Join Date: Jan 2002
ATI Reports Fourth Quarter and Year-End Financial Results
ATI Reports Fourth Quarter and Year-End Financial Results Breakthroughs in Target Markets Set the Stage for 2003Markham, Ontario - October 2, 2002 - ATI Technologies Inc. (TSX: ATY,NASDAQ: ATYT), a world leader in the design and manufacture of innovative 3D graphics and digital media silicon solutions, today announced financial results for the fourth quarter and year ended August 31, 2002.
Revenue for the fourth quarter was $239.5 million, down 10 per cent from $266.2 million in the third quarter of fiscal 2002, but was up five per cent from the fourth quarter a year ago. Gross margin was 30.1 per cent, down from 35.0 per cent in the third quarter. Operating expenses, excluding amortisation of intangible assets, increased slightly to $70.1 million from $69.2 million in the previous quarter.
Adjusted net income(1) for the fourth quarter was $2.4 million or $0.01 per share. Net loss on a GAAP basis for the fourth quarter was $32.2 million or $0.14 per share.
"Fiscal 2002 was a year in which ATI made great strides and breakthrough achievements in our target markets," said David Orton, President and Chief Operating Officer, ATI Technologies Inc. "In the past few months we have claimed the technology leadership crown with the introduction of our RADEONTM 9700 family of products. Major OEM design wins, independent evaluations and customer response confirm that ATI has broken through to become the clear choice for speed, performance and value in visual processing products."
(1)Adjusted net income excludes the after-tax effect of gain (loss) on long-term investments (net), amortisation of intangible assets related to the Company's acquisitions, and the deferred tax recovery of future tax liability pertaining to intangible assets acquired. Each of these items has been excluded from adjusted net income as they are not considered to be part of the Company's normalised ongoing operations. While the Company recognises that adjusted net income does not have any standardised meaning described by generally accepted accounting principles, or GAAP, and that its adjusted net income calculation cannot be used as a comparison to other companies' financial performance, ATI believes that its adjusted net income more appropriately reflects the Company's operating performance. Please see the table titled "Adjusted Net Income - Reconciliation" in the Management's Discussion and Analysis of Interim Financial Results in this news release for the reconciliation between adjusted net income and net income which is determined in accordance with GAAP. All dollar amounts are stated in U.S. dollars unless otherwise noted. All per share amounts are stated on a fully diluted basis unless otherwise noted. ATI's adjusted net income for the year increased to $49.7 million or $0.20 per share from a loss of $16.3 million or $0.07 in 2001. Revenue for fiscal 2002 declined two per cent to $1.02 billion, and gross margins increased 9.6 percentage points to 32.8 per cent, compared to fiscal 2001.
"The transition of our business from a board to a chip model, while it had a constraining effect on our revenues for this fiscal year, has had a direct impact on improving margins and our profitability compared to last year," said Terry Nickerson, Senior Vice President and Chief Financial Officer, ATI Technologies Inc.
"We are delivering new and innovative products across a broad range of the graphics business with the features, performance and price points that address every segment of our market," said K.Y. Ho, Chairman and Chief Executive Officer, ATI Technologies Inc. "Technology leadership and new market successes are enabling ATI to grow the core market, capture marketshare and enter exciting new digital consumer markets."
ATI expects the success of the RADEONTM 9700 family of products, as well as contributions from the new integrated graphics processor chip sales, to result in stronger performance in the first quarter of fiscal 2003, relative to the fourth quarter of 2002. The Company is expecting a double-digit percentage increase in revenues for the first quarter, as well as a slight improvement in gross margin. Operating expenses are expected to increase over the fourth quarter of 2002 due to the acquisition of NxtWave, increased product development costs, and the ramp of the new consumer businesses. Based on these factors, ATI is targeting to achieve adjusted net income per share of between $0.03 and $0.05 in the first quarter of fiscal 2003.
During the fourth quarter, ATI introduced and started shipping the RADEONTM 9700, RADEONTM 9000 and MOBILITYTM RADEONTM 9000 to become the first graphics company in history to have the top performing products in the desktop market - mainstream and enthusiast - as well as the notebook market, simultaneously. These products captured new design wins with major OEMs, including Apple, Hewlett-Packard, Dell and others. The Company also announced a series of design wins for its new products aimed at the growing integrated, digital TV, and wireless hand-held markets.
Other operational highlights during the quarter:
Management's Discussion and Analysis of Interim Financial Results
ATI's revenue for the fourth quarter declined 10 per cent to $239.5 million, compared to the third quarter, and was five per cent higher than the fourth quarter of fiscal 2001. Continuing weakness in the world-wide PC market in general and weakness in the notebook business in particular were factors in the decline in revenue compared to the third quarter of the fiscal year. An increase in both desktop and notebook market share accounted for the increase in revenues for the fourth quarter compared to the prior period a year ago, but was somewhat offset by a mix shift from boards to chips.
Gross margin for the fourth quarter was 30.1 per cent of sales, compared to 35.0 per cent in the third quarter, and 29.6 per cent in the same quarter a year earlier. The sequential quarterly decline occurred primarily because of a weaker market for notebooks. The increase in gross margin in the fourth quarter of 2002 compared with the same period a year earlier is generally attributable to a richer chip mix. The Company recognises that its gross margin is too low and is working to bring it into the target range of 32 to 35 per cent.
Operating expenses, excluding amortisation of intangibles, were $70.1 million, or 1.3 per cent higher than the third quarter, and 4.5 per cent higher than the same quarter a year earlier. The sequential quarterly increase in this expense was largely due to increased R&D spending resulting from the acquisition of NxtWave Communications in the fourth quarter, offset by lower administrative and selling and marketing costs. Compared to the same period a year earlier, the increase is largely attributable to higher R&D expense associated with increased costs for new semiconductor technologies as well as the acquisition of NxtWave Communications.
Total operating expenses increased $12.7 million in the fourth quarter to $103.6 million compared to the third quarter and were 17.4 per cent higher than the fourth quarter of fiscal 2001. The increase in the fourth quarter, compared to both the prior quarter and the fourth quarter a year ago, was largely due to the writedown of core technology and goodwill associated with the prior acquisition of the intangible assets of ArtX and Chromatic Research, as well as the increase in R&D and amortisation expense associated with the acquisition of NxtWave Communications.
During the fourth quarter, the Company recorded a net writedown of the value of its long-term investments by an aggregate of $3.1 million to reflect the other than temporary decline in their value.
Adjusted net income(1) for the fourth quarter was $2.4 million or $0.01 per share, compared to adjusted net income of $19.2 million or $0.08 per share for the previous quarter. This decrease in adjusted net income compared to the third quarter was primarily a result of lower revenue and gross margin due to weakness in the notebook market. Adjusted net income in the fourth quarter of 2002 was essentially flat compared to the same period a year ago.
ATI's net loss, on a GAAP basis, in the fourth quarter of fiscal 2002 was $32.2 million or $0.14 per share, compared with a net loss of $2.0 million or $0.01 per share for the third quarter and a net loss of $11.6 million or $0.05 per share for the fourth quarter a year ago. The decline in sequential quarterly net income was largely a result of lower revenues and margins, the writedown of intangible assets related to the acquisitions of ArtX and Chromatic Research, and to a lesser extent the net writedown of the Company's long-term investments.
Inventory levels stood at $175.4 million at the end of the fourth quarter compared with $127.7 million at the end of the third quarter. The increase in inventory occurred, to a large extent, as a result of the Company rapidly ramping up production to support the introduction of new products.
(1)Adjusted net income excludes the after-tax effect of gain (loss) on long-term investments (net), amortisation of intangible assets related to the Company's acquisitions, and the deferred tax recovery of future tax liability pertaining to intangible assets acquired. Each of these items has been excluded from adjusted net income as they are not considered to be part of the Company's normalised ongoing operations. While the Company recognises that adjusted net income does not have any standardised meaning described by generally accepted accounting principles, or GAAP, and that its adjusted net income calculation cannot be used as a comparison to other companies' financial performance, ATI believes that its adjusted net income more appropriately reflects the Company's operating performance.
ATI's financial position remained strong in the fourth quarter. As of August 31, 2002, ATI had working capital of $361.7 million, compared to $370.1 million at the end of the third quarter. The Company's cash position was $236.9 million as of August 31, 2002, compared to $265.7 million at the end of the prior period. The decline was largely due to a cash payment associated with the acquisition of NxtWave Communications as well as increased inventory to support the introduction of new products.
Intangible assets, largely consisting of goodwill associated with the acquisition of ArtX, declined to $209.7 million as of August 31, 2002, from $223.9 million in the third quarter. The decline in intangible assets was largely due to the continued amortisation in intangible assets related to the acquisition of ArtX, as well as the writedown of $10.6 million in core technology and goodwill associated with its acquisition, offset by the intangible assets associated with the acquisition of NxtWave Communications which was recorded during the fourth quarter.
Accounts receivable increased by $2.6 million during the quarter to $164.3 million. Accounts payable increased by $47.4 million in the fourth quarter to $172.1 million. The increase in accounts payable was primarily associated with the inventory buildup of new products.
Adjusted Net Income - Reconciliation
The table below presents adjusted net income (loss) and adjusted net income
(loss) per share, which excludes the after-tax effect of gain (loss) on long-term investments, amortisation of intangible assets related to the Company's acquisitions, and deferred tax recovery of future tax liability pertaining to intangible assets acquired, related to the Company's acquisitions.
Forward-looking Statements and Uncertainties
Certain statements in this press release constitute "forward-looking statements." When used in this press release, words such as "plans," "intends," "anticipates," "should," "estimates," "expects," "believes," "indicates," "targeting," "suggests," and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current expectations and entail various risks and uncertainties that are outlined in this press release and in the Company's 2001 Annual Report and Annual Information Form. As a result of these risks and uncertainties, the Company's operating results and common share price may be subject to significant volatility, particularly on a quarterly basis. For example, the markets for the Company's products are characterised by changing market conditions, frequent new product introductions, seasonal and variable demand and rapid technology changes. Other factors that could cause the Company's results to vary include, but are not limited to, lack of anticipated growth in the demand for PCs, gaming consoles and consumer electronic devices in which the Company's products are incorporated, reductions in the Company's average selling prices for its products due to competitive pressures and other factors, the introduction of new products by the Company's competitors which render the Company's products non-competitive, delays encountered by the Company in developing new products or enhancements, including integrated graphics and core logic components, in the time frame required by its customers, delays in manufacturing or unfavourable manufacturing yields experienced by the Company's independent foundries, unexpected variances in material costs, including silicon wafer, memory and printed circuit boards, and constraints on the supply of components utilised in the Company's products and in the PC industry generally. These risks and uncertainties could cause or contribute to actual results that are materially different from those anticipated or experienced in the past. Additional information concerning factors that could cause the Company's financial results to fluctuate is contained in the Company's filings with Canadian and U.S. securities regulatory authorities. ATI disclaims any obligation or intention to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Conference Call Information
ATI Technologies Inc. will host a conference call to discuss its financial results for the fourth quarter, ending August 31, 2002 at 10:00 AM (EDT) (7:00 AM Pacific, 9:00 AM Central, 8:00 AM Mountain) today.
To participate in the conference call, please dial 416-405-9328 ten minutes before the scheduled start of the call. No password is required.
A live web cast of the conference call will be available at <http://www.ati.com/companyinfo/ir/quarterlyresults.html>
under the Financial Information section, under 2002 Conference Calls - Q4 2002 or at <http://www.customwebcasting.com/e/webcasts/ati/021002/>
Replays of the conference call will be available through October 9, 2002 Please call 416-695-5800, passcode 1191694.
A web cast replay will be available at the web sites noted above.
About ATI Technologies
ATI Technologies Inc. is a world leader in the design and manufacture of innovative 3D graphics and digital media silicon solutions. An industry pioneer since 1985, ATI is the world's foremost visual processor unit (VPU) provider and is dedicated to deliver leading-edge performance solutions for the full range of PC and Mac desktop and notebook platforms, workstation, set-top and digital television, game console and handheld markets. With 2002 revenues in excess of US $1 billion, ATI has more than 1,900 employees in the Americas, Europe and Asia. ATI common shares trade on NASDAQ (ATYT) and the Toronto Stock Exchange (ATY).
Copyright 2002 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, please visit our web site at <http://www.ati.com> or contact:
Anne Ferguson, Acting Public Relations Manager, ATI Technologies Inc., at
(416) 422-7154 or email@example.com <mailto:firstname.lastname@example.org>
Allison Mudge, Public Relations Manager, BenchMark Porter Novelli,
at (416) 422-7153 or email@example.com <mailto:firstname.lastname@example.org>
For investor relations support, please contact:
Janet Craig, Director, Investor Relations, ATI Technologies Inc.,
at (905) 882-2600, Ext. 2631 or email@example.com <mailto:firstname.lastname@example.org>
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