Wescast Delivers Strong Third Quarter Results
BRANTFORD, Ontario--Oct. 23, 2003--Wescast Industries Inc. reported strong earnings for the third quarter 2002. "I am extremely pleased with the Company's performance," said Ray Finnie, President and CEO. "We experienced strong customer demand during the third quarter and achieved superior financial results, despite significant increases in commodity prices."Highlights
| -- | Net earnings per share for the third quarter on a fully-diluted basis were $0.91. In the same quarter in 2001 the Company reported a fully-diluted net loss per share of $0.76, which reflected the discontinuance of its stainless steel manifold business. The fully-diluted earnings per share from continuing operations reported for the third quarter of 2001 were $0.93. |
| -- | Net earnings for the quarter were $12.0 million versus a loss of $9.8 million in 2001. Net earnings from continuing operations were $12.2 million in 2001. |
| -- | The North American automotive vehicle production levels have remained strong. Third quarter production levels were up 12% compared with the third quarter of 2001. However, this percentage increase should be viewed in the context of the events of September 11th 2001, which significantly impacted the third quarter of 2001. Vehicle production by the Big 3 for the quarter was up 10.7% over the same period last year. |
| -- | Wescast sales revenues were up 11% over the levels reported in the same quarter last year, in line with the improvement in overall market conditions. |
| -- | On September 12th the Company completed its acquisition of the Georgia Ductile Foundry based in Cordele, Georgia. The acquisition marks Wescast's entry into the casting of automotive brake and suspension components. The third quarter performance includes the results of this operation since acquisition, representing a negative impact of approximately $0.03 per share. |
Operations
Total sales for the quarter of $97.3 million were up 11% from the previous year's level of $87.9 million. This was driven by sales generated from cast and machined iron manifolds which increased 16% to $91.4 million from $78.8 million in 2001. These gains were partially offset by reduced tooling and prototype revenue which fell by $5.3 million to $3.8 million compared with the $9.1 million recorded in 2001. The change in tooling and prototype revenue is a function of year-over-year differences in the timing of customer programs. In 2002 a number of programs fall into the fourth quarter.
Gross profit, after depreciation, on the sale of iron manifolds was $25.9 million, an increase of 6% over the $24.4 million reported over the same period in 2001. Expressed as a percentage of sales the 28.3% gross profit level reflects a decline from the 30.9% reported over the same period in 2001. If we isolate the impact of $1.6 million in government tax credits related to scientific research and experimental development expenditures, that were included in 2001 but not 2002, the margin reflects a decline of just over one-half a percent. The benefit of the higher volumes, as well as continued strong operating performance by our manufacturing facilities, were sufficient to offset the price reductions to our customers and a significant portion of the commodity price increases experienced during the quarter.
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 $10.3 million. This exceeded the $9.7 million incurred over the same period in 2001. The 2001 figure included a $1.1 million write-down in the accounts receivable balance of a Tier 1 customer. The increase in expenditures over 2001 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 continued spending on research and development activities aimed at further advancing our "hot end systems" strategy.
Other income and expenses for the third quarter of 2002 represents income of $0.9 million, compared with income of $2.8 million for the third quarter of 2001. The decrease is primarily as a result of lower foreign exchange gains on net working capital compared with 2001.
The effective tax rate reflected for the quarter was 30.6 %, compared with a rate of 35.5% in 2001. The annual rate has declined from prior years reflecting a decrease in corporate tax rates in Ontario, and 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.
The impact of the Georgia Ductile acquisition on the overall operating results is discussed separately below.
Cash Flow
Operating cash flow from continuing operations was $15.1 million for the quarter compared to $31.9 million in 2001. The decrease was attributable to the change in timing of accounts receivable payments of approximately $15.0 million from a major customer. These payments were received early in the fourth quarter of 2002; the corresponding payment was received during the third quarter of 2001. In addition there were significant investments made in tooling inventory during the quarter that will be recovered from customers.
Capital expenditures for the third quarter were $22.6 million, compared to $13.0 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, and the addition of capacity to the machining facility in Wingham. This was offset to some extent by lower quarter-over-quarter capital expenditures at the joint venture facility in Hungary.
During the third quarter the Company deferred $0.6 million of pre-production costs of Weslin, consistent with the amount deferred over the same period in 2001.
The cash flow also reflects the purchase of the Georgia Ductile Foundry, the impact of which is outlined below.
Balance Sheet and Financial Position
At September 29, 2002 the Company had $24.6 million in cash, short-term investments and long-term bond investments compared to $85.5 million at the end of 2001. The change reflects the funds invested to acquire the Georgia Ductile Foundry and the subsequent repayment of related debt, which are discussed below. The Company continues to maintain a strong financial position and is well positioned to support future growth initiatives.
Georgia Ductile Impact
The third quarter revenues include $2.1 million in brake and suspension component sales, representing shipments by Georgia Ductile during the post-acquisition period.
The operations of Georgia Ductile for the quarter resulted in a loss of $0.6 million, at the gross profit level. This loss was in-line with the Company's pre-acquisition estimates.
The acquisition had a significant impact on the cash flow for the quarter, representing an initial net cash outflow of $39.5 million. In addition, subsequent to completing the acquisition, the Company repaid $14.2 million in bank debt assumed in the acquisition.
The balance sheet impact of the acquisition of Georgia Ductile is outlined in the notes to the financial statements, which follow. The acquired assets include approximately $38 million in Goodwill. The bulk of this reflects the investment in start-up and other development costs required to bring the foundry up to its current level of operation, with the balance representing a premium on the equity investment made by the previous ownership group.
Earnings Forecast
At the end of the second 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 15.8 million to 16.2 million light vehicles; we remain comfortable with that range.
The Company is forecasting to ship approximately 15.2 million manifolds for 2002, a slight increase from our second quarter estimate of 15.0 million units. We are increasing our estimate of fully-diluted earnings per share from continuing operations, before SAR adjustments, for 2002 to a range of $4.60 to $4.75. The increases experienced in raw material prices have to-date been offset by increased volumes. If these commodity price increases are sustained, it may impact our ability to convert the projected volume increases into earnings.
This estimate includes the impact of the Georgia Ductile acquisition, which will have a negative impact on earnings in 2002. The foundry operation is in commercial production, but is still in the process of stabilizing its production operations and utilizing capacity. As a result, it is not expected to be earnings accretive until 2004. We project the fourth quarter impact of the Georgia Ductile operations will result in a negative impact on fully-diluted earnings in the range of $0.10 to $0.15 per share.
The following table provides an overview of the above-mentioned highlights for the third quarter:
Q3 2002 Highlights
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in millions of
dollars, except per
share data and where
otherwise noted Q3 Q3 % YTD YTD %
2002 2001 change 02 01 change
---------------------------------------------------------------------
Sales 97.3 87.9 11% 314.3 289.5 9%
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Earnings from
continuing
operations before
SAR impact 12.1 12.2 -1% 51.3 49.5 4%
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Earnings from
continuing
operations after
SAR impact 12.0 12.2 -2% 42.7 49.5 -14%
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Loss from
discontinued
operations 0.0 (22.0) -100% 0.0 (24.8) -100%
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Net Earnings 12.0 (9.8) -222% 42.7 24.7 73%
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Earnings from
continuing
operations per
share
basic 0.92 0.94 -2% 3.27 3.84 -15%
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fully-diluted 0.91 0.93 -2% 3.27 3.76 -13%
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Net earnings
(loss) per share
basic 0.92 (0.75) -223% 3.27 1.92 70%
fully-diluted 0.91 (0.76) -220% 3.27 1.87 75%
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Sales Breakdown -
dollars (net of
pre-production
deferrals)
Casting &
Machining 93.5 78.8 19% 302.5 273.6 11%
Manifolds
- Cast 64.5 56.4 14% 214.4 196.8 9%
Suspension/Brake
Components
- Cast 2.1 0.0 2.1 0.0
Machining 26.9 22.4 20% 86.0 76.8 12%
Tooling &
prototypes 3.8 9.1 -58% 11.8 15.9 -26%
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Sales Breakdown
- units (millions)
Manifolds
Ductile iron 0.2 0.3 -33% 0.7 0.9 -22%
SiMo iron 3.2 2.9 10% 11.1 10.1 10%
Total 3.4 3.2 6% 11.8 11.0 7%
Sales Breakdown -
percentage
SiMo
Penetration 95.3% 90.6% 94.1% 91.8%
Internal
Machining
Penetration 63.0% 59.9% 61.2% 60.3%
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Gross Margin
(before
depreciation) 33.2 31.8 4% 122.0 116.2 5%
Iron manifolds 31.8 30.3 5% 118.5 111.9 6%
Suspension/Brake
Components (0.4) 0.0 (0.4) 0.0
Tooling &
prototypes 1.8 1.5 20% 3.9 4.3 -9%
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Gross Margin %
(before
depreciation) 34.1% 36.1% 38.8% 40.1%
Iron manifolds 34.9% 38.5% 39.5% 40.9%
Suspension/Brake
Components -21.2% 0.0% -21.2% 0.0%
Tooling &
prototypes 47.4% 16.1% 33.1% 27.2%
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Gross Profit
(after
depreciation) 27.1 25.9 5% 103.8 98.2 6%
Iron manifolds 25.9 24.4 6% 100.5 93.9 7%
Suspension/Brake
Components (0.6) 0.0 (0.6) 0.0
Tooling &
prototypes 1.8 1.5 20% 3.9 4.3 -9%
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Gross Profit %
(after
depreciation) 27.9% 29.3% 33.0% 33.9%
Iron manifolds 28.3% 30.9% 33.4% 34.3%
Suspension/Brake
Components -26.3% 0.0% -26.3% 0.0%
Tooling &
prototypes 47.4% 16.1% 33.1% 27.2%
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Depreciation and
amortization
Depreciation and
amortization-
cost of sales 6.1 5.9 3% 18.2 18.0 1%
Depreciation
- SG & A 1.0 0.9 11% 2.3 2.4 -4%
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Capital
Expenditures 22.6 13.0 74% 61.2 41.5 47%
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R&D 2.4 1.7 41% 6.2 5.0 24%
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SG & A (% of
sales) 8.1% 9.1% 7.7% 7.2%
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Tax Rate 30.6% 35.5% 30.6% 34.9%
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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, Germany and the United Kingdom, as well as sales representation in 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.
Learn more at www.wescast.com.
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:
October 23, 2002
3:00 p.m. EST
To participate, please dial (416) 641-6715
Post view is available from October 23 (5:00 p.m. EST) to
October 31 (12:00 p.m. EST). To access please dial 416-626-4100 and enter passcode 20788110.
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 Nine months ended
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September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------------------------------------------------------------
Sales $97,260 $87,924 $314,300 $289,485
Cost of sales 70,163 62,077 210,527 191,301
-------------------------------------------------------------------
Gross profit 27,097 25,847 103,773 98,184
Selling, general and
administration 7,896 7,971 24,134 20,773
Stock-based
compensation
(Note 9) 145 0 12,934 0
Research,
development
and design 2,430 1,706 6,163 5,006
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16,626 16,170 60,542 72,405
Other (income)
expense
Interest
expense 207 86 331 318
Investment
income (497) (784) (1,730) (2,591)
Other (income)
and expenses
(Note 10) (402) (2,069) 506 (1,331)
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Earnings from
continuing
operations
before income
taxes 17,318 18,937 61,435 76,009
Income taxes
(Note 11) 5,298 6,741 18,779 26,501
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Earnings from
continuing
operations 12,020 12,196 42,656 49,508
Loss from
discontinued
operations 0 (21,968) 0 (24,768)
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Net earnings $12,020 $(9,772) $42,656 $24,740
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Earnings from
continuing
operations
per share
(Note 12)
- basic $0.92 $0.94 $3.27 $3.84
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-------------------------------------------------------------------
- fully
-diluted $0.91 $0.93 $3.27 $3.76
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Net earnings
(loss) per
share (Note 12)
- basic $0.92 $(0.75) $3.27 $1.92
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-------------------------------------------------------------------
- fully
-diluted $0.91 $(0.76) $3.27 $1.87
-------------------------------------------------------------------
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Retained
earnings,
beginning
of period $300,422 $269,281 $272,922 $238,052
Net earnings 12,020 (9,772) 42,656 24,740
Dividends paid (1,570) (1,557) (4,706) (4,649)
Excess of cost
over assigned
value of Class
A common shares
purchased and
cancelled 0 0 0 (191)
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Retained
earnings, end
of period $310,872 $257,952 $310,872 $257,952
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Wescast Industries Inc.
Consolidated Balance Sheet
(in thousands of Canadian dollars)
(Unaudited Canadian GAAP)
As at
-------------------------------------------------------
September 29, December 30,
2002 2001
-------------------------------------------------------
Current assets
Cash and cash equivalents $12,555 $58,579
Short-term investments 12,011 22,567
Receivables 77,049 56,421
Income taxes receivable 3,272 0
Inventories 30,245 19,839
Prepaids 3,350 1,437
Current assets -
discontinued operations 385 3,979
-------------------------------------------------------
138,867 162,822
Property and
equipment (Note 4) 369,479 251,548
Goodwill (Note 5) 38,174 0
Other (Note 6) 15,221 19,601
Long-term assets -
discontinued operations 6,247 12,678
-------------------------------------------------------
$567,988 $446,649
-------------------------------------------------------
-------------------------------------------------------
Current liabilities
Payables and accruals $58,380 $31,908
Income taxes payable 0 4,252
Current portion of
long-term debt (Note 7) 15,951 3,249
Current portion of stock
appreciation rights (Note 9) 9,894 0
Current liabilities -
discontinued operations 0 8,121
-------------------------------------------------------
84,225 47,530
Long-term debt (Note 7) 47,581 4,614
Long-term stock
appreciation
rights (Note 9) 1,417 0
Future income taxes 5,263 7,094
Employee benefits 9,147 7,964
-------------------------------------------------------
147,633 67,202
-------------------------------------------------------
Shareholders' equity
Capital stock (Note 8) 109,414 106,601
Retained earnings 310,872 272,922
Cumulative translation
adjustment 69 (76)
-------------------------------------------------------
420,355 379,447
-------------------------------------------------------
$567,988 $446,649
-------------------------------------------------------
-------------------------------------------------------
Wescast Industries Inc.
Consolidated Statement of Cash Flows
(in thousands of Canadian dollars)
(Unaudited Canadian GAAP)
Three months ended Nine months ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------------------------------------------------------------
Cash derived
from (applied to)
Operating
Earnings from
continuing
operations $12,020 $12,196 $42,656 $49,508
Add (deduct)
items not
requiring cash:
Depreciation
and
amortization 7,064 6,872 20,555 20,380
Amortization
of bond
costs 214 67 653 74
Future income
taxes 279 248 (2,640) 921
Gain on
disposal of
investments (15) 0 (195) 0
Loss on
disposal
of equipment 100 79 147 1,273
Stock-based
compensation
expense (394) 0 11,311 0
Employee
benefits 612 486 1,838 1,407
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19,880 19,948 74,325 73,563
Change in
non-cash
operating
working
capital
(Note 13) (4,766) 11,985 (15,813) 7,710
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15,114 31,933 58,512 81,273
Discontinued
operations 528 219 (394) (2,714)
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15,642 32,152 58,118 78,559
-------------------------------------------------------------------
Financing
Issue of
long-term debt 1,055 264 1,762 809
Repayment of
long-term
debt (Note 5) (14,218) (262) (16,024) (2,238)
Payment of
obligations
under capital
leases (234) (175) (627) (562)
Employee
benefits paid (184) (470) (655) (813)
Issuance of
share capital
under Employee
Share
Purchase Plan 126 120 435 437
Employee share
loan repayments 328 95 408 435
Issuance of share
capital under
Stock Option
Plan 57 882 2,178 2,055
Repurchase of
common shares 0 0 0 (340)
Dividends paid (1,570) (1,557) (4,706) (4,649)
-------------------------------------------------------------------
(14,640) (1,103) (17,229) (4,866)
-------------------------------------------------------------------
Investing
Purchase of
property,
equipment and
other assets (22,594) (13,017) (61,159) (41,534)
Purchase of
investments 0 (29,575) (48,236) (29,575)
Purchase of
subsidiary,
net of cash
acquired
(Note 5 ) (39,521) 0 (39,521) 0
Deferred
pre-production
costs (558) (729) (3,002) (2,477)
Redemption of
short-term
investments 39,547 0 65,149 30,000
Proceeds on
disposal of
equipment 109 11 214 25
Discontinued
operations (5) (1,203) (358) (8,563)
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(23,022) (44,513) (86,913) (52,124)
-------------------------------------------------------------------
Net increase
(decrease)
in cash
and cash
equivalents (22,020) (13,464) (46,024) 21,569
Cash and cash
equivalents
Beginning of
period 34,575 69,461 58,579 34,428
-------------------------------------------------------------------
End of period $12,555 $55,997 $12,555 $55,997
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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):
September 29, December 30,
2002 2001
-------------------------------------------------------
Balance Sheet
Current assets $19,588 $13,809
Long-term assets 56,877 50,095
Current liabilities 15,481 13,636
Long-term liabilities 3,865 3,909
Equity 57,119 46,359
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-------------------------------------------------------
Three months ended Nine months ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------------------------------------------------------------
Statement of
earnings
Sales 2,692 5,802 11,557 13,087
Cost of sales
and expenses 3,377 6,280 12,898 13,737
Net loss (685) (478) (1,341) (650)
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Three months ended Nine months ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------------------------------------------------------------
Statement of
cash flows
Cash derived
from (applied to)
Cash flows
from operating
activities (3,131) (2,319) (3,697) (2,858)
Cash flows from
financing
activities (2,117) 8,412 3,134 33,940
Cash flows from
investing
activities $ (3,681) $ (7,362) $ (8,331) $ (27,705)
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-------------------------------------------------------------------
Note 4. Property and Equipment
September 29, December 30,
2002 2001
-------------------------------------------------------
Cost
Land $5,531 $4,997
Buildings and improvements 139,386 114,678
Machinery, equipment and
vehicles 377,147 265,734
-------------------------------------------------------
522,064 385,409
-------------------------------------------------------
Accumulated Depreciation
Buildings and improvements 18,401 14,835
Machinery, equipment and
vehicles 134,184 119,026
-------------------------------------------------------
152,585 133,861
-------------------------------------------------------
Net Book Value
Land 5,531 4,997
Buildings and improvements 120,985 99,843
Machinery, equipment and
vehicles 242,963 146,708
-------------------------------------------------------
$369,479 $251,548
-------------------------------------------------------
-------------------------------------------------------
Note 5. Acquisition
On September 12, 2002, the Company acquired 100 percent of Georgia Ductile Foundries LLC ("Georgia Ductile"). Georgia Ductile is a manufacturer of sand cast iron components, primarily for the automotive industry, focusing on suspension and brake components. The results of Georgia Ductile's operations have been included in the consolidated financial statements since the date of acquisition.
The total consideration paid in connection with the acquisition amounted to $39.5 million (net of cash acquired of $2.8 million).
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The Company is in the process of finalizing valuations of certain assets; thus, the allocation of the purchase price is subject to refinement.
Non-cash current assets $9,720
Property and equipment 71,903
Other long-term assets 729
Goodwill 38,174
-----------------------------------------------
Total assets acquired 120,526
-----------------------------------------------
Current liabilities 22,130
Long-term debt 58,875
-----------------------------------------------
Total liabilities assumed 81,005
-----------------------------------------------
Total consideration paid,
net of cash acquired $39,521
-----------------------------------------------
Immediately subsequent to the acquisition, the Company paid down
$14.2 million of long-term debt.
Note 6. Other
September 29, December 30,
2002 2001
-------------------------------------------------------
Deferred pre-production
costs $12,896 $10,911
Director and employee
share purchase plan loans 1,479 1,687
Bond issue costs 791 72
Deferred loss on foreign
exchange contracts 0 66
Licence 55 61
Long-term bonds 0 6,804
-------------------------------------------------------
$15,221 $19,601
-------------------------------------------------------
-------------------------------------------------------
Note 7. Long-term debt
September 29, December 30,
2002 2001
-------------------------------------------------------
a. Obligations under capital
leases $1,870 $1,303
b. Limited obligation revenue
bonds 4,638 4,691
c. Revolving bank note 1,395 1,869
d. Equipment loan 409 0
e. Revenue bonds 47,332 0
f. Bank credit facility 7,888 0
-------------------------------------------------------
63,532 7,863
Less: current portion of
long-term debt 15,951 3,249
-------------------------------------------------------
$47,581 $4,614
-------------------------------------------------------
-------------------------------------------------------
The significant increase in long-term debt as compared to December 30, 2001 is due to the assumption of long-term debt on the acquisition of Georgia Ductile Foundries LLC ("Georgia Ductile").
e) The revenue bonds are payable in annual installments of $1,500 US commencing in 2004, with a variable interest rate which at September 29, 2002 was 1.86%, and mature in the year 2021. Prior to 2004, $750 US will be paid in 2002 and $2,250 US will be paid in 2003. As security, Georgia Ductile has provided a letter of credit in favour of the trustee.
f) The bank credit facility provides for revolving advances of up to $5,000 US and has a termination date of May 31, 2003. At September 29, 2002, Georgia Ductile has borrowed the aggregate maximum principal amount. Interest is payable at LIBOR plus 2%.
Note 8. 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
September 29, December 30,
2002 2001
-------------------------------------------------------
Issued and outstanding
5,703,175 Class A Common
Shares (2001 - 5,626,575) $96,987 $94,174
7,376,607 Class B Common
shares (2001 - 7,376,607) 12,427 12,427
-------------------------------------------------------
$109,414 $106,601
-------------------------------------------------------
-------------------------------------------------------
Note 9. 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 September 29, the cumulative impact of the amended plan during the six months ended September 29 was a non-cash charge to earnings of $12,934 or $8,650 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 10. Other (income) and expenses
Three months ended Nine months ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------------------------------------------------------------
Foreign exchange
translation
(gain) loss $ (463) $ (1,961) $ 570 $ (2,272)
Loss (gain) on
disposal of
equipment and
other 61 (108) (64) 941
-------------------------------------------------------------------
$ (402) $ (2,069) $ 506 $ (1,331)
-------------------------------------------------------------------
-------------------------------------------------------------------
Note 11. 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 12. Earnings per share
Basic earnings from continuing operations per share and basic net earnings per share for the three months ended September 29, 2002 are based on the weighted average common shares outstanding (2002 - 13,079,751 shares; 2001 - 12,986,501 shares). Fully-diluted earnings from continuing operations per share and fully-diluted net earnings per share for the three months ended September 29, 2002 are based on the fully-diluted weighted average common shares outstanding (2002 - 13,338,053 shares; 2001 - 13,241,815 shares). For the year to date, the number of common shares outstanding on both the basic and fully-diluted basis is the same (13,062,777 shares).
Note 13. 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 Nine months ended
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
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Receivables $ 1,699 $ 7,886 $ (12,609) $ 3,953
Inventories (7,006) 2,108 (9,025) (4,486)
Prepaids (1,679) (981) (1,527) (436)
Payables and
accruals 4,799 413 14,872 3,244
Income taxes
payable (2,579) 2,559 (7,524) 5,435
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$ (4,766) $ 11,985 $ (15,813) $ 7,710
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Note 14. Segment Information
The Company currently operates in one industry segment, the design, manufacture and machining of cast iron parts for the automotive industry, and two geographic segments.
Three months ended September 29, 2002
North Europe Total
America
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Sales to external customers $97,260 $0 $97,260
Earnings (loss) from
continuing operations 12,747 (727) 12,020
Interest revenue 497 0 497
Interest expense 207 0 207
Depreciation and
amortization 6,588 476 7,064
Income taxes 5,301 (3) 5,298
Purchase of property,
equipment and other assets $19,472 $3,122 $22,594
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Three months ended September 30, 2001
North Europe Total
America
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Sales to external
customers $87,924 $0 $87,924
Earnings (loss) from
continuing operations 12,643 (447) 12,196
Interest revenue 769 15 784
Interest expense 86 0 86
Depreciation and
amortization 6,645 227 6,872
Income taxes 6,725 16 6,741
Purchase of property,
equipment and other assets $6,627 $6,390 $13,017
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Nine months ended September 29, 2002
North Europe Total
America
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Sales to external
customers $314,300 $0 $314,300
Earnings (loss) from
continuing operations 44,327 (1,671) 42,656
Interest revenue 1,730 0 1,730
Interest expense 331 0 331
Depreciation and
amortization 19,343 1,212 20,555
Income taxes 18,759 20 18,779
Purchase of property,
equipment and other assets $55,707 $5,452 $61,159
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Nine months ended September 30, 2001
North Europe Total
America
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Sales to external
customers $289,485 $0 $289,485
Earnings (loss) from
continuing operations 50,443 (935) 49,508
Interest revenue 2,555 36 2,591
Interest expense 318 0 318
Depreciation and
amortization 19,959 421 20,380
Income taxes 26,459 42 26,501
Purchase of property,
equipment and other assets $17,280 $24,254 $41,534
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September 29, 2002
North Europe Total
America
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Total Assets $504,891 $63,097 $567,988
Property and Equipment 325,602 43,877 369,479
Deferred pre-production
costs $3,526 $9,370 $12,896
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December 30, 2001
North Europe Total
America
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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
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