DRIVING VALUE
DRIVING
VALUE
2015 ANNUAL REPORT
Casting & Extrusion Technologies
(Greenfield Facility)
Casting & Extrusion Technologies
(Production Facility)
Automotive Solutions
(Production Facility)
Markham, ON
Newmarket, ON
Uxbridge, ON
Chesterfield, MI
Toledo, OH
Dartmouth,
NS
Matamoros, MX
Wylie, TX
Landshut, GERMANY
Musachevo & Ihtiman,
BULGARIA
Tangier,
MOROCCO
Queretaro, MX
Medellin,
COLOMBIA
Chonburi,
THAILAND
Sorocaba,
BRAZIL
Maputsoe,
LESOTHO
Rosslyn,
SOUTH AFRICA
SALES
($ millions)
NET INCOME
($ millions)
BASIC EARNINGS
PER SHARE
.
3
8
6
6 3
4
4
2
.
.
5
2
4
2
.
6
2
0
2
.
3
8
9
4
.
4
4
2
.
3
3
1
.
7
0
6 3
3
2
.
.
8
0
4
0
6
0
$
.
8
5
0
$
.
2
3
0
$
.
.
6
9
0
4 $
7
0
$
.
CASH FLOW
FROM OPERATING
ACTIVITIES*
($ millions)
.
0
9
5
.
0
2
1 4
2
3
.
.
7
1
6 3
3
2
.
11
12
13
14
15
11
12
13
14
15
11
12
13
14
15
11
12
13
14
15
*Before net change in non-cash working capital.
EXCO TOOLING SOLUTIONS
®
A L C
LETTER TO SHAREHOLDERS
By almost any measure, fiscal 2015 was the best year
in Exco’s history. Aided by a full twelve months of sale
from Automotive Leather Company (ALC), which was
acquired on March 1, 2014, as well as strong growth
across the Automotive Solutions and Casting and
Extrusion segments of our business, consolidated sales
increased $130.0 million or 35 percent to a record
$498.3 million. Consolidated net income reached a
record $40.8 million or $0.96 per share compared to
$30.7 million or $0.74 per share in fiscal 2014. Exco’s
addition to the S&P/TSX Small Cap Index in September
is further validation of our extraordinary accomplish-
ments this year.
These results represent the latest in several years
of improving financial and operating performance.
In the past five years, consolidated sales and
consolidated net income have grown at compound
annual growth rates of 25 percent and 32 percent,
respectively. Nonetheless, it’s the future that matters
most to investors. And what many of you ask is: “How
will Exco continue to prosper amidst possible peak vehicle
production in North America and intense competition
in the relatively mature European and North American
automotive markets?” The answer is that irrespective
of industry production volumes, we will continue to
focus on driving value for our customers.
In our fast-growing Automobile Solutions segment,
our customers want high-quality, lightweight interior
trim components at the lowest possible cost. That’s
why we have shifted our productive capacity to low-
cost, free trade jurisdictions in closer proximity to
our customers’ operations over the years, and
developed new products and services that leverage
our
recently, our
customers have been seeking more upscale trim
components to satisfy
increasingly discriminating
buyers in both luxury and mid-market brands. The
acquisition of ALC exemplified our ongoing strategy of
taking advantage of such trends. Among the benefits
competitive strengths. More
in
leather content that
this strategy has brought to Exco are: a major new
category
is expected to
experience steady growth in all vehicle segments;
new product relationships with German luxury car
makers and other Tier 1 suppliers; low-cost production
facilities in Eastern Europe that complement our plants
in Morocco and Mexico; and, the potential to cross-
sell product offerings between our plants within the
Automotive Solutions segment.
The future is similarly bright for the Casting and
Extrusion segment, which makes moulds and
consumable components used for die casting and
extrusion of aluminum parts for automotive and
industrial/ construction applications. Our greatest
competitive advantage in this business is exceptional
mould and die design. We are recognized worldwide
for our ability to help customers improve operating
efficiency,
increase machine uptime and produce
exceptionally high quality parts. In the past few years,
our large mould business has benefitted from ever
more stringent fuel efficiency and emission reduction
standards, which have driven the development of
increasingly advanced engines and transmissions
by OEMs and their Tier 1 suppliers and spurred the
introduction of many new vehicles. We expect
these trends to continue. In North America, pro-
posed CAFE requirements will raise the fuel efficiency
standard to 54.5 miles per US gallon by 2025, with
required every year
incremental
starting in 2017. In Europe, phased emission targets
for automobile fleets will reach 95 grams of CO2 per
kilometre by 2020, down from 127 grams of CO2 per
kilometre in 2013. This imperative has only intensified
with recent regulatory scrutiny of ‘real road’ emissions
of vehicles – especially diesel engines.
improvements
The quest for better fuel efficiency and
lower
emissions is also driving a powerful transition from steel to
lighter weight aluminum alloys in the production of non-
powertrain structural components. In 2014 we began
EXCO TECH NOLOGIES LIMITED
1
ANNUAL REPORT 2015
LETTER TO SHAREHOLDERS (cont’d.)
to capitalize on this development with commercial
production of our first moulds for chassis cross
members and engine cradles. This business has the
potential to surpass our traditional tooling business for
engine block and transmission housings as the use of
aluminum in automobile production continues to grow.
A recent study by Ducker Worldwide indicates the
average car or light truck produced in North America in
2014 contained 350 pounds of aluminum, of which 19
pounds were aluminum extrusions. In 2025, aluminum
content is forecast to increase to 547 pounds, with
extruded components accounting for 42 pounds per
vehicle.
The prospects for our Castool business are also strong,
bolstered by a steadfast focus on the performance
of the entire injection system of our customers’ die
cast machines and extrusion presses. This strategy
has yielded unprecedented quality, performance and
value for our customers and given us a strong
competitive advantage over traditional component
suppliers. From the purchase of Allper AG in 2010 to
the opening of our new production facility in Thailand,
we have successfully positioned Castool to meet the
demands of a growing list of customers in Europe and
Asia.
We are similarly focused on driving value for
shareholders, as reflected
in Exco’s traditionally
prudent approach to financial management and strong
balance sheet. Overall cash provided by operating
activities remained strong at $41.7 million at year-
end, up from $40.4 million last year. The Company also
remains net bank debt-free despite $20.0 in capital
expenditures, $17.7 million of investment in non-cash
working capital to support the growth of our business
and $9.7 million in dividends. We ended the year with
a net cash position of $24.5 million, compared to $7.8
million at the end of fiscal 2014.
While fiscal 2015 was a remarkable year for Exco, it
was not without its issues. Despite our record results
Exco experienced losses at our South Africa/Lesotho
operations as the ramp up issues at the Lesotho
operation delayed the transfer of production and
ultimately
the closure of our South African
operation by more than a year. We were also impacted
by start-up losses at our two greenfield operations in
Brazil and Thailand. They both started commercial
production in June 2014.
We however remain confident that our best years are
on the road ahead. The situation in South Africa is
being rectified and losses in Brazil and Thailand
will abate as those operations develop. The North
American automotive sector continues to be support-
ed by strong fundamentals and Europe is recovering
at a gradual but steady pace. Modest interest rate
increases, should they occur, are not expected to
fundamentally dampen demand. Against this back-
drop, plans by OEMs to redesign, refresh and introduce
new vehicles and powertrain systems bode well for
Exco’s prospects, as do the plans of Japanese, South
Korean and German automakers to expand production
in North America.
I would like to close by extending a sincere thank
you to all of Exco’s 5,302 talented and dedicated
employees. With your continued support, I am confident
we will continue to drive value for our customers, and
investors, in the year ahead.
Brian A. Robbins
President and CEO
EXCO TECH NOLOGIES L IMITED
2
ANNUAL REPORT 2015
CONTENTS
4
19
20
24
Management's Discussion and Analysis
Independent Auditors’ Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should
be read in conjunction with the consolidated financial statements and related notes for the year ended September
30, 2015. This MD&A has been prepared as of December 2, 2015.
Additional information on Exco, including copies of its continuous disclosure materials such as its Annual
Information Form, is available on its website at www.excocorp.com or through the SEDAR website at
www.sedar.com .
In this MD&A, reference is made to EBITDA and adjusted net income and adjusted earnings per share, which are
not measures of financial performance under International Financial Reporting Standards (“IFRS”). Exco
calculates EBITDA as earnings before interest, taxes, depreciation and amortization. EBITDA is used by
management, from time to time, to facilitate period-to-period operating comparisons and we believe some investors
and analysts use them as well. This measure, as calculated by Exco, may not be comparable to similarly titled
measures used by other companies.
CAUTIONARY STATEMENT
Information in this document relating to projected growth and financial performance of the Company’s business
units, contribution of our start-up business units, contribution of awarded programs yet to be launched, margin
performance, financial performance of acquisitions and operating efficiencies are forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements found mainly in the Outlook
section but also elsewhere throughout this document. These forward-looking statements are based on our plans,
intentions or expectations which are based on, among other things, assumptions about the number of automobiles
produced in North America and Europe, the number of extrusion dies required in North America and South
America, the rate of economic growth in North America, Europe and emerging market countries, investment by
OEMs in drivetrain architecture and other initiatives intended to reduce fuel consumption and/or the weight of
automobiles, weakening raw material prices, continuing economic recovery, currency fluctuations which may in fact
not occur, our ability to close or otherwise dispose of unprofitable operations in a timely manner, our ability to
integrate acquisitions and the rate at which our new operations in Brazil and Thailand achieve profitability. These
forward-looking statements include known and unknown risks, uncertainties, assumptions and other factors which
may cause actual results or achievements to be materially different from those expressed or implied. For a more
extensive discussion of Exco’s risks and uncertainties see the ‘Risks and Uncertainties’ section in this Annual
Report, our Annual Information Form (“AIF”) and other reports and securities filings made by the Company. This
information is available at www.sedar.com.
EXCO TECH NOLOGIES L IMITED
3
ANNUAL REPORT 2015
While Exco believes that the expectations expressed by such forward-looking statements are reasonable, we cannot
assure that they will 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 will update its disclosure upon publication of each fiscal quarter’s
financial results and otherwise 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
CORE BUSINESSES
Exco is a global designer, developer and manufacturer of dies, moulds, components and assemblies, and consumable
equipment for the die-cast, extrusion and automotive industries. The Company reports in two business segments.
The Casting and Extrusion segment designs, develops and manufactures die-casting and extrusion tooling and
consumable parts for both aluminum die-casting and aluminum extrusion machines. Operations are based in North
America, South America and Thailand and serve automotive and industrial markets around the world. Exco is a
leader in most of these markets. In die-casting and extrusion tooling markets, Exco is further entrenching itself by
reducing lead times and manufacturing costs through design and process enhancements. In the die-cast tooling group
a major equipment capital project is underway that should increase capacity and reduce lead times without
increasing the plant size or significantly growing factory overhead. In the machine consumables market, Exco is
leveraging its long tradition as a reliable, high-quality supplier of consumable components for the injection system
of die-cast machines and aluminum extrusion presses by evaluating, coordinating and ultimately maximizing
customers’ overall equipment performance and longevity. The Canadian, European, South American and United
States markets are Exco’s primary focus for die-cast moulds, extrusion dies and machine consumable parts, and with
the greenfield facility in Thailand Asia is also now a growing target market for Exco.
The Automotive Solutions segment designs, develops and manufactures automotive interior trim components and
assemblies primarily for passenger and light truck vehicles. The Polytech and Polydesign businesses manufacture
synthetic net and other cargo restraint products, injection-moulded components, shift/ brake boots, related console
components and assemblies. Polydesign is also a manufacturer of injection moulded interior trim and instrument
panel components, seat covers, head rests and other cut and sew products. Automotive Leather Company is a
manufacturer of leather/fabric seat covers for automobile interiors. Neocon is a supplier of soft plastic trunk trays,
rigid plastic trunk organizer systems, floor mats and bumper covers. Automotive Solutions facilities are located in
Canada, the United States, Mexico, Bulgaria, Morocco, South Africa and Lesotho supplying the North American,
European and Asian automotive markets.
VISION AND STRATEGY
For the past few years, Exco has pursued several key strategies designed to achieve sustainable revenue and earnings
growth. These include: (1) strengthening our technological leadership and competitive position in our chosen
markets through automation and technology, (2) minimizing our cost structure, (3) shifting our productive capacity
to low-cost jurisdictions in closer proximity to our customers’ operations, (4) diversifying our revenue base with
new products and services that leverage our competitive strengths, and (5) capitalizing on growth opportunities in
selected developing markets.
EXCO TECH NOLOGIES L IMITED
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ANNUAL REPORT 2015
The performance of the North American automotive industry continued to improve in fiscal 2015, with most OEMs
and tier one suppliers having strong sales and credit ratings. Production of light vehicles continued to increase,
driven by strong economic demand and widespread introduction of new vehicle models. Automobile manufacturers
continue to invest in the development and production of more innovative and fuel-efficient powertrains in response
to consumer demand, as well as U.S. government-mandated Corporate Average Fuel Economy (“CAFE”) standards
that require fleet average fuel economy of 54.5 miles per gallon by 2025. In Europe comparable legislation
requiring co2 emissions to be reduced from 2013 levels of 127g/km to 95g/km by 2021is also driving innovation
and improvement in powertrain design. These developments continue to bode well for our large mould business
creating promising new opportunities for growth. During fiscal 2015, Exco successfully extended its technological
leadership into the production of die-cast moulds for light-weight structural parts that use an advanced aluminum
alloy called silafont. To date, Exco has shipped numerous silafont moulds and has orders for various additional
programs. This business unit has also landed orders for nine and ten speed transmission cases and numerous four
and three cylinder engine block programs which are at the vanguard of OEM efforts to improve vehicle fuel
efficiency.
The balance of Exco’s Casting and Extrusion segment also performed well amid steady demand in automotive and
industrial markets. Our Castool business continues to grow in North America and overseas. Surging global demand
for these products has prompted Castool to build a production facility in Asia to more efficiently meet this demand.
Our extrusion die businesses are also positioned to meet increasing demand occasioned by the imposition of anti-
dumping duties against Chinese imports into Canada and the US on aluminum extrusions and by the general
migration to light-weight aluminum components on automobiles. In fact, our decision to establish ourselves in
Colombia and Texas has proven prescient as strong demand for extrusion dies in Canada and the US has enabled us
to transfer our South American business from Extrusion Canada (Markham) to Extrusion Colombia. Extrusion
Texas has also helped Extrusion USA with surging demand for extrusion dies in the US market.
Higher vehicle production volumes also propelled sales and profit in the Automotive Solutions interior trim segment
as our North American units, Neocon and Polytech, kept pace with strong order flow in North America.
Furthermore, a higher proportion of the vehicles produced are refreshed or completely new models. This enables us
to increase our content per vehicle and also replace older programs which have been ‘costed down’ over the years
with new programs reflecting current costs and better margins. The cost of raw material has also softened in
keeping with commodities generally, however, this cost benefit to the segment is offset by ‘cost down’ pressure
from customers. Sales and profit at Polydesign also improved dramatically as the lingering recession in Europe
seems to be receding and new program launches kicked in during the year.
While the North American automobile industry is well positioned for steady growth, our opinion continues to be that
prospects for the larger economy here, and in Europe, are nonetheless limited by several structural trends. These
include: a steadily aging population, modest economic growth, and historically high levels of consumer and
government debt. As a result, it is likely that the US and the Euro zone economies will, over the long term,
underperform the economies of most developing countries – particularly, in Latin and South America and Southeast
Asia. Admittedly emerging economies are currently under pressure. Brazil is a case in point. However, over the
long term we believe the underlying structural trends will reassert themselves.
In recognition of these long term trends, Exco reaffirms its commitment to establishing a larger presence in these
markets to plant the seeds of revenue and earnings growth for future years. Our focus has been traditionally on
relatively low-risk opportunities in markets that are already familiar to us, and which leverage our technological
leadership and existing product and service capabilities – such as South America and Asia.
Exco has exported to these emerging markets for many years and we are familiar with the customers and the general
business climate. We have also operated several large plants in low-cost jurisdictions such as Mexico and Morocco
EXCO TECHNOLOGIES LIMITED
5
ANNUAL REPORT 2015
for many years with exceptional performance and financial results. The increasingly sophisticated customers in
these emerging markets are looking for superior quality, innovative product solutions and the benefit of local
sourcing, product development and service. By manufacturing locally, we also significantly reduce transportation
costs and mitigate the effect of unfavorable currency trends.
This is the rationale for our greenfield facilities in Brazil and Thailand. In November 2012, we announced the
construction of a new extrusion die production facility near Sao Paulo, Brazil. It has been producing since June
2014. While the economy in Brazil is in recession we continue to ramp up business, albeit at a slow pace, and hone
our skills and capabilities thus positioning ourselves for the recovery when it eventually takes place. In January
2013, we also announced construction of a new Castool facility in Thailand to better serve Castool’s current export
customers and take advantage of lower production and shipping costs to Asian and European customers. This
facility has been producing since July 2014 and despite relative softness in China as of late this plant too is building
a solid operational base for coming growth.
Notwithstanding Exco’s investment in developing markets, we also continue to look for selective acquisitions that
will bolster our position and enhance profitability in North America and Europe. In January 2013, we acquired an
extrusion die manufacturer located in Wylie Texas which services the south-central region of the United States. The
acquisition has given us a strong presence in a distinct and growing geographic market segment where proximity to
customers is a key element for success. It has also allowed us to absorb overflow business from our Extrusion USA
plant in Michigan – so much so that in 2015 we expanded this operation with a new and larger facility to commence
production in 2016.
On March 1, 2014 we also purchased Automotive Leather Company which specializes in the manufacture and
export of luxury leather interior trim components to the middle and luxury automotive sector. The primary customer
is BMW and its tier one supplier Faurecia although other German OEMs and their tiers are also customers. This
acquisition gives us a facility in Eastern Europe, to which European automotive manufacturing has migrated, and a
central European technical and service centre from which we can better serve our European customers. Operations
in Southern Africa are less compelling. Exco is currently in the process of closing its operations in South Africa.
Management will then focus on production efficiencies at the Lesotho operation and determine the prospects for
long term new business opportunities in that region.
Looking ahead, light vehicle production in North America is projected to remain robust in 2016 despite the gradual
rate of growth in the larger global economy. Market fundamentals also remain strong with low interest rates and
affordable consumer credit in both North America and Europe. There is still significant demand for new automobiles
as the average age of cars on the road in the USA continues to climb. At the same time, increasingly stringent
mileage and co2 emission requirements are expected to keep fuelling the steady pace of new model and global
platform introductions in both North America and Europe in the year ahead. These developments will continue to
benefit both our Casting and Extrusion and Automotive Solutions segments.
2015 RESULTS
Consolidated Results - Sales
Annual sales totalled $498.3 million compared to $368.3 million last year – an increase of $130.0 million or 35%
over last year. Included in the current year was full year sales in the amount of $148.3 million from ALC compared
to seven months sales in the amount of $83.9 million last year. Excluding sales from ALC, annual sales totalled
$350.0 million – an increase of $65.6 million or 23% over last year. Consolidated sales also benefited from
increased activity at our two greenfield facilities. Extrusion Brazil and Castool Thailand both commenced
EXCO TECH NOLOGIES L IMITED
6
ANNUAL REPORT 2015
commercial production in the summer of 2014 and accordingly experienced full year sales in 2015 of $5.1 million
compared to $758 thousand last year. For further detail see ‘Segment Sales – Casting and Extrusion Segment’
below. In addition, over the year, the US dollar has appreciated 19% ($1.12 versus $1.335) against the Canadian
dollar contributing $31.1 million in additional sales to the current year. Despite the fact that the Euro closed the
fiscal year higher ($1.50) against the Canadian dollar compared to the rate at the start of the year ($1.42) – during
the year it depreciated (average rate in 2015 was $1.41 compared to $1.47 for 2014) thus decreasing sales in Europe
by approximately $5.7 million.
Selected Annual Information
The following table sets out selected financial data relating to the Company’s years ended September 30, 2015 and
2014. This financial data should be read in conjunction with the Company’s audited consolidated financial
statements for these years:
(in $ millions except per share amounts)
Sales
Net income for the year
Earnings per share from net income
Basic
Diluted
Total assets
Cash dividend paid per share
EBITDA
Segment Sales
2015
$498.3
$40.8
$0.96
$0.96
$342.8
$0.23
$77.0
2014
$368.3
$30.7
$0.74
$0.73
$290.6
$0.195
$53.9
• Casting and Extrusion Segment
Sales for this segment were $195.2 million – an increase of $25.7 million or 15% from the prior year. All business
groups in the segment contributed to the sales increase: large mould business sales increased 23%, Castool sales
increased 11% and the extrusion tooling group sales increased 10% over the prior year. The sales increase in the
large mould group reflects strong North American demand for rebuild/maintenance work on existing mould
programs and, to a lesser extent, new moulds on just-launching powertrain and structural part programs. The sales
increase in the extrusion tooling group was supported by strong market demand in North America as our customers
move extrusion capacity back to North America in response to rising costs in China and anti-dumping duties in
Canada and the United States against Chinese imports of most aluminum extrusions. Sales in this group are also up
as a result of the commencement of selling activity by Extrusion Brazil in June 2014 ($1.4 million versus $154
thousand last year). Castool sales also reflect continuing strong market conditions in North America, South America
and Asia. Sales from Castool Thailand which also commenced production in the last fiscal quarter of 2014 were
$3.7 million compared to $604 thousand last year. The appreciation of the US dollar against the Canadian dollar
contributed $16.4 million to sales in this segment in the current year. The change of the Euro against the Canadian
dollar described in ‘Consolidated Results – Sales’ above had a negligible impact of $181 thousand on sales in this
segment in the current year.
● Automotive Solutions Segment
Sales in this segment were $303.1 million – an increase of $104.3 million or 52% from the prior year. Our seat cover
business which was acquired in March 2014 contributed $148.3 million to sales in the current year compared to
$83.9 million last year. Excluding ALC, sales would have been $154.8 million – an increase of $39.9 million or
EXCO TECHNOLOGIES LIMIT ED
7
ANNUAL REPORT 2015
35% from the prior year. Polytech and Neocon sales in North America account for the majority of this growth –
sustained by strong vehicle unit sales as well as new product launches for refreshed, redesigned and entirely new
vehicle models. Polydesign’s sales increased over the prior year as the smooth launch of new programs continued at
a strong pace and European vehicle unit sales continued to improve modestly. The appreciation of the US dollar
against the Canadian dollar caused sales to increase at Polytech and Neocon by a total of $14.6 million this year.
Also, the changes in the Euro against the Canadian dollar as described in ‘Consolidated Results – Sales’ above since
the beginning of the year decreased sales from our European operations by $5.5 million.
Cost of Sales
Cost of sales totalled $379.5 million – an increase of $100.6 million or 36% from the prior year. Cost of sales as a
percentage of sales remained constant with last year at 76%. As a percentage of sales, direct labor has declined 1%
to 9% ($45.5 million) from 10% ($35.9 million) last year. Overhead has also declined 2% to 16% ($77.5 million)
from 18% ($65.7 million) last year. These reductions were offset by higher raw material costs which increased 3%
to 51% of sales ($256.5 million) compared to 48% of sales ($177.3 million) last year. The raw material increase is
primarily due to the full year inclusion of seat cover sales this year compared to seven months inclusion last year.
Our seat cover business has high raw material content (approximately 76% of sales) compared to Exco’s other
businesses (approximately 41% of sales) as seat covers have high leather/fabric content. The fact that cost of sales
has remained constant in 2015 despite having a full year of seat cover sales underscores the operating efficiencies
taking place in our businesses. Excluding ALC businesses, Exco’s cost of sales would have been 68% compared to
70% last year. This reflects two factors. First, Exco experienced stable raw material pricing for Exco’s two major
input materials – tool grade steel and petroleum/natural gas based resin and plastic products for automotive interior
trim applications. Global sourcing of steel in particular has contributed to containment of raw material costs.
Secondly, Exco experienced efficient absorption of overhead costs at several of its business units.
Selling, General and Administrative Expenses
Selling, general and administrative expense in the current year increased to $41.6 million from $35.5 million last
year. However, as a percentage of sales, it decreased to 8.3% from 9.6% in the prior year. Included in the current
year were $4.2 million of selling, general and administrative expense from the full year inclusion of ALC compared
to $2.0 million last year with seven months inclusion. In addition, the following items mostly accounted for the
remainder of the increase: commissions ($3.0 million versus $2.1 million last year) which increase as sales levels
grow, stock option expense ($1.0 million versus $860 thousand) caused by the appreciation of Exco share price
during the year, incentive plan expense ($6.5 million versus $5.2 million last year) which generally increase with
earnings, travel expense (4.4 million versus $3.4 million last year) reflecting more extensive travel to our greenfield
locations in Brazil and Thailand as well as South Africa/Lesotho. Partially offsetting these items were a reduction in
severance cost ($900 thousand versus $1.1 million last year).
Depreciation and Amortization
Depreciation expense increased to $10.0 million in the Casting and Extrusion segment from $8.4 million last year
due to higher expenditures on machinery and equipment in the large mould business and full year depreciation on
our new buildings, machinery and equipment in Thailand and Brazil ($1,945 thousand versus $555 thousand last
year). Depreciation in the Automotive Solutions segment increased to $3.5 million from $2.8 million last year due
to full year inclusion of ALC machinery and equipment compared to seven months last year. Furthermore, in 2015
amortization of intangible assets related to the fair valuation of the customer relationship with ALC customers was
expensed for twelve months ($706 thousand) compared to seven months ($408 thousand) last year. This
amortization is expected to continue for 41 months at a monthly non-cash charge of $58 thousand.
EXCO TECH NOLOGIES L IMITED
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ANNUAL REPORT 2015
Interest
Net interest expense in the current year totalled $939 thousand compared to $715 thousand in the prior year. The
increase in the interest expense was mainly caused by the financing of our seat cover business working capital at our
operations in Bulgaria and South Africa.
Income Taxes
Exco’s effective income tax rate was 33.0% compared to an effective income tax rate of 25.0% in fiscal 2014.
Included in the current year’s income tax expense was $1.9 million for the write-off of deferred tax assets in South
Africa and $694 thousand withholding tax paid on the repatriation of surplus from a subsidiary. Included in the prior
year was $220 thousand withholding tax paid on the repatriation of surplus from a subsidiary. Excluding these tax
charges, Exco’s adjusted effective income tax rate in the current year would have been 28.8% compared to 24.4% in
the prior year. The higher adjusted effective income tax rate in the current year was due mainly to higher earnings
contribution from higher tax jurisdictions such as the USA and Canada (see note 14 to the 2015 Consolidated
Financial Statements) and the impact of losses not being tax-affected in Brazil.
Net Income
• Consolidated
The Company reported consolidated net income of $40.8 million or basic and diluted earnings of $0.96 per share
compared to consolidated net income of $30.7 million or basic earnings of $0.74 per share and diluted earnings of
$0.73 per share last year – an increase of $10.1 million or 33.0%. The increase in consolidated net income was
primarily caused by 35% higher sales compared to last year (see ‘Consolidated Results – Sales’ above). As a
percent of sales consolidated net income remained constant at 8.2% compared to 8.3% last year. However the last
several years did experience numerous non-operating and/or non-recurring items which are helpful in better
understanding the Company’s financial results. In the fourth quarter of 2015, the Company wrote-off $1.9 million
of deferred tax assets in South Africa consistent with the plan to cease manufacturing in this location. This is
reflected as income tax expense for the period. The delayed plant closing in South Africa resulted in excess cost
incurred as manufacturing relocated to Bulgaria and Lesotho. As such, the SA division incurred losses of $2.0
million in Q4-2015(Q4-2014 - $1.2 million) and $5.2 million for fiscal 2015 (2014 - $2.37 million). Further, the
greenfield operations in Brazil and Thailand incurred start-up losses of $800 thousand in Q4-2015 (Q4-2014 - $370
thousand) and $2.73 million for fiscal 2015 (2014 - $1.47 million).
• Casting and Extrusion Segment (Operating Earnings)
Casting and Extrusion operating earnings increased to $32.4 million from $25.0 million in the prior year – an
increase of $7.4 million or 30%. This improvement took place in spite of start-up costs at our two greenfield
facilities – Extrusion Brazil and Castool Thailand – as outlined in “Net Income” above. Excluding these start-up
costs, which we expect to recede over the next year as these facilities reach full commercial production, pretax
income in the current year for this segment would have been $35.4 million compared $26.9 million in the prior year
– an increase of 32%. Strong sales in this segment as described above in the ‘Consolidated Results – Sales’ section
was supported by a favorable raw material environment – particularly for steel as described in the ‘Cost of Sales’
section above. The weak Canadian dollar also impacted this segment by increasing the value of US dollar
denominated earnings from US operations. Our three plants in Canada also benefited from the weak Canadian
dollar by increasing the value of US dollar denominated sales – for greater discussion of foreign exchange see
‘Segment Sales – Casting and Extrusion Segment’ above.
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• Automotive Solutions Segment (Operating Earnings)
The Automotive Solutions segment recorded operating earnings of $36.6 million for the year compared to $23.9
million last year – an increase of $12.7 million or 53%. Recent program refreshing and renewal activity as well as
strong volumes have enabled our North American businesses - Polytech and Neocon - to better absorb fixed and
indirect overhead costs. These businesses have also benefited from stable costs for metal subcomponents, resin
sheet and other plastic raw material inputs. Polydesign too continued improving its earnings as new product
launches have provided not only better overhead absorption but also higher added value product mix. New product
launches at Polydesign have been smooth and earnings are expected to continue their steady and stable
improvement. The segment’s pretax earnings also benefited modestly from the addition of full year earnings from
Mini seat cover program and also launched several new ‘non seat cover’ programs which Polydesign arranged. In
South Africa the Company has experienced delays in moving production to Lesotho thus extending the closure of
the South Africa facility and extending losses. The new facility in Lesotho experienced numerous production and
quality issues related to local logistics, the fast rate of production growth as well as provisions for anticipated shut
down costs. These matters are being addressed (see ‘Outlook’ below) but have nonetheless occasioned operating
losses of $5.2 million during the year – most of which were not tax effected thereby contributing to a higher
effective tax rate (see ‘Net Income’ and ‘Income Taxes’ above). Excluding these operating losses, which we expect
to recede over the next quarter, pretax income in the current year for this segment would have been $42.8 million
compared $26.3 million in the prior year – an increase of 63%.
Corporate Segment (Operating Expense)
•
Corporate expense in the current year amounted to $7.1 million compared to $7.4 million in the prior year. Last year
due diligence expense for the ALC acquisition was $526 thousand compared to none this year. Apart from this the
corporate segment was effectively flat. However within this segment higher stock option expense ($1.0 million
versus $860 thousand), higher incentive plan provision related to higher earnings ($2.1 million versus $1.5 million)
and higher salaries ($1.4 million versus $1.0 million last year) was offset by our Canadian operations foreign
exchange translation gain of $752 thousand compared to a loss of $222 thousand last year.
EBITDA
This metric has acquired increasing significance as the acquisition of ALC has created significant intangible assets
which must be amortized and therefore impact Exco’s net income. Amortization, like depreciation, is a non-cash
expense and the EBITDA metric isolates the impact of amortization so that the underlying operational performance
of the enterprise can be more readily understood. EBITDA in the current year amounted to $77.0 compared to
$53.9 million in the prior year – an increase of $23.1 million or 43%. EBITDA as a percentage of sales increased
slightly to 15.4% compared to 14.6% last year. This slight improvement in EBITDA margin again is attributable to
the Casting and Extrusion segment where EBITDA margin improved to 22.1% from 20.1% last year. The
Automotive Solution segment EBITDA margin remained constant at 13.5% compared to 13.7% last year despite the
inclusion of twelve months of significantly lower margin seat cover business in 2015 compared to seven months last
year. This underscores the underlying operational improvements in our businesses in 2015.
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ANNUAL REPORT 2015
Quarterly Results
The following table sets out financial information for each of the eight fiscal quarters through to the fiscal year
ended September 30, 2015:
($ thousands except per share
amounts)
September 30,
2015
Sales
Net income
Earnings per share
Basic
Diluted
($ thousands except per share
amounts)
Sales
Net income
Earnings per share
Basic
Diluted
$130,984
$10,293
$0.24
$0.24
September 30,
2014
$110,938
$8,123
$0.19
$0.19
June 30,
2015
$121,930
$9,956
$0.24
$0.23
June 30,
2014
$110,938
$8,340
$0.20
$0.20
March 31,
2015
$125,484
$10,872
December 31,
2014
$119,897
$9,638
$0.26
$0.26
$0.23
$0.23
March 31,
2014
$82,437
$7,453
December 31,
2013
$63,945
$6,740
$0.18
$0.18
$0.17
$0.16
Exco typically experiences softer sales and profit in the first quarter, which coincides with our customers’ plant
shutdowns in North America during the Christmas season. Exco also experiences a slowdown in the fourth quarter
as North American customers typically schedule summer plant shutdowns and Exco’s European customers typically
curtail releases during the month of August to accommodate vacations. However, in the current year, Exco’s North
American customers tended to work through the summer to meet surging demand. The situation this year in Europe
continued to generally follow the typical pattern described above.
Fourth Quarter
In the fourth quarter, consolidated sales were $131.0 million – an increase of $20.0 million or 18% from the prior
year. The Casting and Extrusion segment recorded higher sales of $52.5 million compared to $46.0 million last year
– an increase of 14%. Combined sales from our greenfield facilities in Brazil and Thailand were $1.7 million
compared to $721 thousand last year reflecting the ramp up in production which was just getting underway at those
facilities during last year’s fourth quarter. The Automotive Solutions segment experienced a 21% increase in sales
from $64.9 million last year to $78.5 million. Included in the fourth quarter was $36.3 million of sales from ALC.
Excluding ALC, the Automotive Solutions segment’s sales were $42.2 million – an increase of $11.5 million or
37% over the same quarter last year.
The Company’s fourth quarter consolidated net income increased to $10.3 million or earnings of $0.24 per share
compared to $8.1 million or earnings of $0.19 per share in the same quarter last year – an increase of 27%.
Impacting the fourth quarter earnings this year was the write-off of $1.9 million in deferred tax assets as described in
‘Net Income – Consolidated’ and ‘Income Tax’ above. Without this charge income tax would have been $1.9
million lower and earnings would have been $0.05 per share higher ($0.29 per share versus $0.24 per share).
Fourth quarter pretax earnings increased in the Casting and Extrusion segment by $2.7 million or 40% over the same
quarter last year as the favorable business environment discussed earlier with respect to the full year results
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ANNUAL REPORT 2015
continued to manifest themselves in the fourth quarter. Fourth quarter pretax earnings also increased in the
Automotive Solutions segment by $3.8 million or 59% over the same quarter last year reflecting a continuation of
the strong performance experienced throughout the year by all businesses with the exception of our South
Africa/Lesotho operations. Pretax losses at South Africa/Lesotho widened to $2.0 million in the fourth quarter
compared to $1.2 million last year caused by those reasons set forth in the ‘Net Income – Automotive Solutions
Segment (Operating Earnings)’ section but also by higher quality assurance costs as additional inspectors and
rework staff were added to deal with quality issues. The Corporate segment in the fourth quarter was flat at $1.8
million in expense compared to $1.7 million last year. EBITDA in the quarter increased to $21.9 million (16.7% of
sales) compared to $15.6 million (14.0% of sales) last year.
FINANCIAL RESOURCES, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
Operating cash flow before net changes in non-cash working capital increased this year to $59.0 million from $42.0
million in fiscal 2014. This increase is primarily the result of a 33% increase in Net Income and a 22% increase in
depreciation and amortization caused by: a) full year amortization of ALC intangible assets compared to seven
months last year and b) full year depreciation on our greenfield assets compared to six months in 2014. For further
detail see the ‘Depreciation and Amortization’ section above. Stock based compensation which is a non-cash
expense linked to the valuation of outstanding stock options and deferred stock units was also up 19% over last year
in keeping with Exco’s share price increase over that period.
Net change in non-cash working capital was $17.7 million cash used compared to $1.6 million cash used last year.
This increase was primarily driven by higher working capital investment associated with the 35% sales growth in
2015 but also reflects a modest lengthening of overall receivable days and slightly faster trade payments partially
countered by improved inventory efficiency and tax accruals. Despite the working capital investment, cash provided
by operating activities rose two percent to $41.3 million compared to $40.4 million last year.
Cash Flows from Financing Activities
Cash used in financing activities amounted to $21.8 million compared to $5.3 million cash provided in fiscal 2014.
The major cause is the significant decrease in bank indebtedness and long term debt during the year. This reflects
the Company’s emphasis on debt reduction. The issuance of share capital of $900 thousand reflects lower stock
options exercised in the current year (221,158) common shares compared to 423,205 common shares last year). The
issuance of 1,007,711 shares as part of the consideration for the ALC acquisition last year was a non-cash
transaction and therefore did not affect the cash flow from financing activities in 2014. The Company also paid
higher dividends in 2015 of $9.7 million compared to $8.1 million last year.
In addition to the obligations disclosed on its consolidated statements of financial position, Exco also enters into
operating lease arrangements from time to time. Exco owns 12 of its 18 manufacturing facilities and most of its
production equipment but, in 2015, leased a production facility in Texas and six production facilities in South
Africa, Lesotho and Bulgaria. It also leases other warehousing and sales offices as necessary and some immaterial
logistics and office equipment. The following table summarizes all short-term and long-term commitments Exco
has entered.
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ANNUAL REPORT 2015
Long-term debts
Operating leases
Purchase commitments
Capital expenditures
Total
$528
3,326
24,732
6,106
$34,692
< 1 year
$119
1,982
24,732
6,106
$32,939
1-3 years
$223
1,339
-
-
$1,562
4-5 years
$186
5
-
-
$191
Over 5 years
$-
-
-
-
$-
∗Exco leases facilities, automotive, material handling
vehicles and other miscellaneous office equipment. It is not Exco’s policy to purchase these assets at the expiry of their terms
but occasionally it may purchase the assets at the end of the lease terms when the purchase options are favorable. Exco does not
expect any material liquidity or capital resource impacts from these possible purchases.
Cash Flows from Investing Activities - Capital Expenditures
Cash used in investing activities in the current year totalled $20.0 million compared to $42.5 million last year.
Included in the prior year was $17.3 million cash paid for the acquisition of ALC compared to no such expenditures
in 2015. This accounts for the major part of the investing activities reduction. However, capital spending in the
current year was lower at $20.0 million compared to $24.7 million last year. Capital spending in the current year
included $900 thousand investment to complete the Castool Thailand greenfield facility and $1.1 million investment
to complete the Extrusion Brazil greenfield facility and $6.3 million investment in the construction of a new
production facility for Extrusion Texas. The balance is general investment in machinery and equipment needed to
maintain or upgrade our production capacity.
In fiscal 2016, Exco plans to invest approximately $23.9 million in capital expenditures of which $1.3 million
(including machinery and equipment) is to complete the construction of the new production facility for Extrusion
Texas to replace the existing leased facility. Approximately $8 million is for a major equipment upgrade in the large
mould business adopting state-of-the-art technology which should increase capacity by reducing delivery times
without compromising quality. The remainder of the spending will be on machinery and equipment to maintain or
upgrade capacity at Exco’s existing plants in both segments.
We expect that in fiscal 2016 our cash flow from operations will exceed anticipated capital expenditures and,
accordingly, our cash deposits and our credit lines will be more than sufficient to meet our operating and capital
requirements.
Financial Position and Cash Balance
Exco’s financial position remains strong. Exco’s determination to maintain a strong balance sheet with minimal
bank debt has served it well throughout the years and has allowed it to take advantage of acquisition opportunities
and further organic growth as circumstances permit.
Exco had $24.5 million cash net of bank debt as at September 30, 2015 even after spending $17.7 million on
working capital to support sales growth and $20.0 million on capital expenditures. At year end, Exco had operating
lines of credit totalling $33.9 million, of which $23.9 million was unused and available. The Company does not
presently anticipate the need for long-term bank debt, other than those currently on the consolidated statements of
financial position, in its capital structure and does not expect to assume any over the coming year unless an
acquisition is made.
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ANNUAL REPORT 2015
Outstanding Share Capital
As at December 2, 2015, the Company had 42,453,607 common shares outstanding. In addition, as at December 2,
2015, the Company had outstanding stock options for the purchase of up to 817,574 common shares.
CRITICAL ACCOUNTING POLICIES
The preparation of Exco’s financial statements in conformity with International Financial Reporting Standards
requires management to make estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amount of revenue and expenses during the reporting period.
Exco recognizes revenue upon percentage of completion of long-term contracts in the large die-cast moulds business
and upon product completion for all other businesses. For short-term contracts in the large die-cast moulds business
and all contracts in the extrusion and other tooling products and the Automotive Solutions segment products,
completion is defined as shipment to customers.
Management estimates and expenses the fair value of stock-based compensation granted after January 1, 2002. This
fair value is amortized to earnings over the remaining vesting period using the Black-Scholes option pricing model.
The Company believes that the estimate of stock-based compensation is a “critical accounting estimate” because
management is required to make significant forward-looking assumptions including expected stock volatility, the
change in expected dividend yields and the expected option term. Currently the compensation expense is recorded
in the selling, general and administration category in the consolidated statements of income and comprehensive
income.
We evaluate property, plant and equipment and other long-lived assets for impairment whenever indicators of
impairment exist. Indicators of impairment include prolonged operating losses or a decision to dispose of, or
otherwise change the use of, an existing fixed or other long-lived asset.
We believe that accounting estimates related to goodwill, property, plant and equipment and other long-lived asset
impairment assessments are “critical accounting estimates” because: (i) they are subject to a significant
measurement uncertainty and are susceptible to changes as management is required to make forward-looking
assumptions regarding the impact of improvement plans on current operations, in-sourcing and other new business
opportunities, program price and cost assumptions on current and future business, the timing of new program
launches and future forecasted production volumes; and (ii) any resulting impairment loss could have a material
impact on our consolidated net income and on the amount of assets reported on our consolidated statements of
financial position.
RECENT ACCOUNTING CHANGES AND EFFECTIVE DATES
Refer to Note 2 to the consolidated financial statements for information pertaining to the accounting changes and
issued accounting pronouncements effective in 2015 and future years.
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, together with other members of
management, after evaluating the effectiveness of the Company’s disclosure controls and procedures, have
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ANNUAL REPORT 2015
concluded that the Company’s disclosure controls and procedures are adequate and effective in ensuring that
material information relating to the Company and its consolidated subsidiaries would have been known to them.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer, the Chief Financial Officer and the Chief Operating Officer, together with other
members of management, after having designed internal controls over financial reporting and conducted an
evaluation of its effectiveness based on the integrated framework issued by the Committee of Sponsoring
Organization of the Treadway Commission to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial reporting in accordance with generally accepted accounting principles,
have not identified any changes to the Company’s internal control over financial reporting which would materially
affect, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
RISKS AND UNCERTAINTIES
Exco’s Automotive Solutions segment services automotive component suppliers (and Tier 1 suppliers) around the
world. The results of this segment depend on demand for automobiles and the level of automobile production,
which can fluctuate significantly with consumer confidence, general economic conditions, the cost and/or
availability of consumer credit and gasoline, as well as, the market share of individual OEM customers. Contraction
and slowing GDP growth in emerging economies, North America and Europe may also have a dampening effect on
consumer demand for automobiles in these regions.
Exco sells to its automotive customers pursuant to purchase orders which typically sets out price per unit but not
volumes or fixed terms. These purchase orders may be terminated at any time with limited recourse for
compensation or damages and pricing is typically adjusted downward from time to time in the form of ‘cost downs’.
Termination of purchase orders and ‘cost downs’ may impact Exco’s margin and overall earnings if not
contemporaneously offset by new business at better margin or cost reductions. Furthermore, in any given year, any
number of programs will be expiring. While Exco is constantly quoting on replacement programs or new programs,
there is no assurance that these will be awarded or that if awarded, the pricing and margin will be comparable to
those of programs ending.
Exco has in 2011, 2013 and 2014 made four acquisitions (Allper AG, Exco Colombia, Extrusion Texas and
Automotive Leather Company) and may make others in the future. Acquisitions inherently involve risk. While
Exco has concluded many acquisitions that have been very successful, there have been several disappointing
acquisitions which have adversely impacted earnings regardless of the size of the acquisition or the maturity of the
business acquired.
The Casting and Extrusion segment is a capital goods business. Interest rates, exchange rates, corporate capital
spending, the general economic climate and business confidence affect the demand for Exco’s dies, moulds and
consumable parts for die-cast and extrusion machines. Abrupt changes in these factors often bring about dramatic
changes in demand and pricing. Exco believes that its broad product line, geographic diversification and leadership
position in its niche markets mitigate against this risk but some risk remains.
Exco’s Canadian operations negotiate sales contracts with customers in both Canadian and U.S. dollars and Euro.
We also purchase raw material in these currencies. U.S. dollar and Euro purchases provide a natural hedge against
U.S. dollar and Euro sales of Exco’s Canadian operations. As for the remaining foreign exchange exposure not
naturally hedged, Exco does not enter into forward contracts but prefers to incur U.S. dollar or Euro debt, from time
to time as appropriate. Despite these measures, Exco is structurally a net seller of U.S. dollars and, to a lesser extent
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ANNUAL REPORT 2015
Euro, with foreign exchange losses increasing as the U.S. dollar and Euro decline in value against the Canadian
dollar. While Exco has made considerable progress in reducing its reliance on U.S. dollar sales, markets which
Exco currently services may experience rising competition from imports which have become more competitive as a
result of foreign exchange movements.
Exco’s U.S. operations earn profits in U.S. dollars. A stronger Canadian dollar results in lower Canadian dollar
profit on translation. This does not, however, affect the competitiveness of these operations within the U.S. market
or other U.S. dollar-denominated markets. For fiscal 2016, it is estimated that Exco’s U.S. operations will be
exposed to foreign exchange risk on the translation of pre-tax profit of about US$17.8 million. If the Canadian
dollar were to strengthen or weaken by $0.01 in fiscal 2016, it is estimated that pre-tax profit would change by $213
thousand or about $153 thousand after tax. These estimates are based on historical norms and may be materially
different in 2016 if customers deviate from their past practices.
During fiscal 2015, the U.S. dollar appreciated about 19% against the Canadian dollar to close the year at $1.335.
Although this was favorable to Exco in 2015 there can be no assurance that in future years the exchange rate will not
reverse and be unfavorable to Exco. To mitigate this risk we are focused on a number of initiatives. Wherever
possible, throughout its Canadian operations, the Company is attempting to sell in Canadian dollars and source
inputs and equipment in U.S. dollars, thereby improving its natural hedge. It is very difficult to dislodge the
dominance of U.S. dollars as the commercial currency of choice. In addition, pricing in Canadian dollars may make
the Company’s products uncompetitive and result in lost business. For further discussion of exchange rate impacts
see Note 9 to the Consolidated Financial Statements.
For fiscal 2016, we estimate our Canadian operations will be exposed to fluctuation in the value of the Canadian
dollar relative to the U.S. dollar on about US$48.2 million of sales compared to an exposure of US$50.1 million in
fiscal 2015. These figures represent the estimated net exposure calculated as U.S. dollar revenue less U.S. dollar
expenses and forwards. If the Canadian dollar were to strengthen or weaken by $0.01 in fiscal 2016, we estimate
pre-tax profit would change by $578 thousand or about $413 thousand after tax. These estimates are based on
historical norms and may be materially different in 2016 if customers deviate from their past practices.
In some cases, OEMs can decide to design the Company’s products out of the automobile (“de-contented”) or
reduce the trim level on which the Company’s products are installed for either aesthetic, cost or product redesign
reasons. While Exco believes its focus on evolving from component supplier to a designer and integrator of small
assemblies and sub-assemblies used in automotive and trunk interiors reduces the risk of de-contenting and
trimming down decisions; Automotive Solutions products are not critical power train components and may still be
de-contented.
OEMs or their tiers may have excess production capacity or collective agreements which preclude efficient capacity
reduction. In these cases OEMs and/or their tiers may choose to fill their excess capacity by taking production from
their suppliers and manufacturing the parts themselves. This process of ‘in-sourcing’ may have the impact of
reducing the amount of business available to suppliers such as Exco.
Exco has manufacturing facilities in Mexico, Colombia, Brazil, Thailand, Bulgaria, South Africa, Lesotho and
Morocco. Some of these operations incur labor costs and often other operating expenses in local currency. In
several of these countries, sales contracts and major purchases such as material and equipment are negotiated in U.S.
dollars or Euro. In other countries, sales contracts and major purchases are negotiated in local functional currencies
as well. Major long-term fluctuations in the value of the local currencies against the U.S. dollar and Euro have the
potential to affect Exco’s operating results. Exco may enter into forward contracts or ‘collar’ contracts from time to
time in order to protect itself from currency fluctuations. These contracts are derivative instruments which,
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ANNUAL REPORT 2015
depending on their structure, may not qualify for hedge accounting treatment and accordingly may be ‘marked to
market’ each quarter and expensed if necessary. It is difficult to anticipate fluctuations in these local currencies in
the event of major economic, fiscal or political instability in these countries.
The cost of manufacturing our products is a critical factor in determining our success over the long term.
Manufacturing has generally expanded to developing countries where competing technologies and lower labor-cost
structures exist. Exco must compete against companies doing business in these developing countries. Exco has met
this challenge by manufacturing some labour-intensive products in Mexico, Thailand, Bulgaria, South Africa,
Lesotho and Morocco; however, many of our operations based in Canada and the U.S. must compete with products
manufactured in lower-cost environments.
With the acquisition of Extrusion Colombia, Automotive Leather Company the greenfields in Brazil and Thailand
and the operation of numerous subsidiaries in US, Europe, Mexico and Morocco, Exco is increasingly conducting
business in diverse countries and in diverse functional currencies. Given the size and persistence of global trade
imbalances, sovereign debt concerns and political instability, various currencies in which Exco and its subsidiaries
carry on business may experience high volatility from time to time. This may materially impact Exco’s earnings,
retained earnings and the value of its investment in these countries.
A significant portion of Exco’s receivables are with automotive customers. These customers have varying degrees
of financial strength. These receivables are subject to varying degrees of collectability. The majority of these
receivables are with U.S. entities that can avail themselves of Chapter 11 protection from creditors in certain
circumstances and avoid payment of the Company’s receivables that are over 20 days from the date of the Chapter
11 filing. Exco’s receivables may also be with highly leveraged customers that may have recently merged or chosen
to leverage their balance sheet for tax purposes or otherwise increase their investment yield. Doing business with
such customers typically increases the risk of default and filing for bankruptcy protection. The Company uses its
best efforts to collect accounts receivable under 60 days but in some cases the terms may be notably longer and
often in other currencies thereby requiring Exco to bear the exchange rate risk. The Company often has the benefit
of statutory or common law liens on its products, however, it is not uncommon for significant receivables to be
outstanding for considerable periods, particularly in the large mould business.
OUTLOOK
As we look toward the next year we believe the improved state of the North American automotive industry will
continue throughout 2016 and should continue to grow at a gradual yet steady pace. Even if U.S. interest rates
increase in 2016 they are still expected to remain at relatively low levels by historic standards. Unit sales of light
vehicles should continue to benefit from affordable leasing and purchase financing charges. The climbing average
age of North American automobiles on the road today continues to be in excess of 11 years and the better mileage of
new vehicles also support stronger demand for light vehicles. In the past this has directly benefitted our automotive
component business, our large mould business, Castool and, increasingly, our extrusion die business – all of which
sells moulds, dies and consumable components/tooling to OEMs and their tiers. Also in 2016 this favorable volume
picture should continue to enhance our ability to efficiently absorb overheads.
In Europe, monetary easing has finally fuelled moderate growth throughout the Euro zone. Automobile sales have
improved in 2015 and are expected to continue recovering from historic lows. Given that a significant portion of
Exco’s consolidated sales are to the European market this improving market dynamic bodes well for Exco’s
European operations. In fiscal 2016 Exco’s Bulgarian facilities are expected to run at full capacity with the new
Audi program of approximately $35 million launching at the end of that fiscal year. Our Polydesign business unit is
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ANNUAL REPORT 2015
expected to continue launching new programs for a wide array of products. We will continue our focus on
diversifying our customer base and improve margins in our European operations.
In the first half of 2016 we expect to continue being impacted by losses at our South Africa operation but transfer of
its remaining production to our Bulgarian and Lesotho operations should be complete by the end of January.
Management will then focus on production efficiencies at the Lesotho operation and determine the prospects for
long term new business opportunities in that region.
Unprecedented number of new assembly plants have been announced for Mexico and southern USA by German,
Japanese, South Korean and American OEMs with others seriously considering the same. With our strong presence
in these markets we are ideally situated to competitively and effectively supply these new assembly plants with both
interior trim and tooling when these new assembly plants begin operations. Our large mould plant in Queretaro
Mexico and our Polytech interior trim plant in Matamoros/Brownsville will figure prominently in this regard and we
expect to become meaningful suppliers to these new assembly plants. Exco will also be vigilant respecting possible
acquisitions that would be beneficial in positioning us to better secure this business.
The need to improve mileage in the US in 2017 and each year thereafter until 2025 when 54.5 mpg is achieved will
ensure significant investment by all OEMs in next generation engine and transmission architecture and use of lighter
material and components. The reputation of Exco's large mould business as the leading designer and manufacturer
of engine block and transmission housing moulds and its capabilities in silafont die casting technology ensures that
Exco will benefit from these trends well into the future. In Europe the same trend is discernible as the EU requires
significant reductions in carbon emissions by 2021. Interest in this area has only been heightened by recent
developments concerning VW’s compliance practices and generally the looseness of testing standards.
Our extrusion tooling business is also expected to continue experiencing its current buoyancy. While the U.S.
industrial and commercial construction markets are growing much more slowly than the automotive industry,
anti-dumping duties in the U.S. and Canada against Chinese imports of aluminum extrusions continues to create the
conditions necessary for stronger demand. Our new and larger plant in Wylie Texas will allow us to better meet this
growing North American demand. Our tool shops in Colombia, Thailand and Brazil will also continue to grow and
capture market share in these markets. Modest start-up costs at our operations in Thailand and Brazil will continue
through the year however we expect these operations to generate positive cash flow in the coming year as they
develop their manufacturing processes and quality standards.
In the meantime, Exco itself enters 2016 with no net bank debt and cash on hand of $35.0 million after paying $9.7
million in dividends and investing another $20.0 million in greenfields and machinery/equipment to keep us
competitive. A weak raw material cost environment should further support our efforts to control costs and maintain
margins. We believe that our net debt-free status and greater efficiency will help insulate us from the volatility in
the global economy that persistently flares up from time to time.
EXCO TECH NOLOGIES L IMITED
18
ANNUAL REPORT 2015
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Exco Technologies Limited
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Exco Technologies Limited, which comprise
the
consolidated statements of financial position as at September 30, 2015 and 2014, and the consolidated statements of income and
comprehensive income, changes in shareholders’ equity and cash flows for the years then ended and a summary of significant
accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment,
assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
including the
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Exco
Technologies Limited as at September 30, 2015 and 2014, and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards.
Toronto, Canada
December 2, 2015
EXCO TECHNOLOGIES LIMITED
19
ANNUAL REPORT 2015
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
$ (000)'s
As at
September 30, 2015 September 30, 2014
As at
ASSETS
Current
Cash and short-term deposits
Accounts receivable (note 9)
Unbilled revenue (note 8)
Inventories (note 10)
Prepaid expenses and deposits
Total current assets
Property, plant and equipment, net (notes 5 and 17)
Intangible assets, net (notes 6 and 17)
Goodwill (notes 6 and 17)
Deferred tax assets (note 14)
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (notes 4 and 9)
Trade accounts payable (note 9)
Accrued payroll liabilities
Other accrued liabilities
Derivative instruments (note 9)
Provisions (note 7)
Income taxes payable
Customer advance payments
Long-term debt - current portion (notes 4, 9 and 17)
Total current liabilities
Long-term debt - long-term portion (notes 4, 9 and 17)
Deferred tax liabilities (note 14)
Total liabilities
Shareholders' equity
Share capital (note 3)
Contributed surplus (note 3)
Accumulated other comprehensive income (note 3)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
$34,996
98,823
17,293
55,401
2,397
208,910
104,251
3,769
23,852
2,034
$342,816
$9,973
46,421
9,083
12,484
2,486
1,810
6,559
3,013
119
91,948
409
5,538
97,895
50,060
3,283
14,369
177,209
244,921
$342,816
$31,235
71,000
11,113
44,930
2,745
161,023
96,664
4,777
23,892
4,276
$290,632
$21,283
37,301
7,181
9,529
658
1,733
1,258
894
615
80,452
1,504
5,930
87,886
48,788
3,138
4,637
146,183
202,746
$290,632
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
Brian A. Robbins
Director,
President and
Chief Executive Officer
Laurie T.F. Bennett
Director,
Chairman of
the Board
EXCO TECH NOLOGIES L IMITED
20
ANNUAL REPORT 2015
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
$ (000)'s except for income per common share
Sales (note 8)
Cost of sales
Selling, general and administrative expenses (notes 3, 9 and 12(B))
Depreciation (note 5)
Amortization (note 6)
Loss (gain) on disposal of property, plant and equipment (note 5)
Interest expense (note 18)
Income before income taxes
Provision for (recovery of) income taxes (note 14)
Current
Deferred
Net income for the year
Other comprehensive income (loss)
Items that may be reclassified to net income in subsequent periods:
Net unrealized loss on derivatives designated as cash flow hedges (notes 3 and 9)
Unrealized gain from foreign currency translation (note 3)
Comprehensive income
Income per common share
Basic
Diluted
Weighted average number of common shares outstanding (note 13)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
Years ended September 30
2014
$368,258
278,948
35,454
11,247
1,131
(91)
715
327,404
2015
$498,295
379,500
41,638
13,523
1,621
199
939
437,420
60,875
40,854
18,266
1,850
20,116
$40,759
(1,357)
11,089
9,732
$50,491
$0.96
$0.96
42,285
42,615
10,941
(743)
10,198
$30,656
(99)
5,021
4,922
$35,578
$0.74
$0.73
41,491
41,871
EXCO TECH NOLOGIES L IMITED
21
ANNUAL REPORT 2015
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$ (000)'s
Balance, October 1, 2013
Net income for the year
Dividends (note 3)
Stock option expense (note 3)
Issuance of share capital (note 3)
Other comprehensive (loss) income (note 3)
Balance, September 30, 2014
Net income for the year
Dividends (note 3)
Stock option expense (note 3)
Issuance of share capital (note 3)
Other comprehensive (loss) income (note 3)
Balance, September 30, 2015
Share
capital
$37,389
-
-
-
11,399
-
48,788
-
-
-
1,272
-
$50,060
Contributed
surplus
$3,368
-
-
430
(660)
-
3,138
-
-
521
(376)
-
$3,283
Retained
earnings
$123,662
30,656
(8,135)
-
-
-
146,183
40,759
(9,733)
-
-
-
$177,209
The accompanying notes are an integral part of these consolidated financial statements.
Unrealized gain
on foreign
currency
translation
Accumulated other comprehensive income (loss)
Total
accumulated
other
comprehensive
income (loss)
($285)
-
-
-
-
4,922
4,637
-
-
-
-
9,732
$14,369
Net unrealized
loss on
derivatives
designated as
cash flow hedges
($388)
-
-
-
-
(99)
(487)
-
-
-
-
(1,357)
($1,844)
$103
-
-
-
-
5,021
5,124
-
-
-
-
11,089
$16,213
Total
shareholders'
equity
$164,134
30,656
(8,135)
430
10,739
4,922
202,746
40,759
(9,733)
521
896
9,732
$244,921
EXCO TECH NOLOGIES L IMITED
22
ANNUAL REPORT 2015
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ (000)'s
OPERATING ACTIVITIES:
Net income for the year
Add (deduct) items not involving a current outlay of cash
Depreciation (note 5)
Amortization (note 6)
Stock-based compensation expense (note 3)
Deferred income taxes (note 14)
Loss (gain) on disposal of property, plant and equipment
Net change in non-cash working capital (note 15)
Cash provided by operating activities
FINANCING ACTIVITIES:
Increase (decrease) in bank indebtedness
Repayment of long-term debt,net (note 4)
Dividends paid (note 3)
Issuance of share capital (note 3)
Cash provided by (used in) financing activities
INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (note 17)
Purchase of property, plant and equipment (note 5)
Purchase of intangible assets (note 6)
Proceeds on disposal of property, plant and equipment
Cash used in investing activities
Years ended September 30
2014
2015
$40,759
$30,656
13,523
1,621
1,023
1,850
199
58,975
(17,740)
41,235
(11,310)
(1,698)
(9,733)
896
(21,845)
-
(19,989)
(605)
587
(20,007)
11,247
1,131
860
(1,836)
(91)
41,967
(1,593)
40,374
12,591
(869)
(8,135)
1,709
5,296
(17,327)
(24,741)
(967)
534
(42,501)
Effect of exchange rate changes on cash
4,378
1,994
Net increase in cash during the year
Cash and short-term deposits, beginning of year
Cash and short-term deposits, end of year
3,761
31,235
$34,996
5,163
26,072
$31,235
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECH NOLOGIES L IMITED
23
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
1. CORPORATE INFORMATION
Exco Technologies Limited (the “Company”) is a global designer, developer and manufacturer of dies, moulds,
components and assemblies, and consumable equipment for the die-cast, extrusion and automotive industries.
Through 18 strategic locations in 10 countries, the Company services a diverse and broad customer base. The
Company is incorporated and domiciled in Canada. The registered office is located at 130 Spy Court, Markham,
Ontario, Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are outlined below:
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements and accompanying notes as at and for the year ended September 30, 2015
were authorized for issue by the Board of Directors on December 2, 2015.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entities
controlled by the Company, its subsidiaries. Control exists when the Company is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the
investee. Specifically, the Company controls an investee if and only if the Company has all of the following: power
over the investee; exposure, or rights to variable returns from its involvement with the investee; and the ability to
use its power over the investee to affect its returns. The financial statements of the subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases. All
intercompany transactions and balances have been eliminated on consolidation.
Functional and presentation currency
Items included in the financial statements of each of the Company’s entities are measured using the currency of the
primary economic environment in which the entity operates (the “functional currency”). The consolidated financial
statements are presented in Canadian dollars, which is the parent company’s functional and presentation currency.
Transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the
rates of exchange at the consolidated statement of financial position dates. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial
transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognized in profit or loss in the consolidated statements of income and comprehensive income.
Translation of foreign operations
The results and financial position of all the group entities that have a functional currency different from the
presentation currency are translated into the presentation currency as follows:
• Assets and liabilities for each statement of financial position presented are translated at the closing rate at the
•
date of the consolidated statement of financial position; and
Income and expenses for each statement of income and comprehensive income are translated at the exchange
rates prevailing at the dates of the transactions.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are
recorded in other comprehensive income.
When a foreign operation is sold, exchange differences that were recorded in accumulated other comprehensive
EXCO TECH NOLOGIES L IMITED
24
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
income (loss) are recognized in the consolidated statements of income and comprehensive income as part of the gain
or loss on sale.
Segment reporting
Management has determined the operating segments based on the information regularly reviewed for the purposes of
decision making, allocating resources and assessing performance by the Company’s chief operating decision maker.
The Company evaluates the financial performance of its operating segments primarily based on net income before
interest and income taxes.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of the business combination is
measured as the aggregate of the fair values (at the date of exchange) of assets acquired and liabilities incurred or
assumed. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for
recognition under IFRS 3, Business Combinations, are recognized at their fair values at the acquisition date.
Acquisition costs are expensed as incurred.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost
of the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities recognized. If the Company’s interest in the fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized
immediately in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated
to each of the groups of cash-generating units (“CGU”) that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. A CGU is
the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of under this circumstance is measured
based on the relative fair values of the operation disposed of and the portion of the CGU retained.
Revenue recognition
Revenue is recognized when it can be measured reliably, the significant risks and rewards of ownership are
transferred to the customer, and it is probable that future economic benefits will flow to the Company.
Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, sales taxes and
duties.
•
•
Revenue from short-term casting contracts, extrusion and other tooling, and Automotive Solutions segment
products are recognized when the significant risks and rewards of ownership of the goods have passed to the
buyer, usually upon shipment or acceptance by customers.
Revenue from long-term large die-cast mould contracts are recognized using the percentage of completion
method according to IAS 11, Construction Contracts, under which:
- When the outcome of a contract can be reliably estimated, revenue and costs associated with a contract are
recognized as revenue and expenses, respectively, by reference to the stage of completion of the contract at
the consolidated statement of financial position dates. The stage of completion is determined by the
percentage of the costs incurred to date to the total estimated cost.
- When the outcome of a contract cannot be reliably estimated, revenue is recognized only to the extent of
contract costs incurred. When the uncertainties that prevented reliable estimation of the outcome of a
EXCO TECHNOLOGIES LIMITED
25
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
-
-
contract no longer exist, contract revenue and expenses are recognized using the percentage of completion
method.
If the expected outcome of a contract is a loss, it is recognized immediately regardless of whether or not
work has commenced on the contract.
For contracts in progress for which costs incurred plus recognized profits (less recognized losses) exceed
progress billings, a gross amount due from customers for contract work is recognized as unbilled revenue −
an asset in the consolidated statements of financial position. For all contracts in progress for which progress
billings exceed costs incurred plus recognized profits (less recognized losses), a gross amount due to
customers for contract work is recognized as customer advance payments − a liability in the consolidated
statements of financial position.
Share-based payments
The Company grants stock options to buy common shares of the Company to officers and employees. The Board of
Directors grants such options for periods of up to 10 years, with vesting periods determined at its sole discretion and
at prices equal to the average closing market prices for the five days preceding the date on which the options were
granted.
The Company follows the fair value based method of accounting for stock-based compensation. The fair value of
the options is recognized as compensation expense in selling, general and administrative expenses in the
consolidated statements of income and comprehensive income over the vesting period with a corresponding increase
to contributed surplus. The contributed surplus balance is reduced as the options are exercised and the amount
initially recorded for the options in contributed surplus is credited to share capital, along with the proceeds received
on exercise.
On November 18, 2005, the Board adopted a Deferred Share Unit (“DSU”) plan for Independent Directors. The
DSU plan replaces the past practice of granting eligible directors stock options under the Stock Option Plan. Under
the DSU plan, quarterly remuneration of a director is credited to the director’s DSU account in the form of deferred
share units on the last business day of the quarter. The number of DSUs credited to the director’s account is
determined by dividing a director’s quarterly remuneration by the weighted average price of the common share
value traded in the last five business days of the quarter. DSUs are fully vested upon being credited to a director’s
DSU account. The DSUs will be redeemed by the Company in cash payable 60 days after the Independent Director
departs from the Board at the fair market value at the payment date.
Income taxes
Income tax expense consists of current and deferred income taxes. Income tax expense is recognized in the
consolidated statements of income and comprehensive income.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantively enacted at year end, adjusted for amendments to taxes payable with regards to previous years.
Deferred income taxes are recorded using the statement of financial position liability method. Under the statement
of financial position liability method, deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using the enacted or substantively enacted
tax rates expected to apply when the asset is realized or the liability settled.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable income will be available against which deductible timing
differences can be utilized.
Deferred taxes are charged or credited in the consolidated statements of income and comprehensive income, except
when it relates to items credited or charged directly to equity, in which case the deferred taxes are also dealt with in
equity.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that
EXCO TECH NOLOGIES L IMITED
26
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
it is no longer probable that all or part of the deferred income tax asset will be utilized. Unrecognized deferred
income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable
that the benefit will be recovered.
Other comprehensive income
Other comprehensive income is the change in the Company’s net assets that results from translations, events and
circumstances from sources other than the Company’s shareholders and includes items that would not normally be
included in net income, such as foreign currency gains or losses on the translation of the financial statements of
foreign operations and foreign exchange gains or losses on the fair valuation of foreign exchange contracts
designated as cash flow hedges. The Company’s other comprehensive income, components of other comprehensive
income and cumulative translation adjustments are presented in the consolidated statements of income and
comprehensive income and the consolidated statements of changes in shareholders’ equity.
Cash and short-term deposits
Cash and short-term deposits include cash on hand, balances with banks and short-term deposits with maturities at
their acquisition date of three months or less.
Property, plant and equipment
(i)
(ii)
Machinery and equipment
Machinery and equipment are recorded at cost less accumulated depreciation and accumulated impairment
losses. All direct costs related to the acquisition and installation of machinery and equipment are
capitalized until the properties to which they are related are capable of carrying out their intended use.
Machinery and equipment are depreciated using the diminishing balance method based on their estimated
useful lives, which range from 4 to 20 years.
Other assets
Other assets are recorded at cost less accumulated depreciation and accumulated impairment losses and are
depreciated using the straight-line method based on estimated useful lives of the assets, which generally
range from 3 to 10 years, with the exception of buildings, which have estimated useful lives of 30 years.
Land is not depreciated.
Where an item of property, plant and equipment comprises major components with different useful lives,
the components are accounted for as separate items of property, plant and equipment.
Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted
for separately, including major inspection and overhaul expenditures, are capitalized. Directly attributable
expenses incurred for major capital projects are capitalized and no depreciation is recorded until the asset is
brought to a working condition for its intended use.
The costs of day-to-day servicing are expensed as incurred. These costs are more commonly referred to as
“maintenance and repairs”.
The depreciation methods and useful lives are assessed annually or when critical events occur that may
affect the useful lives and expected pattern of consumption of economic benefits embodied in the asset.
(iii)
Subsequent costs
The cost of replacing part of an item within property, plant and equipment is capitalized when the cost is
incurred or if it is probable that the future economic benefits will flow to the business unit and the cost of
the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other costs
are expensed as incurred.
Intangible assets and goodwill
An intangible asset is defined as being identifiable, able to bring future economic benefits to the Company and
controlled by it. Intangible assets are recorded initially at cost and relate primarily to computer software, production
EXCO TECH NOLOGIES L IMITED
27
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
and technology rights and customer relationships. An intangible asset is recognized when it is probable that the
expected future economic benefits attributable to the asset will flow to the Company and the cost of the asset can be
measured reliably. Intangible assets with finite lives are amortized over their useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. Amortization is provided
based on the following estimated useful lives using the straight-line method:
-
-
Customer relationship: 5 years
Computer software and production and technology rights: 2 − 4 years.
Intangible assets acquired in a business acquisition are primarily customer relationship and are initially recorded at
fair value and subsequently at cost less amortization and impairment losses. Other intangible assets are comprised of
computer software and production and technology rights.
Identifiable intangible assets are recognized separately from goodwill. Goodwill represents the excess of the cost of
an acquisition over the fair value of the net identifiable assets of the acquired subsidiary at the date of the
acquisition. Separately recognized goodwill is carried at cost less impairment losses.
Impairment of long-lived assets and goodwill
(i)
Impairment of long-lived assets
The Company’s property, plant and equipment are reviewed for indicators of impairment at each
consolidated statement of financial position date. If indication of impairment exists, the asset’s recoverable
amount is estimated.
An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its
recoverable amount. Impairment loss is recognized in income or loss for the period. Impairment losses
recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated
to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro-rata basis.
The recoverable amount is the greater of the asset’s fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is
determined for the CGU to which the asset belongs. In determining fair value less costs to sell, recent
market transactions are taken into account, if available.
An impairment loss is reversed if there is an indication that there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation, if no impairment loss had been recognized.
(ii)
Impairment of goodwill
Goodwill is allocated to CGU groups for the purpose of impairment testing based on the level at which it is
monitored by management. The Company’s CGU groups are its two operating segments, Automotive
Solutions and Casting and Extrusion. The allocation is made to the CGU groups that are expected to benefit
from the business acquisition in which the goodwill arose. Goodwill is tested for impairment annually
during the fourth quarter of the year and whenever there is an indicator that the CGU group in which it
resides may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of
each CGU group to which the goodwill relates. Where the recoverable amount of the CGU group is less
than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot
be reversed in future periods. The recoverable amounts of the CGU groups are determined based on the
greater of fair value less costs to sell or value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset. In determining fair value less cost to sell, recent market transactions are taken into account, if
EXCO TECH NOLOGIES L IMITED
28
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
available.
The Company bases its impairment calculation on detailed budgets which are prepared for each of the
CGUs and generally cover a period of three years. For longer periods, a long-term growth rate is calculated
and applied to project future cash flows after the third year.
Inventories
Inventories, comprising raw materials, work-in-process, finished goods and production supplies, are valued at the
lower of cost and net realizable value. Cost is determined substantially on a first-in, first-out basis and an
appropriate portion of normal overhead expenditure and labour. Net realizable value is the estimated selling price in
the ordinary course of business, less the estimated costs of completion and selling expenses. Obsolete, redundant
and slow-moving stock is identified and written down. When circumstances that previously caused inventories to be
written down below cost no longer exist, the amount of the write-down previously recorded is reversed.
Determination of fair value
The fair value of an asset or liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interests.
A fair value measurement on a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
Financial instruments
As defined under IAS 39, Financial Instruments, financial assets and liabilities are recognized in the Company’s
consolidated statements of financial position when the Company becomes a party to the contractual provisions of the
instrument. Financial assets are derecognized when the Company no longer has the rights to such cash flows, the
risks and rewards of ownership or control of the asset. Financial liabilities are derecognized when the obligation
under the liability is discharged, cancelled or expired.
Financial instruments recognized in the consolidated statements of financial position comprise cash, trade accounts
receivable, trade accounts payable, bank indebtedness, other accrued liabilities, customer advance payments,
derivative financial instruments and long-term debt.
Financial instruments are measured at their fair values on initial recognition. After initial recognition,
financial instruments are measured at their fair values, except for financial assets classified as held-to-
maturity or loans and receivables and other financial liabilities, which are measured at amortized cost using the
effective interest rate method.
Changes in fair value are included in the consolidated statements of income and comprehensive income unless
the instrument is included in a cash flow hedge. If the instruments are included in a cash flow hedging
relationship, which is effective, changes in value are recorded in other comprehensive income. When the hedged
forecast transaction occurs, amounts previously recorded in other comprehensive income are recognized in the
consolidated statements of income and comprehensive income. Amounts recognized as other comprehensive income
are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial
income or financial expense is recognized or when a forecast purchase occurs.
Accounts receivable are initially recognized at the transaction value and subsequently carried at amortized cost less
impairment losses. The impairment loss of accounts receivable is based on a review of all outstanding amounts at
year end. Bad debts are written off during the period in which they are identified. Accounts payable and customer
advance payments are initially recognized at the transaction value and subsequently carried at amortized cost.
EXCO TECH NOLOGIES L IMITED
29
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The Company uses derivative financial instruments, such as forward foreign currency exchange contracts in the
form of put and call option contracts (“Collars”), to hedge cash outflows anticipated to be made in Mexican peso
denominated payments against foreign currency fluctuations between U.S. dollars and Mexican pesos. The
Company does not hold or issue derivative financial instruments for trading or speculative purposes. Such derivative
financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into
and are subsequently remeasured at fair value. Derivative financial instruments are carried as financial assets when
the fair value is positive and as financial liabilities when the fair value is negative.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to
which the Company wishes to apply hedge accounting and the risk management objective and strategy for
undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or
transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the
hedging instrument’s fair value in offsetting the exposure to changes in the cash flows attributable to the hedged
risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed
on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting
periods for which they were designated.
The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive
income in the cash flow hedge reserve, while any ineffective portion is recognized immediately to profit or loss.
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously
recognized in other comprehensive income is transferred to profit or loss. If the hedging instrument expires or is
sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any
cumulative gain or loss previously recognized in other comprehensive income remains in other comprehensive
income until the forecast transaction or firm commitment affects profit or loss.
Forward foreign exchange contracts are negotiated with JP Morgan Chase with a long-term debt rating of A+ as
determined by Standard & Poor’s. The Company does not anticipate non-performance by JP Morgan Chase, which
is the counterparty to these contracts.
The Company’s financial assets and liabilities recorded at fair value in the consolidated statements of financial
position have been categorized into three categories based on a fair value hierarchy. Fair value of assets and
liabilities included in Level I is determined by reference to quoted prices in active markets for identical
assets and liabilities. Assets and liabilities in Level II include valuations using inputs other than the quoted prices
for which all significant inputs are based on observable market data, either directly or indirectly. Level III
valuations are based on inputs that are not based on observable market data.
Transaction costs are expensed as incurred for financial instruments classified or designated as a derivative
or held for trading. Transaction costs for financial assets classified as available for sale are added to the value
of the instruments at the acquisition date. Transaction costs related to other financial liabilities are added to the
value of the instrument at the acquisition date and recorded in income using the effective interest rate method.
Provisions
As required under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, provisions are recorded when a
present legal or constructive obligation exists as a result of past events where it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation at the consolidated statement of financial position dates, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits
required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset
if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured
reliably.
EXCO TECH NOLOGIES L IMITED
30
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Leases
As required under IAS 17, Leases, assets held under finance leases are recognized as assets of the Company at the
lower of the fair value at the inception of the lease or the present value of the minimum lease payments. The
corresponding amount is recognized as a finance lease liability. The finance lease liability is reduced by lease
payments less finance charges, which are expensed as part of interest expense in the consolidated statements of
income and comprehensive income. Under operating leases, payments are recognized as an expense over the term of
the relevant leases.
Employee future benefits
(i)
(ii)
Leave pay
Employee entitlements to annual leave are recognized as they are earned by the employees. A provision,
stated at current cost, is made for the estimated liability at year end.
Termination benefits
The Company is subject to Mexican statutory laws and regulations governing employee termination
benefits. Employee future benefits include statutorily mandated accrued benefits payable to employees in
the event of termination in certain circumstances. Termination benefits are recognized as an expense and
an associated liability at the discounted value of the expected future payments.
Critical judgments and use of estimates
The preparation of the consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets, liabilities, revenue and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making the judgments
about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the review affects both current and future periods.
Significant accounts that require estimates as the basis for determining the stated amounts include accounting for
doubtful accounts receivable, unbilled revenue, inventories, property, plant and equipment, contingent liabilities,
income taxes, fair value of financial instruments and stock option valuation.
Measurement for doubtful accounts receivable requires management to make estimates and assumptions based on
prior experience and assessment of current financial conditions of customers, as well as the general economic
environment and industry sectors in which they operate.
Several divisions engage in the construction of custom-order large die-cast moulds. Such activities fall into the
scope of IAS 11, Construction Contracts, where revenue is recognized using the percentage of completion method.
Under this method, at every reporting date, management is required to estimate the expected outcome on all
outstanding contracts as well as measurement of their progress achieved towards their completion. The estimation
requires management to make certain assumptions and judgments. These assumptions and judgments are
continuously reviewed and updated. If different assumptions are used, it is possible that different amounts would be
recognized in the consolidated financial statements.
Net realizable value of inventories is dependent upon the estimated selling price in the ordinary course of business,
less the estimated costs of completion and selling expenses based on prior experience and assessment of current
market conditions.
Depreciation and amortization of property, plant and equipment and intangible assets are dependent upon estimates
of useful lives which are determined with the exercise of judgment. The assessment of any impairment of property,
plant and equipment and intangible assets is dependent upon estimates of recoverable amounts that take into account
factors such as economic and market conditions and the useful lives of assets.
EXCO TECHNOLOGIES LIMITED
31
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The estimated useful lives of property, plant and equipment and intangible assets are reviewed on an annual basis.
Assessing the reasonableness of the estimated useful lives of property, plant and equipment and intangible assets
requires judgment and is based on currently available information. Property, plant and equipment and intangible
assets are also reviewed for potential impairment on a regular basis or whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Changes in circumstances, such as technological advances and changes to business strategy can result in
actual useful lives and future cash flows differing significantly from estimates. The assumptions used, including
to ensure they continue to be appropriate.
rates and methodologies, are reviewed on an ongoing basis
Revisions to the estimated useful lives of property, plant and equipment and intangible assets or future cash flows
constitute a change in accounting estimates and are applied prospectively.
Income taxes are determined based on estimates of the Company’s current income taxes and estimates of deferred
income taxes resulting from temporary differences. Deferred tax assets are assessed to determine the likelihood
that they will be realized from future taxable income before they expire.
The valuation of the Company’s derivative instruments and certain other financial instruments requires estimation of
the fair value of each instrument at the reporting date.
The Company uses the Black-Scholes option pricing model to estimate the fair value of the options granted at the
grant date. This model requires the input of a number of assumptions including expected dividend yields, expected
stock volatility, expected time until exercise, expected forfeitures, and risk-free interest rates. Although the
assumptions used reflect management’s best estimates, they involve inherent uncertainties based upon market
conditions generally outside the control of the Company. If other assumptions were used, stock-based compensation
expense could be significantly impacted.
Impairment of non-financial assets- Impairment exists when the carrying value of an asset or CGU exceeds its
recoverable amount, which is the higher of the fair value less costs of disposal and its value in use. The fair value
less costs of disposal is based on available data from binding sales transactions, conducted at arm’s length, for
similar assets or observable market prices less incremental costs for disposing of the asset. The value in use
calculation is based on a discounted cash flow (“DCF”) model. The cash flows are derived from the budget for the
next three years and do not include restructuring activities that the Company is not yet committed to or significant
future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is
sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate
used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the CGUs,
including a sensitivity analysis are disclosed and further explained in note 6.
Accounting standards adopted in the current year
Certain amendments to standards and a new interpretation that were adopted on October 1, 2014 are noted below:
IAS 19 Employee Benefits
Defined Benefit Plans: Employee Contributions was issued in November 2013 to amend IAS 19. These amendments
simplify the accounting for contributions to defined benefit plans and are effective for annual periods beginning on
or after July 1, 2014. The adoption of IAS 19 did not have an impact on the Company’s consolidated financial
statements.
IAS 32 Financial Instruments: Presentation
Amendments to IAS 32 were issued in December 2011 to clarify the existing requirements for offsetting financial
assets and financial liabilities. These amendments became effective for annual periods beginning on or after
January 1, 2014. The adoption of this standard did not have an impact on the Company’s consolidated financial
statements.
EXCO TECH NOLOGIES L IMITED
32
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
IAS 36 Impairment of Assets
The amendments to IAS 36, Impairment of assets requires the disclosure of information about the recoverable
amount of every CGU to which significant goodwill or indefinite-lived intangible assets have been allocated. Under
the amendments, recoverable amount is required to be disclosed only when an impairment loss has been recognized
or reversed. These amendments are effective for annual periods beginning on or after January 1, 2014. The adoption
of these amendments had no material impact on the consolidated financial statements of the Company.
International Financial Reporting Interpretations Committee (“IFRIC”) 21 Levies
In May 2013, the IFRS Interpretations Committee (IFRIC), with the approval of the IASB, issued IFRIC 21, Levies.
IFRIC provides guidance on when to recognize a liability to pay a levy imposed by government that is accounted for
in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 is effective for
periods beginning on or after January 1, 2014 and is to be applied retrospectively. The adoption of IFRIC 21 had no
impact on the consolidated financial statements of the Company.
Accounting standards issued but not yet applied
The following standards are not yet effective for the year ended September 30, 2015. The Company is in the process
of reviewing the standards to determine the impact on the consolidated financial statements.
IFRS 9 Financial Instruments
IFRS 9, as issued in 2014, introduces new requirements for the classification and measurement of financial
instruments, a new expected loss impairment model that will require more timely recognition of expected credit
losses and a substantially reformed model for hedge accounting, with enhanced disclosures about risk management
activity. IFRS 9 also removes the volatility in profit or loss that was caused by changes in an entity’s own credit risk
for liabilities selected to be measured at fair value. IFRS 9 is effective for annual periods beginning on or after
January 1, 2018, which will be October 1, 2018 for the Company. Earlier application is permitted.
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers, which establishes a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Under
IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled
in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will
supersede all current revenue recognition requirements under IFRS. On July 22, 2015, the IASB confirmed a one-
year deferral of the effective date of the Revenue Standard to January 1, 2018. The Company is in the process of
reviewing the standard to determine the impact on the consolidated financial statements which will be October 1,
2018 for the Company.
3. 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. None of these shares have par
value.
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:
EXCO TECH NOLOGIES L IMITED
33
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Issued and outstanding as at October 1, 2013
Issued for cash under Stock Option Plan
Contributed surplus on stock options exercised
Issued for ALC acquisition (note 17)
Issued and outstanding as at September 30, 2014
Issued for cash under Stock Option Plan
Contributed surplus on stock options exercised
Issued and outstanding as at September 30, 2015
Common Shares
Number of Shares
40,714,833
423,205
-
1,007,711
42,145,749
221,158
-
42,366,907
Stated
Value
$37,389
1,709
660
9,030
48,788
896
376
$50,060
Accumulated other comprehensive income (loss)
Included in accumulated other comprehensive income (loss) in shareholders’ equity are gains and losses arising from
the translation of the Company’s foreign subsidiaries, net gain and loss on derivatives designated as cash flow
hedges and reclassification to income of net gain (loss) on cash flow hedges as summarized in the following table.
Opening balance, October 1
Net unrealized loss on derivatives designated as cash flow hedges (1)
Unrealized gain on currency translation adjustments
Total other comprehensive income for the year
Closing balance, September 30
(1) Net of income tax recovery of $471 (2014 - recovery of $34).
2015
$4,637
(1,357)
11,089
9,732
$14,369
2014
($285)
(99)
5,021
4,922
$4,637
Cash dividends
During the year, the Company paid four quarterly cash dividends totaling $9,733 (2014 - $8,135). The dividend rate
per quarter increased in the second quarter of the year from $0.05 to $0.06 per common share.
Stock Option Plan
The Company has a Stock Option Plan under which common shares may be acquired by employees and officers of
the Company. The following table shows the changes to the number of stock options outstanding during the year:
Balance, beginning of year
Granted during the year
Exercised during the year
Expired during the year
Balance, end of year
2015
2014
Number of
Options
738,812
365,000
(221,158)
(3,379)
879,275
Weighted
Average
Exercise Price
$5.10
$13.68
$4.06
$7.15
$8.92
Number of
Options
997,778
295,000
(423,205)
(130,761)
738,812
Weighted
Average Exercise
Price
$4.20
$7.39
$4.04
$6.85
$5.10
EXCO TECH NOLOGIES L IMITED
34
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The following table summarizes information about stock options outstanding and exercisable as at September 30,
2015:
Range of Exercise
Prices
$1.52 - $5.00
$5.01 - $10.00
$10.01 - $14.58
$1.52 - $14.58
Options Outstanding
Weighted
Average
Exercise
Price
$3.48
$7.32
$13.68
Weighted Average
Remaining
Contractual Life
years
years
years
2.35
3.85
5.21
Options Exercisable
Weighted
Average
Exercise
Price
$3.50
$7.57
-
Number
Exercisable
180,407
37,001
-
Number
Outstanding
239,203
275,072
365,000
879,275
4.00
years
$8.92
217,408
$4.19
The number of common shares available for future issuance of options as at September 30, 2015 is 1,620,338 (2014 -
1,981,958). The number of options outstanding together with those available for future issuance totals 2,499,613
(2014 - 2,720,770) or 5.9% (2014 - 6.5%) of the issued and outstanding common shares. The options are granted for
a term of 5 to 10 years and the options vest at 20% at each anniversary date from the date of grant.
Stock-based compensation
Stock-based compensation resulting from applying the Black-Scholes option pricing model to the Company’s Stock
Option Plan was $521 for the year ended September 30, 2015 (2014 - $430). All stock-based compensation has been
recorded in selling, general and administrative expenses. The weighted average assumptions used to measure the
fair value of stock options and the weighted average fair value of options granted during the years ended
September 30, 2015 and 2014 are as follows:
Risk free interest rates
Expected dividend yield
Expected volatility
Expected time until exercise
Weighted average fair value of the options granted
2015
1.00%
1.67%
36.03%
5.50 years
$3.86
2014
2.79%
3.28%
59.99%
5.50 years
$3.16
DSU Plan
The Company has a DSU Plan under which members of the Company's Board of Directors who are not management
receive a portion of their annual retainers and fees in the form of DSUs, which are classified as other accrued
liabilities. The DSUs vest on the date they are granted and are settled in cash upon termination of Board service.
This is a cash settled compensation arrangement.
During the year ended September 30, 2015, the Company granted 6,624 DSUs (2014 - 9,366 DSUs) and redeemed
no DSUs. During the year ended September 30, 2015 the Company recorded stock-based compensation expense of
$502 (2014 - $430) related to awards under the DSU plan with a corresponding credit to other accrued liabilities. As
at September 30, 2015, 101,883 DSUs were outstanding with a carrying value of $1,484 recorded in other accrued
liabilities.
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:
EXCO TECH NOLOGIES L IMITED
35
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Balance, beginning of year
Stock option expense
Exercise of stock options
Balance, end of year
2015
$3,138
521
(376)
$3,283
2014
$3,368
430
(660)
$3,138
Normal course issuer bid
The normal course issuer bid expired October 6, 2014 and was not renewed. During the year, no common shares
were repurchased (2014 - nil).
4. BANK INDEBTEDNESS AND LONG-TERM DEBT
Prime rate in Canada
Prime rate in U.S.A.
Prime rate in Eurozone
Prime rate in South Africa
JP Morgan operating lines (Canada, U.S.A. and Europe)
Nedbank operating lines (South Africa)
DSK Bank operating lines (Bulgaria)
Sparkasse Bank operating line (Germany)
2015
2.70%
3.25%
0.05%
9.50%
2014
3.00%
3.25%
0.05%
9.25%
Facilities
$22,317
5,335
5,980
262
$33,894
Utilizations
$1,079
4,060
4,616
218
Unused and
Available
$21,238
1,275
1,364
44
$9,973
$23,921
These operating lines are available in U.S. dollars, Canadian dollars, euros and South African rand at variable rates
ranging from prime minus 0.5% to prime plus 0.5%. The Company’s North American credit facilities are
collateralized by a general security agreement over its North American assets. The Bulgarian credit facilities are
collateralized by a security interest over the Company’s Bulgarian assets. The South African credit facilities are
collateralized by a security interest over the Company’s South African current assets.
In addition to the above credit facilities, the Company also has a long-term debt facility of $582, of which $61 is
currently utilized, for its capital investment in South Africa at a variable rate of South African prime minus 0.5%.
This facility is collateralized by the underlining financed assets.
Further, in the U.S.A. the Company also has a long-term promissory note payable over five years and collateralized
by a parcel of land purchased as a factory location. The note bears interest of 6%. The interest and principal are
forgivable over a five year period, subject to the Company meeting certain performance criteria for the specific
factory location. As at September 30, 2015 there are no unfulfilled conditions or contingencies attached to this loan.
Long-term debt
Less: current portion
Long-term debt - long-term portion
2015
$528
119
$409
EXCO TECH NOLOGIES L IMITED
36
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
5. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance as at
September 30, 2013
Additions
Assets acquired
Assets acquired from business
acquisition (note 17)
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2014
Additions
Assets acquired
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2015
Machinery
and
equipment
Tools
Buildings
Land
Assets under
construction
Total
$140,960
$16,055
$47,817
$8,776
$8,724
$222,332
17,378
2,027
8,171
-
(2,835)
24,741
5,888
558 10
-
-
6,456
(2,329)
3,035
(672)
396
(16)
1,336
-
200
-
76
(3,017)
5,043
164,932
18,364
57,318
8,976
5,965
255,555
2,496
11,668
(4,879)
6,118
1,474
1,000
(878)
1,319
708
362
(12)
2,111
467
-
-
121
14,844
(13,030)
(323)
(117)
19,989
-
(6,092)
9,552
$180,335
$21,279
$60,487
$9,564
$7,339
$279,004
Tools
Buildings
Land
Assets under
construction
Total
Machinery
and
equipment
$112,483
8,113
(2,133)
2,214
120,677
9,510
(4,624)
4,966
$12,482
1,157
(437)
281
$22,171
1,977
(4)
587
$-
-
-
-
13,483
1,754
(679)
1,174
24,731
2,259
(2)
1,504
-
-
-
-
$-
$130,529
$15,732
$28,492
$-
-
-
-
-
-
-
-
$147,136
11,247
(2,574)
3,082
158,891
13,523
(5,305)
7,644
$-
$174,753
Accumulated depreciation
and impairment losses
Balance as at
September 30, 2013
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2014
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2015
Carrying amounts
As at September 30, 2014
As at September 30, 2015
$44,255
$49,806
$4,881
$5,547
$32,587
$31,995
$8,976
$9,564
$5,965
$7,339
$96,664
$104,251
As at September 30, 2015, the Company had deposits for machinery and equipment and buildings under construction
totalling $7,339 (2014 - $5,965). These assets are not being depreciated because they are under construction and not
in use.
EXCO TECH NOLOGIES L IMITED
37
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
6. INTANGIBLE ASSETS AND GOODWILL
Cost
Balance as at September 30, 2013
Additions
Assets acquired
Assets acquired from business acquisition
(note 17)
Foreign exchange movement
Balance as at September 30, 2014
Additions
Assets acquired
Less: disposals
Foreign exchange movement
Balance as at September 30, 2015
Accumulated amortization and impairment losses
Balance as at September 30, 2013
Amortization for the year
Foreign exchange movement
Balance as at September 30, 2014
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2015
Carrying amounts
As at September 30, 2014
As at September 30, 2015
Computer
Software
and Other
Customer
Relationships
Total
Intangible
Assets Goodwill
$21,738
$-
$21,738
$308
967
-
967
-
346
333
23,384
605
(40)
263
$24,212
3,500
-
3,500
-
-
-
$3,500
3,846
333
26,884
23,570
14
23,892
605
(40)
263
-
-
(40)
$27,712
$23,852
Computer
Software
and other
Customer
Relationships
Total
Intangible
assets Goodwill
$20,679
723
297
21,699
915
(40)
255
$22,829
$-
408
-
408
706
-
-
$1,114
$20,679
1,131
297
22,107
1,621
(40)
255
$23,943
$-
-
-
-
-
-
-
$-
$1,685
$1,383
$3,092
$2,386
$4,777
$3,769
$23,892
$23,852
Of the total goodwill disclosed above, $23,570 is allocated to the Automotive Solutions segment and the remainder
to the Casting and Extrusion segment.
Impairment testing of goodwill
The Company performed the annual impairment test of goodwill allocated to the Automotive Solutions segment as at
September 30, 2015. The recoverable amount of the segment has been determined based on a value-in-use
calculation using cash flow projections from financial budgets approved by senior management covering a three-year
period. Cash flow beyond the three-year period was extrapolated using a 1% growth rate which represents the
expected growth in the Canadian economy. The pre-tax discount rate applied to future cash flows was 12%. As a
result of the analysis, management determined there was no impairment for this CGU.
EXCO TECH NOLOGIES L IMITED
38
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Key asumptions to value-in-use calculations
The calculation of the value-in-use for the Automotive Solutions segment are most sensitive to the following
assumptions:
-Discount rates
-Growth rate to extrapolate cash flows beyond the budget period
Discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration
the time value of money and individual risks of the underlying assets that have not been incorporated in the cash
flow estimates. The discount rate is derived from the CGU’s weighted average cost of capital, taking into account
both debt and equity. The cost of equity is derived from the expected return on investment by the Company’s
shareholders. The cost of debt is based on the interest-bearing borrowing the Company is obliged to service.
Segment-specific risk is incorporated by applying different debt to equity ratios.
Sensitivity to changes in assumptions
Management believes that within reason, possible changes to any of the above key assumptions, recoverable
amounts exceed carrying values.
No impairment considerations are noted in respect to the Casting and Extrusion segment.
7. PROVISIONS
The following table outlines the provisions at the dates of the consolidated statements of financial position and
changes to the provisions during the reporting periods.
Severance
Warranties
Claims and litigation
September 30, 2015
$1,753
33
24
$1,810
September 30, 2014
$1,681
28
24
$1,733
The fair value of the above provisions is management’s best estimate based on information available. The ultimate
amounts of the payments approximate the provision amounts and the timing of payments is expected to be within
the next twelve months. There is no reimbursement expected for any of these provisions.
The movement in the provision accounts is as follows:
Closing balance, September 30, 2013
Additions
Acquired through business acquisition
Utilized
Reversals
Foreign exchange differences
Closing balance, September 30, 2014
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, September 30, 2015
Severance
$402
1,195
1,238
(1,069)
(54)
(31)
$1,681
934
(862)
(36)
36
$1,753
Warranties
$261
-
-
(235)
-
2
$28
-
-
-
5
Claims and
litigation
$22
-
-
-
-
2
$24
-
-
(5)
5
$33
$24
Total
$685
1,195
1,238
(1,304)
(54)
(27)
$1,733
934
(862)
(41)
46
$1,810
EXCO TECH NOLOGIES L IMITED
39
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
8. TOOL CONSTRUCTION CONTRACTS
Contract revenue recognized under the percentage of completion method during the year was $65,259 (2014 -
$43,090). For contracts in progress, the following table summarizes the aggregate amount of costs incurred, profits
recognized, progress billings from customers for the related contracts and retentions being held to date.
Contracts in progress:
Aggregate amount of costs incurred to date
Add: profits recognized to date
Gross: unbilled revenue
Less: progress billings
Net unbilled revenue
Due from customers
Due to customers
9. FINANCIAL INSTRUMENTS
September 30, 2015
September 30, 2014
$13,984
7,021
21,005
(3,712)
$17,293
$18,508
($1,215)
$10,323
3,565
13,888
(2,775)
$11,113
$11,393
($280)
The Company classifies its financial instruments as follows:
Cash
Trade accounts receivable*
Prepaid expenses and deposits
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Long-term debt
*Recorded net of allowance for doubtful accounts.
Financial assets – held for trading measured at fair value
Financial assets – measured at amortized cost
Financial assets – measured at amortized cost
Financial liabilities – measured at amortized cost
Financial liabilities – measured at amortized cost
Financial liabilities – financial liabilities measured at amortized cost
Financial liabilities – financial liabilities measured at amortized cost
Financial liabilities – held for trading measured at fair value
Financial liabilities – measured at amortized cost
Foreign exchange contracts
The Company entered into a series of Collars extending through to September 6, 2018 and designated them as cash
flow hedges against Mexican payroll and other local Mexican costs. The total amount of these Collars is
252.0 million Mexican pesos (September 30, 2014 - 252.0 million Mexican pesos). The selling price ranges from
13.78 to 18.33 Mexican pesos to each U.S. dollar. Management estimates that a cumulative loss of $2,486
(September 30, 2014 - loss of $658) would be realized if these Collars were terminated on September 30, 2015.
During the year, the estimated fair value loss of $1,357, net of income tax recovery of $471 (2014 - loss of $99 net of
income tax recovery of $34) has been included in other comprehensive income and the cumulative loss of $2,486 is
recorded in the consolidated statements of financial position under the caption derivative instruments.
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
EXCO TECH NOLOGIES L IMITED
40
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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 consolidated
statements of financial position is net of allowance 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 income and comprehensive income. As at September 30, 2015, the
accounts receivable balance (net of allowance for doubtful accounts) is $98,823 (2014 - $71,000) and the Company’s
five largest trade debtors accounted for 50.1% of the total accounts receivable balance (2014 - 49.5%). As at
September 30, 2015, accounts receivable of $976 (2014 - $711) are insured against default.
The following table presents a breakdown of the Company’s accounts receivable balances:
Trade accounts receivable
Employee receivable
Sales tax receivable
Other
Less: allowance for doubtful accounts
Total accounts receivable, net
The aging of trade accounts receivable balances is as follows:
Not past due
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due over 90 days
Less: allowance for doubtful accounts
Total trade accounts receivable, net
The movement in the allowance for doubtful accounts is as follows:
Opening balance
Additions
Utilized
Reversal
Exchange differences
Closing balance
September 30, 2015
September 30, 2014
$94,421
$67,154
183
4,081
710
(572)
155
4,058
78
(445)
$98,823
$71,000
September 30, 2015
September 30, 2014
$81,425
9,924
1,343
574
1,155
(572)
$47,368
13,552
3,345
1,288
1,601
(445)
$93,849
$66,709
September 30, 2015
$445
214
(49)
(66)
28
$572
September 30, 2014
$439
317
(232)
(96)
17
$445
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 cash flows from its operating, investing and financing activities. The Company does not
EXCO TECH NOLOGIES L IMITED
41
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
carry excess credit facilities due to the stand-by costs charged by its lenders. As at September 30, 2015, the
Company has a net cash balance of $24,495 (2014 - $7,833) and unused credit facilities of $23,921 (2014 - $29,651).
In the normal course of business, the Company enters into contracts that give rise to commitments for future
minimum payments. The following tables summarize the Company’s significant commitments on an undiscounted
basis and corresponding maturities:
Bank indebtedness
Trade accounts payable
Long-term debt
Operating leases
Capital expenditures
Bank indebtedness
Trade accounts payable
Long-term debt
Operating leases
Capital expenditures
Total
$9,973
46,421
528
3,326
6,106
$66,354
September 30, 2015
< 1 year
$9,973
46,421
119
1,982
6,106
$64,601
1-3 years
$-
-
409
1,339
-
$1,748
over 3 years
$-
-
-
5
-
$5
Total
$21,283
37,301
2,332
4,812
5,349
$71,077
September 30, 2014
< 1 year
$21,283
37,301
720
1,981
5,349
$66,634
1-3 years
$-
-
1,309
2,620
-
$3,929
over 3 years
$-
-
303
211
-
$514
c) Foreign Exchange risk
The Company’s functional and reporting currency is the Canadian dollar. It operates in Canada with subsidiaries
located in the United States, Mexico, Colombia, Brazil, Thailand, Germany, Bulgaria, Morocco, South Africa and
Lesotho. It is exposed to foreign exchange transaction and translation risk through its operating activities.
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 the above natural hedge, the Company also uses Collars to hedge cash outflows for the Mexican payroll
and other local Mexican costs. These Collars are designated as cash flow hedges. The resulting gain or loss on the
valuation of these financial instruments is recognized in the consolidated statements of income and comprehensive
income. The Company does not mitigate the translation risk exposure of its foreign operations due to the fact that
these investments are considered to be long term in nature.
EXCO TECH NOLOGIES L IMITED
42
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
With all other variables held constant, the following tables outline the Company’s annual foreign exchange exposure
at one percent fluctuation between various currencies compared with the average annual exchange rate.
Income before income taxes
Other comprehensive income
Income before income taxes
Other comprehensive income
1 % Fluctuation
USD vs. CAD
1 % Fluctuation
EUR vs. CAD
1 % Fluctuation
MXP vs. CAD
+/-1037
+/-745
+/-60
+/-543
+/-2
+/-37
1 % Fluctuation
COP vs. CAD
1 % Fluctuation
BRL vs. CAD
1 % Fluctuation
ZAR vs. CAD
+/-1
+/-50
+/-13
+/-209
+/-992
+/-1271
d) Interest rate risk
The Company’s exposure to interest rate risk relates to its net cash position, variable rate credit facilities and variable
rate long-term debt. The Company mitigates its interest rate risk exposure by reducing or eliminating its overall debt
position. As at September 30, 2015, the Company has a net cash position of $24,495 (2014 - $7,833), and therefore,
its interest rate risk exposure is insignificant.
e) Fair value
Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market
conditions or other factors. Presented below is a comparison of the fair value of each financial instrument to its
carrying value.
Due to their short-term nature, the fair value of cash and short-term deposits, trade accounts receivable, trade
accounts payable and customer advance payments is assumed to approximate their carrying value.
The fair value of derivative instruments that are not traded in an active market such as over-the-counter foreign
exchange options and Collars, is determined using quoted forward exchange rates at the consolidated statement of
financial position dates and are level 2 instruments.
During the year ended September 30, 2015 there were no transfers between Level 1 and Level 2 fair value
measurements.
The fair value of bank indebtedness and long term debt were determined using the discounted cash flow method, a
generally accepted valuation technique. The discounted factor is based on market rates for debt with similar terms
and remaining maturities and based on the Company’s credit risk. The Company has no plans to prepay these
instruments prior to maturity. The valuation is determined using Level 2 inputs, which are observable inputs or
inputs which can be corroborated by observable market data for substantially the full term of the asset or liability.
EXCO TECH NOLOGIES L IMITED
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ANNUAL REPORT 2015
Cash
Trade accounts receivable
Prepaid expenses and deposits
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Long-term debt
10. INVENTORIES
Raw materials
Work in process
Finished goods
Production supplies
Less: obsolescence provision
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The carrying value and fair value of all financial instruments are as follows:
September 30, 2015
September 30, 2014
Carrying Amount
of Asset
(Liability)
$34,996
98,823
2,397
(46,421)
($9,973)
(3,013)
(21,567)
($2,486)
($528)
Fair Value of
Asset
(Liability)
$34,996
98,823
2,397
(46,421)
($9,973)
(3,013)
(21,567)
($2,486)
($528)
Carrying Amount
of Asset
(Liability)
$31,235
71,000
2,745
(37,301)
($21,283)
(894)
(16,710)
($658)
($2,119)
Fair Value of
Asset
(Liability)
$31,235
71,000
2,745
(37,301)
($21,283)
(894)
(16,710)
($658)
($2,119)
September 30, 2015
$31,479
10,295
14,219
1,832
(2,424)
$55,401
September 30, 2014
$25,506
8,079
12,311
1,180
(2,146)
$44,930
September 30, 2015
$2,146
786
(596)
(64)
152
September 30, 2014
$1,698
1,087
(698)
(13)
72
$2,424
$2,146
The movement in the obsolescence provision accounts is as follows:
Opening balance
Additions
Utilized
Reversals
Exchange differences
Closing balance
During the year, inventories of $256,454 (2014 - $177,320) were expensed, of which $722 was from the write-downs
of inventories (2014 - $515), net of $64 reversal of write-downs (2014 - $13).
11. CAPITAL MANAGEMENT
The Company defines capital as net debt and shareholders’ equity. As at September 30, 2015, total managed capital
was $244,921 (2014 - $202,746), consisting of net debt of nil (2014 - nil) and shareholders’ equity of $244,921
(2014 - $202,746).
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
EXCO TECH NOLOGIES L IMITED
44
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
• 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:
Net debt to equity ratio
Current ratio
September 30, 2015
September 30, 2014
0.00:1
2.12:1
0.00:1
2.19:1
The following table details the net debt calculation used in the net debt to equity ratio as at the periods ended as
indicated:
Bank indebtedness
Less: cash and short-term deposits
Net debt
September 30, 2015
$10,501
September 30, 2014
$23,402
(34,996)
nil
(31,235)
nil
The current ratio is calculated by dividing current assets (excluding cash and short term deposits) by current
liabilities (excluding bank indebtedness).
Based on the current funds available and the expected cash flow from operations, management believes that the
Company has sufficient funds to meet its liquidity requirements.
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, 2015, the Company
was in compliance with the required financial covenants.
12. OTHER INFORMATION
A. SEGMENTED INFORMATION
Business segments
The Company operates in two business segments: Casting and Extrusion Technology (“Casting and Extrusion”) and
Automotive Solutions. The accounting policies followed in the operating segments are consistent with those outlined
in note 2 to the consolidated financial statements.
The Casting and Extrusion 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 seating,
cargo storage and restraint for sale to automotive manufacturers and Tier 1 suppliers (suppliers to automakers).
The Company evaluates the performance of its operating segments primarily based on net income before interest and
income tax expense.
The Corporate segment involves administrative expenses that are not directly related to the business activities of the
above two operating segments.
EXCO TECH NOLOGIES L IMITED
45
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Casting
and Extrusion
Automotive
Solutions Corporate
Total
2015
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment income (loss) before interest and income taxes
Net interest expense
Income before income taxes
Property, plant and equipment additions
Property, plant and equipment, net
Intangible asset additions
Intangible assets, net
Goodwill, net
Total assets
Total liabilities
$204,144
(8,992)
195,152
10,020
726
32,398
18,181
83,784
573
1,201
282
188,825
$25,817
$303,825
(682)
303,143
3,481
895
36,550
1,758
19,374
32
2,568
23,570
152,645
$60,424
$-
-
-
22
-
(7,134)
50
1,093
-
-
-
1,346
$11,654
$507,969
(9,674)
498,295
13,523
1,621
61,814
(939)
60,875
19,989
104,251
605
3,769
23,852
342,816
$97,895
2014
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment income (loss) before interest and income taxes
Net interest expense
Income before income taxes
Property, plant and equipment additions
Property, plant and equipment acquired
through business acquisition
Property, plant and equipment, net
Intangible asset additions
Intangible assets acquired through business acquisition
Intangible assets, net
Goodwill acquired through business acquisition
Goodwill, net
Total assets
Total liabilities
Casting and
Extrusion
Automotive
Solutions
Corporate
Total
$172,468
(3,022)
169,446
8,412
607
25,043
$217,424
(18,612)
198,812
2,806
524
23,919
$-
-
-
29
-
(7,393)
23,445
1,222
74
-
75,365
909
-
1,355
-
322
162,936
$28,411
6,456
20,136
58
3,846
3,422
23,570
23,570
125,690
$53,814
-
1,163
-
-
-
-
-
2,006
$5,661
$389,892
(21,634)
368,258
11,247
1,131
41,569
(715)
40,854
24,741
6,456
96,664
967
3,846
4,777
23,570
23,892
290,632
$87,886
EXCO TECH NOLOGIES L IMITED
46
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Geographic and customer information
Sales
Canada
United States
Europe
Mexico
South America
Asia
Other
2015
$21,221
243,886
190,624
24,883
6,368
6,400
4,913
$498,295
2014
$26,668
184,670
127,708
12,660
6,273
773
9,506
$368,258
In 2015, the Company’s largest customer was from the Automotive Solutions segment (2014 - the Company’s
largest customer was from the Automotive Solutions segment). The total billings to this customer accounted for 21%
(2014 - 16%) of total sales. The account receivable pertaining to this customer was $12,322 at year end (2014 -
$6,195). The allocation of sales to the geographic categories is based upon the customer location where the product
is shipped.
Property, plant and equipment, net
Canada
United States
Mexico
South America
Thailand
Europe
Morocco
South Africa
September 30, 2015
$36,536
29,288
5,501
11,370
10,063
3,968
6,699
826
September 30, 2014
$38,879
16,639
5,231
14,810
8,666
4,431
6,893
1,115
$104,251
$96,664
Property, plant and equipment are attributed to the country in which they are located.
Intangible assets, net
Canada
United States
Mexico
South America
Thailand
Europe
Morocco
South Africa
September 30, 2015
$697
246
47
127
105
2,468
18
61
September 30, 2014
$609
385
63
263
72
3,231
20
134
$3,769
$4,777
EXCO TECH NOLOGIES L IMITED
47
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
B. RESTRUCTURING COST
During the year, the Company recorded severance expense of $898 (2014 - $1,141) in selling, general and
administrative expenses on the consolidated statements of income and comprehensive income relating to staffing
reductions throughout its operations.
C. EMPLOYEE FUTURE BENEFITS
The Company accrues employee future benefits for all of its Mexican employees. These benefits consist of a one-
time payment equivalent to 12 days of wages for each year of service (at the employee’s most recent salary, but not
to exceed twice the legal minimum wage), payable to all employees with 15 or more years of service, as well as to
certain employees terminated involuntarily prior to vesting of their seniority premium benefit. Under Mexican
labour laws, the Company also provides statutorily mandated severance benefits to its employees terminated under
certain circumstances. Such benefits consist of a one-time payment of three months’ wages upon involuntary
termination without just cause.
The liability associated with the seniority and termination benefits is calculated as the present value of expected
future payments and amounted to $465 as at September 30, 2015 (2014 - $198) and is recorded under the caption
other accrued liabilities on the consolidated statements of financial position. In determining the expected future
payments, assumptions regarding employee turnover rates, inflation, minimum wage increases and expected salary
levels are required and are subject to review and change.
D. COMPENSATION OF KEY MANAGEMENT PERSONNEL
The remuneration of directors and other members of key management personnel during the years ended
September 30, 2015 and 2014 were as follows:
Salaries and cash incentives (i)
Directors’ fees
Share-based payments (ii)
September 30, 2015
September 30, 2014
$4,668
316
326
$5,310
$3,585
320
283
$4,188
i) Key management personnel were not paid post-employment benefits, termination benefits, or other long-term
benefits during the years ended September 30, 2015 and 2014.
ii) Share-based payments are director share units and stock option fair value granted to directors and key
management personnel.
E. RELATED PARTY TRANSACTION
During the current year, Mr. Brian Robbins, President and CEO of the Company, acquired assets from Exco at the
exchange amount of $134 (2014 - $215) at the time of the transaction. The amount due was paid in full.
13. INCOME PER COMMON SHARE
Income per common share is calculated using net income and the monthly weighted average number of common
shares outstanding of 42,284,538 (2014 - 41,490,609). Any potential common shares whose effect is anti-dilutive
have not been reflected in the calculation of diluted income per share. There was a dilution effect of 330,088 shares
from the outstanding stock options on diluted weighted average number of common shares outstanding for 2015
(2014 - 380,029).
EXCO TECH NOLOGIES L IMITED
48
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
14. INCOME TAXES
Income before income taxes
$60,875
Income tax expense at Canadian statutory rates
16,515
Manufacturing and processing deduction
(262)
Foreign rate differential
1,230
Non-taxable income net of non-deductible expenses
(1,531)
Withholding tax on dividend
694
Losses not tax effected
2,848
Other
622
Reported income tax expense
$20,116
2015
100.0%
27.13%
(0.43%)
2.02%
(2.52%)
1.14%
4.68%
1.02%
33.04%
Income before income taxes
$40,854
Income tax expense at Canadian statutory rates
11,084
Manufacturing and processing deduction
(427)
(1,271)
Foreign rate differential
Items not deductible for income tax purposes
291
220
Withholding tax on dividend
301
Other
$10,198
Reported income tax expense
2014
100.0%
27.1%
(1.0%)
(3.1%)
0.7%
0.5%
0.8%
25.0%
The major components of income tax expense are as follows:
Current income tax expense
Based on taxable income for the year
Withholding tax on dividend
Deferred income tax expense (recovery)
Origination, reversal of temporary differences and losses not recognized
Reported income tax expense
2015
2014
$17,572
694
18,266
1,850
$20,116
$10,721
220
10,941
(743)
$10,198
Deferred income tax movements in the consolidated statements of income and comprehensive income are as follows:
Assets
Tax benefit of loss carry forward
Items not currently deductible for income tax purposes
Unrealized foreign exchange losses
Liabilities
Unrealized foreign exchange gains
Unbilled revenue
Tax depreciation in excess of book depreciation
Net deferred income tax recovery
2015
$769
442
(782)
-
1,637
(216)
$1,850
2014
($1,114)
227
(137)
-
-
281
($743)
EXCO TECH NOLOGIES L IMITED
49
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Net cash outflow during the year for income taxes amounted to $11,546 (2014 - $8,521).
Deferred income tax assets and liabilities consist of the following temporary differences:
Deferred tax assets
Tax benefit of loss carry forward
Items not currently deductible for income tax purposes
Unrealized foreign exchange losses
Deferred tax liabilities
Tax depreciation in excess of book depreciation
Unrealized revenue and foreign exchange
Investment in subsidiaries
Net deferred income tax liabilities
2015
$1,261
773
-
2,034
(3,060)
(477)
(2,001)
(5,538)
($3,504)
15. CONSOLIDATED STATEMENTS OF CASH FLOW
Net change in non-cash working capital
The net change in non-cash working capital balances related to operations consists of the following:
Accounts receivable
Unbilled revenue
Inventories
Prepaid expenses and deposits
Trade accounts payable
Accrued payroll and taxes
Other accrued liabilities
Provisions
Customer advance payments
Income taxes payable
Long-term debt – current portion
2015
($25,941)
(5,904)
(9,598)
3,847
8,490
1,678
2,212
77
2,029
5,274
96
($17,740)
2014
$3,258
608
410
4,276
(3,265)
-
(2,665)
(5,930)
($1,654)
2014
$422
(1,885)
(8,274)
301
3,544
394
1,974
(933)
(248)
3,003
109
($1,593)
EXCO TECH NOLOGIES L IMITED
50
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
16. CONTINGENT LIABILITIES
In the ordinary course of business, the Company may be contingently liable for litigation and claims with customers,
suppliers and former employees. On an ongoing basis, the Company assesses the likelihood of any adverse
judgments or outcomes to these matters as well as potential ranges of probable costs and losses, and a determination
of the provision required, if any, for these contingencies is made after analysis of each individual issue. Other than
amounts already provided for in the consolidated financial statements, there are no material contingent liabilities as
at September 30, 2015 (2014 - nil).
17. BUSINESS ACQUISITION
The Company accounts for acquisitions using the acquisition method of accounting with the results of operations
included in the Company’s consolidated financial statements from the respective date of the acquisition.
On March 1, 2014, the Company acquired all of the shares of Automotive Leather Company Group (Pty) Limited
(“ALC”), a private company organized under the laws of South Africa for a total consideration of $26,373, of which
$17,343 was in cash and $9,030 was in Exco’s common shares, which were fair valued at the market price at the
closing date. ALC specializes in the manufacture and export of luxury leather interior trim components to the middle
and luxury automotive sectors. The primary customers are BMW and its tiers, although other German Original
Equipment Manufacturers (“OEMs”) and their tiers are also customers. The acquisition will enable Exco to supply
the German OEMs in Europe and other parts of the world. It will also provide the Company with production
facilities in Eastern Europe from which it will be able to supply the European automotive market with its other
interior trim products.
The final purchase price was allocated to the identifiable assets acquired and liabilities assumed based on the fair
value of the total consideration as follows:
Cash
Trade accounts receivable and other
Inventories
Property, plant and equipment
Intangible assets
Goodwill
Bank indebtedness
Trade accounts payable, accrued liabilities and other
Deferred tax liabilities
Long-term debt
$16
18,053
12,231
6,456
3,846
23,570
(8,692)
(24,153)
(2,073)
(2,881)
$26,373
Due diligence and closing costs for the ALC acquisition amounted to $526 and were expensed under selling, general
and administrative expenses on the consolidated statements of income and comprehensive income.
The fair value of the trade accounts receivable equals the gross amount of the trade accounts receivable less
allowance for bad debts and amounts to $17,520. The net contractual amount is collectible.
The goodwill of $23,570 is allocated to the entire Automotive Solutions segment. None of the goodwill recognized
is expected to be deductible for income tax purposes.
EXCO TECH NOLOGIES L IMITED
51
ANNUAL REPORT 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The impacts of ALC on the Company’s consolidated statements of income and comprehensive income for the year
ended September 30, 2014 are as follows:
Reported consolidated sales
ALC’s sales
Consolidated sales excluding ALC
Reported consolidated pretax income
ALC’s pre-tax income
Consolidated pre-tax income excluding ALC
2014
$368,258
(83,941)
284,317
$40,854
(278)
$40,576
If ALC was acquired on October 1, 2013, the impacts of ALC on the Company’s consolidated statements of income
and comprehensive income for the year ended pro-forma September 30, 2014 would be as follows:
Consolidated sales excluding ALC
ALC’s 12-month sales
Consolidated sales including ALC’s 12-month sales
Consolidated pretax income excluding ALC
ALC’s 12-month pretax income
Consolidated pretax income including ALC’s 12-month pretax income
2014
$284,317
141,711
$426,028
$40,576
1,356
$41,932
18. INTEREST EXPENSE (INCOME)
The following table outlines the interest expense (income) incurred during the year:
Interest expense on bank indebtedness and long-term debt
Interest income on deposits
Net interest expense
September 30, 2015
September 30, 2014
$1,031
(92)
$939
$803
(88)
$715
EXCO TECH NOLOGIES L IMITED
52
ANNUAL REPORT 2015
CORPORATE INFORMATION
Board of Directors
Transfer Agent and Registrar
Laurie T.F. Bennett, CPA, CA
Corporate Director
Edward H. Kernaghan, MSc
Executive Vice President
Kernaghan & Partners Ltd.
Nicole A. Kirk, BA, MBA
Corporate Director
Robert B. Magee, PEng
Chairman
Woodbridge Group
TMX Equity Transfer Services
200 University Avenue, Suite 300
Toronto, Ontario M5H 4H1
Phone: 416.361.0152
www.equitytransfer.com
______________________________
Auditors
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
______________________________
Philip B. Matthews, MA, CPA, CA
Corporate Director
Stock Listing
Brian A. Robbins, PEng
President and CEO of the Company
Peter van Schaik
Founder and Chairman
Van Rob Inc.
______________________________
Corporate Officers
Brian A. Robbins, PEng
President and CEO
Paul Riganelli, MA, MBA, LLB
Senior Vice President and COO
Drew Knight, CPA, CA
Chief Financial Officer & VP Finance
Secretary
Toronto Stock Exchange (XTC)
______________________________
Corporate Office
Exco Technologies Limited
130 Spy Court, 2nd Floor
Markham, Ontario L3R 5H6
Phone: 905.477.3065
www.excocorp.com
______________________________
2015 Annual Meeting
The 2015 Annual Meeting for the
Shareholders will be held at EXCO at
130 Spy Court, 2nd Floor, Markham,
Ontario on Wednesday, February 3,
2016, at 4:30 pm.
DRIVING
VALUE
www.excocorp.com TSX-XTC