CAMBRIDGE, ON, Feb. 2 /CNW/ -- TSX: ATA CAMBRIDGE, ON, Feb. 2 /CNW/
- ATS Automation Tooling Systems Inc. ("ATS" or the "Company")
today reported its financial results for the three and nine months
ended December 26, 2010. Third Quarter Summary -- Consolidated
revenues were $192.5 million compared to $162.0 million in the
second quarter of the fiscal year and $138.1 million in the same
period a year ago; -- Consolidated loss from operations was $8.5
million compared to earnings from operations of $5.5 million in the
second quarter of the fiscal year and earnings from operations of
$4.7 million in the same period a year ago; -- The Company recorded
a $9.0 million provision related to a restructuring project at
Photowatt France ("PWF") (subject to the ongoing notification and
consultation process with employee works council in accordance with
French law) and related legal and advisory services. The
restructuring project is intended to: grow systems sales in France;
reduce factory costs; and improve the supply chain; -- Third
quarter loss per share was $0.14 compared to per share earnings of
$0.04 (basic and diluted) in the second quarter of the fiscal year
and per share earnings of $0.04 (basic and diluted) in the same
period a year ago; -- The Company's balance sheet was strong with
cash net of debt of $95.3 million at December 26, 2010; -- On
January 5, 2011, the Company completed the acquisition of the
majority of Assembly & Test Worldwide Inc.'s U.S. and
German-based automation and test systems businesses (collectively
"ATW"); and -- The Company made progress on the contemplated
separation of Photowatt through advancing a dual track process; a
potential spinoff of the Company's solar business to shareholders
or a potential sale of PWF. "Our Automation Systems Group ("ASG")
performance was strong and we saw improvements in our markets,
however losses at PWF negatively impacted consolidated results,"
said Anthony Caputo, Chief Executive Officer. "We are beginning to
see the return of larger opportunities in ASG, and with recent
acquisitions, continue to expand our core business. Photowatt has
initiated a restructuring project designed to recover
competitiveness. The Company is pursuing a clear path to prepare
for the contemplated separation of Photowatt." Financial Results In
3 months 3 months 9 months 9 months millions ended ended ended
ended of Dec 26, 2010 Dec 27, 2009 Dec 26, Dec 27, dollars, 2010
2009 except per share data Revenues Automation $ $ $ $ Systems
Group 124.7 78.6 349.1 290.8 Photowatt 73.0 59.7 166.9 151.3
Technologies Inter-segment (5.2) (0.2) (10.3) (3.1) Consolidated $
$ $ $ 192.5 138.1 505.7 439.0 EBITDA Automation $ $ $ $ Systems
Group 16.8 10.0 51.4 41.9 Photowatt Technologies (12.8) 5.7 (8.7)
7.0 Corporate and (18.4) (15.9) Inter-segment (6.3) (5.0)
elimination Consolidated $ $ $ $ (2.3) 10.7 24.3 33.0 Net $ $ $ $
income Consolidated (11.9) 3.7 (2.3) 10.1 (loss) Earnings From $ $
$ $ (loss) continuing (0.14) 0.04 (0.03) 0.11 per operations share
(basic & diluted) ASG Third Quarter Results -- Revenues
increased to $124.7 million in the third quarter of fiscal 2011
compared to second quarter revenues of $117.8 million and $78.6
million a year ago reflecting the addition of Sortimat and improved
Order Bookings compared to the prior periods; -- EBITDA was $16.8
million compared to $17.0 million in the second quarter of this
fiscal year and $10.0 million in the same period a year ago; --
Earnings from operations were $14.4 million (operating margin of
12%) compared to $14.5 million (operating margin of 12%) in the
second quarter of this fiscal year and $8.4 million (operating
margin of 11%) in the same period a year ago; -- Period end Order
Backlog was $215 million, an increase of 3% from $208 million in
the second quarter of this fiscal year and up 6% from $203 million
a year ago; -- Order Bookings were 27% higher at $133 million
compared to $105 million in the second quarter of fiscal 2011 and
45% higher compared to $92 million in the third quarter of fiscal
2010; -- Order Bookings were $73 million during the first five
weeks of the fourth quarter. On the 59% year-over-year increase in
revenues in the third quarter, ASG's operating margin increased to
12% from 11%, despite the inclusion of Sortimat, which had lower
operating margins than other ASG operations, and incremental
amortization related to identifiable intangible assets recorded on
the acquisition of Sortimat. Revenues increased year over year by
19% in life sciences, 1% in computer-electronics, 146% in energy,
45% in transportation, and 263% in "other" markets (primarily
consumer products). Increased volumes 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. The addition of ATW's
capability in specialized automation and test systems, customer
relationships, and critical mass has enabled the launch of a
transportation group within ASG. Integration of ATW is
underway with a focus on applying best practices. Until the
integrations of ATW and Sortimat are complete, ASG operating
margins will be negatively impacted. Sortimat's integration is
progressing well with cost reductions made in the third quarter.
Photowatt Third Quarter Results -- Revenues were $73.0 million, a
62% increase over fiscal 2011 second quarter revenues of $45.1
million and a 22% increase from $59.7 million a year ago; -- EBITDA
was negative $12.8 million compared to EBITDA of $0.9 million in
the second quarter of fiscal 2011 and EBITDA of $5.7 million a year
ago; -- Loss from operations was $16.3 million compared to a loss
from operations of $2.6 million in the second quarter of fiscal
2011 and operating earnings of $1.6 million a year ago; -- Total
megawatts (MWs) sold increased 64% to 16.4 MWs from 10.0 MWs in the
second quarter of fiscal 2011, and were 28% higher than the 12.8
MWs sold a year ago. Third quarter fiscal 2011 revenues included
$17.4 million of revenues generated primarily from the sale of
excess raw material inventory, which was sold for approximately its
net book value. Excluding the revenues from raw material sales, the
year-over-year decrease in revenues reflected lower average selling
prices and the strong Canadian dollar relative to the Euro, which
negatively impacted the translation of revenues earned at PWF.
These decreases were partially offset by higher MWs sold and
initial revenues generated at PWO in the third quarter of fiscal
2011. Revenues from the sale of systems decreased 17% to $31.8
million from $38.5 million a year ago. Photowatt's third quarter
operating loss included a $9.0 million restructuring provision
related to the restructuring project (subject to the ongoing
notification and consultation process with employee works council
in accordance with French law) and related legal and advisory
services at PWF. The decline in Photowatt's operating margin
also reflected incremental costs incurred at PWO as well as higher
operating costs incurred at Photowatt's joint venture, PV Alliance,
as activity ramped-up in advance of the fourth quarter launch of
its 25 MW cell line. 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 3418. 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 3,000 people at 21 manufacturing facilities in
Canada, the United States, Europe, Southeast Asia and China. The
Company's shares are traded on the Toronto Stock Exchange under the
symbol ATA. Visit the Company's website at www.atsautomation.com.
Management's Discussion and Analysis This Management's Discussion
and Analysis ("MD&A") for the three and nine months ended
December 26, 2010 (third quarter of fiscal 2011) is as of February
2, 2011 and provides detailed information on the operating
activities, performance and financial position of ATS Automation
Tooling Systems Inc. ("ATS" or the "Company") and should be read in
conjunction with the unaudited interim consolidated financial
statements of the Company for the third quarter of fiscal 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 first and second quarters of fiscal 2011 and,
accordingly, the purpose of this document is to provide a third
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 three and nine months
ended December 26, 2010 and the three and nine months ended
December 27, 2009 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
three and nine months ended December 26, 2010 and the three and
nine months ended December 27, 2009 is contained in the MD&A
(See "ASG Order Backlog Continuity"). AUTOMATION SYSTEMS GROUP
SEGMENT Acquisitions 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 benefits 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 integrate Sortimat 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 $52.2 million, which included $2.7 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 years, are not included in the
cost of acquisition. During the three and nine months ended
December 26, 2010 the Company recognized in selling, general and
administrative expense $0.5 million and $1.0 million respectively
related to specific management services. ATW On January 5, 2011,
the Company completed its acquisition of the majority of Assembly
& Test Worldwide, Inc.'s U.S.-based and German automation and
test systems businesses (collectively "ATW"). ATW is a
manufacturer of assembly and test systems, with capability in the
transportation, life sciences and energy segments. The total cash
consideration paid for ATW pending post-closing adjustments was
$18.0 million, which included acquisition-related costs, primarily
for advisory services, of $0.6 million. The cash consideration of
the purchase price along with transaction costs were funded with
existing cash on hand. This acquisition will be accounted for
as a business combination with ATS as the acquirer of ATW.
The purchase method of accounting will be used and the earnings
will be consolidated from the acquisition date. The Company
is in the process of estimating the fair values of assets acquired
and liabilities assumed at the date of acquisition, including
goodwill and identifiable intangible assets. ASG Revenues (In
millions of dollars. Figures include intersegment revenues) Three
Three Nine Months Nine Months Months Months Ended Ended Ended Ended
Dec 26, 2010 Dec 27, 2009 Dec 26, Dec 27, 2010 2009 Revenues by
industry Life sciences $ $ $ 49.1 $ 140.0 119.6 41.2
Computer-electronics 9.3 9.2 32.1 25.4 Energy 34.2 13.9 107.5 89.1
Transportation 13.2 9.1 34.7 34.3 Other 18.9 5.2 34.8 22.4 Total
ASG revenues $ $ $ $ 124.7 78.6 349.1 290.8 Third Quarter ASG third
quarter revenues were 59% higher than for the same period a year
ago; primarily as a result of an incremental $20.9 million of
revenues earned by Sortimat and a 45% increase in Order Bookings
compared to the third 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 19% year over year as
a result of the incremental revenues earned by Sortimat. Revenues
from computer-electronics remained consistent while energy market
revenues increased 146% reflecting higher Order Backlog entering
the third quarter compared to a year ago. The 45% improvement in
transportation revenues compared to a year ago reflected higher
Order Bookings in the first three quarters of the year. "Other"
revenues increased 263% year over year due primarily to higher
consumer products revenues. Year-to-date ASG revenues for the nine
months ended December 26, 2010 increased 20% compared to the
corresponding period of fiscal 2010. The increase reflected
Sortimat's year-to-date contribution to revenues of $44.5 million,
as well as higher Order Bookings throughout the first three
quarters of fiscal 2011 compared to the same period in fiscal 2010.
Year-over-year 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,
computer-electronics and energy increased 17%, 26% and 21%
respectively compared to the corresponding period a year ago.
Revenues in transportation and "other" markets also increased 1%,
and 55% respectively compared to the same period a year ago. ASG
Operating Results (In millions of dollars. Figures include
intersegment earnings) Three Months Three Months Nine Months Nine
Months Ended Ended Ended Ended Dec 26, 2010 Dec 27, 2009 Dec 26,
2010 Dec 27, 2009 Earnings from $ $ $ 44.8 $ 36.7 operations 14.4
8.4 Depreciation 2.4 1.6 6.6 5.2 and amortization EBITDA $ $ 10.0 $
51.4 $ 41.9 16.8 Third Quarter Fiscal 2011 third quarter ASG
earnings from operations were $14.4 million (operating margin of
12%) compared to earnings from operations of $8.4 million
(operating margin of 11%) in the third quarter of fiscal
2010. Higher earnings from operations reflected the increase
in revenues in the third quarter of fiscal 2011 compared to the
corresponding period a year ago. Higher earnings from operations
were partially offset by the inclusion of Sortimat, which had lower
operating margins than ASG's other operations. Third quarter fiscal
2011 earnings from operations included severance and restructuring
expenses of $0.5 million compared to $2.0 million in the same
period a year ago. ASG depreciation and amortization expenses
increased to $2.4 million in the third quarter of fiscal 2011
compared to $1.6 million in the same period a year ago. The
increase in fiscal 2011 third quarter depreciation and amortization
primarily related to a $0.9 million increase in amortization on the
identifiable intangible assets recorded on the acquisition of
Sortimat. Year-to-date For the nine months ended December 26, 2010,
ASG earnings from operations were $44.8 million (operating margin
of 13%) compared to earnings from operations of $36.7 million
(operating margin of 13%) in the corresponding period a year ago.
The improvement in fiscal 2011 earnings from operations resulted
from higher revenues, partially offset by lower profitability in
Sortimat. Included in fiscal 2010 earnings from operations were
$5.7 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 three quarters of fiscal 2010 were $39.9 million (operating
margin of 14%). ASG depreciation and amortization expenses were
$6.6 million in the first nine months of fiscal 2011 compared to
$5.2 million in the same period a year ago. The increase in fiscal
2011 depreciation and amortization primarily related to a $2.0
million increase in amortization on the identifiable intangible
assets recorded on the acquisition of Sortimat. ASG Order Bookings
Fiscal 2011 third quarter Order Bookings were $133 million, 45%
higher than the third quarter of fiscal 2010, reflecting improved
Order Bookings in transportation, life sciences and energy and the
addition of Sortimat's businesses. Order Bookings in the first five
weeks of the fourth quarter of fiscal 2011 were $73 million. ASG
Order Backlog Continuity (In millions of dollars) Three Months
Three Months Nine Months Nine Months Ended Ended Ended Ended Dec
26, 2010 Dec 27, 2009 Dec 26, 2010 Dec 27, 2009 Opening $ 208 $ $
209 $ 255 Order 197 Backlog Revenues (349) (291) (125) (79) Order
133 92 323 260 Bookings Order (7) 32 (21) Backlog (1) adjustments
(1) Ending Order $ 215 $ $ 215 $ 203 Backlog 203 1 Order Backlog
adjustments include foreign exchange and cancellations and
incremental Order Backlog of $26 million acquired in the first
quarter with Sortimat. Order Backlog by Industry (In millions of
dollars) Dec 26, 2010 Dec 27, 2009 Life sciences $ 68 $ 90
Computer-electronics 17 16 Energy 45 51 Transportation 53 24 Other
32 22 Total Order Backlog $ 215 $ 203 At December 26, 2010, ASG
Order Backlog was $215 million, 6% higher than at December 27, 2009
reflecting incremental Order Backlog from Sortimat and higher Order
Bookings throughout the first nine months of fiscal 2011 compared
to the corresponding period in the prior year. 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, is recovering. Despite signs of improvement in some of
ASG's customers' markets, many customers remain cautious in their
approach to capital investment. 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. Management
continues to believe that increased capital spending will lag the
general economic recovery as customers 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 its impact on
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 being implemented. Management expects
that until Sortimat is fully integrated, ASG operating margins will
be negatively impacted. The integration of ATW has been initiated
with the formation of a transportation group. This acquisition will
increase ASG revenues; however, similar to Sortimat, until ATW is
fully integrated, ASG operating margins will be negatively
impacted. ATS will target margin improvements through the
application of best practices in command and control, program
management, performance management and approach to market.
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. To further this
objective, management will continue to review and pursue attractive
opportunities. PHOTOWATT TECHNOLOGIES SEGMENT Photowatt Revenues
(In millions of dollars) Three Months Three Months Nine Months Nine
Months Ended Ended Ended Ended Dec 26, 2010 Dec 27, 2009 Dec 26,
2010 Dec 27, 2009 Total Photowatt $ $ $ 166.9 $ 151.3 revenues 73.0
59.7 Third Quarter Photowatt fiscal 2011 third quarter revenues
were $73.0 million, 22% higher than in the third quarter of fiscal
2010. Included in the revenues earned in the three months ended
December 26, 2010 was $17.4 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 fiscal 2011 third quarter revenues were
7% lower than the corresponding period a year ago, reflecting lower
average selling prices, and the strong Canadian dollar relative to
the Euro, which negatively impacted the translation of revenues
earned at PWF. These decreases were partially offset by a 28%
increase in total megawatts ("MWs") sold to 16.4 MWs from 12.8 MWs
in the same period a year ago and initial revenues generated at PWO
in the third quarter of fiscal 2011. Revenues from the sale of
systems decreased to $31.8 million in the third quarter of fiscal
2011 compared to $38.5 million in fiscal 2010 due primarily to
lower average selling prices per watt. Year-to-date Photowatt
revenues for the first nine months of fiscal 2011 increased 10%
compared to the same period a year ago. Higher year-over-year
revenues reflected $36.7 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 revenues were lower by 14%. Lower
revenues reflected lower average selling prices per watt, decreased
systems sales of $78.1 million compared to $94.0 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 37.8 MWs from 31.7 MWs a year ago and revenues
generated at PWO which contributed incremental revenues in the
third quarter of fiscal 2011. Photowatt Operating Results (In
millions of dollars) Three Months Three Months Nine Months Nine
Months Ended Ended Ended Ended Dec 26, 2010 Dec 27, 2009 Dec 26,
2010 Dec 27, 2009 Earnings $ $ $ (19.0) $ (loss) from (16.3) 1.6
(5.3) operations Depreciation 3.5 4.1 and 10.3 12.3 amortization
EBITDA $ $ $ $ (12.8) 5.7 (8.7) 7.0 Third Quarter Photowatt fiscal
2011 third quarter loss from operations was $16.3 million
(operating margin of negative 22%) compared to earnings from
operations of $1.6 million (operating margin of 3%) for the
corresponding period a year ago. Included in third quarter
fiscal 2011 loss from operations is a $9.0 million restructuring
provision in relation to the restructuring project (subject to the
ongoing notification and consultation process with employee works
council in accordance with French law) and related legal and
advisory services at PWF. Excluding the impact of the
restructuring provision, the year-over-year decline in operating
results reflected the declines in average selling prices, which
more than offset cost per watt savings, primarily due to set-backs
in cost reduction initiatives during the transition of PWF's
manufacturing to new products. Lower operating results also
reflected incremental costs at PWO incurred in the ramp-up of
production during the third quarter of fiscal 2011. Operating costs
from PWF's joint venture PV Alliance ("PVA") increased to $0.9
million compared to $0.2 million a year ago as activity ramped-up
in advance of the launch of the PVA's 25 MW cell line. The launch
of this line was delayed until the fourth quarter of fiscal 2011,
due to delays in receiving manufacturing equipment. Photowatt
fiscal 2011 third quarter depreciation and amortization expenses
were $3.5 million compared to $4.1 million in the third 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 loss from operations for the nine months ended December
26, 2010 was $19.0 million (negative 11% operating margin) compared
to a loss from operations of $5.3 million (negative margin of 4%)
for the corresponding period a year ago. The year-over-year
decline in operating results reflected lower average selling prices
and a reduction in system sales, partially offset by higher MWs
sold and lower direct manufacturing costs-per-watt. Included
in fiscal 2011 operating results was $9.1 million of restructuring
charges related to the restructuring project (subject to the
ongoing notification and consultation process with employee works
council in accordance with French law) and related legal and
advisory services at PWF. 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. Photowatt fiscal 2011
year-to-date loss from operations included incremental costs
related to the start-up of PWO, which was initiated during the
third quarter of fiscal 2010. Operating costs from PWF's joint
venture PVA increased to $1.6 million compared to $0.3 million a
year ago. Photowatt depreciation and amortization expenses for the
nine months ended December 26, 2010 was $10.3 million compared to
$12.3 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. In France, the government announced a moratorium on new solar
installations larger than three kilowatts while the government
contemplates a new regulatory regime for the industry in France. In
the short-term, the moratorium could have a negative impact on PWF
volumes. In the long-term, permanent reductions in feed-in tariffs
and / or an annual limit on installation capacity in the French
market may have a negative impact on PWF revenues. 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 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 also 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. PWO is in advanced negotiations with a number of
customers on module contracts. Production from the Company's 100 MW
module line began in the third quarter of fiscal 2011, with
production expected to ramp-up to full capacity to meet demand in
early fiscal 2012. As PWF has been facing significant competitive
pressures which have negatively impacted average selling prices, it
has initiated a restructuring project intended to: (i) focus on
growing system sales in France; (ii) reduce manufacturing costs;
and (iii) improve the global supply chain, including potentially
subcontracting the assembly of solar modules to a third party. The
restructuring project may result in the reduction of 195 full-time
positions, partially offset by the creation of 100 new positions,
50 of which will be in the PV Alliance. PWF also expects to
discontinue approximately 136 temporary positions. The total MW
capacity available for sale by PWF is expected to remain generally
the same. The ultimate success of such restructuring project
depends on a number of factors including the support of the
employees. While local management believes the contemplated actions
are appropriate and would allow PWF to recover competitiveness, as
always, there is ultimately no guarantee that the restructuring
project and potential future actions will offset all competitive
challenges. PWF continues to monitor market conditions and intends
to take appropriate actions in relation to such conditions. The
Company is continuing to work on the contemplated separation of
Photowatt through a dual track process; a spinoff of the Company's
solar business to shareholders or a sale of PWF. On the spinoff,
management is considering and working towards a plan that would see
PWF and PWO combined into a publicly-held entity and distributed to
ATS shareholders. The possible transaction could take the form of a
plan of arrangement whereby shareholder approval would be required
and shareholders would have some choice in determining their
relative levels of ownership in each entity and could be
implemented prior to the end of calendar 2011. Management is
working with financial, legal, tax and accounting advisors in this
regard. In parallel, management is working with independent
advisors regarding a possible sale of PWF. Discussions with
interested parties have been initiated and are focused on PWF,
however, PWO could form part of a transaction. Under the dual track
process scenario, if an acceptable arrangement were to be made for
the contemplated sale of PWF prior to a potential spinoff of the
combined entities to ATS shareholders, the Company would retain PWO
for a period of time and continue to operate and invest in PWO. At
the appropriate time, management would then look to separate PWO.
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 December 26, 2010. As a result, these assets
continue to be classified as held and used. Once the form and
timing of contemplated separation is determined, adjustments to
carrying value may result, and a write-down, if any, will be
recorded in the period determined. Whether the contemplated
separation of PWF takes the form of a sale or a spinoff, a prior
employee works council notification and consultation will be
required under employment law in France, with a view to obtaining
an opinion of the works council, which will be non-binding.
Consolidated Results from Operations (In millions of dollars,
except per share data) Three Months Three Months Nine Months Nine
Months Ended Ended Ended Ended Dec 26, 2010 Dec 27, 2009 Dec 26,
2010 Dec 27, 2009 Revenues $ 192.5 $ 138.1 $ 505.7 $ 439.0 Cost of
165.8 112.8 revenues 419.3 362.6 Selling, 77.7 general and 34.6
19.5 59.0 administrative Stock-based compensation 0.7 1.1 2.1 2.8
Earnings $ (8.5) $ 4.7 $ 6.6 $ 14.6 (loss) from ( 1) operations
Interest $ $ $ 1.8 $ expense 0.6 0.5 1.6 Provision for 2.8 0.5 7.1
2.9 income taxes Net income $ (11.9) $ 3.7 $ (2.3) $ 10.1 (loss)
Earnings (loss) per share Basic and $ (0.14) $ 0.04 $ (0.03) $ 0.11
diluted (1)Rounding Revenues. At $192.5 million, fiscal 2011 third
quarter consolidated revenues were 39% higher than a year ago. The
increase in revenues resulted from a 59% increase in ASG revenues
and a 22% increase in Photowatt revenues. Year-to-date revenues
were $505.7 million or 15% higher than for the same period a year
ago. Cost of revenues. Fiscal 2011 third quarter cost of
revenues increased on a consolidated basis by $53.0 million or 47%
to $165.8 million. Consolidated gross margin as a percentage of
revenues decreased to 14% in the third quarter of fiscal 2011 from
18% in the same period a year ago. The decrease in gross
margins mainly reflected a decline in profitability at Photowatt.
Consolidated year-to-date gross margin remained consistent at 17%
compared to the same period in the prior year. Selling, general and
administrative ("SG&A") expenses. For the third quarter of
fiscal 2011, SG&A expenses increased $15.1 million or 77% to
$34.6 million compared to the same period a year ago. SG&A
expenses for the third quarter of fiscal 2011 included $9.4 million
of company-wide severance and restructuring costs compared to $2.0
million in fiscal 2010. Increased SG&A expenses also reflected
incremental expenses incurred in Sortimat and PWO, including $0.9
million of incremental amortization related to identifiable
intangible assets recorded on the acquisition of Sortimat, and
higher costs related to acquisition activities. For the nine months
ended December 26, 2010, SG&A expenses increased 32% or $18.7
million to $77.7 million compared to the corresponding period a
year ago. The increase in SG&A expenses included $9.7 million
of Company-wide restructuring charges, primarily related to the
Photowatt restructuring project. Increased SG&A expenses also
reflected incremental expenses incurred in Sortimat and PWO,
including $2.0 million of incremental amortization related to
identifiable intangible assets recorded on the acquisition of
Sortimat, and higher costs related to acquisition activities.
Stock-based compensation. For the three and nine month periods
ended December 26, 2010, stock-based compensation expense decreased
to $0.7 million and $2.1 million respectively from $1.1 million and
$2.8 million in the corresponding periods 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
stock options vest, the Company is required to recognize all
previously unrecognized expenses associated with the vested stock
options in the period in which they vest. As at December 26, 2010,
the following performance-based stock options were un-vested:
Weighted Current Grant average year Remaining Stock price Number of
date remaining expense expense to performance options value per
vesting (in recognize threshold outstanding option period '000s)
(in '000s) $ 8.41 266,667 $ 0.3 years $ 132 $ 50 2.11 8.50 889,333
1.41 2.1 years 190 477 9.49 41,667 1.66 4.1 years 9 47 10.41
266,667 2.11 2.0 years 93 208 10.50 889,333 1.41 3.0 years 163 589
11.08 218,667 2.77 1.3 years 114 173 12.41 266,666 2.11 3.0 years
77 268 13.08 218,667 2.77 2.3 years 92 254 Earnings from
operations. For the third quarter of fiscal 2011, the consolidated
loss from operations was $8.5 million, compared to earnings from
operations of $4.7 million for the same period a year ago. Fiscal
2011 third quarter performance reflected: operating earnings of
$14.4 million at ASG (operating earnings of $8.4 million for the
same period a year ago); Photowatt operating loss of $16.3 million
(operating earnings of $1.6 million for the same period a year
ago); and inter-segment eliminations and corporate expenses of $6.6
million ($5.3 million in the same period a year ago). Year-to-date
consolidated earnings from operations were $6.6 million, compared
to earnings from operations of $14.6 million a year ago. Fiscal
2011 year-to-date performance reflected: operating earnings of
$44.8 million at ASG (operating earnings of $36.7 million for the
same period a year ago); Photowatt operating loss of $19.0 million
(operating loss of $5.3 million for the same period a year ago);
and inter-segment elimination and corporate expenses of $19.2
million ($16.8 million for the same period a year ago). Interest
expense and interest income. Net interest expense has increased in
the three and nine months ended December 26, 2010 to $0.6 million
and $1.8 million respectively compared to $0.5 million and $1.6
million of net interest income for the corresponding periods a year
ago. The increase in net interest expense was primarily due to
increased usage of credit facilities at PWF. Provision for
income taxes. During the three and nine month periods ended
December 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 nine months ended December 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. For the third quarter of fiscal 2011, net
loss was $11.9 million (14 cents loss per share basic and diluted)
compared to net income of $3.7 million (4 cents earnings per share
basic and diluted) for the same period last year. Net loss in the
nine months ended December 26, 2010 was $2.3 million (3 cents loss
per share basic and diluted) compared to net income of $10.1
million for the corresponding period a year ago (11 cents earnings
per share basic and diluted). Reconciliation of EBITDA to GAAP
measures (In millions of dollars) Three Months Three Months Nine
Months Nine Months Ended Ended Ended Ended Dec 26, 2010 Dec 27,
2009 Dec 26, 2010 Dec 27, 2009 EBITDA Automation $ 16.8 $ 10.0 $ $
Systems 51.4 41.9 Photowatt (12.8) 5.7 Technologies (8.7) 7.0
Corporate and (18.4) inter-segment (6.3) (5.0) (15.9) Total EBITDA
$ $ 10.7 $ $ (2.3) 24.3 33.0 Less: Depreciation and amortization
expense Automation $ $ $ $ Systems 2.4 1.6 6.6 5.2 Photowatt 3.5
4.1 10.3 12.3 Technologies Corporate and 0.3 0.3 0.8 0.9
inter-segment Total $ $ $ $ depreciation 6.2 6.0 17.7 18.4 and
amortization expense Earnings (loss) from operations Automation $ $
$ $ Systems 14.4 8.4 44.8 36.7 Photowatt (16.3) 1.6 (19.0) (5.3)
Technologies Corporate and (6.6) (5.3) (19.2) (16.8) inter-segment
Total earnings $ $ $ $ (loss) from (8.5) 4.7 6.6 14.6 operations
Less: Interest $ $ $ $ expense 0.6 0.5 1.8 1.6 Provision 2.8 0.5
7.1 2.9 for income taxes Net income $ (11.9) $ $ $ (loss) 3.7 (2.3)
10.1 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 fiscal 2011
year-to-date revenues compared to the corresponding period 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 December 26, 2010. Period Average Market
Exchange Rates in Canadian dollars Three months ended Nine months
ended Dec 26, 2010 Dec 27, 2009 Dec 26, 2010 Dec 27, 2009 U.S.
dollar 1.0145 1.0586 1.0275 1.1078 Euro 1.3777 1.5638 1.3410 1.5740
Liquidity, Cash Flow and Financial Resources At December 26, 2010,
the Company had cash and cash equivalents of $152.9 million
compared to $211.8 million at March 31, 2010. In the three and nine
months ended December 26, 2010, cash flows provided by operating
activities were $17.4 million and $34.8 million, respectively,
compared to cash flows provided by operating activities of $26.6
million and $32.5 million in the corresponding periods in fiscal
2010. The Company's total debt to total equity ratio at December
26, 2010 was 0.1:1. At December 26, 2010, the Company had $82.6
million of unutilized credit available under existing operating and
long-term credit facilities and $23.4 million available under
letter of credit facilities. In the third quarter of fiscal 2011,
the Company's investment in non-cash working capital decreased by
$20.3 million. On a year-to-date basis, investment in
non-cash working capital decreased by $13.5 million or 15%.
Consolidated accounts receivable increased 22% or $19.2 million,
primarily at ASG due to increased revenues in the first nine months
of fiscal 2011. The acquisition of Sortimat also increased the
Company's accounts receivable balance at December 26, 2010. Net
contracts in progress decreased by 102% or $12.9 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 18% or $14.5 million
compared to March 31, 2010. Deposits and prepaid assets decreased
by 5% or $1.3 million compared to March 31, 2010 due to a reduction
in the fair value of forward exchange contracts and silicon and
other deposits. Accounts payable increased 29% on higher purchases,
consistent with higher revenues levels in the first three quarters
of fiscal 2011, as well as the assumption of Sortimat's accounts
payable and accrued liabilities. Year-to-date property, plant and
equipment purchases totalled $22.4 million. Expenditures at
Photowatt, totalling $14.7 million, were used for production
equipment and facility improvements. Total ASG and Corporate
capital expenditures were $7.7 million, primarily related to the
purchase of a new building in the U.S.A. In the three and nine
months ended December 26, 2010, the Company sold a portfolio
investment for proceeds of $2.3 million. The Company's primary
credit facility (the "Credit Agreement") provides total credit
facilities of up to $85.0 million, comprised of an operating credit
facility of $65.0 million and a letter of credit facility of up to
$20.0 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. As of December 26, 2010, there was no amount
borrowed under the Company's primary credit facility (March 31,
2010 - $nil). 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. The Company's subsidiary,
Photowatt International S.A.S. has credit facilities including
capital lease obligations of $56.1 million (42.5 million
Euros). The total amount outstanding on these facilities was
$42.1 million (March 31, 2010 - $55.9 million), of which $1.2
million was classified as bank indebtedness (March 31, 2010 - $26.0
million), $19.8 million was classified as long-term debt (March 31,
2010 - $7.7 million) and $21.2 million was classified as
obligations under capital lease (March 31, 2010 - $22.3
million). The interest rates applicable to the credit
facilities range from Euribor plus 0.5% to Euribor plus 3.35% 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. During the three and
nine month period ended December 26, 2010, Photowatt International
S.A.S. and its lenders established a new term credit facility of
$19.8 million (15.0 million Euros). The new credit facility,
which is classified as long-term debt, was used to repay
pre-existing credit facilities of $6.1 million (4.4 million Euros)
and to replace a credit facility classified as bank indebtedness in
the amount of $11.1 million (8.0 million Euros). The new
credit facility bears interest at a rate of Euribor plus 3.35%,
annual payments of $5.0 million (3.8 million Euros) and expires on
October 15, 2014. The Company has additional credit facilities of
$14.8 million (9.7 million Euros, 31.7 million Indian Rupee and 2.0
million Swiss Francs). The total amount outstanding on these
facilities was $7.4 million (March 31, 2010 - $nil), of which $3.9
million was classified as bank indebtedness and $3.6 million was
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 will be sufficient to fund its requirements for
investments in working capital and capital assets, 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.
No stock options were exercised during the third quarter of fiscal
2011. At January 31, 2011 the total number of 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 December 26, 2010, the total value of
outstanding bank guarantees available under bank guarantee
facilities was approximately $39.1 million (March 31, 2010 - $11.9
million). Consolidated Quarterly Results ($ in Q3 Q2 Q1 Q4 Q3 Q2 Q1
Q4 thousands, 2011 2011 2011 2010 2010 2010 2010 2009 except per
share amounts) Revenues $ $ $ $ $ $ $ $ 192,494 162,046 151,114
138,774 138,133 148,169 152,701 201,774 Earnings $ $ $ $ $ $ $ $
(loss) from (8,543) 5,481 9,655 (25,994) 4,756 9,305 502 17,743
operations Net income $ $ $ $ $ $ $ $ (loss) from (11,948) 3,251
6,438 2,084 3,742 6,012 325 14,041 continuing operations Net income
$ $ $ $ $ $ $ $ (loss) (11,948) 3,251 6,438 2,084 3,742 6,012
13,506 325 Basic $ $ $ $ $ $ $ $ earnings (0.14) 0.04 0.07 0.03
0.04 0.07 0.00 0.17 (loss) per share from continuing operations
Diluted $ $ $ $ $ $ $ $ earnings (0.14) 0.04 0.07 0.03 0.04 0.07
0.00 0.16 (loss) per share from continuing operations Basic $ $ $ $
$ $ $ $ earnings (0.14) 0.04 0.07 0.03 0.04 0.07 0.00 0.16 (loss)
per share Diluted $ $ $ $ $ $ $ $ earnings (0.14) 0.04 0.07 0.03
0.04 0.07 0.00 0.15 (loss) per share ASG Order $ $ $ $ $ $ $ $
Bookings 133,000 105,000 85,000 105,000 92,000 71,000 96,000
126,000 ASG $ $ $ $ $ $ $ $ Order Backlog 215,000 208,000 215,000
209,000 203,000 197,000 230,000 255,000 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
and 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 revenues 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 revenues are 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
to 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 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 December 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 news release and management's discussion and
analysis of financial conditions, and results of operations of ATS
contains certain statements that constitute forward-looking
information within the meaning of applicable securities laws
("forward-looking statements"). Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or
achievements of ATS, or developments in ATS's business or in its
industry, to differ materially from the anticipated results,
performance, achievements or developments expressed or implied by
such forward-looking statements. Forward-looking statements
include all disclosure regarding possible events, conditions or
results of operations that is based on assumptions about future
economic conditions and courses of action. Forward-looking
statements may also include, without limitation, any statement
relating to future events, conditions or circumstances. ATS
cautions you not to place undue reliance upon any such
forward-looking statements, which speak only as of the date they
are made. Forward-looking statements relate to, among other
things: potential future payments owing in relation to the Sortimat
acquisition; business investment and capital spending by customers;
management's belief that increased capital spending will continue
to lag the general economic recovery; expectation that low volumes
and revenues in ASG will continue to present challenges to
maintaining margins at current levels; strategic initiatives to
improve leadership, business processes and supply chain management
within ASG; integration and cost reduction efforts in relation to
Sortimat; expectation that ASG operating margins will be negatively
impacted until Sortimat is fully integrated; impact of ATW
acquisition on ASG revenues and operating margins and margin
improvement plan in that regard; 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 and pursuit of attractive
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; short term impact of French moratorium on
new solar installations and long term impact of potential new
regulatory regime; 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; 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; expectation
that PWO will provide modules and other related services to these
projects; timing of ramp up of production to full production
on 100 MW module line; restructuring project at PWF; potential
reduction in work positions; management expectation with respect to
MW capacity; the intention of PWF to take future actions in
relation to market conditions; potential spin-off of solar business
and possible structure and timing; possible sale of PWF (and
potentially PWO) and intentions if a contemplated sale of PWF were
to occur prior to a potential spin-off; accounting as discontinued
operations; works council notification and consultation; 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 performance of Sortimat; that strategic
initiatives within ASG and targeted initiatives at Sortimat and ATW
do not have intended positive impact; 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; 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; the
availability and possible reduction or elimination of government
subsidies and incentives for solar products in various
jurisdictions, including France; 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; the potential for the ramp up to full
production of the 100 MW module line will be hindered or delayed
due to an inability to procure necessary permits, approvals,
materials or equipment on a timely basis; the risk that the
restructuring project or other potential future actions would not
offset all competitive challenges; that potential reduction in work
positions is other than as contemplated; impact of conditions in
the solar and capital markets, Photowatt performance, Works Council
notification and consultation process, and regulatory and tax
environment, on the timing and form of contemplated separation and
the dual track process; 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 become 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 other than as required by
applicable securities laws, ATS does not undertake any obligation
to update forward-looking statements should assumptions related to
these plans, estimates, projections, beliefs and opinions change.
ATS AUTOMATION TOOLING SYSTEMS INC. Consolidated Balance Sheets (in
thousands of Canadian dollars - unaudited) December 26 March 31
2010 2010 ASSETS Current assets Cash and cash equivalents $ 152,910
$ 211,786 Accounts receivable 105,182 85,995 Costs and earnings in
excess of billings 40,450 42,924 on contracts in progress (note 4)
Inventories (note 4) 94,819 80,280 Future income taxes ― 553
Deposits and prepaid assets (note 5) 26,193 27,492 419,554 449,030
Property, plant and equipment 183,839 171,451 Goodwill 67,888
34,350 Intangible assets 28,071 4,864 Investment tax credits 21,976
20,878 Future income taxes 33,791 35,243 Portfolio investments
1,958 3,602 Other assets (note 6) 32,033 33,380 $ 789,110 $ 752,798
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank
indebtedness (note 10) $ 5,073 $ 26,034 Accounts payable and
accrued liabilities 153,148 118,518 Billings in excess of costs and
earnings 40,631 30,216 on contracts in progress (note 4) Future
income taxes 15,291 12,326 Current portion of long-term debt (note
9,680 10,830 10) Current portion of obligations under 4,672 4,260
capital leases (note 10) 228,495 202,184 Long-term debt (note 10)
21,661 4,420 Long-term portion of obligations under 16,479 17,985
capital leases (note 10) Shareholders' equity Share capital 479,558
479,542 Contributed surplus 13,028 11,244 Accumulated other
comprehensive loss (note (42,709) (37,434) 13) Retained earnings
(restated - note 2) 72,598 74,857 522,475 528,209 $ 789,110 $
752,798 Commitments and contingencies (notes 3 and 16) See
accompanying notes to interim consolidated financial statements ATS
AUTOMATION TOOLING SYSTEMS INC. Consolidated Statements of
Operations (in thousands of Canadian dollars, except per share
amounts - unaudited) Three months ended Nine months ended December
December December December 26 27 26 27 2010 2009 2010 2009 Revenue
$ 192,494 $ 138,133 $ $ 505,654 439,003 Operating costs and
expenses Cost of revenue 165,762 112,766 419,273 362,643 Selling,
general and administrative (note 34,555 19,536 77,727 59,024 11)
Stock-based compensation 720 1,075 2,061 2,773 (note 7) Earnings
(loss) from (8,543) 4,756 6,593 14,563 operations Other expenses
Interest on long-term 569 361 1,227 1,017 debt Other interest 60
162 528 598 629 523 1,755 1,615 Income (loss) from operations
before income (9,172) 4,233 4,838 12,948 taxes Provision for income
taxes 2,776 491 7,097 2,869 (note 15) Net income (loss) $ $ 3,742 $
(2,259) $ 10,079 (11,948) Earnings (loss) per share (note 8) Basic
$ $ 0.04 $ (0.03) $ 0.11 (0.14) Diluted $ (0.14) $ 0.04 $ (0.03) $
0.11 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) Nine months ended
December 26, 2010 Accumulated Other Comprehensive Total Share
Contributed Income (Loss) Retained Shareholders' Capital Surplus
(note 13) Earnings Equity Balance, beginning of $ 479,542 (37,434)
74,857 period $ 11,244 $ $ $ 528,209 Comprehensive income (loss)
Net loss ― ― ― (2,259) (2,259) Currency translation adjustment ― ―
(4,369) ― (4,369) Net unrealized gain on derivative financial
instruments designated as cash flow hedges (net of income taxes of
$87) ― ― 785 ― 785 Gain transferred to net income for derivatives
designated as cash flow hedges (net of income taxes of $683) ― ―
(1,691) ― (1,691) Total comprehensive loss (7,534) Stock-based ― ―
― compensation (note 7) 1,789 1,789 Exercise of stock 16 ― ―
options (5) 11 Balance, end of the $ 479,558 (42,709) 72,598 period
$ 13,028 $ $ $ 522,475 Nine months ended December 27, 2009
Accumulated Other Comprehensive Total Share Contributed Income
(Loss) Retained Shareholders' Capital Surplus (note 13) Earnings
Equity Balance, beginning of period (restated - note $ 479,537
15,494 62,694 2) $ 8,722 $ $ $ 566,447 Comprehensive income (loss)
Net income ― ― ― 10,079 10,079 Currency translation adjustment ― ―
(37,628) ― (37,628) Net unrealized gain on available-for-sale
financial assets (net of income taxes of $nil) ― ― 298 ― 298 Net
unrealized gain on derivative financial instruments designated as
cash flow hedges (net of income taxes of $470) ― ― 1,425 ― 1,425
Loss transferred to net income for derivatives designated as cash
flow hedges (net of income taxes of 108) ― ― 727 ― 727 Total
comprehensive loss (25,099) Stock-based ― ― ― compensation (note 8)
1,963 1,963 Balance, end of the $ 479,537 (19,684) 72,773 period $
10,685 $ $ $ 543,311 See accompanying notes to interim consolidated
financial statements ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows (in thousands of dollars -
unaudited) Nine months ended Three months ended December 26
December 27 December 26 December 27 2010 2009 2010 2009 Operating
activities: Net income $ (11,948) $ 3,742 $ (2,259) $ 10,079 (loss)
Items not involving cash Depreciation of property, 4,987 5,357
14,566 16,323 plant and equipment Amortization of 1,226 630 3,197
2,048 intangible assets Future income 2,537 90 5,720 (3,793) taxes
Investment tax credit 337 80 (1,098) (448) receivable Other items
not (5) (8) (102) (20) involving cash Stock-based compensation 720
1,075 2,061 2,773 (note 7) Loss (gain) on disposal of property,
(21) (244) (62) 110 plant and equipment Gain on sale of portfolio
(665) ― (665) ― investment (2,832) 21,358 27,072 10,722 Change in
non-cash operating 20,274 15,861 13,460 5,465 working capital Cash
flows provided by 17,442 26,583 34,818 32,537 operating activities
Investing activities: Acquisition of property, (8,110) (4,319)
(22,419) (14,262) plant and equipment Acquisition of intangible
(621) (145) (2,199) (301) assets Investments, silicon (186) (4,985)
(3,370) (7,565) deposits and other Business acquisition (274) ―
(50,687) ― (note 3) Proceeds from disposal of property, 175 580 992
1,169 plant and equipment Proceeds on sale of 2,309 ― 2,309 ―
portfolio investments Cash flows used in (6,707) (8,869) (75,374)
(20,959) investing activities Financing activities: Restricted
(201) (510) (3,307) 4,226 cash (note 5) Bank indebtedness (18,289)
(4,044) (28,322) 16,309 (note 10) Proceeds from long-term debt
20,754 685 22,165 4,522 (note 10) Proceeds from sale and leaseback
of ― 2,664 1,747 9,467 property, plant and equipment Repayment of
long-term debt (5,864) (129) (8,209) (1,988) (note 10) Repayment of
obligations under capital (1,174) (811) (2,020) (2,418) leases
(note 10) Issuance of common ― ― 11 ― shares Cash flows provided by
(used in) (4,774) (2,145) (17,935) 30,118 financing activities
Effect of exchange rate changes on (1,563) (1,876) (385) (4,042)
cash and cash equivalents Increase (decrease) in 4,398 13,693
(58,876) 37,654 cash and cash equivalents Cash and cash
equivalents, 148,512 166,322 211,786 142,361 beginning of period
Cash and cash equivalents, $ 152,910 $ 180,015 $ 152,910 180,015
end of period Supplemental information Cash income $ 1,567 $ 345 $
2,288 $ 729 taxes paid Cash interest $ 357 $ 300 $ 1,270 $ 924 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, 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 and nine months ended
December 26, 2010 contained 91 days and 270 days respectively
(three and nine months ended December 27, 2009 - 91 days and 271
days respectivley). 2. ACCOUNTING CHANGES: In the nine months ended
December 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 $52,160
(40,582 Euro), which includes acquisition-related costs, primarily
for advisory services, of $2,710. 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 years are not
included in the cost of the acquisition. During the three and
nine months ended December 26, 2010 the Company recognized in
selling, general and administrative expense $460 and $1,047
respectively related to specific management services. Cash used in
the investment is determined as follows: Cash $ consideration
52,160 Less cash (1,473) acquired $ 50,687 The purchase cost was
allocated to the underlying assets acquired and liabilities assumed
based upon the fair value at the date of acquisition. The company
determined the fair values based on discounted cash flows, market
information, independent valuations and management's estimates.
Final valuations of certain items are not yet complete due to the
inherent complexity associated with valuations. Therefore,
the purchase price allocation is preliminary and subject to
adjustment over the course of fiscal 2011 on completion of the
valuation process and analysis of resulting tax effects. The
preliminary allocation of the purchase price at fair value is as
follows: Purchase price allocation Cash $ 1,473 Current assets
18,357 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 (30,962) Long term
debt (3,590) Net identifiable assets 18,585 Residual purchase price
allocated to goodwill 33,575 $ 52,160 Non-cash working capital
includes accounts receivable of $8,482, representing gross
contractual amounts receivable of $9,279 less management's best
estimate of the contractual cash flows not expected to be collected
of $797. 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 three months ended December 26, 2010, changes to the
purchase price allocation resulted in a increase in goodwill of
$2,126. The adjustments to the preliminary purchase price
allocation are noted below: Three months Nine months Adjustments to
the purchase price ended ended allocation Decrease in current
assets $ (324) $ (328) Decrease (increase) in current (1,528) 1,016
liabilities Acquisition-related costs (274) (537) Net decrease
(increase) in goodwill $ (2,126) $ 151 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. From the
acquisition date, Sortimat has contributed approximately $44,466 in
revenue and a net loss of $2,132, which includes amortization of
intangible assets related to the acquisition of $1,959. 4.
CONTRACTS IN PROGRESS AND INVENTORIES: December 26 March 31 2010
2010 Contracts in progress: Costs incurred on contracts in $
483,020 $ 338,624 process Estimated earnings 127,039 80,766 $
610,059 $ 419,390 Progress billings (610,240) (406,682) $ (181) $
12,708 Disclosed as: Costs and earnings in excess of $ 40,450 $
42,924 billings on contracts in progress Billings in excess of
costs and (40,631) (30,216) earnings on contracts in progress $
(181) $ 12,708 December 26 March 31 2010 2010 Inventories are
summarized as follows: Raw materials $ 45,380 $ 45,984 Work in
process 15,864 8,585 Finished goods 33,575 25,711 $ 94,819 $ 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 nine months
ended December 26, 2010 was $75,248 and $192,355 respectively
(three and nine months ended December 27, 2009: $46,779 and
$143,000 respectively). The amount charged to net income and
included in cost of revenue for the write-down of inventory for
valuation issues during both the three and nine months ended
December 26, 2010 was $194 and $1,455 respectively (three and nine
months ended December 27, 2009: $2,079 and $5,096 respectively).
The amount recognized in net income and included in cost of revenue
for the reversal of previous inventory write-downs due to rising
prices during the three and nine months ended December 26, 2010 was
$940 and $1,026 respectively (three and nine months ended December
27, 2009: $nil). 5. DEPOSITS AND PREPAID ASSETS:
December 26 March 31 2010 2010 Prepaid assets $ 3,436 $ 4,231
Restricted cash((i)) 3,730 582 Silicon and other deposits 15,029
16,335 Forward contracts and other 3,998 6,344 $ 26,193 $ 27,492
(i) Restricted cash consists of cash collateralized to secure
bank guarantees. 6. OTHER ASSETS: December 26 March 31 2010 2010
Silicon deposits $ 28,799 $ 32,389 Other 3,234 991 $ 32,033 $
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 nine months
ended December 26, 2010 the Company granted 325,000 time vesting
stock options (700,000 in the nine months ended December 27,
2009). The stock options granted vest over 4 years and expire
on the seventh anniversary from the date of issue. During the
nine month period ended December 26, 2010, no performance based
options were granted (100,000 in the nine months ended December 27,
2009). 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 nine month period
ended December 26, 2010, no performance based options vested.
During the nine month period ended December 27, 2009 83,333
performance options vested in the normal course of business. Nine
months ended December 26, 2010 December 27, 2009 Weighted Weighted
Number of average Number of average stock exercise stock exercise
options price options price Stock options outstanding, beginning
6,368,674 $ 7.89 6,112,562 $ 8.18 of year Granted 325,000 6.34
800,000 6.40 Exercised (2,900) 3.83 ― ― Forfeited/cancelled
(129,913) 18.61 (382,209) 9.57 Stock options outstanding, end of
6,560,861 $ 7.60 6,530,353 $ 7.88 period Stock options exercisable,
end of 1,138,782 $ 9.28 972,947 $ 11.40 period, time vested options
Stock options exercisable, end of 991,448 $ 6.14 991,448 $ 6.14
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: Nine months ended December 26 December 27 2010
2009 Weighted average risk-free interest 2.28% 2.17% 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 325,000 700,000 Performance based ― 100,000
Weighted average exercise price per $ 6.34 $ 6.40 option Weighted
average value per option: Time vested $ 3.16 $ 3.19 Performance
based $ ― $ 3.59 8. EARNINGS (LOSS) PER SHARE: Weighted average
number of shares used in the computation of earnings (loss) per
share is as follows: Three months ended Nine months ended December
26 December 27 December 26 December 27 2010 2009 2010 2009 Basic
87,281,055 87,277,155 87,279,855 87,277,155 Diluted 87,643,524
87,602,298 87,619,515 87,397,288 For the three and nine months
ended December 26, 2010, stock options to purchase 5,130,366 and
5,211,526 common shares respectively are excluded from the weighted
average common shares in the calculation of diluted earnings (loss)
per share as they are anti-dilutive (5,186,358 and 5,825,413 common
shares respectively were excluded in the three and nine months
ended December 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 photovoltaic products. The
business segments are strategic business units that offer different
products and services and each is managed separately. The Company
accounts for inter-segment revenue at current market rates,
negotiated between the segments. Three months ended Nine months
ended December 26 December 27 December 26 December 27 2010 2009
2010 2009 Revenue Automation Systems $ 124,733 $ 78,639 $ 349,147
290,806 Photowatt 73,006 59,748 166,901 151,331 Technologies
Inter-segment (5,245) (254) (10,394) (3,134) revenue Total Company
$ 192,494 $ 138,133 $ 505,654 $ 439,003 Revenue Earnings from
operations Automation Systems $ 14,383 $ 8,386 $ 44,777 $ 36,743
Photowatt (16,277) 1,626 (19,042) (5,278) Technologies
Inter-segment (955) (62) (1,966) (734) operating loss Stock-based
(720) (1,075) (2,061) (2,773) compensation Other expenses (4,974)
(4,119) (15,115) (13,395) Total Company earnings (loss) from
operations $ (8,543) $ 4,756 $ 6,593 $ 14,563 December 26 March 31
2010 2010 Assets Automation Systems $ 505,907 $ 459,730 Photowatt
280,117 280,305 Technologies Corporate assets and 3,086 12,763
inter-segment Total Company $ 789,110 $ 752,798 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 $56,131
(42,524 Euro). The total amount outstanding on these
facilities is $42,118 (March 31, 2010 - $55,940), of which $1,167
is classified as bank indebtedness (March 31, 2010 - $26,034),
$19,800 is classified as long-term debt (March 31, 2010 - $7,661)
and $21,151 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
3.35% 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. During the three and
nine month period ended December 26, 2010, Photowatt International
S.A.S. and its lenders established a new term credit facility of
$19,800 (15,000 Euro). The new credit facility, which is
classified as long-term debt, was used to repay pre-existing
credit facilities of $6,111 (4,417 Euro) and to replace a credit
facility classified as bank indebtedness in the amount of $11,069
(8,000 Euro). The new credit facility bears interest at a
rate of Euribor plus 3.35%, annual payments of $4,950 (3,750 Euro)
and expires on October 15, 2014. The PV Alliance joint venture has
additional credit facilities as described in note 14. The Company
has additional credit facilities of $14,846 (9,662 Euro, 31,663
Indian Rupee and 2,000 Swiss Francs). The total amount
outstanding on these facilities is $7,417 (March 31, 2010 - $nil),
of which $3,856 is classified as bank indebtedness and $3,561 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: December 26 March 31 2010
2010 Bank indebtedness: PV Alliance $ 50 $ ― Photowatt
International S.A.S. 1,167 26,034 Other facilities 3,856 ― $ 5,073
$ 26,034 Long-term debt: PV Alliance $ 7,980 $ 7,589 Photowatt
International S.A.S. 19,800 7,661 Other facilities 3,561 ― $ 31,341
$ 15,250 Less: current portion 9,680 10,830 $ 21,661 $ 4,420
Obligations under capital lease: Photowatt International S.A.S.
future minimum $ 22,777 $ 25,201 lease payments Less: amount
representing interest 1,626 2,956 $ 21,151 $ 22,245 Less: current
portion 4,672 4,260 $ 16,479 $ 17,985 Interest for the three and
nine months ended December 26, 2010 of $110 and $338 respectively
(three and nine months ended December 27, 2009 - $121 and
$476 respectively) relating to obligations under capital lease has
been included in interest on long-term debt expense. The interest
rates applicable to the obligations under capital lease range from
Euribor plus 1.38% to Euribor plus 1.9% and 4.9% per annum.
11. RESTRUCTURING: In the three and nine months ended December 26,
2010, the Company's subsidiary, Photowatt International S.A.S.,
initiated a restructuring project at its facility in
Bourgoin-Jallieu, France. In the three and nine months ended
December 26, 2010, restructuring costs of $9,462 and $9,746
respectively were expensed in selling, general and administrative
expenses, primarily in relation to the Photowatt International
S.A.S. restructuring project. 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 nine months ended
December 27, 2009, severance and restructuring expenses associated
with the closure of two divisions and other workforce reductions
were $1,952 and $5,878 respectively, primarily in the Automation
Systems group. The following is a summary of the changes in the
provision for restructuring costs: Nine months ended December 26
December 27 2010 2009 Balance, beginning of period $ 2,190 $ 4,535
Severance and restructuring expense 9,746 5,878 Acquisition accrual
1,000 ― Cash payments (3,655) (5,512) Foreign exchange (83) (245)
Balance, end of period $ 9,198 $ 4,656 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 nine months ended December
26, 2010, the fair value of derivative financial assets classified
as held-for-trading and included in deposits and prepaid assets
increased by $1,893 and $44 respectively (increased by $1,783 and
$1,182 respectively during the three and nine months ended December
27, 2009) and the fair value of derivative financial liabilities
classified as held-for-trading and included in accounts payable and
accrued liabilities decreased by $2,308 and increased by $37
respectively during the three and nine months ended December 26,
2010 (decreased by $1,175 and $522 respectively during the three
and nine months ended December 27, 2009). Cash flow hedges During
the three and nine months ended December 26, 2010, an unrealized
gain of $nil and $5 respectively was recognized in selling, general
and administrative expense for the ineffective portion of cash flow
hedges (unrealized loss of $8 during the three and nine months
ended December 27, 2009). After-tax unrealized gains of $967
and $188 are included in accumulated other comprehensive income at
December 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 $796 at December 27, 2009). 13.
ACCUMULATED OTHER COMPREHENSIVE LOSS: The components of accumulated
other comprehensive loss are as follows: December 26 March 31 2010
2010 Accumulated currency translation adjustment $ (43,864) $
(39,495) Accumulated unrealized net gain on derivative financial
instruments designated as cash flow hedges( 1,155 2,061 (i))
Accumulated other comprehensive loss $ (42,709) $ (37,434)
(i) The accumulated unrealized net gain on derivative
financial instruments designated as cash flow hedges is net of
future income taxes of $340 at December 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: December 26 March 31
2010 2010 Balance Sheet Current assets $ 4,351 $ 4,933 Property and
5,019 4,960 equipment Intangible assets 3,126 2,107 Investment tax
― 562 credits Current liabilities (3,504) (2,960) Current portion
of (4,482) (3,170) long-term debt Long-term debt (3,498) (4,419)
Net assets $ 1,012 $ 2,013 Three months ended Nine months ended
December 26 December 27 December 26 December 27 2010 2009 2010 2009
Statement of Operations Net loss $ (541) $ (167) $ (606) $ (265)
Three months ended Nine months ended December 26 December 27
December 26 December 27 2010 2009 2010 2009 Cash flows provided by
(used in) Operating $ 253 $ 453 $ 1,334 $ 1,343 activities
Investing (339) (919) (1,616) (3,815) activities Financing (23) 607
650 4,318 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 when the program
to develop solar cell technology meets certain cell efficiency
targets. 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 nine months ended December 26, 2010, the PV Alliance received
government assistance of 120 Euro and 504 Euro respectively (three
and nine months ended December 27, 2009 - 192 Euro and 576
Euro respectively) which has been included in operating earnings.
15. INCOME TAXES: For the three and nine month periods ended
December 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 nine months ended December 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 December 26, 2010, the total value of
outstanding bank guarantees available under bank guarantee
facilities was approximately $39,096 (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. 17.
SUBSEQUENT EVENT: On January 5, 2011, the Company completed its
acquisition of the majority of Assembly & Test Worldwide,
Inc.'s U.S.-based and German automation and test systems businesses
(collectively "ATW"). ATW is a manufacturer of assembly and
test systems, with capability in the transportation, life sciences
and energy segments. The total cash consideration for ATW pending
post-closing adjustments is $18,040 ($18,067 US), which includes
acquisition-related costs, primarily for advisory services, of
$616. The cash consideration of the purchase price along with
transaction costs was funded with existing cash on hand. This
acquisition will be accounted for as a business combination with
the Company as the acquirer of ATW. The purchase method of
accounting will be used and the earnings will be consolidated from
the acquisition date. The Company is in the process of
estimating the fair values of assets acquired and liabilities
assumed at the date of acquisition, including goodwill and
identifiable intangible assets. To view this news release in HTML
formatting, please use the following URL:
http://www.newswire.ca/en/releases/archive/February2011/02/c7194.html
pMaria Perrella, Chief Financial Officerbr/ Carl Galloway,
Vice-President and Treasurerbr/ 519 653 6500/p
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