ATS reports third quarter results and performance improvement initiatives
TSX: ATA
CAMBRIDGE, ON, Feb. 13 /CNW/ - ATS Automation Tooling Systems Inc. today
reported its financial results for the three and nine months ended
December 31, 2007 - as well as a number of initiatives to restore
profitability, reduce costs and improve operational effectiveness in fiscal
2009.
These initiatives are as follows:
- Strengthen leadership;
- Fix underperforming divisions and programs;
- Redefine approach to market;
- Revise business processes;
- Realize non-strategic assets.
"Our objective is to improve profitability through fiscal 2009 and then
focus on growth," said Anthony Caputo, ATS Chief Executive Officer. "Specific
actions to improve operational effectiveness will likely impact results
negatively in the next several quarters. We expect significant recurring
benefits as a result of these initiatives."
Major activities that have been completed to date include:
- Recruited ATS CFO, Photowatt CFO, VP Organization Effectiveness, ASG
USA VP & GM, and appointed ASG Canada SVP;
- Authorized euro 20 million for Photowatt capacity expansion and cost
improvements;
- Implemented corporate wide bid review process;
- Implemented monthly, executive level, division and program reviews;
- Sold shares of Canadian Solar Inc. for a gain of $32 million;
- Strengthened balance sheet - no net debt at period end.
The Company also substantially wrote-down PCG by taking $24 million of
non-cash charges in the quarter, including $19.1 million of property, plant
and equipment impairment charges and $4.9 million of provisions against
working capital assets.
Financial Results
In millions 3 months 3 months 9 months 9 months
of dollars, ended ended ended ended
except per Dec. 31, Dec. 31, Dec. 31, Dec. 31,
share data 2007 2006 2007 2006
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Revenues Automation Systems
from Group $ 122.8 $ 113.1 $ 339.7 $ 352.1
continuing ------------------------------------------------------------
operations Photowatt
Technologies 51.7 39.2 137.3 112.1
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PCG 17.2 19.9 53.3 65.0
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Inter-segment (0.4) (0.4) (0.8) (1.6)
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Consolidated $ 191.3 $ 171.8 $ 529.5 $ 527.6
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EBITDA Automation Systems
Group $ 4.1 $ 5.1 $ 11.2 $ 19.3
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Photowatt
Technologies
- Photowatt France (0.1) 6.7 (0.3) 23.0
- Other Solar (1.2) (5.1) (5.7) (14.8)
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PCG
- PCG before
impairment (6.3) 0.3 (6.7) 3.1
- PCG asset
impairment (19.1) 0.0 (19.1) 0.0
------------------------------------------------------------
Gain on sale of
investments 31.8 0.0 31.8 0.0
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Corporate and
Inter-segment
elimination (5.0) (2.7) (20.2) (8.6)
------------------------------------------------------------
Consolidated $ 4.2 $ 4.3 $ (9.0) $ 22.0
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Net loss Consolidated $ (3.7) $ (2.4) $ (31.4) $ (4.2)
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Net loss From continuing
per share operations $ (0.05) $ (0.04) $ (0.46) $ (0.03)
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After discontinued
operations $ (0.05) $ (0.04) $ (0.46) $ (0.07)
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Automation Systems Group (ASG) Results
- Period end ASG Order Backlog increased 26% to $211 million from
$167 million a year ago;
- New ASG Order Bookings for the third quarter increased 6% to
$115 million compared to $109 million a year ago;
- New ASG Order Bookings during the first six weeks of the fourth
quarter were $48 million.
ASG's revenues increased 9% in the third quarter compared to a year ago
on high opening Order Backlog. Period-end Order Backlog supports continued
revenue growth. Operating results showed improvements in North America;
however, these improvements were offset by weak performance in Europe and in
Asia.
Photowatt Results
- Total megawatts (MWs) sold at Photowatt France increased to 11.6 MWs
from 8.2 MWs in the third quarter of fiscal 2007 - with MgSi products
accounting for 55% of revenue.
- MgSi module prices increased 4% from the second quarter of fiscal
2008 and were sold at a 0% to 10% discount to polysilicon modules.
- Average cell efficiencies improved in the third quarter to just over
13% for MgSi cells and just over 15% for polysilicon cells.
Photowatt France made good progress in the third quarter with its MgSi
product strategy. The goal is to return Photowatt to acceptable levels of
profitability during fiscal 2009 through focus on increasing cell
efficiencies, scrap rate reduction, the simplification and improvement of
processes using automation know-how, and the elimination of unnecessary
expenses. A measured capital expansion of the existing facility has been
approved to further improve productivity and efficiency and to balance
capacity. Included in Photowatt France's third quarter results are severance
costs of $0.6 million and a $4.2 million provision related to a customer
dispute.
The timing of Photowatt France becoming a standalone company will depend
upon successful performance improvements and market conditions.
Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern today and can be
accessed over the Internet at www.atsautomation.com or on the phone at 416 644
3420.
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 nine
months ended December 31, 2007 (third quarter of fiscal 2008) provides
detailed information on the Company's operating activities for the third
quarter of fiscal 2008 and should be read in conjunction with the unaudited
interim consolidated financial statements of the Company for the three and
nine months ended December 31, 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 first and second quarters
of fiscal 2008. Accordingly, the purpose of this document is to provide a
third quarter update to this prior information. 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 and Spheral
Solar (a now halted development project). Previously, it was also comprised of
Photowatt USA (a small module assembly and sales operation closed in the
second quarter). 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 division allocation of corporate costs. 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", "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. Operating earnings and EBITDA are some
of the measures the Company uses to evaluate the performance of its segments.
ATS presents EBITDA to show its performance before depreciation and
amortization. Management believes that ATS shareholders and potential
investors in ATS use non-GAAP financial measures such as operating earnings
and EBITDA in making investment decisions about the Company and measuring its
operational results. A reconciliation of EBITDA to total Company revenue and
earnings from operations for the three and nine month periods of fiscal 2008
and 2007 is contained in the MD&A. EBITDA should not be construed as a
substitute 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 (the "Board"). This new
Board is focused on providing strong leadership to the Company in order to
improve operating performance. Following the shareholders' meeting, the new
Board 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), John Bell,
Peter Puccetti, Michael Martino and Gordon Presher. Biographies of the new
Board can be found at www.atsautomation.com.
During the third quarter, following a thorough and planned review of the
Company's leadership needs, the Board named Anthony Caputo as Chief Executive
Officer of ATS. Mr. Caputo is an experienced senior executive with a 25 year
track record of delivering performance, growth and value creation in
technology, manufacturing and service environments. Most recently Mr. Caputo
served as Corporate Vice-President and President and COO of L-3 Communications
and prior to that as President and CEO of Spar Aerospace. Mr. Caputo holds a
Bachelor of Technology in Engineering from Ryerson University and a Master of
Science in Organizational Development from Pepperdine University.
Since joining ATS in mid-November 2007, Mr. Caputo has taken a number of
important steps to return the Company to profitability, including:
Strengthening leadership:
- Maria Perrella was named Chief Financial Officer, and will begin
working at ATS in February 2008. Ms. Perrella is an experienced
executive with a track record of identifying and implementing cost
savings in organizations, with expertise in public company reporting
and compliance, cash and foreign exchange management, tax planning,
information technology strategy and implementation, equity and debt
structuring, and acquisitions and divestitures. Ms. Perrella is a
Chartered Accountant, and previously held executive positions at
Arclin, L-3 Communications Canada and Spar Aerospace;
- Chuck Gyles was named Vice President of Organization Effectiveness,
and began working at ATS in January 2008. Mr. Gyles has significant
experience in company turnarounds and transformations, with expertise
in organizational development, management structure and talent
assessment. Mr. Gyles previously held executive positions at Weston
Foods Canada Ltd., L-3 Communications, Spar Aerospace, Ontario Power
Generation, Bombardier Aerospace Group, Loblaw Companies Ltd. and
Chrysler;
- During January 2008, Eric Kiisel was appointed Senior Vice-President
ASG Canada. Mr. Kiisel is a professional engineer with more than 25
years' experience in the automation, nuclear and manufacturing
industries. He was previously Vice-President Project Management at
ASG's Cambridge, Ontario operation;
- During February 2008, Jim Sheldon was named Vice-President and
General Manager ASG USA. Mr. Sheldon has over 20 years of automation
experience, including expertise in turnarounds and corporate
stabilizations. He is a business accounting major and holds a
certification in manufacturing and mechanical engineering;
- Vincent Bes was named Photowatt Chief Financial Officer and will join
the organization late in the fourth quarter of fiscal 2008. Mr. Bes
was most recently the Chief Financial Officer of Prismaflex
International SA, a publicly-traded company in Europe. Mr. Bes will
immediately focus on enhancing the profitability and improving
internal controls of the existing Photowatt operations in France.
Improving Automation Systems Group:
- Management has centralized review of all significant customer bids to
increase profitability, coordination, and reduce risk;
- Underperforming divisions and programs have been identified and
actions to improve operations and profitability were initiated;
- Costs in excess of pre-determined standards were identified,
particularly in overhead and SG&A. Remedial steps have been initiated
to eliminate these expenses;
- Performance management and incentive systems are being modified to
align with operational improvement objectives;
- Global account management strategies are being developed;
- The sales and marketing group is being realigned and will sell based
on the value of outcomes achieved by ASG systems, products and
services;
- Consolidation of a small operation in Michigan into other existing
facilities was initiated during January 2008, and is expected to be
completed by early fiscal 2009.
Improving Photowatt France:
- Focus on returning Photowatt France to acceptable levels of
profitability through increasing cell efficiency and throughput,
while reducing manufacturing and overhead costs;
- An investment (of up to euro 20 million) was approved to provide
expansion within the existing Photowatt France facility to balance
production, increase output, and reduce manufacturing costs;
- An evaluation of strategic relationships with third parties was
initiated with the goal of improving the market position of Photowatt
France and increasing ATS shareholder value.
Continuing the PCG sale process:
- Detailed discussions were initiated with qualified purchasers with a
view to obtaining bids during the fourth quarter of fiscal 2008;
- Alternative courses of action were developed if PCG can not be sold
on terms acceptable to ATS;
- Measures were initiated to consolidate existing facilities, reduce
excess capacity and overhead costs;
- An internal reorganization and cost reduction program was initiated
to mitigate deteriorating performance;
- A focused effort to pursue profitable customer contracts and mitigate
foreign exchange risk was initiated.
Improving ATS liquidity through the sale of redundant and non-core
assets:
- The Company's investment in shares of Canadian Solar Inc. were sold
in the third quarter for a gain of $31.8 million;
- A sale process was initiated to divest of the redundant Spheral Solar
building in Cambridge, Ontario;
- A redundant building in Ohio was listed for sale.
Management is still in the process of finalizing plans, but anticipates
that the initiatives to improve the operations will cost approximately
$30 million over the next several quarters. However, management intends to
take a number of cash generating actions, including the sale of non-core
assets, to finance a portion of these costs. Management believes that the
payback period on the costs of these operational improvement initiatives will
likely be less than one year.
Automation Systems Group Segment
ASG Revenue
(in millions of dollars)
Three Months Ended Nine Months Ended
12/31/2007 12/31/2006 12/31/2007 12/31/2006
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Healthcare $ 37.3 $ 30.5 $ 95.9 $ 117.2
Computer-Electronics 33.2 36.7 84.1 108.1
Automotive 26.4 30.4 80.2 88.6
Energy 14.4 8.4 48.0 12.4
Other 11.5 7.1 31.5 25.8
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Total $ 122.8 $ 113.1 $ 339.7 $ 352.1
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Third quarter ASG revenue increased 9% or $9.7 million compared to the
same quarter a year ago. This was expected due to growth in Order Bookings and
Order Backlog experienced in the first half of fiscal 2008.
Strong revenue growth in ASG's Canadian operations was partially offset
by revenue declines in the USA and Europe. Repetitive Equipment Manufacturing
("REM") revenue increased 64% to $13.9 million in the third quarter of fiscal
2008, compared to $8.5 million a year ago, primarily reflecting increased
order flow from existing customers. REM currently earns revenue primarily from
customers in the healthcare industry, but is beginning to expand into the
solar industry.
By industrial market, healthcare revenue increased 22% on strong Order
Backlog entering the quarter. Computer-electronics revenue declined by 10%,
primarily on lower sales in ASG Asia and the USA. Automotive revenue declined
13% reflecting challenges in the North American auto parts sector. However,
ASG's period-end automotive Order Backlog was healthy on orders secured in ASG
Europe. Revenue from the energy market increased by 71%, reflecting increased
penetration into the nuclear and solar industries. Revenue from "other"
markets increased 62%.
Quarter-over-quarter foreign exchange rate changes negatively impacted
ASG revenues by an estimated $12.2 million for the three month period ended
December 31, 2007, compared to a year ago, primarily reflecting a stronger
Canadian dollar relative to the US dollar. The foreign exchange impact for the
nine month period ended December 31, 2007 was $18.1 million compared to the
prior year.
For the nine months ended December 31, 2007, revenue decreased 4%,
reflecting lower Order Backlog entering the current fiscal year and the
negative impact of foreign exchange rates.
ASG Operating Results
ASG operating income was $2.1 million (2% operating margin) compared to
$2.4 million (2% operating margin) a year ago. Current period operating
results reflected stronger performance at ASG's North American operations,
offset by weaker results in Europe and Asia. European results continued to be
negatively impacted by low Order Bookings in France. For Asian operations,
lower than expected Order Bookings and lower project margins on several first
time assignments negatively impacted the year-over-year performance. Operating
earnings in the third quarter of the prior year included wind-up and closure
costs of $1.5 million related to the closure of ASG's California facility.
Operating income for the nine months ended December 31, 2007 was
$5.1 million (2% operating margin) compared to $10.8 million (3% operating
margin) a year ago. Fiscal 2008 operating income includes severance costs of
$2.1 million, compared to $5.0 million of severance and restructuring costs in
the same period of fiscal 2007.
Foreign exchange rate changes negatively impacted ASG operating earnings
for the three and nine month periods ended December 31, 2007, by an estimated
$2.6 million and $5.0 million respectively, compared to a year ago. The
negative impact primarily reflects a stronger Canadian dollar relative to the
US dollar.
ASG Non-GAAP Reconciliation
(in millions of dollars)
Three Months Ended Nine Months Ended
12/31/2007 12/31/2006 12/31/2007 12/31/2006
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Operating Earnings $ 2.1 $ 2.4 $ 5.1 $ 10.8
Depreciation and Amortization 2.0 2.7 6.1 8.5
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EBITDA $ 4.1 $ 5.1 $ 11.2 $ 19.3
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ASG Order Bookings and Order Backlog
ASG Order Bookings in the third quarter of fiscal 2008 were $115 million,
6% higher than in the third quarter of fiscal 2007. The year-over-year
increase was primarily due to new REM orders secured in the healthcare
industry. Order Bookings in the first six weeks of the fourth quarter of
fiscal 2008 were $48 million.
Automation Systems Order Backlog by Industry
(in millions of dollars, except percentage change)
Percentage
12/31/2007 12/31/2006 Change
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Healthcare $ 73 $ 68 7%
Computer-Electronics 42 31 35%
Automotive 49 37 32%
Energy 23 10 130%
Other 24 21 14%
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Total $ 211 $ 167 26%
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At December 31, 2007, ASG Order Backlog was $211 million, 26% higher than
at December 31, 2006 and 14% higher than at March 31, 2007. Healthcare Order
Backlog increased 7%, reflecting continued penetration into the North American
healthcare market. Computer-electronics Order Backlog reflects strong Order
Bookings in North America. Automotive Order Backlog is healthy in both Europe
and North America. Energy Order Backlog increased on strong Order Bookings in
the nuclear and solar industries. "Other" Order Backlog increased due largely
to continued penetration into diversified industries.
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 period end Order
Backlog will allow revenue to trend upward in the fourth quarter of fiscal
2008.
The Automation Systems Group enters the fourth quarter with a focus on
significantly improving profitability across all ASG divisions, including:
- Implementing a centralized bid review process including operational,
legal and finance approval of all significant customer bids. This new
process is intended to increase profitability of large customer
contracts, while reducing working capital commitment, credit risk,
technical risk, and contractual risk prospectively and increasing co-
ordination of services to customers globally;
- Improving underperforming divisions that do not meet minimum
profitability, cash flow and organic growth requirements. The cost
structure and market opportunities of such divisions are being
analyzed in detail, with the objective of implementing operational
improvements to meet profitability and cash flow objectives;
- Managing ongoing programs to ensure they meet minimum profitability
and cash flow requirements. Action plans are being developed with the
involvement of senior management to improve the profitability and
cash flow of such programs;
- Identifying costs in excess of pre-determined standards, particularly
in materials, factory overhead and selling, general and
administrative expenses. This initiative includes redefining
relationships with key suppliers to reduce materials costs of ASG
products, evaluating all discretionary spending, and reviewing all
support structure costs;
- Modifying performance management and incentive systems to align with
operational improvement objectives. Leadership talent is also being
assessed in ASG globally, with the objective of further strengthening
senior management over the next several quarters;
- Developing global account management strategies to focus on customer
service, global solutions and developing long-term, strategic
relationships with global accounts;
- Realigning the sales and marketing group to sell based on the value
outcomes achieved by ASG systems, products and services. This
includes developing intellectual property for use in unsolicited
proposals to give our customers significant market advantages and
pricing ATS systems, products or services accordingly.
Management expects that costs associated with implementing these
initiatives will negatively affect ASG profitability during the next several
quarters. However, these measures are expected to improve profitability and
cash flow and enhance organic growth thereafter.
Photowatt Technologies Segment
Photowatt Revenue
(in millions of dollars)
Three Months Ended Nine Months Ended
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12/31/2007 12/31/2006 12/31/2007 12/31/2006
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Revenue by Operating Facility
Photowatt France $ 51.6 $ 39.5 $ 135.2 $ 112.3
Photowatt USA - 1.6 3.1 4.1
Inter-solar Eliminations 0.1 (1.9) (1.0) (4.3)
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Total Revenue $ 51.7 $ 39.2 $ 137.3 $ 112.1
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Photowatt France Revenue
by Product
Polysilicon products $ 22.8 $ 38.1 $ 75.1 $ 110.5
MgSi products 28.8 1.4 60.1 1.8
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Total Revenue $ 51.6 $ 39.5 $ 135.2 $ 112.3
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Photowatt's total third quarter revenue was $51.7 million, 32% higher
than in the third quarter of fiscal 2007. Higher year-over-year revenues
primarily reflected a 41% increase in total MWs sold at Photowatt France to
11.6 MWs from 8.2 MWs in the third quarter of fiscal 2007. Growth in MWs sold
resulted from increased ingot, wafer and cell production capacity at Photowatt
France which came on line in March 2007. In the third quarter, Photowatt
France also increased revenue from sales of its module systems ("Systems") to
approximately $12.8 million from $4.8 million in the third quarter of fiscal
2007. Systems are modules sales, combined with installation kits, solar power
system design and/or other value added services.
Photowatt France's revenue reflects the change in revenue mix from
polysilicon products to products made from MgSi. Total MgSi modules and
Systems represented $28.8 million of third quarter revenue compared to
$1.4 million a year ago. Average MgSi selling prices increased by 4% from the
second quarter, with MgSi modules being sold at a 0% to 10% discount compared
to polysilicon modules on a per-watt basis. Revenue from polysilicon modules
and Systems was $22.8 million in the third quarter, compared to $38.1 million
in the third quarter of fiscal 2007. Consistent with the general market trends
for solar modules, average selling prices for polysilicon modules and Systems
decreased approximately 5% compared to the third quarter of fiscal 2007.
Average cell efficiencies were improved in the third quarter to over 13% for
MgSi cells.
Foreign exchange rate changes negatively impacted Photowatt France third
quarter revenues by an estimated $1.7 million compared to the third quarter of
fiscal 2007, primarily reflecting a stronger Canadian dollar relative to the
Euro.
For the nine months ended December 31, 2007, revenues increased 22%
compared to the nine months ended December 31, 2006. Higher revenues reflected
an increase in total MWs sold at Photowatt France to 30.5 MWs from 22.8 MWs
during the first nine months of fiscal 2008. These increases were partially
offset by reduced average selling prices primarily due to the increased
production of MgSi modules which have a lower average selling price than
polysilicon modules.
Photowatt Technologies Operating Results
(in millions of dollars)
Three Months Ended Nine Months Ended
12/31/2007 12/31/2006 12/31/2007 12/31/2006
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Operating Earnings
(Loss):
Photowatt France $ (3.5) $ 4.5 $ (10.1) $ 16.3
Other Solar (1.2) (5.3) (6.0) (15.6)
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Photowatt Technologies
Operating Earnings (Loss) $ (4.7) $ (0.8) $ (16.1) $ 0.7
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Photowatt France incurred an operating loss of $3.5 million in the third
quarter, compared with operating profit of $4.5 million in the third quarter
of fiscal 2007. Included in Photowatt France's third quarter results are
severance costs of $0.6 million and a $4.2 million provision related to a
customer dispute. Photowatt France's operating loss also includes the
investment in the PV Alliance R&D project which generated a loss of
$0.4 million. During the third quarter, Photowatt invested $0.6 million in the
PV Alliance. Further funding will be assessed based on the preliminary results
and findings of the PV Alliance (see note 16 to the Interim Consolidated
Financial Statements).
Photowatt France continues to focus on improving its profitability,
particularly on MgSi products, through cost reductions, improved efficiencies
and increased selling prices. During the third quarter, significant production
improvements continued to increase the profitability of MgSi products. The
direct cost per watt of manufacturing MgSi modules has decreased approximately
20% since the first quarter of fiscal 2008.
Compared to the prior year quarter, increased revenue during the third
quarter of fiscal 2008 of $12.1 million positively impacted Photowatt France
operating earnings. This contribution was offset by a number of factors,
including:
- Increased costs of polysilicon feedstock due to industry shortages;
greater use of externally-purchased wafers and bricks; 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 silicon;
- The aforementioned decline in average selling price per watt due to
the increased proportion of MgSi revenues and decrease in industry
price per watt for polysilicon modules;
- A $1.4 million increase in depreciation and amortization compared to
the third quarter of fiscal 2007 primarily as a result of the
capacity expansion completed in fiscal 2007;
- Increased factory overhead costs of approximately $1.6 million in the
third quarter of this year compared to the third quarter last year,
reflecting the higher activity levels and increased capacity.
For the nine months ended December 31, 2007, Photowatt France's operating
loss was $10.1 million compared to an operating profit of $16.3 million in the
first nine months a year earlier. Lower profitability reflects the factors
mentioned above, and a $1.4 million charge taken in the second quarter on a
deposit paid to a former silicon supplier.
Other Solar includes Spheral Solar, Photowatt USA, solar corporate costs
and inter-solar eliminations. Third quarter operating loss from these
divisions was $1.2 million compared to an operating loss of $5.3 million a
year ago. The decrease in operating loss reflects the $2.0 million reduction
in expenses in the Spheral Solar division as a result of the decision to halt
Spheral Solar development and close this facility. The closure of Photowatt
USA reduced third quarter operating loss by $0.3 million compared to a year
ago. Solar corporate costs and inter-solar eliminations were lower in the
third quarter compared to a year ago by $1.0 million and $0.8 million
respectively. For the nine months ended December 31, 2007, Other Solar
operating loss decreased to $6.0 million from $15.7 million compared to the
same period a year ago.
Photowatt France Non-GAAP Reconciliation
(in millions of dollars)
Three Months Ended Nine Months Ended
12/31/2007 12/31/2006 12/31/2007 12/31/2006
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Operating Earnings (Loss) $ (3.5) $ 4.5 $ (10.1) $ 16.3
Depreciation and Amortization 3.4 2.2 9.8 6.7
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EBITDA $ (0.1) $ 6.7 $ (0.3) $ 23.0
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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 fiscal 2007 annual MD&A.
In the short term, Photowatt France 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 France as an alternative to
polysilicon with the objective of creating a competitive advantage due to the
industry-wide shortages of polysilicon. With MgSi products now being
manufactured in substantial quantities, the operational focus is to increase
the power conversion efficiency ("cell efficiency") and reduce the cost per
watt of manufacturing MgSi modules. Given the shortage of polysilicon at
reasonable prices, management expects to continue to use the majority of its
manufacturing capacity in fiscal 2008 and fiscal 2009 to produce MgSi
products. Although significant improvements have been made, 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).
In light of challenging market conditions, and the resulting decline in
performance of Photowatt, management has initiated a strategic and operational
review of this business. While this review is undertaken, the Company intends
to focus on three strategic initiatives in the short term:
Return the existing Photowatt operations to acceptable levels of
profitability. Preliminary results of reviewing Photowatt France's operations
indicate significant opportunities to reduce costs of the existing operating
facility. Operational improvements will focus on:
- Reducing scrap rates and simplifying processes using automation.
Solar automation experts from the Company's ASG segment are
evaluating the existing manufacturing processes with a mandate to
reduce manufacturing costs in the existing facility. Process
improvement efforts will focus on increasing manufacturing yields;
reducing scrap rates; increasing throughput at all stages of
production and automating manually-intensive processes;
- Increasing both MgSi and polysilicon cell efficiencies. During the
third quarter, Photowatt formalized the initial phase of the PV
Alliance with EDF EN ("EDF"), a partially owned subsidiary of
Electricité de France, and CEA Valorisation which contemplates
research to improve the power efficiencies of both polysilicon and
MgSi solar cells and, in later phases, manufacturing of the resulting
products. Following the official public launch of the PV Alliance on
November 9, 2007 attended by the Prime Minister of France, the
partners began development activities during the third quarter of
fiscal 2008. It is expected that the PV Alliance will apply for
subsidies from the French government;
- Evaluating all discretionary spending and focus on reducing other
expenditures.
Invest up to euro 20 million on expansion of the existing facility and
cost improvement initiatives. Investments will be focused on removing
bottlenecks as a means of balancing plant capacity and improving the
productivity and efficiency of the facility.
Enter into strategic relationships to strengthen Photowatt's market
position and increase ATS shareholder value. During the third and fourth
quarters of fiscal 2008, management initiated discussions with potential
strategic partners in this respect. Significant contracts to date include:
- An agreement to supply EDF with refined metallurgical silicon modules
with delivery of 17.5 MWs in calendar 2008 and a minimum delivery of
10 MWs per annum from January 2009 through to December 31, 2010 - for
a total of at least 37.5 MWs - demonstrating early market acceptance
of this new product line;
- A multi-year agreement to purchase high-purity polysilicon to support
approximately 14 MWs of solar production per annum starting in
January 2010 and continuing for a nine-year period.
Management believes that it is imperative to return Photowatt to
profitability, maximize the use of the current facility, and enter into a
strategic relationship to secure silicon before further significant
investments are made in this business. Management continues to believe that
Photowatt should become a standalone company, but must first return to
acceptable levels of performance.
Precision Components Group Segment
Third quarter PCG revenue of $17.2 million was $2.7 million lower than in
the same period of fiscal 2007. PCG revenue for the nine months ended
December 31, 2007 of $53.3 million was $11.7 million lower than the comparable
prior year period. Declines in PCG revenue compared to the prior year periods
were primarily due to lower volumes on existing customer programs primarily
caused by significant production cuts by the Big Three North American
automakers and due to some programs coming to the end of their product life.
Foreign exchange negatively impacted third quarter fiscal 2008 PCG
revenues by an estimated $1.5 million, and $2.6 million for the nine months
ended December 31, 2007 compared to the prior year.
PCG Non-GAAP Reconciliation
(in millions of dollars)
Three Months Ended Nine Months Ended
12/31/2007 12/31/2006 12/31/2007 12/31/2006
-------------------------------------------------------------------------
Operating Loss $ (27.0) $ (1.4) $ (30.8) $ (2.1)
Depreciation and Amortization 1.6 1.7 5.0 5.2
-------------------------------------------------------------------------
EBITDA $ (25.4) $ 0.3 $ (25.8) $ 3.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the third quarter of fiscal 2008, the continued decline in PCG
profitability indicated a risk that the long-lived assets of PCG were
impaired. As a result, management performed an asset impairment test in
accordance with CICA Handbook Section 3063, which indicated that anticipated
undiscounted future cash flows did not demonstrate full recovery of the
carrying value of PCG deferred pre-production costs and property, plant and
equipment. As a result, PCG long-lived assets were written down to their
estimated fair market value, resulting in a non-cash impairment charge of
$19.1 million. Further information is included in Note 18 of the Interim
Consolidated Financial Statements. In conjunction with the impairment test on
long-lived assets, management performed an assessment on the recoverability of
current working capital asset balances. Management has recorded valuation
allowances of $4.2 million and $0.7 million against the carrying values of
inventory and accounts receivable respectively, due to continued margin
deterioration, loss of customer programs and disputed accounts receivable. The
PCG operating loss of $27.0 million in the third quarter of fiscal 2008
reflected these non-cash charges. The operating loss in the third quarter of
fiscal 2007 included $0.8 million of costs related to the closure of the MPP
facility.
Excluding the aforementioned non-cash asset impairment charges, the
operating loss for the three months ended December 31, 2007 was $3.0 million
compared to $1.4 million a year ago. This reflected lower volumes on existing
programs, excess capacity and overhead in existing facilities, and the
continued negative impact of a strong Canadian dollar on long term, fixed USD
price contracts. Foreign exchange negatively impacted third quarter fiscal
2008 PCG operating earnings by an estimated $0.7 million compared to the third
quarter of fiscal 2007 and by an estimated $1.0 million in the nine month
period ended December 31, 2007, compared to a year ago.
Excluding the impact of the aforementioned non-cash asset impairment
charge, PCG generated negative EBITDA of $1.4 million for the three months
ended December 31, 2007 compared to positive EBITDA of $0.3 million a year
ago.
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. During the second quarter of fiscal 2008, ATS and its financial
advisors initiated a formal sale process by contacting potential purchasers
and circulating a confidential information memorandum to certain qualified
potential purchasers. During the third quarter of fiscal 2008, several
expressions of interest were received from potential purchasers of PCG.
Subsequent to the third quarter, PCG engaged qualified potential purchasers in
detailed management presentations and expects to obtain bids during the fourth
quarter of fiscal 2008. The Company has also developed alternative courses of
action should the Company not be able to sell PCG on terms acceptable to ATS,
including strengthening of the core business.
In addition to continuing its efforts to sell PCG, management has started
to implement several aggressive performance improvement measures designed to
strengthen this operating segment, including initiating:
- The consolidation of the Advanced Manufacturing Division in
Cambridge, Ontario, into existing facilities in China and Stratford,
Ontario in order to reduce overhead costs, while creating
manufacturing capacity for REM (see "Automation Systems Group
Segment");
- An internal reorganization and cost reduction program to improve cash
flow and profitability.
PCG is also pursuing profitable customer contracts while working to
mitigate foreign exchange risk.
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.
The measures being implemented by management are intended to improve the cash
flows and profitability of PCG during the first half of fiscal 2009. The
objective of these measures is to reduce PCG losses and strengthen the
Company's ability to sell this segment on acceptable terms and within a short
timeframe.
Consolidated Results from Operations
Revenue. At $191.3 million, consolidated revenue from continuing
operations for the three months ended December 31, 2007 increased 11% compared
to a year ago. A 32% increase in Photowatt revenue and 9% increase in ASG
revenue more than offset a 14% decline in PCG revenues. For the nine month
period ended December 31, 2007, consolidated revenue increased by
$1.9 million. A 22% increase in Photowatt revenue more than offset a 4%
decline in ASG revenue and an 18% decline in PCG revenue. The estimated effect
on revenue of changes in effective foreign exchange rates was a decrease in
revenue of $15.4 million for the three months ended December 31, 2007, and
$20.6 million for the nine months ended December 31, 2007 compared to the same
periods of the prior year.
Consolidated earnings (loss) from operations. For the three and nine
month periods ended December 31, 2007, consolidated loss from operations was
$2.8 million and $30.1 million respectively, compared to loss from operations
of $2.5 million and earnings from operations of $0.7 million a year ago.
Fiscal 2008 third quarter performance reflected: operating earnings of
$2.1 million at ASG (operating earnings of $2.4 million a year ago); Photowatt
operating loss of $4.7 million (operating loss of $0.8 million a year ago);
PCG operating loss of $27.0 million ($1.4 million operating loss a year ago);
inter-segment eliminations and corporate expenses of $4.9 million
($2.7 million a year ago) and a gain on the sale of a portfolio investment of
$31.8 million (nil a year ago). Increased eliminations and corporate expenses
reflected incremental professional fees and stock-based compensation. Changes
in effective foreign exchange rates decreased operating earnings by an
estimated $3.1 million for the three months ended December 31, 2007, and by
$5.7 million for the nine months ended December 31, 2007 compared to the same
periods in the prior year.
Selling, general and administrative ("SG&A") expenses. For the third
quarter of fiscal 2008, SG&A expenses increased 19% or $4.2 million to
$26.5 million compared to the respective prior year period. Included in SG&A
for the third quarter of fiscal 2008 was: $0.7 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 a
$4.2 million provision related to a customer dispute in Photowatt. Fiscal 2007
third quarter SG&A expenses included $1.5 million in severance charges and
lease costs incurred with the closing of the California plant. For the nine
months ended December 31, 2007, SG&A expenses increased 16%, or $10.6 million
to $76.5 million compared to the respective prior year period. SG&A costs for
the nine months ended December 31, 2007 included severance costs of $7.7
million, $1.9 million related to the change in the Board of Directors; and,
$0.5 million of recruiting costs for certain senior level positions in the
Company. SG&A expenses for the nine months ended December 31, 2006 included a
$0.4 million PCG provision for receivables pertaining to an automotive
customer that filed for Chapter 11 bankruptcy protection.
Stock-based compensation cost. For the three and nine month periods ended
December 31, 2007, stock-based compensation expense increased to $0.6 million
and $2.6 million respectively compared to $0.1 million and $0.8 million a year
earlier. The increase during the third quarter reflected new option grants
made in the quarter. The third quarter of fiscal 2007 also reflected a
reduction of stock-based compensation expense of $0.1 million associated with
the revaluation of deferred stock units of certain directors of the Company.
Expenses for the nine months ended December 31, 2007 also reflected
accelerated vesting of options of certain officers of the Company who resigned
during the second quarter. The impact of this accelerated vesting was
$1.2 million.
Interest expense. For the three month period ended December 31, 2007,
interest expense decreased to $0.7 million compared to $1.1 million a year
earlier. The decrease in expense in the third quarter primarily reflected
lower usage of the Company's credit facilities compared to the same period a
year ago. For the nine month period ended December 31, 2007, interest expense
increased to $3.4 million compared to $2.5 million a year earlier. The
increase in expense for the nine month period reflects higher usage of the
Company's credit facilities during the year and increased interest rates in
the first and second quarters of fiscal 2008.
Loss from discontinued operations, net of tax. The loss from discontinued
operations during the first nine 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 5 to the Interim
Consolidated Financial Statements for further details on the net loss from
discontinued operations.
Provision for (recovery of) 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 loss from continuing operations. For the three month period ended
December 31, 2007, net loss from continuing operations was $3.7 million
(5 cents per share) compared to net loss from continuing operations of
$2.4 million (4 cents per share) a year ago. For the nine month period ended
December 31, 2007, net loss from continuing operations was $31.4 million
(46 cents per share) compared to net loss from continuing operations of
$2.0 million (3 cent per share) a year ago.
Net loss. For the three month period ended December 31, 2007, net loss
was $3.7 million (5 cents per share) compared to net loss of $2.4 million
(4 cent per share) for the same period last year. For the nine month period
ended December 31, 2007, net loss was $31.4 million (46 cents per share)
compared to net loss of $4.2 million (7 cents per share) a year ago.
Foreign Exchange
Year-over-year foreign exchange rate decreases during the three month
period ended December 31, 2007, negatively impacted consolidated revenue by an
estimated $15.4 million compared to the third quarter of fiscal 2007. This
decrease was primarily related to the effect of a stronger Canadian dollar
relative to the US dollar and Euro. Changes in foreign exchange rates also
reduced third quarter fiscal 2008 consolidated operating earnings by an
estimated $3.1 million compared to the third quarter of fiscal 2007.
Period Average Market Exchange Rates in CDN$
Three months ended Nine months ended
12/31/2007 12/31/2006 % change 12/31/2007 12/31/2006 % change
-------------------------------------------------------------------------
US $ 0.9822 1.1399 (13.8) 1.0410 1.1270 (7.6)
Euro 1.4246 1.4736 (3.3) 1.4460 1.4374 0.6
Singapore $ 0.6758 0.7325 (7.7) 0.6942 0.7157 (3.0)
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
On December 27, 2007, the agreement governing the Company's primary
operating credit facility (the "Credit Agreement") was amended resulting in
the authorized operating credit facility being reduced from $130.0 million to
$80.0 million. The amended operating credit facility, which is secured by a
general security agreement, is repayable on March 31, 2008. The amended
operating credit facility is subject to a 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 several 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 at terms that are satisfactory to ATS. In the event that such an
agreement or extension is not yet in place at March 31, 2008, 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 agreements, 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). In total ATS received subscriptions of 16,011,247 common
shares. Under the Additional Subscription Privilege, 1,678,903 shares were
purchased. A portion of the net proceeds of the rights offering are being used
to further expand the manufacturing capacity and to reduce manufacturing costs
of Photowatt France. The remaining proceeds were primarily used during the
third quarter to significantly reduce amounts drawn on the Company's existing
operating credit facility.
Cash balances, net of bank indebtedness and long-term debt, at
December 31, 2007 increased $63.9 million compared to March 31, 2007,
primarily due to the rights offering and the sale of the Company's investment
in shares of Canadian Solar Inc.
The Company invested $2.4 million and $13.8 million respectively in
property, plant and equipment during the three and nine month periods ended
December 31, 2007, including $1.4 million and $10.2 million respectively in
Photowatt.
No stock options were exercised during the first nine months of fiscal
2008. At February 8th, 2008 the total number of shares outstanding was
76,952,155. The outstanding number of options increased 2.0 million due to
stock option grants in the third quarter.
The Company's debt to equity ratio at December 31, 2007 was 0.1:1,
compared to 0.2:1 at March 31, 2007 and 0.3:1 at September 30, 2007. At
December 31, 2007 the Company had approximately $78 million of unutilized
credit available under existing operating facilities.
Related Party Transactions
Certain of the directors of the Company are related to Goodwood Inc. and
Mason Capital Management, LLC. The Company has reimbursed $0.5 million of
proxy-circular related costs incurred in connection with the election of the
new Board of Directors.
Mr. Laborde, the new CEO of Photowatt, is also the President of PV
Alliance, in which Photowatt has a 40% investment interest. During the
quarter, Photowatt invested euro 0.4 million in the PV Alliance.
Consolidated Quarterly Results
($ in thousands, except Q3 Q2 Q1 Q4
per share amounts) 2008 2008 2008 2007
-------------------------------------------------------------------------
Revenue $ 191,339 $ 163,339 $ 174,801 $ 172,486
Net earnings (loss) from
continuing operations $ (3,662) $ (18,763) $ (8,937) $ (80,854)
Net earnings (loss) $ (3,662) $ (18,763) $ (8,937) $ (80,854)
Basic earnings (loss)
per share from
continuing operations $ (0.05) $ (0.28) $ (0.15) $ (1.36)
Basic earnings (loss)
per share $ (0.05) $ (0.28) $ (0.15) $ (1.36)
Diluted earnings (loss)
per share from
continuing operations $ (0.05) $ (0.28) $ (0.15) $ (1.36)
Diluted earnings (loss)
per share $ (0.05) $ (0.28) $ (0.15) $ (1.36)
($ in thousands, except Q3 Q2 Q1 Q4
per share amounts) 2007 2007 2007 2006
-------------------------------------------------------------------------
Revenue $ 171,792 $ 164,598 $ 191,196 $ 208,775
Net earnings (loss) from
continuing operations $ (2,389) $ (2,110) $ 2,496 $ (65,073)
Net earnings (loss) $ (2,389) $ (2,110) $ 338 $ (65,589)
Basic earnings (loss)
per share from
continuing operations $ (0.04) $ (0.04) $ 0.04 $ (1.09)
Basic earnings (loss)
per share $ (0.04) $ (0.04) $ 0.01 $ (1.11)
Diluted earnings (loss)
per share from
continuing operations $ (0.04) $ (0.04) $ 0.04 $ (1.09)
Diluted earnings (loss)
per share $ (0.04) $ (0.04) $ 0.01 $ (1.11)
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.
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 nine month periods ended December 31,
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 nine months ended December 31, 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' third quarter financial results for the
three months ended December 31, 2007 and contains certain statements that
constitute forward-looking information within the meaning of applicable
securities laws ("forward-looking statements"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of ATS, or
developments in ATS' 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, certain initiatives
to increase profitability, reduce costs improve operation effectiveness,
reduce risk and the related timing, impact on results and benefits thereof;
potential for ASG revenue growth based on period end Order Backlog; goal to
return Photowatt to acceptable levels of profitability during fiscal 2009;
timing of Photowatt France becoming a standalone company; continuing impact of
Canadian dollar and restructuring within the North American automotive market
on ASG and PCG operations; long term market outlook for Photowatt France;
demand for solar products; challenges facing Photowatt; expected use of MgSi;
expected revenue per watt for MgSi products shipped under EDF contract; short
term strategic initiatives at Photowatt France; expectations in relation to
PCG sales process; management's belief that a long-term credit agreement or
extension will be reached; 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 structural and operational initiatives
or failure of those measures to bring about improved performance; 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 state of the capital markets; the
ability of ATS to exit the remaining PCG operations on terms satisfactory to
ATS; 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.
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
December 31 March 31
2007 2007
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 38,622 $ 25,568
Accounts receivable 125,472 131,410
Investment tax credits 13,712 13,712
Costs and earnings in excess of billings on
contracts in progress 77,757 73,755
Inventories 88,427 74,804
Future income taxes 2,005 -
Deposits and prepaid assets (notes 2 and 6) 15,941 10,861
-------------------------------------------------------------------------
361,936 330,110
Property, plant and equipment 170,616 221,718
Goodwill 32,040 35,657
Intangible assets 230 352
Future income taxes 1,226 179
Deferred development costs 2,042 2,414
Assets held for sale (note 5) 14,156 -
Portfolio investments (notes 2 and 4) 5,690 4,728
Other assets (note 7) 32,121 5,907
-------------------------------------------------------------------------
$ 620,057 $ 601,065
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 11) $ 25,864 $ 37,204
Accounts payable and accrued liabilities 123,541 122,587
Billings in excess of costs and earnings on
contracts in progress 34,132 23,186
Future income taxes 18,045 14,395
Current portion of long-term debt (note 11) - 447
-------------------------------------------------------------------------
201,582 197,819
Long-term debt (note 11) - 39,025
Future income taxes - 75
Other long-term liabilities 828 877
Non-controlling interest 1,728 1,890
Shareholders' equity
Share capital (note 12) 430,082 327,560
Contributed surplus 5,572 3,193
Accumulated other comprehensive income (note 14) (28,465) (9,422)
Retained earnings 8,730 40,048
-------------------------------------------------------------------------
415,919 361,379
-------------------------------------------------------------------------
$ 620,057 $ 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 Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue $ 191,339 $ 171,792 $ 529,479 $ 527,589
-------------------------------------------------------------------------
Operating costs and expenses
Cost of revenue 172,712 145,140 471,993 438,831
Amortization 7,013 6,787 21,128 21,272
Selling, general and
administrative 26,486 22,264 76,547 65,955
Stock-based compensation
(note 8) 588 95 2,628 834
-------------------------------------------------------------------------
206,799 174,286 572,296 526,892
-------------------------------------------------------------------------
Earnings (loss) before
undernoted (15,460) (2,494) (42,817) 697
Impairment of long-lived assets
(note 18) (19,109) - (19,109) -
Gain on sale of portfolio
investments (note 4) 31,779 - 31,779 -
-------------------------------------------------------------------------
Earnings (loss) from operations (2,790) (2,494) (30,147) 697
-------------------------------------------------------------------------
Other expenses
Interest on long-term debt - 807 1,551 2,329
Other interest 747 248 1,847 191
-------------------------------------------------------------------------
747 1,055 3,398 2,520
-------------------------------------------------------------------------
Loss from continuing operations
before income taxes and
non-controlling interest (3,537) (3,549) (33,545) (1,823)
Provision for (recovery of)
income taxes 112 (1,198) (2,224) 35
Non-controlling interest in
earnings of subsidiaries 13 38 42 145
-------------------------------------------------------------------------
Net loss from continuing
operations (3,662) (2,389) (31,363) (2,003)
Loss from discontinued
operations, net of tax
(note 5) - - - (2,158)
-------------------------------------------------------------------------
Net loss $ (3,662) $ (2,389) $ (31,363) $ (4,161)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss per share (note 9)
Basic and diluted - from
continuing operations $ (0.05) $ (0.04) $ (0.46) $ (0.03)
Basic and diluted - from
discontinued operations 0.00 0.00 0.00 (0.04)
-------------------------------------------------------------------------
$ (0.05) $ (0.04) $ (0.46) $ (0.07)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Shareholders' Equity
(in thousands of dollars - unaudited)
Nine months ended December 31, 2007
-------------------------------------------------------------------------
Accumulated
Other
Compre-
Contri- hensive
Share buted 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) - - (23,699)
Net unrealized loss on available
for-sale financial assets (net of
income taxes of $nil) - - (1,726)
Amount transferred to income on
available for-sale financial assets
(net of income taxes of $2,415) - - (18,420)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges (net of income
taxes of $nil) - - 7,637
Amount transferred to net earnings
(loss) for derivatives designated
as cash flow hedges (net of income
taxes of $nil) - - (3,369)
Total comprehensive loss (note 14)
Stock-based compensation (note 8) - 2,379 -
Shares issued during the period for
cash on rights offering, net (note 12) 102,522 - -
-------------------------------------------------------------------------
Balance, end of the period $ 430,082 $ 5,572 $ (28,465)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended December 31, 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 (31,363) (31,363)
Currency translation adjustment
(note 15) - (23,699)
Net unrealized loss on available
for-sale financial assets (net of
income taxes of $nil) - (1,726)
Amount transferred to income on
available for-sale financial assets
(net of income taxes of $2,415) - (18,420)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges (net of income
taxes of $nil) - 7,637
Amount transferred to net earnings
(loss) for derivatives designated
as cash flow hedges (net of income
taxes of $nil) - (3,369)
----------
Total comprehensive loss (note 14) (70,940)
Stock-based compensation (note 8) - 2,379
Shares issued during the period for
cash on rights offering, net (note 12) - 102,522
-------------------------------------------------------------------------
Balance, end of the period $ 8,730 $ 415,919
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended December 31, 2006
-------------------------------------------------------------------------
Accumulated
Other
Compre-
Contri- hensive
Share buted Income
Capital Surplus (Loss)
-------------------------------------------------------------------------
Balance, beginning of period $ 326,840 $ 2,035 $ (23,017)
Net loss - - -
Currency translation adjustment - - 11,006
Issuance of common shares 645 - -
Stock-based compensation - 914 -
-------------------------------------------------------------------------
Balance, end of period $ 327,485 $ 2,949 $ (12,011)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended December 31, 2006
-------------------------------------------------------------------------
Total
Share-
Retained holders'
Earnings Equity
-------------------------------------------------------------------------
Balance, beginning of period $ 125,063 $ 430,921
Net loss (4,161) (4,161)
Currency translation adjustment - 11,006
Issuance of common shares - 645
Stock-based compensation - 914
-------------------------------------------------------------------------
Balance, end of period $ 120,902 $ 439,325
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Operating activities:
Net loss $ (3,662) $ (2,389) $ (31,363) $ (4,161)
Items not involving cash
Amortization 7,013 6,787 21,128 21,272
Future taxes 3,217 (1,809) 522 (1,875)
Other items not
involving cash 26 1,033 1,288 (6,659)
Stock-based compensation 588 95 2,628 834
Gain on disposal of
portfolio investment
(note 4) (31,779) - (31,779) -
Impairment of long-lived
assets (note 18) 19,109 - 19,109 -
Write down of assets to
net realizable value
(note 5) - - - 1,978
-------------------------------------------------------------------------
Cash flow from operations (5,488) 3,717 (18,467) 11,389
Change in non-cash operating
working capital 10,923 23,474 (8,021) (8,813)
-------------------------------------------------------------------------
Cash flows provided by
(used in) operating
activities 5,435 27,191 (26,488) 2,576
-------------------------------------------------------------------------
Investing activities:
Acquisition of property,
plant and equipment (2,422) (21,803) (13,800) (38,171)
Cash paid for acquisition
of Subsidiary - (1,475) - (1,475)
Restricted cash 3,050 - - -
Proceeds from disposal of
portfolio investment
(note 4) 31,932 - 31,932 -
Investments and other (7,214) (4,430) (27,451) (10,793)
Proceeds from disposal
of assets 78 253 122 679
-------------------------------------------------------------------------
Cash flows provided by
(used in) investing
activities 25,424 (27,455) (9,197) (49,760)
-------------------------------------------------------------------------
Financing activities:
Bank indebtedness (36,444) 1,783 (22,550) 19,667
Share issue costs (note 12) - - (7,688) -
Proceeds from long-term debt
(note 11) - - 60,000 20,000
Repayment of long-term debt
(note 11) (58,456) - (86,817) -
Issuance of common
shares of subsidiary - 804 - 804
Issuance of common shares
(note 12) - 134 110,210 645
-------------------------------------------------------------------------
Cash flows provided by
(used in) financing
activities (94,900) 2,721 53,155 41,116
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments 386 1,687 (4,416) 690
-------------------------------------------------------------------------
Increase (decrease) in cash
and short-term investments (63,655) 4,144 13,054 (5,378)
Cash and short-term
investments, beginning
of period 102,277 18,399 25,568 27,921
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 38,622 $ 22,543 $ 38,622 $ 22,543
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information
Cash income taxes paid $ 3,165 $ 1,929 $ 4,556 $ 9,713
Cash interest paid $ 1,666 $ 1,414 $ 5,381 $ 3,786
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
nine months ended December 31, 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 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, long-term debt and other
long-term liabilities 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 meeting the definition of a derivative, 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 has 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. Portfolio investments:
During the three months ended December 31, 2007, the company sold all of
its 1,864,398 shares in Canadian Solar Inc., a publicly traded company on
Nasdaq, for gross proceeds of $31,774,792 US ($32,031,524 CAN) and net
proceeds of $31,676,589 US ($31,932,272 CAN). A gain of $31,778,937 has
been recorded in the interim consolidated statement of operations related
to this disposition.
5. Discontinued operations and assets held for sale:
During the three months ended December 31, 2007, the Company committed to
a plan to sell land and one of two buildings related to its ASG Ohio
Business Unit. The land and building are ready for sale and management
expects to sell them within one year. Accordingly, these assets have been
classifed as being held for sale.
During the three months ended December 31, 2007, the Company committed to
a plan to sell land and building related to its Spheral Solar development
project which was halted in early fiscal 2008. The land and building are
ready for sale and management expects to sell them within one year.
Accordingly, these assets have been classifed as being 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 Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
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)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. Deposits and prepaid assets:
December 31 March 31
2007 2007
-------------------------------------------------------------------------
Prepaid assets $ 2,585 $ 3,752
Silicon and other deposits 7,962 6,468
Forward contracts and other 5,394 641
-------------------------------------------------------------------------
$ 15,941 $ 10,861
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Other assets:
December 31 March 31
2007 2007
-------------------------------------------------------------------------
Deferred pre-production costs $ - $ 586
Silicon and other deposits 32,081 5,281
Notes receivable 40 40
-------------------------------------------------------------------------
$ 32,121 $ 5,907
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. 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 vesting stock options and binomial option pricing models
for performance based stock options.
During the three and nine months ended December 31, 2007, the Company
issued 1,918,000 performance based options (405,136 in 2006). The
performance based options vest based on the ATS stock trading at or above
certain thresholds for a minimum of 5 trading days in a fiscal quarter.
These performance options expire on the seventh anniversary after the
date that the options vest. During the nine months ended December 31,
2007 certain performance options vested as a result of accelerated
vesting provisions on the resignation of certain officers of the Company,
and during the nine months ended December 31, 2006, certain performance
based options vested in the normal course of business.
During the three months ended December 31, 2007, the Company granted
125,000 time vesting options (121,390 in 2006). The 125,000 options
granted during the three months ended December 31, 2007 vested upon
issuance. During the nine months ended December 31, 2007, the Company
granted 1,184,950 time vesting options (206,346 in 2006). The options
granted, excluding the 125,000 options granted during the three months
ended December 31, 2007, vest over 5 years from the date of issue. The
fair value of options issued in the three and nine month periods ended
December 31, 2007 and December 31, 2006 were estimated at the date of the
grant using a Black-Scholes option model with the following weighted
average assumptions:
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Weighted average of
risk-free interest rate 3.97% 3.92% 3.98% 4.04%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Weighted average of
expected life (years) 7.4 yrs 5.0 yrs 6.6 yrs 5.0 yrs
Expected volatility 38% 31% 39% 31%
Number of stock options
granted (thousands):
Time vested 125 121 1,185 206
Performance based 1,918 216 1,918 405
Weighted average of exercise
price per option (dollars) $6.96 $10.94 $6.62 $10.75
Weighted average value per
option (dollars):
Time vested $1.73 $3.06 $2.41 $3.13
Performance based $1.28 $3.06 $1.28 $3.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock based compensation recognized for the three and nine months ended
December 31, 2007 and credited to contributed surplus was $590,027 and
$2,379,227 respectively (2006 - $217,702 and $913,638).
As a result of the rights offering completed during the nine month period
ended December 31, 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
vesting options and 41,364 for performance based options.
9. 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 Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Basic 76,952 59,741 68,288 59,728
Diluted 76,952 59,741 68,288 59,728
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the nine months ended December 31, 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
nine months ended December 31, 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
nine months ended December 31, 2007 as they are anti-dilutive.
10. 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 Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2007 2006 2007 2006
-------------------------------------------------------------------------
Revenue
Automation Systems $ 122,838 $ 113,052 $ 339,689 $ 352,138
Photowatt Technologies 51,680 39,201 137,281 112,090
Precision Components 17,190 19,906 53,253 64,968
Elimination of
inter-segment revenue (369) (367) (744) (1,607)
-------------------------------------------------------------------------
Consolidated $ 191,339 $ 171,792 $ 529,479 $ 527,589
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems $ 2,143 $ 2,395 $ 5,111 $ 10,847
Photowatt Technologies (4,736) (806) (16,068) 645
Precision Components
(note 18) (27,029) (1,383) (30,754) (2,145)
Inter-segment elimination
and corporate expenses (4,947) (2,700) (20,215) (8,650)
Gain on sale of portfolio
investment 31,779 - 31,779 -
-------------------------------------------------------------------------
Consolidated $ (2,790) $ (2,494) $ (30,147) $ 697
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Long-term debt and financial resources:
On December 27, 2007, the agreement governing the Company's primary
operating credit facility (the "Credit Agreement") was amended resulting
in the authorized operating credit facility being reduced from
$130,000,000 to $80,000,000. The amended operating credit facility, which
is secured by a general security agreement, is repayable on March 31,
2008. The amended operating credit facility is subject to a 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 at terms that are satisfactory to
ATS. In the event that such an agreement or extension is not yet in place
at March 31, 2008, 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
agreements, manage ongoing working capital requirements and meet existing
cash commitments.
Other facility is comprised of outstanding amounts under short term
unsecured credit facilities available in Euro totaling $23,038,000
(16,000,000 Euro). The facilities are provided to a subsidiary by local
banks and are currently scheduled to reduce by 6,000,000 Euro on
February 29, 2008 and a further 6,000,000 Euro on March 31, 2008.
The following amounts were outstanding:
December 31 March 31
2007 2007
-------------------------------------------------------------------------
Bank indebtedness:
Primary credit facility $ 8,138 $ 6,758
Other facility 17,726 30,446
-------------------------------------------------------------------------
$ 25,864 $ 37,204
-------------------------------------------------------------------------
Long-term debt:
Primary credit facility $ - $ 39,025
Unsecured non-interest bearing loan GBP
due July 29, 2007 - 447
-------------------------------------------------------------------------
- 39,472
Less: current portion - 447
-------------------------------------------------------------------------
$ - $ 39,025
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. Rights Offering:
During the nine months ended December 31, 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 16,011,247 common
shares. Under the Additional Subscription Privilege, 1,678,903 shares
were purchased.
13. Financial instruments:
Change in fair value of financial instruments
Derivatives that are not designated in hedging relationships are
classified as held-for-trading and the changes in fair value are
recognized in the interim consolidated statements of operations. During
the nine months ended December 31, 2007, the fair value of financial
assets classified as held-for-trading increased by $292,200 and the fair
value of financial liabilities classified as held-for-trading decreased
by $42,800.
Cash flow hedges
During the nine months ended December 31, 2007, an unrealized gain of
$20,200 was recognized in selling, general and administrative expense for
the ineffective portion of cash flow hedges. After-tax unrealized