs may be redeemed following termination of
Board service, and prior to the end of the year following departure
from the Board based on the Weighted Average Price at the time of
redemption. Alternatively, a director may elect to receive RSUs in
lieu of DSUs provided the market value of his holdings in the
Company's common stock equity is greater than $350,000. As at August
31, 2004, there were 92,082 DSUs outstanding of which 75,155 were
vested.
As of the date of the grant, the fair value of the DSUs outstanding,
being the fair market value of the Company's common shares at that
date, will be recorded as a liability on the Company's balance sheet
and will be amortized over the one year vesting period of the DSU. The
value of the DSU liability will be adjusted to reflect changes in the
market value of the Company's common shares. The expenses for this
quarter and the twelve months ended August 31, 2004 relating to DSUs
granted to the directors for services rendered were $0.03 million and
$1.2 million respectively.
24 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
13. U.S. GAAP
The following table reconciles the net income as reported on the consolidated
statements of operations and retained earnings 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:
(Thousands of US dollars, except per share amounts)
---------------------------------------------------- ----------------------------- -----------------------
Three months ended Twelve months ended
August 31 August 31
2004 2003 2004 2003
---------------------------------------------------- ------------- ------------ ------------- ------------
Net income in accordance with Canadian GAAP $ 61,156 $ 22,294 $ 204,799 $ 35,229
Tax effect of stock options exercised (2,253) (1,704) (7,291) (2,083)
Loss on hedging transactions 28 28 112 94
Amortization of purchased in-process research and
development - 442 - 4,417
Stock compensation expenses (i), (ii) (925) (21,879) (9,579) (25,486)
Restructuring charges not yet incurred - (270) - -
---------------------------------------------------- ------------- ------------ ------------- ------------
Net income (loss) in accordance with U.S. GAAP $ 58,006 $ (1,089) $ 188,041 $ 12,171
==================================================== ============= ============ ============= ============
Net income (loss) per share:
Basic $ 0.23 $ (0.00) $ 0.77 $ 0.05
Diluted $ 0.23 $ (0.00) $ 0.74 $ 0.05
===================================================== ============= ============ ============= ============
Weighted average number of shares (000's):
Basic 247,699 240,647 245,257 238,251
Diluted 256,849 240,647 255,092 244,353
===================================================== ============= ============ ============= ============
25 of 26
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2004
(Unaudited)
13. 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.
14. SUBSEQUENT EVENT
(i) On September 1, 2004, the Company acquired certain assets of RT&C
International, its sales organization for South Korea, for cash
consideration of $2.6 million, plus acquisition related costs.
(ii) In September 2004, ATI signed an agreement to purchase the shares of a
company for cash consideration of up to $3.6 million, plus acquisition
related costs. The company, a high technology embedded solutions
provider, is located in India. The acquisition is subject to
regulatory approval and is expected to close by October 31, 2004.
26 of 26
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 7, 2004 By: //Terry Nickerson//
-------------------------------------------
Name: Terry Nickerson
Title: Senior Vice President, Finance and
Chief Financial Officer