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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, 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
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Page 1 of 25 Pages
Index is located on Page 2
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INDEX
Document Page Number
Press Release dated December 21, 2004 3
Signature Page 25
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[ATI Technologies LOGO]
For more information, please contact:
Chris Evenden, Director, Public Relations
905-882-2629 or cevenden@ati.com
----------------
ATI Reports Record Quarterly Results
Revenues increase 31% to $614 million
MARKHAM, ON - December 21, 2004 - ATI Technologies Inc. (TSX: ATY, NASDAQ: ATYT)
today announced record financial results for the first quarter of fiscal 2005.
Quarterly revenues1 grew 30.7% to $613.9 million from $469.7 million in the
first quarter of fiscal 2004 as a result of sales increases in both the personal
computer and digital consumer product lines. Gross margin percentage was 34.2%.
In accordance with Canadian generally accepted accounting principles, beginning
with the first quarter of fiscal 2005, ATI is expensing compensation costs
associated with stock options granted to employees after September 1, 2002. Net
income and net income per share including compensation costs associated with
stock options were $63.7 million and $0.25 respectively, up from $47.4 million
and $0.19 for last year's first quarter. Compensation costs associated with
stock options in the first quarter of fiscal 2005 were $8.0 million. Net income
and net income per share excluding compensation costs associated with stock
options were $71.4 million and $0.28 respectively. ATI's cash position increased
$71.7 million during the quarter to $620.6 million at November 30, 2004.
"We continue to demonstrate our technology and industry leadership through
innovation, execution and customer focus," said David Orton, ATI's Chief
Executive Officer. "This has translated into the sustained financial and
operational performance we have seen over the past several quarters. Looking
ahead, we believe we will continue to grow our business by helping consumers to
create, connect and communicate in new ways - whether it's bringing 3D and
camera features to mobile phones or high definition content to home PCs."
- --------------------------
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).
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Outlook
Looking forward, we expect our leadership in graphics and multimedia
technologies to continue to drive growth for ATI. Despite seasonal weakness in
our consumer and game console businesses, we expect our revenues in the second
quarter to be similar to the first quarter within a range of plus or minus $20
million - led by growth in PC graphics. We expect gross margin in the second
quarter to be approximately the same as the first quarter of fiscal 2005 as
improved PC margins should offset seasonal weakness of our consumer products and
game console businesses. Operating expenses, excluding the expense associated
with stock options, are expected to grow just over 10% relative to the first
quarter due to higher prototyping costs and the foreign exchange impact of the
appreciation of the Canadian dollar relative to the U.S. currency.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL RESULTS
This is management's discussion and analysis of financial condition and the
results of operations (MD&A) that comments on ATI's operations, financial
condition and cash flows for the three months ended November 30, 2004 compared
to the three months ended November 30, 2003. This MD&A should be read in
conjunction with the attached unaudited financial statements for the period
ended November 30, 2004, the annual MD&A contained in the 2004 Annual Report and
the audited consolidated financial statements for the year ended August 31,
2004.
In this MD&A, ATI, we, us and our mean ATI Technologies Inc. and its
subsidiaries.
Important Information Regarding 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 2004 Annual Report
filed on SEDAR at www.sedar.com.
-------------
Unless indicated otherwise, this MD&A reflects our expectations as of December
21, 2004.
Any reference to "year-over-year" in this MD&A refers to a comparison of this
year's first quarter results versus the first quarter of the prior year unless
otherwise noted.
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RESULTS OF OPERATIONS
Revenues
- --------
First quarter revenues grew 30.7% to $613.9 million from $469.7 million in the
same period a year ago. PC revenues increased just over 20% on strong sales of
discrete desktop products to the add-in board (AIB) channel and from PCI Express
design wins with PC Original Equipment Manufacturers (OEMs). Total notebook
revenues increased by about 20% on strong sales of discrete products. This was
partially offset by lower sales of integrated products, which form a growing
portion of the notebook market overall and where our market share is lower than
that of discrete. Handset chip revenues grew about 80% due to a growing number
of design wins and robust market demand for feature phones in general. Revenues
from digital television products grew dramatically based on market growth,
design wins and the continued penetration of our products among top digital TV
manufacturers.
Gross Margin
- ------------
Gross margin percentage for the first quarter of fiscal 2005 was down 1.7
percentage points to 34.2% from 35.9% for the same period a year ago. The margin
percentage for our desktop discrete products declined relative to the first
quarter of the previous year primarily due to production costs associated with
the introduction and ramp of our new PCI Express products. The overall margin
percentage decline was partially offset by the sales growth in our consumer
business, which has margins that are typically higher than our corporate
average.
The royalty income we received from Nintendo for our graphics technology used in
their GAMECUBE products also increased year-over-year, which has a positive
impact on gross margin percentage.
Operating Expenses
- ------------------
In the first quarter of fiscal 2004, ATI announced a Restricted Share Unit
program. A component of the program was a one-time cash payment to non-executive
employees. This cash payment of $7.8 million impacted operating expense in the
first quarter of fiscal 2004. This was not a factor in the first quarter of
fiscal 2005.
Selling and marketing expenses increased 10.3% to $34.3 million, but declined as
a percentage of revenues to 5.6% from 6.6% in the first quarter of last year.
The absolute increase was related primarily to increased staffing levels for
sales and technical support, which was partially offset by lower advertising
costs and the cash payment in fiscal 2004 referred to above.
Administrative expenses were up 10.4% to $12.7 million from $11.5 million, but
declined as a percentage of revenue to 2.1% from 2.5% in the first quarter of
last year. The absolute increase was related primarily to increased staffing to
support our growth, which was partially offset by lower costs associated with
the cash payment in fiscal 2004 referred to above.
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Research and development expenses increased 15.5% year-over-year to $73.1
million, but declined as a percentage of revenue to 11.9% from 13.5% in the
first quarter of last year. The absolute increase was largely a result of adding
technical staff across the organization to support our growth, but higher
prototyping costs - particularly in desktop, integrated notebook and handheld
devices - also contributed to the increase. These were partially offset by lower
costs associated with the cash payment in fiscal 2004 referred to above.
Stock-based Compensation
- ------------------------
In accordance with Canadian generally accepted accounting principles, effective
the first quarter of fiscal 2005, ATI is expensing compensation costs associated
with stock options granted to employees after September 1, 2002. This expense
item, along with the expense associated with restricted share units and deferred
share units, is reflected in the expense for stock-based compensation included
in the attached consolidated statements of operations and retained earnings.
Prior to the first quarter of fiscal 2005, the expense associated with
restricted share units and deferred share units were reflected in selling and
marketing, research and development and administrative expenses.
Stock-options, restricted share units and deferred share units comprise all
stock-based compensation currently awarded by ATI to our employees and
directors. Stock-based compensation costs were $10.6 million in the quarter as
compared with $0.8 million in the same period last year. The increase in
stock-based compensation was primarily related to ATI commencing the expensing
of stock options in compliance with Canadian generally accepted accounting
principles during the first quarter of fiscal 2005.
The $10.6 million expense in the first quarter of fiscal 2005 included $8.0
million for compensation costs associated with stock options, $2.0 million for
compensation costs associated with restricted share units and $0.6 million for
deferred share units.
Total Operating Expenses
- ------------------------
Our total operating expenses reflect the operating expenses detailed earlier, as
well as amortization of intangible assets and other charges. For further
information on the treatment of the amortization of intangible assets, please
see Note 4 to our unaudited interim consolidated financial statements.
Interest and Other Income (Loss)
- --------------------------------
Interest and other income was $2.2 million in the first quarter of 2005,
compared with a charge of $1.8 million for the comparable period in fiscal 2004.
The increase partially reflects investment income derived from interest on our
higher cash balances. A write-down of fixed assets during the first quarter of
fiscal 2004 also contributed to the increase in interest and other income this
quarter relative to last year.
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Net Income
- ----------
Net income increased 34.3% to $63.7 million in the first quarter of fiscal 2005
from $47.4 million in the same quarter last year largely due to substantial
growth in revenue. Net income per share increased to $0.25 from $0.19 over the
same period. Net income and net income per share excluding the compensation
costs associated with stock options described above were $71.4 million and $0.28
respectively for the first quarter of fiscal 2005.
Liquidity and Financial Resources
Inventory levels of $291.6 million at the end of the first quarter increased
from $254.9 million at August 31, 2004. The increase was a result of increased
sales and our need to maintain adequate levels of inventory to meet customer
demands. Inventory turnover was just over our target of 60 days.
Accounts receivable were up 9.1% to $399.1 million from $365.6 at fiscal 2004
year-end. Accounts payable rose 7.6% to $295.6 million from $274.8 million at
year-end. Both accounts receivable and accounts payable are at levels consistent
with our business volumes.
As of November 30, 2004 we had working capital of $784.4 million compared to
$694.7 million at August 31, 2004. Cash flows from operations were $66.9 million
in the first quarter. Our cash position at quarter end was $620.6 million, up
from $548.9 million at August 31, 2004.
Outstanding Share Data
At November 30, 2004 there were 251,323,648 common shares outstanding or
257,472,468 shares on a diluted basis.
ACCOUNTING POLICIES
Our unaudited interim consolidated financial statements are prepared according
to Canadian GAAP. The key estimates and assumptions that management has made and
their impact on the amounts reported in the unaudited interim consolidated
financial statements and notes remain substantially unchanged from those
described in our 2004 Annual MD&A, with the exception of the adoption in the
first quarter of fiscal 2005 of the revised CICA Handbook Section 3870,
"Stock-based Compensation and Other Stock-based Payments". See Note 1 to the
unaudited interim consolidated financial statements for more information about
the accounting policies used to prepare our financial statements.
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SUPPLEMENTARY FINANCIAL INFORMATION
The table below shows selected financial information for the eight most recently
completed quarters.
(Thousands of U.S. dollars, except per share amounts)
(Unaudited)
Q1 2005 Q4 2004 Q3 2004 Q2 2004 Q1 2004 Q4 2003 Q3 2003 Q2 2003
----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
Revenues $613,859 $572,218 $491,457 $463,337 $469,705 $380,674 $355,691 $313,492
Cost of goods sold 403,789 378,792 317,776 301,946 301,083 245,191 239,590 222,969
----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
Gross margin 210,070 193,426 173,681 161,391 168,622 135,483 116,101 90,523
Expenses
Selling and marketing 34,345 30,288 32,385 27,999 31,130 27,628 25,696 21,354
Research and development 73,114 75,865 65,539 60,809 63,278 61,285 53,713 49,528
Administrative 12,676 11,517 12,166 11,532 11,487 10,557 10,326 9,318
Amortization of intangible
assets 1,244 1,486 1,546 1,541 1,542 1,271 3,169 3,162
Stock-based compensation 10,558 1,691 2,315 2,826 751 - - -
Other charges (recoveries) 382 155 (454) (178) 173 10,440 2,288 15,996
----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
132,319 121,002 113,497 104,529 108,361 111,181 95,192 99,358
----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
Income (loss) from operations 77,751 72,424 60,184 56,862 60,261 24,302 20,909 (8,835)
Interest and other income (loss) 2,176 2,815 1,340 1,856 (1,754) 714 (1,350) 602
Gain (loss) on investments - - (1,307) - - 3,844 - -
Interest expense (519) (499) (513) (531) (515) (516) (488) (469)
----------- ---------- ---------- ----------- ---------- ----------- ---------- ---------
Income (loss) before income taxes 79,408 74,740 59,704 58,187 57,992 28,344 19,071 (8,702)
Income taxes 15,705 13,584 11,085 10,602 10,553 6,050 4,063 715
----------- ---------- ---------- ----------- ---------- ----------- ---------- -----------
Net income (loss) $63,703 $61,156 $48,619 $47,585 $47,439 $22,294 $15,008 (9,417)
=========== ========== =========== ========== ========== =========== ========== ===========
Net income (loss) per share
Basic $0.26 $0.25 $0.20 $0.19 $0.20 $0.09 $0.06 ($0.04)
Diluted $0.25 $0.24 $0.19 $0.19 $0.19 $0.09 $0.06 ($0.04)
----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
Weighted average number of shares (000's)
Basic 249,027 247,699 245,960 244,373 242,998 240,647 238,183 237,227
Diluted 257,472 258,198 256,650 255,876 254,109 249,525 242,539 237,227
Outstanding number of shares at
the end of the period (000's) 251,324 249,287 247,886 246,604 244,239 241,742 239,267 237,297
----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
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Conference Call Information
ATI Technologies Inc. will host a conference call today at 8:30 AM (EST) to
discuss its financial results for its fiscal 2005 first quarter ended November
30, 2004. 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
webcast of the call will be available at
http://www.ati.com/companyinfo/ir/quarterlyresults.html
- -------------------------------------------------------
under the Financial Information section, 2005 Conference Calls - Q1 2005.
Replays of the conference call will be available through December 28, 2004 by
calling 416-695-5800. The passcode is 3125450. A web cast replay will be
available at the web site noted above.
About ATI Technologies
ATI Technologies Inc. is the 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 delivering 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 device 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).
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-
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ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(Thousands of US dollars, except per share amounts)
- ------------------------------------------------------------------------------------------------------------
Three months ended
November 30 November 30
2004 2003
- --------------------------------------------------------------------------------------------------------
Revenues $ 613,859 100.0% $ 469,705 100.0%
Cost of goods sold 403,789 65.8% 301,083 64.1%
- --------------------------------------------------------------------------------------------------------
Gross margin 210,070 34.2% 168,622 35.9%
Expenses
Selling and marketing 34,345 5.6% 31,130 6.6%
Research and development 73,114 11.9% 63,278 13.5%
Administrative 12,676 2.1% 11,487 2.5%
Amortization of intangible assets (Note 4) 1,244 0.2% 1,542 0.3%
Stock-based compensation 10,558 1.7% 751 0.2%
Other charges (Note 8) 382 - 173 -
- --------------------------------------------------------------------------------------------------------
132,319 21.5% 108,361 23.1%
- --------------------------------------------------------------------------------------------------------
Income from operations 77,751 12.7% 60,261 12.8%
Interest and other income (loss) 2,176 0.3% (1,754) (0.4)%
Interest expense (519) (0.1)% (515) (0.1)%
- --------------------------------------------------------------------------------------------------------
Income before income taxes 79,408 12.9% 57,992 12.3%
Income taxes 15,705 2.5% 10,553 2.2%
- --------------------------------------------------------------------------------------------------------
Net income 63,703 10.4% 47,439 10.1%
Retained earnings, beginning of period 308,825 104,026
Adjustment to opening retained earnings:
Change in accounting policy on stock-based
compensation (Note 1(a)) (13,843) -
========================================================================================================
Retained earnings, end of period $ 358,685 $ 151,465
========================================================================================================
Net income per share (Note 9)
Basic $ 0.26 $ 0.20
Diluted $ 0.25 $ 0.19
========================================================================================================
Weighted average number of shares (000's)
Basic 249,027 242,998
Diluted 257,472 254,109
Outstanding number of shares at the end of the quarter
(000's) 251,324 244,239
========================================================================================================
See accompanying notes to unaudited interim 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, 2004.
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ATI TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of US dollars)
---------------------------------------------------------------------------------------------------
November 30 August 31
2004 2004
---------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 518,032 $ 446,808
Short-term investments 102,584 102,108
Accounts receivable 399,064 365,644
Inventories 291,572 254,867
Prepayments and sundry receivables 34,397 21,873
Future income tax assets 9,307 8,076
---------------------------------------------------------------------------------------------------
Total current assets 1,354,956 1,199,376
Capital assets 87,521 85,943
Intangible assets (Note 4) 7,227 5,558
Goodwill (Note 4) 190,095 190,095
Long-term investments 2,751 2,751
Tax credits recoverable 6,924 9,193
Future income tax assets 28,050 20,570
---------------------------------------------------------------------------------------------------
Total Assets $ 1,677,524 $ 1,513,486
=====================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 295,605 $ 274,772
Accrued liabilities 244,451 199,129
Deferred revenue 28,534 29,131
Current portion of long-term debt (Note 6) 1,761 1,571
Future income tax liabilities 230 54
---------------------------------------------------------------------------------------------------
Total current liabilities 570,581 504,657
Long-term debt (Note 6) 30,472 28,053
Future income tax liabilities 40,184 36,088
---------------------------------------------------------------------------------------------------
Total liabilities 641,237 568,798
Shareholders' equity:
Share capital 653,103 638,985
Treasury stock (14,867) (22,100)
Contributed surplus 31,092 10,704
Retained earnings 358,685 308,825
Currency translation adjustments 8,274 8,274
---------------------------------------------------------------------------------------------------
Total shareholders' equity 1,036,287 944,688
---------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,677,524 $ 1,513,486
====================================================================================================
Subsequent event (Note 2)
Guarantee (Note 7)
See accompanying notes to unaudited interim 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, 2004.
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ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of US dollars)
- --------------------------------------------------------------------------------------------
Three months ended
November 30 November 30
2004 2003
- --------------------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income $ 63,703 $ 47,439
Items which do not involve cash:
Tax credits recoverable 2,269 2,217
Future income taxes (707) (578)
Stock-based compensation 10,037 671
Depreciation and amortization 5,938 6,602
Gain on sale of long-lived assets (Note 8) - (538)
Unrealized foreign exchange loss 2,622 1,331
Change in non-cash operating working capital:
Accounts receivable (33,420) (34,442)
Inventories (36,705) (48,113)
Prepayments and sundry receivables (12,524) 6,387
Accounts payable 20,787 38,689
Accrued liabilities 45,494 14,527
Deferred revenue (597) 3,104
- --------------------------------------------------------------------------------------------
66,897 37,296
- --------------------------------------------------------------------------------------------
Financing activities:
Principal payment on long-term debt (392) (344)
Issuance of common shares 14,118 16,004
Repurchase of common shares (Note 12) - (22,100)
Proceeds from sale of treasury stock 9 -
- --------------------------------------------------------------------------------------------
13,735 (6,440)
- --------------------------------------------------------------------------------------------
Investing activities:
Purchase of short-term investments (476) -
Maturity of short-term investments - 49,784
Additions to capital assets (6,223) (2,583)
Proceeds from sale of long-lived assets (Note 8) - 2,489
Acquisitions, net of cash acquired (Note 3) (3,088) (2,069)
- --------------------------------------------------------------------------------------------
(9,787) 47,621
- --------------------------------------------------------------------------------------------
Foreign exchange gain on cash held in foreign currency 379 595
- --------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 71,224 79,072
Cash and cash equivalents - beginning of period 446,808 300,905
- --------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period 518,032 379,977
Short-term investments 102,584 -
- --------------------------------------------------------------------------------------------
Cash position - end of period $ 620,616 $ 379,977
============================================================================================
Supplemental cash flow information (Note 10)
See accompanying notes to unaudited interim 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, 2004.
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 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, 2004.
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, 2004,
except for the following accounting policy adopted during the fiscal quarter
ended November 30, 2004:
(a) Effective September 1, 2004, the Company adopted the revised CICA Handbook
Section 3870, "Stock-based Compensation and Other Stock-based Payments"
which requires the application of a fair value method of accounting to all
stock-based compensation payments to employees. As a result, the Company is
required to estimate the fair value of the stock options granted and
expense the fair value over the service period of the stock options. In
accordance with the transitional provisions of Section 3870, the Company
has retroactively applied the fair value method of accounting for stock
option awards granted since September 1, 2002 using the Black-Scholes
option pricing model, and record an adjustment to opening retained earnings
at September 1, 2004, in the amount of $13.8 million, representing the
stock option expense for fiscal 2003 and 2004. The offset to retained
earnings is an increase in contributed surplus and future income tax assets
in the amounts of $17.5 million and $3.7 million respectively. The stock
option expense for the three months ended November 30, 2004 was $8.0
million.
The following table reports the pro forma amounts, including stock-based
compensation expense, based on stock options issued subsequent to September
1, 2002 for the three months ended November 30, 2003.
(Thousands of US dollars, except per share amount)
-----------------------------------------------------------------
Net income:
As reported $ 47,439
Pro forma 45,937
Basic net income per share:
As reported $ 0.20
Pro forma 0.19
Diluted net income per share:
As reported $ 0.19
Pro forma 0.18
-----------------------------------------------------------------
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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,
2004 is not necessarily indicative of the results to be expected for the full
year.
2. FINANCIAL INSTRUMENTS
The Company enters into forward foreign exchange contracts ("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.
At November 30, 2004, there were no Forwards outstanding. On December 10, 2004,
the Company purchased Forwards to buy Canadian $38.0 million in the next three
months at an average rate of 1.2249.
3. ACQUISITIONS
(i) On September 1, 2004, the Company acquired certain assets of RT&C
International ("RT&C), its sales organization for South Korea, for
cash consideration of $1.3 million. The purchase price was allocated
to the net assets acquired, comprising of intangible assets of $1.3
million and other assets of $37,000, based on their relative fair
values at the date of acquisition. The useful life of the intangible
assets acquired is approximately 16 months.
Under the terms of the agreement, RT&C is eligible to receive cash
consideration up to $1.5 million, contingent upon RT&C achieving
future performance targets within one year after the closing date. As
at November 30, 2004, there were no awards earned or recognized. This
contingency will be recorded when resolved, beyond a reasonable doubt.
(ii) On September 2, 2003, the Company acquired certain assets from AMI
Technologies Corp., its exclusive sales organization for Taiwan and
China since 1992, for cash 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.
On September 30, 2004, the Company acquired the remaining assets
located in Taiwan and China from AMI Technologies Corp. for cash
consideration of $1.6 million. The purchase price was allocated to the
net assets acquired, comprising of intangible assets of $1.6 million
and other assets of $12,000, based on their relative fair values at
the date of acquisition. The useful life of the intangible assets
acquired is approximately one year.
12
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
4. INTANGIBLE ASSETS AND GOODWILL
The net book values of intangible assets and goodwill at November 30, 2004 and
August 31, 2004 are as follows :
(Thousands of US dollars)
--------------------------------------------------------------------------------------------
Cost Accumulated Net book Net book value
amortization value
November 30, 2004 August 31, 2004
--------------------------------------------------------------------------------------------
Core technology $ 23,670 $18,850 $ 4,820 $ 5,558
Other 5,775 3,368 2,407 -
--------------------------------------------------------------------------------------------
Total intangible assets $ 29,445 $ 22,218 $ 7,227 $ 5,558
--------------------------------------------------------------------------------------------
Goodwill $ 376,788 $ 186,693 $ 190,095 $ 190,095
--------------------------------------------------------------------------------------------
Amortization expense related to intangible assets amounted to $1.2 million for
the three months ended November 30, 2004 (2004 - $1.5 million).
5. CREDIT FACILITIES
The Company maintains committed operating credit facilities aggregating $46.3
million with a single financial institution. There are no borrowings outstanding
under these facilities.
6. LONG-TERM DEBT
(Thousands of US dollars)
---------------------------------------------------------------------------------------
Interest November 30, August 31,
rate 2004 2004
---------------------------------------------------------------------------------------
Obligation under capital lease (i) 6.31% $ 19,690 $ 18,049
Mortgage payable (ii) 6.96% 12,543 11,575
---------------------------------------------------------------------------------------
32,233 29,624
Less : Current portion 1,761 1,571
---------------------------------------------------------------------------------------
Long-term portion $ 30,472 $ 28,053
---------------------------------------------------------------------------------------
(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
November 30, 2004, the remaining amount outstanding on the capital lease
was $19.7 million (Cdn. $23.4 million).
13
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
6. LONG-TERM DEBT (CONTINUED)
(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, 2004 amounted to $12.5 million (Cdn. $14.9 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 on 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 $2.5 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.
8. OTHER CHARGES
Other charges include the following items:
(Thousands of US dollars)
-----------------------------------------------------------------------------------
Three months ended
November 30
2004 2003
-----------------------------------------------------------------------------------
Regulatory matters (i) $ 382 $ 711
Restructuring charge (recovery) - European operations (ii) - (538)
-----------------------------------------------------------------------------------
Total $ 382 $ 173
-----------------------------------------------------------------------------------
14
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
8. OTHER CHARGES (CONTINUED)
(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 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 Chairman and then 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 March - June 2005.
(ii) Restructuring charge (recovery) - European operations:
The following table details the activity through the restructuring
liabilities accrual :
(Thousands of US dollars)
--------------------------------------------------------------------
Three months ended
November 30
2004 2003
--------------------------------------------------------------------
Balance, beginning of period $ 18 $ 4,246
Cash payments (14) (3,237)
--------------------------------------------------------------------
Balance, end of period $ 4 $ 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, 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. The Company completed the major components of its exit
plan for ATI Research GmbH in December 2003.
15
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 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
November 30
2004 2003
-------------------------------------------------------------------------------------------
Net income $ 63,703 $ 47,439
-------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding (000's):
Basic 249,027 242,998
Effect of dilutive securities 8,445 11,111
-------------------------------------------------------------------------------------------
Diluted 257,472 254,109
-------------------------------------------------------------------------------------------
Net income per share
Basic $ 0.26 $ 0.20
Diluted $ 0.25 $ 0.19
-------------------------------------------------------------------------------------------
At November 30, 2004, options to purchase 5,640,806 (2004 - 4,869,994) shares of
common stock were outstanding but were not included in the calculation of
diluted net income per share because to do so would have been anti-dilutive.
10. SUPPLEMENTAL CASH FLOW INFORMATION
(Thousands of US dollars)
------------------------------------------------------------------------
Three months ended
November 30
2004 2003
------------------------------------------------------------------------
Cash paid for:
Interest $ 489 $ 484
Income taxes 250 243
Interest received $ 1,915 $ 1,012
------------------------------------------------------------------------
16
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
11. SEGMENTED INFORMATION
ATI designs and manufactures innovative 3D graphics and digital media silicon
solutions. The Company has determined in the three month period ended November
30, 2004 that it operates in two reportable segments: Personal Computer (PC) and
Consumer. The PC segment includes all 3D graphics, video, and multimedia
products which are developed for use in desktop and notebook personal computers.
The Consumer segment includes products used in cell phones, PDA's, DTV's, and
set-top boxes. The Consumer segment also includes royalties and contract
engineering services derived from cell phone and game console products.
Previously, the Company reported as a single reportable segment.
The Company's management evaluates segment performance based on revenue and on
operating income which is calculated as income or loss from operations before
taxes excluding expenses related to stock-based compensation, amortization of
intangible assets, and other charges.
The Company does not identify or allocate fixed assets by reportable segment. In
addition, there are no inter-segment revenues. The accounting policies for all
operating segments are the same as those described in the summary of significant
accounting policies.
The following table presents the revenues and operating income of the two
reportable segments for the three months ended November 30, 2004 and 2003.
(Thousands of US dollars)
- -------------------------------------------------------------------------------------------------------
Consolidated PC Consumer
Three months ended Three months ended Three months ended
November 30 November 30 November 30
2004 2003 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------
Revenues $ 613,859 $ 469,705 $ 518,317 $ 425,406 $ 95,542 $ 44,299
Operating income 89,935 62,727 68,329 61,971 21,606 756
- -----------------------------------------------------------------------------------------------------
17
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
11. SEGMENTED INFORMATION (CONTINUED)
The following tables provide revenues by geographic area, 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
2004 2003
--------------------------------------------------------------
Revenues:
Canada $ 4,331 $ 6,293
United States 79,801 49,478
Europe 21,118 40,283
Asia-Pacific 508,609 373,651
--------------------------------------------------------------
Consolidated revenues $ 613,859 $ 469,705
--------------------------------------------------------------
November 30 August 31
2004 2004
-------------------------------------------------------------------------------------------
Capital assets, intangible assets and goodwill:
Canada $ 75,210 $ 73,863
United States 205,482 206,147
Europe 191 165
Asia-Pacific 3,960 1,421
-------------------------------------------------------------------------------------------
Consolidated capital assets, intangible assets and goodwill $ 284,843 $ 281,596
-------------------------------------------------------------------------------------------
18
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
12. STOCK-BASED COMPENSATION
(i) Stock options
The weighted average estimated fair value at the date of grant for the
stock options granted within the three months ended November 30, 2004
and November 30, 2003 was $9.14 and $8.34 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
weighted average assumptions:
-----------------------------------------------------------------------------------------
Three months ended
November 30
2004 2003
-----------------------------------------------------------------------------------------
Risk-free interest rate 3.6% 3.4%
Dividend yield 0.0% 0.0%
Volatility factor of the expected market price of the
Company's common shares 65.5% 72.6%
Expected life of the options 4.1 years 4.2 years
-----------------------------------------------------------------------------------------
The estimated fair value of the stock options is amortized to expense
on a straight line basis over the options' vesting period and the
related expense for the three months end November 30, 2004 amounted
to $8.0 million. The stock option expense by functional areas is as
follows:
(Thousands of US dollars)
---------------------------------------------------------------------------
Three months ended
November 30, 2004
---------------------------------------------------------------------------
Selling and marketing $ 1,595
Research and development 5,268
Administrative 1,186
---------------------------------------------------------------------------
$ 8,049
---------------------------------------------------------------------------
19
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
12. STOCK-BASED COMPENSATION (CONTINUED)
(ii) Restricted share units
During the first quarter of fiscal 2004, the Company adopted a plan
to grant restricted share units ("RSUs") to certain employees as part
of its overall stock-based compensation plan. Under the terms of the
plan, RSUs vest on each anniversary of the grant in equal one-third
instalments over a period of three years. During the three months
ended November 30, 2003, the Company advanced $22.1 million to the
trustee to purchase the Company's common shares in the open market.
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. In October 2004, 503,903 RSUs
vested and were settled by delivery of common shares of the Company
to the participants or by cash equivalent to its market value on the
vesting date. As at November 30, 2004, there were 1,001,087 RSUs
awarded and outstanding.
RSU expense by functional areas incurred for the three months ended
November 30, 2004 and 2003, excluding the one-time cash payment of
$7.8 million made in the first quarter of fiscal 2004 to the
non-executive employees who were eligible for the RSU plan, are
summarized in the following table:
(Thousands of US dollars)
--------------------------------- ---------------------------
Three months ended
November 30
2004 2003
--------------------------------- ------------ -------------
Selling and marketing $ 383 $ 116
Research and development 1,279 515
Administrative 279 120
--------------------------------- ------------ -------------
$ 1,941 $ 751
--------------------------------- ------------ -------------
(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. As at November 30, 2004, there were 92,082 DSUs
outstanding of which 85,311 were vested (2004 - nil).
The expenses for three months ended November 30, 2004 relating to
DSUs granted to the directors for services rendered were $0.6 million
(2004 - nil).
20
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 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 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
2004 2003
------------------------------------------------------------------------------
Net income in accordance with Canadian GAAP $ 63,703 $ 47,439
Tax effect of stock options exercised (2,353) (2,230)
Expenses related to stock options, net of taxes (i) 7,649 -
Stock-compensation expenses (ii), (iii) (6,812) (2,879)
Other 28 28
------------------------------------------------------------------------------
Net income in accordance with U.S. GAAP $ 62,215 $ 42,358
------------------------------------------------------------------------------
Net income per share:
Basic $ 0.25 $ 0.17
Diluted $ 0.24 $ 0.17
------------------------------------------------------------------------------
Weighted average number of shares (000's):
Basic 249,027 242,998
Diluted 257,472 254,109
------------------------------------------------------------------------------
21
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
November 30, 2004
(Unaudited)
13. U.S. GAAP (CONTINUED)
(i) Under Canadian GAAP, effective September 1, 2004, the Company adopted
the fair value method of recognizing stock-based compensation. For
U.S. GAAP purposes, the intrinsic value method is used to account for
stock-based compensation for employees. Compensation expense of $7.6
million, net of taxes recognized under Canadian GAAP would not be
recognized under U.S. GAAP for the three months ended November 30,
2004. The exercise price of stock options is equal to the market value
of the underlying shares at the date of grant, therefore there is no
expense under the intrinsic value method for U.S. GAAP purposes for
the three months ended November 30, 2004 and 2003.
(ii) 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.
(iii)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. COMPARATIVE INFORMATION
The company has reclassified certain prior period information to conform to the
current period presentation.
22
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 21, 2004 By: //Terry Nickerson//
-------------------------------------------
Name: Terry Nickerson
Title: Senior Vice President, Finance and
Chief Financial Officer