Exco Technologies Limited - Second Quarter ended March 31, 2004
Quarterly Dividend Declared
TORONTO, April 27 -- Exco Technologies Limited (TSX- XTC) today announced results for its second quarter ended March 31, 2004. In addition, the Company announced that a quarterly cash dividend of $0.0125 per share will be paid June 30, 2004 to shareholders of record on June 16, 2004.
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6 Months Ended 3 Months Ended
March 31 March 31
2004 2003 2004 2003
---- ---- ---- ----
Sales $107,469 $110,564 $54,033 $55,933
Net income $5,057 $8,285 $2,714 $4,790
Basic earnings
per share $0.13 $0.21 $0.07 $0.12
Diluted earnings
per share $0.12 $0.20 $0.06 $0.11
EBIDTA $15,235 $21,421 $7,744 $11,870
Cash flow from
operations $12,112 $15,586 $6,065 $8,462
Diluted cash flow
per share $0.29 $0.38 $0.15 $0.19
Common shares
outstanding 40,432,000 40,136,000 40,432,000 40,136,000
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(refer to attached Financial Statements, Notes, and
Management Discussion and Analysis)
Management will hold a conference call to discuss the second quarter results on Wednesday April 28, 2004 at 11:00 am (EST). To access the live audio webcast, please log on to www.excocorp.com or www.q1234.com a few minutes before the event. Real Player is required for access. For those unable to participate on April 28, 2004, an archived version will be available on the Exco website.
Exco Technologies Limited is a global supplier of innovative technologies servicing the diecast, extrusion and automotive industries. Through our 13 strategic locations, we employ 1,950 people and service a diverse and broad customer base.
Information in this document relating to projected growth, improvements in productivity and future results constitutes forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which such statements are based will occur. Forward-looking statements include known and unknown risks, uncertainties, assumptions and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such statements. These risks, uncertainties and assumptions include, among other things: industry cyclicality; global economic conditions, causing decreases in automobile production volume and demand for capital goods; price reduction pressures; pressure to absorb certain fixed costs; dependence on major customers; technological changes; fluctuations in currency exchange and interest rates; employee work stoppages; dependence on key employees; the competitive nature of the automotive and capital goods industries, product supply and demand; and other risks, uncertainties and assumptions as described in the Company's 2003 Annual Information Form and, from time to time, in other reports and filings made by the Company with securities regulatory authorities.
While the company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the Company disclaims any obligations to update any such factors or publicly announce the result of any such revisions to any of the forward-looking statements contained herein to reflect future events or developments.
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands)
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March September
31, 2004 30, 2003
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ASSETS
Current
Accounts receivable $43,122 $45,552
Inventories 33,455 30,177
Prepaid expenses and deposits 2,031 2,823
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Total Current Assets 78,608 78,552
Fixed assets 87,117 90,449
Goodwill 44,430 44,430
Future income tax assets 3,224 3,054
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$213,379 $216,485
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $28,013 $28,066
Accounts payable & accrued liabilities 25,813 30,050
Income taxes payable 927 3,303
Customer advance payments 6,073 5,036
Current portion of long-term debt 418 494
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Total Current Liabilities 61,244 66,949
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Long-term debt 1,499 1,825
Future income taxes 6,983 7,033
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Total Liabilities 69,726 75,807
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Shareholders' Equity
Share capital 31,201 30,945
Contributed surplus (note 1) 887 643
Retained earnings (note 1) 118,620 114,573
Currency translation adjustment (7,055) (5,483)
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Total shareholders' equity 143,653 140,678
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$213,379 $216,485
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EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(Unaudited)
($ in thousands except per share amounts)
3 Months ended 6 Months ended
March 31 March 31
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2004 2003 2004 2003
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Sales $54,033 $55,933 $107,469 $110,564
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Cost of sales and
operating expenses
before the following 37,583 35,676 74,609 71,312
Depreciation and
amortization 3,235 3,740 6,780 7,279
Selling, general and
administrative
(note 1) 8,716 8,563 17,601 18,009
Loss (gain) on sale
of fixed assets (10) (176) 24 (178)
Interest on long-term
debt 17 49 36 108
Other interest 293 365 617 732
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49,834 48,217 99,667 97,262
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Income before income
taxes 4,199 7,716 7,802 13,302
Provision for income
taxes 1,485 2,926 2,745 5,017
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Net income for
the period $2,714 $4,790 $5,057 $8,285
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Retained earnings,
beginning of period
(note 1) 116,412 102,895 114,573 99,400
Dividend (506) (502) (1,010) (502)
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Retained earnings,
end of period $118,620 $107,183 $118,620 $107,183
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Earnings per common
share
- Basic $0.07 $0.12 $0.13 $0.21
- Diluted $0.06 $0.11 $0.12 $0.20
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EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ in thousands)
3 Months ended 6 Months ended
March 31 March 31
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2004 2003 2004 2003
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OPERATING ACTIVITIES:
Net income for
the period $2,714 $4,790 $5,057 $8,285
Add items not
involving a current
outlay of cash:
Depreciation 3,235 3,740 6,780 7,279
Stock option
expense (note 1) 126 108 251 200
Loss (gain) on sale
of fixed assets (10) (176) 24 (178)
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6,065 8,462 12,112 15,586
Net change in non-cash
working capital
balances related to
operations (4,595) (5,770) (6,327) (10,239)
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Cash provided by
operating activities 1,470 2,692 5,785 5,347
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FINANCING ACTIVITIES:
Increase (decrease) in
bank indebtedness 1,189 4,107 (338) 13,981
Decrease in long-term
debt (74) (4,228) (351) (5,020)
Dividends (506) (502) (1,010) (502)
Issue of share capital 232 157 249 1,048
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Cash provided by
financing activities 841 (466) (1,450) 9,507
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INVESTING ACTIVITIES:
Acquisitions - (189) - (9,800)
Cash acquired on
acquisitions - 19 - 60
Investment in fixed
assets (2,428) (2,238) (4,452) (5,301)
Proceeds on sale of
fixed assets and
other 117 182 117 187
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Cash used in investing
activities (2,311) (2,226) (4,335) (14,854)
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Decrease in cash during
the period 0 0 0 0
Cash, beginning of
the period 0 0 0 0
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Cash, end of the
period $0 $0 $0 $0
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
($ 000's except per share amounts)
March 31, 2004
1. ACCOUNTING POLICIES
Basis of Presentation
These interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles and
follow the same accounting principles and methods of application as the
most recent annual consolidated financial statements. The interim
consolidated financial statements should be read in conjunction with the
Company's annual consolidated financial statements included in the 2003
Annual Report.
Accounting Policy Change
Effective October 1, 2003, the Company elected to follow the fair value
based method of accounting for stock-based compensation in accordance
with recommendations of the Canadian Institute of Chartered Accountants
concerning Stock-Based compensation and Other Stock-Based Payments to
options granted after October 1, 2001. This change in accounting policy
has been applied retroactively and prior periods have been restated. The
retroactive impact of adopting the new recommendations include a
reduction in retained earnings and an addition to contributed surplus of
$643 at September 30, 2003. In addition, for the six-month period ended
March 31, 2003, opening retained earnings was reduced $226 and
compensation expense increased $200. For the six-month period ended
March 31, 2004, compensation expense increased $251. For the three-month
period ended March 31, 2004, compensation expense was $126 (March 31,
2003 - $108).
The fair value of the options granted during the six months ended
March 31, 2004 was estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 4.25% (March 31, 2003 - 4.45%),
expected dividend yield of 0.314% (March 31, 2003 - 0.025%), expected
volatility of 0.273 (March 31, 2003 - 0.273) and expected option life of
5.45 years (March 31, 2003 - 4.22 years). The weighted average fair value
of the options granted and shares issuable under the Employee Share
Purchase Plan during the year is $1.68 (March 31, 2003 - $1.54).
2. SEGMENTED INFORMATION
The Company operates in two business segments: Casting and Extrusion
Technology and Automotive Solutions. The accounting policies followed in
the operating segments are consistent with those outlined in Note 1 of
the Annual Consolidated Financial Statements. The Casting and Extrusion
Technology segment designs and engineers tooling and other manufacturing
equipment. Its operations are substantially for automotive and other
industrial markets in North America. The Automotive Solutions segment
produces automotive interior components and assemblies primarily for
storage and restraint for sale to automotive manufacturers and Tier 1
suppliers (suppliers to automakers).
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3 Months ended March 31, 2004
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $30,101 $23,932 $54,033
Depreciation $2,456 $779 $3,235
Segment income $1,779 $2,730 $4,509
Interest expense $310
Income before income taxes $4,199
Fixed asset additions $1,170 $1,258 $2,428
Total fixed assets, net $65,907 $21,210 $87,117
Goodwill $8,345 $36,085 $44,430
Total assets $114,946 $98,433 $213,379
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3 Months ended March 31, 2003
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $33,614 $22,319 $55,933
Depreciation $2,898 $842 $3,740
Segment income $3,917 $4,213 $8,130
Interest expense $414
Income before income taxes $7,716
Fixed asset additions $2,191 $47 $2,238
Total fixed assets, net $72,861 $23,280 $96,141
Goodwill $8,345 $35,592 $43,937
Total assets $147,400 $71,817 $219,217
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6 Months ended March 31, 2004
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $60,835 $46,634 $107,469
Depreciation $5,239 $1,541 $6,780
Segment income $3,240 $5,215 $8,455
Interest expense $653
Income before income taxes $7,802
Fixed asset additions $2,727 $1,725 $4,452
Total fixed assets, net $65,907 $21,210 $87,117
Goodwill $8,345 $36,085 $44,430
Total assets $114,946 $98,433 $213,379
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6 Months ended March 31, 2003
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $65,416 $45,148 $110,564
Depreciation $5,810 $1,469 $7,279
Segment income $6,350 $7,792 $14,142
Interest expense $840
Income before income taxes $13,302
Fixed asset additions $4,252 $1,049 $5,301
Total fixed assets, net $72,861 $23,280 $96,141
Goodwill $8,345 $35,592 $43,937
Total assets $147,400 $71,817 $219,217
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3. SUBSEQUENT EVENT
Effective April 2, 2004, the Company entered into an interest rate swap agreement whereby the rate of interest on a portion of amounts outstanding under its demand credit facility be at 3.88% plus applicable margin. The notional principal amount of the swap agreement is $20,000 on the date of the agreement and declines by $714 quarterly to $6,400 in April 2009 at which time the balance is absorbed into our demand credit facility. The Company has designated this interest rate swap agreement as a hedge of the underlying debt and accordingly defers gains and losses.
The following is management's interim discussion and analysis of operations and financial position and should be used in conjunction with the consolidated financial statements and Management's Discussion and Analysis included in the Company's 2003 Annual Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS Operating Results -----------------
Exco experienced a 3.4% reduction in revenues for the second quarter ended March 31, 2004 of $1.9 million to $54.0 million. This flat performance partly reflected the strengthening of the average Canadian dollar of $1.33 during the quarter as compared to an average of $1.49 in the same quarter of the previous year. While the Canadian dollar has pulled back from its high of $1.57 in the first quarter it impacted the firm's sales by $3.4 million in this period.
During the period under review the Automotive Solutions segment reported sales of $23.9 million versus $22.3 million in the comparable quarter of the previous year. While the adverse impact of foreign exchange largely offset sales growth at Polytech, this segment continued to execute its growth program with Neocon increasing sales by more than 40%, Exco's Moroccan facility tripling it sales and Bantech Lasing (now Exco Lasing) more than doubling sales volumes from last year.
The Casting and Extrusion Technology segment reported sales of $30.1 million in the quarter compared to $33.6 million in the prior year quarter. Once again, the adverse impact of foreign exchange depressed sales at Edco (Exco's US die cast tool operation) and Techmire. There continued to be weak demand for products and services in this sector during the quarter, however, there is a marked improvement in demand for these goods and services as the US economy has begun to show tangible signs of improvement.
Overall net income for the quarter declined by 44% to $2.7 million or $0.06 per share compared to $4.8 million or $0.11 per share in the same quarter last year. Foreign exchange losses moderated to slightly over $0.02 per share with losses at Exco Lasing, although declining, accounting for an additional $0.02 per share.
The gross margin for the quarter was 30.4% compared to 36.2% in the prior year quarter. For the six month period, gross margin was 30.6% compared to 35.5% last year. The financial results of Exco Lasing have eroded the gross margin in both the quarter and six month period by 2%. Considering the low capacity utilization in the Casting and Extrusion segment, Management is pleased with the Company's overall gross margin performance this year.
This is the second quarter Exco has expensed stock options granted under its Employee Stock Purchase Plan (ESPP), which is offered to all employees of the company, and the Stock Option Plan. Expense for the quarter was $126 thousand versus $108 thousand restated in the prior year quarter.
Financial Resources, Liquidity and Capital Resources
Cash flow from operations declined to $6 million as compared to $8.5 million in the same period of the prior year. Capital expenditures rose to $2.4 million for the quarter from $2.2 million primarily to support growth in Morocco. Exco's bank indebtedness remained constant at $28 million. The increase in non-cash working capital of $6.3 million was occasioned primarily by buildup in work in process at our casting operations and a reduction in our accounts and taxes payable.
In order to take advantage of record low borrowing costs, Exco on April 2, 2004 fixed the interest rate on $20 million of its current debt by entering into an interest rate swap for five years at 3.88%, excluding applicable margin. This notional amount of this swap reduces in equal quarterly increments to $6.4 million over 5 years at which time the balance is absorbed into our demand credit facility.
Outlook -------
For the third quarter of 2004, management anticipates improvement in the performance of its businesses. Second quarter sales and profit in both the Casting and Extrusion segment and the Automotive Solutions segment have improved over the first quarter. Management expects this trend to continue in the last half of the year with prospects particularly good for the extrusion businesses, Techmire and Polytech's Morocco operation. While the die cast tooling operation has booked significant business over the next several years the remainder of this fiscal year is expected to continue operating well below capacity.
Progress at Exco Lasing is slow but steady. Operating losses are declining as month over month sales volumes steadily increase with the launch of new programs. Management is focusing on this situation which continues to be problematic. Management is reviewing all options and is, among other things, in discussions with numerous strategic industry players to explore a variety of partnering relationships that will advance this business as expeditiously and effectively as possible while mitigating financial risk to Exco.
As the improving economic environment in North America works its way through the automotive and capital goods sectors, Exco continues to believe that it is well positioned given its operating leverage and capacity to participate in this upswing.
Margins are expected to improve due to contracts previously announcement in the Casting and Extrusion segment, new product launches in the Automotive Solutions group, moderating losses at Bantech, stabilization of the Canadian dollar and our dedication to continuous improvement throughout all of our businesses.
The Company continues to be lean, disciplined and capable of exercising its technological strengths on a global basis.
Information in this document relating to projected growth, improvements in productivity and future results constitutes forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which such statements are based will occur. Forward-looking statements include known and unknown risks, uncertainties, assumptions and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such statements. These risks, uncertainties and assumptions include, among other things: industry cyclicality; global economic conditions, causing decreases in automobile production volume and demand for capital goods; price reduction pressures; pressure to absorb certain fixed costs; dependence on major customers; technological changes; fluctuations in currency exchange and interest rates; employee work stoppages; dependence on key employees; the competitive nature of the automotive and capital goods industries, product supply and demand; and other risks, uncertainties and assumptions as described in the Company's 2003 Annual Information Form and, from time to time, in other reports and filings made by the Company with securities regulatory authorities.
While the company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the Company disclaims any obligations to update any such factors or publicly announce the result of any such revisions to any of the forward-looking statements contained herein to reflect future events or developments.