ATS reports first quarter fiscal 2009 results
TSX: ATA
CAMBRIDGE, ON, Aug. 13 /CNW/ - ATS Automation Tooling Systems Inc. today
reported its financial results for the three months ended June 30, 2008 -
including substantial improvement in all key performance measures.
Highlights
- Consolidated revenue increased 36% to $212.1 million from
$155.4 million a year ago;
- Consolidated earnings from operations increased to $16.3 million
compared to a loss of $6.8 million a year ago;
- Earnings were $0.17 per share (basic and diluted) compared to a loss
of $0.15 per share a year ago.
"Our focus in fiscal 2009 is to stabilize the Company and improve
operating performance," said Anthony Caputo, ATS Chief Executive Officer. "We
have made good progress in both the Automation Systems Group and Photowatt
France, but much work remains to be done."
Financial Results
3 months 3 months
ended ended
In millions of dollars, June 30, June 30,
except per share data 2008 2007
-------------------------------------------------------------------------
Revenues from Automation Systems Group $ 142.7 $ 107.8
continuing ----------------------------------------------------
operations Photowatt Technologies 69.3 47.7
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Inter-segment - (0.1)
----------------------------------------------------
Consolidated $ 212.1 $ 155.4
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EBITDA Automation Systems Group $ 12.3 $ 2.7
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Photowatt Technologies
- Photowatt France 9.3 2.7
- Other Solar (0.3) (1.8)
- Gain on sale of building 3.2 -
- Gain on silicon sale 2.0 -
----------------------------------------------------
Corporate and Inter-segment
elimination (4.4) (4.9)
----------------------------------------------------
Consolidated $ 22.1 $ (1.3)
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Net income (loss)
from continuing Consolidated $ 15.0 $ (7.1)
operations
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Earnings (loss) From continuing operations
per share (basic & diluted) $ 0.19 $ (0.12)
----------------------------------------------------
After discontinued
operations
(basic & diluted) $ 0.17 $ (0.15)
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Automation Systems Group Results
- Revenue increased 32% to $142.7 million from $107.8 million a year
ago due to stronger Order Backlog entering the first quarter of
fiscal 2009 compared to the prior year;
- EBITDA was $12.3 million compared to $2.7 million a year ago;
- Earnings from operations were $10.3 million, up from $0.6 million a
year ago;
- Period end Order Backlog increased 19% to $258 million from
$217 million a year ago;
- Order Bookings grew 16% to $169 million compared to $146 million a
year ago, and included two bookings with new customers in the solar
industry totalling $41 million;
- Order Bookings were $62 million during the first six weeks of the
second quarter.
The improvement in operating results in all geographic regions reflected
higher revenue and better program execution. Revenue increased 42% in
healthcare, 41% in computer-electronics, 80% in energy and 19% in other
markets to more than offset a 12% decline in automotive revenue compared to
the first quarter of 2008.
Photowatt Technologies Results
- Revenue increased 45% to $69.3 million from $47.7 million a year ago;
- Photowatt France EBITDA was $9.3 million compared to $2.7 million a
year ago;
- Photowatt Technologies operating earnings were $10.5 million compared
to a loss of $2.4 million a year ago;
- Total megawatts (MWs) sold at Photowatt France increased 29% to
13.8 MWs from 10.7 MWs in the first quarter of fiscal 2008 - with
UMGSi products accounting for 54% of revenue;
- Average cell efficiency for UMGSi cells improved to approximately
13.8% from 12.9% a year ago, while average cell efficiency for
polysilicon products was 15.6% compared to 14.8% a year ago.
Photowatt Technologies operating earnings in the first quarter included a
gain of $2.0 million on the finalization of the sale of silicon not usable by
ATS and a gain of $3.2 million on the sale of the redundant Spheral Solar
building. Photowatt France's earnings included $0.2 million of costs related
to the ongoing investment in the PV Alliance, a joint venture involving
Photowatt France, EDF EnR Reparties, (a partially owned subsidiary of
Electricité de France), and CEA Valorisation, which is intended to increase
solar cell efficiency.
In the first quarter of fiscal 2009, Photowatt France supplemented its
internal ingot and wafer production with increased externally purchased
polysilicon wafers and cells to balance production. This added incremental
earnings to operations, but at lower operating margins than for products
manufactured using internally produced wafers and cells. Management intends to
make improvements to increase margins on products produced with externally
sourced materials. Average selling prices per watt were consistent year over
year.
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
3416.
Annual and Special Meeting of Shareholders
ATS will hold its Annual and Special Meeting of Shareholders on
September 11th, 2008 at 10:00 a.m. (Toronto time) at the Holiday Inn Hotel and
Conference Centre, 30 Fairway Road South, Kitchener, Ontario, Canada.
Materials will be mailed to shareholders prior to the meeting.
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, energy, automotive and consumer products. It also
leverages its many years of experience and skills to fulfill the specialized
repetitive equipment manufacturing requirements of customers. Through
Photowatt Technologies, ATS participates in the growing solar energy industry
as an integrated manufacturer of ingots, wafers, cells and modules.
Photowatt-branded products and systems serve businesses, institutions and
homeowners in established and emerging markets. ATS employs approximately
3,500 people at 21 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 months
ended June 30, 2008 (first quarter of fiscal 2009) provides detailed
information on the operating activities, performance and financial position of
ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be
read in conjunction with the unaudited interim consolidated financial
statements of the Company for the first quarter of fiscal 2009. 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 2008 and,
accordingly, the purpose of this document is to provide a first quarter update
to the information contained in the fiscal 2008 MD&A. These documents and
other information relating to the Company, including the Company's fiscal 2008
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 two reportable segments: Automation Systems Group ("ASG")
and Photowatt Technologies ("Photowatt") which includes Photowatt France (the
ongoing Photowatt Technologies operations), Photowatt USA, a small module
assembly facility and sales operation closed during fiscal 2008 and Spheral
Solar, a halted development project that has been wound down. Any reference to
solar production capacity assumes the use of polysilicon at 15% cell
efficiency. Actual solar capacity may vary materially for a number of reasons
including the use of Upgraded Metallurgical Silicon ("UMGSi"), changes in cell
efficiency 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, UMGSi and polysilicon powders and fines. As described
in Note 5 to the interim consolidated financial statements, the results of
Precision Components Group ("PCG"), which was classified as held for sale as
of March 31, 2008, are reported in discontinued operations.
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 and amortization (which
includes amortization of intangible assets and impairment of goodwill). 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. 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 first quarter of fiscal 2009 and
2008 is contained in the MD&A. EBITDA should not be construed as a substitute
for net income determined in accordance with GAAP. Order Bookings represent
new orders for the supply of automation systems and products that management
believes are firm. Order Backlog is the estimated unearned portion of ASG
revenue on customer contracts that are in process and have not been completed
at the specified date.
AUTOMATION SYSTEMS GROUP SEGMENT
ASG Revenue
(in millions of dollars)
Three Three
Months Months
Ended Ended
June 30, June 30,
2008 2007
-------------------------------------------------------------------------
Revenue by industry
Healthcare $ 41.4 $ 29.1
Computer-electronics 34.2 24.2
Energy 32.0 17.8
Automotive 23.9 27.3
Other 11.2 9.4
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Total ASG revenue $ 142.7 $ 107.8
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ASG first quarter revenue was 32% higher than a year ago, reflecting
higher Order Bookings generated in fiscal 2008 over fiscal 2007 and the
resulting higher Order Backlog entering the first quarter of fiscal 2009,
compared to the Order Backlog levels entering the same period of fiscal 2008.
By industrial market, healthcare revenue increased 42% year over year,
reflecting higher Order Backlog levels entering the quarter compared to a year
earlier. Healthcare continues to be a strong market for ASG, particularly
within North America. The 41% increase in computer-electronics revenues
reflects increased Order Backlog entering the first quarter compared to a year
ago, driven primarily by customer programs based in the United States. Revenue
generated in the energy market increased by 80% based on growth in solar
industry Order Bookings during the fourth quarter of fiscal 2008 and strong
revenue from the nuclear industry. The 12% decline in automotive revenue
compared to a year ago reflects the ongoing challenges in the North American
automotive parts market. "Other" revenues increased 19% year over year from
customers in the industrial products industry.
During the first quarter, the Company changed the name of its Repetitive
Equipment Manufacturing division to Automation Products Group or "APG".
Management believes the new name better reflects APG's business model to
deliver customer value through global supply chain management, continuous cost
reductions and product performance improvement. APG revenue was $25.9 million
in the first quarter of fiscal 2009, compared to $10.9 million in the first
quarter last year.
Foreign exchange negatively impacted ASG revenues by an estimated
$7.5 million compared to the first quarter of fiscal 2008, primarily
reflecting a stronger Canadian dollar relative to the US dollar.
ASG Operating Results (in millions of dollars)
Three Three
Months Months
Ended Ended
June 30, June 30,
2008 2007
-------------------------------------------------------------------------
Earnings from operations $ 10.3 $ 0.6
Depreciation and amortization 2.0 2.1
-------------------------------------------------------------------------
EBITDA $ 12.3 $ 2.7
-------------------------------------------------------------------------
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Fiscal 2009 first quarter earnings from operations were $10.3 million
(operating margin of 7%) compared to earnings from operations of $0.6 million
(operating margin of 1%) in the first quarter of fiscal 2008. Earnings from
operations improved in all geographic regions and reflected the 32% increase
in revenues, cost reductions implemented during the fourth quarter of fiscal
2008 and improved program management. During the first quarter, the Company
completed the previously-announced closures of its Michigan and Thailand
facilities. Incremental costs of $0.1 million associated with these closures
were incurred in the first quarter. Fiscal 2008 first quarter earnings from
operations included severance costs of $2.1 million.
Foreign exchange negatively impacted ASG first quarter earnings from
operations by an estimated $2.6 million compared to the first quarter of
fiscal 2008, primarily reflecting a stronger Canadian dollar relative to the
US dollar.
ASG Order Bookings
ASG Order Bookings were $169 million, 16% higher than in the first
quarter of fiscal 2008 and included Order Bookings of $24 million and
$17 million respectively with two new solar industry customers. Order Bookings
in the first six weeks of the second quarter of fiscal 2009 were $62 million.
ASG Order Backlog Continuity (in millions of dollars)
June 30, June 30,
2008 2007
-------------------------------------------------------------------------
Opening Order Backlog $ 232 $ 185
Revenue (143) (108)
Order Bookings 169 146
Order Backlog adjustments(1) - (6)
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Total $ 258 $ 217
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(1) Order Backlog adjustments include foreign exchange and cancellations.
Order Backlog by Industry (in millions of dollars)
June 30, June 30,
2008 2007
-------------------------------------------------------------------------
Healthcare $ 49 $ 80
Computer-electronics 38 43
Energy 106 27
Automotive 39 45
Other 26 22
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Total $ 258 $ 217
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At June 30, 2008, ASG Order Backlog was $258 million, 19% higher than at
June 30, 2007. Year over year, Order Backlog increased 293% in energy and 18%
in "other" markets. The increase in energy Order Backlog reflects the
Company's strategy to pursue opportunities in the nuclear and solar industries
and reflects the aforementioned solar industry Order Bookings. This growth was
partially offset by decreases of 39% in healthcare, 12% in
computer-electronics and 13% in automotive. Declines in healthcare and
computer-electronics Order Backlog reflect the lower Order Bookings in North
America and Asia during the quarter compared to the prior year. Included in
healthcare Order Backlog a year ago was a U.S. $14 million Order Booking
secured at the end of the first quarter and a U.S. $12 million Order Booking
which was subsequently cancelled during the second quarter of fiscal 2008.
Automotive Order Backlog reflects continued lower Order Bookings in the North
American automotive market during the quarter compared to the prior year.
Automation Systems Group Outlook
The outlook for ASG expressed in the fiscal 2008 annual MD&A remains
largely unchanged. Continued strong Order Bookings during the first quarter,
particularly in the energy sector, have lead to record levels of Order
Backlog. Initiatives taken during the fourth quarter to improve program
management and reduce costs have started to positively impact operating
performance, however, other initiatives to improve core operations and change
the ASG approach to market are not anticipated to significantly further
improve operating performance until the second half of fiscal 2009 and into
fiscal 2010. Management expects to complete a strategic review of ASG
divisions during the second quarter of fiscal 2009. This review is expected to
result in changes to the number, scope and "character" (core competencies and
markets served) of divisions globally. Management expects the improved core
operating profitability from the aforementioned actions will be partially
offset by implementation costs, as previously disclosed in the third quarter
of fiscal 2008 (see Consolidated Results from Operations). However, these
measures are expected to improve ASG operating performance compared to fiscal
2008.
Management continues to believe that the long-term fundamental market
demand for automation remains strong. However, the strength of the Canadian
dollar, ongoing restructuring within the North American manufacturing sector
and the broader deterioration in the North American economy is expected to
present the Company's Canadian and U.S. operations with challenges during
fiscal 2009.
PHOTOWATT TECHNOLOGIES SEGMENT
Photowatt Technologies Revenue (in millions of dollars)
Three Three
Months Months
Ended Ended
June 30, June 30,
2008 2007
-------------------------------------------------------------------------
Revenue by operating facility
Photowatt France $ 69.3 $ 46.2
Other Solar - 1.5
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Total revenue $ 69.3 $ 47.7
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Revenue by product
Polysilicon products $ 31.6 $ 30.5
UMGSi products 37.7 17.2
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Total Revenue $ 69.3 $ 47.7
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Photowatt Technologies fiscal 2009 first quarter revenue was
$69.3 million, 45% higher than in the first quarter of fiscal 2008. Higher
revenues primarily reflected an increase in total megawatts ("MWs") sold at
Photowatt France to 13.8 MWs from 10.7 MWs in the same period a year ago.
Growth in MWs sold resulted from increased cell efficiency and increased
ingot, wafer and cell production throughput compared to the same period a year
ago, particularly with UMGSi products. Revenue from the sale of module systems
("Systems") increased to $13.3 million from $3.9 million in the first quarter
of fiscal 2008. Systems include modules, combined with installation kits,
solar power system design and/or other value added services. Average selling
prices per watt in the first quarter of fiscal 2009 were consistent with the
prior year.
Foreign exchange positively impacted Photowatt France first quarter
revenues by an estimated $4.2 million on the translation of Photowatt France
revenues from Euros to Canadian dollars, reflecting the strengthening of the
Euro against the Canadian dollar.
Photowatt Technologies Operating Results (in millions of dollars)
Three Three
Months Months
Ended Ended
June 30, June 30,
2008 2007
-------------------------------------------------------------------------
Earnings (loss) from operations:
Photowatt France $ 5.6 $ (0.4)
Other Solar 4.9 (2.0)
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Photowatt Technologies earnings (loss)
from operations: $ 10.5 $ (2.4)
-------------------------------------------------------------------------
Photowatt France EBITDA
Photowatt France earnings (loss) from operations $ 5.6 $ (0.4)
Depreciation and amortization 3.7 3.1
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Photowatt France EBITDA $ 9.3 $ 2.7
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Fiscal 2009 first quarter earnings from operations for Photowatt France
were $5.6 million (operating margin of 8%), compared to a loss from operations
of $0.4 million (negative operating margin of 1%) in the first quarter of
fiscal 2008. Photowatt France's earnings from operations includes
approximately $0.2 million of costs related to the investment in the PV
Alliance ("PVA"), a joint venture involving Photowatt France, EDF ENR
Reparties ("EDF"), a partially owned subsidiary of Electricité de France, and
CEA Valorisation ("CEA"). PVA includes Lab-Fab, a research initiative to
improve cell efficiencies, and may eventually include manufacturing operations
in France - see "Photowatt France Outlook". Photowatt France amortization
expense was $3.7 million compared to $3.1 million in the first quarter of
fiscal 2008 reflecting additional depreciation and amortization from Photowatt
France's expansion and improvement initiatives.
Operating profitability increased during the first quarter of fiscal 2009
compared to a year ago on revenue growth and operational improvements to
increase cell efficiency and manufacturing yields. Average cell efficiency for
UMGSi products increased to 13.8% compared to 12.9% in the first quarter of
fiscal 2008. Average cell efficiency for polysilicon products also improved to
15.6% compared to 14.8% in the first quarter of fiscal 2008. Photowatt France
supplemented its internal ingot and wafer production with increased externally
purchased wafers and cells to balance production. This added incremental
earnings to operations, but at lower operating margins than for products
manufactured using internally produced wafers and cells. Management intends to
make improvements to increase margins on products produced with externally
sourced materials. In the first quarter of last year, Photowatt France used
recycled polysilicon in the manufacturing process, which contributed to lower
cell efficiency in that quarter.
Foreign exchange positively impacted Photowatt France first quarter
earnings from operations by an estimated $0.3 million compared to the first
quarter of fiscal 2008, primarily reflecting a stronger Euro relative to the
Canadian dollar.
"Other solar" includes Spheral Solar, Photowatt USA and inter-solar
eliminations. First quarter fiscal 2009 earnings from operations included a
gain of $2.0 million on the sale of silicon (not usable by Photowatt France or
Spheral Solar) that had a nominal carrying value. This completed the sales
transaction initiated in the fourth quarter of fiscal 2008. Also included in
the first quarter fiscal 2009 earnings from operations was a gain of
$3.2 million on the sale of the redundant Spheral Solar building in Cambridge,
Ontario. The remaining $0.3 million of expenses primarily related to the
wind-down and closure of the Spheral Solar facility and other clean-up and
equipment decommissioning costs. Included in first quarter fiscal 2008 loss
from operations was a $0.3 million loss from operations from the now closed
Photowatt USA division, a $1.3 million loss from operations from the now
halted Spheral Solar research initiative and $0.8 million of solar corporate
costs and inter-solar eliminations.
Photowatt France Outlook
The outlook for Photowatt France expressed in the fiscal 2008 annual MD&A
remains largely unchanged. With respect to fundamental demand, global
electricity usage is expected to increase, which management believes provides
a positive long-term outlook for solar energy businesses. Countries in which
Photowatt France sells products such as Germany, Spain, France and Italy have
significant government subsidy programs for solar power. Certain
jurisdictions, such as Spain and Germany, have subsidy programs that are
designed to decline over time. Management believes the solar industry will
continue to be impacted by these trends over the long-term.
In the short term, Photowatt France is expected to continue to face the
industry-wide issues associated with supply of polysilicon and lower average
selling prices per watt than in fiscal 2008, particularly in the latter half
of the fiscal year. UMGSi products were developed by Photowatt France as an
alternative to polysilicon with the objective of creating a competitive
advantage, and now account for the majority of products being manufactured by
Photowatt France. The operational focus is to increase the cell efficiency and
reduce the cost per watt of manufacturing UMGSi modules.
In the first quarter of fiscal 2009, management initiated the previously
announced euro 20 million investment to expand capacity in the existing
facility and reduce manufacturing costs. The Company has committed to
approximately euro 17 million of equipment, of which approximately
euro 3 million has been installed and the remaining euro 14 million is
expected to be received and installed during the second and third quarters of
fiscal 2009. In addition, Photowatt France intends to invest a further
euro 4 million in automation systems, which are being designed and built by
the Company's ASG segment, to improve the production process and increase
manufacturing yields. The benefits of these investments are expected to begin
positively impacting operating performance during the fourth quarter of fiscal
2009.
Photowatt France continues to advance the PVA with its partners.
Facilities are now being prepared and equipment has been ordered in
preparation for a 25 MW cell line to research cell efficiency improvements.
The cell line is expected to be completed during the second half of fiscal
2010. Initial research activities are expected to begin during the latter half
of fiscal 2009, and are anticipated to be largely funded by French subsidies.
Photowatt France's direct investment in the PVA is expected to be less than
euro 10 million, and have a payback period of approximately 2 years.
Subsequent to the end of the first quarter, the Company formalized a
purchase agreement for the supply of a further 1,900 tonnes of UMGSi over the
next three and a half years (see "Contractual Obligations"). Under the terms
of the purchase agreement, deliveries will begin immediately and extend
through December 2011. This purchase agreement formalizes an existing
successful relationship Photowatt France has had with this supplier for the
past year.
Management expects the recent improvements in cell efficiency and
throughput, along with action plans for the remainder of fiscal 2009, will
positively impact Photowatt France's operating earnings compared to fiscal
2008. Second quarter fiscal 2009 operating performance is expected to be
negatively impacted by the usual four week Photowatt France factory shutdown,
which is expected to decrease output and slow-down the rate of cell efficiency
improvements in the second quarter.
As Photowatt France continues to make progress on improving
profitability, increasing utilization of the current facility and securing
appropriate silicon supply, management intends to begin the process of
evaluating strategic alternatives to separate Photowatt France from the
Company.
Consolidated Results from Operations
In fiscal 2008, the Company determined that PCG was not strategic to the
growth of the Company. In the fourth quarter of fiscal 2008, the Company
committed to a plan to sell the operating assets and liabilities of PCG.
Accordingly, the results of operations and financial position of this business
have been segregated and presented separately as discontinued operations in
the interim consolidated financial statements. The remaining discussion and
analysis has been prepared on a continuing operations basis.
During the third quarter of fiscal 2008, management estimated that the
initiatives to improve operating performance may cost approximately
$30 million. The Company has now incurred $15.9 million of such costs. In the
first quarter, costs incurred in this respect included PCG operating losses of
$2.1 million, costs of $0.1 million related to the closure of ASG's Michigan
and Thailand facilities and costs of $0.3 million related primarily to the
wind-down of Spheral Solar. Management more than offset these costs through
the sale of the Spheral Solar building (net cash proceeds of $16.0 million,
gain on sale of $3.2 million), and the sale of silicon not usable by Spheral
Solar or Photowatt France ($18.8 million during the fourth quarter of fiscal
2008 and first quarter of fiscal 2009). To offset a portion of the remaining
costs anticipated to be incurred over the next several quarters, management
intends to dispose of other redundant and non-core assets. The payback period
on the costs of these operational improvements is expected to be less than one
year.
Revenue. At $212.1 million, consolidated revenue from continuing
operations was 36% higher than a year ago. The increase in revenues was driven
through a 32% increase in ASG revenues and a 45% increase in Photowatt
Technologies revenues. The estimated effect on revenue of changes in effective
foreign exchange rates was a decrease in revenue of $3.3 million for the three
months ended June 30, 2008 compared to the same period of the prior year,
primarily reflecting the translation of revenues earned by the Company's
U.S.-based divisions and offset by the translation of revenues earned by the
Company's European-based divisions.
Consolidated earnings from operations. For the three months ended
June 30, 2008, consolidated earnings from operations was $16.3 million,
compared to a loss from operations of $6.8 million a year ago. Fiscal 2009
first quarter performance reflected: operating earnings of $10.3 million at
ASG (operating earnings of $0.6 million a year ago); Photowatt Technologies
operating earnings of $10.5 million (operating loss of $2.4 million a year
ago); and inter-segment eliminations and corporate expenses of $4.5 million
($4.9 million of costs a year ago).
Selling, general and administrative ("SG&A") expenses. For the first
quarter of fiscal 2009, SG&A expenses decreased 2% or $0.4 million to
$21.4 million compared to the respective prior year period. The Company
incurred higher professional fee costs of $0.4 million in the first quarter
related to the Credit Agreement signed in the first quarter of fiscal 2009
(see "Liquidity, Cash Flow and Financial Resources"). In addition, higher
profit sharing and employee performance incentives on increased earnings in
the first quarter of fiscal 2009 were offset by lower severance costs, which
were $2.9 million in the first quarter of fiscal 2008.
Gain on sale of silicon. During the first quarter of fiscal 2009, the
Company completed delivery to a third party of silicon that was not usable by
Photowatt France or Spheral Solar. The silicon had a nominal carrying value
and the Company recognized a gain of $2.0 million on the sale.
Gain on sale of building. During the first quarter of fiscal 2009, the
Company completed the sale of the redundant Spheral Solar building in
Cambridge, Ontario for net proceeds of $16.0 million. A net gain of
$3.2 million was recognized on the sale.
Stock-based compensation cost. For the first quarter, stock-based
compensation expense increased to $0.7 million from $0.6 million a year
earlier primarily reflecting the issuance of employee stock options offset by
cancellations.
The expense associated with the Company's performance-based stock options
is recognized in income over the estimated assumed vesting period at the time
the stock options are granted. Upon the Company's stock price trading at or
above a stock price performance threshold for a specified minimum number of
trading days within a fiscal quarter, the options vest. When the
performance-based options vest, the Company is required to recognize all
previously unrecognized expenses associated with the vested stock options in
the period in which they vest.
As at June 30, 2008, the following performance-based stock options were
un-vested:
Weighted
average Current Remaining
Stock price Number of Grant date remaining year expense to
performance options value per vesting expense recognize
threshold outstanding option period ('000s) (in 000's)
-------------------------------------------------------------------------
$8.41 333,333 $ 2.19 2.8 years $ 57 $ 616
$8.50 889,333 1.41 4.4 years 63 1,088
$9.08 218,666 2.77 2.3 years 55 496
$10.41 333,334 2.19 4.1 years 40 650
$10.50 889,333 1.41 5.3 years 53 1,112
$11.08 218,667 2.77 3.5 years 38 530
$12.41 333,333 2.19 5.1 years 33 664
$13.08 218,667 2.77 4.5 years 30 545
$13.72 43,825 3.68 0.0 years 18 -
$15.09 43,825 3.68 1.0 years 12 50
$16.60 43,825 3.68 1.8 years 10 71
$19.87 43,200 4.42 0.5 years 13 25
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Interest expense and interest income. The Company earned net interest
income of $0.5 million in the first quarter of fiscal 2009 compared to
interest expense of $0.5 million in the first quarter of fiscal 2008. The
increase in net interest income is primarily due to lower usage of the
Company's credit facilities and higher cash balances maintained through the
first quarter of fiscal 2009 compared to the same period a year ago. Interest
expense allocated to PCG and included in discontinued operations was
$0.7 million in the first quarter of fiscal 2009 (first quarter of fiscal
2008 - $0.7 million) reflecting debt attributable to this segment.
Provision for income taxes. The Company's effective income tax rate
differs from the combined Canadian basic federal and provincial income tax
rate of 33.5% (first quarter fiscal 2008 - 36.1%) primarily because of the
utilization of unrecognized loss carryforwards in Canada and parts of Europe.
The Company does not currently recognize the benefit of tax losses in Canada
or parts of Europe on its balance sheet, however, these losses are available
to reduce current and future taxable income in these jurisdictions.
Net income (loss) from continuing operations. For the first quarter of
fiscal 2009, net income from continuing operations was $15.0 million (19 cents
earnings per share basic and diluted) compared to net loss from continuing
operations of $7.1 million (12 cents loss per share basic and diluted) a year
ago.
Loss from discontinued operations, net of tax. The loss from discontinued
operations in the first quarter of fiscal 2009 was $2.1 million compared to
$1.9 million in the first quarter of fiscal 2008. See Note 5 to the interim
consolidated financial statements for further details on the net loss from
discontinued operations.
Net income (loss). For first quarter of fiscal 2009, net income was
$12.9 million (17 cents earnings per share basic and diluted) compared to a
net loss of $8.9 million (15 cents loss per share basic and diluted) for the
same period last year.
Foreign Exchange
Year-over-year changes in foreign exchange rates decreased first quarter
consolidated revenues by an estimated $3.3 million compared to the first
quarter of fiscal 2008. The decrease was primarily related to a weaker U.S.
dollar relative to the Canadian dollar, which was partially offset by a
stronger Euro relative to the Canadian dollar. Changes in foreign exchange
rates decreased consolidated earnings from operations by an estimated
$2.3 million compared to the first quarter of fiscal 2008 due to the
aforementioned foreign currency changes from last year.
Period Average Market Exchange Rates in CDN$
Three months ended
06/30/2008 06/30/2007 % change
-------------------------------------------------------------------------
US $ 1.0096 1.0955 (7.8)%
Euro 1.5770 1.4767 6.8%
Singapore $ 0.7388 0.7179 2.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness and long-term debt, at June 30,
2008 increased $3.5 million compared to March 31, 2008. The change in the net
cash balance was largely a result of cash inflows from the sale of the
redundant Spheral Solar building and cash flow from operations before the
change in non-cash working capital, which more than offset increased working
capital and investments in property, plant and equipment. The Company invested
$7.0 million in property, plant and equipment in the first quarter of fiscal
2009, $5.3 million of which was invested in Photowatt France.
The Company's investment in non-cash working capital increased by
$21.9 million from March 31, 2008 to June 30, 2008. Consolidated accounts
receivable increased 9%, driven primarily by increased revenues in the first
quarter. Consolidated net construction-in-process was consistent with the
balance at March 31, 2008 despite the increase in ASG revenues. The Company
actively manages its accounts receivable and net construction-in-process
balances through billing terms on long-term contracts and by focusing on
improving collection efforts. Inventories were 8% higher than at March 31,
2008, driven by APG's investment in inventories to meet the requirements for
new contracts won in the fourth quarter of fiscal 2008 and the first quarter
of fiscal 2009. Deposits and prepaid expenses increased 31% on higher deposits
on long lead-time materials for automation systems programs and silicon
deposits that were re-classified from long-term to current as they are
expected to be consumed over the next year. Accounts payable increased 3% on
higher purchases during the quarter.
No stock options were exercised during the first quarter of fiscal 2009.
At August 8, 2008 the total number of shares outstanding was 77,277,155.
During the first quarter of fiscal 2009, the Company established a new
long-term primary credit facility (the "Credit Agreement") with total credit
facilities of up to $85 million, comprised of an operating credit facility of
$40 million which, after the Company has met certain conditions, shall
increase by $5 million monthly increments up to $65 million and a letter of
credit facility of up to $20 million for certain purposes. The operating
credit facility is subject to restrictions regarding the extent to which the
outstanding funds advanced under the facility can be used to fund certain
subsidiaries of the Company. The Credit Agreement, which is secured by
security on the assets, including real estate, of the Company's North American
legal entities and a pledge of shares and guarantees from certain of the
Company's legal entities, is repayable in full on October 31, 2009.
The operating credit facility is available in Canadian dollars by way of
prime rate advances, letter of credit for certain purposes and/or bankers'
acceptances and in U.S. dollars by way of base rate advances and/or LIBOR
advances. The interest rates applicable to the operating credit facility are
determined based on certain financial ratios. For prime rate advances and base
rate advances, the interest rate is equal to the bank's prime rate or the
bank's U.S. dollar base rate in Canada, respectively, plus 1.25% to 2.25%. For
bankers' acceptances and LIBOR advances, the interest rate is equal to the
bankers' acceptance fee or the LIBOR, respectively, plus 2.25% to 3.25%.
Under the Credit Agreement, the Company shall pay a standby fee on the
unadvanced portions of the amounts available for advance or draw-down under
the credit facilities at a rate of 0.5% per annum.
The Credit Agreement is subject to a debt leverage test, a current ratio
test, and a cumulative EBITDA test. 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 payment of dividends and
the disposition of certain assets. The Company is in compliance with these
covenants and restrictions.
The Company also has a secondary credit facility comprised of outstanding
amounts under short term unsecured credit facilities available in Euro
totaling 16 million Euro.
The Company's total debt to total equity ratio at June 30, 2008 was
0.04:1. At June 30, 2008 the Company had $42.8 million of unutilized credit
available under existing operating and long-term credit facilities.
Consolidated Quarterly Results
($ in thousands, except
per share amounts) Q1 2009 Q4 2008 Q3 2008 Q2 2008
-------------------------------------------------------------------------
Revenue $ 212,071 $ 186,474 $ 174,457 $ 146,931
Earnings (loss) from
operations $ 16,278 $ 8,183 $ 24,426 $ (16,913)
Net income (loss) from
continuing operations $ 14,991 $ 10,343 $ 24,365 $ (15,492)
Net income (loss) $ 12,930 $ 7,939 $ (3,662) $ (18,763)
Basic and diluted earnings
(loss) per share from
continuing operations $ 0.19 $ 0.13 $ 0.32 $ (0.23)
Basic and diluted earnings
(loss) per share $ 0.17 $ 0.10 $ (0.05) $ (0.28)
ASG Order Bookings $ 169,000 $ 137,000 $ 115,000 $ 133,000
ASG Order Backlog $ 258,000 $ 232,000 $ 211,000 $ 220,000
($ in thousands, except
per share amounts) Q1 2008 Q4 2007 Q3 2007 Q2 2007
-------------------------------------------------------------------------
Revenue $ 155,407 $ 151,444 $ 151,887 $ 145,271
Earnings (loss) from
operations $ (6,783) $ (41,664) $ (1,353) $ (1,001)
Net income (loss) from
continuing operations $ (7,058) $ (78,440) $ (566) $ 139
Net income (loss) $ (8,937) $ (80,854) $ (2,389) $ (2,110)
Basic and diluted earnings
(loss) per share from
continuing operations $ (0.12) $ (1.31) $ (0.01) $ 0.00
Basic and diluted earnings
(loss) per share $ (0.15) $ (1.35) $ (0.04) $ (0.04)
ASG Order Bookings $ 146,000 $ 134,000 $ 109,000 $ 101,000
ASG Order Backlog $ 217,000 $ 185,000 $ 167,000 $ 162,000
ATS revenue and operating results are generally lower in the second
quarter of each fiscal year (three months ended September 30th) due to the
summer plant shutdown at Photowatt France.
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, 2008 found at www.sedar.com. The Company's off balance sheet
arrangements consist of operating lease financing related primarily to
facilities and equipment.
In August 2008, the Company entered into a commitment to purchase
1,900 tonnes of UMGSi commencing immediately through to December 31, 2011.
Advance payments of U.S. $1.6 million are required, with U.S. $0.9 million
being transferred from an earlier deposit with this silicon supplier, and will
be applied against future shipments.
Changes in Accounting Policies
Effective April 1, 2008, the Company adopted new Canadian Institute of
Chartered Accountants ("CICA") Handbook Section 3031 "Inventories". The
standard provides guidance on the types of costs that can be capitalized and
requires reversal of previous inventory write-downs if economic circumstances
have changed to support the higher inventory values. There was no impact on
the valuation of inventory as at April 1, 2008. Additional disclosure has been
provided in Note 4 to the interim consolidated financial statements.
Future Accounting Changes
CICA Handbook Section 3064, "Goodwill and Intangible assets" establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill and intangible assets subsequent to initial recognition and provides
guidance on the recognition and measurement of internally developed intangible
assets. This standard is effective for interim and annual financial statements
for the Company's reporting period beginning on April 1, 2009. The Company is
currently evaluating the impact of adoption of this new section.
The CICA's Accounting Standards Board has announced that Canadian
publicly accountable enterprises will adopt International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board
effective January 1, 2011. IFRS will require increased financial statement
disclosures. Although IFRS uses a conceptual framework similar to Canadian
GAAP, differences in accounting policies will need to be addressed. The
Company is currently assessing the impact of this announcement.
Controls and Procedures
In its annual MD&A dated June 18, 2008 and for the fiscal year ended
March 31, 2008, 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, is developing remediation plans for
the identified controls deficiencies, and has commenced with certain elements
of the remediation plans. During the first quarter of fiscal 2009, 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
interim consolidated financial statements and disclosures. During the three
months ended June 30, 2008, 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.
Note to Readers: Forward-Looking Statements
This management's discussion and analysis of financial conditions, and
results of operations of ATS for the three months ended June 30, 2008 contains
certain statements that constitute forward-looking information within the
meaning of applicable securities laws ("forward-looking statements"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of ATS, or developments in ATS's business or in its industry, to differ
materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements.
Forward-looking statements include all disclosure regarding possible events,
conditions or results of operations that is based on assumptions about future
economic conditions and courses of action. Forward-looking statements may also
include, without limitation, any statement relating to future events,
conditions or circumstances. ATS cautions you not to place undue reliance upon
any such forward-looking statements, which speak only as of the date they are
made. Forward-looking statements relate to, among other things: management's
focus for fiscal 2009 being to stabilize ATS and improve operating
performance; management's intention to make improvements in order to increase
margins on solar products produced with externally sourced materials; outlook
for ASG and Photowatt France as expressed in 2008 annual MD&A; anticipated
timing of impact of improvement initiatives; timing and anticipated changes
associated with ASG strategic review; management's belief with respect to long
term market demand for automation; potential external economic challenges
during fiscal 2009; management's expectations with respect to global
electricity usage; impact of government solar subsidy programs; continuing
industry issues with supply of polysilicon and lower average selling prices
per watt for solar products; Photowatt France operational focus being to
improve cell efficiency and cost per watt; timing, dollar amount, and impact
of equipment purchases at Photowatt France; timing, cost, and payback
associated with PVA-related facility and research activities and availability
of government subsidies therefor; impact of recent cell efficiency and
throughput improvements; impact of annual Photowatt France shutdown;
management's intention to begin the process of evaluation of strategic
alternatives to separate Photowatt France from ATS; management's intention to
dispose of certain redundant and non-core assets; expected pay-back period
related to operational improvements. The risks and uncertainties that may
affect forward-looking statements include, among others; general market
performance including capital market conditions; economic market conditions;
impact of factors such as health of automotive suppliers, financial failure of
customers, increased pricing pressure and possible margin compression; foreign
currency and exchange risk; the effect of the strength of the Canadian dollar;
performance of the market sectors that ATS serves; extent of market demand for
solar products; successful implementation of improvement initiatives at ASG
and Photowatt France and achievement of intended outcomes within the expected
timeframe; that some or all of the trends towards automation that ATS believes
are attractive dissipate or do not result in increased demand for automation;
that multinational companies withdraw from global manufacturing for business,
political, economic or other reasons; the availability of government subsidies
for solar products; political, labour or supplier disruptions in manufacturing
and supply of silicon; inability to finalize strategic partnerships or
alliances to provide for silicon supply; reversal of current silicon supply
arrangements and negotiation of new supply arrangements; inability of
Photowatt France or PVA to obtain grants to fund research and development;
potential inability of Lab-Fab to achieve improvements in cell efficiency,
including problems with the technology or commercialization thereof; slow-down
in progress being made with the efficiency of UMGSI cells; that planned
factory improvements at Photowatt France are unsuccessful or delayed; ability
to finalize beneficial agreements needed to effectively implement Lab-Fab and
ability to properly manage the Lab-Fab relationship; the development of
superior or alternative technologies to those developed by ATS; the success of
competitors with greater capital and resources in exploiting their technology;
market risk for developing technologies; risks relating to legal proceedings
to which ATS is party; exposure to product liability claims of Photowatt
Technologies; risks associated with compliance with existing and new
legislation; risks associated with greater than anticipated tax liabilities or
expenses; management's ability to identify purchasers for redundant assets;
and other risks detailed from time to time in ATS's filings with Canadian
provincial securities regulators. Forward-looking statements are based on
management's current plans, estimates, projections, beliefs and opinions, and
ATS does not undertake any obligation to update forward-looking statements
should assumptions related to these plans, estimates, projections, beliefs and
opinions change.
August 13, 2008
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
June 30 March 31
2008 2008
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 51,929 $ 56,785
Accounts receivable 137,676 126,052
Investment tax credits 13,712 13,712
Costs and earnings in excess of billings
on contracts in progress 86,928 79,478
Inventories (note 4) 101,563 93,751
Future income taxes 1,023 1,604
Deposits and prepaid assets (note 6) 20,660 15,794
Assets held for sale (note 5) 10,333 12,156
-------------------------------------------------------------------------
423,824 399,332
Property, plant and equipment 185,548 186,054
Goodwill 35,126 35,342
Intangible assets 705 225
Future income taxes 2,650 2,117
Deferred development costs 1,737 1,940
Assets held for sale (note 5) 1,816 14,190
Portfolio investments 3,245 4,927
Silicon and other deposits 33,770 33,888
-------------------------------------------------------------------------
$ 688,421 $ 678,015
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 10) $ 9,565 $ 28,754
Accounts payable and accrued liabilities 154,159 149,169
Billings in excess of costs and earnings
on contracts in progress 33,484 26,101
Future income taxes 15,805 15,343
Current liabilities associated with assets
held for sale (note 5) 5,188 9,223
-------------------------------------------------------------------------
218,201 228,590
Long-term debt (note 10) 10,787 -
Other long-term liabilities 235 235
Shareholders' equity
Share capital (note 11) 432,756 432,825
Contributed surplus 7,062 6,370
Accumulated other comprehensive loss (note 13) (10,220) (6,675)
Retained earnings 29,600 16,670
-------------------------------------------------------------------------
459,198 449,190
-------------------------------------------------------------------------
$ 688,421 $ 678,015
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Operations
(in thousands of dollars, except per share amounts - unaudited)
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2008 2007
-------------------------------------------------------------------------
Revenue $ 212,071 $ 155,407
-------------------------------------------------------------------------
Operating costs and expenses
Cost of revenue 173,029 134,269
Amortization 5,821 5,505
Selling, general and administrative 21,393 21,828
Stock-based compensation (note 7) 744 588
Gain on sale of silicon (2,006) -
Gain on sale of building (3,188) -
-------------------------------------------------------------------------
Earnings (loss) from operations 16,278 (6,783)
-------------------------------------------------------------------------
Other expenses (income)
Interest on long-term debt 12 800
Other interest (498) (290)
-------------------------------------------------------------------------
(486) 510
-------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes and non-controlling interest 16,764 (7,293)
Provision for (recovery of) income taxes (note 16) 1,773 (250)
Non-controlling interest in earnings of
subsidiaries - 15
-------------------------------------------------------------------------
Net income (loss) from continuing operations 14,991 (7,058)
Loss from discontinued operations,
net of tax (note 5) (2,061) (1,879)
-------------------------------------------------------------------------
Net income (loss) $ 12,930 $ (8,937)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share (note 8)
Basic and diluted - from continuing operations $ 0.19 $ (0.12)
Basic and diluted - from discontinued operations (0.02) (0.03)
-------------------------------------------------------------------------
$ 0.17 $ (0.15)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Shareholders' Equity and Other
Comprehensive Income (Loss)
(in thousands of dollars - unaudited)
Three months ended June 30, 2008
-------------------------------------------------------------------------
Accumulated
Other
Compre- Total
hensive Share-
Share Contributed Income Retained holders'
Capital Surplus (Loss) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $ 432,825 $ 6,370 $ (6,675) $ 16,670 $ 449,190
Comprehensive loss
Net income - - - 12,930 12,930
Currency
translation
adjustment
(note 14) - - (2,186) - (2,186)
Net unrealized
loss on available
for-sale
financial assets - - (1,682) - (1,682)
Net unrealized
gain on
derivative
financial
instruments
designated as
cash flow hedges - - 329 - 329
Amount transferred
to net income
(loss) for
derivatives
designated as
cash flow hedges - - (6) - (6)
----------
Total comprehensive
income 9,385
Stock-based
compensation
(note 7) - 692 - - 692
Costs related to
shares issued for
rights offering
(note 11) (69) - - - (69)
-------------------------------------------------------------------------
Balance, end of
the period $ 432,756 $ 7,062 $ (10,220) $ 29,600 $ 459,198
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended June 30, 2007
-------------------------------------------------------------------------
Accumulated
Other
Compre- Total
hensive Share-
Share Contributed Income Retained holders'
Capital Surplus (Loss) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $ 327,560 $ 3,193 $ (9,422) $ 40,048 $ 361,379
Transitional
adjustment on
adoption of new
standards - - 20,534 45 20,579
-------------------------------------------------------------------------
Balance beginning
of period, as
restated 327,560 3,193 11,112 40,093 381,958
Comprehensive loss
Net loss - - - (8,937) (8,937)
Currency
translation
adjustment
(note 14) - - (17,191) - (17,191)
Net unrealized
loss on available
for-sale
financial assets - - (3,855) - (3,855)
Net unrealized
gain on
derivative
financial
instruments
designated as
cash flow hedges
(net of income
taxes of $840) - - 1,835 - 1,835
Amount transferred
to net income
(loss) for
derivatives
designated as
cash flow hedges - - 392 - 392
----------
Total comprehensive
loss (27,756)
Stock-based
compensation
(note 7) - 407 - - 407
-------------------------------------------------------------------------
Balance, end of
the period $ 327,560 $ 3,600 $ (7,707) $ 31,156 $ 354,609
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2008 2007
-------------------------------------------------------------------------
Operating activities:
Net income (loss) $ 12,930 $ (8,937)
Items not involving cash
Amortization 5,821 7,182
Future income taxes 510 (205)
Other items not involving cash 362 (319)
Stock-based compensation 744 588
Net gain on disposal of property, plant
and equipment (3,154) -
-------------------------------------------------------------------------
Cash flow from operations 17,213 (1,691)
Change in non-cash operating working capital (21,922) (15,974)
-------------------------------------------------------------------------
Cash flows used in operating activities (4,709) (17,665)
-------------------------------------------------------------------------
Investing activities:
Acquisition of property, plant and equipment (6,997) (7,778)
Acquisition of intangible assets (500) -
Investments and other (100) (7,690)
Proceeds from disposal of assets 16,003 16
-------------------------------------------------------------------------
Cash flows provided by (used in)
investing activities 8,406 (15,452)
-------------------------------------------------------------------------
Financing activities:
Bank indebtedness (19,189) 40,488
Share issue costs (note 11) (69) -
Proceeds from long-term debt (note 10) 10,787 20,000
Repayment of long-term debt (note 10) - (27,935)
-------------------------------------------------------------------------
Cash flows provided by (used in)
financing activities (8,471) 32,553
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and
short-term investments (82) (3,880)
-------------------------------------------------------------------------
Decrease in cash and short-term investments (4,856) (4,444)
Cash and short-term investments,
beginning of period 56,785 25,568
-------------------------------------------------------------------------
Cash and short-term investments,
end of period $ 51,929 $ 21,124
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information
Cash income taxes paid $ 12 $ 1,244
Cash interest paid $ 206 $ 1,808
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Notes to Interim Consolidated Financial Statements
(in thousands of dollars, except per share amounts - unaudited)
1. Significant accounting policies:
(i) The accompanying interim consolidated financial statements of ATS
Automation Tooling Systems Inc. and its subsidiaries (collectively "ATS"
or the "Company") have been prepared in accordance with Canadian
generally accepted accounting principles ("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, 2008 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, 2008. Certain figures for the previous year have been
reclassified to conform with the current year's interim consolidated
financial statement presentation and to reflect discontinued operations.
(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
long-lived assets, recoverability of deferred development costs, fair
value of reporting units and goodwill, fair value of assets held for
sale, warranties, income taxes, future tax assets, determination of
estimated useful lives of intangible assets and property, plant and
equipment, impairment of portfolio investments, contracts in progress,
inventory provisions, revenue recognition, contingent liabilities, and
allowances for accounts receivable.
2. Changes in accounting policies:
Effective April 1, 2008, the Company prospectively adopted the Canadian
Institute of Chartered Accountants ("CICA") Handbook Section 3031
"Inventories" with no restatement of prior periods. There was no material
impact on the interim consolidated financial statements. See note 4 to
the interim consolidated financial statements.
3. Future accounting changes:
CICA Handbook Section 3064 "Goodwill and Intangible Assets" establishes
standards for the recognition, measurement, presentation and disclosure
of goodwill and intangible assets subsequent to initial recognition and
provides guidance on the recognition and measurement of internally
developed intangible assets. This standard is effective for interim and
annual financial statements for the Company's reporting period beginning
on April 1, 2009. The Company is currently evaluating the impact of
adoption of this new section.
The CICA's Accounting Standards Board has announced that Canadian
publicly accountable enterprises will adopt International Financial
Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board effective January 1, 2011. IFRS will require increased
financial statement disclosures. Although IFRS uses a conceptual
framework similar to Canadian GAAP, differences in accounting policies
will need to be addressed. The Company is currently assessing the impact
of this announcement.
4. Inventories
Inventories are valued at the lower of cost on a first in, first out
basis and net realizable value. Cost of raw materials includes purchase
cost and cost incurred in bringing each product to its present location
and condition. Cost of work-in-progress includes cost of direct
materials, labour and an allocation of manufacturing overheads, excluding
borrowing costs, based on normal operating capacity. Net realizable value
is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated cost necessary to make
the sale.
June 30 March 31
2008 2008
-------------------------------------------------------------------------
Inventories are summarized as follows:
Raw materials $ 68,764 $ 61,905
Work in process 11,765 15,296
Finished goods 21,034 16,550
-------------------------------------------------------------------------
$ 101,563 $ 93,751
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The amount of inventory recognized as an expense and included in cost of
revenue accounted for other than by the percentage-of-completion method
during the three months ended June 30, 2008 was $56,111 (three months
ended June 30, 2007: $33,210). The amount charged to net income and
included in cost of revenue for the write-down of inventory for valuation
issues during the three months ended June 30, 2008 was $581 (three months
ended June 30, 2007: $1,885).
5. Discontinued operations and assets held for sale:
(i) During the year ended March 31, 2008, the Company committed to a plan
to sell the key operating assets and liabilities, including equipment,
current assets excluding cash, trade accounts payable and certain other
assets and liabilities of its Precision Components Group. Accordingly,
the results of operations and financial position of the Precision
Components Group have been segregated and presented separately as
discontinued operations in the consolidated financial statements. The
results of the discontinued operations were as follows:
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2008 2007
-------------------------------------------------------------------------
Revenue $ 12,183 $ 19,394
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss from operating activities $ (2,061) $ (1,879)
Write-down to reduce assets sold to net
realizable value, net of tax of $nil - -
-------------------------------------------------------------------------
Loss from discontinued operations, net of tax $ (2,061) $ (1,879)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(ii) During the three months ended June 30, 2008, the Company sold the
land and building related to its Spheral Solar development project which
was halted in early fiscal 2008. The land and building were sold for net
proceeds of $16,000 and a gain of $3,188 before and after tax. The land
and building were held for sale at the end of fiscal 2008.
(iii) During the year ended March 31, 2008, the Company committed to a
plan to sell land and one of two buildings related to its Automation
Systems Group Ohio division. The land and building are ready for sale and
management expects to sell them within one year. Accordingly, these
assets have been classified as held for sale.
6. Deposits and prepaid assets:
June 30 March 31
2008 2008
-------------------------------------------------------------------------
Prepaid assets $ 5,068 $ 4,611
Silicon and other deposits 14,620 9,530
Forward contracts and other 972 1,653
-------------------------------------------------------------------------
$ 20,660 $ 15,794
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Stock-based compensation:
In the calculation of the stock-based compensation expense in the interim
consolidated statements of operations, the fair values of the Company's
stock option grants were estimated using the Black-Scholes option pricing
model for time vesting stock options and binomial option pricing models
for performance based stock options.
During the three months ended June 30, 2008 the Company granted 375,000
options (nil in the three months ended June 30, 2007). The options
granted vest over 4 years from the date of issue. The fair value of
options issued in the three month period ended June 30, 2008 were
estimated at the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
Three months ended
-------------------------------------------------------------------------
June 30 June 30
2008 2007
-------------------------------------------------------------------------
Weighted average risk-free interest rate 3.24% -
Dividend yield 0% -
Weighted average expected life 4.0 years -
Expected volatility 45% -
Number of time vested stock options granted 375,000 -
Weighted average exercise price per option $ 7.80 -
Weighted average value per time vested option $ 3.03 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the three months ended June 30, 2008 and 2007, no performance
based options were granted. Performance based options vest based on 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 three months
ended June 30, 2008 and 2007, no performance based options vested.
8. Earnings (loss) per share:
Weighted average number of shares used in the computation of earnings
(loss) per share is as follows:
Three months ended
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June 30 June 30
2008 2007
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Basic 77,277,155 59,751,053
Diluted 77,847,874 59,751,053
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During the year ended March 31, 2008, the Company executed a rights
offering as described in note 11. 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
CICA Handbook Section 3500, "Earnings Per Share", the weighted average
common shares for the three months ended June 30, 2007 have been
retroactively increased by 489,000 to reflect the bonus element.
Stock options to purchase 3,721,114 common shares are excluded from the
weighted average common shares in the calculation of diluted earnings per
share for the three months ended June 30, 2008 as they are anti-dilutive.
9. Segmented disclosure:
The Company evaluates performance based on two reportable segments:
Automation Systems Group, and Photowatt Technologies. The Automation
Systems Group 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). As disclosed in note 5 to the
interim consolidated financial statements, the Company has reported its
Precision Components Group, which is held for sale, in discontinued
operations.
The Company accounts for inter-segment revenue at current market rates,
negotiated between the segments.
Three months ended
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June 30 June 30
2008 2007
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Revenue
Automation Systems Group $ 142,735 $ 107,784
Photowatt Technologies 69,337 47,689
Elimination of inter-segment revenue (1) (66)
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Consolidated $ 212,071 $ 155,407
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Earnings (loss) from operations
Automation Systems Group $ 10,302 $ 575
Photowatt Technologies 10,513 (2,446)
Inter-segment elimination and corporate expenses (4,537) (4,912)
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Consolidated $ 16,278 $ (6,783)
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10. Long-term debt and financial resources:
Effective June 2008, the Company established a new long-term primary
credit facility (the "Credit Agreement") with total credit facilities of
up to $85,000, comprised of an operating credit facility of $40,000
which, after the Company has met certain conditions, shall increase by
$5,000 monthly increments up to $65,000, and a letter of credit facility
of up to $20,000 for certain purposes. The operating credit facility is
subject to restrictions regarding the extent to which the outstanding
funds advanced under the facility can be used to fund certain
subsidiaries of the Company. The Credit Agreement, which is secured by
security on the assets, including real estate, of the Company's North
American legal entities and a pledge of shares and guarantees from
certain of the Company's legal entities, is repayable in full on
October 31, 2009.
The operating credit facility is available in Canadian dollars by way of
prime rate advances, letter of credit for certain purposes and/or
bankers' acceptances and in U.S. dollars by way of base rate advances
and/or LIBOR advances. The interest rates applicable to the operating
credit facility are determined based on certain financial ratios. For
prime rate advances and base rate advances, the interest rate is equal to
the bank's prime rate or the bank's U.S. dollar base rate in Canada,
respectively, plus 1.25% to 2.25%. For bankers' acceptances and LIBOR
advances, the interest rate is equal to the bankers' acceptance fee or
the LIBOR, respectively, plus 2.25% to 3.25%.
Under the Credit Agreement, the Company shall pay a standby fee on the
unadvanced portions of the amounts available for advance or draw-down
under the credit facilities at a rate of 0.5% per annum.
The Credit Agreement is subject to a debt leverage test, a current ratio
test, and a cumulative EBITDA test. 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
payment of dividends and the disposition of certain assets. The Company
is in compliance with these covenants and restrictions.
The Company also has secondary credit facilities comprised of outstanding
amounts under short term unsecured credit facilities available in Euro
totaling 16,000 Euro.
The following amounts were outstanding:
June 30 March 31
2008 2008
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Bank indebtedness:
Primary credit facility $ - $ 8,478
Other facilities 9,565 20,276
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$ 9,565 $ 28,754
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Long-term debt:
Primary credit facility $ 10,787 $ -
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11. Rights Offering:
During the year ended March 31, 2008, the Company completed a rights
offering, raising gross proceeds of $110,210 (net proceeds of $102,453).
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.
12. 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 three months ended June 30, 2008, the fair value of financial assets
classified as held-for-trading increased by $122 (increased by $1,655
during the three months ended June 30, 2007) and the fair value of
financial liabilities classified as held-for-trading decreased by $108
(decreased by $310 during the three months ended June 30, 2007).
Cash flow hedges
During the three months ended June 30, 2008, an unrealized gain of $23
was recognized in selling, general and administrative expense for the
ineffective portion of cash flow hedges (unrealized loss of $46 during
the three months ended June 30, 2007). After-tax unrealized gains of $227
included in accumulated other comprehensive loss at June 30, 2008 are
expected to be reclassified to earnings over the next 12 months when the
revenue is recorded (unrealized gains of $1,652 at June 30, 2007).
13. Accumulated other comprehensive loss:
The components of accumulated other comprehensive loss are as follows:
June 30 March 31
2008 2008
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Accumulated currency translation adjustment $ (8,965) $ (6,779)
Accumulated unrealized gain (loss) on available-
for-sale financial assets net of income taxes (1,482) 200
Accumulated unrealized net gain (loss) on
derivative financial instruments designated
as cash flow hedges 227 (96)
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Accumulated other comprehensive loss $ (10,220) $ (6,675)
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14. Currency translation adjustment:
The currency translation adjustment reflects unrealized translation
adjustments arising on the translation of foreign currency denominated
assets and liabilities of self-sustaining foreign operations, the most
significant of which are generated through the translation of foreign
subsidiaries with functional currencies in US dollars, Euros and the
Singapore dollar. These translation adjustments are recorded in the
interim consolidated statements of operations when there is a reduction
in the Company's net investment in the respective foreign operations.
15. Investment in Joint Venture:
During the year ended March 31, 2008, Photowatt International S.A.S., EDF
ENR Reparties and CEA Valorisation entered into an agreement to establish
a joint venture. The joint venture became effective in October 2007 with
contributions of cash by the venturers.
This is a jointly-controlled enterprise and accordingly, the Company
proportionately consolidates its 40% share of assets, liabilities,
revenues and expenses in the interim consolidated financial statements.
The following is a summary of the Company's proportionate share of the
joint venture:
June 30 June 30
2008 2007
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Balance Sheet
Current assets $ 277 $ -
Property and equipment 1 -
Current liabilities (172) -
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Net assets $ 106 -
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June 30 June 30
Three months ended 2008 2007
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Statement of Operations
Operating expenses and net loss $ (151) $ -
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The CEO of Photowatt International S.A.S. is also the President of PV
Alliance in which the Company has a 40% investment interest.
16. Income taxes:
The Company's effective income tax rate differs from the combined
Canadian basic federal and provincial income tax rate of 33.5% (2008 -
36.1%) primarily as a result of the utilization of unrecognized loss
carryforwards in Canada and parts of Europe. In the three months ended
June 30, 2007, the Company's effective income tax rate differs from the
combined Canadian basic federal and provincial income tax rate primarily
as a result of losses incurred in Canada and Europe, the benefit of which
was not recognized for financial statement reporting purposes.
17. Cyclical nature of the business:
Interim financial results are not necessarily indicative of annual or
longer term results because many of the individual markets served by the
Company tend to be cyclical in nature. General economic trends, product
life cycles and product changes may impact Automation Systems Group order
bookings, Photowatt Technologies volumes, and the Company's earnings in
any of its markets. In Photowatt Technologies, due to respective summer
factory shutdowns in Europe, revenues and operating earnings are
generally expected to be lower during the second quarter compared to
other quarters. In Photowatt Technologies, slower sales may occur in the
winter months, when the weather may impair the ability to install its
products in certain geographical areas.
18. Subsequent event:
In August 2008, the Company entered into a commitment to purchase
1,900 tonnes of Upgraded Metallurgical Silicon commencing immediately
through to December 31, 2011. Advance payments of U.S. $1.6 million are
required, with U.S. $0.9 million being transferred from an earlier
deposit with this silicon supplier and will be applied against future
shipments.
%SEDAR: 00002017E
For further information: Maria Perrella, Chief Financial Officer, Carl Galloway, Vice-President and Treasurer, (519) 653-6500