TORONTO, Nov. 22 /CNW/ - Exco Technologies Limited (TSX-XTC) today announced results for its fourth quarter ended September 30, 2007. In addition, the Company announced that a quarterly cash dividend of $0.015 per share will be paid December 28, 2007 to shareholders of record on December 14, 2007. The dividend is an "eligible dividend" in accordance with the Income Tax Act of Canada. During the quarter Exco sold its Techmire division in an all cash transaction. Accordingly, the financial results for 2007 and 2006 have been restated to reflect Techmire as a discontinued operation.
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12 Months Ended 3 Months ended
September 30 September 30
2007 2006 2007 2006
----------- ----------- ----------- -----------
Sales $201,759 $199,271 $50,485 $51,411
Net income (loss) from
continuing operations $5,794 $3,311 ($752) $4,035
Net loss from
discontinued operations ($2,732) ($3,927) ($1,321) ($894)
Net income (loss) $3,062 ($616) ($2,073) $3,141
Diluted earnings (loss)
per share from
continuing operations $0.14 $0.08 ($0.02) $0.10
Diluted loss per share
from discontinued
operations ($0.07) ($0.09) ($0.03) ($0.02)
Diluted earnings (loss)
per share $0.07 ($0.01) ($0.05) $0.08
Common shares
outstanding 41,478,476 41,563,176 41,478,476 41,563,176
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In the fourth quarter sales of $50.5 million were down over last year by almost 2%. The Canadian dollar achieved parity with the US dollar in the quarter, strengthening on average by 8 cents over last year. Annual sales of $201.8 million were up by slightly more than one percent over the prior year. This increase includes the impact of a 3 cent strengthening of the Canadian dollar during the year, which lowered sales this year by $3.6 million or 1.8%. About 66% of sales were denominated in US dollars.
While the strong Canadian dollar has unquestionably hindered our top line performance, weakness in the sale of large moulds during the fourth quarter was a more important factor. Large mould sales were down $4.9 million compared to last year. This offset an increase of almost $2 million in sales at the other operations in the Casting and Extrusion segment and also offset the increase of $1.5 million in sales in the Automotive Solutions segment. Sale of large moulds will improve as deliveries of our order backlog announced in June begin to take place throughout this year.
Consolidated net income from continuing operations increased 38% to $5.8 million or $0.14 per share fully diluted compared to $3.3 million or $0.08 per share in fiscal 2006. Excluding the impact of last year's goodwill impairment charge for Techmire, which reduced fiscal 2006 operating earnings by $8.3 million, operating earnings have declined by 41%. The Company reported a fourth quarter net loss from continuing operations of $752 thousand. This decrease includes a non deductible goodwill charge of $1.1 million taken in the fourth quarter to reflect impairment at our Neocon USA operation which has been struggling with building a solid revenue base as customers delay and change product design and production schedules. The Company also recorded a pre tax charge of $2 million in the quarter for the estimated cost of discontinuing the operation of an aircraft which has long serviced our large mould and extrusion die customers. This charge accounts for the increase in SG&A in the quarter of $1.9 million. Exco's earnings were also eroded in the quarter by severance costs related to staff reductions in our Canadian operations which increased Cost of Goods Sold by about $400 thousand. Further contributing to this quarterly loss is a tax provision of $1.4 million. Two factors account for such a high tax provision. Techmire's classification as a discontinued operation has caused tax deductions flowing from its operating losses to be allocated against losses from discontinued operations even though these tax deductions are still available to the Company in future years. The amount so classified is $685 thousand. The other factor is the non deductibility of the $1.1 million goodwill charge which accounts for another $375 thousand.
Without these items the Company believes that its earnings in the fourth quarter would have been generally in line with last year. The Company also believes that these results show its determination to make difficult decisions in order to adapt to the changing business environment. The sale of Techmire will eliminate future losses, which in the past have been as high as $5 million per year, and materially improve our foreign exchange exposure. The decision to discontinue operation of the aircraft is expected to permanently reduce SG&A by $1 million per year. Our core businesses continue to perform well with an improving outlook in our Automotive Solutions segment. Our large mould business is leading the way in the Casting and Extrusion segment with a swelling order book which will see deliveries improving in fiscal 2008.
On June 4 we announced orders for large mould tooling that were expected to yield $75 million in sales over the upcoming five years. These orders are priced competitively at current exchange rates and deliveries are expected to commence in the 2008 fiscal year. This order book will much improve the poor performance of the large mould businesses in fiscal 2007 as the increased business will materially improve capacity utilization and overhead absorption.
Our working capital and cash flow remains strong and, with no net bank debt, our balance sheet continues to allow us to maximize independence and flexibility as we make the difficult decisions necessary to prosper in the future.
Exco Technologies Limited is a global supplier of innovative technologies servicing the die-cast, extrusion and automotive industries. Through our 11 strategic locations, we employ 2,100 people and service a diverse and broad customer base.
Management will hold a conference call to discuss the fourth quarter results on Friday November 23, 2007 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 in the conference call, 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 include, among other things: industry cyclicality; global economic conditions, causing decreases in automobile production volumes and demand for capital goods; changing demand for specific models or products; price reduction pressures; pressure to absorb certain fixed costs; dependence on major customers and changes in such customers' financial capabilities; technological changes; compliance with various laws; obtaining necessary permits and consents; fluctuations in currency exchange and interest rates; employee work stoppages; dependence on key employees; the competitive nature of the automotive and capital goods industries, including competition with suppliers operating in low cost countries; product supply and demand; the conduct of business in foreign countries; and other risks, uncertainties and assumptions as described in the Company's Management's Discussion and Analysis included in our 2006 Annual Report, in our 2006 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, 2007 and 2006 have not been reviewed by the auditors of the Company.
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands)
-------------------------------------------------------------------------
As at As at
September September
30, 2007 30, 2006
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Restated -
Notes 1 and 7
ASSETS
Current
Cash $5,677 $2,470
Accounts receivable 30,288 39,083
Inventories 29,296 29,336
Prepaid expenses and deposits 2,429 2,661
Assets held for sale (note 7) 5,568 -
Discontinued operations (note 7) 1,349 7,450
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Total Current Assets 74,607 81,000
Fixed assets 73,380 72,636
Discontinued operations (note 7) - 9,961
Goodwill (note 5) 33,672 34,765
Future tax assets 2,407 3,031
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$184,066 $201,393
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $1,112 $8,828
Accounts payable and accrued liabilities 25,216 27,903
Income taxes payable 840 1,228
Customer advance payments 1,377 1,586
Current portion of long-term debt 85 325
Discontinued operations (note 7) 693 2,339
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Total Current Liabilities 29,323 42,209
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Long-term debt - 92
Future tax liabilities 8,475 8,436
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Total Liabilities 37,798 50,737
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Shareholders' Equity
Share capital (note 2) 36,142 35,921
Contributed surplus (note 2) 2,364 1,916
Retained earnings 128,000 127,529
Accumulated other comprehensive
loss (note 1) (20,238) (14,710)
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Total shareholders' equity 146,268 150,656
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$184,066 $201,393
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See accompanying notes
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(Unaudited)
($ in thousands except
per share amounts)
3 Months ended 12 Months ended
September 30 September 30
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2007 2006 2007 2006
-------------------------------------------------------------------------
Restated - Restated -
Notes 1 & 7 Notes 1 & 7
Sales $50,485 $51,411 $201,759 $199,271
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Cost of sales and
operating expenses before
the following (note 4) 37,430 36,710 151,997 143,111
Selling, general and
administrative (note 2) 9,128 7,225 28,835 28,153
Depreciation and
amortization 2,283 2,326 9,801 10,057
Goodwill impairment
charge (note 5) 1,093 - 1,093 8,345
Gain on sale of fixed
assets (132) - (522) -
Interest expense (revenue) (5) 174 219 740
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49,797 46,435 191,423 190,406
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Income from continuing
operations before
income taxes 688 4,976 10,336 8,865
Provision for income taxes 1,440 941 4,542 5,554
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Net income (loss) from
continuing operations (752) 4,035 5,794 3,311
Net income (loss) from
discontinued operations,
net of taxes (note 7) (1,321) (894) (2,732) (3,927)
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Net income (loss)
for the period (2,073) 3,141 3,062 (616)
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Other comprehensive loss
(note 1)
Unrealized loss on foreign
currency translation of
self-sustaining operations (2,881) (38) (5,528) (1,490)
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Comprehensive income (loss) ($4,954) $3,103 ($2,466) ($2,106)
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Earnings (loss) per common
share
Basic and diluted from
continuing operations ($0.02) $0.10 $0.14 $0.08
Basic and diluted from
discontinued operations ($0.03) ($0.02) ($0.07) ($0.09)
Basic and diluted
earnings (loss) ($0.05) $0.08 $0.07 ($0.01)
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See accompanying notes
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
3 Months ended 12 Months ended
September 30 September 30
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2007 2006 2007 2006
-------------------------------------------------------------------------
Restated - Restated -
Notes 1 & 7 Notes 1 & 7
OPERATING ACTIVITIES:
Net income (loss) for
the period ($752) $4,035 $5,794 $3,311
Add (deduct) items not
involving cash flows:
Goodwill impairment
charge 1,093 - 1,093 8,345
Depreciation and
amortization 2,283 2,326 9,801 10,057
Future income taxes 186 256 707 414
Stock-based compensation
(note 2) 148 97 597 517
Loss (gain) on sale
of fixed assets (132) 29 (522) (63)
Loss on financial
instrument valuation
(note 3) 271 - 228 -
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3,097 6,743 17,698 22,581
Net change in non-cash
working capital balances
related to continuing
operations 656 4,729 1,857 707
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Cash provided by operating
activities of continuing
operations 3,753 11,472 19,555 23,288
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FINANCING ACTIVITIES:
Increase (decrease) in
bank indebtedness (2,484) (7,312) (6,936) (8,618)
Decrease in long-term
debt (31) (31) (332) (333)
Dividends (622) (520) (2,486) (2,080)
Repurchase of share
capital (note 2) - - (613) (705)
Issue of share
capital (note 2) 115 141 277 321
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Cash used in financing
activities of
continuing operations (3,022) (7,722) (10,090) (11,415)
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INVESTING ACTIVITIES:
Investment in fixed
assets (2,330) (2,728) (13,959) (10,270)
Proceeds on sale of
fixed assets 161 249 2,567 496
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Cash used in investing
activities of
continuing operations (2,169) (2,479) (11,392) (9,774)
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CASH FLOWS FROM
DISCONTINUED OPERATION
Net cash provided by
(used in) operating
activities (note 7) 3,189 (42) 3,007 (2,105)
Net cash provided by
(used in) investing
activities (note 7) 2,317 (522) 2,317 (522)
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Net cash provided by
(used in) discontinued
operations 5,506 (564) 5,324 (2,627)
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Effect of exchange rate
changes on cash (111) - (190) (160)
Net (decrease) increase
in cash during period 3,957 707 3,207 (688)
Cash, beginning of period 1,720 1,763 2,470 3,158
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Cash, end of period $5,677 $2,470 $5,677 $2,470
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See accompanying notes
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
($ in thousands)
-------------------------------------------------------------------------
Accumulated
other
compre- Total Total
Contri- hensive share compre-
Share buted Retained income holders' hensive
capital surplus earnings (loss) equity income
-------------------------------------------------------------------------
(Restated
note 1)
Balance,
October 1,
2005 $35,758 $1,459 $130,772 ($13,220) $154,769 $ -
Net loss for
the year - - (616) - (616)
Dividends - - (2,080) - (2,080)
Stock option
expense - 457 - - 457
Repurchase of
share capital (158) - (547) - (705)
Issuance of
share capital 321 - - - 321
Unrealized
loss on
translation
of self-
sustaining
operations - - - (1,490) (1,490)
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Balance,
September 30,
2006 35,921 1,916 127,529 (14,710) 150,656 -
Change in
accounting
policy (note 1) - - 373 - 373 -
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Balance,
October 1,
2006 35,921 1,916 127,902 (14,710) 151,029
Net income
for the
quarter - - 1,108 - 1,108 1,108
Dividends - - (622) - (622) -
Stock option
expense - 128 - - 128 -
Repurchase of
share capital (113) - (404) - (517) -
Unrealized
gain on
translation
of self-
sustaining
operations - - - 3,362 3,362 3,362
Balance,
December 31,
2006 35,808 2,044 127,984 (11,348) 154,488 4,470
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Net income for
the quarter - - 1,859 - 1,859 1,859
Dividends - - (621) - (621) -
Stock option
expense - 135 - - 135 -
Repurchase
of share
capital (22) - (74) - (96) -
Unrealized
loss on
translation
of self-
sustaining
operations (1,036) (1,036) (1,036)
Balance,
March 31,
2007 35,786 2,179 129,148 (12,384) 154,729 5,293
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Net income
for the
quarter - - 2,168 - 2,168 2,168
Dividends - - (621) - (621) -
Stock option
expense - 135 - - 135 -
Repurchase of
share capital - - - - - -
Issuance of
share capital 208 (46) - - 162 -
Unrealized
loss on
translation
of self-
sustaining
operations - - - (4,973) (4,973) (4,973)
Balance,
June 30,
2007 35,994 2,268 130,695 (17,357) 151,600 2,488
-------------------------------------------------------------------------
Net income for
the quarter - - (2,073) (2,073) (2,073)
Dividends - - (622) - (622) -
Stock option
expense - 129 - - 129 -
Repurchase of
share capital - - - - - -
Issuance of
share capital 148 (33) - - 115 -
Unrealized
loss on
translation
of self-
sustaining
operations - - - (2,881) (2,881) (2,881)
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Balance,
September 30,
2007 36,142 2,364 128,000 (20,238) 146,268 (2,466)
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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, 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 2006 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 annual consolidated financial statements, except for
the accounting policy changes described below.
Accounting policy changes
Effective October 1, 2006, the Company implemented the new CICA
accounting sections: 3855 (Financial Instruments - Recognition and
Measurement), 3861 (Financial Instruments - Disclosure and Presentation),
3865 (Hedges), and 1530 (Comprehensive Income). These new accounting
policy changes have been implemented prospectively with no restatement of
comparative financial statements, except as noted below.
The purpose of the Company's foreign currency contracts is to mitigate
its exposure to foreign exchange fluctuations on its foreign revenues and
expenses. The Company forecasts cash flows to determine the level of
contracts required. The Company does not hold or issue derivative
financial instruments for trading or speculative purposes and it has
chosen to not designate them as hedges. Therefore, as required under
Section 3865, these contracts must be designated as "held for trading" on
the balance sheets and fair valued each quarter. The resulting gain or
loss on the valuation of these financial instruments is recognized in the
statements of earnings. As a result of this change, on October, 1, 2006
the Company recorded an other asset of $373, included in prepaid expenses
and other assets in the accompanying balance sheets, to reflect the
estimated fair value of its foreign exchange contracts and a
corresponding credit to opening retained earnings.
Comprehensive income includes net income and other comprehensive income.
Comprehensive income is defined as the change in equity (net assets) of a
company during the period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during the period except those resulting from investments by owners and
distributions to owners. Due to the Company's decision to not implement
hedge accounting for its foreign currency contracts, the only item
included in other comprehensive income is the foreign currency
translation of self-sustaining foreign operations. As a result, the
previously recorded currency translation account on the consolidated
balance sheets' shareholders' equity section has been eliminated and
included as "accumulative other comprehensive income" in shareholders'
equity. Furthermore, the gain (or loss) from translating the Company's
self-sustaining foreign operations is now recorded as other comprehensive
income. Prior years' financial statements have been restated to reflect
this change. The Company's earnings per share presented on the
consolidated statements of earnings is based upon its net income and not
comprehensive income.
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
-------------------------------------------------------------------------
Issued and outstanding at
September 30, 2006 41,563,176 $35,921
Purchased and cancelled pursuant to
normal course issuer bid (131,400) (113)
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Issued and outstanding at
December 31, 2006 41,431,776 35,808
Purchased and cancelled pursuant to
normal course issuer bid (25,300) (22)
-------------------------------------------------------------------------
Issued and outstanding at March 31, 2007 41,406,476 35,786
Issued for cash under Stock Option Plan 42,000 162
Contributed surplus on stock options
exercised - 46
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Issued and outstanding at June 30, 2007 41,448,476 $35,994
-------------------------------------------------------------------------
Issued for cash under Stock Option Plan 30,000 115
Contributed surplus on stock options
exercised - 33
-------------------------------------------------------------------------
Issued and outstanding at September 30, 2007 41,478,476 $36,142
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Cash dividend
During the period ended September 30, 2007, the Company paid cash
dividends as outlined in the table below. The dividend rate per quarter
was $0.015 per common share.
Fiscal 2007 Fiscal 2006
-------------------------------------------------------------------------
Dec-31 $622 $519
Mar-31 621 521
Jun-30 621 520
Sep-30 622 520
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Total dividends paid $2,486 $2,080
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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. 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 2007 Fiscal 2006
-----------------------------------------------------------------
Options outstanding Options outstanding
--------------------- ---------------------
Weighted Weighted
Number average Number average
of exercise Options of exercise Options
options price exercisable options price exercisable
-------------------------------------------------------------------------
Opening
balance 2,302,056 $4.56 1,706,227 2,282,454 $4.46 1,597,603
Granted 250,481 $4.00 - 201,890 $4.00 -
Exercised - - - (10,000) $3.00 (10,000)
Vested - - - - - 219,312
Cancelled (5,688) $3.52 (5,688) (2) $3.00 (2)
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Balance,
Dec. 31 2,546,849 $4.50 1,700,539 2,474,342 $4.49 1,806,913
Granted - - - - - -
Exercised - - - (49,000) $3.02 (49,000)
Vested - - 233,848 - - 47,400
Cancelled - - - - - -
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Balance,
Mar. 31 2,546,849 $4.38 1,934,387 2,425,342 $4.52 1,805,313
Granted - - - - - -
Exercised (42,000) $3.85 (42,000) - - -
Vested - - - - - 4,000
Cancelled (49,000) $5.66 (30,000) - - -
-------------------------------------------------------------------------
Balance,
Jun. 30 2,455,849 $4.37 1,862,387 2,425,342 $4.52 1,809,313
Granted - - - - - -
Exercised (30,000) $3.85 (30,000) (50,000) $2.82 (50,000)
Vested - - - - - -
Cancelled (15,000) $3.85 (15,000) (73,286) $4.68 (53,086)
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Balance,
Sep. 30 2,410,849 $4.50 1,817,387 2,302,056 $4.56 1,706,227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 2007, payroll deductions will be made
supporting the purchase of a maximum of 319,464 shares at $4.04 per
share. The purchase and payroll deductions with respect to these shares
will be completed in the first quarter of fiscal 2008. Employees must
decide annually whether or not they wish to purchase their common shares.
During the twelve months ended September 30, 2007, no shares (2006 - 281)
were issued under the terms of the ESPP.
Stock-based compensation
Stock-based compensation resulting from applying the Black-Scholes
option-pricing model on the Company's Stock Option Plan and the ESPP was
$527 for the twelve months ended September 30, 2007 (twelve months ended
September 30, 2006 - $457) and for the three months ended September 30,
2007 was $129 (three months ended September 30, 2006 - $77). 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, 2007, measuring the fair value of stock
options and the weighted average fair value of options granted are as
follows:
2007 2006
-------------------------------------------------------------------------
Risk-free interest rates 4.02% 4.03%
Expected dividend yield 0.90% 0.72%
Expected volatility 27.00% 27.00%
Expected time until exercise 5.58 years 5.11 years
Weighted average fair value of options granted $1.52 $1.56
-------------------------------------------------------------------------
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. The DSU Plan will replace the past
practice of granting eligible directors stock options under the Stock
Option Plan.
Number of Expense
units
-------------------------------------------------------------------------
31-Dec-06 3,933 $10
31-Mar-07 3,173 14
30-Jun-07 2,677 27
30-Sep-07 3,686 19
-------------------------------------------------------------------------
Total 13,469 $70
-------------------------------------------------------------------------
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:
2007 2006
-------------------------------------------------------------------------
Balance, September 30 $1,916 $1,459
Stock option compensation expense 128 116
-------------------------------------------------------------------------
Balance, December 31 2,044 1,575
Stock option compensation expense 135 133
-------------------------------------------------------------------------
Balance, March 31 2,179 1,708
Stock option compensation expense 135 131
Exercise of options (46) -
-------------------------------------------------------------------------
Balance, June 30 $2,268 $1,839
-------------------------------------------------------------------------
Stock option compensation expense 129 77
Exercise of options (33) -
-------------------------------------------------------------------------
Balance, September 30 $2,364 $1,916
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, 2007,
replacing the normal course issuer bid which expired on May 7, 2007. The
Company's Board of Directors authorized the purchase of up to 2,050,000
common shares, representing approximately 5% of the Company's outstanding
common shares. As at September 30, 2007, the Company has purchased under
both bids 156,700 common shares (2006 - 183,400) for cancellation at a
cost of $613 (2006 - $705). The cost to purchase the shares exceeded
their stated value by $478 (2006 - $547). This excess has been charged
against retained earnings.
3. COMMITMENTS AND CONTINGENCIES
Financial instruments
The Company has forward foreign exchange contracts to sell
(euro) 900 over the next three months at the rate of 11.07 Moroccan
Dirham for each Euro sold. The Company also entered into a series of put
and call options over the next seven months. The total contract value is
52.7 million Mexican pesos (2006 - 124.8 million Mexican pesos). The
selling price ranges from 11.35 to 12.20 (2006 - 11.85 to 12.20) Mexican
pesos to each U.S. dollar. Management estimates that a combined profit of
$145 (2006 - $317) would be realized if both series of contracts were
terminated on September 30, 2007.
Contingent liabilities
In the ordinary course of business, the Company may be contingently
liable for litigation and claims with customers, suppliers and former
employees. For the year ended September 30, 2006, included in accounts
payable and accrued liabilities are accruals for contingencies amounting
to $1,725. During the third quarter of the current year, the Company has
settled a dispute with a sales agent which was accrued as a contingent
liability in the year ended September 30, 2006. The difference between
the accrual and final settlement with the sales agent was expensed in the
selling, general and administrative expenses on the statements of
earnings and the current remaining contingent liability is immaterial.
4. RESEARCH AND DEVELOPMENT
Research and development expenditures during the 12 months ended
September 30, 2007 were $307 (12 months ended September 30, 2006 -
$1,233) and during the three months ended September 30, 2007 were
$73 (three months ended September 30, 2006 - $191). These costs were
expensed in the period as they did not meet Canadian generally accepted
accounting principles for deferral.
5. GOODWILL IMPAIRMENT CHARGE
During the fourth quarter of the fiscal 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 for the 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. The
impairment charge was not deductible for income tax purposes; therefore
there was no corresponding tax benefit. After this impairment charge,
there remains no goodwill associated with the Neocon USA division.
During the prior year's second quarter, 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 Techmire division. These events included
a persistently strong Canadian dollar which reached levels in the quarter
not experienced since 1991, reduced demand for zinc components caused by
the high cost of zinc, and the challenges associated with bringing to
market in the near term larger tonnage die-cast, machinery and machinery
capable of running lower cost and lighter weight materials. As a result,
the Company tested the goodwill associated with the Techmire division in
advance of the annual impairment test and the Company recorded a goodwill
impairment charge of $8,345. This impairment charge was not deductible
for income tax purposes; therefore, there was no corresponding tax
benefit. After this impairment charge, there remains no goodwill
associated with the Techmire division.
6. 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 storage and restraint for sale to automotive
manufacturers and Tier 1 suppliers (suppliers to automakers).
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3 Months ended September 30, 2007
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $30,706 $19,779 $50,485
Depreciation and amortization 1,666 617 2,283
Goodwill impairment charge - 1,093 1,093
Segment income 1,624 (941) 683
Interest revenue (5)
Income before income taxes 688
Fixed asset additions 1,455 875 2,330
Fixed assets, net -
continuing operations 54,667 18,713 73,380
Fixed assets, net -
discontinued operations - - -
Total fixed assets, net 54,667 18,713 73,380
Goodwill - 33,672 33,672
Assets - continuing operations 67,135 110,014 177,149
Assets - discontinued operations 6,917 - 6,917
Total assets $74,052 $110,014 $184,066
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3 Months ended September 30, 2006
Casting and
Extrusion Automotive
Technology Solutions Total
-------------------------------------------------------------------------
Sales $33,465 $17,946 $51,411
Depreciation and amortization 1,842 484 2,326
Goodwill impairment charge - - -
Segment income 4,507 643 5,150
Interest expense 174
Income before income taxes 4,976
Fixed asset additions 2,830 420 3,250
Fixed assets, net -
continuing operations 55,373 17,263 72,636
Fixed assets, net -
discontinued operations 9,961 - 9,961
Total fixed assets, net 65,334 17,263 82,597
Goodwill - 34,765 34,765
Assets - continuing operations 73,468 110,514 183,982
Assets - discontinued operations 17,411 - 17,411
Total assets $90,879 $110,514 $201,393
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12 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
Goodwill impairment charge - 1,093 1,093
Segment income 6,202 4,353 10,555
Interest expense 219
Income before income taxes 10,336
Fixed asset additions 9,474 4,485 13,959
Fixed assets, net -
continuing operations 54,667 18,713 73,380
Fixed assets, net -
discontinued operations - - -
Total fixed assets, net 54,667 18,713 73,380
Goodwill - 33,672 33,672
Assets - continuing operations 67,135 110,014 177,149
Assets - discontinued operations 6,917 - 6,917
Total assets $74,052 $110,014 $184,066
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12 Months Ended September 30, 2006
Casting and
Extrusion Automotive
Technology Solutions Total
-------------------------------------------------------------------------
Sales $124,716 $74,555 $199,271
Depreciation and amortization 7,887 2,170 10,057
Goodwill impairment charge 8,345 - 8,345
Segment income 2,244 7,361 9,605
Interest expense 740
Income before income taxes 8,865
Fixed asset additions 8,912 1,880 10,792
Fixed assets, net -
continuing operations 55,373 17,263 72,636
Fixed assets, net -
discontinued operations 9,961 - 9,961
Total fixed assets, net 65,334 17,263 82,597
Goodwill - 34,765 34,765
Assets - continuing operations 73,468 110,514 183,982
Assets - discontinued operations 17,411 - 17,411
Total assets $90,879 $110,514 $201,393
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7. 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 includes all assets of the Techmire business
excluding the production facility which will be leased to Dynacast on a
short-term basis. The production facility is now 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 the discontinued operations is as
follows:
3 months ended September 30
2007 2006
-------------------------------------------------------------------------
Sales $2,254 $2,620
Operating losses (752) ($1,357)
Write down of assets held for sale (690) -
Loss on disposition (563) -
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Discontinued operations before income taxes (2,005) (1,357)
Future income taxes 684 463
-------------------------------------------------------------------------
Net losses from discontinued operations ($1,321) ($894)
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-------------------------------------------------------------------------
12 months ended September 30
2007 2006
-------------------------------------------------------------------------
Sales $10,032 $11,656
Operating losses (2,894) ($5,961)
Write down of assets held for sale (690) -
Loss on disposition (563) -
-------------------------------------------------------------------------
Discontinued operations before income taxes (4,147) (5,961)
Future income taxes 1,415 2,034
-------------------------------------------------------------------------
Net losses from discontinued operations ($2,732) ($3,927)
-------------------------------------------------------------------------
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12 months ended September 30
2007 2006
-------------------------------------------------------------------------
Net assets (liabilities) of
discontinued operations:
Current Assets $1,349 $7,450
Assets held for sale 5,568 -
Fixed assets - 9,961
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Total assets 6,917 17,411
Less: Current liabilities 693 2,339
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Net assets (liabilities) of
discontinued operations $6,224 $15,072
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%SEDAR: 00003420E