Wescast Reports Strong First Quarter Performance
BRANTFORD, Ontario--April 23, 2002--Wescast Industries Inc. reported strong first quarter financial results. "Wescast has performed extremely well in the face of a very volatile automotive marketplace," said Ray Finnie, President and CEO. "Customer demand in the first quarter was stronger than anticipated; our people responded to these increases in stride and converted the additional revenues into strong earnings performance."Highlights
| -- | Net earnings from continuing operations for the first quarter 2002 of $18.5 million were up slightly from the $18.4 million for the first quarter of 2001. Fully diluted earnings per share from continuing operations were $1.39 compared to $1.40 in 2001. Return on equity for the period was 19%. |
| -- | Market conditions improved in the North American automotive industry in the first quarter. Automakers produced 3.4% more cars and trucks in the first quarter compared with the same period in 2001. |
| -- | Wescast sales revenues were up 8% over the same period last year, a result of increased market penetration, strong sales of a number of significant programs, combined with an improvement in overall market conditions. |
| -- | Gross margin, before depreciation, on the sale of iron manifolds remained steady with 2001 levels at 40.9%, demonstrating continued improvement in operating performance that more than offset price reductions and cost increases. |
| -- | The Company is following through with commitments to develop new markets and products and drive long-term growth and profitability. Despite these increased expenditures in SG&A and research and development coupled with lower foreign exchange translation gains, the Company was able to increase profitability relative to the same quarter last year. |
| -- | The Company has earned a 2001 Supplier of the Year Award from the Ford Motor Company's Essex Engine Plant. The award recognizes outstanding quality, performance, productivity improvements and production support. |
Operations
Total sales for the quarter of $104.9 million were up 8% from the previous year's level of $97.0 million. This was driven by sales generated from cast and machined iron manifolds which increased 9% to $101.5 million from $93.4 million in 2001
Gross Profit for the first quarter was $36.5 million, an increase of 8% over the $33.8 million earned over the same period in 2001. Our gross profit as a percentage of sales was maintained at 34.8%. The operating efficiency of the company's manufacturing facilities during the quarter was very strong with improvements in scrap, uptime, labour effectiveness and attainment at all our plants.
The company's selling, general and administrative expenses of $7.5 million were higher than the $6.2 million incurred over the same period in 2001. The increase reflects additional selling expenses associated with establishing the infrastructure to support our global sales efforts. The increase also includes period costs pertaining to the new technical development centre and corporate office complex.
Research, development and design expenses for the quarter were $1.8 million; this is an increase over the $1.4 million reported in 2001. This reflects the costs associated with the company's "hot end system" and new material development to support future customer requirements.
Other income and expenses for the first quarter 2001 was $0.06 million, compared to income of $1.2 million for the first quarter of 2001. The decrease in other income is attributable to a reduction in foreign exchange gains on net working capital compared with 2001.
Cash Flow
Operating cash flow from continuing operations was $20.7 million for the quarter compared to $30.2 million in 2001. The decrease was attributable to changes in non-cash operating working capital items compared to 2001. This change resulted from the timing of accounts receivable payments from a major customer.
Capital expenditures for the first quarter were $10.6 million, compared to $13.1 million for the same quarter last year. The higher expenditure levels in 2001 were attributable to the launch of the Company's joint-venture facility in Hungary.
The Company deferred $1.4 million of pre-production costs over the first quarter; $0.7 million was deferred over the same period in 2001.
Balance Sheet and Financial Position
At March 31, 2002 the Company had $94.5 million in cash, short-term investments and long-term bond investments compared to $88.0 million at the end of 2001. Wescast continues to maintain a strong financial position and is well positioned to support future growth initiatives.
Earnings Forecast
Based on the stronger than expected market in the first quarter, and overall industry outlook, the company has revised its earnings forecasts for 2002. North American production volumes are now expected to be in the range of 15.5 million to 15.8 million light vehicles, up from the 15 - 15.5 million units projection that served as the basis for the forecasts disclosed January 21, 2002. The company is now forecasting to ship 14.8 million manifolds for 2002, up from earlier estimates of 14.4 million. This is expected to result in fully diluted earnings per share from continuing operations in the range of $4.40 to $4.60, up from earlier estimates of $4.10 to $4.30.
As part of our drive for continuous improvement the Company is re-assessing its optimum business model, balancing long-term market trends, productive capacity costs and capital. As a result, the company will be moving its Brantford facility to three shifts, five days a week from four shifts, seven days a week. This move, affecting less than 50 employees, will significantly reduce overall costs while still allowing us to meet customer demands for the foreseeable future. The timing of the transition will be announced shortly and will likely be effective no later than the third quarter.
The following table provides an overview of the above-mentioned highlights for the first quarter:
Wescast Industries Inc. Q1 2002 Highlights --------------------------------------------------------------------- --------------------------------------------------------------------- in millions of dollars, except per share data and where otherwise noted Q1 2002 Q1 2001 % change --------------------------------------------------------------------- Sales 104.9 97.0 8% --------------------------------------------------------------------- Earnings from continuing operations 18.5 18.4 1% --------------------------------------------------------------------- Loss from discontinued operations 0.0 (1.6) -100% --------------------------------------------------------------------- Net Earnings 18.5 16.8 10% --------------------------------------------------------------------- Earnings from continuing operations per share basic 1.42 1.43 -1% fully diluted 1.39 1.40 -1% --------------------------------------------------------------------- Net earnings per share basic 1.42 1.30 9% fully diluted 1.39 1.28 9% --------------------------------------------------------------------- Sales Breakdown - dollars (net of pre-production deferrals) Casting & Machining 101.5 93.4 9% Cast 73.1 67.3 9% Internal Machining 27.6 25.6 8% External Machining 0.8 0.5 60% Tooling & prototype 3.4 3.6 -6% --------------------------------------------------------------------- Sales Breakdown - units (000's) Ductile iron 0.3 0.3 0% SiMo iron 3.8 3.4 12% Total 4.1 3.7 11% Sales Breakdown - percentage SiMo Penetration 92.7% 91.9% Internal Machining Penetration 60.0% 61.4% --------------------------------------------------------------------- Gross Margin (before depreciation) 42.6 39.9 7% Iron manifolds 41.5 38.2 9% Tooling, prototypes & other 1.1 1.7 --------------------------------------------------------------------- Gross Margin % (before depreciation) 40.6% 41.1% Iron manifolds 40.9% 40.9% Tooling, prototypes & other 31.7% 47.3% --------------------------------------------------------------------- Gross Profit (after depreciation) 36.5 33.7 8% Iron manifolds 35.4 32.0 11% Tooling, prototypes & other 1.1 1.7 --------------------------------------------------------------------- Gross Profit % (after depreciation) 34.8% 34.8% Iron manifolds 34.9% 34.3% Tooling, prototypes & other 31.7% 47.3% --------------------------------------------------------------------- Depreciation and amortization Depreciation and amortization- cost of sales 6.1 6.1 0% Depreciation - SG & A 0.6 0.6 0% --------------------------------------------------------------------- Capital Expenditures 10.6 13.1 -19% --------------------------------------------------------------------- R&D 1.8 1.4 29% --------------------------------------------------------------------- SG & A (% of sales) 7.2% 6.4% --------------------------------------------------------------------- Tax Rate 33.8% 34.7% --------------------------------------------------------------------- ---------------------------------------------------------------------
Wescast Industries Inc. is the world's largest supplier of exhaust manifolds for passenger cars and light trucks. The Company designs, develops, casts and machines high-quality iron exhaust manifolds for automotive OEMs. Wescast has sales and design centres in Canada, the United States and Germany, as well as sales representation in the United Kingdom, France and Japan. The Company operates seven production facilities in North America, including a 49% interest in United Machining Inc., an accredited Minority supplier in Michigan, and a 50% joint venture interest in Weslin Autoipari Rt., a Hungarian based supplier of cast iron exhaust manifolds and turbo charger housings for the European light vehicle market. The Company is recognized worldwide for its quality products, innovative design solutions and highly committed workforce.
Forward Looking Statements
Wescast and its representatives may periodically make written or oral statements that are "forward-looking", including statements included in this news release and in our filings with applicable Securities commissions and in reports to our stockholders. These statements may be identified by words such as "believe," "anticipate," "project," "expect," "intend" or other similar expressions, and include all statements which address operating performance, events or developments that we expect or anticipate may occur in the future (including statements relating to future sales or earnings expectations, volume growth, awarded sales contracts and earnings per share expectations or statements expressing general optimism about future operating results). Such statements involve risks and uncertainties that may cause unanticipated events and actually evolve to be materially different from those either expressed or implied. These factors include, but are not limited to, risks associated with the automotive industry, production, marketing and transportation such as loss of market, volatility of prices, currency fluctuations, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources; as a consequence, actual results may differ materially from those anticipated in the forward-looking statements. For more detailed information regarding these risks you may refer to Wescast's publicly filed documents with applicable Canadian securities authorities and the U.S. Securities and Exchange Commission. Wescast undertakes no obligation to update any of these forward-looking statements.
A conference call has been arranged for:
April 23, 2002
3:00 p.m. EST
To participate, please dial (416) 641-6715
Post view is available from April 23 to April 30, 2002. To access please dial 416-626-4100 and enter passcode 20460058
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
--------- ---------
March 31, April 1,
2002 2001
--------- ---------
Sales $ 104,900 $ 97,032
Cost of sales 68,423 63,273
--------- ---------
Gross profit 36,477 33,759
Selling, general and
administration 7,502 6,235
Research, development and
design 1,795 1,436
--------- ---------
27,180 26,088
Other (income) expense
Interest expense 57 121
Investment income (770) (975)
Other (income) and
expenses (Note 7) (60) (1,193)
--------- ---------
Earnings from continuing
operations before income
taxes 27,953 28,135
Income taxes 9,460 9,749
--------- ---------
Earnings from continuing
operations 18,493 18,386
Loss from discontinued
operations 0 (1,631)
--------- ---------
Net earnings $ 18,493 $ 16,755
--------- ---------
--------- ---------
Earnings from continuing
operations per share (Note 8)
- basic $ 1.42 $ 1.43
--------- ---------
--------- ---------
- fully-diluted $ 1.39 $ 1.40
--------- ---------
--------- ---------
Net earnings per share
(Note 8)
- basic $ 1.42 $ 1.30
--------- ---------
--------- ---------
- fully-diluted $ 1.39 $ 1.28
--------- ---------
--------- ---------
Retained earnings,
beginning of period $ 272,922 $ 238,052
Net earnings 18,493 16,755
Dividends paid (1,567) (1,543)
Excess of cost over
assigned value of Class A
common shares purchased
and cancelled 0 (191)
--------- ---------
Retained earnings, end of
period $ 289,848 $ 253,073
--------- ---------
--------- ---------
Wescast Industries Inc.
Consolidated Balance Sheet
(in thousands of Canadian dollars) (Unaudited Canadian GAAP)
As at
--------- ---------
March 31, December 30,
2002 2001
--------- ---------
Current assets
Cash and cash equivalents $ 42,525 $ 58,579
Short-term investments 20,448 22,567
Receivables 65,193 56,421
Inventories 20,308 19,839
Prepaids 1,400 1,437
Current assets -
discontinued operations 3,334 3,979
--------- ---------
153,208 162,822
Property and
equipment (Note 4) 256,244 251,548
Other (Note 5) 45,197 19,601
Long-term assets -
discontinued operations 12,800 12,678
--------- ---------
$ 467,449 $ 446,649
--------- ---------
--------- ---------
Current liabilities
Payables and accruals $ 35,662 $ 31,908
Income taxes payable 3,277 4,252
Current portion of
long-term debt 2,309 3,249
Current liabilities -
discontinued operations 6,447 8,121
--------- ---------
47,695 47,530
Long-term debt 4,670 4,614
Future income taxes 8,179 7,094
Employee benefits 8,395 7,964
--------- ---------
68,939 67,202
--------- ---------
Shareholders' equity
Capital stock (Note 6) 108,737 106,601
Retained earnings 289,848 272,922
Cumulative translation
adjustment (75) (76)
--------- ---------
398,510 379,447
--------- ---------
$ 467,449 $ 446,649
--------- ---------
--------- ---------
Wescast Industries Inc.
Consolidated Statement of Cash Flows
(in thousands of Canadian dollars) (Unaudited Canadian GAAP)
Three months ended
--------- ---------
March 31, April 1,
2002 2001
--------- ---------
Cash derived from (applied to)
Operating
Earnings from continuing
operations $ 18,493 $ 18,386
Add (deduct) items not
requiring cash:
Depreciation and
amortization 6,704 6,782
Amortization of bond costs 177 2
Future income taxes 646 424
Gain on disposal of
investments (180) 0
Loss on disposal of
equipment 41 642
Employee benefits 613 461
--------- ---------
26,494 26,697
Change in non-cash
operating working capital
(Note 9) (5,788) 3,494
--------- ---------
20,706 30,191
Discontinued operations (590) 1,187
--------- ---------
20,116 31,378
--------- ---------
Financing
Issue of long-term debt 164 206
Repayment of long-term debt (1,125) (1,289)
Payment of obligations
under capital leases (190) (163)
Employee benefits paid (182) (183)
Issuance of share capital
under Employee Share
Purchase Plan 148 182
Employee share loan
repayments 43 252
Issuance of share capital
under Stock Option Plan 1,482 230
Repurchase of common
shares 0 (340)
Dividends paid (1,567) (1,543)
--------- ---------
(1,227) (2,648)
--------- ---------
Investing
Purchase of property,
equipment and other assets (10,587) (13,118)
Purchase of investments (48,236) 0
Deferred pre-production
costs (1,401) (740)
Redemption of investments 25,602 30,000
Proceeds on disposal of
equipment 40 14
Discontinued operations (361) (4,455)
--------- ---------
(34,943) 11,701
--------- ---------
Net increase (decrease) in
cash and cash equivalents (16,054) 40,431
Cash and cash equivalents
Beginning of period 58,579 34,428
--------- ---------
End of period $ 42,525 $ 74,859
--------- ---------
--------- ---------
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 30, 2001.
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 for the year ended December 30, 2001.
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):
March 31, December 30,
2002 2001
------------------------
Balance Sheet
Current assets $ 16,038 $ 13,809
Long-term assets 52,546 50,095
Current liabilities 15,625 13,636
Long-term liabilities 3,910 3,909
Equity 49,049 46,359
--------------------------------------------------------
--------------------------------------------------------
Three months Three months
ended March ended April
31, 2002 1, 2001
------------------------
Statement of earnings
Sales 3,918 3,561
Cost of sales and expenses 4,229 3,694
Net loss (311) (133)
--------------------------------------------------------
--------------------------------------------------------
Three months Three months
ended March ended April
1, 2002 31, 2001
------------------------
Statement of cash flows
Cash derived from
(applied to)
Cash flows from operating
activities (3) (884)
Cash flows from financing
activities 3,187 11,866
Cash flows from investing
activities $ (2,929) $ (9,021)
Note 4. Property and Equipment
March 31, December 30,
2002 2001
------------------------
Cost
Land $ 4,999 $ 4,997
Buildings and improvements 118,874 114,678
Machinery, equipment and
vehicles 272,372 265,734
------------------------
396,245 385,409
------------------------
Accumulated Depreciation
Buildings and improvements 15,973 14,835
Machinery, equipment and
vehicles 124,028 119,026
------------------------
140,001 133,861
------------------------
Net Book Value
Land 4,999 4,997
Buildings and improvements 102,901 99,843
Machinery, equipment and
vehicles 148,344 146,708
------------------------
$ 256,244 $ 251,548
------------------------
------------------------
Note 5. Other
March 31, December 30,
2002 2001
------------------------
Deferred pre-production costs $ 11,973 $ 10,911
Director and employee
share purchase plan loans 1,536 1,687
Bond issue costs 68 72
Deferred loss on foreign
exchange contracts 0 66
Licence 58 61
Long-term bonds 31,562 6,804
------------------------
$ 45,197 $ 19,601
------------------------
------------------------
Note 6. 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
March 31, December 30,
2002 2001
------------------------
Issued and outstanding
5,686,945 Class A Common Shares $ 96,310 $ 94,174
(2001 - 5,626,575)
7,376,607 Class B Common Shares 12,427 12,427
(2001 - 7,376,607)
--------------------------------------------------------
$ 108,737 $ 106,601
--------------------------------------------------------
--------------------------------------------------------
Note 7. Other (income) and expenses
Three months ended
March 31, April 1,
2002 2001
--------------------------------------------------------
Foreign exchange
translation (gain) loss $ (74) $ (1,796)
Loss on disposal of
equipment and other 14 603
--------------------------------------------------------
$ (60) $ (1,193)
--------------------------------------------------------
--------------------------------------------------------
Note 8. Earnings per common share
Basic earnings from continuing operations per share and basic net earnings per share are based on the weighted average common shares outstanding (2002 - 13,058,981 shares; 2001 - 12,858,414 shares). Fully-diluted earnings from continuing operations per share and fully-diluted net earnings per share are based on the fully-diluted weighted average common shares outstanding (2002 - 13,313,558 shares; 2001 -13,104,561 shares).
Note 9. 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
------------------------
March 31, April 1,
2002 2001
------------------------
Receivables $ (8,266) $ 6,223
Inventories (469) (2,345)
Prepaids 37 294
Payables and accruals 3,885 (1,996)
Income taxes payable (975) 1,318
------------------------
$ (5,788) $ 3,494
------------------------
Note 10. Segment Information
The Company currently operates in one industry segment, the design
and manufacture of exhaust manifolds for the automotive industry, and
two geographic segments.
Three months ended March 31, 2002
North Europe Total
America
------------------------------------------------------------------
Sales to external customers $ 104,900 $ 0 $ 104,900
Earnings (loss) from
continuing operations 18,956 (463) 18,493
Interest revenue 770 0 770
Interest expense 57 0 57
Depreciation and
amortization 6,344 360 6,704
Income taxes 9,446 14 9,460
Purchase of property,
equipment and other assets $ 9,536 $ 1,051 $ 10,587
------------------------------------------------------------------
Three months ended April 1, 2001
North Europe Total
America
------------------------------------------------------------------
Sales to external customers $ 97,032 $ 0 $ 97,032
Earnings (loss) from
continuing operations 18,601 (215) 18,386
Interest revenue 966 9 975
Interest expense 121 0 121
Depreciation and
amortization 6,732 50 6,782
Income taxes 9,740 9 9,749
Purchase of property,
equipment and other assets $ 5,120 $ 7,998 $ 13,118
------------------------------------------------------------------
March 31, 2002
North Europe Total
America
------------------------------------------------------------------
Total Assets $ 412,187 $ 55,262 $ 467,449
Property and Equipment 215,592 40,652 256,244
Deferred pre-production
costs $ 4,204 $ 7,769 $ 11,973
------------------------------------------------------------------
December 30, 2001
North Europe Total
America
------------------------------------------------------------------
Total Assets $ 394,130 $ 52,519 $ 446,649
Property and Equipment 211,591 39,957 251,548
Deferred pre-production
costs $ 4,544 $ 6,367 $ 10,911
------------------------------------------------------------------
Note 11. Stock-based compensation plans
A summary of the changes during the quarters ended March 31, 2002
and April 1, 2001 of the Company's stock option plan is presented
below.
Weighted Average
Shares (000's) Exercise Price
---------------------------------------
2002 2001 2002 2001
---------------------------------------
Outstanding, beginning
of period 973 1,017 $36 $31
Exercised (56) (17) $35 $20
Cancelled 0 (20) $0 $36
---------------------------------------
Outstanding, end of period 917 980 $36 $32
---------------------------------------
The following information applies to options outstanding at March
31, 2002:
Options Outstanding Options Exercisable
----------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
---------------------------------------------------------------------
$1 - $12 3,333 3.1 years $11 3,333 $11
$13 - $24 133,834 2.8 years $15 133,834 $15
$25 - $36 240,000 5.8 years $33 163,000 $33
$37 - $48 539,401 7.9 years $42 218,601 $43
---------------------------------------------------------
916,568 $36 518,768 $3
----------------------------------------------------------
There were no stock options granted during the quarter ended March 31, 2002. Pro forma net earnings and pro forma earnings per share information to reflect fair value based accounting for stock-based compensation cost has not been provided.
Note 12. Comparative figures
The Company has reclassified certain comparative amounts to report discontinued operations. There was no effect on net earnings for the quarter ended April 1, 2001.