ATS reports annual and fourth quarter fiscal 2010 results
TSX: ATA
CAMBRIDGE, ON, June 2, 2010 /CNW/ - ATS Automation Tooling Systems Inc. ("ATS" or the "Company") today reported its financial results for the three and 12 months ended March 31, 2010.
Annual Results Summary
Consolidated revenue was $577.8 million, a 32% year-over-year reduction as difficult market conditions caused lower demand in ATS' markets. Consolidated earnings per share decreased to $0.14 (basic and diluted) compared to $0.61 (basic) and $0.60 (diluted) a year ago.
In fiscal 2010, Automation Systems Group ("ASG") Order Bookings and revenue were negatively impacted by the global economic recession, which began to impact ASG in the fourth quarter of fiscal 2009. This has and will continue to cause volatility in Order Bookings, which amounted to $105 million in the fourth quarter. At Photowatt Technologies ("Photowatt"), difficult market conditions, including reductions in feed-in-tariffs and tighter credit markets negatively impacted funding available for solar installation projects which reduced demand for photovoltaic products and put downward pressure on average selling prices. This negatively impacted revenue and operating earnings and is expected to continue to result in lower demand for solar modules and lower average selling prices per watt.
Fourth Quarter Summary
- Consolidated revenue was $138.8 million compared to $138.1 million in
the third quarter of the fiscal year and $201.8 million in the fourth
quarter a year ago;
- Consolidated loss from operations was $26.0 million compared to
earnings from operations of $4.7 million in the third quarter of
fiscal 2010 and earnings from operations of $17.7 million a year ago;
- Included in the fourth quarter loss from operations was expenses for
the write-down of inventories in Photowatt of $40.3 million and a
related $1.6 million asset impairment expense against silicon
deposits and the incremental benefit of $6.1 million due to the
recognition of previously un-recognized investment tax credits
receivable in ASG;
- Included in fourth quarter net income is a future income tax benefit
of $30.5 million related to a change in the Company's assessment of
its ability to utilize certain future tax assets in its Canadian
operations;
- Per share earnings were $0.03 (basic and diluted) compared to $0.16
(basic) and $0.15 (diluted) a year ago;
- The balance sheet remained strong with cash net of debt of
$148.3 million at March 31, 2010 compared to $106.5 at March 31,
2009;
- On June 1, 2010, the Company completed its acquisition of the
Sortimat Group, a manufacturer of specialized assembly systems for
medical products and pharmaceutical dosing devices; and
- Subsequent to year-end, the Company initiated a formal process to
separate Photowatt and engaged advisors to assist the Company in
identifying and evaluating strategic alternatives.
"In the fourth quarter, we continued to experience challenging market conditions which negatively impacted Order Bookings and revenues in both ASG and Photowatt. Despite these challenges, ASG operating results remained strong. At Photowatt, normalized for the significant non-cash inventory write-offs, operating results approached breakeven," said Anthony Caputo, Chief Executive Officer. "As we move forward in fiscal 2011, our focus is on growth in our core ASG business and the separation of Photowatt. We have created a solid operational and financial foundation to support this strategy. The acquisition of Sortimat and the formal process to separate Photowatt are steps in this regard."
Acquisition of Sortimat Group
On June 1, 2010, ATS completed its acquisition of the Sortimat Group ("Sortimat"). The Sortimat acquisition aligns with ATS' strategy of expanding its position in the global automation market and enhancing growth opportunities, particularly in strategic segments, such as healthcare. The Company will benefit from Sortimat's significant experience and products in advanced system development, manufacturing, handling, and feeder technologies. This acquisition will provide ATS with the scale required to further organize its marketing and divisions into a group focused on healthcare with the objective to grow its exposure to this market segment and help customers differentiate themselves from their competitors. To implement the integration and effect margin improvements, the Company will deploy people to apply best practices, command and control, program management and advance approach to market.
The total consideration for Sortimat is expected to be $56.7 million based on current foreign exchange rates (43.6 million Euro), which includes potential future payments of up to $8.6 million (6.6 million Euro) payable subject to achievement of certain milestones related to operating earnings performance and specific management services to be provided over the next two and a half years. In the first quarter of fiscal 2011, the Company paid approximately $48.1 million (37.0 million Euro) in cash. The cash consideration of the purchase price along with transaction costs have been funded with existing cash on hand, making effective use of ATS' strong cash position. The potential future payments will also be funded from cash on hand.
Financial Results
In millions 3 months 3 months 12 months 12 months
of dollars, ended ended ended ended
except per Mar. 31, Mar. 31, Mar. 31, Mar. 31,
share data 2010 2009 2010 2009
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Revenues Automation
from Systems
continuing Group $ 91.6 $ 154.3 $ 382.4 $ 588.5
operations ------------------------------------------------------------
Photowatt
Technologies 48.6 48.2 199.9 269.8
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Inter-segment (1.4) (0.7) (4.5) (3.2)
------------------------------------------------------------
Consolidated $ 138.8 $ 201.8 $ 577.8 $ 855.1
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EBITDA Automation
Systems
Group(i) $ 21.1 $ 22.1 $ 63.0 $ 67.2
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Photowatt
Technologies(ii) (38.3) 4.9 (31.3) 40.2
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Corporate and
Inter-segment
elimination (2.9) (2.5) (18.8) (16.4)
------------------------------------------------------------
Consolidated $ (20.1) $ 24.5 $ 12.9 $ 91.0
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Net income
(loss) from
continuing
operations Consolidated $ 2.1 $ 14.0 $ 12.2 $ 57.5
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Earnings From continuing
(loss) per operations
share (basic) $ 0.03 $ 0.17 $ 0.14 $ 0.73
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From continuing
operations
(diluted) $ 0.03 $ 0.16 $ 0.14 $ 0.72
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After
discontinued
operations
(basic) $ 0.03 $ 0.16 $ 0.14 $ 0.61
------------------------------------------------------------
After
discontinued
operations
(diluted) $ 0.03 $ 0.15 $ 0.14 $ 0.60
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(i) ASG EBITDA for the three and twelve months ended March 31, 2010
includes an incremental benefit of $6.1 million due to the
recognition of previously unrecognized investment tax credits
receivable.
(ii) Photowatt Technologies EBITDA for the three and twelve months
ended March 31, 2010 includes expenses for the write-down of
inventories of $40.3 million and $43.4 million respectively and a
related $1.6 million asset impairment expense against silicon
deposits. Fiscal 2009 EBITDA for the three and twelve months ended
March 31, 2010 includes gains of $2.0 million and $3.2 million
related to the sale of silicon not usable in Photowatt
Technologies and the sale of the redundant Spheral Solar building
respectively.
ASG Fourth Quarter Results
- Revenue was $91.6 million compared to $78.6 million in the third
quarter of the fiscal year and $154.3 million in the fourth quarter a
year ago;
- Fiscal 2010 fourth quarter EBITDA was $21.1 million compared to
EBITDA of $10.0 million in the third quarter and $22.1 million a year
ago;
- Earnings from operations were $19.5 million (operating margin of
21%), compared to $8.4 million (operating margin of 11%) in the third
quarter of this fiscal year and $19.8 million (operating margin of
13%) in the fourth quarter a year ago;
- Period end Order Backlog was $209 million, an increase of 3% from
$203 million in the third quarter of this fiscal year and down from
$255 million a year ago;
- Order Bookings for the fourth quarter were $105 million compared to
$92 million in the third quarter of fiscal 2010 and $126 million in
the fourth quarter a year ago;
- Order Bookings were $50 million during the first 8 weeks of the first
quarter of fiscal 2011.
Included in fiscal 2010 fourth quarter operating earnings is an incremental benefit of $6.1 million due to the recognition of previously unrecognized investment tax credits receivable. This reflects a change in the Company's expectation to utilize the credits, due to the improved operating performance of ASG's Canadian operations. Despite a 41% year-over-year reduction in revenues in the fourth quarter, and excluding the investment tax credit benefit, ASG's operating margin was 15%, reflecting cost reductions implemented during fiscal 2009 and 2010, supply chain savings and improved program management. Revenue decreased year over year by 71% in energy, 6% in healthcare, 33% in computer-electronics, 51% in automotive and 6% in "other" markets (primarily consumer products).
Photowatt Fourth Quarter Results
- Revenue was $48.6 million, a 19% decrease from fiscal 2010 third
quarter revenues of $59.7, but slightly higher compared to
$48.2 million in the fourth quarter a year ago;
- EBITDA was negative $38.3 million compared to EBITDA of $5.7 million
in the third quarter of fiscal 2010 and EBITDA of $4.9 million a year
ago;
- Loss from operations was $42.4 million compared to earnings from
operations of $1.6 million (operating margin of 3%) in the third
quarter of fiscal 2010 and operating earnings of $0.7 million (1%
operating margin) in the fourth quarter a year ago;
- Total megawatts (MWs) sold decreased 1% to 12.7 MWs from 12.8 MWs in
the third quarter of fiscal 2010, but were 37% higher than the 9.3
MWs sold in the fourth quarter of fiscal 2009.
Photowatt fiscal 2010 fourth quarter operating loss reflected a $40.3 million charge to write-down inventory to its net realizable value, the majority of which relates to UMG-Si based products, and a related $1.6 million impairment charge against silicon deposits. Excluding the write-down and related impairment charge, Photowatt's fiscal 2010 fourth quarter loss from operations was $0.5 million. The year-over-year decline in operating earnings reflected lower average selling prices per watt and costs related to the start-up of Photowatt Ontario, partially offset by lower direct manufacturing costs per watt and increased system sales. Revenue from system sales increased to $25.1 million in the fourth quarter of fiscal 2010 compared to $12.5 million in the fourth quarter of fiscal 2009. Polysilicon products represented $48.4 million or 100% of fiscal 2010 fourth quarter revenue compared to $13.3 million or 28% for the same period a year ago.
Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern today and can be accessed live at www.atsautomation.com or on the phone by dialing 416 644 3417 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 an integrated manufacturer of ingots, wafers, cells and modules. Photowatt-branded products and systems serve businesses, institutions and homeowners in established and emerging markets. ATS employs approximately 2,300 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
For the Year Ended March 31, 2010
This management's discussion and analysis ("MD&A") for the year ended March 31, 2010 (fiscal 2010) is as of June 1, 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 Company's audited Consolidated Financial Statements ("Consolidated Financial Statements") for the years ended March 31, 2010 and 2009 which have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Amounts are expressed in Canadian currency unless otherwise noted. Additional information is contained in the Company's filings with Canadian securities regulators, including its annual information form, and can be found on SEDAR at www.sedar.com.
Notice to Reader: 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 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 and measuring operational results. A reconciliation of operating earnings and EBITDA to total Company net income for the three and twelve month periods ending March 31, 2010 and 2009 is contained in the 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 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 twelve month periods ending March 31, 2010 and 2009 is contained in the MD&A (See "ASG Order Backlog Continuity"). References to 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 2 to the Consolidated Financial Statements, in 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.
Business Overview
ATS operates in two reportable business segments; Automation Systems Group ("ASG") and Photowatt Technologies ("Photowatt"). Subsequent to March 31, 2010, the Company initiated a formal process to separate Photowatt and engaged advisors to assist the Company in identifying and evaluating strategic alternatives. The Company has determined it does not meet all of the criteria to classify Photowatt as assets held for sale and its results as discontinued operations in its Consolidated Financial Statements as at March 31, 2010 and these assets continue to be classified as held and used as at March 31, 2010. As the form of separation is uncertain, adjustments to carrying value may result and a write-down, if any, will be recorded in the period determined.
- ASG is an industry leader in planning, designing, building,
commissioning and servicing automated manufacturing and assembly
systems - including automation products and test solutions - for a
broadly diversified base of customers. ATS's reputation, knowledge,
global presence and standard automation technology platforms
differentiate the Company and provide it with competitive advantages
in the worldwide market for healthcare, computer-electronics,
automotive, energy and consumer products automation.
- Photowatt is 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. Photowatt has a well-established and ongoing research
and development program, alliances with energy industry leaders
through the PV Alliance joint venture, and 30 years of experience in
processing silicon and making ingots, wafers, cells and modules at
its Photowatt France division ("PWF"). In fiscal 2010, Photowatt
Ontario ("PWO") was established as part of the Photowatt group to
serve the Ontario solar market. In fiscal 2009, Photowatt 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.
Acquisition of Sortimat Group
On June 1, 2010, ATS completed its acquisition of the Sortimat Group ("Sortimat"). Sortimat is a manufacturer of assembly systems for the healthcare segment. Headquartered in Germany, and established in 1959, Sortimat also has locations in Chicago and a small, 60% owned joint venture in India.
The total consideration for Sortimat is expected to be $56.7 million based on current foreign exchange rates (43.6 million Euro), which includes potential future payments of up to $8.6 million (6.6 million Euro) payable subject to achievement of certain milestones related to operating earnings performance and specific management services to be provided over the next two and a half years. In the first quarter of fiscal 2011, the Company paid approximately $48.1 million (37.0 million Euro) in cash. The cash consideration of the purchase price along with transaction costs have been funded with existing cash on hand, making effective use of ATS' strong cash position. The potential future payments will also be funded from cash on hand.
The Sortimat acquisition aligns with ATS' strategy of expanding its position in the global automation market and enhancing growth opportunities, particularly in strategic segments, such as healthcare. The Company will benefit from Sortimat's significant experience and products in advanced system development, manufacturing, handling, and feeder technologies. This acquisition will provide ATS with the scale required to further organize its marketing and divisions into a group focused on healthcare with the objective to grow its exposure to this market segment and help customers differentiate themselves from their competitors. To implement the integration and effect margin improvements, the Company will deploy people to apply best practices, command and control, program management and advance approach to market.
This acquisition will be accounted for as a business combination with ATS as the acquirer of Sortimat. The purchase method of accounting will be used. The Company is in the process of finalizing the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition, including goodwill and identifiable intangible assets. The consolidated results of operations of Sortimat will be included in the Consolidated Statement of Earnings after June 1, 2010. Management expects the acquisition to be accretive to current revenues and net income.
Except as otherwise disclosed, the information presented herein excludes Sortimat and its businesses as Sortimat was acquired after March 31, 2010.
Value Creation Strategy
To drive value creation, the Company has implemented a three-phase strategic plan: (1) fix the business (fix the existing operations, gain operating control of the business and earn credibility); (2) separate the businesses (create standalone ASG and Photowatt businesses, monetize non-core assets and strengthen the balance sheet); and (3) grow (both organically and through acquisition). In fiscal 2010, the Company's focus was to complete the "fix" phase of the Company's value creation plan, to position the Company's two operating segments for separation, and to offset the impact of global economic weakness. Specifically, ATS's priorities for fiscal 2010 were:
- Improve leadership and spread best practices;
- Strengthen supply chain management;
- Improve approach to market; and
- Develop strategies to address the weak global economy.
In fiscal 2010, the Company made progress against the strategic plan.
Improve leadership and spread best practices: In fiscal 2010, to strengthen the Company's management and further improve operations, the Company initiated a corporate-led review of management and leadership, rolled-out a number of best practices to divisions and completed the consolidation of a number of under-performing and non-strategic divisions.
Strengthen supply chain management: To realize cost reductions, improve cash terms and increase quality, the Company completed a number of supply chain initiatives in fiscal 2010, including; formation of a global supply chain group; identification of key third-party vendors and negotiation of agreements; increased inter-divisional subcontracting to utilize divisional "character" (core competencies and market segments served); and began standardizing a number of designs to be used across divisions and programs.
Improve approach to market: In fiscal 2010, the Company continued to re-vamp the front end of the business through the appointment of several seasoned sales professionals with experience in both automation and manufacturing in the Company's customer segments. Photowatt continued to progress in its efforts to move downstream as solar system sales (modules, combined with installation kits, solar power system design and/or other value added services) increased to 60% of total Photowatt revenue from 26% in fiscal 2009.
Develop strategies to address the weak global economy: In response to the global financial crisis, management expanded the "fix" phase of its strategy. Incremental restructuring was undertaken in fiscal 2010 to respond to the difficult economic conditions.
Fiscal 2011 Strategy Overview
In fiscal 2011, the Company will continue to execute the value creation plan, by focusing on the separation and growth phases. Specific initiatives to support these phases include:
Separation:
- Organizational effectiveness: To improve organizational effectiveness
and ensure appropriate structure for operational performance is in
place subsequent to separation, the Company will: continue to assess
and improve management and leadership, implement leading business
processes and best practices, target elimination and/or
rehabilitation of RED programs (as defined herein) and continue to
advance the PV Alliance.
- Operational Efficiencies: At Photowatt, to continue to improve
operating performance, aggressive and targeted cell efficiency
improvements are planned, supply chain initiatives will be
implemented to further reduce material costs and the Company's
investment in working capital, and other additional initiatives to
reduce scrap rates and overhead costs have been identified and will
be implemented.
- Supply chain management: At ASG, the Company will: continue to pursue
cost, quality and delivery efficiencies on third-party components,
target further cooperation and coordination among divisions and
increase the use of standard products and standard designs. At
Photowatt, appropriate silicon supply contracts are in place for
current demand. Management will continue to assess its supply
commitments as appropriate.
Growth:
- Approach to market: ASG will continue to target value based, complete
automation program solutions for customers based on differentiating
technological solutions, value of outcomes achieved by customers and
global capability. Photowatt will further develop its capability to
serve downstream opportunities, including solar modules systems,
project development, maintenance, monitoring and support and
financing.
- Acquisitions: The Company is actively pursuing acquisition
opportunities. These opportunities are targeted and evaluated based
on their ability to bring ATS market or technology leadership, scale
and/or an opportunity brought on by the economic environment.
Financially, targets are reviewed for their potential to add
accretive earnings to current operations.
- Division character: In fiscal 2011, the Company intends to further
develop the character (core competencies and markets served) of each
division in order to ensure each division has sufficient scope,
leadership and technical capability to execute large, multinational
customer programs. The acquisition of Sortimat will provide ASG with
the critical mass to organize divisions and part of its global sales
and marketing organization into a group focused on the healthcare
industry.
- Balance sheet strength: To maintain operational and financial
flexibility, the Company will continue to manage its finances to
preserve its strong balance sheet through targeted working capital
reductions, continued emphasis on customer cash and credit terms and
appropriate funding strategies.
Automation Systems Group
ASG BUSINESS OVERVIEW
ASG is an industry-leading automation solutions provider to some of the world's largest multinational companies. ASG has expertise in custom automation, repeat automation, automation products and value-added services.
ASG categorizes its market into five industry groups: healthcare, computer-electronics, automotive, energy and "other" segments. Other applications for ASG include a variety of industries such as consumer products and appliances. Contract values for individual automation systems are often in excess of $1.0 million. Given the custom nature of customer projects, contract durations vary greatly, with typical durations ranging from six to 12 months.
With broad and in-depth knowledge across multiple industries and technical fields, ASG is able to deliver "single source" solutions to customers that can lower their production costs, accelerate delivery of their products, and improve quality control. ASG's relationships with customers often begin with planning and feasibility studies. In situations where the customer is seeking in-depth analysis before committing to a program, ASG provides objective analysis to verify the economics and feasibility of different types of automation, sets objectives for factors such as line speed and yield, assesses production processes for manufacturability and calculates the total cost of ownership.
When a contract for an automation solution is received, ASG often provides a number of services, including engineering design, prototyping, process verification, specification writing, software development, automation simulation, equipment design and build, third-party equipment qualification, procurement and integration, automation system installation, product line start up, documentation, customer training and after-installation support, maintenance and service. Following the installation of custom automation, ASG may supply duplicate or "repeat" automation systems to customers that leverage engineering design completed in the original customer program. For customers seeking complex equipment replication, ASG's Automation Products Group ("APG") provides value engineering, supply chain management, integration and manufacturing capabilities. Typically, APG solutions are either integrated into a larger system by the customer for resale, or delivered as a standalone machine to customers who then resell it.
Competitive Strengths. Management believes ASG has the following competitive strengths:
Global presence, size and critical mass. ASG's global presence and scale provides an advantage in serving multinational customers because the markets in which the Company operates are largely populated by competitors with narrow geographic and/or industrial market reach. ASG has manufacturing operations in Canada, the United States, China, Malaysia, Singapore, Germany and Switzerland. Management believes that ASG's scale and locations provide it with competitive advantages in winning large, multinational customer programs that have become increasingly common.
Technical skills, capabilities and experience. Automation manufacturing is a knowledge-based business. ASG has designed, manufactured, assembled and serviced thousands of automation systems worldwide since 1978 and has an extensive knowledge base and accumulated design experience. Management believes ASG's broad experience in many different industry sectors, with many diverse technologies, along with its talented workforce and ability to provide custom automation, repeat automation, APG solutions and value-added services, position the Company well to serve complex multinational customer programs in a variety of industry sectors.
Trusted customer relationships. ASG serves some of the world's largest multinational companies. Most of ASG's customers are repeat customers and many have long-standing relationships with ATS, often spanning more than a decade. In fiscal 2010, management estimates that approximately 90% of ASG Order Bookings were earned from repeat customers.
Recognized name. ATS is well known within the global automation industry due to its long history of innovation and broad scope of operations. Management believes that ATS's brand name and global reputation tend to improve sales prospecting, allowing the Company to be considered for a wide variety of customer programs.
Total solutions capabilities. Management believes the Company gains competitive advantages because ASG provides total turn-key solutions in automation. This allows customers to single source their most complex projects to ATS rather than rely on multiple equipment builders. In addition, ASG can provide customers with other value-added services including project financing, total cost of ownership studies and life cycle management.
ASG BUSINESS STRATEGY: FISCAL 2011
ASG's operational objectives in fiscal 2011 are to build on the "fixes" implemented in ASG operations over the past two years, continue to deliver predictable, sustainable results and position the segment for growth. To achieve these objectives, management plans to focus on the following initiatives:
Strengthen ASG's organizational effectiveness. To build upon the organizational and operational improvements made in fiscal 2010, management intends to strengthen leadership and spread best practices:
- Strengthen leadership: The Company intends to continue to recruit top
performers and ensure appropriate management and leadership is in
place to continue to advance ASG's strategies;
- Spread best practices and business processes: The Company intends to
continue to identify and roll out best practices to all divisions
globally to improve customer bids and proposals, capacity planning
and supply chain management. Management believes this will improve
division performance globally and facilitate internal subcontracting
and inter-division co-operation (see "Internal subcontracting"
below);
- Eliminate and/or remediate RED programs: ASG has reduced the number
of "RED" programs (programs which are not delivered to specification,
on-time or on budget) to less than 15% at the end of fiscal 2010,
from approximately 30% in fiscal 2009. ASG will aim to continue to
aggressively manage program performance to eliminate the remaining
legacy RED programs and rehabilitate programs in which performance
deteriorates; and
- Expand ASG's patent program: ASG has initiated a patent program
designed to identify, protect and leverage ASG's intellectual
property.
Supply chain management. To capitalize on ATS' scale and consolidated purchasing power, management plans to continue making improvements in supply chain management:
- Material cost reduction: In order to improve timely program
performance and quality while reducing costs, ASG is working with its
suppliers to establish better service, quality, payment and pricing
terms.
- Internal subcontracting: In order to increase factory utilization,
reduce costs and help develop divisional "character" (core
competencies and markets served), ASG has implemented a global
capacity management process and inter-divisional subcontracting
processes to encourage internal subcontracting and co-operation
between divisions; and
- Standard products: In conjunction with actions to standardize designs
and reduce material costs, the Company is reviewing major sub-
components used globally and intends to move towards using standard
products in design and build. Management believes this will reduce
both material and design costs.
Approach to market. In fiscal 2011, growth is a strategic priority for ASG. Management intends to implement a number of specific initiatives in this regard:
- Division character: Management believes that in order to fully
leverage the Company's global capabilities, divisions must have the
ability to specialize in certain types of customer assignments, such
as specializing in specific industries, or specializing in certain
products or core technical competencies such as test systems, or
repeat manufacturing. Such capability can then be leveraged globally
to deliver differentiating solutions to ASG customers;
- Global account management: ASG will implement a new global sales and
marketing structure. Management believes this revised matrix
structure, which will centralize certain functions, will better
leverage ASG's industry segment and region-specific knowledge, focus
deeper expertise in ASG's customer markets, increase the consistency
of ASG's proposal process, branding, customer communications and
product and service planning; and
- Establish market discriminators: ASG's global sales and marketing
group is developing program-based offerings, intended to continue to
move the Company away from providing customers with discrete systems
to a more comprehensive customer relationship, in which ASG provides
additional offerings across the lifecycle of the customer's needs,
such as products and services.
FISCAL 2010 RESULTS FROM OPERATIONS
ASG Revenue
(In millions of dollars, except employees. Figures include intersegment
revenue)
Revenue by industry Q4 2010 Q4 2009 2010 2009
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Healthcare $ 43.6 $ 46.5 $ 163.3 $ 151.1
Computer-Electronics 12.2 18.3 37.6 100.6
Energy 17.0 57.9 106.0 190.7
Automotive 11.6 23.9 45.9 98.1
Other 7.2 7.7 29.6 48.0
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Total Revenue $ 91.6 $ 154.3 $ 382.4 $ 588.5
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Revenue by installation
location
North America $ 55.1 $ 90.7 $ 231.6 $ 363.6
Europe 10.9 20.7 50.2 110.7
Asia/Other 25.6 42.9 100.6 114.2
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Total Revenue $ 91.6 $ 154.3 $ 382.4 $ 588.5
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Employees at year end 1,578 1,952
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Fourth Quarter Revenue
ASG fiscal 2010 fourth quarter revenue was 41% lower than for the same period a year ago, primarily as a result of the 28% decrease in Order Backlog entering the fourth quarter compared to a year ago reflecting the continued impact of the global economic recession and a longer period of performance for certain programs in Order Backlog. Quarter-over-quarter foreign exchange rate changes negatively impacted ASG revenues for the fourth quarter, compared to a year ago, primarily reflecting the strengthening of the Canadian dollar relative to the U.S. dollar and Euro.
By industrial market, healthcare revenue decreased 6% year over year on lower Order Bookings in the last three quarters of the fiscal year. Revenue from the computer-electronics, energy and automotive markets decreased by 33%, 71% and 51%, respectively, reflecting lower Order Backlog entering the fourth quarter compared to a year ago. "Other" revenues decreased by 6% due primarily to lower revenues in the consumer products industry.
Full Year Revenue
Annual ASG revenue decreased 35% or $206.1 million compared to fiscal 2009. This decrease was the result of lower Order Bookings generated throughout fiscal 2010 compared to the corresponding period of fiscal 2009, reflecting the impact of the global economic recession, which began to impact ASG in the fourth quarter of fiscal 2009. Despite higher Order Backlog entering fiscal 2010 compared to fiscal 2009, the period over which Order Backlog was converted to revenue in fiscal 2010 was longer than in the past, due to an extended period of performance for certain programs. By industrial market, healthcare revenue increased 8%, computer-electronics revenue decreased 63%, energy revenues decreased 44%, automotive revenue decreased 53%, and revenue from "other" industries decreased 38%. On a regional basis, revenues by installation location have decreased by 36% in North America, 55% in Europe and 12% in Asia.
ASG Operating Results
(In millions of dollars. Figures include intersegment earnings from
operations)
Q4 2010 Q4 2009 2010 2009
-------------------------------------------------------------------------
Earnings from operations(i) $ 19.5 $ 19.8 $ 56.2 $ 58.7
Depreciation and amortization 1.6 2.3 6.8 8.5
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EBITDA $ 21.1 $ 22.1 $ 63.0 $ 67.2
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(iii) Fiscal 2010 fourth quarter and full year operating earnings
include an incremental benefit of $6.1 million due to the
recognition of previously un-recognized investment tax credits
receivable.
Fourth Quarter Operating Earnings
Fiscal 2010 fourth quarter earnings from operations were $19.5 million (operating margin of 21%) compared to operating earnings of $19.8 million (operating margin of 13%) in the same quarter a year ago. Included in fiscal 2010 fourth quarter operating earnings is an incremental benefit of $6.1 million due to the recognition of previously unrecognized investment tax credits receivable. The recognition of these investment tax credits reflects a change in the Company's expectation to utilize the credits, due to the improved operating performance of ASG's Canadian operations.
Excluding the impact of the investment tax credits, fiscal 2010 fourth quarter earnings from operations were $13.4 million (operating margin of 15%). 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. ASG depreciation and amortization expense was $1.6 million in the fourth quarter of fiscal 2010 compared to $2.3 million in the same period a year ago.
Full Year Operating Earnings
Fiscal 2010 operating earnings were $56.2 million (operating margin of 15%) compared to operating earnings of $58.7 million (operating margin of 10%) in fiscal 2009. 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 investment tax credits recognized in the second and fourth quarters respectively of fiscal 2010. Included in fiscal 2010 earnings from operations was $7.0 million of severance and restructuring charges compared to $6.1 million a year ago. Fiscal 2010 restructuring charges relate to workforce reductions as well as costs incurred related to the closure of two divisions. Foreign exchange rates positively impacted fiscal 2010 ASG operating earnings compared to a year ago.
ASG Order Bookings by Quarter
(In millions of dollars)
Fiscal Fiscal
2010 2009
-------------------------------------------------------------------------
Q1 $ 96 $ 169
Q2 71 133
Q3 92 157
Q4 105 126
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Total Order Bookings $ 364 $ 585
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Fiscal 2010 Order Bookings were $364 million, 38% lower than the previous year, 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 due to global economic uncertainty. Order Bookings during the first eight weeks of fiscal 2011 were approximately $50 million.
ASG Order Backlog Continuity
(In millions of dollars)
Fiscal Fiscal
2010 2009
-------------------------------------------------------------------------
Opening Order Backlog $ 255 $ 232
Revenue (382) (588)
Order Bookings 364 585
Order Backlog adjustments(i) (28) 26
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Period end Order Backlog $ 209 $ 255
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(i) Order Backlog adjustments include foreign exchange and cancellations.
ASG Order Backlog by Industry
(In millions of dollars)
March 31, March 31,
2010 2009
-------------------------------------------------------------------------
Healthcare $ 65 $ 92
Computer-electronics 17 10
Energy 74 86
Automotive 17 29
Other 36 38
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Total $ 209 $ 255
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Order Backlog of $209 million at March 31, 2010 was 18% lower than at March 31, 2009 primarily reflecting lower Order Bookings throughout fiscal 2010 compared to the prior year.
Lower healthcare Order Backlog primarily reflected reduced Order Backlog in North America and Europe compared to the prior year. Growth in computer-electronics Order Backlog reflected higher Order Backlog in Asia and North America, which more than offset lower Order Backlog in Europe. Declines in energy Order Backlog resulted primarily from lower activity in North America, which more than offset slightly higher energy Order Backlog in Europe compared to the prior year. Lower automotive Backlog reflected industry conditions in both North America and Europe, partially offset by increases in Asia. The decrease in "other" reflects higher Order Backlog in North America, which was more than 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, activity in ASG's markets has increased, however despite signs of improvement in some of ASG's customers markets, 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 have allowed ASG to maintain profitable operating margins, despite lower revenues. However, low volume and revenues due to current market conditions and competitive pressures, 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 initiatives will also be affected by current market conditions and lower Order Bookings and Order Backlog. Management expects that until Sortimat is fully integrated, ASG operating margins will be negatively impacted.
Management believes the Company's strengthened balance sheet, approach to market and operational improvements will provide a solid foundation for ASG to improve performance when the general business environment, including capital investment, stabilizes and returns to growth.
The Company's strong financial position also provides ASG with the flexibility to pursue its growth strategy. The Company is actively seeking to expand its position in the global automation market through acquisition. Management is continuing to review 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 agreements and requisite board and other approvals.
Photowatt Technologies
PHOTOWATT BUSINESS OVERVIEW
Photowatt is a turn-key solar project developer and integrated manufacturer. Photowatt operates through two divisions: PWF, an integrated solar ingot, wafer, cell and module manufacturer and solar project developer located near Lyon, France and PWO, an Ontario-based module manufacturer and solar project developer. Photowatt designs, manufactures and sells solar modules and installation kits, and provides solar power system design and other value-added services, including project development, maintenance, monitoring and support and financing, principally in Western Europe and Ontario. Photowatt also manufactures ingots, wafers and solar cells, primarily for use in manufacturing its modules. Solar modules manufactured by Photowatt are used by businesses, institutions and homeowners to generate electric power. It sells its products under the Photowatt brand to a network of independent solar power systems distributors and installers. Photowatt has developed and sold photovoltaic products since 1979.
Competitive Strengths. Management believes that Photowatt has the following competitive strengths:
Photowatt brand: PWF has successfully sold solar products in Europe for 30 years. To date, over three million modules have been sold world-wide. Photowatt-branded products range from cells and modules to complete solar turn-key systems in the residential, professional and solar farm segments. Photowatt also leverages its significant history and knowledge of the solar industry in providing services including project development, maintenance, monitoring, support and project financing.
Established market positions and relationships: Photowatt has established market positions in several growing and/or well developed solar markets including France, Germany and Spain. In Ontario, Canada, Photowatt is combining its extensive global solar capabilities and experience, Ontario-based manufacturing presence and substantial automation and project experience to serve the Ontario solar energy market.
Integrated manufacturing capabilities: Photowatt's PWF division is considered "integrated" in that it participates in each of the ingot, wafer, cell and module stages of the solar module production process. Management believes that being an integrated manufacturer gives Photowatt several advantages relative to many of its competitors, including:
- Reduced dependence on third-party suppliers for ingots, wafers and
cells, which helps to ensure quality of components and cost
management;
- Improved research and development capabilities to increase cell
efficiency levels through improvements in various phases of
production;
- The flexibility, within the wafer manufacturing process, to optimize
the mix of feedstock based on price and performance;
- Improved process development capabilities that allow the business to
continually evaluate the impact of changes throughout the production
process; and
- The ability to capture a greater portion of the profits available by
participating across a significant portion of the solar value chain.
Technical expertise and research capability: Photowatt is a 40% partner in the PV Alliance joint venture along with EDF Energies Reparties ("EDF") and CEA Valorisation ("CEA"). The PV Alliance contemplates: (i) research to improve the efficiency of solar cells; and (ii) potential expansion in France through one or more 100 megawatt ("MW") facilities. Management believes that the PV Alliance provides Photowatt with access to research and potential technology improvements more quickly than could be developed on its own.
PHOTOWATT BUSINESS STRATEGY: FISCAL 2011
The Company intends to position Photowatt to become a standalone company through its downstream activities, disciplined cost management and strengthening of leadership:
Strengthen Photowatt's organizational effectiveness. To drive consistent performance and prepare Photowatt for separation, management intends to strengthen leadership and continue to advance the PV Alliance:
- Strengthen leadership: The Company intends to continue to build
management capability and ensure appropriate leadership is in place
to advance Photowatt's strategies; and
- Advance the PV Alliance: In fiscal 2011, production on the PV
Alliance's 25 MW cell line will begin. The line will be used to test
and improve cell efficiency of current generation solar cells. The
intended benefit of this initial research phase is the potential
increase in cell efficiency by up to 2%. Concurrently, PV Alliance is
considering the launch of a second "lab-fab" research initiative in
order to develop and test "next generation" heterojunction solar cell
technology.
Reduce cost of operations. To improve profitability and increase competitiveness in the solar industry, management intends to:
- Increase cell efficiency: Photowatt intends to continue to invest in
research and development during fiscal 2011, with the objective of
increasing cell efficiency. Management believes that increases in
cell efficiency will result in more watts to sell at a given level of
production and therefore translate into higher operating earnings;
- Utilize supply chain: In order to improve quality while reducing
costs, Photowatt has secured an appropriate silicon supply and is
continuing to work with other suppliers to establish better service,
quality, payment and pricing terms;
- Reduce scrap: In order to improve the throughput of the manufacturing
process and reduce costs per watt, Photowatt has completed an
analysis of its entire manufacturing process. A number of areas and
actions have been targeted for scrap reduction; and
- Reduce overhead costs: Management has set targets to reduce total
overhead costs and align PWF's cost structure with current market
demand.
Approach to market: In order to grow the Photowatt business, in fiscal 2011, management will:
- Increase downstream revenue: Photowatt will seek to increase system
sales, participate in solar installation projects, increase sales of
services, maintenance, monitoring and other value-added solutions in
order to improve order-flow and increase revenues;
- Build the Ontario pipeline: Ontario's Green Energy Act and renewable
energy feed-in-tariff has set a new standard in the North American
solar energy market. ATS' Ontario-based manufacturing presence,
combined with its 30-year track record of solar excellence through
Photowatt, provide PWO with a unique advantage in leading the
development of the Ontario solar energy market.
FISCAL 2010 RESULTS FROM OPERATIONS
Photowatt Revenue
(In millions of dollars, except employees at year end)
Q4 2010 Q4 2009 2010 2009
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Total Revenue $ 48.6 $ 48.2 $ 199.9 $ 269.8
-------------------------------------------------------------------------
Revenue by Product
Polysilicon products $ 48.4 $ 13.3 $ 186.6 $ 88.6
UMG-Si products 0.2 33.7 13.3 180.0
Other - 1.2 - 1.2
-------------------------------------------------------------------------
Total Revenue $ 48.6 $ 48.2 $ 199.9 $ 269.8
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Employees at year end 716 671
-------------------------------------------------------------------------
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Fourth Quarter Revenue
Photowatt's fourth quarter revenue of $48.6 million was 1% higher than in the fourth quarter of fiscal 2009. Consistent year-over-year revenues reflected a 37% increase in total MWs sold to 12.7 MWs from 9.3 MWs in the fourth quarter of fiscal 2009. Higher MWs sold resulted from increased demand due partially to improved credit markets compared to the same period a year ago. Revenue from system sales increased to $25.1 million from $12.5 million in the fourth quarter of fiscal 2009. Systems include modules, combined with installation kits, solar power system design and/or other value-added services. These year-over-year increases were partially offset by a decrease in average selling prices per watt. Foreign exchange rate changes due to strengthening of the Canadian dollar relative to the Euro negatively impacted the translation of revenue in the fourth quarter of fiscal 2010 compared to the same period a year ago.
Revenue from polysilicon products represented $48.4 million or almost 100% of fiscal 2010 fourth quarter revenue compared to $13.3 million or 28% for the same period a year ago, as Photowatt is now producing 100% polysilicon products. UMG-Si products represented $0.2 million of fourth quarter revenue compared to $33.7 million in the fiscal 2009 fourth quarter. "Other" revenue included Photowatt technology licensing fees from the PV Alliance in fiscal 2009.
Full Year Revenue
For the year ended March 31, 2010, revenues decreased 26% compared to fiscal 2009. Lower revenues reflected an 18% decrease in total MWs sold to 44.4 MWs in fiscal 2010 from 54.2 MWs in fiscal 2009. Year-over-year decreases in average selling prices per watt were partially offset by an increase in system sales to $119.1 million in fiscal 2010 from $69.9 million in the same period a year ago. Foreign exchange rate changes negatively impacted Photowatt's fiscal 2010 revenue compared to fiscal 2009 on translation, reflecting the strengthening of the Canadian dollar relative to the Euro.
Revenue from polysilicon products for fiscal 2010 increased 111% to $186.6 million from $88.6 million in fiscal 2009. Total revenue from UMG-Si products for fiscal 2010 was $13.3 million, a decrease of $166.7 million or 93% compared to the same period a year ago reflecting the shift in production to polysilicon products. "Other" revenue included Photowatt technology licensing fees from the PV Alliance in fiscal 2009.
Photowatt Operating Results
(In millions of dollars)
Q4 2010 Q4 2009 2010 2009
-------------------------------------------------------------------------
Earnings (loss) from
operations(i) $ (42.4) $ 0.7 $ (47.7) $ 24.5
Depreciation and amortization 4.1 4.2 16.4 15.7
-------------------------------------------------------------------------
EBITDA $ (38.3) $ 4.9 $ (31.3) $ 40.2
-------------------------------------------------------------------------
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(i) Fiscal 2010 fourth quarter and full year operating earnings include
expenses for the write-down of inventories of $40.3 million and
$43.4 million respectively and a related $1.6 million asset
impairment expense against silicon deposits.
Fourth Quarter Operating Earnings
Photowatt's fiscal 2010 fourth quarter loss from operations was $42.4 million, compared to earnings from operations of $0.7 million (operating margin of 1%) in the fourth quarter of fiscal 2009. The fiscal 2010 fourth quarter operating loss reflected a $40.3 million charge to write-down inventory to its net realizable value, the majority of which relates to UMG-Si based products and a $1.6 million impairment charge in related silicon deposits. The inventory write-down and impairment charges were incurred following the cancellation and renegotiation of customer sales contracts, the lack of additional pipeline to use the impacted inventories and the general decline in market prices for solar products.
Excluding the impact of the write-down of inventory and related impairment charge, Photowatt's fiscal 2010 fourth quarter loss from operations was $0.5 million (operating margin of negative 1%). The year-over-year decline in operating earnings reflected lower average selling prices per watt and costs related to the start-up of PWO, partially offset by lower direct manufacturing costs-per-watt and increased system sales. Fiscal 2009 fourth quarter results included proceeds of $1.1 million associated with a claim filed in fiscal 2007, which was settled during the fourth quarter of fiscal 2009.
Photowatt's fiscal 2010 fourth quarter earnings from operations were not materially impacted by its share of the PV Alliance, compared to the same period a year ago when $0.6 million of costs were recorded.
Photowatt's amortization expense was $4.1 million in the fourth quarter of fiscal 2010 compared to $4.2 million in the fourth quarter a year ago.
Full Year Operating Earnings
Photowatt had an operating loss of $47.7 million in fiscal 2010 compared to operating earnings of $24.5 million in fiscal 2009. The fiscal 2010 loss included total expenses of $43.4 million related to the write-down of inventory to its estimated net realizable value and a related $1.6 million asset impairment expense against silicon deposits and a $4.7 million warranty charge incurred in the first quarter of fiscal 2010 related to a specific customer contract that contained an incremental performance clause beyond Photowatt's standard warranty terms. Normalized operating results in fiscal 2010 were lower compared to the same period a year ago on lower revenues. Photowatt's fiscal 2010 loss from operations also included costs related to the PWO start-up.
Fiscal 2009 earnings from operations included a gain of $2.0 million on the sale of silicon (not usable by Photowatt) 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 OUTLOOK
The Company's strategy to focus on its core ASG business has advanced to a point where management has initiated a review of strategic alternatives for Photowatt. The Company has engaged advisors to assist in this regard. Conditions in the solar and capital markets will be a consideration in the timing and form of separation.
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. Reductions in feed-in tariffs for solar energy announced in the Company's fiscal fourth quarter 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 in fiscal 2011.
Recently enacted solar feed-in tariffs in Ontario are expected to partially offset this impact on Photowatt 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 during the second quarter of fiscal 2011.
In Ontario, Photowatt has secured conditional feed-in-tariff approvals totalling approximately 65 MWs related to large scale renewable energy applications made by a project development joint venture, Ontario Solar PV Fields ("OSPV") in which ATS holds a 50% interest. OSPV will utilize a range of solar solutions, including modules manufactured by ATS in Cambridge. OSPV's next steps include efforts to arrange financing and ultimate project ownership, as well as obtaining necessary joint venture partner approvals and other requisite approvals.
Management is pursuing other downstream alternatives to create an additional market for Photowatt's products, including working with manufacturing and development partners to identify and expand its pipeline of both ground-mount and roof-top solar energy projects. Management expects improvements in cell efficiency, manufacturing yields and throughput will continue to reduce Photowatt's 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 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.
Consolidated Financial Results
Summary of Consolidated Quarterly Data
(In thousands of dollars, except per share data)
-------------------------------------------------------------------------
Fiscal 2010 Q1 Q2 Q3 Q4
-------------------------------------------------------------------------
Revenue $ 152,701 $ 148,169 $ 138,133 $ 138,774
Earnings (loss) from
operations $ 502 $ 9,305 $ 4,756 $ (25,994)
Net income from continuing
operations $ 325 $ 6,012 $ 3,742 $ 2,084
Earnings per share from
continuing operations, basic $ 0.00 $ 0.07 $ 0.04 $ 0.03
Earnings per share from
continuing operations,
diluted $ 0.00 $ 0.07 $ 0.04 $ 0.03
Net income $ 325 $ 6,012 $ 3,742 $ 2,084
Earnings per share, basic $ 0.00 $ 0.07 $ 0.04 $ 0.03
Earnings per share, diluted $ 0.00 $ 0.07 $ 0.04 $ 0.03
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Fiscal 2009 Q1 Q2 Q3 Q4
-------------------------------------------------------------------------
Revenue $ 212,071 $ 219,536 $ 221,739 $ 201,774
Earnings from operations $ 16,278 $ 13,563 $ 18,472 $ 17,743
Net income from continuing
operations $ 14,991 $ 12,688 $ 15,814 $ 14,041
Earnings per share from
continuing operations, basic $ 0.19 $ 0.16 $ 0.20 $ 0.17
Earnings per share from
continuing operations,
diluted $ 0.19 $ 0.16 $ 0.20 $ 0.16
Net income $ 12,930 $ 9,272 $ 12,316 $ 13,506
Earnings per share, basic $ 0.17 $ 0.12 $ 0.16 $ 0.16
Earnings per share, diluted $ 0.17 $ 0.12 $ 0.16 $ 0.15
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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 lifecycles and product changes may impact revenues and operating performance. ATS typically experiences some seasonality in its revenue and operating earnings due to summer plant shutdowns by its customers and the annual summer shutdown at PWF. In Photowatt, revenues may be lower in the fiscal fourth quarter when weather may impair the ability to install its products in certain geographical regions. In fiscal 2010, these impacts are not as evident due to the weakness in the global economy and its impact on the Company and its markets.
Fourth Quarter Consolidated Results
Fourth quarter fiscal 2010 revenue from continuing operations was $138.8 million, $63.0 million or 31% lower than the same period a year earlier. This decrease primarily reflected a 41% decrease in ASG revenue, which was partially offset by a 1% increase in Photowatt revenue. Changes in effective foreign exchange rates decreased consolidated revenue in the fourth quarter of fiscal 2010 compared to fiscal 2009, primarily on translation of foreign subsidiaries reflecting strengthening of the Canadian dollar relative to the U.S. dollar and Euro in the last half of fiscal 2010.
In the fourth quarter fiscal 2010 there was a consolidated loss from operations of $26.0 million, compared to operating earnings of $17.7 million in the fourth quarter of fiscal 2009. The decrease primarily reflected a $0.3 million decrease in ASG earnings from operations, a $43.1 million decrease in Photowatt earnings from operations resulting from the write-down of inventory to net realizable value, and an increase of corporate and intersegment elimination expenses of $0.3 million.
Selected Annual Information
(In millions of dollars, except per share amounts)
Fiscal Fiscal Fiscal
2010 2009 2008
-------------------------------------------------------------------------
Revenue $ 577.8 $ 855.1 $ 663.3
Cost of Revenue 506.4 707.9 594.7
Selling, general and administrative 79.5 83.9 103.9
Stock-based compensation 3.3 2.4 4.3
Gains on sale of assets - (5.2) (48.5)
-------------------------------------------------------------------------
Earnings (loss) from operations $ (11.4) $ 66.1 $ 8.9
Interest expense 2.0 0.4 0.6
Provision (recovery) for income taxes (25.6) 8.2 (3.9)
-------------------------------------------------------------------------
Net income from continuing operations $ 12.2 $ 57.5 $ 12.2
Loss from discontinued operations - (9.5) (35.6)
-------------------------------------------------------------------------
Net income $ 12.2 $ 48.0 $ (23.4)
Earnings per share from
continuing operations, basic 0.14 0.73 0.17
Earnings per share from
continuing operations, diluted 0.14 0.72 0.17
Earnings (loss) per share, basic 0.14 0.61 (0.33)
Earnings (loss) per share, diluted 0.14 0.60 (0.33)
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Total assets $ 752.8 $ 834.5 $ 678.0
Total cash and short-term investments $ 211.8 $ 142.4 $ 56.8
Total bank debt and capital lease
obligations $ 63.5 $ 35.8 $ 28.8
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Annual Consolidated Revenue
For fiscal 2010, revenue from continuing operations was $577.8 million, 32% lower than a year earlier. This decrease primarily reflected a 26% decrease in Photowatt revenue on lower MWs produced and sold and lower average selling prices during fiscal 2010 compared to fiscal 2009. Fiscal 2010 ASG revenue decreased 35% primarily on lower Order Bookings during the fiscal year compared to the prior year. Changes in effective foreign exchange rates reduced consolidated revenue for the year ended March 31, 2010 compared to fiscal 2009, primarily on translation of revenues of foreign subsidiaries.
Annual Cost of Revenue
Cost of sales decreased on a consolidated basis by $201.5 million or 28% to $506.4 million. The decline in gross margin from 17% in fiscal 2009 to 12% in fiscal 2010 primarily reflected the $43.4 million write down of inventory at Photowatt. Excluding this adjustment, the impact of lower revenue on gross margin was partially offset by improved program management and cost reductions implemented in fiscal 2009 and fiscal 2010 within ASG. This progress was partially offset by a warranty charge and PWO start-up costs during fiscal 2010 within the Photowatt segment.
Annual Selling, General and Administrative ("SG&A") Expenses
Consolidated SG&A expenses for fiscal 2010 decreased 5% or $4.4 million to $79.5 million compared to the prior-year period. Lower SG&A expenses reflected cost reductions implemented during fiscal 2009 and fiscal 2010, lower profit sharing expenses and employee performance incentives and reduced professional fees. SG&A expenses for fiscal 2010 included $7.3 million of Company-wide severance and restructuring costs compared to severance and restructuring costs of $5.5 million in the same period a year ago.
Annual Stock-Based Compensation
Stock-based compensation cost increased $0.9 million in fiscal 2010 compared to fiscal 2009. 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 a volume weighted average stock price performance threshold for a specified minimum number of trading days, the options vest. When the performance-based options vest, the Company is required to recognize all previously unrecognized expenses associated with the vested stock options in the period in which they vest. At March 31, 2010, the following performance-based stock options were un-vested:
In thousands of dollars
------------------------
Stock price Number of Grant date Remaining Current Remaining
performance options value per vesting year expense to
threshold outstanding option period expense recognize
-------------------------------------------------------------------------
$ 8.41 266,667 2.11 1.1 years $ 180 $ 182
8.50 889,333 1.41 2.6 years 254 667
9.08 218,666 2.77 0.5 years 234 112
9.49 41,667 1.66 4.6 years 12 56
10.41 266,667 2.11 2.5 years 124 301
10.50 889,333 1.41 3.5 years 217 752
11.08 218,667 2.77 1.8 years 151 287
12.41 266,666 2.11 3.5 years 103 345
13.08 218,667 2.77 2.8 years 123 347
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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 Photowatt. The silicon had a nominal carrying value and the Company recognized a gain of $2.0 million on the sale. As well, the Company completed the sale of the redundant Spheral Solar building in Cambridge, Ontario for net proceeds of $16.0 million during the first quarter of fiscal 2009. A net gain of $3.2 million was realized on the sale.
There were no such gains recorded in fiscal 2010.
Annual Earnings from Operations
Fiscal 2010 consolidated loss from operations was $11.4 million, compared to consolidated earnings from operations of $66.1 million a year ago. Fiscal 2010 performance reflected: operating earnings of $56.2 million at ASG (operating earnings of $58.7 million a year ago); Photowatt Technologies operating loss of $47.7 million (operating earnings of $24.5 million a year ago); and inter-segment eliminations and corporate expenses of $19.9 million ($17.1 million for the same period a year ago). Fiscal 2009 operating results included one-time gains related to the sale of non-solar grade silicon and the Spheral Solar building of $2.0 million and $3.2 million respectively. Changes in effective foreign exchange rates improved consolidated operating earnings for the year ended March 31, 2010 compared to fiscal 2009.
Interest Expense and Interest Income
Net interest expense has increased for the year ended March 31, 2010 to $2.0 million compared to $0.4 million a year ago. The increase in net interest expense was primarily due to new PWF credit facilities.
Provision for Income Taxes
In the fourth quarter of fiscal 2010, the Company recorded a future income tax benefit of $30.5 million related to a change in the Company's assessment of the realization of those future tax assets related to the deductible pool of scientific research and development expenditures not yet deducted for income tax purposes in the Company's Canadian operations. As of March 31, 2010, the Company had earned cumulative pre-tax income for the last three years in its Canadian operations, reflecting the positive impact of restructuring and operational improvements made primarily in the Company's Canadian ASG operations. Based on the Company's expectation of continued positive pre-tax earnings, the Company has reduced the valuation allowance against its future tax assets, with a corresponding increase to net income. The Company anticipates that the utilization of these future tax assets to reduce taxable income in Canada will result in an overall increase in the Company's effective income tax rate commencing in fiscal 2011.
In other jurisdictions a valuation allowance was applied against loss carryforwards to an amount that was considered more likely than not to be realized.
In fiscal 2009, the Company's effective income tax rate differed from the combined Canadian basic federal and provincial income tax rate of 33.4% primarily as a result of the utilization of unrecognized loss carryforwards in Canada and parts of Europe.
Net Income from Continuing Operations
Fiscal 2010 net income from continuing operations was $12.2 million (14 cents per share basic and diluted), compared to net income from continuing operations of $57.5 million (73 cents per share basic and 72 cents per share diluted) for the same period a year ago.
Loss from Discontinued Operations
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 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 operations have been segregated and presented separately as discontinued operations.
There were no discontinued operations in fiscal 2010. The loss from discontinued operations for fiscal 2009 was $9.5 million. See Note 2 to the Consolidated Financial Statements for further details on discontinued operations.
Net Income
Net income for fiscal 2010 was $12.2 million ($0.14 basic and diluted per share) compared to a net income of $48.0 million ($0.61 basic per share and $0.60 diluted per share) for fiscal 2009.
Reconciliation of EBITDA to GAAP measures
(In millions of dollars)
Fiscal Fiscal Fiscal
2010 2009 2008
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EBITDA
Automation Systems $ 63.0 $ 67.2 $ 9.1
Photowatt Technologies (31.3) 40.2 16.8
Corporate and inter-segment (18.8) (16.4) 5.0
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Total EBITDA $ 12.9 $ 91.0 $ 30.9
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Less: Depreciation and amortization
expense
Automation Systems $ 6.8 $ 8.5 $ 8.2
Photowatt Technologies 16.4 15.7 13.6
Corporate and inter-segment 1.1 0.7 0.2
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Total depreciation and amortization
expense $ 24.3 $ 24.9 $ 22.0
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Earnings (loss) from operations
Automation Systems $ 56.2 $ 58.7 $ 0.9
Photowatt Technologies (47.7) 24.5 3.2
Corporate and inter-segment (19.9) (17.1) 4.8
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Total earnings (loss) from operations $ (11.4) $ 66.1 $ 8.9
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Less: Interest expense $ 2.0 $ 0.4 $ 0.6
Provision (recovery) for income
taxes (25.6) 8.2 (3.9)
Loss from discontinued operations - 9.5 35.6
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Net income (loss) $ 12.2 $ 48.0 $ (23.4)
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Summary of Investments
(In millions of dollars)
Fiscal Fiscal
2010 2009
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Investments - increase (decrease)
Non-cash operating working capital $ (7.5) $ 6.6
Property, plant and equipment 16.7 11.3
Property, plant and equipment acquired via
capital lease 3.9 21.6
Acquisition of intangible assets 1.3 3.5
Other long-term investments 8.9 15.4
Proceeds from disposal of assets (1.7) (16.2)
Proceeds from disposal of assets held for sale - (3.9)
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Total net investments $ 21.6 $ 38.3
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In fiscal 2010, the Company's investment in non-cash operating working capital decreased $7.5 million or 5%. Accounts receivable decreased 29% or $34.5 million from March 31, 2009, driven by improved accounts receivable collections, lower revenue levels during fiscal 2010. Net contracts in progress decreased 70% or $29.8 million from March 31, 2009 due to improved billing terms on customer contracts and progress made in closing RED programs and lower revenue levels during fiscal 2010. Inventories decreased 42% or $57.3 million primarily due to the write down of inventory to its net realizable value at Photowatt. Excluding the impact of the inventory write down, inventories decreased by approximately 12% or $11.4 million. Deposits and prepaid assets increased 4% or $1.0 million from March 31, 2009 due to higher deposits on materials and an increase in the fair value of forward foreign exchange contracts, partially offset by a reduction in restricted cash being used to secure letters of credit. Accounts payable and accrued liabilities decreased 33% or $56.4 million from March 31, 2009 on lower purchases consistent with lower revenue levels during fiscal 2010.
Property, plant and equipment expenditures totalled $20.6 million in fiscal 2010, of which $3.9 million was acquired under capital leases. Expenditures at Photowatt totalling $18.5 million were primarily used for production equipment and facility improvements. Included in Photowatt's capital expenditures was $5.4 million related to the Company's proportionate share of PV Alliance for production equipment and facility improvements. Total ASG and corporate capital expenditures were $2.1 million in fiscal 2010 and were primarily for equipment and information technology.
Acquisition of intangible assets of $1.3 million in fiscal 2010 primarily related to the Company's proportion of technology licenses acquired by PV Alliance.
The Company's fiscal 2010 expenditures in other long-term investments primarily represented silicon deposits made with suppliers for the future delivery of silicon for PWF. The deposits represented advance payments which will be applied against the price of future product received.
The decrease in proceeds from asset disposals in fiscal 2010 related to the fiscal 2009 sale of the Company's redundant Spheral Solar building in Cambridge, Canada for net proceeds of $16.0 million. Additionally, the Company completed the sale of the key operating assets and liabilities of its PCG segment for net proceeds of $3.9 million in fiscal 2009.
The Company performs impairment tests on its goodwill balances on an annual basis or as warranted by events or circumstances. The Company conducted its annual goodwill impairment assessment in the fourth quarter of fiscal 2010 and has determined there is no impairment of goodwill as of March 31, 2010 (2009 - nil).
All of the Company's investments involve risks and require that the Company make judgments and estimates regarding the likelihood of recovery of the respective costs. In the event management determines that any of the Company's investments have become permanently impaired or recovery is no longer reasonably assured, the value of the investment would be written down to its estimated net realizable value as a charge against earnings. Due to the magnitude of certain investments, such write downs could be material.
Liquidity, Cash Flow and Financial Resources
Cash, Leverage and Cash Flow from Operations
(In millions of dollars, except ratios)
Fiscal Fiscal Fiscal
2010 2009 2008
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Year-end cash and short-term investments $ 211.8 $ 142.4 $ 56.8
Year-end debt-to-equity ratio 0.1:1 0.1:1 0.1:1
Cash flow provided by (used in)
operations $ 49.1 $ 80.2 $ (0.5)
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At March 31, 2010, the Company had cash and short-term investments of $211.8 million compared to $142.4 million a year ago. In fiscal 2010, cash provided by operations was $49.1 million compared to cash provided by operations of $80.2 million in fiscal 2009. The Company's total debt to equity ratio (excluding Accumulated Other Comprehensive Income) at March 31, 2010 was 0.1:1. At March 31, 2010 the Company had $66.3 million of unutilized credit available under existing operating and long-term credit facilities and $31.5 million available under letter of credit facilities.
In fiscal 2009, the Company completed a public offering of 10 million common shares to raise gross proceeds of $50 million. The net proceeds of $46.8 million improved the Company's financial flexibility and are being used to pursue strategic opportunities, and for working capital and general corporate purposes.
During fiscal 2010, the Company extended 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 a rate ranging from 0.675% to 0.975% per annum, as determined based on certain financial ratios.
The Credit Agreement is subject to debt leverage tests, a current ratio test and a cumulative EBITDA test. Under the terms of the Credit Agreement, the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit Agreement also partially restricts the Company from repurchasing its common shares, paying dividends and from acquiring and disposing of certain assets. The Company is in compliance with these covenants and restrictions.
The Company's subsidiary, Photowatt International S.A.S., has credit facilities including capital lease obligations of $57.4 million (41.8 million Euro). The total amount outstanding on these facilities is $55.9 million (2009 - $34.1 million), of which $26.0 million is classified as bank indebtedness (2009 - $0.01 million), $7.7 million is classified as long-term debt (2009 - $13.1 million) and $22.2 million is classified as obligations under capital lease (2009 - $21.1 million). 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 credit facilities which are classified as current bank indebtedness, are subject to either annual renewal or 60 day notification. At March 31, 2010, Photowatt International S.A.S. was not in compliance with the debt leverage tests on certain of its credit facilities. The lenders have not waived their rights to demand repayment of the outstanding principal balance and consequently the entire balance of $7.7 million (5.6 million Euro) has been included in the current portion of long-term debt in the Consolidated Financial Statements.
The Company has an additional credit facility available of $1.9 million (2.0 million Swiss francs) against which no amount is outstanding (2009 - $0.1 million). The credit facility bears interest at up to 6.0% per annum and is secured by a letter of credit.
Note 9 to the Consolidated Financial Statements describes the Company's long-term debt and repayment obligations at March 31, 2010.
Note 18 to the Consolidated Financial Statements describes the additional credit facilities held by the PV Alliance.
The Company expects that continued cash flows from operations, together with cash and short-term investments on hand and credit available under operating and long-term credit facilities, will be more than sufficient to fund its requirements for investments in working capital and capital assets, which are listed under the heading Contractual Obligations, and to fund its acquisition of Sortimat.
Contractual Obligations
(In thousands of dollars)
Operating Purchase Other
Leases Obligations Obligations
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Less than 1 year $ 3,437 $ 135,744 $ 71
1 - 3 years 2,770 106,193 39
4 - 5 years 537 65,555 -
Thereafter 324 108,698 -
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$ 7,068 $ 416,190 $ 110
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The Company's off-balance sheet arrangements consist of purchase obligations, various operating lease financing arrangements related primarily to facilities and equipment, and derivative financial instruments which have been entered into in the normal course of business.
The Company's purchase obligations consist of silicon supply commitments and other materials purchase commitments. The major silicon supply commitments are take-or-pay arrangements with fixed price commitments. Management believes that these contracts are priced at values that are consistent with current market prices.
In the twelve months ended March 31, 2010, the Company terminated an existing silicon supply contract with approximately 1,250 tonnes of UMG-Si remaining to be delivered. Concurrently, the Company entered into a replacement contract to purchase 180 tonnes of polysilicon through the remainder of calendar 2009 and 2010. Part of the deposit from the terminated contract was applied to the new contract with the remainder of the deposit being applied against pre-existing accounts payable.
In the twelve months ended March 31, 2010, the Company entered into a long-term silicon supply contract to purchase 900 tonnes of polysilicon over the next three calendar years ending December 2012. Approximately 10% of the contract value was required to be paid in advance.
The Company has re-negotiated the prices in an existing long-term silicon supply contract for the purchase of polysilicon wafers, to an amount consistent with current market prices. The amended purchase obligation has been reflected as of March 31, 2010.
There are no other significant off-balance sheet arrangements that management believes will have a material effect on the results of operations or liquidity.
In accordance with industry practice, the Company is liable to the customer for obligations relating to contract completion and timely delivery. In the normal conduct of its operations, the Company may provide bank guarantees as security for advances received from customers pending delivery and contract performance. At March 31, 2010, the total value of outstanding bank guarantees to customers available under bank guarantee facilities was approximately $11.9 million (2009 - $24.4 million).
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the Canadian dollar. The Company's Canadian operations generate significant revenues in major foreign currencies, primarily U.S. dollars, which exceed the natural hedge provided by purchases of goods and services in those currencies. In order to manage a portion of this net foreign currency exposure, the Company has entered into forward foreign exchange contracts. The timing and amount of these forward foreign exchange contracts are estimated based on existing customer contracts on hand or anticipated, anticipated shipment volumes, current conditions in the Company's markets and the Company's past experience. Certain of the Company's foreign subsidiaries will also enter into forward foreign exchange contracts to hedge identified balance sheet, revenue and purchase exposures. In addition, from time to time, the Company enters forward foreign exchange contracts to manage the foreign exchange risk arising from certain inter-company loans and net investments in certain self-sustaining subsidiaries.
The Company uses hedging as a risk management tool, not to speculate.
The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations to the Company. The Company minimizes this risk by limiting counterparties to major financial institutions and monitoring their creditworthiness. The Company's credit exposure to forward foreign exchange contracts is the current replacement value of contracts that are in a gain position.
For further information related to the Company's use of derivative financial instruments refer to Note 3 of the Consolidated Financial Statements.
As of May 31, 2010, the Company had 87,278,655 common shares and 6,284,965 stock options to acquire common shares of the Company outstanding.
Impact of Foreign Exchange
Strengthening in the value of the Canadian dollar relative to the U.S. dollar and the Euro had a negative impact on the Company's revenue, but a positive impact on operating earnings in fiscal 2010. ATS follows a transaction hedging program to help mitigate the impact of short-term foreign currency movements, primarily in its Canadian operations which often transact business in U.S. dollars. This hedging activity consists primarily of forward foreign exchange contracts for the sale of U.S. dollars. Purchasing third-party goods and services in U.S. dollars by Canadian operations also acts as a partial offset to U.S. dollar exposure. Management estimates that its forward foreign exchange contract hedging program is primarily effective for movements in currency rates within a four- to six-month period. See Note 3 to the Consolidated Financial Statements for details of the financial instruments outstanding at March 31, 2010.
Year-end actual Period average
exchange rates exchange rates
in CDN$ in CDN$
March 31, March 31, % Fiscal Fiscal %
Currency 2010 2009 change 2010 2009 change
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U.S. dollar 1.0158 1.2374 -17.9% 1.0911 1.1265 -3.1%
Euro 1.3720 1.6488 -16.8% 1.5408 1.5887 -3.0%
Singapore
dollar 0.7260 0.8185 -11.3% 0.7640 0.7800 -2.1%
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Critical Accounting Estimates
Note 1 to the Consolidated Financial Statements describes the basis of accounting and the Company's significant accounting policies.
Revenue Recognition and Contracts in Progress for ASG
The nature of ASG contracts requires the use of estimates to quote new business and most automation systems are typically sold on a fixed-price basis. As described in Note 1(e) to the Consolidated Financial Statements, revenue on automation systems and other long-term contracts is recognized under the percentage-of-completion method of accounting, which requires management to exercise significant judgment in estimating the future costs of completing individual contracts over the life of the contract. If the actual costs incurred by the Company to complete a contract are significantly higher than estimated, the Company's earnings may be negatively affected. The use of estimates involves risks, since the work to be performed requires varying degrees of technical uncertainty, including possible development work to meet the customer's specification, the extent of which is sometimes not determinable until after the project has been awarded. In the event the Company is unable to meet the defined performance specification for a contracted automation system, it may need to redesign and rebuild all or a portion of the system at its expense without an increase in the selling price. Certain contracts may have provisions that reduce the selling price if the Company fails to deliver or complete the contract by specified dates. These provisions may expose the Company to contingent liabilities.
ASG's contracts may be terminated by customers in the event of a default by the Company or for the convenience of the customer. In the event of a termination for convenience, the Company must typically negotiate a settlement reflective of the progress achieved on the contract and/or the costs incurred to the termination date. If a contract is cancelled, Order Backlog is reduced and production utilization may be negatively impacted.
Complete provision, which can be significant, is made for losses on such contracts when such losses first become known. Revisions in estimates of costs and profits on contracts, which can also be significant, are recorded in the accounting period in which the relevant facts impacting the estimates become known.
A portion of APG revenue is recognized when earned, which is generally at the time of shipment and transfer of title to the customer, providing collection is reasonably assured.
Revenue Recognition for Photowatt
As described in Note 1(e) to the Consolidated Financial Statements, Photowatt's revenue is generally recognized when earned, which is normally at the time of shipment and transfer of title to the customer, providing collection is reasonably assured. While the Company may enter into long-term sales contracts, many sales are made on the basis of individual orders, as is customary in the industry. This can increase revenue volatility because shipment volumes may vary depending on customer demand.
Valuation of Long-Lived Assets and Goodwill
As described in Note 1(g) through Note 1(i) to the Consolidated Financial Statements, long-lived assets such as property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Judgment is involved in determining expected future cash flows that will be generated by the long-lived assets. During the year ended March 31, 2010, there was no write down of long-lived assets or goodwill (nil in fiscal 2009).
In connection with business acquisitions completed by the Company, management identifies and estimates the fair value of the net assets acquired, including certain identifiable intangible assets other than goodwill and liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value of the net assets acquired is assigned to goodwill. As described in Note 1(h) to the Consolidated Financial Statements, goodwill is assessed for impairment on an annual basis.
Valuation of Future Income Tax Assets and Investment Tax Credits
As described in Note 1(k) and Note 1(l) to the Consolidated Financial Statements, the Company's future income tax asset balance represents temporary differences between financial reporting and tax basis of assets and liabilities including research and development costs and incentives, property, plant and equipment, asset impairment charges not yet deductible and operating loss carry-forwards, net of valuation allowances. The Company considers both positive evidence and negative evidence to determine whether, based upon the weight of that evidence, a valuation allowance is required. Judgment is required in considering the relative impact of negative and positive evidence. The Company records a valuation allowance to reduce future income tax assets and investment tax credits to the amount that is more likely than not to be realized. Should the Company determine that it is more likely than not that it will not be able to realize all or part of its future income tax assets in future fiscal periods, the valuation allowance would be increased, resulting in a decrease to net income in the reporting periods in which management makes such determinations.
Investment tax credits and government assistance are accounted for as a reduction in the cost of the related asset or expense when there is reasonable assurance that such credits or assistance will be realized.
During fiscal 2009, a provision was recorded against the Company's investment tax credits in the amount of $7.8 million. During fiscal 2010, $6.1 million was reversed against this provision.
Changes in Accounting Policies
Goodwill and Intangible Assets
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, the Company has retroactively reclassified computer software assets on the 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 March 31, 2010, computer software of $1.8 million was included within intangible assets. There was no impact on previously reported net income as a result of adopting the new standard.
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities:
Effective April 1, 2009, the Company retroactively adopted the CICA EIC 173 "Credit Risk and the Fair Value of Financial Assets and Financial Liabilities". The guidance clarified that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities including derivative instruments. Adoption of this standard had no impact on the Company's Consolidated Financial Statements.
Financial instruments - Recognition and Measurement
During the year ended March 31, 2010, the CICA made several amendments to Section 3855 "Financial Instruments - Recognition and Measurement" as follows:
(i) Clarified the requirements regarding reclassification of
held-for-trading financial instruments containing embedded
derivatives;
(ii) Clarified the application of the effective interest method; and
(iii) Eliminated the distinction between debt securities and other debt
instruments and changed the categories to which debt instruments
are required or are permitted to be classified.
The adoption of these amendments did not have a material impact on the financial position, cash flows or earnings of the Company.
Financial Instruments - Disclosures
In June 2009, the CICA amended Section 3862 "Financial Instruments - Disclosures". The amendments included enhanced disclosures related to the fair value of financial instruments and the liquidity risk associated with financial instruments. The amendment required a three level hierarchy which reflected the significance of the inputs used in making the fair value measurements. The additional disclosure required by the amendments are included in Note 3 to the Consolidated Financial Statements.
Future Accounting Changes
Business Combinations
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.
Consolidated Financial Statements
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 these new sections in connection with its conversion to IFRS.
Multiple Deliverable Revenue Arrangements
CICA EIC 175 "Multiple Deliverable Revenue Arrangements" deals with arrangements that have multiple deliverables and provides guidance which is to be applied to determine how arrangement consideration should be measured, whether the arrangement should be divided into separate units of accounting and how the arrangement consideration should be allocated among the separate units of accounting. The standard is effective for fiscal years beginning on or after January 1, 2011. The Company is evaluating the impact of adoption of this new section and will not elect to early adopt the standards.
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. This change is effective for the Company for interim and annual financial statements beginning April 1, 2011.
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, internal controls over financial 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.
Although the implementation activities are well underway and proceeding according to plan, continued progress is necessary before the Company can prudently increase the specificity of the disclosure of IFRS changeover accounting policy differences. In addition, due to anticipated changes in Canadian GAAP and IFRS prior to the Company's transition to IFRS, the full impact of adopting IFRS on the Company's future financial position and results of operations cannot be reasonably determined at this time.
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.
Disclosure controls and procedures
An evaluation of the design of and operating effectiveness of the Company's disclosure controls and procedures was conducted as of March 31, 2010 under the supervision of the CEO and CFO as required by CSA Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings. The evaluation included documentation, review, enquiries and other procedures considered appropriate in the circumstances. Based on that evaluation, the CEO and the CFO have concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information relating to the Company and its consolidated subsidiaries that is required to be disclosed in reports filed under provincial and territorial securities legislation is recorded, processed, summarized and reported to senior management, including the CEO and the CFO, so that appropriate decisions can be made by them regarding required disclosure within the time periods specified in the provincial and territorial securities legislation.
Internal control over financial reporting
CSA Multilateral Instrument 52-109 requires the CEO and CFO to certify that they are responsible for establishing and maintaining internal control over financial reporting for the Company, that those internal controls have been designed and are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. The CEO and CFO are also responsible for disclosing any changes to the Company's internal controls during the most recent interim period that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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.
The CEO and CFO have, using the framework and criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission, evaluated the design and operating effectiveness of the Company's internal controls over financial reporting and concluded that, as of March 31, 2010, and subject to the inherent limitations described above, internal controls over financial reporting were effective to provide reasonable assurance that information related to consolidated results and decisions to be made based on those results were appropriate.
There were no changes in the Company's internal controls over financial reporting during the year ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
Other Major Considerations and Risk Factors
Any investment in ATS will be subject to risks inherent to ATS's business. The following risk factors are discussed in the Company's annual information form, which may be found on SEDAR at www.sedar.com.
- Market volatility;
- Strategy execution risks;
- Competition risk;
- Automation systems pricing and revenue mix risk;
- First-time program and production risks;
- Cyclicality;
- Foreign exchange risk;
- International business risks;
- Pricing, quality, delivery and volume risk;
- Product failure risks;
- Risks associated with the solar market;
- Availability of raw materials and other manufacturing inputs;
- Profitability of Photowatt Technologies and reliance on Photowatt
France's manufacturing facility;
- Customer risks;
- Reliance of Photowatt Technologies on Government grants;
- New product market acceptance, obsolescence, and commercialization
risk;
- Government subsidies for solar products and regulation of utility
sector;
- Liquidity and access to capital markets;
- Expansion risks;
- Availability of human resources and dependence on key personnel;
- Intellectual property protection risks;
- Risk of infringement of third parties' intellectual property rights;
- Internal controls;
- Income and other taxes and uncertain tax liabilities;
- Variations in quarterly results;
- Share price volatility;
- Litigation;
- Legislative compliance;
- International Financial Reporting Standards;
- Dependence on performance of Subsidiaries.
Note to Readers: Forward-Looking Statements
This news release and management's discussion and analysis of financial conditions, and results of operations of ATS contains certain statements that 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: a formal process to separate Photowatt; expected total consideration for Sortimat and funding of potential future payments; benefits associated with the Sortimat acquisition; creation of an ASG group focused on healthcare and objective to grow this market segment; accounting treatment for the Sortimat acquisition; expectation that the Sortimat acquisition will be accretive to current revenues and net income; management's planned focus on the separation and growth phases of its strategy and some specific initiatives to be undertaken, including initiatives relating to organizational effectiveness, operational efficiencies, supply chain management, approach to market, acquisitions, division character and balance sheet strength; ASG's operational objectives in fiscal 2011 to build on the "fixes" implemented in ASG operations, continue to deliver predictable, sustainable results and position the segment for growth, and some of the initiatives being undertaken in an effort to achieve those objectives, including recruitment of top performers, continued efforts to identify and roll out best practices, aim to eliminate red programs and rehabilitate deteriorating programs; expansion of ASG patent program, work with suppliers to achieve material cost reduction; encouragement of internal subcontracting, use of standard products in design and build, specialization of divisions, implementation of a new global sales and marketing structure, and development of program based offerings; management's belief with respect to business investment and capital spending on automation and the impact on revenues and operating profitability; impact of current market conditions and competitive pressures on operating margins; management's expectations as to impact of strategic initiatives; management's belief that the Company's strengthened balance sheet, approach to market and operational improvements will provide a solid foundation for ASG to improve performance when the general business environment, including capital investment, stabilizes and returns to growth; the completion and timing of any potential acquisitions with respect to which discussion are currently in progress; research by the PV Alliance to improve efficiency of solar cells and potential expansion in France through one or more 100 MW facilities; Company's intention to position Photowatt to become a standalone company and some of the initiatives it intends to undertake in that regard, including strengthening of leadership, commencement of production on PV Alliance 25 MW cell line and intended benefit of the initial research phase, consideration of launch of heterojunction research, intention to continue research with objective of increasing cell efficiency and expected results, work with silicon suppliers to establish better service, quality, payment and pricing, targeted actions to reduce scrap, targets for reduction of total overhead costs, and intention to seek to increase system sales, participate in solar installation projects, increase sales of services, maintenance, monitoring and other value-added solutions and targeted results thereof; PWO's opportunity to lead the development of the Ontario solar energy market; Company's initiation of a process to consider an appropriate strategy to separate Photowatt from ATS and impacts on the timing and form of a transaction; expectation of negative impact on market demand and average selling prices per watt in fiscal 2011 as a result of certain feed-in tariff reductions and increased industry inventory levels; expected impact of Ontario feed-in tariffs and related timing; expected completion date of PWO module line; OSVP's intentions and next steps in relation to certain Ontario solar projects; management's pursuit of other downstream alternatives for Photowatt; expectations of continued improvements in cell efficiency and manufacturing yields; consideration of plan to reduce Photowatt cost structure; intention to modify plans to address changing market conditions; 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; near-term performance of Photowatt and impact on separation efforts; ability to execute on separation initiative in current market environment; whether or not EBIT and management service targets are met in relation to Sortimat transaction; receptivity of customers, suppliers, employees, and market to the Sortimat acquisition; that some or all of the anticipated benefits of the Sortimat acquisition are not realized or are delayed due to operating, integration or other factors; a customer, supplier or other person with whom ATS has a relationship becomes bankrupt or insolvent and ATS suffers losses as a result; that continuing efforts relating to ATS's strategic plan, including efforts relating to the separation and growth phases of the strategic plan, take longer than expected to implement and/or result in greater costs than expected due to commercial, economic or other factors; that the perceived competitive strengths of ATS and Photowatt do not result in positive performance; 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; potential inability of PV Alliance 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 PV Alliance research and development efforts or PWF's independent efforts; ability to effectively implement PV Alliance projects and ability to properly manage the PV Alliance relationship; delays in completing PV Alliance cell line; success or failure of management's efforts to reduce cost per watt at PWF; inability to negotiate better terms with suppliers; that effort to reduce Photowatt scrap rate and total overhead costs are not successful; that PWF's downstream market initiatives are not successful; third party or internal delays in the construction of the Ontario module line; 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 and/or OSVP'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 or other certifications and approvals for solar projects or products in a timely fashion; political, labour or supplier disruptions in manufacturing and supply of silicon; the usefulness or value or existing silicon supplies dissipates due to market conditions or other factors; reversal or current silicon supply arrangements; ability of ATS to obtain patents in respect of its technology and realize commercial benefits from such patents; 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; 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 Canadian dollars)
As at March 31 2010 2009
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 211,786 $ 142,361
Accounts receivable 85,995 120,479
Costs and earnings in excess of billings on
contracts in progress (note 4) 42,924 86,079
Inventories (note 4) 80,280 137,600
Future income taxes (note 14) 553 3,669
Deposits and prepaid assets (note 5) 27,492 26,507
-------------------------------------------------------------------------
449,030 516,695
Property, plant and equipment (note 6) 171,451 201,192
Goodwill 34,350 39,990
Intangible assets (note 7) 4,864 6,419
Investment tax credits (note 14) 20,878 14,538
Future income taxes (note 14) 35,243 1,283
Portfolio investments 3,602 3,245
Other assets (note 8) 33,380 51,172
-------------------------------------------------------------------------
$ 752,798 $ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 9) $ 26,034 $ 142
Accounts payable and accrued liabilities
(note 10) 116,518 172,935
Billings in excess of costs and earnings on
contracts in progress (note 4) 30,216 43,600
Future income taxes (note 14) 12,326 9,176
Current portion of long-term debt (note 9) 10,830 4,133
Current portion of obligations under capital
leases (note 9) 4,260 3,409
-------------------------------------------------------------------------
200,184 233,395
Long-term debt (note 9) 4,420 10,502
Long-term portion of obligations under capital
leases (note 9) 17,985 17,652
Future income taxes (note 14) - 4,538
Shareholders' equity
Share capital (note 11) 479,542 479,537
Contributed surplus 11,244 8,722
Accumulated other comprehensive income (loss)
(note 12) (37,434) 15,494
Retained earnings 76,857 64,694
-------------------------------------------------------------------------
530,209 568,447
-------------------------------------------------------------------------
$ 752,798 $ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Commitments and contingencies (notes 15 and 20)
See accompanying notes to consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts)
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Revenue $ 577,777 $ 855,120
-------------------------------------------------------------------------
Operating costs and expenses
Cost of revenue (note 4) 506,418 707,975
Selling, general and administrative 79,516 83,921
Stock-based compensation (note 13) 3,274 2,362
Gain on sale of silicon - (2,006)
Gain on sale of building (note 2) - (3,188)
-------------------------------------------------------------------------
Earnings (loss) from operations (11,431) 66,056
-------------------------------------------------------------------------
Other expenses (income)
Interest on long-term debt 1,261 682
Other interest 786 (332)
-------------------------------------------------------------------------
2,047 350
-------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes (13,478) 65,706
Provision for/(recovery) of income taxes (note 14) (25,641) 8,172
-------------------------------------------------------------------------
Net income from continuing operations 12,163 57,534
Loss from discontinued operations, net of tax
(note 2) - (9,510)
-------------------------------------------------------------------------
Net income $ 12,163 $ 48,024
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings (loss) per share (note 16)
Basic - from continuing operations $ 0.14 $ 0.73
Basic - from discontinued operations - (0.12)
-------------------------------------------------------------------------
$ 0.14 $ 0.61
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings (loss) per share (note 16)
Diluted - from continuing operations $ 0.14 $ 0.72
Diluted - from discontinued operations - (0.12)
-------------------------------------------------------------------------
$ 0.14 $ 0.60
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Shareholders' Equity and
Other Comprehensive Income
(in thousands of Canadian dollars)
Year ended March 31, 2010
-------------------------------------------------------------------------
Accumu-
lated
Other
Compre-
hensive Total
Contri- Income Share-
Share buted (Loss) Retained holders'
Capital Surplus (note 12) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of year $ 479,537 $ 8,722 $ 15,494 $ 64,694 $ 568,447
Comprehensive
income (loss)
Net income - - - 12,163 12,163
Currency
translation
adjustment - - (57,693) - (57,693)
Net unrealized
gain on available-
for-sale
financial assets
(net of income
taxes of $nil) - - 397 - 397
Loss on available-
for-sale
financial assets
transferred to
net income (net
of income taxes
of $nil) - - 951 - 951
Net unrealized
gain on
derivative
financial
instruments
designated as
cash flow hedges
(net of income
taxes of $1,321) - - 3,308 - 3,308
Losses transferred
to net income
for derivatives
designated as
cash flow hedges
(net of income
tax recovery of
$386) - - 109 - 109
----------
Total comprehensive
loss (40,765)
----------
Stock-based
compensation
(note 13) - 2,524 - - 2,524
Exercise of stock
options 5 (2) - - 3
-------------------------------------------------------------------------
Balance, end of the
year $ 479,542 $ 11,244 $ (37,434) $ 76,857 $ 530,209
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Year ended March 31, 2009
-------------------------------------------------------------------------
Accumu-
lated
Other
Compre-
hensive Total
Contri- Income Share-
Share buted (Loss) Retained holders'
Capital Surplus (note 12) Earnings Equity
-------------------------------------------------------------------------
Balance, beginning
of year $ 432,825 $ 6,370 $ (6,675) $ 16,670 $ 449,190
Comprehensive
income (loss)
Net income - - - 48,024 48,024
Currency
translation
adjustment - - 24,977 - 24,977
Net unrealized
loss on available
for-sale
financial assets
(net of income
taxes of $nil) - - (1,548) - (1,548)
Net unrealized
loss on
derivative
financial
instruments
designated as
cash flow
hedges (net of
income taxes of
$nil) - - (4,925) - (4,925)
Losses transferred
to net income
for derivatives
designated as
cash flow hedges
(net of income
taxes of $nil) - - 3,665 - 3,665
----------
Total comprehensive
income 70,193
----------
Stock-based
compensation
(note 13) - 2,352 - - 2,352
Issuance of share
capital (note 11) 46,781 - - - 46,781
Costs related to
shares issued for
rights offering (69) - - - (69)
-------------------------------------------------------------------------
Balance, end of
the year $ 479,537 $ 8,722 $ 15,494 $ 64,694 $ 568,447
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Operating activities:
Net income $ 12,163 $ 48,024
Items not involving cash
Depreciation and amortization 24,288 24,873
Future income taxes (33,167) (2,860)
Write-down of inventories (note 4) 45,919 7,871
Investment tax credit receivable (6,340) (826)
Other items not involving cash 2,921 515
Stock-based compensation (note 13) 3,274 2,362
Loss (gain) on disposal of property, plant
and equipment 45 (2,492)
Non-cash items related to discontinued
operations (note 2) - 2,750
-------------------------------------------------------------------------
Cash flow from operations 49,103 80,217
Change in non-cash operating working capital 7,511 (6,587)
-------------------------------------------------------------------------
Cash flows provided by operating activities 56,614 73,630
-------------------------------------------------------------------------
Investing activities:
Acquisition of property, plant and equipment (20,595) (11,257)
Acquisition of intangible assets (1,335) (3,503)
Investments, silicon deposits and other (8,887) (15,411)
Proceeds from disposal of assets held for sale
(net of cash disposed) (note 2) - 3,896
Proceeds from disposal of property, plant and
equipment 1,663 16,208
-------------------------------------------------------------------------
Cash flows used in investing activities (29,154) (10,067)
-------------------------------------------------------------------------
Financing activities:
Restricted cash (note 5) 10,406 (10,345)
Bank indebtedness (note 9) 28,683 (28,339)
Share issue costs - (3,288)
Proceeds from long-term debt (note 9) 6,864 24,769
Proceeds from sale and leaseback of property,
plant and equipment 8,685 -
Repayment of long-term debt (note 9) (3,593) (12,769)
Repayment of obligations under capital leases
(note 9) (3,059) -
Issuance of common shares (note 13) 3 50,000
-------------------------------------------------------------------------
Cash flows provided by financing activities 47,989 20,028
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (6,024) 1,985
-------------------------------------------------------------------------
Increase in cash and cash equivalents 69,425 85,576
Cash and cash equivalents, beginning of year 142,361 56,785
-------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 211,786 $ 142,361
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental information
Cash income taxes paid $ 1,642 $ 225
Cash interest paid $ 1,212 $ 1,255
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
ATS AUTOMATION TOOLING SYSTEMS INC.
Notes to Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
1. BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES:
ATS Automation Tooling Systems Inc. and subsidiary companies
(collectively "the Company") operate in two segments; Automation Systems
and Photowatt Technologies. The Automation Systems segment business
produces custom-engineered turn-key automated manufacturing and test
systems. The Photowatt Technologies segment is a turn-key solar project
developer and integrated manufacturer of photovoltaic products. As
described in note 2 to the consolidated financial statements, the Company
has reported its Precision Components Group ("PCG"), which was sold
during the year ended March 31, 2009, in discontinued operations.
These consolidated financial statements have been prepared by management
in accordance with Canadian generally accepted accounting principles
("GAAP") on a basis consistent with prior periods. Amounts are stated in
Canadian dollars unless otherwise indicated. Certain figures for the
previous year have been reclassified to conform with the current year's
consolidated financial statement presentation.
(a) Basis of consolidation: These consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany transactions and balances have been eliminated. The
proportionate consolidation method is used to account for investments in
joint ventures in which the Company exercises joint control, whereby the
Company's pro rata share of assets, liabilities, income and expenses is
consolidated.
(b) Use of estimates: The preparation of these consolidated financial
statements in conformity with GAAP requires management to make estimates
and assumptions that may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts 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 contracts in progress, 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, inventory obsolescence provisions, revenue recognition,
contingent liabilities and allowances for uncollectible accounts
receivable.
(c) Foreign currency translation: The assets and liabilities of self-
sustaining foreign subsidiaries are translated into Canadian dollars at
year-end exchange rates and the resulting unrealized exchange gains or
losses are included in accumulated other comprehensive income in
shareholders' equity. The statements of operations are translated at
exchange rates prevailing during the year.
Other monetary assets and liabilities, including long-term monetary
assets and liabilities, which are denominated in foreign currencies, are
translated into Canadian dollars at year-end exchange rates, and
transactions included in earnings are translated at rates prevailing
during the year. Exchange gains and losses resulting from the translation
of monetary assets and liabilities are included in the consolidated
statements of operations.
(d) Cash and cash equivalents: Cash and cash equivalents consist of cash
and highly liquid money market instruments with maturities of 90 days or
less.
(e) Revenue recognition: Contract revenue in the Automation Systems
segment is recognized using the percentage of completion method. The
degree of completion is determined based on costs incurred, excluding
costs that are not representative of progress to completion, as a
percentage of total costs anticipated for each contract. Incentive
awards, claims or penalty provisions are recognized when such amounts are
likely to occur and can reasonably be estimated. Provisions are made for
losses on contracts in progress when such losses first become known.
Revisions in cost and profit estimates, which can be significant, are
reflected in the accounting period in which the relevant facts become
known.
Revenue in the Photowatt Technologies segment and certain repetitive
equipment manufacturing contracts within the Automation Systems segment
is primarily recognized when earned, which is generally at the time of
shipment and transfer of title to the customer, providing collection is
reasonably assured. Revenue on certain long-term contracts in the
Photowatt Technologies segment is recognized using the percentage of
completion method.
Provisions for warranty claims and other allowances are made based on
contract terms and prior experience.
(f) Inventories: Inventories are valued at the lower of cost on a first-
in, first-out basis and net realizable value. Cost of raw materials
includes purchase cost and cost incurred in bringing each product to its
present location and condition. Cost of work in process and finished
goods includes cost of direct materials, labour and an allocation of
manufacturing overheads, excluding borrowing costs, based on normal
operating capacity. Net realizable value is the estimated selling price
in the ordinary course of business, less estimated costs of completion
and the estimated selling costs.
(g) Property, plant and equipment: Property, plant and equipment are
recorded at cost. Amortization is computed using the following methods
and annual rates:
Asset Basis Rate
-------------------------------------------------------------------------
Buildings Declining balance 4%
Straight-line 25-40 years
Production equipment Straight-line 3-10 years
Other equipment and furniture Straight-line 3-10 years
Declining balance 20%-30%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Leasehold improvements are amortized over the shorter of the terms of the
related leases or their remaining useful life on a straight-line basis.
Property under capital leases is initially recorded at the present value
of minimum lease payments at the inception of the lease.
(h) Goodwill and intangible assets: Goodwill represents the excess of the
cost of an acquired enterprise over the net of the amounts assigned to
tangible and intangible assets acquired and liabilities assumed, less any
subsequent impairment write-down.
Goodwill is subject to an impairment test on at least an annual basis or
upon the occurrence of certain events or circumstances which indicate
that the asset might be impaired. The impairment test is carried out in
two steps. In the first step, the carrying amount of the reporting unit
is compared with its fair value. When the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered
not to be impaired and the second step of the impairment test is
unnecessary. The second step is carried out when the carrying amount of a
reporting unit exceeds its fair value, in which case the fair value of
the reporting unit's goodwill is compared with its carrying amount to
measure the amount of the impairment loss, if any. When the carrying
amount of reporting unit goodwill exceeds the fair value of the goodwill,
an impairment loss is recognized in an amount equal to the excess and is
presented as a separate line item in the consolidated statement of
operations before extraordinary items and discontinued operations.
The Company conducted its annual goodwill impairment assessment in the
fourth quarter of fiscal 2010 and has determined that there is no
impairment of goodwill as of March 31, 2010 (2009 - nil). The change in
goodwill during the year relates to foreign exchange.
Intangible assets, which primarily include computer software, patents and
licenses on technologies, are recorded at cost and amortized over their
estimated economic life, ranging from 3 to 20 years, on a straight-line
basis.
(i) Impairment of long-lived assets: Long-lived assets such as property,
plant and equipment and intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. If the total of the estimated undiscounted
future cash flows is less than the carrying value of the asset, an
impairment loss is recognized for the excess of the carrying value over
the fair value of the asset.
(j) Research and development costs: Research costs are expensed as
incurred. Development costs which meet certain criteria are capitalized
and amortized over the period in which the Company expects to benefit
from the resulting product or process. Research and development costs
which are expensed by the Company are charged to cost of revenue as a
substantial portion of the expenses relate to customer contracts.
Capitalized development costs are reviewed annually for recoverability.
When the criteria that previously justified the recognition of an asset
are no longer met, the unamortized balance is written off as a charge to
earnings in that period. When the criteria for asset recognition continue
to be met, but the amount that can reasonably be regarded as assured
through recovery of related future revenues less relevant costs is
exceeded by the unamortized balance of such costs, the excess is written
off as a charge to earnings in that period.
(k) Investment tax credits and government assistance: Investment tax
credits ("ITC") and government assistance are accounted for as a
reduction in the cost of the related asset or expense when there is
reasonable assurance that such credits or assistance will be realized.
(l) Income taxes: The Company uses the liability method of accounting for
income taxes. Under the liability method of accounting for income taxes,
future income tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted or substantively enacted
tax rates and laws that will be in effect when the differences are
expected to reverse. The effect on future income tax assets and
liabilities of a change in rates is included in earnings in the period
which included the enactment date.
Future income tax assets are recognized when the Company is satisfied
that it will be more likely than not that the benefit will be utilized to
offset future income taxes payable in the foreseeable future. The Company
assesses, on an ongoing basis, the degree of certainty regarding the
realization of future income tax assets and whether a valuation allowance
is required. Accrued interest and penalties for uncertain tax positions
are recognized in the period in which uncertainties are identified.
(m) Stock-based compensation plans: Compensation expense is recognized
for the Company's contributions and obligations under the Employee Share
Purchase Plan, the Deferred Stock Unit Plan and the Stock Option Plan.
Details regarding these plans are outlined in note 13 to the consolidated
financial statements.
The Company expenses employee stock-based compensation using a fair
value-based method of accounting for stock-based compensation. The fair
value of time vesting based stock options is estimated at the grant date
using the Black-Scholes option pricing model. The fair value of
performance-based stock options is estimated at the grant date using a
binomial option-pricing model. These models require the input of a number
of assumptions, including expected dividend yields, expected stock price
volatility, expected time until exercise and risk-free interest rates.
Although the assumptions used reflect management's best estimates, they
involve inherent uncertainties based on market conditions generally
outside the control of the Company. If other assumptions are used, stock-
based compensation expense could be significantly impacted. As stock
options are exercised, the proceeds received on exercise, in addition to
the portion of the contributed surplus balance related to those stock
options, are credited to share capital.
(n) Earnings per share: The calculation of earnings per share is based on
the weighted average number of shares issued and outstanding. Diluted
earnings per share is calculated using the treasury stock method which
assumes that outstanding options which are dilutive to earnings per share
are exercised and the proceeds used to repurchase shares of the Company
at the average market price of the shares for the period.
(o) Disposal of long-lived assets and discontinued operations: A long-
lived asset that meets the conditions as held for sale is measured at the
lower of its carrying amount or its fair value less estimated costs to
sell. Such assets are not amortized while they are classified as held for
sale. The results of operations of a component of an entity that has been
disposed of, or is classified as held for sale, are reported in
discontinued operations if the operations and cash flows of the component
have been or will be eliminated as a result of the disposal transaction,
and the Company will not have a significant continuing involvement in the
operations of the component after the disposal transaction.
(p) Comprehensive income and equity: Comprehensive income is composed of
the Company's net income and other comprehensive income which includes
unrealized gains and losses on translating financial statements of self-
sustaining foreign operations, changes in the fair value of the effective
portion of cash flow hedging instruments and changes in unrealized gains
(losses) on available-for-sale financial assets measured at fair value.
The Company discloses comprehensive income within its consolidated
statements of shareholders' equity and other comprehensive income.
(q) Financial instruments: All financial instruments are initially
recorded on the consolidated balance sheet at fair value. They are
subsequently measured at either fair value or amortized cost depending on
the classification selected for the financial instrument. Financial
assets are classified as either "held-for-trading", "held-to-maturity",
"available-for-sale" or "loans and receivables" and financial liabilities
are classified as either "held-for-trading" or "other liabilities".
Financial assets and liabilities classified as held-for-trading are
measured at fair value with changes in fair value recorded in the
consolidated statements of operations except for financial assets and
liabilities designated as cash flow hedges which are measured at fair
value with changes in fair value recorded as a component of other
comprehensive income. Financial assets classified as held-to-maturity or
loans and receivables and financial liabilities classified as other
liabilities are subsequently measured at amortized cost using the
effective interest method. Available-for-sale financial assets that have
a quoted price in an active market are measured at fair value with
changes in fair value recorded in other comprehensive income. Such gains
and losses are reclassified to earnings when the related financial asset
is disposed of or when the decline in value is considered to be other-
than-temporary. Equity instruments classified as "available-for-sale"
that do not have a quoted price in an active market are subsequently
measured at cost.
The Company primarily applies the market approach for recurring fair
value measurements. Three levels of inputs may be used to measure fair
value:
- Level 1 - unadjusted quoted prices in active markets for identical
assets or liabilities
- Level 2 - inputs other than quoted prices included in Level 1 that
are observable or can be corroborated by observable
market data
- Level 3 - unobservable inputs that are supported by little or no
market activity
The Company has classified its financial instruments as follows:
- Cash and cash equivalents are classified as held-for-trading.
- Accounts receivable and notes receivable included in other assets
are classified as loans and receivables.
- Long-term investments in equities included in portfolio
investments are classified as available-for-sale.
- Bank indebtedness is classified as held-for-trading.
- Accounts payable and accrued liabilities and long-term debt are
classified as other liabilities.
The Company has elected to expense transaction costs related to financial
instruments classified as other than held-for-trading. The Company has
elected to use trade date accounting for regular-way purchases and sales
of financial assets.
(r) Derivative financial instruments: The Company applies hedge
accounting which enables the recording of gains, losses, revenues and
expenses from certain derivative financial instruments in the same period
as those related to the hedged item. All hedging relationsips are
formally documented, including the risk management objective and
strategy. On an ongoing basis an assessment is made as to whether the
designated derivative financial instruments continue to be effective in
offsetting changes in cash flows of the hedged items. If the derivative
is designated as a fair value hedge, changes in fair value of the
derivative and changes in the fair value of the hedged item attributable
to the hedged risk are recognized in the consolidated statements of
operations. If the derivative is designated as a cash flow hedge, the
effective portions of the change in fair value of the derivative are
initially recorded in other comprehensive income and are reclassified to
the consolidated statements of operations when the hedged item is
recognized. Hedge accounting is discontinued prospectively when it is
determined that the derivative is not effective as a hedge, or the
derivative is terminated or sold, or upon sale or early termination of
the hedged item. The Company has elected to apply hedge accounting for
certain forward foreign exchange contracts used to manage foreign
currency exposure on anticipated revenue and firm commitments and has
designated these as cash flow hedges. The fair value of these derivatives
is included in deposits and prepaid assets when in an asset position and
in accounts payable and accrued liabilities when in a liability position.
Gains or losses arising from hedging activities are reported in the same
caption on the consolidated statements of operations as the hedged item.
Derivative financial instruments are carried at fair value and changes in
fair value of derivatives not used in hedging relationships are recorded
in net income.
The nature of the items or transactions that the Company hedges and the
Company's hedging programs in relation to these items or transactions are
included in note 3 to the consolidated financial statements.
(s) Embedded derivatives: Embedded derivatives, which are components
included in a non-derivative host contract that have features meeting the
definition of a derivative, are required to be accounted for separately
when their economic characteristics and risks are not closely related to
the host instrument and the combined contract is not recorded at fair
value. The Company measures any embedded derivatives at fair value with
subsequent changes recorded in the consolidated statements of operations.
The Company enters into certain non-financial instrument contracts which
contain embedded foreign currency derivatives. Where the contract is not
leveraged, does not contain an option feature and is denominated in a
currency that is commonly used in the economic environment where the
transaction takes place, the embedded derivative is not accounted for
separately from the host contract. The Company elected April 1, 2003 as
the transition date for embedded derivatives and only reviewed contracts
entered into or modified after that date.
(t) Change 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 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 March 31, 2010, computer software of $1,838 is
included within intangible assets. There was no impact on previously
reported net income as a result of adopting this new standard.
- Effective April 1, 2009, the Company retroactively adopted the CICA
EIC 173 "Credit Risk and the Fair Value of Financial Assets and
Financial Liabilities." The guidance clarified that an entity's own
credit risk and the credit risk of the counterparty should be taken
into account in determining the fair value of financial assets and
financial liabilities including derivative instruments. Adoption of
this standard had no impact on the Company's consolidated financial
statements.
- During the year ended March 31, 2010, the CICA made several
amendments to Section 3855 "Financial Instruments - Recognition and
Measurement" as follows:
(iv) Clarified the requirements regarding reclassification of held-
for-trading financial instruments containing embedded
derivatives
(v) Clarified the application of the effective interest method
(vi) Eliminated the distinction between debt securities and other
debt instruments and changed the categories to which debt
instruments are required or are permitted to be classified.
The adoption of these amendments did not have a material impact on
the financial position, cash flows or earnings of the Company.
In June 2009, the CICA amended Section 3862 "Financial Instruments -
Disclosures." The ammendments include enhanced disclosures related to the
fair value of financial instruments and the liquidity risk associated
with financial instruments. The amendments require a three-level
hierarchy which reflects the significance of the inputs used in making
the fair value measurements. The additional disclosures required by the
ammendments are included in note 3.
(u) Future accounting standards: The CICA has issued the following new
Handbook Sections:
- CICA Handbook Section 1582 "Business Combinations"
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"
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 these new sections in connection with its conversion to IFRS.
- EIC 175 "Multiple Deliverable Revenue Arrangements"
CICA EIC 175 "Multiple Deliverable Revenue Arrangements" deals with
arrangements that have multiple deliverables and provides guidance which
is to be applied to determine how arrangement consideration should be
measured, whether the arrangement should be divided into separate units
of accounting and how the arrangement consideration should be allocated
among the separate units of accounting. The standard is effective for
fiscal years beginning on or after January 1, 2011. The Company is
evaluating the impact of adoption of this new section and will not elect
to early adopt the standards.
2. 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 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 consolidated financial statements. The results of the
discontinued operations were as follows:
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Revenue $ - $ 28,219
Loss from discontinued operations,
net of income taxes of $nil $ - $ (9,510)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.
3. FINANCIAL INSTRUMENTS:
(i) Categories of financial assets and liabilities:
The carrying values of the Company's financial instruments are classified
into the following categories:
As at March 31 2010 2009
-------------------------------------------------------------------------
Held-for-trading
Cash and cash equivalents $ 211,786 $ 142,361
Bank indebtedness 26,034 142
Derivatives designated as cash flow hedges(i)
- gain (loss) 2,996 (1,369)
Derivatives designated as held-for-trading(i)
- gain 2,205 192
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loans and receivables
Accounts receivable $ 81,741 $ 114,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Available-for-sale
Portfolio investments $ 3,602 $ 3,245
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other liabilities
Accounts payable and accrued liabilities $ 86,279 $ 149,384
Long-term debt 15,250 14,635
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) Derivative financial instruments in a gain position are included in
deposits and prepaid assets on the balance sheet while derivative
financial instruments in a loss position are included in accounts
payable and accrued liabilities.
(ii) Fair value measurements:
The following table presents information about the Company's assets and
liabilities measured at fair value on a recurring basis as at March 31,
2010 and indicates the fair value hierarchy of the valuation techniques
used to determine such fair value:
-------------------------------------------------------------------------
Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
-------------------------------------------------------------------------
Assets
Cash and cash
equivalents $211,786 $211,786 $ - $ - $211,786
Bank indebtedness 26,034 26,034 - - 26,034
Derivative financial
instruments 5,201 - 5,201 - 5,201
Portfolio investments 1,645 1,645 - - 1,645
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The estimated fair values of cash and short-term investments, accounts
receivable, bank indebtedness and accounts payable and accrued
liabilities approximate their respective carrying values due to the short
period to maturity. The estimated fair value of long-term debt
approximates the carrying value due to interest rates approximating
current market values. Derivative financial instruments are carried at
fair value determined by reference to quoted bid or asking prices, as
appropriate, in active markets at period-end dates. The Company's
counterparties are highly rated multinational financial institutions.
(iii) Derivative financial instruments and hedge accounting
Forward foreign exchange contracts are transacted with financial
institutions to hedge foreign currency denominated obligations related to
sales and purchases of products as well as net investments in
subsidiaries. The following table summarizes the Company's commitments to
buy and sell foreign currencies under forward foreign exchange contracts,
all of which have a maturity date of less than one year as at March 31,
2010:
Notional Weighted
Currency sold Currency bought amount sold average rate
-------------------------------------------------------------------------
U.S. dollars Canadian dollars 87,732 1.0508
Euros Canadian dollars 35,526 1.4229
Euros U.S. dollars 3,308 1.4512
Euros Swiss francs 1,450 1.4635
Canadian dollars Euros 1,375 0.7325
U.S. dollars Singapore dollars 1,300 1.4078
Swiss francs Canadian dollars 451 0.9626
Canadian dollars Japanese yen 382 88.8934
Great British pound Canadian dollars 306 0.6544
Euros Singapore dollars 200 1.8989
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Management estimates that a gain of $5,201 would be realized if the
contracts were terminated on March 31, 2010 (2009 - loss of $1,177).
Certain of these forward foreign exchange contracts are designated as
revenue and purchase hedges and have unrealized gains of $2,804 and $192
respectively which are recognized in accumulated other comprehensive
income (2009 - unrealized losses of $1,576 and unrealized gains of $220
respectively). These gains are not expected to affect net income as the
gains will be reclassified to net income within the next twelve months
and will offset losses recorded on the underlying hedged items. A gain of
$1,904 on forward foreign exchange contracts not designated in hedging
relationships is included in net income (2009 - gain of $192) which
offsets losses recorded on the foreign denominated items, namely accounts
payable and accounts receivable. A gain of $301 on forward foreign
exchange designated as a hedge of the Company's net investment in certain
subsidiaries is included in the currency translation adjustment amount
(2009 - $nil) which offsets losses recorded on the foreign denominated
net investments.
(iv) Risks arising from financial instruments and risk management
The Company is exposed to financial risks that may potentially impact its
operating results in either or both of its operating segments; including
market risks (foreign exchange rate, interest rate and other market price
risks), credit risk and liquidity risk. The Company's overall risk
management program focuses on the unpredictability of financial markets
and seeks to minimize potential adverse effects on the Company's
financial performance. The Company uses derivative financial instruments
to mitigate exposure to fluctuations in foreign exchange rates. The
Company does not enter into derivative financial agreements for
speculative purposes.
Currency risk
-------------
The Company transacts business in multiple currencies, the most
significant of which are the Canadian dollar, the U.S. dollar, the Euro
and the Singapore dollar. As a result, the Company has foreign currency
exposure with respect to items denominated in foreign currencies. The
types of foreign exchange risk can be categorized as follows:
Translation exposure
All of the Company's foreign operations are considered self-sustaining.
Accordingly, assets and liabilities are translated into Canadian dollars
using the exchange rates in effect at the balance sheet dates. Unrealized
translation gains and losses are deferred and included in accumulated
other comprehensive income. The cumulative currency translation
adjustments are recognized in income when there has been a reduction in
the net investment in the foreign operations.
Foreign currency based earnings are translated into Canadian dollars each
period at prevailing rates. As a result, fluctuations in the value of the
Canadian dollar relative to these other currencies will impact reported
net income. Foreign currency risks arising from the translation of assets
and liabilities of foreign operations into the Company's functional
currency are generally not hedged; however, the Company may decide to
hedge this risk under certain circumstances. The Company has assessed the
net foreign currency exposure of operations relative to their own
functional currency. A fluctuation of +/- 5% in the Euro and US dollar,
provided as an indicative range in a volatile currency environment,
would, everything else being equal, have an effect on accumulated other
comprehensive income for the year ended March 31, 2010 of approximately
+/- $9,844 and $4,415 respectively (2009 - 10,275 and $4,419) and on
income from continuing operations before income taxes for the year ended
March 31, 2010 of approximately +/- $450 and $1,371 respectively (2009 -
$155 and $955).
Transaction exposure
The Company generates significant revenues in foreign currencies,
primarily U.S. dollars, which exceed the natural hedge provided by
purchases of goods and services in those currencies. In order to manage
this net foreign currency exposure in subsidiaries which do not have the
U.S. dollar as the functional currency, the Company enters into forward
foreign exchange contracts. The timing and amount of these forward
foreign exchange contracts are estimated based on existing customer
contracts on hand or anticipated, current conditions in the Company's
markets and the Company's past experience. As such, there is not a
material transaction exposure.
Credit risk
-----------
Credit risk is the risk of financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. Financial instruments that potentially subject the Company
to credit risk consist of accounts receivable and derivative financial
instruments. The carrying values of these assets represent management's
assessment of the associated maximum exposure to such credit risk.
Substantially all of the Company's accounts receivable are due from
customers in a variety of industries and, as such, are subject to normal
credit risks from their respective industries. The Company regularly
monitors customers for changes in credit risk. The Company does not
believe that any single industry or geographic region represents
significant credit risk. Credit risk concentration with respect to trade
receivables is mitigated by the Company's client base being primarily
large, multinational customers and through accounts receivable insurance
purchased by the Company. As at March 31, 2010, $19,816 of trade accounts
receivable were past due date, of which $10,487 or 12% of trade accounts
receivable were more than 90 days past due date. The Company has provided
for $8,778 against specific receivables identified as being
uncollectible. The movement in the Company's allowance for doubtful
accounts for the year ended March 31, 2010 was as follows:
2010 2009
-------------------------------------------------------------------------
Balance at April 1 $ 11,120 $ 9,131
Provisions and revisions (866) 1,333
Foreign exchange (1,476) 656
-------------------------------------------------------------------------
Balance at March 31 $ 8,778 $ 11,120
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company minimizes credit risk associated with derivative financial
instruments by only entering into derivative transactions with highly
rated, multinational financial institutions, in order to reduce the risk
of counterparty default.
Liquidity risk
--------------
Liquidity risk is the risk that the Company may encounter difficulties in
meeting obligations associated with financial liabilities. As at March
31, 2010, the Company was holding cash and short-term investments of
$211,786 and had unutilized lines of credit of $66,338. During the year
ended March 31, 2010, the Company extended its existing primary credit
facility (the "Credit Agreement") until April 30, 2011, as described in
note 9 to the consolidated financial statements. The Company expects that
continued cash flows from operations in fiscal 2011, together with cash
and short-term investments on hand and available credit facilities, will
be more than sufficient to fund its requirements for investments in
working capital, property, plant and equipment and strategic investments
including potential acquisitions.
The Company's accounts payable primarily have contractual maturities of
less than 90 days and the contractual cash flows equal their carrying
value. The Company's long-term debt obligations, scheduled interest
payments and obligations under capital leases are presented in note 9 to
the consolidated financial statements.
Interest rate risk
------------------
In relation to its debt financing, the Company is exposed to changes in
interest rates, which may impact the Company's borrowing costs. Floating
rate debt exposes the Company to fluctuations in short-term interest
rates. As at March 31, 2010, $41,284 or 100% (2009 - $14,777 or 100%) of
the Company's total debt is subject to movements in floating interest
rates. A +/- 1% change in interest rates in effect for the fiscal year
would, all things being equal, have an impact of +/- $413 on income from
continuing operations before income taxes for the year ended March 31,
2010.
Other market price risk
-----------------------
Equity price risk arises from available-for-sale equity securities.
Material investments are managed on an individual basis and all buy and
sell decisions are approved by the Board of Directors. Included with
available-for-sale assets is an investment in a private company and its
related subsidiaries for which there is not a quoted share price within
an active market. Accordingly, the investment is not adjusted for changes
in fair value and is recorded at its initial cost of $1,957. A $1
increase or decrease (based on the underlying volatility of the stock) in
the equity price of the remaining investment within portfolio investments
would increase or decrease accumulated other comprehensive income by $620
respectively.
The Company utilizes long-term fixed price contracts to secure future
quantities of various commodities. The Company does not enter into such
commodity contracts other than to meet the Company's expected usage and
sales requirements; such contracts are not net settled.
4. CONTRACTS IN PROGRESS AND INVENTORIES:
As at March 31 2010 2009
-------------------------------------------------------------------------
Contracts in progress:
Costs incurred on contracts in progress $ 338,624 $ 390,729
Estimated earnings 80,766 80,756
-------------------------------------------------------------------------
419,390 471,485
Progress billings (406,682) (429,006)
-------------------------------------------------------------------------
$ 12,708 $ 42,479
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Disclosed as:
Costs and earnings in excess of billings
on contracts in progress $ 42,924 $ 86,079
Billings in excess of costs and earnings
on contracts in progress (30,216) (43,600)
-------------------------------------------------------------------------
$ 12,708 $ 42,479
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at March 31 2010 2009
-------------------------------------------------------------------------
Inventories are summarized as follows:
Raw materials $ 45,984 $ 84,678
Work in process 8,585 11,711
Finished goods 25,711 41,211
-------------------------------------------------------------------------
$ 80,280 $ 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 year ended March 31, 2010 was $189,536 (2009 - $324,685). The
amount charged to net income and included in cost of revenue for the
write-down of inventory for valuation issues during the year ended March
31, 2010 was $45,919 (2009 - $7,871). The write-down of inventory in the
year ended March 31, 2010 primarily relates to a decrease in market
selling prices and limited future usability of specific products in the
Company's Photowatt Technologies segment, following the cancellation and
renegotiation of customer sales contracts. 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 year ended March
31, 2010 was $204 (2009 - $181).
5. DEPOSITS AND PREPAID ASSETS:
As at March 31 2010 2009
-------------------------------------------------------------------------
Prepaid assets $ 4,231 $ 2,755
Restricted cash 582 11,892
Silicon and other deposits 16,335 8,731
Forward contracts and other 6,344 3,129
-------------------------------------------------------------------------
$ 27,492 $ 26,507
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Restricted cash consists of cash collateralized to secure letters of
credit.
Silicon deposits consist of deposits made on silicon supply contracts
which are expected to be utilized against silicon purchases within the
next year. See note 15 to the consolidated financial statements for
additional information.
6. PROPERTY, PLANT AND EQUIPMENT:
2010
-------------------------------------------------------------------------
Accumulated Net book
As at March 31 Cost amortization value
-------------------------------------------------------------------------
Land and land improvements $ 25,841 $ - $ 25,841
Buildings 100,178 36,500 63,678
Leashold improvements 4,114 1,885 2,229
Production equipment 132,693 70,499 62,194
Other equipment and furniture 38,703 21,194 17,509
-------------------------------------------------------------------------
$ 301,529 $ 130,078 $ 171,451
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2009
-------------------------------------------------------------------------
Accumulated Net book
As at March 31 Cost amortization value
-------------------------------------------------------------------------
Land and land improvements $ 29,461 $ - $ 29,461
Buildings 110,652 36,131 74,521
Leashold improvements 4,880 2,622 2,258
Production equipment 158,734 77,044 81,690
Other equipment and furniture 46,873 33,611 13,262
-------------------------------------------------------------------------
$ 350,600 $ 149,408 $ 201,192
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in production equipment as of March 31, 2010 is $25,530 (2009 -
$21,599) related to assets purchased under capital lease with accumulated
amortization of $2,523 (2009 - $489). The amount of amortization charged
to expense in fiscal 2010 related to assets under capital lease is $2,376
(2009 - $489).
Included in production equipment and other equipment and furniture as of
March 31, 2010 is $1,063 and $11,789 respectively (2009 - $962 and $5,827
respectively) of assets which are under construction which have not been
amortized.
7. INTANGIBLE ASSETS:
2010
-------------------------------------------------------------------------
Accumulated Net book
As at March 31 Cost amortization value
-------------------------------------------------------------------------
Development projects $ 12,432 $ 11,602 $ 830
Computer software, licenses and
other intangible assets 14,781 10,747 4,034
-------------------------------------------------------------------------
$ 27,213 $ 22,349 $ 4,864
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2009
-------------------------------------------------------------------------
Accumulated Net book
As at March 31 Cost amortization value
-------------------------------------------------------------------------
Development projects $ 12,884 $ 11,667 $ 1,217
Computer software, licenses and
other intangible assets 13,656 8,454 5,202
-------------------------------------------------------------------------
$ 26,540 $ 20,121 $ 6,419
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the year ended March 31, 2010, the Company did not capitalize any
development costs (2009 - nil). Amortization of development costs
included in continuing operations for the year ended March 31, 2010 was
$385 (2009 - $723). Amortization of computer software, licenses and other
intangible assets for the year ended March 31, 2010 was $1,641 (2009 -
$1,085).
8. OTHER ASSETS:
As at March 31 2010 2009
-------------------------------------------------------------------------
Silicon deposits $ 32,389 $ 51,021
Other 991 151
-------------------------------------------------------------------------
$ 33,380 $ 51,172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Silicon deposits consist of deposits made on silicon supply contracts
which are expected to be utilized against silicon purchases beyond the
next fiscal year. See note 15 to the consolidated financial statements
for additional information.
9. BANK INDEBTEDNESS, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES:
During the year ended March 31, 2010, the Company and its lender agreed
to extend its 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, against
which no amount is outstanding (2009 - nil). 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, letters of credit for certain purposes and/or
bankers' acceptances and in U.S. dollars by way of base rate advances
and/or LIBOR advances. The interest rates applicable to the 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 $57,377 (41,820 Euro).
The total amount outstanding on these facilities is $55,940 (2009 -
$34,128), of which $26,034 is classified as bank indebtedness (2009 -
$14), $7,661 is classified as long-term debt (2009 - $13,053) and $22,245
is classified as obligations under capital lease (2009 - $21,061). 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 credit facilities which are
classified as current bank indebtedness, are subject to either annual
renewal or 60 day notification. At March 31, 2010, Photowatt
International S.A.S. was not in compliance with the debt leverage tests
on certain of its credit facilities. The lenders have not waived their
right to demand repayment of the outstanding principal balances and
consequently the entire balance of $7,661 (5,584 Euro) has been included
in the current portion of long-term debt.
The Company has an additional credit facility available of $1,927 (2,000
Swiss francs) against which no amount is outstanding (2009 - $128). The
credit facility bears interest at up to 6.0% per annum and is secured by
a letter of credit.
The PV Alliance joint venture has additional credit facilities as
described in note 18.
(i) Bank indebtedness
As at March 31 2010 2009
-------------------------------------------------------------------------
Primary credit facility $ - $ -
Photowatt International S.A.S. 26,034 14
Other facilities - 128
-------------------------------------------------------------------------
$ 26,034 $ 142
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(ii) Long-term debt
As at March 31 2010 2009
-------------------------------------------------------------------------
Primary credit facility $ - $ -
PV Alliance 7,589 1,582
Photowatt International S.A.S. 7,661 13,053
-------------------------------------------------------------------------
15,250 14,635
Less: current portion 10,830 4,133
-------------------------------------------------------------------------
$ 4,420 $ 10,502
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Principal Interest
-------------------------------------------------------------------------
2011 $ 10,830 $ 449
2012 1,099 285
2013 1,161 187
2014 852 126
2015 202 78
Thereafter 1,106 240
-------------------------------------------------------------------------
$ 15,250 $ 1,365
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(iii) Obligations under capital lease
As at March 31 2010 2009
-------------------------------------------------------------------------
Photowatt International S.A.S. future minimum
lease payments $ 25,201 $ 23,802
Less: amount representing interest
(at rates ranging from 1.9% to 4.9%) 2,956 2,741
-------------------------------------------------------------------------
22,245 21,061
Less: current portion 4,260 3,409
-------------------------------------------------------------------------
$ 17,985 $ 17,652
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Lease Payments Interest
-------------------------------------------------------------------------
2011 $ 4,260 $ 1,016
2012 4,460 815
2013 4,671 605
2014 4,893 382
2015 3,961 138
-------------------------------------------------------------------------
$ 22,245 $ 2,956
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest of $600 (2009 - $150) relating to obligations under capital
lease has been included in interest on long-term debt expense in the
current year.
10. 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 year
ended March 31, 2009, severance and restructuring expenses associated
with this restructuring program were $5,459.
In fiscal 2010, the Company accelerated and expanded its previous
restructuring program. In the year ended March 31, 2010, severance and
restructuring expenses associated with the closure of two divisions and
other workforce reductions were $7,309, primarily in the Automation
Systems segment. The remaining restructuring provision is expected to be
paid out within one year.
The following is a summary of the changes in the provision for
restructuring costs:
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Balance, beginning of year $ 4,535 $ 12,585
Severance and restructuring expense 7,309 5,459
Cash payments (9,244) (13,459)
Foreign exchange (410) (50)
-------------------------------------------------------------------------
Balance, end of year $ 2,190 $ 4,535
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. SHARE CAPITAL:
As at March 31 2010 2009
-------------------------------------------------------------------------
Common shares:
Authorized
Unlimited shares
Issued:
87,278,155 shares (2009 - 87,277,155 shares) $ 479,542 $ 479,537
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the year ended March 31, 2009, the Company issued 10,000,000
common shares raising gross proceeds of $50,000 (net proceeds of
$46,781).
12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
The components of accumulated other comprehensive income (loss) are as
follows:
As at March 31 2010 2009
-------------------------------------------------------------------------
Accumulated currency translation adjustment $ (39,495) $ 18,198
Accumulated unrealized loss on available-for-
sale financial assets(i) - (1,348)
Accumulated unrealized net gain (loss) on
derivative financial instruments designated as
cash flow hedges(ii) 2,061 (1,356)
-------------------------------------------------------------------------
Accumulated other comprehensive income (loss) $ (37,434) $ 15,494
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) During the year ended March 31, 2010, the Company determined that
the impairment in one of its portfolio investments was other than
temporary and therefore the accumulated unrealized loss of $951 was
allocated to net income.
(ii) The accumulated unrealized net gain (loss) on derivative financial
instruments designated as cash flow hedges is net of future income
taxes of $935 at March 31, 2010 (2009 - $nil).
13. STOCK-BASED COMPENSATION PLANS:
Employee Share Purchase Plan: Under the terms of the Company's Employee
Share Purchase Plan, qualifying employees of the Company may set aside
funds through payroll deductions for an amount up to a maximum of 10% of
their base salary or $10,000 in any one calendar year. Subject to the
member not making withdrawals from the plan, the Company makes
contributions to the plan equal to 20% of a member's contribution to the
plan during the year, up to a maximum of 1% of the member's salary or
$2,000. Shares for the plan may be issued from treasury or purchased in
the market as determined by the Company's Board of Directors. During the
years ended March 31, 2010 and March 31, 2009, no shares were issued from
treasury related to the plan.
Deferred Stock Unit Plan: The Company offers a Deferred Stock Unit Plan
("DSU Plan") for members of the Board of Directors. Under the DSU Plan,
each non-employee director may elect to receive his or her annual
compensation in the form of notional common shares of the Company called
deferred stock units ("DSUs"). The issue and redemption prices of each
DSU are based on an average trading price of the Company's common shares
for the five trading days prior to issuance or redemption. Under the
terms of the DSU Plan, directors are not entitled to convert DSUs into
cash until retirement from the Board of Directors. The value of each
DSU, when converted to cash, will be equal to the market value of a
common share of the Company at the time the conversion takes place. At
March 31, 2010, the value of the outstanding liability related to the
DSUs was $827 (2009 - $77). The DSU liability is revalued quarterly based
on the change in the Company's stock price. The change in the value of
the DSU liability is included in operating results in the period of the
change.
Stock Option Plan: The Company uses a stock option plan to attract and
retain key employees, officers and directors. Under the Company's 1995
Stock Option plan (the "1995 Plan"), the shareholders have approved a
maximum of 5,991,839 common shares for issuance under the 1995 Plan, with
the maximum reserved for issuance to any one person at 5% of the common
shares outstanding at the time of the grant. Time vested stock options
vest over four or five year periods. Performance-based stock options vest
based on the Company's stock trading at or above a threshold for a
specified number of minimum trading days in a fiscal quarter. For time
vested stock options, the exercise price is the price of the Company's
common shares on the Toronto Stock Exchange at closing for the day prior
to the date of the grant. For performance-based stock options the
exercise price is either the price of the Company's common shares on the
Toronto Stock Exchange at closing for the day prior to the date of the
grant or the five-day volume weighted average price of the Company's
common shares on the Toronto Stock Exchange prior to the date of the
grant. Options granted under the 1995 plan may be exercised during
periods not exceeding seven or ten years from the date of grant, subject
to earlier termination upon the option holder ceasing to be a director,
officer or employee of the Company. Options issued under the 1995 plan
are non-transferable. Any option granted which is cancelled or terminated
for any reason prior to exercise is returned to the pool and becomes
available for future stock option grants. In the event that the option
would otherwise expire during a restricted trading period, the expiry
date of the option is extended to the 10th business day following the
date of expiry of such period. In addition, the 1995 plan restricts the
grant of options to insiders that may be under the 1995 Plan.
Under the Company's 2006 Stock Option plan (the "2006 Plan"), the
shareholders have approved a maximum of 2,159,000 common shares for
issuance. The terms of the 2006 Plan are identical to those of the 1995
plan, except that the maximum number of common shares to be issued
pursuant to the issue of options under the 2006 Plan is 2,159,000 shares.
As at March 31, 2010, there are a total of 2,725,024 (2009 - 2,982,136)
common shares remaining for future option grants under both plans.
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Weighted Weighted
Number of average Number of average
stock exercise stock exercise
options price options price
-------------------------------------------------------------------------
Stock options
outstanding,
beginning of year 6,112,562 $ 8.18 6,562,649 $ 8.83
Granted 800,000 6.40 710,000 5.76
Exercised (1,000) 3.49 - -
Forfeited/cancelled (542,888) 8.91 (1,160,087) 10.33
-------------------------------------------------------------------------
Stock options
outstanding,
end of year 6,368,674 $ 7.89 6,112,562 $ 8.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock options
exercisable,
end of year,
time vested options 966,258 $ 11.41 864,259 $ 12.77
Stock options
exercisable,
end of year,
performance-options 991,448 $ 6.14 910,334 $ 6.39
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at
March 31, Stock options
2010 Stock options outstanding exercisable
-------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of remaining average Number average
Exercise Number contract- exercise exercis- exercise
prices outstanding ual life price able price
-------------------------------------------------------------------------
$3.49 to
6.40 1,963,750 5.11 years $ 4.68 669,551 $ 4.57
$6.41 to
8.50 2,840,003 6.24 years 7.50 730,919 7.24
$8.51 to
10.94 984,293 8.86 years 10.53 177,123 10.70
$10.95 to
23.72 580,628 4.12 years 16.17 380,113 18.07
-------------------------------------------------------------------------
$3.49 to
23.72 6,368,674 6.10 years $ 7.89 1,957,706 $ 8.74
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 a stock price performance threshold for a specified
minimum number of trading days, the options vest. When the performance-
based options vest, the Company is required to recognize all previously
unrecognized expenses associated with the vested stock options in the
period in which they vest.
As at March 31, 2010, the following performance-based stock options were
un-vested:
Weighted
average
Stock price Number of Grant date remaining Current Remaining
performance options value per vesting year expense to
threshold outstanding option period expense recognize
-------------------------------------------------------------------------
$ 8.41 266,667 2.11 1.1 years $ 180 $ 182
8.50 889,333 1.41 2.6 years 254 667
9.08 218,666 2.77 0.5 years 234 112
9.49 41,667 1.66 4.6 years 12 56
10.41 266,667 2.11 2.5 years 124 301
10.50 889,333 1.41 3.5 years 217 752
11.08 218,667 2.77 1.8 years 151 287
12.41 266,666 2.11 3.5 years 103 345
13.08 218,667 2.77 2.8 years 123 347
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In the calculation of stock-based compensation expense, the fair values
of the Company's stock options issued during the year were estimated at
the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
As at March 31 2010 2009
-------------------------------------------------------------------------
Weighted average risk-free interest rate 2.17% 2.68%
Dividend yield 0% 0%
Weighted average expected volatility 60% 50%
Weighted average expected life 4.55 years 4.1 years
Number of stock options granted:
Time vested 700,000 585,000
Performance based 100,000 125,000
Weighted average exercise price per option $ 6.40 $ 5.76
Weighted average value per option:
Time vested $ 3.19 $ 2.54
Performance based $ 3.59 $ 1.66
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The change in contributed surplus consists of amounts charged to stock-
based compensation expense excluding DSU charges.
14. INCOME TAXES:
(i) Reconciliation of income taxes: Income tax expense differs from the
amounts which would be obtained by applying the combined Canadian basic
federal and provincial income tax rate to income (loss) from continuing
operations before income taxes. These differences result from the
following items:
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes $ (13,478) $ 65,706
Combined Canadian basic federal and provincial
income tax rate 32.80% 33.43%
-------------------------------------------------------------------------
Income tax expense (recovery) based on combined
Canadian basic federal and provincial income
tax rate $ (4,421) $ 21,966
Increase (decrease) in income taxes resulting
from:
Valuation allowance of future income tax
assets (24,751) (10,370)
Permanent differences and rate changes 3,897 (2,976)
Manufacturing and processing allowance and
all other items (366) (448)
-------------------------------------------------------------------------
$ (25,641) $ 8,172
-------------------------------------------------------------------------
Provision for (recovery of) income taxes:
Current $ 7,526 $ 11,032
Future (33,167) (2,860)
-------------------------------------------------------------------------
$ (25,641) $ 8,172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(ii) Components of future income tax assets and liabilities: Future
income taxes are provided for the differences between accounting and tax
basis of asset and liabilities. Future income tax assets and liabilities
are comprised of the following:
As at March 31 2010 2009
-------------------------------------------------------------------------
Future income tax assets:
Loss carryforwards $ 33,808 $ 15,861
Property, plant and equipment 2,599 5,347
Deductible pool of scientific research and
development expenditures not yet deducted
for tax 32,054 30,954
Ontario harmonization credit 1,567 2,189
Other 7,994 8,999
-------------------------------------------------------------------------
78,022 63,350
Less valuation allowance 31,024 55,775
-------------------------------------------------------------------------
Future income tax assets, net $ 46,998 $ 7,575
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Future income tax liabilities:
Accounting income not currently taxable $ 17,179 $ 11,980
Investment tax credits and other 6,349 4,357
-------------------------------------------------------------------------
Future income tax liabilities 23,528 16,337
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net future income tax asset (liability) $ 23,470 $ (8,762)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net future income tax assets (liabilities) are classified for
consolidated balance sheet purposes as follows:
As at March 31 2010 2009
-------------------------------------------------------------------------
Current assets $ 553 $ 3,669
Long-term assets 35,243 1,283
Current liabilities (12,326) (9,176)
Long-term liabilities - (4,538)
-------------------------------------------------------------------------
$ 23,470 $ (8,762)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The realization of future tax assets is dependent on the Company
generating sufficient taxable income in the years that the temporary
differences become deductible. In the current year, a reversal of the
valuation allowance against future tax assets of $30,487 was recorded as
a result of a change in the Company's assessment of the realizability of
a portion of its Canadian future tax assets related to $128,217 of
scientific research and experimental development expenditures. In other
jurisdictions, a valuation allowance was applied against loss
carryforwards to an amount that is not considered more likely than not to
be realized.
(iii) Loss carryforwards: As at March 31, 2010, the Company has the
following net operating loss carryforwards which are scheduled to expire
in the following years:
Year of expiry Non-Canadian Canadian
-------------------------------------------------------------------------
2011 $ 1,121 $ -
2012 2,882 -
2013 2,487 -
2014 276 19
2015 746 1,059
2016 - 2020 2,144 -
2021 - 2025 2,505 -
2026 - 2030 7,060 8,654
No expiry 83,628 -
-------------------------------------------------------------------------
$ 102,849 $ 9,732
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The benefit of $6,500 (2009 - $544) of these loss carryforwards has been
recognized in the consolidated financial statements.
In addition, the Company has U.S. federal and state capital loss
carryforwards of US$2,135 (2009 - US$2,135) that do not expire.
(iv) Investment tax credits: As at March 31, 2010, the Company has ITCs
available to be applied against future taxes payable in Canada of
approximately $35,006 and in foreign jurisdictions of approximately
$5,825. The investment tax credits are scheduled to expire as follows:
Gross ITC
Year of expiry balance
-------------------------------------------------------------------------
2012 - 2015 $ 391
2016 - 2020 478
2021 - 2025 4,219
2026 - 2030 35,502
No expiry 241
-------------------------------------------------------------------------
$ 40,831
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The benefit of $20,878 (2009 - $14,538) of these ITCs has been recognized
in the consolidated financial statements.
In the year ended March 31, 2010, the Company recognized an increase of
$6,144 of investment tax credits as a result of a change in the
assessment of the future utilization of these credits.
15. COMMITMENTS AND CONTINGENCIES:
The minimum operating lease payments related primarily to facilities and
equipment, purchase obligations and other obligations in each of the next
five years and thereafter are as follows:
Operating Purchase Other
Fiscal year leases obligations obligations
-------------------------------------------------------------------------
2011 $ 3,437 $ 135,744 $ 71
2012 - 2013 2,770 106,193 39
2014 - 2015 537 65,555 -
Thereafter 324 108,698 -
-------------------------------------------------------------------------
$ 7,068 $ 416,190 $ 110
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company's off-balance sheet arrangements consist of purchase
obligations, various operating lease financing arrangements related
primarily to facilities and equipment, and derivative financial
instruments which have been entered into in the normal course of
business.
The Company's purchase obligations consist of silicon supply commitments
and other materials purchase commitments. The major silicon supply
commitments are take-or-pay arrangements with fixed price commitments.
In the twelve months ended March 31, 2010, the Company terminated an
existing silicon supply contract with approximately 1,250 tonnes of UMG-
Si remaining to be delivered. Concurrently, the Company entered into a
replacement contract to purchase 180 tonnes of polysilicon through the
remainder of calendar 2009 and 2010. Part of the deposit from the
terminated contract was applied to the new contract with the remainder of
the deposit being applied against pre-existing accounts payable.
In the twelve months ended March 31, 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 paid in advance.
The Company re-negotiated the prices in an existing long-term silicon
supply contract for the purchase of polysilicon wafers. The amended
purchase obligation has been reflected as of March 31, 2010.
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 March 31, 2010, the total
value of outstanding bank guarantees to customers available under bank
guarantee facilities was approximately $11,932 (2009 - $24,361).
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.
16. EARNINGS (LOSS) PER SHARE:
Weighted average number of shares used in the computation of earnings
(loss) per share is as follows:
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Basic 87,277,222 79,282,650
Diluted 87,477,971 79,393,068
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the year ended March 31, 2010, stock options to purchase 5,297,126
common shares are excluded from the weighted average common shares in the
calculation of diluted earnings per share as they are anti-dilutive
(6,039,206 common shares were excluded for the year ended March 31,
2009).
17. SEGMENTED DISCLOSURE:
The Company evaluates performance based on two reportable business
segments: Automation Systems and Photowatt Technologies. The Automation
Systems segment produces custom-engineered turn-key automated
manufacturing and test systems. The Photowatt Technologies segment is a
turn-key solar project developer and integrated manufacturer of
photovoltaic products. The business segments are strategic business units
that offer different products and services and each is managed
separately.
The Company accounts for inter-segment revenue at current market rates,
negotiated between the segments.
2010
-------------------------------------------------------------------------
Automation Photowatt
Systems Technologies Consolidated
-------------------------------------------------------------------------
Revenue $ 382,443 $ 199,861 $ 582,304
Inter-segment revenue (4,525) (2) (4,527)
-------------------------------------------------------------------------
Total Company revenue $ 377,918 $ 199,859 $ 577,777
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from operations $ 56,152 $ (47,673) $ 8,479
Inter-segment operating loss (977)
Stock-based compensation (3,274)
Other expenses (15,659)
-------------------------------------------------------------------------
Total Company earnings (loss) from
operations $ (11,431)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Recovery of income taxes $ (20,205) $ (5,436) $ (25,641)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets $ 459,730 $ 280,305 $ 740,035
Corporate assets and inter-segment 12,763
-------------------------------------------------------------------------
$ 752,798
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Company goodwill $ 28,992 $ 5,358 $ 34,350
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Acquisition of property, plant and
equipment $ 1,402 $ 18,464 $ 19,866
Corporate acquisitions, inter-
segment transfers and other 729
-------------------------------------------------------------------------
$ 20,595
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization from continuing
operations $ 6,816 $ 16,424 $ 23,240
Corporate and inter-segment
amortization 1,048
-------------------------------------------------------------------------
Total Company amortization from
continuing operations $ 24,288
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2009
-------------------------------------------------------------------------
Automation Photowatt
Systems Technologies Consolidated
-------------------------------------------------------------------------
Revenue $ 588,483 $ 269,755 $ 858,238
Inter-segment revenue (3,118) (3,118)
-------------------------------------------------------------------------
Total Company revenue $ 585,365 $ 269,755 $ 855,120
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings from operations $ 58,745 $ 24,522 $ 83,267
Inter-segment operating earnings (250)
Stock-based compensation (2,362)
Other expenses (14,599)
-------------------------------------------------------------------------
Total Company earnings from
operations $ 66,056
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Provision for income taxes $ 4,369 $ 3,803 $ 8,172
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets $ 473,999 $ 346,230 $ 820,229
Corporate assets and
inter-segment 14,305
-------------------------------------------------------------------------
$ 834,534
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Company goodwill $ 33,476 $ 6,514 $ 39,990
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Acquisition of property, plant
and equipment $ 2,337 $ 28,576 $ 30,913
Corporate acquisitions, inter-
segment transfers and other 1,943
-------------------------------------------------------------------------
$ 32,856
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of property, plant
and equipment $ 8,483 $ 15,650 $ 24,133
Corporate and inter-segment
amortization of property,
plant and equipment 740
-------------------------------------------------------------------------
Total Company amortization of
property, plant and equipment $ 24,873
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2010
-------------------------------------------------------------------------
Property,
plant and Intangible
Revenue equipment Goodwill assets
-------------------------------------------------------------------------
Canada $ 18,596 $ 39,263 $ 5,213 $ 2,262
United States and
Mexico 212,990 17,799 18,631 57
Europe 244,934 111,887 7,719 2,457
Asia - Pacific and
other 101,257 2,502 2,787 89
-------------------------------------------------------------------------
Total Company $ 577,777 $ 171,451 $ 34,350 $ 4,865
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2009
-------------------------------------------------------------------------
Property,
plant and Intangible
Revenue equipment Goodwill assets
-------------------------------------------------------------------------
Canada $ 43,555 $ 40,408 $ 5,213 $ 3,380
United States and
Mexico 320,001 23,242 22,697 106
Europe 365,957 133,418 8,938 2,713
Asia - Pacific and
other 125,607 4,124 3,142 220
-------------------------------------------------------------------------
Total Company $ 855,120 $ 201,192 $ 39,990 $ 6,419
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Geographic segmentation of revenue is determined based on the customer's
installation site. Long-lived assets represent property, plant and
equipment, goodwill and intangible assets that are attributable to
individual geographic segments, based on location of the respective
operations.
During the year ended March 31, 2010 and the year ended March 31, 2009,
the Company did not have revenue from any single customer which amounted
to 10% or more of total consolidated revenue.
18. INVESTMENT IN JOINT VENTURE:
During the year ended March 31, 2010, Photowatt Ontario Inc. entered into
an agreement to establish Ontario Solar PV Fields Inc., a joint venture.
In fiscal 2008, Photowatt International S.A.S. entered into an agreement
to establish the PV Alliance, a joint venture.
These are jointly-controlled enterprises and accordingly, the Company
proportionately consolidated its 50% and 40% share of assets,
liabilities, revenues and expenses for Ontario Solar PV Fields Inc. and
PV Alliance, respectively, in the consolidated financial statements.
The following is a summary of the Company's proportionate share of the
joint ventures:
As at March 31 2010 2009
-------------------------------------------------------------------------
Balance sheets
Current assets $ 4,933 $ 2,482
Property and equipment 4,960 53
Intangible assets 2,107 1,816
Investment tax credits 562 -
Current liabilities (6,130) (3,230)
Long-term debt (4,419) (1,296)
-------------------------------------------------------------------------
Net assets $ 2,013 $ (175)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Statements of operations
Net loss $ (61) $ (968)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended March 31 2010 2009
-------------------------------------------------------------------------
Cash flows from (used in)
Operating activities $ 1,679 $ 155
Investing activities (6,322) (1,869)
Financing activities 6,736 1,376
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the year ended March 31, 2009, the PV Alliance established loans
from a shareholder proportionately worth 2,631 Euro, to be received in
instalments by the PV Alliance. During the year ended March 31, 2010, the
PV Alliance received additional loans from a shareholder proportionately
worth 1,779 Euro. The loans are repayable over five years, guaranteed by
the signing of a Pledge Agreement, and bear interest at the maximum
fiscally deductible rate.
During the year ended March 31, 2010, the PV Alliance established a
credit facility proportionately worth 8,015 Euro. The credit facility
bears interest of 6.19% per annum and is received upon the program
meeting certain efficiency milestones.
An operating lease was established during the year ended March 31, 2010
for a portion of the Photowatt International S.A.S. building used by the
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 year ended March 31, 2010, the PV Alliance entered into an
agreement under which the regional government of Rhône-Alpes in France
committed to providing the PV Alliance with funding of 15,000 Euro over a
five-year period, conditional on certain employment levels being met in
the region. During the year ended March 31, 2010, the PV Alliance
received government assistance of 769 Euro which has been included in
operating earnings.
19. CAPITAL MANAGEMENT:
The Company's capital management framework is designed to ensure the
Company has adequate liquidity, financial resources and borrowing
capacity to allow financial flexibility and to provide an adequate return
to shareholders. The Company defines capital as the aggregate of
shareholders' equity (excluding accumulated other comprehensive income
(loss)), bank indebtedness, long-term debt and obligations under capital
leases less cash and short-term investments.
The Company monitors capital using the ratio of total debt to equity.
Total debt includes bank indebtedness, long-term debt and obligations
under capital leases as shown on the consolidated balance sheets. Equity
includes all components of shareholders' equity, less accumulated other
comprehensive income (loss). This is unchanged from the previous year.
The capital management criteria can be illustrated as follows:
As at March 31 2010 2009
-------------------------------------------------------------------------
Shareholders' equity excluding accumulated
other comprehensive income (loss) $ 567,643 $ 552,953
Long-term debt 15,250 14,635
Obligations under capital leases 22,245 21,061
Bank indebtedness 26,034 142
Cash and short-term investments (211,786) (142,361)
-------------------------------------------------------------------------
Capital under management $ 419,386 $ 446,430
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Debt to equity ratio 0.1:1 0.1:1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
20. SUBSEQUENT EVENTS:
a) On June 1, 2010, the Company completed its acquisition of Sortimat
Group ("Sortimat"). Sortimat is a manufacturer of assembly systems for
the healthcare segment, and is headquartered in Germany with locations in
Chicago and a small, 60% owned joint venture in India.
The total consideration for Sortimat is up to $56,680 based on current
foreign exchange rates (43,610 Euro). This amount includes potential
future payments of up to $8,591 (6,610 Euro) which are payable subject to
the achievement of milestones related to operating performance and
specific management services to be provided over the next two and a half
years. To date, the Company has paid approximately $48,089 (37,000 Euro)
in cash.
The cash consideration of the purchase price along with transaction costs
will be funded with existing cash on hand. This acquisition will be
accounted for as a business combination with the Company as the acquirer
of Sortimat. The purchase method of accounting will be used and the
earnings will be consolidated from the acquisition date. The Company is
in the process of finalizing the estimated fair values of assets acquired
and liabilities assumed at the date of acquisition, including goodwill
and identifiable intangible assets.
The consolidated results of operations of Sortimat will be included in
the consolidated statement of operations for the period ending June 27,
2010.
b) Subsequent to March 31, 2010, the Company initiated a formal process
to separate its business segment Photowatt Technologies and engaged
advisors to assist the Company in identifying and evaluating strategic
alternatives. The Company has determined it does not meet all of the
criteria to classify Photowatt Technologies as assets held for sale and
its results as discontinued operations as at March 31, 2010 and these
assets continue to be classified as held and used as at March 31, 2010.
As the form of separation is uncertain, adjustments to carrying value may
result and a write-down, if any, will be recorded in the period
determined.
%SEDAR: 00002017E
For further information: Maria Perrella, Chief Financial Officer, Carl Galloway, Vice-President, Treasurer, (519) 653-6500
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