Exco Technologies Limited - Third Quarter ended June 30, 2004 - Quarterly Dividend Declared
TORONTO, July 21 -- Exco Technologies Limited (TSX- XTC) today announced results for its third quarter ended June 30, 2004. In addition, the Company announced that a quarterly cash dividend of $0.0125 per share will be paid September 30, 2004 to shareholders of record on September 16, 2004.
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9 Months Ended 3 Months Ended
June 30 June 30
2004 2003 2004 2003
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Sales $162,288 $167,076 $57,014 $56,991
Net income from
continuing operations $11,418 $12,634 $4,794 $4,188
Net loss from
discontinued operations ($6,626) ($771) ($5,059) ($610)
Net income (loss) $4,792 $11,863 ($265) $3,578
Diluted earnings per share
from continuing operations $0.27 $0.31 $0.12 $0.10
Diluted loss per share from
discontinued operations ($0.16) ($0.02) ($0.13) ($0.01)
Diluted earnings (loss)
per share $0.11 $0.29 ($0.01) $0.09
EBITDA $27,899 $32,286 $10,728 $10,763
Common shares
outstanding 40,498,000 40,137,000 40,498,000 40,137,000
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(refer to attached Financial Statements, Notes, and Management Discussion
and Analysis)
Management will hold a conference call to discuss the third quarter results on Thursday July 22, 2004 at 11:00 am (EST). The dial in number for the call is (416) 640-4127 or 1-800-814-4859. 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 For those unable to participate on July 22, 2004, an archived version will be available on the Exco website.
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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June 30, September
2004 30, 2003
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ASSETS
Current
Accounts receivable $ 42,754 $ 44,725
Inventories 32,363 29,664
Prepaid expenses and deposits 2,306 2,724
Discontinued operations (note 3) 2,574 1,439
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Total Current Assets 79,997 78,552
Fixed assets 82,215 86,327
Discontinued operations (note 3) 3,870 4,122
Goodwill 43,428 44,430
Future tax assets 1,244 3,054
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$ 210,754 $ 216,485
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (note 2) $ 22,715 $ 28,066
Accounts payable & accrued liabilities 27,161 29,325
Income taxes payable 311 3,303
Customer advance payments 5,900 5,036
Current portion of long-term debt 397 494
Discontinued operations (note 3) 1,645 725
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Total Current Liabilities 58,129 66,949
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Long-term debt 1,489 1,825
Future tax liabilities 7,063 7,033
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Total Liabilities 66,681 75,807
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Shareholders' Equity
Share capital (note 4) 31,422 30,945
Contributed surplus (note 1) 1,008 643
Retained earnings (note 1) 117,849 114,573
Currency translation adjustment (6,206) (5,483)
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Total shareholders' equity 144,073 140,678
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$ 210,754 $ 216,485
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EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS
(Unaudited)
($ in thousands except per share amounts)
3 Months ended 9 Months ended
June 30 June 30
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2004 2003 2004 2003
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Sales (note 3) $ 57,014 $ 56,991 $162,288 $167,076
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Cost of sales and operating
expenses before the
following (note 3) 38,065 37,169 108,761 107,692
Depreciation and amortization 3,192 3,482 9,564 10,612
Selling, general and
administrative (note 1) 8,232 9,064 25,615 27,281
Loss (gain) on sale of fixed
assets (11) (5) 13 (183)
Interest on long-term debt 5 41 36 145
Other interest 213 366 653 1,094
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49,696 50,117 144,642 146,641
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Income from continuing operations
before income tax 7,318 6,874 17,646 20,435
Provision for income taxes 2,524 2,686 6,228 7,801
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Net income from continuing
operations 4,794 4,188 11,418 12,634
Net loss from discontinued
operations net of tax (note 3) (5,059) (610) (6,626) (771)
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Net Income (loss) for the period ($265) $ 3,578 $ 4,792 $ 11,863
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Retained earnings, beginning of
period (note 1) 118,620 107,183 114,573 99,400
Dividend (506) (501) (1,516) (1,003)
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Retained earnings, end of period $117,849 $110,260 $117,849 $110,260
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Earnings (loss) per common share
From continuing operations
- Basic $0.12 $0.10 $0.28 $0.32
- Diluted $0.12 $0.10 $0.27 $0.31
From net income (loss)
- Basic ($0.01) $0.09 $0.12 $0.30
- Diluted ($0.01) $0.09 $0.11 $0.29
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EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
3 Months ended 9 Months ended
June 30 June 30
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2004 2003 2004 2003
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OPERATING ACTIVITIES:
Net income from continuing
operations $ 4,794 $ 4,188 $ 11,418 $ 12,634
Add items not involving a current
outlay of cash:
Depreciation 3,192 3,482 9,564 10,612
Stock option expense (note 1) 126 108 377 308
Loss (gain) on sale of fixed
assets (11) (5) 13 (183)
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8,101 7,773 21,372 23,371
Net change in non-cash working
capital balances related to
operations (163) 353 (5,440) (7,046)
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Cash provided by operating
activities of continuing
operations 7,938 8,126 15,932 16,325
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FINANCING ACTIVITIES:
Increase (decrease) in bank
indebtedness (5,709) (5,621) (8,640) 3,402
Decrease in long-term debt (49) (164) (371) (2,887)
Dividends (506) (501) (1,516) (1,003)
Issue of share capital 216 2 465 868
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Cash provided by (used in)
financing activities of
continuing operations (6,048) (6,284) (10,062) 380
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INVESTING ACTIVITIES:
Acquisitions - - - (9,800)
Cash acquired on acquisition - - - 60
Investment in fixed assets (2,030) (1,863) (6,127) (7,154)
Proceeds on sale of fixed
assets and other 140 21 257 208
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Cash used in investing activities
of continuing operations (1,890) (1,842) (5,870) (16,686)
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Net cash from continuing
operations 0 0 0 19
Net cash used in discontinued
operations 0 0 0 (19)
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)
June 30, 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 nine-month period ended
June 30, 2003, opening retained earnings was reduced $226 and
compensation expense increased $308. For the nine-month period ended
June 30, 2004, compensation expense increased $377. For the three-month
period ended June 30, 2004, compensation expense was $126 (three-month
period ended June 30, 2003 - $108).
The fair value of the options granted during the nine months ended
June 30, 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% (June 30, 2003 - 4.46%), expected
dividend yield of 0.316% (June 30, 2003 - 0.026%), expected volatility of
0.273 (June 30, 2003 - 0.273) and expected option life of 4.23 years
(June 30, 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 $1.69 (June 30, 2003 - $1.56).
2. BANK INDEBTEDNESS
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.
3. DISCONTINUED OPERATIONS
Effective June 14, 2004, the Company adopted a formal plan to divest Exco
Lasing which operates within the Company's Automotive Solutions segment.
Management concluded that the technical requirements of the business and
the need to vertically integrate the business are best left to industry
players that are fully focused on and engaged in this segment of the
automotive interior trim market. Divesture as currently contemplated will
be in the form of a sale as a going concern.
On June 14, 2004, the Company announced that it signed a non-binding
letter of intent for the sale of the Exco Lasing business. The results
from discontinued operations have been reported separately within these
financial statements.
The Company has recorded non-cash charges in the order of $4,600
comprised of approximately $1,000 reduction in goodwill, approximately
$1,000 reduction in future income tax assets and approximately $2,600 of
non-cash charges related to fixed assets. Revenue and pre-tax losses for
the nine-month period ended June 30, 2004 are $4,184 and $3,296
(nine-month period ended June 30, 2003 - $1,542 and $1,243). Revenue and
pre-tax losses for the three-month period ended June 30, 2004 are $1,989
and $770 (three-month period ended June 30, 2003 - $1,063 and $984).
Basic and diluted loss per share from discontinued operations for the
nine-month period ended June 30, 2004 is $0.16 (nine-month period ended
June 30, 2003 - $0.02). Basic and diluted loss per share from
discontinued operations for the three-month period ended June 30, 2004 is
$0.13 (three-month period ended June 30, 2003 - $0.01).
The estimate of the loss from discontinued operations is based on
management's best estimates and assumptions with respect to a variety of
items. There is a risk that the assumptions and resulting estimates may
change with the passage of time and the availability of additional
information and facts. Changes to the estimate of the loss on disposal
will be recognized as a gain or loss on discontinued operations during
the period that such changes are determinable.
4. SHARE CAPITAL
Authorized
The Company's authorized share capital consists of an unlimited number of
common shares, an unlimited number of non-voting preference shares
issuable in one or more series and 275 special shares.
Issued
The Company has not issued any non-voting preference shares or special
shares. Changes to the issued common shares are shown in the following
table:
Common Shares
Number of Stated
shares value
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Issued and outstanding at September 30, 2002 39,478,118 $26,707
Issued in exchange for Neocon shares
on acquisition 130,000 780
Issued for cash under Employee Stock
Purchase Plan 246,408 891
Issued in exchange for Bantech shares and
debenture on its acquisition 265,746 2,000
Issued for cash under Stock Option Plan 231,600 660
Share issue expense (93)
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Issued and outstanding at September 30, 2003 40,351,872 $30,945
Issued for cash under Stock Option Plan 70,194 477
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Issued and outstanding at June 30, 2004 40,422,066 $31,422
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5. SEGMENTED INFORMATION FROM CONTINUING OPERATIONS
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 June 30, 2004
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $ 35,066 $ 21,948 $ 57,014
Depreciation $ 2,625 $ 567 $ 3,192
Segment income $ 3,521 $ 4,015 $ 7,536
Interest expense $ 218
Income before income taxes from
continuing operations $ 7,318
Fixed asset additions $ 867 $ 1,163 $ 2,030
Total fixed assets, net $ 64,322 $ 17,893 $ 82,215
Goodwill $ 8,345 $ 35,083 $ 43,428
Total assets $ 112,130 $ 98,624 $ 210,754
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3 Months ended June 30, 2003
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $ 36,043 $ 20,948 $ 56,991
Depreciation $ 2,851 $ 631 $ 3,482
Segment income $ 3,634 $ 3,647 $ 7,281
Interest expense $ 407
Income before income taxes from
continuing operations $ 6,874
Fixed asset additions $ 1,726 $ 137 $ 1,863
Total fixed assets, net $ 70,440 $ 17,467 $ 87,907
Goodwill $ 8,345 $ 36,085 $ 44,430
Total assets $ 129,377 $ 82,225 $ 211,602
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9 Months ended June 30, 2004
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $ 95,901 $ 66,387 $ 162,288
Depreciation $ 7,864 $ 1,700 $ 9,564
Segment income $ 6,761 $ 11,574 $ 18,335
Interest expense $ 689
Income before income taxes from
continuing operations $ 17,646
Fixed asset additions $ 3,594 $ 2,533 $ 6,127
Total fixed assets, net $ 64,322 $ 17,893 $ 82,215
Goodwill $ 8,345 $ 35,083 $ 43,428
Total assets $ 112,130 $ 98,624 $ 210,754
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9 Months ended June 30, 2003
Casting and
Extrusion Automotive
Technology Solutions Total
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Sales $ 101,459 $ 65,617 $ 167,076
Depreciation $ 8,661 $ 1,951 $ 10,612
Segment income $ 10,103 $ 11,571 $ 21,674
Interest expense $ 1,239
Income before income taxes from
continuing operations $ 20,435
Fixed asset additions $ 5,978 $ 1,176 $ 7,154
Total fixed assets, net $ 70,440 $ 17,467 $ 87,907
Goodwill $ 8,345 $ 36,085 $ 44,430
Total assets $ 129,377 $ 82,225 $ 211,602
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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 revenue excluding discontinued operations for the third quarter ended June 30, 2004 was virtually identical to the prior year at $57 million. The dampening impact of a strong Canadian dollar on Exco's revenue began moderating in the third quarter as the average exchange rate declined to $1.35 compared to $1.38 for the same period last year. This decline has not as yet reversed the negative impact on our year to date sales. More specifically, this year's nine-month average exchange rate of $1.33 (compared to $1.48 for last year) significantly impacted Exco's year to date revenue by approximately $5.7 million.
During the third quarter the Automotive Solutions segment reported sales of $22 million versus $21 million in the prior year. This represents an increase of 4.76% that is primarily driven by increased business activity at Neocon and Polydesign in Morocco. Both operations are in the early stages of launching a variety of new programs.
The Casting and Extrusion Technology segment reported sales of $35.1 million in the quarter compared to $36 million last year. Casting sales levels, while flat, are expected to improve late in the forth quarter and beyond as previously announced orders for automotive tooling begins to migrate from design to production. The extrusion business continues to benefit from the consolidating trend in its customer base as several new customers have recently begun sourcing with Exco.
Net income from continuing operations improved by 14.5% to $4.8 million or $0.12 per share compared to $4.2 million or $0.10 per share last year. While improvement in profit was broadly based, there was notable improvement in several businesses. Neocon's bottom line incrementally benefited from its increased sales activity while Polydesign, which has been in a loss position throughout its start up phase, has now become a contributor. Castool and Techmire are both performing well ahead of last year aided by improvement in almost all sectors of the North American economy.
The gross margin for the quarter was 33.2% compared to 34.8% in the prior year. For the nine-month period, gross margin was 33% compared to 35.5% last year. While down slightly, management is pleased with its gross margin which has been largely retained in the face of a competitive pricing environment, increasing raw material costs and low capacity utilization in the Casting businesses. The latter is expected to continue through the balance of this fiscal year.
In this quarter, Exco expensed stock options of $126 thousand verses $108 thousand restated in the prior year. This expense relates to the Employee Stock Purchase Plan (ESPP), which is offered to all employees of Exco, and the Stock Option Plan. (See Note 1 of the Financial Statements).
Discontinued Operations - During the quarter, Exco executed a letter of intent to sell its paint and lasing business. As a result, this business has been classified as a discontinued operation in this quarter's financial results (See Note 3 to the Financial Statements). The nine-month loss of $6.6 million includes significant non-cash charges consisting, in part, of goodwill ($1 million), future income tax assets ($1 million) and fixed assets ($2.6 million). Also included in this loss is depreciation of $600 thousand.
Financial Resources, Liquidity and Capital Resources
Cash flow from operating activities of continuing operations increased modestly to $8.1 million for the quarter as compared to $7.8 million in the same period of last year reflecting stable earnings. Capital expenditures remained steady at $2.0 million for the quarter verses $1.9 million last year. Year to date capital expenditures of $6.1 million are $1 million less than last year. Capital expenditures in both the quarter and year to date were primarily in Morocco to support growth. The Company has improved its working capital position to 1.35:1 from 1.17:1 at the beginning of the fiscal year.
Exco's bank indebtedness was reduced to $22.7 million from $28.1 million at the end of last fiscal year. Since there has been no acquisition activity this year (compared to $9.8 million last year for the acquisition of Neocon) all surplus cash has been applied to bank indebtedness. On April 2, 2004 Exco fixed the interest rate on $20 million of its current debt by entering into an interest rate swap for five years at 3.88% plus applicable margin. The 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. At quarter end the notional amount reduced to $19.3 million.
Outlook -------
For the fourth quarter of 2004, management expects a continuing improvement in the performance of its businesses. Third quarter sales and profit in both segments have significantly improved over the second quarter. This is consistent with indications previously given with respect to improvement in the back half of fiscal 2004. Management continues to see strengthening demand for its capital goods equipment. While the die cast tooling operation is expected to continue operating below capacity in the fourth quarter, it will begin to ramp up with previously announced orders.
The prospects for the Automotive Solutions segment continue to be active. Polytech continues to deliver steady growth, replacing expiring platforms and cost downs with new programs for both traditional product types and new applications. Neocon continues to execute on plans to supply new customers from its location in Alabama. Polydesign will continue to deliver strong growth as it builds on its existing base.
Management expects to close the sale of its paint and lasing business. Failing this, management will continue the marketing process with other industry players.
The construction of Techmire's facility in Montreal is now under way. Completion is expected late in the calendar year with approximately $1.7 million to be spent before the end of the fiscal year.
Management does not expect that the recently announced interest rate increase in the US will materially affect the improving economic environment in North America. Demand for the Company's automotive and capital goods are expected to remain relatively strong.
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 cyclically; 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.