40-F

Page 1 of 104

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 40-F

[Check one]
[    ]    REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
[X]    ANNUAL REPORT PURSUANT TO SECTION 13(A) OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: August 31, 2004            Commission File Number 029872

ATI TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

Province of Ontario, Canada	5045, 3575
(Province or other jurisdiction of	(Primary Standard Industrial
incorporation or organization)	Classification Code Number (if
	applicable))

1 Commerce Valley Drive East	CT Corporation System
Markham, Ontario, Canada L3T 7X6	111 Eighth Avenue
(905) 882-2600	New York, NY 10011
	(212) 894-8700
(Address and telephone number of	(Name, address (including zip code)
Registrant's principal executive offices)	and telephone number (including
	area code) of agent for service
	in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:   None

Securities registered or to be registered pursuant to Section 12(g) of the Act:    Common Shares

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:    None

For annual reports, indicate by check mark the information filed with this Form:

[X]   Annual information form          [X]   Audited annual financial statements

Indicate the number of outstanding shares of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

As at August 31, 2004–249,278,125 Commom Share oustanding

Indicate by check mark whether the Registrant by filing 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 (the “Exchange Act”). If “Yes” is marked, indicate the filing number assigned to the Registrant in connection with such Rule.

Yes  ______          No  ___X___

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  ___X___          No  ______

The total number of pages in this document is 104
The exhibit index is located on page 7.

Page 2 of 104

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the fiscal year of ATI Technologies Inc. (the “Registrant”), an evaluation was carried out under the supervision of and with the participation of the Registrant’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of August 31, 2004, the end of the period covered by the annual report to ensure that material information relating to the Registrant and its consolidated subsidiaries would be made known to them by others within those entities.

There has been no change in the Registrant’s internal control over financial reporting during the year ended August 31, 2004 that materially affected, or that is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

As recommended by the Securities and Exchange Commission (the “SEC”) in its adopting release, we will continue to periodically evaluate our disclosure controls and procedures and internal control over financial reporting and we will be making modifications from time to time as deemed necessary to ensure that information is recorded, processed, summarized and reported within the time period’s specified in the SEC rules and forms.

AUDIT COMMITTEE FINANCIAL EXPERT

The Registrant’s board of directors has determined that it has at least one audit committee financial expert serving on its audit committee. The board of directors has determined that each of Mr. Alan D. Horn and John E. Caldwell is an audit committee financial expert and is independent, as that term is defined by the National Association of Securities Dealers, Inc.’s corporate governance standards applicable to the Registrant. The SEC has indicated that the designation of a person as an audit committee financial expert does not impose on such person any duties, obligations or liability that are greater than those imposed on such person as a member of the audit committee and the board of directors in the absence of such designation or identification and does not affect the duties, obligations or liability of any other member of the audit committee or board of directors.

CODE OF ETHICS

The Registrant has adopted a code of ethics entitled “ATI Code of Ethics”. The ATI Code of Ethics applies to all directors, officers and employees of the Registrant, including the Registrant’s principal executive officer, principal financial officer and principal accounting officer. The ATI Code of Ethics was filed as an exhibit to the Registrant’s Form 40-F filed with the SEC on January 20, 2004 and has not been amended since that date.

Page 3 of 104

PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP billed the following fees in each of the fiscal years ended August 31, 2003 and 2004 for professional services rendered to the Registrant:

Fees	2004	2003
Audit Fees1	$   577,000	$   308,000
Audit-Related Fees2	93,000	83,000
Tax Fees3	190,000	195,000
All Other Fees4	420,000	845,000
Total	$1,280,000	$1,431,000

¹ Audit Fees comprise professional services for the audit of the Registrant’s annual financial statements, interim review procedures performed in connection with the Registrant’s quarterly reports, and services normally provided in connection with the Registrant’s statutory and regulatory filings. In fiscal 2004, these fees included audit fees incurred in connection with the preparation of the Registrant’s Form F-10 registration statement and Canadian base shelf prospectus.

² Audit-Related Fees include fees associated with other accounting advisory and assistance services.

³ Tax Fees comprise amounts paid for tax services including tax compliance, tax advice and tax planning.

⁴ All Other Fees comprise amounts paid relating to services other than those reported in the other categories above. These fees related to services provided to the legal counsel retained by the Board of Directors in connection with the notice of hearing filed by staff of the Ontario Securities Commission in January 2003.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

The Registrant’s Board of Directors, upon the recommendation of the Audit Committee, has adopted a written policy on auditor independence (the “Policy”). Under the Policy, except in very limited circumstances, all audit and permitted non-audit services are required to be pre-approved by the Audit Committee. The Policy prohibits the auditors from providing the following types of non-audit services:

• bookkeeping or other services related to the accounting records or financial statements of the Registrant;

• financial information systems design and implementation;

• appraisal or valuation services, fairness opinion, or contribution-in-kind reports;

• actuarial services;

• internal audit outsourcing services;

• management functions or human resources services;

• broker or dealer, investment advisor or investment banking services on behalf of the Registrant; and

• legal services and expert services unrelated to the audit.

Page 4 of 104

The Policy also permits the auditors to provide other types of non-audit services, including tax services, but only if approved in advance by the Audit Committee, subject to limited exceptions.

OFF-BALANCE SHEET ARRANGEMENTS

ATI does not have any off-balance sheet arrangements.

CONTRACTUAL COMMITMENTS

The disclosure provided under “Liquidity and Capital Resources — Commitments” on page 91 in Exhibit 3, Management’s Discussion and Analysis of Operating Results and Financial Position, is incorporated by reference herein.

Page 5 of 104

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

A. Undertaking

The Registrant hereby undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities in relation to which the obligation to file an annual report on Form 40–F arises, or to transactions in said securities.

B. Consent to Service of Process

The Registrant has previously filed with the SEC a Form F-X in connection with the Common Shares.

Page 6 of 104

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40–F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

ATI TECHNOLOGIES INC.

//David Orton//

David Orton

President and Chief Executive Officer

Date: January 14, 2005

Page 7 of 104

EXHIBIT INDEX

		Sequential Page No.
1.	Annual Information Form dated as of January 14, 2005.	8
2.	Comparative consolidated financial statements for the year ended August 31, 2004, together with the auditors' report thereon.	54
3.	Management's Discussion and Analysis of Operating Results and Financial Position for the year ended August 31, 2004.	80
4.	Consent of KPMG LLP dated September 30, 2004.	100
5.	Certificate of David Orton required by Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of Sarbanes-Oxley Act of 2002.	101
6.	Certificate of Terry Nickerson required by Rule 13a-14(a) or Rule 15d-14(a), pursuant to Section 302 of Sarbanes-Oxley Act of 2002.	102
7.	Certificate of David Orton required pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.	103
8.	Certificate of Terry Nickerson required pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.	104
9.	ATI Code of Ethics (incorporated by reference to Exhibit 6 to the Registrant's Form 40-F (SEC File No. 000-29872) filed with the SEC on January 20, 2004).*

*Previously filed.

EX-99.1

Page 8 of 104

EXHIBIT 1

ATI TECHNOLOGIES INC.

RENEWAL ANNUAL INFORMATION FORM

For the Fiscal Year Ended August 31, 2004

January 14, 2005

Page 9 of 104

TABLE OF CONTENTS

		Page
ITEM 1.	CORPORATE STRUCTURE	5
ITEM 2.	GENERAL DEVELOPMENT OF THE BUSINESS	6
	2.1 THREE YEAR HISTORY	6
	2.2 ACQUISITIONS	8
ITEM 3.	NARRATIVE DESCRIPTION OF THE BUSINESS	10
	3.1 OVERVIEW	10
	3.2 OUR MARKETS	10
	3.3 BUSINESS STRATEGY	12
	3.4 PRODUCTS AND TECHNOLOGY	14
	3.5 RESEARCH AND DEVELOPMENT	16
	3.6 SALES	17
	3.7 COMPETITION	19
	3.8 MANUFACTURING	20
	3.9 CUSTOMER SERVICE AND SUPPORT	20
	3.10 HUMAN RESOURCES	21
	3.11 FACILITIES	21
	3.12 RISKS AND UNCERTAINTIES	22
	3.13 LEGAL PROCEEDINGS AND REGULATORY MATTERS	34
ITEM 4.	DIVIDEND POLICY	36
ITEM 5.	DESCRIPTION OF CAPITAL STRUCTURE	36
	5.1 GENERAL DESCRIPTION OF SHARE CAPITAL	36
	5.2 EQUITY PLANS	36
ITEM 6.	MARKET FOR SECURITIES	39
ITEM 7.	DIRECTORS AND OFFICERS	40
	7.1 DIRECTORS	40
	7.2 CORPORATE OFFICERS	41
ITEM 8.	AUDIT COMMITTEE INFORMATION	44
ITEM 9.	AUDITORS, TRANSFER AGENT AND REGISTRAR	45
ITEM 10.	ADDITIONAL INFORMATION	46
	10.1 ANNUAL REPORT AND MANAGEMENT INFORMATION CIRCULAR	46
	10.2 BASE SHELF PROSPECTUS	46

2

Page 10 of 104

GLOSSARY OF TECHNICAL TERMS AND OTHER INFORMATION

Certain technical terms used in this Annual Information Form are defined as follows:

“2.5G and 3G”. 2.5G means second generation wireless technology (2G) with incomplete third generation (3G) technology added to it. 3G refers to the phase of wireless communications, which is currently becoming more prevalent, and features faster wireless data transfer speeds, enhanced roaming and multimedia capabilities and a feature set including cellular voice, e-mail, paging and internet functionality.

“AGP” means accelerated graphics port. This is a dedicated expansion port located on a motherboard which allows higher throughput from the graphics card to the processor for faster 3D graphics rendering.

“AIB” means add-in board. AIB refers to graphics boards that can be added to a computer at any time, including by an OEM at the time it is manufactured, by a reseller at the time of distribution or by an end-user.

“ASIC” means application-specific integrated circuit. An ASIC is a circuit designated for a very specific purpose, such as the processors used in PDAs or designed for graphics. ASICs contrast with more general-purpose devices, such as memory chips, that can be used in many different applications.

“ASP” means average selling price.

“CPU” means central processing unit, the central unit in a computer which contains the logic circuitry that performs the instructions of a computer’s programs.

“DVD” means digital versatile disc. DVDs are similar to compact discs, but store up to 12 times as much data.

“DTV” means digital television (including set-top boxes). Digital television refers to the standard of transmitting and receiving television signals using digital rather than analog transmission.

“IGP” means integrated graphics processor. An IGP includes both the functionality of a chipset (which controls the functions and features on a motherboard) and graphics.

“I/O” means input/output. I/O refers to any operation in a computer where data is transferred either in or out of the computer.

“ITC” means investment tax credit.

“JPEG” refers to the photographic image compression standard formulated by the Joint Photographic Experts Group.

“MPEG” refers to the digital video and digital audio compression standard formulated by the Moving Picture Experts Group.

“OEM” means original equipment manufacturer.

“ODM” means original design manufacturer.

“PC” means personal computer and generally refers to a computer meant for use by one person at a time.

“PCB” means printed circuit board. PCBs are imprinted with one or more layers of circuitry and are used to hold and link together microchips and other components. Examples of common PCBs include motherboards, and AGP graphics cards.

“PCI Express” refers to the third-generation, high-speed, general purpose I/O architecture that provides greater bandwidth to support the increasing demands on today’s PCs and facilitates graphically intensive applications such as video editing and high-definition content.

“PDA” means personal digital assistant, a small, mobile, hand-held device that provides capabilities such as computing, communication and information storage and retrieval. Common features include phone, e-mail and calendar and contact management.

“SI” means system integrator, a manufacturer of “whitebox, clone or non-branded” PCs.

“VPU” means visual processing unit, an advanced semiconductor chip that provides greater graphics functionality, such as cinematic rendering in real time.

3

Page 11 of 104

All dollar amounts referred to in this document are stated in U.S. dollars, unless otherwise indicated.

The information in this Annual Information Form is disclosed as at December 31, 2004, unless otherwise indicated.

In this Annual Information Form, “we”, “us”, “our” and “ATI” refer to ATI Technologies Inc. and its subsidiaries.

“ATI” and the ATI logo are our properties and registered trademarks. Our product names are also our trademarks and/or registered trademarks and they are italicized in this document. This Annual Information Form also includes references to the trademarks, products and company names of other corporations, which are the properties of their respective owners.

FORWARD-LOOKING STATEMENTS

Publicly held companies are encouraged by securities regulations to provide forward-looking information to assist investors in assessing the company’s prospects.

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” and suggests” and words and expressions of similar import.

This Annual Information Form contains forward-looking statements about our objectives, plans, strategies, financial condition and results, as well as statements with respect to our beliefs, expectations, anticipations, estimates and intentions. These statements are “forward-looking” because they are based on current expectations and include various risks and uncertainties.

It must be noted that:

• Forward-looking statements describe our expectations on the day they are made. For this Annual Information Form, it is December 31, 2004.

• We caution readers not to place undue reliance on these statements as 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.

• For a description of risks that could cause our actual results to materially differ from our current expectations, including those contained in or implied by forward-looking statements, please see Item 3.12 “Narrative Description of the Business — Risks and Uncertainties” at page 22.

• 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.

4

Page 12 of 104

ITEM 1. CORPORATE STRUCTURE

Name, Address and Incorporation

ATI Technologies Inc. was incorporated on August 20, 1985, as Array Technology Inc. pursuant to the Business Corporations Act (Ontario). The name was subsequently changed to Array Technologies Inc. pursuant to articles of amendment dated September 13, 1985, and then to ATI Technologies Inc. pursuant to articles of amendment dated December 18, 1985.

On December 31, 1987, our articles were amended to divide the 1,000 common shares then outstanding into 1,000,000 common shares. In conjunction with our initial public offering in November 1993, articles of amendment were filed on October 14, 1993, to create an unlimited number of non-voting preference shares and subdivide the 1,100,000 common shares then outstanding into 40,000,000 common shares.

On April 8, 1998, our board of directors approved a stock dividend on a four-for-one basis effective for registered common shareholders at the close of business on April 23, 1998. The stock dividend increased the number of common shares then outstanding from approximately 48.9 million to approximately 195.9 million common shares.

Our principal and head office is located at 1 Commerce Valley Drive East, Markham, Ontario, L3T 7X6.

Intercorporate Relationships

Below is a summary of our principal operating subsidiaries as at December 31, 2004, all of which are directly or indirectly wholly owned:

Subsidiary	Incorporation	Activity
ATI Technologies (Europe) GmbH	Germany	Sales and marketing support in Europe
ATI Research, Inc.	California	Research and development
ATI Technologies Systems Corp.	California	U.S. sales and distribution
ATI Technologies (Japan) Inc.	Japan	Sales and marketing support in Japan
ATI International SRL	Barbados	Research and development and sales
ATI Technologies (L) Inc.	Malaysia	Asia-Pacific sales and distribution
ATI Technologies Ltd.	Malaysia	International purchasing
ATI Research Silicon Valley Inc.	California	Research and development
ATI Technologies (Hungary) KFT	Hungary	Research and development, licensing and inter-company lending
ATI Research GmbH	Germany	Research and development
ATI Technologies (Korea) Co., Ltd.	Korea	R&D and marketing and sales support
ATI Visual Technologies (Shanghai) Co., Ltd.	Shanghai, China	Research and development
ATI Technologies Distribution Inc.	Ontario, Canada	North American sales and distribution
ATI Technologies (HK) Ltd.	Hong Kong	Sales administration

We operate technology centres and sales support offices in Canada, the United States, Europe and the Asia-Pacific region.

5

Page 13 of 104

ITEM 2. GENERAL DEVELOPMENT OF THE BUSINESS

ATI is a world leader in the supply of graphics processing products and technology for desktop and notebook personal computers (“PCs”), and consumer electronic devices such as mobile phones and personal digital assistants (“PDAs”), digital televisions (including set-top boxes) (“DTVs”) and video game consoles. ATI’s main product lines, visual and graphics processors, increase the speed and complexity of the images that can be displayed on PC monitors and improve image resolution and colour definition.

Rich and intuitive visual experiences make digital electronic products such as PCs and consumer electronic devices more accessible and more compelling to the mass market. Increasingly, computing, entertainment and communications product platforms rely on graphics or visual processors to deliver an engaging experience and enrich the utility of their products for the user.

We believe that the visual experience is a key element of differentiation among various digital product platforms. PC users clearly prefer a rich visual experience, particularly in the high-end enthusiast market where consumers seek out the fastest and highest performing visual processing product to deliver the most compelling and immersive gaming experiences. Even in commercial settings, however, users clearly prefer an intuitive and graphical visual experience which results in enhanced productivity.

The mobile phone market has also begun to rapidly transition from monochrome to colour visual displays with multimedia features to provide users with a richer visual experience. The demand for digital graphics solutions is also expanding as a result of growth in digital television, driven in part by the mandate of the U.S. Federal Communications Commission that requires electronics manufacturers to include digital tuners in all new television sets by 2007. These developments are providing ATI with increased opportunities to leverage its expertise in graphics and to develop products for these fast-growing markets. We have also successfully leveraged our core visual processing technology into the game console market. Nintendo Co., Ltd.’s (“Nintendo”) current game console, GAMECUBE, is powered by our ‘Flipper’ graphics processor, and we have also entered into technology development agreements with Nintendo and Microsoft Corporation (“Microsoft”) for future products and services.

2.1  Three Year History

The following outlines a number of the important events in our business over the course of the last three fiscal years:

2004

• We further demonstrated our technology leadership position in fiscal 2004 by introducing the industry’s first top-to-bottom family of PCI Express graphics cards for consumer and commercial desktop systems. We also introduced a range of PCI Express products for the professional workstation market, as well as the industry’s first mobile PCI Express graphics processor. We shipped more than one million native PCI Express visual processing units (“VPUs”) in fiscal 2004.

• We continued to introduce innovative and high-performance products to the markets we serve. These included the RADEON X800, HDTV WONDER, IMAGEON 2300, XILLEON 210VC and THEATER 550 PRO, among others.

• We introduced the RADEON XPRESS 200 family of chipsets for the AMD desktop platform incorporating industry-leading features and performance, which addressed the value segment of the market.

6

Page 14 of 104

• We continued to build momentum in fast-growing digital consumer markets such as handheld devices, mobile phones and DTVs.

• We solidified our position as a global leader in mobile phone graphics, announcing a strategic collaboration with QUALCOMM Incorporated and continued to broaden our relationships with tier one mobile phone manufacturers. We also introduced the IMAGEON 2300 family of co-processors, the first of their kind to enable 3D gaming performance on mobile phones.

• We significantly enhanced our position in the DTV market, shipping more than 5 million chips for high-definition TVs and cable and terrestrial set-top boxes in calendar 2004. We secured design wins with most major DTV manufacturers, including Funai (Sylvania), Hitachi, JVC, Mitsubishi, Matsushita (Panasonic), Philips, Scientific-Atlanta, Samsung, Sanyo, Sony, TiVo, Toshiba, Thomson / TTE (RCA) and others.

• We acquired certain assets of AMI Technologies Corp. (“AMI”), our exclusive sales organization for Taiwan and China since 1992. This strategic acquisition strengthened our direct presence in these critical and rapidly growing markets.

• David E. Orton, previously President and Chief Operating Officer of ATI, became President and Chief Executive Officer.

• We were added to the NASDAQ-100 Index and our common shares are now included in the NASDAQ-100 Index Tracking Stock.

• We posted record financial performance with revenues up 44% from fiscal 2003 to approximately $2.0 billion and diluted earnings per share of $0.80, up from $0.14 in fiscal 2003.

2003

• We delivered new product line-ups for both the spring and fall original equipment manufacturer (“OEM”) design cycles.

• We introduced the FireGL X2-256 and FireGL T2-128 graphics boards into the workstation segment.

• We launched the ALL-IN-WONDER 9800 graphics board to lead our home media PC product offerings.

• We introduced the IMAGEON 3200, an advanced multimedia co-processor for handheld devices, including colour mobile phones.

• We were the first company to introduce a broad range of visual processors compatible with Microsoft’s DirectX 9.0 multimedia application programming interface.

• We captured new OEM design wins and established new channel partnerships with original design manufacturers (“ODMs”) such as Asustek and Micro-Star International.

• We introduced a new generation of integrated graphics processors (“IGPs”) with the launch in June 2003 of the MOBILITY RADEON 9100 IGP and the RADEON 9100 IGP for the notebook and desktop markets, respectively.

• We commenced volume shipments of our IMAGEON multimedia co-processor products to Motorola for their V300, V500 and V600 colour and feature mobile phones.

7

Page 15 of 104

• We secured design wins for our DTV products from television, projector and set-top box manufacturers including Sony, Samsung, Epson, Scientific Atlanta, Funai Electric (Sylvania brand) and Changhong Electric (Apex brand).

• We signed agreements with Nintendo and Microsoft with respect to the development of new technology to be used in their future products.

2002

• We introduced the RADEON 9700, RADEON 9000, FireGL X1 and the MOBILITY RADEON 9000, all of which were industry-leading products that garnered a significant number of design wins from OEMs.

• We launched a full line of IGP products. The RADEON family of IGP products addresses the desktop and mobile PC markets and supports Intel Pentium 4, AMD Athlon and AMD Duron platforms.

• We introduced IMAGEON 100, a multimedia co-processor for handheld devices, including colour mobile phones. IMAGEON includes capabilities such as enhanced 2D graphics and hardware and MPEG-4 decoding and offers high performance, crisp images and low power consumption.

• We introduced the XILLEON 220, a highly integrated system-on-chip for DTV products. The XILLEON 220 integrates into a single chip all processor, graphics, video, audio and input/output (“I/O”) processing capabilities required for DTV applications.

• We acquired NxtWave Communications Inc. (“NxtWave”) and broadened our DTV product capabilities by adding NxtWave’s leading demodulation technology to our XILLEON products, which positioned ATI as a provider of complete solutions for DTV.

• We started to receive royalty revenues from our licensing arrangement with Nintendo for ATI’s ‘Flipper’ chip that is used in Nintendo’s GAMECUBE game console.

2.2  Acquisitions

We continually seek to expand our technology base and further our strategic goals. Acquisitions, including those described below, are one of the ways we do this.

We acquired ArtX, Inc. (“ArtX”) in April 2000 in pursuit of our strategy to expand into the high-volume IGP market. ArtX, a privately held company, was highly regarded for graphics technology. With this acquisition we gained integrated visual processing technology, associated research and development (“R&D”) and expertise in the form of 70 engineers. This acquisition facilitated our entry into the consumer electronics and video game console markets and provided additional technology for the launch of our IGP products in fiscal 2002.

To achieve our goal of top-to-bottom market leadership, it was essential for us to address the high-end workstation segment of the PC market. In 2001, we accelerated our entry into this market with the acquisition of FGL Graphics, the professional graphics division of SONICblue Inc. FGL Graphics developed and marketed the technology-leading FireGL brand of OpenGL-based graphics accelerators. This acquisition contributed to our growth in the workstation market as well as our overall product and technology development in our other product categories.

In 2001, we identified multi-monitor display capability as a means to broaden our product offerings and target new customers. In July 2001, we acquired HYDRAVISION desktop management software and related technologies from Appian Graphics Corporation as well as several related patents and the HYDRAVISION trademark. HYDRAVISION software features include window and dialog box control, hot-key shortcuts, independent resolutions and refresh rates, independent application control and up to nine virtual desktops. A number of our products now include HYDRAVISION’s multi-monitor capability.

8

Page 16 of 104

In 2002, our strategy to leverage our core technology into markets for consumer electronic devices began to gain momentum, particularly in the DTV market, as the U.S. Federal Communications Commission announced the mandated conversion from analog to digital television by 2007. Prior to June 2002, our XILLEON visual processor products, although highly regarded, required an interconnect with a signal processing and communications chip demodulator in order to operate in DTV products. In June 2002, we acquired NxtWave in order to combine NxtWave’s leading demodulation technology with our XILLEON products, positioning ATI as a provider of complete DTV solutions.

In September 2003, we acquired certain assets of AMI, our exclusive sales organization for Taiwan and China since 1992. This acquisition strengthened our presence in these important markets. The majority of AMI’s sales, marketing and field application engineering staff were transferred to ATI as part of the acquisition. After the acquisition, AMI continued to act as our sales agent in the region for smaller add-in board (“AIB”) customers that we did not service directly. In September 2004, we acquired additional employees and assets from AMI and we now service all these customers directly.

In September 2004, we acquired certain assets of RT&C International, our sales organization for South Korea, for a cash consideration of $2.6 million, plus acquisition-related costs. This acquisition provided us with valuable direct access to our important customers in Korea and provides a base from which to grow our presence in this important market.

As a result of these acquisitions we believe that we have gained technology and R&D, engineering and sales expertise, expanded the markets for our products and created new market opportunities for our business.

9

Page 17 of 104

ITEM 3. NARRATIVE DESCRIPTION OF THE BUSINESS

3.1  Overview

Founded in 1985, ATI is a world leader in the supply of graphics processing products and technology for desktop and notebook PCs, consumer electronic devices, DTVs and video game consoles. We apply our proprietary technologies, design capabilities and software to provide graphics solutions for customers in all our target markets.

Our business is organized around two main markets for semiconductor graphics products: PC products and consumer electronic devices. Our RADEON product line is a recognized leader in the PC graphics market. We believe that the markets for consumer electronic devices represent a key area for the future growth of our business. Sales in this area increased from less than 5% of our revenues in fiscal 2003 to nearly 10% of our revenues in fiscal 2004. Our IMAGEON products for mobile phones and handheld devices, and our XILLEON and NXTWAVE products for DTV markets have achieved significant design wins with customers in their respective segments. In the video game console market, our ‘Flipper’ chip technology has been the sole graphics engine used by Nintendo in their GAMECUBE console. We have also signed multi-year technology development agreements with Nintendo and Microsoft for future products and services.

During the fiscal year ended August 31, 2004, our business generated revenues of nearly $2.0 billion. We have more than 2,700 employees worldwide. Our ten largest customers accounted for approximately 62% of our revenues in fiscal 2004. Since a significant portion of PCs and consumer electronic devices are currently built in the Asia-Pacific region regardless of where the products are sold, the majority (81%) of our sales during fiscal 2004 were in the Asia-Pacific region.

We believe that our continued commitment to innovation and technology leadership will position ATI to capitalize upon growth opportunities in the markets for our products in the future.

3.2  Our Markets

The semiconductor graphics market addresses the need for image processing for various computing and entertainment platforms such as desktop and notebook PCs, workstations, DTVs, handheld devices and video game consoles. The primary product of a semiconductor graphics supplier is the VPU, a semiconductor chip that increases the speed and complexity of images that can be displayed on a graphical interface as well as improving image resolution and colour definition. The VPU off-loads the burden of graphics processing from the PC or electronic devices’ microprocessor or central processing unit (“CPU”). In this way the dedicated graphics or visual processor and CPU work in tandem to increase overall speed and performance.

During the past few years, the PC industry has been marked by consolidation among the large PC OEMs and the emergence of PC system integrators (“SIs”) or “white box, clone or non-branded” PC manufacturers. Today, we estimate that SIs are responsible for approximately forty to fifty percent of worldwide PC shipments. Therefore, it is important for PC graphics suppliers to have their technology incorporated into board-level products which are available to and accepted by the SI channel.

In fiscal 2001, we undertook a transition of our business which has resulted in us becoming a component-level supplier to the PC graphics industry. This strategy included refocusing our distribution channels and supplying AIB manufacturers with our component products who, in turn, supply SI manufacturers with their board-level products. We now also supply our OEM customers with component-level products as well as, to a lesser extent, graphics boards. As a result, more than 95% of our unit sales were shipped as components in fiscal 2004.

10

Page 18 of 104

PC Market

The strength of the semiconductor graphics market is heavily dependent upon the PC market. Customers in the PC segment include: OEMs and SIs, who build VPUs into their PC products; ODMs, who build VPUs into their PC motherboard and graphics board products; and AIB manufacturers who incorporate VPUs into their graphics board products.

Desktop and notebook products represent the two major segments of the PC market. According to International Data Corporation (“IDC”), a market research firm, the worldwide desktop PC and notebook market segments were estimated to be 122.3 million units and 48.5 million units, respectively, in 2004 and are forecast to be 130.4 million and 58.3 million units, respectively, in 2005. While the desktop segment has traditionally been the largest sector within the PC market by volume, the notebook market continues to expand at a more rapid pace driven by the availability of lower power and high performance notebook PCs at affordable prices. According to the most recent IDC data, the desktop and notebook PC markets are estimated to grow to 148.8 million units and 90.8 million units, respectively, by 2008.

The graphics solution for both the desktop and notebook segments is addressed by integrating the graphics hardware into the motherboard chipset or by adding a discrete graphics processor, which is a stand-alone graphics chip. Discrete graphics chips tend to provide higher levels of performance and speed while integrating graphics into the chipset caters towards the value segment of the market. The demand for integrated graphics solutions has grown in recent years as the PC market has developed and the performance of IGP products has advanced. OEMs and SIs, who have been continually pressured to meet lower price and power consumption targets while still maintaining reasonable profit margins, are increasingly using integrated chipsets over discrete chipsets in their products given the “value” or low-cost characteristics of integrated graphics solutions. Based on industry data, it is estimated that integrated graphics chipsets currently account for more than 55% of the desktop 3D chips and approximately one-half of the notebook 3D chips sold worldwide. Despite this increase, it is expected that the discrete market will continue to grow, albeit at a slower rate than in the past, due to the superior performance discrete chipsets provide over integrated graphics chipsets. This extra performance is especially important to users who engage in graphically intensive applications such as gaming, multimedia, video editing and high definition content creation.

Consumer Electronics Market

The market for graphics has grown beyond its PC roots as technology in other electronic devices has developed. Newer avenues of growth for the graphics market include DTVs, handheld devices, such as colour mobile phones and PDAs, and video game consoles. Similar to the development of the PC graphics market, users are demanding enhanced imagery for improved utility and a richer visual experience for their digital electronic devices.

The growth in the DTV market is being driven by the conversion of analog television signals to digital transmissions by television broadcasters. This conversion is supported by a U.S. Federal Communications Commission mandate that requires the integration of digital tuners into TV sets and receiver devices by 2007. As this transition takes place, semiconductor graphics suppliers will have the opportunity to leverage their multimedia technology developed for the PC graphics market into new products for DTVs. According to IDC, worldwide DTV shipments are predicted to be 36.1 million units in 2005, climbing to an estimated 118.0 million units by 2008.

The market for colour, feature rich (including camera) and smart phones will increasingly require that mobile phones provide rich colourful visual displays as well as 2D and 3D graphics technology. The transition to next generation 2.5G and 3G mobile phone technologies will drive this trend as users demand an enhanced experience with their mobile phones, including advanced audio and video features, as well as power management (battery life). As this market develops, semiconductor graphics suppliers will have opportunities to work with mobile phone manufacturers and supply advanced graphics processors for their mobile phone products. According to IDC, the size of the mobile phone market was estimated to be 648.5 million units in 2004, is forecasted to be 632.5 million units in 2005, and is currently estimated to grow to 793.4 million units by 2008.

11

Page 19 of 104

Video game consoles are also an important segment of the consumer electronics market. In this market, semiconductor graphics suppliers work alongside game console manufacturers to enhance the visual experience for the users of sophisticated video games. Semiconductor graphics suppliers have the opportunity to leverage their core visual and graphics processing technologies by providing solutions to this market. According to Strategy Analytics, a market research firm, the game console market was estimated to be 29.3 million units in 2004, is forecast to be 25.9 million units in 2005 and is currently estimated to grow to 33.5 million units by 2008.

3.3  Business Strategy

We anticipate that future PC systems and certain consumer electronic devices will continue to require advanced visual processing technology to support 3D gaming and digital video technologies such as digital video decoding.

We intend to expand our presence in the PC market and expand into new digital consumer markets by closely following and capitalizing on market trends and inflection points in the industry, such as the transition currently underway to the PCI Express interface standard.

Another key element of our business strategy has been to expand beyond the traditional PC market into emerging market segments such as DTV and handheld devices, including colour mobile phones. We experienced considerable success in each of these markets in 2004 and are poised to grow further in 2005 by virtue of our strong momentum, customer relationships and technology leadership.

We intend to execute our business plan through the following strategies:

Sustained product and technology leadership

Enabling the most compelling visual experience irrespective of platform is central to our business strategies. Our goal is to consistently raise the technology and performance standard in all segments of the PC market and the digital consumer markets in which we operate. In the PC market, we are focused on capturing performance and technology leadership at the high-end enthusiast level and then propagating this technology throughout the performance, mainstream and value markets. In digital consumer markets, we are focused on the innovation and delivery of advanced features and graphics performance that our customers desire and market to their end-users.

With the introduction of the RADEON X800 in fiscal 2004, we have demonstrated our continued commitment to introduce industry-leading technology at the high-end of the desktop PC market. We leveraged high-end performance VPUs into the important mainstream and value market segments by introducing the RADEON X600 and RADEON X300.

We expect to continue to focus our research efforts to allow us to bring new and innovative products and technologies to the market. We continue to focus on key graphics technologies relating to 2D, 3D and video acceleration for desktop, mobile and workstation PCs. Due to the rapidly changing and expanding technologies in the PC market and the convergence of this market with other media, we continue to internally develop and pursue opportunities to acquire or license complementary leading-edge technologies when appropriate.

12

Page 20 of 104

Build a strong and sustainable franchise in the integrated graphics processor market

The market for IGPs has grown rapidly and based on industry data, integrated chipsets are today estimated to represent more than 55% of desktop 3D chips and approximately one-half of notebook 3D chips sold worldwide. Bringing our core visual processing technology and integration expertise to the IGP market segment is a natural extension of our PC market strategy. We have invested in R&D, cultivated distribution channels and anticipated certain inflection points to stage our entry in this market to maximize our opportunities.

The combination of performance, features and low cost of our IGP products represent a competitive value proposition in the IGP market. We have partnered with key motherboard manufacturers including Asus, Gigabyte, Micro-Star International, TUL Corporation, Sapphire and PC Partner, which we expect will help us penetrate the desktop IGP market in fiscal 2005. Strong customer acceptance of our products has contributed to our penetration of the notebook IGP market.

Expand in select consumer electronics market segments

We endeavour to leverage our core graphics technologies from our PC products into related markets that reach beyond the PC and address the markets for consumer electronic devices that include handheld devices such as colour mobile phones and PDAs, as well as DTVs and video game consoles. We continue to refine our approach to these markets and are currently focusing on colour mobile phones in the handheld segment and North American digital television in our DTV business. We are also beginning to explore DTV growth opportunities in the European and Asian markets.

In the colour mobile phone market, we grew volume shipments of our IMAGEON products in fiscal 2004 and secured additional design wins with Motorola, a leading mobile phone manufacturer. By December 2004, our IMAGEON processors were present in a variety of models of mobile phones. We also announced a strategic technology collaboration with QUALCOMM Incorporated, a pioneer and world leader in Code Division Multiple Access (CDMA) digital wireless technology. As part of the collaboration, some of QUALCOMM’s Mobile Station Modem (MSM) baseband solutions will include ATI’s highly optimized IMAGEON architecture to provide a fully featured, high-performance 3D gaming solution for handheld devices.

In fiscal 2004, we achieved continued broad-based acceptance of our solutions in the DTV market and in calendar 2004 shipped more than 5 million chips for high-definition (HD) TVs and cable and terrestrial set-top boxes. Our products are used by leading manufacturers of HD TVs and HD set-top boxes, including Funai (Sylvania), Hitachi, JVC, Mitsubishi, Matsushita (Panasonic), Philips, Scientific-Atlanta, Samsung, Sanyo, Sony, TiVo, Toshiba, Thomson / TTE (RCA) and others.

In the video game console market, our ‘Flipper’ chip technology has been the sole graphics engine used by Nintendo in their GAMECUBE console. We have also signed multi-year technology development agreements with Nintendo and Microsoft for future products and services.

Innovate cost-effectively and improve operating and financial performance

We seek to innovate efficiently. This means targeting new channels and new customers by leveraging our core technologies. It also means introducing our products into new markets at key inflection points and capitalizing on the momentum of changes in the market. We strive to make continuous improvements in development processes and technologies, manufacturing efficiencies and inventory management.

We continually review our business to ensure that expenses correspond with their opportunity and return profile. During fiscal 2004, we made steady improvements in financial and operating performance. As a result of our technology leadership in the high-end desktop market, continued growth of the notebook market and continued penetration of the consumer electronics market, we increased revenue by 44% on a year-over-year basis.

13

Page 21 of 104

3.4  Products and Technology

3.4.1  PC Products

Desktop Products

Our discrete desktop VPUs address desktop PC markets where customers expect high levels of performance, speed and a compelling visual experience. We offer a complete line of discrete VPU products for mainstream, performance and enthusiast PC markets. Our most recent generation of desktop VPUs includes the performance-leading and award-winning RADEON X850XT Platinum Edition.

While the percentage of PCs that are targeted towards the value and commercial markets continues to grow, we still believe that a separate graphics subsystem will continue to offer higher performance and will be the preferred solution for workstation, multimedia and gaming platforms.

In order for OEMs to meet continually lower pricing targets while still maintaining reasonable profit margins, there is a growing trend for OEMs to use integrated chipsets rather than discrete graphics solutions in their “value” or low-cost PCs as well as in commercial platforms. The value and commercial markets represent a significant portion of PCs that are sold today. Currently, based on industry data, we estimate that integrated graphics chipsets are used in more than 55% of the desktop 3D chips sold worldwide.

Our desktop IGP products address the value and commercial segments of the PC market. We bring advanced features, low cost and an excellent visual experience to these segments. We offer a full line of IGPs for Intel and AMD-based computer platforms. In fiscal 2003, we launched our first desktop IGP product, RADEON 9100 IGP and commenced volume shipments in fiscal 2004.

In order to sell IGPs, we must secure license agreements with manufacturers of CPUs on which the motherboard is based. We have entered into licensing arrangements with Intel Corporation (“Intel”) which permit ATI, subject to certain requirements, restrictions and limitations, to develop and sell integrated chipsets that are compatible with Intel’s current Pentium 4 desktop and notebook microprocessor platforms. We have also entered into the necessary licensing arrangements that are required for our IGP products to be compatible with the Athlon64 and Sempron CPUs manufactured by Advanced Micro Devices, Inc. (“AMD”).

We offer a complete line of products for the desktop market, including products for the accelerated graphics processor (“AGP”) and PCI Express interface standards and the Intel and AMD platforms, targeting the enthusiast, performance, mainstream and value segments. The transition by the industry to the PCI Express standard, which began in 2004, is expected to continue through 2005.

Notebook Products

The notebook or mobile PC market continues to be a growing segment in the PC industry, as notebook computers now incorporate richer features such as improved 3D performance, DVD support, and power management technology to reduce battery drain from the graphics subsystem. We developed the MOBILITY RADEON family of mobile graphics accelerators to target this growing market and to provide the performance, features and flexibility to work in a variety of notebook classes. In this category, speed, low power consumption and visual performance are the uppermost considerations of our customers. We focus on designing notebook VPUs that meet and exceed these expectations in the thin and light, performance desktop replacement and value categories.

As in the desktop PC market, the integration of discrete notebook PC semiconductor components may allow for reduced costs, faster design times and more available space for other features within the mobile PC. Our mobile graphics products with integrated memory, including our MOBILITY RADEON 9700, MOBILITY RADEON 9600 and MOBILITY RADEON 9200 have gained widespread acceptance in the mobile PC market over the past year.

14

Page 22 of 104

As the trend towards lower cost notebook PCs continues, we believe the market will also require graphics chip suppliers to provide cost effective ways of delivering high performance graphics, including the use of integrated chipsets. Based on industry data, we estimate that integrated graphics chipsets currently account for approximately one-half of the notebook 3D chips sold worldwide. Our notebook IGP products target the value and mainstream segments of the notebook PC market. Our products for this category combine excellent visual performance, powerful features and low power consumption. The most recent generation of our IGP notebook products is the MOBILITY RADEON 9100 IGP.

Home Media PCs

The market for digital home media PCs with multimedia capability continues to expand. PC manufacturers are offering consumers even more choices for home theater and entertainment applications. With these powerful PC systems, consumers can easily access digital photos, TV broadcasts, computer games, DVD movies and more all through one platform.

ATI continues to offer products for the digital home PC market which provide PC/TV convergence, combining PC technology with TV, audio and high quality digital video technology. In calendar 2004, we unveiled innovative multimedia products such as the ALL-IN-WONDER 9600 XT and THEATRE 550 PRO. ATI offers both notebook and desktop home media PC products. We also offer MPEG encoding software solutions.

Workstation Products

Our FireGL family of workstation graphics boards brings high performance to the digital content creation and computer-aided design workstation PC markets. We offer both desktop and notebook workstation solutions. Our most recent product introductions in this segment include our FireGL X3-256 for AGP and the FireGL V7100, V5100, V3200 and V3100 for PCI Express and the MOBILITY FireGL T2-128 for mobile workstations. All of these products offer a competitive price/performance combination in their respective segments.

3.4.2  Consumer Electronics Products

Many consumer electronic devices today rely on some form of digital processor to increase functionality, improve reliability, decrease size and lower costs. An easy-to-use display is typically the next consumer priority.

We continue to leverage our core technology, visual processing expertise and power management know-how to create growth opportunities in certain consumer electronics markets. We have initially targeted three markets: (i) DTVs, including set-top boxes; (ii) handheld devices, including colour mobile phones and PDAs; and (iii) video game consoles.

Digital television including set-top boxes

As television broadcasters in North America and the rest of the world convert their analog television signals to DTV transmissions over the next decade, increased consumer interest in DTV will spur demand for more advanced DTVs, projectors and set-top boxes. The U.S. Federal Communications Commission issued a mandate in 2002 requiring the integration of digital tuners into TV sets and receiver devices by 2007. Digital transmission standards provide significant advantages compared to analog standards, including greater picture clarity and resolution as well as opportunities for more channels, e-commerce and enhanced TV viewing.

We are leveraging our core technology in visual processors by offering visual and signal processing technologies to DTV and set-top box manufacturers. Our XILLEON 225, XILLEON 210VC, THEATER 310 and THEATER 313 product lines are cost-effective and highly-integrated solutions for this market. We also provide software and support infrastructure to our customers in this segment.

15

Page 23 of 104

Many of the commercially available integrated Digital Cable Ready high definition TVs use ATI’s chips.

Colour mobile phones and handheld devices

The latest generation of colour mobile phones, PDAs and other handheld devices are driving demand for more advanced visual processors. Higher resolution panels, higher performing embedded processors and increased internal and removable storage are all contributing to rapid changes in handheld and mobile communication devices.

Our IMAGEON product line contributes market leading visual processing and power saving technology as well as a high level of integration. Our IMAGEON 3200 is an advanced multimedia co-processor for handheld electronic devices. It integrates an advanced 2D graphics engine and an MPEG/JPEG decoder alongside a versatile set of peripheral I/O functions. These features make the IMAGEON 3200 suitable for the new generation of colour and feature phones.

Video game consoles

We also leverage our core visual processing technology in the video game console market. We provide visual processing technology to Nintendo for its GAMECUBE game console. We believe enthusiasm for computer gaming continues to grow with increasing consumer demand for more realistic, immersive and cinematic experiences.

We have licensed our proprietary ‘Flipper’ chip to Nintendo as the central graphics core of Nintendo’s GAMECUBE video game console. The ‘Flipper’ chip’s highly integrated processor includes both a 2D and 3D graphics engine, a digital signal processor for audio processing, all system I/O functions, including CPU system memory, controllers, optical disk, flash card, modem and video interfaces and an on-chip high bandwidth frame buffer.

We have also signed multi-year technology development agreements with Nintendo and Microsoft for future products and services.

3.5  Research and Development

A strong commitment to R&D is fundamental to our success. Due to the rapid pace of technological change in the graphics industry, it is critical that we meet each market window with the newest generation of products that meet market and customer requirements. Ongoing R&D efforts enable us to participate in establishing industry standards as well as design and create new products based on these standards. We continue to strengthen our R&D base through internal R&D efforts, licensing arrangements with third parties and acquisitions of technology companies, when appropriate.

Our primary R&D objective is to develop products and technologies that meet the ever-changing demands of the PC graphics and multimedia industry. Our dedication to R&D has also allowed us to expand our addressable market beyond the PC discrete graphics market to the IGP market and to consumer electronics markets including DTVs, colour mobile phones and video game consoles.

Our net investment in R&D increased from $213.0 million in fiscal 2003 to $269.9 million in fiscal 2004. Our engineering resources increased from approximately 1,500 to more than 1,700 employees during that time.

16

Page 24 of 104

The following table summarizes our net investment in R&D over the past three years. R&D expenditures include current expenses, such as salaries and certain materials, as well as depreciation of capital assets that were acquired for R&D purposes and prototype and design tools. For R&D activities carried out in Canada, we qualify for Canadian federal investment tax credits (“ITCs”) at the rate of 20% of all eligible current and capital R&D expenditures. We also qualify for tax credits based on R&D activities carried on in the United States. These ITCs are used to reduce current expenses, capital expenditures and federal tax otherwise payable.

Net Investment in Research and Development
(Thousands of U.S. dollars)	Years ended August 31
	2004		2003		2002
Gross current R&D expenses	$298,934		$234,719		$182,349
Less related ITCs	29,025		21,743		17,740
Net current R&D expenses	$269,909		$212,976		$164,609
Net current R&D expenses as a percentage of revenues	13.5	%	15.4	%	16.2	%
Capital R&D expenditures, net of ITCs	$  15,479		$    9,237		$  15,448

3.6  Sales

We sell our products through five major sales channels: PC OEMs, SIs, AIB manufacturers, retail stores and consumer electronics manufacturers.

Our PC OEM customers include Acer, Apple, Dell, Founder, Fujitsu, Fujitsu-Siemens, Gateway, Hewlett-Packard, Hitachi, IBM, Lenovo, NEC, Packard Bell, Panasonic, Sony, Toshiba and Trigem.

In the PC OEM market, it is critical to time the introduction of our graphics products to reflect industry transitions or inflection points and meet the schedules associated with qualifying and shipping products for seasonal buy cycles, typically in the spring and fall. Sales to PC OEM customers often involve a direct relationship between the customer and our R&D personnel to ensure that the products we are developing meet the needs and specifications of the PC OEM. We offer a full range of products to PC OEMs, including products for PCs as well as digital consumer products. This results in sales channel efficiency, an ability to grow with our customers, and enables our PC OEM customers to enter new market segments. A significant portion of product manufacturing for PC OEMs is handled by ODMs, particularly in the notebook market. Our current notebook ODM customers include Arima, Asustek, Compal, First International Computer, Inventec, Quanta, Uniwill and Wistron.

Over the past several years we have worked to establish and broaden our relationships with major AIB manufacturers. We deliver component-level products to these manufacturers who in turn build and sell board-level products using our technology to SIs. Our AIB customers include Asustek, Connect 3D, TUL Corporation, First International Computer, Gigabyte, Hightech Information Systems, Micro-Star International, Sapphire, Tyan, Wistron and Yuan.

We also work directly with our SI customers including Actebis, Alienware, Evesham Technology, Falcon Northwest, Kraftway, MaxData Systeme, Medion, Mesh, Unika and Voodoo. SIs typically sell from positions of regional or product-based strength in the market. They usually operate on short design cycles and can respond quickly with new technologies. The SI channel often uses discrete graphics solutions as a means to differentiate their products and add value to their customers.

ODMs also build motherboard products which include IGPs. We currently have strategic alliances with the world’s leading motherboard, notebook and PC design manufacturers to develop products that feature our products.

17

Page 25 of 104

We also sell our PC products directly to consumers through major retailers including Best Buy, CompUSA, Circuit City, Dixons, Future Shop, MediaMarkt and Fry’s. Our major e-commerce retailers include Newegg.com, CDW.com and Buy.com. The retail market is characterized by significant price sensitivity requiring clear feature and performance differentiation at multiple price points.

In our consumer electronics business, we are focused on selling to the top-tier consumer electronics manufacturers. We have strengthened our sales organization in this segment in the Americas, Japan and the Asia-Pacific region.

In our handheld business, our major customers include Motorola, Sharp and Toshiba. In our DTV business our customers include Hitachi, Panasonic, Samsung, Sharp, Sony, Thomson and Toshiba, among others.

In our view, ATI brand awareness increases the efficiency of our reach into each of our sales channels. We have increased our brand awareness programs over the last few years through high profile product launches, targeted event sponsorship and point-of-sale promotion kits. We have also initiated a broad-based sticker program that has resulted in more than 10 million computers bearing the ATI brand.

Our ten largest customers accounted for approximately 62% of our revenues in fiscal 2004, with one customer representing 10.6%. In fiscal 2003, three customers accounted for 16.2%, 13% and 10.6% of our revenues and our top ten customers accounted for approximately 70% of our revenues.

The following table summarizes the breakdown of our revenues by territory as a percentage of total revenues. Our geographical segmentation reflects the locations where we delivered products to our customers, not where the end customer purchased the PC or consumer electronic device. A significant portion of PCs and consumer electronics devices are currently built in Asia-Pacific, regardless of where the products are sold. Accordingly, the majority of our sales in fiscal 2004 were in the Asia-Pacific region.

	Years ended August 31
	2004		2003		2002
Canada	1	%	1	%	1	%
USA	13	%	19	%	29	%
Europe	5	%	8	%	15	%
Asia-Pacific	81	%	72	%	55	%
	100	%	100	%	100	%

We maintain a regional sales presence in each of the key industrialized areas of the world. As noted above, however, OEMs, AIB manufacturers and consumer electronics companies are locating their manufacturing operations in the Asia-Pacific region. Our sales organization reflects this geographic weighting.

Our sales arrangements with OEMs, AIBs, distributors and key retail customers generally operate on the basis of product forecasts provided by the particular customer, but do not include any commitment or requirement for minimum product purchases. Purchase orders are also typically cancellable by the customer without consequence on 60 days notice to us.

We recognize revenue when evidence of an arrangement exists, risks and rewards of ownership have been transferred to the customer, the selling price is fixed and determinable and collectibility is reasonably assured. Estimated returns and allowances, price protection and sales rebates are recorded as a reduction of revenue at the time revenue is recognized. In addition, we provide for the estimated cost of product warranties at the time of revenue recognition.

18

Page 26 of 104

We offer a limited hardware warranty to the end-user consumer on all of our branded hardware products. This warranty is supported directly by our customer service department and serves as a selling feature for distributors and retailers.

In addition, for our game console business, where we have signed multi-year technology development agreements, we follow the percentage-of-completion method of accounting for contracts requiring ATI to develop customized technology to meet a customer’s specifications. Under such contracts, revenue is recognized based on the ratio of total costs incurred to date to overall estimated costs.

3.7  Competition

Our markets are highly competitive and characterized by rapid changes in technology. We provide graphics and multimedia products in all market segments of the PC desktop, mobile, workstation and server markets through OEMs, SIs, AIB manufacturers, distributors and retailers. As a result, we compete with every PC graphics and multimedia company that serves one or all of these distinct market segments. In addition, by integrating new functionality into the VPU and expanding our product line, we continually face new competitors in converging markets, some of whom may be substantial and well-established in those markets. Key competitive factors in the PC, mobile phone and DTV markets are outlined below.

Key Competitive Factors by Market

PC		Mobile Phones		DTV
•	Visual performance, features	•	Power consumption	•	Visual performance
	and speed	•	Cost	•	Scalability across platforms
•	Cost	•	Size	•	Cost
•	Brand awareness	•	Graphics performance	•	Customer differentiation
•	Comprehensive product line	•	Visual performance		and support
•	Timely product introductions		and speed	•	Timely product introductions
•	Product quality, including
	image quality and software
	stability

In the PC market our competitors include: (i) discrete component suppliers; (ii) AIB manufacturers; (iii) fully-integrated graphics suppliers; and (iv) suppliers of IGPs. These include Intel, Matrox Electronic Systems, Nvidia, SiS, Via Technologies and XGI Technology. Other competitors also include a number of smaller companies which may have greater flexibility to address specific market needs. The growing complexity of visual processors and the associated R&D costs, however, represent an increasingly higher barrier to entry in this market.

In the consumer electronics markets we have different competitors in each of our market segments.

In handheld markets, we have three categories of competitors. Baseband processor vendors have traditionally provided the voice processing functionality in mobile phones. Many of these vendors are expanding their product offerings to encompass the graphics processing required by colour and feature mobile phones. These include Motorola, Philips, QUALCOMM and Texas Instruments. Another category of competitor, application processor vendors, has emerged to serve the high-end feature and smart phones that require large amounts of general purpose processing capability. These include Intel, Nvidia, QUALCOMM, Samsung, STMicroelectronics and Texas Instruments. The third category of competitor, media co-processor vendors, is most closely aligned with our strategy in the colour and mobile phone market. Media co-processor competitors include Core Logic, Epson, MTEK Vision, Nvidia and Renesas.

19

Page 27 of 104

In the DTV business our competitors include Broadcom, Conexant Systems, LSI Logic, Philips, STMicroelectronics and Zoran, as well as in-house semiconductor development divisions at companies such as LG, Matsushita Electric (Panasonic brand) and Toshiba.

In the video game console market, we compete primarily against Nvidia and Sony.

3.8  Manufacturing

Semiconductor Manufacturing

We have strategic relationships with the two leading semiconductor foundries, Taiwan Semiconductor Manufacturing Company and United Microelectronics Corp., to manufacture our visual processor components. From the foundry, we deliver wafers to our test, assembly and packaging partners including Advanced Semiconductor Engineering Group, King Yuan Electronics, Siliconware Precision Industries and STATS-Chippac, who package and test the final application-specific integrated circuit (“ASIC”). It is a flexible production line that enables us to balance capacity based upon technology and expertise. In this way we maintain control over the manufacturing process, reduce delivery times and component costs and increase product quality.

Board Manufacturing

Board-level product manufacturing is outsourced to third party manufacturers. They include Celestica, Fairway and PC Partner with locations in China. Our manufacturing facility in Markham, Ontario, Canada is primarily devoted to prototyping and trial runs for new product introductions.

3.9  Customer Service and Support

As service and support is critical to the success of our customers, it is critical to our success. We work closely with our customers by committing R&D resources to achieving optimal compatibility and integration with their products.

We also work closely with our customers on demand generation programs aimed at their key markets. We deliver fast and accurate responses to hardware and software developers to ensure that their products, games and applications maximize the potential of our visual processor technology.

With each of our graphics and video accelerator products, we provide drivers and supporting software packages that enable the effective use of our products under a variety of operating systems and applications. In addition to the Microsoft Windows family of operating systems, we support Apple OS9 and OSX, as well as Linux-based applications. Our software provides optimized performance for a variety of CPU platforms (including Intel and AMD based systems), motherboards and chipsets.

We develop our software drivers in many different languages and formats to conform to international user requirements. Our software engineers, scientists and test professionals engage in large scale development of drivers and related software applications in support of OEM, retail and AIB customers. On-time delivery of optimized, unified and reliable software that supports the latest technology enables our customers to market leading-edge and cost-effective ATI-based products.

We enable all our PC-based products (discrete and integrated, desktop and mobile, graphics and multimedia) with a unified driver – a single driver product currently supporting all of our RADEON products and executing under all of Microsoft’s supported PC operating systems. The unified driver concept is useful for customers who do not wish to manage separate software builds for separate ATI parts, and who seek a stable, efficient and backwards-compatible software environment for their PCs. In addition to unified driver support for Microsoft Windows variants, we also provide drivers for the MacOS and Linux environments.

20

Page 28 of 104

3.10  Human Resources

We employed the following number of individuals, including non-permanent and short-term employees, at August 31 in each of the years noted below:

	2004	2003	2002
Research and development	1,704	1,422	1,249
Operations and administration	490	461	473
Sales and marketing	593	410	370
Total number of ATI personnel	2,787	2,293	2,092

We believe that our ability to attract and retain highly skilled engineering, marketing and management personnel is one of the key factors in our success. None of our employees are governed by collective bargaining agreements. We have never experienced a material work stoppage or strike.

3.11  Facilities

Our head office facilities are located in Markham, Ontario, Canada at 1 Commerce Valley Drive East. This facility comprises approximately 240,000 square feet of office/R&D space. We have a 50% interest in the joint venture company that owns this facility. We have four other locations in Markham, Ontario. At 33 Commerce Valley Drive East, we own 100% of a facility that comprises approximately 123,000 square feet, including approximately 65,000 square-feet of manufacturing and warehouse space. We also lease three other facilities in Markham with combined square footage of approximately 165,000 square feet of office and R&D space.

We lease engineering facilities in the United States including approximately 60,000 square feet in Marlborough, Massachusetts and approximately 104,000 square feet in Santa Clara, California. We also lease a number of smaller regional offices in the United States, Europe and the Asia-Pacific region. As a result of the change in our business model over the past three years where we have transitioned to primarily supplying component-level products rather than board products to our customers, we closed our European board manufacturing facility located in Dublin, Ireland in fiscal 2003.

Our operations are subject to a variety of federal, provincial and local environmental laws and regulations. These laws and regulations relate to, among other things, the discharge of contaminants into water and air and onto land, the disposal of waste, and the handling, storage and transportation of hazardous materials. We believe that we are currently in compliance with all applicable environmental laws in all material respects.

21

Page 29 of 104

3.12  Risks and Uncertainties

Our operations and financial results are subject to various risks and uncertainties which are outlined below. These risks are in addition to those outlined elsewhere in this Annual Information Form and in our filings with Canadian and United States securities regulatory authorities, including Management’s Discussion and Analysis contained in the 2004 Annual Report.

As a result of any or any combination of these risks and uncertainties, our operating results and common share price may be subject to a significant level of volatility, particularly on a quarterly basis.

Our operating results can fluctuate and are unpredictable

Our operating results have been and will continue to be subject to quarterly and other fluctuations due to changing market and economic conditions and various other factors set out below. As a result, our revenues can fluctuate from quarter to quarter, and within a quarter, revenues may vary from month to month. In addition, because our operating expenses are largely independent of revenues in any particular period, we may be unable to rapidly adjust our spending to compensate for an unexpected revenue shortfall, which could harm quarterly operating results. As a result, it is difficult to accurately predict revenues and profits or losses.

Our reported operating results may vary from prior periods or may be adversely impacted in periods when we are undergoing a product line transition during which sales of new products may be ramped up to replace sales of our older products. These older products often come under significant pricing and margin pressure as a result of our competitors’ actions in the marketplace. In addition, newer products may be more costly to produce in the early stages of their introduction, which may adversely affect margins and our results of operations.

As a result of any combination of these or other issues referred to below, our operating results and common share price may be subject to a significant level of volatility, particularly on a quarterly basis. Factors that have affected our operating results in the past and could affect them in the future include, among other things:

• levels of growth or decline in the PC industry;

• rapid and frequent technological change in the PC graphics industry;

• demand and acceptance of our products and those of our customers, including integrated graphics components and consumer electronic devices;

• successful and timely development and production of next-generation products, including products for the consumer electronics market;

• changes in the rate of exchange of Canadian currency to U.S. dollars;

• introduction of new products by our competitors;

• availability of licenses for industry technology or other intellectual property rights necessary for the continued sale or development of our products;

• changes to our overall average selling price ("ASP") resulting from competitive pressures;

• delays or early introduction of new microprocessors or their related chipsets;

• changes to our overall product mix or the geographic regions where our products are sold;

• R&D costs associated with the development of new products;

• increasing product line complexity and the related management of inventory;

22

Page 30 of 104

• unexpected variances in the cost or availability of materials, especially silicon wafer, memory, printed circuit boards ("PCBs") and packaging costs;

• changes to the expected yield of our component products;

• excess or shortage of manufacturing capacity;

• volume of orders received that can be filled in the quarter;

• seasonal and variable demand associated with the PC industry;

• addition or loss of significant customers;

• supply constraints and disruptions for other components incorporated into our products and those of our customers; and

• new laws that require us to undertake an evaluation of our internal controls through which we may identify internal control weaknesses which may require correction.

As a result of the factors listed above, period-to-period comparisons of our operating results should not be relied upon as an indication of future performance. The results of any quarterly period are not indicative of results to be expected for a full fiscal year. Accordingly, our operating results may be below the expectations of securities analysts and investors. Our failure to meet these expectations could adversely affect the market price of our common shares.

Design wins are critical to our future success

Our future success and ultimate sales achievements will depend in large part on our retaining and/or winning design contracts (“design wins”), which occurs when PC OEMs, ODMs AIB manufacturers or manufacturers of consumer electronics devices choose to use our existing and future products in their various product offerings. Our major customers typically introduce new product offerings as often as twice a year. Accordingly, our products must have competitive performance ratings, adequate feature-sets, consistent quality levels and appropriate prices within the limited time frames of our customers to be included in new system configurations. The failure to win new or retain existing design wins of sufficient volume, sales and profitability could have an adverse effect on our business and operating results.

Our gross margins fluctuate and are difficult to predict

Our overall gross margin is dependent on a number of factors, the principal items being the cost of input materials (mainly silicon, memory, device packaging and PCBs), the manufacturing yield of wafers received from foundries, the ASP of our products and the actual product mix of our revenues. The continuous change in these factors, most of which are beyond our control, cause our overall gross margins to fluctuate from quarter to quarter and make it difficult for us to predict our overall gross margins. In terms of product mix, our business model involves the development and marketing of component and board-level graphics products and technology for desktop and mobile PC, DTV, mobile phone, video game console and multimedia applications. Each of these products or product categories has dissimilar gross margins at any particular time. Consequently, many of our gross margin components fluctuate and the overall corporate gross margin is difficult to predict. Should any of the factors influencing gross margins change substantially, our gross margins could be adversely affected.

We do not have minimum purchase requirements under our sales arrangements with customers

Our sales arrangements with our customers do not include any requirement or commitment for minimum purchases of our products. As a result, we often commit resources to develop products without having received advance purchase commitments from customers. In particular, sales of our component products to customers other than OEMs are subject to volatility on a regular basis as demand is often unpredictable and is susceptible to price competition on a short-term basis. Any inability to sell products to which we have devoted significant resources or the cancellation or deferral of product orders could result in excess inventory. This could result in future inventory write-downs, which could have an adverse effect on our profit margins and financial results and restrict our ability to fund our operations. We may build memory and component inventories during periods of anticipated growth and in connection with selling workstation boards directly to major OEMs. We could be subject to excess or obsolete inventories and be required to take corresponding write-downs if growth slows or if we incorrectly forecast product demand. A reduction in demand could negatively impact our gross margins and financial results.

23

Page 31 of 104

The success of our business is dependent on the timely introduction of new products that do not contain errors or defects

The graphics industry is characterized by frequent product introductions and short product life cycles based on constantly improving technologies and new industry standards. In the PC market, it is increasingly important to be among the first to market with new or enhanced products to replace existing products in order to coincide with the introduction of new products by PC OEMs, particularly during the late summer and fall that are the traditional periods in which PC OEMs introduce new products. The consumer electronics markets also have similar design cycles in which new product offerings are traditionally introduced in the fall. This means that we must commit resources to the development and manufacturing of our products without having commitments to purchase from customers. We must also take advantage of new technologies to maintain our competitive edge. If we fail to identify new product opportunities or develop or bring to market these new products or enhancements within the time frame required by customers, if our new products or enhancements are not selected by our customers to be included in their products, or if the products or technologies developed by competitors render our products or technologies non-competitive or obsolete, we may experience reduced demand for our products and loss of market share and our operating results could be adversely affected.

Our business depends to a significant extent on our ability to continually introduce new and enhanced generations of graphics products in order to retain or win customer contracts and maintain ASPs. The life cycles of our products typically range from six to eighteen months. Market demand requires graphics products to incorporate new features and performance standards on an industry-wide basis. Over the life of a specific graphics component, the ASP undergoes regular price reductions. The introduction of new products and enhancements to existing products is necessary to maintain overall corporate ASPs. If we are unable to introduce new products or launch new products without sufficient increases in ASP or increased unit sales volumes capable of offsetting these reductions in ASPs, our revenues, inventories, gross margins and operating results could be adversely affected.

Our business and operating results could be adversely affected if we incur delays in developing new products or enhancements, or if such products or technologies developed by others render our products or technologies non-competitive or obsolete. Products as complex as those offered by ATI may contain defects or failures when introduced or when new versions or enhancements to existing products are released. There can be no assurance that, despite our testing procedures, errors will not be found in new products or releases after commencement of commercial shipments in the future, which could result in loss of or delay in market acceptance of our products, material recall and replacement costs, delay in recognition or loss of revenues, the diversion of the attention of our engineering personnel from product development efforts and damage to our reputation in the industry and could adversely affect our relationships with our customers. Correcting such errors and failures in our products could require significant expenditures. Any such circumstances could have an adverse effect on our business, financial condition or operating results.

The success of our business is dependent upon our ability to introduce products with required features and performance levels that support and coincide with significant industry transitions

The PC industry is characterized by frequent new product introductions typically centred around hardware and software changes made by Intel and Microsoft. For instance, new PCs are commonly introduced to coincide with new processor, chipset or memory products launched by Intel or new operating systems launched by Microsoft. It is therefore increasingly important that we maintain our ability to introduce new products that take advantage of these industry transitions. In the past, these industry transitions have included the shift to the AGP standard, which underwent a further transition in 2003 with the adoption of the new AGP 8X standard. A new bus standard, PCI Express, is currently affecting the PC industry and the transition to this new standard is expected to continue through 2005. Our products must be able to support the new features and performance levels being required by PC manufacturers at the beginning of these transitions and be priced competitively, otherwise, we may lose business as well as the opportunity to retain and obtain design wins until the next product transition. Failing to develop products with required features and performance levels or a delay as short as a few months in bringing a new product to market could adversely affect our revenues. As well, there can be no assurance that the industry will continue to innovate or improve standards or that the industry will introduce these changes when expected or that we will be able to take advantage of these changes. In the event that such occurrences fail to materialize, our business and operating results could be adversely affected.

24

Page 32 of 104

A substantial portion of our revenues and our financial performance are dependent upon the PC industry which is cyclical in nature

We currently derive a substantial portion of our revenue from the sale of graphics and multimedia products for use in PCs. Although the PC industry grew significantly during the late 1990s, since 2001 PC sales have not experienced similar levels of growth. Historically, the PC and semiconductor industries have been characterized by rapid technological change, cyclical market patterns, significant ASP erosion, fluctuating inventory levels, periods of overcapacity and capacity constraints, variations in manufacturing costs and yields and significant expenditures for capital equipment and product development. Growth in PC sales at levels experienced in the past may not occur in the future. Reductions in the sales of PCs reduce the overall demand for our products. Moreover, such changes in demand could be large and sudden, as experienced in fiscal 2001 and in previous years when PC manufacturers built-up inventories in anticipation of a period of significant growth that did not materialize. In such cases, PC manufacturers may abruptly suspend all purchases of additional inventory from their suppliers. In addition, declines in spending by corporations and/or consumers, for example, due to an economic downturn, may negatively affect the PC industry. Any sustained reduction in the demand for PCs could adversely affect our operating results.

The success of our business will be dependent upon the success of our integrated graphics component products

Low-cost desktop PCs account for a significant percentage of PCs sold in the market and are driving the demand for integrated graphics and core logic functions in one chipset. In order for PC OEMs to offer these computers at low prices, overall system costs must be reduced. The costs of integrated graphics components are significantly less than the costs of traditional discrete graphics components, in part due to their reduced functionality and because they do not require separate graphics memory devices. Integrated chipsets are estimated to account for more than 55% of the desktop 3D graphics chips sold worldwide.

In the notebook market, integrated chipsets offer a similar ability to reduce costs as in the desktop market, as well as provide additional benefits such as lower power consumption and reduced space for ultraportable designs. Integrated graphics are estimated to account for approximately half of the notebook 3D graphics chips sold worldwide.

We currently have a full product line of IGPs to address the desktop and mobile integrated market for Intel and AMD-based platforms. If our products do not successfully address this market segment or we cannot produce products on a cost-effective basis, or if we are unable to obtain required licences for future Intel-based products, our business, financial condition and operating results could be adversely affected.

25

Page 33 of 104

Our sales and earnings are subject to foreign currency risks

A substantial amount of our operating expenses are denominated in Canadian dollars. However, our results are reported in U.S. dollars. As a result, an appreciation in the value of the Canadian dollar relative to the U.S. dollar will have a negative impact on our earnings. The rise of the Canadian dollar relative to the U.S. dollar from an average rate of 67 cents in fiscal 2003 to an average rate of 75 cents in fiscal 2004 had an approximate $18.0 million negative impact on our operating earnings. Although it is possible to enter into forward foreign exchange contracts to hedge our currency exposure on expenses incurred in Canadian dollars, and although we have in the past entered into forward foreign exchange contracts, we do not currently have any long term hedging arrangements or policies in place. Accordingly, continued strength in the Canadian dollar relative to the U.S. dollar will result in upward pressure on our operating expenses in fiscal 2005 and will negatively affect our net income and operating results.

The majority of our product sales are denominated in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the local currency can cause increases or decreases in the cost of our products in the local currency of such customers. An appreciation of the U.S. dollar relative to the local currency could reduce sales of our products.

Our royalty revenues, which can compromise a significant part of our earnings, are dependent upon the success of Nintendo’s GAMECUBE

Our graphics technology for the video game console market is being used by Nintendo in its GAMECUBE products. The only revenues that we receive from this technology are in the form of royalties paid by Nintendo to us based upon the number of GAMECUBE consoles and games sold by Nintendo. Accordingly, our royalty revenues will be directly related to the sales by Nintendo of its GAMECUBE products. We have no control over Nintendo’s marketing efforts. There can be no assurance that sales of Nintendo’s GAMECUBE products will achieve expected levels in the current or future fiscal years. Consequently, the revenues expected by us from this technology may not be fully realized and our operating results may be adversely affected. In past fiscal years, a significant amount of our net earnings were derived from Nintendo royalties. Royalties are expected to become a more significant share of our net earnings in the future, as we anticipate royalties in future years resulting from our agreements with Nintendo, Microsoft and QUALCOMM. Anything that negatively affects the royalties paid to us by these or other entities with whom we maintain or enter into royalty agreements, may adversely affect our operating results.

Our entry into new emerging product markets is subject to a number of uncertainties

We have recently developed graphics and integrated products for the emerging consumer electronics market including DTVs and colour mobile phones. Although this is a relatively new market, there are already a significant number of competitors targeting it. The delay in acceptance of DTV technology has also provided further opportunities for competitors to enter this market. In addition, as the telecommunications, cable and consumer electronics industries and their suppliers undergo a period of convergence, we expect that competition will increase in these markets. Our ability to succeed in these new consumer markets is subject to a number of uncertainties, including acceptance of our products, the development of new technologies sufficient to meet market demand, the need to develop customer relationships, different sales strategies and channels, new and different industry standards from those in the PC market and changing strategic alliances. There can be no assurance that we will be able to successfully compete in these new emerging markets. If we are unable to successfully introduce products in these new markets as they expand, our business, financial condition and operating results could be adversely affected.

26

Page 34 of 104

The markets in which we carry on business are highly competitive

The markets in which our products are sold are very competitive and are expected to remain as such due to rapid technological changes, frequent product introductions and declining selling prices. Furthermore, the consolidation of our competitors has increased the level of competition in the graphics industry. We believe that the consolidation of our competitors in the PC graphics market segment of the PC market has stabilized and that there are now three main players in the PC market. We believe that the main factors that will determine our competitiveness in the PC market are technical product performance, price, product features, time-to-market, conformity to industry standard application programming interfaces, the ability to deliver consistent volume and quality of products, quality and stability of software drivers as well as technical support. We expect that competition will intensify in these areas and there can be no assurances that our competitors’ products will not be less costly, provide better performance or include additional features that render our products uncompetitive. Increased competition may require us to reduce our prices and/or invest further in R&D and sales and marketing efforts, which may negatively affect our operating results.

Some of our competitors, in particular Intel, have greater financial and other resources than we do and may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. Further, some competitors have greater access or rights to companion technologies, including interface, processor and memory technical information. They may also be able to undertake more extensive marketing efforts and adopt more aggressive pricing policies. Several of our smaller competitors may have greater flexibility within niche markets and better name recognition in connection with specific market needs. As a result, there can be no assurance that we will be able to maintain our competitive position and market share against current or future competitors. If we do not remain competitive, our business and operating results could be adversely affected.

Intel has a dominant position in the PC industry and has greater resources than we do. Our success is dependent upon our ability to continue to develop products that are both compatible and competitive with Intel’s technology

In 1999, Intel began shipping integrated graphics component products that were targeted at the low-cost PC market. Intel is the world’s largest manufacturer of PC processors and has significantly greater resources than we do. Given its significant leadership position and the large cost of the microprocessor relative to other components within the PC, it is possible that Intel could combine graphics components or functionality with its microprocessors on a cost-effective basis. Our integrated chipset products may not be able to successfully compete with Intel’s products on the basis of price or performance. We expect Intel to invest heavily in R&D and in marketing and selling campaigns to engender brand loyalty with PC manufacturers and users. We also expect Intel to maintain its dominance of the PC platform. These and other selling advantages could render our integrated chipset products uncompetitive on a cost basis.

Due to the widespread adoption of Intel’s microprocessor architecture and interface architecture, including the current AGP and PCI Express interfaces, Intel has the ability to create and influence key industry standards in the PC industry. We rely on our ability to obtain and maintain licenses from Intel in order to use certain proprietary Intel technology in our products. Any significant modifications by Intel to the AGP or PCI Express standards, the microprocessor, core logic components or other aspects of the PC microprocessor architecture or any delay in the public release of such modifications could result in incompatibility with our technology. Any such incompatibility or the inability to obtain or the termination of any required license to use such technology could have an adverse effect on our business, financial condition and operating results.

We currently have a full line of IGP products for the Intel-based platform intended to compete with and complement Intel’s family of integrated products. Currently, integrated graphics components interface with Intel microprocessors through an Intel bus. There can be no assurance that our products will compete effectively against Intel’s current or future integrated products, that Intel will not aggressively use its industry position to undercut prices or otherwise prejudice ATI, or that Intel will not introduce additional products that are directly competitive with our products.

27

Page 35 of 104

Intel spokespeople have previously stated that Intel has exited the discrete graphics business. There can be no assurance, however, that Intel will not re-enter the discrete graphics market, that Intel will not license a graphics core from competitors or that Intel will not acquire a graphics accelerator company and again compete with us in the discrete graphics component market.

Our revenues are dependent upon a small number of customers

A significant portion of our revenues are derived from sales made to a small number of customers. In 2004, our top ten customers accounted for approximately 62% of our revenues, with one customer representing 10.6% of our revenues. We expect that a small number of customers will continue to account for a substantial part of our revenues in the future. Continued sales to these customers, however, are dependent on us continuing to achieve design wins with these customers. The loss of business or failure to achieve design wins from one or more of such customers without adding new sources of revenues would have an adverse effect on our financial results.

Other risks associated with our dependence on a small number of customers include: unexpected delays in the introduction of our customers’ products, resulting in a change in the timing of their orders, extended accounts receivable, cancellation of customer orders resulting in excess inventory and unexpected inventory write-downs and the inability to secure alternative purchasers for our products. Furthermore, if any one of our customers experiences financial difficulty, the risk exists that we may be required to write-off the bad debts of such customer. Any of these events could have an adverse effect on our financial results.

We rely on third party foundries and other contractors to manufacture our products

We are a “fabless” semiconductor company and therefore rely on independent foundries or “fabs” (currently Taiwan Semiconductor Manufacturing Company and United Microelectronics Corp.) to manufacture our component products. We also use independent contractors to perform the assembly, testing and packaging of our products. As is typical in the graphics industry, we obtain manufacturing services on a purchase order basis and our fabs are under no obligation to provide us with any specified minimum quantity of product. We depend on these suppliers to allocate to us a portion of their manufacturing capacity sufficient to meet our needs, to produce products of acceptable quality and at acceptable manufacturing yields and to deliver those products to us on a timely basis. There can be no assurance that these manufacturers will be able to meet our near-term or long-term manufacturing requirements. Indeed, continued market acceptance of our products will depend on reliable relationships with our wafer manufacturers and subcontractors to ensure adequate product supply to respond to customer demand. Because it could take several quarters to establish a strategic relationship with a new manufacturing partner, we may be unable to secure an alternative supply for any specific product in a short time frame. Other risks associated with our dependence on third-party manufacturers include: reduced control over delivery schedules, quality assurance, manufacturing yields and cost, lack of capacity in periods of excess demand, misappropriation of our intellectual property, dependence on several small undercapitalized subcontractors, reduced ability to manage inventory and parts, and exposure to foreign countries and operations, including exposure to political instability and natural disasters.

Currently, the third party wafer plants used to manufacture our products are located in Hsin Chiu and Tainan, Taiwan. Many of our assembly, testing and packaging suppliers are also located in southern Taiwan. On September 22, 1999, Taiwan suffered a major earthquake that measured 7.6 on the Richter scale and disrupted the operations of our manufacturing suppliers and contributed to a temporary shortage of graphics processors. Additional earthquakes or other occurrences that disrupt our manufacturing suppliers may occur in this region in the future. To the extent that the supply from our fabs or other suppliers is interrupted for a prolonged period of time or terminated for any reason, we may not have sufficient time to replace our supply of products manufactured by those fabs.

28

Page 36 of 104

As well, each wafer manufacturer has unique design rules and proprietary process technology to which we must adapt our products. If we move production of our products to new manufacturers or if current manufacturers implement new process technology or design rules, any transition difficulties may result in lower yields or poorer performance of our products. Any inability of ATI to secure sufficient or reliable supplies of wafers may adversely affect our ability to meet customer demand for our component and board products and, as a result, could have an adverse effect on revenues and operating results.

Our business is dependent upon an adequate supply of component parts from a limited number of suppliers

Certain non-proprietary components (such as memory, PCBs and capacitors) used in the manufacture of our products and by OEMs in the manufacture of desktop and notebook PCs and by AIBs and SIs in the manufacture of their products are currently available from only a limited number of sources and are often subject to rapid changes in price and availability. If these suppliers fail to deliver these components or increase prices, alternative sources of supply may not be available. This would result in increased costs, delays or reductions in product shipments, and adversely impact upon orders for our component products and our operating results. Any inability to manage fluctuations in component prices may adversely affect our gross margins and operating results.

Our business and operating results are dependent upon achieving planned semiconductor manufacturing yields

The fabrication of semiconductors is a complex process. Contaminants, defects in masks used to print circuits on wafers, difficulties in the fabrication process and other factors can cause a substantial percentage of wafers to be rejected or a significant number of die on each wafer to be non-functional. These problems are difficult to diagnose and time-consuming and expensive to remedy. As a result, semiconductor companies frequently encounter difficulties in achieving acceptable production yields from processing wafer. In addition, more complex manufacturing processes, such as the 90 nanometer process technology that is expected to be widely adopted by the industry in 2005, often initially result in lower and unstable yields. As a consequence of our move to a customer-owned tooling manufacturing process where we have the responsibility for the design and performance of the tooling required for manufacturing, we bear the financial risks and benefits associated with product yields. As such, our profitability is significantly affected by the manufacturing yield that we achieve in the production of our component products. Our inability, in cooperation with our wafer manufacturers, to achieve or maintain planned production yields could have an adverse effect on our business and operating results.

Semiconductor manufacturing yields are a function both of product design, which is developed largely by us, and process technology, which is typically proprietary to the manufacturer. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until the actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. Furthermore, some defects cannot be identified until tested on a customer’s board design. We face the risk of product recalls resulting from design or manufacturing defects that are not discovered during the manufacturing and testing process. In the event of a significant number of product returns due to a defect or recall, our net revenues and profitability could be adversely affected. In addition, yield problems require cooperation by and communication between us and the manufacturer and sometimes the customer as well. The offshore location of our principal manufacturers compounds these risks, due to the increased effort and time required to identify, communicate and resolve manufacturing yield problems. There can be no assurance that we or our fabs will identify in a timely manner, fix and/or achieve acceptable manufacturing yields in the future. Failure to reach planned production yields over time could result in us not having sufficient product supply to meet demand, and/or higher production costs and lower gross margins. This would adversely affect our operating results.

29

Page 37 of 104

To remain competitive, we must transition to new manufacturing process technologies, however, this transition may result in reduced manufacturing yields and delay the introduction of new products

Process technology defines the minimum transistor size used to design semiconductors. The finer the process technology, the greater the number of transistors a chip designer is able to build into a semiconductor. Our strategy is to use the most advanced process technology appropriate for our products and available from our fabs. We continually assess the benefits of migrating to smaller process technologies in order to improve performance and lower costs. However, the use of more advanced processes may have a greater risk of initial yield problems. We believe that the transition of our products to increasingly smaller process technologies will be important to maintain our competitive position and we intend to migrate to smaller process technologies with our future products as these technologies become viable. Due to the inherent risk of transitioning to new technologies, however, there can be no assurance that we will not experience reduced yields or delays in product delivery dates which in turn could adversely affect relationships with our customers. Moreover, we are dependent on our third-party fabs to successfully migrate to new manufacturing processes. Any such failure by us or our fabs could have an adverse effect on our business, financial condition and operating results.

Our ability to design and introduce new products in a timely manner is dependent upon third party development tools

In the design and development of new products and product enhancements, we rely on third-party software development tools. While we are not currently dependent on any one vendor for the supply of these tools, some or all of these tools may not be readily available in the future. For example, we have experienced delays in the introduction of products in the past as a result of the inability of then available software development tools to fully simulate the complex features and functionalities of our products. The design requirements necessary to meet consumer demands for more features and greater functionality from graphics products in the future may exceed the capabilities of the software development tools available to us. If the software development tools that we use become unavailable or fail to produce designs that meet consumer demands, our business could suffer.

Our success is dependent on proprietary technology, however, there can be no assurances that applicable laws will be adequate to prevent misappropriation of our technology

Our success is heavily dependent upon proprietary technology. We rely principally upon a combination of copyright, trademark, patent and trade secret laws, restrictions on disclosures and contractual provisions to protect our proprietary and intellectual property rights. There can be no assurance, however, that these laws and procedures will be adequate to prevent misappropriation of our technology or independent third party development of the same or similar technology. Unauthorized parties may attempt to copy or otherwise obtain and use our technology, which could weaken our competitive position. In addition, there can be no assurance that the protection provided to our proprietary technology by the laws of foreign jurisdictions will be substantially similar to the remedies available to us under the laws of Canada or the United States. Any claims or litigation that we initiate to protect our proprietary technology could be time consuming and costly and divert the attention of our technical and management resources whether or not the claims or litigation are determined in our favour.

Our operating earnings will be negatively affected by the expensing of stock options beginning in fiscal 2005

Since our inception, we have used stock options and other long-term equity incentives as a fundamental component of our employee compensation packages. We believe that stock options and other long-term equity incentives directly motivate our employees to maximize long-term stockholder value and, through the use of vesting, encourage employees to remain with us. Changes to Canadian generally accepted accounting principles (“GAAP”) implemented by the Canadian Institute of Chartered Accountants require us to record a charge against earnings for stock options granted to our employees, commencing September 1, 2004. As a result, we now estimate the fair value of the stock options granted by using the Black-Scholes option pricing model and expense the fair value over the service period of the stock options. This change has a negative impact on our earnings determined in accordance with GAAP as compared to previous fiscal years. The amount of the charge against earnings is dependent upon a number of factors, including the number of stock options granted in any fiscal year, ATI’s stock price at the time of the grant and the exercise price, the risk-free interest rate, the dividend yield, the volatility factor of the expected price of ATI’s common shares and the expected life of the stock options. To the extent that new regulations adopted in Canada or the U.S. make it more difficult or expensive to grant options to employees, we may incur increased cash compensation costs and we may find it difficult to attract, retain and motivate employees; either could materially adversely affect our business and operating results.

30

Page 38 of 104

Our business is subject to operational and financial risks associated with our international operations

We maintain operations in a number of other countries including the United States, Germany, Japan, Taiwan, Hong Kong, Malaysia, China and Barbados. In addition, a substantial portion of our products are manufactured, assembled and tested by independent third parties in the Asia-Pacific region. We sell the majority of our products in the United States, Europe and the Asia-Pacific region. Accordingly, we are subject to various geopolitical risks in connection with our international sales and operations. These risks include political and economic instability, changes in diplomatic and trade relationships, natural disasters and unexpected changes in legislative or regulatory requirements. These risks could result in an increase in the cost of components, delays from difficulties in obtaining export licenses for certain technology, tariffs and other barriers and restrictions, potentially longer payment cycles, potentially adverse taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have an adverse effect on our revenues and operating results.

Any legal or regulatory proceedings brought against us may be time-consuming and costly to defend and, if we are unsuccessful in defending against them, may be detrimental to our business and financial condition

We are subject to legal proceedings and claims that arise in the ordinary course of business. On January 16, 2003, the Ontario Securities Commission (the “OSC”) filed a notice of hearing and statement of allegations against us and certain of our present and former directors and officers, including our former Chief Executive Officer and current Chairman of the Board. We have incurred substantial costs associated with the regulatory proceedings and cannot predict the level of additional costs that will be incurred in the future. If, as has been requested by OSC staff, our Chairman is prohibited from being an officer or director of ATI, it could have a material adverse effect on our business and results of operations and could have an adverse impact on the market price of our common shares.

Please see “Narrative Description of the Business – Legal Proceedings and Regulatory Matters” for a description of former class action proceedings in the United States and the regulatory proceedings in Ontario.

In addition, the industries in which we compete are characterized by frequent claims and related litigation regarding patent and other intellectual property rights. There is a risk that our current or future products may infringe third-party intellectual property rights. Any claim, whether or not with merit, could be time-consuming to evaluate, result in costly litigation, cause product shipment delays or stoppages or require us to enter into licensing agreements that may require the payment of a license fee and/or royalties to the owner of the intellectual property. In the event that a third party were to sustain a valid claim against us or our customers and we are not able to procure a license to permit the continued use of the third party’s intellectual property, our operating results could be adversely affected. We may also be required to pay damages or lost profits, modify our products, discontinue products and/or indemnify our customers. Should any such claims or proceedings against us be successful, our business, financial condition and operating results may be adversely affected.

31

Page 39 of 104

Our inability to maintain adequate levels of insurance, particularly in Taiwan, could adversely affect our operating
results in the event of a significant loss

To the extent available on commercially reasonable terms and subject to underwriting conditions, exclusions and deductibles, we maintain insurance coverage with recognized, licensed insurers against loss or damage to our assets, including losses as a result of unforeseen business interruptions. Property and business interruption insurance coverage is only available on a limited basis with respect to assets and property located in certain geographical areas, particularly Taiwan. A significant amount of our inventories are produced and stored in Taiwan, prior to delivery to customers. Damage to the inventories held in Taiwan, as a result of a natural disaster or other cause, could result in a significant loss for which no insurance coverage would be available. In the event insurance coverage is not available or is subject to limits or significant deductibles or is denied in respect of any losses or claims, our business, financial condition and operating results could be adversely affected.

Our business is dependant on our head office remaining free from a major shut down

Our international operations depend on the availability of administrative support in areas such as finance, human resources and sales in order to operate efficiently in their local markets and complete transactions with our customers. Our international offices, particularly those in the Asia-Pacific region, where a majority of our sales take place, do not have local administrative support in a number of these areas. In August 2003, our head office in Markham, Ontario experienced a temporary shut down due to a widespread power blackout in Ontario and the northeastern United States. In the spring of 2003, the outbreak of the SARS virus in the Toronto area also impacted employees at our head office. Any unexpected and prolonged shut down of our head office in the future for any reason whatsoever could hinder our ability to effectively and efficiently manage our international business operations and could adversely affect our revenues and operating results.

Future acquisitions may have a significant impact on our business and financial condition and could result in dilution of the current common shareholders

We may pursue product or business acquisitions in order to complement or expand our business. However, we may not be able to identify appropriate acquisition candidates in the future. If an acquisition candidate is identified, we may not be able to successfully negotiate the terms of any such acquisition, finance such acquisition or integrate such acquired product or business into our existing products and business. The negotiation of potential acquisitions could divert management’s time and resources and require significant funds to consummate. The process of combining with another company or integrating an acquired product may be disruptive to our business and may result in unforeseen operating difficulties requiring significant financial resources that would otherwise be available for the ongoing development or expansion of our existing operations. Possible future acquisitions could result in us incurring contingent liabilities and amortization expenses related to intangible assets, all of which could have an adverse effect on our financial condition and operating results.

Further, we may finance future acquisitions through borrowings or otherwise incur indebtedness in connection with acquisitions. We may be required to generate cash flow from operations to service that indebtedness and may not be able to do so. We may also be required to refinance this indebtedness upon its maturity and we may not be able to do so on acceptable terms. In addition, if we consummate one or more significant acquisitions through the issuance of common shares, holders of common shares could suffer significant dilution of their ownership interests.

32

Page 40 of 104

The success of our business is dependent upon our ability to recruit and retain key employees

Our success is dependent on the performance and continued service of our executive officers and certain key employees. None of our officers or employees are bound by an employment contract nor do we have “key person” life insurance policies on any of our employees. Competition for high-level engineering, marketing, sales and executive personnel is intense. Key employees may pursue equity opportunities elsewhere. Start-up companies generally offer greater equity opportunities to attract individuals from more established companies. There can be no assurance that we will be able to retain existing personnel or attract, hire and retain additional qualified personnel. The loss of service of certain key managers and executives or the failure to attract, hire and retain additional key employees could restrict our ability to develop new products or enhance existing products in a timely manner, sell products to our customers and potential customers, or manage our business effectively.

Our business and products are subject to government regulation

Canadian federal, provincial and local authorities as well as foreign authorities in applicable jurisdictions regulate our business. Our board-level graphics accelerator products are required to meet the standards set by Industry Canada, the U.S. Federal Communications Commission and the European Economic Community in order to ensure that they do not interfere with the operation of other consumer electronics products. Any significant delays in meeting the standards applicable to our products in the future could adversely affect our competitive and financial position.

We are subject to new corporate governance requirements in the United States and Canada. Our efforts to comply with such requirements have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities. In particular, securities regulatory authorities in the United States have introduced, and in Canada are in the process of introducing, new laws that require us to undertake an evaluation of our internal controls over financial reporting. Internal controls over financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use, and transactions are properly recorded and reported. However, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance with respect to the reliability of financial reporting and financial statement preparation. We have invested and will continue to invest financial and human resources to document and analyze our system of internal controls over financial reporting and we are continuing our evaluation of such internal controls. In the course of our ongoing evaluation, we may identify areas of our internal controls over financial reporting requiring improvement. To the extent that we identify internal control weaknesses which require correction, we may be required to incur expenditures or costs which, if significant, could adversely affect our operating results. In the event that, due to the complexity of certain internal control systems, the procedures, certification and attestation required by section 404 of the United States Sarbanes-Oxley Act of 2002 are not completed by the required deadline in respect of our 2005 fiscal year, our reputation, financial condition and the value of our securities could be adversely affected.

Our business is subject to potential tax liabilities

We are subject to income taxes in both Canada and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, there is no assurance that the final determination of any tax audits and litigation will not be materially different from that which is reflected in historical income tax provisions and accruals. Should additional taxes be assessed as a result of an audit or litigation, there could be a material effect on our income tax provision and net income in the period or periods for which that determination is made.

33

Page 41 of 104

3.13  Legal Proceedings and Regulatory Matters

From time to time, we are involved in legal proceedings and claims that arise in the ordinary course of business. In particular, the industries in which we compete are characterized by frequent claims and related litigation regarding patent and other intellectual property rights. Certain of these claims and proceedings have not progressed sufficiently to determine whether they may become significant in the future. Significant claims and proceedings currently affecting ATI, or which have affected ATI in the past two fiscal years, are set out below. See also “Narrative Description of the Business – Risks and Uncertainties”.

On December 16, 2002, we disclosed that staff of the OSC had raised concerns regarding the timeliness of our announcement on May 24, 2000 of a shortfall in our revenues and earnings for the third quarter of our 2000 fiscal year. We also reported that we were aware that OSC staff had raised concerns about trading that took place prior to the announcement by certain of our insiders and others, including certain directors and officers. On January 16, 2003, OSC staff filed a notice of hearing and statement of allegations in relation to us and others. The notice alleged that we 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 we made a misleading statement to OSC staff in August 2000 regarding the events leading up to the disclosure on May 24, 2000 of the shortfall. Seven individuals were named in the notice. The notice alleged that six of these individuals, including K.Y. Ho, then Chairman and Chief Executive Officer of ATI, engaged in insider trading contrary to the Securities Act (Ontario). We cannot measure the extent to which the negative publicity and uncertainty relating to these proceedings are impacting our business and/or financial condition. We cannot currently predict with any certainty the extent of the impact that these proceedings will continue to have on our business due to the uncertainty of the timing and nature of their resolution or whether any fines or penalties will be imposed on us by the OSC that might have a material adverse effect on its business or financial condition. One of the remedies sought by OSC staff against the named individuals, including Mr. Ho, is a prohibition on acting as a director or officer of a public company. If Mr. Ho is prohibited from being an officer or director of ATI, it could have an adverse effect on our business and results of operations and could have an adverse impact on the market price of our common shares. We have incurred substantial costs to date in connection with the OSC notice of hearing and expect to incur additional costs in the future which could materially and adversely affect our operating results and financial condition. These proceedings and any resulting penalties or fines may have a material adverse impact on the market price of our common shares and our ability to raise equity financing in the future or complete acquisitions involving the issuance of our common shares as all or a portion of the purchase price. The hearing is now scheduled to begin in March 2005.

In May and June 2001, certain holders of our securities commenced four class action lawsuits in the United States District Court for the Eastern District of Pennsylvania (the “Court”) alleging that we and certain of our directors and officers violated the Securities Exchange Act of 1934 and common law by making material misstatements of, or omitting to state, material facts related to our business operations, prospects and financial conditions. These lawsuits were filed on behalf of shareholders who acquired our common shares between January 13, 2000 and May 24, 2000. The plaintiffs were seeking compensatory and punitive damages in each of the class actions. The Court consolidated all four actions and permitted the plaintiffs to file a consolidated amended complaint. On July 23, 2002, the Court granted in part and denied in part the defendants’ motion to dismiss the consolidated amended complaint, and the parties thereafter engaged in fact discovery concerning the claims remaining in the lawsuit. On November 1, 2002, the Court granted the plaintiffs’ motion for class certification and certified a class of all persons or entities who purchased our common shares on the NASDAQ National Market during the period of January 13, 2000 through May 24, 2000. Following a Court ordered mediation, the parties reached an agreement providing for the full and complete settlement of all claims asserted in the consolidated lawsuits for a cash payment by ATI of $8.0 million. The terms of the Stipulation and Agreement of Settlement, which received court approval on April 28, 2003, included no admission of liability or wrongdoing by ATI or other defendants. During the fourth quarter of fiscal 2003, we received $3.3 million from our insurers as its contribution toward the settlement payment.

34

Page 42 of 104

In May 2003, Cirrus Logic (“Cirrus”) brought suit against us in the United States District Court for the Western District of Texas, Austin Division, for infringement of a Cirrus patent relating to graphics processor technology. In addition, a separate patent infringement suit relating to a different Cirrus patent had been pending in the United States District Court for the Northern District of California, San Francisco Division, since July 1998. In September 2003, ATI and Cirrus announced that we had entered into a cross-license agreement and had settled all outstanding litigation. Under the settlement agreement, all outstanding claims and counterclaims in both lawsuits between Cirrus and ATI were dismissed. In connection with the settlement, Cirrus transferred to us a portion of its patent portfolio relating to the former graphics products group of its PC products division, a business that Cirrus exited several years ago, and we paid Cirrus $9.0 million.

35

Page 43 of 104

ITEM 4. DIVIDEND POLICY

We have neither declared nor paid any cash dividends to date on our outstanding shares. We intend to retain our future earnings to finance the development of our business for general corporate purposes and currently do not anticipate paying any cash dividends on our common shares.

ITEM 5. DESCRIPTION OF CAPITAL STRUCTURE

5.1  General Description of Share Capital

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series. As of December 31, 2004, there were 251,817,089 common shares and no preferred shares issued and outstanding. The material provisions of the common shares and the preferred shares are summarized below.

5.1.1  Common Shares

The common shares entitle holders to one vote per share at all shareholder meetings except meetings at which only the holders of another class or series of shares are entitled to vote. Subject to the prior rights of the holders of the preferred shares, the common shares also entitle holders to receive any dividends declared by the board of directors and our remaining property after ATI is dissolved.

5.1.2  Preferred Shares

The preferred shares are issuable in one or more series. Subject to our articles, the board of directors is authorized to fix, before issuance, the designation, rights, privileges, restrictions and conditions attaching to the preferred shares of each series. The preferred shares rank prior to the common shares with respect to the payment of dividends and the return of capital on dissolution. Except with respect to matters as to which the holders of preferred shares are entitled by law to vote as a class, the holders of preferred shares will not be entitled to vote at meetings of shareholders unless, with respect to any series of preferred shares, the payment of dividends is in arrears. The holders of the preferred shares are not entitled to vote separately as a class or series or to dissent with respect to any proposal to amend the articles to create a new class of shares ranking in priority to or on a parity with the preferred shares, to effect an exchange or a reclassification or cancellation of the preferred shares or to increase the maximum number of authorized shares of a class ranking in priority to or on a parity with the preferred shares.

5.2  Equity Plans

We have established a share Option Plan (the “Option Plan”), three restricted share unit plans (the “RSU Plans”) and a share purchase plan (the “Share Purchase Plan”) which are designed to encourage all eligible employees, officers and directors of ATI to align their interests directly to those of shareholders and allow ATI to maintain competitive compensation programs that enable it to attract and retain employees in the high-tech sector where such compensation programs are standard. The material terms of each of the Option Plan, RSU Plans and Share Purchase Plan are described below.

5.2.1  Share Option Plan

Pursuant to the Option Plan, employees and officers of ATI are eligible to receive stock options. Approximately 2,500 employees of ATI have been awarded stock options pursuant to the Option Plan (representing approximately 83% of ATI’s employees). Non-executive directors are no longer permitted to receive options and no options have been granted to non-executive directors in the past two years. Four directors currently hold an aggregate of 295,000 previously granted options.

36

Page 44 of 104

Subject to the requirements of the Option Plan, the Board of Directors has the authority to select those employees and officers to whom options are granted, the number of options granted to each individual and the price at which the common shares may be purchased. The exercise price for purchasing common shares under the Option Plan is not less than the weighted average of the trading prices of the common shares on the Toronto Stock Exchange or the NASDAQ National Market for the five trading days preceding the date on which the Board of Directors determines that the grant of the option is to be effective. Options vest in accordance with terms determined by the Board. The options granted pursuant to the Option Plan are not transferable and have a maximum term of seven years. Options may not be repriced without shareholder approval.

The Option Plan also provides that the number of common shares reserved for issuance and which may be issued within a one-year period, pursuant to options granted to insiders (as defined in the Securities Act (Ontario)) pursuant to the Option Plan and all other share compensation arrangements established by ATI is limited to 10% of the number of common shares issued and outstanding, excluding any common shares issued pursuant to share compensation arrangements during the immediately preceding one-year period. Furthermore, the number of common shares which may be issued within a one-year period to any one insider and such insider’s associates (as defined in the Securities Act (Ontario)) pursuant to the Option Plan and all other share compensation arrangements is limited to 5% of the number of common shares issued and outstanding, excluding any common shares issued pursuant to share compensation arrangements during the immediately preceding one-year period.

On termination of employment, for any reason except involuntary termination without cause all unvested options are forfeited and vested options may be exercised for a period of 60 days following termination. Upon involuntary termination without cause, ATI may, at its discretion, permit a participant’s options to continue to vest during any statutory or common law severance period or any period of reasonable notice required by law. Vested options may be exercised up to 60 days following such severance or notice period. Upon the death of a participant, all options immediately vest and may be exercised by the deceased participant’s estate for a period of six months following death.

A total of 8,639,607 options were granted in fiscal 2004, of which 7,421,607 options were granted to employees and 1,218,000 options were granted to officers. Overall, as at December 1, 2004, 25,482,958 options were outstanding, of which 21,390,939 are held by employees who are not officers or directors.

The aggregate number of common shares that are available for issuance under the Option Plan or ATI’s RSU Plans is limited to a maximum of 47,000,000 common shares. As at December 1, 2004, 25,482,958 common shares were reserved to be issued pursuant to options that have already been granted and 9,544,171 common shares were available to be issued pursuant to the exercise of options that may be granted under the Option Plan in the future or, in certain circumstances, pursuant to the vesting of restricted share units as described below.

The Option Plan is the only share compensation arrangement under which we may grant options. In connection with our acquisition of ArtX, Inc. in April of 2000, as part of the acquisition terms, we assumed all options outstanding under ArtX, Inc.‘s 1997 Equity Incentive Plan (the “ArtX Plan”). As at December 1, 2004, under the ArtX Plan, options to purchase 1,041,879 common shares of ATI were outstanding. No further options may be granted under the ArtX Plan.

5.2.2  Restricted Share Unit Plans

In October 2003, we announced the adoption of plans to grant RSUs as part of ATI’s overall stock-based compensation plan. The RSU Plans allow participants to earn actual shares (or, for non-North American participants, the cash equivalent) of ATI over time, rather than options that give employees the right to purchase stock at a set price.

37

Page 45 of 104

The RSU Plans include: a plan for Canadian employees and directors (the “Canadian Plan”), a plan for U.S. employees and directors (the “U.S. Plan”), and a plan for all other employees and directors (the “Global Plan”). In accordance with the terms of the RSU Plans, the Board of Directors approves which employees and directors are entitled to participate in the respective plan (the “participants”) and the number of RSUs to be awarded to each participant. RSUs awarded to participants are credited to an account that is established on their behalf and maintained in accordance with the respective RSU Plan. Each RSU awarded conditionally entitles the participant to the delivery of one common share (or cash in lieu of such share under the Global Plan) upon attainment of the RSU vesting period. RSUs awarded to participants vest in accordance with terms determined by the Board. RSUs are non-transferable and have a maximum term of the end of the third calendar year after the date of grant.

At last year’s annual meeting, shareholders provided ATI with the discretion to satisfy RSUs through the issuance of treasury shares and confirmed that the common shares reserved for issuance under the Option Plan may, alternatively, be issued under the RSU Plans. At the time that any RSUs are granted under the Canadian Plan and the U.S. Plan, the Board must determine whether the common shares to be delivered to participants upon the vesting of such RSUs will be purchased in the open market, issued from treasury or obtained from a combination of market purchases and treasury issuances. Under the Global Plan, the Board must determine whether participants will receive cash or treasury shares (or a combination of both) upon the vesting of RSUs. Shares from treasury are issued from the pool of common shares that are available to be issued under both the Option Plan and the RSU Plans, however, of these common shares, only a maximum of 3,000,000 common shares may be issued from treasury under the RSU Plans. As at December 1, 2004, none of the common shares to be delivered upon the vesting of previously granted RSUs will be issued from treasury.

The RSU Plans also provide that the number of common shares reserved for issuance and which may be issued within a one-year period, pursuant to RSUs granted to insiders (as defined in the Securities Act (Ontario)) pursuant to the RSU Plans and all other share compensation arrangements established by ATI is limited to 10% of the number of common shares issued and outstanding, excluding any common shares issued pursuant to share compensation arrangements during the immediately preceding one-year period. Furthermore, the number of common shares which may be issued within a one-year period to any one insider and such insider’s associates (as defined in the Securities Act (Ontario)) pursuant to the RSU Plans and all other share compensation arrangements is limited to 5% of the number of common shares issued and outstanding, excluding any common shares issued pursuant to share compensation arrangements during the immediately preceding one-year period.

On termination of employment for any reason, all unvested RSUs are forfeited. At ATI’s discretion, upon involuntary termination without cause, a participant’s RSUs may be permitted to continue to vest, in accordance with their terms, during any statutory or common law severance period or any period of reasonable notice required by law. Upon the death of a participant, all unvested RSUs are immediately vested and distributed to the participant’s estate.

If the common shares to be delivered upon the vesting of RSUs are purchased in the market instead of issued from treasury, under the Canadian Plan, after RSUs are awarded to participants and prior to vesting, ATI will provide funds to a trust established for the purpose of purchasing on the market, and holding in trust, common shares to be delivered to Canadian participants in exchange for RSUs once the applicable vesting period has been met. Similarly, under the U.S. Plan, ATI will provide funds to a U.S. broker, who will purchase common shares for delivery to a custodian to be held on behalf of U.S. participants pending satisfaction of the applicable RSU vesting period. Under the Global Plan, once an RSU vests, if common shares are not to be issued from treasury, the participant under the Global Plan is only entitled to receive a cash payment from ATI equal to the number of RSUs awarded to such participant multiplied by the weighted average trading price of the common shares on the NASDAQ National Market over the five trading days immediately preceding the relevant vesting date.

38

Page 46 of 104

In October 2003, we awarded a total of 1,556,239 RSUs to approximately 1,500 employees (representing less than 6/10 of 1% of the current issued capital of ATI) in lieu of certain option grants for fiscal 2003. Of these RSUs, 953,931 RSUs have been awarded under the Canadian Plan, 513,962 RSUs have been awarded under the U.S. Plan and 88,346 RSUs have been awarded under the Global Plan. An aggregate of 1,304,239 RSUs have been awarded to employees (excluding officers) and 252,000 RSUs have been awarded to officers. No RSUs have been awarded to members of the Board of Directors. All RSUs awarded to employees and officers vest over a period of three years, with one-third of the RSUs awarded to each employee or officer vesting on each of the first three anniversaries of the grant, such that one-third of the RSUs awarded have vested as of the date hereof.

RSUs are accounted for as a compensation expense under the fair value method of accounting.

5.2.3  Share Purchase Plan

We have established the Share Purchase Plan to provide employees with an opportunity to purchase common shares of ATI, furthering participants’ alignment with the interests of shareholders and allowing them to share in the financial success to which they contribute. Under this plan, ATI contributes $l.50 for every $9.00 contributed by an employee to acquire common shares of ATI. The Share Purchase Plan is currently available to employees in Canada and the United States.

ITEM 6. MARKET FOR SECURITIES

Our common shares are listed and posted for trading on the Toronto Stock Exchange under the symbol “ATY” and are quoted for trading on the NASDAQ National Market under the symbol “ATYT”.

Information concerning the trading prices and volumes during fiscal 2004 is set out below:

	The Toronto Stock Exchange								NASDAQ National Market
	Share Price Trading Range								Share Price Trading Range
Month	High		Low		Close		Share Volume		High		Low		Close		Share Volume
	(Canadian dollars per share)						(millions)		(U.S. dollars per share)						(millions)
September 2003	21	.55	19	.46	20	.14	29	.54	15	.95	14	.25	14	.86	47	.47
October 2003	21	.99	17	.52	18	.88	38	.14	16	.41	13	.39	14	.34	70	.56
November 2003	20	.59	17	.62	20	.06	22	.53	15	.80	13	.51	15	.45	47	.75
December 2003	21	.45	18	.45	19	.49	27	.17	16	.50	14	.10	15	.12	58	.78
January 2004	24	.00	19	.50	21	.52	32	.86	18	.45	15	.03	16	.32	60	.93
February 2004	22	.82	20	.16	20	.80	25	.81	17	.20	15	.07	15	.60	54	.10
March 2004	22	.32	18	.31	21	.33	33	.99	17	.00	13	.87	16	.36	62	.88
April 2004	23	.33	19	.45	19	.95	25	.10	17	.34	14	.19	14	.57	60	.86
May 2004	22	.50	19	.30	22	.48	20	.94	16	.47	13	.99	16	.45	41	.98
June 2004	25	.38	20	.81	25	.16	26	.31	18	.90	15	.14	18	.86	70	.73
July 2004	24	.80	20	.15	21	.25	23	.17	18	.84	15	.13	16	.10	45	.30
August 2004	21	.39	17	.75	19	.03	24	.46	16	.20	13	.35	14	.46	53	.58

39

Page 47 of 104

ITEM 7. DIRECTORS AND OFFICERS

The following table sets forth the name and municipality of residence, position held with ATI and principal occupation of each of the directors and corporate officers of ATI as of December 31, 2004. Directors of ATI hold office until the next annual meeting of shareholders or until their successors are duly elected or appointed.

7.1  Directors

Name and Municipality of Residence	Position Held	Director Since	Principal Occupation
K.Y. HO	Chairman and Director	1986	Director and officer of ATI
Toronto, Ontario
ALAN D. HORN(1)(4)	Director	1993	Vice President, Finance and
Toronto, Ontario			Chief Financial Officer, Rogers
			Communications Inc., a cable,
			internet access, wireless data,
			broadcasting and publishing
			company.
JAMES D. FLECK(1)(2)(3)(5)	Director	1995	Chairman, Fleck Management
Toronto, Ontario			Services Ltd., a management
			services company.
PAUL RUSSO(2)	Director	2002	Chairman, President and
Los Altos Hills, California			Chief Executive Officer,
			Silicon Optix Inc., a fabless
			semiconductor company.
RONALD CHWANG(3)	Director	2003	Chairman and President, Acer
Los Altos Hills, California			Technology Ventures (ATV)
			America, a high-tech venture
			capital company.
JOHN E. CALDWELL(1)(2)(3)(4)	Director	2003	President and Chief Executive
Toronto, Ontario			Officer of SMTC Corporation, an
			electronics manufacturing services
			provider.
ROBERT A. YOUNG(1)	Director	2003	Managing Director, Mirador
New Canaan, Connecticut			Capital, L.L.C., a venture
			capital firm.

(1) Member of the Audit Committee.

(2) Member of the Human Resources and Compensation Committee.

(3) Member of the Governance and Nominations Committee.

(4) Mr. Horn and Mr. Caldwell would each be considered a “financial expert” as defined under the United States Sarbanes-Oxley Act of 2002 and the rules of the United States Securities and Exchange Commission.

(5) Lead director of the Board.

We do not have an executive committee. During the past five years, all of our directors have held their principal business affiliations as noted opposite their respective names except that:

(a) prior to April 2000, Dr. Russo was the Chief Executive Officer of Genesis Microchip Inc.;

(b) prior to October 2002, Mr. Caldwell was a consultant to GEAC Computer Corporation Limited (“GEAC”) and prior to December 2001, Mr. Caldwell was the President and CEO of GEAC; prior to October 1999, Mr. Caldwell was the President and CEO of CAE Inc.; and

(c) prior to February 2002, Dr. Young was the Chairman and CEO of Curl Corporation; prior to December 1997, Dr. Young was Managing Director with Dillon, Read & Co. and prior to December 1986, Dr. Young was the President of IBM Instruments.

40

Page 48 of 104

Mr. Caldwell was also a director of Mosaic Group Inc. in December 2002 when it obtained a court order under the Companies Creditors Arrangement Act (Canada) (“CCAA”) to initiate the restructuring of its debt obligations and capital structure. Mr. Caldwell is also a director of Stelco Inc. In January 2004, Stelco Inc. obtained a court order under the CCAA to initiate a restructuring of its debt obligations and capital structure. Concurrently, Stelco Inc. made a petition for recognition of the CCAA order and ancillary relief under section 304 of the United States Bankruptcy Act.

Mr. Horn was a director of AT&T Canada Inc. (“AT&T Canada”), as a representative of Rogers Communications Inc. until October 8, 2002 when he resigned following a change in the ownership structure of AT&T Canada. Subsequently on October 15, 2002, AT&T Canada filed for protection under the CCAA.

7.2  Corporate Officers

Name and Municipality of Residence	Position Held	Principal Occupation
K.Y. HO	Chairman of the Board	Officer of ATI
Toronto, Ontario
DAVID ORTON	President and Chief Executive Officer	Officer of ATI
Los Altos, California
TERRY NICKERSON	Senior Vice President, Finance and Chief	Officer of ATI
Mississauga, Ontario	Financial Officer
RICK BERGMAN	Senior Vice President and General Manager,	Officer of ATI
San Jose, California	PC Group
MICHEL CADIEUX	Senior Vice President, Corporate Services	Officer of ATI
Aurora, Ontario
PHIL EISLER	Senior Vice President and General Manager,	Officer of ATI
Toronto, Ontario	Integrated and Mobile Business Unit
ADRIAN HARTOG	Senior Vice President and General Manager,	Officer of ATI
Toronto, Ontario	Consumer Group
RICK HEGBERG	Senior Vice President, Worldwide Sales	Officer of ATI
Mendham, New Jersey
BENJAMIN BAR-HAIM	Vice President, Software Engineering	Officer of ATI
Richmond Hill, Ontario
GIL CHRISTIE	Vice President, Board Operations	Officer of ATI
Thornhill, Ontario
PAUL DAL SANTO	Vice President and General Manager,	Officer of ATI
Aurora, Ontario	Handheld Business Unit
RICH HEYE	Vice President and General Manager,	Officer of ATI
Sunnyvale, California	Desktop Business Unit

41

Page 49 of 104

Name and Municipality of Residence	Position Held	Principal Occupation
RAYMOND LI	Vice President, Hardware Engineering	Officer of ATI
Markham, Ontario
PAUL LYPACZEWSKI	Vice President and General Manager,	Officer of ATI
Aurora, Ontario	Multimedia Business Unit
BOB MANSBRIDGE	Vice President, Information Technology	Officer of ATI
Nobleton, Ontario
JASON PETERSON	Vice President, Finance	Officer of ATI
Toronto, Ontario
GEOFF PHILLIPS	Vice President and General Manager,	Officer of ATI
Merritt Island, Florida	DTV Business Unit
HENRY QUAN	Vice President, Corporate Development	Officer of ATI
Woodbridge, Ontario
DAVE ROLSTON	Vice President and General Manager,	Officer of ATI
Winter Park, Florida	Workstation and Embedded Business Unit
JIM SETO	Vice President, ASIC Operations	Officer of ATI
Richmond Hill, Ontario
STEVEN TURNER	Vice President, Engineering,	Officer of ATI
Richmond Hill, Ontario	Handheld Products
RICHARD BRAIT	General Counsel	Officer of ATI
Oakville, Ontario
DEAN BLAIN	Corporate Secretary	Solicitor
Toronto, Ontario

During the past five years, all of the corporate officers of ATI have held the positions noted opposite their respective names or other senior positions with ATI, except:

• David Orton who, prior to April 2000, was President and Chief Executive Officer, ArtX, Inc. and, prior to May 1999, was Senior Vice President and General Manager, Visual Computing and Scalable Systems, Silicon Graphics Inc.

• Terry Nickerson who, prior to November 2000, was Vice President, AGD Division, Stackpole Limited.

• Rick Bergman who, prior to January 2001, was Chief Operating Officer of S3 Graphics, a division of SONICblue Inc.

• Michel Cadieux who, prior to September 2000, was Vice President, Human Resources, at Telemedia Communications Inc.

• Rick Hegberg who, prior to January 2003, was the Chief Executive Officer of Net Octave; prior to January 2001, was the Vice President, North American Sales of Agere Systems Inc. (formerly Lucent Microelectronics).

42

Page 50 of 104

• Benjamin Bar-Haim who, prior to January 2001, was President of Array Systems Computing.

• Paul Dal Santo who, prior to November 2004, was Vice-President and Director of Engineering for Motorola Inc.

• Rich Heye who, prior to December 2003, was Vice-President and General Manager, Microprocessor Business Unit, of Advanced Micro Devices, Inc.

• Paul Lypaczewski who, prior to June 2004, was Executive Vice-President of Autodesk Incorporated and General Manager of Discreet, a division of Autodesk Incorporated; and prior to August 2000, was Chief Operating Officer of CyberWorld, Inc.

• Bob Mansbridge who, prior to April 2004, was Senior Vice-President and Chief Information Officer of Celestica Inc.

• Jason Peterson who, prior to October 2003, was Director of Strategic Planning at ATI; prior to January 2001, was the Controller for ATI Research Silicon Valley Inc.; prior to April 2000, was the Corporate Controller for ArtX; and prior to October 1999, was a Controller for various business units at Phillips Semiconductor.

• Geoff Phillips who, prior to June 2002, was Senior Vice-President, NxtWave Communications.

• Dave Rolston who, prior to June 2001, was Chief Executive Officer of Webtelecom, Inc.; and prior to December 2000, was Chief Executive Officer of MultiGen-Paradigm Incorporated.

• Richard Brait who, prior to April 2004, was Senior Partner and Chair of the Technology Group at Stikeman Elliott LLP (a leading global law firm); prior to December 2001, was General Counsel for Nortel Networks’ Optical Components Group; and prior to September 2000 was General Counsel for Nortel Networks’ Service Provider and Carrier Group.

As at December 15, 2004, the directors and senior officers of ATI as a group beneficially owned, directly or indirectly, or exercised control or direction over 4,386,785 common shares, representing approximately 1.7% of the outstanding common shares of ATI. The information as to shares owned indirectly or over which control or direction are exercised by the directors and officers, but which are not registered in their names and not being within the knowledge of ATI, has been furnished by such directors and officers.

The success of ATI is dependent on the services of a number of members of senior management. The experience of these individuals will be a factor contributing to ATI’s continued success and growth. The loss of one or more of these individuals could have a material adverse effect on ATI’s operations and business prospects.

43

Page 51 of 104

ITEM 8. AUDIT COMMITTEE INFORMATION

Currently, the members of the audit committee of ATI (the “Audit Committee”) are Messrs. Horn (Chair), Fleck, Caldwell and Young. The Audit Committee has direct communication channels with ATI’s internal finance department to review issues as appropriate and meets directly with the external auditors of ATI on a regular basis. The Audit Committee Charter, as set out in Schedule E to our Management Information Circular dated December 17, 2004 is incorporated herein by reference. The Audit Committee Charter outlines, among other things, the mandate of the Audit Committee to:

• oversee the integrity of ATI’s financial statements and financial reporting process;

• oversee the qualifications and independence of ATI’s external auditors;

• oversee the scope of the annual audit plan;

• oversee the work of ATI’s financial officers and executives, internal auditors and external auditors; and

• provide an open avenue of communication between the external auditors, the Board and management.

Each of the members of the Audit Committee are independent and financially literate. Mr. Horn and Caldwell, both of whom are Chartered Accountants, are each considered to be a “financial expert”. Each member of the Audit Committee has the ability to perform his responsibilities as an Audit Committee member based on their education and/or experience as summarized below:

• Mr. Horn (Chairman) - Chartered Accountant;
Chief Financial Officer of Rogers Communications Inc.

•	Mr. Caldwell	-	Chartered Accountant;
		-	Former Chief Financial Officer of CAE Inc.;
		-	Director and chair of the audit committee of Cognos Inc., Faro Technologies Inc., Sleeman Breweries Limited and Stelco Inc.

•	Mr. Fleck	-	Director of several public companies including Financial Models Co. Inc. and Certicom Corp.;
		-	Doctorate in Finance, Harvard Business School.

•	Mr. Young	-	Director and chair of the audit committee of Tessera Technologies Inc.;
		-	Former Managing Director in Corporate Finance, Dillon, Read & Co.

The Board, upon the recommendation of the Audit Committee, has adopted a written policy on auditor independence (the “Policy”). Under the Policy, except in very limited circumstances, all audit and permitted non-audit services are required to be pre-approved by the Audit Committee. The Policy prohibits the auditors from providing the following types of non-audit services:

• bookkeeping or other services related to the accounting records or financial statements of ATI;

• financial information systems design and implementation;

• appraisal or valuation services, fairness opinion, or contribution-in-kind reports;

• actuarial services;

• internal audit outsourcing services;

• management functions or human resources services;

• broker or dealer, investment advisor or investment banking services on behalf of ATI; and

• legal services and expert services unrelated to the audit.

The Policy also permits the auditors to provide other types of non-audit services, including tax services, but only if approved in advance by the Audit Committee, subject to limited exceptions.

44

Page 52 of 104

External auditor service fees for the last two fiscal years are as follows:

      Audit Fees

Audit fees paid to KPMG LLP totaled U.S.$465,000 (which include audit fees incurred in connection with the preparation of ATI’s base shelf prospectus) in 2004 and U.S.$284,000 in 2003. Audit fees include fees associated with the annual audit of ATI’s consolidated financial statements and annual audits of certain statutory financial statements.

      Audit-Related Fees

Audit-related fees paid to KPMG LLP totaled U.S.$205,000 in 2004 and U.S.$107,000 in 2003. These audit-related fees include fees associated with interim review procedures performed in connection with ATI’s quarterly reports and other accounting advisory and assistance services.

      Tax Fees

Fees paid to KPMG LLP for tax services, including tax compliance, tax advice and tax planning, totaled approximately U.S.$190,000 in 2004 and U.S.$195,000 in 2003.

      All Other Fees

Fees paid to KPMG LLP for other services not described above totaled U.S.$420,000 in 2004 and U.S.$845,000 in 2003. These fees related to services provided to the legal counsel retained by the Board of Directors in connection with the notice of hearing filed by staff of the Ontario Securities Commission in January 2003.

ITEM 9. AUDITORS, TRANSFER AGENT AND REGISTRAR

Our auditors are KPMG LLP, Chartered Accountants, Yonge Corporate Centre, 4100 Yonge Street, Suite 200, Toronto, Ontario, M2P 2H3. The transfer agent and registrar for ATI’s common shares is CIBC Mellon Trust Company, 320 Bay Street, P.O. Box 1, Toronto, Ontario M5H 4A6.

45

Page 53 of 104

ITEM 10. ADDITIONAL INFORMATION

10.1  Annual Report and Management Information Circular

Additional information with respect to ATI, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities and options to purchase securities and interests of insiders in material transactions is contained, where applicable, in our Management Information Circular dated December 17, 2004 (“2004 Circular”). Additional financial information is provided in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in the 2004 Annual Report.

Copies of our 2004 Annual Report, 2004 Circular and of this Annual Information Form may be obtained upon request from the Corporate Secretary or our Investor Relations Department. These documents are also available on the SEDAR website at www.sedar.com.

10.2  Base Shelf Prospectus

In February of 2004, ATI filed with securities regulatory authorities in each of the provinces of Canada, other than the Province of Quebec, a short form base shelf prospectus in connection with the new issue and/or secondary offering of common shares, preferred shares, secured or unsecured obligations in the form of senior or subordinated debt securities, stock purchase contracts or units or warrants to purchase common shares, preferred shares, debt securities or other securities (collectively, the “Securities”), pursuant to one or more offerings up to an aggregate offering price of $500,000,000 during the 25 month period that the short form base shelf prospectus remains effective. ATI also filed a registration statement on Form F-10 with the United States Securities and Exchange Commission with respect to the Securities.

At any time while our securities are in the course of a distribution, the Corporate Secretary will provide any person, upon request, with a copy of: (i) this Annual Information Form; (ii) our most recent annual report containing the audited consolidated financial statements of ATI for the most recently completed fiscal year together with the accompanying report of the auditor; (iii) any interim financial statements of ATI subsequent to the financial statements for the most recently completed fiscal year; (iv) the management information circular for the most recent annual meeting of shareholders involving the election of directors; and (v) any other document incorporated by reference into the preliminary short form prospectus or the final short form prospectus filed in connection with such distribution of securities.

46

EX-99.2

Page 54 of 104

EXHIBIT 2

Management’s Responsibility for Consolidated Financial Statements

Management of ATI Technologies Inc. is responsible for the integrity of the accompanying consolidated financial statements and all other information in this Annual Report. The consolidated financial statements have been prepared by Management in accordance with accounting principles generally accepted in Canada. The preparation of the consolidated financial statements necessarily involves the use of estimates and careful judgment, particularly in those circumstances where transactions affecting a current period are dependent upon future events. All financial information presented in this Annual Report is consistent with the consolidated financial statements.

To discharge its responsibilities for financial reporting and safeguarding of assets, Management believes that it has established appropriate systems of internal accounting controls that provide reasonable assurance that the financial records are reliable and form a proper basis for the timely and accurate preparation of financial statements. Consistent with the concept of reasonable assurance, Management recognizes that the relative cost of maintaining these controls should not exceed their expected benefits. Management further ensures the quality of the financial records through careful selection and training of personnel and the adoption and communication of financial and other relevant policies.

The Board of Directors discharges its responsibilities with respect to the consolidated financial statements primarily through the activities of its Audit Committee, which is composed entirely of directors who are not employees of the Company. This committee meets quarterly with Management and at least twice annually with the Company’s independent auditors to review the Company’s reported financial performance and to discuss audit, internal control, accounting policy and financial reporting matters. The consolidated financial statements were reviewed by the Audit Committee and approved by the Board of Directors.

The consolidated financial statements have been audited by KPMG LLP, who were appointed by the shareholders at the last Annual General Meeting of Shareholders. Their report is presented herein.

September 30, 2004

Auditors’ Report to the Shareholders

We have audited the consolidated balance sheets of ATI Technologies Inc. as at August 31, 2004 and 2003 and the consolidated statements of operations and retained earnings and cash flows for each of the years in the three-year period ended August 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2004 in accordance with Canadian generally accepted accounting principles.

Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the company’s financial statements, such as the changes described in note 2(f) and (o) to the financial statements. Our report to the shareholders dated September 30, 2004 is expressed in accordance with Canadian reporting standards which do not require a reference to such changes in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements.

//KPMG LLP//

Toronto, Canada
September 30, 2004

Page 55 of 104

Consolidated Statements of Operations and Retained Earnings

2

Page 56 of 104

Consolidated Balance Sheets

3

Page 57 of 104

Consolidated Statements of Cash Flows

4

Page 58 of 104

Notes to Consolidated Financial Statements

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

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.

NOTE 1. Significant accounting policies

(a) Basis of presentation

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and are presented in U.S. dollars. No material differences would result if these consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission, except as disclosed in note 21.

(b) Principles of consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as the Company’s 50.0% ownership in a joint venture formed to own an office building in Markham, Ontario. All significant intercompany transactions and balances have been eliminated upon consolidation.

(c) Cash and cash equivalents and short-term investments

Cash and cash equivalents include highly liquid instruments with a maturity of less than 90 days from the acquisition date. The carrying amounts of cash and cash equivalents are stated at cost, which approximates their fair values. The Company’s short-term investments include: (i) highly liquid instruments with a maturity date of 90 days or more but less than one year from the acquisition date that are carried at cost, which approximates their fair values; (ii) portfolio investments consisting of government and corporate obligations, agency discount notes, money market funds and commercial paper; and (iii) corporate bonds. Both portfolio investments and corporate bonds are carried at amortized cost plus accrued interest and, are included in short-term investments as it is management’s intention to sell such investments in the short term. The Company regularly reviews the carrying value of its investments. Should there be a decline in value that is other than a temporary decline, the Company measures the amount of the write-down based on the quoted market value of the investments and charges such write-down to the consolidated statements of operations and retained earnings.

(d) Inventories

Raw materials are stated at the lower of cost and replacement cost. Finished goods and work in process are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis.

(e) Capital assets

Capital assets are recorded at cost, net of related investment tax credits, and are depreciated over their estimated useful lives. Estimated useful lives for principal asset categories are as follows:

(f) Goodwill from business combinations

For business combinations prior to July 1, 2001, goodwill was amortized on a straight-line basis over five to seven years. Prior to September 1, 2002, the Company assessed the recoverability of goodwill based on undiscounted expected future cash flows. Goodwill acquired in business combinations subsequent to June 30, 2001 has not been amortized.

5

Page 59 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

Effective September 1, 2002, the Company adopted The Canadian Institute of Chartered Accountants’ (“CICA”) Handbook Sections 1581, “Business Combinations,” and 3062, “Goodwill and Other Intangible Assets.” From that date, the Company discontinued amortization of all existing goodwill. The Company reviewed existing intangible assets, including estimates of remaining lives, and reclassified $2.3 million from workforce to goodwill as of September 1, 2002 to conform with the new accounting standards.

In connection with Handbook Section 3062‘s transitional goodwill impairment evaluation, the Company was required to assess whether goodwill was impaired as of September 1, 2002. The Company completed the transitional goodwill impairment assessment and determined that no impairment existed as of September 1, 2002.

Upon adopting these standards on September 1, 2002, the Company is required to evaluate goodwill annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is tested at the reporting unit level by comparing the reporting unit’s carrying value to its fair value. The fair values of the reporting units are estimated using a discounted cash flow approach. To the extent a reporting unit’s carrying amount exceeds its fair value, an impairment of goodwill exists. Impairment is measured by comparing the fair value of goodwill, determined in a manner similar to a purchase price allocation, to its carrying amount. During the fourth quarter of fiscal 2004, the Company performed its annual goodwill impairment test in accordance with the goodwill standards of Handbook Section 3062 and determined that there was no goodwill impairment in fiscal 2004.

Effective September 1, 2002, the Company had unamortized goodwill of $190.1 million, which is no longer being amortized. This change in accounting policy is not applied retroactively and the amounts presented for prior periods have not been restated for this change. The impact of this change is as follows:

(g) Intangible assets

Intangible assets are recorded at cost and are amortized on a straight-line basis over their estimated useful lives as follows:

(h) Impairment of long-lived assets

The Company reviews capital and intangible assets for impairment on a regular basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability is assessed by comparing the carrying amount to the projected future net cash flows the long-lived assets are expected to generate.

(i) Long-term investments

Investees over which the Company does not have control or significant influence are accounted for by the cost method.

The Company regularly reviews the carrying values of its long-term investments. Should there be a decline in value of the Company’s long-term investments that is other than a temporary decline, the Company measures the amount of the write-down based on the fair value of the shares of the investee and charges such write-down to the consolidated statements of operations and retained earnings.

6

Page 60 of 104

(j) Revenue recognition

Revenue is recognized when evidence of an arrangement exists, risks and rewards of ownership have been transferred to customers, selling price is fixed and determinable and collectibility is reasonably assured. Estimated returns and allowances, price protection and sales rebates are recorded as a reduction of revenue at the time of revenue recognition. In addition, the Company provides for the estimated cost of product warranties at the time of revenue recognition.

The Company primarily uses a binding purchase order as evidence of its sales arrangements and, in certain cases, uses contractual agreements. The Company considers delivery to occur upon shipment, provided risk and rewards of ownership, including transfer of title have passed to the customer. At the point of sale, the Company assesses whether collection is reasonably assured. If the Company determines that collection is not reasonably assured, the Company defers recognition of the revenue until collection becomes reasonably assured, which is generally upon receipt of cash.

The Company follows the percentage-of-completion method of accounting for contracts requiring the Company to develop customized technology to meet a customer’s specifications. Under such contracts, revenue is recognized based on the ratio of total costs incurred to date to overall estimated costs. Provisions for estimated losses on contracts are recognized when identified. Where estimating the final outcome of a contract is impractical, except to ensure that no loss will be incurred, the Company uses a zero estimate of profit until results can be estimated more precisely. Under this method, the portion of total contract revenue earned to-date is determined by measuring total costs incurred. The Company then records an equal amount of revenue against costs. Cost of revenue is adjusted to recognize the profit element from the arrangement once the Company is able to estimate total revenue and total costs.

(k) Foreign currency translation

The Company’s functional currency and that of its subsidiaries is the U.S. dollar. The Company’s subsidiaries are accounted for as integrated foreign operations. Transactions of the Company and its subsidiaries originating in foreign currencies are translated into U.S. dollars at the prevailing rates approximating those at the dates of the transactions. Monetary assets and liabilities are translated at the year-end rates of exchange and non-monetary items are translated at historical exchange rates. The resulting net gain or loss is included in the consolidated statements of operations and retained earnings.

(l) Research and development (“R&D”) expenditures

Research costs, other than capital expenditures, are expensed as incurred. Development costs are expensed as incurred unless they meet the criteria under Canadian GAAP for deferral and amortization.The Company has not deferred any such development costs to date. R&D costs are reduced by related investment tax credits. The total investment tax credits for fiscal 2004 amounted to $29.0 million (2003 – $21.7 million; 2002 – $17.7 million).

(m) Income taxes

The Company uses the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are recognized for future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, net operating loss carryforwards and undeducted R&D pools. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized in the year that includes the enactment or substantive enactment date. A valuation allowance is recorded against any future income tax asset if it is more likely than not that the asset will not be realized. Income tax expense or recovery is the sum of the Company’s provision for current income taxes and the difference between opening and ending balances of future income tax assets and liabilities.

(n) Net income (loss) per share

Basic net income (loss) per share has been calculated by dividing the net income (loss) for the year by the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method for calculating diluted net income (loss) per share. Diluted net income (loss) per share is computed similar to basic net income (loss) per share, except that the weighted average number of common shares outstanding is increased to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the reporting year.

7

Page 61 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

(o) Stock-based awards

(i) Stock options

The Company has share option plans, which are described in note 12. No compensation expense is recognized for these plans when stock options are issued to employees. Any consideration paid by employees on exercise of stock options or purchase of stock is credited to share capital.

Effective September 1, 2002, the Company adopted the CICA Handbook Section 3870, “Stock-based Compensation and Other Stock-based Payments,” which establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services provided by employees and non-employees. The standard requires that a fair value-based method of accounting be applied to all stock-based payments to non-employees and to employee awards that are direct awards of stock, that call for settlement in cash or other assets or are stock appreciation rights that call for settlement by the issuance of equity instruments. However, the new standard permits the Company to continue its existing policy of recording no compensation cost on the grant of stock options to employees. The Company has applied the pro forma disclosure provisions of the standard to awards granted on or after September 1, 2002. No restatement of prior periods was required as a result of the adoption of the new standard. Consideration paid by employees on the exercise of stock options is recorded as share capital. See note 12 for the pro forma disclosure, as required by this standard.

(ii) Restricted Share Units and Deferred Share Units:

The Company has restricted share unit (“RSU”) and deferred share unit (“DSU”) plans, which are described in note 12. RSU and DSU plans that are settled in cash are recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on the intrinsic value of the award, and is recorded as a charge to operating income over the vesting period of the award. Changes in the Company’s payment obligation subsequent to vesting of the award and prior to the settlement date are recorded as a charge to operating income in the period incurred. The payment amount is established for RSUs on the vesting date of the award and for DSUs on the later of the date of termination of employment or directorship.

(p) Use of estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting years presented. Significant estimates are used in determining the allowance for doubtful accounts, provision for inventory obsolescence, useful lives of long-lived assets, goodwill and long-lived asset impairment testing, valuation of long-term investments, realization of future tax assets, and estimates for sales returns and allowances, price protection and sales rebates. Actual results could differ from those estimates.

(q) Accounting changes

(i) During fiscal 2004, the Company adopted CICA Accounting Guideline No. 13, “Hedging Relationships,” for its derivative instruments. The Company engaged in activities to purchase certain derivative financial instruments, principally forward foreign exchange contracts, to manage its foreign currency exposures. The Company’s policy is not to utilize derivative financial instruments for trading or speculative purposes.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or anticipated transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Company purchases forward foreign exchange contracts to hedge anticipated Canadian dollar expenses pertaining to its operations in Canada. These instruments are not recognized in the consolidated financial statements at inception. Foreign exchange gains and losses on these contracts are deferred off-balance sheet and recognized as an adjustment to the operating expenses when the operating expenses are incurred.

Realized and unrealized gains or losses associated with derivative instruments, which have been terminated or cease to be effective prior to maturity, are deferred under other current, or non-current, assets or liabilities on the balance sheet and recognized in income in the period in which the underlying hedged transaction is recognized. In the event a designated hedged item is sold, extinguished or matures prior to the termination of the related derivative instrument, any realized or unrealized gain or loss on such derivative instrument is recognized in income.

8

Page 62 of 104

(ii) Revenue recognition:

In December 2003, the Emerging Issues Committee issued EIC-141, “Revenue Recognition” and EIC-142, “Revenue Arrangements with Multiple Deliverables.” EIC-141 incorporates the principles and guidance under the SEC’s Staff Accounting Bulletin No. 101 and U.S. GAAP and EIC-142 addresses how to identify whether goods or services or both that are delivered separately in a bundled sales arrangement should be accounted for separately. The primary purpose of EIC-142 is to determine if separation is necessary, and, if so, how to measure and allocate the arrangement consideration.

The Company fully adopted EIC-141 and EIC-142 on a prospective basis on March 1, 2004. The Company was not impacted by these standards.

(r) Recently issued accounting pronouncements

(i) Generally accepted accounting principles:

In July 2003, the CICA issued Handbook Section 1100, “Generally Accepted Accounting Principles.” This Section establishes standards for financial reporting in accordance with Canadian GAAP. It describes what constitutes Canadian GAAP and its sources. This Section also provides guidance on sources to consult when selecting accounting policies and determining appropriate disclosures when a matter is not dealt with explicitly in the primary sources of Canadian GAAP. This guideline is effective for the Company’s 2005 fiscal year, with early adoption encouraged. The Company expects that the adoption of this standard will have no material impact on its financial position, results of operations or cash flows.

(ii) Asset retirement obligations:

In March 2003, the CICA issued Handbook Section 3110, “Asset Retirement Obligations.” This Section establishes standards for the recognition, measurement and disclosure of liabilities for asset retirement obligations and the associated retirement costs. This Section applies to legal obligations associated with the retirement of a tangible long-lived asset that result from its acquisition, construction, development or normal operation. This guideline is effective for the Company’s 2005 fiscal year, with early adoption encouraged. The Company is currently evaluating the impact of adoption on the consolidated financial statements.

(iii) Consolidation of variable interest entities:

In June 2003, the CICA approved Accounting Guideline No. 15, “Consolidation of Variable Interest Entities,” which provides guidance for determining when an enterprise includes the assets, liabilities and results of activities of entities that are subject to control on a basis other than ownership of voting interests (a “variable interest entity”). This guideline is effective for the Company’s 2005 second quarter. Early adoption is encouraged. The Company expects that the adoption of this standard will have no material impact on its financial position, results of operations or cash flows.

(iv) Liabilities and equity:

In November 2003, the CICA approved amendments to Handbook Section 3860, “Financial Instruments—Presentation and Disclosure,” to require obligations that may be settled, at the issuer’s option, by a variable number of the issuer’s own equity instruments to be presented as liabilities. Thus securities issued by an enterprise that give the issuer unrestricted rights to settle the principal amount in cash or in the equivalent value of its own equity instruments will no longer be presented as equity.

The CICA concluded that not all such obligations establish the type of relationship that exists between an entity and its owners, but rather they convey more of a debtor/creditor relationship because they require the issuer to convey a fixed amount of value to the holder that does not vary with changes in the fair value of the issuer’s equity instruments. Therefore, these instruments should be presented as liabilities. The standard will be effective for the Company’s 2006 fiscal year. The Company expects that the adoption of this standard will have no material impact on its financial position, results of operations or cash flows.

NOTE 2. Financial instruments

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term investments, accounts receivable and sundry receivables. The Company invests only in high-quality cash and cash equivalents and short-term investments. A majority of the Company’s accounts receivable is derived from sales to original equipment manufacturers, add-in-board manufacturers, original design manufacturers, distributors and retailers in the personal computer, cellular phone, and digital television industries. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. In addition, a significant portion of the total accounts receivable is insured against possible losses. The Company maintains adequate reserves for potential credit losses as estimated by management.

9

Page 63 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

The joint venture, Commerce Valley Realty Holdings Inc. (“CVRH”), in which the Company has a 50.0% ownership, entered into an interest rate swap contract in fiscal 2001, to hedge its exposure to the interest rate risk applicable to its mortgage for the building facility in Markham, Ontario (“Building Facility”). This interest rate swap contract closed on September 10, 2002, resulting in a proportionate loss of $1.4 million to the Company. The loss is treated as a deferred expense item in the consolidated balance sheets and is charged to the consolidated statements of operations and retained earnings as a yield adjustment to the interest expense over the term of the mortgage (note 19).

The carrying amounts of cash equivalents, short-term investments, accounts receivable, sundry receivables and accounts payable and accrued liabilities approximate their fair market values because of the short-term nature of these instruments.

The fair values of the obligation under capital lease and mortgage payable approximate their carrying values.

The financial condition, operating results and cash flows of the Company may be materially and adversely impacted by a substantial weakening of the U.S. dollar against local currencies as the Company’s long-term debt and a significant amount of its operating expenses are paid in local currencies other than the U.S. dollar.

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 U.S. dollars for Canadian dollars in the future at predetermined exchange rates and are matched with anticipated future operating expenses in Canada. The Forwards do not subject the Company to risk from exchange rate movements because gains and losses on such contracts offset losses and gains on exposures being hedged. The counterparties to the Forwards are multinational commercial banks and, therefore, the credit risk of counterparty non-performance is low.

During the fourth quarter of fiscal 2004, the Company purchased Forwards to buy Cdn. $35.0 million in the next three months at an average exchange rate of 1.3793. All of the Forwards have become favourable to the Company since their inception and have an unrealized fair value of $1.3 million at August 31, 2004.

NOTE 3. Short-term investments

At August 31, 2004 and 2003, the carrying value of short-term investments approximated their quoted market value.

NOTE 4. Inventories

At August 31, 2004, the Company had non-cancellable inventory purchase commitments totalling $7.1 million (2003 – $23.3 million).

10

Page 64 of 104

NOTE 5. Capital assets

Depreciation expense related to capital assets amounted to $19.9 million in fiscal 2004 (2003 – $23.9 million; 2002 – $22.9 million).

NOTE 6. Acquisitions

(a) Acquisition of AMI Technologies Corp.

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.

(b) Acquisition of NxtWave Communications Inc.

On June 28, 2002, the Company acquired NxtWave Communications Inc. (“NxtWave”) for cash consideration of $20.2 million. NxtWave is in the business of delivering broadband communications silicon using proprietary digital signal processing technologies adapted for applications in digital terrestrial and cable receivers. The acquisition was accounted for using the purchase method, whereby the results of operations of NxtWave 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:

11

Page 65 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

Purchased in-process R&D and core technology are being amortized as follows:

NOTE 7. Intangible assets and goodwill

The net book values of intangible assets and goodwill acquired are as follows:

Amortization expense and write-downs of intangible assets and goodwill are as follows:

During fiscal 2002, the Company conducted a comprehensive review of the carrying values of the core technology and goodwill arising from the acquisitions of Chromatic Research Inc. (“Chromatic”) and ArtX, Inc. (“ArtX”) and concluded that there was a permanent impairment in these values. As a result, the Company wrote off the remaining balances of the core technology and goodwill of Chromatic totaling $4.8 million, and $4.2 million of core technology and $6.4 million goodwill related to ArtX.

NOTE 8. Long-term investments

12

Page 66 of 104

Share investments consist of investments in other companies in which the Company has ownership interests ranging from approximately 0.8% to 13.2%.

(a) During fiscal 2004, the Company acquired an additional 130,027 shares in one of its private technology-based companies for cash consideration of $0.1 million that was part of a round of financing that reduced the Company’s ownership in the investment from 1.0% to 0.8%. The Company subsequently wrote down the entire investment by the amount of $1.3 million to reflect an other than temporary decline in its value.

During fiscal 2003, the Company acquired a 13.2% interest in a private technology-based company, in the amount of $2.5 million.

(b) During fiscal 2002, the Company disposed of a certain long-term investment in a publicly traded company and realized a loss of $0.3 million. In addition, the Company wrote down the remaining balance of this investment by the amount of $0.5 million to reflect an other than temporary decline in its value. The entire balance of the above-mentioned investment, which had a net book value of $0.2 million, was then reclassified as short-term investments as the Company no longer intended to hold the investment for long-term purposes. The Company sold the investment in 2003.

During fiscal 2002, the Company received an additional 107,387 shares of Broadcom Corporation (“Broadcom”), valued at $2.1 million, as a result of the release of escrow shares pursuant to the terms of the agreement to purchase the Company’s share investment in SiByte Inc. by Broadcom in the preceding fiscal year. On August 31, 2002, the Company wrote down its total investment in Broadcom by $4.7 million to reflect the other than temporary decline in its value. During fiscal 2003, the Company disposed of all its remaining shares in Broadcom, realizing a gain in the aggregate amount of $3.8 million.

Gains and losses from long-term investments are included in interest and other income, net, in the consolidated statements of operations and retained earnings.

NOTE 9. Credit facilities

At August 31, 2004, the Company had available bank credit facilities of $43.0 million (2003 – $25.4 million). The credit facilities are secured by way of general security agreements and personal property, covering the cash, credit balances and deposit instruments of the Company. Interest rates on the credit facilities vary and are based on the bank’s U.S. base rate, Canadian bank prime rate, U.S. dollar best lending rate or the LIBOR rate. At August 31, 2004 and 2003, there were no borrowings outstanding under these facilities.

Standby fees are calculated at rates of 0.125% to 0.15% per annum on the unused portion of the facilities.

NOTE 10. Deferred revenue

Deferred revenue, at August 31, 2004, includes $28.8 million (2003 – $37.5 million), which represents milestone payments made by or owing from certain customers in connection with custom development arrangements entered into by the Company.

NOTE 11. Long-term debt

(a) 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. The capital lease is denominated in Canadian dollars. As at August 31, 2004, the remaining amount outstanding on the capital lease was $18.0 million (Cdn. $23.7 million).

13

Page 67 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

(b) Mortgage payable

On September 10, 2002, CVRH, the joint venture in which the Company has a 50.0% 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 August 31, 2004 amounted to $11.6 million (Cdn. $15.2 million). The mortgage has a repayment term of 12 years and is denominated in Canadian dollars.

(c) The Company’s obligations under this mortgage and capital lease are as follows:

Interest of $1.1 million and $0.9 million relating to capital lease obligation and mortgage payable, respectively, is included in interest expense for fiscal 2004 (2003 – $1.1 million and $0.7 million, 2002 – $0.4 million and nil).

NOTE 12. Shareholders’ equity

(a) Common shares issued and outstanding

(b) Preferred shares

An unlimited number of preferred shares, ranking in priority upon distribution of assets over common shares, may be issued in series with additional provisions as fixed by the Board of Directors.

No preferred shares have been issued to date.

(c) Common share option plans

(i) The Company maintains a share option plan (the “ATI Plan”) for the benefit of directors, officers and employees. The ATI Plan, as amended, provides that the aggregate number of common shares available for issuance pursuant to options granted under the ATI Plan and all other share compensation arrangements are limited to 47,000,000 common shares. In general, the maximum number of common shares reserved for issuance in respect of any one individual may not exceed 5.0%, and in respect of insiders of the Company, may not exceed 10.0% of the number of common shares issued and outstanding.

Options are granted under the ATI Plan at the discretion of the Board of Directors at exercise prices determined as the weighted average of the trading prices of the Company’s common shares on The Toronto Stock Exchange or NASDAQ for the five trading days preceding the effective date of the grant. In general, options granted under the ATI Plan vest over a period of up to four years from the grant date and expire by no later than the seventh anniversary of the date of grant.

14

Page 68 of 104

(ii) When the Company acquired ArtX, on April 4, 2000, it assumed the ArtX common shares options plan (the “ArtX Plan”). The Company maintains the ArtX Plan for the benefit of former directors, officers, employees and consultants of ArtX. The ArtX Plan provides that the aggregate number of common shares available for issuance pursuant to options granted under the ArtX Plan and all other share compensation arrangements are limited to 8,007,599 common shares for both incentive stock options (“ISO”) and non-qualified stock options.

In general, options granted under the ArtX Plan vest immediately or within specified times or events, as was determined by the Board of Directors of ArtX, which is normally over a five-year period, and expire by the tenth anniversary of the date of grant. If the person obtaining the options owns more than 10.0% of the total combined voting power of all classes of stock (10.0% shareholder), then the options will be exercisable after the expiration of five years from the date of grant.

Options were granted under the ArtX Plan at the discretion of the Board of Directors of ArtX at exercise prices determined as no less than 85.0% of the fair market value of the shares on the date of grant provided that the exercise price of an ISO will not be less than 100.0% of the fair market value of the shares on the date of grant and the exercise price of any option granted to a 10.0% shareholder is no less than 110.0% of the fair market value of the shares on the date of grant.

(iii) Under an incentive plan entered into in June 2002, the Company provided certain employees with a performance incentive, consisting of a combination of cash and options, the receipt of which was conditional upon the Company entering into a specified business arrangement with a third party by April 2003, later extended to July 28, 2003. The cash portion of the incentive consisted of three equal payments of $2.7 million, with each payment to be made upon achievement of specified milestones under the arrangement with the third party. Under the plan, the employees were also granted options to purchase 2.6 million common shares at an exercise price of $6.96 per share. The options vest 25.0% on the first anniversary of the grant date and thereafter at 6.25% per quarter and are only exercisable in the event the Company is successful in entering into the aforementioned arrangement. In February 2003, the Company successfully entered into the business arrangement with the third party and all the conditions under the plan were determined to have been met in July 2003. As a result, the first payment of the cash portion of the incentive, in the amount of $2.7 million, was paid and included as compensation expense during 2003. The remaining two payments aggregating $5.4 million were accrued at August 31, 2003 and are being amortized over 18 months. During fiscal 2004, the amount recorded as compensation expense was $3.5 million. No payments were made in fiscal 2004, relating to the two remaining milestones.

The following is a summary of the maximum number of common shares issuable pursuant to outstanding stock options:

As at August 31, 2004, the range of exercise prices for options outstanding and exercisable (vested) are as follows:

15

Page 69 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

As at August 31, 2004, the price range of $0.09 to $0.93, as noted above, represents all of the options relating to the ArtX Plan. All other options outstanding or exercisable relate to the ATI Plan. During the year ended August 31, 2004, 1,094,117 options relating to the ArtX Plan were exercised at a weighted average price of $0.31 and 13,101 options were cancelled at a weighted average price of $0.31.

For stock options granted to employees after September 1, 2002, had the Company determined compensation costs based on the fair value of the stock options at grant dates consistent with the method prescribed under CICA Handbook Section 3870, the Company’s income per share would have been reported as the pro forma amounts indicated below:

The weighted average estimated fair values at the date of grant for the options granted for fiscal 2004 was $8.96 per share (2003 – $2.65). 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 assumptions:

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense on a straight-line basis over the options’ vesting period.

(d) Restricted share units

During 2004, the Company adopted a plan to grant Restricted Share Units (“RSUs”) as part of its overall stock-based compensation plan. Under this plan, certain employees received an award in the form of an RSU. Each RSU entitles the holder to receive one common share on the vesting date of the RSUs. The RSUs vest on each anniversary of the grant in equal one-third instalments over a vesting period of three years. Stock-based compensation, representing the underlying value of $14.17 per common share of the Company at the date of grant of the RSUs, is being recognized evenly over the three-year vesting period. On the vesting dates, the RSUs are settled by the delivery of common shares of the Company to the participants, except for the participants residing outside of North America who will receive cash equivalent market value of the shares. Grants of RSUs to participants residing outside of North America are accounted for using variable plan accounting whereby the value of the RSUs and its related amortization are adjusted based on the underlying value of the Company’s common shares at the end of each fiscal quarter. As at August 31, 2004, there were 1,514,450 RSUs awarded and outstanding of which none were vested.

The issuance of RSUs replaced the annual grant of options for the 2003 calendar year. In addition, a one-time cash payment of $7.8 million was also awarded to the non-executive employees who were eligible for the RSU plan during 2004. The full amount of the cash payment was expensed in 2004. The total expenses by functional areas incurred for 2004 pertaining to the cash payment and amortization of RSUs are as follows:

16

Page 70 of 104

During 2004, the Company advanced $22.1 million to the trustee of the RSU plan to enable the trustee to purchase the Company’s common shares in the open market. At August 31, 2004, 1,467,304 shares are being held by the trustee in order to deliver such shares to the participants on the vesting dates of the RSUs.

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.

(e) Deferred share units

During 2004, the Company established a plan to grant Deferred Share Units (“DSUs”) to its non-management directors. Under this plan, the directors will receive DSUs, in addition to cash payments, as part of their annual compensation package. A DSU is a unit equivalent in value to one common share of the Company based on the five-day average trading price of the Company’s common shares on the NASDAQ (the “Weighted Average Price”) immediately prior to the date on which the value of the DSU is determined. DSUs may be redeemed following termination of Board service, and prior to the end of the year following departure from the Board based on the Weighted Average Price at the time of redemption. Alternatively, a director may elect to receive RSUs in lieu of DSUs provided the market value of his holdings in the Company’s common stock equity is greater than $350,000. As at August 31, 2004, there were 92,082 DSUs outstanding, of which 75,155 were vested.

As of the date of the grant, the fair value of the DSUs outstanding, being the fair market value of the Company’s common shares at that date, are recorded as a liability on the Company’s consolidated balance sheet and are amortized over the one-year vesting period of the DSU. The value of the DSU liability is adjusted to reflect changes in the market value of the Company’s common shares. The expense for fiscal 2004 related to DSUs granted to the directors for services rendered was $1.2 million.

(f) Contributed surplus

During 2004, a total of $5.8 million was added to contributed surplus relating to the amortization of RSU expenses for the employees residing in North America.

During 2003, an employee reimbursed $0.2 million (2002 – $0.4 million) to the Company for a loan receivable the Company assumed when it acquired ArtX. This transaction was recorded as contributed surplus.

During 2002, the Company cancelled for no consideration 134,200 options and 76,125 common shares with a total carrying value of $2.2 million. This transaction was recorded as contributed surplus.

NOTE 13. Income taxes

Income (loss) before income taxes consist of the following:

The income tax expense consists of the following:

17

Page 71 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

The following is a summary of the components of the future tax assets and liabilities:

Income tax expense (recovery) in the consolidated statements of operations and retained earnings varies from the amount that would be computed by applying the basic Canadian federal and provincial income tax rates to income before income taxes, as shown in the following table:

Canadian income taxes were not provided for on undistributed income for certain non-Canadian subsidiaries. The Company intends to reinvest this income indefinitely in operations outside Canada.

As at August 31, 2004, the Company had $44.6 million of net operating losses for income tax purposes. Income tax benefits have not been recognized in these financial statements for a significant portion of these losses. These losses will begin to expire commencing in 2010.

18

Page 72 of 104

NOTE 14. Net income (loss) per share

The following table presents a reconciliation of the numerators and denominators used in the calculations of the basic and diluted net income (loss) per share:

As at August 31, 2004, options to purchase 5,167,670 (2003 – 16,154,211; 2002 –32,813,005) shares of common stock were outstanding but were not included in the calculation of diluted net income (loss) per share because to do so would have been anti-dilutive.

NOTE 15. Guarantees

The Company and other owners of CVRH have jointly and severally provided a guarantee for the mortgage payment on 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. The monthly mortgage interest and principal payment amounts to approximately $0.2 million. The mortgage has a repayment term of 12 years with a maturity date on November 1, 2014. As of August 31, 2004, the outstanding amount of the mortgage stood at $23.1 million (Cdn. $30.4 million).

In addition, the Company posted a letter of credit in the amount of $2.3 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 five 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.

NOTE 16. Other charges (recoveries)

Other charges (recoveries) include the following items:

19

Page 73 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

(a) Settlement of class action lawsuits

On February 7, 2003, the Company announced that it had reached an agreement for the full and complete settlement of all remaining claims alleged in the shareholder class action lawsuits filed in May 2001 in the United States District Court for the Eastern District of Pennsylvania for a cash payment of $8.0 million. This litigation relates to alleged misrepresentations and omissions made by the Company and certain directors and officers during a period preceding its May 2000 earnings warning. The terms of the Stipulation and Agreement of Settlement received final Court approval on April 28, 2003 and included no admission of liability or wrongdoing by the Company or other defendants. No party timely appealed the Court’s order.

During fiscal 2003, the Company received $3.3 million from its insurer as its contribution towards the settlement.

(b) Regulatory matters

In January 2003, the Company announced that Staff of the Ontario Securities Commission (“OSC”) had filed a Notice to 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 individuals, including K.Y. Ho, the then Chairman and Chief Executive Officer of the Company, engaged in insider trading contrary to the Securities Act. The hearing originally set for February – March 2004 has been rescheduled to March – June 2005.

(c) Restructuring charge (recovery) – European operations

The following table details the activity through the restructuring liabilities accrual:

(i) 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 ATEL’s 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 fiscal 2004, the Company was able to sell ATEL’s 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 year.

(ii) 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 fiscal 2004, the Company recovered $0.2 million related to the restructuring charge of ATI Research GmbH.

During fiscal 2004, the Company made a cash payment of $3.5 million relating to the pre-tax charge setup in fiscal 2003. The Company completed the major components of its exit plan for ATI Research GmbH in December 2003. The remaining balance relates to unpaid facility costs and legal fees.

(d) Lease exit charge (recovery)

During the second quarter of fiscal 2003, the Company determined that it would exit the two leased properties located in Markham, Ontario. As a result, the Company recognized the fair value of the future net costs related to the leases in the amount of $2.4 million as a charge for the second quarter.

20

Page 74 of 104

During the fourth quarter of fiscal 2003, the Company recorded an additional charge of $0.3 million related to the exit costs of the above-mentioned lease properties due to a change in estimate of the fair value of the future net costs.

During fiscal 2004, the Company determined that it would re-occupy the two leased properties, due to an expansion of business. This resulted in a reduction of the previously accrued exit charge liability in the amount of $1.5 million.

(e) Settlement of patent litigation with Cirrus Logic, Inc.

Subsequent to the year end of fiscal 2003, the Company and Cirrus announced that they had entered into a cross-license agreement and had settled all outstanding litigation between the companies related to certain patent infringement lawsuits.

Under the settlement agreement, all outstanding claims and counterclaims in the lawsuits between the Company and Cirrus were dismissed. In connection with the settlement, Cirrus would transfer to the Company a portion of its patent portfolio relating to the former graphics products group of its PC products division, a business that Cirrus exited several years ago, for a cash payment of $9.0 million from the Company.

NOTE 17. Segmented information

The Company operates in one primary operating segment, that being the design, manufacture and sale of innovative 3D graphics and digital media silicon solutions.

At August 31, 2004, none of the Company’s customers accounted for 10.0% or more of consolidated accounts receivable balance (2003 – one customer accounted for 17.6%). In fiscal 2004, one customer accounted for 10.6% of consolidated revenues (2003 – three customers accounted for 16.2%, 13.0% and 10.6%; 2002 – one customer accounted for 21.2%).

21

Page 75 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

NOTE 18. Commitments

The Company is committed to the following minimum payments related to office premises and licence and royalty agreements:

NOTE 19. Joint venture

In February 1999, the Company entered into a 50.0% ownership joint venture agreement for the purpose of constructing a new Building Facility in Markham, Ontario. The facility was completed in April 2002 and is fully occupied by the Company. The completed cost of this facility amounted to $33.3 million.

The following amounts represent the Company’s proportionate interest in the joint venture:

On May 23, 2001, the joint venture entered into an interest rate swap contract to hedge its exposure to the interest rate risk applicable to its expected future mortgage requirement. This contract was a forward start pay fixed derivative agreement for a notional amount of Cdn. $38.0 million. The agreement provided for the joint venture to pay a fixed rate of 6.42% in exchange for a floating rate equivalent to one-month Canadian bankers’acceptances. The Company and the other joint venture partners are guarantors of the credit facility. This interest rate swap contract closed on September 10, 2002, resulting in a proportionate loss of $1.4 million to the Company. The loss is treated as a deferred expense item in the consolidated balance sheets and is charged to the consolidated statements of operations and retained earnings as a yield adjustment to the interest expense over the term of the mortgage.

NOTE 20. Supplemental cash flow information

During fiscal 2002, the Company acquired $16.3 million of capital assets by means of a capital lease.

22

Page 76 of 104

NOTE 21. Canadian and United States accounting policies differences

(a) The following table reconciles net income (loss) for the year as reported on the consolidated statements of operations and retained earnings prepared in accordance with Canadian GAAP to the consolidated net income (loss) for the year that would have been reported had the financial statements been prepared in accordance with U.S. GAAP:

(i) Under Canadian GAAP, purchased in-process R&D is capitalized and amortized over its estimated useful life. Asset recoverability is reviewed on an ongoing basis. Under U.S. GAAP, purchased in-process R&D is written off at the time of acquisition.

(ii) Under Canadian GAAP, the aggregate purchase price of ArtX was approximately $453.0 million, which was based on the average closing market price of the Company’s common shares around April 4, 2000 (the closing date of the transaction) and merger-related costs. Under U.S. GAAP, the aggregate purchase price of ArtX was approximately $414.0 million, which was based on the average closing market price of the Company’s common shares around February 16, 2000 (the date of the announcement of the transaction) and merger-related costs. As a result, the recorded amount of goodwill and related amount of amortization expense differ. Pursuant to the adoption of new accounting standards, effective September 1, 2002, the Company discontinued amortization of all existing goodwill under both Canadian and U.S. GAAP.

(iii) 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.

(iv) Under U.S. GAAP, the intrinsic value of the stock options issued under the incentive plan entered into in July 2002 (note 12) 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.

(v) Under Canadian GAAP, loss on a hedging transaction is allowed to be amortized over the term of the mortgage. Under U.S. GAAP, loss on a hedging transaction is written off when the hedge is determined to be ineffective.

23

Page 77 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

(vi) The Company accounts for its share options under the provisions of the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. Accordingly, compensation expense for its share options plans, based on the intrinsic value, has been recorded in the consolidated statements of operations and retained earnings for the years ended August 31, 2004, 2003 and 2002. Had compensation expense for the Company’s share option plans been determined based on the fair value at the grant dates for awards under the plans consistent with the method prescribed under Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 123, “Accounting for Stock-based Compensation” (“SFAS 123”), the Company’s net income (loss) and net income (loss) per share would have been reported as the pro forma amounts indicated in the table below:

The weighted average estimated fair values at the date of the grant, as defined by SFAS 123, for options granted in fiscal 2004, 2003 and 2002 were $8.96, $2.65 and $9.15 per share option, respectively.

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes fair value option pricing model with the following assumptions:

For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense on a straight-line basis over the options’ vesting period.

For the purposes of reporting under U.S. GAAP, the tax benefit associated with deductible stock option compensation is treated as an increase in share capital. For reporting under Canadian GAAP, if compensation costs are not recorded, the income tax benefit is treated as a reduction to the income tax provision.

24

Page 78 of 104

(b) The following table indicates the differences between the amounts of certain balance sheet items determined in accordance with Canadian and U.S. GAAP:

(i) Canadian GAAP requires the proportionate consolidation of interests in joint ventures. Proportionate consolidation is not permitted under U.S. GAAP and interests in joint ventures are accounted for in accordance with the equity basis of accounting.

Although the adoption of proportionate consolidation has no impact on net income (loss) or shareholders’ equity, it does increase assets, liabilities, revenue, expenses and cash flows from operations from those amounts otherwise reported under U.S. GAAP. This is not reflected in the table of certain balance sheet items disclosed above.

(ii) Additional disclosures as required in accordance with U.S. GAAP:

(a) As at August 31, 2004, the consolidated accounts receivable provision for returns and doubtful accounts was approximately $17.1 million (2003 – $12.3 million).

(b) As at August 31, 2004, sales rebates payable represents 23.0% of total consolidated current liabilities (2003 – 17.0%).

(c) For the year ended August 31, 2004, the net foreign exchange gain was approximately $0.5 million (2003 – gain of $0.8 million; 2002 – loss of $0.4 million).

(iii) Comprehensive income (loss):

FASB Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”), requires disclosure of comprehensive income, which includes reported net income (loss) adjusted for other comprehensive income. Other comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The following table presents comprehensive income (loss) and its components:

25

Page 79 of 104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)

Years ended August 31, 2004, 2003 and 2002 (Tabular amounts in thousands of U.S. dollars, except per share amounts)

(iv) During the fourth quarter of fiscal 2004, the Company had purchased forward foreign exchange contracts to buy Cdn. $35.0 million in the next three months at an average exchange rate of 1.3793. All of the forward foreign exchange contracts have become favourable to the Company since their inception and have a fair value of $1.3 million at August 31, 2004.

(c) New United States accounting pronouncements

(i) In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), which is effective for the Company commencing with its 2004 fiscal year. In December 2003, the FASB issued FIN 46R which superseded FIN 46 and contains numerous exemptions. FIN 46R applies to financial statements of public entities that have or potentially have interests in entities considered special purpose entities for periods ended after December 15, 2003 and otherwise to interests in VIEs for periods ending after March 15, 2004. VIEs are entities that have insufficient equity and/or their equity investors lack one or more specified essential characteristics of a controlling financial interest. The guideline provides specific guidance for determining when an entity is a VIE and who, if anyone, should consolidate the VIE. The Company was not impacted by these standards.

(ii) In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies the accounting and reporting for derivative instruments, including those embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective as of July 1, 2003. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

(iii) In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for the classification and measurement of these financial instruments. SFAS No. 150 is effective as of the Company’s first quarter beginning September 1, 2003. The Company was not impacted by this standard.

NOTE 22. Litigation

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. While management currently believes the amount of ultimate liability, if any, with respect to these actions will not materially affect the financial position, results of operations, or liquidity of the Company, the ultimate outcome of any litigation is uncertain. Were an unfavorable outcome to occur, the impact could be material to the Company.

NOTE 23. Subsequent events

(i) On September 1, 2004, the Company acquired certain assets of RT&C International, its sales organization for South Korea, for cash consideration of $2.6 million, plus acquisition-related costs.

(ii) In September 2004, ATI signed an agreement to purchase all of the shares of a company for cash consideration of up to $3.6 million, plus acquisition-related costs. The Company, a high technology embedded solutions provider, is located in India. The acquisition is subject to regulatory approval and is expected to close by December 31, 2004.

26

EX-99.3

ATI EX 3

EX-99.4

ATI Ex 4

EX-99.5

Page 101 of 104

EXHIBIT 5

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, David Orton, principal executive officer of ATI Technologies Inc. (the “issuer”), certify that:

1. I have reviewed this annual report on Form 40-F of the issuer;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: January 14, 2005	By: //David Orton//
	David Orton
	President and Chief Executive Officer

EX-99.6

Page 102 of 104

EXHIBIT 6

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Terry Nickerson, principal financial officer of ATI Technologies Inc. (the “issuer”), certify that:

1. I have reviewed this annual report on Form 40-F of the issuer;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: January 14, 2005	By: //Terry Nickerson//
	Terry Nickerson
	Senior Vice President, Finance and         Chief Financial Officer

EX-99.7

Page 103 of 104

EXHIBIT 7

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

ATI Technologies Inc. (the "Company") is filing its annual report on Form 40-F for the fiscal year ended August 31, 2004 (the "Report") with the U.S. Securities and Exchange Commission.

I, David Orton, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

//David Orton//

David Orton
President and Chief Executive Officer
January 14, 2005

EX-99.8

Page 104 of 104

EXHIBIT 8

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

ATI Technologies Inc. (the "Company") is filing its annual report on Form 40-F for the fiscal year ended August 31, 2004 (the "Report") with the U.S. Securities and Exchange Commission.

I, Terry Nickerson, Senior Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

//Terry Nickerson//

        Terry Nickerson
        Senior Vice President, Finance and
        Chief Financial Officer
        January 14, 2005