Shaping a
Sustainable Future
2 0 2 0 A N N U A L R E P O R T
Markham, ON
Newmarket, ON
Uxbridge, ON
Chesterfield, MI
Toledo, OH
Dartmouth, NS
Wylie, TX
Matamoros
(2), MX
Queretaro (2), MX
Medellin, COLOMBIA
Kanitra
Tangier,
MOROCCO
PRODUCTION FACILITIES
Casting & Extrusion Technologies
Automotive Solutions
Chonburi,
THAILAND
Sorocaba,
BRAZIL
SALES
($ millions)
.
3
9
8
5
.
2
4
8
5
.
6
5
7
5
.
3
7
0
5
.
3
2
1
4
NET INCOME
($ millions)
DILUTED ADJUSTED
EARNINGS PER SHARE (1)
.
6
7
4
.
5
2
4
.
3
2
4
.
6
6
2
.
4
7
2
3
0
1
$
.
3
0
1
$
.
.
0
0
1
$
.
0
8
0
$
.
9
6
0
$
CASH FLOW
FROM OPERATING
ACTIVITIES (2)
($ millions)
.
5
9
6
.
7
4
6
.
7
4
6
.
1
5
5
.
4
7
4
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
(1) Earnings before other income/ expense (2) Before net change in non-cash working capital.
EXCO TOOLING SOLUTIONS
LETTER TO STAKEHOLDERS F2020
This year proved to be a test for the world like no
other in modern times. Within a few weeks, the
COVID-19 global health pandemic changed the way
we live, work, and socialize. Certain industries - like
aviation – have been dramatically reshaped, perhaps
indefinitely. Many industries however have seen
underlying trends cemented, and even amplified.
The automotive industry – Exco’s primary end market
is no exception. After initial steep declines as the
impact of COVID hit, demand for passenger vehicles
rebounded sharply, and has quickly approached
pre-pandemic levels. Meanwhile, the trend towards
making traditional vehicles lighter and more fuel
efficient as well as the movement towards electric
vehicles has only gained momentum as OEMs
pursue a path to lower emissions. More broadly,
sustainability initiatives have intensified across all
industries. I am pleased to say Exco is very well
positioned to grow profitably – and contribute
positively to – these realities in the years ahead.
Fiscal 2020 results
It’s no surprise that our results in Fiscal 2020 were
adversely impacted by COVID as associated public
health risks resulted
in automotive production
stoppages in our main markets for more than two
months. Stay-at home orders for non-essential
purposes lasted longer than this in many of the
regions we operate. Yet, even through these extreme
conditions, the majority of our manufacturing plants
continued to operate. Despite a sudden and drastic
decline in demand, we still produced positive EBITDA,
generated
achieved
near-breakeven profitability at the height of these
conditions in our third fiscal quarter. I know all our
stakeholders appreciate these results were only
Free Cash
Flow,
and
the growth?”. Granted, we have encountered some
presenting incremental opportunity for both our
resources more responsibly and reduce the negative
exceptional ¬financial strength. Our diverse portfolio
recent challenges in this regard, so the question is
die-cast and extrusion tooling solutions. While our
impact of emissions, waste generation, energy and
of businesses remain exceptionally well positioned to
water consumption in our operations. In this regard,
capitalize on opportunities we see within our various
several of our businesses have achieved ISO 14001
market niches. Despite current challenges, we enter
certification, the international standard that specifies
fiscal 2021 with solid momentum, a rock-solid
requirements
for an effective environmental
balance sheet and high confidence for growth.
possible with a lot of extra effort by – and disruption
to – each of our employees. I am very thankful for the
extra efforts of the entire Exco team, especially for
working together to keep each other safe through
these difficult times.
For the year, we delivered $0.69 of earnings per share
and generated free cash flow of $42 million, of which
we paid $15 million in dividends and directed the rest
to share buy backs and to further strengthen our
balance sheet. We ended the year in a $27 million net
cash position which gives us great comfort in times of
uncertainty such as these. But it also gives us the
ability to take risks where we see opportunity.
And we are actively seeking out such investments
within our core market segments. But rest assured,
we will be conservative and selective in whatever we
pursue.
Beyond our financial results
in fiscal 2020, we
achieved much success operationally, which will be
evident in the quarters and years to come. In our
tooling group, our new extrusion die plant in Mexico
performed extremely well with first full-year results
exceeding our expectations. We also advanced our
industry leading position in the 3D printing of
powdered metal for tooling purposes, upgraded and
added equipment across our business, gained several
new customers and saw significant productivity
gains. As well, we progressed key strategic
investments that will see completion in fiscal 2021,
including Castool’s new greenfield plant in Morocco
and a heat treatment facility in our Newmarket
location. In our Automotive Solutions segment we
continued to develop new innovative products, won
sizeable new programs, and are readying for the
launch of several key new programs in early fiscal
2021. In both of our business segments, the rise of the
electric vehicle is clearly creating new opportunities,
which we are actively seizing.
Where’s the growth?
Investors have asked Exco in recent years, “where’s
fair.
COVID-related implications aside, chief among these
challenges was the shrinking and then wind-down of
ALC’s operations, which we completed in the first
quarter of fiscal 2019. We’ve also managed through a
transition of reducing an overweight exposure to
declining sedan platforms and implemented sizeable
wage increases in Mexico to ensure we remain fair to
our employees. We are not here to make excuses, but
we believe these issues are now firmly behind us.
And with their resolution, I have no doubt we will
demonstrate our growth potential in the years ahead.
In our Automotive Solutions segment this growth is
being driven by a number of factors, including: 1) the
trend of OEMs to make their vehicles more appealing
and profitable through the greater promotion of
accessories and up-trimming vehicle
interiors
including increased use of leather, 2) increasing
consumer demand for larger vehicles that have more
cargo and cabin space, and 3) growing acceptance by
European automakers that Morocco is a dependable
and low-cost supply base. Pursuing these themes has
allowed us to increase our content per vehicle and
we see further gains ahead. And the increased
adoption of electric vehicles is helping our growth
prospects as there is generally more space in these
vehicles for which our products are well suited. Many
of our products are already being sold into electric
vehicles and we have clear visibility to further
sizeable opportunities in the near-term.
Growth in our Casting and Extrusion segment is
being driven by higher demand for aluminum across
the economy, but especially within the automotive
sector. Automotive OEMs are reducing vehicle weight
to curtail emissions in response to consumer demand
and government
regulations. To meet
these
requirements, they are making vehicles
lighter,
improving existing powertrains and accelerating
investments in electric vehicles. In all cases, this is
large mould business will inevitably see a decline for
demand
in
internal combustion engine
(ICE)
powertrain moulds, we expect this will occur slowly
only over many years. In the interim, continuous
improvements to ICE powertrain components, and
an increasing use of aluminum to make structural
components for all vehicles is expanding our market
potential. As well, there is growing demand for our
tooling from new applications, such as battery boxes
and electric motor housings. We are already
producing a wide range of tooling for many
non-powertrain applications, and we see great
opportunities ahead for more.
It is also important to recognize that our tooling
products are getting larger and more complex, which
plays to our competitive advantage given our
unmatched scale, technical expertise and strong
financial position. One only needs to look at the
massive die-cast machines Tesla has recently installed
to form an entire vehicle sub-structure from a single
casting to see where the industry is going. Moreover,
our multi-plant footprint gives us proximity to market
which is desirable to make supply chains more
resilient while
reducing our carbon
footprint.
Minimizing material use while achieving the required
strength is also increasingly necessary, which suits
our additive manufacturing operations perfectly.
With our continued focus on innovation, productivity
improvements coupled with investments in our
people and new equipment I have no doubt we will
stay in front of the market. In Fiscal 2021, we plan to
invest heavily in our capital agenda with a budget of
about $35 million, which includes over $20 million for
growth initiatives.
Operating sustainability
Operating
sustainably
is another key
trend
increasingly affecting all companies. At Exco, we are
not major greenhouse gases emitters. Nonetheless,
we are constantly looking for ways to use natural
The pandemic has reinforced the notion that we are
all connected. I am extremely proud of all our
employees for their hard work, and commitment to
working safely, enabling us to meet the needs of our
customers through the most difficult of conditions.
I would
like to thank all our stakeholders for
contributing to our continued success. I have full
confidence that with the strength of our partnership
we will enjoy a sustainable future.
in our Casting and Extrusion segment, our tools are
President and CEO
Darren M. Kirk, MBA, CFA
management system. More broadly, we remain
focused on employing lean manufacturing principles
to reduce and eliminate waste while also making
substantial investments in new, energy efficient
equipment.
In order to
further minimize our
environmental footprint, we also utilize recycled
material and incorporate a material recycling process
into our facilities, where possible. Technological
advancements are also being employed to help
achieve our goals. Such examples include software to
manage our energy consumption towards off-peak
hours and the adoption of additive manufacturing,
which not only improves our existing products, but
significantly reduces the use of steel, energy and
transportation costs.
Several of the industries we serve also generally
promote energy conservation. As discussed above,
used to shape lightweight metals for use in the
automotive
industry, among others. As more
aluminum, magnesium and other lightweight metals
are increasingly used by global OEM’s to reduce the
weight of vehicles we are seeing
increased
opportunities. In our Automotive Solutions segment,
the products we produce are generally lighter in
weight than the products they aim to displace.
These
attributes present
significant growth
opportunities for us while also providing us the
ability to contribute to lower emissions generally.
The shape of things to come
As I have said many times, Exco is a diverse collection
of leading businesses in niche industries that provide
innovative, quality solutions from low-cost opera-
tions. Our businesses are collectively “capital
light”, we have good geographic diversity and
EXCO TECHNOLOGIES LIMITED
1
ANNUAL REPORT 2020
This year proved to be a test for the world like no
other in modern times. Within a few weeks, the
COVID-19 global health pandemic changed the way
we live, work, and socialize. Certain industries - like
aviation – have been dramatically reshaped, perhaps
indefinitely. Many industries however have seen
underlying trends cemented, and even amplified.
The automotive industry – Exco’s primary end market
is no exception. After initial steep declines as the
impact of COVID hit, demand for passenger vehicles
rebounded sharply, and has quickly approached
pre-pandemic levels. Meanwhile, the trend towards
possible with a lot of extra effort by – and disruption
to – each of our employees. I am very thankful for the
extra efforts of the entire Exco team, especially for
working together to keep each other safe through
these difficult times.
For the year, we delivered $0.69 of earnings per share
and generated free cash flow of $42 million, of which
we paid $15 million in dividends and directed the rest
to share buy backs and to further strengthen our
balance sheet. We ended the year in a $27 million net
cash position which gives us great comfort in times of
uncertainty such as these. But it also gives us the
ability to take risks where we see opportunity.
And we are actively seeking out such investments
within our core market segments. But rest assured,
we will be conservative and selective in whatever we
pursue.
making traditional vehicles lighter and more fuel
Beyond our financial results
in fiscal 2020, we
efficient as well as the movement towards electric
achieved much success operationally, which will be
vehicles has only gained momentum as OEMs
evident in the quarters and years to come. In our
pursue a path to lower emissions. More broadly,
tooling group, our new extrusion die plant in Mexico
sustainability initiatives have intensified across all
performed extremely well with first full-year results
industries. I am pleased to say Exco is very well
exceeding our expectations. We also advanced our
positioned to grow profitably – and contribute
industry leading position in the 3D printing of
positively to – these realities in the years ahead.
powdered metal for tooling purposes, upgraded and
Fiscal 2020 results
added equipment across our business, gained several
new customers and saw significant productivity
It’s no surprise that our results in Fiscal 2020 were
gains. As well, we progressed key strategic
adversely impacted by COVID as associated public
investments that will see completion in fiscal 2021,
health risks resulted
in automotive production
including Castool’s new greenfield plant in Morocco
stoppages in our main markets for more than two
and a heat treatment facility in our Newmarket
months. Stay-at home orders for non-essential
location. In our Automotive Solutions segment we
purposes lasted longer than this in many of the
continued to develop new innovative products, won
regions we operate. Yet, even through these extreme
sizeable new programs, and are readying for the
conditions, the majority of our manufacturing plants
launch of several key new programs in early fiscal
continued to operate. Despite a sudden and drastic
2021. In both of our business segments, the rise of the
decline in demand, we still produced positive EBITDA,
electric vehicle is clearly creating new opportunities,
generated
Free Cash
Flow,
and
achieved
which we are actively seizing.
near-breakeven profitability at the height of these
conditions in our third fiscal quarter. I know all our
Where’s the growth?
stakeholders appreciate these results were only
Investors have asked Exco in recent years, “where’s
LETTER TO STAKEHOLDERS F2020
the growth?”. Granted, we have encountered some
recent challenges in this regard, so the question is
fair.
COVID-related implications aside, chief among these
challenges was the shrinking and then wind-down of
ALC’s operations, which we completed in the first
quarter of fiscal 2019. We’ve also managed through a
transition of reducing an overweight exposure to
declining sedan platforms and implemented sizeable
wage increases in Mexico to ensure we remain fair to
our employees. We are not here to make excuses, but
we believe these issues are now firmly behind us.
And with their resolution, I have no doubt we will
demonstrate our growth potential in the years ahead.
In our Automotive Solutions segment this growth is
being driven by a number of factors, including: 1) the
trend of OEMs to make their vehicles more appealing
and profitable through the greater promotion of
interiors
accessories and up-trimming vehicle
including increased use of leather, 2) increasing
consumer demand for larger vehicles that have more
cargo and cabin space, and 3) growing acceptance by
European automakers that Morocco is a dependable
and low-cost supply base. Pursuing these themes has
allowed us to increase our content per vehicle and
we see further gains ahead. And the increased
adoption of electric vehicles is helping our growth
prospects as there is generally more space in these
vehicles for which our products are well suited. Many
of our products are already being sold into electric
vehicles and we have clear visibility to further
sizeable opportunities in the near-term.
Growth in our Casting and Extrusion segment is
being driven by higher demand for aluminum across
the economy, but especially within the automotive
sector. Automotive OEMs are reducing vehicle weight
to curtail emissions in response to consumer demand
and government
these
regulations. To meet
lighter,
requirements, they are making vehicles
improving existing powertrains and accelerating
investments in electric vehicles. In all cases, this is
in
internal combustion engine
presenting incremental opportunity for both our
die-cast and extrusion tooling solutions. While our
large mould business will inevitably see a decline for
demand
(ICE)
powertrain moulds, we expect this will occur slowly
only over many years. In the interim, continuous
improvements to ICE powertrain components, and
an increasing use of aluminum to make structural
components for all vehicles is expanding our market
potential. As well, there is growing demand for our
tooling from new applications, such as battery boxes
and electric motor housings. We are already
producing a wide range of tooling for many
non-powertrain applications, and we see great
opportunities ahead for more.
It is also important to recognize that our tooling
products are getting larger and more complex, which
plays to our competitive advantage given our
unmatched scale, technical expertise and strong
financial position. One only needs to look at the
massive die-cast machines Tesla has recently installed
to form an entire vehicle sub-structure from a single
casting to see where the industry is going. Moreover,
our multi-plant footprint gives us proximity to market
which is desirable to make supply chains more
footprint.
resilient while
Minimizing material use while achieving the required
strength is also increasingly necessary, which suits
our additive manufacturing operations perfectly.
With our continued focus on innovation, productivity
improvements coupled with investments in our
people and new equipment I have no doubt we will
stay in front of the market. In Fiscal 2021, we plan to
invest heavily in our capital agenda with a budget of
about $35 million, which includes over $20 million for
growth initiatives.
reducing our carbon
Operating sustainability
sustainably
is another key
trend
Operating
increasingly affecting all companies. At Exco, we are
not major greenhouse gases emitters. Nonetheless,
we are constantly looking for ways to use natural
EXCO TECHNOLOGIES LIMITED
2
ANNUAL REPORT 2020
resources more responsibly and reduce the negative
exceptional ¬financial strength. Our diverse portfolio
impact of emissions, waste generation, energy and
of businesses remain exceptionally well positioned to
water consumption in our operations. In this regard,
capitalize on opportunities we see within our various
several of our businesses have achieved ISO 14001
market niches. Despite current challenges, we enter
certification, the international standard that specifies
fiscal 2021 with solid momentum, a rock-solid
requirements
for an effective environmental
balance sheet and high confidence for growth.
The pandemic has reinforced the notion that we are
all connected. I am extremely proud of all our
employees for their hard work, and commitment to
working safely, enabling us to meet the needs of our
customers through the most difficult of conditions.
I would
like to thank all our stakeholders for
contributing to our continued success. I have full
confidence that with the strength of our partnership
we will enjoy a sustainable future.
in our Casting and Extrusion segment, our tools are
President and CEO
Darren M. Kirk, MBA, CFA
management system. More broadly, we remain
focused on employing lean manufacturing principles
to reduce and eliminate waste while also making
substantial investments in new, energy efficient
equipment.
In order to
further minimize our
environmental footprint, we also utilize recycled
material and incorporate a material recycling process
into our facilities, where possible. Technological
advancements are also being employed to help
achieve our goals. Such examples include software to
manage our energy consumption towards off-peak
hours and the adoption of additive manufacturing,
which not only improves our existing products, but
significantly reduces the use of steel, energy and
transportation costs.
Several of the industries we serve also generally
promote energy conservation. As discussed above,
used to shape lightweight metals for use in the
automotive
industry, among others. As more
aluminum, magnesium and other lightweight metals
are increasingly used by global OEM’s to reduce the
weight of vehicles we are seeing
increased
opportunities. In our Automotive Solutions segment,
the products we produce are generally lighter in
weight than the products they aim to displace.
These
attributes present
significant growth
opportunities for us while also providing us the
ability to contribute to lower emissions generally.
The shape of things to come
As I have said many times, Exco is a diverse collection
of leading businesses in niche industries that provide
innovative, quality solutions from low-cost opera-
tions. Our businesses are collectively “capital
light”, we have good geographic diversity and
This year proved to be a test for the world like no
other in modern times. Within a few weeks, the
COVID-19 global health pandemic changed the way
we live, work, and socialize. Certain industries - like
aviation – have been dramatically reshaped, perhaps
indefinitely. Many industries however have seen
underlying trends cemented, and even amplified.
The automotive industry – Exco’s primary end market
is no exception. After initial steep declines as the
impact of COVID hit, demand for passenger vehicles
rebounded sharply, and has quickly approached
pre-pandemic levels. Meanwhile, the trend towards
possible with a lot of extra effort by – and disruption
to – each of our employees. I am very thankful for the
extra efforts of the entire Exco team, especially for
working together to keep each other safe through
these difficult times.
For the year, we delivered $0.69 of earnings per share
and generated free cash flow of $42 million, of which
we paid $15 million in dividends and directed the rest
to share buy backs and to further strengthen our
balance sheet. We ended the year in a $27 million net
cash position which gives us great comfort in times of
uncertainty such as these. But it also gives us the
ability to take risks where we see opportunity.
And we are actively seeking out such investments
within our core market segments. But rest assured,
we will be conservative and selective in whatever we
pursue.
making traditional vehicles lighter and more fuel
Beyond our financial results
in fiscal 2020, we
efficient as well as the movement towards electric
achieved much success operationally, which will be
vehicles has only gained momentum as OEMs
evident in the quarters and years to come. In our
pursue a path to lower emissions. More broadly,
tooling group, our new extrusion die plant in Mexico
sustainability initiatives have intensified across all
performed extremely well with first full-year results
industries. I am pleased to say Exco is very well
exceeding our expectations. We also advanced our
positioned to grow profitably – and contribute
industry leading position in the 3D printing of
positively to – these realities in the years ahead.
powdered metal for tooling purposes, upgraded and
Fiscal 2020 results
added equipment across our business, gained several
new customers and saw significant productivity
It’s no surprise that our results in Fiscal 2020 were
gains. As well, we progressed key strategic
adversely impacted by COVID as associated public
investments that will see completion in fiscal 2021,
health risks resulted
in automotive production
including Castool’s new greenfield plant in Morocco
stoppages in our main markets for more than two
and a heat treatment facility in our Newmarket
months. Stay-at home orders for non-essential
location. In our Automotive Solutions segment we
purposes lasted longer than this in many of the
continued to develop new innovative products, won
regions we operate. Yet, even through these extreme
sizeable new programs, and are readying for the
conditions, the majority of our manufacturing plants
launch of several key new programs in early fiscal
continued to operate. Despite a sudden and drastic
2021. In both of our business segments, the rise of the
decline in demand, we still produced positive EBITDA,
electric vehicle is clearly creating new opportunities,
generated
Free Cash
Flow,
and
achieved
which we are actively seizing.
near-breakeven profitability at the height of these
conditions in our third fiscal quarter. I know all our
Where’s the growth?
stakeholders appreciate these results were only
Investors have asked Exco in recent years, “where’s
the growth?”. Granted, we have encountered some
presenting incremental opportunity for both our
recent challenges in this regard, so the question is
die-cast and extrusion tooling solutions. While our
fair.
COVID-related implications aside, chief among these
challenges was the shrinking and then wind-down of
ALC’s operations, which we completed in the first
quarter of fiscal 2019. We’ve also managed through a
transition of reducing an overweight exposure to
declining sedan platforms and implemented sizeable
wage increases in Mexico to ensure we remain fair to
our employees. We are not here to make excuses, but
we believe these issues are now firmly behind us.
And with their resolution, I have no doubt we will
demonstrate our growth potential in the years ahead.
In our Automotive Solutions segment this growth is
being driven by a number of factors, including: 1) the
trend of OEMs to make their vehicles more appealing
and profitable through the greater promotion of
accessories and up-trimming vehicle
interiors
including increased use of leather, 2) increasing
consumer demand for larger vehicles that have more
cargo and cabin space, and 3) growing acceptance by
European automakers that Morocco is a dependable
and low-cost supply base. Pursuing these themes has
allowed us to increase our content per vehicle and
we see further gains ahead. And the increased
adoption of electric vehicles is helping our growth
prospects as there is generally more space in these
vehicles for which our products are well suited. Many
of our products are already being sold into electric
vehicles and we have clear visibility to further
sizeable opportunities in the near-term.
Growth in our Casting and Extrusion segment is
being driven by higher demand for aluminum across
the economy, but especially within the automotive
sector. Automotive OEMs are reducing vehicle weight
to curtail emissions in response to consumer demand
and government
regulations. To meet
these
requirements, they are making vehicles
lighter,
improving existing powertrains and accelerating
investments in electric vehicles. In all cases, this is
large mould business will inevitably see a decline for
demand
in
internal combustion engine
(ICE)
powertrain moulds, we expect this will occur slowly
only over many years. In the interim, continuous
improvements to ICE powertrain components, and
an increasing use of aluminum to make structural
components for all vehicles is expanding our market
potential. As well, there is growing demand for our
tooling from new applications, such as battery boxes
and electric motor housings. We are already
producing a wide range of tooling for many
non-powertrain applications, and we see great
opportunities ahead for more.
It is also important to recognize that our tooling
products are getting larger and more complex, which
plays to our competitive advantage given our
unmatched scale, technical expertise and strong
financial position. One only needs to look at the
massive die-cast machines Tesla has recently installed
to form an entire vehicle sub-structure from a single
casting to see where the industry is going. Moreover,
our multi-plant footprint gives us proximity to market
which is desirable to make supply chains more
resilient while
reducing our carbon
footprint.
Minimizing material use while achieving the required
strength is also increasingly necessary, which suits
our additive manufacturing operations perfectly.
With our continued focus on innovation, productivity
improvements coupled with investments in our
people and new equipment I have no doubt we will
stay in front of the market. In Fiscal 2021, we plan to
invest heavily in our capital agenda with a budget of
about $35 million, which includes over $20 million for
growth initiatives.
Operating sustainability
Operating
sustainably
is another key
trend
increasingly affecting all companies. At Exco, we are
not major greenhouse gases emitters. Nonetheless,
we are constantly looking for ways to use natural
exceptional ¬financial strength. Our diverse portfolio
of businesses remain exceptionally well positioned to
capitalize on opportunities we see within our various
market niches. Despite current challenges, we enter
fiscal 2021 with solid momentum, a rock-solid
balance sheet and high confidence for growth.
The pandemic has reinforced the notion that we are
all connected. I am extremely proud of all our
employees for their hard work, and commitment to
working safely, enabling us to meet the needs of our
customers through the most difficult of conditions.
I would
like to thank all our stakeholders for
contributing to our continued success. I have full
confidence that with the strength of our partnership
we will enjoy a sustainable future.
Darren M. Kirk, MBA, CFA
President and CEO
LETTER TO STAKEHOLDERS F2020
resources more responsibly and reduce the negative
impact of emissions, waste generation, energy and
water consumption in our operations. In this regard,
several of our businesses have achieved ISO 14001
certification, the international standard that specifies
for an effective environmental
requirements
management system. More broadly, we remain
focused on employing lean manufacturing principles
to reduce and eliminate waste while also making
substantial investments in new, energy efficient
equipment.
further minimize our
environmental footprint, we also utilize recycled
material and incorporate a material recycling process
into our facilities, where possible. Technological
advancements are also being employed to help
achieve our goals. Such examples include software to
manage our energy consumption towards off-peak
hours and the adoption of additive manufacturing,
which not only improves our existing products, but
significantly reduces the use of steel, energy and
transportation costs.
In order to
Several of the industries we serve also generally
promote energy conservation. As discussed above,
in our Casting and Extrusion segment, our tools are
used to shape lightweight metals for use in the
industry, among others. As more
automotive
aluminum, magnesium and other lightweight metals
are increasingly used by global OEM’s to reduce the
increased
weight of vehicles we are seeing
opportunities. In our Automotive Solutions segment,
the products we produce are generally lighter in
weight than the products they aim to displace.
significant growth
These
opportunities for us while also providing us the
ability to contribute to lower emissions generally.
attributes present
The shape of things to come
As I have said many times, Exco is a diverse collection
of leading businesses in niche industries that provide
innovative, quality solutions from low-cost opera-
tions. Our businesses are collectively “capital
light”, we have good geographic diversity and
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
CONTENTS
5
20
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26
Management’s Discussion and Analysis
Independent Auditors’ Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be
read in conjunction with the consolidated financial statements and related notes of Exco Technologies Limited
(“Exco”, or “Company”) for the year ended September 30, 2020. This MD&A has been prepared as of December 2,
2020.
This MD&A has been prepared by reference to the MD&A disclosure requirements established under National
Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators.
Additional information regarding 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 may be made to Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EPS, Adjusted Net
Income, Adjusted Pretax Profit and Free Cash Flow which are not measures of financial performance under
International Financial Reporting Standards (“IFRS”). Exco calculates Adjusted EBITDA as earnings before other
income/expense, interest, taxes, depreciation and amortization and Adjusted EBITDA Margin as Adjusted EBITDA
divided by sales. Exco calculates Adjusted EPS as earnings before other income/expense divided by the weighted
average number of shares. Adjusted Net Income is calculated as net income before other income/expense and Pretax
Profit as segmented earnings before other income/expense, interest and taxes. Free Cash Flow is calculated as cash
provided by operating activities less interest paid less investment in fixed assets net of proceeds of disposal. Adjusted
EBITDA, Adjusted EBITDA Margin, Adjusted EPS, Pretax Profit and Free Cash Flow are used by management, from
time to time, to facilitate period-to-period operating comparisons and we believe some investors and analysts use
these measures as well when evaluating Exco’s financial performance. These measures, as calculated by Exco, do not
have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented
by other issuers.
CAUTIONARY STATEMENT
Information in this document relating to: projected North American light vehicle sales and production, original
equipment manufacturer’s (OEM) capital investment levels, the rate and intensity of OEM development of all-electric
or hybrid powertrain systems, the level of order backlog 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 MD&A 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 integrate acquisitions and the rate at which certain
of our operations achieve sustained profitability. These forward-looking statements include known and unknown risks,
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
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 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 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 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 its markets which
principally consist of North America for die-cast tooling, North, Central and South America for extrusion tooling and
globally for consumable tooling parts and related equipment. Across its markets, Exco is focused on further
entrenching itself by reducing lead times and manufacturing costs through design and process enhancements. Major
capital projects have been implemented in recent years to increase capacity, reduce lead times, further improve quality
and reduce 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 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 interior trim
components and assemblies. Polydesign is also a manufacturer and/or finisher of injection moulded interior trim and
instrument panel components, sun visors, seat covers, head rests and other cut and sew products. 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
also 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, and Morocco supplying the automotive
markets in North America, Europe and to a lesser extent, Asia.
VISION AND STRATEGY
The Company’s vision is “to be the benchmark for innovation, efficiency and quality in the industries we serve.” The
Company’s mission is “we enhance the look and functionality of passenger vehicles and tool up light metal industries
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
for superior performance.” Exco has pursued several key strategies to achieve sustainable revenue and earnings
growth. These include: (1) strengthening our leadership and competitive position in our chosen markets through
automation and technology, (2) minimizing our cost structure, (3) maintaining the bulk of our productive capacity in
lower-cost jurisdictions and in close 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 was founded on a commitment to excellence and a culture of entrepreneurship. We encourage continuance of
these traits by providing incentives for our managers to grow their business and giving our employees the latitude to
push the envelope on innovation.
2020 RESULTS
Impact of COVID-19 on our business
In response to the unprecedented global COVID-19 pandemic, Exco continues to take the necessary actions to protect
the health and safety of our employees, meet the ongoing needs of our customers and minimize the adverse impact on
our finances, while making the necessary investments to further strengthen our various businesses for the recovery as
it takes hold.
As the COVID-19 virus spread, we developed protocols, assessment tools and documents at each of our facilities.
The Company disseminated personal protective gear to employees and installed personal protective equipment where
needed. In order to minimize the COVID-19 health and safety risks to our employees, staff have complied with
applicable legal requirements and have worked in coordination with public health authorities to promote employee
safety and confidence for return to work. Return to work protocols have been communicated. Where possible, the
Company engaged in emergency government wage protection programs and workshare programs. Lastly,
management provided regular communication to employees to support their needs. We continue to build on the
knowledge gained in managing employee health and safety risks and prepare for subsequent waves of COVID-19.
The Company’s sales were impacted by COVID-19 differently depending on the business segment. For the
Automotive Solutions segment, 3 out of 4 plants were idled for two and a half months in the third quarter dramatically
reducing sales in this time frame. Sales subsequently increased to approximately 90% of normalized levels in the
fourth quarter. The Casting and Extrusion segments experienced sales declines ranging from 10% to 50% as volumes
fluctuated with disrupted timing for customer orders. Customer demand for this segment varied depending on the
product. The Extrusion Group experienced lower, but consistent, levels of sales throughout; Castool experienced
sharp declines for its die-cast consumable products and then sales of these product rebounded just as fast whereas
sales for capital goods remains at lower than normal levels; and the Large Mould group maintained strong activity in
the 3rd quarter, but shipments declined early in the 4th Quarter. Customer demand rebounded by the end of the 4th
quarter across all business segments.
In response to the reductions in sales volumes from COVID-19, management was required to assess whether there
were any indications that an asset was impaired. Each quarter-end, management carried out this assessment for
indications that goodwill and other long-lived assets may be impaired. Management did not believe that there would
be a continuing adverse long-term impact to its businesses. As part of the review for indicators of impairment,
management performed an analysis on its Cash Generating Units and determined there were no adverse impacts that
would lead to indicators of impairment. As required, management will continue to assess these assumptions as the
evolving COVID-19 situation changes.
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ANNUAL REPORT 2020
Despite impacts of COVID-19 to the Company, the Company believes it maintains sufficient reserves to satisfy its
financial obligations and liquidity, measured as net cash and available credit at September 30, 2020. The Company’s
Free Cash Flow was $41.7 million for the year ended September 30, 2020 (2019 - $36.5 million) and our net cash
position was $26.6 million (2019 - $8.7 million). We voluntarily suspended repurchases of common shares for
cancellation under our normal course issuer bid ("NCIB") in the second quarter of 2020 and resumed repurchases in
September 2020.
Consolidated Results - Sales
Annual sales totalled $412.3 million compared to $507.3 million last year – a decrease of $95.0 million or 19% over
last year. The decline reflects the global impact of COVID-19 together with the deconsolidation of ALC in January
2019. The US dollar averaged 1% higher ($1.35 versus $1.33) against the Canadian dollar over the year increasing
sales by $3.0 million. The Euro also averaged 1% higher ($1.51 versus $1.50) against the Canadian dollar over the
year, increasing sales by $0.5 million.
Selected Annual Information
The following table sets out selected financial data relating to the Company’s years ended September 30, 2020 and
2019. 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 and diluted
Adjusted earnings per share (Adjusted EPS)
Basic and diluted
Total assets
Cash dividend paid per share
EBITDA
Segment Sales
2020
$412.3
$27.4
2019
$507.3
$26.6
$0.69
$0.65
$0.69
$407.6
$0.38
$53.5
$0.80
$422.7
$0.36
$62.6
● Automotive Solutions Segment
Sales in this segment were $231.1 million – a decrease of $72.0 million or 24% from the prior year. The sales decline
was driven by COVID-19 and – to a lesser extent – the deconsolidation of ALC from Exco’s results following ALC’s
filing of a voluntary liquidation petition in January 2019, which removed $19.9 million of sales year over year. The
appreciation of the US dollar versus the Canadian dollar in fiscal 2020 compared to fiscal 2019 increased segment
sales in North America by $1.4 million. The stronger Euro against the Canadian dollar increased segment sales in
Europe by $0.5 million year over year. Excluding results from ALC and foreign exchange rate movements, segment
sales were lower by $54.0 million, or 19% compared to fiscal 2019. During the year, overall industry vehicle
production volumes were lower by roughly 29% in North America and Europe on a combined basis. Despite the
challenges from COVID-19 and lower customer demand, segment sales were supported by a number of program
launches for both new and existing products, particularly at Polydesign and Neocon. More broadly, the segment’s four
businesses continue to focus their efforts on higher margin activity. Management sees continuing opportunity for
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ANNUAL REPORT 2020
future growth supported by recent program wins and recent quoting activity for new programs in both North American
and Europe.
• Casting and Extrusion Segment
Sales in this segment were $181.2 million – a decrease of $23.1 million or 11% from the prior year. Foreign exchange
rate movements increased sales by $1.6 million. Sales were impacted by COVID-19 and modestly softer market
conditions that existed prior to the emergence of COVID-19. In the first six months of the year sales were down
approximately 4% driven by lower demand in our Extrusion and Castool groups whereas sales in the Large Mould
group remained consistent with prior year. In the second half of the year all groups within this segment were impacted
by COVID-19: the Castool and Extrusion groups’ sales down 22% and the Large Mould sales were down 11%
compared to the second half of fiscal 2019. The Large Mould group programs tend to be relatively long cycle and
continued to advance despite the vehicle production stoppage at all OEM’s. A final component of the lower sales
relates to lower steel prices and surcharges. As Exco generally aims to pass such amounts on to its customers, they
positively impact revenues when higher, but have the opposite impact when lower. Quoting activity is up and we are
optimistic we are making the necessary investments to further improve our market share and the productivity of our
operations.
Cost of Sales
Cost of sales totalled $323.8 million – a decrease of $76.7 million or 19% from the prior year due to lower material,
labour and overhead costs associated with sales. Cost of sales as a percentage of sales remained stable at 79% as
lower direct materials were offset by slightly higher direct labor and factory overhead. Raw material costs in the
Automotive Solutions segment (petroleum/natural gas-based resin, leather goods and plastic products) were generally
stable over the past year while tool grade steel prices in the Casting and Extrusion segment decreased throughout the
year. Direct labour increased moderately due to the continuance of labour costs for certain production workers in
Mexico where there is limited ability to temporarily lay-off employees onto government support programs. While
overhead costs were down due to management’s focus on cost saving initiatives, as a percentage of sales they were
up due to lost absorption of overheads and other fixed costs arising from sharply lower sales.
Selling, General and Administrative Expenses
Selling, general and administrative expense in the current year decreased to $35.2 million from $44.4 million last year,
a reduction of 21%. As referenced in Note 18 of the Notes to the Financial Statements, the Company recognized $7.0
million in government assistance due to the impact of COVID-19. These subsidies were booked against Selling,
General and Administrative expenses. After adjusting for these subsidies, Selling, General and Administrative
expenses were down $2.2 million compared to 2019 due to reductions in variable costs (commissions, selling and
travel costs), lower incentive and severance expenses, partially offset by foreign exchange losses and bad debt
provisions.
Depreciation and Amortization
Consolidated depreciation expense in fiscal 2020 increased to $17.4 million from $15.4 million expense last year. The
increase reflects the depreciation from leased “right of use assets”, a full year depreciation from our Extrusion Mexico
facility compared to six months last year, and the additions to Castool’s Uxbridge facility in late 2019. Depreciation
expense within the Casting and Extrusion segment totalled $13.8 million in fiscal 2020 versus $12.5 million in fiscal
2019 and depreciation expense within the Automotive Solutions segment totalled $3.5 million versus $2.8 million last
year. Amortization expense of $4.0 million in fiscal 2020 remained unchanged from 2019. The carrying value of total
intangible assets amounted to $30.5 million as at September 30, 2020. The Company expects the annual amortization
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ANNUAL REPORT 2020
and depreciation expense will total approximately $4.0 million and $17.9 million respectively in fiscal 2021, although
this could vary depending on USD/ CAD exchange rates.
Interest
Net interest expense in the current year totalled $0.6 million in fiscal 2020 compared to $0.8 million in fiscal 2019.
The reduction is primary attributable to lower average debt levels in fiscal 2020 compared to fiscal 2019.
Income Taxes
Exco’s effective income tax rate was 12.7% in fiscal 2020 compared to an effective income tax rate of 26.0% in fiscal
2019. The lower effective income tax rate in fiscal 2020 was driven by the reversal of a $2.3 million deferred tax
liability relating to ALC as a result of a resolved tax exposure in the 4th quarter and the recognition of research and
development tax credits in the current year. After adjusting for these items, the effective tax rate is 22.0% which is
consistent with expectations. The 2019 effective tax rate at 26.0% was higher due to the recognition of de-
consolidation expenses of $6.4 million which were not deductible for tax purposes. Excluding the ALC charge, the
effective tax rate was 22.0% in fiscal 2019.
Net Income
• Consolidated
The Company reported consolidated net income of $27.4 million or basic and diluted earnings of $0.69 per share in
fiscal 2020, compared to consolidated net income of $26.6 million or basic and diluted earnings of $0.65 per share or
Adjusted earnings of $0.80 per share the prior year.
• Automotive Solutions Segment (Operating Earnings)
The Automotive Solutions segment recorded operating earnings of $21.0 million for the year compared to $31.9
million last year – a decrease of $10.9 million or 34%. The most significant factor impacting operating earnings in
the year was the impact of COVID-19. As previously discussed, 3 out of 4 facilities were idled in the 3rd quarter with
limited ability for these plants to reduce labour costs in these periods due to limited government support in Mexico
and Morocco. Volumes increased throughout the remaining months of the year to eventually reach 88% of prior year
fourth quarter sales revenue. Even with the significant drop in revenue, management was successful in flexing costs
and managing discretionary spending and benefiting from government support payments where possible in the current
year. Expenses in 2019 were higher due to 1st quarter losses incurred from ALC, Mexican labour settlement bonuses
and start-up costs incurred at Polydesign, Neocon, and AFX. As a result, gross margins were consistent year over
year and operating earnings margins in 2020 were 9% compared to 11% in 2019.
Despite the market uncertainty associated with COVID-19 and uncertain vehicle production volumes in the year
ahead, management remains optimistic on the segment’s prospects for returning to growth. This view is supported by
current reported North American and European production volumes and recent program wins combined with decent
quoting activity for new business where our efforts are directed to adding new business that maximizes our
profitability. Management also expects cost improvements will be achieved in fiscal 2021 as inefficiencies associated
with the ramp up of several new programs during fiscal 2020 recede however these improvements will be partially
offset by a significant number of new programs launching within the segment during fiscal 2021.
• Casting and Extrusion Segment (Operating Earnings)
Casting and Extrusion operating earnings were consistent with prior year at $18.0 million. The Large Mould group
continued its rebound in profitability during the year despite lower revenues due to COVID-19. The Extrusion Group
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ANNUAL REPORT 2020
and Castool profitability was down in the year as a result of lower sales due to COVID-19. Extrusion Colombia
profitability was hardest hit by COVID-19 and one of its customers declared bankruptcy impacting earnings by $0.5
million. Although the new Mexican extrusion facility incurred losses for the year, it generated positive EBITDA.
Castool’s revenues were down in both consumable and capital equipment goods for the year as manufacturers
responded to COVID-19 by reducing production. Overall segment profitability was supported by continued progress
with efficiency initiatives, a favourable mix shift toward higher margin programs in the Large Mould group, lower
steel prices and the receipt of R&D credits. As well, management reduced the impact of lower sales volumes during
the second half of the year by implementing work-share, reducing expenditures and availing itself of government
support programs where available. Generally, management remains focused on reducing its overall cost structure,
improving manufacturing efficiencies and building out new greenfield operations. Such activities are expected to lead
to improved segment profitability over time.
Corporate Segment (Operating Expense)
•
Corporate expense in the current year amounted to $6.9 million compared to $6.7 million in the prior year. The year
over year increase was primarily driven by higher foreign exchange expenses offset by lower incentive compensation
and professional fees in 2020 relative to 2019.
EBITDA
EBITDA in the current year amounted to $53.5 million compared to $62.6 million the prior year – a decrease of $9.1
million or 15%. The EBITDA margin increased to 13.0% compared to 12.3% the prior year. EBITDA in the Casting
and Extrusion segment was $32.4 million, which was $1.2 million higher than in fiscal 2019. Casting and Extrusion
segment EBITDA margin increased to 17.9% from 15.3% the prior year. The Automotive Solution segment EBITDA
was $27.9 million, which was lower by $10.2 million, or 27% compared to fiscal 2019. The Automotive Solution
segment EBITDA margin declined modestly to 12.1% in fiscal 2020 compared to 12.6% the prior year.
Quarterly Results
The following table sets out financial information for each of the eight fiscal quarters through to the fiscal year
ended September 30, 2020:
($ thousands except per share
amounts)
September 30,
2020
Sales
Net income
Earnings per share
Basic
Diluted
$100,680
$10,719
$0.27
$0.27
($ thousands except per share
amounts)
September 30,
2019
Sales
Net income
Earnings per share
Basic
Diluted
$121,815
$6,773
$0.17
$0.17
June 30,
2020
$70,962
($848)
($0.02)
($0.02)
June 30,
2019
$119,944
$7,477
$0.18
$0.18
March 31,
2020
$120,244
$9,495
December 31,
2019
$120,423
$8,058
$0.24
$0.24
$0.20
$0.20
March 31,
2019
$123,465
$8,564
December 31,
2018
$142,124
$3,818
$0.21
$0.21
$0.09
$0.09
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ANNUAL REPORT 2020
Exco typically experiences softer sales and profit in the first fiscal quarter, which coincides with our customers’ plant
shutdowns in North America during the Christmas season. Exco also experiences a slowdown in the fourth fiscal
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.
Current year quarterly comparisons varied from these common trends due to the impact of COVID-19 and the 2019
deconsolidation of ALC. Sales in the first quarter of fiscal 2020 were lower due to $19.9 million ALC sales recognized
in 2019. Net income in the first quarter of fiscal 2019 was reduced by $6.4 million ($0.15 per share) due to charges
associated with the liquidation of ALC and $2.1 million of operating losses. Sales and net income were considerably
lower in the third quarter fiscal 2020 due to the impact of COVID-19 with three of four of our Automotive plants
virtually idled and operations across all other plants down approximately 20%. The fourth quarter of fiscal 2020
improved from the third quarter, but sales remain lower compared to fiscal 2019 due to the impact of COVID-19. Our
operations, however, are gaining traction with increased demand.
Fourth Quarter
In the fourth quarter, consolidated sales were $100.7 million – a decrease of $21.1 million or 17% from the prior year.
Over the quarter the average USD/CAD exchange rate was 1% higher ($1.33 versus $1.32 last year) increasing sales
by $0.2 million. The average EUR/ CAD exchange rate was 8% higher ($1.57 versus $1.46 last year) increasing sales
by $1.1 million compared to the fourth quarter of fiscal 2019.
The Automotive Solutions segment experienced a 12% decrease in sales, or a reduction of $8.2 million, to $61.2
million from $69.4 million in the fourth quarter of 2019. The decrease was driven by lower vehicle production
volumes, the delay in certain new customer programs ramping up due to COVID-19 related disruptions and timing of
accessory sales, which do not always correlate well with OEM production volumes. In North America, overall vehicle
production was relatively flat during the quarter compared to a year ago while European vehicle production was down
about 7%. Looking forward, OEM vehicle production volumes appear likely to improve slightly near term while Exco
will additionally benefit from several new program launches as well as destocked inventory levels of accessory
products in customer channels. . Quoting activity remains encouraging and we see ample opportunity to maintain our
longer term trend of increasing our content per vehicle across our portfolio of businesses.
The Casting and Extrusion segment recorded sales of $39.5 million in the fourth quarter compared to $52.4 million
last year – a decrease of $13.0 million or 25%. The sales decline was mainly driven by the deterioration of general
economic conditions due to the impact of COVID-19, changes in product mix and delivery timing as well as lower
steel costs generally. Within the segment, Extrusion group sales declined due to reduced market demand across most
industry verticals for aluminum extrusions somewhat offset by stronger volumes contributed from the new Mexican
operation. The Large Mould and Castool group sales were lower during the quarter due mostly to the timing of
shipments and changes in product mix. More specifically, the Large Mould group recognizes sales based on a
Complete Contract basis, contributing to fluctuations in sales from quarter to quarter given the relatively large size of
their individual programs. As well, activity within the Large Mould group saw a delayed impact from the OEM
production stoppages which occurred through much of the third quarter of fiscal 2020. The Large Mould group
continued to work on certain programs during this time while reduced activity for die rebuilds associated with these
lower volumes only occurred during the current quarter. Sales withing the Castool Group were dampened by a
slowdown in the extrusion end market but also due to a change in product mix which was weighted significantly more
towards consumable tooling components relative to larger capital products such as die-ovens and extrusion containers,
which have greater raw material requirements.. Looking forward, quoting activity within all groups in this segment
is strong, particularly within the Large Mould group which is seeing heightened interest from both new and existing
customers arising from its leading industry position.
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ANNUAL REPORT 2020
The Company’s fourth quarter consolidated net income increased to $10.7 million or earnings of $0.27 per share
compared to $6.8 million or earnings of $0.17 per share in the same quarter last year – an EPS increase of 59%. The
effective income tax rate was negative 3% in the current quarter compared to 16% in the same quarter last year. The
effective tax rate in the current period was improved by the reversal of $2.3 million of deferred tax liabilities from
resolved tax exposures and $0.3 million of R&D tax credits net of certain foreign tax adjustments. Excluding these
items, the effective tax rate was 22% in the current quarter.
Fourth quarter pre-tax earnings in the Automotive Solutions segment totalled $7.3 million, an improvement of $2.3
million or 46% over the same quarter last year. Despite lower sales, pre-tax profits increased in the quarter, benefiting
from management’s efforts to control costs, improved efficiencies and a shift in demand to higher margin programs.
In addition, current period results benefited from the Canadian wage subsidy program while the prior year results were
adversely impacted by higher labour costs at Polytech and AFX, significant inefficiencies associated with program
launches higher severance costs and inefficiencies related to the General Motors strike. Management is optimistic that
its overall cost structure will be sustained or improved upon in future quarters as cost containment efforts are continued
while volumes are anticipated to strengthen.
Pre-tax earnings in the Casting and Extrusion segment improved by $0.2 million or 5% over the same quarter last year
to $4.2 million. The earnings improvement was driven by increased contributions from the Extrusion and Castool
groups and benefits from the Canadian Government wage subsidy program. Margins in the Extrusion group benefited
from lower raw material prices, increased operational efficiencies and improved absorption in Mexico, partially offset
by a write-down of a customer receivable of $0.5 million. Although Castool’s sales were lower than the prior year
quarter, profits similarly benefited from lower raw material costs, cost containment efforts as well as strong demand
for higher value-added products. The Large Mould group profitability was negatively affected by lower activity and
the timing of shipments. This was partially offset by increased operational efficiencies generated from capital
investments from prior years and gradual increases in sales for additive manufacturing components through the
quarter. Management remains focused on reducing its overall cost structure and improving manufacturing efficiencies
and expects such activities together with its sales efforts should lead to improved segment profitability over time.
The Corporate segment in the fourth quarter recorded expenses of $1.1 million compared to $0.9 million last year
mainly due to foreign exchange losses in the current quarter compared to gains last year’s quarter, partially offset by
lower compensation, travel, and professional fees incurred in the current quarter. As a result of the forgoing,
consolidated EBITDA in the quarter increased to $15.8 million (15.7% of sales) compared to $13.3 million (11% 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 was $49.5 million in fiscal 2020 compared to
$55.1 million in fiscal 2019. The $5.6 million year over year reduction was primarily driven by lower adjusted net
income in fiscal 2020 net of ALC and changes to deferred income taxes. Net change in non-cash working capital was
$14.9 million cash provided in fiscal 2020 compared to $9.7 million cash provided last year. The year over year cash
increase provided from working capital of $5.2 million was primarily driven by reduction in accounts receivable due
to lower sales and timing of receipts, lower inventories due to volume decreases partially offset by decreases in
accounts payables and accruals due to lower sales and timing of payments. The positive working capital variance
boosted cash provided by operating activities to $64.4 million in fiscal 2020, which was similar to last year.
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ANNUAL REPORT 2020
Cash Flows from Financing Activities
Cash used by financing activities amounted to $36.0 million compared to a use of $41.4 million in fiscal 2019 for a
year over year decrease of $5.4 million. The lower use of cash in fiscal 2020 is mainly attributable $3.1 million less
cash used to repurchase share capital, and $11.2 million of debt reduction compared to $14.5 million the prior year.
Higher dividends of $14.9 million in fiscal 2020 compared to $14.6 million last year also contributed to the variance.
In addition to the obligations disclosed on its consolidated statements of financial position, Exco also enters into lease
arrangements from time to time. Exco owns all of its 15 manufacturing facilities and materially all of its production
equipment. The Company also leases sales and support centers in Troy and Port Huron, Michigan, and a warehouse
in Brownsville, Texas. The following table summarizes the Company’s significant short-term and long-term
commitments on an undiscounted basis:
(000’s)
Bank indebtedness
Trade accounts payable
Long-term debt
Lease commitments
Purchase commitments
Capital expenditures
Total
$3,418
32,873
3,093
1,331
29,844
2,594
$73,153
< 1 year
$3,418
32,873
93
510
29,844
2,594
$69,332
1-3 years
-
-
3,000
808
-
-
$3,808
Over 3 years
-
-
-
13
-
-
$13
∗ 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 $22.1 million compared to $27.5 million last year. Most
of the difference is explained by lower capital spending in the current year of $23.1 million compared to $27.4 million
last year. Capital spending in 2019 included approximately $9.5 million to construct a new extrusion tooling facility
in Mexico and $2.3 million building expansion of Castool Uxbridge. The balance of the capital spending in both years
is mostly related to machinery and equipment needed to maintain or upgrade our production capacity. Cash flow from
Investing Activities was favourably impacted by $1.4 million in proceeds from the disposal of property, plant and
equipment in the current year compared to $0.5 million the prior year.
In fiscal 2021, Exco plans to invest approximately $33.0 million in capital expenditures of which roughly $9.5 million
is for maintenance and ongoing equipment upgrades in our Casting and Extrusion segment, about $9.0 million is for
the construction and build-out of a greenfield facility in Morocco, $7.0 million is for adding a Heat Treating division
in Canada, and the remaining capital is for maintenance expenditures and targeted capacity additions in the
Automotive Solutions segment.
We expect that in fiscal 2021 our cash flow from operations will exceed anticipated capital expenditures. Together
with our cash deposits and our unused credit lines we believe we have ample financial resources to fund our operating
and capital requirements.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
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 balance sheet was in a $26.6 million net cash position at September 30, 2020 compared to net cash of $8.7
million as at September 30, 2019, for an improvement of $17.9 million. This primarily occurred through the generation
of $41.7 million of Free Cash Flow less dividends paid of $14.9 million and net share repurchases of $9.2 million
during fiscal 2020.
In addition to its cash balances of $33.1 million, Exco retains access to $47.0 million of its $50.0 million committed
credit facility, which matures February 2023. 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, 2020.
Non-IFRS Measures
The following table provides a reconciliation of net income for the periods to adjusted net income, adjusted pretax
profit, adjusted EBITDA, adjusted basic earnings per share as well as a reconciliation of cash provided by operating
activities to free cash flow.
Net income
Other expense
Adjusted net income
Provision for (recovery of) income tax
Adjusted Pretax Profit
Depreciation
Amortization
Net interest expense
Adjusted EBITDA
Sales
Adjusted EBITDA margin
Weighted average basic shares outstanding
Adjusted EPS
Cash provided by operating activities
Interest
Investment in Fixed assets net of proceeds of disposal
Free Cash Flow
Twelve Months ended
September 30
(in $ thousands)
2020
2019
$27,424
$26,632
-
6,409
27,424
33,041
3,999
9,344
31,423
42,385
17,424
4,032
617
53,496
15,398
4,062
790
62,635
$412,309
$507,348
13.0%
12.3%
39,943
$0.69
41,245
$0.80
$64,418
$64,816
(617)
(790)
($22,109)
($27,518)
41,692
36,508
EXCO TECHNOLOGIES LIMITED
14
ANNUAL REPORT 2020
Outstanding Share Capital
As at September 30, 2020, the Company had 39,268,997 common shares outstanding. In addition, as at September
30, 2020, the Company had outstanding stock options for the purchase of up to 957,000 common shares at exercise
prices ranging from $8.56 to $14.58 per share.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies”,
to the consolidated financial statements included in this Report. 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.
Management estimates and expenses the fair value of stock-based compensation. 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 reductions in profitability, budget shortfalls, 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
IFRS 16, Leases (“IFRS 16”)
The company has adopted IFRS 16 using the modified retrospective approach effective October 1, 2019. The adoption
of IFRS 16 did not have a material impact on the consolidated financial statements. In accordance with the transitional
provisions in the standard, comparative figures have not been restated. Application of IFRS 16 resulted in an increase
in liabilities and assets from the recognition of right to use assets and lease liabilities, as well as a decrease in cost of
sales and selling, general and administrative expenses and an increase in interest expense and depreciation.
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer, together with other members of management, after
evaluating the effectiveness of the Company’s disclosure controls and procedures, have concluded that the Company’s
EXCO TECHNOLOGIES LIMITED
15
ANNUAL REPORT 2020
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 and Chief Financial 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 full effect and longer-term impacts of COVID-19 may not be reflected in our results of operations and overall
financial performance until future periods. It is difficult to accurately assess the continuing magnitude, outcome and
duration of the pandemic. However, a prolonged pandemic, including as a result of subsequent waves, could:
•
deteriorate economic conditions, resulting in lower consumer confidence which typically translates into lower
vehicle sales and production levels;
reduce our customers' production volumes, including as a result of continued or intermittent facility shutdowns;
elevate the financial pressure on our customers, which could lead to an OEM insolvency, and would likely
increase pricing pressure on us and the entire automotive supply chain;
reduce our production levels, including as a result of continued or intermittent shutdowns of our manufacturing
facilities;
cause potential shortages of employees to staff our facilities, or the facilities of our customers or suppliers;
lead to prolonged disruptions of critical components, including as a result of the bankruptcy/insolvency of one
or more suppliers due to worsening economic conditions; or
result in governmental regulation adversely impacting our business.
•
Any or all of the above impacts of a prolonged pandemic could have a rapid, unexpected and material adverse effect
on our business, financial condition and results of operations. Irrespective of whether the pandemic is prolonged, the
significant global economic impact and job losses to date are likely to affect household income and wealth beyond
2020, which would directly affect vehicle sales and thus production as well.
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, the type of automobiles (which demand has
been shifting away from passenger cars towards SUV/ CUV’s in North America), the rate at which the electric vehicle
is more widely adopted and the level of automobile production. These factors 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.
A significant portion of Exco’s receivables are with automotive customers. These customers have varying degrees of
financial strength which could ultimately impact the collectability of the respective receivable. 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
EXCO TECHNOLOGIES LIMITED
16
ANNUAL REPORT 2020
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.
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 has a significant number of employees worldwide and accordingly availability of labour is critical and wages
are a major manufacturing input cost. While real wage increases have been relatively muted over the last decade,
especially in low-cost countries, this may not continue to be the case. In Mexico particularly, where Exco has
approximately half its employees at four production facilities, all of which are represented by national labor unions,
real wage increases may materially impact the Corporation’s financial performance.
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
new programs will be awarded or that if awarded, the pricing and margin will be comparable to those of programs
ending.
The Casting and Extrusion segment is a capital goods business. Interest rates, exchange rates, corporate capital
spending, the general economic climate, business confidence and the financial strength of our customers 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 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. Generally,
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. More recently, certain governments have postured with a more
protectionist tone. Furthermore, USA/China trade negotiations have taken longer and appear more contentious than
originally expected and are currently ongoing. If governments pursue protectionist trade practises with respect to
automotive components or their raw materials or subassemblies, Exco may be prejudiced.
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
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
involve risk. While Exco has concluded many acquisitions that have been very successful, there have also been
disappointing acquisitions which have adversely impacted earnings.
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
in these currencies not naturally hedged, Exco does not enter into forward contracts but prefers to incur U.S. dollar or
Euro debt, from time to time as appropriate. Despite these measures, Exco is structurally a net seller of U.S. dollars
and, to a lesser extent Euro, with increasing adverse financial impact 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 while our Canadian operations are exposed to fluctuations in the
value of the Canadian dollar relative to the U.S. dollar on U.S. dollar sales less purchases. For fiscal 2021, it is
estimated that Exco’s total corresponding U.S. dollar foreign exchange risk exposure before tax will amount to
approximately US$71.6 million. Therefore, if the Canadian dollar were to strengthen or weaken by $0.01 in fiscal
2021 from a baseline level of $1.33 USD/CAD, it is estimated that pre-tax profit would change by about $716 thousand
or about $566 thousand after tax. These estimates are based on historical norms and may be materially different in
2021 if customers deviate from their past practices.
Exco’s has four manufacturing operations in Mexico and accordingly incurs a portion of its labour and other expenses
in Mexican pesos. In turn, these Mexican pesos expenses are incurred to mainly support US dollar denominated sales.
Consequently, any strengthening of the Mexican pesos against the US dollar reduces our profitability, all other things
equal. In recognition of this risk, Exco hedges a portion of its Mexican pesos/ US dollar exposure with various foreign
exchange contacts and options. For fiscal 2021, we estimate our pesos exposure net of hedges and pesos denominated
sales to be approximately 386 million pesos. If the Mexican pesos were to strengthen or weaken by 1% versus the US
dollar from a baseline USD/MEX rate of 20:1, and further assuming the Canadian dollar strengthens or weakens
against the US dollar also by 1% from a baseline USD/CAD rate of 1.33, we estimate pre-tax profit would change by
$257 thousand or about $167 thousand after tax. These estimates are based on historical norms and may be materially
different in fiscal 2021 if customers deviate from their past practices.
Exco also has manufacturing facilities in Colombia, Brazil, Thailand and Morocco and Exco’s presence in jurisdictions
such as these has generally been increasing in recent years. 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, retained earnings and value of
its investment in these countries. 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
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
this challenge by manufacturing some labour-intensive products in Mexico, Thailand and Morocco; however, many
of our operations based in Canada and the U.S. must compete with products manufactured in lower-cost environments.
Although we have established and continue to enhance security controls intended to protect our IT systems and
infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical
access or cyber attacks. A significant breach of our IT systems could: result in theft of funds; cause disruptions in our
manufacturing operations; lead to the loss, destruction or inappropriate use of sensitive data; or result in theft of our,
our customers’ or our suppliers’ intellectual property or confidential information. The occurrence of any of the
foregoing could adversely affect our operations and/or reputation and could lead to claims against us that could have
a material adverse effect on our profitability.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
Independent auditor’s report
To the Shareholders of Exco Technologies Limited
Opinion
We have audited the consolidated financial statements of Exco Technologies Limited and its subsidiaries (the “Group”),
which comprise the consolidated statements of financial position as at September 30, 2020 and 2019, and the
consolidated statements of income and comprehensive income, consolidated statements of changes in shareholders’
equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at September 30, 2020 and 2019 and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements
section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to
our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual
Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and Annual Report prior to the date of this auditor’s report. If based
on the work we have performed, we conclude that there is a misstatement of this other information, we are required to
report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness for of the
Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
•
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on
the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
•
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsible for
the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Blake Langill.
Toronto, Canada
December 2, 2020
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
$(000)'s
ASSETS
Current
Cash and cash equivalents (note 8)
Accounts receivable (note 8)
Inventories (note 9)
Prepaid expenses and deposits
Income taxes recoverable (note 13)
Total current assets
Property, plant and equipment, net (note 5)
Intangible assets, net (note 6)
Goodwill (note 6)
Deferred tax assets (note 13)
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (notes 4 and 8)
Trade accounts payable (note 8)
Accrued payroll liabilities (note 8)
Other accrued liabilities (note 8)
Derivative instruments (note 8)
Provisions (note 7)
Customer advance payments (note 8)
Long-term debt - current portion (notes 4 and 8)
Total current liabilities
Long-term debt - long-term portion (notes 4 and 8)
Deferred tax liabilities (note 13)
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
As at
As at
September 30, 2020 September 30, 2019
(note 2)
$33,124
82,222
61,158
2,787
2,761
182,052
131,029
30,535
64,980
1,184
$409,780
$3,418
32,873
11,391
11,381
1,758
2,902
3,557
93
67,373
3,000
8,401
78,774
48,968
4,718
10,356
266,964
331,006
$409,780
$26,488
93,552
73,260
2,874
1,875
198,049
126,787
33,891
62,834
1,174
$422,735
$578
44,183
12,643
8,041
278
2,672
1,747
93
70,235
17,093
8,920
96,248
50,538
4,349
9,480
262,120
326,487
$422,735
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
Darren M. Kirk
President and
Chief Executive Officer
Brian A. Robbins
Director,
Executive Chairman
EXCO TECHNOLOGIES LIMITED
22
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
$(000)'s except for income per common share
Sales (note 11(A))
Cost of sales
Selling, general and administrative expenses (notes 3 and 18 )
Depreciation (note 5)
Amortization (note 6)
Gain on disposal of property, plant and equipment (note 5)
Interest expense, net (note 16)
Other expense (note 17)
Income before income taxes
Provision for (recovery of) income taxes (note 13)
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 8)
Unrealized gain (loss) on foreign currency translation (note 3)
Comprehensive income
Income per common share
Basic
Diluted
Weighted average number of common shares outstanding (note 12)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
Years ended September 30
2019
$507,348
400,494
44,445
15,398
4,062
(226)
790
6,409
471,372
2020
$412,309
323,761
35,244
17,424
4,032
(192)
617
-
380,886
31,423
35,976
4,790
(791)
3,999
$27,424
(1,091)
1,967
876
$28,300
$0.69
$0.69
39,943
39,943
7,598
1,746
9,344
$26,632
(779)
(636)
(1,415)
$25,217
$0.65
$0.65
41,245
41,253
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$(000)'s
Balance, September 30, 2018
Adjustment to Opening Retained earnings (note 2)
Net income for the year
Dividends paid (note 3)
Stock option expense (note 3)
Issuance of share capital (note 3)
Repurchase of share capital (note 3)
Other comprehensive income (note 3)
Balance, September 30, 2019
Net income for the year
Dividends paid (note 3)
Stock option expense (note 3)
Repurchase of share capital (note 3)
Other comprehensive loss (note 3)
Balance, September 30, 2020
Share
capital
$51,230
Contributed
surplus
$4,391
-
-
-
1,041
(1,733)
-
50,538
-
-
-
(1,570)
-
$48,968
-
-
270
(312)
-
-
4,349
-
-
369
-
-
$4,718
Retained
earnings
$263,647
($2,994)
26,632
(14,597)
-
-
(10,568)
-
262,120
27,424
(14,946)
-
(7,634)
-
$266,964
Accumulated other comprehensive income (loss)
Unrealized gain
Total
(loss) on
accumulated
foreign
other
currency
comprehensive
translation
income (loss)
$10,895
$10,323
Net unrealized
gain (loss) on
derivatives
designated as
cash flow hedges
$572
-
-
-
-
-
(779)
(207)
-
-
-
-
(1,091)
($1,298)
-
-
-
-
-
(636)
9,687
-
-
-
-
1,967
$11,654
-
-
-
-
-
(1,415)
9,480
-
-
-
-
876
$10,356
Total
shareholders'
equity
$330,163
($2,994)
$26,632
($14,597)
$270
$729
($12,301)
($1,415)
326,487
27,424
(14,946)
369
(9,204)
876
$331,006
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
24
ANNUAL REPORT 2020
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
Deferred income tax expense (recovery) (note 13)
Net interest expense (note 16)
Non-cash cost of ALC plant closures (note 17)
Gain on disposal of property, plant and equipment
Net change in non-cash working capital (note 14)
Cash provided by operating activities
FINANCING ACTIVITIES:
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)
Repurchase of share capital (note 3)
Exercise of stock options (note 3)
Cash used in financing activities
INVESTING ACTIVITIES:
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
2019
2020
$27,424
$26,632
17,424
4,032
453
(221)
617
-
(192)
49,537
14,881
64,418
2,840
20,000
(34,093)
(617)
(14,946)
(9,204)
-
(36,020)
(23,092)
(403)
1,386
(22,109)
15,398
4,062
305
1,746
790
6,409
(226)
55,116
9,700
64,816
(9,356)
-
(5,103)
(790)
(14,597)
(12,301)
729
(41,418)
(27,401)
(567)
450
(27,518)
Effect of exchange rate changes on cash
347
229
Increase (decrease) in cash during the year
De-consolidation of ALC cash (note 17)
Cash, beginning of year
Cash, end of year
6,636
-
26,488
$33,124
(3,891)
(964)
31,343
$26,488
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
25
ANNUAL REPORT 2020
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
15 strategic locations in 7 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”).
Effective October 1, 2018 the Company adopted IFRS 15, Revenue from Contracts with Customers, (“IFRS 15”) in
accordance with the modified retrospective approach. During the first quarter of fiscal 2020 management identified an
error related to the adoption of IFRS 15. Specifically, in evaluating its long-term large die cast mould contracts, certain
cancelation provisions do not meet the requirements and as a result, the Company should have recognized revenue for
these contracts at a point in time (i.e. completed contract) rather than over time (i.e. percentage of completion).
Management evaluated the quantitative and qualitative aspects of this change and determined that the impact was not
material to the fiscal 2019 annual consolidated financial statements nor to the fiscal 2019 interim condensed
consolidated financial statements. The Company recorded an adjustment to October 1, 2018 retained earnings of $2,994
to reflect the IFRS 15 transition adjustment. In addition, in the September 30, 2019 consolidated statement of financial
position the Company recorded a decrease to deferred tax liabilities of $1,052, reclassified progress billings of $737
from unbilled revenue to customer advance payments and reclassified the remaining $15,410 of unbilled revenues to
inventories.
The consolidated financial statements and accompanying notes as at and for the year ended September 30, 2020 were
authorized for issue by the Board of Directors on December 2, 2020.
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 subsidiaries 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 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 statements 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 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.
EXCO TECHNOLOGIES LIMITED
26
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Translation of foreign operations
The results and financial position of 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 statements of financial position; and
Income and expenses for each statement of income and comprehensive income are translated at the exchange rates
prevailing at the dates of the transactions.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are
recorded in other comprehensive income.
When a foreign operation is sold, exchange differences that were recorded in accumulated other comprehensive income
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, other income (expense) and income tax
expense.
Interest in joint arrangement
The Company has an interest in a joint arrangement, whereby the parties to the arrangement have a contractual
arrangement that establishes joint control over the economic activities of the individual entity. As the arrangement is
considered to be a joint operation for accounting purposes, 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 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 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.
Where goodwill has been allocated to a Cash-Generating Unit (“CGU”) or group of CGUs 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 group
of CGU retained.
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.
EXCO TECHNOLOGIES LIMITED
27
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The Company’s critical accounting estimates are affected as a result of the various ongoing economic and social impacts
of the COVID-19 global pandemic. There continues to be significant uncertainty as to the likely effects of this outbreak
which may, among other things, impact our employees, suppliers, and customers. It is not possible to predict the impact
COVID-19 will have on the Company, its financial position, and the results of operations in the future. The Company
is monitoring the future impact of the pandemic on all aspects of its business. Each quarter-end, management carries
out this assessment for indications that goodwill and other long-lived assets may be impaired. As part of this assessment
management performed an analysis on its CGUs and determined there were no adverse impacts that would lead to
indicators of impairment. As required, management will continue to assess these assumptions as the evolving COVID-
19 situation changes.
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
inventories, property, plant and equipment, contingent liabilities, income taxes, fair value of financial instruments and
stock option valuation.
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 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 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.
EXCO TECHNOLOGIES LIMITED
28
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Revenue recognition
The Company recognizes revenue primarily from two categories of goods: production contracts (including finished
production parts and assemblies, short-term die cast tooling contracts, extrusion and other tooling), and long-term large
die cast mould contracts.
Revenue for production contracts is recognized at the point in time control of the goods is transferred to the customer.
Control of finished production parts, assemblies and tooling transfers when the goods are shipped from the Company’s
manufacturing facilities to the customer.
Revenue for long-term large die cast mould contracts are also recognized at the point in time control of the goods is
transferred to the customer. Point in time recognition is used since these contracts do not contain an enforceable right
to payment that includes a reasonable profit margin.
A receivable is recognized when control of the goods transfer to the customer, as indicated above, and consideration is
unconditional. Payment terms are generally based on the customers’ payment schedules, which typically range from
30 to 90 days from invoice date.
A customer advance payment is recognized if a payment is received or payment is due (whichever is earlier) from a
customer before the Company transfers control of the production parts or large die cast moulds.
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.
The Company has a Deferred Share Unit (“DSU”) plan for Independent Directors. Under the DSU plan, a portion of
the 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
the portion of a director’s quarterly remuneration allocated to DSUs 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 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 liability method. Under the liability method, deferred tax assets and
liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable income will be available against which deductible timing
EXCO TECHNOLOGIES LIMITED
29
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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.
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
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 relate are capable of carrying out their intended use. Machinery and equipment are depreciated using the
declining balance method based on their estimated useful lives, which range from 4 to 20 years.
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.
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.
Subsequent costs
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. 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 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.
The costs of day-to-day servicing are expensed as incurred. These costs are more commonly referred to as
“maintenance and repairs”.
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
EXCO TECHNOLOGIES LIMITED
30
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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 statements of financial position date. If indication of impairment exists, the recoverable
amount of the asset is calculated in order to determine if an impairment loss is required. If it is not possible to
estimate the recoverable amount of the individual asset, assets are grouped at the CGU level for the purpose
of assessing the recoverable amount. An impairment loss is recognized for any excess of the carrying amount
of the CGU over its recoverable amount. Impairment losses are recorded in the consolidated statements of
income in the period in which they occur. 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 or CGUs 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 dispose, 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. A long-term growth rate is calculated and applied to project future
cash flows after the third year.
A previous 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. The amount of the reversal is limited to the difference between
the current carrying amount and the amount which would been the carrying amount had the earlier impairment
not been recognized and amortization of that carrying amount had continued. The impairment reversal is
allocated on a pro-rata basis to the existing long-lived assets of the CGU based on their carrying amounts.
Impairment reversals are recorded in the consolidated statements of income in the period in which they occur.
(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 monitors its goodwill at the level of its operating
segments and all of the goodwill as at September 30, 2020 and 2019 has been allocated to the Automotive
Solutions segment. Goodwill is tested for impairment annually 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.
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
EXCO TECHNOLOGIES LIMITED
31
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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
interests.
that market participants act
the asset or
their economic best
liability, assuming
in
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.
Financial instruments
The Company recognizes financial assets and financial liabilities initially at fair value and subsequently measures these
at either fair value or amortized cost based on their classification under IFRS 9 as described below:
Amortized cost:
The Company classifies financial assets held to collect contractual cash flows at amortized cost, including trade and
other receivables. The Company initially recognizes the carrying amount of such assets on the consolidated statement
of financial position at fair value plus directly attributable transaction costs, and subsequently measures these at
amortized cost using the effective interest rate method, less any impairment losses.
Fair value through profit or loss (“FVTPL”):
Financial assets and financial liabilities purchased or incurred, respectively, with the intention of generating earnings
in the near term, and derivatives other than cash flow hedges, are classified as FVTPL. This category includes cash and
cash equivalents, and derivative assets and derivative liabilities that do not qualify for hedge accounting. For items
classified as FVTPL, the Company initially recognizes such financial assets and liabilities on the consolidated statement
of financial position at fair value and recognizes subsequent changes in the consolidated statement of income and
comprehensive income. Transaction costs incurred are expensed in the consolidated statement of income and
comprehensive income.
Loans and borrowings:
The Company initially recognizes the carrying amount of such liabilities on the consolidated statement of financial
position at fair value net of directly attributable transaction costs. After initial recognition, they are subsequently
measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss
when the liabilities are derecognized as well as through the effective interest rate method amortization process.
Impairment of financial assets:
IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” (“ECL”) model.
The ECL model is used in determining the allowance for doubtful accounts as it relates to trade and other receivables.
The Company’s ECL model aligns with the simplified approach under IFRS 9, which measures lifetime ECL and
forward-looking information. The Company’s allowance is determined by historical experiences, and considers factors
including, the aging of the balances, the customer’s credit worthiness, and updates based on the current economic
conditions, expectation of bankruptcies, and the political and economic volatility in the markets/location of customers.
COVID-19 has increased the measurement uncertainty with respect to the determination of the allowance for doubtful
accounts.
EXCO TECHNOLOGIES LIMITED
32
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Hedge Accounting:
The Company designates the change in fair value of the entire forward contract in the Company’s cash flow hedge
relationship in other comprehensive income (loss) to the extent the hedge continues to be highly effective. The related
other comprehensive income (loss) amounts are allocated to the consolidated statements of income in the same period
in which the hedged item affects earnings.
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 statements 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
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company
assesses whether the contract: involves the use of an identified asset; provides the right to obtain substantially all of the
economic benefits from the use of the asset throughout the period of use; and provides the right to direct the use of the
asset.
A right-of-use asset and lease liability are recorded on the date that the underlying asset is available for use, representing
the commencement date.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental
borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
•
•
•
•
•
fixed payments, including in-substance fixed payments;
variable lease payments that are tied to an index or rate defined in the contract;
amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Company is reasonably likely to exercise; and
lease payments under an optional extension if the Company is reasonably certain to exercise the extension
option, and early termination penalties required under a termination of a lease unless the Company is
reasonably certain not to terminate early.
The lease liability is re-measured when there is a change in future lease payments arising from a change in an index or
rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value
guarantee, or if the Company changes its assessment of whether or not it will exercise a purchase, extension or
termination option. When the lease liability is re-measured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The right-of-use asset is initially measured at cost, consisting of:
EXCO TECHNOLOGIES LIMITED
33
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
•
•
•
•
the initial measurement of the lease liability, adjusted for any lease payments made at or before the
commencement date;
any initial direct costs incurred; and
an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located; less
any lease incentives received.
The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the earlier
of the end of the useful life of the asset or the end of the lease term. The lease term consists of the non-cancellable
period of the lease; periods covered by options to extend the lease, when the Company is reasonably certain to exercise
the option to extend; and periods covered by options to terminate the lease, when the Company is reasonably certain
not to exercise the option. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for
certain re-measurements of the lease liability as described above.
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 Mexican 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.
Accounting standards adopted in fiscal year 2020
Certain amendments to standards that were adopted on October 1, 2019 are noted below:
IFRS 16, Leases (“IFRS 16”)
In January 2016, the IASB issued the final publication of IFRS 16, superseding IAS 17, Leases and IFRIC 4,
Determining whether an arrangement contains a lease. IFRS 16 introduced a single accounting model for lessees unless
the underlying asset is of low value or short term in nature. A lessee is required to recognize, on its statement of financial
position, a right-of-use asset, representing its right to use the underlying leased asset, and a lease liability, representing
its obligation to make lease payments. As a result of adopting IFRS 16, the Company has recognized an increase to
both assets and liabilities on its interim condensed consolidated balance sheet, as well as a decrease in operating rent
expense, and increases in finance and depreciation expenses, as recognized in the interim condensed consolidated
statement of operations. The standard did not have a significant impact on the Company’s overall consolidated
operating results.
The Company adopted IFRS 16, effective October 1, 2019, under the modified retrospective approach. Comparatives
for 2019 were not restated. At transition, the Company elected to use the practical expedient available under the standard
that allows lease assessments made under IAS 17 and IFRIC 4 to be used for existing contracts. Therefore, the definition
of a lease under IFRS 16 was applied only to contracts entered into or modified after October 1, 2019.
Upon initial application, lease liabilities were measured at the present value of the remaining lease payments,
discounted at the relevant incremental borrowing rates as at October 1, 2019. For leases previously classified as
operating leases under IAS 17, the Company measured right-of-use assets equal to the corresponding lease liabilities
adjusted for any accrued payments related to that lease. For short-term leases and leases of low value assets, the
Company has opted to recognize a lease expense on a straight-line basis, and this expense is presented within selling,
general and administrative expenses in the consolidated statements of operations and comprehensive loss.
EXCO TECHNOLOGIES LIMITED
34
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
As such, on October 1, 2019, the Company recorded lease liabilities of $1,687 in Other Accrued Liabilities and right-
of-use assets of $1,687 are included in Property, plant and equipment, recognized in the interim condensed consolidated
balance sheet immediately before the date of initial application, with no net impact on retained earnings.
The Company elected to use the following practical expedients upon initial application in accordance with the
provisions of IFRS 16:
• Accounting for all leases with a lease term that ends within 12 months of initial application in the same
•
way as short-term leases;
Exclusion of initial direct costs from the measurement of the right-of-use asset on the date of initial application;
and
• Use of hindsight in determining the lease term where the contract contains purchase, extension, or termination
options.
On transition, the Company elected to use the recognition exemptions on short-term leases or low-value leases,
however, in the future, may choose to elect the recognition exemptions on a class-by-class and lease-by-lease basis.
3. SHAREHOLDERS’ EQUITY
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, 2018
Issued for cash under Stock Option Plan
Transfer of contributed surplus on stock options exercised
Purchased and cancelled pursuant to normal course issuer bid
Issued and outstanding as at September 30, 2019
Purchased and cancelled pursuant to normal course issuer bid
Issued and outstanding as at September 30, 2020
Common Shares
Number of Shares
41,840,681
103,000
-
(1,416,018)
40,527,663
(1,258,666)
39,268,997
Stated
Value
$51,230
729
312
(1,733)
50,538
(1,570)
$48,968
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 gains and losses on derivatives designated as cash flow hedges
and reclassification to income of net gains and losses on cash flow hedges as summarized in the following table:
EXCO TECHNOLOGIES LIMITED
35
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Opening balance
Net unrealized loss on derivatives designated as cash flow hedges (1)
Unrealized gain (loss) on currency translation adjustments
Total other comprehensive income (loss) for the year
Closing balance
(1) Net of deferred taxes of $389 (2019 – $278).
2020
2019
$9,480
$10,895
(1,091)
1,967
876
$10,356
(779)
(636)
(1,415)
$9,480
Cash dividends
During the year, the Company paid four quarterly cash dividends totaling $14,946 (2019 – $14,597). The dividend rate
per quarter increased starting in the second quarter of the year from $0.09 to $0.095 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:
2020
2019
Number of
Options
785,400
277,500
-
(105,900)
Weighted
Average
Exercise
Price
$11.49
$8.56
-
$10.25
957,000
$10.78
Number of
Options
880,150
165,000
(103,000)
(156,750)
785,400
Weighted
Average
Exercise Price
$11.29
$9.87
$7.09
$11.55
$11.49
Balance, beginning of year
Granted
Exercised
Expired
Balance, end of year
The following table summarizes information about stock options outstanding and exercisable as at September 30, 2020:
Range of Exercise
Prices
$8.56 - $10.00
$10.01 - $13.00
$13.01 - $14.58
Number
Outstanding
412,500
315,000
229,500
Weighted Average
Remaining
Contractual Life
Options Outstanding
Weighted
Average
Exercise
Price
$9.00
$10.33
$14.56
years
years
years
4.32
2.10
0.43
Options Exercisable
Weighted
Average
Exercise
Price
$9.87
$10.37
$14.58
Number
Exercisable
28,000
161,000
224,500
$8.56 - $14.58
957,000
2.66
years
$10.78
413,500
$12.61
The number of common shares available for future issuance of options as at September 30, 2020 is 1,118,338
(2019 – 1,289,938). The number of options outstanding together with those available for future issuance totals
2,075,338 (2019 – 2,075,338) or 5.2% (2019 – 5.1%) 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.
EXCO TECHNOLOGIES LIMITED
36
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Stock-based compensation
Stock-based compensation resulting from applying the Black-Scholes option pricing model to the Company’s Stock
Option Plan was $369 for the year ended September 30, 2020 (2019 – $270). All stock-based compensation has been
recorded in selling, general and administrative expenses. The weighted average assumptions used to measure the fair
value of stock options and the weighted average fair value of options granted during the years ended September 30,
2020 and 2019 are as follows:
Risk-free interest rates
Expected dividend yield
Expected volatility
Expected time until exercise
Weighted average fair value of the options granted
2020
1.50%
4.12%
30.19%
5.50 years
$1.55
2019
2.29%
3.579%
29.85%
5.50 years
$2.01
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, 2020, the Company granted 19,921 DSUs (2019 – 16,155 DSUs) and redeemed
no DSUs (2019 – 60,312 DSUs). During the year ended September 30, 2020 the Company recorded stock-based
compensation expense of $84 (2019 – $35) related to awards under the DSU plan with a corresponding adjustment to
other accrued liabilities. As at September 30, 2020, 80,977 DSUs were outstanding with a carrying value of $534
recorded in other accrued liabilities.
Contributed surplus
Contributed surplus consists of accumulated stock option expense less the carrying amount of the options 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
2020
$4,349
369
-
$4,718
2019
$4,391
270
(312)
$4,349
Normal course issuer bid
The Company received approval from the Toronto Stock Exchange for a normal course issuer bid for a 12-month period
beginning February 18, 2020. The Company’s Board of Directors authorized the purchase of up to 2,000,000 common
shares representing approximately 5% of the Company’s outstanding common shares. During the year, 1,258,666
common shares were repurchased (2019 – 1,416,018) for a total cost of $9,204 (2019 – $12,301). The cost to repurchase
the common shares in the year exceeded their stated value by $7,634 (2019 – $10,568) which was charged against
retained earnings.
4. BANK INDEBTEDNESS AND LONG-TERM DEBT
The operating lines are available in US dollars, Canadian dollars, and Euros at variable rates ranging from prime minus
0.5% to prime plus 0.5%. The Company’s JP Morgan credit facilities are collateralized by a general security agreement
over its North American assets.
EXCO TECHNOLOGIES LIMITED
37
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Utilizations
Facilities Current
Long-term
JP Morgan, credit facility (Canada, USA)
$50,000
$2,793
$3,000
JP Morgan, operating line (Europe)
2,423
625
-
$52,423
$3,418
$3,000
Unused and
Available
$44,207
1,798
$46,005
Prime rate in Canada
Prime rate in USA
Prime rate in Eurozone
2020
2.45%
3.25%
0.00%
2019
3.95%
5.00%
0.00%
On February 7, 2020, the Company closed an amendment to renew the $50,000 Committed Revolving Credit Facility
with JP Morgan Chase Bank N.A., of which $5,793 was utilized as at September 30, 2020 (2019 - $17,000). The facility
has a three-year term and there are no specific repayment terms prior to maturity. The facility is collateralized by a
general security agreement covering all assets of the Company’s 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, 2020.
Additionally, the Company maintains a operating line facility with JP Morgan Chase Bank N.A. London Branch related
to any needs for Euro currency. The facility totals $2,423 (EUR 1.55 million) and bears interest based on LIBOR. The
Company had utilized $625 as at September 30, 2019 (2019 – $578).
Further, in the USA, the Company also has a long-term promissory note payable over five years and collateralized by
a specific parcel of land purchased as a factory location. The note bears interest at 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. The note matures and expires in February 2021. As at September 30, 2020 there are no unfulfilled conditions
or contingencies attached to this loan.
The components of long-term debt are as follows:
Bank debt
Promissory note
Subtotal
Less: current portion
Long-term debt, long-term portion
September 30, 2020
$3,000
93
3,093
(93)
$3,000
September 30, 2019
$17,000
186
17,186
(93)
$17,093
EXCO TECHNOLOGIES LIMITED
38
ANNUAL REPORT 2020
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, 2018
Additions
Reclassification
Less: disposals
Less: deconsolidation of ALC (note 17)
Foreign exchange movement
Balance as at
September 30, 2019
Initial recognition of IFRS 16 assets (note
2)
Additions
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2020
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Right of
Use
Assets
Total
$203,981
3,182
13,244
(10,118)
(6,962)
601
$22,923
1,569
1,432
(1,028)
(601)
112
$71,289
456
3,562
-
-
(44)
$12,012
-
-
-
-
(34)
$2,631
22,194
(18,238)
-
-
(35)
$- $312,836
27,401
-
-
-
(11,146)
-
(7,563)
-
600
-
203,928
24,407
75,263
11,978
6,552
-
322,128
-
5,101
8,076
(9,899)
(1,362)
-
916
1,075
(3,685)
(172)
-
691
3,812
(37)
(366)
-
896
-
-
(290)
-
15,407
(12,963)
-
(40)
1,687
81
-
(29)
46
1,687
23,092
-
(13,650)
(2,184)
$205,844
$22,541
$79,363
$12,584
$8,956
$1,785 $331,073
Accumulated depreciation and
impairment losses
Balance as at
September 30, 2018
Depreciation for the year
Less: disposals
Less: deconsolidation of ALC (note
17)
Foreign exchange movement
Balance as at
September 30, 2019
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2020
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Right of
Use
Assets
Total
$143,946
10,598
(9,931)
$17,893
1,768
(991)
$33,448
3,032
-
(4,269)
223
140,567
11,708
(8,754)
(286)
(473)
97
18,294
1,979
(3,661)
(66)
-
-
36,480
3,172
(14)
94
$143,235
$16,546
$39,732
$-
-
-
-
-
-
-
-
-
$-
$-
-
-
-
-
-
-
-
-
$-
-
-
-
-
-
565
(28)
(6)
$195,287
15,398
(10,922)
(4,742)
320
195,341
17,424
(12,457)
(264)
$-
$531
$200,044
EXCO TECHNOLOGIES LIMITED
39
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Carrying amounts
As at September 30, 2019
As at September 30, 2020
$63,361
$62,609
$6,113
$5,995
$38,783
$11,978
$39,631
$12,584
$6,552
$8,956
$- $126,787
$1,254 $131,029
As at September 30, 2020, the Company had deposits for machinery and equipment and buildings under construction
totalling $8,956 (2019 – $6,552). These assets are not being depreciated because they are under construction and not
available for use.
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, 2018
Additions
Less: disposals
Less: deconsolidation of ALC (note 17)
Reclassifications
Foreign exchange movement
Balance as at September 30, 2019
Additions
Less: disposals
Reclassification
Foreign exchange movement
Balance as at September 30, 2020
$21,460
447
(392)
(321)
113
19
21,326
275
(13,471)
192
(32)
$8,290
$46,266
-
-
-
-
958
47,224
-
-
-
330
$47,554
$99
120
-
(113)
-
106
128
-
(192)
4
$46
$67,825
567
(392)
(321)
-
977
68,656
403
(13,471)
-
302
$62,843
-
-
-
-
(9)
62,834
-
-
-
2,146
$55,890
$64,980
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
Accumulated amortization
and impairment losses
Balance as at September 30, 2018
Amortization for the year
Less: disposals
Less: deconsolidation of ALC (note 17)
Foreign exchange movement
Balance as at September 30, 2019
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2020
$19,797
825
(392)
(273)
17
19,974
755
(13,471)
(30)
$7,228
$11,389
3,237
-
-
165
14,791
3,277
-
59
$18,127
$-
-
-
-
-
-
-
-
-
$-
$31,186
4,062
(392)
(273)
182
34,765
4,032
(13,471)
29
$25,355
$-
-
-
-
-
-
-
-
$-
EXCO TECHNOLOGIES LIMITED
40
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Carrying amounts
As at September 30, 2019
As at September 30, 2020
$1,352
$1,062
$32,433
$29,427
$106
$46
$33,891
$30,535
$62,834
$64,980
**Acquisition intangibles are comprised of customer relationships and trade names resulting from business acquisitions
and the purchase price allocation thereof.
Impairment testing of goodwill
The Company performed the annual impairment test of goodwill allocated to the Automotive Solutions segment as at
September 30, 2020. The recoverable amount 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 2% growth rate, which represents the expected growth in the global economy.
The discount rate applied to future cash flows was 8.1%. As a result of the analysis, management determined there was
no impairment.
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 group of 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 has performed sensitivities on the assumptions used in the value in use calculations, and the recoverable
amount still exceeds the 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
September 30, 2020
$2,579
323
$2,902
September 30, 2019
$2,474
198
$2,672
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
41
ANNUAL REPORT 2020
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, 2018
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2019
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2020
Severance
$1,115
2,442
(972)
(100)
(11)
$2,474
1,312
(683)
(387)
(137)
$2,579
Warranties
$152
78
(33)
1
$198
124
-
-
1
$323
Total
$1,267
2,520
(1,005)
(100)
(10)
$2,672
1,436
(683)
(387)
(136)
$2,902
8. FINANCIAL INSTRUMENTS
The Company classifies its financial instruments as follows:
Cash and cash equivalents
Accounts receivable
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Long-term debt
Financial assets – held for trading measured at fair value
Financial assets – measured at amortized cost
Financial liabilities – measured at amortized cost
Financial liabilities – measured at amortized cost
Financial liabilities – financial liabilities measured at amortized cost
Financial liabilities – financial liabilities measured at amortized cost
Financial liabilities – held for trading measured at fair value
Financial liabilities – measured at amortized cost
Foreign exchange contracts
The Company entered into a series of Collars extending through to September 8, 2023 and designated them as cash
flow hedges against Mexican payroll and other local Mexican costs. The total amount of these Collars is 636.0 million
Mexican pesos (2019 – 624.0 million Mexican pesos). The selling price ranges from 20.734 to 24.27 Mexican pesos to
each US dollar. In addition, there is a series of collars extending through December 14, 2020 to convert $.267 million
CAD to USD. These Collars have been designated as a cash flow hedge against capital equipment purchase in USD.
Management estimates that a cumulative loss of $1,758 (2019 – loss of $278) would be realized if these Collars were
terminated on September 30, 2020. Net of deferred taxes of $460, the cumulative loss of $1,298 is recorded in other
comprehensive income. During the year, the estimated fair value loss of $1,091, net of deferred taxes of $389 (2019 –
loss of $779 net of deferred taxes of $278) has been included in other comprehensive income, and the cumulative loss
of $1,758 is recorded in the consolidated statements of financial position under the caption derivative instruments.
Risks and uncertainties
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
EXCO TECHNOLOGIES LIMITED
42
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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. Allowance for doubtful accounts is estimated using the expected credit loss
model. The Company uses historical experience, and considers factors including, the aging of balances, the customer’s
credit worthiness, updates based on the current economic conditions, expectations of bankruptcies, and the political and
economic volatility in the markets/locations of customers to estimate the allowance. 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, 2020, the accounts receivable balance (net of allowance for doubtful
accounts) is $82,222 (2019 – $93,552) and the Company’s five largest trade debtors accounted for 37.1% of the total
accounts receivable balance (2019 – 35.7%).
The following table presents a breakdown of the Company’s accounts receivable balances:
Trade accounts receivable
Employee receivable
Sales tax receivable
Other
Less: allowance for doubtful accounts
Total accounts receivable, net
The aging of trade accounts receivable balances is as follows:
Not past due
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due over 90 days
Less: allowance for doubtful accounts
Total trade accounts receivable, net
September 30, 2020
$83,436
323
2,474
899
(4,910)
September 30, 2019
$91,426
232
2,254
480
(840)
$82,222
$93,552
September 30, 2020
$74,229
6,654
1,641
267
645
(4,910)
September 30, 2019
$79,685
8,617
1,545
851
728
(840)
$78,526
$90,586
The movement in the allowance for doubtful accounts is as follows:
Opening balance
Additions
Utilized
Reversal
Exchange differences
Closing balance
September 30, 2020
$840
4,780
(658)
(63)
11
$4,910
September 30, 2019
$2,402
326
(1,949)
-
61
$840
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
EXCO TECHNOLOGIES LIMITED
43
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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. As at September 30, 2020, the Company has a net
cash balance of $26,613 (2019 – $8,724) and unused credit facilities of $46,005 (2019 – $34,660).
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
Purchase commitments
Capital expenditures
Bank indebtedness
Trade accounts payable
Long-term debt
Operating leases
Purchase commitments
Capital expenditures
Total
$3,418
32,873
3,093
1,331
29,844
2,594
September 30, 2020
< 1 Year
$3,418
32,873
93
510
29,844
2,594
1-3 Years
$-
-
3,000
808
-
-
Over 3 Years
$-
-
-
13
-
-
$73,153
$69,332
$3,808
$13
Total
$578
44,183
17,186
772
29,426
7,931
$100,076
September 30, 2019
< 1 Year
$578
44,183
93
280
29,426
7,931
$82,491
1-3 Years
$-
-
17,093
436
Over 3 Years
$-
-
-
56
-
$17,529
-
$56
c) Foreign exchange risk
The Company operates in Canada with subsidiaries located in the United States, Mexico, Colombia, Brazil, Thailand,
and Morocco. 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 other 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
1% Fluctuation
USD vs. CAD
1% Fluctuation
EUR vs. CAD
1% Fluctuation
MXP vs. CAD
+/- 853
+/- 3,372
+/- 8
+/- 376
+/- 2
+/- 150
EXCO TECHNOLOGIES LIMITED
44
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Income before income taxes
Other comprehensive income
1% Fluctuation
COP vs. CAD
1% Fluctuation
BRL vs. CAD
+/- 1
+/- 71
+/- 8
+/- 39
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 income 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.
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 cash equivalents, accounts receivable, trade accounts payable
and customer advance payments are assumed to approximate their carrying value.
The fair values of derivative instruments that are not traded in an active market, such as over-the-counter foreign
exchange options and Collars, are determined using quoted forward exchange rates as at the consolidated statements of
financial position dates and are Level 2 instruments.
The estimated fair value of long-term debt approximates its carrying value as the instruments’ terms and interest rate
are market based.
During the year ended September 30, 2020, there were no transfers between Level 1 and Level 2 fair value
measurements.
The carrying value and fair value of all financial instruments are as follows:
September 30, 2020
September 30, 2019
Carrying Amount
of Asset
(Liability)
$33,124
82,222
(32,873)
(3,418)
(3,557)
(22,772)
(1,758)
($3,093)
Fair Value of
Asset
(Liability)
$33,124
82,222
(32,873)
(3,418)
(3,557)
(22,772)
(1,758)
($3,093)
Carrying Amount
of Asset
(Liability)
$26,488
93,552
(44,183)
(578)
(1,010)
(20,684)
(278)
($17,186)
Fair Value of
Asset
(Liability)
$26,488
93,552
(44,183)
(578)
(1,010)
(20,684)
(278)
($17,186)
Cash and cash equivalents
Accounts receivable
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Long-term debt
EXCO TECHNOLOGIES LIMITED
45
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
9. INVENTORIES
Raw materials
Work in process
Finished goods
Production supplies
Less: obsolescence provision
The movement in the obsolescence provision accounts is as follows:
Opening balance
Additions
Utilized
Reversals
Exchange differences
Closing balance
September 30, 2020
$30,237
19,279
12,326
2,691
(3,375)
$61,158
September 30, 2019
$33,458
25,161
13,486
4,418
(3,263)
$73,260
September 30, 2020
$3,263
1,203
(568)
(584)
61
$3,375
September 30, 2019
$7,802
3,820
(8,535)
-
176
$3,263
During the year, inventories of $179,652 (2019 – $245,464) were expensed, of which $1,203 was from the write-downs
of inventories (2019 – $3,820), with reversal of write-downs of $584 (2019 – nil).
10. CAPITAL MANAGEMENT
The Company defines capital as net debt and shareholders’ equity. As at September 30, 2020, total managed capital
amounted to $331,006 (2019 – $326,487), consisting of nil net debt (2019 – nil) and shareholders’ equity of $331,006
(2019 – $326,487).
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
Net debt to Adjusted EBITDA ratio
September 30, 2020
September 30, 2019
0.00:1
0.00:1
0.00:1
0.00:1
The following table details the net debt calculation used in the net debt to equity ratio as at the years ended as
indicated:
EXCO TECHNOLOGIES LIMITED
46
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Bank indebtedness and long-term debt
Less: cash and cash equivalents
Net debt
September 30, 2020
$6,511
September 30, 2019
$17,764
(33,124)
nil
(26,488)
nil
The net debt to Adjusted EBITDA ratio is calculated by dividing the net debt by Adjusted EBITDA, and the Company
calculates Adjusted EBITDA as earnings before other income/(expense), interest, taxes, depreciation and amortization.
Based on the current funds available and the expected cash flows 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, 2020, the Company was in
compliance with the required financial covenants.
11. 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.
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, other
income (expense) and income tax expense.
The Corporate segment involves administrative expenses that are not directly related to the business activities of the
above two operating segments.
EXCO TECHNOLOGIES LIMITED
47
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment pre-tax income (loss) before interest and other
income (expense)
Net interest expense
Income before income taxes
Initial recognition of right of use assets
Property, plant and equipment additions
Property, plant and equipment, net
Intangible asset additions
Intangible assets, net
Goodwill
Total assets
Total liabilities
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment pre-tax income (loss) before interest and other
income (expense)
Other expense (note 17)
Net interest expense
Income before income taxes
Property, plant and equipment additions
Property, plant and equipment, net
Intangible asset additions
Intangible assets, net
Goodwill
Total assets
Total liabilities
2020
Casting
and
Extrusion
$189,489
(8,274)
181,215
13,834
607
Automotive
Solutions Corporate
Total
$231,613
(519)
231,094
3,478
3,424
$-
-
-
112
1
$421,102
(8,793)
412,309
17,424
4,032
17,998
20,970
(6,928)
389
20,371
104,498
397
933
-
200,228
28,809
1,266
2,721
25,189
6
29,602
64,980
219,600
41,034
32
-
1,342
-
-
-
(10,048)
8,931
32,040
(617)
31,423
1,687
23,092
131,029
403
30,535
64,980
409,780
78,774
2019
Casting
and
Extrusion
$214,214
(9,922)
204,292
12,511
682
Automotive
Solutions
$311,658
(8,602)
303,056
2,813
3,378
Corporate
Total
$-
-
-
74
2
$525,872
(18,524)
507,348
15,398
4,062
17,989
-
31,867
(6,409)
(6,681)
-
23,475
101,649
473
1,153
-
212,240
31,119
3,818
23,738
94
32,738
62,834
214,734
43,440
108
1,400
-
-
-
(4,239)
21,689
43,175
(6,409)
(790)
35,976
27,401
126,787
567
33,891
62,834
422,735
96,248
EXCO TECHNOLOGIES LIMITED
48
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Geographic and customer information
Sales
Canada
United States
Europe
Mexico
South America
Asia
Other
2020
$19,906
255,160
65,622
52,306
6,229
7,094
5,992
$412,309
2019
$21,752
304,622
100,138
58,249
9,594
8,257
4,736
$507,348
In 2020 the total revenue to the Company’s largest 2 customers accounted for 6.0% and 5.6% (2019 – 6.5% and 6.1%)
of total sales. The accounts receivable pertaining to these customers were $5,879 and $4,629 at year-end
(2019 – $8,578 and $4,478). The allocation of sales to the geographic categories is based upon the customer location
where the product is shipped. In 2020, the Company’s largest 2 customers were from the Casting and Extrusion segment
and the Automotive Solutions segment (2019 - the Company’s largest 2 customers were from the Automotive Solutions
segment and the Casting and Extrusion segment).
Property, plant and equipment, net
Canada
United States
Mexico
South America
Thailand
Europe
Morocco
September 30, 2020
$50,619
31,489
22,675
6,857
6,643
-
12,746
September 30, 2019
$44,344
32,396
24,317
8,611
7,013
-
10,106
$131,029
$126,787
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
September 30, 2020
$717
29,553
17
148
8
-
92
September 30, 2019
$973
32,633
48
97
3
-
137
$30,535
$33,891
B. EMPLOYEE FUTURE BENEFITS
The Company accrues employee future benefits for its Mexican and Thailand employees. In Mexico 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
EXCO TECHNOLOGIES LIMITED
49
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
certain circumstances. Such benefits consist of a one-time payment of three months’ wages upon involuntary
termination without just cause. In Thailand the severance benefit varies from 1 to 10 months dependent on length of
service.
The liability associated with the seniority and termination benefits is calculated as the present value of expected future
payments and amounted to $1,877 as at September 30, 2020 (2019 – $2,110) 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.
C. COMPENSATION OF KEY MANAGEMENT PERSONNEL
The remuneration of directors and other members of key management personnel during the years ended
September 30, 2020 and 2019 were as follows:
Salaries and cash incentives (i)
Directors’ fees
Share-based awards (ii)
September 30, 2020
September 30, 2019
$3,329
270
130
$3,729
$3,644
492
133
$4,269
i) Key management personnel were not paid post-employment benefits, termination benefits, or other long-term benefits
during the years ended September 30, 2020 and 2019.
ii) Share-based payments are director share units granted to directors and the fair value of stock options granted to
key management personnel.
12. INCOME PER COMMON SHARE
Income per common share is calculated using net income and the monthly weighted average number of common shares
outstanding of 39,942,880 (2019 – 41,245,026). 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 no dilution effect from the outstanding stock
options on diluted weighted average number of common shares outstanding for 2020 (2019 – 8,100).
13. INCOME TAXES
The consolidated effective income tax rate for 2020 was 12.7% (2019 – 26.0%) per the following tables. The lower
income tax rate was favourably impacted by the reversal of a $2,311 deferred tax liability relating to ALC as a result of
a resolved tax exposure in the fourth quarter and the recognition of research and development tax credits. Excluding
these items the effective tax rate would have been 22%. In the prior year the effective income tax rate was adversely
impacted by the non-deductibility of Other Expense related to the de-consolidation of ALC in the amount of $6,409
(note 17). Excluding ALC, the effective income tax rate for the prior year would have been 22.0%.
EXCO TECHNOLOGIES LIMITED
50
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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
Reversal of deferred tax liability
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
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
Deferred income tax expense (recovery)
Origination, reversal of temporary differences and losses not
recognized
Reported income tax expense
2020
$31,423
100.0%
8,704
(302)
(266)
(2,062)
(2,311)
276
(40)
$3,999
27.7%
(1.0%)
(0.8%)
(6.6%)
(7.4%)
0.9%
(0.1%)
12.7%
2019
$35,976
100.0%
9,943
(260)
861
(1,620)
536
(116)
$9,344
27.6%
(0.7%)
(2.4%)
(4.5%)
1.5%
(0.3%)
26.0%
2020
2019
$4,790
$7,598
(791)
$3,999
1,746
$9,344
EXCO TECHNOLOGIES LIMITED
51
ANNUAL REPORT 2020
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:
Deferred tax assets
Tax benefit of loss carry forward
Items not currently deductible for income tax purposes
Deferred tax liabilities
Tax depreciation in excess of book depreciation
Unrealized revenue and foreign exchange
Investment in subsidiaries
2020
2019
$636
548
1,184
(5,424)
61
(3,038)
(8,401)
$692
482
1,174
(5,913)
(645)
(3,414)
(9,972)
Net deferred income tax liabilities
($7,217)
($8,798)
14. CONSOLIDATED STATEMENTS OF CASH FLOWS
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
Inventories
Prepaid expenses and deposits
Trade accounts payable
Accrued payroll liabilities
Other accrued liabilities
Provisions
Customer advance payments
Income taxes recoverable
15. CONTINGENT LIABILITIES
2020
$12,287
12,894
85
(11,686)
(1,350)
1,453
230
1,854
(886)
$14,881
2019
$848
5,496
339
3,300
(1,105)
695
1,005
(1,855)
977
$9,700
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.
During 2018, the Company agreed with a customer (the “Customer”) to utilize a government-sponsored third party (the
“Third Party”) tool financing program (the “Program”). The Program allows the Company to receive payment from the
Third Party in advance (the “Advance Payments”) of either tool delivery or the Customer’s receipt of payment from the
Original Equipment Manufacturer (the “OEM”). The Customer is obligated to pay all costs of the Program including
principal and interest. The Third Party retains recourse against the Company if the Customer fails to repay the Advance
Payments to the Third Party within 24 months of the Advance Payment. As at September 30, 2020 repayments of $439
were overdue. The Company has been indemnified by the Customer in this regard and expects recourse against it to
be extinguished in the normal course of business upon the Customer’s receipt of payment from the OEM. The Advance
EXCO TECHNOLOGIES LIMITED
52
ANNUAL REPORT 2020
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Payments paid to the Company under this Program for the year ended September 30, 2020 amounted to $3,960 (2019
– $5,048) and related liabilities and receivables were not recorded on the Company’s consolidated statements of
financial position. Repayments made in the current year amounted to $2,856 (2019 – $6,360). As at September 30,
2020 the balance outstanding under the Program was $9,925.
There are no material contingent liabilities as at September 30, 2020 (2019 – nil).
16. INTEREST EXPENSE
The following table outlines the interest expense (income) incurred (earned) during the year:
Interest expense on bank indebtedness and long-term debt
Interest income on deposits
Net interest expense
September 30, 2020
September 30, 2019
$632
(15)
$617
$835
(45)
$790
17. DECONSOLIDATION OF ALC AND OTHER EXPENSE IN THE PRIOR YEAR
On January 17, 2019, the Company’s indirect wholly owned subsidiary ALC Bulgaria EOOD (“ALC”) voluntarily
filed a liquidation petition in Bulgaria. As a result the Company lost control of and de-consolidated it from the
Company’s financial statements. The Company had recorded a $6.4 million provision during the prior year in respect
to ALC, the result of which was that the net assets of ALC were $nil.
18. GOVERNMENT ASSISTANCE
As a result of the impact of COVID-19, the Company has applied to multiple government assistance programs. During
the year ended September 30, 2020 the Company recorded $7,003 of assistance which was recorded as a reduction of
selling, general and administrative expense. The amount of assistance receivable as at September 30, 2020 was $648.
EXCO TECHNOLOGIES LIMITED
53
ANNUAL REPORT 2020
CORPORATE INFORMATION
Board of Directors
Transfer Agent and Registrar
Edward H. Kernaghan, MSc
Executive Vice President
Kernaghan & Partners Ltd.
Darren M. Kirk, MBA, CFA
President and CEO of the Company
Robert B. Magee, PEng
Chairman
Woodbridge Group
Colleen M. McMorrow, FCPA, FCA,ICD.D
Corporate Director
TSX Trust Company
301 – 100 Adelaide Street West
Toronto, Ontario M5H 4H1
Phone: 416.361.0930
www.tsxtrust.com
______________________________
Auditors
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
______________________________
Paul E. Riganelli, MA, MBA, LLB
Executive Vice President of the Company
Stock Listing
Brian A. Robbins, PEng
Executive Chairman of the Company
Anne Marie Turnbull
President, AMT Associates Ltd.
______________________________
Corporate Officers
Brian A. Robbins, PEng
Executive Chairman
Darren M. Kirk, MBA, CFA
President and CEO
Matthew Posno, CPA, CA, MBA
Chief Financial Officer & VP Finance
Secretary
Paul E. Riganelli, MA, MBA, LLB
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
______________________________
F2020 Annual General
Meeting of Shareholders
Tuesday, February 2, 2021
at 4:30 pm. (Toronto Time)
Virtual Meeting: Live Webcast
http://web.lumiagm.com/268494078
Shaping a
Sustainable Future