ATS reports second quarter fiscal 2009 results
TSX: ATA
CAMBRIDGE, ON, Nov. 12 /CNW/ - ATS Automation Tooling Systems Inc. today
reported its financial results for the three and six months ended September
30, 2008 as well as the Company's next steps in restructuring the Automation
Systems Group ("ASG").
Highlights
- Consolidated second quarter revenue increased 49% to $219.5 million
from $146.9 million a year ago;
- Consolidated second quarter earnings from operations increased to
$13.6 million compared to a loss from operations of $16.9 million a
year ago;
- Second quarter earnings were $0.12 per share (basic and diluted)
compared to a loss of $0.28 per share a year ago;
- Initiated the consolidation and restructuring of a number of smaller
ASG manufacturing operations in the United States, Europe and Asia;
- Finalized a definitive agreement to sell the key operating assets and
liabilities of the Precision Components Group ("PCG");
- Improved consolidated cash net of debt by $22.8 million from the
beginning of the year to $50.8 million at September 30, 2008.
"Photowatt and ASG have made good progress on the execution of their
respective strategies," said Anthony Caputo, Chief Executive Officer. "The
sale of PCG and the consolidation and restructuring of the remaining
underperforming ASG operations will substantially complete the "fix" phase of
our strategic plan. Going forward, our focus on approach to market and supply
chain management will increase. We are cognizant of changing global economic
conditions and have been adjusting our plans accordingly".
Financial Results
3 months 3 months 6 months 6 months
In millions of ended ended ended ended
dollars, except Sept 30, Sept 30, Sept 30, Sept 30,
per share data 2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue ASG $ 147.4 $ 109.1 $ 290.2 $ 216.9
from ------------------------------------------------------------
continuing Photowatt 72.5 37.9 141.9 85.6
operations ------------------------------------------------------------
Inter-segment (0.4) (0.1) (0.5) (0.2)
------------------------------------------------------------
Consolidated $ 219.5 $ 146.9 $ 431.6 $ 302.3
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EBITDA ASG $ 16.0 $ 4.4 $ 28.3 $ 7.1
------------------------------------------------------------
Photowatt
Technologies
- Photowatt
France 9.8 (2.9) 19.1 (0.2)
- Other
solar (0.4) (2.7) (0.8) (4.5)
- Gain on
sale of
building - - 3.2 -
- Gain on
silicon
sale - - 2.0 -
------------------------------------------------------------
Corporate and
inter-segment
elimination (5.8) (10.4) (10.1) (15.3)
------------------------------------------------------------
Consolidated $ 19.6 $ (11.6) $ 41.7 $ (12.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income Consolidated $ 12.7 $ (15.5) $ 27.7 $ (22.6)
(loss)
from
continuing
operations
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings From continuing
(loss) per operations
share (basic &
diluted) $ 0.16 $ (0.23) $ 0.36 $ (0.35)
------------------------------------------------------------
After
discontinued
operations
(basic &
diluted) $ 0.12 $ (0.28) $ 0.29 $ (0.44)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Automation Systems Group Second Quarter Results
- Revenue increased 35% to $147.4 million from $109.1 million a year
ago on higher Order Backlog entering the second quarter of fiscal
2009 compared to the prior year;
- EBITDA was $16.0 million compared to $4.4 million a year ago;
- Earnings from operations were $13.9 million, up from $2.4 million a
year ago;
- Period end Order Backlog increased 12% to $247 million from
$220 million a year ago;
- Order Bookings were consistent with last year at $133 million, and
included two bookings with repeat solar and healthcare customers of
$25 million and $13 million respectively;
- Order Bookings were $35 million during the first six weeks of the
third quarter;
The improvement in operating results reflected higher revenue, cost
reductions implemented during the fourth quarter of fiscal 2008 and improved
program management. Revenue increased 4% in healthcare, 12% in computer-
electronics, 222% in energy and 24% in other markets to more than offset a 14%
decline in automotive revenue compared to the second quarter of 2008. The
consolidation and restructuring of smaller, underperforming manufacturing
operations is expected to result in an approximately 5% reduction in ASG's
workforce and cost between $4 and $6 million during the third and fourth
quarters of fiscal 2009.
Photowatt Technologies Second Quarter Results
- Photowatt France revenue increased 93% to $72.5 million from
$37.5 million a year ago;
- Photowatt France EBITDA was $9.8 million compared to negative EBITDA
of $2.9 million a year ago;
- Photowatt France operating earnings were $6.0 million compared to an
operating loss of $6.1 million a year ago;
- Total megawatts (MWs) sold at Photowatt France increased 82% to
14.9 MWs from 8.2 MWs in the second quarter of fiscal 2008 - with
UMG-Si products accounting for 71% of revenue;
- Average cell efficiency for UMG-Si cells improved to approximately
13.9% from 12.7% a year ago, while average cell efficiency for
polysilicon products was 15.4% compared to 15.2% a year ago.
To balance production, offset the negative impact of the traditional
summer plant shutdown and productively utilize its supply sources, Photowatt
France continued to supplement its internal ingot and wafer production with
increased externally-purchased polysilicon wafers in the second quarter and
outsourced production of some cells and modules. This added incremental
earnings to operations, but at lower operating margins than for modules
manufactured in-house using internally produced wafers and cells. 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
3423.
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
automation product 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 3,400 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 and six
months ended September 30, 2008 (second 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 second 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 the unaudited interim consolidated financial statements and MD&A for
the three months ended June 30, 2008 and, accordingly, the purpose of this
document is to provide a second 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 ("UMG-Si"), 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, UMG-Si and polysilicon powders and fines. As
described in Note 5 to the interim consolidated financial statements, the
Precision Components Group ("PCG") was classified as held for sale as of March
31, 2008, and its results are reported in discontinued operations.
Non-GAAP Measures
Throughout this document the term "operating earnings" is used to denote
earnings (loss) from operations. The term EBITDA is 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 (loss) 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 three and six months ended
September 30, 2008 and the three and six months ended September 30, 2007 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 Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue by industry
Healthcare $ 30.8 $ 29.5 $ 72.2 $ 58.6
Computer-electronics 29.9 26.8 64.1 51.0
Energy 50.8 15.8 82.9 33.6
Automotive 22.8 26.4 46.7 53.7
Other 13.1 10.6 24.3 20.0
-------------------------------------------------------------------------
Total ASG revenue $ 147.4 $ 109.1 $ 290.2 $ 216.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Second Quarter
ASG second quarter revenue was 35% higher than a year ago, primarily
reflecting a 19% increase in Order Backlog entering the second quarter
compared to a year ago.
By industrial market, healthcare and computer-electronics revenue
increased 4% and 12% respectively year over year as programs moved into later
stages of completion when higher levels of revenue are typically recognized.
Healthcare continues to be a strong market for ASG, particularly within North
America. Revenue generated in the energy market increased by 222% primarily
reflecting growth in solar industry Order Bookings during the fourth quarter
of fiscal 2008 and the first quarter of fiscal 2009. The 14% decline in
automotive revenue compared to a year ago primarily reflects the ongoing
challenges in the North American automotive parts market. "Other" revenues
increased 24% year over year due primarily to assignments in the consumer
products industry.
Automation Products Group ("APG") contributed revenue of $47.0 million in
the second quarter of fiscal 2009, compared to $11.9 million in the second
quarter last year. The growth in revenue reflects two significant programs
that are new to APG in fiscal 2009.
Foreign exchange negatively impacted ASG revenues by an estimated $0.6
million compared to the second quarter of fiscal 2008, primarily reflecting a
stronger Canadian dollar relative to the US dollar, which more than offset a
stronger Euro relative to the Canadian dollar.
Year to date
ASG revenue for the six months ended September 30, 2008 increased 34%
over the same period of fiscal 2008. This increase primarily reflects higher
Order Backlog entering fiscal 2009 compared to fiscal 2008 and higher Order
Bookings through the first quarter of fiscal 2009 compared to fiscal 2008. By
industrial market, year-to-date revenues from healthcare, computer-
electronics, energy and "Other" markets have increased 23%, 26%, 147% and 22%
respectively compared to the same period a year ago. These increases were
partially offset by automotive revenue, which decreased by 13% compared to the
same period a year ago.
Foreign exchange negatively impacted ASG revenues by an estimated $8.1
million compared to the first and second quarter of fiscal 2008, primarily
reflecting a stronger Canadian dollar relative to the US dollar.
ASG Operating Results (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings from operations $ 13.9 $ 2.4 $ 24.2 $ 3.0
Depreciation and amortization 2.1 2.0 4.1 4.1
-------------------------------------------------------------------------
EBITDA $ 16.0 $ 4.4 $ 28.3 $ 7.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Second Quarter
Fiscal 2009 second quarter earnings from operations were $13.9 million
(operating margin of 9%) compared to earnings from operations of $2.4 million
(operating margin of 2%) in the second quarter of fiscal 2008. Earnings from
operations improved in Canada, Europe and Asia, and were partially offset by
lower earnings from operations in the US. Improved operating earnings
primarily reflected the 35% year-over-year increase in revenue, cost
reductions implemented during the fourth quarter of fiscal 2008 and improved
program management.
Foreign exchange negatively impacted ASG second quarter earnings from
operations by an estimated $1.9 million compared to the second quarter of
fiscal 2008, primarily reflecting a stronger Canadian dollar relative to the
US dollar.
Year to date
For the six months ended September 30, 2008, earnings from operations
were $24.2 million (operating margin of 8%) compared to earnings from
operations of $3.0 million (operating margin of 1%) in the same period a year
ago. The improvement in operating earnings primarily reflected the 34% year-
over-year growth in revenue, cost reductions implemented during the fourth
quarter of fiscal 2008, and improved program management.
Foreign exchange negatively impacted ASG year to date earnings from
operations by an estimated $4.5 million compared to the same period in fiscal
2008, primarily reflecting a stronger Canadian dollar relative to the US
dollar.
ASG Order Bookings
Second quarter ASG Order Bookings were $133 million, on par with the
second quarter of fiscal 2008, and included Order Bookings of $25 million and
$13 million with repeat customers in the solar and healthcare industries
respectively. Order Bookings in the first six weeks of the third quarter of
fiscal 2009 were $35 million.
ASG Order Backlog Continuity (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Opening Order Backlog $ 258 $ 217 $ 232 $ 185
Revenue (147) (109) (290) (217)
Order Bookings 133 133 302 279
Order Backlog adjustments(1) 3 (21) 3 (27)
-------------------------------------------------------------------------
Total $ 247 $ 220 $ 247 $ 220
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Order Backlog adjustments include foreign exchange and cancellations.
Order Backlog by Industry (in millions of dollars)
Sept 30, Sept 30,
2008 2007
-------------------------------------------------------------------------
Healthcare $ 57 $ 77
Computer-electronics 29 48
Energy 92 24
Automotive 49 47
Other 20 24
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Total $ 247 $ 220
-------------------------------------------------------------------------
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At September 30, 2008, ASG Order Backlog was $247 million, 12% higher
than at September 30, 2007. Year over year, Order Backlog increased 283% in
energy, primarily reflecting high Order Bookings from the solar industry
during fiscal 2009 and the fourth quarter of fiscal 2008. This growth was
partially offset by decreases of 26% in healthcare, 40% in computer-
electronics and 17% in "Other" markets. The decline in healthcare Order
Backlog reflects lower Order Bookings in North America during the first and
second quarters compared to the prior year. Decreases in Order Backlog from
computer-electronics and "Other" markets reflect lower Order Bookings in North
America and Asia during the first and second quarters compared to the prior
year. Automotive Order Backlog increased 4% compared to the prior year as
increased Order Bookings in Europe and Asia offset declines in North America.
Automation Systems Group Outlook
Continued strong Order Bookings during the first quarter, particularly in
the energy sector, have led to historically high 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.
During the second quarter management completed the previously announced
strategic review of ASG divisions. As a result of this review, management
initiated the consolidation and restructuring of a number of smaller,
underperforming manufacturing operations in the United States, Europe and
Asia. The Company plans to maintain a sales, service and support presence in
these geographic regions. The consolidation and restructuring of these
smaller, underperforming manufacturing operations is expected to result in an
approximately 5% reduction in ASG workforce globally and to cost between $4
and $6 million during the third and fourth quarters of fiscal 2009. Management
expects the restructuring to be complete by March 31, 2009, and to reduce ASG
costs in fiscal 2010. As these improvements in ASG divisions are completed,
operational focus will increasingly shift towards improving supply chain
management and leveraging our global footprint and capabilities.
Management continues to believe that the long-term fundamental market
demand for automation remains strong. However, volatility in the relative
value of the Canadian dollar, ongoing restructuring within the North American
manufacturing sector, recent tightening of liquidity in the credit markets and
the broader deterioration in the global economy is expected to present the
Company's operations with challenges during fiscal 2009. Management believes
that in the short term some ASG customers may reduce their capital spending or
delay certain programs to varying degrees depending on the market segment.
Because of recent developments in the credit markets and the broader
deterioration of the global economy, management is reviewing, and where
appropriate, adjusting ASG strategies. ASG is accelerating the consolidation
of non-strategic manufacturing operations, has a strong balance sheet and has
a well diversified customer-base and operational footprint. In addition, ASG
now has a revised offering and approach to market and is in a position to
consider strategic or opportunistic acquisitions.
PHOTOWATT TECHNOLOGIES SEGMENT
Photowatt Technologies Revenue (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue by operating facility
Photowatt France $ 72.5 $ 37.5 $ 141.9 $ 83.7
Other Solar - 0.4 - 1.9
-------------------------------------------------------------------------
Total revenue $ 72.5 $ 37.9 $ 141.9 $ 85.6
-------------------------------------------------------------------------
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Revenue by product
Polysilicon products $ 21.0 $ 23.7 $ 52.7 $ 54.2
UMG-Si products 51.5 14.2 89.2 31.4
-------------------------------------------------------------------------
Total Revenue $ 72.5 $ 37.9 $ 141.9 $ 85.6
-------------------------------------------------------------------------
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Second Quarter
Photowatt Technologies fiscal 2009 second quarter revenue was $72.5
million, 91% higher than in the second quarter of fiscal 2008. Higher revenue
reflected an increase in total megawatts ("MWs") sold at Photowatt France to
14.9 MWs from 8.2 MWs in the same period a year ago. During the quarter,
Photowatt France outsourced 1.0 MW of polysilicon wafer, cell and module
production to partially offset the negative impact of the annual three-week
summer shutdown at Photowatt France's production facility. Additional growth
in MWs sold resulted from increased cell efficiency and increased ingot, wafer
and cell production compared to the same period a year ago, particularly with
UMG-Si products. Revenue from the sale of module systems ("Systems") increased
to $21.6 million from $5.5 million in the second 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 second quarter of fiscal 2009 were relatively consistent with the prior
year.
Foreign exchange positively impacted Photowatt France second quarter
revenues by an estimated $5.9 million on the translation of Photowatt France
revenues from Euros to Canadian dollars, reflecting the strengthening of the
Euro against the Canadian dollar on higher Euro revenues.
Year to date
Photowatt Technologies revenue for the first six months of fiscal 2009
increased 66% compared to the same period a year ago. The increase in revenue
reflects an increase in MWs sold at Photowatt France from 18.9 MWs to 28.7
MWs. Revenues from System sales increased to $34.9 million from $9.4 million
in the same period a year ago. Average selling prices per watt remained stable
year over year.
Foreign exchange positively impacted Photowatt France year to date
revenues by an estimated $10.1 million on the translation of Photowatt France
revenues from Euros to Canadian dollars, reflecting the strengthening of the
Euro against the Canadian dollar on higher Euro revenues.
Photowatt Technologies Operating Results (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings (loss) from
operations:
Photowatt France $ 6.0 $ (6.1) $ 11.6 $ (6.5)
Other Solar (0.4) (2.8) 4.5 (4.8)
-------------------------------------------------------------------------
Photowatt Technologies
earnings (loss) from
operations $ 5.6 $ (8.9) $ 16.1 $ (11.3)
-------------------------------------------------------------------------
Photowatt France EBITDA
Photowatt France earnings
(loss) from operations $ 6.0 $ (6.1) $ 11.6 $ (6.5)
Depreciation and amortization 3.8 3.2 7.5 6.3
-------------------------------------------------------------------------
Photowatt France EBITDA $ 9.8 $ (2.9) $ 19.1 $ (0.2)
-------------------------------------------------------------------------
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Second Quarter
Photowatt Technologies fiscal 2009 second quarter earnings from
operations were $5.6 million compared to a loss from operations of $8.9
million a year ago.
Fiscal 2009 second quarter earnings from operations for Photowatt France
were $6.0 million (operating margin of 8%), compared to a loss from operations
of $6.1 million (negative operating margin of 16%) in the second quarter of
fiscal 2008. Photowatt France's second quarter results are typically lower
than other quarters due to the traditional summer shutdown of Photowatt
France's production facility. The year-over-year improvement in operating
results reflected higher MWs sold and the recovery of a $1.4 million
receivable that had been previously written off. The second quarter of fiscal
2008 operating results were negatively impacted by a $1.4 million write off of
a deposit paid to a UMG-Si supplier in China of UMG-Si and by costs associated
with the transition to UMG-Si products.
Average cell efficiency for UMG-Si products increased to 13.9% compared
to 12.7% in the second quarter of fiscal 2008. Average cell efficiency for
polysilicon products improved to 15.4% compared to 15.2% in the second quarter
of fiscal 2008. Photowatt France supplemented its internal ingot and wafer
production with increased externally purchased wafers to balance production,
and outsourced some cell and module production to partially offset the
negative impact of the summer shutdown and utilize additional wafer supply.
This added incremental earnings to operations, but at lower operating margins
than for products manufactured using internally produced wafers and cells.
Photowatt France's earnings from operations included 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's amortization expense was $3.8 million compared to $3.2
million in the second quarter of fiscal 2008 reflecting additional
depreciation and amortization from expansion and improvement initiatives.
Foreign exchange positively impacted Photowatt France's second quarter
earnings from operations by an estimated $0.6 million compared to the second
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. During the second quarter of fiscal 2009, costs were incurred
related to equipment decommissioning. A year ago, loss from operations
included the loss from operations on the now closed Photowatt USA division,
the now halted Spheral Solar research initiative and solar corporate costs and
inter-solar eliminations.
Year to Date
Photowatt Technologies earnings from operations for the six months ended
September 30, 2008 were $16.1 million compared to a loss from operations of
$11.3 million a year ago.
Photowatt France earnings from operations for the six months ended
September 30, 2008 were $11.6 million compared to a loss from operations of
$6.5 million a year ago. Operating profitability has increased during fiscal
2009 compared to a year ago on revenue growth and operational improvements to
increase cell efficiency and manufacturing yields.
Foreign exchange positively impacted Photowatt France year-to-date
earnings from operations by an estimated $0.7 million compared to the same
period a year ago, primarily reflecting a stronger Euro relative to the
Canadian dollar.
Fiscal 2009 "Other solar" 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 year to date
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
expenses primarily related to the wind-down and closure of the Spheral Solar
facility and other clean-up and equipment decommissioning costs. Included in
fiscal 2008 loss from operations was the loss from operations from the now
closed Photowatt USA division, the loss from operations from the now halted
Spheral Solar research initiative and solar corporate costs and inter-solar
eliminations.
Photowatt France Outlook
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 Portugal 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 Photowatt France will be impacted by these trends.
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 this fiscal year and into fiscal 2010. UMG-Si 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 UMG-Si
modules.
In the second quarter of fiscal 2009, management initiated equipment
installation for the previously announced (euro)20 million investment to
expand capacity in the existing facility and reduce manufacturing costs.
Installation of cell manufacturing equipment was completed subsequent to
quarter end. The remaining equipment, which will balance production and
increase capacity in ingot and wafer stages of production, is expected to be
installed and operational by the end of the third quarter 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 production processes 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 ready for equipment installation 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 government subsidies. Photowatt
France's direct investment in the PVA is expected to be approximately (euro)10
million, and have a payback period of about 2 years. During the quarter the
Company approved the PVA's decision to exercise its option to investigate, on
a 6-month exclusive basis, proceeding with the next research stage of the PVA,
which contemplates building a second 25MW cell line to research further cell
efficiency improvements using "hetero-junction" technology.
Management expects improvements in cell efficiency and throughput, along
with action plans for the remainder of fiscal 2009, will reduce Photowatt
France's manufacturing cost per watt, potentially dampening the impact of
anticipated declines in average selling prices on operating earnings.
Photowatt will continue to combine process, automation and production
knowledge to achieve desirable results that can be replicated and/or sold in
France and other countries.
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. In
the second quarter of fiscal 2009, the Company finalized a definitive
agreement to sell the key 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 $19.7 million of such costs. From the
fourth quarter of fiscal 2008 through to the second quarter of fiscal 2009,
costs incurred in this respect included restructuring and severance costs of
$11.1 million, $0.1 million related to the closure of ASG's Michigan and
Thailand facilities, PCG operating losses of $6.9 million, and $1.6 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 Photowatt France or Spheral Solar ($18.8 million during
the fourth quarter of fiscal 2008 and first quarter of fiscal 2009).
Management anticipates the remaining costs to be incurred through the
aforementioned consolidation and restructuring of ASG manufacturing
operations, finalization of the PCG sale and revising ASG's approach to market
and supply chain.
Revenue. At $219.5 million, second quarter consolidated revenue from
continuing operations was 49% higher than a year ago. The increase in revenues
was driven by a 35% increase in ASG revenues and a 91% increase in Photowatt
Technologies revenues. Year-to-date revenues were $431.6 million or 43% higher
than the same period a year ago.
Consolidated earnings (loss) from operations. For the three months ended
September 30, 2008, consolidated earnings from operations were $13.6 million,
compared to a loss from operations of $16.9 million a year ago. Fiscal 2009
second quarter performance reflects: operating earnings of $13.9 million at
ASG (operating earnings of $2.4 million a year ago); Photowatt Technologies
operating earnings of $5.6 million (operating loss of $8.9 million a year
ago); and inter-segment eliminations and corporate expenses of $6.0 million
($10.4 million of costs a year ago). Year to date consolidated earnings from
operations were $29.8 million, compared to a loss from operations of $23.7
million a year ago. Fiscal 2009 year to date performance reflects: operating
earnings of $24.2 million at ASG (operating earnings of $3.0 million a year
ago); Photowatt Technologies operating earnings of $16.1 million (operating
loss of $11.3 million a year ago); and inter-segment elimination and corporate
expenses of $10.5 million ($15.3 million a year ago).
Selling, general and administrative ("SG&A") expenses. For the second
quarter of fiscal 2009, SG&A expenses decreased 21% or $5.2 million to $19.1
million compared to the respective prior year period. In the second quarter of
fiscal 2009, the Company incurred costs of $1.4 million related to the Credit
Agreement signed in the first quarter of fiscal 2009 (see "Liquidity, Cash
Flow and Financial Resources"). This additional cost was offset by the
aforementioned recovery of a previously written-off account receivable in
Photowatt France of $1.4 million that was collected during the quarter. In
addition, higher profit sharing and employee performance incentives on
increased earnings in the second quarter of fiscal 2009 were more than offset
by lower severance costs, which were $4.1 million in the second quarter of
fiscal 2008. In the second quarter of fiscal 2008, the Company also incurred
$1.9 million of direct costs related to the change in the Board of Directors
and $0.5 million of recruiting costs for certain senior level positions in the
Company.
For the six months ended September 30, 2008, SG&A expenses decreased 12%
or $5.6 million to $40.4 million compared to the respective prior year period.
SG&A costs for the same six month period a year ago included severance costs
of $7.0 million and the aforementioned $1.9 million incurred related to the
change in the Board of Directors. The elimination of these costs in fiscal
2009 has been partially offset by additional spending related to the Credit
Agreement of $1.8 million year to date and higher profit sharing and employee
performance incentives.
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 three and six month periods ended
September 30, 2008, stock-based compensation expense decreased to $0.6 million
and $1.4 million respectively from $1.5 million and $2.0 million a year ago.
This decrease reflects the recognition, a year ago, of $1.2 million in
expenses relating to the accelerated vesting of options of certain officers of
the Company who resigned during the second quarter of fiscal 2008. This
decrease in costs was offset by increased expenses of $0.4 million related to
performance-based stock options granted during the third and fourth quarters
of fiscal 2008.
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 stock price performance thresholds 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 September 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 2.5 years $ 114 $ 559
$8.50 889,333 1.41 4.1 years 126 1,025
$9.08 218,666 2.77 2.0 years 110 441
$10.41 333,334 2.19 3.9 years 80 609
$10.50 889,333 1.41 5.0 years 107 1,059
$11.08 218,667 2.77 3.3 years 76 492
$12.41 333,333 2.19 4.9 years 66 631
$13.08 218,667 2.77 4.3 years 61 515
$13.72 43,825 3.68 - years 18 -
$15.09 43,825 3.68 0.8 years 25 37
$16.60 43,825 3.68 1.5 years 20 60
$19.87 43,200 4.42 0.3 years 25 13
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense and interest income. For the three months ended
September 30, 2008, interest expense decreased to $0.4 million (interest
income of $0.1 million for the six months ended September 30, 2008) compared
to interest expense of $0.7 million a year ago ($1.2 million for the six
months ended September 30, 2007). This decrease primarily reflects lower usage
of the Company's credit facilities. Interest expense allocated to PCG and
included in discontinued operations was $0.5 million in the second quarter of
fiscal 2009 and $1.2 million year to date ($0.3 million and $1.0 million in
the second quarter and year to date of fiscal 2008 respectively) reflecting
debt attributable to discontinued operations.
Provision for income taxes. The Company's effective income tax rate
differs from the combined Canadian basic federal and provincial income tax
rate of 33.5% (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. In fiscal 2008, the
Company's effective income tax rate differed from the combined Canadian basic
and 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.
Net income (loss) from continuing operations. For the second quarter of
fiscal 2009, net income from continuing operations was $12.7 million (16 cents
earnings per share basic and diluted) compared to net loss from continuing
operations of $15.5 million (23 cents loss per share) a year ago. Net income
from continuing operations for the six months ended September 30, 2008 was
$27.7 million (36 cents earnings per share basic and diluted) compared to a
net loss from continuing operations of $22.6 million a year ago (35 cents loss
per share).
Loss from discontinued operations, net of tax. The loss from discontinued
operations for the three and six month periods ended September 30, 2008 was
$3.4 million and $5.5 million respectively compared to $3.3 million and $5.2
million in the same periods a year ago. See Note 5 to the interim consolidated
financial statements for further details on the net loss from discontinued
operations.
Net income (loss). For the second quarter of fiscal 2009, net income was
$9.3 million (12 cents earnings per share basic and diluted) compared to a net
loss of $18.8 million (28 cents loss per share) for the same period last year.
Net income in the first six months of the current fiscal year was $22.2
million (29 cents earnings per share basic and diluted) compared to a net loss
of $27.7 million (44 cents loss per share) a year ago.
Foreign Exchange
Year-over-year foreign exchange rate changes during the second quarter of
fiscal 2009 positively impacted consolidated revenues by an estimated $5.3
million compared to the second quarter of fiscal 2008. This increase was
primarily related to a stronger Euro relative to the Canadian dollar. Year to
date foreign exchange rate changes positively impacted consolidated revenues
by an estimated $2.0 million as the stronger Euro relative to the Canadian
dollar was offset by a weaker US dollar relative to the Canadian dollar on a
year to date basis compared to the same period a year ago.
Changes in foreign exchange rates decreased consolidated earnings from
operations by an estimated $1.3 million compared to the second quarter of
fiscal 2008 due to more income being earned in US dollars by the Company's
Canadian divisions which was generally hedged at higher rates in the second
quarter a year ago. Year to date foreign exchange rate changes negatively
impacted consolidated earnings from operations by an estimated $3.8 million as
operating earnings were more influenced by the weaker US dollar in the current
fiscal year compared to the strengthened Euro relative to the Canadian dollar.
Period Average Market Exchange Rates in CDN$
Three months ended Six months ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 2008 2007
-------------------------------------------------------------------------
US $ 1.0426 1.0453 1.0261 1.0704
Euro 1.5625 1.4366 1.5698 1.4566
Singapore $ 0.7451 0.6889 0.7420 0.7034
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness and long-term debt, at September
30, 2008 increased $22.8 million compared to March 31, 2008. The change in the
net cash balance was largely a result of cash generated through positive
earnings in the business, partially offset by increased investment in working
capital. Cash provided by the sale of the redundant Spheral Solar building
more than offset investments in property, plant and equipment. The Company
invested $5.8 million in property, plant and equipment in the second quarter
of fiscal 2009 and $12.8 million year to date, of which $4.6 million was
invested in Photowatt France during the second quarter and $9.9 million year
to date.
The Company's investment in non-cash working capital decreased $13.4
million in the second quarter and increased by $8.5 million year to date.
Consolidated accounts receivable increased 4% compared to March 31, 2008,
driven primarily by increased revenues in the first and second quarters,
partially offset by improved accounts receivables collections. Consolidated
net construction-in-process increased 3% compared to March 31, 2008,
reflecting higher ASG revenues offset by improved payment terms allowing ASG
to reduce its cash investment in customer programs. 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 14% higher than at March 31, 2008, driven
primarily 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 14% 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 11% on higher
purchases and activity levels during the first and second quarters of fiscal
2009.
No stock options were exercised during the second quarter of fiscal 2009.
At November 7, 2008 the total number of shares outstanding was 77,277,155.
During the first quarter of fiscal 2009, the Company established a new
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 US 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 US 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 of 16 million Euro
comprised of outstanding amounts under short term unsecured credit facilities.
The Company's total debt to equity ratio (excluding Accumulated Other
Comprehensive Loss) at September 30, 2008 was 0.04:1. At September 30, 2008
the Company had $42.7 million of unutilized credit available under existing
operating and long-term credit facilities and a further $15.0 million
available under the letter of credit facility.
Consolidated Quarterly Results
($ in thousands,
except per share Q2 Q1 Q4 Q3
amounts) 2009 2009 2008 2008
-------------------------------------------------------------------------
Revenue $ 219,536 $ 212,071 $ 186,474 $ 174,457
Earnings (loss) from
operations $ 13,563 $ 16,278 $ 8,183 $ 24,426
Net income (loss) from
continuing operations $ 12,688 $ 14,991 $ 10,343 $ 24,365
Net income (loss) $ 9,272 $ 12,930 $ 7,939 $ (3,662)
Basic and diluted earnings
(loss) per share from
continuing operations $ 0.16 $ 0.19 $ 0.13 $ 0.32
Basic and diluted earnings
(loss) per share $ 0.12 $ 0.17 $ 0.10 $ (0.05)
ASG Order Bookings $ 133,000 $ 169,000 $ 137,000 $ 115,000
ASG Order Backlog $ 247,000 $ 258,000 $ 232,000 $ 211,000
($ in thousands,
except per share Q2 Q1 Q4 Q4
amounts) 2008 2008 2007 2007
-------------------------------------------------------------------------
Revenue $ 146,931 $ 155,407 $ 151,444 $ 151,887
Earnings (loss) from
operations $ (16,913) $ (6,783) $ (41,664) $ (1,353)
Net income (loss) from
continuing operations $ (15,492) $ (7,058) $ (78,440) $ (566)
Net income (loss) $ (18,763) $ (8,937) $ (80,854) $ (2,389)
Basic and diluted earnings
(loss) per share from
continuing operations $ (0.23) $ (0.12) $ (1.31) $ (0.01)
Basic and diluted earnings
(loss) per share $ (0.28) $ (0.15) $ (1.35) $ (0.04)
ASG Order Bookings $ 133,000 $ 146,000 $ 134,000 $ 109,000
ASG Order Backlog $ 220,000 $ 217,000 $ 185,000 $ 167,000
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. In fiscal 2009, the Company
partially offset the negative impact of the summer shutdown - see "Photowatt
Technologies Operating Results".
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 UMG-Si commencing immediately through to December 31, 2011. Advance
payments of US $1.6 million are required, with US $0.9 million being
transferred from an earlier deposit with this silicon supplier for application
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 has commenced its IFRS conversion project. The project consists of
four phases: diagnostic, design and planning, solution development and
implementation. During the second quarter, the Company initiated the
diagnostic phase and expects to complete this phase in the fourth quarter of
fiscal 2009.
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 is
developing remediation plans for the identified controls deficiencies, and has
commenced certain elements of the remediation plans. During the second 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 six months ended September 30, 2008, there have been
no other 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 news release relating to ATS' second quarter financial results for
the three months ended September 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: timing of impact on
operating performance of certain ASG initiatives; on-going consolidation and
restructuring of operations in certain locations and estimated impact on work
force, and estimated cost, time to implement, and time to realize expected
benefits; future focus on supply chain and leveraging global footprint and
capabilities; management's beliefs in relation to long term demand for
automation; impact of current market conditions on the automation business;
potential consideration of strategic or opportunistic automation acquisitions;
long term outlook for solar energy businesses; short term impact of
industry-wide silicon supply issues and lower average selling prices per watt;
operational focus on increasing cell efficiency and reducing cost per watt;
anticipated equipment expenditures in the solar business and expected timing
of realization of benefits; near term plans for the PVA, availability of
government subsidies, and expected payback period on direct investment;
improvement initiatives at Photowatt and expected impact on manufacturing
costs; sale of PCG; and the incurring of costs associated with operational
improvement initiatives at ASG and the sale of PCG. The risks and
uncertainties that may affect forward-looking statements include, among
others; general market performance including capital market conditions and
availability of credit; 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 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; exercise by one party to
the PCG sale transaction of a right to terminate the transaction, failure of a
party to the PCG transaction to meet closing conditions, delays or failure in
obtaining all necessary approvals and consents in relation to the transaction;
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. Material
assumptions related to the estimated payback period for direct investment in
the PVA are the securing of government grants and the successful realization
of targeted cell efficiency improvements. Forward-looking statements are based
on management's current plans, estimates, projections, beliefs and opinions,
and ATS does not undertake any obligation to update forward-looking statements
should assumptions related to these plans, estimates, projections, beliefs and
opinions change.
November 12, 2008
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
September 30 March 31
2008 2008
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 70,478 $ 56,785
Accounts receivable 130,992 126,052
Investment tax credits 15,664 13,712
Costs and earnings in excess of
billings on contracts in progress 93,970 79,478
Inventories (note 4) 106,636 93,751
Future income taxes 4,463 1,604
Deposits and prepaid assets (note 6) 17,939 15,794
Assets held for sale (note 5) 7,668 12,156
-------------------------------------------------------------------------
447,810 399,332
Property, plant and equipment 179,166 186,054
Goodwill 35,380 35,342
Intangible assets 611 225
Future income taxes 3,108 2,117
Deferred development costs 1,494 1,940
Assets held for sale (note 5) 2,103 14,190
Portfolio investments 3,443 4,927
Silicon and other deposits 31,410 33,888
-------------------------------------------------------------------------
$ 704,525 $ 678,015
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 10) $ 11,090 $ 28,754
Accounts payable and accrued liabilities 165,065 149,169
Billings in excess of costs and earnings
on contracts in progress 38,957 26,101
Future income taxes 16,618 15,343
Current liabilities associated with
assets held for sale (note 5) 4,774 9,223
-------------------------------------------------------------------------
236,504 228,590
Long-term debt (note 10) 8,572 -
Other long-term liabilities 235 235
Shareholders' equity
Share capital (note 11) 432,756 432,825
Contributed surplus 7,661 6,370
Accumulated other comprehensive loss (note 13) (20,075) (6,675)
Retained earnings 38,872 16,670
-------------------------------------------------------------------------
459,214 449,190
-------------------------------------------------------------------------
$ 704,525 $ 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 Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ 219,536 $ 146,931 $ 431,607 $ 302,338
-------------------------------------------------------------------------
Operating costs
and expenses
Cost of revenue 180,226 132,833 353,255 267,102
Amortization 6,061 5,329 11,882 10,834
Selling, general and
administrative 19,051 24,230 40,444 46,058
Stock-based
compensation (note 7) 635 1,452 1,379 2,040
Gain on sale of silicon - - (2,006) -
Gain on sale of
building (note 5) - - (3,188) -
-------------------------------------------------------------------------
Earnings (loss)
from operations 13,563 (16,913) 29,841 (23,696)
-------------------------------------------------------------------------
Other expenses (income)
Interest on
long-term debt 136 237 148 1,037
Other interest 258 414 (240) 124
-------------------------------------------------------------------------
394 651 (92) 1,161
-------------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes
and non-controlling
interest 13,169 (17,564) 29,933 (24,857)
Provision for (recovery
of) income taxes
(note 15) 481 (2,086) 2,254 (2,336)
Non-controlling interest
in earnings of
subsidiaries - 14 - 29
-------------------------------------------------------------------------
Net income (loss) from
continuing operations 12,688 (15,492) 27,679 (22,550)
Loss from discontinued
operations, net of
tax (note 5) (3,416) (3,271) (5,477) (5,150)
-------------------------------------------------------------------------
Net income (loss) $ 9,272 $ (18,763) $ 22,202 $ (27,700)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per
share (note 8)
Basic and diluted -
from continuing
operations $ 0.16 $ (0.23) $ 0.36 $ (0.35)
Basic and diluted -
from discontinued
operations (0.04) (0.05) (0.07) (0.09)
-------------------------------------------------------------------------
$ 0.12 $ (0.28) $ 0.29 $ (0.44)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
Six months ended September 30, 2008
-------------------------------------------------------------------------
Accumulated
Other
Compre-
Contri- hensive
Share buted Income
Capital Surplus (Loss)
-------------------------------------------------------------------------
Balance, beginning of period $ 432,825 $ 6,370 $ (6,675)
Comprehensive loss
Net income - - -
Currency translation adjustment - - (12,050)
Net unrealized loss on available
for-sale financial assets - - (1,178)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges - - 116
Amount transferred to net income
for derivatives designated
as cash flow hedges - - (288)
Total comprehensive income
Stock-based compensation (note 7) - 1,291 -
Costs related to shares issued for
rights offering (note 11) (69) - -
-------------------------------------------------------------------------
Balance, end of the period $ 432,756 $ 7,661 $ (20,075)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30, 2008
--------------------------------------------------------------
Total
Share-
Retained holders'
Earnings Equity
--------------------------------------------------------------
Balance, beginning of period $ 16,670 $ 449,190
Comprehensive loss
Net income 22,202 22,202
Currency translation adjustment - (12,050)
Net unrealized loss on available
for-sale financial assets - (1,178)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges - 116
Amount transferred to net income
for derivatives designated
as cash flow hedges - (288)
----------
Total comprehensive income 8,802
Stock-based compensation (note 7) - 1,291
Costs related to shares issued for
rights offering (note 11) - (69)
--------------------------------------------------------------
Balance, end of the period $ 38,872 $ 459,214
--------------------------------------------------------------
--------------------------------------------------------------
Six months ended September 30, 2007
-------------------------------------------------------------------------
Accumulated
Other
Compre-
Contri- hensive
Share buted Income
Capital Surplus (Loss)
-------------------------------------------------------------------------
Balance, beginning of period $ 327,560 $ 3,193 $ (9,422)
Transitional adjustment on
adoption of new standards - - 20,534
-------------------------------------------------------------------------
Balance beginning of period,
as restated 327,560 3,193 11,112
Comprehensive loss
Net loss - - -
Currency translation adjustment - - (25,328)
Net unrealized loss on available
for-sale financial assets - - (5,008)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges - - 7,054
Amount transferred to net loss
for derivatives designated
as cash flow hedges - - (776)
Total comprehensive loss
Stock-based compensation (note 7) - 1,789 -
Shares issued during the period for
Cash on rights offering, net 102,522 - -
(note 11)
-------------------------------------------------------------------------
Balance, end of the period $ 430,082 $ 4,982 $ (12,946)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30, 2007
--------------------------------------------------------------
Total
Share-
Retained holders'
Earnings Equity
--------------------------------------------------------------
Balance, beginning of period $ 40,048 $ 361,379
Transitional adjustment on
adoption of new standards 45 20,579
--------------------------------------------------------------
Balance beginning of period,
as restated 40,093 381,958
Comprehensive loss
Net loss (27,700) (27,700)
Currency translation adjustment - (25,328)
Net unrealized loss on available
for-sale financial assets - (5,008)
Net unrealized gain on derivative
financial instruments designated
as cash flow hedges - 7,054
Amount transferred to net loss
for derivatives designated
as cash flow hedges - (776)
----------
Total comprehensive loss (51,758)
Stock-based compensation (note 7) - 1,789
Shares issued during the period for
Cash on rights offering, net - 102,522
(note 11)
--------------------------------------------------------------
Balance, end of the period $ 12,393 $ 434,511
--------------------------------------------------------------
--------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended Six months ended
-------------------------------------------------------------------------
September September September September
30 30 30 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Operating activities:
Net income (loss) $ 9,272 $ (18,763) $ 22,202 $ (27,700)
Items not involving cash
Amortization 6,061 5,329 11,882 10,834
Future income taxes (3,085) (2,490) (2,575) (2,695)
Other items not
involving cash 383 1,580 745 1,261
Stock-based
compensation 635 1,452 1,379 2,040
(Gain) loss on
disposal of property,
plant and equipment 182 - (2,972) -
Non-cash discontinued
operations - 1,604 - 3,281
-------------------------------------------------------------------------
Cash flow from operations 13,448 (11,288) 30,661 (12,979)
Change in non-cash
operating working
capital 13,391 (2,968) (8,531) (18,942)
-------------------------------------------------------------------------
Cash flows provided by
(used in) operating
activities 26,839 (14,256) 22,130 (31,921)
-------------------------------------------------------------------------
Investing activities:
Acquisition of
property, plant and
equipment (5,842) (3,600) (12,839) (11,378)
Acquisition of
intangible assets - - (500) -
Restricted cash - (3,050) - (3,050)
Investments and other 608 (12,547) 508 (20,237)
Proceeds from disposal
of assets 22 28 16,025 44
-------------------------------------------------------------------------
Cash flows provided by
(used in) investing
activities (5,212) (19,169) 3,194 (34,621)
-------------------------------------------------------------------------
Financing activities:
Bank indebtedness 822 (26,594) (18,367) 13,894
Share issue costs
(note 11) - (7,688) (69) (7,688)
Proceeds from
long-term debt (note 10) - 40,000 10,787 60,000
Repayment of long-term
debt (note 10) (2,399) (426) (2,399) (28,361)
Issuance of common
shares (note 11) - 110,210 - 110,210
-------------------------------------------------------------------------
Cash flows provided by
(used in) financing
activities (1,577) 115,502 (10,048) 148,055
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments (1,501) (924) (1,583) (4,804)
-------------------------------------------------------------------------
Increase in cash and
short-term investments 18,549 81,153 13,693 76,709
Cash and short-term
investments, beginning
of period 51,929 21,124 56,785 25,568
-------------------------------------------------------------------------
Cash and short-term
investments, end of
period $ 70,478 $ 102,277 $ 70,478 $ 102,277
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary
information
Cash income taxes paid $ 163 $ 147 $ 175 $ 1,391
Cash interest paid $ 213 $ 1,880 $ 419 $ 3,715
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Canadain GAAP, differences in accounting policies
will need to be addressed. The Company has commenced its IFRS conversion
project. The project consists of four phases: diagnostic, design and
planning, solution development and implementation. During the second
quarter, the Company initiated the diagnostic phase and expects to
complete this phase in the fourth quarter of fiscal 2009.
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.
September 30 March 31
2008 2008
-------------------------------------------------------------------------
Inventories are summarized as follows:
Raw materials $ 68,608 $ 61,905
Work in process 14,332 15,296
Finished goods 23,696 16,550
-------------------------------------------------------------------------
$ 106,636 $ 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 and six months ended September 30, 2008 was $72,594,and
$128,705 respectively (three and six months ended September 30, 2007:
$29,769 and $62,979 respectively). The amount charged to net income and
included in cost of revenue for the write-down of inventory for valuation
issues during the three and six months ended September 30, 2008 was
$1,202 and $1,783 respectively (three and six months ended September 30,
2007: $1,792 and $3,677 respectively). The amount recognized in net
income and included in cost of revenue for the reversal of previous
inventory write-downs due to rising prices during both the three and six
months ended September 30, 2008 was $181 (three and six months ended
September 30 2007: nil).
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 are as follows:
Three months ended Six months ended
-------------------------------------------------------------------------
September 30 September 30 September 30 September 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ 7,366 $ 16,408 $ 19,549 $ 35,802
-------------------------------------------------------------------------
Loss from discontinued
operations, net of
tax $ (3,416) $ (3,271) $ (5,477) $ (5,150)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 classifed as held for sale.
6. Deposits and prepaid assets:
September 30 March 31
2008 2008
-------------------------------------------------------------------------
Prepaid assets $ 3,633 $ 4,611
Silicon and other deposits 12,457 9,530
Forward contracts and other 1,849 1,653
-------------------------------------------------------------------------
$ 17,939 $ 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 six months ended September 30, 2008 the Company granted
375,000 options (1,059,500 in the six months ended September 30, 2007).
The options granted vest over 4 years from the date of issue. The fair
value of options issued in the six month period ended September 30, 2008
were estimated at the date of the grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
Six months ended
-------------------------------------------------------------------------
September 30 September 30
2008 2007
-------------------------------------------------------------------------
Weighted average risk-free interest rate 3.24% 4.00%
Dividend yield 0% 0%
Weighted average expected life 4.0 years 5.0 years
Expected volatility 45% 41%
Number of time vested stock options granted 375,000 1,059,500
Weighted average exercise price per option $ 7.80 $ 5.95
Weighted average value per time vested option $ 3.03 $ 2.49
-------------------------------------------------------------------------
During the six months ended September 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 specified
number of trading days in a fiscal quarter. These performance options
expire on the seventh anniversary of either the date that the options
vest or the date of the grant. During the six months ended September 30,
2008 no performance based options vested. During the six months ended
September 30, 2007 certain performance options vested as a result of
accelerated vesting provisions on the resignation of certain officers of
the Company.
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 Six months ended
-------------------------------------------------------------------------
September 30 September 30 September 30 September 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Basic 77,277,155 67,815,484 77,277,155 63,562,373
Diluted 77,875,870 67,815,484 77,861,872 63,562,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 six months ended September 30, 2007 have been
retrospectively increased by 489,000 to reflect the bonus element.
For the three and six months ended September 30, 2008, stock options to
purchase 4,090,458 and 3,905,786 common shares respectively are excluded
from the weighted average common shares in the calculation of diluted
earnings per share as they are anti-dilutive (all stock options were
excluded in 2008).
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 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 Six months ended
-------------------------------------------------------------------------
September 30 September 30 September 30 September 30
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue
Automation Systems
Group $ 147,418 $ 109,067 $ 290,153 $ 216,851
Photowatt
Technologies 72,532 37,912 141,869 85,601
Elimination of
inter-segment
revenue (414) (48) (415) (114)
-------------------------------------------------------------------------
Consolidated $ 219,536 $ 146,931 $ 431,607 $ 302,338
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems
Group $ 13,940 $ 2,393 $ 24,242 $ 2,968
Photowatt
Technologies 5,582 (8,886) 16,095 (11,332)
Inter-segment
elimination and
corporate Expenses (5,959) (10,420) (10,496) (15,332)
-------------------------------------------------------------------------
Consolidated $ 13,563 $ (16,913) $ 29,841 $ (23,696)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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:
September 30 March 31
2008 2008
-------------------------------------------------------------------------
Bank indebtedness:
Primary credit facility $ - $ 8,478
Other facilities 11,090 20,276
-------------------------------------------------------------------------
$ 11,090 $ 28,754
-------------------------------------------------------------------------
Long-term debt:
Primary credit facility $ 8,572 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 and six months ended September 30, 2008, the fair value of
financial assets classified as held-for-trading increased by $649 and
$771 respectively (decreased by $371 and increased by $1,285 during the
three and six months ended September 30, 2007) and the fair value of
financial liabilities classified as held-for-trading decreased by $722
and $830 respectively (decreased by $104 and $415 during the three and
six months ended September 30, 2007).
Cash flow hedges
During the three and six months ended September 30, 2008, an unrealized
gain of $78 and $101 was recognized in selling, general and
administrative expense for the ineffective portion of cash flow hedges
(unrealized loss of $nil and $45 during the three and six months ended
September 30, 2007). After-tax unrealized losses of $268 included in
accumulated other comprehensive loss at September 30, 2008 are expected
to be reclassified to earnings over the next 12 months when the revenue
is recorded (unrealized gains of $5,703 at September 30, 2007).
13. Accumulated other comprehensive loss:
The components of accumulated other comprehensive loss are as follows:
September 30 March 31
2008 2008
-------------------------------------------------------------------------
Accumulated currency translation adjustment $ (18,829) $ (6,779)
Accumulated unrealized loss on available-
for-sale financial assets (978) 200
Accumulated unrealized net loss on derivative
financial instruments designated as cash
flow hedges (268) (96)
-------------------------------------------------------------------------
Accumulated other comprehensive loss $ (20,075) $ (6,675)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
14. 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:
September 30 September 30
2008 2007
-------------------------------------------------------------------------
Balance Sheet
Current assets $ 446 $ -
Property and equipment 2 -
Current liabilities (263) -
Net assets $ 185 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30 September 30
2008 2007
-------------------------------------------------------------------------
Statement of Operations
Operating expenses and net loss $ (375) $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The CEO of Photowatt International S.A.S. is also the President of PV
Alliance in which the Company has a 40% investment interest.
15. Income taxes:
For the three and six months ended September 30, 2008, 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 and six months ended
September 30, 2007, the Company's effective income tax rate differed 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.
16. 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. ATS typically experiences some seasonality with its
revenue and earnings due to summer plant shutdowns by its customers and
summer shutdown at Photowatt France. Accordingly, revenue during the
second quarter is usually lower than in the first, third and fourth
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.
%SEDAR: 00002017E
For further information: Maria Perrella, Chief Financial Officer, Carl Galloway, Vice-President and Treasurer, (519) 653-6500