Revenues(1) for the fourth quarter were $470 million, a $60 million decline relative to the third quarter of fiscal 2005. Gross margin percentage was 9.0% including a $67 million inventory write-down taken in the quarter. Excluding this write-down, gross margin was 23.3%. Net loss for the quarter was $104 million ($0.41 per diluted share). Stock-based compensation costs(2) in the quarter totaled $11.2 million. Excluding the inventory write-down of $67 million and stock-based compensation costs and related taxes, the net loss for the quarter was $29 million or $0.12 per share.
Revenues for fiscal 2005 rose 11% to $2.22 billion. Gross margin was 27.6%. Net income for the year was $17 million ($0.07 per diluted share) versus $205 million ($0.80 per diluted share) in 2004. Stock-based compensation costs in fiscal 2005 totaled $42.5 million as compared with $7.6 million last year. Excluding the inventory write-down and stock-based compensation costs and related taxes, net income for the year was $119 million or $0.46 per share.
"We are entering fiscal 2006 with new products and an intense focus on operational and financial performance," said David Orton, ATI's Chief Executive Officer. "We've delivered top-to-bottom technology and performance leadership with the 90 nm Radeon(R) X1000 series. We are aggressively implementing concrete programs in the areas of delivery performance, product cost improvements and operational efficiencies. Our new products and operational programs position us well for the future."
Recent Highlights
- Announced the Radeon X1000 family, built using the cutting-edge 90 nanometer semiconductor fabrication technology, delivering superior performance and image quality.
- Began volume shipments of Radeon(R) Xpress 200 Crossfire Edition chipsets supporting multi-GPU capability. Featured in a review by the enthusiast website, www.anandtech.com, the Radeon Xpress 200 CrossFire Edition was deemed, "the best overclocker on the market," and "one of the most enthusiast-friendly chipsets ever produced by any manufacturer."
- Introduced Avivo(TM), a suite of hardware and software technologies that takes video capture and display quality to new levels. Consumers watching videos or editing photographs on their PCs will benefit from Avivo enabling 64 times as many colors as other computers.
- Introduced highly integrated new versions of the Theater and Xilleon chipsets for the digital television market. These new processors reinforce ATI's position as an industry leader and provide DTV manufacturers with a cost-effective option to comply with approaching FCC mandate deadlines.
- Achieved recent high-profile Imageon design wins including the new fully featured S75 and SL75 multimedia phones from Siemens, as well as the Motorola ROKR E1 "iTunes" phone.
Outlook
First quarter of fiscal 2006 revenues are expected to increase by approximately 15% relative to the fourth quarter of fiscal 2005 due to growth in desktop discrete, chipset and handheld businesses. Gross margin percentage is expected to recover significantly to about 29% based on the introduction of a new desktop product family, continued improvements in chipset margins and the contribution of royalty income from our game console business. Operating expenses, excluding stock-based compensation costs, are expected to increase 2 - 3% relative to the fourth quarter of fiscal 2005.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL RESULTS
This is management's discussion and analysis of financial condition and the results of operations (MD&A) that comments on ATI's operations, financial condition and cash flows for the three months ended August 31, 2005 compared to the three months ended August 31, 2004. This MD&A should be read in conjunction with the attached unaudited interim consolidated financial statements for the period ended August 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 release (in particular, the section entitled "Outlook") contain forward-looking statements about ATI's objectives, strategies, financial condition and results. These forward-looking statements are based on current expectations and various factors and assumptions and entail various risks and uncertainties.
It is important to note that:
- unless otherwise indicated, forward-looking statements describe our expectations as of October 6, 2005;
- our actual results may differ materially from our expectations if known and unknown risks or uncertainties affect our business, or if our estimates or assumptions prove inaccurate;
- we cannot provide any assurance that forward-looking statements will materialize; and
- 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.
Material factors that could cause our actual results to differ materially from the forward-looking statements in this release include, but are not limited to: unexpected variations in market growth and demand for new GPU products and technologies, potential constraints on our ability to develop, launch and ramp new products on a timely basis, manufacturing considerations, competition, industry cyclicality and seasonality, dependence on third-parties for manufacturing, critical industry transitions and other risks detailed in our regulatory filings.
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.
RESULTS OF OPERATIONS
Revenues
Fourth quarter revenues declined $60 million or 11% to $470 million as compared to the previous quarter, due to lower sales in the PC segment. The PC segment accounted for approximately 80% of quarterly revenues while the Consumer segment accounted for approximately 20% of revenues.
PC
PC revenue fell 18% from the third quarter of fiscal 2005 to $377 million. The primary factor behind the decline was lower sales of performance and enthusiast desktop products in the Add-in-Board (AIB) and retail channels. The combination of lower volumes and reductions in average selling price (ASP) to stimulate demand, led to the decline in revenues. The decline in revenues was partially offset by stronger sales of desktop integrated products. Overall PC units were flat sequentially.
Desktop integrated revenue increased nearly 90% from the third quarter of fiscal 2005. Continued market penetration and significant OEM design wins for the Radeon Xpress 200 series for the AMD and Intel platforms accounted for the increase.
While notebook discrete revenue was down sequentially, notebook integrated revenue increased approximately 60% reflecting the continued trend towards the use of integrated chipsets for notebook graphics as well as increased market share in this segment.
Consumer
Consumer revenue grew almost 35% to $93 million from the previous quarter. Handheld volumes and revenues rose more than 40% sequentially on increased sales of Imageon processors. Digital television product shipments rose more than 40% while revenues increased almost 30% sequentially on higher sales of Xilleon and Theater DTV products to tier-one digital television manufacturers. DTV revenue growth was impacted by a slower-than-expected industry transition to high-definition digital televisions.
Gross Margin
Gross margin percentage fell to 9.0% from 29.1% in the previous quarter. We recorded an inventory write-down of $67 million in the quarter largely related to certain performance and enthusiast level desktop discrete products. This write-down accounted for a majority of the gross margin decline in the quarter. Excluding the inventory write-down, gross margin was 23.3%, reflecting a weaker product mix and more aggressive ASP reductions to stimulate demand in the AIB channel. In addition, sales of integrated chipsets, which currently have considerably lower margins than our other products, comprised almost 20% of total revenues in the quarter as compared with about 10% in the previous quarter. Consumer product gross margins remained stable.
Operating Expenses
Selling and marketing expenses were up 4% compared to the third quarter of fiscal 2005. The increase was primarily related to increased advertising, promotional activity and professional fees to drive brand awareness and marketing activities to support new product introductions.
Research and development (R&D) expenses were flat sequentially, while administrative expenses were up 8% reflecting investment in the supply chain organization, additional headcount related expenses as well as increased professional fees.
Stock-based Compensation
Stock-based compensation costs were $11.2 million in the quarter as compared with $10.4 million in the previous quarter.
Interest and Other Income
Interest and other income was $4 million in the fourth quarter of fiscal 2005. While interest and other income was flat compared with the third quarter of fiscal 2005, an increase in net investment income and a foreign exchange gain on the revaluation of Canadian monetary assets at quarter end, were offset by a write-down on an investment during the quarter.
Net Income (Loss)
Net loss for the fourth quarter was $104 million ($0.41 per diluted share), as compared with net loss of $0.4 million ($0.00 per diluted share) in the third quarter of fiscal 2005.
Liquidity and Financial Resources
Inventory levels of $348 million at the end of the fourth quarter decreased from $456 million in the previous quarter. Inventories were reduced by $41 million in the normal course of operations by driving sales of certain products and delaying wafer starts. In addition, during the quarter, we recorded an inventory write-down of $67 million on certain products primarily in the desktop discrete market. Both actions contributed to the inventory decline. Inventory increased from $255 million at fiscal 2004 year-end.
Accounts receivable at quarter end was $386 million as compared with $366 million at August 31, 2004. Relative to the third quarter of fiscal 2005, accounts receivable declined approximately $3 million. Accounts payable of $363 million was up from $275 million at August 31, 2004 and down from $410 million at May 31, 2005. The sequential decrease is consistent with the decrease in inventories.
Cash flow from operations was negative $21 million in the fourth quarter as compared with positive cash flow of $36 million in the fourth quarter last year. Our cash position (cash, cash equivalents and short-term investments) at quarter end was $587 million, up from $549 million at fiscal 2004 year-end, but down from $644 million at May 31, 2005. The primary reasons for the sequential decline in cash position and cash flow is the repurchase of 2,000,000 shares for $23.9 million in the fourth quarter, cash used in operations, and capital assets acquisition. As of August 31, 2005 we had working capital of $660 million compared to $675 million at fiscal 2004 year-end.
Normal Course Issuer Bid
During the fourth quarter, a total of 2,000,000 shares were repurchased for a total consideration of $23.9 million for cancellation under the terms of the normal course issuer bid.
Outstanding Share Data
At August 31, 2005 there were 251,473,305 common shares outstanding. There were 258,313,771 shares outstanding on a weighted average diluted basis.
Claims and Proceedings
For a description of legal claims and proceedings affecting our business and operations, please see Note 15 to the attached Consolidated Financial Statements.
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.
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 fourth quarter ended August 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, Q4 2005. Replays of the conference call will be available through October 13, 2005 by calling 416-695-5800. The passcode is 3158130. 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 2005 revenues of U.S. $2.2 billion, ATI has more than 3,200 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.
(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.
For media or industry analyst support, visit our Web site at http://www.ati.com
-FINANCIAL STATEMENTS ATTACHED-
http://www.ccnmatthews.com/docs/ati31006.pdf
Contact:
ATI Technologies Inc. Chris Evenden Director, Public Relations (905) 882-2629 Email Contact OR Other ATI Contacts: Porter Novelli Canada Trevor Campbell, Director (416) 422-7202 Email Contact OR For investor relations support, please contact: ATI Technologies Inc. Zev Korman, Manager, Investor Relations (905) 882-2600, ext. 3670 Email Contact