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 June, 2005
-------------------------------------
Commission File Number 000-29872
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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 29 Pages
Index is located on Page 2
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INDEX
Document Page Number
Press Release dated June 23, 2005 3
Signature Page
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[OBJECT OMITTED]
For more information, please contact:
Chris Evenden, Director, Public Relations
905-882-2629 or cevenden@ati.com
ATI Reports Third Quarter Results
MARKHAM, ON - June 23, 2005 - ATI Technologies Inc. (TSX: ATY, NASDAQ: ATYT)
today announced financial results for the third quarter and nine months ended
May 31, 2005.
Revenues(1) grew $39 million or nearly 8% to $530 million relative to the third
quarter of fiscal 2004. Gross margin percentage was 29.1%. For the third
quarter, net loss was $0.4 million ($0.00 per share), as compared with net
income of $49 million ($0.19 per share) in the third quarter last year.
Stock-based compensation costs(2) in the third quarter of fiscal 2005 totaled
$10.4 million. Net income and net income per share excluding these costs and
related taxes would have been $8.5 million and $0.03, respectively, as compared
with $50.5 million or $0.20 in the third quarter of fiscal 2004. These results
are consistent with the preliminary results announced on June 6, 2005.
--------------------------- ---------------------------------------------------------------------------
Three months ended May 31, 2005
--------------------------- -------------------------------------- ------------------------------------
Excluding Stock-Based Compensation Including Stock-Based Compensation
Costs Costs (GAAP)
--------------------------- -------------------------------------- ------------------------------------
Net income (loss)
$8.5 million $(0.4 million)
--------------------------- -------------------------------------- ------------------------------------
Net income per share
$0.03 $0.00
--------------------------- -------------------------------------- ------------------------------------
"It was a challenging quarter for ATI, particularly within our PC business where
we came in well below our expectations for both revenue and gross margin," said
David Orton, ATI's Chief Executive Officer. "Yet, during the quarter, we also
achieved important milestones in our core GPU business. In addition, we have a
renewed focus on improving our operational consistency in ramping new
technologies. Looking forward, we expect continued growth in our core markets as
well as the new markets of chipsets and consumer."
- ----------------------
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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Outlook
For the fourth quarter, we anticipate revenues in the range of $550-580 million.
This range has been adjusted down from the preliminary guidance announced on
June 6, 2005, due to a more conservative expectation on the ramp of new products
in the fourth quarter. Gross margin percentage is expected to be in the range of
29-30%, but is largely dependent on the final product mix for the quarter.
Operating expenses, excluding stock-based compensation costs, are expected to
remain flat to up 3% from the third quarter.
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 nine months ended May 31, 2005
compared to the three and nine months ended May 31, 2004. This MD&A should be
read in conjunction with the attached unaudited interim consolidated financial
statements for the period ended May 31, 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 June 23,
2005.
Any reference to "year-over-year" in this MD&A refers to a comparison of this
year's third quarter results versus the third quarter of the prior year unless
otherwise noted.
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RESULTS OF OPERATIONS
Revenues
- --------------------- ----------------------------------------------- ---------------------------------------------
Revenues ($000) Three Months Ended May 31 Nine Months Ended May 31
- --------------------- ---------------- --------------- -------------- ---------------- ------------- --------------
2005 2004 Change (%) 2005 2004 Change (%)
- --------------------- ---------------- --------------- -------------- ---------------- ------------- --------------
PC 460,673 433,611 6% 1,528,851 1,281,501 19%
- --------------------- ---------------- --------------- -------------- ---------------- ------------- --------------
Consumer 69,562 57,846 20% 223,431 142,998 56%
- --------------------- ---------------- --------------- -------------- ---------------- ------------- --------------
Total 530,235 491,457 8% 1,752,282 1,424,499 23%
- --------------------- ---------------- --------------- -------------- ---------------- ------------- --------------
Third quarter revenues grew $39 million or about 8% to $530 million relative to
the same period a year ago. The PC segment accounted for $461 million or 87% of
revenues while the Consumer segment accounted for approximately $70 million or
13% of revenues in the quarter.
Since the first quarter of fiscal 2005, we have operated 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 license
agreements with cell phone and game console product manufacturers.
PC
- --
PC revenues were up about 6% compared to the same quarter last year primarily on
stronger sales of discrete desktop products to the add-in board (AIB) channel
and from PCI Express design wins with PC Original Equipment Manufacturers
(OEMs). Broad-based demand for our products led to year-over-year unit growth of
approximately 22% due to substantial growth in PCI Express-based OEM design
wins. A large number of these design wins were concentrated at the lower end of
the market, however, leading to the more modest increase in revenue. On a
sequential quarter basis, overall PC unit volumes increased despite the typical
seasonal weakness usually seen in the third quarter relative to the second
quarter. However, a product mix shift led to a higher concentration of sales in
the mainstream and value segments, which generally carry lower average selling
prices than products in the performance segment. The percentage of revenue
derived from the enthusiast segment of the market remained unchanged from the
second quarter of fiscal 2005.
Our desktop integrated business revenues more than quadrupled year-over-year
largely due to the successful launch of new products, such as the Radeon(R)
Xpress 200 series for the AMD and Intel platforms, which resulted in significant
OEM design wins. Workstation product revenues also grew significantly
year-over-year reflecting product success and increased market penetration,
particularly within entry level programs at OEMs. Desktop products accounted for
approximately 60% of total PC revenues with notebook accounting for the
remainder.
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In the Notebook business, revenues from discrete products were down slightly
while sales of integrated products fell more sharply year-over-year. While
overall growth in the notebook market has remained strong, as has our discrete
market share, our overall market share in notebook graphics has been impacted by
the growing use of integrated chipsets. However, our revenues from notebook
integrated products showed strength in the third quarter, rising 45% relative to
the second quarter of fiscal 2005.
Consumer
- --------
Consumer revenues grew 20% relative to the same quarter in fiscal 2004. Handheld
unit volumes rose 45% year-over-year and revenues grew 12% as our ImageonTM
product line for handheld devices successfully penetrated the mainstream mobile
phone market. Revenues from digital television products grew by 83% over the
same period last year due to the continued 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 nine months of fiscal 2005
Revenues for the first nine months of fiscal 2005 grew 23% to $1.75 billion from
$1.42 billion in the same period last year. Revenues in our PC segment rose 19%
year-to-date and accounted for $1.53 billion or 87% of total revenues while
Consumer rose 56% and represented $223 million or 13% of total revenue. Revenue
growth was driven by strong market share and higher sales in our desktop and
notebook discrete businesses, as well as sales growth in our handheld and DTV
consumer businesses. These gains were partially offset by a decline in sales of
notebook integrated chipsets.
Gross Margin
- ------------------------------ ----------------- ------------------ ---------------
Q3 2005 Q3 2004 Change (%)
- ------------------------------ ----------------- ------------------ ---------------
Gross Margin ($000) 154,429 172,539 (10%)
- ------------------------------ ----------------- ------------------ ---------------
Percentage of Revenues 29.1% 35.1% (6%)
- ------------------------------ ----------------- ------------------ ---------------
Gross margin percentage for the third quarter of fiscal 2005 was 29.1%, down
from 35.1% for the same period a year ago and 34.2% in the second quarter of
fiscal 2005. Gross margin percentage for the first nine months of fiscal 2005
was 32.6%, down from 35.1% for the same period last year.
During the third quarter, we experienced an overall mix shift in our company
product lines as well as some operational issues in the packaging and test area
of the manufacturing process, both of which caused our gross margins to decline
relative to the same period last year and to the previous quarter. Gross margins
in our core desktop discrete business remained strong while notebook discrete
margins were somewhat weaker due to the transition from higher-margin AGP
products to PCI Express products. Gross margin was also negatively impacted by
the increased sales and accelerated ramp of desktop integrated chipsets which
currently have margins that are well below the corporate average. Lower than
anticipated yields on certain products due to an accelerated production schedule
also negatively impacted gross margin.
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Year-to-date gross margin percentage declined for the reasons above, as well as
production costs associated with the introduction and ramp of PCI Express
products earlier in the year. The overall gross margin percentage decline for
the quarter and year-to-date was partially offset by a growing contribution from
our Consumer segment and from our workstation business, both of which carry
margins that are higher than the company average.
Operating Expenses
- --------------------------------------- ------------- ---------------- ------------- --------------- -----------------
Select Operating Expenses Q3 2005 As % of Q3 2004 As % of Change
($000) Revenues Revenues Y-o-Y
- --------------------------------------- ------------- ---------------- ------------- --------------- -----------------
- --------------------------------------- ------------- ---------------- ------------- --------------- -----------------
Research and development 88,508 16.7% 65,539 13.3% 35%
- --------------------------------------- ------------- ---------------- ------------- --------------- -----------------
Selling and marketing 37,744 7.1% 31,243 6.4% 21%
- --------------------------------------- ------------- ---------------- ------------- --------------- -----------------
Administrative 16,013 3.0% 12,166 2.5% 32%
- --------------------------------------- ------------- ---------------- ------------- --------------- -----------------
Total operating expenses, excluding stock-based compensation, increased 31% in
the quarter and 25% on a year-to-date basis compared to the same periods last
year, respectively. The majority of the increase was related to research and
development and was driven by the need to make the necessary investments to
maintain technology leadership and create a platform for continued growth.
Selling and marketing expenses were up 21% compared to the third 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 21% compared to the
same nine 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 35% in the quarter compared to the
third 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. This investment included higher prototyping costs
incurred in the design and development of future products on 90 nanometer
process technology, as well as an increase in technical staff to support new
product lines. The recent acquisition of certain professionals from Terayon
Communication Systems, Inc. (Terayon) and CuTe Solutions Private Limited (now,
ATI Technologies India Private Limited) contributed to the increase in technical
staff. For the first nine months of fiscal 2005, R&D expenses rose 26% compared
to the same period in 2004, for reasons similar to those above.
Administrative expenses were up 32% in the quarter and 26% for the first nine
months of fiscal 2005 compared to the same periods in 2004. The increases are
primarily attributable to headcount related expenses as well as professional and
consulting fees.
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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.
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 $10.4 million in the quarter as
compared with $2.3 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 $10.4 million expense in the third quarter of fiscal 2005 included $8.4
million for compensation costs associated with stock options and $2.0 million
for compensation costs associated with restricted share units and deferred share
units.
Interest and Other Income
- -------------------------
Interest and other income was $3.9 million in the third quarter of fiscal 2005,
compared with $1.3 million for the comparable period in fiscal 2004. The
difference primarily reflects increased investment income derived from interest
on our higher cash balances.
No investment gain or loss was recorded in the third quarter of fiscal 2005, as
compared with an investment loss of approximately $1.3 million in the same
period last year.
For the first nine months of fiscal 2005, interest and other income was $9.7
million, as compared with $1.4 million for the same period in 2004. The
difference is attributable to interest on our higher cash balances.
Net Income (Loss)
- -----------------
We incurred a net loss of $0.4 million in the third quarter of fiscal 2005 as
compared to net income of $49 million in the same quarter last year. The decline
in net income is due to the lower gross margins and higher operating expenses
outlined in previous sections. Net income per share fell to $0.00 from $0.19 in
the same period in 2004. Net income and net income per share excluding
stock-based compensation costs described above were $8.5 million and $0.03,
respectively, for the third quarter of fiscal 2005, compared to $50.5 million
and $0.20 in the prior year.
Year-to-date, net income declined 16% to $120 million or $0.47 per share from
$144 million or $0.56 per share for the first nine months of fiscal 2004. The
decrease was largely the result of the sharp decline in net income in the third
quarter of fiscal 2005.
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Liquidity and Financial Resources
Inventory levels of $456 million at the end of the third quarter increased from
$255 million at fiscal 2004 year-end. Approximately two-thirds of inventory in
the PC segment consisted of PCI Express goods versus one-third AGP. Inventory in
terms of days sales outstanding was above our internal target of 60 days. We
expect inventory levels in dollar terms to decline in the fourth quarter but to
remain above our 60-day target.
Accounts receivable at May 31, 2005 was up 6% to $389 million from $366 million
at August 31, 2004. Relative to the second quarter of fiscal 2005, accounts
receivable decreased approximately $21 million due to seasonally lower sales.
Accounts payable and accruals rose 40% to $663 million from $474 million at
August 31, 2004. Accounts payable and accruals were up about $80 million on a
sequential quarter basis, an increase that is consistent with the increase in
inventories.
Cash flow from operations was $15 million in the third quarter. Our cash
position, which is defined as cash and cash equivalents and short-term
investments, at May 31, 2005 was $644 million, up from $549 million at fiscal
2004 year-end and down from $653 million at February 28, 2005. The change from
February 28, 2005 reflects increased capital expenditures and the cash
consideration for the Terayon acquisition during the third quarter. As of May
31, 2005 we had working capital of $834 million compared to $695 million at
fiscal 2004 year-end.
Outstanding Share Data
At May 31, 2005 there were 252,844,998 common shares outstanding or 258,919,924
shares on a year-to-date weighted average diluted basis.
Other Corporate Developments
On March 29, 2005, a panel of the Ontario Securities Commission (OSC) approved a
settlement agreement reached between Staff of the OSC and ATI. As part of the
settlement, ATI agreed to pay a total of CDN $900,000 as a contribution to
costs, and a voluntary payment in connection with a Notice of Hearing and
Statement of Allegations filed by the OSC. Further details on the settlement are
contained in Note 8 to the unaudited interim consolidated financial statements.
Normal Course Issuer Bid
Under the terms of a Normal Course Issuer Bid announced on March 24, 2005, 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. No shares were repurchased for cancellation in the third quarter.
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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 US dollars, except per share amounts)
Q3 2005 Q2 2005 Q1 2005 Q4 2004 Q3 2004 Q2 2004 Q1 2004 Q4 2003
- ----- ------------------------------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
$ $ $ $
Revenues $ 530,235 $ 608,188 613,859 $ 572,218 491,457 $ 463,337 469,705 380,674
Cost of goods sold 375,806 399,885 405,009 379,836 318,918 302,914 302,134 246,643
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Gross margin 154,429 208,303 208,850 192,382 172,539 160,423 167,571 134,031
Expenses
Selling and marketing 37,744 36,352 33,125 29,244 31,243 27,031 30,079 26,176
Research and development 88,508 77,726 73,114 75,865 65,539 60,809 63,278 61,285
Administrative 16,013 15,793 12,676 11,517 12,166 11,532 11,487 10,557
Amortization of intangible
assets 3,046 1,389 1,244 1,486 1,546 1,541 1,542 1,271
Stock-based compensation 10,395 10,329 10,558 1,691 2,315 2,826 751 0
Other charges (recoveries) 1,351 278 382 155 (454) (178) 173 10,440
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
157,057 141,867 131,099 119,958 112,355 103,561 107,310 109,729
---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Income (loss) from operations (2,628) 66,436 77,751 72,424 60,184 56,862 60,261 24,302
Interest and other income (loss) 3,914 3,624 2,176 2,815 1,340 1,856 (1,754) 714
Gain (loss) on investments 0 880 0 0 (1,307) 0 0 3,844
Interest expense (525) (537) (519) (499) (513) (531) (515) (516)
---------- ----------- ---------- ----------- --------- ---------- --------- ---------
Income before income taxes 761 70,403 79,408 74,740 59,704 58,187 57,992 28,344
Income taxes 1,206 13,210 15,705 13,584 11,085 10,602 10,553 6,050
---------- ---------------------- ----------- ---------- ----------- ---------- ----------
Net income (loss) $ (445) $ 57,193 $ 63,703 $ 61,156 $ 48,619 $ 47,585 $ 47,439 $ 22,294
========== =========== ========== =========== ========== =========== ========== ==========
- ----- ------------------------------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Net income per share
Basic $ 0.00 $ 0.23 $ 0.26 $ 0.25 $ 0.20 $ 0.19 $ 0.20 $ 0.09
Diluted $ 0.00 $ 0.22 $ 0.25 $ 0.24 $ 0.19 $ 0.19 $ 0.19 $ 0.09
- ----- ------------------------------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
Weighted average number of shares (000's)
Basic 251,602 251,046 249,027 247,699 245,960 244,373 242,998 240,647
Diluted 251,602 259,743 257,917 258,198 256,650 255,876 254,109 249,525
Outstanding number of shares at the end
of the period (000's) 252,845 252,258 251,324 249,287 247,886 246,604 244,239 241,742
- ----- ------------------------------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
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Conference Call Information
ATI Technologies Inc. will host a conference call today at 8:30 AM (EDT) to
discuss its financial results for its fiscal 2005 third quarter ended May 31,
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, Q3 2005. Replays of the conference call will be available
through June 30, 2005 by calling 416-695-5800. The passcode is 3125452. 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 processor unit (GPU) provider
and is dedicated to deliver leading-edge performance solutions for the full
range of PC and Mac desktop and notebook platforms, workstation, set-top and
digital television, game console and handheld device markets. With 2004 revenues
of U.S. $2 billion, ATI has more than 3,000 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:
Zev Korman, Manager, Investor Relations, ATI Technologies Inc., at
(905) 882-2600, ext. 3670 or zev@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 Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues $ 530,235 100.0% $ 491,457 100.0% $ 1,752,282 100.0% $ 1,424,499 100.0%
Cost of goods sold 375,806 70.9% 318,918 64.9% 1,180,700 67.4% 923,966 64.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin 154,429 29.1% 172,539 35.1% 571,582 32.6% 500,533 35.1%
Expenses
Selling and marketing 37,744 7.1% 31,243 6.4% 107,221 6.1% 88,353 6.2%
Research and development 88,508 16.7% 65,539 13.3% 239,348 13.7% 189,626 13.3%
Administrative 16,013 3.0% 12,166 2.5% 44,482 2.5% 35,185 2.5%
Amortization of intangible
assets (Note 4) 3,046 0.6% 1,546 0.3% 5,679 0.3% 4,629 0.3%
Stock-based compensation 10,395 2.0% 2,315 0.5% 31,282 1.8% 5,892 0.4%
Other charges (recoveries)
(Note 8) 1,351 0.2% (454) (0.1%) 2,011 0.1% (459) -
- ----------------------------------------------------------------------------------------------------------------------------------
157,057 29.6% 112,355 22.9% 430,023 24.5% 323,226 22.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (2,628) (0.5%) 60,184 12.2% 141,559 8.1% 177,307 12.4%
Interest and other income 3,914 0.7% 1,340 0.3% 9,714 0.5% 1,442 0.1%
Gain (loss) on investments - - (1,307) (0.3%) 880 0.1% (1,307) (0.1%)
Interest expense (525) (0.1%) (513) (0.1%) (1,581) (0.1%) (1,559) (0.1%)
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 761 0.1% 59,704 12.1% 150,572 8.6% 175,883 12.3%
Income taxes 1,206 0.2% 11,085 2.3% 30,121 1.7% 32,240 2.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(445) (0.1%) $ 48,619 9.8% $ 120,451 6.9% $ 143,643 10.1%
Retained earnings, beginning of
period 415,878 199,050 308,825 104,026
Adjustment to opening retained
earnings:
Change in accounting policy on
stock-based compensation (Note 1) - - (13,843) -
- ----------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 415,433 $ 247,669 $ 415,433 $ 247,669
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share (Note 9)
Basic $ 0.00 $ 0.20 $ 0.48 $ 0.59
Diluted $ 0.00 $ 0.19 $ 0.47 $ 0.56
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
(000's)
Basic 251,602 245,960 250,558 244,444
Diluted 251,602 256,650 258,920 255,545
Outstanding number of shares at the
end of the period (000's) 252,845 247,886 252,845 247,886
- ----------------------------------------------------------------------------------------------------------------------------------
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)
--------------------------------------------------------------------- --------------------- -------------------
May 31 August 31
2005 2004
--------------------------------------------------------------------- --------------------- -------------------
Assets
Current assets:
Cash and cash equivalents $ 324,397 $ 359,608
Short-term investments 319,997 189,308
Accounts receivable 388,838 365,644
Inventories 456,244 254,867
Prepayments and sundry receivables 23,927 21,873
Future income tax assets 8,512 8,076
--------------------------------------------------------------------- --------------------- -------------------
Total current assets 1,521,915 1,199,376
Capital assets 105,988 85,943
Intangible assets (Note 4) 20,495 5,558
Goodwill (Note 4) 190,095 190,095
Long-term investments 2,751 2,751
Tax credits recoverable 9,506 9,193
Future income tax assets 33,300 20,570
--------------------------------------------------------------------- --------------------- -------------------
Total Assets $ 1,884,050 $ 1,513,486
===================================================================== ===================== ===================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 409,817 $ 274,772
Accrued liabilities 253,571 199,129
Deferred revenue 23,154 29,131
Current portion of long-term debt (Note 6) 1,731 1,571
Future income tax liabilities 30 54
--------------------------------------------------------------------- --------------------- -------------------
Total current liabilities 688,303 504,657
Long-term debt (Note 6) 28,116 28,053
Future income tax liabilities 41,445 36,088
--------------------------------------------------------------------- --------------------- -------------------
Total liabilities 757,864 568,798
Shareholders' equity:
Share capital 665,282 638,985
Treasury stock (14,867) (22,100)
Contributed surplus 52,064 10,704
Retained earnings 415,433 308,825
Currency translation adjustments 8,274 8,274
--------------------------------------------------------------------- --------------------- -------------------
Total shareholders' equity 1,126,186 944,688
--------------------------------------------------------------------- --------------------- -------------------
Total Liabilities and Shareholders' Equity $ 1,884,050 $ 1,513,486
===================================================================== ===================== ===================
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 29
ATI TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Thousands of US dollars)
- ------------------------------------------------------- -------------------------------- --------------------------------
Three months ended Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Cash provided by (used in):
Operating activities:
Net income (loss) $ (445) $ 48,619 $ 120,451 $ 143,643
Items which do not involve cash:
Tax credits recoverable (6,231) 2,279 (313) 5,553
Future income taxes (3,889) 1,528 (3,569) 3,329
Stock-based compensation 10,467 1,764 30,477 4,179
Depreciation and amortization 8,992 6,609 21,596 19,854
Loss (gain) on investments - 1,307 (880) 1,307
Gain on sale of long-lived assets (Note 8) - - - (538)
Unrealized foreign exchange loss (gain) (442) (371) 1,245 135
Change in non-cash operating working capital:
Accounts receivable 21,208 (75,063) (23,194) (62,078)
Inventories (88,854) (24,053) (201,377) (76,288)
Prepayments and sundry receivables (841) 759 (1,936) 2,493
Accounts payable 84,949 66,476 135,039 78,548
Accrued liabilities (7,724) 14,580 51,795 37,263
Deferred revenue (2,010) (7,861) (5,977) (8,323)
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
15,180 36,573 123,357 149,077
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Financing activities:
Principal payment on long-term debt (423) (367) (1,236) (1,075)
Issuance of common shares 3,867 10,048 26,297 44,688
Repurchase of common shares (Note 12) - - - (22,100)
Proceeds from sale of treasury stock - - 9 -
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
3,444 9,681 25,070 21,513
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Investing activities:
Purchase of short-term investments (147,197) (77,200) (391,023) (127,107)
Maturity and proceeds from sales of short-term 112,807 59,907 260,334 109,691
investments
Additions to capital assets (15,550) (6,402) (35,205) (13,933)
Purchase of long-term investments - (98) - (98)
Proceeds from gain on investments - - 880 -
Proceeds from sale of long-lived assets (Note 8) - - - 2,489
Acquisitions, net of cash acquired (Note 3) (11,280) - (18,838) (2,071)
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
(61,220) (23,793) (183,852) (31,029)
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Foreign exchange gain (loss) on cash held in foreign (33) (203) 214 358
currency
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Increase (decrease) in cash and cash equivalents (42,629) 22,258 (35,211) 139,919
Cash and cash equivalents - beginning of period 367,026 418,566 359,608 300,905
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Cash and cash equivalents - end of period 324,397 440,824 324,397 440,824
Short-term investments 319,997 67,200 319,997 67,200
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Cash position - end of period $ 644,394 $ 508,024 $ 644,394 $ 508,024
- ------------------------------------------------------- ---------------- --------------- ---------------- ---------------
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 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 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 without restatement applied the fair value
method of accounting for stock option awards granted since September 1, 2002
using the Black-Scholes option pricing models, and recorded 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 nine months ended May 31, 2005
was $8.4 and $25.0 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 nine months ended May 31, 2004.
(Thousands of US dollars, except per share amounts)
--------------------------------------------------- ------------------------- ------------------------
Three months ended Nine months ended
May 31, 2004 May 31, 2004
--------------------------------------------------- ------------------------- ------------------------
Net income:
As reported $ 48,619 $ 143,643
Pro forma 44,268 136,425
Basic net income per share:
As reported $ 0.20 $ 0.59
Pro forma 0.18 0.56
Diluted net income per share:
As reported $ 0.19 $ 0.56
Pro forma 0.17 0.54
--------------------------------------------------- ------------------------- ------------------------
16 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 nine months ended
May 31, 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.
As at May 31, 2005, the Company has $134.0 million Canadian dollars outstanding
in Forwards that mature in the next nine months at an average exchange rate of
1.2509. Forwards that have become favourable to the Company since their
inception constitute unrecognized financial assets and have a fair value of
$504,000 as at May 31, 2005. Forwards that have become unfavourable constitute
unrecognized financial liabilities and have a fair value of $489,000 as at May
31, 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 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 May 31,
2005, $375,000 of the contingency was earned and was paid to RT&C. As at
May 31, 2005, there were no awards earned or recognized on the remaining
$1.12 million contingency. This contingency will be recorded when
resolved.
(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 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 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 US 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
----------------------------------------------------------------------------
(iv) On March 9, 2005, the Company acquired certain cable modem silicon
intellectual property and certain employees of Terayon Communication
Systems, Inc. ("Terayon") for cash consideration of $11.3 million. Under
the terms of the agreement, Terayon was eligible to receive additional
consideration of up to $3.25 million, contingent upon achieving certain
future deliverables. As at May 31, 2005, $2.5 million of the contingency
was earned and is payable to Terayon. The purchase price was allocated to
the net assets acquired, comprised of intangible assets of $13.3 million
and other assets of $ 0.5 million based on their relative fair values at
the date of acquisition. The useful life of the intangible assets
acquired ranges from one to three years.
As at May 31, 2005, there were no awards earned or recognized on the
remaining $750,000 contingency. This contingency will be recorded when
resolved.
18 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005
(Unaudited)
4. INTANGIBLE ASSETS AND GOODWILL
The net book values of intangible assets and goodwill at May 31, 2005 and August
31, 2004 are as follows:
(Thousands of US dollars)
------------------------------------- --------------- ----------------- -------------- --------------------
Cost Accumulated Net book Net book value
amortization value
May 31, 2005 August 31, 2004
------------------------------------- ------------------------------------------------ --------------------
Core technology $ 38,225 $ 21,252 $ 16,973 $ 5,558
Other 8,923 5,401 3,522 -
------------------------------------- --------------- ----------------- -------------- --------------------
Total intangible assets $ 47,148 $ 26,653 $ 20,495 $ 5,558
===================================== =============== ================= ============== ====================
Goodwill $ 376,788 $ 186,693 $ 190,095 $ 190,095
===================================== =============== ================= ============== ====================
Amortization expense related to intangible assets amounted to $3.0 million and
$5.7 million for the three months and nine months respectively (2004 - $1.5
million and $4.6 million).
5. CREDIT FACILITIES
The Company maintains committed operating and overdraft credit facilities
aggregating $21.0 million (2004 - $43.0 million) with a single financial
institution. There are no borrowings outstanding under these facilities.
6. LONG-TERM DEBT
(Thousands of US dollars)
--------------------------------------------------- ------------ ------------------ -------------------
Interest May 31 August 31 2004
rate 2005
--------------------------------------------------- ------------ ------------------ -------------------
Obligation under capital lease (i) 6.31% $ 18,335 $ 18,049
Mortgage payable (ii) 6.96% 11,512 11,575
--------------------------------------------------- ------------ ------------------ -------------------
29,847 29,624
Less : Current portion 1,731 1,571
--------------------------------------------------- ------------ ------------------ -------------------
Long-term portion $ 28,116 $ 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 May 31, 2005, the remaining amount outstanding on the
capital lease was $18.3 million (Cdn. $ 22.9 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 May 31, 2005 amounted to $11.5 million (Cdn. $14.4
million). The mortgage has a repayment term of 12 years and is
denominated in Canadian dollars.
19 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005
(Unaudited)
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.
8. OTHER CHARGES (RECOVERIES)
Other charges (recoveries) include the following items:
(Thousands of US dollars)
--------------------------------------------------- -------------------------------- --------------------------------
Three months ended Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
Regulatory matters (i) $ 1,351 $ 399 $ 2,011 $ 1,543
Restructuring charge (recovery) - European
operations (ii) - - - (538)
Lease exit charge (recovery) (iii) - (853) - (1,464)
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
Total $ 1,351 $ (454) $ 2,011 $ (459)
=================================================== ================ =============== ================ ================
(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 Company
reached a settlement with the OSC, agreeing to pay a total of $900,000
Canadian dollars as a contribution to costs, and a voluntary payment.
Four of the individual respondents also settled with the OSC. Mr. K.Y.
Ho and his spouse Betty Ho proceeded to a hearing, which was completed
in early June of 2005. A decision by the OSC in the hearing is
anticipated in late July of 2005.
20 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005
(Unaudited)
8. OTHER CHARGES (RECOVERIES) (CONTINUED)
(ii) Restructuring charge (recovery) - European operations:
The following table details the activity through the restructuring
liabilities accrual:
(Thousands of US dollars)
-------------------------------------- -------------------------------- --------------------------------
Three months ended Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
-------------------------------------- ---------------- --------------- ---------------- ---------------
Balance, beginning of period $ 4 $ 872 $ 18 $ 4,246
Cash payments (4) (94) (18) (3,468)
-------------------------------------- ---------------- --------------- ---------------- ---------------
Balance, end of period - $ 778 - $ 778
====================================== ================ =============== ================ ===============
(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 nine months ended May 31, 2005, the Company made cash
payments of $18,000 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 (recovery)
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.
During the third quarter of fiscal 2004, the Company determined that
it would re-occupy the remaining leased property which the Company had
exited in the second quarter of fiscal 2003, resulting in a recovery
of an exit charge of $0.9 million.
21 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
------------------------------------------------ --------------- --------------- ---------------- ---------------
Net income (loss) $ (445) $ 48,619 $ 120,451 $ 143,643
================================================ =============== =============== ================ ===============
Weighted average number of common shares
outstanding (000's):
Basic 251,602 245,960 250,558 244,444
Effect of dilutive securities - 10,690 8,362 11,101
------------------------------------------------ --------------- --------------- ---------------- ---------------
Diluted 251,602 256,650 258,920 255,545
================================================ =============== =============== ================ ===============
Net income per share
Basic $ 0.00 $ 0.20 $ 0.48 $ 0.59
Diluted $ 0.00 $ 0.19 $ 0.47 $ 0.56
------------------------------------------------ --------------- --------------- ---------------- ---------------
At May 31, 2005, options to purchase 5,707,507 shares of common stock (2004 -
4,943,019) 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 Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
-------------------------------------- ------------------------------- -------------------------------
Cash paid for:
Interest $ 500 $ 492 $ 1,501 $ 1,474
Income taxes 2,233 523 2,646 1,466
Interest received $ 3,128 $ 1,080 $ 8,462 $ 2,949
-------------------------------------- --------------- --------------- --------------- ---------------
22 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 nine months ended May 31, 2005 and
2004.
(Thousands of US dollars)
- --------------------------- ------------------------------ ------------------------------ ------------------------------
Consolidated PC Consumer
Three months ended Three months ended Three months ended
May 31 May 31 May 31
2005 2004 2005 2004 2005 2004
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
Revenues $ 530,235 $ 491,457 $ 460,673 $ 433,611 $ 69,562 $ 57,846
Operating income 12,164 63,591 14,039 60,356 (1,875) 3,235
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
(Thousands of US dollars)
- --------------------------- ------------------------------ ------------------------------ ------------------------------
Consolidated PC Consumer
Nine months ended Nine months ended Nine months ended
May 31 May 31 May 31
2005 2004 2005 2004 2005 2004
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
Revenues $ 1,752,282 $ 1,424,499 $ 1,528,851 $ 1,281,501 $ 223,431 $ 142,998
Operating income 180,531 187,369 161,846 187,136 18,685 233
- --------------------------- -------------- --------------- -------------- --------------- --------------- --------------
23 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 Nine months ended
-------------------------------- --------------------------------
May 31 May 31 May 31 May 31
2005 2004 2005 2004
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
Revenues:
Canada $ 8,338 $ 6,095 $ 16,644 $ 17,449
United States 54,843 65,641 199,782 175,330
Europe 24,523 10,030 72,868 77,955
Asia-Pacific 442,531 409,691 1,462,988 1,153,765
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
Consolidated revenues $ 530,235 $ 491,457 $ 1,752,282 $ 1,424,499
=================================================== ================ =============== ================ ===============
(Thousands of US dollars)
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
May 31 August 31
2005 2004
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
Capital assets, intangible assets and goodwill:
Canada $ 89,090 $ 73,863
United States 206,563 206,147
Europe 234 165
Asia-Pacific 20,691 1,421
--------------------------------------------------- ---------------- --------------- ---------------- ---------------
Consolidated capital assets, intangible assets
and goodwill $ 316,578 $ 281,596
=================================================== ================ =============== ================ ===============
For the three months and nine months end May 31, 2005, one customer accounted
for 12% and 11% respectively, and another customer accounted for 9% and 12%
respectively of the Company's consolidated revenues (2004 - one customer
accounted for 10% and 10%, and another customer accounted for 9% and 11%). At
May 31, 2005, one customer accounted for 9% of consolidated accounts receivable
(2004 - one customer accounted for 10%).
24 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005
(Unaudited)
12. STOCK-BASED COMPENSATION
(i) Stock options
Commencing the third quarter of fiscal 2005, the Company amended the
Option Plan to provide the Board of Directors with the discretion to
award stock appreciation rights ("tandem SARs") in connection with
all or a portion of the existing and future options granted under the
Option Plan. Tandem SARs provide an optionee with the right to
surrender vested options for termination in return for common shares
with a market value equal to the net proceeds that the optionee would
have otherwise received had such optionee exercised the vested
options and immediately sold the underlying shares. During the
quarter ended May 31, 2005, tandem SARs were awarded to new option
grants only.
The weighted average estimated fair value at the date of grant for the
stock options granted within the three months and nine months ended May
31, 2005 was $7.65 and $8.29 per share respectively (2004 - $9.15 and
$8.93). 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 Nine months ended
------------------------------- ---------------------------------
May 31 May 31 May 31 May 31
2005 2004 2005 2004
------------------------------------------------ ---------------- --------------- ---------------- ---------------
Risk-free interest rate 3.8% 3.9% 3.7% 3.7%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility factor of the expected market price
of the Company's common shares 60.5% 68.3% 62.5% 69.3%
Expected life of the options 4.0 years 4.2 years 4.0 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 nine months end May 31, 2005
amounted to $8.4 million and $25.0 million respectively. The stock
option expense by functional area is as follows:
(Thousands of US dollars)
-------------------------------------------- ----------------------- ----------------------
Three months ended Nine months ended
May 31 May 31
2005 2005
-------------------------------------------- ----------------------- ----------------------
Selling and marketing $ 1,627 $ 4,897
Research and development 5,269 16,105
Administrative 1,495 4,041
-------------------------------------------- ----------------------- ----------------------
Total
$ 8,391 $ 25,043
============================================ ===============================================
25 of 29
ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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.
In the third quarter of fiscal 2005, the Company granted 1,084,723
RSUs. The number of RSUs settled at each vesting date depends on the
Company achieving certain performance targets.
During the three months and nine months ended May 31, 2005, the
number of RSUs granted was 1,084,723 and 1,131,973 respectively, and
the number of RSUs forfeited was 7,385 and 27,103, respectively. As
at May 31, 2005, there were 2,114,884 RSUs awarded and outstanding.
RSU expense by functional area incurred for the three months and nine
months end May 31, 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 Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
-------------------------------------- --------------- ---------------- --------------- ----------------
Selling and marketing $ 265 $ 323 $ 867 $ 744
Research and development 1,563 1,378 4,126 3,232
Administrative 258 329 741 761
-------------------------------------- --------------- ---------------- --------------- ----------------
Total
$ 2,086 $ 2,030 $ 5,734 $ 4,737
====================================== =============== ================ =============== ================
(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 May 31, 2005, there were 132,707 DSUs
outstanding and 105,624 DSUs vested (2004 - 92,082 and 64,999).
The recoveries (expenses) for three months and nine months ended May
31, 2005 relating to DSUs granted to the directors for services
rendered was a recovery of $82,000 and expense of $0.5 million
respectively (2004 - $0.3 million and $1.2 million).
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 Nine months ended
May 31 May 31 May 31 May 31
2005 2004 2005 2004
---------------------------------------------------- --------------- -------------- -------------- ---------------
Net income in accordance with Canadian GAAP $ (445) $ 48,619 $ 120,451 $ 143,643
Tax effect of stock options (1,619) (843) (6,111) (5,038)
Expenses related to stock options (i) 8,391 - 25,043 -
Stock-compensation expenses (ii), (iii) 2,908 (4,570) (5,205) (8,654)
Other 28 28 84 84
---------------------------------------------------- --------------- -------------- -------------- ---------------
Net income in accordance with U.S. GAAP $ 9,263 $ 43,234 $ 134,262 $ 130,035
==================================================== =============== ============== ============== ===============
Net income per share:
Basic $ 0.04 $ 0.18 $ 0.54 $ 0.53
Diluted $ 0.04 $ 0.17 $ 0.52 $ 0.51
---------------------------------------------------- --------------- -------------- -------------- ---------------
Weighted average number of shares (000's):
251,602 245,960 250,558 244,444
BasiC
259,100 256,650 258,920 255,545
Diluted
---------------------------------------------------- --------------- -------------- -------------- ---------------
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ATI TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
May 31, 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 $8.4
million and $25.0 million recognized under Canadian GAAP would not be
recognized under U.S. GAAP for the three months and nine months ended
May 31, 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 nine months ended May 31, 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.
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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: June 23, 2005 By: //Patrick Crowley//
----------------------------------------------------
Name: Patrick Crowley
Title: Senior Vice President, Finance and Chief
Financial Officer
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