Wescast Delivers Strong Second Quarter Results
BRANTFORD, Ontario--July 19, 2002--Wescast Industries Inc. (TSX:WCS.A.TO) reported strong second quarter 2002 financial performance. "I am extremely pleased with the Company's performance this quarter," said Ray Finnie, President and CEO. "We capitalized on the strong customer demand in the second quarter and delivered solid financial results."Highlights
| -- | Net earnings per share for the quarter on a fully-diluted basis, including the adjustment for the stock appreciation rights, were $0.93 per share. Net earnings per share on a fully-diluted basis, excluding the impact of the SAR adjustment, were $1.55 per share. This compares with fully-diluted net earnings per share of $1.35 and fully-diluted earnings per share from continuing operations of $1.43 reported for the same quarter in 2001. |
| -- | This quarter includes a charge against earnings of $8.6 million after tax, reflecting the cumulative impact of amending the company's stock option plan to include the addition of tandem stock appreciation rights (a "SAR" or "SARS"). The amendment was approved at the Company's Annual General Meeting held in May. |
| -- | Net earnings for the quarter, after reflecting the $8.6 million in after tax charges above, were $12.1 million. Net earnings over the same quarter in 2001 were $17.8 million, which could be compared with the 2002 net earnings on a pre-SAR basis of $20.7 million. |
| -- | The North American automotive vehicle production levels were strong in the second quarter, compared with 2001 levels, but below the levels experienced in 2000. Overall North American light vehicle production in the second quarter exceeded 2001 levels by just under 6%. Vehicle production by the Big 3 was up 5% over the same period. |
| -- | Wescast sales revenues were up 7% over the same period last year, reflective of the improvement in overall market conditions. |
| -- | Gross margin, before depreciation, on the sale of iron manifolds was 42%, slightly lower than the 42.8% reported over the same period in 2001. The benefits of the higher volumes, as well as continued improvement in operating performance, offset both price reductions to customers and cost increases, allowing the margin percentage to remain stable. |
| -- | During the quarter the Company experienced a 9-day illegal labour disruption at its Brantford Casting facility. The Company and Union are working together to improve relationships and resolve the issues that prompted this action. |
| -- | The Company has received ISO/TS 16949 certification at all five of its manufacturing facilities in Ontario. The certification recognizes the Company's strong commitment to quality. |
| -- | In June the Company was notified that it had earned a DaimlerChrysler Corporation Powertrain Component Award for 2001. The award recognizes suppliers for outstanding performance within a commodity area. |
Operations
Total sales for the quarter of $112.1 million were up 7% from the previous year's level of $104.5 million. This was driven by sales generated from cast and machined iron manifolds which increased 6% to $107.5 million from $101.4 million in 2001, as well as tooling and prototype revenue which rose $1.5 million to $4.6 million compared with the $3.1 million recorded in 2001.
Gross Profit for the second quarter was $40.2 million, an increase of 4% over the $38.6 million earned over the same period in 2001. Our gross profit as a percentage of sales was 35.8%, slightly less than the 36.9% reported in the same quarter last year, reflecting lower margins on tooling and prototypes sales. The operating efficiency of the company's manufacturing facilities during the quarter was very strong with most facilities reporting improvements in scrap, uptime, labour effectiveness and attainment.
At the Company's Annual General Meeting held May 7, 2002, the Shareholders approved an Amendment to the Company's Stock Option Plan to authorize the grant of tandem stock appreciation rights (a "SAR" or SARS") in connection with options granted under the plan. As a result of the amendment participants have the choice, after the vesting period, of exercising their stock options or receiving a cash amount equal to the excess of the market price of the shares covered by the options over the exercise price of the related options as defined by the plan. The cumulative effect of this change to the end of the quarter has resulted in a non-cash, after tax, charge to earnings of $8.6 million. Our future quarterly and annual financial statements will reflect, as an expense, the fluctuations in the Company's market share price relative to the underlying exercise price of the options outstanding. The Company believes this treatment provides clear visibility of the ongoing economic impact of the option program to its investors and other stakeholders.
The company's selling, general and administrative expenses and research, development and design expenses for the quarter, excluding the charge for stock appreciation rights, totaled $10.7 million. This exceeded the $8.4 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 and includes period costs pertaining to the new technical development centre and corporate office complex. These expenses also reflect the spending on research and development aimed at further advancing our "hot end systems" strategy.
Other income and expenses for the second quarter of 2002 was an expense of $0.9 million, compared to an expense of $1.9 million for the second quarter of 2001. The decrease is primarily a result of lower foreign exchange losses on net working capital and a reduction in losses on the disposal of equipment compared with 2001.
The effective tax rate reflected in the quarter of 24.9% is compared with a rate of 34.6% reflected in 2001. The rate for the quarter has been adjusted to bring the year-to-date tax rate in line with our estimate of the annual tax rate. The annual rate has declined from prior years reflecting the decrease in corporate tax rates in Ontario, as well as the impact of cost sharing arrangements between the Company and Weslin, its Hungarian joint venture. The lower tax rates in Hungary result in a lower effective tax rate upon consolidation.
Cash Flow
Operating cash flow from continuing operations was $22.7 million for the quarter compared to $19.1 million in 2001. The increase was attributable to stronger earnings from operations and improved working capital performance compared to 2001.
Capital expenditures for the second quarter were $28.0 million, compared to $15.4 million for the same quarter last year. The higher expenditure levels in 2002 were attributable to expenditures related to construction of the Company's technical development centre and corporate office complex, the addition of capacity at the machining facility in Wingham and the purchase of an aircraft. This was offset to some extent by lower capital expenditures at the joint venture facility in Hungary.
The Company deferred $1.0 million of pre-production costs of Weslin over the second quarter, consistent with the amount deferred over the same period in 2001.
Balance Sheet and Financial Position
At June 30, 2002 the Company had $86.3 million in cash, short-term investments and long-term bond investments compared to $88.0 million at the end of 2001. The Company continues to maintain a strong financial position and is well positioned to support future growth initiatives.
Earnings Forecast
At the end of the first quarter we indicated that, based on the market strength at that time and the overall positive outlook for the industry, we increased our projection of North American production volumes to a range of 15.5 million to 15.8 million light vehicles. We now see the range increasing to a range of 15.8 million to 16.2 million units. The Company is now forecasting to ship 15 million manifolds for 2002, up from earlier estimates of 14.8 million. Although we have moved our volume estimate up slightly, we are projecting our fully-diluted earnings per share from continuing operations, before SAR adjustments, to be unchanged from earlier estimates in the range of $4.40 to 4.60. In recent weeks we have seen a rise in raw material prices. If these increases are sustained, it will impact our ability to convert the projected volume increases into earnings.
The following table provides an overview of the above-mentioned highlights for the second quarter:
Wescast Industries Inc. Q2 2002 Highlights ------------------------------------------------------------------ ------------------------------------------------------------------ in millions of dollars, except per share data and where otherwise noted Q2 2002 Q2 2001 % change ------------------------------------------------------------------ Sales 112.1 104.5 7% ------------------------------------------------------------------ Earnings from continuing operations before SAR impact 20.7 18.9 10% ------------------------------------------------------------------ Earnings from continuing operations after SAR impact 12.1 18.9 -36% ------------------------------------------------------------------ Loss from discontinued operations 0.0 (1.1) -100% ------------------------------------------------------------------ Net Earnings 12.1 17.8 -32% ------------------------------------------------------------------ Earnings from continuing operations per share basic 0.93 1.47 -37% fully-diluted 0.93 1.43 -35% ------------------------------------------------------------------ Net earnings per share basic 0.93 1.37 -32% fully-diluted 0.93 1.35 -31% ------------------------------------------------------------------ Sales Breakdown - dollars (net of pre-production deferrals) Casting & Machining 107.5 101.4 6% Cast 76.6 73.0 5% Internal Machining 30.0 27.4 9% External Machining 0.9 1.0 -10% Tooling & prototype 4.6 3.1 48% ------------------------------------------------------------------ Sales Breakdown - units (000's) Ductile iron 0.2 0.3 -33% SiMo iron 4.0 3.8 5% Total 4.2 4.1 2% Sales Breakdown - percentage SiMo Penetration 95.2% 92.7% Internal Machining Penetration 60.9% 59.5% ------------------------------------------------------------------ Gross Margin (before depreciation) 46.3 44.5 4% Iron manifolds 45.2 43.4 4% Tooling, prototypes & other 1.1 1.1 0% ------------------------------------------------------------------ Gross Margin % (before depreciation) 41.3% 42.6% Iron manifolds 42.0% 42.8% Tooling, prototypes & other 23.6% 36.3% ------------------------------------------------------------------ Gross Profit (after depreciation) 40.2 38.6 4% Iron manifolds 39.1 37.5 4% Tooling, prototypes & other 1.1 1.1 0% ------------------------------------------------------------------ Gross Profit % (after depreciation) 35.8% 36.9% Iron manifolds 36.4% 36.9% Tooling, prototypes & other 23.6% 36.3% ------------------------------------------------------------------ Depreciation and amortization Depreciation and amortization- cost of sales 6.1 5.9 3% Depreciation - SG & A 0.7 0.8 -13% ------------------------------------------------------------------ Capital Expenditures 28.0 15.4 82% ------------------------------------------------------------------ R&D 1.9 1.9 0% ------------------------------------------------------------------ SG & A (% of sales) 7.8% 6.3% ------------------------------------------------------------------ Tax Rate 24.9% 34.6% ------------------------------------------------------------------ ------------------------------------------------------------------ Wescast Industries Inc. Q2 2002 Highlights ------------------------------------------------------------------ ------------------------------------------------------------------ in millions of dollars, except per share data and where otherwise noted YTD 02 YTD 01 % change ------------------------------------------------------------------ Sales 217.0 201.6 8% ------------------------------------------------------------------ Earnings from continuing operations before SAR impact 39.2 37.3 5% ------------------------------------------------------------------ Earnings from continuing operations after SAR impact 30.6 37.3 -18% ------------------------------------------------------------------ Loss from discontinued operations 0.0 (2.8) -100% ------------------------------------------------------------------ Net Earnings 30.6 34.5 -11% ------------------------------------------------------------------ Earnings from continuing operations per share basic 2.35 2.90 -19% fully-diluted 2.35 2.83 -17% ------------------------------------------------------------------ Net earnings per share basic 2.35 2.67 -12% fully-diluted 2.35 2.63 -11% ------------------------------------------------------------------ Sales Breakdown - dollars (net of pre-production deferrals) Casting & Machining 209.0 194.8 7% Cast 149.7 140.3 7% Internal Machining 57.6 53.0 9% External Machining 1.7 1.5 13% Tooling & prototype 8.0 6.8 18% ------------------------------------------------------------------ Sales Breakdown - units (000's) Ductile iron 0.5 0.6 -17% SiMo iron 7.8 7.2 8% Total 8.3 7.8 6% Sales Breakdown - percentage SiMo Penetration 94.0% 92.3% Internal Machining Penetration 60.4% 60.4% ------------------------------------------------------------------ Gross Margin (before depreciation) 88.9 84.4 5% Iron manifolds 86.7 81.6 6% Tooling, prototypes & other 2.2 2.8 -21% ------------------------------------------------------------------ Gross Margin % (before depreciation) 40.9% 41.9% Iron manifolds 41.5% 41.9% Tooling, prototypes & other 27.0% 42.2% ------------------------------------------------------------------ Gross Profit (after depreciation) 76.7 72.3 6% Iron manifolds 74.5 69.5 7% Tooling, prototypes & other 2.2 2.8 -21% ------------------------------------------------------------------ Gross Profit % (after depreciation) 35.3% 35.9% Iron manifolds 35.6% 35.7% Tooling, prototypes & other 27.0% 42.2% ------------------------------------------------------------------ Depreciation and amortization Depreciation and amortization- cost of sales 12.2 12.1 1% Depreciation - SG & A 1.3 1.4 -7% ------------------------------------------------------------------ Capital Expenditures 38.6 28.5 35% ------------------------------------------------------------------ R&D 3.7 3.3 12% ------------------------------------------------------------------ SG & A (% of sales) 7.5% 6.4% ------------------------------------------------------------------ Tax Rate 30.6% 34.6% ------------------------------------------------------------------ ------------------------------------------------------------------
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 six 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:
July 19, 2002
3:00 p.m. EST
To participate, please dial (416) 620-5683
Post view is available from July 19 to July 26, 2002.
To access please dial 416-626-4100 and enter passcode 20647429.
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
-------------------------------------------------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------------------------------------------------------------------
Sales $112,140 $104,529 $217,040 $201,561
Cost of sales 71,941 65,951 140,364 129,224
-------------------------------------------------------------------
Gross profit 40,199 38,578 76,676 72,337
Selling, general and
administration 8,736 6,567 16,238 12,802
Stock-based compensation
(Note 7) 12,789 0 12,789 0
Research, development and
design 1,938 1,864 3,733 3,300
-------------------------------------------------------------------
16,736 30,147 43,916 56,235
Other (income) expense
Interest expense 67 111 124 232
Investment income (463) (832) (1,233) (1,807)
Other (income) and
expenses (Note 8) 968 1,931 908 738
-------------------------------------------------------------------
Earnings from continuing
operations before income
taxes 16,164 28,937 44,117 57,072
Income taxes (Note 9) 4,021 10,011 13,481 19,760
-------------------------------------------------------------------
Earnings from continuing
operations 12,143 18,926 30,636 37,312
Loss from discontinued
operations 0 (1,169) 0 (2,800)
-------------------------------------------------------------------
Net earnings $12,143 $17,757 $30,636 $34,512
-------------------------------------------------------------------
-------------------------------------------------------------------
Earnings from continuing
operations per share
(Note 10)
- basic $0.93 $1.47 $2.35 $2.90
-------------------------------------------------------------------
-------------------------------------------------------------------
- fully-diluted $0.93 $1.43 $2.35 $2.83
-------------------------------------------------------------------
-------------------------------------------------------------------
Net earnings per share
(Note 10)
- basic $0.93 $1.37 $2.35 $2.67
-------------------------------------------------------------------
-------------------------------------------------------------------
- fully-diluted $0.93 $1.35 $2.35 $2.63
-------------------------------------------------------------------
-------------------------------------------------------------------
Retained earnings,
beginning of period $289,848 $253,073 $272,922 $238,052
Net earnings 12,143 17,757 30,636 34,512
Dividends paid (1,569) (1,549) (3,136) (3,092)
Excess of cost over
assigned value of Class A
common shares purchased
and cancelled 0 0 0 (191)
-------------------------------------------------------------------
Retained earnings, end of
period $300,422 $269,281 $300,422 $269,281
-------------------------------------------------------------------
-------------------------------------------------------------------
Wescast Industries Inc.
Consolidated Balance Sheet
(in thousands of Canadian dollars) (Unaudited Canadian GAAP)
As at
-------------------------------------------------------------------
June 30, December 30,
2002 2001
-------------------------------------------------------------------
Current assets
Cash and cash equivalents $34,575 $58,579
Short-term investments 44,750 22,567
Receivables 70,786 56,421
Income taxes receivable 693 0
Inventories 21,858 19,839
Prepaids 1,285 1,437
Current assets -
discontinued operations 1,471 3,979
-------------------------------------------------------------------
175,418 162,822
Property and equipment (Note 4) 278,379 251,548
Other (Note 5) 21,608 19,601
Long-term assets -
discontinued operations 12,162 12,678
-------------------------------------------------------------------
$487,567 $446,649
-------------------------------------------------------------------
-------------------------------------------------------------------
Current liabilities
Payables and accruals $42,006 $31,908
Income taxes payable 0 4,252
Current portion of
long-term debt 1,999 3,249
Current portion of stock
appreciation rights (Note 7) 10,427 0
Current liabilities -
discontinued operations 3,913 8,121
-------------------------------------------------------------------
58,345 47,530
Long-term debt 4,617 4,614
Long-term stock
appreciation rights (Note 7) 1,278 0
Future income taxes 4,953 7,094
Employee benefits 8,719 7,964
-------------------------------------------------------------------
77,912 67,202
-------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 6) 109,288 106,601
Retained earnings 300,422 272,922
Cumulative translation
adjustment (55) (76)
-------------------------------------------------------------------
409,655 379,447
-------------------------------------------------------------------
$487,567 $446,649
-------------------------------------------------------------------
-------------------------------------------------------------------
Wescast Industries Inc.
Consolidated Statement of Cash Flows
(in thousands of Canadian dollars) (Unaudited Canadian GAAP)
Three months ended Six months ended
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------------------------------------------------------------------
Cash derived from
(applied to)
Operating
Earnings from
continuing operations $12,143 $18,926 $30,636 $37,312
Add (deduct) items not
requiring cash:
Depreciation and
amortization 6,787 6,726 13,491 13,508
Amortization of bond
costs 262 5 439 7
Future income taxes (3,565) 249 (2,919) 673
Gain on disposal of
investments 0 0 (180) 0
Loss on disposal of
equipment 6 552 47 1,194
Stock-based
compensation expense 11,705 0 11,705 0
Employee benefits 613 460 1,226 921
-------------------------------------------------------------------
27,951 26,918 54,445 53,615
Change in non-cash
operating working
capital (Note 11) (5,259) (7,769) (11,047) (4,275)
-------------------------------------------------------------------
22,692 19,149 43,398 49,340
Discontinued operations (332) (4,120) (922) (2,933)
-------------------------------------------------------------------
22,360 15,029 42,476 46,407
-------------------------------------------------------------------
Financing
Issue of long-term debt 543 339 707 545
Repayment of long-term
debt (681) (687) (1,806) (1,976)
Payment of obligations
under capital leases (203) (224) (393) (387)
Employee benefits paid (289) (160) (471) (343)
Issuance of share
capital under Employee
Share Purchase Plan 161 135 309 317
Employee share loan
repayments 37 88 80 340
Issuance of share
capital under Stock
Option Plan 639 943 2,121 1,173
Repurchase of common
shares 0 0 0 (340)
Dividends paid (1,569) (1,549) (3,136) (3,092)
-------------------------------------------------------------------
(1,362) (1,115) (2,589) (3,763)
-------------------------------------------------------------------
Investing
Purchase of property,
equipment and other
assets (27,978) (15,399) (38,565) (28,517)
Purchase of investments 0 0 (48,236) 0
Deferred pre-production
costs (1,043) (1,008) (2,444) (1,748)
Redemption of
short-term investments 0 0 25,602 30,000
Proceeds on disposal of
equipment 65 0 105 14
Discontinued operations 8 (2,905) (353) (7,360)
-------------------------------------------------------------------
(28,948) (19,312) (63,891) (7,611)
-------------------------------------------------------------------
Net increase (decrease)
in cash and cash
equivalents (7,950) (5,398) (24,004) 35,033
Cash and cash
equivalents
Beginning of period 42,525 74,859 58,579 34,428
-------------------------------------------------------------------
End of period $34,575 $69,461 $34,575 $69,461
-------------------------------------------------------------------
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):
June 30, December 30,
2002 2001
-------------------------------------------------------------------
Balance Sheet
Current assets $16,343 $13,809
Long-term assets 53,771 50,095
Current liabilities 17,658 13,636
Long-term liabilities 3,732 3,909
Equity 48,724 46,359
-------------------------------------------------------------------
-------------------------------------------------------------------
Three months ended Six months ended
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------------------------------------------------------------------
Statement of earnings
Sales 4,947 3,724 8,865 7,285
Cost of sales and expenses 5,292 3,763 9,521 7,457
Net loss (345) (39) (656) (172)
-------------------------------------------------------------------
Three months ended Six months ended
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
-------------------------------------------------------------------
Statement of cash flows
Cash derived from (applied
to)
Cash flows from operating
activities (563) 345 (566) (539)
Cash flows from financing
activities 2,064 13,662 5,251 25,528
Cash flows from investing
activities $ (1,721) $(11,322) $ (4,650) $(20,343)
-------------------------------------------------------------------
-------------------------------------------------------------------
Note 4. Property and Equipment
June 30, December 30,
2002 2001
-------------------------------------------------------------------
Cost
Land $5,029 $4,997
Buildings and improvements 125,274 114,678
Machinery, equipment and
vehicles 294,856 265,734
-------------------------------------------------------------------
425,159 385,409
-------------------------------------------------------------------
Accumulated Depreciation
Buildings and improvements 17,048 14,835
Machinery, equipment and
vehicles 129,732 119,026
-------------------------------------------------------------------
146,780 133,861
-------------------------------------------------------------------
Net Book Value
Land 5,029 4,997
Buildings and improvements 108,226 99,843
Machinery, equipment and
vehicles 165,124 146,708
-------------------------------------------------------------------
$278,379 $251,548
-------------------------------------------------------------------
-------------------------------------------------------------------
Note 5. Other
June 30, December 30,
2002 2001
-------------------------------------------------------------------
Deferred pre-production costs $12,677 $10,911
Director and employee
share purchase plan loans 1,807 1,687
Bond issue costs 60 72
Deferred loss on foreign
exchange contracts 0 66
Licence 57 61
Long-term bonds 7,007 6,804
-------------------------------------------------------------------
$21,608 $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
June 30, December 30,
2002 2001
-------------------------------------------------------------------
Issued and outstanding
5,700,391 Class A Common Shares
(2001 - 5,626,575) $96,861 $94,174
7,376,607 Class B Common
shares (2001 - 7,376,607) 12,427 12,427
-------------------------------------------------------------------
$109,288 $106,601
-------------------------------------------------------------------
-------------------------------------------------------------------
Note 7. Stock-based Compensation
On May 7, 2002 the shareholders approved an amendment to the Company's stock option plan to authorize the grant of tandem stock appreciation rights (a "SAR" or "SARs") in connection with options granted under the plan, at or after the time of grant of such options. Under the amended plan, participants will have the choice, after the vesting period, of exercising stock options or receiving a cash amount equal to the excess of the market price of the shares covered by the options over the exercise price of the related options as defined in the plan. The impact of the amendment of the plan on May 7 was a non-cash charge to earnings of $14,905 or $9,968 after tax. As a result of the market price of the Company's shares declining between May 7 and June 30, the cumulative impact of the amended plan during the three months ended June 30 was a non-cash charge to earnings of $12,789 or $8,553 after tax. The corresponding liability is reported in the balance sheet. SARs covered by options that have vested or will vest within one year have been reported in current liabilities and SARs covered by options that will not vest within one year are reported as long term.
Note 8. Other (income) and expenses
Three months ended Six months ended
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------------------------------------------------------------------
Foreign exchange
translation (gain) loss $ 1,107 $ 1,485 $ 1,033 $ (311)
Loss (gain) on disposal
of equipment and other (139) 446 (125) 1,049
------------------------------------------------------------------
$ 968 $ 1,931 $ 908 $ 738
------------------------------------------------------------------
------------------------------------------------------------------
Note 9. Income Taxes
The Company has lowered its estimated annual effective income tax rate from 34% to 30.5%. The decrease is attributable to lower Government of Ontario tax rates and the impact of cost sharing arrangements between the Company and its jointly controlled entity, Weslin Autoipari Rt.
Note 10. Earnings per share
Basic earnings from continuing operations per share and basic net earnings per share are based on the weighted average common shares outstanding (2002 - 13,075,004 shares; 2001 - 12,899,573 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- 13,075,004 shares; 2001 - 13,188,809 shares).
Note 11. Consolidated statement of cash flows
The following is additional information to the statement of cash flows.
Change in non-cash operating working capital
Three months ended Six months ended
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------------------------------------------------------------------
Receivables $ (6,042) $ (7,082) $(14,308) $ (859)
Inventories (1,550) (2,862) (2,019) (5,207)
Prepaids 115 480 152 774
Payables and accruals 6,188 137 10,073 (1,859)
Income taxes payable (3,970) 1,558 (4,945) 2,876
------------------------------------------------------------------
$ (5,259) $ (7,769) $(11,047) $ (4,275)
------------------------------------------------------------------
Note 12. 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 June 30, 2002
North Europe Total
America
---------------------------------------------------------------------
Sales to external
customers $ 112,140 $ 0 $ 112,140
Earnings (loss) from
continuing operations 12,624 (481) 12,143
Interest revenue 463 0 463
Interest expense 67 0 67
Depreciation and
amortization 6,411 376 6,787
Income taxes 4,012 9 4,021
Purchase of property,
equipment and other
assets $ 26,699 $ 1,279 $ 27,978
---------------------------------------------------------------------
Three months ended July 1, 2001
North Europe Total
America
---------------------------------------------------------------------
Sales to external
customers $ 104,529 $ 0 $ 104,529
Earnings (loss) from
continuing operations 19,199 (273) 18,926
Interest revenue 820 12 832
Interest expense 111 0 111
Depreciation and
amortization 6,582 144 6,726
Income taxes 9,994 17 10,011
Purchase of property,
equipment and other
assets $ 5,533 $ 9,866 $ 15,399
---------------------------------------------------------------------
Six months ended June 30, 2002
North Europe Total
America
---------------------------------------------------------------------
Sales to external
customers $ 217,040 $ 0 $ 217,040
Earnings (loss) from
continuing operations 31,580 (944) 30,636
Interest revenue 1,233 0 1,233
Interest expense 124 0 124
Depreciation and
amortization 12,755 736 13,491
Income taxes 13,458 23 13,481
Purchase of property,
equipment and other
assets $ 36,235 $ 2,330 $ 38,565
---------------------------------------------------------------------
Six months ended July 1, 2001
North Europe Total
America
---------------------------------------------------------------------
Sales to external
customers $ 201,561 $ 0 $ 201,561
Earnings (loss) from
continuing operations 37,800 (488) 37,312
Interest revenue 1,786 21 1,807
Interest expense 232 0 232
Depreciation and
amortization 13,314 194 13,508
Income taxes 19,734 26 19,760
Purchase of property,
equipment and other
assets $ 10,653 $ 17,864 $ 28,517
---------------------------------------------------------------------
June 30, 2002
North Europe Total
America
---------------------------------------------------------------------
Total Assets $ 431,153 $ 56,414 $ 487,567
Property and Equipment 237,148 41,231 278,379
Deferred pre-production
costs $ 3,865 $ 8,812 $ 12,677
---------------------------------------------------------------------
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 13. Comparative figures
The Company has reclassified certain comparative amounts to report discontinued operations. There was no effect on net earnings for the quarter ended July 1, 2001.