- » View All
ATS Reports Second Quarter Fiscal 2012 Results
ATS Automation Posted 11/10/2011
ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported its financial results for the three and six months ended October 2, 2011 for its continuing operations (Automation Systems Group or "ASG") and discontinued operations ("Photowatt").
"ASG delivered strong performance from the base business as well as Sortimat and ATW," said Anthony Caputo, Chief Executive Officer. "We have record ASG Order Backlog and turned the corner on separation. We will now focus on growth."
Second Quarter Summary of Continuing Operations
- Consolidated revenues from continuing operations were $145.9 million, 28% higher than the corresponding period a year ago, and 15% higher than the first quarter of fiscal 2012;
- Earnings from continuing operations for the second quarter of fiscal 2012 were $13.3 million (9% operating margin) compared to $6.6 million (6% operating margin) in the corresponding period a year ago and $10.5 million (8% operating margin) in the first quarter of this fiscal year, reflecting higher revenues and gross margins;
- Order Bookings increased 5% to $165.0 million from $157.0 million in the first quarter of fiscal 2012 and increased 57% year over year from $105.0 million in the second quarter of fiscal 2011, reflecting higher activity levels in transportation and life sciences;
- Period end Order Backlog was a record $363.0 million, an increase of 11% from $328.0 million in the first quarter of this fiscal year and up from $208.0 million a year ago; and
- The Company's balance sheet was strong with cash net of debt of $60.0 million and unutilized credit facilities of $58.2 million were available under existing operating and long-term credit facilities and another $26.6 million of credit was available under letter of credit facilities.
- By industrial market, revenues from life sciences decreased 6% year over year despite higher Order Backlog entering the second quarter compared to a year ago, reflecting longer performance periods on certain programs. The 30% decrease in computer-electronics revenues reflected lower activity compared to a year ago.
Revenues generated in the energy market decreased 38% on lower Order Backlog entering the second quarter compared to a year ago, reflecting lower activity primarily in the solar energy market. The 418% increase in transportation revenues compared to a year ago primarily reflected higher Order Backlog entering the second quarter compared to a year ago and the inclusion of ATW. "Other" revenues decreased 27% year over year primarily due to decreased revenues in the consumer products market. Order Bookings were $47 million during the first 5 weeks of the third quarter of fiscal 2012.
Second Quarter Summary of Discontinued Operations
The Company's solar operations were classified as "Assets / Liabilities associated with discontinued operations" on the balance sheet and as "discontinued operations" on the income statement.
Discontinued Operations Summary
- Photowatt's fiscal 2012 second quarter revenues of $33.9 million were 46% lower than in the first quarter of fiscal 2012, primarily reflecting the decrease in average selling prices, and declined 25% from $45.1 million a year ago;
- Photowatt fiscal 2012 second quarter loss from operations was $71.3 million compared to a loss from operations of $2.6 million a year ago and included:
- $18.1 million of non-cash charges related to the write-down of inventory to its net realizable value, following declines in market average selling prices due to declining demand and excess module supply in the European solar industry;
- $24.1 million of charges related to the termination of certain silicon and wafer supply contracts, including non-cash asset impairment charges of $19.9 million;
- A further $8.8 million in non-cash charges related to silicon deposits that the Company does not expect to utilize;
- $3.1 million of write-downs to receivables that are not expected to be recovered; and
- Non-cash fixed asset and goodwill impairment charges of $4.3 million and $5.5 million respectively to write down assets to their expected recoverable amounts.
- Excluding the charges taken in the second fiscal quarter of 2012, the quarter-over-quarter decrease in operating results reflected lower average selling prices which were partially offset by lower direct manufacturing costs-per-watt. Second quarter fiscal 2012 operating results were also negatively impacted by higher spending on costs related to the separation of Photowatt.
- Included in fiscal 2012 income tax expenses was the write-off of deferred tax assets of $4.4 million as the Company no longer expects to realize the benefit of those deferred tax assets.
During the year ended March 31, 2011, the Company's Board of Directors approved a plan designed to implement the separation of Photowatt from ATS via a dual-track process involving either a spinoff of the Company's combined solar businesses or a sale of Photowatt France ("PWF") and/or Photowatt Ontario ("PWO"). Subsequent to the end of the second quarter, discussions with parties in regards to a sale of PWF concluded without producing an acceptable transaction. As announced on November 4, 2011, the deterioration of economic conditions and the solar market in Europe (and in particular increased Asian competition and lower demand for solar products in France), have severely impacted PWF. The Company re-examined the spinoff alternative and concluded it was not viable. Other options in relation to PWF have been exhausted and given the aforementioned conditions, PWF's filing for bankruptcy became necessary. On November 4, 2011, PWF filed an application with French bankruptcy courts for the opening of bankruptcy proceedings.
On November 8, 2011, a hearing was held at which time the bankruptcy court placed PWF into a "recovery" proceeding ("redressement judiciaire") under the supervision of a court appointed trustee. The objective of such a recovery process is to explore opportunities for PWF's operations in an effort to preserve jobs and maximize value. During the recovery process, ATS expects to provide funding for a period of three months. ATS notes that the French bankruptcy process is different from the North American process and requires a more collaborative approach. There may be a number of matters that will require due consideration throughout the course of the process, and which could give rise to additional expenditures. The Company is engaged with experienced external advisors who have significant subject matter expertise to assist with this process.
ATS remains committed to the separation of its entire solar business from its core automation business. To complete this goal, ATS is advancing opportunities related to the other solar assets. These opportunities are expected to positively impact cash during the next six months. Specifically, ATS has initiated a formal sale process for PWO; ATS has received a non-binding letter of intent for the purchase of an ATS-owned building in France that formerly housed PWF module assembly.
Management expects that, if completed, the proceeds from these opportunities will offset the go-forward losses and cash outflows that will result from the bankruptcy process.
As of the first quarter of fiscal 2012, the results of ATS were prepared under International Financial Reporting Standards ("IFRS"), with a transition date of April 1, 2010. As a result, prior period comparative information reflects conversion from previous Canadian Generally Accepted Accounting Principles ("GAAP") to IFRS.
Quarterly Conference Call
ATS's quarterly conference call begins at 10 am eastern on Wednesday November 9 and can be accessed live at www.atsautomation.com or on the phone by dialing 416 644 3415 five minutes prior.
Second Quarter Interim Consolidated Financial Statements
The Company's interim consolidated financial statements for the second quarter of fiscal 2012 with accompanying notes to the interim consolidated financial statements can be found on the Company's website.
ATS Automation provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies. Founded in 1978, ATS uses its industry-leading knowledge and global capabilities to serve the sophisticated automation systems' needs of multinational customers in industries such as life sciences, computer/electronics, energy, transportation 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, ATS participates in the solar energy industry. ATS employs approximately 3,100 people at 21 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.
Management's Discussion and Analysis
This Management's Discussion and Analysis ("MD&A") for the three and six months ended October 2, 2011 (second quarter of fiscal 2012) is as of November 8, 2011 and provides information on the operating activities, performance and financial position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be read in conjunction with the unaudited interim consolidated financial statements of the Company for the second quarter of fiscal 2012. The interim consolidated financial statements for the three and six months ended October 2, 2011 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. The Company assumes that the reader of this MD&A has access to, and has read the audited consolidated financial statements prepared in accordance with Canadian GAAP and MD&A of the Company for the year ended March 31, 2011 (fiscal 2011) and, accordingly, the purpose of this document is to provide a second quarter update to the information contained in the fiscal 2011 MD&A. These documents and other information relating to the Company, including the Company's fiscal 2011 audited consolidated financial statements, MD&A and annual information form may be found on SEDAR at www.sedar.com.
Notice to Reader: Non-IFRS 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 IFRS 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-IFRS financial measures such as operating earnings and EBITDA in making investment decisions and measuring operational results. A reconciliation of operating earnings and EBITDA to net income from continuing operations for the three and six month periods ending October 2, 2011 and September 26, 2010 is contained in this MD&A (See "Reconciliation of EBITDA to IFRS Measures"). EBITDA should not be construed as a substitute for net income determined in accordance with IFRS.
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 revenues for the three and six month periods ending October 2, 2011 and September 26, 2010 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.
The Company has two segments: Automation Systems Group ("ASG"), the Company's continuing operations, and Photowatt Technologies ("Photowatt"), which is classified as discontinued operations and includes Photowatt France ("PWF") and Photowatt Ontario ("PWO"). Through ASG, ATS provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies. Founded in 1978, ATS uses its industry leading knowledge and global capabilities to serve the sophisticated automation systems' needs of multinational customers in industries such as life sciences, computer/electronics, energy, transportation 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, ATS participates in the solar energy industry. ATS employs approximately 3,100 people at 21 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China.
Value Creation Strategy
To drive value creation, the Company implemented a three-phase strategic plan: (1) fix the business (improve the existing operations, gain operating control of the business and earn credibility); (2) separate the businesses (create a standalone ASG business, monetize non-core assets and strengthen the balance sheet); and (3) grow (both organically and through acquisition).
During the year ended March 31, 2011, the Company's Board of Directors approved a plan designed to implement the separation of Photowatt from ATS via a dual-track process involving either a spinoff of the Company's combined solar businesses or a sale of PWF and/or PWO. Subsequent to the end of the second quarter, discussions with parties in regards to a sale of PWF concluded without producing an acceptable transaction. As announced on November 4, 2011, the deterioration of economic conditions and the solar market in Europe (and in particular increased Asian competition and lower demand for solar products in France), have severely impacted PWF. The Company re-examined the spinoff alternative and concluded it was not viable. Other options in relation to PWF have been exhausted and given the aforementioned conditions, PWF's filing for bankruptcy became necessary. On November 8, 2011, the French bankruptcy court placed PWF into a "recovery" proceeding ("redressement judiciaire") under the supervision of a court appointed trustee.
The Company has concurrently initiated a formal sale process for the PWO business.
To further the Company's growth strategy, ASG will continue to target providing value-based, complete automation program solutions for customers based on differentiating technological solutions, value of customer outcomes achieved and global capability. With respect to acquisitions, the Company has an organizational structure, business processes and the experience to successfully integrate companies into the group. Acquisition 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.
In fiscal 2011 management completed two acquisitions:
On June 1, 2010, ATS completed its acquisition of 100% of Sortimat Group ("Sortimat"). Sortimat is a manufacturer of assembly systems for the life sciences market. Established in 1959, Sortimat has locations in Germany, Chicago and a small, subsidiary in India. Sortimat's integration into the Company's ASG segment is substantially complete.
The Sortimat acquisition aligned with ATS' strategy of expanding its position in the global automation market and enhancing growth opportunities, particularly in strategic segments such as life sciences. The Company benefits from Sortimat's products and significant experience in advanced system development, manufacturing, handling, and feeder technologies. This acquisition provided ATS with the scale required to further organize its marketing and divisions into a group focused on life sciences, with the objective to grow the Company's exposure to this market segment and help customers differentiate themselves from their competitors. To integrate Sortimat and effect margin improvements, the Company deployed people to apply best practices, command and control, program management and to advance approach to market. The benefits of these integration initiatives are now being realized. Improvements in program management have led to the elimination of a significant number of RED programs (programs which are not delivered to specification, on time, or on budget). For additional information on the acquisition of Sortimat, refer to note 5 of the interim consolidated financial statements.
On January 5, 2011, the Company completed its acquisition of the majority of Assembly & Test Worldwide, Inc.'s U.S.-based and German automation and test systems businesses (collectively "ATW"). ATW is a manufacturer of assembly and test systems, with capability in the transportation, life sciences and energy segments.
The Company benefits from ATW's significant experience, particularly in the transportation segment. The acquisition of ATW provided ATS with the scale required to further organize its marketing and divisions into a group within the Company's ASG segment that is focused on transportation. Management expects the integration process to continue for a number of quarters. To date, management has substantially completed the consolidation of ATW's Saginaw division into its Livonia and Dayton divisions. Additional incremental margin improvements are targeted through the application of best practices, command and control, program management and approach to market. For additional information on the acquisition of ATW, refer to note 5 of the interim consolidated financial statements.
Editor's note: This release has been truncated.