Tesma announces fourth quarter and 2001 year-end results
CONCORD, ON, Sept. 13 - Tesma International Inc.
a global supplier of highly-engineered engine,
transmission and fueling systems and modules for the automotive industry,
today reported, for the quarter and year ended July 31, 2001, the 24th
consecutive quarter (on a comparative year-over-year basis) of record sales
since going public in 1995.
Twelve Months Three Months
Ended July 31 Ended July 31
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(Canadian dollars in millions,
except per share figures)
2001 2000 2001 2000
Sales $1,202.1 $1,127.8 $ 304.5 $ 277.9
Income before income taxes $ 124.2 $ 133.6 $ 25.7 $ 31.0
Net income $ 88.8 $ 84.9 $ 25.6 $ 19.5
Operating cash flow $ 133.9 $ 136.6 $ 32.8 $ 32.1
Basic earnings per share $ 3.04 $ 2.95 $ 0.88 $ 0.67
Fully diluted earnings per share $ 3.00 $ 2.90 $ 0.86 $ 0.66
Weighted average number of shares
outstanding on a fully diluted
basis (in millions) 29.6 29.3 29.7 29.5
Consolidated Results
--------------------
Sales for the twelve month period increased by 7% to $1,202.1 million,
despite a 12% decline in North American vehicle production volumes and only
modest growth of less than 1% in Europe. This sales increase reflects sales
generated from new production launches, a 19% and 12% increase in our North
American and European content per vehicle to $52.66 and (euro) 12.85
respectively, a 40% 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 1.6%.
For the quarter, sales were up by 10% to a record $304.5 million, despite
a quarterly year-over-year drop in North American vehicle production volumes
of 11% to 3.39 million units, the lowest fourth quarter level of production
since 1998 which included a seven week strike at General Motors. Tesma's 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 twelve month period decreased to
$124.2 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, continued higher operating costs at certain facilities as we
launch new programs and invest in engineering, research and development
resources and capital assets for the future and a non-recurring $3.4 million
translation loss as a result of tax planning initiatives undertaken (during
the fourth quarter) at certain foreign operations. For the year, net income
increased by 5% to $88.8 million versus $84.9 million a year ago.
For the quarter, income before income taxes declined by 17% from $31.0
million to $25.7 million largely as a result of the translation loss, the
fourth quarter 11% reduction in North American vehicle production volumes and
significant launch costs for new product programs at two facilities.
Net income for the quarter increased to by 31% $25.6 million from $19.5
million a year ago primarily due to the recognition of the recovery of $9.4
million of income taxes paid in prior years by certain foreign operations.
In the fourth quarter, Tesma retroactively adopted the CICA's new
recommendations which requires the treasury stock method be used for the
calculation of fully diluted earnings per share. Under this method, the
Tesma's fully diluted earnings per share for the twelve month period was $3.00
and for the fourth quarter was $0.86, versus $2.90 and $0.66 a year ago. The
impact of the tax recoveries and the related translation loss on fully diluted
earnings per share was $0.20 in both the quarter and for the full year.
North American Operations
-------------------------
Tesma's 5 European operations, located in Germany and Austria, employ
1,020 employees. For the twelve month period, sales from these operations
increased by 5% to $219.7 million compared to the same period last year.
Although there was sales growth in all of our European manufacturing
facilities the weakening of the Euro relative to the Canadian dollar caused
translated sales to decline by approximately $17.7 million versus the
comparable period a year ago. Despite high launch costs at one facility and
the non-recurring $3.4 million translation loss for implemented tax
structures, income before income taxes rose by 15% to $17.2 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 200
people. For the year, sales increased by 7% to $45.6 million and income before
income taxes for this segment (which includes our engineering and marketing
offices in Brazil, Japan and Korea) increased by 36% to $3.4 million versus
$2.5 million last year.
Cash Flow
---------
Cash provided from operations decreased by $2.7 million to $133.9 million
for the year and for the quarter increased by $0.7 million to $32.8 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 $73.5 million for the year. Investment activities for the year included
$99.5 million for fixed and other asset additions, net of disposals. As a
result, net cash balances at the end of the fourth quarter were $51.0 million,
a decline of $41.9 million since July 31, 2000, but down only $2.3 million
from April 30, 2001.
Balance Sheet
-------------
Despite the net use of cash during the twelve month period, Tesma
maintains one of the strongest balance sheets in our industry. Our net debt of
$30.6 million at July 31, 2001 was only 7% of shareholders' equity and our
return on funds employed exceeded 26% for the year.
Dividends
---------
The Tesma Board of Directors today declared a dividend in respect of the
fourth quarter of fiscal 2001 of $0.16 per share on the Class A Subordinate
Voting and Class B shares payable on October 15, 2001 to shareholders of
record on September 28, 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 agreements, the
continued weakness of the Euro, declining consumer confidence and general
economic uncertainty. North American OEMs have announced cutbacks in calendar
second half 2001 production schedules by approximately 4%. 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 and
expects sales growth in fiscal 2002. Based on information currently available,
Tesma's expected 2002 OEM production in North America (including Mexico) of
16.1 million units (a decline of 2%) and in Europe of 16.2 million units (a 4%
decline) should result in an overall growth rate in Tesma's sales of
approximately 10 to 12% for fiscal 2002.
Magna Steyr
-----------
As previously announced, Tesma and its controlling shareholder, Magna
International Inc., are continuing to review the proposed combination of Tesma
with Magna Steyr, a wholly-owned operating group of Magna. This transaction,
if successfully concluded, would combine the recognized individual strengths
and capabilities of Tesma and Magna Steyr to create a leading full-service
powertrain supplier of advanced transmission, engine and drivetrain products
for the global automotive industry. A special committee of the independent
directors of Tesma is currently reviewing the proposed transaction, and it is
anticipated that a further announcement will be forthcoming within the next
number of weeks.
TESMA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Canadian dollars in thousands)
(Audited)
AS AT AS AT
July 31, July 31,
2001 2000
ASSETS
Cash and cash equivalents $ 95,703 $ 143,104
Accounts receivable 172,803 142,657
Inventories 93,735 83,632
Future tax assets 9,570 -
Prepaid expenses and other 11,091 9,937
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382,902 379,330
Capital assets 349,008 306,057
Other assets 26,430 27,284
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$ 758,340 $ 712,671
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank indebtedness $ 44,706 $ 50,207
Accounts payable 86,581 85,624
Accrued salaries and wages 35,868 36,019
Other accrued liabilities 30,178 44,014
Income taxes payable 11,019 13,346
Long-term debt due within one year 4,342 8,243
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212,694 237,453
Long-term debt 77,221 74,990
Future tax liabilities 34,200 33,023
SHAREHOLDERS' EQUITY
Class A Subordinate Voting Shares
(authorized: unlimited, issued: 15,042,379) 187,643 185,851
Class B Shares (authorized: unlimited,
issued: 14,223,900) 2,583 2,583
Retained earnings 252,435 186,554
Currency translation adjustment (8,436) (7,783)
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434,225 367,205
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$ 758,340 $ 712,671
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TESMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Canadian dollars in thousands, except per share figures)
THREE MONTHS ENDED TWELVE MONTHS ENDED
July 31 July 31
(unaudited) (audited)
2001 2000 2001 2000
Sales $ 304,480 $ 277,855 $1,202,144 $1,127,785
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Cost of goods sold 240,187 214,092 931,896 857,757
Depreciation and
amortization 13,387 10,118 51,646 43,513
Selling, general and
administrative 20,077 20,275 77,414 76,314
Interest, net 823 (81) 1,697 3,271
Affiliation fees and
other charges 4,347 2,466 15,271 13,343
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Income before income
taxes 25,659 30,985 124,220 133,587
Income taxes 41 11,530 35,425 48,693
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Net income for the period 25,618 19,455 88,795 84,894
Retained earnings,
beginning of period 231,345 174,980 186,554 120,595
Dividends on Class A
Subordinate Voting
Shares and Class B
Shares (4,528) (4,658) (18,552) (15,712)
Cumulative adjustment for
change in accounting
policy (Note 1 (a)) - - (3,945) -
Surrender of stock
options - (3,223) (417) (3,223)
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Retained earnings, end
of period $ 252,435 $ 186,554 $ 252,435 $ 186,554
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Earnings per Class A
Subordinate Voting Share
or Class B Share
(Note 1 (b))
Basic $ 0.88 $ 0.67 $ 3.04 $ 2.95
Fully diluted $ 0.86 $ 0.66 $ 3.00 $ 2.90
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Average number of Class A
Subordinate Voting
Shares and Class B
Shares outstanding
(in millions)
(Note 1 (b))
Basic 29.3 29.0 29.2 28.8
Fully diluted 29.7 29.5 29.6 29.3
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TESMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Canadian dollars in thousands)
THREE MONTHS ENDED TWELVE MONTHS ENDED
July 31 July 31
(unaudited) (audited)
2001 2000 2001 2000
CASH PROVIDED FROM
(USED FOR):
OPERATING ACTIVITIES
Net income $ 25,618 $ 19,455 $ 88,795 $ 84,894
Items not involving
current cash flows 7,265 12,643 45,143 51,747
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32,883 32,098 133,938 136,641
Changes in non-cash
working capital (10,057) 7,205 (60,412) 10,568
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22,826 39,303 73,526 147,209
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INVESTING ACTIVITIES
Capital asset additions (26,909) (24,619) (97,625) (81,947)
Purchase of subsidiaries - - (800) (800)
Increase in other assets (1,258) 28 (1,452) (1,288)
Proceeds from disposal of
capital and other assets 82 851 425 3,065
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(28,085) (23,740) (99,452) (80,970)
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FINANCING ACTIVITIES
Increase (decrease) in
bank indebtedness (11,113) 5,738 (3,407) 19,353
Issues of long-term debt 8,753 - 8,753 1,377
Repayments of long-term
debt (1,525) (2,990) (9,750) (7,617)
Issuance of Class A
Subordinate Voting Shares 464 1,948 1,792 5,586
Dividends on Class A
Subordinate Voting Shares
and Class B Shares (4,528) (4,658) (18,552) (15,712)
Surrender of stock options - (3,223) (417) (3,223)
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(7,949) (3,185) (21,581) (236)
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Effect of exchange rate
changes on cash and cash
equivalents (391) 198 106 (1,481)
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Net increase (decrease) in
cash and cash equivalents
during the period (13,599) 12,576 (47,401) 64,522
Cash and cash equivalents,
beginning of period 109,302 130,528 143,104 78,582
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Cash and cash equivalents
end of period $ 95,703 $ 143,104 $ 95,703 $ 143,104
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Change
(a) 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.
(b) In 2001, the Company adopted the Canadian Institute of Chartered
Accountants new recommendations for the presentation and
disclosure of basic and fully diluted earnings per share. The
Company adopted the new recommendations retroactively, and
accordingly, the presentation in the consolidated financial
statements of the Company for the comparative periods presented
have been restated.
Basic Earnings per Class A Subordinate Voting Share or Class B
Share are calculated using the weighted average number of Class A
Subordinate Voting Shares outstanding during the year, plus the
weighted average number of Class B Shares outstanding during the
year.
Under the new recommendations, the computation of fully diluted
earnings per Class A Subordinate Voting or Class B Share requires
the treasury stock method to be used in the determination of the
dilutive effect of warrants and options. Under this method:
- The exercise of options is assumed at the beginning of the
period (or at time of issuance, if later) and Class A
Subordinate Voting Shares are assumed to be issued.
- The proceeds from exercise are assumed to be used to purchase
Class A Subordinate Voting Shares at the average market price
during the period.
- The incremental number of Class A Subordinate Voting Shares
(the difference between the number of Class A Subordinate
Voting Shares assumed issued and assumed purchased) is
included in the denominator of the fully diluted earnings per
share computation.
The impact of adopting the new recommendations was to increase
fully diluted earnings per Class A Subordinate Voting Share or
Class B Share by $0.06 (2000-$0.07) and reduce the average number
of fully diluted Class A Subordinate Voting or Class B Shares
outstanding by 1.0 million (2000 - 0.9 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
Twelve months ended American European Other
July 31st, 2001 Automotive Automotive Automotive Total
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(Canadian dollars in thousands)
Total sales $ 948,336 $ 219,744 $ 45,564 $1,213,644
Intersegment sales (8,725) (2,775) - (11,500)
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Sales to external
customers $ 939,611 $ 216,969 $ 45,564 $1,202,144
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Depreciation and
amortization $ 39,024 $ 8,368 $ 4,254 $ 51,646
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Interest, net $ 454 $ (510) $ 1,753 $ 1,697
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Income before income
taxes $ 103,615 $ 17,174 $ 3,431 $ 124,220
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Capital assets, net $ 250,250 $ 63,921 $ 34,837 $ 349,008
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Capital asset additions $ 80,211 $ 15,764 $ 1,650 $ 97,625
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Goodwill, net $ 17,870 $ 1,361 $ - $ 19,231
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North
Twelve months ended American European Other
July 31st, 2000 Automotive Automotive Automotive Total
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(Canadian dollars in thousands)
Total sales $ 883,295 $ 208,830 $ 42,748 $1,134,873
Intersegment sales (4,241) (2,847) - (7,088)
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Sales to external
customers $ 879,054 $ 205,983 $ 42,748 $1,127,785
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Depreciation and
amortization $ 31,265 $ 7,760 $ 4,488 $ 43,513
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Interest, net $ 1,042 $ (808) $ 3,037 $ 3,271
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Income before income
taxes $ 116,111 $ 14,949 $ 2,527 $ 133,587
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Capital assets, net $ 208,393 $ 55,977 $ 41,687 $ 306,057
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Capital asset additions $ 54,292 $ 21,018 $ 6,637 $ 81,947
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Goodwill, net $ 17,788 $ 1,704 $ - $ 19,492
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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 July 31, 2001
were exercised:
Number of Shares
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Class A Subordinate Voting Shares outstanding as at
July 31, 2001 15,042,379
Class B Shares outstanding as at July 31, 2001 14,223,900
Options to purchase Class A Subordinate Voting Shares 1,433,400
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30,699,679
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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 July 31, 2001 is 44,500.
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 of Tesma's Class A Subordinate Voting Shareholders.
