ATS Automation Systems bookings up 78% in Q2, backlog
reaches $200 million
TSX: ATA
CAMBRIDGE, ON, Nov. 14 /CNW/ - ATS Automation Tooling Systems Inc. today
reported net earnings of $0.4 million (1 cent per share basic and diluted), on
revenues of $148.5 million for the three months ended September 30, 2003 --
and substantial growth in both new automation systems bookings and order
backlog.
"New automation systems orders were up 78% from a year ago, making this
the strongest summer quarter for new order activity in our 25 year history,"
said ATS President and Chief Executive Officer, Klaus Woerner. "Second quarter
new booking activity demonstrates what ATS can do in a more robust economic
environment. When customers are buying, they are buying from ATS and that
illustrates the value of the substantial market share gains we've made. Strong
booking activity has allowed ATS, for the first time in 10 quarters, to drive
order backlog to the $200 million level. This bodes well for a stronger
performance in the second half of our fiscal year from both a revenue and
earnings perspective as we increase our capacity utilization and generate more
value from our standard product technologies."
Second Quarter Fiscal 2004 Financial Highlights
- Consolidated revenue was $148.5 million, up 1% from $146.9 million in
the second quarter a year ago reflecting a 63% increase in Solar
Group sales and a 9% increase in Precision Components Group revenue
which more than offset the impact on revenue of a 12% decline in the
U.S. to Canadian dollar exchange rate over the past year. The second
quarter is typically a seasonal low for ATS due to customer plant
shutdowns and vacations.
- Cash was $58.3 million versus $75.4 million at the start of the
quarter.
- Debt to equity ratio at September 30, 2003 remained a very healthy
0.1:1.
- New automation systems order bookings were $145 million compared to
$82 million in the second quarter of fiscal 2003.
- Period end automation systems backlog was $200 million compared to
$163 million a year ago and $158 million at the end of the first
quarter of fiscal 2004.
Automation Systems Group revenue in the second quarter was
$108.6 million, compared to $110.1 million in the second quarter a year ago,
reflecting the 12% decline in the U.S. to Canadian exchange rate over the past
year. At $32.4 million, Precision Components Group revenue was 9% higher than
a year ago due to a 667% increase in thermal management device sales, which
added $5.4 million in this quarter versus $0.7 million a year ago. This
increase more than offset the impact on Precision Components revenue of
foreign currency and customer delays in ramping up new revenue-generating
programs. Solar Group generated revenue growth of 63% to $18.0 million
compared to $11.1 million a year ago reflecting strong demand for solar energy
products in the European market.
"Second quarter performance was held back by a number of transitional
issues," said Mr. Woerner. "In our Automation Systems Group, we won many new
orders but we only began to see the real benefits in terms of higher factory
utilization levels in late September as the work began to accelerate out of
our design departments and into full blown production. This, combined with
$2.0 million in unusual expenses during the second quarter, moderated the
Group's short-term operating performance. Similarly, customer delays in the
launch and ramp of new programs hurt the operating performance of our
Precision Components Group. Importantly for the future, we believe these
transitional challenges are abating."
Looking Forward
---------------
Mr. Woerner said that automation systems order backlog entering the third
quarter "provides ATS with a sufficiently large cushion to improve our
capacity utilization during the second half of the fiscal year. This gives us
an opportunity to improve revenue and earnings in our Automation Systems
Group.
"At $46 million, order booking activity during the first six weeks of the
third quarter was down from the unusually strong levels seen during the summer
- and this is welcome because it allows our heavily loaded design departments
to reduce their backlog - but we continue to see excellent and sizable
prospects in our quotation pipeline. As a result, we are far more optimistic
than we've been in many quarters that the downturn has finally come to an end
for ATS. We are ready to maximize the value of a better economic environment
while also building potential for greater investment returns over the mid and
long-term. The continued development of our standard automation technologies
provides ATS with strong prospects and the ability to deliver value well
beyond this fiscal year."
In Precision Components, Mr. Woerner said "we are particularly pleased
that customer volumes are on track under the major automotive seat sub-
assembly assignment that we commenced earlier this spring. This is not
entirely the case with a few other new programs in Precision Components where
the production schedules customers originally gave us have not coincided with
their actual requirements, but these programs have not gone away and we expect
them to produce stronger results as volumes increase."
To spur continued demand ATS continues to aggressively market its
capabilities globally and introduce new automation technologies. During the
second quarter, the Company introduced two new automation technologies -- ATS
Servochassis(TM) (a high-speed, general purpose assembly platform) and ATS
Econotrak(TM) (a high speed conveyance system) -- that provide customers with
low cost of ownership in fully automated and lean systems environments.
"As the economic recovery expands, Mr. Woerner said "it presents us with
an opportunity to showcase the full power of our new standard automation
technologies and experienced workforce. We have never been more prepared to
efficiently and effectively answer customer needs and turn demand into strong
performance."
Note to Readers
The MD&A and consolidated financial statements accompanying this news
release contain detailed information of quarterly performance, financial
condition and the Company's outlook. Certain forward-looking statements are
made in this news release and accompanying MD&A, including statements
regarding possible future business. Investors are cautioned that such forward-
looking statements involve risks and uncertainties, including, without
limitation, continued acceptance of ATS's products, technologies, customer
requirements and other risks detailed from time to time in ATS's periodic
reports filed with Canadian regulatory authorities.
Quarterly Conference Call
ATS will hold its quarterly conference call at 11 am eastern time today.
To listen to a live audio webcast of the call please visit
www.atsautomation.com.
Corporate Description
ATS Automation Tooling Systems Inc. (www.atsautomation.com) is the
industry's leading designer and producer of turn-key automated manufacturing
and test systems, which are used primarily by multinational corporations
operating in a variety of industries including: automotive,
computer/electronics, healthcare, and consumer products. The Company also
makes precision components and sub-assemblies using its own custom-built
manufacturing systems, process knowledge and automation technology. ATS is
also an emerging leader in the rapidly growing market for solar energy cells
and modules. ATS employs approximately 3,700 people at 25 facilities in
Canada, the United States, Europe and Asia-Pacific. The Company's shares are
traded on The Toronto Stock Exchange under the symbol ATA.
Management's Discussion and Analysis
This MD&A for the three and six months ended September 30, 2003 should be
read in conjunction with the Company's fiscal 2003 annual report and the
unaudited consolidated financial statements for the three and six month
periods.
Early in the second quarter of fiscal 2004, the Company divested assets
comprising a precision cleaning technology business, Eco-Snow Systems Inc.,
for approximately $8.9 million. This business has been treated as a
discontinued operation, as specified by the CICA, and its results have been
removed from operating earnings for the three and six month periods ended
September 30, 2003 and the comparable periods of last year.
The Company has three reportable segments: Automation Systems Group
(ASG), Precision Components Group (PCG) and Solar Group.
Revenue
Consolidated revenue for the three months ended September 30, 2003 was
$148.5 million, 1% or $1.6 million higher than a year earlier reflecting
growth in both Solar and PCG's thermal products business. This growth was
tempered by the 12% decline in the U.S. to Canadian exchange rate since the
second quarter of last year as well as delays in the launch and ramp up of
volume on some new PCG programs. Consolidated revenue for the first six months
of fiscal 2004 was 2% or $6.7 million higher than the same period last year.
Revenue by Industry
($ millions)
13 weeks ended 26 weeks ended
9/30/2003 9/30/2002 9/30/2003 9/30/2002
-------------------------------------------------------------------------
Automation Systems Group:
Automotive $ 51.6 $ 43.6 $ 96.5 $ 87.5
Computer-electronics 33.6 44.6 72.8 81.6
Healthcare 13.6 16.3 27.8 33.9
Other 9.8 5.6 16.5 13.9
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Subtotal 108.6 110.1 213.6 216.9
Precision Components Group:
Automotive 24.7 27.4 52.7 55.1
Computer-electronics 6.6 0.7 11.3 1.4
Other 1.1 1.7 2.8 3.5
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Subtotal 32.4 29.8 66.8 60.0
Solar Group 18.0 11.1 34.9 19.7
Intersegment Elimination (10.5) (4.1) (18.2) (6.3)
-------------------------------------------------------------------------
Total Consolidated Revenue $ 148.5 $ 146.9 $ 297.1 $ 290.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ASG revenue was down marginally in the second quarter and first six
months of fiscal 2004, due to the significant decline in the U.S. to Canadian
exchange rate and the temporary but significant impact of SARS on the Group's
Asian revenue. The decline in the U.S. dollar reduced ASG second quarter
revenue by an estimated $8.5 million compared to the second quarter of last
year.
The decline in the U.S. dollar reduced PCG second quarter revenue by an
estimated $2.8 million compared to the second quarter of last year. In spite
of this, PCG achieved revenue growth of 9% or $2.6 million in the second
quarter, driven by substantial growth in thermal management device sales.
Micro-Precision Plastics (MPP), acquired in February 2003, contributed $3.1
million to Group revenue in the second quarter and $5.9 million in the first
six months of fiscal 2004. PCG automotive revenue was lower than last year --
and lower than originally anticipated -- because of slower than expected ramp
up of volumes on new programs and the impact of foreign exchange. For the
first six months of fiscal 2004, PCG revenue increased 11% or $6.8 million due
to the contribution of MPP and higher sales results from thermal management
devices, offsetting the impact of foreign exchange and lower automotive
component revenues.
Solar Group revenue, which is currently derived from Photowatt
International, increased 63% or $6.9 versus the second quarter a year ago.
This reflected strong market demand and the value derived from a planned
increase in inventory levels prior to the second quarter, which allowed
Photowatt to fill customer demand even while the Photowatt manufacturing plant
closed for its traditional month-long summer shutdown. Solar revenue growth
was 77%, or $15.2 million higher in the first six months of fiscal 2004 versus
the comparable period a year ago. This growth was due to the same factors
mentioned above as well as the fact that revenue was reduced in the first
quarter of last year when Photowatt took back $3.1 million in inventory from a
customer experiencing difficulty.
Consolidated Revenue by Region
($ millions)
13 weeks ended 26 weeks ended
9/30/2003 9/30/2002 9/30/2003 9/30/2002
-------------------------------------------------------------------------
U.S. & Mexico $ 90.3 $ 85.3 $ 174.5 $ 171.3
Europe 41.0 28.3 77.4 49.3
Canada 10.5 20.9 27.8 38.1
Asia-Pacific and other 6.7 12.4 17.4 31.6
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Total $ 148.5 $ 146.9 $ 297.1 $ 290.3
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Earnings from Operations (Operating Earnings)
For the three months ended September 30, 2003, Consolidated Operating
Earnings were $0.7 million compared to $4.0 million in the second quarter of
fiscal 2003.
ASG Operating Earnings were $5.8 million, or 9% lower than $6.4 million
in the second quarter a year ago. This reflected $2.0 million in unusual pre-
tax charges in the second quarter of fiscal 2004 related to a cost over-run on
one customer program and a write-down in the value of certain inventory in the
Group's west coast operations, and, to a much lesser extent, relocation costs
associated with a move to a new production facility in France and severance
and employee relocation costs at other selected plants. The new facility in
France was opened subsequent to quarter end and provides the Group with a
significantly improved platform for efficient growth in the French market.
Second quarter Operating Earnings in ASG's Asian operations were $0.9 million
less than in the second quarter of last year primarily reflecting the negative
impact of SARS on revenue in this market.
Management estimates that Operating Earnings in ASG would have been
approximately $2.0 million higher in the second quarter if the rate of
exchange for the U.S. to Canadian dollar had not changed from the rate in
second quarter of last year. The operating results for the quarter provide
evidence that the impact to date of this currency movement has been largely
mitigated by the Company's cost reduction measures, and programs to gain
competitive advantages in its markets.
For the first six months of fiscal 2004, ASG Operating Earnings were
$11.6 million (5.4% operating margin) versus $12.5 million (5.7% operating
margin) in the same period a year ago. ASG Operating Earnings in both periods
continued to be negatively impacted by unfavourable capacity utilization, and
the Company's strategic decision to retain its highly skilled workforce to
further enhance the Company's competitive advantages, market share and
capabilities. Higher Order Backlog is expected to support improved capacity
utilization in the second half of the fiscal year.
PCG incurred an Operating Loss of $2.1 million versus Operating Earnings
of $1.3 million in the second quarter of fiscal 2003. The slower than expected
transition to new customer programs, which are expected to have a favourable
future impact, continued to hold back improvements in Operating Earnings in
the quarter. These customer-driven delays increased engineering and support
expenses and reduced revenue, plant utilization and overhead absorption in the
second quarter of fiscal 2004. The Company's Thermal Solutions business also
did not achieve breakeven operating performance in the period.
PCG performance was also negatively impacted by higher maintenance and
other unusual expenses, a portion of which was a result of a major power
blackout in August in eastern North America. In addition, the Group incurred
costs to consolidate certain manufacturing operations into its Kitchener,
Ontario facility to reduce future costs. In total, these unusual expenses
added $0.6 million to PCG's operating costs in the second quarter of fiscal
2004.
Management estimates that the change in the U.S. to Canadian dollar
exchange rate since the second quarter of last year resulted in a $1.3 million
decline in PCG second quarter Operating Earnings compared to the same period a
year earlier.
For the first six months of fiscal 2004, PCG reported an Operating Loss
of $1.4 million versus Operating Earnings of $3.1 million a year earlier.
Solar Group, which currently derives all of its revenue from its
Photowatt operations, generated breakeven operating results in the second
quarter of fiscal 2004 compared to an Operating Loss of $1.1 million in the
second quarter a year ago. This strong improvement, achieved in spite of
higher expenses to support research and development and increased market
presence in California, was driven by higher sales and efficiency gains. These
gains helped the Group to overcome pricing declines in its primary European
markets caused by the weak value of the U.S. dollar and the Yen versus the
Euro. For the six months, Solar Group Operating Earnings were breakeven versus
an Operating Loss of $0.6 million in the same period a year ago.
Liquidity, Cash Flow and Financial Resources
ATS continued to invest during the second quarter to support strong
future revenue and earnings growth.
Cash on hand was a healthy $58.3 million, compared to $82.3 million at
March 31, 2003 and $75.4 million at June 30, 2003. The reduction in cash on
hand since the end of the last fiscal year primarily reflected $23 million in
new investments made in the new Spheral Solar(TM) Power (SSP) initiative
during the past six months. Cash on hand was also reduced by $3.2 million as a
result of the weakening U.S. dollar during the first half of the fiscal year.
Cash flow from operations of $10.3 million and the proceeds from the sale of
Eco-Snow of $8.9 million more than offset the $15.2 million increased
investment in non-cash working capital during the quarter.
The Company's cash flow performance and conservative financial posture
continued to provide ATS with the means to fully support its operating
strategies. September 30, 2003 debt to equity ratio of 0.1:1 remained very
strong.
Automation Systems Backlog (Order Backlog)
At September 30, 2003, automation systems Order Backlog was $200 million,
up 27%, or $42 million, from Backlog of $158 million at June 30, 2003, and
23%, or $37 million, higher than Backlog at September 30, 2002. This rapid
growth reflects a substantial increase - 78% -- in new Order Bookings in the
second quarter of this fiscal year versus last. Not included in Order Backlog
is $9 million of internal automation systems work for the SSP initiative.
There were no significant order cancellations in the second quarter of this
fiscal year. Changes in the U.S. to Canadian dollar exchange rate compared to
last year reduced period end backlog by an estimated $24 million.
Automation Systems Backlog by Industry
($ millions)
9/30/2003 9/30/2002
-------------------------------------------------------------------------
Computer/Electronics $ 44.0 $ 41.6
Automotive 81.0 85.2
Healthcare 41.8 27.1
Other 33.4 9.1
-------------------------------------------------------------------------
Total $ 200.2 $ 163.0
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Foreign Currency
The Company does not hedge translation exposure on its foreign
subsidiaries operating results for practical reasons. ATS continues to follow
a transaction hedging program to help mitigate the impact of short-term
foreign currency movements primarily on its Canadian operations which often
transact business in U.S. dollars. This hedging activity primarily consists of
forward exchange contracts for the future sale of U.S. dollars and by
purchasing third party goods and services in US dollars. Management estimates
that the transaction hedging program is primarily effective for movements in
currency rates within a six month period. At September 30, 2003 the Company
had various forward exchange contracts outstanding for the future sale of U.S.
dollars totaling US $95.6 million at an average exchange rate of $1.42
Canadian for each US dollar. The unrecognized gain on these forward exchange
contracts totaled approximately $1.7 million at September 30, 2003.
U.S. Dollar Exchange Rates
13 weeks ended 26 weeks ended
9/30/2003 9/30/2002 9/30/2003 9/30/2002
-------------------------------------------------------------------------
Beginning of period 1.3463 1.5162 1.4720 1.5935
End of period 1.3529 1.5773 1.3529 1.5773
Average 1.3797 1.5635 1.3875 1.5580
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Outlook
New automation systems order bookings (Order Bookings) in the second
quarter of fiscal 2004 were $145 million, versus $105 million in the first
quarter, $123 million in the fourth quarter of last year and $82 million in
the second quarter a year ago. This substantial growth in new Order Bookings
activity in the second quarter provides further evidence that the Company is
gaining market share and suggests that overall demand in the Company's
automation systems markets may be improving.
Order Bookings for the first six weeks of the third quarter were
approximately $46 million. Management believes that the lower level of Order
Booking activity since the end of the quarter does not indicate that
automation markets have turned down. Management's assessment is based upon the
strong quotation activity and prospects that it continues to see in its active
quotation process and ongoing discussions with customers. Management believes
that the increased Order Backlog will improve capacity utilization and provide
stronger earnings performance in the second half of the Company's fiscal 2004
year.
Short term, the Company remains cautiously optimistic. Although U.S.
economic indicators were bullish entering the Company's third quarter, and
economic forecasts in North America for calendar 2004 are positive, European
markets are less positive. In this environment, management continues to remain
cautious regarding the pace of overall market demand, while aggressively
marketing its total solutions in all markets to capture additional market
share.
In May, PCG successfully launched, on schedule, a large power seat
adjustment sub-system assignment won in May 2001. Based on the multinational
customer's forecast data, the Company expects that this program will generate
between $12 million and $15 million in revenue this fiscal year, with the
potential to increase to between $40 million and $50 million next year. PCG
also continued to work on ramping up other new (previously discussed)
automotive programs that, at full volume, will add an estimated $20 million in
annual revenue. Ramp up of these orders requires the Company to make
investments and margins may be at low levels until target efficiencies and
volumes are reached. PCG operating results are expected to improve in the
third and fourth quarters over those realized in the second quarter, however
the impact of new programs combined with the changes in foreign currency, may
continue to moderate PCG's earnings performance.
PCG continued to increase revenue from its proprietary thermal management
device business (Thermal Solutions) in the second quarter. Thermal Solutions
revenue is expected to continue to increase in the third quarter under a
number of programs reflecting the typically strongest period of computer sales
activity which leads up to the calendar year end. However, the Thermal
Solution's market is expected to remain competitive and highly volatile for
the foreseeable future.
Demand for the Company's established Solar Group products remained strong
in the second quarter. The outlook for the third and fourth quarters remains
favourable as a result of a new solar incentive program recently approved in
Germany.
ATS continues to make good progress with its SSP initiative and the
manufacture of sophisticated automation workstations for the first SSP solar
factory. Unfortunately, construction of its new purpose built, 180,000 square
foot SSP facility is a month behind schedule due to a shortage of construction
trades in the Cambridge area. Construction is now expected to be completed by
the end of November 2003 however the Company has already begun installation of
some of the SSP manufacturing equipment. Furthermore, SSP is actively
showcasing the technology to potential distributors and has continued to
receive very positive indications of future support. While SSP's aggressive
launch program is a challenge, SSP remains committed to producing its first
commercial production volumes in the spring of 2004.
Overall, management believes that the Company is well positioned to
compete in the current economic environment and to benefit significantly from
higher automation systems backlog. Expanded strategic sales and marketing
efforts, initiatives in new market areas such as contract equipment
manufacturing, investments made in high-value new automation capabilities
combined with the Company's strong financial position and established strong
market presence are expected to enable the Company to generate solid growth in
revenue and earnings as demand increases.
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Earnings
(in thousands of dollars, except per share amounts - unaudited)
Twenty-six weeks ended Thirteen weeks ended
-------------------------------------------------------------------------
September September September September
30 2003 30 2002 30 2003 30 2002
-------------------------------------------------------------------------
(as restated, (as restated,
see note 3) see note 3)
Revenue $297,064 $290,336 $148,481 $146,916
Operating costs and expenses:
Cost of revenue 240,436 233,615 121,741 120,024
Depreciation and
amortization 16,651 14,277 8,478 7,217
Selling and administrative 35,526 31,797 17,596 15,634
-------------------------------------------------------------------------
292,613 279,689 147,815 142,875
-------------------------------------------------------------------------
Earnings from operations 4,451 10,647 666 4,041
Other expenses (income):
Interest on long-term debt 396 629 187 317
Other interest (362) (1,223) (163) (621)
-------------------------------------------------------------------------
34 (594) 24 (304)
-------------------------------------------------------------------------
Earnings from continuing
operations before income
taxes and non-controlling
interest 4,417 11,241 642 4,345
Provision for income taxes 1,475 3,732 201 1,435
Non-controlling interest in
earnings of subsidiaries (11) 265 (6) 237
-------------------------------------------------------------------------
Net earnings from continuing
operations 2,953 7,244 447 2,673
Loss from discontinued
operations net of tax
(note 3) (286) (686) - (243)
-------------------------------------------------------------------------
Net earnings $ 2,667 $ 6,558 $ 447 $ 2,430
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
(note 6):
Basic - from continuing
operations $ 0.05 $ 0.12 $ 0.01 $ 0.04
Basic - from discontinued
operations - (0.01) - -
-------------------------------------------------------------------------
$ 0.05 $ 0.11 $ 0.01 $ 0.04
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted - from continuing
operations $ 0.05 $ 0.12 $ 0.01 $ 0.04
Diluted - from
discontinued operations - (0.01) - -
-------------------------------------------------------------------------
$ 0.05 $ 0.11 $ 0.01 $ 0.04
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Retained Earnings
(in thousands of dollars - unaudited)
Twenty-six weeks ended Thirteen weeks ended
-------------------------------------------------------------------------
September September September September
30 2003 30 2002 30 2003 30 2002
-------------------------------------------------------------------------
Retained earnings,
beginning of period $201,075 $198,732 $203,295 $202,860
Net earnings 2,667 6,558 447 2,430
-------------------------------------------------------------------------
Retained earnings,
end of period $203,742 $205,290 $203,742 $205,290
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
-------------------------------------------------------------------------
September March 31
30 2003 2003
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments $ 58,348 $ 82,333
Accounts receivable 123,187 117,756
Income taxes recoverable 5,504 1,868
Costs and earnings in excess of billings
on contracts in progress 104,111 96,546
Inventories 75,698 83,099
Other 4,580 3,734
-------------------------------------------------------------------------
371,428 385,336
Fixed assets 238,921 226,555
Goodwill 60,345 63,721
Intangible assets 6,254 8,949
Other assets 29,455 29,307
-------------------------------------------------------------------------
$706,403 $713,868
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 75,779 $ 73,373
Billings in excess of costs and earnings
on contracts in progress 19,157 14,585
Future income taxes 22,689 22,128
-------------------------------------------------------------------------
117,625 110,086
Long-term debt 45,728 49,754
Future income taxes 5,178 5,817
Non-controlling interest 311 1,053
Shareholders' equity:
Share capital 331,546 331,499
Retained earnings 203,742 201,075
Cumulative translation adjustment 2,273 14,584
-------------------------------------------------------------------------
537,561 547,158
-------------------------------------------------------------------------
$706,403 $713,868
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Twenty-six weeks ended Thirteen weeks ended
-------------------------------------------------------------------------
September September September September
30 2003 30 2002 30 2003 30 2002
-------------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings $ 2,667 $ 6,558 $ 447 $ 2,430
Items not involving cash 17,332 17,839 9,838 12,762
-------------------------------------------------------------------------
Cash flow from operations 19,999 24,397 10,285 15,192
Change in non-cash
operating working capital (12,709) (28,581) (15,165) (24,998)
-------------------------------------------------------------------------
7,290 (4,184) (4,880) (9,806)
Cash flows from investing
activities:
Acquisition of interest
in subsidiary (note 4) (650) - - -
Acquisition of fixed
assets (32,069) (9,360) (19,736) (6,696)
Investments and other (4,293) (4,997) (1,529) (889)
Proceeds from disposal of
assets held for sale
(note 3) 8,877 - 8,877 -
-------------------------------------------------------------------------
(28,135) (14,357) (12,388) (7,585)
Cash flows from financing
activities:
Bank indebtedness - (61) - (414)
Issuance of common shares 47 823 47 17
Other 8 352 (5) (10)
-------------------------------------------------------------------------
55 1,114 42 (407)
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments (3,195) 539 157 1,442
-------------------------------------------------------------------------
Decrease in cash and
short-term investments (23,985) (16,888) (17,069) (16,356)
Cash and short-term
investments, beginning
of period 82,333 113,281 75,417 112,749
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 58,348 $ 96,393 $ 58,348 $ 96,393
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Cash income taxes paid $ 3,319 $ 5,415 $ 1,412 $ 3,055
Cash interest paid $ 441 $ 648 $ 245 $ 272
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Notes to Interim Consolidated Financial Statements
(tabular amounts in thousands, except per share amounts - unaudited)
1. Significant accounting policies:
(a) The accompanying unaudited interim consolidated financial statements
are prepared in accordance with accounting principles generally
accepted in Canada and the accounting policies are consistent with
those described in the annual consolidated financial statements for
the year ended March 31, 2003, except as described in note 2. The
unaudited interim consolidated financial statements presented in this
interim report do not conform in all respects to the requirements of
generally accepted accounting principles for annual financial
statements and should be read in conjunction with the audited
consolidated financial statements in the Company's fiscal 2003 Annual
Report.
(b) Contract revenue in the Automation Systems segment is recognized
using the percentage of completion method. The degree of completion
is determined based on costs incurred, excluding costs that are not
representative of progress to completion, as a percentage of total
costs anticipated for each contract. Incentive awards, claims or
penalty provisions are recognized when such amounts can reasonably be
determined. Complete provision is made for losses on contracts in
progress when such losses first become known. Revisions in cost and
profit estimates, which can be significant, are reflected in the
accounting period in which the relevant facts become known.
2. Accounting policy changes:
(a) Effective April 1, 2003, the Company adopted the new Canadian
Institute of Chartered Accountants ("CICA") recommendations related
to the determination of long-lived asset impairment as well as
recognition, measurement and disclosure of any impairment. The
adoption of the new recommendations had no material impact on the
Company's interim consolidated financial statements for the thirteen
or twenty-six weeks ended September 30, 2003.
(b) Effective April 1, 2003, the Company adopted the new CICA
recommendations that establish standards for the recognition,
measurement, presentation and disclosure of the disposal of long-
lived assets and for the presentation and disclosure of discontinued
operations. The Company has followed the new recommendations in
accounting for the assets held for sale and discontinued operations
as described further in note 3. Other than the matter described in
note 3, the adoption of the new recommendations had no material
impact on the Company's interim consolidated financial statements for
the thirteen or twenty-six weeks ended September 30, 2003.
3. Discontinued operations, assets held for sale and subsequent event:
During the thirteen weeks ended June 30, 2003, the Company committed
to a plan to sell the intellectual property and key operating assets
of its subsidiary, Eco-Snow Systems Inc ("Eco-Snow"). Accordingly,
the results of operations of Eco-Snow have been segregated and
presented separately as discontinued operations in the accompanying
interim consolidated financial statements. The results of the
discontinued operations were as follows:
Twenty-six weeks ended Thirteen weeks ended
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September September September September
30 2003 30 2002 30 2003 30 2002
---------------------------------------------------------------------
Revenue $ 963 $ 928 $ - $ 687
Loss from operations $ (477) $ (1,144) $ - $ (405)
Income tax recovery 191 458 - 162
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Loss from discontinued
operations $ (286) $ (686) $ - $ (243)
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---------------------------------------------------------------------
During the thirteen weeks ended September 30, 2003, the Company
completed the sale of the Eco-Snow intellectual property and key
operating assets for $8.9 million. The disposal of the Eco-Snow
assets did not have a material impact on earnings for the 13 weeks
ended September 30, 2003.
4. Acquisition:
During the thirteen weeks ended June 30, 2003, the outstanding equity
of an automation systems subsidiary was purchased for cash
consideration of $650,000. The acquisition was accounted for using
the purchase method. The fair value of the tangible assets and
liabilities acquired were approximately equal to the consideration
paid.
5. Stock-based compensation:
In accordance with the CICA recommendations, the following pro forma
disclosures present the compensation cost for the Company's stock
option plan had compensation cost been determined and recorded in the
statement of earnings and the earnings per share based on the fair
value at the grant date of the options awarded on or after April 1,
2002.
Twenty-six weeks ended Thirteen weeks ended
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September September September September
30 2003 30 2002 30 2003 30 2002
---------------------------------------------------------------------
Net earnings:
as reported $ 2,667 $ 6,558 $ 447 $ 2,430
pro forma $ 2,139 $ 6,128 $ 192 $ 2,215
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Earning per share:
Basic - as reported $ .05 $ 0.11 $ .01 $ 0.04
- pro forma $ .04 $ 0.10 $ - $ 0.04
Diluted - as reported $ .05 $ 0.11 $ .01 $ 0.04
- pro forma $ .04 $ 0.10 $ - $ 0.04
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In the pro forma results above, the fair values of the Company's
stock option grants were estimated using the Black-Scholes option
pricing model with the following assumptions:
Twenty-six weeks ended
---------------------------------------------------------------------
September September
30 2003 30 2002
---------------------------------------------------------------------
Risk-free interest rate 4.4% 5.4%
Dividend yield 0.0% 0.0%
Expected life 5 years 6 years
Expected volatility 38% 42%
---------------------------------------------------------------------
The estimated compensation cost of the options granted is amortized
over the five year vesting period of the options. During the twenty-
six weeks ended September 30, 2003, 430,000 options (2002 - 471,495)
were granted at an average exercise price of $8.60 (2002 - $18.61).
During the thirteen weeks ended September 30, 2003 no options (2002 -
nil) were granted. The weighted average value per option as
calculated by the Black-Scholes model, using the above assumptions is
$3.47 (2002-$9.11) each.
6. Weighted average number of shares:
Weighted average number of shares used in the computation of earnings
per share is as follows:
Twenty-six weeks ended Thirteen weeks ended
---------------------------------------------------------------------
September September September September
30 2003 30 2002 30 2003 30 2002
---------------------------------------------------------------------
Basic 60,572 60,431 60,574 60,483
Diluted 60,964 61,039 61,036 60,965
---------------------------------------------------------------------
---------------------------------------------------------------------
7. Segmented disclosure:
The Company evaluates performance based on three reportable segments:
Automation Systems, Precision Components and Solar. The Automation
Systems segment produces custom-engineered turn-key automated
manufacturing and test systems. The Precision Components segment is a
high volume manufacturer of plastic and metal components and sub-
assemblies. The Solar segment is a high volume manufacturer of
photovoltaic products and includes the Company's investment in
Spheral Solar(TM) Technology.
The Company accounts for inter-segment revenue at current market
rates, negotiated between the segments.
Twenty-six weeks ended Thirteen weeks ended
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September September September September
30 2003 30 2002 30 2003 30 2002
---------------------------------------------------------------------
Revenue
Automation Systems $213,603 $216,916 $108,637 $110,128
Precision Components 66,809 60,031 32,423 29,793
Solar 34,929 19,741 18,013 11,068
Elimination of inter-
segment revenue (18,277) (6,352) (10,592) (4,073)
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Consolidated $297,064 $290,336 $148,481 $146,916
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Earnings from operations
Automation Systems $ 11,551 $ 12,469 $ 5,841 $ 6,399
Precision Components (1,414) 3,050 (2,082) 1,259
Solar 36 (550) (48) (1,054)
Inter-segment
elimination and other
corporate expenses (5,722) (4,322) (3,045) (2,563)
---------------------------------------------------------------------
Consolidated $ 4,451 $ 10,647 $ 666 $ 4,041
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8. Cyclical nature of the business:
Interim financial results are not necessarily indicative of annual or
longer term results, because many of the individual markets served by
the Company tend to be cyclical in nature. General economic trends,
product life cycles and product changes may impact Automation Systems
bookings, Precision Components and Solar volumes, and the Company's
earnings in any of its markets.
%SEDAR: 00002017E
-30-
For further information: Ron Jutras, Executive Vice President and Chief Financial Officer, (519) 653 6500