Tesma Announces Third Quarter 2001
Results
CONCORD, ON, May 31 - 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 April 30, 2001, the 23rd consecutive quarter (on a
comparative year-over-year basis) of record sales since going public in 1995.
Nine Months Ended Three Months Ended
------------------- -------------------
April 30 April 30
(Canadian dollars in millions,
except per share figures)
2001 2000 2001 2000
Sales $ 897.7 $ 849.9 $ 313.3 $ 303.7
Income before income taxes $ 98.6 $ 102.6 $ 34.5 $ 38.5
Net income $ 63.2 $ 65.4 $ 22.6 $ 24.9
Operating cash flow $ 101.1 $ 104.5 $ 34.5 $ 39.1
Basic earnings per share $ 2.16 $ 2.28 $ 0.77 $ 0.86
Fully diluted earnings per share $ 2.09 $ 2.18 $ 0.74 $ 0.83
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 nine month period increased by 6% to $897.7 million,
despite a 12% decline in North American vehicle production volumes and minimal
growth of 1% in Europe. This sales increase reflects sales generated from new
production launches over the past twelve months, a 19% and 7% increase in our
North American and European content per vehicle to $52.09 and (euro) 12.99
respectively, an increase in tooling 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%.
For the quarter, sales were up by 3% to a record $313.3 million, despite
a quarterly year-over-year drop in North American vehicle production volumes
of 17% to 3.6 million units, the lowest third quarter level of production
since Tesma became a public company. The sales increase in the quarter was the
result of new product launches in North America, higher service and
aftermarket part sales in Europe and high levels of tooling sales for new
programs.
Income before income taxes for the nine month period decreased 4% to
$98.6 million. The additional margin generated by newly-launched production
programs, improved operating efficiencies, higher content per vehicle, and
reduced interest expense was more than offset by the year-to-date 12%
reduction in North American vehicle production volumes, customer pricing
concessions and continued 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 also
declined modestly versus the prior year from $65.4 million to $63.2 million.
For the quarter, income before income taxes declined by 10% from $38.5
million to $34.5 million largely as a result of the third quarter 17%
reduction in North American vehicle production volumes, significant launch
costs for new product programs at two facilities and increased depreciation
expenses. Net income for the quarter was $22.6 million.
Tesma's fully diluted earnings per share for the nine month period was
$2.09 and for the third quarter was $0.74, versus $2.18 and $0.83 a year ago.
North American Operations
-------------------------
Tesma operates 15 manufacturing facilities in North America (13 in Canada
and 2 in the U.S.) with 3,220 employees. For the first nine months of fiscal
2001, the Company's North American operations reported sales of $704.2
million, an increase of 6% 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 5% to $82.5 million, compared to $86.9 million a
year ago. This decrease is primarily attributable to the significant drop in
North American vehicle production volumes, new program launch costs and
customer pricing concessions, partially offset by improved operating
efficiencies at many facilities 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
1,000 employees. For the first nine months of fiscal 2001, sales from these
operations increased by 5% to $161.2 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 1%,
the weakening of the Euro relative to the Canadian dollar caused translated
sales to decline by approximately $16 million versus the comparable period a
year ago. Despite high launch costs at one facility, income before income
taxes rose by 13% to $14.5 million, primarily as a result of increased
efficiencies in our engine technologies facilities and strong aftermarket
sales.
Asian Operations
----------------
Tesma's 2 Asian manufacturing facilities in South Korea employ 180
people. For the first nine months of fiscal 2001, sales decreased by 8% to
$32.3 million and income before income taxes for this segment (which includes
our engineering and marketing offices in Brazil, Japan and Korea) decreased by
44% to $1.6 million compared to the same period last year. For the third
quarter, sales decreased to $8.3 million versus $11.1 million a year earlier.
The decline for the quarter is due to significantly reduced volumes on the
Ford FN transmission oil pump and a weakening Korean Won relative to the
Canadian dollar.
Cash Flow
---------
Cash provided from operations decreased by $3.4 million to $101.1 million
for the first nine months of fiscal 2001 and for the quarter decreased by $4.6
million to $34.5 million. An increased investment in non-cash working capital
resulting from a record level of sales, the final payment of fiscal 2000
income taxes and a return to more manageable inventory levels reduced cash
provided by operating activities to $50.7 million for the nine month period.
Net investment activities for the nine month period included $70.9 million for
fixed and other asset additions. As a result, net cash balances at the end of
the third quarter were $53.3 million, a decline of $39.6 million since July
31, 2000, but down only $1.5 million from January 31, 2001.
Balance Sheet
-------------
Despite the net use of cash during the nine month period, Tesma maintains
one of the strongest balance sheets in our industry. Our net debt of $21.1
million at April 30, 2001 was only 5% of shareholders' equity and our return
on funds employed has exceeded 28% for the year.
Dividends
---------
The Tesma Board of Directors today declared a dividend in respect of the
third quarter of fiscal 2001 of $0.16 per share on the Class A Subordinate
Voting and Class B shares payable on July 16, 2001 to shareholders of record
on June 29, 2001.
Outlook
-------
Tesma's results are expected to continue to be impacted by the negative
conditions that are affecting the automotive industry generally, including
production cut-backs, OEM price concessions under long-term arrangements,
continued weakness of the Euro, declining consumer confidence and general
economic uncertainty. North American OEMs have announced cutbacks in calendar
second quarter 2001 production schedules by an aggregate of 15 to 20%. Across
the board production declines of the magnitude experienced and announced by
the North American OEMs have and will continue to affect all auto parts
suppliers, including Tesma. Tesma has and is continuing to respond to these
issues, but nonetheless, expects modest sales growth in the fourth quarter of
fiscal 2001. The impact of the announced production cuts in North America in
the range of 15% and in Europe in the range of 3 to 5% over the next three
months should result in an overall growth rate in Tesma's sales of
approximately 4 to 5% for fiscal 2001.
Other Developments
------------------
On May 17, 2001, Tesma and its controlling shareholder, Magna
International Inc. ("Magna"), jointly announced that they had entered into a
non-binding letter of intent concerning the proposed combination of Tesma with
the Magna Steyr group.
The combination of Tesma and Magna Steyr would create one of the world's
largest and most technologically advanced suppliers of total drivetrain
technologies, including four wheel drive systems, complete vehicle assembly
and a wide variety of powertrain components, for the world's major OEMs.
If a transaction is viable and ultimately negotiated, it would be subject
to a number of conditions including review and recommendation by Tesma's
Special Committee of independent directors, approval by the Boards of
Directors of both Tesma and Magna, regulatory approval and the approval of
Tesma's Class A Subordinate Voting shareholders.
"Our team has built a strong foundation in the powertrain modules and
systems sector and we are excited about the proposed combination with Magna
Steyr, as it will enhance our engineering and technological capabilities,
expand our customer base and further relationships in established and emerging
markets," stated Manfred Gingl, Tesma's President and CEO. The combination
would more than double Tesma's annual sales furthering our position as a
leading global full-service powertrain supplier.
Tesma employs over 4,400 employees in North America, Europe and Asia in
22 manufacturing facilities and two research centres.
Tesma will hold a conference call to discuss its third quarter fiscal
2001 results on Friday, June 1, 2001 at 9:30 a.m. EST. The numbers for this
call are 416-641-6670 (local/overseas) or 1-800-379-4140 (North America), with
call-in required 10 minutes prior to the start of the conference call. The
conference call will be chaired by Anthony Dobranowski, Tesma's Executive Vice
President and CFO. A taped replay of the conference call will also be made
available until 12:00 midnight on June 15, 2001. The numbers for the replay
are 416-626-4100, reference number 17350457 (local/overseas) or 1-800-558-
5253, reference number 17355826 (North America). The conference call can also
be accessed by webcast at http://www.newswire.ca/webcast and will be available for a
30 day period.
This press release may contain "forward looking statements" within the
meaning of applicable securities legislation. Such statements involve certain
risks, assumptions and uncertainties which may cause Tesma's actual future
results or performance to be materially different from those expressed or
implied herein. These factors include, but are not limited to: industry
cyclicality (including reductions or increases in production volumes), the
Company's financial performance, changes in the economic and competitive
markets in which Tesma competes, relationships with customers, customer
pricing pressures, the Company's dependence on certain engine and transmission
programs, currency exposure, and other factors as set out in Tesma's Form 40-F
for its fiscal year ended July 31, 2000 and subsequent SEC filings. Tesma
disclaims any intention and undertakes no obligation to update or revise any
forward looking statements to reflect subsequent information, events,
circumstances or otherwise.
TESMA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
(Unaudited)
As at As at
April 30, July 31,
2001 2000
ASSETS
Cash $109,302 $143,104
Accounts receivable 178,373 142,657
Inventories 102,015 83,632
Prepaid expenses and other 11,138 9,937
-------------------------------------------------------------------------
400,828 379,330
Fixed assets 336,159 306,057
Other assets 26,178 27,284
-------------------------------------------------------------------------
$763,165 $712,671
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank indebtedness $ 55,991 $ 50,207
Accounts payable 101,342 85,624
Accrued salaries and wages 32,243 36,019
Other accrued liabilities 41,285 44,014
Income taxes payable 11,181 13,346
Long-term debt due within one year 4,881 8,243
-------------------------------------------------------------------------
246,923 237,453
Long-term debt 69,545 74,990
Future tax liabilities 34,194 33,023
SHAREHOLDERS' EQUITY
Class A Subordinate Voting Shares (authorized:
unlimited, issued: 15,022,379) 187,178 185,851
Class B Shares (authorized: unlimited,
issued: 14,223,900) 2,583 2,583
Retained earnings 231,345 186,554
Currency translation adjustment (8,603) (7,783)
-------------------------------------------------------------------------
412,503 367,205
-------------------------------------------------------------------------
$763,165 $712,671
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TESMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Canadian dollars in thousands, except per share figures)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
April 30 April 30
2001 2000 2001 2000
Sales $313,265 $303,672 $897,664 $849,930
-------------------------------------------------------------------------
Cost of goods sold 243,009 229,081 691,709 643,665
Depreciation and amortization 13,078 11,569 38,259 33,395
Selling, general and
administrative 18,368 19,931 57,337 56,039
Interest, net 507 687 874 3,352
Affiliation fees and other charges 3,814 3,902 10,924 10,877
-------------------------------------------------------------------------
Income before income taxes 34,489 38,502 98,561 102,602
Income taxes 11,873 13,616 35,384 37,163
-------------------------------------------------------------------------
Net income for the period 22,616 24,886 63,177 65,439
Retained earnings, beginning
of period 213,408 154,701 186,554 120,595
Dividends on Class A Subordinate
Voting Shares and Class B Shares (4,679) (4,607) (14,024) (11,054)
Cumulative adjustment for change
in accounting policy (Note 1) - - (3,945) -
Surrender of stock options - - (417) -
-------------------------------------------------------------------------
Retained earnings, end of period $231,345 $174,980 $231,345 $174,980
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per Class A Subordinate
Voting Share or Class B Share
Basic $0.77 $0.86 $2.16 $2.28
Fully diluted $0.74 $0.83 $2.09 $2.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of Class A
Subordinate Voting Shares and
Class B Shares outstanding
(in millions)
Basic 29.2 28.8 29.2 28.7
Fully diluted 30.6 30.2 30.6 30.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TESMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Canadian dollars in thousands)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
April 30 April 30
2001 2000 2001 2000
CASH PROVIDED FROM (USED FOR):
OPERATING ACTIVITIES
Net income $ 22,616 $ 24,886 $ 63,177 $ 65,439
Items not involving current
cash flows 11,840 14,193 37,878 39,104
-------------------------------------------------------------------------
34,456 39,079 101,055 104,543
Changes in non-cash working
capital (3,239) 3,766 (50,355) 3,363
-------------------------------------------------------------------------
31,217 42,845 50,700 107,906
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Fixed asset additions (25,035) (20,740) (70,716) (57,328)
Purchase of subsidiaries 128 - (800) (800)
Increase in other assets (184) (172) (194) (1,316)
Proceeds from disposition of fixed
and other assets 210 (144) 343 2,214
-------------------------------------------------------------------------
(24,881) (21,056) (71,367) (57,230)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in bank indebtedness 5,248 4,516 7,706 13,615
Issues of long-term debt - - - 1,377
Repayments of long-term debt (3,880) (1,293) (8,225) (4,627)
Issuance of Class A Subordinate
Voting Shares 332 2,483 1,328 3,638
Dividends on Class A Subordinate
Voting Shares and Class B Shares (4,680) (4,607) (14,024) (11,054)
Surrender of stock options - - (417) -
-------------------------------------------------------------------------
(2,980) 1,099 (13,632) 2,949
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash (86) (291) 497 (1,679)
-------------------------------------------------------------------------
Net increase (decrease) in cash
during the period 3,270 22,597 (33,802) 51,946
Cash, beginning of period 106,032 107,931 143,104 78,582
-------------------------------------------------------------------------
Cash, end of period $109,302 $130,528 $109,302 $130,528
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
Nine months ended American European Other
April 30th, 2001 Automotive Automotive Automotive Total
----------------------------------------------------------------------
(Canadian dollars in thousands)
Total sales $710,268 $162,933 $ 32,319 $905,520
Intersegment sales 6,106 1,750 - 7,856
----------------------------------------------------------------------
Sales to external
customers $704,162 $161,183 $ 32,319 $897,664
----------------------------------------------------------------------
Depreciation and
amortization $ 28,403 $ 6,440 $ 3,416 $ 38,259
----------------------------------------------------------------------
Interest, net $ (87) $ (477) $ 1,438 $ 874
----------------------------------------------------------------------
Income before income
taxes $ 82,479 $ 14,500 $ 1,582 $ 98,561
----------------------------------------------------------------------
Fixed assets, net $239,638 $ 62,193 $ 34,328 $336,159
----------------------------------------------------------------------
Fixed asset additions $ 59,128 $ 10,605 $ 983 $ 70,716
----------------------------------------------------------------------
Goodwill, net $ 18,301 $ 1,447 $ - $ 19,748
----------------------------------------------------------------------
North
Nine months ended American European Other
April 30th, 2000 Automotive Automotive Automotive Total
----------------------------------------------------------------------
(Canadian dollars in thousands)
Total sales $664,595 $155,019 $ 35,255 $854,869
Intersegment sales 2,844 2,095 - 4,939
----------------------------------------------------------------------
Sales to external
customers $661,751 $152,924 $ 35,255 $849,930
----------------------------------------------------------------------
Depreciation and
amortization $ 23,328 $ 6,134 $ 3,933 $ 33,395
----------------------------------------------------------------------
Interest, net $ 1,291 $ (600) $ 2,661 $ 3,352
----------------------------------------------------------------------
Income before income
taxes $ 86,938 $ 12,862 $ 2,802 $102,602
----------------------------------------------------------------------
Fixed assets, net $197,437 $ 50,329 $ 43,716 $291,482
----------------------------------------------------------------------
Fixed asset additions $ 35,797 $ 14,435 $ 7,096 $ 57,328
----------------------------------------------------------------------
Goodwill, net $ 18,186 $ 1,790 $ - $ 19,976
----------------------------------------------------------------------
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 April 30, 2001
were exercised:
Number of Shares
----------------------------------------------------------------------
Class A Subordinate Voting Shares outstanding as at
April 30, 2001 15,022,379
Class B Shares outstanding as at April 30, 2001 14,223,900
Options to purchase Class A Subordinate Voting Shares 1,320,900
----------------------------------------------------------------------
30,567,179
----------------------------------------------------------------------
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 April 30, 2001 is 177,000.
4. Subsequent Event
On May 17, 2001, Tesma and its controlling shareholder, Magna
International Inc. ("Magna"), jointly announced that they had entered
into a non-binding letter of intent concerning the proposed
combination of Tesma with Magna Steyr, a wholly owned subsidiary of
Magna. The combination would more than double Tesma's annual sales
creating a leading global full-service powertrain supplier.
If a transaction is viable and ultimately negotiated, it would be
subject to a number of conditions including review and recommendation
by Tesma's Special Committee of independent directors, approval by the
Boards of Directors of both Tesma and Magna, regulatory approval and
the approval by a majority of the minority shareholders of Tesma's
Class A Subordinate Voting Shares.
