ATS Reports Second Quarter Results
TSX: ATA
CAMBRIDGE, ON, Nov. 13 /CNW/ - ATS Automation Tooling Systems Inc. today
reported its financial results for the three and six months ended
September 30, 2007 as well as several important new developments at its
Photowatt Technologies ("Photowatt") solar business and positive indicators of
future performance within its core business, Automation Systems Group ("ASG").
"Since assuming stewardship of the Company following the shareholders'
meeting September 13th, the new Board has acted upon its main priorities,"
said John K. Bell, the Company's interim Chief Executive Officer. "We have
acted quickly in positioning Photowatt with the right senior management,
developed and accelerated a new Photowatt growth plan, and taken advantage of
significant opportunities to leverage French government and solar industry
partners' support. We expect to report further progress in this regard in the
near term. There is substantial opportunity for growth in the solar industry
and we intend to position Photowatt to be a significant beneficiary of that
anticipated growth."
"At ASG, we are implementing improvement plans, with an increased focus
on deepening and broadening customer relationships. Another priority is the
recruitment of a permanent CEO for ATS, someone who can make the most of ASG's
leading industry position and the significant opportunity for growth in
worldwide automation systems integration. We expect to report progress on this
priority in the near term as we are actively reviewing strong candidates for
the position. With regards to the Precision Components Group ("PCG"), we
continue to move forward with the sale of the business and are soliciting
expressions of interest from potential buyers. In summary, ASG's high quality
workforce, strong technological know-how, outstanding customer relationships
and well-regarded brand name are strengths that we intend to build upon."
ASG Performance Indicators
- Period end ASG Order Backlog increased 36% to $220 million from
$162 million a year ago.
- New ASG Order Bookings for the second quarter increased 32% to
$133 million compared to $101 million a year ago.
- New ASG Order Bookings during the first six weeks of the third
quarter were $52 million.
"The key indicators of future performance within ASG are strong and Order
Backlog is now at its highest level in six quarters," said Mr. Bell. "Based on
the substantial year-over-year and sequential increase in Order Backlog, ASG
has a healthy base of committed customer orders now moving into production.
This should enhance global factory utilization for the remainder of the year.
However, given the strength of the Canadian dollar, we must continue to
improve our internal productivity and efficiency in our Canadian operations."
Photowatt Developments
- Eric Laborde, an experienced solar industry executive who led
Photowatt from 2001 through 2006, has been named Photowatt's
President and CEO with a clear mandate to increase enterprise value.
- Initiated consideration of alternative solar technologies, such as
"thin film", and alternative means to secure additional sources of
high-quality polysilicon such as vertical integration of polysilicon
production.
- Photowatt has formalized the initial phase of a "lab-fab"
collaborative relationship (the "PV Alliance") with Electricité de
France ("EDF") (a major European electrical utility) and the French
Atomic Energy Commission ("CEA") (the world renowned French research
institute). The partners intend to develop ways to improve the power
efficiencies of both polysilicon and MgSi solar cells and, in later
phases, manufacture the resulting products.
- Signed an agreement to supply EDF Energies Nouvelles, a partially
owned subsidiary of Electricité de France and a leader in green
power, with a minimum of 10 megawatts (MWs) of refined metallurgical
silicon modules per annum from 2008 through to December 31, 2010 -
for a total of at least 30 MWs - demonstrating early market
acceptance of this new product line.
- Commenced efforts to expand ingot manufacturing capacity to
50 megawatts ("MWs") assuming the use of refined metallurgical
silicon.
"Strengthening our relationship with EDF through the new PV Alliance and
its partially-owned subsidiary EDF Energies Nouvelle through the three year
MgSi supply agreement announced in October, significantly improves Photowatt's
prospects for the future," said Mr. Bell. "As an architect of these alliances,
Eric Laborde has already proven his worth as Photowatt's leader. By appointing
him as Photowatt CEO, we've added a missing ingredient necessary to accelerate
our solar group's development, broaden its technological footprint and
increase enterprise value in advance of the planned separation of Photowatt
from ATS to maximize value to ATS shareholders."
Financial Summary
In millions of 3 months 3 months 6 months 6 months
dollars, except ended ended ended ended
per share data Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2007 2006 2007 2006
-------------------------------------------------------------------------
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Revenues ASG $ 109.1 $ 117.3 $ 216.9 $ 239.1
from ------------------------------------------------------------
continuing Photowatt 37.9 28.5 85.6 72.9
operations ------------------------------------------------------------
PCG 16.7 19.3 36.1 44.6
------------------------------------------------------------
Inter-segment
elimination (0.4) (0.5) (0.5) (0.8)
------------------------------------------------------------
Consolidated $ 163.3 $ 164.6 $ 338.1 $ 355.8
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EBITDA ASG $ 4.4 $ 8.7 $ 7.1 $ 14.3
------------------------------------------------------------
Photowatt
Technologies:
- Photowatt
France $ (2.9) $ 3.7 $ (0.2) $ 16.3
- Photowatt
USA (0.9) (0.4) (1.2) (0.6)
- Spheral
Solar,
corporate
and inter-
solar
eliminations (1.8) (3.8) (3.3) (9.1)
Total (5.6) (0.5) (4.7) 6.6
------------------------------------------------------------
PCG$ (0.9) $ - $ (0.3) $ 2.7
------------------------------------------------------------
Corporate and
Inter-segment
elimination $ (10.4) $ (3.5) $ (15.3) $ (5.9)
------------------------------------------------------------
Consolidated $ (12.5) $ 4.7 $ (13.2) $ 17.7
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Net Income Consolidated $ (18.8) $ (2.1) $ (27.7) $ (1.8)
(Loss)
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Net loss From continuing
per share operations $ (0.28) $ (0.04) $ (0.44) $ (0.01)
------------------------------------------------------------
After
discontinued
operations $ (0.28) $ (0.04) $ (0.44) $ (0.03)
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ASG
Despite a significant increase in year-over-year Order Backlog entering
the quarter, ASG revenue was lower in the second quarter compared to the prior
year as many of these new projects did not yet move from design into
manufacturing when materials are procured, equipment is built and
proportionately higher levels of revenues are recognized. Growth in ASG
revenue was, however, achieved in Repetitive Equipment Manufacturing (24%
higher than a year ago) and in certain "Other" markets including nuclear
power, with revenue up 60%.
ASG EBIDTA of $4.4 million in the second quarter reflected lower total
revenue as well as negative contributions on certain first-time assignments in
Asia, partially offset by an improvement in performance at European
operations. ATS's facilities in Cambridge and Ohio continued to stabilize in
the second quarter and delivered profitability.
Year-over-year, Order Backlog increased 17% in healthcare, 107% in
computer-electronics, 24% in automotive and 19% in Other, reflecting strong
Order Bookings in the first and second quarters of fiscal 2008 in all
industrial markets and across all of the Company's geographic regions.
Management expects the increases in Order Bookings over the past three
quarters and the resulting improvement in Order Backlog to start the third
quarter of fiscal 2008 will allow revenue to trend upward as fiscal 2008
progresses.
Photowatt
Higher year-over-year Photowatt revenue reflected an increase in total
megawatts ("MWs") sold to 8.2 MWs from 5.9 MWs during the second quarter of
fiscal 2007 (estimated benefit $11.0 million). MgSi modules and systems made
from refined metallurgical silicon represented $14.2 million of second quarter
revenue compared to $0.5 million a year ago and these MgSi cells produced
average efficiency of 13%.
Photowatt's negative EBITDA in the quarter reflected a number of factors,
including: a decline in industry prices per watt, increases in polysilicon
costs due to industry shortages, Photowatt's increased MgSi production to
offset a lack of committed polysilicon supply and a $1.4 million write off of
a deposit paid to a supplier of refined metallurgical silicon. Management
believes market conditions and therefore average selling prices are
stabilizing in Europe.
To address these challenges, management is currently reviewing
Photowatt's operating strategy, including: evaluation of research and
development alternatives to improve cell efficiencies and manufacturing
yields; alternative means of securing additional sources of high quality
polysilicon such as vertical integration of polysilicon production;
exploration of investments in alternative solar technologies; and, further
capacity expansion.
Quarterly Conference Call
ATS's quarterly conference call begins at 4:45 pm eastern today and can
be accessed over the Internet at www.atsautomation.com or on the phone at 416
644 3424.
Notice to Reader
The terms Order Backlog, Order Bookings, EBITDA and adjusted EBITDA used
in this press release are non-GAAP measures. See Management's Discussion and
Analysis attached.
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 industries such as 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
3,600 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.
Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") for the three and six
months ended September 30, 2007 (second quarter of fiscal 2008) provides
detailed information on the Company's operating activities for the second
quarter of fiscal 2008 and should be read in conjunction with the unaudited
interim consolidated financial statements of the Company for the three and six
months ended September 30, 2007. The Company assumes that the reader of this
MD&A 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 three months ended June 30, 2007 and,
accordingly, the purpose of this document is to provide a second quarter
update to the information contained in the fiscal 2007 MD&A and the first
quarter of 2008 MD&A. 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.
Notice to Reader
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, which was closed
during the second quarter. Spheral Solar is a now halted development project
based on spheral technology. Any reference to solar production capacity
assumes the use of polysilicon at currently experienced levels of efficiency,
unless otherwise stated. Actual solar capacity may vary materially for a
number of reasons including the use of refined metallurgical silicon ("MgSi"),
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 cells
and modules are sold based on wattage output. "Silicon" refers to a variety of
silicon feedstock, including polysilicon, MgSi and polysilicon powders and
fines.
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" that is used by the Company from time to time 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 Canadian generally accepted accounting principles
("GAAP") and therefore may not be comparable to similar measures presented by
other companies. A reconciliation to total Company revenue and earnings from
operations for the first and second quarters of fiscal 2008 and 2007 is
contained in the unaudited interim Consolidated Financial Statements for the
three and six months ended September 30, 2007. Operating earnings, EBITDA and
adjusted EBITDA are some of the measures the Company uses to evaluate the
performance of its segments. ATS presents 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.
Overview
At the Company's annual shareholders' meeting held September 13, 2007,
ATS shareholders elected a new Board of Directors. This new Board of Directors
is focused on providing strong leadership to the Company in order to improve
operating performance. Following the shareholders' meeting, the new Board
named John K. Bell, FCA, as interim Chief Executive Officer of ATS. Mr. Bell
has a successful 30-year career specializing in corporate start-ups, growth
and turnarounds with extensive experience in technology, innovation, and
automation. The new board also named Neil D. Arnold as non-executive Chairman.
Mr. Arnold brings extensive governance experience and financial expertise to
this role. Other members of the new board are Neale Trangucci (Chair of the
Audit Committee), J. Cameron MacDonald (Chair of the Human Resources
Committee), Peter Puccetti, Michael Martino and Gordon Presher. Biographies of
the new board can be found at www.atsautomation.com.
Since taking office, the new Board and executive leadership have
implemented a number of changes that are intended to improve the performance
and potential of the business and, in particular, increase the enterprise
value of its Photowatt solar operations in advance of the planned separation
of Photowatt from ATS to maximize value to ATS shareholders.
These actions to date include:
- examining the Photowatt strategy, including the timing of the planned
separation of this business from ATS, evaluation of research and
development alternatives to improve cell efficiencies and
manufacturing yields, alternative means of securing additional
sources of high quality polysilicon (such as vertical integration of
polysilicon production), exploration of investments in alternative
solar technologies (such as "thin film") and further capacity
expansion;
- appointing Eric Laborde, an experienced solar industry executive who
led Photowatt from 2001 through 2006, as President and Chief
Executive Officer of Photowatt reporting directly to the Board of
Directors;
- formalizing the initial phase of a "lab-fab" collaborative
relationship (hereafter referred to as "PV Alliance") between
Photowatt France and the Electricité de France ("EDF") (a major
European electrical utility) and the French Atomic Energy Commission
("CEA") (the world renowned French research institute) which
contemplates research to improve the power efficiencies of both
polysilicon and MgSi solar cells and, in later phases, the
manufacturing of the resulting products;
- approving a euro 20 million expansion at Photowatt France, including
the increase of ingot manufacturing capacity to 50 megawatts ("MWs")
measured using refined metallurgical silicon;
- signing a three-year agreement to supply EDF Energies Nouvelles, an
affiliate of EDF, with a substantial portion of Photowatt's refined
metallurgical silicon solar modules beginning in calendar 2008;
- evaluating the ASG operating strategy, including increasing focus on
deepening and broadening customer relationships and global capacity
management;
- meeting with key ASG operating managers to assess workforce needs,
technology, and customer relationships;
- interviewing several permanent CEO candidates with the goal of making
an announcement by calendar year end;
- distributing a confidential information memorandum to solicit
expressions of interest from potential buyers of the Precision
Components Group; and
- appointing Garry West, FCA, the Chief Financial Officer on an interim
basis. Mr. West recently retired as Partner at Ernst & Young LLP
following a distinguished 35 year career.
By maintaining its active approach to corporate governance, the Board
intends to support the ATS management team in their efforts to increase value
for shareholders, customers and employees over the long term.
Following recent discussions with the Board of Directors, the Chief
Operating Officer of ATS, who started on September 11, 2007, will leave the
Company on November 30, 2007 after a mutually agreed upon transition.
Automation Systems Group Segment
ASG Revenue
(in millions of dollars)
Three Months Ended Six Months Ended
9/30/2007 9/30/2006 9/30/2007 9/30/2006
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Healthcare $ 29.5 $ 39.3 $ 58.6 $ 86.8
Computer-Electronics 33.4 37.8 63.8 71.7
Automotive 26.4 27.8 53.7 58.2
Other 19.8 12.4 40.8 22.4
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Total $ 109.1 $ 117.3 $ 216.9 $ 239.1
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The significant increases in Order Bookings and Order Backlog experienced
in the first and second quarters of fiscal 2008 did not translate into higher
overall ASG revenue compared to the second quarter of fiscal 2007. Many of
these new projects had not yet progressed from design into manufacturing when
materials are procured, equipment is built and proportionately higher levels
of revenues are recognized. As a result, ASG second quarter revenue was 7%
lower than a year ago, even though Order Backlog entering the second quarter
was 23% higher than it was entering the second quarter of fiscal 2007.
By industrial market, revenue from "Other" increased 60% driven by
significant increases in revenue from the nuclear industry - a rapidly-growing
market for ATS. This growth was offset by a 12% decrease in
computer-electronics revenue largely within ASG's North America and
Asia-Pacific operations. Despite this decline, revenues from automation
equipment sales into the solar industry, which are classified within
computer-electronics revenue, increased to $6.6 million in the current quarter
compared to $0.1 million in the second quarter of the prior year. Healthcare
revenue decreased 25% as many of the Order Bookings from the first quarter in
these industries were still in the design stage of production during the
second quarter. Generally, management believes the sales cycle in healthcare
is longer and less predictable than in other markets and this has created
variability in healthcare Order Bookings and revenue on a quarterly basis.
Automotive revenue decreased by 5%. Management remains focused on growing
selectively in these core markets because the Company has strong and growing
multinational customer relationships in each and market diversification
assists with risk management.
For the six months ended September 30, 2007, revenue decreased 9%,
reflecting declines in revenue from the healthcare, computer-electronics and
automotive industries, which more than offset increases in "Other" revenues.
Repetitive Equipment Manufacturing ("REM") revenue increased 24% to
$11.9 million in the second quarter of fiscal 2008, compared to $9.6 million
in the second quarter last year, reflecting increased order flow from existing
customers. REM earns revenue primarily from customers in the healthcare
industry.
Quarter over quarter foreign exchange rate changes negatively impacted
ASG second quarter fiscal 2008 revenues by an estimated $4.8 million compared
to the second quarter of fiscal 2007, primarily reflecting a stronger Canadian
dollar relative to the US dollar.
ASG Operating Results
ASG operating income during the second quarter of fiscal 2008 was
$2.4 million compared to $5.7 million a year ago. The year-over-year change
reflects the 7% decrease in ASG revenue, lower operating margins at ASG's
operations in Asia resulting from margins on several first-time customers for
the region and the $1.8 million estimated negative year-over-year impact of
foreign exchange. Performance at ASG Cambridge and Ohio, two of the largest
facilities within ASG North America, delivered profitable results in the
second quarter as they continued to stabilize following significant
restructuring in the final months of fiscal 2007. ASG's European operations
generated improved year-over-year results, while REM continued to achieve
stable profitability.
Operating income for the six months ended September 30, 2007 included
severance costs of $2.1 million, compared to $0.4 million of severance costs
in the six months ended September 30, 2006.
ASG Non-GAAP Reconciliation
(in millions of dollars)
Three Months Ended Six Months Ended
9/30/2007 9/30/2006 9/30/2007 9/30/2006
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Operating Earnings $ 2.4 $ 5.7 $ 3.0 $ 8.5
Depreciation and
Amortization 2.0 3.0 4.1 5.8
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EBITDA $ 4.4 $ 8.7 $ 7.1 $ 14.3
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ASG Order Bookings and Order Backlog
ASG Order Bookings in the second quarter of fiscal 2008 were
$133 million, 32% higher than in the second quarter of fiscal 2007. Order
Bookings in the first six weeks of the third quarter of fiscal 2008 were
$52 million.
Automation Systems Order Backlog by Industry
(in millions of dollars, except percentage change)
Percentage
9/30/2007 9/30/2006 Change
-------------------------------------------------------------------------
Healthcare $ 77 $ 66 16.7%
Computer-Electronics 64 31 106.5%
Automotive 47 38 23.7%
Other 32 27 18.5%
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Total $ 220 $ 162 35.8%
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At September 30, 2007, ASG Order Backlog was $220 million, 36% higher
than at September 30, 2006 and 19% higher than at March 31, 2007.
Year-over-year, Order Backlog increased 17% in healthcare, 107% in
computer-electronics, 24% in automotive and 19% in "Other", reflecting strong
Order Bookings in the first and second quarters of fiscal 2008 in all
industrial markets and across the North America and Asia-Pacific geographic
regions. The increase in healthcare Order Backlog reflects the Company's
continuing strategy to penetrate this market. Healthcare Order Backlog was
reduced by US $12.3 million in respect of a project that a customer put on
temporary hold in the second quarter of fiscal 2007. While management
continues to believe that work with this customer will ultimately proceed, the
scope, timing and contract terms are now expected to change. Excluding this
order from prior year Order Backlog, healthcare Order Backlog increased
approximately 43%. Computer-electronics Order Backlog increased 107% on strong
Order Bookings in this industry in ASG business units in Asia, the west coast
of North America, and Cambridge, Ontario. The increase in Automotive Order
Backlog was primarily due to strong order bookings in Europe, reflecting
further market penetration in this geographic region. "Other" Order Backlog
increased primarily due to new orders secured in nuclear energy.
Automation Systems Group Outlook
The market outlook for fiscal 2008 expressed in the annual MD&A for
fiscal 2007 is unchanged. While management continues to believe that the
underlying global trends that create demand for ASG's automated manufacturing
solutions are attractive, the strength of the Canadian dollar and ongoing
restructuring within the North American automotive market are expected to
continue to present challenges. However, management expects the increases in
Order Bookings levels over the past four quarters and the resulting
improvement in Order Backlog to start the third quarter of fiscal 2008 will
allow revenue to trend upward as fiscal 2008 progresses. As well, management
expects the combination of higher build activity and ongoing operational
improvements, resulting in part from the recent reduction of excess capacity
in North America, should also contribute to higher factory utilization - a key
driver of earnings.
During the second quarter of fiscal 2008, the Company continued to make
structural and operational improvements within its ASG operations and believes
these changes will help to deliver better results as revenue and factory
utilization increase on the strength of higher Order Backlog.
To further strengthen performance in ASG, management intends to
aggressively push forward with its four focused initiatives: improve core
operations through better resource utilization and further cost improvements;
deepen and broaden customer relationships as well as industry and regional
automation markets; further advance ATS' global capabilities and recognized
name; and enhance employee talent development.
Photowatt Technologies Segment
Photowatt Revenue
(in millions of dollars)
Three Months Ended Six Months Ended
-------------------------------------------
9/30/2007 9/30/2006 9/30/2007 9/30/2006
-------------------------------------------------------------------------
Revenue by Region
Germany $ 15.6 $ 6.5 $ 38.1 $ 22.3
Spain 11.0 12.8 20.7 27.5
Rest of Europe 9.9 6.7 20.9 18.2
North America 0.4 0.5 3.2 1.9
Asia/Other 1.0 2.0 2.7 3.0
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Total Revenue $ 37.9 $ 28.5 $ 85.6 $ 72.9
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Revenue by Operating
Facility
Photowatt France $ 37.5 $ 29.0 $ 83.7 $ 72.8
Photowatt USA 0.4 0.8 3.0 2.5
Inter-solar Eliminations 0.0 (1.3) (1.1) (2.4)
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Total Revenue $ 37.9 $ 28.5 $ 85.6 $ 72.9
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Photowatt's total revenue (inclusive of Photowatt France and Photowatt
USA) was $37.9 million, 33% higher than in the second quarter of fiscal 2007.
Higher year-over-year revenues reflected an increase in total MWs sold at
Photowatt France to 8.2 MWs from 5.9 MWs during the second quarter of fiscal
2007 (estimated revenue benefit $11.0 million). Growth in MWs sold resulted
from increased ingot, wafer and cell production capacity at Photowatt France
which came on line in March 2007. Revenue in both quarters was impacted by
Photowatt's annual three week summer factory shutdown, although in the second
quarter a year ago, the shutdown was extended by one week (estimated revenue
impact $1.7 million) to accommodate equipment realignment necessary to prepare
for the aforementioned capacity expansion.
The year-over-year increase in revenue was achieved despite an 8%
decrease in average selling prices per watt for polysilicon modules - which
impacted revenue by approximately $1.5 million - and a change in revenue mix
to products made from MgSi. Management believes the lower average selling
price for polysilicon modules was primarily due to reduced government
incentives in Germany. Management believes that market conditions in Europe
are stabilizing and this was reflected in the fact that solar module prices in
the second quarter were consistent with the first quarter of fiscal 2008.
In addition, modules and systems made from MgSi represented $14.2 million
of second quarter revenue compared to $0.5 million a year ago. MgSi modules
were sold at average selling prices approximating 90% of the price per watt
for polysilicon modules. This is because the average wattage output of modules
at a given size manufactured using MgSi is lower than cells manufactured from
polysilicon. In the second quarter, average efficiency for MgSi cells was
approximately 13% - the same as the first quarter of fiscal 2008 - compared to
approximately 15% for cells produced using polysilicon.
Compared to the first quarter of fiscal 2008, revenue from MgSi modules
and systems was $2.5 million lower. This was primarily due to the three week
plant shutdown.
For the six months ended September 30, 2007, revenues increased 17%
compared to the six months ended September 30, 2006. Higher revenues reflected
an increase in total MWs sold at Photowatt France to 18.9 MWs from 14.6 MWs
during the first six months of fiscal 2007 (estimated increase in revenue of
$20.4 million). These increases were partially offset by reduced average
selling prices. Average selling prices per watt for polysilicon modules
decreased approximately 8% for the six months ended September 30, 2007
compared to a year ago. In addition, MgSi modules were sold at average selling
prices approximating 90% of the price per watt for polysilicon modules. During
the six months ended September 30, 2007 Photowatt sold 8.1 MWs of MgSi
products compared to 0.1 MWs in the comparable prior year period.
Foreign exchange did not have a significant impact on Photowatt revenue
during the three months ended September 30, 2007 compared to the prior year
periods.
Photowatt Technologies Operating Results
(in millions of dollars)
Three Months Ended Six Months Ended
9/30/2007 9/30/2006 9/30/2007 9/30/2006
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Operating Earnings (Loss):
Photowatt France $ (6.1) $ 1.5 $ (6.5) $ 11.8
Photowatt USA (0.9) (0.6) (1.2) (0.8)
Spheral Solar (1.1) (3.4) (2.4) (7.9)
Solar Corporate Costs (1.0) (0.5) (1.6) (1.0)
Inter-solar Eliminations 0.2 (0.1) 0.4 (0.6)
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Photowatt Technologies
Operating Earnings (Loss) $ (8.9) $ (3.1) $ (11.3) $ 1.5
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Although the year-over-year increase in MWs sold positively impacted
Photowatt France operating earnings by $6.1 million in the second quarter
compared to a year ago and $10.2 million for the six months ended
September 30, 2007, this contribution was more than offset by a number of
factors, including a decline in industry prices per watt, increases in
polysilicon costs due to industry shortages, and reduced polysilicon module
production. As a result, Photowatt France incurred an operating loss of
$6.1 million in the second quarter of fiscal 2008 and an operating loss of
$6.5 million for the six months ended September 30, 2007 compared to operating
profits of $1.5 million and $11.8 million respectively a year ago.
Other factors that impacted operating earnings during the three and six
months ended September 30, 2007 compared to the prior year are as follows:
- lower average selling prices negatively impacted operating income by
approximately $3.2 million for the quarter and $10.0 million for the
six months ended September 30, 2007;
- increased costs of polysilicon feedstock and lower average cell
efficiencies, including slightly lower efficiencies achieved on
polysilicon-based cells compared to a year ago due to the use of
lower-grade "reclaimed silicon" during production in the first
quarter of fiscal 2008, negatively impacted operating income by
$6.5 million during the second quarter and $10.6 million for the six
months ended September 30, 2007. This cost increase was partially
offset by lower MgSi costs of approximately $2.6 million in the
quarter and year to date compared to the use of polysilicon in the
prior year;
- greater use of MgSi resulted in increased direct labor, other
materials costs, and higher scrap rates per watt, negatively
impacting operating income by $2.2 million during the second quarter,
and $5.6 million for the six months ended September 30, 2007;
- increased overhead, depreciation and amortization as a result of the
capacity expansion completed in fiscal 2007 negatively impacted
operating income by $3.3 million during the second quarter, and
$5.7 million for the six months ended September 30, 2007.
Also in the second quarter, Photowatt incurred a $1.4 million write off
on a deposit paid to a supplier in China of refined metallurgical silicon as
management believes recovery is not reasonably assured.
Photowatt USA's operating loss in the second quarter was $0.9 million
compared to an operating loss of $0.6 million a year ago. During the quarter,
the Company closed its non-strategic module production facility in New Mexico.
Photowatt will continue to service its US customers through a new distribution
network.
Spheral Solar's operating loss in the second quarter was $1.1 million
compared to an operating loss of $3.4 million a year ago. The change primarily
reflected the reduction in Spheral Solar staff and expenses associated with
the Company's decision, taken in the latter half of the first quarter of
fiscal 2008, to halt further internal Spheral Solar development.
Solar corporate costs were $1.0 million in the second quarter of fiscal
2008 compared to $0.5 million a year ago. The current quarter operating loss
includes severance costs of $0.7 million, as the Company continues to reduce
personnel. Inter-solar eliminations were $0.2 million, which represented the
realization of deferred profits on shipments of silicon from Spheral Solar to
Photowatt France. No such shipments have been made in fiscal 2008 and none is
expected going forward.
Reflecting the reasons noted above, the operating loss for Photowatt was
$8.9 million in the second quarter of fiscal 2008 compared to an operating
loss of $3.1 million a year earlier.
Photowatt France Non-GAAP Reconciliation
(in millions of dollars)
Three Months Ended Six Months Ended
9/30/2007 9/30/2006 9/30/2007 9/30/2006
-------------------------------------------------------------------------
Operating Earnings (Loss) $ (6.1) $ 1.5 $ (6.5) $ 11.8
Depreciation and Amortization 3.2 2.2 6.3 4.5
-------------------------------------------------------------------------
EBITDA $ (2.9) $ 3.7 $ (0.2) $ 16.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization expense at Photowatt France was $3.2 million compared to
$2.2 million during the second quarter of fiscal 2007, reflecting additional
capital assets purchased during fiscal 2007 in support of the previously
discussed capacity expansion program that was completed in March 2007.
Photowatt France's EBITDA for the second quarter was negative $2.9 million
(negative 8% EBITDA margin) compared to $3.7 million (13% EBITDA margin) a
year ago due to the same factors noted above.
Photowatt France Outlook
The long-term market outlook for Photowatt France is positive. Management
continues to believe demand for solar products will be positively impacted by
a number of trends, which are discussed in the annual MD&A.
In the short term, Photowatt is expected to continue to face the
industry-wide challenges associated with shortages of polysilicon, increasing
polysilicon prices and lower average selling prices per watt than in fiscal
2007. MgSi products were developed by Photowatt as an alternative to
polysilicon with the objective of creating a competitive advantage due to the
industry-wide shortages of polysilicon. Although now manufactured in
substantial quantities, these products are at an early stage of development
and, as expected, power conversion efficiencies are lower than those generated
using higher-priced polysilicon feedstock. Given the shortage of polysilicon
at reasonable prices, management expects to use a significant part of its
manufacturing capacity in fiscal 2008 to produce MgSi products. Until the cell
efficiency of these products is enhanced, production of these products is
expected to have a negative impact on profitability compared to historical
margins using polysilicon (secured at lower historical cost than available in
the market today).
To address these challenges, the Company has:
- strengthened its management team through the appointment of an
experienced CEO, Eric Laborde, and is actively recruiting a CFO for
Photowatt. Mr. Laborde is an experienced solar industry executive who
led Photowatt from 2001 through 2006. During this period, Mr. Laborde
was instrumental in the turnaround of this business and increased
revenues from approximately euro 30 million to approximately euro
90 million. Mr. Laborde has also been on the Board of Directors of
the EPIA (European Photovoltaic Industry Association) since 2002, is
the CEO of PV Alliance (see below), and is involved as special
advisor, member of the board, or Chairman, with several companies;
- formalized the initial phase of the PV Alliance with EDF and the CEA
which contemplates research to improve the power efficiencies of both
polysilicon and MgSi solar cells and, in later phases, the
manufacturing of the resulting products. Following the official
public launch of the Alliance on November 9, 2007 attended by the
Prime Minister of France, François Fillon, the partners will now
begin their development activities. It is expected that the PV
Alliance will apply for subsidies from the French government;
- signed an agreement to supply EDF, a partially owned subsidiary of
Electricité de France and a leader in green power, with a minimum of
10 MWs of refined metallurgical silicon modules per annum from 2008
through to December 31, 2010 - for a total of at least 30 MWs -
demonstrating early market acceptance of this new product line;
- engaged in measures (including capital investments) to improve MgSi
solar cell and module manufacturing processes. These process
improvement efforts are focused on: increasing cell power
efficiencies; enhancing manufacturing yields and reducing scrap
rates; and, increasing throughput at all stages of production.
- announced plans to increase its ingot manufacturing capacity to
50 MWs (measured using refined metallurgical silicon) by the fourth
quarter of fiscal 2009 at an approximate cost of euro 20 million and
invest in other capital equipment designed to improve the
productivity and efficiency of the Photowatt manufacturing facility;
- entered into a multi-year agreement to purchase high-purity
polysilicon to support approximately 14 megawatts of solar production
per annum starting in January 2010 and continuing for a nine year
period.
In addition to these significant steps forward, management is currently
examining Photowatt's operating strategy, including evaluation of research and
development alternatives to improve cell efficiencies and manufacturing
yields, alternative means of securing additional sources of high quality
polysilicon such as vertical integration of polysilicon production,
exploration of investments in alternative solar technologies (such as "thin
film") and further capacity expansion. The outcome of this evaluation may
impact the timing, magnitude and type of capital expenditures and investments,
including the use of proceeds of the recent ATS rights offering. These
strategic options are being evaluated because management believes there is
significant opportunity to enhance the long-term performance of the solar
business while also reducing the risk associated with polysilicon supply.
Management believes these options, combined with recent long-term silicon
supply contracts (see "Contractual Obligations") which significantly increase
Photowatt France's access to silicon material, will strengthen Photowatt
prospects for the future. Management intends to continue to fortify this
business throughout fiscal 2008 to prepare it for the planned separation of
Photowatt from ATS to maximize value for ATS shareholders.
Precision Components Group Segment
Second quarter PCG revenue of $16.7 million was $2.6 million lower than
in the same period of fiscal 2007. PCG revenue for the six months ended
September 30, 2007 of $36.1 million was $8.5 million lower than the comparable
prior year period. The decline in PCG revenue compared to the prior year
periods is primarily due to lower volumes on existing customer programs caused
by significant production cuts by the Big Three North American automakers and
the impact of the consolidation of the MPP business unit, an injection molding
operation formerly located in Bowmansville, Ontario, into existing PCG
operations.
Foreign exchange negatively impacted second quarter fiscal 2008 PCG
revenues by an estimated $0.7 million, and $1.1 million for the six months
ended September 30, 2007 compared to the prior year.
PCG Non-GAAP Reconciliation
(in millions of dollars)
Three Months Ended Six Months Ended
9/30/2007 9/30/2006 9/30/2007 9/30/2006
-------------------------------------------------------------------------
Operating Loss $ (2.6) $ (1.7) $ (3.7) $ (0.8)
Depreciation and Amortization 1.7 1.7 3.4 3.5
-------------------------------------------------------------------------
EBITDA $ (0.9) $ 0.0 $ (0.3) $ 2.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
PCG operating loss of $2.6 million reflected the impact of lower
revenues, higher material costs and scrap rates related to PCG's Plastics
business unit.
PCG EBITDA was negative $0.9 million compared to EBITDA of $0.0 million a
year ago, primarily reflecting the impact of lower revenues as a significant
portion of the costs of the business are fixed in nature.
Foreign exchange negatively impacted second quarter fiscal 2008 PCG
operating earnings by an estimated $0.3 million compared to the second quarter
of fiscal 2007.
PCG Outlook
During the first quarter of fiscal 2008, ATS retained financial advisors
to identify and evaluate strategic alternatives to exit the remaining PCG
operations. Since then, ATS and its financial advisors have initiated a formal
sale process by contacting potential purchasers and circulating a confidential
information memorandum to certain qualified potential purchasers.
The outlook for PCG is unchanged from year end. Management believes
continued strengthening of the Canadian dollar and the difficult conditions in
the North American automotive parts market will negatively impact PCG revenue
and earnings during the balance of fiscal 2008.
Consolidated Results from Operations
Revenue. At $163.3 million, consolidated revenue from continuing
operations for the three months ended September 30, 2007 was slightly less
than 1% lower than a year ago. A 33% increase in Photowatt revenue was offset
by the 7% and 14% declines in ASG and PCG revenues respectively. The estimated
effect on revenue of changes in effective foreign exchange rates was a
decrease in revenue of $5.4 million for the three months ended September 30,
2007, and $5.2 million for the six months ended September 30, 2007 compared to
the same periods of the prior year.
Consolidated earnings (loss) from operations. For the three and six month
periods ended September 30, 2007, consolidated loss from operations was
$19.4 million and $27.4 million respectively, compared to loss from operations
of $2.5 million and earnings from operations of $3.2 million a year ago.
Fiscal 2008 second quarter performance reflected: operating earnings of
$2.4 million at ASG (operating earnings $5.7 million a year ago); Photowatt
operating loss of $8.9 million (operating loss $3.1 million a year ago); PCG
operating loss of $2.6 million ($1.7 million operating loss a year ago); and
inter-segment eliminations and corporate expenses of $10.3 million ($3.4
million of expenses a year ago) reflecting incremental severance costs,
professional fees, and stock-based compensation. Changes in effective foreign
exchange rates decreased operating earnings by an estimated $2.0 million for
the three months ended September 30, 2007, and by $2.6 million for the six
months ended September 30, 2007 compared to the same periods of the prior
year.
Selling, general and administrative ("SG&A") expenses. For the second
quarter of fiscal 2008, SG&A expenses increased 20% or $4.4 million to
$26.5 million compared to the respective prior year period. Included in SG&A
for the second quarter of fiscal 2008 was: $4.1 million of consolidated
severance costs pertaining primarily to the resignation of certain senior
officers of the Company and the elimination of jobs at Spheral Solar and
Photowatt USA; $1.9 million of other direct costs related to the change in the
Board of Directors; and, $0.5 million of recruiting costs for certain senior
level positions in the Company. Fiscal 2007 second quarter SG&A expenses also
included a $0.4 million PCG provision for receivables pertaining to an
automotive customer that filed for Chapter 11 bankruptcy protection. For the
six months ended September 30, 2007, SG&A expenses increased 15%, or
$6.4 million to $50.1 million compared to the respective prior year period.
SG&A costs for the six months ended September 30, 2007 included severance
costs of $7.0 million.
Stock-based compensation cost. For the three and six month periods ended
September 30, 2007, stock-based compensation expense increased to $1.5 million
and $2.0 million respectively compared to $0.6 million and $0.7 million a year
earlier. The increase primarily reflected accelerated vesting of options of
certain officers of the Company who resigned during the quarter. The impact of
this accelerated vesting was $1.2 million.
Interest expense. For the three and six month periods ended September 30,
2007, interest expense increased to $1.4 million and $2.7 million respectively
compared to $0.9 million and $1.5 million a year earlier. The increase
primarily reflects higher usage of the Company's credit facilities and
increased interest rates in fiscal 2008.
Loss from discontinued operations, net of tax. The loss from discontinued
operations during the first six months of fiscal 2007 included a non-cash
charge of $2.0 million ($2.2 million before taxes) to write down the assets of
the Company's Berlin, Germany coil winding operation to their net realizable
value. This operation was sold during the three months ended June 30, 2006,
and accordingly, its results and financial position have been segregated and
presented separately as discontinued operations. See Note 4 to the
Consolidated Interim Financial Statements for further details on the net loss
from discontinued operations.
Provision for income taxes. The Company's effective income tax rate
differs from the combined Canadian basic federal and provincial income tax
rate of 36.1% (2007 - 36.1%) primarily as a result of losses incurred in
Canada, the benefits of which have not been recognized for financial statement
reporting purposes.
Net earnings (loss) from continuing operations. For the second quarter of
fiscal 2008, net loss from continuing operations was $18.8 million (28 cents
per share basic and diluted) compared to net loss from continuing operations
of $2.1 million (4 cents per share basic and diluted) a year ago. The year to
date net loss from continuing operations was $27.7 million (44 cents per share
basic and diluted) compared to net earnings from continuing operations of
$0.4 million (1 cent per share basic and diluted).
Net loss. For the second quarter of fiscal 2008, net loss was
$18.8 million (28 cents per share basic and diluted) compared to net loss of
$2.1 million (4 cent per share basic and diluted) for the same period last
year. The year-to-date net loss was $27.7 million (44 cents per share basic
and diluted) compared to net loss of $1.8 million (3 cents per share basic and
diluted).
Foreign Exchange
Year over year foreign exchange rate decreases during second quarter
fiscal 2008, negatively impacting consolidated revenue by an estimated $5.4
million compared to the second quarter of fiscal 2007. This decrease was
primarily related to the effect of a stronger Canadian dollar relative to the
US dollar. Changes in foreign exchange rates also reduced second quarter
fiscal 2008 consolidated operating earnings by an estimated $2.0 million
compared to the second quarter of fiscal 2007.
Period Average Market Exchange Rates in CDN$
Three months ended Six months ended
% %
9/30/2007 9/30/2006 change 9/30/2007 9/30/2006 change
-------------------------------------------------------------------------
US $1.0453 1.1210 (6.8) 1.0704 1.1205 (4.5)
Euro 1.4366 1.4276 0.6 1.4566 1.4193 2.6
Singapore $0.6889 0.7093 (2.9) 0.7034 0.7073 (0.6)
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
On September 27, 2007, the agreement governing the Company's primary
operating credit facility and its revolving bank credit facility (the "Credit
Agreement") was amended resulting in the unsecured operating credit facility
of $70 million and the revolving bank credit facility of $60 million being
consolidated into one operating credit facility of $130 million. The amended
operating credit facility, which is secured by a general security agreement,
is repayable on December 31, 2007. The amended operating credit facility is
subject to an adjusted current assets to current debt covenant of 1.25:1 and a
debt to shareholders' equity covenant of 1.5:1. Under the terms of the Credit
Agreement, the Company is restricted from encumbering any assets with certain
permitted exceptions. The Credit Agreement also restricts the disposition of
certain assets with an agreement to reduce available credit by an amount equal
to a portion of the net proceeds received by the Company from certain material
asset sales, if any. The Company is in compliance with these covenants and
restrictions.
The Company is currently negotiating with a number of financial
institutions to establish a long-term credit facility to replace the Credit
Agreement. The Company believes that a long-term credit agreement or credit
extension will be reached prior to December 31, 2007 at terms that are
satisfactory to ATS. In the event that such an agreement or extension is not
yet in place at December 31, 2007, management believes that the Company has
sufficient cash on hand and availability of alternative sources of funding,
including financing of land and buildings, to repay amounts due under the
Credit Agreement and to manage ongoing working capital requirements and meet
existing cash commitments.
During the second quarter of fiscal 2008, the Company completed a rights
offering, raising gross proceeds of $110.2 million (net proceeds of
$102.5 million). The rights offering provided existing common shareholders
with rights to subscribe for additional common shares in ATS. Each shareholder
of record of the Company on July 19, 2007 received one right for each common
share held. For every 3.35 rights held, the holder was entitled to purchase
one common share at the subscription price of $6.23 until 5:00 pm (Toronto
time) on August 14, 2007. The subscription price of $6.23 per share
represented a discount of 32% to the closing price of $9.13 per share on
July 5, 2007. ATS received subscriptions of 16,011,247 common shares. Under
the Additional Subscription Privilege, 1,678,903 shares were purchased. The
net proceeds of the rights offering are being used to further expand the
manufacturing capacity of Photowatt France, procure silicon supplies, advance
research and development, repay its credit facility and for general corporate
purposes at Photowatt France. However, as part of the evaluation of the
Photowatt strategy, management is assessing the allocation of these funds in
support of Photowatt's long-term growth objectives. These proceeds may also be
used in the short term to repay the Company's existing operating credit
facility if no alternative credit arrangement or an extension of the existing
operating credit facility has been reached by December 31, 2007.
Cash balances, net of bank indebtedness and long-term debt, at
September 30, 2007 increased $34.0 million compared to March 31, 2007,
primarily due to the rights offering. The Company held cash of $3.1 million in
an irrevocable trust on behalf of individuals holding officer and director
positions at the Company immediately prior to the September 13, 2007 annual
meeting of the shareholders. Subsequent to September 30, 2007, these funds
were released to the Company.
The Company invested $3.6 million and $11.4 million respectively in
property, plant and equipment during the three and six month periods ended
September 30, 2007, including $2.2 million and $8.8 million in Photowatt.
No stock options were exercised during the first six months of fiscal
2008. At November 9th, 2007 the total number of shares outstanding was
76,952,155. The outstanding number of options increased 1.3 million due to the
rights offering and stock option grants in the second quarter.
The Company's debt to equity ratio at September 30, 2007 was 0.3:1. At
September 30, 2007 the Company had approximately $54 million of unutilized
credit available under existing operating facilities.
During the six months ended September 30, 2007, the Company repatriated
US$25.5 million from its US subsidiaries and used this to repay a portion of
its US-denominated LIBOR debt in Canada. The Company also borrowed $60 million
of Bankers Acceptances under its credit facilities.
Related Party Transactions
Certain of the directors of the Company are related to Goodwood Inc. and
Mason Capital Management, LLC. The Company has agreed to reimburse
$0.5 million of proxy-circular related costs incurred in connection with the
election of the new Board of Directors.
Mr. Laborde, the new CEO of Photowatt, is also the President of PV
Alliance, in which Photowatt has a 40% investment interest. During the
quarter, Photowatt invested (euro)0.4 million in the PV Alliance.
Consolidated Quarterly Results
($ in
thousands,
except
per share Q2 Q1 Q4 Q3 Q2 Q1
amounts) 2008 2008 2007 2007 2007 2007
-------------------------------------------------------------------------
Revenue $163,339 $174,801 $172,486 $171,795 $164,598 $191,196
Net earnings
(loss) from
continuing
operations $(18,763) $ (8,937) $(80,854) $ (2,389) $ (2,110) $ 2,496
Net earnings
(loss) $(18,763) $ (8,937) $(80,854) $ (2,389) $ (2,110) $ 338
Basic
earnings
(loss) per
share from
continuing
operations $ (0.28) $ (0.15) $ (1.36) $ (0.04) $ (0.04) $ 0.04
Basic
earnings
(loss) per
share $ (0.28) $ (0.15) $ (1.36) $ (0.04) $ (0.04) $ 0.01
Diluted
earnings
(loss) per
share from
continuing
operations $ (0.28) $ (0.15) $ (1.36) $ (0.04) $ (0.04) $ 0.04
Diluted
earnings
(loss) per
share $ (0.28) $ (0.15) $ (1.36) $ (0.04) $ (0.04) $ 0.01
($ in
thousands,
except
per share Q4 Q3
amounts) 2006 2006
---------------------------------
Revenue $208,775 $176,254
Net earnings
(loss) from
continuing
operations $(65,073) $ (5,309)
Net earnings
(loss) $(65,589) $ (5,801)
Basic
earnings
(loss) per
share from
continuing
operations $ (1.09) $ (0.09)
Basic
earnings
(loss) per
share $ (1.11) $ (0.10)
Diluted
earnings
(loss) per
share from
continuing
operations $ (1.09) $ (0.09)
Diluted
earnings
(loss) per
share $ (1.11) $ (0.10)
ATS' revenue and operating results are generally lower in the second
quarter of each fiscal year (three months ended September 30th) due to summer
plant shutdowns.
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, 2007 found at www.sedar.com. The Company's off balance sheet
arrangements consist of operating lease financing related primarily to
facilities and equipment.
In April 2007, the Company entered into a commitment to purchase
1,700 tonnes of MgSi commencing in 2007 and ending December 31, 2011. Advance
payments are required, which will be applied against the price of the product
received. Commencing in calendar 2008, the price per kilogram of
metallurgical-grade silicon may be adjusted at the beginning of the year based
upon an agreed upon formula.
In June 2007, the Company entered into an eight-year commitment,
commencing January 1, 2010, to purchase approximately 32 million polysilicon
wafers over the term of the agreement. Advance payments are required, which
will be applied against the price of the wafers received during the life of
the commitment. The price per wafer will be adjusted at the beginning of each
calendar year based upon an agreed upon formula.
In September 2007, the Company entered into a nine-year commitment,
commencing January 2010, to purchase high-purity polysilicon to support
approximately 14 MWs of Photowatt solar production per annum. Advance payments
are required, which will be applied against the price of the product received.
The Company has exercised its right to purchase the remaining outstanding
minority interest in a subsidiary. The purchase price is yet to be established
but likely to be determined by March 31, 2008.
Changes in Accounting Policies
Effective April 1, 2007, the Company adopted new Canadian Institute of
Chartered Accountants Handbook Sections which established the accounting and
reporting standards for financial instruments and hedging activities. These
sections require the initial recognition of financial instruments at fair
value on the balance sheet. As required by these standards, the comparative
interim consolidated financial statements have not been restated except for
the reclassification of the cumulative translation adjustment to accumulated
other comprehensive income. See Note 2 to the interim consolidated financial
statements for further details including the impact of adopting these
standards.
The Canadian Institute of Chartered Accountants has also issued new
Handbook Sections that will become effective for the Company on April 1, 2008
- see Note 3 to the interim consolidated financial statements. The Company is
currently evaluating the impact of adopting these future accounting standards.
Controls and Procedures
In its annual MD&A dated June 18, 2007 and for the fiscal year ended
March 31, 2007, the Company reported that it had identified certain weaknesses
in the design of internal controls over financial reporting. The Company, with
the assistance of external specialists, has developed remediation plans for
the identified controls deficiencies, and continues to make progress on
implementing the remediation plans. In preparing the interim consolidated
financial statements for the three and six month periods ended September 30,
2007, the Company again performed a number of additional financial review
procedures in an effort to mitigate the risk of undetected material errors in
the Company's Consolidated Financial Statements and disclosures. During the
three and six months ended September 30, 2007, there have been no changes in
the Company's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's
internal controls over financial reporting.
Forward Looking Statement
This news release relates to ATS' second quarter financial results for
the three months ended September 30, 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' 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, positive indicators
of future performance within Automation Systems; Photowatt growth plan and
expected progress; opportunity for growth within the solar industry and
intention to position Photowatt to be a beneficiary of such growth;
improvement plans being initiated within ASG; opportunity for growth in
worldwide automation systems integration; recruitment of ATS CEO; sale of the
PCG business; future performance indicators within ASG; enhancement of global
factory utilization within ASG; need to continue to improve productivity and
efficiency in ASG Canadian operations; mandate of Photowatt President and CEO
to increase enterprise value; consideration of alternative solar technologies,
such as thin film, alternative sources of polysilicon, R&D alternatives
targeting improved cell efficiencies, and further capacity expansion;
contemplation of research by PV Alliance into improved solar power
efficiencies and manufacturing of resulting solar products; quantities and
timing of supply under sale contract with EDF Energies Nouvelles; benefit or
relationship with EDF; expansion of ingot manufacturing capacity at Photowatt
France and timing and cost thereof; potential for development of solar group,
broadening of its technological footprint, and increase in its enterprise
value; planned separation of Photowatt from ATS; management's expectations
with respect to ASG revenue trends during fiscal 2008; management's beliefs
with respect to market conditions and average selling prices in the European
market; the Board's focus on providing leadership in order to improve
operating performance; changes implemented with the intention of increasing
enterprise value of Photowatt in advance of planned separation of Photowatt
from ATS; timing of ATS CEO announcement; efforts to increase value for
shareholders, customers and employees; management's focus on growing
selectively within the ASG markets; global trends for demand of automated
manufacturing; challenges facing the ASG business; management expectations
with respect to revenue trends in fiscal 2008; expectation of higher ASG
factory utilization and potential for better results; four focused initiatives
within ASG; continued servicing of Photowatt's US customers; no expected
shipments of silicon from Spheral Solar to Photowatt France; the long term
outlook for Photowatt; management's belief with respect to demand for solar
products; short term challenges facing Photowatt and impact of MgSi products
on profitability; expectation that PV Alliance will apply for subsidies;
measures to improve MgSi solar cell and module manufacturing processes;
investment in capital equipment designed to improve the productivity and
efficiency of the Photowatt manufacturing facility; terms of multi-year
agreement to purchase high-purity polysilicon; potential for impact of
management examination of Photowatt's operating strategy on capital
expenditures, including use of proceeds from recent ATS rights offering;
management's belief that there is significant opportunity to enhance the long
term performance of the solar business and reduce risk associated with
polysilicon supply; management's belief that a long-term credit agreement or
extension will be reached prior to December 31, 2007; management's belief that
the Company has ability to repay amounts due under the current credit
agreement and manage working capital requirements and cash commitments; and
terms of various contractual obligations. 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;
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 structural and
operational initiatives or failure of those measures to bring about improved
performance at ASG; that the solar partnerships developed to date are
withdrawn or are otherwise unable to meet their objectives; problems
associated with the expansion of production capability and adoption of new
production processes at Photowatt; managing the impact of supply shortages and
higher prices for polysilicon; Photowatt's ability to improve efficiencies of
its solar modules produced using lower grade polysilicon or refined
metallurgical silicon either alone or through partnerships; Photowatt's
ability to secure additional long-term polysilicon supply contracts; the
reduction in government incentives and its effect on Photowatt; inability to
enter into and advance collaborative development arrangements focused on
increasing power efficiencies of solar cells; political, labour or supplier
disruptions in manufacturing and supply of silicon; uncertainties related to
adopting new technologies, including procuring the appropriate human capital;
the receipt of all necessary approvals and any advance tax ruling required in
relation to the planned separation of Photowatt from ATS; the state of the
capital markets; the ability of ATS to exit the remaining PCG operations;
delays in negotiating and concluding an extension or long term credit
agreement; and other risks detailed from time to time in ATS' filings with
Canadian provincial securities regulators, including ATS' Annual Report and
Annual Information Form for the fiscal year ended March 31, 2007.
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.
November 13, 2007
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
September 30 March 31
2007 2007
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 102,277 $ 25,568
Accounts receivable 117,052 131,410
Investment tax credits 13,712 13,712
Costs and earnings in excess of billings on
contracts in progress 77,074 73,755
Inventories 92,216 74,804
Future income taxes 3,260 -
Deposits and prepaid assets (notes 2 and 5) 20,874 10,861
-------------------------------------------------------------------------
426,465 330,110
Property, plant and equipment 206,693 221,718
Goodwill 32,225 35,657
Intangible assets 235 352
Future income taxes 176 179
Deferred development costs 2,160 2,414
Portfolio investments (note 2) 23,396 4,728
Restricted cash (note 10) 3,050 -
Other assets (note 6) 23,389 5,907
-------------------------------------------------------------------------
$ 717,789 $ 601,065
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 11) $ 119,355 $ 37,204
Accounts payable and accrued liabilities 109,574 122,587
Billings in excess of costs and earnings on
contracts in progress 34,160 23,186
Future income taxes 17,585 14,395
Current portion of other long-term liabilities 33 447
-------------------------------------------------------------------------
280,707 197,819
Long-term debt (note 11) - 39,025
Future income taxes 13 75
Other long-term liabilities 844 877
Non-controlling interest 1,714 1,890
Shareholders' equity
Share capital (note 12) 430,082 327,560
Contributed surplus 4,982 3,193
Accumulated other comprehensive income (note 14) (12,946) (9,422)
Retained earnings 12,393 40,048
-------------------------------------------------------------------------
434,511 361,379
-------------------------------------------------------------------------
$ 717,789 $ 601,065
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Operations
(in thousands, except per share amounts - unaudited)
Three months ended Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ 163,339 $ 164,598 $ 338,140 $ 355,794
-------------------------------------------------------------------------
Operating costs
and expenses
Cost of revenue 147,845 137,131 299,281 293,691
Amortization 6,933 7,242 14,115 14,485
Selling, general and
administrative 26,517 22,135 50,060 43,688
Stock-based compensation
(note 7) 1,452 638 2,040 739
-------------------------------------------------------------------------
182,747 167,146 365,496 352,603
-------------------------------------------------------------------------
Earnings (loss) from
operations (19,408) (2,548) (27,356) 3,191
-------------------------------------------------------------------------
Other expenses (income)
Interest on long-term debt 751 794 1,551 1,522
Other interest 676 89 1,100 (57)
-------------------------------------------------------------------------
1,427 883 2,651 1,465
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income taxes and
non-controlling interest (20,835) (3,431) (30,007) 1,726
Provision for (recovery of)
income taxes (2,086) (1,305) (2,336) 1,233
Non-controlling interest in
earnings of subsidiaries 14 (16) 29 107
-------------------------------------------------------------------------
Net earnings (loss) from
continuing operations (18,763) (2,110) (27,700) 386
Loss from discontinued
operations, net of
tax (note 4) - - - (2,158)
-------------------------------------------------------------------------
Net loss $ (18,763) $ (2,110) $ (27,700) $ (1,772)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per
share (note 8)
Basic and diluted - from
continuing operations $ (0.28) $ (0.04) $ (0.44) $ 0.01
Basic and diluted - from
discontinued operations 0.00 0.00 0.00 (0.04)
-------------------------------------------------------------------------
$ (0.28) $ (0.04) $ (0.44) $ (0.03)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Shareholders' Equity
(in thousands of dollars - unaudited)
Six months ended September 30, 2007
-------------------------------------------------------------------------
Accumulated
Other
Compre-
Contrib- hensive
Share uted Income
Capital Surplus (Loss)
-------------------------------------------------------------------------
Balance, beginning of period,
as previously reported $ 327,560 $ 3,193 $ (9,422)
Transitional adjustment on adoption
of new accounting standards (note 2) - - 20,534
-------------------------------------------------------------------------
Balance beginning of period,
as restated 327,560 3,193 11,112
Comprehensive loss
Net loss - - -
Currency translation adjustment
(note 15) - - (25,328)
Net unrealized loss on available
for-sale financial assets (net of
income taxes of $nil) - - (5,008)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges (net of
income taxes of $nil) - - 7,054
Amount transferred to net earnings
(loss) for derivatives designated
as cash flow hedges (net of
income taxes of $nil) - - (776)
Total comprehensive loss (note 14)
Stock-based compensation - 1,789 -
Shares issued during the period for
cash on rights offering, net (note 12) 102,522 - -
-------------------------------------------------------------------------
Balance, end of the period $ 430,082 $ 4,982 $ (12,946)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30, 2007
-------------------------------------------------------------------------
Total
Share-
Retained holders'
Earnings Equity
-------------------------------------------------------------------------
Balance, beginning of period,
as previously reported $ 40,048 $ 361,379
Transitional adjustment on adoption
of new accounting standards (note 2) 45 20,579
-------------------------------------------------------------------------
Balance beginning of period,
as restated 40,093 381,958
Comprehensive loss
Net loss (27,700) (27,700)
Currency translation adjustment
(note 15) - (25,328)
Net unrealized loss on available
for-sale financial assets (net of
income taxes of $nil) - (5,008)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges (net of
income taxes of $nil) - 7,054
Amount transferred to net earnings
(loss) for derivatives designated
as cash flow hedges (net of
income taxes of $nil) - (776)
----------
Total comprehensive loss (note 14) (51,758)
Stock-based compensation - 1,789
Shares issued during the period for
cash on rights offering, net (note 12) - 102,522
-------------------------------------------------------------------------
Balance, end of the period $ 12,393 $ 434,511
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30, 2006
-------------------------------------------------------------------------
Accumulated
Other
Compre-
Contrib- hensive
Share uted Income
Capital Surplus (Loss)
-------------------------------------------------------------------------
Balance, beginning of period $ 326,840 $ 2,035 $ (23,017)
Net earnings - - -
Currency translation adjustment - - (4,084)
Issuance of common shares 511 - -
Stocked-based compensation - 696 -
-------------------------------------------------------------------------
Balance, end of period $ 327,351 $ 2,731 $ (27,101)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30, 2006
-------------------------------------------------------------------------
Total
Share-
Retained holders'
Earnings Equity
-------------------------------------------------------------------------
Balance, beginning of period $ 125,063 $ 430,921
Net earnings (1,772) (1,772)
Currency translation adjustment - (4,084)
Issuance of common shares - 511
Stocked-based compensation - 696
-------------------------------------------------------------------------
Balance, end of period $ 123,291 $ 426,272
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Operating activities:
Net loss $ (18,763) $ (2,110) $ (27,700) $ (1,772)
Items not involving cash
Amortization 6,933 7,242 14,115 14,485
Future taxes (2,490) (427) (2,695) 66
Other items not involving
cash 3,032 (826) 3,301 (7,085)
Write down of assets to
net realizable value
(note 4) - - - 1,978
-------------------------------------------------------------------------
Cash flow from operations (11,288) 3,879 (12,979) 7,672
Change in non-cash
operating working capital (2,968) (20,126) (18,942) (32,287)
-------------------------------------------------------------------------
Cash flows used in
operating activities (14,256) (16,247) (31,921) (24,615)
-------------------------------------------------------------------------
Investing activities:
Acquisition of property,
plant and equipment (3,600) (10,222) (11,378) (16,368)
Restricted cash (note 10) (3,050) - (3,050) -
Investments and other (12,547) (4,022) (20,237) (6,363)
Proceeds from disposal
of assets 28 - 44 426
-------------------------------------------------------------------------
Cash flows used in investing
activities (19,169) (14,244) (34,621) (22,305)
-------------------------------------------------------------------------
Financing activities:
Bank indebtedness (26,594) 11,666 13,894 17,884
Share issue costs (note 12) (7,688) - (7,688) -
Proceeds from long-term debt
(note 11) 40,000 - 60,000 20,000
Repayment of long-term debt
(note 11) (426) - (28,361) -
Issuance of common shares
(note 12) 110,210 8 110,210 511
-------------------------------------------------------------------------
Cash flows provided by
financing activities 115,502 11,674 148,055 38,395
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments (924) (179) (4,804) (997)
-------------------------------------------------------------------------
Increase (decrease) in cash
and short-term investments 81,153 (18,996) 76,709 (9,522)
Cash and short-term
investments, beginning
of period 21,124 37,395 25,568 27,921
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 102,277 $ 18,399 $ 102,277 $ 18,399
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information
Cash income taxes paid $ 147 $ 7,651 $ 1,391 $ 7,784
Cash interest paid $ 1,880 $ 1,253 $ 3,715 $ 2,372
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
The interim consolidated financial statements for the three and the six
months ended September 30, 2006 have not been reviewed or audited by the
Company's auditor.
1. Significant accounting policies:
(i) The accompanying interim consolidated financial statements are
prepared in accordance with accounting principles generally accepted in
Canada ("GAAP") and the accounting policies and method of their
application are consistent with those described in the annual
consolidated financial statements for the year ended March 31, 2007
except for the adoption of the new accounting standards included in note
2 herein. The 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 annual consolidated
financial statements for the year ended March 31, 2007.
(ii) 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, investment tax credits, 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. Change in accounting policies:
Effective April 1, 2007, the Company adopted the new Canadian Institute
of Chartered Accountants ("CICA") Handbook Sections 1530 "Comprehensive
Income", 3251 "Equity", 3855 "Financial Instruments - Recognition and
Measurement", 3861 "Financial Instruments - Disclosure and Presentation"
and 3865 "Hedges". These CICA Handbook Sections establish the accounting
and reporting standards for financial instruments and hedging activities,
and require the initial recognition of financial instruments at fair
value on the interim consolidated balance sheet. As required by the
standards, the comparative interim consolidated financial statements have
not been restated, except for the reclassification of the cumulative
translation adjustment to accumulated other comprehensive income.
Comprehensive income and equity
CICA Handbook Section 1530 requires the presentation of comprehensive
income and its components in a financial statement. Comprehensive income
is composed of the Company's net income and other comprehensive income
which includes unrealized gains and losses on translating financial
statements of self-sustaining foreign operations, changes in the fair
value of the effective portion of cash flow hedging instruments and
changes in unrealized gains (losses) on available-for-sale financial
assets measured at fair value. The Company discloses comprehensive income
within its interim consolidated statements of shareholders' equity.
CICA Handbook Section 3251 provides standards for the presentation of
equity and changes in equity during the reporting period.
Financial instruments
CICA Handbook Section 3855 establishes standards for recognizing and
measuring financial instruments, including derivatives. Under the new
standard, all financial instruments are initially recorded on the interim
consolidated balance sheet at fair value except for certain related party
transactions. They are subsequently valued either at fair value or
amortized cost depending on the classification selected for the financial
instrument. Financial assets are classified as either "held-for-trading",
"held-to-maturity", "available-for-sale" or "loans and receivables" and
financial liabilities are classified as either "held-for-trading" or
"other liabilities". Financial assets and liabilities classified as held-
for-trading are measured at fair value with changes in fair value
recorded in the interim consolidated statements of operations except for
financial assets and liabilities designated as cash flow hedges which are
measured at fair value with changes in fair value recorded as a component
of other comprehensive income. Financial assets classified as held-to-
maturity or loans and receivables and financial liabilities classified as
other liabilities are subsequently measured at amortized cost using the
effective interest method. Available-for-sale financial assets that have
a quoted price in an active market are measured at fair value with
changes in fair value recorded in other comprehensive income. Such gains
and losses are reclassified to earnings when the related financial asset
is disposed of or when the decline in value is considered to be other-
than-temporary. Equity instruments classified as "available-for-sale"
that do not have a quoted price in an active market are subsequently
measured at cost.
The Company has classified its financial instruments as follows:
- Cash and short-term investments and restricted cash are classified as
held-for-trading.
- Accounts receivable and notes receivable included in other assets are
classified as loans and receivables.
- Long-term investments in equities included in portfolio investments
are classified as available-for-sale.
- Bank indebtedness is classified as held-for-trading.
- Accounts payable and accrued liabilities and long-term debt are
classified as other liabilities.
The Company has elected to expense transaction costs related to financial
instruments classified as other than held-for-trading.
The Company has elected to use trade date accounting for regular-way
purchases and sales of financial assets.
Embedded derivatives
In addition to recognizing all stand-alone derivative financial
instruments at fair value, CICA Handbook Section 3855 requires embedded
derivatives, which are components included in a non-derivative host
contract that have features similar to derivatives, to be accounted for
separately when their economic characteristics and risks are not closely
related to the host instrument and the combined contract is not recorded
at fair value. These embedded derivatives are measured at fair value with
subsequent changes recorded in the interim consolidated statements of
operations. The Company enters into certain non-financial instrument
contracts which contain embedded foreign currency derivatives. Where the
contract is not leveraged, does not contain an option feature and is
denominated in a currency that is commonly used in the economic
environment where the transaction takes place, the embedded derivative is
not accounted for separately from the host contract. As allowed under
CICA Handbook Section 3855, the Company elected April 1, 2003 as the
transition date for embedded derivatives and only reviewed contracts
entered into or modified after that date.
Hedging
CICA Handbook Section 3865 specifies the criteria that must be met in
order for hedge accounting to be applied and the accounting for each of
the permitted hedging strategies. If the derivative is designated as a
fair value hedge, changes in fair value of the derivative and changes in
the fair value of the hedged item attributable to the hedged risk are
recognized in the interim consolidated statements of operations. If the
derivative is designated as a cash flow hedge, the effective portions of
the change in fair value of the derivative are initially recorded in
other comprehensive income and are reclassified to the interim
consolidated statements of operations when the hedged item is recognized.
Hedge accounting is discontinued prospectively when it is determined that
the derivative is not effective as a hedge, or the derivative is
terminated or sold, or upon sale or early termination of the hedged item.
The Company elected to apply hedge accounting for certain forward foreign
exchange contracts used to manage foreign currency exposure on
anticipated revenue and firm commitments and has designated these as cash
flow hedges. The fair value of these derivatives is included in deposits
and prepaid assets when in an asset position and in accounts payable and
accrued liabilities when in a liability position.
Gains or losses arising from hedging activities are reported in the same
caption on the interim consolidated statements of operations as the
hedged item.
The types of hedging relationships that qualify for hedge accounting have
not changed under CICA Handbook Section 3865. The nature of the items or
transactions that the Company hedges and the Company's hedging programs
in relation to these items or transactions are included in Note 4 to the
Company's annual consolidated financial statements for the year ended
March 31, 2007.
Fair value
The fair value of a financial instrument is the amount of consideration
that would be agreed upon in an arms length transaction between
knowledgeable, willing parties who are under no compulsion to act. The
fair value of a financial instrument on initial recognition is the
transaction price, which is the fair value of the consideration given or
received. Subsequent to initial recognition, the fair values of financial
instruments that are quoted in active markets are based on bid prices for
financial assets held and offer prices for financial liabilities. When
independent prices are not available, fair values are determined by using
valuation techniques that refer to observable market data.
Transition adjustment
The impact of adopting the new standards as at April 1, 2007 was as
follows:
- An increase in portfolio investments of $23,677,000, an increase of
$21,109,000 in accumulated other comprehensive income (AOCI) and an
increase of $2,568,000 in future income tax liability related to
recording the fair value of portfolio assets designated as available-
for-sale.
- An increase in deposits and prepaid assets of $251,000, an increase of
$781,000 in accounts payable and accrued liabilities, a decrease of
$575,000 in AOCI and an increase in retained earnings of $45,000
related to recording the fair value of cash flow hedges where hedge
accounting is used.
- $9,422,000 of net foreign currency losses that were previously
presented as a separate item in shareholders' equity have been
reclassified to AOCI.
3. Future accounting changes:
The CICA has issued the following new Handbook Sections that will become
effective on April 1, 2008 for the Company:
- CICA Handbook Section 3862, "Financial Instruments - Disclosures"
- CICA Handbook Section 3863, "Financial Instruments - Presentation"
- CICA Handbook Section 1535, "Capital Disclosures"
- CICA Handbook Section 3031, "Inventories"
CICA Handook Section 3862 modifies the disclosure requirements for CICA
Handbook Section 3861, "Financial Instruments - Disclosure and
Presentation", including required disclosure for the assessment of the
significance of financial instruments for an entity's financial position
and performance and of the extent of risks arising from financial
instruments to which the Company is exposed and how the Company manages
those risks. CICA Handbook Section 3863 carries forward the presentation
requirements of CICA Handbook Section 3861. The Company is currently
evaluating the impact of the adoption of these new sections.
CICA Handbook Section 1535 establishes standards for disclosing
information about an entity's capital and how it is managed. The entity's
disclosure should include information about its objectives, policies and
processes for managing capital and disclose whether or not it has
complied with any capital requirements to which it is subject and the
consequences of non-compliance. The Company is currently evaluating the
impact of adoption of this new section.
CICA Handbook Section 3031 provides more guidance on the measurement and
disclosure requirements for inventories than the previous CICA Handbook
Section 3030. The Company is currently evaluating the impact of adoption
of this new section.
Each of these sections will be effective for the Company for its annual
and interim financial statements beginning on or after April 1, 2008.
4. Discontinued operations and assets held for sale:
During the year ended March 31, 2007, 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.
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 interim consolidated
financial statements. The results of the discontinued operations were as
follows:
Three months ended Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ - $ - $ - $ 1,737
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss from operating
activities $ - $ - $ - $ (180)
Write-down to reduce
assets sold to net
realizable value, net
of tax of ($195,000) - - - (1,978)
-------------------------------------------------------------------------
Loss from discontinued
operations, net of tax $ - $ - $ - $ (2,158)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Deposits and prepaid assets:
September 30 March 31
2007 2007
-------------------------------------------------------------------------
Prepaid assets $ 4,622 $ 3,752
Silicon and other deposits 7,208 6,468
Forward contracts and other 9,044 641
-------------------------------------------------------------------------
$ 20,874 $ 10,861
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. Other assets:
September 30 March 31
2007 2007
-------------------------------------------------------------------------
Deferred pre-production costs $ 253 $ 586
Silicon and other deposits 23,136 5,281
Notes receivable - 40
-------------------------------------------------------------------------
$ 23,389 $ 5,907
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Stock-based compensation:
In the calculation of the stock-based compensation expense in the interim
consolidated statements of operations, the fair values of the Company's
stock option grants were estimated using the Black-Scholes option pricing
model for time vested stock options and a binomial option pricing model
for performance based stock options.
During the three and six months ended September 30 2006, 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 three and
six months ended September 30, 2007 certain performance options vested as
a result of accelerated vesting provisions on the resignation of certain
officers of the Company. In 2006, no performance based options vested.
During the three and six months ended September 30, 2007, the Company
granted 1,059,500 options (371,900 in 2006). The options granted vest
over 5 years from the date of issue. The fair value of options issued in
the three and six month period ended September 30th, 2007 were estimated
at the date of the grant using a Black-Scholes option model with the
following weighted average assumptions:
Three months ended Six months ended
-------------------------------------------------------------------------
-------------------------------------------------------------------------
September September September September
30 30 30 30
2007 2006 2007 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average of
risk-free interest rate 4.00% - 4.00% 4.18%
Dividend yield 0.0% - 0.0% 0.0%
Weighted average of
expected life (years) 5.0 yrs - 5.0 yrs 5.3 yrs
Expected volatility 41% - 41% 31%
Number of stock options
granted (thousands):
Time vested 1,060 - 1,060 372
Performance based - - - 175
Weighted average of exercise
price per option (dollars) $5.95 - $5.95 $11.34
Weighted average value per
option (dollars):
Time vested $2.49 - $2.49 $4.17
Performance based $ - - $ - $3.68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As a result of the rights offering completed during the three and six
month period ended September 30 2007, the exercise price of the options
outstanding at the date of the closing of the rights offering was reduced
by a factor of 0.9263 and the number of options were increased by 163,196
for time vested options and 41,364 for performance options.
8. Weighted average number of shares:
Weighted average number of shares used in the computation of earnings
(loss) per share is as follows:
Three months ended Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Basic 67,815 59,734 63,562 59,721
Diluted 67,815 59,734 63,562 59,721
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the three and six months ended September 30, 2007, the Company
executed a rights offering as described in note 12. The exercise price of
the rights offering was less than the fair market value of the common
shares at issuance of the rights. Accordingly, it contained a bonus
element that is similar to a stock dividend. In accordance with the
recommendations of Canadian Institute of Chartered Accountants Handbook
Section 3500, Earnings Per Share, the weighted average common shares for
the three and six months ended September 30, 2006 have been retroactively
increased by 489,000 to reflect the bonus element.
All stock options are excluded from the weighted average common shares in
the calculation of diluted earnings per share for the three and six
months ended September 30, 2007 as they are anti-dilutive.
9. Segmented disclosure:
The Company evaluates performance based on three reportable segments:
Automation Systems, Photowatt Technologies, and Precision Components. The
Automation Systems segment produces custom-engineered turn-key automated
manufacturing and test systems. The Photowatt Technologies segment is a
high volume manufacturer of photovoltaic products and also includes the
Company's investment in Spheral Solar(TM). 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 Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue
Automation Systems $ 109,067 $ 117,302 $ 216,851 $ 239,086
Photowatt Technologies 37,912 28,508 85,601 72,889
Precision Components 16,651 19,327 36,063 44,587
Elimination of
inter-segment revenue (291) (539) (375) (768)
-------------------------------------------------------------------------
Consolidated $ 163,339 $ 164,598 $ 338,140 $ 355,794
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems $ 2,393 $ 5,666 $ 2,968 $ 8,452
Photowatt Technologies (8,886) (3,136) (11,332) 1,451
Precision Components (2,583) (1,716) (3,725) (846)
Inter-segment elimination
and corporate expenses (10,332) (3,362) (15,267) (5,866)
-------------------------------------------------------------------------
Consolidated $ (19,408) $ (2,548) $ (27,356) $ 3,191
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Restricted cash:
As at September 30, 2007 the Company held cash of $3,050,000 in an
irrevocable trust on behalf of individuals holding officer and director
positions at the Company immediately prior to the September 13, 2007
annual meeting of the shareholders, to be used to indemnify such
individuals. Subsequent to September 30, 2007, these funds were released
to the Company.
11. Long-term debt and financial resources:
On September 27, 2007, the agreement governing the Company's primary
operating credit facility and its revolving bank credit facility (the
"Credit Agreement") was amended compared to the first quarter resulting
in the unsecured operating credit facility of $70,000,000 and the
revolving bank credit facility of $60,000,000 being consolidated into one
operating credit facility of $130,000,000. The amended operating credit
facility, which is secured by a general security agreement, is repayable
on December 31, 2007. The amended operating credit facility is subject to
adjusted current assets to current debt covenant of 1.25:1, and a debt to
shareholder's equity covenant of 1.5:1. Under the terms of the Credit
Agreement, the Company is restricted from encumbering any assets with
certain permitted exceptions. The Credit Agreement also restricts the
disposition of certain assets with an agreement to reduce available
credit by an amount equal to a portion of the net proceeds received by
the Company from certain material asset sales, if any. The Company is in
compliance with these covenants and restrictions.
The Company is currently negotiating with a number of financial
institutions to establish a long-term credit facility to replace the
Credit Agreement. The Company believes that a long-term credit agreement
or credit extension will be reached prior to December 31, 2007 at terms
that are satisfactory to ATS. In the event that such an agreement or
extension is not yet in place at December 31, 2007, the Company believes
that there is sufficient cash on hand and availability of alternative
sources of funding, including financing of land and buildings, to repay
amounts due under the Credit Agreement and to manage ongoing working
capital requirements and meet existing cash commitments.
The following amounts were outstanding:
September 30 March 31
2007 2007
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Bank indebtedness:
Primary credit facility $ 90,965 $ 6,758
Other facilities 28,390 30,446
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119,355 37,204
Long-term debt:
Primary credit facility - 39,025
Unsecured non-interest bearing loan GBP
due July 29, 2007 - 447
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- 39,472
Less: current portion - (447)
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$ - $ 39,025
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12. Rights Offering:
During the three months ended September 30, 2007, the Company completed a
rights offering, raising gross proceeds of $110,209,635 (net proceeds of
$102,522,189). The rights offering provided existing common shareholders
with rights to subscribe for additional common shares in ATS. Each
shareholder of record of the Company on July 19, 2007 received one right
for each common share held. For every 3.35 rights held, the holder was
entitled to purchase one common share at the subscription price of $6.23
until August 14, 2007. ATS received subscriptions of 16,011,2