CREATING
VALUE
ATS Automation Annual Report 2014
ATS’s automation solutions enable
customers to build leading products
today and introduce innovations that
will transform markets tomorrow.
1/ ATS AuTomATion Tooling SySTemS inc.
03 / ATS Worldwide
05 / multi-Sector Focus
15 / Shareholders’ letter
17 / management’s
Discussion and Analysis
38 / management’s
Responsibility for
Financial Reporting
39 / independent
Auditors’ Report
40 / consolidated Financial
Statements
45/ notes to consolidated
Financial Statements
82 / Shareholder information
83/ Board of Directors
ATS
CREATES
VALUE
ATS AuTomATion Tooling SySTemS inc. /2
ATS Worldwide
ATS leverages its competitive advantages,
including a 35-year track record as
a standard-setter in automation and
its global resources, to win business
across diverse markets and create value
for customers and shareholders.
3/ ATS AuTomATion Tooling SySTemS inc.
Global footprint
23 facilities and support locations in key economic zones
ExpEriEncE
Successful completion of over 15,000 projects
worldwide with cross-industry synergies
innovation
A world leader in creating benchmark automation
solutions across diverse sectors
ScalE
A knowledge base that includes 2,500 employees
and a vast network of highly skilled partners and suppliers
rEcoGnizEd brandS
Known worldwide under the brands ATS,
sortimat, ATW and iWK as a trusted supplier
advancEd tEchnoloGiES
Vision inspection, laser processing, robotics,
dispensing, material handling, high performance
tube filling and cartoning, and test and control
systems for multiple applications
prE and poSt automation Support
Value-added planning, modelling, training, system audits,
line relocation, life-cycle equipment management
total SolutionS
Turnkey, factory-wide or single application capabilities
financial StrEnGth
Positive financial results and a healthy balance
sheet qualify ATS as a strong partner with a clear
commitment to long-term customer relationships
ATS AuTomATion Tooling SySTemS inc. /4
Building
excellence
in life sciences
ATS delivers industry-leading expertise
and good manufacturing practices to
life science customers. With high- speed
assembly technologies, high-performance
dispensing, tube filling and cartoning
machines, Quality management
Systems including vision inspection and
integration know-how, ATS helps the
world’s leaders in life sciences to quickly,
safely and cost effectively automate
pharmaceutical and vaccine production,
produce medical and diagnostic devices
and launch innovative programs that
improve public health everywhere.
5/ ATS AuTomATion Tooling SySTemS inc.
ATS AuTomATion Tooling SySTemS inc. /6
7/ ATS AuTomATion Tooling SySTemS inc.
Fueling energy
management
To help the world's energy producers
meet the growing needs of society,
ATS uses its expertise to deliver the
high-performance systems that enable
the creation and handling of fuel
cells, batteries, smart grid and energy
management components, nuclear
fuel rods, fossil fuel harvesting
and alternative energy equipment
and technologies.
ATS AuTomATion Tooling SySTemS inc. /8
Driving
innovations in
transportation
ATS leverages its leading global
capabilities to create value for aerospace,
automotive and heavy equipment
manufacturers. These customers look
to ATS for automation solutions to
help them quickly, accurately and cost
effectively assemble steering, drive
train and electronic components used
in hybrid, electric and conventional
cars, produce, inspect and test critical
aerospace components and design
and build laser-based processing
systems for heavy machines.
9/ ATS AuTomATion Tooling SySTemS inc.
ATS AuTomATion Tooling SySTemS inc. /10
11/ ATS AuTomATion Tooling SySTemS inc.
Delivering
consistency
to consumers
ATS creates value for the biggest names
in consumer products, personal care
and electronics. These makers of leading
brands used by millions of consumers
every day trust ATS to supply automated
assembly, handling, tube filling, testing
and cartoning systems that ensure
consistent product quality, from the
first unit of production to the last.
ATS AuTomATion Tooling SySTemS inc. /12
ATS value
creation Strategy
atS viSion: Deliver enabling
manufacturing solutions to the
world’s market leaders.
atS miSSion: We will achieve our
mission by providing outstanding
value to our customers; superior
financial returns to our shareholders
and a premier work environment.
PRODUCTS &
TECHNOLOGY
SYSTEMS
INTEGRATION
SERVICES
AUTOMATION
EiGht principlES
for continuEd SuccESS:
/ customer focused
/ Flawless delivery
/ A dedication to high quality
/ Fostering innovation
through controlled risk
/ continuous improvement
/ Human resources are our
most valuable asset
/ A good corporate citizen
/ ethical business practices
13/ ATS AuTomATion Tooling SySTemS inc.
We employ three strategies
to achieve our vision and mission:
1 grow organically by providing
solutions for customers. 2 Expand our offering of
manufacturing products
and services to our
markets and customers.
comprehensive, value-based
programs and enterprise
3
Scale through targeted
acquisitions to add capabilities
and enhance growth opportunities
in selected markets.
ATS AuTomATion Tooling SySTemS inc. /14
letter to shareholders
Fellow shareholders,
Since our last annual report, ATS has continued
to execute its value creation plan with good results.
This plan was endorsed by the Board of Directors in
June 2012 along with our vision of delivering “enabling
manufacturing solutions to the world’s market leaders.”
The plan followed upon the successful completion
of earlier value creation steps taken to fix our core
business and separate solar operations, which have
been discontinued and largely monetized.
thE valuE crEation plan
haS thrEE ElEmEntS:
GroW: providing value-based programs and enterprise
solutions built on differentiated technical solutions and
value-based outcomes.
Expand: building upon our capability in the areas of
systems (design, modelling, simulation and program
management), products (custom manufacturing, core
process products) and services (pre and post automation,
training, life-cycle material management and other value
added services).
ScalE: leveraging our demonstrated ability to acquire and
improve businesses targeted based on their ability to bring
market or technology leadership, scale, or opportunity,
whether in markets we currently serve, or in new segments
that have attractive characteristics, such as high barriers to
entry, time-critical requirements, negative consequences for
non-delivery and onerous regulations.
We implemented this plan to broaden our strong foundation
in automation, add new core capability to our best-in-class
portfolio of technologies and services, increase our market
share and allow ATS to generate outstanding value for our
customers, superior financial returns to our shareholders
and a premier work environment for our employees.
15/ ATS AuTomATion Tooling SySTemS inc.
fiScal 2014 hiGhliGhtS
SummarY
ATS substantially advanced its plan in the year.
The September 30, 2013 acquisition of iWK, a leader in
primary packaging (tube fillers) and secondary packaging
(cartoners), aligned with ATS’s stated strategy of scaling
its leading position in the global automation market and
enhancing growth opportunities in strategic customer
segments and with technology leadership.
iWK brought us important new customers in the
pharmaceutical and personal care industries and a strong
management team and workforce. its addition created
significant cross selling and key account development
opportunities and bolstered ATS’s global service business.
After-market service is important as it builds strong
connections with our customers across their capital
equipment spending cycles and keeps ATS front of mind
when new projects are contemplated.
Since acquisition, we have started to roll out iWK’s service
model and capability across ATS and created a centre of
excellence for filling. We have also taken advantage of IWK’s
operations in Stutensee, germany and Bangkok, Thailand,
along with its sales and services centres in the u.S., europe
and Southeast Asia to consolidate and realign our divisions
and global capacity.
initial contributions from iWK along with organic growth
allowed us to produce solid financial performance in fiscal
2014. Revenues of $683.4 million were 16% higher than
the previous year. operating earnings were $61.0 million,
a 9% operating margin, reflecting improved program
execution, cost control and supply chain management
that together more than offset restructuring costs to
rebalance global capacity.
order Bookings were an annual record of $709 million
and included a variety of value-based enterprise programs
for market-leading customers that are indicative of our
desired approach to market and make good use of our
broad capabilities. order Backlog of $474 million at year
end was also at a record level. moreover, the quality and
duration of our backlog have improved, resulting in
increased predictability, better program control and
lower sensitivity to macro-economic forces. consequently,
ATS has a strong base of business to start fiscal 2015.
With over $70 million of cash net of debt, a $250 million
credit line, and the ability to generate strong free cash flow,
we have the financial capacity and flexibility to carry
forward with our value creation plan.
Strategically, we are on track to create a significant global
company that delivers manufacturing solutions including
machines, systems, enterprise solutions and service.
our focus on growth and performance will continue, along
with our efforts to position ATS as a trusted provider of
mission critical solutions to life sciences, transportation,
energy and consumer products markets.
Our strategy is clear, as is our plan of expanding our offerings
organically and through acquisition. The three acquisitions
made since 2010 have demonstrated our ability to select
and integrate businesses that are accretive to ATS and to
our global capabilities. Accordingly, we continue to apply
significant resources to further our M&A efforts as part of
our growth plan. The roll out of our service model will also
continue to add to our potential for organic growth.
Today, we have over 2,500 dedicated employees around the
world. With our significant global platform, ATS stands out
in an industry characterized by a large number of small and
medium-sized companies. it is not just size that distinguishes
us: it is the quality of our workforce, the enduring nature of
our customer relationships, many dating back decades, and
our experience in building thousands of automation systems.
I am confident that our business strengths, our plan and the
commitment we share to creating value will serve us well in
the year ahead.
Finally, i would like to thank all of our stakeholders,
including my colleagues, for giving us a very bright future.
ATS operates in a knowledge-based industry, and we have
some of the market’s best and brightest people who are
experienced and deeply engaged in creating value. i am
proud to work with this dedicated and talented workforce
and i look forward to our continued success together.
anthony caputo
Chief Executive Officer
ATS AuTomATion Tooling SySTemS inc. /16
Management’s
Discussion and Analysis
For the Year Ended March 31, 2014
This Management’s Discussion and Analysis (“MD&A”) for the year ended March 31, 2014 (fiscal 2014) is as of May 21, 2014
and provides information on the operating activities, performance and financial position of ATS Automation Tooling Systems
Inc. (“ATS” or the “Company”) and should be read in conjunction with the audited consolidated financial statements of the
Company for fiscal 2014 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
and are reported in Canadian dollars. Additional information is contained in the Company’s filings with Canadian securities
regulators, including its Annual Information Form, found on SEDAR at www.sedar.com and on the Company’s website at
www.atsautomation.com.
noTice To ReADeR: non-iFRS meASuReS AnD ADDiTionAl iFRS meASuReS: Throughout this document management
uses certain non-IFRS measures to evaluate the performance of the Company. These terms do not have any standardized
meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies.
The terms “operating margin”, “EBITDA”, “EBITDA margin”, “Order Bookings” and “Order Backlog” do not have any standardized
meaning prescribed within IFRS and therefore may not be comparable to similar measures presented by other companies. In
addition, management uses “earnings from operations” which is an additional IFRS measure to evaluate the performance of
the Company. Earnings from operations is presented on the Company’s consolidated statements of income as net income from
continuing operations excluding income tax expense and net finance costs. Operating margin is an expression of the Company’s
earnings from operations as a percentage of revenues. EBITDA is defined as earnings from operations excluding depreciation
and amortization (which includes amortization of intangible assets). EBITDA margin is an expression of the Company’s EBITDA
as a percentage of revenues. Order Bookings represent new orders for the supply of automation systems, services and products
that management believes are firm. Order Backlog is the estimated unearned portion of revenues on customer contracts
that are in process and have not been completed at the specified date. Earnings from operations and EBITDA are used by the
Company to evaluate the performance of its operations. Management believes that earnings from operations is an important
indicator in measuring the performance of the Company’s operations on a pre-tax basis and without consideration as to how
the Company finances its operations. Management believes that EBITDA is an important indicator of the Company’s ability
to generate operating cash flows to fund continued investment in its operations. Order Bookings provides an indication of the
Company’s ability to secure new orders for work during a specified period, while Order Backlog provides a measure of the
value of Order Bookings that have not been completed at a specified point in time. Both Order Bookings and Order Backlog
are indicators of future revenues the Company expects to generate based on contracts that management believes to be firm.
Management believes that ATS shareholders and potential investors in ATS use these IFRS measures and non-IFRS financial
measures in making investment decisions and measuring operational results. A reconciliation of earnings from operations and
EBITDA to net income from continuing operations for the fiscal fourth quarters and years ending March 31, 2014 and March
31, 2013 is contained in this MD&A (see “Reconciliation of EBITDA to IFRS Measures”). EBITDA should not be construed as a
substitute for net income determined in accordance with IFRS. A reconciliation of Order Bookings and Order Backlog to total
Company revenues for the fiscal fourth quarters and years ending March 31, 2014 and March 31, 2013 is contained in the
MD&A (see “Order Backlog Continuity”).
17/ ATS AuTomATion Tooling SySTemS inc.
comPAny PRoFile: ATS Automation Tooling Systems Inc. provides innovative, custom designed, built and installed
manufacturing solutions to many of the world’s most successful companies. Founded in 1978, ATS uses its industry-leading
knowledge and global capabilities to serve the sophisticated automation systems’ needs of multinational customers in
industries such as life sciences, transportation, energy, consumer products and electronics. ATS also leverages its many years
of experience and skills to fulfill the specialized automation product manufacturing requirements of customers. ATS employs
approximately 2,500 people at 23 manufacturing facilities in Canada, the United States, Europe, Southeast Asia and China.
The Company’s Solar segment is classified as discontinued operations.
Value Creation Strategy
To DRiVe VAlue cReATion, THe comPAny imPlemenTeD
A THRee-PHASe STRATegic PlAn:
A fix the business (improve the existing operations, gain operating control of the business and earn credibility);
B separate the businesses (create a standalone automation business, monetize non-core assets
and strengthen the balance sheet); and
C grow (both organically and through acquisition).
The Company has made significant progress in each phase of its Value Creation Strategy, including the separation of solar
assets (see “Discontinued Operations: Solar” and “Solar Separation and Outlook”).
Accordingly, in June 2012, the ATS Board of Directors approved the next phase of the Company’s strategy: Grow, Expand
and Scale. The strategy is designed to leverage the strong foundation of ATS’ core automation business, continue the growth
and development of ATS and create value for all stakeholders.
gRoW: To further the Company’s organic growth, ATS will continue to target providing comprehensive, value-based programs
and enterprise solutions for customers built on differentiating technological solutions, value of customer outcomes achieved
and global capability.
exPAnD: The Company seeks to expand its offering of products and services to the market. The Company intends to build on
its automation systems business to offer: engineering, including design, modelling and simulation, and program management;
products, including contract manufacturing, automation and other manufacturing products; and services, including pre
automation, post automation, training, life cycle material management, and other services. Although engineering, products
and services are part of ATS’ portfolio today, the Company has significant room to grow these offerings in the future.
ScAle: The Company is also committed to growth through acquisition and has the organizational structure, the business
processes and the experience to successfully integrate acquired companies. Acquisition targets are evaluated on their ability
to bring ATS market or technology leadership, scale and/or a market opportunity. For each of ATS’ markets, the Company has
analyzed the capability value chain and made a grow, team or acquire decision. Financially, targets are reviewed on a number of
criteria including their potential to add accretive earnings to current operations.
ATS AuTomATion Tooling SySTemS inc. /18
Management’s Discussion and Analysis – For the Year Ended March 31, 2014 Business Acquisition – IWK
On September 30, 2013, the Company completed its acquisition of IWK Verpackungstechnik GmbH and OYSTAR IWK USA,
Inc. (collectively “IWK”). IWK is a leader in technology driven high-performance tube filling and cartoning machinery for the
pharmaceutical and personal care industries. The acquisition of IWK aligns with ATS’ strategy of scaling its leading position in the
global automation market and enhancing growth opportunities, particularly in strategic customer segments and with technology
leadership. IWK brought new relationships with key pharmaceutical and personal care customers and added core capability in
primary packaging (tube fillers) and secondary packaging (cartoners), which management expects can be leveraged into other
markets ATS currently serves. IWK also allows ATS to consider future acquisition possibilities that would be a strategic fit with
IWK and provide the Company with deep capabilities across several core elements of the customer value chain.
In calendar 2012, IWK had revenues of approximately 82 million Euro and EBITDA of approximately 11 million Euro. Sales to
customers in the pharmaceutical and personal care sectors evenly accounted for over 90% of IWK worldwide revenues. New
equipment systems and standard automation each accounted for approximately 30% of total revenues, and services accounted
for the remaining 40% of total revenues. European and North American markets each represented approximately a third of IWK
revenues, Asia 25%, and the balance was earned primarily in South America.
The Company is integrating IWK into ATS where it will serve as the filling centre of excellence (primary and secondary
packaging) for the Company. IWK brings a strong and experienced management team that will continue to drive the business.
Cash consideration paid for IWK in the third quarter of fiscal 2014 was $137.4 million (99.0 million Euro), which is net of $9.9
million of cash acquired. In addition, the Company incurred $3.2 million of transaction costs related to the acquisition. The
cash consideration of the purchase price, along with transaction costs, were primarily funded with existing cash on hand and
proceeds from long-term debt of $40.0 million, which has subsequently been repaid. This acquisition has been accounted for
as a business combination with the Company as the acquirer of IWK. The purchase method of accounting has been used and
the earnings of IWK are consolidated beginning from the acquisition date, September 30, 2013. For additional information on
the acquisition of IWK, refer to note 5 of the consolidated financial statements.
19/ ATS AuTomATion Tooling SySTemS inc.
Automation Systems Group
BuSineSS oVeRVieW
ATS’s Automation Systems Group (“ASG”) is an industry-leading automation solutions provider to some of the world’s
largest multinational companies. ASG has expertise in custom automation, repeat automation, automation products
and value-added services.
ASG categorizes its market into four industry groups: life sciences, consumer and electronics, transportation, and energy.
Contract values for individual automation systems are often in excess of $1.0 million, with some contracts for Enterprise-type
programs well in excess of $10 million. Given the custom nature of customer projects, contract durations vary greatly, with
typical durations ranging from six to 12 months, with some larger contracts extending up to 18 to 24 months.
With broad and in-depth knowledge across multiple industries and technical fields, ASG is able to deliver single source
solutions to customers that can lower their production costs, accelerate delivery of their products, and improve quality
control. ASG’s relationships with customers can begin with planning and feasibility studies. In situations where the customer
is seeking in-depth analysis before committing to a program, ASG conducts an analysis to verify the economics and feasibility
of different types of automation, sets objectives for factors such as line speed and yield, assesses production processes for
manufacturability and calculates the total cost of ownership.
When a contract for an automation solution is received, ASG often provides a number of services, including engineering
design, prototyping, process verification, specification writing, software development, automation simulation, equipment
design and build, third-party equipment qualification, procurement and integration, automation system installation, product
line start up, documentation, customer training and after-installation support, maintenance and service. Following the
installation of custom automation, ASG may supply duplicate or “repeat” automation systems to customers that leverage
engineering design completed in the original customer program. For customers seeking complex equipment replication,
ASG provides value engineering, supply chain management, integration and manufacturing capabilities and other automation
products and solutions.
comPeTiTiVe STRengTHS
Management believes ASG has the following competitive strengths:
gloBAl PReSence, Size AnD cRiTicAl mASS: ASG’s global presence and scale provides an advantage in serving
multinational customers because the markets in which the Company operates are primarily populated by competitors
with narrow geographic and/or industrial market reach. ASG has manufacturing operations in Canada, the United States,
Germany, Switzerland, China, Malaysia, Thailand and India. Management believes that ASG’s scale and locations provide
it with competitive advantages in winning large, multinational customer programs that have become increasingly common
in the industry.
TecHnicAl SKillS, cAPABiliTieS AnD exPeRience: Automation manufacturing is a knowledge-based business. ATS has
designed, manufactured, assembled and serviced over 15,000 automation systems worldwide since 1978 and has an extensive
knowledge base and accumulated design experience. Management believes ASG’s broad experience in many different industry
sectors, with many diverse technologies, along with its talented workforce and ability to provide custom automation, repeat
automation, automation products and value-added services, positions the Company well to serve complex multinational
customer programs in a variety of industry sectors.
ATS AuTomATion Tooling SySTemS inc. /20
Management’s Discussion and Analysis – For the Year Ended March 31, 2014 PRoDucT AnD TecHnology PoRTFolio: Through its history of bringing thousands of unique automation projects to market,
ATS and its subsidiaries, including Sortimat, ATW and IWK, have developed an extensive product and technology portfolio,
including manufacturing vision technologies, numerous material handling and feeder technologies, high-accuracy and high
precision laser processing technologies, and high performance tube filling and cartoning. Management believes this extensive
product and technology portfolio gives the Company an advantage in developing unique and leading solutions for customers
and maintaining cost competitiveness.
TRuSTeD cuSTomeR RelATionSHiPS: ASG serves some of the world’s largest multinational companies. Most of ASG’s
customers are repeat customers and many have long-standing relationships with ATS, often spanning more than a decade.
Management estimates that approximately 90% of ASG Order Bookings in fiscal 2014 were earned from repeat customers.
RecognizeD BRAnDS: Management believes ATS is well known within the global automation industry due to its long history
of innovation and broad scope of operations. In addition, ATS’ subsidiaries include strong brands in: Sortimat, which specializes
in the life sciences market; ATW, which specializes in the transportation market; and IWK which specializes in the packaging
market. Management believes that ATS’ brand names and global reputation improve sales prospecting, allowing the Company to
be considered for a wide variety of customer programs.
ToTAl-SoluTionS cAPABiliTieS: Management believes the Company gains competitive advantages because ASG provides total
turn-key solutions in automation. This allows customers to single source their most complex projects to ATS rather than rely on
multiple equipment builders. In addition, ASG can provide customers with other value-added services including pre-automation
consulting, total cost of ownership studies, life cycle material management, post-automation service, training and support.
Overview
Operating Results from Continuing Operations
Results from continuing operations comprise the results of ATS’ continuing operations and corporate costs not directly
attributable to Solar. The results of the Solar segment are reported in discontinued operations.
conSoliDATeD ReVenueS FRom conTinuing oPeRATionS (In millions of dollars)
Revenues by market
Q4 2014
Q4 2013
Fiscal 2014
Fiscal 2013
Consumer products & electronics
Energy
Life sciences
Transportation
Total revenues from continuing operations
Revenues by installation location
North America
Europe
Asia/Other
$
$
$
34.8
15.9
81.2
68.8
200.7
Q4 2014
107.2
55.3
38.2
Total revenues from continuing operations
$
200.7
$
$
$
$
11.0
8.2
61.7
72.3
153.2
Q4 2013
60.3
51.9
41.0
153.2
$
$
$
$
91.6
46.6
288.7
256.5
683.4
Fiscal 2014
328.5
192.4
162.5
683.4
$
$
$
$
54.2
35.7
224.4
276.8
591.1
Fiscal 2013
262.5
180.3
148.3
591.1
21/ ATS AuTomATion Tooling SySTemS inc.
FouRTH QuARTeR: Fourth quarter revenues were 31% higher than in the corresponding period a year ago primarily reflecting
$29.6 million of revenues earned by IWK. Excluding IWK, fourth quarter revenues were $171.1 million, a 12% increase over the
corresponding period a year ago. Foreign exchange rate changes positively impacted the translation of revenues earned by
foreign-based ASG subsidiaries compared to the corresponding period a year ago, primarily reflecting the weakening of the
Canadian dollar relative to the Euro and U.S. dollar.
By industrial market, fourth quarter revenues from consumer products & electronics increased by 216%, primarily on revenues
from IWK and higher revenues earned in the consumer products market. Revenues generated in the energy market increased
94% compared to the corresponding period a year ago, primarily on higher Order Backlog entering the fourth quarter due
largely to increased activity in nuclear energy. Revenues generated in the life sciences market increased 32% compared to the
corresponding period a year ago, primarily on revenues from IWK. Transportation revenues decreased 5% compared to a year
ago primarily due to lower Order Backlog in the fourth quarter compared to a year ago.
Full yeAR: Fiscal 2014 revenues were 16% higher than the corresponding period a year ago. Higher fiscal 2014 revenues
reflected $59.3 million of revenues earned by IWK in the third and fourth quarters of fiscal 2014, foreign exchange rate changes
which positively impacted the translation of revenues earned by foreign-based ASG subsidiaries compared to fiscal 2013,
primarily reflecting the weakening of the Canadian dollar relative to the Euro and the U.S. dollar, and increased Order Backlog
entering the fiscal year compared to a year ago.
By industrial market, revenues from consumer products & electronics and life sciences markets increased 69% and
29% respectively compared to fiscal 2013, primarily on revenues earned by IWK and higher Order Backlog in life sciences
entering the fiscal year compared to a year ago. Revenues generated in the energy market increased 31% on increased
activity primarily in nuclear energy. Revenues from the Transportation market decreased 7% compared to a year ago
primarily due to lower Order Bookings.
conSoliDATeD oPeRATing ReSulTS (In millions of dollars)
Earnings from operations
Depreciation and amortization
EBITDA
Q4 2014
Q4 2013
Fiscal 2014
Fiscal 2013
$
$
17.2
6.3
23.5
$
$
14.0
3.3
17.3
$
$
61.0
18.4
79.4
$
$
56.6
12.2
68.8
FouRTH QuARTeR: Fiscal 2014 fourth quarter earnings from operations were $17.2 million (9% operating margin) compared
to $14.0 million (9% operating margin) in the fourth quarter of fiscal 2013. Fourth quarter fiscal 2014 earnings from operations
included restructuring charges of $1.0 million to improve the Company’s cost structure including closing its Singapore
manufacturing facility. Adjusted for restructuring charges, fourth quarter fiscal 2014 earnings from operations were $18.2
million (9% operating margin).
Higher earnings from operations primarily reflected higher revenues, better program execution, and the inclusion of IWK,
partially offset by an accrual for a legal settlement, higher stock-based compensation costs and increased depreciation and
amortization expenses compared to the corresponding period a year ago. Depreciation and amortization expense was
$6.3 million in the fourth quarter of fiscal 2014, compared to $3.3 million a year ago, primarily due to a $2.8 million increase
in amortization as a result of the addition of identifiable intangible assets recorded on the acquisition of IWK in the third
quarter of fiscal 2014.
EBITDA was $23.5 million (12% EBITDA margin) compared to $17.3 million (11% EBITDA margin) in the fourth quarter of fiscal
2013. Adjusted for restructuring charges, fourth quarter fiscal 2014 EBITDA was $24.5 million (12% EBITDA margin).
ATS AuTomATion Tooling SySTemS inc. /22
Management’s Discussion and Analysis – For the Year Ended March 31, 2014
Full yeAR: Earnings from operations were $61.0 million (9% operating margin) compared to $56.6 million (10% operating
margin) a year ago. Excluding $6.1 million of restructuring charges incurred to re-balance global capacity and improve the
Company’s cost structure, $3.2 million of transaction costs related to the acquisition of IWK, and a one-time gain of $4.3
million from the successful recovery of costs related to programs acquired in a previous acquisition, fiscal 2014 earnings
from operations were $66.0 million (10% operating margin).
Higher earnings from operations, adjusted for these items, primarily reflected revenue growth and the inclusion of IWK,
partially offset by higher stock-based compensation costs and higher depreciation and amortization expenses compared
to a year ago. Depreciation and amortization expense of $18.4 million in fiscal 2014 increased from $12.2 million a year ago,
primarily due to a $5.2 million increase in amortization as a result of the addition of identifiable intangible assets recorded
on the acquisition of IWK in the third quarter of fiscal 2014.
EBITDA was $79.4 million (12% EBITDA margin) compared to $68.8 million (12% EBITDA margin) in fiscal 2013. Fiscal 2014
EBITDA, adjusted for restructuring charges, IWK acquisition costs, and one-time gains, was $84.4 million (12% EBITDA margin).
ASg oRDeR BooKingS By QuARTeR (In millions of dollars)
Q1
Q2
Q3
Q4
Total Order Bookings
Fiscal 2014
Fiscal 2013
$
$
165
110
237
197
709
$
$
168
112
173
170
623
FouRTH QuARTeR: Fourth quarter fiscal 2014 Order Bookings were $197 million, a 16% increase from the fourth quarter
of fiscal 2013, which primarily reflected $26 million of Order Bookings generated by IWK. Excluding the impact of IWK,
Order Bookings were $171 million, a 1% increase from the corresponding period a year ago. Foreign exchange rate changes also
positively impacted the translation of Order Bookings from foreign-based ASG subsidiaries compared to the corresponding
period a year ago.
Full yeAR: Fiscal 2014 Order Bookings were $709 million, a 14% increase from fiscal 2013 Order Bookings of $623 million.
Excluding the impact of IWK, Order Bookings were $635 million, a 2% increase from the previous fiscal year. Continued
strength in consumer products and electronics, life sciences and energy was offset by lower activity in transportation.
Foreign exchange rate changes also positively impacted the translation of Order Bookings from foreign-based ASG
subsidiaries compared to fiscal 2013.
During the first quarter of fiscal 2014, milestone payments of 15 million Euro related to the Nigeria enterprise program
were received resulting in total payments for this program to date of approximately 25 million Euro. The Company will
record the balance of the Order Booking and Order Backlog if and when financial close is reached or additional milestone
payments are received.
oRDeR BAcKlog conTinuiTy (In millions of dollars)
Opening Order Backlog
Revenues
Order Bookings
Order Backlog adjustments 1
Total
Q4 2014
Q4 2013
Fiscal 2014
Fiscal 2013
$
$
467
(201)
197
11
474
$
$
388
(153)
170
(7)
398
$
$
398
(683)
709
50
474
$
$
382
(591)
623
(16)
398
(1) Order Backlog adjustments include foreign exchange adjustments, cancellations and for fiscal 2014, incremental Order Backlog of $45 million acquired with IWK.
23/ ATS AuTomATion Tooling SySTemS inc.
oRDeR BAcKlog By inDuSTRy (In millions of dollars)
Consumer products & electronics
Energy
Life sciences
Transportation
Total
Fiscal 2014
Fiscal 2013
$
$
79
55
170
170
474
$
$
23
13
162
200
398
At March 31, 2014, Order Backlog was $474 million, 19% higher than at March 31, 2013. Higher Order Backlog primarily reflected
the addition of IWK’s Order Backlog and higher Order Bookings in the energy and consumer products & electronics markets.
ouTlooK
The general global economic environment has improved; however, uncertainty remains. In North America, the U.S. and Canadian
economies have shown signs of improvement, but growth remains slow. Economic growth has slowed in China and other parts
of Asia. In Europe, the economy has shown signs of stabilizing, but markets continue to be weak. This has the potential to
negatively impact demand, particularly for the Company’s European operations, and may cause volatility in Order Bookings.
Overall, a prolonged or more significant downturn in an economy where the Company operates could negatively impact Order
Bookings. Impacts on demand for the Company’s products and services may lag behind global macroeconomic trends due
to the strategic nature of the Company’s programs to its customers and the long lead times on projects.
Many customers remain cautious in their approach to capital investment; however, activity in the life sciences and transportation
markets remains strong. The Company has seen increased activity in energy markets such as nuclear and oil and gas; however,
the solar energy market remains weak due to reductions in solar feed-in-tariffs. Activity in consumer products & electronics
has improved and the addition of IWK provides the Company with an opportunity to increase its exposure to new customers
in these markets and in life sciences.
The Company’s sales organization will continue to work to engage with customers on enterprise-type solutions. The Company
expects that this will provide ATS with more strategic relationships, increased predictability, better program control and less
sensitivity to macroeconomic forces. This approach to market may cause variability in Order Bookings from quarter to quarter
and, as is already the case, lengthen the performance period and revenue recognition for certain customer programs. The
Company expects its Order Backlog of $474 million at the end of fiscal 2014 to mitigate the impact of volatile Order Bookings
on revenues in the short term. Management expects that approximately 35% to 40% of its Order Backlog would typically be
completed each quarter.
The addition of IWK provides core capabilities and customers that are new to ATS. This is expected to result in cross-selling
opportunities and further key account development. ATS’ approach to market will be rolled out within IWK to support its
growth. Management expects to leverage IWK’s established product development and after-market service capabilities
across the ATS organization.
Regarding IWK, opportunities to increase profitability are being pursued through improved supply chain management, better
leveraging of the Company’s global footprint and deploying IWK’s service model and capability to all of ATS. The addition of
IWK also provides the Company with an opportunity to realign its operations and improve the global cost structure of its base
business. In this regard, the Company is in the process of closing a manufacturing facility in Singapore. The Company will
continue to service customers in the region from a sales and service office in Singapore and by way of neighbouring locations
in Malaysia and Thailand. These actions, along with other changes implemented by the Company in the first quarter of fiscal
2014, have re-balanced global capacity and improved the Company’s cost structure.
ATS AuTomATion Tooling SySTemS inc. /24
Management’s Discussion and Analysis – For the Year Ended March 31, 2014
Management’s disciplined focus on program management, cost reductions, standardization and quality puts ATS in a strong
competitive position to capitalize on opportunities going forward and sustain performance in challenging market conditions.
Management expects that the application of its ongoing efforts to improve its cost structure, business processes, leadership
and supply chain management will continue to have a positive impact on ATS operations.
The Company is seeking to expand its position in the global automation market organically and through acquisition.
The Company’s strong financial position provides a solid foundation and the flexibility to pursue its growth strategy.
conSoliDATeD ReSulTS FRom conTinuing oPeRATionS
& SELECTED FOURTH QUARTER AND ANNUAL INFORMATION (In millions of dollars, except per share data)
Q4 2014
Q4 2013
Fiscal 2014
Fiscal 2013
Fiscal 2012
Revenues
Cost of revenues
Selling, general and administrative
Stock-based compensation
Gain on sale of land and building
Earnings from operations
Net finance costs
Provision for income taxes
Net income from continuing operations
Gain (loss) from discontinued operations, net of tax
Net income (loss)
Earnings (loss) per share
Basic from continuing operations
Basic from discontinued operations
Diluted from continuing operations
Diluted from discontinued operations
From continuing operations:
Total assets
Total cash and short-term investments
Total bank debt
(1) Rounding.
$
$
$
$
$
$
$
$
$
$
$
$
200.7
146.6
35.0
1.9
―
17.2
1.0
4.5
11.7
(0.4)
11.3
0.13
(0.01)
0.12
0.13
(0.01)
0.12
$
$
$
$
$
$
$
$
$
$
$
$
153.2
116.4
21.5
1.3
―
14.0
0.7
4.4
8.9
(0.6)
8.3
0.10
(0.01)
0.09
0.09
(0.00)
0.09
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
683.4
501.7
113.3
7.3
―
61.01
3.0
8.6
49.4
12.8
62.2
0.56
0.14
0.70
0.55
0.14
0.69
765.1
76.5
6.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
591.1
441.2
89.5
3.8
―
56.6
2.0
13.5
41.1
(26.0)
15.1
0.47
(0.30)
0.17
0.46
(0.29)
0.17
565.4
105.5
1.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
595.4
438.7
94.5
4.9
(3.0)
60.3
1.6
14.7
44.0
(103.5)
(59.5)
0.51
(1.19)
(0.68)
0.51
(1.19)
(0.68)
532.9
96.2
3.0
ReVenueS: At $200.7 million, consolidated revenues from continuing operations for the fourth quarter of fiscal 2014 were $47.5
million or 31% higher than in the corresponding period a year ago. At $683.4 million, fiscal 2014 revenues were $92.3 million or
16% higher than for the same period a year ago, primarily on incremental IWK revenue. See “Overview – Operating Results from
Continuing Operations.”
coST oF ReVenueS: At $146.6 million, fourth quarter fiscal 2014 cost of revenues increased over the corresponding
period a year ago by $30.2 million or 26% primarily on higher revenues. Fiscal 2014 cost of revenues of $501.7 million
increased by $60.5 million or 14%, primarily on higher revenues generated compared to a year ago.
At 27%, gross margin in the fourth quarter of fiscal 2014 increased 3% from the corresponding period a year ago. Higher
fourth quarter gross margins reflected improved program execution, improvements in the cost structure of the Company’s
base business, and the inclusion of IWK. Fiscal 2014 gross margin of 27% increased 2% from fiscal 2013 due to the same
factors, specifically: improved program execution, improvements in the cost structure of the Company’s base business,
and the inclusion of IWK for the third and fourth fiscal quarters of 2014.
25/ ATS AuTomATion Tooling SySTemS inc.
SELLINg, gENERAL AND ADMINISTRATIvE (“Sg&A”) ExPENSES: SG&A expenses for the fourth quarter of fiscal 2014 were
$35.0 million. This included $1.0 million of restructuring charges incurred to re-balance global capacity and improve the
Company’s cost structure. Adjusted for these costs, SG&A expenses were $12.5 million or 58% higher than the $21.5 million
incurred in the corresponding period last year. Higher SG&A costs primarily reflected the addition of IWK SG&A expenses,
including $2.8 million of incremental amortization expenses related to the identifiable intangible assets recorded on the
acquisition of IWK, foreign exchange rate changes which negatively impacted the translation of SG&A expenses, an accrual
for a legal settlement, and higher employee performance incentives.
Fiscal 2014 SG&A expenses were $113.3 million, which included $6.1 million of restructuring charges, $3.2 million of
professional fees related to the acquisition of IWK and a one-time gain of $4.3 million from the successful recovery of costs
related to programs acquired in a previous acquisition. Adjusted for these costs, fiscal 2014 SG&A spending was $108.3 million,
$18.8 million or 21% higher compared to the previous year. Higher SG&A costs primarily reflected the addition of IWK SG&A
expenses, including $5.2 million of incremental amortization expenses related to the identifiable intangible assets recorded
on the acquisition of IWK.
STocK-BASeD comPenSATion coST: Stock-based compensation expense of $1.9 million in the fourth quarter of fiscal 2014
increased from $1.3 million in the corresponding period a year ago. Fiscal 2014 stock-based compensation expense increased
to $7.3 million from $3.8 million a year earlier. The increase in stock-based compensation costs over both periods is due to the
revaluation of deferred stock units, share appreciation rights and restricted share units.
eARningS FRom oPeRATionS: For the three and twelve month periods ended March 31, 2014 consolidated earnings
from operations were $17.2 million and $61.0 million respectively (operating margin of 9% in both periods), compared to
earnings from operations of $14.0 million and $56.6 million a year ago (operating margins of 9% and 10% respectively).
See “Overview – Operating Results from Continuing Operations.”
neT FinAnce coSTS: Net finance costs were $1.0 million in the fourth quarter of fiscal 2014, $0.3 million higher than a year
ago. Fiscal 2014 finance costs were $3.0 million compared to $2.0 million in the corresponding period a year ago. The increase
in net finance costs reflected increased usage of the Company’s primary credit facility in both periods.
income TAx PRoViSion: For the three and twelve months ended March 31, 2014, the Company’s effective income tax rate
was 28% and 15% respectively. Based on changes made to the tax structure of the Company’s businesses in Germany and the
acquisition of IWK, the Company expects it will be able to utilize previously unrecognized deferred tax assets. Consequently,
in fiscal 2014, the Company recorded net income tax recoveries and other adjustments of $8.3 million primarily related to the
recognition of deferred income tax assets following the Company’s change in assessment of its ability to utilize tax losses in
its German-based operations, partially offset by certain provisions in other jurisdictions. Adjusted for these items which were
recorded in the third fiscal quarter of 2014, the Company’s effective income tax rate was 29% for fiscal 2014. The Company
expects that with the recognition of these deferred tax assets, its effective tax rate will exceed the combined Canadian basic
federal and provincial income tax rate of 27% going forward; however, cash taxes are expected to be lower than the effective
tax rate for accounting purposes due to tax assets available primarily in Canada and Germany.
neT income FRom conTinuing oPeRATionS: Fiscal 2014 fourth quarter net income from continuing operations was $11.7
million (13 cents per share basic and diluted) compared to $8.9 million (10 cents per share basic and 9 cents per share diluted) for
the fourth quarter of fiscal 2013. Net income from continuing operations for fiscal 2014 was $49.4 million (56 cents per share basic
and 55 cents per share diluted) compared to $41.1 million (47 cents per share basic and 46 cents per share diluted) a year ago.
ATS AuTomATion Tooling SySTemS inc. /26
Management’s Discussion and Analysis – For the Year Ended March 31, 2014 ReconciliATion oF eBiTDA To iFRS meASuReS (In millions of dollars)
Fiscal 2014
Fiscal 2013
Fiscal 2012
$
$
$
79.4
18.4
61.0
3.0
8.6
49.4
EBITDA
Less: depreciation and amortization expense
Earnings from operations
Less: net finance costs
Provision for income taxes
Net income from continuing operations
EBITDA
Less: depreciation and amortization expense
Earnings from operations
Less: net finance costs
Provision for income taxes
Net income from continuing operations
DiSconTinueD oPeRATionS: SolAR (In millions of dollars)
Total revenues
Gain on sale
Income (loss) from discontinued
operations
Income (loss) from discontinued
operations, net of tax
FouRTH QuARTeR:
Q4 2014
―
$
$
―
(0.4)
(0.4)
Q4 2013
1.6
―
(0.7)
(0.6)
$
$
$
$
$
$
$
68.8
12.2
56.6
2.0
13.5
41.1
Q4 2014
23.5
6.3
17.2
1.0
4.5
11.7
$
$
$
$
$
$
72.3
12.0
60.3
1.6
14.7
44.0
Q4 2013
17.3
3.3
14.0
0.7
4.4
8.9
Fiscal 2014
Fiscal 2013
1.1
13.8
12.8
12.8
$
3.7
―
(26.1)
(26.0)
Revenues: During the first quarter of fiscal 2014, the manufacturing assets were sold and the business wound up. Accordingly, fiscal
2014 fourth quarter revenues of $nil were $1.6 million lower than in the fourth quarter of fiscal 2013.
Income (loss) from Discontinued Operations: Ontario Solar recorded a loss of $0.4 million in the fourth quarter of fiscal 2014.
The fourth quarter loss a year ago was $0.6 million.
Full yeAR:
Revenues: Revenues for fiscal 2014 of $1.1 million were 70% lower than in the same period of fiscal 2013 reflecting the sale of
manufacturing assets and business cessation.
Gain on sale: For fiscal 2014, the gain on sale of $13.8 million was comprised of gains of $10.8 million from the sale of 75%
ownership interest in four ground-mount solar projects by Ontario Solar’s 50% owned joint operation Ontario Solar PV Fields
(“OSPV”) and $3.0 million from the sale of Ontario Solar’s manufacturing assets and inventory.
Income (loss) from Discontinued Operations: Ontario Solar recorded $12.8 million of income in fiscal 2014 compared to losses
from operations of $26.0 million in the corresponding period a year ago.
SolAR SePARATion AnD ouTlooK: Subsequent to the end of fiscal 2014, OSPV completed the sale of its remaining three
ground-mount solar projects. OSPV will retain 25% ownership of the projects until the projects reach commercial operation,
which is expected to occur in early calendar 2015. Net proceeds to ATS are expected to be approximately $14.6 million, of
which the Company received $12.0 million in the first quarter of fiscal 2015. Remaining proceeds are to be paid based on the
projects achieving certain development milestones.
27/ ATS AuTomATion Tooling SySTemS inc.
During the year ended March 31, 2014, OSPV sold four ground-mount solar projects, representing approximately 34 megawatts
(MWs). OSPV will retain 25% ownership of the projects until they reach commercial operation, which is expected to occur in
calendar 2014. Net proceeds to the Company are expected to be $21.4 million, of which the Company received net proceeds
of $13.4 million during the first quarter of fiscal 2014 and $0.5 million during the year ended March 31, 2013. The remaining
proceeds are expected to be received when the projects achieve commercial operation.
During the year ended March 31, 2014, the Company divested its Ontario Solar manufacturing assets and inventory.
Net proceeds to the Company were $6.5 million.
Overall, management expects to record a gain on these divestitures as the sales are completed and proceeds realized.
Subsequent to the settlement of outstanding liabilities, net proceeds from the divestiture of Ontario Solar will be re-allocated
to ATS’ core automation business to support growth.
SummARy oF inVeSTmenTS, liQuiDiTy, cASH FloW AnD FinAnciAl ReSouRceS
inVeSTmenTS (In millions of dollars)
Investments – increase (decrease)
Non-cash operating working capital
Property, plant and equipment
Acquisition of intangible assets
Business acquisition, net of cash acquired
Proceeds from disposal of assets
Acquisition / (Proceeds from disposal) of portfolio investments
Investing activities of discontinued operations
Total net investments
Fiscal 2014
Fiscal 2013
$
$
4.9
4.3
6.8
137.4
(0.2)
(5.2)
(21.9)
126.1
$
$
26.0
7.7
4.8
―
―
4.6
0.1
43.2
In fiscal 2014, the Company’s investment in non-cash working capital increased by $4.9 million compared to an increase
of $26.0 million a year ago. Accounts receivable increased 18% or $18.1 million, driven by the increase in fiscal 2014 revenues
and the acquisition of IWK. Net contracts in progress increased 16% or $12.2 million compared to March 31, 2013 due to the
acquisition of IWK and timing of closing programs compared to fiscal 2013. The Company actively manages its accounts
receivable and net contracts in progress balances through billing terms on long-term contracts, collection efforts and supplier
payment terms. Inventories increased 127% or $13.5 million primarily due to the acquisition of IWK. Deposits and prepaid
assets decreased 18% or $2.1 million compared to March 31, 2013 due to the timing of program execution compared to fiscal
2013. Accounts payable and accrued liabilities increased 34% or $35.5 million primarily due to the acquisition of IWK and
timing of purchases.
Capital expenditures totalled $4.3 million for fiscal 2014, primarily related to computer hardware. Capital expenditures
totalled $7.7 million in fiscal 2013, primarily related to facility improvements, computer hardware and equipment.
Intangible assets expenditures totalled $6.8 million in fiscal 2014 and primarily related to computer software. Intangible
assets expenditures totalled $4.8 million in fiscal 2013, primarily related to software acquisitions.
During fiscal 2013, the Company acquired a portfolio investment for $4.6 million. The Company divested this investment
in fiscal 2014 for proceeds of $5.2 million.
ATS AuTomATion Tooling SySTemS inc. /28
Management’s Discussion and Analysis – For the Year Ended March 31, 2014
The Company performs impairment tests on its goodwill and intangible asset balances on an annual basis or as warranted by
events or circumstances. The Company conducted its annual impairment assessment in the fourth quarter of fiscal 2014 and
has determined there is no impairment of goodwill or intangible assets as of March 31, 2014 (fiscal 2013 – $nil).
All of the Company’s investments involve risks and require that the Company make judgments and estimates regarding the
likelihood of recovery of the respective costs. In the event management determines that any of the Company’s investments have
become permanently impaired or recovery is no longer reasonably assured, the value of the investment would be written down
to its estimated net realizable value as a charge against earnings. Due to the magnitude of certain investments, such write-
downs could be material.
liQuiDiTy, cASH FloW AnD FinAnciAl ReSouRceS (In millions of dollars, except ratios)
As at
Cash and cash equivalents
Debt-to-equity ratio
Cash flows provided by operating activities from continuing operations
Fiscal 2014
Fiscal 2013
$
$
76.5
0.01:1
70.0
$
$
105.5
0.01:1
33.7
At March 31, 2014, the Company had cash and cash equivalents of $76.5 million in continuing operations compared to $105.5
million at March 31, 2013. The Company’s total-debt-to-total-equity ratio, excluding accumulated other comprehensive income
at March 31, 2014 was 0.01:1. At March 31, 2014, the Company had $179.3 million of unutilized credit available under existing
credit facilities and another $11.1 million available under letter of credit facilities.
In fiscal 2014, cash flows provided by operating activities from continuing operations were $70.0 million ($33.7 million provided
by operating activities from continuing operations in fiscal 2013). The increase in operating cash flows from continuing
operations related primarily to higher income from continuing operations, the timing of investments in non-cash working capital
in large customer programs and cash flows provided by the operating activities of IWK.
During fiscal 2013, the Company established a new Senior Secured Credit Facility (the “Credit Agreement”). The Credit
Agreement provides a revolving credit facility of $250.0 million and expires on November 6, 2015. The Credit Agreement is
secured by the assets, excluding real estate, of certain of the Company’s North American legal entities and a pledge of shares
and guarantees from certain of the Company’s legal entities. At March 31, 2014, the Company had utilized $72.6 million under
the Credit Agreement, which was obtained by way of letters of credit (March 31, 2013 – $53.1 million). In the third quarter of
fiscal 2014, the Company used proceeds from the facility to partially fund the purchase of IWK, which was subsequently repaid
in the fourth quarter of fiscal 2014.
The Credit Agreement is available in Canadian dollars by way of prime rate advances, letters of credit for certain purposes
and/or bankers’ acceptances and in U.S. dollars by way of base rate advances and/or LIBOR advances. The interest rates
applicable to the Credit Agreement are determined based on a debt-to-EBITDA ratio. For prime-rate advances and base-rate
advances, the interest rate is equal to the bank’s prime rate or the bank’s U.S. dollar base rate in Canada, respectively, plus
0.50% to 1.50%. For bankers’ acceptances and LIBOR advances, the interest rate is equal to the bankers’ acceptance fee or
the LIBOR, respectively, plus 1.50% to 2.50%. The Company pays a fee for usage of financial letters of credit which ranges from
1.70% to 2.70% and a fee for usage of non-financial letters of credit which ranges from 1.15% to 1.80%. The Company pays a
standby fee on the unadvanced portions of the amounts available for advance or draw-down under the Credit Agreement at
rates ranging from 0.30% to 0.50%.
The Credit Agreement is subject to a debt-to-EBITDA test and an interest coverage test. Under the terms of the Credit Agreement,
the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit Agreement also limits
advances to subsidiaries and partially restricts the Company from repurchasing its common shares and paying dividends.
29/ ATS AuTomATion Tooling SySTemS inc.
The Company has additional credit facilities of $9.0 million (2.4 million Euro, 200 million Indian Rupees, 0.5 million Swiss
Francs and 30 million Thai Baht). The total amount outstanding on these facilities is $6.7 million of which $0.9 million is
classified as bank indebtedness (March 31, 2013 – $nil) and $5.8 million is classified as long-term debt (March 31, 2013 –
$2.2 million). The interest rates applicable to the credit facilities range from 1.9% to 11.0% per annum. A portion of the
long-term debt is secured by certain assets of the Company. The 0.5 million Swiss Francs and 200.0 million Indian Rupees
credit facilities are secured by letters of credit under the Credit Agreement.
The Company expects to continue increasing its investment in working capital to support the growth of its business.
The Company expects that continued cash flows from operations, together with cash and cash equivalents on hand and
credit available under operating and long-term credit facilities, will be sufficient to fund its requirements for investments
in working capital and capital assets and to fund strategic investment plans including some potential acquisitions.
Significant acquisitions could result in additional debt or equity financing requirements. The Company expects to use
moderate leverage to support its growth strategy.
In the third quarter of fiscal 2014, the Company completed its acquisition of IWK. Total cash consideration paid for IWK
was $137.4 million (99.0 million Euro), which is net of $9.9 million of cash acquired in the business. See “Value Creation
Strategy: Business Acquisition – IWK.”
conTRAcTuAl oBligATionS (In millions of dollars)
The minimum operating lease payments (related primarily to facilities and equipment) and purchase obligations are as follows:
From continuing operations:
Less than one year
One – two years
Two – three years
Three – four years
Four – five years
Due in over five years
Operating
leases
Purchase
obligations
$
6.3
5.1
4.4
2.3
1.8
3.8
$
23.7
$
$
59.3
0.8
―
―
―
―
60.1
The Company’s off-balance sheet arrangements consist of purchase obligations and various operating lease financing
arrangements related primarily to facilities and equipment, which have been entered into in the normal course of business.
The Company’s purchase obligations consist primarily of materials purchase commitments.
In accordance with industry practice, the Company is liable to customers for obligations relating to contract completion
and timely delivery. In the normal conduct of its operations, the Company may provide bank guarantees as security for
advances received from customers pending delivery and contract performance. In addition, the Company provides bank
guarantees for post-retirement obligations and may provide bank guarantees as security on equipment under lease and
on order. At March 31, 2014, the total value of outstanding bank guarantees under credit facilities was approximately $95.3
million (March 31, 2013 – $68.3 million) from continuing operations and was $2.1 million (March 31, 2013 – $3.7 million)
from discontinued operations.
ATS AuTomATion Tooling SySTemS inc. /30
Management’s Discussion and Analysis – For the Year Ended March 31, 2014
The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default
on their contractual obligations to the Company. The Company minimizes this risk by limiting counterparties to major financial
institutions and monitoring their creditworthiness. The Company’s credit exposure to forward foreign exchange contracts is
the current replacement value of contracts that are in a gain position. For further information related to the Company’s use
of derivative financial instruments refer to note 13 of the consolidated financial statements. The Company is also exposed to
credit risk from its customers. Substantially all of the Company’s trade accounts receivable are due from customers in a variety
of industries and, as such, are subject to normal credit risks from their respective industries. The Company regularly monitors
customers for changes in credit risk. The Company does not believe that any single industry or geographic region represents
significant credit risk. Credit risk concentration with respect to trade receivables is mitigated by the Company’s client base
being primarily large, multinational customers and through insurance purchased by the Company.
During fiscal 2014, 2,942,254 stock options were exercised. As of May 21, 2014 the total number of shares outstanding
was 90,847,082 and there were 4,366,916 stock options outstanding to acquire common shares of the Company.
RelATeD-PARTy TRAnSAcTionS
There were no significant related-party transactions in fiscal 2014. See note 26 to the consolidated financial statements
for further details on related-party disclosure.
FoReign excHAnge
The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency
of the Canadian dollar. Weakening in the value of the Canadian dollar relative to the U.S. dollar and the Euro had a positive impact
on translation of the Company’s revenues in fiscal 2014 compared to the corresponding period of fiscal 2013.
The Company’s Canadian operations generate significant revenues in major foreign currencies, primarily U.S. dollars, which
exceed the natural hedge provided by purchases of goods and services in those currencies. In order to manage a portion of
this net foreign currency exposure, the Company has entered into forward foreign exchange contracts. The timing and amount
of these forward foreign exchange contract requirements are estimated based on existing customer contracts on hand or
anticipated, current conditions in the Company’s markets and the Company’s past experience. Certain of the Company’s
foreign subsidiaries will also enter into forward foreign exchange contracts to hedge identified balance sheet, revenue and
purchase exposures. The Company’s forward foreign exchange contract hedging program is intended to mitigate movements
in currency rates primarily over a four to six month period. See note 13 to the consolidated financial statements for details
on the derivative financial instruments outstanding at March 31, 2014.
In addition, from time to time, the Company enters forward foreign exchange contracts to manage the foreign exchange
risk arising from certain inter-company loans and net investments in certain self-sustaining subsidiaries.
The Company uses hedging as a risk management tool, not to speculate.
PeRioD AVeRAge excHAnge RATeS in cDn$
U.S. Dollar
Euro
Year-end actual exchange rates
Period average exchange rates
March 31
2014
1.1055
1.5230
March 31
2013
1.0160
1.3024
% change
8.8 %
16.9 %
March 31
2014
1.0538
1.4137
March 31
2013
1.0016
1.2892
% change
5.2 %
9.7 %
31/ ATS AuTomATion Tooling SySTemS inc.
conSoliDATeD QuARTeRly ReSulTS (In millions of dollars, except per share amounts)
Revenues from continuing
operations
Earnings from operations
Income from continuing
operations
Income (loss) from discontinued
operations
Net income (loss)
Basic earnings per share from
continuing operations
Basic earnings (loss) per share
from discontinued operations
Basic earnings (loss) per share
Diluted earnings per share
from continuing operations
Diluted earnings (loss) per share
from discontinued operations
Diluted earnings (loss) per share
Order Bookings
Order Backlog
$
$
$
$
$
$
$
$
$
$
$
Q4
2014
$ 200.7
17.2
$
11.7
(0.4)
11.3
0.13
Q3
2014
178.0
16.7
18.8
(0.3)
18.5
0.21
$
$
$
$
$
$
$
$
$
$
$
$
(0.01) $
$
0.12
(0.00) $
$
0.21
Q2
2014
154.6
14.4
10.4
2.5
12.9
0.12
0.03
0.15
0.13
$
0.21
$
0.11
(0.01) $
$
0.12
(0.00) $
$
0.21
0.03
0.14
197.0
474.0
$
$
237.0
467.0
$
110.0
$ 355.0
Q1
2014
150.0
12.7
8.6
11.0
19.6
0.10
0.12
0.22
0.10
0.12
0.22
165.0
415.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Q4
2013
153.2
14.0
8.9
Q3
2013
$
$
$
144.2
13.6
10.7
$
$
$
Q2
2013
141.1
13.8
9.7
$
$
$
(0.6) $
$
8.3
(21.7) $
(11.0) $
(1.8) $
$
7.9
0.10
(0.01)
0.09
0.09
$
$
$
$
0.12
(0.24)
(0.12)
0.12
(0.00) $
$
0.09
(0.24)
(0.12)
$
170.0
$ 398.0
$
173.0
$ 388.0
$
$
$
$
$
$
$
$
0.11
(0.02)
0.09
0.11
(0.02)
0.09
112.0
361.0
$
$
$
$
$
$
$
$
Q1
2013
152.2
15.2
11.8
(2.0)
9.8
0.13
(0.02)
0.11
0.13
(0.02)
0.11
168.0
397.0
Interim financial results are not necessarily indicative of annual or longer-term results because many of the individual markets
served by the Company tend to be cyclical in nature. General economic trends, product life cycles and product changes may
impact revenues and operating performance. ATS typically experiences some seasonality with its Order Bookings, revenues and
earnings from operations due to summer plant shutdowns by its customers. Operating performance quarter to quarter may
also be affected by the timing of revenue recognition on large programs in Order Backlog, which is impacted by such factors as
customer delivery schedules, and the timing of third-party content.
CRITICAL ACCOUNTINg ESTIMATES, JUDgMENTS & ASSUMPTIONS
Notes 2 and 3 to the consolidated financial statements describe the basis of accounting and the Company’s significant
accounting policies.
ReVenue RecogniTion AnD conTRAcTS in PRogReSS: The nature of ASG contracts requires the use of estimates to
quote new business and most automation systems are typically sold on a fixed-price basis. Revenues on construction contracts
and other long-term contracts are recognized on a percentage of completion basis as outlined in note 3(d) “Construction
contracts” of the consolidated financial statements. In applying the accounting policy on construction contracts, judgment is
required in determining the estimated costs to complete a contract. These cost estimates are reviewed at each reporting period
and by their nature may give rise to income volatility. If the actual costs incurred by the Company to complete a contract are
significantly higher than estimated, the Company’s earnings may be negatively affected. The use of estimates involve risks,
since the work to be performed requires varying degrees of technical uncertainty, including possible development work to meet
the customer’s specification, the extent of which is sometimes not determinable until after the project has been awarded. In the
event the Company is unable to meet the defined performance specification for a contracted automation system, it may need to
redesign and rebuild all or a portion of the system at its expense without an increase in the selling price. Certain contracts may
have provisions that reduce the selling price if the Company fails to deliver or complete the contract by specified dates. These
provisions may expose the Company to liabilities or adversely affect the Company’s results of operations or financial position.
ATS AuTomATion Tooling SySTemS inc. /32
Management’s Discussion and Analysis – For the Year Ended March 31, 2014
ASG’s contracts may be terminated by customers in the event of a default by the Company or, in some cases, for the
convenience of the customer. In the event of a termination for convenience, the Company typically negotiates a payment
provision reflective of the progress achieved on the contract and/or the costs incurred to the termination date. If a contract
is cancelled, Order Backlog is reduced and production utilization may be negatively impacted.
Complete provision, which can be significant, is made for losses on such contracts when such losses first become known.
Revisions in estimates of costs and profits on contracts, which can also be significant, are recorded in the accounting period
in which the relevant facts impacting the estimates become known.
A portion of ASG revenue is recognized when earned, which is generally at the time of shipment and transfer of title to the
customer, provided collection is reasonably assured.
income TAxeS: Deferred income tax assets, disclosed in note 18 of the consolidated financial statements, are recognized
to the extent that it is probable that taxable income will be available against which the losses can be utilized. Significant
management judgment is required to determine the amount of deferred income tax assets that can be recognized based
upon the likely timing and level of future taxable income together with future tax planning strategies.
If the assessment of the Company’s ability to utilize the deferred income tax asset changes, the Company would be required to
recognize more or fewer of the deferred income tax assets which would increase or decrease income tax expense in the period
in which this is determined. The Company establishes provisions based on reasonable estimates for possible consequences
of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on
various factors, such as experience of previous taxation audits and differing interpretations of tax regulations by the taxable
entity and the respective tax authority. These provisions for uncertain tax positions are made using the best estimate of the
amount expected to be paid based on a qualitative assessment of all the relevant factors. The Company reviews the adequacy
of these provisions at each quarter. However, it is possible that at some future date an additional liability could result from audits
by the taxation authorities. Where the final tax outcome of these matters is different from the amount initially recorded, such
differences will affect the tax provisions in the period in which such determination is made.
STocK-BASeD PAymenT TRAnSAcTionS: The Company measures the cost of transactions with employees by reference to
the fair value of the equity instruments at the date at which they are granted. Estimating fair value for stock-based payment
transactions requires the determination of the most appropriate valuation model, which is dependent on the terms and
conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including
the future forfeiture rate, the expected life of the share option, weighted average risk-free interest rate, volatility and dividend
yield and making assumptions about them. The assumptions and models used for estimating fair value for stock-based
payment transactions are disclosed in note 19 of the consolidated financial statements.
imPAiRmenT oF non-FinAnciAl ASSeTS: Impairment exists when the carrying value of an asset or cash generating unit
exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The calculations involve
significant estimates and assumptions. Items estimated include cash flows, discount rates and assumptions on revenue growth
rates. These estimates could affect the Company’s future results if the current estimates of future performance and fair values
change. As described in note 11 of the consolidated financial statements, goodwill is assessed for impairment on an annual
basis. The Company performed its annual impairment test of goodwill as at March 31, 2014 and has determined there is no
impairment (March 31, 2013 – $nil).
PRoViSionS: As described in note 3(q) of the consolidated financial statements, the Company records a provision when an
obligation exists, an outflow of economic resources required to settle the obligation is probable and a reliable estimate can be
made of the amount of the obligation. The Company records a provision based on the best estimate of the required economic
outflow to settle the present obligation at the balance sheet date. While management believes these estimates are reasonable,
differences in actual results or changes in estimates could have a material impact on the obligations and expenses reported by
the Company.
33/ ATS AuTomATion Tooling SySTemS inc.
emPloyee BeneFiTS: The cost of defined benefit pension plans and the present value of the pension obligations are
determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual
developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and
future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined
benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
In determining the appropriate discount rate, management considers the interest rates of corporate bonds in their respective
currency, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality
rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are
based on expected future inflation rates for the respective country. Further details about the assumptions used are provided
in note 15 of the consolidated financial statements.
AccounTing STAnDARDS ADoPTeD in FiScAl 2014
Effective April 1, 2013, the Company applied the following new IFRS standards for the first time: IFRS 10 Consolidated Financial
Statements and IFRS 12 Disclosures of Interests in Other Entities. The adoption of these standards and amendments affected
presentation and disclosures only, and had no impact on the financial statements of the Company.
iFRS 13 – FAiR VAlue meASuRemenT: IFRS 13 defines fair value and provides guidance for measuring fair value and identifies
the required disclosures pertaining to fair value measurement. The application of IFRS 13 has not materially impacted the
fair value measurements of the Company. Additional disclosures, where required, are provided in the individual notes to the
consolidated financial statements relating to the assets and liabilities whose fair values were determined. Fair value hierarchy
is provided in note 13 to the consolidated financial statements.
iAS 1 – PReSenTATion oF FinAnciAl STATemenTS: The IASB amended IAS 1 by revising how certain items are presented
in other comprehensive income (“OCI”). Items within OCI that may be reclassified to the statements of income have been
separated from items that will not. While this amendment has impacted presentation in the consolidated statements of
comprehensive income, it did not impact the Company’s consolidated income, comprehensive income or consolidated
financial position.
iAS 19 – emPloyee BeneFiTS: Effective April 1, 2013, the Company adopted revisions to IAS 19 – Employee Benefits (“IAS
19R”). The amendments to IAS 19 introduce a net interest approach for defined benefit obligations by replacing the expected
return on plan assets and interest costs on the defined benefit obligation with a single net interest component determined by
multiplying the net defined benefit liability or asset by the discount rate used to determine the defined benefit obligation.
Also, unvested past service costs can no longer be deferred and recognized over future vesting periods. Instead, all past
service costs are recognized at the earlier of when the amendment occurs and when the Company recognizes related
restructuring or termination costs.
The change in accounting policy has been applied retrospectively. The adoption of IAS 19R had an immaterial impact on
the financial statements of the Company.
iFRS 11 – JoinT ARRAngemenTS: IFRS 11 replaces the previous guidance in IAS 31, Interests in Joint Ventures. IFRS 11
reduces the types of joint arrangements to two: joint ventures and joint operations. IFRS 11 requires equity accounting for
interest in joint ventures, eliminating the existing policy choice of proportionate consolidation for jointly controlled entities
in IAS 31. Accounting for joint operations will follow accounting similar to that for jointly controlled assets and jointly
controlled operations under IAS 31. This standard became effective for annual periods beginning on or after January 1, 2013.
The Company’s existing joint arrangement is classified as a joint operation under the new standard with no significant
change in the accounting. The adoption of this standard did not have a material impact on the Company’s consolidated
financial statements.
ATS AuTomATion Tooling SySTemS inc. /34
Management’s Discussion and Analysis – For the Year Ended March 31, 2014 iAS 36 – imPAiRmenT oF ASSeTS: Effective April 1, 2013, the Company adopted revisions to IAS 36 – Impairment of Assets
(“IAS 36”). The amendments to IAS 36 reverse the unintended requirement in IFRS 13 – Fair Value Measurement, to disclose the
recoverable amount of every CGU to which significant goodwill or indefinite-lived intangible assets have been allocated. Under
the amendments, recoverable amount is required to be disclosed only when an impairment loss has been recognized
or reversed. These amendments are effective for annual periods beginning on or after January 1, 2014; however, the Company
has adopted them early, starting April 1, 2013.
The adoption of IAS 36 did not have a material impact on the Company’s consolidated financial statements.
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).
DiScloSuRe conTRolS AnD PRoceDuReS: An evaluation of the design of and operating effectiveness of the Company’s
disclosure controls and procedures was conducted as of March 31, 2014 under the supervision of the CEO and CFO as required
by CSA National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings. The evaluation included
documentation, review, enquiries and other procedures considered appropriate in the circumstances. Based on that evaluation,
the CEO and the CFO have concluded that the Company’s disclosure controls and procedures are effective to provide
reasonable assurance that information relating to the Company and its consolidated subsidiaries that is required to be disclosed
in reports filed under provincial and territorial securities legislation is recorded, processed, summarized and reported to senior
management, including the CEO and the CFO, so that appropriate decisions can be made by them regarding required disclosure
within the time periods specified in the provincial and territorial securities legislation.
inTeRnAl conTRol oVeR FinAnciAl RePoRTing: CSA National Instrument 52-109 requires the CEO and CFO to certify
that they are responsible for establishing and maintaining internal control over financial reporting for the Company, that those
internal controls have been designed and are effective in providing reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with the Company’s GAAP.
Management, including the CEO and CFO, does not expect that the Company’s disclosure controls or internal controls over
financial reporting will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control
system is subject to inherent limitations and, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met.
The CEO and CFO have, using the framework and criteria established in “Internal Control – Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway Commission, evaluated the design and operating effectiveness of the
Company’s internal controls over financial reporting and concluded that, as of March 31, 2014, internal controls over financial
reporting were effective to provide reasonable assurance that information related to consolidated results and decisions to be
made based on those results were appropriate.
During the year ended March 31, 2014, 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.
The Company acquired IWK on September 30, 2013. During the three months ended March 31, 2014, management completed
its evaluation on the design and operating effectiveness of IWK’s internal controls over financial reporting and concluded that,
as of March 31, 2014, internal controls over financial reporting were effective to provide reasonable assurance that information
related to consolidated results and decisions to be made based on those results were appropriate.
35/ ATS AuTomATion Tooling SySTemS inc.
oTHeR mAJoR conSiDeRATionS AnD RiSK FAcToRS
Any investment in ATS will be subject to risks inherent to ATS’ business. The following risk factors are discussed in the
Company’s Annual Information Form, which may be found on SEDAR at www.sedar.com.
/ Market volatility;
/ Strategy execution risks;
/ Competition risk;
/ Automation systems pricing and revenue mix risk;
/ First-time program and production risks;
/ Pricing, quality, delivery and volume risk;
/ Product failure risks;
/ Availability of raw materials and other manufacturing inputs;
/ Customer risks;
/ New product market acceptance, obsolescence, and commercialization risk;
/ Liquidity and access to capital markets;
/ Expansion risks;
/ Availability of human resources and dependence on key personnel;
/ Intellectual property protection risks;
/ Risk of infringement of third parties’ intellectual property rights;
/ Internal controls;
/ Income and other taxes and uncertain tax liabilities;
/ Variations in quarterly results;
/ Share price volatility;
/ Litigation;
/ Legislative compliance; and
/ Dependence on performance of subsidiaries.
noTe To ReADeRS: FoRWARD-looKing STATemenTS
This annual report and management's discussion and analysis of financial conditions, and results of operations of ATS
contains certain statements that constitute forward-looking information within the meaning of applicable securities laws
("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of ATS, or developments in ATS' business or in its
industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by
such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or
results of operations that is based on assumptions about future economic conditions and courses of action. Forward-looking
statements may also include, without limitation, any statement relating to future events, conditions or circumstances. ATS
cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are
made. Forward-looking statements relate to, among other things: the next phase of the Company’s strategy: grow, expand, and
scale; IWK acquisition – leveraging of IWK into other markets, potential for future acquisitions that would be a strategic fit with
IWK; competitive strengths; a Nigerian contract and timing of Order Booking and Order Backlog in relation thereto; potential
impact of general economic environment, including impact on credit markets, customer markets, and Order Bookings, and
the timing of those impacts; demand for Company’s products potentially lagging global macroeconomic trends; activity in the
market segments that the Company serves; opportunities resulting from the IWK acquisition; the sales organization’s approach
to market and expected impact on Order Bookings; impact of Order Backlog on volatility and time to complete Order Backlog;
the implementation of changes to cost structure and the expected impact; management’s expectations in relation to the impact
of strategic initiatives on ATS operations; the Company’s strategy to expand organically and through acquisition; Company’s
expectation with respect to deferred tax assets and effective tax rate and cash taxes; separation of solar business; expected
timing of receipt of proceeds in relation to the sale of seven joint venture ground mount solar projects; expected gain on solar
divestitures; Company’s expectation to continue to increase its investment in working capital; expectation in relation to meeting
ATS AuTomATion Tooling SySTemS inc. /36
Management’s Discussion and Analysis – For the Year Ended March 31, 2014 funding requirements for investments; expectation to use moderate leverage to support growth strategy; foreign exchange
hedging; and accounting standards changes.
The risks and uncertainties that may affect forward-looking statements include, among others: impact of the global economy;
general market performance including capital market conditions and availability and cost of credit; performance of the market
sectors that ATS serves; foreign currency and exchange risk; the relative strength of the Canadian dollar; impact of factors
such as increased pricing pressure and possible margin compression; the regulatory and tax environment; failure or delays
associated with the new customer programs; that leveraging and strategic initiatives in relation to the IWK acquisition are
delayed, not completed, or do not have intended positive impact; that acquisitions that are a strategic fit with IWK are not
identified or concluded; failure of the Nigerian project to achieve financial close, generate further milestone payments, or
satisfy other conditions or meet expected timelines; potential for greater negative impact associated with any non-performance
related to large enterprise programs; variations in the amount of Order Backlog completed in any given quarter; that strategic
initiatives are delayed, not completed, or do not have intended positive impact; that restructuring charges exceed those
currently contemplated; inability to successfully expand organically or through acquisition, due to an inability to grow expertise,
personnel, and/or facilities at required rates or to identify, negotiate and conclude one or more acquisitions; or to raise, through
debt or equity, or otherwise have available, required capital; that acquisitions made are not integrated as quickly or effectively
as planned or expected; that the Company or its subsidiaries may have exposure to greater than anticipated income tax
liabilities; that the solar joint venture ground mount projects are delayed in achieving commercial operation or cannot ultimately
be developed, due to market, regulatory, transmission, local opposition, or other factors; labour disruptions; that one or more
customers, or other entities with which the Company has contracted, experience insolvency or bankruptcy with resulting delays,
costs or losses to the Company; political, labour or supplier disruptions; the development of superior or alternative technologies
to those developed by ATS; the success of competitors with greater capital and resources in exploiting their technology; market
risk for developing technologies; risks relating to legal proceedings to which ATS is or may become a party; exposure to product
liability claims; risks associated with greater than anticipated tax liabilities or expenses; and other risks detailed from time to
time in ATS's filings with Canadian provincial securities regulators. Forward-looking statements are based on management's
current plans, estimates, projections, beliefs and opinions, and other than as required by applicable securities laws, ATS does
not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates,
projections, beliefs and opinions change.
37/ ATS AuTomATion Tooling SySTemS inc.
Management’s Responsibility
for Financial Reporting
The preparation and presentation of the Company’s
consolidated financial statements is the responsibility
of management. The consolidated financial statements
have been prepared by management in accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board. The consolidated
financial statements and other information in Management’s
Discussion and Analysis and the Annual Report include
amounts that are based on estimates and judgments.
Management has determined such amounts on a reasonable
basis in order to ensure that the consolidated financial
statements are presented fairly, in all material respects.
Financial information presented elsewhere in Management’s
Discussion and Analysis and the Annual Report is consistent
with that in the consolidated financial statements, except
as described further in the “Non-IFRS Measures” section of
Management’s Discussion and Analysis.
Management maintains appropriate systems of internal
accounting and administrative controls which are designed
to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial
statements in accordance with International Financial
Reporting Standards as further described in the “Controls
and Procedures” section of Management’s Discussion
and Analysis.
Management’s responsibilities for financial reporting are
overseen by the Board of Directors (the “Board”), which
is ultimately responsible for reviewing and approving the
consolidated financial statements. The Board carries
out this responsibility principally through its Audit and
Finance Committee (the “Committee”).
The Committee is appointed by the Board and all of its
members are independent directors. The Committee meets
periodically with management and the external auditors to
discuss internal controls over the financial reporting process,
auditing matters and financial reporting issues, to satisfy itself
that each party is properly discharging its responsibilities
and to review the consolidated financial statements and the
external auditors’ report. The Committee has reported its
findings to the Board which has approved the consolidated
financial statements and Management’s Discussion and
Analysis for issuance to shareholders. The Committee
also considers, for review by the Board and approval of
shareholders, the engagement or reappointment of the
external auditors.
The consolidated financial statements have been audited
on behalf of shareholders by Ernst & Young LLP, the external
auditors, in accordance with International Financial Reporting
Standards. The external auditors have full and free access
to management and the Committee.
anthony caputo
Chief Executive Officer
maria perrella
Chief Financial Officer
ATS AuTomATion Tooling SySTemS inc. /38
Management’s Responsibility for Financial Reporting Independent Auditors' Report
To THe SHAReHolDeRS oF ATS
AuTomATion Tooling SySTemS inc
We have audited the accompanying consolidated
financial statements of ATS Automation Tooling Systems
Inc., which comprise the consolidated statements of
financial position as at March 31, 2014 and 2013, and
the consolidated statements of income, comprehensive
income, changes in equity and cash flows for the years
then ended, and a summary of significant accounting
policies and other explanatory information.
mAnAgemenT'S ReSPonSiBiliTy FoR THe
conSoliDATeD FinAnciAl STATemenTS
Management is responsible for the preparation and fair
presentation of these consolidated financial statements
in accordance with International Financial Reporting
Standards, and for such internal control as management
determines is necessary to enable the preparation of
consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
AuDiToRS' ReSPonSiBiliTy
Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian
generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements
are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
consolidated financial statements. The procedures
selected depend on the auditors' judgment, including the
assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation
and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of
accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our
audit opinion.
oPinion
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of ATS
Automation Tooling Systems Inc. as at March 31, 2014 and
2013, and its financial performance and its cash flows for the
years then ended in accordance with International Financial
Reporting Standards.
toronto, canada,
may 21, 2014
chartered accountants
Licensed Public Accountants
39/ ATS AuTomATion Tooling SySTemS inc.
conSoliDATeD STATemenTS oF FinAnciAl PoSiTion (In thousands of Canadian dollars)
As at
Note
March 31
2014
March 31
2013
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Costs and earnings in excess of billings on contracts in progress
Inventories
Deposits, prepaids and other assets
Assets associated with discontinued operations
Non-current assets
Property, plant and equipment
Investment property
Goodwill
Intangible assets
Deferred income tax assets
Investment tax credit receivable
Portfolio investments
Total assets
LIABILITIES AND EQUITY
Current liabilities
Bank indebtedness
Accounts payable and accrued liabilities
Provisions
Billings in excess of costs and earnings on contracts in progress
Current portion of long-term debt
Liabilities associated with discontinued operations
Non-current liabilities
Employee benefits
Long-term debt
Deferred income tax liability
Total liabilities
EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive income (loss)
Retained deficit
Equity attributable to shareholders
Non-controlling interests
Total equity
Total liabilities and equity
On behalf of the Board:
7
7
8
6
9
10
11
12
18
18
13
16
14
7
16
6
15
16
18
17
david mcausland, Director
neil d. arnold, Director
See accompanying notes to the consolidated financial statements
$
76,466
117,821
146,231
24,186
9,630
374,334
13,265
387,599
85,412
4,341
151,731
111,298
7,838
30,165
—
390,785
$
105,453
99,696
122,842
10,669
11,738
350,398
14,950
365,348
79,269
3,712
58,542
27,615
13,154
27,699
4,969
214,960
$
778,384
$
580,308
$
$
$
913
138,285
10,412
59,363
3,815
212,788
6,774
219,562
23,213
1,324
16,747
41,284
260,846
510,725
15,025
35,970
(44,311)
517,409
129
517,538
$
$
$
—
102,828
9,096
48,135
257
160,316
8,112
168,428
10,581
918
1,777
13,276
181,704
486,734
19,317
(123)
(107,407)
398,521
83
398,604
$
778,384
$
580,308
ATS AuTomATion Tooling SySTemS inc. /40
ATS Automation Tooling Systems Inc.
conSoliDATeD STATemenTS oF income (in thousands of Canadian dollars, except per share amounts)
Years ended March 31
Revenues
Revenues from construction contracts
Sale of goods
Services rendered
Total revenues
Operating costs and expenses
Cost of revenues
Selling, general and administrative
Stock-based compensation
Earnings from operations
Net finance costs
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Attributable to
Shareholders
Non-controlling interests
Earnings (loss) per share attributable to shareholders
Basic – from continuing operations
Basic – from discontinued operations
Earnings (loss) per share attributable to shareholders
Diluted – from continuing operations
Diluted – from discontinued operations
See accompanying notes to the consolidated financial statements
Note
19
23
18
6
24
6
24
6
2014
597,143
42,973
43,245
683,361
501,684
113,321
7,323
61,033
3,016
58,017
8,600
49,417
12,802
62,219
62,173
46
62,219
0.56
0.14
0.70
0.55
0.14
0.69
$
$
$
$
$
$
$
$
2013
538,150
24,407
28,541
591,098
441,182
89,485
3,786
56,645
2,013
54,632
13,558
41,074
(25,991)
15,083
15,031
52
15,083
0.47
(0.30)
0.17
0.46
(0.29)
0.17
$
$
$
$
$
$
$
$
41/ ATS AuTomATion Tooling SySTemS inc.
conSoliDATeD STATemenTS oF comPReHenSiVe income (in thousands of Canadian dollars)
Years ended March 31
Net income
Other comprehensive income (loss):
Items to be reclassified subsequently to net income:
Currency translation adjustment (net of income taxes of $nil)
Net unrealized gain on available-for-sale financial assets
Tax impact
Gain on available-for-sale financial assets transferred to net income
Tax impact
Net unrealized loss on derivative financial instruments designated as cash flow hedges
Tax impact
Loss (gain) transferred to net income for derivatives designated as cash flow hedges
Tax impact
Items that will not be reclassified subsequently to net income:
Actuarial gains (losses) on defined benefit pension plans
Tax impact
Other comprehensive income (loss)
Comprehensive income
Attributable to
Shareholders
Non-controlling interests
See accompanying notes to the consolidated financial statements
2014
2013
$
62,219
$
15,083
36,639
285
82
(606)
—
(2,478)
633
2,081
(543)
894
29
37,016
99,235
99,189
46
99,235
$
$
$
536
321
(82)
—
—
(576)
179
(79)
(39)
(3,397)
187
(2,950)
12,133
12,081
52
12,133
$
$
$
ATS AuTomATion Tooling SySTemS inc. /42
ATS Automation Tooling Systems Inc. conSoliDATeD STATemenTS oF cHAngeS in eQuiTy (in thousands of Canadian dollars)
Year ended March 31, 2014
Balance, at March 31, 2013
Net income
Other comprehensive
income (loss)
Total comprehensive
income (loss)
Stock-based
compensation
Exercise of stock options
Share
capital
Contributed
surplus
Retained
earnings
(deficit)
Currency
translation
adjustments
Available-
for-sale
financial
assets
Total
accumulated
other
comprehensive
income
Cash flow
hedges
Non-
controlling
interests
$
486,734
—
$
19,317
—
$
(107,407) $
62,173
(23) $
—
$
239
—
(339) $
—
(123) $
—
—
—
—
—
923
36,639
63,096
36,639
—
23,991
2,082
(6,374)
—
—
—
—
(239)
(239)
—
—
(307)
36,093
(307)
36,093
—
—
—
—
83
46
—
46
—
—
Total equity
$
398,604
62,219
37,016
99,235
2,082
17,617
Balance, at March 31, 2014
$
510,725
$
15,025
$
(44,311) $
36,616
$
— $
(646) $
35,970
$
129
$
517,538
Year ended March 31, 2013
Balance, at March 31, 2012
Net income
Other comprehensive
income (loss)
Total comprehensive
income (loss)
Non-controlling interest
Stock-based
compensation
Exercise of stock options
Share
capital
Contributed
surplus
$
483,099
—
$
17,868
—
—
—
—
—
—
—
—
3,635
2,560
(1,111)
Retained
earnings
(deficit)
Currency
translation
adjustments
$
(119,210) $
(559) $
15,031
(3,210)
11,821
(18)
—
—
—
536
536
—
—
—
Available-
for-sale
financial
assets
Total
accumulated
other
comprehensive
income
Cash flow
hedges
Non-
controlling
interests
— $
—
$
176
—
(383) $
—
239
239
—
—
—
(515)
(515)
—
—
—
260
260
—
—
—
78
52
—
52
(47)
—
—
Total equity
$
381,452
15,083
(2,950)
12,133
(65)
2,560
2,524
Balance, at March 31, 2013
$
486,734
$
19,317
$
(107,407) $
(23) $
239
$
(339) $
(123) $
83
$
398,604
See accompanying notes to the consolidated financial statements
43/ ATS AuTomATion Tooling SySTemS inc.
conSoliDATeD STATemenTS oF cASH FloW (In thousands of Canadian dollars)
Years ended March 31
Note
2014
2013
18
19
6
6
8
Operating activities:
Income from continuing operations
Items not involving cash
Depreciation of property, plant and equipment
Amortization of intangible assets
Deferred income taxes
Other items not involving cash
Stock-based compensation
Loss on disposal of property, plant and equipment
Gain on sale of portfolio investment
Change in non-cash operating working capital
Cash flows used in operating activities of discontinued operations
Cash flows provided by operating activities
Investing activities:
Acquisition of property, plant and equipment
Acquisition of intangible assets
Business acquisition, net of cash acquired
Acquisition of portfolio investments
Proceeds from disposal of property, plant and equipment
Proceeds on sale of portfolio investments
Cash flows provided by (used in) investing activities of discontinued operations
Cash flows used in investing activities
Financing activities:
Restricted cash
Bank indebtedness
Repayment of long-term debt
Proceeds from long-term debt
Issuance of common shares
Cash flows provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Attributable to:
Cash and cash equivalents – continuing operations
Cash and cash equivalents – associated with discontinued operations
Supplemental information:
Cash income taxes paid by continuing operations
Cash interest paid by discontinued operations
See accompanying notes to the consolidated financial statements
$
49,417
$
41,074
7,245
11,210
(2,067)
2,210
7,323
23
(606)
74,755
(4,862)
(6,966)
62,927
(4,260)
(6,843)
(137,408)
—
155
5,247
21,846
(121,263)
1,009
(29)
(40,310)
43,236
17,617
21,523
9,557
(27,256)
105,870
78,614
76,466
2,148
78,614
2,874
2,141
$
$
$
$
$
$
$
$
$
$
$
6,861
5,376
2,663
(142)
3,786
77
—
59,695
(26,034)
(6,987)
26,674
(7,747)
(4,750)
—
(4,648)
23
—
(111)
(17,233)
(993)
(403)
(1,282)
—
2,524
(154)
(109)
9,178
96,692
105,870
105,453
417
105,870
3,927
1,002
$
$
$
$
$
$
$
$
$
$
$
ATS AuTomATion Tooling SySTemS inc. /44
ATS Automation Tooling Systems Inc.
Notes to Consolidated
Financial Statements
1 coRPoRATe inFoRmATion
ATS Automation Tooling Systems Inc. and its subsidiaries (collectively “ATS” or “the Company”) operate in two segments:
Automation Systems (“ASG”) and Solar. The ASG segment produces custom-engineered turn-key automated manufacturing
and test systems. The Solar segment is a turn-key solar project developer and manufacturer of photovoltaic products. The
Company has initiated a formal sale process for the Ontario-based Solar business. Ontario Solar is presented as assets and
liabilities associated with discontinued operations in the consolidated statements of financial position and as discontinued
operations in the consolidated statements of income. See note 6 to the consolidated financial statements. As a result, ATS’
continuing operations are reported as one operating segment, ASG. See note 21 to the consolidated financial statements.
The Company is listed on the Toronto Stock Exchange and is incorporated and domiciled in Ontario, Canada.
The address of its registered office is 730 Fountain Street North, Cambridge, Ontario, Canada.
The consolidated financial statements of the Company for the year ended March 31, 2014 were authorized for issue
by the Board of Directors on May 21, 2014.
2 BASiS oF PRePARATion
These consolidated financial statements were prepared on a going concern basis under the historical cost convention,
as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including
derivative instruments) at fair value through profit or loss or other comprehensive income. All consolidated financial
information is presented in Canadian dollars and has been rounded to the nearest thousands, except where otherwise stated.
Statement of compliance: These consolidated financial statements are prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
basis of consolidation: These consolidated financial statements include the accounts of the Company and its subsidiaries.
Subsidiaries are those entities where the Company directly or indirectly owns the majority of the voting power or can
otherwise control the activities. The financial statements of the subsidiaries are prepared for the same reporting period as
the parent company, using consistent accounting policies. Non-controlling interests in the equity and results of the Company’s
subsidiaries are presented separately in the consolidated statements of income and within equity in the consolidated
statements of financial position.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and
continue to be consolidated until the date that such control ceases. The Company’s material subsidiaries are: Automation
Tooling Systems Enterprises Inc. and ATS Automation Tooling Systems GmbH. The Company has a 100% voting and equity
securities interest in each of these corporations. All material intercompany balances, transactions, revenues and expenses
and profits or losses, including dividends resulting from intercompany transactions, have been eliminated on consolidation.
45/ ATS AuTomATion Tooling SySTemS inc.
3 SummARy oF SigniFicAnT AccounTing PolicieS
(a) BuSineSS comBinATionS AnD gooDWill: Business combinations are accounted for using the acquisition method.
The cost of the acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition date
fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Company
measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition costs are expensed as incurred.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition
date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Subsequent changes in the fair value of the contingent consideration which is deemed to be an asset or liability will be
recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent
consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity.
In instances where the contingent consideration does not fall within the scope of IAS 39, it is measured in accordance
with the appropriate IFRS policy.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the net identifiable
assets of the acquiree at the date of acquisition.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment
testing, goodwill is allocated to cash-generating units (“CGUs”) or groups of CGUs based on the level at which management
monitors it. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business
combination in which the goodwill arose.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with
the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal
of the operation. Goodwill disposed of in this circumstance is measured based on the relative fair values of the operation
disposed of and the portion of the CGU retained.
(b) inTeReST in JoinT ARRAngemenTS: The Company has interests in joint operations, whereby the joint operators have
a contractual arrangement that establishes joint control over the economic activities of the individual entity. The Company
recognizes its share of the joint operation’s assets, liabilities, revenues and expenses in the consolidated financial statements.
The financial statements of the joint operations are prepared for the same reporting period as the parent Company.
(c) FoReign cuRRency: Functional currency is the currency of the primary economic environment in which the subsidiary
operates and is normally the currency in which the subsidiary generates and uses cash. Each subsidiary in the Company
determines its own functional currency and items included in the consolidated financial statements of each subsidiary are
measured using that functional currency. The Company’s functional and presentation currency is the Canadian dollar.
transactions: Foreign currency transactions are initially recorded at the functional currency rate prevailing at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot
rate at the reporting date. All differences are recorded in the consolidated statements of income. Non-monetary items that
are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the
date when the fair value is determined.
ATS AuTomATion Tooling SySTemS inc. /46
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) translation: The assets and liabilities of foreign operations are translated into Canadian dollars at period end exchange
rates and their revenue and expense items are translated at exchange rates prevailing at the dates of the transactions.
The resulting exchange differences are recognized in other comprehensive income. On disposal of a foreign operation,
the component of other comprehensive income relating to that particular foreign operation is recognized in the
consolidated statements of income.
(d) ReVenue RecogniTion: Revenues are recognized to the extent that it is probable that the economic benefits will
flow to the Company and the revenues can be reliably measured. Revenues are measured at the fair value of the consideration
received, excluding discounts, rebates and sales taxes or duties. The following specific recognition criteria must be met
before revenues are recognized:
Sale of goods: Revenues from the sale of goods are recognized when the significant risks and rewards of ownership
of the goods have transferred to the buyer, usually on the delivery of goods or transfer of title to the customer.
rendering of services: Revenues from services rendered are recognized when the stage of completion can be measured
reliably. Service revenues include maintenance contracts, extended warranty and other services provided. Stage of
completion of the contract is determined as follows:
/ Revenues from time and material contracts are recognized at the contractual rates as labour hours are delivered
and direct expenses are incurred.
/ Revenues from long-term service contracts are recognized on a percentage of completion basis over the term
of the contracts, unless there is a pattern of recognition that more accurately represents the stage of completion.
construction contracts: Revenues from construction contracts are recognized using the percentage of completion
method. The degree of completion is determined based on costs incurred, excluding costs that are not representative
of progress to completion, as a percentage of total costs anticipated for each contract. Incentive awards, claims or penalty
provisions are recognized when such amounts are likely to occur and can reasonably be estimated. When the outcome
of a construction contract cannot be estimated reliably, contract revenues are recognized only to the extent of contract
costs incurred that are likely to be recoverable. A complete provision is made for losses on contracts in progress when such
losses first become known. Revisions in cost and profit estimates, which can be significant, are reflected in the accounting
period in which the relevant facts become known.
(e) inVeSTmenT TAx cReDiTS AnD goVeRnmenT gRAnTS: Investment tax credits are accounted for as a reduction
in the cost of the related asset or expense where there is reasonable assurance that such credits will be realized. Government
grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be
met. When the grant relates to an expense item, it is deducted from the cost that it is intended to compensate. When the
grant relates to an asset, it is deducted from the cost of the related asset. If a grant becomes repayable, the inception to date
impact of the assistance previously recognized in earnings is reversed immediately in the period in which the assistance
becomes repayable.
(f) TAxeS:
current income tax: Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Company
operates and generates taxable income. Current income tax related to items recognized directly in equity is also recognized
in equity and not in the consolidated statements of income. Management periodically evaluates positions taken in the tax
returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions
where appropriate.
47/ ATS AuTomATion Tooling SySTemS inc.
deferred income tax: Deferred income tax is provided using the liability method on temporary differences at the reporting
date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred
income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset will be
realized or the liability will be settled, based on tax rates and tax laws that have been enacted or substantively enacted at the
reporting date.
Deferred income taxes are recognized for all taxable temporary differences, except:
/ When the deferred income tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss.
/ In respect of taxable temporary differences associated with investments in subsidiaries and interests in joint operations,
when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits
and unused tax losses, to the extent that it is probable that taxable profit will be available, against which the deductible
temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized, except:
/ When the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition
of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
/ In respect of deductible temporary differences associated with investments in subsidiaries and interests in joint
operations, deferred income tax assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against which the temporary
differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that all or part of the deferred income tax asset will be utilized. Unrecognized deferred income tax assets are
reassessed at each reporting date and are recognized to the extent that it has become probable the benefit will be recovered.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to offset current
income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity
and the same taxation authority.
Deferred income tax related to items recognized outside profit or loss is also recognized outside profit or loss. Deferred
income tax items are recognized in correlation to the underlying transaction either in other comprehensive income or
directly in equity.
Income tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition
at that date, would be recognized subsequently if new information about facts and circumstances changed. The adjustment
would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it is incurred during the
measurement period or in profit or loss.
Revenues, expenses and assets are recognized net of the amount of sales tax, except where the sales tax incurred on
a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized
as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables
are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of accounts
receivable or accounts payable in the consolidated statements of financial position.
ATS AuTomATion Tooling SySTemS inc. /48
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) (g) non-cuRRenT ASSeTS clASSiFieD AS ASSeTS ASSociATeD WiTH DiSconTinueD oPeRATionS: Non-current
assets classified as assets associated with discontinued operations are measured at the lower of their carrying amount
and fair value less costs to sell. Non-current assets are classified as associated with discontinued operations if their carrying
amounts will be derecognized principally through a sale transaction rather than recovered through continuing use. This
condition is regarded as being met only when the transaction is highly probable and the assets are available for immediate
sale in their present condition. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed transaction within one year from the date of classification. In the consolidated statements
of income of the reporting period, and of the comparable period, revenues and expenses from discontinued operations
are reported separately from revenues and expenses from continuing operations, down to the level of net income after
income taxes.
Property, plant and equipment and intangible assets once classified as associated with discontinued operations are not
depreciated or amortized.
(h) PRoPeRTy, PlAnT AnD eQuiPmenT: Property, plant and equipment are stated at cost, net of accumulated depreciation
and accumulated impairment losses, if any. Such cost includes the cost of replacing component parts of the property, plant
and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant
parts of property, plant and equipment are required to be replaced at intervals, ATS derecognizes the replaced part and
recognizes the new part with its own associated useful life and depreciation. Likewise, when a major inspection is performed,
its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria
are satisfied. All other repair and maintenance costs are recognized in the consolidated statements of income as incurred.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Buildings
Production equipment
Other equipment
25 to 40 years
3 to 10 years
3 to 10 years
Leasehold improvements are amortized over the shorter of the term of the related lease or their remaining useful
life on a straight-line basis.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or
when no future economic benefits are expected from its use or eventual disposition. Any gain or loss arising on derecognition
of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is
included in the consolidated statements of income when the asset is derecognized.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted
prospectively, if appropriate.
(i) leASeS: The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset
or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.
Finance leases, which transfer to ATS substantially all the risks and benefits incidental to ownership of the leased item,
are capitalized at the commencement of the lease at the lower of the fair value of the leased property or the present value
of the minimum lease payments. Lease payments are apportioned between finance charges and the reduction of the lease
liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in
the consolidated statements of income.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that ATS
will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life
and the lease term.
49/ ATS AuTomATion Tooling SySTemS inc.
Leases where ATS does not assume substantially all of the risks and benefits of ownership of the asset are classified
as operating leases. Operating lease payments are recognized as an expense in the consolidated statements of income
on a straight-line basis over the lease term.
(j) BoRRoWing coSTS: Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost
of the respective asset. All other borrowing costs are expensed in the period they occur.
(k) inVeSTmenT PRoPeRTy: Investment properties, which are properties held to earn rental income and/or for capital
appreciation, are measured at acquisition cost less straight-line depreciation and impairment losses. The depreciation
policy for investment property is consistent with the policy for owner-occupied property.
(l) inTAngiBle ASSeTS: Acquired intangible assets are primarily software, patents, customer relationships, brands,
technologies and licenses. Intangible assets acquired separately are initially recorded at fair market value and subsequently
at cost less accumulated amortization and impairment losses. The useful lives of intangible assets are assessed as either
finite or indefinite.
Intangible assets with finite lives are amortized over their useful economic lives, ranging from 1 to 20 years, on a straight-line
basis. Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset
may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is
reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period
or method, as appropriate, and are treated as a change in accounting estimate. The amortization expense on intangible
assets with finite lives is recognized in the consolidated statements of income in the expense category consistent with
the function of the intangible assets.
Intangible assets with indefinite useful lives, primarily brands, are not amortized. The Company assesses the indefinite life at
each reporting date to determine if there is an indication that an intangible asset may be impaired. If any indication exists, or
when annual impairment testing for the intangible asset is required, the Company estimates the recoverable amount at the
CGU level to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite
to finite is made on a prospective basis. An asset is impaired when the recoverable amount is less than their carrying amount.
The recoverable amount is the higher of an asset’s fair value less cost to sell or its value in use. Impairment losses relating to
intangible assets are evaluated for potential reversals when events or changes in circumstances warrant such consideration.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognized in the consolidated statements of income when the asset
is derecognized.
research and development expenditures: Research costs are expensed as incurred. Development expenditures on an
individual project are recognized as an intangible asset only when the following conditions are demonstrated:
/ The technical feasibility of completing the intangible asset so that it will be available for use or sale.
/ The Company’s intention to complete and its ability to use or sell the intangible asset.
/ How the asset will generate future economic benefits.
/ The availability of resources to complete the intangible asset.
/ The ability to measure reliably the expenditures during development.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to
be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins
when development is complete and the asset is available for use. It is amortized over the period of expected future benefit.
Amortization is recorded in cost of revenues. In the event that a product program for which costs have been deferred is
modified or cancelled, the Company will assess the recoverability of the deferred costs and if considered unrecoverable,
will expense the costs in the period the assessment is made.
ATS AuTomATion Tooling SySTemS inc. /50
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) (m) FinAnciAl inSTRumenTS:
financial assets: Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit
or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated
as hedging instruments in an effective hedge, as appropriate. ATS determines the classification of its financial assets at
initial recognition.
All financial assets other than financial assets at fair value through profit or loss are recognized initially at fair value plus
directly attributable transaction costs.
ATS’ financial assets include cash and cash equivalents, accounts receivable, investments in equities included in portfolio
investments and derivative financial instruments.
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss include financial
assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial
assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.
This category includes derivative financial instruments entered into by the Company that are not designated as hedging
instruments in hedge relationships. Derivatives, including separated embedded derivatives, are also classified as held for
trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit or loss
are carried in the consolidated statements of financial position at fair value with changes in fair value recognized in selling,
general and administrative expenses in the consolidated statements of income.
loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at
amortized cost using the effective interest rate method, less provisions for doubtful accounts. Amortized cost is calculated
by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective
interest rate method. The effective interest rate method amortization is included in net finance costs in the consolidated
statements of income. The losses arising from impairment are recognized in the consolidated statements of income in net
finance costs.
Available-for-sale financial assets: Available-for-sale financial assets include equity securities, which are neither classified
as held for trading nor designated at fair value through profit or loss.
After initial measurement, available-for-sale financial assets are subsequently measured at fair value with unrealized gains
or losses recognized in other comprehensive income until the investment is derecognized, at which time the cumulative
gain or loss is recognized in selling, general and administrative expenses, or determined to be impaired, at which time the
cumulative loss is reclassified to the consolidated statements of income and removed from other comprehensive income.
derecognition: A financial asset is derecognized when the rights to receive cash flows from the asset have expired or the
Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either the Company has
transferred substantially all the risks and rewards of the asset, or ATS has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control of the asset.
Impairment of financial assets: ATS assesses at each reporting date whether there is any objective evidence that
a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be
impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after
the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future
cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency
51/ ATS AuTomATion Tooling SySTemS inc.
in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and
where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes
in arrears or economic conditions that correlate with defaults.
For financial assets carried at amortized cost, the Company first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or collectively for financial assets that are not individually
significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics
and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit
losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial
asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment
loss is the current effective interest rate.
For available-for-sale financial assets, the Company assesses at each reporting date whether there is objective evidence
that an asset or a group of assets is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged
decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment
and ‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence of
impairment, the cumulative loss — measured as the difference between the acquisition cost and the current fair value,
less any impairment loss on that investment previously recognized in the consolidated statements of income — is removed
from other comprehensive income and recognized in the consolidated statements of income. Impairment losses on equity
investments are not reversed through the statements of consolidated income; increases in their fair value after impairments
are recognized directly in other comprehensive income.
financial liabilities: Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through
profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
The Company determines the classification of its financial liabilities at initial recognition.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, carried at amortized cost.
This includes directly attributable transaction costs.
The Company’s financial liabilities include accounts payable and accrued liabilities, bank indebtedness, long-term debt
and derivative financial instruments.
The measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss include
financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit
or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term.
This category includes derivative financial instruments entered into by the Company that are not designated as hedging
instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for
trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in the consolidated statements of income.
ATS AuTomATion Tooling SySTemS inc. /52
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) loans and borrowings: After initial recognition, interest bearing loans and borrowings are subsequently measured
at amortized cost using the effective interest rate method. Gains and losses are recognized in the consolidated statements
of income when the liabilities are derecognized as well as through the effective interest rate method amortization process.
derecognition: A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the
consolidated statements of income.
Fair value of financial instruments: The Company primarily applies the market approach for recurring fair value
measurements. Three levels of inputs may be used to measure fair value:
level 1 – unadjusted quoted prices in active markets for identical assets or liabilities
level 2 – inputs other than quoted prices included in Level 1 that are observable or can be corroborated
by observable market data
level 3 – unobservable inputs that are supported by no market activity
(n) DeRiVATiVe FinAnciAl inSTRumenTS AnD HeDge AccounTing: The Company may use derivative financial
instruments such as forward foreign exchange contracts and interest rate swaps to hedge its foreign currency risk and
interest rate risk, respectively. Derivative financial instruments are initially recognized at fair value on the date on which
a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial
assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising
from changes in the fair value of derivatives are recorded directly in the consolidated statements of income, except for the
effective portion of cash flow hedges and hedges of net investments, which are recognized in other comprehensive income.
The Company designates certain derivative financial instruments as either fair value hedges, cash flow hedges, or hedges
of net investments in foreign operations. The application of hedge accounting enables the recording of gains, losses, revenues
and expenses from hedging items in the same period as those related to the hedged item. At the inception of a hedge
relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply
hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the
entity will assess and measure the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure
to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine
whether they have actually been highly effective throughout the financial reporting periods for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Cash flow hedges: The effective portion of the gain or loss on the hedging instrument is recognized directly as other
comprehensive income, while any ineffective portion is recognized immediately in the consolidated statements of income.
Amounts recognized as other comprehensive income are transferred to the consolidated statements of income when
the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized.
Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized in other
comprehensive income are transferred at the initial carrying amount of the non-financial asset or liability.
53/ ATS AuTomATion Tooling SySTemS inc.
If the forecasted transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously
recognized in equity is transferred to the consolidated statements of income. If the hedging instrument expires or is sold,
terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain
or loss previously recognized in other comprehensive income remains in other comprehensive income until the forecasted
transaction or firm commitment affects profit or loss.
The Company uses forward foreign exchange contracts as hedges of its exposure to foreign currency risk on anticipated
revenue or costs. The Company may use interest rate swap contracts with approved financial institutions to reduce its
exposure to floating interest rates.
hedges of net investments: Hedges of net investments in a foreign operation, including a hedge of a monetary item that
is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the
hedging instrument related to the effective portion of the hedge are recognized as other comprehensive income while any
gains or losses related to the ineffective portion are recognized in the consolidated statements of income. On disposal of
the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the consolidated
statements of income. The Company may use forward foreign exchange contracts as a hedge of its exposure to foreign
exchange risk on its investments in foreign subsidiaries.
(o) inVenToRieS: Inventories are stated at the lower of cost and net realizable value on a first-in, first-out basis. The cost
of raw materials includes purchase cost and costs incurred in bringing each product to its present location and condition.
The cost of work in progress and finished goods includes cost of raw materials, labour and related manufacturing overhead,
excluding borrowing costs, based on normal operating capacity. Cost of inventories includes the transfer from equity of gains
and losses on qualifying cash flow hedges in respect of the purchase of raw materials. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to
make the sale.
(p) imPAiRmenT oF non-FinAnciAl ASSeTS: The Company assesses at each reporting date whether there is an indication
that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the
Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair
value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset
or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair
value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified,
an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for
publicly traded subsidiaries or other available fair value indicators.
Impairment losses of continuing operations, including impairment on inventories, are recognized in the consolidated
statements of income in those expense categories consistent with the function of the impaired asset.
(q) PRoViSionS: Provisions are recognized when the Company has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all
of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate
asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the
consolidated statements of income net of any reimbursement. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
ATS AuTomATion Tooling SySTemS inc. /54
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) Warranty provisions: Provisions for warranty-related costs are recognized when the product is sold or the service provided.
Initial recognition is based on historical experience. The initial estimate of warranty-related costs is reviewed at the end of
each reporting period and adjusted to reflect the current best estimate.
restructuring provisions: Restructuring provisions are only recognized when general recognition criteria for provisions
are fulfilled. Additionally, the Company needs to have in place a detailed formal plan about the business or part of the business
concerned, the location and number of employees affected, a detailed estimate of the associated costs and the appropriate
time-line. The people affected have a valid expectation that the restructuring is being carried out or the implementation has
been initiated already.
(r) emPloyee BeneFiTS: The Company operates pension plans in accordance with the applicable laws and regulations
in the respective countries in which the Company conducts business. The pension benefits are provided through defined
benefit and defined contribution plans. The cost of providing benefits under the defined benefit plans is determined separately
for each plan using the projected unit credit method pro-rated on length of service and management’s best estimate
assumptions to value its pensions using a measurement date of March 31. Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are recognized in the period in which they occur in other comprehensive
income. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset and is recognized
in the selling, general and administrative expenses in the consolidated statements of income.
The past service costs are recognized immediately in net earnings as an expense.
The defined benefit asset or liability comprises the present value of the defined benefit obligation using the current interest
rate at the reporting date on high quality fixed income investments with maturities that match the expected maturities of the
obligation, less the fair value of plan assets out of which the obligations are to be settled. Plan assets are assets that are held
by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the
Company, nor can they be paid directly to the Company. Fair value is based on market price information and in the case
of quoted securities it is the published bid price. The value of any defined benefit asset recognized is restricted to the sum
of any past service costs and actuarial gains and losses not yet recognized and the present value of any economic benefits
available in the form of refunds from the plan or reductions in the future contributions to the plan.
(s) STocK-BASeD PAymenTS: The Company operates both equity-settled and cash-settled share-based compensation
plans under which the entity receives services from employees as consideration for equity instruments (options) of the
Company or cash payments.
For equity-settled plans, namely the Employee Share Purchase Plan and the Stock Option Plan, the fair value determined
at the grant date is expensed on a proportionate basis consistent with the vesting features of each grant and incorporates
an estimate of the number of equity instruments that will ultimately vest. The total amount to be expensed is determined
by reference to the fair value of the options granted, excluding the impact of any non-market service and performance
vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified
time period).
At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected
to vest based on the non-market vesting conditions. The impact of the revision of the original estimates, if any, is recognized
in the consolidated statements of income with a corresponding adjustment to equity. The proceeds received are credited
to share capital and share premiums when the options are exercised.
For cash-settled plans, namely the Deferred Stock Unit Plan, the Share Appreciation Rights and the Restricted Share
Units, the expense is determined based on the fair value of the liability incurred at each award date and at each
subsequent statement of financial position date until the award is settled. The fair value of the liability is measured
by applying quoted market prices. Changes in fair value are recognized in the consolidated statements of income
in stock-based compensation expense.
55/ ATS AuTomATion Tooling SySTemS inc.
(t) STAnDARDS ADoPTeD in FiScAl 2014: Certain new standards and amendments to standards that were adopted
on April 1, 2013 are noted below.
(a) Effective April 1, 2013, the Company applied the following new IFRS standards for the first time: IFRS 10
Consolidated Financial Statements and IFRS 12 Disclosures of Interests in Other Entities. The adoption of these standards
and amendments affected presentation and disclosures only, and had no other impact on the financial statements of
the Company.
(b) ifrS 13 – fair value measurement: IFRS 13 defines fair value and provides guidance for measuring fair value and
identifies the required disclosures pertaining to fair value measurement. The application of IFRS 13 has not materially
impacted the fair value measurements of the Company. Additional disclosures, where required, are provided in the
individual notes relating to the assets and liabilities whose fair values were determined. See note 13 for the Company’s
fair value hierarchy.
(c) iaS 1 – presentation of financial Statements: The IASB amended IAS 1 by revising how certain items are presented
in other comprehensive income (“OCI”). Items within OCI that may be reclassified to the statements of income have been
separated from items that will not. While this amendment has impacted presentation in the consolidated statements of
comprehensive income, it did not impact the Company’s consolidated income, comprehensive income or consolidated
financial position.
(d) IAS 19 – Employee Benefits: Effective April 1, 2013, the Company adopted revisions to IAS 19 – Employee Benefits
(“IAS 19R”). The amendments to IAS 19 introduce a net interest approach for defined benefit obligations by replacing the
expected return on plan assets and interest costs on the defined benefit obligation with a single net interest component
determined by multiplying the net defined benefit liability or asset by the discount rate used to determine the defined
benefit obligation. Also, unvested past service costs can no longer be deferred and recognized over future vesting periods.
Instead, all past service costs are recognized at the earlier of when the amendment occurs and when the Company
recognizes related restructuring or termination costs.
The change in accounting policy has been applied retrospectively.
The adoption of IAS 19R had an immaterial impact on the financial statements of the Company.
(e) ifrS 11 – Joint arrangements: IFRS 11 replaces the previous guidance in IAS 31, Interests in Joint Ventures. IFRS 11
reduces the types of joint arrangements to two: joint ventures and joint operations. IFRS 11 requires equity accounting for
interests in joint ventures, eliminating the existing policy choice of proportionate consolidation for jointly controlled entities
in IAS 31. Accounting for joint operations will follow accounting similar to that for jointly controlled assets and jointly
controlled operations under IAS 31. This standard became effective for annual periods beginning on or after January 1, 2013.
The Company’s existing joint arrangement is classified as a joint operation under the new standard with no significant
change in the accounting. The adoption of this standard did not have a material impact on the Company’s consolidated
financial statements.
(f) iaS 36 – impairment of assets: Effective April 1, 2013, the Company adopted revisions to IAS 36 – Impairment of
Assets (“IAS 36”). The amendments to IAS 36 reverse the unintended requirement in IFRS 13 – Fair Value Measurement,
to disclose the recoverable amount of every CGU to which significant goodwill or indefinite-lived intangible assets have
been allocated. Under the amendments, recoverable amount is required to be disclosed only when an impairment loss
has been recognized or reversed. These amendments are effective for annual periods beginning on or after January 1,
2014; however, the Company has adopted them early, starting April 1, 2013.
The adoption of IAS 36 did not have a material impact on the Company’s consolidated financial statements.
ATS AuTomATion Tooling SySTemS inc. /56
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) (u) STAnDARDS iSSueD BuT noT yeT eFFecTiVe: A number of amendments to standards and a new interpretation have
been issued but are not yet effective for the financial year ended March 31, 2014, and accordingly, have not been applied
in preparing these consolidated financial statements.
(a) ifric 21 – levies: In May 2013, the IFRS Interpretation Committee (“IFRIC”), with the approval by the IASB, issued
IFRIC 21 – Levies. IFRIC 21 provides guidance on when to recognize a liability to pay a levy imposed by government that
is accounted for in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 is effective
for annual periods beginning on or after January 1, 2014, and is to be applied retrospectively.
The Company is currently assessing the impact of adopting this interpretation on its consolidated financial statements
and does not expect any significant impact.
(b) ifrS 9 – financial instruments: In November 2013, the IASB issued a revised version of IFRS 9 – Financial Instruments
which introduces a new chapter on hedge accounting, putting in place a new hedge accounting model that is designed to
be more closely aligned with how entities undertake risk management activities when hedging financial and non-financial
risk exposures. The revised standard permits an entity to apply only the requirements introduced in IFRS 9 (2010) for the
presentation of gains and losses on financial liabilities designated as at fair value through profit or loss without applying the
other requirements of IFRS 9, meaning the portion of the change in fair value related to changes in the entity’s own credit risk
can be presented in other comprehensive income rather than within the consolidated statements of income. The amendments
to IFRS 9 remove the mandatory effective date of IFRS 9 (2013), IFRS 9 (2010) and IFRS 9 (2009), leaving the effective date
open pending the finalization of the impairment and classification and measurement requirements. Notwithstanding the
removal of an effective date, each standard remains available for application.
The Company does not anticipate early adoption and plans to adopt the standard on its effective date, which the IASB
has tentatively decided will be no earlier than January 1, 2018. The Company is in the process of reviewing the standard
to determine the impact on its consolidated financial statements.
4 cRiTicAl AccounTing eSTimATeS, JuDgmenTS AnD ASSumPTionS
The preparation of the Company’s consolidated financial statements requires management to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities, at the end of the reporting period. However, uncertainty about these estimates, judgments
and assumptions could result in outcomes that require a material adjustment to the carrying amount of the asset or liability
affected in future periods. The Company based its estimates, judgments and assumptions on parameters available when
the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments,
however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes
are reflected in the estimates when they occur.
The following are the critical judgments, estimates and assumptions that have been made in applying the Company’s
accounting policies and that have the most significant effect on the amounts in the consolidated financial statements:
eSTimATeS:
(a) ReVenue RecogniTion AnD conTRAcTS in PRogReSS: Revenues from construction contracts are recognized
on a percentage of completion basis as outlined in note 3(d) “Construction contracts.” In applying the accounting policy
on construction contracts, judgment is required in determining the estimated costs to complete a contract. These cost
estimates are reviewed at each reporting period and by their nature may give rise to income volatility.
57/ ATS AuTomATion Tooling SySTemS inc.
(b) income TAxeS: Deferred income tax assets, disclosed in note 18, are recognized to the extent that it is probable that
taxable income will be available against which the losses can be utilized. Significant management judgment is required
to determine the amount of deferred tax assets that can be recognized based upon the likely timing and level of future
taxable income together with future tax planning strategies.
If the assessment of the Company’s ability to utilize the deferred tax asset changes, the Company would be required to
recognize more or fewer of the deferred tax assets which would increase or decrease income tax expense in the period
in which this is determined. The Company establishes provisions based on reasonable estimates for possible consequences
of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on
various factors, such as experience of previous taxation audits and differing interpretations of tax regulations by the taxable
entity and the respective tax authority. These provisions for uncertain tax positions are made using the best estimate of
the amount expected to be paid based on a qualitative assessment of all the relevant factors. The Company reviews the
adequacy of these provisions at each quarter. However, it is possible that at some future date an additional liability could
result from audits by the taxation authorities. Where the final tax outcome of these matters is different from the amount
initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
(c) STocK-BASeD PAymenT TRAnSAcTionS: The Company measures the cost of transactions with employees by reference
to the fair value of the equity instruments. Estimating fair value for stock-based payment transactions requires the
determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant.
This estimate also requires determining the most appropriate inputs to the valuation model including the future forfeiture
rate, the expected life of the share option, weighted average risk-free interest rate, volatility and dividend yield and making
assumptions about them. The assumptions and models used for estimating fair value for stock-based payment transactions
are disclosed in note 19 to the consolidated financial statements.
(d) imPAiRmenT oF non-FinAnciAl ASSeTS: Impairment exists when the carrying value of an asset or CGU exceeds its
recoverable amount, which is the higher of its fair value less costs to sell and its value in use. As disclosed in notes 11 and 12
to the consolidated financial statements, the calculations involve significant estimates and assumptions. Items estimated
include cash flows, discount rates and assumptions on revenue growth rates. These estimates could affect the Company’s
future results if the current estimates of future performance and fair values change.
(e) emPloyee BeneFiTS: The cost of defined benefit pension plans and the present value of the pension obligations are
determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from
actual developments in the future. These include the determination of the discount rate, future salary increases, mortality
rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term
nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date.
In determining the appropriate discount rate, management considers the interest rates of corporate bonds in the
respective currency, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension
increases are based on expected future inflation rates for the respective country.
Further details about the assumptions used are provided in note 15.
(f) FAiR VAlue meASuRemenT: Acquisitions that meet the definition of a business combination require the Company
to recognize the assets acquired and liabilities assumed at their fair value on the date of the acquisition. The calculation
of fair value of the assets and liabilities may require the use of estimates and assumptions, based on discounted cash
flows, market information and using independent valuations and management’s best estimates.
ATS AuTomATion Tooling SySTemS inc. /58
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) JuDgmenTS
(a) DiSconTinueD oPeRATionS: In fiscal 2011, the Company’s Board of Directors approved a plan designed to implement
the separation of Solar from ATS. Ontario Solar is currently classified as assets and liabilities associated with discontinued
operations in the consolidated statements of financial position and as discontinued operations in the consolidated statements
of income. The Company is conducting a formal sale process for the Ontario Solar business (see note 6). Net assets associated
with discontinued operations should not be carried at amounts that exceed estimated fair value less costs to effect the sale.
In this regard, management believes that the net assets of Ontario Solar are carried in these financial statements at amounts
that do not exceed their estimated fair values.
5 AcQuiSiTion oF iWK
On September 30, 2013, the Company completed its acquisition of 100% of the shares of IWK Verpackungstechnik GmbH
and OYSTAR IWK USA, Inc. (collectively “IWK”). IWK is a leader in technology driven high performance tube filling and
cartoning machinery for the pharmaceutical and personal care industries, and is headquartered in Stutensee, Germany
with locations in New Jersey, U.S.A. and Bangkok, Thailand. IWK has been integrated with the Company’s existing ASG
segment. The IWK acquisition aligns with ATS’s strategy of scaling its leading position in the global automation market and
enhancing growth opportunities, particularly in strategic customer segments and with technology leadership. It is expected
to provide the Company with deep capabilities across several core elements of the customer value chain and improve the
Company’s position in the Life Sciences and Consumer Products markets.
The total cash consideration for IWK was $147,312 (106,105 Euro). In addition, the Company incurred $3,166 of transaction
costs related to the acquisition which were recognized in selling, general and administrative expenses.
Cash used in investing activities is determined as follows:
Cash consideration
Less cash acquired
$
$
147,312
(9,904)
137,408
The purchase cost was allocated to the underlying assets acquired and liabilities assumed based upon the estimated fair
value at the date of acquisition. The Company determined the fair values based on discounted cash flows, market information,
and using independent valuations and management’s best estimates.
The allocation of the purchase price at fair value is as follows:
Purchase price allocation
Cash
Current assets
Property, plant and equipment
Intangible assets with a definite life
Technology
Customer relationships
Other
Intangible assets with an indefinite life
Brand
Current liabilities
Defined benefit pension obligation
Deferred income tax liability
Net identifiable assets
Residual purchase price allocated to goodwill
59/ ATS AuTomATion Tooling SySTemS inc.
$
$
9,904
46,340
3,171
11,107
56,091
2,827
7,775
(38,075)
(11,133)
(20,099)
67,908
79,404
147,312
Non-cash working capital includes accounts receivable of $21,260, representing gross contractual amounts receivable
of $21,443 less management’s best estimate of the contractual cash flows not expected to be collected of $183.
The primary factors that contributed to a residual purchase price that resulted in the recognition of goodwill are: the existing
IWK business; the acquired workforce; core capability in primary packaging (tube fillers) and secondary packaging (cartoners);
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. Approximately $5,200 and $4,300 of the
amounts assigned to goodwill and intangibles respectively is expected to be deductible for tax purposes.
During the three months ended March 31, 2014, changes to the purchase price allocation resulted in a decrease in inventory
of $112, a decrease in goodwill of $2,534, an increase in intangible assets of $4,165, a decrease in accounts payable and
accrued liabilities of $4,037, an increase in billings in excess of costs and earnings on contracts in progress of $5,250 and
an increase in deferred tax liabilities of $306.
The cash consideration of the purchase price along with transaction costs were primarily funded with existing cash on hand
and proceeds from long-term debt of $40,000. This acquisition was accounted for as a business combination with the Company
as the acquirer of IWK. The purchase method of accounting was used and the earnings have been consolidated
from the acquisition date, September 30, 2013. IWK has contributed approximately $59,227 in revenue and $1,427 in net
income to the fiscal 2014 results. If IWK had been acquired at the beginning of ATS’ fiscal year (April 1, 2013), the Company
estimates that revenues from continuing operations and net income from continuing operations of the combined IWK
and ATS entity for the year ended March 31, 2014 would have been approximately $735,900 and $50,500 respectively.
6 DiSconTinueD oPeRATionS
The Board of Directors of ATS have approved a plan designed to implement the separation of Solar from ATS and the Company
currently holds the related assets for sale. During the year ended March 31, 2014, the Company’s 50% owned joint operation,
Ontario Solar PV Fields (“OSPV”), sold four ground-mount solar projects. OSPV has retained 25% ownership of the projects
until the projects reach commercial operation, which is expected to occur in calendar 2014. Net proceeds to the Company
are expected to be $21.4 million, of which the Company has received net proceeds of $13.4 million during the year ended
March 31, 2014 and $0.5 million during the year ended March 31, 2013. The remaining proceeds are expected to be received
when the projects achieve commercial operation.
During the year ended March 31, 2014, the Company divested the Ontario Solar manufacturing assets and inventory.
Net proceeds to the Company were $6.5 million.
Subsequent to March 31, 2014, the Company sold the three remaining ground-mount solar projects. OSPV has retained 25%
ownership of the projects until the projects reach commercial operation, which is expected to occur in early calendar 2015.
Net proceeds to the Company are expected to be $14.6 million, of which the Company has received net proceeds of $12.0
million subsequent to the year ended March 31, 2014. The remaining proceeds are expected to be received when the projects
achieve commercial operation.
ATS AuTomATion Tooling SySTemS inc. /60
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) Years ended
Revenues
Gain on Sale
Operating costs and expenses
Income (loss) from discontinued operations
Net finance costs
Income (loss) from discontinued operations before income taxes
Income tax recovery
Income (loss) from discontinued operations, net of tax
Income (loss) per share
Basic – from discontinued operations
Diluted – from discontinued operations
March 31
2014
1,079
13,815
(2,088)
12,806
4
12,802
—
12,802
0.14
0.14
$
$
$
$
March 31
2013
3,698
—
29,827
(26,129)
15
(26,144)
(153)
(25,991)
(0.30)
(0.29)
$
$
$
$
Included in the year ended March 31, 2014 is a non-cash recovery of $3,000 related to the reversal of a warranty provision
which is no longer required.
Included in the loss from discontinued operations for the year ended March 31, 2013 was $4,855 of non-cash charges
related to the write-down of inventory to its net realizable value, following declines in average market selling prices due
to uncertainty in the Ontario market as a result of regulatory delays and $15,125 of non-cash property, plant and equipment
impairment charges to write down assets to their expected recoverable amounts following the Company’s change of plans
to pursue separate sales of the manufacturing operations and the ground-mount solar projects.
The major classes of asset and liabilities of Solar classified as associated with discontinued operations are as follows:
As at
Assets
Cash and cash equivalents
Accounts receivable
Inventories
Deposits and prepaid assets
Other assets
Assets associated with discontinued operations
Liabilities
Accounts payable and accrued liabilities
Provisions
Liabilities associated with discontinued operations
Net assets directly associated with disposal group
March 31
2014
March 31
2013
$
$
$
$
$
2,148
31
677
4,239
6,170
13,265
6,738
36
6,774
6,491
$
$
$
$
$
417
3,140
5,712
2,943
2,738
14,950
8,044
68
8,112
6,838
61/ ATS AuTomATion Tooling SySTemS inc.
conSTRucTion conTRAcTS AnD inVenToRieS
As at
Contracts in progress:
Costs incurred
Estimated earnings
Progress billings
Disclosed as:
Costs and earnings in excess of billings on contracts in progress
Billings in excess of costs and earnings on contracts in progress
As at
Inventories are summarized as follows:
Raw materials
Work in process
Finished goods
March 31
2014
870,970
258,694
1,129,664
(1,042,796)
86,868
146,231
(59,363)
86,868
March 31
2014
12,832
10,358
996
24,186
$
$
$
$
$
$
$
March 31
2013
695,084
106,296
801,380
(726,673)
74,707
122,842
(48,135)
74,707
March 31
2013
5,935
4,651
83
10,669
$
$
$
$
$
$
$
The amount charged to net income and included in cost of revenues for the write-down of inventory for valuation issues during
the year ended March 31, 2014 was $390 (March 31, 2013 – $186). The amount of inventories carried at net realizable value as
at March 31, 2014 was $2,158 (March 31, 2013 – $37).
DePoSiTS, PRePAiDS AnD oTHeR ASSeTS
As at
Prepaid assets
Restricted cash i
Supplier deposits
Forward foreign exchange contracts
Other assets
(i) Restricted cash primarily consists of cash collateralized to secure letters of credit
$
March 31
2014
5,071
813
2,941
796
9
$
March 31
2013
3,817
1,519
6,160
220
22
$
9,630
$
11,738
ATS AuTomATion Tooling SySTemS inc. /62
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) PRoPeRTy, PlAnT AnD eQuiPmenT
Cost:
Balance, at March 31, 2012
Additions
Disposals
Exchange and other adjustments
Balance, at March 31, 2013
Additions
Acquisition of a subsidiary
Disposals
Exchange and other adjustments
$
$
Land
20,146
—
—
(108)
20,038
—
—
—
1,813
Buildings and
leaseholds
Production
equipment
Other
equipment
$
$
89,086
2,435
(899)
(191)
90,431
576
1,714
(1)
7,226
$
$
13,035
795
(441)
(178)
13,211
696
62
(353)
1,811
$
$
24,232
4,517
(3,458)
(250)
25,041
2,988
1,395
(1,614)
1,745
Total
$ 146,499
7,747
(4,798)
(727)
$ 148,721
4,260
3,171
(1,968)
12,595
Balance, at March 31, 2014
$
21,851
$
99,946
$
15,427
$
29,555
$ 166,779
Depreciation:
Balance, at March 31, 2012
Depreciation expense
Disposals
Exchange and other adjustments
Balance, at March 31, 2013
Depreciation expense
Disposals
Exchange and other adjustments
Balance, at March 31, 2014
Net book value:
At March 31, 2014
At March 31, 2013
$
$
$
$
$
—
—
—
—
—
—
—
—
—
Land
Buildings and
leaseholds
Production
equipment
Other
equipment
$ (40,874)
(3,467)
810
157
$ (43,374)
(3,477)
—
(3,794)
$
(10,151)
(964)
438
142
$ (10,535)
(825)
302
(1,439)
$ (16,594)
(2,430)
3,450
31
$ (15,543)
(2,943)
1,491
(1,230)
$ (50,645)
$ (12,497)
$ (18,225)
$ (81,367)
$
Total
(67,619)
(6,861)
4,698
330
$ (69,452)
(7,245)
1,793
(6,463)
21,851
20,038
$
$
49,301
47,057
$
$
2,930
2,676
$
$
11,330
9,498
$
$
85,412
79,269
Included in other equipment as at March 31, 2014 is $70 (March 31, 2013 – $10) of assets which are under construction
and have not been depreciated.
inVeSTmenT PRoPeRTy
Opening
Foreign exchange adjustment
Balance, at March 31
2014
3,712
629
4,341
$
$
2013
3,792
(80)
3,712
$
$
The estimated fair value of the Company’s investment property at March 31, 2014 and March 31, 2013 approximates its
carrying value, based on comparable market data for similar properties. The investment property is a plot of vacant land
which does not earn any rental income nor incur any direct operating expenses, including repairs and maintenance.
63/ ATS AuTomATion Tooling SySTemS inc.
gooDWill
The carrying amount of goodwill acquired through business combinations has been allocated to a group of CGUs which
combine to form a single operating segment being Automation Systems Group, as follows:
As at
Automation Systems Group
Balance at April 1
Acquisition – IWK
Foreign exchange
Balance at March 31
March 31
2014
151,731
2014
58,542
79,404
13,785
151,731
$
$
$
March 31
2013
58,542
2013
58,320
—
222
58,542
$
$
$
The Company performed the annual impairment test of goodwill as at March 31, 2014. The recoverable amount of the group
of CGUs is determined based on fair value less costs to sell using a capitalized EBITDA approach. This approach requires
management to estimate maintainable future EBITDA and capitalize this amount by rates of return which incorporate the
specific risks and opportunities facing the business. EBITDA includes net income from continuing operations less income
taxes, net finance charges, depreciation and amortization.
In determining a maintainable future EBITDA, the historical operating results for the five years ended March 31, 2014 were
compared to the budgeted results for the year ending March 31, 2015, as presented to and approved by the Board of Directors.
Non-recurring and unusual items have been adjusted in order to normalize past EBITDA. Management selected capitalization
rates in the range of 6.3% to 11.1% for the calculation of the reasonable range of capitalized EBITDA. As a result of the analysis,
management did not identify impairment for this group of CGUs.
Management believes that any reasonable possible change in the key assumptions on which the recoverable amount is
based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the group of CGUs.
ATS AuTomATion Tooling SySTemS inc. /64
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) inTAngiBle ASSeTS
Development
projects
Computer
software,
licenses
and other
Technology
Customer
relationships
Brands
Total
Cost:
Balance, at March 31, 2012
Additions
Disposals
Exchange and other adjustments
Balance, at March 31, 2013
Additions
Disposals
Acquisition of a subsidiary
Exchange and other adjustments
$
$
$
$
2,959
803
—
33
3,795
3,260
—
—
63
$
$
15,574
3,947
(1,707)
(102)
17,712
3,583
(186)
2,827
1,511
$
$
9,814
—
—
(144)
9,670
—
—
11,107
2,585
$
$
15,142
—
—
(198)
14,944
—
—
56,091
7,666
$
$
4,538
—
—
(125)
4,413
—
—
7,775
1,504
48,027
4,750
(1,707)
(536)
50,534
6,843
(186)
77,800
13,329
Balance, at March 31, 2014
$
7,118
$
25,447
$
23,362
$
78,701
$
13,692
$
148,320
Development
projects
Computer
software,
licenses
and other
Technology
Customer
relationships
Brands
Total
Amortization:
Balance, at March 31, 2012
Amortization
Disposals
Exchange and other adjustments
Balance, at March 31, 2013
Amortization
Disposals
Exchange and other adjustments
Balance, at March 31, 2014
Net book value:
At March 31, 2014
At March 31, 2013
$
$
$
$
$
$
$
(2,732)
(402)
—
—
(3,134)
(249)
—
(15)
$
$
(10,171)
(1,276)
1,707
78
(9,662)
(2,963)
180
(1,077)
$
$
(1,981)
(1,086)
—
27
(3,040)
(1,839)
—
(590)
$
$
(4,502)
(2,612)
—
31
(7,083)
(6,159)
—
(1,391)
(3,398)
$
(13,522)
$
(5,469)
$
(14,633)
$
—
—
—
—
—
—
—
—
—
3,720
661
$
$
11,925
8,050
$
$
17,893
6,630
$
$
64,068
$
13,692
7,861
$
4,413
$
$
$
$
$
(19,386)
(5,376)
1,707
136
(22,919)
(11,210)
180
(3,073)
(37,022)
111,298
27,615
Included in development projects and in computer software, licenses and other intangibles as at March 31, 2014 is $1,719
and $4,663 respectively (March 31, 2013 – $1,072 and $3,554 respectively) of intangible assets which are in development
and have not been depreciated. Research and development costs that are not eligible for capitalization have been expensed
and are recognized in cost of revenues.
The Company performed the annual impairment test of indefinite lived intangible assets as at March 31, 2014. The intangible
assets acquired during the year ended March 31, 2014 related to IWK were recorded at fair value based on discounted cash
flows, market information, and using independent valuations and management’s best estimates. The recoverable amount of the
previously acquired intangible assets was estimated based on a value in use calculation using the present value of the future
cash flows expected to be derived by the related subsidiaries. This approach requires management to estimate cash flows which
include EBIT from continuing operations less income taxes, depreciation and amortization and capital expenditures.
In determining future cash flows, the budgeted results for the year ending March 31, 2015, as presented to and approved by
the Board of Directors were extrapolated for a five-year period. Management used discount rates in the range of 12% to 20%
to determine the present value of the future cash flows. As a result of the analysis, management did not identify an impairment
of the intangible assets and any reasonable change in assumptions would not result in an impairment.
65/ ATS AuTomATion Tooling SySTemS inc.
FinAnciAl inSTRumenTS
(i) cATegoRieS oF FinAnciAl ASSeTS AnD liABiliTieS: The carrying values of the Company’s financial instruments
are classified into the following categories:
As at
Cash and cash equivalents
Trade accounts receivable
Bank indebtedness
Trade accounts payable
and accrued liabilities
Long-term debt
Derivatives classified as held
for trading – gain i
Derivatives designated as
cash flow hedges – loss i
As at
Cash and cash equivalents
Trade accounts receivable
Portfolio investments
Trade accounts payable
and accrued liabilities
Long-term debt
Derivatives classified as held
for trading – loss i
Derivatives designated as
cash flow hedges – loss i
Fair value
through
profit loss
Cash flow
hedges
Loans,
borrowings, and
receivables
Available-
for-sale
Other
liabilities
$
$
$
$
—
—
—
—
—
535
—
Fair value
through
profit loss
—
—
—
—
—
(354)
—
—
—
—
—
—
—
(862)
Cash
flow
hedges
—
—
—
—
—
—
(464)
$
76,466
104,678
(913)
$
—
—
—
—
—
—
—
—
—
—
—
$
$
—
—
—
(121,306)
(5,139)
—
—
Loans and
receivables
$
105,453
85,587
—
Available-
for-sale
Other
liabilities
$
$
—
—
4,969
$
—
—
—
—
—
—
—
—
—
—
—
(89,562)
(1,175)
—
—
March 31
2014
Total
carrying
value
76,466
104,678
(913)
(121,306)
(5,139)
535
(862)
March 31
2013
Total
carrying
value
105,453
85,587
4,969
(89,562)
(1,175)
(354)
(464)
(i) Derivative financial instruments in a gain position are included in deposits and prepaid assets on the consolidated statements of financial position and derivative financial instruments
in a loss position are included in accounts payable and accrued liabilities.
ATS AuTomATion Tooling SySTemS inc. /66
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts)
(ii) FAiR VAlue meASuRemenTS: The following table presents information about the Company’s assets and liabilities
measured at fair value on a recurring basis as at March 31, 2014 and March 31, 2013 and indicates the fair value hierarchy
of the valuation techniques used to determine such fair value:
As at
Measured at fair value:
Derivatives classified as held for trading
Derivatives designated as cash flow hedges
Investment property
Disclosed at fair value:
Bank indebtedness
Long-term debt
As at
Measured at fair value:
Derivatives classified as held for trading
Derivatives designated as cash flow hedges
Portfolio investment
Investment property
Disclosed at fair value:
Long-term debt
$
$
Carrying
Value
535
(862)
4,341
(913)
(5,139)
Carrying
Value
(354)
(464)
4,969
3,712
(1,175)
$
$
Level 1
Level 2
Level 3
—
—
—
—
—
$
535
(862)
—
(913)
(5,139)
$
—
—
4,341
—
—
Level 1
Level 2
Level 3
—
—
4,969
—
—
$
(354)
(464)
—
—
(1,175)
$
—
—
—
3,712
—
March 31
2014
Fair Value
Total
535
(862)
4,341
(913)
(5,139)
March 31
2013
Fair Value
Total
(354)
(464)
4,969
3,712
(1,175)
$
$
The estimated fair values of cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and
accrued liabilities approximate their respective carrying values due to the short period to maturity. The estimated fair value
of long-term debt approximates the carrying value due to interest rates approximating current market values. Derivative
financial instruments are carried at fair value determined by reference to quoted bid or asking prices, as appropriate, in active
markets at period-end dates. The derivative contract counterparties are highly rated multinational financial institutions.
During the years ended March 31, 2014 and March 31, 2013, there were no transfers between Level 1 and Level 2 fair
value measurements.
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 consolidated
statements of income. During the year ended March 31, 2014, the fair value of derivative financial assets classified as
held-for-trading and included in deposits, prepaid and other assets increased by $564 (increased by $13 during the year
ended March 31, 2013) and the fair value of derivative financial liabilities classified as held-for-trading and included in accounts
payable and accrued liabilities decreased by $325 during the year ended March 31, 2014 (decreased by $90 during the
year ended March 31, 2013).
67/ ATS AuTomATion Tooling SySTemS inc.
cASH FloW HeDgeS: During the year ended March 31, 2014 there was no unrealized gain or loss recognized in selling,
general and administrative expenses for the ineffective portion of cash flow hedges (unrealized gain of $nil during the year
ended March 31, 2013). After-tax unrealized gains of $646 and after-tax unrealized loss of $nil are included in accumulated
other comprehensive income at March 31, 2014 and are expected to be reclassified to income over the next 12 months when
the revenue and purchases are recorded (unrealized gains of $339 and unrealized losses of $nil at March 31, 2013).
The following table summarizes the Company’s commitments to buy and sell foreign currencies under forward foreign
exchange contracts as at March 31, 2014:
Currency sold
U.S. dollars
U.S. dollars
U.S. dollars
U.S. dollars
Euros
Euros
Euros
Euros
Canadian dollars
Canadian dollars
Canadian dollars
Canadian dollars
Canadian dollars
Swiss francs
Great British pounds
Currency bought
Canadian dollars
Euros
Singapore dollars
Malaysian ringgits
Swiss francs
Canadian dollars
U.S. dollars
Singapore dollars
Euros
Swedish krona
Singapore dollars
U.S. dollars
Great British pounds
Canadian dollars
Canadian dollars
Notional
amount sold
Weighted
average rate
53,775
1,714
700
1,773
1,000
29,034
556
55
12,215
2,059
1,013
11,454
377
656
363
1.0933
0.7272
1.2642
3.2661
1.2225
1.5416
1.3662
1.7551
0.6557
5.8458
1.1850
0.9008
0.5495
1.2470
1.8434
(iii) RiSKS ARiSing FRom FinAnciAl inSTRumenTS AnD RiSK mAnAgemenT: The Company is exposed to financial risks
that may potentially impact its operating results including market risks (foreign exchange rate, interest rate and other market
price risks), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability
of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company
uses derivative financial instruments to mitigate exposure to fluctuations in foreign exchange rates. The Company does not
enter into derivative financial agreements for speculative purposes.
currency risk: The Company transacts business in multiple currencies, the most significant of which are the Canadian dollar,
the U.S. dollar and the Euro. As a result, the Company has foreign currency exposure with respect to items denominated in
foreign currencies. The types of foreign exchange risk can be categorized as follows:
Translation exposure: Assets and liabilities are translated into Canadian dollars using the exchange rates in effect at the
statement of financial position dates. Unrealized translation gains and losses are deferred and included in accumulated other
comprehensive income. The cumulative currency translation adjustments are recognized in income when there has been a
reduction in the net investment in the foreign operations.
Foreign currency based earnings are translated into Canadian dollars each period at prevailing rates. As a result, fluctuations in
the value of the Canadian dollar relative to these other currencies will impact reported net income. Foreign currency risks arising
from the translation of assets and liabilities of foreign operations into the Company’s functional currency are generally not
hedged; however, the Company may decide to hedge this risk under certain circumstances. The Company has assessed
the net foreign currency exposure of operations relative to their own functional currency. A fluctuation of +/- 5% in the Euro
and U.S. dollar, provided as an indicative range in a volatile currency environment, would, everything else being equal, have
an effect on accumulated other comprehensive income for the year ended March 31, 2014 of approximately +/- $12,046 and
$9,914 respectively (2013 +/- $6,291 and $10,328) and on income from continuing operations before income taxes for the
year ended March 31, 2014 of approximately +/- $28 and $1,030 respectively (2013 +/- $140 and $1,161).
ATS AuTomATion Tooling SySTemS inc. /68
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) Transaction exposure: The Company generates significant revenues in foreign currencies, primarily U.S. dollars, which
exceed the natural hedge provided by purchases of goods and services in those currencies. In order to manage this net
foreign currency exposure in subsidiaries which do not have the U.S. dollar as the functional currency, the Company enters
into forward foreign exchange contracts. The timing and amount of these forward foreign exchange contracts are estimated
based on existing customer contracts on hand or anticipated, current conditions in the Company’s markets and the
Company’s past experience. As such, there is not a material transaction exposure.
credit risk: Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. Financial instruments that potentially subject the Company to credit risk consist
of accounts receivable and derivative financial instruments. The carrying values of these assets represent management’s
assessment of the associated maximum exposure to such credit risk. Substantially all of the Company’s trade accounts
receivable are due from customers in a variety of industries and, as such, are subject to normal credit risks from their
respective industries. The Company regularly monitors customers for changes in credit risk. The Company does not believe
that any single industry or geographic region represents significant credit risk. Credit risk concentration with respect to trade
receivables is mitigated by the Company’s client base being primarily large, multinational customers and through insurance
purchased by the Company.
Trade receivables – aged by due date as at
Current
1 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
Total
$
March 31
2014
80,729
9,894
3,954
1,293
12,593
$
108,463
The movement in the Company’s allowance for doubtful accounts for the years ended March 31 was as follows:
Balance at April 1
Provisions and revisions
Foreign exchange
Balance at March 31
2014
3,405
512
(132)
3,785
$
$
March 31
2013
66,048
7,714
4,384
305
10,541
88,992
2013
4,665
(1,246)
(14)
3,405
$
$
$
$
The Company minimizes credit risk associated with derivative financial instruments by only entering into derivative
transactions with highly rated multinational financial institutions, in order to reduce the risk of counterparty default.
liquidity risk: Liquidity risk is the risk that the Company may encounter difficulties in meeting obligations associated
with financial liabilities. As at March 31, 2014, the Company was holding cash and cash equivalents of $76,466 (March 31,
2013 – $105,453) and had unutilized lines of credit of $179,253 (March 31, 2013 – $199,426). During the year ended March
31, 2013, the Company established a new Senior Secured Credit Facility (the “Credit Agreement”) as described in note 16
to the consolidated financial statements. The Company expects that continued cash flows from operations in fiscal 2015,
together with cash and cash equivalents on hand and available credit facilities, will be more than sufficient to fund its
requirements for investments in working capital, property, plant and equipment and strategic investments including some
potential acquisitions, and that the Company’s credit ratings provide reasonable access to capital markets to facilitate
future debt issuance.
69/ ATS AuTomATion Tooling SySTemS inc.
The Company’s accounts payable primarily have contractual maturities of less than 90 days and the contractual cash
flows equal their carrying value. The Company’s long-term debt obligations and scheduled interest payments are
presented in note 16 to the consolidated financial statements.
interest rate risk: In relation to its debt financing, the Company is exposed to changes in interest rates, which may impact
the Company’s borrowing costs. Floating rate debt exposes the Company to fluctuations in short-term interest rates.
As at March 31, 2014, $3,592 or 70% (March 31, 2013 – $121 or 10%) of the Company’s total debt is subject to movements
in floating interest rates. A +/- 1% change in interest rates in effect for the fiscal year would, all things being equal, have an
impact of +/- $36 on income from operations before income taxes for the year ended March 31, 2014 (March 31, 2013 – $1).
PRoViSionS
Balance, at March 31, 2012
Provisions made
Provisions reversed
Provisions used
Exchange adjustments
Balance, at March 31, 2013
Provisions made
Acquisition of a subsidiary
Provisions reversed
Provisions used
Exchange adjustments
Balance, at March 31, 2014
Warranty
Restructuring
$
$
$
8,155
4,990
(3,205)
(1,800)
12
8,152
5,080
1,297
(5,170)
(3,106)
579
6,832
$
$
$
530
—
(299)
(110)
(4)
117
6,118
106
—
(4,652)
46
1,735
Other
1,011
4,561
(213)
(4,527)
(5)
827
7,070
—
—
(6,099)
47
1,845
$
$
$
$
$
Total
9,696
9,551
(3,717)
(6,437)
3
9,096
18,268
1,403
(5,170)
(13,857)
672
$
10,412
WARRAnTy PRoViSionS: Warranty provisions are related to sales of products and are based on experience reflecting
statistical trends of warranty costs.
ReSTRucTuRing: Restructuring charges are recognized in the period incurred and when the criteria for provisions are
fulfilled. Termination benefits are recognized as a liability and an expense when the Company is demonstrably committed
through a formal restructuring plan.
ATS AuTomATion Tooling SySTemS inc. /70
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts)
emPloyee BeneFiTS
The Company operates pension plans for certain of its employees through defined contribution plans and defined benefit
plans. The costs associated with defined contribution plans are expensed as incurred. The most recent actuarial valuations
of the defined benefit plans were completed as at March 31, 2014. The next valuations are scheduled to be as at March 31,
2015. The changes in the fair value of assets, the employee benefit obligation, and the funded status were:
March 31
2014
March 31
2013
As at
Accrued benefit obligations:
Opening balance
Acquisition of a subsidiary
Interest cost
Service cost
Assumption changes
Contributions
Transfers and benefits paid
Insurance premiums
Foreign exchange
Accrued benefit obligations, ending balance
Plan assets:
Opening balance
Interest income included in net interest expense
Net actuarial loss
Company contributions
Employee contributions
Transfers and benefits paid
Insurance premiums
Foreign exchange
Plan assets, ending balance
Employee benefits liability
$
$
$
$
$
21,116
11,110
760
1,008
(618)
336
(3,623)
(208)
3,490
33,371
10,535
256
276
664
336
(3,246)
(208)
1,545
10,158
23,213
$
$
$
$
$
$
$
14,716
—
550
1,305
3,753
322
991
(203)
(318)
21,116
8,376
268
322
619
322
1,067
(203)
(236)
10,535
10,581
2013
(3,719)
322
(3,397)
Amounts recognized in the consolidated statements of comprehensive income (before tax) were:
As at
Total actuarial gains (losses)
Return on plan assets
Amounts recognized in OCI
2014
618
276
894
$
$
The significant weighted average annual actuarial assumptions used in measuring the accrued benefit obligation were:
Discount Rate
Expected rate of return on plan assets
Rate of compensation increase
March 31
2014
3.4%
1.8%
2.5%
March 31
2013
3.1%
1.6%
2.3%
71/ ATS AuTomATion Tooling SySTemS inc.
The weighted average allocations of plan assets were:
Equity securities
Debt securities
Real Estate
Other
March 31
2014
11.0%
41.2%
22.9%
24.9%
March 31
2013
—
44.1%
23.2%
32.7%
The fair values of equity securities and debt securities plan assets are determined based on generally quoted market prices
in active markets. The fair value of real estate plan assets are valued based on appraisals performed by a qualified external
real estate appraiser.
No plan assets were directly invested in the Company’s securities.
The net employee benefits expense included the following components:
Years ended
Defined benefit plans
Service cost
Interest cost
Expected return on plan assets
Defined contribution plans
Net employee benefits expense
March 31
2014
March 31
2013
$
$
1,008
760
(171)
1,597
2,302
3,899
$
$
1,333
572
(198)
1,707
2,224
3,931
The Company expects to contribute $700 to its defined benefit plans during the year ended March 31, 2014.
The cumulative actuarial losses, net of income taxes, recognized as other comprehensive income as at March 31, 2014
was $4,457 (March 31, 2013 – $3,534).
BAnK inDeBTeDneSS AnD long-TeRm DeBT
During the year ended March 31, 2013, the Company established a new Senior Secured Credit Facility (the “Credit
Agreement”). The Credit Agreement provides a committed revolving credit facility of $250,000 and expires on November
6, 2015. The Credit Agreement is secured by the assets, excluding real estate, of certain of the Company’s North American
legal entities and a pledge of shares and guarantees from certain of the Company’s legal entities. At March 31, 2014, the
Company had utilized $72,633 under the Credit Agreement, which was obtained by way of letters of credit (March 31,
2013 – $53,103).
The Credit Agreement is available in Canadian dollars by way of prime rate advances, letters of credit for certain purposes
and/or bankers’ acceptances and in U.S. dollars by way of base rate advances and/or LIBOR advances. The interest rates
applicable to the Credit Agreement are determined based on a debt to EBITDA ratio. For prime rate advances and base rate
advances, the interest rate is equal to the bank’s prime rate or the bank’s U.S. dollar base rate in Canada, respectively, plus
0.50% to 1.50%. For bankers’ acceptances and LIBOR advances, the interest rate is equal to the bankers’ acceptance fee or
the LIBOR, respectively, plus 1.50% to 2.50%. The Company pays a fee for usage of financial letters of credit which ranges
from 1.70% to 2.70% and a fee for usage of non-financial letters of credit which ranges from 1.15% to 1.80%. The Company
pays a standby fee on the unadvanced portions of the amounts available for advance or draw-down under the Credit
Agreement at rates ranging from 0.30% to 0.50%.
ATS AuTomATion Tooling SySTemS inc. /72
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts)
The Credit Agreement is subject to a debt to EBITDA test and an interest coverage test. Under the terms of the Credit
Agreement, the Company is restricted from encumbering any assets with certain permitted exceptions. The Credit
Agreement also limits advances to subsidiaries and partially restricts the Company from repurchasing its common shares
and paying dividends.
The Company has additional credit facilities available of $8,977 (2,396 Euro, 200,000 Indian Rupees, 500 Swiss Francs
and 30,000 Thai Baht). The total amount outstanding on these facilities is $6,687, of which $913 is classified as bank
indebtedness (March 31, 2013 – $nil) and $5,774 is classified as long-term debt (March 31, 2013 – $2,214). The interest
rates applicable to the credit facilities range from 1.85% to 11.00% per annum. A portion of the long-term debt is secured
by certain assets of the Company. The 500 Swiss Francs and 200,000 Indian Rupees credit facilities are secured by letters
of credit under the Credit Agreement.
(i) BAnK inDeBTeDneSS
As at
Other facilities
(ii) long-TeRm DeBT
As at
Other facilities
Issuance costs
Less: current portion
March 31
2014
March 31
2013
$
913
$
—
March 31
2014
5,774
(635)
5,139
3,815
1,324
$
$
March 31
2013
2,214
(1,039)
1,175
257
918
$
$
Scheduled principal repayments and interest payments on long-term debt from continuing operations as at March 31, 2014
are as follows:
Less than one year
One – two years
Two – three years
Three – four years
Four – five years
Thereafter
SHARe cAPiTAl
Principal
Interest
$
$
3,815
328
292
300
315
724
5,774
$
$
98
97
84
80
71
86
516
Authorized capital of the Company consists of an unlimited number of common shares, without par value, for unlimited
consideration. The changes in the common shares issued and outstanding during the periods presented were as follows:
Balance, at March 31, 2012
Exercise of stock options
Balance, at March 31, 2013
Exercise of stock options
Balance, at March 31, 2014
73/ ATS AuTomATion Tooling SySTemS inc.
Number of
common shares
87,439,755
411,538
87,851,293
2,942,254
90,793,547
Share
capital
483,099
3,635
486,734
23,991
510,725
$
$
$
TAxATion
(i) ReconciliATion oF income TAxeS: Income tax expense differs from the amounts which would be obtained by applying
the combined Canadian basic federal and provincial income tax rate to earnings before income taxes and non-controlling
interest. These differences result from the following items:
Years ended
Income from continuing operations before income taxes and non-controlling interest
Combined Canadian basic federal and provincial income tax rate
Income tax expense based on combined Canadian basic federal and provincial income tax rate
Increase (decrease) in income taxes resulting from:
Adjustments in respect to current income tax of previous periods
Non-taxable income (loss) net of non-deductible expenses
Recognition/use of previously unrecognized assets
Income taxed at different rates and statutory rate changes
Manufacturing and processing allowance and all other items
At the effective income tax rate of 15% (2013 – 25%)
Income tax expense reported in the consolidated statements of income:
Current tax expense
Deferred tax expense
Deferred tax related to items charged or credited directly to equity:
Net gain (loss) on revaluation of cash flow hedges
Other items recognized through equity
Income tax charged directly to equity
March 31
2014
58,017
26.50%
15,375
(444)
795
(8,767)
2,033
(392)
8,600
10,667
(2,067)
8,600
90
111
201
$
$
$
$
$
$
$
March 31
2013
54,632
26.50%
14,477
$
$
(96)
(2,647)
—
2,161
(337)
$
13,558
$
$
$
$
10,895
2,663
13,558
(140)
(105)
(245)
(ii) comPonenTS oF DeFeRReD income TAx ASSeTS AnD liABiliTieS: Deferred income taxes are provided for the
differences between accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are comprised
of the following:
As at
Accounting income not currently taxable
Investment tax credits taxable in future years when utilized
Loss available for offset against future taxable income
Property, plant and equipment
Scientific research and experimental development
expenditures available for offset against future taxable income
Other
Net deferred income tax asset (liability)
Presented as:
Deferred income tax asset
Deferred income tax liability
Net deferred income tax asset (liability)
$
March 31
2014
(25,799)
(7,074)
9,360
2,758
22,902
(11,056)
$
(8,909)
March 31
2014
7,838
(16,747)
$
$
(8,909)
March 31
2013
(11,408)
(6,212)
554
1,119
21,478
5,846
11,377
March 31
2013
13,154
(1,777)
11,377
$
$
$
$
ATS AuTomATion Tooling SySTemS inc. /74
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts)
(iii) unRecognizeD DeFeRReD income TAx ASSeTS: Deferred tax assets have not been recognized in respect of the
following items (gross amount):
As at
Deductible temporary differences
Loss available for offset against future taxable income
March 31
2014
1,360
56,477
57,837
$
$
March 31
2013
690
69,867
70,557
$
$
loSS cARRyFoRWARDS: As at March 31, 2014, the Company has the following net operating loss carryforwards which are
scheduled to expire in the following years:
Year of expiry
2015 – 2019
2020 – 2024
2025 – 2029
2030 – 2034
No expiry
Non-Canadian
Canadian
$
$
3,036
6,695
5,315
858
39,214
55,117
$
$
1,059
—
6,273
40,195
—
47,527
In addition, the Company has USA Federal and State capital loss carryforwards of US$13,456 (March 31, 2013 – US$13,456)
and Canadian capital loss carryforwards of $268,345 (March 31, 2013 – $293,337) which do not expire.
inVeSTmenT TAx cReDiTS: As at March 31, 2014, the Company has investment tax credits (“ITC”) available to be applied
against future taxes payable in Canada of approximately $42,422 and in foreign jurisdictions of approximately $1,866.
The investment tax credits are scheduled to expire as follows:
Year of expiry
2015 – 2019
2020 – 2024
2025 – 2029
2030 – 2034
No expiry
Gross ITC balance
$
998
688
25,157
17,265
180
$
44,288
The benefit of $30,165 (March 31, 2013 – $27,699) of these investment tax credits have been recognized in the consolidated
financial statements. Unrecognized investment tax credits are scheduled to expire between 2028 and 2030.
(iv) The Company has determined that as of the reporting date, undistributed profits of its subsidiaries will not be distributed
in the foreseeable future.
(v) There are temporary differences of $4,868 associated with investments in subsidiaries for which no deferred tax liability
has been recognized.
(vi) There are no income tax consequences attached to the payment of dividends in either 2014 or 2013 by the Company to
its shareholders.
75/ ATS AuTomATion Tooling SySTemS inc.
STocK-BASeD comPenSATion
emPloyee SHARe PuRcHASe PlAn: Under the terms of the Company’s Employee Share Purchase Plan, qualifying
employees of the Company may set aside funds through payroll deductions for an amount up to a maximum of 10% of
their base salary or $10,000 in any one calendar year. Subject to the member not making withdrawals from the plan,
the Company makes contributions to the plan equal to 20% of a member’s contribution to the plan during the year, up to
a maximum of 1% of the member’s salary or $2,000. Shares for the plan may be issued from treasury or purchased in the
market as determined by the Company’s Board of Directors. During the years ended March 31, 2014 and March 31, 2013,
no shares were issued from treasury related to the plan.
DeFeRReD STocK uniT PlAn: The Company offers a Deferred Stock Unit Plan ("DSU Plan") for members of the Board
of Directors. Under the DSU Plan, each non-employee director may elect to receive his or her annual compensation in
the form of notional common shares of the Company called deferred stock units ("DSUs"). The issue and redemption
prices of each DSU are based on an average trading price of the Company’s common shares for the five trading days prior
to issuance or redemption. Under the terms of the DSU Plan, directors are not entitled to convert DSUs into cash until
retirement from the Board of Directors. The value of each DSU, when converted to cash, will be equal to the market value
of a common share of the Company at the time the conversion takes place. At March 31, 2014, the value of the outstanding
liability related to the DSUs was $5,425 (2013 – $3,099). The DSU liability is revalued at each reporting date based on the
change in the Company’s stock price. The change in the value of the DSU liability is included in the consolidated statements
of income in the period of the change.
STocK oPTion PlAn: The Company uses a stock option plan to attract and retain key employees, officers and directors.
Under the Company’s 1995 Stock Option plan (the “1995 Plan”), the shareholders have approved a maximum of 5,991,839
common shares for issuance, with the maximum reserved for issuance to any one person at 5% of the common shares
outstanding at the time of the grant. Time vested stock options vest over four year periods. Performance-based stock options
vest based on the Company’s stock trading at or above a threshold for a specified number of minimum trading days in a fiscal
quarter. For time vested stock options, the exercise price is the price of the Company’s common shares on the Toronto Stock
Exchange at closing for the day prior to the date of the grant. For performance-based stock options the exercise price is either
the price of the Company’s common shares on the Toronto Stock Exchange at closing for the day prior to the date of the grant
or the five-day volume weighted average price of the Company’s common shares on the Toronto Stock Exchange prior to the
date of the grant. Stock options granted under the 1995 Plan may be exercised during periods not exceeding seven years
from the date of grant, subject to earlier termination upon the option holder ceasing to be a director, officer or employee of
the Company. Stock options issued under the 1995 Plan are non-transferable. Any stock option granted which is cancelled
or terminated for any reason prior to exercise is returned to the pool and becomes available for future stock option grants. In
the event that the stock option would otherwise expire during a restricted trading period, the expiry date of the stock option is
extended to the 10th business day following the date of expiry of such period. In addition, the 1995 Plan restricts the grant of
stock options to insiders that may be under the 1995 Plan.
Under the Company’s 2006 Stock Option plan (the “2006 Plan”), the shareholders have approved a maximum of 2,159,000
common shares for issuance. The terms of the 2006 Plan are identical to those of the 1995 plan, except that the maximum
number of common shares to be issued pursuant to the issue of options under the 2006 Plan is 2,159,000 common shares.
As at March 31, 2014, there are a total of 877,474 (March 31, 2013 – 1,229,762) common shares remaining for future stock
option grants under both plans.
ATS AuTomATion Tooling SySTemS inc. /76
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) Years ended March 31
Stock options outstanding, beginning of period
Granted
Exercised i
Forfeited/cancelled
Stock options outstanding, end of period
Stock options exercisable, end of period, time vested options
Stock options exercisable, end of period, performance based options
2014
Weighted
average
exercise
price
7.39
11.50
5.99
8.61
8.81
6.88
9.49
$
$
$
$
Number of
stock
options
7,011,842
596,000
(2,942,254)
(243,712)
4,421,876
1,145,210
1,964,416
2013
Weighted
average
exercise
price
7.38
8.92
6.13
9.72
7.39
6.66
6.75
$
$
$
$
Number of
stock
options
7,391,080
690,000
(411,538)
(657,700)
7,011,842
1,465,193
2,166,935
(i) For the year ended March 31, 2014, the weighted average share price at the date of exercise was $13.41 (March 31, 2013 – $9.24).
As at March 31, 2014
Stock options outstanding
Stock options exercisable
Range of
exercise prices
$3.49 to 6.92
$6.93 to 8.62
$8.63 to 10.51
$10.52 to 13.58
$3.49 to 13.58
Weighted
average
remaining
contractual
life
3.48 years
3.50 years
5.34 years
6.46 years
$
4.73 years
$
Weighted
average
exercise
price
6.40
7.90
9.30
11.23
8.81
Number
exercisable
692,500
1,232,000
423,334
761,792
$
3,109,626
$
Weighted
average
exercise
price
6.25
7.95
9.53
11.00
8.53
Number
outstanding
963,500
1,304,250
822,334
1,331,792
4,421,876
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 a
stock price performance threshold for a specified minimum number of trading days, the options vest. When the performance-
based stock 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.
The fair values of the Company’s stock options issued during the periods presented were estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted average assumptions. Expected stock price volatility
was determined at the time of the grant by considering historical share price volatility. Expected stock option grant life was
determined at the time of the grant by considering the average of the grant vesting period and the grant exercise period.
Years ended March 31
Weighted average risk-free interest rate
Dividend yield
Weighted average expected volatility
Weighted average expected life
Number of stock options granted:
Time vested
Weighted average exercise price per option
Weighted average value per option:
Time vested
77/ ATS AuTomATion Tooling SySTemS inc.
2014
1.51%
0%
42%
4.75 years
2013
1.59%
0%
52%
4.75 years
596,000
11.50
4.33
$
$
690,000
8.92
3.99
$
$
SHARe APPReciATion RigHTS: During the year ended March 31, 2014 the Company granted 500,000 share appreciation
rights (“SARs”) (172,500 in the year ended March 31, 2013). The SARs give the employee the right to receive a cash
payment equal to the excess of the market value of a common share of the Company at the time of exercise over the exercise
price of the rights. The SARs granted during the year ended March 31, 2014 vest over eighteen months. The SARs vest upon
successful achievement of certain non-market performance criteria and expire twenty-one months from the date of issue.
The Company’s vested SARs are measured at each reporting date at their fair value.
The fair values of the Company’s unvested SARs are measured at each reporting date using the Black-Scholes option pricing
model with the following weighted average assumptions. Expected stock price volatility was determined by considering
historical share price volatility. The expected SARs grant life was determined by considering the average of the estimated
grant vesting period and the grant expected life.
Years ended March 31
Weighted average risk-free interest rate
Dividend yield
Weighted average expected volatility
Weighted average expected life
Weighted average exercise price per SAR
Weighted average value per SAR
2014
1.08%
0%
27%
1.37 years
2013
1.32%
0%
43%
4.24 years
$
$
9.93
4.76
$
$
8.87
3.98
The Company has recorded a liability of $1,763 as at March 31, 2014 (March 31, 2013 – $206) based on the SARs fair value
which includes both time based and performance based SARs. The market value of a common share of the Company as at
March 31, 2014 was $14.35 (March 31, 2013 – $9.90). During the year ended March 31, 2014 43,125 SARs vested (nil in the
year ended March 31, 2013).
ReSTRicTeD SHARe uniT PlAn: During the year ended March 31, 2014 the Company granted 138,448 time vesting
restricted share units (“RSUs”) (nil in the year ended March 31, 2013). The RSUs give the employee the right to receive
a cash payment equal to the market value of a common share of the Company. During the year ended March 31, 2014 the
Company granted 86,000 performance-based RSUs (nil in the year ended March 31, 2013). The performance-based RSUs
vest upon successful achievement of certain operational and share price targets. The performance-based RSUs give the
employee the right to receive a cash payment based on the market value of a common share of the Company. The weighted
average remaining vesting period for the time vesting RSUs and performance-based RSUs are 1.2 years and 1.4 years
respectively. The RSUs liability is recognized quarterly based on the expired portion of the vesting period and the change
in the Company’s stock price. At March 31, 2014, the value of the outstanding liability related to the RSU plan was $1,148
(March 31, 2013 – $nil).
commiTmenTS AnD conTingencieS
The minimum operating lease payments, related primarily to facilities and equipment, and purchase obligations are as follows:
From continuing operations:
Less than one year
One – two years
Two – three years
Three – four years
Four – five years
Due in over five years
Operating
leases
Purchase
obligations
$
6,293
5,113
4,460
2,326
1,764
3,777
$
23,733
$
$
59,277
835
—
—
—
—
60,112
ATS AuTomATion Tooling SySTemS inc. /78
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) The Company’s off-balance sheet arrangements consist of purchase obligations and various operating lease financing
arrangements related primarily to facilities and equipment which have been entered into in the normal course of business.
The Company’s purchase obligations consist primarily of raw materials purchase commitments.
In accordance with industry practice, the Company is liable to customers for obligations relating to contract completion and
timely delivery. In the normal conduct of its operations, the Company may provide bank guarantees as security for advances
received from customers pending delivery and contract performance. In addition, the Company provides bank guarantees for
post-retirement obligations and may provide bank guarantees as security on equipment under lease and on order. At March
31, 2014, the total value of outstanding bank guarantees under credit facilities was approximately $95,250 (March 31, 2013 –
$68,319) from continuing operations and was $2,125 (March 31, 2013 – $3,700) from discontinued operations.
In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. 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.
SegmenTeD DiScloSuRe
Solar is currently classified as assets and liabilities associated with discontinued operations in the consolidated statements
of financial position and as discontinued operations in the consolidated statements of income. As a result, the Company’s
continuing operations are reported as one operating segment, ASG.
Geographic segmentation of revenues is determined based on the customer’s installation site. Non-current assets represent
property, plant and equipment and intangible assets that are attributable to individual geographic segments, based on location
of the respective operations.
As at
Canada
United States
Germany
Other Europe
Asia – Pacific and other
Total Company
As at
Canada
United States
Germany
Other Europe
Asia – Pacific and other
Total Company
Revenues from external customers for the years ended March 31
Canada
United States and Mexico
Germany
Other Europe
Asia – Pacific and other
Total Company
79/ ATS AuTomATion Tooling SySTemS inc.
Property, plant
and equipment
$
$
31,016
21,483
22,863
6,380
3,670
85,412
Property, plant
and equipment
$
$
$
32,651
20,291
17,172
5,726
3,429
79,269
2014
34,753
293,650
106,034
86,364
162,560
March 31
2014
Intangible
assets
9,774
6,140
94,899
119
366
$
$
111,298
March 31
2013
Intangible
assets
7,194
2,299
17,911
94
117
27,615
2013
14,233
248,270
80,472
99,821
148,302
$
$
$
$
683,361
$
591,098
For the years ended March 31, 2014 and March 31, 2013, the Company did not have revenues from any single customer which
amounted to 10% or more of total consolidated revenues.
inTeReST in JoinT oPeRATionS
During the year ended March 31, 2010, Ontario Solar entered into an agreement to establish Ontario Solar PV Fields Inc.,
a joint operation. Ontario Solar PV Fields Inc. is a joint arrangement with both parties involved having joint control with rights
to the assets, and obligations for the liabilities, relating to the arrangement and accordingly, the Company recognizes its 50%
share of assets, liabilities, revenues and expenses in the consolidated financial statements. Ontario Solar PV Fields Inc. is
currently presented as assets and liabilities associated with discontinued operations in the consolidated statements of
financial position and as discontinued operations in the consolidated statements of income.
The following is a summary of the Company’s share of the joint operation:
As at
Current assets
Current liabilities
Net assets
Years ended March 31
Net income (loss)
neT FinAnce coSTS
Years ended
Interest expense
Interest income
eARningS (loSS) PeR SHARe
Years ended
Weighted average number of common shares outstanding
Dilutive effect of stock option conversion
Diluted weighted average number of common shares outstanding
March 31
2014
7,394
(6,479)
915
2014
9,874
March 31
2014
3,248
(232)
3,016
$
$
$
$
March 31
2013
7,395
(2,666)
4,729
2013
(265)
March 31
2013
2,232
(219)
2,013
$
$
$
$
March 31
2014
88,932,165
1,151,962
90,084,127
March 31
2013
87,577,078
1,205,933
88,783,011
For the year ended March 31, 2014, stock options to purchase 670,000 common shares are excluded from the weighted
average number of common shares in the calculation of diluted earnings per share as they are anti-dilutive (2,741,572
common shares were excluded for the year ended March 31, 2013).
ATS AuTomATion Tooling SySTemS inc. /80
Notes to Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts)
cAPiTAl mAnAgemenT
The Company’s capital management framework is designed to ensure the Company has adequate liquidity, financial resources
and borrowing capacity to allow financial flexibility and to provide an adequate return to shareholders. The Company defines
capital as the aggregate of equity (excluding accumulated other comprehensive income), bank indebtedness, long-term debt
and cash and cash equivalents.
The Company monitors capital using the ratio of total debt to equity. Total debt includes bank indebtedness, and long-term debt
as shown on the consolidated statements of financial position. Net debt consists of cash and cash equivalents less total debt.
Equity includes all components of equity, less accumulated other comprehensive income. This is unchanged from the previous
year. The Company also monitors an externally imposed covenant of debt to EBITDA of not greater than 3 to 1. EBITDA includes
net income from continuing operations less income taxes, net finance charges, depreciation and amortization. For the years
ended March 31, 2014 and March 31, 2013, the Company operated with a ratio well below the externally imposed covenant. The
Company is prepared to increase the total debt to equity ratio and net debt to EBITDA ratio if appropriate opportunities arise.
The capital management criteria can be illustrated as follows:
As at
Equity excluding accumulated other comprehensive income
Long-term debt
Bank indebtedness
Cash and cash equivalents
Capital under management
Debt to equity ratio
RelATeD PARTy DiScloSuRe
$
March 31
2014
481,568
5,139
913
(76,466)
$
March 31
2013
398,727
1,175
—
(105,453)
$
411,154
$
294,449
0.01:1
0.01:1
Transactions between each subsidiary and the subsidiaries and parent are eliminated on consolidation. The Company did
not have any material related party transactions with entities outside the consolidated group in the years ended March 31,
2014 and March 31, 2013. The remuneration of the Board of Directors (the “Board”) and key management personnel is
determined by the Board on recommendation from the Human Resources Committee of the Board:
As at
Salaries and benefits
Other non-equity incentive compensation
Stock-based compensation
Post-retirement benefits
Total remuneration
$
March 31
2014
2,435
2,111
4,592
945
$
10,083
March 31
2013
2,129
1,088
2,034
882
6,133
$
$
Stock-based compensation represents the remuneration of the Board and key management personnel as reported in the
consolidated statements of income stock-based compensation expense.
81/ ATS AuTomATion Tooling SySTemS inc.
Shareholder Information
coRPoRATe HeADQuARTeRS
SenioR mAnAgemenT – coRPoRATe
730 Fountain Street North
Cambridge, Ontario
Canada, N3H 4R7
Tel: +1-519-653-6500
inVeSToR RelATionS conTAcT
Carl Galloway
Tel: +1-519-653-6500
Email: investor@atsautomation.com
STocK excHAnge liSTing
Toronto Stock Exchange “ATA”
RegiSTRAR AnD TRAnSFeR AgenT
Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
WeBSiTe
www.atsautomation.com
SHAReHolDeRS’ AnnuAl meeTing
Thursday, August 14, 2014
10:00 a.m. Eastern
Holiday Inn & Conference Centre
Kitchener, Ontario
anthony caputo
Chief Executive Officer
maria perrella
Chief Financial Officer
dr. nedim cen
Chief Strategy Officer
carl Galloway
Corporate Vice-President, Treasurer
charles Gyles
Corporate Vice-President, Organizational Effectiveness
ronald Keyser
Chief Information Officer
Stewart mccuaig
Corporate Vice-President, General Council
SenioR mAnAgemenT – oPeRATionS
helmut hock
Senior Vice-President, ASG Transportation
Sandra Ketchen
Senior Vice-President, ASG Products
Eric Kiisel
Senior Vice-President, ASG Energy & Industry
tom Kramer
Senior Vice-President, ASG Life Sciences
ATS AuTomATion Tooling SySTemS inc. /82
Shareholder Information Board of Directors
neil D. ARnolD (1, 3)
Mr. Arnold has over 35 years of experience in public company finance and general management. Most recently, he served as
Executive Chairman of the Board of Directors of WHX Corp., a public holding company for primary industrial businesses. He
also served as Group Finance Director of Lucas Varity, PLC, a public company providing components and systems to the global
aerospace and automotive industries with revenues in excess of $7 billion. Prior to that Mr. Arnold was Chief Financial Officer
of Varity Corporation (previously Massey-Ferguson Ltd.). He has served as a director of Lucas Varity, and WHX Corp. At present
Mr. Arnold is a Director of Pembroke College Foundation of North America Inc. Mr. Arnold earned a B.A. in Engineering Science
from Pembroke College, Oxford University and is a Fellow of the Chartered Institute of Management Accountants (UK).
AnTHony cAPuTo
Mr. Caputo is the Chief Executive Officer of ATS Automation Tooling Systems Inc. As an experienced senior executive he brings
a solid track record of over 25 years of delivering performance, growth and value creation in technology, manufacturing and service
environments. Most recently Mr. Caputo served as Corporate Vice-President, President and COO of L-3 Communications, and prior
to that he was the President and CEO of Spar Aerospace. Mr. Caputo holds a Bachelor of Technology in Engineering from Ryerson
University and a Master of Science in Organizational Development from Pepperdine University.
micHAel e. mARTino (2, 3)
Mr. Martino is a founder and principal of Mason Capital Management LLC. Mr. Martino began his investment career at
Oppenheimer & Company where he was responsible for risk arbitrage research; he ended his tenure at Oppenheimer
as Executive Director, Risk Arbitrage. He began his business career at GE Capital Corporation where he held positions in
information systems and business analysis. He was formerly a director of Spar Aerospace Limited, a publicly-traded
aerospace company. Mr. Martino graduated from Fairfield University with a degree in Political Science and earned a Masters
in Business Administration in Finance and International Business from New York University’s Stern School of Business.
DAViD l. mcAuSlAnD (3)
Mr. McAusland, the Chairman of the Board of Directors, is a senior corporate strategist, advisor and lawyer who is a partner
in the law firm McCarthy Tétrault. Previously, Mr. McAusland was Executive Vice-President, Corporate Development and Chief
Legal Officer of Alcan Inc. where he provided leadership on its worldwide mergers, growth strategies, major transactions
and capital investments. Mr. McAusland currently acts as director of Cogeco Inc./Cogeco Cable Inc., Cascades Inc., Khan
Resources Inc., and Chairman of Montrusco Bolton Investments Inc. Mr. McAusland is also involved with several not-for-profit
organizations: he is the Chairman of the Montreal General Hospital Foundation and Chairman of the National Circus School
Foundation. Mr. McAusland received his B.C.L. in 1976 and his LL.B. in 1977, both from McGill University.
83/ ATS AuTomATion Tooling SySTemS inc.
goRDon e. PReSHeR (1, 2)
Mr. Presher is a uniquely qualified entrepreneur and technologist, possessing expertise and experience in both the automation
technology and solar industries. He is the Co-Founder, Chairman and Chief Executive Officer of Solar Sentry Corp., a seed-stage
developer of innovative monitoring equipment for the solar energy industry. Prior to Solar Sentry Mr. Presher was Chairman
and Chief Executive Officer of Ormec Systems Corp., a factory automation firm specializing in precise motion control. He held
this position in the automation controls and systems industry for twenty years. He began his career as an automation-controls
engineer at Eastman Kodak Company, progressing to project leader on two key corporate automation projects. Mr. Presher
holds a Bachelor of Science in Physics and Math from Houghton College, and a Bachelor of Science in Electrical Engineering
from University of Rochester.
iVAn RoSS (1, 2)
Mr. Ross joined Mason Capital Management in 2011 where he is currently a research analyst. Mr. Ross has over 25 years
of experience in the financial industry. From 1992 to 2011, he worked at Goldman Sachs and spent most of his time in the
Investment Banking Division’s Corporate Finance and New Products Department, which he ran for many years as a Partner of
the firm (promoted to Partner in 2002). Mr. Ross began his career in 1986 as a tax lawyer at Skadden, Arps in New York where
he advised and structured complex merger and financing transactions. He holds a BS in Economics from the Wharton School,
University of Pennsylvania (1983), and a J.D. from New York University School of Law (1986), where he was a member of the
Order of the Coif and the Annual Survey of American Law. Mr. Ross currently serves on the Board of Directors of Mimeo.com,
a business to business print and document services business headquartered in New York. He also serves as a member of the
Board of Overseers at each of the Jacobson Leadership Program in Law and Business at New York University School of Law,
and the Katz Center for Advanced Judaic Studies at the University of Pennsylvania.
DARyl c.F. WilSon (2,3)
Mr. Wilson is the President, CEO and director of Hydrogenics Corporation, a Canadian public company and hydrogen technology
provider. Prior to joining Hydrogenics he was VP Manufacturing and Operations with Royal Group Technologies and Zenon
Environmental Inc. Preceding that he served on the senior management team of Toyota Motor Manufacturing Canada. Mr.
Wilson has been National Chair of the Environmental Quality Committee of the CMA. Mr. Wilson holds an MBA in Operations
Management/Management Science from McMaster University; a Bachelor of Science in Chemical Engineering from the
University of Toronto; and has obtained a Chartered Director designation (C.Dir.).
(1) Member of Audit and Finance Committee.
(2) Member of Human Resources Committee.
(3) Member of the Corporate Governance and Nominating Committee.
ATS AuTomATion Tooling SySTemS inc. /84
Board of Directors www.atsautomation.com