ATS reports dramatic growth in fourth quarter automation
systems and solar performance
TSX: ATA
CAMBRIDGE, ON, May 26 /CNW/ - ATS Automation Tooling Systems Inc. today
reported net earnings from continuing operations of $14.6 million (24 cents
per share basic and diluted) for the three months ended March 31, 2005 -
compared to a net loss from continuing operations of $0.8 million (loss of
1 cent per share basic and diluted) a year ago.
Automation Systems Group (ASG) and Solar Group both reported a
significant acceleration in operating earnings in the fourth quarter, with ASG
operating margins increasing to 8.4% from 5.5% in the fourth quarter a year
ago and Solar operating margins increasing to a record high of 14.6% from 8.0%
in the comparable quarter a year ago.
Fourth Quarter Financial Highlights
- Consolidated revenue increased 14% to $208.7 million from
$182.9 million in the fourth quarter a year ago. ASG revenue grew 9%
to $146.1 million reflecting strong growth in the healthcare market.
Solar Group revenue increased 57% to $41.0 million. These increases
more than offset a 16% decrease in Precision Components Group (PCG)
revenue, which totaled $25.5 million.
- ASG operating earnings were up 67% to $12.3 million from $7.4 million
in the fourth quarter of fiscal 2004 on much stronger operating
margins.
- ASG operating earnings of $12.3 million include unusual costs of
$3.5 million related to an allowance for two customer credit-related
matters. Excluding these unusual costs, ASG operating margins would
have been 10.8%.
- Solar Group operating earnings were a record $6.0 million, compared to
$2.1 million a year ago on the strength of continued demand for solar
products and better than anticipated production improvements in the
quarter.
- PCG continuing operations were breakeven in the fourth quarter
compared to a loss of $0.9 million in the same period a year ago. The
results for the fourth quarter of fiscal 2005 included a charge of
$0.5 million as a result of a program that will be terminated due to
management's rationalization initiatives in fiscal 2005.
- During fiscal 2005 and in early fiscal 2006, the Company has
rationalized PCG to improve its focus and prospects. Part of this
initiative includes the planned divesture of its precision metals
division. Accordingly, the precision metals results have been treated
as a discontinued operation.
- The total loss in the quarter from discontinued operations was
$14.1 million (23 cents per share), including a $12.8 million after
tax, non-cash charge to write-down the value of the precision metals
assets to their estimated net realizable value. The actual value
realized on disposition of these assets will be determined upon
negotiation and completion of the planned sale and may vary from this
estimate.
- A non-cash goodwill impairment charge of $22.2 million ($20.7 million
after-tax, or 34 cents per share) was taken in the fourth quarter to
write-down the value of PCG's goodwill, reflecting broad based
challenges in the automotive industry and the decline in the value of
the Canadian dollar over the past two years.
- The Company recorded a gain of $27 million (44 cents per share) from
key-man life insurance proceeds. Subsequent to quarter end,
$25 million of these proceeds were used to exercise and complete an
option to repurchase and cancel 1,974,723 ATS common shares at a price
of $12.66 per share.
- Net earnings were $0.5 million (1 cent per share basic and diluted)
compared to a net loss of $3.1 million (loss of 5 cents per share
basic and diluted) a year ago.
- New automation systems Order Bookings were $87 million, compared to
$184 million a year ago.
- Automation systems Order Backlog was $169 million compared to
$227 million at March 31, 2004 and $232 million at December 31, 2004.
Fiscal 2005 Annual Financial Highlights
ATS also made substantial improvements during the twelve months ended
March 31, 2005.
- Consolidated revenue from continuing operations increased 25% to a
record $770.9 million from $616.9 million in fiscal 2004. In fiscal
2005, ASG revenue increased 17% to a record $547.4 million from
$466.7 million, while Solar Group's revenue was a record
$143.8 million, or 62% higher than in fiscal 2004. PCG revenue
declined 3% to $98.1 million from $101.3 million in fiscal 2004.
- ASG operating earnings increased 73% to $38.8 million (operating
margin of 7.1%) compared to $22.5 million (4.8% operating margin) in
the same period of fiscal 2004. Solar Group operating earnings
increased more than three fold to $13.1 million from $4.2 million
while operating margin increased to 9.1% from 4.8%.
- PCG's operating loss from continuing operations was $0.4 million
compared to an operating loss of $1.7 million in fiscal 2004.
- Net earnings from continuing operations were $30.5 million (50 cents
per share basic and diluted) compared to $1.7 million (3 cents per
share basic and diluted) a year ago.
- Net earnings were $9.3 million (15 cents per share basic and
diluted) compared to a net loss of $2.3 million (loss of 4 cents per
share basic and diluted) in the prior year.
"ATS achieved dramatically improved operating results in Automation
Systems Group in the fourth quarter by capitalizing on revenue growth and more
effectively managing and utilizing our resources to deliver higher operating
margins," said Ron Jutras, ATS President and Chief Executive Officer. "In
fact, Group operating margins advanced to 8.4% in the quarter - and would have
been 10.8% had it not been for an allowance taken for two customers
experiencing financial difficulty. We're also very pleased with the progress
we've made in healthcare and pharmaceuticals where revenue more than doubled
in both the fourth quarter and for the full fiscal year compared to a year
ago. We continue to strategically target growth in the most attractive
segments of our markets and on balance, ASG's revenue and margins in the
fourth quarter and for all of fiscal 2005 reflected this focus."
In commenting on Solar Group results, Mr. Jutras said: "Our second
largest operating group continued to set new performance records in the fourth
quarter - surpassing the previous record highs for revenue, margins and
operating earnings. In fact, operating margins were 14.6%, clearly
demonstrating the value being created within our solar operations as a result
of the significant strides made through the continuous optimization of
Photowatt's highly automated factory in France, strong market demand, and to a
lesser degree higher selling prices. Strong market demand for solar further
reinforces the potential of our new Spheral Solar Power technology. In April
we achieved a critical milestone by producing our first factory functional
cells and shipping initial SuperFlex modules. As a result we have now started
the first phases of our factory optimization plan."
With respect to the continuing Precision Components Group, Mr. Jutras
said: "As expected, PCG continued to progress towards returning to
profitability and achieved breakeven results in spite of the charge we
recorded to recognize the upcoming termination of an underperforming customer
program. This turnaround was delivered despite the 16% decrease in PCG
revenue. We believe the stronger focus of PCG over the past year as shown by
asset and program rationalizations - notably the sale of its thermal products
business last fall, the previously announced closure of a manufacturing plant
in Texas, and the recently announced decision to divest the precision metals
division - are necessary steps on our path back to sustainable profitability.
The transfer of customer programs from Texas is on schedule to be completed
next month. Negotiations to sell the metals division are ongoing. All of these
steps are important in creating a healthy platform for PCG going forward."
Looking Forward
"We made significant progress in our operating margin performance in the
fourth quarter showing that the initiatives we have taken are beginning to pay
off," said Mr. Jutras. "Our near-term concern is the delays in customer order
placement experienced in the past couple of months within the ASG business.
These delays are frustrating because quotation activity is extremely robust.
But in context, the flow of sales orders is seldom ideal in the automation
industry and we have seen delays like this in the past. This is why the
diversification we've achieved in recent years is so vital. We engage in
active, ongoing discussions with our customers and from our vantage point, we
are confident these delays are temporary. As a result, it's critically
important that we retain our valued productive resources while we work
aggressively to convert prospects into firm orders. It's obvious that the
sales cycle for our automation systems has lengthened over the past few months
for a variety of customer specific reasons. What's important to us is that our
order prospects have not disappeared - we think they have gotten stronger. We
believe our competitive advantages are greater than ever and ATS is better
positioned to secure new business globally than ever before."
ATS continues to introduce new services and new technologies to meet the
needs of the Company's broadening customer base. In April, ASG successfully
introduced three new platforms at Interphex, the pharmaceutical industry's
largest trade show. ATS Compliant Solutions(TM), the Company's consulting
service for healthcare and pharmaceuticals, achieved its first year financial
goals for consulting revenue and earnings and helped ATS establish
relationships with several significant new customers in the sector. The
outlook for the Company's contract healthcare equipment manufacturing
initiative is also very positive and in fiscal 2005, this activity produced
revenue of $30.6 million, 87% more than the year before.
With respect to Solar Group, Mr. Jutras said: "Demand for solar products
is expected to remain robust well into fiscal 2006 and our manufacturing
efficiency and throughput at Photowatt have shown additional major
improvements this year. We continue to actively manage the tight supply and
rising prices of silicon feedstock. While the effects of tight silicon supply
are uncertain, we believe Photowatt has secured sources for a significant
amount of its capacity for fiscal 2006. As a result we expect Photowatt's
operating performance to remain strong. "
"Significant solar market demand makes a great environment for us to
launch our SSP technology," said Mr. Jutras, "and we reached an important
technical milestone in April by shipping our first fully functional SuperFlex
products produced on SSP factory systems. As expected production volumes are
very modest but we have now reached the next stage of our plan that will put
the SSP factory through a deliberate and focused program of optimization. This
is the normal course of commissioning a manufacturing facility of this
magnitude. Our first optimization cycle is well underway and in June we will
go into an intensive improvement stage which is expected to last approximately
one month. We will then restart production, assess performance and begin a new
round of optimization, each time gaining throughput and capacity improvements.
Each stage of this optimization process should be shorter in duration. We're
excited about all of our prospects for SSP and especially delighted with the
commitment being made to our integrated roofing system technology by Elk
Corporation."
The outlook for PCG is "cautious but improving," said Mr. Jutras.
"Realistically, it is unlikely that the Group will achieve satisfactory levels
of profitability until the second half of fiscal 2006 due to the costs of
consolidating the McAllen business, the traditional summer shut-downs and the
continued volatility in the automotive market. Our near-term goal is to
complete the strategic initiatives taken over the past few months which we
believe will further improve profitability at PCG."
Management Appointments
ATS also today announced the recruitment of Syl Ghirardi to the newly
created position of President and Chief Executive Officer of the ATS Solar
Group and the appointment of ATS veteran Joe Aikins to the position of Vice
President of Systems Operations, ASG East.
"Our entire team has a strong mandate to achieve the financial and
operational goals that will enhance shareholder and customer value," said Mr.
Jutras. "We intend to realize improvements in all Groups and build on the
industry leadership established so effectively under our founder Klaus
Woerner. I've spent a great deal of time over the past four months meeting
with customers and I'm delighted with the universal support for the direction
we are taking."
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 fourth 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 MD&A for the full fiscal year ended March 31, 2005 which
will be contained in the Fiscal 2005 annual report when it becomes available.
Certain forward-looking statements are made in this news release and
accompanying 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 2005 annual report, MD&A, and audited financial statements,
and other regulatory documents, as they become available.
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. ATS is also an
emerging leader in the rapidly growing market for solar energy cells and
modules. The Company also makes precision components and subassemblies using
its own custom-built manufacturing systems, process knowledge and automation
technology. ATS employs approximately 4,200 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.
Management's Discussion and Analysis
This MD&A for the three months ended March 31, 2005 (fourth quarter of
fiscal 2005) provides detailed information on the Company's operating
activities of the fourth quarter and should be read in conjunction with the
unaudited interim consolidated financial statements for the three and twelve
months ended March 31, 2005 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, second and third
quarter MD&A and, accordingly, the purpose of this document is to provide a
fourth quarter update to the information contained in the MD&A section of the
2004 Annual Report. These documents and other information relating to the
Company, including the Annual Information Form, may be found on SEDAR at
www.sedar.com. The Company's annual MD&A and audited financial statements for
the year ended March 31, 2005 will be filed with SEDAR and available on its
website on or before June 29, 2005.
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.
Consolidated Results of Operations
Consolidated revenue from continuing operations for the three months
ended March 31, 2005 was $208.7 million, $25.8 million or 14% higher than a
year earlier. This reflected 9% and 57% 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 months ended March 31, 2005 compared to the same period of fiscal
2004, by an estimated $11.0 million.
Consolidated earnings from operations for the three months ended
March 31, 2005 were $15.4 million, $9.7 million higher than in the fourth
quarter of fiscal 2004. Higher earnings from operations were the result of
stronger performances by ASG and Solar, and the improving performance of the
continuing PCG segment. The negative impact of the change in foreign exchange
rates on consolidated earnings from operations for the three months ended
March 31, 2005 was an estimated $1.9 million compared to the same period of
the prior year.
Consolidated selling, general and administrative (SG&A) costs increased
23% in the fourth quarter compared to the same quarter of fiscal 2004.
Contributing to increased SG&A was a $3.5 million allowance taken related to
the deteriorating financial situation of two ASG customers, higher profit
sharing expenses associated with the increased profitability of Solar and
certain ASG divisions, and higher selling costs to support revenue growth.
The interest expense in the fourth quarter reflected reduced cash
balances and higher interest rates compared to a year ago.
Unusual Items
PCG Charges: The results from continuing operations for the fourth
quarter of fiscal 2005 included non-cash charges related to PCG aggregating
$23.2 million ($21.3 million after-tax, or $0.35 per share) recorded in the
period. These items consisted of:
- A $22.2 million ($20.7 million after tax) non-cash charge related to
the write-down of goodwill. The annual review of goodwill concluded
that the value of the PCG goodwill was impaired as a result of both
continued sector-wide difficulties in the North American automotive
industry, and the substantial decline in the value of the US dollar.
- A $1.0 million ($0.6 million after tax) non-cash charge, related to
the previously announced closure of PCG's McAllen, Texas facility,
to reflect the expected net realizable value on the disposition of
assets that will not be transferred to other PCG facilities,
including the land and building.
Insurance Proceeds: During the quarter ended March 31, 2005, the Company
received proceeds of $25.0 million and $2.0 million (totaling $0.44 per share)
from two life insurance policies as a result of the death of the Company's
founder, Mr. Klaus Woerner. The $25.0 million of life insurance proceeds was
received by the Company under a life insurance policy that was established in
conjunction with the Company entering into an option to repurchase certain
shares held by Mr. Woerner (see Subsequent Events). The remaining $2 million
of life insurance proceeds will be used to fund the transition costs
associated with the change in Company leadership. These costs began to be
incurred in the fourth quarter and will continue into fiscal 2006.
Other Charges: During the quarter ended March 31, 2005, due to events
that occurred during the quarter, certain of the Company's portfolio and
technology investments were written down by $1.2 million ($0.8 million after
tax) to reflect their estimated net realizable value.
Discontinued Operations: During the quarter ended March 31, 2005, the
Company incurred an after-tax loss from discontinued operations of $14.1
million ($0.23 per share basic and diluted) mainly related to the Company's
initiatives to strengthen ongoing performance of PCG.
During the fourth quarter the Company committed to a plan to sell the
precision metals division of the Precision Components Group ("Precision
Metals"). Accordingly, the results and financial position of the Precision
Metals business have been segregated and presented separately as "discontinued
operations" and "assets held for sale" in the accompanying interim financial
statements. The loss from discontinued operations of $14.1 million for the
fourth quarter included an after-tax non-cash charge of $12.8 million (pre-tax
$19.0 million) to reduce the carrying value of the Precision Metals assets to
management's estimate of their net realizable value. The Company is currently
in discussions with potential acquirers of these assets with the intention to
conclude a sale during fiscal 2006. As the assets have not yet been sold,
actual net realizable value of the Precision Metals assets could differ
materially from management's current estimate.
See Note 3 to the Consolidated Interim Financial Statements for further
details on the net loss from discontinued operations. Restated quarterly
financial results for fiscal 2004 and 2005 are available on the ATS website
(www.atsautomation.com).
Net Earnings
Net earnings from continuing operations for the fourth quarter of fiscal
2005 increased to $14.6 million compared to a loss of $0.8 million from
continuing operations in the fourth quarter of fiscal 2004. On a per share
basis, net earnings from continuing operations for the quarter increased to
$0.24 per share basic and diluted, from a loss of $0.01 per share basic and
diluted, in the same period a year ago. The negative impact of changes in
foreign exchange rates for the three months ended March 31, 2005 reduced net
earnings from continuing operations by an estimated $1.3 million ($0.02 per
share) compared to the same period of last year.
Net earnings for the fourth quarter of fiscal 2005 were $0.5 million
($0.01 per share basic and diluted) compared to a loss of $3.1 million (loss
of $0.05 per share basic and diluted) a year ago.
Revenue by Industry
($ millions)
Three months ended Year ended
03/31/2005 03/31/2004 03/31/2005 03/31/2004
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Automation Systems Group:
Automotive $ 47.0 $ 48.8 $ 167.3 $ 196.8
Computer-electronics 39.4 44.5 161.4 156.0
Healthcare 49.0 24.0 166.5 71.6
Other 10.7 17.3 52.2 42.3
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Subtotal 146.1 134.6 547.4 466.7
Solar Group 41.0 26.1 143.8 88.5
Precision Components Group:
Automotive 22.7 26.1 86.7 86.3
Computer-electronics 0.7 1.9 4.6 8.1
Other 2.1 2.5 6.8 6.9
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Subtotal 25.5 30.5 98.1 101.3
Inter-segment Elimination (3.9) (8.3) (18.4) (39.6)
-------------------------------------------------------------------------
Total Consolidated
Revenue $ 208.7 $ 182.9 $ 770.9 $ 616.9
-------------------------------------------------------------------------
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Consolidated Revenue by Customer Site
($ millions)
Three months ended Year ended
03/31/2005 03/31/2004 03/31/2005 03/31/2004
-------------------------------------------------------------------------
US & Mexico $ 97.0 $ 112.5 $ 399.8 $ 351.6
Europe 73.0 49.0 247.3 173.4
Canada 14.1 7.8 41.3 50.5
Asia-Pacific and other 24.6 13.6 82.5 41.4
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Total $ 208.7 $ 182.9 $ 770.9 $ 616.9
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Automation Systems Group
ASG revenue increased 9% in the fourth quarter compared to the fourth
quarter of last year primarily as a result of a 104% increase in healthcare
revenue, which reflects the Company's successful long-term strategy to expand
into healthcare and pharmaceutical markets, growing acceptance of ASG's
innovative technology solutions and capabilities for this market, and
healthcare orders in backlog. For the three months ended March 31, 2005, the
estimated negative foreign exchange impact on ASG revenue was $8.4 million
compared to the same period of the prior year.
In the fourth quarter, ASG revenue continued to reflect the benefits of
the initiatives taken to maintain diversified markets in the automotive,
computer-electronics and healthcare industries. Changes in revenue quarter to
quarter in any given market reflect the level of work in progress and backlog
in that market entering the quarter. Computer-electronics and other revenue
was lower in the fourth quarter, reflecting customary fluctuations. Compared
to the fourth quarter of last year, all ASG operating regions experienced
increases in revenues, including its Asia operating facilities which achieved
a more than 25% increase in revenues compared to the fourth quarter of fiscal
2004.
ASG fourth quarter operating earnings were $12.3 million, a $4.9 million
or 67% improvement over the fourth quarter a year ago reflecting higher
revenues and improved operating margins. At 8.4%, ASG operating margins
improved significantly over the margin of 5.5% in the same quarter a year ago
due to higher revenues, better resource utilization and improved order
execution.
ASG's operating margins in the fourth quarter were negatively impacted by
an allowance totaling $3.5 million for two customers whose financial condition
deteriorated in the quarter. Excluding this allowance, ASG operating margin
would have been 10.8% instead of the 8.4% recorded in the quarter. Despite
continued challenging market conditions, operating margins in Europe showed
meaningful improvements. The Company's Asian operations produced attractive
and significantly improved operating results, achieving higher operating
margins on increased revenue. Compared to the same period of fiscal 2004, the
estimated negative impact of foreign currency on ASG operating earnings for
the three months March 31, 2005 was $1.5 million.
ASG operating margins improved sequentially over the third quarter of
fiscal 2005, despite the $3.5 million negative impact of customer credit
issues, largely due to continuing expansion into healthcare, lower development
expenditures for standard platform technologies in the quarter, increased
usage of these ATS standard systems, and improved overall ASG facility
utilization in all four ASG regions.
The contract equipment manufacturing business, which serves the
healthcare industry, also continued to perform well, with substantial revenue
and earnings growth in the fourth quarter. Revenue from this activity in the
fourth quarter was $7.1 million compared to $4.8 million in the fourth quarter
last year, a 48% increase. This growing business leverages PCG's repetitive
manufacturing capabilities, infrastructure, attractive labour structure, and
facilities to successfully supply standardized sophisticated equipment and
work cells to customers on a repetitive basis.
Automation Systems Backlog
At March 31, 2005, ASG Order Backlog was $169 million, $58 million (26%)
lower than a year ago and $63 million (27%) lower than at the end of the third
quarter. New ASG Order Bookings totaled $87 million in the fourth quarter,
compared to $184 million in the same period a year ago. Order Bookings to date
in the first quarter were $43 million.
Automation Systems Backlog by Industry
($ millions)
03/31/2005 03/31/2004
-------------------------------------------------------------------------
Automotive $ 72 $ 74
Healthcare 55 88
Computer-Electronics 27 41
Other 15 24
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Total $ 169 $ 227
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Automation Systems Outlook:
Management believes that near term order prospects remain strong.
However, it has seen an increase in the number and length of order delays over
the past few months resulting in lower order bookings and order backlog. The
decline in order backlog, primarily in the Company's Canadian facilities,
makes ASG's short-term outlook more dependent on obtaining new order
placements in the current quarter.
Management believes recent order delays reflect a variety of customer
related factors. Management also believes delays may reflect the longer sales
cycle in the healthcare industry and customers in all markets may be cautious
toward capital spending in the current environment. Based on ongoing and
active communications with customers, management believes that potential
orders have been only temporarily delayed and that it must retain its current
productive resources to secure orders and drive revenue while it works
aggressively to rapidly translate quotations into orders.
By region, Europe remains ASG's weakest geographic market and pricing
pressure remains high. Asian quoting activity remains strong. There are many
new opportunities for ATS in Asia as a result of high levels of economic
activity, and the Company's growing local ability to serve the increasing
number of manufacturing companies migrating to the region. ATS has a solid and
expanding presence in Asia - having opened its planned new ASG manufacturing
facility in Penang, Malaysia subsequent to quarter-end.
Quotation activity in North America, ASG's largest market, remains
robust. Management is confident of ASG's potential and believes the list of
prospective orders continues to build.
Solar Group
Solar Group revenue, which is currently derived from Photowatt, was
$41.0 million, 57% higher compared to the fourth quarter last year. As a
result, the Group surpassed expectations and its previous record for revenue
set in the third quarter of fiscal 2005. The increase in revenue in the fourth
quarter reflected continuing strong demand for solar products, primarily as a
result of attractive current government incentive programs. More importantly,
improving capacity utilization and significantly enhanced throughput provided
higher unit sales and revenues.
Solar Group operating earnings for the fourth quarter were $6.0 million
(14.6% operating margin), compared to $2.1 million (8.0% operating margin) a
year ago - also higher than expectations and a new record. In the fourth
quarter, significant improvements in production yields and throughput were
achieved as a result of continued optimization of the capital investments that
were made over the past two years. Growth in Solar Group operating earnings
and operating margins in the quarter also reflected increased revenues and
economies of scale, active silicon supply management, increasing solar cell
efficiencies and higher selling prices.
Solar Outlook
Demand for Solar products is expected to remain strong into fiscal 2006
as a result of continuing European subsidy programs and growing demand for
clean renewable energy. The growing shortage of silicon feedstock, a primary
raw material in most solar cell manufacturing, continues to be an industry
concern and silicon prices have increased significantly over the past year.
Photowatt believes it has secured sources of silicon for a significant amount
of its capacity for fiscal 2006 and is continuing to devote resources to
secure additional supply. Due to its ongoing silicon supply management
efforts, during fiscal 2005 Photowatt mitigated some of the significant
increases in the market prices for silicon. However, Photowatt's silicon costs
are expected to increase during fiscal 2006 as its inventory of lower priced
silicon is consumed and silicon purchases are made at higher prices. Further
increases are expected in equipment optimization and throughput during fiscal
2006 however there is a risk that these benefits may not be able to fully
offset higher silicon prices. Management plans to use the strong cash flow
generation of Photowatt to fund Photowatt's near-term capacity expansion and
silicon supply initiatives.
The Company's Spheral Solar Power (SSP) development during the quarter
focused on producing the first full size functional SSP solar cells from the
production equipment now installed at the factory. This major milestone was
achieved in April. With completion of this milestone, the commercialization
program has moved into the initial stage of manufacturing optimization. This
phase is expected to increase production volumes from the very modest output
now being produced up to the targeted factory nameplate capacity of 20
megawatts per annum. Initial production has provided valuable insights that
the Company is using to identify areas for refinement within the plant's 26
workstations. This methodical and deliberate approach to factory ramp up is
vital to ensure the factory can achieve intended yields at full capacity.
Unprecedented demand for clean, renewable solar energy globally has
created substantial interest in SSP's products among wholesalers, distributors
and retailers.
Precision Components Group
Fourth quarter PCG revenue from continuing operations decreased 16% or
$5.0 million to $25.5 million compared to the fourth quarter of fiscal 2004 as
a result of continued weakness in certain elements of the North American
automotive sector and lower US exchange rates. The estimated negative foreign
exchange impact on revenue in the quarter was $1.4 million compared to the
fourth quarter of fiscal 2004. Comparative figures for fiscal 2004 have been
restated to reflect the PCG discontinued operations.
Despite the decline in revenue, PCG operating income from continuing
operations was breakeven in the fourth quarter, compared to an operating loss
of $0.9 million in the fourth quarter a year ago due to improvements made with
operating efficiencies, successes obtained with cost reduction initiatives,
and price increases achieved from customers. During the fourth quarter, as a
result of requesting price increases on a program that had been unprofitable
due to changes in foreign currency, PCG received notice that this customer
program would be terminated in the first quarter of fiscal 2006. Revenue under
the program to be terminated was approximately $4 million in fiscal 2005. As a
result of this notice, a non-cash charge of $0.5 million (after-tax
$0.4 million) was taken to reduce the value of this program's dedicated assets
to their estimated net recoverable amount. PCG operating profit continues to
be affected by: overhead costs related to the McAllen, Texas operation (see
further description below); customer demand fluctuating on short notice which
creates production inefficiencies; higher raw material costs; and the negative
impact of foreign currency. The estimated negative impact of foreign currency
on Group operating earnings was $0.3 million for the three months ended March
31, 2005 compared to the same quarter of fiscal 2004.
Sequentially, excluding the impact of the $0.5 million non-cash
write-down of assets for the program that will be terminated, PCG increased
its operating income from continuing operations by $0.6 million from the third
quarter of fiscal 2005 due to the implementation of a number of cost saving
measures.
During the fourth quarter, 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 in June, 2005. The
consolidation of McAllen's production into existing PCG facilities is expected
to reduce overall operating costs and improve overall PCG asset utilization.
Management continues to estimate that total cash expenditures associated with
closing McAllen and transferring this business, including relocating equipment
and employee severance, will be approximately $1 million, of which
approximately $0.1 million of these transfer costs were expensed in PCG
operating earnings in the fourth quarter. The benefits from this consolidation
of PCG operations are expected to begin to be realized in the second quarter.
In addition, non-cash charges of $1.0 million in the quarter were
incurred to decrease the book value of the assets in McAllen not being
transferred to other PCG facilities, including the land and building, to their
estimated net realizable value. These non-cash charges are included as other
expenses in the income statement.
Precision Components Outlook
PCG continues to aggressively pursue an earnings recovery and as noted,
is streamlining its operations to create a stronger, more focused platform for
the future. More gains are expected to accrue from its ongoing enhancement
initiatives resulting from the application of Six Sigma, improved equipment
utilization, and other cost savings measures. PCG continues to move towards
improved profitability but will likely be affected in the first two quarters
of fiscal 2006 by the one-time cash costs associated with the closure and
consolidation of the McAllen facility, the potential for continued volatile
automotive market conditions, and the expected negative impact of summer
shutdowns. PCG continues to actively quote attractive new business, and has
already secured new orders that are expected to offset the terminated program
described above.
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 fourth quarter when compared to the fourth quarter of the
prior year. The Company's effective rate of exchange on US currency declined
6% while average market rates were 7% lower in the fourth quarter compared to
the fourth quarter of last year.
At March 31, 2005 the Company had, on hand, unrealized forward exchange
contracts for the future sale of US dollars totaling US $141.0 million at an
average exchange rate of Cdn $1.2518. The unrecognized gain on these forward
contracts totaled approximately $4.9 million at March 31, 2005.
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 fourth quarter of
fiscal 2005.
Estimated Foreign Exchange Impact
For the three months ended March 31, 2005 (in millions of dollars)
Estimated %
Impact of Change vs
Foreign last year
Exchange excluding
included in Foreign
% Change vs reported Exchange
Reported last year results impact
-------------------------------------------------------------------------
Revenue
Automation Systems $ 146.1 9% $ 8.4 15%
Solar 41.0 57% 1.2 62%
Precision Components 25.5 -16% 1.4 -12%
Elimination of Inter-segment
revenue (3.9)
-------------------------------------------------------------------------
Consolidated $ 208.7 14% $ 11.0 20%
-------------------------------------------------------------------------
Earnings from Operations
Automation Systems $ 12.3 67% $ 1.5 86%
Solar 6.0 186% 0.1 190%
Precision Components 0.0 +100% 0.3 133%
Inter-segment elimination and
other corporate expenses (2.9)
-------------------------------------------------------------------------
Consolidated $ 15.4 175% $ 1.9 209%
-------------------------------------------------------------------------
Period Average Market Exchange Rates in CDN$
Three months ended Year ended
03/31/2005 03/31/2004 % change 03/31/2005 03/31/2004 % change
-------------------------------------------------------------------------
US $ 1.2256 1.3176 -7% 1.2768 1.3525 -6%
Euro 1.6068 1.6478 -2% 1.6072 1.5889 +1%
Singapore
$ 0.7497 0.7781 -4% 0.7622 0.7822 -3%
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness, at March 31, 2005 increased
$9 million during the fourth quarter of fiscal 2005 as a result of the
$27 million of life insurance proceeds received. $25 million of these proceeds
were subsequently used to exercise an option to repurchase ATS shares (see
Subsequent Event below). Cash provided from operating activities was
$34 million, an improvement of $20 million compared to the fourth quarter of
fiscal 2004. Cash flows from operating activities increased for the fourth
quarter of fiscal 2005 largely as a result of insurance proceeds, which was
offset by increased working capital within ASG. ASG working capital
requirements often fluctuate significantly from quarter to quarter.
The Company invested $26 million in property, plant and equipment and
other investments, including deferred development, in the fourth quarter of
fiscal 2005. Investments made in SSP in the fourth quarter of fiscal 2005, net
of government funding, were $9 million for capital assets and deferred
development. Total investment in the SSP initiative, net of government
funding, was $100 million at March 31, 2005, 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 deferred
development period will end for the SSP initiative on or before September 30,
2005 and SSP's revenue and operating results will be included in the
consolidated earnings in the third quarter of fiscal 2006, at the latest.
During the fourth quarter, 58,440 stock options were exercised for total
proceeds of $0.2 million. At March 31, 2005 the total number of shares
outstanding was 60,819,665.
Management believes the Company's cash flow from operations, sound
balance sheet and access to unutilized credit provide ATS with the financial
resources to employ its business plans and pursue strategic opportunities. The
Company's debt to equity ratio at March 31, 2005 was 0.1:1 unchanged from
December 31, 2004 and March 31, 2004. At March 31, 2005 the Company had
$96 million of unutilized credit available under existing operating and term
credit facilities. The Company is in compliance with its loan covenants.
Subsequent Event
Under an agreement entered into in 1998, the Company was granted the
option by 566226 Ontario Ltd., a corporation at that time controlled by the
Company's founder, Mr. Klaus Woerner, to repurchase all or a portion of the
ATS shares held by 566226 Ontario Ltd. upon the death of Mr. Woerner, subject
to certain limits and restrictions. This agreement was entered into to provide
the Company with the ability to ensure an orderly disposition of shares
controlled by Mr. Woerner's estate in the event of Mr. Woerner's death.
Subsequent to March 31, 2005 the Company exercised its option to purchase
for cancellation 1,974,723 ATS common shares at a price of $12.66 per share.
The total purchase price of $25 million was funded by the life insurance
proceeds of $25 million received by the Corporation under a life insurance
policy that had been maintained in respect of Mr. Woerner and which was
established in conjunction with the execution of the option agreement.
Consolidated Quarterly Results
($ in thousands, except Q4 Q3 Q2 Q1
per share amounts) 2005 2005 2005 2005
-------------------------------------------------------------------------
Revenue $ 208,695 $ 200,460 $ 180,294 $ 181,486
Net earnings (loss) from
continuing operations $ 14,558 $ 7,283 $ 4,684 $ 3,945
Net earnings (loss) $ 459 $ 5,627 $ 432 $ 2,780
Basic earnings per share
from continuing operations $ 0.24 $ 0.12 $ 0.08 $ 0.07
Basic earnings per share $ 0.01 $ 0.09 $ 0.01 $ 0.05
Diluted earnings per share
from continuing operations $ 0.24 $ 0.12 $ 0.08 $ 0.07
Diluted earnings per share $ 0.01 $ 0.09 $ 0.01 $ 0.05
($ in thousands, except Q4 Q3 Q2 Q1
per share amounts) 2004 2004 2004 2004
-------------------------------------------------------------------------
Revenue $ 182,940 $ 159,844 $ 137,291 $ 136,834
Net earnings (loss) from
continuing operations $ (835) $ (1,045) $ 1,382 $ 2,246
Net earnings (loss) $ (3,069) $ (1,701) $ 372 $ 2,145
Basic earnings per share
from continuing operations $ (0.01) $ (0.02) $ 0.02 $ 0.04
Basic earnings per share $ (0.05) $ (0.03) $ 0.01 $ 0.04
Diluted earnings per share
from continuing operations $ (0.01) $ (0.02) $ 0.02 $ 0.04
Diluted earnings per share $ (0.05) $ (0.03) $ 0.01 $ 0.04
Note: The above information has been restated for the thermals
discontinued operations and the Precision Metals assets held for sale.
Lease and Contractual Obligations
No significant leases or contractual obligations were entered into during
the quarter. 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.
May 26, 2005
Consolidated Statements of Earnings
(in thousands, except per share amounts - unaudited)
Three months ended Twelve months ended
-------------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
-------------------------------------------------------------------------
(as (as
restated) restated)
Revenue $ 208,695 $ 182,940 $ 770,935 $ 616,909
Operating costs and expenses:
Cost of revenue 161,787 151,504 621,837 511,443
Depreciation and
amortization 8,041 6,589 28,398 24,907
Selling and administrative 23,484 19,152 79,660 67,311
Stock-based compensation
(note 4) 16 61 503 280
-------------------------------------------------------------------------
193,328 177,306 730,398 603,941
-------------------------------------------------------------------------
Earnings from operations 15,367 5,634 40,537 12,968
Other expenses (income):
Interest on long-term debt 353 198 1,020 789
Other interest (79) (110) 364 (574)
Insurance proceeds (note 5) (27,000) - (27,000) -
Goodwill impairment (note 6) 22,183 - 22,183 -
Other (note 7) 2,142 5,275 2,142 5,275
-------------------------------------------------------------------------
(2,401) 5,363 (1,291) 5,490
-------------------------------------------------------------------------
Earnings from continuing
operations before income taxes
and non-controlling interest 17,768 271 41,828 7,478
Provision for income taxes 3,057 1,028 11,025 5,623
Non-controlling interest in
earnings of subsidiaries 153 78 333 107
-------------------------------------------------------------------------
Net earnings (loss) from
continuing operations 14,558 (835) 30,470 1,748
Loss from discontinued
operations, net of tax
(note 3) (14,099) (2,234) (21,172) (4,001)
-------------------------------------------------------------------------
Net earnings (loss) $ 459 $ (3,069) $ 9,298 $ (2,253)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
(note 8)
Basic - from continuing
operations $ 0.24 $ (0.01) $ 0.50 $ 0.03
Basic - from discontinued
operations (0.23) (0.04) (0.35) (0.07)
-------------------------------------------------------------------------
$ 0.01 $ (0.05) $ 0.15 $ (0.04)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted - from continuing
operations $ 0.24 $ (0.01) $ 0.50 $ 0.03
Diluted - from discontinued
operations (0.23) (0.04) (0.35) (0.07)
-------------------------------------------------------------------------
$ 0.01 $ (0.05) $ 0.15 $ (0.04)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
Consolidated Statements of Retained Earnings
(in thousands of dollars - unaudited)
Three months ended Twelve months ended
-------------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
-------------------------------------------------------------------------
Retained earnings, beginning
of period $ 207,661 $ 201,891 $ 198,822 $ 201,075
Net earnings (loss) 459 (3,069) 9,298 (2,253)
-------------------------------------------------------------------------
Retained earnings, end
of period $ 208,120 $ 198,822 $ 208,120 $ 198,822
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
-------------------------------------------------------------------------
March 31 March 31
2005 2004
-------------------------------------------------------------------------
(as
restated)
ASSETS
Current assets:
Cash and short-term investments $ 49,529 $ 38,551
Accounts receivable 141,107 130,406
Income taxes recoverable 12,502 6,380
Costs and earnings in excess of billings
on contracts in progress 108,956 102,404
Inventories 66,627 74,161
Assets held for sale (note 3) 6,820 -
Other 3,749 3,873
-------------------------------------------------------------------------
389,290 355,775
Property, plant, and equipment 245,875 267,069
Goodwill (note 6) 34,750 59,533
Intangible assets 3,599 6,001
Future income tax assets 14,539 10,759
Deferred developments costs 41,215 25,076
Assets held for sale (notes 3 and 7) 6,057 -
Other assets 4,464 5,666
-------------------------------------------------------------------------
$ 739,789 $ 729,879
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 102,984 $ 95,074
Billings in excess of costs and earnings
on contracts in progress 15,352 19,026
Future income taxes 27,838 21,497
-------------------------------------------------------------------------
146,174 135,597
Long-term debt 41,070 44,447
Future income taxes 17,684 16,061
Non-controlling interest 677 405
Shareholders' equity:
Share capital 334,966 334,365
Retained earnings 208,120 198,822
Contributed surplus 783 280
Cumulative translation adjustment (9,685) (98)
-------------------------------------------------------------------------
534,184 533,369
-------------------------------------------------------------------------
$ 739,789 $ 729,879
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended Twelve months ended
-------------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings (loss) $ 459 $ (3,069) $ 9,298 $ (2,253)
Items not involving
cash 2,059 6,113 39,567 33,436
Stock-based compensation 16 61 503 280
Write down for impairment
in value of assets 43,325 4,773 43,325 4,773
-------------------------------------------------------------------------
Cash flow from operations 45,859 7,878 92,693 36,236
Change in non-cash operating
working capital (11,739) 6,331 (26,290) 2,152
-------------------------------------------------------------------------
34,120 14,209 66,403 38,388
Cash flow from investing
activities:
Acquisition of interest
in subsidiaries - - - (650)
Acquisition of property,
plant, and equipment (19,634) (20,043) (49,894) (75,997)
Investments and other (6,090) (3,234) (14,980) (10,185)
Proceeds from disposal of
assets held for sale - - 10,261 8,877
-------------------------------------------------------------------------
(25,724) (23,277) (54,613) (77,955)
Cash flows from financing
activities:
Bank indebtedness (7,085) - - -
Issuance of common shares 186 62 601 266
Other 62 (2) (26) 4
-------------------------------------------------------------------------
(6,837) 60 575 270
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and short-term
investments 349 (78) (1,387) (4,485)
-------------------------------------------------------------------------
Increase (decrease) in cash
and short-term investments 1,908 (9,086) 10,978 (43,782)
Cash and short-term investments,
beginning of period 47,621 47,637 38,551 82,333
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 49,529 $ 38,551 $ 49,529 $ 38,551
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Cash income taxes paid $ 527 $ 413 $ 2,467 $ 5,051
Cash interest paid $ 358 $ 237 $ 1,339 $ 820
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
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.
(iii) The preparation of these interim consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
may affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
interim consolidated financial statements and the reported amount of
revenue and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates and
assumptions are used when accounting for items such as impairment of
assets, fair value of reporting units, assets held for sale,
warranties, income taxes, future tax assets, determination of
estimated useful lives of intangible assets and property, plant and
equipment, impairment of long-term investments, contracts in
progress, inventory provisions, revenue recognition, and allowances
for accounts receivable.
2. New accounting standards:
Effective April 1, 2004, the Company implemented, on a prospective
basis, the Canadian Institute of Chartered Accountants' ("CICA")
Accounting for Hedging Relationships Guideline ("AG-13") and the
CICA's Emerging Issues Committee Abstract 128 ("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 twelve months ended March 31, 2005.
3. Discontinued operations and assets held for sale:
(i) During the three months ended March 31, 2005, the Company
committed to a plan to sell the key operating assets, including
working capital and property, plant and equipment, of its precision
metals division of the Precision Components segment ("Precision
Metals Assets"). Accordingly, the results of operations and financial
position of the Precision Metals Assets have been segregated and
presented separately as discontinued operations and as assets held
for sale in the accompanying interim consolidated financial
statements. The results of the discontinued operations were as
follows:
Three months ended Twelve months ended
---------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ 8,637 $ 9,074 $ 30,613 $ 32,237
Loss from operating
activities $ (1,732) $ (2,862) $ (6,202) $ (3,749)
Write-down to reduce
Precision Metals assets
to estimated net
realizable value (19,000) - (19,000) -
Income tax recovery 6,738 964 8,191 1,252
---------------------------------------------------------------------
Loss from discontinued
operations $ (13,994) $ (1,898) $ (17,011) $ (2,497)
---------------------------------------------------------------------
The discontinued operations for the three months ended March 31, 2005
includes an after-tax expense of $12,825,000 (pre-tax $19,000,000) to
reduce the Precision Metals Assets to their estimated net realizable
value. As the assets have not yet been sold, actual net realizable
value of the Precision Metals Assets could differ materially from
management's current estimate. The results of the three and twelve
months ended March 31, 2004 include a $1,236,000 (pre tax $1,873,000)
charge to write down certain assets to their net realizable value.
(ii) During the three months ended December 31, 2004, the Company
sold the key intellectual property, inventory and operating assets of
its thermal management products business of the Precision Components
segment ("Thermals Assets") for net proceeds of $8,600,000 resulting
in a loss of $3,173,000 ($1,738,000 after income taxes). Accordingly,
the results of operations of the Thermals Assets have been segregated
as discontinued operations in the interim consolidated financial
statements. The results of the discontinued thermal business
operations, including the loss on sale of the assets, were as
follows:
Three months ended Twelve months ended
---------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ - $ 2,013 $ 5,029 $ 17,244
Loss from operations $ (92) $ (510) $ (6,246) $ (1,845)
Income tax recovery 30 174 2,480 627
---------------------------------------------------------------------
Loss from discontinued
operations $ (62) $ (336) $ (3,766) $ (1,218)
---------------------------------------------------------------------
(iii)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 $1,800,000. The sale of these assets generated a
before tax gain of approximately $800,000, which was recognized in
the consolidated statement of earnings for the three months ended
December 31, 2004 and year ended March 31, 2005.
(iv) 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") for proceeds of $8,877,000, which resulted in no
material gain or loss. 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:
Three months ended Twelve months ended
---------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ - $ - $ - $ 963
Loss from operations $ (72) $ - $ (659) $ (477)
Income tax recovery 29 - 264 191
---------------------------------------------------------------------
Loss from discontinued
operations $ (43) $ - $ (395) $ (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 Twelve months ended
---------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
---------------------------------------------------------------------
Risk-free interest rate - 3.86 % 3.55% 4.37%
Dividend yield - 0.00 % 0.00% 0.00%
Expected life (years) - 5 years 5.5 years 5.0 years
Expected volatility - 37.00 % 38.00% 38.00%
Number of stock options granted
(thousands) - 15 430 520
Weighted average of exercise
price per option (dollars) - 13.23 11.50 9.37
Weighted average Black-Scholes
value per option (dollars) - 5.13 4.67 3.77
---------------------------------------------------------------------
---------------------------------------------------------------------
No stock options were issued in the three months ended
March 31, 2005.
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. Insurance proceeds and share repurchase option:
During the three months ended March 31, 2005, the Company received
proceeds of $25 million and $2 million related to "key-man" life
insurance policies in respect of the death of Mr. Klaus Woerner. The
insurance policies were entered into to provide funding for the
repurchase of certain of ATS's shares and to fund costs related to
the loss of a key executive.
Under an agreement entered into in 1998, the Company was granted the
option by 566226 Ontario Ltd., a corporation then controlled by
Mr. Klaus Woerner, to repurchase all or a portion of the shares held
by 566226 Ontario Ltd. upon the death of Mr. Woerner, 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's estate. On April 18, 2005, the Company
exercised its option to purchase for cancellation 1,974,723 ATS
shares at a price of $12.66 per share. The purchase price of these
shares was funded by the $25,000,000 of life insurance proceeds.
6. Goodwill impairment:
At March 31, 2005, the annual testing for goodwill impairment
resulted in a charge against goodwill related to the Precision
Component Group's goodwill of $22,183,000 ($20,738,000 after income
taxes). The impairment resulted primarily from continued sector-wide
difficulties in the North American automotive industry, combined with
the significant declines in the value of the US dollar over the past
two years.
7. Other
During the three months ended March 31, 2005, in conjunction with the
closure of its PCG McAllen, Texas facility, a non-cash charge of
$963,000 ($636,000 after income taxes) was incurred to reduce the
value of the assets that will not be transferred to other facilities,
including the land and building to their net realizable value. As the
assets are currently being held for sale, actual net realizable value
could differ materially from management's current estimate.
Certain of the Company's portfolio and technology investments were
written down in the year ended March 31, 2005 by $1,179,000
(2004 - $2,713,000) before taxes and $772,000 (2004 - $2,713,000)
after taxes to reflect their estimated net realizable value.
The Company also regularly reviews the net recoverable amount of its
property, plant and equipment. As a result of this review, in the
year ended March 31, 2004, certain of the Company's equipment in the
Precision Components segment was written down by $187,000 ($123,000
after income taxes) to its estimated net recoverable amount.
During the year ended March 31, 2004, the Company received
notification of non-income tax related re-assessments from the
Province of Ontario related to the years 1998 to 2003. The Company
disagrees with the re-assessments and is objecting to the positions
taken by the Province of Ontario. However, due to the uncertain
nature of the outcome of the objections being made by the Company,
the Company has provided for the increase in estimated liabilities.
The amount of the provision made in the year ending March 31, 2004
related to the re-assessments was $2,375,000 before income taxes and
$1,568,000 after income taxes.
8. Weighted average number of shares:
Weighted average number of shares used in the computation of earnings
per share is as follows:
Three months ended Twelve months ended
---------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
---------------------------------------------------------------------
Basic 60,796 60,648 60,738 60,599
Diluted 60,972 60,648 60,920 60,599
---------------------------------------------------------------------
---------------------------------------------------------------------
9. Segmented disclosure:
The Company evaluates performance based on three reportable segments:
Automation Systems, Solar, and Precision Components. The Automation
Systems segment produces custom-engineered turn-key automated
manufacturing and test systems. 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 Precision Components segment is a
high volume manufacturer of plastic and metal components and
sub-assemblies.
The Company accounts for inter-segment revenue at current market
rates, negotiated between the segments.
Three months ended Twelve months ended
---------------------------------------------------------------------
March 31 March 31 March 31 March 31
2005 2004 2005 2004
---------------------------------------------------------------------
(as (as
restated) restated)
Revenue
Automation Systems $ 146,058 $ 134,574 $ 547,402 $ 466,711
Solar 41,007 26,055 143,790 88,490
Precision Components 25,480 30,510 98,145 101,306
Elimination of inter-
segment revenue (3,850) (8,199) (18,402) (39,598)
---------------------------------------------------------------------
Consolidated $ 208,695 $ 182,940 $ 770,935 $ 616,909
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems $ 12,313 $ 7,371 $ 38,813 $ 22,466
Solar 5,969 2,078 13,129 4,230
Precision Components 7 (887) (418) (1,714)
Inter-segment elimination
and corporate expenses (2,922) (2,928) (10,987) (12,014)
---------------------------------------------------------------------
Consolidated $ 15,367 $ 5,634 $ 40,537 $ 12,968
---------------------------------------------------------------------
---------------------------------------------------------------------
10. 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, Vice President, Treasurer, (519) 653-6500