News Column

ATS reports first quarter 2015 results

August 13, 2014

CAMBRIDGE, ON, Aug. 13, 2014 /CNW/ - ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported financial results for the three months ended June 29, 2014.

First Quarter Summary

• Revenues from continuing operations were $190.9 million, 27% higher than the first quarter of fiscal 2014. Excluding IWK revenues of $34.6 million, revenues from continuing operations were $156.3 million, a 4% increase over the corresponding period a year ago; • EBITDA1 was $20.9 million, compared to $23.5 million in the fourth quarter of fiscal 2014 and $15.8 million in the first quarter of fiscal 2014. Normalized for $3.0 million of acquisition-program related costs, first quarter fiscal 2015 EBITDA was $23.9 million.  Normalized for $2.2 million of restructuring charges, first quarter fiscal 2014 EBITDA was $18.0 million; • Earnings from continuing operations were $14.4 million (8% operating margin), compared to $17.2 million (9% operating margin) in the fourth quarter of fiscal 2014 and $12.7 million (8% operating margin) in the first quarter a year ago.  Adjusted earnings from continuing operations1 were $21.1 million (11% operating margin), compared to $15.9 (11% operating margin) in the first quarter a year ago; • Earnings per share from continuing operations were 10 cents basic and diluted compared to 10 cents basic and diluted in the first quarter a year ago.  Adjusted basic earnings per share1 from continuing operations were 15 cents compared to 13 cents in the first quarter a year ago; • Order Bookings were $160 million, a 3% decrease over the corresponding period a year ago. Excluding IWK Order Bookings of $33 million, Order Bookings were $127 million compared to $165 million in the first quarter a year ago; • Period end Order Backlog was $425 million, up 2% from $415 million in the first quarter a year ago. Higher Order Backlog reflected the addition of IWK's Order Backlog and bookings; • The Company's balance sheet and financial capacity to support growth remained strong, with cash net of debt in continuing operations of $75.2 million at June 29, 2014, unutilized credit facilities of $180.9 million and $14.3 million of credit available under letter of credit facilities; • The Company announced it had entered into a definitive agreement to acquire all shares of M+W Process Automation GmbH and ProFocus LLC (collectively "M+W PA") subsequent to the end of the first quarter of fiscal 2015.

________________________________

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


Financial Results

In millions of Canadian dollars,

except per share data



  3 months ended

June 29, 2014
    3 months ended

June  30, 2013
Revenues Continuing Operations$            190.9   $             150.0
Discontinued Operations$--   $                 1.1
Earnings from operationsContinuing Operations$             14.4   $               12.7
Adjusted earnings from operations1Continuing Operations$             21.1   $               15.9
EBITDA1Continuing Operations$          20.9   $               15.8
Net income Continuing Operations$              9.0   $                 8.6
Discontinued Operations$      6.9   $               11.0
Earnings per shareFrom continuing operations

(basic)
$             0.10   $               0.10
From discontinued operations

(basic)
$   0.08   $               0.12
From continuing operations

(diluted)
$0.10   $               0.10
From discontinued operations

(diluted)
$0.07   $              0.12
Adjusted earnings per share1From continuing operations

(basic)
$            0.15   $              0.13

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

"Our first quarter operating performance was solid and market activity is strong," said Anthony Caputo, Chief Executive Officer. "Strategically, we took a significant step in our value creation plan through the acquisition of M+W PA, which expands ATS' markets, customer penetration, capability and geography, and provides a significant platform to drive organic growth. We remain focused on continuing to grow, expand and scale our business, both organically and through acquisition".

First Quarter Summary Continuing Operations

Fiscal 2015 first quarter revenues were 27% higher than in the corresponding period a year ago primarily reflecting $34.6 million of revenues earned by IWK. Excluding IWK, first quarter revenues were $156.3 million, a 4% increase over the corresponding period a year ago. Foreign exchange rate changes positively impacted the translation of revenues earned by foreign-based subsidiaries compared to the corresponding period a year ago, primarily reflecting the weakening of the Canadian dollar relative to the Euro and U.S. dollar. By industrial market, fiscal first quarter revenues from consumer products & electronics increased by 189%, primarily on revenues from IWK and organic growth in the consumer products market. Revenues generated in the energy market increased 87% compared to the corresponding period a year ago, primarily on higher Order Backlog entering the first quarter due largely to increased activity in the nuclear energy market. Revenues generated in the life sciences market increased 19% compared to the corresponding period a year ago, primarily on revenues from IWK. Transportation revenues decreased 4% compared to a year ago primarily due to lower Order Backlog in the first quarter compared to a year ago.

First quarter fiscal 2015 earnings from operations were $14.4 million (8% operating margin) compared to $12.7 million (8% operating margin) in the first quarter of fiscal 2014.  First quarter fiscal 2015 earnings from operations included $3.0 million of incremental costs related to the Company's acquisition strategy and amortization expenses of $3.7 million related to amortization of identifiable intangible assets recorded on the acquisitions of IWK, Assembly & Test Worldwide and Sortimat.  Adjusted for those costs, first quarter fiscal 2015 adjusted earnings from operations were $21.1 million (11% operating margin).  Adjusted for $2.2 million of restructuring charges and amortization expense of $1.0 million related to amortization of identifiable intangible assets recorded on the acquisitions of Assembly & Test Worldwide and Sortimat, first quarter fiscal 2014 adjusted earnings from operations were $15.9 million (11% operating margin).  Higher adjusted earnings from operations primarily reflected higher revenues, better program execution, and the inclusion of IWK, partially offset by higher stock-based compensation costs.

Depreciation and amortization expense was $6.5 million in the first quarter of fiscal 2015, compared to $3.1 million a year ago, primarily due to a $2.6 million increase in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third quarter of fiscal 2014.

EBITDA was $20.9 million (11% EBITDA margin) in the first quarter of fiscal 2015 compared to $15.8 million (11% EBITDA margin) in the first quarter of fiscal 2014.  Normalized for the acquisition-program related costs, first quarter fiscal 2015 EBITDA was $23.9 million (13% EBITDA margin). First quarter fiscal 2014 EBITDA was $18.0 million (12% EBITDA margin) normalized for restructuring charges.

Order Bookings

First quarter fiscal 2015 Order Bookings were $160 million, a 3% decrease from the first quarter of fiscal 2014.  Excluding the impact of IWK, Order Bookings were $127 million, a 23% decrease from the previous year.  Lower Order Bookings primarily reflected the timing of customer decisions on various larger opportunities. By market, lower Order Bookings in Energy were partially offset by increased Order Bookings in Transportation as well as increased Order Bookings in Consumer Products and Electronics due to the acquisition of IWK.  The funnel of opportunities continues to be strong, with all markets maintaining levels similar to levels of a year ago.

Business Acquisition - M+W PA

On July 8, 2014, the Company announced it had entered into a definitive agreement to acquire all shares of M+W Process Automation GmbH and ProFocus LLC (collectively "M+W PA").  M+W PA is a leading global provider of engineering-based automation services and solutions focused on the control, performance monitoring and measurement of critical production processes.  The acquisition is aligned with ATS' stated strategy of scaling its position in the global automation market by adding to its services and life-cycle management capabilities across several core elements of the customer value chain.  The addition of M+W PA is expected to enhance growth opportunities in both new markets and with existing customers.

In calendar 2013, M+W PA had revenues of approximately 166 million Euro and EBITDA of approximately 20 million Euro.  Over the past three years, M+W PA's revenues have grown organically at an average annual rate of approximately 19%.  Sales by industry segment in 2013 were 41% automotive, 26% chemicals, 13% pharmaceuticals and biotechnology, 3% oil & gas and 17% other industries including food and beverage, water, wastewater, consumer care, paper, metal and semiconductor.  Revenues earned in Europe accounted for approximately 70% of global sales, North America 27% and Asia 3%.  In calendar 2013, M+W PA's Order Bookings were 188 million Euro, and at the end of May 2014 it had approximately 120 million Euro of Order Backlog.

Cash consideration to be paid for M+W PA pending net debt and working capital adjustments is approximately 248 million Euro ($362 million based on exchange rates at the time of the announcement).  The cash consideration of the purchase price, along with transaction costs, will be funded from a new fully committed $600 million credit facility to be available at closing.  The acquisition will be accounted for as a business combination with the Company as the acquirer of M+W PA.  The purchase method of accounting will be used and the earnings of M+W PA will be consolidated beginning from the acquisition date. ATS expects to complete the acquisition by the end of September 2014, subject to customary closing conditions, including applicable antitrust approvals. For additional information on the acquisition of M+W PA, refer to note 20 of the interim condensed consolidated financial statements.

First Quarter Summary of Discontinued Operations: Solar

Ontario Solar recorded $6.9 million of income in the first quarter of fiscal 2015 compared to income of $11.0 million in the first quarter a year ago. During the first quarter of fiscal 2015, OSPV completed the sale of its remaining three ground-mount solar projects.  OSPV will retain 25% ownership of the projects until they reach commercial operation, which is expected to occur in early calendar 2015.  Net proceeds to ATS are expected to be approximately $14.6 million, of which the Company received net proceeds of $12.0 million in the first quarter of fiscal 2015.  The remaining proceeds are expected to be received when the projects achieve commercial operation.

During fiscal 2014, OSPV sold four ground-mount solar projects, representing approximately 34 megawatts (MWs).  OSPV will retain 25% ownership of the projects until they reach commercial operation, which is expected to occur in calendar 2014.  Net proceeds to the Company are expected to be $21.4 million, of which the Company previously received net proceeds of $13.9 million.  The remaining proceeds are expected to be received when the projects achieve commercial operation.

Quarterly Conference Call

ATS' quarterly conference call begins at 10 am eastern on Wednesday, August 13 and can be accessed live at www.atsautomation.com or on the phone by dialing 647 427 7450 five minutes prior. A replay of the conference will be available on the ATS website following the call. Alternatively, a telephone recording of the call will be available for one week (until midnight August 20, 2014) by dialing 416-849-0833 and entering passcode 72802550 followed by the number sign.

Annual Shareholders' Meeting

The Company will host its annual meeting of shareholders on Thursday August 14, 2014 at 10 a.m. eastern at the Holiday Inn, 30 Fairway Road South, Kitchener, Ontario.

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 life sciences, transportation, energy, consumer products and electronics. ATS also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. ATS employs approximately 2,500 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's Solar segment is classified as discontinued operations. The Company's shares are traded on the Toronto Stock Exchange under the symbol ATA. Visit the Company's website at www.atsautomation.com.



Management's Discussion and Analysis

For the Quarter Ended June 29, 2014

This Management's Discussion and Analysis ("MD&A") for the three months ended June 29, 2014 (first quarter of fiscal 2015) is as of August 12, 2014 and provides information on the operating activities, performance and financial position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be read in conjunction with the unaudited interim condensed consolidated financial statements of the Company for the first quarter of fiscal 2015 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. The Company assumes that the reader of this MD&A has access to, and has read the audited consolidated financial statements prepared in accordance with IFRS and MD&A of the Company for the year ended March 31, 2014 (fiscal 2014) and, accordingly, the purpose of this document is to provide a first quarter update to the information contained in the fiscal 2014 MD&A. Additional information is contained in the Company's filings with Canadian securities regulators, including its Annual Information Form, found on SEDAR at www.sedar.com and on the Company's website at www.atsautomation.com.

Notice to Reader: Non-IFRS Measures and Additional IFRS Measures

Throughout this document management uses certain non-IFRS measures to evaluate the performance of the Company. These terms do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies.  The terms "operating margin," "EBITDA", "EBITDA margin", "adjusted earnings from operations",  "adjusted basic earnings per share from continuing operations", "Order Bookings" and "Order Backlog" do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies. Such measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. In addition, management uses "earnings from operations" which is an additional IFRS measure to evaluate the performance of the Company. Earnings from operations is presented on the Company's consolidated statements of income as net income from continuing operations excluding income tax expense and net finance costs. Operating margin is an expression of the Company's earnings from operations as a percentage of revenues. EBITDA is defined as earnings from operations excluding depreciation and amortization (which includes amortization of intangible assets).  EBITDA margin is an expression of the Company's EBITDA as a percentage of revenues. Adjusted earnings from operations is defined as earnings from operations before items excluded from management's internal analysis of operating results, such as amortization expense of acquisition-related intangible assets, acquisition-related transaction costs, restructuring charges, and certain other adjustments which would be non-recurring in nature ("adjustment items").  Adjusted basic earnings per share from continuing operations is defined as adjusted net income from continuing operations on a basic per share basis, where adjusted net income from continuing operations is defined as adjusted earnings from operations less net finance costs and income tax expense, plus tax effects of adjustment items.  Order Bookings represent new orders for the supply of automation systems, services and products that management believes are firm. Order Backlog is the estimated unearned portion of revenues on customer contracts that are in process and have not been completed at the specified date.  Earnings from operations and EBITDA are used by the Company to evaluate the performance of its operations. Management believes earnings from operations is an important indicator in measuring the performance of the Company's operations on a pre-tax basis and without consideration as to how the Company finances its operations. Management believes that EBITDA is an important indicator of the Company's ability to generate operating cash flows to fund continued investment in its operations. Management believes that adjusted earnings from operations and adjusted basic earnings per share from continuing operations are important measures to increase comparability of performance between periods.  The adjustment items used by management to arrive at these metrics are not considered to be indicative of the business's ongoing operating performance. Order Bookings provides an indication of the Company's ability to secure new orders for work during a specified period, while Order Backlog provides a measure of the value of Order Bookings that have not been completed at a specified point in time.  Both Order Bookings and Order Backlog are indicators of future revenues the Company expects to generate based on contracts that management believes to be firm. Management believes that ATS shareholders and potential investors in ATS use these IFRS measures and non-IFRS financial measures in making investment decisions and measuring operational results. EBITDA should not be construed as a substitute for net income determined in accordance with IFRS.  Adjusted earnings from operations is not necessarily indicative of earnings from operations or cash flows from operations as determined under IFRS and may not be comparable to similar measures presented by other companies.  A reconciliation of (i) earnings from operations and EBITDA to net income from continuing operations for the three month periods ending June 29, 2014 and June 30, 2013; and (ii) adjusted earnings from operations and adjusted basic earnings per share from continuing operations to net income from operations for the three month periods ending June 29, 2014 and June 30, 2013 is contained in this MD&A (see "Reconciliation of Non-IFRS to IFRS Measures"). A reconciliation of Order Bookings and Order Backlog to total Company revenues for the three month periods ending June 29, 2014 and June 30, 2013 is contained in the MD&A (see "Order Backlog Continuity").

COMPANY PROFILE

ATS Automation Tooling Systems Inc. provides innovative, custom designed, built and installed manufacturing solutions to many of the world's most successful companies.  Founded in 1978, ATS uses its industry-leading knowledge and global capabilities to serve the sophisticated automation systems' needs of multinational customers in industries such as life sciences, transportation, energy, consumer products and electronics. ATS also leverages its many years of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. ATS employs approximately 2,500 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China. The Company's Solar segment is classified as discontinued operations.

Value Creation Strategy

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

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

Grow

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

Expand

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

Scale

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

Business Acquisition - M+W PA

On July 8, 2014, the Company announced it had entered into a definitive agreement to acquire all shares of M+W Process Automation GmbH and ProFocus LLC (collectively "M+W PA").  M+W PA is a leading global provider of engineering-based automation services and solutions focused on the control, performance monitoring and measurement of critical production processes.  The acquisition is aligned with ATS' stated strategy of scaling its position in the global automation market by adding to its services and life-cycle management capabilities across several core elements of the customer value chain.  The addition of M+W PA is expected to enhance growth opportunities in both new markets and with existing customers.

In calendar 2013, M+W PA had revenues of approximately 166 million Euro and EBITDA of approximately 20 million Euro.  Over the past three years, M+W PA's revenues have grown organically at an average annual rate of approximately 19%.  Sales by industry segment in 2013 were 41% automotive, 26% chemicals, 13% pharmaceuticals and biotechnology, 3% oil & gas and 17% other industries including food and beverage, water, wastewater, consumer care, paper, metal and semiconductor.  Revenues earned in Europe accounted for approximately 70% of global sales, North America 27% and Asia 3%.  In calendar 2013, M+W PA's Order Bookings were 188 million Euro, and at the end of May 2014 it had approximately 120 million Euro of Order Backlog.

Cash consideration to be paid for M+W PA pending net debt and working capital adjustments is approximately 248 million Euro ($362 million based on exchange rates at the time of the announcement).  The cash consideration of the purchase price, along with transaction costs, will be funded from a new fully committed $600 million credit facility to be available at closing.  The acquisition will be accounted for as a business combination with the Company as the acquirer of M+W PA.  The purchase method of accounting will be used and the earnings of M+W PA will be consolidated beginning from the acquisition date. ATS expects to complete the acquisition by the end of September 2014, subject to customary closing conditions, including applicable antitrust approvals. For additional information on the acquisition of M+W PA, refer to note 20 of the interim condensed consolidated financial statements.

OVERVIEW - OPERATING RESULTS FROM CONTINUING OPERATIONS

Results from continuing operations comprise the results of ATS' continuing operations and corporate costs not directly attributable to Solar.  The results of the Solar segment are reported in discontinued operations.

Consolidated Revenues from Continuing Operations

(In millions of dollars)

Revenues by market

          
          Three

Months

Ended

June 29, 2014
      Three

Months

   Ended

June 30, 2013
Consumer products & electronics                                   $             38.5    $           13.3
Energy                                             11.8             6.3
Life sciences                       78.8                 66.1
Transportation                                           61.8               64.3
Total revenues from continuing operations                 $          190.9       $         150.0



Fiscal 2015 first quarter revenues were 27% higher than in the corresponding period a year ago primarily reflecting $34.6 million of revenues earned by IWK. Excluding IWK, first quarter revenues were $156.3 million, a 4% increase over the corresponding period a year ago. Foreign exchange rate changes positively impacted the translation of revenues earned by foreign-based subsidiaries compared to the corresponding period a year ago, primarily reflecting the weakening of the Canadian dollar relative to the Euro and U.S. dollar.

By industrial market, fiscal first quarter revenues from consumer products & electronics increased by 189%, primarily on revenues from IWK and organic growth in the consumer products market. Revenues generated in the energy market increased 87% compared to the corresponding period a year ago, primarily on higher Order Backlog entering the first quarter due largely to increased activity in the nuclear energy market. Revenues generated in the life sciences market increased 19% compared to the corresponding period a year ago, primarily on revenues from IWK. Transportation revenues decreased 4% compared to a year ago primarily due to lower Order Backlog in the first quarter compared to a year ago.

Consolidated Operating Results

(In millions of dollars)

    Three

Months

Ended

  June 29, 2014
      Three

Months

   Ended

June 30, 2013
Earnings from operations       $            14.4   $              12.7
Amortization of acquisition-related intangible assets               3.7                    1.0 
Acquisition-related transaction costs 3.0 --
Restructuring charges -- 2.2
Adjusted earnings from operations1        $            21.1 $              15.9

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

       
                                  Three

Months

Ended

  June 29, 2014
      Three

Months

   Ended

June 30, 2013
Earnings from operations                    $            14.4   $              12.7
Depreciation and amortization                                                     6.5                    3.1
EBITDA1                      $            20.9   $              15.8

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

Fiscal 2015 first quarter earnings from operations were $14.4 million (8% operating margin) compared to $12.7 million (8% operating margin) in the first quarter of fiscal 2014.

First quarter fiscal 2015 earnings from operations included $3.0 million of incremental costs related to the Company's acquisition strategy and amortization expenses of $3.7 million related to amortization of identifiable intangible assets recorded on the acquisitions of IWK, Assembly & Test Worldwide and Sortimat.  Adjusted for those costs, first quarter fiscal 2015 adjusted earnings from operations were $21.1 million (11% operating margin).  Adjusted for $2.2 million of restructuring charges and amortization expense of $1.0 million related to amortization of identifiable intangible assets recorded on the acquisitions of Assembly & Test Worldwide and Sortimat, first quarter fiscal 2014 adjusted earnings from operations were $15.9 million (11% operating margin).

Higher adjusted earnings from operations primarily reflected higher revenues, better program execution, and the inclusion of IWK, partially offset by higher stock-based compensation costs.

Depreciation and amortization expense was $6.5 million in the first quarter of fiscal 2015, compared to $3.1 million a year ago, primarily due to a $2.6 million increase in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third quarter of fiscal 2014.

EBITDA was $20.9 million (11% EBITDA margin) in the first quarter of fiscal 2015 compared to $15.8 million (11% EBITDA margin) in the first quarter of fiscal 2014.  Normalized for the acquisition-program related costs, first quarter fiscal 2015 EBITDA was $23.9 million (13% EBITDA margin). First quarter fiscal 2014 EBITDA was $18.0 million (12% EBITDA margin) normalized for restructuring charges.

Order Bookings

First quarter fiscal 2015 Order Bookings were $160 million, a 3% decrease from the first quarter of fiscal 2014.  Excluding the impact of IWK, Order Bookings were $127 million, a 23% decrease from the previous year.  Lower Order Bookings primarily reflected the timing of customer decisions on various larger opportunities. By market, lower Order Bookings in energy were partially offset by increased Order Bookings in transportation as well as increased Order Bookings in consumer products and electronics due to the acquisition of IWK.  The funnel of opportunities continues to be strong, with all markets maintaining levels similar to levels of a year ago.

Order Backlog Continuity

(In millions of dollars)

                               Three

Months

Ended

June 29, 2014
      Three

Months

   Ended

     June 30, 2013
Opening Order Backlog                    $            474   $               398
Revenues                                                    (191)                 (150)
Order Bookings                                                                   160                  165
Order Backlog adjustments1                                                                         (18)                   2
Total                      $            425   $               415

1 Order Backlog adjustments include foreign exchange adjustments and cancellations.


Order Backlog by Industry

(In millions of dollars)

As at                  June 29, 2014

     June 30, 2013
Consumer products & electronics                                                         $            75    $               18
Energy                                                                 48                    57
Life sciences                              160                   175
Transportation                                                                  142                  165
Total                                425    $              415



At June 29, 2014, Order Backlog was $425 million, 2% higher than at June 30, 2013.  Higher Order Backlog primarily reflected the addition of IWK and higher Order Bookings in the consumer products & electronics market, offset by lower Order Bookings in the energy market.

Outlook

The global economic environment appears to be slowly improving; however, uncertainty remains. In North America, the U.S. and Canadian economies have shown signs of improvement, but growth remains slow. Economic growth continues to decelerate in China and other parts of Asia. In Europe, the economy has shown signs of stabilizing, but markets remain weak, which has the potential to negatively impact demand, particularly for the Company's European operations, and may add to volatility in Order Bookings. Overall, a prolonged or more significant downturn in an economy where the Company operates could negatively impact Order Bookings.  Impacts on demand for the Company's products and services may lag behind global macroeconomic trends due to the strategic nature of the Company's programs to its customers and the long lead times on projects.

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

The Company's sales organization will continue to work to engage with customers on enterprise-type solutions.  The Company expects that this will provide ATS with more strategic relationships, increased predictability, better program control and less sensitivity to macroeconomic forces.  This approach to market may cause variability in Order Bookings from quarter to quarter and, as is already the case, lengthen the performance period and revenue recognition for certain customer programs.  The Company expects its Order Backlog of $425 million at the end of the first quarter of fiscal 2015 to mitigate the impact of volatile Order Bookings on revenues in the short term. Management expects that approximately 35% to 40% of its Order Backlog would typically be completed each quarter.

The addition of M+W PA is expected to enhance growth opportunities in both new markets and with existing customers.  M+W PA's significant capability and market position are expected to benefit ATS and its strategy to grow the business.  The Company expects meaningful revenue synergies through an expanded ATS offering, which will include M+W PA's process controls, software integration, manufacturing execution systems ("MES"), remote monitoring, lifecycle management, modelling and simulation capabilities.  M+W PA provides an imbedded engineering, service and sales force, with early insight into customer preferences, developments, problems and programs, allowing M+W PA to act as first responders for post-automation services and equipment maintenance.  M+W PA expects to expand its main automation contractor ("MAC") offering by utilizing ATS on a subcontractor basis to address capability gaps across a number of industries, thereby increasing opportunity.  Further, both ATS and M+W PA are expected to have opportunities to engage customers on a more comprehensive basis.

Regarding M+W PA, opportunities to improve profitability will be pursued through adoption of ATS best practices in approach to market, key account management, front-end-of-the-business processes, performance management and corporate strategy.  Cost synergies are expected to be nominal.

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

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

CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS

(In millions of dollars, except per share data)   Three

Months

Ended

        June 29, 2014
Three

Months

Ended

June 30, 2013
Revenues             $          190.9    $       150.0
Cost of revenues                         137.1            110.6
Selling, general and administrative                           36.9              25.4
Stock-based compensation                             2.5                1.3
Earnings from operations             $            14.4    $       12.7
Net finance costs             $              0.9    $           0.6
Provision for income taxes                             4.5                3.5
Net income from continuing operations             $              9.0    $           8.6
Income from discontinued operations             $              6.9    $        11.0
Net income             $            15.9    $       19.6
Earnings per share      
Basic from continuing operations            $             0.10    $        0.10
Basic from discontinued operations            $             0.08    $         0.12
             $             0.18    $         0.22
Diluted from continuing operations            $             0.10    $        0.10
Diluted from discontinued operations            $             0.07    $         0.12
             $             0.17    $         0.22



Revenues. At $190.9 million, consolidated revenues from continuing operations for the first quarter of fiscal 2015 were $40.9 million or 27% higher than in the corresponding period a year ago, primarily on incremental IWK revenue. See "Overview - Operating Results from Continuing Operations."

Cost of revenues.  At $137.1 million, first quarter fiscal 2015 cost of revenues increased over the corresponding period a year ago by $26.5 million or 24% primarily on higher revenues. At 28%, gross margin in the first quarter of fiscal 2015 increased 2% from the corresponding period a year ago. Higher gross margins reflected improved program execution, improvements in the cost structure of the Company's base business, and the inclusion of IWK.

Selling, general and administrative ("SG&A") expenses.  SG&A expenses for the first quarter of fiscal 2015 were $36.9 million. This included $3.0 million of incremental costs related to the Company's acquisition strategy.  Normalized for these costs, SG&A expenses were $10.7 million or 46% higher than the normalized $23.2 million incurred in the corresponding period last year, which excludes $2.2 million of restructuring charges. On a normalized basis, higher SG&A costs primarily reflected the addition of IWK SG&A expenses, including $2.6 million of incremental amortization expenses related to the identifiable intangible assets recorded on the acquisition of IWK, foreign exchange rate changes which negatively impacted the translation of SG&A expenses and higher employee-related costs.

Stock-based compensation cost.  Stock-based compensation expense of $2.5 million in the first quarter of fiscal 2015 increased from $1.3 million in the corresponding period a year ago. The increase in stock-based compensation costs is due to the revaluation of deferred stock units, share appreciation rights and restricted share units.

Earnings from operations.  For the first quarter of fiscal 2015, consolidated earnings from operations were $14.4 million (operating margin of 8%) compared to earnings from operations of $12.7 million a year ago (operating margin of 8%).  See "Overview - Operating Results from Continuing Operations".

Net finance costs.  Net finance costs were $0.9 million in the first quarter of fiscal 2015, $0.3 million higher than a year ago, reflecting increased usage of the Company's primary credit facility. The increased usage relates primarily to letters of credit.

Income tax provision. The Company's fiscal 2015 first quarter effective income tax rate of 33% differed from the combined Canadian basic federal and provincial income tax rate of 27% primarily as a result of income earned in certain jurisdictions with different statutory tax rates. The Company expects that with the recognition of deferred income tax assets in fiscal 2014 following the Company's change in assessment of its ability to utilize tax losses in its German-based operations, its effective tax rate will exceed the combined Canadian basic federal and provincial income tax rate of 27% going forward. Cash taxes are expected to be lower than the effective tax rate for accounting purposes due to tax assets available primarily in Canada and Germany.

Net income from continuing operations. Fiscal 2015 first quarter net income from continuing operations was $9.0 million (10 cents per share basic and diluted, 15 cents adjusted basic earnings per share) compared to $8.6 million (10 cents per share basic and diluted, 13 cents adjusted basic earnings per share) for the first quarter of fiscal 2014.


Reconciliation of Non-IFRS Measures to IFRS Measures

(In millions of dollars)

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

                                  Three

Months

Ended

June 29, 2014
      Three

Months

   Ended

     June 30, 2013
EBITDA                    $            20.9   $              15.8
Less: depreciation and amortization expense                                                    6.5                   3.1
Earnings from operations                      $            14.4   $              12.7
Less: net finance costs                                                     0.9                    0.6
Provision for income taxes                                                     4.5                    3.5
Net income from continuing operations                      $           9.0   $                8.6



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

  Three Months Ended June 29, 2014   Three Months Ended June 30, 2013
  IFRSAdjustmentsAdjusted

(non-IFRS)
  IFRS Adjustments Adjusted

(non-IFRS)
Earnings from operations$   14.4$     -$    14.4   $    12.7 $       - $     12.7
Amortization of acquisition-related intangible assets -3.73.7   - 1.0 1.0
Acquisition-related transaction costs -3.03.0   - - -
Restructuring charges ---   - 2.2 2.2
  $   14.4$    6.7$    21.1   $    12.7 $      3.2 $     15.9
Less: net finance costs $    0.9$     -$      0.9   $      0.6 $       - $       0.6
Income from continuing operations before income taxes$   13.5$    6.7$    20.2   $    12.1 $      3.2 $     15.3
Provision for income taxes $     4.5$   -$      4.5   $      3.5 $      - $       3.5
Adjustments to provision for income taxes1-1.61.6   - 0.6 0.6
  $    4.5$    1.6$      6.1   $      3.5 $      0.6 $       4.1
Net income from continuing operations$    9.0$    5.1$    14.1   $      8.6 $      2.6 $     11.2
Basic earnings per share from continuing operations$  0.10$  0.05$    0.15   $      0.10 $    0.03 $     0.13

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


DISCONTINUED OPERATIONS: SOLAR

(In millions of dollars)

         Three

Months

Ended

June 29, 2014
        Three

Months

    Ended

      June 30, 2013
Total revenues              $               - $           1.1
Gain on sale                              7.2                  13.8
Income from discontinued operations                              6.9 11.0
         

Revenues

During the first quarter of fiscal 2014, the manufacturing assets were sold and the business wound up. Accordingly, fiscal 2015 first quarter revenues of $nil were $1.1 million lower than in the first quarter of fiscal 2014.

Gain on Sale

Fiscal 2015 first quarter gain on sale of $7.2 million related to the sale of Ontario Solar's 75% ownership in three ground-mount solar projects by Ontario Solar's 50% owned joint operation Ontario Solar PV Fields ("OSPV").  Fiscal 2014 first quarter gain on sale of $13.8 million reflected gains of $10.8 million from the sale of Ontario Solar's 75% ownership in four ground-mount solar projects and $3.0 million from the sale of Ontario Solar's manufacturing assets and inventory.

Income from Discontinued Operations

Ontario Solar recorded $6.9 million of income in the first quarter of fiscal 2015 compared to income of $11.0 million in the first quarter a year ago.

Solar Separation and Outlook

During the first quarter of fiscal 2015, OSPV completed the sale of its remaining three ground-mount solar projects. OSPV will retain 25% ownership of the projects until they reach commercial operation, which is expected to occur in early calendar 2015.  Net proceeds to ATS are expected to be approximately $14.6 million, of which the Company received net proceeds of $12.0 million in the first quarter of fiscal 2015.  The remaining proceeds are expected to be received when the projects achieve commercial operation.

During fiscal 2014, OSPV sold four ground-mount solar projects, representing approximately 34 megawatts (MWs). OSPV will retain 25% ownership of the projects until they reach commercial operation, which is expected to occur in calendar 2014.  Net proceeds to the Company are expected to be $21.4 million, of which the Company previously received net proceeds of $13.9 million. The remaining proceeds are expected to be received when the projects achieve commercial operation.

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

LIQUIDITY, CASH FLOW AND FINANCIAL RESOURCES

(In millions of dollars, except ratios)

As at   June 29,

2014
        March 31,

2014
Cash and cash equivalents         $ 81.6       $  76.5
Debt-to-equity ratio         0.01:1       0.01:1
For the three months ended     

June 29,

2014


June 30,

2013
Cash flows provided by (used in) operating activities from continuing operations         $        (10.7) $      16.2



At June 29, 2014, the Company had cash and cash equivalents of $81.6 million in continuing operations compared to $76.5 million at March 31, 2014. The Company's total debt-to-total-equity ratio, excluding accumulated other comprehensive income, at June 29, 2014 was 0.01:1.

At June 29, 2014, the Company had $180.9 million of unutilized multipurpose credit, including letters of credit, available under existing credit facilities and another $14.3 million available under letter of credit facilities.

In the first quarter of fiscal 2015, cash flows used in operating activities from continuing operations were $10.7 million ($16.2 million provided by operating activities from continuing operations in the first quarter of fiscal 2014). The decrease in operating cash flows from continuing operations related primarily to the timing of investments in non-cash working capital in large customer programs.

In the first quarter of fiscal 2015, the Company's investment in non-cash working capital increased by $26.7 million from March 31, 2014. Accounts receivable decreased 7% or $8.2 million, due to timing of billings on certain customer contracts. Net contracts in progress increased 34% or $29.2 million compared to March 31, 2014 due to timing of closing programs. The Company actively manages its accounts receivable and net contracts in progress balances through billing terms on long-term contracts, collection efforts and supplier payment terms. Inventories decreased 9% or $2.2 million primarily due to the timing of inventory purchases. Deposits and prepaid assets increased 27% or $2.6 million compared to March 31, 2014 due to the timing of program execution. Accounts payable and accrued liabilities decreased 2% or $2.9 million.

Capital expenditures totalled $2.7 million in the first quarter of fiscal 2015, primarily related to computer hardware.

Intangible assets expenditures totalled $1.8 million in the first quarter of fiscal 2015, primarily related to computer software and development projects.

As a result of the separation of solar (see "Discontinued Operations: Solar Separation and Outlook") the Company reverted capacity in its Cambridge, Ontario campus to its core ASG business in fiscal 2013 which resulted in the sale of a vacant ASG facility in the first quarter of fiscal 2015.  The net proceeds from disposal of the facility were $8.5 million and the income statement impact was minimal.

During fiscal 2013, the Company established a Senior Secured Credit Facility (the "Credit Agreement"). The Credit Agreement provides a revolving credit facility of $250.0 million and expires on November 6, 2015.  The Credit Agreement is secured by the assets, excluding real estate, of certain of the Company's North American legal entities and a pledge of shares and guarantees from certain of the Company's legal entities.  At June 29, 2014, the Company had utilized $70.8 million under the Credit Agreement, which was obtained by way of letters of credit (March 31, 2014 - $72.6 million).

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

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

The Company has additional credit facilities of $9.1 million (2.3 million Euro, 230.0 million Indian Rupees, 0.5 million Swiss Francs and 30.0 million Thai Baht).  The total amount outstanding on these facilities is $7.0 million of which $0.8 million is classified as bank indebtedness (March 31, 2014 - $0.9) and $6.2 million is classified as long-term debt (March 31, 2014 - $5.8 million).  The interest rates applicable to the credit facilities range from 1.9% to 11.0% per annum.  A portion of the long-term debt is secured by certain assets of the Company.  The 0.5 million Swiss Francs and 230.0 million Indian Rupees credit facilities are secured by letters of credit under the Credit Agreement.

The Company expects to continue increasing its investment in working capital to support the growth of its business. The Company expects that continued cash flows from operations, together with cash and cash equivalents on hand and credit available under operating and long-term credit facilities, will be sufficient to fund its requirements for investments in working capital and capital assets and to fund strategic investment plans including some potential acquisitions. Significant acquisitions could result in additional debt or equity financing requirements. The Company expects to use moderate leverage to support its growth strategy.

Subsequent to the end of the first quarter of fiscal 2015, the Company announced its acquisition of M+W PA. The total cash consideration to be paid for M+W PA pending net debt and working capital adjustments is approximately 248 million Euro ($362 million). The acquisition of M+W PA is expected to be funded from a new fully committed credit facility to be available to the Company at closing. See "Value Creation Strategy: Business Acquisition - M+W PA."

Contractual Obligations

(In millions of dollars)

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

From continuing operations:


  Operating Purchase
  leases obligations
Less than one year  5.8 $  49.6
One - two years   4.5   0.8
Two - three years   3.9   ?
Three - four years   1.8   ?
Four - five years   1.5   ?
Due in over five years   3.6 ?
  $  21.1  $  50.4



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

In accordance with industry practice, the Company is liable to customers for obligations relating to contract completion and timely delivery. In the normal conduct of its operations, the Company may provide bank guarantees as security for advances received from customers pending delivery and contract performance. In addition, the Company provides bank guarantees for post-retirement obligations and may provide bank guarantees as security on equipment under lease and on order.  At June 29, 2014, the total value of outstanding bank guarantees under credit facilities was approximately $95.9 million (March 31, 2014 - $95.3 million) from continuing operations and was $nil (March 31, 2014 - $2.1 million) from discontinued operations.

The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations to the Company. The Company minimizes this risk by limiting counterparties to major financial institutions and monitoring their creditworthiness. The Company's credit exposure to forward foreign exchange contracts is the current replacement value of contracts that are in a gain position.  For further information related to the Company's use of derivative financial instruments refer to note 9 of the interim condensed consolidated financial statements.  The Company is also exposed to credit risk from its customers. Substantially all of the Company's trade accounts receivable are due from customers in a variety of industries and, as such, are subject to normal credit risks from their respective industries. The Company regularly monitors customers for changes in credit risk.  The Company does not believe that any single industry or geographic region represents significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by the Company's client base being primarily large, multinational customers and through insurance purchased by the Company.

During the first quarter of fiscal 2015, 186,701 stock options were exercised.  At August 12, 2014 the total number of shares outstanding was 90,980,248and there were 4,230,750stock options outstanding to acquire common shares of the Company.

RELATED-PARTY TRANSACTIONS

There were no significant related-party transactions in the first quarter of fiscal 2015.

FOREIGN EXCHANGE

The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the Canadian dollar.  Weakening in the value of the Canadian dollar relative to the U.S. dollar and the Euro had a positive impact on translation of the Company's revenues in the first quarter of fiscal 2015 compared to the corresponding period of fiscal 2014.

The Company's Canadian operations generate significant revenues in major foreign currencies, primarily U.S. dollars, which exceed the natural hedge provided by purchases of goods and services in those currencies.  In order to manage a portion of this net foreign currency exposure, the Company has entered into forward foreign exchange contracts.  The timing and amount of these forward foreign exchange contract requirements are estimated based on existing customer contracts on hand or anticipated, current conditions in the Company's markets and the Company's past experience.  Certain of the Company's foreign subsidiaries will also enter into forward foreign exchange contracts to hedge identified balance sheet, revenue and purchase exposures.  The Company's forward foreign exchange contract hedging program is intended to mitigate movements in currency rates primarily over a four to six month period.  See note 9 to the interim condensed consolidated financial statements for details on the derivative financial instruments outstanding at June 29, 2014.

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 investments in certain subsidiaries and committed acquisitions.

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

Period average exchange rates in CDN$

  Three months ended  
    June 29, 2014   June 30, 2013   % change
U.S. Dollar 1.0901   1.0237     6.5%
Euro 1.4948   1.3374    11.8%



CONSOLIDATED QUARTERLY RESULTS

                                 
(In millions of dollars, except

per share amounts)
Q1

2015
Q4

2014
Q3

2014
Q2

2014
Q1

2014
Q4

2013
Q3

2013
Q2

2013
Revenues from continuing

operations
$190.9  $   200.7   $     178.0  $     154.6  $     150.0  $     153.2  $     144.2  $     141.1
Earnings from operations $   14.4 $     17.2 $       16.7 $       14.4 $       12.7 $       14.0 $       13.6 $       13.8
Adjusted earnings from operations1 $     21.1 $     22.2 $       20.6 $        16.3 $        15.9 $        15.0 $        14.6 $        14.7
Income from continuing

operations
$       9.0 $     11.7 $       18.8 $       10.4 $         8.6 $         8.9 $       10.7 $         9.7
Income (loss) from

discontinued operations
$    6.9 $     (0.4) $       (0.3) $         2.5 $      11.0 $        (0.6) $    (21.7) $       (1.8)
Net income (loss) $    15.9 $   11.3 $       18.5 $       12.9 $       19.6 $        8.3 $     (11.0) $         7.9
Basic earnings per share from

continuing operations
$  0.10 $   0.13 $       0.21 $       0.12 $       0.10 $       0.10 $       0.12 $       0.11
Adjusted basic earnings per

share from continuing operations1
$     0.15 $     0.17 $       0.14 $        0.14 $        0.13 $        0.11 $        0.13 $        0.12
Basic earnings (loss) per share

from discontinued operations
$    0.08 $   (0.01) $     (0.00) $       0.03 $       0.12 $     (0.01) $    (0.24) $     (0.02)
Basic earnings (loss) per share $  0.18 $    0.12 $       0.21 $       0.15 $       0.22 $        0.09 $     (0.12) $       0.09
Diluted earnings per share

from continuing operations
$   0.10 $    0.13 $       0.21 $       0.11 $       0.10 $       0.09 $       0.12 $       0.11
Diluted earnings (loss) per

share from discontinued

operations
$   0.07 $   (0.01) $     (0.00) $       0.03 $       0.12 $     (0.00) $     (0.24) $     (0.02)
Diluted earnings (loss) per

share
$   0.17 $    0.12 $       0.21 $       0.14 $       0.22 $     0.09 $     (0.12) $       0.09
Order Bookings $160.0 $   197.0 $     237.0 $     110.0 $     165.0 $     170.0 $     173.0 $     112.0
Order Backlog $425.0 $   474.0 $     467.0 $     355.0 $     415.0 $     398.0 $     388.0 $     361.0

1 Adjusted earnings from operations and adjusted basic earnings per share from continuing operations are non-IFRS measures and do not have any standardized meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies. Such measures are intended to provide additional information only and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.  See "Notice to Reader: Non-IFRS Measures and Additional IFRS Measures".

Interim financial results are not necessarily indicative of annual or longer-term results because many of the individual markets served by the Company tend to be cyclical in nature.  General economic trends, product life cycles and product changes may impact revenues and operating performance.  ATS typically experiences some seasonality with its Order Bookings, revenues and earnings from operations due to summer plant shutdowns by its customers.  Operating performance quarter to quarter may also be affected by the timing of revenue recognition on large programs in Order Backlog, which is impacted by such factors as customer delivery schedules, and the timing of third-party content.

CRITICAL ACCOUNTING ESTIMATES, JUDGMENTS & ASSUMPTIONS

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

The Company based its assumptions on information available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the estimates as they occur. There have been no material changes to the critical accounting estimates as described in the Company's fiscal 2014 MD&A.

ACCOUNTING STANDARDS CHANGE

IFRIC 21 - Levies

Effective April 1, 2014, the Company applied IFRIC 21 for the first time.  IFRIC 21 provides guidance on when to recognize a liability to pay a levy imposed by government that is accounted for in accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent Assets.  The adoption of IFRIC 21 had no impact on the interim condensed financial statements of the Company.

CONTROLS AND PROCEDURES

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

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

During the three months ended June 29, 2014, there have been no changes in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Note to Readers: Forward-Looking Statements:

This news release and management's discussion and analysis of financial conditions, and results of operations of ATS contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements").  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of ATS, or developments in ATS' business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.  Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action.  Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. ATS cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made.  Forward-looking statements relate to, among other things: the next phase of the Company's strategy: grow, expand, and scale; M+W PA acquisition - the enhancement of growth opportunities in both new markets and with existing customers, the funding of the purchase price through the new C$600 million credit facility and such facility being available on closing, and expected timing of closing the transaction and conditions in relation thereto; potential impact of general economic environment, including impact on demand and Order Bookings, and the timing of those impacts; demand for Company's products potentially lagging global macroeconomic trends; activity in the market segments that the Company serves; leveraging of IWK into other markets; the sales organization's approach to market and expected impact on Order Bookings; impact of Order Backlog on volatility and time to complete Order Backlog; the rate of completion of Order Backlog; M+W PA acquisition - ATS benefiting from M+W PA's capability and market position, revenue synergies through an expanded ATS offering, M+W PA's increased opportunity to expand its MAC offering, ATS and  M+W PA engaging customers on a more comprehensive basis, M+W PA benefiting from the adoption of ATS' best practices, and cost synergies; the implementation of changes to ATS cost structure and the expected impact; management's expectations in relation to the impact of strategic initiatives on ATS operations; the Company's strategy to expand organically and through acquisition; Company's expectation with respect to deferred tax assets and effective tax rate and cash taxes; separation of solar business; expected timing of receipt of proceeds in relation to the sale of seven joint venture ground mount solar projects; expected gain on solar divestitures; Company's expectation to continue to increase its investment in working capital; expectation in relation to meeting funding requirements for investments; expectation to use moderate leverage to support growth strategy; foreign exchange hedging; and accounting standards changes.  The risks and uncertainties that may affect forward-looking statements include, among others: impact of the global economy; general market performance including capital market conditions and availability and cost of credit; performance of the market sectors that ATS serves; foreign currency and exchange risk; the relative strength of the Canadian dollar; impact of factors such as increased pricing pressure and possible margin compression; the regulatory and tax environment; failure or delays associated with new customer programs; potential for greater negative impact associated with any non-performance related to large enterprise programs; that strategic initiatives are delayed, not completed, or do not have intended positive impact; that M+W PA's business does not perform as expected during fiscal 2015; that the new credit facility does not become available by closing; inability to close the acquisition, or delays in closing it, resulting from failure or delays in relation to satisfying conditions of closing; variations in the amount of Order Backlog completed in any given quarter; that ATS is unable to enhance growth opportunities or M+W PA's portfolio, or expand product or service offerings, or that customers are more difficult to engage than expected; inability to successfully expand organically or through acquisition, due to an inability to grow expertise, personnel, and/or facilities at required rates or to identify, negotiate and conclude one or more acquisitions; or to raise, through debt or equity, or otherwise have available, required capital; that acquisitions made are not integrated as quickly or effectively as planned or expected and, as a result, anticipated benefits and synergies are not realized; that the Company or its subsidiaries may have exposure to greater than anticipated income tax liabilities; that the solar joint venture ground mount projects are delayed in achieving commercial operation or cannot ultimately be developed, due to market, regulatory, transmission, local opposition, or other factors; labour disruptions; that one or more customers, or other entities with which the Company has contracted, experience insolvency or bankruptcy with resulting delays, costs or losses to the Company; political, labour or supplier disruptions; the development of superior or alternative technologies to those developed by ATS; the success of competitors with greater capital and resources in exploiting their technology; market risk for developing technologies; risks relating to legal proceedings to which ATS is or may become a party; exposure to product liability claims; risks associated with greater than anticipated tax liabilities or expenses; and other risks detailed from time to time in ATS' filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and other than as required by applicable securities laws, ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.





ATS AUTOMATION TOOLING SYSTEMS INC.

Interim Consolidated Statements of Financial Position

(in thousands of Canadian dollars - unaudited)
As at  Note      

June 29

2014
    March 31

 2014
               
ASSETS              
Current assets              
Cash and cash equivalents      $   81,619   $   76,466
Accounts receivable          109,652       117,821
Costs and earnings in excess of billings on contracts in progress  5       173,342       146,231
Inventories  5       21,951      24,186
Deposits, prepaids and other assets  6       12,256      9,630
        398,820      374,334
Assets associated with discontinued operations  4       781     13,265
        399,601     387,599
Non-current assets              
Property, plant and equipment  7       75,896     85,412
Investment property          4,147     4,341
Goodwill          145,602     151,731
Intangible assets  8       104,200      111,298
Deferred income tax assets          6,648      7,838
Investment tax credit receivable          30,820     30,165
        367,313     390,785
Total assets       $ 766,914   $  778,384
               
LIABILITIES AND EQUITY              
Current liabilities              
Bank indebtedness  11   $   774   $  913
Accounts payable and accrued liabilities          135,374     138,285
Provisions  10       8,961     10,412
Billings in excess of costs and earnings on contracts in progress  5       57,279      59,363
Current portion of long-term debt  11       4,401      3,815
        206,789      212,788
Liabilities associated with discontinued operations  4       209      6,774
        206,998     219,562
Non-current liabilities              
Employee benefits          22,920      23,213
Long-term debt  11       1,268       1,324
Deferred income tax liabilities          15,016     16,747
        39,204      41,284
Total liabilities       $ 246,202   $  260,846
               
EQUITY              
Share capital  12   $   512,463   $  510,725
Contributed surplus          15,037      15,025
Accumulated other comprehensive income          21,499      35,970
Retained deficit          (28,453)      (44,311)
Equity attributable to shareholders          520,546      517,409
Non-controlling interests          166     129
Total equity          520,712      517,538
Total liabilities and equity       $ 766,914   $  778,384




 


ATS AUTOMATION TOOLING SYSTEMS INC.

Interim Consolidated Statements of Income

(in thousands of Canadian dollars, except per share amounts - unaudited)
               
For the three months ended   Note      June 29

 2014
     June 30

2013
               
Revenues              
  Revenues from construction contracts        $   161,190   $   134,097
  Sale of goods             14,413       7,223
  Services rendered               15,276       8,707
               
Total revenues               190,879       150,027
               
Operating costs and expenses              
  Cost of revenues              137,072       110,645
  Selling, general and administrative             36,937       25,363
  Stock-based compensation     14         2,514       1,345
                 
Earnings from operations             14,356       12,674
               
Net finance costs     18         878       602
               
Income from continuing operations  before income taxes           13,478       12,072
               
Income tax expense     13         4,496       3,496
               
Income from continuing operations              8,982       8,576
               
Income from discontinued operations,  net of tax    4         6,913       10,956
               
Net income          $   15,895   $   19,532
               
Attributable to              
Shareholders        $   15,858   $   19,514
Non-controlling interests             37       18
      $  15,895   $   19,532
               
Earnings per share  attributable to shareholders   19            
Basic - from continuing operations           $  0.10   $   0.10
Basic - from discontinued operations      4         0.08       0.12
      $  0.18   $   0.22
               
Earnings per share  attributable to shareholders   19            
Diluted - from continuing operations         $  0.10   $   0.10
Diluted - from discontinued operations     4         0.07       0.12
      $  0.17   $   0.22

 


ATS AUTOMATION TOOLING SYSTEMS INC.

Interim Consolidated Statements of Comprehensive Income

(in thousands of Canadian dollars - unaudited)
For the threemonths ended        June 29

2014
    June 30

 2013
             
Net income     $    15,895   $   19,532
             
Other comprehensive income (loss):            
             
Items to be reclassified subsequently to net income:            
             
  Currency translation adjustment (net of income taxes of $nil)          (15,232)       11,114
             
  Net unrealized loss on available-for-sale financial assets          --       (525)
  Tax impact           --       134
             
  Net unrealized gain (loss) on derivative financial instruments designated as cash flow hedges           652       (1,751)
  Tax impact           (161)       451
             
  Loss transferred to net income for derivatives designated as cash flow hedges           362       163
  Tax impact           (92)       (51)
             
Other comprehensive income (loss)           (14,471)       9,535
             
Comprehensive income      $   1,424   $   29,067
             
Attributable to            
Shareholders     $     1,387   $   29,049
Non-controlling interests           37       18
    $ 1,424   $   29,067






  

 

      

       


ATS AUTOMATION TOOLING SYSTEMS INC.

Interim Consolidated Statements of Changes in Equity

(in thousands of Canadian dollars - unaudited)
Three months ended June 29, 2014                                                      
      Share

capital 
    Contributed

surplus
    Retained

 earnings

 (deficit)
    Currency

 translation

adjustments
    Available-

for-sale

 financial

 assets
    Cash flow

 hedges
    Total

accumulated

other

comprehensive

 income
    Non-

controlling

interests
    Total

equity
Balance, at March 31, 2014    $ 510,725   $  15,025   $  (44,311)   $  36,616   $  --   $  (646)   $  35,970   $  129   $  517,538
                                                       
Net income       --       --       15,858       --       --       --       --       37       15,895
Other comprehensive income (loss)       --       --       --       (15,232)       --       761       (14,471)       --       (14,471)
Total comprehensive income (loss)       --       --       15,858       (15,232)       --       761       (14,471)       37       1,424
                                                       
Stock-based compensation       --       535       --       --       --       --       --       --       535
Exercise of stock options       1,738       (523)       --       --       --       --       --       --       1,215
Balance, at June 29, 2014    $ 512,463   $  15,037   $  (28,453)   $  21,384   $  --   $  115   $  21,499   $  166   $  520,712
                                                       
                                                       
Three months ended June 30, 2013                                                      
      Share

capital 
    Contributed

surplus
    Retained

 earnings

 (deficit)
    Currency

 translation

adjustments
    Available-

for-sale

 financial

 assets
    Cash flow

 hedges
    Total

accumulated

other

comprehensive

 income
    Non-

controlling

interests
    Total

equity
Balance, at March 31, 2013    $  486,734   $   19,317   $   (107,407)   $   (23)   $   239   $   (339)   $   (123)   $   83   $   398,604
                                                       
Net income       --       --       19,514       --       --       --       --       18       19,532
Other comprehensive income (loss)       --       --       --       11,114       (391)       (1,188)       9,535       --       9,535
Total comprehensive income (loss)       --       --       19,514       11,114       (391)       (1,188)       9,535       18       29,067
                                                       
Stock-based compensation       --       547       --       --       --       --       --       --       547
Exercise of stock options       1,583       (486)       --       --       --       --       --       --       1,097
Balance, at June 30, 2013    $  488,317   $   19,378   $   (87,893)   $   11,091   $   (152)   $   (1,527)   $   9,412   $   101   $   429,315

 


ATS AUTOMATION TOOLING SYSTEMS INC.

Interim Consolidated Statements of Cash Flow

(in thousands of Canadian dollars - unaudited)
Three months ended   Note      June 29

 2014
     June 30

2013
               
Operating activities:              
Income from continuing operations            $ 8,982   $   8,576
Items not involving cash              
  Depreciation of property, plant and equipment               1,934       1,678
  Amortization of intangible assets               4,546       1,380
  Deferred income taxes               153       2,565
  Other items not involving cash               (1,642)       (943)
  Stock-based compensation      14        2,514       1,345
  Gain on disposal of property, plant and equipment              (423)       (13)
      $ 16,064   $   14,588
Change in non-cash operating working capital               (26,749)       1,573
Cash flows provided by (used in) operating  activities of discontinued operations      4        (2,824)       1,188
Cash flows provided by (used in) operating activities          $ (13,509)   $   17,349
               
Investing activities:              
Acquisition of property, plant and equipment            $ (2,674)   $  (1,085)
Acquisition of intangible assets               (1,839)       (875)
Proceeds from disposal of property, plant  and equipment             8,529       16
Cash flows provided by investing activities of discontinued operations      4        13,643       19,679
Cash flows provided by investing activities            $ 17,659   $   17,735
               
Financing activities:              
Restricted cash      6   $    (67)   $   (1,162)
Bank indebtedness               (113)       176
Repayment of long-term debt               (72)       (44)
Proceeds from long-term debt               732       --
Issuance of common shares               1,215       1,097
Cash flows provided by financing activities            $1,695   $   67
               
Effect of exchange rate changes on cash  and cash equivalents             (2,705)       3,708
               
Increase in cash and cash equivalents               3,140       38,859
               
Cash and cash equivalents, beginning of period               78,614       105,870
               
Cash and cash equivalents, end of period            $ 81,754   $   144,729
               
Attributable to              
Cash and cash equivalents - continuing operations           $ 81,619   $   130,960
Cash and cash equivalents - associated with  discontinued operations             135       13,769
      $ 81,754   $   144,729
               
Supplemental information              
Cash income taxes paid by continuing operations            $ 1,908   $   531
Cash interest paid by continuing operations            $ 650   $   199


 

 

 

 

SOURCE ATS Automation Tooling Systems Inc.


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