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Quarterly Dividend Declared
TORONTO, Nov. 26 /CNW/ - Exco Technologies Limited (TSX-XTC) today announced results for its fourth quarter ended September 30, 2008. In addition, the Company announced that a quarterly cash dividend of $0.0175 per share will be paid December 30, 2008 to shareholders of record on December 15, 2008. The dividend is an "eligible dividend" in accordance with the Income Tax Act of Canada.
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12 Months Ended 3 Months ended
September 30 September 30
($000s, except per share amounts)
2008 2007 2008 2007
---- ---- ---- ----
Sales $201,681 $201,759 $50,132 $50,485
Net income (loss) from
continuing operations(x) ($13,398) $5,794 ($20,753) ($752)
Net loss from discontinued
operations ($536) ($2,732) ($425) ($1,321)
Net income (loss) ($13,934) $3,062 ($21,178) ($2,073)
Basic and diluted earnings
(loss) per share from
continuing operations ($0.33) $0.14 ($0.51) ($0.02)
Basic and diluted (loss)
per share from
discontinued operations ($0.01) ($0.07) ($0.01) ($0.03)
Basic and diluted earnings
(loss) per share ($0.34) $0.07 ($0.52) ($0.05)
Common shares
outstanding 40,948,276 41,478,476 40,948,276 41,478,476
(x) includes non-cash goodwill charge of $23.6 million for Neocon Canada
and Polytech.
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The financial results for the 2008 and 2007 reflect the classification of Exco's Techmire business as a discontinued operation.
In the fourth quarter sales of $50.1 million were flat compared to last year's sales of $50.5 million. The value of the U.S. dollar having strengthened by an average of one cent against the Canadian dollar in the quarter had a negligible impact on sales. The Automotive Solutions segment experienced a strong quarter with an increase in sales of $3.5 million or 17.7% to $23.3 million from $19.8 million last year. Increased European sales by Polydesign more than offset the reduction in North American sales by Polytech and the Neocon businesses. The Casting and Extrusion segment recorded reduced quarterly sales of 12.6% or $3.9 million to $26.9 million from $30.7 million last year. Lower sales at Castool and the large mould businesses (Extec had no sales for the quarter) were responsible for this reduction and overwhelmed the slight increase in sales in the extrusion die businesses. Sale of large moulds will improve as deliveries of our Phoenix engine block and six speed transmission orders begins to take place throughout this year.
The Company reported a fourth quarter net loss from continuing operations of $20.8 million compared to a loss of $800 thousand in 2007. This loss includes non deductible goodwill charges of $23.6 million taken in the fourth quarter to reflect impairment at our Neocon Canada and Polytech. This is a non-cash item that does not affect the Company's cash flow, operations, margins or bank covenants. The Company also expensed numerous other items in the quarter relating to the closure of its Extec facility in Ontario, the termination of its aircraft operating lease, general restructuring charges and bad debt write-offs. The Company also recorded a pre-tax charge of $500 thousand from discontinued operations in the quarter to reduce the carrying value of the Techmire facility to its current fair market value. Details of these items are reconciled to net income in the table below.
Q.4-2008 Q.4-2007
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Reported fully diluted loss per share ($0.52) ($0.05)
Goodwill impairment charges 0.57 0.03
Loss from terminating aircraft lease 0.01 0.03
Restructuring charges 0.01 0.01
Extec closing expenses 0.01 0.00
Bad debt write-offs 0.01 0.00
Discontinued operations - Techmire 0.01 0.03
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Fully diluted earnings per share before above
items $0.10 $0.05
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Apart from the above items, pre tax earnings more than tripled in the quarter at our European operations. All North American business units experienced weaker earnings and the large mould businesses, not including Extec, recorded combined losses of $0.02 per share reflecting low capacity utilization and the cost of restructuring charges taken in the fourth quarter.
Gross margin in the quarter was 21.7% compared to 25.9% last year reflecting the poor performance of the large mould businesses, excluding Extec, which operated well below capacity throughout the quarter and recorded a loss of $0.02 per share.
Operating cash flow from operations before net changes in non-cash working capital improved during the quarter to $3.8 million from $3.1 million last year. After non-cash working capital is considered, operating cash flow in the current quarter decreased to $694 thousand from $3.8 million in the prior year. Exco has no net bank debt and its net cash position remained strong at $3.5 million.
"The Company has faced a difficult business environment in the fourth quarter including a 'par' Canadian dollar, high raw material costs and declining automotive output" said Brian Robbins, President and CEO of Exco. "The recent weakness of the Canadian dollar and declining steel and resin costs are welcome developments that, if sustained, will help to improve the Company's margin and earnings".
(For further information please refer to the Company's Fourth Quarter Interim Financial Statements in the Investor Relations section posted at www.excocorp.com. Alternatively, please refer to www.sedar.com after November 26, 2008.)
Exco Technologies Limited is a global supplier of innovative technologies servicing the die-cast, extrusion and automotive industries. Through our 10 strategic locations, we employ 1,950 people and service a diverse and broad customer base.
Management will hold a conference call to discuss the fourth quarter results on Friday November 28, 2008 at 11:00 am (EST). The local dial in number for the call is (416) 644-3414 or toll free 1-800-733-7571. To access the live audio webcast, please log on to www.excocorp.com or www.q1234.com a few minutes before the event. Real Player is required for access. For those unable to participate on November 28, 2008 an archived version will be available on the Exco website.
This news release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws. We use words such as "anticipate", "plan", "may", "will", "should", "expect", "believe", "estimate" and similar expressions to identify forward-looking information and statements. Such forward-looking information and statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe to be relevant and appropriate in the circumstances. Readers are cautioned not to place undue reliance on forward-looking information and statements, as there can be no assurance that the assumptions, plans, intentions or expectations upon which such statements are based will occur. Forward-looking information and statements are subject to known and unknown risks, uncertainties, assumptions and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed, implied or anticipated by such information and statements. These risks, uncertainties and assumptions are described in the Company's Management's Discussion and Analysis included in our 2007 Annual Report, in our 2007 Annual Information Form and, from time to time, in other reports and filings made by the Company with securities regulatory authorities.
While the Company believes that the expectations expressed by such forward-looking information and statements are reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. In evaluating forward-looking information and statements, readers should carefully consider the various factors which could cause actual results or events to differ materially from those indicated in the forward-looking information and statements. Readers are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the Company disclaims any obligations to update publicly or otherwise revise any such factors or any of the forward-looking information or statements contained herein to reflect subsequent information, events or developments, changes in risk factors or otherwise.
NOTICE TO READER
The attached consolidated financial statements have been prepared by management of the Company. The consolidated financial statements for the twelve-month periods ended September 30, 2008 and 2007 have not been reviewed by the auditors of the Company.
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands)
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As at As at
September September
30, 2008 30, 2007
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ASSETS
Current
Cash $8,141 $5,677
Accounts receivable (note 3) 34,120 30,288
Inventories 30,527 29,296
Prepaid expenses and deposits 3,013 2,429
Assets held for sale (note 6) 5,068 5,568
Discontinued operations (note 6) 540 1,349
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Total current assets 81,409 74,607
Mortgage receivable (note 7) 600 -
Fixed assets 74,915 73,380
Goodwill (note 5) 10,086 33,672
Future income tax assets 1,373 2,407
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$168,383 $184,066
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $4,634 $1,112
Accounts payable and accrued liabilities 25,125 25,216
Income taxes payable 641 840
Customer advance payments 944 1,377
Current portion of long-term debt - 85
Discontinued operations (note 6) - 693
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Total current liabilities 31,344 29,323
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Future income tax liabilities 5,277 8,475
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Total liabilities 36,621 37,798
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Shareholders' Equity
Share capital (note 2) 35,681 36,142
Contributed surplus (note 2) 2,789 2,364
Retained earnings 109,912 128,000
Accumulated other comprehensive loss (note 2) (16,620) (20,238)
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Total shareholders' equity 131,762 146,268
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$168,383 $184,066
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See accompanying notes
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE
INCOME (LOSS)
(Unaudited)
($ in thousands)
3 Months ended 12 Months ended
September 30 September 30
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2008 2007 2008 2007
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Sales $50,132 $50,485 $201,681 $201,759
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Cost of sales and
operating expenses before
the following (note 4) 39,271 37,430 158,519 151,997
Selling, general and
administrative
(notes 2 and 3) 7,613 9,128 25,690 28,835
Depreciation and
amortization 2,252 2,283 9,345 9,801
Goodwill impairment
charges (note 5) 23,586 1,093 23,586 1,093
(Gain) loss on sale of
fixed assets (note 7) 297 (132) (2,135) (522)
Interest expense (income) 46 (5) 210 219
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73,065 49,797 215,215 191,423
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Income (loss) from
continuing operations
before income taxes (22,933) 688 (13,534) 10,336
Provision for (recovery of)
income taxes (2,180) 1,440 (136) 4,542
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Income (loss) from
continuing operations (20,753) (752) (13,398) 5,794
Loss from discontinued
operations, net of tax
(note 6) (425) (1,321) (536) (2,732)
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Net income (loss) for
the period (21,178) (2,073) (13,934) 3,062
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Other comprehensive
income (loss)
Unrealized gain (loss)
on foreign currency
translation of
self-sustaining
operations (note 2) 461 (2,881) 3,618 (5,528)
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Comprehensive loss ($20,717) ($4,954) ($10,316) ($2,466)
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Earnings (loss) per
common share
Basic and diluted from
continuing operations ($0.51) ($0.02) ($0.33) $0.14
Basic and diluted from
discontinued operations ($0.01) ($0.03) ($0.01) ($0.07)
Basic and diluted earnings ($0.52) ($0.05) ($0.34) $0.07
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See accompanying notes
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
($ in thousands)
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Accumu-
lated
other
compre- Total
Contri- hensive share-
Share buted Retained income holders'
capital surplus earnings (loss) equity
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Balance,
October 1, 2007 $36,142 $2,364 $128,000 ($20,238) $146,268
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Net income for
the quarter - - 1,315 - 1,315
Dividends - - (618) - (618)
Stock option expense - 137 - - 137
Repurchase of
share capital (228) - (721) - (949)
Unrealized losses
on translation of
self-sustaining
operations - - - (277) (277)
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Balance,
December 31, 2007 35,914 2,501 127,976 (20,515) 145,876
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Net income for
the quarter - - 2,844 - 2,844
Dividends - - (719) - (719)
Stock option expense - 97 - - 97
Repurchase of
share capital (171) - (520) - (691)
Unrealized gains
on translation of
self-sustaining
operations - - - 4,167 4,167
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Balance,
March 31, 2008 35,743 2,598 129,581 (16,348) 151,574
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Net income
for the quarter - - 3,085 - 3,085
Dividends - - (718) - (718)
Stock option expense - 95 - - 95
Repurchase of
share capital (27) - (71) - (98)
Unrealized losses
on translation of
self-sustaining
operations - - - (733) (733)
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Balance,
June 30, 2008 35,716 2,693 131,877 (17,081) 153,205
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Net loss
for the quarter - - (21,178) - (21,178)
Dividends - - (717) - (717)
Stock option expense - 96 - - 96
Repurchase of
share capital (35) - (70) - (105)
Unrealized gains
on translation of
self-sustaining
operations - - - 461 461
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Balance,
September 30, 2008 $35,681 $2,789 $109,912 ($16,620) $131,762
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See accompanying notes
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
3 Months ended 12 Months ended
September 30 September 30
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2008 2007 2008 2007
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OPERATING ACTIVITIES:
Net income (loss) from
continuing operations ($20,753) ($752) ($13,398) $5,794
Add (deduct) items not
involving a current
outlay of cash
Goodwill impairment
charges (note 5) 23,586 1,093 23,586 1,093
Depreciation and
amortization 2,252 2,283 9,345 9,801
Stock-based compensation
expense (note 2) 73 148 402 597
Future income taxes (2,120) 186 (2,186) 707
(Gain) loss on sale of
fixed assets (note 7) 297 (132) (2,135) (522)
Loss on financial instrument
valuation (note 3) 488 271 376 228
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3,823 3,097 15,990 17,698
Net change in non-cash working
capital balances related to
continuing operations (3,129) 656 (3,699) 1,857
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Cash provided by operating
activities of continuing
operations 694 3,753 12,291 19,555
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FINANCING ACTIVITIES:
Increase (decrease) in bank
indebtedness 1,638 (2,484) 2,760 (6,936)
Decrease in long-term debt - (31) (85) (332)
Dividends paid (note 2) (717) (622) (2,772) (2,486)
Repurchase of share capital
(note 2) (105) - (1,843) (613)
Issue of share capital (note 2) - 115 - 277
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Cash provided by(used in)
financing activities of
continuing operations 816 (3,022) (1,940) (10,090)
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INVESTING ACTIVITIES:
Investment in fixed assets (2,875) (2,330) (11,238) (13,959)
Proceeds on sale of fixed
assets 25 161 3,087 2,567
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Cash used in investing
activities of continuing
operations (2,850) (2,169) (8,151) (11,392)
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CASH FLOWS FROM DISCONTINUED
OPERATIONS
Net cash provided by operating
activities (note 6) 341 3,189 80 3,007
Net cash provided by investing
activities (note 6) - 2,317 - 2,317
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Net cash provided by
discontinued operations 341 5,506 80 5,324
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Effect of exchange rate changes
on cash 115 (111) 184 (190)
Net increase (decrease) in cash
during the period (884) 3,957 2,464 3,207
Cash, beginning of period 9,025 1,720 5,677 2,470
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Cash, end of period $8,141 $5,677 $8,141 $5,677
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See accompanying notes
1. ACCOUNTING POLICIES
Basis of presentation
These unaudited interim consolidated financial statements of Exco
Technologies Limited (the "Company") have been prepared in accordance
with Canadian generally accepted accounting principles ("GAAP"), except
that certain disclosures required for annual financial statements have
not been included. Accordingly, the unaudited interim consolidated
financial statements should be read in conjunction with the Company's
annual consolidated financial statements included in the 2007 Annual
Report. The unaudited interim consolidated financial statements have been
prepared on a basis that is consistent with the accounting policies set
out in the Company's 2007 annual consolidated financial statements,
except for the changes described below.
Accounting policy changes
Effective October 1, 2007, the Company adopted the new CICA accounting
sections: 1535 (Capital Disclosures), 3862 (Financial Instruments -
Disclosure) and 3863 (Financial Instruments - Presentation). These new
accounting policy changes are for disclosure purposes and have no impact
on the Company's unaudited interim consolidated financial statements.
Under Section 1535 (Capital Disclosures), the Company is required to
disclose information regarding its capital and how it is managed
including enhanced disclosure requirements with respect to the Company's
objectives, policies and processes. In addition, it is also required to
disclose whether the Company has complied with any externally imposed
capital requirements to which it is subject (note 8).
Under Section 3862 (Financial Instruments - Disclosure) and 3863
(Financial Instruments - Presentation), the Company is required to
disclose additional details of its financial assets and liabilities
categories and the risks associated with the Company's financial
instruments (note 3).
Future accounting policy changes
Effective October 1, 2008, the Company will adopt the new CICA accounting
sections: 3064 (Goodwill and Intangible Assets) and 3031 (Inventories).
The Company expects the adoption will have no material impact on its
consolidated financial statements.
Section 3064 (Goodwill and Intangible Assets) provides guidance on the
recognition of intangible assets in accordance with the definition of an
asset and the criteria for asset recognition, clarifying the application
of the concept of matching revenues and expenses, whether these assets
are separately acquired or are developed internally.
Section 3031 (Inventories) which has replaced Section 3030, establishes
new standards for the measurement and disclosure of inventories. It
requires inventories to be measured at the lower of cost and net
realizable value, provides guidance on the determination of cost and
requires the reversal of prior write downs when the net realizable value
of impaired inventory subsequently recovers.
In February 2008, the Canadian Accounting Standards Board (ACSB)
confirmed that International Financial Reporting Standards (IFRS) will
replace current Canadian GAAP for publicly accountable companies. The
official change over date is for interim and annual financial statements
for fiscal years beginning on or after January 1, 2011. The Company is
currently formulating and developing an implementation plan to comply
with the new standards and its future reporting requirements.
2. SHARE CAPITAL
Authorized
The Company's authorized share capital consists of an unlimited number of
common shares, an unlimited number of non-voting preference shares
issuable in one or more series and 275 special shares.
Issued
The Company has not issued any non-voting preference shares or special
shares. Changes to the issued common shares are shown in the following
table:
Common Shares
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Number of shares Stated value
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Issued and outstanding at
September 30, 2007 41,478,476 $36,142
Purchased and cancelled pursuant to
normal course issuer bid (262,600) (228)
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Issued and outstanding at
December 31, 2007 41,215,876 35,914
Purchased and cancelled pursuant to
normal course issuer bid (195,500) (171)
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Issued and outstanding at March 31, 2008 41,020,376 35,743
Purchased and cancelled pursuant to
normal course issuer bid (30,900) (27)
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Issued and outstanding at June 30, 2008 40,989,476 35,716
Purchased and cancelled pursuant to
normal course issuer bid (41,200) (35)
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Issued and outstanding at September 30, 2008 40,948,276 $35,681
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Currency translation adjustment
All of the Company's foreign operations are self-sustaining. Gains and
losses arising from the translation of the Company's net investment in
its foreign subsidiaries are included in accumulated other comprehensive
loss in shareholders' equity. The appropriate amount of exchange gain or
loss included in accumulated other comprehensive loss is reflected in
earnings when there is a sale or partial sale of the Company's investment
in these operations or upon a complete or substantially complete
liquidation of the investment.
Unrealized translation adjustments which arise on the translation to
Canadian dollars of assets and liabilities of the Company's
self-sustaining foreign operations resulted in an unrealized currency
translation gain of $3,618 during the twelve months ended September 30,
2008 (twelve months ended September 30, 2007 the unrealized translation
loss was $5,528). For the three months ended September 30, 2008 the
unrealized translation gain was $461 (three months ended September 30,
2007 the unrealized translation loss was $2,881). The year to date
unrealized gain of $3,618 is primarily attributable to the strengthening
of the U.S. dollar against the Canadian dollar as measured at
September 30, 2008 and 2007.
Cash dividend
During the twelve months ended September 30, 2008, the Company paid cash
dividends as outlined in the table below. The dividend rate in the
quarter was $0.0175 (2007 - $0.015) per common share.
Fiscal 2008 Fiscal 2007
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December 31 $618 $622
March 31 719 621
June 30 718 621
September 30 717 622
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Total dividends paid $2,772 $2,486
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Stock option plan
The Company has a stock option plan under which common shares may be
acquired by employees and officers of the Company. Non-executive
directors are not eligible to participate in the stock option plan. The
following is a continuity schedule of options outstanding (number of
options in the table below is expressed in whole numbers and has not been
rounded to the nearest thousand):
Fiscal 2008 Fiscal 2007
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Options outstanding Options outstanding
--------------------- ---------------------
Weighted Weighted
Number average Number average
of exercise Options of exercise Options
options price exercisable options price exercisable
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Opening
balance 2,410,849 $4.50 1,817,387 2,302,056 $4.56 1,706,227
Granted 73,777 $3.79 - 250,481 $4.00 -
Vested - - 183,021 - - -
Expired (179,212) $5.42 (179,212) (5,688) $3.52 (5,688)
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Balance,
December
31 2,305,414 $4.41 1,821,196 2,546,849 $4.50 1,700,539
Vested - - 6,000 - - 233,848
Cancelled (30,000) 6.85 (24,000) - - -
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Balance,
March 31 2,275,414 $4.38 1,803,196 2,546,849 $4.50 1,934,387
Exercised - - - (42,000) $3.85 (42,000)
Expired - - - (40,000) $6.04 (30,000)
Cancelled - - - (9,000) $4.00 -
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Balance,
June 30 2,275,414 $4.38 1,803,196 2,455,849 $4.37 1,862,387
Exercised - - - (30,000) $3.85 (30,000)
Expired (10,000) $7.60 (10,000) (15,000) $3.85 (15,000)
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Balance,
September
30 2,265,414 $4.36 1,793,196 2,410,849 $4.50 1,817,387
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Employee stock purchase plan
The Company has an employee stock purchase plan (ESPP). The ESPP allows
employees to purchase shares annually through payroll deductions at a
predetermined price. During fiscal 2008, payroll deductions will be made
supporting the purchase of a maximum of 188,558 shares at $3.98 per
share. The purchase and payroll deductions with respect to these shares
will be completed in the first quarter of fiscal 2009. Employees must
decide annually whether or not they wish to purchase their common shares.
During the twelve months ended September 30, 2008 no shares (2007 - nil)
were issued under the terms of the ESPP.
Stock-based compensation
Stock-based compensation resulting from applying the Black-Scholes
option-pricing model to the Company's Stock Option Plan and the ESPP was
$425 for the twelve months ended September 30, 2008 (twelve months ended
September 30, 2007 - $527) and for the three months ended September 30,
2008 was $96 (three months ended September 30, 2007 - $129). All stock-
based compensation has been recorded in selling, general and
administrative expenses. The weighted average assumptions used in the
twelve months ended September 30, 2008, measuring the fair value of stock
options and the weighted average fair value of options granted are as
follows:
September 30
2008 2007
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Risk-free interest rates 4.14% 4.02%
Expected dividend yield 0.89% 0.90%
Expected volatility 26.80% 27.00%
Expected time until exercise 6.02 years 5.58 years
Weighted average fair value of options granted $1.59 $1.52
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On November 18, 2005, the Company's Board of Directors adopted a Deferred
Share Unit Plan ("DSU Plan") for eligible directors. The deferred share
units will be redeemed by the Company in cash payable after the eligible
director departs from the Board.
Number of units Expense
-------------------------------------------------------------------------
December 31, 2007 3,958 ($7)
March 31, 2008 3,533 -
June 30, 2008 3,970 7
September 30, 2008 6,376 (23)
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Total 17,837 ($23)
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Contributed surplus
Contributed surplus consists of accumulated stock option expense less the
fair value of the options at the grant date that have been exercised and
reclassified to share capital. The following is a continuity schedule of
contributed surplus:
2008 2007
-------------------------------------------------------------------------
Balance, September 30 $2,364 $1,916
Stock option compensation expense 137 128
-------------------------------------------------------------------------
Balance, December 31 $2,501 $2,044
Stock option compensation expense 97 135
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Balance, March 31 $2,598 $2,179
Stock option compensation expense 95 135
Exercise of options - (46)
-------------------------------------------------------------------------
Balance, June 30 $2,693 $2,268
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Stock option compensation expense 96 129
Exercise of options - (33)
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Balance, September 30 $2,789 $2,364
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Normal course issuer bid
The Company received approval from the Toronto Stock Exchange for a
normal course issuer bid for a 12-month period beginning on May 8, 2008
replacing the normal course issuer bid which expired on May 7, 2008. The
Company's Board of Directors authorized the purchase of up to 2,000,000
common shares, representing approximately 5% of the Company's outstanding
common shares. During the twelve months ended September 30, 2008, the
Company purchased 530,200 common shares (2007 - 156,700) at a total cost
of $1,843 (2007 - $613). The cost to purchase these shares exceeded their
stated value by $1,382 (2007 - $478). This excess has been charged
against retained earnings.
3. FINANCIAL INSTRUMENTS
Financial instruments of the Company consists primarily of cash, accounts
receivable, mortgage receivable, bank indebtedness, accounts payable and
accrued liabilities, customer advance payments, and forward foreign
exchange contracts. With the exception of forward foreign exchange
contracts which the Company fair values quarterly and recognizes any
changes in value in the consolidated statements of earnings and
comprehensive income (loss) the carrying value of these financial
instruments approximates their fair value due to their short term
maturities nature.
The Company classifies its financial instruments as follows:
Cash Financial assets - held for trading
Accounts receivable(x) Financial assets - loans and receivables
Mortgage receivable(x) Financial assets - loans and receivables
Bank indebtedness Financial liabilities - held for trading
Accounts payable and accrued Financial liabilities - other financial
liabilities liabilities
Customer advance payments Financial liabilities - held for trading
Forward foreign exchange Financial assets - held for trading
contracts
(x) Recorded at amortized cost
Foreign exchange contracts
The Company has forward foreign exchange contracts to sell US$1,800 over
the next 4 months at the rate ranges from 1.047 to 1.049 Canadian dollars
for each US dollar sold. The Company also entered into a series of put
and call options ("Collars") extending through to September 22, 2011. The
total value of these collars is 138.1 million Mexican pesos (September
30, 2007 - 52.7 million Mexican pesos). The selling price ranges from
11.00 to 12.20 Mexican pesos to each U.S. dollar.
Management estimates that a combined loss of $231 would be realized if
these contracts and collars were terminated on September 30, 2008. As at
September 30, 2008, the estimated fair value loss of $231 has been
included in the selling, general and administrative expense on the
consolidated statements of earnings and comprehensive income (loss).
Financial risk management
The Company, through its financial assets and liabilities, is exposed to
various risks. The following analysis provides a measurement of the risks
and how they are managed:
a) Credit risk
Credit risk is the risk of an unexpected loss if a customer or third
party fails to meet its contractual obligations. The Company's primary
credit risk is its outstanding trade accounts receivable. The carrying
amount of its outstanding trade accounts receivable represents the
Company's estimate of its maximum credit exposure. The Company regularly
monitors its credit risk exposure and takes steps such as credit approval
procedures, establishing credit limits, utilizing credit assessments and
monitoring practices to mitigate the likelihood of these exposures from
resulting in an actual loss. The carrying amount of the trade accounts
receivable disclosed in the unaudited interim consolidated balance sheet
is net of allowances for doubtful accounts, estimated by the Company's
management, based on prior experience and assessment of current financial
conditions of customers as well as the general economic environment. When
a receivable balance is considered uncollectible, it is written off
against the allowances for doubtful accounts. Subsequent recoveries of
amounts previously written off are credited against operating expenses in
the consolidated statements of earnings and comprehensive income (loss).
As at September 30, 2008, the accounts receivable balance (net of
allowances for doubtful accounts) is $34,120 (September 30, 2007 -
$30,288) and the Company's five largest trade debtors accounted for 44%
of the total accounts receivable balance. As at September 30, 2008, South
American accounts receivable in the amount of $430 are insured against
default.
b) Liquidity risk
Liquidity risk refers to the possibility that the Company may not be able
to meet its financial obligations as they come due. The Company manages
its liquidity risk by minimizing its financial leverage and arranging
credit facilities in order to ensure sufficient funds are available to
meet its financial obligations. This is achieved by continuously
monitoring its cash flows from its operating, investing and financing
activities. As at September 30, 2008, the Company has a net cash balance
of $3,507 and unused credit facilities of $43,546.
c) Foreign exchange risk
The Company's functional and reporting currency is in Canadian
dollars. It operates in Canada with subsidiaries located in the United
States, Mexico and Morocco. It is exposed to foreign exchange transaction
and translation risk through its operating activities and self sustaining
foreign operations. Unfavourable changes in the exchange rate may affect
the operating results of the company. The Company does not use derivative
instruments to reduce its exposure to foreign currency risk. In order to
mitigate the foreign currency exposure, the Company reduces part of its
foreign exchange risk by sourcing a significant portion of its
manufacturing inputs in the currency that its sales are denominated in.
In addition to the above natural hedge, depending on the timing of
foreign currency receipts and payments, the Company will occasionally
enter into short term forward foreign exchange contracts to mitigate part
of the remaining foreign exchange exposure. These contracts are
classified as "held for trading" on the balance sheet and fair valued
each quarter. The resulting gain or loss on the valuation of these
financial instruments is recognized in the consolidated statements of
earnings and comprehensive income (loss). The Company does not mitigate
the translation risk exposure of its self-sustaining foreign operations
due to the fact that these investments are considered to be long term in
nature.
With all other variables held constant, a one percent strengthening or
weakening of the Canadian dollar against the US dollar and Moroccan
Dirham and a one percent fluctuation between the Euro and Dirham, US
dollar and Mexican pesos compared with the average year to date exchange
rate would have the following effects in the Company's year to date loss
before income taxes and other comprehensive income (loss).
-------------------------------------------------------------------------
1% Weakening 1% Strengthening 1% Fluctuation 1% Fluctuation
Euro and USD and
USD Dirham USD Dirham Dirham MXN peso
-------------------------------------------------------------------------
Income
(loss)
before
income
taxes 291 44 (291) (44) +/- 157 +/- 46
-------------------------------------------------------------------------
Other
compre-
hensive
income
(loss) 1,300 200 (1,300) (200) na na
-------------------------------------------------------------------------
d) Interest rate risk
The Company's exposure to interest rate risk relates to its net cash
position and variable rate credit facilities. The Company mitigates its
interest risk exposure by reducing or eliminating its overall debt
position. As of September 30, 2008, the Company has a net cash position
of $3,507; therefore its interest rate risk exposure is insignificant.
4. RESEARCH AND DEVELOPMENT
Research and development expensed during the twelve months ended
September 30, 2008 were nil since the Techmire division was sold last
year (twelve months ended September 30, 2007 - $307) and during the three
months ended September 30, 2008 were nil (three months ended September
30, 2007 - $73).
5. GOODWILL IMPAIRMENT CHARGES
During the fourth quarter of the current year, events occurred which
indicated that it was more likely than not that there was a significant
decline in the fair value of the Company's Neocon Canada division. These
events included continuing sharp decline in pre-tax income, significant
reduction in vehicle production for heavy vehicles expected by all OEMs
in 2009 and beyond due to tight credit markets, high fuel prices and
strong Canadian dollar environment. As a result, the Company recorded a
goodwill impairment charge of $7,086. After this impairment charge, there
remains no goodwill associated with the Neocon Canada division.
In addition, the generally negative development in the North American
automotive industry and more recently, poor light vehicle sales and
tightening consumer credit that began in September 2008 significantly
reduced the valuation of the Company's Polytech division. Consequently,
the Company recorded a goodwill impairment charge of $16,500 in September
2008. After this impairment charge, there remains $10,086 of goodwill
associated with the Polytech division.
The goodwill impairment charges are non-cash in nature and do not affect
the Company's liquidity, cash flows from operating activities, or debt
covenants and will not have an impact on future operations.
In the fourth quarter of prior year, events occurred which indicated that
it was more likely than not that there was a significant decline in the
fair value of the Company's Neocon USA division. These events included a
pre-tax loss in the prior year of $1,334, a consistent inability over
numerous years to be profitable or achieve its budget, and difficulty in
securing and launching sufficient business to grow its sales to a size
necessary to effectively cover operating overheads. As a result, the
Company recorded a goodwill impairment charge of $1,093. After this
impairment charge, there remains no goodwill associated with the Neocon
USA division.
The above impairment charges were not deductible for income tax purposes;
therefore there was no corresponding tax benefit in 2008 or 2007.
6. DISCONTINUED OPERATIONS
Included in discontinued operations is the Company's Techmire division
which was located in Montreal. On September 28, 2007, the Company
announced the sale of this division to Dynacast Canada Inc. ("Dynacast"),
a global manufacturer of precision engineered, die-cast metal and small
components. The cash sale included all assets of the Techmire business
excluding the production facility which was leased to Dynacast from
October 2007 to April 2008. The production facility is listed for sale
and is reflected in the accompanying consolidated balance sheets as
assets held for sale. The sale of the production facility is not expected
to be materially different from its carrying value.
The results from discontinued operations have been reported separately
within these consolidated financial statements.
Summarized financial information for discontinued operations is as
follows:
Three Months ended
September September
30, 2008 30, 2007
-------------------------------------------------------------------------
Sales $- $2,254
Operating losses ($114) ($752)
Write down of assets held for sale (500) (690)
Loss on disposition - (563)
-------------------------------------------------------------------------
Discontinued operations before income taxes (614) (2,005)
Future income taxes 189 684
-------------------------------------------------------------------------
Net losses from discontinued operations ($425) ($1,321)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Months ended
September September
30, 2008 30, 2007
-------------------------------------------------------------------------
Sales $0 $10,032
Operating losses ($282) ($2,894)
Write down of assets held for sale (500) (690)
Loss on disposition - (563)
-------------------------------------------------------------------------
Discontinued operations before income taxes (782) (4,147)
Future income taxes 246 1,415
-------------------------------------------------------------------------
Net losses from discontinued operations ($536) ($2,732)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at
September September
30, 2008 30, 2007
-------------------------------------------------------------------------
Net assets (liabilities) of discontinued
operations:
Current assets(x) $540 $1,349
Assets held for sale 5,068 5,568
Property, plant and equipment - -
-------------------------------------------------------------------------
Total assets 5,608 6,917
Less: current liabilities - 693
-------------------------------------------------------------------------
Net assets of discontinued operations $5,608 $6,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(x) Included escrow receivable from Dynacast regarding the purchase of
Techmire's assets which was received in full after year-end.
7. GAIN ON SALE OF FIXED ASSETS
In December 2007, the Company decided to consolidate its large mould
production facilities. As a result, its Extec division was consolidated
with other large mould operations and its production facility was
reclassified as assets held for sale. Extec's redundant real estate and
production facility was sold in February and May 2008, respectively, at a
combined gain of $2,232. A second mortgage in the amount of $600 with a
two year term at 8% interest was taken back by the Company as partial
consideration for the sale of the production facility.
8. CAPITAL MANAGEMENT
The Company defines capital as net debt and shareholders' equity. As at
September 30, 2008, total managed capital was $131,762 (September 30,
2007 - $146,268) consisting of nil net debt (September 30, 2007 - nil)
and shareholders' equity of $131,762 (September 30, 2007 - $146,268).
The Company's objectives when managing capital are to:
- utilize short term funding sources to manage its working capital
requirements and fund capital expenditures required to execute its
operating and strategic plans, and
- maintain low overall debt levels relative to shareholders' equity with
a strong bias for short term debt in order to minimize the cost of
capital and allow maximum flexibility to respond to current and future
industry, market and economic risks and opportunities.
The following ratios are used by the Company to monitor its capital:
2008 2007
(as at (as at
September September
30) 30)
-------------------------------------------------------------------------
Net debt to equity 0.00:1 0.00:1
Current ratio 2.55:1 2.25:1
-------------------------------------------------------------------------
The following table details the net debt calculation used in the net debt
to equity ratio as at the periods ended as indicated:
2008 2007
(as at (as at
September September
30) 30)
-------------------------------------------------------------------------
Bank indebtedness $4,634 $1,112
Current portion of long-term debt - 85
Less: cash (8,141) (5,677)
-------------------------------------------------------------------------
Net debt nil nil
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The current ratio is calculated by dividing current assets (excluding
cash and assets held for sale) by current liabilities (excluding bank
indebtedness).
The Company is not subject to any capital requirement imposed by
regulators; however, the Company must adhere to certain financial
covenants related to the terms of its bank credit facility. As at
September 30, 2008, the Company was in compliance with the required
financial covenants.
9. SEGMENTED INFORMATION FROM CONTINUING OPERATIONS
The Company operates in two business segments: Casting and Extrusion
Technology and Automotive Solutions. The accounting policies followed in
the operating segments are consistent with those outlined in note 1 of
the annual consolidated financial statements.
The Casting and Extrusion Technology segment designs and engineers
tooling and other manufacturing equipment. Its operations are
substantially for automotive and other industrial markets in North
America.
The Automotive Solutions segment produces automotive interior components
and assemblies primarily for cargo storage and restraint for sale to
automotive manufacturers and Tier 1 suppliers (suppliers to automakers).
-------------------------------------------------------------------------
Three Months ended September 30, 2008
Casting and
Extrusion Automotive
Technology Solutions Total
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales $26,852 $23,280 $50,132
Depreciation and amortization 1,596 656 2,252
Segment income (loss) before
goodwill impairment charges (871) 1,570 699
Goodwill impairment charges - 23,586 23,586
Segment loss after goodwill
impairment charges (871) (22,016) (22,887)
Interest expense 46
Loss before income taxes (22,933)
Fixed assets additions 2,316 559 2,875
Fixed assets - continuing operations 54,620 20,295 74,915
Total fixed assets, net 54,620 20,295 74,915
Goodwill - 10,086 10,086
Total assets - continuing operations 59,574 103,201 162,775
Total assets - discontinued operations 5,608 - 5,608
Total assets $65,182 $103,201 $168,383
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months ended September 30, 2007
Casting and
Extrusion Automotive
Technology Solutions Total
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales $30,706 $19,779 $50,485
Depreciation and amortization 1,666 617 2,283
Segment income before goodwill
impairment charge 1,624 152 1,776
Goodwill impairment charge - 1,093 1,093
Segment income (loss) after
goodwill impairment charge 1,624 (941) 683
Interest income (5)
Income from continuing operations
before income taxes 688
Fixed asset additions 1,455 875 2,330
Fixed assets - continuing
operations 54,667 18,713 73,380
Total fixed assets, net 54,667 18,713 73,380
Goodwill - 33,672 33,672
Total assets - continuing
operations 67,135 110,014 177,149
Total assets - discontinued
operations 6,917 - 6,917
Total assets $74,052 $110,014 $184,066
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Months ended September 30, 2008
Casting and
Extrusion Automotive
Technology Solutions Total
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales $111,493 $90,188 $201,681
Depreciation and amortization 6,931 2,414 9,345
Segment income before goodwill
impairment charges 3,513 6,749 10,262
Goodwill impairment charges - 23,586 23,586
Segment income (loss) after
goodwill impairment charges 3,513 (16,837) (13,324)
Interest expense 210
Loss before income taxes (13,534)
Fixed assets additions 7,724 3,514 11,238
Fixed assets - continuing
operations 54,620 20,295 74,915
Total fixed assets, net 54,620 20,295 74,915
Goodwill - 10,086 10,086
Total assets - continuing
operations 59,574 103,201 162,775
Total assets - discontinued
operations 5,608 - 5,608
Total assets $65,182 $103,201 $168,383
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Months ended September 30, 2007
Casting and
Extrusion Automotive
Technology Solutions Total
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales $120,769 $80,990 $201,759
Depreciation and amortization 7,407 2,394 9,801
Segment income before goodwill
impairment charge 6,202 5,446 11,648
Goodwill impairment charge - 1,093 1,093
Segment income after goodwill
impairment charge 6,202 4,353 10,555
Interest expense 219
Income from continuing operations
before income taxes 10,336
Fixed asset additions 9,474 4,485 13,959
Fixed assets - continuing operations 54,667 18,713 73,380
Total fixed assets, net 54,667 18,713 73,380
Goodwill - 33,672 33,672
Total assets - continuing
operations 67,135 110,014 177,149
Total assets - discontinued
operations 6,917 - 6,917
Total assets $74,052 $110,014 $184,066
-------------------------------------------------------------------------
%SEDAR: 00003420E