WESCAST DELIVERS STRONG THIRD |
| TSX: NASDAQ: | WCS.A WCST |
October 23, 2002 |
| • | Net earnings per share for the third quarter on a fully-diluted basis were $0.91. In the same quarter in 2001 the Company reported a fully-diluted net loss per share of $0.76, which reflected the discontinuance of its stainless steel manifold business. The fully-diluted earnings per share from continuing operations reported for the third quarter of 2001 were $0.93. |
| • | Net earnings for the quarter were $12.0 million versus a loss of $9.8 million in 2001. Net earnings from continuing operations were $12.2 million in 2001. |
| • | The North American automotive vehicle production levels have remained strong. Third quarter production levels were up 12% compared with the third quarter of 2001. However, this percentage increase should be viewed in the context of the events of September 11th 2001, which significantly impacted the third quarter of 2001. Vehicle production by the Big 3 for the quarter was up 10.7% over the same period last year. |
| • | Wescast sales revenues were up 11% over the levels reported in the same quarter last year, in line with the improvement in overall market conditions. |
| • | On September 12th the Company completed its acquisition of the Georgia Ductile Foundry based in Cordele, Georgia. The acquisition marks Wescast’s entry into the casting of automotive brake and suspension components. The third quarter performance includes the results of this operation since acquisition, representing a negative impact of approximately $0.03 per share. |
OperationsTotal sales for the quarter of $97.3 million were up 11% from the previous year’s level of $87.9 million. This was driven by sales generated from cast and machined iron manifolds which increased 16% to $91.4 million from $78.8 million in 2001. These gains were partially offset by reduced tooling and prototype revenue which fell by $5.3 million to $3.8 million compared with the $9.1 million recorded in 2001. The change in tooling and prototype revenue is a function of year-over-year differences in the timing of customer programs. In 2002 a number of programs fall into the fourth quarter. Gross profit, after depreciation, on the sale of iron manifolds was $25.9 million, an increase of 6% over the $24.4 million reported over the same period in 2001. Expressed as a percentage of sales the 28.3% gross profit level reflects a decline from the 30.9% reported over the same period in 2001. If we isolate the impact of $1.6 million in government tax credits related to scientific research and experimental development expenditures, that were included in 2001 but not 2002, the margin reflects a decline of just over one-half a percent. The benefit of the higher volumes, as well as continued strong operating performance by our manufacturing facilities, were sufficient to offset the price reductions to our customers and a significant portion of the commodity price increases experienced during the quarter. The company’s selling, general and administrative expenses and research, development and design expenses for the quarter, excluding the charge for stock appreciation rights, totaled $10.3 million. This exceeded the $9.7 million incurred over the same period in 2001. The 2001 figure included a $1.1 million write-down in the accounts receivable balance of a Tier 1 customer. The increase in expenditures over 2001 reflects additional selling expenses associated with establishing the infrastructure to support our global sales efforts and includes period costs pertaining to the new technical development centre and corporate office complex. These expenses also reflect continued spending on research and development activities aimed at further advancing our “hot end systems” strategy. Other income and expenses for the third quarter of 2002 represents income of $0.9 million, compared with income of $2.8 million for the third quarter of 2001. The decrease is primarily as a result of lower foreign exchange gains on net working capital compared with 2001. |
The effective tax rate reflected for the quarter was 30.6%, compared with a rate of 35.5% in 2001. The annual rate has declined from prior years reflecting a decrease in corporate tax rates in Ontario, and the impact of cost sharing arrangements between the Company and Weslin, its Hungarian joint venture. The lower tax rates in Hungary result in a lower effective tax rate upon consolidation. The impact of the Georgia Ductile acquisition on the overall operating results is discussed separately below. Cash FlowOperating cash flow from continuing operations was $15.1 million for the quarter compared to $31.9 million in 2001. The decrease was attributable to the change in timing of accounts receivable payments of approximately $15.0 million from a major customer. These payments were received early in the fourth quarter of 2002; the corresponding payment was received during the third quarter of 2001. In addition there were significant investments made in tooling inventory during the quarter that will be recovered from customers. Capital expenditures for the third quarter were $22.6 million, compared to $13.0 million for the same quarter last year. The higher expenditure levels in 2002 were attributable to expenditures related to construction of the Company’s technical development centre and corporate office complex, and the addition of capacity to the machining facility in Wingham. This was offset to some extent by lower quarter-over-quarter capital expenditures at the joint venture facility in Hungary. During the third quarter the Company deferred $0.6 million of pre-production costs of Weslin, consistent with the amount deferred over the same period in 2001. The cash flow also reflects the purchase of the Georgia Ductile Foundry, the impact of which is outlined below. Balance Sheet and Financial PositionAt September 29, 2002 the Company had $24.6 million in cash, short-term investments and long-term bond investments compared to $85.5 million at the end of 2001. The change reflects the funds invested to acquire the Georgia Ductile Foundry and the subsequent repayment of related debt, which are discussed below. The Company continues to maintain a strong financial position and is well positioned to support future growth initiatives. |
Georgia Ductile ImpactThe third quarter revenues include $2.1 million in brake and suspension component sales, representing shipments by Georgia Ductile during the post-acquisition period. The operations of Georgia Ductile for the quarter resulted in a loss of $0.6 million, at the gross profit level. This loss was in-line with the Company’s pre-acquisition estimates. The acquisition had a significant impact on the cash flow for the quarter, representing an initial net cash outflow of $39.5 million. In addition, subsequent to completing the acquisition, the Company repaid $14.2 million in bank debt assumed in the acquisition. The balance sheet impact of the acquisition of Georgia Ductile is outlined in the notes to the financial statements, which follow. The acquired assets include approximately $38 million in Goodwill. The bulk of this reflects the investment in start-up and other development costs required to bring the foundry up to its current level of operation, with the balance representing a premium on the equity investment made by the previous ownership group. Earnings ForecastAt the end of the second quarter we indicated that, based on the market strength at that time and the overall positive outlook for the industry, we increased our projection of North American production volumes to a range of 15.8 million to 16.2 million light vehicles; we remain comfortable with that range. The Company is forecasting to ship approximately 15.2 million manifolds for 2002, a slight increase from our second quarter estimate of 15.0 million units. We are increasing our estimate of fully-diluted earnings per share from continuing operations, before SAR adjustments, for 2002 to a range of $4.60 to $4.75. The increases experienced in raw material prices have to-date been offset by increased volumes. If these commodity price increases are sustained, it may impact our ability to convert the projected volume increases into earnings. This estimate includes the impact of the Georgia Ductile acquisition, which will have a negative impact on earnings in 2002. The foundry operation is in commercial production, but is still in the process of stabilizing its production operations and utilizing capacity. As a result, it is not expected to be earnings accretive until 2004. We project the fourth quarter impact of the Georgia Ductile operations will result in a negative impact on fully-diluted earnings in the range of $0.10 to $0.15 per share. |
The following table provides an overview of the above-mentioned highlights for the third quarter: Q3 2002 Highlights |
| in millions of dollars, except per share data and where otherwise noted | Q3 2002 | Q3 2001 | % change | YTD 02 | YTD 01 | % change | ||||||||||||
| Sales | 97.3 | 87.9 | 11 | % | 314.3 | 289.5 | 9 | % | ||||||||||
| Earnings from continuing operations before SAR impact | 12.1 | 12.2 | -1 | % | 51.3 | 49.5 | 4 | % | ||||||||||
| Earnings from continuing operations after SAR impact | 12.0 | 12.2 | -2 | % | 42.7 | 49.5 | -14 | % | ||||||||||
| Loss from discontinued operations | 0.0 | (22.0 | ) | -100 | % | 0.0 | (24.8 | ) | -100 | % | ||||||||
| Net Earnings | 12.0 | (9.8 | ) | -222 | % | 42.7 | 24.7 | 73 | % | |||||||||
| Earnings from continuing operations per share | ||||||||||||||||||
| basic | 0.92 | 0.94 | -2 | % | 3.27 | 3.84 | -15 | % | ||||||||||
| fully-diluted | 0.91 | 0.93 | -2 | % | 3.27 | 3.76 | -13 | % | ||||||||||
| Net earnings (loss) per share | ||||||||||||||||||
| basic | 0.92 | (0.75 | ) | -223 | % | 3.27 | 1.92 | 70 | % | |||||||||
| fully-diluted | 0.91 | (0.76 | ) | -220 | % | 3.27 | 1.87 | 75 | % | |||||||||
| Sales Breakdown - dollars (net of pre-production deferrals) | ||||||||||||||||||
| Casting & Machining | 93.5 | 78.8 | 19 | % | 302.5 | 273.6 | 11 | % | ||||||||||
| Manifolds - Cast | 64.5 | 56.4 | 14 | % | 214.4 | 196.8 | 9 | % | ||||||||||
| Suspension/Brake Components - Cast | 2.1 | 0.0 | 2.1 | 0.0 | 12 | % | ||||||||||||
| Machining | 26.9 | 22.4 | 20 | % | 86.0 | 76.8 | ||||||||||||
| Tooling & prototypes | 3.8 | 9.1 | -58 | % | 11.8 | 15.9 | -26 | % | ||||||||||
| Sales Breakdown - units (millions) | ||||||||||||||||||
| Manifolds | ||||||||||||||||||
| Ductile iron | 0.2 | 0.3 | -33 | % | 0.7 | 0.9 | -22 | % | ||||||||||
| SiMo iron | 3.2 | 2.9 | 10 | % | 11.1 | 10.1 | 10 | % | ||||||||||
| Total | 3.4 | 3.2 | 6 | % | 11.8 | 11.0 | 7 | % | ||||||||||
| Sales Breakdown - percentage | ||||||||||||||||||
| SiMo Penetration | 95.3 | % | 90.6 | % | 94.1 | % | 91.8 | % | ||||||||||
| Internal Machining Penetration | 63.0 | % | 59.9 | % | 61.2 | % | 60.3 | % | ||||||||||
| Gross Margin (before depreciation) | 33.2 | 31.8 | 4 | % | 122.0 | 116.2 | 5 | % | ||||||||||
| Iron manifolds | 31.8 | 30.3 | 5 | % | 118.5 | 111.9 | 6 | % | ||||||||||
| Suspension/Brake Components | (0.4 | ) | 0.0 | (0.4 | ) | 0.0 | ||||||||||||
| Tooling & prototypes | 1.8 | 1.5 | 20 | % | 3.9 | 4.3 | -9 | % | ||||||||||
| Gross Margin % (before depreciation) | 34.1 | % | 36.1 | % | 38.8 | % | 40.1 | % | ||||||||||
| Iron manifolds | 34.9 | % | 38.5 | % | 39.5 | % | 40.9 | % | ||||||||||
| Suspension/Brake Components | -21.2 | % | 0.0 | % | -21.2 | % | 0.0 | % | ||||||||||
| Tooling & prototypes | 47.4 | % | 16.1 | % | 33.1 | % | 27.2 | % | ||||||||||
| Gross Profit (after depreciation) | 27.1 | 25.9 | 5 | % | 103.8 | 98.2 | 6 | % | ||||||||||
| Iron manifolds | 25.9 | 24.4 | 6 | % | 100.5 | 93.9 | 7 | % | ||||||||||
| Suspension/Brake Components | (0.6 | ) | 0.0 | (0.6 | ) | 0.0 | ||||||||||||
| Tooling & prototypes | 1.8 | 1.5 | 20 | % | 3.9 | 4.3 | -9 | % | ||||||||||
| Gross Profit % (after depreciation) | 27.9 | % | 29.3 | % | 33.0 | % | 33.9 | % | ||||||||||
| Iron manifolds | 28.3 | % | 30.9 | % | 33.4 | % | 34.3 | % | ||||||||||
| Suspension/Brake Components | -26.3 | % | 0.0 | % | -26.3 | % | 0.0 | % | ||||||||||
| Tooling & prototypes | 47.4 | % | 16.1 | % | 33.1 | % | 27.2 | % | ||||||||||
| Depreciation and amortization | ||||||||||||||||||
| Depreciation and amortization- cost of sales | 6.1 | 5.9 | 3 | % | 18.2 | 18.0 | 1 | % | ||||||||||
| Depreciation - SG & A | 1.0 | 0.9 | 11 | % | 2.3 | 2.4 | -4 | % | ||||||||||
| Capital Expenditures | 22.6 | 13.0 | 74 | % | 61.2 | 41.5 | 47 | % | ||||||||||
| R&D | 2.4 | 1.7 | 41 | % | 6.2 | 5.0 | 24 | % | ||||||||||
| SG & A (% of sales) | 8.1 | % | 9.1 | % | 7.7 | % | 7.2 | % | ||||||||||
| Tax Rate | 30.6 | % | 35.5 | % | 30.6 | % | 34.9 | % | ||||||||||
Wescast Industries Inc. is the world’s largest supplier of exhaust manifolds for passenger cars and light trucks. The Company designs, develops, casts and machines high-quality iron exhaust manifolds for automotive OEMs. Wescast has sales and design centres in Canada, the United States, Germany and the United Kingdom, as well as sales representation in France and Japan. The Company operates six production facilities in North America, including a 49% interest in United Machining Inc., an accredited Minority supplier in Michigan, and, a 50% joint venture interest in Weslin Autoipari Rt., a Hungarian based supplier of cast iron exhaust manifolds and turbo charger housings for the European light vehicle market. The Company is recognized worldwide for its quality products, innovative design solutions and highly committed workforce. Learn more at www.wescast.com. Forward Looking StatementsWescast and its representatives may periodically make written or oral statements that are “forward-looking”, including statements included in this news release and in our filings with applicable Securities Commissions and in reports to our stockholders. These statements may be identified by words such as “believe,” “anticipate,” “project,” “expect,” “intend” or other similar expressions, and include all statements which address operating performance, events or developments that we expect or anticipate may occur in the future (including statements relating to future sales or earnings expectations, volume growth, awarded sales contracts and earnings per share expectations or statements expressing general optimism about future operating results). Such statements involve risks and uncertainties that may cause unanticipated events and actually evolve to be materially different from those either expressed or implied. These factors include, but are not limited to, risks associated with the automotive industry, production, marketing and transportation such as loss of market, volatility of prices, currency fluctuations, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources; as a consequence, actual results may differ materially from those anticipated in the forward-looking statements. For more detailed information regarding these risks you may refer to Wescast’s publicly filed documents with applicable Canadian securities authorities and the U.S. Securities and Exchange Commission. Wescast undertakes no obligation to update any of these forward-looking statements. A conference call has been arranged for: October 23, 2002 For further information, please contact: Mr. Ray Finnie |
Wescast Industries Inc. |
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||
| Sales | $ 97,260 | $ 87,924 | $ 314,300 | $ 289,485 | |||||
| Cost of sales | 70,163 | 62,077 | 210,527 | 191,301 | |||||
| Gross profit | 27,097 | 25,847 | 103,773 | 98,184 | |||||
| Selling, general and administration | 7,896 | 7,971 | 24,134 | 20,773 | |||||
| Stock-based compensation (Note 9) | 145 | 0 | 12,934 | 0 | |||||
| Research, development and design | 2,430 | 1,706 | 6,163 | 5,006 | |||||
| 16,626 | 16,170 | 60,542 | 72,405 | ||||||
| Other (income) expense | |||||||||
| Interest expense | 207 | 86 | 331 | 318 | |||||
| Investment income | (497 | ) | (784 | ) | (1,730 | ) | (2,591 | ) | |
| Other (income) and expenses (Note 10) | (402 | ) | (2,069 | ) | 506 | (1,331 | ) | ||
| Earnings from continuing operations before | |||||||||
| income taxes | 17,318 | 18,937 | 61,435 | 76,009 | |||||
| Income taxes (Note 11) | 5,298 | 6,741 | 18,779 | 26,501 | |||||
| Earnings from continuing operations | 12,020 | 12,196 | 42,656 | 49,508 | |||||
| Loss from discontinued operations | 0 | (21,968 | ) | 0 | (24,768 | ) | |||
| Net earnings | $ 12,020 | $ (9,772 | ) | $ 42,656 | $ 24,740 | ||||
| Earnings from continuing operations per share | |||||||||
| (Note 12) | |||||||||
| - basic | $ 0.92 | $ 0.94 | $ 3.27 | $ 3.84 | |||||
| - fully-diluted | $ 0.91 | $ 0.93 | $ 3.27 | $ 3.76 | |||||
| Net earnings (loss) per share (Note 12) | |||||||||
| - basic | $ 0.92 | $ (0.75 | ) | $ 3.27 | $ 1.92 | ||||
| - fully-diluted | $ 0.91 | $ (0.76 | ) | $ 3.27 | $ 1.87 | ||||
| Retained earnings, beginning of period | $ 300,422 | $ 269,281 | $ 272,922 | $ 238,052 | |||||
| Net earnings | 12,020 | (9,772 | ) | 42,656 | 24,740 | ||||
| Dividends paid | (1,570 | ) | (1,557 | ) | (4,706 | ) | (4,649 | ) | |
| Excess of cost over assigned value of Class A | |||||||||
| common shares purchased and cancelled | 0 | 0 | 0 | (191 | ) | ||||
| Retained earnings, end of period | $ 310,872 | $ 257,952 | $ 310,872 | $ 257,952 | |||||
Wescast Industries Inc. |
| As at | |||||
|---|---|---|---|---|---|
| September 29, 2002 | December 30, 2001 | ||||
| Current assets | |||||
| Cash and cash equivalents | $ 12,555 | $ 58,579 | |||
| Short-term investments | 12,011 | 22,567 | |||
| Receivables | 77,049 | 56,421 | |||
| Income taxes receivable | 3,272 | 0 | |||
| Inventories | 30,245 | 19,839 | |||
| Prepaids | 3,350 | 1,437 | |||
| Current assets - discontinued operations | 385 | 3,979 | |||
| 138,867 | 162,822 | ||||
| Property and equipment (Note 4) | 369,479 | 251,548 | |||
| Goodwill (Note 5) | 38,174 | 0 | |||
| Other (Note 6) | 15,221 | 19,601 | |||
| Long-term assets - discontinued operations | 6,247 | 12,678 | |||
| $567,988 | $ 446,649 | ||||
| Current liabilities | |||||
| Payables and accruals | $ 58,380 | $ 31,908 | |||
| Income taxes payable | 0 | 4,252 | |||
| Current portion of long-term debt (Note 7) | 15,951 | 3,249 | |||
| Current portion of stock appreciation rights (Note 9) | 9,894 | 0 | |||
| Current liabilities - discontinued operations | 0 | 8,121 | |||
| 84,225 | 47,530 | ||||
| Long-term debt (Note 7) | 47,581 | 4,614 | |||
| Long-term stock appreciation rights (Note 9) | 1,417 | 0 | |||
| Future income taxes | 5,263 | 7,094 | |||
| Employee benefits | 9,147 | 7,964 | |||
| 147,633 | 67,202 | ||||
| Shareholders’ equity | |||||
| Capital stock (Note 8) | 109,414 | 106,601 | |||
| Retained earnings | 310,872 | 272,922 | |||
| Cumulative translation adjustment | 69 | (76 | ) | ||
| 420,355 | 379,447 | ||||
| $567,988 | $ 446,649 | ||||
Wescast Industries Inc. |
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||
| Cash derived from (applied to) | |||||||||
| Operating | |||||||||
| Earnings from continuing operations | $ 12,020 | $ 12,196 | $ 42,656 | $ 49,508 | |||||
| Add (deduct) items not requiring cash: | |||||||||
| Depreciation and amortization | 7,064 | 6,872 | 20,555 | 20,380 | |||||
| Amortization of bond costs | 214 | 67 | 653 | 74 | |||||
| Future income taxes | 279 | 248 | (2,640 | ) | 921 | ||||
| Gain on disposal of investments | (15 | ) | 0 | (195 | ) | 0 | |||
| Loss on disposal of equipment | 100 | 79 | 147 | 1,273 | |||||
| Stock-based compensation expense | (394 | ) | 0 | 11,311 | 0 | ||||
| Employee benefits | 612 | 486 | 1,838 | 1,407 | |||||
| 19,880 | 19,948 | 74,325 | 73,563 | ||||||
| Change in non-cash operating working capital | |||||||||
| (Note 13) | (4,766 | ) | 11,985 | (15,813 | ) | 7,710 | |||
| 15,114 | 31,933 | 58,512 | 81,273 | ||||||
| Discontinued operations | 528 | 219 | (394 | ) | (2,714 | ) | |||
| 15,642 | 32,152 | 58,118 | 78,559 | ||||||
| Financing | |||||||||
| Issue of long-term debt | 1,055 | 264 | 1,762 | 809 | |||||
| Repayment of long-term debt (Note 5) | (14,218 | ) | (262 | ) | (16,024 | ) | (2,238 | ) | |
| Payment of obligations under capital leases | (234 | ) | (175 | ) | (627 | ) | (562 | ) | |
| Employee benefits paid | (184 | ) | (470 | ) | (655 | ) | (813 | ) | |
| Issuance of share capital under Employee Share | |||||||||
| Purchase Plan | 126 | 120 | 435 | 437 | |||||
| Employee share loan repayments | 328 | 95 | 408 | 435 | |||||
| Issuance of share capital under Stock Option Plan | 57 | 882 | 2,178 | 2,055 | |||||
| Repurchase of common shares | 0 | 0 | 0 | (340 | ) | ||||
| Dividends paid | (1,570 | ) | (1,557 | ) | (4,706 | ) | (4,649 | ) | |
| (14,640 | ) | (1,103 | ) | (17,229 | ) | (4,866 | ) | ||
| Investing | |||||||||
| Purchase of property, equipment and other assets | (22,594 | ) | (13,017 | ) | (61,159 | ) | (41,534 | ) | |
| Purchase of investments | 0 | (29,575 | ) | (48,236 | ) | (29,575 | ) | ||
| Purchase of subsidiary, net of cash acquired | |||||||||
| (Note 5 ) | (39,521 | ) | 0 | (39,521 | ) | 0 | |||
| Deferred pre-production costs | (558 | ) | (729 | ) | (3,002 | ) | (2,477 | ) | |
| Redemption of short-term investments | 39,547 | 0 | 65,149 | 30,000 | |||||
| Proceeds on disposal of equipment | 109 | 11 | 214 | 25 | |||||
| Discontinued operations | (5 | ) | (1,203 | ) | (358 | ) | (8,563 | ) | |
| (23,022 | ) | (44,513 | ) | (86,913 | ) | (52,124 | ) | ||
| Net increase (decrease) in cash and cash equivalents | (22,020 | ) | (13,464 | ) | (46,024 | ) | 21,569 | ||
| Cash and cash equivalents | |||||||||
| Beginning of period | 34,575 | 69,461 | 58,579 | 34,428 | |||||
| End of period | $ 12,555 | $ 55,997 | $ 12,555 | $ 55,997 | |||||
Wescast Industries Inc. Note 1. Basis of presentationThe disclosures in these interim financial statements do not conform in all respects to the requirements of generally accepted accounting principles for annual financial statements. These interim financial statements should be read in conjunction with the most recent annual financial statements for the year ended December 30, 2001. Note 2. Accounting policiesThese interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements for the year ended December 30, 2001. Note 3. Interest in jointly controlled entitiesThe following is the company’s proportionate share of the major components of its jointly controlled entities (before eliminations): |
| September 29, 2002 | December 30, 2001 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Balance Sheet | |||||||||
| Current assets | $19,588 | $13,809 | |||||||
| Long-term assets | 56,877 | 50,095 | |||||||
| Current liabilities | 15,481 | 13,636 | |||||||
| Long-term liabilities | 3,865 | 3,909 | |||||||
| Equity | 57,119 | 46,359 | |||||||
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||
| Statement of earnings | |||||||||
| Sales | 2,692 | 5,802 | 11,557 | 13,087 | |||||
| Cost of sales and expenses | 3,377 | 6,280 | 12,898 | 13,737 | |||||
| Net loss | (685 | ) | (478 | ) | (1,341 | ) | (650 | ) | |
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||
| Statement of cash flows | |||||||||
| Cash derived from (applied to) | |||||||||
| Cash flows from operating activities | (3,131 | ) | (2,319 | ) | (3,697 | ) | (2,858 | ) | |
| Cash flows from financing activities | (2,117 | ) | 8,412 | 3,134 | 33,940 | ||||
| Cash flows from investing activities | $(3,681 | ) | $(7,362 | ) | $(8,331 | ) | $(27,705 | ) | |
Note 4. Property and Equipment |
| September 29, 2002 | December 30, 2001 | ||||
|---|---|---|---|---|---|
| Cost | |||||
| Land | $ 5,531 | $ 4,997 | |||
| Buildings and improvements | 139,386 | 114,678 | |||
| Machinery, equipment and vehicles | 377,147 | 265,734 | |||
| 522,064 | 385,409 | ||||
| Accumulated Depreciation | |||||
| Buildings and improvements | 18,401 | 14,835 | |||
| Machinery, equipment and vehicles | 134,184 | 119,026 | |||
| 152,585 | 133,861 | ||||
| Net Book Value | |||||
| Land | 5,531 | 4,997 | |||
| Buildings and improvements | 120,985 | 99,843 | |||
| Machinery, equipment and vehicles | 242,963 | 146,708 | |||
| $369,479 | $251,548 | ||||
Note 5. AcquisitionOn September 12, 2002, the Company acquired 100 percent of Georgia Ductile Foundries LLC (“Georgia Ductile”). Georgia Ductile is a manufacturer of sand cast iron components, primarily for the automotive industry, focusing on suspension and brake components. The results of Georgia Ductile’s operations have been included in the consolidated financial statements since the date of acquisition. The total consideration paid in connection with the acquisition amounted to $39.5 million (net of cash acquired of $2.8 million). The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The Company is in the process of finalizing valuations of certain assets; thus, the allocation of the purchase price is subject to refinement. |
| Non-cash current assets | $ 9,720 | ||||
| Property and equipment | 71,903 | ||||
| Other long-term assets | 729 | ||||
| Goodwill | 38,174 | ||||
| Total assets acquired | 120,526 | ||||
| Current liabilities | 22,130 | ||||
| Long-term debt | 58,875 | ||||
| Total liabilities assumed | 81,005 | ||||
| Total consideration paid, net of cash acquired | $ 39,521 | ||||
Immediately subsequent to the acquisition, the Company paid down $14.2 million of long-term debt. Note 6. Other |
| September 29, 2002 | December 30, 2001 | ||||
|---|---|---|---|---|---|
| Deferred pre-production costs | $12,896 | $10,911 | |||
| Director and employee share purchase plan loans | 1,479 | 1,687 | |||
| Bond issue costs | 791 | 72 | |||
| Deferred loss on foreign exchange contracts | 0 | 66 | |||
| Licence | 55 | 61 | |||
| Long-term bonds | 0 | 6,804 | |||
| $15,221 | $19,601 | ||||
Note 7. Long-term debt
| September 29, 2002 | December 30, 2001 | ||||
|---|---|---|---|---|---|
| a. Obligations under capital leases | $ 1,870 | $1,303 | |||
| b. Limited obligation revenue bonds | 4,638 | 4,691 | |||
| c. Revolving bank note | 1,395 | 1,869 | |||
| d. Equipment loan | 409 | 0 | |||
| e. Revenue bonds | 47,332 | 0 | |||
| f. Bank credit facility | 7,888 | 0 | |||
| 63,532 | 7,863 | ||||
| Less: current portion of long-term debt | 15,951 | 3,249 | |||
| $47,581 | $4,614 | ||||
The significant increase in long-term debt as compared to December 30, 2001 is due to the assumption of long-term debt on the acquisition of Georgia Ductile Foundries LLC (“Georgia Ductile”). e) The revenue bonds are payable in annual installments of $1,500 US commencing in 2004, with a variable interest rate which at September 29, 2002 was 1.86%, and mature in the year 2021. Prior to 2004, $750 US will be paid in 2002 and $2,250 US will be paid in 2003. As security, Georgia Ductile has provided a letter of credit in favour of the trustee. f) The bank credit facility provides for revolving advances of up to $5,000 US and has a termination date of May 31, 2003. At September 29, 2002, Georgia Ductile has borrowed the aggregate maximum principal amount. Interest is payable at LIBOR plus 2%. Note 8. Capital Stock |
| Authorized Unlimited Unlimited 9,000,000 | Preference shares, no par value Class A subordinate voting common shares, no par value Class B multiple voting common shares, no par value |
| September 29, 2002 | December 30, 2001 | ||||
|---|---|---|---|---|---|
| Issued and outstanding | |||||
| 5,703,175 Class A Common Shares | |||||
| (2001 - 5,626,575) | $ 96,987 | $ 94,174 | |||
| 7,376,607 Class B Common shares | |||||
| (2001 - 7,376,607) | 12,427 | 12,427 | |||
| $109,414 | $106,601 | ||||
Note 9. Stock-based CompensationOn May 7, 2002 the shareholders approved an amendment to the Company’s stock option plan to authorize the grant of tandem stock appreciation rights (a “SAR” or “SARs”) in connection with options granted under the plan, at or after the time of grant of such options. Under the amended plan, participants will have the choice, after the vesting period, of exercising stock options or receiving a cash amount equal to the excess of the market price of the shares covered by the options over the exercise price of the related options as defined in the plan. The impact of the amendment of the plan on May 7 was a non-cash charge to earnings of $14,905 or $9,968 after tax. As a result of the market price of the Company’s shares declining between May 7 and September 29, the cumulative impact of the amended plan during the six months ended September 29 was a non-cash charge to earnings of $12,934 or $8,650 after tax. The corresponding liability is reported in the balance sheet. SARs covered by options that have vested or will vest within one year have been reported in current liabilities and SARs covered by options that will not vest within one year are reported as long term. |
Note 10. Other (income) and expenses |
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||
| Foreign exchange translation (gain) loss | $ (463 | ) | $(1,961 | ) | $ 570 | $(2,272 | ) | ||
| Loss (gain) on disposal of equipment and other | 61 | (108 | ) | (64 | ) | 941 | |||
| $ (402 | ) | $(2,069 | ) | $ 506 | $(1,331 | ) | |||
Note 11. Income TaxesThe Company has lowered its estimated annual effective income tax rate from 34% to 30.5%. The decrease is attributable to lower Government of Ontario tax rates and the impact of cost sharing arrangements between the Company and its jointly controlled entity, Weslin Autoipari Rt. Note 12. Earnings per shareBasic earnings from continuing operations per share and basic net earnings per share for the three months ended September 29, 2002 are based on the weighted average common shares outstanding (2002 – 13,079,751 shares; 2001 – 12,986,501 shares). Fully-diluted earnings from continuing operations per share and fully-diluted net earnings per share for the three months ended September 29, 2002 are based on the fully-diluted weighted average common shares outstanding (2002 – 13,338,053 shares; 2001 – 13,241,815 shares). For the year to date, the number of common shares outstanding on both the basic and fully-diluted basis is the same (13,062,777 shares). Note 13. Consolidated statement of cash flowsThe following is additional information to the statement of cash flows. Change in non-cash operating working capital |
| Three months ended | Nine months ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 29, 2002 | September 30, 2001 | September 29, 2002 | September 30, 2001 | ||||||
| Receivables | $ 1,699 | $ 7,886 | $(12,609 | ) | $ 3,953 | ||||
| Inventories | (7,006 | ) | 2,108 | (9,025 | ) | (4,486 | ) | ||
| Prepaids | (1,679 | ) | (981 | ) | (1,527 | ) | (436 | ) | |
| Payables and accruals | 4,799 | 413 | 14,872 | 3,244 | |||||
| Income taxes payable | (2,579 | ) | 2,559 | (7,524 | ) | 5,435 | |||
| $(4,766 | ) | $ 11,985 | $(15,813 | ) | $ 7,710 | ||||
Note 14. Segment InformationThe Company currently operates in one industry segment, the design, manufacture and machining of cast iron parts for the automotive industry, and two geographic segments. |
| Three months ended September 29, 2002 | Three months ended September 30, 2001 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| North America | Europe | Total | North America | Europe | Total | ||||||||
| Sales to external customers | $97,260 | $ 0 | $97,260 | $87,924 | $ 0 | $87,924 | |||||||
| Earnings (loss) from continuing | |||||||||||||
| operations | 12,747 | (727 | ) | 12,020 | 12,643 | (447 | ) | 12,196 | |||||
| Interest revenue | 497 | 0 | 497 | 769 | 15 | 784 | |||||||
| Interest expense | 207 | 0 | 207 | 86 | 0 | 86 | |||||||
| Depreciation and amortization | 6,588 | 476 | 7,064 | 6,645 | 227 | 6,872 | |||||||
| Income taxes | 5,301 | (3 | ) | 5,298 | 6,725 | 16 | 6,741 | ||||||
| Purchase of property, equipment | |||||||||||||
| and other assets | $19,472 | $ 3,122 | $22,594 | $ 6,627 | $ 6,390 | $13,017 | |||||||
| Nine months ended September 29, 2002 | Nine months ended September 30, 2001 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| North America | Europe | Total | North America | Europe | Total | ||||||||
| Sales to external customers | $314,300 | $ 0 | $314,300 | $289,485 | $ 0 | $289,485 | |||||||
| Earnings (loss) from continuing | |||||||||||||
| operations | 44,327 | (1,671 | ) | 42,656 | 50,443 | (935 | ) | 49,508 | |||||
| Interest revenue | 1,730 | 0 | 1,730 | 2,555 | 36 | 2,591 | |||||||
| Interest expense | 331 | 0 | 331 | 318 | 0 | 318 | |||||||
| Depreciation and amortization | 19,343 | 1,212 | 20,555 | 19,959 | 421 | 20,380 | |||||||
| Income taxes | 18,759 | 20 | 18,779 | 26,459 | 42 | 26,501 | |||||||
| Purchase of property, equipment | |||||||||||||
| and other assets | $ 55,707 | $ 5,452 | $ 61,159 | $ 17,280 | $ 24,254 | $ 41,534 | |||||||
| September 29, 2002 | December 30, 2001 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| North America | Europe | Total | North America | Europe | Total | ||||||||
| Total Assets | $504,891 | $63,097 | $567,988 | $394,130 | $52,519 | $446,649 | |||||||
| Property and Equipment | 325,602 | 43,877 | 369,479 | 211,591 | 39,957 | 251,548 | |||||||
| Deferred pre-production costs | $ 3,526 | $ 9,370 | $ 12,896 | $ 4,544 | $ 6,367 | $ 10,911 | |||||||