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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 March, 2005
----------------
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 30 Pages
Index is located on Page 2
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INDEX
Document Page Number
- -------- -----------
Press Release dated March 24, 2005 3
Press Release dated March 24, 2005 28
Signature Page 30
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[ATI Technologies Inc. LOGO]
For more information, please contact:
Chris Evenden, Director, Public Relations
905-882-2629 or cevenden@ati.com
----------------
ATI Reports Second Quarter Results
Revenues increase 31% to $608 million
MARKHAM, ON - March 24, 2005 - ATI Technologies Inc. (TSX: ATY, NASDAQ: ATYT)
today announced a 31% increase in revenues and a 20% improvement in net income
for the second quarter of fiscal 2005 as compared to the same quarter last year.
Quarterly revenues1 grew $145 million to $608 million relative to the second
quarter of fiscal 2004 as a result of strong sales in both the personal computer
(PC) and digital consumer segments. Gross margin percentage was 34.2%. For the
second quarter, net income and net income per share were $57 million and $0.22,
respectively. Stock-based compensation costs2 in the second quarter of fiscal
2005 totaled $10.3 million. Net income and net income per share excluding these
costs and related taxes would have been $66 million and $0.25, respectively, as
compared with $50 million or $0.20 in the second quarter of fiscal 2004.
"In addition to posting solid year-over-year results, ATI performed well in a
seasonally down quarter," said David Orton, ATI's Chief Executive Officer.
"Strong sales of discrete PC products helped to offset the anticipated seasonal
weakness in our digital consumer business, which we expect will rebound nicely
in the second half. With the best solutions for visual applications in the PC
and digital consumer markets, we're excited about our prospects for the rest of
2005 and beyond. The share repurchase plan announced separately today reflects
the confidence of the board and management team in ATI's long-term growth
potential."
_________________
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 In accordance with Canadian GAAP, beginning with the first quarter of
fiscal 2005, ATI began expensing compensation costs associated with stock
options granted to employees after September 1, 2002. Total stock-based
compensation includes the costs associated with stock options, restricted
share units and deferred share units.
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- --------------------------- ----------------------------------------------------------------------------
Three months ended Feb. 28, 2005
- --------------------------- ----------------------------------------------------------------------------
Excluding Stock-Based Compensation Including Stock-based Compensation
Costs Costs (GAAP)
- --------------------------- -------------------------------------- -------------------------------------
Net income $66.2 million $57.2 million
- --------------------------- -------------------------------------- -------------------------------------
Net income per share $0.25 $0.22
- --------------------------- -------------------------------------- -------------------------------------
Outlook
For the third quarter, we anticipate a slight increase in our consumer business
and a seasonal decline in our PC business, which is expected to result in
revenues of $560 to $600 million. Gross margin percentage is expected to remain
approximately the same as the second quarter. Operating expenses, excluding
stock-based compensation costs, are expected to increase by about 5%
sequentially as we continue to invest in research and development to create a
foundation for long-term growth.
Looking into the fourth quarter, we expect our consumer business to nearly
double revenues from third quarter levels, and expect the PC business to be
better than seasonal due to growth in integrated and new products.
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 and six months ended February 28, 2005
compared to the three and six months ended February 29, 2004. This MD&A should
be read in conjunction with the attached unaudited interim consolidated
financial statements for the period ended February 28, 2005, 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 2004 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 March 24,
2005.
Any reference to "year-over-year" in this MD&A refers to a comparison of this
year's second quarter results versus the second quarter of the prior year unless
otherwise noted.
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RESULTS OF OPERATIONS
Revenues
Second quarter revenues grew $145 million to $608 million relative to the same
period a year ago. The PC segment accounted for $550 million or 90% of revenues
while the Consumer segment accounted for $58 million or 10% of revenues in the
quarter.
Effective the first quarter of fiscal 2005, we operate in two reportable
segments: PC and Consumer. The PC segment includes all 3D graphics, video and
multimedia products developed for use in desktop and notebook computers. The
Consumer segment includes products used in cell phones, digital televisions
(DTVs) and other consumer electronics. The Consumer segment also includes
royalties and contract engineering services under development and licence
agreements with cell phone and game console product manufacturers.
PC
- --
PC revenues were up just over 30% during the quarter compared to the same
quarter last year primarily due to 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). We continued to successfully penetrate the AIB
channel, with record quarterly sales up nearly 50% from the second quarter last
year. Product demand was particularly strong for mainstream AGP and high-end PCI
Express products among OEM and AIB customers. Workstation product revenues more
than doubled from the second quarter last year as we began to ramp a number of
PCI Express-based OEM design wins.
Notebook discrete revenues in the quarter rose about 35% compared to the same
quarter last year. These were somewhat offset by lower sales of integrated
products.
Consumer
- --------
Handheld revenues in the second quarter rose almost 50% compared to the same
quarter last year due to a growing number of design wins and strong product
acceptance of the IMAGEON family of media processors, particularly the IMAGEON
2250. Revenues from digital television products grew dramatically due to the
success of our XILLEON and NxtWave products with television manufacturers and
the accelerating market transition from analog television to DTV in the U.S.
Revenues for the first six months of fiscal 2005
Revenues for the first six months of fiscal 2005 grew 31% to $1.2 billion from
$933 million in the same period last year. The PC segment accounted for $1.1
billion or 87% of total revenues while Consumer represented $154 million or 13%
of total revenue. Revenue growth resulted from strong market share and sales in
desktop discrete, continued strength in the notebook market and strong sales
improvement in our handheld and DTV consumer businesses.
Gross Margin
- ------------
Gross margin percentage for the second quarter of fiscal 2005 was 34.2%, down
0.4% from 34.6% for the same period a year ago. Gross margin percentage for the
first six months of fiscal 2005 was 34.1%, down from 35.2% for the same period
last year.
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The decline in gross margin percentage in both the quarter and year-to-date was
primarily due to production costs associated with the introduction and ramp of
our new PCI Express products - particularly in the desktop market. The overall
gross margin percentage decline was partially offset by the strong sales growth
in our consumer business, which has margins that are typically higher than our
corporate average.
Operating Expenses
- ------------------
In total, our operating expenses, excluding stock-based compensation, increased
31% in the quarter and 22% on a year-to-date basis compared to the same periods
last year, respectively. This was driven by the need to make the necessary
investments to maintain technology leadership and create a platform for
continued growth.
The foreign exchange impact of a stronger Canadian dollar increased operating
expenses in the second quarter by $4 million or 4% compared to the same quarter
last year.
Selling and marketing expenses were up 34% in the quarter compared to the second
quarter last year. The increase was primarily related to higher levels of
personnel, as well as increased advertising and promotion to support our revenue
growth. On a year-to-date basis, selling and marketing expenses increased 22%
compared to the six months last year mainly due to additional personnel, as well
as higher sample costs and travel expenses largely related to sales and
marketing programs.
Research and development (R&D) expenses rose 28% in the quarter compared to the
second quarter of 2004. The increase was the result of continued investment
across both the PC and Consumer segments to support continued product and
technology leadership. The investment was largely the result of an increase in
technical staff to support new product lines, but was also due to higher
facility and prototyping costs. For the first half of fiscal 2005, R&D expenses
rose 22% compared to the same period in 2004, for the same reasons cited above.
Administrative expenses were up 37% in the quarter and 24% for the first six
months of fiscal 2005 compared to the same periods in 2004. The increases are
primarily attributable to headcount related expenses.
Stock-based Compensation
- ------------------------
In accordance with Canadian GAAP, in the first quarter of fiscal 2005, ATI began
to expense 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 unaudited interim
consolidated statements of operations and retained earnings.
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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 $10.3 million pre-tax in the
quarter as compared with $2.8 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 GAAP during the first
quarter of fiscal 2005.
The $10.3 million expense in the second quarter of fiscal 2005 included $8.6
million for compensation costs associated with stock options and $1.7 million
for compensation costs associated with restricted share units and deferred share
units.
Interest and Other Income
- -------------------------
Interest and other income was $4 million in the second quarter of 2005, compared
with $2 million for the comparable period in fiscal 2004. The difference
primarily reflects increased investment income derived from interest on our
higher cash balances.
In the second quarter of fiscal 2005, we recorded an investment gain of
approximately $1 million as compared with nil in the comparable period.
For the first six months of fiscal 2005, interest and other income was $6
million, as compared with $0.1 million for the same period in 2004. The
difference is attributable to interest on our higher cash balances. Interest and
other income in the first half of last year was also impacted by the write off
of capital assets in the first quarter of the year, which was partially offset
by an insurance recovery in the second quarter.
Net Income
- ----------
Net income increased 20% to $57 million in the second quarter of fiscal 2005
from $48 million in the same quarter last year largely due to substantial growth
in revenue. Net income per share increased to $0.22 from $0.19 over the same
period. Net income and net income per share excluding the stock-based
compensation costs described above were $66 million and $0.25, respectively, for
the second quarter of fiscal 2005.
Year-to-date, net income increased 27% to $121 million or $0.47 per share from
$95 million or $0.37 per share for the first half of fiscal 2004. The increase
was largely the result of strong sales growth.
Liquidity and Financial Resources
Inventory turnover was above our target of 60 days to better support our
customers during the AGP to PCI Express and lead-free transitions. Also, we have
recently undertaken a strategic initiative to improve our manufacturing and
product delivery processes and as a result, increased our inventory levels to
ensure seamless order fulfillment as we transition through this process change.
Inventory levels of $367 million at the end of the second quarter increased from
$255 million at fiscal 2004 year-end. Inventory is expected to return within our
target range by the end of the fiscal year.
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Accounts receivable was up 12% to $410 million from $366 million at August 31,
2004. Accounts payable and accruals rose 23% to $583 million from $474 million
at August 31, 2004. Accounts receivable, accounts payable and accruals are at
levels consistent with our business volumes.
As of February 28, 2005 we had working capital of $852 million compared to $695
million at fiscal 2004 year-end. Cash flows from operations were $41 million in
the second quarter. Our cash position, which is defined as cash and cash
equivalents and short-term investments, at February 28, 2005 was $653 million,
up from $549 million at fiscal 2004 year-end and $621 million at November 30,
2004.
Outstanding Share Data
At February 28, 2005 there were 252,258,221 common shares outstanding or
259,742,630 shares on a weighted average diluted basis.
Other Corporate Developments
During the quarter, we entered into a definitive agreement to acquire certain
cable modem silicon intellectual property and to hire approximately twenty-five
employees from Terayon Communication Systems, Inc. The transaction closed on
March 9, 2005, subsequent to quarter-end. The purchase price allocation has not
been finalized. An independent valuator is being employed to determine the
allocation of the fair values of the assets acquired. The acquisition is
expected to enhance our strategic position in the DTV market, particularly in
the area of interactive digital cable ready (iDCR) television.
Also during the second quarter, we completed our acquisition of CuTe Solutions
Private Limited ("CuTe") of Hyderabad, India. CuTe possesses expertise in audio
and digital media solutions and will broaden our product offering for consumer
electronics devices and personal computers. CuTe's offices in Hyderabad will
also form the basis of ATI's new research and development centre in India, ATI
Technologies India Private Limited.
Normal Course Issuer Bid
ATI also announced on March 24, 2005 that a Notice of Intention to make a Normal
Course Issuer Bid has been filed with, and accepted by, the Toronto Stock
Exchange. Under our Normal Course Issuer Bid, ATI may purchase up to 24,700,000
of its common shares, representing approximately 10% of its "public float" as of
March 17, 2005, as calculated in accordance with TSX rules and policies. ATI
will cancel any common shares purchased under this Bid. The purchase may
commence on March 30, 2005 and will terminate on March 29, 2006 or on such
earlier date as ATI may complete its purchases under the terms of the Bid.
ATI believes that its common shares are an attractive investment and that normal
course purchases represent an excellent opportunity to enhance value for
shareholders. ATI's strong cash position allows for the implementation of the
normal course issuer bid without adversely affecting ATI's other growth
opportunities.
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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.
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR EIGHT QUARTERS
(Thousands of U.S. dollars, except per share amounts)
Q2 2005 Q1 2005 Q4 2004 Q3 2004 Q2 2004 Q1 2004 Q4 2003 Q3 2003
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Revenues $608,188 $613,859 $572,218 $491,457 $463,337 $469,705 $380,674 $355,691
Cost of goods sold 399,885 405,009 379,836 318,918 302,914 302,134 246,643 240,700
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Gross margin 208,303 208,850 192,382 172,539 160,423 167,571 134,031 114,991
Expenses
Selling and marketing 36,352 33,125 29,244 31,243 27,031 30,079 26,176 24,586
Research and development 77,726 73,114 75,865 65,539 60,809 63,278 61,285 53,713
Administrative 15,793 12,676 11,517 12,166 11,532 11,487 10,557 10,326
Amortization of intangible
assets 1,389 1,244 1,486 1,546 1,541 1,542 1,271 3,169
Stock-based compensation 10,329 10,558 1,691 2,315 2,826 751 0 0
Other charges (recoveries) 278 382 155 (454) (178) 173 10,440 2,288
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
141,867 131,099 119,958 112,355 103,561 107,310 109,729 94,082
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Income from operations 66,436 77,751 72,424 60,184 56,862 60,261 24,302 20,909
Interest and other income (loss) 3,624 2,176 2,815 1,340 1,856 (1,754) 714 (1,350)
Gain (loss) on investments 880 0 0 (1,307) 0 0 3,844 0
Interest expense (537) (519) (499) (513) (531) (515) (516) (488)
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Income before income taxes 70,403 79,408 74,740 59,704 58,187 57,992 28,344 19,071
Income taxes 13,210 15,705 13,584 11,085 10,602 10,553 6,050 4,063
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Net income $57,193 $63,703 $61,156 $48,619 $47,585 $47,439 $22,294 $15,008
========== =========== ========== =========== ========== =========== ========== ==========
Net income per share
Basic $0.23 $0.26 $0.25 $0.20 $0.19 $0.20 $0.09 $0.06
Diluted $0.22 $0.25 $0.24 $0.19 $0.19 $0.19 $0.09 $0.06
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Weighted average number of shares (000's)
Basic 251,046 249,027 247,699 245,960 244,373 242,998 240,647 238,183
Diluted 259,743 257,917 258,198 256,650 255,876 254,109 249,525 242,539
Outstanding number of shares at the end
of the period (000's) 252,258 251,324 249,287 247,886 246,604 244,239 241,742 239,267
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
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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 second quarter ended February
28, 2005. 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 Quarterly
Results section, Q2 2005. Replays of the conference call will be available
through March 31, 2005 by calling 416-695-5800. The passcode is 3125451. 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 graphics processing unit (GPU) 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 fiscal 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 2005 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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues $ 608,188 100.0% $ 463,337 100.0% $ 1,222,047 100.0% $933,042 100.0%
Cost of goods sold 399,885 65.8% 302,914 65.4% 804,894 65.9% 605,048 64.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Gross margin 208,303 34.2% 160,423 34.6% 417,153 34.1% 327,994 35.2%
Expenses
Selling and marketing 36,352 6.0% 27,031 5.8% 69,477 5.7% 57,110 6.1%
Research and development 77,726 12.8% 60,809 13.1% 150,840 12.3% 124,087 13.3%
Administrative 15,793 2.6% 11,532 2.5% 28,469 2.3% 23,019 2.5%
Amortization of intangible assets (Note 4) 1,389 0.2% 1,541 0.3% 2,633 0.2% 3,083 0.3%
Stock-based compensation 10,329 1.7% 2,826 0.6% 20,887 1.7% 3,577 0.4%
Other charges (recoveries) (Note 8) 278 - (178) - 660 0.1% (5) -
- ---------------------------------------------------------------------------------------------------------------------------------
141,867 23.3% 103,561 22.3% 272,966 22.3% 210,871 22.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Income from operations 66,436 10.9% 56,862 12.3% 144,187 11.8% 117,123 12.6%
Interest and other income 3,624 0.6% 1,856 0.4% 5,800 0.5% 102 -
Gain on investments 880 0.2% - - 880 0.1% - -
Interest expense (537) (0.1%) (531) (0.1%) (1,056) (0.1%) (1,046) (0.1%)
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 70,403 11.6% 58,187 12.6% 149,811 12.3% 116,179 12.5%
Income taxes 13,210 2.2% 10,602 2.3% 28,915 2.4% 21,155 2.3%
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 57,193 9.4% $ 47,585 10.3% $ 120,896 9.9% $ 95,024 10.2%
Retained earnings, beginning of period 358,685 151,465 308,825 104,026
Adjustment to opening retained earnings:
Change in accounting policy on stock-based
compensation (Note 1) - - (13,843) -
- ---------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 415,878 $ 199,050 $ 415,878 $ 199,050
- ---------------------------------------------------------------------------------------------------------------------------------
Net income per share (Note 9)
Basic $ 0.23 $ 0.19 $ 0.48 $ 0.39
Diluted $ 0.22 $ 0.19 $ 0.47 $ 0.37
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares (000's)
Basic 251,046 244,373 250,036 243,685
Diluted 259,743 255,876 258,830 254,992
Outstanding number of shares at the end of the
quarter (000's) 252,258 246,604 252,258 246,604
- ---------------------------------------------------------------------------------------------------------------------------------
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)
----------------------------------------------------------------------- --------------
February 28 August 31
2005 2004
----------------------------------------------------------------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 367,026 $ 359,608
Short-term investments 285,607 189,308
Accounts receivable 410,046 365,644
Inventories 367,390 254,867
Prepayments and sundry receivables 23,086 21,873
Future income tax assets 9,590 8,076
------------------------------------------------------------------- ----------------
Total current assets 1,462,745 1,199,376
Capital assets 95,922 85,943
Intangible assets (Note 4) 9,828 5,558
Goodwill (Note 4) 190,095 190,095
Long-term investments 2,751 2,751
Tax credits recoverable 3,275 9,193
Future income tax assets 26,883 20,570
------------------------------------------------------------------- ----------------
Total Assets $ 1,791,499 $ 1,513,486
==================================================================== ================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 324,868 $ 274,772
Accrued liabilities 258,400 199,129
Deferred revenue 25,164 29,131
Current portion of long-term debt (Note 6) 1,730 1,571
Future income tax liabilities 94 54
------------------------------------------------------------------- ----------------
Total current liabilities 610,256 504,657
Long-term debt (Note 6) 29,015 28,053
Future income tax liabilities 39,981 36,088
------------------------------------------------------------------- ----------------
Total liabilities 679,252 568,798
Shareholders' equity:
Share capital 661,415 638,985
Treasury stock (14,867) (22,100)
Contributed surplus 41,547 10,704
Retained earnings 415,878 308,825
Currency translation adjustments 8,274 8,274
------------------------------------------------------------------- ----------------
Total shareholders' equity 1,112,247 944,688
------------------------------------------------------------------- ----------------
Total Liabilities and Shareholders' Equity $ 1,791,499 $ 1,513,486
==================================================================== ================
Guarantee (note 7)
Subsequent events (note 15)
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.
14 of 30
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of US dollars)
- ---------------------------------------------------- -------------------------------- --------------------------------
Three months ended Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
- ---------------------------------------------------- ---------------- --------------- ---------------- ---------------
Cash provided by (used in):
Operating activities:
Net income $ 57,193 $ 47,585 $ 120,896 $ 95,024
Items which do not involve cash:
Tax credits recoverable 3,649 1,057 5,918 3,274
Future income taxes 694 2,379 320 1,801
Stock-based compensation 10,306 1,744 20,010 2,415
Depreciation and amortization 6,666 6,643 12,604 13,245
Gain on investments (880) - (880) -
Gain on sale of long-lived assets (Note 8) - - - (538)
Unrealized foreign exchange loss (gain) (935) (825) 1,687 506
Change in non-cash operating working capital:
Accounts receivable (10,982) 47,427 (44,402) 12,985
Inventories (75,818) (4,122) (112,523) (52,235)
Prepayments and sundry receivables 11,429 (4,653) (1,095) 1,734
Accounts payable 29,303 (26,617) 50,090 12,072
Accrued liabilities 14,025 8,156 59,519 22,683
Deferred revenue (3,370) (3,566) (3,967) (462)
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
41,280 75,208 108,177 112,504
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
Financing activities:
Principal payment on long-term debt (421) (364) (813) (708)
Issuance of common shares 8,312 18,636 22,430 34,640
Repurchase of common shares (Note 12) - - - (22,100)
Proceeds from sale of treasury stock - - 9 -
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
7,891 18,272 21,626 11,832
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
Investing activities:
Purchase of short-term investments (172,750) (49,907) (243,826) (49,907)
Maturity and proceeds from sales of short-term
investments 89,902 - 147,527 49,784
Additions to capital assets (13,432) (4,948) (19,655) (7,531)
Proceeds from gain on investments 880 - 880 -
Proceeds from sale of long-lived assets (Note 8) 2,489
Acquisitions, net of cash acquired (Note 3) (4,470) (2) (7,558) (2,071)
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
(99,870) (54,857) (122,632) (7,236)
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
Foreign exchange gain (loss) on cash held in foreign
currency (132) (34) 247 561
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents (50,831) 38,589 7,418 117,661
Cash and cash equivalents - beginning of period 417,857 379,977 359,608 300,905
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
Cash and cash equivalents - end of period 367,026 418,566 367,026 418,566
Short-term investments 285,607 49,907 285,607 49,907
- ---------------------------------------------------- ---------------- ------------- -------------- ---------------
Cash position - end of period $ 652,633 $ 468,473 $ 652,633 $ 468,473
===================================================================================================================
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.
15 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2005
(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 interim consolidated 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
Canadian 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 unaudited 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 unaudited interim consolidated 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 accounting policy adopted by the Company on September
1, 2004 relating to 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 models, 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 and six months ended February 28, 2005 was $8.6 and $16.6 million
respectively.
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 and six months ended February 29, 2004.
(Thousands of US dollars, except per share amount)
-------------------------------------------------------------------------------------------------
Three months ended Six months ended
February 29, 2004 February 29, 2004
--------------------------------------------------------------------------- ---------------------
Net income:
As reported $ 47,585 $ 95,024
Pro forma 46,220 92,157
Basic net income per share:
As reported $ 0.19 $ 0.39
Pro forma 0.19 0.38
Diluted net income per share:
As reported $ 0.19 $ 0.37
Pro forma 0.18 0.36
-------------------------------------------------------------------------------------------------
16 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(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 and six months ended
February 28, 2005 are 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.
During the second quarter of fiscal 2005, the Company purchased Forwards to buy
$93.0 million Canadian dollars in the next six months at an average exchange
rate of 1.2333. Forwards that have become favourable to the Company since their
inception constitute unrecognized financial assets and have a fair value of
$348,000 as at February 28, 2005. Forwards that have become unfavourable
constitute unrecognized financial liabilities and have a fair value of $43,000
as at February 28, 2005.
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 February
28, 2005, 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.
17 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(Unaudited)
3. ACQUISITIONS (CONTINUED)
(iii) On February 24, 2005, the Company acquired CuTe Solutions Private Limited
("CuTe") for cash consideration of $4.1 million. CuTe, a high technology
embedded solutions provider, is located in India. The acquisition was
accounted for using the purchase method, whereby the results of
operations of CuTe have been included in the consolidated statements of
operations and retained earnings and cash flows from the date of
acquisition.
The fair values of the net assets acquired were as follows:
(Thousands of U S dollars)
-----------------------------------------------------------------
Net assets:
Current assets, including cash of $41 $ 159
Capital assets 245
Core technology 2,890
Other intangible 1,100
Liabilities assumed (248)
-----------------------------------------------------------------
Cash consideration $ 4,146
-----------------------------------------------------------------
Core technology and other intangible are being amortized as follows:
------------------------------------------------------------------
Core technology 2 years
Other intangible 8 months
------------------------------------------------------------------
4. INTANGIBLE ASSETS AND GOODWILL
The net book values of intangible assets and goodwill at February 28, 2005 and
August 31, 2004 are as follows:
(Thousands of US dollars)
----------------------------------------- ----------------- ------------------------
Cost Accumulated Net book Net book value
amortization value
February 28, 2005 August 31, 2004
------------------------------------------------------------------------------------
Core technology $ 26,560 $ 19,585 $ 6,975 $ 5,558
Other 6,875 4,022 2,853 -
-----------------------------------------------------------------------------------
Total intangible assets $ 33,435 $ 23,607 $ 9,828 $ 5,558
-----------------------------------------------------------------------------------
Goodwill $ 376,788 $ 186,693 $ 190,095 $ 190,095
-----------------------------------------------------------------------------------
Amortization expense related to intangible assets amounted to $1.4 million and
$2.6 million for the three months and six months end respectively (2004 - $1.6
million and $3.1 million).
5. CREDIT FACILITIES
The Company maintains committed operating and overdraft credit facilities
aggregating $45.1 million with a single financial institution. There are no
borrowings outstanding under these facilities.
18 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(Unaudited)
6. LONG-TERM DEBT
(Thousands of US dollars)
------------------------------------- ------------ ------------------ -------------------
Interest February 28 2005 August 31 2004
rate
------------------------------------- ------------ ------------------ -------------------
Obligation under capital lease (i) 6.31% $ 18,833 $ 18,049
Mortgage payable (ii) 6.96% 11,912 11,575
------------------------------------- ------------ ------------------ -------------------
30,745 29,624
Less : Current portion 1,730 1,571
------------------------------------- ------------ ------------------ -------------------
Long-term portion $ 29,015 $ 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
February 28, 2005, the remaining amount outstanding on the capital lease
was $18.8 million (Cdn. $23.2 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 February
28, 2005 amounted to $11.9 million (Cdn. $14.7 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 $2.4 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.
19 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(Unaudited)
8. OTHER CHARGES (RECOVERIES)
Other charges (recoveries) include the following items:
(Thousands of US dollars)
------------------------------------------------ ------------------------------ -------------------
Three months ended Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
------------------------------------------------ ----------- ------------ ------------ ------------
Regulatory matters (i) $ 278 $ 433 $ 660 $ 1,144
Restructuring charge - European operations (ii) - - - (538)
Lease exit charge (iii) - (611) - (611)
------------------------------------------------ ----------- ------------ ------------ ------------
Total $ 278 $ (178) $ 660 $ (5)
------------------------------------------------ ----------- ------------ ------------ ------------
(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 - European operations:
The following table details the activity through the restructuring
liabilities accrual:
(Thousands of US dollars)
------------------------------- -------------------------------- --------------------------------
Three months ended Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
------------------------------- ---------------- --------------- ---------------- ---------------
Balance, beginning of period $ 4 $ 1,009 $ 18 $ 4,246
Cash payments - (137) (14) (3,374)
------------------------------- ---------------- --------------- ---------------- ---------------
Balance, end of period $ 4 $ 872 $ 4 $ 872
------------------------------- ---------------- --------------- ---------------- ---------------
20 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(Unaudited)
8. OTHER CHARGES (RECOVERIES) (CONTINUED)
(ii) Restructuring charge - European operations (continued):
(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 six months ended February 28, 2005, the Company made
cash payments of $14,000 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.
(iii) Lease exit charge
During the second quarter of fiscal 2004, the Company determined that it
would re-occupy a leased property, which the Company had exited in the
second quarter of fiscal 2003, due to an expansion of business. It resulted
in a recovery of exit charge in the amount of $0.6 million for the quarter.
21 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
------------------------------------------- --------------- --------------- ---------------- ---------------
Net income $ 57,193 $ 47,585 $ 120,896 $ 95,024
------------------------------------------- --------------- --------------- ---------------- ---------------
Weighted average number of common shares
outstanding (000's):
Basic 251,046 244,373 250,036 243,685
Effect of dilutive securities 8,697 11,503 8,794 11,307
------------------------------------------- --------------- --------------- ---------------- ---------------
Diluted 259,743 255,876 258,830 254,992
------------------------------------------- --------------- --------------- ---------------- ---------------
Net income per share
Basic $ 0.23 $ 0.19 $ 0.48 $ 0.39
Diluted $ 0.22 $ 0.19 $ 0.47 $ 0.37
------------------------------------------- --------------- --------------- ---------------- ---------------
At February 28, 2005, options to purchase 3,407,828 shares of common stock (2004
- - 3,545,437) 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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
------------------------------------------------------------------------------------------------------
Cash paid for:
Interest $512 $ 498 $ 1,001 $ 982
Income taxes 163 700 413 943
Interest received $ 3,419 $ 857 $ 5,334 $ 1,869
-------------------------------------- --------------- ------------ ------------ ---------------
22 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(Unaudited)
11. SEGMENTED INFORMATION
The Company designs and manufactures innovative 3D graphics and digital media
silicon solutions. The Company has determined in the first quarter of fiscal
2005 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 polices 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 and six months ended February 28 and
29, 2005 and 2004.
(Thousands of US dollars)
- --------------------------- ------------------------------ ------------------------------ ------------------------------
Consolidated PC Consumer
Three months ended Three months ended Three months ended
February 28/29 February 28/29 February 28/29
2005 2004 2005 2004 2005 2004
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
Revenues $ 608,188 $ 463,337 $ 549,861 $ 422,484 $ 58,327 $ 40,853
Operating income 78,432 61,051 79,478 64,809 (1,046) (3,758)
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
(Thousands of US dollars)
- --------------------------- ------------------------------ ------------------------------ ------------------------------
Consolidated PC Consumer
Six months ended Six months ended Six months ended
February 28/29 February 28/29 February 28/29
2005 2004 2005 2004 2005 2004
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
Revenues $ 1,222,047 $ 933,042 $ 1,068,178 $ 847,890 $ 153,869 $ 85,152
Operating income 168,367 123,778 147,807 126,781 20,560 (3,003)
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
23 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
---------------------------- ---------------- --------------- ---------------- ---------------
Revenues:
Canada $ 3,975 $ 5,061 $ 8,306 $ 11,354
United States 65,138 60,211 144,939 109,689
Europe 27,227 27,642 48,345 67,925
Asia-Pacific 511,848 370,423 1,020,457 744,074
---------------------------- ---------------- --------------- ---------------- ---------------
Consolidated revenues $ 608,188 $ 463,337 $ 1,222,047 $ 933,042
---------------------------- ---------------- --------------- ---------------- ---------------
(Thousands of US dollars)
------------------------------------------------------------- ---------------- ---------------
February 28 August 31
2005 2004
------------------------------------------------------------- ---------------- ---------------
Capital assets, intangible assets and goodwill:
Canada $ 78,004 $ 73,863
United States 209,626 206,147
Europe 196 165
Asia-Pacific 8,019 1,421
------------------------------------------------------------- ---------------- ---------------
Consolidated capital assets, intangible assets
and goodwill $ 295,845 $ 281,596
------------------------------------------------------------- ---------------- ---------------
For the three months and six months end February 28, 2005, one customer
accounted for 14% and 13% respectively, and another customer accounted for 11%
and 11% respectively of the Company's consolidated revenues (2004 - one customer
accounted for 12% and 12%, and another customer accounted for 12% and 11%). At
February 28, 2005, one customer accounted for 14% of consolidated accounts
receivable (2004 - one customer accounted for 15%).
24 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(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 and six months
ended February 28, 2005 was $9.44 and $9.30 per share respectively
(2004 - $8.59 and $8.41). 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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
------------------------------------------------ ---------------- --------------- ---------------- ---------------
Risk-free interest rate 3.6% 2.9% 3.6% 3.3%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility factor of the expected market price
of the Company's common shares 65.5% 70.8% 65.5% 72.0%
Expected life of the options 4.1 years 4.2 years 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 and six months end February 28,
2005 amounted to $8.6 million and $16.6 million respectively. The
stock option expense by functional areas is as follows:
(Thousands of US dollars)
-------------------------------------------- ----------------------- ----------------------
Three months ended Six months ended
February 28 February 28
2005 2005
-------------------------------------------- ----------------- ----------------------------
Selling and marketing $ 1,675 $ 3,270
Research and development 5,568 10,836
Administrative 1,360 2,546
-------------------------------------------- ----------------- ----------------------------
Total $ 8,603 $ 16,652
-------------------------------------------- ----------------- ----------------------------
25 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(Unaudited)
12. STOCK-BASED COMPENSATION (CONTINUED)
(ii) Restricted share units
Commencing in 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 installments 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. During the three months and six months ended
February 28, 2005, the numbers of RSUs granted were 17,250 and 47,250
respectively, and the numbers of RSU forfeited were 10,791 and 19,718
respectively. As at February 28, 2005, there were 1,036,879 RSUs
awarded and outstanding.
RSU expense by functional areas incurred for the three months and six
months end February 28 and 29, 2005 and 2004, 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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
-------------------------------- --------------- ---------------- --------------- ----------------
Selling and marketing $ 219 $ 305 $ 602 $ 421
Research and development 1,284 1,339 2,563 1,854
Administrative 204 312 483 432
-------------------------------- --------------- ---------------- --------------- ----------------
Total $ 1,707 $ 1,956 $ 3,648 $ 2,707
-------------------------------- --------------- ---------------- --------------- ----------------
(iii) Deferred share units
Commencing in the second quarter of fiscal 2004, the Company
established a plan to grant deferred share units ("DSUs") to its
non-management directors. As at February 28, 2005, there were 92,082
DSUs outstanding and vested (2004 - 57,957).
The expenses for three months and six months ended February 28, 2005
relating to DSUs granted to the directors for services rendered were
$19,000 and $0.6 million respectively (2004 - $0.9 million and $0.9
million).
26 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(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 Six months ended
February 28 February 29 February 28 February 29
2005 2004 2005 2004
---------------------------------------------------- --------------- -------------- -------------- ---------------
Net income in accordance with Canadian GAAP $ 57,193 $ 47,585 $ 120,896 $ 95,024
Tax effect of stock options exercised (742) (1,965) (3,095) (4,195)
Expenses related to stock options, net of taxes (i) 7,606 - 15,255 -
Stock-compensation expenses (ii), (iii) (1,301) (1,205) (8,113) (4,084)
Other 28 28 56 56
---------------------------------------------------- --------------- -------------- -------------- ---------------
Net income in accordance with U.S. GAAP $ 62,784 $ 44,443 $ 124,999 $86,801
---------------------------------------------------- --------------- -------------- -------------- ---------------
Net income per share:
Basic $ 0.25 $ 0.18 $ 0.50 $ 0.36
Diluted $ 0.24 $ 0.17 $ 0.48 $ 0.34
---------------------------------------------------- --------------- -------------- -------------- ---------------
Weighted average number of shares (000's):
Basic 251,046 244,373 250,036 243,685
Diluted 259,743 255,876 258,830 254,992
---------------------------------------------------- --------------- -------------- -------------- ---------------
27 of 30
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 28, 2005
(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 and $15.3 million, net of taxes recognized under Canadian GAAP
would not be recognized under U.S. GAAP for the three months and six
months ended February 28, 2005. 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 method for
U.S. GAAP purposes for the three months and six months ended February
28 and 29, 2005 and 2004.
(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.
15. SUBSEQUENT EVENTS
(i) On March 9, 2005, the Company acquired certain cable modem silicon
intellectual property and certain employees of Terayon Communication
Systems, Inc. for cash consideration of up to $14 million, plus
acquisition related costs. The purchase price allocation has not been
finalized. An independent valuator is being employed to determine the
allocation of the fair values of the assets acquired.
(ii) On March 24, 2005, the Company announced that a Notice of Intention to
make a Normal Course Issuer Bid had been filed with, and accepted by,
the Toronto Stock Exchange. Under the Normal Course Issuer Bid, ATI
may purchase up to 24,700,000 of its common shares, representing
approximately 10% of its "public float" as of March 17, 2005, as
calculated in accordance with TSX rules and policies. ATI will cancel
any common shares purchased under this Bid. The purchase may commence
on March 30, 2005 and will terminate on March 29, 2006 or on such
earlier date as ATI may complete its purchases under the terms of the
Bid.
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[OBJECT OMITTED]
For more information, please contact:
Chris Evenden, Director, Public Relations
905-882-2629 or cevenden@ati.com
ATI Announces Normal Course Issuer Bid
MARKHAM, ON - March 24, 2005 - ATI Technologies Inc. (TSX: ATY, NASDAQ: ATYT)
today announced that a Notice of Intention to make a Normal Course Issuer Bid
has been filed with, and accepted by, the Toronto Stock Exchange ("TSX"). Under
its normal course issuer bid, ATI may purchase up to 24,700,000 of its common
shares, representing approximately 10% of the "public float" as of March 17,
2005 (calculated in accordance with TSX Rules and Policies to be 247,020,093
common shares). A total of 252,376,396 common shares were issued and outstanding
as of March 17, 2005. ATI will cancel any common shares purchased pursuant to
the normal course issuer bid. The purchases may commence on Wednesday, March 30,
2005 and will terminate on Wednesday, March 29, 2006, or on such earlier date as
ATI may complete its purchases pursuant to the Notice of Intention to make a
normal course issuer bid filed with the TSX. Purchases will be made on the open
market by ATI through the facilities of the TSX or the Nasdaq Stock Market Inc.
("NASDAQ"). The purchases will be made by ATI in accordance with TSX Rules and
Policies and Rule 10b-18 of the U.S. Securities Exchange Act of 1934. The prices
that ATI will pay for any purchased common shares will be the market price of
such shares on the TSX or NASDAQ, as the case may be, at the time of
acquisition. ATI will make no purchases of common shares other than open-market
purchases.
ATI believes that its common shares are an attractive investment and that normal
course purchases represent an excellent opportunity to enhance value for
shareholders. ATI's strong cash position allows for the implementation of the
normal course issuer bid without adversely affecting ATI's other growth
opportunities.
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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 graphics processing unit (GPU) 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 2005 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, or to obtain a copy of the Notice of Intention,
please contact:
Janet Craig, Director, Investor Relations, ATI Technologies Inc., at (905)
882-2631 or janet@ati.com.
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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: March 24, 2005 By: //Patrick Crowley//
------------------------------------------
Name: Patrick Crowley
Title: Senior Vice President, Finance and
Chief Financial Officer