ATS AUTOMATION TOOLING SYSTEMS INC.Detailed Chart...ATS reports second quarter fiscal 2010 resultsTSX: ATA
CAMBRIDGE, ON,
Second Quarter Summary
- Consolidated revenue was $148.2 million compared to $152.7 million in
the first quarter of the fiscal year and $219.5 million in the same
period a year ago;
- Consolidated earnings from operations were $9.3 million compared to
$0.5 million in the first quarter of the fiscal year and $13.6
million in the same period a year ago;
- Per share earnings were $0.07 (basic and diluted) compared to $0.00
(basic and diluted) in the first quarter of the fiscal year and $0.12
(basic and diluted) in the same period a year ago;
- The balance sheet remained strong with cash net of debt of $103.6
million compared to $106.5 million at March 31, 2009 and $40.0
million at September 30, 2008;
- In October, the Company announced plans to serve the Ontario solar
energy market;
- Subsequent to quarter end, the Company reached agreement to extend
its primary credit facility until April 2011.
In the Automation Systems Group segment ("ASG"), customers are continuing to reduce and/or delay their capital spending programs. This resulted in a 47% reduction in Order Bookings compared to the same period a year ago. At Photowatt
"The actions we have taken to fix our operations and re-position Photowatt over the last 18 months have enabled us to operate profitably in the second quarter, despite a significant decline in our revenues," said
Financial Results
In millions 3 months 3 months 6 months 6 months
of dollars, ended ended ended ended
except per Sept 27, Sept 30, Sept 27, Sept 30,
share data 2009 2008 2009 2008
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Revenue ASG $ 97.0 $ 147.4 $ 212.2 $ 290.2
from ------------------------------------------------------------
continuing Photowatt 51.5 72.5 91.6 141.9
operations ------------------------------------------------------------
Inter-segment (0.3) (0.4) (2.9) (0.5)
------------------------------------------------------------
Consolidated $ 148.2 $ 219.5 $ 300.9 $ 431.6
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EBITDA ASG $ 15.3 $ 16.0 $ 32.0 $ 28.3
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Photowatt
Technologies
- Photowatt
France 4.7 9.8 1.3 19.1
- Other solar - (0.4) - (0.8)
- Gain on sale
of building - - - 3.2
- Gain on
silicon sale - - - 2.0
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Corporate and
inter-segment
elimination (4.5) (5.8) (11.1) (10.1)
------------------------------------------------------------
Consolidated $ 15.5 $ 19.6 $ 22.2 $ 41.7
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Net income
from
continuing
operations Consolidated $ 6.0 $ 12.7 $ 6.3 $ 27.7
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Earnings From continuing
per share operations
(basic &
diluted) $ 0.07 $ 0.16 $ 0.07 $ 0.36
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After
discontinued
operations
(basic &
diluted) $ 0.07 $ 0.12 $ 0.07 $ 0.29
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ASG Second Quarter Results
- Revenue was $97.0 million compared to $115.2 million in the first
quarter and $147.4 million a year ago on lower Order Bookings and
lower Order Backlog entering the quarter compared to the prior
periods;
- EBITDA was $15.3 million compared to $16.7 million in the first
quarter of this fiscal year and $16.0 million in the same period a
year ago;
- Earnings from operations were $13.6 million compared to $14.8 million
in the first quarter of this fiscal year and $13.9 million in the
same period a year ago;
- Period end Order Backlog was $197 million, a decrease of 14% from
$230 million in the first quarter of this fiscal year and down from
$247 million a year ago;
- Order Bookings were 26% lower at $71 million compared to $96 million
in the first quarter of fiscal 2010 and 47% lower compared to $133
million in the second quarter of fiscal 2009;
- Order Bookings were $45 million during the first six weeks of the
third quarter.
Despite a 34% year-over-year decrease in revenues in the second quarter, ASG's operating margin was 14% reflecting cost reductions implemented during fiscal 2009 and 2010, supply chain savings and improved program management. Revenue increased 38% in the healthcare industry, offset by decreases of 94% in computer-electronics, 33% in energy, 51% in automotive, and 24% in other markets (primarily consumer products).
Photowatt Second Quarter Results
- PWF revenue was $51.5 million, a 28% increase over fiscal 2010 first
quarter revenues of $40.1 million, but down from $72.5 million a year
ago;
- PWF EBITDA was $4.7 million compared to negative EBITDA of $3.4
million in the first quarter of fiscal 2010 and EBITDA of $9.8
million a year ago;
- PWF operating earnings were $0.6 million compared to an operating
loss of $7.5 million in the first quarter of fiscal 2010 and
operating earnings of $6.0 million a year ago;
- Total megawatts (MWs) sold at PWF increased 28% to 10.6 MWs from 8.3
MWs in the first quarter of fiscal 2010, and were 29% lower than the
14.9 MWs sold a year ago;
- Average cell efficiency improved for polysilicon products to 15.6%
compared to 15.0% in the first quarter of fiscal 2010 and 15.4% a
year ago.
The 29% year-over-year decline in revenues reflected lower MWs sold and lower average selling prices. PWF partially mitigated the impact of lower average selling prices through increased systems sales, which were up by 42% to
On Quarterly Conference Call
ATS's quarterly conference call begins at About ATS
ATS Automation Tooling Systems Inc. provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies. Founded in 1978, ATS uses its industry-leading knowledge and global capabilities to serve the sophisticated automation systems' needs of multinational customers in industries such as healthcare, computer/electronics, energy, automotive and consumer products. It also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. Through Photowatt Technologies, ATS participates in the growing solar energy industry as a turn-key solar project developer and integrated manufacturer. Photowatt designs, manufactures and sells solar modules and installation kits and provides solar power systems design and other value-added services, principally in Western Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") for the three and six months ended Notice to Reader
The Company has two reportable segments: Automation Systems Group ("ASG") and Photowatt Technologies which includes Photowatt Non-GAAP Measures Throughout this document the term "operating earnings" is used to denote earnings (loss) from operations. EBITDA is also used and is defined as earnings (loss) from operations excluding depreciation and amortization (which includes amortization of intangible assets). The term "margin" refers to an amount as a percentage of revenue. The terms "earnings (loss) from operations", "operating earnings", "margin", "operating loss", "operating results", "operating margin", "EBITDA", "Order Bookings" and "Order Backlog" do not have any standardized meaning prescribed within Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable to similar measures presented by other companies. Operating earnings and EBITDA are some of the measures the Company uses to evaluate the performance of its segments. Management believes that ATS shareholders and potential investors in ATS use non-GAAP financial measures such as operating earnings and EBITDA in making investment decisions about the Company and measuring its operational results. A reconciliation of operating earnings and EBITDA to total Company net income for the first and second quarters of fiscal 2010 and 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 revenue on customer contracts that are in process and have not been completed at the specified date. A reconciliation of Order Bookings and Order Backlog to total Company revenue for the first and second quarters of fiscal 2010 and 2009 is contained in the MD&A (See "ASG Order Backlog Continuity"). Automation Systems Group Segment
ASG Revenue (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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Revenue by industry
Healthcare $ 42.4 $ 30.8 $ 78.4 $ 72.2
Computer-electronics 1.9 29.9 16.2 64.1
Energy 33.9 50.8 75.2 82.9
Automotive 11.1 22.8 25.2 46.7
Other 7.7 13.1 17.2 24.3
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Total ASG revenue $ 97.0 $ 147.4 $ 212.2 $ 290.2
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Second Quarter ASG second quarter revenue was 34% lower than a year ago, primarily reflecting an 11% decrease in Order Backlog entering the second quarter compared to a year ago and a longer period of performance for certain programs in Order Backlog.
By industrial market, healthcare revenue increased 38% year-over-year due to higher healthcare Order Backlog entering the second quarter. Healthcare continues to be a strong market for ASG, particularly within Year to date
ASG revenue for the six months ended
ASG Operating Results (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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Earnings from operations $ 13.6 $ 13.9 $ 28.4 $ 24.2
Depreciation and amortization 1.7 2.1 3.6 4.1
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EBITDA $ 15.3 $ 16.0 $ 32.0 $ 28.3
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Second Quarter
Fiscal 2010 second quarter ASG earnings from operations were
ASG depreciation and amortization expense was Year to date
For the six months ended
ASG depreciation and amortization expense was ASG Order Bookings
Fiscal 2010 second quarter ASG Order Bookings were
ASG Order Backlog Continuity (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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Opening Order Backlog $ 230 $ 258 $ 255 $ 232
Revenue (97) (147) (212) (290)
Order Bookings 71 133 167 302
Order Backlog adjustments(1) (7) 3 (13) 3
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Total $ 197 $ 247 $ 197 $ 247
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(1) Order Backlog adjustments include foreign exchange and cancellations.
Order Backlog by Industry (in millions of dollars)
Sept 27, Sept 30,
2009 2008
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Healthcare $ 105 $ 57
Computer-electronics 11 29
Energy 35 92
Automotive 20 49
Other 26 20
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Total $ 197 $ 247
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At
Growth in healthcare Order Backlog reflected increased activity in ASG Outlook In the short-term, management expects continued reductions and/or delays in capital spending to varying degrees, depending on the market segment. Despite some signs of improvement in the global economy, business investment and capital spending remain low. Management believes that increases in capital spending will lag a general economic recovery as companies will be hesitant to invest until their markets are stable and/or growing. Certain industries, such as automotive, have been more severely impacted by the economic environment. This has increased the risk of insolvency among companies in these industries. Computer-electronics and consumer products have been negatively impacted by reduced consumer spending. Other industries such as solar are being impacted by tighter credit conditions and market challenges. These factors may have a negative impact on ASG's future profitability. ASG has experienced some success with its new approach to market, however, these opportunities are sporadic in nature and are not expected to repeat every quarter. To deal with the immediate market uncertainty, management continues to carefully evaluate the cash and credit terms of customer proposals and where appropriate, is not pursuing unacceptable or high risk credit terms.
Operationally, ASG plans to continue the consolidation and restructuring of underperforming, non-strategic manufacturing operations. These closures will occur over the next several quarters as current customer commitments are completed or moved to other divisions. Completion of these initiatives is expected to cost between Management expects that the implementation of its strategic initiatives to improve leadership, business processes and supply chain management across ASG will have a positive impact on ASG operations. In the short-term however, management is uncertain as to what extent the improvement initiatives will offset current market conditions. Management believes that the Company's strengthened balance sheet, improved approach to market and operational improvements will provide a solid foundation for the Company to improve performance when the general business environment, including capital investment, stabilizes and returns to growth. Photowatt Technologies Segment
Photowatt Technologies Revenue (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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Total revenue $ 51.5 $ 72.5 $ 91.6 $ 141.9
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Revenue by product
Polysilicon products $ 49.3 $ 21.0 $ 78.5 $ 52.7
UMG-Si products 2.2 51.5 13.1 89.2
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Total Revenue $ 51.5 $ 72.5 $ 91.6 $ 141.9
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Second Quarter
Photowatt Technologies fiscal 2010 second quarter revenue of
Total polysilicon products represented Year to date
Photowatt Technologies revenue for the first six months of fiscal 2010 decreased 35% compared to the same period a year ago. Lower revenues reflect a decrease in MWs sold at PWF from 28.7 MWs to 18.9 MWs. Year-over-year decreases in average selling prices per watt were partially offset by an increase in system sales to
Revenue from polysilicon products for the first six months of fiscal 2010 increased 49% to
Photowatt Technologies Operating Results (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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Earnings (loss)
from operations:
Photowatt France $ 0.6 $ 6.0 $ (6.9) $ 11.6
Other Solar - (0.4) - 4.5
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Photowatt Technologies
earnings (loss)
from operations $ 0.6 $ 5.6 $ (6.9) $ 16.1
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Photowatt France EBITDA
Photowatt France earnings
(loss) from operations $ 0.6 $ 6.0 $ (6.9) $ 11.6
Depreciation and amortization 4.1 3.8 8.2 7.5
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Photowatt France EBITDA $ 4.7 $ 9.8 $ 1.3 $ 19.1
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Second Quarter
Photowatt Technologies fiscal 2010 second quarter earnings from operations were
Fiscal 2010 second quarter earnings from operations for PWF were
PWF's fiscal 2010 second quarter earnings from operations were not materially impacted by its investment in the PV Alliance ("PVA"), compared to the same period a year ago when
PWF's fiscal 2010 second quarter amortization expense was Fiscal 2009 second quarter "Other Solar" loss from operations included costs incurred primarily in decommissioning equipment. Year to Date
Photowatt Technologies loss from operations for the six months ended
For the first six months of fiscal 2010, PWF's loss from operations was
"Other Solar" earnings from operations for the first six months of fiscal 2009 included a gain of PWF Outlook
The long-term outlook for the solar energy industry is positive. However, in the short and medium-term, solar power is, and for the foreseeable future will be affected by and largely dependent on, the existence of government incentives. Certain jurisdictions into which PWF sells, such as Tightening in the global credit markets has reduced available funding for solar installation projects. The resulting reduction in demand for solar modules, in addition to increased global module capacity in the solar industry, could result in sustained over-supply in fiscal 2010. While there has been some improvement in the credit markets, fewer funding sources for solar projects are expected to continue to negatively impact PWF during fiscal 2010. Management is pursuing downstream alternatives to create an additional market for PWF's products and lock in average selling prices for a larger portion of fiscal 2010 sales. To this end, PWF is seeking strategic supply agreements with customers for sales contracts that would consume a significant portion of PWF's current capacity for the next several years. In addition, management is engaging with financial institutions, investors and governments to enable and develop solar projects in which PWF would participate.
To keep PWF cost competitive, management is considering a plan to reduce the cost structure which may cost up to Management expects improvements in cell efficiency, manufacturing yields and throughput will reduce PWF's direct manufacturing cost per watt. Management does not know to what extent planned reductions in cost per watt will offset the impact of declines in average selling prices on operating earnings.
In
Consolidated Results from Operations
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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Revenue $ 148.2 $ 219.5 $ 300.9 $ 431.6
Cost of revenue 117.3 185.6 249.9 364.5
Selling, general and
administrative 20.7 19.7 39.5 41.1
Stock-based compensation 0.9 0.6 1.7 1.4
Gains on sale of assets - - - (5.2)
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Earnings from operations $ 9.3 $ 13.6 $ 9.8 $ 29.8
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Interest expense (income) $ 0.6 $ 0.4 $ 1.1 $ (0.1)
Provision for income taxes 2.7 0.5 2.4 2.2
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Net income from continuing
operations $ 6.0 $ 12.7 $ 6.3 $ 27.7
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Loss from discontinued
operations - (3.4) - (5.5)
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Net income $ 6.0 $ 9.3 $ 6.3 $ 22.2
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Earnings per share
Basic and diluted from
continuing operations $ 0.07 $ 0.16 $ 0.07 $ 0.36
Basic and diluted $ 0.07 $ 0.12 $ 0.07 $ 0.29
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Revenue. At
Cost of revenue. Second quarter cost of revenue decreased on a consolidated basis by
Selling, general and administrative ("SG&A") expenses. For the second quarter of fiscal 2010, SG&A expenses increased 5% or
For the six months ended
Gains on sale of assets. During the first quarter of fiscal 2009, the Company completed delivery to a third party of silicon that was not usable by PWF or Spheral Solar. The silicon had a nominal carrying value and the Company recognized a gain of There were no such gains recorded in fiscal 2010.
Stock-based compensation. For the three and six month periods ended The expense associated with the Company's performance-based stock options is recognized in income over the estimated assumed vesting period at the time the stock options are granted. Upon the Company's stock price trading at or above stock price performance thresholds for a specified minimum number of trading days within a fiscal quarter, the options vest. When the performance-based options vest, the Company is required to recognize all previously unrecognized expenses associated with the vested stock options in the period in which they vest.
As at September 27, 2009, the following performance-based stock options
were un-vested:
Weighted
average Current Remaining
Stock price Number of Grant date remaining year expense to
performance options value per vesting expense recognize
threshold outstanding option period ('000s) (in 000's)
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$7.49 41,667 $ 1.66 4.4 years $ 7 $ 61
$8.41 266,667 2.11 1.6 years 90 257
$8.50 889,333 1.41 3.1 years 127 773
$9.08 218,666 2.77 1.0 years 117 213
$9.49 41,667 1.66 5.1 years 6 62
$10.41 266,667 2.11 3.0 years 62 350
$10.50 889,333 1.41 4.0 years 108 844
$11.08 218,667 2.77 2.3 years 73 344
$12.41 266,666 2.11 4.0 years 51 387
$13.08 218,667 2.77 3.3 years 65 390
$16.60 5,290 3.68 0.5 years 2 3
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Consolidated earnings from operations. For the three months ended
Interest expense and interest income. Net interest expense has increased in the three and six months ended
Provision for income taxes. In the three and six month periods ended
Net income from continuing operations. For the second quarter of fiscal 2010, net income from continuing operations was
Loss from discontinued operations, net of tax. During fiscal 2009, the Company sold the key operating assets and liabilities including equipment, current assets, trade accounts payable and certain other assets and liabilities of its Precision Components Group ("PCG") for cash proceeds of
The loss from discontinued operations in the second quarter of fiscal 2009 was
Net income. Second quarter fiscal 2010 net income was
Reconciliation of EBITDA to GAAP measures (in millions of dollars)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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EBITDA
Automation Systems $ 15.3 $ 16.0 $ 32.0 $ 28.3
Photowatt Technologies 4.7 9.4 1.3 23.6
Corporate and inter-segment (4.5) (5.8) (11.1) (10.2)
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Total EBITDA $ 15.5 $ 19.6 $ 22.2 $ 41.7
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Less: Depreciation and
amortization expense
Automation Systems $ 1.7 $ 2.1 $ 3.6 $ 4.1
Photowatt Technologies 4.1 3.8 8.2 7.5
Corporate and inter-segment 0.4 0.1 0.6 0.3
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Total depreciation and
amortization expense $ 6.2 $ 6.0 $ 12.4 $ 11.9
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Earnings (loss) from
operations
Automation Systems $ 13.6 $ 13.9 $ 28.4 $ 24.2
Photowatt Technologies 0.6 5.6 (6.9) 16.1
Corporate and inter-segment (4.9) (5.9) (11.7) (10.5)
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Total earnings from
operations $ 9.3 $ 13.6 $ 9.8 $ 29.8
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Less: Interest expense
(income) $ 0.6 $ 0.4 $ 1.1 $ (0.1)
Provision for
income taxes 2.7 0.5 2.4 2.2
Loss from discontinued
operations - 3.4 - 5.5
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Net income $ 6.0 $ 9.3 $ 6.3 $ 22.2
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Foreign Exchange
The year-over-year decrease in value of the Canadian dollar relative to the U.S. dollar had a positive impact on the Company's revenue, earnings from operations and net income in the first and second quarters of fiscal 2010 compared to the same periods of fiscal 2009. ATS follows a transaction hedging program to help mitigate the impact of short-term foreign currency movements. This hedging activity consists primarily of forward foreign exchange contracts used to manage foreign currency exposure. Purchasing third-party goods and services in U.S. dollars by Canadian operations also acts as a partial offset to U.S. dollar exposure. The Company's forward foreign exchange contract hedging program is intended to mitigate movements in currency rates primarily over a four-to-six-month period. See note 13 to the interim consolidated financial statements for details on the derivative financial instruments outstanding at
Three months ended Six months ended
Sept 27, Sept 30, Sept 27, Sept 30,
2009 2008 2009 2008
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US $ 1.0987 1.0426 1.1324 1.0261
Euro 1.5702 1.5625 1.5791 1.5698
Singapore $ 0.7633 0.7451 0.7776 0.7420
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Liquidity, Cash Flow and Financial Resources
At
In the second quarter of fiscal 2010, the Company's investment in non-cash working capital decreased by
Year-to-date property, plant and equipment purchases totalled The Company's subsidiary, PWF has credit facilities of (euro)42.5 million, through short and long-term debt agreements and capital lease agreements. The interest rates applicable to the credit facilities range from Euribor plus 0.5% to Euribor plus 1.9% and 4.9% per annum. Certain of the credit facilities are secured by certain assets of PWF, a commitment to restrict payments by the Company and are subject to debt leverage tests. PWF is in compliance with these covenants. The Company has an additional unsecured credit facility available of 2.0 million Swiss francs. The credit facility bears interest at up to 6.0% per annum. A portion of the available credit facility is secured by a letter of credit.
Subsequent to the end of the second quarter, the Company and its lender agreed to extend its existing primary credit facility (the "Credit Agreement") until
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 Under the Credit Agreement, the Company pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the credit facilities at rates ranging from 0.675% to .975% per annum, as determined based on certain financial ratios. The Credit Agreement is subject to a debt leverage test, a current ratio test, and a cumulative EBITDA test. Under the terms of the Credit Agreement, the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit Agreement also 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 expects that continued cash flows from operations, together with cash and short-term investments on hand and credit available under operating and long-term credit facilities, will be more than sufficient to fund its requirements for investments in working capital, capital assets and strategic investment plans including potential acquisitions.
No stock options were exercised during the first two quarters of fiscal 2010. At Contractual Obligations The minimum operating lease payments related primarily to facilities and equipment, purchase obligations and other obligations in each of the next five years are as follows:
Purchase Other
Operating Obliga- Obliga-
($ in thousands) Leases tions tions
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Less than 1 year $ 3,977 $ 107,633 $ 80
1 - 3 years 3,817 132,414 39
4 - 5 years 25 104,707 -
Thereafter - 194,075 -
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$ 7,819 $ 538,829 $ 119
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In the second quarter of fiscal 2010, the Company terminated an existing silicon supply contract with approximately 1,250 tonnes of UMG-Si remaining to be delivered. Concurrently, the Company entered into a replacement contract to purchase 180 tonnes of polysilicon through the remainder of calendar 2009 and 2010. Part of the deposit from the terminated contract was applied to the new contract with the remainder of the deposit being applied against pre-existing accounts payable.
Consolidated Quarterly Results
($ in thousands, except Q2 Q1 Q4 Q3
per share amounts) 2010 2010 2009 2009
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Revenue $ 148,169 $ 152,701 $ 201,774 $ 221,739
Earnings from operations $ 9,305 $ 502 $ 17,743 $ 18,472
Net income from continuing
operations $ 6,012 $ 325 $ 14,041 $ 15,814
Net income (loss) $ 6,012 $ 325 $ 13,506 $ 12,316
Basic earnings per share
from continuing operations $ 0.07 $ 0.00 $ 0.17 $ 0.20
Diluted earnings per share
from continuing operations $ 0.07 $ 0.00 $ 0.16 $ 0.20
Basic earnings (loss)
per share $ 0.07 $ 0.00 $ 0.16 $ 0.16
Diluted earnings (loss)
per share $ 0.07 $ 0.00 $ 0.15 $ 0.16
ASG Order Bookings $ 71,000 $ 96,000 $ 126,000 $ 157,000
ASG Order Backlog $ 197,000 $ 230,000 $ 255,000 $ 282,000
($ in thousands, except Q2 Q1 Q4 Q3
per share amounts) 2009 2009 2008 2008
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Revenue $ 219,071 $ 212,071 $ 186,474 $ 174,457
Earnings from operations $ 13,563 $ 16,278 $ 8,183 $ 24,426
Net income from continuing
operations $ 12,688 $ 14,991 $ 10,343 $ 24,365
Net income (loss) $ 9,272 $ 12,930 $ 7,939 $ (3,662)
Basic earnings per share
from continuing operations $ 0.16 $ 0.19 $ 0.13 $ 0.32
Diluted earnings per share
from continuing operations $ 0.16 $ 0.19 $ 0.13 $ 0.32
Basic earnings (loss)
per share $ 0.12 $ 0.17 $ 0.10 $ (0.05)
Diluted earnings (loss)
per share $ 0.12 $ 0.17 $ 0.10 $ (0.05)
ASG Order Bookings $ 133,000 $ 169,000 $ 137,000 $ 115,000
ASG Order Backlog $ 247,000 $ 258,000 $ 232,000 $ 211,000
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, PWF sales volumes, and the Company's earnings in any of its markets. ATS typically experiences some seasonality with its revenue and earnings due to summer plant shutdowns by its customers and summer shutdown at PWF. Accordingly, revenue during the second quarter is usually lower than in the first, third and fourth quarters. In PWF, slower sales may occur in the winter months, when the weather may impair the ability to install its products in certain geographical areas. Changes in Accounting Policies
Effective Future Accounting Changes
CICA Handbook Section 1582 "Business Combinations" which replaces Handbook Section 1581 "Business Combinations" and is converged with IFRS 3 "Business Combinations" establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed. This standard is effective for fiscal years beginning on or after
CICA Handbook Section 1601 "Consolidated Financial Statements" and Handbook Section 1602 "Non-Controlling Interests" replace Handbook Section 1600 "Consolidated Financial Statements". Handbook Section 1601 carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. Handbook Section 1602 establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. The standards are effective for fiscal years beginning on or after International Financial Reporting Standards
The CICA's Accounting Standards Board has announced that Canadian publicly-accountable enterprises will adopt International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board effective The Company commenced its IFRS conversion project in fiscal 2009. The project consists of four phases: diagnostic; design and planning; solution development; and implementation. The diagnostic phase was completed in fiscal 2009 with the assistance of external advisors. This work involved a high-level review of the major differences between current Canadian GAAP and IFRS and a preliminary assessment of the impact of those differences on the Company's accounting and financial reporting, systems and other business processes. The areas of highest potential impact include: property, plant and equipment; provisions and contingencies; and IFRS 1: first time adoption, as well as more extensive presentation and disclosure requirements under IFRS. The Company's IFRS conversion project is progressing according to plan. The Company is currently in the solution development phase, which includes detailed review of all relevant IFRS standards, selection of new accounting policies where applicable, including IFRS 1 transition date first time adoption exemptions, development of model IFRS financial statements, identification of information gaps and necessary changes in reporting, processes and systems, development of a process to prepare IFRS comparative information and further training for employees. The Company is continuing to monitor standards to be issued by the International Accounting Standards Board ("IASB"). Pending completion of some of thes projects by the IASB, and until the Company's accounting policy choices are finalized and approved, the Company will be unable to quantify the impact of IFRS on its Consolidated Financial Statements. Controls and Procedures The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting for the Company. The control framework used in the design of disclosure controls and procedures and internal control over financial reporting is the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management, including the CEO and CFO, does not expect that the Company's disclosure controls or internal controls over financial reporting will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met.
During the three months ended 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: management's expectations of continued reductions and/or delays in capital spending; management's belief that increased capital spending will lag general economic recovery; risk of customer financial difficulties, and the resulting negative impact on ASG's future profitability; sporadic nature of opportunities resulting from new approach to market; evaluation of cash and credit terms in customer proposals; ASG plans to continue consolidation and restructuring efforts and the associated timeline and expected costs; management's plan to continue to monitor market conditions and modify plans accordingly; management's expectation that strategic initiatives will have a positive impact on ASG operations and uncertainty as to what extent the improvement initiatives will offset current market conditions; management's belief that the balance sheet, approach to market and operational improvements will provide a solid foundation for improved performance when markets stabilize; expected date that Lab-Fab cell line will begin production; short, medium, and long term outlook for the solar energy industry; management's belief that PWF's average selling prices per watt may continue to be negatively impacted in fiscal 2010 by trends towards reductions in feed-in tariffs and caps; potential for sustained oversupply of solar modules in the market during fiscal 2010 and the expected negative impact on PWF; management's pursuit of downstream alternatives at PWF; management's efforts with respect to development of solar projects; management's consideration of a plan to reduce PWF cost structure and the associated cost; management's expectation of reduction in PWF's direct manufacturing cost per watt and uncertainty as to what extent planned reductions in cost per watt will offset the impact of declines in average selling prices on operating earnings; ATS' plans and activities targeted at serving the Ontario solar market; ATS's target to increase turnover of its inventory; ATS's expectations with respect to cash flows; seasonality of revenues; and the introduction, evaluation and adoption of new accounting policies and standards. The risks and uncertainties that may affect forward-looking statements include, among others: general market performance including capital market conditions and availability and cost of credit; economic market conditions; impact of factors such as health of automotive customers, financial failure and/or bankruptcy of customers, increased pricing pressure and possible margin compression; foreign currency and exchange risk; the relative strength of the Canadian dollar; performance of the market sectors that ATS serves; that one or more customers experience bankruptcy despite focus on credit terms; that consolidation and restructuring efforts take longer than expected and/or incur greater costs than expected; that strategic initiatives will not have the intended impact on ASG operations; unexpected delays in completing the Lab-Fab cell line; ability of PWF to identify downstream alternatives and lock in favourable average selling prices with its customers; success or failure of management's efforts to reduce cost per watt at PWF; ability of ATS to acquire the needed expertise and financial partners necessary to effectively develop Ontario solar projects; the financial attractiveness of, and demand for, those solar projects; ATS's ability to conclude relationships with third parties in order to implement its plans for solar projects; extent of market demand for solar products; the availability and possible reduction or elimination of government subsidies and incentives for solar products in various jurisdictions; ability to obtain necessary government certifications and approvals for solar projects in a timely fashion; political, labour or supplier disruptions in manufacturing and supply of silicon; the usefulness or value of existing silicon supplies dissipates due to market conditions or for other reasons; PWF is unable to secure further acceptable silicon feedstock at favourable prices; reversal of current silicon supply arrangements and negotiation of new supply arrangements; potential inability of PVA to achieve improvements in cell efficiency, including problems with the technology or commercialization thereof; slow-down or reversal of progress being made with the efficiency and cost per watt of solar modules either through PVA research and development efforts or PWF's independent efforts; ability to effectively implement PVA projects and ability to properly manage the PVA relationship; the development of superior or alternative technologies to those developed by ATS; the success of competitors with greater capital and resources in exploiting their technology; market risk for developing technologies; risks relating to legal proceedings to which ATS is or may becomes a party; exposure to product liability claims of Photowatt Technologies; risks associated with greater than anticipated tax liabilities or expenses; and other risks detailed from time to time in ATS's filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Balance Sheets
(in thousands of dollars - unaudited)
September March
27 31
2009 2009
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 166,322 $ 142,361
Accounts receivable 98,246 120,479
Investment tax credits 15,066 14,538
Costs and earnings in excess of billings on
contracts in progress 80,964 86,079
Inventories (note 4) 128,025 137,600
Future income taxes 9,061 3,669
Deposits, prepaid assets and other (notes 6 and 13) 22,991 26,507
-------------------------------------------------------------------------
520,675 531,233
Property, plant and equipment 192,431 201,192
Goodwill 36,849 39,990
Intangible assets 5,332 6,419
Future income taxes 972 1,283
Portfolio investments 3,319 3,245
Other assets (note 7) 42,023 51,172
-------------------------------------------------------------------------
$ 801,601 $ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 11) $ 20,660 $ 142
Accounts payable and accrued liabilities (notes
12 and 13) 129,136 172,935
Billings in excess of costs and earnings on
contracts in progress 37,787 43,600
Future income taxes 13,260 9,176
Current portion of long-term debt (note 11) 5,319 4,133
Current portion of obligations under capital
leases (note 11) 4,321 3,409
-------------------------------------------------------------------------
210,483 233,395
Long-term debt (note 11) 10,996 10,502
Long-term obligations under capital leases (note 11) 21,410 17,652
Future income taxes 1,652 4,538
Shareholders' equity
Share capital 479,537 479,537
Contributed surplus 9,903 8,722
Accumulated other comprehensive income (loss)
(note 14) (3,411) 15,494
Retained earnings 71,031 64,694
-------------------------------------------------------------------------
557,060 568,447
-------------------------------------------------------------------------
$ 801,601 $ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contingencies (note 18)
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Operations
(in thousands of dollars, except per share amounts - unaudited)
Three months ended Six months ended
-------------------------------------------------------------------------
September September September September
27 30 27 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ 148,169 $ 219,536 $ 300,870 $ 431,607
-------------------------------------------------------------------------
Operating costs and expenses
Cost of revenue 117,254 185,643 249,877 364,493
Selling, general and
administrative 20,722 19,695 39,488 41,088
Stock-based compensation
(note 8) 888 635 1,698 1,379
Gain on sale of silicon - - - (2,006)
Gain on sale of building (note 5) - - - (3,188)
-------------------------------------------------------------------------
Earnings from operations 9,305 13,563 9,807 29,841
-------------------------------------------------------------------------
Other expenses (income)
Interest on long-term debt 355 136 656 148
Other interest 197 258 436 (240)
-------------------------------------------------------------------------
552 394 1,092 (92)
-------------------------------------------------------------------------
Income from continuing
operations before income taxes 8,753 13,169 8,715 29,933
Provision for income taxes
(note 17) 2,741 481 2,378 2,254
-------------------------------------------------------------------------
Net income from continuing
operations 6,012 12,688 6,337 27,679
Loss from discontinued
operations, net of tax (note 5) - (3,416) - (5,477)
-------------------------------------------------------------------------
Net income $ 6,012 $ 9,272 $ 6,337 $ 22,202
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share
(note 9)
Basic and diluted - from
continuing operations $ 0.07 $ 0.16 $ 0.07 $ 0.36
Basic and diluted - from
discontinued operations - (0.04) - (0.07)
-------------------------------------------------------------------------
$ 0.07 $ 0.12 $ 0.07 $ 0.29
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Shareholders' Equity and
Other Comprehensive Income (Loss)
(in thousands of dollars - unaudited)
Six months ended September 27, 2009
-------------------------------------------------------------------------
Accumu-
lated
Other
Compreh-
ensive Total
Contri- Income Share-
Share buted (Loss) Retained holders'
Capital Surplus (note 14) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $ 479,537 $ 8,722 $ 15,494 $ 64,694 $ 568,447
Comprehensive
income (loss)
Net income - - - 6,337 6,337
Currency translation
adjustment - - (20,837) - (20,837)
Net unrealized gain
on available-
for-sale financial
assets (net of
income taxes
of $nil) - - 74 - 74
Net unrealized gain
on derivative
financial instruments
designated as cash
flow hedges (net of
income taxes of $221) - - 883 - 883
Gain transferred to
net income for
derivatives
designated as cash
flow hedges (net of
income taxes of $nil) - - 975 - 975
----------
Total comprehensive
loss (12,568)
Stock-based
compensation (note 8) - 1,181 - - 1,181
-------------------------------------------------------------------------
Balance, end of the
period $ 479,537 $ 9,903 $ (3,411) $ 71,031 $ 557,060
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended September 30, 2008
-------------------------------------------------------------------------
Accumu-
lated
Other
Compreh-
ensive Total
Contri- Income Share-
Share buted (Loss) Retained holders'
Capital Surplus (note 14) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of period $ 432,825 $ 6,370 $ (6,675) $ 16,670 $ 449,190
Comprehensive income
(loss)
Net income - - - 22,202 22,202
Currency
translation
adjustment - - (12,050) - (12,050)
Net unrealized
loss on available-
for-sale
financial assets
(net of income
taxes of $nil) - - (1,178) - (1,178)
Net unrealized
gain on derivative
financial
instruments
designated
as cash flow
hedges (net of
income taxes of
$nil) - - 116 - 116
Loss transferred
to net income
for derivatives
designated as
cash flow hedges
(net of income
taxes of $nil) - - (288) - (288)
----------
Total comprehensive income 8,802
Stock-based
compensation (note 8) - 1,291 - - 1,291
Costs related to
shares issued for
rights offering (69) - - - (69)
-------------------------------------------------------------------------
Balance, end of
the period $ 432,756 $ 7,661 $ (20,075) $ 38,872 $ 459,214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)
Three months ended Six months ended
-------------------------------------------------------------------------
September September September September
27 30 27 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Operating
activities:
Net income $ 6,012 $ 9,272 $ 6,337 $ 22,202
Items not involving
cash
Depreciation and
amortization 6,181 6,061 12,384 11,882
Future income taxes (3,011) (3,085) (3,883) (2,575)
Other items not involving
cash (23) 383 (12) 745
Stock-based compensation
(note 8) 888 635 1,698 1,379
Loss (gain) on disposal of
property, plant and
equipment 302 182 354 (2,972)
-------------------------------------------------------------------------
Cash flow from operations 10,349 13,448 16,878 30,661
Change in non-cash operating
working capital 9,366 13,391 (10,924) (8,531)
-------------------------------------------------------------------------
Cash flows provided by
operating activities 19,715 26,839 5,954 22,130
-------------------------------------------------------------------------
Investing activities:
Acquisition of property,
plant and equipment (3,920) (5,842) (9,943) (12,839)
Acquisition of intangible
assets (60) - (156) (500)
Investments, silicon deposits
and other (1,154) 608 (2,580) 508
Proceeds from disposal of assets 424 22 589 16,025
-------------------------------------------------------------------------
Cash flows used in investing
activities (4,710) (5,212) (12,090) 3,194
-------------------------------------------------------------------------
Financing activities:
Restricted cash (note 6) 2,160 (2,084) 4,736 (10,230)
Bank indebtedness (note 11) (2,272) 822 20,353 (18,367)
Share issue costs - - - (69)
Proceeds from long-term debt
(note 11) 2,702 - 3,837 10,787
Proceeds from sale and
leaseback of property, plant
and equipment 6,803 - 6,803 -
Repayment of long-term debt
(note 11) (1,728) (2,399) (1,859) (2,399)
Repayment of obligations under
capital leases (note 11) (796) - (1,607) -
-------------------------------------------------------------------------
Cash flows provided by (used
in) financing activities 6,869 (3,661) 32,263 (20,278)
-------------------------------------------------------------------------
Effect of foreign exchange
rate changes on cash
and short-term investments (644) (1,002) (2,166) (1,222)
-------------------------------------------------------------------------
Net increase in cash and
short-term investments 21,230 16,964 23,961 3,824
Cash and short-term
investments, beginning of
period 145,092 42,676 142,361 55,816
-------------------------------------------------------------------------
Cash and short-term
investments, end of period $ 166,322 $ 59,640 $ 166,322 59,640
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental information
Cash income taxes paid $ 1 $ 163 $ 384 $ 175
Cash interest paid $ 539 $ 213 $ 624 $ 419
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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:
(i) The accompanying interim consolidated financial statements of ATS
Automation Tooling Systems Inc. and its subsidiaries (collectively "ATS"
or the "Company") have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") and the accounting
policies and method of their application are consistent with those
described in the annual consolidated financial statements for the year
ended March 31, 2009 except for the adoption of the new accounting
standards described in note 2 herein. These interim consolidated
financial statements do not include all disclosures required by GAAP for
annual financial statements and should be read in conjunction with the
Company's annual consolidated financial statements for the year ended
March 31, 2009. Certain figures for the previous year have been
reclassified to conform with the current year's interim consolidated
financial statement presentation.
(ii) The preparation of these interim consolidated financial statements
in conformity with GAAP requires management to make estimates and
assumptions that may affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
interim consolidated financial statements and the reported amount of
revenue and expenses during the reporting period. Actual results could
differ from these estimates. Significant estimates and assumptions are
used when accounting for items such as impairment of long-lived assets,
recoverability of deferred development costs, fair value of reporting
units and goodwill, warranties, income taxes, future income tax assets,
determination of estimated useful lives of intangible assets and
property, plant and equipment, impairment of portfolio investments,
contracts in progress, inventory provisions, revenue recognition,
contingent liabilities, and allowances for uncollectible accounts
receivable.
(iii) Interim financial results are not necessarily indicative of annual
or longer-term results because many of the individual markets served by
the Company tend to be cyclical in nature. General economic trends,
product life cycles and product changes may impact Automation Systems
order bookings, Photowatt Technologies volumes, and the Company's
earnings in any of its markets. ATS typically experiences some
seasonality with its revenue and earnings due to summer plant shutdowns
by its customers and summer shutdown at Photowatt International S.A.S.
Accordingly, revenue during the second quarter is usually lower than in
the first, third and fourth quarters. In Photowatt Technologies, slower
sales may occur in the winter months, when the weather may impair the
ability to install its products in certain geographical areas.
2. Changes in accounting policies:
Effective April 1, 2009, the Company retroactively adopted the Canadian
Institute of Chartered Accountants ("CICA") Handbook Section 3064
"Goodwill and Intangible Assets" which replaced CICA Handbook Section
3062 "Goodwill and Other Intangible Assets" and CICA Handbook Section
3450 "Research and Development Costs". The adopted standard establishes
guidance for the recognition, measurement, presentation and disclosure of
goodwill and intangible assets including internally generated intangible
assets.
As required by the standard, the Company has retroactively reclassified
computer software assets on the interim consolidated balance sheets from
property, plant and equipment to intangible assets. The net book value of
computer software reclassified as of March 31, 2009 was $2,968. As of
September 27, 2009 computer software of $2,475 is included within
intangible assets. There is no impact on previously reported net income
or loss.
3. Future accounting changes:
The CICA's Accounting Standards Board has announced that Canadian
publicly accountable enterprises will adopt International Financial
Reporting Standards ("IFRS") as issued by the International Accounting
Standards Board effective January 1, 2011. Although IFRS uses a
conceptual framework similar to GAAP, differences in accounting policies
and additional required disclosures will need to be addressed. The
Company is currently assessing the impact of this announcement on its
consolidated financial statements.
CICA Handbook Section 1582 "Business Combinations" which replaces
Handbook Section 1581 "Business Combinations" and is converged with IFRS
3 "Business Combinations" establishes standards for the measurement of a
business combination and the recognition and measurement of assets
acquired and liabilities assumed. This standard is effective for fiscal
years beginning on or after January 1, 2011. The Company may elect to
early adopt this standard and if so, will be required to early adopt
Section 1601 "Consolidated Financial Statements" and Section 1602 "Non-
Controlling Interests". The Company is evaluating the impact of adoption
of this new section in connection with its conversion to IFRS.
CICA Handbook Section 1601 "Consolidated Financial Statements" and
Handbook Section 1602 "Non-Controlling Interests" replace Handbook
Section 1600 "Consolidated Financial Statements". Handbook Section 1601
carries forward the existing Canadian guidance on aspects of the
preparation of consolidated financial statements subsequent to a business
combination. Handbook Section 1602 establishes standards for the
accounting of non-controlling interests of a subsidiary in the
preparation of consolidated financial statements subsequent to a business
combination. The standards are effective for fiscal years beginning on or
after January 1, 2011. The Company may elect to early adopt the standards
and if so, will be required to early adopt Handbook Section 1582
"Business Combinations". The Company is evaluating the impact of adoption
of this new section in connection with its conversion to IFRS.
4. Inventories:
September 27 March 31
2009 2009
-------------------------------------------------------------------------
Inventories are summarized
as follows:
Raw materials $ 87,485 $ 84,678
Work in process 12,227 11,711
Finished goods 28,313 41,211
-------------------------------------------------------------------------
$ 128,025 $ 137,600
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The amount of inventory recognized as an expense and included in cost of
revenue accounted for other than by the percentage-of-completion method
during the three and six months ended September 27, 2009 was $48,191 and
$96,221 respectively (three and six months ended September 30, 2008:
$72,594 and $128,705 respectively). The amount charged to net income and
included in cost of revenue for the write-down of inventory for valuation
issues during both the three and six months ended September 27, 2009 was
$2,026 and $3,017 respectively (three and six months ended September 30,
2008: $1,792 and $3,677 respectively).
5. Discontinued operations:
(i) During the year ended March 31, 2009, the Company sold the key
operating assets and liabilities, including equipment, current assets,
trade accounts payable and certain other assets and liabilities of its
Precision Components Group ("PCG") for cash proceeds of $4,250 and
promissory notes with a face value of $2,750. Accordingly, the results of
operations and financial position of PCG have been segregated and
presented separately as discontinued operations in the interim
consolidated financial statements. The results of the discontinued
operations are as follows:
Three months ended Six months ended
-------------------------------------------------------------------------
September 27 September 30 September 27 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ - $ 7,366 $ - $ 19,549
Loss from
discontinued
operations,
net of tax $ - $ (3,416) $ - $ (5,477)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(ii) During the year ended March 31, 2009, the Company sold the land and
building related to its Spheral Solar development project which was
halted in early fiscal 2008. The land and building were sold for net
proceeds of $16,000 and a gain of $3,188 before and after tax.
6. Deposits, prepaid assets and other:
September 27 March 31
2009 2009
-------------------------------------------------------------------------
Prepaid assets $ 3,607 $ 2,755
Restricted cash(i) 6,799 11,892
Silicon and other deposits 10,892 8,731
Forward contracts and other 1,693 3,129
-------------------------------------------------------------------------
$ 22,991 $ 26,507
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Restricted cash consists of cash collateralized to secure letters of
credit.
7. Other assets:
September 27 March 31
2009 2009
-------------------------------------------------------------------------
Silicon deposits $ 40,869 $ 51,021
Other 1,154 151
-------------------------------------------------------------------------
$ 42,023 $ 51,172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. Stock-based compensation:
In the calculation of the stock-based compensation expense in the interim
consolidated statements of operations, the fair values of the Company's
stock option grants were estimated using the Black-Scholes option pricing
model for time vesting stock options and binomial option pricing models
for performance based stock options.
During the six months ended September 27, 2009 the Company granted
350,000 time vesting options (375,000 in the six months ended September
30, 2008). The options granted vest over 4 years from the date of issue.
During the six month periods ended September 27, 2009 and September 30,
2008, no performance based options were granted. Performance based stock
options vest based on the Company's stock trading at or above certain
thresholds for a specified number of minimum trading days. These
performance options expire on the seventh anniversary after the date that
the options vest. During the six month period ended September 27, 2009
certain performance options vested in the normal course of business.
During the six months ended September 30, 2008, no performance based
options vested.
The fair value of time vesting options issued during the period were
estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
Six months ended
-------------------------------------------------------------------------
September 27 September 30
2009 2008
-------------------------------------------------------------------------
Weighted average risk-free interest rate 2.11% 3.24%
Dividend yield 0% 0%
Weighted average expected life 4.55 years 4.0 years
Expected volatility 60% 45%
Number of stock options granted:
Time vested 350,000 375,000
Weighted average exercise price per option $ 5.10 $ 7.80
Weighted average value per option:
Time vested $ 2.56 $ 3.03
-------------------------------------------------------------------------
9. Earnings (loss) per share:
Weighted average number of shares used in the computation of earnings
(loss) per share is as follows:
Three months ended Six months ended
-------------------------------------------------------------------------
September 27 September 30 September 27 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Basic 87,277,155 77,277,155 87,277,155 77,277,155
Diluted 87,312,412 77,875,870 87,294,784 77,861,872
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and six months ended September 27, 2009, stock options to
purchase 5,838,336 and 6,144,941 common shares respectively are excluded
from the weighted average common shares in the calculation of diluted
earnings per share as they are anti-dilutive (4,090,458 and 3,905,786
common shares respectively were excluded in the three and six months
ended September 30, 2008).
10. Segmented disclosure:
The Company evaluates performance based on two reportable segments:
Automation Systems and Photowatt Technologies. The Automation Systems
segment produces custom-engineered turn-key automated manufacturing
systems and test systems. The Photowatt Technologies segment is a high
volume manufacturer of photovoltaic products.
The Company accounts for inter-segment revenue at current market rates,
negotiated between the segments.
Three months ended Six months ended
-------------------------------------------------------------------------
September 27 September 30 September 27 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue
Automation
Systems $ 96,966 $ 147,418 $ 212,167 290,153
Photowatt
Technologies 51,501 72,532 91,583 141,869
Inter-segment
revenue (298) (414) (2,880) (415)
-------------------------------------------------------------------------
Consolidated $ 148,169 $ 219,536 $ 300,870 $ 431,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss)
from operations
Automation
Systems $ 13,605 $ 13,940 $ 28,357 $ 24,242
Photowatt
Technologies 629 5,582 (6,904) 16,095
Inter-segment
operating
earnings (loss) 3 (98) (672) 195
Stock-based
compensation (888) (635) (1,698) (1,379)
Other expenses (4,044) (5,226) (9,276) (9,312)
-------------------------------------------------------------------------
Consolidated $ 9,305 $ 13,563 $ 9,807 $ 29,841
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Bank indebtedness and long-term debt:
Subsequent to the end of the second quarter, the Company and its lender
agreed to extend its existing primary credit facility (the "Credit
Agreement") until April 30, 2011. The Credit Agreement provides total
credit facilities of up to $85,000, comprised of an operating credit
facility of $65,000 and a letter of credit facility of up to $20,000 for
certain purposes. The operating credit facility is subject to
restrictions regarding the extent to which the outstanding funds advanced
under the facility can be used to fund certain subsidiaries of the
Company. The Credit Agreement, which is secured by the assets, including
real estate, of the Company's North American legal entities and a pledge
of shares and guarantees from certain of the Company's legal entities, is
repayable in full on April 30, 2011.
The operating credit facility is available in Canadian dollars by way of
prime rate advances, letter of credit for certain purposes and/or
bankers' acceptances and in U.S. dollars by way of base rate advances
and/or LIBOR advances. The interest rates applicable to the operating
credit facility are determined based on certain financial ratios. For
prime rate advances and base rate advances, the interest rate is equal to
the bank's prime rate or the bank's U.S. dollar base rate in Canada,
respectively, plus 1.25% to 2.25%. For bankers' acceptances and LIBOR
advances, the interest rate is equal to the bankers' acceptance fee or
the LIBOR, respectively, plus 2.25% to 3.25%.
Under the Credit Agreement, the Company pays a standby fee on the
unadvanced portions of the amounts available for advance or draw-down
under the credit facilities at rates ranging from 0.675% to 0.975% per
annum, as determined based on certain financial ratios.
The Credit Agreement is subject to a debt leverage test, a current ratio
test, and a cumulative EBITDA test. Under the terms of the Credit
Agreement, the Company is restricted from encumbering any assets with
certain permitted exceptions. The Credit Agreement also partially
restricts the Company from repurchasing its common shares, paying
dividends and from acquiring and disposing certain assets. The Company is
in compliance with these covenants and restrictions.
The Company's subsidiary, Photowatt International S.A.S. has credit
facilities including capital lease obligations of 42,478 Euro. The
interest rates applicable to the credit facilities range from Euribor
plus 0.5% to Euribor plus 1.9% and 4.9% per annum. Certain of the credit
facilities are secured by certain assets of Photowatt International
S.A.S. and a commitment to restrict payments to the Company and are
subject to debt leverage tests. The Company is in compliance with these
covenants.
The Company has an additional unsecured credit facility available of
2,000 Swiss francs. The credit facility bears interest at up to 6.0% per
annum. A portion of the available credit facility is secured by a letter
of credit.
The following amounts were outstanding:
September 27 March 31
2009 2009
-------------------------------------------------------------------------
Bank indebtedness:
Primary credit
facility $ 1,428 $ -
Other facilities 19,232 142
-------------------------------------------------------------------------
$ 20,660 $ 142
-------------------------------------------------------------------------
Long-term debt:
Primary credit facility $ - $ -
Other facilities 16,315 14,635
-------------------------------------------------------------------------
$ 16,315 $ 14,635
Less: current portion 5,319 4,133
-------------------------------------------------------------------------
$ 10,996 $ 10,502
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Obligations under capital lease:
Future minimum lease payments $ 31,478 $ 23,802
Less: amount representing interest
(at rates ranging from 3% to 5%) 5,747 2,741
-------------------------------------------------------------------------
$ 25,731 $ 21,061
Less: current portion 4,321 3,409
-------------------------------------------------------------------------
$ 21,410 $ 17,652
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. Restructuring:
During the year ended March 31, 2008, the Company commenced a
restructuring program to improve operating performance. The restructuring
program included workforce reductions, and the closure of
underperforming, non-strategic divisions during fiscal 2008 and fiscal
2009. In the three and six months ended September 30, 2008, severance and
restructuring expenses associated with this restructuring program were
$119 and $279 respectively.
In fiscal 2010, the Company accelerated and expanded its previous
restructuring program. In the three and six months ended September 27,
2009, severance and restructuring expenses associated with the closure of
two divisions and other workforce reductions were $1,627 and $3,926
respectively, primarily in the Automation Systems group.
The following is a summary of the changes in the provision for
restructuring costs:
Three months ended Six months ended
-------------------------------------------------------------------------
September 27 September 30 September 27 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Balance, beginning
of period $ 3,837 $ 8,232 $ 4,535 $ 12,585
Severance and
restructuring
expense 1,627 119 3,926 279
Cash payments (1,667) (2,186) (4,631) (6,662)
Foreign exchange (42) (63) (75) (100)
-------------------------------------------------------------------------
Balance, end
of period $ 3,755 $ 6,102 $ 3,755 $ 6,102
-------------------------------------------------------------------------
-------------------------------------------------------------------------
13. Financial instruments:
Derivative financial instruments
The Company uses forward foreign exchange contracts to manage foreign
currency exposure. Forward foreign exchange contracts that are not
designated in hedging relationships and are classified as held-for-
trading. The changes in fair value are recognized in selling, general and
administrative expenses in the interim consolidated statements of
operations. During the three and six months ended September 27, 2009, the
fair value of derivative financial assets classified as held-for-trading
and included in deposits and prepaid assets decreased by $369 and $601
respectively (increased by $649 and $771 respectively during the three
and six months ended September 30, 2008) and the fair value of derivative
financial liabilities classified as held-for-trading and included in
accounts payable and accrued liabilities decreased by $738 and increased
by $653 during the three and six months ended September 27, 2009
(decreased by $722 and $830 respectively during the three and six months
ended September 30, 2008).
Cash flow hedges
During the three and six months ended September 27, 2009, an unrealized
loss of $21 and $nil respectively was recognized in selling, general and
administrative expense for the ineffective portion of cash flow hedges
(unrealized gain of $78 and $101 during the three and six months ended
September 30, 2008). After-tax unrealized gains of $502 included in
accumulated other comprehensive income at September 27, 2009 are expected
to be reclassified to earnings over the next 12 months when the revenue
is recorded (unrealized losses of $268 at September 30, 2008).
14. Accumulated other comprehensive income (loss):
The components of accumulated other comprehensive income (loss) are as
follows:
September 27 March 31
2009 2009
-------------------------------------------------------------------------
Accumulated currency translation adjustment $ (2,639) $ 18,198
Accumulated unrealized loss on
available-for-sale financial assets (1,274) (1,348)
Accumulated unrealized net gain (loss) on
derivative financial instruments designated
as cash flow hedges(i) 502 (1,356)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ (3,411) $ 15,494
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) The accumulated unrealized net gain (loss) on derivative financial
instruments designated as cash flow hedges is net of future income
taxes of $221 at September 27, 2009 and $nil at March 31, 2009.
15. Investment in Joint Venture:
During the year ended March 31, 2008, Photowatt International S.A.S., EDF
ENR Reparties and CEA Valorisation entered into an agreement to establish
the PV Alliance, a joint venture. The joint venture became effective in
October 2007 with contributions of cash by the venturers.
This is a jointly-controlled enterprise and accordingly, the Company
proportionately consolidates its 40% share of assets, liabilities,
revenues and expenses in the interim consolidated financial statements.
The following is a summary of the Company's proportionate share of the
joint venture:
September 27 March 31
2009 2009
-------------------------------------------------------------------------
Balance Sheet
Current assets $ 3,268 $ 2,482
Property, plant and equipment 3,180 53
Intangible assets 1,500 1,816
Current liabilities (4,405) (3,230)
Long-term debt (3,918) (1,296)
-------------------------------------------------------------------------
Net assets $ (375) $ (175)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Six months ended
-------------------------------------------------------------------------
September 27 September 30 September 27 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Statement of Operations
Net income (loss) $ 47 $ (224) $ (98) $ (375)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the year ended March 31, 2009, the PV Alliance established loans
with a shareholder proportionately worth 2,628 Euro, to be received in
instalments by PV Alliance. During the six months ended September 27,
2009, the PV Alliance received additional loans from a shareholder
proportionately worth 1,172 Euro. The loans are repayable over five
years, guaranteed by the signing of a Pledge Agreement, and bear interest
at the maximum fiscally deductible rate.
An operating lease was established during the year ended March 31, 2009
for a portion of the Photowatt International S.A.S. building used by PV
Alliance and will result in annual lease payments proportionately worth
83 Euro. The contract with the lessee expires in 2018 with an option to
terminate the lease in 2016. The lease contains an option to extend the
lease for an additional nine years.
During the three and six months ended September 27, 2009, the PV Alliance
recorded government assistance of 192 Euro and 384 Euro respectively in
operating earnings.
16. Commitments:
The minimum operating lease payments related primarily to facilities and
equipment, purchase obligations and other obligations in each of the next
five years are as follows:
Operating Purchase Other
Leases Obligations Obligations
-------------------------------------------------------------------------
Less than 1 year $ 3,977 $ 107,633 $ 80
1 - 3 years 3,817 132,414 39
4 - 5 years 25 104,707 -
Thereafter - 194,075 -
-------------------------------------------------------------------------
$ 7,819 $ 538,829 $ 119
-------------------------------------------------------------------------
In the three and six months ended September 27, 2009, the Company
terminated an existing silicon supply contract with approximately 1,250
tonnes of UMG-Si remaining to be delivered. Concurrently, the Company
entered into a replacement contract to purchase 180 tonnes of polysilicon
through the remainder of calendar 2009 and 2010. Part of the deposit from
the terminated contract was applied to the new contract with the
remainder of the deposit being applied against pre-existing accounts
payable.
In accordance with industry practice, the Company is liable to the
customer for obligations relating to contract completion and timely
delivery. In the normal conduct of its operations, the Company may
provide bank guarantees as security for advances received from customers
pending delivery and contract performance. At September 27, 2009, the
total value of outstanding bank guarantees to customers available under
bank guarantee facilities was approximately $22,095 (March 31, 2009 -
$24,361).
17. Income taxes:
In the three and six month periods ended September 27, 2009, the
Company's effective income tax rate increased to 31% and 27% respectively
from 4% and 7% in the same periods a year ago due to the utilization of
certain investment tax credits which resulted in a non-cash tax
provision. In previous periods, the Company utilized unrecognized non-
capital losses which reduced the effective income tax rate.
18. Contingencies:
In the normal course of operations, the Company is party to a number of
lawsuits, claims and contingencies. Accruals are made in instances where
it is probable that liabilities have been incurred and where such
liabilities can be reasonably estimated. Although it is possible that
liabilities may be incurred in instances for which no accruals have been
made, the Company does not believe that the ultimate outcome of these
matters will have a material impact on its consolidated financial
position.
%SEDAR: 00002017E For further information: Maria Perrella, Chief Financial Officer, Carl Galloway, Vice-President and Treasurer, (519) 653-6500
|
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