ATS Automation Tooling Systems reports strong first
quarter earnings growth on modest advance in revenue
TSX: ATA
CAMBRIDGE, ON, Aug. 12 /CNW/ - ATS Automation Tooling Systems Inc. today
reported substantial earnings growth in the first quarter of fiscal 2006
(three months ended June 30, 2005) on the strength of a record performance by
its Solar Group and an increase in operating earnings by its Automation
Systems Group.
Highlights
- Earnings from operations grew 45% to $9.2 million from $6.3 million in
the first quarter a year ago.
- Net earnings from continuing operations advanced 46% to $5.8 million
(10 cents per share) from $3.9 million (7 cents per share) a year ago.
- Net earnings increased 95% to $5.4 million (9 cents per share) compared
to $2.8 million (5 cents per share) a year ago.
- Revenue increased 5% to $190.5 million from $181.5 million in the first
quarter a year ago, due to a 16% increase in Solar Group revenue and a
3% increase in Automation Systems Group revenue, which more than offset
a 9% decline in Precision Components Group revenue.
- New order bookings in the first quarter were $111 million compared to
$87 million in the fourth quarter and $117 million a year ago.
- Period end automation systems order backlog was $155 million compared
to $169 million at March 31, 2005 and $231 million a year ago.
- Order Bookings to date in the second quarter are $43 million.
Management Commentary
"ATS generated higher earnings in the first quarter, despite only a small
advance in consolidated revenue," said Ron Jutras, President and CEO. "These
positive results primarily reflect record revenue and operating earnings
within our rapidly growing Solar Group. Automation Systems Group also
contributed positively with an 8% increase in operating earnings. These
improved results were generated on a very modest increase in revenue and in
spite of lower backlog at our largest facility. ASG also incurred one-time
severance and other related costs of $0.8 million related to management
changes following the death of Klaus Woerner in February. As expected,
primarily due to costs associated with closing and transferring work from our
plant in McAllen, Texas, Precision Components Group incurred an operating loss
in the quarter. However, the McAllen facility closed on schedule and we look
forward to the benefits of better utilization from PCG operations."
Outlook
"In assessing ASG's outlook, it's important to consider that order
bookings and backlog do not include approximately $86 million of expected
automation orders where ATS has already been awarded a firm advance order to
initiate engineering and in some cases procure long lead-time items," said
Mr. Jutras. "For each of these programs, we're very confident that the full
assignments will proceed and, we're expecting purchase orders shortly for the
full value of each of these programs. Based on new order bookings to date in
the quarter, combined with the $86 million of expected follow-on orders and
the strong pipeline of other potential new orders, we expect markedly improved
performance in our Cambridge facilities in the second half of the fiscal year.
"We also expect Photowatt's performance to remain relatively consistent,
although the current industry wide silicon supply challenges remain an
uncertainty and Photowatt will experience its seasonal decline in second
quarter revenue and operating earnings due to its traditional one month summer
plant shutdown in France. SSP completed its planned improvement modifications
during the process optimization shutdown that began in June and is now
beginning to ramp up its processes and equipment. The new President and CEO of
the Solar Group is currently working through the Spheral Solar Power launch
strategy and developing the overall Solar Group strategic direction."
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 first quarter MD&A and consolidated interim 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, audited financial statements and annual report for
the full fiscal year ended March 31, 2005 which are available on SEDAR at
www.sedar.com. 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 2005 MD&A and annual report and other risks detailed from
time to time in ATS's periodic reports filed with Canadian regulatory
authorities.
About ATS
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 June 30, 2005 (first quarter of
fiscal 2006) provides detailed information on the Company's operating
activities of the first quarter and should be read in conjunction with the
unaudited interim consolidated financial statements for the three months ended
June 30, 2005. The Company assumes that the reader of this MD&A has access to,
and has read, the Company's fiscal 2005 MD&A and audited financial statements
and, accordingly, the purpose of this document is to provide a first quarter
update to the information contained in the fiscal 2005 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.
Consolidated Results of Operations
Consolidated revenue from continuing operations for the three months
ended June 30, 2005 was $190.5 million, $9.0 million or 5% higher than a year
earlier. This reflected 16% and 3% increases in Solar and ASG segment revenues
respectively, which more than offset a 9% decline in PCG revenue. Changes in
effective foreign exchange rates reduced consolidated revenue for the three
months ended June 30, 2005 compared to the same period of fiscal 2005 by an
estimated $11.9 million.
Consolidated earnings from operations for the three months ended
June 30, 2005 were $9.2 million, $2.8 million higher than in the first quarter
of fiscal 2005. Higher earnings from operations were largely the result of a
record performance by Solar. Solar earnings from operations doubled to
$6.6 million, from $3.3 million in the same period of fiscal 2005. ASG
earnings from operations improved 8% compared to the first quarter of fiscal
2005. Growth in Solar and ASG earnings more than offset the $1.1 million
decline in year-over-year PCG earnings from operations which reflected
$1.0 million of costs related to ongoing PCG restructuring initiatives, the
negative impact of foreign currency and volatile automotive market conditions.
The negative impact of the change in foreign exchange rates on consolidated
earnings from operations for the three months ended June 30, 2005 was an
estimated $2.2 million compared to the same period of the prior year.
Consolidated selling, general and administrative (SG&A) costs increased
7% in the first quarter compared to the same quarter of fiscal 2005.
Contributing to the increase in SG&A were: increased selling costs; the
$1.0 million of expenditures incurred in the quarter to consolidate the
McAllen, Texas operation into the Canadian PCG operations, and, higher profit
sharing expenses largely related to the increased profitability of Solar. Also
included in SG&A in the first quarter was $0.8 million of severance and other
costs associated with management changes that were made following the death of
Mr. Woerner, the Company's founder and former President and CEO, in February.
These costs were funded by $2 million of insurance proceeds that were received
and recorded in earnings in the fourth quarter of fiscal 2005. Partially
offsetting these higher SG&A costs in ASG was a $0.4 million gain on the sale
of equipment that was disposed of to reduce costs and streamline operations.
The SG&A costs of the comparable first quarter of fiscal 2005 included a loss
on disposal of an aging corporate aircraft that was not replaced.
Stock-based compensation cost increased $0.6 million over the first
quarter of fiscal 2005. The increase reflected the issuance of employee stock
options during the quarter, the increased use of deferred stock units under
the directors' compensation plan, and the revaluation of the outstanding
deferred stock units.
Interest expense in the first quarter reflected higher interest rates
compared to a year ago.
Discontinued Operations
During the fourth quarter of fiscal 2005 the Company committed to a plan
to sell PCG's precision metals division ("Precision Metals"). Accordingly, the
results and financial position of Precision Metals have been segregated and
presented separately as "discontinued operations" and "assets held for sale"
in the accompanying interim financial statements. As further described in Note
2 to the interim consolidated financial statements, the loss from discontinued
operations incurred during the quarter was $0.4 million compared with
$0.6 million in the first quarter of fiscal 2005. The Company is 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, the
actual net realizable value of the Precision Metals assets could differ
materially from management's current estimate.
See Note 2 to the Consolidated Interim Financial Statements for further
details on the net loss from discontinued operations.
Net Earnings
Net earnings from continuing operations for the first quarter of fiscal
2006 increased 46% to $5.8 million compared to $3.9 million in the first
quarter of fiscal 2005. On a per share basis, net earnings from continuing
operations for the quarter increased to $0.10 per share basic and diluted,
from $0.07 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 June 30, 2005 reduced net earnings from continuing operations by an
estimated $2.2 million ($0.03 per share) compared to the same period of last
year.
Net earnings for the first quarter of fiscal 2006 were $5.4 million
($0.09 per share basic and diluted) compared to $2.8 million ($0.05 per share
basic and diluted) a year ago.
Consolidated Revenue by Customer Site
($ millions)
Three months ended
06/30/2005 06/30/2004
-------------------------------------------------------------------------
US & Mexico $ 104.3 $ 108.4
Europe 62.0 54.9
Canada 7.3 7.7
Asia-Pacific and other 16.9 10.5
-------------------------------------------------------------------------
Total $ 190.5 $ 181.5
-------------------------------------------------------------------------
Revenue by Industry
($ millions)
Three months ended
06/30/2005 06/30/2004
-------------------------------------------------------------------------
Automation Systems Group:
Automotive $ 50.4 $ 37.5
Computer-electronics 25.6 42.9
Healthcare 41.0 29.6
Other 10.5 13.9
-------------------------------------------------------------------------
Subtotal 127.5 123.9
Solar Group 42.9 37.1
Precision Components Group:
Automotive 21.0 22.9
Computer-electronics 0.8 1.4
Other 2.0 1.9
-------------------------------------------------------------------------
Subtotal 23.8 26.2
Inter-segment Elimination (3.7) (5.7)
-------------------------------------------------------------------------
Total Consolidated Revenue $ 190.5 $ 181.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Automation Systems Group
ASG revenue increased 3% in the first quarter compared to the first
quarter a year ago primarily as a result of a 39% increase in healthcare
revenue and a 34% increase in automotive revenue, partially offset by a 40%
decline in computer-electronics revenue. Changes in revenue quarter to quarter
in any given market reflect normal fluctuations, the level of work in progress
and the backlog in that market entering the quarter. ATS's market
diversification strategy and focus on healthcare, automotive and computer-
electronics continued to provide benefits to ASG in the first quarter. The
weakened financial condition of many North American based automotive companies
has further increased the strategic importance of the Company's industry
diversification strategy. For the three months ended June 30, 2005, the
estimated negative foreign exchange impact on ASG revenue was $8.3 million
compared to the same period of the prior year.
Compared to the first quarter of last year, the overall ASG increase in
revenue was the result of revenue growth in European, Asian and Contract
Equipment Manufacturing operations. The North American operations experienced
a decline in revenue primarily in ASG's Cambridge, Ontario facilities due to
reduced order backlog at the start of the quarter.
ASG first quarter operating earnings were $7.0 million, a $0.5 million or
8% improvement over the first quarter a year ago, reflecting higher revenues
and improved operating margins at 5.5% in the first quarter compared to 5.2%
in the same quarter a year ago.
Despite competitive market conditions, improved earnings performance was
experienced by all regions compared to the first quarter of fiscal 2005, with
the exception of Eastern North America. Lower operating earnings produced by
ASG's Cambridge facilities were due to a number of factors including: lower
revenues as a result of lower backlog levels, costs associated with
maintaining capacity to support significant expected future orders and higher
selling and product development costs in support of the strategic drive into
healthcare and other important markets. ASG's earnings from operations and
operating margins in the first quarter were also negatively impacted by
severance costs for changes in management, and higher selling costs to support
the higher levels of sales activities. Compared to the same period of fiscal
2005, the estimated negative impact of foreign currency on ASG operating
earnings for the three months ended June 30, 2005 was $1.6 million.
ASG earnings from operations and operating margins declined sequentially
over the fourth quarter of fiscal 2005, largely due to the effects of the 13%
sequential decline in revenue that management believes resulted mainly from
delays in placement of orders by customers in North America. The Company used
this period of lower activity to further develop its standard technology
platforms for customers and to provide additional technical support to secure
orders and build prospects with existing and new customers.
The Contract Equipment Manufacturing business, which primarily serves the
healthcare industry, generated record performance. Revenue from this activity
in the first quarter was $11.4 million compared to $6.3 million in the first
quarter last year and $7.1 million in the fourth quarter of last year - 80%
and 60% respective increases in revenue. During the first quarter this
business expanded its factory space within PCG facilities reflecting the
current and anticipated further growth of this business. This expanding
business leverages PCG's repetitive manufacturing capabilities, procurement
expertise, 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 June 30, 2005, ASG Order Backlog was $155 million, $76 million (33%)
lower than a year ago and $14 million (8%) lower than at the end of the fourth
quarter. New ASG Order Bookings totaled $111 million in the first quarter,
compared to $117 million in the same period a year ago and $87 million in the
immediately preceding quarter. Order Bookings to date in the second quarter
are $43 million.
Automation Systems Backlog by Industry
($ millions)
06/30/2005 06/30/2004
-------------------------------------------------------------------------
Automotive $ 65 $ 73
Healthcare 44 92
Computer-Electronics 32 35
Other 14 31
-------------------------------------------------------------------------
Total $ 155 $ 231
Automation Systems Outlook
Management believes that near term order prospects are strong and
management is confident of ASG's potential. Order Bookings to date in the
second quarter do not include approximately $86 million of expected automation
follow-on orders where ATS has already been awarded a firm advance order to
initiate engineering and in some cases procure materials for the programs.
With respect to these expected orders, management is highly confident that the
full programs will proceed given the commitment customers have demonstrated by
providing ASG with advance orders as a means to preserve delivery times and
production schedules. ATS is expecting purchase orders shortly for the balance
of the programs and is basing factory planning and resource loading on receipt
of these assignments. Based on Order Backlog entering the second quarter,
management believes ASG's revenue and manufacturing efficiency improvements
will be held back in the second quarter.
Management continues to believe the significant order delays entering the
period reflect a variety of customer-related factors including the fact that
customers in all markets may be cautious toward capital spending in the
current environment. Management also believes delays may reflect the longer
sales cycle in the healthcare industry. 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 with
customers to rapidly translate quotations into firm orders.
Solar Group
Solar Group first quarter revenue, which is currently derived from
Photowatt, was $42.9 million, 16% higher than the first quarter of last year.
Solar surpassed expectations and its previous record for revenue set in the
fourth quarter of fiscal 2005. Revenue in the first quarter reflected strong
demand for solar products driven by attractive government incentive programs.
Improvements in capacity utilization and production throughput gained in the
fourth quarter of fiscal 2005 provided higher unit sales and revenues in the
first quarter compared to the same period a year ago.
Photowatt operating earnings doubled to $6.6 million (15.5% operating
margin), compared to $3.3 million (8.9% operating margin) a year ago. This
strong performance reflects the benefits of significant improvements in
production yields, throughput gains, cost reduction initiatives and the
continued optimization of capital investments that began to be realized in
fiscal 2005. Also contributing to increased earnings from operations were the
economies of scale from increased revenues, the benefits of Photowatt's active
silicon supply management activities, higher selling prices and increasing
solar cell efficiencies.
Solar Outlook
Solar product demand is expected to remain strong well into fiscal 2006
based upon ongoing European subsidy programs, newly introduced US subsidy
programs and growing demand for clean renewable energy products. However,
Solar performance in the second quarter will be negatively affected by the
customary month long summer plant shutdown at the Photowatt facility in
France.
Availability of silicon supply, a primary raw material in most solar cell
manufacturing, is an industry-wide concern and prices have continued to
increase. Management continues to believe that 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 in order to ensure
that its operations are able to grow without major disruption due to silicon
availability. During fiscal 2005 and into fiscal 2006 Photowatt mitigated some
of the potential impact of silicon supply shortages and 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 new silicon purchases are made at higher prices. Photowatt has
secured price increases with some of its customers to help offset the increase
in cost of silicon but there remains a risk that selling price increases and
improvements in production efficiencies may not be able to fully offset higher
silicon costs. Management is currently exploring longer term alternatives to
secure further silicon supply and plans to reinvest the strong cash flow
generation of Photowatt to fund Photowatt's near-term capacity expansion and
silicon supply initiatives.
A six week shutdown period, that began in late June as part of an ongoing
optimization program at the Company's Spheral Solar Power (SSP) facility, has
now been completed. The SSP production processes are now being brought back on
line and SSP is currently validating the improvements made to the SSP
processes and equipment during the recent shutdown. Management is quite
encouraged by the results of the validation testing work completed to date and
expects that SSP will realize significant improvements in manufacturing
capability as a result of the work completed during the shutdown. Furthermore,
management expects to produce modest quantities of saleable SSP product during
the second quarter. This methodical and deliberate approach to factory ramp up
is intended to ensure the factory can achieve intended yields at full
capacity. The new Solar President and CEO is currently developing a business
strategy that will entail both technical and commercial aspects, including the
SSP launch schedule and the funding strategy for the Solar Group.
Market demand for clean, renewable solar energy continues to create
substantial interest in SSP's products among wholesalers, distributors and
retailers. Management believes the strong market demand, combined with the
flexible nature of the SSP product continues to provide SSP with significant
competitive advantages. As discussed in the fiscal 2005 MD&A, the SSP
initiative involves certain inherent risks which are significantly greater
than those associated with the Company's more established businesses.
Precision Components Group
First quarter PCG revenue from continuing operations decreased 9% or
$2.5 million to $23.8 million compared to the first quarter of fiscal 2005 as
a result of lower US-Canadian exchange rates, the previously announced
discontinuation of an unprofitable customer program as well as weakness in
North American automotive markets for PCG. The estimated negative foreign
exchange impact on revenue in the quarter was $1.2 million compared to the
first quarter of fiscal 2005. Comparative figures for fiscal 2005 have been
restated to reflect the PCG discontinued operations.
During the fourth quarter of fiscal 2005, as a result of requesting price
increases on a program that had become unprofitable due to changes in foreign
currency exchange rates, PCG received notice that this customer program would
be terminated in the first quarter of fiscal 2006. This discontinuation
reduced revenue by approximately $1.0 million in the first quarter compared to
the first quarter a year ago.
PCG's loss from continuing operations was $1.0 million in the first
quarter, compared to operating earnings of $0.1 million in the first quarter a
year ago. Loss from operations for the first quarter included approximately
$1.0 million of incremental cash expenditures associated with the
consolidation of the McAllen, Texas operations into the Cambridge operations
(see further description below). Excluding this cost, PCG operated at
breakeven levels. PCG operating performance continues to be affected by:
overhead costs related to the McAllen, Texas operation, fluctuating customer
demand (often on short notice) which creates production inefficiencies; higher
raw material costs; and the negative impact of a weak US dollar. The estimated
negative impact of foreign currency on Group operating earnings was
$0.3 million for the three months ended June 30, 2005 compared to the same
quarter of fiscal 2005.
Sequentially, excluding the impact of the $0.5 million non-cash write-
down taken in the fourth quarter of fiscal 2005 and the McAllen closure costs,
PCG's operating earnings decreased by $0.6 million largely due to the
$1.7 million decrease in revenues which occurred for the reasons outlined
above. This lower revenue reduced PCG's economies of scale and overhead
absorptions.
During the fourth quarter of fiscal 2005, the Company announced that as
part of its continuing strategic initiative to drive an earnings recovery for
PCG, it would close PCG's manufacturing facility in McAllen, Texas in June,
2005. This closure was completed on schedule and during the quarter PCG
completed the transfer of McAllen's production into existing PCG facilities.
This consolidation of McAllen's production is now largely complete, and all
customer programs have been transferred. The benefits of this consolidation
will begin to be realized in the second quarter in the form of reduced overall
operating costs and improved PCG asset utilization. Further gains are expected
in the third and fourth quarters. The total expenses in the first quarter
associated with closing McAllen and transferring this business, including
relocating equipment, employee severance and other related costs were
approximately $1.0 million. The majority of the expenditures associated with
the transfer of business have now been incurred. The remaining equipment and
building are currently classified as assets held for sale in the balance sheet
as there are ongoing active discussions with potential buyers.
Precision Components Outlook
PCG has streamlined its operations in pursuit of an earnings recovery and
continues to work toward improving its performance. PCG continues to
aggressively pursue new profitable business that will utilize existing
capacity. As expected, the effect of some of these more significant
initiatives will require time before the benefits will begin to be realized in
the form of improved operating results. 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 progress towards improved profitability; however, the potential for
continued volatile North American automotive market conditions is a
significant factor in achieving planned results. Although market conditions
subsequent to the end of June appear to have at least temporarily improved due
to 'employee discount' promotions offered to consumers by the 'Big Three'
automakers, the second quarter will be affected by the expected negative
impact of summer shutdowns.
Impact of Foreign Exchange
The sustained strength of the Canadian dollar against the US dollar
continued to have a significant negative impact on the Company's revenue and
earnings in the first quarter compared to the first quarter of the prior year.
The Company's estimated effective rate of exchange on US currency transactions
declined 6% while average market rates were 8% lower in the first quarter
compared to the first quarter of last year.
At June 30, 2005 the Company had, on hand, unrealized forward exchange
contracts for the future sale of US dollars totaling US $65 million at an
average exchange rate of Cdn $1.2531. The unrecognized gain on these forward
contracts totaled approximately $2 million at June 30, 2005.
Period Average Market Exchange Rates in CDN$
Three months ended
06/30/2005 06/30/2004 % change
-------------------------------------------------------------------------
US $ 1.2449 1.3596 -8%
Euro 1.5620 1.6403 -5%
Singapore $ 0.7500 0.7978 -6%
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness, at June 30, 2005 decreased
$56 million during the first quarter of fiscal 2006. The decrease in cash was
largely as a result of the $25 million consumed to exercise an option to
repurchase ATS shares (see Share Repurchase below), and higher investments in
working capital and the Company's investment in property, plant and equipment.
The increased investment in working capital was mainly the result of ASG
working capital requirements which fluctuate significantly from quarter to
quarter due to the project nature of the business. Cash consumed from
operating activities was $13.6 million, an improvement of $25.5 million
compared to the first quarter of fiscal 2005.
The Company invested $19 million in property, plant and equipment and
other investments, including deferred development, in the first quarter of
fiscal 2006. Investments made in SSP in the first quarter of fiscal 2006, net
of government funding, were $4 million and $6 million for capital assets and
deferred development, respectively. Total investment in the SSP initiative,
net of government funding, was $112 million at June 30, 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
September 30, 2005 and SSP's revenue, expenses and operating results will be
included in the consolidated statements of earnings commencing in the third
quarter of fiscal 2006.
During the first quarter, 0.2 million stock options were exercised for
total proceeds of $2.2 million. At June 30, 2005 the total number of shares
outstanding was 59,061,870.
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 June 30, 2005 was 0.1:1 unchanged from
June 30, 2004 and March 31, 2005. At June 30, 2005 the Company had $63 million
of unutilized credit available under existing operating and term credit
facilities. The Company is in compliance with its loan covenants.
Share Repurchase
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 April, 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. The share repurchase
reduced share capital by $11.2 million and retained earnings by $13.8 million
as further described in Note 4 to the consolidated interim financial
statements.
Consolidated Quarterly Results
($ in thousands,
except per share Q1 Q4 Q3 Q2
amounts) 2006 2005 2005 2005
-------------------------------------------------------------------------
Revenue $190,500 $208,695 $200,460 $180,294
Net earnings (loss) from
continuing operations $ 5,751 $ 14,558 $ 7,283 $ 4,684
Net earnings (loss) $ 5,426 $ 459 $ 5,627 $ 432
Basic earnings per share from
continuing operations $ 0.10 $ 0.24 $ 0.12 $ 0.08
Basic earnings per share $ 0.09 $ 0.01 $ 0.09 $ 0.01
Diluted earnings per share
from continuing operations $ 0.10 $ 0.24 $ 0.12 $ 0.08
Diluted earnings per share $ 0.09 $ 0.01 $ 0.09 $ 0.01
($ in thousands,
except per share Q1 Q4 Q3 Q2
amounts) 2005 2004 2004 2004
-------------------------------------------------------------------------
Revenue $181,486 $182,940 $159,844 $137,291
Net earnings (loss) from
continuing operations $ 3,945 $ (835) $ (1,045) $ 1,382
Net earnings (loss) $ 2,780 $ (3,069) $ (1,701) $ 372
Basic earnings per share from
continuing operations $ 0.07 $ (0.01) $ (0.02) $ 0.02
Basic earnings per share $ 0.05 $ (0.05) $ (0.03) $ 0.01
Diluted earnings per share
from continuing operations $ 0.07 $ (0.01) $ (0.02) $ 0.02
Diluted earnings per share $ 0.05 $ (0.05) $ (0.03) $ 0.01
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, 2005.
August 12, 2005
Consolidated Statements of Earnings
(in thousands, except per share amounts - unaudited)
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2005 2004
-------------------------------------------------------------------------
(as restated)
Revenue $ 190,500 $ 181,486
Operating costs and expenses:
Cost of revenue 152,647 149,073
Amortization 7,332 6,656
Selling, general and administrative 20,572 19,251
Stock-based compensation (note 3) 779 165
-------------------------------------------------------------------------
181,330 175,145
-------------------------------------------------------------------------
Earnings from operations 9,170 6,341
Other expenses:
Interest on long-term debt 373 191
Other interest 51 67
-------------------------------------------------------------------------
424 258
-------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and non-controlling interest 8,746 6,083
Provision for income taxes 2,822 2,054
Non-controlling interest in earnings of
subsidiaries 173 84
-------------------------------------------------------------------------
Net earnings from continuing operations 5,751 3,945
Loss from discontinued operations,
net of tax (note 2) (325) (1,165)
-------------------------------------------------------------------------
Net earnings $ 5,426 $ 2,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share (note 5)
Basic - from continuing operations $ 0.10 $ 0.07
Basic - from discontinued operations (0.01) (0.02)
-------------------------------------------------------------------------
$ 0.09 $ 0.05
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted - from continuing operations $ 0.10 $ 0.07
Diluted - from discontinued operations (0.01) (0.02)
-------------------------------------------------------------------------
$ 0.09 $ 0.05
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
Consolidated Statements of Retained Earnings
(in thousands of dollars - unaudited)
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2005 2004
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 208,120 $ 198,822
Net earnings 5,426 2,780
Reduction from share repurchase (note 4) (13,764) -
-------------------------------------------------------------------------
Retained earnings, end of period $ 199,782 $ 201,602
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
-------------------------------------------------------------------------
June 30 March 31
2005 2005
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments $ 26,052 $ 49,529
Accounts receivable 125,885 141,107
Income taxes recoverable 17,361 12,502
Costs and earnings in excess of billings
on contracts in progress 137,952 108,956
Inventories 65,070 66,627
Assets held for sale (note 2) 8,161 6,820
Other 6,223 3,749
-------------------------------------------------------------------------
386,704 389,290
Property, plant and equipment 248,409 245,875
Goodwill 34,771 34,750
Intangible assets 3,478 3,599
Future income tax assets 13,694 14,539
Deferred development costs 46,542 41,215
Assets held for sale (note 2) 6,378 6,057
Other assets 4,016 4,464
-------------------------------------------------------------------------
$ 743,992 $ 739,789
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 32,342 $ -
Accounts payable and accrued liabilities 88,068 102,984
Billings in excess of costs and earnings
on contracts in progress 17,765 15,352
Future income taxes 29,912 27,838
-------------------------------------------------------------------------
168,087 146,174
Long-term debt 41,419 41,070
Future income taxes 20,997 17,684
Non-controlling interest 856 677
Shareholders' equity:
Share capital 325,884 334,966
Retained earnings 199,782 208,120
Contributed surplus 1,177 783
Cumulative translation adjustment (14,210) (9,685)
-------------------------------------------------------------------------
512,633 534,184
-------------------------------------------------------------------------
$ 743,992 $ 739,789
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2005 2004
-------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 5,426 $ 2,780
Items not involving cash 14,049 10,294
Stock-based compensation 779 165
-------------------------------------------------------------------------
Cash flow from operations 20,254 13,239
Change in non-cash operating working
capital (33,849) (52,304)
-------------------------------------------------------------------------
(13,595) (39,065)
Cash flow from investing activities:
Acquisition of property, plant, and
equipment (13,490) (11,203)
Investments and other (5,818) (2,440)
Proceeds from disposal of assets 432 -
-------------------------------------------------------------------------
(18,876) (13,643)
Cash flows from financing activities:
Bank indebtedness 32,342 29,873
Purchase of common shares for
cancellation (note 4) (25,000) -
Issuance of common shares 2,154 164
Other - 5
-------------------------------------------------------------------------
9,496 30,042
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and
short-term investments (502) 796
-------------------------------------------------------------------------
Decrease in cash and short-term investments (23,477) (21,870)
Cash and short-term investments, beginning
of period 49,529 38,551
-------------------------------------------------------------------------
Cash and short-term investments, end of
period $ 26,052 $ 16,681
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Cash income taxes paid $ 440 $ 1,003
Cash interest paid $ 459 $ 249
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2005. 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 Company's fiscal 2005 audited
consolidated financial statements.
(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.
Revenue in the Solar and Precision Components segments is recognized
at time of shipment, providing collection is reasonably assured.
(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. 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
certain working capital and property, plant and equipment, of its
precision metals division of the Precision Components segment
("Precision Metals"). Accordingly, the results of operations and
financial position of Precision Metals 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
----------------------------------------------------------------------
June 30 June 30
2005 2004
----------------------------------------------------------------------
Revenue $ 8,348 $ 8,236
Loss from operations $ (594) $ (819)
Income tax recovery 202 266
----------------------------------------------------------------------
Loss from discontinued operations $ (392) $ (553)
----------------------------------------------------------------------
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.
(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 Business") 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 Business have been
segregated as discontinued operations in the interim consolidated
financial statements. The Company continues to incur some costs
related to the discontinuation of these operations. The results of the
discontinued Thermal Business were as follows:
Three months ended
----------------------------------------------------------------------
June 30 June 30
2005 2004
----------------------------------------------------------------------
Revenue $ - $ 2,608
Income (loss) from operations $ 101 $ (928)
Income tax expense (recovery) (34) 316
----------------------------------------------------------------------
Income (loss) from discontinued
operations $ 67 $ (612)
----------------------------------------------------------------------
3. Stock-based compensation:
In the calculation of the stock-based compensation expense in the
interim Consolidated Statements of Earnings, the fair values of the
Company's non-performance based stock option grants were estimated
using the Black-Scholes option pricing model and the fair value of the
Company's performance based stock option grants were estimated using a
binomial option pricing model with the following weighted average
assumptions and data:
Three months ended
----------------------------------------------------------------------
June 30 June 30
2005 2004
----------------------------------------------------------------------
Weighted average of risk-free
interest rate 3.35% 3.60%
Dividend yield 0.00% 0.00%
Weighted average of expected life 5.2 years 5.5 years
Expected volatility 31% 38%
Number of stock options granted (thousands):
Non-performance based 432 430
Performance based 165 -
Weighted average of exercise price per
option (dollars) $ 14.40 $ 11.50
Weighted average fair value per option
(dollars):
Non-performance based $ 5.04 $ 4.67
Performance based $ 4.42 $ -
----------------------------------------------------------------------
----------------------------------------------------------------------
During the quarter ended June 30, 2005, the Company issued certain
performance based options. The performance based options vest based on
the ATS stock trading at or above a threshold for a minimum of 20
trading days in a fiscal quarter. These performance options expire on
the seventh anniversary of the date of the award. During the first
quarter, 25% of the performance based options had vested.
4. Share repurchase option:
During the year ended March 31, 2005, the Company received proceeds of
$25,000,000 related to a "key-man" life insurance policy in respect of
the death of Mr. Klaus Woerner. The insurance policy was entered into
to provide funding for the repurchase of certain of ATS's shares.
Under an agreement entered into in 1998, the Company was granted the
option by 566226 Ontario Ltd., a corporation then controlled by
Mr. 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 shares at a price of
$12.66 per share. The purchase price of these share was funded by the
$25,000,000 of life insurance proceeds.
As a result of the share repurchase, share capital has been reduced by
the value of $5.69 per share totaling $11.2 million. The excess of
cost to repurchase the shares over the stated value was charged to
retained earnings.
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
----------------------------------------------------------------------
June 30 June 30
2005 2004
----------------------------------------------------------------------
Basic 59,283 60,685
Diluted 59,554 60,925
----------------------------------------------------------------------
6. 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
----------------------------------------------------------------------
June 30 June 30
2005 2004
----------------------------------------------------------------------
(as restated)
Revenue
Automation Systems $ 127,527 $ 123,882
Solar 42,883 37,111
Precision Components 23,780 26,240
Elimination of inter-segment revenue (3,690) (5,747)
----------------------------------------------------------------------
Consolidated $ 190,500 $ 181,486
----------------------------------------------------------------------
----------------------------------------------------------------------
Earnings (loss) from operations
Automation Systems $ 6,952 $ 6,409
Solar 6,626 3,296
Precision Components (957) 105
Inter-segment elimination and corporate
expenses (3,451) (3,469)
----------------------------------------------------------------------
Consolidated $ 9,170 $ 6,341
----------------------------------------------------------------------
----------------------------------------------------------------------
7. 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 CEO, Carl Galloway, VP Treasurer, Gerry Beard, VP, CFO, (519) 653-6500