11.8.2006: ATS Automation Tooling Systems inc.: first quarter profit - solar update

ATS reports first quarter profit, provides solar update
Thursday August 10, 8:00 am ET

TSX: ATA
CAMBRIDGE, ON, Aug. 10 ATS Automation Tooling Systems Inc. today reported its financial results for the first quarter of fiscal 2007 (three months ended June 30, 2006).

Highlights
- Consolidated earnings from operations were $5.6 million on revenue from
continuing operations of $190.9 million, compared to a loss from
operations of $1.3 million on revenue of $210.8 million in the fourth
quarter of fiscal 2006.
- Changes in effective foreign exchange rates reduced consolidated
revenue and consolidated operating earnings for the quarter ended
June 30, 2006 compared to the same period of fiscal 2006 by an
estimated $19.4 million and $5.9 million respectively.
- Automation Systems Group operating margins were 2% in the first quarter
of fiscal 2007 compared to 3% in the fourth quarter of fiscal 2006.
Operating earnings were $2.8 million on sales of $121.8 million in the
first quarter.
- Photowatt International achieved record operating earnings in the first
quarter of $10.0 million - up 51% and 61% from the first and fourth
quarter of fiscal 2006, respectively. Revenues were 3% and 11% higher
compared to the first and fourth quarter of fiscal 2006, respectively.
Excluding the effect of foreign exchange, revenue and operating
earnings increased 15% and 69%, respectively, compared to the first
quarter of the prior year.
- Photowatt Canada"s operating loss, decreased to $4.4 million in the
first quarter from $7.6 million in the fourth quarter of fiscal 2006
reflecting the new focus announced in May.
- PCG operating earnings were $0.9 million, a significant improvement
from the $0.1 million in the fourth quarter of fiscal 2006 and the
$1.0 million operating loss in the first quarter of fiscal 2006.

Management Commentary

"ATS made substantial headway in advancing our solar business and
executing our strategic initiatives in the first quarter," said Ron Jutras,
President and CEO. "To date, these initiatives are responsible for the record
performance at Photowatt International, substantial turnaround within our
Precision Components Group, and strong performance gains within our US West
Coast and certain other ASG operations. While tangible progress is being made,
we have not yet fully realized the substantial benefits we expect to see over
time from our broad-based improvement strategies. In particular, more progress
is needed at our flagship ASG facility in Cambridge to effectively offset
foreign currency pressures and the impact of a challenging North American
automotive market."

-------------------------------------------------------------------------
3 months 3 months
ended ended
$ million, except June 30, June 30,
per share 2006 2005
-------------------------------------------------------------------------
Revenue from
continuing operations ASG $ 121.8 $ 125.7
-------------------------------------------------------------------------
Photowatt Technologies 44.4 42.9
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PCG 25.3 23.8
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Inter-company elimination (0.6) (3.7)
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Consolidated $ 190.9 $ 188.7
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Earnings (loss)
from operations ASG $ 2.8 $ 7.1
-------------------------------------------------------------------------
Photowatt International 10.0 6.6
-------------------------------------------------------------------------
Photowatt Canada and
other solar (5.4) -
-------------------------------------------------------------------------
PCG 0.9 (1.0)
-------------------------------------------------------------------------
Inter-company elimination (2.7) (3.4)
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Consolidated $ 5.6 $ 9.3
-------------------------------------------------------------------------

-------------------------------------------------------------------------
Net earnings per share From continuing
operations $ 0.04 $ 0.10
-------------------------------------------------------------------------
After discontinued
operations $ 0.01 $ 0.09
-------------------------------------------------------------------------

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Other ASG New Order Bookings $ 98.0 $ 110.6
-------------------------------------------------------------------------
ASG Order Backlog $ 176.1 $ 151.8
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Solar Developments

Capacity Expansion: Photowatt Technologies benefited from the addition of capacity which came on line in the second half of fiscal 2006 at its Photowatt France operation, combined with strong market demand. New production equipment is now beginning to arrive as part of its current expansion announced in May 2006. This program will increase total, annual capacity of Photowatt International to an estimated 60 megawatts and is expected to be on line by the end of fiscal 2007.

Silicon Supply: Photowatt Canada has commenced shipments to Photowatt France of solar-grade silicon (polysilicon) manufactured using its proprietary conversion process. Photowatt Canada expects to deliver 70 tonnes of polysilicon to Photowatt France in fiscal 2007. Photowatt Technologies also successfully secured additional silicon from traditional sources during the first quarter. As a result, management believes it now has silicon secured for the majority of its planned capacity into the second quarter of calendar 2007.

In addition, Photowatt France has now successfully manufactured 70,000 solar cells - with an average efficiency of over 12% - that were made entirely from refined metallurgical-grade silicon. With this technology advancement, management believes it has additional flexibility to utilize its capacity in this period of polysilicon shortages.

Spheral Solar(TM) Technology: As announced in May 2006, Photowatt Canada continues to work on further in-depth engineering and process development on its Spheral Solar(TM) technology. SRI International (formerly Stanford Research Institute) a leading research and development group has been engaged to assist in the effort to achieve reliable outputs at the desired efficiency level.

Funding Strategy: Management now expects it will file a preliminary prospectus for an initial public offering of shares of Photowatt Technologies in Canada and the U.S. by the end of the current quarter.

Quarterly Conference Call

ATS"s quarterly conference call begins at 10 am eastern today and can be accessed over the Internet at www.atsautomation.com or on the phone at 1 800 257 6607.

Note to Reader

Statements in this press release concerning Photowatt Technologies shall not constitute an offer to sell or the solicitation of an offer to buy any securities.

ATS"s fiscal 2006 annual report will be filed with SEDAR (www.sedar.com) and available on ATS"s website (www.atsautomation.com) Friday August 11, 2006.

About ATS

ATS Automation Tooling Systems Inc. (www.atsautomation.com) is the industry"s leading designer and producer of turn-key automated manufacturing and test systems, which are used primarily by multinational corporations operating in a variety of industries including: healthcare, computer/electronics, automotive, and consumer products. ATS is also an emerging leader in the rapidly growing market for solar energy cells and modules. The Company also makes precision components and subassemblies using its own custom-built manufacturing systems, process knowledge and automation technology. ATS employs approximately 3,900 people at 26 manufacturing facilities in Canada, the United States, Europe and Asia-Pacific. The Company"s shares are traded on The Toronto Stock Exchange under the symbol ATA.

Management"s Discussion and Analysis

This MD&A for the three months ended June 30, 2006 (first quarter of fiscal 2007) provides detailed information on the Company"s operating activities of the first quarter of fiscal 2007 and should be read in conjunction with the unaudited interim consolidated financial statements of the Company for the three months ended June 30, 2006. The Company assumes that the reader of this MD&A has access to, and has read the audited consolidated financial statements of the Company for fiscal 2006 and related MD&A and, accordingly, the purpose of this document is to provide a first quarter update to the information contained in the fiscal 2006 MD&A. These documents and other information relating to the Company, including the Company"s fiscal 2006 audited consolidated financial statements, MD&A and Annual Information Form, may be found on SEDAR at www.sedar.com.

Notice to Readers

The Company has three reportable segments: Automation Systems Group ("ASG"), Photowatt Technologies, and Precision Components Group ("PCG"). Previously referred to as "Solar Group", Photowatt Technologies is comprised of Photowatt International (a fully integrated solar ingot, wafer, cell and module production facility in France and a small module assembly and sales operation in the USA) and Photowatt Canada (investment in Spheral Solar(TM) technology). The terms operating income, operating earnings, earnings from operations, operating loss, operating results, operating margin, Order Backlog and New Order Bookings used in this MD&A have no standardized meanings prescribed within Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to similar measures presented by other companies.

Certain fiscal 2006 comparative figures including revenues, operating earnings, New Order Bookings and Order Backlog, have been restated to reflect the presentation of the Berlin coil winding business as a discontinued operation. This business was divested during the first quarter of fiscal 2007 (see below)

Automation Systems Group

Reflecting the impact of foreign exchange, ASG"s revenue of $121.8 million declined 3% in the first quarter compared to $125.7 million the same period last year. For the three months ended June 30, 2006, the estimated negative foreign exchange impact on ASG revenue was $12.1 million. Excluding the impact of foreign exchange, ASG revenue was an estimated 7% higher compared to the first quarter of fiscal 2006.

Computer-electronics and healthcare were ASG"s fastest-growing segments with revenue increases of 35% and 16% respectively compared to the first quarter a year ago. Healthcare continued to represent ASG"s largest market at 39% of Group revenue. Revenue from Repetitive Equipment Manufacturing (REM) increased 9% in the first quarter to $12.4 million from $11.4 million a year ago.

REM is a profitable growth initiative that combines the competitive advantages and capabilities of the Company"s ASG and PCG operations and primarily serves the healthcare segment. On a regional basis, compared to the first quarter last year, Western North American and Asian operations generated significant revenue increases. ASG automotive revenue decreased 38%, reflecting weakness in the North American automotive industry and the Company"s decision, made several quarters ago, to be more selective in bidding on assignments in this market. Consequently, ASG"s Eastern North American facilities continued to experience lower revenues, primarily in the Cambridge and Ohio operations. The Canadian dollar is also having a significant negative impact on Cambridge ASG operations. Lower revenues in Europe reflect challenging market conditions and the negative impact of foreign currency on translation. The UK-based automation company ATS acquired in the second quarter of fiscal 2006 contributed approximately $1.1 million of profitable revenue in the first quarter of fiscal 2007.

Automation Systems Group Revenue by Industry
($ millions)
Three months ended
6/30/2006 6/30/2005
---------------------------------------------------------
Healthcare $ 47.5 $ 41.0
Computer-electronics 33.8 25.1
Automotive 30.5 49.4
Other 10.0 10.2
---------------------------------------------------------
Total $ 121.8 $ 125.7
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---------------------------------------------------------


ASG first quarter operating earnings were $2.8 million compared to operating earnings of $7.1 million in the first quarter of fiscal 2006. The strong Canadian dollar continued to have a significant negative effect, reducing ASG operating earnings by an estimated $3.7 million during the three months ended June 30, 2006, versus the comparable period a year earlier. During and subsequent to the first quarter, ASG reduced its workforce in its Carolina and Ohio operations by approximately 10%, providing annualized salary reductions of an estimated $1.1 million. Severance costs of $0.4 million were incurred in the first quarter across ASG. These rationalizations are part of the Group"s comprehensive improvement strategies, which are aimed at strengthening ASG"s ability to overcome challenging automotive market conditions and the impact of foreign exchange and follow a 6% reduction in total ASG staffing announced in the fall of 2005.

Included in ASG"s operating income is amortization expense for the first quarter of $2.8 million, compared to $3.4 million in the first quarter of fiscal 2006.

Automation Systems Order Backlog

At June 30, 2006, ASG Order Backlog was $176 million, 16% higher than at June 30, 2005 and 20% lower than at March 31, 2006. Year over year, healthcare Order Backlog increased $28 million (64% increase) to $72 million despite a $14 million order cancellation caused by a customer making a change in its underlying product strategy. There was no negative financial impact to reported ASG operating earnings from resolution of this contract. Management believes the increase in healthcare Order Backlog reflects the significant efforts and progress made in penetrating this market. Automotive Order Backlog decreased $16 million year over year (25% decrease), reflecting ASG"s selective approach to pursuing certain automotive orders. The increase in computer-electronics (6% increase) and "other" (77% increase) Order Backlog reflects ASG"s continued focus on revenue diversification.

New ASG Order Bookings in the first quarter were $98 million, 8% lower than in the first quarter a year ago. New Order Bookings for the first five weeks of the second quarter of fiscal 2007 were $25 million. Order Backlog and New Order Bookings have been adjusted to remove the Berlin discontinued operations.

Automation Systems Order Backlog by Industry
($ millions)

6/30/2006 6/30/2005 Percentage
Change
-------------------------------------------------------------------------
Healthcare $ 72 $ 44 64%
Automotive 47 63 -25%
Computer-electronics 34 32 6%
Other 23 13 77%
-------------------------------------------------------------------------
Total $ 176 $ 152 16%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Automation Systems Outlook

ASG"s outlook continues to be tempered by the negative impact of the stronger Canadian dollar on its Canadian operations and the challenging North American automotive market which have both increased competitive pricing pressure. The Company"s focus on diversifying its revenue base into markets like healthcare, and on improving operational effectiveness through ongoing cost reduction strategies, more effective global supply chain management, better sales forecasting, targeted business development, expansion of operations in China and new organizational design are expected to contribute positively to results as these efforts begin to gain momentum.

Photowatt Technologies (Solar Group)

Photowatt Technologies" consolidated revenue in the first quarter continued to be derived solely from Photowatt International (comprised of its operations in France and USA). Despite the negative effect of foreign exchange on translation, revenue from these operations was $44.4 million, $1.5 million or 3% higher than in the same period last year. Excluding the translation effect of foreign exchange, Photowatt Technologies" revenue would have been an estimated 15% higher than the first quarter a year ago. Sequentially, compared to the fourth quarter of fiscal 2006, first quarter revenue grew 11%. First quarter revenue growth reflects strong market demand for solar products, primarily as a result of attractive government incentive programs in Europe, and increasing consumer interest in clean, sustainable energy sources. Increased revenue also reflects increased selling prices and increased production output from Photowatt France"s vertically integrated manufacturing facility. During the first quarter Photowatt International also increased its revenues from the sale of solar module installation kits and power inverters, as part of a total solutions strategy. Revenue from these items accounted for approximately $3 million of first quarter revenue, compared to a relatively small amount in previous quarters.

Photowatt Technologies" Operating Earnings
($ millions)

Three months ended
6/30/2006 6/30/2005
---------------------------------------------------------
Photowatt International $ 10.0 $ 6.6
Photowatt Canada (4.4) -
Corporate Costs (0.5) -
Intersolar eliminations (0.5) -
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Total $ 4.6 $ 6.6
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---------------------------------------------------------


Photowatt Technologies" first quarter operating results include both Photowatt International and Photowatt Canada. Prior to October 1, 2005, operating costs incurred by Photowatt Canada (SSP) were capitalized on the Company"s balance sheet as deferred development costs and excluded from operating earnings.

Photowatt International"s operating earnings for the first quarter were a record $10.0 million (23% operating margin), a $3.4 million or 51% increase from operating earnings of $6.6 million (15% operating margin) in the first quarter last year. Excluding the translation effect of foreign exchange on first quarter results, Photowatt International"s operating earnings would have increased 69% compared to the first quarter of fiscal 2006. The total estimated negative impact of foreign exchange translation of the euro to Canadian dollar on operating earnings in the first quarter was $1.2 million compared to the first quarter of fiscal 2006.

This record first quarter operating performance reflected higher selling prices and the benefits of significant improvements in production yields, throughput gains, cost reduction initiatives, and capital investments that have been made, including the integration of new wire saw process equipment installed in the fourth quarter of fiscal 2006. Photowatt International also achieved attractive margins on sales of solar module installation kits and power inverters.

To date, Photowatt France has mitigated a significant amount of the impact of silicon supply shortages and higher silicon prices on its operating income by achieving improved internal operating efficiencies and through increased selling prices for its products. However, Photowatt France"s silicon costs are expected to continue to increase in fiscal 2007 as its inventory of lower-priced silicon is consumed and new silicon purchases are made at higher prices. There remains a risk that the Company"s strategy of obtaining selling price increases and improvements in production efficiencies may not be able to fully offset higher silicon costs and silicon shortages.

Photowatt Canada"s operating loss was $4.4 million in the first quarter compared to a loss of $7.6 million in the fourth quarter. This operating loss reflected research and development costs incurred related to the Spheral Solar(TM) technology initiative, net of the intercompany profits Photowatt Canada generated on the sale of OFP Silicon (see silicon supply below) to Photowatt France. As expected, this loss was lower compared to the loss in the fourth quarter due to lower amortization (see below) and as the Company began to realize the cost savings from a 41% reduction in Photowatt Canada"s staff (60 positions) during the first quarter as part of management"s revised development plan for this operation and its technology.

Prior to this quarter, Photowatt Technologies presented its "corporate" management and general corporate costs and intersolar eliminations within Photowatt Canada"s results. These costs are now presented separately in the table above. Photowatt Technologies" corporate costs in the first quarter were $0.5 million compared to $0.2 million in the fourth quarter. These costs have increased over the fourth quarter as Photowatt Technologies builds out its management team to prepare for standalone company status. Corporate costs and inter-solar eliminations were insignificant during the comparable prior year quarter.

Intersolar eliminations in the first quarter totalled $0.5 million ($0.3 million in the fourth quarter of fiscal 2006). These eliminations represent profit that is deferred until the underlying shipments of silicon between Photowatt Canada and Photowatt International are converted to revenue.

Photowatt Technologies" consolidated operating income for the three months ended June 30, 2006 was $4.6 million, compared to operating earnings of $6.6 million in the first quarter a year ago. This reduction is a result of Photowatt Canada"s costs related to the Spheral Solar(TM) technology no longer being capitalized as they were in the first quarter of fiscal 2006.

Photowatt International and Photowatt Canada amortization expense for the three months ended June 30, 2006 was $2.3 million and $0.3 million, respectively, compared to $1.9 million and $nil, respectively, in the comparable period of the prior year. Amortization costs of Photowatt Canada have decreased significantly from the third and fourth quarters of fiscal 2006 reflecting the write down of Photowatt Canada production equipment in fiscal 2006 (see fiscal 2006 consolidated financial statements and MD&A for further details).

Photowatt Technologies Outlook

Management believes solar product demand will remain strong based upon ongoing European subsidy programs, newly introduced North American subsidy programs and continued demand for clean, renewable energy products that can augment or replace increasingly scarce fossil fuels. Photowatt France performance in the second quarter will be negatively affected by its customary summer shutdown.

Photowatt International Capacity Expansions. During the first quarter, the Company announced another capacity expansion plan. This latest expansion is expected to increase the estimated annual production capacity of Photowatt International from approximately 40 megawatts of cell capacity to approximately 60 megawatts of vertically integrated capacity by the end of fiscal 2007, at an estimated capital cost of (euro) 25 million.

Silicon Supply. Management believes that it has now secured sources of silicon at Photowatt France for the majority of its planned capacity into the second quarter of calendar 2007. In addition to purchasing silicon from conventional industry sources at market prices, management is employing a number of strategies which it believes should allow it to secure additional supplies of silicon.

During the first quarter, Photowatt Canada shipped approximately seventeen tonnes of silicon to Photowatt France. Of these seventeen tonnes, seven were manufactured using its proprietary processes that convert lower-cost forms of silicon into silicon usable by Photowatt France ("OFP Silicon"). The majority of the balance was converted by Photowatt Canada into readily useable silicon using its separation process. OFP Silicon is expected to be an important, incremental source of silicon supply for Photowatt France. Photowatt Canada currently estimates that it has sufficient manufacturing capacity and raw materials in inventory to ship approximately 70 tonnes of silicon, including OFP Silicon, to Photowatt France this fiscal year.

A third element of the Company"s silicon supply strategy is the use of refined metallurgical silicon. Using this lower cost silicon, Photowatt France has successfully manufactured 70,000 solar cells, most of which were produced in the first quarter of fiscal 2007. These cells currently achieve an average efficiency of over 12% compared to 15% average cell efficiency using polysilicon. Management believes that the use of refined metallurgical grade silicon, while less profitable, provides Photowatt France with an economically viable alternative to using traditional polysilicon and that this technology can be enhanced to further improve cell efficiency.

A fourth element of Photowatt Technologies" silicon supply strategy is continued development of strategic partnerships and alliances.

Spheral Solar(TM) Technology: Photowatt Canada continues to work on further in-depth engineering and process development on its Spheral Solar(TM) technology. SRI International (formerly Stanford Research Institute) a leading research and development group has been engaged to assist in the effort to achieve reliable outputs at the desired efficiency level. A preliminary assessment of the future development path is planned to be delivered by the end of September and a more comprehensive report is due in January.

Solar Funding Strategy. The Company continues to advance toward an initial public offering of the shares of Photowatt Technologies. Management expects to file a preliminary prospectus before the end of the current quarter. In preparation for this event, during the first quarter, Photowatt Technologies recruited its first Executive Chairman, Robert Franklin, who has played a leadership role on the Board of Directors in a number of successful public companies. Photowatt Technologies also added a new Chief Financial Officer, David Adams, who brings significant public company experience within a cross-listed (TSX, NASDAQ) environment.

Precision Components Group

PCG continues to make significant progress in strengthening its operations and achieved both revenue and operating earnings improvements in the first quarter. More specifically, despite a challenging North American automotive market and the negative impact of a lower US-Canadian dollar exchange rate, PCG"s revenue increased 6% or $1.5 million in the first quarter of fiscal 2007 to $25.3 million, compared to $23.8 million in the prior year period. Revenue growth was driven by a number of factors including: new PCG programs that launched during fiscal 2006; increased volumes on existing programs; and, price increases on certain programs.

The estimated negative foreign exchange impact on PCG revenue for the three months ended June 30, 2006 was $2.4 million compared to the same period of a year ago.

PCG"s operating income for the first quarter increased $1.9 million to $0.9 million, from a loss of $1.0 million in the first quarter last year. This increase was achieved despite an estimated $1.0 million negative impact of foreign currency on operating income compared to the first quarter last year. Operating income in the first quarter of fiscal 2006 included $1.0 million of costs related to the consolidation of the McAllen, Texas facility into PCG"s Cambridge operations.

Improved PCG performance reflects significant operational improvements that have been made over the past year, including: closure of PCG"s McAllen, Texas facility, manufacturing efficiency gains, price increases on programs and increased benefits from supply chain management. These improvements more than offset the negative impact of foreign exchange.

Included in PCG"s operating income is amortization expense for the first quarter of $1.8 million, compared to $2.0 million in the first quarter of fiscal 2006.

Precision Components Outlook

PCG continues to benefit from the significant, ongoing improvements it has made in its operations, which have reduced operating costs and enhanced PCG asset utilization. However, the impact of the strengthening Canadian dollar has continued to hold back the benefits of this substantial progress. Looking forward, the second quarter will be negatively impacted by traditional summer plant shutdowns. As well, management continues to expect that the North American automotive market will remain challenging throughout fiscal 2007 due to very competitive pricing, and the strong Canadian dollar. However, management continues to believe that PCG"s prospects have been strengthened due to its operational improvements and the nature and quality of customer assignments that PCG is now fulfilling. Reflecting increased customer demand and capacity constraints at its existing leased facility in Stratford, Ontario, PCG is progressing with its previously announced plans to relocate its successful Omex business to a larger, leased facility at an estimated expense of $0.8 million which is expected to be incurred over the second and third quarters of fiscal 2007.

Consolidated Results From Operations

Revenue. At $190.9 million, consolidated revenue from continuing operations for the three months ended June 30, 2006 was 1% higher than a year ago. A 3% increase in solar revenue and a 6% increase in PCG revenue were offset by the 3% reduction in ASG revenue. The estimated effect on revenue of changes in effective foreign exchange rates was a reduction in revenue of $19.4 million for the three months ended June 30, 2006 compared to the same period of the prior year. Excluding the impact of foreign exchange, consolidated revenue was an estimated 11% higher compared to the first quarter of fiscal 2006.

Consolidated Revenue by Region
($ millions)

Three months ended
6/30/2006 6/30/2005
---------------------------------------------------------
U.S. & Mexico $ 81.8 $ 105.6
Europe 69.6 62.0
Canada 12.4 6.0
Asia-Pacific and other 27.1 15.1
---------------------------------------------------------
Total $ 190.9 $ 188.7
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Consolidated earnings from operations. For the three months ended June 30, 2006, consolidated earnings from operations were $5.6 million, compared to earnings from operations of $9.3 million a year ago. Fiscal 2007 first quarter performance reflected: operating earnings of $10.0 million at Photowatt International ($6.6 million a year ago); operating loss of $5.4 million at Photowatt Canada including corporate costs and intergroup eliminations (results a year ago were capitalized on the Company"s balance sheet); PCG operating earnings of $0.9 million ($1.0 million loss a year ago); ASG operating earnings of $2.8 million (operating earnings $7.1 million a year ago); and, intercorporate operating costs of $2.7 million ($3.5 million of costs a year ago). Excluding the costs associated with Spheral Solar(TM) technology incurred in the first quarter and excluding the estimated impact of foreign currency, consolidated earnings from operations for the three months ended June 30, 2006 would have been $16.0 million.

Selling, general and administrative ("SG&A") expenses. For the first quarter, SG&A expenses increased $1.0 million to $21.3 million compared to the respective prior year period. This increase is primarily attributable to the inclusion of a total of $1.4 million of Photowatt Canada SG&A expenses including $0.5 million of Photowatt Technologies corporate costs. Increased SG&A expenses in the quarter were also attributable to costs associated with organizational development and increased profit sharing costs resulting from increased profitability at Photowatt France. Included in the SG&A for the first quarter of fiscal 2006 was $1.0 million for the consolidation of the McAllen, Texas operations, $0.8 million of severance costs in ASG and a $0.4 million gain on sale of equipment.

Stock-based compensation cost. For the first quarter stock based compensation expense decreased $0.7 million from the first quarter of last year reflecting the issuance and cancellation of employee stock options, the increased use of deferred stock units under the directors" compensation plan, and the change in value of the outstanding deferred stock units.

Interest expense. For the three months ended June 30, 2006, interest expense increased $0.2 million compared to a year ago to $0.6 million, primarily reflecting higher interest rates and higher usage of the Company"s credit facilities.

Loss from discontinued operations, net of tax. During the three months ended June 30, 2006, the Company sold the key operating assets and liabilities including equipment, current assets, trade accounts payable and certain other assets and liabilities of its Berlin, Germany coil winding business for net proceeds of (euro) 0.6 million consisting of cash of (euro) 0.3 million and an interest bearing note receivable of (euro) 0.3 million. Accordingly, the results of operations and financial position of the Berlin subsidiary have been segregated and presented separately as discontinued operations and as assets held for sale. The loss from discontinued operations includes a non-cash charge of $2.0 million ($2.2 million before taxes) during the three months ended June 30, 2006 to write down the assets sold to their net realizable value. Results for comparable periods have been restated to reflect this discontinued operation.

In the fourth quarter of fiscal 2006, the Company completed the sale of PCG"s precision metals division ("Precision Metals"). The results and financial position of Precision Metals for fiscal 2006 have been segregated and presented separately as "discontinued operations" and "assets held for sale" in the accompanying interim financial statements. The Company retained the land and building related to the Precision Metals operations and entered into a lease agreement with the purchaser for use of the land and building. The Company expects to sell the land and building, and, as such the assets continue to be classified as "held for sale". See note 2 to the Consolidated Interim Financial Statements for further details on the net loss from discontinued operations.

Provision for income taxes. The effective rate of income tax reflects the tax rates of different countries and jurisdictions where future tax assets are not recognized.

Net earnings from continuing operations. For the first quarter of fiscal 2007 net earnings from continuing operations were $2.4 million (4 cents per share basic and diluted) compared to net earnings from continuing operations of $5.9 million (10 cents per share basic and diluted) a year ago.

Net earnings. For first quarter of fiscal 2007 net earnings were $0.3 million (1 cent per share basic and diluted) compared to net earnings of $5.4 million (9 cents per share basic and diluted) for the same period last year. Excluding the impact of Photowatt Canada (SSP), consolidated net earnings for the quarter ended June 30, 2006 would have been $3.8 million (6 cents per share basic and diluted).

Impact of Foreign Exchange

The sustained strength of the Canadian dollar particularly against the US dollar and the euro continued to have a significant and negative impact on the Company"s revenue and earnings in the first quarter of fiscal 2007. In the first quarter, the effective rate of exchange on the US dollar and euro currencies declined 9% and 10% respectively, while average market rates declined 10% and 10% respectively compared to the same quarter of last year.

Estimated Foreign Exchange Impact
For the three months ended June 30, 2006
($ millions)
-------------------------------------------------------------------------
Estimated
negative %
impact Change vs.
of foreign last year
exchange excluding
% included foreign
Change vs. in reported exchange
Reported last year results impact
-------------------------------------------------------------------------
Revenue

Automation Systems $ 121.8 (3.1)% $ 12.1 6.5%
Precision Components 25.3 6.2% 2.4 16.2%
Photowatt Technologies 44.4 3.5% 4.9 14.9%
Elimination of
Inter-Segment Revenue (0.6)
-------------------------------------------------------------------------
Consolidated $ 190.9 1.2% $ 19.4 11.4%
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-------------------------------------------------------------------------

Earnings (loss) from
Operations

Automation Systems $ 2.8 (60.5)% $ 3.7 (8.6)%
Precision Components 0.9 N/A 1.0 N/A
Photowatt International 10.0 51.4% 1.2 69.4%
Photowatt Canada (SSP)
and other (5.4) - - -
Elimination of
Inter-Segment Revenue (2.7)
-------------------------------------------------------------------------
Consolidated $ 5.6 (39.2)% $ 5.9 24.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------


At June 30, 2006 the Company had, on hand, unrealized forward exchange contracts for the future sale of US dollars related to anticipated revenue and balance sheet transaction exposure totalling US$140 million at an average exchange rate of Cdn $1.1382. The unrecognized gain on these forward contracts totaled approximately $2.7 million at June 30, 2006.

Period Average Market Exchange Rates in CDN$

Three months ended
6/30/2006 6/30/2005 % change
----------------------------------------------------------
US 1.1200 1.2449 -10%
Euro 1.4110 1.5620 -10%
Singapore $ 0.7053 0.7500 -6%
----------------------------------------------------------
----------------------------------------------------------


Liquidity, Cash Flow and Financial Resources

Cash balances, net of bank indebtedness, at June 30, 2006 increased $3 million during the first quarter compared to the fourth quarter of fiscal 2006. The change in the net cash balance was largely as a result of increased working capital, investments in property, plant and equipment and investment in GD Technologies, which were more than offset by proceeds from the sale of the Berlin business and increased borrowings on the Company"s long term debt facilities of $20 million.

The Company invested $6 million in property, plant and equipment, in the first quarter of fiscal 2006. Photowatt International investments in property, plant and equipment in the first quarter of fiscal 2007 were $4 million which primarily related to the previously announced capacity expansion. ASG and PCG property, plant and equipment expenditures were $2 million.

To further its growth strategy in China, during the first quarter the Company purchased a minority position in GD Technologies for $2 million. GD Technologies is a precision machining company with extensive local contacts and assembly, test and supply chain management capabilities. The Company has also now completed the relocation of two of its Chinese operations into larger leased facilities.

The Company"s debt to equity ratio at June 30, 2006 was 0.2:1. At June 30, 2006 the Company had $75 million of unutilized credit available under existing operating and term credit facilities. The Company is in compliance with its loan covenants.

During the first quarter, approximately 52,000 stock options were exercised for total proceeds of $0.5 million. At June 30, 2006 the total number of shares outstanding was 59,244,502.

Consolidated Quarterly Results

($ in thousands, except Q1 Q4 Q3 Q2
per share amounts) 2007 2006 2006 2006
-------------------------------------------------------------------------
Revenue $ 190,889 $ 208,675 $ 176,254 $ 152,050

Net earnings (loss) from
continuing operations $ 2,434 $ (64,295) $ (5,309) $ (3,019)

Net earnings (loss) $ 338 $ 65,589) $ (5,801) $ (3,329)

Basic earnings (loss)
per share from
continuing operations $ 0.04 $ (1.09) $ (0.09) $ (0.05)

Basic earnings (loss)
per share $ 0.01 $ (1.11) $ (0.10) $ (0.06)

Diluted earnings
(loss) per share from
continuing operations $ 0.04 $ (1.09) $ (0.09) $ (0.05)

Diluted earnings
(loss) per share $ 0.01 $ (1.11) $ (0.10) $ (0.06)



($ in thousands, except Q1 Q4 Q3 Q2
per share amounts) 2006 2005 2005 2005
-------------------------------------------------------------------------
Revenue $ 188,716 $ 206,853 $ 197,542 $ 177,573

Net earnings (loss) from
continuing operations $ 5,868 $ 14,615 $ 7,103 $ 4,587

Net earnings (loss) $ 5,426 $ 459 $ 5,627 $ 432

Basic earnings (loss)
per share from
continuing operations $ 0.10 $ 0.24 $ 0.12 $ 0.08

Basic earnings (loss)
per share $ 0.09 $ 0.01 $ 0.09 $ 0.01

Diluted earnings
(loss) per share from
continuing operations $ 0.10 $ 0.24 $ 0.12 $ 0.08

Diluted earnings
(loss) per share $ 0.09 $ 0.01 $ 0.09 $ 0.01

Note: The above information has been restated for the Berlin, Precision
Metals and thermals discontinued operations.


Lease and Contractual Obligations

Information on the Company"s lease and contractual obligations is detailed in the consolidated annual financial statements and MD&A for the year ended March 31, 2006 found at www.sedar.com. For the three months ended June 30, 2006, the Company did not enter into any material leases or any material contractual obligations which would be considered outside the normal course of operations.

Note to Readers

This press release and the first quarter MD&A and consolidated interim financial statements accompanying it (collectively the "Press Release") contain certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of ATS, or developments in ATS"s business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. ATS cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements relate to, among other things, the realization of benefits from ATS"s broad-based improvement strategies REM being a profitable growth initiative; impacts relating to the relative value of the Canadian dollar; ability of ASG improvement strategies to overcome weaker automotive market conditions and the impact of foreign exchange; ASG"s selective approach to pursuing certain automotive orders; ATS"s focus on diversifying its revenue base and improving operational effectiveness will contribute positively to ASG"s results; expectation that silicon costs will continue to rise during fiscal 2007; possibility of selling price increases and improvements in production efficiencies offsetting higher silicon costs and shortages; future demand for solar products; planned capacity increase at Photowatt Technologies in France; security of supply of silicon at Photowatt France into the second quarter of calendar 2007; purchase of silicon from conventional industry sources at market prices; strategies being employed to secure additional sources of silicon; OFP Silicon being an important source of silicon supply for Photowatt France; estimates by Photowatt Canada (SSP) with respect to its manufacturing capacity and raw materials in inventory; use of refined metallurgical grade silicon; management"s belief that this technology provides Photowatt France with a economically viable alternative to the use of conventional solar grade silicon and that this technology can be enhanced to further improve cell efficiency; Photowatt Technologies" continued development of strategic partnerships and alliances; the estimated timeline for in-depth engineering development and process development relating to its Spheral Solar(TM) technology; an initial public offering of shares of Photowatt Technologies and timing of filing the related preliminary prospectus; continued progress of PCG in strengthening its operations; the negative impact of traditional summer plant shut downs on PCG and Photowatt Technologies in the second quarter; expectation that the North American automotive market will remain challenging; optimism concerning PCG"s prospects due to operational improvements and the nature and quality of customer assignments; plans to relocate PCG"s Omex business to new leased facilities and the expected cost and timing; and the sale of the land and building formerly occupied by its former Precision Metals division. The risks and uncertainties that may affect forward-looking statements include, among others; general market performance; performance of the Canadian dollar; performance of the market sectors that ATS serves; that ATS" REM business is unable to find new customers and/or quality projects and growth and profitability are adversely impacted as a result; unforeseen problems with the implementation of the ASG improvement strategies and/or the failure of such strategies to achieve stated goals; that ASG"s approach to automotive orders and the various elements of ATS"s focus are not successful and ATS" business and profitability suffer as a result; ATS"s ability to overcome process challenges currently facing SSP technology and any new issues that may arise, and whether or not process solutions exist, are available, or can be discovered, and potential delays in finding process solutions; problems with the equipment used in the OFP process; unforeseen problems with Photowatt France"s use of OFP Silicon produced by the SSP technology and/or metallurgical silicon; the risk that efficiencies relating to metallurgical grade silicon technology cannot be found and/or that the market is unreceptive to lower efficiency cells and as a result it is not an economically viable alternative to the use of conventional solar grade silicon; equipment, labour or other issues that may arise with respect to the SSP technology being used in conversion of silicon for Photowatt France; reversal of current silicon supply arrangements, inability to finalize strategic partnerships or alliances to provide for silicon supply and other problems that may be encountered with silicon supply sources; potential for silicon prices to decline in the face of long term silicon supply arrangements; ability to achieve lower silicon usage relative to conventional solar technology; possibility that selling price increases and improvements in production efficiencies will not be obtained and/or, if they are, will not be sufficient to offset higher silicon costs and shortages; the cost and availability of silicon and other raw materials and certain specialized manufacturing tools and fixtures used in the production of Photowatt Technologies" products; the successful expansion of production capability and adoption of new production processes; the extent of market demand for solar products such as those developed by the Photowatt Technologies; the availability of government subsidies for solar products, the development of superior or alternative technologies to those developed by ATS; the success of competitors with greater capital and resources in exploiting their technology and marketing their products; that current measures being taken by ATS are not sufficient to overcome the negative impact of currency; availability of materials and labour to implement expansion at Photowatt France and potential delays and cost overruns with such expansion; delays in or abandonment of pursuit of initial public offering for Photowatt Technologies; unavailability of an IPO alternative due to a change in market conditions; possibility that progress of PCG in strengthening its operations may be delayed or reversed for unforeseen reasons; the ability of PCG to translate operational improvements and new customer assignments into better financial performance; delays and cost overruns with respect to the new leased facilities for PCG"s Omex operations; delay in, abandonment of or other problems encountered with the sale of the property previously occupied by ATS"s former Precision Metals division; and other risks detailed from time to time in ATS" filings with Canadian provincial securities regulators, including ATS" Management"s Discussion and Analysis, Consolidated Financial Statements, Annual Report and Annual Information Form for the fiscal year ended March 31, 2006. Forward-looking statements are based on management"s current plans, estimates, projections, beliefs and opinions, and ATS does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.

August 9, 2006


<<
ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Earnings
(in thousands, except per share amounts - unaudited)

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
(as restated)
Revenue $ 190,889 $ 188,716

Operating costs and expenses:
Cost of revenue 156,560 151,035
Amortization 7,243 7,295
Selling, general and administrative 21,340 20,322
Stock-based compensation (note 3) 101 779
-------------------------------------------------------------------------
185,244 179,431
-------------------------------------------------------------------------
Earnings from operations 5,645 9,285

Other expenses (income):
Interest on long-term debt 728 373
Other interest (146) 49
-------------------------------------------------------------------------
582 422
-------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and non-controlling interest 5,063 8,863

Provision for income taxes 2,506 2,822
Non-controlling interest in earnings of subsidiaries 123 173
-------------------------------------------------------------------------
Net earnings from continuing operations 2,434 5,868

Loss from discontinued operations,
net of tax (note 2) (2,096) (442)
-------------------------------------------------------------------------
Net earnings $ 338 $ 5,426
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per share (note 5)

Basic and diluted - from continuing
operations $ 0.04 $ 0.10
Basic and diluted - from discontinued
operations (0.03) (0.01)
-------------------------------------------------------------------------
$ 0.01 $ 0.09
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements



Consolidated Statements of Retained Earnings
(in thousands of dollars - unaudited)

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 125,063 $ 208,120
Net earnings 338 5,426
Reduction from share repurchase (note 4) - (13,764)
-------------------------------------------------------------------------
Retained earnings, end of period $ 125,401 $ 199,782
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements



ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Balance Sheets
(in thousands of dollars - unaudited)

-------------------------------------------------------------------------
June 30 March 31
2006 2006
-------------------------------------------------------------------------
ASSETS

Current assets:
Cash and short-term investments $ 37,395 $ 27,921
Accounts receivable 126,691 133,450
Income taxes recoverable 13,447 19,984
Costs and earnings in excess of billings
on contracts in progress 92,113 102,759
Inventories 72,196 69,833
Other 8,357 4,887
-------------------------------------------------------------------------
350,199 358,834

Property, plant and equipment 197,009 198,863
Goodwill 32,757 33,686
Intangible assets 633 1,354
Future income tax assets 44,814 42,493
Deferred development costs 3,904 3,960
Assets held for sale (note 2) 1,485 1,485
Other assets 7,727 8,697
-------------------------------------------------------------------------
$ 638,528 $ 649,372
-------------------------------------------------------------------------
-------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS" EQUITY

Current liabilities:
Bank indebtedness $ 8,030 $ 1,812
Accounts payable and accrued liabilities 90,513 100,149
Billings in excess of costs and earnings
on contracts in progress 19,179 39,497
Future income taxes 31,093 33,367
-------------------------------------------------------------------------
148,815 174,825

Long-term debt 58,122 39,860
Future income taxes 2,172 3,121
Non-controlling interest 736 645

Shareholders" equity:
Share capital 327,343 326,840
Retained earnings 125,401 125,063
Contributed surplus 2,345 2,035
Cumulative translation adjustment (26,406) (23,017)
-------------------------------------------------------------------------
428,683 430,921

-------------------------------------------------------------------------
$ 638,528 $ 649,372
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements



ATS AUTOMATION TOOLING SYSTEMS INC.

Consolidated Statements of Cash Flows
(in thousands of dollars - unaudited)

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 338 $ 5,426
Items not involving cash 1,376 14,049
Stock-based compensation 101 779
Write down of assets to net realizable
value (note 2) 1,978 -
-------------------------------------------------------------------------
Cash flow from operations 3,793 20,254

Change in non-cash operating working capital (12,161) (33,849)
-------------------------------------------------------------------------
(8,368) (13,595)

Cash flow from investing activities:
Acquisition of property, plant, and equipment (6,146) (13,490)
Investments and other (2,341) (5,818)
Proceeds from disposal of assets 426 432
-------------------------------------------------------------------------
(8,061) (18,876)
Cash flows from financing activities:
Bank indebtedness 6,218 32,342
Proceeds from long-term debt 20,000 -
Purchase of common shares for cancellation
(note 4) - (25,000)
Issuance of common shares 503 2,154
-------------------------------------------------------------------------
26,721 9,496
-------------------------------------------------------------------------

Effect of exchange rate changes on cash and
short-term investments (818) (502)
-------------------------------------------------------------------------
Increase (decrease) in cash and short-term
investments 9,474 (23,477)

Cash and short-term investments, beginning
of period 27,921 49,529
-------------------------------------------------------------------------

Cash and short-term investments, end of period $ 37,395 $ 26,052
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplementary information:
Cash income taxes paid $ 133 $ 440
Cash interest paid $ 1,118 $ 459
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements



ATS AUTOMATION TOOLING SYSTEMS INC.

Notes to Interim Consolidated Financial Statements
(tabular amounts in thousands, except per share amounts - unaudited)
-------------------------------------------------------------------------


These statements have not been reviewed or audited by the Company"s auditor.

1. Significant accounting policies:

(i) The accompanying unaudited interim consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada ("GAAP") and the accounting policies are consistent with those described in the annual consolidated financial statements for the year ended March 31, 2006. The unaudited interim consolidated financial statements presented in this interim report do not conform in all respects to the requirements of generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company"s fiscal 2006 audited consolidated financial statements.

(ii) Contract revenue in the Automation Systems segment is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred, excluding costs that are not representative of progress to completion, as a percentage of total costs anticipated for each contract. Incentive awards, claims or penalty provisions are recognized when such amounts are likely to accrue and can reasonably be estimated. 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.

Revenue in the Precision Components and Photowatt Technologies segments is recognized at time of shipment, providing collection is reasonably assured.

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

2. Discontinued operations and assets held for sale:

(i) During the three months ended June 30, 2006, the Company sold the key operating assets and liabilities, including equipment, current assets, trade accounts payable and certain other assets and liabilities of its Berlin, Germany coil winding business for net proceeds of 600,000 euro consisting of cash of 300,000 euro and an interest bearing note receivable of 300,000 euro. Accordingly, the results of operations and financial position of the Berlin coil winding business have been segregated and presented separately as discontinued operations in the accompanying interim consolidated financial statements. The results of the discontinued operations were as follows:

Three months ended
------------------------------------------------------------------------
June 30 June 30
2006 2005
------------------------------------------------------------------------
Revenue $ 1,737 $ 1,784

Loss from operations $ (180) $ (117)
Write-down to reduce assets sold to net
realizable value (1,978) -
------------------------------------------------------------------------
Loss from discontinued operations, net of tax $ (2,158) $ (117)
------------------------------------------------------------------------


The loss from discontinued operations includes a non-cash charge of $1,978,000 ($2,173,000 before taxes) during the three months ended June 30, 2006 to write down the assets sold to their net realizable value.

(ii) During fiscal 2005, the Company committed to a plan to sell the key operating assets, including certain working capital and property, plant and equipment, of its precision metals division of the Precision Components segment ("Precision Metals"). Accordingly, the results of operations and financial position of Precision Metals have been segregated and presented separately as discontinued operations and as assets held for sale in the accompanying interim consolidated financial statements. The results of the discontinued operations were as follows:

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Revenue $ 307 $ 8,348

Income (loss) from operations $ 94 $ (594)
Income tax (expense) recovery (32) 202
-------------------------------------------------------------------------
Income (loss) from discontinued operations $ 62 $ (392)
-------------------------------------------------------------------------


During the year ended March 31, 2006, the Company reclassified approximately $1,500,000 of net assets as a result of the Company"s decision to integrate a product line that had previously been classified as held for sale into its continuing business.

Effective January 2, 2006, the Company completed the sale of Precision Metals for net proceeds of $4,309,000, including transaction costs. The fiscal 2006 loss from discontinued operations includes a charge of $474,000 ($718,000 before taxes) to reduce the Precision Metals assets to the estimated net realizable value including transaction costs. The loss from discontinued operations for the year ended March 31, 2005 includes a $12,825,000 ($19,000,000 before taxes) non-cash charge to write down certain assets to their net realizable value.

The Company retained the land and building related to the Precision Metals operations and has entered into a lease agreement with the purchaser for use of the land and building. The Company expects to sell this land and building and, as such, the assets continue to be classified as held for sale.

(iii) During the year ended March 31, 2005, the Company sold the key intellectual property, inventory and operating assets of its thermal management products business of the Precision Components segment ("Thermals Business") for net proceeds of $8,600,000 resulting in a loss of $1,738,000 ($3,173,000 before taxes). Accordingly, the results of operations of the Thermals Business have been segregated as discontinued operations in the interim consolidated financial statements. The results of the discontinued Thermal Business were as follows:

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Revenue $ - $ -

Income from operations $ - $ 101
Income tax expense (34)
-------------------------------------------------------------------------
Income from discontinued operations $ - $ 67
-------------------------------------------------------------------------

3. Stock-based compensation:


In the calculation of the stock-based compensation expense in the interim Consolidated Statements of Earnings, the fair values of the Company"s non-performance based stock option grants were estimated using the Black-Scholes option pricing model and the fair value of the Company"s performance based stock option grants were estimated using a binomial option pricing model with the following weighted average assumptions and data:

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Weighted average of risk-free interest rate 4.18% 3.35%
Dividend yield 0.00% 0.00%
Weighted average of expected life (years) 5.3 years 5.2 years
Expected volatility 31% 31%
Number of stock options granted (thousands):
Non-performance based 372 432
Performance based 175 165
Weighted average of exercise price per
option (dollars) $ 11.34 $ 14.40
Weighted average value per option (dollars):
Non-performance based $ 4.17 $ 5.04
Performance based $ 3.66 $ 4.42
-------------------------------------------------------------------------
-------------------------------------------------------------------------


During the quarters ended June 30, 2006 and 2005, the Company issued certain performance based options. The performance based options vest based on the ATS stock trading at or above a threshold for a minimum of 20 trading days in a fiscal quarter. These performance options expire on the seventh anniversary of the date of the award. During the first quarter of fiscal 2007, no performance based options vested.

4. Share repurchase option:

During the year ended March 31, 2005, the Company received proceeds of $25,000,000 and $2,000,000 related to a "key-man" life insurance policy in respect of the death of Mr. Klaus Woerner. The insurance policy was entered into to provide funding for the repurchase of certain of ATS"s shares.

Under an agreement entered into in 1998, the Company was granted the option by 566226 Ontario Ltd., a corporation then controlled by Mr. Woerner, to repurchase all or a portion of the shares held by 566226 Ontario Ltd. upon the death of Mr. Woerner, subject to certain restrictions. This agreement was entered into to provide the Company the ability to ensure an orderly disposition of shares controlled by Mr. Woerner"s estate. On April 18, 2005, the Company exercised its option to purchase for cancellation 1,974,723 shares at a price of $12.66 per share. The purchase price of these share was funded by the $25,000,000 of life insurance proceeds.

As a result of the share repurchase, share capital was reduced during the three-months ended June 30, 2005 by the value of $5.69 per share totaling $11.2 million. The excess of cost to repurchase the shares over the stated value was charged to retained earnings.

5. Weighted average number of shares:

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

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
Basic 59,220 59,283
Diluted 59,386 59,554
-------------------------------------------------------------------------
-------------------------------------------------------------------------

6. Segmented disclosure:


The Company evaluates performance based on three reportable segments: Automation Systems, Photowatt Technologies, and Precision Components. The Automation Systems segment produces custom-engineered turn-key automated manufacturing and test systems. The Photowatt Technologies segment is a high volume manufacturer of photovoltaic products through its subsidiary Photowatt International and also includes the Company"s investment in the Spheral Solar (TM) Technology initiative. The Precision Components segment is a high volume manufacturer of plastic and metal components and sub-assemblies.

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

Three months ended
-------------------------------------------------------------------------
June 30 June 30
2006 2005
-------------------------------------------------------------------------
(as restated)
Revenue
Automation Systems $ 121,784 $ 125,737
Photowatt Technologies 44,381 42,883
Precision Components 25,260 23,780
Elimination of inter-segment revenue (536) (3,684)
-------------------------------------------------------------------------
Consolidated $ 190,889 $ 188,716
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) from operations
Automation Systems $ 2,786 $ 7,061
Photowatt Technologies 4,587 6,626
Precision Components 870 (957)
Inter-segment elimination and corporate expenses (2,598) (3,445)
-------------------------------------------------------------------------
Consolidated $ 5,645 $ 9,285
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>

7. Cyclical nature of the business:


Interim financial results are not necessarily indicative of annual or longer term results, because many of the individual markets served by the Company tend to be cyclical in nature. General economic trends, product life cycles and product changes may impact Automation Systems New Order Bookings, Photowatt Technologies and Precision Components volumes, and the Company"s earnings in any of its markets.

For further information

Carl Galloway, Vice President and Treasurer, Gerry Beard, Vice President and Chief Financial Officer, (519) 653-6500


Source: ATS Automation Tooling Systems Inc.
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