Tesma Announces Fiscal 2001 Second Quarter Results
CONCORD, ON, March 1 - Tesma International Inc.
a global supplier of highly-engineered engine, transmission and
fueling systems and modules for the automotive industry, today reported, for
the three months ended January 31, 2001, the 22nd consecutive quarter (on a
comparative year-over-year basis) of record sales since going public in 1995.
Six Months Ended Three Months Ended
---------------- ------------------
January 31 January 31
(Canadian dollars in millions,
except per share figures)
2001 2000 2001 2000
Sales $584.4 $546.3 $282.3 $266.8
Income before income taxes $ 64.1 $ 64.1 $ 27.8 $ 32.7
Net income $ 40.6 $ 40.6 $ 17.8 $ 20.7
Operating cash flow $ 19.5 $ 65.1 $ 30.4 $ 42.9
Basic earnings per share $ 1.39 $ 1.42 $ 0.61 $ 0.73
Fully diluted earnings per share $ 1.35 $ 1.35 $ 0.58 $ 0.69
Weighted average number of shares
outstanding on a fully diluted
basis (in millions) 30.6 30.2 30.6 30.2
Consolidated Results
--------------------
Sales for the six month period increased by 7% to $584.4 million, despite
a 10% decline in North American vehicle production volumes and only a modest
growth of 2.4% in Europe. This sales increase reflects sales generated from
new production launches over the past twelve months, a 20% and 17% increase in
our North American and European content per vehicle to $51.25 and (euro) 13.23
respectively, continued growth in export sales, and strong service and
aftermarket part sales. The significant strengthening of the Canadian dollar
versus the Euro slowed Tesma's reported sales by approximately 2.8%.
For the quarter, sales were up by 6% to a record $282.3 million, despite
a drop in North American vehicle production volumes of 17% to 3.25 million
units, their lowest quarterly level (excluding the strike affected fourth
quarter of fiscal year 1998) since Tesma became a public company in 1995.
Income before income taxes for the six month period was unchanged at
$64.1 million. The additional margin generated by newly-launched production
programs, improved operating efficiencies, higher content per vehicle, and
reduced interest expense was offset by the year-to-date 10% reduction in North
American vehicle production volumes, customer pricing concessions and higher
operating costs at certain facilities as we launch new programs and continue
to invest in engineering, research and development resources and capital
assets for our future. Net income was also unchanged versus the prior year at
$40.6 million.
For the quarter, income before income taxes declined by 15% from $32.7
million to $27.8 million largely as a result of the second quarter 17%
reduction in North American vehicle production volumes, higher launch costs
for new product programs and increased depreciation expenses. Net income for
the quarter declined to $17.8 million from $20.7 million a year ago.
Tesma's fully diluted earnings per share for the six month period was
$1.35, unchanged from the previous year. For the second quarter, fully diluted
earnings per share was $0.58, versus $0.69 a year ago.
North American Operations
-------------------------
Tesma operates 14 manufacturing facilities in North America (12 in Canada
and 2 in the U.S.) with 3,200 employees. For the first six months of fiscal
2001, the Company's North American operations reported sales of $458.7
million, an increase of 9% over the same period in 2000. This improvement
reflects the increased volumes of the GM GEN III V8, Line 6 and L850 engine
programs and Ford's Modular V8 engine program on which Tesma has significant
content, the launch of the Allison LCT transmission program, and increased
volumes on certain tensioner and alternator decoupler programs. Income before
income taxes decreased by 1% to $53.2 million, compared to $53.8 million a
year ago. This decrease is primarily attributable to the significant drop in
North American vehicle production volumes and high launch costs, offset
somewhat by improved operating efficiencies and a decrease in interest expense
due to lower levels of net indebtedness.
European Operations
-------------------
Tesma's 5 European operations, located in Germany and Austria, employ 970
employees. For the first six months of fiscal 2001, sales from these
operations increased by 1% to $101.7 million compared to the same period last
year. Although there was sales growth in all of our European manufacturing
facilities and European vehicle production volumes increased approximately 2%,
the weakening of the Euro relative to the Canadian dollar caused translated
sales to decline by approximately $15 million versus the comparable period a
year ago. Despite the decline in sales, income before income taxes rose by 6%
to $8.9 million, primarily as a result of increased efficiencies in our engine
technologies products.
Asian Operations
----------------
Tesma's 2 Asian manufacturing facilities in South Korea employ 180
people. The results for the first half of fiscal 2001 do not reflect the
strength of these operations, as sales for this segment decreased by 1% to
$24.0 million and income before income taxes was unchanged at $2.0 million.
However, for the second quarter, sales increased by 14% to $12.7 million,
versus $11.1 million a year ago. This improvement for the quarter is due to
the ramp-up of the Ford FN transmission oil pump shipments and the
strengthening of the Korean Won.
Cash Flow
---------
Cash provided from operations increased by $1.1 million to $66.6 million
for the first six months of fiscal 2001, but for the quarter decreased by 8%
to $31.1 million. An increased investment in non-cash working capital
resulting from higher sales, the final payment of fiscal 2000 income taxes and
a return to more manageable inventory levels reduced cash from operating
activities to $19.5 million in the first half of fiscal 2001. Net investment
activities for the six month period included $45.7 million for fixed and other
asset additions. As a result, net cash balances at the end of the second
quarter were $54.8 million, a decline of $38.1 million since July 31, 2000.
Balance Sheet
-------------
Despite the net use of cash during the first half of fiscal 2001, Tesma
maintains one of the strongest balance sheets in our industry. Our net debt of
$23.5 million at January 31, 2001 is only 6% of our shareholders' equity. Our
return on funds employed exceeded 28%.
Dividends
---------
The Tesma Board of Directors today declared a dividend in respect of the
second quarter of fiscal 2001 of $0.16 per share on the Class A Subordinate
Voting and Class B shares payable on April 16, 2001 to shareholders of record
on March 30, 2001.
Outlook
-------
Many of our North American customers continue to announce significant
production cutbacks and are increasing pressure on suppliers for pricing
concessions to offset high inventory levels, declining consumer confidence
and, in some cases, significant losses. North American OEMs have announced
cutbacks in first half calendar 2001 production schedules by an aggregate of
15 to 20%. Across the board production declines of the magnitude announced by
the North American OEMs will undoubtedly affect all auto parts suppliers,
including Tesma. Tesma is responding to these issues, but nonetheless, expects
to continue to show sales growth in fiscal 2001. The impact of the announced
production cuts in North America in the range of 15% and in Europe in the
range of 2 to 3% over the next six months should result in an overall growth
rate in Tesma's sales of approximately 5 to 6% for fiscal 2001. We believe
that given the Company's strong financial position, opportunities may be
created for Tesma in the near term as marginal or smaller suppliers struggle
to maintain profitability in a lower production, lower cost environment --
which still demands "full-service" support. Tesma will continue to build on
our past and present successes, as we evolve in the ever-changing automotive
industry.
TESMA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
(Unaudited)
As at As at
January 31, July 31,
2001 2000
ASSETS
Cash $106,032 $143,104
Accounts receivable 161,608 142,657
Inventories 97,176 83,632
Prepaid expenses and other 12,634 9,937
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377,450 379,330
Fixed assets 323,880 306,057
Other assets 26,596 27,284
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$727,926 $712,671
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank indebtedness $ 51,217 $ 50,207
Accounts payable 90,058 85,624
Accrued salaries and wages 29,487 36,019
Other accrued liabilities 43,840 44,014
Income taxes payable 5,359 13,346
Long-term debt due within one year 6,846 8,243
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226,807 237,453
Long-term debt 71,439 74,990
Future tax liabilities 35,481 33,023
SHAREHOLDERS' EQUITY
Class A Subordinate Voting Shares
(authorized: unlimited, issued: 14,993,379) 186,847 185,851
Class B Shares
(authorized: unlimited, issued: 14,223,900) 2,583 2,583
Retained earnings 213,408 186,554
Currency translation adjustment (8,639) (7,783)
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394,199 367,205
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$727,926 $712,671
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TESMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Canadian dollars in thousands, except per share figures)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
January 31 January 31
2001 2000 2001 2000
Sales $282,292 $266,834 $584,399 $546,258
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Cost of goods sold 219,329 201,216 448,700 414,584
Depreciation and
amortization 12,986 10,926 25,181 21,826
Selling, general and
administrative 18,296 17,289 38,969 36,108
Interest, net 533 1,248 367 2,665
Affiliation fees and
other charges 3,392 3,437 7,110 6,975
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Income before income taxes 27,756 32,718 64,072 64,100
Income taxes 9,956 12,009 23,511 23,547
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Net income for the period 17,800 20,709 40,561 40,553
Retained earnings,
beginning of period 200,698 137,575 186,554 120,595
Dividends on Class A
Subordinate Voting Shares
and Class B Shares (4,673) (3,583) (9,345) (6,447)
Cumulative adjustment for
change in accounting
policy (Note 1) - - (3,945) -
Surrender of stock
options (417) - (417) -
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Retained earnings,
end of period $213,408 $154,701 $213,408 $154,701
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Earnings per Class A
Subordinate Voting Share
or Class B Share
Basic $0.61 $0.73 $1.39 $1.42
Fully diluted $0.58 $0.69 $1.35 $1.35
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Average number of Class A
Subordinate Voting Shares
and Class B Shares
outstanding (in millions)
Basic 29.2 28.7 29.2 28.6
Fully diluted 30.6 30.2 30.6 30.2
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TESMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Canadian dollars in thousands)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
January 31 January 31
2001 2000 2001 2000
CASH PROVIDED FROM
(USED FOR):
OPERATING ACTIVITIES
Net income $ 17,800 $ 20,709 $ 40,561 $ 40,553
Items not involving
current cash flows 13,331 13,199 26,038 24,911
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31,131 33,908 66,599 65,464
Changes in non-cash
working capital (709) 8,993 (47,116) (403)
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30,422 42,901 19,483 65,061
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INVESTING ACTIVITIES
Fixed asset additions (28,723) (21,024) (45,681) (36,588)
Purchase of subsidiaries (128) (800) (928) (800)
Decrease (increase)
in other assets 62 (1,026) (10) (1,144)
Proceeds from disposition
of fixed and other assets 51 1,589 133 2,358
Cash acquired on purchase
of subsidiaries - - - -
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(28,738) (21,261) (46,486) (36,174)
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FINANCING ACTIVITIES
Increase (decrease) in
bank indebtedness 1,155 (9,656) 2,458 9,099
Issues of long-term debt - - - 1,377
Repayments of long-
term debt (2,410) (2,254) (4,345) (3,334)
Issuance of Class A
Subordinate Voting Shares 171 420 996 1,155
Dividends on Class A
Subordinate Voting Shares
and Class B Shares (4,672) (3,583) (9,344) (6,447)
Surrender of stock options (417) - (417) -
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(6,173) (15,073) (10,652) 1,850
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Effect of exchange rate
changes on cash 638 (869) 583 (1,388)
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Net increase (decrease) in
cash during the period (3,851) 5,698 (37,072) 29,349
Cash, beginning of period 109,883 102,233 143,104 78,582
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Cash, end of period $106,032 $107,931 $106,032 $107,931
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Change
Effective August 1, 2000, the Company adopted the Canadian Institute
of Chartered Accountants new recommendations for the accounting and
disclosure of income taxes.
The Company has adopted the new recommendations without restating the
financial statements of any prior periods. Accordingly, the Company
has recorded the cumulative adjustment as a result of adopting the
liability method of tax allocation as a decrease in retained earnings
of $3.9 million and an increase in future tax liabilities of $3.9
million.
2. Segmented Information
The Company currently operates in one industry segment, the
automotive powertrain business, designing and manufacturing parts and
assemblies primarily for the automotive OEMs or their Tier 1
powertrain component manufacturers.
The Company operates internationally and its manufacturing facilities
are arranged geographically to match the requirements of the
Company's customers in each market. Each manufacturing facility has
the capability to offer many different powertrain parts and
assemblies as the technological processes employed can be used to
make many different parts and assemblies. Additionally, specific
marketing and distribution strategies are required in each geographic
region. The Company currently operates in four geographic segments of
which only two are reportable segments. The accounting policies for
the segments are the same as those described in Note 1 to the July
31, 2000 consolidated financial statements and intersegment sales are
accounted for at prices which approximate fair value.
Executive management assesses the performance of each segment based
on income before income taxes as the management of income tax expense
is centralized.
North
Six months ended American European Other
January 31st, 2001 Automotive Automotive Automotive Total
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(Canadian dollars in thousands)
Total Sales $462,274 $102,975 $ 24,004 $589,253
Intersegment sales 3,590 1,264 - 4,854
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Sales to external customers $458,684 $101,711 $ 24,004 $584,399
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Depreciation and
amortization $ 18,635 $ 4,248 $ 2,298 $ 25,181
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Interest, net $ (517) $ (166) $ 1,050 $ 367
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Income before income taxes $ 53,222 $ 8,883 $ 1,967 $ 64,072
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Fixed assets, net $228,489 $ 60,043 $ 35,348 $323,880
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Fixed asset additions $ 39,402 $ 5,785 $ 494 $ 45,681
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Goodwill, net $ 18,241 $ 1,533 $ 128 $ 19,902
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North
Six months ended American European Other
January 31st, 2000 Automotive Automotive Automotive Total
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(Canadian dollars in thousands)
Total Sales $422,552 $102,352 $ 24,196 $549,100
Intersegment sales 1,281 1,561 - 2,842
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Sales to external
customers $421,271 $100,791 $ 24,196 $546,258
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Depreciation and
amortization $ 15,249 $ 4,257 $ 2,320 $ 21,826
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Interest, net $ 1,134 $ (375) $ 1,906 $ 2,665
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Income before income taxes $ 53,762 $ 8,378 $ 1,960 $ 64,100
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Fixed assets, net $193,543 $ 46,120 $ 43,659 $283,322
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Fixed asset additions $ 23,841 $ 5,940 $ 6,807 $ 36,588
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Goodwill, net $ 18,162 $ 1,876 $ - $ 20,038
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3. Capital Stock
Class and Series of Outstanding Securities
The Company's share structure has remained consistent with that in
place as at July 31,2000. For details concerning the nature of the
Company's securities, please refer to Note 9 "Convertible Series
Preferred Shares" and Note 10 "Capital Stock" of the Company's 2000
Annual Report.
Options
The following table presents the maximum number of shares that would
be outstanding if all of the outstanding options as at January 31,
2001 were exercised:
Number of Shares
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Class A Subordinate Voting Shares
outstanding as at January 31, 2001 14,993,379
Class B Shares outstanding as at January 31, 2001 14,223,900
Options to purchase Class A Subordinate Voting Shares 1,349,900
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30,567,179
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The maximum number of shares reserved to be issued for stock options
is 3,000,000 Class A Subordinate Voting Shares. The number of
reserved but unoptioned shares as at January 31, 2001 is 177,000.
