ATS reports first quarter profit, provides solar update
CAMBRIDGE, ON, Aug. 10 /CNW/ - ATS Automation Tooling Systems Inc. today
reported its financial results for the first quarter of fiscal 2007 (three
months ended June 30, 2006).
Highlights
- Consolidated earnings from operations were $5.6 million on revenue from
continuing operations of $190.9 million, compared to a loss from
operations of $1.3 million on revenue of $210.8 million in the fourth
quarter of fiscal 2006.
- Changes in effective foreign exchange rates reduced consolidated
revenue and consolidated operating earnings for the quarter ended
June 30, 2006 compared to the same period of fiscal 2006 by an
estimated $19.4 million and $5.9 million respectively.
- Automation Systems Group operating margins were 2% in the first quarter
of fiscal 2007 compared to 3% in the fourth quarter of fiscal 2006.
Operating earnings were $2.8 million on sales of $121.8 million in the
first quarter.
- Photowatt International achieved record operating earnings in the first
quarter of $10.0 million - up 51% and 61% from the first and fourth
quarter of fiscal 2006, respectively. Revenues were 3% and 11% higher
compared to the first and fourth quarter of fiscal 2006, respectively.
Excluding the effect of foreign exchange, revenue and operating
earnings increased 15% and 69%, respectively, compared to the first
quarter of the prior year.
- Photowatt Canada's operating loss, decreased to $4.4 million in the
first quarter from $7.6 million in the fourth quarter of fiscal 2006
reflecting the new focus announced in May.
- PCG operating earnings were $0.9 million, a significant improvement
from the $0.1 million in the fourth quarter of fiscal 2006 and the
$1.0 million operating loss in the first quarter of fiscal 2006.
Management Commentary
"ATS made substantial headway in advancing our solar business and
executing our strategic initiatives in the first quarter," said Ron Jutras,
President and CEO. "To date, these initiatives are responsible for the record
performance at Photowatt International, substantial turnaround within our
Precision Components Group, and strong performance gains within our US West
Coast and certain other ASG operations. While tangible progress is being made,
we have not yet fully realized the substantial benefits we expect to see over
time from our broad-based improvement strategies. In particular, more progress
is needed at our flagship ASG facility in Cambridge to effectively offset
foreign currency pressures and the impact of a challenging North American
automotive market."
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3 months 3 months
ended ended
$ million, except June 30, June 30,
per share 2006 2005
-------------------------------------------------------------------------
Revenue from
continuing operations ASG $ 121.8 $ 125.7
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Photowatt Technologies 44.4 42.9
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PCG 25.3 23.8
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Inter-company elimination (0.6) (3.7)
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Consolidated $ 190.9 $ 188.7
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Earnings (loss)
from operations ASG $ 2.8 $ 7.1
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Photowatt International 10.0 6.6
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Photowatt Canada and
other solar (5.4) -
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PCG 0.9 (1.0)
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Inter-company elimination (2.7) (3.4)
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Consolidated $ 5.6 $ 9.3
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Net earnings per share From continuing
operations $ 0.04 $ 0.10
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After discontinued
operations $ 0.01 $ 0.09
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Other ASG New Order Bookings $ 98.0 $ 110.6
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ASG Order Backlog $ 176.1 $ 151.8
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Solar Developments
Capacity Expansion: Photowatt Technologies benefited from the addition of
capacity which came on line in the second half of fiscal 2006 at its Photowatt
France operation, combined with strong market demand. New production equipment
is now beginning to arrive as part of its current expansion announced in May
2006. This program will increase total, annual capacity of Photowatt
International to an estimated 60 megawatts and is expected to be on line by
the end of fiscal 2007.
Silicon Supply: Photowatt Canada has commenced shipments to Photowatt
France of solar-grade silicon (polysilicon) manufactured using its proprietary
conversion process. Photowatt Canada expects to deliver 70 tonnes of
polysilicon to Photowatt France in fiscal 2007. Photowatt Technologies also
successfully secured additional silicon from traditional sources during the
first quarter. As a result, management believes it now has silicon secured for
the majority of its planned capacity into the second quarter of calendar 2007.
In addition, Photowatt France has now successfully manufactured 70,000
solar cells - with an average efficiency of over 12% - that were made entirely
from refined metallurgical-grade silicon. With this technology advancement,
management believes it has additional flexibility to utilize its capacity in
this period of polysilicon shortages.
Spheral Solar(TM) Technology: As announced in May 2006, Photowatt Canada
continues to work on further in-depth engineering and process development on
its Spheral Solar(TM) technology. SRI International (formerly Stanford
Research Institute) a leading research and development group has been engaged
to assist in the effort to achieve reliable outputs at the desired efficiency
level.
Funding Strategy: Management now expects it will file a preliminary
prospectus for an initial public offering of shares of Photowatt Technologies
in Canada and the U.S. by the end of the current quarter.
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 at
1 800 257 6607.
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.
ATS's fiscal 2006 annual report will be filed with SEDAR (www.sedar.com)
and available on ATS's website (www.atsautomation.com) Friday August 11, 2006.
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 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, 2006 (first quarter of
fiscal 2007) provides detailed information on the Company's operating
activities of the first quarter of fiscal 2007 and should be read in
conjunction with the unaudited interim consolidated financial statements of
the Company for the three months ended June 30, 2006. 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 2006 and related MD&A and,
accordingly, the purpose of this document is to provide a first quarter update
to the information contained in the fiscal 2006 MD&A. These documents and
other information relating to the Company, including the Company's fiscal 2006
audited consolidated financial statements, MD&A and 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"), Photowatt Technologies, and Precision Components Group ("PCG").
Previously referred to as "Solar Group", Photowatt Technologies is 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)
technology). The terms operating income, operating earnings, earnings from
operations, operating loss, operating results, operating margin, Order Backlog
and New 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.
Certain fiscal 2006 comparative figures including revenues, operating
earnings, New Order Bookings and Order Backlog, have been restated to reflect
the presentation of the Berlin coil winding business as a discontinued
operation. This business was divested during the first quarter of fiscal 2007
(see below)
Automation Systems Group
Reflecting the impact of foreign exchange, ASG's revenue of
$121.8 million declined 3% in the first quarter compared to $125.7 million the
same period last year. For the three months ended June 30, 2006, the estimated
negative foreign exchange impact on ASG revenue was $12.1 million. Excluding
the impact of foreign exchange, ASG revenue was an estimated 7% higher
compared to the first quarter of fiscal 2006.
Computer-electronics and healthcare were ASG's fastest-growing segments
with revenue increases of 35% and 16% respectively compared to the first
quarter a year ago. Healthcare continued to represent ASG's largest market at
39% of Group revenue. Revenue from Repetitive Equipment Manufacturing (REM)
increased 9% in the first quarter to $12.4 million from $11.4 million a year
ago.
REM is a profitable growth initiative that combines the competitive
advantages and capabilities of the Company's ASG and PCG operations and
primarily serves the healthcare segment. On a regional basis, compared to the
first quarter last year, Western North American and Asian operations generated
significant revenue increases. ASG automotive revenue decreased 38%,
reflecting weakness in the North American automotive industry and the
Company's decision, made several quarters ago, to be more selective in bidding
on assignments in this market. Consequently, ASG's Eastern North American
facilities continued to experience lower revenues, primarily in the Cambridge
and Ohio operations. The Canadian dollar is also having a significant negative
impact on Cambridge ASG operations. Lower revenues in Europe reflect
challenging market conditions and the negative impact of foreign currency on
translation. The UK-based automation company ATS acquired in the second
quarter of fiscal 2006 contributed approximately $1.1 million of profitable
revenue in the first quarter of fiscal 2007.
Automation Systems Group Revenue by Industry
($ millions)
Three months ended
6/30/2006 6/30/2005
---------------------------------------------------------
Healthcare $ 47.5 $ 41.0
Computer-electronics 33.8 25.1
Automotive 30.5 49.4
Other 10.0 10.2
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Total $ 121.8 $ 125.7
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ASG first quarter operating earnings were $2.8 million compared to
operating earnings of $7.1 million in the first quarter of fiscal 2006. The
strong Canadian dollar continued to have a significant negative effect,
reducing ASG operating earnings by an estimated $3.7 million during the three
months ended June 30, 2006, versus the comparable period a year earlier.
During and subsequent to the first quarter, ASG reduced its workforce in its
Carolina and Ohio operations by approximately 10%, providing annualized salary
reductions of an estimated $1.1 million. Severance costs of $0.4 million were
incurred in the first quarter across ASG. These rationalizations are part of
the Group's comprehensive improvement strategies, which are aimed at
strengthening ASG's ability to overcome challenging automotive market
conditions and the impact of foreign exchange and follow a 6% reduction in
total ASG staffing announced in the fall of 2005.
Included in ASG's operating income is amortization expense for the first
quarter of $2.8 million, compared to $3.4 million in the first quarter of
fiscal 2006.
Automation Systems Order Backlog
At June 30, 2006, ASG Order Backlog was $176 million, 16% higher than at
June 30, 2005 and 20% lower than at March 31, 2006. Year over year, healthcare
Order Backlog increased $28 million (64% increase) to $72 million despite a
$14 million order cancellation caused by a customer making a change in its
underlying product strategy. There was no negative financial impact to
reported ASG operating earnings from resolution of this contract. Management
believes the increase in healthcare Order Backlog reflects the significant
efforts and progress made in penetrating this market. Automotive Order Backlog
decreased $16 million year over year (25% decrease), reflecting ASG's
selective approach to pursuing certain automotive orders. The increase in
computer-electronics (6% increase) and "other" (77% increase) Order Backlog
reflects ASG's continued focus on revenue diversification.
New ASG Order Bookings in the first quarter were $98 million, 8% lower
than in the first quarter a year ago. New Order Bookings for the first five
weeks of the second quarter of fiscal 2007 were $25 million. Order Backlog and
New Order Bookings have been adjusted to remove the Berlin discontinued
operations.
Automation Systems Order Backlog by Industry
($ millions)
6/30/2006 6/30/2005 Percentage
Change
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Healthcare $ 72 $ 44 64%
Automotive 47 63 -25%
Computer-electronics 34 32 6%
Other 23 13 77%
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Total $ 176 $ 152 16%
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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 which have both increased competitive pricing
pressure. The Company's focus on diversifying its revenue base into markets
like healthcare, and on improving operational effectiveness through ongoing
cost reduction strategies, more effective global supply chain management,
better sales forecasting, targeted business development, expansion of
operations in China and new organizational design are expected to contribute
positively to results as these efforts begin to gain momentum.
Photowatt Technologies (Solar Group)
Photowatt Technologies' consolidated revenue in the first quarter
continued to be derived solely from Photowatt International (comprised of its
operations in France and USA). Despite the negative effect of foreign exchange
on translation, revenue from these operations was $44.4 million, $1.5 million
or 3% higher than in the same period last year. Excluding the translation
effect of foreign exchange, Photowatt Technologies' revenue would have been an
estimated 15% higher than the first quarter a year ago. Sequentially, compared
to the fourth quarter of fiscal 2006, first quarter revenue grew 11%. First
quarter revenue growth reflects strong market demand for solar products,
primarily as a result of attractive government incentive programs in Europe,
and increasing consumer interest in clean, sustainable energy sources.
Increased revenue also reflects increased selling prices and increased
production output from Photowatt France's vertically integrated manufacturing
facility. During the first quarter Photowatt International also increased its
revenues from the sale of solar module installation kits and power inverters,
as part of a total solutions strategy. Revenue from these items accounted for
approximately $3 million of first quarter revenue, compared to a relatively
small amount in previous quarters.
Photowatt Technologies' Operating Earnings
($ millions)
Three months ended
6/30/2006 6/30/2005
---------------------------------------------------------
Photowatt International $ 10.0 $ 6.6
Photowatt Canada (4.4) -
Corporate Costs (0.5) -
Intersolar eliminations (0.5) -
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Total $ 4.6 $ 6.6
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Photowatt Technologies' first quarter operating results include both
Photowatt International and Photowatt Canada. 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 first quarter were a
record $10.0 million (23% operating margin), a $3.4 million or 51% increase
from operating earnings of $6.6 million (15% operating margin) in the first
quarter last year. Excluding the translation effect of foreign exchange on
first quarter results, Photowatt International's operating earnings would have
increased 69% compared to the first quarter of fiscal 2006. The total
estimated negative impact of foreign exchange translation of the euro to
Canadian dollar on operating earnings in the first quarter was $1.2 million
compared to the first quarter of fiscal 2006.
This record first quarter operating performance reflected higher selling
prices and the benefits of significant improvements in production yields,
throughput gains, cost reduction initiatives, and capital investments that
have been made, including the integration of new wire saw process equipment
installed in the fourth quarter of fiscal 2006. Photowatt International also
achieved attractive margins on sales of solar module installation kits and
power inverters.
To date, Photowatt France has mitigated a significant amount of the
impact of silicon supply shortages and higher silicon prices on its operating
income by achieving improved internal operating efficiencies and through
increased selling 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 the Company's strategy of obtaining selling
price increases and improvements in production efficiencies may not be able to
fully offset higher silicon costs and silicon shortages.
Photowatt Canada's operating loss was $4.4 million in the first quarter
compared to a loss of $7.6 million in the fourth quarter. This operating loss
reflected research and development costs incurred related to the Spheral
Solar(TM) technology initiative, net of the intercompany profits Photowatt
Canada generated on the sale of OFP Silicon (see silicon supply below) to
Photowatt France. As expected, this loss was lower compared to the loss in the
fourth quarter due to lower amortization (see below) and as the Company began
to realize the cost savings from a 41% reduction in Photowatt Canada's staff
(60 positions) during the first quarter as part of management's revised
development plan for this operation and its technology.
Prior to this quarter, Photowatt Technologies presented its "corporate"
management and general corporate costs and intersolar eliminations within
Photowatt Canada's results. These costs are now presented separately in the
table above. Photowatt Technologies' corporate costs in the first quarter were
$0.5 million compared to $0.2 million in the fourth quarter. These costs have
increased over the fourth quarter as Photowatt Technologies builds out its
management team to prepare for standalone company status. Corporate costs and
inter-solar eliminations were insignificant during the comparable prior year
quarter.
Intersolar eliminations in the first quarter totalled $0.5 million
($0.3 million in the fourth quarter of fiscal 2006). These eliminations
represent profit that is deferred until the underlying shipments of silicon
between Photowatt Canada and Photowatt International are converted to revenue.
Photowatt Technologies' consolidated operating income for the three
months ended June 30, 2006 was $4.6 million, compared to operating earnings of
$6.6 million in the first quarter a year ago. This reduction is a result of
Photowatt Canada's costs related to the Spheral Solar(TM) technology no longer
being capitalized as they were in the first quarter of fiscal 2006.
Photowatt International and Photowatt Canada amortization expense for the
three months ended June 30, 2006 was $2.3 million and $0.3 million,
respectively, compared to $1.9 million and $nil, respectively, in the
comparable period of the prior year. Amortization costs of Photowatt Canada
have decreased significantly from the third and fourth quarters of fiscal 2006
reflecting the write down of Photowatt Canada production equipment in fiscal
2006 (see fiscal 2006 consolidated financial statements and MD&A for further
details).
Photowatt Technologies Outlook
Management believes solar product demand will remain strong based upon
ongoing European subsidy programs, newly introduced North American subsidy
programs and continued demand for clean, renewable energy products that can
augment or replace increasingly scarce fossil fuels. Photowatt France
performance in the second quarter will be negatively affected by its customary
summer shutdown.
Photowatt International Capacity Expansions. During the first quarter,
the Company announced another capacity expansion plan. This latest expansion
is expected to increase the estimated annual production capacity of Photowatt
International from approximately 40 megawatts of cell capacity to
approximately 60 megawatts of vertically integrated capacity by the end of
fiscal 2007, at an estimated capital cost of (euro) 25 million.
Silicon Supply. Management believes that it has now secured sources of
silicon at Photowatt France for the majority of its planned capacity into the
second quarter of calendar 2007. In addition to purchasing silicon from
conventional industry sources at market prices, management is employing a
number of strategies which it believes should allow it to secure additional
supplies of silicon.
During the first quarter, Photowatt Canada shipped approximately
seventeen tonnes of silicon to Photowatt France. Of these seventeen tonnes,
seven were manufactured using its proprietary processes that convert
lower-cost forms of silicon into silicon usable by Photowatt France ("OFP
Silicon"). The majority of the balance was converted by Photowatt Canada into
readily useable silicon using its separation process. OFP Silicon is expected
to be an important, incremental source of silicon supply for Photowatt France.
Photowatt Canada currently estimates that it has sufficient manufacturing
capacity and raw materials in inventory to ship approximately 70 tonnes of
silicon, including OFP Silicon, to Photowatt France this fiscal year.
A third element of the Company's silicon supply strategy is the use of
refined metallurgical silicon. Using this lower cost silicon, Photowatt France
has successfully manufactured 70,000 solar cells, most of which were produced
in the first quarter of fiscal 2007. These cells currently achieve an average
efficiency of over 12% compared to 15% average cell efficiency using
polysilicon. Management believes that the use of refined metallurgical grade
silicon, while less profitable, provides Photowatt France with an economically
viable alternative to using traditional polysilicon and that this technology
can be enhanced to further improve cell efficiency.
A fourth element of Photowatt Technologies' silicon supply strategy is
continued development of strategic partnerships and alliances.
Spheral Solar(TM) Technology: Photowatt Canada continues to work on
further in-depth engineering and process development on its Spheral Solar(TM)
technology. SRI International (formerly Stanford Research Institute) a leading
research and development group has been engaged to assist in the effort to
achieve reliable outputs at the desired efficiency level. A preliminary
assessment of the future development path is planned to be delivered by the
end of September and a more comprehensive report is due in January.
Solar Funding Strategy. The Company continues to advance toward an
initial public offering of the shares of Photowatt Technologies. Management
expects to file a preliminary prospectus before the end of the current
quarter. In preparation for this event, during the first quarter, Photowatt
Technologies recruited its first Executive Chairman, Robert Franklin, who has
played a leadership role on the Board of Directors in a number of successful
public companies. Photowatt Technologies also added a new Chief Financial
Officer, David Adams, who brings significant public company experience within
a cross-listed (TSX, NASDAQ) environment.
Precision Components Group
PCG continues to make significant progress in strengthening its
operations and achieved both revenue and operating earnings improvements in
the first quarter. More specifically, despite a challenging North American
automotive market and the negative impact of a lower US-Canadian dollar
exchange rate, PCG's revenue increased 6% or $1.5 million in the first quarter
of fiscal 2007 to $25.3 million, compared to $23.8 million in the prior year
period. Revenue growth was driven by a number of factors including: new PCG
programs that launched during fiscal 2006; increased volumes on existing
programs; and, price increases on certain programs.
The estimated negative foreign exchange impact on PCG revenue for the
three months ended June 30, 2006 was $2.4 million compared to the same period
of a year ago.
PCG's operating income for the first quarter increased $1.9 million to
$0.9 million, from a loss of $1.0 million in the first quarter last year. This
increase was achieved despite an estimated $1.0 million negative impact of
foreign currency on operating income compared to the first quarter last year.
Operating income in the first quarter of fiscal 2006 included $1.0 million of
costs related to the consolidation of the McAllen, Texas facility into PCG's
Cambridge operations.
Improved PCG performance reflects significant operational improvements
that have been made over the past year, including: closure of PCG's McAllen,
Texas facility, manufacturing efficiency gains, price increases on programs
and increased benefits from supply chain management. These improvements more
than offset the negative impact of foreign exchange.
Included in PCG's operating income is amortization expense for the first
quarter of $1.8 million, compared to $2.0 million in the first quarter of
fiscal 2006.
Precision Components Outlook
PCG continues to benefit from the significant, ongoing improvements it
has made in its operations, which have reduced operating costs and enhanced
PCG asset utilization. However, the impact of the strengthening Canadian
dollar has continued to hold back the benefits of this substantial progress.
Looking forward, the second quarter will be negatively impacted by traditional
summer plant shutdowns. As well, management continues to expect that the North
American automotive market will remain challenging throughout fiscal 2007 due
to very competitive pricing, and the strong Canadian dollar. However,
management continues to believe that PCG's prospects have been strengthened
due to its operational improvements and the nature and quality of customer
assignments that PCG is now fulfilling. Reflecting increased customer demand
and capacity constraints at its existing leased facility in Stratford,
Ontario, PCG is progressing with its previously announced plans to relocate
its successful Omex business to a larger, leased facility at an estimated
expense of $0.8 million which is expected to be incurred over the second and
third quarters of fiscal 2007.
Consolidated Results From Operations
Revenue. At $190.9 million, consolidated revenue from continuing
operations for the three months ended June 30, 2006 was 1% higher than a year
ago. A 3% increase in solar revenue and a 6% increase in PCG revenue were
offset by the 3% reduction in ASG revenue. The estimated effect on revenue of
changes in effective foreign exchange rates was a reduction in revenue of
$19.4 million for the three months ended June 30, 2006 compared to the same
period of the prior year. Excluding the impact of foreign exchange,
consolidated revenue was an estimated 11% higher compared to the first quarter
of fiscal 2006.
Consolidated Revenue by Region
($ millions)
Three months ended
6/30/2006 6/30/2005
---------------------------------------------------------
U.S. & Mexico $ 81.8 $ 105.6
Europe 69.6 62.0
Canada 12.4 6.0
Asia-Pacific and other 27.1 15.1
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Total $ 190.9 $ 188.7
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Consolidated earnings from operations. For the three months ended June
30, 2006, consolidated earnings from operations were $5.6 million, compared to
earnings from operations of $9.3 million a year ago. Fiscal 2007 first quarter
performance reflected: operating earnings of $10.0 million at Photowatt
International ($6.6 million a year ago); operating loss of $5.4 million at
Photowatt Canada including corporate costs and intergroup eliminations
(results a year ago were capitalized on the Company's balance sheet); PCG
operating earnings of $0.9 million ($1.0 million loss a year ago); ASG
operating earnings of $2.8 million (operating earnings $7.1 million a year
ago); and, intercorporate operating costs of $2.7 million ($3.5 million of
costs a year ago). Excluding the costs associated with Spheral Solar(TM)
technology incurred in the first quarter and excluding the estimated impact of
foreign currency, consolidated earnings from operations for the three months
ended June 30, 2006 would have been $16.0 million.
Selling, general and administrative ("SG&A") expenses. For the first
quarter, SG&A expenses increased $1.0 million to $21.3 million compared to the
respective prior year period. This increase is primarily attributable to the
inclusion of a total of $1.4 million of Photowatt Canada SG&A expenses
including $0.5 million of Photowatt Technologies corporate costs. Increased
SG&A expenses in the quarter were also attributable to costs associated with
organizational development and increased profit sharing costs resulting from
increased profitability at Photowatt France. Included in the SG&A for the
first quarter of fiscal 2006 was $1.0 million for the consolidation of the
McAllen, Texas operations, $0.8 million of severance costs in ASG and a
$0.4 million gain on sale of equipment.
Stock-based compensation cost. For the first quarter stock based
compensation expense decreased $0.7 million from the first quarter of last
year reflecting the issuance and cancellation of employee stock options, the
increased use of deferred stock units under the directors' compensation plan,
and the change in value of the outstanding deferred stock units.
Interest expense. For the three months ended June 30, 2006, interest
expense increased $0.2 million compared to a year ago to $0.6 million,
primarily reflecting higher interest rates and higher usage of the Company's
credit facilities.
Loss from discontinued operations, net of tax. During the three months
ended June 30, 2006, the Company sold the key operating assets and liabilities
including equipment, current assets, trade accounts payable and certain other
assets and liabilities of its Berlin, Germany coil winding business for net
proceeds of (euro) 0.6 million consisting of cash of (euro) 0.3 million and an
interest bearing note receivable of (euro) 0.3 million. Accordingly, the
results of operations and financial position of the Berlin subsidiary have
been segregated and presented separately as discontinued operations and as
assets held for sale. The loss from discontinued operations includes a
non-cash charge of $2.0 million ($2.2 million before taxes) during the three
months ended June 30, 2006 to write down the assets sold to their net
realizable value. Results for comparable periods have been restated to reflect
this discontinued operation.
In the fourth quarter of fiscal 2006, the Company completed the sale of
PCG's precision metals division ("Precision Metals"). The results and
financial position of Precision Metals for fiscal 2006 have been segregated
and presented separately as "discontinued operations" and "assets held for
sale" in the accompanying interim financial statements. 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'. See note 2 to the Consolidated
Interim Financial Statements for further details on the net loss from
discontinued operations.
Provision for income taxes. The effective rate of income tax reflects the
tax rates of different countries and jurisdictions where future tax assets are
not recognized.
Net earnings from continuing operations. For the first quarter of fiscal
2007 net earnings from continuing operations were $2.4 million (4 cents per
share basic and diluted) compared to net earnings from continuing operations
of $5.9 million (10 cents per share basic and diluted) a year ago.
Net earnings. For first quarter of fiscal 2007 net earnings were
$0.3 million (1 cent per share basic and diluted) compared to net earnings of
$5.4 million (9 cents per share basic and diluted) for the same period last
year. Excluding the impact of Photowatt Canada (SSP), consolidated net
earnings for the quarter ended June 30, 2006 would have been $3.8 million (6
cents per share basic and diluted).
Impact of Foreign Exchange
The sustained strength of the Canadian dollar particularly against the
US dollar and the euro continued to have a significant and negative impact on
the Company's revenue and earnings in the first quarter of fiscal 2007. In the
first quarter, the effective rate of exchange on the US dollar and euro
currencies declined 9% and 10% respectively, while average market rates
declined 10% and 10% respectively compared to the same quarter of last year.
Estimated Foreign Exchange Impact
For the three months ended June 30, 2006
($ millions)
-------------------------------------------------------------------------
Estimated
negative %
impact Change vs.
of foreign last year
exchange excluding
% included foreign
Change vs. in reported exchange
Reported last year results impact
-------------------------------------------------------------------------
Revenue
Automation Systems $ 121.8 (3.1)% $ 12.1 6.5%
Precision Components 25.3 6.2% 2.4 16.2%
Photowatt Technologies 44.4 3.5% 4.9 14.9%
Elimination of
Inter-Segment Revenue (0.6)
-------------------------------------------------------------------------
Consolidated $ 190.9 1.2% $ 19.4 11.4%
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Earnings (loss) from
Operations
Automation Systems $ 2.8 (60.5)% $ 3.7 (8.6)%
Precision Components 0.9 N/A 1.0 N/A
Photowatt International 10.0 51.4% 1.2 69.4%
Photowatt Canada (SSP)
and other (5.4) - - -
Elimination of
Inter-Segment Revenue (2.7)
-------------------------------------------------------------------------
Consolidated $ 5.6 (39.2)% $ 5.9 24.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At June 30, 2006 the Company had, on hand, unrealized forward exchange
contracts for the future sale of US dollars related to anticipated revenue and
balance sheet transaction exposure totalling US$140 million at an average
exchange rate of Cdn $1.1382. The unrecognized gain on these forward contracts
totaled approximately $2.7 million at June 30, 2006.
Period Average Market Exchange Rates in CDN$
Three months ended
6/30/2006 6/30/2005 % change
----------------------------------------------------------
US 1.1200 1.2449 -10%
Euro 1.4110 1.5620 -10%
Singapore $ 0.7053 0.7500 -6%
----------------------------------------------------------
----------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness, at June 30, 2006 increased
$3 million during the first quarter compared to the fourth quarter of fiscal
2006. The change in the net cash balance was largely as a result of increased
working capital, investments in property, plant and equipment and investment
in GD Technologies, which were more than offset by proceeds from the sale of
the Berlin business and increased borrowings on the Company's long term debt
facilities of $20 million.
The Company invested $6 million in property, plant and equipment, in the
first quarter of fiscal 2006. Photowatt International investments in property,
plant and equipment in the first quarter of fiscal 2007 were $4 million which
primarily related to the previously announced capacity expansion. ASG and PCG
property, plant and equipment expenditures were $2 million.
To further its growth strategy in China, during the first quarter the
Company purchased a minority position in GD Technologies for $2 million. GD
Technologies is a precision machining company with extensive local contacts
and assembly, test and supply chain management capabilities. The Company has
also now completed the relocation of two of its Chinese operations into larger
leased facilities.
The Company's debt to equity ratio at June 30, 2006 was 0.2:1. At June
30, 2006 the Company had $75 million of unutilized credit available under
existing operating and term credit facilities. The Company is in compliance
with its loan covenants.
During the first quarter, approximately 52,000 stock options were
exercised for total proceeds of $0.5 million. At June 30, 2006 the total
number of shares outstanding was 59,244,502.
Consolidated Quarterly Results
($ in thousands, except Q1 Q4 Q3 Q2
per share amounts) 2007 2006 2006 2006
-------------------------------------------------------------------------
Revenue $ 190,889 $ 208,675 $ 176,254 $ 152,050
Net earnings (loss) from
continuing operations $ 2,434 $ (64,295) $ (5,309) $ (3,019)
Net earnings (loss) $ 338 $ 65,589) $ (5,801) $ (3,329)
Basic earnings (loss)
per share from
continuing operations $ 0.04 $ (1.09) $ (0.09) $ (0.05)
Basic earnings (loss)
per share $ 0.01 $ (1.11) $ (0.10) $ (0.06)
Diluted earnings
(loss) per share from
continuing operations $ 0.04 $ (1.09) $ (0.09) $ (0.05)
Diluted earnings
(loss) per share $ 0.01 $ (1.11) $ (0.10) $ (0.06)
($ in thousands, except Q1 Q4 Q3 Q2
per share amounts) 2006 2005 2005 2005
-------------------------------------------------------------------------
Revenue $ 188,716 $ 206,853 $ 197,542 $ 177,573
Net earnings (loss) from
continuing operations $ 5,868 $ 14,615 $ 7,103 $ 4,587
Net earnings (loss) $ 5,426 $ 459 $ 5,627 $ 432
Basic earnings (loss)
per share from
continuing operations $ 0.10 $ 0.24 $ 0.12 $ 0.08
Basic earnings (loss)
per share $ 0.09 $ 0.01 $ 0.09 $ 0.01
Diluted earnings
(loss) per share from
continuing operations $ 0.10 $ 0.24 $ 0.12 $ 0.08
Diluted earnings
(loss) per share $ 0.09 $ 0.01 $ 0.09 $ 0.01
Note: The above information has been restated for the Berlin, Precision
Metals and thermals discontinued operations.
Lease and Contractual Obligations
Information on the Company's lease and contractual obligations is
detailed in the consolidated annual financial statements and MD&A for the year
ended March 31, 2006 found at www.sedar.com. For the three months ended June
30, 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 first 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's 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, the
realization of benefits from ATS's broad-based improvement strategies REM
being a profitable growth initiative; impacts relating to the relative value
of the Canadian dollar; ability of ASG improvement strategies to overcome
weaker automotive market conditions and the impact of foreign exchange; ASG's
selective approach to pursuing certain automotive orders; ATS's focus on
diversifying its revenue base and improving operational effectiveness will
contribute positively to ASG's results; expectation that silicon costs will
continue to rise during fiscal 2007; possibility of selling price increases
and improvements in production efficiencies offsetting higher silicon costs
and shortages; future demand for solar products; planned capacity increase at
Photowatt Technologies in France; security of supply of silicon at Photowatt
France into the second quarter of calendar 2007; purchase of silicon from
conventional industry sources at market prices; strategies being employed to
secure additional sources of silicon; OFP Silicon being an important source of
silicon supply for Photowatt France; estimates by Photowatt Canada (SSP) with
respect to its manufacturing capacity and raw materials in inventory; use of
refined metallurgical grade silicon; management's belief that this technology
provides Photowatt France with a economically viable alternative to the use of
conventional solar grade silicon and that this technology can be enhanced to
further improve cell efficiency; Photowatt Technologies' continued development
of strategic partnerships and alliances; the estimated timeline for in-depth
engineering development and process development relating to its Spheral
Solar(TM) technology; an initial public offering of shares of Photowatt
Technologies and timing of filing the related preliminary prospectus;
continued progress of PCG in strengthening its operations; the negative impact
of traditional summer plant shut downs on PCG and Photowatt Technologies in
the second quarter; expectation that the North American automotive market will
remain challenging; optimism concerning PCG's prospects due to operational
improvements and the nature and quality of customer assignments; plans to
relocate PCG's Omex business to new leased facilities and the expected cost
and timing; and the sale of the land and building formerly occupied by its
former Precision Metals division. 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; that ATS' REM business is unable to find new customers and/or quality
projects and growth and profitability are adversely impacted as a result;
unforeseen problems with the implementation of the ASG improvement strategies
and/or the failure of such strategies to achieve stated goals; that ASG's
approach to automotive orders and the various elements of ATS's focus are not
successful and ATS' business and profitability suffer as a result; 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; problems with the equipment used in the OFP process; unforeseen
problems with Photowatt France's use of OFP Silicon produced by the SSP
technology and/or metallurgical silicon; the risk that efficiencies relating
to metallurgical grade silicon technology cannot be found and/or that the
market is unreceptive to lower efficiency cells and as a result it is not an
economically viable alternative to the use of conventional solar grade
silicon; equipment, labour or other issues that may arise 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 and other
problems that may be encountered with silicon supply sources; potential for
silicon prices to decline in the face of long term silicon supply
arrangements; ability to achieve lower silicon usage relative to conventional
solar technology; possibility that selling price increases and improvements in
production efficiencies will not be obtained and/or, if they are, will not be
sufficient to offset higher silicon costs and shortages; 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 or abandonment of
pursuit of initial public offering for Photowatt Technologies; unavailability
of an IPO alternative due to a change in market conditions; possibility that
progress of PCG in strengthening its operations may be delayed or reversed for
unforeseen reasons; 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; delay in, abandonment of or other problems encountered with the
sale of the property previously occupied by ATS's former Precision Metals
division; and other risks detailed from time to time in ATS' filings with
Canadian provincial securities regulators, including ATS' Management's
Discussion and Analysis, Consolidated Financial Statements, Annual Report and
Annual Information Form for the fiscal year ended March 31, 2006.
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.
August 9, 2006
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Earnings
(in thousands, except per share amounts - unaudited)
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
(as restated)
Revenue $ 190,889 $ 188,716
Operating costs and expenses:
Cost of revenue 156,560 151,035
Amortization 7,243 7,295
Selling, general and administrative 21,340 20,322
Stock-based compensation (note 3) 101 779
-------------------------------------------------------------------------
185,244 179,431
-------------------------------------------------------------------------
Earnings from operations 5,645 9,285
Other expenses (income):
Interest on long-term debt 728 373
Other interest (146) 49
-------------------------------------------------------------------------
582 422
-------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and non-controlling interest 5,063 8,863
Provision for income taxes 2,506 2,822
Non-controlling interest in earnings of subsidiaries 123 173
-------------------------------------------------------------------------
Net earnings from continuing operations 2,434 5,868
Loss from discontinued operations,
net of tax (note 2) (2,096) (442)
-------------------------------------------------------------------------
Net earnings $ 338 $ 5,426
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share (note 5)
Basic and diluted - from continuing
operations $ 0.04 $ 0.10
Basic and diluted - from discontinued
operations (0.03) (0.01)
-------------------------------------------------------------------------
$ 0.01 $ 0.09
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 125,063 $ 208,120
Net earnings 338 5,426
Reduction from share repurchase (note 4) - (13,764)
-------------------------------------------------------------------------
Retained earnings, end of period $ 125,401 $ 199,782
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
-------------------------------------------------------------------------
June 30 March 31
2006 2006
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and short-term investments $ 37,395 $ 27,921
Accounts receivable 126,691 133,450
Income taxes recoverable 13,447 19,984
Costs and earnings in excess of billings
on contracts in progress 92,113 102,759
Inventories 72,196 69,833
Other 8,357 4,887
-------------------------------------------------------------------------
350,199 358,834
Property, plant and equipment 197,009 198,863
Goodwill 32,757 33,686
Intangible assets 633 1,354
Future income tax assets 44,814 42,493
Deferred development costs 3,904 3,960
Assets held for sale (note 2) 1,485 1,485
Other assets 7,727 8,697
-------------------------------------------------------------------------
$ 638,528 $ 649,372
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 8,030 $ 1,812
Accounts payable and accrued liabilities 90,513 100,149
Billings in excess of costs and earnings
on contracts in progress 19,179 39,497
Future income taxes 31,093 33,367
-------------------------------------------------------------------------
148,815 174,825
Long-term debt 58,122 39,860
Future income taxes 2,172 3,121
Non-controlling interest 736 645
Shareholders' equity:
Share capital 327,343 326,840
Retained earnings 125,401 125,063
Contributed surplus 2,345 2,035
Cumulative translation adjustment (26,406) (23,017)
-------------------------------------------------------------------------
428,683 430,921
-------------------------------------------------------------------------
$ 638,528 $ 649,372
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 338 $ 5,426
Items not involving cash 1,376 14,049
Stock-based compensation 101 779
Write down of assets to net realizable
value (note 2) 1,978 -
-------------------------------------------------------------------------
Cash flow from operations 3,793 20,254
Change in non-cash operating working capital (12,161) (33,849)
-------------------------------------------------------------------------
(8,368) (13,595)
Cash flow from investing activities:
Acquisition of property, plant, and equipment (6,146) (13,490)
Investments and other (2,341) (5,818)
Proceeds from disposal of assets 426 432
-------------------------------------------------------------------------
(8,061) (18,876)
Cash flows from financing activities:
Bank indebtedness 6,218 32,342
Proceeds from long-term debt 20,000 -
Purchase of common shares for cancellation
(note 4) - (25,000)
Issuance of common shares 503 2,154
-------------------------------------------------------------------------
26,721 9,496
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and
short-term investments (818) (502)
-------------------------------------------------------------------------
Increase (decrease) in cash and short-term
investments 9,474 (23,477)
Cash and short-term investments, beginning
of period 27,921 49,529
-------------------------------------------------------------------------
Cash and short-term investments, end of period $ 37,395 $ 26,052
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Cash income taxes paid $ 133 $ 440
Cash interest paid $ 1,118 $ 459
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2006. 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 2006
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 the three months ended June 30, 2006, the Company sold the key
operating assets and liabilities, including equipment, current assets, trade
accounts payable and certain other assets and liabilities of its Berlin,
Germany coil winding business for net proceeds of 600,000 euro consisting of
cash of 300,000 euro and an interest bearing note receivable of 300,000 euro.
Accordingly, the results of operations and financial position of the Berlin
coil winding business have been segregated and presented separately as
discontinued operations in the accompanying interim consolidated financial
statements. The results of the discontinued operations were as follows:
Three months ended
------------------------------------------------------------------------
June 30 June 30
2006 2005
------------------------------------------------------------------------
Revenue $ 1,737 $ 1,784
Loss from operations $ (180) $ (117)
Write-down to reduce assets sold to net
realizable value (1,978) -
------------------------------------------------------------------------
Loss from discontinued operations, net of tax $ (2,158) $ (117)
------------------------------------------------------------------------
The loss from discontinued operations includes a non-cash charge of
$1,978,000 ($2,173,000 before taxes) during the three months ended June 30,
2006 to write down the assets sold to their net realizable value.
(ii) 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:
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Revenue $ 307 $ 8,348
Income (loss) from operations $ 94 $ (594)
Income tax (expense) recovery (32) 202
-------------------------------------------------------------------------
Income (loss) from discontinued operations $ 62 $ (392)
-------------------------------------------------------------------------
During the year ended March 31, 2006, the Company reclassified
approximately $1,500,000 of net assets 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 fiscal
2006 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) non-cash 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.
(iii) 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:
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Revenue $ - $ -
Income from operations $ - $ 101
Income tax expense (34)
-------------------------------------------------------------------------
Income from discontinued operations $ - $ 67
-------------------------------------------------------------------------
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
2006 2005
-------------------------------------------------------------------------
Weighted average of risk-free interest rate 4.18% 3.35%
Dividend yield 0.00% 0.00%
Weighted average of expected life (years) 5.3 years 5.2 years
Expected volatility 31% 31%
Number of stock options granted (thousands):
Non-performance based 372 432
Performance based 175 165
Weighted average of exercise price per
option (dollars) $ 11.34 $ 14.40
Weighted average value per option (dollars):
Non-performance based $ 4.17 $ 5.04
Performance based $ 3.66 $ 4.42
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the quarters ended June 30, 2006 and 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 of fiscal 2007,
no performance based options vested.
4. Share repurchase option:
During the year ended March 31, 2005, the Company received proceeds of
$25,000,000 and $2,000,000 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 was reduced during the
three-months ended June 30, 2005 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
2006 2005
-------------------------------------------------------------------------
Basic 59,220 59,283
Diluted 59,386 59,554
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. 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) Technology 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
2006 2005
-------------------------------------------------------------------------
(as restated)
Revenue
Automation Systems $ 121,784 $ 125,737
Photowatt Technologies 44,381 42,883
Precision Components 25,260 23,780
Elimination of inter-segment revenue (536) (3,684)
-------------------------------------------------------------------------
Consolidated $ 190,889 $ 188,716
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from operations
Automation Systems $ 2,786 $ 7,061
Photowatt Technologies 4,587 6,626
Precision Components 870 (957)
Inter-segment elimination and corporate expenses (2,598) (3,445)
-------------------------------------------------------------------------
Consolidated $ 5,645 $ 9,285
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 New Order 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