ATS reports third quarter fiscal 2009 results
TSX: ATA
CAMBRIDGE, ON, Feb. 11, 2009 /CNW/ - ATS Automation Tooling Systems Inc.
today announced its financial results for the three and nine months ended
December 31, 2008.
Highlights
- Consolidated third quarter revenue increased 27% to $221.7 million
from $174.5 million a year ago;
- Consolidated third quarter earnings from operations were $18.5
million compared to earnings from operations of $24.4 million a year
ago, which included a $31.8 million gain on the sale of a portfolio
investment;
- Third quarter earnings were $0.16 per share (basic and diluted)
compared to a loss of $0.05 per share a year ago;
- Consolidated cash, net of debt improved by $17.8 million from the
beginning of the fiscal year to $45.8 million at December 31, 2008;
- A number of smaller ASG manufacturing operations were consolidated in
the United States, Europe and Asia;
- The key operating assets and liabilities of the Precision Components
Group were sold;
- Subsequent to the end of the quarter, the Company issued 10 million
common shares for gross proceeds of $50 million (net proceeds of
approximately $47 million).
"We have made significant progress and ATS is now performing within the
range of acceptable," said Anthony Caputo, Chief Executive Officer. "During
the quarter we experienced headwinds brought on by the global financial
crisis. In the quarter we were able to mitigate this impact with our revised
approach to market and defensive strategies."
Financial Results
In millions 3 months 3 months 9 months 9 months
of dollars, ended ended ended ended
except per Dec 31, Dec 31, Dec 31, Dec 31,
share data 2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue ASG $ 144.1 $ 122.8 $ 434.2 $ 339.7
from ------------------------------------------------------------
continuing Photowatt 79.7 51.7 221.6 137.3
operations ------------------------------------------------------------
Inter-segment (2.1) (0.0) (2.5) (0.2)
------------------------------------------------------------
Consolidated $ 221.7 $ 174.5 $ 653.3 $ 476.8
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EBITDA ASG $ 16.8 $ 4.1 $ 45.1 $ 11.2
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Photowatt
Technologies
- Photowatt France 12.2 (0.1) 31.3 (0.3)
- Other solar (0.5) (1.2) (1.3) (5.7)
- Gain on sale
of building - - 3.2 -
- Gain on silicon
sale - - 2.0 -
------------------------------------------------------------
Gain on sale of
investments - 31.8 - 31.8
------------------------------------------------------------
Corporate and
inter-segment
elimination (3.7) (4.7) (13.8) (20.0)
------------------------------------------------------------
Consolidated $ 24.8 $ 29.9 $ 66.5 $ 17.0
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Net income
from
continuing
operations Consolidated $ 15.8 $ 24.4 $ 43.5 $ 1.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
From continuing
operations
Earnings (basic & diluted) $ 0.20 $ 0.32 $ 0.56 $ 0.03
(loss) ------------------------------------------------------------
per share After discontinued
operations
(basic & diluted) $ 0.16 $ (0.05) $ 0.45 $ (0.46)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Automation Systems Group Third Quarter Results
- Revenue increased 17% to $144.1 million from $122.8 million a year
ago on higher Order Backlog entering the third quarter of fiscal 2009
compared to the prior year;
- EBITDA was $16.8 million compared to $4.1 million a year ago;
- Earnings from operations were $14.7 million, up from $2.1 million a
year ago;
- Period end Order Backlog increased 34% to $282 million from $211
million a year ago;
- Order Bookings of $157 million were 37% higher than last year and
included an approximate $50 million order from a new solar customer;
- Order Bookings were $40 million during the first six weeks of the
fourth quarter.
Earnings from operations, excluding $3.1 million of restructuring charges
incurred in the quarter, improved in all geographic areas due to revenue
growth, cost reductions and improved program management. Revenue increased
year over year by 247% in energy, 4% in automotive and 40% in "other" markets
(primarily consumer products), more than offsetting 13% and 45% reductions in
healthcare and computer-electronics revenue respectively. Management believes
that orders from ASG's traditional channels to market will decrease in the
current economic environment. In response, management is increasing its focus
on approach to market, cash management and credit terms. Consolidation of the
remaining underperforming operations and supply chain improvements are
expected to cost between $4 million and $6 million during the fourth quarter.
Photowatt Technologies Third Quarter Results
- Photowatt Technologies revenue increased 54% to $79.7 million from
$51.7 million a year ago;
- Photowatt France EBITDA was $12.2 million compared to negative EBITDA
of $0.1 million a year ago;
- Photowatt France operating earnings were $8.2 million (10% operating
margin) compared to an operating loss of $3.5 million a year ago
(7% negative operating margin);
- Total megawatts (MWs) sold at Photowatt France increased 41% to 16.4
from 11.6 in the third quarter of fiscal 2008 - with UMG-Si products
accounting for 72% of revenue;
- Average cell efficiency for UMG-Si cells improved to approximately
14.4% from 13.1% a year ago, while average cell efficiency for
polysilicon products remained stable.
The year over year improvement in operating results reflected growth in
MWs sold, improved cell efficiency and manufacturing yields, and utilization
of the supply chain to increase output. Photowatt France continued to utilize
its supply chain to supplement internal production. This added incremental
earnings to operations, but at lower direct operating margins than for
products manufactured using internally-produced wafers. The installation of
equipment to balance production and increase capacity in ingot and wafer
stages was completed. Plans to invest (euro)4 million in automation systems
designed and built by the Company's ASG segment moved forward. Management
expects improvements in cell efficiency, manufacturing yields and throughput,
along with action plans for the remainder of fiscal 2009, will reduce
Photowatt France's manufacturing cost per watt. The extent to which planned
reductions in cost per watt will offset significant declines in average
selling prices now being experienced in key markets is unknown.
Board of Directors Change
Neil D. Arnold, Chairman of the Board of Directors of ATS, today
announced the appointment of Daryl C. F. Wilson to the Board of Directors. Mr.
Wilson is the Chief Executive Officer of Hydrogenics Corporation, a Canadian
public company and hydrogen technology provider, and has a 25 year track
record of delivering performance in turnaround and rapid growth companies.
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
3,000 people at 17 manufacturing facilities in Canada, the United States,
Europe, Southeast Asia and China. The Company's shares are traded on the
Toronto Stock Exchange under the symbol ATA. Visit the Company's website at
www.atsautomation.com.
Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") for the three and nine
months ended December 31, 2008 (third 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 third 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 first and second quarters of fiscal 2009 and, accordingly, the purpose of
this document is to provide a third 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 U.S.A., a small module
assembly facility and sales operation closed during fiscal 2008 and Spheral
Solar, a halted development project that has been wound down. 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, upgraded metallurgical silicon ("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 nine months ended
December 31, 2008 and the three and nine months ended December 31, 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 Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue by industry
Healthcare $ 32.4 $ 37.3 $ 104.6 $ 95.9
Computer-electronics 18.2 33.2 82.3 84.1
Energy 49.9 14.4 132.8 48.0
Automotive 27.5 26.4 74.2 80.2
Other 16.1 11.5 40.3 31.5
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Total ASG revenue $ 144.1 $ 122.8 $ 434.2 $ 339.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
ASG third quarter revenue was 17% higher than a year ago, primarily
reflecting a 12% increase in Order Backlog entering the third quarter compared
to a year ago.
By industrial market, healthcare revenue decreased by 13% reflecting 26%
lower Order Backlog entering the third quarter compared to a year ago.
Computer-electronics revenue decreased by 45% reflecting 40% lower Order
Backlog entering the third quarter compared to a year ago. Revenues from the
energy market increased by 247%, primarily reflecting solar industry Order
Bookings over the past 12 months. Revenues from the automotive market
increased 4% as North American and European revenues were positively impacted
by Order Bookings generated during the second quarter of fiscal 2009. "Other"
revenues increased 40% year over year due primarily to customer programs in
the consumer products industry.
Automation Products Group ("APG"), a division of ASG, contributed revenue
of $40.0 million in the third quarter of fiscal 2009, compared to $13.9
million in the third quarter last year. Growth in revenue reflects two
significant programs that are new to APG in fiscal 2009.
Foreign exchange positively impacted ASG revenues by an estimated $15.0
million compared to the third quarter of fiscal 2008, primarily reflecting a
stronger U.S. dollar and Euro relative to the Canadian dollar.
Year to date
ASG revenue for the nine months ended December 31, 2008 increased 28%
over the same period a year ago. This increase primarily reflects higher Order
Backlog entering fiscal 2009 compared to fiscal 2008 and higher Order Bookings
through the first three quarters of fiscal 2009 compared to the same period a
year ago. By industrial market, year to date revenues from healthcare, energy
and "other" markets have increased 9%, 177%, and 28% respectively compared to
the same period a year ago. These increases were partially offset by
computer-electronics and automotive revenue, which decreased by 2% and 7%
compared to the same period a year ago.
Foreign exchange positively impacted ASG revenues by an estimated $6.9
million compared to the first nine months of fiscal 2008, primarily reflecting
a stronger U.S. dollar and Euro relative to the Canadian dollar.
ASG Operating Results (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings from operations $ 14.7 $ 2.1 $ 38.9 $ 5.1
Depreciation and
amortization 2.1 2.0 6.2 6.1
-------------------------------------------------------------------------
EBITDA $ 16.8 $ 4.1 $ 45.1 $ 11.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
Fiscal 2009 third quarter earnings from operations were $14.7 million
(operating margin of 10%) compared to earnings from operations of $2.1 million
(operating margin of 2%) in the third quarter of fiscal 2008. Included in
third quarter fiscal 2009 earnings from operations was $3.1 million of
restructuring charges related to the consolidation of manufacturing facilities
in Tucson, U.S.A., Lyon, France, and Shanghai, China into existing operations.
The consolidation of these smaller, underperforming manufacturing operations
will reduce ASG's workforce by approximately 5% globally. The Company plans to
maintain a sales, service and support presence in these geographic regions.
Earnings from operations excluding restructuring charges improved in all
geographic locations and primarily reflect the 17% year over year increase in
revenue, cost reductions implemented over the past 12 months and improved
program management.
Foreign exchange positively impacted ASG third quarter earnings from
operations by an estimated $0.7 million compared to the third quarter of
fiscal 2008, primarily reflecting a stronger U.S. dollar and Euro relative to
the Canadian dollar.
Year to date
For the nine months ended December 31, 2008, earnings from operations
were $38.9 million (operating margin of 9%) compared to earnings from
operations of $5.1 million (operating margin of 2%) in the same period a year
ago. Included in year to date earnings from operations was $3.2 million of
restructuring charges related to the aforementioned operational consolidations
and the closures of the Michigan and Thailand facilities. The improvement in
operating earnings primarily reflects the 28% year over year growth in
revenue, cost reductions implemented during fiscal 2008 and fiscal 2009, and
improved program management.
Foreign exchange negatively impacted ASG year to date earnings from
operations by an estimated $3.9 million compared to the same period in fiscal
2008, primarily reflecting a stronger Canadian dollar relative to the U.S.
dollar in the first two quarters, offset by a stronger U.S. dollar relative to
the Canadian dollar in the third quarter and a stronger Euro relative to the
Canadian dollar in all three quarters.
ASG Order Bookings
Third quarter ASG Order Bookings were $157 million, 37% higher than the
third quarter of fiscal 2008, and included an approximate $50 million Order
Booking with a new customer in the solar industry. Order Bookings in the first
six weeks of the fourth quarter of fiscal 2009 were $40 million.
ASG Order Backlog Continuity (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Opening Order Backlog $ 247 $ 220 $ 232 $ 185
Revenue (144) (123) (434) (340)
Order Bookings 157 115 459 394
Order Backlog adjustments(1) 22 (1) 25 (28)
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Total $ 282 $ 211 $ 282 $ 211
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Order Backlog adjustments include foreign exchange and cancellations.
Order Backlog by Industry (in millions of dollars)
Dec 31, Dec 31,
2008 2007
-------------------------------------------------------------------------
Healthcare $ 70 $ 73
Computer-electronics 21 42
Energy 136 23
Automotive 34 49
Other 21 24
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Total $ 282 $ 211
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At December 31, 2008, ASG Order Backlog was $282 million, 34% higher than
at December 31, 2007. Year over year, Order Backlog increased 491% in energy,
primarily reflecting high Order Bookings from the solar industry during fiscal
2009. This growth was partially offset by decreases of 4% in healthcare, 50%
in computer-electronics, 31% in automotive and 13% in "other" markets. The
decline in healthcare Order Backlog reflects lower Order Bookings in North
America during the first nine months 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 nine months compared
to the prior year. The decrease in automotive Order Backlog reflects a decline
in Order Bookings primarily in North America.
Automation Systems Group Outlook
Management continues to believe that the long-term fundamental market
demand for automation remains strong. However, the rapid global economic
downturn and tightening credit markets experienced in the past few months are
expected to present immediate challenges. Some ASG customers may experience
financial difficulties, reduce their capital spending, or delay programs to
varying degrees depending on the market segment. During the third quarter and
first six weeks of the fourth quarter, Order Bookings from ASG's traditional
approach to market were negatively impacted as some customers delayed or
cancelled new programs. Management believes that Order Bookings from the
traditional channels to market, which focuses on responding to requests for
proposals, will continue to decrease in the current economic environment.
Offsetting lower Order Bookings from ASG's traditional sales channels is
the Company's revised offering and approach to market. ASG is now developing
sales campaigns and targeting automation solutions for its customers based on
differentiating technological solutions, value of outcomes achieved by
customers and global capability. These strategies are beginning to gain
traction and resulted in an approximate $50 million Order Booking in the solar
industry during the third quarter. However, Order Bookings from ASG's revised
approach to market are sporadic in nature and may not repeat every quarter.
During the fourth quarter, ASG plans to begin strengthening the leadership of
the front end of the business, align by market segment, increase senior
management focus on all customer opportunities and proposals, and cautiously
manage cash and credit terms.
Operationally, ASG plans to continue consolidation and restructuring of
non-strategic manufacturing operations and to begin rationalizing its supply
chain. Management has launched initiatives to further standardize components
and sub-assemblies, consolidate the vendor base to reduce cost and improve
terms, increase outsourcing of machining and fabrication to low-cost
countries, and leverage global operations to deliver customer programs.
Completion of the restructuring and implementation of improvements to supply
chain are anticipated to cost between $4 million and $6 million during the
fourth quarter.
Management is uncertain to what extent the improvement initiatives will
offset current market conditions, and will continue to monitor the situation
and modify plans accordingly.
Management believes that ATS has a strong balance sheet and is in a
position to begin evaluating strategic and opportunistic ASG acquisitions.
Photowatt Technologies Segment
Photowatt Technologies Revenue (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue by operating facility
Photowatt France $ 79.7 $ 51.6 $ 221.6 $ 135.2
Other Solar - 0.1 - 2.1
-------------------------------------------------------------------------
Total revenue $ 79.7 $ 51.7 $ 221.6 $ 137.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue by product
Polysilicon products $ 22.6 $ 22.9 $ 75.3 $ 77.2
UMG-Si products 57.1 28.8 146.3 60.1
-------------------------------------------------------------------------
Total Revenue $ 79.7 $ 51.7 $ 221.6 $ 137.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
Photowatt Technologies fiscal 2009 third quarter revenue was $79.7
million, 54% higher than in the third quarter of fiscal 2008. Higher revenue
reflected an increase in total megawatts ("MWs") sold at Photowatt France to
16.4 MWs from 11.6 MWs in the same period a year ago. 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. During the quarter, Photowatt France outsourced 2.6 MW of
polysilicon wafer and module production. Revenue from the sale of module
systems ("Systems") increased to $22.5 million from $12.8 million in the third
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 third quarter of fiscal 2009 remained stable
with the prior year.
Foreign exchange positively impacted Photowatt France third quarter
revenues by an estimated $8.3 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 nine months of fiscal 2009
increased 61% compared to the same period a year ago. The increase in revenue
reflects an increase in MWs sold at Photowatt France from 30.5 MWs to 45.1
MWs. Revenues from System sales increased to $57.4 million from $22.2 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 $18.4 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 Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
-------------------------------------------------------------------------
Earnings (loss) from
operations:
Photowatt France $ 8.2 $ (3.5) $ 19.8 $ (10.1)
Other Solar (0.5) (1.2) 4.0 (6.0)
-------------------------------------------------------------------------
Earnings (loss) from
operations $ 7.7 $ (4.7) $ 23.8 $ (16.1)
-------------------------------------------------------------------------
Photowatt France EBITDA
Photowatt France earnings
(loss) from operations $ 8.2 $ (3.5) $ 19.8 $ (10.1)
Depreciation and
amortization 4.0 3.4 11.5 9.8
-------------------------------------------------------------------------
Photowatt France EBITDA $ 12.2 $ (0.1) $ 31.3 $ (0.3)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
Photowatt Technologies fiscal 2009 third quarter earnings from operations
were $7.7 million compared to a loss from operations of $4.7 million a year
ago.
Fiscal 2009 third quarter earnings from operations for Photowatt France
were $8.2 million (operating margin of 10%), compared to a loss from
operations of $3.5 million (negative operating margin of 7%) in the third
quarter of fiscal 2008. The year over year improvement in operating results
reflected higher MWs sold, improved cell efficiency and manufacturing yields,
and utilization of the supply chain to increase output. During the third
quarter, Photowatt France completed equipment installation in the ingot, wafer
and cell production stages.
Average cell efficiency for UMG-Si products increased to 14.4% compared
to 13.1% in the third quarter of fiscal 2008. Average cell efficiency for
polysilicon products remained stable at 15.2% compared to 15.3% in the third
quarter of fiscal 2008. Photowatt France outsourced some wafer and module
production to complement internal production. This added incremental earnings
to operations, but at lower direct operating margins than for products
manufactured using internally-produced wafers and cells.
Photowatt France's earnings from operations included approximately $0.3
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 efficiency, and may
eventually include manufacturing operations in France - see "Photowatt France
Outlook".
Photowatt France's amortization expense was $4.0 million compared to $3.4
million in the third quarter of fiscal 2008 reflecting additional depreciation
and amortization from expansion and improvement initiatives.
Foreign exchange positively impacted Photowatt France's third quarter
earnings from operations by an estimated $0.5 million compared to the third
quarter of fiscal 2008, primarily reflecting a stronger Euro relative to the
Canadian dollar.
"Other Solar" includes Spheral Solar, Photowatt U.S.A. and inter-solar
eliminations. During the third quarter of fiscal 2009, costs were incurred
related to equipment decommissioning and preparing equipment for sale. A year
ago, loss from operations included costs associated with the wind-down of the
closed Photowatt U.S.A. division, the halted Spheral Solar research initiative
and solar corporate costs and inter-solar eliminations.
Year to Date
Photowatt Technologies earnings from operations for the nine months ended
December 31, 2008 were $23.8 million compared to a loss from operations of
$16.1 million a year ago.
Photowatt France earnings from operations for the nine months ended
December 31, 2008 were $19.8 million compared to a loss from operations of
$10.1 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, utilization of the supply chain to increase output
and improved manufacturing yields.
Foreign exchange positively impacted Photowatt France year to date
earnings from operations by an estimated $1.3 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 U.S.A. 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.
Subsequent to the third quarter of fiscal 2009, average selling prices
per watt have decreased and management believes that average selling prices
per watt may further decline in the remainder of this fiscal year and into
fiscal 2010. Reductions in Spanish feed-in tariffs were implemented in the
fourth quarter and have already had a negative impact on the average selling
price per watt in that market. Management also expects that tightening credit
markets may reduce global demand for solar installation projects, and
potentially lead to over-supply during fiscal 2010. Management is
investigating downstream alternatives to create an additional market for
Photowatt France's products and lock in average selling prices for a larger
portion of fiscal 2010 sales.
Operationally, 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.
During the third quarter of fiscal 2009, management substantially
completed the previously announced (euro)20 million investment in
manufacturing equipment. The equipment will balance production, increase
capacity and reduce manufacturing costs in the ingot, wafer and cell stages of
production. In addition, Photowatt France has committed 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 cost per watt 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
began during the third quarter 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 two years. During the second quarter of fiscal
2009, 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, manufacturing yields
and throughput will reduce Photowatt France's manufacturing cost per watt.
However, management does not know to what extent planned reductions in cost
per watt will offset the impact of declines in average selling prices on
operating earnings. Photowatt will continue to combine process, automation and
production knowledge with the goal of achieving 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 the Precision Components
Group ("PCG") was not strategic to the growth of the Company and committed to
a plan to divest PCG. In the third quarter of fiscal 2009, the Company sold
the key operating assets and liabilities, including equipment, current assets
excluding cash, trade accounts payable and certain other assets and
liabilities of PCG for cash proceeds of $4.3 million and promissory notes with
a face value of $2.7 million. The transfer of PCG's China-based operations
remains subject to receipt of approvals from the Chinese government. Pending
receipt of these approvals, $1.5 million of the cash proceeds and $1.0 million
of promissory notes is being held in escrow and ownership of PCG's Chinese
operations remains with the Company. Accordingly, the results of operations
and financial position of PCG 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 $26.8 million of such costs. From the
fourth quarter of fiscal 2008 through to the third quarter of fiscal 2009,
costs incurred in this respect included restructuring and severance costs of
$14.3 million, PCG operating losses of $10.4 million, and $2.1 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 that it will incur an additional $4 million to $6 million of costs
to complete the currently planned consolidation and restructuring of ASG
manufacturing operations and improvements to ASG's supply chain and approach
to market. Management is continuing to monitor the impact of the current
economic environment on the Company and will modify plans accordingly.
Revenue. At $221.7 million, third quarter consolidated revenue from
continuing operations was 27% higher than a year ago. The increase in revenues
was driven by a 17% increase in ASG revenues and a 54% increase in Photowatt
Technologies revenues. Year to date revenues were $653.3 million or 37% higher
than the same period a year ago.
Consolidated earnings from operations. For the three months ended
December 31, 2008, consolidated earnings from operations were $18.5 million,
compared to earnings from operations of $24.4 million a year ago. Fiscal 2009
third quarter performance reflects: operating earnings of $14.7 million at ASG
(operating earnings of $2.1 million a year ago); Photowatt Technologies
operating earnings of $7.7 million (operating loss of $4.7 million a year
ago); and inter-segment eliminations and corporate expenses of $4.0 million
($4.8 million of costs a year ago and a gain on the sale of a portfolio
investment of $31.8 million). Year to date consolidated earnings from
operations were $48.3 million, compared to earnings from operations of $0.7
million a year ago. Fiscal 2009 year to date performance reflects: operating
earnings of $38.9 million at ASG (operating earnings of $5.1 million a year
ago); Photowatt Technologies operating earnings of $23.8 million (operating
loss of $16.1 million a year ago); and inter-segment elimination and corporate
expenses of $14.4 million ($20.1 million a year ago and a gain on the sale of
a portfolio investment of $31.8 million).
Selling, general and administrative ("SG&A") expenses. For the third
quarter of fiscal 2009, SG&A expenses decreased 8% or $1.9 million to $22.0
million compared to the respective prior year period. Included in SG&A for the
third quarter of fiscal 2009 was $3.1 million of restructuring charges related
to the consolidation of small manufacturing operations. Also included in SG&A
were higher profit sharing and employee performance incentives on increased
earnings, offset by a reduction in wages as a result of the operational
restructuring during the year. In the third quarter of fiscal 2008, the
Company incurred $0.7 million of consolidated severance costs pertaining
primarily to the resignation of certain senior officers of the Company and the
elimination of jobs at Spheral Solar, and a $4.2 million provision related to
a customer dispute in Photowatt.
For the nine months ended December 31, 2008, SG&A expenses decreased 11%
or $7.5 million to $62.5 million compared to the respective prior year period.
SG&A costs for the first nine months of fiscal 2009 included $3.2 million of
restructuring charges related to the consolidation of small manufacturing
operations. Also included in the first nine months of fiscal 2009 were costs
of $1.8 million related to the Credit Agreement signed in the first quarter of
fiscal 2009 (see "Liquidity, Cash Flow and Financial Resources") and higher
profit sharing and employee performance incentives on increased earnings.
These costs were partially offset by the recovery of a previously written-off
account receivable in Photowatt France of $1.4 million that was collected
during the second quarter. SG&A costs for the same nine month period a year
ago included severance costs of $7.7 million, $1.9 million related to the
change in the Board of Directors; and $0.5 million of recruiting costs for
certain senior level positions in the Company.
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 nine month periods ended
December 31, 2008, stock-based compensation expense decreased to $0.5 million
and $1.9 million respectively from $0.6 million and $2.6 million a year ago.
The year to date decrease reflects the recognition of $1.2 million in expenses
in the second quarter of fiscal 2008 relating to the accelerated vesting of
options of certain officers of the Company who resigned during that quarter.
This decrease in costs was partially offset by increased expenses 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 December 31, 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 2.3 years $ 171 $ 502
$8.50 889,333 1.41 3.9 years 189 962
$9.08 218,666 2.77 1.8 years 165 385
$10.41 333,334 2.19 3.6 years 121 569
$10.50 889,333 1.41 4.8 years 160 1,006
$11.08 218,667 2.77 3.0 years 114 454
$12.41 333,333 2.19 4.6 years 99 598
$13.08 218,667 2.77 4.0 years 91 485
$13.72 43,825 3.68 - years 18 -
$15.09 43,825 3.68 0.5 years 37 25
$16.60 43,825 3.68 1.3 years 30 50
$19.87 43,200 4.42 - years 38 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense and interest income. For the three months ended December
31, 2008, interest expense was less than $0.1 million (interest income of $0.1
million for the nine months ended December 31, 2008) compared to interest
income of $0.1 million a year ago (interest expense of $1.1 million for the
nine months ended December 31, 2007). Interest expense allocated to PCG and
included in discontinued operations was $0.2 million in the third quarter of
fiscal 2009 and $1.4 million year to date ($1.3 million and $2.3 million in
the third quarter and year to date of fiscal 2008 respectively) reflecting
debt attributable to discontinued operations.
Provision for income taxes. In fiscal 2009, 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 as a
result of the utilization of unrecognized loss carryforwards in Canada and
parts of Europe. In fiscal 2008, 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.
Net income from continuing operations. For the third quarter of fiscal
2009, net income from continuing operations was $15.8 million (20 cents
earnings per share basic and diluted) compared to net income from continuing
operations of $24.4 million (32 cents earnings per share) a year ago. Net
income from continuing operations for the nine months ended December 31, 2008
was $43.5 million (56 cents earnings per share basic and diluted) compared to
net income from continuing operations of $1.8 million a year ago (3 cents
earnings per share).
Loss from discontinued operations, net of tax. The loss from discontinued
operations for the three and nine month periods ended December 31, 2008 was
$3.5 million and $9.0 million respectively compared to $28.0 million and $33.2
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 third quarter of fiscal 2009, net income was
$12.3 million (16 cents earnings per share basic and diluted) compared to a
net loss of $3.7 million (5 cents loss per share) for the same period last
year. Net income in the first nine months of the current fiscal year was $34.5
million (45 cents earnings per share basic and diluted) compared to a net loss
of $31.4 million (46 cents loss per share) a year ago.
Foreign Exchange
Year over year foreign exchange rate changes during the third quarter of
fiscal 2009 positively impacted consolidated revenues by an estimated $23.3
million compared to the third quarter of fiscal 2008. This increase was
primarily related to a stronger U.S. dollar and Euro relative to the Canadian
dollar. Year to date foreign exchange rate changes positively impacted
consolidated revenues by an estimated $25.3 million as both the Euro and the
U.S. dollar were stronger relative to the Canadian dollar on a year to date
basis compared to the same period a year ago.
Changes in foreign exchange rates increased consolidated earnings from
operations by an estimated $1.2 million compared to the third quarter of
fiscal 2008 due to a stronger U.S. dollar and Euro relative to the Canadian
dollar. Year to date foreign exchange rate changes negatively impacted
consolidated earnings from operations by an estimated $2.6 million as
operating earnings were influenced by the weaker U.S. dollar in the first two
quarters of the current fiscal year, as well as more income being earned in
U.S. dollars by the Company's Canadian divisions which was generally hedged at
lower rates compared to a year ago. These negative impacts were offset
partially by the stronger U.S. dollar in the third quarter and the stronger
Euro during the current fiscal year.
Period Average Market Exchange Rates in CDN$
Three months ended Nine months ended
Dec 31, 2008 Dec 31, 2007 Dec 31, 2008 Dec 31, 2007
-------------------------------------------------------------------------
U.S. $ 1.2095 0.9822 1.0873 1.0410
Euro 1.5899 1.4246 1.5765 1.4460
Singapore $ 0.8119 0.6758 0.7653 0.6942
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
Cash balances, net of bank indebtedness and long-term debt, at December
31, 2008 increased $17.8 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 and proceeds from disposal of assets, partially
offset by increased investment in capital assets and silicon deposits. The
Company invested $13.8 million in property, plant and equipment in the third
quarter of fiscal 2009 and $26.6 million year to date, of which $12.3 million
was invested in Photowatt France during the third quarter and $22.3 million
year to date. Cash provided by the sale of the redundant Spheral Solar
building partially offset silicon deposits made during the third quarter of
fiscal 2009.
The Company's investment in non-cash working capital decreased $1.0
million in the third quarter and increased by $7.5 million year to date.
Consolidated accounts receivable increased 22% compared to March 31, 2008,
driven primarily by increased revenues in the first nine months of fiscal
2009, partially offset by improved accounts receivables collections.
Consolidated net construction-in-process decreased 7% compared to March 31,
2008, reflecting 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 35% 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, as
well as increased silicon inventory at Photowatt. Deposits and prepaid
expenses increased 10% on higher deposits on long lead-time materials for
automation systems programs. Accounts payable increased 34% on higher
purchases and activity levels during the first nine months of fiscal 2009.
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 meets certain conditions, increases by $5 million
monthly increments up to $65 million and a letter of credit facility of up to
$20 million for certain purposes. As of January 31, 2009, the Company has met
conditions to access $60 million of the $65 million of available operating
credit facilities under the Credit Agreement. 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 pays 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.
In December 2008, the Company's wholly owned subsidiary, Photowatt
France, established new credit facilities of (euro)6 million, with terms to
maturity of up to six years. The credit facilities are secured by security on
certain assets of Photowatt France.
In January 2009, Photowatt France established an additional (euro)6
million credit facility, repayable over three years.
The Company also has other credit facilities comprised of outstanding
amounts under short term unsecured credit facilities available totaling
approximately (euro)17.8 million.
The Company's total debt to equity ratio (excluding Accumulated Other
Comprehensive Income) at December 31, 2008 was 0.7:1. At December 31, 2008 the
Company had $55.6 million of unutilized credit available under existing
operating and long-term credit facilities and a further $18.5 million
available under the letter of credit facility.
In January 2009, the Company completed a public offering of its common
shares and issued 10 million common shares for gross proceeds of $50 million,
from which underwriter fees, professional fees and other transaction expenses
will be deducted. The net proceeds of the offering improve the Company's
financial flexibility and will be used to pursue strategic opportunities, and
for working capital and general corporate purposes.
Impact of public offering of common shares on net cash position
(in millions of dollars):
-------------------------------------------------------------------------
Cash net of debt as at December 31, 2008 $ 45.8
Estimated net proceeds from January 2009
public offering of common shares 46.8
-------------------------------------------------------------------------
Total $ 92.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company expects that continued cash flows from operations, together
with cash and short-term investments on hand and credit available under
operating and long-term credit facilities, will be more than sufficient to
fund its requirements for investments in working capital and capital assets.
No stock options were exercised during the third quarter of fiscal 2009.
At February 6, 2009 the total number of shares outstanding was 87,277,155.
Consolidated Quarterly Results
($ in thousands, except Q3 Q2 Q1 Q4
per share amounts) 2009 2009 2009 2008
-------------------------------------------------------------------------
Revenue $ 221,739 $ 219,536 $ 212,071 $ 186,474
Earnings (loss) from
operations $ 18,472 $ 13,563 $ 16,278 $ 8,183
Net income (loss) from
continuing operations $ 15,814 $ 12,688 $ 14,991 $ 10,343
Net income (loss) $ 12,316 $ 9,272 $ 12,930 $ 7,939
Basic and diluted earnings
(loss) per share from
continuing operations $ 0.20 $ 0.16 $ 0.19 $ 0.13
Basic and diluted earnings
(loss) per share $ 0.16 $ 0.12 $ 0.17 $ 0.10
ASG Order Bookings $ 157,000 $ 133,000 $ 169,000 $ 137,000
ASG Order Backlog $ 282,000 $ 247,000 $ 258,000 $ 232,000
($ in thousands, except Q3 Q2 Q1 Q4
per share amounts) 2008 2008 2008 2007
-------------------------------------------------------------------------
Revenue $ 174,457 $ 146,931 $ 155,407 $ 151,444
Earnings (loss) from
operations $ 24,426 $ (16,913) $ (6,783) $ (41,664)
Net income (loss) from
continuing operations $ 24,365 $ (15,492) $ (7,058) $ (78,440)
Net income (loss) $ (3,662) $ (18,763) $ (8,937) $ (80,854)
Basic and diluted earnings
(loss) per share from
continuing operations $ 0.32 $ (0.23) $ (0.12) $ (1.31)
Basic and diluted earnings
(loss) per share $ (0.05) $ (0.28) $ (0.15) $ (1.35)
ASG Order Bookings $ 115,000 $ 133,000 $ 146,000 $ 134,000
ASG Order Backlog $ 211,000 $ 220,000 $ 217,000 $ 185,000
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 U.S. $1.6 million have been made 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
implementing remediation plans for the identified controls deficiencies, and
has completed certain elements of the remediation plans. During the third
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 nine months ended December 31, 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 management's discussion and analysis of financial conditions, and
results of operations of ATS for the three months ended December 31, 2008
contains certain statements that constitute forward-looking information within
the meaning of applicable securities laws ("forward-looking statements"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of ATS, or developments in ATS's business or in its industry, to differ
materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements. Forward-
looking statements include all disclosure regarding possible events,
conditions or results of operations that is based on assumptions about future
economic conditions and courses of action. Forward-looking statements may also
include, without limitation, any statement relating to future events,
conditions or circumstances. ATS cautions you not to place undue reliance upon
any such forward-looking statements, which speak only as of the date they are
made. Forward-looking statements relate to, among other things: management's
belief in relation to long term demand for automation; expectation of
challenges associated with current economic environment and credit market;
management's belief that order bookings from traditional channels to market
will continue to decrease; sporadic nature of order bookings from ASG's
revised approach to market; ASG's improvement plans with respect to the front
end of the business and operations; expected costs of continuing operational
improvements; uncertainty as to impact of current market conditions; ATS'
position to begin to evaluate strategic and opportunistic acquisitions;
management's belief with respect to the long term outlook for the solar energy
business; impact of declining subsidies in some jurisdictions; decline in
average selling price per watt; possible reduction in global demand for solar
installation projects; management's downstream initiatives at Photowatt
France; Photowatt France's operational focus related to UMG-Si; expected
benefits of new equipment at Photowatt France; intention to invest further in
equipment and expected time frame of impact on performance; expected time
frame for completion of PVA cell line, the funding thereof, and anticipated
payback period; management's expectations with respect to reductions in cost
per watt and the impact of declines in average selling prices; operational
initiatives at Photowatt France; and the Company's expectations with respect
to working capital and capital asset funding. 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; potential technical issues,
cost overruns or unexpected costs associated with these initiatives; ability
of ATS to identify and execute upon strategic and opportunistic acquisitions;
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; that ASG's revised offering and approach
to market is not successful in securing future orders for competitive 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; ability of Photowatt to identify
downstream alternatives and lock in average selling prices with their
customers; ability 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; unexpected costs and/or delays in completing the
PVA cell line and realizing benefits; slow-down in progress being made with
the efficiency and cost per watt of UMG-Si modules; 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; delays or failure in
obtaining all remaining approvals and consents in relation to the PCG
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; 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.
February 11, 2009
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
December 31 March 31
2008 2008
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 81,902 $ 56,785
Accounts receivable 153,173 126,052
Investment tax credits 15,511 13,712
Costs and earnings in excess of billings
on contracts in progress 91,908 79,478
Inventories (note 4) 126,208 93,751
Future income taxes 5,828 1,604
Deposits and prepaid assets (note 6) 17,446 15,794
Assets held for sale (note 5) 2,786 12,156
-------------------------------------------------------------------------
494,762 399,332
Property, plant and equipment 204,653 186,054
Goodwill 39,606 35,342
Intangible assets 516 225
Future income taxes 2,988 2,117
Deferred development costs 1,384 1,940
Assets held for sale (note 5) 3,193 14,190
Portfolio investments (note 7) 2,649 4,927
Silicon and other deposits (note 8) 53,336 33,888
-------------------------------------------------------------------------
$ 803,087 $ 678,015
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 12) $ 14,548 $ 28,754
Accounts payable and accrued liabilities 200,499 149,169
Billings in excess of costs and earnings
on contracts in progress 42,050 26,101
Future income taxes 15,273 15,343
Current portion of long-term debt (note 12) 10,284 -
Current liabilities associated with
assets held for sale (note 5) 1,299 9,223
-------------------------------------------------------------------------
283,953 228,590
Long-term debt (note 12) 11,244 -
Other long-term liabilities 235 235
Shareholders' equity
Share capital (note 13) 432,756 432,825
Contributed surplus 8,201 6,370
Accumulated other comprehensive income (loss)
(note 15) 15,510 (6,675)
Retained earnings 51,188 16,670
-------------------------------------------------------------------------
507,655 449,190
-------------------------------------------------------------------------
$ 803,087 $ 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 Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ 221,739 $ 174,457 $ 653,346 $ 476,795
-------------------------------------------------------------------------
Operating costs and expenses
Cost of revenue 174,454 151,832 527,709 418,934
Amortization 6,300 5,434 18,182 16,268
Selling, general and
administrative 22,042 23,956 62,486 70,014
Stock-based compensation
(note 9) 471 588 1,850 2,628
Gain on sale of silicon - - (2,006) -
Gain on sale of building
(note 5) - - (3,188) -
-------------------------------------------------------------------------
Earnings (loss) before
undernoted 18,472 (7,353) 48,313 (31,049)
-------------------------------------------------------------------------
Gain on sale of portfolio
investments (note 7) - 31,779 - 31,779
-------------------------------------------------------------------------
Earnings from operations 18,472 24,426 48,313 730
-------------------------------------------------------------------------
Other expenses (income)
Interest on long-term debt 133 514 281 1,551
Other interest (95) (578) (335) (453)
-------------------------------------------------------------------------
38 (64) (54) 1,098
-------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes
and non-controlling interest 18,434 24,490 48,367 (368)
Provision for (recovery of)
income taxes (note 17) 2,620 112 4,874 (2,224)
Non-controlling interest in
earnings of subsidiaries - 13 - 42
-------------------------------------------------------------------------
Net income from continuing
operations 15,814 24,365 43,493 1,814
Loss from discontinued
operations, net of tax
(note 5) (3,498) (28,027) (8,975) (33,177)
-------------------------------------------------------------------------
Net income (loss) $ 12,316 $ (3,662) $ 34,518 $ (31,363)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
(note 10)
Basic and diluted - from
continuing operations $ 0.20 $ 0.32 $ 0.56 $ 0.03
Basic and diluted - from
discontinued operations (0.04) (0.37) (0.11) (0.49)
-------------------------------------------------------------------------
$ 0.16 $ (0.05) $ 0.45 $ (0.46)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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)
Nine months ended December 31, 2008
-------------------------------------------------------------------------
Accumulated
Other
Compre- Total
hensive Share-
Share Contributed Income Retained holders'
Capital Surplus (Loss) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $432,825 $ 6,370 $ (6,675) $ 16,670 $449,190
Comprehensive income
(loss)
Net income - - - 34,518 34,518
Currency translation
adjustment - - 29,404 - 29,404
Net unrealized loss
on available for-sale
financial assets - - (2,144) - (2,144)
Net unrealized loss on
derivative financial
instruments designated
as cash flow hedges - - (5,171) - (5,171)
Gain transferred to net
income for derivatives
designated as
cash flow hedges - - 96 - 96
---------
Total comprehensive income 56,703
Stock-based compensation
(note 9) - 1,831 - - 1,831
Costs related to shares
issued for rights
offering (note 13) (69) - - - (69)
-------------------------------------------------------------------------
Balance, end of the
period $432,756 $ 8,201 $ 15,510 $ 51,188 $507,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended December 31, 2007
-------------------------------------------------------------------------
Accumulated
Other
Compre- Total
hensive Share-
Share Contributed Income Retained holders'
Capital Surplus (Loss) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $327,560 $ 3,193 $ (9,422) $ 40,048 $361,379
Transitional adjustment
on adoption of
new standards - - 20,534 45 20,579
-------------------------------------------------------------------------
Balance beginning of
period, as restated 327,560 3,193 11,112 40,093 381,958
Comprehensive income
(loss)
Net loss - - - (31,363) (31,363)
Currency translation
adjustment - - (23,699) - (23,699)
Net unrealized loss
on available for-sale
financial assets - - (1,726) - (1,726)
Amount transferred to
income on available
for-sale financial
assets - - (18,420) - (18,420)
Net unrealized gain
on derivative
financial instruments
designated as
cash flow hedges - - 7,637 - 7,637
Losses transferred
to net loss for
derivatives designated
as cash flow hedges - - (3,369) - (3,369)
---------
Total comprehensive loss (70,940)
Stock-based compensation
(note 9) - 2,379 - - 2,379
Shares issued during the
period for Cash on
rights offering, net
(note 13) 102,522 - - - 102,522
-------------------------------------------------------------------------
Balance, end of
the period $430,082 $ 5,572 $(28,465) $ 8,730 $415,919
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Operating activities:
Net income (loss) $ 12,316 $ (3,662) $ 34,518 $ (31,363)
Items not involving cash
Amortization 6,300 5,434 18,182 16,268
Future income taxes (2,590) 3,217 (5,165) 522
Other items not
involving cash (217) 26 528 1,288
Stock-based compensation 471 588 1,850 2,628
Gain on disposal of
portfolio investment - (31,779) - (31,779)
(Gain) loss on disposal
of property, plant
and equipment 196 - (2,776) -
Impairment of long-lived
assets - 19,109 - 19,109
Non-cash discontinued
operations 1,750 1,579 1,750 4,860
-------------------------------------------------------------------------
Cash flow from operations 18,226 (5,488) 48,887 (18,467)
Change in non-cash operating
working capital 1,008 10,923 (7,523) (8,021)
-------------------------------------------------------------------------
Cash flows provided by
(used in) operating
activities 19,234 5,435 41,364 (26,488)
-------------------------------------------------------------------------
Investing activities:
Acquisition of property,
plant and equipment (13,769) (2,422) (26,608) (13,800)
Acquisition of intangible
assets - - (500) -
Restricted cash - 3,050 - -
Proceeds from disposal of
portfolio investment - 31,932 - 31,932
Investments and other (16,683) (7,214) (16,175) (27,451)
Proceeds from disposal
of assets 2,874 78 18,899 122
-------------------------------------------------------------------------
Cash flows provided by
(used in) investing
activities (27,578) 25,424 (24,384) (9,197)
-------------------------------------------------------------------------
Financing activities:
Bank indebtedness 3,492 (36,444) (14,875) (22,550)
Share issue costs (note 13) - - (69) (7,688)
Proceeds from long-term debt
(note 12) 11,229 - 22,016 60,000
Repayment of long-term debt
(note 12) - (58,456) (2,399) (86,817)
Issuance of common shares
(note 13) - - - 110,210
-------------------------------------------------------------------------
Cash flows provided by
(used in) financing
activities 14,721 (94,900) 4,673 53,155
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and
short-term investments 5,047 386 3,464 (4,416)
-------------------------------------------------------------------------
Increase in cash and
short-term investments 11,424 (63,655) 25,117 13,054
Cash and short-term
investments, beginning of
period 70,478 102,277 56,785 25,568
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 81,902 $ 38,622 $ 81,902 $ 38,622
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information
Cash income taxes paid $ - $ 3,165 $ 175 $ 4,556
Cash interest paid $ 384 $ 1,666 $ 803 $ 5,381
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
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.
December 31 March 31
2008 2008
-------------------------------------------------------------------------
Inventories are summarized as follows:
Raw materials $ 84,864 $ 61,905
Work in process 11,105 15,296
Finished goods 30,239 16,550
-------------------------------------------------------------------------
$ 126,208 $ 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 nine months ended December 31, 2008 was $61,525, and
$190,230 respectively (three and nine months ended December 31, 2007:
$39,123 and $102,102 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 nine months ended December 31, 2008 was
$3,014 and $4,797 respectively (three and nine months ended December 31,
2007: $1,150 and $4,827 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 the three and nine
months ended December 31, 2008 was nil and $181 (three and nine months
ended December 30 2007: nil).
5. Discontinued operations and assets held for sale:
(i) During the three months ended December 31, 2008, the Company sold 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 ("PCG") for cash proceeds
of $4,250 and promissory notes with a face value of $2,750. The transfer
of PCG's China-based operations remains subject to receipt of approvals
from the Chinese government. Pending receipt of these approvals, $1,500
of the cash proceeds and $1,000 of promissory notes is being held in
escrow and ownership of PCG's Chinese operations remains with the
Company. Accordingly, the results of operations and financial position of
PCG have been segregated and presented separately as discontinued
operations and held for sale in the consolidated financial statements.
The results of the discontinued operations are as follows:
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue $ 8,328 $ 16,882 $ 27,877 $ 52,684
-------------------------------------------------------------------------
Loss from discontinued
operations, net of tax $ (3,498) $ (28,027) $ (8,975) $ (33,177)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 are classifed as held for sale.
6. Deposits and prepaid assets:
December 31 March 31
2008 2008
-------------------------------------------------------------------------
Prepaid assets $ 2,824 $ 4,611
Silicon and other deposits 11,926 9,530
Forward contracts and other 2,696 1,653
-------------------------------------------------------------------------
$ 17,446 $ 15,794
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Portfolio investments:
During the three months ended December 31, 2007, the company sold all of
its 1,864,398 shares in Canadian Solar Inc., a publicly traded company on
Nasdaq, for gross proceeds of $31,775 US ($32,032 CAN) and net proceeds
of $31,677 US ($31,932 CAN). A gain of $31,779 was recorded in the
interim consolidated statement of operations related to this disposition.
8. Silicon and other deposits:
December 31 March 31
2008 2008
-------------------------------------------------------------------------
Silicon deposits $ 53,253 $ 33,888
Long term prepaid assets 83 -
-------------------------------------------------------------------------
$ 53,336 $ 33,888
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9. 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 nine months ended December 31, 2008 the Company granted
375,000 time vesting options (1,184,950 in the nine months ended December
31, 2007). The options granted vest over 4 years from the date of issue.
During the nine months ended December 31, 2008, no performance based
options were granted (1,918,000 in the nine months ended December 31,
2007). 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 nine months ended December 31, 2008 no performance
based options vested. During the nine months ended December 31, 2007
certain performance options vested as a result of accelerated vesting
provisions on the resignation of certain officers of the Company.
The fair value of options issued during the period were estimated at the
date of the grant using the following weighted average assumptions:
Nine months ended
-------------------------------------------------------------------------
December December
31 31
2008 2007
-------------------------------------------------------------------------
Weighted average risk-free interest rate 3.24% 3.98%
Dividend yield 0% 0%
Weighted average expected life 4.0 years 6.6 years
Expected volatility 45% 39%
Number of stock options granted:
Time vested 375,000 1,184,950
Performance based - 1,918,000
Weighted average exercise price per option $ 7.80 $ 6.62
Weighted average value per option:
Time vested $ 3.03 $ 2.41
Performance based $ - $ 1.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Earnings (loss) per share:
Weighted average number of shares used in the computation of earnings
(loss) per share is as follows:
Three months ended Nine months ended
-------------------------------------------------------------------------
December 31 December 31 December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Basic 77,277,155 76,952,155 77,277,155 68,288,338
Diluted 77,459,680 76,952,155 77,726,163 68,288,338
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the year ended March 31, 2008, the Company executed a rights
offering as described in note 13. 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 nine months ended December 31, 2007 have been
retrospectively increased by 489,000 to reflect the bonus element.
For the three and nine months ended December 31, 2008, stock options to
purchase 5,718,315 and 4,509,962 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 the three and nine months ended December 31, 2007).
11. 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 in discontinued operations.
The Company accounts for inter-segment revenue at current market rates,
negotiated between the segments.
Three months ended Nine months ended
-------------------------------------------------------------------------
December December December December
31 31 31 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Revenue
Automation Systems Group $ 144,078 $ 122,838 $ 434,231 $ 339,689
Photowatt Technologies 79,711 51,680 221,580 137,281
Elimination of
inter-segment revenue (2,050) (61) (2,465) (175)
-------------------------------------------------------------------------
Consolidated $ 221,739 $ 174,457 $ 653,346 $ 476,795
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems Group $ 14,682 $ 2,143 $ 38,924 $ 5,111
Photowatt Technologies 7,741 (4,736) 23,836 (16,068)
Inter-segment elimination
and corporate expenses (3,480) (4,172) (12,597) (17,464)
Stock based compensation (471) (588) (1,850) (2,628)
Gain on sale of portfolio
investment - 31,779 - 31,779
-------------------------------------------------------------------------
Consolidated $ 18,472 $ 24,426 $ 48,313 $ 730
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. 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 meets certain conditions, increases by $5,000
monthly increments up to $65,000, and a letter of credit facility of up
to $20,000 for certain purposes. As of January 31, 2009, the Company has
met conditions to access $60,000 of the $65,000 of available operating
credit facilities under the Credit Agreement. 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 pays 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.
In December 2008, the Company's wholly owned subsidiary, Photowatt
International S.A.S., established new credit facilities of 6,000 Euro,
with terms to maturity of up to six years. The credit facilities are
secured by security on certain assets of Photowatt International S.A.S.
In January 2009, Photowatt International S.A.S. established an additional
6,000 Euro credit facility, repayable over three years.
The Company also has other credit facilities under short term unsecured
credit facilities available totaling approximately 17,800 Euro.
The following amounts were outstanding:
December 31 March 31
2008 2008
-------------------------------------------------------------------------
Bank indebtedness:
Primary credit facility $ - $ 8,478
Other facilities 14,548 20,276
-------------------------------------------------------------------------
$ 14,548 $ 28,754
-------------------------------------------------------------------------
Long-term debt:
Primary credit facility $ 10,036 $ -
Other facilities 11,492 -
-------------------------------------------------------------------------
$ 21,528 $ -
Less: current portion 10,284 -
-------------------------------------------------------------------------
$ 11,244 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
13. 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.
14. 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 selling, general and administrative expenses in the interim
consolidated statements of operations. During the three and nine months
ended December 31, 2008, the fair value of derivative financial assets
classified as held-for-trading and included in deposits and prepaid
assets increased by $12 and $783 respectively (decreased by $992 and
increased by $292 during the three and nine months ended December 31,
2007) and the fair value of derivative financial liabilities classified
as held-for-trading and included in accounts payable and accrued
liabilities increased by $3,010 and $2,180 respectively (increased by
$372 and decreased by $43 during the three and nine months ended December
31, 2007).
Cash flow hedges
During the three and nine months ended December 31, 2008, an unrealized
loss of $13 and an unrealized gain of $88 was recognized in selling,
general and administrative expense for the ineffective portion of cash
flow hedges (unrealized gain of $66 and $20 during the three and nine
months ended December 31, 2007). After-tax unrealized losses of $5,171
included in accumulated other comprehensive income at December 31, 2008
are expected to be reclassified to earnings over the next 12 months when
the revenue is recorded (unrealized gains of $3,693 at December 31,
2007).
15. Accumulated other comprehensive income (loss):
The components of accumulated other comprehensive income (loss) are as
follows:
December 31 March 31
2008 2008
-------------------------------------------------------------------------
Accumulated currency translation adjustment $ 22,625 $ (6,779)
Accumulated unrealized gain (loss) on
available-for-sale financial assets (1,944) 200
Accumulated unrealized net loss on
derivative financial instruments
designated as cash flow hedges (5,171) (96)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ 15,510 $ (6,675)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
16. 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
PV Alliance, 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:
December
31 March 31
2008 2008
-------------------------------------------------------------------------
Balance Sheet
Current assets $ 1,950 $ 587
Property and equipment 6 1
Current liabilities (935) (328)
Long term debt (1,121) -
-------------------------------------------------------------------------
Net assets $ (100) $ 260
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended December December
31 31
2008 2007
-------------------------------------------------------------------------
Statement of Operations
Operating expenses and net loss $ (665) $ (426)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the nine months ended December 31, 2008, the PV Alliance
established shareholder loans proportionately worth 2,628 Euro, to be
received in instalments until September 2009. The loans are repayable
over five years.
17. Income taxes:
For the three and nine months ended December 31, 2008, the Company's
effective income tax rate differs from the combined Canadian basic
federal and provincial income tax rate of 33.5% (December 31, 2007 -
36.1%) primarily as a result of the utilization of unrecognized loss
carryforwards in Canada and parts of Europe. In the three and nine months
ended December 31, 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.
18. 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 International S.A.S. 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.
19. Subsequent event
On January 14, 2009, the company issued 10,000,000 Common Shares for
gross proceeds of $50,000, from which underwriter fees, professional fees
and other transaction expenses will be deducted.
%SEDAR: 00002017E
For further information: Maria Perrella, Chief Financial Officer; Carl Galloway, Vice-President and Treasurer, (519) 653-6500