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# EXHIBIT 2

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|Managements
          Discussion and Analysis
          **ABOUT
          FORWARD-LOOKING STATEMENTS**
          Forward-looking statements look into the future and provide an opinion
          as to the effect of certain events and trends on the business. Forward-looking
          statements may include words such as plans, intends,
          anticipates, should, estimates,
          expects, believes, indicates,
          targeting, suggests and similar expressions.
        This Annual Report
          and Managements Discussion and Analysis (MD&A),
          and in particular the outlook sections of this MD&A, contain forward-looking
          statements about ATIs objectives, strategies, financial condition
          and results. These forward-looking statements are based
          on current expectations and entail various risks and uncertainties.
        It must be noted
          that:
        Forward-looking
            statements describe our expectations on the day they are made. For
            the MD&A, it is November 14, 2003.
          Our actual results
            may materially differ from our expectations if known and unknown risks
            or uncertainties affect our business, or if our estimates or assumptions
            prove inaccurate. Therefore we cannot provide any assurance that forward-looking
            statements will materialize.
          We assume no
            obligation to update or revise any forward-looking statement, whether
            as a result of new information, future events or any other reason.Risks that could
          cause our actual results to materially differ from our current expectations
          are outlined in the Risks and Uncertainties section of this
MD&A.
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|
|
|

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| | This MD&A comments
          on ATIs operations, performance and financial condition for the
          three years ended August 31, 2003. The MD&A should be read in conjunction
          with ATIs 2003 Consolidated Financial Statements and accompanying
          notes beginning on page 28 of this Annual Report. All current and historical
          amounts quoted in this MD&A, in the Consolidated Financial Statements
          and elsewhere in this Annual Report reflect the accounting change described
          in note 1 to the Consolidated Financial Statements. All tabular amounts
          are expressed in thousands of U.S. dollars except per share amounts.
        **In this
          MD&A, *ATI, we, us* and *our* mean ATI Technologies
          Inc. and its subsidiaries.**
        The MD&A is
          presented in four sections:
        **About Our
          Business** describes our business, strategy and outlook.
        **Financial
          Results Analysis** provides a detailed review of our financial
          performance for the past three years. It focuses on operating results
          as well as liquidity and capital resources.
        **Risks and
          Uncertainties** examines uncertainties and challenges that could
          affect our business.
        **Our Accounting
          Policies** describe our critical accounting policies and the
          key estimates and assumptions that management has made in the preparation
          of our financial statements. It also provides a description of changes
          in accounting standards used to prepare our financial statements.
        About Our BusinessATI is a world leader in the design and manufacture of component-level
          graphic silicon solutions. An industry pioneer since 1985, ATI is one
          of the worlds foremost providers of visual processors. Our products
          allow users to interact with the digital world, and harness the power
          of technology to create rich cinematic visual experiences.
        We are dedicated
          to the delivery of leading-edge performance solutions for the full range
          of desktop and notebook personal computer (PC), workstation, digital
          television (DTV), set-top box, game console, color mobile phone and
          handheld markets.
        We had revenues
          of about $1.4 billion in fiscal 2003. In addition, more than 2,200 employees
          work at ATI in offices in the Americas, Europe and Asia.
        **ATI TERMS EXPLAINED**We use certain acronyms to identify some of the main product categories
          in our business.
        **VPUs and
          GPUs**
          Visual processing units (VPUs) or graphics processing units (GPUs) are
          semiconductor chips that increase the speed and complexity of the images
          that can be displayed on a computer monitor. They also enhance screen
          resolution and color definition.
        VPUs or GPUs off-load
          the burden of visual processing from the computers microprocessor
          or central processing unit (CPU). In this way the dedicated VPU and
          CPU work in tandem to increase overall speed and performance of the
          PC.
        Though both VPU
          and GPU refer to the same general category, we use VPU to distinguish
          our more recent generations of processors beginning with the introduction
          of the RADEON 9700the first graphic processor to enable full
          rendering in real time.
        **IGPs**
          Integrated graphics processors (IGPs) are semiconductor chips that combine
          the graphics processor with one or more other core logic functions such
          as memory, input/output and communications controllers on one chip.
        **Visual
          Processing Units for PCs**
          ATI designs, engineers, manufactures and markets VPU, GPU and IGP products
          to original equipment manufacturers (OEMs) and system integrators (SIs)
          who build them into their personal computers (PCs); original design
          manufacturers (ODMs) and add-in-board manufacturers (AIBs) who add them
          to their PC motherboard products or who use them in their graphic board
          products, as well as retailers.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|**MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)**
        **Desktop**
          Our **discrete desktop VPUs and GPUs** address desktop
          PC markets where customers expect high levels of performance, speed
          and a compelling visual experience. We deliver an array of performance/value
          propositions for mainstream, performance and enthusiast PC markets.
          We also design and build VPU and GPU solutions for the advanced workstation
          and home media markets.
        Our**integrated
          desktop IGP** addresses the value segment of the PC market. We
          bring speed and an excellent visual experience to the sub-$1,000 PC
          market.
        **Notebook**
          Our notebook GPUs address the portable or laptop computer segment. In
          this category, speed, low power consumption and visual performance are
          the uppermost considerations of our customers. We focus on designing
          notebook GPUs that meet and exceed these expectations in value, mainstream
          and enthusiast categories. We also build notebook VPU and GPU solutions
          for the workstation and home media markets.
        Our**integrated
          notebook IGPs** target the value category of the portable or
          laptop computer segment. Our products combine excellent graphic performance
          and low power consumption at a value price-point.
        **Visual
          Processing Products for Consumer Electronics**
          Many consumer electronics 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.
        ATI has been working
          for several years to leverage our core technology, visual processing
          expertise and power management know-how in certain consumer markets.
          Initially we have targeted three end user markets: handheld devices,
          including color mobile phones; digital television, including set-top
          boxes; and game consoles.
        **Color mobile phones, PDAs and handheld devices**The latest generation of color mobile phones, PDAs and other handheld
          devices is driving demand for more advanced visual processors. Higher
          resolution panels, higher performing embedded processors as well as
          increased internal and removable storage are contributing to the revolution
          in handheld and mobile communication devices.
        Our IMAGEON product
          line brings leading visual processing along with power saving technology
          and a high level of integration.
        **Digital television including set-top boxes**Digital television is another key consumer electronics market for ATI.
          The U.S. Federal Communications Commission has mandated that all televisions
          sold in the U.S. be equipped with a digital tuner by 2007. Worldwide,
          the transition to digital delivery of television signals is well underway.
        We are leveraging
          our core technology in visual processors and multimedia by designing
          and manufacturing component-level visual and signal processing technologies
          for the digital TV and set-top box markets. Our XILLEON and THEATER
          product lines are cost-effective and highly integrated solutions for
          this market.
        **Game consoles**We leverage our core visual processing technology in the game console
          market where we currently provide visual processing technology to Nintendo
          for its GAMECUBE game consoles. We have entered into technology development
          agreements with game console manufacturers Nintendo Co., Ltd. for future
          products and Microsoft Corp. for future Xbox® products and services.
        **BUSINESS STRATEGY AND 2003 PROGRESS AND ACHIEVEMENTS**Our past and future success is driven by consistent execution of four
          critical strategiessecuring and maintaining product and technology
          leadership, entering and establishing a franchise in the IGP market,
          building momentum and scale in the consumer electronics markets and
          improving our operational and financial performance.
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| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | **BUSINESS
        STRATEGY AND OBJECTIVES**                                                                                                                                                                                                                |  | **2003
        ACCOMPLISHMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| | **Product
        and Technology Leadership**
        Consistently raise the technology innovation and performance bar in all
        segments of the PC market.                                                                                            |  | **We
          Raised the Bar Again in 2003**
          Continued to introduce industry-leading technology at the high-end of
          the desktop PC market with the introduction of the RADEON 9800.
        Leveraged high-end
          performance VPUs into the important mainstream and value market segments
          with the introduction of the RADEON 9600 and the RADEON 9200.                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| | **Establish
        a Franchise in the IGP Market**
        Bring ATIs core visual processing expertise to the IGP market that
        represents about 50% of graphics processor shipments today.                                                         |  | **Captured
          a Leading Share 
          of the IGP Notebook Market**
          In 2003, we started shipping our RADEON IGP 340 and 320 products for
          the notebook market. Over 10% of our revenues for 2003 came from these
          two products.
        We introduced a
          series of new IGP products culminating in the release of the RADEON
          9100 IGP and MOBILITY RADEON 9100 IGP. Strong customer acceptance
          of our value/performance proposition has contributed to our successful
          launch in the IGP market.
        We partnered with
          key motherboard manufacturers including ASUS, Gigabyte, MSI, and PC
          Partner that will help us penetrate the desktop integrated market in
          fiscal 2004.                                                        | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| | **Expand
        in Consumer Electronics 
        Market Segments**
        Leverage our core technology base and expertise in the PC market with
        products that reach beyond the PC and address the DTV, handheld and game
        console markets. |  | **Volume
          Shipments of IMAGEON into 
          the Color Cell Phone Market**
          We secured design wins and started shipping to Motorola, a leading cell
          phone manufacturer.
        **Achieved
          Broad-Based Acceptance 
          of ATIs DTV Solutions**
          Design wins from Sony, Epson and Scientific-Atlanta, the respective
          leaders in television, projector and set-top box manufacturing represent
          important milestones in our DTV business. We expect continued momentum
          in this segment in 2004.
        **Agreements
          with Game Console Manufacturers**
          We signed new multi-year technology development agreements for future
          products with Nintendo Co., Ltd. and Microsoft Corp. for their Xbox®
          products and services. | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| |                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 
| | **Improve
        Operating and Financial Performance**
        Continuously improve all areas of ATIs operations to achieve and
        exceed our financial objectives.                                                                                  |  | **Steady
          Improvement in Financial 
          and Operating Performance**
          We increased revenue by 36% in fiscal 2003 on a year-over-year basis
          as a result of technology leadership in the high-end desktop as well
          as entry into notebook integrated. Our adjusted net income increased
          to $67.0 million in fiscal 2003 from $48.1 million last year.
        In 2003, we improved
          our inventory management controls and increased our inventory turns
          to 5.2 from 4.5 in 2002.                                                                                                                                                                                                                                                                                                | 

| | **BUSINESS
          OUTLOOK FOR FISCAL 2004**
          We expect that the overall PC market will experience growth in units
          shipped in fiscal 2004. Both desktop and notebook segments will likely
          grow, but notebook is expected to produce much higher growth than desktop.
          We also expect to see some fairly robust growth in both the DTV market
          and the color cell phone market, each representing new market opportunities
          for ATI.
        Although we expect
          growth from our existing franchises in desktop discrete, notebook discrete
          and notebook IGP products, we expect much of our fiscal 2004 revenue
          growth to come from products sold into the handheld, DTV and desktop
          IGP markets.
        Based on this outlook
          for the markets for our products, we expect ATIs financial performance
          will improve in 2004 relative to 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| | **MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)**
        Financial
          Results AnalysisThis section discusses the financial results of ATI Technologies Inc.
        During fiscal 2003,
          ATI reviewed its revenue recognition accounting policy as it is applied
          to the shipment of products to our customers. Following this review,
          we corrected our revenue recognition accounting policy by revising the
          timing of when revenue is recognized to more clearly identify the point
          in the shipping process when the risk and rewards of ownership have
          been transferred to the customer. This change and the related income
          tax effect have been applied retroactively. The financial statements
          of all prior periods presented for comparative purposes have been restated
          to give effect to this change. Details are provided in note 1 in the
          accompanying financial statements.
        Our financial results
          have been and will continue to be subject to quarterly and other fluctuations.
          For a discussion of factors affecting our operating results, please
          refer to Risks and Uncertainties on page 22.
        **OPERATING RESULTS**The following table compares operating results for our three most recent
          fiscal years. Each line item is expressed as a percentage of revenues. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | ------------------------------------------------------------------------------------------------------------ | ----- | ------------- | ----- | ---------- | ----- |  |  |  | - | ---------- | - | ------ | - | - | ---------- | - | ----- | --
| | **Comparison
        of Operating Results**unaudited                                                         |       | **2003**      |       |            |       |  |  |  |   | 2002       |   |        |   |   | 2001       |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |       |            |       |  |  |  |   | (Restated) |   |        |   |   | (Restated) |   |       |   
| | **REVENUES**                                                                                                 | **$** | **1,385,293** | ****  | **100.0%** |       |  |  |  | $ | 1,015,779  |   | 100.0% |   | $ | 1,040,365  |   | 100.0 | % 
| | Cost
        of goods sold                                                                                   |       | **952,001**   |       | **68.7%**  |       |  |  |  |   | 682,385    |   | 67.2%  |   |   | 799,038    |   | 76.8  | % 
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | **Gross
        margin**                                                                                     |       | **433,292**   | ****  | **31.3%**  |       |  |  |  |   | 333,394    |   | 32.8%  |   |   | 241,327    |   | 23.2  | % 
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | **EXPENSES**                                                                                                 |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | Selling
        and marketing                                                                                |       | **96,925**    | ****  | **7.0%**   |       |  |  |  |   | 77,920     |   | 7.7%   |   |   | 75,594     |   | 7.2   | % 
| | Research
        and development                                                                             |       | **212,976**   | ****  | **15.4%**  |       |  |  |  |   | 164,609    |   | 16.2%  |   |   | 149,465    |   | 14.4  | % 
| | Administrative                                                                                               |       | **39,413**    | ****  | **2.8%**   |       |  |  |  |   | 35,662     |   | 3.5%   |   |   | 37,261     |   | 3.6   | % 
| | Amortization
        and write-down of                                                                       |       | ****          | ****  | ****       |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | goodwill
        and intangible assets                                                                       |       | **10,767**    | ****  | **0.8%**   |       |  |  |  |   | 97,501     |   | 9.6%   |   |   | 114,507    |   | 11.0  | % 
| | Other
        charges                                                                                        |       | **28,724**    | ****  | **2.1%**   |       |  |  |  |   |           |   | 0.0%   |   |   |           |   | 0.0   | % 
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       | **388,805**   | ****  | **28.1%**  |       |  |  |  |   | 375,692    |   | 37.0%  |   |   | 376,827    |   | 36.2  | % 
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | **NET
        INCOME (LOSS) FROM OPERATIONS**                                                                |       | **44,487**    |       | **3.2%**   |       |  |  |  |   | (42,298    | ) | (4.2%  | ) |   | (135,500   | ) | (13.0 | %)
| | Interest
        and other income, net                                                                       |       | **4,382**     |       | **0.3%**   |       |  |  |  |   | 732        |   | 0.1%   |   |   | 64,131     |   | 6.1   | % 
| | Interest
        expense                                                                                     |       | **(1,899**    | **)** | **(0.1%**  | **)** |  |  |  |   | (659       | ) | (0.1%  | ) |   | (1,180     | ) | (0.1  | %)
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | Income
        (loss) before income taxes                                                                    |       | **46,970**    |       | **3.4%**   |       |  |  |  |   | (42,225    | ) | (4.2%  | ) |   | (72,549    | ) | (7.0  | %)
| | Income
        taxes (recovery)                                                                              |       | **11,741**    |       | **0.9%**   |       |  |  |  |   | 6,854      |   | 0.6%   |   |   | (18,760    | ) | (1.8  | %)
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | **NET
        INCOME (LOSS)**                                                                                | **$** | **35,229**    |       | **2.5%**   |       |  |  |  | $ | (49,079    | ) | (4.8%  | ) | $ | (53,789    | ) | (5.2  | %)
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | **NET
        INCOME (LOSS) PER SHARE**                                                                      |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | Basic                                                                                                        | **$** | **0.15**      |       |            |       |  |  |  | $ | (0.21      | ) |        |   | $ | (0.23      | ) |       |   
| | Diluted                                                                                                      | **$** | **0.14**      |       |            |       |  |  |  | $ | (0.21      | ) |        |   | $ | (0.23      | ) |       |   
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | **ADJUSTED
        NET INCOME (LOSS)***                                                                      |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | Adjusted
        net income (loss)                                                                           | **$** | **67,015**    |       |            |       |  |  |  | $ | 48,078     |   |        |   | $ | (15,836    | ) |       |   
| | Adjusted
        net income (loss) per share                                                                 |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | Basic                                                                                                        | **$** | **0.28**      |       |            |       |  |  |  | $ | 0.20       |   |        |   | $ | (0.07      | ) |       |   
| | Diluted                                                                                                      | **$** | **0.27**      |       |            |       |  |  |  | $ | 0.19       |   |        |   | $ | (0.07      | ) |       |   
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |      
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| |                                                                                                              |       |               |       |            |       |  |  |  |   |            |   |        |   |   |            |   |       |   
| | *Please
        see table titled Reconciliation of Adjusted Net Income (Loss)
        included on page 18. |      

| | 
| | 
| | 

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Page 83 of 134

| | Adjusted net income
          is a non-GAAP financial measure that does not have an
          established meaning under generally accepted accounting principles (GAAP),
          but is referred to in this Annual Report because management of ATI believes
          that it is indicative of our operating performance and is generally
          used by investors to evaluate companies in the graphics industry. Such
          term may not be comparable to similarly titled measures presented by
          other publicly traded companies and should not be considered in isolation
          or as a substitute for measures of performance prepared in accordance
          with GAAP. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |     |  |         |  |  |  | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | --- |  | ------- |  |  |  | 
| | **REVENUES****In fiscal 2003, ATIs revenues grew by 36%.**
        Revenues increased
          by $370 million to approximately $1.4 billion in 2003. This increase
          was primarily a result of our strong entry into the notebook IGP market
          and a growing demand for our high performance desktop products. Overall
          growth in the notebook market also contributed to growth in discrete
          and integrated notebook products.
        Over 55% of our
          revenues in 2003 were generated by our desktop discrete products which
          was a relative decrease compared to 2002 where desktop products represented
          over 60% of revenues. Over 40% of revenues in 2003 were generated by
          our notebook products, with over 10% of our overall sales coming from
          our notebook IGP productsa new market segment for us. In 2002,
          notebook product sales represented about a third of our revenues. Notebook
          market growth as well as our entry into the notebook integrated market
          contributed to this shift in 2003.
        Royalties and licensing
          income from our Nintendo business continued to represent less than 5%
          of revenues in 2003, and in absolute dollars were slightly lower in
          2003 relative to 2002. |              |     |  |         |  |  |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **Revenues** |    
| | *****$
        billions*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |     |  |         | 
| | 1.0                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |              | 1.0 |  | **1.4** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |     |  |         | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |     |  |         | 
| | 01*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |              | 02* |  | **03**  | 
| | *****Restated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |              |     |  |         | 

| | Our transition from
          primarily a board-level manufacturer to a component-level manufacturer
          was substantially completed in 2003, with over 90% of our units shipped
          as chips, representing about 70% of our consolidated revenues this year.
          As we ended 2003, about 95% of our units shipped in our PC business
          were components. Our transition to a component supplier has opened up
          new channels and markets for us, specifically in the Asia-Pacific region,
          further contributing to our revenue growth.
        In 2003, three
          customers accounted for 40% (16%, 13% and 11% respectively) of total
          revenues. In 2002, only one customer represented over 10% of our sales,
          at 21%. Our top ten customers accounted for approximately 70% of revenues
          in 2003 compared with 71% last year.
        Our revenues declined
          2.4% in 2002 versus 2001 primarily as a result of the ongoing transition
          in ATIs business from board sales to component sales. Unit sales
          volume increased in 2002, but with an increased mix of lower dollar
          components versus boards. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |       |  |           |  |  |  | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----- |  | --------- |  |  |  | 
| | **Gross
          Margin**
          In 2003, gross margin was 31.3%, down 1.5 percentage points from gross
          margin of 32.8% generated in the previous year. Two factors in the first
          quarter contributed to lower margin early in the fiscal year. First,
          we wrote-down the inventory value of certain products and, second, we
          experienced a slower than expected implementation of planned cost reductions.
        In the remaining
          three quarters, however, our gross margin climbed steadily and exceeded
          35% in the fourth quarter. We achieved higher margins on our board-level
          products, reflecting the strength of our high-end products. We also
          saw improvement in desktop chip margins largely due to higher margins
          from new products, as well as improved contribution of our consumer
          business.
        The increase in
          gross margin percentage was somewhat moderated by lower margins on our
          embedded memory products sold into the notebook PC market.
          Certain of our notebook products include third party memory. The memory
          is generally passed through with a limited markup. This results in reduced
          gross margin percentage. |                          |       |  |           |  |  |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **Gross
        Margin** |      
| | *****$
        millions*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |       |  |           | 
| | 241.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                          | 333.4 |  | **433.3** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |       |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |       |  |           | 
| | 01*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                          | 02*   |  | **03**    | 
| | *****Restated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                          |       |  |           | 

| | Our consumer electronics
          products began to contribute positively to gross margin in the last
          quarter of 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                  

---

Page 84 of 134

|**MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)** | 
|------------------------------------------------ | 
|                                                 | 

| | Gross margin in
          2002 of 32.8% increased significantly from 23.2% in the prior year due
          to a higher percentage of component sales primarily resulting from our
          transition to a chip model, Nintendo royalty income, a full year of
          relatively high margin workstation revenues, lower cost memory than
          in 2001, and better margin on competitive board products. The increase
          was slightly offset by lower margin in the fourth quarter of 2002 as
          a result of weakness in the notebook market. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |       |  |           |  |  |  | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ----- |  | --------- |  |  |  | 
| | **EXPENSES****Operating Expenses**
          ATIs headquarters are in Markham, Ontario, Canada. Our overhead
          and staffing costs were approximately $160  $170 million CDN
          in fiscal 2003. The rise in the value of Canadian dollar relative to
          the U.S. dollar from 64 cents to 73 cents had an approximate US $5.6
          million negative impact on our operating expenses in 2003. Should the
          Canadian dollar remain at current levels of 76 cents relative to the
          U.S. dollar, we expect an approximate US $17 million increase in expenses
          in fiscal 2004 relative to 2003 solely due to the increase in the value
          of the Canadian dollar.
        **Selling
          and Marketing Expenses**
          Our selling and marketing expenses climbed 24.4% in 2003 to $96.9 million.
        As a percentage
          of revenues, our selling and marketing expenses declined to 7.0% in
          2003 from 7.7% last year.
        Selling and marketing
          expenses include salaries, commissions and bonuses earned by sales and
          marketing personnel, direct sales costs, promotional and advertising
          costs, and travel and entertainment expenses. |                                 |       |  |           |  |  |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **Operating
        Expenses** |      
| | *****$
        millions*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |       |  |           | 
| | 262.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                 | 278.2 |  | **349.3** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |       |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |       |  |           | 
| | 01*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                 | 02*   |  | **03**    | 
| | *****Restated********Total
          expenses before****amortization
          and other charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                 |       |  |           | 

| | Brand marketing and
          product awareness are critical to the success of our business. Product
          launches, game developer programs and co-marketing programs with our
          OEM, AIB and retailing partners help to create demand for our products.
          In 2003, we increased investment in brand marketing and product awareness
          significantly compared to the prior year.
        The white box,
          or system integrator channel, is an increasingly important distribution
          channel for ATI and one that already contributes positively to revenue
          and profitability. Approximately $11.5 million of our sales and marketing
          expenses in the form of variable selling expenses were used in support
          of our pursuit of business in this channel, particularly in the Asia-Pacific
          region.
        AMI Technologies
          Corp. (AMI), our third-party sales and distribution partner
          in Asia-Pacific, generated increased sales and corresponding commissions
          in 2003. Subsequent to year-end, ATI purchased certain assets of AMI.
          With this acquisition, we expect to reduce our expenses associated with
          sales into this region in fiscal 2004.
        Selling and marketing
          expenses increased in 2002 compared to 2001 as a result of marketing
          
          activities to promote the ATI brand, including advertising programs
          and increased expenses for new product launches. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 
| | 
| | 

---

Page 85 of 134

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |       |  |           |  |  |  | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ----- |  | --------- |  |  |  | 
| | **Research
          and Development Expenses**
          Our R&D expenses increased 29.4% to $213.0 million in 2003.
        As a percentage
          of revenues, R&D expenses declined to 15.4% in 2003 from 16.2% last
          year.
        R&D expenses
          include engineering salaries, costs of development tools and software,
          component and board prototype costs, consulting fees, licensed technology
          fees and patent filing fees.
        Investment in R&D
          is a key part of our strategy to maintain product and technology leadership.
          It has enabled us to expand into the IGP segment and open new markets
          in consumer electronics. We will continue to invest in R&D in support
          of our strategic objectives.
        In 2003, our R&D
          expenses rose as a result of both an increase in staffing, as well as
          the cost of technology required to support the increasing complexity
          of our products, and a broader product line.
        Key activities contributing
          to our higher R&D spending in 2003 included increased investment
          in the following: |                                               |       |  |           |  |  |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **Research
        and Development Expenses** |      
| | *****$
        millions*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |       |  |           | 
| | 149.5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                               | 164.6 |  | **213.0** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |       |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |       |  |           | 
| | 01                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               | 02    |  | **03**    | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                               |       |  |           | 

| | Consumer products
            business to support our growing cell phone and DTV product lines,
            as well
            as one full year of expenses related to the NxtWave Communications
            Inc. (NxtWave) acquisition
          Desktop products
            business, including an additional $5.1 million in prototyping expenses
          Integrated products
            business primarily relating to expanding hardware engineering capability
          The expansion
            of our software engineering competencies
          Foreign exchange
            impactR&D expenses
          increased by $15.1 million to $164.6 million from 2001 to 2002. This
          increase was attributable to the development and support of new products
          for the integrated chipset and consumer markets; the reflection of a
          full year of costs from the acquisition of the FGL Graphics division
          of SONICblue Ltd. in March 2001; the staffing of our 3D design teams
          in Marlborough, MA and Santa Clara, CA; a $1.5 million expense associated
          with the acquisition of NxtWave in June 2002; as well as higher product
          development costs, including increased prototyping costs.
        **Administrative
          Expenses**
          Our administrative expenses increased 10.5% to $39.4 million in 2003.
        As a percentage
          of revenue, administrative expenses declined to 2.8% in 2003 from 3.5%
          in 2002.
        Administrative
          expenses consist of salaries and expenses of the corporate infrastructure
          groups, including the operations, human resources, finance, legal and
          information technology departments.
        Administrative
          expenses in 2003 increased $3.8 million relative to 2002 as a result
          of additional personnel needed to support investments in R&D and
          marketing, as well as the foreign exchange impact. Most of our administrative
          expenditures are denominated in Canadian dollars.
        The decrease in
          administrative expenses in 2002 compared to the prior year was primarily
          due to lower staffing levels in our board business and other areas resulting
          from our transition to a chip model. | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 

---

Page 86 of 134

|**MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)** | 
|------------------------------------------------ | 

| |                                               |       |            |  |  |  |  |   |        |  |   |         | 
| | --------------------------------------------- | ----- | ---------- |  |  |  |  | - | ------ |  | - | ------- | 
| | **Amortization
        of Intangible Assets** |       | **2003**   |  |  |  |  |   | 2002   |  |   | 2001    | 
| |                                               |      
| |                                               |       |            |  |  |  |  |   |        |  |   |         | 
| | Goodwill:                                     |       |            |  |  |  |  |   |        |  |   |         | 
| | Amortization
        expense                  | **$** | ****      |  |  |  |  | $ | 73,134 |  | $ | 75,404  | 
| | Write-down                                    |       | ****      |  |  |  |  |   | 10,319 |  |   |        | 
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |      
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |       | ****      |  |  |  |  |   | 83,453 |  |   | 75,404  | 
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |      
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| | Intangible
        assets:                    |       |            |  |  |  |  |   |        |  |   |         | 
| | Amortization
        expense                  |       | **10,767** |  |  |  |  |   | 8,963  |  |   | 34,592  | 
| | Write-down                                    |       | ****      |  |  |  |  |   | 5,085  |  |   | 4,511   | 
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |      
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |       | **10,767** |  |  |  |  |   | 14,048 |  |   | 39,103  | 
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |      
| |                                               | ****  | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               | **$** | **10,767** |  |  |  |  | $ | 97,501 |  | $ | 114,507 | 
| |                                               |       | ****       |  |  |  |  |   |        |  |   |         | 
| |                                               |      
| |                                               |       |            |  |  |  |  |   |        |  |   |         | 

| | Our
          total amortization expense fell by $86.7 million or 89.0% to $10.8 million
          in 2003.
        This decrease is
          the result of discontinuing amortization of goodwill in response to
          new accounting standards. Please see Our Accounting Policies
          in this MD&A for more information.
        Amortization expense
          totaled $97.5 million in 2002 compared to $114.5 million in 2001. The
          decline was the result of the completion in April 2001 of the amortization
          of the purchased-in-process R&D associated with the acquisition
          of ArtX Inc. (ArtX). This was slightly offset by the write-down of core
          technology and goodwill associated with the acquisitions of ArtX and
          Chromatic Research Inc. (Chromatic) that totaled $15.4 million during
          2002.
        During fiscal 2002,
          we conducted a comprehensive review of the carrying values of core technology
          and goodwill arising from the acquisitions of Chromatic and ArtX and
          concluded that there was a permanent impairment in these values. As
          a result, during the year we wrote off the remaining balances of core
          technology and goodwill arising from the acquisition of Chromatic totaling
          $4.8 million, and at year-end wrote off $4.2 million of core technology
          and $6.4 million in goodwill related to the ArtX acquisition.
        **Other Charges**
          We recorded other charges totaling $28.7 million in 2003 to settle litigation,
          to address issues related to an investigation by the Ontario Securities
          Commission (OSC), to reorganize our business in Europe, and to reflect
          lease exit charges. These charges are unusual in nature. Other charges
          are fully described in note 15 to the Consolidated Financial Statements.
        Other charges included:
        $4.7 million
            net charge related to the settlement of U.S. class action lawsuits
            filed in May 2001.
          $5.8 million
            charge for costs incurred in connection with the OSC investigation
            and Notice of Hearing.
          $6.5 million
            charge to close our Dublin manufacturing operation and restructure
            our organization in Germany.
          $2.7 million
            charge to exit certain leased properties in Canada.
          $9.0 million
            settlement on a patent litigation suit with Cirrus Logic, Inc.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 87 of 134

| | **Interest
          and Other Income**
          Our interest and other income was $4.4 million in 2003. | 
| | --------------------------------------------------------------------------------------------------------- | 

| |                                                            |      |            |       |  |  |  |  |        |   |  |        |  
| | ---------------------------------------------------------- | ---- | ---------- | ----- |  |  |  |  | ------ | - |  | ------ | -
| |                                                            |      | **2003**   |       |  |  |  |  | 2002   |   |  | 2001   |  
| |                                                            |     
| |                                                            |      |            |       |  |  |  |  |        |   |  |        |  
| | Interest
        income on cash and short-term investments |      | **2,802**  |       |  |  |  |  | 4,916  |   |  | 4,005  |  
| | Gains/(losses)
        on investments                      | **** | **3,876**  |       |  |  |  |  | (3,355 | ) |  | 61,216 |  
| | Gains/(losses)
        on foreign exchange                 |      | **819**    |       |  |  |  |  | (444   | ) |  | (1,876 | )
| | Loss
        on disposal of fixed assets                   |      | **(3,932** | **)** |  |  |  |  | (1,104 | ) |  | (69    | )
| | Other
        income                                       |      | **817**    |       |  |  |  |  | 719    |   |  | 855    |  
| |                                                            | **** | ****       |       |  |  |  |  |        |   |  |        |  
| |                                                            |     
| |                                                            | **** | ****       |       |  |  |  |  |        |   |  |        |  
| | Interest
        and other income, net                     | **** | **4,382**  |       |  |  |  |  | 732    |   |  | 64,131 |  
| |                                                            |      | ****       |       |  |  |  |  |        |   |  |        |  
| |                                                            |     
| |                                                            |      |            |       |  |  |  |  |        |   |  |        |  

| | We
          disposed of certain long-term investments in 2003 enabling us to realize
          a gain of $3.9 million.
        During fiscal 2002,
          we disposed of a portion of a long-term investment realizing a loss
          of $0.3 million. We then wrote down the remaining balance of this investment
          by $0.5 million to reflect the other-than-temporary decline in its value.
          The balance was then reclassified as a short-term investment as it was
          our intention to sell the remaining portion of this investment.
        In 2002, we also
          received an additional 107,387 shares of Broadcom Corporation, valued
          at $2.1 million, resulting from the release of escrowed shares pursuant
          to the terms of the agreement to purchase our 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.
        **Interest
          Expense**
          Our interest expense increased to $1.9 million in 2003 from $0.7 million
          last year.
        Our interest expense
          relates primarily to our capital lease obligation and mortgage for the
          building facility located in Markham, Ontario, a joint venture in which
          we hold a 50% ownership.
        In 2002, interest
          expense also included our proportionate share of the interest expense
          related to the interim construction financing of the joint venture.
        **Income
          Taxes**
          Income tax expense increased to $11.7 million in 2003 from $6.9 million
          last year. | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| |                                                                       |       |            |       |  |  |  |      |            |   |     |            |  
| | --------------------------------------------------------------------- | ----- | ---------- | ----- |  |  |  | ---- | ---------- | - | --- | ---------- | -
| |                                                                       |       | **2003**   |       |  |  |  |      | 2002       |   |     | 2001       |  
| |                                                                       |      
| |                                                                       |       |            |       |  |  |  |      |            |   |     |            |  
| |                                                                       |       |            |       |  |  |  |      | (Restated) |   |     | (Restated) |  
| | Operating
        income tax expense (recovery)                       | ****  | **15,570** | ****  |  |  |  |      | 10,553     |   |     | (3,422     | )
| | Recovery
        of future tax liability related to intangible assets |       |            |       |  |  |  |      |            |   |     |            |  
| | (other
        than goodwill)                                         |       | **(1,679** | **)** |  |  |  |      | (3,547     | ) |     | (16,329    | )
| | Income
        tax expense (recovery) related to sale of investments  | **6** | ****       |       |  |  |  | (152 | )          |   | 991 |           
| | Income
        tax recovery related to other charges                  |       | **(2,156** | **)** |  |  |  |      | _          |   |     | _          |  
| |                                                                       | ****  | ****       | ****  |  |  |  |      |            |   |     |            |  
| |                                                                       |      
| |                                                                       | ****  | ****       | ****  |  |  |  |      |            |   |     |            |  
| |                                                                       | ****  | **11,741** | ****  |  |  |  |      | 6,854      |   |     | (18,760    | )
| |                                                                       |       | ****       |       |  |  |  |      |            |   |     |            |  
| |                                                                       |      
| |                                                                       |       |            |       |  |  |  |      |            |   |     |            |  

| | ATIs
          operating tax rate, which excludes the impact of the amortization of
          intangible assets related to acquisitions, and the effect of the gain
          (loss) on investments and other special charges, was 18.9% in 2003,
          18.0% in 2002 and 17.8% in 2001. ATIs tax rate is affected by
          the amount of net income earned in its various operating jurisdictions.
          See note 12 to the Consolidated Financial Statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

---

Page 88 of 134

|**MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)** | 
|------------------------------------------------ | 

|**Net Income
          (Loss)**
          Net income rose $84.3 million in 2003 to $35.2 million from a net loss
          of $49.1 million in 2002.
        Net income rose
          in 2003 relative to 2002 as a result of several factors. Revenues and
          gross margin increased in 2003 while amortization expenses decreased
          significantly due to new accounting policies. Increases in operating
          expenses across all other functional areas in 2003 partially offset
          these improvements.
        Our net loss in
          2002 was $49.1 million compared to a net loss of $53.8 million in 2001.
          The decrease in net loss in 2002 compared to the prior year was largely
          due to improved gross margins.
        **Adjusted
          Net Income (Loss)**
          Adjusted net income (loss) excludes the after-tax effect of gain on
          investments, after-tax effect of other charges described in note 15
          to the Consolidated Financial Statements, amortization of goodwill and
          intangible assets related to our acquisitions, and deferred tax recovery
          of future tax liability pertaining to intangible assets acquired, related
          to our acquisitions. Each of these items has been excluded from adjusted
          net income (loss) as they are not considered to be part of our normalized
          operations. While we recognize that adjusted net income (loss) does
          not have any standardized meaning described by GAAP, and that our adjusted
          net income (loss) calculation cannot be used as a comparison to other
          companies financial performance, we believe that our adjusted
          net income (loss) more appropriately reflects our operating performance.
        **Reconciliation
          of Adjusted Net Income (Loss)** | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                       |       |            |       |  |  |  |   |            |   |   |            |  
| | ----------------------------------------------------- | ----- | ---------- | ----- |  |  |  | - | ---------- | - | - | ---------- | -
| | unaudited                                             |       | **2003**   |       |  |  |  |   | 2002       |   |   | 2001       |  
| |                                                       |      
| |                                                       |       |            |       |  |  |  |   |            |   |   |            |  
| |                                                       |       |            |       |  |  |  |   | (Restated) |   |   | (Restated) |  
| | Net
        income (loss)  GAAP basis                | **$** | **35,229** | ****  |  |  |  | $ | (49,079    | ) | $ | (53,789    | )
| | Amortization
        of intangible assets             |       | **10,767** | ****  |  |  |  |   | 97,501     |   |   | 114,507    |  
| | Other
        charges                                 | ****  | **28,724** |       |  |  |  |   |           |   |   |           |  
| | Loss
        (gain) on investments                    | ****  | **(3,876** | **)** |  |  |  |   | 3,355      |   |   | (61,216    | )
| | Tax
        recovery of other charges                 |       | **(2,156** | **)** |  |  |  |   |           |   |   |           |  
| | Net
        tax on sale of investments                | ****  | **6**      |       |  |  |  |   | (152       | ) |   | 991        |  
| | Deferred
        tax recovery of future tax liability | ****  | **(1,679** | **)** |  |  |  |   | (3,547     | ) |   | (16,329    | )
| |                                                       | ****  | ****       | ****  |  |  |  |   |            |   |   |            |  
| |                                                       |      
| |                                                       | ****  | ****       | ****  |  |  |  |   |            |   |   |            |  
| | Adjusted
        net income (loss)                    | **$** | **67,015** |       |  |  |  | $ | 48,078     |   | $ | (15,836    | )
| |                                                       | ****  | ****       | ****  |  |  |  |   |            |   |   |            |  
| |                                                       |      
| |                                                       | ****  | ****       | ****  |  |  |  |   |            |   |   |            |  
| |                                                       |       |            |       |  |  |  |   |            |   |   |            |  
| | Adjusted
        net income (loss) per share          |       |            |       |  |  |  |   |            |   |   |            |  
| | Basic                                                 | **$** | **0.28**   | ****  |  |  |  | $ | 0.20       |   | $ | (0.07      | )
| | Diluted                                               | **$** | **0.27**   |       |  |  |  | $ | 0.19       |   | $ | (0.07      | )
| |                                                       |       | ****       |       |  |  |  |   |            |   |   |            |  
| |                                                       |      
| |                                                       |       |            |       |  |  |  |   |            |   |   |            |  

| | Our
          adjusted net income rose in 2003 as a result of increased revenues and
          gross margin, offset by increased operating expenses, excluding amortization
          of intangible assets and other charges. The increase in adjusted net
          income for 2002 compared to the prior year was largely due to improved
          gross margin, offset by higher overall operating expenses, excluding
          amortization of intangible assets.
        **LIQUIDITY
          AND CAPITAL RESOURCES**
          This section explains how we manage our cash and capital resources to
          carry out our strategy and deliver financial results.
        **2003 Highlights
          and Outlook for 2004**
          In 2003, our primary objectives in managing liquidity and cash flows
          were:
        Ensuring financial
            flexibility to support growth and entry into new markets
          Improving inventory
            management and targeting inventory at about 60 days usageWe generated positive
          cash flows from operations from our net income and improvements in working
          capital in the period. We are targeting continuing improvement in cash
          flows and modestly lower inventory levels relative to sales in fiscal
          2004.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 89 of 134

| | **Cash Position**The table below is a summary of our cash inflows and outflows for each
          of the past three years: | 
| | -------------------------------------------------------------------------------------------------------------------------- | 

| |                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| | ------------------------------------------------- | ----- | ----------- | ----- |  |  |  | - | ---------- | - | - | ---------- | -
| | unaudited                                         |       | **2003**    |       |  |  |  |   | 2002       |   |   | 2001       |  
| |                                                   |      
| |                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| |                                                   |       |             |       |  |  |  |   | (Restated) |   |   | (Restated) |  
| | Net
        income (loss)                         | **$** | **35,229**  | ****  |  |  |  | $ | (49,079    | ) | $ | (53,789    | )
| | Non-cash
        add backs                        |       | **12,883**  | ****  |  |  |  |   | 125,620    |   |   | 56,247     |  
| | Working
        capital changes                   | ****  | **57,337**  |       |  |  |  |   | (19,599    | ) |   | 99,485     |  
| | Issue
        of common shares                    | ****  | **20,977**  | ****  |  |  |  |   | 12,495     |   |   | 4,687      |  
| | Bank
        indebtedness                         |       | **(12,015** | **)** |  |  |  |   | 3,266      |   |   | 8,749      |  
| | Net
        movement in long-term debt            | ****  | **9,645**   |       |  |  |  |   | (312       | ) |   |           |  
| | Net
        purchases to capital assets           | ****  | **(16,390** | **)** |  |  |  |   | (30,111    | ) |   | (31,091    | )
| | Net
        proceeds from sale of long-term       |       | ****        | ****  |  |  |  |   |            |   |   |            |  
| | investments,
        net of purchases             | ****  | **7,569**   | ****  |  |  |  |   |           |   |   | 62,561     |  
| | Net
        purchases of short-term investments   |       | **(135**    | **)** |  |  |  |   | (4,649     | ) |   | (40,597    | )
| | Acquisitions                                      | ****  |            |       |  |  |  |   | (22,118    | ) |   | (9,201     | )
| | Other                                             | ****  | **(1,140**  | **)** |  |  |  |   | 362        |   |   |           |  
| |                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                   |      
| |                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                   | ****  | **113,960** |       |  |  |  |   | 15,875     |   |   | 97,051     |  
| | Foreign
        exchange loss                     | ****  | **(181**    | **)** |  |  |  |   | (204       | ) |   | (431       | )
| | Net
        increase in cash and cash equivalents | **$** | **113,779** |       |  |  |  | $ | 15,671     |   | $ | 96,620     |  
| |                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                   |      
| |                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| | Cash,
        cash equivalents and                | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | short-term
        investments                    | **$** | **350,689** |       |  |  |  | $ | 236,927    |   | $ | 216,455    |  
| |                                                   |       | ****        |       |  |  |  |   |            |   |   |            |  
| |                                                   |      
| |                                                   |       |             |       |  |  |  |   |            |   |   |            |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                           |  |           |  |  | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ |  | ------------------------- |  | --------- |  |  | 
| | Our
          cash position (cash, cash equivalents and short-term investments) increased
          48.0% to $350.7 million in fiscal 2003 as a result of improved revenues
          and operational performance in 2003, as well as $37.5 million of deferred
          revenue that was recorded for development agreements with Microsoft
          Corp. and Nintendo Co. Ltd.
        We have access
          to $25.4 million in credit facilities at August 31, 2003 compared to
          $101.0 million at August 31, 2002. We had access to $101.0 million in
          credit facilities at the end of fiscal 2002 compared to $98.0 million
          at August 31, 2001.
        As at August 31,
          2003, we are committed to the following minimum payments related to
          office premises, license and royalty agreements, building under capital
          lease payments and mortgage payments: |                          |  | **Cash
        Position** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | *****$
        millions* | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                           |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 216.5                    |  | 236.9                     |  | **350.7** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                           |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                           |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 01                       |  | 02                        |  | **03**    | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                          |  |                           |  |           | 

| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | -------------------------------- |  | - | ------- |  | - | ------ |  | - | ------ |  | - | ------ |  | - | ----- |  | - | ----- |  | ---------- | ------ | 
| |                                  |  |   | Total   |  |   | 2004   |  |   | 2005   |  |   | 2006   |  |   | 2007  |  |   | 2008  |  | Thereafter |       
| |                                  | 
| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | Commitment
        related to    |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | office
        premises, license |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | and
        royalty agreements   |  | $ | 79,451  |  | $ | 22,494 |  | $ | 20,491 |  | $ | 9,666  |  | $ | 6,207 |  | $ | 6,252 |  | $          | 14,341 | 
| | Commitment
        related to    |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | capital
        lease            |  |   | 26,995  |  |   | 1,784  |  |   | 1,784  |  |   | 1,784  |  |   | 1,858 |  |   | 1,962 |  |            | 17,823 | 
| | Commitment
        related to    |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | mortgage                         |  |   | 16,797  |  |   | 1,493  |  |   | 1,493  |  |   | 1,493  |  |   | 1,493 |  |   | 1,493 |  |            | 9,332  | 
| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| |                                  | 
| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| | Total
        commitments        |  | $ | 123,243 |  | $ | 25,771 |  | $ | 23,768 |  | $ | 12,943 |  | $ | 9,558 |  | $ | 9,707 |  | $          | 41,496 | 
| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| |                                  | 
| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 
| |                                  |  |   |         |  |   |        |  |   |        |  |   |        |  |   |       |  |   |       |  |            |        | 

| | We
          believe that cash flows from operating activities, together with our
          cash position and borrowings
          available under our credit facilities, will be sufficient to fund currently
          anticipated working capital, planned
          operating and capital expenditures and debt service requirements for
          the next 12 months. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |  | 
| |  | 

---

Page 90 of 134

| | **MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)** | 
| | ------------------------------------------------ | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |       |  |           |  |  |  | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ----- |  | --------- |  |  |  | 
| | **Operating
          Activities  Working Capital****Accounts Receivable**
          Our accounts receivable increased by 66.2% at August 31, 2003 compared
          to the prior year-end, due largely to increased product sales in the
          fourth quarter.
        At August 31, 2003,
          93.3% of accounts receivable were less than 60 days outstanding, compared
          with 92.3% at August 31, 2002. We have Export Development Corporation
          insurance covering approximately 89.8% of our total accounts receivable
          at August 31, 2003 compared to 81.2% last year. Days sales in accounts
          receivable increased to 53 days in 2003 compared to 50 days in 2002.
          At August 31, 2003, one customer accounted for 18% of our accounts receivable
          balance.
        Accounts receivable
          increased by 19.6% to $141.1 million at August 31, 2002 compared to
          the prior year-end, due to slightly longer payment terms in our industry
          as well as greater than usual amount of product sold in the last few
          weeks of the fiscal year as our new product lines began to ship. |                                 |       |  |           |  |  |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | **Accounts
        Receivable** |      
| | *****$
        millions*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |       |  |           | 
| | 118.0                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                 | 141.1 |  | **234.5** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |       |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |       |  |           | 
| | 01*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                 | 02*   |  | **03**    | 
| | *****Restated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                 |       |  |           | 

| | At
          August 31, 2002, 92.3% of our accounts receivable were less than 60
          days outstanding, compared with 95.2% at August 31, 2001. We had Export
          Development Corporation insurance covering approximately 81.2% of our
          total accounts receivable at August 31, 2002 and 81.3% at our prior
          year-end. Days sales in accounts receivable increased to 50 days in
          2002 compared to 38 days in 2001. At August 31, 2002, one customer accounted
          for 12% of our accounts receivables. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |       |  |           |  |  |  | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ----- |  | --------- |  |  |  | 
| | **Inventories**
          Inventories on hand decreased at August 31, 2003 to $176.5 million.
        Inventories declined
          by 8.1% to $176.5 million at the end of 2003 compared to inventories
          at the end of fiscal 2002. Inventory levels in 2003 were in line with
          our target of 60 days.
        In 2003, we continued
          to implement an inventory management program to reduce inventories of
          raw materials, work in progress and finished goods.
        Inventories on
          hand increased significantly in the last two quarters of fiscal 2002
          as we ramped up production of our new products. We also encountered
          a slower turn of our existing product line during this time frame.
        Inventories increased
          by $80.2 million at the end of 2002 compared to August 31, 2001 as a
          result of lower than expected sales in the last two quarters of the
          year and increased purchases to support new product introductions. |                 |       |  |           |  |  |  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Inventories** |      
| | *****$
        millions*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |       |  |           | 
| | 111.9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                 | 192.1 |  | **176.5** | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |       |  |           | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |       |  |           | 
| | 01*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                 | 02*   |  | **03**    | 
| | *****Restated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 |       |  |           | 

| | **Accounts Payable and Accrued Liabilities**Accounts payable increased to $191.2 million in 2003 from $172.1 million
          in the prior year as a result of increased inventory purchases for our
          new product lines and the timing of payments to our suppliers.
        In 2002 accounts
          payable increased to $172.1 million from $79.7 million at the prior
          year-end as a result of the timing of payments to suppliers and increased
          inventory purchases for the new product lines.
        Accrued liabilities
          increased to $136.7 million in 2003 compared to $49.4 million in 2002.
          The increase is largely a result of the timing of payments related to
          sales rebates and price protection which are also a function of sales,
          as well as accruals related to other charges noted above, some of which
          were accrued in the last quarter of the year.
        There was no significant
          change in accrued liabilities in 2002 compared to 2001.
        **Deferred Revenue**Deferred revenue increased to $37.7 million in 2003 from $0.3 million
          in 2002.
        This deferred revenue
          is associated with two development contracts, where we have recorded
          amounts relating to these contracts, but have not yet recognized the
          revenue. The revenue will be recognized as services are provided under
          each of the respective contracts.
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| | **Financing
          Activities**
          We generated cash from common shares issued from the exercise of stock
          options totaling $21.0 million in 2003, compared to $12.5 million in
          2002.
        Cash generated
          from common shares issued from the exercise of stock options was $12.5
          million in 2002 compared to $4.7 million in 2001.
        Our bank indebtedness,
          which arose from the short-term financing provided to the joint venture
          to construct our new building, declined to nil from $12.0 million in
          the prior year. Upon completion of the new building a long-term mortgage
          was obtained in 2003 by the joint venture resulting in an increase of
          our long-term debt obligations.
        **Investing
          Activities**
          Our capital expenditures net of disposals declined to $16.4 million
          in 2003 from $30.1 million in 2002. This reduction in capital expenditures
          reflects the completion of our new head office facility in Markham,
          Ontario in 2002. Engineering equipment and leasehold improvements comprised
          the majority of capital expenditures in 2003. Capital expenditures in
          2004 are expected to be in the same range as 2003.
        Capital expenditures
          in 2002 were $30.1 million, compared to $31.1 million in fiscal 2001.
          The majority of these expenditures related to the construction of our
          new building which was completed in fiscal 2002.
        In 2002 capital
          additions included $22.4 million of additions to building-in-progress.
          In 2001, capital additions included building-in-progress additions of
          $11.5 million, representing our 50% share of the costs incurred to construct
          our new building that were subsequently transferred into building under
          capital lease. Laboratory, computer equipment and software purchases
          accounted for another $16.2 million in capital additions in 2001.
        **Long-Term
          Investments**
          From time to time, we make equity investments in other companies, generally
          in conjunction with a technology relationship. In 2003, we invested
          $2.5 million in these types of investments.
        During fiscal 2003,
          we disposed of all of our remaining shares in Broadcom Corp., realizing
          a gain of $3.8 million.
        In 2002 we did
          not make any long-term investments.
        **SUBSEQUENT EVENT**On September 2, 2003, we announced the acquisition of certain assets
          of AMI, our exclusive sales organization for Taiwan and China since
          1992, for cash consideration of $3.0 million. This acquisition strengthens
          our direct presence in these critical and rapidly growing markets. The
          majority of AMIs sales, marketing and field applications personnel
          will join ATI. The remaining personnel will stay with AMI as it continues
          to act as our sales agent in the region.
        **CLAIMS AND PROCEEDINGS**In January 2003, we announced that staff of the OSC had filed a Notice
          of Hearing and Statement of Allegations in relation to ATI and others.
          The Notice alleged that ATI 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 ATI 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 are
          also named in the Notice. The Notice alleged that six of these individuals
          including K.Y. Ho, the Chief Executive Officer of the Company, engaged
          in insider trading contrary to the Securities Act. A hearing has been
          scheduled for February  March 2004.
        See notes 15 and
          21 of the Consolidated Financial Statements regarding other claims and
          proceedings affecting ATI.
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| | **MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)** | 
| | ------------------------------------------------ | 

| | Risks
          and UncertaintiesOur financial 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, our operating expenses are largely
          independent of revenues in any particular period. Therefore, 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 must 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 competitors actions in the
          marketplace.
        Should our new
          products, including integrated chipset products, and products for the
          consumer electronic device market, not offer the features and performance
          required by our customers or fail to achieve meaningful marketshare,
          our operating results will be negatively impacted. Our ability to develop
          new products is dependent upon our ability to obtain licenses to emerging
          industry technology or other intellectual property rights, which may
          not be readily available or available on commercially reasonable terms.
        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 electronics;
          Successful and
            timely development and production of next-generation products, including
            products for the consumer device market;
          Introduction
            of new products by our competitors;
          Availability
            of licenses for emerging industry technology or other intellectual
            property rights necessary for the development of new products by ATI;
          Changes to our
            overall average selling price 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;
          Research and
            development costs associated with the development of new products;
          Increasing product
            line complexity and our related management of inventory;
          Unexpected variances
            in the cost or availability of materials, especially silicon wafer,
            memory, printed circuit boards 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; and
          Supply constraints
            and disruptions for other components incorporated into our products
            and those of our customers.As indicated above,
          most of our operating expenses are relatively fixed in the short term.
          As a result, we may be unable to rapidly adjust our spending to compensate
          for any unexpected revenue shortfall, which could harm quarterly operating
          results. Also, our products have varying gross margins. 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.
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| | For a more complete
          discussion of general risks and uncertainties which apply to our business
          and our financial results, please see ATIs Annual Information
          Form and other filings with Canadian and U.S. securities regulatory
          authorities.
        For a description
          of certain legal proceedings affecting ATI, please see notes 15 and
          21 to the Consolidated Financial Statements.
        Our Accounting PoliciesWe prepare our Consolidated Financial Statements using Canadian GAAP
          and have provided a reconciliation of our financial statements to U.S.
          GAAP in note 20 to the Consolidated Financial Statements. Significant
          accounting policies and methods used in preparation of our Consolidated
          Financial Statements are described in note 1 to the Consolidated Financial
          Statements.
        Under GAAP, we
          are required to make estimates and assumptions when we account for and
          report assets, liabilities, revenue and expenses and disclose contingent
          assets and liabilities in our financial statements. We are also required
          to constantly evaluate the estimates and assumptions we use. We base
          our estimates and assumptions on historical experience and other factors
          that we believe are reasonable in the circumstances. Because our estimates
          and assumptions involve judgment and varying degrees of uncertainty,
          actual results could materially differ from our estimates and assumptions.
        We make significant
          estimates when determining provisions for sales returns and allowances,
          our allowance for doubtful accounts, our provision for inventory obsolescence,
          the fair value of reporting units for goodwill impairment testing, the
          useful lives and valuation of intangible assets, the valuation of long-term
          investments, restructuring charges, our worldwide income tax provision
          and the realization of future tax assets.
        We believe the
          following are the most critical accounting policies we follow as they
          rely heavily on our judgment and estimates:
        **Revenue
          Recognition**
          We recognize revenue 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.
          During fiscal 2003, we reviewed our revenue recognition accounting policy
          as it is applied to the shipment of products to customers. Following
          our review, we corrected the application of our revenue recognition
          accounting policy by revising the timing of when revenue is recognized
          to more clearly identify the point in the shipping process when the
          risks and rewards of ownership have been transferred to the customer.
          We applied this change, and the related income tax effect, retroactively
          to our prior period financial statements presented for comparative purposes.
        We record estimated
          sales returns and allowances, price protection, sales rebates, and other
          volume-based incentives at the time we recognize revenue. If our estimates
          of future market conditions and changing product lifecycles in the marketplace
          are inaccurate we may be required to materially increase customer incentive
          offerings, which could necessitate a further reduction of revenue. We
          also provide for the estimated cost of product warranties at the time
          of revenue recognition. If actual product warranty costs vary from our
          estimates we may have to record material adjustments to our warranty
          expense.
        **Inventory
          Valuation**
          We record raw materials 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. We write-down our inventory for estimated obsolescence, and excess
          inventories based upon assumptions about future demand and market conditions.
          The business environment in which we operate is subject to rapid change
          in technology and customer demand. If actual market conditions are less
          favorable than those estimated, additional material inventory write-downs
          may be required.
        **Goodwill**
          We perform our annual goodwill impairment test in the fourth quarter
          of each year, and more frequently if events or changes in circumstances
          indicate that an impairment loss may have been incurred. We test for
          impairment at the reporting unit level by comparing the reporting units
          carrying value with its fair value. The fair values of the reporting
          units are estimated using a discounted cash flow approach. The process
          we follow when determining a reporting units fair value is subjective
          and requires judgment in making assumptions about future results, including
          revenue and cash flow projections at the reporting unit level, and discount
          rates. Future goodwill impairment tests may result in material impairment
          charges.
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| | **MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.)** | 
| | ------------------------------------------------ | 

| | **Income Taxes**
          Our worldwide income tax provision is impacted by the amount of net
          income earned in each taxing jurisdiction and the rate of tax payable
          in respect of that income. In the ordinary course of our global business,
          there are many transactions and calculations where the ultimate tax
          outcome is uncertain. The final tax outcome of these matters may be
          different than the estimates we have made in determining our income
          tax provisions and accruals. If our estimates and assumptions are determined
          to be inaccurate there could be a material effect on our income tax
          provision and net income in the period in which the determination is
          made.
        We record a valuation
          allowance to reduce our future tax assets to the amount of future tax
          benefit that is more likely than not to be realized. We consider future
          taxable income in our operating jurisdictions and ongoing prudent and
          feasible tax planning strategies in determining the need for the valuation
          allowance. If we were to determine that we could realize our future
          tax assets in excess of their recorded amounts we would record an adjustment
          to the future tax asset and increase income in the period the determination
          is made. Alternatively, if we were to determine that we could not realize
          all or parts of our future tax assets, we may record a material charge
          to income in the period the determination is made.
        During 2003 we
          have applied changes as a result of newly issued accounting standards
          as follows:
        **Goodwill
          and Other Intangible Assets**
          The CICA issued Handbook Section 3062, Goodwill and Other Intangible
          Assets, which became effective for us on September 1, 2002. This
          section requires that goodwill and intangible assets with an indefinite
          life no longer be amortized and assessed for impairment at least annually
          according to the new standards. This included a transitional test that
          required any impairment to be charged to opening retained earnings in
          the year of adoption. The new standards are consistent with U.S. GAAP.
        We applied the
          new standards and as a result reclassified $2.3 million from workforce
          to goodwill as of September 1, 2002 to conform to the new guidance.
          In addition, we allocated our existing goodwill to our reporting units
          and completed the transitional impairment test in the second quarter
          of 2003. We determined no transitional impairment existed as of September
          1, 2002. Further, we completed our annual impairment test in the fourth
          quarter of 2003 and determined no impairment had occurred.
        **Stock-based
          Compensation and Other Stock-based Payments**
          We adopted CICA Handbook Section 3870, Stock-based Compensation
          and Other Stock-based Payments, that 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 as of September 1, 2002. 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, by the issuance of equity
          instruments. The standard permits us to continue our policy of recording
          no compensation cost on the grant of stock options to employees. Consideration
          paid by employees on the exercise of stock options is recorded as share
          capital.
        We have applied
          the pro forma disclosure provisions of the new standard to awards granted
          on or after September 1, 2002 that are provided in note 11 to the Consolidated
          Financial Statements. No restatement of prior periods was required as
          a result of the adoption of the new standard.
        **Disposal
          of Long-lived Assets and Discontinued Operations**
          The CICA issued Handbook Section 3063, Impairment or Disposal
          of Long-lived Assets, and revised Section 3475, Disposal
          of Long-lived Assets and Discontinued Operations. These sections
          supersede the write-down and disposal provisions of Section 3061, Property,
          Plant and Equipment, and Section 3475, Discontinued Operations.
          The new standards are consistent with U.S. GAAP.
        We have fully adopted
          the revised Section 3475 to disposal activities initiated on or after
          May 1, 2003; we were not impacted by this change. Section 3063 is effective
          for our 2004 fiscal year. We expect that the adoption of this standard
          will have no material impact on our financial position, results of operations
          or cash flows.
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Page 95 of 134

| | **Guarantees**
          The CICA issued Accounting Guideline 14 Disclosure of Guarantees,
          which requires certain disclosures of obligations under guarantees regardless
          of whether payments will have to be made under the guarantees. The guideline
          is generally consistent with the disclosure requirements for guarantees
          under U.S. GAAP. The guideline does not apply to product warranties
          or the measurement requirements under U.S. GAAP.
        We have fully adopted
          this guideline as of March 1, 2003. The disclosures required by this
          standard are included in note 14 to the Consolidated Financial Statements.
        In addition to
          the standards we have applied in the year there are additional new standards
          that will be applied in future years as follows:
        **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 our 2005 fiscal year, with early adoption encouraged.
          We are currently evaluating the impact of adoption that the standard
          will have on the Consolidated Financial Statements.
        **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 our 2005 fiscal year, with early adoption
          encouraged. We are currently evaluating the impact that the adoption
          of this standard will have on our Consolidated Financial Statements.
        **Consolidation
          of Variable Interest Entities**
          In June 2003, the CICA approved Accounting Guideline AcG-15, 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 in the Companys
          second quarter of its 2005 fiscal year, with early adoption encouraged.
          We expect that the adoption of this standard will have no material impact
          on our financial position, results of operations or cash flows.
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Page 96 of 134

| | **QUARTERLY
          INFORMATION** | 
| | ----------------------------------- | 

|                                |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|------------------------------- | ------- | -------------- | ------------------- |  | ----- | ---------- | - | ---- | ------- | ------------------- | ----- |  | ----- | ---------- | - |  | --------- | -------------- | ----- |  | ----- | ---------- | - |  | --------- | ----------------- | ----- |  | ------ | ---------- | -
|unaudited                       |         |                | November
        30 |  |       |            |   |      |         | February
        28 |       |  |       |            |   |  |           | May
        31 |       |  |       |            |   |  |           | August
        31 |      
|                                |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|                                |         | **2002**       |                     |  |       | 2001       |   |      |         | **2003**            |       |  |       | 2002       |   |  |           | **2003**       |       |  |       | 2002       |   |  |           | **2003**          |       |  |        | 2002       |  
|                                |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|                                |         | **(Restated)** |                     |  |       | (Restated) |   |      |         | **(Restated)**      |       |  |       | (Restated) |   |  |           | **(Restated)** |       |  |       | (Restated) |   |  |           |                   |       |  |        | (Restated) |  
|**REVENUES**                    | **$**   | **335,436**    |                     |  | $     | 261,309    |   |      | **$**   | **313,492**         |       |  | $     | 262,559    |   |  | **$**     | **355,691**    |       |  | $     | 269,046    |   |  | **$**     | **380,674**       |       |  | $      | 222,865    |  
|Cost
        of goods sold      |         | **244,251**    |                     |  |       | 179,568    |   |      |         | **222,969**         |       |  |       | 173,759    |   |  |           | **239,590**    |       |  |       | 174,970    |   |  |           | **245,191**       |       |  |        | 154,088    |  
|                                |         | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|Gross
        margin            |         | **91,185**     |                     |  |       | 81,741     |   |      |         | **90,523**          |       |  |       | 88,800     |   |  |           | **116,101**    |       |  |       | 94,076     |   |  |           | **135,483**       |       |  |        | 68,777     |  
|**EXPENSES**                    |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|Selling
        and marketing   |         | **22,247**     |                     |  |       | 20,546     |   |      |         | **21,354**          |       |  |       | 19,648     |   |  |           | **25,696**     |       |  |       | 19,493     |   |  |           | **27,628**        |       |  |        | 18,233     |  
|Research
        and            |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|development                     |         | **48,450**     |                     |  |       | 40,070     |   |      |         | **49,528**          |       |  |       | 41,754     |   |  |           | **53,713**     |       |  |       | 39,935     |   |  |           | **61,285**        |       |  |        | 42,850     |  
|Administrative                  |         | **9,212**      |                     |  |       | 8,781      |   |      |         | **9,318**           |       |  |       | 8,357      |   |  |           | **10,326**     |       |  |       | 9,852      |   |  |           | **10,557**        |       |  |        | 8,672      |  
|Amortization
        and        |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|write-down
        of           |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|goodwill
        and            |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|intangible
        assets       |         | **3,165**      |                     |  |       | 21,190     |   |      |         | **3,162**           |       |  |       | 21,164     |   |  |           | **3,169**      |       |  |       | 21,679     |   |  |           | **1,271**         |       |  |        | 33,468     |  
|Other
        charges           |         | ****          |                     |  |       |           |   |      |         | **15,996**          |       |  |       |           |   |  |           | **2,288**      |       |  |       |           |   |  |           | **10,440**        |       |  |        |           |  
|                                |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|                                |         | **83,074**     |                     |  |       | 90,587     |   |      |         | **99,358**          |       |  |       | 90,923     |   |  |           | **95,192**     |       |  |       | 90,959     |   |  |           | **111,181**       |       |  |        | 103,223    |  
|                                |         | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|**INCOME
        (LOSS) FROM**  |         |                |                     |  |       |            |   | **** |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |       
|**OPERATIONS**                  |         | **8,111**      |                     |  |       | (8,846     | ) |      |         | **(8,835**          | )     |  |       | (2,123     | ) |  |           | **20,909**     |       |  |       | 3,117      |   |  |           | **24,302**        |       |  |        | (34,446    | )
|Interest
        and other      |         | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|income
        (expense)        |         | **572**        |                     |  |       | 1,729      |   |      |         | **602**             |       |  |       | 1,343      |   |  |           | **(1,350**     | **)** |  |       | (306       | ) |  |           | **4,558**         |       |  |        | (2,034     | )
|Interest
        expense        |         | **(426**       | **)**               |  |       | (2         | ) |      |         | **(469**            | **)** |  |       | (1         | ) |  |           | **(488**       | **)** |  |       | (248       | ) |  |           | **(516**          | **)** |  |        | (408       | )
|                                |         | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|Income
        (loss) before    |         | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|income
        taxes            |         | **8,257**      |                     |  |       | (7,119     | ) |      |         | **(8,702**          | )     |  |       | (781       | ) |  |           | **19,071**     |       |  |       | 2,563      |   |  |           | **28,344**        |       |  |        | (36,888    | )
|Income
        taxes (recovery) | **913** |                |                     |  | 2,047 |            |   |      | **715** |                     |       |  | 3,187 |            |   |  | **4,063** |                |       |  | 3,874 |            |   |  | **6,050** |                   |       |  | (2,254 | )         
|                                |         | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|**NET
        INCOME (LOSS)**   | ****    | **7,344**      |                     |  |       | (9,166     | ) |      |         | **(9,417**          | **)** |  |       | (3,968     | ) |  |           | **15,008**     |       |  |       | (1,311     | ) |  |           | **22,294**        |       |  |        | (34,634    | )
|**RETAINED
        EARNINGS,**  | ****    |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |           
|beginning
        of period     | ****    | **68,797**     |                     |  |       | 117,876    |   |      |         | **76,141**          |       |  |       | 108,710    |   |  |           | **66,724**     |       |  |       | 104,742    |   |  |           | **81,732**        |       |  |        | 103,431    |  
|                                | ****    | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|**RETAINED
        EARNINGS,**  | ****    |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |           
|end
        of period           | **$**   | **76,141**     |                     |  | $     | 108,710    |   |      | **$**   | **66,724**          |       |  | $     | 104,742    |   |  | **$**     | **81,732**     |       |  | $     | 103,431    |   |  | **$**     | **104,026**       |       |  | $      | 68,797     |  
|                                | ****    | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|Net
        income (loss)       | ****    | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|per
        share:              | ****    | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|Basic                           | **$**   | **0.03**       |                     |  | $     | (0.04      | ) |      | **$**   | **(0.04**           | **)** |  | $     | (0.02      | ) |  | **$**     | **0.06**       |       |  | $     | (0.01      | ) |  | **$**     | **0.09**          |       |  | $      | (0.15      | )
|Diluted                         | ****    | **0.03**       |                     |  |       | (0.04      | ) |      |         | **(0.04**           | **)** |  |       | (0.02      | ) |  |           | **0.06**       |       |  |       | (0.01      | ) |  |           | **0.09**          |       |  |        | (0.15      | )
|                                | ****    | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|**WEIGHTED
        AVERAGE**    | ****    |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |           
|**NUMBER
        OF SHARES**    | ****    |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |           
|**(000s):**                    | ****    | ****           |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |            |  
|Basic                           | ****    | **236,947**    |                     |  |       | 232,496    |   |      |         | **237,227**         |       |  |       | 234,154    |   |  |           | **238,183**    |       |  |       | 236,082    |   |  |           | **240,647**       |       |  |        | 236,848    |  
|Diluted                         | ****    | **243,298**    |                     |  |       | 232,496    |   |      |         | **237,227**         |       |  |       | 234,154    |   |  |           | **242,539**    |       |  |       | 236,082    |   |  |           | **249,525**       |       |  |        | 236,848    |  
|**OUTSTANDING
        NUMBER**  |         |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |       
|**OF
        SHARES, END OF**   | ****    |                |                     |  |       |            |   |      |         |                     |       |  |       |            |   |  |           |                |       |  |       |            |   |  |           |                   |       |  |        |           
|**QUARTER
        (000s)**     | ****    | **236,989**    |                     |  |       | 232,787    |   |      |         | **237,297**         |       |  |       | 234,787    |   |  |           | **239,267**    |       |  |       | 236,620    |   |  |           | **241,742**       |       |  |        | 236,871    |  

| |  | **** |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |  | ---- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |