Setting the Standard - ATS Automation/media/Media/Documents/12 Inves… · designers and producers of turn-key automated manufacturing and ... total of 365,000 square feet when completed

Setting the Standard

1 9 9 8 A n n u a l R e p o r t

C o r p o r a t e P r o f i l e

ATS Automation Tooling Systems Inc. is one of the world’s leading

designers and producers of turn-key automated manufacturing and

test systems which are used primarily by multinational corporations

operating in a variety of industries: automotive, computer/electronics,

consumer products and healthcare to reduce costs, improve quality

and expand capacity.

Using its own custom-built manufacturing systems, process knowledge

and automation technology, the Company is also a high volume

manufacturer of plastic and metal precision components and

sub-assemblies for automotive, microelectronics and other customers.

Through equity investments and strategic partnerships, ATS also has

opportunities to lever its core technologies and capabilities for

significant growth in emerging markets.

ATS employs approximately 2,500 people at 18 facilities in Canada,

the United States, Europe and Asia-Pacific. The Company’s two main

operating Groups, Automation Systems and Precision Components,

share technology, knowledge, customers and conduct joint strategic

marketing to expand business opportunities. ATS’ shares are traded

on The Toronto Stock Exchange under the symbol ATA.

Stock Performance of ATS Common Shares ($)

3Q 94

4Q 94

1Q 95

2Q 95

3Q 95

4Q 95

1Q 96

2Q 96

3Q 96

4Q 96

1Q 97

2Q 97

3Q 97

4Q 97

1Q 98

2Q 98

3Q 98

4Q 98

0

300

600

900

1200

1500

Market capitalization at March 31, 1998

$1,410.3 million

ATA

TSE 300

Market capitalization at December 22, 1993 $76.6 million

S t r a t e g i c O b j e c t i v e

ATS Automation Tooling Systems Inc. is

dedicated to achieving profitable growth

by providing value-added technologies

and capabilities which enable cus-

tomers to reduce costs, accelerate new

product introductions, and improve

product quality.

ATS employs the following tactics to meet

this strategic objective:

➤ Targets expanding global manufacturers

of highly-engineered products in a variety

of industrial sectors.

➤ Develops long-term, strategic alliances

with customers in order to become an

extension of their internal manufacturing

or production resources.

➤ Continually develops its leading edge

automation technology capabilities and

toolkit of standard products.

➤ Levers its Automation Systems and

Precision Components resources and

capabilities to develop new opportunities

for both business Groups.

➤ Enters new geographic regions in

response to the needs of its multinational

customer base.

➤ Invests in emerging businesses which

have strong management, good growth

prospects, and can significantly benefit

from ATS’ core technologies.

‰ Graph compares the value of $100 investedin ATS common shares at time of issue onDecember 22, 1993 with $100 invested in The Toronto Stock Exchange 300 index.

1

(in thousands, except per share amounts) Fiscal 1998 Fiscal 1997

F i n a n c i a l R e s u l t s

Revenue $ 402,920 $ 249,802Earnings from operations $ 45,984 $ 32,101Net earnings $ 27,362 $ 19,597

P e r S h a r e

Net earnings per share* $ 0.52 $ 0.39Weighted average number

of shares outstanding* 53,010,063 50,000,966

F i n a n c i a l P o s i t i o n

Total assets $ 423,519 $ 236,063Shareholders’ equity $ 268,206 $ 143,066

*all years reflect two-for-one stock splits in November 1996 and November 1997

Consolidated Revenue by Group (by fiscal year, millions $)

Earnings from Operations (by fiscal year, millions $)

0

10

20

30

40

50

Net Earnings

(by fiscal year, millions $)

Earnings per Share (by fiscal year, $)

0

0.10

0.20

0.30

0.40

0.60

0.50

0

5

10

15

20

25

30

0

75

150

225

300

375

450

Precision ComponentsAutomation Systems

$5.6 million unusual transaction gain

12 cents per share unusual transaction gain

94 95 96 97 98 94 95 96 97 9894 95 97 98

94 95 96 97 98 94 95 96 97 9894 95 96 97 98

Consolidated revenue has

increased at an average

annual compound rate

of 39% over five years;

Automation Systems Group

at 40% and Precision

Components Group at 37%.

Net earnings have grown

56% on an average

annual compound basis

over five years.

Earnings from operations

have increased at an

average annual compound

rate of 44% over five years.

Earnings per share

increased 34% on a

five-year average

annual compound basis.

F i n a n c i a l H i g h l i g h t s For the years ended March 31

Setting the StandardThis growing momentum reflects the strategic investments ATS has made

over the last few years to broaden its technological capabilities and strengthen

its global presence.

In fiscal 1998, all ATS operations produced substantial growth while the

Company continued to invest for future returns. Notably:

‰ Consolidated revenue increased 61% to $402.9 million with

Automation Systems Group revenue up 62% and Precision

Components Group revenue ahead 60%.

‰ 24% or $36.2 million of the increase in consolidated revenue came

from three acquisitions made in the first month of fiscal 1998: two

European-based companies and a new precision cleaning technology.

‰ A total of $17.4 million was invested in new facilities, which will add a

total of 365,000 square feet when completed early in fiscal 1999.

Including additional leased space, total square footage was 1.2 million

at March 31, 1998.

‰ 800 new employees were recruited and trained and 200 more were

added through the acquisitions completed early in the year.

‰ Growth was registered in all of the Company’s targeted geographic and

industrial markets.

‰ Order bookings for automation systems were ahead 16% to

$271.8 million.

‰ Order backlog for automation systems was $93.7 million versus

$131.4 million at year-end fiscal 1997. This latest number does not

include approximately $16 million worth of systems in backlog for

internal use by ATS Precision Components Group.

‰ Net earnings increased 40% to $27.4 million (52 cents per share basic,

50 cents fully diluted).

L e t t e r t o S h a r e h o l d e r s

ATS achieved record financial results in fiscal 1998. It also signed the

largest contract in its history which will begin to make material

contributions to financial results in fiscal 1999.

2

Klaus D. Woerner, ATS President and Chief Executive Officer (left)Lawrence G. Tapp, Non-ExecutiveChairman of the Board (right)

Bringing this performance into sharp

perspective, ATS has achieved its

objective, set in 1996, of doubling

revenue by the year 2000, two years

ahead of schedule. This has been

accomplished with a five-year annual

compound growth rate in revenue of

39%. Importantly, this expansion has

been extremely profitable. Net earn-

ings, on the same compound annual

basis, have grown 56%.

To ensure this track record is

extended, the Company will main-

tain its core strategic focus. ATS will

continue to be a value-added sup-

plier of technologies and capabilities

which offer customers rapid payback,

reduced manufacturing costs,

improved quality and quick time to

market for their new products.

Looking forward, through increased

size, technical capability and lever-

ing on past success, ATS intends to

secure additional opportunities in

both existing and new markets, espe-

cially in areas which provide the

potential for multiple unit sales of

automation systems and new preci-

sion components orders.

In fiscal 1999, ATS will underscore

its commitment to this strategy

by emphasizing the following

three areas:

1. Broaden ATS’ automation toolkit

and exploit niche markets for stan-

dardized automation solutions. To

drive revenue and earnings higher and

to provide enhanced manufacturing

solutions to its customers, ATS

has embarked on a program to

further standardize and expand the

technology, products and processes

that make up its automation toolkit.

The advantages of increasing the

Company’s turn-key solutions are

threefold. Customers benefit from

both faster delivery times and lower

technical risk from proven ATS tech-

nology and yet still receive powerful,

innovative and readily redeployable

solutions with rapid payback periods.

At the same time, ATS is able to

expand productivity and margins with-

out the proportionate need to add

new employees and facilities. Most of

all, by increasing functional capability

and reducing costs, ATS can drive

automation into new markets.

The ability to offer proprietary

standard products of unparalleled

quality and proven capability was an

underlying reason ATS was able to

secure a multi-year, multi-million dol-

lar contract with a major Fortune 500

microelectronics manufacturer in the

second quarter of 1998 (see page 10).

3

Consolidated Revenue by Industry (by fiscal year, millions $)

OtherComputer/ElectronicsAutomotive

0

75

150

225

300

375

450

94 95 96 97 98

Consolidated Revenue by Region (by fiscal year, millions $)

0

75

150

225

300

375

450

94 95 96 97 98

EuropeU.S. & MexicoCanada

Asia-Pacific

In fiscal 1999, ATS again plans to

broaden and enhance its toolkit by

completing development of Super-

track, a unique fully programmable,

pallet-based transport system which

is expected to be launched in the fall

of 1998. ATS will also enhance its

Superbot™ programmable manipu-

lators, and will develop low cost CNC

turning and machining systems.

Enhancements to Eco-Snow™

precision cleaning technology are

underway to improve its potential

within the computer disk drive and

semiconductor markets.

As well, ATS is exploring opportu-

nities to produce multiple, standard,

automated workcells in new growth

markets such as healthcare and pack-

aging. The advantages of this thrust

include the potential for multiple unit

sales and additional profitable

growth. These new opportunities

exist because ATS has the technol-

ogy and the capabilities to add value

in the design and manufacture of

specialized automated systems that

can meet targeted market needs. To

ensure this initiative is successful, ATS

is partnering with leading-edge

suppliers to these industries, such as

MDS Inc. and Micro Optics Design

Corporation (see page 15).

2. Invest in targeted business

expansion. Consistent with its goals

of increasing productivity and serv-

ing its expanding multinational

customer base, ATS is establishing

two new operations for fiscal 1999.

ATS Niagara, based in Oakville

Ontario, will provide additional engi-

neering support to ATS Test Systems,

while also producing smaller automa-

tion systems from a 28,000 square

foot plant, freeing the Company’s

Cambridge, Ontario facility to focus

on larger projects. Precision

Components Group plans to open a

40,000 square foot satellite opera-

tion in southern Texas in the third

quarter. This facility will better serve

its existing customer base in the

burgeoning Mexican market and in

the southern U.S. and will help

Precision Components to secure new

business in the region.

3. Target strategic growth. Signifi-

cant opportunities exist for ATS to

maximize its market presence and

take advantage of customers’ evolv-

ing outsourcing needs. In fiscal 1999,

the Company intends to implement a

more formalized strategic marketing

plan built on customer and market

development. Specific accounts have

been targeted which management

4

L e t t e r t o S h a r e h o l d e r s ( c o n t ’ d )

Consolidated Revenue per Employee (by fiscal year, thousands $)

94 95 96 97 98$0

$50

$100

$150

$200

0

700

1,400

2,100

2,800

Number of Employees

Capital Expenditures (by fiscal year, millions $)

0

30

20

10

40

50

60

94 95 96 97 98

believes provide long-term opportu-

nities for profitable growth. Increases

are planned in sales staff and service

capabilities and an account manage-

ment strategy will be utilized.

Outlook Progress in fiscal 1999 is

expected to be rapid and orderly.

ATS has now created the core infra-

structure required to support new

growth. Management has been fur-

ther strengthened and the continued

adoption of quality programs is

improving productivity and efficiency.

Recruitment and training of quality

staff remain top priorities. ATS has

been able to draw on a pool of

apprentices, qualified tradespeople

and engineers who are in short sup-

ply. Through several multi-year

commitments, the Company has

solidified partnerships with leading

educational institutions to assist in

the development of skills appropri-

ate to a future-oriented, applied

technology business environment.

ATS expects consolidated revenue

to increase substantially in fiscal 1999.

To date, order bookings and quota-

tion activity for automation systems

are healthy. Due to the magnitude of

the new microelectronics contract,

the fastest rate of growth will be

experienced by Precision Components

Group. The contract is expected to

contribute materially to revenue and

earnings in fiscal 1999.

In its 20th year of business, ATS

expects to add to its outstanding

track record of profitable growth. Our

goal is to set the standard of perfor-

mance for both our customers and

shareholders. With a powerful toolkit

of proprietary technologies, an expe-

rienced and capable work force,

expanded capacity, strong balance

sheet and favourable cash position

we are ready to achieve this goal in

the new year.

We extend a sincere thank you to

those who have made our first two

decades a very prosperous period.

We look forward to providing real

and increasing value well into the

new millennium.

5

Engineers, Technicians 39% Skilled trades and apprentices 22% Semi-skilled operators and others 39%

Employee Skillsets (at March 31, 1998)

Lawrence G. Tapp (signed)Non-Executive Chairman of the Board

Klaus D. Woerner (signed)President and Chief Executive Officer

June 12, 1998

Cash Flow from Operations (by fiscal year, millions $)

94 95 96 97 980

10

20

30

40

60

50

Accounting for 77% of total revenue

in the year, Automation Systems

Group serves a growing, multi-

national customer base as a

provider of turn-key, state-of-the-art

automated manufacturing and

test systems.

These systems are designed and

produced by ATS, using an expand-

ing range of proprietary standard

technology (from the Company’s

automation toolkit) as well as third

party equipment and products which

are integrated as required.

Automated systems are in de-

mand — and ATS has become a

recognized world leader in this grow-

ing industry — because they help

customers reduce costs, increase

quality and capacity and utilize

advanced technology and processes

in their manufacturing operations.

A key element of the Company’s

growth strategy is diversification. The

diversification achieved by the Group,

both geographically and by industry,

not only provides ATS with access to

a range of markets from which to gen-

erate revenue, it adds to the Group’s

experience and knowledge and

reduces cyclical risks. It also creates

new opportunities for ATS Precision

Components Group, which is linked

to Automation Systems through joint

marketing efforts and the transfer of

knowledge and technology.

Fiscal 1998 was another highly successful year for ATS Automation

Systems Group. At $309.5 million, revenue was ahead 62% over the

previous year and growth was registered in all of the Group’s targeted

geographic and industrial markets.

To better serve its multinational

customer base and to generate addi-

tional growth, Automation Systems

Group took action on several fronts in

fiscal 1998. Most notably, the Group:

‰ Expanded its Machine Tool divi-

sion which was created by ATS in

fiscal 1997 to produce specialized,

high performance, high-volume

machining systems for a wide vari-

ety of customers. From a standing

start less than two years ago, this

division produced revenue of

$14.0 million in fiscal 1998 and

6

A u t o m a t i o n S y s t e m s G r o u p

Automation Systems Group Revenue by Industry (by fiscal year, millions $)

94 95 96 97 98

OtherComputer/ElectronicsAutomotive

0

50

100

150

200

250

300

350

Automation Systems Group Revenue by Region (fiscal 1998)

Canada 7%U.S. & Mexico 62%Europe 20%Asia-Pacific 11%

ATS standard tray handling system with ATSSuperbot™ (“H-Bot”) to load raw parts andunload finished assemblies.

S e t t i n g n e w s t a n d a r d s i n a u t o m a t e d m a n u f a c t u r i n g

Lorem ipsum dolor sit amet,consectetuer adipiscing elit,sed diam nonummy

ATS SuperTrackTM bi-directional transportsystem, scheduled for introduction in fiscal 1999.

7

Superbot™ (“S-Bot”) sealantdispensing station.

Typical Superbot™ (“T-Bot”)pick and place subassemblystation supporting mainassembly system.

Superbot™ (“S-Bot”) for pick and place ofmultiple component parts.

In-line multiple teststations ensure high linethroughput and quality.

SUPERTRACKTM—An enlarged cross-section of Supertrack™ showinglinear induction motor and electroniccontrols package.

s This computer-generated drawing shows how the new ATS SuperTrackTM

and other standard modular products from the ATS toolkit may be combinedto quickly and cost effectively develop advanced flexible automatedmanufacturing systems.

SuperTrackTM, to be introduced in fiscal

1999, is a significant step forward

in automation transport systems. On

Supertrack™ the direction, acceleration,

speed and positioning of each pallet is

programmable and minimal use of wear

parts makes it very clean. Supertrack™

will provide ATS customers with more

flexible and re-deployable systems

and further extends ATS’ toolkit of

proprietary technology.

firmly established itself in the

market for custom machining and

metal removal equipment.

‰ Played a key role in winning the

major microelectronics contract

awarded to ATS Precision Compo-

nents Group (see page 10) and

supported Precision Components as

it further automated its production

facilities and established a new

Advanced Manufacturing division.

‰ Acquired and refined its Eco-

Snow™ precision cleaning systems

(see page 14). By improving this

revolutionary technology and incor-

porating it into its toolkit, the Group

plans to increase the Company’s

opportunities in the computer disk

drive, semiconductor and flat panel

display markets.

‰ Acquired and integrated

Zihlmann Wickeltechnik, now

renamed ATS Winding & Assembly

Technology. Based in Zurich,

Switzerland, this operation special-

izes in producing motor armature

manufacturing equipment.

‰ Strengthened and expanded its

workforce by recruiting 475 new

employees in key areas such as engi-

neering, applications, skilled trades

and machine operations.

‰ Added to its technology toolkit

through targeted research and devel-

opment. Notable successes were

achieved including the creation of a

new generation of coil winding sys-

tems (trade named CSW 4000).

Investments were also made in the

Company’s Supertrack™ flexible,

programmable pallet-based trans-

port system (shown on the previous

page as an engineer’s drawing). This

innovative, ultra clean, multi-speed

transport system, powered by linear

induction motors (magnetics), is

expected to be ready for commercial

sale by late fiscal 1999. It promises

to offer customers significantly lower

costs and greater capabilities than

conventional one-way belt-driven

conveyors. It should prove ideal for

applications where cleanliness is crit-

ical to the process being automated.

8

A u t o m a t i o n S y s t e m s G r o u p ( c o n t ’ d )

Automation Systems Order Backlog (at March 31, millions $)

94 95 96 97 980

35

70

105

140

Internal backlog

Automation Systems Order Bookings (by fiscal year, millions $)

94 95 96 97 980

75

150

225

300t ASW 1000 motor armature winding system:ATS’ position in the motor manufacturing marketwas significantly enhanced, through furtherdevelopment and an acquisition in fiscal 1998.

t Custom-built machining centre: ATS Machine Tool division, established in fiscal 1997 to serve agrowing niche market for specialized high performance machining systems, generated revenue of$14 million in fiscal 1998.

‰ Established standard products

development and manufacturing

groups to spearhead further

advancements in the Group’s toolkit

and capabilities.

‰ Gained additional penetration

with ATS Superbot™ programmable

manipulators which were incor-

porated in a wide variety of systems

during the year. Superbot™ has

proved to be a valuable solution

which is well positioned to address

customers’ needs for fast, flexible sys-

tems with rapid payback.

‰ Began construction of a 120,000

square foot extension to its Corvallis,

Oregon (Accu-Fab) automation

systems faci l i ty, now nearing

completion, which will help to

increase capacity.

‰ Continued to implement rigor-

ous improvement programs. In fiscal

1998, ISO 9001 standards were

achieved at ATS Test Systems and

Accu-Fab’s facility in Livermore,

California and all ATS operations

sought to enhance quality and

productivity.

Outlook In fiscal 1999, the Group

intends to add to its impressive track

record by continuing to expand its

presence in core automation systems

markets such as automotive and com-

puter/electronics; complete the

development of Supertrack™ on

schedule; fully implement 3D design

systems to increase productivity;

develop additional standard

products and enhance existing tech-

nologies such as Superbot™. The

Group will also: launch ATS Niagara, a

satellite plant in Oakville, Ontario

focused on smaller custom automa-

tion work; implement a refined strate-

gic marketing plan; supply both the

Advanced Manufacturing and

Photowatt divisions within ATS

Precision Components Group with

automated systems to support their

growth; and look for new niche

opportunities for multiple sales of

standard workcells.

It’s an aggressive operating

agenda that will see the Automation

Systems Group expand its work force,

its quality programs and the capabil-

ities of its standard automation

toolkit. It’s also an agenda that

is intended to drive revenue, earn-

ings and market penetration to

new levels.

9

Revenue increased 60% to $93.4 mil-

lion, inroads were made in various

industries and the Group built two

new facilities, totaling 245,000 square

feet, to serve its new microelectronics

contract and to accommodate

growth in the plastic components

market.

Key to the Group’s competitive-

ness and long-term success is its

ability to harness the benefits of

automation to manufacture com-

ponents with high quality and

precision. Working closely with

the Automation Systems Group,

Precision Components serves many

ATS customers through its rapid

prototyping and advanced manufac-

turing capabilities to help them quickly

bring new products to market.

In fiscal 1998, this partnership

between the two Groups produced

record revenue and earnings for ATS.

Yet as impressive as it was, ATS

believes the year was merely an

important stepping stone to greater

future performance for the Company

and its Precision Components Group.

Three factors point to continued

rapid growth.

1) The contract signed with a major

Fortune 500 microelectronics

company will make a material

contribution to revenue and

operating margin beginning in

the new fiscal year.

On all counts, fiscal 1998 was a year of great accomplishment for ATS

Precision Components Group, a high volume manufacturer of highly

engineered components for automotive, microelectronics and solar

energy markets.

Announced on August 7, 1997,

this contract was the largest in the

Company’s history. To secure the

business, ATS competed against con-

tenders from around the world. ATS

10

P r e c i s i o n C o m p o n e n t s G r o u p

Precision Components Group Revenue (by fiscal year, millions $)

94 95 96 97 980

25�

50

75

100

Precision Components Group Revenue by Region (fiscal 1998)

Canada 31%U.S. & Mexico 38%Europe 27%Asia-Pacific 4%

11

t Microelectronics assembly systems: In just over seven months, ATS established a new Advanced Manufacturing division, built a 165,000 square footfacility, selected and trained a work-force of 120 and designed and produced six assembly systems and four machining centres (see next page) to serve its new microelectronics customer. A showcase of ATS’ advanced manufacturing capabilities, the division should provide a basis to attractadditional business in the future.

prevailed because it demonstrated

the potential value it could deliver by

combining its precision components

manufacturing capabilities and

automation expertise. By selecting

ATS, the customer not only got an

experienced precision components

supplier, they secured access to a

Company with world-class quality

systems, leading-edge technologies

and broad automation experience.

In support of this contract, ATS

has now:

‰ Established a new Advanced

Manufacturing division within

its Precision Components operations

to meet the requirements of

this contract.

12

‰ Constructed a new 165,000

square foot manufacturing facility

in Cambridge, Ontario to house

this division.

‰ Selected and trained a work

force of 120 people, many recruited

from within ATS, to meet the cus-

tomer’s needs.

‰ Designed and commissioned, by

March 31, 1998, four machining cen-

tres and six assembly systems for this

contract and is now finalizing the total

amount of equipment that will be

needed for production later in fiscal

1999 and through the year 2000.

‰ Significantly exceeded the cus-

tomer’s exacting quality standards

during a pre-production period.

‰ Shipped $5.4 million worth of

products in the third and fourth quar-

ters as part of pre-production.

‰ Targeted revenue in fiscal 1999

of approximately $100 million from

the contract. (Actual revenue realized

will however be subject to a number

of factors including actual volumes

shipped in the year, demand for

the product being produced and

possible changes in prices.)

‰ Identified opportunities which

can provide the customer with addi-

tional savings.

Fiscal 1999 will be an important

year in this new partnership. ATS

is dedicated to exceeding the

customer’s requirements. Most

importantly, ATS is establishing its

Advanced Manufacturing division

with advanced processes and world-

class systems.

In addition to better serving this

important customer, the facility will

showcase ATS’ extensive technical

and manufacturing capabilities and

provide a platform upon which it will

seek new outsourcing opportunities

for its Precision Components Group.

2) Led by the automotive industry,

multinational companies in all

fields are broadening their

strategic use of component out-

sourcing.

To add value, companies in all

industries are shifting their emphasis

away from component manufactur-

ing and toward final assembly. The

net result of this migration is a grow-

ing opportunity for ATS Precision

Components Group, which has the

expertise to deliver urgently needed,

highly advanced, high volume out-

sourced components for a wide

variety of industries.

In fiscal 1998, the Group extended

its market share by adding customers

and new products. In the automotive

industry itself, which has traditionally

P r e c i s i o n C o m p o n e n t s G r o u p ( c o n t ’ d )

v Microelectronics machining centres: In fiscal1998, ATS Machine Tool division designed andbuilt and installed four machining centres inthe Company’s new Advanced Manufacturingdivision to serve a Fortune 500 micro-electronics customer.

t New ATS Plastics facility: In support of continuedgrowth, Precision Components Group relocated itsPlastics division to a custom-designed, state-of-the-art 80,000 square foot facility in fiscal 1998.

represented the majority of the

Group’s revenues, ATS now enjoys

a high degree of penetration in

important niches, manufacturing

components used in a broad range

of automotive motors (including

antilock brake systems), as well as

power window systems and power

seats. The Group’s capabilities in

both metals and plastics allow

it to be a one-stop supplier for

numerous components that require

both technologies.

Having a broad range of capabili-

ties under one roof is also an

important strategic advantage as

consolidation sweeps the globe. ATS

can provide full solutions, making it a

logical choice for its customers.

By far, one of the most significant

advantages is the Company’s repu-

tation for quality. The standard of

excellence in the automotive industry,

QS9000 registration, was achieved in

February 1996 and has been key to

the Group’s success. In August 1997,

ATS was awarded the Ford Quality

System designation for delivering

defect-free parts for 12 consecutive

months. These achievements open

doors, but it’s consistently high

quality production at the right price

which has kept the work flowing.

3) Demand is increasing for highly

engineered components that

can be produced cost effectively.

Customers in all industries are

designing their products with increas-

ing sophistication. Simultaneously,

they are constantly attempting to

shrink manufacturing costs. Few com-

ponent suppliers in the world can

meet these needs the way ATS can.

The reason is the Company’s tremen-

dous in-house technical capabilities

and dedication to delivering con-

stantly improving investment

payback for its customers. ATS

Precision Components Group is

known for its leading-edge produc-

tion capabilities and efficient,

automated operations.

Competitiveness is also a function

of location. In response to existing

customer demand in the growing

economies of Mexico and southern

Texas and to create new poten-

tial, ATS plans to open a satellite

precision components plant in

McAllen, Texas in the third quarter of

fiscal 1999.

Outlook ATS Precision Compo-

nents started fiscal 1999 in a very

strong position. While the micro-

electronics contract will change

the Group’s growth trajectory, it is

only one of the areas targeted for

revenue expansion.

The emphasis in fiscal 1999 will be

on four areas: continuing to exceed

customer requirements in both micro-

electronics and automotive markets;

showcasing the Company’s Advanced

Manufacturing division to attract new

precision components business;

marketing in conjunction with ATS

Automation Systems Group to

identify more growth potential in

the years ahead; and employing

programs to further reduce costs.

13

While diverse, each element of this

portfolio shares two powerful charac-

teristics: each offers a unique solution

with sizable market potential; and

each can derive significant advantages

by levering ATS’ core capabilities to

improve its commercial viability.

Photowatt International S.A.: This

innovative designer, manufacturer

and marketer of photovoltaic cells

and modules used to convert light

into electricity, was acquired in April

1997. In its first 11 months as part of

ATS, the company made rapid

progress in expanding potential. Key

milestones achieved include:

‰ Securing new customers in the

U.S., Pacific Rim and South America

and strengthening existing relation-

ships by signing several long-term

contracts.

‰ Increasing estimated market

share by two percentage points to 5%

of the world’s solar energy market.

‰ Significantly expanding production

and with the engineering knowledge

of ATS, developing leading-edge

automated production systems (which

will be installed within the next

12 months) to further reduce manu-

facturing costs and increase capacity.

Consumers worldwide are being

attracted to solar power because it is

a clean, renewable source of energy

that does not harm the environment.

With national governments striving

to reduce harmful emissions, solar

energy is an obvious choice for the

future. Presently, consumers are even

willing to pay more for this important

alternative but strides made by

Photowatt, ATS and others are begin-

ning to drive down the cost per watt of

solar energy. This will stimulate even

more demand, yielding an attractive

growth opportunity.

While ATS expected business

expansion to be quick, Photowatt has

exceeded short-term expectations.

Aside from its aggressive approach

to generating new business,

Photowatt is benefiting from a grow-

ing market opportunity and is

continuing to expand production

capacity at accelerated rates.

In the new fiscal year, Photowatt

plans to open its first operation in

North America. The proposed facility

in the southern U.S. will be dedicated

to exploring new methods of silicon

processing—silicon being a key raw

material for photovoltaic cell pro-

duction—to further reduce the

manufacturing costs of photovoltaics.

Eco-Snow™ Precision Cleaning

Systems: A state-of-the-art precision

cleaning technology for removing

particulate from advanced products

such as silicon wafers, Eco-Snow™

was acquired early in the first quarter

of fiscal 1998. Since then, ATS

has engineered enhancements to

Eco-Snow™ to increase yield and

meet the rigorous demands of com-

puter and semiconductor clean room

environments. Extremely fast and

environmentally friendly, Eco-Snow™

offers many advantages over conven-

tional acid or solvent based cleaning

systems, including small footprint and

low cost of ownership. In the third

quarter of fiscal 1999, ATS plans

to launch a new fully automated

Eco-Snow™ cleaning system which is

targeted for use by ATS’ customers in

computer disk drive markets.

Partnerships for emerging markets:

ATS believes there is considerable

promise in emerging markets for

automation such as healthcare and

packaging. To ensure these oppor-

tunities are seized quickly and

efficiently, ATS continues to build rela-

tionships with leading companies in

these sectors. Market knowledge

gained through these partnerships

allows the Company to develop inno-

vative, standard solutions specifically

designed for these niches.

14

E m e r g i n g O p p o r t u n i t i e s

ATS is dedicated to generating a rapid and increasing return by expanding

the use of automation in emerging markets—such as healthcare,

packaging and solar energy—and extending its portfolio of emerging

businesses.

15

For example:

‰ Early in fiscal 1999, ATS invested

U.S. $3.9 million to acquire a 10%

interest in Micro Optics Design

Corporation (MODC) a company

headquartered in Irvine, California.

At the same time, ATS became a

strategic automation supplier for

MODC’s innovative new UltraLab™

Cut & Coat™ System. This new sys-

tem, to be sold to wholesale and

retail optical laboratories, dramati-

cally improves the economics, quality

and consistency of manufacturing

ophthalmic lenses—a market which

Micro Optics estimates at U.S.$750

million per annum. ATS will provide

automation technology to produce

the UltraLab™ workcell. This will

improve the economics of building

UltraLab™ for MODC and offers ATS

the benefits of standardized produc-

tion and the opportunity to generate

new revenue from multiple unit sales.

‰ Over the past two years, ATS has

developed and strengthened its rela-

tionship with MDS Inc., a global

leader in the healthcare industry and

in the emerging market for auto-

mated medical laboratories.

‰ In 1997, ATS formed a joint ven-

ture with Standard Motor Products

Inc. of New York to develop the Heat

Battery, an innovative automotive

product which captures and stores a

vehicle’s engine heat to provide rapid

cabin warming, shorten windshield

defrost time and dramatically reduce

cold start engine emissions. While

the product has been well received

by numerous automobile companies

both in North America and in Europe,

no significant orders for the product

have yet been secured. Testing by

these potential customers is continu-

ing and securing orders for this

product is an important priority.

u Photowatt solar cells: ATS’ solar energycompany has made substantial progress sinceacquisition. Within the next 12 months, ATS will automate Photowatt’s production ofsolar cells to reduce manufacturing costs,increase capacity and make solar energy moreeconomical on a cost per watt basis.

s Micro Optics lens blocker: ATS became a strategic supplier of standard automationworkcells to Micro Optics Design Corporation’srevolutionary UltraLabTM system in early fiscal1999. This positions ATS in a growing nichewithin healthcare markets.

M a n a g e m e n t ’ s D i s c u s s i o n a n d A n a l y s i s

ATS Automation Tooling Systems Inc. (“ATS” or “the Company”) revenue

for the year ended March 31, 1998 increased $153.1 million or 61% to

$402.9 million. With this growth, the Company met its five-year objective

of doubling revenue—set in 1996—two years ahead of schedule.

This substantial growth in revenue led to record profitability in fiscal 1998.

Net earnings reached $27.4 million (52 cents per share basic, 50 cents

per share fully diluted), an increase of 40% over fiscal 1997 net earnings

of $19.6 million (39 cents basic, 37 cents fully diluted). The Company’s

five-year average annual compound rate of growth in net earnings is 56%,

while revenue has grown 39% on the same basis.

Overview

16 A T S 1 9 9 8 A N N U A l R E P O R T

Consolidated Revenue

(by fiscal year, millions $)

Revenue from 3 largest customersRevenue from other customers

0

100

200

300

400

500

94 95 96 97 98

Earnings from Operations (by fiscal year, millions $)

0

10

20

30

40

50

94 95 96 97 9894 95 96 97 98

Operating Margin (by fiscal year, %)

0

3.5

7.0

10.5

14.0

94 95 96 97 98

Net Earnings (by fiscal year, millions $)

0

5

10

15

20

25

30

94 95 96 97 98

Operating Income to Total Assets (by fiscal year, %)

94 95 96 97 980

4

8

12

16

Automation Systems Order Bookings (by fiscal year, millions $)

0

75

150

225

300

94 95 96 97 98

Shareholders’ Equity (at March 31, millions $)

$0

$100

$50

$150

$200

$250

$300

0

0.1

0.2

0.3

0.4

94 95 96 97 98

Automation Systems Backlog by Industry Segment (at March 31, 1998)

Other 12%Computer/Electronics 45%Automotive 43%

Shareholders’ EquityDebt to Equity Ratio

$5.6 million unusual transaction gain

R e v e n u e

(in millions) Fiscal 1998 Fiscal 1997 Fiscal 1996

Automation Systems Group $ 309.5 76.8% $ 191.3 76.6% $ 152.0 77.2%

Precision Components Group 93.4 23.2% 58.5 23.4% 44.9 22.8%

Total revenue $ 402.9 100.0% $ 249.8 100.0% $ 196.9 100.0%

Consolidated Revenue

In fiscal 1998, both operating Groups posted strong revenue growth—the Automation Systems Group achieved

revenue of $309.5 million, 62% ahead of last year, while the Precision Components Group achieved a revenue

increase of 60% to $93.4 million. Three acquisitions made in April 1998, and included in consolidated results for

eleven months of fiscal 1998, contributed approximately $36.2 million to consolidated revenue. Revenue from

repeat customers remained high, accounting for approximately 86% of consolidated revenue in fiscal 1998. In fiscal

1998, the Company’s three largest customers together comprised 23% of consolidated revenue, compared to

31% in fiscal 1997. In fiscal 1998 the group was comprised of Delphi Systems, Hewlett Packard and ITT Automotive.

In fiscal 1997, it consisted of ITT Automotive, Delphi Systems and Kelsey Hayes.

ATS continues to derive the bulk of its revenue from customers outside Canada. This proportion increased to

88% of consolidated revenue in fiscal 1998, from 83% the previous year. While revenue growth was achieved in

each of the Company’s major geographic territories, the rate of growth was greatest in Europe, reflecting the

Company’s acquisitions in fiscal 1998. Revenue from Europe increased to 21% of consolidated revenue from 12% in

fiscal 1997. The U.S. and Mexico remained the Company’s largest market and accounted for 58% of consolidated

revenue in fiscal 1998 (62% in fiscal 1997).

Automation Systems Group Revenue

Automation Systems Group revenue increased $118.2 million in fiscal 1998 reflecting continuing demand for

automation systems technology, the Company’s strong presence within its markets and two acquisitions made

during the year.

These acquisitions included 80% of ATS Winding & Assembly Technology (formerly Zihlmann Wickeltechnik),

a Swiss manufacturer of automated assembly equipment and 100% of Eco-Snow Systems, Inc., a U.S. precision

cleaning technology business. Together, they contributed 7% of the increase in Group revenue in fiscal 1998.

Growth was generated in all industry and geographic sectors, maintaining the diversification of Automation

Systems revenue established over the last several years. The computer/electronics industry, at 46% (49% in fiscal

1997), was the largest contributor to Automation Systems revenue in fiscal 1998. The automotive sector accounted

for 43% of Group revenue, the same as in fiscal 1997. The fastest growing segment was the “other” category, which

encompasses a variety of markets including consumer products, healthcare and packaging, which rose to 12% from

8% of total Group revenue.

A T S 1 9 9 8 A N N U A l R E P O R T 17


Precision Components Group Revenue

In fiscal 1998, Precision Components Group revenue increased $34.9 million to $93.4 million. Revenue generated

by Photowatt, the French manufacturer of solar cells and modules (sometimes called solar panels) acquired in

April of 1997, accounted for the bulk of this increase. Excluding the effect of this acquisition, the increase in Group

revenue for fiscal 1998 over fiscal 1997 would have been approximately 12%.

As expected, the microelectronics contract won by the Precision Components Group in the summer of 1997 did

not contribute to revenue in fiscal 1998, since it was in the pre-production phase throughout the period. Expenses

on this new precision components order, net of $5.4 million of shipments, were deferred in the pre-production

period, and will be amortized over the balance of the contract on a units of production basis. The pre-production

period on orders typically ends upon the achievement of certain specified criteria related to the launch of the order,

which were met for the microelectronics contract at March 31, 1998. Revenue and operating results from this

contract will be reflected in the Company’s Consolidated Statement of Earnings commencing with the first quarter

of the 1999 fiscal year.

Automotive industry customers accounted for 69% of Group revenue in fiscal 1998, compared with 98% in fiscal

1997, with the change primarily related to Photowatt’s revenue from the sale of solar cells and modules. The pro-

portion of Precision Components revenue derived from customers outside the automotive industry is expected to

increase in 1999 (see “Outlook”).

E a r n i n g s f r o m O p e r a t i o n s


Consolidated revenue $ 402.9 100.0% $ 249.8 100.0% $ 196.9 100.0%

Cost of revenue 305.1 75.7% 187.7 75.1% 150.5 76.4%Depreciation and amortization 12.9 3.2% 7.1 2.8% 5.5 2.8%General and administrative 38.9 9.7% 22.9 9.2% 18.0 9.2%

Total operating expenses 356.9 88.6% 217.7 87.1% 174.0 88.4%

Earnings from operations $ 46.0 11.4% $ 32.1 12.9% $ 22.9 11.6%

Earnings from operations for fiscal 1998 were $46.0 million, a 43% increase over the $32.1 million reported in fiscal

1997. The increase was primarily the result of the 61% growth in revenue. Operating margins of 11.4% in fiscal 1998

were in line with targeted operating margins of between 11 and 12 percent. However, as expected, operating

margins were lower than the record margins of 12.9% achieved in fiscal 1997. The fiscal 1998 decrease in operating

margin was primarily the result of:

➤ Significantly higher proportionate expenditures on subcontracting to supplement the Company’s internal

manufacturing operations, and higher levels of overtime premiums and incentives for employees to increase

internal capacity.



➤ An addition of over 800 new employees (excluding acquisitions) to support growth in fiscal 1998.

➤ Increased expenditures on research and development activities to further a number of initiatives underway includ-

ing new standard products, Eco-Snow™, the Heat Battery and process development for Photowatt (research and

development expenses are included in “cost of revenue” on the Consolidated Statements of Earnings).

➤ Higher proportionate level of general and administrative expenses arising from the expansion of sales and

administrative functions to support the Company’s growth, and higher profit sharing provisions reflecting the

increased earnings of ATS. Also, approximately $0.4 million was spent in the fourth quarter to relocate the

Precision Components’ Plastics division to its new facility in Cambridge.

During fiscal 1998, the Company utilized a significantly higher percentage of its Automation Systems Group

resources to design and produce automation systems for the ATS Precision Components Group. These systems are

required to expand Precision Components’ manufacturing capacity, particularly for the large microelectronics con-

tract served by the Advanced Manufacturing division. While manufacture of automation systems for internal use

consumes capacity, it does not generate operating margin. This activity is expected to continue in fiscal 1999 as

automation systems are built to facilitate further planned expansion of the Precision Components Group.

As expected, the acquisitions made in fiscal 1998 did not contribute to earnings from operations, reflecting

planned development expenditures in Eco-Snow™ and Photowatt, and the expected costs associated with

strengthening the operations of ATS Winding & Assembly Technology. The acquisitions made in fiscal 1997 demon-

strated solid progress and contributed to operating earnings in fiscal 1998.

Depreciation and amortization increased 82% in fiscal 1998, to $12.9 million, as a result of investments made in

capacity, new technology, and acquisitions. Fiscal 1998 capital expenditures of $57.4 million (net of reimbursement

of facilities under construction) included $19.0 million for facilities (including leasehold improvements) and $34.9 million

for equipment.

Management believes the impact of the above noted factors on operating margin was partially reduced as

a result of benefits gained from higher manufacturing volumes, increased use of standard products, especially the

Superbot™ family of manipulators, and more repeat automation systems orders.

S h a r e C a p i t a l

Share capital increased from $92.2 million in fiscal 1997 to $191.6 million in fiscal 1998, primarily as the result of

issuance of 4,000,000 common shares (after adjustment for the two-for-one split approved by the shareholders

in November 1997) in October 1997 for net cash consideration of $92.5 million.

C a s h F l o w a n d F i n a n c i a l R e s o u r c e s

The Company’s cash flow depends on a number of factors including ongoing working capital requirements and the

level and timing of capital expenditures or acquisitions which ATS may make. The Company’s foreseeable cash


needs are expected to be funded by cash generated from ongoing operations and existing cash resources. Signifi-

cant investments, in excess of the amounts budgeted, or significant acquisitions, should they arise, may result in the

need for additional financing.

Capital expenditures are primarily determined by the Company’s need to expand capacity and to update tech-

nology in response to market demands. During fiscal 1998, ATS completed an 85,000 square foot addition to its

leased Cambridge Automation Systems facility, bringing this building to its maximum permitted size of approximately

360,000 square feet. At March 31, 1998 a 120,000 square foot Automation Systems facility was under construction

on land adjacent to the Company’s existing Corvallis, Oregon facility. Also in fiscal 1998, ATS constructed and

moved into two Precision Components facilities in Cambridge of approximately 80,000 and 165,000 square feet.

The Precision Components facilities were constructed on 52 acres of land which ATS acquired in Cambridge during

fiscal 1996 and on which ATS can build additional facilities in future.

In fiscal 1999, management has budgeted capital expenditures of approximately $40 million, primarily for new

equipment and systems. While certain completion costs related to the 1998 facilities expansions are expected

to fall into fiscal 1999, no major new construction is planned for the year.

$22.0 million was spent on acquisitions, including technology licences, in 1998.

F i n a n c i a l R e s o u r c e s


Cash and short-term investments $ 25.4 $ 4.0 $ 26.4

Other current assets 227.4 129.4 80.8

Current liabilities (99.5) (59.6) (37.5)

Working capital 153.3 73.8 69.7

Long-term debt 44.0 24.4 24.3

Shareholders’ equity $ 268.2 $ 143.1 $ 114.8

Debt to equity ratio 0.16 0.17 0.21

Cash and short-term investments consist of cash and highly liquid money market instruments, typically with matu-

rities of three months or less. ATS’ principal Canadian bank credit facilities are unsecured and consist of an operating

line of $40 million and a revolving term loan facility of $50 million under which $42.5 million was drawn at March 31,

1998. The credit facilities are subject to certain terms and conditions, all of which were met at March 31, 1998.

Financial Instruments: The Company generates a significant portion of consolidated revenue 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 enters into



foreign exchange contracts. The timing and amount of 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. Note 3 to the Consolidated Financial Statements provides details of the foreign exchange contracts

outstanding at March 31, 1998.

At March 31, 1998 substantially all of the debt drawn under the Company’s credit facilities was in U.S. funds,

providing an additional hedge against its net U.S. dollar investment exposure.

Amounts borrowed under the Company’s revolving credit facilities bear interest at floating rates. To reduce

interest rate risk, ATS has a swap agreement to fix the rate on U.S.$7 million of its borrowing under the revolving

credit facilities at 8.145% per annum until the year 2001.

Cash Flow—Automation Systems Group: Automation systems contracts can have a significant impact on the

Company’s working capital requirements. Typically sold under fixed price contracts, often for prices in excess of

$1 million, automation systems typically take six months or more to complete, depending on the complexity and size

of the contract, and lead times for purchased items (which may be significant). Cash flow from an automation systems

contract is determined by a progress billing schedule negotiated with the customer and the achievement by ATS

of the specified progress billing milestones. These factors vary from contract to contract, and may result in significant

changes in cash requirements from quarter to quarter. ATS seeks to have billed 80% to 90% of the contract value

before shipment of an automation system.

Cash Flow—Precision Components Group: Precision Components manufactures engineered components typically

under long-term contracts of varying duration. Contracts are typically high volume and, with the exception of solar

modules, unit prices are usually less than five dollars. Capital expenditures and pre-production expenditures related

to major new precision component orders must often be made six months or more before shipments start. Timing

of cash flows from precision components may vary depending upon shipment releases provided by the customer

(see Precision Components Volume Risk).

O t h e r R i s k F a c t o r s

Use of Estimates and Automation Systems Contract Risk: The nature of automation systems contracts requires the

use of estimates to quote new business and to apply the percentage of completion method of revenue recognition

over the life of the project. Automation systems are typically sold on a fixed-price basis. The work to be performed

involves varying degrees of technical uncertainty, including possible development work to meet the customer’s

specification, the cost of which is sometimes not determinable until after the project has been awarded. If the actual

costs incurred by the Company are significantly higher than estimated at the quotation stage, the Company’s

earnings may be negatively affected.


Certain contracts may include penalties for late delivery and/or expose the Company to liability. Automation

systems contracts may be terminated by customers in the event of a default by the Company, or for convenience

of the customer. In the event of a termination for convenience, ATS must typically negotiate a settlement reflective

of the progress achieved on the contract and the costs incurred to the termination date.

Automation Systems Pricing: Individual prices and terms for automation systems contracts are typically negoti-

ated between ATS and its customers. Profit margins on contracts vary depending on a number of factors, including

market conditions, technical risk, competition, the results of negotiation and the amount of subcontracting and

third party equipment integrated into the automation system. Generally, margins on subcontracting and third party

equipment are lower than on the services and products produced by ATS.

Automation Systems Sales and Capital Expenditure Cycles: Historically, capital expenditures on industrial

equipment have tended to be cyclical in nature. The Company’s strategy of diversification through participation

in different industries and geographic regions is intended to reduce such cyclical risk and to provide opportunities

to generate new revenue.

Precision Components Volume Risk: No volume guarantees are typically provided under precision components

contracts. The actual volume of parts shipped under these contracts may vary materially from planned levels during

the term of the contract and from quarter to quarter. Variations from planned volumes may occur for a number of

reasons including capacity constraints, quality problems, competition and changes in demand for the customer’s

related product.

The majority of the precision components orders obtained from automotive industry customers have been

single source contracts of three to five years. However, ATS is not the only supplier of the components being sold

under the microelectronics contract or under certain solar cell contracts obtained by the Company during fiscal

1998. The existence of competitive suppliers of these precision components may expose the Company to greater

pricing pressure and volume risk.

Precision Components Group diversification into both microelectronics and solar has broadened the

Company’s customer base and reduced exposure to cyclical downturns in the automotive industry. However, the

Company is now exposed to risks of cyclical downturn in the microelectronics and solar industries. The microelec-

tronics industry has historically been cyclical while the solar industry is an emerging sector where the trends are

less defined. A cyclical downturn in any of these industries may negatively impact the demand for precision

components and the Company’s earnings.

Precision Components Pricing, Quality and Delivery: ATS is required to remain competitive in terms of price,

quality and delivery as a condition of many of its precision components contracts. Pricing for precision components

is often subject to revision and adjustment as a result of negotiations and cost reduction obligations to which the

Company is subject. Price reductions may be voluntary, or mandatory under the terms of contracts. The Company



may also believe it necessary to reduce prices as a way to secure higher proportions of the customer’s releases

when competitive circumstances exist. To the extent ATS is obligated, or agrees, to reduce prices and the impact

of the reduced prices is not offset through reductions in costs or efficiencies gained through higher volumes,

operating margins and earnings will be negatively impacted. Failure to remain competitive in terms of price, quality

and delivery may result in loss of single source status (if in place), reduced shipments and possible termination

of the contract. Management believes such terms are customary in the industries in which it currently operates.

Precision Components Expansion Risks: New precision components contracts often require ATS to acquire new

production equipment, systems, personnel and sometimes facilities, often on tight time schedules. Bringing these

investments into production quickly may expose the Company to certain risks depending on the size of the invest-

ment, the schedule, the technology involved, and the nature of the precision components to be produced. When

production is first started, the Company often incurs higher costs and lower production rates than for more estab-

lished programs, and may encounter significant costs to correct problems which may arise. Furthermore, failure to

meet a customer’s scheduled requirements may negatively impact the Company, including possible termination

of the contract.

Other Microelectronics Precision Components Contract Risks: In addition to the other risks noted herein, the

large microelectronics contract has exposed the Company to additional risks including those related to the contract

value, product obsolescence, and contract term. The microelectronics contract does not provide any guarantee with

respect to the volume of precision components to be supplied under the contract and may be terminated by the

customer for convenience, with certain conditions. The estimated dollar value of the contract is sufficiently large that

any material variation in volumes, pricing or contract term would likely have a significant impact on the Company’s

revenue and earnings. The microelectronics industry has historically experienced short product life cycles and rapid

product changes which may impact shipment volumes. Therefore the risk of product obsolescence during the term

of the microelectronics contract is inherently higher than for typical ATS precision components orders. The term of

the microelectronics contract extends to January 2000 and provides the customer with options to extend the term

of the contract for an indefinite period beyond this date. There is, however, no assurance that the contract will be

extended, and to the extent the Company has not secured new orders sufficient to replace any reduction or loss of

business that may arise, the future revenues and earnings of ATS may be materially negatively impacted.

Availability of Human Resources: The Company’s business, especially its Automation Systems Group, is

knowledge-based. Management believes that to increase Automation Systems revenue it must continue to attract,

retain and develop technical employees whose skills are increasingly in demand. To a lesser degree, ability to

increase Precision Components revenue is dependent upon availability of key employees with the specialized

skills required to support growth in this Group. Typically, new employees require ATS-specific training before

becoming fully productive. The Company’s future success also depends upon a number of key employees,

including Klaus D. Woerner, the President and Chief Executive Officer and other members of senior management.


Variations in Quarterly Results: The revenues, operating margins and earnings of ATS may vary from quarter to

quarter as a result of factors discussed in this report. Additional factors which may impact quarterly results include

changes in the proportion of revenue derived from the different activities of the Company, different margins on

work performed, acquisitions and level of research and development activities.

The Company may also experience negative impacts on operating margins during periods of rapid expansion.

Significant growth in the Automation Systems Group may necessitate increased use of subcontracting and premium

costs to rapidly increase internal capacity. In the Precision Components Group, growth from the launch of signifi-

cant new programs may impact the Company’s results as described in Precision Components Expansion Risks.

While ATS products are not seasonal in nature, the Company’s quarterly results have often reflected lower

earnings during the summer months, or second quarter. This has generally been the result of lower revenue due

to staff vacations (which reduces capacity, especially in the Automation Systems Group) and seasonal customer

plant shutdowns (which reduces volumes in the Precision Components Group).

Y e a r 2 0 0 0

Management has implemented a corporate-wide plan to assess the Company’s state of readiness for the potential

risks associated with the year 2000 and computer systems and applications using a two-digit code to designate a

year. Systems that do not properly recognize such date codes may fail to operate, or may generate erroneous

data. The Company’s year 2000 plan assigns implementation responsibilities and defines milestones, and the

plan’s status is regularly monitored by senior management and the Board of Directors.

Management does not currently anticipate a significant effect on the Company’s operations as a result of the

year 2000 issue. However, there can be no assurance that there are no as yet unidentified material compliance

issues which may arise as implementation of the plan continues. Further, there can be no assurance that the infor-

mation systems of other companies with whom ATS conducts business will comply on a timely basis, or that any

such compliance failure by other companies would not have an adverse effect on ATS’ computer systems. All com-

pliance costs, which to date have been limited to immaterial internal staff costs, are expensed as incurred.

O u t l o o k

Order bookings for automation systems during fiscal 1998 totalled $271.8 million, up 16% from $234.7 million

generated in the previous year. Order backlog is for the Automation Systems Group only, and represents the

amount of unearned revenue on firm contracts on hand but incomplete at the end of the period. March 31, 1998

order backlog for external customers was well diversified, and stood at $93.7 million, down from $131.4 million



a year earlier. The majority of the March 31, 1998 Automation Systems backlog is scheduled for completion during

the 1999 fiscal year. In addition to the $93.7 million external customer order backlog at March 31, 1998, the Automa-

tion Systems Group had an estimated $16.0 million additional internal backlog for automation equipment to be

manufactured for use by the Precision Components Group. All of the $16.0 million internal backlog is expected

to be completed in fiscal 1999.

The decline in Automation Systems order backlog for external customers is, in part, a reflection of management’s

desire to bring the backlog to more manageable levels, as noted in last year’s annual report. Continuing high

backlog levels may over-extend the Company’s resources, require ATS to incur proportionately higher costs to

maintain schedules, and increase the risk of cost overruns and late delivery.

Other external market factors, such as turmoil in Asian markets, may have created uncertainty for some cus-

tomers, lengthening the automation systems sales cycle and may have contributed to the reduction in backlog.

Management believes, however, that the uncertainty, if any, created by these issues is temporary. Market demands

for greater efficiency, quality and lower costs are well established trends and management believes these

requirements and the Company’s strategies of standardization, fast payback and expansion into new markets will

continue to create opportunities for ATS automation systems sales. Quotation activity remains strong with many

attractive order prospects under consideration by customers. As a result, management believes the automation

systems backlog at March 31, 1998 is at a healthy level and that ATS will continue to grow its Automation Systems

revenue in fiscal 1999.

Management expects revenue from the Precision Components Group to contribute a larger percentage of

consolidated revenue than it has in the past, as growth is supplemented by the addition of the microelectronics

contract and revenue from Photowatt. Contributions from these two areas are expected to result in a significant

increase in revenue derived from industries outside the automotive sector in fiscal 1999.

In fiscal 1999, management plans the continued expansion of Photowatt and the Advanced Manufacturing

division. Management expects the Advanced Manufacturing division’s large microelectronics contract will be well

underway by the second half of fiscal 1999. The Advanced Manufacturing division will strategically demonstrate

ATS’ extensive and unique capabilities both in high volume manufacturing of engineered precision components

and in the design and production of automated manufacturing and test systems. Management believes these

capabilities and the credibility gained from this program will help ATS to seek out new business opportunities

as strong outsourcing trends take place in the Company’s markets.


The accompanying consolidated financial statements of ATS Automation Tooling Systems Inc. were prepared by managementin accordance with accounting principles generally accepted in Canada. The significant accounting policies, which manage-ment believes are appropriate for the Company, are described in note 1 to the consolidated financial statements. The financialinformation contained elsewhere in this document is consistent with that in the consolidated financial statements.

Management is responsible for the integrity and objectivity of the financial statements. Estimates are necessary in thepreparation of these statements and, based on careful judgements, have been properly reflected in the financialstatements. Management has established systems of internal control which are designed to provide reasonable assurancethat assets are safeguarded from loss or unauthorized use and to produce reliable accounting records for the preparation offinancial information.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reportingand internal control. The Board exercises its responsibilities through the Audit Committee of the Board, which is comprisedof a majority of outside directors and which meets periodically with management and the independent auditors to discussthe Company’s financial reporting practices and procedures, its systems of internal accounting controls, the plannedscope of examinations by independent auditors and their findings and recommendations. It also reviews the Company’sconsolidated financial statements.

The Company’s independent auditors, KPMG, Chartered Accountants, conduct an independent examination on behalf ofthe shareholders, in accordance with generally accepted auditing standards and express their opinion on the financialstatements. Their report outlines the scope of their examination and their opinion on the consolidated financial state-ments of the Company. The independent auditors have free access to the Audit Committee of the Board.

Klaus D. Woerner (signed) Ron J. Jutras (signed)President and Secretary-Treasurer and Chief Executive Officer Chief Financial Officer

A u d i t o r s ’ R e p o r t t o t h e S h a r e h o l d e r s

M a n a g e m e n t ’ s R e s p o n s i b i l i t y F o r F i n a n c i a l R e p o r t i n g

We have audited the consolidated balance sheets of ATS Automation Tooling Systems Inc. as at March 31, 1998 andMarch 31, 1997 and the consolidated statements of earnings, retained earnings and changes in financial position for theyears then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that weplan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstate-ment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by manage-ment, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial positionof the Company as at March 31, 1998 and March 31, 1997 and the results of its operations and the changes in its financialposition for the years then ended in accordance with generally accepted accounting principles.

KPMG (signed), Chartered AccountantsWaterloo, CanadaMay 8, 1998

March 31, 1998 and March 31, 1997 1998 1997

AssetsCurrent assets:

Cash and short-term investments $ 25,402 $ 3,980Accounts receivable 91,763 40,485Income taxes recoverable 1,427 —Costs and earnings in excess of billings on

contracts in progress (note 4) 94,066 71,193 Inventories (note 4) 34,803 15,620Prepaid expenses and other current assets 5,323 2,110

252,784 133,388

Fixed assets (note 5) 105,352 52,451

Goodwill and licences, at amortized cost 46,533 35,082

Other assets (note 6) 18,850 15,142

$ 423,519 $ 236,063

Liabilities and Shareholders’ EquityCurrent liabilities:

Accounts payable and accrued liabilities $ 71,449 $ 32,433Billings in excess of costs and earnings on

contracts in progress (note 4) 13,419 19,431Income taxes payable — 175Current portion of long-term debt (note 7) 784 335Deferred income taxes 13,891 7,244

99,543 59,618

Long-term debt, less current portion (note 7) 43,225 24,085

Deferred income taxes 11,007 8,993

Minority interest 1,538 301

Shareholders’ equity:Share capital (note 8) 191,579 92,186Retained earnings 74,470 49,708Cumulative translation adjustment (note 9) 2,157 1,172

268,206 143,066Commitments (note 13)

$ 423,519 $ 236,063

See accompanying notes to consolidated financial statements.

On behalf of the Board:

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


C o n s o l i d a t e d B a l a n c e S h e e t s

(in thousands of dollars)


C o n s o l i d a t e d S t a t e m e n t s o f E a r n i n g s

(in thousands of dollars, except per share amounts)

Years ended March 31, 1998 and March 31, 1997 1998 1997

Revenue $ 402,920 $ 249,802

Operating costs and expenses:Cost of revenue 305,080 187,686Depreciation and amortization 12,968 7,125General and administrative 38,888 22,890

356,936 217,701

Earnings from operations 45,984 32,101

Other expenses (income): Interest on long-term debt 2,737 1,666Other interest (505) (677)

2,232 989

Earnings before income taxes and minority interest 43,752 31,112

Provision for income taxes (note 10):Current 6,061 2,727Deferred 10,015 8,781

16,076 11,508

Earnings before minority interest 27,676 19,604

Minority interest in earnings of subsidiaries 314 7

Net earnings $ 27,362 $ 19,597

Net earnings per share (note 11):Basic $ 0.52 $ 0.39Fully Diluted $ 0.50 $ 0.37

C o n s o l i d a t e d S t a t e m e n t s o f R e t a i n e d E a r n i n g s



Retained earnings, beginning of year $ 49,708 $ 30,111

Net earnings 27,362 19,597

Costs of issuance of common shares,net of related deferred income taxes (2,600) —

Retained earnings, end of year $ 74,470 $ 49,708



C o n s o l i d a t e d S t a t e m e n t s o f C h a n g e s i n F i n a n c i a l P o s i t i o n



Cash provided by (used in):Operating activities:

Net earnings $ 27,362 $ 19,597Items not involving cash:

Depreciation and amortization 12,968 7,125Deferred income taxes 10,015 8,781Minority interest 314 7

Cash flow from operations 50,659 35,510Change in non-cash operating working capital (54,826) (29,125)

(4,167) 6,385

Investing activities:Acquisition of interest in subsidiaries, net of cash (note 2) (22,021) (13,658)Acquisition of fixed assets (57,590) (19,938)Facilities under construction, net of reimbursement 197 2,645Investment in other assets and licences (5,826) (3,168)

(85,240) (34,119)Financing activities:

Issuance of common shares, net of cost of issuance 95,330 7,975 Change in long-term debt 17,037 72Investment tax credits and other (1,538) (2,729)

110,829 5,318

Increase (decrease) in cash 21,422 (22,416)

Cash and short-term investments,beginning of year 3,980 26,396

Cash and short-term investments, end of year $ 25,402 $ 3,980


1. Basis of accounting and significant accounting policies:(a) Principles of consolidation: These consolidated financial statements include the accounts of ATS Automation

Tooling Systems Inc. and subsidiary companies. All significant intercompany transactions and balances have

been eliminated.

(b) Foreign currency translation: The assets and liabilities of self-sustaining foreign subsidiaries are translated

into Canadian dollars at year-end exchange rates and the resulting unrealized exchange gains or losses are

included as a separate component of shareholders’ equity. The earnings statements of these operations are trans-

lated at exchange rates prevailing during the year.

Other monetary assets and liabilities which are denominated in foreign currencies are translated into Canadian

dollars at year-end exchange rates, and transactions included in earnings are translated at rates prevailing during

the year. Exchange gains and losses resulting from the translation of these amounts are included in the consoli-

dated statements of earnings, except for the exchange gains and losses on long-term debt which are deferred

and amortized over the remaining term of the related loans.

(c) Derivative financial instruments: Foreign exchange contracts are used by the Company to reduce financial risks

related to future net cash flows in foreign currencies. Gains and losses on the contracts are recognized in the consoli-

dated statements of earnings during the same period as the corresponding foreign currency revenues and expenses.

Interest rate swaps are used by the Company to reduce its risks related to changes in interest rates on its long-

term revolving bank credit facility. The difference between the swap rate and the actual interest rate is charged to

earnings as incurred.

(d) Cash and short-term investments: Cash and short-term investments consist of cash and highly liquid money

market instruments, typically with maturities of three months or less.

(e) Fixed assets: Fixed assets are recorded at cost. Depreciation is computed using the following methods and

annual rates:

Asset Basis Rate

Buildings Declining-balance 4%

Production equipment Straight-line 10–20%

Other equipment and furniture Declining-balance 20–30%

Leasehold improvements are amortized over the terms of the related leases on a straight-line basis.

(f) Goodwill and licences: Goodwill is recorded at cost and is amortized using the straight-line method over

periods from five to forty years.

Licences are recorded at cost and are amortized over their estimated economic life.


N o t e s t o c o n s o l i d a t e d f i n a n c i a l s t a t e m e n t s

Years ended March 31,1998 and March 31,1997 (tabular amounts in thousands of dollars)


(g) Contract revenue and inventories: Contract revenue is recognized using the percentage of completion

method. 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.

Inventories are valued at the lower of cost (first-in, first-out basis) and net realizable value.

(h) Research and development costs: Research costs are charged as an expense of the period in which they are

incurred. Development costs are deferred and amortized over the period in which the Company expects to benefit

from the resulting product or process.

(i) Pre-production costs: Pre-production costs related to new precision components orders are deferred and

amortized over the life of the related contract on a units of production basis.

(j) Investment tax credits: Investment tax credits are accounted for as a reduction in the cost of the related asset

or expense when there is reasonable assurance that such credits will be realized.

2. Acquisitions:During the year ended March 31, 1998, the following businesses were acquired: 80% of a Swiss manufacturer of

automated assembly equipment; 95% of a French manufacturer of solar cells and modules; and 100% of a U.S.

precision cleaning technology business.

The acquisitions have been accounted for using the purchase method as follows:

Assets, net of cash acquired $ 32,837Liabilities (18,201)Increase in goodwill 8,288

22,924Less minority interest in subsidiaries (903)

$ 22,021

Consideration at fair value:Cash $ 22,021

During the year ended March 31, 1997, the following businesses were acquired: 100% of automation systems

manufacturers located in Singapore, Malaysia, China, southwestern and southeastern United States; 51% of an

automated test systems company; 51% of an automated software analysis company; and the remaining 29%

minority interest in an automated systems subsidiary in California.


2. Acquisitions: (continued) The acquisitions were accounted for using the purchase method as follows:

Assets, net of cash acquired $ 5,077Liabilities (1,608)Increase in goodwill 10,481

13,950Less minority interest in subsidiaries (292)

$ 13,658

Consideration at fair value:Cash $ 7,505Issue of 910,704 common shares 6,153

$ 13,658

The consolidated statements of earnings include results of the acquired businesses from the respective dates

of acquisition.

3. Financial instruments:The contract nature of the Company’s business may result in significant fluctuations from period to period in the

relative percentages of accounts receivable and contracts in progress concentrated with any one customer, industry

or geographic region. At March 31, 1998, one customer accounted for approximately 17% of the combined

balance of accounts receivable and contracts in progress. At March 31, 1997, this same customer accounted for

approximately 22% of the combined accounts receivable and contracts in progress balances.

The Company generates significant revenue 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 foreign exchange contracts. The timing and amount of

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.

At March 31, 1998 the Company had outstanding forward contracts with a notional value of U.S.$103,700,000

maturing on or before December 1999, at rates ranging from Cdn$1.3540 to Cdn$1.4625 to U.S.$1.00 and out-

standing forward contracts with a notional value of DM6,500,000 maturing on or before December 1998, at rates




ranging from U.S.$0.5580 to U.S.$0.5628 to DM1.00. Based on foreign exchange rates as at March 31, 1998 for

contracts with similar remaining terms to maturity, the unrecognized net losses relating to the Company’s forward

exchange contracts is approximately $1,264,000.

The carrying amounts reported in the balance sheets for cash and short-term investments, accounts receivable,

contracts in progress and accounts payable and accrued liabilities approximate their fair values, due to the short-

term nature of those instruments.

The carrying value of long-term debt approximates fair value since the effective interest rates reflect current

market rates. The Company has an interest rate swap agreement whereby the interest rate on U.S.$7,000,000 of the

revolving bank credit facility has been fixed at 8.145% until the year 2001. The fair value of the interest rate swap

approximates an unrealized loss of U.S.$423,000 at March 31, 1998 (1997 – U.S.$262,000 unrealized loss).

4. Contracts in progress and inventories:

1998 1997

Contracts in progress at the balance sheet date:Costs incurred on contracts in progress $ 231,305 $ 135,154Estimated earnings 74,358 41,804

305,663 176,958Progress billings (225,016) (125,196)

$ 80,647 $ 51,762

Disclosed as:Costs and earnings in excess of billings on contracts in progress $ 94,066 $ 71,193Billings in excess of costs and earnings on contracts in progress (13,419) (19,431)

$ 80,647 $ 51,762

Inventories are summarized as follows:Raw materials to be used in manufacturing $ 20,267 $ 8,644Work in process 11,789 5,351Finished goods available for sale 2,747 1,625

$ 34,803 $ 15,620


5. Fixed assets:

1998 1997Accumulated Net book Net book

Cost depreciation value value

Land and land improvements $ 6,299 $ — $ 6,299 $ 2,752

Buildings 20,603 1,075 19,528 5,246

Leasehold improvements 5,919 1,087 4,832 3,610

Production equipment 89,915 22,958 66,957 34,343

Other equipment andfurniture 11,964 4,228 7,736 6,500

$ 134,700 $ 29,348 $ 105,352 $ 52,451

6. Other assets: 1998 1997

Investment tax credits $ 9,656 $ 8,227Deferred foreign exchange loss

on long-term debt, net 1,492 781

Deferred pre-production costs, net 1,573 1,474Deferred development costs, net 4,135 2,445Notes receivable 494 518Subordinated loan receivable 1,500 1,500Facilities under construction — 197

$ 18,850 $ 15,142

The Company leases, at market rates, a manufacturing facility from 1032123 Ontario Limited, a corporation

controlled by the President, a significant shareholder of the Company. In return for certain concessions under the

lease, including specified purchase and renewal options, the Company made an interest free loan to 1032123

Ontario Limited in the amount of $1,500,000. This loan is repayable upon the earlier of termination of the lease,

the occurrence of certain events of default, the date the facility is sold and January 1, 2009. The loan is subordinated

to the repayment of the first mortgage on the property.

The Company has guaranteed two term notes on the manufacturing facility described above, totalling $6,600,000.




7. Bank indebtedness and long-term debt:

1998 1997

Unsecured revolving bank credit facility available in Cdn$, orequivalent in other currencies, with interest at prime, or at rates tied to LIBOR, or bankers’ acceptances, at the Company’s option. This credit facility revolves until August 15 annually at which time it is expected that the term will be extended for a further one year period. In the event the revolving period of the credit facility is not extended, the loan is repayable over a seven year period in 60 equal instalments over the last five years of the period. Both the March 31, 1998 and March 31, 1997 amounts are repayable in U.S. funds $ 42,459 $ 23,321

Industrial revenue bonds due in U.S.$, interest at 10.53%, repayable in monthly instalments of U.S.$19 through April 2000, collateralized by a shared first mortgage on real estate and equipment 598 822

Other, due in U.S.$, interest from 7% to 8%, due through to 2000, portions collateralized by first and second charges on certain real estate and equipment 189 277

Other, due in French francs, interest at 9.25% to 10.8% throughto January 1, 2000, collateralized by a first mortgage 763 —

44,009 24,420Current portion 784 335

$ 43,225 $ 24,085

Scheduled principal repayments of non-revolving long-term debt are as follows:

1999 $ 784

2000 718

2001 48

2002 —

2003 —

$ 1,550


8. Share capital:All figures in this note have been adjusted to reflect the impact of the November 27, 1996 and November 27, 1997

two-for-one stock splits approved at special meetings of the shareholders held on those dates.

1998 1997

Common shares:Authorized:

500,000,000 sharesIssued:

55,307,222 shares (1997 – 50,981,332 shares) $ 191,579 $ 92,186

In October 1997, the Company issued 4,000,000 common shares under a short form prospectus for net cash

consideration of $92,537,000 after the costs of issuance of $4,063,000.

The Company’s employee stock purchase plan provides that a maximum of 1,200,000 common shares may be

purchased by employees at the market price of the shares at the date of subscription. During the year ended March 31,

1998, 181,500 common shares were fully paid and issued at purchase prices ranging from $5.62 to $24.24 (1997 –

217,240 shares).

Under the terms of the share option plan the Company may grant options to employees, officers and directors

to purchase not more than 3,354,932 common shares at prices which may not be less than the market price of the

shares at the date of the grant. The right to exercise the options, which vest over periods from 4 to 5 years from

the date of grant, expires if not exercised by the tenth anniversary of grant. During the year ended March 31, 1998,

144,390 common shares (1997 – 198,924 shares) were issued pursuant to share options exercised.

At March 31, 1998, there were share options outstanding in respect of 2,090,698 common shares (1997 –

1,987,468 shares) at prices ranging from $2.00 to $28.38 per share.

9. Cumulative translation adjustment:This adjustment represents the net unrealized foreign currency translation gain on the Company’s net investment in

self-sustaining foreign operations, principally in the United States.

1998 1997

Cumulative unrealized gain at beginning of year $ 1,172 $ 447

Unrealized losses on translation of non-current items (4,382) (1,275)

Unrealized gains on translation of current items 5,367 2,000

Cumulative unrealized gain at end of year $ 2,157 $ 1,172




10. 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 minority interest. These differences

result from the following items:

1998 1997

Earnings before income taxes and minority interest $ 43,752 $ 31,112

Combined Canadian basic federal and provincial income tax rate 44.60% 44.60%

Income taxes based on combined Canadian basicfederal and provincial income tax rate 19,513 13,876

(Decrease) increase in income taxes resulting from:Manufacturing and processing allowance (2,422) (1,708)Earnings of foreign subsidiaries (984) (615)Ontario super allowance (169) (469)Other items 138 424

$ 16,076 $ 11,508

Provision for income taxes: Current $ 6,061 $ 2,727Deferred 10,015 8,781

$ 16,076 $ 11,508

The Company has outstanding scientific research and experimental development expenditure claims with the

Canadian and Ontario governments for both the current and prior fiscal years. The expected income tax benefits of

these claims are recognized in the accounts when there is reasonable assurance of their realization.

11. Per share information: Basic earnings per share have been calculated using the weighted average number of common shares outstanding

during the year of 53,010,063 (1997 – 50,000,966). Fully diluted earnings per share have been calculated assuming

that all of the stock options outstanding at the end of the year had been exercised at the beginning of the year

or at date of issuance if later. The weighted average number of common shares outstanding on a fully diluted basis

is 54,931,494 (1997 – 52,299,972).


12. Segmented information and export sales: The Company operates predominantly within the custom engineered industrial automated assembly system industry

in Canada, the United States, Europe and the Pacific Rim.

1998 1997

Revenue by operating location: Canada:

Revenue from customers $ 210,511 $ 146,265Inter-segment revenue 3,928 3,146

United States: Revenue from customers 163,949 92,096Inter-segment revenue 6,158 945

Europe and Pacific Rim: Revenue from customers 28,460 11,441Inter-segment revenue 1,957 2,058

Eliminations (12,043) (6,149)

$ 402,920 $ 249,802

Earnings from operations: Canada $ 26,280 $ 19,008United States 20,279 13,000Europe and Pacific Rim (575) 93

45,984 32,101

Other expenses, including interest (2,232) (989)Provision for income taxes (16,076) (11,508)Minority interest (314) (7)

Net earnings $ 27,362 $ 19,597

Identifiable assets: Canada $ 233,458 $ 118,717United States 171,367 104,837Europe and Pacific Rim 18,694 12,509

$ 423,519 $ 236,063

The Canadian segment had direct sales to customersin foreign countries, primarily the United States, Europe and the Pacific Rim of approximately $ 162,273 $ 104,508




13. Commitments:The minimum operating lease payments required in each of the next five years are as follows:

1999 $ 9,808

2000 8,435

2001 6,277

2002 4,770

2003 4,300

Thereafter 5,629

$ 39,219


(thousands of Canadian dollars,except per share amounts) 1998 1997 1996 1995 1994 1993

Operating Results

Revenue:Automation Systems $ 309,456 $ 191,274 $ 152,049 $ 105,974 $ 70,740 $ 57,383

Precision Components 93,464 58,528 44,878 32,880 22,656 19,030

Total Revenue 402,920 249,802 196,927 138,854 93,396 76,413

Earnings from operations 45,984 32,101 22,869 14,307 9,410 7,201

Operating margin 11.4% 12.9% 11.6% 10.3% 10.1% 9.4%

Net earnings before unusual items 27,362 19,597 13,621 7,684 3,918 2,951

Net earnings 27,362 19,597 19,240 7,684 3,918 2,933

Financial PositionWorking capital $ 153,241 $ 73,770 $ 69,693 $ 37,121 $ 32,439 $ 15,199

Fixed assets 105,352 52,451 36,749 27,510 22,186 18,555

Other long-term assets 65,383 50,224 37,247 38,238 10,314 7,494

Total assets 423,519 236,063 181,151 134,292 83,855 59,269

Long-term debt 44,009 24,420 24,349 25,499 16,388 16,948

Shareholders’ equity 268,206 143,066 114,769 71,594 46,237 16,596

Cash FlowCash flow from operations $ 50,659 $ 35,510 $ 18,335 $ 13,576 $ 8,469 $ 6,883

Net share capital issued 95,330 7,975 25,141 16,806 24,138 14,500

Fixed assets purchased 57,590 19,938 14,111 8,672 5,974 2,237

Acquisitions 22,021 13,658 — 26,451 — 19,928

Net repayment (issue) of long-term debt 17,037 72 (1,150) 9,027 (7,059) 8,516

Per Share Data *Basic earnings per share

before unusual items $ 0.52 $ 0.39 $ 0.30 $ 0.18 $ 0.14 $ 0.12

Basic earnings per share 0.52 0.39 0.42 0.18 0.14 0.12

Book value per share 4.85 2.81 2.51 1.57 1.65 1.21

Price range – common shares 28.50 – 10.25 12.50 – 6.75 7.00 – 2.50 3.19 – 1.69 3.00 – 2.28 N/A

Basic weighted average shares outstanding (millions) 53.0 50.0 45.6 42.6 28.3 23.9

Statistics and RatiosCurrent ratio 2.54 2.24 2.86 2.18 2.71 1.84

Long-term debt to equity 0.16 0.17 0.21 0.36 0.35 1.02

Return on average assets 13.9% 15.4% 14.5% 13.1% 13.1% 13.0%

Return on average equity 13.3% 15.2% 20.6% 13.0% 12.5% 18.4%

Number of employees, at March 31 2,524 1,491 1,174 952 710 583

* All numbers have been adjusted to reflect the November 1996 and November 1997 two-for-one stock splits. ‡ Includes unusual transaction gain of $5.6 million.

S i x - Y e a r F i n a n c i a l S u m m a r y

Years ended March 31

‡

B o a r d o f D i r e c t o r s

Richard H. Campbell (1) A graduate of Colby College (Bachelor of Arts) and

The Wharton School (Business) Executive Management Program, Mr. Campbell, age 62,

is President of Seacoast Consulting, a private U.S. business consulting firm. Mr. Campbell

has held several senior international management positions in his 35-year career including

President and CEO of Black & Decker Canada Inc. and Group Vice President of Commercial

and Outdoor Products for Textron Corporation. He became a Director of ATS in 1995.

Robert A. Ferchat, FCA (1) (2) Mr. Ferchat is Chairman and Chief Executive Officer of

BCE Mobile Communications Inc. He also serves on the Board of BCE Mobile’s member

companies. With more than 30 years of senior management experience, Mr. Ferchat, age

63, was formerly Chairman, President and CEO of TMI Communications. Prior to joining

TMI, he held a number of senior management positions at Northern Telecom Limited

including Vice President, Controller, Executive Vice President and Chief Financial Officer,

President of Northern Telecom International and President of Northern Telecom Canada.

He was appointed a Director of ATS in 1997.

Ron J. Jutras, CA An Honours Business Administration graduate of Wilfrid Laurier

University and a Chartered Accountant, Mr. Jutras is Secretary-Treasurer and Chief Financial

Officer of ATS. He has held this position since starting with the Company in 1985.

Mr. Jutras, 42, has served as an ATS Director since 1993.

Robert W. Luba FCA (1) (2) (3) A graduate of the University of Western Ontario and a

Chartered Accountant, Mr. Luba, age 56, is the President and founder of Luba Financial

Inc., a mid-market merchant bank focusing on investing in management buyouts.

Mr. Luba’s 30-year career includes executive management positions at Royal Bank

Investment Management, John Labatt Limited and Crown Life Insurance. He joined the

ATS Board in 1995.

Lawrence G. Tapp (1) (3) A graduate of McMaster University (Psychology) and the

University of Kansas (Business), Mr. Tapp was appointed Dean of the Richard Ivey School of

Business at the University of Western Ontario in 1995. During his 35-year career, he held

executive positions with several companies and was President and Chief Executive Officer

of Lawson Mardon Group Limited from 1985 to 1992. Mr. Tapp, age 60, is non-executive

Chairman of ATS and has served as a Director of the Company since 1992.

Robert C. Tivy (2) (3) An honours graduate of Queen’s University (Electrical Engineering) and

a graduate of the American Management Institute in New York City, Mr. Tivy, age 74, retired

in 1983 from Black & Decker. In his last position, he served as Chairman of the Board of Black

& Decker Canada and as Vice President, International. He became an ATS Director in 1992.

Klaus D. Woerner Born in Germany, Mr. Woerner, age 58, immigrated to Canada

in 1960 after completing technical trade apprenticeships in Germany and Switzerland.

He studied Industrial Engineering at what is now Ryerson Polytechnical University. Upon

graduation, he was introduced to industrial automation as a Process Engineer at Ford

Motor Company’s Truck Division. Mr. Woerner founded ATS in 1978 and was recognized

as Canada’s Entrepreneur of the Year in 1997 in a national competition sponsored by

Ernst & Young. He serves as the President and Chief Executive Officer of ATS.

(1) Member of the Audit Committee(2) Member of the Human Resources Committee(3) Member of the Corporate Governance and Nominating Committee

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O f f i c e r s a n d k e y o p e r a t i n g m a n a g e m e n t

S h a r e h o l d e r s ’ I n f o r m a t i o n

Lawrence G. TappNon-Executive Chairman of the Board

Klaus D. WoernerPresident and Chief Executive Officer

Ron J. JutrasSecretary-Treasurer and Chief Financial Officer

Bruce SeeleyVice-President, Precision Components Group

Paul Patterson

Director of Sales and Marketing

Michael Cybulski

General Manager, Cambridge Systems Division

Carl GallowayCorporate Treasurer

Vincent BarbisanGeneral Manager, ATS Michigan Sales & Service Inc.

Richard CaroneVice-President, Accu-Fab Systems, Inc.

Robert FaulhammerGeneral Manager, Winder Systems

Joseph FoxDirector of Strategic Marketing

Milfred HammerbacherAssistant Director General, Photowatt International S.A.

Rod HolmquistGeneral Manager, Accu-Fab Systems California, Inc.

William JohnsonGeneral Manager, ATS Niagara Division

Thomas KosicGeneral Manager, Eco-Snow Systems Inc.

John LawsonPresident and General Manager, ATS Informatic Systems Inc.

Lim Chin HuiManaging Director, AnA Mechatronics (S) Pte. Ltd.

Scott LindsayManager, Advanced Engineering

Joseph A. MorenoGeneral Manager, ATS Ohio Inc.

Edward NiewinskiGeneral Manager, Centaur Thermal Systems Inc.

Manfred NussbaumerGeneral Manager,ATS Winding & Assembly Technology

Neal Pierce, Jr.President, Accu-Fab Systems, Inc.

Robert RacheterDirector, Machine Tool Division

Bernd RhiemeierGeneral Manager, ATS Automation Tooling Systems GmbH

Russell SchmitDirector General, Photowatt International S.A.

Scott Schuhle General Manager, ATS Southwest Inc.

Gregory SchultzDivision Manager, Machine Tool Division

John Scott

Director, Quality Assurance

Stewart WiedersprecherGeneral Manager, ATS Carolina Inc.

Drew WilsonPresident, ATS Test Systems, Inc.

Marilyn Wolfe

Manager, Human Resources

Corporate Headquarters:

ATS Automation Tooling Systems Inc.

250 Royal Oak RoadBox 32100 Preston CentreCambridge, OntarioCanada N3H 5M2

Tel: (519) 653-6500Fax: (519) 653-6533Web site: www.atsautomation.com

Stock Exchange Listing

Toronto Stock Exchange “ATA”

Registrar and Transfer Agent

Montreal Trust

Auditors

KPMG

Principal Bank

The Bank of Nova Scotia

Annual Shareholders’ Meeting

Thursday, August 13, 19984 p.m. Concordia Club, 429 Ottawa Street SouthKitchener, Ontario

Additional Information

Contact Investor Relations (Wendy Murawsky) at ATS Corporate Headquarters.