CAMBRIDGE, ON, Nov. 3 /CNW/ -- TSX: ATA CAMBRIDGE, ON, Nov. 3
/CNW/ - ATS Automation Tooling Systems Inc. ("ATS" or the
"Company") today reported its financial results for the three and
six months ended September 26, 2010. Second Quarter Summary --
Consolidated revenues were $162.0 million compared to $151.1
million in the first quarter of the fiscal year and $148.2 million
in the same period a year ago; -- Consolidated earnings from
operations were $5.5 million compared to $9.7 million in the first
quarter of the fiscal year and $9.3 million in the same period a
year ago; -- Per share earnings were $0.04 (basic and diluted)
compared to $0.07 (basic and diluted) in the first quarter of the
fiscal year and $0.07 (basic and diluted) in the same period a year
ago; -- The Company ended the period with a strong balance sheet
with cash net of debt of $83.4 million at September 26, 2010. "Our
Automation Systems Group ("ASG") operating results were strong
despite challenging conditions, however the Company's overall
results were dampened by Photowatt," said Anthony Caputo, Chief
Executive Officer. "Our growth plans for ASG are advancing. With
the recent acquisition of Sortimat and future acquisitions, we are
further tilting the balance of our business towards automation."
The integration of Sortimat is proceeding on plan and is focused on
applying best practices to improve overall performance. This will
take several quarters and until Sortimat is fully integrated, ASG
operating margins will remain below historical levels. Both ASG and
Sortimat will benefit from combined supply chain efficiencies,
program management processes and other shared best practices and
business systems. The new management team to lead ASG's businesses
in the life sciences market is now in place. The Company, in
relation to separation of Photowatt, has engaged independent
advisors to assist in identifying and evaluating strategic
alternatives. Conditions in the solar and capital markets will be a
consideration in the timing and form of separation. In the interim,
the Company will continue to take necessary actions to operate and
improve the business in both France and Ontario. Financial Results
In millions 3 months 3 months 6 months 6 months of dollars, ended
ended ended ended except per Sept 26, Sept 27, Sept 26, Sept 27,
2009 share data 2010 2009 2010 Revenues Automation $ 117.8 $ 97.0 $
224.4 $ 212.2 Systems Group Photowatt 45.1 51.5 93.9 91.6
Technologies Inter-segment (0.9) (0.3) (5.1) (2.9) Consolidated $
162.0 $ 148.2 $ 313.2 $ 300.9 EBITDA Automation $ 17.0 $ 15.3 $
34.6 $ 32.0 Systems Group Photowatt 0.9 4.7 4.0 1.3 Technologies
Corporate and (6.2) (4.5) (12.0) (11.1) Inter-segment elimination
Consolidated $ 11.7 $ 15.5 $ 26.6 $ 22.2 Net income Consolidated $
3.3 $ 6.0 $ 9.7 $ 6.3 Earnings From $ 0.04 $ 0.07 $ 0.11 $ 0.07 per
share continuing operations (basic & diluted) ASG Second
Quarter Results -- Revenues increased to $117.8 million in the
second quarter of fiscal 2011 compared to first quarter revenues of
$106.6 million and $97.0 million a year ago reflecting the addition
of Sortimat's businesses and improved Order Bookings compared to
the prior periods; -- EBITDA was $17.0 million compared to $17.7
million in the first quarter of this fiscal year and $15.3 million
in the same period a year ago; -- Earnings from operations were
$14.5 million (operating margin of 12%) compared to $15.9 million
(operating margin of 15%) in the first quarter of this fiscal year
and $13.6 million (operating margin of 14%) in the same period a
year ago; -- Period end Order Backlog was $208 million, a decrease
of 3% from $215 million in the first quarter of this fiscal year
and up from $197 million a year ago; -- Order Bookings were 24%
higher at $105 million compared to $85 million in the first quarter
of fiscal 2011 and 48% higher compared to $71 million in the second
quarter of fiscal 2010; -- Order Bookings were $34 million during
the first five weeks of the third quarter. Despite the 21%
year-over-year increase in revenues in the second quarter, ASG's
operating margin decreased to 12% reflecting lower profitability in
Sortimat's businesses and incremental amortization related to
identifiable intangible assets recorded on the acquisition of
Sortimat. Revenues increased year over year by 21% in life
sciences, 363% in computer-electronics, 12% in transportation, and
65% in "other" markets (primarily consumer products), partially
offset by declines of 4% in the energy market. Increased
volumes in ASG were partially offset by year-over-year foreign
exchange rate changes which negatively impacted the translation of
revenues due to the strong Canadian dollar relative to the U.S.
dollar and Euro. Photowatt Second Quarter Results -- Revenues were
$45.1 million, an 8% decrease over fiscal 2011 first quarter
revenues of $48.8 million and a 12% decrease from $51.5 million a
year ago; -- EBITDA was $0.9 million compared to EBITDA of $3.2
million in the first quarter of fiscal 2011 and EBITDA of $4.7
million a year ago; -- Loss from operations was $2.6 million
compared to a loss from operations of $0.1 million in the first
quarter of fiscal 2011 and operating earnings of $0.6 million a
year ago; -- Total megawatts (MWs) sold decreased 12% to 10.0 MWs
from 11.4 MWs in the first quarter of fiscal 2011, and were 6%
lower than the 10.6 MWs sold a year ago. Second quarter fiscal 2011
revenues included $12.2 million of revenues generated primarily
from the sale of excess raw material inventory, which was sold for
approximately its net book value. The year-over-year decline in
revenues reflected lower average selling prices, lower MWs sold and
a decline in system sales. Revenues from the sale of systems
decreased 35% to $20.1 million from $30.7 million a year ago. The
decline in Photowatt's operating margin reflected lower revenues
and incremental costs related to the start-up of Photowatt Ontario
as well as higher operating costs incurred at Photowatt's joint
venture, PV Alliance, to ramp-up in advance of the launch of its 25
MW cell line, which is expected in the third quarter of this fiscal
year. Year-over-year foreign exchange rate changes negatively
impacted the translation of revenues at PWF due to the strong
Canadian dollar relative to the Euro. Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern today and
can be accessed over the Internet at www.atsautomation.com or on
the phone at 416 644 3423. About ATS ATS Automation 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 and six months ended September 26, 2010 (second quarter
of fiscal 2011) is as of November 2, 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 second
quarter of fiscal 2011. The Company assumes that the reader of this
MD&A has access to and has read the audited annual consolidated
financial statements and MD&A of the Company for the year ended
March 31, 2010 (fiscal 2010) and the unaudited interim consolidated
financial statements and MD&A for the three months ended June
27, 2010 and, accordingly, the purpose of this document is to
provide a second 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 annual consolidated financial statements, MD&A and
annual information form may be found on SEDAR at www.sedar.com.
Notice to Reader The Company has two reportable segments:
Automation Systems Group ("ASG") and Photowatt Technologies
("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. 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 revenues. 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 and second
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
revenues 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 revenues for the
first and second 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 is
being integrated into the Company's ASG segment. The Sortimat
acquisition aligns with ATS's 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, and
program management and to advance approach to market. The total
cash consideration paid for Sortimat was $51.9 million (40.4
million Euro), which included $2.4 million of acquisition related
costs, primarily for advisory services. 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.
During the three and six months ended September 26, 2010 the
Company recognized in selling, general and administrative expense
$0.4 million and $0.6 million respectively related to specific
management services. Automation Systems Group Segment ASG Revenues
(In millions of dollars. Figures include intersegment revenues)
Three Months Three Months Six Months Ended Ended Ended Six Months
Sept 26, Sept 27, Sept 26, Ended 2010 2009 2010 Sept 27, 2009
Revenues by industry Life sciences $ 51.5 $ 42.4 $ 90.9 $ 78.4
Computer-electronics 8.8 1.9 22.8 16.2 Energy 32.4 33.9 73.3 75.2
Transportation 12.4 11.1 21.5 25.2 Other 12.7 7.7 15.9 17.2 Total
ASG revenues $ 117.8 $ 97.0 $ 224.4 $ 212.2 Second Quarter
ASG second quarter revenues were 21% higher than a year ago;
primarily as a result of the incremental $18.2 million of revenues
earned by Sortimat and the 48% increase in Order Bookings compared
to the second quarter a year ago. Quarter-over-quarter foreign
exchange rate changes negatively impacted the translation of
revenues derived at foreign operations, due to the strong Canadian
dollar relative to the U.S. dollar and Euro. By industrial market,
revenues from life sciences increased by 21% primarily as a result
of the incremental revenues earned by Sortimat, the majority of
which was generated in the life sciences market. The 363% increase
in computer-electronics revenues reflected higher Order Bookings in
the second quarter. Revenues generated in the energy market
decreased 4% on lower Order Backlog entering the quarter. The 12%
improvement in transportation revenues compared to a year ago
reflected higher Order Bookings in the first two quarters of the
year. "Other" revenues increased 65% year over year due primarily
to higher consumer products revenues. Year-to-date ASG revenues for
the six months ended September 26, 2010 increased 6% compared to
the corresponding period of fiscal 2010. The increase reflected
Sortimat's year-to-date contribution to revenues of $23.6 million,
as well as higher Order Bookings through the first half of fiscal
2011 compared to 2010. Year-to-date foreign exchange rate changes
negatively impacted the translation of revenues derived at foreign
operations, due to the strong Canadian dollar relative to the U.S.
dollar and Euro. By industrial market, year-to-date revenues from
life sciences and computer-electronics increased 16% and 41%
respectively compared to the corresponding period last year.
Revenues in energy, transportation, and "Other" markets decreased
3%, 15% and 8% respectively compared to the same period a year ago.
ASG Operating Results (In millions of dollars. Figures include
intersegment revenues) Three Months Three Months Six Months Six
Months Ended Ended Ended Ended Sept 26, 2010 Sept 27, 2009 Sept 26,
2010 Sept 27, 2009 Earnings from $ 14.5 $ 13.6 $ 30.4 $ 28.4
operations Depreciation 2.5 1.7 4.2 3.6 and amortization EBITDA $
17.0 $ 15.3 $ 34.6 $ 32.0 Second Quarter Fiscal 2011 second quarter
ASG earnings from operations were $14.5 million (12% operating
margin) compared to earnings from operations of $13.6 million (14%
operating margin) in the second quarter of fiscal 2010. Higher
earnings from operations reflected higher revenues in the second
quarter of fiscal 2011 compared to the corresponding period a year
ago. Higher earnings from operations were partially offset by
the inclusion of Sortimat's businesses, which currently have lower
operating margins than ASG's other operations. In the second
quarter of fiscal 2010, ASG recognized a benefit of $2.5 million of
incremental investment tax credits utilized to reduce taxes
payable, partially offset by severance and restructuring charges of
$1.6 million related to division closures and workforce reductions.
ASG depreciation and amortization expense increased to $2.5 million
in the second quarter of fiscal 2011 compared to $1.7 million in
the same period a year ago. The increase in fiscal 2011 second
quarter depreciation and amortization primarily related to a $0.8
million increase in amortization on the identifiable intangible
assets recorded on the acquisition of Sortimat. Year-to-date For
the six months ended September 26, 2010, ASG earnings from
operations were $30.4 million (14% operating margin) compared to
earnings from operations of $28.4 million (13% operating margin) in
the corresponding period a year ago. Included in fiscal 2010
operating earnings was $3.7 million of severance and restructuring
expenses and the benefit of a $2.5 million incremental investment
tax credit. Excluding these prior year items, ASG operating
earnings for the first half of fiscal 2010 were $29.6 million (14%
operating margin). The improvement in fiscal 2011 earnings from
operations resulted from higher revenues, partially offset by lower
profitability in Sortimat's businesses. ASG depreciation and
amortization expense was $4.2 million in the first six months of
fiscal 2011 compared to $3.6 million in the same period a year ago.
The increase in fiscal 2011 depreciation and amortization primarily
related to a $1.1 million increase in amortization on the
identifiable intangible assets recorded on the acquisition of
Sortimat. ASG Order Bookings Fiscal 2011 second quarter ASG Order
Bookings were $105 million, 48% higher than the second quarter of
fiscal 2010, reflecting the addition of Sortimat's businesses and
improved Order Bookings in computer-electronics, transportation and
energy. Order Bookings in the first five weeks of the third quarter
of fiscal 2011 were $34 million. ASG Order Backlog Continuity (In
millions of dollars) Three Months Three Months Six Months Six
Months Ended Ended Ended Ended Sept 26, 2010 Sept 27, 2009 Sept 26,
2010 Sept 27, 2009 Opening Order $ 215 $ 230 $ 209 $ 255 Backlog
Revenues (118) (97) (224) (212) Order Bookings 105 71 190 167 Order
Backlog 6 (7) 33 (13) adjustments(1) Total $ 208 $ 197 $ 208 $ 197
(1) Order Backlog adjustments include foreign exchange and
cancellations and incremental Order Backlog of $27 million acquired
in the first quarter through the Sortimat acquisition. Order
Backlog by Industry (In millions of dollars) As at Sept 26, 2010
Sept 27, 2009 Life Sciences $ 78 $ 105 Computer-electronics 14 11
Energy 48 35 Transportation 29 20 Other 39 26 Total $ 208 $ 197 At
September 26, 2010, ASG Order Backlog was $208 million, 6% higher
than at September 27, 2009, primarily reflecting increased Order
Bookings in the second quarter of fiscal 2011 and Sortimat's Order
Booking and Order Backlog contribution. ASG Outlook In the short
term, management believes business investment and capital spending
by customers will remain low. The general economic environment,
which negatively impacted the Company throughout fiscal 2010,
remains volatile. Despite signs of improvement in some of ASG's
customers' markets, many customers are continuing to push-out
spending and delay investment decisions. Management expects that
this will continue to cause volatility in Order Bookings and put
pressure on revenues in the short-term. As the global economy and
some of the Company's markets have shown some signs of
strengthening, activity in ASG's front-end of the business has
increased. However, 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. ASG continues to maintain profitable
operating margins, despite difficult market conditions and
competitive pressures. Low volumes and revenues are expected to
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. The integration of Sortimat is progressing. The new
management team to lead ASG's businesses in the life sciences
market is in place, with management drawn from both Sortimat and
ATS. Efforts to integrate Sortimat into ASG's sales and marketing,
program management, administration and command and control
processes are moving ahead. Additional initiatives to reduce
operating costs are underway and management expects that they will
be implemented during the third quarter of fiscal 2011. Management
expects that until Sortimat is fully integrated, ASG operating
margins will be negatively impacted. Management believes the
Company's strong 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 Directors and other approvals.
Photowatt Technologies Segment Photowatt Revenues (In millions of
dollars) Three Months Three Months Six Months Six Months Ended
Ended Ended Ended Sept 26, 2010 Sept 27, 2009 Sept 26, 2010 Sept
27, 2009 Total Revenues $ 45.1 $ 51.5 $ 93.9 $ 91.6 Second Quarter
Photowatt's fiscal 2011 second quarter revenues of $45.1 million
were 12% lower than the second quarter of fiscal 2010. Included in
the revenues earned in the three months ended September 26, 2010
was $12.2 million of revenues generated from the sale of excess raw
material inventory, which was sold for approximately its net book
value. Excluding the revenues from raw material sales, Photowatt's
second quarter revenues were 36% lower than the corresponding
period a year ago, reflecting lower average selling prices and a
decrease in system sales. A decrease in total megawatts ("MWs")
sold to 10.0 MWs from 10.6 MWs a year ago also negatively impacted
second quarter fiscal 2011 revenues. Revenues from the sale of
systems decreased to $20.1 million from $30.7 million in the second
quarter of fiscal 2010 due primarily to lower average selling
prices per watt. Quarter-over-quarter foreign exchange rate changes
negatively impacted the translation of revenues earned at PWF due
to the strong Canadian dollar relative to the Euro. Year-to-date
Photowatt revenues for the first six months of fiscal 2011
increased 3% compared to the same period a year ago. Higher
year-over-year revenues reflected $19.3 million of revenues
generated primarily from the sale of raw material inventory, which
was sold for approximately its net book value. Excluding the
revenues from raw material sales, Photowatt's revenues were lower
by 19%. Lower revenues reflected lower average selling prices per
watt, decreased systems sales of $46.3 million compared to $55.5
million a year ago and the strong Canadian dollar relative to the
Euro, which negatively impacted the translation of revenues earned
at PWF. These year-over-year decreases were partially offset
by an increase in MWs sold to 21.4 MWs in fiscal 2011 from 18.9 MWs
a year ago. Photowatt Operating Results (In millions of dollars)
Three Months Three Months Six Months Six Months Ended Ended Ended
Ended Sept 26, 2010 Sept 27, 2009 Sept 26, 2010 Sept 27, 2009
Earnings (loss) $ (2.6) $ 0.6 $ (2.8) $ (6.9) from operations
Depreciation 3.5 4.1 6.8 8.2 and amortization EBITDA $ 0.9 $ 4.7 $
4.0 $ 1.3 Second Quarter Photowatt fiscal 2011 second quarter loss
from operations was $2.6 million (negative 6% operating margin)
compared to operating earnings of $0.6 million (1% operating
margin) for the corresponding period a year ago. The
year-over-year decline in operating earnings reflected lower
revenues and incremental costs related to the start-up of PWO,
which has not begun to generate revenues. Operating costs from
PWF's joint venture PV Alliance ("PVA") increased to $0.4 million
compared to break-even a year ago as activity ramped-up in advance
of the launch of the PVA's 25 MW cell line, which is expected in
the third quarter of fiscal 2011. Photowatt's second quarter
operating results in both fiscal 2011 and 2010 were also negatively
impacted by its annual three-week PWF factory shut-down.
Photowatt's fiscal 2011 second quarter depreciation and
amortization expense was $3.5 million compared to $4.1 million in
the second quarter of fiscal 2010, partially reflecting the
stronger Canadian dollar relative to the Euro, which impacted the
translation of PWF's depreciation and amortization expenses.
Year-to-Date Photowatt's loss from operations for the six months
ended September 26, 2010 was $2.8 million (negative 3% operating
margin) compared to a loss from operations of $6.9 million
(negative 8% operating margin) for the corresponding period a year
ago. Included in last year's 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. Excluding the prior year warranty charge,
operating profitability declined in the first two quarters of
fiscal 2011 when compared to fiscal 2010. The year-over-year
decline in operating results reflected a reduction in system sales
and lower average selling prices, partially offset by higher MWs
sold and lower direct manufacturing costs-per-watt.
Photowatt's fiscal 2011 year-to-date loss from operations included
incremental costs related to the PWO start-up, which was initiated
during the third quarter of fiscal 2010. Operating costs from PWF's
joint venture PV Alliance increased to $0.7 million compared to
$0.1 million a year ago. Photowatt's depreciation and amortization
expense for the six months ended September 26, 2010 was $6.8
million compared to $8.2 million for the corresponding period last
year. The decrease reflected the stronger Canadian dollar relative
to the Euro, which impacted the translation of PWF's depreciation
and amortization expense. Photowatt Outlook Management believes
that 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
implemented in Germany and France and anticipated further
reductions are expected to have a negative impact on average
selling prices per watt. Increased industry capacity, particularly
from low-cost manufacturers in Asia, is expected to further
negatively impact average selling prices per watt. Reductions in
feed-in-tariffs are also causing volatility in orders as solar
distributors, developers and installers pull in orders to take
advantage of current feed-in-tariffs before they are reduced. This
volatility is also reducing visibility into Photowatt's mid and
long-term pipeline. In France, PWF has secured sales for a
significant portion of its capacity for the third quarter of fiscal
2011; however, revenues will be impacted by lower year-over-year
average selling prices. In Ontario, PWO has secured conditional
feed-in tariff approvals totalling approximately 64 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,
Canada. OSPV is now in the process of obtaining necessary joint
venture partner approvals and other requisite approvals. OSPV's
next steps include efforts to arrange financing and ultimate
project ownership. 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 to these projects. Production from the Company's
100 MW module line will begin in the third quarter of fiscal 2011,
with production expected to ramp-up to full capacity to meet demand
in early fiscal 2012. 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 the expected decline in average selling
prices on operating earnings. Management is now proceeding with a
plan to reduce Photowatt's cost structure to keep it competitive.
This plan may cost up to $10 million. The Company, in relation to
the separation of Photowatt, has engaged independent advisors to
assist 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 September 26, 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. Consolidated
Results from Operations (In millions of dollars, except per share
data) Three Months Three Months Six Months Six Months Ended Ended
Ended Ended Sept 26, 2010 Sept 27, 2009 Sept 26, 2010 Sept 27, 2009
Revenues $ 162.0 $ 148.2 $ 313.2 $ 300.9 Cost of 132.7 117.3 253.5
249.9 revenues Selling, 23.0 20.7 43.2 39.5 general and
administrative Stock-based 0.8 0.9 1.3 1.7 compensation Earnings
from $ 5.5 $ 9.3 $ 15.1(1) $ 9.8 operations Interest $ 0.6 $ 0.6 $
1.1 $ 1.1 expense Provision for 1.6 2.7 4.3 2.4 income taxes Net
income $ 3.3 $ 6.0 $ 9.7 $ 6.3 Earnings per share Basic and $ 0.04
$ 0.07 $ 0.11 $ 0.07 diluted (1)Rounding Revenues. At $162.0
million, second quarter consolidated revenues were 9% higher than a
year ago. The increase in revenues resulted from a 21% increase in
ASG revenues, partially offset by a 12% decrease in Photowatt
Technologies revenues. Year-to-date revenues were $313.2 million or
4% higher than for the same period a year ago. Cost of
revenues. Second quarter cost of revenues increased on a
consolidated basis by $15.4 million or 13% to $132.7 million.
Consolidated gross margin as a percentage of revenues decreased to
18% in the second quarter of fiscal 2011 from 21% in the same
period a year ago. The decrease in gross margins reflected a
decline in profitability at both ASG and Photowatt. Consolidated
year-to-date gross margin increased to 19% from 17% for the same
period in the prior year. Selling, general and administrative
("SG&A") expenses. For the second quarter of fiscal 2011,
SG&A expenses increased 11% or $2.3 million to $23.0 million
compared to the same period a year ago. Increased spending
primarily reflected incremental SG&A expenses incurred in
Sortimat and PWO, including $0.8 million of incremental
amortization related to identifiable intangible assets recorded on
the acquisition of Sortimat, and higher costs related to
acquisition activities. SG&A expenses for the second quarter of
fiscal 2011 included $0.1 million of Company-wide severance and
restructuring costs compared to $1.6 million for the same period in
the prior year. For the six months ended
September 26, 2010, SG&A expenses increased 9% or $3.7 million
to $43.2 million compared to the same period a year ago. Increased
spending primarily reflected incremental SG&A expenses incurred
in Sortimat and PWO, including $1.1 million of incremental
amortization related to identifiable intangible assets recorded on
the acquisition of Sortimat, and higher costs related to
acquisition activities. The increase in SG&A expenses has
been partially offset by lower severance and restructuring costs of
$0.3 million in fiscal 2011, compared to costs of $3.9 million for
the corresponding six month period in fiscal 2010. Stock-based
compensation. For the three and six month periods ended September
26, 2010, stock-based compensation expense decreased to $0.8
million and $1.3 million respectively from $0.9 million and $1.7
million a year ago. The decrease primarily reflected the
revaluation of deferred stock units. The expense associated with
the Company's performance-based stock options is recognized in
income over the estimated assumed vesting period at the time the
stock options are granted. Upon the Company's stock price
trading at or above stock price performance thresholds for a
specified minimum number of trading days within a fiscal quarter,
the options vest. When the performance-based options vest,
the Company is required to recognize all previously unrecognized
expenses associated with the vested stock options in the period in
which they vest. As at September 26, 2010, the following expenses
had not been recognized related to performance-based stock options:
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 '000s) $ 8.41 266,667 2.11 0.8 years $ 90 $ 92 8.50 889,333
1.41 2.4 years 127 540 9.49 41,667 1.66 4.4 years 6 50 10.41
266,667 2.11 2.2 years 62 239 10.50 889,333 1.41 3.3 years 108 643
11.08 218,667 2.77 1.5 years 76 211 12.41 266,666 2.11 3.2 years 51
294 13.08 218,667 2.77 2.5 years 62 285 Earnings from operations.
For the three months ended September 26, 2010, consolidated
earnings from operations were $5.5 million, compared to $9.3
million a year ago. Fiscal 2011 second quarter performance
reflected: operating earnings of $14.5 million at ASG ($13.6
million a year ago); Photowatt Technologies operating loss of
$2.6 million (operating earnings of $0.6 million a year ago); and,
inter-segment eliminations and corporate expenses of $6.4 million
($4.9 million a year ago). Year to date consolidated earnings
from operations were $15.1 million, compared to earnings from
operations of $9.8 million a year ago. Fiscal 2011 year-to-date
performance reflected: operating earnings of $30.4 million at ASG
($28.4 million a year ago); Photowatt Technologies operating loss
of $2.8 million (operating loss of $6.9 million a year ago); and,
inter-segment elimination and corporate expenses of $12.5 million
($11.7 million a year ago). Interest expense and interest income.
Net interest expense was $0.6 million in the second quarter of
fiscal 2011 compared to $0.6 million a year ago. For the six
months ended September 26, 2010, the net interest expense was $1.1
million compared to $1.1 million in the corresponding period last
year. The net interest expense was primarily related to credit
facilities at Photowatt. Provision for income taxes. In the three
and six month periods ended September 26, 2010, the Company's
effective income tax rate differed from the combined Canadian basic
federal and provincial income tax rate of 31% (three and six months
ended September 27, 2009 - 33%) primarily as a result of losses
incurred in Europe, the benefit of which was not recognized for
financial statement reporting purposes. Net income. Second quarter
fiscal 2011 net income was $3.3 million (4 cents per share basic
and diluted) compared to net income of $6.0 million (7 cents per
share basic and diluted) for the same period last year. Net income
in the first six months ended September 26, 2010 was $9.7 million
(11 cents per share basic and diluted) compared to net income of
$6.3 million (7 cents per share basic and diluted) for the
corresponding period a year ago. Reconciliation of EBITDA to GAAP
measures (In millions of dollars) Three Months Three Months Six
Months Six Months Ended Ended Ended Ended Sept 26, 2010 Sept 27,
2009 Sept 26, 2010 Sept 27, 2009 EBITDA Automation $ 17.0 $ 15.3 $
34.6 $ 32.0 Systems Photowatt 0.9 4.7 4.0 1.3 Technologies
Corporate and (6.2) (4.5) (12.0) (11.1) inter-segment Total EBITDA
$ 11.7 $ 15.5 $ 26.6 $ 22.2 Less: Depreciation and amortization
expense Automation $ 2.5 $ 1.7 $ 4.2 $ 3.6 Systems Photowatt 3.5
4.1 6.8 8.2 Technologies Corporate and 0.2 0.4 0.5 0.6
inter-segment Total $ 6.2 $ 6.2 $ 11.5 $ 12.4 depreciation and
amortization expense Earnings (loss) from operations Automation $
14.5 $ 13.6 $ 30.4 $ 28.4 Systems Photowatt (2.6) 0.6 (2.8) (6.9)
Technologies Corporate and (6.4) (4.9) (12.5) (11.7) inter-segment
Total earnings $ 5.5 $ 9.3 $ 15.1 $ 9.8 from operations Less: $ 0.6
$ 0.6 $ 1.1 $ 1.1 Interest expense Provision for 1.6 2.7 4.3 2.4
income taxes Net income $ 3.3 $ 6.0 $ 9.7 $ 6.3 Foreign Exchange
Strengthening in the value of the Canadian dollar relative to the
U.S. dollar and the Euro had a negative foreign exchange
translation impact on the Company's revenues and operating earnings
in the first and second quarters of fiscal 2011 compared to the
same periods 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 September 26, 2010.
Period Average Market Exchange Rates in CDN$ Three months ended Six
months ended Sept 26, 2010 Sept 27, 2009 Sept 26, 2010 Sept 27,
2009 US $ 1.0403 1.0987 1.0340 1.1324 Euro 1.3381 1.5702 1.3226
1.5791 Liquidity, Cash Flow and Financial Resources At September
26, 2010, the Company had cash and cash equivalents of $148.5
million compared to $211.8 million at March 31, 2010. In the three
and six months ended September 26, 2010, cash flows provided by
operating activities were $11.5 million and $17.4 million,
respectively, compared to cash flows provided by operating
activities of $19.7 million and $6.0 million over the same periods
in fiscal 2010. The Company's total debt to total equity ratio at
September 26, 2010 was 0.1:1. At September 26, 2010, the Company
had $76.5 million of unutilized credit available under existing
operating and long-term credit facilities and a further $21.2
million available under letter of credit facilities. In the second
quarter of fiscal 2011, the Company's investment in non-cash
working capital decreased by $1.1 million. On a year-to-date basis,
investment in non-cash working capital increased by $6.8 million or
8%. In the first half of the year, consolidated accounts receivable
increased 24% or $20.4 million, primarily at ASG due to increased
revenues in the first two quarters of fiscal 2011. The acquisition
of Sortimat also increased the Company's accounts receivable
balance at September 26, 2010. Net contracts in progress decreased
by 55% or $7.0 million compared to March 31, 2010. The Company
actively manages its accounts receivable and net
construction-in-process balances through billing terms on long-term
contracts and by focusing on improving collection efforts.
Inventories increased by 20% or $15.9 million compared to March 31,
2010. Deposits and prepaid assets have remained consistent
compared to March 31, 2010 due to a reduction in the fair value of
forward foreign exchange contracts, offset by a an increase in
restricted cash being used to secure bank guarantees. Accounts
payable increased 19% on higher purchases and the assumption of
Sortimat's accounts payable and accrued liabilities. Year-to-date
property, plant and equipment purchases totalled $14.3 million.
Expenditures at Photowatt, totalling $8.1 million, were used for
production equipment and facility improvements, primarily at PWO.
Total ASG and Corporate capital expenditures were $6.2 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 of certain assets. The Company is in compliance
with these covenants and restrictions. As of September 26, 2010,
there was 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 $56.7 million (41.0 million
Euros). The total amount outstanding on these facilities is
$50.6 million (March 31, 2010 - $55.9 million), of which $21.2 is
classified as bank indebtedness (March 31, 2010 - $26.0 million),
$6.1 is classified as long-term debt (March 31, 2010 - $7.7
million) and $23.4 million is classified as obligations under
capital lease (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 September 26, 2010,
Photowatt International S.A.S. was not in compliance with the debt
leverage tests on certain of its credit facilities. As of September
26, 2010, the lenders had not waived their right to demand
repayment of the outstanding principal balances and consequently
the entire balance of $6.1 million (4.4 million Euros) was included
in the current portion of long-term debt. The non-compliance
was rectified subsequent to the quarter end as part of a new term
credit facility agreed to with the lenders. The new term credit
facility is for $20.8 million (15.0 million Euro) and was
established by Photowatt International S.A.S. and its lenders in
October 2010. The new credit facility, which will be
classified as long-term debt was used to repay pre-existing credit
facilities of $6.1 million (4.4 million Euro) for which it was
previously in violation of the debt leverage tests, and to replace
a credit facility classified as bank indebtedness in the amount of
$11.1 million (8.0 million Euro). The interest rate
applicable to the new credit facility is Euribor plus 3.35% and the
facility has a term of four years. The Company has additional
credit facilities of $16.2 million (9.7 million Euro, 31.7 million
Indian Rupee and 2.0 million Swiss Francs). The total amount
outstanding on these facilities is $6.1 million (March 31, 2010 -
$nil), of which $2.3 million is classified as bank indebtedness and
$3.8 million is classified as long-term debt. The interest
rates applicable to the credit facilities range from 0.0% to 8.5%
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 to be 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.
In order to finance development activities at PWO, the Company
intends to arrange for bridge financing and third-party project
ownership. During the first two quarters of fiscal 2011, 2,900
stock options were exercised. As of November 2, 2010 the total
number of common shares outstanding was 87,281,055. 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 September 26, 2010,
the total value of outstanding bank guarantees available under bank
guarantee facilities was approximately $41.2 million (March 31,
2010 - $11.9 million). Consolidated Quarterly Results ($ in Q2 Q1
Q4 Q3 Q2 Q1 Q4 Q3 thousands, 2011 2011 2010 2010 2010 2010 2009
2009 except per share amounts) Revenues $ $ $ $ $ $ $ $ 162,046
151,114 138,774 138,133 148,169 152,701 201,774 221,739 Earnings
(loss) $ 5,481 $ 9,655 $ $ 7,756 $ 9,305 $ 502 $ $ from (25,994)
17,743 18,472 operations Net income from $ 3,251 $ 6,438 $ 2,084 $
3,742 $ 6,012 $ 325 $ $ continuing 14,041 15,814 operations Net
income $ 3,251 $ 6,438 $ 2,084 $ 3,742 $ 6,012 $ 325 $ $ 13,506
12,316 Basic earnings per share $ 0.04 $ 0.07 $ 0.03 $ 0.04 $ 0.07
$ 0.00 $ 0.17 $ 0.20 from continuing operations Diluted earnings
per share $ 0.04 $ 0.07 $ 0.03 $ 0.04 $ 0.07 $ 0.00 $ 0.16 $ 0.20
from continuing operations Basic earnings $ 0.04 $ 0.07 $ 0.03 $
0.04 $ 0.07 $ 0.00 $ 0.16 $ 0.16 per share Diluted earnings $ 0.04
$ 0.07 $ 0.03 $ 0.04 $ 0.07 $ 0.00 $ 0.15 $ 0.16 per share ASG
Order $ $ $ $ $ $ $ $ Bookings 105,000 85,000 105,000 92,000 71,000
96,000 126,000 157,000 ASG Order $ $ $ $ $ $ $ $ Backlog 208,000
215,000 209,000 203,000 197,000 230,000 255,000 282,000 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
revenues and earnings due to 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 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 ("IASB") 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 first financial statements
to be presented on an IFRS basis will be for the quarter ended June
26, 2011 (first quarter of fiscal 2012). At that time, comparative
data will be presented on an IFRS basis, including an opening
balance sheet as at April 1, 2010. 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 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 continuing to monitor standards to be issued by the
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. The Company has assessed
the effect of adoption of IFRS and the resulting changes in
accounting policies based on IFRS standards expected to be in
effect at the transition date. Significant accounting policy
changes have been identified below. The list is based on
significant accounting policies based on work completed to date and
should not be considered an exhaustive list of all IFRS accounting
policies. Property, Plant and Equipment IFRS has more specific
guidance than Canadian GAAP on the capitalization and
componentization of assets, requiring that significant asset
components with different useful lives than the main asset be
recorded and depreciated separately. As a result of this
difference, the Company has determined that certain assets should
have separately capitalized components under IFRS. The Company is
currently evaluating the impact of this change in accounting
policies under IFRS and the transitional impact is not known at
this time. Revenue recognition IFRS requires revenue on projects
which meet the definition of a construction contract to be measured
on a Percentage of Completion basis. The Company has identified
certain contracts which meet the definition of construction
contracts for which revenue is currently recognized upon shipment
and transfer of title. The transitional impact of this change is
expected to result in an increase in net equity as of April 1,
2010. Share based payments Under IFRS, when share options or
other equity instruments vest in installments over the vesting
period, referred to as "graded vesting", each installment should be
treated as a separate share option grant. Canadian GAAP permits the
recognition of compensation expense on a straight line basis over
the vesting period. In addition, under Canadian GAAP, forfeitures
of share options are recognized as they occur, whereas, under IFRS,
the Company is required to estimate the number of awards expected
to vest, and revise that estimate if subsequent information
indicates that actual forfeitures are likely to differ from the
estimates. The transitional impact of this change is expected to
result in an increase in contributed surplus and a decrease in
retained earnings as of April 1, 2010. Impairment of long-lived
assets Impairment testing of property, plant and equipment under
Canadian GAAP is based on a two-step approach when circumstances
indicate the carrying value may not be recoverable. IFRS requires a
one-step impairment test for identifying and measuring
impairment. This test requires a comparison of the asset's
carrying value to the higher of its value in use or fair value less
costs to sell. In addition, IFRS requires, under certain
circumstances, the reversal of previous impairments which is not
allowed under current Canadian GAAP. IFRS tests asset groups for
impairment at the independent cash generating unit. ("CGU") level
based on the generation of cash inflows. IFRS has guidelines
surrounding the highest asset group that goodwill can be allocated
for impairment testing purposes. On transition, the Company does
not expect any changes to the results of its impairment tests
previously performed under Canadian GAAP. Income taxes Changes in
accounting policies under IFRS may impact the corresponding
deferred tax asset or deferred tax liability account. Under IFRS,
the income tax consequences of a transaction recorded in other
comprehensive income or directly in equity in previous periods must
be recorded in other comprehensive income or equity (i.e. backward
tracing). Canadian GAAP requires all subsequent changes in
deferred income taxes to be recorded through earnings. The Company
is currently evaluating the impact of changes in accounting
policies under IFRS and the corresponding income tax consequences
are not known at this time. Investment tax credits Under
Canadian GAAP, investment tax credits are accounted for using a
cost reduction approach whereby benefits are recognized in income
on the same basis as the related expenditures are charged to
income. IFRS requires that qualifying investment tax credit
benefits be recognized as a reduction of income tax expense, either
current or deferred depending on the timing of the benefit. The
Company anticipates that this change will reduce the Company's
earnings (loss) from operatings and EBITDA, and reduce income tax
expenses, however no impact on net income is expected. First
time adoption of IFRS IFRS 1 "First-time Adoption of international
Financial Reporting Standards" provides guidance for an entity's
initial year of IFRS adoption. IFRS requires retrospective
application of all IFRS standards at the reporting date, with the
exception of optional exemptions and certain mandatory
exemptions. The most significant IFRS 1 optional exemptions
that the Company expects to apply in its opening IFRS Balance Sheet
are summarized below. Cumulative Translation Differences Under IFRS
1, the Company will elect not to retrospectively calculate its
cumulative translation balances, and all of these balances will be
reset to zero on the transition date. The transitional impact of
this adjustment will increase accumulated other comprehensive
income and decrease retained earnings as of April 1, 2010. Business
Combinations The company expects to apply IFRS 3, "Business
combinations" prospectively from the date of transition to
IFRS to business combinations which occur after the date of
transition. IFRS 3 establishes standards for the measurement of a
business combination and the recognition and measurement of assets
acquired and liabilities assumed. Most significantly, IFRS 3
requires directly attributable transaction costs to be expensed
rather than included in the acquisition purchase price; the
measurement of contingent consideration at fair value on the
acquisition date, with subsequent changes in the fair value
recorded through the income statements; and that upon gaining
control in a step acquistion, an entity re-measures its existing
ownership interest to fair value through the income statement. The
transitional impact of this change is expected to result in a
decrease to the carrying value of current assets and a decrease in
retained earnings as of April 1, 2010. Future business combinations
completed after April 1, 2010, are expected to have a greater
impact on net income. Fair Value as Deemed Costs The Company
expects to elect to report certain items of Property, Plant and
Equipment and/or Investment Property assets in its opening balance
sheet at deemed costs instead of actual costs that would have been
determined under IFRS standards. The deemed costs of an item
may be either its fair value at the date of transition to IFRS or
an amount determined by a previous revaluation under Canadian
GAAP. This exemption can be applied on an asset-by-asset
basis and the Company is currently evaluating individual assets for
which the election may apply. The transitional impact on the
Company's balance sheet as of April 1, 2010 is not currently known
as the assessment is currently in progress. 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 September 26, 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. 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 the procedures and internal controls
over financial reporting. Note to Readers: Forward-Looking
Statements This management's discussion and analysis of financial
conditions, and results of operations of ATS 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: integration of Sortimat
into the Company's ASG segment; strategy of expanding the
Company's position in the global automation market and enhancing
growth opportunities; benefits that will accrue from Sortimat's
significant experience and products in advanced system development,
manufacturing, handling, and feeder technologies; objective to grow
the Company's exposure to life sciences market segment; deployment
of people to apply best practices, command and control, and program
management and to advance approach to market to implement the
Sortimat integration and effect margin improvements; business
investment and capital spending by customers; volatility of
economic environment; ASG customers continuing to push-out spending
and delay investment decisions; volatility in Order Bookings;
pressure on revenue; signs of strengthening in the global economy
and some of the Company's markets; increased capital spending will
continue to lag the general economic recovery; expectation that low
volumes and revenues will continue to present challenges to
maintaining margins at current levels; strategic initiatives to
improve leadership, business processes and supply chain management;
additional initiatives to reduce operating costs during the third
quarter of fiscal 2011; expectation that ASG operating margins will
be negatively impacted until Sortimat is fully integrated; belief
that the Company's strong balance sheet, approach to market and
operational improvements will provide a solid foundation for ASG to
improve performance when the general business environment
stabilizes and returns to growth; the Company's strong financial
position providing ASG with the flexibility to pursue its growth
strategy; plans to expand the Company's position in the global
automation market organically and through acquisition; review
of opportunities, active discussions, and due diligence with
respect to certain opportunities; dependence of solar power on the
existence of government incentives; anticipated further reductions
in feed-in- tariffs and expectation that this will have a negative
impact on average selling prices per watt; expectation that
increased industry capacity will further negatively impact average
selling prices per watt; volatility in orders caused by reductions
in feed-in tariffs; visibility into Photowatt's mid and long-term
pipeline; PWF securing sales for a significant portion of its
capacity for the third quarter of fiscal 2011; PWO securing
conditional feed-in tariff approvals totaling approximately 64 MWs
related to applications made by OSPV; utilization by OSPV of a
range of solar solutions including modules manufactured by ATS in
Cambridge, Canada; OSPV joint venture and other approvals; OSPV's
efforts to arrange financing and ultimate project ownership; PWO
agreements with developers in the process of securing conditional
feed-in tariff approvals for a number of projects;
expectation that PWO will provide modules and other related
services to these projects; timing of start of production and
ramp up to full production from 100 MW module line; downstream
alternatives to create an additional market for Photowatt's
products; expectation that improvements in cell efficiency,
manufacturing yields and throughput will continue to reduce
Photowatt's direct manufacturing costs-per-watt; plan to reduce
Photowatt's cost structure to keep it competitive and cost thereof;
identifying and evaluating alternatives with respect to separating
Photowatt; foreign exchange hedging; expectation 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 sufficient to fund
requirements for investments; seasonality of revenues; and the
introduction, evaluation and adoption of new accounting policies
and standards and impacts thereof. 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 ability of ATS to exploit
and realize upon the benefits from Sortimat experience and
products; potential lack of receptivity of customers, suppliers,
employees, and market to Sortimat integration efforts; that
deployment of people to Sortimat to apply best practices, command
and control and project management do not effect margin
improvements or have other intended benefits; that one or more
customers, or other persons with which the Company has contracted,
experience insolvency or bankruptcy with resulting costs or losses
to the Company; that the Company's strong balance sheet, approach
to market, planned operational improvements, objectives and
strategic initiatives will not be achieved and/or have the intended
positive impacts on ASG operations; that additional cost saving
measures will cost more, or take longer to implement, than planned;
inability to successfully expand organically or through
acquisition, due to an inability to grow expertise, personnel,
and/or facilities at required rates or to negotiate and conclude
one or more acquisitions, notwithstanding the Company's strong
financial position; near-term performance of Photowatt impact on
separation efforts; ability to execute on Photowatt separation
initiative in current market environment; that the sale by PWF of a
significant portion of its capacity for the third quarter of 2010
is reversed in whole or in part due to a customer termination or
other factors; that Photowatt's downstream market initiatives are
not successful; the potential for the start of production and/or
ramp up to full production of the 100 MW module line will be
hindered or delayed to due to an inability to procure necessary
permits, approvals, materials or equipment on a timely basis;
ability of ATS and OSPV to acquire the needed expertise and
financing necessary to effectively develop Ontario solar projects;
the financial attractiveness of, and demand for, those solar
projects; the success of developers with whom ATS has signed
agreements in obtaining FIT contracts and ultimately developing the
projects; that improvements to cell efficiency, manufacturing
yields and throughput do not come to fruition due to research or
operational failures and anticipated competitive advantages are not
realized; that the planned cost reductions at Photowatt are
delayed, or cost more than anticipated; that cash flows, cash and
cash equivalents on hand, and available credit are not sufficient
to fund investments because of reversals in the Company's cash or
short term investment position, or the size or nature of
investments to be made; the availability and possible reduction or
elimination of government subsidies and incentives for solar
products in various jurisdictions; ability to obtain necessary
government and other 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; risks associated with greater than anticipated tax
liabilities or expenses; potential for adoption of new accounting
policies to have unanticipated impacts; 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.
November 2, 2010 ATS AUTOMATION TOOLING SYSTEMS INC. Consolidated
Balance Sheets (in thousands of Canadian dollars - unaudited)
September 26 March 31 2010 2010 ASSETS Current assets Cash and cash
equivalents $ 148,512 $ 211,786 Accounts receivable 106,442 85,995
Costs and earnings in excess of billings on 40,947 42,924 contracts
in progress (note 4) Inventories (note 4) 96,184 80,280 Future
income taxes 730 553 Deposits and prepaid assets (note 5) 27,470
27,492 420,285 449,030 Property, plant and equipment 186,467
171,451 Goodwill 67,617 34,350 Intangible assets 29,864 4,864
Investment tax credits 22,313 20,878 Future income taxes 34,530
35,243 Portfolio investments 4,410 3,602 Other assets (note 6)
34,410 33,380 $ 799,896 $ 752,798 LIABILITIES AND SHAREHOLDERS'
EQUITY Current liabilities Bank indebtedness (note 10) $ 23,483 $
26,034 Accounts payable and accrued liabilities 141,587 118,518
Billings in excess of costs and earnings on 35,281 30,216 contracts
in progress (note 4) Future income taxes 14,233 12,326 Current
portion of long-term debt (note 10) 10,806 10,830 Current portion
of obligations under capital 4,805 4,260 leases (note 10) 230,195
202,184 Long-term debt (note 10) 7,434 4,420 Long-term portion of
obligations under capital 18,558 17,985 leases (note 10)
Shareholders' equity Share capital 479,558 479,542 Contributed
surplus 12,468 11,244 Accumulated other comprehensive loss (note
13) (32,863) (37,434) Retained earnings (restated - note 2) 84,546
74,857 543,709 528,209 $ 799,896 $ 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 Six months ended ended September 26 September 27 September
26 September 27 2010 2009 2010 2009 Revenue $ 162,046 $ 148,169 $
313,160 $ 300,870 Operating costs and expenses Cost of revenue
132,711 117,254 253,511 249,877 Selling, general and 23,027 20,722
43,172 39,488 administrative Stock-based compensation 827 888 1,341
1,698 (note 7) Earnings from 5,481 9,305 15,136 9,807 operations
Other expenses Interest on 418 355 658 656 long-term debt Other
interest 204 197 468 436 622 552 1,126 1,092 Income from operations
4,859 8,753 14,010 8,715 before income taxes Provision for income
taxes 1,608 2,741 4,321 2,378 (note 15) Net income $ 3,251 $ 6,012
$ 9,689 $ 6,337 Earnings per share (note 8) Basic $ 0.04 $ 0.07 $
0.11 $ 0.07 Diluted $ 0.04 $ 0.07 $ 0.11 $ 0.07 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) Six months September 26, ended 2010
Accumulated Other Comprehensive Total Share Contributed Retained
Shareholders' Capital Surplus Income (Loss) Earnings Equity (note
13) Balance, $ $ 11,244 beginning of 479,542 $ (37,434) $ 74,857 $
528,209 period Comprehensive income (loss) Net income -- -- --
9,689 9,689 Currency -- translation -- 4,829 -- 4,829 adjustment
Net -- unrealized gain on available- for-sale -- 807 -- 807
financial assets (net of income taxes of $nil) Net -- unrealized
gain on derivative financial instruments -- 51 -- 51 designated as
cash flow hedges (net of income taxes of $95) Gain -- transferred
to net income for derivatives -- (1,116) -- (1,116) designated as
cash flow hedges (net of income taxes of $489) Total comprehensive
14,260 income Stock-based -- 1,229 -- compensation -- 1,229 (note
7) Exercise of 16 (5) -- -- 11 stock options Balance, end $ $
12,468 $ (32,863) $ 84,546 $ 543,709 of the period 479,558 Six
months September 27, ended 2009 Accumulated Other Comprehensive
Contributed Total Share Income (Loss) Retained Shareholders'
Capital Surplus Earnings Equity (note 13) Balance, beginning of
period (restated - $ $ 8,722 $ 15,494 $ 62,694 $ 566,447 note 2)
479,537 Comprehensive income (loss) Net income -- -- -- 6,337 6,337
Currency translation -- -- (20,837) -- (20,837) adjustment Net
unrealized gain on available- for-sale -- -- 74 -- 74 financial
assets (net of income taxes of $nil) Net unrealized gain on
derivative financial instruments -- -- 883 -- 883 designated as
cash flow hedges (net of income taxes of $221) Gain transferred to
net income for derivatives designated as -- -- 975 -- 975 cash flow
hedges (net of income taxes of $nil) Total comprehensive (12,568)
loss Stock-based compensation -- 1,181 -- -- 1,181 (note 8)
Balance, end $ $ 9,903 $ (3,411) $ 69,031 $ 555,060 of the period
479,537 See accompanying notes to interim consolidated financial
statements ATS AUTOMATION TOOLING SYSTEMS INC. Consolidated
Statements of Cash Flows (in thousands of dollars - unaudited)
Three months Six months ended ended September 26 September 27
September 26 September 27 2010 2009 2010 2009 Operating activities:
Net income $ 3,251 $ 6,012 $ 9,689 $ 6,337 Items not involving cash
Depreciation of 4,990 property, plant 5,634 9,579 11,275 and
equipment Amortization of 1,227 intangible 547 1,971 1,109 assets
Future income 1,340 (3,011) 3,183 (3,883) taxes Investment tax
(1,429) credit -- (1,435) -- receivable Other items not 5 (23) (97)
(12) involving cash Stock-based 827 compensation 888 1,341 1,698
(note 7) Loss (gain) on 134 disposal of 302 (41) 354 property,
plant and equipment Cash flow from 10,345 10,349 24,190 16,878
operations Change in 1,107 9,366 non-cash (6,814) (10,924)
operating working capital Cash flows 11,452 19,715 provided by
17,376 5,954 operating activities Investing activities: Acquisition
of (3,831) (3,920) property, plant (14,309) (9,943) and equipment
Acquisition of (486) (60) intangible (1,578) (156) assets
Investments, -- (1,154) silicon deposits (3,184) (2,580) and other
Business (1,693) -- acquisition (50,413) -- (note 3) Proceeds from
312 424 disposal of 817 589 property, plant and equipment Cash
flows used (5,698) (4,710) in investing (68,667) (12,090)
activities Financing activities: Restricted cash (1,630) 2,160
(3,106) 4,736 (note 5) Bank (7,317) (2,272) indebtedness (10,033)
20,353 (note 10) Proceeds from -- 2,702 long-term debt 1,411 3,837
(note 10) Proceeds from -- 6,803 sale and leaseback of 1,747 6,803
property, plant and equipment Repayment of (1,501) (1,728)
long-term debt (2,345) (1,859) (note 10) Repayment of (155) (796)
obligations (846) (1,607) under capital leases (note 10) Issuance
of 8 -- 11 -- common shares Cash flows (10,595) 6,869 provided by
(used in) (13,161) 32,263 financing activities Effect of 901 (644)
exchange rate changes on cash 1,178 (2,166) and cash equivalents
Increase (3,940) 21,230 (decrease) in (63,274) 23,961 cash and cash
equivalents Cash and cash 152,452 145,092 equivalents, 211,786
142,361 beginning of period Cash and cash $ 148,512 $ 166,322
equivalents, end $ 148,512 166,322 of period Supplemental
information Cash income $ 360 $ 1 $ 721 $ 384 taxes paid Cash
interest $ 504 $ 539 $ 913 $ 624 paid See accompanying notes to
interim consolidated financial statements ATS AUTOMATION TOOLING
SYSTEMS INC. Notes to Interim Consolidated Financial Statements (in
thousands, 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 amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the interim
consolidated financial statements and the reported amount of
revenue and expenses during the reporting period. Actual
results could differ from these estimates. Significant
estimates and assumptions are used when 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 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 September
26, 2010 contained 91 days (three months ended September 27, 2009 -
91 days). 2. ACCOUNTING CHANGES: In the six months ended
September 26, 2010, it was determined that a pension obligation
that was orginially 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 $51,886
(40,369 Euro), which includes acquisition-related costs, primarily
for advisory services, of $2,436. 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. During
the three and six months ended September 26, 2010 the Company
recognized in selling, general and administrative expense
$446 and $587 respectively related to specific management services.
Cash used in the investment is determined as follows: Cash
consideration $ 51,886 Less cash acquired (1,473) $ 50,413 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, primarily
related to intangible assets, 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
18,681 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 (29,434) Long term
debt (3,590) Net identifiable assets 20,437 Residual purchase price
allocated to goodwill 31,449 $ 51,886 Non-cash working capital
includes accounts receivable of $8,601, representing gross
contractual amounts receivable of $9,279 less management's 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.
During the quarter, changes to the purchase price allocation
resulted in a decrease in goodwill of $2,277. The adjustments
to the preliminary purchase price allocation are noted below:
Adjustments to the purchase price allocation Decrease in current
assets $ (4) Decrease in current liabilities 2,544
Acquisition-related costs (263) Net decrease in goodwill $ 2,277
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 $23,636 in
revenue and a net loss of $1,069. 4. CONTRACTS IN PROGRESS AND
INVENTORIES: September 26 March 31 2010 2010 Contracts in progress:
Costs incurred on contracts in process $ 512,354 $ 338,624
Estimated earnings 121,083 80,766 $ 633,437 $ 419,390 Progress
billings (627,771) (406,682) $ 5,666 $ 12,708 Disclosed as: Costs
and earnings in excess of billings on $ 40,947 $ 42,924 contracts
in progress Billings in excess of costs and earnings on (35,281)
(30,216) contracts in progress $ 5,666 $ 12,708 September 26 March
31 2010 2010 Inventories are summarized as follows: Raw materials $
49,146 $ 45,984 Work in process 13,743 8,585 Finished goods 33,295
25,711 $ 96,184 $ 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 and six months
ended September 26, 2010 was $58,515 and $117,108 respectively
(three and six months ended September 27, 2009: $48,191 and $96,221
respectively). The amount charged to net income and included
in cost of revenue for the write-down of inventory for valuation
issues during both the three and six months ended September 26,
2010 was $720 and $1,261 respectively (three and six months ended
September 27, 2009: $2,026 and $3,017 respectively). The amount
recognized in net income and included in cost of revenue for the
reversal of previous inventory write-downs due to rising prices
during the three and six months ended September 26, 2010 was $17
and $86 respectively (three and six months ended September 27,
2009: $nil). 5. DEPOSITS AND PREPAID ASSETS: September
26 2010 March 31 2010 Prepaid assets $ 4,710 $ 4,231 Restricted
cash((i)) 3,804 582 Silicon and other deposits 17,088 16,335
Forward contracts and other 1,868 6,344 $ 27,470 $ 27,492
(i) Restricted cash consists of cash collateralized to secure
letters of credit. 6. OTHER ASSETS: September 26 March 31 2010 2010
Silicon deposits $ 31,156 $ 32,389 Other 3,254 991 $ 34,410 $
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 six months
ended September 26, 2010 the Company granted 325,000 time vesting
stock options (350,000 in the six months ended September 27,
2009). The stock options granted vest over 4 years and expire
on the seventh anniversary from the date of issue. During the
six month periods ended September 26, 2010 and September 27, 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 six month period ended September 26, 2010, no performance based
options vested. During the six months ended September 27,
2009 certain performance options vested in the normal course of
business. Six months ended September 26, September 27, 2010 2009
Weighted Weighted Number of average Number of average stock
exercise stock exercise options price options price Stock options $
7.89 6,112,562 $ 8.18 outstanding, 6,368,674 beginning of year
Granted 325,000 6.34 350,000 5.10 Exercised (2,900) 3.83 -- --
Forfeited/cancelled (115,549) 19.67 (244,232) 10.41 Stock options $
7.61 6,218,330 $ 7.92 outstanding, 6,575,225 end of period Stock
options $ 9.41 952,196 $ 11.53 exercisable, 1,063,431 end of
period, time vested options Stock options $ 6.14 949,781 $ 6.26
exercisable, 991,448 end of period, performance options 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: Six
months ended September 26 September 27 2010 2009 Weighted average
risk-free interest 2.28% 2.11% rate 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 $ 6.34 $ 5.10
option 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 Six months ended September 26 September 27 September 26
September 27 2010 2009 2010 2009 Basic 87,279,825 87,277,155
87,279,241 87,277,155 Diluted 87,564,418 87,312,412 87,607,240
87,294,784 For the three and six months ended September 26, 2010,
stock options to purchase 5,241,230 and 5,252,107 common shares
respectively are excluded from the weighted average common shares
in the calculation of diluted earnings per share as they are
anti-dilutive (5,838,336 and 6,144,941 common shares respectively
were excluded in the three and six months ended September 27,
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
photvoltaic 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 Six months ended ended September 26 September 27
September 26 September 27 2010 2009 2010 2009 Revenue Automation $
117,787 $ 96,966 $ 224,414 212,167 Systems Photowatt 45,108 51,501
93,895 91,583 Technologies Inter-segment (849) (298) (5,149)
(2,880) revenue Total Company $ 162,046 $ 148,169 $ 313,160 $
300,870 Revenue Earnings from operations Automation $ 14,511 $
13,605 $ 30,394 $ 28,357 Systems Photowatt (2,627) 629 (2,765)
(6,904) Technologies Inter-segment operating (72) 3 (1,011) (672)
earnings (loss) Stock-based (827) (888) (1,341) (1,698)
compensation Other expenses (5,504) (4,044) (10,141) (9,276) Total
Company earnings from $ 5,481 $ 9,305 $ 15,136 $ 9,807 operations
September 26 March 31 2010 2010 Assets Automation $ 513,179 $
459,730 Systems Photowatt 283,723 280,305 Technologies Corporate
assets and 2,994 12,763 inter-segment Total Company $ 799,896 $
752,79 assets 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
$56,679 (40,965 Euro). The total amount outstanding on these
facilities is $50,638 (March 31, 2010 - $55,940), of which $21,164
is classified as bank indebtedness (March 31, 2010 - $26,034),
$6,111 is classified as long-term debt (March 31, 2010 - $7,661)
and $23,363 is classified as obligations under capital lease (March
31, 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 September 26, 2010,
Photowatt International S.A.S. was not in compliance with the debt
leverage tests on certain of its credit facilities. As of
September 26, 2010, the lenders had not waived their right to
demand repayment of the outstanding principal balances and
consequently the entire balance of $6,111 (4,417 Euro) has been
included in the current portion of long-term debt. The
non-compliance was rectified subsequent to the quarter end as part
of a new term credit facility agreed to with the lenders. The new
term credit facility is for $20,754 (15,000 Euro) and was
established by Photowatt International S.A.S. and its lenders in
October 2010. The new credit facility, which will be
classified as long-term debt, was used to repay pre-existing
credit facilities of $6,111 (4,417 Euro) for which it was
previously in violation of the debt leverage tests and to replace a
credit facility classified as bank indebtedness in the amount of
$11,069 (8,000 Euro). The interest rate applicable to the new
credit facility is Euribor plus 3.35% and the new credit facility
has a term of four years. The PV Alliance joint venture has
additional credit facilities as described in note 14. The Company
has additional credit facilities of $16,224 (9,702 Euro, 31,663
Indian Rupee and 2,000 Swiss Francs). The total amount
outstanding on these facilities is $6,083 (March 31, 2010 - $nil),
of which $2,319 is classified as bank indebtedness and $3,764 is
classified as long-term debt. The interest rates applicable
to the credit facilities range from 0.0% to 8.5% 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: September 26 March 31 2010
2010 Bank indebtedness: Photowatt International S.A.S. $ 21,164 $
26,034 Other facilities 2,319 -- $ 23,483 $ 26,034 Long-term debt:
PV Alliance $ 8,365 $ 7,589 Photowatt International S.A.S. 6,111
7,661 Other facilities 3,764 -- $ 18,240 $ 15,250 Less: current
portion 10,806 10,830 $ 7,434 $ 4,420 Obligations under capital
lease: Photowatt International S.A.S. future minimum $ 25,618 $
25,201 lease payments Less: amount representing interest (at rates
2,255 2,956 ranging from 1.9% to 4.9%) $ 23,363 $ 22,245 Less:
current portion 4,805 4,260 $ 18,558 $ 17,985 Interest for the
three and six months ended September 26, 2010 of $86 and $228
respectively (three and six months ended September 27, 2009 -
$207 and $355 respectively) relating to obligations under capital
lease has been included in interest on long-term debt expense. 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 2010, the Company accelerated and expanded its previous
restructuring program. In the three and six months ended
September 27, 2009, severance and restructuring expenses associated
with the closure of two divisions and other workforce reductions
were $1,627 and $3,926 respectively, primarily in the Automation
Systems group. In the three and six months ended September 26,
2010, severance and restructuring expenses associated with
workforce reductions were $117 and $284 respectively. The following
is a summary of the changes in the provision for restructuring
costs: Six months ended September 26 September 27 2010 2009
Balance, beginning of period $ 2,190 $ 4,535 Severance and
restructuring expense 284 3,926 Acquisition accrual 1,000 -- Cash
payments (1,592) (4,631) Foreign exchange 6 (75) Balance, end of
period $ 1,888 $ 3,755 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 and six months ended September
26, 2010, the fair value of derivative financial assets classified
as held-for-trading and included in deposits and prepaid assets
decreased by $1,224 and $1,849 respectively (decreased by $369 and
$601 respectively during the three and six months ended September
27, 2009) and the fair value of derivative financial liabilities
classified as held-for-trading and included in accounts payable and
accrued liabilities increased by $1,990 and $2,345 respectively
during the three and six months ended September 26, 2010 (decreased
by $738 and increased by $653 respectively during the three and six
months ended September 27, 2009). Cash flow hedges During the three
and six months ended September 26, 2010, an unrealized gain of $5
and $5 respectively was recognized in selling, general and
administrative expense for the ineffective portion of cash flow
hedges (unrealized loss of $21 and $nil during the three and six
months ended September 27, 2009). After-tax unrealized gains
of $969 and $27 are included in accumulated other comprehensive
income at September 26, 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 $502 at September 27,
2009). 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): The
components of accumulated other comprehensive loss are as follows:
September 26 March 31 2010 2010 Accumulated currency translation
adjustment $ (34,666) $ (39,495) Accumulated unrealized gain on
available-for-sale 807 -- financial assets((i)) Accumulated
unrealized net gain on derivative financial 996 2,061 instruments
designated as cash flow hedges( (ii)) Accumulated other
comprehensive loss $ (32,863) $ (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 $351 at September 26, 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: September
26 March 31 2010 2010 Balance Sheet Current assets $ 4,136 $ 4,933
Property and equipment 5,093 4,960 Intangible assets 3,183 2,107
Investment tax credits 340 562 Current liabilities (2,661) (2,960)
Current portion of long-term debt (4,436) (3,170) Long-term debt
(3,929) (4,419) Net assets $ 1,726 $ 2,013 Three months Six months
ended ended September 26 September 27 September 26 September 27
2010 2009 2010 2009 Statement of Operations Net income $ (185) $ 47
$ (65) $ (98) (loss) Three months Six months ended ended September
26 September 27 September 26 September 27 2010 2009 2010 2009 Cash
flows from (used in) Operating $ (36) $ (1,452) $ 1,081 $ 890
activities Investing (270) (227) (1,277) (2,896) activities
Financing -- 2,702 673 3,711 Activities 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
Rhộne-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 and six months ended September 26, 2010, the PV Alliance
received government assistance of 192 Euro and 384 Euro
respectively (three and six months ended September 27, 2009 -
192 Euro and 384 Euro respectively) which has been included in
operating earnings. 15. INCOME TAXES: For the three and six month
periods ended September 26, 2010, the Company's effective income
tax rate differs from the combined Canadian basic federal and
provincial income tax rate of 31% (three and six months ended
September 27, 2009 - 33%) 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 September 26, 2010,
the total value of outstanding bank guarantees available under bank
guarantee facilities was approximately $41,243 (March 31, 2010 -
$11,932). 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 To view this news release in HTML formatting,
please use the following URL:
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table cellspacing="0" border="0" cellpadding="0"trtdMaria Perrella,
Chief Financial Officerbr/ Carl Galloway, Vice-President and
Treasurerbr/ 519 653 6500/td/tr/table
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