Fiscal 1998 - Third Quarter Report

February 5, 1998

Dear Shareholder:

ATS continued to make rapid progress in the third quarter ended December 27, 1997 by increasing consolidated revenue 71% and growing net earnings 51% over the comparable quarter a year ago. In the first three quarters of this fiscal year, ATS has earned more than in all of fiscal 1997, underscoring the Company’s ability to manage its current growth.

The highlights of the third quarter and first 39 weeks of fiscal 1998 were:

  • Revenue of $108.1 million (versus $63.2 million in the third quarter of fiscal 1997) marked the second consecutive quarter in which ATS consolidated revenue surpassed the $100 million level (Q2 fiscal 1998 revenue was $100.2 million). Growth in the most recent quarter came from both the Automation Systems Group, revenue up 71%, and Precision Components Group, with revenue up 70% over the same period of fiscal 1997.

Revenue By Operating Group
($ thousands)
39 weeks ended13 weeks ended
12/27/9712/28/9612/27/9712/28/96
Automation Systems$ 223,416 $ 141,283$ 83,070 $ 48,463
Precision Components66,376 43,25325,04914,778
Total$ 289,792 $ 184,536 $ 108,119 $ 63,241
  • Operating income for the third quarter of fiscal 1998 climbed 52% to $12.7 million from $8.4 million in the year earlier quarter reflecting revenue growth. Operating income for the first nine months of this year increased 45% to $34.0 million from $23.4 million for the corresponding period.
  • Operating margin in the third quarter of 11.8% was lower than the 13.2% generated in the third quarter of fiscal 1997. This reduction was primarily the result of the acquisitions made over the last 12 months which operated at break-even levels, as expected, higher levels of subcontracting to support revenue growth and the use of internal resources to manufacture automation systems for ATS’ Precision Components Group (with no direct margin contribution). In spite of these growth initiatives, operating margin for this quarter – and for the first nine months of fiscal 1998 -- was well in line with the Company’s previously stated targets of 11% to 12% of revenue.
  • Net earnings for the third quarter increased 51% to $7.7 million (14 cents basic, 14 cents fully diluted), compared to $5.1 million (10 cents basic, 10 cents fully diluted) in the third quarter a year ago. Earnings per share have been restated to reflect a two for one share split which was approved by shareholders on November 27, 1997. For the first 39 weeks of this fiscal year, net earnings of $19.8 million (38 cents basic, 37 cents fully diluted) was 39% ahead of the $14.2 million (29 cents basic, 27 cents fully diluted) earned in the same period of fiscal 1997.
  • Order bookings for automation systems during the first three quarters of the current fiscal year totalled $214.5 million compared to $168.8 million a year earlier. Order backlog for automation systems at December 27, 1997 stood at $122.5 million compared to $115.5 million a year earlier. Automation systems backlog is for external customers and therefore excludes the value of automation systems the Company has under construction for its own use – including equipment which will be used by ATS Precision Components for the Fortune 500 microelectronics contract announced this past summer.
  • Consolidated revenue – and backlog -- remained well diversified by industry and by geographic region.

Consolidated Revenue By Industry
(as a percentage of total for the period)
39 weeks ended13 weeks ended
12/27/9712/28/9612/27/9712/28/96
Automotive49%57%52% 57%
Computer/Electronics44%39%41% 37%
Other7%4%7% 6%
Total100%100%100% 100%
Consolidated Revenue By Region
(as a percentage of total for the period)
39 weeks ended13 weeks ended
12/27/9712/28/9612/27/9712/28/96
Canada11%19%11%18%
U.S. & Mexico56%62%53% 56%
Europe22%11%23% 15%
Asia-Pacific11%8%13%11%
Total100%100%100%100%
  • Previously announced major operational expansions are proceeding on schedule. ATS took possession of a new 75,000 square foot Precision Components facility in Cambridge at the end of the third quarter. Another 165,000 square foot Precision Components facility in Cambridge and the 120,000 square foot extension to the Company’s Corvallis, Oregon facility, both announced in the first quarter, will be available for occupancy this spring.
  • ATS began to ship small volumes of precision components to its major microelectronics customer under the previously announced contract. The first automated manufacturing cell has also been built and will go into production in the fourth quarter, on schedule. While this contract did not have an impact on third quarter revenue, it is expected to begin making significant contributions early in the new fiscal year.
  • Shareholders approved a resolution to split ATS common shares on a 2 for 1 basis on November 27, 1997. The split resulted in 55.2 million common shares outstanding at December 27, 1997.
  • The Company raised net proceeds of $92.7 million by issuing 4 million common shares (post-split) in a “bought deal” with a syndicate of underwriters that closed October 9, 1997. The proceeds are being used to fund capital expenditures, working capital and for possible future acquisitions. As a result of the offering, the Company’s balance sheet at December 27, 1997 was strong, with a debt (net of cash) to equity ratio of 0.03 to one.

Commentary

ATS has made significant progress so far this year in further expanding our business and positioning the Company for continued growth into the new millennium. Given the strategic importance of delivery time, backlog for automation systems is now at a healthy level. The scheduled deliveries for customer orders, along with our own automation requirements in Precision Components, will keep our Systems’ facilities running at capacity well into the new fiscal year. Quotation activity for new orders also remains strong.

Outlook

ATS expects to end fiscal 1998 in a strong fashion. Looking to the future, the capacity we are adding in terms of facilities, equipment and human resources will help us to better serve our multinational customer base and expand our presence in our key markets.

Yours sincerely,

Lawrence G. Tapp (signed)Klaus D. Woerner (signed)

Chairman of the BoardPresident and Chief Executive Officer

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Earnings

(unaudited)

in thousands of dollars, except per share amounts

thirty-nine weeks ended / thirteen weeks ended
December 27 / December 28 / December 27 / December 28
1997 / 1996 / 1997 / 1996
Revenue / $ 289,792 / $ 184,536 / $ 108,119 / $ 63,241
Operating costs and expenses:
Cost of revenue / 219,052 / 139,686 / 81,561 / 47,120
Depreciation and amortization / 9,536 / 4,966 / 3,429 / 1,949
Selling and administrative / 27,247 / 16,521 / 10,403 / 5,805
33,957 / 23,363 / 12,726 / 8,367
Other expenses (income):
Interest on long-term debt / 2,003 / 1,343 / 751 / 475
Other interest / 189 / (583) / (424) / (144)
2,192 / 760 / 327 / 331
Earnings before income taxes
and minority interest / 31,765 / 22,603 / 12,399 / 8,036
Provision for income taxes / 11,753 / 8,412 / 4,588 / 2,962
Minority interest in earnings (loss)
of subsidiary / 206 / (20) / 100 / (23)
Net earnings / $ 19,806 / $ 14,211 / $ 7,711 / $ 5,097
Weighted average number of
shares outstanding :
Basic / 52,251,589 / 49,711,274 / 54,646,321 / 50,696,402
Fully Diluted / 54,168,152 / 51,890,492 / 56,554,616 / 52,512,350
Net earnings per share:
Basic / $ 0.38 / $ 0.29 / $ 0.14 / $ 0.10
Fully Diluted / $ 0.37 / $ 0.27 / $ 0.14 / $ 0.10

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Balance Sheets

(unaudited)

in thousands of dollars

December 27 / March 31
1997 / 1997
ASSETS
Current assets:
Cash and short-term investments / $ 39,594 / $ 3,980
Accounts receivable / 83,129 / 40,485
Cost and estimated earnings in excess of
billings on contracts in progress / 111,474 / 71,193
Inventories / 31,056 / 15,620
Prepaid expenses and other current assets / 2,618 / 2,110
267,871 / 133,388
Fixed assets, net of depreciation / 82,483 / 52,451
Other assets:
Goodwill and other intangibles, at amortized cost / 47,460 / 35,082
Other assets / 26,760 / 15,142
74,220 / 50,224
$ 424,574 / $ 236,063
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities / $ 53,918 / $ 32,433
Income taxes payable / 531 / 175
Billings in excess of costs and estimated
earnings on contracts in progress / 38,763 / 19,431
Current portion of long-term debt / 349 / 335
Deferred income taxes / 13,968 / 7,244
107,529 / 59,618
Long-term debt, less current portion / 46,333 / 24,085
Deferred income taxes / 7,736 / 8,993
Minority interest / 1,441 / 301
Shareholders' equity:
Share capital / 190,644 / 92,186
Retained earnings / 66,914 / 49,708
Cumulative translation adjustment / 3,977 / 1,172
261,535 / 143,066
$ 424,574 / $ 236,063

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Changes in Financial Position

(unaudited)

in thousands of dollars

thirty-nine weeks ended
December 27 / December 28
1997 / 1996
Cash provided by (used in):
Operating activities:
Net earnings / $ 19,806 / $ 14,211
Items not involving cash:
Depreciation / 6,460 / 4,089
Amortization of goodwill and other intangibles / 3,076 / 877
Deferred income taxes / 6,824 / 5,730
Minority interest / 206 / (19)
Change in non-cash operating working capital / (54,531) / (16,685)
(18,159) / 8,203
Investing activities:
Acquisition of interest in subsidiaries, net of cash / (22,021) / (12,699)
Acquisition of fixed assets / (31,036) / (18,701)
Facilities under construction, net of reimbursement / (3,095) / 2,842
Other / (5,787) / (366)
(61,939) / (28,924)
Financing activities:
Issuance of common shares / 94,395 / 33,214
Redemption of special warrants / - / (26,000)
Proceeds (repayment) of long-term debt, net / 19,710 / (48)
Investment tax credits / (1,320) / (2,311)
Notes receivable / 2,876 / 492
Other / 51 / 68
115,712 / 5,415
Increase (decrease) in cash and short-term investments / 35,614 / (15,306)
Cash and short-term investments, beginning of period / 3,980 / 26,396
Cash and short-term investments,
end of period / $ 39,594 / $ 11,090