ATS Reports Third Quarter Fiscal 2012 Results

Editor's Note: This release has been truncated.

ATS Automation Tooling Systems Inc. (TSX: ATA) ("ATS" or the "Company") today reported its financial results for the three and nine months ended January 1, 2012 for its continuing operations (Automation Systems Group or "ASG") and discontinued operations ("Photowatt"). 

"Strong performance at ASG in the third quarter reflected higher contributions from acquired and base businesses," said Anthony Caputo, Chief Executive Officer. "We have moved beyond the fork in the road on solar separation, our ASG Order Backlog remains at record levels and our balance sheet provides the capacity to pursue organic and acquisition growth." 

Third Quarter Summary of Continuing (ASG) Operations 

• Revenues were $149.1 million, 23% higher than  in the corresponding period a year ago, and 2% higher than the second quarter of fiscal  2012;
• Earnings from continuing operations for the third quarter of fiscal 2012 were $20.4 million (14% operating margin) compared to $6.1 million (5% operating margin) in the corresponding period a year ago and $13.3 million (9% operating margin) in the second quarter of fiscal 2012;
• Included in fiscal 2012 third quarter earnings from operations was a gain of $3.0 million from the sale of a redundant ASG facility in France, and the benefit of $3.7 million of U.S. research and development tax credits which were recorded based on improved profitability in the Company's U.S. businesses;
• Order Bookings increased 8% to $179.0 million from $165.0 million in the second quarter of fiscal 2012 and increased 35% year over year from $133.0 million in the third quarter of fiscal 2011, reflecting higher activity levels in transportation and life sciences;
• Period end Order Backlog was a record $376.0 million, an increase of 4% from $363.0 million in the second quarter of this fiscal year and 75% from $215.0 million a year ago;
• The Company's balance sheet was strong with cash net of debt of $66.3 million, unutilized credit facilities of $52.6 million available under existing credit facilities and another $20.8 million of credit available under letter of credit facilities.

By industrial market, revenues from life sciences decreased 1% year over year - despite higher Order Backlog - due to longer performance periods on certain programs. The 39% decrease in computer-electronics revenues reflected lower activity compared to a year ago. Revenues generated in the energy market decreased 47% on lower Order Backlog entering the third quarter compared to a year ago, reflecting lower activity primarily in the solar market. The 406% increase in transportation revenues compared to a year ago primarily reflected higher Order Backlog entering the third quarter compared to a year ago and the inclusion of ATW. "Other" revenues decreased 37% year over year primarily due to decreased revenues in the consumer products market. Order Bookings were $48 million during the first 5 weeks of the fourth quarter of fiscal 2012. 

Third Quarter Summary of Discontinued Operations
On November 8, 2011 (the "Bankruptcy Date"), a French bankruptcy court placed Photowatt France ("PWF") into a "recovery" proceeding ("redressement judiciaire") under the supervision of a court-appointed trustee. The objective of the 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 to six 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. 

The court-appointed trustee is working to solicit offers to purchase the PWF business, either in whole or in part.  Interested parties are expected to provide bids for PWF in February, after which time the court and its appointed trustee will review and examine the bids. 

As of the Bankruptcy Date, the Company ceased to have the ability to exert control over PWF. Accordingly, the Company's investment in PWF was deconsolidated from the Company's consolidated financial statements beginning on November 8, 2011. Management has estimated the carrying value of the Company's equity investment in PWF to be zero. The results of PWF up to the Bankruptcy Date are presented as discontinued operations in the interim consolidated statements of income (loss). Photowatt Ontario ("PWO") is presented as assets and liabilities associated with discontinued operations in the interim consolidated statements of financial position and as discontinued operations in the interim consolidated statements of income (loss). 

Results of Discontinued Operations 

• Photowatt's fiscal 2012 third quarter revenues of $9.7 million were 87% lower than in the third quarter of fiscal 2011 as fiscal 2012 revenues included only five weeks of PWF revenues. Revenues from PWO were $2.0 million, as customers pushed out orders due to unexpected delays in obtaining necessary Ontario government approvals to allow projects to proceed;
• Photowatt's fiscal 2012 third quarter loss from operations was $7.9 million. The total loss attributable to PWF was $4.4 million, which was comprised of $1.7 million of operating losses and the net impact of deconsolidating PWF and recording the Company's investment at $nil. In addition, ATS funded PWF with $2.7 million to produce solar cells during the third quarter of fiscal 2012 to continue operations during the recovery period. This amount has been fully provided for on the interim consolidated statement of financial position. PWO recorded a $3.5 million loss in the third quarter on lower than expected revenues and higher fixed costs resulting from ramping-up manufacturing in anticipation of higher demand.

Photowatt Separation
ATS remains committed to the separation of its solar business from its core automation business.  To complete this goal, ATS is advancing opportunities related to its other solar assets.  These opportunities are expected to positively impact cash during the next six months.  In this regard, ATS completed the sale of an ASG-owned building in France that formerly housed PWF module assembly. The accounting impact of this sale was recorded in the Company's third quarter interim consolidated financial statements under continuing operations. 

Regarding PWO, ATS is conducting a formal sale process to divest the business. The Company has received a number of non-binding indicative offers for the PWO business and is working with the interested parties to conclude a transaction. 

Management expects that, if completed, the proceeds from these opportunities will offset the go-forward cash outflows that will result from the bankruptcy process. 

IFRS
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 ("CGAAP") to IFRS. 

Third Quarter Interim Consolidated Financial Statements
The Company's interim consolidated financial statements for the third quarter of fiscal 2012 with accompanying notes to the interim consolidated financial statements can be found on the Company's website at www.atsautomation.com. 

About ATS
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 2,300 people at 20 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 nine months ended January 1, 2012 (third quarter of fiscal 2012) is as of February 7, 2012 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 third quarter of fiscal 2012. The interim consolidated financial statements for the three and nine months ended January 1, 2012 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). Accordingly, the purpose of this document is to provide a third 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 nine month periods ending January 1, 2012 and December 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 nine month periods ending January 1, 2012 and December 26, 2010 is contained in the MD&A (See "ASG Order Backlog Continuity"). 

COMPANY PROFILE
The Company has two segments: Automation Systems Group ("ASG"), the Company's continuing operations, and Photowatt Technologies ("Photowatt"), which is classified as discontinued operations. 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 2,300 people at 20 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). 

Photowatt Separation
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"). Discussions with parties in regards to a sale of PWF concluded without producing an acceptable transaction. The deterioration of economic conditions and the solar market in Europe in fiscal 2012, increased Asian competition and lower demand for solar products (particularly in France) severely impacted PWF.  Consequently, the Company re-examined the spinoff alternative and concluded it was not viable. Other options in relation to PWF were also exhausted and given the aforementioned conditions; PWF's filing for bankruptcy became necessary. On November 8, 2011 (the "Bankruptcy Date"), the French bankruptcy court placed PWF into a "recovery" proceeding ("redressement judiciaire") under the supervision of a court appointed trustee. 

As a result of this action, the Company has concluded that it ceased to have the ability to exert control over PWF as of the Bankruptcy Date.  Accordingly, the Company's investment in PWF was deconsolidated from the Company's consolidated financial statements beginning on the Bankruptcy Date.  Management has estimated the carrying value of the Company's equity investment in PWF to be zero. The results of PWF up to the Bankruptcy Date are presented as discontinued operations in the interim consolidated statements of income (loss). The Company concurrently initiated a formal sale process for the PWO business. The Company has received a number of non-binding indicative offers for the PWO business and intends to work with the interested parties to conclude a transaction. PWO is presented as assets and liabilities associated with discontinued operations in the interim consolidated statements of financial position and as discontinued operations in the interim consolidated statements of income (loss). As a result, ATS' continuing operations are reported as one operating segment, ASG. 

Growth
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. 

Business Acquisitions
In fiscal 2011 management completed two acquisitions: 

Sortimat Group
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 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 markets 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. 

ATW
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 markets. 

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 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.