ATS reports fourth quarter results; Announces developments in solar business
TSX: ATA
CAMBRIDGE, ON, May 25 /CNW/ - ATS Automation Tooling Systems Inc. today
reported its financial results for the three months ended March 31, 2006.
Highlights
- Consolidated revenue from continuing operations increased 18% over
the third quarter of fiscal 2006 to a record $210.8 million.
- Automation Systems Group operating earnings increased to
$3.6 million, compared to an operating loss of $0.8 million in the
third quarter on a 19% increase in revenue compared to the third
quarter.
- Photowatt International operating earnings increased 22% to
$6.2 million, compared to the third quarter of fiscal 2006, on a 14%
increase in revenue.
- PCG operating earnings were $0.1 million compared to a loss of
$0.5 million in the third quarter, on an 18% sequential increase in
revenue.
- Changes in effective foreign exchange rates reduced consolidated
revenue and consolidated operating earnings for the quarter ended
March 31, 2006 compared to the same period of fiscal 2005 by an
estimated $17.3 million and $6.2 million respectively.
- ATS remains committed to SSP, however delayed commercialization of
SSP has resulted in a non-cash accounting provision of $65 million
after-tax ($1.10 per share) against the SSP assets.
Management Commentary
"ATS continues to take decisive measures to combat the soaring value of
the Canadian dollar and difficult automotive market conditions and to improve
our operating processes," said ATS President and CEO Ron Jutras. "While I am
not satisfied with our financial performance, I am pleased with the
substantial progress we've made internally this year and since the third
quarter to strengthen our approach, remove costs, streamline operations, and
gain greater leverage from our global name, assets, capabilities and
purchasing power.
"Our progress to date is reflected in the sequential improvement in
Automation Systems Group operating earnings from the third quarter and recent
performance gains made in our Asian and Western USA ASG operations. PCG has
also staged a major turnaround in spite of the substantial negative impact of
currency. It is now winning attractive new business and is focusing on
achieving greater synergy with our strategies and business model. Our ASG
Munich operation returned to profitability and Photowatt International
delivered strong results this year."
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$ million, except 3 months ended 3 months ended
per share March 31, 2006 March 31, 2005
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Revenue from ASG $ 143.4 $ 146.1
continuing ------------------------------------------------------
operations Photowatt Technologies 40.0 41.0
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PCG 28.9 25.5
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Inter-company elimination (1.5) (3.9)
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Consolidated $ 210.8 $ 208.7
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Earnings (loss) ASG $ 3.6 $ 12.3
from operations ------------------------------------------------------
Photowatt France and USA 6.2 6.0
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Photowatt Canada (SSP) (8.1) -
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PCG 0.1 -
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Inter-company elimination (3.1) (2.9)
------------------------------------------------------
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Consolidated $ (1.3) $ 15.4
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Net earnings From continuing operations $ (1.10) $ 0.24
(loss) per ------------------------------------------------------
share After discontinued
operations $ (1.11) $ 0.01
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Other statistics ASG New Order Bookings $ 119.6 $ 87.2
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ASG Order Backlog $ 220.6 $ 169.1
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Developments in Solar Business
------------------------------
Fiscal 2007 Capacity Expansion Plan. Today ATS announced expansion plans
for Photowatt Technologies in France, the Company's crystalline solar cell
manufacturing business. The plans call for Photowatt France to increase its
capacity approximately 50% to 60 megawatts of integrated capacity by the end
of fiscal 2007. Estimated capital expenditures related to the expansion are
approximately (euro) 25 million. The Company has a number of strategies to
secure silicon to utilize this new capacity.
"Expanding our capacity should enable us to continue to strengthen our
ability to meet market demand," said Mr. Jutras. "Based on our success in the
marketplace to date, and opportunities we see before us, this is a logical
next step for our solar business."
Non-cash Charge Related to Delay in Commercializing Spheral Technology.
ATS took a non-cash accounting charge of approximately $65 million after tax
($1.10 per share) against previously capitalized development costs and other
long-lived assets associated with its Spheral Solar(TM) Power (SSP)
technology. It was necessary to take this accounting charge due to uncertainty
and delays in achieving commercial production of the technology. ATS remains
committed to commercializing SSP and will focus substantial internal and
external resources to establish a manufacturing process with acceptable costs
and yields for commercial production.
"We continue to be positive about the prospects for SSP technology," said
Mr. Jutras. "However, at present, we have been unable to resolve production
issues that have impacted our plans to produce SSP products commercially. As
we work through the development process, we will take the appropriate steps to
align SSP's manufacturing resources to reflect this current focus."
Photowatt Technologies Funding Strategy. Photowatt Technologies continues
to advance toward an initial public offering with considerable progress made
to date in legal, tax, accounting and other corporate separation matters.
While more work is required, ATS has devoted substantial resources to pursue
its solar funding strategy and continues to expect to launch the offering in
the third or fourth quarter of calendar 2006, as previously stated.
Outlook
-------
"Going forward, we intend to build on underlying business momentum to
achieve tangible value for our shareholders," said Mr. Jutras. "This means a
continued focus on improving our margin performance, especially at facilities
that are underperforming - including our ASG flagship operation in Cambridge -
and leveraging greater cost efficiencies and benefits from our market
leadership. Importantly, we begin fiscal 2007 with a healthy ASG backlog level
to support continued advancement. Overall, fiscal 2007 will be an important,
and I expect, progressive year for ATS as we seek to fulfill our solar funding
strategy and deliver substantially more value from our global improvement
initiatives."
Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern today and can be
accessed over the Internet at www.atsautomation.com or on the phone (listen
only) at 1 800 814 4941.
Note to Reader
Statements in this press release concerning Photowatt Technologies shall
not constitute an offer to sell or the solicitation of an offer to buy any
securities.
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: healthcare,
computer/electronics, automotive, 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 3,900 people at 27 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, 2006 (fourth quarter of
fiscal 2006) provides detailed information on the Company's operating
activities of the fourth quarter of fiscal 2006 and should be read in
conjunction with the unaudited interim consolidated financial statements of
the Company for the three and twelve months ended March 31, 2006 and the
Company's fiscal 2005 Annual Report. The Company assumes that the reader of
this MD&A has access to, and has read the audited consolidated financial
statements of the Company for fiscal 2005 and related MD&A contained in the
Company's 2005 Annual Report and the unaudited interim consolidated financial
statements of the Company for the first, second and third quarters of fiscal
2006 and related 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 2005 Annual Report. For a discussion of the three months ended
June 30, 2005, September 30, 2005 and December 31, 2005, refer to ATS's first,
second and third quarter MD&A. These documents and other information relating
to the Company, including the Company's 2005 Annual Report and 2005 Annual
Information Form, may be found on SEDAR at www.sedar.com. Readers should also
review the Company's MD&A for the full fiscal year ended March 31, 2006 which
will be contained in the Fiscal 2006 annual report when it becomes available.
Notice to Readers
The Company has three reportable segments: Automation Systems Group
("ASG"), Photowatt Technologies, and Precision Components Group ("PCG").
Previously referred to as "Solar Group", Photowatt Technologies is primarily
comprised of Photowatt International (a fully integrated solar ingot, wafer,
cell and module production facility in France and a small module assembly and
sales operation in the USA) and Photowatt Canada (investment in Spheral
Solar(TM) Power). 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 Generally Accepted Accounting Principles ("GAAP") and
therefore may not be comparable to similar measures presented by other
companies.
Automation Systems Group
ASG's revenue of $143.4 million was approximately the same as the fourth
quarter a year ago, as the Group largely offset significant automotive market
challenges and the substantial and negative effect of foreign exchange by
capitalizing on improved Order Backlog and the Company's well-established
market diversification strategy. Improved Order Backlog entering the fourth
quarter also enabled ASG to drive a 19% increase in consolidated revenue over
the third quarter of fiscal 2006. For the three and twelve months ended
March 31, 2006, the estimated negative foreign exchange impact on ASG revenue
was $9.1 million and $31.5 million, respectively.
On an industrial market basis, computer-electronics was ASG's fastest-
growing segment. Computer-electronics revenue grew 22% compared to the fourth
quarter a year ago. Healthcare revenue increased slightly and continued to
represent ASG's largest market. Automotive revenue decreased 21%. Revenue from
Repetitive Equipment Manufacturing (REM) increased 107% in the fourth quarter
to $14.8 million from $7.1 million a year ago - and 24% compared to the third
quarter of fiscal 2006. REM is a profitable growth initiative that combines
the competitive advantages and capabilities of the Company's ASG and PCG
operations. For the year ended March 31, 2006, REM revenues were
$46.0 million, 48% higher than a year ago. On a regional basis, compared to
the fourth quarter last year, Western North American and Asian operations
generated significant revenue increases. ASG's Eastern North American
facilities continued to experience lower revenues.
The UK-based automation company ATS acquired in the second quarter of
fiscal 2006 contributed approximately $1.6 million in revenue in the fourth
quarter and $0.9 million in the third quarter of fiscal 2006. This operation
provides ATS with a strategic sales, service and installation support presence
in the UK market.
Automation Systems Group Revenue by Industry
($ millions)
Three months ended Twelve months ended
3/31/2006 3/31/2005 3/31/2006 3/31/2005
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Automotive $ 37.2 $ 47.0 $ 179.7 $ 167.3
Healthcare 49.9 49.0 158.7 166.5
Computer-electronics 48.0 39.4 124.3 161.4
Other 8.3 10.7 38.1 52.2
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Total $ 143.4 $ 146.1 $ 500.8 $ 547.4
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ASG fourth quarter operating earnings were $3.6 million compared to
operating earnings of $12.3 million in the fourth quarter of fiscal 2005 and
an operating loss of $0.8 million in the third quarter of fiscal 2006. Year
over year performance and operating margins were negatively impacted by lower
revenues and operating earnings at ASG's Eastern North American operations,
particularly the Cambridge division, primarily due to the negative impact of
the Canadian dollar, technically challenging first-time healthcare assignments
and a provision of $1.1 million related to the Company's exposure to disputes
with automotive customers. Higher contributions from ASG's Western North
American, Asian, and REM operations were more than offset by these factors.
Although market conditions in Europe remain challenging, ASG's Munich facility
returned to profitability and the new UK operations generated good
performance. Higher operating earnings in the fourth quarter of fiscal 2006
compared to third quarter of 2006 reflected these positive contributions as
well as the early realization of some of the cost benefits from ASG's
strategic rationalization in North American and European operations earlier in
the fiscal year.
The strong Canadian dollar continued to have a significant negative
effect reducing ASG operating earnings by an estimated $3.9 million and
$8.1 million during the three and twelve months ended March 31, 2006,
respectively versus the comparable period a year earlier.
ASG operating earnings for fiscal 2006 were $6.7 million compared to
$38.8 million in fiscal 2005. The fiscal 2006 performance reflected the
factors described above as well as $1.9 million of severance costs incurred in
the third quarter as part of ASG's rationalization program and a $4.7 million
provision taken in the second quarter of fiscal 2006 in respect of the
October 8, 2005 Delphi Corporation Chapter 11 filing.
Automation Systems Order Backlog
At March 31, 2006, ASG Order Backlog was $221 million, 31% higher than at
March 31, 2005 and $18 million, or 8% lower than at December 31, 2005. The
composition of Order Backlog has also changed year over year. The Company
believes the significant increase in healthcare and computer-electronics Order
Backlog weighting during the past year reflects ASG's progress in diversifying
and growing its healthcare and computer-electronics markets and its decision
to manage its exposure to the automotive market. Year over year healthcare
Order Backlog increased $45 million (82% increase) to $100 million and
computer-electronics Order Backlog has increased $22 million (81% increase) to
$49 million. Automotive Order Backlog decreased $21 million year over year
(29% reduction).
New ASG Order Bookings in the fourth quarter increased 38% to
$120 million from $87 million in the fourth quarter a year ago and was down
18% from $147 million in the third quarter.
For fiscal 2006, Order Bookings were 13% or $62 million higher at
$544 million compared to $482 million in fiscal 2005. New Order Bookings for
the first seven weeks of the first quarter of fiscal 2007 are $45 million.
Automation Systems Order Backlog by Industry
($ millions)
3/31/2006 3/31/2005 Percentage
Change
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Healthcare $ 100 $ 55 82%
Automotive 51 72 -29%
Computer-electronics 49 27 81%
Other 21 15 40%
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Total $ 221 $ 169 31%
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Automation Systems Outlook
ASG's outlook continues to be tempered by the negative impact of the
stronger Canadian dollar on its Canadian operations and the challenging North
American automotive market. Management believes strong Order Bookings during
fiscal 2006 and period end Order Backlog have improved capacity utilization
and factory loading across a significant number of ASG divisions compared to
the beginning of fiscal 2006. The Company's focus on diversifying its revenue
base into vibrant markets like healthcare, and on improving operational
effectiveness through strategic initiatives, including recently completed
capacity rationalization and ongoing cost reduction strategies, are also
expected to contribute positively to results going forward. Entering fiscal
2007, ASG's healthcare Order Backlog remains at high levels, which provides
for a solid and diversified revenue base to begin fiscal 2007. Computer-
electronics and "other" (primarily consumer products) Order Backlog levels
entering fiscal 2007 are also at healthy levels and should continue to help
offset some of the challenges the Company faces in the automotive sector.
Photowatt Technologies (Solar Group)
Photowatt Technologies' consolidated revenue in the fourth quarter
continued to be derived solely from Photowatt International (comprised of its
operations in France and USA). Revenue from these operations was
$40.0 million, or $1.0 million lower than in the same period last year due to
a 14% decline in the average Euro exchange rate to the Canadian dollar.
Excluding the translation effect of foreign exchange, Photowatt Technologies'
revenue would have been an estimated 13% higher than the fourth quarter a year
ago. This growth reflected strong market demand for solar products, primarily
as a result of attractive government incentive programs in Europe, increasing
consumer interest in clean, sustainable energy sources and increased selling
prices for solar modules. Sequentially, compared to the third quarter of
fiscal 2006, fourth quarter revenue growth of 14% reflected increased
utilization of Photowatt France's vertically integrated processes that enable
it to take advantage of a range of silicon sources in the production of solar
wafers and cells.
For fiscal 2006, Photowatt International's revenue was a record
$145.3 million, or 1% higher than in fiscal 2005, in spite of the significant
decline in the average Euro exchange rate. Excluding the translation effect of
foreign exchange, revenue for fiscal 2006 would have been an estimated 12%
higher than in fiscal 2005. The total estimated negative impact on revenue in
fiscal 2006 of foreign exchange, primarily from translation of the Euro to
Canadian dollar, was $16.0 million compared to fiscal 2005.
Photowatt Technologies' Operating Earnings
($ millions)
Three months ended Twelve months ended
3/31/2006 3/31/2005 3/31/2006 3/31/2005
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Photowatt International $ 6.2 $ 6.0 $ 20.9 $ 13.1
Photowatt Canada (SSP) (8.1) - (15.9) -
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Total $ (1.9) $ 6.0 $ 5.0 $ 13.1
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Photowatt Technologies' fourth quarter operating earnings include both
Photowatt International and Photowatt Canada (SSP). Prior to October 1, 2005,
operating costs incurred by Photowatt Canada (SSP) were capitalized on the
Company's balance sheet as deferred development costs and excluded from
operating earnings.
Photowatt International's operating earnings for the fourth quarter were
$6.2 million (16% operating margin), a $0.2 million increase from operating
earnings of $6.0 million (15% operating margin) for the fourth quarter last
year. The strong operating performance of Photowatt International reflects the
benefits of significant improvements in production yields, throughput gains,
cost reduction initiatives, and capital investments that have been made.
Photowatt France continued to improve yields during fiscal 2006 and currently
operates with approximately 200 micron wafer thickness and approximately 15%
multi crystalline cell efficiency. Higher selling prices coupled with its
silicon sourcing strategies, also helped to offset the impact of much higher
silicon costs on operating earnings.
Excluding the translation effect of foreign exchange on fourth quarter
results, Photowatt International's operating earnings would have increased 20%
compared to the fourth quarter of fiscal 2005. The total estimated negative
impact of foreign exchange translation of the Euro to Canadian dollar on
operating earnings in the fourth quarter was $0.9 million compared to the
fourth quarter of fiscal 2005. Photowatt International's operating earnings
were a record $20.9 million (14% operating margin) in fiscal 2006 compared to
$13.1 million (9% operating margin) achieved in fiscal 2005. Included in
Photowatt International operating income is amortization expense for the three
and twelve months ended March 31, 2006 of $2.0 million and $7.5 million,
respectively, compared to $1.9 million and $6.9 million of the comparable
period of the prior year.
Photowatt Canada (SSP) operating loss was $8.1 million in the fourth
quarter compared to a loss of $8.0 million in the third quarter. Fourth
quarter operating loss included $2.6 million of plant and equipment
amortization expense compared to $1.7 million of amortization in the third
quarter.
Photowatt Technologies' (combined solar group) operating loss for the
three months ended March 31, 2006 was $1.9 million, compared to operating
earnings of $6.0 million in the fourth quarter a year ago. Reflecting the
inclusion of Photowatt Canada (SSP) for the second half of fiscal 2006,
operating earnings for the twelve months ended March 31, 2006 were
$5.0 million, compared to $13.1 million a year ago.
SSP Non-Cash Charge
Photowatt Canada (SSP) continues to work on resolving process issues that
would allow it to achieve yield, efficiencies, and throughput necessary for
the commercialization of its spheral technology. While management continues to
be positive about the prospects for the technology, it has determined that
further in-depth engineering and process development are required.
Due to the current uncertainty in resolving these technological
challenges and the resulting delays in realizing cash flows from the
investment in the Spheral Solar(TM) Power technology, generally accepted
accounting principles in Canada require that ATS record an after-tax, non-cash
provision of $65 million, or $1.10 per share ($96 million pre-tax) against SSP
deferred development costs and other long-lived assets. Total assets recorded
on the consolidated balance sheet related to Photowatt Canada (SSP), after
this adjustment were approximately $24 million at March 31, 2006 consisting of
$7 million of working capital and $17 million of long-lived assets.
At this point, it is difficult to determine how long this engineering and
process development phase will last, however management is currently
estimating a twelve month timeframe. Photowatt Canada (SSP) expects to use the
technical expertise of external consultants as well as internal resources
during this period. The focus during this period will be on in-depth
engineering and process development and the production of low-cost silicon
feedstock for Photowatt France using its proprietary processes. Accordingly, a
workforce reduction of approximately 60 personnel will take place during the
first quarter of fiscal 2007 to align workforce levels to reflect this current
focus.
The Spheral Solar initiative involves significant start up risks and
these should be considered in evaluating the potential of Photowatt
Technologies.
Solar Outlook
Management believes solar product demand will remain strong based upon
ongoing European subsidy programs, newly introduced North American subsidy
programs and growing demand for clean, renewable energy products that can
augment or replace increasingly scarce fossil fuels.
Silicon Supply. The shortage of silicon remains a near-term industry wide
challenge and silicon pricing has more than doubled year over year. To date,
Photowatt France has mitigated a significant amount of the impact of supply
shortages and higher silicon prices on its operating income by achieving
improved internal operating efficiencies and through increased market prices
for its products. However, Photowatt France's silicon costs are expected to
continue to increase in fiscal 2007 as its inventory of lower-priced silicon
is consumed and new silicon purchases are made at higher prices. There remains
a risk that selling price increases and improvements in production
efficiencies may not be able to fully offset higher silicon costs and silicon
shortages.
Management believes that it has secured sources of silicon at Photowatt
France for the majority of its planned capacity into the first quarter of
calendar 2007. Management is employing a number of strategies which it
believes should allow it to secure additional sources of silicon to grow its
operations. These strategies include using metallurgical grade silicon (which
Photowatt France has successfully tested over the past year), exploring
strategic partnerships and alliances, and using SSP's proprietary silicon
conversion technology.
In the fourth quarter, Photowatt France successfully completed testing on
the silicon manufactured by Photowatt Canada (SSP) using its proprietary
technology to convert lower cost silicon into silicon feedstock that is usable
by Photowatt France in its production processes. Photowatt Canada (SSP)
expects to supply this silicon to Photowatt France throughout fiscal 2007 and
began making initial shipments during the first quarter of fiscal 2007. Based
on preliminary estimates, the current capacity of Photowatt Canada (SSP) to
manufacture this silicon feedstock could provide silicon to Photowatt France
for up to 25% of its current capacity.
Photowatt France Capacity Expansions. During fiscal 2006, to capture a
larger share of the solar opportunity, Photowatt France increased its
estimated total annual cell capacity 25% from 32 megawatts to 40 megawatts.
The increase in capacity was accomplished through planned investments in
equipment made in the second half of fiscal 2006 that started to contribute
positively to revenue in the fourth quarter. During the fourth quarter of
fiscal 2006, new wire saw process equipment was installed on site and became
operational by quarter end.
For fiscal 2007, Photowatt Technologies expects to continue to position
itself for future growth. Photowatt France has now initiated another capacity
expansion program, which it expects will increase estimated annual capacity of
its manufacturing facility in France to 60 megawatts of vertically integrated
(ingot, wafer, cell and module) capacity by the end of fiscal 2007 at an
estimated capital cost of (euro) 25 million.
Solar Funding Strategy. The Company continues to advance toward an
initial public offering of Photowatt Technologies, with considerable progress
made to date in legal, tax, accounting and other corporate separation matters.
While more work is required, ATS continues to allocate substantial internal
and external resources to pursue its funding strategy for the solar business
and continues to expect to launch the offering in the third or fourth quarter
of calendar 2006.
Precision Components Group
In fiscal 2006, PCG took a number of steps to streamline and strengthen
its operations, achieve targeted revenue growth and return to profitability.
Despite a weak North American automotive market and the negative impact of a
lower US-Canadian dollar exchange rate, PCG's revenue increased 13% or
$3.4 million in the fourth quarter of fiscal 2006 to $28.9 million, compared
to $25.5 million in the comparable prior year period. Increased revenue over
the fourth quarter of fiscal 2005 was primarily a result of a number of
factors, including revenue from new PCG programs that launched during fiscal
2006, increased volumes on existing programs, timing of tooling revenue and
price increases on certain programs. These factors more than offset the
significant, negative impact of lower US-Canadian dollar exchange rates, the
previously announced discontinuation of an unprofitable customer program and
volatility in North American automotive markets for PCG.
The estimated negative foreign exchange impact on PCG revenue in the
three and twelve months ended March 31, 2006 was $1.9 million and
$5.5 million, respectively compared to the same periods of the prior year.
During fiscal 2005, as a result of requesting price increases on an
unprofitable program, PCG received notice that, in the first quarter of fiscal
2006, the customer would terminate the program. This discontinuation reduced
revenue by approximately $0.8 million and $3.7 million in the three and twelve
months ended March 31, 2006, respectively, compared to the same period of last
year.
Precision Components Group Revenue by Industry
($ millions)
Three months ended Twelve months ended
3/31/2006 3/31/2005 3/31/2006 3/31/2005
-------------------------------------------------------------------------
Automotive $ 26.0 $ 22.7 $ 87.7 $ 86.7
Computer-electronics 0.6 0.7 3.3 4.6
Other 2.3 2.1 7.3 6.8
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Total $ 28.9 $ 25.5 $ 98.3 $ 98.1
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PCG's operating income for the fourth quarter was consistent with the
fourth quarter a year ago despite the estimated $1.4 million negative impact
of foreign currency on operating income compared to the fourth quarter last
year. Operating income in the fourth quarter of fiscal 2005 included a
$0.5 million non cash charge related to a customer program that was
discontinued.
However, PCG's operating results in the fourth quarter improved
significantly compared to the first, second and third quarters of fiscal 2006.
This was achieved in challenging economic conditions brought on by the
continued strengthening of the Canadian dollar and difficult ongoing market
conditions in the automotive sector. Overall PCG performance reflects the
significant operational improvements that have been made over the past year,
including: closure of its McAllen, Texas facility, manufacturing efficiency
gains, price increases on programs, the sale of the Precision Metals business,
and increased benefits from supply chain management.
Included in PCG's operating income is amortization expense for the three
and twelve months ended March 31, 2006 of $1.9 million and $7.5 million,
respectively, compared to $2.4 million and $8.3 million in the comparable
period in the prior year.
PCG's operating loss for the year ended March 31, 2006 was $2.7 million
compared to an operating loss of $0.4 million in fiscal 2005 primarily because
of a strong Canadian dollar. The estimated negative impact of the
strengthening Canadian dollar on PCG operating results for fiscal 2006 was
$2.8 million compared to fiscal 2005. In addition to the items noted above and
the impact of foreign currency, fiscal 2006 results also include $0.5 million
of start-up costs (related to new programs and a new facility in China) as
well as $1.0 million of incremental cash expenditures incurred in first
quarter fiscal 2006 to close PCG's McAllen, Texas facility and consolidate
these assets into existing PCG operations. The consolidation of McAllen's
production is now complete.
Precision Components Outlook
PCG continues to benefit from the significant, ongoing improvements it
has made in its operations over the past year, although the impact of the
strengthening Canadian dollar has masked this improved performance. These
operational improvements have reduced operating costs and enhanced PCG asset
utilization and processes. Although management continues to expect that the
North American automotive market will remain challenging in fiscal 2007 due to
very competitive pricing, volatile program volumes and the strong Canadian
dollar, it is optimistic about PCG's prospects due to these continuing
operational improvements and the nature and quality of customer assignments
the Group is now fulfilling. Reflecting increased customer demand and capacity
constraints at its existing leased facility in Stratford, Ontario, PCG has
announced plans to relocate its successful Omex business to larger, leased
facilities at a cost of $0.8 million which is expected to be incurred over the
second and third quarters of fiscal 2007. This move is expected to be complete
by the end of calendar 2006 and the new facility will have approximately
74,000 sq. ft. of space compared to the current facility's 40,000 sq. ft.
Consolidated Results From Operations
Consolidated revenue from continuing operations for the three months
ended March 31, 2006 was $210.8 million, $2.1 million or 1% higher than a year
earlier. This mainly reflects a 13% increase in PCG revenue. ASG and Photowatt
revenue remained at levels consistent with the fourth quarter of the prior
year. The estimated effect on revenue of changes in effective foreign exchange
rates was a reduction in revenue of $17.3 million for the three months ended
March 31, 2006 compared to the same period of the prior year.
For the twelve months ended March 31, 2006, revenue from continuing
operations was $734.5 million, $36.4 million or 5% lower than a year earlier.
This decrease mainly reflects a 6% decline in ASG revenue as a result of the
significant, negative impact of foreign exchange. Changes in effective foreign
exchange rates reduced consolidated revenue by an estimated $53.0 million for
the year ended March 31, 2006 compared to fiscal 2005.
Consolidated Revenue by Region
($ millions)
Three months ended Twelve months ended
3/31/2006 12/31/2005 3/31/2006 3/31/2005
-------------------------------------------------------------------------
U.S. & Mexico $ 120.5 $ 97.0 $ 386.6 $ 399.8
Europe 50.1 73.0 223.4 247.3
Canada 14.4 14.1 47.9 41.3
Asia-Pacific and other 25.8 24.6 76.6 82.5
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Total $ 210.8 $ 208.7 $ 734.5 $ 770.9
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Consolidated loss from operations for the three months ended March 31,
2006 was $1.3 million, compared to earnings from operations of $15.4 million a
year ago, reflecting Photowatt Technologies' operating loss of $1.9 million
(operating earnings of $6.0 million a year ago), ASG operating earnings of
$3.6 million (operating earnings $12.3 million a year ago), and PCG breakeven
operating results (breakeven a year ago). Excluding the impact of Photowatt
Canada (SSP), consolidated earnings from operations for the three months ended
March 31, 2006 would have been $6.8 million.
Consolidated loss from operations for fiscal 2006 was $2.7 million
compared to earnings from operations of $40.5 million in the comparable prior
year. Excluding the impact of Photowatt Canada (SSP), consolidated earnings
from operations for the year ended March 31, 2006 would have been
$13.3 million.
Changes in effective foreign exchange rates reduced consolidated
operating earnings for the three and twelve months ended March 31, 2006
compared to the same period of fiscal 2005 by an estimated $6.2 million and
$13.4 million, respectively.
Amortization expense increased $1.4 million to $9.5 million during the
fourth quarter compared to the fourth quarter last year, primarily due to
$2.6 million of amortization in Photowatt Canada (SSP) related to property,
plant and equipment. Until September 30, 2005, Photowatt Canada (SSP) incurred
no amortization expense because the division was in a pre-production phase.
Selling, general and administrative ("SG&A") expenses increased
$0.9 million to $24.4 million in the fourth quarter compared to the respective
prior year period. This increase is primarily attributable to the inclusion of
$1.3 million of SG&A expenses from Photowatt Canada (SSP) that in the fourth
quarter last year were being deferred and to the aforementioned ASG provision
for customer disputes. Increased G&A expenses in the quarter were also
associated with severance costs from continued restructuring, and costs
associated with internal controls certification requirements. Increased sales
and marketing costs in ASG also contributed to the overall increase in SG&A
expenses as the Company continued to maintain its focus on further
diversifying its markets and fueling sales growth. Included in the SG&A for
the comparable quarter of the prior year was a $3.5 million provision for
accounts receivable.
SG&A expenses for the twelve months ended March 31, 2006 increased
$9.6 million to $89.3 million compared to the prior year period, and include
the factors noted above, a $4.7 million provision taken in the second quarter
for financial exposure to Delphi Corporation and $1.9 million of restructuring
costs incurred by ASG in the third quarter.
Fourth quarter stock-based compensation cost increased $0.5 million from
the fourth quarter last year and increased $1.3 million in fiscal 2006
compared to fiscal 2005. Stock-based compensation cost reflects the issuance
and cancellation of employee stock options, the increased use of deferred
stock units under the directors' compensation plan, and the appreciation of
the outstanding deferred stock units.
Increased interest expense for the three months and twelve months ended
March 31, 2006 reflected higher interest rates and greater usage of the
Company's credit facilities compared to a year ago.
Net loss for the fourth quarter of fiscal 2006 was $65.6 million ($1.11
per share) compared to net earnings of $0.5 million (0.01 cents per share
basic and diluted) a year ago. Net loss for fiscal 2006 was $69.3 million
($1.17 per share basic and diluted) compared to net earnings of $9.3 million
(15 cents per share basic and diluted) for the same period last year.
Excluding the impact of Photowatt Canada (SSP), consolidated net earnings for
the year ended March 31, 2006 would have been $6.3 million (0.11 cents per
share).
Impact of Foreign Exchange
The sustained strength of the Canadian dollar particularly against the US
dollar and the Euro continued to have a significant and negative impact on the
Company's revenue and earnings in the fourth quarter and all of fiscal 2006.
In the fourth quarter, the effective rate of exchange on the US dollar and
Euro currencies declined 7% and 14% respectively, while average market rates
declined 6% and 14% respectively compared to the same quarter of last year.
Estimated Foreign Exchange Impact
For the three months ended March 31, 2006
($ millions)
-------------------------------------------------------------------------
Estimated
negative % Change
impact of vs.
foreign last year
exchange excluding
% Change included in foreign
vs. last reported exchange
Reported year results impact
-------------------------------------------------------------------------
Revenue
Automation Systems $ 143.4 -1.9% $ 9.1 4.4%
Precision Components 28.9 13.2% 1.9 20.6%
Photowatt Technologies 40.0 -2.4% 6.3 13.0%
Elimination of
Inter-Segment Revenue (1.5)
-------------------------------------------------------------------------
Consolidated $ 210.8 1.0% $ 17.3 9.3%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
Operations
Automation Systems $ 3.6 -70.4% $ 3.9 -39.0%
Precision Components 0.1 0.0% 1.4 1362.0%
Photowatt International 6.2 3.3% 0.9 20.0%
Photowatt Canada (SSP) (8.1) - - -
Elimination of
Inter-Segment Revenue (3.1)
-------------------------------------------------------------------------
Consolidated $ (1.3) -108.7% $ 6.2 -68.2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At March 31, 2006 the Company had, on hand, unrealized forward exchange
contracts for the future sale of US dollars related to revenue transaction
exposure totaling US$136.0 million at an average exchange rate of Cdn $1.1631.
The unrecognized gain on these forward contracts totaled approximately
$0.3 million at March 31, 2006.
Period Average Market Exchange Rates in CDN$
Three months ended Twelve months ended
3/31/2006 3/31/2005 % change 3/31/2006 3/31/2005 % change
-------------------------------------------------------------------------
US $ 1.1544 1.2256 -6% 1.1930 1.2768 -7%
Euro 1.3886 1.6068 -14% 1.4517 1.6072 -10%
Singapore $ 0.7098 0.7497 -5% 0.7177 0.7622 -6%
-------------------------------------------------------------------------
Discontinued Operations
In the fourth quarter (effective January 2, 2006), the Company completed
the sale of PCG's precision metals division ("Precision Metals") for net
proceeds of $4.3 million, including transaction costs. 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. The loss from discontinued
operations includes a loss of $0.7 million ($0.5 million after income taxes)
to reduce the Precision Metals assets to their net realizable value including
transaction costs. The Company retained the land and building related to the
Precision Metals operations and entered into a lease agreement with the
purchaser for use of the land and building. The Company expects to sell the
land and building, and, as such the assets continue to be classified as 'held
for sale'. The net loss from discontinued operations incurred during the
fourth quarter was $0.8 million compared to a loss of $14.1 million in the
fourth quarter of fiscal 2005. See note 2 to the Consolidated Interim
Financial Statements for further details on the net loss from discontinued
operations.
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness, at March 31, 2006 increased
$9 million during the quarter compared to the third quarter of fiscal 2006.
The increase in cash was largely as a result of reduced working capital in the
ASG business, offset by investments in property, plant and equipment. ASG's
reduction in working capital reflects normal fluctuations due to the project
nature of the business.
The Company invested $8 million in property, plant and equipment, in the
fourth quarter of fiscal 2006. Investments in property, plant and equipment in
the Photowatt Technologies segment in the fourth quarter of fiscal 2006 were
$6 million and $1.0 million for Photowatt International and Photowatt Canada
(SSP), respectively.
The Company's debt to equity ratio at March 31, 2006 was 0.1:1. At
March 31, 2006 the Company had $97 million of unutilized credit available
under existing operating and term credit facilities. The Company is in
compliance with its loan covenants.
During the fourth quarter, approximately 100,000 stock options were
exercised for total proceeds of $0.7 million. At March 31, 2006 the total
number of shares outstanding was 59,192,687.
Share Repurchase
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 as
further described in note 5 to the Consolidated Interim Financial Statements.
The total purchase price of $25 million was funded by life insurance proceeds
of $25 million received by the Company in fiscal 2005 under a life insurance
policy that had been maintained in respect of the Company's founder, Mr. Klaus
Woerner, and which was established in conjunction with the execution of the
option agreement.
Consolidated Quarterly Results
($ in thousands,
except per Q4 Q3 Q2 Q1
share amounts) 2006 2006 2006 2006
-------------------------------------------------------------------------
Revenue $ 210,803 $ 178,720 $ 154,510 $ 190,500
Net earnings (loss)
from continuing
operations $ (64,783) $ (5,310) $ (2,995) $ 5,751
Net earnings (loss) $ (65,589) $ (5,801) $ (3,329) $ 5,426
Basic earnings (loss)
per share from
continuing operations $ (1.10) $ (0.09) $ (0.05) $ 0.10
Basic earnings (loss)
per share $ (1.11) $ (0.10) $ (0.06) $ 0.09
Diluted earnings (loss)
per share from
continuing operations $ (1.10) $ (0.09) $ (0.05) $ 0.10
Diluted earnings (loss)
per share $ (1.11) $ (0.10) $ (0.06) $ 0.09
($ in thousands,
except per Q4 Q3 Q2 Q1
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 (loss)
per share from
continuing operations $ 0.24 $ 0.12 $ 0.08 $ 0.07
Basic earnings (loss)
per share $ 0.01 $ 0.09 $ 0.01 $ 0.05
Diluted earnings (loss)
per share from
continuing operations $ 0.24 $ 0.12 $ 0.08 $ 0.07
Diluted earnings (loss)
per share $ 0.01 $ 0.09 $ 0.01 $ 0.05
Note: The above information has been restated for the Precision Metals
and thermals discontinued operations.
Lease and Contractual Obligations
Information on the Company's lease and contractual obligations is
detailed in the annual financial statements and MD&A for the year ended
March 31, 2005. For the twelve months ended March 31, 2006, the Company did
not enter into any material leases or any material contractual obligations
which would be considered outside the normal course of operations.
Note to Readers
This press release and the fourth quarter MD&A and consolidated interim
financial statements accompanying it (collectively the "Press Release")
contain certain statements that constitute forward-looking information within
the meaning of applicable securities laws ("forward-looking statements"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of ATS, or developments in ATS' business or in its industry, to differ
materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements. Forward-
looking statements include all disclosure regarding possible events,
conditions or results of operations that is based on assumptions about future
economic conditions and courses of action. Forward-looking statements may also
include, without limitation, any statement relating to future events,
conditions or circumstances. ATS cautions you not to place undue reliance upon
any such forward-looking statements, which speak only as of the date they are
made. Forward-looking statements relate to, among other things, ATS's
commitment to SSP, measures being taken to combat the increasing value of the
Canadian dollar, PCG winning attractive new business, planned capacity
increase at Photowatt Technologies in France by end of fiscal 2007 and the
estimated capital expenditure in that regard, the focusing of internal and
external resources on the SSP manufacturing process in order to achieve
acceptable costs and yields, ATS being positive about the prospects for SSP
technology, steps to be taken to align SSP's manufacturing resources to
reflect the current focus, continuing advancement towards and the expected
timing of launching an initial public offering for Photowatt Technologies,
ATS's intention to build on business momentum to achieve tangible value for
shareholders, continuing focus on improving margins and leveraging greater
cost efficiencies, expectation that fiscal 2007 will be a progressive year and
that ATS will seek to fulfill its solar funding strategy and deliver value
from global improvement initiatives, expectation that focus on diversifying
revenues and improving operational effectiveness and reducing costs will
contribute positively to results going forward, likelihood that computer-
electronics and other order backlog levels should offset some of the
challenges faced in the automotive sector, need for in-depth engineering and
process development in relation to the SSP technology and the estimated time
line for this, use of external consultants and internal resources in
connection with such engineering and process development, focus on engineering
and process development for SSP and the production of low-cost silicon
feedstock for Photowatt France, anticipated work force reduction at Photowatt
Canada (SSP), management belief in continued strong demand for solar products,
growing demand for clean renewable energy products, expectation that silicon
costs will continue to rise during fiscal 2007, management's belief that it
has secured solar grade silicon for the majority of its planned capacity into
first quarter of calendar 2007, strategies being employed to secure additional
sources of silicon, use of metallurgical grade silicon, exploration of
strategic partnerships and alliances, use of SSP's proprietary silicon
conversion technology and supply of resulting silicon to Photowatt France and
the amount of silicon that could be provided, expectation that Photowatt
Technologies will continue to position itself for future growth, expectation
that North American automotive market will remain challenging, optimism
concerning PCG's prospects due to operational improvements and nature and
quality of customer assignments, plans to relocate PCG's Omex business to new
leased facilities and expected cost of same and timing of such relocation. The
risks and uncertainties that may affect forward-looking statements include,
among others; general market performance; performance of the Canadian dollar;
performance of the market sectors that ATS serves; ATS's ability to overcome
process challenges currently facing SSP technology and any new issues that may
arise, and whether or not process solutions exist, are available, or can be
discovered, and potential delays in finding process solutions; unforeseen
problems with Photowatt France's use of silicon feedstock produced by the SSP
technology and/or metallurgical silicon; equipment or labour issues with
respect to the SSP technology being used in conversion of silicon for
Photowatt France; reversal of current silicon supply arrangements, inability
to finalize strategic partnerships or alliances to provide for silicon supply;
ability to achieve lower silicon usage relative to conventional solar
technology; the cost and availability of silicon and other raw materials and
certain specialized manufacturing tools and fixtures used in the production of
Photowatt Technologies' products; the successful expansion of production
capability and adoption of new production processes; the extent of market
demand for solar products such as those developed by the Photowatt
Technologies; the availability of government subsidies for solar products, the
development of superior or alternative technologies to those developed by ATS;
the success of competitors with greater capital and resources in exploiting
their technology and marketing their products; that current measures being
taken by ATS are not sufficient to overcome the negative impact of currency;
availability of materials and labour to implement expansion at Photowatt
France and potential delays and cost overruns with such expansion; delays in
pursuit of initial public offering for Photowatt Technologies; unavailability
of IPO alternative due to a change in market conditions; inability of ATS to
realize benefits from efforts to improve margins, leverage cost efficiencies,
implement global improvement measures, and diversify revenues; the ability of
the Company to further penetrate the healthcare and computer electronics
markets; the risk of ASG not being able to complete work on its backlog due to
delays or other causes; the ability of PCG to translate operational
improvements and new customer assignments into better financial performance;
delays and cost overruns with respect to the new leased facilities for PCG's
Omex operations; and other risks detailed from time to time in ATS' filings
with Canadian provincial securities regulators, including ATS' Annual Report
and Annual Information Form for the fiscal year ended March 31, 2005. Forward-
looking statements are based on management's current plans, estimates,
projections, beliefs and opinions, and ATS does not undertake any obligation
to update forward-looking statements should assumptions related to these
plans, estimates, projections, beliefs and opinions change.
May 25, 2006
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Earnings (Loss)
(in thousands, except per share amounts - unaudited)
Three months ended Twelve months ended
-------------------------------------------------------------------------
March 31 March 31 March 31 March 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Revenue $ 210,803 $ 208,695 $ 734,533 $ 770,935
Operating costs and
expenses:
Cost of revenue 177,761 161,787 613,662 621,837
Amortization 9,475 8,041 32,388 28,398
Selling, general
and administrative 24,374 23,484 89,315 79,660
Stock-based
compensation (note 4) 508 16 1,816 503
-------------------------------------------------------------------------
212,118 193,328 737,181 730,398
-------------------------------------------------------------------------
(Loss) earnings from
operations (1,315) 15,367 (2,648) 40,537
Other expenses (income):
Interest on long-term
debt 616 353 2,065 1,020
Other interest (80) (79) 384 364
Asset impairment
charges (note 6) 96,198 22,183 96,198 22,183
Insurance proceeds
(note 5) - (27,000) - (27,000)
Other (note 7) (512) 2,142 (611) 2,142
-------------------------------------------------------------------------
96,222 (2,401) 98,036 (1,291)
-------------------------------------------------------------------------
(Loss) earnings from
continuing operations
before income taxes
and non-controlling
interest (97,537) 17,768 (100,684) 41,828
(Recovery of) provision
for income taxes (32,377) 3,057 (33,344) 11,025
Non-controlling interest
in earnings of
subsidiaries (377) 153 (3) 333
-------------------------------------------------------------------------
Net (loss) earnings from
continuing operations (64,783) 14,558 (67,337) 30,470
Loss from discontinued
operations, net of tax
(note 2) (806) (14,099) (2,132) (21,172)
Extraordinary gain,
net of tax (note 3) - - 176 -
-------------------------------------------------------------------------
Net (loss) earnings $ (65,589) $ 459 $ (69,293) $ 9,298
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Loss) earnings per
share (note 8)
Basic - from
continuing
operations $ (1.10) $ 0.24 $ (1.14) $ 0.50
Basic - from
discontinued
operations (0.01) (0.23) (0.03) (0.35)
-------------------------------------------------------------------------
$ (1.11) $ 0.01 $ (1.17) $ 0.15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted - from
continuing
operations $ (1.10) $ 0.24 $ (1.14) $ 0.50
Diluted - from
discontinued
operations (0.01) (0.23) (0.03) (0.35)
-------------------------------------------------------------------------
$ (1.11) $ 0.01 $ (1.17) $ 0.15
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Retained Earnings
(in thousands of dollars - unaudited)
Three months ended Twelve months ended
-------------------------------------------------------------------------
March 31 March 31 March 31 March 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Retained earnings,
beginning of period $ 190,652 $ 207,661 $ 208,120 $ 198,822
Net (loss) earnings (65,589) 459 (69,293) 9,298
Reduction from share
repurchase (note 5) - - (13,764) -
-------------------------------------------------------------------------
Retained earnings,
end of period $ 125,063 $ 208,120 $ 125,063 $ 208,120
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
-------------------------------------------------------------------------
March 31 March 31
2006 2005
-------------------------------------------------------------------------
ASSETS (as restated)
Current assets:
Cash and short-term investments $ 27,921 $ 49,529
Accounts receivable 133,450 141,419
Income taxes recoverable 19,984 12,502
Costs and earnings in excess of billings
on contracts in progress 102,759 108,956
Inventories 69,833 67,481
Assets held for sale (note 2) - 5,654
Other 4,887 3,749
-------------------------------------------------------------------------
358,834 389,290
Property, plant, and equipment 198,863 246,016
Goodwill (note 6) 33,686 34,750
Intangible assets 1,354 3,599
Future income tax assets 42,493 14,539
Deferred developments costs 3,960 41,215
Assets held for sale (note 2) 1,485 5,916
Other assets 8,697 4,464
-------------------------------------------------------------------------
$ 649,372 $ 739,789
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 1,812 $ -
Accounts payable and accrued liabilities 100,149 102,984
Billings in excess of costs and earnings
on contracts in progress 39,497 15,352
Future income taxes 33,367 27,838
-------------------------------------------------------------------------
174,825 146,174
Long-term debt 39,860 41,070
Future income taxes 3,121 17,684
Non-controlling interest 645 677
Shareholders' equity:
Share capital (notes 5 and 8) 326,840 334,966
Retained earnings 125,063 208,120
Contributed surplus 2,035 783
Cumulative translation adjustment (23,017) (9,685)
-------------------------------------------------------------------------
430,921 534,184
-------------------------------------------------------------------------
$ 649,372 $ 739,789
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended Twelve months ended
-------------------------------------------------------------------------
March 31 March 31 March 31 March 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash flows from
operating activities:
Net (loss) earnings $ (65,589) $ 459 $ (69,293) $ 9,298
Items not involving
cash (24,026) 2,059 (2,331) 39,567
Stock-based
compensation 508 16 1,816 503
Write down for
impairment in value
of assets 96,798 43,325 96,916 43,325
-------------------------------------------------------------------------
Cash flow from
operations 7,691 45,859 27,108 92,693
Change in non-cash
operating working
capital 17,562 (11,739) 21,132 (26,290)
-------------------------------------------------------------------------
25,253 34,120 48,240 66,403
Cash flows from
investing activities:
Cash received upon
acquisition of
subsidiary (note 3) - - 461 -
Acquisition of property,
plant, and equipment (8,012) (19,634) (42,393) (49,894)
Investments and other 1,607 (6,090) (13,706) (14,980)
Proceeds from disposal
of assets 4,469 - 7,382 10,261
-------------------------------------------------------------------------
(1,936) (25,724) (48,256) (54,613)
Cash flows from financing
activities:
Bank indebtedness (33,496) (7,085) 1,812 -
Purchase of common
shares for
cancellation (note 5) - - (25,000) -
Repayment of revolving
term debt (15,000) - - -
Issuance of common
shares 712 186 3,110 601
Other - 62 - (26)
-------------------------------------------------------------------------
(47,784) (6,837) (20,078) 575
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments 296 349 (1,514) (1,387)
-------------------------------------------------------------------------
(Decrease) increase in
cash and short-term
investments (24,171) 1,908 (21,608) 10,978
Cash and short-term
investments, beginning
of period 52,092 47,621 49,529 38,551
-------------------------------------------------------------------------
Cash and short-term
investments, end of
period $ 27,921 $ 49,529 $ 27,921 $ 49,529
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary
information:
Cash income taxes
paid $ 256 $ 527 $ 1,506 $ 2,467
Cash interest paid $ 613 $ 358 $ 2,568 $ 1,339
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Notes to Interim Consolidated Financial Statements
(tabular amounts in thousands, except per share amounts - unaudited)
-------------------------------------------------------------------------
These statements have not been reviewed or audited by the Company's
auditor.
1. Significant accounting policies:
(i) The accompanying unaudited interim consolidated financial
statements are prepared in accordance with accounting principles
generally accepted in Canada ("GAAP") 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
are likely to accrue and can reasonably be estimated. 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 Precision Components and Photowatt Technologies
segments is recognized at time of shipment, providing collection is
reasonably assured.
(iii) The preparation of these interim consolidated financial
statements in conformity with GAAP 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, recoverability of deferred
development costs, fair value of reporting units, fair value of
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,
contingent liabilities, and allowances for accounts receivable.
2. Discontinued operations and assets held for sale:
(i) During fiscal 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:
Twelve months ended
---------------------------------------------------------------------
March 31 March 31
2006 2005
---------------------------------------------------------------------
Revenue $ 24,049 $ 30,613
Loss from operating activities $ (3,309) $ (25,202)
Income tax recovery 1,126 8,191
---------------------------------------------------------------------
Loss from discontinued operations $ (2,183) $ (17,011)
---------------------------------------------------------------------
During the year ended March 31, 2006, the Company reclassified
approximately $1.5 million of net assets (March 31, 2005 -
$1.3 million) as a result of the Company's decision to integrate a
product line that had previously been classified as held for sale
into its continuing business.
Effective January 2, 2006, the Company completed the sale of
Precision Metals for net proceeds of $4,309,000, including
transaction costs. The loss from discontinued operations includes a
charge of $474,000 ($718,000 before taxes) to reduce the Precision
Metals assets to the estimated net realizable value including
transaction costs. The loss from discontinued operations for the year
ended March 31, 2005 includes a $12,825,000 ($19,000,000 before
taxes) charge to write down certain assets to their net realizable
value.
The Company retained the land and building related to the Precision
Metals operations and has entered into a lease agreement with the
purchaser for use of the land and building. The Company expects to
sell this land and building and, as such, the assets continue to be
classified as held for sale.
(ii) During the year ended March 31, 2005, 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 $1,738,000 ($3,173,000 before taxes). Accordingly, the
results of operations of the Thermals Business have been segregated
as discontinued operations in the interim consolidated financial
statements. The results of the discontinued Thermal Business were as
follows:
Twelve months ended
---------------------------------------------------------------------
March 31 March 31
2006 2005
---------------------------------------------------------------------
Revenue $ - $ 5,029
Income (loss) from operations $ 78 $ (6,246)
Income tax (expense) recovery (27) 2,480
---------------------------------------------------------------------
Income (loss) from discontinued operations $ 51 $ (3,766)
---------------------------------------------------------------------
(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"). Accordingly, the results of operations of Eco-Snow
have been segregated and presented separately as discontinued
operations in the accompanying interim consolidated financial
statements. During fiscal 2005, the Company settled outstanding
matters related to Eco-Snow. The results of the discontinued
operations were as follows:
Twelve months ended
---------------------------------------------------------------------
March 31 March 31
2006 2005
---------------------------------------------------------------------
Revenue $ - $ -
Loss from operations $ - $ (659)
Income tax recovery - 264
---------------------------------------------------------------------
Loss from discontinued operations $ - $ (395)
---------------------------------------------------------------------
3. Acquisition:
During the three months ended September 30, 2005, ATS acquired the
net assets and business of an automation business in the United
Kingdom in order to increase installation support and sales and
service capabilities in this region. The results of this business
have been included in the interim consolidated financial statements
since acquisition.
The following table summarizes the estimated fair value of assets
acquired and liabilities assumed as at the date of acquisition:
Accounts receivable $ 845
Costs and earnings in excess of billings on contracts in
progress and inventories 840
Current liabilities (1,568)
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Net assets acquired excluding cash and long-term debt 117
Cash payment from vendor 220
Cash proceeds from long-term debt 439
Fair value of long-term debt assumed (402)
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257
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Net assets acquired 374
Less: acquisition costs (198)
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Extraordinary gain, net of tax 176
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The excess of the fair value of assets acquired less liabilities
assumed was first allocated to all of the acquired assets except
current assets, with the remaining amount presented as an
extraordinary gain, net of income tax.
In conjunction with the purchase of assets, the vendor provided an
unsecured non-interest bearing loan of GBP 200,000 that is due on
July 29, 2007. The fair value of the long-term debt was estimated
using a discount rate of 4.5%, based on other debt instruments with
similar characteristics.
4. 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 Twelve months ended
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March 31 March 31 March 31 March 31
2006 2005 2006 2005
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Weighted average of
risk-free interest
rate 4.10% - 3.36% 3.55%
Dividend yield 0.0% - 0.0% 0.0%
Weighted average of
expected life
(years) 5.0 yrs - 5.2 yrs 5.5 yrs
Expected volatility 31% - 31% 38%
Number of stock
options granted
(thousands):
Non-performance
based 4 - 438 430
Performance
based - - 173 -
Weighted average of
exercise price per
option (dollars) $ 16.37 - $ 14.40 $ 11.50
Weighted average
value per option
(dollars):
Non-performance
based $ 5.14 - $ 5.06 $ 4.67
Performance
based $ - - $ 4.42 $ -
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During the three months 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 specified thresholds 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 three months ended June 30, 2005, 25% of the performance
based options vested. During the three months ended March 31, 2006,
an additional 25% of the performance based options vested.
5. 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 shares 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
cost to repurchase the shares over the stated value was charged to
retained earnings.
6. Asset impairment charges
The Company regularly reviews the net recoverable amount of its
deferred development costs and long lived assets. As a result of this
review, in the year ended March 31, 2006, deferred development costs
were written down by $43,729,000, property, plant and equipment was
written down by $50,796,000, and intangible assets were written down
by $1,673,000 for a total impairment expense of $96,198,000 before
taxes and $64,807,000 after taxes in the Photowatt Technologies
segment. The impairment resulted due to uncertainty and delays in
realizing cash flows from the investment in the Spheral Solar(TM)
Power technology.
At March 31, 2006, the annual testing for goodwill impairment
resulted in no charge against goodwill. 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 year ended March 31, 2004, the Company received
notification of non-income tax related reassessments from the
Province of Ontario related to the year 1998 to 2003. The Company
disagreed with the reassessment and objected 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
provided for the increase in estimated liabilities during the year
ended March 31, 2004. During the year ended March 31, 2006, the
Company was successful in their objection to certain positions taken
by the Province of Ontario in this reassessment and as a result, the
Company is entitled to a refund related to this reassessment. The
amount of the refund entitlement was $512,000 before income taxes and
$338,000 after income taxes.
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. The
assets were held for sale as at March 31, 2005 and were subsequently
sold during the year ended March 31, 2006. The actual net realizable
value upon sale did not differ materially from management's estimate
as at March 31, 2005.
Certain of the Company's portfolio and technology investments were
written down in the year ended March 31, 2005 by $1,179,000 (2005 -
$1,179,000) before taxes and $772,000 (2005 - $772,000) after taxes
to reflect their estimated net realizable value. There were no
similar write downs for the year ended March 31, 2006.
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
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March 31 March 31 March 31 March 31
2006 2005 2006 2005
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Basic 59,144 60,796 59,143 60,738
Diluted 59,144 60,972 59,143 60,920
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9. Segmented disclosure:
The Company evaluates performance based on three reportable segments:
Automation Systems, Photowatt Technologies, and Precision Components.
The Automation Systems segment produces custom-engineered turn-key
automated manufacturing and test systems. The Photowatt Technologies
segment is a high volume manufacturer of photovoltaic products
through its subsidiary Photowatt International 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
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March 31 March 31 March 31 March 31
2006 2005 2006 2005
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Revenue
Automation
Systems $ 143,383 $ 146,058 $ 500,792 $ 547,402
Photowatt
Technologies 40,019 41,007 145,339 143,790
Precision
Components 28,856 25,480 98,314 98,145
Elimination of
inter-segment
revenue (1,455) (3,850) (9,912) (18,402)
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Consolidated $ 210,803 $ 208,695 $ 734,533 $ 770,935
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Earnings (loss)
from operations
Automation
Systems $ 3,637 $ 12,313 $ 6,743 $ 38,813
Photowatt
Technologies (1,869) 5,969 4,953 13,129
Precision
Components 90 7 (2,745) (418)
Inter-segment
elimination and
corporate
expenses (3,173) (2,922) (11,599) (10,987)
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Consolidated $ (1,315) $ 15,367 $ (2,648) $ 40,537
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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, Photowatt Technologies and Precision Components volumes,
and the Company's earnings in any of its markets.
%SEDAR: 00002017E
For further information: Carl Galloway, Vice President and Treasurer, Gerry Beard, Vice President and Chief Financial Officer, (519) 653-6500