ATS reports third quarter fiscal 2010 results

TSX: ATA

CAMBRIDGE, ON, Feb. 9, 2010 /CNW/ - ATS Automation Tooling Systems Inc. ("ATS" or the "Company") today reported its financial results for the three and nine months ended December 27, 2009.

    
    Third Quarter Summary

    -   Consolidated revenue was $138.1 million compared to $148.2 million in
        the second quarter of the fiscal year and $221.7 million in the third
        quarter a year ago;

    -   Consolidated earnings from operations were $4.7 million compared to
        $9.3 million in the second quarter of the fiscal year and
        $18.4 million in the third quarter a year ago;

    -   Per share earnings were $0.04 (basic and diluted) compared to $0.07
        (basic and diluted) in the second quarter of the fiscal year and
        $0.16 (basic and diluted) in the third quarter a year ago;

    -   The balance sheet remained strong with cash net of debt of
        $122.5 million compared to $106.5 million at March 31, 2009 and
        $45.8 million at December 31, 2008;

    -   In December, the Company announced the establishment of Photowatt
        Ontario as part of its plan to serve the Ontario solar energy market.
        Photowatt Ontario has built an initial project development pipeline
        and submitted a number of feed-in tariff applications to the Ontario
        Power Authority.
    

In the Automation Systems Group segment ("ASG"), third quarter Order Bookings increased 30% compared to the second quarter, however, many of ASG's customers are continuing to push-out spending and delay investment decisions. This will continue to cause volatility in Order Bookings and put pressure on revenues in the short-term. In Photowatt Technologies, sales volumes improved in the third quarter by 21% to 12.8 megawatts ("MWs") from 10.6 MWs in the second quarter. Notwithstanding this improvement in MWs sold, recently announced reductions in solar feed-in tariffs in Germany and France, combined with tight credit markets for solar installations will put further pressure on solar module demand and average selling prices, which will continue to impact Photowatt Technologies revenue and operating margins.

"In the third quarter, we continued to experience challenging market conditions which negatively impacted Order Bookings and revenues in both ASG and Photowatt Technologies," said Anthony Caputo, Chief Executive Officer. "Despite these circumstances, we continued to operate profitably during the quarter. Based on the activity we are seeing now in ASG, I believe that the Order Bookings deterioration we have experienced has moderated and growth should slowly follow."

    
    Financial Results

    In millions                    3 months   3 months   9 months   9 months
     of dollars,                      ended      ended      ended      ended
     except per                      Dec 27,    Dec 31,    Dec 27,    Dec 31,
     share data                        2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenue      ASG              $    78.6  $   144.1  $   290.8  $   434.2
     from        ------------------------------------------------------------
     continuing  Photowatt             59.7       79.7      151.3      221.6
     operations  ------------------------------------------------------------
                 Inter-segment         (0.2)      (2.1)      (3.1)      (2.5)
                 ------------------------------------------------------------
                 Consolidated     $   138.1  $   221.7  $   439.0  $   653.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    EBITDA       ASG              $    10.0  $    16.8  $    41.9  $    45.1
                 ------------------------------------------------------------
                 Photowatt
                  Technologies          5.7       11.7        7.0       30.1
                 Gain on sale of
                  building                -          -          -        3.2
                 Gain on silicon
                  sale                    -          -          -        2.0
                 ------------------------------------------------------------
                 Corporate and
                  inter-segment
                  elimination          (5.0)      (3.8)     (15.9)     (13.9)
                 ------------------------------------------------------------
                 Consolidated     $    10.7  $    24.7  $    33.0  $    66.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net income
     from
     continuing
     operations  Consolidated     $     3.7  $    15.8  $    10.1  $    43.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings     From continuing
     per share    operations
                  (basic &
                  diluted)        $    0.04  $    0.20  $    0.11  $    0.56
                 ------------------------------------------------------------
                 After
                  discontinued
                  operations
                  (basic &
                  diluted)        $    0.04  $    0.16  $    0.11  $    0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

ASG Third Quarter Results

    
    -   Revenue was $78.6 million compared to $97.0 million in the second
        quarter and $144.1 million a year ago;

    -   EBITDA was $10.0 million compared to $15.3 million in the second
        quarter of this fiscal year and $16.8 million in the third quarter a
        year ago;

    -   Earnings from operations were $8.4 million (operating margin of 11%)
        compared to $13.6 million (operating margin of 14%) in the second
        quarter of this fiscal year and $14.7 million (operating margin of
        10%) in the third quarter a year ago;

    -   Period end Order Backlog was $203 million, an increase of 3% from
        $197 million in the second quarter of this fiscal year and down from
        $282 million a year ago;

    -   Order Bookings were $92 million compared to $71 million in the second
        quarter of fiscal 2010 and $157 million in the third quarter a year
        ago;

    -   Order Bookings were $46 million during the first six weeks of the
        fourth quarter.
    

Despite a 45% year-over-year decrease in revenues in the third quarter, ASG's operating margin was 11% reflecting cost reductions implemented during fiscal 2009 and 2010, supply chain savings and improved program management. Revenue increased 27% in the healthcare industry, offset by decreases of 49% in computer-electronics, 72% in energy, 67% in automotive, and 68% in other markets (primarily consumer products).

    
    Photowatt Technologies Third Quarter Results

    -   Photowatt Technologies revenue was $59.7 million, a 16% increase over
        fiscal 2010 second quarter revenues of $51.5 million, but down from
        $79.7 million in the third quarter a year ago;

    -   Photowatt Technologies EBITDA was $5.7 million compared to EBITDA of
        $4.7 million in the second quarter of fiscal 2010 and EBITDA of
        $11.7 million in the third quarter a year ago;

    -   Photowatt Technologies operating earnings were $1.6 million
        (operating margin of 3%) compared to operating earnings of
        $0.6 million (operating margin of 1%) in the second quarter of fiscal
        2010 and operating earnings of $7.7 million (operating margin of 10%)
        in the third quarter a year ago;

    -   Total megawatts (MWs) sold increased 21% to 12.8 MWs from 10.6 MWs in
        the second quarter of fiscal 2010, and were 22% lower than the
        16.4 MWs sold in the third quarter a year ago.
    

The 25% year-over-year decline in revenues reflected lower MWs sold and lower average selling prices. Photowatt Technologies partially mitigated the impact of lower average selling prices through increased systems sales, which were up by 71% to $38.5 million from $22.5 million a year ago. Total polysilicon products represented $59.7 million or 100% of fiscal 2010 third quarter revenue compared to $22.6 million or 28% a year ago, as production was rebalanced towards polysilicon products to take advantage of better raw material pricing.

Quarterly Conference Call

ATS's quarterly conference call begins at 10 am eastern today and can be accessed over the Internet at www.atsautomation.com or on the phone by dialing 416 644 3422 five minutes prior.

About ATS

ATS Automation Tooling Systems Inc. provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies. Founded in 1978, ATS uses its industry-leading knowledge and global capabilities to serve the sophisticated automation systems needs of multinational customers in industries such as healthcare, computer/electronics, energy, automotive and consumer products. It also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. Through Photowatt Technologies, ATS participates in the growing solar energy industry as a turn-key solar project developer and integrated manufacturer. Photowatt designs, manufactures and sells solar modules and installation kits and provides solar power systems design and other value-added services, principally in Western Europe and Ontario. ATS employs approximately 2,400 people at 13 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's shares are traded on the Toronto Stock Exchange under the symbol ATA. Visit the Company's website at www.atsautomation.com.

Management's Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") for the three and nine months ended December 27, 2009 (third quarter of fiscal 2010) is as of February 9, 2010 and provides detailed information on the operating activities, performance and financial position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be read in conjunction with the unaudited interim consolidated financial statements of the Company for the third quarter of fiscal 2010. The Company assumes that the reader of this MD&A has access to and has read the audited annual consolidated financial statements and MD&A of the Company for the year ended March 31, 2009 (fiscal 2009) and the unaudited interim consolidated financial statements and MD&A for the first and second quarters of fiscal 2010 and, accordingly, the purpose of this document is to provide a third quarter update to the information contained in the fiscal 2009 MD&A. These documents and other information relating to the Company, including the Company's fiscal 2009 audited annual consolidated financial statements, MD&A and annual information form may be found on SEDAR at www.sedar.com.

Notice to Reader

The Company has two reportable segments: Automation Systems Group ("ASG") and Photowatt Technologies which includes Photowatt France ("PWF") and Photowatt Ontario ("PWO"). In fiscal 2009, Photowatt Technologies included other solar divisions which are now closed, principally Photowatt U.S.A., a small module assembly facility and sales operation closed during fiscal 2008 and Spheral Solar, a halted development project that has been wound down. References to Photowatt Technologies' cell "efficiency" means the percentage of incident energy that is converted into electrical energy in a solar cell. Solar cells and modules are sold based on wattage output. "Silicon" refers to a variety of silicon feedstock, including polysilicon, upgraded metallurgical silicon ("UMG-Si") and polysilicon powders and fines. As described in Note 5 to the interim consolidated financial statements, during fiscal 2009, the Company completed the sale of its Precision Components Group ("PCG"). The sale included the segment's key operating assets and liabilities. The results of PCG are reported in discontinued operations.

Non-GAAP Measures

Throughout this document the term "operating earnings" is used to denote earnings (loss) from operations. EBITDA is also used and is defined as earnings (loss) from operations excluding depreciation and amortization (which includes amortization of intangible assets). The term "margin" refers to an amount as a percentage of revenue. The terms "earnings (loss) from operations", "operating earnings", "margin", "operating loss", "operating results", "operating margin", "EBITDA", "Order Bookings" and "Order Backlog" do not have any standardized meaning prescribed within Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable to similar measures presented by other companies. Operating earnings and EBITDA are some of the measures the Company uses to evaluate the performance of its segments. Management believes that ATS shareholders and potential investors in ATS use non-GAAP financial measures such as operating earnings and EBITDA in making investment decisions about the Company and measuring its operational results. A reconciliation of operating earnings and EBITDA to total Company net income for the three and nine months ended December 27, 2009 and the three and nine months ended December 31, 2008 is contained in this MD&A (See "Reconciliation of EBITDA to GAAP Measures"). EBITDA should not be construed as a substitute for net income determined in accordance with GAAP. Order Bookings represent new orders for the supply of automation systems and products that management believes are firm. Order Backlog is the estimated unearned portion of ASG revenue on customer contracts that are in process and have not been completed at the specified date. A reconciliation of Order Bookings and Order Backlog to total Company revenue for the three and nine months ended December 27, 2009 and the three and nine months ended December 31, 2008 is contained in the MD&A (See "ASG Order Backlog Continuity").

AUTOMATION SYSTEMS GROUP SEGMENT

    
    ASG Revenue (in millions of dollars)

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenue by industry
    Healthcare                    $    41.2  $    32.4  $   119.6  $   104.6
    Computer-electronics                9.2       18.2       25.4       82.3
    Energy                             13.9       49.9       89.1      132.8
    Automotive                          9.1       27.5       34.3       74.2
    Other                               5.2       16.1       22.4       40.3
    -------------------------------------------------------------------------
    Total ASG revenue             $    78.6  $   144.1  $   290.8  $   434.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Third Quarter

ASG third quarter revenue was 45% lower than for the same period a year ago, primarily reflecting a 20% decrease in Order Backlog entering the third quarter compared to a year ago and a longer period of performance for certain programs in Order Backlog.

By industrial market, healthcare revenue increased by 27% year-over-year due to higher healthcare Order Backlog entering the third quarter. Healthcare continues to be a strong market for ASG, particularly in North America. Revenue from the computer-electronics, energy and automotive markets decreased by 49%, 72% and 67% respectively, reflecting lower Order Backlog entering the third quarter compared to a year ago. "Other" revenues decreased 68% year over year due primarily to lower revenues in the consumer products industry and a longer period of performance for certain programs in this segment.

Year to date

ASG revenue for the nine months ended December 27, 2009 decreased 33% compared to the corresponding period a year ago. The decrease reflects lower Order Bookings throughout the first three quarters of fiscal 2010 compared to the same period in fiscal 2009 and an extended period of performance for certain programs in opening Order Backlog for fiscal 2010. By industrial market, year to date revenues from healthcare increased 14% compared to the same period a year ago. This increase was offset by decreases of 69%, 33%, 54%, and 44% in computer-electronics, energy, automotive, and "other" revenue, respectively, compared to the same period a year ago.

    
    ASG Operating Results (in millions of dollars)

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Earnings from operations      $     8.4  $    14.7  $    36.7  $    38.9
    Depreciation and amortization       1.6        2.1        5.2        6.2
    -------------------------------------------------------------------------
    EBITDA                        $    10.0  $    16.8  $    41.9  $    45.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Third Quarter

Fiscal 2010 third quarter earnings from operations were $8.4 million (operating margin of 11%) compared to earnings from operations of $14.7 million (operating margin of 10%) in the third quarter of fiscal 2009. Lower operating earnings reflected the decrease in revenues; however, this was partially offset by an increase in profitability driven by cost reductions implemented during fiscal 2009 and 2010, supply chain savings and improved program management. Third quarter fiscal 2010 earnings from operations included severance and restructuring expenses of $2.0 million compared to $3.1 million in the same period a year ago.

ASG depreciation and amortization expense was $1.6 million in the third quarter of fiscal 2010 compared to $2.1 million in the same period a year ago.

Year to date

For the nine months ended December 27, 2009, earnings from operations were $36.7 million (operating margin of 13%) compared to earnings from operations of $38.9 million (operating margin of 9%) in the corresponding period a year ago. The improvement in operating margin was driven by cost reductions implemented during fiscal 2009 and fiscal 2010, supply chain savings, improved program management and the benefit of incremental tax credits recognized in the second quarter of fiscal 2010. Included in year-to-date earnings from operations was $5.7 million of severance and restructuring charges compared to $3.4 million in the same period a year ago.

ASG Order Bookings

Fiscal 2010 third quarter Order Bookings were $92 million, 41% lower than the third quarter of fiscal 2009, which included a solar industry Order Booking of approximately $50 million. Lower Order Bookings also reflected a reduction in sales opportunities as customers continued to spend at reduced levels as a result of global economic uncertainty. Order Bookings in the first six weeks of the fourth quarter of fiscal 2010 were $46 million.

    
    ASG Order Backlog Continuity (in millions of dollars)

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Opening Order Backlog         $     197  $     247  $     255  $     232
    Revenue                             (79)      (144)      (291)      (434)
    Order Bookings                       92        157        260        459
    Order Backlog adjustments(1)         (7)        22        (21)        25
    -------------------------------------------------------------------------
    Total                         $     203  $     282  $     203  $     282
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Order Backlog adjustments include foreign exchange and cancellations.


    Order Backlog by Industry (in millions of dollars)
                                                           Dec 27,    Dec 31,
                                                             2009       2008
    -------------------------------------------------------------------------
    Healthcare                                          $      90  $      70
    Computer-electronics                                       16         21
    Energy                                                     51        136
    Automotive                                                 24         34
    Other                                                      22         21
    -------------------------------------------------------------------------
    Total                                               $     203  $     282
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

At December 27, 2009, ASG Order Backlog was $203 million, 28% lower than at December 31, 2008 primarily reflecting lower Order Bookings throughout the first nine months of fiscal 2010 compared to the corresponding period in the prior year.

Growth in healthcare Order Backlog reflected increased activity in North America compared to the prior year. Lower computer-electronics and automotive Backlog reflected industry conditions in both North America and Europe, partially offset by increases in Asia. Declines in energy Backlog resulted primarily from lower activity in North America. An increase in "other" Order Backlog reflected higher Order Backlog in North America, partially offset by declines in Europe.

ASG Outlook

In the short-term, management believes business investment and capital spending by customers will remain low. As the global economy and some of ASG's markets have strengthened, proposal activity in ASG's markets has increased, however despite signs of improvement in some of ASG's customers markets, such as healthcare and automotive, many of ASG's customers are continuing to push-out spending and delay investment decisions. This will continue to cause volatility in Order Bookings and put pressure on revenues in the short-term. Overall, management believes that increased capital spending will continue to lag the general economic recovery as companies are hesitant to invest until their markets stabilize and/or show signs of growth.

The consolidation and restructuring initiatives undertaken over the last several quarters have allowed ASG to maintain profitable operating margins, despite lower revenues. However, low volume and revenues will continue to present challenges to maintaining margins at current levels. Management expects that the implementation of its strategic initiatives to improve leadership, business processes and supply chain management will continue to have a positive impact on ASG operations. However, the impact of these strategic initiatives will also be affected by the current market conditions.

Management believes the Company's strengthened balance sheet, approach to market and operational improvements will provide a solid foundation for the Company to improve performance when the general business environment, including capital investment, stabilizes and returns to growth.

The Company's strong financial position also provides ASG with the flexibility to pursue its growth strategy. The Company is actively seeking to expand its position in the global automation market through acquisition. To accomplish this, management has reviewed a number of opportunities and is actively in discussions and conducting due diligence with respect to certain of these opportunities. The completion and timing of any transaction resulting from such discussions is dependent on a number of factors, including: completion of satisfactory due diligence, negotiation of an agreement and requisite board and other approvals.

PHOTOWATT TECHNOLOGIES SEGMENT

    
    Photowatt Technologies Revenue (in millions of dollars)

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Total revenue                 $    59.7  $    79.7  $   151.3  $   221.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Revenue by product
    Polysilicon products          $    59.7  $    22.6  $   138.2  $    75.3
    UMG-Si products                       -       57.1       13.1      146.3
    -------------------------------------------------------------------------
    Total Revenue                 $    59.7  $    79.7  $   151.3  $   221.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Third Quarter

Photowatt Technologies fiscal 2010 third quarter revenue was $59.7 million, 25% lower than in the third quarter of fiscal 2009. Lower year-over-year revenue reflected a 22% decrease in total megawatts ("MWs") sold to 12.8 MWs from 16.4 MWs in the same period a year ago. Lower MWs sold resulted from lower demand for Photowatt Technologies' products outside of its current core market in France. Year-over-year decreases in average selling prices per watt were partially offset by an increase in system sales. Revenue from system sales increased to $38.5 million in the fiscal 2010 third quarter from $22.5 million in the third quarter of fiscal 2009 reflecting PWF's downstream efforts in France. Systems include modules, combined with installation kits, solar power system design and/or other value-added services.

Revenue from polysilicon products represented $59.7 million or 100% of fiscal 2010 third quarter revenue compared to $22.6 million or 28% for the same period a year ago, as PWF is now producing 100% polysilicon products. Average cell efficiency was 15.5% in the third quarter of fiscal 2010 compared to 15.2% in the same period a year ago. UMG-Si products represented $57.1 million of third quarter fiscal 2009 revenue compared to nil in the fiscal 2010 third quarter.

Year to date

Photowatt Technologies revenue for the first nine months of fiscal 2010 decreased 32% compared to the same period a year ago. Lower revenues reflected a 30% decrease in MWs sold to 31.7 MWs from 45.1 MWs. Year-over-year decreases in average selling prices per watt were partially offset by an increase in system sales to $94.0 million in the first nine months of fiscal 2010 from $57.4 million in the same period a year ago.

Revenue from polysilicon products for the first nine months of fiscal 2010 increased 84% to $138.2 million from $75.3 million in the same period a year ago. Total revenue from UMG-Si products for the first nine months of fiscal 2010 was $13.1 million, a decrease of $133.2 million or 91% compared to the same period a year ago reflecting the shift in production to polysilicon products.

    
    Photowatt Technologies Operating Results (in millions of dollars)

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------

    Earnings (loss) from
     operations                   $     1.6  $     7.7  $    (5.3) $    23.8
    Depreciation and amortization       4.1        4.0       12.3       11.5
    -------------------------------------------------------------------------
    EBITDA                        $     5.7  $    11.7  $     7.0  $    35.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Third Quarter

Photowatt Technologies fiscal 2010 third quarter earnings from operations were $1.6 million (operating margin of 3%) compared to earnings from operations of $7.7 million (operating margin of 10%) for the same period a year ago. The year-over-year decline in operating earnings reflected lower revenues, partially offset by lower direct manufacturing costs-per-watt and increased system sales. Photowatt Technologies' fiscal 2010 third quarter results also included costs related to the start-up of PWO. Fiscal 2009 third quarter results included $0.5 million in costs related to equipment decommissioning and preparing equipment for sale at the now closed Spheral Solar division.

Photowatt Technologies' fiscal 2010 third quarter earnings from operations were not materially impacted by its share of the PV Alliance ("PVA"), compared to the same period a year ago when $0.3 million of costs were recorded.

Photowatt Technologies' amortization expense was $4.1 million in the third quarter of fiscal 2010 compared to $4.0 million in the third quarter a year ago.

Year to Date

Photowatt Technologies' loss from operations for the nine months ended December 27, 2009 was $5.3 million compared to earnings from operations of $23.8 million for the corresponding period a year ago. Operating profitability has decreased during fiscal 2010 compared to a year ago on lower revenues and a $4.7 million warranty charge against fiscal 2010 first quarter results related to a specific customer contract that contained an incremental performance clause beyond PWF's standard warranty terms. Loss from operations for the three and nine months ended December 27, 2009 also included costs related to the start-up of PWO.

Fiscal 2009 earnings from operations included a gain of $2.0 million on the sale of silicon (not usable by PWF or Spheral Solar) that had a nominal carrying value and a gain of $3.2 million on the sale of the redundant Spheral Solar building in Cambridge, Ontario. Fiscal 2009 earnings from operations also included $1.2 million in costs related to the wind-down and closure of the Spheral Solar facility and other clean-up and equipment decommissioning costs.

Photowatt Technologies Outlook

In the short and medium-term, the demand for photovoltaic products is affected by and largely dependent on, the existence of government incentives and the ability to obtain financing for solar projects. Recently announced reductions in feed-in tariffs for solar energy in Germany and France, and increased industry inventory levels and capacity, particularly in Asia, are expected to have a negative impact on market demand and average selling prices per watt through the balance of fiscal 2010 and into fiscal 2011.

Recently enacted solar feed-in tariffs in Ontario are expected to partially offset this impact on Photowatt Technologies volumes, however, the timing to ramp-up activity in PWO is expected to lag the more immediate impact of the changes to feed-in tariffs in Germany and France. The Company has begun construction of PWO's module line and expects this to be completed by the second quarter of fiscal 2011.

Tightening in global credit markets has reduced available funding for solar installation projects. While there has been some improvement in credit markets, fewer funding sources for solar projects are expected to continue to negatively impact Photowatt Technologies in the short-term.

Management is pursuing downstream alternatives to create an additional market for Photowatt Technologies' products and lock in average selling prices for a larger portion of fiscal 2011 and 2012 sales. To this end, PWF is seeking strategic agreements with customers for sales contracts that would consume a significant portion of PWF's current capacity for the next several years. In addition, management is engaging with financial institutions, investors and governments to enable the development of solar projects in which PWF and PWO would participate. PWO is also working with manufacturing and development partners to identify and expand its pipeline of both ground-mount and roof-top solar energy projects in the Ontario market.

Management expects improvements in cell efficiency, manufacturing yields and throughput will continue to reduce Photowatt Technologies' direct manufacturing costs-per-watt. Management does not know to what extent planned cost reductions will offset the impact of declines in average selling prices on operating earnings.

To keep Photowatt Technologies cost competitive, management is considering a plan to reduce the cost structure which may cost up to $10 million. Management is actively monitoring the changing market conditions and will continue to modify plans accordingly. Management's current plans include the intention not to renew contracts of a number of temporary workers at its PWF operations.

Management intends to continue to position Photowatt Technologies for separation, through its downstream activities which aim to secure a significant portion of sales volumes and by obtaining appropriate silicon supply to meet demand. Solar industry conditions may impact the form and timing of any potential separation.

    
    Consolidated Results from Operations

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    Revenue                       $   138.1  $   221.7  $   439.0  $   653.3
    Cost of revenue                   112.8      180.3      362.6      544.8
    Selling, general and
     administrative                    19.5       22.5       59.0       63.6
    Stock-based compensation            1.1        0.5        2.8        1.8
    Gains on sale of assets               -          -          -       (5.2)
    -------------------------------------------------------------------------
    Earnings from operations      $     4.7  $    18.4  $    14.6  $    48.3
    -------------------------------------------------------------------------
    Interest expense (income)     $     0.5  $     0.0  $     1.6  $    (0.1)
    Provision for income taxes          0.5        2.6        2.9        4.9
    -------------------------------------------------------------------------
    Net income from continuing
     operations                   $     3.7  $    15.8  $    10.1  $    43.5
    -------------------------------------------------------------------------
    Loss from discontinued
     operations                           -       (3.5)         -       (9.0)
    -------------------------------------------------------------------------
    Net income                    $     3.7  $    12.3  $    10.1  $    34.5
    -------------------------------------------------------------------------

    Earnings per share
    Basic and diluted from
     continuing operations        $    0.04  $    0.20  $    0.11  $    0.56
    Basic and diluted             $    0.04  $    0.16  $    0.11  $    0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Revenue. At $138.1 million, fiscal 2010 third quarter consolidated revenue from continuing operations was 38% lower than a year ago. The decrease in revenue resulted from a 45% decrease in ASG revenue and a 25% decrease in Photowatt Technologies revenue. Year-to-date revenue was $439.0 million or 33% lower than for the same period a year ago.

Cost of revenue. Fiscal 2010 third quarter cost of revenue decreased on a consolidated basis by $67.5 million or 37% to $112.8 million. Consolidated gross margin decreased to 18% in the third quarter of fiscal 2010 from 19% in the same period a year ago. The decrease in gross margins reflected lower profitability at Photowatt Technologies as a result of lower average selling prices per watt, partially offset by improved profitability at ASG as a result of cost reductions implemented during fiscal 2009 and 2010, supply chain savings and improved program management. Consolidated year-to-date gross margin remained consistent at 17% compared to the same period in the prior year.

Selling, general and administrative ("SG&A") expenses. For the third quarter of fiscal 2010, SG&A expenses decreased 13% or $3.0 million to $19.5 million compared to the same period a year ago. Lower SG&A expenses reflected cost reductions implemented during fiscal 2009 and 2010, in addition to lower profit sharing expenses. Severance and restructuring charges were $2.0 million in fiscal 2010 compared to $3.1 million during the same period in the prior year.

For the nine months ended December 27, 2009, SG&A expenses decreased 7% or $4.6 million to $59.0 million compared to the corresponding period a year ago. Lower SG&A expenses reflected cost reductions implemented during fiscal 2009 and 2010, in addition to lower profit sharing expenses and professional fees. The reduction of SG&A expenses in fiscal 2010 was partially offset by $5.9 million of Company-wide severance and restructuring costs compared to $3.4 million for the corresponding nine month period in fiscal 2009.

Stock-based compensation. For the three and nine month periods ended December 27, 2009, stock-based compensation expense increased to $1.1 million and $2.8 million respectively from $0.5 million and $1.8 million over the corresponding periods a year ago. The increase reflects the issuance of employee stock options, vesting of certain performance-based stock options and the revaluation of deferred stock units.

The expense associated with the Company's performance-based stock options is recognized in income over the estimated assumed vesting period at the time the stock options are granted. Upon the Company's stock price trading at or above stock price performance thresholds for a specified minimum number of trading days within a fiscal quarter, the options vest. When the performance-based stock options vest, the Company is required to recognize all previously unrecognized expenses associated with the vested stock options in the period in which they vest.

As at December 27, 2009, the following performance-based stock options were un-vested:

    
                                             Weighted
                                              average    Current   Remaining
    Stock price    Number of  Grant date    remaining       year  expense to
    performance      options   value per      vesting    expense   recognize
    threshold    outstanding      option       period     ('000s)  (in 000's)
    -------------------------------------------------------------------------
    $8.41            266,667        2.11    1.3 years        135         212
    $8.50            889,333        1.41    2.9 years        190         709
    $9.08            218,666        2.77    0.8 years        176         155
    $9.49             41,667        1.66    4.9 years          9          59
    $10.41           266,667        2.11    2.7 years         93         319
    $10.50           889,333        1.41    3.8 years        163         790
    $11.08           218,667        2.77    2.0 years        111         306
    $12.41           266,666        2.11    3.7 years         77         361
    $13.08           218,667        2.77    3.0 years         95         359
    $16.60             5,290        3.68    0.3 years          3           1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Gains on sale of assets. During the first quarter of fiscal 2009, the Company completed delivery to a third party of silicon that was not usable by PWF or Spheral Solar. The silicon had a nominal carrying value and the Company recognized a gain of $2.0 million on the sale. Also, during the first quarter of fiscal 2009, the Company completed the sale of the redundant Spheral Solar building in Cambridge, Ontario for net proceeds of $16.0 million. A net gain of $3.2 million was recognized on the sale.

There were no such gains recorded in fiscal 2010.

Consolidated earnings from operations. For the third quarter of fiscal 2010, consolidated earnings from operations were $4.7 million, compared to earnings from operations of $18.4 million for the same period a year ago. Fiscal 2010 third quarter performance reflects: operating earnings of $8.4 million at ASG (operating earnings of $14.7 million for the same period a year ago); Photowatt Technologies operating earnings of $1.6 million (operating earnings of $7.7 million for the same period a year ago); and inter-segment eliminations and corporate expenses of $5.3 million ($4.0 million of costs for the same period a year ago). Year-to-date consolidated earnings from operations were $14.6 million, compared to earnings from operations of $48.3 million a year ago. Fiscal 2010 year-to-date performance reflects: operating earnings of $36.7 million at ASG (operating earnings of $38.9 million for the same period a year ago); Photowatt Technologies operating loss of $5.3 million (operating earnings of $23.8 million for the same period a year ago); and inter-segment elimination and corporate expenses of $16.8 million ($14.4 million for the same period a year ago).

Interest expense and interest income. Net interest expense has increased in the three and nine months ended December 27, 2009 to $0.5 million and $1.6 million respectively compared to nil and $0.1 million of net interest income for the corresponding periods a year ago. The increase in net interest expense is primarily due to new PWF credit facilities.

Provision for income taxes. During the three months ended December 27, 2009, the Company's effective income tax rate was 12% compared to 14% in the corresponding period a year ago. This differs from the combined Canadian basic federal and provincial income tax rate of 33.0% (December 31, 2008 - 33.5%) due to the utilization of certain investment tax credits in Canada in the current period, which were partially offset by losses incurred in other jurisdictions, the benefit of which was not recognized for financial statement reporting purposes. In previous periods, the Company utilized unrecognized loss carryforwards which reduced the effective income tax rate.

During the nine months ended December 27, 2009, the Company's effective income tax rate was 22% compared to 10% in the corresponding period a year ago. The change is primarily due to the utilization of certain investment tax credits in the current period. In previous periods, the Company utilized unrecognized loss carryforwards which reduced the effective income tax rate.

Net income from continuing operations. For the third quarter of fiscal 2010, net income from continuing operations was $3.7 million (4 cents earnings per share basic and diluted) compared to net income from continuing operations of $15.8 million (20 cents earnings per share basic and diluted) for the same period a year ago. Net income from continuing operations for the nine months ended December 27, 2009 was $10.1 million (11 cents earnings per share basic and diluted) compared to net income from continuing operations of $43.5 million for the corresponding period a year ago (56 cents earnings per share basic and diluted).

Loss from discontinued operations, net of tax. During fiscal 2009, the Company sold the key operating assets and liabilities including equipment, current assets, trade accounts payable and certain other assets and liabilities of its Precision Components Group ("PCG") for cash proceeds of $4.3 million and promissory notes with a face value of $2.7 million. This transaction was completed in the fourth quarter of fiscal 2009. Accordingly, the results of PCG operations have been segregated and presented separately as discontinued operations.

The loss from discontinued operations for the three and nine month periods ended December 31, 2008 was $3.5 million and $9.0 million respectively. There were no discontinued operations in the nine months ended December 27, 2009. See Note 5 to the interim consolidated financial statements for further details on discontinued operations.

Net income. For the third quarter of fiscal 2010, net income was $3.7 million (4 cents earnings per share basic and diluted) compared to net income of $12.3 million (16 cents loss per share) for the same period last year. Net income in the nine months ended December 27, 2009 was $10.1 million (11 cents earnings per share basic and diluted) compared to net income of $34.5 million for the corresponding period a year ago (45 cents earnings per share basic and diluted).

    
    Reconciliation of EBITDA to GAAP measures (in millions of dollars)

                                      Three      Three       Nine       Nine
                                     Months     Months     Months     Months
                                      Ended      Ended      Ended      Ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                       2009       2008       2009       2008
    -------------------------------------------------------------------------
    EBITDA
    Automation Systems            $    10.0  $    16.8  $    41.9  $    45.1
    Photowatt Technologies              5.7       11.7        7.0       35.3
    Corporate and inter-segment        (5.0)      (3.8)     (15.9)     (13.9)
    -------------------------------------------------------------------------
    Total EBITDA                  $    10.7  $    24.7  $    33.0  $    66.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Less: Depreciation and
     amortization expense
    Automation Systems            $     1.6  $     2.1  $     5.2  $     6.2
    Photowatt Technologies              4.1        4.0       12.3       11.5
    Corporate and inter-segment         0.3        0.2        0.9        0.5
    -------------------------------------------------------------------------
    Total depreciation and
     amortization expense         $     6.0  $     6.3  $    18.4  $    18.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) from
     operations
    Automation Systems            $     8.4  $    14.7  $    36.7  $    38.9
    Photowatt Technologies              1.6        7.7       (5.3)      23.8
    Corporate and inter-segment        (5.3)      (4.0)     (16.8)     (14.4)
    -------------------------------------------------------------------------
    Total earnings from
     operations                   $     4.7  $    18.4  $    14.6  $    48.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Less: Interest expense
           (income)               $     0.5  $     0.0  $     1.6  $    (0.1)
          Provision for income
           taxes                        0.5        2.6        2.9        4.9
          Loss from discontinued
           operations                     -        3.5          -        9.0
    -------------------------------------------------------------------------
    Net income                    $     3.7  $    12.3  $    10.1  $    34.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Foreign Exchange

During the third quarter of fiscal 2010, year-over-year foreign exchange rate changes negatively impacted consolidated revenues compared to the third quarter of fiscal 2009. This decrease was primarily related to a stronger Canadian dollar relative to the U.S. dollar. Year-to-date foreign exchange rate changes positively impacted consolidated revenue due to a weaker Canadian dollar relative to the U.S. dollar in the first and second quarters of fiscal 2010. Changes in foreign exchange rates increased consolidated earnings from operations in the third quarter of fiscal 2010 and year-to-date compared to the same periods of fiscal 2009. ATS follows a transaction hedging program to help mitigate the impact of short-term foreign currency movements. This hedging activity consists primarily of forward foreign exchange contracts used to manage foreign currency exposure. Purchasing third-party goods and services in U.S. dollars by Canadian operations also acts as a partial offset to U.S. dollar exposure. The Company's forward foreign exchange contract hedging program is intended to mitigate movements in currency rates primarily over a four-to-six-month period. See Note 13 to the interim consolidated financial statements for details on the derivative financial instruments outstanding at December 27, 2009.

    
    Period Average Market Exchange Rates in CDN$

                                    Three months ended     Nine months ended
                                     Dec 27,    Dec 31,    Dec 27,    Dec 31,
                                      2009       2008       2009       2008
    -------------------------------------------------------------------------
    U.S. $                           1.0586     1.2095     1.1078     1.0873
    Euro                             1.5638     1.5899     1.5740     1.5765
    Singapore $                      0.7587     0.8119     0.7713     0.7653
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Liquidity, Cash Flow and Financial Resources

At December 27, 2009, the Company had cash and short-term investments of $180.0 million compared to $142.4 million at March 31, 2009. In the three and nine months ended December 27, 2009, cash flows provided by operating activities were $26.6 million and $32.5 million, respectively, compared to cash flows provided by operating activities of $19.2 million and $41.4 million in the corresponding periods in fiscal 2009. The Company's total debt to total equity ratio at December 27, 2009 was 0.1:1. At December 27, 2009, the Company had $75.6 million of unutilized credit available under existing operating and long-term credit facilities and $27.3 million available under letter of credit facilities.

In the third quarter of fiscal 2010, the Company's investment in non-cash working capital decreased by $15.9 million or 9%. On a year-to-date basis, investment in non-cash working capital decreased by $5.0 million or 3%. Consolidated accounts receivable decreased 22% or $26.1 million, due primarily to lower revenues in the first three quarters of fiscal 2010. Net contracts in progress decreased by 36% or $15.2 million compared to March 31, 2009. The Company actively manages its accounts receivable and net construction-in-process balances through billing terms on long-term contracts and by focusing on improving collection efforts. Inventories decreased by 9% or $12.9 million compared to March 31, 2009. The Company is targeting to increase the turnover of its inventory. In the short-term, these efforts will be impacted by the Company's ability to increase sales volumes, particularly in PWF. Deposits, prepaid assets and other decreased by 2% or $0.4 million compared to March 31, 2009 due to a reduction in restricted cash being used to secure letters of credit, partially offset by an increase in silicon and other deposits. Accounts payable decreased 28% on lower purchases, consistent with lower revenue levels in the first three quarters of fiscal 2010.

Year-to-date property, plant and equipment purchases totalled $14.3 million. Expenditures at Photowatt Technologies totalling $12.6 million were primarily used for production equipment and facility improvements. Included in Photowatt Technologies capital expenditures was $3.8 million related to the Company's proportionate share of PVA for production equipment and facility improvements. Total ASG and Corporate capital expenditures were $1.7 million.

In the third quarter of fiscal 2010, the Company and its lender agreed to extend its existing primary credit facility (the "Credit Agreement") until April 30, 2011. The Credit Agreement provides total credit facilities of up to $85 million, comprised of an operating credit facility of $65 million and a letter of credit facility of up to $20 million for certain purposes. The operating credit facility is subject to restrictions regarding the extent to which the outstanding funds advanced under the facility can be used to fund certain subsidiaries of the Company. The Credit Agreement, which is secured by the assets, including real estate, of the Company's North American legal entities and a pledge of shares and guarantees from certain of the Company's legal entities, is repayable in full on April 30, 2011.

The operating credit facility is available in Canadian dollars by way of prime rate advances, letter of credit for certain purposes and/or bankers' acceptances and in U.S. dollars by way of base rate advances and/or LIBOR advances. The interest rates applicable to the operating credit facility are determined based on certain financial ratios. For prime rate advances and base rate advances, the interest rate is equal to the bank's prime rate or the bank's U.S. dollar base rate in Canada, respectively, plus 1.25% to 2.25%. For bankers' acceptances and LIBOR advances, the interest rate is equal to the bankers' acceptance fee or the LIBOR, respectively, plus 2.25% to 3.25%.

Under the Credit Agreement, the Company pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the credit facilities at rates ranging from 0.675% to .975% per annum, as determined based on certain financial ratios.

The Credit Agreement is subject to debt leverage tests, a current ratio test, and a cumulative EBITDA test. Under the terms of the Credit Agreement, the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit Agreement also partially restricts the Company from repurchasing its common shares, paying dividends and from acquiring and disposing of certain assets. The Company is in compliance with these covenants and restrictions.

PWF has credit facilities of (euro)41.4 million available through short and long-term debt agreements and capital lease agreements. The interest rates applicable to these credit facilities range from Euribor plus 0.5% to Euribor plus 1.9% and 4.9% per annum. Certain of the credit facilities are secured by certain assets of PWF, a commitment to restrict payments by the Company and are subject to debt leverage tests. PWF is in compliance with these covenants.

The Company has an additional unsecured credit facility available of 2.0 million Swiss francs. The credit facility bears interest at up to 6.0% per annum and is secured by a letter of credit.

The Company expects that continued cash flows from operations, together with cash and short-term investments on hand and credit available under operating and long-term credit facilities, will be more than sufficient to fund its current requirements for investments in working capital, capital assets and strategic investment plans including potential acquisitions.

No stock options were exercised during the third quarter of fiscal 2010. At February 5, 2010 the total number of shares outstanding was 87,277,155.

Contractual Obligations

The minimum operating lease payments related primarily to facilities and equipment, purchase obligations and other obligations in each of the next five years are as follows:

    
                                         Operating     Purchase        Other
    ($ in thousands)                        Leases  Obligations  Obligations
    -------------------------------------------------------------------------
    Less than 1 year                    $    3,404   $  120,761   $       77
    1 - 3 years                              2,782      121,960           37
    4 - 5 years                                  5      100,737            -
    Thereafter                                   -      174,065            -
    -------------------------------------------------------------------------
                                        $    6,191   $  517,523   $      114
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Subsequent to the end of the third quarter of fiscal 2010, the Company entered into a long-term silicon supply contract to purchase 900 tonnes of polysilicon over the next three calendar years ending in December 2012. Approximately 10% of the contract value was required to be paid in advance.

In the nine months ended December 27, 2009, the Company terminated an existing silicon supply contract with approximately 1,250 tonnes of UMG-Si remaining to be delivered. Concurrently, the Company entered into a replacement contract to purchase 180 tonnes of polysilicon through the remainder of calendar 2009 and 2010. Part of the deposit from the terminated contract was applied to the new contract with the remainder of the deposit being applied against pre-existing accounts payable.

In accordance with industry practice, the Company is liable to the customer for obligations relating to contract completion and timely delivery. In the normal conduct of its operations, the Company may provide bank guarantees as security for advances received from customers pending delivery and contract performance. At December 27, 2009, the total value of outstanding bank guarantees to customers available under bank guarantee facilities was approximately $16.2 million (March 31, 2009 - $24.4 million).

    
    Consolidated Quarterly Results

    ($ in thousands, except
     per share amounts)             Q3 2010    Q2 2010    Q1 2010    Q4 2009
    -------------------------------------------------------------------------

    Revenue                       $ 138,133  $ 148,169  $ 152,701  $ 201,774

    Earnings from operations      $   4,756  $   9,305  $     502  $  17,743

    Net income from continuing
     operations                   $   3,742  $   6,012  $     325  $  14,041

    Net income                    $   3,742  $   6,012  $     325  $  13,506

    Basic earnings per share
     from continuing operations   $    0.04  $    0.07  $    0.00  $    0.17

    Diluted earnings per share
     from continuing operations   $    0.04  $    0.07  $    0.00  $    0.16

    Basic earnings per share      $    0.04  $    0.07  $    0.00  $    0.16

    Diluted earnings per share    $    0.04  $    0.07  $    0.00  $    0.15

    ASG Order Bookings            $  92,000  $  71,000  $  96,000  $ 126,000

    ASG Order Backlog             $ 203,000  $ 197,000  $ 230,000  $ 255,000


    ($ in thousands, except
     per share amounts)             Q3 2009    Q2 2009    Q1 2009    Q4 2008
    -------------------------------------------------------------------------

    Revenue                       $ 221,739  $ 219,536  $ 212,071  $ 186,474

    Earnings from operations      $  18,472  $  13,563  $  16,278  $   8,183

    Net income from continuing
     operations                   $  15,814  $  12,688  $  14,991  $  10,343

    Net income                    $  12,316  $   9,272  $  12,930  $   7,939

    Basic earnings per share
     from continuing operations   $    0.20  $    0.16  $    0.19  $    0.13

    Diluted earnings per share
     from continuing operations   $    0.20  $    0.16  $    0.19  $    0.13

    Basic earnings per share      $    0.16  $    0.12  $    0.17  $    0.10

    Diluted earnings per share    $    0.16  $    0.12  $    0.17  $    0.10

    ASG Order Bookings            $ 157,000  $ 133,000  $ 169,000  $ 137,000

    ASG Order Backlog             $ 282,000  $ 247,000  $ 258,000  $ 232,000
    

Interim financial results are not necessarily indicative of annual or longer-term results because many of the individual markets served by the Company tend to be cyclical in nature. General economic trends, product life cycles and product changes may impact ASG Order Bookings, Photowatt Technologies sales volumes, and the Company's earnings in its markets. ATS typically experiences some seasonality with its revenue and earnings due to the summer shutdown at PWF. In Photowatt Technologies, slower sales may occur in the winter months when the weather may impair the ability to install its products in certain geographical areas.

Changes in Accounting Policies

Effective April 1, 2009, the Company retroactively adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, "Goodwill and intangible assets." The adopted standard establishes guidance for the recognition, measurement, presentation and disclosure of goodwill and intangible assets, including internally generated intangible assets. As required by the standard, computer software assets have been retroactively reclassified on the interim consolidated balance sheets from property, plant and equipment to intangible assets. The net book value of computer software reclassified as of March 31, 2009 was $3.0 million. As of December 27, 2009, computer software of $2.2 million is included within intangible assets. There is no impact on previously reported net income.

Future Accounting Changes

CICA Handbook Section 1582 "Business Combinations" which replaces Handbook Section 1581 "Business Combinations" and is converged with IFRS 3 "Business Combinations" establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed. This standard is effective for fiscal years beginning on or after January 1, 2011. The Company may elect to early adopt this standard and if so, will be required to early adopt Section 1601 "Consolidated Financial Statements" and Section 1602 "Non-Controlling Interests". The Company is evaluating the impact of adoption of this new section in connection with its conversion to IFRS.

CICA Handbook Section 1601 "Consolidated Financial Statements" and Handbook Section 1602 "Non-Controlling Interests" replace Handbook Section 1600 "Consolidated Financial Statements". Handbook Section 1601 carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. Handbook Section 1602 establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. The standards are effective for fiscal years beginning on or after January 1, 2011. The Company may elect to early adopt the standards and if so, will be required to early adopt Handbook Section 1582 "Business Combinations". The Company is evaluating the impact of adoption of this new section in connection with its conversion to IFRS.

International Financial Reporting Standards

The CICA's Accounting Standards Board has announced that Canadian publicly-accountable enterprises will adopt International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board effective January 1, 2011. Although IFRS uses a conceptual framework similar to Canadian GAAP, differences in accounting policies and additional required disclosures will need to be addressed.

The Company commenced its IFRS conversion project in fiscal 2009. The project consists of four phases: diagnostic; design and planning; solution development; and implementation. The diagnostic phase was completed in fiscal 2009 with the assistance of external advisors. This work involved a high-level review of the major differences between current Canadian GAAP and IFRS and a preliminary assessment of the impact of those differences on the Company's accounting and financial reporting, systems and other business processes. The areas of highest potential impact include: property, plant and equipment; provisions and contingencies; and IFRS 1: first time adoption, as well as more extensive presentation and disclosure requirements under IFRS.

The Company's IFRS conversion project is progressing according to plan. The Company is currently in the implementation phase and has completed a detailed review of all relevant IFRS standards and the identification of information gaps and necessary changes in reporting, processes and systems. The Company is now confirming the selection of new accounting policies including IFRS 1 transition date first time adoption exemptions, developing model IFRS financial statements and processes to prepare IFRS comparative information and providing on-going training for employees. The Company is continuing to monitor standards to be issued by the International Accounting Standards Board ("IASB"). Pending completion of some of these projects by the IASB, and until the Company's accounting policy choices are finalized and approved, the Company will be unable to quantify the impact of IFRS on its Consolidated Financial Statements.

Controls and Procedures

The Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") are responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting for the Company. The control framework used in the design of disclosure controls and procedures and internal control over financial reporting is the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management, including the CEO and CFO, does not expect that the Company's disclosure controls or internal controls over financial reporting will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met.

During the three months ended December 27, 2009, there have been no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Note to Readers: Forward-Looking Statements

This news release and management's discussion and analysis of financial conditions, and results of operations of ATS contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of ATS, or developments in ATS's business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. ATS cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things: (i) ASG: management's expectations with respect to levels of business investment and capital spending in the short-term; expected volatility in Order Bookings and pressure on revenues in the short-term as a result of continued reductions and/or delays in capital spending; management's belief that increased capital spending will lag general economic recovery; beliefs with respect to overall trends in Order Bookings; challenges to maintaining margins in face of low volumes and revenues; management's expectation that strategic initiatives will have a positive impact on ASG operations, tempered by market conditions; management's belief that the balance sheet, approach to market and operational improvements will provide a solid foundation for improved performance when the general business environment stabilizes and returns to growth; timing and expectations with respect to current M&A efforts; and (ii) Photowatt: management's expectation that reductions in feed-in tariffs will have a negative impact on market demand and average selling prices per watt; expectations as to impact of Ontario feed-in tariffs; expected completion of construction of Ontario module line; impact of fewer funding sources for solar projects; various downstream alternatives being pursued by management; management's expectation of reduction in PWF's direct manufacturing cost per watt and uncertainty as to what extent planned reductions in cost per watt will offset the impact of declines in average selling prices on operating earnings; management's consideration of a plan to reduce PWF cost structure and the associated cost; management's intention to continue to position Photowatt Technologies for separation; ATS's target to increase turnover of its inventory; ATS's expectations with respect to cash flows; seasonality of revenues; and the introduction, evaluation and adoption of new accounting policies and standards. The risks and uncertainties that may affect forward-looking statements include, among others: general market performance including capital market conditions and availability and cost of credit; economic market conditions; impact of factors such as increased pricing pressure and possible margin compression; foreign currency and exchange risk; the relative strength of the Canadian dollar; performance of the market sectors that ATS serves; that one or more customers experience bankruptcy despite focus on credit terms; that continuing consolidation and restructuring efforts take longer than expected and/or incur greater costs than expected; that continuing strategic initiatives will not have the intended impact on ASG operations; unanticipated issues in relation to, or inability to successfully negotiate and conclude, one or more M&A activities; third party or internal delays in the construction of the Ontario module line; ability of PWF to identify downstream alternatives and lock in favourable average selling prices with its customers; success or failure of management's efforts to reduce cost per watt at PWF; ability of ATS to acquire the needed expertise and financial partners necessary to effectively develop Ontario solar projects; the financial attractiveness of, and demand for, those solar projects; ATS's ability to conclude relationships with third parties in order to implement its plans for solar projects; extent of market demand for solar products; the availability and possible reduction or elimination of government subsidies and incentives for solar products in various jurisdictions; ability to obtain necessary government certifications and approvals for solar projects in a timely fashion; political, labour or supplier disruptions in manufacturing and supply of silicon; the usefulness or value of existing silicon supplies dissipate due to market conditions or for other reasons; PWF is unable to secure further acceptable silicon feedstock at favourable prices; reversal of current silicon supply arrangements and negotiation of new supply arrangements; potential inability of PVA to achieve improvements in cell efficiency, including problems with the technology or commercialization thereof; slow-down or reversal of progress being made with the efficiency and cost per watt of solar modules either through PVA research and development efforts or PWF's independent efforts; ability to effectively implement PVA projects and ability to properly manage the PVA relationship; the development of superior or alternative technologies to those developed by ATS; the success of competitors with greater capital and resources in exploiting their technology; market risk for developing technologies; risks relating to legal proceedings to which ATS is or may becomes a party; exposure to product liability claims of Photowatt Technologies; risks associated with greater than anticipated tax liabilities or expenses; and other risks detailed from time to time in ATS's filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

    
                     ATS AUTOMATION TOOLING SYSTEMS INC.
                         Consolidated Balance Sheets
                    (in thousands of dollars - unaudited)


                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------

    ASSETS
    Current assets
    Cash and short-term investments                  $  180,015   $  142,361
    Accounts receivable                                  94,427      120,479
    Investment tax credits                               14,986       14,538
    Costs and earnings in excess of billings
     on contracts in progress                            57,353       86,079
    Inventories (note 4)                                124,742      137,600
    Future income taxes                                   8,722        3,669
    Deposits, prepaid assets and other
     (notes 6 and 13)                                    26,070       26,507
    -------------------------------------------------------------------------
                                                        506,315      531,233

    Property, plant and equipment (note 2)              182,431      201,192
    Goodwill                                             35,702       39,990
    Intangible assets (note 2)                            4,785        6,419
    Future income taxes                                     889        1,283
    Portfolio investments                                 3,543        3,245
    Other assets (note 7)                                37,598       51,172
    -------------------------------------------------------------------------
                                                     $  771,263   $  834,534
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
    Bank indebtedness (note 11)                      $   15,660   $      142
    Accounts payable and accrued liabilities
     (notes 12 and 13)                                  123,807      172,935
    Billings in excess of costs and earnings
     on contracts in progress                            30,048       43,600
    Future income taxes                                  12,559        9,176
    Current portion of long-term debt (note 11)           5,930        4,133
    Current portion of obligations under capital
     leases (note 11)                                     4,906        3,409
    -------------------------------------------------------------------------
                                                        192,910      233,395

    Long-term debt (note 11)                              9,946       10,502
    Long-term obligations under capital leases
     (note 11)                                           21,075       17,652
    Future income taxes                                   2,021        4,538

    Shareholders' equity
    Share capital                                       479,537      479,537
    Contributed surplus                                  10,685        8,722
    Accumulated other comprehensive income (loss)
     (note 14)                                          (19,684)      15,494
    Retained earnings                                    74,773       64,694
    -------------------------------------------------------------------------
                                                        545,311      568,447
    -------------------------------------------------------------------------
                                                     $  771,263   $  834,534
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Contingencies (note 18)
    See accompanying notes to interim consolidated financial statements



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


                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Revenue                $  138,133   $  221,739   $  439,003   $  653,346
    -------------------------------------------------------------------------

    Operating costs and
     expenses
      Cost of revenue         112,766      180,320      362,643      544,813
      Selling, general
       and administrative      19,536       22,476       59,024       63,564
      Stock-based
       compensation (note 8)    1,075          471        2,773        1,850
    Gain on sale of silicon         -            -            -       (2,006)
    Gain on sale of
     building (note 5)              -            -            -       (3,188)
    -------------------------------------------------------------------------
    Earnings from operations    4,756       18,472       14,563       48,313
    -------------------------------------------------------------------------

    Other expenses (income)
      Interest on long-term
       debt                       361          133        1,017          281
      Other interest              162          (95)         598         (335)
    -------------------------------------------------------------------------
                                  523           38        1,615          (54)
    -------------------------------------------------------------------------

    Income from continuing
     operations before
     income taxes               4,233       18,434       12,948       48,367

    Provision for income
     taxes (note 17)              491        2,620        2,869        4,874
    -------------------------------------------------------------------------

    Net income from
     continuing operations      3,742       15,814       10,079       43,493

    Loss from discontinued
     operations, net of
     tax (note 5)                   -       (3,498)           -       (8,975)
    -------------------------------------------------------------------------

    Net income             $    3,742   $   12,316   $   10,079   $   34,518
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per
     share (note 9)
    Basic and diluted -
     from continuing
     operations            $     0.04   $     0.20   $     0.11   $     0.56
    Basic and diluted -
     from discontinued
     operations                     -        (0.04)           -        (0.11)
    -------------------------------------------------------------------------
                           $     0.04   $     0.16   $     0.11   $     0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim consolidated financial statements



                     ATS AUTOMATION TOOLING SYSTEMS INC.
             Consolidated Statements of Shareholders' Equity and
                      Other Comprehensive Income (Loss)
                    (in thousands of dollars - unaudited)


    Nine months ended                                      December 27, 2009
    -------------------------------------------------------------------------
                                                Accumu-
                                                 lated
                                                 Other
                                                Compre-
                                               hensive                 Total
                                     Contri-    Income                 Share-
                           Share      buted      (Loss)  Retained    holders'
                         Capital    Surplus   (note 14)  Earnings     Equity
    -------------------------------------------------------------------------
    Balance, beginning
     of period         $ 479,537  $   8,722  $  15,494  $  64,694  $ 568,447

    Comprehensive
     income (loss)
      Net income               -          -          -     10,079     10,079
      Currency
       translation
       adjustment              -          -    (37,628)         -    (37,628)
      Net unrealized
       gain on
       available-for-
       sale financial
       assets (net of
       income taxes of
       $nil)                   -          -        298          -        298
      Net unrealized
       gain on
       derivative
       financial
       instruments
       designated as
       cash flow hedges
       (net of income
       taxes of $470)          -          -      1,425          -      1,425
      Gain transferred
       to net income
       for derivatives
       designated as cash
       flow hedges (net
       of income taxes
       of $(108))              -          -        727          -        727
                                                                   ----------
    Total comprehensive
     loss                                                            (25,099)

    Stock-based
     compensation
     (note 8)                  -      1,963          -          -      1,963
    -------------------------------------------------------------------------

    Balance, end of
     the period        $ 479,537  $  10,685  $ (19,684) $  74,773  $ 545,311
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Nine months ended                                      December 31, 2008
    -------------------------------------------------------------------------
                                                Accumu-
                                                 lated
                                                 Other
                                                Compre-
                                               hensive                 Total
                                     Contri-    Income                 Share-
                           Share      buted      (Loss)  Retained    holders'
                         Capital    Surplus   (note 14)  Earnings     Equity
    -------------------------------------------------------------------------
    Balance, beginning
     of period         $ 432,825  $   6,370  $  (6,675) $  16,670  $ 449,190

    Comprehensive
     income (loss)
      Net income               -          -          -     34,518     34,518
      Currency
       translation
       adjustment              -          -     29,404          -     29,404
      Net unrealized
       loss on
       available-for-
       sale financial
       assets (net of
       income taxes of
       $nil)                   -          -     (2,144)         -     (2,144)
      Net unrealized
       loss on
       derivative
       financial
       instruments
       designated as
       cash flow hedges
       (net of income
       taxes of $nil)          -          -     (5,171)         -     (5,171)
      Gain transferred
       to net income
       for derivatives
       designated as
       cash flow hedges
       (net of income
       taxes of $nil)          -          -         96          -         96
                                                                   ----------
    Total comprehensive
     income                                                           56,703

    Stock-based
     compensation
     (note 8)                  -      1,831          -          -      1,831

    Costs related to
     shares issued for
     rights offering         (69)         -          -          -        (69)
    -------------------------------------------------------------------------

    Balance, end of
     the period        $ 432,756  $   8,201  $  15,510  $  51,188  $ 507,655
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim consolidated financial statements



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

                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Operating activities:
    Net income             $    3,742   $   12,316   $   10,079   $   34,518
    Items not involving
     cash
      Depreciation and
       amortization             5,987        6,300       18,371       18,182
      Future income taxes          90       (2,590)      (3,793)      (5,165)
      Other items not
       involving cash              (8)        (217)         (20)         528
      Stock-based
       compensation (note 8)    1,075          471        2,773        1,850
      Loss (gain) on
       disposal of property,
       plant and equipment       (244)         196          110       (2,776)
      Non-cash discontinued
       operations                   -        1,750            -        1,750
    -------------------------------------------------------------------------
    Cash flow from
     operations                10,642       18,226       27,520       48,887
    Change in non-cash
     operating working
     capital                   15,941        1,008        5,017       (7,523)
    -------------------------------------------------------------------------
    Cash flows provided by
     operating activities      26,583       19,234       32,537       41,364
    -------------------------------------------------------------------------

    Investing activities:
    Acquisition of property,
     plant and equipment       (4,319)     (13,769)     (14,262)     (26,608)
    Acquisition of
     intangible assets           (145)           -         (301)        (500)
    Investments, silicon
     deposits and other        (4,985)     (16,683)      (7,565)     (16,175)
    Proceeds from disposal
     of assets                    580        2,874        1,169       18,899
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities      (8,869)     (27,578)     (20,959)     (24,384)
    -------------------------------------------------------------------------

    Financing activities:
    Restricted cash (note 6)     (510)       3,600        4,226       (6,630)
    Bank indebtedness
     (note 11)                 (4,044)       3,492       16,309      (14,875)
    Share issue costs               -            -            -          (69)
    Proceeds from long-term
     debt (note 11)               685       11,229        4,522       22,016
    Proceeds from sale and
     leaseback of property,
     plant and equipment        2,664            -        9,467            -
    Repayment of long-term
     debt (note 11)              (129)           -       (1,988)      (2,399)
    Repayment of obligations
     under capital leases
     (note 11)                   (811)           -       (2,418)           -
    -------------------------------------------------------------------------
    Cash flows provided by
     (used in) financing
     activities                (2,145)      18,321       30,118       (1,957)
    -------------------------------------------------------------------------

    Effect of foreign
     exchange rate changes
     on cash and short-term
     investments               (1,876)       3,997       (4,042)       2,775
    -------------------------------------------------------------------------

    Net increase in cash and
     short-term investments    13,693       13,974       37,654       17,798
    Cash and short-term
     investments, beginning
     of period                166,322       59,640      142,361       55,816
    -------------------------------------------------------------------------

    Cash and short-term
     investments, end of
     period                $  180,015   $   73,614   $  180,015   $   73,614
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental
     information

    Cash income taxes paid $      345   $        -   $      729   $      175
    Cash interest paid     $      300   $      384   $      924   $      803
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to interim consolidated financial statements



    1.  Significant accounting policies:

    (i) The accompanying interim consolidated financial statements of ATS
    Automation Tooling Systems Inc. and its subsidiaries (collectively "ATS"
    or the "Company") have been prepared in accordance with Canadian
    generally accepted accounting principles ("GAAP") and the accounting
    policies and method of their application are consistent with those
    described in the annual consolidated financial statements for the year
    ended March 31, 2009 except for the adoption of the new accounting
    standards described in note 2 herein. These interim consolidated
    financial statements do not include all disclosures required by GAAP for
    annual financial statements and should be read in conjunction with the
    Company's annual consolidated financial statements for the year ended
    March 31, 2009. Certain figures for the previous year have been
    reclassified to conform with the current year's interim consolidated
    financial statement presentation.

    (ii) The preparation of these interim consolidated financial statements
    in conformity with GAAP requires management to make estimates and
    assumptions that may affect the reported amount of assets and liabilities
    and disclosure of contingent assets and liabilities at the date of the
    interim consolidated financial statements and the reported amount of
    revenue and expenses during the reporting period. Actual results could
    differ from these estimates. Significant estimates and assumptions are
    used when accounting for items such as impairment of long-lived assets,
    recoverability of deferred development costs, fair value of reporting
    units and goodwill, warranties, income taxes, future income tax assets,
    determination of estimated useful lives of intangible assets and
    property, plant and equipment, impairment of portfolio investments,
    contracts in progress, inventory provisions, revenue recognition,
    contingent liabilities, and allowances for uncollectible accounts
    receivable.

    (iii) Interim financial results are not necessarily indicative of annual
    or longer-term results because many of the individual markets served by
    the Company tend to be cyclical in nature. General economic trends,
    product life cycles and product changes may impact Automation Systems
    order bookings, Photowatt Technologies volumes, and the Company's
    earnings in any of its markets. ATS typically experiences some
    seasonality with its revenue and earnings due to the summer shutdown at
    its subsidiary in France, Photowatt International S.A.S. In Photowatt
    Technologies, slower sales may occur in the winter months, when the
    weather may impair the ability to install its products in certain
    geographical areas.

    2.  Changes in accounting policies:

    Effective April 1, 2009, the Company retroactively adopted the Canadian
    Institute of Chartered Accountants ("CICA") Handbook Section 3064
    "Goodwill and Intangible Assets" which replaced CICA Handbook Section
    3062 "Goodwill and Other Intangible Assets" and CICA Handbook Section
    3450 "Research and Development Costs". The adopted standard establishes
    guidance for the recognition, measurement, presentation and disclosure of
    goodwill and intangible assets including internally generated intangible
    assets.

    As required by the standard, the Company has retroactively reclassified
    computer software assets on the interim consolidated balance sheets from
    property, plant and equipment to intangible assets. The net book value of
    computer software reclassified as of March 31, 2009 was $2,968. As of
    December 27, 2009 computer software of $2,190 is included within
    intangible assets. There is no impact on previously reported net income.

    3.  Future accounting changes:

    The CICA's Accounting Standards Board has announced that Canadian
    publicly accountable enterprises will adopt International Financial
    Reporting Standards ("IFRS") as issued by the International Accounting
    Standards Board effective January 1, 2011. Although IFRS uses a
    conceptual framework similar to GAAP, differences in accounting policies
    and additional required disclosures will need to be addressed. The
    Company is currently assessing the impact of this announcement on its
    consolidated financial statements.

    CICA Handbook Section 1582 "Business Combinations" which replaces
    Handbook Section 1581 "Business Combinations" and is converged with IFRS
    3 "Business Combinations" establishes standards for the measurement of a
    business combination and the recognition and measurement of assets
    acquired and liabilities assumed. This standard is effective for fiscal
    years beginning on or after January 1, 2011. The Company may elect to
    early adopt this standard and if so, will be required to early adopt
    Section 1601 "Consolidated Financial Statements" and Section 1602
    "Non-Controlling Interests". The Company is evaluating the impact of
    adoption of this new section in connection with its conversion to IFRS.

    CICA Handbook Section 1601 "Consolidated Financial Statements" and
    Handbook Section 1602 "Non-Controlling Interests" replace Handbook
    Section 1600 "Consolidated Financial Statements". Handbook Section 1601
    carries forward the existing Canadian guidance on aspects of the
    preparation of consolidated financial statements subsequent to a business
    combination. Handbook Section 1602 establishes standards for the
    accounting of non-controlling interests of a subsidiary in the
    preparation of consolidated financial statements subsequent to a business
    combination. The standards are effective for fiscal years beginning on or
    after January 1, 2011. The Company may elect to early adopt the standards
    and if so, will be required to early adopt Handbook Section 1582
    "Business Combinations". The Company is evaluating the impact of adoption
    of this new section in connection with its conversion to IFRS.

    4.  Inventories:
                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------
    Inventories are summarized as follows:
      Raw materials                                  $   82,719   $   84,678
      Work in process                                     8,656       11,711
      Finished goods                                     33,367       41,211
    -------------------------------------------------------------------------
                                                     $  124,742   $  137,600
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The amount of inventory recognized as an expense and included in cost of
    revenue accounted for other than by the percentage-of-completion method
    during the three and nine months ended December 27, 2009 was $46,779 and
    $143,000 respectively (three and nine months ended December 31, 2008:
    $61,525 and $190,230 respectively). The amount charged to net income and
    included in cost of revenue for the write-down of inventory for valuation
    issues during both the three and nine months ended December 27, 2009 was
    $2,079 and $5,096 respectively (three and nine months ended December 31,
    2008: $3,014 and $4,797 respectively). The amount recognized in net
    income and included in cost of revenue for the reversal of previous
    inventory write-downs due to rising prices during the three and nine
    months ended December 27, 2009 was nil (three and nine months ended
    December 31, 2008 was nil and $181 respectively).

    5.  Discontinued operations:

    (i) During the year ended March 31, 2009, the Company sold the key
    operating assets and liabilities, including equipment, current assets,
    trade accounts payable and certain other assets and liabilities of its
    Precision Components Group ("PCG") for cash proceeds of $4,250 and
    promissory notes with a face value of $2,750. Accordingly, the results of
    operations and financial position of PCG have been segregated and
    presented separately as discontinued operations in the interim
    consolidated financial statements. The results of the discontinued
    operations are as follows:


                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Revenue                $        -   $    8,328   $        -   $   27,877
    Loss from discontinued
     operations, net of
     tax                   $        -   $   (3,498)  $        -   $   (8,975)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (ii) During the year ended March 31, 2009, the Company sold the land and
    building related to its Spheral Solar development project which was
    halted in early fiscal 2008. The land and building were sold for net
    proceeds of $16,000 and a gain of $3,188 before and after tax.

    6.  Deposits, prepaid assets and other:

                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------
    Prepaid assets                                   $    2,197   $    2,755
    Restricted cash(i)                                    6,889       11,892
    Silicon and other deposits                           13,559        8,731
    Forward contracts and other                           3,425        3,129
    -------------------------------------------------------------------------
                                                     $   26,070   $   26,507
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (i) Restricted cash consists of cash collateralized to secure letters of
    credit.

    7.  Other assets:

                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------
    Silicon deposits                                 $   36,509   $   51,021
    Other                                                 1,089          151
    -------------------------------------------------------------------------
                                                     $   37,598   $   51,172
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  Stock-based compensation:

    In the calculation of the stock-based compensation expense in the interim
    consolidated statements of operations, the fair values of the Company's
    stock option grants were estimated using the Black-Scholes option pricing
    model for time vesting and performance based stock options.

    During the nine months ended December 27, 2009 the Company granted
    700,000 time vesting stock options (375,000 in the nine months ended
    December 31, 2008). The stock options granted vest over 4 years and
    expire on the seventh anniversary from the date of issue. During the nine
    months ended December 27, 2009, 100,000 performance based stock options
    were granted (nil in the nine months ended December 31, 2008). The
    performance based options granted vest upon the achievement of certain
    individual performance targets. The performance based stock options
    expire on the seventh anniversary after the date of issue. During the
    three and nine month period ended December 27, 2009 certain performance
    options vested in the normal course of business. During the nine months
    ended December 31, 2008, no performance based stock options vested.

    The fair value of stock options issued during the period were estimated
    at the date of grant using the Black-Scholes option pricing model with
    the following weighted average assumptions:


                                                           Nine months ended
    -------------------------------------------------------------------------
                                                    December 27  December 31
                                                           2009         2008
    -------------------------------------------------------------------------
    Weighted average risk-free interest rate              2.17%        3.24%
    Dividend yield                                           0%           0%
    Weighted average expected life                   4.55 years    4.0 years
    Weighted average expected volatility                    60%          45%
    Number of stock options granted:
      Time vested                                       700,000      375,000
      Performance based                                 100,000            -
    Weighted average exercise price per option       $     6.40   $     7.80
    Weighted average value per option:
      Time vested                                    $     3.19   $     3.03
      Performance based                              $     3.59   $        -
    -------------------------------------------------------------------------

    9.  Earnings (loss) per share:

    Weighted average number of shares used in the computation of earnings
    (loss) per share is as follows:

                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Basic                  87,277,155   77,277,155   87,277,155   77,277,155
    Diluted                87,602,298   77,459,680   87,397,288   77,726,163
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    For the three and nine months ended December 27, 2009, stock options to
    purchase 5,186,358 and 5,825,413 common shares respectively are excluded
    from the weighted average common shares in the calculation of diluted
    earnings per share as they are anti-dilutive (5,718,315 and 4,509,962
    common shares respectively were excluded in the three and nine months
    ended December 31, 2008).

    10. Segmented disclosure:

    The Company evaluates performance based on two reportable segments:
    Automation Systems and Photowatt Technologies. The Automation Systems
    segment produces custom-engineered turn-key automated manufacturing
    systems and test systems. Photowatt Technologies is an integrated
    manufacturer of photovoltaic products and a turn-key solar project
    developer.

    The Company accounts for inter-segment revenue at current market rates,
    negotiated between the segments.

                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Revenue
      Automation Systems   $   78,639   $  144,078   $  290,806   $  434,231
      Photowatt
       Technologies            59,748       79,711      151,331      221,580
      Inter-segment revenue      (254)      (2,050)      (3,134)      (2,465)
    -------------------------------------------------------------------------
    Consolidated           $  138,133   $  221,739   $  439,003   $  653,346
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings (loss) from
     operations
      Automation Systems   $    8,386   $   14,682   $   36,743   $   38,924
      Photowatt
       Technologies             1,626        7,741       (5,278)      23,836
      Inter-segment
       operating loss             (62)        (345)        (734)        (150)
      Stock-based
       compensation            (1,075)        (471)      (2,773)      (1,850)
      Other expenses           (4,119)      (3,135)     (13,395)     (12,447)
    -------------------------------------------------------------------------
    Consolidated           $    4,756   $   18,472   $   14,563   $   48,313
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Bank indebtedness and long-term debt:

    During the three months ended December 27, 2009, the Company and its
    lender agreed to extend its existing primary credit facility (the "Credit
    Agreement") until April 30, 2011. The Credit Agreement provides total
    credit facilities of up to $85,000, comprised of an operating credit
    facility of $65,000 and a letter of credit facility of up to $20,000 for
    certain purposes. The operating credit facility is subject to
    restrictions regarding the extent to which the outstanding funds advanced
    under the facility can be used to fund certain subsidiaries of the
    Company. The Credit Agreement, which is secured by the assets, including
    real estate, of the Company's North American legal entities and a pledge
    of shares and guarantees from certain of the Company's legal entities, is
    repayable in full on April 30, 2011.

    The operating credit facility is available in Canadian dollars by way of
    prime rate advances, letter of credit for certain purposes and/or
    bankers' acceptances and in U.S. dollars by way of base rate advances
    and/or LIBOR advances. The interest rates applicable to the operating
    credit facility are determined based on certain financial ratios. For
    prime rate advances and base rate advances, the interest rate is equal to
    the bank's prime rate or the bank's U.S. dollar base rate in Canada,
    respectively, plus 1.25% to 2.25%. For bankers' acceptances and LIBOR
    advances, the interest rate is equal to the bankers' acceptance fee or
    the LIBOR, respectively, plus 2.25% to 3.25%.

    Under the Credit Agreement, the Company pays a standby fee on the
    unadvanced portions of the amounts available for advance or draw-down
    under the credit facilities at rates ranging from 0.675% to 0.975% per
    annum, as determined based on certain financial ratios.

    The Credit Agreement is subject to debt leverage tests, a current ratio
    test, and a cumulative EBITDA test. Under the terms of the Credit
    Agreement, the Company is restricted from encumbering any assets with
    certain permitted exceptions. The Credit Agreement also partially
    restricts the Company from repurchasing its common shares, paying
    dividends and from acquiring and disposing certain assets. The Company is
    in compliance with these covenants and restrictions.

    The Company's subsidiary, Photowatt International S.A.S. has credit
    facilities including capital lease obligations of 41,409 Euro. The
    interest rates applicable to the credit facilities range from Euribor
    plus 0.5% to Euribor plus 1.9% and 4.9% per annum. Certain of the credit
    facilities are secured by certain assets of Photowatt International
    S.A.S. and a commitment to restrict payments to the Company and are
    subject to debt leverage tests. The Company is in compliance with these
    covenants.

    The Company has an additional unsecured credit facility available of
    2,000 Swiss francs. The credit facility bears interest at up to 6.0% per
    annum and is secured by a letter of credit.

    The following amounts were outstanding:

                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------
    Bank indebtedness:
    Primary credit facility                          $        -   $        -
    Other facilities                                     15,660          142
    -------------------------------------------------------------------------
                                                     $   15,660   $      142
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Long-term debt:
    Primary credit facility                          $        -   $        -
    Other facilities                                     15,876       14,635
    -------------------------------------------------------------------------
                                                     $   15,876   $   14,635
    Less: current portion                                 5,930        4,133
    -------------------------------------------------------------------------
                                                     $    9,946   $   10,502
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Obligations under capital lease:
    Future minimum lease payments                    $   28,626   $   23,802
    Less: amount representing interest (at rates
     ranging from 3% to 5%)                               2,645        2,741
    -------------------------------------------------------------------------
                                                     $   25,981   $   21,061
    Less: current portion                                 4,906        3,409
    -------------------------------------------------------------------------
                                                     $   21,075   $   17,652
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. Restructuring:

    During the year ended March 31, 2008, the Company commenced a
    restructuring program to improve operating performance. The restructuring
    program included workforce reductions, and the closure of
    underperforming, non-strategic divisions during fiscal 2008 and fiscal
    2009. In the three and nine months ended December 31, 2008, severance and
    restructuring expenses associated with this restructuring program were
    $3,129 and $3,408 respectively.

    In fiscal 2010, the Company accelerated and expanded its previous
    restructuring program. In the three and nine months ended December 27,
    2009, severance and restructuring expenses associated with the closure of
    two divisions and other workforce reductions were $1,952 and $5,878
    respectively, primarily in the Automation Systems segment.

    The following is a summary of the changes in the provision for
    restructuring costs:

                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Balance, beginning of
     period                $    3,755   $    6,102   $    4,535   $   12,585

    Severance and
     restructuring expense      1,952        3,129        5,878        3,408
    Cash payments                (881)      (1,258)      (5,512)      (7,920)
    Foreign exchange             (170)         (22)        (245)        (122)
    -------------------------------------------------------------------------
    Balance, end of period $    4,656   $    7,951   $    4,656   $    7,951
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    13. Financial instruments:

    Derivative financial instruments

    The Company uses forward foreign exchange contracts to manage foreign
    currency exposure. Forward foreign exchange contracts that are not
    designated in hedging relationships are classified as held-for-trading,
    with changes in fair value recognized in selling, general and
    administrative expenses in the interim consolidated statements of
    operations. During the three and nine months ended December 27, 2009, the
    fair value of derivative financial assets classified as held-for-trading
    and included in deposits and prepaid assets increased by $1,783 and
    $1,182 respectively (increased by $12 and $783 respectively during the
    three and nine months ended December 31, 2008) and the fair value of
    derivative financial liabilities classified as held-for-trading and
    included in accounts payable and accrued liabilities decreased by $1,175
    and $522 respectively during the three and nine months ended December 27,
    2009 (increased by $3,010 and $2,180 respectively during the three and
    nine months ended December 31, 2008).

    Cash flow hedges

    During the three and nine months ended December 27, 2009, an unrealized
    loss of $8 and $8 respectively was recognized in selling, general and
    administrative expense for the ineffective portion of cash flow hedges
    (unrealized loss of $13 and unrealized gain of $88 during the three and
    nine months ended December 31, 2008). After-tax unrealized gains of $796
    included in accumulated other comprehensive income at December 27, 2009
    are expected to be reclassified to earnings over the next 12 months when
    the revenue is recorded (unrealized losses of $5,171 at December 31,
    2008).

    14. Accumulated other comprehensive income (loss):

    The components of accumulated other comprehensive income (loss) are as
    follows:

                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------
    Accumulated currency translation adjustment      $  (19,430)  $   18,198

    Accumulated unrealized loss on available-for-sale
     financial assets                                    (1,050)      (1,348)

    Accumulated unrealized net gain (loss) on
     derivative financial instruments designated as
     cash flow hedges(i)                                    796       (1,356)
    -------------------------------------------------------------------------
    Accumulated other comprehensive income (loss)    $  (19,684)  $   15,494
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (i) The accumulated unrealized net gain (loss) on derivative financial
        instruments designated as cash flow hedges is net of future income
        taxes of $362 at December 27, 2009 and $nil at March 31, 2009.

    15. Investment in Joint Venture:

    During the three months ended December 27, 2009, Photowatt Ontario Inc.
    entered into an agreement to establish Ontario Solar PV Fields Inc., a
    joint venture. In fiscal 2008, Photowatt International S.A.S., entered
    into an agreement to establish the PV Alliance, a joint venture.

    These are jointly-controlled enterprises and accordingly, the Company
    proportionately consolidated its 50% and 40% share of assets,
    liabilities, revenues and expenses for Ontario Solar PV Fields Inc. and
    PV Alliance respectively in the interim consolidated financial
    statements.

    The following is a summary of the Company's proportionate share of the
    joint ventures:

                                                    December 27     March 31
                                                           2009         2009
    -------------------------------------------------------------------------
    Balance Sheet
    Current assets                                   $    4,413   $    2,482
    Property, plant and equipment                         3,876           53
    Intangible assets                                     1,367        1,816
    Current liabilities                                  (5,852)      (3,230)
    Long-term debt                                       (3,615)      (1,296)
    -------------------------------------------------------------------------
    Net assets                                       $      189   $     (175)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                Three months ended         Nine months ended
    -------------------------------------------------------------------------
                          December 27  December 31  December 27  December 31
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------
    Statement of Operations
    Net loss               $     (167)  $     (290)  $     (265)  $     (665)
    -------------------------------------------------------------------------

    During the year ended March 31, 2009, the PV Alliance established loans
    with a shareholder proportionately worth 2,631 Euro, to be received in
    instalments by PV Alliance. During the nine months ended December 27,
    2009, the PV Alliance received additional loans from a shareholder
    proportionately worth 1,172 Euro. The loans are repayable over five
    years, guaranteed by the signing of a Pledge Agreement, and bear interest
    at the maximum fiscally deductible rate.

    An operating lease was established during the year ended March 31, 2009
    for a portion of the Photowatt International S.A.S. building used by PV
    Alliance and will result in annual lease payments proportionately worth
    83 Euro. The contract with the lessee expires in 2018 with an option to
    terminate the lease in 2016. The lease contains an option to extend the
    lease for an additional nine years.

    During the three and nine months ended December 27, 2009, the PV Alliance
    recorded government assistance of 192 Euro and 576 Euro respectively in
    operating earnings.

    16. Commitments:

    The minimum operating lease payments related primarily to facilities and
    equipment, purchase obligations and other obligations in each of the next
    five years are as follows:

                                         Operating     Purchase        Other
                                            Leases  Obligations  Obligations
    -------------------------------------------------------------------------
    Less than 1 year                    $    3,404   $  120,761   $       77
    1 - 3 years                              2,782      121,960           37
    4 - 5 years                                  5      100,737            -
    Thereafter                                   -      174,065            -
    -------------------------------------------------------------------------
                                        $    6,191   $  517,523   $      114
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Subsequent to the end of the third quarter, the Company entered into a
    long term silicon supply contract to purchase 900 tonnes of polysilicon
    over the next three calendar years ending in December 2012. Approximately
    10% of the contract value is required to be paid in advance.

    In the nine months ended December 27, 2009, the Company terminated an
    existing silicon supply contract with approximately 1,250 tonnes of UMG-
    Si remaining to be delivered. Concurrently, the Company entered into a
    replacement contract to purchase 180 tonnes of polysilicon through the
    remainder of calendar 2009 and 2010. Part of the deposit from the
    terminated contract was applied to the new contract with the remainder of
    the deposit being applied against pre-existing accounts payable.

    In accordance with industry practice, the Company is liable to the
    customer for obligations relating to contract completion and timely
    delivery. In the normal conduct of its operations, the Company may
    provide bank guarantees as security for advances received from customers
    pending delivery and contract performance. At December 27, 2009, the
    total value of outstanding bank guarantees to customers available under
    bank guarantee facilities was approximately $22,549 (March 31, 2009 -
    $24,361).

    17. Income taxes:

    During the three months ended December 27, 2009, the Company's effective
    income tax rate was 12% compared to 14% in the corresponding period a
    year ago. This differs from the combined Canadian basic federal and
    provincial income tax rate of 33.0% (December 31, 2008 - 33.5%) due to
    the utilization of certain investment tax credits in Canada in the
    current period, which was partially offset by losses incurred in other
    jurisdictions, the benefit of which was not recognized for financial
    statement reporting purposes. In previous periods, the Company utilized
    unrecognized loss carryforwards which reduced the effective income tax
    rate.

    During the nine months ended December 27, 2009, the Company's effective
    income tax rate was 22% compared to 10% in the same period a year ago.
    The change is primarily due to the utilization of certain investment tax
    credits in the current period. In previous periods, the Company utilized
    unrecognized loss carryforwards which reduced the effective income tax
    rate.

    18. Contingencies:

    In the normal course of operations, the Company is party to a number of
    lawsuits, claims and contingencies. Accruals are made in instances where
    it is probable that liabilities have been incurred and where such
    liabilities can be reasonably estimated. Although it is possible that
    liabilities may be incurred in instances for which no accruals have been
    made, the Company does not believe that the ultimate outcome of these
    matters will have a material impact on its consolidated financial
    position.
    

%SEDAR: 00002017E

SOURCE ATS Automation Tooling Systems Inc.

For further information: For further information: Maria Perrella, Chief Financial Officer; Carl Galloway, Vice-President and Treasurer, (519) 653-6500


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