ATS Earnings Grow Substantially in Third Quarter on Strength in Automation Systems and Solar | Automation.com

ATS Earnings Grow Substantially in Third Quarter on Strength in Automation Systems and Solar

February 102005
CAMBRIDGE, ON, Feb. 9 /CNW/ - ATS Automation Tooling Systems Inc. today
reported net earnings from continuing operations of $6.1 million (10 cents per
share basic and diluted) for the three months ended December 31, 2004 - up
580% or $7.4 million from a net loss of $1.3 million (loss of 2 cents per
share basic and diluted) a year ago - driven by strong gains made by the
Company's Automation Systems Group and record performance by its Solar
business.

Third Quarter Financial Highlights
  • Consolidated revenue increased 24% to $206.9 million from
    $167.4 million in the third quarter a year ago.
  • Automation Systems Group operating earnings were up 178% to
    $9.8 million from $3.5 million in the third quarter of fiscal 2004 on
    stronger operating margins and a 22% increase in revenue, which stood
    at $144.7 million.
  • Solar Group operating earnings were a record $3.4 million, compared to
    $2.1 million a year ago on 36% growth in revenue to $37.4 million.
  • Precision Components Group operating loss was $1.9 million compared to
    a loss of $1.0 million in the same period a year ago due to a 16%
    reduction in revenue, which stood at $29.1 million. PCG cut its loss
    by 17% compared to the second quarter through rationalization, cost
    and efficiency gains.
  • New automation systems Order Bookings were $124 million, 32% higher
    than a year ago.
  • Automation systems Order Backlog increased 28% to $232 million versus
    $181 million at December 31, 2003.
  • Net earnings were $5.6 million (9 cents per share basic and diluted)
    compared to a loss of $1.7 million (loss of 3 cents per share basic
    and diluted) a year ago.
  • The Company estimates changes in foreign currency exchange rates
    reduced third quarter net earnings by $2.7 million (4 cents per share)
    and revenue by $9.7 million compared to the third quarter of fiscal
    2004.
  • Cash flow from operating activities during the third quarter was
    $24 million, and the Company's cash position, net of bank
    indebtedness, increased $25 million from the second quarter of fiscal
    2005 to $41 million.

    "Our focused business strategy is having a clear and very positive impact
    on the financial performance of Automation Systems Group (ASG) with operating
    earnings up more than two fold from a year ago," said Ron Jutras, ATS
    President and Chief Executive Officer. "We saw meaningful improvements in
    performance in our North American and Asian ASG operations in the third
    quarter. Notably, our US west coast operations returned to profitability in
    the quarter, showing the growing benefits from the steps we've taken to
    turnaround performance. Of equal importance, we still have significant
    opportunities for further earnings enhancements because of the strength of our
    order backlog, robust quotation activity, and substantial prospects in
    healthcare. Most fundamentally, because we have retained our strong and
    skilled workforce, we can capitalize on these opportunities today."

    Mr. Jutras added that "we experienced the best balance ever between our
    three largest target markets and healthcare has clearly become a revenue
    leader for us."

    As a result of substantial revenue growth, the Company's Solar Group is
    now ATS's second largest operating group. Solar accounted for 18% of
    consolidated revenue in both the third quarter and for the first three
    quarters of fiscal 2005.

    "Solar Group's operating revenue, margins and operating earnings
    surpassed the previous all-time record high set in the first quarter," said
    Mr. Jutras, "putting it on track for a record year. Solar generated its
    highest ever operating margins as it capitalized on substantial market demand
    and exploited its competitive automated manufacturing advantages."

    Mr. Jutras said Precision Components Group's (PCG) loss widened in the
    quarter compared to the prior year "due to very weak automotive markets, which
    necessitated an extended Christmas plant shutdown, and the ongoing impact of
    unfavourable foreign exchange and high raw material costs. However, through
    rationalization and internal efficiency gains, PCG reduced its loss 17% from
    the second quarter of this year in spite of a 4% sequential decline in
    revenue. While we have started to see incremental benefits from our cost
    reduction initiatives, which are collectively improving the Group's ongoing
    economics, more is needed to bring about a turnaround. Consequently, we have
    streamlined operations through the third quarter sale of our thermal products
    business and the just announced closing of our McAllen manufacturing plant in
    Texas. The divestiture of the thermal products business has already provided
    bottom line benefits, while the elimination of McAllen will have a positive
    impact when we complete the transfer of customer programs from McAllen to our
    facilities in Cambridge. In the medium term, this initiative is expected to
    add significantly to our bottom line through reduced overhead costs and better
    utilization of the remaining factories, production equipment and
    infrastructure within PCG."

    Looking Forward
    "Momentum is still growing for ASG, with healthy backlog, strong
    quotation activity and good prospects for new and repeat customer assignments
    providing the basis for ongoing plant utilization and margin gains," said Mr.
    Jutras. "Our goal is to continue to drive near-term earnings while also making
    the technology and resource investments we need to sustain corporate progress
    globally. Our technology development activities are continuing with particular
    emphasis on the healthcare sector which we believe offers us excellent
    long-term growth potential. These development initiatives include the
    enhancement of our existing standard product technologies for healthcare
    applications and the development of industry-specific standard platforms to
    address exciting application areas. These platforms will broaden our
    healthcare portfolio and based on initial customer response, should provide
    the catalyst for more growth in sectors such as pharmaceuticals. We also took
    an important step to diversify the revenues of our European operations into
    the healthcare market during the quarter by winning our first significant
    healthcare order to be produced in one of our European plants. This system
    will be installed at a customer's European facility and will provide hands-on
    experience and credibility to support future healthcare sales by our European
    operations."

    For PCG, Mr. Jutras said "Precision Components is unlikely to achieve
    breakeven in the fourth quarter, but we do anticipate progress in reducing its
    operating loss as a result of initiatives to streamline operations, improve
    asset utilization, source less expensive raw materials from China, and where
    appropriate, seek price adjustments from customers. While the process of
    qualifying Chinese suppliers is taking longer than we expected, it is clearly
    an important part of our performance improvement initiatives and we will
    sustain this effort. Looking forward, the auto parts industry and foreign
    exchange remain volatile, which provide reasons for caution with regard to
    PCG's short-term prospects. We have factored this market reality into our
    improvement plans."

    In Solar, "the fourth quarter is traditionally weaker than the third
    because of winter seasonality. The entire solar industry is also coping with
    growing shortages of silicon feedstock as a result of strong industry-wide
    demand for solar products. This will be a challenge in fiscal 2006 and may
    restrict our near-term growth at Photowatt, but the good news is that
    Photowatt has already secured most of its silicon supply needs for the next
    six months and we believe it will finish the year on a strong and very
    profitable footing. Demand for solar products remains strong and Photowatt has
    good order prospects for fiscal 2006."

    Solar's new initiative, Spheral Solar Power (SSP) is also progressing
    steadily toward its commercialization goals. All of the factory's workstations
    have now been activated and SSP plans to begin shipments to customers this
    month of its first products produced entirely in the new factory, with
    shipments expected to grow through fiscal 2006.

    "In the fourth quarter, we plan to ship SSP modules to more than a dozen
    customers. The delivery of commercial grade SSP product from our high-volume
    factory should build further credibility and additional momentum in the
    marketplace for SSP. To ensure our customers get outstanding durability and
    reliability, we're finishing up very rigorous lifecycle testing on our first
    product, our flex module, and results to date have been excellent,
    significantly exceeding market requirements. We've also developed a promising
    prototype of our integrated solar roofing technology in concert with our
    partners at Elk Corporation. The outlook for SSP is very exciting, not only
    because demand for solar is strong and growing but because we believe that SSP
    opens entirely new solar market applications. A major competitive advantage is
    that SSP uses less silicon per watt than conventional solar. We also can
    utilize a broader range of silicon feedstock material including less pure and
    less expensive silicon than conventional solar. In future, this may be an
    important competitive advantage. We believe the future of this business is
    outstanding and our timing is excellent."

    Quarterly Conference Call
    ATS will hold its quarterly conference call at 10 am eastern time today.
    To listen to a live audio webcast of the call please visit www.atsautomation.com.

    Notice to Readers
    The third quarter MD&A and consolidated financial statements accompanying
    this news release contain detailed information of quarterly performance,
    financial condition and the Company's outlook. Readers should review the
    Company's annual MD&A contained in the Fiscal 2004 Annual Report and the
    Company's first and second quarter MD&A.

    Corporate Description
    ATS Automation Tooling Systems Inc. (www.atsautomation.com) is the
    industry's leading designer and producer of turn-key automated manufacturing
    and test systems, which are used primarily by multinational corporations
    operating in a variety of industries including: automotive,
    computer/electronics, healthcare, and consumer products. The Company also
    makes precision components and subassemblies using its own custom-built
    manufacturing systems, process knowledge and automation technology. ATS is
    also an emerging leader in the rapidly growing market for solar energy cells
    and modules. ATS employs approximately 4,000 people at 26 manufacturing
    facilities in Canada, the United States, Europe and Asia-Pacific. The
    Company's shares are traded on The Toronto Stock Exchange under the symbol
    ATA.

    Certain forward looking statements are made in this news release and
    accompanying quarterly MD&A, including statements regarding possible future
    business. Investors are cautioned that such forward-looking statements involve
    risks and uncertainties, including, without limitation, continued acceptance
    of ATS's products, technologies, customer requirements and other risks
    detailed from time to time in ATS's periodic reports filed with Canadian
    regulatory authorities.

    Management's Discussion and Analysis
    This MD&A for the three and nine months ended December 31, 2004 (third
    quarter of fiscal 2005) should be read in conjunction with the unaudited
    interim consolidated financial statements and the Company's fiscal 2004 Annual
    Report. The Company assumes that the reader of this MD&A has access to, and
    has read the MD&A in the Company's 2004 Annual Report and the first and second
    quarter MD&A and, accordingly, the purpose of this document is to provide a
    third quarter update to the information contained in the MD&A section of the
    2004 Annual Report. This MD&A provides detailed information on the Company's
    operating activities of the three months ended December 31, 2004. For a
    discussion of the three months ended June 30, 2004 and September 30, 2004
    refer to ATS's first and second quarter MD&A. These documents and other
    information relating to the Company, including the Annual Information Form,
    may be found on SEDAR at www.sedar.com.

    Notice to Readers
    The Company has three reportable segments: Automation Systems Group
    (ASG), Solar Group (Solar) and Precision Components Group (PCG). The terms
    operating income, operating earnings, earnings from operations, operating
    loss, operating results, operating margin, Order Backlog and Order Bookings
    used in this MD&A have no standardized meanings prescribed within GAAP and
    therefore may not be comparable to similar measures presented by other
    companies.

    Certain forward-looking statements are made in this MD&A, including
    statements regarding possible future results and business. Investors are
    cautioned that such forward-looking statements involve risks and
    uncertainties. The Company's results could differ materially from those
    currently anticipated due to a number of factors including, but not limited
    to, the risks and uncertainties contained in the Company's fiscal 2004 Annual
    Report and other risks detailed from time to time in ATS's periodic reports
    filed with Canadian regulatory authorities. Readers should consult the
    Company's fiscal 2004 Annual Report and other regulatory documents as they
    become available.

    Consolidated Results of Operations
    Consolidated revenue for the three months ended December 31, 2004 was
    $206.9 million, $39.5 million or 24% higher than a year earlier. This
    reflected 22% and 36% increases in ASG and Solar segment revenues
    respectively, which more than offset a 16% decline in PCG revenue. Changes in
    effective foreign exchange rates reduced consolidated revenue for the three
    and nine month periods ended December 31, 2004 compared to the same periods of
    fiscal 2004, by an estimated $9.7 million and $27.7 million, respectively.

    Consolidated earnings from operations for the three months ended
    December 31, 2004 were $9.4 million, $8.0 million higher than in the third
    quarter of fiscal 2004. For the nine months ended December 31, 2004,
    consolidated earnings from operations were $20.7 million, $14.3 million higher
    than in the same period of the prior year. These higher earnings were the
    result of stronger performances by ASG and Solar, which more than offset the
    negative impact of foreign exchange and higher year-over-year losses in PCG.
    The negative impact of the year-over-year change in foreign exchange rates on
    consolidated earnings from operations for the three and nine months ended
    December 31, 2004 was an estimated $4.1 million and $14.5 million,
    respectively.

    Selling, general and administrative (SG&A) costs increased 20% in the
    third quarter and 15% in the first nine months of fiscal 2005 over the prior
    year. Contributing to increased SG&A costs for both the three and nine months
    of fiscal 2005 were higher profit sharing expenses associated with increased
    profitability, foreign exchange losses, and higher selling costs to support
    revenue growth. However, as a percentage of revenue, SG&A was 9% in both the
    third quarter of fiscal 2005 and third quarter fiscal 2004. For the nine
    months ended December 31, 2004, SG&A was 10% of revenue compared to 11% for
    the same period of fiscal 2004. In the current fiscal year, SG&A costs include
    a $1.0 million loss in the first quarter and a $0.8 million gain in the third
    quarter related to disposals of the Company's aircraft assets.

    Higher interest expenses in the third quarter and first nine months of
    fiscal 2005 reflected increased usage of the Company's credit facilities,
    reduced cash balances compared to a year ago, and higher interest rates.

    Net earnings from continuing operations for the third quarter of fiscal
    2005 increased to $6.1 million compared to a loss of $1.3 million in the third
    quarter of fiscal 2004. On a per share basis, net earnings from continuing
    operations increased to 10 cents, basic and diluted, from a loss of 2 cents,
    basic and diluted, in the same period a year ago. Net earnings from continuing
    operations for the nine months ended December 31, 2004 were $12.9 million
    (21 cents per share basic and diluted) compared to $2.0 million (3 cents per
    share basic and diluted) a year ago. The negative impact of changes in foreign
    exchange rates for the three and nine months ended December 31, 2004 reduced
    net earnings from continuing operations by an estimated $2.7 million (4 cents
    per share) and $9.6 million (16 cents per share), respectively.

    Discontinued Operations
    During the third quarter the Company completed the sale of the key
    inventory, intellectual property, and operating assets of its thermal
    management products business ("Thermals Assets") for net cash proceeds of
    $8.6 million. The after-tax gain on the sale of the Thermals Assets of
    $0.2 million was offset against the thermals net operating losses for the
    quarter of $0.3 million, for a net loss from discontinued thermals operations
    of $0.1 million. Included in the year to date results from discontinued
    operations is an after-tax non-cash charge of $2.0 million which was taken in
    the second quarter to reduce the carrying value of the Thermals Assets. The
    loss from discontinued operations for the third quarter also includes a
    $0.4 million charge to settle outstanding matters related to the Company's
    discontinued Eco-Snow Systems Inc operations.

    Net Earnings
    Net earnings for the third quarter of fiscal 2005 were $5.6 million
    (9 cent per share basic and diluted) compared to a loss of $1.7 million (loss
    of 3 cents basic and diluted) a year ago. Net earnings for the first nine
    months of fiscal 2005 were $8.8 million (15 cents per share basic and diluted)
    compared to $0.8 million (1 cent per share basic and diluted).

    Impact of Foreign Exchange
    The sustained strength of the Canadian dollar against the US dollar
    continued to have a significant and negative impact on the Company's revenue
    and earnings in the third quarter and on a year to date basis. The Company's
    effective rate of exchange on US currency declined 7% while average market
    rates were 8% lower in the third quarter compared to the third quarter of last
    year.

    At December 31, 2004 the Company had, on hand, unrealized forward
    exchange contracts for the future sale of US dollars totaling US
    $130.4 million at an average exchange rate of Cdn $1.2766. The unrecognized
    gain on these forward contracts totaled approximately $8.3 million at
    December 31, 2004.

    The estimated impact of changes in foreign exchange rates, net of the
    offsetting impact of forward exchange contracts, on both revenue and operating
    earnings, for each of the Company's reportable segments, and on a consolidated
    basis, has been summarized in the table below. The impact on consolidated
    operating earnings from translation was not material in the third quarter of
    fiscal 2005.

    Automation Systems Group
    ASG revenue increased 22% in the third quarter compared to the third
    quarter of last year as a result of a more than 100% increase in healthcare
    revenue, a 67% increase in "other", which is primarily consumer products, and
    a 15% increase in computer-electronics revenue. Growth in these areas more
    than offset a decline in automotive revenue of $9.8 million and the negative
    impact of foreign exchange. For the three and nine months ended
    December 31, 2004, the estimated negative foreign exchange impact on ASG
    revenue was $7.2 million and $22.3 million, respectively. The substantial
    increase in healthcare revenues in recent quarters reflects the Company's
    successful strategy and initiatives to expand its activities in this market
    and growing acceptance of ASG's innovative technology solutions.

    The increase in computer-electronics revenue resulted primarily from
    successful sales initiatives by ASG's US West Coast operations, which led to
    sizeable orders secured during the past few quarters. ATS continues to pursue
    a balanced growth strategy that is intended to secure new revenue
    opportunities in each of its target markets, sustain a healthy mix of new and
    repeat orders, and mitigate cyclical risk through strategic marketing and
    customer diversification.

    ASG third quarter operating earnings were $9.8 million, a $6.3 million or
    178% improvement over the third quarter a year ago reflecting higher revenues
    and improved operating margins. At 6.8%, ASG operating margin improved
    significantly over the margin of 3.0% in the same quarter a year ago due to
    higher revenues and backlog and better resource utilization. Improved
    performance was obtained from all ASG regions with the exception of Europe
    where difficult market conditions continue to exist. The performance of ASG's
    US West Coast operations continued to improve as a result of the substantial
    order bookings in the past few quarters and better project execution achieved
    under strengthened management.

    Sequentially, ASG operating margin declined 0.9% from the second quarter
    due largely to costs related to continuing expansion into healthcare and
    continued currency fluctuations. The effect of foreign currency fluctuations
    in the third quarter compared to the second quarter was an estimated reduction
    in operating earnings of $1.2 million. During the quarter, ASG also incurred
    costs to enhance its standard technologies, including SuperTrak(TM), ATS MACS
    and ATS SmartVision, to meet both the current and future needs of the
    healthcare market. As part of the Company's strategic initiative to diversify
    revenue, the Company secured its first significant healthcare order for ATS
    Europe. This project is expected to provide further skill development and
    establish credibility for ATS Europe to attract additional healthcare business
    in Europe. The Company expects to incur a loss on this project reflecting
    first-time healthcare skills development at its European facilities. In
    accordance with its accounting policies, the Company provided for this loss in
    the third quarter. While this decision negatively impacted results in the
    third quarter, management believes this strategic decision is an important
    initiative to gain access to the significant healthcare markets in Europe.

    Other factors that negatively impacted third quarter operating results
    were further advancement of standard pharmaceutical inspection platforms,
    personnel-related costs, non-recurring engineering costs, and increased profit
    sharing expense tied to improved results in ASG. Compared to the same periods
    of fiscal 2004, the estimated negative impact of foreign currency on ASG
    operating earnings for the three and nine months ended December 31, 2004 was
    $2.4 million and $11.2 million, respectively.

    The ASG contract equipment manufacturing initiative to serve the
    healthcare industry also continued to perform well, with substantial revenue
    growth producing positive contributions to ASG operating income. Revenue from
    this initiative in the third quarter was $8.9 million compared to $5.1 million
    of the third quarter last year, a 75% increase. As part of this initiative,
    the Company makes strategic use of PCG's infrastructure, lower wage rates and
    repetitive manufacturing skill sets to successfully supply sophisticated
    equipment and work cells.

    ASG operating earnings for the first nine months of fiscal 2005 were
    $26.5 million (operating margin of 6.6%) compared to $15.1 million (4.5%
    operating margin) in the same period of fiscal 2004. The improvement in
    operating results and margin reflects the factors previously discussed.

    Subsequent to the third quarter, to accommodate growth of its ASG Ohio
    operations, the Company entered into a contractual agreement, subject to
    certain conditions, to purchase a 37,000 square foot facility adjacent its
    existing facility for US$1.6 million.

    Automation Systems Backlog
    At December 31, 2004, ASG Order Backlog was $232 million, $51 million
    (28%) higher than a year ago and $20 million (8%) lower than at the end of the
    second quarter. New ASG Order Bookings totaled $124 million in the third
    quarter, 32% higher than in the same period a year ago. Order Bookings for the
    first nine months of fiscal 2005 were $395 million, 15% higher than a year
    earlier. Order Bookings in the first five weeks of the fourth quarter were
    $26 million.

    Automation Systems Outlook: While order backlog has improved
    significantly year-over-year, management believes that customers continue to
    remain cautious toward capital spending. By market, the Company continues to
    believe that healthcare offers excellent short and long-term growth
    opportunities and significant resources have been allocated to capture these
    opportunities. Certain areas of computer-electronics are also providing growth
    opportunities, and as witnessed in the second quarter, some
    computer-electronics customers appear more willing to commit to significant
    projects than in the recent past. The automotive market continues to be
    challenging; however, there continues to be a reasonably steady order flow
    from this market, as evidenced by the $17 million automotive order that was
    won and announced during the third quarter.

    Management continues to respond to these market conditions by broadening
    the Company's customer base into healthcare (including pharmaceutical,
    biomedical and medical device customers), intensifying the marketing of ATS
    standard technologies and developing new standard platform technologies for
    launch at trade shows in fiscal 2006. In early fiscal 2006, ASG intends to
    introduce three such platforms. These will be launched at the healthcare
    industry's Interphex trade show in New York in April and are intended to
    provide additional sales catalysts in high growth application areas including
    automated vision inspection. ASG's Compliant Solutions(TM) group, which was
    started at the beginning of this fiscal year, is progressing well. The group
    has had success in winning a number of consulting service contracts and from a
    strategic perspective, the group has also provided opportunities for much
    larger automation systems orders.

    Management believes that the Company's quotation activity in North
    America, ASG's largest market, remains reasonably strong. Due to continuing
    soft economic conditions for capital equipment manufacturers, Europe is
    currently ASG's weakest geographic market and this will likely keep pricing
    pressure intense in this region. Asian quoting activity has recently improved
    as a result of increases in economic activity and the continuing migration of
    manufacturing companies to Asian countries. However, Asia remains a price
    sensitive market. The recent tragedy in southeast Asia caused by the tsunami
    had no direct impact on ATS operations in this region.

    Management believes that period-end order backlog continues to provide a
    healthy foundation for growth and enhanced performance and the backlog is more
    evenly distributed among ASG operating divisions than it was a year ago. These
    factors are expected to facilitate further overall improvements in resource
    utilization across many of the Company's ASG facilities and contribute to
    higher operating margins and earnings.

    Solar Group
    Solar Group revenue, which is currently derived from Photowatt, was
    $37.4 million (or 36%) higher in the third quarter compared to the third
    quarter last year. As a result, the Group surpassed its previous record for
    revenue set in the first quarter of fiscal 2005 and entrenched itself as ATS's
    second largest operating Group. Over the first nine months of fiscal 2005,
    Photowatt's revenue was $102.8 million, or 65% higher than in the comparable
    period of fiscal 2004. The increase in revenues in the third quarter and on a
    year to date basis over fiscal 2004 reflect continuing strong demand,
    primarily as a result of attractive government incentive programs, and higher
    market selling prices. Changes in exchange rates did not have a material
    impact on Solar Group revenue or operating earnings for the three or nine
    months ended December 31, 2004.

    Solar Group operating earnings for the third quarter were $3.4 million,
    compared to $2.1 million a year ago - also a new record. At 9.1% Solar
    operating margin in the third quarter improved solidly over the 7.7% operating
    margin in the same quarter a year ago. For the nine months ended
    December 31, 2004 Solar Group operating earnings of $7.2 million were
    $5.0 million higher than the $2.2 million earned in the first three quarters
    of fiscal 2004 and year-over-year operating margin has more than doubled from
    3.4% to 7.0%. Despite a more than 75% increase in the spot market prices of
    silicon feedstock this year (a primary raw material in producing solar
    products), growth in Solar Group operating earnings and operating margins in
    both periods was achieved due to increased revenues, economies of scale,
    silicon supply management, and continued efficiency gains from capital
    investments made over the last two fiscal years.

    Solar Outlook
    Demand for Solar products is expected to remain strong as a result of
    subsidy programs introduced in Germany at the beginning of calendar 2004 and
    growing demand for clean renewable energy. Higher demand has resulted in
    concerns about industry-wide shortages for silicon feedstock and has increased
    silicon prices. Photowatt has secured sources of silicon for the majority of
    its capacity for the next six months and is continuing to devote significant
    efforts to secure silicon supply for the balance of 2006. Management believes
    Photowatt will end fiscal 2005 with strong revenues and operating earnings,
    although silicon shortages and traditional winter seasonality may moderate
    volumes during the fourth quarter compared to the third quarter.

    The Company's Spheral Solar Power ("SSP") development initiative
    continues to progress. All factory workstations have now been activated,
    enabling SSP to begin working on factory ramp up which is expected to continue
    well into fiscal 2006 with target capacity expected to be achieved likely late
    in fiscal 2006. In the fourth quarter SSP expects to ship very modest volumes
    of SSP's flex module to catalogue retailers and distributors. These shipments
    are intended to build credibility and further stimulate market demand.
    Lifecycle testing completed to date on the durability and reliability of the
    flex module has been positive. SSP also developed an initial prototype of its
    integrated solar roofing technology in concert with its partners at Elk
    Corporation. Elk is now developing marketing strategies for this product and
    SSP is conducting accelerated life testing to verify this product can
    withstand harsh environmental conditions. Management believes the outlook for
    SSP is excellent because demand for solar is growing, SSP opens entirely new
    solar market applications and is expected to use less silicon per watt than
    conventional solar products.

    During the quarter, as a result of the significant progress made in the
    quarter with the commissioning of the commercial-scale SSP factory equipment,
    the prototype pilot line and other related development tools were
    de-commissioned. As such, approximately $7 million of capital assets were
    re-classified in the quarter from capital assets to deferred development costs
    on the balance sheet.

    Precision Components Group
    Third quarter PCG revenue decreased 16% or $5.4 million to $29.1 million
    compared to the third quarter of fiscal 2004 as a result of weakness in the
    automotive market and lower US exchange rates. Customer plant shutdowns in the
    final month of the third quarter necessitated a two week shutdown of PCG
    operations, which negatively affected revenues. The estimated negative foreign
    exchange impact on revenue in the quarter and for the first nine months was
    $2.7 million and $7.2 million, respectively.

    PCG incurred an operating loss of $1.9 million compared to operating loss
    of $1.0 million in the third quarter a year ago due to the aforementioned
    customer plant shutdowns and low demand- which reduced overhead absorption -
    as well as higher raw material costs, and the negative impact of foreign
    currency. PCG's operating loss for the first nine months of fiscal 2005 was
    $4.9 million compared to an operating loss of $1.7 million in the same period
    of fiscal 2004, for the reasons previously mentioned. The estimated negative
    impact of foreign currency on Group operating earnings was $1.7 million and
    $3.4 million, for the three and nine months ended December 31, 2004.

    Sequentially, PCG reduced its operating loss by $0.4 million or 17% from
    the second quarter of fiscal 2005 due to the implementation of a number of
    initiatives which are intended to restore profitability. As part of these
    initiatives, employment was reduced year-over-year by 21% and at
    December 31, 2004 PCG total employment was 7% lower than at the end of the
    second quarter. Management estimates that as a result of its pricing
    negotiation strategies, approximately $0.6 million (69%) of the increase in
    PCG's steel purchase prices were recovered from customers in the quarter. In
    the fourth quarter, as new pricing negotiated with customers takes effect, the
    recovery of higher steel prices from customers is estimated to increase to
    85%. Also included in these initiatives is a global raw material procurement
    strategy, which did not reduce costs as much as expected in the third quarter
    because it is taking longer than expected to qualify Asian sources. However,
    savings from this program are being realized and are expected to accelerate in
    the fourth quarter and into fiscal 2006. On a year-over-year basis, PCG's cost
    saving measures were offset by the decline in revenue and effects of foreign
    exchange.

    On February 4, 2005, the Company announced, that as part of the
    continuing strategic initiative to drive an earnings recovery for PCG, it will
    close its manufacturing facility in McAllen, Texas. The closure of this
    facility and the assimilation of McAllen's production into existing PCG
    facilities are expected to reduce overall operating costs and improve asset
    utilization. In accordance with GAAP, beginning in the fourth quarter of this
    fiscal year, the Company expects to expense cash expenditures associated with
    transferring production, relocating equipment and inventory and employment
    severance. Management currently estimates that the cash costs associated with
    moving the business will be approximately $1 million. Management believes it
    is possible non-cash charges may also be incurred by the Group depending on
    the amount of value realized on disposition of assets that will not be
    transferred to other PCG facilities, including sale of the land and building,
    which is owned by ATS. As of December 31, 2004, the book value of the land,
    building and production equipment of ATS Texas was approximately
    US$5.0 million and the operations had approximately 70 employees.

    Precision Components Outlook
    PCG continues to aggressively pursue an earnings recovery and as noted,
    has streamlined its operations to create a stronger, more focused platform for
    the future. More gains are expected to accrue from its global sourcing
    strategy, and ongoing enhancement initiatives resulting from the application
    of Six Sigma. It is unlikely that the Group will achieve profitability in the
    fourth quarter given the challenge presented by the strong Canadian dollar and
    volatile automotive market conditions. The effect of some of the more
    significant initiatives will require time before expected benefits begin to be
    realized. PCG also continues to actively quote, and has recently secured,
    incremental new business that makes greater use of existing production
    equipment and facilities as a means to further enhance operating income.

    Liquidity, Cash Flow and Financial Resources
    Cash balances, net of bank indebtedness, at December 31, 2004 increased
    $25 million during the third quarter of fiscal 2005. Cash provided from
    operating activities was $24 million, an improvement of $8 million compared to
    the third quarter of fiscal 2004. Cash flows from operating activities
    increased for the third quarter of fiscal 2005 largely as a result of a
    reduced working capital within ASG. ASG working capital requirements often
    fluctuate significantly from quarter to quarter.

    The Company invested $9 million in property, plant and equipment and
    other investments, including deferred development, in the third quarter of
    fiscal 2005. Investments made in SSP in the third quarter of fiscal 2005, net
    of government funding, were $4 million for capital assets and deferred
    development. Total investment in the SSP initiative, net of government
    funding, was $91 million at December 31, 2004, including the costs of the
    development program announced by ATS in July 2002 and the acquisition costs
    for the initial technology and related assets. To date, all significant costs
    of the development program, including the costs of acquiring the initial
    technology, have been capitalized on the Company's balance sheet. The Company
    expects the deferred development period for SSP will end no later than
    September 30, 2005. During the quarter the Company began construction of a
    57,000 square foot building addition in Oregon. This investment will allow the
    Company to consolidate its Oregon ASG operations, reduce costs, and increase
    efficiencies.

    During the third quarter, 25,760 stock options were exercised for total
    proceeds of $0.1 million. At December 31, 2004 the total number of shares
    outstanding was 60,761,225.

    Management believes the Company's cash flow from operations, sound
    balance sheet and access to unutilized credit provide ATS with the financial
    resources to execute its business plans and pursue strategic opportunities.
    The Company's debt to equity ratio at December 31, 2004 was 0.1:1 unchanged
    from September 30, 2004 and March 31, 2004. At December 31, 2004 the Company
    had $90 million of unutilized credit available under existing operating and
    term credit facilities. The Company is in compliance with its loan covenants.

    Subsequent Event
    Following the tragic passing of Mr. Klaus Woerner, ATS's President and
    Chief Executive Officer, on February 7, 2005, the Company announced the
    appointment of Ron Jutras as President and Chief Executive Officer of the
    Company and Gerry Beard as Vice President and Chief Financial Officer of the
    Company.

    Under an agreement entered into in 1998, the Company was granted the
    option by 566226 Ontario Ltd., a corporation controlled by Mr. Woerner, to
    repurchase all or a portion of the shares held by 566226 Ontario Ltd., subject
    to certain restrictions. This agreement was entered into to provide the
    Company the ability to ensure an orderly disposition of shares controlled by
    Mr. Woerner. This option expires on the 75th business day following his death.
    To provide partial funding for the potential purchase of these shares the
    Company has maintained a "key-man" life insurance policy in respect of Mr.
    Woerner in the amount of $25,000,000. At this time, no decision has been made
    with respect to the exercise of this option.

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