ATS Reports Fourth Quarter and Annual Fiscal 2016 Results

CAMBRIDGE, ON, May 19, 2016 /CNW/ - ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported financial results for the three and twelve months ended March 31, 2016.

Fourth Quarter and Annual Summary

  • Revenues from continuing operations were $246.8 million, 15% lower than the fourth quarter a year ago, primarily reflecting lower Order Backlog entering the fourth quarter of fiscal 2016 compared to a year ago. For the year, revenues from continuing operations were $1,039.6 million, 11% higher than in the corresponding period a year ago, primarily reflecting revenues earned by PA.
  • Earnings from continuing operations were $8.1 million (3% operating margin), compared to $22.6 million (8% operating margin) in the fourth quarter of fiscal 2015. Adjusted earnings from continuing operations1 were $23.2 million (9% margin), compared to $34.7 million (12% margin) a year ago. For the year, earnings from operations were $76.8 million (7% operating margin) compared to $67.0 million (7% operating margin) in the corresponding period a year ago. Adjusted earnings from operations were $114.4 million (11% margin) compared to adjusted earnings from operations of $109.8 million (12% margin) a year ago;
  • EBITDA1 was $17.7 million (7% margin), compared to $35.2 million (12% margin) in the fourth quarter a year ago. Excluding $2.3 million of restructuring and severance costs and executive transition expenses of $7.1 million, fourth quarter fiscal 2016 EBITDA was $27.1 million (11% margin), compared to $38.2 million (13% margin) (which excluded $1.4 million of restructuring and severance costs and acquisition-related costs of $1.6 million) a year ago. For the year, EBITDA was $116.1 million (11% EBITDA margin) compared to $107.5 million (11% EBITDA margin) in fiscal 2015;
  • Earnings per share from continuing operations were 2 cents basic compared to 15 cents basic a year ago. Adjusted basic earnings per share from continuing operations1 were 14 cents compared to 24 cents in the fourth quarter a year ago;
  • Order Bookings were a record $390 million, a 23% increase from the fourth quarter of fiscal 2015. For the year, Order Bookings were $1,070 million, a 9% increase from prior year Order Bookings of $981 million;
  • Period end Order Backlog was $652 million, 3% higher than at March 31, 2015; and
  • The Company's balance sheet and financial capacity to support growth remained strong, with unutilized credit facilities of $639 million and $4.8 million of credit available under letter of credit facilities.

1 Non-IFRS measure: see "Notice to Reader: Non-IFRS Measures and Additional IFRS Measures".

 

Financial Results





In millions of Canadian dollars,
except per share data

3 months ended
March 31,
2016

3 months ended
March 31,
2015

12 months ended
March 31,
2016

3 months ended
March 31,
2015

Revenues

Continuing
Operations

$

246.8

$

289.4

$

1,039.6

$

936.1

Earnings from
operations1

Continuing
Operations

$

8.1

$

22.6

$

76.8

$

67.0

Adjusted earnings
from operations
1

Continuing
Operations

$

23.2

$

34.7

$

114.4

$

109.8

EBITDA1

Continuing
Operations

$

17.7

$

35.2

$

116.1

$

107.5

Net income

Continuing
Operations

$

1.4

$

13.9

$

39.6

$

38.9

Discontinued
Operations

$

––

$

2.2

$

––

$

16.2

Earnings per share

From continuing
operations (basic)

$

0.02

$

0.15

$

0.43

$

0.43

From discontinued
operations (basic)

$

––

$

0.03

$

––

$

0.18

From continuing
operations (diluted)

$

0.02

$

0.15

$

0.43

$

0.42

From discontinued
operations (diluted)

$

––

$

0.03

$

––

$

0.18

Adjusted earnings
per share1

From continuing
operations (basic)

$

0.14

$

0.24

$

0.72

$

0.77

1 Non-IFRS measure: see "Notice to Reader: Non-IFRS Measures and Additional IFRS Measures".

"Fourth quarter revenue performance was anticipated and reflected lower Order Backlog entering the period," said Anthony Caputo, Chief Executive Officer. "During the quarter, ATS set a new quarterly Order Bookings record on the way to generating over $1 billion in annual Order Bookings for the first time. Based on year-end Order Backlog, significant funnel and strong balance sheet, we are well positioned to continue to advance our value creation plan."

Fourth Quarter Summary
Fiscal 2016 fourth quarter revenues were 15% lower than in the corresponding period a year ago. Lower revenues primarily reflected lower Order Backlog entering the fourth quarter of fiscal 2016 compared to a year ago. This was partially offset by foreign exchange rate changes, which positively impacted the translation of revenues earned by foreign-based subsidiaries compared to the corresponding period a year ago, primarily reflecting the weakening of the Canadian dollar relative to the U.S dollar and Euro.

By market, fiscal 2016 fourth quarter revenues from consumer products & electronics were consistent with the corresponding period a year ago. Revenues generated in the energy market increased 9% due to Order Bookings. Revenues in the life sciences market decreased 24% primarily reflecting timing of project activities. Transportation revenues decreased 11% primarily reflecting lower Order Backlog entering fiscal 2016 fourth quarter due to timing of Order Bookings.

Fiscal 2016 fourth quarter earnings from operations were $8.1 million (3% operating margin) compared to $22.6 million (8% operating margin) in the fourth quarter of fiscal 2015. Fourth quarter fiscal 2016 earnings from operations included $7.1 million of executive transition expenses, $2.3 million of restructuring and severance costs and $5.7 million related to amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, and sortimat. Excluding these items, fourth quarter fiscal 2016 adjusted earnings from operations were $23.2 million (9% margin), compared to adjusted earnings from operations of $34.7 million (12% margin) a year ago. Lower adjusted earnings from operations primarily reflected lower revenues.

Depreciation and amortization expense was $9.6 million in the fourth quarter of fiscal 2016, compared to $12.6 million a year ago. The decrease primarily reflects lower amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, ATW and sortimat compared to the fourth quarter of fiscal 2015.

EBITDA was $17.7 million (7% EBITDA margin) in the fourth quarter of fiscal 2016 compared to $35.2 million (12% EBITDA margin) in the fourth quarter of fiscal 2015. Excluding executive transition expenses and restructuring and severance costs, fourth quarter fiscal 2016 EBITDA was $27.1 million (11% EBITDA margin). Comparably, excluding restructuring and severance costs and acquisition-related costs, fourth quarter fiscal 2015 EBITDA was $38.2 million (13% EBITDA margin). 

Executive Transition
In March 2016, the Company announced that Anthony Caputo, the Chief Executive Officer of the Company, will be leaving the Company in February 2017. In connection with this, the CEO and the Company have entered into a transition agreement that amends the CEO's employment agreement to, among other things: (i) secure for the Company an orderly transition period of approximately 11 months, allowing for both continuity of leadership in the interim and a thorough search and selection process for a successor suitable to lead the Company as it continues to realize on its growth and value creation ambitions; and (ii) provide that the CEO may leave earlier if a transition is completed prior to February 2017.  In turn, recognizing these clear benefits derived by the Company, the transition agreement provides for financial terms consistent with the CEO's long-standing employment agreement.  In accordance with the transition agreement, the CEO will receive a lump sum payment estimated as $5.0 million, which payment encompasses bonus entitlement for fiscal 2017, and a portion of which is subject to change based on the date the transition is completed, and the Company will incur $2.1 million of post-employment benefit expenses related to an additional two years of credited service towards the CEO's pension entitlement.

Order Bookings
Fourth quarter fiscal 2016 Order Bookings were $390 million, a 23% increase from the fourth quarter of fiscal 2015. Strength in consumer products & electronics, energy and life sciences markets more than offset lower activity in the transportation market.

Included in fourth quarter fiscal 2016 Order Bookings is an enterprise program valued at approximately U.S. $100 million from a North America-based customer that is a global leader in the solar energy market. ATS has provided innovative core manufacturing solutions to this customer for a number of years. The Order Booking involves delivery and installation of systems at several locations that will enable the customer to roll out a new global product. Multiple ATS divisions will be involved with the program delivery and execution.  

Foreign exchange rate changes positively impacted the translation of Order Bookings from foreign-based ATS subsidiaries compared to the corresponding period a year ago. 

Quarterly Conference Call
ATS' quarterly conference call begins at 10:00 a.m. eastern on Thursday May 19, 2016, and can be accessed live at www.atsautomation.com or on the phone by dialing (647) 427-7450 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 May 26, 2016) by dialing (416) 849-0833 and entering passcode 9227924 followed by the number sign.

About ATS
ATS is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services including pre-automation and after-sales services to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, chemicals, consumer products, electronics, food, beverage, transportation, energy, and oil and gas. Founded in 1978, ATS employs approximately 3,500 people at 24 manufacturing facilities and over 50 offices in North America, Europe, Southeast Asia and China.

Management's Discussion and Analysis
For the Year Ended March 31, 2016

This Management's Discussion and Analysis ("MD&A") for the year ended March 31, 2016 (fiscal 2016) is as of May 18, 2016 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 audited consolidated financial statements of the Company for the fiscal 2016 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. 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", "adjusted net income from continuing operations", "adjusted earnings from operations", "adjusted basic earnings per share from continuing operations", "non-cash working capital", "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. Such measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. 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. Adjusted earnings from operations is defined as earnings from operations before items excluded from management's internal analysis of operating results, such as amortization expense of acquisition-related intangible assets, acquisition-related transaction and integration costs, restructuring charges, and certain other adjustments which would be non-recurring in nature ("adjustment items"). Adjusted basic earnings per share from continuing operations is defined as adjusted net income from continuing operations on a basic per share basis, where adjusted net income from continuing operations is defined as adjusted earnings from operations less net finance costs and income tax expense, plus tax effects of adjustment items. Non-cash working capital is defined as the sum of accounts receivable, costs and earnings in excess of billing on contracts in progress, inventories, deposits, prepaids and other assets, less accounts payable, accrued liabilities, provisions and billings in excess of costs and earnings on contracts in progress. 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 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. Management believes that adjusted earnings from operations and adjusted basic earnings per share from continuing operations (including adjusted net income from continuing operations) are important measures to increase comparability of performance between periods. The adjustment items used by management to arrive at these metrics are not considered to be indicative of the business's ongoing operating performance. Management uses the measure non-cash working capital as a percentage of revenues to evaluate the Company's management of its investment in non-cash working capital. Management calculates non-cash working capital as a percentage of revenues using period end non-cash working capital divided by trailing two fiscal quarter revenues annualized.  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 additional IFRS measures and non-IFRS financial measures in making investment decisions and measuring operational results. EBITDA should not be construed as a substitute for net income determined in accordance with IFRS.  Adjusted earnings from operations is not necessarily indicative of earnings from operations or cash flows from operations as determined under IFRS and may not be comparable to similar measures presented by other companies.

A reconciliation of (i) earnings from operations and EBITDA to net income from continuing operations, and (ii) adjusted earnings from operations to earnings from operations, adjusted net income from continuing operations to net income from continuing operations and adjusted basic earnings per share from continuing operations to basic earnings per share from continuing operations, in each case for the three and twelve month periods ending March 31, 2016 and March 31, 2015 is contained in this MD&A (see "Reconciliation of Non-IFRS Measures to IFRS Measures"). A reconciliation of Order Bookings and Order Backlog to total Company revenues for the three and twelve month periods ending March 31, 2016 and March 31, 2015 is also contained in the MD&A (see "Order Backlog Continuity").

COMPANY PROFILE
ATS is an industry-leading automation solutions provider to many of the world's most successful companies. ATS uses its extensive knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services including pre-automation and after-sales services to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets such as life sciences, chemicals, consumer products, electronics, food, beverage, transportation, energy, and oil and gas. Founded in 1978, ATS employs approximately 3,500 people at 24 manufacturing facilities and over 50 offices in North America, Europe, Southeast Asia and China.

Value Creation Strategy
To drive value creation, the Company is focused on its growth strategy: Grow, Expand and Scale. The strategy is designed to leverage the strong foundation of ATS' 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 by offering: pre-automation services including, engineering, design, modelling and simulation, and program management; products, including contract manufacturing, automation and other manufacturing products; and after sales services, including training, preventative maintenance and process optimization, emergency on call support, life cycle material management, retooling and retrofits and other after sales services. 

Scale
The Company is committed to growth through acquisition and management believes that the Company has the organizational structure, business processes and experience to successfully integrate acquired companies.  Acquisition targets are evaluated on their ability to bring ATS market or technology leadership, scale and/or a market opportunity.  For each of ATS' 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. To date, ATS has successfully acquired four complementary and accretive businesses: sortimat Group ("sortimat") on June 1, 2010; Assembly & Test Worldwide ("ATW") on January 5, 2011; IWK Verpackungstechnik and Oystar IWK USA, Inc. ("IWK") on September 30, 2013 and M+W Process Automation GmbH and ProFocus LLC (collectively "Process Automation Solutions" or "PA") on September 1, 2014.

BUSINESS OVERVIEW
ATS is an industry-leading automation solutions provider to many of the world's most successful multinational companies. ATS has expertise in custom automation, repeat automation, automation products and value-added services including pre automation and after-sales services.

ATS serves customers in the following markets: life sciences, transportation, energy, consumer products, electronics, chemicals, food, beverage, and oil and gas. With broad and in-depth knowledge across multiple industries and technical fields, ATS is able to deliver single-source solutions to customers that lower their production costs, accelerate delivery of their products, and improve quality control. ATS engages with customers on both greenfield programs, such as equipping new factories, and brownfield programs such as capacity expansions, line moves, equipment upgrades, software upgrades, efficiency improvements and factory optimization. 

ATS and its subsidiaries engage at varying points in the customers' automation cycle. During the pre-automation phase, ATS offers a number of services including discovery and analysis, concept development, simulation and total cost of ownership modelling, all of which helps to verify the feasibility of different types of automation, set objectives for factors such as line speed and yield, assess production processes for manufacturability and calculate the total cost of ownership.

For customers that have decided to proceed with an automation project, ATS offers a number of automation and integration services, including engineering design, prototyping, process verification, specification writing, software and manufacturing process controls development, equipment design and build, standard automation products/platforms, third-party equipment qualification, procurement and integration, automation system installation, product line commissioning, validation, and documentation. Following the installation of custom automation, ATS may supply duplicate or "repeat" automation systems to customers that leverage engineering design completed in the original customer program. For customers seeking complex equipment production or build-to-print manufacturing, ATS provides value engineering, supply chain management, integration and manufacturing capabilities and other automation products and solutions.

Post automation, ATS offers a number of services including customer training, preventative maintenance, process optimization, emergency and on call support, spare parts, retooling, retrofits and equipment relocation.

Contract values for individual automation systems vary and are often in excess of $1 million, with some contracts for enterprise-type programs well in excess of $10 million. Due to the custom nature of customer projects, contract durations vary, with typical durations ranging from six to 12 months, and some larger contracts extending up to 18 to 24 months. Contract values for pre-automation services and post-automation services range in value and can exceed $1 million with varying durations which can sometimes extend over a number of years.

Competitive Strengths
Management believes ATS has the following competitive strengths:

Global presence, size and critical mass: ATS' global presence and scale provide an advantage in serving multinational customers. The markets in which the Company operates are served primarily by competitors with narrow geographic and/or industrial market reach. ATS has manufacturing operations in Canada, the United States, Germany, China, Malaysia, and Thailand. ATS can deliver localized service through a network of over 50 offices located around the world. Management believes that ATS' scale and global footprint provide it with competitive advantages in winning large, multinational customer programs that have become increasingly common in the industry. 

Technical skills, capabilities and experience: Automation manufacturing is a knowledge-based business. ATS has designed, manufactured, assembled and serviced over 23,000 automation systems worldwide and has an extensive knowledge base and accumulated design expertise. Management believes ATS' broad experience in many different industrial markets and with diverse technologies, its talented workforce which includes over 1,200 engineers and over 180 program management personnel, and its ability to provide custom automation, repeat automation, automation products and value-added services, position the Company well to serve complex customer programs in a variety of markets.

Product and technology portfolio: Through its history of bringing thousands of unique automation projects to market, ATS and its subsidiaries have developed an extensive product and technology portfolio. ATS has a number of standard automation platforms, including: SuperTrakTM, an in-line, high-speed flexible pallet transport system; Discovery DialTM, a rotary dial indexer; and JetwingTM and SpacelineTM, both synchronous indexing chassis. Each of these automation platforms can be tailored to a customer's unique requirements. The Company has recently introduced OmniTrakTM, which combines the synchronous drive of the SpacelineTM chassis with asynchronous pallet movement provided by the programmable SuperTrakTM pallet transfer system, which allows for multiple process times and selective synchronization of devices.

Other standard automation products and technologies include advanced vision systems used to ensure product or process quality, numerous material handling and feeder technologies, high-accuracy and high precision laser processing technologies, high performance tube filling and cartoning technologies and advanced HMI control systems. Management believes the Company's extensive product and technology portfolio gives it an advantage in developing unique and leading solutions for customers and maintaining competitiveness.

Recognized brands: Management believes ATS is well known within the global automation industry due to its long history of innovation and broad scope of operations. In addition, ATS' subsidiaries include several strong brands: "sortimat", which specializes in the life sciences market; "ATW", which specializes in the transportation market; "IWK", which specializes in the packaging market; and "Process Automation Solutions" or "PA", which provides innovative automation solutions for process and production sectors.  Management believes that ATS' brand names and global reputation improve sales prospecting, allowing the Company to be considered for a wide variety of customer programs.

Trusted customer relationships: ATS serves some of the world's largest multinational companies. Most of ATS' customers are repeat customers and many have long-standing relationships with ATS, often spanning more than a decade. Management estimates that approximately 90% of ATS Order Bookings in fiscal 2016 were placed by repeat customers.

Total-solutions capabilities: Management believes the Company gains competitive advantages because ATS provides total turn-key solutions in automation. This allows customers to single source their most complex projects to ATS rather than rely on multiple engineering firms and equipment builders. In addition, ATS can provide customers with other value-added services including pre-automation consulting, total cost of ownership studies, life cycle material management, post-automation service, training and support.

OVERVIEW – OPERATING RESULTS FROM CONTINUING OPERATIONS
Results from continuing operations comprise the results of ATS' continuing operations and corporate costs not directly attributable to Solar, which was divested in fiscal 2015.  The results of the Solar segment are reported in discontinued operations.










Consolidated Revenues from Continuing Operations









(In millions of dollars)


















Revenues by market


Q4 2016


Q4 2015


Fiscal 2016


Fiscal 2015

Consumer products & electronics

$

38.9

$

38.9

$

160.4

$

165.1

Energy


18.4


16.9


74.5


63.3

Life sciences


105.6


138.8


435.5


393.1

Transportation


83.9


94.8


369.2


314.6

Total revenues from continuing operations

$

246.8

$

289.4

$

1,039.6

$

936.1










Revenues by installation location


Q4 2016


Q4 2015


Fiscal 2016


Fiscal 2015

North America 

$

93.3

$

151.9

$

456.9

$

450.4

Europe


100.6


96.7


394.1


330.1

Asia/Other


52.9


40.8


188.6


155.6

Total revenues from continuing operations

$

246.8

$

289.4

$

1,039.6

$

936.1

 

Fourth Quarter
Fiscal 2016 fourth quarter revenues were 15% lower than in the corresponding period a year ago. Lower revenues primarily reflected lower Order Backlog entering the fourth quarter of fiscal 2016 compared to a year ago. This was partially offset by foreign exchange rate changes, which positively impacted the translation of revenues earned by foreign-based subsidiaries compared to the corresponding period a year ago, primarily reflecting the weakening of the Canadian dollar relative to the U.S dollar and Euro.

By market, fiscal 2016 fourth quarter revenues from consumer products & electronics were consistent with the corresponding period a year ago. Revenues generated in the energy market increased 9% due to Order Bookings. Revenues in the life sciences market decreased 24% primarily reflecting timing of project activities. Transportation revenues decreased 11% primarily reflecting lower Order Backlog entering the fiscal 2016 fourth quarter due to timing of Order Bookings.

Full Year
Fiscal 2016 revenues were 11% higher than in the corresponding period a year ago, primarily reflecting revenues earned by PA. Fiscal 2016 PA revenues were $271.0 million compared to $151.5 million in fiscal 2015, which included only seven months of PA (which was acquired on September 1, 2014). Excluding PA, revenues decreased $16.0 million or 2% from the corresponding period a year ago.  Foreign exchange rate changes positively impacted the translation of revenues earned by foreign-based subsidiaries compared to a year ago, primarily reflecting the weakening of the Canadian dollar relative to the U.S dollar and Euro.  

By market, fiscal 2016 revenues from consumer products & electronics market decreased 3% primarily reflecting timing of project activities. Revenues generated in the energy market increased 18%, primarily reflecting higher Order Bookings in the previous three quarters. Revenues generated in the life sciences market increased 11%, primarily on revenues earned by PA. Transportation revenues increased 17%, primarily on revenues earned by PA and foreign exchange translation.    

Consolidated Operating Results









(In millions of dollars)











Q4 2016


Q4 2015


Fiscal 2016


Fiscal 2015










Earnings from operations

$

8.1

$

22.6

$

76.8

$

67.0

Amortization of acquisition-related









intangible assets


5.7


9.1


24.5


28.1

Acquisition-related transaction costs



1.6



13.3

Restructuring charges


2.3


1.4


9.7


1.4

Gain on sale of assets




(3.7)


Executive transition expenses1


7.1



7.1


Adjusted earnings from operations2

$

23.2

$

34.7

$

114.4

$

109.8

1 See "Executive Transition" below.







2 See "Notice to Reader: Non-IFRS Measures and Additional IFRS Measures."



























Q4 2016


Q4 2015


Fiscal 2016


Fiscal 2015

Earnings from operations

$

8.1

$

22.6

$

76.8

$

67.0

Depreciation and amortization


9.6


12.6


39.3


40.5

EBITDA2

$

17.7

$

35.2

$

116.1

$

107.5

2 See "Notice to Reader: Non-IFRS Measures and Additional IFRS Measures."






 

Fourth Quarter
Fiscal 2016 fourth quarter earnings from operations were $8.1 million (3% operating margin) compared to $22.6 million (8% operating margin) in the fourth quarter of fiscal 2015. Fourth quarter fiscal 2016 earnings from operations included $7.1 million of executive transition expenses, $2.3 million of restructuring and severance costs and $5.7 million related to amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, and sortimat. Excluding these items, fourth quarter fiscal 2016 adjusted earnings from operations were $23.2 million (9% margin), compared to adjusted earnings from operations of $34.7 million (12% margin) a year ago. Adjusted earnings from operations primarily reflected lower revenues.

Depreciation and amortization expense was $9.6 million in the fourth quarter of fiscal 2016, compared to $12.6 million a year ago. The decrease primarily reflected lower amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, ATW and sortimat compared to the fourth quarter of fiscal 2015.

EBITDA was $17.7 million (7% EBITDA margin) in the fourth quarter of fiscal 2016 compared to $35.2 million (12% EBITDA margin) in the fourth quarter of fiscal 2015. Excluding executive transition expenses and restructuring and severance costs, fourth quarter fiscal 2016 EBITDA was $27.1 million (11% EBITDA margin). Comparably, excluding restructuring and severance costs and acquisition-related costs, fourth quarter fiscal 2015 EBITDA was $38.2 million (13% EBITDA margin).  

Full Year
Earnings from operations were $76.8 million (7% operating margin) compared to $67.0 million (7% operating margin) in the corresponding period a year ago. Earnings from operations included $7.1 million of executive transition expenses, a gain of $3.7 million on the sale of a redundant U.S. facility, $9.7 million of restructuring and severance costs and $24.5 million of amortization costs related to the amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, ATW, and sortimat. Excluding these items, adjusted earnings from operations were $114.4 million (11% margin) compared to adjusted earnings from operations of $109.8 million (12% margin) in the corresponding period a year ago. Higher adjusted earnings from operations primarily reflected increased revenues, lower employee incentive costs and other discretionary spending reductions. These were partially offset by higher cost of revenues caused by some lower margin programs which were bid and executed by the Company, and certain programs where costs exceeded budgets.

Depreciation and amortization expense was $39.3 million in fiscal 2016 compared to $40.5 million a year ago.

EBITDA was $116.1 million (11% EBITDA margin) compared to $107.5 million (11% EBITDA margin) in fiscal 2015. Excluding executive transition expenses, restructuring costs, and the gain on the sale of the U.S. facility, fiscal 2016 EBITDA was $129.2 million (12% EBITDA margin). Comparably, excluding restructuring costs and acquisition-related costs, fiscal 2015 EBITDA was $122.2 million (13% EBITDA margin). 

Executive Transition

In March 2016, the Company announced that Anthony Caputo, the Chief Executive Officer of the Company, will be leaving the Company in February 2017. In connection with this, the CEO and the Company have entered into a transition agreement that amends the CEO's employment agreement to, among other things; (i) secure for the Company an orderly transition period of approximately 11 months, allowing for both continuity of leadership in the interim and a thorough search and selection process for a successor suitable to lead the Company as it continues to realize on its growth and value creation ambitions; and (ii) provide that the CEO may leave earlier if a transition is completed prior to February 2017.  In turn, recognizing these clear benefits derived by the Company, the transition agreement provides for financial terms consistent with the CEO's long-standing employment agreement.  In accordance with the transition agreement, the CEO will receive a lump sum payment estimated as $5.0 million, which payment encompasses bonus entitlement for fiscal 2017, and a portion of which is subject to change based on the date the transition is completed, and the Company will incur $2.1 million of post-employment benefit expenses related to an additional two years of credited service towards the CEO's pension entitlement.

Order Bookings by Quarter



(In millions of dollars)




 Fiscal 2016

 Fiscal 2015

Q1

$

222

$

161

Q2


230


216

Q3


228


287

Q4


390


317

Total Order Bookings

$

1,070

$

981

 

Fourth Quarter
Fourth quarter fiscal 2016 Order Bookings were $390 million, a 23% increase from the fourth quarter of fiscal 2015. Strength in energy, consumer products & electronics, and life sciences more than offset lower activity in the transportation market.

Included in fourth quarter fiscal 2016 Order Bookings is an enterprise program valued at approximately U.S. $100 million from a North American-based customer that is a global leader in the solar energy market. ATS has provided innovative core manufacturing solutions to this customer for a number of years. The Order Booking involves delivery and installation of systems at several locations that will enable the customer to roll out a new global product. Multiple ATS divisions will be involved with the program delivery and execution.

Foreign exchange rate changes positively impacted the translation of Order Bookings from foreign-based ATS subsidiaries compared to the corresponding period a year ago. 

Full Year
Fiscal 2016 Order Bookings were $1,070 million, a 9% increase from prior year Order Bookings of $981 million. The increase in Order Bookings reflected a full year's contribution from PA (compared to seven months in fiscal 2015). By market, strength in energy, as well as consumer products & electronics more than offset lower activity in life sciences and transportation. Foreign exchange rate changes also positively impacted the translation of Order Bookings from foreign-based ATS subsidiaries compared to fiscal 2015.

Order Backlog Continuity





(In millions of dollars)






Q4 2016

Q4 2015

Fiscal 2016

Fiscal 2015

Opening Order Backlog        

$

546

$

602

$

632

$

474

Revenues          


(247)


(289)


(1,040)


(936)

Order Bookings           


390


317


1,070


981

Order Backlog adjustments1   


(37)


2


(10)


113

Total      

$

652

$

632

$

652

$

632

1 Order Backlog adjustments include foreign exchange adjustments and cancellations. Fiscal 2015
also included incremental Order Backlog of $131 million acquired with PA.















Order Backlog by Market







(In millions of dollars)












Fiscal 2016

 Fiscal 2015

Consumer products & electronics                         





$

85

$

64

Energy                                                      






186


53

Life sciences                                            






224


255

Transportation                                                  






157


260

Total                                                               





$

652

$

632

 

At March 31, 2016, Order Backlog was $652 million, 3% higher than at March 31, 2015. Higher Order Backlog in consumer products & electronics and energy markets was partially offset by lower Order Backlog in life sciences and transportation markets. Foreign exchange rate changes also positively impacted the translation of Order Backlog from foreign-based ATS subsidiaries compared to fiscal 2015.

Outlook
The global economic environment has continued to show signs of volatility and uncertainty remains. In the U.S., economic growth remains slow, and the Canadian and European economies remain weak. Economic growth continues to decelerate in China and other parts of Asia. A prolonged or more significant downturn in an economy where the Company operates could negatively impact Order Bookings and may add to volatility in Order Bookings.

Many customers remain cautious in their approach to capital investment. Although funnel activity in life sciences and transportation markets has remained strong, a number of customers have continued to delay investment decisions. Opportunities in energy markets are sporadic. Funnel activity in the consumer products & electronics market has improved; however, it remains low relative to other customer markets. Overall, funnel activity remains strong and proposal activity is robust; however, conversion of opportunities into Order Bookings is variable. 

The Company's sales organization continues to work to engage customers on enterprise-type solutions. The Company expects that this will provide ATS with more strategic relationships, increased predictability, better program control and less sensitivity to macroeconomic forces. This approach to market and the timing of customer decisions on larger opportunities 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 Order Backlog of $652 million at the end of fiscal 2016 to partially mitigate the impact of volatile Order Bookings on revenues in the short term. In the first quarter of fiscal 2017, management expects Order Backlog conversion to be in the range of 35% to 40%. The expected conversion rate is lower than in recent quarters due primarily to lower Order Bookings in the first three quarters of fiscal 2016, which will only be partially offset by the ramp-up of the U.S. 100 million enterprise program which is expected to be substantially completed over the next four quarters. Based on the lower expected conversion of Order Backlog, the Company expects its earnings from operations to be negatively impacted in the first quarter of fiscal 2017 due to lower expected revenues. Based on the Company's current Order Backlog, management believes it has the appropriate cost structure to deliver on its programs going forward.

Management's disciplined focus on program management, cost reductions, standardization and quality is expected to put ATS in a strong competitive position to capitalize on opportunities. In fiscal 2016, the Company initiated the closure of its India-based operations, completed the previously announced closure of a U.S. operation, completed the divestiture of a Swiss-based automation operation through a sale to a third party, and initiated additional actions to re-balance global capacity and improve the Company's cost structure. These actions resulted in charges of $9.7 million in fiscal 2016. Over the long term, management expects that the application of its ongoing efforts to improve ATS' cost structure, business processes, leadership and supply chain management will have a positive impact on ATS operations. 

The Company seeks to continue to expand its position in the global automation market organically and through acquisition. The Company's solid foundation and strong cash flow generation capability provide the flexibility to pursue its growth strategy.

CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS
SELECTED FOURTH QUARTER AND ANNUAL INFORMATION
(In millions of dollars, except per share data)


  Q4 2016

Q4 2015   

Fiscal 2016

Fiscal 2015

Fiscal 2014

Revenues   

$

246.8

$

289.4

$

1,039.6

$

936.1

$

683.4

Cost of revenues 


185.7


217.3


780.9


691.1


501.7

Selling, general and administrative  


53.5


49.0


179.3


173.7


113.3

Stock-based compensation      


(0.5)


0.5


2.6


4.3


7.3

Earnings from operations    

$

8.1

$

22.6

$

76.8

$

67.0

$

61.0

Net finance costs        

$

7.9

$

4.3

$

26.7

$

11.9

$

3.0

Provision for (recovery of) income taxes   


(1.2)


4.4

$

10.5


16.2


8.6

Net income from











continuing operations    

$

1.4

$

13.9

$

39.6

$

38.9

$

49.4

Income from discontinued











operations, net of tax    

$

$

2.2

$

$

16.2

$

12.8

Net income    

$

1.4

$

16.1

$

39.6

$

55.1

$

62.2












Earnings per share











Basic from continuing operations          

$

0.02

$

0.15

$

0.43

$

0.43

$

0.56

Basic from discontinued operations     

$

$

0.03

$

$

0.18

$

0.14


$

0.02

$

0.18

$

0.43

$

0.61

$

0.70












Diluted from continuing operations     

$

0.02

$

0.15

$

0.43

$

0.42

$

0.55

Diluted from discontinued operations  

$

$

0.03

$

$

0.18

$

0.14


$

0.02

$

0.18

$

0.43

$

0.60

$

0.69

From continuing operations:











Total assets           





$

1,367.5

$

1,220.7

$

778.4

Total cash and short-term investments    





$

170.0

$

106.1

$

76.5

Total bank debt       





$

323.7

$

291.3

$

6.0

 

Revenues. At $246.8 million, consolidated revenues from continuing operations for the fourth quarter of fiscal 2016 were $42.6 million or 15% lower than the corresponding period a year ago. At $1,039.6 million, fiscal 2016 revenues were $103.5 million, or 11%, higher than in the corresponding year ago. See "Overview – Operating Results from Continuing Operations."

Cost of revenues.  At $185.7 million, fourth quarter fiscal 2016 cost of revenues decreased compared to the corresponding period a year ago by $31.6 million or 15%, primarily on lower revenues. Annual cost of revenues of $780.9 million increased by $89.8 million or 13%, primarily on higher revenues generated compared to the corresponding period last year due to incremental PA revenues.

At 25%, gross margin in the fourth quarter of fiscal 2016 was consistent with the corresponding period a year ago. Fiscal 2016 gross margin of 25% decreased 1% from the corresponding period a year ago. Lower fiscal 2016 gross margins primarily reflected the addition of PA, which has typically operated with a lower gross margin than ATS. For PA, higher cost of sales is partially offset by lower selling, general and administrative costs relative to revenues compared to ATS. In addition, lower gross margins reflected some lower margin programs which were bid and are being executed by the Company, and certain programs where costs exceeded budgets.

Selling, general and administrative ("SG&A") expenses.  SG&A expenses for the fourth quarter of fiscal 2016 were $53.5 million, which included $5.7 million of amortization costs related to the amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, and sortimat, $2.3 million of restructuring and severance costs and $7.1 million of executive transition expenses. Excluding these costs, SG&A expenses were $38.4 million in the fourth quarter of fiscal 2016. Comparably, SG&A expenses for the fourth quarter of fiscal 2015 were $36.9 million, which excluded $9.1 million of amortization costs related to the amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, ATW and sortimat, $1.6 million of acquisition-related costs, and $1.4 million of restructuring and severance costs. Excluding these items, higher SG&A expenses in the fourth quarter of fiscal 2016 primarily reflected foreign exchange rate changes which increased the translation of reported SG&A expenses of foreign-based subsidiaries due to the weakening of the Canadian dollar relative to the U.S. dollar and Euro.

Fiscal 2016 SG&A expenses were $179.3 million, which included $24.5 million of amortization costs related to the amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK,ATW, and sortimat, $9.7 million of restructuring and severance costs, a gain of $3.7 million on the sale of a U.S. facility, and $7.1 million of executive transition expenses. Excluding these items, SG&A expenses were $141.7 million for fiscal 2016. Comparably, SG&A expenses for fiscal 2015 were $130.9, which excluded $28.1 million of amortization costs related to the amortization of identifiable intangible assets recorded on the acquisitions of PA, IWK, ATW and sortimat, $13.3 million of acquisition-related costs and $1.4 million of restructuring and severance costs. Higher SG&A expenses in fiscal 2016 primarily reflected the addition of PA and foreign exchange rate changes which increased the translation of reported SG&A expenses of foreign-based subsidiaries, primarily due to the weakening of the Canadian dollar relative to the U.S. dollar and Euro.

Stock-based compensation.  Stock-based compensation recovery amounted to $0.5 million in the fourth quarter of fiscal 2016 compared to $0.5 million of stock-based compensation expense in the corresponding period a year ago. Fiscal 2016 stock-based compensation expense decreased to $2.6 million from $4.3 million a year ago. The decrease in stock-based compensation costs is attributable to lower expenses from stock options and the revaluation of deferred stock units, share appreciation rights, and restricted share units.

Earnings from operations.  For the three and twelve month periods ended March 31, 2016, consolidated earnings from operations were $8.1 million (3% operating margin) and $76.8 million (7% operating margin), respectively, compared to earnings from operations of $22.6 million (8% operating margin) and $67.0 million (7% operating margin), respectively, in the corresponding periods of fiscal 2015. See "Overview – Operating Results from Continuing Operations."

Net finance costs.  Net finance costs were $7.9 million in the fourth quarter of fiscal 2016, $3.6 million higher than the corresponding period a year ago. Fiscal 2016 finance costs were $26.7 million compared to $11.9 million in the corresponding period a year ago. The increase reflected interest on the Company's Senior Notes, which were issued in June 2015 (see "Liquidity, Cash Flow and Financial Resources"). The increased usage relates to financing the acquisition of PA and to support letters of credit.  

Income tax provision. For the three months ended March 31, 2016, the Company recorded an income tax recovery of $1.2 million. This primarily reflected losses for income tax purposes that were realized in certain jurisdictions, for which a future benefit is expected to be realized. 

For the twelve months ended March 31, 2016, the Company's effective income tax rate of 21% differed from the combined Canadian basic federal and provincial income tax rate of 27% primarily as a result of the income tax recovery recorded in the fourth quarter of fiscal 2016 and income earned in certain jurisdictions with different statutory tax rates. The Company expects its effective tax rate to below 25% in the near term.

Net income from continuing operations. Fiscal 2016 fourth quarter net income from continuing operations was $1.4 million (2 cents per share basic and diluted) compared to $13.9 million (15 cents per share basic and diluted) for the fourth quarter of fiscal 2015.  Adjusted basic earnings per share from continuing operations were 14 cents in the fourth quarter of fiscal 2016 compared to 24 cents for the fourth quarter of fiscal 2015.  See "Reconciliation of Non-IFRS Measures to IFRS Measures."

Fiscal 2016 net income from continuing operations was $39.6 million (43 cents per share basic and diluted) compared to $38.9 million (43 cents per share basic and 42 cents per share diluted) for the corresponding period a year ago. Adjusted basic earnings per share from continuing operations were 72 cents in fiscal 2016, compared to 77 cents in the corresponding period a year ago.  See "Reconciliation of Non-IFRS Measures to IFRS Measures."

Income from discontinued operations, net of tax. For the three and twelve month periods ended March 31, 2015, Ontario Solar recorded income of $2.2 million and $16.2 million respectively, which related to the sale of its ground-mount solar projects. During fiscal 2015, all remaining solar assets were divested. There were no such transactions in fiscal 2016.

Reconciliation of Non-IFRS Measures to IFRS Measures
(In millions of dollars)

The following table reconciles EBITDA to the most directly comparable IFRS measure (net income from continuing operations):


Fiscal 2016

Fiscal 2015

Fiscal 2014

EBITDA 

$

116.1

$

107.5

$

79.4

Less: depreciation and amortization expense    


39.3


40.5


18.4

Earnings from operations 

$

76.8

$

67.0

$

61.0

Less: net finance costs   


26.7


11.9


3.0

Provision for income taxes  


10.5


16.2


8.6

Net income from continuing operations  

$

39.6

$

38.9

$

49.4














Q4 2016

Q4 2015

EBITDA



$

17.7

$

35.2

Less: depreciation and amortization expense




9.6


12.6

Earnings from operations



$

8.1

$

22.6

Less: net finance costs




7.9


4.3

Provision for (recovery of) income taxes




(1.2)


4.4

Net income from continuing operations      



$

1.4

$

13.9

The following table reconciles adjusted earnings from operations and adjusted basic earnings per share from continuing operations to the most directly comparable IFRS measure (net income from continuing operations and basic earnings per share respectively):   




Three Months Ended

March 31, 2016

 Three Months Ended

March 31, 2015






IFRS

Adjustments

Adjusted

IFRS Adjustments

Adjusted






(non-IFRS)





 (non-IFRS)

Earnings from operations         

$

8.1

$

$

8.1

$

22.6

$

$

22.6

Amortization of acquisition-














related intangible assets



5.7


5.7



9.1


9.1

Acquisition-related














transaction costs






1.6


1.6

Restructuring charges



2.3


2.3



1.4


1.4

Executive transition expenses1



7.1


7.1





$

8.1

$

15.1

$

23.2

$

22.6

$

12.1

$

34.7

Less: net finance costs

$

7.9

$

$

7.9

$

4.3

$

$

4.3

Income from continuing














operations before














income taxes

$

0.2

$

15.1

$

15.3

$

18.3

$

12.1

$

30.4

Provision for (recovery of)














income taxes

$

(1.2)

$

$

(1.2)

$

4.4

$

$

4.4

Adjustment to provision for














income taxes2



4.0


4.0



3.5


3.5


$

(1.2)

$

4.0

$

2.8

$

4.4

$

3.5

$

7.9

Net income from continuing














operations

$

1.4

$

11.1

$

12.5

$

13.9

$

8.6

$

22.5

Basic earnings per share














from continuing operations

$

0.02

$

0.12

$

0.14

$

0.15

$

0.09

$

0.24

1 See "Overview – Operating Results from Continuing Operations – Executive Transition".

2 Adjustments to provision for income taxes relate to the income tax effects of adjustment items that are excluded
for the purposes of calculating non-IFRS based adjusted net income from continuing operations.

 

 




Three Months Ended

March 31, 2016

Three Months Ended

March 31, 2015






IFRS

Adjustments

Adjusted

IFRS Adjustments

Adjusted






(non-IFRS)





(non-IFRS)

Earnings from operations    

$

76.8

$

$

76.8

$

67.0

$

$

67.0

Amortization of acquisition-














related intangible assets



24.5


24.5



28.1


28.1

Acquisition-related














transaction costs






13.3


13.3

Restructuring charges



9.7


9.7



1.4


1.4

Gain on sale of assets 



(3.7)


(3.7)




Executive transition expenses



7.1


7.1





$

76.8

$

37.6

$

114.4

$

67.0

$

42.8

$

109.8

Less: net finance costs

$

26.7

$

$

26.7

$

11.9

$

$

11.9

Income from continuing














operations before














income taxes

$

50.1

$

37.6

$

87.7

$

55.1

$

42.8

$

97.9

Provision for income taxes

$

10.5

$

$

10.5

$

16.2

$

$

16.2

Adjustment to provision for














income taxes1



10.7


10.7



11.4


11.4


$

10.5

$

10.7

$

21.2

$

16.2

$

11.4

$

27.6

Net income from continuing














operations

$

39.6

$

26.9

$

66.5

$

38.9

$

31.4

$

70.3

Basic earnings per share














from continuing operations

$

0.43

$

0.29

$

0.72

$

0.43

$

0.34

$

0.77

1 See "Overview – Operating Results from Continuing Operations – Transition Agreement".

2 Adjustments to provision for income taxes relate to the income tax effects of adjustment items that are excluded
for the purposes of calculating non-IFRS based adjusted net income from continuing operations.

 

 

SUMMARY OF INVESTMENTS, LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES  

Investments 

(In millions of dollars)  


Fiscal 2016

Fiscal 2015

Investments – increase (decrease)                                                                                                  





Non-cash operating working capital                                                                                 

$

30.8

$

(3.6)

Property, plant and equipment                                                                                             


10.1


11.2

Acquisition of intangible assets                                                                                               


5.6


6.8

Business acquisition, net of cash acquired                                                                              



355.4

Purchase of non-controlling interest                                                                                          


0.1


4.4

Proceeds from disposal of assets                                                                                               


(22.3)


(8.9)

Proceeds from sale of subsidiary                                                                                                    


(2.3)


                    ―

Investing activities of discontinued operations                                                                                



(22.1)

Total net investments                                                                                                      

$

22.0

$

343.2

 

In fiscal 2016, the Company's investment in non-cash working capital increased $30.8 million compared to a decrease of $3.6 million a year ago.  Accounts receivable increased 35% or $50.6 million, driven by the increase in fiscal 2016 revenues and the timing of billings on certain customer contracts. Net contracts in progress decreased 34% or $40.2 million compared to March 31, 2015. 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 10% or $4.1 million primarily due to the timing of inventory purchases. Deposits and prepaid assets increased 52% or $7.6 million compared to March 31, 2015 due to the timing of program execution. Accounts payable and accrued liabilities decreased 11% or $22.0 million compared to March 31, 2015. Provisions increased 95% or $9.8 million compared to March 31, 2015 due to the executive transition provision accrued in fiscal 2016.

Capital expenditures totalled $10.1 million for fiscal 2016, primarily related to computer hardware. Capital expenditures totalled $11.2 million in fiscal 2015, primarily related to incremental capital expenditures from the addition of PA. 

Intangible assets expenditures for fiscal 2016 and fiscal 2015 were $5.6 million and $6.8 million respectively and primarily related to computer software and internal development projects.

Business acquisition, net of cash acquired was $355.4 million in fiscal 2015 due to the acquisition of PA. There were no such transactions in fiscal 2016. Purchase of non-controlling interest was $0.1 million in fiscal 2016 compared to $4.4 million in fiscal 2015.

Proceeds from disposal of assets were $22.3 million in fiscal 2016, compared to $8.9 million in fiscal 2015. The increase primarily reflects the sale of a U.S. facility and the sale of certain other redundant assets.

Proceeds from sale of subsidiary were $2.3 million in fiscal 2016, compared to $nil in fiscal 2015. The increase reflected the sale of a Swiss subsidiary, which closed in the first quarter of fiscal 2016. 

The Company performs impairment tests on its goodwill and intangible asset balances on an annual basis or as warranted by events or circumstances. The Company conducted its annual impairment assessment in the fourth quarter of fiscal 2016 and determined there is no impairment of goodwill or intangible assets as of March 31, 2016 (fiscal 2015 – $nil).

All of the Company's investments involve risks and require that the Company make judgments and estimates regarding the likelihood of recovery of the respective costs. In the event management determines that any of the Company's investments have become permanently impaired or recovery is no longer reasonably assured, the value of the investment would be written down to its estimated net realizable value as a charge against earnings. Due to the magnitude of certain investments, such write-downs could be material.

LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES

(In millions of dollars, except ratios)








   Fiscal 2016


   Fiscal 2015

Cash and cash equivalents

$

170.0

$

106.1

Debt-to-equity ratio


0.56:1


0.54:1

Cash flows provided by operating activities from





continuing operations                                                                                                        

$

35.8

$

82.1

 

At March 31, 2016, the Company had cash and cash equivalents of $170.0 million compared to $106.1 million at March 31, 2015. At March 31, 2016, the Company's debt-to-total equity ratio was 0.56:1.

At March 31, 2016, the Company had $639.0 million of unutilized multipurpose credit, including letters of credit, available under existing credit facilities and an additional $4.8 million available under letter of credit facilities.

In fiscal 2016, cash flows provided by operating activities from continuing operations were $35.8 million ($82.1 million provided by in the corresponding period a year ago). The decrease in operating cash flows related primarily to the timing of investments in non-cash working capital in certain customer programs.

During fiscal 2016, the Company completed a private placement of U.S. $250.0 million aggregate principal amount of senior notes (the "Senior Notes"). Transaction fees of $7.2 million were deferred and will be amortized over the term of the Senior Notes. The Senior Notes are unsecured, were issued at par, bear interest at a rate of 6.50% per annum and mature on June 15, 2023. ATS used the majority of net proceeds from the Senior Notes to repay amounts outstanding under its senior secured credit facility, with the balance to be used for general corporate purposes. The Company may redeem the Senior Notes, in whole at any time or in part from time to time, at specified redemption prices and subject to certain conditions required by the Senior Notes. If the Company experiences a change of control, the Company may be required to repurchase the Senior Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date. The Senior Notes contain customary covenants that restrict, subject to certain exceptions and thresholds, some of the activities of the Company and its subsidiaries, including the Company's ability to dispose of assets, incur additional debt, pay dividends, create liens, make investments, and engage in specified transactions with affiliates.  Subject to certain exceptions, the Senior Notes are guaranteed by each of the subsidiaries of the Company that is a borrower or has guaranteed obligations under the Credit Facility.

The Company's senior secured credit facility (the "Credit Facility") provides a committed revolving credit facility of $750.0 million. The Credit Facility is secured by: (i) the Company's assets, including real estate; (ii) assets, including certain real estate, of certain of the Company's North American subsidiaries; and (iii) a pledge of shares of certain of the Company's non-North American subsidiaries. Certain of the Company's subsidiaries also provide guarantees under the Credit Facility. At March 31, 2016, the Company had utilized $115.1 million under the Credit Facility by way of letters of credit (March 31, 2015 - $290.0 million classified as long-term debt and $85.0 million by way of letters of credit).  The Credit Facility matures on August 29, 2018.

The Credit Facility is available in Canadian dollars by way of prime rate advances and/or bankers' acceptances, in U.S. dollars by way of base rate advances and/or LIBOR advances, in Swiss francs, Euros and British pounds sterling by way of LIBOR advances and by way of letters of credit for certain purposes in Canadian dollars, U.S. dollars and Euros.  The interest rates applicable to the Credit Facility are determined based on a debt to EBITDA ratio as defined in the Credit Facility. 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 a margin ranging from 0.45% to 2.00%.  For bankers' acceptances and LIBOR advances, the interest rate is equal to the bankers' acceptance fee or the LIBOR, respectively, plus a margin that varies from 1.45% to 3.00%. The Company pays a fee for usage of financial letters of credit which ranges from 1.45% to 3.00% and a fee for usage of non-financial letters of credit which ranges from 0.97% to 2.00%. The Company pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the Credit Facility at rates ranging from 0.29% to 0.68%.

The Credit Facility is subject to a debt to EBITDA test and an interest coverage test.  Under the terms of the Credit Facility, the Company is restricted from encumbering any assets with certain permitted exceptions.  The Credit Facility also limits advances to subsidiaries and partially restricts the Company from repurchasing its common shares and paying dividends. At March 31, 2016, all of the covenants were met.

The Company has additional credit facilities available of $12.7 million (3.6 million Euro, 275.0 million Indian Rupees, 50.0 million Thai Baht and 1.1 million Czech Koruna).  The total amount outstanding on these facilities at March 31, 2016 was $9.4 million, of which $2.3 million was classified as bank indebtedness (March 31, 2015 - $1.7 million) and $7.1 million was classified as long-term debt (March 31, 2015 - $4.9 million). The interest rates applicable to the credit facilities range from 1.66% to 10.00% per annum. A portion of the long-term debt is secured by certain assets of the Company.  The 275.0 million Indian Rupees and the 50.0 million Thai Baht credit facilities are secured by letters of credit under the Credit Facility.

Over the long-term, the Company generally expects to continue increasing its overall investment in non-cash working capital to support the growth of its business, with fluctuations on a quarter-over-quarter basis. The Company's goal is to maintain its investment in non-cash working capital as a percentage of annualized revenues at a level below 15%. 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 non-cash 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 continue to use leverage to support its growth strategy.

Contractual Obligations
(In millions of dollars)

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


Operating

Purchase


leases

obligations

Less than one year

$

10.1

$

91.5

One – two years


8.0


0.6

Two – three years


6.9


0.1

Three – four years


6.0


0.1

Four – five years


5.6


0.1

Due in over five years


4.5


––


$

41.1

$

92.4

 

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 commitments for material purchases.

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 letters of credit as security for advances received from customers pending delivery and contract performance. In addition, the Company provides letters of credit for post-retirement obligations and may provide letters of credit as security on equipment under lease and on order.  At March 31, 2016, the total value of outstanding letters of credit was approximately $137.0 million (March 31, 2015 - $118.0 million).

In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies.  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.

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 note 14 of the 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 market or geographic region represents significant credit risk. Credit risk concentration with respect to trade receivables is mitigated as the Company primarily serves large, multinational customers and obtains insurance in certain instances.

During fiscal 2016, 1,145,167 stock options were exercised.  At May 18, 2016 the total number of shares outstanding was 92,294,859 and there were 3,432,366 stock options outstanding to acquire common shares of the Company.

Normal Course Issuer Bid
On November 4, 2015, the Company announced that the Toronto Stock Exchange ("TSX") had accepted a notice filed by the Company of its intention to make a normal course issuer bid ("NCIB"). Under the NCIB, ATS has the ability to purchase for cancellation up to a maximum of 4,600,000 common shares, representing approximately 5% of the 92,541,582 common shares that were issued and outstanding as of October 31, 2015.

Purchases under the NCIB will be made through the facilities of the TSX and/or alternative trading systems in accordance with applicable regulatory requirements, during the twelve month period which commenced on November 6, 2015 and ending on or before November 5, 2016. The average daily trading volume of the common shares on the TSX for the six calendar months ending October 31, 2015 was 160,087 common shares. On any trading day ATS will not purchase more than 25% of such average daily trading volume representing 40,021 common shares, except where such purchases are made in accordance with available block purchase exemptions. The common shares purchased under this NCIB will be cancelled.

Some purchases under the NCIB may be made pursuant to an automatic purchase plan between ATS and its broker. This plan would enable the purchase of ATS common shares when ATS would not ordinarily be active in the market due to internal trading blackout periods, insider trading rules, or otherwise.

ATS believes that there are times when the market price of ATS common shares may not reflect their underlying value and that the purchase of shares by ATS will both provide liquidity to existing shareholders and benefit remaining shareholders. The NCIB is viewed by ATS management as one component of an overall capital structure strategy and complimentary to its acquisition growth plans.

As at March 31, 2016, the Company had purchased 481,473 common shares for $6.0 million under the NCIB. The weighted average price per share repurchased was $12.45. ATS security holders may obtain a copy of the notice, without charge, upon request from the Secretary of the Company.

RELATED PARTY TRANSACTIONS
On April 1, 2014, the Company entered into an agreement with a shareholder, Mason Capital Management, LLC ("Mason Capital"), pursuant to which Mason Capital agreed to provide ATS with ongoing strategic and capital markets advisory services for an annual fee of U.S. $0.5 million.  As part of the agreement, members of the Company's Board of Directors who are associated with Mason Capital have waived any fees to which they may have otherwise been entitled for serving as members of the Board of Directors or as members of any committee of the Board of Directors. 

There were no other significant related party transactions in fiscal 2016.

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, through borrowings made by the Company in currencies other than its functional currency and through its investments in its foreign-based subsidiaries.

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 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. 

The Company uses cross-currency swaps as derivative financial instruments to hedge a portion of its foreign exchange risk related to its U.S.-dollar-denominated Senior Notes.  On March 29, 2016 the Company entered into a cross-currency interest rate swap instrument to swap U.S. $150.0 million into Canadian dollars.  The Company will receive interest of 6.50% U.S. per annum and pay interest of 6.501% Canadian.  The terms of the hedging relationship will end on June 15, 2023.

The Company manages foreign exchange risk on its Euro denominated net investments.  The Company uses cross-currency swaps as derivative financial instruments to hedge a portion of the foreign exchange risk related to its Euro-denominated net investment.  On March 29, 2016, the Company entered into a cross-currency interest rate swap instrument to swap 134.1 million Euro into Canadian dollars.  The Company will receive interest of 6.501% Canadian per annum and pay interest of 5.094% Euro.  The terms of the hedging relationship will end on June 15, 2023. As a result of the cross currency interest rate swap instruments, the Company expects its interest expenses to be reduced by approximately U.S. $2 million per annum.

In addition, from time to time, the Company may hedge the foreign exchange risk arising from foreign currency debt, intercompany loans, net investments in foreign-based subsidiaries and committed acquisitions through the use of forward foreign exchange contracts or other non-derivative financial instruments. The Company uses hedging as a risk management tool, not to speculate. See note 14 to the consolidated financial statements for details on the derivative financial instruments outstanding at March 31, 2016.


Year-end actual exchange rates

Period average exchange rates


March 31,

March 31, 


March 31,

March 31,



2016

2015

% change

2016

2015

% change

U.S. Dollar

1.2987

1.2666

2.5%

1.3110

1.1384

15.2%

Euro

1.4777

1.3615

8.5%

1.4474

1.4383

0.6%

 

CONSOLIDATED QUARTERLY RESULTS

(In millions of dollars, except
per share amounts)

Q4
2016

Q3
2016

Q2
2016

Q1
2016

Q4
2015

Q3
2015

Q2
2015

Q1
2015


















Revenues from continuing
operations

$

246.8

$

274.9

$

263.7

$

254.3

$

289.4

$

248.8

$

207.0

$

190.9


















Earnings from operations

$

8.1

$

26.8

$

24.4

$

17.5

$

22.6

$

15.9

$

14.1

$

14.4


















Adjusted earnings from  operations   

$

23.2

$

32.1

$

31.7

$

27.4

$

34.7

$

27.2

$

27.0

$

21.1


















Income from continuing operations   

$

1.4

$

15.5

$

12.8

$

9.8

$

13.9

$

8.6

$

7.4

$

9.0


















Income (loss) from discontinued
operations 

$

$

$

$

$

2.2

$

(0.0)

$

7.1

$

6.9


















Net income  

$

1.4

$

15.5

$

12.8

$

9.8

$

16.1

$

8.6

$

14.5

$

15.9

Basic earnings per share from
continuing operations  

$

0.02

$

0.16

$

0.14

$

0.11

$

0.15

$

0.09

$

0.08

$

0.10


















Adjusted basic earnings per share
from continuing operations  

$

0.14

$

0.21

$

0.19

$

0.18

$

0.24

$

0.18

$

0.19

$

0.15


















Basic earnings (loss) per share from
discontinued operations     

$

$

$

 ―

$

$

0.03

$

(0.00)

$

0.08

$

0.08


















Basic earnings per share   

$

0.02

$

0.16

$

0.14

$

0.11

$

0.18

$

0.09

$

0.16

$

0.18


















Diluted earnings per share

















from continuing operations

$

0.02

$

0.16

$

0.14

$

0.11

$

0.15

$

0.09

$

0.08

$

0.10


















Diluted earnings (loss) per

















share from discontinued

















operations

$

$

$

$

$

0.03

$

(0.00)

$

0.08

$

0.07


















Diluted earnings per share

$

0.02

$

0.16

$

0.14

$

0.11

$

0.18

$

0.09

$

0.16

$

0.17


















Order Bookings

$

390.0

$

228.0

$

230.0

$

222.0

$

317.0

$

287.0

$

216.0

$

160.0


















Order Backlog

$

652.0

$

546.0

$

589.0

$

590.0

$

632.0

$

602.0

$

561.0

$

425.0

 

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. 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, the timing of third-party content and by the timing of acquisitions. 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.

CRITICAL ACCOUNTING ESTIMATES AND 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.

Notes 2 and 3 to the consolidated financial statements describe the basis of accounting and the Company's significant accounting policies.

Revenue recognition and contracts in progress
The nature of ATS contracts requires the use of estimates to quote new business and most automation systems are typically sold on a fixed-price basis.  Revenues on construction contracts and other long-term contracts are recognized on a percentage of completion basis as outlined in note 3(d) "Construction contracts" to the consolidated financial statements.  In applying the accounting policy on construction contracts, judgment is required in determining the estimated costs to complete a contract.  These cost estimates are reviewed at each reporting period and by their nature may give rise to income volatility. If the actual costs incurred by the Company to complete a contract are significantly higher than estimated, the Company's earnings may be negatively affected. The use of estimates involves risks, since the work to be performed requires varying degrees of technical uncertainty, including possible development work to meet the customer's specification, the extent of which is sometimes not determinable until after the project has been awarded.  In the event the Company is unable to meet the defined performance specification for a contracted automation system, it may need to redesign and rebuild all or a portion of the system at its expense without an increase in the selling price.  Certain contracts may have provisions that reduce the selling price if the Company fails to deliver or complete the contract by specified dates. These provisions may expose the Company to liabilities or adversely affect the Company's results of operations or financial position. 

ATS' contracts may be terminated by customers in the event of a default by the Company or, in some cases, for the convenience of the customer.  In the event of a termination for convenience, the Company typically negotiates a payment provision reflective of the progress achieved on the contract and/or the costs incurred to the termination date.  If a contract is cancelled, Order Backlog is reduced and production utilization may be negatively impacted.

A complete provision, which can be significant, is made for losses on such contracts when the losses first become known.  Revisions in estimates of costs and profits on contracts, which can also be significant, are recorded in the accounting period in which the relevant facts impacting the estimates become known.

A portion of ATS' revenue is recognized when earned, which is generally at the time of shipment and transfer of title to the customer, provided collection is reasonably assured.

Income taxes
Deferred income tax assets, disclosed in note 19 to the consolidated financial statements, are recognized to the extent that it is probable that taxable income will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred income tax assets that can be recognized based upon the likely timing and level of future taxable income together with future tax planning strategies.

If the assessment of the Company's ability to utilize the deferred income tax asset changes, the Company would be required to recognize more or fewer of the deferred income tax assets, which would increase or decrease income tax expense in the period in which this is determined.  The Company establishes provisions based on reasonable estimates for possible consequences of audits by the tax authorities of the respective countries in which it operates.  The amount of such provisions is based on various factors, such as experience of previous taxation audits and differing interpretations of tax regulations by the taxable entity and the respective tax authority.  These provisions for uncertain tax positions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all the relevant factors.  The Company reviews the adequacy of these provisions at each quarter. However, it is possible that at some future date an additional liability could result from audits by the taxation authorities.  Where the final tax outcome of these matters is different from the amount initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

Stock-based payment transactions
The Company measures the cost of transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for stock-based payment transactions requires the determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model, including the future forfeiture rate, the expected life of the share option, weighted average risk-free interest rate, volatility and dividend yield, and formation of assumptions. The assumptions and models used for estimating fair value for stock-based payment transactions are disclosed in note 20 of the consolidated financial statements.

Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less cost to sell and its value in use. The calculations involve significant estimates and assumptions.  Items estimated include cash flows, discount rates and assumptions on revenue growth rates.  These estimates could effect the Company's future results if the current estimates of future performance and fair values change.  Goodwill is assessed for impairment on an annual basis as described in note 12 to the consolidated financial statements. The Company performed its annual impairment test of goodwill as at March 31, 2016 and determined there was no impairment (March 31, 2015 – $nil).

Provisions
As described in note 3(q) to the consolidated financial statements, the Company records a provision when an obligation exists, an outflow of economic resources required to settle the obligation is probable and a reliable estimate can be made of the amount of the obligation. The Company records a provision based on the best estimate of the required economic outflow to settle the present obligation at the consolidated statement of financial position date. While management believes these estimates are reasonable, differences in actual results or changes in estimates could have a material impact on the obligations and expenses reported by the Company.

Employee Benefits
The cost of defined benefit pension plans and the present value of the pension obligations are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, management considers the interest rates of corporate bonds in their respective currency, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the respective country. Further details about the assumptions used are provided in note 16 of the consolidated financial statements.

ACCOUNTING STANDARDS ADOPTED IN FISCAL 2016
IAS 19 – Employee Benefits
Effective April 1, 2015, the Company adopted the amendments to IAS 19 – Employee Benefits ("IAS 19").  The amendments require an entity to consider contributions from employees or third parties when accounting for defined benefit plans. When the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is independent of the number of years of service, an entity is permitted to recognize such contributions as a reduction in the service cost in the period in which the service is rendered, instead of allocating the contributions to the periods of service. The application of the amendments to IAS 19 had no impact on the consolidated financial statements of the Company.

IFRS 8 – Operating Segments
IFRS 8 – Operating Segments has been amended to require disclosure of the judgments made by management in aggregating operating segments along with the requirement to include a reconciliation of segment assets to the entity's assets when segment assets are reported.  As the Company operates in one segment, there has been no impact to the financial statements related to these amendments.

IFRS 9 – Financial Instruments
Effective December 28, 2015, the Company early adopted IFRS 9.  IFRS 9 replaces IAS 39 and addresses the accounting for financial instruments including hedge accounting.  IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, FVTOCI and FVTPL.  IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows.  The business model assessment was completed based on the facts and circumstances which existed as at the initial date of application.  IFRS 9 eliminates the existing IAS 39 categories of held-to-maturity, loans and receivables, and available-for-sale.  Under IFRS 9, derivative embedded contracts where the host is a financial asset in the scope of IFRS 9 are never bifurcated.  Instead, the whole hybrid instrument is assessed for classification.  The requirements for classification and measurement of financial liabilities under IFRS 9 largely carry forward existing requirements in IAS 39.

IFRS 9 replaces the "incurred loss" model under IAS 39 with an "expected credit loss" model as it relates to the impairment of financial assets.  The new impairment model does not apply to equity investments.  The Company's trade receivables generally have a maturity date of 90 days or less, therefore the adoption of this model did not impact the Company's financial statements. 

IFRS 9 amends the requirements for hedge effectiveness and consequently the application of hedge accounting.  The IAS 39 effectiveness test is replaced with a requirement for an economic relationship between the hedged item and the hedging instrument, and for the "hedged ratio" to be the same as that used by the Company for risk management purposes.  The new standard requires alignment between the risk management objective of an individual hedging relationship and the risk management strategy of the Company.  When assessing hedge effectiveness under IFRS 9, the Company is required to ensure credit risk due to counterparty or own creditworthiness does not dominate the change in fair value of either the hedged item or hedging instrument.  Generally, the mechanics of hedge accounting remain unchanged. 

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively.  However, in accordance with the IFRS 9 transitional provisions, the Company has elected not to restate the comparative periods.  Financial instruments derecognized prior to the effective date were accounted for in accordance with IAS 39, as permitted under the transitional provisions of IFRS 9.  The IFRS 9 adoption did not impact the measurement or carrying amounts of financial instruments and therefore did not impact retained earnings. 

Classification impact:
IFRS 9 introduced new financial instrument classification guidance.  The classification effects of adopting IFRS 9 are noted below. There was no effect on the carrying value of the Company's financial assets upon adoption of IFRS 9.

Financial Statement Line

IAS 39
Classification

IFRS 9
Classification

Cash and cash equivalents

Loans and receivables

Amortized cost

Accounts receivable  

Loans and receivables

Amortized cost

Deposits

Loans and receivables

Amortized cost

Bank indebtedness

Loans and receivables

Amortized cost

Accounts payable and accrued liabilities

Amortized cost 

Amortized cost

Long-term debt

Amortized cost

Amortized cost

Derivatives

FVTPL

FVTPL

Derivatives designated as cash flow hedges

FVTOCI

FVTOCI

 

ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
IFRS 15 – Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers ("IFRS 15") which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized to depict the transfer of promised goods or services to customers at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard will supersede all current revenue recognition requirements under IFRS.  The standard currently requires a full or modified retrospective application for annual periods beginning on or after January 1, 2018 with early option permitted.  The Company is in the process of reviewing the standard to determine the impact on its consolidated financial statements.

IFRS 16 – Leases
In January 2016, the IASB issued IFRS 16 – Leases which requires lessees to recognize assets and liabilities for most leases.  There are minimal changes to the existing accounting in IAS 17 – Leases from the perspective of lessors. The new standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted provided IFRS 15 ­has been adopted or is adopted at the same date.  The Company is in the process of reviewing the standard to determine the impact 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 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

Disclosure controls and procedures
An evaluation of the design and operating effectiveness of the Company's disclosure controls and procedures was conducted as of March 31, 2016 under the supervision of the CEO and CFO as required by CSA National Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings. The evaluation included documentation, review, enquiries and other procedures considered appropriate in the circumstances. Based on that evaluation, the CEO and the CFO have concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information relating to the Company and its consolidated subsidiaries that is required to be disclosed in reports filed under provincial and territorial securities legislation is recorded, processed, summarized and reported to senior management, including the CEO and the CFO, so that appropriate decisions can be made by them regarding required disclosure within the time periods specified in the provincial and territorial securities legislation.

Internal control over financial reporting
CSA National Instrument 52-109 requires the CEO and CFO to certify that they are responsible for establishing and maintaining internal control over financial reporting for the Company, and that those internal controls have been designed and are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. 

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.

The CEO and CFO have, using the framework and criteria established in "Internal Control – Integrated Framework (2013)" issued by COSO, evaluated the design and operating effectiveness of the Company's internal controls over financial reporting and concluded that, as of March 31, 2016, internal controls over financial reporting were effective to provide reasonable assurance that information related to consolidated results and decisions to be made based on those results were appropriate.   

During the year ended March 31, 2016, other than as noted below, there have been no changes in the design of 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.

In May 2013, COSO released an updated version of the 1992 internal control integrated framework.  The original framework was available through December 15, 2014, at which time the 1992 framework was superseded.  During fiscal 2015, the Company adopted the new framework.

OTHER MAJOR CONSIDERATIONS AND RISK FACTORS
Any investment in ATS will be subject to risks inherent to ATS' business. The following risk factors are discussed in the Company's Annual Information Form, which may be found on SEDAR at www.sedar.com.

  • Market volatility;
  • Strategy execution risks;
  • Liquidity, access to capital markets and leverage;
  • Restrictive covenants;
  • Availability of performance and other guarantees from financial institutions;
  • Share price volatility;
  • Competition;
  • Industry consolidation;
  • First-time program and production risks;
  • Automation systems pricing;
  • Revenue mix risk;
  • Pricing, quality, delivery and volume risks;
  • Product failure;
  • Insurance coverage;
  • Acquisition risks;
  • Expansion risks;
  • Availability of raw materials and other manufacturing inputs;
  • Customer risks;
  • Cumulative loss of several significant contracts;
  • Lengthy sales cycle;
  • Lack of long term customer commitment;
  • New product market acceptance, obsolescence, and commercialization risk; 
  • Foreign exchange risk;
  • Doing business in foreign countries;
  • Availability of human resources and dependence on key personnel; 
  • Legislative compliance;
  • Environmental compliance;
  • Corruption of Foreign Public Officials Act, United States Foreign Corrupt Practices Act and anti-bribery laws risk;
  • Intellectual property protection risks;
  • Infringement of third parties' intellectual property rights risk;
  • Security breaches or disruptions of information technology systems;
  • Internal controls;
  • Impairment of intangible assets risk;
  • Income and other taxes and uncertain tax liabilities;
  • Variations in quarterly results;
  • Litigation; 
  • Natural disasters, pandemics, acts of war terrorism, international conflicts or other disruptions;
  • Manufacturing facilities disruption; and
  • Dependence on performance of subsidiaries.

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 may 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 Company's growth strategy: grow, expand, and scale; the receipt of an Order Booking in relation to an enterprise program with a North American-based customer and the expected timing of substantial completion for same; potential impact of general economic environment, including impact on Order Bookings; activity in the markets that the Company serves; the engagement with customers on enterprise solutions providing ATS with more strategic relationships, increased predictability, better program control and less sensitivity to macroeconomic forces; the expected impact of the sales organization's approach to market on Order Bookings, performance period, and timing of revenue recognition; the Company's Order Backlog partially mitigating the impact of volatility in Order Bookings; the rate of completion of Order Backlog; the Company's expectation of lower revenues in the first quarter of fiscal 2017 and the expected negative impact of this on earnings from operations during the same period; management's expectations in relation to the impact of management focus and strategic initiatives on ATS operations; the Company's strategy to expand organically and through acquisition; the Company's expectation with respect to effective tax rate; management's expectation with respect to non-cash working capital as a percentage of revenues; expectation in relation to meeting funding requirements for investments; expectation to use increased leverage to support growth strategy; the Company's belief with respect to the outcome of certain lawsuits, claims and contingencies; and the Company's expectation with respect to a reduction of interest expense resulting from cross-currency interest rate swaps.  The risks and uncertainties that may affect forward-looking statements include, among others: impact of the global economy; general market performance including capital market conditions and availability and cost of credit; performance of the markets 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; that the timing of completion of the enterprise program with a North American-based customer is other than expected due to reasons, including schedule changes, or the customer exercising any right to terminate the program in whole or in part; failure or delays associated with new customer programs; timing of customer decisions related to large enterprise programs and potential for greater negative impact associated with any non-performance in relation thereto; variations in the amount of Order Backlog completed in any given quarter; that customers are more difficult to engage than expected; that strategic initiatives are delayed, not completed, or do not have intended positive impact; 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 and, as a result, anticipated benefits and synergies are not realized; that the effective tax rate is other than expected, due to reasons including income spread among jurisdictions being other than anticipated; non-cash working capital as a percentage of revenues operating at a level other than as expected due to reasons, including, the timing and nature of Order Bookings, the timing of payment milestones and payment terms in customer contracts, and delays in customer programs; that near term Order Bookings are made and revenued quickly so as to offset decreased Order Backlog to a degree other than expected; risk that the ultimate outcome of lawsuits, claims, and contingencies give rise to material liabilities for which no accruals have been made; 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' filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and other than as required by applicable securities laws, ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)







As at

Note

March 31
2016

March 31

2015







ASSETS  

17





Current assets  






Cash and cash equivalents 


$

170,034

$

106,052

Accounts receivable 



195,911


145,342

Costs and earnings in excess of billings on contracts in progress 

8


202,694


192,813

Inventories 

8


46,200


42,079

Deposits, prepaids and other assets  

9


22,324


14,731




637,163


501,017

Assets held for sale     

6


––


4,221




637,163


505,238

Non-current assets






Property, plant and equipment 

10


71,060


83,901

Investment property

11


4,211


3,880

Goodwill 

12


431,747


405,881

Intangible assets

13


177,065


183,610

Deferred income tax assets

19


2,534


5,057

Investment tax credit receivable

19


43,683


33,107




730,300


715,436

Total assets 


$

1,367,463

$

1,220,674







LIABILITIES AND EQUITY      






Current liabilities          






Bank indebtedness  

17

$

2,319

$

1,731

Accounts payable and accrued liabilities    



178,826


200,871

Provisions   

15


20,267


10,419

Billings in excess of costs and earnings on contracts in progress  

8


126,127


76,031

Current portion of long-term debt   

17


5,259


3,372




332,798


292,424

Liabilities directly associated with assets held for sale  

6


––


5,717




332,798


298,141

Non-current liabilities






Employee benefits 

16


28,252


24,777

Long-term debt 

17


316,120


286,154

Deferred income tax liabilities   

19


39,740


40,870




384,112


351,801

Total liabilities  


$

716,910

$

649,942







Commitments and contingencies 

17, 21











EQUITY






Share capital 

18

$

528,184

$

519,118

Contributed surplus 



13,201


14,420

Accumulated other comprehensive income 



68,319


33,434

Retained earnings 



40,634


3,590

Equity attributable to shareholders 



650,338


570,562

Non-controlling interests 



215


170

Total equity   



650,553


570,732

Total liabilities and equity  


$

1,367,463

$

1,220,674

 

 

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





Years ended March 31 

Note

2016

2015







Revenues      







Revenues from construction contracts


$

617,487

$

651,710


Sale of goods



80,153


62,997


Services rendered



342,000


221,370







Total revenues   



1,039,640


936,077







Operating costs and expenses







Cost of revenues



780,948


691,067


Selling, general and administrative



179,297


173,703


Stock-based compensation

20


2,638


4,316







Earnings from operations 



76,757


66,991







Net finance costs  

23


26,652


11,931







Income from continuing operations before income taxes 



50,105


55,060







Income tax expense  

19


10,507


16,162







Income from continuing operations 



39,598


38,898







Income from discontinued operations, net of tax  

7


––


16,198







Net income   


$

39,598

$

55,096







Attributable to






Shareholders  


$

39,553

$

54,963

Non-controlling interests 



45


133



$

39,598

$

55,096







Earnings per share attributable to shareholders 

24





Basic  – from continuing operations    


$

0.43

$

0.43

Basic  – from discontinued operations 

7


––


0.18



$

0.43

$

0.61







Earnings per share attributable to shareholders 

24





Diluted – from continuing operations    


$

0.43

$

0.42

Diluted – from discontinued operations   

7


––


0.18



$

0.43

$

0.60

 

 

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






Years ended March 31   


2016


2015






Net income  

$

39,598

$

55,096






Other comprehensive income (loss): 










Items to be reclassified subsequently to net income:











Currency translation adjustment (net of income taxes of $nil)


30,780


(914)







Net unrealized gain (loss) on derivative financial instruments







designated as cash flow hedges


1,309


(4,584)


Tax impact


(349)


1,145







Loss transferred to net income for







derivatives designated as cash flow hedges


4,136


2,417


Tax impact


(1,029)


(600)







Cash flow hedge reserve adjustment


51


––


Tax impact


(13)


––






Items that will not be reclassified subsequently to net income:











Actuarial gains (losses) on defined benefit pension plans


1,099


(4,245)


Tax impact


(317)


1,198






Other comprehensive income (loss)  


35,667


(5,583)






Comprehensive income                                                                                                         

$

75,265

$

49,513






Attributable to





Shareholders                 

$

75,220

$

49,380

Non-controlling interests  


45


133


$

75,265

$

49,513

 

 

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


















Year ended March 31, 2016



















Share
capital


Contributed
surplus


Retained
earnings
(deficit)


Currency
translation
adjustments


Cash flow
hedge reserve


Total
accumulated
other
comprehensive
income


Non-
controlling
interests


Total
equity

Balance, as at March 31, 2015  

$

519,118

$

14,420

$

3,590

$

35,702

$

(2,268)

$

33,434

$

170

$

570,732

Netincome


––


––


39,553


––


––


––


45


39,598

Other comprehensive income


––


––


782


30,780


4,105


34,885


––


35,667

Totalcomprehensiveincome


––


––


40,335


30,780


4,105


34,885


45


75,265


















Stock-basedcompensation


––


1,899


––


––


––


––


––


1,899

Exercise of stock options


11,807


(3,118)


––


––


––


––


––


8,689

Repurchase of common shares


(2,741)


––


(3,291)


––


––


––


––


(6,032)


















Balance, as at March 31, 2016       

$

528,184

$

13,201

$

40,634

$

66,482

$

1,837

$

68,319

$

215

$

650,553




















































Year ended March 31, 2015



















Share
capital


Contributed
surplus


Retained
earnings
(deficit)


Currency
translation
adjustments


Cash flow
hedge reserve


Total
accumulated
other
comprehensive
income


Non-
controlling
interests


Total
equity

Balance, as at March 31, 2014     

$

510,725

$

15,025

$

(44,311)

$

36,616

$

(646)

$

35,970

$

129

$

517,538


















Net income        


––


––


54,963


––


––


––


133


55,096

Other comprehensive income (loss)       


––


––


(3,047)


(914)


(1,622)


(2,536)


––


(5,583)

Total comprehensive income (loss)     


––


––


51,916


(914)


(1,622)


(2,536)


133


49,513


















Non-controlling interests (note 5)    


––


––


(4,015)


––


––


––


(92)


(4,107)

Stock-based compensation        


––


1,867


––


––


––


––


––


1,867

Exercise of stock options       


8,393


(2,472)


––


––


––


––


––


5,921


















Balance, as at March 31, 2015   

$

519,118

$

14,420

$

3,590

$

35,702

$

(2,268)

$

33,434

$

170

$

570,732

 

                                                                                                  

ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)





Years ended March 31       

Note

2016

2015







Operating activities






Income from continuing operations 


$

39,598

$

38,898

Items not involving cash        







Depreciation of property, plant and equipment



9,681


8,208


Amortization of intangible assets



29,681


32,316


Deferred income taxes

19


(232)


1,002


Other items not involving cash



(9,560)


(5,952)


Stock-based compensation

20


2,638


4,316


Gain on disposal of property, plant and equipment



(5,232)


(295)




66,574


78,493

Change in non-cash operating working capital      



(30,814)


3,580

Cash flows used in operating activities of discontinued operations   

7


––


(1,556)

Cash flows provided by operating activities 


$

35,760

$

80,517







Investing activities






Acquisition of property, plant and equipment 

10

$

(10,050)

$

(11,154)

Acquisition of intangible assets 

13


(5,611)


(6,752)

Business acquisition, net of cash acquired 

5


––


(355,381)

Purchase of non-controlling interest 

5


(71)


(4,426)

Proceeds from disposal of property, plant and equipment



22,323


8,942

Proceeds from sale of subsidiary  

6


2,274


––

Cash flows provided by investing activities







of discontinued operations

7


––


22,097

Cash flows provided by (used in) investing activities  


$

8,865

$

(346,674)







Financing activities






Restricted cash   

9

$

––

$

327

Bank indebtedness  



661


645

Repayment of long-term debt   



(290,984)


(82,692)

Proceeds from long-term debt    



303,670


363,653

Issuance of common shares  



8,689


5,921

Repurchase of common shares  

18


(6,032)


––

Cash flows provided by financing activities 


$

16,004

$

287,854







Effect of exchange rate changes on cash and cash equivalents 



2,879


6,215







Increase in cash and cash equivalents   



63,508


27,912







Cash and cash equivalents, beginning of year  



106,526


78,614







Cash and cash equivalents, end of year    


$

170,034

$

106,526







Attributable to






Cash and cash equivalents – continuing operations 


$

170,034

$

106,052

Cash and cash equivalents – held for sale  



––


474



$

170,034

$

106,526

Supplemental information






Cash income taxes paid by continuing operations   


$

10,078

$

11,980

Cash interest paid by continuing operations  


$

16,619

$

10,874

 

SOURCE ATS Automation Tooling Systems Inc.

For further information: Maria Perrella, Chief Financial Officer, 519 653-6500


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