ATS REPORTS SECOND QUARTER FISCAL 2011 RESULTS

News provided by

Nov 03, 2010, 06:00 ET

TSX: ATA

CAMBRIDGE, ON, Nov. 3 /CNW/ - ATS Automation Tooling Systems Inc. ("ATS" or the "Company") today reported its financial results for the three and six months ended September 26, 2010.

Second Quarter Summary

Consolidated revenues were $162.0 million compared to $151.1 million in the first quarter of the fiscal year and $148.2 million in the same period a year ago;
Consolidated earnings from operations were $5.5 million compared to $9.7 million in the first quarter of the fiscal year and $9.3 million in the same period a year ago;
Per share earnings were $0.04 (basic and diluted) compared to $0.07 (basic and diluted) in the first quarter of the fiscal year and $0.07 (basic and diluted) in the same period a year ago;
The Company ended the period with a strong balance sheet with cash net of debt of $83.4 million at September 26, 2010.

"Our Automation Systems Group ("ASG") operating results were strong despite challenging conditions, however the Company's overall results were dampened by Photowatt," said Anthony Caputo, Chief Executive Officer. "Our growth plans for ASG are advancing. With the recent acquisition of Sortimat and future acquisitions, we are further tilting the balance of our business towards automation."

The integration of Sortimat is proceeding on plan and is focused on applying best practices to improve overall performance. This will take several quarters and until Sortimat is fully integrated, ASG operating margins will remain below historical levels. Both ASG and Sortimat will benefit from combined supply chain efficiencies, program management processes and other shared best practices and business systems. The new management team to lead ASG's businesses in the life sciences market is now in place.

The Company, in relation to separation of Photowatt, has engaged independent advisors to assist in identifying and evaluating strategic alternatives. Conditions in the solar and capital markets will be a consideration in the timing and form of separation. In the interim, the Company will continue to take necessary actions to operate and improve the business in both France and Ontario.

Financial Results

In millions of dollars, except per share data		3 months ended Sept 26, 2010	3 months ended Sept 27, 2009	6 months ended Sept 26, 2010	6 months ended Sept 27, 2009

Revenues	Automation Systems Group	$ 117.8	$ 97.0	$ 224.4	$ 212.2
	Photowatt Technologies	45.1	51.5	93.9	91.6
	Inter-segment	(0.9)	(0.3)	(5.1)	(2.9)
	Consolidated	$ 162.0	$ 148.2	$ 313.2	$ 300.9
EBITDA	Automation Systems Group	$ 17.0	$ 15.3	$ 34.6	$ 32.0
	Photowatt Technologies	0.9	4.7	4.0	1.3
	Corporate and Inter-segment elimination	(6.2)	(4.5)	(12.0)	(11.1)
	Consolidated	$ 11.7	$ 15.5	$ 26.6	$ 22.2
Net income	Consolidated	$ 3.3	$ 6.0	$ 9.7	$ 6.3
Earnings per share	From continuing operations (basic & diluted)	$ 0.04	$ 0.07	$ 0.11	$ 0.07

ASG Second Quarter Results

Revenues increased to $117.8 million in the second quarter of fiscal 2011 compared to first quarter revenues of $106.6 million and $97.0 million a year ago reflecting the addition of Sortimat's businesses and improved Order Bookings compared to the prior periods;
EBITDA was $17.0 million compared to $17.7 million in the first quarter of this fiscal year and $15.3 million in the same period a year ago;
Earnings from operations were $14.5 million (operating margin of 12%) compared to $15.9 million (operating margin of 15%) in the first quarter of this fiscal year and $13.6 million (operating margin of 14%) in the same period a year ago;
Period end Order Backlog was $208 million, a decrease of 3% from $215 million in the first quarter of this fiscal year and up from $197 million a year ago;
Order Bookings were 24% higher at $105 million compared to $85 million in the first quarter of fiscal 2011 and 48% higher compared to $71 million in the second quarter of fiscal 2010;
Order Bookings were $34 million during the first five weeks of the third quarter.

Despite the 21% year-over-year increase in revenues in the second quarter, ASG's operating margin decreased to 12% reflecting lower profitability in Sortimat's businesses and incremental amortization related to identifiable intangible assets recorded on the acquisition of Sortimat. Revenues increased year over year by 21% in life sciences, 363% in computer-electronics, 12% in transportation, and 65% in "other" markets (primarily consumer products), partially offset by declines of 4% in the energy market. Increased volumes in ASG were partially offset by year-over-year foreign exchange rate changes which negatively impacted the translation of revenues due to the strong Canadian dollar relative to the U.S. dollar and Euro.

Photowatt Second Quarter Results

Revenues were $45.1 million, an 8% decrease over fiscal 2011 first quarter revenues of $48.8 million and a 12% decrease from $51.5 million a year ago;
EBITDA was $0.9 million compared to EBITDA of $3.2 million in the first quarter of fiscal 2011 and EBITDA of $4.7 million a year ago;
Loss from operations was $2.6 million compared to a loss from operations of $0.1 million in the first quarter of fiscal 2011 and operating earnings of $0.6 million a year ago;
Total megawatts (MWs) sold decreased 12% to 10.0 MWs from 11.4 MWs in the first quarter of fiscal 2011, and were 6% lower than the 10.6 MWs sold a year ago.

Second quarter fiscal 2011 revenues included $12.2 million of revenues generated primarily from the sale of excess raw material inventory, which was sold for approximately its net book value. The year-over-year decline in revenues reflected lower average selling prices, lower MWs sold and a decline in system sales. Revenues from the sale of systems decreased 35% to $20.1 million from $30.7 million a year ago. The decline in Photowatt's operating margin reflected lower revenues and incremental costs related to the start-up of Photowatt Ontario as well as higher operating costs incurred at Photowatt's joint venture, PV Alliance, to ramp-up in advance of the launch of its 25 MW cell line, which is expected in the third quarter of this fiscal year. Year-over-year foreign exchange rate changes negatively impacted the translation of revenues at PWF due to the strong Canadian dollar relative to the Euro.

Quarterly Conference Call

ATS's quarterly conference call begins at 10 am eastern today and can be accessed over the Internet at www.atsautomation.com or on the phone at 416 644 3423.

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, automotive 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 growing solar energy industry. ATS employs approximately 2,700 people at 17 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. Visit the Company's website at www.atsautomation.com.

Management's Discussion and Analysis

This Management's Discussion and Analysis ("MD&A") for the three and six months ended September 26, 2010 (second quarter of fiscal 2011) is as of November 2, 2010 and provides information on the operating activities, performance and financial position of ATS Automation Tooling Systems Inc. ("ATS" or the "Company") and should be read in conjunction with the unaudited interim consolidated financial statements of the Company for the second quarter of fiscal 2011. The Company assumes that the reader of this MD&A has access to and has read the audited annual consolidated financial statements and MD&A of the Company for the year ended March 31, 2010 (fiscal 2010) and the unaudited interim consolidated financial statements and MD&A for the three months ended June 27, 2010 and, accordingly, the purpose of this document is to provide a second quarter update to the information contained in the fiscal 2010 MD&A. These documents and other information relating to the Company, including the Company's fiscal 2010 audited annual consolidated financial statements, MD&A and annual information form may be found on SEDAR at www.sedar.com.

Notice to Reader

The Company has two reportable segments: Automation Systems Group ("ASG") and Photowatt Technologies ("Photowatt") which includes Photowatt France ("PWF") and Photowatt Ontario ("PWO"). References to Photowatt's cell ''efficiency'' means the percentage of incident energy that is converted into electrical energy in a solar cell. Solar cells and modules are sold based on wattage output.

Non-GAAP 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 revenues. 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 Canadian generally accepted accounting principles ("GAAP") 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-GAAP financial measures such as operating earnings and EBITDA in making investment decisions about the Company and measuring its operational results. A reconciliation of operating earnings and EBITDA to total Company net income for the first and second quarters of fiscal 2011 and 2010 is contained in this MD&A (See "Reconciliation of EBITDA to GAAP Measures"). EBITDA should not be construed as a substitute for net income determined in accordance with GAAP. Order Bookings represent new orders for the supply of automation systems and products that management believes are firm. Order Backlog is the estimated unearned portion of ASG revenues 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 first and second quarters of fiscal 2011 and 2010 is contained in the MD&A (See "ASG Order Backlog Continuity").

Acquisition of Sortimat

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. Headquartered in Germany, and established in 1959, Sortimat also has locations in Chicago and a small, 60% owned subsidiary in India. Sortimat is being integrated into the Company's ASG segment.

The Sortimat acquisition aligns with ATS's strategy of expanding its position in the global automation market and enhancing growth opportunities, particularly in strategic segments, such as life sciences. The Company will benefit from Sortimat's significant experience and products in advanced system development, manufacturing, handling, and feeder technologies. This acquisition has 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 its exposure to this market segment and help customers differentiate themselves from their competitors. To implement the integration and effect margin improvements, the Company has deployed people to apply best practices, command and control, and program management and to advance approach to market.

The total cash consideration paid for Sortimat was $51.9 million (40.4 million Euro), which included $2.4 million of acquisition related costs, primarily for advisory services. Potential future payments of up to $8.5 million (6.6 million Euro), which are payable subject to the achievement of milestones related to operating performance and specific management services to be provided over the next two and a half years, are not included in the cost of acquisition. During the three and six months ended September 26, 2010 the Company recognized in selling, general and administrative expense $0.4 million and $0.6 million respectively related to specific management services.

Automation Systems Group Segment

ASG Revenues

(In millions of dollars. Figures include intersegment revenues)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009
Revenues by industry
Life sciences	$ 51.5	$ 42.4	$ 90.9	$ 78.4
Computer-electronics	8.8	1.9	22.8	16.2
Energy	32.4	33.9	73.3	75.2
Transportation	12.4	11.1	21.5	25.2
Other	12.7	7.7	15.9	17.2
Total ASG revenues	$ 117.8	$ 97.0	$ 224.4	$ 212.2

Second Quarter

ASG second quarter revenues were 21% higher than a year ago; primarily as a result of the incremental $18.2 million of revenues earned by Sortimat and the 48% increase in Order Bookings compared to the second quarter a year ago. Quarter-over-quarter foreign exchange rate changes negatively impacted the translation of revenues derived at foreign operations, due to the strong Canadian dollar relative to the U.S. dollar and Euro.

By industrial market, revenues from life sciences increased by 21% primarily as a result of the incremental revenues earned by Sortimat, the majority of which was generated in the life sciences market. The 363% increase in computer-electronics revenues reflected higher Order Bookings in the second quarter. Revenues generated in the energy market decreased 4% on lower Order Backlog entering the quarter. The 12% improvement in transportation revenues compared to a year ago reflected higher Order Bookings in the first two quarters of the year. "Other" revenues increased 65% year over year due primarily to higher consumer products revenues.

Year-to-date

ASG revenues for the six months ended September 26, 2010 increased 6% compared to the corresponding period of fiscal 2010. The increase reflected Sortimat's year-to-date contribution to revenues of $23.6 million, as well as higher Order Bookings through the first half of fiscal 2011 compared to 2010. Year-to-date foreign exchange rate changes negatively impacted the translation of revenues derived at foreign operations, due to the strong Canadian dollar relative to the U.S. dollar and Euro.

By industrial market, year-to-date revenues from life sciences and computer-electronics increased 16% and 41% respectively compared to the corresponding period last year. Revenues in energy, transportation, and "Other" markets decreased 3%, 15% and 8% respectively compared to the same period a year ago.

ASG Operating Results

(In millions of dollars. Figures include intersegment revenues)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009


Earnings from operations	$ 14.5	$ 13.6	$ 30.4	$ 28.4
Depreciation and amortization	2.5	1.7	4.2	3.6
EBITDA	$ 17.0	$ 15.3	$ 34.6	$ 32.0

Second Quarter

Fiscal 2011 second quarter ASG earnings from operations were $14.5 million (12% operating margin) compared to earnings from operations of $13.6 million (14% operating margin) in the second quarter of fiscal 2010. Higher earnings from operations reflected higher revenues in the second quarter of fiscal 2011 compared to the corresponding period a year ago. Higher earnings from operations were partially offset by the inclusion of Sortimat's businesses, which currently have lower operating margins than ASG's other operations. In the second quarter of fiscal 2010, ASG recognized a benefit of $2.5 million of incremental investment tax credits utilized to reduce taxes payable, partially offset by severance and restructuring charges of $1.6 million related to division closures and workforce reductions.

ASG depreciation and amortization expense increased to $2.5 million in the second quarter of fiscal 2011 compared to $1.7 million in the same period a year ago. The increase in fiscal 2011 second quarter depreciation and amortization primarily related to a $0.8 million increase in amortization on the identifiable intangible assets recorded on the acquisition of Sortimat.

Year-to-date

For the six months ended September 26, 2010, ASG earnings from operations were $30.4 million (14% operating margin) compared to earnings from operations of $28.4 million (13% operating margin) in the corresponding period a year ago. Included in fiscal 2010 operating earnings was $3.7 million of severance and restructuring expenses and the benefit of a $2.5 million incremental investment tax credit. Excluding these prior year items, ASG operating earnings for the first half of fiscal 2010 were $29.6 million (14% operating margin). The improvement in fiscal 2011 earnings from operations resulted from higher revenues, partially offset by lower profitability in Sortimat's businesses.

ASG depreciation and amortization expense was $4.2 million in the first six months of fiscal 2011 compared to $3.6 million in the same period a year ago. The increase in fiscal 2011 depreciation and amortization primarily related to a $1.1 million increase in amortization on the identifiable intangible assets recorded on the acquisition of Sortimat.

ASG Order Bookings

Fiscal 2011 second quarter ASG Order Bookings were $105 million, 48% higher than the second quarter of fiscal 2010, reflecting the addition of Sortimat's businesses and improved Order Bookings in computer-electronics, transportation and energy. Order Bookings in the first five weeks of the third quarter of fiscal 2011 were $34 million.

ASG Order Backlog Continuity

(In millions of dollars)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009
Opening Order Backlog	$ 215	$ 230	$ 209	$ 255
Revenues	(118)	(97)	(224)	(212)
Order Bookings	105	71	190	167
Order Backlog adjustments¹	6	(7)	33	(13)
Total	$ 208	$ 197	$ 208	$ 197

¹ Order Backlog adjustments include foreign exchange and cancellations and incremental Order Backlog of $27 million acquired in the first quarter through the Sortimat acquisition.

Order Backlog by Industry

(In millions of dollars)

As at	Sept 26, 2010	Sept 27, 2009
Life Sciences	$ 78	$ 105
Computer-electronics	14	11
Energy	48	35
Transportation	29	20
Other	39	26
Total	$ 208	$ 197

At September 26, 2010, ASG Order Backlog was $208 million, 6% higher than at September 27, 2009, primarily reflecting increased Order Bookings in the second quarter of fiscal 2011 and Sortimat's Order Booking and Order Backlog contribution.

ASG Outlook

In the short term, management believes business investment and capital spending by customers will remain low. The general economic environment, which negatively impacted the Company throughout fiscal 2010, remains volatile. Despite signs of improvement in some of ASG's customers' markets, many customers are continuing to push-out spending and delay investment decisions. Management expects that this will continue to cause volatility in Order Bookings and put pressure on revenues in the short-term. As the global economy and some of the Company's markets have shown some signs of strengthening, activity in ASG's front-end of the business has increased. However, management believes that increased capital spending will continue to lag the general economic recovery as companies are hesitant to invest until their markets stabilize and/or show signs of growth.

ASG continues to maintain profitable operating margins, despite difficult market conditions and competitive pressures. Low volumes and revenues are expected to continue to present challenges to maintaining margins at current levels. Management expects that the implementation of its strategic initiatives to improve leadership, business processes and supply chain management will continue to have a positive impact on ASG operations. However, the impact of these initiatives will also be affected by current market conditions and lower Order Bookings and Order Backlog.

The integration of Sortimat is progressing. The new management team to lead ASG's businesses in the life sciences market is in place, with management drawn from both Sortimat and ATS. Efforts to integrate Sortimat into ASG's sales and marketing, program management, administration and command and control processes are moving ahead. Additional initiatives to reduce operating costs are underway and management expects that they will be implemented during the third quarter of fiscal 2011. Management expects that until Sortimat is fully integrated, ASG operating margins will be negatively impacted.

Management believes the Company's strong balance sheet, approach to market and operational improvements will provide a solid foundation for ASG to improve performance when the general business environment, including capital investment, stabilizes and returns to growth.

The Company's strong financial position also provides ASG with the flexibility to pursue its growth strategy. The Company is actively seeking to expand its position in the global automation market organically and through acquisition. Management is continuing to review a number of opportunities and is actively in discussions and conducting due diligence with respect to certain of these opportunities. The completion and timing of any transaction resulting from such discussions is dependent on a number of factors, including: completion of satisfactory due diligence; negotiation of agreements; and, requisite Board of Directors and other approvals.

Photowatt Technologies Segment

Photowatt Revenues

(In millions of dollars)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009
Total Revenues	$ 45.1	$ 51.5	$ 93.9	$ 91.6

Second Quarter

Photowatt's fiscal 2011 second quarter revenues of $45.1 million were 12% lower than the second quarter of fiscal 2010. Included in the revenues earned in the three months ended September 26, 2010 was $12.2 million of revenues generated from the sale of excess raw material inventory, which was sold for approximately its net book value.

Excluding the revenues from raw material sales, Photowatt's second quarter revenues were 36% lower than the corresponding period a year ago, reflecting lower average selling prices and a decrease in system sales. A decrease in total megawatts ("MWs") sold to 10.0 MWs from 10.6 MWs a year ago also negatively impacted second quarter fiscal 2011 revenues. Revenues from the sale of systems decreased to $20.1 million from $30.7 million in the second quarter of fiscal 2010 due primarily to lower average selling prices per watt. Quarter-over-quarter foreign exchange rate changes negatively impacted the translation of revenues earned at PWF due to the strong Canadian dollar relative to the Euro.

Year-to-date

Photowatt revenues for the first six months of fiscal 2011 increased 3% compared to the same period a year ago. Higher year-over-year revenues reflected $19.3 million of revenues generated primarily from the sale of raw material inventory, which was sold for approximately its net book value.

Excluding the revenues from raw material sales, Photowatt's revenues were lower by 19%. Lower revenues reflected lower average selling prices per watt, decreased systems sales of $46.3 million compared to $55.5 million a year ago and the strong Canadian dollar relative to the Euro, which negatively impacted the translation of revenues earned at PWF. These year-over-year decreases were partially offset by an increase in MWs sold to 21.4 MWs in fiscal 2011 from 18.9 MWs a year ago.

Photowatt Operating Results

(In millions of dollars)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009

Earnings (loss) from operations	$ (2.6)	$ 0.6	$ (2.8)	$ (6.9)
Depreciation and amortization	3.5	4.1	6.8	8.2
EBITDA	$ 0.9	$ 4.7	$ 4.0	$ 1.3

Second Quarter

Photowatt fiscal 2011 second quarter loss from operations was $2.6 million (negative 6% operating margin) compared to operating earnings of $0.6 million (1% operating margin) for the corresponding period a year ago. The year-over-year decline in operating earnings reflected lower revenues and incremental costs related to the start-up of PWO, which has not begun to generate revenues.

Operating costs from PWF's joint venture PV Alliance ("PVA") increased to $0.4 million compared to break-even a year ago as activity ramped-up in advance of the launch of the PVA's 25 MW cell line, which is expected in the third quarter of fiscal 2011.

Photowatt's second quarter operating results in both fiscal 2011 and 2010 were also negatively impacted by its annual three-week PWF factory shut-down.

Photowatt's fiscal 2011 second quarter depreciation and amortization expense was $3.5 million compared to $4.1 million in the second quarter of fiscal 2010, partially reflecting the stronger Canadian dollar relative to the Euro, which impacted the translation of PWF's depreciation and amortization expenses.

Year-to-Date

Photowatt's loss from operations for the six months ended September 26, 2010 was $2.8 million (negative 3% operating margin) compared to a loss from operations of $6.9 million (negative 8% operating margin) for the corresponding period a year ago. Included in last year's operating loss was a $4.7 million warranty charge related to a specific customer contract which contained an incremental performance clause beyond Photowatt's standard warranty terms.

Excluding the prior year warranty charge, operating profitability declined in the first two quarters of fiscal 2011 when compared to fiscal 2010. The year-over-year decline in operating results reflected a reduction in system sales and lower average selling prices, partially offset by higher MWs sold and lower direct manufacturing costs-per-watt.

Photowatt's fiscal 2011 year-to-date loss from operations included incremental costs related to the PWO start-up, which was initiated during the third quarter of fiscal 2010. Operating costs from PWF's joint venture PV Alliance increased to $0.7 million compared to $0.1 million a year ago.

Photowatt's depreciation and amortization expense for the six months ended September 26, 2010 was $6.8 million compared to $8.2 million for the corresponding period last year. The decrease reflected the stronger Canadian dollar relative to the Euro, which impacted the translation of PWF's depreciation and amortization expense.

Photowatt Outlook

Management believes that solar power is, and for the foreseeable future will be, affected by and largely dependent on the existence of government incentives. Reductions in feed-in tariffs for solar energy implemented in Germany and France and anticipated further reductions are expected to have a negative impact on average selling prices per watt. Increased industry capacity, particularly from low-cost manufacturers in Asia, is expected to further negatively impact average selling prices per watt. Reductions in feed-in-tariffs are also causing volatility in orders as solar distributors, developers and installers pull in orders to take advantage of current feed-in-tariffs before they are reduced. This volatility is also reducing visibility into Photowatt's mid and long-term pipeline.

In France, PWF has secured sales for a significant portion of its capacity for the third quarter of fiscal 2011; however, revenues will be impacted by lower year-over-year average selling prices.

In Ontario, PWO has secured conditional feed-in tariff approvals totalling approximately 64 MWs related to large scale renewable energy applications made by a project development joint venture, Ontario Solar PV Fields ("OSPV") in which ATS holds a 50% interest. OSPV will utilize a range of solar solutions including modules manufactured by ATS in Cambridge, Canada. OSPV is now in the process of obtaining necessary joint venture partner approvals and other requisite approvals. OSPV's next steps include efforts to arrange financing and ultimate project ownership. PWO has signed agreements with developers who are in the process of securing conditional feed-in tariff approvals for a number of projects. PWO will provide modules and other related services to these projects. Production from the Company's 100 MW module line will begin in the third quarter of fiscal 2011, with production expected to ramp-up to full capacity to meet demand in early fiscal 2012.

Management is pursuing other downstream alternatives to create an additional market for Photowatt's products, including working with manufacturing partners to identify and expand its pipeline of both ground-mount and roof-top solar energy projects. Management expects improvements in cell efficiency, manufacturing yields and throughput will continue to reduce Photowatt's direct manufacturing costs-per-watt. Management does not know to what extent planned cost reductions will offset the impact of the expected decline in average selling prices on operating earnings. Management is now proceeding with a plan to reduce Photowatt's cost structure to keep it competitive. This plan may cost up to $10 million.

The Company, in relation to the separation of Photowatt, has engaged independent advisors to assist in identifying and evaluating strategic alternatives. The Company has determined it does not meet all of the criteria to classify Photowatt as assets held for sale and its results as discontinued operations in its interim Consolidated Financial Statements as at September 26, 2010. As a result, these assets continue to be classified as held and used. As the form of separation is uncertain, adjustments to carrying value may result, and a write-down, if any, will be recorded in the period determined. Conditions in the solar and capital markets will be a consideration in the timing and form of separation.

Consolidated Results from Operations

(In millions of dollars, except per share data)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009
Revenues	$ 162.0	$ 148.2	$ 313.2	$ 300.9
Cost of revenues	132.7	117.3	253.5	249.9
Selling, general and administrative	23.0	20.7	43.2	39.5
Stock-based compensation	0.8	0.9	1.3	1.7
Earnings from operations	$ 5.5	$ 9.3	$ 15.1¹	$ 9.8
Interest expense	$ 0.6	$ 0.6	$ 1.1	$ 1.1
Provision for income taxes	1.6	2.7	4.3	2.4
Net income	$ 3.3	$ 6.0	$ 9.7	$ 6.3
Earnings per share
Basic and diluted	$ 0.04	$ 0.07	$ 0.11	$ 0.07

¹Rounding

Revenues. At $162.0 million, second quarter consolidated revenues were 9% higher than a year ago. The increase in revenues resulted from a 21% increase in ASG revenues, partially offset by a 12% decrease in Photowatt Technologies revenues. Year-to-date revenues were $313.2 million or 4% higher than for the same period a year ago.

Cost of revenues. Second quarter cost of revenues increased on a consolidated basis by $15.4 million or 13% to $132.7 million. Consolidated gross margin as a percentage of revenues decreased to 18% in the second quarter of fiscal 2011 from 21% in the same period a year ago. The decrease in gross margins reflected a decline in profitability at both ASG and Photowatt. Consolidated year-to-date gross margin increased to 19% from 17% for the same period in the prior year.

Selling, general and administrative ("SG&A") expenses. For the second quarter of fiscal 2011, SG&A expenses increased 11% or $2.3 million to $23.0 million compared to the same period a year ago. Increased spending primarily reflected incremental SG&A expenses incurred in Sortimat and PWO, including $0.8 million of incremental amortization related to identifiable intangible assets recorded on the acquisition of Sortimat, and higher costs related to acquisition activities. SG&A expenses for the second quarter of fiscal 2011 included $0.1 million of Company-wide severance and restructuring costs compared to $1.6 million for the same period in the prior year.

For the six months ended September 26, 2010, SG&A expenses increased 9% or $3.7 million to $43.2 million compared to the same period a year ago. Increased spending primarily reflected incremental SG&A expenses incurred in Sortimat and PWO, including $1.1 million of incremental amortization related to identifiable intangible assets recorded on the acquisition of Sortimat, and higher costs related to acquisition activities. The increase in SG&A expenses has been partially offset by lower severance and restructuring costs of $0.3 million in fiscal 2011, compared to costs of $3.9 million for the corresponding six month period in fiscal 2010.

Stock-based compensation. For the three and six month periods ended September 26, 2010, stock-based compensation expense decreased to $0.8 million and $1.3 million respectively from $0.9 million and $1.7 million a year ago. The decrease primarily reflected the revaluation of deferred stock units.

The expense associated with the Company's performance-based stock options is recognized in income over the estimated assumed vesting period at the time the stock options are granted. Upon the Company's stock price trading at or above stock price performance thresholds for a specified minimum number of trading days within a fiscal quarter, the options vest. When the performance-based options vest, the Company is required to recognize all previously unrecognized expenses associated with the vested stock options in the period in which they vest.

As at September 26, 2010, the following expenses had not been recognized related to performance-based stock options:

Stock price performance threshold	Number of options outstanding	Grant date value per option	Weighted average remaining vesting period	Current year expense (in '000s)	Remaining expense to recognize (in '000s)
$ 8.41	266,667	2.11	0.8 years	$ 90	$ 92
8.50	889,333	1.41	2.4 years	127	540
9.49	41,667	1.66	4.4 years	6	50
10.41	266,667	2.11	2.2 years	62	239
10.50	889,333	1.41	3.3 years	108	643
11.08	218,667	2.77	1.5 years	76	211
12.41	266,666	2.11	3.2 years	51	294
13.08	218,667	2.77	2.5 years	62	285

Earnings from operations. For the three months ended September 26, 2010, consolidated earnings from operations were $5.5 million, compared to $9.3 million a year ago. Fiscal 2011 second quarter performance reflected: operating earnings of $14.5 million at ASG ($13.6 million a year ago); Photowatt Technologies operating loss of $2.6 million (operating earnings of $0.6 million a year ago); and, inter-segment eliminations and corporate expenses of $6.4 million ($4.9 million a year ago).

Year to date consolidated earnings from operations were $15.1 million, compared to earnings from operations of $9.8 million a year ago. Fiscal 2011 year-to-date performance reflected: operating earnings of $30.4 million at ASG ($28.4 million a year ago); Photowatt Technologies operating loss of $2.8 million (operating loss of $6.9 million a year ago); and, inter-segment elimination and corporate expenses of $12.5 million ($11.7 million a year ago).

Interest expense and interest income. Net interest expense was $0.6 million in the second quarter of fiscal 2011 compared to $0.6 million a year ago. For the six months ended September 26, 2010, the net interest expense was $1.1 million compared to $1.1 million in the corresponding period last year. The net interest expense was primarily related to credit facilities at Photowatt.

Provision for income taxes. In the three and six month periods ended September 26, 2010, the Company's effective income tax rate differed from the combined Canadian basic federal and provincial income tax rate of 31% (three and six months ended September 27, 2009 - 33%) primarily as a result of losses incurred in Europe, the benefit of which was not recognized for financial statement reporting purposes.

Net income. Second quarter fiscal 2011 net income was $3.3 million (4 cents per share basic and diluted) compared to net income of $6.0 million (7 cents per share basic and diluted) for the same period last year. Net income in the first six months ended September 26, 2010 was $9.7 million (11 cents per share basic and diluted) compared to net income of $6.3 million (7 cents per share basic and diluted) for the corresponding period a year ago.

Reconciliation of EBITDA to GAAP measures

(In millions of dollars)

	Three Months Ended Sept 26, 2010	Three Months Ended Sept 27, 2009	Six Months Ended Sept 26, 2010	Six Months Ended Sept 27, 2009
EBITDA
Automation Systems	$ 17.0	$ 15.3	$ 34.6	$ 32.0
Photowatt Technologies	0.9	4.7	4.0	1.3
Corporate and inter-segment	(6.2)	(4.5)	(12.0)	(11.1)
Total EBITDA	$ 11.7	$ 15.5	$ 26.6	$ 22.2
Less: Depreciation and amortization expense
Automation Systems	$ 2.5	$ 1.7	$ 4.2	$ 3.6
Photowatt Technologies	3.5	4.1	6.8	8.2
Corporate and inter-segment	0.2	0.4	0.5	0.6
Total depreciation and amortization expense	$ 6.2	$ 6.2	$ 11.5	$ 12.4
Earnings (loss) from operations
Automation Systems	$ 14.5	$ 13.6	$ 30.4	$ 28.4
Photowatt Technologies	(2.6)	0.6	(2.8)	(6.9)
Corporate and inter-segment	(6.4)	(4.9)	(12.5)	(11.7)
Total earnings from operations	$ 5.5	$ 9.3	$ 15.1	$ 9.8
Less: Interest expense	$ 0.6	$ 0.6	$ 1.1	$ 1.1
Provision for income taxes	1.6	2.7	4.3	2.4
Net income	$ 3.3	$ 6.0	$ 9.7	$ 6.3

Foreign Exchange

Strengthening in the value of the Canadian dollar relative to the U.S. dollar and the Euro had a negative foreign exchange translation impact on the Company's revenues and operating earnings in the first and second quarters of fiscal 2011 compared to the same periods of fiscal 2010. ATS follows a transaction hedging program to help mitigate the impact of short-term foreign currency movements. This hedging activity consists primarily of forward foreign exchange contracts used to manage foreign currency exposure. Purchasing third-party goods and services in U.S. dollars by Canadian operations also acts as a partial offset to U.S. dollar exposure. 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 12 to the interim consolidated financial statements for details on the derivative financial instruments outstanding at September 26, 2010.

Period Average Market Exchange Rates in CDN$

	Three months ended		Six months ended
	Sept 26, 2010	Sept 27, 2009	Sept 26, 2010	Sept 27, 2009
US $	1.0403	1.0987	1.0340	1.1324
Euro	1.3381	1.5702	1.3226	1.5791

Liquidity, Cash Flow and Financial Resources

At September 26, 2010, the Company had cash and cash equivalents of $148.5 million compared to $211.8 million at March 31, 2010. In the three and six months ended September 26, 2010, cash flows provided by operating activities were $11.5 million and $17.4 million, respectively, compared to cash flows provided by operating activities of $19.7 million and $6.0 million over the same periods in fiscal 2010. The Company's total debt to total equity ratio at September 26, 2010 was 0.1:1. At September 26, 2010, the Company had $76.5 million of unutilized credit available under existing operating and long-term credit facilities and a further $21.2 million available under letter of credit facilities.

In the second quarter of fiscal 2011, the Company's investment in non-cash working capital decreased by $1.1 million. On a year-to-date basis, investment in non-cash working capital increased by $6.8 million or 8%. In the first half of the year, consolidated accounts receivable increased 24% or $20.4 million, primarily at ASG due to increased revenues in the first two quarters of fiscal 2011. The acquisition of Sortimat also increased the Company's accounts receivable balance at September 26, 2010. Net contracts in progress decreased by 55% or $7.0 million compared to March 31, 2010. The Company actively manages its accounts receivable and net construction-in-process balances through billing terms on long-term contracts and by focusing on improving collection efforts. Inventories increased by 20% or $15.9 million compared to March 31, 2010. Deposits and prepaid assets have remained consistent compared to March 31, 2010 due to a reduction in the fair value of forward foreign exchange contracts, offset by a an increase in restricted cash being used to secure bank guarantees. Accounts payable increased 19% on higher purchases and the assumption of Sortimat's accounts payable and accrued liabilities.

Year-to-date property, plant and equipment purchases totalled $14.3 million. Expenditures at Photowatt, totalling $8.1 million, were used for production equipment and facility improvements, primarily at PWO. Total ASG and Corporate capital expenditures were $6.2 million, primarily related to the purchase of a new building in the U.S.A.

The Company's primary credit facility (the "Credit Agreement") provides total credit facilities of up to $85 million, comprised of an operating credit facility of $65 million and a letter of credit facility of up to $20 million for certain purposes. The operating credit facility is subject to restrictions regarding the extent to which the outstanding funds advanced under the facility can be used to fund certain subsidiaries of the Company. The Credit Agreement, which is secured by the assets, including real estate, of the Company's North American legal entities and a pledge of shares and guarantees from certain of the Company's legal entities, is repayable in full on April 30, 2011.

The operating credit facility is available in Canadian dollars by way of prime rate advances, letter 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 operating credit facility are determined based on certain financial ratios. 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 1.25% to 2.25%. For bankers' acceptances and LIBOR advances, the interest rate is equal to the bankers' acceptance fee or the LIBOR, respectively, plus 2.25% to 3.25%.

Under the Credit Agreement, the Company pays a standby fee on the un-advanced portions of the amounts available for advance or draw-down under the credit facilities at rates ranging from 0.675% to 0.975% per annum, as determined based on certain financial ratios.

The Credit Agreement is subject to debt leverage tests, a current ratio test, and a cumulative EBITDA test. Under the terms of the Credit Agreement, the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit Agreement also partially restricts the Company from repurchasing its common shares, paying dividends and from acquiring and disposing of certain assets. The Company is in compliance with these covenants and restrictions.

As of September 26, 2010, there was no amount borrowed under the Company's primary credit facility (March 31, 2010 - $nil).

The Company's subsidiary, Photowatt International S.A.S. has credit facilities including capital lease obligations of $56.7 million (41.0 million Euros). The total amount outstanding on these facilities is $50.6 million (March 31, 2010 - $55.9 million), of which $21.2 is classified as bank indebtedness (March 31, 2010 - $26.0 million), $6.1 is classified as long-term debt (March 31, 2010 - $7.7 million) and $23.4 million is classified as obligations under capital lease (2010 - $22.3 million). The interest rates applicable to the credit facilities range from Euribor plus 0.5% to Euribor plus 1.8% and 4.9% per annum. Certain of the credit facilities are secured by certain assets of Photowatt International S.A.S. and a commitment to restrict payments to the Company and are subject to debt leverage tests. The credit facilities which are classified as current bank indebtedness, are subject to either annual renewal or 60 day notification. At September 26, 2010, Photowatt International S.A.S. was not in compliance with the debt leverage tests on certain of its credit facilities. As of September 26, 2010, the lenders had not waived their right to demand repayment of the outstanding principal balances and consequently the entire balance of $6.1 million (4.4 million Euros) was included in the current portion of long-term debt. The non-compliance was rectified subsequent to the quarter end as part of a new term credit facility agreed to with the lenders.

The new term credit facility is for $20.8 million (15.0 million Euro) and was established by Photowatt International S.A.S. and its lenders in October 2010. The new credit facility, which will be classified as long-term debt was used to repay pre-existing credit facilities of $6.1 million (4.4 million Euro) for which it was previously in violation of the debt leverage tests, and to replace a credit facility classified as bank indebtedness in the amount of $11.1 million (8.0 million Euro). The interest rate applicable to the new credit facility is Euribor plus 3.35% and the facility has a term of four years.

The Company has additional credit facilities of $16.2 million (9.7 million Euro, 31.7 million Indian Rupee and 2.0 million Swiss Francs). The total amount outstanding on these facilities is $6.1 million (March 31, 2010 - $nil), of which $2.3 million is classified as bank indebtedness and $3.8 million is classified as long-term debt. The interest rates applicable to the credit facilities range from 0.0% to 8.5% per annum. A portion of the long-term debt is secured by certain assets of the Company and a portion of the 2.0 million Swiss Francs credit facility is secured by a letter of credit under the primary credit facility.

The Company expects that continued cash flows from operations, together with cash and short-term investments on hand and credit available under operating and long-term credit facilities to be sufficient to fund its requirements for investments in working capital and capital assets, which are listed under the heading Contractual Obligations, and to fund strategic investment plans including potential acquisitions. In order to finance development activities at PWO, the Company intends to arrange for bridge financing and third-party project ownership.

During the first two quarters of fiscal 2011, 2,900 stock options were exercised. As of November 2, 2010 the total number of common shares outstanding was 87,281,055.

Contractual Obligations

Information on the Company's lease and contractual obligations is detailed in the Consolidated Annual Financial Statements and MD&A for the year ended March 31, 2010 found at www.sedar.com. The Company' off-balance sheet arrangements consist of purchase obligations, various operating lease financing arrangements related primarily to facilities and equipment, and derivative financial instruments which have been entered into in the normal course of business.

There are no other significant off-balance sheet arrangements that management believes will have a material effect on the results of operations or liquidity.

In accordance with industry practice, the Company is liable to the customer 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 may provide bank guarantees as security on equipment under lease and on order. As of September 26, 2010, the total value of outstanding bank guarantees available under bank guarantee facilities was approximately $41.2 million (March 31, 2010 - $11.9 million).

Consolidated Quarterly Results

($ in thousands, except per share amounts)	Q2 2011	Q1 2011	Q4 2010	Q3 2010	Q2 2010	Q1 2010	Q4 2009	Q3 2009
Revenues	$ 162,046	$ 151,114	$ 138,774	$ 138,133	$ 148,169	$ 152,701	$ 201,774	$ 221,739
Earnings (loss) from operations	$ 5,481	$ 9,655	$ (25,994)	$ 7,756	$ 9,305	$ 502	$ 17,743	$ 18,472
Net income from continuing operations	$ 3,251	$ 6,438	$ 2,084	$ 3,742	$ 6,012	$ 325	$ 14,041	$ 15,814
Net income	$ 3,251	$ 6,438	$ 2,084	$ 3,742	$ 6,012	$ 325	$ 13,506	$ 12,316
Basic earnings per share from continuing operations	$ 0.04	$ 0.07	$ 0.03	$ 0.04	$ 0.07	$ 0.00	$ 0.17	$ 0.20
Diluted earnings per share from continuing operations	$ 0.04	$ 0.07	$ 0.03	$ 0.04	$ 0.07	$ 0.00	$ 0.16	$ 0.20
Basic earnings per share	$ 0.04	$ 0.07	$ 0.03	$ 0.04	$ 0.07	$ 0.00	$ 0.16	$ 0.16
Diluted earnings per share	$ 0.04	$ 0.07	$ 0.03	$ 0.04	$ 0.07	$ 0.00	$ 0.15	$ 0.16
ASG Order Bookings	$ 105,000	$ 85,000	$ 105,000	$ 92,000	$ 71,000	$ 96,000	$ 126,000	$ 157,000
ASG Order Backlog	$ 208,000	$ 215,000	$ 209,000	$ 203,000	$ 197,000	$ 230,000	$ 255,000	$ 282,000

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 ASG order bookings, Photowatt sales volumes, and the Company's earnings in its markets. ATS typically experiences some seasonality with its revenues and earnings due to summer plant shutdown at PWF. In Photowatt, slower sales may occur in the winter months, when the weather may impair the ability to install its products in certain geographical areas.

Accounting Changes

Accrued Pension Obligation

In the first quarter of fiscal 2011, it was determined that a pension obligation that was assumed in 1998 should have been previously recognized. The arrangement has been recorded with an adjustment to decrease retained earnings as of April 1, 2009 by $2 million (net of tax of nil) with a corresponding increase in accounts payable and accrued liabilities. This adjustment had no material impact on reported earnings, cash flows or earnings per share in prior periods reported.

International Financial Reporting Standards

The CICA's Accounting Standards Board has announced that Canadian publicly-accountable enterprises will adopt International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") effective January 1, 2011. Although IFRS uses a conceptual framework similar to Canadian GAAP, differences in accounting policies and additional required disclosures will need to be addressed. This change is effective for the Company for interim and annual financial statements beginning April 1, 2011. The first financial statements to be presented on an IFRS basis will be for the quarter ended June 26, 2011 (first quarter of fiscal 2012). At that time, comparative data will be presented on an IFRS basis, including an opening balance sheet as at April 1, 2010.

The Company commenced its IFRS conversion project in fiscal 2009. The project consists of four phases: diagnostic; design and planning; solution development; and implementation. The diagnostic phase was completed in fiscal 2009 with the assistance of external advisors. This work involved a high-level review of the major differences between current Canadian GAAP and IFRS and a preliminary assessment of the impact of those differences on the Company's accounting and financial reporting, systems and other business processes.

The Company's IFRS conversion project is progressing according to plan. The Company is currently in the implementation phase and has completed a detailed review of all relevant IFRS standards and the identification of information gaps and necessary changes in reporting, internal controls over financial reporting, processes and systems.

The Company is continuing to monitor standards to be issued by the IASB. Pending completion of some of these projects by the IASB, and until the Company's accounting policy choices are finalized and approved, the Company will be unable to quantify the impact of IFRS on its Consolidated Financial Statements.

The Company has assessed the effect of adoption of IFRS and the resulting changes in accounting policies based on IFRS standards expected to be in effect at the transition date. Significant accounting policy changes have been identified below. The list is based on significant accounting policies based on work completed to date and should not be considered an exhaustive list of all IFRS accounting policies.

Property, Plant and Equipment

IFRS has more specific guidance than Canadian GAAP on the capitalization and componentization of assets, requiring that significant asset components with different useful lives than the main asset be recorded and depreciated separately. As a result of this difference, the Company has determined that certain assets should have separately capitalized components under IFRS. The Company is currently evaluating the impact of this change in accounting policies under IFRS and the transitional impact is not known at this time.

Revenue recognition

IFRS requires revenue on projects which meet the definition of a construction contract to be measured on a Percentage of Completion basis. The Company has identified certain contracts which meet the definition of construction contracts for which revenue is currently recognized upon shipment and transfer of title. The transitional impact of this change is expected to result in an increase in net equity as of April 1, 2010.

Share based payments

Under IFRS, when share options or other equity instruments vest in installments over the vesting period, referred to as "graded vesting", each installment should be treated as a separate share option grant. Canadian GAAP permits the recognition of compensation expense on a straight line basis over the vesting period. In addition, under Canadian GAAP, forfeitures of share options are recognized as they occur, whereas, under IFRS, the Company is required to estimate the number of awards expected to vest, and revise that estimate if subsequent information indicates that actual forfeitures are likely to differ from the estimates. The transitional impact of this change is expected to result in an increase in contributed surplus and a decrease in retained earnings as of April 1, 2010.

Impairment of long-lived assets

Impairment testing of property, plant and equipment under Canadian GAAP is based on a two-step approach when circumstances indicate the carrying value may not be recoverable. IFRS requires a one-step impairment test for identifying and measuring impairment. This test requires a comparison of the asset's carrying value to the higher of its value in use or fair value less costs to sell. In addition, IFRS requires, under certain circumstances, the reversal of previous impairments which is not allowed under current Canadian GAAP.

IFRS tests asset groups for impairment at the independent cash generating unit. ("CGU") level based on the generation of cash inflows. IFRS has guidelines surrounding the highest asset group that goodwill can be allocated for impairment testing purposes.

On transition, the Company does not expect any changes to the results of its impairment tests previously performed under Canadian GAAP.

Income taxes

Changes in accounting policies under IFRS may impact the corresponding deferred tax asset or deferred tax liability account. Under IFRS, the income tax consequences of a transaction recorded in other comprehensive income or directly in equity in previous periods must be recorded in other comprehensive income or equity (i.e. backward tracing). Canadian GAAP requires all subsequent changes in deferred income taxes to be recorded through earnings. The Company is currently evaluating the impact of changes in accounting policies under IFRS and the corresponding income tax consequences are not known at this time.

Investment tax credits

Under Canadian GAAP, investment tax credits are accounted for using a cost reduction approach whereby benefits are recognized in income on the same basis as the related expenditures are charged to income. IFRS requires that qualifying investment tax credit benefits be recognized as a reduction of income tax expense, either current or deferred depending on the timing of the benefit. The Company anticipates that this change will reduce the Company's earnings (loss) from operatings and EBITDA, and reduce income tax expenses, however no impact on net income is expected.

First time adoption of IFRS

IFRS 1 "First-time Adoption of international Financial Reporting Standards" provides guidance for an entity's initial year of IFRS adoption. IFRS requires retrospective application of all IFRS standards at the reporting date, with the exception of optional exemptions and certain mandatory exemptions. The most significant IFRS 1 optional exemptions that the Company expects to apply in its opening IFRS Balance Sheet are summarized below.

Cumulative Translation Differences

Under IFRS 1, the Company will elect not to retrospectively calculate its cumulative translation balances, and all of these balances will be reset to zero on the transition date. The transitional impact of this adjustment will increase accumulated other comprehensive income and decrease retained earnings as of April 1, 2010.

Business Combinations

The company expects to apply IFRS 3, "Business combinations" prospectively from the date of transition to IFRS to business combinations which occur after the date of transition. IFRS 3 establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed. Most significantly, IFRS 3 requires directly attributable transaction costs to be expensed rather than included in the acquisition purchase price; the measurement of contingent consideration at fair value on the acquisition date, with subsequent changes in the fair value recorded through the income statements; and that upon gaining control in a step acquistion, an entity re-measures its existing ownership interest to fair value through the income statement. The transitional impact of this change is expected to result in a decrease to the carrying value of current assets and a decrease in retained earnings as of April 1, 2010. Future business combinations completed after April 1, 2010, are expected to have a greater impact on net income.

Fair Value as Deemed Costs

The Company expects to elect to report certain items of Property, Plant and Equipment and/or Investment Property assets in its opening balance sheet at deemed costs instead of actual costs that would have been determined under IFRS standards. The deemed costs of an item may be either its fair value at the date of transition to IFRS or an amount determined by a previous revaluation under Canadian GAAP. This exemption can be applied on an asset-by-asset basis and the Company is currently evaluating individual assets for which the election may apply. The transitional impact on the Company's balance sheet as of April 1, 2010 is not currently known as the assessment is currently in progress.

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 systems objectives will be met.

During the three months ended September 26, 2010, other than as noted below, 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.

ATS acquired the Sortimat Group on June 1, 2010. Management has not yet assessed the design or operating effectiveness of Sortimat's disclosure controls and procedures and the procedures and internal controls over financial reporting.

Note to Readers: Forward-Looking Statements

This 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's 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: integration of Sortimat into the Company's ASG segment; strategy of expanding the Company's position in the global automation market and enhancing growth opportunities; benefits that will accrue from Sortimat's significant experience and products in advanced system development, manufacturing, handling, and feeder technologies; objective to grow the Company's exposure to life sciences market segment; deployment of people to apply best practices, command and control, and program management and to advance approach to market to implement the Sortimat integration and effect margin improvements; business investment and capital spending by customers; volatility of economic environment; ASG customers continuing to push-out spending and delay investment decisions; volatility in Order Bookings; pressure on revenue; signs of strengthening in the global economy and some of the Company's markets; increased capital spending will continue to lag the general economic recovery; expectation that low volumes and revenues will continue to present challenges to maintaining margins at current levels; strategic initiatives to improve leadership, business processes and supply chain management; additional initiatives to reduce operating costs during the third quarter of fiscal 2011; expectation that ASG operating margins will be negatively impacted until Sortimat is fully integrated; belief that the Company's strong balance sheet, approach to market and operational improvements will provide a solid foundation for ASG to improve performance when the general business environment stabilizes and returns to growth; the Company's strong financial position providing ASG with the flexibility to pursue its growth strategy; plans to expand the Company's position in the global automation market organically and through acquisition; review of opportunities, active discussions, and due diligence with respect to certain opportunities; dependence of solar power on the existence of government incentives; anticipated further reductions in feed-in- tariffs and expectation that this will have a negative impact on average selling prices per watt; expectation that increased industry capacity will further negatively impact average selling prices per watt; volatility in orders caused by reductions in feed-in tariffs; visibility into Photowatt's mid and long-term pipeline; PWF securing sales for a significant portion of its capacity for the third quarter of fiscal 2011; PWO securing conditional feed-in tariff approvals totaling approximately 64 MWs related to applications made by OSPV; utilization by OSPV of a range of solar solutions including modules manufactured by ATS in Cambridge, Canada; OSPV joint venture and other approvals; OSPV's efforts to arrange financing and ultimate project ownership; PWO agreements with developers in the process of securing conditional feed-in tariff approvals for a number of projects; expectation that PWO will provide modules and other related services to these projects; timing of start of production and ramp up to full production from 100 MW module line; downstream alternatives to create an additional market for Photowatt's products; expectation that improvements in cell efficiency, manufacturing yields and throughput will continue to reduce Photowatt's direct manufacturing costs-per-watt; plan to reduce Photowatt's cost structure to keep it competitive and cost thereof; identifying and evaluating alternatives with respect to separating Photowatt; foreign exchange hedging; expectation that continued cash flows from operations, together with cash and short-term investments on hand and credit available under operating and long-term credit facilities, will be sufficient to fund requirements for investments; seasonality of revenues; and the introduction, evaluation and adoption of new accounting policies and standards and impacts thereof. The risks and uncertainties that may affect forward-looking statements include, among others: general market performance including capital market conditions and availability and cost of credit; economic market conditions; impact of factors such as increased pricing pressure and possible margin compression; foreign currency and exchange risk; the relative strength of the Canadian dollar; performance of the market sectors that ATS serves; the ability of ATS to exploit and realize upon the benefits from Sortimat experience and products; potential lack of receptivity of customers, suppliers, employees, and market to Sortimat integration efforts; that deployment of people to Sortimat to apply best practices, command and control and project management do not effect margin improvements or have other intended benefits; that one or more customers, or other persons with which the Company has contracted, experience insolvency or bankruptcy with resulting costs or losses to the Company; that the Company's strong balance sheet, approach to market, planned operational improvements, objectives and strategic initiatives will not be achieved and/or have the intended positive impacts on ASG operations; that additional cost saving measures will cost more, or take longer to implement, than planned; inability to successfully expand organically or through acquisition, due to an inability to grow expertise, personnel, and/or facilities at required rates or to negotiate and conclude one or more acquisitions, notwithstanding the Company's strong financial position; near-term performance of Photowatt impact on separation efforts; ability to execute on Photowatt separation initiative in current market environment; that the sale by PWF of a significant portion of its capacity for the third quarter of 2010 is reversed in whole or in part due to a customer termination or other factors; that Photowatt's downstream market initiatives are not successful; the potential for the start of production and/or ramp up to full production of the 100 MW module line will be hindered or delayed to due to an inability to procure necessary permits, approvals, materials or equipment on a timely basis; ability of ATS and OSPV to acquire the needed expertise and financing necessary to effectively develop Ontario solar projects; the financial attractiveness of, and demand for, those solar projects; the success of developers with whom ATS has signed agreements in obtaining FIT contracts and ultimately developing the projects; that improvements to cell efficiency, manufacturing yields and throughput do not come to fruition due to research or operational failures and anticipated competitive advantages are not realized; that the planned cost reductions at Photowatt are delayed, or cost more than anticipated; that cash flows, cash and cash equivalents on hand, and available credit are not sufficient to fund investments because of reversals in the Company's cash or short term investment position, or the size or nature of investments to be made; the availability and possible reduction or elimination of government subsidies and incentives for solar products in various jurisdictions; ability to obtain necessary government and other certifications and approvals for solar projects in a timely fashion; political, labour or supplier disruptions in manufacturing and supply of silicon; 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 becomes a party; exposure to product liability claims of Photowatt; risks associated with greater than anticipated tax liabilities or expenses; potential for adoption of new accounting policies to have unanticipated impacts; and other risks detailed from time to time in ATS's filings with Canadian provincial securities regulators. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

November 2, 2010

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Balance Sheets

(in thousands of Canadian dollars - unaudited)

	September 26 2010	March 31 2010
ASSETS
Current assets
Cash and cash equivalents	$ 148,512	$ 211,786
Accounts receivable	106,442	85,995
Costs and earnings in excess of billings on contracts in progress (note 4)	40,947	42,924
Inventories (note 4)	96,184	80,280
Future income taxes	730	553
Deposits and prepaid assets (note 5)	27,470	27,492
	420,285	449,030
Property, plant and equipment	186,467	171,451
Goodwill	67,617	34,350
Intangible assets	29,864	4,864
Investment tax credits	22,313	20,878
Future income taxes	34,530	35,243
Portfolio investments	4,410	3,602
Other assets (note 6)	34,410	33,380
	$ 799,896	$ 752,798
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 10)	$ 23,483	$ 26,034
Accounts payable and accrued liabilities	141,587	118,518
Billings in excess of costs and earnings on contracts in progress (note 4)	35,281	30,216
Future income taxes	14,233	12,326
Current portion of long-term debt (note 10)	10,806	10,830
Current portion of obligations under capital leases (note 10)	4,805	4,260
	230,195	202,184
Long-term debt (note 10)	7,434	4,420
Long-term portion of obligations under capital leases (note 10)	18,558	17,985
Shareholders' equity
Share capital	479,558	479,542
Contributed surplus	12,468	11,244
Accumulated other comprehensive loss (note 13)	(32,863)	(37,434)
Retained earnings (restated - note 2)	84,546	74,857
	543,709	528,209
	$ 799,896	$ 752,798

Commitments and contingencies (notes 3 and 16)

See accompanying notes to interim consolidated financial statements

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Operations

(in thousands of Canadian dollars, except per share amounts - unaudited)

			Three months ended		Six months ended
		September 26 2010	September 27 2009	September 26 2010	September 27 2009
Revenue		$ 162,046	$ 148,169	$ 313,160	$ 300,870
Operating costs and expenses
	Cost of revenue	132,711	117,254	253,511	249,877
	Selling, general and administrative	23,027	20,722	43,172	39,488
	Stock-based compensation (note 7)	827	888	1,341	1,698
Earnings from operations		5,481	9,305	15,136	9,807
Other expenses
	Interest on long-term debt	418	355	658	656
	Other interest	204	197	468	436
		622	552	1,126	1,092
Income from operations before income taxes		4,859	8,753	14,010	8,715
Provision for income taxes (note 15)		1,608	2,741	4,321	2,378
Net income		$ 3,251	$ 6,012	$ 9,689	$ 6,337
Earnings per share (note 8)
Basic		$ 0.04	$ 0.07	$ 0.11	$ 0.07
Diluted		$ 0.04	$ 0.07	$ 0.11	$ 0.07

See accompanying notes to interim consolidated financial statements

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Shareholders' Equity and Other Comprehensive Loss

(in thousands of Canadian dollars - unaudited)

Six months ended						September 26, 2010
		Share Capital	Contributed Surplus	Accumulated Other Comprehensive Income (Loss) (note 13)	Retained Earnings	Total Shareholders' Equity
Balance, beginning of period		$ 479,542	$ 11,244	$ (37,434)	$ 74,857	$ 528,209
Comprehensive income (loss)
	Net income	--	--	--	9,689	9,689
	Currency translation adjustment	--	--	4,829	--	4,829
	Net unrealized gain on available- for-sale financial assets (net of income taxes of $nil)	--	--	807	--	807
	Net unrealized gain on derivative financial instruments designated as cash flow hedges (net of income taxes of $95)	--	--	51	--	51
	Gain transferred to net income for derivatives designated as cash flow hedges (net of income taxes of $489)	--	--	(1,116)	--	(1,116)
Total comprehensive income						14,260
Stock-based compensation (note 7)		--	1,229	--	--	1,229
Exercise of stock options		16	(5)	--	--	11
Balance, end of the period		$ 479,558	$ 12,468	$ (32,863)	$ 84,546	$ 543,709

Six months ended					September 27, 2009
	Share Capital	Contributed Surplus	Accumulated Other Comprehensive Income (Loss) (note 13)	Retained Earnings	Total Shareholders' Equity
Balance, beginning of period
(restated - note 2)	$ 479,537	$ 8,722	$ 15,494	$ 62,694	$ 566,447
Comprehensive income (loss)
Net income	--	--	--	6,337	6,337
Currency translation adjustment	--	--	(20,837)	--	(20,837)
Net unrealized gain on available- for-sale financial assets (net of income taxes of $nil)	--	--	74	--	74
Net unrealized gain on derivative financial instruments designated as cash flow hedges (net of income taxes of $221)	--	--	883	--	883
Gain transferred to net income for derivatives designated as cash flow hedges (net of income taxes of $nil)	--	--	975	--	975
Total comprehensive loss					(12,568)
Stock-based compensation (note 8)	--	1,181	--	--	1,181
Balance, end of the period	$ 479,537	$ 9,903	$ (3,411)	$ 69,031	$ 555,060

See accompanying notes to interim consolidated financial statements

ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Cash Flows

(in thousands of dollars - unaudited)

			Three months ended		Six months ended
		September 26	September 27	September 26	September 27
		2010	2009	2010	2009
Operating activities:
Net income		$ 3,251	$ 6,012	$ 9,689	$ 6,337
Items not involving cash
	Depreciation of property, plant and equipment	4,990	5,634	9,579	11,275
	Amortization of intangible assets	1,227	547	1,971	1,109
	Future income taxes	1,340	(3,011)	3,183	(3,883)
	Investment tax credit receivable	(1,429)	--	(1,435)	--
	Other items not involving cash	5	(23)	(97)	(12)
	Stock-based compensation (note 7)	827	888	1,341	1,698
	Loss (gain) on disposal of property, plant and equipment	134	302	(41)	354
Cash flow from operations		10,345	10,349	24,190	16,878
Change in non-cash operating working capital		1,107	9,366	(6,814)	(10,924)
Cash flows provided by operating activities		11,452	19,715	17,376	5,954
Investing activities:
Acquisition of property, plant and equipment		(3,831)	(3,920)	(14,309)	(9,943)
Acquisition of intangible assets		(486)	(60)	(1,578)	(156)
Investments, silicon deposits and other		--	(1,154)	(3,184)	(2,580)
Business acquisition (note 3)		(1,693)	--	(50,413)	--
Proceeds from disposal of property, plant and equipment		312	424	817	589
Cash flows used in investing activities		(5,698)	(4,710)	(68,667)	(12,090)
Financing activities:
Restricted cash (note 5)		(1,630)	2,160	(3,106)	4,736
Bank indebtedness (note 10)		(7,317)	(2,272)	(10,033)	20,353
Proceeds from long-term debt (note 10)		--	2,702	1,411	3,837
Proceeds from sale and leaseback of property, plant and equipment		--	6,803	1,747	6,803
Repayment of long-term debt (note 10)		(1,501)	(1,728)	(2,345)	(1,859)
Repayment of obligations under capital leases (note 10)		(155)	(796)	(846)	(1,607)
Issuance of common shares		8	--	11	--
Cash flows provided by (used in) financing activities		(10,595)	6,869	(13,161)	32,263
Effect of exchange rate changes on cash and cash equivalents		901	(644)	1,178	(2,166)
Increase (decrease) in cash and cash equivalents		(3,940)	21,230	(63,274)	23,961
Cash and cash equivalents, beginning of period		152,452	145,092	211,786	142,361
Cash and cash equivalents, end of period		$ 148,512	$ 166,322	$ 148,512	166,322
Supplemental information
Cash income taxes paid		$ 360	$ 1	$ 721	$ 384
Cash interest paid		$ 504	$ 539	$ 913 $	624

See accompanying notes to interim consolidated financial statements

ATS AUTOMATION TOOLING SYSTEMS INC.

Notes to Interim Consolidated Financial Statements

(in thousands, except per share amounts - unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:

(a) The accompanying interim consolidated financial statements of ATS Automation Tooling Systems Inc. and its subsidiary companies (collectively "ATS" or the "Company") have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and the accounting policies and method of their application are consistent with those described in the annual consolidated financial statements for the year ended March 31, 2010. These interim consolidated financial statements do not include all disclosures required by GAAP for annual financial statements and should be read in conjunction with the Company's annual consolidated financial statements for the year ended March 31, 2010.

(b) The preparation of these interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that may affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates and assumptions are used when determining fair values of assets and liabilities acquired in a business combination and when accounting for items such as impairment of long-lived assets, recoverability of deferred development costs, fair value of reporting units and goodwill, warranties, income taxes, future income tax assets, determination of estimated useful lives of intangible assets and property, plant and equipment, impairment of portfolio investments, contracts in progress, inventory obsolescence provisions, revenue recognition, contingent liabilities, and allowances for uncollectible accounts receivable.

(c) 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 Automation Systems order bookings, Photowatt Technologies volumes, and the Company's earnings in any of its markets. ATS typically experiences some seasonality with its revenue and earnings due to summer shutdown at its subsidiary in France, Photowatt International S.A.S. In Photowatt Technologies, slower sales may occur in the winter months, when the weather may impair the ability to install its products in certain geographical areas.

The company follows a 13 week per quarter schedule, where the first fiscal month of a new quarter contains 5 weeks and each subsequent month contains 4 weeks, with the exception of its fiscal year-end, which falls on March 31. This results in some periods containing a different number of days than comparative periods. The three months ended September 26, 2010 contained 91 days (three months ended September 27, 2009 - 91 days).

2. ACCOUNTING CHANGES:

In the six months ended September 26, 2010, it was determined that a pension obligation that was orginially assumed in 1998 should have been previously recognized. This arrangement has been recorded with an adjustment to decrease retained earnings as of April 1, 2009 by $2,000 (net of tax of $nil) with a corresponding increase in accounts payable and accrued liabilities. This adjustment had no material impact on reported earnings, cash flows or earnings per share in prior periods.

3. ACQUISITION OF SORTIMAT

On June 1, 2010, the Company completed its acquisition of 100% of Sortimat Group ("Sortimat"). Sortimat is a manufacturer of assembly systems for the life sciences market, and is headquartered in Germany with locations in Chicago and a small, 60% owned subsidiary in India. Sortimat has been integrated with the Company's existing Automation Systems Group ("ASG"). The Sortimat acquisition aligns with ATS' strategy of expanding its position in the global automation market and enhancing growth opportunities, particularly in strategic segments, such as life sciences. The financial results of Sortimat are included in the ASG segment from the date of acquisition.

The total cash consideration for Sortimat is $51,886 (40,369 Euro), which includes acquisition-related costs, primarily for advisory services, of $2,436. Potential future payments of up to $8,495 (6,610 Euro) which are payable subject to the achievement of milestones related to operating performance and specific management services to be provided over the next two and a half years are not included in the cost of the acquisition. During the three and six months ended September 26, 2010 the Company recognized in selling, general and administrative expense $446 and $587 respectively related to specific management services.

Cash used in the investment is determined as follows:

Cash consideration	$ 51,886
Less cash acquired	(1,473)
	$ 50,413

The purchase cost was allocated to the underlying assets acquired and liabilities assumed based upon the fair value at the date of acquisition. The company determined the fair values based on discounted cash flows, market information, independent valuations and management's estimates. Final valuations, primarily related to intangible assets, are not yet complete due to the inherent complexity associated with valuations. Therefore, the purchase price allocation is preliminary and subject to adjustment over the course of fiscal 2011 on completion of the valuation process and analysis of resulting tax effects.

The preliminary allocation of the purchase price at fair value is as follows:

Purchase price allocation
	Cash		$ 1,473
	Current assets		18,681
	Property, plant and equipment		9,159
	Other long term assets		385
	Intangible assets with a definite life
		Technology	7,906
		Customer relationships	8,137
		Other	908
	Intangible assets with an indefinite life
		Brand	6,812
	Current liabilities		(29,434)
	Long term debt		(3,590)
Net identifiable assets			20,437
Residual purchase price allocated to goodwill			31,449
			$ 51,886

Non-cash working capital includes accounts receivable of $8,601, representing gross contractual amounts receivable of $9,279 less management's best estimate of the contractual cash flows not expected to be collected of $678.

The primary factors that contributed to a purchase price that resulted in the recognition of goodwill are: the existing Sortimat business; the acquired workforce; significant experience and products in advanced system development, manufacturing, handling and feeder technologies; time-to-market benefits of acquiring an established organization in key international markets such as Europe, Asia and the United States; and the combined strategic value to the Company's growth plan. The amount assigned to goodwill is not expected to be deductible for tax purposes.

During the quarter, changes to the purchase price allocation resulted in a decrease in goodwill of $2,277. The adjustments to the preliminary purchase price allocation are noted below:

Adjustments to the purchase price allocation
	Decrease in current assets	$ (4)
	Decrease in current liabilities	2,544
	Acquisition-related costs	(263)
Net decrease in goodwill		$ 2,277

The cash consideration of the purchase price along with transaction costs were funded with existing cash on hand. This acquisition was accounted for as a business combination with the Company as the acquirer of Sortimat. The purchase method of accounting was used and the earnings have been consolidated from the acquisition date, June 1, 2010. Sortimat has contributed approximately $23,636 in revenue and a net loss of $1,069.

4. CONTRACTS IN PROGRESS AND INVENTORIES:

		September 26	March 31
		2010	2010
Contracts in progress:
	Costs incurred on contracts in process	$ 512,354	$ 338,624
	Estimated earnings	121,083	80,766
		$ 633,437	$ 419,390
	Progress billings	(627,771)	(406,682)
		$ 5,666	$ 12,708
Disclosed as:
	Costs and earnings in excess of billings on contracts in progress	$ 40,947	$ 42,924
	Billings in excess of costs and earnings on contracts in progress	(35,281)	(30,216)
		$ 5,666	$ 12,708

		September 26	March 31
		2010	2010
Inventories are summarized as follows:
	Raw materials	$ 49,146	$ 45,984
	Work in process	13,743	8,585
	Finished goods	33,295	25,711
		$ 96,184	$ 80,280

The amount of inventory recognized as an expense and included in cost of revenue accounted for other than by the percentage-of-completion method during the three and six months ended September 26, 2010 was $58,515 and $117,108 respectively (three and six months ended September 27, 2009: $48,191 and $96,221 respectively). The amount charged to net income and included in cost of revenue for the write-down of inventory for valuation issues during both the three and six months ended September 26, 2010 was $720 and $1,261 respectively (three and six months ended September 27, 2009: $2,026 and $3,017 respectively). The amount recognized in net income and included in cost of revenue for the reversal of previous inventory write-downs due to rising prices during the three and six months ended September 26, 2010 was $17 and $86 respectively (three and six months ended September 27, 2009: $nil).

5. DEPOSITS AND PREPAID ASSETS:

	September 26 2010	March 31 2010
Prepaid assets	$ 4,710	$ 4,231
Restricted cash⁽ⁱ⁾	3,804	582
Silicon and other deposits	17,088	16,335
Forward contracts and other	1,868	6,344
	$ 27,470	$ 27,492

(i) Restricted cash consists of cash collateralized to secure letters of credit.

6. OTHER ASSETS:

	September 26 2010	March 31 2010
Silicon deposits	$ 31,156	$ 32,389
Other	3,254	991
	$ 34,410	$ 33,380

7. STOCK-BASED COMPENSATION PLANS:

In the calculation of the stock-based compensation expense in the interim consolidated statements of operations, the fair values of the Company's stock option grants were estimated using the Black-Scholes option pricing model for time vesting stock options and binomial option pricing models for performance based stock options.

During the six months ended September 26, 2010 the Company granted 325,000 time vesting stock options (350,000 in the six months ended September 27, 2009). The stock options granted vest over 4 years and expire on the seventh anniversary from the date of issue. During the six month periods ended September 26, 2010 and September 27, 2009, no performance based options were granted. Performance based stock options vest based on the Company's stock trading at or above certain thresholds for a specified number of minimum trading days. The performance based stock options expire on the seventh anniversary after the date that the options vest. During the six month period ended September 26, 2010, no performance based options vested. During the six months ended September 27, 2009 certain performance options vested in the normal course of business.

Six months ended		September 26, 2010		September 27, 2009
		Weighted		Weighted
	Number of	average	Number of	average
	stock	exercise	stock	exercise
	options	price	options	price
Stock options outstanding, beginning of year	6,368,674	$ 7.89	6,112,562	$ 8.18
Granted	325,000	6.34	350,000	5.10
Exercised	(2,900)	3.83	--	--
Forfeited/cancelled	(115,549)	19.67	(244,232)	10.41
Stock options outstanding, end of period	6,575,225	$ 7.61	6,218,330	$ 7.92
Stock options exercisable, end of period, time vested options	1,063,431	$ 9.41	952,196	$ 11.53
Stock options exercisable, end of period, performance options	991,448	$ 6.14	949,781	$ 6.26

The fair value of time vesting options issued during the period were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

			Six months ended
		September 26 2010	September 27 2009
Weighted average risk-free interest rate		2.28%	2.11%
Dividend yield		0%	0%
Weighted average expected volatility		58%	60%
Weighted average expected life		4.75 years	4.55 years
Number of stock options granted:
	Time vested	325,000	350,000
Weighted average exercise price per option		$ 6.34	$ 5.10
Weighted average value per option:
	Time vested	$ 3.16	$ 2.56

8. EARNINGS PER SHARE:

Weighted average number of shares used in the computation of earnings per share is as follows:

		Three months ended		Six months ended
	September 26 2010	September 27 2009	September 26 2010	September 27 2009
Basic	87,279,825	87,277,155	87,279,241	87,277,155
Diluted	87,564,418	87,312,412	87,607,240	87,294,784

For the three and six months ended September 26, 2010, stock options to purchase 5,241,230 and 5,252,107 common shares respectively are excluded from the weighted average common shares in the calculation of diluted earnings per share as they are anti-dilutive (5,838,336 and 6,144,941 common shares respectively were excluded in the three and six months ended September 27, 2009).

9. SEGMENTED DISCLOSURE:

The Company evaluates performance based on two reportable segments: Automation Systems and Photowatt Technologies. The Automation Systems segment produces custom-engineered turn-key automated manufacturing systems and test systems. The Photowatt Technologies segment is a turn-key solar project developer and integrated manufacturer of photvoltaic products. The business segments are strategic business units that offer different products and services and each is managed separately.

The Company accounts for inter-segment revenue at current market rates, negotiated between the segments.

		Three months ended		Six months ended
	September 26	September 27	September 26	September 27
	2010	2009	2010	2009
Revenue
Automation Systems	$ 117,787	$ 96,966	$ 224,414	212,167
Photowatt Technologies	45,108	51,501	93,895	91,583
Inter-segment revenue	(849)	(298)	(5,149)	(2,880)
Total Company Revenue	$ 162,046	$ 148,169	$ 313,160	$ 300,870
Earnings from operations
Automation Systems	$ 14,511	$ 13,605	$ 30,394	$ 28,357
Photowatt Technologies	(2,627)	629	(2,765)	(6,904)
Inter-segment operating earnings (loss)	(72)	3	(1,011)	(672)
Stock-based compensation	(827)	(888)	(1,341)	(1,698)
Other expenses	(5,504)	(4,044)	(10,141)	(9,276)
Total Company earnings from operations	$ 5,481	$ 9,305	$ 15,136	$ 9,807

			September 26	March 31
			2010	2010
Assets
Automation Systems			$ 513,179	$ 459,730
Photowatt Technologies			283,723	280,305
Corporate assets and inter-segment			2,994	12,763
Total Company assets			$ 799,896	$ 752,79

10. BANK INDEBTEDNESS, LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES:

The Company's primary credit facility (the "Credit Agreement") provides total credit facilities of up to $85,000, comprised of an operating credit facility of $65,000 and a letter of credit facility of up to $20,000 for certain purposes. The operating credit facility is subject to restrictions regarding the extent to which the outstanding funds advanced under the facility can be used to fund certain subsidiaries of the Company. The Credit Agreement, which is secured by the assets, including real estate, of the Company's North American legal entities and a pledge of shares and guarantees from certain of the Company's legal entities, is repayable in full on April 30, 2011.

Under the Credit Agreement, the Company pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the credit facilities at rates ranging from 0.675% to 0.975% per annum, as determined based on certain financial ratios.

There is no amount borrowed under the Company's primary credit facility (March 31, 2010 - $nil).

The Company's subsidiary, Photowatt International S.A.S. has credit facilities including capital lease obligations of $56,679 (40,965 Euro). The total amount outstanding on these facilities is $50,638 (March 31, 2010 - $55,940), of which $21,164 is classified as bank indebtedness (March 31, 2010 - $26,034), $6,111 is classified as long-term debt (March 31, 2010 - $7,661) and $23,363 is classified as obligations under capital lease (March 31, 2010 - $22,245). The interest rates applicable to the credit facilities range from Euribor plus 0.5% to Euribor plus 1.8% and 4.9% per annum. Certain of the credit facilities are secured by certain assets of Photowatt International S.A.S. and a commitment to restrict payments to the Company and are subject to debt leverage tests. The credit facilities which are classified as current bank indebtedness, are subject to either annual renewal or 60 day notification. At September 26, 2010, Photowatt International S.A.S. was not in compliance with the debt leverage tests on certain of its credit facilities. As of September 26, 2010, the lenders had not waived their right to demand repayment of the outstanding principal balances and consequently the entire balance of $6,111 (4,417 Euro) has been included in the current portion of long-term debt. The non-compliance was rectified subsequent to the quarter end as part of a new term credit facility agreed to with the lenders.

The new term credit facility is for $20,754 (15,000 Euro) and was established by Photowatt International S.A.S. and its lenders in October 2010. The new credit facility, which will be classified as long-term debt, was used to repay pre-existing credit facilities of $6,111 (4,417 Euro) for which it was previously in violation of the debt leverage tests and to replace a credit facility classified as bank indebtedness in the amount of $11,069 (8,000 Euro). The interest rate applicable to the new credit facility is Euribor plus 3.35% and the new credit facility has a term of four years.

The PV Alliance joint venture has additional credit facilities as described in note 14.

The Company has additional credit facilities of $16,224 (9,702 Euro, 31,663 Indian Rupee and 2,000 Swiss Francs). The total amount outstanding on these facilities is $6,083 (March 31, 2010 - $nil), of which $2,319 is classified as bank indebtedness and $3,764 is classified as long-term debt. The interest rates applicable to the credit facilities range from 0.0% to 8.5% per annum. A portion of the long-term debt is secured by certain assets of the Company and a portion of the 2,000 Swiss Francs credit facility is secured by a letter of credit under the primary credit facility.

The following amounts were outstanding:

	September 26	March 31
	2010	2010
Bank indebtedness:
Photowatt International S.A.S.	$ 21,164	$ 26,034
Other facilities	2,319	--
	$ 23,483	$ 26,034
Long-term debt:
PV Alliance	$ 8,365	$ 7,589
Photowatt International S.A.S.	6,111	7,661
Other facilities	3,764	--
	$ 18,240	$ 15,250
Less: current portion	10,806	10,830
	$ 7,434	$ 4,420
Obligations under capital lease:
Photowatt International S.A.S. future minimum lease payments	$ 25,618	$ 25,201
Less: amount representing interest (at rates ranging from 1.9% to 4.9%)	2,255	2,956
	$ 23,363	$ 22,245
Less: current portion	4,805	4,260
	$ 18,558	$ 17,985

Interest for the three and six months ended September 26, 2010 of $86 and $228 respectively (three and six months ended September 27, 2009 - $207 and $355 respectively) relating to obligations under capital lease has been included in interest on long-term debt expense.

11. RESTRUCTURING:

In fiscal 2008, the Company commenced a restructuring program to improve operating performance. The restructuring program included workforce reductions, and the closure of underperforming, non-strategic divisions. In fiscal 2010, the Company accelerated and expanded its previous restructuring program. In the three and six months ended September 27, 2009, severance and restructuring expenses associated with the closure of two divisions and other workforce reductions were $1,627 and $3,926 respectively, primarily in the Automation Systems group.

In the three and six months ended September 26, 2010, severance and restructuring expenses associated with workforce reductions were $117 and $284 respectively.

The following is a summary of the changes in the provision for restructuring costs:

		Six months ended
	September 26 2010	September 27 2009
Balance, beginning of period	$ 2,190	$ 4,535
Severance and restructuring expense	284	3,926
Acquisition accrual	1,000	--
Cash payments	(1,592)	(4,631)
Foreign exchange	6	(75)
Balance, end of period	$ 1,888	$ 3,755

12. FINANCIAL INSTRUMENTS:

Derivative financial instruments

The Company uses forward foreign exchange contracts to manage foreign currency exposure. Forward foreign exchange contracts that are not designated in hedging relationships are classified as held-for-trading, with changes in fair value recognized in selling, general and administrative expenses in the interim consolidated statements of operations. During the three and six months ended September 26, 2010, the fair value of derivative financial assets classified as held-for-trading and included in deposits and prepaid assets decreased by $1,224 and $1,849 respectively (decreased by $369 and $601 respectively during the three and six months ended September 27, 2009) and the fair value of derivative financial liabilities classified as held-for-trading and included in accounts payable and accrued liabilities increased by $1,990 and $2,345 respectively during the three and six months ended September 26, 2010 (decreased by $738 and increased by $653 respectively during the three and six months ended September 27, 2009).

Cash flow hedges

During the three and six months ended September 26, 2010, an unrealized gain of $5 and $5 respectively was recognized in selling, general and administrative expense for the ineffective portion of cash flow hedges (unrealized loss of $21 and $nil during the three and six months ended September 27, 2009). After-tax unrealized gains of $969 and $27 are included in accumulated other comprehensive income at September 26, 2010 and are expected to be reclassified to earnings over the next 12 months when the revenue and purchases are recorded respectively (unrealized gains of $502 at September 27, 2009).

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

The components of accumulated other comprehensive loss are as follows:

	September 26 2010	March 31 2010
Accumulated currency translation adjustment	$ (34,666)	$ (39,495)
Accumulated unrealized gain on available-for-sale financial assets⁽ⁱ⁾	807	--
Accumulated unrealized net gain on derivative financial instruments designated as cash flow hedges⁽ⁱⁱ⁾	996	2,061
Accumulated other comprehensive loss	$ (32,863)	$ (37,434)

(i) During the year ended March 31, 2010, the Company determined that the impairment in one of its portfolio investments was other than temporary and therefore the accumulated unrealized loss of $951 was allocated to net income.

(ii) The accumulated unrealized net gain on derivative financial instruments designated as cash flow hedges is net of future income taxes of $351 at September 26, 2010 (March 31, 2010 - $935).

14. INVESTMENT IN JOINT VENTURE:

During the year ended March 31, 2010, Photowatt Ontario Inc. entered into an agreement to establish Ontario Solar PV Fields Inc., a joint venture. In fiscal 2008, Photowatt International S.A.S. entered into an agreement to establish the PV Alliance, a joint venture.

These are jointly-controlled enterprises and accordingly, the Company proportionately consolidates its 50% and 40% share of assets, liabilities, revenues and expenses for Ontario Solar PV Fields Inc. and PV Alliance, respectively, in the interim consolidated financial statements.

The following is a summary of the Company's proportionate share of the joint ventures:

	September 26 2010	March 31 2010
Balance Sheet
Current assets	$ 4,136	$ 4,933
Property and equipment	5,093	4,960
Intangible assets	3,183	2,107
Investment tax credits	340	562
Current liabilities	(2,661)	(2,960)
Current portion of long-term debt	(4,436)	(3,170)
Long-term debt	(3,929)	(4,419)
Net assets	$ 1,726	$ 2,013

		Three months ended		Six months ended
	September 26 2010	September 27 2009	September 26 2010	September 27 2009
Statement of Operations
Net income (loss)	$ (185)	$ 47	$ (65)	$ (98)

		Three months ended		Six months ended
	September 26 2010	September 27 2009	September 26 2010	September 27 2009
Cash flows from (used in)
Operating activities	$ (36)	$ (1,452)	$ 1,081	$ 890
Investing activities	(270)	(227)	(1,277)	(2,896)
Financing Activities	--	2,702	673	3,711

The PV Alliance has loans from a shareholder proportionately worth 4,921 Euro (March 31, 2010 - 4,407 Euro). The loans are repayable over five years, guaranteed by the signing of a Pledge Agreement, and bear interest at the maximum fiscally deductible rate.

During the year ended March 31, 2010, the PV Alliance established a credit facility proportionately worth 8,015 Euro. The total amount outstanding on the facility is 1,124 Euro (March 31, 2010 - 1,124 Euro). The credit facility bears interest of 6.19% per annum and is received upon the program meeting certain efficiency milestones.

The PV Alliance maintains an operating lease for a portion of the Photowatt International S.A.S. building used by PV Alliance which results in annual lease payments proportionately worth 83 Euro. The contract with the lessee expires in 2018 with an option to terminate the lease in 2016. The lease contains an option to extend the lease for an additional nine years.

During the year ended March 31, 2010, the PV Alliance entered into an agreement under which the regional government of Rhộne-Alpes in France committed to providing the PV Alliance with funding of 15,000 Euro over a five-year period, conditional on certain employment levels being met in the region. During the three and six months ended September 26, 2010, the PV Alliance received government assistance of 192 Euro and 384 Euro respectively (three and six months ended September 27, 2009 - 192 Euro and 384 Euro respectively) which has been included in operating earnings.

15. INCOME TAXES:

For the three and six month periods ended September 26, 2010, the Company's effective income tax rate differs from the combined Canadian basic federal and provincial income tax rate of 31% (three and six months ended September 27, 2009 - 33%) primarily as a result of losses incurred in Europe, the benefit of which was not recognized for financial statement reporting purposes.

16. COMMITMENTS AND CONTINGENCIES:

In accordance with industry practice, the Company is liable to the customer 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 may provide bank guarantees as security on equipment under lease and on order. At September 26, 2010, the total value of outstanding bank guarantees available under bank guarantee facilities was approximately $41,243 (March 31, 2010 - $11,932).

In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Accruals are made in instances where it is probable that liabilities have been incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its consolidated financial position.

%SEDAR: 00002017E

For further information:

Maria Perrella, Chief Financial Officer
Carl Galloway, Vice-President and Treasurer
519 653 6500

Browse News Releases

News Releases Overview

Multimedia Gallery

Multimedia Gallery Overview

Trending Topics

ATS REPORTS SECOND QUARTER FISCAL 2011 RESULTS

News provided by

Organization Profile

ATS Automation Tooling Systems Inc.

Contact Cision

Products

About

My Services