CAMBRIDGE, ON, Aug. 4 /CNW/ -- TSX: ATA CAMBRIDGE, ON, Aug. 4 /CNW/
- ATS Automation Tooling Systems Inc. ("ATS" or the "Company")
today reported its financial results for the three months ended
June 27, 2010. First Quarter Summary - Consolidated revenue was
$151.1 million, 1% lower than $152.7 million a year ago; -
Consolidated earnings from operations increased to $9.7 million
from $0.5 million a year ago; - Earnings increased to $0.07 per
share (basic and diluted) compared to $0.00 per share (basic and
diluted) a year ago; - A strong balance sheet was maintained with
cash net of debt of $83.5 million at June 27, 2010. - On June 1,
2010, the acquisition of Sortimat Group ("Sortimat") was completed.
"Our Automation Systems Group ("ASG") operating earnings remained
strong and Photowatt was breakeven, despite the ongoing challenging
market conditions that have continued to negatively impact our
Order Bookings and revenues," said Anthony Caputo, Chief Executive
Officer. "As we move forward with our plans for growth, we are
taking actions including organizing our ASG divisions by capability
and segment and organizing our global sales and marketing group to
mirror the markets we serve." Subsequent to the completion of the
Sortimat acquisition, the Company launched its Life Sciences group.
As ASG continues to build critical mass in other markets, other
divisions will be organized into operational groups: Products,
Services, Transportation, Energy, and Consumer Products &
Electronics. This new functional-based structure, combined with
ASG's strong business processes, will support the Company's organic
and acquisition-based growth strategy. The Company has initiated a
formal process to separate Photowatt and has engaged advisors to
assist the Company in identifying and evaluating strategic
alternatives. Conditions in the solar and capital markets will be a
consideration in the timing and form of separation. Financial
Results 3 months 3 months ended ended In millions of Canadian
dollars, June 27, June 28, except per share data 2010 2009
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Revenues Automation Systems Group $ 106.6 $ 115.2
---------------------------------------------------- Photowatt
Technologies 48.8 40.1
---------------------------------------------------- Inter-segment
(4.3) (2.6) ----------------------------------------------------
Consolidated $ 151.1 $ 152.7
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EBITDA Automation Systems Group $ 17.7 $ 16.7
---------------------------------------------------- Photowatt
Technologies 3.2 (3.4)
---------------------------------------------------- Corporate and
Inter-segment elimination (5.9) (6.6)
---------------------------------------------------- Consolidated $
15.0 $ 6.7
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Net income Consolidated $ 6.4 $ 0.3
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Earnings per share From continuing operations (basic & diluted)
$ 0.07 $ 0.00
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ASG First Quarter Results - Revenue increased to $106.6 million in
the first quarter of fiscal 2011 compared to fiscal 2010 fourth
quarter revenue of $91.5 million, but decreased from $115.2 million
a year ago; - Fiscal 2011 first quarter EBITDA was $17.7 million
compared to EBITDA of $21.1 million in the fourth quarter and $16.7
million a year ago; - Earnings from operations were $15.9 million
(operating margin of 15%), compared to $19.5 million (operating
margin of 21%) in the fourth quarter of fiscal 2010 and $14.8
million (operating margin of 13%) in the first quarter a year ago;
- Period end Order Backlog was up 3% to $215 million from $209
million in the fourth quarter of fiscal 2010, but 7% below the
Order Backlog of $230 million a year ago; - Order Bookings declined
to $85 million compared to $105 million and $96 million in the
fourth and first quarter of last year, respectively; - Order
Bookings were $48 million during the first five weeks of the second
quarter. Despite the year-over-year decline in revenues, operating
margins were maintained at 15% consistent with both the first and
fourth quarters of fiscal 2010 (excluding severance and
restructuring charges of $2.1 million incurred in the first quarter
and the investment tax credit benefit of $6.1 million realized in
the fourth quarter). Revenue increased year over year by 9% in life
sciences (formerly referred to as healthcare), primarily as a
result of revenue earned by Sortimat subsequent to its June 1, 2010
acquisition. The increase in life sciences revenue was offset by
declines of 2% in computer-electronics, 1% in energy, 35% in
transportation (formerly referred to as automotive), and 66% in
"other" markets (primarily consumer products). Photowatt First
Quarter Results - Revenue was $48.8 million, consistent with fiscal
2010 fourth quarter revenue of $48.6 million and 22% higher than
revenue of $40.1 million a year ago; - EBITDA was $3.2 million
compared to EBITDA of negative $38.3 million in the fourth quarter
of fiscal 2010 and negative $3.4 million a year ago; - Loss from
operations was $0.1 million compared to loss from operations of
$42.4 million in the fourth quarter of fiscal 2010 and loss from
operations of $7.5 million in the first quarter a year ago; - Total
megawatts (MWs) sold decreased 10% to 11.4 MWs from 12.7 MWs in the
fourth quarter of fiscal 2010, but were 37% higher than the 8.3 MWs
sold in the first quarter of fiscal 2010. Higher year-over-year
revenues reflected $7.1 million of revenue generated primarily from
the sale of previously written-down raw material inventory, which
was sold for approximately its net book value. Revenue from system
sales in the first quarter of fiscal 2011 increased to $26.2
million from $24.8 million a year ago. Photowatt's operating margin
improved to breakeven from negative 19% a year ago. Included in
Photowatt's first quarter operating loss a year ago was a $4.7
million warranty charge related to a specific customer contract
which contained an incremental performance clause beyond
Photowatt's standard warranty terms. Excluding this expense, the
year-over-year improvement in operating results reflected the
higher MWs sold, increased system sales, and lower direct
manufacturing costs-per-watt. These improvements were partially
offset by a decrease in average selling prices per watt and costs
related to the start-up of Photowatt Ontario. Quarterly Conference
Call ATS's quarterly conference call begins at 10 am eastern today
and can be accessed over the Internet at www.atsautomation.com or
on the phone at 416 644 3422 five minutes prior. Annual Meeting of
Shareholders ATS will hold its Annual Meeting of Shareholders on
August 5, 2010 at 10:00 a.m. (eastern) at the Holiday Inn Hotel and
Conference Centre, 30 Fairway Road South, Kitchener, Ontario,
Canada. About ATS ATS Automation 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 life sciences, 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,
ATS participates in the growing solar energy industry. ATS employs
approximately 2,700 people at 17 manufacturing facilities in
Canada, the United States, Europe, Southeast Asia and China. The
Company's shares are traded on the Toronto Stock Exchange under the
symbol ATA. Visit the Company's website at www.atsautomation.com.
Management's Discussion and Analysis This Management's Discussion
and Analysis ("MD&A") for the three months ended June 27, 2010
(first quarter of fiscal 2011) is as of August 3, 2010 and provides
information on the operating activities, performance and financial
position of ATS Automation Tooling Systems Inc. ("ATS" or the
"Company") and should be read in conjunction with the unaudited
interim consolidated financial statements of the Company for the
first quarter of fiscal 2011. The Company assumes that the reader
of this MD&A has access to, and has read the audited
consolidated financial statements and MD&A of the Company for
the year ended March 31, 2010 (fiscal 2010) and, accordingly, the
purpose of this document is to provide a first quarter update to
the information contained in the fiscal 2010 MD&A. These
documents and other information relating to the Company, including
the Company's fiscal 2010 audited consolidated financial
statements, MD&A and annual information form may be found on
SEDAR at www.sedar.com. Notice to Reader The Company has two
reportable segments: Automation Systems Group ("ASG") and Photowatt
Technologies ("Photowatt") which includes Photowatt France ("PWF")
and Photowatt Ontario ("PWO"). References to Photowatt's cell
''efficiency'' means the percentage of incident energy that is
converted into electrical energy in a solar cell. Solar cells and
modules are sold based on wattage output. "Silicon" refers to a
variety of silicon feedstock, including polysilicon, upgraded
metallurgical silicon ("UMG-Si") and polysilicon powders and fines.
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
first quarters of fiscal 2011 and 2010 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 first
quarters of fiscal 2011 and 2010 is contained in the MD&A (See
"ASG Order Backlog Continuity"). Acquisition of Sortimat On June 1,
2010, ATS completed its acquisition of 100% of Sortimat Group
("Sortimat"). Sortimat is a manufacturer of assembly systems for
the life sciences market. Headquartered in Germany, and established
in 1959, Sortimat also has locations in Chicago and a small, 60%
owned subsidiary in India. Sortimat will be integrated with the
Company's ASG segment. The Sortimat acquisition aligns with ATS'
strategy of expanding its position in the global automation market
and enhancing growth opportunities, particularly in strategic
segments, such as life sciences. The Company will benefit from
Sortimat's significant experience and products in advanced system
development, manufacturing, handling, and feeder technologies. This
acquisition has provided ATS with the scale required to further
organize its marketing and divisions into a group focused on life
sciences with the objective to grow its exposure to this market
segment and help customers differentiate themselves from their
competitors. To implement the integration and effect margin
improvements, the Company has deployed people to apply best
practices, command and control, program management and advance
approach to market. The total cash consideration for Sortimat is
$51.6 million (40.2 million Euro), which includes acquisition
related costs, primarily for advisory services, of $2.2 million.
Potential future payments of up to $8.5 million (6.6 million Euro),
which are payable subject to the achievement of milestones related
to operating performance and specific management services to be
provided over the next two and a half years, are not included in
the cost of acquisition and future amounts, if any, will be
recorded as compensation expense in the period accrued. AUTOMATION
SYSTEMS GROUP SEGMENT ASG Revenue (In millions of dollars. Figures
include intersegment revenue) Three Three months months ended ended
June 27, June 28, 2010 2009
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Revenue by market Life sciences $ 39.4 $ 36.0 Computer-electronics
14.0 14.3 Energy 40.9 41.3 Transportation 9.1 14.1 Other 3.2 9.5
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Total ASG revenue $ 106.6 $ 115.2
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ASG first quarter revenue was 7% lower than for the same period a
year ago as a result of lower Order Bookings during fiscal 2010 and
the resulting lower Order Backlog entering the current fiscal year.
Quarter-over-quarter foreign exchange rate changes negatively
impacted ASG revenues for the first quarter, compared to a year
ago, primarily reflecting the strengthening of the Canadian dollar
relative to the U.S. dollar and Euro. By industrial market, revenue
from life sciences (formerly referred to as healthcare) increased
9% year-over-year primarily as a result of the $5.4 million of
revenue earned by Sortimat in the last month of the first quarter
of fiscal 2011, the majority of which was earned in the life
sciences market. Excluding Sortimat's revenue contribution, revenue
in the life sciences market decreased 5% due to lower Order Backlog
entering the first quarter. The 2% decrease in computer-electronics
revenues, despite higher Order Backlog entering the first quarter
compared to a year ago, reflected a longer performance period on
certain programs. Revenue generated in the energy market decreased
1% on lower Order Backlog entering the fiscal year. The 35% decline
in transportation (formerly referred to as automotive) revenue
compared to a year ago reflected the 41% lower Order Backlog
entering the fiscal year, as a number of customer programs have
been delayed. "Other" revenues decreased 66% year over year
primarily due to lower revenues in the consumer products market and
a longer period of performance for certain programs in this market.
ASG Operating Results (In millions of dollars. Figures include
intersegment revenue) Three Three months months ended ended June
27, June 28, 2010 2009
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Earnings from operations $ 15.9 $ 14.8 Depreciation and
amortization 1.8 1.9
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EBITDA $ 17.7 $ 16.7
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Fiscal 2011 first quarter earnings from operations were $15.9
million (operating margin of 15%) compared to earnings from
operations of $14.8 million (operating margin of 13%) in the first
quarter of fiscal 2010. There were no severance and restructuring
charges included in the first quarter of fiscal 2011 operating
earnings compared to $2.1 million in the prior year related to
division closures and workforce reductions made primarily in ASG's
North American operations. Sortimat's operating results did not
have a material impact on first quarter earnings from operations.
Excluding prior year severance and restructuring charges, the
decline in year-over-year earnings from operations was due
primarily to lower sales volumes. ASG depreciation and amortization
expense was $1.8 million in the first quarter of fiscal 2011
compared to $1.9 million in the same period a year ago. ASG Order
Bookings ASG Order Bookings in the first quarter were $85 million,
11% lower than in the first quarter of fiscal 2010, which included
two significant life sciences orders worth approximately $24
million and $10 million. Lower Order Bookings also reflected a
reduction in sales opportunities as customers continued to spend at
reduced levels and/or delay capital programs. Order Bookings in the
first five weeks of the second quarter of fiscal 2011 were $48
million. ASG Order Backlog Continuity (In millions of dollars)
Three Three months months ended ended June 27, June 28, 2010 2009
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Opening Order Backlog $ 209 $ 255 Revenue (107) (115) Order
Bookings 85 96 Order Backlog adjustments(1) 28 (6)
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Total $ 215 $ 230
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(1) Order Backlog adjustments include foreign exchange adjustments,
cancellations and incremental Order Backlog of $27 million acquired
through the Sortimat transaction. ASG Order Backlog by Industry (In
millions of dollars) June 27, June 28, 2010 2009
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Life sciences $ 87 $ 120 Computer-electronics 14 15 Energy 54 62
Transportation 15 18 Other 45 15
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Total $ 215 $ 230
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At June 27, 2010, ASG Order Backlog was $215 million, 7% lower than
at June 28, 2009, primarily reflecting lower Order Bookings
throughout the past four quarters compared to the prior year. 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 the Company's markets have strengthened,
activity in ASG's front-end of the business has increased. However
despite signs of improvement in some of ASG's customers' markets,
many 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 have allowed ASG to maintain profitable operating
margins, despite lower revenues. However, low volume and revenues
due to current market conditions and competitive pressures 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 initiatives will also be
affected by current market conditions and lower Order Bookings and
Order Backlog. Management expects that until Sortimat is fully
integrated, ASG operating margins will be negatively impacted.
Management believes the Company's strengthened balance sheet,
approach to market and operational improvements will provide a
solid foundation for ASG 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 organically and through acquisition.
Management is continuing to review 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 agreements and requisite Board of
Director and other approvals. PHOTOWATT TECHNOLOGIES SEGMENT
Photowatt Revenue (In millions of dollars) Three Three months
months ended ended June 27, June 28, 2010 2009
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Total Revenue $ 48.8 $ 40.1
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Photowatt's fiscal 2011 first quarter revenue of $48.8 million was
22% higher than in the first quarter of fiscal 2010. Higher
year-over-year revenues reflected $7.1 million of revenue generated
primarily from the sale of previously written-down raw material
inventory, which was sold for approximately its net book value.
Excluding the revenue from raw material sales, Photowatt's first
quarter revenue was 4% higher than the corresponding period a year
ago. Total megawatts ("MWs") sold at PWF increased to 11.4 MWs
(exclusive of raw material sales) from 8.3 MWs in the same period a
year ago, resulting from increased demand due partially to improved
credit markets compared to the same period a year ago. Fiscal 2011
first quarter revenue from system sales increased to $26.2 million
from $24.8 million in the corresponding period a year ago. Systems
include modules, combined with installation kits, solar power
system design and/or other value-added services. These
year-over-year increases were partially offset by foreign exchange
rate changes due to strengthening of the Canadian dollar relative
to the Euro, which negatively impacted the translation of revenue
in the first quarter of fiscal 2011 compared to the same period a
year ago and a decrease in average selling prices per watt.
Photowatt Operating Results (In millions of dollars) Three Three
months months ended ended June 27, June 28, 2010 2009
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Earnings (loss) from operations $ (0.1) $ (7.5) Depreciation and
amortization 3.3 4.1
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EBITDA $ 3.2 $ (3.4)
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Photowatt fiscal 2011 first quarter loss from operations was $0.1
million (operating margin of 0%) compared to a loss from operations
of $7.5 million (operating margin of negative 19%) a year ago. The
year-over-year improvement in operating results reflected the
higher MWs sold, increased system sales, and lower direct
manufacturing costs-per-watt. These increases were partially offset
by lower average selling prices. Included in last year's first
quarter operating loss was a $4.7 million warranty charge related
to a specific customer contract which contained an incremental
performance clause beyond Photowatt's standard warranty terms.
Photowatt's fiscal 2011 first quarter loss from operations included
costs related to the PWO start-up, which was initiated during the
third quarter of fiscal 2010. Photowatt's fiscal 2011 first quarter
amortization expense was $3.3 million compared to $4.1 million in
the first quarter of fiscal 2010 reflecting foreign exchange as the
Canadian dollar strengthened relative to the Euro when compared to
the prior year. Photowatt Outlook The Company has initiated a
formal process to separate Photowatt and has engaged advisors to
assist the Company in identifying and evaluating strategic
alternatives. The Company has determined it does not meet all of
the criteria to classify Photowatt as assets held for sale and its
results as discontinued operations in its interim Consolidated
Financial Statements as at June 27, 2010. As a result, these assets
continue to be classified as held and used. As the form of
separation is uncertain, adjustments to carrying value may result
and a write-down, if any, will be recorded in the period
determined. Conditions in the solar and capital markets will be a
consideration in the timing and form of separation. Solar power is,
and for the foreseeable future will be, affected by and largely
dependent on the existence of government incentives. Reductions in
feed-in tariffs for solar energy announced in the Company's fiscal
2010 fourth quarter in Germany and France, and increased industry
inventory levels and capacity, particularly from low-cost
manufacturers in Asia, are expected to have a negative impact on
average selling prices per watt. In France, Photowatt has secured
sales for a significant portion of its capacity over the next two
quarters, however revenues will be impacted by lower year-over-year
average selling prices. In Ontario, Photowatt has secured
conditional feed-in tariff approvals totalling approximately 65 MWs
related to large scale renewable energy applications made by a
project development joint venture, Ontario Solar PV Fields ("OSPV")
in which ATS holds a 50% interest. OSPV will utilize a range of
solar solutions including modules manufactured by ATS in Cambridge.
OSPV's next steps include efforts to arrange financing and ultimate
project ownership, as well as obtaining necessary joint venture
partner approvals and other requisite approvals. PWO has signed
agreements with developers who are in the process of securing
conditional feed-in tariff approvals for a number of projects. PWO
will provide modules and other related services into these
projects. During the first quarter, the first test modules were
produced on PWO's Cambridge based 100 MW module line. Production
will ramp-up to meet demand in the latter part of the fiscal year.
Management is pursuing other downstream alternatives to create an
additional market for Photowatt's products, including working with
manufacturing partners to identify and expand its pipeline of both
ground-mount and roof-top solar energy projects. Management expects
improvements in cell efficiency, manufacturing yields and
throughput will continue to reduce Photowatt's direct manufacturing
costs-per-watt. Management does not know to what extent planned
cost reductions will offset the impact of decline in average
selling prices on operating earnings. Second quarter fiscal 2011
operating performance is expected to be negatively impacted by the
usual three week PWF factory shutdown. To keep Photowatt cost
competitive, management is now proceeding with 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. CONSOLIDATED RESULTS FROM
OPERATIONS (In millions of dollars, except per share data) Three
Three months months ended ended June 27, June 28, 2010 2009
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Revenue $ 151.1 $ 152.7 Cost of revenue 120.8 132.6 Selling,
general and administrative 20.1 18.8 Stock-based compensation 0.5
0.8
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Earnings from operations $ 9.7 $ 0.5
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Interest expense $ 0.5 $ 0.5 Provision for (recovery of) income
taxes 2.7 (0.3)
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Net income $ 6.4(1) $ 0.3
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Earnings per share Basic and diluted $ 0.07 $ 0.00
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(1) Rounding Revenue. At $151.1 million, consolidated revenue for
fiscal 2011 first quarter was 1% lower than a year ago. The
decrease in revenues resulted from a 7% decrease in ASG revenues,
partially offset by a 22% increase in Photowatt revenues. Cost of
revenue. Fiscal 2011 first quarter cost of revenue decreased on a
consolidated basis by $11.8 million or 9% from a year ago to $120.8
million. Consolidated gross margin as a percentage of revenue
increased to 20% in the first quarter of fiscal 2011 from 13% in
the first quarter of fiscal 2010 resulting from improved
profitability at both ASG and Photowatt. Selling, general and
administrative ("SG&A") expenses. For the first quarter of
fiscal 2011, SG&A expenses increased 7% or $1.3 million to
$20.1 million compared to the respective prior-year period. Higher
SG&A costs reflected higher costs due to acquisition-related
activities and incremental amortization expenses. SG&A expenses
for the first quarter of fiscal 2011 included $0.2 million of
Company-wide severance and restructuring costs compared to $2.3
million in the first quarter of fiscal 2010. Stock-based
compensation cost. For fiscal 2011 first quarter, stock-based
compensation expense decreased to $0.5 million from $0.8 million a
year earlier primarily reflecting 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 a stock price performance
threshold for a specified minimum number of trading days, the
options vest. When the performance-based options vest, the Company
is required to recognize all previously unrecognized expenses
associated with the vested stock options in the period in which
they vest. As at June 27, 2010, 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 (in '000s) (in 000's)
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$8.41 266,667 2.11 0.8 years 45 137 $8.50 889,333 1.41 2.4 years 63
604 $9.08 218,666 2.77 0.3 years 59 54 $9.49 41,667 1.66 4.4 years
3 53 $10.41 266,667 2.11 2.2 years 31 270 $10.50 889,333 1.41 3.3
years 54 698 $11.08 218,667 2.77 1.5 years 38 249 $12.41 266,666
2.11 3.2 years 26 319 $13.08 218,667 2.77 2.5 years 31 316
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Earnings from operations. First quarter fiscal 2011 consolidated
earnings from operations were $9.7 million, compared to earnings
from operations of $0.5 million a year ago. Fiscal 2011 first
quarter performance reflected: operating earnings of $15.9 million
at ASG (operating earnings of $14.8 million a year ago); Photowatt
Technologies operating loss of $0.1 million (operating loss of $7.5
million a year ago); and inter-segment eliminations and corporate
expenses of $6.1 million ($6.8 million of costs a year ago).
Interest expense and interest income. Net interest expense was $0.5
million in the first quarter of fiscal 2011 compared to $0.5
million a year ago. The net interest expense is primarily related
to credit facilities at Photowatt. Provision for income taxes. For
the three months ended June 27, 2010, the Company's effective
income tax rate differs from the combined Canadian basic federal
and provincial income tax rate of 30.2% (June 28, 2009 - 33.0%)
primarily as a result of losses incurred in Europe, the benefit of
which was not recognized for financial statement reporting
purposes. Net income. For first quarter of fiscal 2011, net income
was $6.4 million (0.7 cents earnings per share basic and diluted)
compared to net income of $0.3 million (0 cents earnings per share
basic and diluted) for the same period last year. Reconciliation of
EBITDA to GAAP measures (In millions of dollars) Three Three months
months ended ended June 27, June 28, 2010 2009
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EBITDA Automation Systems $ 17.7 $ 16.7 Photowatt Technologies 3.2
(3.4) Corporate and inter-segment (5.9) (6.6)
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Total EBITDA $ 15.0 $ 6.7
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Less: Depreciation and amortization expense Automation Systems $
1.8 $ 1.9 Photowatt Technologies 3.3 4.1 Corporate and
inter-segment 0.2 0.2
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Total depreciation and amortization expense $ 5.3 $ 6.2
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Earnings (loss) from operations Automation Systems $ 15.9 $ 14.8
Photowatt Technologies (0.1) (7.5) Corporate and inter-segment
(6.1) (6.8)
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Total earnings from operations $ 9.7 $ 0.5
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Less: Interest expense $ 0.5 $ 0.5 Provision for (recovery of)
income taxes 2.7 (0.3)
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Net income $ 6.4(1) $ 0.3
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(1) Rounding FOREIGN EXCHANGE Strengthening in the value of the
Canadian dollar relative to the U.S. dollar and the Euro had a
negative impact on the Company's revenue and operating earnings in
the first quarter of fiscal 2011 compared to the first quarter of
fiscal 2010. 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 12 to the interim consolidated
financial statements for details on the derivative financial
instruments outstanding at June 27, 2010. Period Average Market
Exchange Rates in CDN$ Three months ended June 27, June 28, 2010
2009 % change
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US $ 1.0277 1.1660 -11.9% Euro 1.3071 1.5881 -17.7% Singapore $
0.7382 0.7919 -6.8%
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LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES At June 27, 2010, the
Company had cash and short-term investments of $152.5 million
compared to $211.8 million at March 31, 2010. In the first quarter
of fiscal 2011, cash flows provided by operating activities were
$5.9 million, compared to cash flows used in operating activities
of $13.8 million in the first quarter of fiscal 2010. The Company's
total debt to total equity ratio at June 27, 2010 was 0.1:1. At
June 27, 2010, the Company had $77.0 million of unutilized credit
available under existing operating and long-term credit facilities
and another $29.2 million available under letter of credit
facilities. In the first quarter of fiscal 2011, the Company's
investment in non-cash working capital increased by $7.9 million or
9%. Consolidated accounts receivable increased 53% or $45.5
million, due to increased billings on contracts in progress in the
first quarter of fiscal 2011 at ASG and Photowatt as well as due to
the sale of previously written-down raw material inventory at PWF,
for which payment was received subsequent to June 27, 2010. The
acquisition of Sortimat also increased the Company's accounts
receivable balance at June 27, 2010. Net contracts in progress
decreased by 80% or $10.2 million compared to March 31, 2010. The
Company actively manages its accounts receivable and net contracts
in progress balances through billing terms on long-term contracts
and by focusing on collection efforts. Inventories decreased year
over year by 1% or $1.0 million. Deposits and prepaid assets
decreased by 1% or $0.2 million due primarily to a decrease in the
fair value of forward foreign exchange contracts, partially offset
by an increase in vendor deposits, and restricted cash being used
to secure letters of credit. Accounts payable and accrued
liabilities increased 30% primarily due to timing of purchases and
the assumption of Sortimat's accounts payable and accrued
liabilities. Property, plant and equipment purchases totalled $10.5
million in the first quarter of fiscal 2011. Expenditures at
Photowatt, totalling $5.1 million, were used for production
equipment and facility improvements, primarily at PWO. Total ASG
and Corporate capital expenditures were $5.4 million, primarily
related to the purchase of a new building in the U.S.A. The
Company's primary credit facility (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 un-advanced 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. As of June 27, 2010 there is no amount borrowed under
the Company's primary credit facility (March 31, 2010 - $nil). The
Company's subsidiary, Photowatt International S.A.S., has credit
facilities including capital lease obligations of $57.6 million
(44.9 million Euro). The total amount outstanding on these
facilities is $50.7 million (March 31, 2010 - $55.9 million), of
which $21.8 million is classified as bank indebtedness (March 31,
2010 - $26.0 million), $7.1 million is classified as long-term debt
(March 31, 2010 - $7.7 million) and $21.8 million is classified as
obligations under capital lease (March 31, 2010 - $22.3 million).
The interest rates applicable to the credit facilities range from
Euribor plus 0.5% to Euribor plus 1.8% 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 credit
facilities which are classified as current bank indebtedness, are
subject to either annual renewal or 60 day notification. At June
27, 2010, Photowatt International S.A.S. was not in compliance with
the debt leverage tests on certain of its credit facilities. The
lenders have not waived their right to demand repayment of the
outstanding principal balances and consequently the entire balance
of $7.1 million (5.5 million Euro) has been included in the current
portion of long-term debt. The Company has additional credit
facilities of $17.7 million (11.7 million Euro, 31.7 million Indian
Rupee and 2.0 million Swiss Francs). The total amount outstanding
on these facilities is $10.5 million (March 31, 2010 - $nil), of
which $6.9 million is classified as bank indebtedness and $3.6
million is classified as long-term debt. The interest rates
applicable to the credit facilities range from 0.0% to 8.5% and
EONIA plus 4.0% per annum. A portion of the long-term debt is
secured by certain assets of the Company and a portion of the 2.0
million Swiss Francs credit facility is secured by a letter of
credit under the primary credit facility. The Company expects that
continued cash flows from operations, together with cash and
short-term investments on hand and credit available under operating
and long-term credit facilities, will be more than sufficient to
fund its requirements for investments in working capital and
capital assets, which are listed under the heading Contractual
Obligations, and to fund strategic investment plans including
potential acquisitions. During the first quarter of fiscal 2011,
1,000 stock options were exercised. As of August 3, 2010 the total
number of shares outstanding was 87,279,155. Contractual
Obligations Information on the Company's lease and contractual
obligations is detailed in the Consolidated Annual Financial
Statements and MD&A for the year ended March 31, 2010 found at
www.sedar.com. The Company' off-balance sheet arrangements consist
of purchase obligations, various operating lease financing
arrangements related primarily to facilities and equipment, and
derivative financial instruments which have been entered into in
the normal course of business. There are no other significant
off-balance sheet arrangements that management believes will have a
material effect on the results of operations or liquidity. 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. In addition,
the Company may provide bank guarantees as security on equipment
under lease and on order. As of June 27, 2010, the total value of
outstanding bank guarantees available under bank guarantee
facilities was approximately $34.6 million (March 31, 2010 - $11.9
million). Consolidated Quarterly Results ($ in thousands, except
per share amounts) Q1 2011 Q4 2010 Q3 2010 Q2 2010
-------------------------------------------------------------------------
Revenue $ 151,114 $ 138,774 $ 138,133 $ 148,169 Earnings (loss)
from operations $ 9,655 $ (25,994) $ 4,756 $ 9,305 Net income from
continuing operations $ 6,438 $ 2,084 $ 3,742 $ 6,012 Net income $
6,438 $ 2,084 $ 3,742 $ 6,012 Basic earnings per share from
continuing operations $ 0.07 $ 0.03 $ 0.04 $ 0.07 Diluted earnings
per share from continuing operations $ 0.07 $ 0.03 $ 0.04 $ 0.07
Basic earnings per share $ 0.07 $ 0.03 $ 0.04 $ 0.07 Diluted
earnings per share $ 0.07 $ 0.03 $ 0.04 $ 0.07 ASG Order Bookings $
85,000 $ 105,000 $ 92,000 $ 71,000 ASG Order Backlog $ 215,000 $
209,000 $ 203,000 $ 197,000 ($ in thousands, except per share
amounts) Q1 2010 Q4 2009 Q3 2009 Q2 2009
-------------------------------------------------------------------------
Revenue $ 152,701 $ 201,774 $ 221,739 $ 219,071 Earnings (loss)
from operations $ 502 $ 17,743 $ 18,472 $ 13,563 Net income from
continuing operations $ 325 $ 14,041 $ 15,814 $ 12,688 Net income $
325 $ 13,506 $ 12,316 $ 9,272 Basic earnings per share from
continuing operations $ 0.00 $ 0.17 $ 0.20 $ 0.16 Diluted earnings
per share from continuing operations $ 0.00 $ 0.16 $ 0.20 $ 0.16
Basic earnings per share $ 0.00 $ 0.16 $ 0.16 $ 0.12 Diluted
earnings per share $ 0.00 $ 0.15 $ 0.16 $ 0.12 ASG Order Bookings $
96,000 $ 126,000 $ 157,000 $ 133,000 ASG Order Backlog $ 230,000 $
255,000 $ 282,000 $ 247,000 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 sales
volumes, and the Company's earnings in its markets. ATS typically
experiences some seasonality with its revenue and earnings due to
the summer plant shutdown at PWF. In Photowatt, slower sales may
occur in the winter months, when the weather may impair the ability
to install its products in certain geographical areas. Accounting
Changes Business Combinations 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 is evaluating
the impact of adoption of this new section in connection with its
conversion to IFRS. Consolidated Financial Statements 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 is evaluating the impact of adoption
of this new section in connection with its conversion to IFRS.
Multiple Deliverable Revenue Arrangements CICA EIC 175 "Multiple
Deliverable Revenue Arrangements" deals with arrangements that have
multiple deliverables and provides guidance which is to be applied
to determine how arrangement consideration should be measured,
whether the arrangement should be divided into separate units of
accounting and how the arrangement consideration should be
allocated among the separate units of accounting. The standard is
effective for fiscal years beginning on or after January 1, 2011.
The Company is evaluating the impact of adoption of this new
section. Accrued Pension Obligation In the first quarter of fiscal
2011, it was determined that a pension obligation that was assumed
in 1998 should have been previously recognized. The arrangement has
been recorded with an adjustment to decrease retained earnings as
of April 1, 2009 by $2 million (net of tax of nil) with a
corresponding increase in accounts payable and accrued liabilities.
This adjustment had no material impact on reported earnings, cash
flows or earnings per share in prior periods reported.
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. This change is effective for the Company for interim and
annual financial statements beginning April 1, 2011. 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, internal controls over
financial 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 expects to be in a position to report on the impact of the
adoption of IFRS on its opening balance sheet as of April 1, 2010,
by March 31, 2011. 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. Although the
implementation activities are well underway and proceeding
according to plan, continued progress is necessary before the
Company can prudently increase the specificity of the disclosure of
IFRS changeover accounting policy differences. In addition, due to
anticipated changes in Canadian GAAP and IFRS prior to the
Company's transition to IFRS, the full impact of adopting IFRS on
the Company's future financial position and results of operations
cannot be reasonably determined at this time. 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 June 27, 2010, other than as noted below, 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. As noted, ATS acquired the Sortimat Group on
June 1, 2010. Management has not yet assessed the design or
operating effectiveness of Sortimat's disclosure controls and
procedures and internal control 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: ATS's intention to integrate Sortimat with its ASG
segment; expected benefit from Sortimat's experience and products;
potential future payments related to purchase of Sortimat;
management's belief with respect to business investment and capital
spending on automation and the impact on order bookings and
revenues; impact of current market conditions and competitive
pressures on operating margins; management's expectations as to
impact of strategic initiatives; impact of Sortimat acquisition on
ASG operating margins until it is fully integrated; management's
belief that the Company's strengthened balance sheet, approach to
market and operational improvements will provide a solid foundation
for ASG to improve performance when the general business
environment, including capital investment, stabilizes and returns
to growth; the Company's plans to expand its position in the global
automation market organically and through acquisition and the
completion and timing of any potential acquisitions with respect to
which discussion are currently in progress; Company's initiation of
a process to consider an appropriate strategy to separate Photowatt
from ATS and impacts on the timing and form of separation;
expectation of negative impact on average selling prices per watt
as a result of certain feed-in tariff reductions and increased
industry inventory levels and capacity; impact of lower average
selling prices on revenues; OSVP's intentions and next steps in
relation to certain Ontario solar projects; PWO provision of
modules and related services into solar projects currently seeking
FIT conditional approval; the expected ramping up of module output
at PWO facilities; management's pursuit of other downstream
alternatives for Photowatt; expectations of continued improvements
in cell efficiency, manufacturing yields and throughput and impact
thereof; impact of usual three week PWF factory shutdown; plan to
reduce Photowatt cost structure; intention to modify plans to
address changing market conditions; 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; the
success of ATS's efforts to integrate Sortimat; the ability of ATS
to exploit and realize upon the benefits from Sortimat experience
and products; receptivity of customers, suppliers, employees, and
market to the Sortimat transaction; that one or more customers
experience bankruptcy despite focus on credit terms; 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; near-term performance of Photowatt and impact
on divestiture efforts; ability to execute on Photowatt divestiture
initiative in current market environment; that PWF's downstream
market initiatives are not successful; 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; the success of developers
with whom ATS has signed agreements in obtaining FIT contracts and
ultimately developing the projects; that the plans to cut costs at
Photowatt are not successful; 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 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. August 3, 2010 ATS AUTOMATION TOOLING
SYSTEMS INC. Consolidated Balance Sheets (in thousands of Canadian
dollars - unaudited) June 27 March 31 2010 2010
-------------------------------------------------------------------------
ASSETS Current assets Cash and cash equivalents $ 152,452 $ 211,786
Accounts receivable 131,467 85,995 Costs and earnings in excess of
billings on contracts in progress (note 4) 43,917 42,924
Inventories (note 4) 79,317 80,280 Future income taxes 634 553
Deposits and prepaid assets (note 5) 27,287 27,492
-------------------------------------------------------------------------
435,074 449,030 Property, plant and equipment 179,637 171,451
Goodwill 68,048 34,350 Intangible assets 28,743 4,864 Investment
tax credits 20,884 20,878 Future income taxes 33,763 35,243
Portfolio investments 4,131 3,602 Other assets (note 6) 33,555
33,380
-------------------------------------------------------------------------
$ 803,835 $ 752,798
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank
indebtedness (note 10) $ 28,774 $ 26,034 Accounts payable and
accrued liabilities 154,249 118,518 Billings in excess of costs and
earnings on contracts in progress (note 4) 41,423 30,216 Future
income taxes 12,043 12,326 Current portion of long-term debt (note
10) 11,166 10,830 Current portion of obligations under capital
leases (note 10) 4,178 4,260
-------------------------------------------------------------------------
251,833 202,184 Long-term debt (note 10) 7,237 4,420 Long-term
portion of obligations under capital leases (note 10) 17,637 17,985
Shareholders' equity Share capital 479,547 479,542 Contributed
surplus 11,848 11,244 Accumulated other comprehensive loss (note
13) (45,562) (37,434) Retained earnings (restated - note 2(d))
81,295 74,857
-------------------------------------------------------------------------
527,128 528,209
-------------------------------------------------------------------------
$ 803,835 $ 752,798
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments and contingencies (notes 3 and 16) See accompanying
notes to interim consolidated financial statements ATS AUTOMATION
TOOLING SYSTEMS INC. Consolidated Statements of Operations (in
thousands of Canadian dollars, except per share amounts -
unaudited) Three months ended
-------------------------------------------------------------------------
June 27 June 28 2010 2009
-------------------------------------------------------------------------
Revenue $ 151,114 $ 152,701
-------------------------------------------------------------------------
Operating costs and expenses Cost of revenue 120,800 132,623
Selling, general and administrative 20,145 18,766 Stock-based
compensation (note 7) 514 810
-------------------------------------------------------------------------
Earnings from operations 9,655 502
-------------------------------------------------------------------------
Other expenses Interest on long-term debt 240 301 Other interest
264 239
-------------------------------------------------------------------------
504 540
-------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 9,151
(38) Provision for (recovery) of income taxes (note 15) 2,713 (363)
-------------------------------------------------------------------------
Net income $ 6,438 $ 325
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per share (note 8) Basic $ 0.07 $ 0.00 Diluted $ 0.07 $
0.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC. Consolidated Statements of
Shareholders' Equity and Other Comprehensive Loss (in thousands of
Canadian dollars - unaudited) Three months ended June 27, 2010
-------------------------------------------------------------------------
Accumu- lated Other Compre- hensive Total Contri- Income Share-
Share buted (Loss) Retained holders' Capital Surplus (note 13)
Earnings Equity
-------------------------------------------------------------------------
Balance, beginning of period $ 479,542 $ 11,244 $ (37,434) $ 74,857
$ 528,209 Comprehensive income (loss) Net income - - - 6,438 6,438
Currency translation adjustment - - (7,503) - (7,503) Net
unrealized gain on available for-sale financial assets (net of
income taxes of $nil) - - 528 - 528 Net unrealized loss on
derivative financial instruments designated as cash flow hedges
(net of income taxes of $215) - - (380) - (380) Gains transferred
to net income for derivatives designated as cash flow hedges (net
of income tax recovery of $357) - - (773) - (773) ---------- Total
comprehensive loss (1,690) Stock-based compensation (note 7) - 606
- - 606 Exercise of stock options 5 (2) - - 3
-------------------------------------------------------------------------
Balance, end of the period $ 479,547 $ 11,848 $ (45,562) $ 81,295 $
527,128
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended June 28, 2009
-------------------------------------------------------------------------
Accumu- lated Other Compre- hensive Total Contri- Income Share-
Share buted (Loss) Retained holders' Capital Surplus (note 13)
Earnings Equity
-------------------------------------------------------------------------
Balance, beginning of period (restated - note 2(d)) $ 479,537 $
8,722 $ 15,494 $ 62,694 $ 566,447 Comprehensive income (loss) Net
income - - - 325 325 Currency translation adjustment - - (12,185) -
(12,185) Net unrealized gain on available for-sale financial assets
(net of income taxes of $nil) - - 658 - 658 Net unrealized gain on
derivative financial instruments designated as cash flow hedges
(net of income taxes of $nil) - - 377 - 377 Losses transferred to
net income for derivatives designated as cash flow hedges (net of
income taxes of $nil) - - 1,406 - 1,406 ---------- Total
comprehensive loss (9,419) Stock-based compensation (note 7) - 574
- - 574
-------------------------------------------------------------------------
Balance, end of the period $ 479,537 $ 9,296 $ 5,750 $ 63,019 $
557,602
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC. Consolidated Statements of Cash
Flows (in thousands of Canadian dollars - unaudited) Three months
ended
-------------------------------------------------------------------------
June 27 June 28 2010 2009
-------------------------------------------------------------------------
Operating activities: Net income $ 6,438 $ 325 Items not involving
cash Depreciation of property, plant and equipment 4,589 5,641
Amortization of intangible assets 744 562 Future income taxes 1,843
(872) Investment tax credit receivable (6) (3,000) Other items not
involving cash (102) 11 Stock-based compensation (note 7) 514 810
Loss (gain) on disposal of property, plant and equipment (175) 52
-------------------------------------------------------------------------
Cash flow from operations 13,845 3,529 Change in non-cash operating
working capital (7,921) (17,290)
-------------------------------------------------------------------------
Cash flows provided by (used in) operating activities 5,924
(13,761)
-------------------------------------------------------------------------
Investing activities: Acquisition of property, plant and equipment
(10,478) (6,023) Acquisition of intangible assets (1,092) (96)
Investments, silicon deposits and other (3,184) (1,426) Business
acquisition (note 3) (48,720) - Proceeds from disposal of property,
plant and equipment 505 165
-------------------------------------------------------------------------
Cash flows used in investing activities (62,969) (7,380)
-------------------------------------------------------------------------
Financing activities: Restricted cash (note 5) (1,476) 2,576 Bank
indebtedness (note 10) (2,716) 22,625 Proceeds from long-term debt
(note 10) 1,411 1,135 Proceeds from sale and leaseback of property,
plant and equipment 1,747 - Repayment of long-term debt (note 10)
(844) (131) Repayment of obligations under capital leases (note 10)
(691) (811) Issuance of common shares 3 -
-------------------------------------------------------------------------
Cash flows provided by (used in) financing activities (2,566)
25,394
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 277
(1,522)
-------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (59,334) 2,731
Cash and cash equivalents, beginning of period 211,786 142,361
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 152,452 $ 145,092
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental information Cash income taxes paid $ 361 $ 383 Cash
interest paid $ 409 $ 85
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC. Notes to Interim Consolidated
Financial Statements (in thousands of Canadian dollars, except per
share amounts - unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES AND
BASIS OF PRESENTATION: (a) The accompanying interim consolidated
financial statements of ATS Automation Tooling Systems Inc. and its
subsidiary companies (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, 2010. 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, 2010. (b) The preparation of these interim consolidated
financial statements in conformity with GAAP requires management to
make estimates and assumptions that may affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the interim consolidated financial
statements and the reported amount of revenue and expenses during
the reporting period. Actual results could differ from these
estimates. Significant estimates and assumptions are used when
determining fair values of assets and liabilities acquired in a
business combination and 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 obsolescence provisions, revenue recognition,
contingent liabilities, and allowances for uncollectible accounts
receivable. (c) 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. The Company follows a 13 week per quarter
schedule, where the first fiscal month of a new quarter contains 5
weeks and each subsequent month contains 4 weeks, with the
exception of its fiscal year-end, which falls on March 31. This
results in some periods containing a different number of days than
comparative periods. The three months ended June 27, 2010 contained
88 days (three months ended June 28, 2009 - 89 days). 2. ACCOUNTING
CHANGES: (a) 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 is evaluating the impact of adoption
of this new section in connection with its conversion to IFRS. (b)
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 is evaluating the impact of adoption
of this new section in connection with its conversion to IFRS. (c)
CICA EIC 175 "Multiple Deliverable Revenue Arrangements" deals with
arrangements that have multiple deliverables and provides guidance
which is to be applied to determine how arrangement consideration
should be measured, whether the arrangement should be divided into
separate units of accounting and how the arrangement consideration
should be allocated among the separate units of accounting. The
standard is effective for fiscal years beginning on or after
January 1, 2011. The Company is evaluating the impact of adoption
of this new section. (d) In the three months ended June 27, 2010,
it was determined that a pension obligation that was originally
assumed in 1998 should have been previously recognized. This
arrangement has been recorded with an adjustment to decrease
retained earnings as of April 1, 2009 by $2,000 (net of tax of
$nil) with a corresponding increase in accounts payable and accrued
liabilities. This adjustment had no material impact on reported
earnings, cash flows or earnings per share in prior periods. 3.
ACQUISITION OF SORTIMAT On June 1, 2010, the Company completed its
acquisition of 100% of Sortimat Group ("Sortimat"). Sortimat is a
manufacturer of assembly systems for the life sciences market, and
is headquartered in Germany with locations in Chicago and a small,
60% owned subsidiary in India. Sortimat has been integrated with
the Company's existing Automation Systems Group ("ASG"). The
Sortimat acquisition aligns with ATS' strategy of expanding its
position in the global automation market and enhancing growth
opportunities, particularly in strategic segments, such as life
sciences. The financial results of Sortimat are included in the ASG
segment from the date of acquisition. The total cash consideration
for Sortimat is $51,623 (40,165 Euro), which includes
acquisition-related costs, primarily for advisory services, of
$2,173. Potential future payments of up to $8,495 (6,610 Euro)
which are payable subject to the achievement of milestones related
to operating performance and specific management services to be
provided over the next two and a half years are not included in the
cost of the acquisition and future amounts, if any, will be
recorded as compensation expense in the period accrued. Cash used
in the investment is determined as follows: Cash consideration(i) $
51,623 Less cash acquired (1,473)
-------------------------------------------------------------------------
$ 50,150
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Includes $1,430 of cash paid subsequent to June 27, 2010. The
purchase cost was allocated to the underlying assets acquired and
liabilities assumed based upon the fair value at the date of
acquisition. The company determined the fair values based on
discounted cash flows, market information, independent valuations
and management's estimates. Final valuations of certain items are
not yet complete due to the inherent complexity associated with
valuations. Therefore, the purchase price allocation is preliminary
and subject to adjustment over the course of fiscal 2011 on
completion of the valuation process and analysis of resulting tax
effects. The preliminary allocation of the purchase price at fair
value is as follows: Purchase price allocation
-------------------------------------------------------------------------
Cash $ 1,473 Current assets 18,685 Property, plant and equipment
9,159 Other long term assets 385 Intangible assets with a definite
life Technology 7,906 Customer relationships 8,137 Other 908
Intangible assets with an indefinite life Brand 6,812 Current
liabilities (31,978) Long term debt (3,590)
-------------------------------------------------------------------------
Net identifiable assets 17,897 Residual purchase price allocated to
goodwill 33,726
-------------------------------------------------------------------------
$ 51,623
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-cash working capital includes accounts receivable of $8,601,
representing gross contractual amounts receivable of $9,279 less
managements best estimate of the contractual cash flows not
expected to be collected of $678. The primary factors that
contributed to a purchase price that resulted in the recognition of
goodwill are: the existing Sortimat business; the acquired
workforce; significant experience and products in advanced system
development, manufacturing, handling and feeder technologies;
time-to-market benefits of acquiring an established organization in
key international markets such as Europe, Asia and the United
States; and the combined strategic value to the Company's growth
plan. The amount assigned to goodwill is not expected to be
deductible for tax purposes. The cash consideration of the purchase
price along with transaction costs were funded with existing cash
on hand. This acquisition was accounted for as a business
combination with the Company as the acquirer of Sortimat. The
purchase method of accounting was used and the earnings have been
consolidated from the acquisition date, June 1, 2010. Sortimat has
contributed approximately $5,407 in revenue and the effect on net
income is not material. 4. CONTRACTS IN PROGRESS AND INVENTORIES:
June 27 March 31 2010 2010
-------------------------------------------------------------------------
Contracts in progress: Costs incurred on contracts in progress $
433,073 $ 338,624 Estimated earnings 100,474 80,766
-------------------------------------------------------------------------
533,547 419,390 Progress billings (531,053) (406,682)
-------------------------------------------------------------------------
$ 2,494 $ 12,708
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Disclosed as: Costs and earnings in excess of bilings on contracts
in progress $ 43,917 $ 42,924 Billings in excess of costs and
earnings on contracts in progress (41,423) (30,216)
-------------------------------------------------------------------------
$ 2,494 $ 12,708
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 27 March 31 2010 2010
-------------------------------------------------------------------------
Inventories are summarized as follows: Raw materials $ 37,979 $
45,984 Work in process 11,330 8,585 Finished goods 30,008 25,711
-------------------------------------------------------------------------
$ 79,317 $ 80,280
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The amount of inventory recognized as an expense and included in
cost of revenue accounted for other than by the
percentage-of-completion method during the three months ended June
27, 2010 was $58,593 (three months ended June 28, 2009 - $48,030).
The amount charged to net income and included in cost of revenue
for the write-down of inventory for valuation issues during the
three months ended June 27, 2010 was $541 (three months ended June
28, 2009 - $991). 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 months ended June 27,
2010 was $69 (three months ended June 28, 2009 - $nil). 5. DEPOSITS
AND PREPAID ASSETS: June 27 March 31 2010 2010
-------------------------------------------------------------------------
Prepaid assets $ 4,778 $ 4,231 Restricted cash(i) 1,809 582 Silicon
and other deposits 17,657 16,335 Forward contracts and other 3,043
6,344
-------------------------------------------------------------------------
$ 27,287 $ 27,492
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Restricted cash consists of cash collateralized to secure
letters of credit. 6. OTHER ASSETS: June 27 March 31 2010 2010
-------------------------------------------------------------------------
Silicon deposits $ 30,537 $ 32,389 Other 3,018 991
-------------------------------------------------------------------------
$ 33,555 $ 33,380
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. STOCK-BASED COMPENSATION PLANS: In the calculation of the
stock-based compensation expense in the interim consolidated
statements of operations, the fair values of the Company's stock
option grants were estimated using the Black-Scholes option pricing
model for time vesting stock options and binomial option pricing
models for performance based stock options. During the three months
ended June 27, 2010 the Company granted 325,000 time vesting stock
options (350,000 in the three months ended June 28, 2009). The
stock options granted vest over 4 years and expire on the seventh
anniversary from the date of issue. During the three month periods
ended June 27, 2010 and June 28, 2009, no performance based options
were granted. Performance based stock options vest based on the
Company's stock trading at or above certain thresholds for a
specified number of minimum trading days. The performance based
stock options expire on the seventh anniversary after the date that
the options vest. During the three month periods ended June 27,
2010 and June 28, 2009, no performance based options vested. Three
months ended June 27, 2010 June 28, 2009
-------------------------------------------------------------------------
Weighted Weighted Number of average Number of average stock
exercise stock exercise options price options price
-------------------------------------------------------------------------
Stock options outstanding, beginning of year 6,368,674 $ 7.89
6,112,562 $ 8.18 Granted 325,000 6.34 350,000 5.10 Exercised
(1,000) 3.49 - - Forfeited/cancelled (90,696) 22.31 (11,021) 13.42
-------------------------------------------------------------------------
Stock options outstanding, end of period 6,601,978 $ 7.62 6,451,541
$ 8.00
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock options exercisable, end of period, time vested options
1,027,511 $ 9.63 1,006,902 $ 12.01 Stock options exercisable, end
of period, performance-options 991,448 $ 6.14 908,115 $ 6.38
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The fair value of time vesting 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:
Three months ended
-------------------------------------------------------------------------
June 27 June 28 2010 2009
-------------------------------------------------------------------------
Weighted average risk-free interest rate 2.28% 2.11% Dividend yield
0% 0% Weighted average expected volatility 58% 60% Weighted average
expected life 4.75 years 4.55 years Number of stock options
granted: Time vested 325,000 350,000 Weighted average exercise
price per option $ 6.34 $ 5.10 Weighted average value per option:
Time vested $ 3.16 $ 2.56
-------------------------------------------------------------------------
8. EARNINGS PER SHARE: Weighted average number of shares used in
the computation of earnings per share is as follows: Three months
ended
-------------------------------------------------------------------------
June 27 June 28 2010 2009
-------------------------------------------------------------------------
Basic 87,278,632 87,277,155 Diluted 87,647,717 87,277,155
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended June 27, 2010, stock options to purchase
5,262,983 common shares are excluded from the weighted average
common shares in the calculation of diluted earnings per share as
they are anti- dilutive (all stock options were excluded in the
three months ended June 28, 2009). 9. 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. The Photowatt Technologies
segment is a turn- key solar project developer and integrated
manufacturer of photovoltaic products. The business segments are
strategic business units that offer different products and services
and each is managed separately. The Company accounts for
inter-segment revenue at current market rates, negotiated between
the segments. Three months ended
-------------------------------------------------------------------------
June 27 June 28 2010 2009
-------------------------------------------------------------------------
Revenue Automation Systems $ 106,627 $ 115,201 Photowatt
Technologies 48,787 40,082 Inter-segment revenue (4,300) (2,582)
-------------------------------------------------------------------------
Total Company Revenue $ 151,114 $ 152,701
-------------------------------------------------------------------------
Earnings from operations Automation Systems $ 15,883 $ 14,752
Photowatt Technologies (138) (7,533) Inter-segment operating loss
(939) (675) Stock-based compensation (514) (810) Other expenses
(4,637) (5,232)
-------------------------------------------------------------------------
Total Company earnings from operations $ 9,655 $ 502
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 27, March 31, 2010 2010
-------------------------------------------------------------------------
Assets Automation Systems $ 517,254 $ 459,730 Photowatt
Technologies 277,498 280,305 Corporate assets and inter-segment
9,083 12,763
-------------------------------------------------------------------------
Total Company assets $ 803,835 $ 752,798
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. BANK INDEBTEDNESS, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES: The Company's primary credit facility (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 of
certain assets. The Company is in compliance with these covenants
and restrictions. There is no amount borrowed under the Company's
primary credit facility (March 31, 2010 - $nil). The Company's
subsidiary, Photowatt International S.A.S. has credit facilities
including capital lease obligations of $57,576 (44,876 Euro). The
total amount outstanding on these facilities is $50,713 (March 31,
2010 - $55,940), of which $21,841 is classified as bank
indebtedness (March 31, 2010 - $26,034), $7,057 is classified as
long-term debt (March 31, 2010 - $7,661) and $21,815 is classified
as obligations under capital lease (2010 - $22,245). The interest
rates applicable to the credit facilities range from Euribor plus
0.5% to Euribor plus 1.8% 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 credit facilities which are
classified as current bank indebtedness, are subject to either
annual renewal or 60 day notification. At June 27, 2010, Photowatt
International S.A.S. was not in compliance with the debt leverage
tests on certain of its credit facilities. The lenders have not
waived their right to demand repayment of the outstanding principal
balances and consequently the entire balance of $7,057 (5,500 Euro)
has been included in the current portion of long-term debt. The PV
Alliance joint venture has additional credit facilities as
described in note 14. The Company has additional credit facilities
of $17,675 (11,746 Euro, 31,663 Indian Rupee and 2,000 Swiss
Francs). The total amount outstanding on these facilities is
$10,523 (March 31, 2010 - $nil), of which $6,933 is classified as
bank indebtedness and $3,590 is classified as long-term debt. The
interest rates applicable to the credit facilities range from 0.0%
to 8.5% and EONIA plus 4.0% per annum. A portion of the long-term
debt is secured by certain assets of the Company and a portion of
the 2,000 Swiss Francs credit facility is secured by a letter of
credit under the primary credit facility. The following amounts
were outstanding: June 27 March 31 2010 2010
-------------------------------------------------------------------------
Bank indebtedness: Photowatt International S.A.S. $ 21,841 $ 26,034
Other facilities 6,933 -
-------------------------------------------------------------------------
$ 28,774 $ 26,034
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term debt: PV Alliance $ 7,756 $ 7,589 Photowatt International
S.A.S. 7,057 7,661 Other facilities 3,590 -
-------------------------------------------------------------------------
$ 18,403 $ 15,250 Less: current portion 11,166 10,830
-------------------------------------------------------------------------
$ 7,237 $ 4,420
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Obligations under capital lease: Photowatt International S.A.S.
future minimum lease payments $ 24,733 $ 25,201 Less: amount
representing interest (at rates ranging from 1.9% to 4.9%) 2,918
2,956
-------------------------------------------------------------------------
$ 21,815 $ 22,245 Less: current portion 4,178 4,260
-------------------------------------------------------------------------
$ 17,637 $ 17,985
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest of $142 (three months ended June 28, 2009 - $148) relating
to obligations under capital lease has been included in interest on
long- term debt expense in the current period. 11. RESTRUCTURING:
In fiscal 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. In fiscal 2009, the Company accelerated
and expanded its previous restructuring program. In the three
months ended June 28, 2009, severance and restructuring expenses
associated with the closure of two divisions and other workforce
reductions were $2,299, primarily in the Automation Systems group.
In the three months ended June 27, 2010, severance and
restructuring expenses associated with workforce reductions were
$167, primarily in the Photowatt Technologies segment. The
following is a summary of the changes in the provision for
restructuring costs: June 27 June 28 2010 2009
-------------------------------------------------------------------------
Balance, beginning of period $ 2,190 $ 4,535 Severance and
restructuring expense 167 2,299 Cash payments (1,008) (2,964)
Foreign exchange (21) (33)
-------------------------------------------------------------------------
Balance, end of period $ 1,328 $ 3,837
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. 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 months ended June 27,
2010, the fair value of derivative financial assets classified as
held-for-trading and included in deposits and prepaid assets
decreased by $625 (decreased by $232 during the three months ended
June 28, 2009) and the fair value of derivative financial
liabilities classified as held-for-trading and included in accounts
payable and accrued liabilities increased by $355 (increased by
$1,391 during the three months ended June 28, 2009). Cash flow
hedges During the three months ended June 27, 2010, there was no
unrealized gain or loss recognized in selling, general and
administrative expense for the ineffective portion of cash flow
hedges (unrealized gain of $21 during the three months ended June
28, 2009). After-tax unrealized gains of $903 and $5 are included
in accumulated other comprehensive income at June 27, 2010 and are
expected to be reclassified to earnings over the next 12 months
when the revenue and purchases are recorded respectively
(unrealized gains of $450 and unrealized losses of $23 respectively
at June 28, 2009). 13. ACCUMULATED OTHER COMPREHENSIVE LOSS: The
components of accumulated other comprehensive loss are as follows:
June 27 March 31 2010 2010
-------------------------------------------------------------------------
Accumulated currency translation adjustment $ (46,998) $ (39,495)
Accumulated unrealized gain on available-for-sale financial
assets(i) 528 - Accumulated unrealized net gain on derivative
financial instruments designated as cash flow hedges(ii) 908 2,061
-------------------------------------------------------------------------
Accumulated other comprehensive loss $ (45,562) $ (37,434)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) During the year ended March 31, 2010, the Company determined
that the impairment in one of its portfolio investments was other
than temporary and therefore the accumulated unrealized loss of
$951 was allocated to net income. (ii) The accumulated unrealized
net gain on derivative financial instruments designated as cash
flow hedges is net of future income taxes of $364 at June 27, 2010
(March 31, 2010 - $935). 14. INVESTMENT IN JOINT VENTURE: During
the year ended March 31, 2010, 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 consolidates 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: June 27
March 31 2010 2010
-------------------------------------------------------------------------
Balance Sheets Current assets $ 4,349 $ 4,933 Property and
equipment 4,646 4,960 Intangible assets 2,865 2,107 Investment tax
credits 105 562 Current liabilities (6,208) (6,130) Long-term debt
(3,887) (4,419)
-------------------------------------------------------------------------
Net assets $ 1,870 $ 2,013
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 27 June 28 Three months ended 2010 2009
-------------------------------------------------------------------------
Statement of Operations Net income (loss) $ 120 $ (145)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
June 27 June 28 Three months ended 2010 2009
-------------------------------------------------------------------------
Cash flows from (used in) Operating activities $ 1,117 $ 2,342
Investing activities (1,007) (2,669) Financing activities 673 1,009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The PV Alliance has loans from a shareholder proportionately worth
4,921 Euro (March 31, 2010 - 4,407 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. During
the year ended March 31, 2010, the PV Alliance established a credit
facility proportionately worth 8,015 Euro. The total amount
outstanding on the facility is 1,124 Euro (March 31, 2010 - 1,124
Euro). The credit facility bears interest of 6.19% per annum and is
received upon the program meeting certain efficiency milestones.
The PV Alliance maintains an operating lease for a portion of the
Photowatt International S.A.S. building used by PV Alliance which
results 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 year ended March
31, 2010, the PV Alliance entered into an agreement under which the
regional government of Rhône-Alpes in France committed to providing
the PV Alliance with funding of 15,000 Euro over a five-year
period, conditional on certain employment levels being met in the
region. During the three months ended June 28, 2010, the PV
Alliance received government assistance of 192 Euro (three months
ended June 28, 2009 - 192 Euro) which has been included in
operating earnings. 15. INCOME TAXES: For the three months ended
June 27, 2010, the Company's effective income tax rate differs from
the combined Canadian basic federal and provincial income tax rate
of 30.17% (June 28, 2009 - 33.0%) primarily as a result of losses
incurred in Europe, the benefit of which was not recognized for
financial statement reporting purposes. 16. COMMITMENTS AND
CONTINGENCIES: 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. In addition, the Company may provide bank guarantees
as security on equipment under lease and on order. At June 27,
2010, the total value of outstanding bank guarantees available
under bank guarantee facilities was approximately $34.6 million
(March 31, 2010 - $11.9 million). 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 Maria Perrella,
Chief Financial Officer, Carl Galloway, Vice-President and
Treasurer, 519 653 6500
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