ATS takes next steps to focus on automation
TSX: ATA
- Goal to Become World's Best Automation Company
- Announces Rights Offering To Fund Solar Business
- Hires Advisor to Pursue Strategic Alternatives for PCG
- Reports Fourth Quarter Results
TSX: ATA
CAMBRIDGE, ON, June 20 /CNW/ - ATS Automation Tooling Systems Inc. today
announced the next major steps in its strategy intended to significantly
improve its performance and focus on its automation systems business. It also
reported its financial results for the three and 12 months ended March 31,
2007.
The Company's next steps are three fold:
- Develop its world-leading Automation Systems Group operations - its
core business;
- Complete an ATS rights offering for gross proceeds of approximately
$110 million with the funds used to further expand Photowatt's
capacity and its silicon supplies - investments that are intended to
enhance Photowatt's value to ATS shareholders and position Photowatt
for a strong future as a standalone business. The Company intends to
review strategic alternatives for this business and reach a decision
on or before the first quarter earnings release date;
- Pursue strategic alternatives for its Precision Components Group
("PCG"), including divestiture.
"Our strategy is designed to create the right conditions for us to
crystallize the value of our non-core businesses and to enable management to
focus our efforts and future ATS investments to further build our significant
strengths in automation systems, where we are an industry leader," said Ron
Jutras, President and CEO. "As a pure automation solutions company, we believe
ATS will be much better able to take advantage of the substantial worldwide
opportunities we see in our global markets and generate improved performance
and value for our shareholders."
Rights Offering
To provide important funding to allow its solar business to continue to
progress and grow, the Board of Directors of ATS has approved a rights
offering to raise gross proceeds of $110 million this summer. The funding will
support key elements of the solar growth plan including:
- Acquisition of equipment (estimated cost $20 million) to increase
Photowatt France's annual cell capacity by approximately 20 megawatts
to approximately 80 megawatts;
- Construction of a new building and certain infrastructure (estimated
cost $30 million) required to house the aforementioned cell capacity
increase and to provide for Photowatt France's future expansion up to
approximately 135 megawatts of annual capacity;
- Investment in research and development (estimated cost $16 million)
through a planned joint venture laboratory and production development
facility "lab fab" with Commissariat à l'Energie Atomique ("CEA", the
world renowned French research institute) and Electricité de France
("EDF", a major French electrical utility); and
- Procurement of silicon, including advance payments with respect to
silicon supply contracts.
"Following the withdrawal of the solar IPO in March, we completed a
comprehensive review of the opportunities, risks and potential rewards related
to our solar business," said Mr. Jutras. "We concluded that it was imperative
for Photowatt to continue to grow in order to secure its future and increase
its value, but it was also critical to first strengthen its supply of
contracted silicon to reduce the risks of capacity expansion. We have made
significant headway in securing additional silicon including the
recently-announced contracts with Dow Corning and Deutsche Solar and we have
now secured or identified sources of silicon for Photowatt France's planned
capacity through to fiscal 2012. The rights offering is the next logical step
in our progression as it will provide funding to allow us to take advantage of
our improved silicon position to strengthen and grow Photowatt."
The terms of the rights offering will be outlined in more detail in a
preliminary prospectus to be filed shortly and a final version thereof to be
filed once the subscription price of the rights has been determined and any
comments by provincial securities regulators on the preliminary prospectus
have been addressed. ATS expects to make the rights offering to ATS
shareholders, subject to certain restrictions, with the rights being fully
transferable, subject to certain exceptions and divisible and evidenced by
rights certificates.
The Company has entered into a standby purchase agreement with three
large ATS shareholders, Goldman Sachs Canada Inc., Goodwood Inc., and Mason
Capital Management, LLC, pursuant to which such shareholders have made a
standby purchase commitment that is subject to certain conditions usual in
agreements of this nature. The standby purchase agreement provides that,
should one or more holders not exercise their right to purchase common shares,
and should the remaining holders decline their option to purchase such common
shares, the standby purchasers will purchase all the common shares not
otherwise purchased. In consideration of the agreement of the standby
purchasers to purchase such common shares, the standby purchasers will be
entitled, in the aggregate, to a fee equal to 3.5% of the aggregate gross
proceeds of the offering. Pursuant to the standby purchase agreement, ATS and
the standby purchasers have agreed to establish the subscription price of the
rights based on a formula that contemplates a price equal to 75% of a formula
amount based on the volume weighted average trading price of the common shares
of the Company on the Toronto Stock Exchange in the periods of five trading
days ended June 19, 2007 and five trading days commencing June 21, 2007,
unless ATS and the standby purchasers agree to establish the subscription
price at such other level as they consider appropriate.
Other Solar Developments
In conjunction with the review of its solar business and reassessment of
investment priorities, management has decided to halt further internal
development work on Spheral Solar because of continuing uncertainty regarding
commercialization; and, to close a small solar module assembly facility
located in New Mexico.
By taking these actions, ATS largely will reduce future losses and cash
outflows related to Spheral Solar commercialization, remove an underperforming
operation that is not strategic to the success of its solar business and allow
its future solar funding to be focused on Photowatt France, the driver of
solar revenue and earnings.
Photowatt will maintain its North American solar sales presence through
its existing sales force and will consolidate its module assembly activities
into Photowatt France. The Company intends to explore the possible sale or
licensing of Spheral Solar assets.
In March, on schedule, ATS successfully completed the previously
announced expansion at Photowatt France to bring annual ingot, wafer and cell
capacity to 60 megawatts. A search is also underway to recruit a CEO for its
solar business who is expected to be based in France.
Pursuing Strategic Alternatives for PCG
Consistent with the Company's strategy to focus on automation, it also
announced today that it has engaged Scotia Capital Inc. to assist in
identifying and evaluating strategic alternatives available for its PCG
operations, including divestiture.
PCG has made substantial progress over the past two years to streamline
and improve its business. PCG has now developed a presence in China, completed
the consolidation of MPP operations into its remaining facilities, and
relocated its successful Omex business into new, leased premises. These steps
follow the closure and consolidation of a facility in Texas in 2005 and the
sale of the PCG metals business in 2006. With capacity greatly consolidated
and rationalized, management believes it is an appropriate time to examine
strategic alternatives for PCG operations.
Core Business Outlook
While recent strength in the Canadian dollar is expected to continue to
present the Company's substantial Canadian operations with challenges,
automation Order Backlog entering the first quarter of fiscal 2008 is improved
- at $185 million - compared to the previous three quarters as Order Bookings
increased to $134 million in the fourth quarter. As well, in the fourth
quarter, ATS completed the planned restructuring and workforce adjustments in
ASG's Cambridge and Ohio facilities. As a result, management expects
improvement in ASG's operating performance in fiscal 2008.
Management also believes that growth opportunities in the worldwide
market for automation are attractive based on numerous trends, including: the
number of new product introductions by customers; the need to shorten new
product introduction times; increased product miniaturization and complexity;
continuing pressure on manufacturers to reduce costs; demand for consistent
product quality; and the growing use of more complex and demanding
manufacturing technology and processes. In addition, management believes that
continuing consolidation and globalization by multinational manufacturing
companies provides increased opportunities for ATS to capitalize upon its
existing global presence and the Company's strategy of building a strong
global corporate brand.
Fourth Quarter Financial Highlights:
3 months ended 3 months ended
in millions, except per share March 31, 2007 March 31, 2006
-------------------------------------------------------------------------
Revenue from ASG $ 113.8 $ 141.3
continuing --------------------------------------------------------
operations Photowatt 38.5 40.0
--------------------------------------------------------
PCG 21.0 28.9
--------------------------------------------------------
Inter-segment elimination (0.3) (1.4)
--------------------------------------------------------
Consolidated $ 173.0 $ 208.8
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-------------------------------------------------------------------------
Earnings (loss) ASG $ (4.5) $ 4.1
from operations --------------------------------------------------------
-------------------------
- Photowatt France $ 3.0 $ 6.0
-------------------------
- Photowatt USA (0.5) 0.2
-------------------------
- SSP and other solar (33.6) (104.3)
-------------------------
Total Photowatt (31.1) (98.1)
-------------------------
--------------------------------------------------------
PCG (1.9) 0.1
--------------------------------------------------------
Inter-segment elimination (5.8) (4.4)
--------------------------------------------------------
Consolidated $ (43.3) $ (98.2)
-------------------------------------------------------------------------
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Net Loss Consolidated $ (80.9) $ (65.6)
-------------------------------------------------------------------------
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Net loss per From continuing operations $ (1.36) $ (1.09)
share --------------------------------------------------------
After discontinued operations $ (1.36) $ (1.11)
-------------------------------------------------------------------------
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ASG Orders ASG New Order Bookings $ 134 $ 119
--------------------------------------------------------
ASG Order Backlog $ 185 $ 219
-------------------------------------------------------------------------
Non-GAAP Reconciliation:
Depreci- Adjustments
Operating ation & (see Fourth
(in millions Earning Amorti- Quarter Adjusted
of dollars) (loss) zation EBITDA Summary) EBITDA
-------------------------------------------------------------------------
Selected Operating
Results -
Fourth Quarter 2007
ASG $ (4.5) $ 3.0 $ (1.5) $ 5.1 $ 3.6
Photowatt France 3.0 2.9 5.9 - 5.9
PCG (1.9) 1.9 - 0.7 0.7
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-------------------------------------------------------------------------
Selected Operating
Results -
Fourth Quarter 2006
ASG $ 4.1 $ 3.1 $ 7.2 $ 0.9 $ 8.1
Photowatt France 6.0 1.8 7.8 - 7.8
PCG 0.1 1.9 2.0 - 2.0
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ASG
Fourth quarter ASG revenue of $113.8 million was 19% lower compared to
the fourth quarter a year ago, primarily due to lower Order Backlog entering
the fourth quarter of fiscal 2007 compared to last year. Fourth quarter ASG
revenue was consistent with the third quarter of fiscal 2007.
Fourth quarter fiscal 2007 operating loss reflected restructuring and
severance costs of $2.6 million at ASG's Cambridge and Ohio operations, a
$1.8 million inventory provision primarily related to non-core lines of
business and technologies and $0.7 million negative EBITDA at the now-closed
California operations. Beyond these direct costs, management believes there
were also substantial indirect costs arising from the restructuring at
Cambridge and Ohio, which temporarily reduced productivity and efficiency.
Total Cambridge and Ohio operating loss was $8.7 million in the fourth
quarter.
Compared to the third quarter of fiscal 2007, fourth quarter ASG
operating income increased 40% in Asia, 54% in ASG's Repetitive Equipment
Manufacturing ("REM") business and 116% in North American operations outside
Cambridge, Ohio and California operations.
ASG adjusted EBITDA (see table "ASG Non-GAAP Reconciliation"), was
$3.6 million compared to adjusted EBITDA of $8.1 million in the fourth quarter
of fiscal 2006. Adjusted EBITDA excludes the aforementioned Cambridge and Ohio
restructuring, severance and inventory provision costs and the negative EBITDA
at its now-closed California facility.
Photowatt
Photowatt Technologies' revenue was $38.5 million, compared to
$39.2 million in the third quarter of fiscal 2007. As previously announced,
fourth quarter revenue was impacted by a delay in the shipment of certain
orders aggregating approximately 4 million Euros. Lower average selling prices
were experienced in the fourth quarter compared to the third quarter which
management believes were primarily a result of delays in certain European
subsidy programs.
The reduction in Photowatt France operating earnings compared to the
fourth quarter of the prior year primarily reflects lower revenues and lower
average selling prices that were experienced in the fourth quarter of fiscal
2007. Compared to the third quarter of fiscal 2007, the reduction in operating
earnings primarily reflected lower fourth quarter average selling prices, and
to a lesser degree, higher utilization of refined metallurgical silicon in its
module production.
In the fourth quarter of fiscal 2007, Photowatt France's adjusted EBITDA
(see table "Photowatt France Non-GAAP Reconciliation") was $5.9 million
(16% margin), compared to $7.8 million (20% margin) in the fourth quarter of
fiscal 2006 and $8.0 million (20% margin) in the third quarter of fiscal 2007
reflecting the factors mentioned above. Adjusted EBITDA excludes $1.2 million
of costs associated with Photowatt France's recent capacity expansion, offset
by income generated by the sale of certain inventory that had a nominal book
value.
PCG
PCG's fourth quarter revenue and operating performance reflected lower
volumes on existing customer programs due to production cuts by the Big Three
North American automakers. PCG's fourth quarter adjusted EBITDA was
$0.7 million on revenue of $21.0 million compared to $2.0 million in the
fourth quarter a year ago on revenue of $28.9 million. Adjusted EBITDA
reflects Omex relocation costs of $0.4 million and $0.3 million of costs
associated with the consolidation of its MPP operations into Shanghai and
Cambridge operations (see table "PCG Non-GAAP Reconciliation").
Unusual Items and Other Charges
Several charges and unusual items were expensed in the fourth quarter,
totalling $68.8 million (all but $11.1 million of which were non-cash
charges), related primarily to the withdrawal of the solar IPO. More
specifically:
- The withdrawal of the IPO impacted the Company's ability to meet
accounting requirements regarding the future utilization of its tax
losses. The provision for income taxes includes a non-cash charge of
$37.6 million related to a valuation allowance against the Company's
Canadian future tax assets. These future tax assets largely reflect
income tax loss carry-forward balances and other income tax assets
generated by the Company's past Spheral Solar development activities.
This non-cash charge does not have any impact on the Company's actual
income tax loss carry-forwards, which will continue to be available
to offset future tax liabilities, and the charge does not result in
any additional taxes payable.
- A $17.0 million non-cash charge was taken related to the write down
of fixed assets, working capital and investment tax credits,
comprised of $16.5 million for Spheral Solar and $0.5 million for
Photowatt USA.
- Solar IPO expenses were $11.1 million, which primarily consisted of
US and Canadian legal, accounting, tax and auditing fees.
- A non-cash foreign exchange charge of $3.1 million related to the
Company's decision, following the withdrawal of the solar IPO, to
repatriate funds from its United States operations back to Canada.
While these funds were economically hedged, this non-cash charge is
required to be expensed for accounting purposes.
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 416
644 3418.
MD&A & Fiscal 2007 Financial Statements
The Company's MD&A and accompanying Consolidated Financial Statements for
the year ended March 31, 2007 have been filed on SEDAR (www.sedar.com) and
posted to the Company's website (www.atsautomation.com).
About ATS
ATS Automation Tooling Systems Inc. provides innovative, custom designed,
built and installed manufacturing solutions to many of the world's most
successful companies. Founded in 1978, ATS uses its industry-leading knowledge
and global capabilities to serve the sophisticated automation systems' needs
of multinational customers in healthcare, computer/electronics, automotive and
consumer products. It also leverages its many years of repetitive
manufacturing experience and skills to fulfill the specialized repetitive
equipment manufacturing requirements of customers. Through its solar business,
ATS participates in the growing solar energy industry and through its
precision components business it produces, in high volume, precision
components and subassemblies. ATS employs approximately 3,500 people at 24
manufacturing facilities in Canada, the United States, Europe, southeast Asia
and China. The Company's shares are traded on the Toronto Stock Exchange under
the symbol ATA. Visit the Company's website at www.atsautomation.com.
Notice to Reader
This news release and Fourth Quarter Summary for the three months ended
March 31, 2007 (fourth quarter of fiscal 2007) provide information on the
Company's operating activities of the fourth quarter of fiscal 2007 and should
be read in conjunction with the audited Consolidated Financial Statements and
Management's Discussion & Analysis of the Company for the year ended March 31,
2007 and the Company's fiscal 2007 annual report, when it becomes available.
The Company assumes that the reader of this summary has access to, and has
read the audited Consolidated Financial Statements and MD&A of the Company for
fiscal 2007 and the unaudited interim Consolidated Financial Statements and
MD&A for the first, second and third quarters of fiscal 2007. Accordingly, the
purpose of this document is to provide a fourth quarter update. These
documents and other information relating to the Company, including the
Company's fiscal 2007 audited Consolidated Financial Statements, MD&A and
Annual Information Form, may be found on SEDAR at www.sedar.com.
This news release and accompanying Fourth Quarter Summary is not an offer
of securities for sale in the United States. The securities to be offered in
the rights offering described above may not be offered or sold in the United
States absent registration under the United States Securities Act of 1933, as
amended, or an exemption from registration. Any public offering of securities
to be made in the United States will be made by means of a prospectus that may
be obtained from ATS and that will contain detailed information about the
Company and management, as well as financial statements. Under certain
circumstances, ATS may register the proposed offering in the United States.
The Company has three reportable segments: Automation Systems Group
("ASG"), Photowatt Technologies ("Photowatt"), and Precision Components Group
("PCG"). Photowatt Technologies is comprised of Photowatt France, Photowatt
USA and Spheral Solar. Photowatt France consists of an integrated solar ingot,
wafer, cell and module production facility in France. Photowatt USA is a small
module assembly and sales operation in the United States. Spheral Solar is a
development project based on spheral technology. Any reference to solar
production capacity assumes the use of polysilicon at currently experienced
levels of efficiency. Actual capacity may vary materially from stated capacity
for a number of reasons including the use of refined metallurgical silicon,
changes in cell efficiencies and/or changes in production processes.
References to Photowatt's cell "efficiency" means the percentage of incident
energy that is converted into electrical energy in a solar cell. Solar
installations using lower efficiency modules need to be larger in order to
generate the same power output. "Silicon" refers to a variety of silicon
feedstock, including polysilicon, refined metallurgical silicon and
polysilicon powders and fines.
Certain fiscal 2006 comparative figures including revenues, operating
earnings (loss), 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.
Non-GAAP Measures
Throughout this document the term "operating earnings" is used to denote
earnings (loss) from operations. EBITDA is also used and is defined as
earnings (loss) from operations excluding depreciation, amortization (which
includes amortization of intangible assets, and impairment of goodwill) and
segment and business unit allocation of corporate costs. The term "adjusted
EBITDA" is defined as EBITDA excluding certain adjustments as described in the
MD&A. The term "margin" refers to an amount as a percentage of revenue. The
terms "earnings from operations", "operating earnings", "margin", "operating
loss", "operating results", "operating margin", "EBITDA", "adjusted EBITDA",
"adjusted EBITDA margin", "Order Bookings" and "Order Backlog" do not have any
standardized meaning prescribed within GAAP and therefore may not be
comparable to similar measures presented by other companies. Note 20 to the
Consolidated Financial Statements provides selected financial data for each of
the Company's segments including revenue and earnings (loss) from operations
and a reconciliation to total Company revenue and earnings from operations for
fiscal 2007 and 2006. Operating earnings, EBITDA and adjusted EBITDA are some
of the measures the Company uses to evaluate the performance of its segments.
ATS has presented EBITDA and adjusted EBITDA to show its baseline performance
before certain non-cash and restructuring-related expenses and other items
that are considered by management to be outside of ATS's expected normal
ongoing operational results. Management believes that ATS shareholders and
potential investors in ATS use non-GAAP financial measures such as operating
earnings, EBITDA and adjusted EBITDA in making investment decisions about the
Company and measuring its operational results. EBITDA and adjusted EBITDA
should not be construed as substitutes for net income determined in accordance
with GAAP.
Fourth Quarter Summary
ASG Segment
ASG Order Backlog and New Order Bookings
New ASG Order Bookings in the fourth quarter were $134 million, 23%
higher than the third quarter, and 13% higher than in the fourth quarter of
fiscal 2006. New Order Bookings for the first 12 weeks of the first quarter of
fiscal 2008 are approximately $90 million.
Automation Systems Order Backlog by Industry
(in millions of dollars)
03/31/2007 12/31/2006 03/31/2006
-------------------------------------------------------------------------
Healthcare $ 53 $ 68 $ 100
Automotive 50 37 51
Computer-electronics 48 34 49
Other 34 28 19
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Total $ 185 $ 167 $ 219
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At March 31, 2007, ASG Order Backlog was $185 million, 11% higher than at
December 31, 2006, but lower compared to March 31, 2006. Management believes
the year-over-year decline in healthcare Order Backlog is not indicative of
changes in this market. Rather, management believes the sales cycle in
healthcare is longer and less predictable than in other markets, leading to
some fluctuations in Order Bookings and Order Backlog. Additionally, year-end
fiscal 2007 healthcare Order Backlog reflects $14 million of Order Backlog
that a customer put on hold during the second quarter of fiscal 2007 (see
second quarter fiscal 2007 MD&A). Automotive Order Backlog remained at levels
consistent with fiscal 2006 as a decline in North American automotive Order
Bookings was offset by an increase in European Order Bookings. "Other" Order
Backlog increased 79% compared to the fourth quarter last year, primarily due
to the Company's significantly increased level of automation activity in the
nuclear industry.
Period end Order Backlog was higher than at the end of the first, second
and third quarters of fiscal 2007. The Order Backlog growth since the third
quarter of fiscal 2007 reflects a 35% increase in automotive Order Backlog -
primarily due to an increase in European automotive Order Bookings - as well
as a 41% increase in computer-electronics Order Backlog and a 21% increase
from "Other," partially offset by a 22% decrease in healthcare Order Backlog.
ASG Revenue
(in millions of dollars)
Three Months Ended Three Months Ended
March 31, 2007 March 31, 2006
-------------------------------------------------------------------------
Revenue by industry
Computer-electronics $ 36.2 $ 47.8
Healthcare 32.1 49.9
Automotive 26.3 36.5
Other 19.2 7.1
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Total ASG revenue $ 113.8 $ 141.3
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Revenue by installation location
North America $ 73.0 $ 102.4
Europe 17.1 19.3
Asia/Other 23.7 19.6
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Total ASG revenue $ 113.8 $ 141.3
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ASG's revenue of $113.8 million decreased 19% compared to the fourth
quarter a year ago, primarily due to lower Order Backlog entering the fourth
quarter of fiscal 2007 compared to last year. By industrial market, the 28%
decline in revenue from the automotive sector reflected the ongoing impact of
capacity reductions and supply chain rationalization within the North American
automotive sector and the decision to be more selective in bidding on
automotive assignments. Management believes declines in healthcare and
computer-electronics revenues are not indicative of changes in these markets
and, in the case of healthcare, the decline in fourth quarter revenue reflects
the impact of a $14 million order that a customer put on hold during the
second quarter of fiscal 2007. Revenue from Repetitive Equipment Manufacturing
("REM") increased from the third quarter of fiscal 2007 by $1.1 million to
$9.6 million as ASG resumed shipments in January 2007 to a key customer, but
declined compared to a year ago by $5.1 million. REM continues to focus on
broadening its customer base to reduce exposure to fluctuations in any one
customer's equipment volume and during the fourth quarter, established an REM
capability at its Dongguan, China facility.
Compared to the fourth quarter of fiscal 2006, strong revenue gains (170%
growth) were made in "Other" markets including nuclear energy and consumer
products as ASG continued to broaden its customer base and strategically
diversify its industrial markets. Compared to the fourth quarter of fiscal
2006, strong revenue gains (21% growth) were also registered within ASG's
Asian markets, where ATS continues to benefit from the addition of significant
new productive resources. ATS now employs approximately 400 people at five
facilities comprised of more than 170,000 sq. ft. of space in Asia. Management
believes the Company has now established a solid foundation for growth in this
region, including China.
Primarily reflecting a stronger Euro and US dollar compared to a year
ago, foreign exchange positively impacted ASG fourth quarter fiscal 2007
revenues by an estimated $2.6 million.
ASG Operating Results
During the fourth quarter of fiscal 2007 and into the first quarter of
fiscal 2008, the Company continued to implement structural improvements -
including the previously announced workforce reductions and the closure of the
ATS California facility - designed to strengthen ASG's North American
operations. Direct severance costs of $2.6 million were incurred in the fourth
quarter of fiscal 2007 related to the previously announced 14% reduction
(180 positions) in ASG's workforce in Cambridge and Ohio. Beyond these direct
costs, management believes there were also substantial indirect costs arising
from the reorganization of staff and processes within these operations, which
temporarily reduced productivity and efficiency. In addition, low Order
Backlog levels entering the fourth quarter at these facilities significantly
reduced capacity utilization and operating results. An inventory provision of
$1.8 million was recorded during the fourth quarter of fiscal 2007 in
Cambridge ASG operations, primarily related to non-core lines of business and
technologies that have become obsolete due to the Company's move to newer
technology. ASG operating performance in the fourth quarter of fiscal 2007
included $0.7 million negative EBITDA at its now-closed California operations.
Compared to the third quarter, fourth quarter fiscal 2007 operating
income from ASG's Asian operations increased 40%; fourth quarter operating
income increased 54% from REM business; and, increased 116% in other North
American ASG operations (outside Cambridge, Ohio and California facilities).
Foreign exchange negatively impacted fourth quarter fiscal 2007 ASG
operating earnings by an estimated $0.5 million compared to the fourth quarter
of fiscal 2006.
ASG Non-GAAP Reconciliation
(in millions of dollars, except adjusted EBITDA margin %)
Three Months Ended Three Months Ended
March 31, 2007 March 31, 2006
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Operating Income (Loss) $ (4.5) $ 4.1
Depreciation and amortization 3.0 3.1
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EBITDA (1.5) 7.2
Adjustments (described above):
- Severance Camb & Ohio 2.6 0.4
- Inventory provisions 1.8 -
- California negative EBITDA 0.7 0.5
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Adjusted EBITDA $ 3.6 $ 8.1
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Adjusted EBITDA margin % 3.2% 5.7%
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-------------------------------------------------------------------------
Adjusted EBITDA excludes the aforementioned restructuring and severance
costs, inventory provisions and the negative EBITDA related to the now-closed
California operations (see table "ASG Non-GAAP Reconciliation").
ASG Outlook
Looking toward fiscal 2008, management believes recent strength in the
Canadian dollar will continue to present the Company's substantial Canadian
ASG operations with challenges, as will ongoing restructuring within the North
American automotive market. However, according to economic data, capacity
utilization by North American manufacturers has recently grown to a level
which management believes could be a catalyst for new capital equipment
spending. Due to the increase in ASG Order Booking activity in Canadian ASG
operations in the fourth quarter and the fourth quarter ASG rationalization,
management believes ATS factory utilization - a key driver of earnings
performance - should improve. Management believes the benefit of the new
incentives for its ASG sales force and other sales strategies are just
beginning to be realized. Due to these factors, management expects ASG's
operating performance to improve in fiscal 2008.
Photowatt Technologies Segment
Photowatt Technologies Revenue
(in millions of dollars )
Three Months Ended Three Months Ended
Revenue by operating facility March 31, 2007 March 31, 2006
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Photowatt France $ 37.8 $ 39.3
Photowatt USA 2.0 2.2
Inter-solar eliminations (1.3) (1.5)
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Total revenue $ 38.5 $ 40.0
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Photowatt Technologies generated record revenue in fiscal 2007, despite a
4% decline in fourth quarter revenue compared to the fourth quarter of fiscal
2006. The positive impact of foreign exchange on fourth quarter fiscal 2007
revenue was than offset by volume declines and the estimated $0.8 million
impact of lower average selling prices experienced in the quarter. As
expected, and previously reported, revenue was also impacted by a delay in the
shipment of certain orders during the fourth quarter of fiscal 2007. During
the fourth quarter, revenue from the sale of refined metallurgical modules
totalled approximately $4.1 million. These refined metallurgical modules were
shipped primarily to customers in Europe.
Primarily reflecting a stronger Euro compared to the fourth quarter of
fiscal 2006, foreign exchange positively impacted Photowatt revenues by an
estimated $3.7 million.
Photowatt Technologies Operating Results
(in millions of dollars)
Three Months Ended Three Months Ended
March 31, 2007 March 31, 2006
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Operating income (loss):
Photowatt France $ 3.0 $ 6.0
Photowatt USA (0.5) 0.2
SSP (3.8) (6.8)
Solar corporate costs (14.2) (0.2)
Non-cash asset impairment and
other charges (17.0) (96.2)
Inter-solar eliminations 1.4 (1.1)
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Photowatt operating loss $ (31.1) $ (98.1)
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Photowatt France's operating income for the fourth quarter was
$3.0 million (8% margin), compared to $6.0 million (15% margin) in the fourth
quarter last year and $4.6 million (12% margin) in the third quarter of fiscal
2007. Fourth quarter results include $1.2 million in incremental overhead and
labour costs related to the recently completed capacity expansion. Offsetting
these incremental costs was incremental operating income related to the sale
of certain inventory that had a nominal book value.
Photowatt France's amortization expense for the three months ended
March 31, 2007 was $2.9 million, or $1.1 million higher than the comparable
period of the prior year, relating primarily to the capacity expansion
completed during fiscal 2007.
Photowatt USA's operating loss in the fourth quarter was $0.5 million
compared to income of $0.2 million in the fourth quarter of fiscal 2006 and a
loss of $0.3 million in the third quarter of fiscal 2007.
Spheral Solar's operating loss in the fourth quarter of $3.8 million
included the impact of $0.7 million of severance, due to staff reductions in
the quarter, and $0.4 million due to lower inter-company sales to Photowatt
France. During the fourth quarter, Spheral Solar ceased providing optical
fused powder to Photowatt France as Spheral Solar was unable to secure a
long-term supply of the required silicon powder.
Solar corporate costs in the fourth quarter included $11.1 million
related to the withdrawn solar IPO, primarily consisting of US and Canadian
legal, tax, accounting and auditing fees. Also included in solar corporate
costs were severance costs of $0.9 million related to the termination of
certain solar corporate employees in light of the withdrawal of the IPO. The
balance of fiscal 2007 solar corporate costs include corporate solar salaries,
costs associated with Photowatt's preparation for standalone internal controls
certification, and other overhead expenditures that were primarily incurred in
preparation for the solar IPO.
Non-cash asset impairment and other charges of $17.0 million included
costs to halt Spheral Solar's in-house research and development and the
decision to close a small solar module assembly facility in New Mexico as part
of management's focus on Photowatt France. This non-cash charge includes fixed
asset, inventory and other working capital write-downs of $11.7 million and
$5.3 million related to a non-cash provision against a portion of the
Company's Canadian investment tax credits that were generated by Spheral
Solar.
The estimated effect of changes in foreign exchange on the fourth quarter
of fiscal 2007 compared to the fourth quarter of fiscal 2006 was not
significant for Photowatt Technologies.
Photowatt France Non-GAAP Reconciliation
(in millions of dollars, except adjusted EBITDA margin %)
Three Months Ended Three Months Ended
March 31, 2007 March 31, 2006
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Photowatt France operating income $ 3.0 $ 6.0
Depreciation and amortization 2.9 1.8
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EBITDA 5.9 7.8
Adjustments:
- Incremental expansion costs 1.2 -
- Sale of inventory (1.2) -
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Adjusted EBITDA $ 5.9 $ 7.8
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Adjusted EBITDA margin 15.6% 19.8%
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Photowatt France's adjusted EBITDA was $5.9 million for the fourth
quarter (16% margin), compared to $7.8 million (20% margin) for the fourth
quarter of fiscal 2006. The decline in adjusted EBITDA margins primarily
reflected reduced average selling prices during the fourth quarter of fiscal
2007 and, to a lesser extent, the impact of selling refined metallurgical
solar modules. Adjusted EBITDA excludes $1.2 million of incremental costs
associated with recently-completed capacity expansion at Photowatt France,
offset by income generated from the sale of certain inventory that had a
nominal book value (see table "Photowatt France Non-GAAP Reconciliation").
Photowatt Outlook
Into the first quarter of fiscal 2008 Photowatt continued to experience
the lower sales volumes and average selling prices experienced in the fourth
quarter; however, sales volumes began to increase in May. First quarter fiscal
2008 operating performance is expected to be impacted by manufacturing and
development costs related to the increased use of refined metallurgical
silicon and commissioning of new furnace capacity that was added late in
fiscal 2007.
PCG Segment
Fourth quarter PCG revenue of $21.0 million declined by $7.9 million
compared to the fourth quarter of 2006 due to lower volumes on existing
customer programs resulting from significant production cuts by the Big Three
North American automakers.
PCG operating loss reflected $0.4 million in costs incurred in relocating
its Omex operations to a larger facility, and $0.3 million in restructuring
costs associated with the consolidation of its MPP operations into Cambridge
and Shanghai operations. Foreign exchange negatively impacted fourth quarter
fiscal 2007 PCG operating earnings and revenues by an estimated $0.3 million
and $0.2 million respectively, compared to fiscal 2006.
PCG Non-GAAP Reconciliation
(in millions of dollars, except adjusted EBITDA margin %)
Three Months Ended Three Months Ended
March 31, 2007 March 31, 2006
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PCG operating income (loss) $ (1.9) $ 0.1
Depreciation and amortization 1.9 1.9
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EBITDA - 2.0
Adjustments:
- MPP closure costs 0.3 -
- Omex facility move 0.4 -
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Adjusted EBITDA $ 0.7 $ 2.0
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Adjusted EBITDA margin % 3.3% 6.9%
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Fourth quarter PCG adjusted EBITDA was $0.7 million, compared to
$2.0 million in the fourth quarter a year ago. Adjusted EBITDA excludes the
aforementioned Omex relocation costs and MPP consolidation costs (see table
"PCG Non-GAAP Reconciliation").
PCG Outlook
Management believes strength in the Canadian dollar and the difficult
conditions in the North American automotive parts market (which continues to
affect customer program volumes) will impact PCG revenue and earnings during
fiscal 2008. However, management also believes PCG is now better positioned to
manage these challenges as a result of the rationalizations and improvements
made in fiscal 2007.
Foreign Exchange
Foreign exchange increased fourth quarter fiscal 2007 consolidated
revenue by an estimated $6.0 million compared to the fourth quarter of fiscal
2006. This increase was primarily related to the effect of the Euro and US
dollar being stronger relative to the Canadian dollar on the translation of
revenue from foreign subsidiaries. Foreign exchange decreased fourth quarter
fiscal 2007 consolidated operating earnings by an estimated $0.6 million
compared to the fourth quarter of fiscal 2006.
Period Average Market Exchange Rates in CDN$
Three months ended 12 months ended
03/31/2007 03/31/2006 % change 03/31/2007 03/31/2006 % change
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US $ 1.1714 1.1544 1% 1.1381 1.1930 (5)%
Euro 1.5361 1.3886 11% 1.4621 1.4517 1 %
Singapore $ 0.7649 0.7098 8% 0.7280 0.7177 1 %
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Capital Expenditures
In the fourth quarter of fiscal 2007, the Company invested a total of
$6.8 million in property, plant and equipment including deposits on equipment.
This total included property, plant and equipment investments at Photowatt
France of $4.6 million related to its recently completed capacity expansion
and $2.2 million for property, plant and equipment within ASG, PCG and
corporate.
Selling, General and Administrative
In addition to the items previously noted, corporate SG&A expenses in the
fourth quarter included a $3.1 million non-cash foreign exchange charge
related to the Company's decision, following the withdrawal of the solar IPO,
to repatriate funds from its United States operations back to Canada in order
to provide the Company with financial flexibility until alternative funding is
secured for Photowatt. These repatriated funds were economically hedged
through a US dollar-denominated loan in Canada. However, under Canadian GAAP,
a significant portion of the loss on the repatriation of these funds is
included in income, while the offsetting gain from the US dollar loan
continues to be deferred in the currency translation account on the Company's
balance sheet and not recorded in income.
The Company expects to incur severance and other restructuring charges of
approximately $2.3 million in the first quarter of fiscal 2008 related to
recently (May 2007) announced changes to strengthen executive management.
Income Taxes
The withdrawal of the solar IPO negatively impacted the Company's ability
to demonstrate the future utilization of its tax losses. Therefore, the
provision for income taxes includes a non-cash charge of $37.6 million related
to a valuation allowance against the Company's Canadian future tax assets.
These future tax assets primarily reflect income tax loss carry-forward
balances generated by Spheral Solar. During fiscal 2006, approximately
$39.0 million of future income taxes assets were generated related to the
operating losses of Spheral Solar and in fiscal 2007 a further $16.9 million
were generated. This non-cash charge does not have any impact on the actual
magnitude of the Company's income tax loss carry-forwards, which continue to
be available to reduce future Canadian taxable income.
Forward Looking Statement
This news release relates to ATS's fourth quarter financial results for
the year ended March 31, 2007 and contains 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: ATS's ability to generate long-term shareholder value; the
ability of ATS to strengthen executive management; trends related to automated
manufacturing and the continuing expansion of manufacturing by multinational
companies and the potential benefit to ATS; details of the ASG strategic
initiatives and managements' belief that they will have a positive impact;
ASG's ability to improve its operating performance in fiscal 2008; ASG's
ability to further develop its business; ASG's ability to maintain its
competitive global presence in the market and maintain and further develop its
multinational customers; the effect of ASG's growth into the Asian market;
continued global trends relating to consolidation of manufacturing and
multinational customer expansion; details of Photowatt Technologies' key
initiatives, including capacity expansion dependant on cost, ability to obtain
supplies and ability to adapt to changes in production processes; sufficient
silicon to meet expansion needs including use of refined metallurgical grade
silicon; implementation of collaborative research and development activities;
and identifying and evaluating strategic alternatives potentially available to
PCG. The risks and uncertainties that may affect forward-looking statements
include, among others; general market performance and restructuring within the
North American automotive market; foreign currency and exchange risk; strength
of the Canadian dollar and the challenges this presents; performance of the
market sectors that ATS serves; that some or all of the trends towards
automation that ATS believes are attractive dissipate or do not result in
increased demand for automation; risks associated with operating and servicing
customers in a foreign country; that multinational companies withdraw from
global manufacturing for business, political, economic or other reasons;
unforeseen problems with the implementation of the ASG strategic initiatives
or failure of those measures to bring about improved performance at ASG;
problems associated with the expansion of production capability and adoption
of new production processes at Photowatt France; inability of Photowatt
Technologies to fund future research and development; inability to finalize
strategic partnerships or alliances to provide for silicon supply; political,
labour or supplier disruptions in manufacturing and supply of silicon; failure
of strategic alternatives to bring about improved performance at PCG; and
other risks detailed from time to time in ATS's filings with Canadian
provincial securities regulators. 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.
%SEDAR: 00002017E
For further information: Carl Galloway, Vice President and Treasurer; Gerry Beard, Vice President and Chief Financial Officer, (519) 653-6500