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Exco Technologies Limited - Fourth Quarter ended September 30, 2009Quarterly
Dividend Declared
TORONTO,
-------------------------------------------------------------------------
12 Months ended 3 Months ended
September
30 September 30
($000s,
except per share amounts)
2009 2008 2009 2008
---- ---- ---- ----
Sales $143,716 $201,681 $37,694 $50,132
Net income (loss) from
continuing operations ($17,666) ($13,398) $364 ($20,753)
Net loss from discontinued
operations $- ($536) $- ($425)
Net income (loss) ($17,666) ($13,934) $364 ($21,178)
Basic and diluted earnings
(loss) per share from
continuing operations ($0.43) ($0.33) $0.01 ($0.51)
Basic and diluted (loss)
per share from
discontinued operations $0.00 ($0.01) $0.00 ($0.01)
Basic and diluted earnings
(loss) per share ($0.43) ($0.34) $0.01 ($0.52)
Common shares
outstanding 40,666,176 40,948,276 40,666,176 40,948,276
-------------------------------------------------------------------------
In
the fourth quarter sales of
This
improving sales environment combined with the impact of cost reductions and
operating improvements implemented earlier in the year has enabled Exco to
return to profitability in the quarter with net income of
Gross
margin improved by 1% over last quarter to 21% and cash provided by operating
activities of continuing operations improved to
During
the fourth quarter the Company successfully put to rest the difficulties and
distractions of the bankruptcies that took place in the third quarter and
focused on operations. Shipments by Polydesign on the Honda CRV and Civic seat
cover programs resumed and takeover business with Visteon
"2009
has certainly been an extraordinary year for Exco's Board, management and
staff," said (For
further information and prior year comparison please refer to the Company's
Fourth Quarter Interim Financial Statements in the Investor Relations section
posted at www.excocorp.com.
Alternatively, please refer to www.sedar.com after
Exco
Technologies Limited is a global supplier of innovative technologies servicing
the die-cast, extrusion and automotive industries. Through our 10 strategic
locations, we employ 1,350 people and service a diverse and broad customer
base.
Management
will hold a conference call to discuss the fourth quarter results on
This
news release contains forward-looking information and forward-looking
statements within the meaning of applicable securities laws. We use words such
as "anticipate", "plan", "may", "will",
"should", "expect", "believe",
"estimate" and similar expressions to identify forward-looking
information and statements. Such forward-looking information and statements are
based on assumptions and analyses made by us in light of our experience and our
perception of historical trends, current conditions and expected future
developments, as well as other factors we believe to be relevant and
appropriate in the circumstances. Readers are cautioned not to place undue
reliance on forward-looking information and statements, as there can be no
assurance that the assumptions, plans, intentions or expectations upon which
such statements are based will occur. Forward-looking information and
statements are subject to 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, implied or anticipated by such information and statements. These risks,
uncertainties and assumptions are described in the Company's Management's
Discussion and Analysis included in our 2008 Annual Report, in our 2008 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 expressed by such forward-looking
information and statements are reasonable, there can be no assurance that such
expectations and assumptions will prove to be correct. In evaluating
forward-looking information and statements, readers should carefully consider
the various factors which could cause actual results or events to differ
materially from those indicated in the forward-looking information and
statements. Readers are cautioned that the foregoing list of important factors
is not exhaustive. Furthermore, the Company disclaims any obligations to update
publicly or otherwise revise any such factors or any of the forward-looking
information or statements contained herein to reflect subsequent information, events
or developments, changes in risk factors or otherwise.
NOTICE
TO READER
The
attached consolidated financial statements have been prepared by management of
the Company. The consolidated financial statements for the twelve-month periods
ended
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
$(000)'s
As at As at
September
30, September 30,
2009 2008
-------------------------------------------------------------------------
ASSETS
Current
Cash $11,364 $8,141
Accounts receivable (note 4) 26,711 34,120
Inventories (note 5) 23,330 30,527
Prepaid expenses and deposits 2,589 3,013
Income taxes receivable 668 -
Mortgage receivable 600 -
Assets held for sale (note 8) 1,501 5,068
Discontinued operations - 540
-------------------------------------------------------------------------
Total current assets 66,763 81,409
-------------------------------------------------------------------------
Mortgage receivable - 600
Fixed assets (notes 3 and 9) 71,696 74,915
Goodwill (note 10) - 10,086
Future income tax assets 1,855 1,373
-------------------------------------------------------------------------
$140,314 $168,383
----------------------------
----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness $- $4,634
Accounts payable and accrued
liabilities 15,848 25,125
Income taxes payable - 641
Customer advance payments 4,931 944
Capital lease obligations (note 7) 125 -
-------------------------------------------------------------------------
Total current liabilities 20,904 31,344
-------------------------------------------------------------------------
Long-term capital lease obligations (note
7) 148 -
Future income tax liabilities 4,344 5,277
-------------------------------------------------------------------------
Total liabilities 25,396 36,621
Shareholders' Equity
Share capital (note 2) 35,435 35,681
Contributed surplus (note 2) 3,130 2,789
Retained earnings 89,108 109,912
Accumulated other comprehensive loss
(note 2) (12,755) (16,620)
-------------------------------------------------------------------------
Total shareholders' equity 114,918 131,762
-------------------------------------------------------------------------
$140,314 $168,383
----------------------------
----------------------------
The accompanying notes are an integral part
of these consolidated
financial statements.
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE LOSS
(Unaudited)
$(000)'s except for earnings (loss) per
share
Three Months
ended Twelve Months ended
September 30 September
30
2009 2008 2009 2008
-------------------------------------------------------------------------
Sales $37,694 $50,132 $143,716 $201,681
-------------------------------------------------------------------------
Cost of sales and
operating expenses
before the following
(note 5) 29,885 39,271 115,547 158,519
Selling, general and
administrative
(notes 2 and 4) 5,114 a 7,613 25,389 b 25,690
Depreciation and
amortization (note 9) 2,226 2,252 10,131 c 9,345
Goodwill impairment
(note 10) - 23,586 10,086 23,586
Asset held for sale
write-down (note 8) - - 1,415 -
Loss (gain) on sale
of fixed assets (52) 297 (27) (2,135)
Interest expense 70 46 156 210
-------------------------------------------------------------------------
37,243 73,065 162,697 215,215
-------------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes 451 (22,933) (18,981) (13,534)
Provision (recovery) for
income taxes 87 (2,180) (1,315) (136)
-------------------------------------------------------------------------
Income (loss) from
continuing operations 364 (20,753) (17,666) (13,398)
Loss from discontinued
operations, net of tax - (425) - (536)
-------------------------------------------------------------------------
Net income (loss) for
the period $364 ($21,178) ($17,666) ($13,934)
---------------------------------------------
---------------------------------------------
Other comprehensive
income (loss)
Unrealized (loss) gain
on foreign currency
translation of self-
sustaining operations (3,902) 461 3,865 3,618
-------------------------------------------------------------------------
Comprehensive loss ($3,538) ($20,717) ($13,801) ($10,316)
---------------------------------------------
---------------------------------------------
(Loss) earnings per
common share
Basic and diluted from
continuing operations $0.01 ($0.51) ($0.43) ($0.33)
Basic and diluted from
discontinued operations - (0.01) - (0.01)
-------------------------------------------------------------------------
Basic and diluted (loss)
earnings $0.01 ($0.52) ($0.43) ($0.34)
---------------------------------------------
---------------------------------------------
a. Includes $227 foreign exchange valuation
gain, $403 severance charges
and $88 bad debts
b. Includes $1,107 foreign exchange
valuation loss, $2,392 severance
charges and $1,754 bad debts
c. Includes $590 impairment charge on fixed
assets.
The accompanying notes are an integral part
of these consolidated
financial statements.
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (Unaudited)
$(000)'s
Accumulated
other
compre- Total
Contri- hensive share-
Share buted Retained income holders'
capital surplus earnings (loss) equity
-------------------------------------------------------------------------
Balance,
October 1,
2008 $35,681 $2,789 $109,912 ($16,620) $131,762
Net loss for
the quarter - - (2,425) - (2,425)
Dividends - - (712) - (712)
Stock option
expense - 67 - - 67
Repurchase of
share capital (239) - (290) - (529)
Unrealized gains
on translation
of self-sustaining
operations - - - 12,187 12,187
-------------------------------------------------------------------------
Balance,
December 31,
2008 35,442 2,856 106,485 (4,433) 140,350
Net loss for
the quarter - - (14,607) - (14,607)
Dividends - - (712) - (712)
Stock option
expense - 102 - - 102
Unrealized losses
on translation
of self-sustaining
operations - - - (113) (113)
-------------------------------------------------------------------------
Balance,
March 31, 2009 $35,442 $2,958 $91,166 ($4,546) $125,020
Net loss for
the quarter - - (998) - (998)
Dividends - - (711) - (711)
Stock option
expense - 88 - - 88
Repurchase of
share capital (7) (2) (9)
Unrealized losses
on translation
of self-sustaining
operations - - - (4,307) (4,307)
-------------------------------------------------------------------------
Balance,
June 30, 2009 $35,435 $3,046 $89,455 ($8,853) $119,083
Net income for
the quarter - - 364 - 364
Dividends - - (711) - (711)
Stock option
expense - 84 - - 84
Repurchase of
share capital - - -
Unrealized losses
on translation
of self-sustaining
operations - - - (3,902) (3,902)
-------------------------------------------------------------------------
Balance,
September 30,
2009 $35,435 $3,130 $89,108 ($12,755) $114,918
------------------------------------------------------
------------------------------------------------------
The accompanying notes are an integral part
of these consolidated
financial statements.
EXCO TECHNOLOGIES LIMITED
INTERIM CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited)
$(000)'s
3 Months
ended 12 Months ended
September 30 September
30
2009 2008 2009 2008
-------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net (loss) income from
continuing operations $364 ($20,753) ($17,666) ($13,398)
Add (deduct) items not
involving a current
outlay of cash
Goodwill impairment
(note 10) - 23,586 10,086 23,586
Assets held for sale
write-down (note 8) - - 1,415 -
Depreciation and
amortization (note 9) 2,226 2,252 10,131 9,345
Stock-based compensation
expense (note 2) 124 73 393 402
Future income taxes (764) (2,120) (1,415) (2,186)
Loss (gain) on sale
of fixed assets (52) 297 (27) (2,135)
Loss (gain) on financial
instrument valuation
(note 4) (227) 488 1,107 376
-------------------------------------------------------------------------
1,671 3,823 4,024 15,990
-------------------------------------------------------------------------
Net change in non-cash
working capital
balances related to
continuing operations 1,774 (3,129) 11,365 (3,699)
-------------------------------------------------------------------------
Cash provided by
operating activities of
continuing operations 3,445 694 15,389 12,291
-------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase (decrease) in
bank indebtedness 1,572 1,638 (4,809) 2,760
Increase (decrease) in
long-term debt - - - (85)
Repayment of capital
lease obligations (35) - (134) -
Dividends paid (note 2) (711) (717) (2,846) (2,772)
Repurchase of share
capital (note 2) - (105) (538) (1,843)
-------------------------------------------------------------------------
Cash provided by
(used in) financing
activities of
continuing operations 826 816 (8,327) (1,940)
-------------------------------------------------------------------------
INVESTING ACTIVITIES:
Investment in fixed
assets (1,534) (2,875) (8,020) (11,238)
Proceeds on sale of
fixed assets 165 25 3,841 3,087
-------------------------------------------------------------------------
Cash used in investing
activities of
continuing operations (1,369) (2,850) (4,179) (8,151)
-------------------------------------------------------------------------
CASH FLOWS FROM
DISCONTINUED OPERATIONS:
Net cash provided by
discontinued operations - 341 - 80
-------------------------------------------------------------------------
Net cash provided by
discontinued operations - 341 - 80
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash (400) 115 340 184
-------------------------------------------------------------------------
Net increase in cash
during the period 2,502 (884) 3,223 2,464
Cash,
beginning of period 8,862 9,025 8,141 5,677
-------------------------------------------------------------------------
Cash, end of period $11,364 $8,141 $11,364 $8,141
---------------------------------------------
---------------------------------------------
The accompanying notes are an integral part
of these consolidated
financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
$(000)'s except per share amounts
1. ACCOUNTING POLICIES
Basis of presentation
These unaudited interim consolidated
financial statements of Exco
Technologies Limited (the
"Company") have been prepared in accordance
with Canadian generally accepted accounting
principles ("GAAP"), except
that certain disclosures required for
annual financial statements have
not been included. Accordingly, the
unaudited interim consolidated
financial statements should be read in
conjunction with the Company's
annual consolidated financial statements
included in the 2008 Annual
Report. The unaudited interim consolidated
financial statements have been
prepared on a basis that is consistent with
the accounting policies set
out in the Company's 2008 annual
consolidated financial statements,
except for the changes described below.
Accounting policy changes
Effective October 1, 2008, the Company has
adopted the new Canadian
Institute of Chartered Accountants
("CICA") accounting sections: 3064
(Goodwill and Intangible Assets), 3031
(Inventories) and 1400 (General
Standards of Financial Statement
Presentation).
Section 3064 (Goodwill and Intangible
Assets) provides guidance on the
recognition of intangible assets in
accordance with the definition of an
asset and the criteria for asset
recognition, clarifying the application
of the concept of matching revenues and
expenses and whether these assets
are separately acquired or are developed
internally. Adoption of this new
section has no material impact on the
Company's unaudited interim
consolidated financial statements.
Section 3031 (Inventories) which has
replaced Section 3030, establishes
new standards for the measurement and
disclosure of inventories. It
requires inventories to be measured at the
lower of cost and net
realizable value, provides guidance on the
determination of cost and
requires the reversal of prior write downs
when the net realizable value
of impaired inventory subsequently
recovers. Adoption of this new section
has no material impact on the Company's
unaudited interim consolidated
financial statements.
Section 1400 (General Standards of
Financial Statement Presentation) was
amended to include requirements to assess
and disclose an entity's
ability to continue as a going concern.
Adoption of the amendment of this
section did not have an impact on the
Company's unaudited interim
consolidated financial statements.
Credit risk and the fair value of financial
assets and financial
liabilities (EIC 173) - On January 20,
2009, the Emerging Issues
Committee (EIC) issued the above abstract
which provides further guidance
on the determination of the fair value of
financial assets and financial
liabilities under Section 3855. EIC 173
concluded that when determining
the fair value of financial assets and
financial liabilities, the entity
should consider its own credit risk as well
as the credit risk of the
counterparty. This abstract should be
applied retrospectively, without
restatement of prior periods, to all
financial assets and liabilities
measured at fair value in interim and
annual financial statements for
periods ending on or after January 20,
2009. Adoption of this abstract
has no material impact on the Company's
unaudited interim consolidated
financial statements.
Future accounting policy changes
In February 2008, the Canadian Accounting
Standards Board (ACSB)
confirmed that International Financial
Reporting Standards (IFRS) will
replace current Canadian GAAP for publicly
accountable companies. The
official change-over date is for interim
and annual financial statements
for fiscal years beginning on or after
January 1, 2011. IFRS will be
required for the Company's interim and
annual consolidated financial
statements for the fiscal year beginning on
October 1, 2011. The Company
is currently formulating and developing an
implementation plan to comply
with the new standards and its future
reporting requirements.
In
January, 2009, the CICA issued Section 1582 (Business Combinations),
which replaced former guidance on business
combinations (Section 1581).
This standard establishes principles and
requirements of the acquisition
method for business combinations and
related disclosures. In addition,
the CICA issued Section 1601 (Consolidated
Financial Statements)
(replaced Section 1600), and Section 1602
(Non-Controlling Interests).
Section 1602 provides guidance for the
treatment of non-controlling
interests subsequent to a business
combination. These new standards are
effective for the Company's annual
reporting period on October 1, 2011.
The Company is currently assessing the
impact and does not anticipate the
adoption of this new section will have a
material impact on its
consolidated financial statements.
In June 2009, the CICA issued amendments to
CICA Handbook Section 3862
(Financial Instruments - Disclosures) and
1506 (Accounting Changes).
Section 3862 amendments include enhanced
disclosures related to the fair
value of financial instruments and the
liquidity risk associated with
financial instruments. The amendments will
be effective for annual
financial statements for fiscal years
ending after September 30, 2009.
The Company is currently evaluating the
impact of the amended section on
its consolidated financial statements.
Section 1506 was amended to
exclude from its scope changes in
accounting policies upon the complete
replacement of an entity's primary basis of
accounting. The amendments
are effective for annual and interim
financial statements relating to
fiscal years beginning on or after July 1,
2009. The adoption of IFRS is
not expected to qualify as an accounting
change under CICA 1506.
2. 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
-------------------------------------------------------------------------
Issued and outstanding at September 30,
2008 40,948,276 $35,681
Purchased and cancelled pursuant to
normal course issuer bid (274,100) (239)
-------------------------------------------------------------------------
Issued and outstanding at December 31,
2008 40,674,176 35,442
-------------------------------------------------------------------------
Issued and outstanding at March 31,
2009 40,674,176 35,442
Purchased and cancelled pursuant to
normal course issuer bid (8,000) (7)
-------------------------------------------------------------------------
Issued and outstanding at June 30,
2009 40,666,176 35,435
-------------------------------------------------------------------------
Issued and outstanding at September 30,
2009 40,666,176 $35,435
------------------------
------------------------
Currency translation adjustment
All of the Company's foreign operations are
self-sustaining. Gains and
losses arising from the translation of the
Company's net investment in
its foreign subsidiaries are included in
accumulated other comprehensive
loss in shareholders' equity. The
appropriate amount of exchange gain or
loss included in accumulated other
comprehensive loss is reflected in
earnings when there is a sale or partial
sale of the Company's investment
in these operations or upon a complete or
substantially complete
liquidation of the investment.
Unrealized translation adjustments which
arise on the translation to
Canadian dollars of assets and liabilities
of the Company's self-
sustaining foreign operations resulted in
an unrealized currency
translation loss of $3,902 during the three
months ended September 30,
2009 (three months ended September 30, 2008
- the unrealized translation
gain was $461). For the twelve months ended
September 30, 2009 the
unrealized gain was $3,865 (twelve months
ended September 30, 2008 - the
unrealized gain was $3,618). Year-to-date
unrealized gain of $3,865 is
primarily attributable to the strengthening
of the U.S. dollar against
the Canadian dollar as measured at
September 30, 2009 and September 30,
2008.
Cash dividend
During the three months ended September 30,
2009, the Company paid cash
dividends as outlined in the table below.
The dividend rate per quarter
was increased from $0.015 to $0.0175 per
common share since the second
quarter of fiscal 2008.
2009 2008
-------------------------------------------------------------------------
December 31 $712 $618
March 31 712 719
June 30 711 718
September 30 711 717
-------------------------------------------------------------------------
Total dividends paid $2,846 $2,772
------------------------
------------------------
Stock option plan
The Company has a stock option plan under
which common shares may be
acquired by employees and officers of the
Company. Non-executive
directors are not eligible to participate
in the stock option plan. The
following is a continuity schedule of
options outstanding (number of
options in the table below is expressed in
whole numbers and has not been
rounded to the nearest thousand):
2009 2008
-------------------------------------------------------------------------
Options outstanding Options outstanding
--------------------- ---------------------
Weighted Weighted
Number average Number average
of exercise Options of exercise Options
options price exercisable options price exercisable
-------------------------------------------------------------------------
Opening
balance 2,265,414 $4.36 1,793,196 2,410,849 $4.50 1,817,387
Granted 87,049 $1.52 - 73,777 $3.79 -
Vested - - 157,629 - - 183,021
Expired (348,034) $3.50 (348,034) (179,212) $5.42 (179,212)
-------------------------------------------------------------------------
Balance,
December
31 2,004,429 $4.39 1,602,791 2,305,414 $4.41 1,821,196
Granted 30,000 $1.03 - - - -
Vested - - 2,000 - - 6,000
Expired (40,000) 3.88 (40,000) - - -
Cancelled - - - (30,000) 6.85 (24,000)
-------------------------------------------------------------------------
Balance,
March 31 1,994,429 $4.35 1,564,791 2,275,414 $4.38 1,803,196
Expired (65,000) $4.78 (65,000) - - -
-------------------------------------------------------------------------
Balance,
June 30 1,929,429 $4.33 1,499,791 2,275,414 $4.38 1,803,196
Expired - - - (10,000) $7.60 (10,000)
-------------------------------------------------------------------------
Balance,
September
30 1,929,429 $4.33 1,499,791 2,265,414 $4.36 1,793,196
---------------------------------------------------------------
---------------------------------------------------------------
Employee stock purchase plan
The Company has an employee stock purchase
plan (ESPP). The ESPP allows
employees to purchase shares annually
through payroll deductions at a
predetermined price. During fiscal 2009,
payroll deductions will be made
supporting the purchase of a maximum of
401,150 at $1.29 per share. The
purchase and payroll deductions with
respect to these shares will be
completed in the first quarter of fiscal
2010. Employees must decide
annually whether or not they wish to
purchase their common shares. During
the twelve months ended September 30, 2009
no shares (2008 - nil) were
issued under the terms of the ESPP.
Effective December 31, 2009, the ESPP
will be terminated. Options previously
granted and outstanding will
continue to be outstanding and exercisable
in accordance with the terms
of the plan.
Stock-based compensation
Stock-based compensation resulting from
applying the Black-Scholes
option-pricing model to the Company's Stock
Option Plan and the ESPP was
$84 for the three months ended September
30, 2009 (three months ended
September 30, 2008 - $96) and for the
twelve months ended September 30,
2009 was $341 (twelve months ended
September 30, 2008 - $425). All stock-
based compensation has been recorded in
selling, general and
administrative expenses. The weighted
average assumptions measuring the
fair value of stock options and the
weighted average fair value of
options granted in the twelve months ended
September 30, 2009 are as
follows:
September September
30,
2009 30, 2008
-------------------------------------------------------------------------
Risk free interest rates 2.48% 4.00%
Expected dividend yield 6.24% 1.71%
Expected volatility 36.89% 26.00%
Expected time until exercise 5.63 years 6.10 years
Weighted average fair value of the
options granted $0.18 $0.84
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On November 18, 2005, the Company's Board
of Directors adopted a Deferred
Share Unit Plan ("DSU Plan") for
eligible directors. The deferred share
units will be redeemed by the Company in
cash payable after the eligible
director departs from the Board. The number
of units in the table below
is expressed in whole numbers and has not
been rounded to the nearest
thousand:
Number of
units
issued Expense
-------------------------------------------------------------------------
December 31, 2008 11,535 ($18)
March 31, 2009 12,088 8
June 30, 2009 10,144 22
September 30, 2009 7,377 40
-------------------------------------------------------------------------
41,144 $52
------------------------
------------------------
Contributed surplus
Contributed surplus consists of accumulated
stock option expense less the
fair value of the options at the grant date
that have been exercised and
reclassified to share capital. The
following is a continuity schedule of
contributed surplus:
2009 2008
-------------------------------------------------------------------------
Balance, beginning of the year $2,789 $2,364
Stock option compensation expense 67 137
-------------------------------------------------------------------------
Balance, December 31 2,856 2,501
Stock
option compensation expense 102 97
-------------------------------------------------------------------------
Balance, March 31 2,958 2,598
Stock option compensation expense 88 95
-------------------------------------------------------------------------
Balance, June 30 3,046 2,693
Stock option compensation expense 84 96
-------------------------------------------------------------------------
Balance, September 30 $3,130 $2,789
------------------------
------------------------
Normal course issuer bid
The Company received approval from the
Toronto Stock Exchange for a
normal course issuer bid for a 12-month
period beginning on May 8, 2009
replacing the normal course issuer bid
which expired on May 7, 2009. The
Company's Board of Directors authorized the
purchase of up to 2,000,000
common shares, representing approximately
5% of the Company's outstanding
common shares. During the twelve months
ended September 30, 2009, the
Company purchased 282,100 common shares
under both bids (2008 - 530,200)
at a total cost of $538 (2008 - $1,843).
The cost to purchase these
shares exceeded their stated value by $292
(2008 - $1,382). This excess
has been charged against retained earnings.
3. FIXED ASSETS
September 30, 2009
-------------------------------------------------------------------------
Accumulated
Depreciation
and Net
Cost Amortization Book Value
-------------------------------------------------------------------------
Land $6,653 $- $6,653
Buildings 45,165 14,257 30,908
Machinery and equipment 165,137 131,576 33,561
Tools 5,755 5,181 574
---------------------------------------
$222,710 $151,014 $71,696
---------------------------------------
---------------------------------------
September 30, 2008
-------------------------------------------------------------------------
Accumulated
Depreciation
and Net
Cost Amortization Book Value
-------------------------------------------------------------------------
Land $6,972 $- $6,972
Buildings 44,128 14,059 30,069
Machinery and equipment 182,099 144,768 37,331
Tools 8,278 7,735 543
---------------------------------------
$241,477 $166,562 $74,915
---------------------------------------
---------------------------------------
At September 30, 2009, the Company had
building, machinery and deposits
relating to fixed assets of $3,739 (2008 -
$4,906). These assets are not
being depreciated because they are under
construction and not in use.
Fixed assets under capital leases amounted
to $428 (2008 - nil) less
accumulated depreciation of $154 (2008-
nil).
4. FINANCIAL INSTRUMENTS
Financial instruments of the Company
consist primarily of cash, accounts
receivable, mortgage receivable, bank
indebtedness, accounts payable and
accrued liabilities, customer advance
payments, capital lease obligations
and forward foreign exchange contracts.
With the exception of forward
foreign exchange contracts which the Company
fair values quarterly and
recognizes any changes in value in the
consolidated statements of
earnings and comprehensive loss the
carrying value of these financial
instruments approximates their fair value
due to their nature.
The Company classifies its financial
instruments as follows:
-------------------------------------------------------------------------
Cash Financial
assets - held for trading
Accounts receivable* Financial assets - loans and
receivables
Mortgage receivable* Financial assets - loans and
receivables
Bank indebtedness Financial liabilities -
held for
trading
Accounts payable and accrued Financial liabilities - other
liabilities financial liabilities
Customer advance payments Financial liabilities - held for
trading
Forward foreign exchange Financial assets/liabilities -
contracts held for trading
Capital lease obligations* Financial liabilities - other
financial liabilities
-------------------------------------------------------------------------
* Recorded at amortized cost
Foreign exchange contracts
The Company has forward foreign exchange
contracts to sell US$1,800 over
the next three months at the rate ranges
from 1.08 to 1.13 Canadian
dollars for each US dollar sold. The
Company also entered into a series
of
put and call options ("Collars") extending through to September 22,
2011. The total value of these collars is
83.1 million Mexican pesos
(September 30, 2008 - 138.1 million Mexican
pesos). The selling price
ranges from 11.00 to 12.20 Mexican pesos to
each U.S. dollar.
Management estimates that a combined loss
of $1,338 (2008 - loss of $231)
would be realized if these contracts and
collars were terminated on
September 30, 2009. As at September 30,
2009, the estimated fair value
loss
of $1,107 (2008 - loss of $376) has been included in the selling,
general and administrative expense on the
consolidated statements of
earnings and comprehensive loss and the
loss of $1,338 (2008 - loss of
$231) is recorded in the accounts payable
and accrued liabilities.
Financial risk management
The Company, through its financial assets
and liabilities, is exposed to
various risks. The following analysis
provides a measurement of the risks
and how they are managed:
a)
Credit risk
Credit risk is the risk of an unexpected
loss if a customer or third
party fails to meet its contractual
obligations. The Company's primary
credit risk is its outstanding trade
accounts receivable. The carrying
amount of its outstanding trade accounts
receivable represents the
Company's estimate of its maximum credit
exposure. The Company regularly
monitors its credit risk exposure and takes
steps such as credit approval
procedures, establishing credit limits, utilizing
credit assessments and
monitoring practices to mitigate the
likelihood of these exposures from
resulting in an actual loss. The carrying
amount of the trade accounts
receivable disclosed in the unaudited
interim consolidated balance sheets
is net of allowances for doubtful accounts,
estimated by the Company's
management, based on prior experience and
assessment of current financial
conditions of customers as well as the
general economic environment. When
a receivable balance is considered
uncollectible, it is written off
against the allowance for doubtful
accounts. Subsequent recoveries of
amounts previously written off are credited
against operating expenses in
the consolidated statements of earnings and
comprehensive loss. As at
September 30, 2009, the accounts receivable
balance (net of allowance for
doubtful accounts) is $26,711 (September
30, 2008 - $34,120) and the
Company's five largest trade debtors
accounted for 41% of the total
accounts receivable balance (2008 - 44%).
At September 30, 2009, accounts
receivable in the amount of $9,557 are
insured against default.
The following table presents a breakdown of
the Company's accounts
receivable balances:
2009 2008
-------------------------------------------------------------------------
Trade accounts receivable $26,425 $34,191
Employee receivable* 283 64
Sales tax receivable 414 160
Vendor rebates - 81
Others 51 105
Allowance for doubtful accounts (462) (481)
-------------------------------------------------------------------------
Total accounts receivable, net $26,711 $34,120
------------------------
------------------------
* The indebtedness of the Chief Executive
Officer of the Company is a
loan in the amount of $186 evidenced by
a promissory note due on the
date on which the Company makes demand.
The promissory note provides
for a maximum loan amount of $200.
Interest is payable on the
outstanding balance at a rate equal to
the Company's cost of
borrowing plus 1%. No security has been
provided to the Company and
no other understanding, agreement or
intention to limit recourse
exists. In addition, the Company is
owed a total of $46 on account of
non-business expenses paid by the
Company on behalf of this officer
and interest accrued on the outstanding
loan.
The aging of trade accounts receivable
balances is as follows:
2009 2008
-------------------------------------------------------------------------
Not past due $19,698 $26,593
Past due 1-30 days 3,829 4,155
Past due 31-60 days 1,042 1,035
Past due 61-90 days 1,513 599
Past due over 90 days 343 1,809
Less: allowance for doubtful accounts (462) (481)
-------------------------------------------------------------------------
Total trade accounts receivable, net $25,963 $33,710
------------------------
------------------------
The movement in the allowance for doubtful
accounts is as follows:
2009 2008
-------------------------------------------------------------------------
Opening balance $481 $696
Bad debt expense 1,754 1,120
Write-offs (1,773) (1,335)
-------------------------------------------------------------------------
Closing balance $462 $481
------------------------
------------------------
b) Liquidity risk
Liquidity risk refers to the possibility
that the Company may not be able
to meet its financial obligations as they
come due. The Company manages
its liquidity risk by minimizing its
financial leverage and arranging
credit facilities in order to ensure
sufficient funds are available to
meet its financial obligations. This is
achieved by continuously
monitoring its cash flows from its
operating, investing and financing
activities. As at September 30, 2009, the
Company has a net cash balance
of $11,364 (2008 - $3,507) and unused
credit facilities of
$24,379 (2008 - $43,546).
c) Foreign exchange risk
The Company's functional and reporting
currency is in Canadian dollars.
It operates in Canada with subsidiaries
located in the United States,
Mexico and Morocco. It is exposed to
foreign exchange transaction and
translation risk through its operating
activities and self-sustaining
foreign operations. Unfavourable changes in
the exchange rates may affect
the operating results and shareholders'
equity of the Company. In order
to mitigate the foreign currency exposure,
the Company reduces part of
its foreign exchange risk by sourcing a
significant portion of its
manufacturing inputs in the currency that
its sales are denominated in.
In addition to above natural hedge, depending
on the timing of foreign
currency receipts and payments, the Company
will occasionally enter into
short term forward foreign exchange
contracts to mitigate part of the
remaining foreign exchange exposure. These
contracts are classified as
"held for trading" on the balance
sheet and fair valued each quarter. The
resulting gain or loss on the valuation of
these financial instruments is
recognized in the consolidated statements
of earnings and comprehensive
loss. The Company does not mitigate the
translation risk exposure of its
self-sustaining foreign operations due to
the fact that these investments
are considered to be long-term in nature.
With all other variables held constant, the
following table outlines the
Company's foreign exchange exposure at one
percent fluctuation between
various currencies compared with the
average year to date exchange rate.
-------------------------------------------------------------------------
1 % 1 % 1 % 1 %
Fluctuation Fluctuation Fluctuation Fluctuation
USD vs. Dirham vs. Euro vs. USD vs.
CDN CDN Dirham MXN peso
-------------------------------------------------------------------------
Earnings (loss) before
income taxes +/- $586 +/- $11 +/-
$36 +/- $50
-------------------------------------------------------------------------
Other comprehensive
income (loss) +/- $1,616 +/- $157 na na
-------------------------------------------------------------------------
-------------------------------------------------------------------------
d) Interest rate risk
The Company's exposure to interest rate
risk relates to its net cash
position and variable rate credit
facilities. The Company mitigates its
interest risk exposure by reducing or
eliminating its overall debt
position. As at September 30, 2009, the
Company has a net cash position
of $11,364 (2008 - $3,507); therefore its
interest rate risk exposure is
insignificant.
5. INVENTORIES
2009 2008
-------------------------------------------------------------------------
Raw materials $9,056 $12,628
Work in process 10,434 12,322
Finished goods 3,439 4,905
Production supplies 401 672
-------------------------------------------------------------------------
$23,330 $30,527
------------------------
------------------------
Inventories are valued at the lower of cost
and net realizable value,
with cost being determined substantially on
a first-in, first-out basis.
Cost includes the cost of materials and, in
the case of work in process
and finished goods, direct labour and the
applicable share of
manufacturing overhead.
During the twelve months ended September
30, 2009, inventories of $62,146
(2008 - $94,100) were expensed of which
$1,152 were from the write downs
of inventory (2008 - $694) were included in
cost of goods sold. No
reversals of write downs were recorded
during the twelve months ended
September 30, 2009 and 2008.
6. CAPITAL MANAGEMENT
The Company defines capital as net debt and
shareholders' equity. As at
September 30, 2009, total managed capital
was $114,918 (September 30,
2008 - $131,762) consisting of nil net debt
(September 30, 2008 - nil)
and shareholders' equity of $114,918
(September 30, 2008 - $131,762).
The Company's objectives when managing
capital are to:
- utilize short-term funding sources to manage its working capital
requirements and fund capital
expenditures required to execute its
operating and strategic plans, and
- maintain low overall debt levels relative to shareholders' equity
with a strong bias for short-term debt
in order to minimize the cost
of capital and allow maximum flexibility
to respond to current and
future industry, market and economic
risks and opportunities.
The following ratios are used by the
Company to monitor its capital:
September September
30, 2009 30, 2008
-------------------------------------------------------------------------
Net debt to equity 0.00:1 0.00:1
Current ratio 2.58:1 2.55:1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table details the net debt calculation
used in the net debt
to equity ratio as at the periods ended as
indicated:
September September
30, 2009 30, 2008
-------------------------------------------------------------------------
Bank indebtedness $- $4,634
Capital lease obligations 273 -
Less: cash (11,364) (8,141)
-------------------------------------------------------------------------
Net debt nil nil
------------------------
------------------------
The current ratio is calculated by dividing
current assets (excluding
cash and assets held for sale) by current
liabilities (excluding bank
indebtedness).
The Company is not subject to any capital
requirement imposed by
regulators; however, the Company must
adhere to certain financial
covenants related to the terms of its bank
credit facility. As at
September 30, 2009, the Company was in
compliance with the required
financial covenants.
7. CAPITAL LEASE OBLIGATIONS
2009 2008
-------------------------------------------------------------------------
Total minimum lease payments $283 $-
Less: amount representing interest at
average
rate of 4.4% (10) -
-------------------------------------------------------------------------
Capital lease obligations 273 -
Less: current portion (125) -
-------------------------------------------------------------------------
Long-term portion of capital lease
obligations $148 $-
------------------------
------------------------
Future minimum lease payments are as
follows:
-------------------------------------------------------------------------
Total
Capital Minimum
Lease Lease
Obligations Interest Payments
-------------------------------------------------------------------------
2010 $127 $8 135
2011 103 2 105
2012 26 - 26
2013 10 - 10
2014 7 - 7
-------------------------------------------------------------------------
$273 $10 $283
--------------------------------------
--------------------------------------
8. ASSETS HELD FOR SALE
In May 2009, the Company concluded the sale
of the Techmire production
facility with a net loss of $1,415. This
loss was recorded as a write-
down of assets held for sale in the second
quarter of the current year
when the sale and purchase agreement was
signed.
In reacting to the current economic crisis
and negative trend of the
automotive industry, the Company has ceased
to operate the Neocon USA
subsidiary in order to consolidate the
Group operations, reduce overhead
and dispose of the production facility.
Effectively, a total of $1,501 of
its fixed assets, mainly land and building,
is listed for sale. The
Company expects the total proceeds from the
sale of these assets to be
higher than their net book values.
9. LONG-LIVED ASSETS IMPAIRMENT
During the second quarter of the year, the
Company's Automotive Solutions
segment (Neocon USA) recorded an asset
impairment charge on its machinery
and equipment in the amount of $590. The
impairment charge was included
in the depreciation of its fixed assets. It
was determined by comparing
the current pricing of similar machinery
and equipment. As a result,
management estimated the fair value of its
machinery and equipment
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