ATI Technologies Inc. Announces Third-Quarter Results Sales Rise 65 Percent Year-Over-Year to $302 Million

Business Wire, July 8, 1999

TORONTO--(BUSINESS WIRE)--July 8, 1999--

ATI Technologies Inc. (Nasdaq:ATYT)(TSE:ATY.) ATI Technologies Inc. (TSE:ATY)(Nasdaq:ATYT) the world leader in 3D graphics/video acceleration and multimedia solutions, today announced financial results for the Company's third quarter ended May 31, 1999. All financial results are expressed in US dollars. Historical US dollar financial statements for the prior four years can be found on the Company's website at www.atitech.com.

Sales for the three months ended May 31, 1999 were $302.0 million, an increase of 65 percent from $182.8 million for the same period last year. Adjusted net income for the third quarter, which excludes the amortization of purchased in-process R&D and other acquired intangibles as discussed below, rose 35 percent to $35.9 million or 17 cents per share compared with $26.5 million or 12 cents per share for the same period last year. All per share amounts are expressed on a fully diluted basis.

On November 20, 1998, ATI completed the acquisition of Chromatic Research, Inc. (Chromatic) a developer of system-on-a-chip technology for approximately $70.9 million (see Note 1). As a result, the Company took a charge in the third quarter of $17.3 million or eight cents per share for the amortization of purchased in-process R&D and other acquired intangibles related to its purchase of Chromatic.

Actual net income for the third quarter, including the above-mentioned amortization of purchased in-process R&D and other acquired intangibles related to the purchase of Chromatic, was $18.6 million or nine cents per share, compared with $26.5 million or 12 cents per share for the same period last year.

"ATI's third quarter results proves the Company's product diversification strategy, building from our core graphics and multimedia competencies, has been successful," said K.Y. Ho, ATI's president and CEO. "Our established success in desktop graphics is extending into the mobile segment, and we have already put in place many of the building blocks needed to be a leader in emerging markets such as set-top boxes and consumer computing appliances."

Financial Highlights

Sales in the third quarter continued to be strong, reflecting confidence in the Company's products. Design wins garnered with ATI's RAGE 128 components and boards fueled growth, as did sales of new components such as the RAGE XL and RAGE Mobility chips. Still a solid contributor, three years from its first introduction, was ATI's RAGE PRO family of products. ATI's preeminence in the retail and distribution channels also was exhibited with increased sales from these channels in the quarter.

Gross margins were solid at 37.0 percent for the third quarter and compare with 36.9 percent in the same quarter last year. The overall gross margin percentage can change with fluctuating material costs and differences in product mix.

Operating costs (excluding acquisition amortization costs of $17.3 million) in the third quarter increased 96 percent year-over-year to $63.5 million up from $32.3 million for the third quarter of fiscal 1998. This was largely due to the expected increase in R&D expenditures relating to the acquisition of the Chromatic development team and increased costs related to developing additional product lines. The overall corporate tax rate remained the same at 26 percent of earnings before taxes (excluding the amortization of intangibles). Earnings after taxes, excluding amortization related costs, rose to $35.9 million or 11.9 percent of sales versus $26.5 million or 14.5 percent of sales for the corresponding quarter of 1998.

During the quarter, working capital increased from $208.5 million at the end of the second quarter to $267.5 million at the end of the third quarter of fiscal 1999. Account receivable balances improved by $19.7 million following improved collections during the quarter to $165.5 million. Inventory levels increased to $185.1 million to support multiple product lines. Cash position (defined as cash and cash equivalents and short-term investments less bank indebtedness) after payments for capital assets increased during the quarter by $26.4 million to $100.0 million.

Operational Highlights

During the quarter, ATI announced a number of design wins for its newest component, the award-winning RAGE 128. Following robust demand from Apple Computer, the Company was selected to power Gateway's new Essential consumer and E4200 corporate desktops, Hewlett Packard's Pavilion 8485 Home PCs, Acer's Power 8000 and 6100 corporate and Aspire 6100 consumer systems and Sony's VAIO Digital Studio desktop PCs.

With overall performance to match the best 3D chips on the market today and unmatched support for digital video and HDTV, the RAGE 128 has the best combination of features and performance among graphics accelerators. During the quarter ATI also reported that the RAGE family of components are used across the entire range of desktop computers made by eMachines Inc.

In the latest market study from Mercury Research ATI vaulted into the number three position in mobile graphics. During the first quarter of calendar 1999 ATI more than doubled its 1998 market share in the laptop market, reaching 15 percent in this rapidly growing segment. Driving towards the number one spot, ATI reported a long list of contracts with Apple, Compaq, Dell, Fujistu and Gateway for notebooks. Illustrating success in multiple market segments, ATI also earned the highest market share of graphics and video cards sold through the U.S. distribution channels, ever reported.