LETTER TO SHAREHOLDERS
Fiscal 2016 was another record-se�ng year for Exco.
Aided by six months of contribu�ons from AFX
Industries LLC, which we acquired on April 4, 2016, and
accompanied by balanced results from our underlying
opera�ons, Exco’s consolidated sales
increased
$90.7 million or 18% to a record $589.0 million.
Consolidated net income reached a record $47.6
million or $1.12 per share compared to $40.8 million
or $0.96 per share in fiscal 2015. Similarly, EBITDA and
free cash flow rose to record levels.
Key Ini�a�ves in Fiscal 2016
Exco achieved these results despite inves�ng consider-
able management �me and financial resources to
resolve formidable challenges in ALC’s opera�ons in
South Africa and Lesotho. Specifically, we relocated
produc�on out of Rosslyn, South Africa and
subsequently closed those facili�es at the end of the
second quarter. As well, a�er conduc�ng an
assessment of the long-term viability of the remaining
opera�ons in Lesotho, we saw no clear path to
overcoming the opera�ng and logis�cal challenges
that were hampering the results of that business.
Consequently, we wound up ALC’s opera�ons in
Lesotho subsequent to our year end. Going forward,
ALC’s results will benefit from the elimina�on of
opera�ng losses that amounted to $3.5 million in fiscal
2016 and $5.2 million in fiscal 2015.
In the Cas�ng and Extrusion segment, we made
significant progress at strengthening our long-term
compe��ve posi�on with major machinery and
equipment investments in both our Large Mould
Group and the Extrusion Tooling Group. In the Large
Mould Group, we undertook a $10 million investment
program at our Newmarket Ontario facility which,
when completed in early 2017, will posi�on it as one of
the fastest and most efficient large mould manufactur-
ers in the world. A grant by the Government of Canada
for about $4.6 million of the cost of this capital project
has significantly mi�gated associated financial risks
�mes while
and is greatly appreciated. This investment program
includes
state-of-the-art addi�ve manufacturing
equipment, which will significantly enhance our ability
to design and make superior moulds for our
customers. The program will also reduce our costs and
capacity,
lead
posi�oning us strongly to capitalize on significant
expected demand growth for aluminum structural
component moulds in the coming decade. In turn, it
will help alleviate current margin pressures driven by
the transi�on of work towards newer programs that
lack the scale - and margin profile - of the established
programs they are replacing.
increasing
our
In the Extrusion Tooling Group, we embarked upon a
program of integra�ng and standardizing the design
and manufacturing processes among our five
extrusion tooling plants. This ini�a�ve has coincided
with a management succession transi�on which, when
complete, will solidify this group’s posi�on as the most
precise and efficient manufacturer of extrusion dies in
the Americas, with state-of-the-art opera�ons
in
Canada, the USA, Colombia and Brazil.
Meanwhile, we con�nued to execute our strategy of
making selec�ve acquisi�ons that leverage Exco’s core
strengths. The acquisi�on of AFX, a leading �er 2
supplier of interior trim components to the North
American market, has added key leather-cu�ng capa-
bili�es and new products to our exis�ng suite of com-
plementary businesses. This acquisi�on has been
significantly accre�ve to earnings despite requiring in
excess of $1.5 million in transac�on costs during 2016.
With the acquisi�on of AFX, our Automo�ve Solu�ons
business has now grown to include five a�rac�ve
businesses that have strong compe��ve posi�ons,
good diversity of product and customers and a demon-
strated ability to increase their market share over
�me. These characteris�cs were evident in fiscal 2016
by the excep�onal performance of the segment, which
recorded revenue growth of 31% while holding its
EBITDA margin constant at an impressive 13.5%.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
LETTER TO SHAREHOLDERS
Outlook
As we begin fiscal 2017 the broader investment
community appears to perceive that the automo�ve
market has peaked, and that light vehicle sales will
necessarily decline a�er several years of strong
growth. This has caused the share price mul�ples of
automo�ve component suppliers, including Exco, to
contract despite con�nued growth
in earnings.
However, while we are quite aware that the
automo�ve industry is cyclical, we also believe that
industry fundamentals remain sound, which may
support a con�nua�on of current volume levels for the
next several years. Among the factors that give us this
convic�on are low interest rates, good availability of
consumer credit, con�nued job gains in the US, and
the high – and rising - average age of vehicles on the
road today.
In any event, we believe that Exco benefits from
several factors that should protect its performance
through the downturn of the automo�ve industry
should it occur. First, regardless of vehicle produc�on
levels, we see demand for large moulds increasing
through the next several years due to the need for
auto OEMs to comply with stringent regulatory
emission requirements and fuel efficiency objec�ves.
Second, demand for our extrusion opera�ons is mostly
driven by non-automo�ve ac�vity in the broader
economy, but yet also benefits from the same
automo�ve light-weigh�ng trend as our Large Mould
business. This provides a GDP+ growth profile that is
magnified by our ability to outpace market growth as
our newer opera�ons in Texas, Brazil, Thailand and
Colombia con�nue to season.
Lastly, Exco’s Automo�ve Solu�ons does not depend
solely on higher vehicle produc�on levels for growth.
Over the past 5 years, we have gained significant share
in our market, with average content per vehicle
increasing over fourfold to about $10. Yet, despite this
strong growth, our content per vehicle remains
rela�vely small, which means we con�nue to possess
enormous opportunity for growth, both organically
and through acquisi�ons.
Finally, we have the financial strength and flexibility to
make the most of our opportuni�es. Exco entered
into a three-year $100 million credit facility during
fiscal 2016 to help fund the acquisi�on of AFX, of
which $69 million was drawn down at the close of the
transac�on. Six months later, at the end of the fiscal
year, the balance had been paid down to $47 million
and net debt had been reduced to $45 million. With
net debt/ EBITDA of just 0.5x and a healthy liquidity
posi�on, Exco possesses significant financial capacity
acquisi�ons.
to
Furthermore, we con�nue to generate sizeable free
cash flow a�er funding annual maintenance and
growth capital expenditures as well a common
dividend that has increased consistently since it was
first introduced in 2003.
con�nue
through
grow
to
I would like to close by extending a sincere thank you
to all of the talented and dedicated employees who
have made Exco’s performance possible. With your
ongoing support, I am confident we will con�nue to
sustain growth for our customers and investors on the
road ahead.
Sincerely,
Brian A. Robbins
President and CEO
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
CONTENTS
4
Management's Discussion and Analysis
18
19
23
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, 2016. This MD&A has been prepared as of November 30, 2016.
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 which is not a measure of financial performance under International
Financial Reporting Standards (“IFRS”). Exco calculates EBITDA as earnings before other income, 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, raw material prices, economic conditions, currency fluctuations, trade restrictions, 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 operations in Brazil, Texas and Thailand achieve sustained 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.
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
EXCO TECHNOLOGIES LIMITED
3
ANNUAL REPORT 2016
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 is increasing capacity, reducing lead times, further improving
quality and reducing costs. 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. However, with respect to the latter, we commenced
operations of a new facility in Thailand in 2014 which we believe will enable us to better penetrate the Asian market
for those products.
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 and/or finisher 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. AFX Industries is a tier 2 supplier
of leather and leather-like interior trim components to the North American automotive market. AFX supplies die cut
leather sets for seating and many other interior trim applications as well as injection-molded, hand-sewn, machine-
sewn and hand-wrapped interior trim components of all sorts. Automotive Solutions manufacturing facilities are
located in Canada, the United States, Mexico, Bulgaria, and Morocco supplying the automotive markets in North
America, Europe and to a lesser extent, Asia.
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 organic and inorganic
growth opportunities in both our existing and select developing markets.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
The performance of the North American automotive industry remained solid in fiscal 2016, with most OEMs and
tier one suppliers having strong sales and improving credit fundamentals. Production of light vehicles continued to
grow modestly from historically high levels, supported by low interest rates, low gas prices, an aging fleet 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 bode well for our large mould business creating promising new opportunities for growth.
During fiscal 2016, Exco continued to solidify its technological leadership with the production of die-cast moulds
for light-weight structural parts that use advanced aluminum alloys such as silafont. To date, Exco has shipped
numerous such moulds and has received orders for various additional programs. Exco believes moulds for structural
aluminum components will increasingly be a significant driver of growth for the foreseeable future and that this
demand will occur regardless of prevailing powertrain developments. 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. Offsetting these positive benefits however is the
maturation of certain established programs that have benefited Exco’s large mould group over the past several years.
Some of these programs were long-running requiring a high number of moulds that have similar or identical
configurations. Typically, programs such as these provide a larger base over which to absorb any engineering costs
and also provide Exco with the opportunity to become more efficient with each successive mould produced.
Recently, automotive OEM’s have increased the speed at which they alter powertrain designs in order to achieve
their fuel efficiency and emission reduction goals. This provides Exco with less opportunity to leverage the
efficiency measures as noted in the forgoing. In response to - and in anticipation of - these trends, Exco is currently
concentrating investment in new machinery and equipment to reduce costs, increase efficiency, meet shorter lead
times, further enhance the quality of its products and expand capacity.
Demand for extrusion dies generally remained firm through the year as end market applications for extruded
aluminum components are quite diverse and correlate well with GDP, which continues to grow modestly in North
America, our largest market for extrusion dies. As well, demand for extruded aluminum components within the
automotive end market continues to grow above market owing to the same light-weighting trends noted above.
Moreover, anti-dumping and/or countervailing duties against Chinese imports into Canada and the US on aluminum
extrusions remain in place and we expect will continue to do so following completion of the current sunset review.
Over the past several years Exco has expanded its footprint in the Americas to gain increased exposure to markets
that the Company expects will have higher growth prospects over the longer term. These investments have included
a new extrusion die production facility in Medellin, Colombia, which commenced operations in January 2012 and a
new extrusion die production facility near Sao Paulo, Brazil, which commenced operations in June 2014. These
investments produced mixed results in fiscal 2016 with our Colombia operations performing very strongly while our
Brazilian operations remain challenged by the very weak economic environment in that country. Nonetheless, we
continue to ramp up business in Brazil, albeit at a slow pace, and hone our skills and capabilities, positioning
ourselves for the economic recovery when it eventually takes place.
In addition to its investments in South America, Exco has expanded its presence in the North America extrusion die
market to provide increased growth in a distinct market segment where proximity to customers is a key element to
success. In 2013, the Company acquired and subsequently expanded an existing toolshop in Wylie Texas to better
service the south-central region of the United States. Exco is now focused on harmonizing the manufacturing
EXCO TECHNOLOGIES LIMITED
5
ANNUAL REPORT 2016
process of its various extrusion die plants and implementing various changes in order to improve the growth
prospects and the efficiency of these operations.
Our Castool business also continues to grow globally. Solid demand growth for Castool’s machine consumable parts
prompted us to build a production facility in 2014 in Thailand to more efficiently serve our customers while taking
advantage of lower production and shipping costs to Asia and Europe. This facility has been producing since July
2014, and despite relative softness in China, this plant is building a solid operational base for profitable growth.
Strong vehicle production volumes in both North American and Europe have propelled sales and profit in the
Automotive Solutions interior trim segment over the past few years as our various businesses kept pace with strong
order flow. Furthermore, particularly in North America, a good proportion of the vehicles produced are refreshed or
completely new models with a growing representation of SUV’s and light trucks, which have greater cabin and
cargo areas. Meanwhile, we continue to expand our capabilities and broaden our product offerings. All of this helps
us to increase our content per vehicle and replace older programs which have been ‘costed down’ over the years
with new programs reflecting current costs and better margins. Cost inflation of raw materials has also remained
muted in recent years, in keeping with commodities in general.
While current North American and European automobile production volumes appear sustainable for the next few
years, we believe prospects for these economies are limited by several structural trends. These include: a steadily
aging population 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.
Exco remains committed 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 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.
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. On March 1, 2014 we 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 provided us with a
facility in Eastern Europe, to which European automotive manufacturing continues to migrate, and a central
European technical and service centre from which we can better serve our European customers. ALC’s operations in
South Africa and Lesotho were less compelling. Consequently, Exco closed its operations in South Africa in fiscal
2016 and ceased production in Lesotho in November 2016.
On April 4, 2016 we acquired AFX Industries LLC for consideration of US$73.4 million excluding US$4.4 million
of assumed debt. The acquisition builds on Exco’s significant leather-based interior trim stable of products while
also providing new customers, suppliers, products and capabilities in a region that is very familiar to us. AFX is
EXCO TECHNOLOGIES LIMITED
6
ANNUAL REPORT 2016
based in Port Huron, Michigan with manufacturing operations in Matamoros, Mexico. The company is a tier 2
supplier of leather and leather-like interior trim components to the North American automotive market. AFX
supplies die-cut leather sets for seating and many other interior trim applications as well as injection-molded, hand
sewn, machine-sewn and hand-wrapped interior components of all types.
Looking ahead, light vehicle production in North America is projected to remain robust in 2017 despite the gradual
rate of growth in the global economy. Market fundamentals remain firm 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 US 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.
2016 RESULTS
Consolidated Results - Sales
Annual sales totalled $589.0 million compared to $498.3 million last year – an increase of $90.7 million or 18%
over last year. Included in the current year results was six months of sales in the amount of $66.9 million from AFX,
which was acquired on April 4, 2016. Excluding sales from AFX, annual sales totalled $522.1 million – an increase
of $23.8 million or 5% over last year. Over the year, the US dollar averaged 7% higher ($1.32 versus $1.24) against
the Canadian dollar contributing $15.2 million in sales to the current year. Similarly, the Euro averaged 5% higher
($1.46 versus $1.41) against the Canadian dollar contributing $5.7 million to sales.
Selected Annual Information
The following table sets out selected financial data relating to the Company’s years ended September 30, 2016 and
2015. 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
2016
$589.0
$47.6
$1.12
$1.11
$452.9
$0.27
$83.4
2015
$498.3
$40.8
$0.96
$0.96
$342.8
$0.23
$77.0
● Automotive Solutions Segment
Sales in this segment were $396.8 million – an increase of $93.6 million or 31% from the prior year. AFX, which
was acquired in April 2016 contributed $66.9 million to sales in the current year. Excluding AFX, segment sales
totalled $329.9 million – an increase of $26.8 million or 9% from the prior year. In North America, positive growth
was recorded by both Polytech and Neocon helped by modest vehicle unit sales growth as well as new product
EXCO TECHNOLOGIES LIMITED
7
ANNUAL REPORT 2016
launches for refreshed, redesigned and entirely new vehicle models. Similarly in Europe, sales of both Polydesign
and ALC increased over the prior year driven by higher vehicle volumes and new program launches. The
appreciation of the US dollar against the Canadian dollar boosted sales at Polytech and Neocon by $7.6 million
compared to the prior year. Also, fluctuations in the Euro against the Canadian dollar as described above increased
sales of the segment’s European operations by $5.5 million.
• Casting and Extrusion Segment
Sales for this segment were $192.2 million – a decrease of $2.9 million or 2% from the prior year. The slight sales
decline was driven by lower revenues in the large mould group which was mostly offset by higher sales in the
Company’s Castool and Extrusion groups. Large mould revenue declines reflect lower sales of moulds and
maintenance work on established programs countered by an increase of “first-off” and “one-off” moulds associated
with recently launched powertrain and structural part programs. These newer programs typically have a much lower
level of efficiency relative to mature programs, resulting in lower throughput, which adversely impacts revenues and
margins. Castool sales reflect ongoing market penetration of the group’s innovative product offerings together with
reasonably good market conditions in North America, South America and Asia. Notably, sales from Castool
Thailand which commenced production in the last fiscal quarter of 2014 grew 35% over fiscal 2015. The sales
increase in the Extrusion group was supported by relatively stable top line results from the group’s flagship
operations in Markham and Michigan and the ongoing benefit of its newer operations in Texas, Brazil and
Colombia, which recorded collective revenue growth of 31% compared to the prior year. The appreciation of the US
dollar against the Canadian dollar contributed $7.5 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 positive impact of
$158 thousand on sales in this segment in the current year.
Cost of Sales
Cost of sales totalled $460.1 million – an increase of $80.6 million or 21% from the prior year. Cost of sales as a
percentage of sales increased to 78% from 76% driven by a higher intensity of direct materials, which increased to
54% of sales ($318.4 million) this year compared to 51% of sales ($256.5 million) last year. The inclusion of AFX
drove most of this increase with margin deterioration in the large mould business and relative mix shift between the
Company’s other various businesses explaining most of the difference. Inflationary pressures remain muted for
Exco’s major input materials – petroleum/natural gas based resin and plastic products in the Automotive Solutions
segment and tool grade steel in the Casting and Extrusion segment, where a focus on global sourcing has also helped
contain costs. The other components of cost of sales, namely direct labor and overhead, decreased slightly as a
percentage of sales to a combined percentage of 24% ($141.7 million) compared to 25% ($123.0 million) last year.
Selling, General and Administrative Expenses
Selling, general and administrative expense in the current year increased to $45.9 million from $41.6 million last
year, an increase of 10%. However, as a percentage of sales, these expenses decreased to 7.8% from 8.4% the prior
year. Included in the current year were $2.5 million of selling, general and administrative expenses related to AFX
as well as about $1.5 million of transaction costs required to complete the AFX acquisition.
Depreciation and Amortization
Consolidated depreciation in fiscal 2016 totalled $14.8 million compared to $13.5 million last year driven by higher
depreciation arising from our increased investment in the Casting and Extrusion Segment in recent years as well as
the acquisition of AFX in 2016. The increase in amortization expense was attributable to $43.3 million of the AFX
acquisition classified as intangible assets, mostly reflecting the fair value of customer relationships. The carrying
EXCO TECHNOLOGIES LIMITED
8
ANNUAL REPORT 2016
value of total intangible assets amounted to $45.6 million as at September 30, 2016. The Company expects the
associated annual amortization expense will total approximately $4.0 million in fiscal 2017.
With respect to segmentation, depreciation expense increased to $11.5 million in the Casting and Extrusion segment
from $10.0 million last year while depreciation expense in the Automotive Solutions segment reduced to $3.2
million from $3.5 million last year despite the inclusion of AFX. Amortization of intangible assets remained stable
at $0.7 million in the Casting and Extrusion segment but increased to $2.5 million from $0.9 million last year within
the Automotive Solutions segment driven by the AFX acquisition and continuation of the amortization related to
ALC’s intangible assets.
Interest
Net interest expense in the current year totalled $1.3 million compared to $0.9 million the prior year. The increase in
the interest expense was mainly caused by the higher debt associated with funding the acquisition of AFX in April
2016 as well as the lower average utilization of higher cost debt at ALC’s operations.
Income Taxes
Exco’s effective income tax rate was 29.7% compared to an effective income tax rate of 33.0% in fiscal 2015.
Included in the current year’s income tax expense was $0.9 million of withholdings taxes paid on the repatriation of
surplus from a subsidiary. Included in last year results was $1.9 million for the write-off of deferred tax assets in
South Africa and $0.7 million 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 28.4% compared to
28.8% in the prior year. The effective income tax rates for both years incorporate higher tax jurisdictions such as the
USA and Canada (see note 14 to the 2016 Consolidated Financial Statements) and the impact of losses not being
tax-affected in Brazil, South Africa and Lesotho.
Net Income
• Consolidated
The Company reported consolidated net income of $47.6 million or basic and diluted earnings of $1.12 and $1.11
per share respectively compared to consolidated net income of $40.8 million or basic and diluted earnings of $0.96
per share – an increase of $6.8 million or 17%. The increase in consolidated net income in fiscal 2016 was assisted
by a $3.4 million ($0.08 per share) gain associated with the settlement of a commercial arbitration related to the
acquisition of ALC recorded in the third fiscal quarter of 2016. Without this settlement, net income would have been
$44.1 million or $1.04 per share. The acquisition of AFX contributed strongly to consolidated net income while
lower losses at ALC’s South African/ Lesotho operations ($3.5 million in fiscal 2016 compared to $5.2 million in
fiscal 2015) also benefited results year over year. Fiscal 2015 net income was adversely impacted by the write-off
of $1.9 million of deferred tax assets in South Africa consistent with the plan to cease manufacturing in this location.
• Automotive Solutions Segment (Operating Earnings)
The Automotive Solutions segment recorded operating earnings of $48.0 million for the year compared to $36.6
million last year – an increase of $11.5 million or 31%. The acquisition of AFX contributed strongly to the
segment’s results while earnings were higher at each of Polytech, Neocon and Polydesign as these businesses
continued to introduce new product launches and benefits from stable costs for metal subcomponents, resin sheet
and other plastic raw material inputs. In addition, as indicated above, results at ALC’s South Africa/ Lesotho
operations improved following the closure of the South African operations at the end of the second quarter of 2016.
EXCO TECHNOLOGIES LIMITED
9
ANNUAL REPORT 2016
• Casting and Extrusion Segment (Operating Earnings)
Casting and Extrusion operating earnings decreased to $24.7 million from $32.4 million in the prior year – a
difference of $7.7 million or 24%. This decrease was primarily driven by the large mould group which faced a shift
in its volume away from higher margin mature contracts towards newer lower margin “first-off” and “one-off”
contracts as well as operational disruption caused by the installation of new machinery in the Newmarket facility. To
a lesser extent, profitability declined in the Extrusion group owing to higher levels of depreciation in the recently
expanded Texas plant, continuing challenging economic conditions in Brazil and operational changes required to
harmonize manufacturing processes at the various plants of the Extrusion group, which is having a temporary
adverse impact on profitability. Partially offsetting these factors was strong performance from both our Colombian
extrusion operations and Castool group as well as a favorable raw material pricing environment – particularly for
steel as described in the ‘Cost of Sales’ section above. The weak Canadian dollar also favorably impacted this
segment by increasing the value of US dollar denominated earnings from US operations. This segment’s three plants
in Canada also benefited from the weaker 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.
Corporate Segment (Operating Expense)
•
Corporate expense in the current year amounted to $7.3 million compared to $7.1 million in the prior year.
Corporate expenses in fiscal 2016 included $1.5 million of transaction costs associated with the AFX acquisition and
$0.5 million of non-cash stock option expense, which was partially offset by the reversal of accruals in the amount
of $0.8 million related to the plant closure in South Africa and foreign exchange translation gains of $0.3 million.
Corporate expenses in fiscal 2015 included $1 million of non-cash stock option expense and $0.8 million of accruals
related to the plant closure in South Africa offset by foreign exchange translation gains totalling $0.8 million.
EBITDA
EBITDA in the current year amounted to $83.4 compared to $77.0 million in the prior year – an increase of $6.4
million or 8%. EBITDA as a percentage of sales decreased to 14.2% compared to 15.4% last year. This deterioration
in EBITDA margin is attributable to the Casting and Extrusion segment where the EBITDA margin declined to
19.2% from 22.1% last year as well as the change in relative contributions between the Company’s two segments.
The Automotive Solution segment EBITDA margin remained constant at 13.5% while Corporate expenses declined
to 1.2% of sales compared to 1.4% the prior year.
Quarterly Results
The following table sets out financial information for each of the eight fiscal quarters through to the fiscal year
ended September 30, 2016:
($ thousands except per share
amounts)
September 30,
2016
Sales
Net income
Earnings per share
Basic
Diluted
$163,034
$10,514
$0.25
$0.25
June 30,
2016
$161,671
$16,226
$0.38
$0.38
March 31,
2016
$133,383
$8,989
December 31,
2015
$130,901
$11,828
$0.21
$0.21
$0.28
$0.28
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
($ thousands except per share
amounts)
September 30,
2015
Sales
Net income
Earnings per share
Basic
Diluted
$130,984
$10,293
$0.24
$0.24
June 30,
2015
$121,930
$9,956
$0.24
$0.23
March 31,
2015
$125,484
$10,872
December 31,
2014
$119,897
$9,638
$0.26
$0.26
$0.23
$0.23
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 $163.0 million – an increase of $32.0 million or 24% from the prior
year. The acquisition of AFX closed April 4, 2016 and added $35.9 million to sales in the quarter. Over the quarter
the average USD/CAD exchange rate was 1% lower ($1.31 versus $1.32 last year) reducing sales by $0.6 million.
The average EUR/ CAD exchange rate was nominally lower ($1.46 versus $1.47 last year) reducing sales by $0.2
million.
The Automotive Solutions segment experienced a 50% increase in sales from $78.5 million last year to $117.7
million in the fourth quarter of 2016 driven primarily by the acquisition of AFX. Excluding AFX, the Automotive
Solutions segment’s sales were $81.8 million – an increase of $3.3 million or 4% over the same quarter last year.
Contributing to this improvement were higher sales at ALC, Polydesign and Neocon partially offset by modestly
lower sales at Polytech. The Casting and Extrusion segment recorded sales of $45.3 million compared to $52.5
million last year – a decrease of 14%, driven mostly by lower sales in the large mould segment and to a lesser extent
lower sales in the extrusion group.
The Company’s fourth quarter consolidated net income increased to $10.5 million or earnings of $0.25 per share
compared to $10.3 million or earnings of $0.24 per share in the same quarter last year – an EPS increase of 4%. In
the fourth quarter of fiscal 2016 consolidated net income was reduced by withholding taxes of $0.9 million ($0.02
per share) as described in ‘Income Taxes’ above and an additional $0.3 million of amortization related to an
adjustment of AFX’s intangible assets. Last years consolidated net income was negatively impacted by the write-off
of $1.9 million ($0.05 per share) in deferred tax assets.
Fourth quarter pretax earnings in the Automotive Solutions segment totalled $14.4 million, an increase of $4.3
million or 43% over the same quarter last year. This improvement was driven primarily by the acquisition of AFX
and stronger performance at ALC’s South African/Lesotho operations where earnings improved to a modest income
position aided by a $0.6 million asset disposal gain compared to operating losses of $2.0 million last year. ALC’s
Bulgarian operations however experienced weaker performance in the current quarter compared to the prior year.
Included in the segment results was a combined increase in depreciation and amortization expenses of $2.2 million
compared to $1.0 million last year, with the increase attributable to the amortization of AFX’s intangible assets.
Fourth quarter pretax earnings fell in the Casting and Extrusion segment by $5.7 million or 59% over the same
quarter last year. The earnings decrease was due to lower sales and reduced absorption of fixed costs in the large
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
mould business, operational disruption caused by the installation of new equipment in the Newmarket facility,
margin compression in the extrusion business due to front end investments associated with harmonizing the
production processes of the various facilities, partially offset by stronger results in the Castool group. Casting and
Extrusion depreciation and amortization expenses totalled $3.3 million in the fourth quarter of 2016 compared to
$3.1 million last year.
The Corporate segment in the fourth quarter recorded expenses of $1.6 million compared to $1.8 million last year.
As a result of the forgoing, EBITDA in the quarter increased to $22.2 million (13.6% of sales) compared to $21.9
million (16.7% 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 by $9.6 million, or 16% to $69.5
million from $59.9 million in fiscal 2015. This increase is primarily the result of a 17% increase in Net Income and
18% increase in depreciation and amortization as explained in the ‘Net Income’ and ‘Depreciation and
Amortization’ sections above. Other factors included a $0.5 million increase in deferred income taxes and $0.5
million reduction in stock based compensation, which is a non-cash expense linked to the valuation of outstanding
stock options and deferred stock units.
Net change in non-cash working capital was $4.1 million cash used compared to $17.8 million cash used last year.
The improvement year over year primarily reflects the faster collection of accounts receivables and more efficient
use of working capital generally. Nonetheless, a modest amount of cash was used consistent with the organic growth
in sales during the year. Consequently, cash provided by operating activities rose 56% to $65.5 million compared to
$42.1 million last year.
Cash Flows from Financing Activities
Cash provided by financing activities amounted to $32.3 million compared to a use of $22.7 million in fiscal 2015.
The variance year over year is mainly attributable to the use of debt to partially fund the acquisition of AFX in fiscal
2016 compared to a reduction in bank indebtedness in fiscal 2015. The Company also paid higher dividends of
$11.5 million in 2016 compared to $9.7 million last year. The issuance of share capital remained constant year over
year at $0.9 million.
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 13 of its 18 manufacturing facilities and most of its
production equipment. Leased facilities consist of ALC’s operations in Lesotho and Bulgaria and AFX’s operations
in Mexico. The Company also leases a sales and support center in Troy, Michigan and Munich Germany and a
warehouse in Brownsville, Texas. The following table summarizes the Company’s significant short-term and long-
term commitments on an undiscounted basis:
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
Bank indebtedness
Trade accounts payable
Long-term debt
Operating leases
Capital expenditures
Total
< 1 year
1-3 years
Over 3 years
$13,469
64,948
58,687
5,549
2,175
$144,828
$13,469
64,948
4,173
1,604
2,175
$86,369
$-
-
54,514
3,115
-
$57,629
$-
-
-
830
-
$830
∗ 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 $104.9 million compared to $20.0 million last year.
Included this year was $82.0 million cash paid for the acquisition of AFX compared to no such expenditures in
2015. This accounts for the major part of the investing activities reduction. Capital spending in the current year was
$23.9 million compared to $20.6 million last year. Capital spending in the current year included $5.5 million for
new equipment related to our machinery upgrade project in the large mould facility in Newmarket Ontario, net of
Government grants of $2.9 million. Prior year expenditures included $0.9 million to complete the Castool Thailand
greenfield facility, $1.1 million to complete the Extrusion Brazil greenfield facility and $6.3 million for the
construction of a new production facility for Extrusion Texas. The balance of the capital spending is mostly related
to machinery and equipment needed to maintain or upgrade our production capacity.
In fiscal 2017, Exco plans to invest approximately $22.0 million in capital expenditures of which $0.5 million is for
major equipment upgrade in the large mould business (net of remaining expected Government grants) and
approximately $6 million is for building capacity additions in the Automotive Solutions segment. 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 2017 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 and liquidity remains strong. The Company’s conservative financial policies have served it
well throughout the years and has allowed it to take advantage of acquisition opportunities and further organic
growth as circumstances permit.
Exco’s net debt totalled $44.6 million as at September 30, 2016 after spending $82.0 million to acquire AFX and
$23.9 million on capital expenditures during the year. This compared to a net cash position of $24.5 million as at
September 30, 215.
In addition to its cash balances of $27.5 million, Exco retains access to $52.6 million of its $100.0 million
committed credit facility, which matures February 2019. Pursuant to the terms of the credit facility, Exco is required
to maintain compliance with certain financial covenants. The Company was in compliance with these covenants as
at September 30, 2016.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
Outstanding Share Capital
As at September 30, 2016, the Company had 42,568,175 common shares outstanding. In addition, as at September
30, 2016, the Company had outstanding stock options for the purchase of up to 626,657 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 2016 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
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
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
The Casting and Extrusion segment is a capital goods business. Interest rates, exchange rates, corporate capital
spending, the general economic climate, business confidence and our customer’s financial strength 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 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 2010, 2011, 2013, 2014 and 2016 made five acquisitions (Allper AG, Exco Colombia, Extrusion Texas,
Automotive Leather Company and AFX Industries) 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.
Exco’s Canadian operations negotiate sales contracts with customers in both Canadian and U.S. dollars and Euro.
We also purchase, where we can, 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
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
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 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 our US operations within the U.S.
market or other U.S. dollar-denominated markets. For fiscal 2017, 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$32.4 million. If the Canadian
dollar were to strengthen or weaken by $0.01 in fiscal 2017, it is estimated that pre-tax profit would change by about
$337 thousand or about $236 thousand after tax. These estimates are based on historical norms and may be
materially different in 2017 if customers deviate from their past practices.
During fiscal 2016 on average, the Canadian dollar depreciated by about 7% relative to the US dollar compared to
fiscal 2015. Although this was favorable to Exco in 2016 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 2017, 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$68.2 million of sales less purchases. If the Canadian dollar were to
strengthen or weaken by $0.01 in fiscal 2017, we estimate pre-tax profit would change by $710 thousand or about
$533 thousand after tax. These estimates are based on historical norms and may be materially different in fiscal
2017 if customers deviate from their past practices.
Exco is a global manufacturer which has organized its global production and logistics footprint based on, among
other things, the extent of duties/levies imposed on the import/export of our products and raw material inputs. As a
general rule governments have been encouraging greater trade and more liberal access to their markets by reducing
or eliminating tariffs. This has benefited Exco over the years. In the event that governments opt for more
protectionist trade practises with respect to automotive components or their raw materials or subassemblies, Exco
may be prejudiced.
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, some of Automotive Solutions products are not critical components and may still be de-
contented.
OEMs or their tiers may have excess production capacity or collective agreements which preclude efficient capacity
reduction during times of declining sales. 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 TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
Exco has manufacturing facilities in Mexico, Colombia, Brazil, Thailand and Bulgaria 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, 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 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, AFX Industries, 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.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
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, 2016 and 2015, 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, including the
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.
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, 2016 and 2015, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Toronto, Canada
November 30, 2016
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
$ (000)'s
As at
September 30, 2016 September 30, 2015
As at
ASSETS
Current
Cash and cash equivalents
Accounts receivable (note 9)
Unbilled revenue (note 8)
Inventories (note 10)
Prepaid expenses and deposits
Income taxes recoverable
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
$27,509
107,900
19,214
67,192
3,352
1,601
226,768
114,695
45,586
64,071
1,821
$452,941
$13,469
64,948
13,275
8,690
4,158
1,382
-
1,654
4,173
111,749
54,514
7,273
173,536
51,366
3,566
11,190
213,283
279,405
$452,941
$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
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 TECHNOLOGIES LIMITED
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ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
$ (000)'s except for income per common share
Sales (notes 8 and 12(A))
Cost of sales
Selling, general and administrative expenses (notes 3 and 12(B))
Depreciation (note 5)
Amortization (note 6)
Loss (gain) on disposal of property, plant and equipment (note 5)
Interest expense, net (note 18)
Other income (note 19 )
Income before income taxes
Provision for 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 (loss) 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
2015
$498,295
379,500
41,638
13,523
1,621
199
939
-
437,420
2016
$588,989
460,119
45,864
14,787
3,150
(389)
1,289
(3,440)
521,380
67,609
60,875
17,420
2,632
20,052
$47,557
(1,173)
(2,006)
(3,179)
$44,378
$1.12
$1.11
42,497
42,693
18,266
1,850
20,116
$40,759
(1,357)
11,089
9,732
$50,491
$0.96
$0.96
42,285
42,615
EXCO TECHNOLOGIES LIMITED
20
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$ (000)'s
Share
capital
$48,788
-
-
-
1,272
-
50,060
-
-
-
1,306
-
$51,366
Contributed
surplus
$3,138
-
-
521
(376)
-
3,283
-
-
682
(399)
-
$3,566
Retained
earnings
$146,183
40,759
(9,733)
-
-
-
177,209
47,557
(11,483)
-
-
-
$213,283
Accumulated other comprehensive income (loss)
Total
Unrealized gain
accumulated
(loss) on
other
foreign
comprehensive
currency
income (loss)
translation
$4,637
$5,124
-
-
-
-
-
-
-
-
9,732
11,089
14,369
16,213
-
-
-
-
-
-
-
-
(3,179)
(2,006)
$11,190
$14,207
Net unrealized
loss on
derivatives
designated as
cash flow hedges
($487)
-
-
-
-
(1,357)
(1,844)
-
-
-
-
(1,173)
($3,017)
Total
shareholders'
equity
$202,746
40,759
(9,733)
521
896
9,732
244,921
47,557
(11,483)
682
907
(3,179)
$279,405
Balance, October 1, 2014
Net income for the year
Dividends paid (note 3)
Stock option grants (note 3)
Issuance of share capital (note 3)
Other comprehensive (loss) income (note 3)
Balance, September 30, 2015
Net income for the year
Dividends paid (note 3)
Stock option grants (note 3)
Issuance of share capital (note 3)
Other comprehensive loss (note 3)
Balance, September 30, 2016
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
21
ANNUAL REPORT 2016
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)
Net interest expense
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
Financing from long-term debt (note 4)
Repayment of long-term debt (note 4)
Interest paid, net
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
2015
2016
$47,557
$40,759
14,787
3,150
504
2,632
1,289
(389)
69,530
(4,060)
65,470
113
69,000
(24,941)
(1,289)
(11,483)
907
32,307
(82,024)
(22,654)
(1,292)
1,066
(104,904)
13,523
1,621
1,023
1,850
939
199
59,914
(17,847)
42,067
(11,310)
107
(1,698)
(939)
(9,733)
896
(22,677)
-
(19,989)
(605)
587
(20,007)
Effect of exchange rate changes on cash
(360)
4,378
Net increase (decrease) in cash during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(7,487)
34,996
$27,509
3,761
31,235
$34,996
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
22
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
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 16 strategic locations in 9 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, 2016
were authorized for issue by the Board of Directors on November 30, 2016.
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 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.
EXCO TECHNOLOGIES LIMITED
23
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
When a foreign operation is sold, exchange differences that were recorded in accumulated other comprehensive
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,
which is the chief executive officer. Factors used to identify reportable segments include product categories,
customers served and geographical region of operations. The chief operating decision maker evaluates the financial
performance of its operating segments primarily based on net income before interest, income taxes, depreciation and
amortization.
Interest in joint arrangement
The Company has an interest in a joint operation, whereby the joint operators have a contractual arrangement that
establishes joint control over the economic activities of the individual entity. The Company recognized its share of
the joint operation’s assets, liabilities, revenues and expenses in the consolidated financial statements. The financial
statements of the joint operation are prepared for the same reporting period as the parent Company.
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 net 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 is 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 is recognized using the percentage of completion
method according to IAS 11, Construction Contracts, under which:
EXCO TECHNOLOGIES LIMITED
24
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
- 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 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 of Directors 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 of Directors at the fair market value at the payment date. The
Company uses the fair value based method of accounting for DSUs. The fair value of DSUs is recognized as
compensation expense in selling, general and administrative expenses in the consolidated statements of income and
comprehensive income with the corresponding credit or debit to other accrued liabilities.
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 income tax expense is the expected income taxes payable on the taxable income for the year, using tax rates
enacted or substantively enacted at year-end, adjusted for amendments to income 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
EXCO TECHNOLOGIES LIMITED
25
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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 income taxes are charged or credited in the consolidated statements of income and comprehensive income,
except when they relate to items credited or charged directly to equity, in which case the deferred income taxes are
also recorded in equity.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that
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 cash equivalents
Cash and cash equivalents include cash on hand, balances with banks and short-term deposits with remaining
maturities at their acquisition date of three months or less.
Property, plant and equipment
(i)
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.
(ii)
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”.
EXCO TECHNOLOGIES LIMITED
26
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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
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
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 relationships: 5 to 15 years
Computer software and production and technology rights: 2 to 4 years
Non-compete agreements: 5 years
Trade Name: 7 years
Intangible assets acquired in a business acquisition are primarily customer relationships 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.
Impairment of long-lived assets and goodwill
Impairment of long-lived assets
(i)
The Company’s property, plant and equipment and intangible assets are reviewed for indicators of
impairment as at each consolidated statement of financial position date. If indication of impairment exists,
the asset’s recoverable amount is estimated and 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.
The Company bases its impairment calculation on detailed budgets that 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.
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.
EXCO TECHNOLOGIES LIMITED
27
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
(ii)
Impairment of goodwill
Goodwill is allocated to a CGU or a group of CGUs for the purpose of impairment testing based on the
level at which it is monitored by management. The Company manages its goodwill at the level of its two
operating segments, Automotive Solutions and Casting and Extrusion. Goodwill is tested for impairment
annually during the fourth quarter of the year or 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.
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.
Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all
attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on
a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When
the grant relates to an asset, the cost of the asset is reduced by the amount of the grant and the grant is recognized as
income in equal amounts over the expected useful life of the related asset.
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 financial liabilities classified as loans and receivables and other financial liabilities, which are measured
at amortized cost using the effective interest rate method.
EXCO TECHNOLOGIES LIMITED
28
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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, that 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. Trade accounts payable and
customer advance payments are initially recognized at the transaction value and subsequently carried at amortized
cost.
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 US 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 have been entered into 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.
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.
EXCO TECHNOLOGIES LIMITED
29
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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.
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
Leave pay
(i)
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.
(ii)
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 judgments, 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.
EXCO TECHNOLOGIES LIMITED
30
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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.
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
rates and methodologies, are reviewed on an ongoing basis to ensure they continue to be appropriate.
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.
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 issued but not yet applied
The following standards are not yet effective for the year ended September 30, 2016. The Company is in the process
of reviewing the standards to determine the impact on its consolidated financial statements.
IFRS 9, Financial Instruments ("IFRS 9")
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. The Company is in the process of reviewing the standard to
determine the impact on its consolidated financial statements. 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.
EXCO TECHNOLOGIES LIMITED
31
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
IFRS 15, Revenue from Contracts with Customers ("IFRS 15")
In May 2014, the IASB issued IFRS 15, 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, which will be October 1, 2018 for the Company. Earlier application is
permitted. The Company is in the process of reviewing the standard to determine the impact on its consolidated
financial statements.
IFRS 16, Leases ("IFRS 16")
In January 2016, the IASB issued IFRS 16, which requires lessees to recognize assets and liabilities for most leases.
Lessees will have a single accounting model for all leases, with certain exemptions and lessor accounting is
substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, which will
be October 1, 2019 for the Company. Earlier application is permitted, provided the new revenue standard, IFRS 15,
has been applied, or is applied at the same date as IFRS 16. The Company is in the process of reviewing the
standard to determine the impact on its consolidated financial statements.
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:
Issued and outstanding as at October 1, 2014
Issued for cash under Stock Option Plan
Contributed surplus on stock options exercised
Issued and outstanding as at September 30, 2015
Issued for cash under Stock Option Plan
Contributed surplus on stock options exercised
Issued and outstanding as at September 30, 2016
Common Shares
Number of Shares
42,145,749
221,158
-
42,366,907
201,268
-
42,568,175
Stated
Value
$48,788
896
376
50,060
907
399
$51,366
Accumulated other comprehensive income
Included in accumulated other comprehensive income 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.
EXCO TECHNOLOGIES LIMITED
32
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
Opening balance, October 1
Net unrealized loss on derivatives designated as cash flow hedges (1)
Unrealized gain (loss) on currency translation adjustments
Total other comprehensive income for the year
Closing balance, September 30
(1) Net of income tax recovery of $409 (2015 - recovery of $471).
2016
$14,369
(1,173)
(2,006)
(3,179)
$11,190
2015
$4,637
(1,357)
11,089
9,732
$14,369
Cash dividends
During the year, the Company paid four quarterly cash dividends totaling $11,483 (2015 - $9,733). The dividend rate
per quarter increased in the second quarter of the year from $0.06 to $0.07 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
2016
2015
Number of
Options
879,275
25,000
(201,268)
(76,350)
626,657
Weighted
Average
Exercise Price
$8.92
$14.44
$4.50
$7.72
$10.70
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
The following table summarizes information about stock options outstanding and exercisable as at September 30,
2016:
Range of Exercise
Prices
$1.52 - $5.00
$5.01 - $10.00
$10.01 - $14.58
Number
Outstanding
55,625
211,382
359,650
Weighted Average
Remaining
Contractual Life
Options Outstanding
Weighted
Average
Exercise
Price
$3.32
$7.35
$13.81
years
years
years
0.96
2.83
4.25
Options Exercisable
Weighted
Average
Exercise
Price
$3.24
$7.41
$13.85
Number
Exercisable
41,625
55,001
64,850
$1.52 - $14.58
626,657
3.48
years
$10.70
161,476
$8.92
The number of common shares available for future issuance of options as at September 30, 2016 is 1,671,688 (2015 -
1,620,338). The number of options outstanding together with those available for future issuance totals 2,298,345
(2015 - 2,499,613) or 5.4% (2015 - 5.9%) 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 $682 for the year ended September 30, 2016 (2015 - $521). All stock-based compensation has been
recorded in selling, general and administrative expenses. The weighted average assumptions used to measure the
EXCO TECHNOLOGIES LIMITED
33
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
fair value of stock options and the weighted average fair value of options granted during the years ended
September 30, 2016 and 2015 are as follows:
Risk free interest rates
Expected dividend yield
Expected volatility
Expected time until exercise
Weighted average fair value of the options granted
2016
0.88%
1.63%
33.37%
5.50 years
$3.83
2015
1.00%
1.67%
36.03%
5.50 years
$3.86
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, 2016, the Company granted 6,510 DSUs (2015 - 6,624 DSUs) and redeemed
no DSUs. During the year ended September 30, 2016 the Company recorded stock-based compensation income of
$178 (2015 - $502 expense) related to awards under the DSU plan with a corresponding credit to other accrued
liabilities. As at September 30, 2016, 108,393 DSUs were outstanding with a carrying value of $1,305 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:
Balance, beginning of year
Stock option expense
Exercise of stock options
Balance, end of year
2016
$3,283
682
(399)
$3,566
2015
$3,138
521
(376)
$3,283
4. BANK INDEBTEDNESS AND LONG-TERM DEBT
The 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.
JP Morgan, credit facility (Canada, U.S.A.)
JP Morgan London, operating line (Europe)
Nedbank operating lines (South Africa)
DSK Bank operating lines (Bulgaria)
Facilities
$100,000
2,211
5,255
8,122
$115,588
Utilizations
$47,363
733
3,247
8,122
Unused and
Available
$52,637
1,478
2,008
-
$59,465
$56,123
EXCO TECHNOLOGIES LIMITED
34
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
Prime rate in Canada
Prime rate in U.S.A.
Prime rate in Eurozone
Prime rate in South Africa
2016
2.70%
3.50%
0.00%
10.50%
2015
2.70%
3.25%
0.05%
9.50%
In addition to the above credit facilities, the Company also has a long-term debt facility of $582, of which $18 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, 2016 there are no unfulfilled conditions or contingencies attached to this loan.
On February 18, 2016, the Company closed an agreement for a new CAD $100,000 Committed Revolving Credit
Facility with JP Morgan Chase Bank N.A., of which CAD $47,363 was used as at September 30, 2016. The
utilization is comprised of long-term debt in the amount of $46,000 and $1,363 of bank indebtedness. The facility
has a three year term and is secured by a general security agreement covering all assets of the Company and its
Canadian and US subsidiaries with the exception of real property.
The Credit Facility is available to fund working capital, capital expenditures and other general corporate purposes of
the Company and its subsidiaries, including acquisitions. Interest rates vary based on prime, bankers’ acceptance,
CDOR or LIBOR base rates plus a relevant margin depending on the level of the Company’s net leverage ratio.
Pursuant to the terms of the credit agreement, the Company is required to maintain compliance with a net worth
covenant. The Company was in compliance with these covenants as at September 30, 2016.
Additionally, the Company maintains a credit facility with JP Morgan Chase Bank N.A. London Branch related to
any needs for Euro currency. The facility totals CAD $2,211 (EUR 1.5 million) and bears interest based on LIBOR.
The Company had utilized CAD $733 as at September 30, 2016.
On April 4, 2016, the Company entered into promissory Term Notes amounting to US$9,307 in conjunction with the
acquisition of AFX Industries (see note 17). The Term Notes bear interest at a rate equal to the mid-term Applicable
Federal Rate in the United States, compounded annually. The principal and interest is payable in three annual
payments on the anniversary date of the AFX acquisition.
The components of long-term debt are as follows:
Bank debt
Term notes
Finance leases
Promissory note
Less: current portion
Long-term debt, long-term portion
Long-term debt
Less: current portion
Long-term debt, long-term portion
September 30, 2016
$46,000
12,210
18
459
(4,173)
$54,514
September 30, 2015
$-
-
67
461
(119)
$409
2016
$58,687
4,173
$54,514
EXCO TECHNOLOGIES LIMITED
35
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
5. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance as at
September 30, 2014
Additions
Assets acquired
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2015
Additions
Assets acquired
Assets acquired from business
acquisition ( note 17 )
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2016
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Total
$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
19,989
(13,030)
(323)
(117)
-
(6,092)
9,552
180,335
21,279
60,487
9,564
7,339
279,004
3,325
664
567
2,738
13,649
(13,311)
(472)
101
755
(1,634)
(162)
67
6,845
(176)
(50)
-
-
78
-
29
18,098
22,654
-
(21,327)
-
(72)
2,906
-
(15,121)
(727)
$186,264 $21,003
$67,740
$9,671
$4,038
$288,716
Accumulated depreciation
and impairment losses
Balance as at
September 30, 2014
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2015
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2016
Carrying amounts
As at September 30, 2015
As at September 30, 2016
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Total
$120,677
9,510
(4,624)
4,966
130,529
10,477
(12,749)
(738)
$13,483
1,754
(679)
1,174
15,732
1,799
(1,521)
(134)
$24,731
2,259
(2)
1,504
28,492
2,511
(175)
(202)
$-
-
-
-
-
-
-
-
$-
-
-
-
-
-
-
-
$158,891
13,523
(5,305)
7,644
174,753
14,787
(14,445)
(1,074)
$127,519
$15,876
$30,626
$-
$-
$174,021
$49,806
$58,745
$5,547
$5,127
$31,995
$37,114
$9,564
$9,671
$7,339
$4,038
$104,251
$114,695
EXCO TECHNOLOGIES LIMITED
36
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
As at September 30, 2016, the Company had deposits for machinery and equipment and buildings under construction
totalling $4,038 (2015 - $7,339). These assets are not being depreciated because they are under construction and not
in use.
As at September 30, 2016, the Company had recorded government grants totaling $2,948 as a contribution to reduce
the cost of certain machinery and equipment specified by the grant.
6. INTANGIBLE ASSETS AND GOODWILL
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
Cost
Balance as at September 30, 2014
Additions
Assets acquired
Less: disposals
Foreign exchange movement
Balance as at September 30, 2015
Additions
Assets acquired
Assets acquired from business
acquisition (note 17)
Reclassifications
Less: disposals
Foreign exchange movement
Balance as at September 30, 2016
$23,384
$3,500
605
(40)
263
24,212
658
356
252
(5,618)
(27)
$19,833
-
-
-
3,500
-
42,898
-
-
430
$46,828
$-
-
-
-
-
634
-
(252)
-
-
$382
$26,884
$23,892
605
(40)
263
27,712
1,292
43,254
-
(5,618)
403
-
-
(40)
23,852
-
39,811
-
-
408
$67,043
$64,071
Accumulated amortization
and impairment losses
Balance as at September 30, 2014
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2015
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2016
Carrying amounts
As at September 30, 2015
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
$21,699
915
(40)
255
22,829
863
(5,618)
(30)
$18,044
$408
706
-
-
1,114
2,287
-
12
$3,413
$-
-
-
-
-
-
-
-
$-
$22,107
1,621
(40)
255
23,943
3,150
(5,618)
(18)
$21,457
$-
-
-
-
-
-
-
-
$-
$1,383
$2,386
$-
$3,769
$23,852
As at September 30, 2016
$64,071
$1,789
**Acquisition intangibles is comprised of customer relationships and trade names resulting from business
acquisitions and the purchase price allocation thereof.
$43,415
$45,586
$382
EXCO TECHNOLOGIES LIMITED
37
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
Of the total goodwill disclosed above, $63,779 is allocated to the Automotive Solutions segment and the remainder
to the Casting and Extrusion segment.
Of the customer relationships, $3,500 is amortized over 5 years and $38,891 is amortized over 15 years.
Impairment testing of goodwill
The Company performed the annual impairment test of goodwill allocated to the Automotive Solutions segment as at
September 30, 2016. 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 6.6%. As a
result of the analysis, management determined there was no impairment for this CGU.
Key assumptions to value-in-use calculations
The calculation of the value-in-use for the Automotive Solutions segment is most sensitive to the following
assumptions:
-Discount rates
-Growth rate to extrapolate cash flows beyond the budget period
-Revenue and margin growth rates during budget period
The discount rate used represents the current market assessment of the risks specific to the Automotive Solutions
segment, 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.
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, 2016
$1,205
153
24
$1,382
September 30, 2015
$1,753
33
24
$1,810
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.
EXCO TECHNOLOGIES LIMITED
38
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
The movement in the provision accounts is as follows:
Closing balance, as at September 30, 2014
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2015
Additions
Acquired through business acquisition
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30,
2016
8. TOOL CONSTRUCTION CONTRACTS
Severance
$1,681
934
(862)
(36)
36
$1,753
1,003
557
(1,682)
(293)
(133)
Warranties
$28
-
-
-
5
$33
120
-
-
-
-
Claims and
Litigation
$24
-
-
(5)
5
$24
-
-
-
-
-
Total
$1,733
934
(862)
(41)
46
$1,810
1,123
557
(1,682)
(293)
(133)
$1,205
$153
$24
$1,382
Contract revenue recognized under the percentage of completion method during the year amounted to $52,126 (2015
- $65,259). 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.
September 30, 2016
September 30, 2015
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
$17,393
5,409
22,802
(3,588)
$19,214
$19,773
($559)
$13,984
7,021
21,005
(3,712)
$17,293
$18,508
($1,215)
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
EXCO TECHNOLOGIES LIMITED
39
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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
384.0 million Mexican pesos (September 30, 2015 - 252.0 million Mexican pesos). The selling price ranges from
13.90 to 18.33 Mexican pesos to each US dollar. Management estimates that a cumulative loss of $4,158
(September 30, 2015 - loss of $2,486) would be realized if these Collars were terminated on September 30, 2016.
Net of income tax recovery of $1,141, the cumulative loss of $3,017 is recorded in other comprehensive income.
During the year, the estimated fair value loss of $1,173, net of income tax recovery of $409 (2015 - loss of $1,357
net of income tax recovery of $471) has been included in other comprehensive income and the cumulative loss of
$4,158 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
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, 2016, the
accounts receivable balance (net of allowance for doubtful accounts) is $107,900 (2015 - $98,823) and the
Company’s five largest trade debtors accounted for 34.6% of the total accounts receivable balance (2015 - 50.1%).
As at September 30, 2016, accounts receivable of $637 (2015 - $976) 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
September 30, 2016
September 30, 2015
$100,471
$94,421
203
3,595
4,197
(566)
183
4,081
710
(572)
$107,900
$98,823
EXCO TECHNOLOGIES LIMITED
40
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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, 2016
September 30, 2015
$87,537
10,116
884
850
1,084
(566)
$81,425
9,924
1,343
574
1,155
(572)
$99,905
$93,849
September 30, 2016
$572
274
(121)
(153)
(6)
$566
September 30, 2015
$445
214
(49)
(66)
28
$572
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
carry excess credit facilities due to the stand-by costs charged by its lenders. As at September 30, 2016, the
Company has a net debt balance of $44,647 (2015 - $24,495 net cash) and unused credit facilities of $56,123 (2015 -
$23,921).
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
Total
$13,469
64,948
58,687
5,549
2,175
$144,828
September 30, 2016
< 1 Year
$13,469
64,948
4,173
1,604
2,175
$86,369
1-3 Years
$-
-
54,514
3,115
-
$57,629
over 3 Years
$-
-
-
830
-
$830
EXCO TECHNOLOGIES LIMITED
41
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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
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.
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
+/- 1,248
+/- 1,018
+/- 48
+/- 324
+/- 1
+/- 39
1 % Fluctuation
COP vs. CAD
1 % Fluctuation
BRL vs. CAD
1 % Fluctuation
ZAR vs. CAD
+/- 9
+/- 72
+/- 18
+/- 331
+/- 1
+/- 64
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. Net earnings or loss is sensitive to the impact of a change in interest rates on the average balance of interest
bearing financial liabilities during the year. As at September 30, 2016, the Company has a net debt position of
$44,647 (2015 - $24,495 net cash).
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.
EXCO TECHNOLOGIES LIMITED
42
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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 as at the consolidated statement of
financial position dates and are Level 2 instruments.
During the year ended September 30, 2016 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 valuation is determined using Level 2 inputs,
which are observable inputs or inputs that can be corroborated by observable market data for substantially the full
term of the asset or liability.
The carrying value and fair value of all financial instruments are as follows:
September 30, 2016
September 30, 2015
Carrying Amount
of Asset
(Liability)
$27,509
107,900
3,352
(64,948)
(13,469)
(1,654)
(21,965)
(4,158)
($58,687)
Fair Value of
Asset
(Liability)
$27,509
107,900
3,352
(64,948)
(13,469)
(1,654)
(21,965)
(4,158)
($58,687)
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)
September 30, 2016
$43,525
9,309
14,401
3,273
(3,316)
September 30, 2015
$31,479
10,295
14,219
1,832
(2,424)
$67,192
$55,401
September 30, 2016
$2,424
1,880
416
(1,258)
(135)
(11)
$3,316
September 30, 2015
$2,146
786
-
(596)
(64)
152
$2,424
The movement in the obsolescence provision accounts is as follows:
Opening balance
Additions
Acquired through business acquisition
Utilized
Reversals
Exchange differences
Closing balance
EXCO TECHNOLOGIES LIMITED
43
ANNUAL REPORT 2016
Cash
Total 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
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
During the year, inventories of $318,413 (2015 - $256,454) were expensed, of which $1,745 was from the write-
downs of inventories (2015 - $722), net of $135 reversal of write-downs (2015 - $64).
11. CAPITAL MANAGEMENT
The Company defines capital as net debt and shareholders’ equity. As at September 30, 2016, total managed capital
amounted to $324,052 (2015 - $244,921), consisting of net debt of $44,647 (2015 - nil) and shareholders’ equity of
$279,405 (2015 - $244,921).
The Company’s objectives when managing capital are to:
utilize short-term funding sources to manage its working capital requirements and fund capital expenditures
required to execute its operating and strategic plans; and
maintain low overall debt levels relative to shareholders’ equity with a strong bias for short-term debt in order to
minimize the cost of capital and allow maximum flexibility to respond to current and future industry, market and
economic risks and opportunities.
The following ratios are used by the Company to monitor its capital:
Net debt to equity ratio
Current ratio
September 30, 2016
September 30, 2015
0.16:1
2.03:1
0.00:1
2.12:1
The following table details the net debt calculation used in the net debt to equity ratio as at the years ended as
indicated:
Bank indebtedness
Less: cash and short-term deposits
Net debt
September 30, 2016
$72,156
September 30, 2015
$10,501
(27,509)
44,647
(34,996)
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 a net worth covenant related to the terms of its bank credit facility. As at September 30, 2016, the Company was
in compliance with the required financial covenants.
As at
As at
12. OTHER INFORMATION
A. SEGMENTED INFORMATION
Business segments
The Company operates in two business segments: 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.
EXCO TECHNOLOGIES LIMITED
44
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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.
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment income (loss) before interest and income taxes
Non-operating income
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
Intangibles 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
2016
$197,942
(5,722)
192,220
11,543
696
24,705
-
$397,697
(928)
396,769
3,217
2,454
48,012
3,440
20,057
2,382
-
92,644
977
-
1,729
-
292
181,019
$26,104
2,906
20,772
309
43,254
43,851
39,811
63,779
269,233
$76,948
$- $595,639
(6,650)
-
588,989
-
14,787
27
3,150
-
65,458
(7,259)
3,440
-
(1,289)
67,609
22,654
215
-
1,279
6
-
6
-
-
2,689
2,906
114,695
1,292
43,254
45,586
39,811
64,071
452,941
$70,484 $173,536
EXCO TECHNOLOGIES LIMITED
45
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
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
Geographic and customer information
Sales
Canada
United States
Europe
Mexico
South America
Asia
Other
$303,825
(682)
303,143
3,481
895
36,550
1,758
19,374
32
2,568
23,570
152,645
$60,424
2016
$22,549
288,853
208,531
49,008
7,883
7,060
5,105
$588,989
$- $507,969
(9,674)
-
498,295
-
13,523
22
1,621
-
61,814
(7,134)
(939)
60,875
19,989
104,251
605
3,769
23,852
342,816
$97,895
50
1,093
-
-
-
1,346
$11,654
2015
$21,221
243,886
190,624
24,883
6,368
6,400
4,913
$498,295
In 2016, the Company’s largest 2 customers were from the Automotive Solutions segment (2015 - the Company’s
largest 2 customers were from the Automotive Solutions segment). The total billings to these customers accounted
for 24.4% (2015 - 30.6%) of total sales. The account receivable pertaining to these customers was $17,611 at year-
end (2015 - $21,693). 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, 2016
$40,667
34,084
7,885
11,866
9,318
3,508
6,963
404
September 30, 2015
$36,536
29,288
5,501
11,370
10,063
3,968
6,699
826
$114,695
$104,251
EXCO TECHNOLOGIES LIMITED
46
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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
B. RESTRUCTURING COST
September 30, 2016
$1,386
42,207
59
88
67
1,750
27
2
September 30, 2015
$697
246
47
127
105
2,468
18
61
$45,586
$3,769
During the year, the Company recorded severance expense of $710 (2015 - $898) 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 $794 as at September 30, 2016 (2015 - $465) 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, 2016 and 2015 were as follows:
Salaries and cash incentives (i)
Directors’ fees
Share-based awards (ii)
September 30, 2016
September 30, 2015
$5,009
327
90
$5,426
$4,668
316
326
$5,310
i) Key management personnel were not paid post-employment benefits, termination benefits, or other long-term
benefits during the years ended September 30, 2016 and 2015.
ii) Share-based payments are director share units granted to directors and the fair value of stock options granted to
key management personnel.
EXCO TECHNOLOGIES LIMITED
47
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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 42,497,182 (2015 - 42,284,538). Any potential common shares for which the effect is anti-
dilutive have not been reflected in the calculation of diluted income per share. There was a dilution effect of 195,863
shares from the outstanding stock options on diluted weighted average number of common shares outstanding for
2016 (2015 - 330,088).
14. INCOME TAXES
Income before income taxes
Income tax expense at Canadian statutory rates
Manufacturing and processing deduction
Foreign rate differential
Non-taxable income net of non-deductible expenses
Withholding tax on dividend
Losses not tax effected
Other
Reported income tax expense
Income before income taxes
Income tax expense at Canadian statutory rates
Manufacturing and processing deduction
Foreign rate differential
Non-taxable income net of non-deductible expenses
Withholding tax on dividend
Losses not tax effected
Other
Reported income tax expense
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
Origination, reversal of temporary differences and losses not
recognized
Reported income tax expense
2016
$67,607
100.0%
17,713
(139)
4,011
(3,377)
853
266
725
26.2%
(0.2%)
5.9%
(5.0%)
1.3%
0.4%
1.1%
$20,052
29.7%
$60,875
16,515
(262)
1,230
(1,531)
694
2,848
622
2015
100.0%
27.1%
(0.4%)
2.0%
(2.5%)
1.1%
4.7%
1.0%
$20,116
33.0%
2016
2015
$16,567
853
17,420
$17,572
694
18,266
2,632
1,850
$20,052
$20,116
EXCO TECHNOLOGIES LIMITED
48
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
Deferred income tax assets and liabilities consist of the following temporary differences:
2016
2015
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
15. CONSOLIDATED STATEMENTS OF CASH FLOW
$1,239
582
-
1,821
(4,910)
(1,090)
(1,271)
(7,273)
($5,452)
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 liabilities
Other accrued liabilities
Provisions
Customer advance payments
Income taxes payable
2016
$9,106
(2,093)
(475)
(2,388)
2,984
3,307
(4,550)
(428)
(1,336)
(8,187)
($4,060)
$1,261
773
-
2,034
(3,060)
(477)
(2,001)
(5,538)
($3,504)
2015
($25,945)
(5,905)
(9,600)
3,840
8,491
1,678
2,214
77
2,029
5,274
($17,847)
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, 2016 (2015 - nil).
EXCO TECHNOLOGIES LIMITED
49
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
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 April 4, 2016, the Company completed the acquisition of 100% of the ownership interest in AFX Industries
L.L.C. (“AFX”) for consideration of US$73,390 (CAD $95,334) excluding US$4,420 (CAD $5,742) of assumed
debt. A portion of the consideration amounting to US$9,307 (CAD $12,090) is deferred and payable over three
years. Subsequent to closing, the acquisition price was reduced by US$1.07 (CAD $1.39) million to reflect changes
in the AFX balance sheet in accordance with the acquisition agreement. AFX is based in Port Huron, Michigan with
manufacturing operations in Matamoros, Mexico. AFX is a Tier 2 supplier of leather and leather-like interior trim
components to the North American automotive market. AFX supplies die cut leather sets for seating and many other
interior trim applications as well as injection-molded, hand-sewn, machine-sewn and hand-wrapped interior
components of all types. The AFX operations are complementary to the Company's existing automotive interior
trim business and will provide the Company with new production capabilities and customer relationships.
The purchase cost was allocated to the underlying assets acquired and liabilities assumed based upon the estimated
fair values at the date of acquisition. The Company determined the fair values based on discounted cash flows,
market information, and using independent valuations and management’s best estimates.
The preliminary allocation of the purchase price at fair value is as follows:
Trade accounts receivable and other
Inventories
Property, plant and equipment
Bank indebtedness
Trade accounts payable, accrued liabilities and other
Long-term debt
Net identifiable assets
Intangible assets
Residual purchase price allocation to goodwill
Non-monetary net assets acquired
Cash acquired
Acquisition funded as follows:
Cash
Term Notes, payable over three years
$20,078
12,124
2,906
(3,383)
(18,666)
(2,010)
11,049
43,254
39,811
94,114
180
$94,294
$82,024
12,090
$94,114
Costs related to the AFX acquisition amounted to $1.5 million 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 $19,226. The net contractual amount was considered collectible at the date
of acquisition.
AFX’s investment in a joint operation has been accounted for in accordance with the joint arrangement accounting
policy; see note 2.
EXCO TECHNOLOGIES LIMITED
50
ANNUAL REPORT 2016
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)'s except per share amounts
The primary factors that contributed to the residual purchase price allocation and resulted in the recognition of
goodwill are: the existing AFX business; the acquired workforce; access to growth opportunities with existing
customers; and the combined strategic value to the Company’s growth plan.
The impact of AFX on the Company’s consolidated statements of income and comprehensive income for the year
ended September 30, 2016 is such that the consolidated sales excluding AFX would amount to $522,100 and the
consolidated pre-tax income excluding AFX would amount to $60,854.
18. INTEREST EXPENSE (INCOME)
The following table outlines the interest expense (income) incurred during the year:
As at
September 30, 2016
September 30, 2015
Interest expense on bank indebtedness and long-term debt
Interest income on deposits
Net interest expense
19. OTHER INCOME
$1,391
(102)
$1,289
$1,031
(92)
$939
On April 7, 2016, the Company concluded a commercial arbitration that it initiated in 2015. As a result, the
Company received compensation of $3.44 million during the third quarter of this fiscal year.
EXCO TECHNOLOGIES LIMITED
51
ANNUAL REPORT 2016
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
TSX Trust Company
200 University Avenue, Suite 300
Toronto, Ontario M5H 4H1
Phone: 416.361.0152
www.tsxtrust.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 E. Riganelli, MA, MBA, LLB
Senior Vice President and COO
R. Drew Knight, CPA, CA
Chief Financial Officer & VP Finance
Secretary
Darren M. Kirk, CFA
Executive Vice President
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
______________________________
2016 Annual Meeting
The 2016 Annual Meeting for the
Shareholders will be held at Magna
Golf Club, 14780 Leslie St., Aurora
on Wednesday, February 1, 2017
at 4:30 pm.