ATS Earnings Grow Substantially in Third Quarter on
Strength in Automation Systems and Solar
TSX: ATA
CAMBRIDGE, ON, Feb. 9 /CNW/ - ATS Automation Tooling Systems Inc. today
reported net earnings from continuing operations of $6.1 million (10 cents per
share basic and diluted) for the three months ended December 31, 2004 - up
580% or $7.4 million from a net loss of $1.3 million (loss of 2 cents per
share basic and diluted) a year ago - driven by strong gains made by the
Company's Automation Systems Group and record performance by its Solar
business.
Third Quarter Financial Highlights
- Consolidated revenue increased 24% to $206.9 million from
$167.4 million in the third quarter a year ago.
- Automation Systems Group operating earnings were up 178% to
$9.8 million from $3.5 million in the third quarter of fiscal 2004 on
stronger operating margins and a 22% increase in revenue, which stood
at $144.7 million.
- Solar Group operating earnings were a record $3.4 million, compared to
$2.1 million a year ago on 36% growth in revenue to $37.4 million.
- Precision Components Group operating loss was $1.9 million compared to
a loss of $1.0 million in the same period a year ago due to a 16%
reduction in revenue, which stood at $29.1 million. PCG cut its loss
by 17% compared to the second quarter through rationalization, cost
and efficiency gains.
- New automation systems Order Bookings were $124 million, 32% higher
than a year ago.
- Automation systems Order Backlog increased 28% to $232 million versus
$181 million at December 31, 2003.
- Net earnings were $5.6 million (9 cents per share basic and diluted)
compared to a loss of $1.7 million (loss of 3 cents per share basic
and diluted) a year ago.
- The Company estimates changes in foreign currency exchange rates
reduced third quarter net earnings by $2.7 million (4 cents per share)
and revenue by $9.7 million compared to the third quarter of fiscal
2004.
- Cash flow from operating activities during the third quarter was
$24 million, and the Company's cash position, net of bank
indebtedness, increased $25 million from the second quarter of fiscal
2005 to $41 million.
"Our focused business strategy is having a clear and very positive impact
on the financial performance of Automation Systems Group (ASG) with operating
earnings up more than two fold from a year ago," said Ron Jutras, ATS
President and Chief Executive Officer. "We saw meaningful improvements in
performance in our North American and Asian ASG operations in the third
quarter. Notably, our US west coast operations returned to profitability in
the quarter, showing the growing benefits from the steps we've taken to
turnaround performance. Of equal importance, we still have significant
opportunities for further earnings enhancements because of the strength of our
order backlog, robust quotation activity, and substantial prospects in
healthcare. Most fundamentally, because we have retained our strong and
skilled workforce, we can capitalize on these opportunities today."
Mr. Jutras added that "we experienced the best balance ever between our
three largest target markets and healthcare has clearly become a revenue
leader for us."
As a result of substantial revenue growth, the Company's Solar Group is
now ATS's second largest operating group. Solar accounted for 18% of
consolidated revenue in both the third quarter and for the first three
quarters of fiscal 2005.
"Solar Group's operating revenue, margins and operating earnings
surpassed the previous all-time record high set in the first quarter," said
Mr. Jutras, "putting it on track for a record year. Solar generated its
highest ever operating margins as it capitalized on substantial market demand
and exploited its competitive automated manufacturing advantages."
Mr. Jutras said Precision Components Group's (PCG) loss widened in the
quarter compared to the prior year "due to very weak automotive markets, which
necessitated an extended Christmas plant shutdown, and the ongoing impact of
unfavourable foreign exchange and high raw material costs. However, through
rationalization and internal efficiency gains, PCG reduced its loss 17% from
the second quarter of this year in spite of a 4% sequential decline in
revenue. While we have started to see incremental benefits from our cost
reduction initiatives, which are collectively improving the Group's ongoing
economics, more is needed to bring about a turnaround. Consequently, we have
streamlined operations through the third quarter sale of our thermal products
business and the just announced closing of our McAllen manufacturing plant in
Texas. The divestiture of the thermal products business has already provided
bottom line benefits, while the elimination of McAllen will have a positive
impact when we complete the transfer of customer programs from McAllen to our
facilities in Cambridge. In the medium term, this initiative is expected to
add significantly to our bottom line through reduced overhead costs and better
utilization of the remaining factories, production equipment and
infrastructure within PCG."
Looking Forward
"Momentum is still growing for ASG, with healthy backlog, strong
quotation activity and good prospects for new and repeat customer assignments
providing the basis for ongoing plant utilization and margin gains," said Mr.
Jutras. "Our goal is to continue to drive near-term earnings while also making
the technology and resource investments we need to sustain corporate progress
globally. Our technology development activities are continuing with particular
emphasis on the healthcare sector which we believe offers us excellent
long-term growth potential. These development initiatives include the
enhancement of our existing standard product technologies for healthcare
applications and the development of industry-specific standard platforms to
address exciting application areas. These platforms will broaden our
healthcare portfolio and based on initial customer response, should provide
the catalyst for more growth in sectors such as pharmaceuticals. We also took
an important step to diversify the revenues of our European operations into
the healthcare market during the quarter by winning our first significant
healthcare order to be produced in one of our European plants. This system
will be installed at a customer's European facility and will provide hands-on
experience and credibility to support future healthcare sales by our European
operations."
For PCG, Mr. Jutras said "Precision Components is unlikely to achieve
breakeven in the fourth quarter, but we do anticipate progress in reducing its
operating loss as a result of initiatives to streamline operations, improve
asset utilization, source less expensive raw materials from China, and where
appropriate, seek price adjustments from customers. While the process of
qualifying Chinese suppliers is taking longer than we expected, it is clearly
an important part of our performance improvement initiatives and we will
sustain this effort. Looking forward, the auto parts industry and foreign
exchange remain volatile, which provide reasons for caution with regard to
PCG's short-term prospects. We have factored this market reality into our
improvement plans."
In Solar, "the fourth quarter is traditionally weaker than the third
because of winter seasonality. The entire solar industry is also coping with
growing shortages of silicon feedstock as a result of strong industry-wide
demand for solar products. This will be a challenge in fiscal 2006 and may
restrict our near-term growth at Photowatt, but the good news is that
Photowatt has already secured most of its silicon supply needs for the next
six months and we believe it will finish the year on a strong and very
profitable footing. Demand for solar products remains strong and Photowatt has
good order prospects for fiscal 2006."
Solar's new initiative, Spheral Solar Power (SSP) is also progressing
steadily toward its commercialization goals. All of the factory's workstations
have now been activated and SSP plans to begin shipments to customers this
month of its first products produced entirely in the new factory, with
shipments expected to grow through fiscal 2006.
"In the fourth quarter, we plan to ship SSP modules to more than a dozen
customers. The delivery of commercial grade SSP product from our high-volume
factory should build further credibility and additional momentum in the
marketplace for SSP. To ensure our customers get outstanding durability and
reliability, we're finishing up very rigorous lifecycle testing on our first
product, our flex module, and results to date have been excellent,
significantly exceeding market requirements. We've also developed a promising
prototype of our integrated solar roofing technology in concert with our
partners at Elk Corporation. The outlook for SSP is very exciting, not only
because demand for solar is strong and growing but because we believe that SSP
opens entirely new solar market applications. A major competitive advantage is
that SSP uses less silicon per watt than conventional solar. We also can
utilize a broader range of silicon feedstock material including less pure and
less expensive silicon than conventional solar. In future, this may be an
important competitive advantage. We believe the future of this business is
outstanding and our timing is excellent."
Quarterly Conference Call
ATS will hold its quarterly conference call at 10 am eastern time today.
To listen to a live audio webcast of the call please visit
www.atsautomation.com.
Note to Readers
The third quarter MD&A and consolidated financial statements accompanying
this news release contain detailed information of quarterly performance,
financial condition and the Company's outlook. Readers should review the
Company's annual MD&A contained in the Fiscal 2004 Annual Report and the
Company's first and second quarter MD&A.
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 subassemblies 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 4,000 people at 26 manufacturing
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.
Certain forward looking statements are made in this news release and
accompanying quarterly 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.
Management's Discussion and Analysis
This MD&A for the three and nine months ended December 31, 2004 (third
quarter of fiscal 2005) should be read in conjunction with the unaudited
interim consolidated financial statements and the Company's fiscal 2004 Annual
Report. The Company assumes that the reader of this MD&A has access to, and
has read the MD&A in the Company's 2004 Annual Report and the first and second
quarter MD&A and, accordingly, the purpose of this document is to provide a
third quarter update to the information contained in the MD&A section of the
2004 Annual Report. This MD&A provides detailed information on the Company's
operating activities of the three months ended December 31, 2004. For a
discussion of the three months ended June 30, 2004 and September 30, 2004
refer to ATS's first and second quarter MD&A. These documents and other
information relating to the Company, including the Annual Information Form,
may be found on SEDAR at www.sedar.com.
Notice to Readers
The Company has three reportable segments: Automation Systems Group
(ASG), Solar Group (Solar) and Precision Components Group (PCG). The terms
operating income, operating earnings, earnings from operations, operating
loss, operating results, operating margin, Order Backlog and Order Bookings
used in this MD&A have no standardized meanings prescribed within GAAP and
therefore may not be comparable to similar measures presented by other
companies.
Certain forward-looking statements are made in this MD&A, including
statements regarding possible future results and business. Investors are
cautioned that such forward-looking statements involve risks and
uncertainties. The Company's results could differ materially from those
currently anticipated due to a number of factors including, but not limited
to, the risks and uncertainties contained in the Company's fiscal 2004 Annual
Report and other risks detailed from time to time in ATS's periodic reports
filed with Canadian regulatory authorities. Readers should consult the
Company's fiscal 2004 Annual Report and other regulatory documents as they
become available.
Consolidated Results of Operations
Consolidated revenue for the three months ended December 31, 2004 was
$206.9 million, $39.5 million or 24% higher than a year earlier. This
reflected 22% and 36% increases in ASG and Solar segment revenues
respectively, which more than offset a 16% decline in PCG revenue. Changes in
effective foreign exchange rates reduced consolidated revenue for the three
and nine month periods ended December 31, 2004 compared to the same periods of
fiscal 2004, by an estimated $9.7 million and $27.7 million, respectively.
Revenue by Industry
($ millions)
Three months ended Nine months ended
12/31/2004 12/31/2003 12/31/2004 12/31/2003
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Automation Systems Group:
Automotive $ 41.7 $ 51.5 $ 120.3 $ 148.0
Computer-electronics 44.4 38.7 122.0 111.5
Healthcare 44.4 19.8 117.5 47.6
Other 14.2 8.5 41.5 25.0
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Subtotal 144.7 118.5 401.3 332.1
Solar Group 37.4 27.5 102.8 62.4
Precision Components Group:
Automotive 26.8 29.7 84.9 82.4
Computer-electronics 0.9 3.2 3.9 6.2
Other 1.4 1.6 4.7 4.4
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Subtotal 29.1 34.5 93.5 93.0
Inter-segment Elimination (4.3) (13.1) (14.6) (31.3)
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Total Consolidated Revenue $ 206.9 $ 167.4 $ 583.0 $ 456.2
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Consolidated Revenue by Customer Site
($ millions)
Three months ended Nine months ended
12/31/2004 12/31/2003 12/31/2004 12/31/2003
-------------------------------------------------------------------------
U.S. & Mexico $ 99.5 $ 90.4 $ 319.0 $ 261.4
Europe 66.7 50.1 174.2 124.4
Canada 9.3 15.0 31.5 42.8
Asia-Pacific and other 31.4 11.9 58.3 27.6
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Total $ 206.9 $ 167.4 $ 583.0 $ 456.2
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Consolidated earnings from operations for the three months ended
December 31, 2004 were $9.4 million, $8.0 million higher than in the third
quarter of fiscal 2004. For the nine months ended December 31, 2004,
consolidated earnings from operations were $20.7 million, $14.3 million higher
than in the same period of the prior year. These higher earnings were the
result of stronger performances by ASG and Solar, which more than offset the
negative impact of foreign exchange and higher year-over-year losses in PCG.
The negative impact of the year-over-year change in foreign exchange rates on
consolidated earnings from operations for the three and nine months ended
December 31, 2004 was an estimated $4.1 million and $14.5 million,
respectively.
Selling, general and administrative (SG&A) costs increased 20% in the
third quarter and 15% in the first nine months of fiscal 2005 over the prior
year. Contributing to increased SG&A costs for both the three and nine months
of fiscal 2005 were higher profit sharing expenses associated with increased
profitability, foreign exchange losses, and higher selling costs to support
revenue growth. However, as a percentage of revenue, SG&A was 9% in both the
third quarter of fiscal 2005 and third quarter fiscal 2004. For the nine
months ended December 31, 2004, SG&A was 10% of revenue compared to 11% for
the same period of fiscal 2004. In the current fiscal year, SG&A costs include
a $1.0 million loss in the first quarter and a $0.8 million gain in the third
quarter related to disposals of the Company's aircraft assets. See Note 3 to
the Interim Consolidated Financial Statements.
Higher interest expenses in the third quarter and first nine months of
fiscal 2005 reflected increased usage of the Company's credit facilities,
reduced cash balances compared to a year ago, and higher interest rates.
Net earnings from continuing operations for the third quarter of fiscal
2005 increased to $6.1 million compared to a loss of $1.3 million in the third
quarter of fiscal 2004. On a per share basis, net earnings from continuing
operations increased to 10 cents, basic and diluted, from a loss of 2 cents,
basic and diluted, in the same period a year ago. Net earnings from continuing
operations for the nine months ended December 31, 2004 were $12.9 million
(21 cents per share basic and diluted) compared to $2.0 million (3 cents per
share basic and diluted) a year ago. The negative impact of changes in foreign
exchange rates for the three and nine months ended December 31, 2004 reduced
net earnings from continuing operations by an estimated $2.7 million (4 cents
per share) and $9.6 million (16 cents per share), respectively.
Discontinued Operations
During the third quarter the Company completed the sale of the key
inventory, intellectual property, and operating assets of its thermal
management products business ("Thermals Assets") for net cash proceeds of
$8.6 million. The after-tax gain on the sale of the Thermals Assets of
$0.2 million was offset against the thermals net operating losses for the
quarter of $0.3 million, for a net loss from discontinued thermals operations
of $0.1 million. Included in the year to date results from discontinued
operations is an after-tax non-cash charge of $2.0 million which was taken in
the second quarter to reduce the carrying value of the Thermals Assets. The
loss from discontinued operations for the third quarter also includes a
$0.4 million charge to settle outstanding matters related to the Company's
discontinued Eco-Snow Systems Inc operations. See Note 3 to the Consolidated
Financial Statements.
Net Earnings
Net earnings for the third quarter of fiscal 2005 were $5.6 million
(9 cent per share basic and diluted) compared to a loss of $1.7 million (loss
of 3 cents basic and diluted) a year ago. Net earnings for the first nine
months of fiscal 2005 were $8.8 million (15 cents per share basic and diluted)
compared to $0.8 million (1 cent per share basic and diluted).
Impact of Foreign Exchange
The sustained strength of the Canadian dollar against the US dollar
continued to have a significant and negative impact on the Company's revenue
and earnings in the third quarter and on a year to date basis. The Company's
effective rate of exchange on US currency declined 7% while average market
rates were 8% lower in the third quarter compared to the third quarter of last
year.
At December 31, 2004 the Company had, on hand, unrealized forward
exchange contracts for the future sale of US dollars totaling US
$130.4 million at an average exchange rate of Cdn $1.2766. The unrecognized
gain on these forward contracts totaled approximately $8.3 million at
December 31, 2004.
The estimated impact of changes in foreign exchange rates, net of the
offsetting impact of forward exchange contracts, on both revenue and operating
earnings, for each of the Company's reportable segments, and on a consolidated
basis, has been summarized in the table below. The impact on consolidated
operating earnings from translation was not material in the third quarter of
fiscal 2005.
Estimated Foreign Exchange Impact
For the three months ended December 31, 2004 (in millions of dollars)
Estimated
Impact of %
Foreign Change vs
Exchange last year
included excluding
% in Foreign
Change vs reported Exchange
Reported last year results impact
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Revenue
Automation Systems $ 144.7 22% $ 7.2 28%
Solar 37.4 36% (0.2) 35%
Precision Components 29.1 -16% 2.7 -8%
Elimination of
Inter-segment revenue (4.3)
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Consolidated $ 206.9 24% $ 9.7 29%
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Earnings from Operations
Automation Systems $ 9.8 180% $ 2.4 249%
Solar 3.4 62% 0.0 62%
Precision Components (1.9) 111% 1.7 78%
Inter-segment elimination
and other corporate expenses (1.9)
-------------------------------------------------------------------------
Consolidated $ 9.4 527% $ 4.1 800%
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Period Average Market Exchange Rates in CDN$
Three months ended % Nine months ended %
12/31/2004 12/31/2003 change 12/31/2004 12/31/2003 change
-------------------------------------------------------------------------
US $ 1.2173 1.3173 -8% 1.2939 1.3641 -5%
Euro 1.5856 1.5665 +1% 1.6074 1.5692 +2%
Singapore $ 0.7364 0.7637 -4% 0.7664 0.7835 -2%
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Automation Systems Group
ASG revenue increased 22% in the third quarter compared to the third
quarter of last year as a result of a more than 100% increase in healthcare
revenue, a 67% increase in "other", which is primarily consumer products, and
a 15% increase in computer-electronics revenue. Growth in these areas more
than offset a decline in automotive revenue of $9.8 million and the negative
impact of foreign exchange. For the three and nine months ended
December 31, 2004, the estimated negative foreign exchange impact on ASG
revenue was $7.2 million and $22.3 million, respectively. The substantial
increase in healthcare revenues in recent quarters reflects the Company's
successful strategy and initiatives to expand its activities in this market
and growing acceptance of ASG's innovative technology solutions.
The increase in computer-electronics revenue resulted primarily from
successful sales initiatives by ASG's US West Coast operations, which led to
sizeable orders secured during the past few quarters. ATS continues to pursue
a balanced growth strategy that is intended to secure new revenue
opportunities in each of its target markets, sustain a healthy mix of new and
repeat orders, and mitigate cyclical risk through strategic marketing and
customer diversification.
ASG third quarter operating earnings were $9.8 million, a $6.3 million or
178% improvement over the third quarter a year ago reflecting higher revenues
and improved operating margins. At 6.8%, ASG operating margin improved
significantly over the margin of 3.0% in the same quarter a year ago due to
higher revenues and backlog and better resource utilization. Improved
performance was obtained from all ASG regions with the exception of Europe
where difficult market conditions continue to exist. The performance of ASG's
US West Coast operations continued to improve as a result of the substantial
order bookings in the past few quarters and better project execution achieved
under strengthened management.
Sequentially, ASG operating margin declined 0.9% from the second quarter
due largely to costs related to continuing expansion into healthcare and
continued currency fluctuations. The effect of foreign currency fluctuations
in the third quarter compared to the second quarter was an estimated reduction
in operating earnings of $1.2 million. During the quarter, ASG also incurred
costs to enhance its standard technologies, including SuperTrak(TM), ATS MACS
and ATS SmartVision, to meet both the current and future needs of the
healthcare market. As part of the Company's strategic initiative to diversify
revenue, the Company secured its first significant healthcare order for ATS
Europe. This project is expected to provide further skill development and
establish credibility for ATS Europe to attract additional healthcare business
in Europe. The Company expects to incur a loss on this project reflecting
first-time healthcare skills development at its European facilities. In
accordance with its accounting policies, the Company provided for this loss in
the third quarter. While this decision negatively impacted results in the
third quarter, management believes this strategic decision is an important
initiative to gain access to the significant healthcare markets in Europe.
Other factors that negatively impacted third quarter operating results
were further advancement of standard pharmaceutical inspection platforms,
personnel-related costs, non-recurring engineering costs, and increased profit
sharing expense tied to improved results in ASG. Compared to the same periods
of fiscal 2004, the estimated negative impact of foreign currency on ASG
operating earnings for the three and nine months ended December 31, 2004 was
$2.4 million and $11.2 million, respectively.
The ASG contract equipment manufacturing initiative to serve the
healthcare industry also continued to perform well, with substantial revenue
growth producing positive contributions to ASG operating income. Revenue from
this initiative in the third quarter was $8.9 million compared to $5.1 million
of the third quarter last year, a 75% increase. As part of this initiative,
the Company makes strategic use of PCG's infrastructure, lower wage rates and
repetitive manufacturing skill sets to successfully supply sophisticated
equipment and work cells.
ASG operating earnings for the first nine months of fiscal 2005 were
$26.5 million (operating margin of 6.6%) compared to $15.1 million (4.5%
operating margin) in the same period of fiscal 2004. The improvement in
operating results and margin reflects the factors previously discussed.
Subsequent to the third quarter, to accommodate growth of its ASG Ohio
operations, the Company entered into a contractual agreement, subject to
certain conditions, to purchase a 37,000 square foot facility adjacent its
existing facility for US$1.6 million.
Automation Systems Backlog
At December 31, 2004, ASG Order Backlog was $232 million, $51 million
(28%) higher than a year ago and $20 million (8%) lower than at the end of the
second quarter. New ASG Order Bookings totaled $124 million in the third
quarter, 32% higher than in the same period a year ago. Order Bookings for the
first nine months of fiscal 2005 were $395 million, 15% higher than a year
earlier. Order Bookings in the first five weeks of the fourth quarter were
$26 million.
Automation Systems Backlog by Industry
($ millions)
12/31/2004 12/31/2003
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Automotive $ 84 $ 64
Healthcare 83 38
Computer-Electronics 48 47
Other 17 32
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Total $ 232 $ 181
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Automation Systems Outlook: While order backlog has improved
significantly year-over-year, management believes that customers continue to
remain cautious toward capital spending. By market, the Company continues to
believe that healthcare offers excellent short and long-term growth
opportunities and significant resources have been allocated to capture these
opportunities. Certain areas of computer-electronics are also providing growth
opportunities, and as witnessed in the second quarter, some
computer-electronics customers appear more willing to commit to significant
projects than in the recent past. The automotive market continues to be
challenging; however, there continues to be a reasonably steady order flow
from this market, as evidenced by the $17 million automotive order that was
won and announced during the third quarter.
Management continues to respond to these market conditions by broadening
the Company's customer base into healthcare (including pharmaceutical,
biomedical and medical device customers), intensifying the marketing of ATS
standard technologies and developing new standard platform technologies for
launch at trade shows in fiscal 2006. In early fiscal 2006, ASG intends to
introduce three such platforms. These will be launched at the healthcare
industry's Interphex trade show in New York in April and are intended to
provide additional sales catalysts in high growth application areas including
automated vision inspection. ASG's Compliant Solutions(TM) group, which was
started at the beginning of this fiscal year, is progressing well. The group
has had success in winning a number of consulting service contracts and from a
strategic perspective, the group has also provided opportunities for much
larger automation systems orders.
Management believes that the Company's quotation activity in North
America, ASG's largest market, remains reasonably strong. Due to continuing
soft economic conditions for capital equipment manufacturers, Europe is
currently ASG's weakest geographic market and this will likely keep pricing
pressure intense in this region. Asian quoting activity has recently improved
as a result of increases in economic activity and the continuing migration of
manufacturing companies to Asian countries. However, Asia remains a price
sensitive market. The recent tragedy in southeast Asia caused by the tsunami
had no direct impact on ATS operations in this region.
Management believes that period-end order backlog continues to provide a
healthy foundation for growth and enhanced performance and the backlog is more
evenly distributed among ASG operating divisions than it was a year ago. These
factors are expected to facilitate further overall improvements in resource
utilization across many of the Company's ASG facilities and contribute to
higher operating margins and earnings.
Solar Group
Solar Group revenue, which is currently derived from Photowatt, was
$37.4 million (or 36%) higher in the third quarter compared to the third
quarter last year. As a result, the Group surpassed its previous record for
revenue set in the first quarter of fiscal 2005 and entrenched itself as ATS's
second largest operating Group. Over the first nine months of fiscal 2005,
Photowatt's revenue was $102.8 million, or 65% higher than in the comparable
period of fiscal 2004. The increase in revenues in the third quarter and on a
year to date basis over fiscal 2004 reflect continuing strong demand,
primarily as a result of attractive government incentive programs, and higher
market selling prices. Changes in exchange rates did not have a material
impact on Solar Group revenue or operating earnings for the three or nine
months ended December 31, 2004.
Solar Group operating earnings for the third quarter were $3.4 million,
compared to $2.1 million a year ago - also a new record. At 9.1% Solar
operating margin in the third quarter improved solidly over the 7.7% operating
margin in the same quarter a year ago. For the nine months ended
December 31, 2004 Solar Group operating earnings of $7.2 million were
$5.0 million higher than the $2.2 million earned in the first three quarters
of fiscal 2004 and year-over-year operating margin has more than doubled from
3.4% to 7.0%. Despite a more than 75% increase in the spot market prices of
silicon feedstock this year (a primary raw material in producing solar
products), growth in Solar Group operating earnings and operating margins in
both periods was achieved due to increased revenues, economies of scale,
silicon supply management, and continued efficiency gains from capital
investments made over the last two fiscal years.
Solar Outlook
Demand for Solar products is expected to remain strong as a result of
subsidy programs introduced in Germany at the beginning of calendar 2004 and
growing demand for clean renewable energy. Higher demand has resulted in
concerns about industry-wide shortages for silicon feedstock and has increased
silicon prices. Photowatt has secured sources of silicon for the majority of
its capacity for the next six months and is continuing to devote significant
efforts to secure silicon supply for the balance of 2006. Management believes
Photowatt will end fiscal 2005 with strong revenues and operating earnings,
although silicon shortages and traditional winter seasonality may moderate
volumes during the fourth quarter compared to the third quarter.
The Company's Spheral Solar Power ("SSP") development initiative
continues to progress. All factory workstations have now been activated,
enabling SSP to begin working on factory ramp up which is expected to continue
well into fiscal 2006 with target capacity expected to be achieved likely late
in fiscal 2006. In the fourth quarter SSP expects to ship very modest volumes
of SSP's flex module to catalogue retailers and distributors. These shipments
are intended to build credibility and further stimulate market demand.
Lifecycle testing completed to date on the durability and reliability of the
flex module has been positive. SSP also developed an initial prototype of its
integrated solar roofing technology in concert with its partners at Elk
Corporation. Elk is now developing marketing strategies for this product and
SSP is conducting accelerated life testing to verify this product can
withstand harsh environmental conditions. Management believes the outlook for
SSP is excellent because demand for solar is growing, SSP opens entirely new
solar market applications and is expected to use less silicon per watt than
conventional solar products.
During the quarter, as a result of the significant progress made in the
quarter with the commissioning of the commercial-scale SSP factory equipment,
the prototype pilot line and other related development tools were
de-commissioned. As such, approximately $7 million of capital assets were
re-classified in the quarter from capital assets to deferred development costs
on the balance sheet.
Precision Components Group
Third quarter PCG revenue decreased 16% or $5.4 million to $29.1 million
compared to the third quarter of fiscal 2004 as a result of weakness in the
automotive market and lower US exchange rates. Customer plant shutdowns in the
final month of the third quarter necessitated a two week shutdown of PCG
operations, which negatively affected revenues. The estimated negative foreign
exchange impact on revenue in the quarter and for the first nine months was
$2.7 million and $7.2 million, respectively.
PCG incurred an operating loss of $1.9 million compared to operating loss
of $1.0 million in the third quarter a year ago due to the aforementioned
customer plant shutdowns and low demand- which reduced overhead absorption -
as well as higher raw material costs, and the negative impact of foreign
currency. PCG's operating loss for the first nine months of fiscal 2005 was
$4.9 million compared to an operating loss of $1.7 million in the same period
of fiscal 2004, for the reasons previously mentioned. The estimated negative
impact of foreign currency on Group operating earnings was $1.7 million and
$3.4 million, for the three and nine months ended December 31, 2004.
Sequentially, PCG reduced its operating loss by $0.4 million or 17% from
the second quarter of fiscal 2005 due to the implementation of a number of
initiatives which are intended to restore profitability. As part of these
initiatives, employment was reduced year-over-year by 21% and at
December 31, 2004 PCG total employment was 7% lower than at the end of the
second quarter. Management estimates that as a result of its pricing
negotiation strategies, approximately $0.6 million (69%) of the increase in
PCG's steel purchase prices were recovered from customers in the quarter. In
the fourth quarter, as new pricing negotiated with customers takes effect, the
recovery of higher steel prices from customers is estimated to increase to
85%. Also included in these initiatives is a global raw material procurement
strategy, which did not reduce costs as much as expected in the third quarter
because it is taking longer than expected to qualify Asian sources. However,
savings from this program are being realized and are expected to accelerate in
the fourth quarter and into fiscal 2006. On a year-over-year basis, PCG's cost
saving measures were offset by the decline in revenue and effects of foreign
exchange.
On February 4, 2005, the Company announced, that as part of the
continuing strategic initiative to drive an earnings recovery for PCG, it will
close its manufacturing facility in McAllen, Texas. The closure of this
facility and the assimilation of McAllen's production into existing PCG
facilities are expected to reduce overall operating costs and improve asset
utilization. In accordance with GAAP, beginning in the fourth quarter of this
fiscal year, the Company expects to expense cash expenditures associated with
transferring production, relocating equipment and inventory and employment
severance. Management currently estimates that the cash costs associated with
moving the business will be approximately $1 million. Management believes it
is possible non-cash charges may also be incurred by the Group depending on
the amount of value realized on disposition of assets that will not be
transferred to other PCG facilities, including sale of the land and building,
which is owned by ATS. As of December 31, 2004, the book value of the land,
building and production equipment of ATS Texas was approximately
US$5.0 million and the operations had approximately 70 employees.
Precision Components Outlook
PCG continues to aggressively pursue an earnings recovery and as noted,
has streamlined its operations to create a stronger, more focused platform for
the future. More gains are expected to accrue from its global sourcing
strategy, and ongoing enhancement initiatives resulting from the application
of Six Sigma. It is unlikely that the Group will achieve profitability in the
fourth quarter given the challenge presented by the strong Canadian dollar and
volatile automotive market conditions. The effect of some of the more
significant initiatives will require time before expected benefits begin to be
realized. PCG also continues to actively quote, and has recently secured,
incremental new business that makes greater use of existing production
equipment and facilities as a means to further enhance operating income.
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness, at December 31, 2004 increased
$25 million during the third quarter of fiscal 2005. Cash provided from
operating activities was $24 million, an improvement of $8 million compared to
the third quarter of fiscal 2004. Cash flows from operating activities
increased for the third quarter of fiscal 2005 largely as a result of a
reduced working capital within ASG. ASG working capital requirements often
fluctuate significantly from quarter to quarter.
The Company invested $9 million in property, plant and equipment and
other investments, including deferred development, in the third quarter of
fiscal 2005. Investments made in SSP in the third quarter of fiscal 2005, net
of government funding, were $4 million for capital assets and deferred
development. Total investment in the SSP initiative, net of government
funding, was $91 million at December 31, 2004, including the costs of the
development program announced by ATS in July 2002 and the acquisition costs
for the initial technology and related assets. To date, all significant costs
of the development program, including the costs of acquiring the initial
technology, have been capitalized on the Company's balance sheet. The Company
expects the deferred development period for SSP will end no later than
September 30, 2005. During the quarter the Company began construction of a
57,000 square foot building addition in Oregon. This investment will allow the
Company to consolidate its Oregon ASG operations, reduce costs, and increase
efficiencies.
During the third quarter, 25,760 stock options were exercised for total
proceeds of $0.1 million. At December 31, 2004 the total number of shares
outstanding was 60,761,225.
Management believes the Company's cash flow from operations, sound
balance sheet and access to unutilized credit provide ATS with the financial
resources to execute its business plans and pursue strategic opportunities.
The Company's debt to equity ratio at December 31, 2004 was 0.1:1 unchanged
from September 30, 2004 and March 31, 2004. At December 31, 2004 the Company
had $90 million of unutilized credit available under existing operating and
term credit facilities. The Company is in compliance with its loan covenants.
Subsequent Event
Following the tragic passing of Mr. Klaus Woerner, ATS's President and
Chief Executive Officer, on February 7, 2005, the Company announced the
appointment of Ron Jutras as President and Chief Executive Officer of the
Company and Gerry Beard as Vice President and Chief Financial Officer of the
Company.
Under an agreement entered into in 1998, the Company was granted the
option by 566226 Ontario Ltd., a corporation controlled by Mr. Woerner, to
repurchase all or a portion of the shares held by 566226 Ontario Ltd., subject
to certain restrictions. This agreement was entered into to provide the
Company the ability to ensure an orderly disposition of shares controlled by
Mr. Woerner. This option expires on the 75th business day following his death.
To provide partial funding for the potential purchase of these shares the
Company has maintained a "key-man" life insurance policy in respect of Mr.
Woerner in the amount of $25,000,000. At this time, no decision has been made
with respect to the exercise of this option.
Consolidated Quarterly Results
($ in thousands, except Q3 Q2 Q1 Q4
per share amounts) 2005 2005 2005 2004
-------------------------------------------------------------------------
Revenue $206,873 $186,870 $189,305 $191,644
Net earnings (loss) from
continuing operations $ 6,098 $ 3,405 $ 3,392 $ (2,733)
Net earnings (loss) $ 5,627 $ 432 $ 2,780 $ (3,069)
Basic earnings per share
from continuing
operations $ 0.10 $ 0.06 $ 0.06 $ (0.05)
Basic earnings per share $ 0.09 $ 0.01 $ 0.05 $ (0.05)
Diluted earnings per share
from continuing operations $ 0.10 $ 0.06 $ 0.06 $ (0.05)
Diluted earnings per share $ 0.09 $ 0.01 $ 0.05 $ (0.05)
($ in thousands, except Q3 Q2 Q1 Q4
per share amounts) 2004 2004 2004 2003
-------------------------------------------------------------------------
Revenue $167,397 $144,038 $144,752 $136,092
Net earnings (loss) from
continuing operations $ (1,270) $ 743 $ 2,511 $ (3,877)
Net earnings (loss) $ (1,701) $ 372 $ 2,145 $ (4,624)
Basic earnings per share
from continuing
operations $ (0.02) $ 0.01 $ 0.04 $ (0.06)
Basic earnings per share $ (0.03) $ 0.01 $ 0.04 $ (0.08)
Diluted earnings per share
from continuing operations $ (0.02) $ 0.01 $ 0.04 $ (0.06)
Diluted earnings per share $ (0.03) $ 0.01 $ 0.04 $ (0.08)
Note: The above information has been restated for the thermals
discontinued operations.
Lease and Contractual Obligations
Information on the Company's lease and contractual obligations is
detailed in the annual financial statements and MD&A for the year ended
March 31, 2004. For the period ended December 31, 2004, the Company did not
enter into any material leases or any other material contractual obligations
which would be considered outside the normal course of operations.
February 9, 2005
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Earnings
(in thousands, except per share amounts - unaudited)
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
-------------------------------------------------------------------------
(as restated) (as restated)
Revenue $206,873 $167,397 $583,048 $456,187
Operating costs and
expenses:
Cost of revenue 170,737 143,147 479,748 376,614
Depreciation and
amortization 7,884 7,089 24,048 22,344
Selling and
administrative 18,679 15,628 58,065 50,563
Stock-based
compensation (note 4) 154 69 487 219
-------------------------------------------------------------------------
197,454 165,933 562,348 449,740
-------------------------------------------------------------------------
Earnings from operations 9,419 1,464 20,700 6,447
Other expenses (income):
Interest on long-term
debt 251 181 667 577
Other interest 48 (88) 444 (450)
-------------------------------------------------------------------------
299 93 1,111 127
-------------------------------------------------------------------------
Earnings from continuing
operations before income
taxes and non-controlling
interest 9,120 1,371 19,589 6,320
Provision for income taxes
- current period 2,934 484 6,515 2,190
Adjustment of future income
taxes due to increase in
corporate tax rates - 2,117 - 2,117
Non-controlling interest in
earnings of subsidiaries 88 40 179 29
-------------------------------------------------------------------------
Net earnings from
continuing operations 6,098 (1,270) 12,895 1,984
Loss from discontinued
operations, net of tax (471) (431) (4,056) (1,168)
-------------------------------------------------------------------------
Net earnings $ 5,627 $ (1,701) $ 8,839 $ 816
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share (note 5)
Basic - from continuing
operations $ 0.10 $ (0.02) $ 0.21 $ 0.03
Basic - from discontinued
operations (0.01) (0.01) (0.06) (0.02)
-------------------------------------------------------------------------
$ 0.09 $ (0.03) $ 0.15 $ 0.01
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted - from continuing
operations $ 0.10 $ (0.02) $ 0.21 $ 0.03
Diluted - from
discontinued operations (0.01) (0.01) (0.06) (0.02)
-------------------------------------------------------------------------
$ 0.09 $ (0.03) $ 0.15 $ 0.01
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
Consolidated Statements of Retained Earnings
(in thousands of dollars - unaudited)
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
-------------------------------------------------------------------------
Retained earnings,
beginning of period $202,034 $203,592 $198,822 $201,075
Net earnings 5,627 (1,701) 8,839 816
-------------------------------------------------------------------------
Retained earnings,
end of period $207,661 $201,891 $207,661 $201,891
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
-------------------------------------------------------------------------
December 31 March 31
2004 2004
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments $ 47,621 $ 38,551
Accounts receivable 149,459 130,406
Income taxes recoverable 9,937 3,780
Costs and earnings in excess of billings on
contracts in progress 93,368 102,404
Inventories 72,387 74,161
Other 3,734 3,873
-------------------------------------------------------------------------
376,506 353,175
Property, plant, and equipment 261,146 267,069
Goodwill 56,753 59,533
Intangible assets 3,922 6,001
Future income tax assets 13,042 10,759
Deferred developments costs 36,973 25,076
Other assets 5,144 5,666
-------------------------------------------------------------------------
$753,486 $727,279
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 7,085 $ -
Accounts payable and accrued liabilities 93,541 95,074
Billings in excess of costs and earnings on
contracts in progress 30,062 19,026
Future income taxes 29,225 21,497
-------------------------------------------------------------------------
159,913 135,597
Long-term debt 40,628 44,447
Future income taxes 19,485 16,061
Non-controlling interest 515 405
Shareholders' equity:
Share capital 332,180 331,765
Retained earnings 207,661 198,822
Contributed surplus 767 280
Cumulative translation adjustment (7,663) (98)
-------------------------------------------------------------------------
532,945 530,769
-------------------------------------------------------------------------
$753,486 $727,279
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
-------------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings $ 5,627 $ (1,701) $ 8,839 $ 816
Items not involving cash 10,928 9,991 37,508 27,323
Stock-based compensation 154 69 487 219
-------------------------------------------------------------------------
Cash flow from operations 16,709 8,359 46,834 28,358
Change in non-cash
operating working
capital 7,771 8,530 (14,551) (4,179)
-------------------------------------------------------------------------
24,480 16,889 32,283 24,179
Cash flow from investing
activities:
Acquisition of interest
in subsidiaries - - - (650)
Acquisition of property,
plant, and equipment (6,154) (23,885) (30,260) (55,954)
Investments and other (2,359) (2,658) (8,890) (6,951)
Proceeds from disposal
of assets held for sale 10,261 - 10,261 8,877
-------------------------------------------------------------------------
1,748 (26,543) (28,889) (54,678)
Cash flows from financing
activities:
Bank indebtedness (8,091) - 7,085 -
Issuance of common shares 73 157 415 204
Other 10 (2) (88) 6
-------------------------------------------------------------------------
(8,008) 155 7,412 210
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments (1,235) (1,212) (1,736) (4,407)
-------------------------------------------------------------------------
Increase (decrease) in cash
and short-term investments 16,985 (10,711) 9,070 (34,696)
Cash and short-term
investments, beginning
of period 30,636 58,348 38,551 82,333
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 47,621 $ 47,637 $ 47,621 $ 47,637
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Cash income taxes paid $ 388 $ 1,319 $ 1,940 $ 4,638
Cash interest paid $ 337 $ 142 $ 981 $ 583
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
-------------------------------------------------------------------------
These statements have not been reviewed or audited by the Company's
auditor.
1. Significant accounting policies:
(i) 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, 2004, 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
2004 Annual Report.
(ii) 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. New accounting standards:
Effective April 1, 2004, the Company implemented, on a prospective
basis, the Canadian Institute of Chartered Accountants' Accounting
for Hedging Relationships Guideline ("AG-13") and EIC-128. AG-13
deals with the identification, documentation, designation, and
effectiveness of hedges. EIC-128 provides the accounting for
financial instruments that do not qualify for hedge accounting under
AG-13. Upon implementation of these new standards, the Company
assessed all existing derivative financial instruments and formally
designated certain qualifying financial instruments as hedges. Any
gains or losses on these designated instruments are offset against
the item being hedged. All derivative financial instruments that have
not been specifically designated or that do not meet the criteria for
hedge accounting are marked to market. For these undesignated
financial instruments the related gains or losses are included in
earnings for the period with an offsetting asset or liability being
recorded. The adoption of the new recommendations had no material
impact on the Company's interim consolidated financial statements for
the three or nine months ended December 31, 2004.
3. Discontinued operations and assets held for sale:
(i) During the three months ended September 30, 2004, the Company
committed to a plan to sell the key intellectual property, inventory
and operating assets of its thermal management products business
("Thermals Assets"). Accordingly, the results of operations of the
Thermals Assets have been segregated and presented separately as
discontinued operations in the accompanying interim consolidated
financial statements. During the three months ended December 31,
2004, the Company completed the sale of the Thermals Assets for net
cash proceeds of $8.6 million. The after-tax gain on the sale of the
Thermals Assets in the three months ended December 31, 2004 was
$0.2 million, which was offset against the thermals net operating
losses for the three months ended December 31, 2004 of $0.3 million.
The results of the discontinued thermal business operations were as
follows:
Three months ended Nine months ended
---------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
---------------------------------------------------------------------
Revenue $ 476 $ 6,957 $ 5,029 $ 15,231
Loss from operations $ (721) $ (653) $ (6,154) $ (1,335)
Income tax recovery 602 222 2,450 453
---------------------------------------------------------------------
Loss from discontinued
operations $ (119) $ (431) $ (3,704) $ (882)
---------------------------------------------------------------------
The discontinued operations for the three months ended September 30,
2004 include an after-tax expense of $1,980,000 (pre-tax $3,000,000)
to reduce the Thermals Assets to their estimated net realizable
value.
(ii) During the three months ended September 30, 2004, the Company
also committed to a plan to sell its remaining corporate aircraft
assets. During the three months ended December 31, 2004, these assets
sold for proceeds of $1.8 million. The sale of these assets generated
a before tax gain of approximately $0.8 million, which was recognized
in the consolidated statement of earnings for the three months ended
December 31, 2004.
(iii) During the three months ended June 30, 2003, the Company
committed to a plan to sell, and subsequently sold, 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. During the three months ended December 31, 2004, the
Company settled outstanding matters related to Eco-Snow resulting in
a loss from discontinued operations in the three and nine months
ended December 31, 2004. The results of the discontinued operations
were as follows:
Three months ended Nine months ended
---------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
---------------------------------------------------------------------
Revenue $ - - $ - 963
Loss from operations $ (587) - $ (587) (477)
Income tax recovery 235 - 235 191
---------------------------------------------------------------------
Loss from discontinued
operations $ (352) - $ (352) (286)
---------------------------------------------------------------------
4. Stock-based compensation:
In the calculation of the stock-based compensation expense in the
Consolidated Statements of Earnings, the fair values of the Company's
stock option grants were estimated using the Black-Scholes option
pricing model with the following weighted average assumptions and
data:
Three months ended Nine months ended
---------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
---------------------------------------------------------------------
Risk-free interest rate - 4.1% 3.6% 4.4%
Dividend yield - 0.0% 0.0% 0.0%
Expected life (years) - 5.0 5.5 5.0
Expected volatility - 38.0% 38.0% 38.0%
Number of stock options
granted (thousands) - 75.0 430.0 505.0
Weighted average of
exercise price per
option (dollars) - 13.0 11.5 9.3
Weighted average
Black-Scholes value
per option (dollars) - 5.22 4.67 3.73
---------------------------------------------------------------------
---------------------------------------------------------------------
The Company began expensing employee stock-based compensation for all
awards on or after April 1, 2003 using the fair value based method in
the three months ended March 31, 2004, previously disclosed quarterly
periods of fiscal 2004 have been restated for the change in
accounting policy.
5. Weighted average number of shares:
Weighted average number of shares used in the computation of earnings
per share is as follows:
Three months ended Nine months ended
---------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
---------------------------------------------------------------------
Basic 60,748 60,601 60,719 60,582
Diluted 60,870 61,104 60,903 61,011
---------------------------------------------------------------------
---------------------------------------------------------------------
6. 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 through Photowatt International S.A. and also
includes the Company's investment in the Spheral Solar(TM) Power
initiative.
The Company accounts for inter-segment revenue at current market
rates, negotiated between the segments.
Three months ended Nine months ended
---------------------------------------------------------------------
December December December December
31 2004 31 2003 31 2004 31 2003
---------------------------------------------------------------------
(as restated) (as restated)
Revenue
Automation Systems $144,642 $118,534 $401,344 $332,137
Solar 37,419 27,506 102,783 62,435
Precision Components 29,115 34,479 93,473 93,014
Elimination of
inter-segment
revenue (4,303) (13,122) (14,552) (31,399)
---------------------------------------------------------------------
Consolidated $206,873 $167,397 $583,048 $456,187
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems $ 9,843 $ 3,544 $ 26,500 $ 15,095
Solar 3,387 2,116 7,160 2,152
Precision Components (1,891) (982) (4,895) (1,714)
Inter-segment
elimination and
corporate expenses (1,920) (3,214) (8,065) (9,086)
---------------------------------------------------------------------
Consolidated $ 9,419 $ 1,464 $ 20,700 $ 6,447
---------------------------------------------------------------------
---------------------------------------------------------------------
7. Subsequent event:
On February 4, 2005, the Company publicly announced its decision to
close its McAllen, Texas Precision Components manufacturing facility.
Management anticipates transferring all significant programs and
equipment from the McAllen facilities to its Canadian manufacturing
facilities. Cash expenditures associated with the transfer of this
business and closure of the facility is currently estimated to be
approximately $1.0 million. Non-cash charges may also be incurred by
the Company depending on the amount of value realized on disposition
of assets that will not be transferred to other facilities, including
the sale of the land and building, which is owned by the Company.
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
For further information: Ron Jutras, President and Chief Executive Officer, (519) 653-6500; Carl Galloway, Corporate Treasurer, (519) 653-6500