ATS reports third quarter fiscal 2010 results
TSX: ATA
CAMBRIDGE, ON, Feb. 9, 2010 /CNW/ - ATS Automation Tooling Systems Inc. ("ATS" or the "Company") today reported
its financial results for the three and nine months ended December 27, 2009.
Third Quarter Summary
- Consolidated revenue was $138.1 million compared to $148.2 million in
the second quarter of the fiscal year and $221.7 million in the third
quarter a year ago;
- Consolidated earnings from operations were $4.7 million compared to
$9.3 million in the second quarter of the fiscal year and
$18.4 million in the third quarter a year ago;
- Per share earnings were $0.04 (basic and diluted) compared to $0.07
(basic and diluted) in the second quarter of the fiscal year and
$0.16 (basic and diluted) in the third quarter a year ago;
- The balance sheet remained strong with cash net of debt of
$122.5 million compared to $106.5 million at March 31, 2009 and
$45.8 million at December 31, 2008;
- In December, the Company announced the establishment of Photowatt
Ontario as part of its plan to serve the Ontario solar energy market.
Photowatt Ontario has built an initial project development pipeline
and submitted a number of feed-in tariff applications to the Ontario
Power Authority.
In the Automation Systems Group segment ("ASG"), third quarter Order Bookings increased 30% compared to the
second quarter, however, many of ASG's customers are continuing to push-out spending and delay investment
decisions. This will continue to cause volatility in Order Bookings and put pressure on revenues in the short-
term. In Photowatt Technologies, sales volumes improved in the third quarter by 21% to 12.8 megawatts ("MWs")
from 10.6 MWs in the second quarter. Notwithstanding this improvement in MWs sold, recently announced
reductions in solar feed-in tariffs in Germany and France, combined with tight credit markets for solar
installations will put further pressure on solar module demand and average selling prices, which will continue
to impact Photowatt Technologies revenue and operating margins.
"In the third quarter, we continued to experience challenging market conditions which negatively impacted Order
Bookings and revenues in both ASG and Photowatt Technologies," said Anthony Caputo, Chief Executive Officer.
"Despite these circumstances, we continued to operate profitably during the quarter. Based on the activity we
are seeing now in ASG, I believe that the Order Bookings deterioration we have experienced has moderated and
growth should slowly follow."
Financial Results
In millions 3 months 3 months 9 months 9 months
of dollars, ended ended ended ended
except per Dec 27, Dec 31, Dec 27, Dec 31,
share data 2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue ASG $ 78.6 $ 144.1 $ 290.8 $ 434.2
from ------------------------------------------------------------
continuing Photowatt 59.7 79.7 151.3 221.6
operations ------------------------------------------------------------
Inter-segment (0.2) (2.1) (3.1) (2.5)
------------------------------------------------------------
Consolidated $ 138.1 $ 221.7 $ 439.0 $ 653.3
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EBITDA ASG $ 10.0 $ 16.8 $ 41.9 $ 45.1
------------------------------------------------------------
Photowatt
Technologies 5.7 11.7 7.0 30.1
Gain on sale of
building - - - 3.2
Gain on silicon
sale - - - 2.0
------------------------------------------------------------
Corporate and
inter-segment
elimination (5.0) (3.8) (15.9) (13.9)
------------------------------------------------------------
Consolidated $ 10.7 $ 24.7 $ 33.0 $ 66.5
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-------------------------------------------------------------------------
Net income
from
continuing
operations Consolidated $ 3.7 $ 15.8 $ 10.1 $ 43.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings From continuing
per share operations
(basic &
diluted) $ 0.04 $ 0.20 $ 0.11 $ 0.56
------------------------------------------------------------
After
discontinued
operations
(basic &
diluted) $ 0.04 $ 0.16 $ 0.11 $ 0.45
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ASG Third Quarter Results
- Revenue was $78.6 million compared to $97.0 million in the second
quarter and $144.1 million a year ago;
- EBITDA was $10.0 million compared to $15.3 million in the second
quarter of this fiscal year and $16.8 million in the third quarter a
year ago;
- Earnings from operations were $8.4 million (operating margin of 11%)
compared to $13.6 million (operating margin of 14%) in the second
quarter of this fiscal year and $14.7 million (operating margin of
10%) in the third quarter a year ago;
- Period end Order Backlog was $203 million, an increase of 3% from
$197 million in the second quarter of this fiscal year and down from
$282 million a year ago;
- Order Bookings were $92 million compared to $71 million in the second
quarter of fiscal 2010 and $157 million in the third quarter a year
ago;
- Order Bookings were $46 million during the first six weeks of the
fourth quarter.
Despite a 45% year-over-year decrease in revenues in the third quarter, ASG's operating margin was 11%
reflecting cost reductions implemented during fiscal 2009 and 2010, supply chain savings and improved program
management. Revenue increased 27% in the healthcare industry, offset by decreases of 49% in computer-
electronics, 72% in energy, 67% in automotive, and 68% in other markets (primarily consumer products).
Photowatt Technologies Third Quarter Results
- Photowatt Technologies revenue was $59.7 million, a 16% increase over
fiscal 2010 second quarter revenues of $51.5 million, but down from
$79.7 million in the third quarter a year ago;
- Photowatt Technologies EBITDA was $5.7 million compared to EBITDA of
$4.7 million in the second quarter of fiscal 2010 and EBITDA of
$11.7 million in the third quarter a year ago;
- Photowatt Technologies operating earnings were $1.6 million
(operating margin of 3%) compared to operating earnings of
$0.6 million (operating margin of 1%) in the second quarter of fiscal
2010 and operating earnings of $7.7 million (operating margin of 10%)
in the third quarter a year ago;
- Total megawatts (MWs) sold increased 21% to 12.8 MWs from 10.6 MWs in
the second quarter of fiscal 2010, and were 22% lower than the
16.4 MWs sold in the third quarter a year ago.
The 25% year-over-year decline in revenues reflected lower MWs sold and lower average selling prices. Photowatt
Technologies partially mitigated the impact of lower average selling prices through increased systems sales,
which were up by 71% to $38.5 million from $22.5 million a year ago. Total polysilicon products represented
$59.7 million or 100% of fiscal 2010 third quarter revenue compared to $22.6 million or 28% a year ago, as
production was rebalanced towards polysilicon products to take advantage of better raw material pricing.
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 by dialing 416 644 3422 five minutes prior.
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 a turn-key solar project developer and integrated manufacturer. Photowatt designs,
manufactures and sells solar modules and installation kits and provides solar power systems design and other
value-added services, principally in Western Europe and Ontario. ATS employs approximately 2,400 people at 13
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 27, 2009 (third
quarter of fiscal 2010) is as of February 9, 2010 and 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 2010. The Company assumes that the reader of this MD&A has access to and has
read the audited annual consolidated financial statements and MD&A of the Company for the year ended March 31,
2009 (fiscal 2009) and the unaudited interim consolidated financial statements and MD&A for the first and
second quarters of fiscal 2010 and, accordingly, the purpose of this document is to provide a third quarter
update to the information contained in the fiscal 2009 MD&A. These documents and other information relating to
the Company, including the Company's fiscal 2009 audited annual 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 which
includes Photowatt France ("PWF") and Photowatt Ontario ("PWO"). In fiscal 2009, Photowatt Technologies
included other solar divisions which are now closed, principally 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 Technologies' 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, during fiscal 2009, the Company completed the sale of its Precision
Components Group ("PCG"). The sale included the segment's key operating assets and liabilities. The results of
PCG are reported in discontinued operations.
Non-GAAP Measures
Throughout this document the term "operating earnings" is used to denote earnings (loss) from operations.
EBITDA is also used and is defined as earnings (loss) from operations excluding depreciation and amortization
(which includes amortization of intangible assets). 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 operating earnings and EBITDA to total Company net income for the three and nine months ended December 27,
2009 and the three and nine months ended December 31, 2008 is contained in this MD&A (See "Reconciliation of
EBITDA to GAAP Measures"). 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. A reconciliation of Order
Bookings and Order Backlog to total Company revenue for the three and nine months ended December 27, 2009 and
the three and nine months ended December 31, 2008 is contained in the MD&A (See "ASG Order Backlog
Continuity").
AUTOMATION SYSTEMS GROUP SEGMENT
ASG Revenue (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue by industry
Healthcare $ 41.2 $ 32.4 $ 119.6 $ 104.6
Computer-electronics 9.2 18.2 25.4 82.3
Energy 13.9 49.9 89.1 132.8
Automotive 9.1 27.5 34.3 74.2
Other 5.2 16.1 22.4 40.3
-------------------------------------------------------------------------
Total ASG revenue $ 78.6 $ 144.1 $ 290.8 $ 434.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
ASG third quarter revenue was 45% lower than for the same period a year ago, primarily reflecting a 20%
decrease in Order Backlog entering the third quarter compared to a year ago and a longer period of performance
for certain programs in Order Backlog.
By industrial market, healthcare revenue increased by 27% year-over-year due to higher healthcare Order Backlog
entering the third quarter. Healthcare continues to be a strong market for ASG, particularly in North America.
Revenue from the computer-electronics, energy and automotive markets decreased by 49%, 72% and 67%
respectively, reflecting lower Order Backlog entering the third quarter compared to a year ago. "Other"
revenues decreased 68% year over year due primarily to lower revenues in the consumer products industry and a
longer period of performance for certain programs in this segment.
Year to date
ASG revenue for the nine months ended December 27, 2009 decreased 33% compared to the corresponding period a
year ago. The decrease reflects lower Order Bookings throughout the first three quarters of fiscal 2010
compared to the same period in fiscal 2009 and an extended period of performance for certain programs in
opening Order Backlog for fiscal 2010. By industrial market, year to date revenues from healthcare increased
14% compared to the same period a year ago. This increase was offset by decreases of 69%, 33%, 54%, and 44% in
computer-electronics, energy, automotive, and "other" revenue, respectively, compared to the same period a year
ago.
ASG Operating Results (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Earnings from operations $ 8.4 $ 14.7 $ 36.7 $ 38.9
Depreciation and amortization 1.6 2.1 5.2 6.2
-------------------------------------------------------------------------
EBITDA $ 10.0 $ 16.8 $ 41.9 $ 45.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
Fiscal 2010 third quarter earnings from operations were $8.4 million (operating margin of 11%) compared to
earnings from operations of $14.7 million (operating margin of 10%) in the third quarter of fiscal 2009. Lower
operating earnings reflected the decrease in revenues; however, this was partially offset by an increase in
profitability driven by cost reductions implemented during fiscal 2009 and 2010, supply chain savings and
improved program management. Third quarter fiscal 2010 earnings from operations included severance and
restructuring expenses of $2.0 million compared to $3.1 million in the same period a year ago.
ASG depreciation and amortization expense was $1.6 million in the third quarter of fiscal 2010 compared to $2.1
million in the same period a year ago.
Year to date
For the nine months ended December 27, 2009, earnings from operations were $36.7 million (operating margin of
13%) compared to earnings from operations of $38.9 million (operating margin of 9%) in the corresponding period
a year ago. The improvement in operating margin was driven by cost reductions implemented during fiscal 2009
and fiscal 2010, supply chain savings, improved program management and the benefit of incremental tax credits
recognized in the second quarter of fiscal 2010. Included in year-to-date earnings from operations was $5.7
million of severance and restructuring charges compared to $3.4 million in the same period a year ago.
ASG Order Bookings
Fiscal 2010 third quarter Order Bookings were $92 million, 41% lower than the third quarter of fiscal 2009,
which included a solar industry Order Booking of approximately $50 million. Lower Order Bookings also reflected
a reduction in sales opportunities as customers continued to spend at reduced levels as a result of global
economic uncertainty. Order Bookings in the first six weeks of the fourth quarter of fiscal 2010 were $46
million.
ASG Order Backlog Continuity (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Opening Order Backlog $ 197 $ 247 $ 255 $ 232
Revenue (79) (144) (291) (434)
Order Bookings 92 157 260 459
Order Backlog adjustments(1) (7) 22 (21) 25
-------------------------------------------------------------------------
Total $ 203 $ 282 $ 203 $ 282
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Order Backlog adjustments include foreign exchange and cancellations.
Order Backlog by Industry (in millions of dollars)
Dec 27, Dec 31,
2009 2008
-------------------------------------------------------------------------
Healthcare $ 90 $ 70
Computer-electronics 16 21
Energy 51 136
Automotive 24 34
Other 22 21
-------------------------------------------------------------------------
Total $ 203 $ 282
-------------------------------------------------------------------------
-------------------------------------------------------------------------
At December 27, 2009, ASG Order Backlog was $203 million, 28% lower than at December 31, 2008 primarily
reflecting lower Order Bookings throughout the first nine months of fiscal 2010 compared to the corresponding
period in the prior year.
Growth in healthcare Order Backlog reflected increased activity in North America compared to the prior year.
Lower computer-electronics and automotive Backlog reflected industry conditions in both North America and
Europe, partially offset by increases in Asia. Declines in energy Backlog resulted primarily from lower
activity in North America. An increase in "other" Order Backlog reflected higher Order Backlog in North
America, partially offset by declines in Europe.
ASG Outlook
In the short-term, management believes business investment and capital spending by customers will remain low.
As the global economy and some of ASG's markets have strengthened, proposal activity in ASG's markets has
increased, however despite signs of improvement in some of ASG's customers markets, such as healthcare and
automotive, many of ASG's customers are continuing to push-out spending and delay investment decisions. This
will continue to cause volatility in Order Bookings and put pressure on revenues in the short-term. Overall,
management believes that increased capital spending will continue to lag the general economic recovery as
companies are hesitant to invest until their markets stabilize and/or show signs of growth.
The consolidation and restructuring initiatives undertaken over the last several quarters have allowed ASG to
maintain profitable operating margins, despite lower revenues. However, low volume and revenues will continue
to present challenges to maintaining margins at current levels. Management expects that the implementation of
its strategic initiatives to improve leadership, business processes and supply chain management will continue
to have a positive impact on ASG operations. However, the impact of these strategic initiatives will also be
affected by the current market conditions.
Management believes the Company's strengthened balance sheet, approach to market and operational improvements
will provide a solid foundation for the Company to improve performance when the general business environment,
including capital investment, stabilizes and returns to growth.
The Company's strong financial position also provides ASG with the flexibility to pursue its growth strategy.
The Company is actively seeking to expand its position in the global automation market through acquisition. To
accomplish this, management has reviewed a number of opportunities and is actively in discussions and
conducting due diligence with respect to certain of these opportunities. The completion and timing of any
transaction resulting from such discussions is dependent on a number of factors, including: completion of
satisfactory due diligence, negotiation of an agreement and requisite board and other approvals.
PHOTOWATT TECHNOLOGIES SEGMENT
Photowatt Technologies Revenue (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Total revenue $ 59.7 $ 79.7 $ 151.3 $ 221.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue by product
Polysilicon products $ 59.7 $ 22.6 $ 138.2 $ 75.3
UMG-Si products - 57.1 13.1 146.3
-------------------------------------------------------------------------
Total Revenue $ 59.7 $ 79.7 $ 151.3 $ 221.6
-------------------------------------------------------------------------
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Third Quarter
Photowatt Technologies fiscal 2010 third quarter revenue was $59.7 million, 25% lower than in the third quarter
of fiscal 2009. Lower year-over-year revenue reflected a 22% decrease in total megawatts ("MWs") sold to 12.8
MWs from 16.4 MWs in the same period a year ago. Lower MWs sold resulted from lower demand for Photowatt
Technologies' products outside of its current core market in France. Year-over-year decreases in average
selling prices per watt were partially offset by an increase in system sales. Revenue from system sales
increased to $38.5 million in the fiscal 2010 third quarter from $22.5 million in the third quarter of fiscal
2009 reflecting PWF's downstream efforts in France. Systems include modules, combined with installation kits,
solar power system design and/or other value-added services.
Revenue from polysilicon products represented $59.7 million or 100% of fiscal 2010 third quarter revenue
compared to $22.6 million or 28% for the same period a year ago, as PWF is now producing 100% polysilicon
products. Average cell efficiency was 15.5% in the third quarter of fiscal 2010 compared to 15.2% in the same
period a year ago. UMG-Si products represented $57.1 million of third quarter fiscal 2009 revenue compared to
nil in the fiscal 2010 third quarter.
Year to date
Photowatt Technologies revenue for the first nine months of fiscal 2010 decreased 32% compared to the same
period a year ago. Lower revenues reflected a 30% decrease in MWs sold to 31.7 MWs from 45.1 MWs. Year-over-
year decreases in average selling prices per watt were partially offset by an increase in system sales to $94.0
million in the first nine months of fiscal 2010 from $57.4 million in the same period a year ago.
Revenue from polysilicon products for the first nine months of fiscal 2010 increased 84% to $138.2 million from
$75.3 million in the same period a year ago. Total revenue from UMG-Si products for the first nine months of
fiscal 2010 was $13.1 million, a decrease of $133.2 million or 91% compared to the same period a year ago
reflecting the shift in production to polysilicon products.
Photowatt Technologies Operating Results (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Earnings (loss) from
operations $ 1.6 $ 7.7 $ (5.3) $ 23.8
Depreciation and amortization 4.1 4.0 12.3 11.5
-------------------------------------------------------------------------
EBITDA $ 5.7 $ 11.7 $ 7.0 $ 35.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Third Quarter
Photowatt Technologies fiscal 2010 third quarter earnings from operations were $1.6 million (operating margin
of 3%) compared to earnings from operations of $7.7 million (operating margin of 10%) for the same period a
year ago. The year-over-year decline in operating earnings reflected lower revenues, partially offset by lower
direct manufacturing costs-per-watt and increased system sales. Photowatt Technologies' fiscal 2010 third
quarter results also included costs related to the start-up of PWO. Fiscal 2009 third quarter results included
$0.5 million in costs related to equipment decommissioning and preparing equipment for sale at the now closed
Spheral Solar division.
Photowatt Technologies' fiscal 2010 third quarter earnings from operations were not materially impacted by its
share of the PV Alliance ("PVA"), compared to the same period a year ago when $0.3 million of costs were
recorded.
Photowatt Technologies' amortization expense was $4.1 million in the third quarter of fiscal 2010 compared to
$4.0 million in the third quarter a year ago.
Year to Date
Photowatt Technologies' loss from operations for the nine months ended December 27, 2009 was $5.3 million
compared to earnings from operations of $23.8 million for the corresponding period a year ago. Operating
profitability has decreased during fiscal 2010 compared to a year ago on lower revenues and a $4.7 million
warranty charge against fiscal 2010 first quarter results related to a specific customer contract that
contained an incremental performance clause beyond PWF's standard warranty terms. Loss from operations for the
three and nine months ended December 27, 2009 also included costs related to the start-up of PWO.
Fiscal 2009 earnings from operations included a gain of $2.0 million on the sale of silicon (not usable by PWF
or Spheral Solar) that had a nominal carrying value and a gain of $3.2 million on the sale of the redundant
Spheral Solar building in Cambridge, Ontario. Fiscal 2009 earnings from operations also included $1.2 million
in costs related to the wind-down and closure of the Spheral Solar facility and other clean-up and equipment
decommissioning costs.
Photowatt Technologies Outlook
In the short and medium-term, the demand for photovoltaic products is affected by and largely dependent on, the
existence of government incentives and the ability to obtain financing for solar projects. Recently announced
reductions in feed-in tariffs for solar energy in Germany and France, and increased industry inventory levels
and capacity, particularly in Asia, are expected to have a negative impact on market demand and average selling
prices per watt through the balance of fiscal 2010 and into fiscal 2011.
Recently enacted solar feed-in tariffs in Ontario are expected to partially offset this impact on Photowatt
Technologies volumes, however, the timing to ramp-up activity in PWO is expected to lag the more immediate
impact of the changes to feed-in tariffs in Germany and France. The Company has begun construction of PWO's
module line and expects this to be completed by the second quarter of fiscal 2011.
Tightening in global credit markets has reduced available funding for solar installation projects. While there
has been some improvement in credit markets, fewer funding sources for solar projects are expected to continue
to negatively impact Photowatt Technologies in the short-term.
Management is pursuing downstream alternatives to create an additional market for Photowatt Technologies'
products and lock in average selling prices for a larger portion of fiscal 2011 and 2012 sales. To this end,
PWF is seeking strategic agreements with customers for sales contracts that would consume a significant portion
of PWF's current capacity for the next several years. In addition, management is engaging with financial
institutions, investors and governments to enable the development of solar projects in which PWF and PWO would
participate. PWO is also working with manufacturing and development partners to identify and expand its
pipeline of both ground-mount and roof-top solar energy projects in the Ontario market.
Management expects improvements in cell efficiency, manufacturing yields and throughput will continue to reduce
Photowatt Technologies' direct manufacturing costs-per-watt. Management does not know to what extent planned
cost reductions will offset the impact of declines in average selling prices on operating earnings.
To keep Photowatt Technologies cost competitive, management is considering a plan to reduce the cost structure
which may cost up to $10 million. Management is actively monitoring the changing market conditions and will
continue to modify plans accordingly. Management's current plans include the intention not to renew contracts
of a number of temporary workers at its PWF operations.
Management intends to continue to position Photowatt Technologies for separation, through its downstream
activities which aim to secure a significant portion of sales volumes and by obtaining appropriate silicon
supply to meet demand. Solar industry conditions may impact the form and timing of any potential separation.
Consolidated Results from Operations
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ 138.1 $ 221.7 $ 439.0 $ 653.3
Cost of revenue 112.8 180.3 362.6 544.8
Selling, general and
administrative 19.5 22.5 59.0 63.6
Stock-based compensation 1.1 0.5 2.8 1.8
Gains on sale of assets - - - (5.2)
-------------------------------------------------------------------------
Earnings from operations $ 4.7 $ 18.4 $ 14.6 $ 48.3
-------------------------------------------------------------------------
Interest expense (income) $ 0.5 $ 0.0 $ 1.6 $ (0.1)
Provision for income taxes 0.5 2.6 2.9 4.9
-------------------------------------------------------------------------
Net income from continuing
operations $ 3.7 $ 15.8 $ 10.1 $ 43.5
-------------------------------------------------------------------------
Loss from discontinued
operations - (3.5) - (9.0)
-------------------------------------------------------------------------
Net income $ 3.7 $ 12.3 $ 10.1 $ 34.5
-------------------------------------------------------------------------
Earnings per share
Basic and diluted from
continuing operations $ 0.04 $ 0.20 $ 0.11 $ 0.56
Basic and diluted $ 0.04 $ 0.16 $ 0.11 $ 0.45
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue. At $138.1 million, fiscal 2010 third quarter consolidated revenue from continuing operations was 38%
lower than a year ago. The decrease in revenue resulted from a 45% decrease in ASG revenue and a 25% decrease
in Photowatt Technologies revenue. Year-to-date revenue was $439.0 million or 33% lower than for the same
period a year ago.
Cost of revenue. Fiscal 2010 third quarter cost of revenue decreased on a consolidated basis by $67.5 million
or 37% to $112.8 million. Consolidated gross margin decreased to 18% in the third quarter of fiscal 2010 from
19% in the same period a year ago. The decrease in gross margins reflected lower profitability at Photowatt
Technologies as a result of lower average selling prices per watt, partially offset by improved profitability
at ASG as a result of cost reductions implemented during fiscal 2009 and 2010, supply chain savings and
improved program management. Consolidated year-to-date gross margin remained consistent at 17% compared to the
same period in the prior year.
Selling, general and administrative ("SG&A") expenses. For the third quarter of fiscal 2010, SG&A expenses
decreased 13% or $3.0 million to $19.5 million compared to the same period a year ago. Lower SG&A expenses
reflected cost reductions implemented during fiscal 2009 and 2010, in addition to lower profit sharing
expenses. Severance and restructuring charges were $2.0 million in fiscal 2010 compared to $3.1 million during
the same period in the prior year.
For the nine months ended December 27, 2009, SG&A expenses decreased 7% or $4.6 million to $59.0 million
compared to the corresponding period a year ago. Lower SG&A expenses reflected cost reductions implemented
during fiscal 2009 and 2010, in addition to lower profit sharing expenses and professional fees. The reduction
of SG&A expenses in fiscal 2010 was partially offset by $5.9 million of Company-wide severance and
restructuring costs compared to $3.4 million for the corresponding nine month period in fiscal 2009.
Stock-based compensation. For the three and nine month periods ended December 27, 2009, stock-based
compensation expense increased to $1.1 million and $2.8 million respectively from $0.5 million and $1.8 million
over the corresponding periods a year ago. The increase reflects the issuance of employee stock options,
vesting of certain performance-based stock options and the revaluation of deferred stock units.
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 stock 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 27, 2009, 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)
-------------------------------------------------------------------------
$8.41 266,667 2.11 1.3 years 135 212
$8.50 889,333 1.41 2.9 years 190 709
$9.08 218,666 2.77 0.8 years 176 155
$9.49 41,667 1.66 4.9 years 9 59
$10.41 266,667 2.11 2.7 years 93 319
$10.50 889,333 1.41 3.8 years 163 790
$11.08 218,667 2.77 2.0 years 111 306
$12.41 266,666 2.11 3.7 years 77 361
$13.08 218,667 2.77 3.0 years 95 359
$16.60 5,290 3.68 0.3 years 3 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gains on sale of assets. During the first quarter of fiscal 2009, the Company completed delivery to a third
party of silicon that was not usable by PWF or Spheral Solar. The silicon had a nominal carrying value and the
Company recognized a gain of $2.0 million on the sale. Also, 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.
There were no such gains recorded in fiscal 2010.
Consolidated earnings from operations. For the third quarter of fiscal 2010, consolidated earnings from
operations were $4.7 million, compared to earnings from operations of $18.4 million for the same period a year
ago. Fiscal 2010 third quarter performance reflects: operating earnings of $8.4 million at ASG (operating
earnings of $14.7 million for the same period a year ago); Photowatt Technologies operating earnings of $1.6
million (operating earnings of $7.7 million for the same period a year ago); and inter-segment eliminations and
corporate expenses of $5.3 million ($4.0 million of costs for the same period a year ago). Year-to-date
consolidated earnings from operations were $14.6 million, compared to earnings from operations of $48.3 million
a year ago. Fiscal 2010 year-to-date performance reflects: operating earnings of $36.7 million at ASG
(operating earnings of $38.9 million for the same period a year ago); Photowatt Technologies operating loss of
$5.3 million (operating earnings of $23.8 million for the same period a year ago); and inter-segment
elimination and corporate expenses of $16.8 million ($14.4 million for the same period a year ago).
Interest expense and interest income. Net interest expense has increased in the three and nine months ended
December 27, 2009 to $0.5 million and $1.6 million respectively compared to nil and $0.1 million of net
interest income for the corresponding periods a year ago. The increase in net interest expense is primarily due
to new PWF credit facilities.
Provision for income taxes. During the three months ended December 27, 2009, the Company's effective income tax
rate was 12% compared to 14% in the corresponding period a year ago. This differs from the combined Canadian
basic federal and provincial income tax rate of 33.0% (December 31, 2008 - 33.5%) due to the utilization of
certain investment tax credits in Canada in the current period, which were partially offset by losses incurred
in other jurisdictions, the benefit of which was not recognized for financial statement reporting purposes. In
previous periods, the Company utilized unrecognized loss carryforwards which reduced the effective income tax
rate.
During the nine months ended December 27, 2009, the Company's effective income tax rate was 22% compared to 10%
in the corresponding period a year ago. The change is primarily due to the utilization of certain investment
tax credits in the current period. In previous periods, the Company utilized unrecognized loss carryforwards
which reduced the effective income tax rate.
Net income from continuing operations. For the third quarter of fiscal 2010, net income from continuing
operations was $3.7 million (4 cents earnings per share basic and diluted) compared to net income from
continuing operations of $15.8 million (20 cents earnings per share basic and diluted) for the same period a
year ago. Net income from continuing operations for the nine months ended December 27, 2009 was $10.1 million
(11 cents earnings per share basic and diluted) compared to net income from continuing operations of $43.5
million for the corresponding period a year ago (56 cents earnings per share basic and diluted).
Loss from discontinued operations, net of tax. During fiscal 2009, the Company sold the key operating assets
and liabilities including equipment, current assets, trade accounts payable and certain other assets and
liabilities of its Precision Components Group ("PCG") for cash proceeds of $4.3 million and promissory notes
with a face value of $2.7 million. This transaction was completed in the fourth quarter of fiscal 2009.
Accordingly, the results of PCG operations have been segregated and presented separately as discontinued
operations.
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. There were no discontinued operations in the nine months ended December
27, 2009. See Note 5 to the interim consolidated financial statements for further details on discontinued
operations.
Net income. For the third quarter of fiscal 2010, net income was $3.7 million (4 cents earnings per share basic
and diluted) compared to net income of $12.3 million (16 cents loss per share) for the same period last year.
Net income in the nine months ended December 27, 2009 was $10.1 million (11 cents earnings per share basic and
diluted) compared to net income of $34.5 million for the corresponding period a year ago (45 cents earnings per
share basic and diluted).
Reconciliation of EBITDA to GAAP measures (in millions of dollars)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
EBITDA
Automation Systems $ 10.0 $ 16.8 $ 41.9 $ 45.1
Photowatt Technologies 5.7 11.7 7.0 35.3
Corporate and inter-segment (5.0) (3.8) (15.9) (13.9)
-------------------------------------------------------------------------
Total EBITDA $ 10.7 $ 24.7 $ 33.0 $ 66.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Less: Depreciation and
amortization expense
Automation Systems $ 1.6 $ 2.1 $ 5.2 $ 6.2
Photowatt Technologies 4.1 4.0 12.3 11.5
Corporate and inter-segment 0.3 0.2 0.9 0.5
-------------------------------------------------------------------------
Total depreciation and
amortization expense $ 6.0 $ 6.3 $ 18.4 $ 18.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems $ 8.4 $ 14.7 $ 36.7 $ 38.9
Photowatt Technologies 1.6 7.7 (5.3) 23.8
Corporate and inter-segment (5.3) (4.0) (16.8) (14.4)
-------------------------------------------------------------------------
Total earnings from
operations $ 4.7 $ 18.4 $ 14.6 $ 48.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Less: Interest expense
(income) $ 0.5 $ 0.0 $ 1.6 $ (0.1)
Provision for income
taxes 0.5 2.6 2.9 4.9
Loss from discontinued
operations - 3.5 - 9.0
-------------------------------------------------------------------------
Net income $ 3.7 $ 12.3 $ 10.1 $ 34.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Foreign Exchange
During the third quarter of fiscal 2010, year-over-year foreign exchange rate changes negatively impacted
consolidated revenues compared to the third quarter of fiscal 2009. This decrease was primarily related to a
stronger Canadian dollar relative to the U.S. dollar. Year-to-date foreign exchange rate changes positively
impacted consolidated revenue due to a weaker Canadian dollar relative to the U.S. dollar in the first and
second quarters of fiscal 2010. Changes in foreign exchange rates increased consolidated earnings from
operations in the third quarter of fiscal 2010 and year-to-date compared to the same periods of fiscal 2009.
ATS follows a transaction hedging program to help mitigate the impact of short-term foreign currency movements.
This hedging activity consists primarily of forward foreign exchange contracts used to manage foreign currency
exposure. Purchasing third-party goods and services in U.S. dollars by Canadian operations also acts as a
partial offset to U.S. dollar exposure. The Company's forward foreign exchange contract hedging program is
intended to mitigate movements in currency rates primarily over a four-to-six-month period. See Note 13 to the
interim consolidated financial statements for details on the derivative financial instruments outstanding at
December 27, 2009.
Period Average Market Exchange Rates in CDN$
Three months ended Nine months ended
Dec 27, Dec 31, Dec 27, Dec 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
U.S. $ 1.0586 1.2095 1.1078 1.0873
Euro 1.5638 1.5899 1.5740 1.5765
Singapore $ 0.7587 0.8119 0.7713 0.7653
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity, Cash Flow and Financial Resources
At December 27, 2009, the Company had cash and short-term investments of $180.0 million compared to $142.4
million at March 31, 2009. In the three and nine months ended December 27, 2009, cash flows provided by
operating activities were $26.6 million and $32.5 million, respectively, compared to cash flows provided by
operating activities of $19.2 million and $41.4 million in the corresponding periods in fiscal 2009. The
Company's total debt to total equity ratio at December 27, 2009 was 0.1:1. At December 27, 2009, the Company
had $75.6 million of unutilized credit available under existing operating and long-term credit facilities and
$27.3 million available under letter of credit facilities.
In the third quarter of fiscal 2010, the Company's investment in non-cash working capital decreased by $15.9
million or 9%. On a year-to-date basis, investment in non-cash working capital decreased by $5.0 million or 3%.
Consolidated accounts receivable decreased 22% or $26.1 million, due primarily to lower revenues in the first
three quarters of fiscal 2010. Net contracts in progress decreased by 36% or $15.2 million compared to March
31, 2009. 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 decreased by
9% or $12.9 million compared to March 31, 2009. The Company is targeting to increase the turnover of its
inventory. In the short-term, these efforts will be impacted by the Company's ability to increase sales
volumes, particularly in PWF. Deposits, prepaid assets and other decreased by 2% or $0.4 million compared to
March 31, 2009 due to a reduction in restricted cash being used to secure letters of credit, partially offset
by an increase in silicon and other deposits. Accounts payable decreased 28% on lower purchases, consistent
with lower revenue levels in the first three quarters of fiscal 2010.
Year-to-date property, plant and equipment purchases totalled $14.3 million. Expenditures at Photowatt
Technologies totalling $12.6 million were primarily used for production equipment and facility improvements.
Included in Photowatt Technologies capital expenditures was $3.8 million related to the Company's proportionate
share of PVA for production equipment and facility improvements. Total ASG and Corporate capital expenditures
were $1.7 million.
In the third quarter of fiscal 2010, the Company and its lender agreed to extend its existing primary credit
facility (the "Credit Agreement") until April 30, 2011. The Credit Agreement provides total credit facilities
of up to $85 million, comprised of an operating credit facility of $65 million and a letter of credit facility
of up to $20 million for certain purposes. The operating credit facility is subject to restrictions regarding
the extent to which the outstanding funds advanced under the facility can be used to fund certain subsidiaries
of the Company. The Credit Agreement, which is secured by 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 April 30, 2011.
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 rates ranging from 0.675% to .975% per annum, as
determined based on certain financial ratios.
The Credit Agreement is subject to debt leverage tests, 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 partially restricts the Company from repurchasing its common
shares, paying dividends and from acquiring and disposing of certain assets. The Company is in compliance with
these covenants and restrictions.
PWF has credit facilities of (euro)41.4 million available through short and long-term debt agreements and
capital lease agreements. The interest rates applicable to these credit facilities range from Euribor plus 0.5%
to Euribor plus 1.9% and 4.9% per annum. Certain of the credit facilities are secured by certain assets of PWF,
a commitment to restrict payments by the Company and are subject to debt leverage tests. PWF is in compliance
with these covenants.
The Company has an additional unsecured credit facility available of 2.0 million Swiss francs. The credit
facility bears interest at up to 6.0% per annum and is secured by a letter of credit.
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 current requirements for investments in working capital, capital assets and strategic investment plans
including potential acquisitions.
No stock options were exercised during the third quarter of fiscal 2010. At February 5, 2010 the total number
of shares outstanding was 87,277,155.
Contractual Obligations
The minimum operating lease payments related primarily to facilities and equipment, purchase obligations and
other obligations in each of the next five years are as follows:
Operating Purchase Other
($ in thousands) Leases Obligations Obligations
-------------------------------------------------------------------------
Less than 1 year $ 3,404 $ 120,761 $ 77
1 - 3 years 2,782 121,960 37
4 - 5 years 5 100,737 -
Thereafter - 174,065 -
-------------------------------------------------------------------------
$ 6,191 $ 517,523 $ 114
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Subsequent to the end of the third quarter of fiscal 2010, the Company entered into a long-term silicon supply
contract to purchase 900 tonnes of polysilicon over the next three calendar years ending in December 2012.
Approximately 10% of the contract value was required to be paid in advance.
In the nine months ended December 27, 2009, the Company terminated an existing silicon supply contract with
approximately 1,250 tonnes of UMG-Si remaining to be delivered. Concurrently, the Company entered into a
replacement contract to purchase 180 tonnes of polysilicon through the remainder of calendar 2009 and 2010.
Part of the deposit from the terminated contract was applied to the new contract with the remainder of the
deposit being applied against pre-existing accounts payable.
In accordance with industry practice, the Company is liable to the customer for obligations relating to
contract completion and timely delivery. In the normal conduct of its operations, the Company may provide bank
guarantees as security for advances received from customers pending delivery and contract performance. At
December 27, 2009, the total value of outstanding bank guarantees to customers available under bank guarantee
facilities was approximately $16.2 million (March 31, 2009 - $24.4 million).
Consolidated Quarterly Results
($ in thousands, except
per share amounts) Q3 2010 Q2 2010 Q1 2010 Q4 2009
-------------------------------------------------------------------------
Revenue $ 138,133 $ 148,169 $ 152,701 $ 201,774
Earnings from operations $ 4,756 $ 9,305 $ 502 $ 17,743
Net income from continuing
operations $ 3,742 $ 6,012 $ 325 $ 14,041
Net income $ 3,742 $ 6,012 $ 325 $ 13,506
Basic earnings per share
from continuing operations $ 0.04 $ 0.07 $ 0.00 $ 0.17
Diluted earnings per share
from continuing operations $ 0.04 $ 0.07 $ 0.00 $ 0.16
Basic earnings per share $ 0.04 $ 0.07 $ 0.00 $ 0.16
Diluted earnings per share $ 0.04 $ 0.07 $ 0.00 $ 0.15
ASG Order Bookings $ 92,000 $ 71,000 $ 96,000 $ 126,000
ASG Order Backlog $ 203,000 $ 197,000 $ 230,000 $ 255,000
($ in thousands, except
per share amounts) Q3 2009 Q2 2009 Q1 2009 Q4 2008
-------------------------------------------------------------------------
Revenue $ 221,739 $ 219,536 $ 212,071 $ 186,474
Earnings from operations $ 18,472 $ 13,563 $ 16,278 $ 8,183
Net income from continuing
operations $ 15,814 $ 12,688 $ 14,991 $ 10,343
Net income $ 12,316 $ 9,272 $ 12,930 $ 7,939
Basic earnings per share
from continuing operations $ 0.20 $ 0.16 $ 0.19 $ 0.13
Diluted earnings per share
from continuing operations $ 0.20 $ 0.16 $ 0.19 $ 0.13
Basic earnings per share $ 0.16 $ 0.12 $ 0.17 $ 0.10
Diluted earnings 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
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 ASG Order Bookings, Photowatt Technologies sales volumes, and the
Company's earnings in its markets. ATS typically experiences some seasonality with its revenue and earnings due
to the summer shutdown at PWF. 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.
Changes in Accounting Policies
Effective April 1, 2009, the Company retroactively adopted the Canadian Institute of Chartered Accountants
("CICA") Handbook Section 3064, "Goodwill and intangible assets." The adopted standard establishes guidance for
the recognition, measurement, presentation and disclosure of goodwill and intangible assets, including
internally generated intangible assets. As required by the standard, computer software assets have been
retroactively reclassified on the interim consolidated balance sheets from property, plant and equipment to
intangible assets. The net book value of computer software reclassified as of March 31, 2009 was $3.0 million.
As of December 27, 2009, computer software of $2.2 million is included within intangible assets. There is no
impact on previously reported net income.
Future Accounting Changes
CICA Handbook Section 1582 "Business Combinations" which replaces Handbook Section 1581 "Business Combinations"
and is converged with IFRS 3 "Business Combinations" establishes standards for the measurement of a business
combination and the recognition and measurement of assets acquired and liabilities assumed. This standard is
effective for fiscal years beginning on or after January 1, 2011. The Company may elect to early adopt this
standard and if so, will be required to early adopt Section 1601 "Consolidated Financial Statements" and
Section 1602 "Non-Controlling Interests". The Company is evaluating the impact of adoption of this new section
in connection with its conversion to IFRS.
CICA Handbook Section 1601 "Consolidated Financial Statements" and Handbook Section 1602 "Non-Controlling
Interests" replace Handbook Section 1600 "Consolidated Financial Statements". Handbook Section 1601 carries
forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements
subsequent to acquisition other than non-controlling interests. Handbook Section 1602 establishes standards for
the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial
statements subsequent to a business combination. The standards are effective for fiscal years beginning on or
after January 1, 2011. The Company may elect to early adopt the standards and if so, will be required to early
adopt Handbook Section 1582 "Business Combinations". The Company is evaluating the impact of adoption of this
new section in connection with its conversion to IFRS.
International Financial Reporting Standards
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. Although IFRS uses a conceptual framework similar to Canadian GAAP, differences in
accounting policies and additional required disclosures will need to be addressed.
The Company commenced its IFRS conversion project in fiscal 2009. The project consists of four phases:
diagnostic; design and planning; solution development; and implementation. The diagnostic phase was completed
in fiscal 2009 with the assistance of external advisors. This work involved a high-level review of the major
differences between current Canadian GAAP and IFRS and a preliminary assessment of the impact of those
differences on the Company's accounting and financial reporting, systems and other business processes. The
areas of highest potential impact include: property, plant and equipment; provisions and contingencies; and
IFRS 1: first time adoption, as well as more extensive presentation and disclosure requirements under IFRS.
The Company's IFRS conversion project is progressing according to plan. The Company is currently in the
implementation phase and has completed a detailed review of all relevant IFRS standards and the identification
of information gaps and necessary changes in reporting, processes and systems. The Company is now confirming
the selection of new accounting policies including IFRS 1 transition date first time adoption exemptions,
developing model IFRS financial statements and processes to prepare IFRS comparative information and providing
on-going training for employees. The Company is continuing to monitor standards to be issued by the
International Accounting Standards Board ("IASB"). Pending completion of some of these projects by the IASB,
and until the Company's accounting policy choices are finalized and approved, the Company will be unable to
quantify the impact of IFRS on its Consolidated Financial Statements.
Controls and Procedures
The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") are responsible for establishing
and maintaining disclosure controls and procedures and internal controls over financial reporting for the
Company. The control framework used in the design of disclosure controls and procedures and internal control
over financial reporting is the internal control integrated framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Management, including the CEO and CFO, does not expect that the Company's disclosure controls or internal
controls over financial reporting will prevent or detect all errors and all fraud or will be effective under
all potential future conditions. A control system is subject to inherent limitations and, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met.
During the three months ended December 27, 2009, there have been no changes in the Company's internal controls
over financial reporting that have materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.
Note to Readers: Forward-Looking Statements
This news release and management's discussion and analysis of financial conditions, and results of operations
of ATS 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: (i) ASG: management's
expectations with respect to levels of business investment and capital spending in the short-term; expected
volatility in Order Bookings and pressure on revenues in the short-term as a result of continued reductions
and/or delays in capital spending; management's belief that increased capital spending will lag general
economic recovery; beliefs with respect to overall trends in Order Bookings; challenges to maintaining margins
in face of low volumes and revenues; management's expectation that strategic initiatives will have a positive
impact on ASG operations, tempered by market conditions; management's belief that the balance sheet, approach
to market and operational improvements will provide a solid foundation for improved performance when the
general business environment stabilizes and returns to growth; timing and expectations with respect to current
M&A efforts; and (ii) Photowatt: management's expectation that reductions in feed-in tariffs will have a
negative impact on market demand and average selling prices per watt; expectations as to impact of Ontario
feed-in tariffs; expected completion of construction of Ontario module line; impact of fewer funding sources
for solar projects; various downstream alternatives being pursued by management; management's expectation of
reduction in PWF's direct manufacturing cost per watt and uncertainty as to what extent planned reductions in
cost per watt will offset the impact of declines in average selling prices on operating earnings; management's
consideration of a plan to reduce PWF cost structure and the associated cost; management's intention to
continue to position Photowatt Technologies for separation; ATS's target to increase turnover of its inventory;
ATS's expectations with respect to cash flows; seasonality of revenues; and the introduction, evaluation and
adoption of new accounting policies and standards. The risks and uncertainties that may affect forward-looking
statements include, among others: general market performance including capital market conditions and
availability and cost of credit; economic market conditions; impact of factors such as increased pricing
pressure and possible margin compression; foreign currency and exchange risk; the relative strength of the
Canadian dollar; performance of the market sectors that ATS serves; that one or more customers experience
bankruptcy despite focus on credit terms; that continuing consolidation and restructuring efforts take longer
than expected and/or incur greater costs than expected; that continuing strategic initiatives will not have the
intended impact on ASG operations; unanticipated issues in relation to, or inability to successfully negotiate
and conclude, one or more M&A activities; third party or internal delays in the construction of the Ontario
module line; ability of PWF to identify downstream alternatives and lock in favourable average selling prices
with its customers; success or failure of management's efforts to reduce cost per watt at PWF; ability of ATS
to acquire the needed expertise and financial partners necessary to effectively develop Ontario solar projects;
the financial attractiveness of, and demand for, those solar projects; ATS's ability to conclude relationships
with third parties in order to implement its plans for solar projects; extent of market demand for solar
products; the availability and possible reduction or elimination of government subsidies and incentives for
solar products in various jurisdictions; ability to obtain necessary government certifications and approvals
for solar projects in a timely fashion; political, labour or supplier disruptions in manufacturing and supply
of silicon; the usefulness or value of existing silicon supplies dissipate due to market conditions or for
other reasons; PWF is unable to secure further acceptable silicon feedstock at favourable prices; reversal of
current silicon supply arrangements and negotiation of new supply arrangements; potential inability of PVA to
achieve improvements in cell efficiency, including problems with the technology or commercialization thereof;
slow-down or reversal of progress being made with the efficiency and cost per watt of solar modules either
through PVA research and development efforts or PWF's independent efforts; ability to effectively implement PVA
projects and ability to properly manage the PVA relationship; the development of superior or alternative
technologies to those developed by ATS; the success of competitors with greater capital and resources in
exploiting their technology; market risk for developing technologies; risks relating to legal proceedings to
which ATS is or may becomes a party; exposure to product liability claims of Photowatt Technologies; 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. Forward-looking statements are based on
management's current plans, estimates, projections, beliefs and opinions, and ATS does not undertake any
obligation to update forward-looking statements should assumptions related to these plans, estimates,
projections, beliefs and opinions change.
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
December 27 March 31
2009 2009
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 180,015 $ 142,361
Accounts receivable 94,427 120,479
Investment tax credits 14,986 14,538
Costs and earnings in excess of billings
on contracts in progress 57,353 86,079
Inventories (note 4) 124,742 137,600
Future income taxes 8,722 3,669
Deposits, prepaid assets and other
(notes 6 and 13) 26,070 26,507
-------------------------------------------------------------------------
506,315 531,233
Property, plant and equipment (note 2) 182,431 201,192
Goodwill 35,702 39,990
Intangible assets (note 2) 4,785 6,419
Future income taxes 889 1,283
Portfolio investments 3,543 3,245
Other assets (note 7) 37,598 51,172
-------------------------------------------------------------------------
$ 771,263 $ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 11) $ 15,660 $ 142
Accounts payable and accrued liabilities
(notes 12 and 13) 123,807 172,935
Billings in excess of costs and earnings
on contracts in progress 30,048 43,600
Future income taxes 12,559 9,176
Current portion of long-term debt (note 11) 5,930 4,133
Current portion of obligations under capital
leases (note 11) 4,906 3,409
-------------------------------------------------------------------------
192,910 233,395
Long-term debt (note 11) 9,946 10,502
Long-term obligations under capital leases
(note 11) 21,075 17,652
Future income taxes 2,021 4,538
Shareholders' equity
Share capital 479,537 479,537
Contributed surplus 10,685 8,722
Accumulated other comprehensive income (loss)
(note 14) (19,684) 15,494
Retained earnings 74,773 64,694
-------------------------------------------------------------------------
545,311 568,447
-------------------------------------------------------------------------
$ 771,263 $ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contingencies (note 18)
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 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ 138,133 $ 221,739 $ 439,003 $ 653,346
-------------------------------------------------------------------------
Operating costs and
expenses
Cost of revenue 112,766 180,320 362,643 544,813
Selling, general
and administrative 19,536 22,476 59,024 63,564
Stock-based
compensation (note 8) 1,075 471 2,773 1,850
Gain on sale of silicon - - - (2,006)
Gain on sale of
building (note 5) - - - (3,188)
-------------------------------------------------------------------------
Earnings from operations 4,756 18,472 14,563 48,313
-------------------------------------------------------------------------
Other expenses (income)
Interest on long-term
debt 361 133 1,017 281
Other interest 162 (95) 598 (335)
-------------------------------------------------------------------------
523 38 1,615 (54)
-------------------------------------------------------------------------
Income from continuing
operations before
income taxes 4,233 18,434 12,948 48,367
Provision for income
taxes (note 17) 491 2,620 2,869 4,874
-------------------------------------------------------------------------
Net income from
continuing operations 3,742 15,814 10,079 43,493
Loss from discontinued
operations, net of
tax (note 5) - (3,498) - (8,975)
-------------------------------------------------------------------------
Net income $ 3,742 $ 12,316 $ 10,079 $ 34,518
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per
share (note 9)
Basic and diluted -
from continuing
operations $ 0.04 $ 0.20 $ 0.11 $ 0.56
Basic and diluted -
from discontinued
operations - (0.04) - (0.11)
-------------------------------------------------------------------------
$ 0.04 $ 0.16 $ 0.11 $ 0.45
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 27, 2009
-------------------------------------------------------------------------
Accumu-
lated
Other
Compre-
hensive Total
Contri- Income Share-
Share buted (Loss) Retained holders'
Capital Surplus (note 14) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $ 479,537 $ 8,722 $ 15,494 $ 64,694 $ 568,447
Comprehensive
income (loss)
Net income - - - 10,079 10,079
Currency
translation
adjustment - - (37,628) - (37,628)
Net unrealized
gain on
available-for-
sale financial
assets (net of
income taxes of
$nil) - - 298 - 298
Net unrealized
gain on
derivative
financial
instruments
designated as
cash flow hedges
(net of income
taxes of $470) - - 1,425 - 1,425
Gain transferred
to net income
for derivatives
designated as cash
flow hedges (net
of income taxes
of $(108)) - - 727 - 727
----------
Total comprehensive
loss (25,099)
Stock-based
compensation
(note 8) - 1,963 - - 1,963
-------------------------------------------------------------------------
Balance, end of
the period $ 479,537 $ 10,685 $ (19,684) $ 74,773 $ 545,311
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended December 31, 2008
-------------------------------------------------------------------------
Accumu-
lated
Other
Compre-
hensive Total
Contri- Income Share-
Share buted (Loss) Retained holders'
Capital Surplus (note 14) 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 (net of
income taxes of
$nil) - - (2,144) - (2,144)
Net unrealized
loss on
derivative
financial
instruments
designated as
cash flow hedges
(net of income
taxes of $nil) - - (5,171) - (5,171)
Gain transferred
to net income
for derivatives
designated as
cash flow hedges
(net of income
taxes of $nil) - - 96 - 96
----------
Total comprehensive
income 56,703
Stock-based
compensation
(note 8) - 1,831 - - 1,831
Costs related to
shares issued for
rights offering (69) - - - (69)
-------------------------------------------------------------------------
Balance, end of
the period $ 432,756 $ 8,201 $ 15,510 $ 51,188 $ 507,655
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Operating activities:
Net income $ 3,742 $ 12,316 $ 10,079 $ 34,518
Items not involving
cash
Depreciation and
amortization 5,987 6,300 18,371 18,182
Future income taxes 90 (2,590) (3,793) (5,165)
Other items not
involving cash (8) (217) (20) 528
Stock-based
compensation (note 8) 1,075 471 2,773 1,850
Loss (gain) on
disposal of property,
plant and equipment (244) 196 110 (2,776)
Non-cash discontinued
operations - 1,750 - 1,750
-------------------------------------------------------------------------
Cash flow from
operations 10,642 18,226 27,520 48,887
Change in non-cash
operating working
capital 15,941 1,008 5,017 (7,523)
-------------------------------------------------------------------------
Cash flows provided by
operating activities 26,583 19,234 32,537 41,364
-------------------------------------------------------------------------
Investing activities:
Acquisition of property,
plant and equipment (4,319) (13,769) (14,262) (26,608)
Acquisition of
intangible assets (145) - (301) (500)
Investments, silicon
deposits and other (4,985) (16,683) (7,565) (16,175)
Proceeds from disposal
of assets 580 2,874 1,169 18,899
-------------------------------------------------------------------------
Cash flows used in
investing activities (8,869) (27,578) (20,959) (24,384)
-------------------------------------------------------------------------
Financing activities:
Restricted cash (note 6) (510) 3,600 4,226 (6,630)
Bank indebtedness
(note 11) (4,044) 3,492 16,309 (14,875)
Share issue costs - - - (69)
Proceeds from long-term
debt (note 11) 685 11,229 4,522 22,016
Proceeds from sale and
leaseback of property,
plant and equipment 2,664 - 9,467 -
Repayment of long-term
debt (note 11) (129) - (1,988) (2,399)
Repayment of obligations
under capital leases
(note 11) (811) - (2,418) -
-------------------------------------------------------------------------
Cash flows provided by
(used in) financing
activities (2,145) 18,321 30,118 (1,957)
-------------------------------------------------------------------------
Effect of foreign
exchange rate changes
on cash and short-term
investments (1,876) 3,997 (4,042) 2,775
-------------------------------------------------------------------------
Net increase in cash and
short-term investments 13,693 13,974 37,654 17,798
Cash and short-term
investments, beginning
of period 166,322 59,640 142,361 55,816
-------------------------------------------------------------------------
Cash and short-term
investments, end of
period $ 180,015 $ 73,614 $ 180,015 $ 73,614
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental
information
Cash income taxes paid $ 345 $ - $ 729 $ 175
Cash interest paid $ 300 $ 384 $ 924 $ 803
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2009 except for the adoption of the new accounting
standards described in note 2 herein. These interim consolidated
financial statements do not include all disclosures required by GAAP for
annual financial statements and should be read in conjunction with the
Company's annual consolidated financial statements for the year ended
March 31, 2009. Certain figures for the previous year have been
reclassified to conform with the current year's interim consolidated
financial statement presentation.
(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 amount 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, warranties, income taxes, future income 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 uncollectible accounts
receivable.
(iii) 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
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 the summer shutdown at
its subsidiary in France, Photowatt International S.A.S. 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.
2. Changes in accounting policies:
Effective April 1, 2009, the Company retroactively adopted the Canadian
Institute of Chartered Accountants ("CICA") Handbook Section 3064
"Goodwill and Intangible Assets" which replaced CICA Handbook Section
3062 "Goodwill and Other Intangible Assets" and CICA Handbook Section
3450 "Research and Development Costs". The adopted standard establishes
guidance for the recognition, measurement, presentation and disclosure of
goodwill and intangible assets including internally generated intangible
assets.
As required by the standard, the Company has retroactively reclassified
computer software assets on the interim consolidated balance sheets from
property, plant and equipment to intangible assets. The net book value of
computer software reclassified as of March 31, 2009 was $2,968. As of
December 27, 2009 computer software of $2,190 is included within
intangible assets. There is no impact on previously reported net income.
3. Future accounting changes:
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. Although IFRS uses a
conceptual framework similar to GAAP, differences in accounting policies
and additional required disclosures will need to be addressed. The
Company is currently assessing the impact of this announcement on its
consolidated financial statements.
CICA Handbook Section 1582 "Business Combinations" which replaces
Handbook Section 1581 "Business Combinations" and is converged with IFRS
3 "Business Combinations" establishes standards for the measurement of a
business combination and the recognition and measurement of assets
acquired and liabilities assumed. This standard is effective for fiscal
years beginning on or after January 1, 2011. The Company may elect to
early adopt this standard and if so, will be required to early adopt
Section 1601 "Consolidated Financial Statements" and Section 1602
"Non-Controlling Interests". The Company is evaluating the impact of
adoption of this new section in connection with its conversion to IFRS.
CICA Handbook Section 1601 "Consolidated Financial Statements" and
Handbook Section 1602 "Non-Controlling Interests" replace Handbook
Section 1600 "Consolidated Financial Statements". Handbook Section 1601
carries forward the existing Canadian guidance on aspects of the
preparation of consolidated financial statements subsequent to a business
combination. Handbook Section 1602 establishes standards for the
accounting of non-controlling interests of a subsidiary in the
preparation of consolidated financial statements subsequent to a business
combination. The standards are effective for fiscal years beginning on or
after January 1, 2011. The Company may elect to early adopt the standards
and if so, will be required to early adopt Handbook Section 1582
"Business Combinations". The Company is evaluating the impact of adoption
of this new section in connection with its conversion to IFRS.
4. Inventories:
December 27 March 31
2009 2009
-------------------------------------------------------------------------
Inventories are summarized as follows:
Raw materials $ 82,719 $ 84,678
Work in process 8,656 11,711
Finished goods 33,367 41,211
-------------------------------------------------------------------------
$ 124,742 $ 137,600
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 27, 2009 was $46,779 and
$143,000 respectively (three and nine months ended December 31, 2008:
$61,525 and $190,230 respectively). The amount charged to net income and
included in cost of revenue for the write-down of inventory for valuation
issues during both the three and nine months ended December 27, 2009 was
$2,079 and $5,096 respectively (three and nine months ended December 31,
2008: $3,014 and $4,797 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 27, 2009 was nil (three and nine months ended
December 31, 2008 was nil and $181 respectively).
5. Discontinued operations:
(i) During the year ended March 31, 2009, the Company sold the key
operating assets and liabilities, including equipment, current assets,
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. 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 results of the discontinued
operations are as follows:
Three months ended Nine months ended
-------------------------------------------------------------------------
December 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ - $ 8,328 $ - $ 27,877
Loss from discontinued
operations, net of
tax $ - $ (3,498) $ - $ (8,975)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(ii) During the year ended March 31, 2009, 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.
6. Deposits, prepaid assets and other:
December 27 March 31
2009 2009
-------------------------------------------------------------------------
Prepaid assets $ 2,197 $ 2,755
Restricted cash(i) 6,889 11,892
Silicon and other deposits 13,559 8,731
Forward contracts and other 3,425 3,129
-------------------------------------------------------------------------
$ 26,070 $ 26,507
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Restricted cash consists of cash collateralized to secure letters of
credit.
7. Other assets:
December 27 March 31
2009 2009
-------------------------------------------------------------------------
Silicon deposits $ 36,509 $ 51,021
Other 1,089 151
-------------------------------------------------------------------------
$ 37,598 $ 51,172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. Stock-based compensation:
In the calculation of the stock-based compensation expense in the interim
consolidated statements of operations, the fair values of the Company's
stock option grants were estimated using the Black-Scholes option pricing
model for time vesting and performance based stock options.
During the nine months ended December 27, 2009 the Company granted
700,000 time vesting stock options (375,000 in the nine months ended
December 31, 2008). The stock options granted vest over 4 years and
expire on the seventh anniversary from the date of issue. During the nine
months ended December 27, 2009, 100,000 performance based stock options
were granted (nil in the nine months ended December 31, 2008). The
performance based options granted vest upon the achievement of certain
individual performance targets. The performance based stock options
expire on the seventh anniversary after the date of issue. During the
three and nine month period ended December 27, 2009 certain performance
options vested in the normal course of business. During the nine months
ended December 31, 2008, no performance based stock options vested.
The fair value of stock options issued during the period were estimated
at the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
Nine months ended
-------------------------------------------------------------------------
December 27 December 31
2009 2008
-------------------------------------------------------------------------
Weighted average risk-free interest rate 2.17% 3.24%
Dividend yield 0% 0%
Weighted average expected life 4.55 years 4.0 years
Weighted average expected volatility 60% 45%
Number of stock options granted:
Time vested 700,000 375,000
Performance based 100,000 -
Weighted average exercise price per option $ 6.40 $ 7.80
Weighted average value per option:
Time vested $ 3.19 $ 3.03
Performance based $ 3.59 $ -
-------------------------------------------------------------------------
9. 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 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Basic 87,277,155 77,277,155 87,277,155 77,277,155
Diluted 87,602,298 77,459,680 87,397,288 77,726,163
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and nine months ended December 27, 2009, stock options to
purchase 5,186,358 and 5,825,413 common shares respectively are excluded
from the weighted average common shares in the calculation of diluted
earnings per share as they are anti-dilutive (5,718,315 and 4,509,962
common shares respectively were excluded in the three and nine months
ended December 31, 2008).
10. Segmented disclosure:
The Company evaluates performance based on two reportable segments:
Automation Systems and Photowatt Technologies. The Automation Systems
segment produces custom-engineered turn-key automated manufacturing
systems and test systems. Photowatt Technologies is an integrated
manufacturer of photovoltaic products and a turn-key solar project
developer.
The Company accounts for inter-segment revenue at current market rates,
negotiated between the segments.
Three months ended Nine months ended
-------------------------------------------------------------------------
December 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue
Automation Systems $ 78,639 $ 144,078 $ 290,806 $ 434,231
Photowatt
Technologies 59,748 79,711 151,331 221,580
Inter-segment revenue (254) (2,050) (3,134) (2,465)
-------------------------------------------------------------------------
Consolidated $ 138,133 $ 221,739 $ 439,003 $ 653,346
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from
operations
Automation Systems $ 8,386 $ 14,682 $ 36,743 $ 38,924
Photowatt
Technologies 1,626 7,741 (5,278) 23,836
Inter-segment
operating loss (62) (345) (734) (150)
Stock-based
compensation (1,075) (471) (2,773) (1,850)
Other expenses (4,119) (3,135) (13,395) (12,447)
-------------------------------------------------------------------------
Consolidated $ 4,756 $ 18,472 $ 14,563 $ 48,313
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Bank indebtedness and long-term debt:
During the three months ended December 27, 2009, the Company and its
lender agreed to extend its existing primary credit facility (the "Credit
Agreement") until April 30, 2011. The Credit Agreement provides total
credit facilities of up to $85,000, comprised of an operating credit
facility of $65,000 and a letter of credit facility of up to $20,000 for
certain purposes. The operating credit facility is subject to
restrictions regarding the extent to which the outstanding funds advanced
under the facility can be used to fund certain subsidiaries of the
Company. The Credit Agreement, which is secured by 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 April 30, 2011.
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 rates ranging from 0.675% to 0.975% per
annum, as determined based on certain financial ratios.
The Credit Agreement is subject to debt leverage tests, 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 partially
restricts the Company from repurchasing its common shares, paying
dividends and from acquiring and disposing certain assets. The Company is
in compliance with these covenants and restrictions.
The Company's subsidiary, Photowatt International S.A.S. has credit
facilities including capital lease obligations of 41,409 Euro. The
interest rates applicable to the credit facilities range from Euribor
plus 0.5% to Euribor plus 1.9% and 4.9% per annum. Certain of the credit
facilities are secured by certain assets of Photowatt International
S.A.S. and a commitment to restrict payments to the Company and are
subject to debt leverage tests. The Company is in compliance with these
covenants.
The Company has an additional unsecured credit facility available of
2,000 Swiss francs. The credit facility bears interest at up to 6.0% per
annum and is secured by a letter of credit.
The following amounts were outstanding:
December 27 March 31
2009 2009
-------------------------------------------------------------------------
Bank indebtedness:
Primary credit facility $ - $ -
Other facilities 15,660 142
-------------------------------------------------------------------------
$ 15,660 $ 142
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term debt:
Primary credit facility $ - $ -
Other facilities 15,876 14,635
-------------------------------------------------------------------------
$ 15,876 $ 14,635
Less: current portion 5,930 4,133
-------------------------------------------------------------------------
$ 9,946 $ 10,502
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Obligations under capital lease:
Future minimum lease payments $ 28,626 $ 23,802
Less: amount representing interest (at rates
ranging from 3% to 5%) 2,645 2,741
-------------------------------------------------------------------------
$ 25,981 $ 21,061
Less: current portion 4,906 3,409
-------------------------------------------------------------------------
$ 21,075 $ 17,652
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. Restructuring:
During the year ended March 31, 2008, the Company commenced a
restructuring program to improve operating performance. The restructuring
program included workforce reductions, and the closure of
underperforming, non-strategic divisions during fiscal 2008 and fiscal
2009. In the three and nine months ended December 31, 2008, severance and
restructuring expenses associated with this restructuring program were
$3,129 and $3,408 respectively.
In fiscal 2010, the Company accelerated and expanded its previous
restructuring program. In the three and nine months ended December 27,
2009, severance and restructuring expenses associated with the closure of
two divisions and other workforce reductions were $1,952 and $5,878
respectively, primarily in the Automation Systems segment.
The following is a summary of the changes in the provision for
restructuring costs:
Three months ended Nine months ended
-------------------------------------------------------------------------
December 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Balance, beginning of
period $ 3,755 $ 6,102 $ 4,535 $ 12,585
Severance and
restructuring expense 1,952 3,129 5,878 3,408
Cash payments (881) (1,258) (5,512) (7,920)
Foreign exchange (170) (22) (245) (122)
-------------------------------------------------------------------------
Balance, end of period $ 4,656 $ 7,951 $ 4,656 $ 7,951
-------------------------------------------------------------------------
-------------------------------------------------------------------------
13. Financial instruments:
Derivative financial instruments
The Company uses forward foreign exchange contracts to manage foreign
currency exposure. Forward foreign exchange contracts that are not
designated in hedging relationships are classified as held-for-trading,
with changes in fair value recognized in selling, general and
administrative expenses in the interim consolidated statements of
operations. During the three and nine months ended December 27, 2009, the
fair value of derivative financial assets classified as held-for-trading
and included in deposits and prepaid assets increased by $1,783 and
$1,182 respectively (increased by $12 and $783 respectively during the
three and nine months ended December 31, 2008) and the fair value of
derivative financial liabilities classified as held-for-trading and
included in accounts payable and accrued liabilities decreased by $1,175
and $522 respectively during the three and nine months ended December 27,
2009 (increased by $3,010 and $2,180 respectively during the three and
nine months ended December 31, 2008).
Cash flow hedges
During the three and nine months ended December 27, 2009, an unrealized
loss of $8 and $8 respectively was recognized in selling, general and
administrative expense for the ineffective portion of cash flow hedges
(unrealized loss of $13 and unrealized gain of $88 during the three and
nine months ended December 31, 2008). After-tax unrealized gains of $796
included in accumulated other comprehensive income at December 27, 2009
are expected to be reclassified to earnings over the next 12 months when
the revenue is recorded (unrealized losses of $5,171 at December 31,
2008).
14. Accumulated other comprehensive income (loss):
The components of accumulated other comprehensive income (loss) are as
follows:
December 27 March 31
2009 2009
-------------------------------------------------------------------------
Accumulated currency translation adjustment $ (19,430) $ 18,198
Accumulated unrealized loss on available-for-sale
financial assets (1,050) (1,348)
Accumulated unrealized net gain (loss) on
derivative financial instruments designated as
cash flow hedges(i) 796 (1,356)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ (19,684) $ 15,494
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) The accumulated unrealized net gain (loss) on derivative financial
instruments designated as cash flow hedges is net of future income
taxes of $362 at December 27, 2009 and $nil at March 31, 2009.
15. Investment in Joint Venture:
During the three months ended December 27, 2009, Photowatt Ontario Inc.
entered into an agreement to establish Ontario Solar PV Fields Inc., a
joint venture. In fiscal 2008, Photowatt International S.A.S., entered
into an agreement to establish the PV Alliance, a joint venture.
These are jointly-controlled enterprises and accordingly, the Company
proportionately consolidated its 50% and 40% share of assets,
liabilities, revenues and expenses for Ontario Solar PV Fields Inc. and
PV Alliance respectively in the interim consolidated financial
statements.
The following is a summary of the Company's proportionate share of the
joint ventures:
December 27 March 31
2009 2009
-------------------------------------------------------------------------
Balance Sheet
Current assets $ 4,413 $ 2,482
Property, plant and equipment 3,876 53
Intangible assets 1,367 1,816
Current liabilities (5,852) (3,230)
Long-term debt (3,615) (1,296)
-------------------------------------------------------------------------
Net assets $ 189 $ (175)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Nine months ended
-------------------------------------------------------------------------
December 27 December 31 December 27 December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Statement of Operations
Net loss $ (167) $ (290) $ (265) $ (665)
-------------------------------------------------------------------------
During the year ended March 31, 2009, the PV Alliance established loans
with a shareholder proportionately worth 2,631 Euro, to be received in
instalments by PV Alliance. During the nine months ended December 27,
2009, the PV Alliance received additional loans from a shareholder
proportionately worth 1,172 Euro. The loans are repayable over five
years, guaranteed by the signing of a Pledge Agreement, and bear interest
at the maximum fiscally deductible rate.
An operating lease was established during the year ended March 31, 2009
for a portion of the Photowatt International S.A.S. building used by PV
Alliance and will result in annual lease payments proportionately worth
83 Euro. The contract with the lessee expires in 2018 with an option to
terminate the lease in 2016. The lease contains an option to extend the
lease for an additional nine years.
During the three and nine months ended December 27, 2009, the PV Alliance
recorded government assistance of 192 Euro and 576 Euro respectively in
operating earnings.
16. Commitments:
The minimum operating lease payments related primarily to facilities and
equipment, purchase obligations and other obligations in each of the next
five years are as follows:
Operating Purchase Other
Leases Obligations Obligations
-------------------------------------------------------------------------
Less than 1 year $ 3,404 $ 120,761 $ 77
1 - 3 years 2,782 121,960 37
4 - 5 years 5 100,737 -
Thereafter - 174,065 -
-------------------------------------------------------------------------
$ 6,191 $ 517,523 $ 114
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Subsequent to the end of the third quarter, the Company entered into a
long term silicon supply contract to purchase 900 tonnes of polysilicon
over the next three calendar years ending in December 2012. Approximately
10% of the contract value is required to be paid in advance.
In the nine months ended December 27, 2009, the Company terminated an
existing silicon supply contract with approximately 1,250 tonnes of UMG-
Si remaining to be delivered. Concurrently, the Company entered into a
replacement contract to purchase 180 tonnes of polysilicon through the
remainder of calendar 2009 and 2010. Part of the deposit from the
terminated contract was applied to the new contract with the remainder of
the deposit being applied against pre-existing accounts payable.
In accordance with industry practice, the Company is liable to the
customer for obligations relating to contract completion and timely
delivery. In the normal conduct of its operations, the Company may
provide bank guarantees as security for advances received from customers
pending delivery and contract performance. At December 27, 2009, the
total value of outstanding bank guarantees to customers available under
bank guarantee facilities was approximately $22,549 (March 31, 2009 -
$24,361).
17. Income taxes:
During the three months ended December 27, 2009, the Company's effective
income tax rate was 12% compared to 14% in the corresponding period a
year ago. This differs from the combined Canadian basic federal and
provincial income tax rate of 33.0% (December 31, 2008 - 33.5%) due to
the utilization of certain investment tax credits in Canada in the
current period, which was partially offset by losses incurred in other
jurisdictions, the benefit of which was not recognized for financial
statement reporting purposes. In previous periods, the Company utilized
unrecognized loss carryforwards which reduced the effective income tax
rate.
During the nine months ended December 27, 2009, the Company's effective
income tax rate was 22% compared to 10% in the same period a year ago.
The change is primarily due to the utilization of certain investment tax
credits in the current period. In previous periods, the Company utilized
unrecognized loss carryforwards which reduced the effective income tax
rate.
18. Contingencies:
In the normal course of operations, the Company is party to a number of
lawsuits, claims and contingencies. Accruals are made in instances where
it is probable that liabilities have been incurred and where such
liabilities can be reasonably estimated. Although it is possible that
liabilities may be incurred in instances for which no accruals have been
made, the Company does not believe that the ultimate outcome of these
matters will have a material impact on its consolidated financial
position.
%SEDAR: 00002017E
For further information: Maria Perrella, Chief Financial Officer; Carl Galloway, Vice- President and Treasurer, (519) 653-6500