Wescast Maintains Strong Q2 Results Despite the Ongoing Market Downturn
BRANTFORD, Ontario--July 17, 2001--Wescast Industries Inc. records strong second quarter earnings as the downturn in the North American Automotive Industry continues.Highlights
| -- | Improved market share drove an increase in units shipped in the second quarter by 8% and revenues from iron manifold sales by 9% over the same period of the previous year despite an overall market decline of 9.5%. |
| -- | The Company continues to manage its operations to meet market demands and maintain core profitability in iron manifolds. Iron manifold margin before depreciation at 42.8% for the second quarter remains strong, and exceeds the 42% realized in the comparable period last year. |
| -- | The Company also continued its program for investment in sales, design, research and development and plant capacity enhancement despite the market downturn. As a result, net earnings for the second quarter of 2001 at $17.8 million were down compared to $19.9 million for the second quarter of 2000. Fully diluted earnings per share were $1.35 compared to $1.49 in 2000. Return on equity was 19.4% for the quarter. |
| -- | Weslin Industries Inc., a joint venture between Wescast and Linamar Corporation, was awarded contracts with 3K-Borg Warner to supply approximately 180,000 turbocharger housings annually for a three-year period. |
| -- | The Company is pleased to announce that it has won two Gold Awards from Daimler Chrysler for excellence in quality and delivery. |
Total sales for the quarter at $106.6 million were up 2% from the previous year's level of $104.0 million. Sales generated from cast and machined iron manifolds increased 9% to $101.4 million from $92.7 million in 2000. This reflects increased market share and value added content that more than offset an approximately 9.5% decrease in the overall North American automotive market.
Stainless steel manifold sales for the quarter were $2.1 million. There were no comparable sales in the previous year.
Tooling, prototype and other sales at $3.1 million for the second quarter, were below the $11.3 million recorded in the second quarter of 2000 when tooling and prototype programs were invoiced relative to the significant market share increase we are now experiencing. As stated in the first quarter earnings press release this comparison reflects an extraordinary volume last year due to the number of program launches.
Operating earnings for the second quarter were $28.4 million, versus the $29.7 million earned for the same period in 2000. The comparison with the previous year should consider the following factors:
-- Strong results from the core iron manifold operations. The
gross margin, before depreciation, on the iron manifold
business was $43.4 million or 42.8% of sales in the second
quarter of 2001. This compares favorably with the $38.9
million or 42.0% of sales recorded in the second quarter
of 2000. "The Company is very pleased with the core
operating performance of the iron manifold facilities,"
stated Ray Finnie, President and CEO. " Our operating
margins, before depreciation, increased despite increased
capacity and release volatility. This is a tribute to a
flexible operating system, strong leadership and continued
strong commitment from all our employees."
-- The ramp up of the Stainless Steel operation in Stratford
continues to be a challenge. The operation recorded an
operating loss, before depreciation, of $1.1 million for
the quarter, down from the $1.9 million in the first
quarter of 2001. Customer engine builds and releases have
been below expectations, which contributed to the loss. In
addition, operating performance and scrap levels are not
meeting targets. The facility is expected to lose $7.0
million for the year.
-- Depreciation and amortization charges increased
approximately $2.8 million this quarter. This increase
relates primarily to the new Wingham and Stratford
facilities being in commercial production.
-- Higher selling, general and administrative costs primarily
to increase our global sales network.
-- Higher research and development costs to enhance our
product and manufacturing technical and competitive
advantage.
Other income and expenses for the second quarter 2001 was a net expense of $1.9 million, compared to income of $0.3 million for the second quarter of 2000. The net expense for the quarter was primarily attributable to foreign exchange losses on net working capital resulting from the strengthening Canadian dollar. Details can be found under Note 6 to the financial statements.
Net earnings were $17.8 million or $1.35 per share fully diluted for the second quarter, compared to $19.9 million for the same quarter last year or $1.49 per share fully diluted.
Cash Flow
Operating cash flow was $15.0 million for the quarter compared to $21.0 million in 2000. This is largely attributable to higher balances in accounts receivable and tooling inventories over the first quarter of 2001. Significant payments on several of our customer accounts were received immediately following the quarter end.
Capital expenditures for the second quarter were $16.7 million, compared to $13.8 million for the same quarter last year.
The Company has deferred $2.6 million of pre-production costs for the second quarter, and $3.6 million on a year-to-date basis at its Stratford and Weslin facilities.
Balance Sheet and Financial Position
At July 1, 2001, the Company had $69.5 million in cash and short-term investments compared to $64.4 million at the end of 2000. Wescast continues to maintain a strong financial position to support future growth and competitive advantage.
Comparative Figures
The Company has changed its accounting policy with respect to the computation of earnings per share and restated certain second quarter 2000 amounts. Please refer to the notes to the financial statements for the details.
The following table provides an overview of the above mentioned
highlights for the second quarter:
Wescast Industries Inc.
Q2 2001 Highlights
in millions of dollars, except
per share data and where
otherwise noted Q2 2001 Q2 2000 % change
Sales (before pre-production deferrals) 106.7 106.0 1%
Sales (net of pre-production deferrals) 106.6 104.0 2%
Net Earnings 17.8 19.9 (11%)
EPS
basic 1.37 1.51 (9%)
fully diluted 1.35 1.49 (9%)
Sales Breakdown - dollars
(net of pre-production deferrals)
Casting & Machining 101.4 92.7 9%
Cast 73.0 68.8 6%
Internal Machining 27.4 23.2 18%
External Machining 1.0 0.7 43%
Tooling & prototype 3.1 9.8 (68%)
Magalloy pump sales 0.0 1.5 (100%)
Stainless steel 2.1 0.0
Sales Breakdown - units (000's)
Ductile iron 0.3 0.5 (40%)
SiMo iron 3.7 3.4 9%
Stainless steel 0.1 0.0
Total before pre-production deferrals 4.1 3.9 5%
Unit sales during pre-
production period 0.0 0.1 (100%)
Total after pre-production deferrals 4.1 3.8 8%
Sales Breakdown - percentage
SiMo Penetration 91.3% 87.0%
Internal Machining Penetration 59.6% 59.6%
Gross Margin (before depreciation) 43.4 40.5 7%
Iron manifolds 43.4 38.9 12%
Tooling, prototypes & other 0.0 1.6 (100%)
Gross Margin % (before depreciation) 40.7% 39.0%
Iron manifolds 42.8% 42.0%
Tooling, prototypes & other 0.2% 14.0%
Gross Margin (after depreciation) 36.8 36.5 1%
Iron manifolds 37.4 35.1 7%
Tooling, prototypes & other (0.6) 1.4 (143%)
Gross Margin % (after depreciation) 34.5% 35.1%
Iron manifolds 36.9% 37.9%
Tooling, prototypes & other (12.5%) 12.0%
Depreciation and amortization
Depreciation and
amortization- cost of sales 6.6 4.0 65%
Depreciation - SG & A 0.8 0.6 33%
Capital Expenditures 16.7 13.8 21%
R&D 1.9 0.7 171%
SG & A (% of sales) 6.2% 5.9%
Tax Rate 34.6% 35.4%
in millions of dollars, except
per share data and where
otherwise noted YTD 01 YTD 00 % change
Sales (before pre-
production deferrals) 208.4 211.2 (1%)
Sales (net of pre-production deferrals) 207.2 207.9 0%
Net Earnings 34.5 40.4 (15%)
EPS
basic 2.67 3.06 (13%)
fully diluted 2.63 3.02 (13%)
Sales Breakdown - dollars
(net of pre-production deferrals)
Casting & Machining 194.8 185.9 5%
Cast 140.3 138.3 1%
Internal Machining 53.0 46.2 15%
External Machining 1.5 1.4 7%
Tooling & prototype 6.7 18.8 (64%)
Magalloy pump sales 0.0 3.2 (100%)
Stainless steel 5.7 0.0
Sales Breakdown - units (000's)
Ductile iron 0.6 1.1 (45%)
SiMo iron 7.1 6.8 4%
Stainless steel 0.2 0.0
Total before pre-production deferrals 7.9 7.9 0%
Unit sales during pre-production period 0 0.2 (100%)
Total after pre-production deferrals 7.9 7.7 3%
Sales Breakdown - percentage
SiMo Penetration 89.9% 86.0%
Internal Machining Penetration 60.6% 58.8%
Gross Margin (before depreciation) 81.3 83.2 (2%)
Iron manifolds 81.5 78.7 4%
Tooling, prototypes & other (0.2) 4.5 (104%)
Gross Margin % (before depreciation) 39.2% 40.0%
Iron manifolds 41.9% 42.3%
Tooling, prototypes & other (1.8%) 20.2%
Gross Margin (after depreciation) 68.1 74.3 (8%)
Iron manifolds 69.5 70.3 (1%)
Tooling, prototypes & other (1.4) 4.0 (135%)
Gross Margin % (after depreciation) 32.9% 35.8%
Iron manifolds 35.7% 37.8%
Tooling, prototypes & other (11.2%) 18.2%
Depreciation and amortization
Depreciation and
amortization- cost of sales 13.2 8.8 50%
Depreciation - SG & A 1.4 1.2 17%
Capital Expenditures 34.0 28.6 19%
R&D 3.3 1.7 94%
SG & A (% of sales) 6.2% 5.6%
Tax Rate 34.7% 35.8%
Wescast Industries Inc. Consolidated Statement of Earnings and Retained Earnings (in thousands of Canadian dollars, except per share amounts) (Unaudited Canadian GAAP) Three months ended Six months ended -------------------------------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 (Restated (Restated Note 10) Note 10) --------------------- ---------------------- Sales $106,551 $103,999 $207,246 $207,866 Cost of sales 69,745 67,509 139,159 133,532 --------------------- ---------------------- Gross margin 36,806 36,490 68,087 74,334 Selling, general and administration 6,567 6,137 12,802 11,742 Research, development and design 1,864 682 3,299 1,731 --------------------- ---------------------- Operating earnings 28,375 29,671 51,986 60,861 Other (income) expense Interest expense 111 129 232 228 Investment income (832) (980) (1,807) (1,966) Other (income) and expenses (Note 6) 1,931 (302) 738 (415) --------------------- ---------------------- Earnings before income taxes 27,165 30,824 52,823 63,014 Income taxes 9,408 10,909 18,311 22,587 --------------------- ---------------------- Net earnings $17,757 $19,915 $34,512 $40,427 --------------------- ---------------------- --------------------- ---------------------- Net earnings per share (Note 7) - basic $1.37 $1.51 $2.67 $3.06 --------------------- ---------------------- --------------------- ---------------------- - fully diluted $1.35 $1.49 $2.63 $3.02 --------------------- ---------------------- --------------------- ---------------------- Retained earnings, beginning of period $253,073 $207,907 $238,052 $188,983 Net earnings 17,757 19,915 34,512 40,427 Dividends paid (1,549) (1,590) (3,092) (3,178) Excess of cost over assigned value of Class A common shares purchased and cancelled 0 (3,130) (191) (3,130) --------------------- ---------------------- Retained earnings, end of period $269,281 $223,102 $269,281 $223,102 --------------------- ---------------------- --------------------- ---------------------- Wescast Industries Inc. Consolidated Balance Sheet (in thousands of Canadian dollars) (Unaudited Canadian GAAP) As at -------------------------- July 1, December 31, 2001 2000 -------------------------- Current assets Cash and cash equivalents $69,461 $34,428 Short-term investments 0 30,000 Receivables 68,963 63,849 Inventories 29,615 21,676 Prepaids 971 1,427 -------------------------- 169,010 151,380 Property and equipment (Note 4) 262,962 243,352 Other 17,570 14,645 -------------------------- $449,542 $409,377 -------------------------- -------------------------- Current liabilities Payables and accruals $40,863 $37,153 Income taxes payable 3,136 260 Current portion of long-term debt 2,695 4,001 -------------------------- 46,694 41,414 Long-term debt 4,507 4,622 Future income taxes 15,979 15,306 Employee benefits 7,239 6,661 -------------------------- 74,419 68,003 -------------------------- Shareholders' equity Capital stock (Note 5) 105,874 103,334 Retained earnings 269,281 238,052 Cumulative translation adjustment (32) (12) -------------------------- 375,123 341,374 -------------------------- $449,542 $409,377 -------------------------- -------------------------- Wescast Industries Inc. Consolidated Statement of Cash Flows (in thousands of Canadian dollars) (Unaudited Canadian GAAP) Three months ended Six months ended -------------------- -------------------- July 1, July 2, July 1, July 2, 2001 2000 2001 2000 (Restated (Restated Note 10) Note 10) -------------------- -------------------- Cash derived from (applied to) Operating Net earnings $17,757 $19,915 $34,512 $40,427 Add (deduct) items not requiring cash: Depreciation and amortization 7,378 4,666 14,683 10,036 Amortization of bond issue costs 5 1 7 4 Future income taxes 249 355 673 1,995 Loss on disposal of equipment 539 53 1,194 69 Employee benefits 460 334 921 669 -------------------- -------------------- 26,388 25,324 51,990 53,200 Change in non-cash working capital (Note 8) (11,359) (4,238) (5,583) (20,128) -------------------- -------------------- 15,029 21,086 46,407 33,072 -------------------- -------------------- Financing Issue of long-term debt 339 1,007 545 2,019 Repayment of long-term debt (687) (1,069) (1,976) (1,078) Payment of obligations under capital lease (224) (214) (387) (354) Employee benefits paid (160) (120) (343) (250) Issuance of share capital under Employee Share Purchase Plan 135 145 317 343 Employee share loan repayments 88 30 340 43 Issuance of share capital under Stock Option Plan 943 0 1,173 47 Repurchase of common shares 0 (5,071) (340) (5,071) Dividends paid (1,549) (1,590) (3,092) (3,178) -------------------- -------------------- (1,115) (6,882) (3,763) (7,479) -------------------- -------------------- Investing Purchase of property, equipment and other assets (16,702) (13,805) (34,011) (28,590) Restricted cash from long-term debt 0 38 0 378 Deferred pre-production costs (2,610) (1,728) (3,619) (5,884) Redemption of short-term Investments 0 0 30,000 34,209 Proceeds on disposal of equipment 0 98 19 115 -------------------- -------------------- (19,312) (15,397) (7,611) 228 -------------------- -------------------- Net increase(decrease) in cash and cash equivalents (5,398) (1,193) 35,033 25,821 Cash and cash equivalents Beginning of period 74,859 70,178 34,428 43,164 -------------------- -------------------- End of period $69,461 $68,985 $69,461 $68,985 -------------------- -------------------- -------------------- -------------------- Wescast Industries Inc. Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) (Unaudited Canadian GAAP)
Note 1. Basis of presentation
The disclosures in these interim financial statements do not conform in all respects to the requirements of generally accepted accounting principles for annual financial statements. These interim financial statements should be read in conjunction with the most recent annual financial statements for the year ended December 31, 2000.
Note 2. Accounting policies
These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements except for:
The Company changed its accounting policy with respect to the computation of earnings per share to that issued by the Canadian Institute of Chartered Accountants in December 2000. The main effect of the change to the Company's financial statements is in the calculation of fully diluted earnings per share which is now calculated using the treasury stock method instead of the imputed interest method. This change in accounting policy has been applied on a retroactive basis and the comparative numbers have been restated accordingly. The effect of this change for the quarter and the six-month period ended July 1, 2001 is an increase of $0.05 and $0.10 respectively, to fully diluted earnings per share.
Note 3. Interest in jointly controlled entities
The following is the company's proportionate share of the major components of its jointly controlled entities (before eliminations):
July 1, December 31,
2001 2000
-------------------------------------------------------------------
Balance Sheet
Current assets $20,698 $15,193
Long-term assets 35,716 15,731
Current liabilities 18,744 19,848
Long-term liabilities 3,718 3,681
Equity 33,952 7,395
-------------------------------------------------------------------
-------------------------------------------------------------------
Three months Six months Year ended
ended July 1, ended July 1, December 31,
2001 2001 2000
--------------------------------------------
Statement of earnings
Sales 3,724 7,285 16,794
Cost of sales and
expenses 3,763 7,457 17,723
Net loss (39) (172) (929)
-------------------------------------------------------------------
-------------------------------------------------------------------
Three months Six months Year ended
ended July 1, ended July 1, December 31,
2001 2001 2000
--------------------------------------------
Statement of cash flows
Cash derived
from (applied to)
Cash flows from
operating activities 345 (539) 335
Cash flows from
financing activities 13,662 25,528 11,208
Cash flows from
investing activities ($11,322) ($20,343) ($11,211)
Note 4. Property and Equipment
July 1, December 31,
2001 2000
-------------------------
Cost
Land $4,321 $3,311
Buildings and improvements 114,337 107,448
Machinery, equipment and vehicles 274,781 250,169
-------------------------
393,439 360,928
-------------------------
Accumulated Depreciation
Buildings and improvements 14,002 12,100
Machinery, equipment and vehicles 116,475 105,476
-------------------------
130,477 117,576
-------------------------
Net Book Value
Land 4,321 3,311
Buildings and improvements 100,335 95,348
Machinery, equipment and vehicles 158,306 144,693
-------------------------
$262,962 $243,352
-------------------------
-------------------------
Note 5. Capital Stock
Authorized
Unlimited Preference shares, no par value
Unlimited Class A subordinate voting common shares, no par value
9,000,000 Class B multiple voting common shares, no par value
July 1, December 31,
2001 2000
--------------------------
Issued and outstanding
5,504,051 Class A Common Shares $93,295 $90,755
(2000 - 5,383,749)
7,466,907 Class B Common shares 12,579 12,579
(2000 - 7,466,907)
--------------------------------------------------------------
$105,874 $103,334
--------------------------------------------------------------
--------------------------------------------------------------
Note 6. Other (income) and expenses
Three months ended Six months ended
July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000
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Foreign exchange
translation
(gain) loss $1,485 ($355) ($311) ($484)
Loss on disposal
of equipment
and other 446 53 1,049 69
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$1,931 ($302) $738 ($415)
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Note 7. Earnings per common share
Basic earnings per share is calculated based on the weighted
average number of common shares outstanding (2001- 12,899,573 shares;
2000 - 13,196,431 shares). Fully diluted earnings per share is
calculated based on the fully diluted weighted average number of
common shares outstanding (2001 - 13,188,809 shares; 2000 - 13,437,737
shares).
Note 8. Consolidated statement of cash flows
The following is additional information to the statement of cash
flows.
Change in non-cash working capital
Three months ended Six months ended
------------------------------------------
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
------------------------------------------
Receivables ($10,406) ($5,680) ($5,104) ($16,606)
Inventories (5,281) (7,374) (7,939) (9,089)
Prepaids 255 (432) 456 (307)
Payables and accruals 2,515 6,159 4,128 3,793
Income taxes payable 1,558 3,089 2,876 2,081
------------------------------------------
($11,359) ($4,238) ($5,583) ($20,128)
------------------------------------------
Note 9. Financial Instruments
Foreign exchange contracts
Beginning in the third quarter of 2001, revenues generated from one of the Big Three auto manufacturers will be received in Canadian dollars as opposed to U.S. dollars. Existing open sales contracts denominated in U.S. dollars will be converted into Canadian dollars at an average exchange rate of 1.525. Future sales contracts will be negotiated in Canadian dollars.
The Company effectively ceased hedging certain U.S. future dollar receipts associated with this customer and experienced a net loss of $641. The gains or losses on each foreign currency forward contract have been deferred and will be recorded as an increase or decrease in revenue at the time that the originally hedged transaction occurs.
Note 10. Comparative figures
The Company has restated sales and cost of sales for the quarter ended July 2, 2000. Sales, amounting to $1,975 for the quarter or $3,336 on a year-to-date basis, earned during the pre-production periods of new facilities have been offset against cost of sales. There is no effect on net earnings for the quarter and year-to-date ended July 2, 2000.
In 2000, the Company accrued certain annual expenses on a pro-rated basis quarterly throughout the year. The comparative figures have been restated to reflect the actual expenses incurred for the quarter ended July 2, 2000. The effect on the quarter and year-to-date ended July 2, 2000 is an increase in net earnings of $760 or $0.06 per share and $1,509 or $0.12 per share, respectively, on a basic and fully diluted basis.
Wescast Industries Inc.
Restatement Analysis Schedule
2000
Quarter 1 Quarter 2
------------------- --------------------
EPS EPS
Fully Fully
Earnings Diluted Earnings Diluted
------------------- --------------------
Net earnings, as
originally
reported 19,763 1.42 19,155 1.38
Impact of changes to
interim reporting 1,176 0.09 1,176 0.09
------------------- --------------------
Restated earnings
before income
taxes 20,939 1.51 20,331 1.47
Income taxes 427 0.03 416 0.03
------------------- --------------------
Restated net
earnings 20,512 1.48 19,915 1.44
-------- --------
-------- --------
Impact of
change to new
(treasury)
method 0.05 0.05
-------- --------
Fully
diluted
EPS, new
method 1.53 1.49
-------- --------
-------- --------
Weighted average
shares - old
method 14,123,284 14,075,398
Weighted average
shares - new
method 13,396,693 13,437,737
Quarter 3
--------------------
EPS
Fully
Earnings Diluted
--------------------
Net earnings,
as originally reported 13,493 1.00
Impact of changes to
interim reporting 402 0.03
--------------------
Restated earnings before
income taxes 13,895 1.03
Income taxes 141 0.01
--------------------
Restated net earnings 13,754 1.02
--------
--------
Impact of change to
new (treasury) method 0.01
--------
Fully diluted EPS,
new method 1.03
--------
--------
Weighted average
shares - old method 13,927,338
Weighted average
shares - new method 13,291,884
Quarter 4 Total
------------------- --------------------
EPS EPS
Fully Fully
Earnings Diluted Earnings Diluted
------------------- --------------------
Net earnings, as
Originally
reported 14,639 1.08 67,050 4.88
Impact of changes to
interim reporting (2,754) (0.21) 0 0.00
------------------- --------------------
Restated earnings
before income
taxes 11,885 0.87 67,050 4.88
Income taxes (984) (0.07) 0 (0.00)
------------------- --------------------
Restated net
earnings 12,869 0.94 67,050 4.88
-------- --------
-------- --------
Impact of
change to new
(treasury)
method 0.00 0.11
-------- --------
Fully diluted EPS,
new method 0.94 4.99
-------- --------
-------- --------
Weighted average
shares - old method 13,807,175 13,966,966
Weighted average
shares - new method 13,296,764 13,448,691