ATS reports third quarter fiscal 2014 results

CAMBRIDGE, ON, Feb. 5, 2014 /CNW/ - ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported financial results for the three and nine months ended December 29, 2013.

Third Quarter Summary

  • The Company completed its acquisition of IWK Verpackungstechnik GmbH and OYSTAR IWK USA, Inc. (collectively "IWK") on September 30, 2013 (the first day of the Company's fiscal third quarter);
  • Revenues from continuing operations were $178.0 million, 23% higher than in the corresponding period a year ago. Excluding IWK revenues of $29.7 million, fiscal 2014 revenues from continuing operations were $148.3 million, a 3% increase over the corresponding period a year ago;
  • EBITDA was $22.6 million (13% EBITDA margin) compared to $16.6 million (12% EBITDA margin) in the third quarter of fiscal 2013. Higher EBITDA in fiscal 2014 primarily reflected increased revenues, improved operating margins and the addition of IWK;
  • Earnings from continuing operations were $16.7 million (9% operating margin), compared to $13.6 million (9% operating margin) in the third quarter of fiscal 2013;
  • Order Bookings were $237 million, a 37% increase over the corresponding period a year ago. Excluding IWK Order Bookings of $48 million, Order Bookings were $189 million, compared to $173 million in the third quarter a year ago and $110 million in the second quarter of fiscal 2014;
  • Period end Order Backlog was a record $467 million, up 20% from $388 million in the third quarter a year ago and up 32% from $355 million in the second quarter of fiscal 2014. Higher Order Backlog primarily reflected the addition of $40 million of Order Backlog from IWK and higher Order Bookings in the energy, life sciences and consumer products & electronics markets; and
  • The Company's balance sheet and financial capacity to support growth remained strong, with cash net of debt in continuing operations of $39.7 million at December 29, 2013, unutilized credit facilities of $166.8 million and $8.0 million of credit available under letter of credit facilities.

Financial Results

In millions of Canadian dollars,
except per share data
  3 months
ended
December 29,
2013
  3 months
ended
December 30,
2012
  9 months
ended
December 29,
2013
  9 months
ended
December 30,
2012
Revenues Continuing
Operations
$ 178.0 $ 144.2 $ 482.6 $ 437.9
Discontinued
Operations
$ __ $ 0.9 $ 1.1 $ 2.1
Earnings from Operations Continuing
Operations
$ 16.7 $ 13.6 $ 43.8 $ 42.6
EBITDA1 Continuing
Operations
$ 22.6 $ 16.6 $ 55.9 $ 51.5
Net income (loss) Continuing
Operations
$ 18.8 $ 10.7 $ 37.7 $ 32.2
Discontinued
Operations
$ (0.3) $ (21.7) $ 13.2 $ (25.4)
Earnings (loss) per share From continuing
operations (basic)
$ 0.21 $ 0.12 $ 0.43 $ 0.37
From discontinued
operations (basic)
$ (0.00) $ (0.24) $ 0.15 $ (0.29)
From continuing
operations (diluted)
$ 0.21 $ 0.12 $ 0.42 $ 0.37
From discontinued
operations (diluted)
$ (0.00) $ (0.24) $ 0.15 $ (0.29)

1Non-IFRS measure

"Our third quarter performance reflected our strong operating foundation and the addition of IWK," said Anthony Caputo, Chief Executive Officer. "We had strong Order Bookings and ended the quarter with record Order Backlog. Strategically, we have made progress with the acquisition of IWK and remain focused on continuing to grow our business, both organically and through acquisition."

Third Quarter Summary Continuing Operations
Third quarter revenues of $178.0 million were 23% higher than a year ago. By industrial market, revenues from consumer products & electronics increased 227%, primarily on revenues from IWK and higher revenues earned in the consumer products market. Revenues generated in the energy market increased 43% compared to a year ago, primarily on higher Order Backlog entering the third quarter due largely to increased activity in the nuclear energy market. Revenues generated in the life sciences market increased 37% compared to a year ago, primarily on revenues from IWK. Transportation revenues decreased 18% compared to a year ago primarily due to lower Order Backlog in the third quarter compared to a year ago.

Earnings from operations were $16.7 million (9% operating margin) compared to $13.6 million (9% operating margin) in the third quarter of fiscal 2013. Higher earnings from operations primarily reflected higher revenues, better program execution, improvements in the cost structure of the Company's base business, and the inclusion of IWK, partially offset by higher stock-based compensation costs and increased depreciation and amortization expenses compared to a year ago. Depreciation and amortization expense was $5.9 million, compared to $3.0 million a year ago, primarily due to a $2.4 million increase in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third quarter of fiscal 2014.

EBITDA was $22.6 million (13% EBITDA margin) compared to $16.6 million (12% EBITDA margin) in the third quarter of fiscal 2013. Higher EBITDA in fiscal 2014 primarily reflected increased revenues, improved operating margins and the addition of IWK. Excluding restructuring and transaction costs, IWK realized an EBITDA margin of 15%.

ASG Order Bookings
Third quarter fiscal 2014 Order Bookings were $237 million, a 37% increase from the third quarter of fiscal 2013, which primarily reflected $48 million of Order Bookings generated by IWK in the third fiscal quarter of 2014.  Excluding the impact of IWK, Order Bookings were $189 million, a 9% increase over the corresponding period a year ago.  The increase in Order Bookings primarily reflected growth in energy, life sciences and consumer products & electronics markets.

Business Acquisition - IWK
On September 30, 2013, the Company completed its acquisition of IWK.  IWK is a leader in technology driven high performance tube filling and cartoning machinery for the pharmaceutical and personal care industries.  The acquisition of IWK aligns with ATS's strategy of scaling its leading position in the global automation market and enhancing growth opportunities, particularly in strategic customer segments and with technology leadership.  IWK brought new relationships with key pharmaceutical and personal care customers and added core capability in primary packaging (tube fillers) and secondary packaging (cartoners), which management expects can be leveraged into other markets ATS currently serves.  IWK also allows ATS to consider future acquisition possibilities that would be a strategic fit with IWK and provide the Company with deep capabilities across several core elements of the customer value chain.

The Company has started to integrate IWK into ATS where it will serve as the filling centre of excellence (primary and secondary packaging) for the Company.  IWK brings a strong and experienced management team that will continue to drive the business.

Cash consideration paid for IWK in the third fiscal quarter was $137.4 million (99.0 million Euro), which is net of $9.9 million of cash acquired.  In addition, the Company incurred $3.0 million of transaction costs related to the acquisition.  The cash consideration of the purchase price, along with transaction costs, were primarily funded with existing cash on hand and proceeds from long-term debt of $40.0 million.  This acquisition has been accounted for as a business combination with the Company as the acquirer of IWK.  The purchase method of accounting has been used and the earnings of IWK are consolidated beginning from the acquisition date, September 30, 2013. For the third quarter, IWK generated revenues of $29.7 million, net income of $0.9 million, and was accretive to earnings per share. For additional information on the acquisition of IWK, refer to note 4 of the interim consolidated financial statements.

Third Quarter Summary of Discontinued Operations: Solar
During the first quarter of fiscal 2014, Solar manufacturing assets were sold and the business wound up. Ontario Solar recorded a loss of $0.3 million in the third quarter of fiscal 2014. The third quarter loss a year ago was $21.7 million.

OSPV has signed a definitive agreement for the sale of its other three ground-mount solar projects.  This transaction is subject to a number of approvals and conditions, including the purchaser securing financing for the projects. Subsequent to the end of the third quarter of fiscal 2014, the projects received notice to proceed approval from the Ontario Power Authority. The Company expects the sale transaction to close in fiscal 2014.  OSPV will retain 25% ownership of the projects until the projects reach commercial operation, which is expected to occur in calendar 2014.  Net proceeds to ATS are expected to be approximately $14 million, and are expected to be paid based on the projects achieving certain development milestones.

Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern on Wednesday, February 5 and can be accessed live at www.atsautomation.com or on the phone by dialing 416 644 3416 five minutes prior. A replay of the conference will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight February 12, 2014) by dialing 416-640-1917 and entering passcode 4665702 followed by the number sign.

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 consumer products & electronics, energy, life sciences and transportation. It also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. Through its Ontario solar business, ATS participates in the solar energy industry. ATS employs approximately 2,500 people at 23 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
For the Quarter Ended December 29, 2013

This Management's Discussion and Analysis ("MD&A") for the three and nine months ended December 29, 2013 (third quarter of fiscal 2014) is as of February 4, 2014 and provides information on the operating activities, performance and financial position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be read in conjunction with the unaudited interim consolidated financial statements of the Company for the third quarter of fiscal 2014 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars.  The Company assumes that the reader of the MD&A has access to, and has read the audited consolidated financial statements prepared in accordance with IFRS and MD&A of the Company for the year ended March 31, 2013 (fiscal 2013) and, accordingly, the purpose of this document is to provide a third quarter update to the information contained in the fiscal 2013 MD&A.  Additional information is contained in the Company's filings with Canadian securities regulators, including its Annual Information Form, found on SEDAR at www.sedar.com and on the Company's website at www.atsautomation.com.

Notice to Reader: Non-IFRS Measures and Additional IFRS Measures
Throughout this document management uses certain non-IFRS measures to evaluate the performance of the Company. These terms do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies.  The terms "operating margin," "EBITDA," "EBITDA margin," "Order Bookings" and "Order Backlog" do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies. In addition, management uses "earnings from operations" which is an additional IFRS measure to evaluate the performance of the Company. Earnings from operations is presented on the company's consolidated statements of income as net income from continuing operations excluding income tax expense and net finance costs. Operating margin is an expression of the Company's earnings from operations as a percentage of revenues. EBITDA is defined as earnings from operations excluding depreciation and amortization (which includes amortization of intangible assets).  EBITDA margin is an expression of the Company's EBITDA as a percentage of revenues. Order Bookings represent new orders for the supply of automation systems, services and products that management believes are firm.  Order Backlog is the estimated unearned portion of revenues on customer contracts that are in process and have not been completed at the specified date.  Earnings from operations and EBITDA are used by the Company to evaluate the performance of its operations. Management believes that earnings from operations is an important indicator in measuring the performance of the Company's operations on a pre-tax basis and without consideration as to how the Company finances its operations. Management believes that EBITDA is an important indicator of the Company's ability to generate operating cash flows to fund continued investment in its operations. Order Bookings provides an indication of the Company's ability to secure new orders for work during a specified period, while Order Backlog provides a measure of the value of Order Bookings that have not been completed at a specified point in time.  Both Order Bookings and Order Backlog are indicators of future revenues the Company expects to generate based on contracts that management believes to be firm. Management believes that ATS shareholders and potential investors in ATS use these IFRS measures and non-IFRS financial measures in making investment decisions and measuring operational results. A reconciliation of earnings from operations and EBITDA to net income from continuing operations for the three and nine month periods ending December 29, 2013 and December 30, 2012 is contained in this MD&A (see "Reconciliation of EBITDA to IFRS Measures").  EBITDA should not be construed as a substitute for net income determined in accordance with IFRS. A reconciliation of Order Bookings and Order Backlog to total Company revenues for the three and nine month periods ending December 29, 2013 and December 30, 2012 is contained in the MD&A (see "Order Backlog Continuity").

COMPANY PROFILE
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 life sciences, transportation, energy, consumer products and electronics. ATS also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. ATS employs approximately 2,500 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's Solar segment is classified as discontinued operations.

Value Creation Strategy
To drive value creation, the Company implemented a three-phase strategic plan: (1) fix the business (improve the existing operations, gain operating control of the business and earn credibility); (2) separate the businesses (create a standalone Automation business, monetize non-core assets and strengthen the balance sheet); and (3) grow (both organically and through acquisition).  The Company has made significant progress in each phase of its Value Creation Strategy, including the separation of solar assets (see "Discontinued Operations: Solar" and "Solar Separation and Outlook").

Accordingly, in June 2012, the ATS Board of Directors approved the next phase of the Company's strategy: Grow, Expand and Scale.  The strategy is designed to leverage the strong foundation of ATS's core automation business, continue the growth and development of ATS and create value for all stakeholders.

Grow
To further the Company's organic growth, ATS will continue to target providing comprehensive, value-based programs and enterprise solutions for customers built on differentiating technological solutions, value of customer outcomes achieved and global capability.

Expand
The Company seeks to expand its offering of products and services to the market.  The Company intends to build on its automation systems business to offer: engineering, including design, modelling and simulation, and program management; products, including contract manufacturing, automation and other manufacturing products; and services, including pre automation, post automation, training, life cycle material management, and other services.  Although engineering, products and services are part of ATS's portfolio today, the Company has significant room to grow these offerings in the future.

Scale
The Company is also committed to growth through acquisition and has the organizational structure, the business processes and the experience to successfully integrate acquired companies.  Acquisition opportunities are targeted and evaluated on their ability to bring ATS market or technology leadership, scale and/or an opportunity brought on by a weak economic environment.  For each of ATS's markets, the Company has analyzed the capability value chain and made a grow, team or acquire decision.  Financially, targets are reviewed on a number of criteria including their potential to add accretive earnings to current operations.

Business Acquisition - IWK
On September 30, 2013, the Company completed its acquisition of IWK Verpackungstechnik GmbH and OYSTAR IWK USA, Inc. (collectively "IWK").  IWK is a leader in technology driven high performance tube filling and cartoning machinery for the pharmaceutical and personal care industries.  The acquisition of IWK aligns with ATS's strategy of scaling its leading position in the global automation market and enhancing growth opportunities, particularly in strategic customer segments and with technology leadership.  IWK brought new relationships with key pharmaceutical and personal care customers and added core capability in primary packaging (tube fillers) and secondary packaging (cartoners), which management expects can be leveraged into other markets ATS currently serves.  IWK also allows ATS to consider future acquisition possibilities that would be a strategic fit with IWK and provide the Company with deep capabilities across several core elements of the customer value chain.

In calendar 2012, IWK had revenues of approximately 82 million Euro and EBITDA of approximately 11 million Euro.  Sales to customers in the pharmaceutical and personal care sectors evenly accounted for over 90% of IWK worldwide revenues.  New equipment systems and standard automation each accounted for approximately 30% of total revenues, and services accounted for the remaining 40% of total revenues.  European and North American markets each represented approximately a third of IWK revenues, Asia 25%, and the balance was earned primarily in South America.

The Company has started to integrate IWK into ATS where it will serve as the filling centre of excellence (primary and secondary packaging) for the Company.  IWK brings a strong and experienced management team that will continue to drive the business.

Cash consideration paid for IWK in the third fiscal quarter was $137.4 million (99.0 million Euro), which is net of $9.9 million of cash acquired.  In addition, the Company incurred $3.0 million of transaction costs related to the acquisition.  The cash consideration of the purchase price, along with transaction costs, were primarily funded with existing cash on hand and proceeds from long-term debt of $40.0 million.  This acquisition has been accounted for as a business combination with the Company as the acquirer of IWK.  The purchase method of accounting has been used and the earnings of IWK are consolidated beginning from the acquisition date, September 30, 2013.  For additional information on the acquisition of IWK, refer to note 4 of the interim consolidated financial statements.

OVERVIEW - OPERATING RESULTS FROM CONTINUING OPERATIONS
Results from continuing operations comprise the results of ATS's continuing operations and corporate costs not directly attributable to Solar.  The results of the Solar segment are reported in discontinued operations.

Consolidated Revenues from Continuing Operations
(In millions of dollars)

    Three Months
Ended
  Three Months
Ended
  Nine Months
Ended
  Nine Months
Ended
    December 29,
2013
  December 30,
2012
  December 29,
2013
  December 30,
2012
Revenues by industrial market                
   Consumer products & electronics $            34.7 $          10.6 $            56.7 $           43.2
   Energy   11.9   8.3   30.6   27.5
   Life sciences   71.1   52.0   207.5   162.7
   Transportation   60.3   73.3   187.8   204.5
Total revenues from continuing
operations
$          178.0 $         144.2 $          482.6 $         437.9
                   

Third Quarter
Fiscal 2014 third quarter revenues were 23% higher than in the corresponding period a year ago which primarily reflected $29.7 million of revenues earned by IWK. Excluding IWK, fiscal 2014 revenues were $148.3 million, a 3% increase over the corresponding period a year ago.

By industrial market, fiscal third quarter revenues from consumer products & electronics increased by 227%, primarily on revenues from IWK and higher revenues earned in the consumer products market. Revenues generated in the energy market increased by 43% compared to the corresponding period a year ago, primarily on higher Order Backlog entering the third quarter due largely to increased activity in the nuclear energy market. Revenues generated in the life sciences market increased by 37% compared to the corresponding period a year ago, primarily on revenues from IWK. Transportation revenues decreased 18% compared to a year ago primarily due to lower Order Backlog in the third quarter compared to a year ago.

Year-to-date
Revenues for the nine months ended December 29, 2013 were 10% higher than the corresponding period a year ago primarily as a result of increased Order Backlog entering the fiscal year compared to a year ago and revenues earned by IWK in the third quarter of fiscal 2014.

By industrial market, year-to-date revenues from consumer products & electronics and life sciences markets increased 31% and 28% respectively compared to the same period a year ago, primarily on revenues earned by IWK and higher Order Backlog entering the fiscal year compared to a year ago. Year-to-date revenues generated in the energy market increased by 11% on increased activity primarily in the nuclear energy market. Revenues from the Transportation market decreased 8% compared to the same period a year ago primarily due to lower Order Bookings compared to a year ago.

Consolidated Operating Results
(In millions of dollars)

  Three Months
Ended
Three Months
Ended
Nine Months
Ended
Nine Months
Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
         
Earnings from operations $           16.7 $         13.6 $           43.8 $        42.6
Depreciation and amortization 5.9 3.0 12.1 8.9
EBITDA $           22.6 $         16.6 $           55.9 $        51.5
         

Third Quarter
Fiscal 2014 third quarter earnings from operations were $16.7 million (9% operating margin) compared to $13.6 million (9% operating margin) in the third quarter of fiscal 2013. Third quarter fiscal 2014 earnings from operations included restructuring charges of $2.5 million related to the Company's decision to close its Singapore facility and other changes made to improve the Company's cost structure and $2.1 million of transaction costs incurred related to the acquisition of IWK. These costs were largely offset by gains of $4.3 million related to the successful recovery of costs associated with programs acquired in a previous acquisition. Adjusted for these items, third quarter fiscal 2014 earnings from operations were $17.0 million (10% operating margin).

Higher earnings from operations primarily reflected higher revenues, better program execution, improvements in the cost structure of the Company's base business, and the inclusion of IWK, partially offset by higher stock-based compensation costs and increased depreciation and amortization expenses compared to the corresponding period a year ago. Depreciation and amortization expense was $5.9 million in the third quarter of fiscal 2014, compared to $3.0 million a year ago, primarily due to a $2.4 million increase in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third quarter of fiscal 2014.

EBITDA was $22.6 million (13% EBITDA margin) compared to $16.6 million (12% EBITDA margin) in the third quarter of fiscal 2013. Higher EBITDA in fiscal 2014 primarily reflected increased revenues, improved operating margins and the addition of IWK.  Excluding restructuring and transaction costs, IWK realized an EBITDA margin of 15%.

Year-to-date
For the nine months ended December 29, 2013, earnings from operations were $43.8 million (9% operating margin) compared to $42.6 million (10% operating margin) in the corresponding period a year ago. Excluding $5.1 million of restructuring charges incurred to re-balance global capacity and improve the Company's cost structure, $3.0 million of transaction costs related to the acquisition of IWK, and excluding the one-time gain of $4.3 million from the successful recovery of costs related to programs acquired in a previous acquisition, fiscal 2014 earnings from operations were $47.6 million (10% operating margin).

Higher earnings from operations, adjusted for the above noted items, primarily reflected higher revenues and the inclusion of IWK, partially offset by higher stock-based compensation costs and higher depreciation and amortization expenses compared to the corresponding period a year ago.  Depreciation and amortization expense of $12.1 million in the first nine months of fiscal 2014, increased from $8.9 million in the same period a year ago, primarily due to a $2.4 million increase in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third quarter of fiscal 2014.

EBITDA was $55.9 million (12% EBITDA margin) compared to $51.5 million (12% EBITDA margin) in the first nine months of fiscal 2013. Fiscal 2014 EBITDA, adjusted for restructuring charges, IWK acquisition costs, and one-time gains was $59.7 million (12% EBITDA margin).

Order Bookings
Third quarter fiscal 2014 Order Bookings were $237 million, a 37% increase from the third quarter of fiscal 2013, which primarily reflected Order Bookings generated by IWK, which were $48 million in the third fiscal quarter of 2014.  Excluding the impact of IWK, Order Bookings were $189 million, a 9% increase over the corresponding period a year ago.  The increase in Order Bookings primarily reflected growth in energy, life sciences and consumer products & electronics markets.

During the first quarter of fiscal 2014, milestone payments of 15 million Euro related to the Nigeria enterprise program were received resulting in total payments received for this program of approximately 25 million Euro.  The Company will record the balance of the Order Booking and Order Backlog if and when financial close is reached or additional milestone payments are received.

Order Backlog Continuity
(In millions of dollars)

  Three Months
Ended
Three Months
Ended
Nine Months
Ended
Nine Months
Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
         
Opening Order Backlog $          355 $          361 $          398 $          382
Revenues (178) (144) (483) (438)
Order Bookings 237 173 512 453
Order Backlog adjustments1 53 (2) 40 9
Total $          467 $          388 $          467 $          388

1 Order Backlog adjustments include foreign exchange adjustments, cancellations and for the three months ended December 29, 2013, incremental Order Backlog of $40 million acquired with IWK.

Order Backlog by Industry
(In millions of dollars)

As at December 29,
2013
December 30,
2012
Consumer products & electronics $            67 $          29
Energy 66 15
Life sciences 192 170
Transportation 142 174
Total $          467 $        388
     

At December 29, 2013, Order Backlog was $467 million, 20% higher than at December 30, 2012.  Higher Order Backlog primarily reflected the addition of IWK's Order Backlog and higher Order Bookings in the energy, life sciences and consumer products & electronics markets.

Outlook
The general global economic environment has improved, however, uncertainty remains. In North America, the U.S. and Canadian economies have shown signs of improvement, but growth remains slow.  Economic growth has slowed in China and other parts of Asia.  In Europe, the economy has shown signs of stabilizing, but markets continue to be weak and the Eurozone sovereign debt crisis remains a risk to the region.  This has the potential to result in tighter credit markets which could negatively impact demand, particularly for the Company's European operations, and may cause volatility in Order Bookings.  Overall, a prolonged or more significant downturn in an economy where the Company operates could negatively impact Order Bookings.  Impacts on demand for the Company's products and services may lag behind global macroeconomic trends due to the strategic nature of the Company's programs to its customers and the long lead times on projects.

Many customers remain cautious in their approach to capital investment; however, activity in the life sciences and transportation markets remains strong.  The Company has seen increased activity in energy markets such as nuclear and oil and gas; however, the solar energy market remains weak due to reductions in solar feed-in-tariffs. Activity in consumer products & electronics has improved and the addition of IWK provides the Company with an opportunity to increase its exposure to new customers in these markets.

The Company's sales organization will continue to work to engage with customers on enterprise-type solutions.  The Company expects that engaging with customers in this manner will provide ATS with more strategic relationships, increased predictability, better program control and less sensitivity to macro-economic forces.  This approach to market may cause variability in Order Bookings from quarter to quarter and, as is already the case, lengthen the performance period and revenue recognition for certain customer programs.  The Company expects its record Order Backlog of $467 million at the end of the third quarter of fiscal 2014 to mitigate the impact of volatile Order Bookings on revenues in the short term. Management expects that approximately 35% to 40% of its Order Backlog would typically be completed in the following quarter.

The addition of IWK provides core capabilities and customers that are new to ATS.  This is expected to result in cross-selling opportunities and further key account development.  ATS's approach to market will be rolled out within IWK to support its growth.  Management expects to leverage IWK's established product development and after-market service capabilities across the ATS organization.

Regarding IWK, opportunities to increase profitability will be pursued through improved supply chain management, better leveraging of the Company's global footprint and deploying IWK's service model and capability to all of ATS.  The addition of IWK also provides the Company with an opportunity to realign its operations and improve the global cost structure of its base business. In this regard, the Company has initiated the closure of a facility in Singapore.  The Company will continue to service customers in the region from neighboring locations in Malaysia and Thailand. These actions along with other changes implemented by the Company in the first quarter of fiscal 2014 to re-balance global capacity and improve the Company's cost structure, are expected to positively impact profitability going forward.

Management's disciplined focus on program management, cost reductions, standardization and quality puts ATS in a strong competitive position to capitalize on opportunities going forward and sustain performance in challenging market conditions. Management expects that the application of its ongoing efforts to improve its cost structure, business processes, leadership and supply chain management will continue to have a positive impact on ATS operations.

The Company is seeking to expand its position in the global automation market organically and through acquisition.  The Company's strong financial position provides a solid foundation and the flexibility to pursue its growth strategy.

CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS
(In millions of dollars, except per share data)

      Three Months
Ended
    Three Months
Ended
    Nine Months
Ended
    Nine Months
Ended
      December 29,
2013
    December 30,
2012
    December 29,
2013
    December 30,
2012
Revenues   $             178.0   $           144.2   $             482.6   $          437.9
Cost of revenues     129.7     109.0     355.0     324.8
Selling, general and administrative     30.1     20.7     78.3     68.0
Stock-based compensation     1.5     0.9     5.5     2.5
Earnings from operations   $               16.7   $             13.6   $               43.8   $            42.6
Net finance costs   $                 0.9   $               0.6   $                 2.0   $              1.3
Income tax provision (recovery)       (3.0)     2.3     4.1     9.1
Net income from continuing operations   $               18.8   $            10.7   $               37.7   $            32.2
Net income (loss) from discontinued                        
operations, net of tax   $                (0.3)   $            (21.7)   $               13.2   $           (25.4)
Net income (loss)   $               18.5   $            (11.0)   $               50.9   $              6.8
Earnings (loss) per share                        
Basic from continuing operations   $               0.21   $             0.12   $               0.43   $            0.37
Basic from discontinued operations     __     (0.24)     0.15     (0.29)
    $               0.21   $            (0.12)   $               0.58   $            0.08
Diluted from continuing operations   $               0.21   $             0.12   $               0.42   $            0.37
Diluted from discontinued operations     __     (0.24)     0.15     (0.29)
    $               0.21   $            (0.12)   $               0.57   $            0.08
                         

Revenues. At $178.0 million, consolidated revenues from continuing operations for the third quarter of fiscal 2014 were $33.8 million or 23% higher than in the corresponding period a year ago. At $482.6 million, year-to-date revenues were $44.7 million or 10% higher than for the same period a year ago, primarily on incremental IWK revenue.  See "Overview - Operating Results from Continuing Operations."

Cost of revenues.  At $129.7 million, third quarter fiscal 2014 cost of revenues increased over the corresponding period a year ago by $20.7 million or 19% primarily on higher revenues.  Year-to-date cost of revenues of $355.0 million increased by $30.2 million or 9%, primarily on higher revenues generated compared to the corresponding period a year ago.

At 27%, gross margin in the third quarter of fiscal 2014 increased 3% from the corresponding period a year ago. Higher third quarter gross margins reflected better program execution, improvements in the cost structure of the Company's base business, and the inclusion of IWK. Year-to-date gross margin of 26% was consistent with the 26% gross margin in the corresponding period a year ago.

Selling, general and administrative ("SG&A") expenses.  SG&A expenses for the third quarter of fiscal 2014 were $30.1 million. This  included: $2.5 million of restructuring charges incurred to re-balance global capacity and improve the Company's cost structure; $2.1 million of professional fees incurred in relation to the acquisition of IWK; and, a one-time gain of $4.3 million from the successful recovery of costs related to programs acquired in a previous acquisition. Adjusted for these costs, SG&A expenses were $9.1 million or 44% higher than the $20.7 million incurred in the corresponding period last year. Higher SG&A costs primarily reflected $2.4 million of incremental amortization expenses related to the identifiable intangible assets recorded on the acquisition of IWK and IWK SG&A expenses.

For the nine months ended December 29, 2013, SG&A expenses were $78.3 million, which included $5.1 million of restructuring charges, $3.0 million of professional fees related to the acquisition of IWK, and the one-time gain of $4.3 million from the successful recovery of costs related to programs acquired in a previous acquisition. Adjusted for these costs, year to date SG&A spending was $74.5 million, $6.5 million or 10% higher compared to the same period a year ago. Higher SG&A costs primarily reflected $2.4 million of incremental amortization expenses related to the identifiable intangible assets recorded on the acquisition of IWK and IWK SG&A expenses.

Stock-based compensation cost.  Stock-based compensation expense of $1.5 million in the third quarter of fiscal 2014 increased from $0.9 million in the corresponding period a year ago.  For the nine month period ended December 29, 2013, stock-based compensation expense increased to $5.5 million from $2.5 million a year earlier. The increase in stock-based compensation costs over both periods is due to the revaluation of deferred stock units, share appreciation rights and restricted share units.

Earnings from operations.  For the three and nine month periods ended December 29, 2013, consolidated earnings from operations were $16.7 million and $43.8 million respectively (operating margin of 9% in both periods), compared to earnings from operations of $13.6 million and $42.6 million a year ago (operating margins of 9% and 10% respectively). See "Overview - Operating Results from Continuing Operations."

Net finance costs.  Net finance costs were $0.9 million in the third quarter of fiscal 2014, which increased over the corresponding period a year ago by $0.3 million.  For the nine months ended December 29, 2013, finance costs were $2.0 million compared to $1.3 million in the corresponding period a year ago. The increase in net finance costs reflected increased usage of the Company's primary credit facility.

Income tax provision (recovery).  For the three and nine months ended December 29, 2013, the Company's effective income tax rate was (19)% and 10% respectively.  Based on changes made to the tax structure of the Company's businesses in Germany and the acquisition of IWK, the Company expects it will be able to utilize previously unrecognized deferred tax assets. Consequently, in the third quarter of fiscal 2014, the Company recorded net income tax recoveries and other adjustments of $7.8 million primarily related to the recognition of deferred income tax assets following the Company's change in assessment of its ability to utilize tax losses in its German-based operations, partially offset by certain provisions in other jurisdictions. Adjusted for these items, the Company's effective income tax rate was 30% and 28% for the third quarter and year to date respectively. The Company expects that with the recognition of these deferred tax assets, its effective tax rate will exceed the combined Canadian basic federal and provincial income tax rate of 26% going forward; however, cash taxes are expected to be lower due to tax assets available primarily in Canada and Germany.

Net income from continuing operations.  Fiscal 2014 third quarter net income from continuing operations was $18.8 million (0.21 cents per share basic and diluted) compared to $10.7 million (12 cents per share basic and diluted) for the third quarter of fiscal 2013.  Net income from continuing operations in the nine months ended December 29, 2013 was $37.7 million (0.43 cents per share basic, 0.42 cents per share diluted) compared to $32.2 million (37 cents per share basic and diluted) for the corresponding period a year ago.

Reconciliation of EBITDA to IFRS Measures
(In millions of dollars)

      Three Months
Ended
    Three Months
Ended
      December 29,
2013
    December 30,
2012
EBITDA   $           22.6   $           16.6
Less: depreciation and amortization expense     5.9     3.0
Earnings from operations   $           16.7   $           13.6
Less: net finance costs     0.9     0.6
Income tax provision (recovery)       (3.0)     2.3
Net income from continuing operations   $           18.8   $           10.7
             
      Nine Months
Ended
    Nine Months
Ended
      December 29,
2013
    December 30,
2012
EBITDA   $           55.9   $           51.5
Less: depreciation and amortization expense     12.1     8.9
Earnings from operations   $           43.8   $           42.6
Less: net finance costs     2.0     1.3
Provision for income taxes     4.1     9.1
Net income from continuing operations   $           37.7   $           32.2
             

DISCONTINUED OPERATIONS: SOLAR
(In millions of dollars)

  Three Months
Ended
Three Months
Ended
Nine Months
Ended
Nine Months
Ended
  December 29,
2013
December 30,
2012
December 29,
2013
December 30,
2012
Total revenues $           __ $          0.9 $          1.1 $          2.1
Gain on sale __ __ 13.8 __
Income (loss) from
discontinued operations
(0.3) (21.7) 13.2 (25.4)
         

Third Quarter
Revenues
Fiscal 2014 third quarter revenues of $nil were $0.9 million lower than in the third quarter of fiscal 2013.  During the first quarter of fiscal 2014, the manufacturing assets were sold and the business wound up.

Income (loss) from Discontinued Operations
Ontario Solar recorded a loss of $0.3 million in the third quarter of fiscal 2014. The third quarter loss a year ago was $21.7 million.

Year-to-date
Revenues
Revenues for the nine months ended December 29, 2013 of $1.1 million were 100% lower than in the same period of fiscal 2013 reflecting the sale of manufacturing assets and business cessation.

Gain on sale
For the nine months ended December 29, 2013, a gain on sale of $13.8 million reflected gains of $10.8 million from the sale of 75% ownership interest in four ground-mount solar projects by Ontario Solar's 50% owned joint operation Ontario Solar PV Fields ("OSPV") and $3.0 million from the sale of Ontario Solar's manufacturing assets and inventory.

Income (loss) from Discontinued Operations
Ontario Solar recorded $13.2 million of income in the nine months ended December 29, 2013 compared to losses from operations in the corresponding period a year ago of $25.4 million.

Solar Separation and Outlook
During the nine months ended December 29, 2013, OSPV sold four ground-mount solar projects, representing approximately 34 megawatts (MWs).  OSPV will retain 25% ownership of the projects until they reach commercial operation, which is expected to occur in calendar 2014.

Net proceeds to the Company are expected to be $21.4 million, of which the Company received gross proceeds of $15.4 million during the first quarter of fiscal 2014 and $0.5 million during the year ended March 31, 2013.  The remaining proceeds are expected to be received when the projects achieve commercial operation, which is expected to occur in calendar 2014.

During the nine months ended December 29, 2013, the Company sold its Ontario Solar manufacturing assets and inventory.  Net proceeds to the Company were $6.5 million of which two-thirds was received during the three months ended June 30, 2013, with the final one-third received in the third quarter of fiscal 2014.

OSPV has signed a definitive agreement for the sale of its other three ground-mount solar projects. This transaction is subject to a number of approvals and conditions, including the purchaser securing financing for the projects. Subsequent to the end of the third quarter of fiscal 2014, the projects received notice-to-proceed approval from the Ontario Power Authority. The Company expects the sale transaction to close in fiscal 2014.  OSPV will retain 25% ownership of the projects until the projects reach commercial operation, which is expected to occur in calendar 2014.  Net proceeds to ATS are expected to be approximately $14 million, and are expected to be paid based on the projects achieving certain development milestones.

Overall, management expects to record a gain on these divestitures as the sales are completed and proceeds realized. Subsequent to the settlement of outstanding liabilities, net proceeds from the divestiture of Ontario Solar will be re-allocated to ATS's core automation business to support growth.

LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES
(In millions of dollars, except ratios)

As at December 29,
2013
March 31,
2012
Cash and cash equivalents $     59.1 $      105.5
Debt-to-equity ratio 0.04:1 0.01:1
     
For the three months ended December 29,
2013
December 30,
2012
Cash flows provided by operating activities from
continuing operations
$     25.6 $          9.1
   

At December 29, 2013, the Company had cash and cash equivalents of $59.1 million in continuing operations compared to $105.5 million at March 31, 2013. The Company's total-debt-to-total-equity ratio, excluding accumulated other comprehensive income at December 29, 2013 was 0.04:1. At December 29, 2013, the Company had $166.8 million of unutilized credit available under existing credit facilities and another $8.0 million available under letter of credit facilities.

In the three months ended December 29, 2013, cash flows provided by operating activities from continuing operations were $25.6 million ($9.1 million provided by in the corresponding period a year ago). In the nine months ended December 29, 2013, cash flows provided by operating activities from continuing operations were $46.8 million ($34.9 million provided by in the corresponding period a year ago). The increase in operating cash flows from continuing operations related primarily to higher income from continuing operations, the timing of investments in non-cash working capital in large customer programs and cash flows provided by the operating activities of IWK.

In the third quarter of fiscal 2014, the Company's investment in non-cash working capital decreased by $6.7 million from September 29, 2013. On a year-to-date basis, investment in non-cash working capital increased by $4.5 million. Accounts receivable increased 33% or $33.0 million, due to the IWK acquisition and the timing of billings and collections on certain customer contracts. Net contracts in progress decreased 10% or $7.3 million compared to March 31, 2013. The Company actively manages its accounts receivable and net contracts in progress balances through billing terms on long-term contracts, collection efforts and supplier payment terms. Inventories increased 109% or $11.6 million due to the acquisition of IWK. Deposits and prepaid assets decreased 18% or $2.1 million compared to March 31, 2013.  Accounts payable and accrued liabilities increased 23% or $24.0 million due to the acquisition of IWK. Provisions increased $2.2 million or 24% compared to March 31, 2013 due to the acquisition of IWK.

Capital expenditures totalled $2.7 million in the first nine months of fiscal 2014 and primarily related to computer hardware.

Intangible assets expenditures totalled $4.8 million in the first nine months of fiscal 2014 and primarily related to computer software.

During fiscal 2013, the Company established a new Senior Secured Credit Facility (the "Credit Agreement"). The Credit Agreement provides a revolving credit facility of $250.0 million and expires on November 6, 2015.  The Credit Agreement is secured by the assets, excluding real estate, of certain of the Company's North American legal entities and a pledge of shares and guarantees from certain of the Company's legal entities.  At December 29, 2013, the Company had utilized $85.3 million under the Credit Agreement, of which $15.0 million was classified as long-term debt (March 31, 2013 - $nil) and $70.3 million was obtained by way of letters of credit (March 31, 2013 - $53.1 million).  In the third quarter of fiscal 2014, the Company used the proceeds from the long-term debt to partially fund the purchase of IWK.

The Credit Agreement is available in Canadian dollars by way of prime rate advances, letters 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 Credit Agreement are determined based on a debt-to-EBITDA ratio.  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 0.50% to 1.50%.  For bankers' acceptances and LIBOR advances, the interest rate is equal to the bankers' acceptance fee or the LIBOR, respectively, plus 1.50% to 2.50%.  The Company pays a fee for usage of financial letters of credit which ranges from 1.70% to 2.70% and a fee for usage of non-financial letters of credit which ranges from 1.15% to 1.80%.  The Company pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the Credit Agreement at rates ranging from 0.30% to 0.50%.

The Credit Agreement is subject to a debt-to-EBITDA test and an interest-coverage test.  Under the terms of the Credit Agreement, the Company is restricted from encumbering any assets with certain permitted exceptions.  The Credit Agreement also limits advances to subsidiaries and partially restricts the Company from repurchasing its common shares and paying dividends.

The Company has additional credit facilities of $6.8 million (2.5 million Euro, 150.0 million Indian Rupees and 0.5 million Swiss Francs).  The total amount outstanding on these facilities is $5.2 million of which $0.6 million is classified as bank indebtedness (March 31, 2013 - $nil) and $4.6 million is classified as long-term debt (March 31, 2013 - $2.2 million).  The interest rates applicable to the credit facilities range from 1.9% to 11.5% per annum.  A portion of the long-term debt is secured by certain assets of the Company.  The 0.5 million Swiss Francs and 150.0 million Indian Rupees credit facilities are secured by letters of credit under the Credit Agreement.

The Company expects to continue increasing its investment in working capital to support the growth of its business. The Company expects that continued cash flows from operations, together with cash and cash equivalents 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 some potential acquisitions. Significant acquisitions could result in additional debt or equity financing requirements. The Company expects to use moderate leverage to support its growth strategy.

In the third quarter of fiscal 2014, the Company completed its acquisition of IWK. Total cash consideration paid for IWK was $137.4 million (99.0 million Euro), which is net of $9.9 million of cash acquired in the business.  See "Value Creation Strategy: Business Acquisition - IWK."

Contractual Obligations
(In millions of dollars)

The minimum operating lease payments (related primarily to facilities and equipment) and purchase obligations are as follows:

From continuing operations:

  Operating Purchase
  Leases Obligations
Less than one year  $ 5.9  $ 43.4
One - two years   5.3  3.4
Two - three years   4.4  __
Three - four years   2.9  __
Four - five years   1.9  __
Due in over five years   4.1  __
  $ 24.5  $ 46.8
     

The Company's off-balance sheet arrangements consist of purchase obligations and various operating lease financing arrangements related primarily to facilities and equipment, which have been entered into in the normal course of business.  The Company's purchase obligations consist primarily of materials purchase commitments.

In accordance with industry practice, the Company is liable to customers 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 provides bank guarantees for post-retirement obligations and may provide bank guarantees as security on equipment under lease and on order.  At December 29, 2013, the total value of outstanding bank guarantees under credit facilities was approximately $95.4 million (March 31, 2013 - $68.3 million) from continuing operations and was $1.5 million (March 31, 2013 - $3.7 million) from discontinued operations.

The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations to the Company.  The Company minimizes this risk by limiting counterparties to major financial institutions and monitoring their creditworthiness.  The Company's credit exposure to forward foreign exchange contracts is the current replacement value of contracts that are in a gain position.  For further information related to the Company's use of derivative financial instruments refer to not 10 of the interim consolidated financial statements.  The Company is also exposed to credit risk from its customers.  Substantially all of the Company's trade accounts receivable are due from customers in a variety of industries and, as such, are subject to normal credit risks from their respective industries.  The Company regularly monitors customers for changes in credit risk.  The Company does not believe that any single industry or geographic region represents significant credit risk.  Credit risk concentration with respect to trade receivables is mitigated by the Company's client base being primarily large, multinational customers and through insurance purchased by the Company.

During the first three quarters of fiscal 2014, 2,253,359 stock options were exercised.  As of February 4, 2014 the total number of shares outstanding was 90,106,652 and there were 5,760,611 stock options outstanding to acquire common shares of the Company.

RELATED-PARTY TRANSACTIONS
There were no significant related-party transactions in the first nine months of fiscal 2014.

FOREIGN EXCHANGE
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the Canadian dollar.  Weakening in the value of the Canadian dollar relative to the U.S. dollar and the Euro had a positive impact on translation of the Company's revenues in the third quarter of fiscal 2014 compared to the corresponding period of fiscal 2013.

The Company's Canadian operations generate significant revenues in major foreign currencies, primarily U.S. dollars, which exceed the natural hedge provided by purchases of goods and services in those currencies.  In order to manage a portion of this net foreign currency exposure, the Company has entered into forward foreign exchange contracts.  The timing and amount of these forward foreign exchange contract requirements are estimated based on existing customer contracts on hand or anticipated, current conditions in the Company's markets and the Company's past experience.  Certain of the Company's foreign subsidiaries will also enter into forward foreign exchange contracts to hedge identified balance sheet, revenue and purchase exposures.  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 10 to the interim consolidated financial statements for details on the derivative financial instruments outstanding at December 29, 2013.

In addition, from time to time, the Company enters forward foreign exchange contracts to manage the foreign exchange risk arising from certain inter-company loans and net investments in certain self-sustaining subsidiaries.

The Company uses hedging as a risk management tool, not to speculate.

Period average exchange rates in CDN$

  Three months ended   Nine months ended  
  December 29,
2013
December 30,
2012
% change December 29,
2013
December 30,
2012
% change
U.S. Dollar 1.0499 0.9916 5.9 % 1.0373 0.9991 3.8 %
Euro 1.4289 1.2858 11.1 % 1.3811 1.2751 8.3 %
             

CONSOLIDATED QUARTERLY RESULTS

                                 
(In millions of dollars, except
per share amounts)
  Q3
2014
  Q2
2014
  Q1
2014
  Q4
2013
  Q3
2013
  Q2
2013
  Q1
2013
  Q4
2012
Revenues from continuing
operations
$      178.0 $     154.6 $     150.0 $     153.2 $     144.2 $     141.1 $     152.2 $     173.5
                                 
Earnings from operations $        16.7 $       14.4 $       12.7 $       14.0 $       13.6 $       13.8 $       15.2 $       16.1
                                 
Income from continuing
operations
$        18.8 $       10.4 $         8.6 $         8.9 $       10.7 $         9.7 $       11.8 $       10.9
                                 
Income (loss) from
discontinued operations
$        (0.3) $         2.5 $       11.0 $       (0.6) $     (21.7) $       (1.8) $       (2.0) $       (7.9)
                                 
Net income (loss) $        18.5 $       12.9 $       19.6 $         8.3 $     (11.0) $         7.9 $         9.8 $         3.0
                                 
Basic earnings per share from
continuing operations
$        0.21 $       0.12 $       0.10 $       0.10 $       0.12 $       0.11 $       0.13 $       0.13
                                 
Basic earnings (loss) per share
from discontinued operations
$     (0.00) $       0.03 $       0.12 $    (0.01) $     (0.24) $     (0.02) $     (0.02) $     (0.09)
                                 
Basic earnings (loss) per share $        0.21 $       0.15 $       0.22 $       0.09 $     (0.12) $       0.09 $       0.11 $       0.04
                                 
Diluted earnings per share
from continuing operations
$       0.21 $       0.11 $       0.10 $       0.09 $       0.12 $       0.11 $       0.13 $       0.13
                                 
Diluted earnings (loss) per
share from discontinued
operations
$   (0.00) $       0.03 $       0.12 $    (0.00) $     (0.24) $     (0.02) $     (0.02) $     (0.09)
                                 
Diluted earnings (loss) per
share
$        0.21 $       0.14 $       0.22 $       0.09 $     (0.12) $       0.09 $       0.11 $       0.04
                                 
Order Bookings $      237.0 $     110.0 $     165.0 $     170.0 $     173.0 $     112.0 $     168.0 $     187.0
                                 
Order Backlog $      467.0 $     355.0 $     415.0 $     398.0 $     388.0 $     361.0 $     397.0 $     382.0
                                 
                                 

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 revenues and operating performance.  ATS typically experiences some seasonality with its Order Bookings, revenues and earnings from operations due to summer plant shutdowns by its customers.  Operating performance quarter to quarter may also be affected by the timing of revenue recognition on large programs in Order Backlog, which is impacted by such factors as customer delivery schedules, and the timing of third-party content.

CRITICAL ACCOUNTING ESTIMATES, JUDGMENTS & ASSUMPTIONS
The preparation of the Company's consolidated financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the end of the reporting period.  Uncertainty about these estimates, judgments and assumptions could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

The Company based its assumptions on information available when the consolidated financial statements were prepared.  Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company.  Such changes are reflected in the estimates as they occur.  There have been no material changes to the critical accounting estimates as described in the Company's fiscal 2013 MD&A.

ACCOUNTING STANDARDS CHANGES
Effective April 1, 2013, the Company applied the following new IFRS standards for the first time: IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosures of Interests in Other Entities.  The adoption of these standards and amendments had no impact on the financial statements or ongoing business of the Company.

IFRS 13 - Fair Value Measurement
IFRS 13 defines fair value and provides guidance for measuring fair value and identifies the required disclosures pertaining to fair value measurement.  The application of IFRS 13 will result in additional disclosures in the annual consolidated financial statements.

IAS 1 - Presentation of Financial Statements
The IASB amended IAS 1 by revising how certain items are presented in other comprehensive income ("OCI").  Items within OCI that may be reclassified to profit and loss have been separated from items that will not.  While this amendment has impacted presentation in the consolidated statement of comprehensive income, it did not impact the Company's consolidated income, comprehensive income or consolidated financial position and is not expected to have an impact on the ongoing business of the Company.

IAS 19 - Employee Benefits
Effective April 1, 2013, the Company adopted revisions to IAS 19 - Employee Benefits ("IAS 19R").  The amendments to IAS 19 introduce a net interest approach for defined benefit obligations by replacing the expected return on plan assets and interest costs on the defined benefit obligation with a single net interest component determined by multiplying the net defined benefit liability or asset by the discount rate used to determine the defined benefit obligation.  Also, unvested past service costs can no longer be deferred and recognized over future vesting periods.  Instead, all past service costs are recognized at the earlier of when the amendment occurs and when the Company recognizes related restructuring or termination costs.

The change in accounting policy has been applied retrospectively.  The adoption of IAS 19R had an immaterial impact on the financial statements of the Company and is not expected to have an impact on the ongoing business of the Company.

IFRS 11 - Joint Arrangements
IFRS 11 replaces the previous guidance in IAS 31, Interests in Joint Ventures.  IFRS 11 reduces the types of joint arrangements to two: joint ventures and joint operations.  IFRS 11 requires equity accounting for interest in joint ventures, eliminating the existing policy choice of proportionate consolidation for jointly controlled entities in IAS 31.  Accounting for joint operations will follow accounting similar to that for jointly controlled assets and jointly controlled operations under IAS 31.  This standard became effective for annual periods beginning on or after January 1, 2013.

The Company's existing joint arrangement is classified as a joint operation under the new standard with no significant change in the accounting.  The adoption of this standard did not have a material impact on the Company's interim consolidated financial statements and is not expected to have an impact on the ongoing business of the Company.

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 system's objectives will be met.

During the three and nine months ended December 29, 2013, 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.

Limitation on Scope of Design
The Company acquired IWK on September 30, 2013.  Management has not fully completed its review of internal controls over financial reporting for this newly acquired organization.  Since the acquisition occurred within the 365 days of the reporting period, management has limited the scope of design and subsequent evaluation of disclosure controls and procedures and internal controls over financial reporting, as permitted under Section 3.3 of National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings.  For the period covered by this MD&A, management has undertaken additional procedures to satisfy itself with respect to the accuracy and completeness of the acquired operations' financial information. The following summary financial information pertains to the acquisition that was included in ATS's Interim Consolidated Financial Statements for the period ended December 29, 2013.

(millions of dollars) IWK 1
Revenue1 29.7
Net income1 0.9
Current assets 2 57.3
Non-current assets 2 165.5
Current liabilities 2 34.5
Non-current liabilities 2 30.2

1     Results from September 30, 2013 to December 29, 2013
2     Balance sheet as at December 29, 2013

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' 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: the next phase of the Company's strategy: grow, expand, and scale; IWK acquisition - leveraging of IWK into other markets, potential for future acquisitions that would be a strategic fit with IWK; a Nigerian contract and timing of Order Booking and Order Backlog in relation thereto; potential impact of general economic environment, including impact on credit markets, customer markets, and Order Bookings, and the timing of those impacts; demand for Company's products potentially lagging global macroeconomic trends; activity in the market segments that the Company serves; the sales organization's approach to market and expected impact on Order Bookings; opportunities resulting from the IWK acquisition; management's expectations in relation to the impact of strategic initiatives on ATS operations; the implementation of changes to cost structure and the expected impact; the Company's strategy to expand organically and through acquisition; Company's expectation with respect to effective tax rate and cash taxes; separation of solar business; expected timing of receipt of proceeds in relation to the sale of four joint venture ground mount solar projects; expected closing of the sale of the remaining three ground-mount solar projects and timing of receipt of proceeds in relation thereto; expected gain on solar divestitures; Company's expectation to continue to increase its investment in working capital; expectation in relation to meeting funding requirements for investments; expectation to use moderate leverage to support growth strategy; foreign exchange hedging; and accounting standards changes.

The risks and uncertainties that may affect forward-looking statements include, among others: impact of the global economy and the Eurozone sovereign debt crisis; general market performance including capital market conditions and availability and cost of credit; performance of the market sectors that ATS serves; foreign currency and exchange risk; the relative strength of the Canadian dollar; impact of factors such as increased pricing pressure and possible margin compression; the regulatory and tax environment; failure or delays associated with the new customer programs; that leveraging and strategic initiatives in relation to the IWK acquisition are delayed, not completed, or do not have intended positive impact; that acquisitions that are a strategic fit with IWK are not identified or concluded; failure of the Nigerian project to achieve financial close, generate further milestone payments, or satisfy other conditions or meet expected timelines; inability to successfully expand organically or through acquisition, due to an inability to grow expertise, personnel, and/or facilities at required rates or to identify, negotiate and conclude one or more acquisitions; or to raise, through debt or equity, or otherwise have available, required capital; that acquisitions made are not integrated as quickly or effectively as planned or expected; that strategic initiatives are delayed, not completed, or do not have intended positive impact; potential for greater negative impact associated with any non-performance related to large enterprise programs; that restructuring charges exceed those currently contemplated; that the Company or its subsidiaries may have exposure to greater than anticipated income tax liabilities; that the conditions in the agreement for the sale of the three remaining joint venture ground mount solar projects are not met or that there are delays in meeting conditions and/or achieving stated milestones; that the solar projects are delayed in achieving commercial operation; that the joint venture ground mount projects cannot ultimately be developed, due to market, regulatory, transmission, local opposition, or other factors; unexpected delays and issues, on the timing, form and structure of the solar separation; ability to obtain necessary government and other certifications and approvals for solar projects in a timely fashion; labour disruptions; that one or more customers, or other entities with which the Company has contracted, experience insolvency or bankruptcy with resulting delays, costs or losses to the Company; political, labour or supplier disruptions; 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; 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 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.
Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars - unaudited)

          December 29      March 31
As at    Note      2013      2013
ASSETS                
Current assets                
Cash and cash equivalents         $  59,149   $  105,453
Accounts receivable            132,714       99,696
Costs and earnings in excess of billings on contracts in progress    6       138,124      122,842
Inventories    6       22,274      10,669
Deposits, prepaids and other assets    7       9,623     11,738
          361,884      350,398
Assets associated with discontinued operations    5      13,332      14,950
          375,216       365,348
Non-current assets                
Property, plant and equipment    8      84,063      79,269
Investment property            4,196      3,712
Goodwill    9      148,091     58,542
Intangible assets    10       105,879       27,615
Deferred income tax assets            10,571      13,154
Investment tax credit receivable            30,004     27,699
Portfolio investments    11       4,687      4,969
          387,491      214,960
Total assets         $  762,707   $   580,308
LIABILITIES AND EQUITY                
Current liabilities                
Bank indebtedness    13    $  610   $   __
Accounts payable and accrued liabilities            126,719     102,828
Provisions    12      11,281     9,096
Billings in excess of costs and earnings on contracts in progress    6      70,683      48,135
Current portion of long-term debt    13      2,555     257
          211,848     160,316
Liabilities associated with discontinued operations    5      5,995      8,112
          217,843     168,428
Non-current liabilities                
Employee benefits           23,712     10,581
Long-term debt    13      16,271      918
Deferred income tax liability           15,408      1,777
          55,391      13,276
Total liabilities         $  273,234   $  181,704
EQUITY                
Share capital    14    $  504,802   $  486,734
Contributed surplus            16,085     19,317
Accumulated other comprehensive income (loss)            24,992     (123)
Retained deficit            (56,530)     (107,407)
Equity attributable to shareholders            489,349     398,521
Non-controlling interests            124     83
Total equity            489,473     398,604
Total liabilities and equity         $  762,707   $  580,308
                 

ATS AUTOMATION TOOLING SYSTEMS INC.
Interim Consolidated Statements of Income
(in thousands of Canadian dollars, except per share amounts - unaudited)

        Three months ended      Nine months ended
        December 29     December 30      December 29      December 30
  Note      2013      2012      2013      2012
Revenues                          
  Revenues from construction contracts       $  150,043   $   129,590   $   424,326   $   399,252
  Sale of goods          16,057       6,752     30,010     18,436
  Services rendered          11,926       7,856      28,286     20,164
Total revenues          178,026     144,198     482,622     437,852
Operating costs and expenses                          
  Cost of revenues          129,697     109,003     355,003     324,761
  Selling, general and administrative          30,099     20,652     78,369     68,007
  Stock-based compensation  16       1,508     896     5,453     2,469
Earnings from continuing operations          16,722     13,647     43,797     42,615
Net finance costs  20       928     529     2,043     1,261
Income from continuing operations                          
  before income taxes          15,794     13,118     41,754     41,354
Income tax expense (recovery)  15       (2,987)     2,376     4,057     9,131
Income from continuing operations          18,781     10,742     37,697     32,223
Income (loss) from discontinued operations, net of tax  5       (293)     (21,700)      13,221     (25,463)
Net income (loss)       $  18,488   $  (10,958)   $  50,918   $  6,760
Attributable to                          
Shareholders       $  18,470   $  (10,965)   $  50,877   $  6,737
Non-controlling interests          18       7     41     23
      $  18,488   $  (10,958)   $  50,918   $  6,760
Earnings (loss) per share                          
  attributable to shareholders  21                        
Basic - from continuing operations      $   0.21   $  0.12   $  0.43   $  0.37
Basic - from discontinued operations          (0.00)      (0.24)     0.15     (0.29)
      $  0.21   $  (0.12)   $  0.58   $  0.08
Earnings (loss) per share                          
  Attributable to shareholders                          
Diluted - from continuing operations       $  0.21   $  0.12   $  0.42   $  0.37
Diluted - from discontinued operations          (0.00)     (0.24)     0.15     (0.29)
      $  0.21   $   (0.12)   $  0.57   $  0.08
                           

ATS AUTOMATION TOOLING SYSTEMS INC.
Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars - unaudited)

      Three months ended      Nine months ended
      December 29      December 30      December 29      December 30
      2013      2012      2013      2012
Net income (loss)    $  18,488   $   (10,958)   $   50,918   $   6,760
Other comprehensive income (loss):                        
                         
Items to be reclassified subsequently to net income:                        
  Currency translation adjustment (net of income taxes of $nil)       15,944       6,136       25,372       (1,602)
                           
  Net unrealized gain on available-for-sale financial assets       679       104       124      104
  Tax impact       (60)       (25)       82     (25)
                           
  Net realized gain on available-for-sale financial assets       22       __       22      __
                           
  Net unrealized loss on derivative financial instruments designated as cash flow hedges       (1,038)       (321)       (2,077)       (55)
  Tax impact       255       100       527       62
                           
  Loss (gain) transferred to net income for derivatives designated as cash flow hedges       340       (259)       1,453      (126)
  Tax impact       (86)       42      (388)     (8)
                           
Items that will not be reclassified subsequently to net income:                        
                         
  Actuarial losses on defined benefit pension plans       __       __       __       (736)
  Tax impact       __       __       __      187
Other comprehensive income (loss)       16,056       5,777       25,115      (2,199)
Comprehensive income (loss)   $   34,544   $   (5,181)   $   76,033   $  4,561
Attributable to                        
Shareholders    $  34,526   $   (5,188)   $   75,992   $   4,538
Non-controlling interests       18       7       41      23
    $  34,544   $   (5,181)   $   76,033   $   4,561
                         

ATS AUTOMATION TOOLING SYSTEMS INC.
Interim Consolidated Statements of Changes in Equity
(in thousands of  Canadian dollars - unaudited)

Nine months ended December 29, 2013
      Share
capital
    Contributed
 surplus
    Retained
 earnings
 (deficit)
    Currency
translation
 adjustments
    Available-
for-sale 
financial
assets
    Cash flow
 hedges
    Total
 accumulated
other
 comprehensive
income
    Non-
controlling
 interests
    Total
 equity
Balance, at March 31, 2013  $  486,734   $   19,317   $  (107,407)   $  (23)   $  239   $  (339)   $  (123)   $  83   $   398,604
Net income     __       __       50,877      __       __       __       __       41      50,918
Other comprehensive income (loss)     __       __       __       25,372      228      (485)      25,115       __      25,115
Total comprehensive income (loss)     __       __      50,877       25,372       228      (485)      25,115       41       76,033
Stock-based compensation     __       1,610      __       __       __       __       __       __       1,610
Exercise of stock options     18,068      (4,842)       __       __      __       __       __       __       13,226
Balance, at December 29, 2013  $  504,802   $   16,085   $  (56,530)   $  25,349   $   467   $  (824)   $   24,992   $   124   $   489,473
 
 
Nine months ended December 30, 2012
    Share
capital
    Contributed
 surplus
    Retained
 earnings
 (deficit)
    Currency
translation
 adjustments
    Available-
for-sale 
financial
assets
    Cash flow
 hedges
    Total
 accumulated
other
 comprehensive
income
    Non-
controlling
 interests
    Total
 equity
Balance, at March 31, 2012  $  483,099   $  17,868   $  (119,210)   $  (559)   $  __    $  176   $  (383)   $   78    $ 381,452
Net income     __      __       6,737      __       __       __       __       23       6,760
Other comprehensive income (loss)     __       __       (549)      (1,602)      79      (127)      (1,650)       __       (2,199)
Total comprehensive income (loss)     __       __       6,188      (1,602)      79     (127)     (1,650)      23       4,561
Stock-based compensation     __      1,890       __     __       __       __       __       __       1,890
Exercise of stock options     1,672     (519)     __      __       __       __       __       __       1,153
Balance, at December 30, 2012  $  484,771   $  19,239   $  (113,022)   $   (2,161)   $   79   $   49   $   (2,033)   $   101    $ 389,056
                                                     

ATS AUTOMATION TOOLING SYSTEMS INC.
Interim Consolidated Statements of Cash Flow
(in thousands of Canadian dollars - unaudited)

       
Three months ended      Nine months ended
          December 29      December 30      December 29      December 30
    Note      2013      2012      2013      2012
Operating activities:                            
Income from continuing operations         $  18,781   $  10,742   $  37,697   $   32,223
Items not involving cash                            
  Depreciation of property, plant and equipment            1,861      1,698     5,293     4,908
  Amortization of intangible assets            4,026      1,347     6,824     3,955
  Deferred income taxes            (7,495)      (883)     (3,194)      2,228
  Other items not involving cash            154      1,406     (741)      193
  Stock-based compensation    16       1,508      896     5,453      2,469
        $  18,835   $  15,206   $  51,332   $  45,976
Change in non-cash operating working capital            6,729      (6,065)     (4,514)      (11,055)
Cash flows provided by (used in) operating activities of discontinued operations    5       2,743      (1,911)     (5,434)      (6,685)
Cash flows provided by operating activities         $  28,307   $  7,230   $  41,384   $ $ 28,236
Investing activities:                            
Acquisition of property, plant and equipment        $   (1,053)   $   (2,142)   $  (2,699)   $  $ (5,553)
Acquisition of intangible assets            (2,420)      (1,511)     (4,832)      (3,634)
Business acquisition, net of cash acquired            (137,408)       __      (137,408)      __
Acquisition of portfolio investments            __      (1,609)     __      (1,609)
Proceeds from disposal of property, plant and equipment            61     __      79     7
Proceeds on sale of portfolio investments            268      __       268      __
Cash flows provided by (used in) investing activities of discontinued operations    5       __       (25)     19,679     (104)
Cash flows used in investing activities         $  (140,552)   $  (5,287)   $  (124,913)   $   (10,893)
Financing activities:                            
Restricted cash    7   $   1,403   $  1,172   $  1,058   $  (2,094)
Bank indebtedness            (2,475)      (56)     (313)      (403)
Repayment of long-term debt            (25,100)      (1,121)      (25,195)      (1,245)
Proceeds from long-term debt            1,094     __       42,166     __
Issuance of common shares            8,375      14     13,226      1,153
Cash flows used in financing activities of discontinued operations         __       (72)       __      (309)
Cash flows provided by (used in) financing activities         $  (16,703)   $  (63)   $  30,942   $  (2,898)
Effect of exchange rate changes on cash and cash equivalents            3,795      2,150      7,806     (1,159)
Increase (decrease) in cash and cash equivalents            (125,153)     4,030       (44,781)     13,286
Cash and cash equivalents, beginning of period            186,242     105,948       105,870      96,692
Cash and cash equivalents, end of period         $  61,089   $  109,978   $  61,089    $  109,978
Attributable to                            
Cash and cash equivalents - continuing operations        $  59,149   $  109,590   $  59,149   $  109,590
Cash and cash equivalents - associated with discontinued operations            1,940     388      1,940     388
        $  61,089   $  109,978   $   61,089   $  109,978
Supplemental information                            
Cash income taxes paid by continuing operations        $   451   $  455   $   1,559   $  2,562
Cash interest paid by continuing operations        $   994   $  256   $  1,437   $  705

 

 

 

SOURCE ATS Automation Tooling Systems Inc.

For further information:

Maria Perrella, Chief Financial Officer
Carl Galloway, Vice-President, Treasurer
519 653-6500