Graphics chipmaker

ATI

(ATYT)

reported sales and earnings above expectations, though net income was depressed by expenses from a lawsuit related to alleged insider trading.

For the quarter ending in February, the company posted sales of $319 million, well above expectations for $290 million. Sales were down 1% sequentially but up 16% from a year ago.

Net income was a loss of $8.3 million or 4 cents per share, weighed down by $16 million worth of special charges.

ATI posted a pro forma profit of 4 cents per share, above Wall Street's forecast of 2 pennies of EPS.

The company took an $8 million charge to settle a U.S. class-action lawsuit and spent $2.8 million to cover expenses of an independent board relating to an Ontario Securities Commission investigation. It also shelled out $2.8 million for the closure of European manufacturing operations and $2.4 million for the termination of a lease.

ATI has been investigated for failing to disclose information on a shortfall in revenues and earnings in the third quarter of 2000; the Canadian securities agency claims ATI lied about the disclosure and that insiders, including the CEO, engaged in insider trading.

Though it has struggled with legal problems, ATI management claims business has been good. "Customer demand for ATI's new products continued to build during the second quarter -- a quarter that typically sees a seasonal pullback in the marketplace," said CEO K.Y. Ho.

ATI expects revenues in the third quarter now underway to fall into the $300 million range, implying a sequential decline of 6%. But it expects net income to improve in the both the current and fourth quarter.

Shares closed up a robust 84 cents or 19% to $5.38.