Tradition of Excellence
2022 Annual Report
SALES
($ millions)
.
6
5
7
5
.
3
7
0
5
.
9
9
8
4
.
2
1
6
4
.
3
2
1
4
NET INCOME
($ millions)
DILUTED EARNINGS
PER SHARE
.
3
2
4
.
4
8
3
.
6
6
2
.
4
7
2
.
0
9
1
.
0
0
1
$
.
8
9
0
$
5
6
0
$
.
.
9
6
0
$
9
4
0
$
.
CASH FLOW
FROM OPERATING
ACTIVITIES (1)
($ millions)
.
7
4
6
.
1
5
5
.
5
9
4
.
8
2
6
.
7
9
4
18
19
20
21
22
18
19
20
21
22
18
19
20
21
22
18
19
20
21
22
(1) Before net change in non-cash working capital.
LETTER TO STAKEHOLDERS F2022
Tradition of Excellence
Measured solely by our earnings, F2022 was certainly
not the year we envisioned. We grappled with
extreme macro factors, foremost of which was the
constrained and erratic volumes of OEM vehicle
production caused by global microchip shortages.
But we also faced significant inflationary pressures,
widespread
logistical hurdles,
rising energy costs and many other supply chain
challenges in the aftermath of COVID-19 and Russia’s
invasion of Ukraine. All told, we recorded a
6% increase in sales and delivered $0.49 of earnings
per share compared to $0.98 last year.
labour shortages,
Yet, F2022 was also a resounding success in so
many other aspects as we celebrated our 70th year of
operations, building on our tradition of excellence.
We bolstered the foundation that will sustainably
drive our future growth through our acquisition
of Halex’s extrusion die business in Europe, obtained
key program wins, realized significant productivity
gains and continued to make sizeable capital
investments as we execute on our ambitious growth
agenda. As well, we demonstrated positive trends
throughout the year, with our quarterly revenues and
EBITDA showing sequential improvement.
Looking forward, vehicle production volumes are
expected to grow in F2023 and beyond as supply
inventories are
chain pressures ease, dealer
replenished and pent-up consumer demand
is
satisfied. As well, start-up losses associated with
current investment activity should reduce and the
benefits from recent price increases and various
efficiency initiatives will continue to take hold. While
there will no doubt be new challenges, with these
factors in mind, we remain very optimistic that our
earnings will be substantially stronger in the years
ahead.
Sustainable Marketplace
Our businesses directly support the electric vehicle
to make
conventional
revolution and worldwide movement
towards
reducing emissions. Consequently, as the world
continues to push towards social and environmental
sustainability, the future for our products has never
been brighter. An increase in the use of aluminum
across many industries is the primary driver of
this tailwind, particularly in the automotive industry,
our primary end market.
As the automotive industry adapts to ever-tightening
fuel efficiency standards, lightweight metals are
increasingly displacing structural steel vehicle
(internal
components
combustion engine) vehicles more environmentally
friendly. Moreso, electric vehicles make extensive
use of aluminum components to reduce weight and
therefore maximize battery range. Our Casting and
Extrusion segment
is especially well positioned
to benefit from this transition, as we are the leading
producer of tools that shape lightweight metals and
we do not manufacture tooling for steel components.
Over the next several years, significant growth
is expected in the application of both extruded and
die-cast components.
tures products for both the interior and storage areas
machines and extrusion presses globally. Castool’s
expect to achieve substantial growth. By F2026 Exco
Exco’s ESG strategic priorities are clear. We are very
of passenger vehicles also stands to benefit from
products significantly
increase the productivity,
is targeting to generate annual revenue of $750
well positioned to not only grow profitably but to
sustainability trends. Exco’s Automotive Solutions
safety and energy efficiency of its customers, which is
million and generate EPS of roughly $1.90 from
contribute positively to the global sustainability
segment typically makes products that are lighter
particularly important as tooling becomes larger and
organic means.
movement in the years ahead.
In May of 2022 we closed the acquisition of the
enhancing our cash flows and minimizing emissions
requirements
for an effective environmental
mission and vision is only possible because of our
in weight than competing products and electric
more complex. In November 2021 Castool opened its
vehicles generally have more cabin and storage
third production facility – in Morocco – to better
space for which our products are well suited. Helping
serve its customers in Europe, the Middle East, and
this growth, OEMs are increasingly looking to the sale
Africa. In F2023, Castool will open its fourth facility
of higher margin accessory products as a means
in Mexico to further increase capacity and better
to enhance their own profitability and Exco is an
serve the local market in Latin America and the
industry leader for many of these products.
Southern US. An additional, major project within
Growth-Oriented Capital Investment
Program
We remain focused on our capital asset investment
and growth strategies, and we again made great
progress executing this agenda in F2022.
Castool
includes a new energy efficient heat
treatment plant
in Newmarket, which became
operational in F2022. This new investment represents
vertical
integration for a critical process within
Castool. It will reduce customer delivery times,
improve quality control and provide unmatched
capabilities
for
large sized
tooling, all while
extrusion die business of Halex Holdings, which
through the supply chain.
operates four key manufacturing locations – two in
Germany and two in Italy. Halex is the second largest
manufacturer of aluminum extrusion dies in Europe
and the continent’s leading supplier of complex
extrusion dies. Halex complements our six existing
extrusion die operations in Canada, USA, Mexico,
Colombia and Brazil. This acquisition provides us with
well-established and high-quality operations and
Moreover, we are investing in additional 3D metal
printing machines to meet growing customer
demand in that business while we are making
significant investments in state-of-the-art heat-treat
equipment across our Extrusion group that will
enhance capacity, reduce emissions and enable us
to further in-source most of our needs.
more extensive opportunities to better support
We also made substantial investments in our large
our global customers. While the energy crises and
mould business to handle moulds of extreme size
weak economic conditions in Europe have presented
which we expect will be increasingly demanded by
unexpected early challenges, we remain excited
both traditional and new OEMs, as discussed above.
by the potential over the long term. We are already
Meanwhile, in our Automotive Solutions segment we
seeing good synergies through the sharing of best
added 40,000 square feet of manufacturing space
practices and leveraging of greater global scale.
across two of our production facilities in F2022,
We are also pursuing an aggressive capital agenda
within our Casting and Extrusion Segment, to capture
significant growth opportunities. This is especially
to provide capacity for several newly awarded key
programs, which will contribute over $65 million
of annual revenue once fully ramped up in F2023.
evident in our Castool division, which manufactures
With the benefit of these investments, the launch
and sells consumable tooling components and
of new programs, general market growth and also
ESG Strategic Priorities
We are committed to operating
in a socially
Our People Will Always Be Our
Greatest Strength
conscious manner, and above all, to taking great care
Since our inception some 70 years ago, Exco has
of our people. We aim to run our facilities as safe and
become not just global, but world class. Despite
efficiently as possible, delivering innovative, high-
current industry challenges, our future looks very
quality products with less energy, fewer materials
bright.
and
lower waste. These requirements are also
increasingly demanded by our customers as they
focus on responsible production processes through
their entire supply chains.
Our vision is to be the benchmark for innovation,
efficiency and quality in the industries we serve.
Our mission is to enhance the look and functionality
of passenger vehicles and tool up
light metal
Several of our businesses have achieved ISO 14001
industries for superior performance. Needless to say,
certification, the international standard that specifies
we know that our continued success in achieving our
management system. Meanwhile, our multi-plant
employees. And we have some of the most
footprint gives us proximity to market, which
committed, talented and high performing people.
contributes to our resilience in the face of climate-
At Exco, our people will always be our greatest
related risks, while also reducing our carbon
strength – and I am deeply grateful to our employees
footprint. Our additive manufacturing process serves
for their hard work, shared belief in our core values,
to minimize material use while delivering increased
entrepreneurial spirit, and commitment to always
value to our customers, directly supporting their
working safely.
own sustainability goals. More broadly, we remain
focused on employing lean manufacturing principles
to reduce and eliminate waste in our production,
while also
incorporating closed fluid collection
systems, recycling processes and recycled materials
where possible, as well as making substantial
investments in new, energy efficient equipment.
Polydesign’s installation of a 1.24 MW solar genera-
tion plant at our facility in Morocco made it the first
company in Tangier Free Zone to implement green
energy solutions. These and other initiatives are
discussed in more detail in our 2022 Sustainability
Report.
Looking ahead, as ESG
initiatives continue to
intensify across all industries, I am pleased to say that
Darren M. Kirk, MBA, CFA
President and CEO
More recently, die-cast aluminum components and
associated tooling have been increasing significantly
in both size and complexity. OEMs are increasingly
using die casting machines that are much larger than
those used previously. This enables the casting of
entire vehicle subframes rather than assembling
numerous stamped metal components, creating
significant manufacturing efficiency gains. The
tooling required to facilitate this process is also much
larger and more complex which plays directly into
Exco’s strengths and technical expertise. We expect
more and more OEMs will ultimately adopt the use of
these larger diecast machines, and we are making
significant additional investments in our people,
equipment and processes to remain the leading
supplier in this market.
Our Automotive Solutions group, which manufac-
related capital equipment for light metal die cast
market share gains consistent with our history, we
EXCO TECHNOLOGIES LIMITED
1
ANNUAL REPORT 2022
Tradition of Excellence
Measured solely by our earnings, F2022 was certainly
not the year we envisioned. We grappled with
extreme macro factors, foremost of which was the
constrained and erratic volumes of OEM vehicle
production caused by global microchip shortages.
But we also faced significant inflationary pressures,
widespread
labour shortages,
logistical hurdles,
rising energy costs and many other supply chain
challenges in the aftermath of COVID-19 and Russia’s
invasion of Ukraine. All told, we recorded a
6% increase in sales and delivered $0.49 of earnings
per share compared to $0.98 last year.
Yet, F2022 was also a resounding success in so
many other aspects as we celebrated our 70th year of
operations, building on our tradition of excellence.
We bolstered the foundation that will sustainably
drive our future growth through our acquisition
of Halex’s extrusion die business in Europe, obtained
key program wins, realized significant productivity
gains and continued to make sizeable capital
investments as we execute on our ambitious growth
agenda. As well, we demonstrated positive trends
throughout the year, with our quarterly revenues and
EBITDA showing sequential improvement.
Looking forward, vehicle production volumes are
expected to grow in F2023 and beyond as supply
chain pressures ease, dealer
inventories are
replenished and pent-up consumer demand
is
satisfied. As well, start-up losses associated with
current investment activity should reduce and the
benefits from recent price increases and various
efficiency initiatives will continue to take hold. While
there will no doubt be new challenges, with these
factors in mind, we remain very optimistic that our
earnings will be substantially stronger in the years
ahead.
Sustainable Marketplace
Our businesses directly support the electric vehicle
revolution and worldwide movement
towards
reducing emissions. Consequently, as the world
continues to push towards social and environmental
sustainability, the future for our products has never
been brighter. An increase in the use of aluminum
across many industries is the primary driver of
this tailwind, particularly in the automotive industry,
our primary end market.
As the automotive industry adapts to ever-tightening
fuel efficiency standards, lightweight metals are
increasingly displacing structural steel vehicle
components
to make
conventional
(internal
combustion engine) vehicles more environmentally
friendly. Moreso, electric vehicles make extensive
use of aluminum components to reduce weight and
therefore maximize battery range. Our Casting and
Extrusion segment
is especially well positioned
to benefit from this transition, as we are the leading
producer of tools that shape lightweight metals and
we do not manufacture tooling for steel components.
Over the next several years, significant growth
is expected in the application of both extruded and
die-cast components.
More recently, die-cast aluminum components and
associated tooling have been increasing significantly
in both size and complexity. OEMs are increasingly
using die casting machines that are much larger than
those used previously. This enables the casting of
entire vehicle subframes rather than assembling
numerous stamped metal components, creating
significant manufacturing efficiency gains. The
tooling required to facilitate this process is also much
larger and more complex which plays directly into
Exco’s strengths and technical expertise. We expect
more and more OEMs will ultimately adopt the use of
these larger diecast machines, and we are making
significant additional investments in our people,
equipment and processes to remain the leading
supplier in this market.
Our Automotive Solutions group, which manufac-
LETTER TO STAKEHOLDERS F2022
tures products for both the interior and storage areas
of passenger vehicles also stands to benefit from
sustainability trends. Exco’s Automotive Solutions
segment typically makes products that are lighter
in weight than competing products and electric
vehicles generally have more cabin and storage
space for which our products are well suited. Helping
this growth, OEMs are increasingly looking to the sale
of higher margin accessory products as a means
to enhance their own profitability and Exco is an
industry leader for many of these products.
Growth-Oriented Capital Investment
Program
We remain focused on our capital asset investment
and growth strategies, and we again made great
progress executing this agenda in F2022.
In May of 2022 we closed the acquisition of the
extrusion die business of Halex Holdings, which
operates four key manufacturing locations – two in
Germany and two in Italy. Halex is the second largest
manufacturer of aluminum extrusion dies in Europe
and the continent’s leading supplier of complex
extrusion dies. Halex complements our six existing
extrusion die operations in Canada, USA, Mexico,
Colombia and Brazil. This acquisition provides us with
well-established and high-quality operations and
more extensive opportunities to better support
our global customers. While the energy crises and
weak economic conditions in Europe have presented
unexpected early challenges, we remain excited
by the potential over the long term. We are already
seeing good synergies through the sharing of best
practices and leveraging of greater global scale.
We are also pursuing an aggressive capital agenda
within our Casting and Extrusion Segment, to capture
significant growth opportunities. This is especially
evident in our Castool division, which manufactures
and sells consumable tooling components and
related capital equipment for light metal die cast
machines and extrusion presses globally. Castool’s
products significantly
increase the productivity,
safety and energy efficiency of its customers, which is
particularly important as tooling becomes larger and
more complex. In November 2021 Castool opened its
third production facility – in Morocco – to better
serve its customers in Europe, the Middle East, and
Africa. In F2023, Castool will open its fourth facility
in Mexico to further increase capacity and better
serve the local market in Latin America and the
Southern US. An additional, major project within
includes a new energy efficient heat
Castool
in Newmarket, which became
treatment plant
operational in F2022. This new investment represents
vertical
integration for a critical process within
Castool. It will reduce customer delivery times,
improve quality control and provide unmatched
capabilities
tooling, all while
enhancing our cash flows and minimizing emissions
through the supply chain.
large sized
for
Moreover, we are investing in additional 3D metal
printing machines to meet growing customer
demand in that business while we are making
significant investments in state-of-the-art heat-treat
equipment across our Extrusion group that will
enhance capacity, reduce emissions and enable us
to further in-source most of our needs.
We also made substantial investments in our large
mould business to handle moulds of extreme size
which we expect will be increasingly demanded by
both traditional and new OEMs, as discussed above.
Meanwhile, in our Automotive Solutions segment we
added 40,000 square feet of manufacturing space
across two of our production facilities in F2022,
to provide capacity for several newly awarded key
programs, which will contribute over $65 million
of annual revenue once fully ramped up in F2023.
With the benefit of these investments, the launch
of new programs, general market growth and also
market share gains consistent with our history, we
EXCO TECHNOLOGIES LIMITED
2
ANNUAL REPORT 2022
expect to achieve substantial growth. By F2026 Exco
Exco’s ESG strategic priorities are clear. We are very
is targeting to generate annual revenue of $750
well positioned to not only grow profitably but to
million and generate EPS of roughly $1.90 from
contribute positively to the global sustainability
organic means.
movement in the years ahead.
ESG Strategic Priorities
We are committed to operating
in a socially
Our People Will Always Be Our
Greatest Strength
conscious manner, and above all, to taking great care
Since our inception some 70 years ago, Exco has
of our people. We aim to run our facilities as safe and
become not just global, but world class. Despite
efficiently as possible, delivering innovative, high-
current industry challenges, our future looks very
quality products with less energy, fewer materials
bright.
and
lower waste. These requirements are also
increasingly demanded by our customers as they
focus on responsible production processes through
their entire supply chains.
Our vision is to be the benchmark for innovation,
efficiency and quality in the industries we serve.
Our mission is to enhance the look and functionality
of passenger vehicles and tool up
light metal
Several of our businesses have achieved ISO 14001
industries for superior performance. Needless to say,
certification, the international standard that specifies
we know that our continued success in achieving our
requirements
for an effective environmental
mission and vision is only possible because of our
management system. Meanwhile, our multi-plant
employees. And we have some of the most
footprint gives us proximity to market, which
committed, talented and high performing people.
contributes to our resilience in the face of climate-
At Exco, our people will always be our greatest
related risks, while also reducing our carbon
strength – and I am deeply grateful to our employees
footprint. Our additive manufacturing process serves
for their hard work, shared belief in our core values,
to minimize material use while delivering increased
entrepreneurial spirit, and commitment to always
value to our customers, directly supporting their
working safely.
own sustainability goals. More broadly, we remain
focused on employing lean manufacturing principles
to reduce and eliminate waste in our production,
while also
incorporating closed fluid collection
systems, recycling processes and recycled materials
where possible, as well as making substantial
investments in new, energy efficient equipment.
Polydesign’s installation of a 1.24 MW solar genera-
tion plant at our facility in Morocco made it the first
company in Tangier Free Zone to implement green
energy solutions. These and other initiatives are
discussed in more detail in our 2022 Sustainability
Report.
Looking ahead, as ESG
initiatives continue to
intensify across all industries, I am pleased to say that
Darren M. Kirk, MBA, CFA
President and CEO
Tradition of Excellence
Measured solely by our earnings, F2022 was certainly
not the year we envisioned. We grappled with
extreme macro factors, foremost of which was the
constrained and erratic volumes of OEM vehicle
production caused by global microchip shortages.
But we also faced significant inflationary pressures,
widespread
labour shortages,
logistical hurdles,
rising energy costs and many other supply chain
challenges in the aftermath of COVID-19 and Russia’s
invasion of Ukraine. All told, we recorded a
6% increase in sales and delivered $0.49 of earnings
per share compared to $0.98 last year.
Yet, F2022 was also a resounding success in so
many other aspects as we celebrated our 70th year of
operations, building on our tradition of excellence.
We bolstered the foundation that will sustainably
drive our future growth through our acquisition
of Halex’s extrusion die business in Europe, obtained
key program wins, realized significant productivity
gains and continued to make sizeable capital
investments as we execute on our ambitious growth
agenda. As well, we demonstrated positive trends
throughout the year, with our quarterly revenues and
EBITDA showing sequential improvement.
Looking forward, vehicle production volumes are
expected to grow in F2023 and beyond as supply
chain pressures ease, dealer
inventories are
replenished and pent-up consumer demand
is
satisfied. As well, start-up losses associated with
current investment activity should reduce and the
benefits from recent price increases and various
efficiency initiatives will continue to take hold. While
there will no doubt be new challenges, with these
factors in mind, we remain very optimistic that our
earnings will be substantially stronger in the years
ahead.
Sustainable Marketplace
Our businesses directly support the electric vehicle
revolution and worldwide movement
towards
reducing emissions. Consequently, as the world
continues to push towards social and environmental
sustainability, the future for our products has never
been brighter. An increase in the use of aluminum
across many industries is the primary driver of
this tailwind, particularly in the automotive industry,
our primary end market.
As the automotive industry adapts to ever-tightening
fuel efficiency standards, lightweight metals are
increasingly displacing structural steel vehicle
components
to make
conventional
(internal
combustion engine) vehicles more environmentally
friendly. Moreso, electric vehicles make extensive
use of aluminum components to reduce weight and
therefore maximize battery range. Our Casting and
Extrusion segment
is especially well positioned
to benefit from this transition, as we are the leading
producer of tools that shape lightweight metals and
we do not manufacture tooling for steel components.
Over the next several years, significant growth
is expected in the application of both extruded and
die-cast components.
More recently, die-cast aluminum components and
associated tooling have been increasing significantly
in both size and complexity. OEMs are increasingly
using die casting machines that are much larger than
those used previously. This enables the casting of
entire vehicle subframes rather than assembling
numerous stamped metal components, creating
significant manufacturing efficiency gains. The
tooling required to facilitate this process is also much
larger and more complex which plays directly into
Exco’s strengths and technical expertise. We expect
more and more OEMs will ultimately adopt the use of
these larger diecast machines, and we are making
significant additional investments in our people,
equipment and processes to remain the leading
supplier in this market.
tures products for both the interior and storage areas
machines and extrusion presses globally. Castool’s
of passenger vehicles also stands to benefit from
products significantly
increase the productivity,
sustainability trends. Exco’s Automotive Solutions
safety and energy efficiency of its customers, which is
segment typically makes products that are lighter
particularly important as tooling becomes larger and
in weight than competing products and electric
more complex. In November 2021 Castool opened its
vehicles generally have more cabin and storage
third production facility – in Morocco – to better
space for which our products are well suited. Helping
serve its customers in Europe, the Middle East, and
this growth, OEMs are increasingly looking to the sale
Africa. In F2023, Castool will open its fourth facility
of higher margin accessory products as a means
in Mexico to further increase capacity and better
to enhance their own profitability and Exco is an
serve the local market in Latin America and the
industry leader for many of these products.
Southern US. An additional, major project within
Growth-Oriented Capital Investment
Program
We remain focused on our capital asset investment
and growth strategies, and we again made great
progress executing this agenda in F2022.
Castool
includes a new energy efficient heat
treatment plant
in Newmarket, which became
operational in F2022. This new investment represents
vertical
integration for a critical process within
Castool. It will reduce customer delivery times,
improve quality control and provide unmatched
capabilities
for
large sized
tooling, all while
In May of 2022 we closed the acquisition of the
enhancing our cash flows and minimizing emissions
extrusion die business of Halex Holdings, which
through the supply chain.
operates four key manufacturing locations – two in
Germany and two in Italy. Halex is the second largest
manufacturer of aluminum extrusion dies in Europe
and the continent’s leading supplier of complex
extrusion dies. Halex complements our six existing
extrusion die operations in Canada, USA, Mexico,
Colombia and Brazil. This acquisition provides us with
well-established and high-quality operations and
Moreover, we are investing in additional 3D metal
printing machines to meet growing customer
demand in that business while we are making
significant investments in state-of-the-art heat-treat
equipment across our Extrusion group that will
enhance capacity, reduce emissions and enable us
to further in-source most of our needs.
more extensive opportunities to better support
We also made substantial investments in our large
our global customers. While the energy crises and
mould business to handle moulds of extreme size
weak economic conditions in Europe have presented
which we expect will be increasingly demanded by
unexpected early challenges, we remain excited
both traditional and new OEMs, as discussed above.
by the potential over the long term. We are already
Meanwhile, in our Automotive Solutions segment we
seeing good synergies through the sharing of best
added 40,000 square feet of manufacturing space
practices and leveraging of greater global scale.
across two of our production facilities in F2022,
We are also pursuing an aggressive capital agenda
within our Casting and Extrusion Segment, to capture
significant growth opportunities. This is especially
to provide capacity for several newly awarded key
programs, which will contribute over $65 million
of annual revenue once fully ramped up in F2023.
evident in our Castool division, which manufactures
With the benefit of these investments, the launch
and sells consumable tooling components and
of new programs, general market growth and also
Our Automotive Solutions group, which manufac-
related capital equipment for light metal die cast
market share gains consistent with our history, we
LETTER TO STAKEHOLDERS F2022
expect to achieve substantial growth. By F2026 Exco
is targeting to generate annual revenue of $750
million and generate EPS of roughly $1.90 from
organic means.
Exco’s ESG strategic priorities are clear. We are very
well positioned to not only grow profitably but to
contribute positively to the global sustainability
movement in the years ahead.
Our People Will Always Be Our
Greatest Strength
Since our inception some 70 years ago, Exco has
become not just global, but world class. Despite
current industry challenges, our future looks very
bright.
Our vision is to be the benchmark for innovation,
efficiency and quality in the industries we serve.
Our mission is to enhance the look and functionality
light metal
of passenger vehicles and tool up
industries for superior performance. Needless to say,
we know that our continued success in achieving our
mission and vision is only possible because of our
employees. And we have some of the most
committed, talented and high performing people.
At Exco, our people will always be our greatest
strength – and I am deeply grateful to our employees
for their hard work, shared belief in our core values,
entrepreneurial spirit, and commitment to always
working safely.
Darren M. Kirk, MBA, CFA
President and CEO
ESG Strategic Priorities
We are committed to operating
in a socially
conscious manner, and above all, to taking great care
of our people. We aim to run our facilities as safe and
efficiently as possible, delivering innovative, high-
quality products with less energy, fewer materials
lower waste. These requirements are also
and
increasingly demanded by our customers as they
focus on responsible production processes through
their entire supply chains.
Several of our businesses have achieved ISO 14001
certification, the international standard that specifies
requirements
for an effective environmental
management system. Meanwhile, our multi-plant
footprint gives us proximity to market, which
contributes to our resilience in the face of climate-
related risks, while also reducing our carbon
footprint. Our additive manufacturing process serves
to minimize material use while delivering increased
value to our customers, directly supporting their
own sustainability goals. More broadly, we remain
focused on employing lean manufacturing principles
to reduce and eliminate waste in our production,
incorporating closed fluid collection
while also
systems, recycling processes and recycled materials
where possible, as well as making substantial
investments in new, energy efficient equipment.
Polydesign’s installation of a 1.24 MW solar genera-
tion plant at our facility in Morocco made it the first
company in Tangier Free Zone to implement green
energy solutions. These and other initiatives are
discussed in more detail in our 2022 Sustainability
Report.
Looking ahead, as ESG
initiatives continue to
intensify across all industries, I am pleased to say that
EXCO TECHNOLOGIES LIMITED
3
ANNUAL REPORT 2022
CONTENTS
5
24
28
32
Management’s Discussion and Analysis
Independent Auditor’s 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, 2022. This MD&A has been prepared as of November
29, 2022.
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 EBITDA, EBITDA Margin, Pretax Profit, Free Cash Flow and Maintenance
Fixed Asset Additions which are not defined measures of financial performance under International Financial
Reporting Standards (“IFRS”). A reconciliation to these non-GAAP measures is provided within this MD&A. Exco
calculates EBITDA as earnings before interest, taxes, depreciation and amortization and EBITDA Margin as
EBITDA divided by sales. Exco calculates 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 and Maintenance
Fixed Asset Additions. Maintenance Fixed Asset Additions represents management’s estimate of the investment in
fixed assets that are required for the Company to continue operating at current capacity levels. Given the Company’s
elevated planned capital spending on fixed assets for growth initiatives (including additional Greenfield locations,
energy efficient heat treatment equipment and increased capacity) through the near term, the Company has modified
its calculation of Free Cash Flow to include Maintenance Fixed Assets and not total fixed asset purchases. This
change is meant to enable investors to better gauge the amount of generated cash flow that is available for these
investments as well as acquisitions and/or returns to shareholders in the form of dividends or share buyback programs.
EBITDA, EBITDA Margin, 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 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. We use words such as "anticipate", "may",
"will", "should", "expect", "believe", "estimate", “5-year target” and similar expressions to identify forward-looking
information and statements especially with respect to growth, outlook and financial performance of the Company's
business units, contribution of our start-up business units, contribution of awarded programs yet to be launched, margin
performance, financial performance of acquisitions, liquidity, operating efficiencies, improvements in, expansion of
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and/or guidance or outlook as to future revenue, sales, production sales, margin, earnings, earnings per share, including
the outlook for 2026.
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, the impact of the global semiconductor shortage on automotive
production volumes, the global economic recovery from the COVID-19 pandemic and containment of any future or
similar outbreak of epidemic, pandemic, or contagious diseases that may emerge in the human population, which may
have a material effect on how we and our customers operate our businesses and the duration and extent to which this
will impact our future operating results, the impact of the Russian invasion of Ukraine on the global financial, energy
and automotive markets, including increased supply chain risks, assumptions about the number of automobiles
produced in North America and Europe, production mix between passenger cars and trucks, 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 in response to rising climate risks, raw material prices, supply
disruptions, economic conditions, inflation, currency fluctuations, trade restrictions, our ability to integrate
acquisitions, our ability to continue increasing market share, or launch of new programs and the rate at which our
current and future greenfield operations in Mexico and Morocco achieve sustained profitability. These forward-
looking statements include known and unknown risks, uncertainties, assumptions and other factors which may cause
actual results or achievements to be materially different from those expressed or implied. For a more extensive
discussion of Exco’s risks and uncertainties see the ‘Risks and Uncertainties’ section in this Annual Report 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 operating 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,
Europe, Thailand and Morocco 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, Europe, 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 while pushing the envelope on innovation. Exco’s expansion into
producing tooling components additively in recent years is a good example of this. The Company is now a clear
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industry leader in the design, engineering and manufacturing of 3D printed tooling components globally. 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 to “enhance the look and functionality of passenger vehicles and tool up light metal industries
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 – see “Marketplace opportunities and
efficiency initiatives”, below.
Exco was founded on a commitment to excellence and a culture of entrepreneurship and dedication to ethical business
practices. 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 while adhering to our Code of Conduct.
MARKETPLACE OPPORTUNITIES AND EFFICIENCY INITIATIVES
In the automotive sector, Original Equipment Manufacturers (OEMs) continue to move towards electric vehicles and
to make their vehicles lighter in weight for higher fuel efficiency. Exco’s products form an integral part of this industry
transformation.
Lightweight metals such as aluminum are increasingly displacing steel in order to make conventional (internal
combustion engine) vehicles more environmentally friendly. As well, electric vehicles make extensive use of
aluminum components to reduce weight and therefore maximize battery range. Exco’s Casting and Extrusion segment,
which comprises 48% of our revenues, is especially well positioned to benefit from this ongoing transition.
More recently, die-cast aluminum components and associated tooling has been increasing significantly in both size
and complexity. Tesla has pushed the envelope in this regard, using die-casting machines that are much larger than
those used previously. This enables Tesla to cast entire subframes of the vehicle rather than assembling numerous
stamped metal components in the body shop, creating significant manufacturing efficiency gains. Other traditional
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OEMs are following Tesla’s lead in using these larger die-cast machines “giga presses.” We are making significant
additional investments in our people, equipment and processes to remain a leading supplier in this market.
Our customers are also increasingly focused on improving their own productivity and our products are actively helping
in this regard. For example, we design and incorporate 3D printed components into our moulds which greatly enhances
the overall quality and performance of the die-cast process while reducing the use of steel, energy and transportation
costs. Similarly, Castool has evolved their systems to provide less expensive, longer lasting, more energy efficient and
safer products. The group focuses on making components and accessories that will increase the customers’ tooling
life while ensuring less scrap and energy consumption. In doing so, we promote a higher energy and material efficiency
in the value chain of production, while the same service is being delivered to the end-consumer.
Our Automotive Solutions group, which manufactures products for the interior passenger compartments and trunks
of vehicles, is also a contributor to vehicle lightweighting trends. Exco’s Automotive Solutions segment typically
makes products that are lighter in weight than competing products. For example, Neocon offers lightweight material
options that are an ideal fit for vehicles regardless of powertrain. By incorporating a foaming additive during the
extrusion process and creating air voids in the base layer, Neocon created a thermoplastic rubber (TPR) product that
is 45% lighter than a traditional thermoplastic elastomer (TPE) injection molded floormat alternative.
Exco is committed to running its facilities as efficiently as possible, delivering the same innovative, high-quality
products to our customers with less energy, fewer materials and lower waste. In this regard, several of our businesses
have achieved ISO 14001 certification, the international standard that specifies requirements for an effective
environmental 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. As well,
our multi-plant footprint with standardized manufacturing processes provides superior capacity utilization and gives
proximity to market which reduces carbon emissions through reduced transportation requirements. Several other
technological advancements and initiatives are being employed throughout the organization to help achieve our goals.
OVERVIEW
Global events drive unpredictable customer volumes and higher costs
The three major influences that decreased order reliability in 2022 were global supply constraints, Russia’s attack on
Ukraine, and the continued impact of COVID-19. The automotive industry experienced supply constraints, in
particular semiconductor chip shortages, which negatively impacted global light vehicle production. Largely due to
the supply constraints, our customers' production schedules were at times unpredictable, causing labour and other
operational inefficiencies at our facilities. Our results in fiscal 2022 were also negatively impacted by inflationary
cost increases in production inputs including commodities, labour and freight.
The Russian attack on Ukraine influenced vehicle production in Europe as critical components manufactured in the
Ukraine could not be built or shipped and sanctions on Russian manufacturers affect the supply chain. As well, energy
costs increased materially, particularly in Europe, as a result of the war.
The economic impact of COVID-19 on the Company was less severe than in previous years, however the risk of “stay-
at-home” orders and operational shut-downs existed around the globe. The Company’s operations remained opened
throughout the year, however government shut-downs in some countries, particularly China, constrained the supply
of raw materials, parts and labour that reduced vehicle production and made orders extremely unpredictable.
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These events were major catalysts influencing raw material costs, labour and freight and transportation costs. As a
result global inflation rates reached levels not seen for over 40 years which significantly impacted the Company’s
sales and earnings.
As well, rising global interest rates as central banks try to tame inflation has started to slow economic activity
generally, though it has not had a significant impact on Exco’s results and markets to-date.
Sales and Earnings
Fiscal 2022 consolidated sales were up 6% compared to the prior year due to a 19% increase in the Casting and
Extrusion segment partially offset by a 4% decline in the Automotive Solutions segment.
The Casting and Extrusion segment sales increased sequentially each quarter of fiscal 2022. Extrusion tooling sales
were consistent each quarter and the purchase of Halex Holding GmbH (“Halex”) on May 2, 2022 contributed 5
months of incremental sales. Die-cast products (Large Mould and Castool) and Automotive Solutions sales were
lower in the first half of the year due to lower vehicle production volumes coupled with inventory drawdowns. As
vehicle production volumes increased and demand for our products responded and the launch of new programs ramped
up, second half die-cast product sales increased over 45% and the Automotive solutions segment’s second half sales
increased 6% over the first half of fiscal 2022.
Earnings per share were $0.49 in fiscal 2022 compared to $0.98 in fiscal 2021. Pre-tax profits were down at both
segments as inflationary pressures increased costs, unpredictable production volumes caused labour and production
inefficiencies, significant product mix shifts affected operational efficiencies, and start-up losses at new operations
affected operating results.
Capital Asset Expansion and Growth
The Company’s various capital asset additions and growth strategies announced in fiscal 2021 continued in fiscal
2022. Investment in capital assets increased 38% in fiscal 2022 as the Company invested $53.5 million in capital
assets compared to $38.7 million in the prior year with approximately $39.9 million identified as growth capital
expenditures compared to $28.4 million in the prior year. The major capital asset projects in fiscal 2022 include:
• Castool Morocco – this new plant officially opened in November 2021 and it allows Castool to better penetrate
the European market.
• Castool Heat treatment - Situated within our existing Newmarket facility, the first phase of production began in
the Spring of 2022. The second phase will be completed in the second quarter of fiscal 2023. This facility gives
us the ability to process regular and oversized components, reduce shipping and scheduling conflicts with third
party suppliers, ensure faster delivery to our customers, increase quality control, mitigate risks of relying on a
third-party supplier for an essential process and the energy efficient equipment reduces the Company’s carbon
dioxide footprint.
• Castool Mexico – This greenfield facility began construction in fiscal 2022. This facility will be operational in
the third quarter of fiscal 2023 and will increase manufacturing capacity and will better penetrate the Mexican
market.
• Large Mould – During the year the Large Mould group added a fifth additive machine, increased its crane capacity
to 100 tons, and added additional medium and large 5-axis milling machines at its facilities. These expenditures
position us to capture growth in the very large die-cast market and to standardize manufacturing processes.
• Extrusion group Heat Treatment – The Company launched three major projects within the Extrusion Group:
adding Heat treatment to its plant in Mexico, increasing capacity in Texas, and replacing our Markham Heat
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treatment with energy efficient equipment. These three projects are expected to be completed in the first half of
fiscal 2023.
• Automotive Solutions - the Polytech and Neocon facilities were expanded (combined 40,000 square feet) to meet
the growing demand from our customers’ significant program awards.
In addition to the capital projects, the Company acquired Halex on May 2, 2022. Halex was founded in 1997 and
operates four key manufacturing locations – two in Germany and two in Italy. Halex is the second largest manufacturer
of aluminium extrusion dies in Europe and the continent’s leading supplier of complex extrusion dies. Halex
complements Exco’s existing extrusion die operations. The acquisition provides Exco with well-established and high-
quality operations and more extensive opportunities to better support our global customers. The transaction was
valued at €40 million on an enterprise value basis and was funded with a combination of cash on hand, available bank
lines and assumed liabilities. The results of Halex are reported within the Casting and Extrusion segment, commencing
May 2, 2022.
Outlook
Despite current macro-economic challenges, including tightening monetary conditions, the overall outlook is very
favorable across Exco’s segments into the medium term. Consumer demand for automotive vehicles is currently
outstripping supply in most markets, which are constrained by a shortage of semiconductor chips and, to a lesser
extent, other raw materials, components and availability of labour. Dealer inventory levels, although increasing
slightly, are near record lows, while average transaction prices for both new and used vehicles are at record highs and
the average age of the broader fleet has continued to increase to an all-time high. This bodes well for higher levels of
future vehicle production and the sales opportunity of Exco’s various automotive components and accessories once
supply chains normalize. In addition, OEM’s are increasingly looking to the sale of higher margin accessory products
as a means to enhance their own levels of profitability. Exco’s Automotive Solutions segment derives a significant
amount of activity from such products and is a leader in the prototyping, development and marketing of the same.
Moreover, the rapid movement towards an electrified fleet for both passenger and commercial vehicles is enticing
new market entrants into the automotive market while causing traditional OEM incumbents to further differentiate
their product offerings, all of which is driving above average opportunities for Exco.
With respect to Exco’s Casting and Extrusion segment, the intensifying global focus on environmental sustainability
is creating significant growth drivers that are expected to persist through at least the next decade. Automotive OEMs
are looking to light-weight metals such as aluminum to reduce vehicle weight and reduce carbon dioxide emissions.
This trend is evident regardless of powertrain design - whether internal combustion engines, electric vehicles or
hybrids. As well, a renewed focus on the efficiency of OEMs in their own manufacturing process is creating higher
demand for advanced tooling that can contribute towards their profitability and sustainability goals. Certain new EV
manufacturers have adopted the approach of utilizing much larger die-cast machines to cast entire sub-frames of
vehicles out of an aluminum based alloy rather than assemble numerous pieces of separately stamped and welded
pieces of ferrous metal. Traditional OEMs have started to adopt this trend and Exco is positioning its operations to
capitalize accordingly. Beyond the automotive industry, Exco’s extrusion tooling supports diverse end markets which
are also seeing increased demand for aluminum driven by environmental trends, including energy efficient buildings,
solar panels, etc.
On the cost side, inflationary pressures remain elevated while prompt availability of various input materials,
components and labour remains challenging. We are offsetting these dynamics through various efficiency initiatives
and taking pricing action where possible although there is typically several quarters of lag before the counter measures
are evident.
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The Russian invasion of Ukraine has added additional uncertainty to the global economy. And while Exco has
essentially no direct exposure to either of these countries, Ukraine does feed into the European automotive markets
and Europe has significant dependence on Russia for its energy needs.
Exco itself is also looking inwards with respect to ESG and sustainability trends to ensure its own operations are
sustainable. We are investing significant capital to improve the efficiency and capacity of our own operations while
lowering our own carbon footprint. Our Sustainability Report is available on our corporate website at:
www.excocorp.com/leadership/sustainability/.
Exco is currently targeting a compounded average annual growth rate (excluding acquisitions) of approximately 10%
for revenues and slightly higher levels for EBITDA and Net Income through fiscal 2026, which is expected to produce
an annual EPS of roughly $1.90 by the end of this timeframe. This target is expected to be achieved through the launch
of new programs, general market growth, and also market share gains consistent with the Company’s operating history.
Capital investments will remain elevated in the balance of the fiscal year in order to position the Company for the
significant growth opportunities we see.
RESULTS
Consolidated Results - Sales
Annual sales totalled $489.9 million compared to $461.2 million last year – an increase of $28.7 million or 6%. The
increase reflects five months sales from Halex, continued strength in our Castool and Extrusion divisions partially
offset by lower sales in the automotive solutions segment as the impact from supply chain disruptions continued. The
US dollar averaged 2% higher ($1.28 versus $1.26) against the Canadian dollar over the year increasing sales by $4.6
million. The Euro averaged 9% lower ($1.38 versus $1.51) against the Canadian dollar over the year reducing sales
by $10.8 million.
Selected Annual Information
The following table sets out selected financial data relating to the Company’s years ended September 30, 2022 and
2021. 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
Purchase Capital Assets (net)
Total assets
Cash dividend paid per share
EBITDA
2022
$489.9
$19.0
$0.49
$52.7
$576.3
$0.42
$53.0
2021
$461.2
$38.4
$0.98
$38.3
$430.1
$0.40
$70.1
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Segment Sales
● Automotive Solutions Segment
Sales in this segment were $253.9 million – a decrease of $9.3 million or 4% from the prior year. The net effect of
changes in exchange rates (Euro, US, and Canadian dollar) reduced sales $2.0 million compared to the prior year.
The sales decrease is due to supply chain shortages of semiconductor microchips and other global supply chain
challenges affecting vehicle production volumes. The impact of the supply chain challenges was neither linear nor
smooth. Customers allocated production to different platforms unevenly which had a dramatic impact to product mix
and sales performance at the Company’s operations. In general, the negative impacts were greater in the first half of
the year and gradually improved throughout the year. The modest quarterly improvements allowed for slightly better
planning and managing customer demand. Polytech and AFX met or exceeded sales compared to the prior year.
Neocon and Polydesign experienced lower sales compared to fiscal 2021. Polytech benefited from new programs
with high customer demand and AFX benefited from a rebound from positive product mix on high volume models.
Neocon’s product mix was significantly impacted by supply chain disruptions and Polydesign’s volumes were
impacted by supply chain issues and the impact of the Russian conflict with Ukraine as this conflict affected vehicle
production throughout Europe.
During the year, overall industry vehicle production volumes decreased by roughly 4% in North America and Europe
on a combined basis. Overall the segment’s 3% decrease in sales (foreign exchange adjusted) is better than the industry
due to new program launches. Despite the challenges from the semiconductor shortage on vehicle production, and
global supply chain and freight challenges, segment sales were supported by a number of program launches for both
new and existing products, particularly at Polytech and Neocon. More broadly, the segment’s four businesses continue
to focus their efforts on launching substantial programs, quoting significant new opportunities from EV and new
market entrants, customer diversification and higher margin activity. Management sees continuing opportunity for
future growth supported by recent program wins and quoting activity for new programs in both North American and
Europe and pricing action to protect margins.
• Casting and Extrusion Segment
Sales in this segment were $236.0 million – an increase of $38.0 million or 19% from the prior year. Excluding the
adverse impact of foreign exchange, segment sales increased $42.1 million or 21% compared to fiscal 2021. The
Halex acquisition contributed $21.2 million, the launch of Castool 90 (Morocco), the Extrusion group’s original six
locations and Castool’s extrusion related products contributed to the higher sales levels in fiscal 2022. The Large
Mould and Die-cast consumable tooling sales were down in the beginning of the year as the impact of the
semiconductor chips and other supply chain issues negatively impacted vehicle production. However, demand
stabilized in the second half of the year and sales in these groups rebounded. Quoting activity in the Large Mould
group remains strong with the group diversifying its customer base. Double digit sales growth from the Additive
department continued as new and existing customers realized the benefits of additive components. Where possible,
the Casting and Extrusion segment took pricing actions to protect margins.
Cost of Sales
On a consolidated basis, cost of sales totalled $392.7 million – an increase of $40.7 million or 12% from the prior
year. Cost of sales as a percentage of sales increased from 76% in fiscal 2021 to 80% in the current year partly due
to sales mix. Raw materials including petroleum/natural gas-based resins, leather goods, plastic products, and tool
grade steel prices increased due to inflationary and macro economic pressures. Management took pricing actions such
as negotiating price increases and surcharges to partially offset the impact of cost increases. The success of these
actions varied based on the type and length of the contract and the extent of the cost increases incurred. Direct labour
wage increases were partially offset by manufacturing improvements and strategic fixed asset purchases to improve
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productivity. Therefore direct labour as a percentage of sales remained constant for both operational segments.
Overhead costs increased with higher sales volume and inflation including increased indirect wages, benefits,
transportation and energy costs.
Selling, General and Administrative Expenses
Selling, general and administrative expense in the current year increased to $44.4 million from $39.2 million last year,
an increase of 13%. Current year Selling, General and Administrative expenses increased due to the addition of Halex,
higher selling, tradeshows and related travel costs, higher compensation, acquisition closing costs partially offset by
lower incentive bonus expenses and foreign exchange gains.
Depreciation and Amortization
Consolidated depreciation expense was $21.4 million compared to $17.4 million the prior year. Depreciation expense
within the Casting and Extrusion segment totalled $18.2 million in fiscal 2022 versus $14.0 million in fiscal 2021 and
depreciation expense within the Automotive Solutions segment totalled $3.1 million versus $3.4 million last year.
Amortization expense of $3.9 million in fiscal 2022 increased from $3.7 million from 2021. The carrying value of
total intangible assets amounted to $34.4 million as at September 30, 2022 – up from $25.8 million a year ago. The
intangible asset increase is due to the Halex acquisition. The Company expects the annual amortization and
depreciation expense will total approximately $4.5 million and $27.2 million respectively in fiscal 2023. Depreciation
expense is anticipated to increase due to a full year impact of Halex, the launch of our Castool facility in Mexico and
the completion of our Heat treatment expansion programs (in Newmarket, Markham, Texas and Mexico).
Interest
Net interest expense in the current year totalled $2.4 million compared to $0.4 million in fiscal 2021. The increase is
due to the Company drawing on its committed credit facility compared to average cash balances in fiscal 2021. The
increased debt is the result of the Halex acquisition, the increased capital asset purchases and lower operating results
in fiscal 2022.
Income Taxes
Exco’s effective income tax rate was 24.7% in fiscal 2022 compared to an effective income tax rate of 20.9% in fiscal
2021. The change in income tax rate is due to non-deductible start-up losses from our Castool Morocco facility,
geographic distribution, and foreign tax rate differentials.
Net Income
• Consolidated
The Company reported consolidated net income of $19.0 million or basic and diluted earnings of $0.49 per share in
fiscal 2022, compared to consolidated net income of $38.4 million or basic and diluted earnings of $0.98 per share
the prior year.
• Automotive Solutions Segment - Pretax profit
The Automotive Solutions segment recorded Pretax profit of $20.9 million for the year compared to $30.7 million last
year – a decrease of $9.8 million or 32%. The largest contributors to the lower pretax profits in this segment were the
disruptions caused by significant negative product mix experienced at Neocon and Polydesign combined with the
impact of higher raw material costs (resins, polypropylene yarns, and rubber), increased labour costs, transportation
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and other overhead costs. Management worked diligently to contain expenses but was forced to increase inventory to
be able to react quickly to changing customer demands and endeavored to increase production efficiencies where
possible to maintain margins. As customer orders stabilized and improved slightly during the year, management
benefited from more consistent production scheduling, reduced expedited shipping, and improved margins. Where
possible, the Company benefited from price adjustments to offset inflationary pressures. Although there exists
uncertainty relating to how the global supply chain challenges, the Russian war, and COVID-19 will affect the
recovery of global automotive production volumes and the impact inflation may have on raw material and other costs
in the year ahead, management remains optimistic on the segment’s prospects for continued profitable growth. This
view is supported by low vehicle inventory levels, strong customer demand for new vehicles, new program launches,
and sustained existing program wins combined with decent quoting activity for new business at favourable margins.
• Casting and Extrusion Segment - Pretax profit
Casting and Extrusion Pretax profit was $12.0 million for the year compared to $25.7 million last year – a decrease of
$13.7 million or 53%. The reduction in pretax profit is a result of a $5 million increase in depreciation and
amortization due to the launch of new facilities and capital asset additions; start-up costs at Castool Morocco, Castool
Heat treat, and temporary outsourcing costs from Extrusion Heat treat expansion; the impact of semiconductor chips
on production volumes; and inflationary increases on steel, labour, and transportation costs. These costs were partially
offset by pricing adjustments including surcharges and improvements to manufacturing efficiencies due to the
purchase of new more efficient capital equipment. Although quoting activity remained strong and the Large Mould
group’s backlog remains near record levels with a more diversified customer base with traditional OEM and new
automotive customers, its earnings were down compared to the prior year. The Large Mould group is continuing its
standardization of manufacturing processes and capital assets across all three locations and leveraging certain
management functions. Generally, management remains focused on reducing this segment’s overall cost structure,
improving manufacturing efficiencies and completing our new greenfield operations. Such activities together with
higher sales and seasoning of newer operations generally are expected to lead to improved segment profitability over
time.
Corporate Segment – Pretax loss
•
Corporate expense in the current year amounted to $5.2 million compared to $7.4 million in the prior year. The year
over year decrease was primarily driven by foreign exchange gains realized on the strengthening US dollar, lower
incentive bonus and stock option expenses, partially offset by Halex acquisition costs.
EBITDA
EBITDA in the current year amounted to $53.0 million compared to $70.1 million the prior year – a decrease of $17.1
million or 24%. EBITDA margin decreased to 10.8% compared to 15.2% from the prior year. EBITDA in the Casting
and Extrusion segment was $30.9 million, which was $9.3 million lower than fiscal 2021. Casting and Extrusion
segment EBITDA margin decreased to 13.1% from 20.3% the prior year. The Automotive Solution segment EBITDA
was $27.2 million, which was lower by $10.0 million, or 27% compared to fiscal 2021. The Automotive Solution
segment EBITDA margin decreased to 10.7% in fiscal 2022 compared to 14.1% the prior year.
Quarterly Results
The following table sets out financial information for each of the eight fiscal quarters through to the fiscal year
ended September 30, 2022:
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($ thousands except per share
amounts)
Sales
Net income
Earnings per share
Basic
Diluted
September 30,
2022
$140,411
$5,569
$0.14
$0.14
($ thousands except per share
amounts)
September 30,
2021
Sales
Net income
Earnings per share
Basic
Diluted
$106,442
$7,088
$0.18
$0.18
June 30,
2022
$129,250
$5,563
$0.14
$0.14
June 30,
2021
$114,967
$8,682
$0.22
$0.22
March 31,
2022
$119,303
$5,098
December 31,
2021
$100,979
$2,736
$0.13
$0.13
$0.07
$0.07
March 31,
2021
$118,360
$11,734
December 31,
2020
$121,402
$10,916
$0.30
$0.30
$0.28
$0.28
Exco typically experiences softer sales and profits in the first and fourth fiscal quarters, which coincides with our
customers’ plant shutdowns during the holiday season and summer months. This pattern was disrupted in the eight
quarters above due to recovery from COVID-19 in H1 of fiscal 2021, the impact of the semiconductor chip shortage
H2 fiscal 2021 and H1 fiscal 2022 and finally, the purchase of Halex in H2 fiscal 2022.
Fourth Quarter
In the fourth quarter, consolidated sales were $140.4 million – an increase of $34.0 million or 32% from the prior
year. Foreign exchange rate movements were negligible reducing sales by $0.6 million in the quarter.
The Automotive Solutions segment experienced a 16% increase in sales, or an increase of $9.2 million, to $66.0
million from $56.8 million in the fourth quarter of 2021. Excluding the impact of foreign exchange, segment sales
increased $10.1 million, or 18%. The sales increase was driven by higher vehicle production volumes and fewer
program launch delays as supply chain disruptions eased in the quarter. North American vehicle production was up
24% compared to a year ago and European vehicle production was up 20%. Sales increased at all four of the segment’s
operations as we benefited from higher production volumes and the continued ramp up in new programs. This
outweighed negative mix and lost shipping days at Neocon which was impacted by Hurricane Fiona at year end.
Looking forward, OEM vehicle production volumes are expected to increase as the semiconductor chip shortage
continues to improve. While industry growth may be tempered by rising interest rates and emerging indicators of a
global recession, there remains significant pent-up customer demand for new vehicles and dealer inventory levels are
expected to be replenished from historically low levels. As well, Exco will benefit from recent and future program
launches that are expected to provide growth in our content per vehicle. Quoting activity remains encouraging and
we believe there is ample opportunity to achieve our targeted growth objectives.
The Casting and Extrusion segment recorded sales of $74.4 million in the fourth quarter compared to $49.6 million
last year – an increase of $24.8 million or 50%. Excluding the impact of foreign exchange movements, the segment’s
sales were up 47% for the quarter. Included in the quarter was the first full quarter of Halex sales. Halex sales of
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$12.3 million were up compared to Q3, but remained below potential due to European summer holidays, the Russian
conflict in Ukraine, and weakening economic conditions in Europe. Demand for our extrusion tooling (i.e. dies,
dummy blocks, stems, etc.) and associated capital equipment (die ovens, containers, etc.) outside of Europe remained
strong due to both industry growth and ongoing market share gains. Management remains focused on standardizing
manufacturing processes, enhancing engineering depth and centralizing some support functions across its various
plants. These initiatives have reduced lead times, enhanced product quality, expanded product breadth and increased
capacity, all of which has supported market share gains. In the die-cast market, which primarily serves the automotive
industry, demand and order flow for new moulds, associated consumable tooling (shot sleeves, rods, rings, tips, etc.)
and rebuild work has recently picked up as industry vehicle production recovers and new electric vehicles and more
efficient internal combustion engine/transmission platforms are launched. As well, customer inventory levels have
begun to be rebuilt as expectations for higher vehicle production volumes improves. In addition, demand for Exco’s
industry leading additive (3D printed) tooling has continued to gain significant traction as customers focus on greater
efficiency with the size and complexity of die cast tooling continuing to increase. Sales in the quarter were also aided
by price increases, which were implemented in order to protect margins from higher input costs. Quoting activity
remains very robust and our backlogs remain firm, which is expected to bode well for sales into fiscal 2023.
The Company’s fourth quarter consolidated net income decreased to $5.6 million or earnings of $0.14 per share
compared to $7.1 million or earnings of $0.18 per share in the same quarter last year – a decrease of 22%. The effective
income tax rate was 26% in the current quarter compared 27% in the same quarter last year.
Fourth quarter pre-tax earnings in the Automotive Solutions segment totalled $6.5 million, an increase of $2.0 million
or 44% over the same quarter last year. Fourth quarter Automotive sales are traditionally lower due to summer
shutdowns and in the current year our quarterly sales increased due to a reduced impact of the semiconductor shortage
and new product launches. Nonetheless, some of our plants continued to experience disruptions by the semiconductor
shortage, which can continue to be unpredictable, making it very difficult to manage operations efficiently. Our plants
often build products based on releases only to be informed of cancelations or delays. Other times, releases would be
accelerated causing our operations to work overtime and incur expedited shipping costs. These production and
shipping challenges also created inefficiencies that increased overhead and direct labour costs during the quarter. As
discussed earlier, Neocon was shutdown for 3 days due to the impact of Hurricane Fiona which negatively impacted
the segment’s pretax profit. Management is cautiously optimistic that its overall cost structure will return to relatively
normal levels in future quarters as scheduling and predictability improves with strengthening volumes.
Fourth quarter pre-tax earnings in the Casting and Extrusion segment totalled $2.6 million, a decrease of $3.4 million
or 57% over the same quarter last year. The pretax profit decline was driven by $2.2 million higher depreciation,
start-up costs at Castool Morocco and Castool’s heat treatment operations in Newmarket, temporary outsourced heat
treat costs in Markham as new equipment is installed, and higher raw material, freight and labour costs due to inflation.
Many of these costs are one-time or temporary costs. Management expects to generate higher sales or eliminate these
costs over the coming quarters through efficiency improvements and has taken pricing action to recapture lost margin
where possible. The higher depreciation relates to Halex and the Company’s investment in new capital that will
improve operations and provide access to new geographies to increase our market share. Many of these assets became
“ready for use” in the quarter, without realizing the improvements in operating efficiencies and or higher sales. The
Castool Morocco ramp is proceeding favorably, but has been slower than anticipated due to the supply chain
constraints, inflation, and the Russian invasion of Ukraine.. 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 $0.1 million compared to $0.7 million last year due
to foreign exchange gains and lower compensation expenses in the current quarter. As a result of the foregoing,
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consolidated EBITDA in the quarter was $16.5 million (11.8% of sales) compared to $15.3 million (14.4% 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 $49.7 million in fiscal 2022 compared to
$62.8 million in fiscal 2021. The $13.1 million year over year decrease was primarily driven by lower net income in
fiscal 2022 partially offset by $6.4 million increase in depreciation, amortization and interest costs. Net change in
non-cash working capital was $26.2 million cash used in fiscal 2022 compared to $15.0 million cash used last year.
The year over year cash working capital variance was driven by higher accounts receivable associated with the addition
of Halex and higher sales, increased inventory partially offset by increased accounts payable. The negative working
capital variance reduced cash from operating activities to $23.5 million in fiscal 2022.
Cash Flows from Financing Activities
Cash provided by financing activities amounted to $80.0 million compared to a use of $16.9 million in fiscal 2021 for
a year over year change of $96.9 million. The $80.0 million cash provided reflects the $95.0 million increase in long-
term debt associated with the purchase of Halex and the Company’s capital asset expansion strategy partially offset
by dividends of $16.2 million, repurchase of shares of $3.4 million and $2.4 million in interest payments.
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 19 of its 20 manufacturing facilities and materially all of its production
equipment. The Company also leases sales and support centers in Troy and Port Huron, Michigan, a warehouse in
Brownsville, Texas, and the operating facility in Weissenburg Germany. 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
$12,363
51,359
95,000
7,435
51,311
5,060
$222,528
< 1 year
$12,363
51,359
-
718
51,311
5,060
$120,811
1-3 years
-
-
95,000
918
-
-
$95,918
Over 3 years
-
-
-
5,799
-
-
$5,799
∗ 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 $110.4 million compared to $38.3 million last year. The
increase reflects the $57.6 million purchase of Halex and $53.5 million for purchase of capital assets. The increase in
capital asset purchases reflect the completion of our Castool Morocco facility, investments in the heat treatment facility
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in Newmarket, upgrades to the Extrusion group’s heat treatment assets and various other capital improvement projects
across the company to support growth initiatives.
In fiscal 2023, Exco plans to invest approximately $46.9 million in capital expenditures of which roughly $27.8 million
is for growth capital expenditures and $19.1 million is for maintenance capital expenditures. Included in the 2023
estimate is $18.0 million in carryforward projects including completion of the Heat treat installations in Newmarket,
Markham, Texas and Mexico, and the new Castool facility in Mexico.
Financial Position and Cash Balance
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 investments as circumstances permit.
Exco’s net debt was $90.3 million at September 30, 2022 compared to net cash of $18.6 million as at September 30,
2021, representing a change of $108.9 million. The Company generated Free Cash Flow of $7.4 million and paid
dividends of $16.2 million, repurchased shares for $3.4 million, acquired Halex for $57.6 million and had Growth
capital expenditures of $39.9 million (an increase of $11.5 million from the prior year). As a result, the Company
accessed its committed credit facility for $95 million.
As at September 30, 2022, Exco retained access to $20.0 million of its $127 million committed banking facilities.
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 of September 30, 2022. Effective November 7, 2022, the
Company increased its credit facilities by $25 million to $152 million with no changes to the terms.
Non-IFRS Measures
The following table provides a reconciliation of EBITDA, EBITDA margin and Free Cash Flow for the periods to the
Company’s IRFS measures as well as a reconciliation of cash provided by operating activities to free cash flow.
Net income
Provision for income tax
Pretax Profit
Depreciation
Amortization
Net interest expense
EBITDA
Sales
EBITDA margin
Twelve Months ended
September 30
(in $ thousands)
2022
2021
$18,966
$38,420
6,233
10,157
25,199
21,445
3,927
2,446
53,017
48,577
17,412
3,670
405
70,064
$489,943
$461,171
10.8%
15.2%
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Cash provided by operating activities
Interest expense, net
Maintenance fixed asset additions
Free Cash Flow
Outstanding Share Capital
$23,473
(2,446)
(13,625)
$7,402
$47,790
(405)
(10,067)
$37,318
As of September 30, 2022, the Company had 38,912,464 common shares outstanding. In addition, as of September
30, 2022, the Company had outstanding stock options for the purchase of up to 1,046,500 common shares at exercise
prices ranging from $8.29 to $10.15 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 Consolidated 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 (as determined by
the Black-Scholes option pricing model) is amortized to earnings over the remaining vesting period. 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
There were no accounting policy changes adopted during the year ended September 30, 2022. Refer to Note 2 to the
consolidated financial statements for information pertaining to the accounting changes and issued accounting
pronouncements effective in future years.
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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
disclosure controls and procedures are adequate and effective as of September 30, 2022 in ensuring that material
information relating to the Company and its consolidated subsidiaries would have been known to them.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the most recent period, there have been no changes in the Company’s existing policies and procedures and
other processes that comprise its internal control over financial reporting, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer and Chief Financial Officer, together with other members of management, have designed
internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Company’s
financial reporting and its compliance with the integrated framework issued by the Committee of Sponsoring
Organization of the Treadway Commission in its consolidated financial statements. The CEO and the CFO have
supervised management in the evaluation of the design and effectiveness of the Company’s internal controls over
financial reporting as at September 30, 2022 and believe the design and effectiveness of the internal controls to be
effective.
LIMITATION ON SCOPE OF DESIGN
The scope of design of internal controls over financial reporting and disclosure controls and procedures excluded the
controls, policies, and procedures of Halex, which was acquired on May 2, 2022. The CSA’s National Instrument 52-
109 provide an exemption whereby companies undergoing acquisitions can exclude the acquired business in the year
of acquisition from the scope of testing and assessment of design and operational effectiveness of internal controls
over financial reporting. Due to the complexity associated with assessing internal controls during integration efforts,
the Company plans to utilize the scope exemption as it relates to this acquisition in its management report on internal
controls over financial reporting for the year ended September 30, 2022. Halex’s contribution to our consolidated
statements of income and comprehensive income for the year ended September 30, 2022, was less than 5% of total
revenues and less than 5% of total net income. Additionally, as at September 30, 2022, Halex current assets and current
liabilities were less than 5% of consolidated current assets and current liabilities, The amounts recognized for the
assets acquired and liabilities assumed at the date of acquisition of Halex are described in note 18 of the consolidated
financial statements for the year ended September 30, 2022.
RISKS AND UNCERTAINTIES
OEMs have experienced strong consumer demand for vehicles in key markets as COVID-related restrictions have
eased. Yet global shortage of semiconductor chips continues to negatively impact global automotive production
volumes. The combination of strong sales and reduced production has resulted in low inventories of new vehicles.
OEMs have taken a number of actions in response to the semiconductor chip shortage, including: unplanned
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shutdowns of production lines and/or plants; reductions in their vehicle production plans; and changes to their product
mix. These responses can result in a number of consequences at Exco such as: lower sales; production inefficiencies
due to production lines being stopped/restarted unexpectedly based on OEMs' production priorities; premium freight
costs to expedite shipments; and/or other unrecoverable costs. Furthermore, Tier 1 and 2 suppliers such as Exco may
face price increases from suppliers. While we expect to recover some of the lost production volumes, it remains unclear
when supply and demand for automotive semiconductor chips will rebalance and it continues to be difficult to predict
the full impact of the chip shortage.
In response to Russia’s invasion of Ukraine, a number of countries, including the U.S. and European Union member
states, have taken actions against Russia, such as: imposition of sanctions on Russian and certain Russian leaders and
other individuals; restrictions on certain sectors of the Russian economy; expulsion of some Russian banks from the
SWIFT global banking payment system; and other measures, with further restrictions likely as the conflict continues.
Exco does not have manufacturing operations in Russia, nor does the Company have customers or suppliers from
Russia or Ukraine. However, the conflict and restrictive measures against Russia could exacerbate a number of risks
described elsewhere in these Risk Factors, including: disruption of vehicle production and supply chains; worsening
the current semiconductor chip shortage (since Russia and Ukraine are global suppliers of neon gas and palladium
used in chip production); exacerbating energy shortages and driving energy prices higher (particularly oil and natural
gas); constraining the supply of aluminum, palladium or other commodity metals required in automotive production;
and increased cybersecurity threats.
There is a greater risk of inflationary price increases as economic activity rebounds in our primary production markets
and supply chains, especially for products sourced from Asia. During the year, we witnessed increasing commodity
costs for steel, aluminum and resin, as well as wage pressures in certain markets. These trends are expected to continue
in coming quarters and could expand to other areas. In some cases inputs may not be available in a timely manner.
The inability to offset inflationary price increases through continuous improvement actions, price increases or
adjustments on our own products or otherwise, could have an adverse effect on our earnings.
Despite increasing vaccination levels, the development and spread of highly-transmissible COVID-19 variants creates
continued risk of further disruptions to the automotive industry, including additional mandatory stay-at-home orders
or other restrictions. These orders may: restrict consumers' ability to purchase vehicles; restrict production; cause
elevated employee absenteeism; and lead to supply chain disruptions. Over the medium- to long-term, the pandemic
may result in societal changes that impact the automotive industry, positively or negatively, including as a result of
expanded work-from-home practices that reduce consumers' reliance on vehicles; and/or increased reluctance by
people to utilize modes of public transit and/or shared mobility.
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
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leverage their balance sheet for tax purposes or otherwise increase their investment yield. Doing business with such
customers typically increases the risk of default and filing for bankruptcy protection. The Company uses its best
efforts to collect accounts receivable under 60 days but in some cases the terms may be notably longer and often in
other currencies thereby requiring Exco to bear the exchange rate risk. The Company often has the benefit of statutory
or common law liens on its products, however, it is not uncommon for significant receivables to be outstanding for
considerable periods, particularly in the large mould business.
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 suppliers 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 suppliers 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 this risk.
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.
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Exco has made six acquisitions in the last 12 years (Allper AG, Exco Colombia, Extrusion Texas, Automotive Leather
Company, AFX Industries and Halex) and may make others in the future. Acquisitions inherently involve risk. While
Exco has concluded many acquisitions that have been very successful, there have also been disappointing acquisitions
which have adversely impacted earnings. Integration of acquired companies may not be effective or timely especially
with respect to operations in countries where Exco has not previously done business.
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 2023, it is
estimated that Exco’s total corresponding U.S. dollar foreign exchange risk exposure before tax will amount to
approximately US$81.6 million. Therefore, if the Canadian dollar were to strengthen or weaken by $0.01 in fiscal
2023 from a baseline level of $1.26 USD/CAD, it is estimated that pre-tax profit would change by about $816 thousand
or about $637 thousand after tax. These estimates are based on historical norms and may be materially different in
2023 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 2023, we estimate our pesos exposure net of hedges and pesos denominated
sales to be approximately 162 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 1.26, we estimate pre-tax profit would change by
$230 thousand or about $150 thousand after tax. These estimates are based on historical norms and may be materially
different in fiscal 2023 if customers deviate from their past practices.
Exco also has manufacturing facilities in Colombia, Brazil, Thailand, Morocco and Europe 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.
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The cost of manufacturing our products is a critical factor in determining our success over the long term.
Manufacturing has generally expanded to developing countries where competing technologies and lower labor-cost
structures exist. Exco must compete against companies doing business in these developing countries. Exco has met
this challenge by manufacturing some labour-intensive products in Mexico, Thailand and Morocco; however, many
of our operations based in Canada, U.S. and Europe 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
23
ANNUAL REPORT 2022
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, 2022 and 2021, 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, 2022 and 2021 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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in
that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the procedures performed to address the matters below,
provide the basis for our audit opinion on the accompanying consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2022
Key Audit Matter
Assessment of impairment
As described in Note 6 to the consolidated financial
statements, the Group has a goodwill balance of $88.7
million as at September 30, 2022, of which $62.6 million
was allocated to the group of cash generating units
(“CGUs”) comprising the Automotive Solutions operating
segment and $26.1 million to the Extrusion group of
CGUs. The Group assesses at least annually, or more
frequently if an indicator of impairment exists, whether
there has been an impairment in the carrying value of
goodwill. An impairment is recognized if the recoverable
amount is less than the carrying amount of the group of
CGUs to which goodwill is allocated.
The Group also disclosed in Note 6 that a CGU with a
carrying amount of $39.4 million had an indicator of
impairment, and therefore an impairment test was
performed. The recoverable amount was in excess of the
carrying amount and thus no impairment was recorded.
For all impairment tests, the Group determines the
recoverable amount using a value in use approach.
Auditing the Group’s impairment tests was complex, given
the degree of subjectivity in evaluating the Group’s
estimates and assumptions in determining the various
recoverable amounts. Significant assumptions included
forecasted revenues and profit margins, terminal growth
rate, and the discount rate all of which are affected by
expectations about future market and economic
conditions.
Valuation of customer relationship intangibles in the
business combination
As described in Note 18 to the consolidated financial
statements, the Group completed the acquisition of 100%
of Halex Holding GmbH for consideration of $60.2 million.
The fair value of the acquired intangible assets was $9.6
million, of which $8.1 million relates to the customer
relationship intangibles.
Auditing the valuation of customer relationship intangibles
was complex due to the subjective nature of estimating
the fair values. The fair value of customer relationship
intangibles is determined by management using
subjective inputs such as estimated customer attrition,
discount rates, projected revenues and gross profit.
How our audit addressed the key audit matter
To test the estimated recoverable amounts in the
impairment tests, we performed the following
procedures, among others:
- We assessed the reasonableness of
forecasted revenues and profit margins by
comparing to supporting documentation such
as customer contracts where available,
approved budgets and historical performance;
- We assessed the historical accuracy of
estimates of forecasted revenue and profit
margins to actual performance;
- We evaluated the terminal growth rate by
comparing to long term inflation expectations
with the assistance of our valuation specialists;
- We involved our valuation specialists to assess
the appropriateness of the Group’s model and
valuation methodology applied. They also
assessed the various inputs utilized in
determining the discount rate by referencing
current industry, economic, and comparable
company capital structures, as well as Group
and cash-flow specific risk premiums; and
- We assessed the adequacy of the disclosures
included in Note 6 of the consolidated financial
statements in relation to this matter.
To test the reasonableness of assumptions used by
the Group in determining the fair value of customer
relationship intangibles, we performed the following
procedures, among others:
- We benchmarked customer attrition estimates
to comparable operations in the extrusion
industry;
- We involved our valuation specialists to assess
the appropriateness of the valuation
methodology applied to estimate the fair value
of the customer relationship intangibles, and to
assess the discount rate by referencing current
industry, economic, and comparable company
capital structures, as well as Group and cash-
flow specific risk premiums;
- We performed a sensitivity analysis on the
discount rate and attrition rate to evaluate the
impact on the fair value; and
- We assessed the reasonableness of
forecasted revenues and profit margins by
comparing to historical performance.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2022
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.
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 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.
EXCO TECHNOLOGIES LIMITED
26
ANNUAL REPORT 2022
•
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.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Blake Langill.
Toronto, Canada
November 29, 2022
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
$(000)'s
As at
September 30, 2022 September 30, 2021
As at
ASSETS
Current
Cash and cash equivalents (note 8)
Accounts receivable (note 8)
Inventories (note 9)
Prepaid expenses and deposits
Derivative instruments (note 8)
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 (notes 5 and 8)
Provisions (note 7)
Customer advance payments (note 8)
Total current liabilities
Lease liabilities - long-term portion (note 8)
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
$17,024
113,940
97,962
4,322
2,066
9,114
244,428
207,103
34,446
88,699
1,640
$576,316
$12,363
51,359
15,859
18,682
6,445
3,169
107,877
6,650
95,000
18,280
227,807
48,767
5,431
4,618
289,693
348,509
$576,316
$24,098
83,130
77,759
3,418
546
2,741
191,692
149,474
25,783
61,861
1,317
$430,127
$5,540
33,793
13,793
11,454
3,936
4,814
73,330
420
-
11,319
85,069
48,983
5,087
1,116
289,872
345,058
$430,127
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
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ANNUAL REPORT 2022
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 17)
Depreciation (note 5)
Amortization (note 6)
Gain on disposal of property, plant and equipment
Interest expense, net (note 16)
Income before income taxes
Provision for 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 gain 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
2021
$461,171
351,960
39,245
17,412
3,670
(98)
405
412,594
2022
$489,943
392,673
44,432
21,445
3,927
(179)
2,446
464,744
25,199
48,577
3,448
2,785
6,233
$18,966
1,119
2,383
3,502
$22,468
$0.49
$0.49
39,085
39,089
7,749
2,408
10,157
$38,420
1,699
(10,939)
(9,240)
$29,180
$0.98
$0.98
39,270
39,293
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$(000)'s
Balance, September 30, 2020
Net income for the year
Dividends paid (note 3)
Stock option expense (note 3)
Issuance of share capital (note 3)
Other comprehensive income (loss) (note 3)
Balance, September 30, 2021
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, 2022
Accumulated other comprehensive income (loss)
Unrealized gain
Total
(loss) on
accumulated
foreign
other
currency
comprehensive
translation
income (loss)
$10,356
$11,654
-
-
-
-
-
-
-
-
(9,240)
(10,939)
1,116
715
-
-
-
-
-
-
-
-
-
-
3,502
2,383
$4,618
$3,098
Net unrealized
gain (loss) on
derivatives
designated as
cash flow hedges
($1,298)
-
-
-
-
1,699
401
-
-
-
-
-
1,119
$1,520
Retained
earnings
$266,964
38,420
(15,512)
-
-
-
289,872
18,966
(16,204)
-
(2,941)
-
$289,693
Total
shareholders'
equity
$331,006
$38,420
($15,512)
$371
$13
($9,240)
345,058
18,966
(16,204)
384
224
(3,421)
3,502
$348,509
Share
capital
$48,968
-
-
-
15
-
48,983
-
-
-
264
(480)
-
$48,767
Contributed
surplus
$4,718
-
-
371
(2)
-
5,087
-
-
384
(40)
-
-
$5,431
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
30
ANNUAL REPORT 2022
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 (note 13)
Net interest expense (note 16)
Gain on disposal of property, plant and equipment
Net change in non-cash working capital (note 14)
Cash provided by operating activities
FINANCING ACTIVITIES:
Increase 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 provided by (used in) financing activities
INVESTING ACTIVITIES:
Business acquisition, net of cash acquired (note 18)
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
2021
2022
$18,966
$38,420
21,445
3,927
352
2,759
2,446
(179)
49,716
(26,243)
23,473
6,823
95,000
-
(2,446)
(16,204)
(3,421)
224
79,976
(57,616)
(52,112)
(1,393)
765
(110,356)
17,412
3,670
773
2,257
405
(98)
62,839
(15,049)
47,790
2,122
-
(3,093)
(405)
(15,512)
-
13
(16,875)
-
(38,426)
(287)
381
(38,332)
Effect of exchange rate changes on cash
(167)
(1,609)
Decrease in cash during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(7,074)
24,098
$17,024
(9,026)
33,124
$24,098
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
31
ANNUAL REPORT 2022
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
20 strategic locations in 9 countries, the Company services a diverse and broad customer base. The Company is
incorporated and domiciled in Canada. The registered office is located at 130 Spy Court, Markham, Ontario, Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are outlined below:
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Certain comparative figures have been reclassified to conform to the current year’s presentation.
The consolidated financial statements and accompanying notes as at and for the year ended September 30, 2022 were
authorized for issue by the Board of Directors on November 29, 2022.
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.
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 (loss).
EXCO TECHNOLOGIES LIMITED
32
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
When a foreign operation is sold, exchange differences that were recorded in accumulated other comprehensive income
(loss) are recognized in the consolidated statements of income and comprehensive income as part of the gain or loss on
sale.
Segment reporting
Management has determined the operating segments based on the information regularly reviewed for the purposes of
decision making, allocating resources and assessing performance by the Company’s chief operating decision maker,
which is the chief executive officer. Factors used to identify reportable segments include product categories, customers
served and geographical region of operations. The chief operating decision maker evaluates the financial performance
of its operating segments primarily based on net income before interest, other income (expense) and income tax
expense.
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.
The Company’s critical accounting estimates are affected as a result of the various ongoing economic, geopolitical and
social impacts, including the global pandemic, Russian invasion of Ukraine and recessionary conditions. There
continues to be significant uncertainty as to the likely effects these items which may, among other things, impact our
employees, suppliers, and customers. It is not possible to predict the impact these items will have on the Company, its
financial position and the results of operations in the future. The Company is monitoring the future impact of all these
items on all aspects of its business. Each reporting period, management carries out this assessment for indications that
goodwill and other long-lived assets may be impaired. As required, management will continue to assess these
assumptions as the 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.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Property, plant and equipment and intangible assets (including goodwill) are reviewed for potential impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and, in the case
of goodwill, on an annual basis. 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.
Impairment of non-financial assets exists when the carrying value of an asset, CGU or group of CGUs 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 or group of CGUs 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 terminal growth rate used
for extrapolation purposes. The key assumptions used to determine the recoverable amount, including a sensitivity
analysis, are disclosed and further explained in note 6.
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.
In a business combination, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded
at the date of acquisition at their respective fair values. One of the most significant areas of judgement and estimation
relates to the determination of the fair value of these assets and liabilities. The estimate of fair value of customer
relationships is based on future cash flows derived from expectations of revenue, margins and attrition of acquired
customer relationships.
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
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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. Changes in 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
Provision for income tax consists of current and deferred income taxes. Provision for 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
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.
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The depreciation methods and useful lives are assessed annually or when critical events occur that may affect the useful
lives and expected pattern of consumption of economic benefits embodied in the asset.
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
Trade names: 7 years
Intangible assets acquired in a business acquisition are primarily customer relationships and are initially recorded at
fair value and subsequently at cost less amortization and impairment losses.
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 of disposal 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 of disposal, 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..
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
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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 performs a goodwill impairment test annually as at
September 30 or more frequently when there is an indicator that the goodwill may be impaired. Impairment
is determined for goodwill by assessing the recoverable amount of each CGU group to which the goodwill is
allocated. 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
no longer exist, the amount of the write-down previously recorded is reversed.
Determination of fair value
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interests.
A fair value measurement on a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the
asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic
basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates
to an asset, the cost of the asset is reduced by the amount of the grant.
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 statements
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
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
classified as FVTPL, the Company initially recognizes such financial assets and liabilities on the consolidated
statements 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 statements 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:
The Company uses an “expected credit loss” (“ECL”) model 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.
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.
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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
ease 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:
•
•
•
•
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 each period 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 issued but not yet adopted
All pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the
effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected
to be relevant to the Company’s consolidated financial statements is provided below. Certain other new standards,
amendments and interpretations to existing standards may have been issued but are not expected to have a material
impact to the Company’s consolidated financial statements.
IAS 37 Provisions, Contingent Liabilities, and Contingent Assets
Effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2022 the
IASB issued amendments to IAS 37 to clarify costs to be included when determining if a contract is onerous. As the
Company did not have any significant onerous contracts as at September 30, 2022, the standard is not expected to have
EXCO TECHNOLOGIES LIMITED
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
an impact on adoption.
IFRS 1 Presentation of Financial Statements, IFRS 8 Definition of Accounting Estimates
Effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2023 the
IASB issued amendments to IFRS 1 to allow a more general approach in classification of liabilities as current and non-
current and IFRS 8 to distinguish between accounting policies and accounting estimates. The Company is in the process
of reviewing the standard to determine the impact on the consolidated financial statements.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendments to paragraphs 69 to 76 of IAS 1 specify the requirements for classifying liabilities as current or non-
current. The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must be
applied retrospectively. The Company is currently assessing the impact the amendments will have on its consolidated
financial statements.
Amendments to IAS 12: Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction
The amendment narrowed the scope of certain recognition exemptions so that it no longer applies to transactions that,
on initial recognition, give rise to equal taxable and deductible temporary differences. An entity applies the amendments
to transactions that occur on or after the beginning of the earliest comparative period presented. It also, at the beginning
of the earliest comparative period presented, recognizes deferred tax for all temporary differences related to leases and
decommissioning obligations and recognizes the cumulative effect of initially applying the amendments as an
adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date. The
amendment is effective for annual periods beginning on or after January 1, 2023 with early application permitted. The
Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial
statements.
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, 2020
Exercise of stock options
Issued and outstanding as at September 30, 2021
Purchased and cancelled pursuant to normal course issuer bid
Exercise of stock options
Issued and outstanding as at September 30, 2022
Common Shares
Number of Shares
39,268,997
1,500
39,270,497
(385,033)
27,000
38,912,464
Stated
Value
$48,968
15
48,983
(480)
264
$48,767
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:
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Opening balance
Net unrealized gain 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 $399 (2021 – $606).
2022
2021
$1,116
$10,356
1,119
2,383
3,502
$4,618
1,699
(10,939)
(9,240)
$1,116
Cash dividends
During the year, the Company paid four quarterly cash dividends totaling $16,204 (2021 – $15,512). The dividend rate
per quarter increased starting in the second quarter of the year from $0.10 to $0.105 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:
2022
2021
Number of
Options
1,006,000
242,500
(27,000)
(175,000)
1,046,500
Weighted
Average
Exercise
Price
$9.22
$9.78
$8.31
$10.48
$9.16
Number of
Options
957,000
280,000
(1,500)
(229,500)
1,006,000
Weighted
Average
Exercise Price
$10.78
$8.29
$8.56
$14.56
$9.22
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, 2022:
Range of Exercise
Prices
$8.29 - $9.00
$9.01 - $10.00
$10.01 - $10.15
Number
Outstanding
524,000
382,500
140,000
Weighted Average
Remaining
Contractual Life
Options Outstanding
Weighted
Average
Exercise
Price
$8.43
$9.81
$10.15
years
years
years
3.14
3.59
0.66
Options Exercisable
Weighted
Average
Exercise
Price
$8.50
$9.87
$10.15
Number
Exercisable
136,500
84,000
112,000
$8.29 - $10.15
1,046,500
2.98
years
$9.16
332,500
$9.40
The number of common shares available for future issuance of options as at September 30, 2022 is 1,000,338
(2021 – 1,067,838). The number of options outstanding together with those available for future issuance totals
2,046,838 (2021 – 2,073,838) or 5.3% (2021 – 5.3%) of the issued and outstanding common shares. The options are
granted for a term of 5 to 10 years, and the options vest at 20% at each anniversary date from the date of grant.
Stock-based compensation
Stock-based compensation resulting from applying the Black-Scholes option pricing model to the Company’s Stock
Option Plan was $384 for the year ended September 30, 2022 (2021 – $371). All stock-based compensation has been
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EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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,
2022 and 2021 are as follows:
Risk-free interest rates
Expected dividend yield
Expected volatility
Expected time until exercise
Weighted average fair value of the options granted
2022
1.28%
4.09%
30.48%
5.50 years
$1.76
2021
0.49%
4.54%
32.96%
5.50 years
$1.46
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, 2022, the Company granted 23,134 DSUs (2021 – 12,884 DSUs) and redeemed
no DSUs (2021 – no DSUs). During the year ended September 30, 2022 the Company recorded stock-based
compensation income of $32 (2021 – $402 expense) related to awards under the DSU plan with a corresponding
adjustment to other accrued liabilities. As at September 30, 2022, 116,995 DSUs were outstanding with a carrying
value of $904 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
2022
$5,087
384
(40)
$5,431
2021
$4,718
371
(2)
$5,087
Normal course issuer bid
In each of February 2022, 2021 and 2020, the Company received approval from the Toronto Stock Exchange for a
normal course issuer bid for the following 12-month period. The Company’s Board of Directors authorized the purchase
of up to 1,955,000, 1,960,000 and 2,000,000 common shares under each of these normal course issuer bids,
respectively, which represented approximately 5% of the Company’s outstanding common shares at each approval
date. During the year, 385,033 common shares were re-purchased under these normal course issuer bids for a total cost
of $3,421 (2021– nil). The cost to repurchase the common shares in 2022 exceeded their stated value by $2,941 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
JP Morgan, credit facility (Canada, U.S.A.)
$125,000
$11,828
$95,000
JP Morgan, operating line (Europe)
2,409
535
-
Utilizations
Facilities
Current Long Term
Unused and
Available
$18,172
$1,874
Prime rate in Canada
Prime rate in USA
Prime rate in Eurozone
$127,409
$12,363
$95,000
$20,046
2022
5.45%
6.25%
1.25%
2021
2.45%
3.25%
0.00%
On February 23, 2022, the Company closed an amendment to renew and increase the Committed Revolving Credit
Facility (“Credit Facility”) with JP Morgan Chase Bank N.A. to $125,000, of which $106,828 was utilized as at
September 30, 2022 (2021 – $4,948). The Credit Facility has a three-year term and there are no specific repayment
terms prior to maturity. The Credit 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 Euribor 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 net worth and net leverage ratio
covenants. The Company was in compliance with these covenants as at September 30, 2022.
Effective November 7, 2022 the Company closed an amendment to increase the Credit Facility by $25,000 to $150,000
with no changes to terms or conditions.
Additionally, the Company maintains an operating line facility with JP Morgan Chase Bank N.A. London Branch related
to any needs for Euro currency. In March 2021 the facility was increased from EUR 1.55 million to EUR 1.8 million.
The facility totals $2,409 (EUR 1.8 million) and bears interest based on Euribor. The Company had utilized $535 as at
September 30, 2022 (2021 – $592).
The components of long-term debt are as follows:
Bank debt
Less: current portion
Long-term debt, long-term portion
September 30, 2022
$95,000
-
$95,000
September 30, 2021
$-
-
$-
EXCO TECHNOLOGIES LIMITED
43
ANNUAL REPORT 2022
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, 2020
Additions
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2021
Additions
Acquisition (note 18)
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2022
Accumulated depreciation and
impairment losses
Balance as at
September 30, 2020
Depreciation for the year
Less: disposals
Reclassifications
Foreign exchange movement
Balance as at
September 30, 2021
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2022
Carrying amounts
As at September 30, 2021
As at September 30, 2022
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Right of
Use
Assets
Total
$205,844
$22,541
$79,363
$12,584
$8,956
$1,785 $331,073
3,608
17,909
(7,380)
1,077
954
(959)
843
744
(251)
-
-
-
32,749
(19,607)
-
149
-
(263)
38,426
-
(8,853)
(3,548)
(432)
(1,626)
(199)
(94)
(71)
(5,970)
216,433
4,527
10,615
29,330
(5,629)
5,048
23,181
1,398
606
862
(1,897)
674
79,073
887
5,938
6,005
(44)
1,336
12,385
186
1,678
-
-
268
22,004
44,867
-
(36,197)
-
(813)
1,600
247
6,892
-
(200)
12
354,676
52,112
25,729
-
(7,770)
6,525
$260,324
$24,824
$93,195
$14,517
$29,861
$8,551 $431,272
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Right of
Use
Assets
Total
$143,235
11,849
(7,172)
62
(2,533)
$16,546
2,029
(954)
-
(391)
$39,732
3,061
(251)
(62)
(736)
145,441
15,374
(5,203)
3,298
17,230
2,266
(1,829)
639
41,744
3,230
(35)
721
$158,910
$18,306
$45,660
$ -
-
-
-
-
-
-
-
-
$-
$-
-
-
-
-
-
-
-
-
$531
473
(197)
-
(20)
$200,044
17,412
(8,574)
-
(3,680)
787
575
(117)
48
205,202
21,445
(7,184)
4,705
$-
$1,293
$224,169
$70,992
$101,414
$5,951
$6,518
$37,329
$12,385
$47,535
$14,517
$22,004
$29,861
$813 $149,474
$7,258 $207,103
EXCO TECHNOLOGIES LIMITED
44
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
As at September 30, 2022, the Company had deposits for machinery and equipment and buildings under construction
totaling $29,861 (2021 – $22,004). These assets are not being depreciated because they are under construction and not
available for use. ROU assets are primarily comprised of Building leases. The current portion of lease liabilities $712
(2021 – $412) is included in Other accrued liabilities on the balance sheet.
6. INTANGIBLE ASSETS AND GOODWILL
Cost
Balance as at September 30, 2020
Additions
Less: disposals
Reclassifications
Foreign exchange movement
Balance as at September 30, 2021
Additions
Acquisitions (note 18)
Less: disposals
Reclassification
Foreign exchange movement
Balance as at September 30, 2022
Accumulated amortization
and impairment losses
Balance as at September 30, 2020
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2021
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2022
Carrying amounts
As at September 30, 2021
As at September 30, 2022
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
$8,290
216
(202)
104
(170)
8,238
597
159
(319)
781
129
$9,585
$47,554
-
-
-
(1,981)
45,573
-
9,490
-
-
3,100
$58,163
$46
71
-
(104)
(3)
10
796
-
-
(781)
(1)
$24
$55,890
287
(202)
-
(2,154)
53,821
1,393
9,649
(319)
-
3,228
$67,772
$64,980
-
-
-
(3,119)
61,861
-
29,773
-
-
(2,935)
$88,699
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
$7,228
591
(198)
(157)
7,464
544
(318)
162
$7,852
$18,127
3,079
-
(632)
20,574
3,383
-
1,517
$25,474
$-
-
-
-
-
-
-
-
$-
$25,355
3,670
(198)
(789)
28,038
3,927
(318)
1,679
$33,326
$-
-
-
-
-
-
-
-
$-
$774
$1,733
$24,999
$32,689
$10
$24
$25,783
$34,446
$61,861
$88,699
**Acquisition intangibles are comprised of customer relationships and trade names resulting from business acquisitions
and the purchase price allocation thereof.
EXCO TECHNOLOGIES LIMITED
45
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Impairment testing
The total goodwill of $88.7 million as at September 30, 2022 is allocated as $26.1 million to the Extrusion group of
CGUs and $62.6 million to the Automotive Solutions operating segment. The Company performed its annual
impairment test on September 30 and determined that the recoverable amounts for the Extrusion group of CGUs and
the Automotive Solutions operating segment exceed their carrying amounts and, as a result, no impairment was
recorded.
In addition in the fourth quarter, as part of its assessment of indicators of impairment, the Company determined that a
CGU with a book value of $39.4 million had an indicator of impairment but that the recoverable amount was in excess
of this and thus no impairment was recorded.
Key assumptions to value-in-use calculations
The recoverable amounts have been determined based on a value-in-use calculation using cash flow projections from
financial budgets approved by senior management. Cash flow beyond the budget period was extrapolated using a 2%
terminal growth rate, which represents the expected growth in the global economy. The discount rate applied to future
cash flows was 7.5%.
The calculation of the value-in-use is most sensitive to the following assumptions:
- Discount rates
- Terminal growth rate to extrapolate cash flows beyond the budget period
- Forecasted revenue and profit margins during the 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. CGU 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, 2022
$6,309
136
$6,445
September 30, 2021
$3,492
444
$3,936
The carrying values of the above provisions are 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
46
ANNUAL REPORT 2022
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, 2020
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2021
Additions
Acquisition
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2022
Severance
$2,579
2,117
(1,094)
(127)
17
$3,492
2,406
2,300
(1,901)
(69)
81
$6,309
Warranties
$323
189
-
(66)
(2)
$444
62
-
-
(371)
1
$136
Total
$2,902
2,306
(1,094)
(193)
15
$3,936
2,468
2,300
(1,901)
(440)
82
$6,445
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
Lease 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 – measured at amortized cost
Financial liabilities – measured at amortized cost
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 9, 2025 and designated them as cash flow
hedges against Mexican payroll and other local Mexican costs. The total amount of these collars is 624.0 million
Mexican pesos (2021 – 648.0 million Mexican pesos). The selling price ranges from 22.31 to 24.27 Mexican pesos to
each US dollar. In addition, there is a series of collars extending through July 21, 2023 to convert $6.7 million CAD to
USD. These collars have been designated as a cash flow hedge against capital equipment purchases in USD.
Management estimates that a cumulative gain of $2,066 (2021 – $546) would be realized if these collars were terminated
on September 30, 2022. Net of deferred taxes of $546, the cumulative gain of $1,520 is recorded in other comprehensive
income. During the year, the estimated fair value gain of $1,119, net of deferred taxes of $399 (2021 – loss of $1,699,
net of deferred taxes of $606) has been included in other comprehensive income, and the cumulative gain of $2,066 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:
EXCO TECHNOLOGIES LIMITED
47
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
a) Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party fails to meet its contractual obligations. The
Company’s primary credit risk is its outstanding trade accounts receivable. The carrying amount of its outstanding trade
accounts receivable represents the Company’s estimate of its maximum credit exposure. The Company regularly
monitors its credit risk exposure and takes steps such as credit approval procedures, establishing credit limits, utilizing
credit assessments and monitoring practices to mitigate the likelihood of these exposures from resulting in an actual
loss. The carrying amount of the trade accounts receivable disclosed in the consolidated statements of financial position
is net of allowance for doubtful accounts. 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, 2022, the accounts receivable balance (net of allowance for doubtful
accounts) is $113,940 (2021 – $83,130) and the Company’s five largest trade debtors accounted for 30.1% of the total
accounts receivable balance (2021 – 30.2%).
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, 2022
$110,770
202
3,850
1,192
(2,074)
September 30, 2021
$82,193
181
1,843
311
(1,398)
$113,940
$83,130
September 30, 2022
$95,164
10,514
2,215
563
2,314
(2,074)
September 30, 2021
$70,409
7,969
2,285
1,296
234
(1,398)
$108,696
$80,795
The movement in the allowance for doubtful accounts is as follows:
Opening balance
Additions
Acquisition
Utilized
Reversal
Exchange differences
Closing balance
September 30, 2022
$1,398
728
210
(40)
(254)
32
$2,074
September 30, 2021
$3,939
352
-
(186)
(2,659)
(48)
$1,398
EXCO TECHNOLOGIES LIMITED
48
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
b) Liquidity risk
Liquidity risk refers to the possibility that the Company may not be able to meet its financial obligations as they come
due. The Company manages its liquidity risk by minimizing its financial leverage and arranging credit facilities in order
to ensure sufficient funds are available to meet its financial obligations. This is achieved by continuously monitoring
cash flows from its operating, investing and financing activities. As at September 30, 2022, the Company has a net debt
balance of $90,339 (2021 – net cash $18,558) and unused credit facilities of $20,046 (2021 – $47,124).
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
Leases
Purchase commitments
Capital expenditures
Bank indebtedness
Trade accounts payable
Leases
Purchase commitments
Capital expenditures
Total
$12,363
51,359
95,000
7,435
51,311
5,060
$222,528
Total
$5,540
33,793
864
36,036
20,059
$96,292
September 30, 2022
< 1 Year
$12,363
51,359
-
718
51,311
5,060
$120,811
1-3 Years
$-
-
95,000
918
-
-
$95,918
September 30, 2021
< 1 Year
$5,540
33,793
418
36,036
20,059
$95,846
1-3 Years
$-
-
417
-
-
$417
Over 3 Years
$-
-
-
5,799
-
-
$5,799
Over 3 Years
$-
-
29
-
-
$29
c) Foreign exchange risk
The Company operates in Canada with subsidiaries located in the United States, Mexico, Colombia, Brazil, Thailand,
Germany, Italy 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.
EXCO TECHNOLOGIES LIMITED
49
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Income before income taxes
Other comprehensive income
Income before income taxes
Other comprehensive income
1% Fluctuation
USD vs. CAD
1% Fluctuation
EUR vs. CAD
1% Fluctuation
MXP vs. CAD
+/- $972
+/- $3,339
+/- $46
+/- $600
+/- $4
+/- $254
1% Fluctuation
COP vs. CAD
1% Fluctuation
BRL vs. CAD
+/- $17
+/- $75
+/- $2
+/- $45
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, 2022, 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, 2022
Carrying
Amount of
Asset
(Liability)
$17,024
113,940
(51,359)
(12,363)
(3,169)
(34,541)
2,066
(6,650)
($95,000)
Fair Value
of Asset
(Liability)
$17,024
113,940
(51,359)
(12,363)
(3,169)
(34,541)
2,066
(6,650)
($95,000)
September 30, 2021
Carrying
Amount of
Asset
(Liability)
$24,098
83,130
(33,793)
(5,540)
(4,814)
(25,667)
546
-
$-
Fair Value
of Asset
(Liability)
$24,098
83,130
(33,793)
(5,540)
(4,814)
(25,667)
546
-
$-
Cash and cash equivalents
Accounts receivable
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Lease liabilities – long term portion
Long-term debt
EXCO TECHNOLOGIES LIMITED
50
ANNUAL REPORT 2022
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, 2022
$52,213
25,748
16,973
7,898
(4,870)
$97,962
September 30, 2021
$38,210
22,741
16,778
3,847
(3,817)
$77,759
September 30, 2022
$3,817
1,750
(376)
(372)
51
September 30, 2021
$4,346
1,495
(1,690)
(224)
(110)
$4,870
$3,817
During the year, inventories of $217,473 (2021 – $196,415) were expensed, of which $1,750 was from the write-downs
of inventories (2021 – $1,495), with reversal of write-downs of $372 (2021 – $224).
10. CAPITAL MANAGEMENT
The Company defines capital as net debt and shareholders’ equity. As at September 30, 2022, total managed capital
amounted to $438,848 (2021 – $345,058), consisting of net debt of $90,339 (2021 – $nil) and shareholders’ equity of
$348,509 (2021 – $345,058).
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, 2022
September 30, 2021
0.26:1
1.71:1
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
51
ANNUAL REPORT 2022
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, 2022
$107,363
September 30, 2021
$5,540
(17,024)
$90,339
(24,098)
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, 2022, the Company was in
compliance with the required financial covenants.
11. OTHER INFORMATION
A. SEGMENTED INFORMATION
Operating segments
The Company has two operating 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
52
ANNUAL REPORT 2022
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
Net interest expense
Income before income taxes
Property, plant and equipment additions
Property, plant and equipment additions from business
acquisition
Property, plant and equipment, net
Intangible asset additions
Intangible asset additions from business acquisition
Intangible assets, net
Goodwill
Total assets
Total liabilities
Casting
and
Extrusion
$253,500
(17,466)
236,034
18,216
721
11,970
2022
Automotive
Solutions Corporate
Total
$256,056
(2,147)
253,909
3,135
3,206
20,904
$-
-
-
94
-
(5,229)
40,422
11,487
203
25,729
173,730
1,249
9,649
10,713
26,051
357,708
63,340
-
32,025
144
-
23,733
62,648
231,966
59,809
-
1,348
-
-
-
-
(13,358)
104,658
$509,556
(19,613)
489,943
21,445
3,927
27,645
(2,446)
25,199
52,112
25,729
207,103
1,393
9,649
34,446
88,699
576,316
227,807
2021
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment pre-tax income (loss) before interest
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
Casting
and
Extrusion
$207,449
(9,479)
197,970
13,964
487
25,734
Automotive
Solutions
$265,085
(1,884)
263,201
3,359
3,183
30,682
35,300
124,322
228
664
-
233,089
36,030
3,126
23,899
59
25,119
61,861
208,070
44,246
Corporate
Total
$-
-
-
89
-
(7,434)
-
1,253
-
-
-
(11,032)
4,793
$472,534
(11,363)
461,171
17,412
3,670
48,982
(405)
48,577
38,426
149,474
287
25,783
61,861
430,127
85,069
EXCO TECHNOLOGIES LIMITED
53
ANNUAL REPORT 2022
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
2022
$35,587
290,175
81,126
52,552
14,767
9,899
5,837
$489,943
2021
$27,309
284,819
72,749
50,262
8,447
9,316
8,269
$461,171
In 2022 the total revenue to the Company’s largest 2 customers accounted for 5.3% and 5.1% (2021 – 5.7% and 5.5%)
of total sales. The accounts receivable pertaining to these customers were $5,404 and $7,533 at year-end (2021 – $3,304
and $2,789). The allocation of sales to the geographic categories is based upon the customer location where the product
is shipped. In 2022, the Company’s largest 2 customers were from the Automotive Solutions segment and the Casting
and Extrusion segment (2021 – 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
Europe
Thailand
Morocco
September 30, 2022
$86,436
32,142
32,142
6,665
26,080
5,709
17,929
September 30, 2021
$64,243
30,582
23,059
6,015
-
5,878
19,697
$207,103
$149,474
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, 2022
$1,220
23,849
3
52
2
9,231
89
September 30, 2021
$441
25,139
4
107
4
-
88
$34,446
$25,783
Intangible assets are attributed to the country in which they are located.
B. EMPLOYEE FUTURE BENEFITS
The Company accrues employee future benefits for its Mexican, Thailand and Italian 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
EXCO TECHNOLOGIES LIMITED
54
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
recent salary, but not to exceed twice the legal minimum wage), payable to all employees with 15 or more years of
service, as well as to certain employees terminated involuntarily prior to vesting of their seniority premium benefit.
Under Mexican labour laws, the Company also provides statutorily mandated severance benefits to its employees
terminated under certain circumstances. Such benefits consist of a one-time payment of three months’ wages upon
involuntary termination without just cause. In Thailand the severance benefit varies from 1 to 10 months dependent on
length of service. In Italy the termination benefit is a portion of employee wages that are deferred until termination.
The liability associated with the seniority and termination benefits is calculated as the present value of expected future
payments and amounted to $5,392 as at September 30, 2022 (2021 – $2,314) 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, 2022 and 2021 were as follows:
Salaries and cash incentives (i)
Directors’ fees
Share-based awards (ii)
September 30, 2022
September 30, 2021
$3,463
233
204
$3,900
$4,241
270
130
$4,641
i) Key management personnel were not paid post-employment benefits, termination benefits, or other long-term benefits
during the years ended September 30, 2022 and 2021.
ii) Share-based payments are director share units granted to directors.
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 39,084,977 (2021 – 39,269,959). Any potential common shares for which the effect is anti-dilutive have
not been reflected in the calculation of diluted income per share. The dilution effect from the outstanding stock options
on diluted weighted average number of common shares outstanding for 2022 is 4,040 (2021 – 22,680).
13. INCOME TAXES
The consolidated effective income tax rate for 2022 was 24.7% (2021 – 20.9%) per the following tables. The change
in income tax rate is due to non-deductible start-up losses from the Company’s Castool Morocco facility, geographic
distribution, and foreign tax rate differentials.
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
2022
$25,199
100.0%
6,857
(198)
107
(1,855)
661
661
$6,233
27.2%
(0.8%)
0.4%)
(7.4%)
2.6%
2.6%
24.7%
EXCO TECHNOLOGIES LIMITED
55
ANNUAL REPORT 2022
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
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
Origination, reversal of temporary differences and losses not
recognized
Reported income tax expense
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
2021
$48,577
13,218
(384)
(555)
(2,783)
350
311
$10,157
100.0%
27.2%
(0.8%)
(1.1%)
(5.7%)
0.7%
0.6%
20.9%
2022
2021
$3,448
$7,749
2,785
2,408
$6,233
$10,157
2022
2021
$848
792
1,640
(13,231)
26
(5,075)
(18,280)
$613
704
1,317
(7,767)
92
(3,644)
(11,319)
Net deferred income tax liabilities
($16,640)
($10,002)
EXCO TECHNOLOGIES LIMITED
56
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
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
2022
($18,453)
(13,165)
(708)
10,204
(1,013)
4,161
209
(1,776)
(5,702)
($26,243)
2021
($3,519)
(18,191)
(668)
1,795
2,742
482
1,034
1,317
(41)
($15,049)
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, 2022 no repayments were
overdue ($2021 – nil). 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 Payments paid to the Company under this Program for the year ended September 30, 2022 amounted to $2,892
(2021 – $2,069) 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 $3,442 (2021 – $5,928). As at September 30,
2022 the balance outstanding under the Program was $5,000 (2021 – $5,393).
There are no material contingent liabilities as at September 30, 2022 (2021 – 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, 2022
September 30, 2021
$2,475
(29)
$2,446
$428
(23)
$405
EXCO TECHNOLOGIES LIMITED
57
ANNUAL REPORT 2022
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
17. GOVERNMENT ASSISTANCE
As a result of the impact of COVID-19, the Company applied to multiple government assistance programs. During the
year ended September 30, 2022 the Company recorded $nil (2021 – $500) of assistance, which was recorded as a
reduction of selling, general and administrative expense.
18. ACQUISITION
On May 2, 2022 the Company completed the acquisition of 100% of the shares of the Halex extrusion operations
(“Halex”) for consideration of $60.2 million. Halex operates four key manufacturing locations – two in Germany and
two in Italy.
Management determined that the assets and processes comprised a business and therefore accounted for the transaction
as a business combination using the acquisition method of accounting with the results of operations included in the
Company’s consolidated financial statements from the date of acquisition. The results of Halex are reported within the
Casting and Extrusion segment.
Assets acquired and liabilities assumed have been recorded at their estimated fair value at the date of acquisition as
follows:
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Current liabilities
Lease liabilities – long term portion
Deferred tax liability
Net identifiable assets
Residual purchase price allocated to goodwill
Acquisition funded as follows:
Cash
$2,592
10,750
5,198
153
25,729
9,649
(13,722)
(6,650)
(3,264)
30,435
29,773
$60,208
$60,208
$60,208
The Company incurred acquisition related costs of $584 which were expensed under selling, general and administrative
expenses on the consolidated statements of income and comprehensive income.
The fair value of accounts receivable equals the gross amount of the trade accounts receivable less allowance for
doubtful accounts and amounts to $9,871. The net contractual amount was considered collectible at the date of
acquisition.
The primary factors that contributed to the recognition of goodwill are: the existing Halex business; the acquired
workforce; and the combined strategic value to the Company’s growth plan.
EXCO TECHNOLOGIES LIMITED
58
ANNUAL REPORT 2022
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
Paul E. Riganelli, MA, MBA, LLB
Executive Vice President of the Company
Brian A. Robbins, PEng
Executive Chairman of the Company
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
______________________________
Stock Listings
TSX: XTC, OTCQX: EXCOF
______________________________
______________________________
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
Corporate Office
Exco Technologies Limited
130 Spy Court, 2nd Floor
Markham, Ontario L3R 5H6
Phone: 905.477.3065
www.excocorp.com
______________________________
F2022 Annual General
Meeting of Shareholders
Wednesday, January 25, 2023
at 4:30 pm. (Toronto Time)
Virtual Meeting: Live Webcast
https://virtual-meetings.tsxtrust.com/1410
w w w . e x c o c o r p . c o m
T S X :X T C, O T C Q X: E X C O F