Trailmobile Canada Limited Announces Fiscal 2002 Second Quarter Results
MISSISSAUGA, Ontario--May 29, 2002--Trailmobile Canada Limited (TMX: TSE) (the "Company") today announced its second quarter results for the six (6) months ended March, 2002.Revenues in the second quarter of fiscal 2002 totaled $18.0 million and represent a 5% increase over the same quarter of fiscal 2001. Revenue for the six months ended March 2002 were $34.3 million compared to 38.4 million for the same period last year. The lowest demand for dry van trailers in ten years continues to put pressure on both revenues and gross profit margins. There was a slight improvement ($0.1 million) in gross profit margins for the second quarter of fiscal 2002. The Company recorded a net loss for the six (6) months ended March 2002 of $2.89 million. The majority of the loss is the result of the Chapter 11 bankruptcy filing in the USA by Trailmobile Trailer LLC. A $2.4 million provision was charged in the first quarter relating to monies due from Trailmobile Trailer Canada Ltd, a subsidiary of Trailmobile Trailer LLC. The Company expects the industry demand for trailers to remain weak over the near term with increased order demand in the later part of fiscal 2002.
On May 3, 2002 the Company's majority shareholder, 1314385 Ontario Limited (the "Offeror"), completed its cash offer to purchase all the outstanding common shares of the Company, acquiring 90.36% of the common shares it did not already own and increasing its position to 96.3% of the Company. The common shares of the Company were voluntarily delisted from the Toronto Stock Exchange at the request of the Company on May 13, 2002 and the Offeror is proceeding to take the Company private through a Compulsory Acquisition under the provisions of the Ontario Business Corporations Act.
The Company also wishes to advise that Mr. Gary Barnes has resigned as a director of the Company. The Board of Directors wishes to thank Mr. Barnes for his years of service to the Company and in particular his diligence as Chairman of the Independent Committee of the Board of Directors.
Trailmobile Canada Limited manufactures dry-freight trailers for commercial trucking customers in Canada and the United States. The company is majority owned by Chicago-based Trailmobile Corporation. Trailmobile is one of North America's largest trailer manufacturers, with an extensive sales and distribution network in both the USA and Canada. Trailmobile Canada Limited's head office and manufacturing facility are located in Mississauga, Ontario.
For further information: Mr. Thomas Wiseman, President, Trailmobile Canada Limited Phone: (905) 565-9500 x201.
TRAILMOBILE CANADA LIMITED
(symbol TMX on the Toronto Stock Exchange)
INTERIM FINANCIAL INFORMATION SECOND QUARTER - FISCAL 2002
FOR THE SIX MONTHS ENDED MARCH 28, 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of financial condition and results of operations of Trailmobile Canada Limited (the "Company") should be read in conjunction with the Consolidated Financial Statements and related notes thereto.
RESULTS OF OPERATION
OVERVIEW
The discussion and analysis that follows relates to the Company's results of operations for the six months ended March 28, 2002 along with the comparative figures for March 31, 2001.
REVENUE
Revenues for the second quarter were $18 million, this represents an increase of 5% when compared to the same quarter last year, when reported revenues were $17.1 million. The company reported revenues of $34.3 million for the first six months ended March 2002 and $38.4 million for the same period last year.
GROSS PROFIT
Gross profit for the three months ended March 28, 2002 was $1.1 million. This represents an increase of $0.1 million when compared to the gross profit for three months ended March 31, 2001.
GENERAL & ADMINISTRATIVE EXPENSES (G&A)
General and administrative expenses totaled $0.6 million or 3.1% of revenues, a decrease of $34,000 when compared to the three months ended March 31, 2001.
AMORTIZATION
Amortization charges for the three months ended March 28, 2002 totaled $0.3 million or 1.6% of revenues, a marginal decrease of $53,000 when compared to the three months ended March 31, 2001. The deferral of capital purchases due to the slowing economic conditions resulted in a lower amortization charge for fiscal 2002.
FINANCING
Financing charges for the three months ended March 28, 2002 were $0.4 million or 2.4% of revenues, a decrease of $79,000 when compared to the three months ended March 31, 2001. The decrease in financing charges is mainly due to lower borrowing levels.
LIQUIDITY AND CAPITAL RESOURCES
As of March 28, 2002 the company had a working capital deficiency of $13.8 million. This represents an increase in working capital deficiency of $2.7 million when compared to March 31,2001. The increase deficiency is the result of a $2.4 million provision charged in the first quarter of fiscal 2002. The provision was a result of the Chapter 11 bankruptcy filing of Trailmobile Trailer LLC.
RISK AND UNCERTAINTIES
Trailmobile Canada Limited faces a number of risks and uncertainties, including:
Competition
Trailmobile Canada Limited faces competition from numerous truck trailer manufacturers located in both Canada and the United States, some of which have greater financial resources and higher revenues. Certain competitive factors and market conditions may affect Trailmobile Canada's ability to compete with these companies.
Business Cycle
The truck trailer manufacturing industry is dependant on the demand for its products from the trucking industry. Unit sales of new truck are subject to cyclical variations. Historically, periods of economic recession in Canada and the United States have caused declines in the demand for new truck trailers
Distributors
Trailmobile Canada Limited's success depends on the ability of it channel partners to sell its products.
Financing
Trailmobile Canada Limited is dependant upon CIT "Tyco Capital" to finance its inventory and accounts receivable.
Suppliers
Trailmobile Canada Limited relies on several key suppliers for materials. Delays in receipt of these materials may affect the Company's ability to fulfill customer orders.
Currency fluctuations
A portion of Trailmobile Canada Limited's transactions are in US funds and are therefore subject to exchange rate fluctuations that may have a positive or negative affect on the Company's financial statements.
Commodity prices
Certain raw material costs are dependent on worldwide commodity pricing. Any increase in commodity costs may translate to increases in raw material input costs, which may or may not be passed on to customers due to the competitive landscape.
OUTLOOK
Despite many truck fleets pre-buying of power units ahead of the October 1st.mandate for cleaner engines, there appears to be a modest momentum building for new trailer demand as well. "With the support of our valued employees, we are continuing to take cost out of the system through lean manufacturing techniques and continuous improvement in order to better position ourselves to take advantage of a turnaround in the industry", said Tom Wiseman, President of Trailmobile Canada Limited
Trailmobile Canada Limited is committed to servicing the North American marketplace.
TRAILMOBILE CANADA LIMITED
CONSOLIDATED BALANCE SHEET FOR THE PERIOD ENDED
(Unaudited)
Year-end
March March September
2002 2001 2001
--------------------------------------
ASSETS
CURRENT:
Bank 0 0 0
Accounts receivable 5,660,706 9,113,937 5,846,090
Inventory 9,757,547 7,813,784 6,638,354
Prepaid expenses 578,289 404,667 424,970
-----------------------------------------------------------------
15,996,542 17,332,388 12,909,414
-----------------------------------------------------------------
Capital assets (net) 11,221,443 11,991,992 11,794,453
-----------------------------------------------------------------
27,217,985 29,324,380 24,703,867
=================================================================
LIABILITIES
CURRENT:
Bank indebtedness / (cash) 110,653 165,576 67,546
Revolving line of credit 14,568,757 10,690,370 9,415,372
Accounts payable and
accrued liabilities 14,452,555 16,819,185 13,983,742
Current portion of
obligations under
capital lease 184,712 262,644 182,565
Current portion of
long term debt 485,539 458,323 476,291
-----------------------------------------------------------------
29,802,216 28,396,098 24,125,516
-----------------------------------------------------------------
LONG TERM LIABILITIES
Obligations under capital
leases, net of current portion 0 45,608 30,421
Long term debt, net of
current portion 9,085,144 9,570,682 9,327,959
-----------------------------------------------------------------
9,085,144 9,616,290 9,358,380
-----------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
Capital stock 11,005,978 10,073,291 11,005,978
Deficit (22,675,353) (18,761,299) (19,786,007)
-----------------------------------------------------------------
(11,669,375) (8,688,008) (8,780,029)
=================================================================
27,217,985 29,324,380 24,703,867
=================================================================
See accompanying notes to consolidated financial statements.
TRAILMOBILE CANADA LIMITED
CONSOLIDATED STATEMENT OF INCOME / (LOSS) AND DEFICIT FOR THE:
(Unaudited)
THREE MONTHS ENDED
-------------------
March 2002 March 2001
------------ ------------
Revenue 17,939,770 17,051,019
Cost of goods sold 16,808,891 16,051,205
-----------------------------------------------------------------
Gross Profit 1,130,879 999,814
--------------------------
Operatin expenses
Sales and administration expenses 559,302 593,421
Amortization 285,405 338,370
Finance charges 424,276 503,411
----------------------------------------------------------------
1,268,983 1,435,202
--------------------------
Operating income (loss)
from continuing operations (138,104) (435,388)
--------------------------
Income (loss) before provision for
income taxes (138,104) (435,388)
Income taxes - deferred 0 0
-----------------------------------------------------------------
Net Income (loss) for the period (138,104) (435,388)
Deficit, beginning of period (19,786,007) (18,325,911)
-----------------------------------------------------------------
Deficit, end of period (19,924,111) (18,761,299)
=================================================================
Net income (loss) per share - basic ($0.002) ($0.010)
Weighted average number of shares
outstanding 56,180,000 44,942,750
See accompanying notes to consolidated financial statements.
TRAILMOBILE CANADA LIMITED
CONSOLIDATED STATEMENT OF INCOME / (LOSS) AND DEFICIT FOR THE:
(Unaudited)
SIX MONTHS ENDED
------------------
March 2002 March 2001
------------- ------------
Revenue 34,327,838 38,389,741
Cost of goods sold 32,766,027 36,826,858
-----------------------------------------------------------------
Gross Profit 1,561,811 1,562,883
-----------------------------------------------------------------
Operating expenses
Sales and administration expenses 3,090,658 1,300,279
Amortization 570,810 676,740
Finance charges 789,689 989,283
-----------------------------------------------------------------
4,451,157 2,966,302
-----------------------------------------------------------------
Operating income (loss)
from continuing operations (2,889,346) (1,403,419)
-----------------------------------------------------------------
Income (loss) before provision
for income taxes (2,889,346) (1,403,419)
Income taxes - deferred 0 0
-----------------------------------------------------------------
Net Income (loss) for the period (2,889,346) (1,403,419)
Deficit, beginning of period (19,786,007) (17,357,880)
-----------------------------------------------------------------
Deficit, end of period (22,675,353) (18,761,299)
=================================================================
Net income (loss) per share - basic ($0.051) ($0.031)
Weighted average number of shares
outstanding 56,180,000 44,942,750
See accompanying notes to consolidated financial statements.
TRAILMOBILE CANADA LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE:
(Unaudited)
THREE MONTHS ENDED
--------------------
March 2002 March 2001
------------- ------------
Operations:
Net income (loss) for the period (138,104) (435,388)
Adjustments for non-cash items:
Depreciation and amortization 285,405 338,370
Deferred taxes 0 0
-----------------------------------------------------------------
Cash flow from operations 147,301 (97,018)
Net change in non-cash assets and
liabilities (2,832,279) (1,165,544)
-----------------------------------------------------------------
Cash provided by operating
activites (2,684,978) (1,262,562)
-----------------------------------------------------------------
Financing:
Bank Indebtedness (2,526,518) 1,762,303
Revolving line of credit 5,335,689 (150,000)
Repayment of obligation under
capital lease (6,286) (57,603)
Share capital issued, net of costs 0 0
Repayment of long term debt (117,907) (109,178)
-----------------------------------------------------------------
2,684,978 1,445,522
--------------------------
Investments:
Additions to capital assets 0 (182,960)
-----------------------------------------------------------------
Increase (Decrease) in Cash during
the period 0 0
=================================================================
See accompanying notes to consolidated financial statements.
TRAILMOBILE CANADA LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE:
(Unaudited)
SIX MONTHS ENDED
------------------
March 2002 March 2001
------------ ------------
Cash was provided by (used in) the following activities:
Operations:
Net income (loss) for the period (2,889,347) (1,403,419)
Adjustments for non-cash items:
Depreciation and amortization 570,810 676,740
Deferred taxes 0 0
-----------------------------------------------------------------
Cash flow from operations (2,318,537) (726,679)
Net change in non-cash assets
and liabilities (2,616,858) 682,401
-----------------------------------------------------------------
Cash provided by operating
activites (4,936,852) (44,278)
-----------------------------------------------------------------
Financing:
Bank Indebtedness (2,526,518) (973,176)
Revolving line of credit 5,153,385 1,567,420
Repayment of obligation under
capital lease (28,274) (113,810)
Share capital issued, net of costs 0 1,000
Repayment of long term debt (233,567) (216,277)
-----------------------------------------------------------------
2,365,026 265,157
-----------------------------------------------------------------
Investments:
Additions to capital assets 2,200 (220,879)
-----------------------------------------------------------------
Increase (Decrease) in Cash
during the period (2,569,626) 0
=================================================================
See accompanying notes to consolidated financial statements.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND COMPANY OPERATIONS
Trailmobile Canada Limited ("the Company") is incorporated under the laws of the Province of Ontario. A controlling interest in the Company was acquired by Trailmobile Corporation in January 1999, through its wholly-owned subsidiary 1314385 Ontario Limited. The common shares of the Company are listed on the Toronto Stock Exchange. The Company manufactures dry freight trailers for commercial trucking customers in Canada and the United States.
These financial statements have been prepared on principles applicable to a going concern which assume the basis of the assumption that the Company will be able to realize its assets and discharge its obligations in the normal course of operations. At March 28, 2002 the Company had a working capital deficiency of $13,805,674. Subsequent to the first quarter of fiscal 2002, the Company arranged for additional financing.
No adjustments to the Company's assets or liabilities has been made, should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of Trailmobile Canada Limited, (formerly Mond Industries Inc.) and its wholly owned subsidiary, Mond Sales Inc. All intercompany transactions and balances amongst the consolidated entities have been eliminated.
Management estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses during the reporting period as well as disclosure of contingencies at the date of the financial statements. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenues from the sale of trailers when title and risks of ownership are transferred to the customer, which generally is upon shipment or customer pickup. A customer may be invoiced for and receive title to trailers prior to taking physical possession when the customer has made a fixed, written commitment to purchase trailers has been completed and are ready for delivery. and the customer has requested that the Company hold the trailers until the customer determines the most economical means of taking physical possession. Upon such a request the Company has no further obligation except to segregate the trailers, invoice them under normal billing and credit terms and hold them for a short period of time as is customary in the industry, generally within two weeks, until pickup or delivery. Trailers are built to customer specification and no right of return or exchange privileges are granted.
Inventory
Raw materials and work-in-progress inventories are stated at the lower of cost and net replacement cost. Finished goods inventories are stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method and comprises the cost of material, direct labour and applied manufacturing overhead.
Capital assets
Capital assets are stated at cost. Depreciation is provided as follows:
Automotive equipment 20% declining balance Factory equipment 20% declining balance Leasehold improvements 10 years straight-line Computer hardware and software 20% declining balance Office equipment 20% declining balance Building 25 years straight-line
Capital leases
Leases which transfer substantially all the benefits and inherent risks related to the ownership of the leased property to the Company are capitalized by recording as assets and liabilities the present value of the payments under the leases. The cost of the leased property recorded in this way is amortized over its useful life. Capital lease payments are recorded partly against the amount of the obligation and partly as interest expense.
Goodwill
Goodwill is being amortized on a straight-line basis over forty years. Goodwill is written down when there has been a permanent impairment in the value of unamortized goodwill. A permanent impairment in goodwill is determined by comparison of the carrying value of unamortized goodwill with the estimated undiscounted future earnings of the related business.
Foreign exchange translation
Monetary assets and liabilities of the Company denominated in foreign currencies are translated to Canadian dollars using the month-end rates of exchange when the transaction occurred. Exchange gains and losses on these items are recognized in income in the current period except for gains and losses on monetary assets or liabilities with fixed or ascertainable lives extending beyond one year, which are deferred and amortized over the remaining life of these monetary items.
Financial instruments
The Company's financial instruments recognized in the consolidated balance sheet consist of accounts receivable and substantially all current liabilities and long-term borrowings. The fair value of these financial instruments approximates their carrying value due to the short maturity or current market rate associated with these instruments. The Company performs ongoing credit evaluations of its customers, but does not require collateral to support customer accounts receivable. The Company establishes an allowance for doubtful accounts based on the credit risk applicable to particular customers and historical and other information. The Company has no significant off-balance sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign currency hedging arrangements. The Company has not entered into any foreign exchange contracts, option contracts or other foreign currency hedging arrangements.
Warranty
The Company provides for warranty costs when the related product sales are recognized.
Income taxes
The Company adopted section 3465 of the Canadian Institute of Chartered Accountants (CICA) Handbook regarding accounting for income taxes. This section requires the use of the asset and liability method for income taxes. Under the asset and liability method, assets or liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences).
Future income tax assets and liabilities are measured using income tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.
The effect on future income tax assets and liabilities of a change in tax rates is included in the period that includes the enactment date. If on the basis of available evidence, it is more likely than not that all or a portion of the future tax asset will not be realized, the asset must be reduced by a valuation allowance.
Stock-based compensation plans
The Company has a stock-based compensation plan. No compensation expense is recognized for the plan when stock or stock options are issued to eligible directors, officers and employees of the Company. Any consideration paid by directors, officers and employees on exercise of stock options is credited to share capital. If stock or stock options are repurchased from eligible directors, officers and employees, the excess of the consideration paid over the carrying amount of the stock or stock options canceled is charged to retained earnings.
Earnings per share
Effective January 1, 2001, the Company adopted section 3500 of the CICA Handbook, Earnings Per Share (EPS). The revised section requires the use of the treasury method to compute the dilutive effect of options as opposed to the former imputed earning approach. Due to the loss from continuing operations in the current period, exercise of the outstanding stock options would be anti-dilutive. There would be no material impact on the prior year EPS figures due to retroactive application under the newly adopted method of calculating EPS as the options would have a dilutive effect only when the average market price exceeds the exercise price of the options which was not the case in fiscal year 2000.
3. RELATED PARTY TRANSACTIONS
Field Service Fee
A key component of the Trailmobile Distribution Network is "field services". In 1999, the decision was made to eliminate the Mond product line and replace it with the Trailmobile Corporation trailer. As a result, there was a duplication of functions and inefficiencies. In order to eliminate the inefficiencies, the field services function was transferred from the Company. The field services function is vital to the standardization of the Trailmobile Corporation product offering across all sales channels. Every order within the Trailmobile Corporation structure is verified by field services. Functions include, but are not limited to, managing the TMAC (software configurator for dealers and branches) infrastructure, liaison with suppliers and engineers on new part specifications, ensuring TMAC accuracy, etc. The cost of field services was not charged to the Company in fiscal 2000. Effective fiscal 2001, Trailmobile Corporation charged approximately $11,000US per month to the Company for these services.
Trademark Licensing Agreement
The Company has entered in a Trademark Licensing Agreement with Trailmobile Corporation, which provides it with access to the "Trailmobile" brand name and engineering know-how. The Company pays Trailmobile Corporation a trademark fee of 0.5% of gross revenue on all revenue generated from the use of the Trailmobile(TM) trademark, reputation, marketing, advertising, product identity, and brand name. In addition, the trademark fee includes engineering and administrative services associated with all existing Trailmobile Corporation products and product development, the right to manufacture and sell under the Trailmobile(TM) trademark all existing products and the licence of all related patents of Trailmobile Trailer LLC. Trailmobile Corporation reserves the right to extend any new products to the Company.
Subsequent Event
On May 13, 2002 the Company's shares were voluntarily delisted from the Toronto Stock Exchange. The Company's controlling shareholder, 1314385 Ontario Limited (the "Offeror"), completed its Offer to acquire all of the common shares of the Company at $0.10 per share and acquired 90.36% of the common shares of the Company it did not own prior to the commencement of the Offer increasing its position to 96.3%. The Offeror has proceeded with a Compulsory Acquisition of the remaining 3.7% of the Company with a view to completing the process of taking the Company private.