Wescast Industries Inc.
TSX : WCS.A

Wescast Industries Inc.

February 27, 2007 16:36 ET

Wescast Reports Fourth Quarter Results

BRANTFORD, ONTARIO--(CCNMatthews - Feb. 27, 2007) - Wescast Industries Inc. (TSX:WCS.A) today reported 2006 fourth quarter sales of $84.7 million and a net loss of $3.6 million.

"The Company experienced strong year-over-year sales growth in Europe during the quarter that helped to offset the reduced production levels experienced by the domestic Big 3 in North America," said Ed Frackowiak, Wescast Chairman and CEO. "The aggressive actions we've taken over the past two years, and that we continue to take, are helping us respond to the ongoing changes in the North American market like those experienced this quarter. As well, our continued growth in Europe and our recent expansion into Asia are focused on ensuring the Company remains globally competitive within the automotive industry, both today and in the future."

Highlights

- Consolidated sales were $84.7 million, down 3.6% from the $87.8 million reported in the same quarter last year, reflecting the significant decline in vehicle production levels experienced by the domestic Big 3 and a corresponding reduction in manifold shipments from the Company's North American operations. The reduction in North American sales was partially offset by a substantial increase in the level of sales generated by the Company's European operation during the fourth quarter compared to last year.

- The Company reported net earnings of $4.0 million for the fiscal year ended 2006 on sales of $371.0 million compared to a net loss of $25.7 million on sales of $381.7 million in 2005. Included in the net loss reported in 2005 was a $38.3 million ($25.2 million after-tax) restructuring charge.

- The Company reported a significant year-over-year improvement in its European operation. A net loss of $0.7 million was reported for the fourth quarter compared to a net loss of $3.3 million reported for the same period of 2005. For the fiscal year ended 2006, the European operation generated a net loss of $0.5 million compared to a net loss of $11.2 million reported in 2005.

- The Company reported a net loss for the quarter of $3.6 million compared with a net loss of $20.5 million reported in the fourth quarter of 2005. Included in the net loss reported in 2005 was an $18.5 million, after-tax, non-cash charge to reflect the impairment of the Brantford, Ontario foundry assets.

- The net loss per share on a diluted basis was $0.27 for the fourth quarter of 2006, compared with a net loss per share of $1.57 for the same period in 2005. Continuing operations generated a net loss per share on a diluted basis of $0.23, compared to a net loss per share from continuing operations of $1.55 in the fourth quarter of 2005. The $18.5 million, after-tax, non-cash charge reported in 2005 had a negative impact on net earnings per share of $1.41.

- The domestic Big 3 automakers, the Company's primary North American customer base, experienced a more significant decline of 12.4% in their light vehicle production levels compared to the same period in 2005. Overall the North American automotive industry experienced an 8.1% decline in light vehicle production levels in the fourth quarter of 2006 compared to the fourth quarter of 2005.

- Cash and cash equivalents increased by $11.8 million during the fourth quarter as cash flows of $19.0 million generated from continuing operations were significantly higher than cash requirements for capital expenditures and dividend payments. A net repayment of long-term debt of $3.0 million was made during the fourth quarter.

- On October 30, 2006, the Company announced the opening of a sales and engineering office in China. This office will support the integrated foundry and machining operation the Company is currently establishing in China. The machining operations will begin production in 2007 in a leased facility. Foundry operations are expected to commence in 2008 when construction of the integrated facility has been completed. During the quarter, the Company incurred $0.6 million of costs related to the establishment of the operation in China which are included in selling, general and administration expenses. Capital expenditures totaling $3.6 million were also incurred during the fourth quarter.

Operations

Consolidated sales

Consolidated sales for the quarter were $84.7 million, a 3.6% decline from the previous year's level of $87.8 million. The consolidated sales are net of inter-segment sales of $2.1 million between the Company's European and North American business units. The sales analysis for the business units is presented based on gross sales.

Consolidated prototype and tooling sales in the fourth quarter were $1.4 million, down $0.3 million from the $1.7 million reported in 2005.

North American sales

North American sales, excluding prototype and tooling sales, declined by 17.0% to $63.0 million compared to $75.9 million reported in the same period last year. The Company experienced a quarter-over-quarter decline of 11.8% in unit casting sales volume in North America. Machining volumes were down 15.1% compared to the fourth quarter of 2005.

The unit volume and sales decline resulted from:

- A significant reduction in light truck and SUV volume requirements of the domestic Big 3, due in part to high fuel prices and strong competition from the new domestic automakers. The domestic Big 3 lowered their fourth quarter production levels in an effort to reduce inventories of light trucks and SUVs;

- The impact of market driven price reductions and changes in product mix between light truck and car requirements compared to the fourth quarter of 2005;

- The impact of a change in product mix due to an increase in cast only volumes compared to the fourth quarter of 2005; and,

- A reduction in volumes to Nissan.

The factors above were partially offset by increased sales with DaimlerChrysler, reflecting additional content that the Company was awarded for the minivan program. This additional volume was for a cast only program which generates lower sales dollars per part than cast and machined parts.

European sales

Sales generated by the Company's operation in Europe, excluding prototype and tooling sales, were $22.3 million for the quarter compared to $11.4 million during the same quarter last year. The operation realized a quarter-over-quarter increase in casting unit sales volume of 84.9%. Total units machined were 56.9% higher than the fourth quarter of 2005. The significant increase in unit volume resulted from the impact of several new programs that were launched in late 2005 or during 2006 and increased volume of programs existing in 2005. Also contributing to the increased sales level was the impact of a strengthening Hungarian forint against the Canadian dollar. The sales increase resulting from the increased volume was offset in part by a change in product mix which resulted in a reduction in average selling prices. A significant portion of the volume increases were for cast only programs which, as previously mentioned, generate lower sales dollars per part than cast and machined parts.

Consolidated earnings (loss)

The Company reported a net loss from continuing operations of $3.1 million for the quarter, compared with a net loss from continuing operations of $20.3 million reported in the same period last year. Excluding the after-tax impact of the $18.5 million asset impairment charge recorded in the fourth quarter of 2005, the comparable net loss from continuing operations for 2005 was $1.8 million.

North American earnings (loss)

The Company's North American operations reported a net loss of $1.6 million, compared to a net loss of $17.0 million reported in the fourth quarter of 2005. Excluding the impact of the 2005 impairment charge, the North American operations generated net earnings of $1.5 million in the fourth quarter of 2005.

The decline resulted from the impact of:

- Lower casting and machining volumes that reduced gross profit by $7.2 million compared with the fourth quarter of 2005;

- Market driven sales price reductions and changes in product mix which reduced gross profit by $2.8 million compared with the fourth quarter of 2005;

- Increased severance costs related to structural changes to better align the capacity of the North American operations with customer volume requirements; and,

- Foreign exchange losses included in other income, compared to foreign exchange gains reported in 2005.

The impact of these factors was partially offset by the positive benefits from:

- The reduction in costs resulting from the implementation of the Company's foundry capacity optimization plan; specifically, the closing of the Brantford foundry operations. All production activities at this facility were concluded immediately subsequent to the end of the second quarter;

- Lower raw material pricing compared with the fourth quarter of 2005, which increased gross profit by $1.1 million;

- Lower foundry depreciation expense due to the 2005 fourth quarter write-down of the Brantford foundry assets, which increased gross profit by $1.0 million; and,

- A gain on the disposal of equipment of $0.4 million during the quarter compared to losses on disposal of $2.4 million in 2005.

European earnings (loss)

The Company's European operations generated a net loss of $0.7 million, a significant improvement compared to the net loss of $3.3 million reported in the fourth quarter of 2005. The main reasons for the improved financial performance were increased casting volumes and higher prototype and tooling margins. These positive impacts were partially offset by changes in product mix due to more cast only parts sold compared to 2005, higher manufacturing scrap rates, increased depreciation expense due to capital investments made in 2005 and 2006 and higher payroll costs.

Other

The Company's selling, general and administration expenses for the quarter were $7.3 million, compared to $6.4 million incurred in the same period in 2005. Included in this amount was depreciation of $0.8 million compared to $1.0 million in 2005. Excluding depreciation, the selling, general and administration expenses were $6.5 million, up $1.1 million from the fourth quarter of 2005. A significant portion of this increase was due to increased consulting costs related to lean initiatives and costs associated with the establishment of the Company's integrated foundry and machining facility in China.

The Company's research, development and design expenses for the quarter were $1.9 million compared to $1.5 million incurred in the fourth quarter of 2005. The majority of the increase was due to development costs associated with alloys aimed at providing product advantages including the ability to withstand higher temperatures and performance improvements.

The Company recorded a $27.8 million restructuring charge in the fourth quarter of 2005 related to its foundry capacity optimization plan and the closure of its Brantford, Ontario operation. Included was a non-cash charge of $28.0 million or $18.5 million after tax, to reflect the impairment of the property, plant, equipment and spare parts inventory of the Brantford foundry. This non-cash impairment was in addition to a cash charge of $10.3 million representing anticipated severance, benefits and retention bonuses associated with the closure of the Brantford foundry, most of which was recognized in the first quarter of 2005. There was no similar restructuring charge recorded in 2006.

Other expense for the fourth quarter was $0.3 million, compared to other expense of $1.9 million reported in the same period last year. The decline was due to gains on the disposal of equipment reported in 2006 compared to losses reported in 2005, offset in part by foreign exchange losses of $0.5 million reported in 2006 compared to foreign exchange gains of $0.4 million reported in 2005. Other expense in the fourth quarter of 2005 included losses on disposal of equipment of $2.4 million including a write-down of $1.8 million related to dedicated machine lines that supported programs no longer in service. In 2006, gains on disposal of equipment of $0.4 million were realized.

The effective income tax recovery rate for the quarter related to continuing operations was 33.5%, compared with a rate of 31.1% in 2005. The level of the 2006 recovery rate was impacted by the following:

- The Company's operations in Hungary and China are eligible for tax holidays; consequently no income tax benefits were recognized with respect to the losses generated during the fourth quarter; and,

- The Company reported a non-taxable foreign exchange gain on the translation of certain future income tax balances denominated in foreign currencies.

Financial Condition, Liquidity and Financial Resources

At December 31, 2006, the Company had cash balances of $16.1 million and total debt of $6.5 million compared with cash balances of $1.9 million and total debt of $34.0 million at the end of 2005.

Operating Activities

The Company generated $19.0 million in cash from continuing operations during the fourth quarter, compared with $9.0 million in cash generated during the same period of 2005. The significant increase was primarily attributable to reduced investment in non-cash working capital. In the fourth quarter of 2005, inventories increased due to tooling purchases and a build of finished goods in anticipation of the Brantford foundry closure; the increase in the fourth quarter of 2006 was not as significant. Also, in the fourth quarter of 2005, cash payments of $5.9 million were made for severance and benefits, again related to the Brantford closure.

Investing Activities

Capital expenditures for the fourth quarter were $7.2 million, compared to $5.2 million for the same quarter last year. Construction costs related to the establishment of the China facility totalled $3.6 million for the quarter. During the fourth quarter the Company received proceeds of $3.7 million related to the sale of equipment and the sale of assets associated with discontinued operations.

Financing Activities

Net repayments of long-term debt during the fourth quarter totalled $3.0 million compared to $3.4 million in 2005. Dividends paid during the quarter were $0.8 million or $0.06 per share, consistent with the same period last year.

Financing Resources

The Company is well positioned to fund strategic initiatives with cash generated from operations and the utilization of available credit, if required.

Wescast has a committed borrowing facility. Based on the current drawings under the facility and certain financial covenants that the Company must satisfy, approximately $76.9 million of unused credit was available to the Company at December 31, 2006.

Future Outlook

North American light vehicle production levels of 15.3 million units are down 3.2% from the level experienced in 2005. The current industry estimates for 2007 project production levels of 15.3 million vehicles, consistent with 2006. The market share of the domestic Big 3, the Company's primary customer base, declined by approximately 1.0% in North America in 2006 compared with 2005; industry estimates predict a further 3.0% decline in 2007. The Company anticipates that its production volumes in North America in 2007 will not reach the levels achieved in 2006, a result of the lower production levels projected for its primary customer base. The Company expects that its production volumes in Europe will be significantly higher than 2006 due to anticipated product launches in 2007 and the ramp-up of programs launched during 2006.

The Company has experienced significant market driven downward price pressure from its customer base for some time. This pressure has intensified in recent years as some of these customers react to negative changes in their profitability. This price pressure combined with the impact of new global price benchmarks being established by competitors located in low-cost countries has resulted in an overall reduction in average selling prices. This pressure is expected to continue.

The Company's results are sensitive to raw material prices for scrap steel and moly; the pricing of which is heavily impacted by global demand. The Company expects its average scrap steel price for 2007 to be higher than the average experienced in 2006, but anticipates the price of moly will decline from the levels experienced in 2006.

The Company's strategic direction is the pursuit of a global powertrain strategy capable of generating attractive growth and strong financial return prospects for its stakeholders:

- The focus of the Company's North American business unit is on maintaining the dominant market position it currently holds within its segment of the powertrain marketplace. To do so the Company must remain globally cost competitive in order to respond to the significant pressure on pricing being exerted by its customer base. To meet this challenge the Company will continue to pursue aggressive year-over-year cost reduction targets in these operations. To achieve these targets the Company will continue to promote a culture of continuous improvement and innovation by applying its HEART participative management process to identify and implement lean initiatives.

- The Company has aligned its global capacity to meet the needs of its customers in the most efficient manner available. The foundry operations in Brantford, Ontario were closed during 2006. The Company has reduced its fixed costs as a result of the implementation of its foundry optimization plan. A significant portion of these fixed cost reductions were realized in 2006. With the Brantford foundry closure completed during 2006, additional incremental cost reductions are expected to be realized in 2007.

- The Company will continue to focus on expanding its powertrain business through the expansion of its customer base and geographic coverage. This includes completing the foundry and machining ramp-up of the operation in Hungary. The volume growth anticipated in Europe, combined with anticipated improvements in operating performance, is expected to provide improved financial results for the European operation in 2007.

- The Company is committed to being able to offer its customers the highest quality, technologically advanced products at globally competitive prices. As a result, the Company will maintain its commitment to fund research and development activities so that it may respond with innovative product technology solutions provided through the use of innovative manufacturing techniques. These activities include:

- The continued development and deployment of materials that offer advantages such as the ability to withstand higher temperatures or provide other performance and cost advantages; and,

- Deploying solutions to customers that address their hot-end system requirements.

- The Company's planned expansion into Asia is well underway. Construction of an integrated foundry and machining operation in Wuhan, Hubei Province, China began in the second half of 2006. Machining operations are expected to begin during the first quarter of 2007, while the foundry is anticipated to be operational during the first quarter of 2008. Key technical and operational resources have been hired and training is in progress. Once established, the China operations will provide the Company with a global footprint of manufacturing, sales and engineering support in North America, Europe and Asia.

The Company believes that maintaining the focus on these areas is the best means to ensure the long-term success of the business.

About Wescast

Wescast Industries Inc. is the world's largest supplier of exhaust manifolds for passenger cars and light trucks. The Company designs, casts, machines and assembles high-quality engineered iron products for automotive original equipment manufacturers ("OEMs") and Tier 1 customers for the car and light truck markets in North America, Europe and Asia. The Company employs approximately 1,900 people in 6 production facilities and 3 sales and design centres in Canada, the United States and Germany. The Company also has sales and technical design representation in the United Kingdom, France, Japan and China. The Company is recognized worldwide for its quality products, innovative design solutions and highly committed workforce.

Learn more at www.wescast.com.

Forward-Looking Statements

The contents of this news release contain statements which, to the extent that they are not recitations of historical fact, may constitute forward-looking statements based on certain assumptions and reflect Wescast's current expectations. Such forward-looking statements may include financial and other projections as well as statements regarding Wescast's future plans, objectives or performance for the current period and subsequent periods. The words "may", "would", "could", "will", "likely", "expect", "anticipate", "estimate", "intend", "plan", "forecast", "project" and "believe" or other similar words and phrases are intended to identify forward-looking statements. Persons reading this news release are cautioned that such statements are only predictions, and that Wescast's actual future results or performance may be materially different.

This information is based upon certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking statements, including our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties principally relate to the risks associated with the automotive industry and include, but are not limited to: our operating and/or financial performance, including the effect of new accounting standards on our reported financial results, fluctuations in interest rates, changes in consumer and business confidence levels, consumers' personal debt levels, vehicle prices, the extent and nature of purchasing or leasing incentive campaigns offered by automotive manufacturers, environmental emission regulations, fuel prices and availability, the continuation and extent of outsourcing by automotive manufacturers, changes in raw material and other input costs, our ability to continue to meet customer specifications relating to product performance, cost, quality, delivery and service, industry cyclicality or seasonality, trade and/or labour issues or disruptions, customer pricing pressures, pricing concessions and cost absorptions, actual levels of program production volumes by our customers compared to original expectations, including program cancellations or delays, price reduction pressures, dependence on certain engine programs and the market success and consumer acceptance of the vehicles into which such powertrain products are installed, our relationship with and dependence on certain customers, currency exposure, failures in implementing Wescast's strategy, technological developments by Wescast's competitors, government and regulatory policies and changes in the competitive environment in which Wescast operates.

Wescast does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this news release or to reflect the occurrence of unanticipated events, except as required by law.



A conference call has been arranged for:

February 28, 2007
3:00 p.m. EST
To participate, please dial: North America 800-525-6384;
International 780-409-1668 Conference ID# 5805843 (required)
Call back is available from February 28, 2007 to March 7, 2007,
to access please dial 800-695-3382 (alternate: 402-220-1756)
and enter pass code 5805843.



Wescast Industries Inc.
Consolidated Statement of Earnings and Retained Earnings
(in thousands of Canadian dollars, except per share
amounts) (Unaudited)

Three months ended Twelve months ended
--------------------------------------------------
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
--------------------------------------------------

Sales $84,686 $87,825 $370,998 $381,683
Cost of sales 79,822 79,556 327,933 330,994
--------------------------------------------------

Gross profit 4,864 8,269 43,065 50,689
Selling, general and
administration 7,300 6,383 28,485 27,812
Stock-based compensation - (57) 1 (97)
Research, development
and design 1,892 1,454 6,477 5,690
--------------------------------------------------
(4,328) 489 8,102 17,284
--------------------------------------------------

Other (income) expense
Interest expense 176 500 1,618 1,902
Investment income (217) (211) (458) (306)
Restructuring charge - 27,795 - 38,295
Other 308 1,930 (1,401) 4,455
--------------------------------------------------
267 30,014 (241) 44,346
--------------------------------------------------

Earnings (loss) from
continuing operations
before income taxes (4,595) (29,525) 8,343 (27,062)
Income taxes (recovery) (1,540) (9,195) 3,456 (5,412)
--------------------------------------------------

Earnings (loss) from
continuing operations (3,055) (20,330) 4,887 (21,650)
Net loss from discontinued
operations (508) (213) (877) (4,098)
--------------------------------------------------

Net earnings (loss) ($3,563) ($20,543) $4,010 ($25,748)
--------------------------------------------------
--------------------------------------------------

Earnings (loss) from
continuing operations
per share (Note 3)
- Basic ($0.23) ($1.55) $0.37 ($1.65)
--------------------------------------------------
--------------------------------------------------
- Diluted ($0.23) ($1.55) $0.37 ($1.66)
--------------------------------------------------
--------------------------------------------------

Net earnings (loss) per
share (Note 3)
- Basic ($0.27) ($1.57) $0.31 ($1.97)
--------------------------------------------------
--------------------------------------------------
- Diluted ($0.27) ($1.57) $0.31 ($1.97)
--------------------------------------------------
--------------------------------------------------

Retained earnings,
beginning of period $262,418 $278,536 $257,206 $286,101
Net earnings (loss) (3,563) (20,543) 4,010 (25,748)
Dividends paid (787) (787) (3,148) (3,147)
--------------------------------------------------
Retained earnings, end
of period $258,068 $257,206 $258,068 $257,206
--------------------------------------------------
--------------------------------------------------



Wescast Industries Inc.
Consolidated Balance Sheet
(in thousands of Canadian dollars) (Unaudited)

As at
December 31, January 1,
2006 2006
-------------------------

Assets
Current
Cash and cash equivalents $16,071 $1,944
Accounts receivable 54,880 59,922
Income taxes receivable - 5,548
Inventories 33,200 39,626
Prepaid expenses 2,067 1,834
Future income taxes 1,430 1,948
Current assets - discontinued operations 63 145
-------------------------

107,711 110,967

Property, plant and equipment 287,297 293,709
Future income taxes 43,530 47,392
Assets held for sale 4,969 -
Long-term assets - discontinued operations 408 4,268
Other assets 1,066 732
-------------------------

$444,981 $457,068

Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities $37,288 $36,825
Income taxes payable 167 -
Current portion of long-term debt 1,672 4,179
Stock appreciation rights - 18
Restructuring charge 52 918
Future income taxes 123 72
Current liabilities - discontinued operations 147 102
-------------------------

39,449 42,114

Long-term debt 4,822 29,836
Deferred government assistance 3,081 2,229
Future income taxes 9,925 11,377
Employee benefits 19,307 16,641
-------------------------
76,584 102,197
-------------------------

Shareholders' Equity
Capital stock (Note 2) 110,816 110,647
Retained earnings 258,068 257,206
Share purchase loans (149) (225)
Cumulative translation adjustments (338) (12,757)
-------------------------
368,397 354,871
-------------------------
$444,981 $457,068
-------------------------
-------------------------



Wescast Industries Inc.
Consolidated Statement of Cash Flows
(in thousands of Canadian dollars) (Unaudited)

Three months ended Twelve months ended
-----------------------------------------------
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
-----------------------------------------------
Cash derived from (applied to)

Operating
Earnings (loss) from
continuing operations ($3,055) ($20,330) $4,887 ($21,650)
Add (deduct) items not
affecting cash:
Depreciation and amortization 9,460 10,066 38,004 38,777
Write-down of impaired assets - 28,043 - 28,043
Future income taxes (149) (9,225) 3,039 (6,781)
(Gain) loss on disposal
of equipment (355) 2,362 (423) 3,195
Deferred government assistance 375 (153) 852 (112)
Stock-based compensation,
net of payments - (15) (18) (58)
Employee benefits, net
of payments 655 651 2,666 1,590
-----------------------------------------------
6,931 11,399 49,007 43,004

Change in non-cash operating
working capital (Note 4) 12,105 (2,437) 18,862 2,028
-----------------------------------------------
19,036 8,962 67,869 45,032
Discontinued operations 48 217 (191) (3,146)
-----------------------------------------------
19,084 9,179 67,678 41,886
-----------------------------------------------

Investing
Purchase of property, plant
and equipment and
other assets (7,244) (5,156) (28,506) (22,159)
Proceeds on disposal
of equipment 741 138 2,236 11,207
Discontinued operations 2,942 - 3,117 1,545
-----------------------------------------------
(3,561) (5,018) (23,153) (9,407)
-----------------------------------------------

Financing
Issue of long-term debt 2,342 16,097 22,728 57,670
Repayment of long-term debt (5,310) (19,465) (50,107) (57,552)
Payment of credit facility fees - - - (74)
Payments under capital
lease obligations (30) (94) (116) (418)
Issuance of common shares 55 45 169 231
Employee share purchase
loan repayments 29 24 76 424
Dividends paid (787) (787) (3,148) (3,147)
Discontinued operations - - - (31,426)
-----------------------------------------------

(3,701) (4,180) (30,398) (34,292)
-----------------------------------------------

Net increase (decrease) in
cash and cash equivalents 11,822 (19) 14,127 (1,813)

Cash and cash equivalents
Beginning of period 4,249 1,963 1,944 3,757
-----------------------------------------------

End of period $16,071 $1,944 $16,071 $1,944
-----------------------------------------------
-----------------------------------------------


Wescast Industries Inc.

Notes to the Consolidated Financial Statements

(in thousands of Canadian dollars, except per share amounts) (Unaudited)

Note 1. Basis of presentation

The unaudited interim consolidated financial statements ("interim financial statements") have been prepared following the same accounting policies as set out in the annual consolidated financial statements for the year ended January 1, 2006 included in the Company's 2005 Annual Report to Shareholders.

These are interim financial statements and as such the disclosures do not conform in all respects to the requirements of generally accepted accounting principles applicable to annual consolidated financial statements. These interim financial statements should be read in conjunction with the most recent annual consolidated financial statements for the year ended January 1, 2006.

The interim financial statements and the notes thereto have not been reviewed by the Company's external auditors pursuant to a review engagement applying review standards set out in the CICA handbook.




Note 2. Capital stock

Authorized
Unlimited Preference shares, no par value
Unlimited Class A subordinate, voting shares, no par value
("Class A shares")
9,000,000 Class B common shares, no par value ("Class B shares")

December 31, January 1,
2006 2006
-------------------------
Issued and outstanding
5,751,648 Class A shares (2005 -- 5,740,316) $98,389 $98,220
7,376,607 Class B shares (2005 -- 7,376,607) 12,427 12,427
-------------------------
$110,816 $110,647
-------------------------
-------------------------

Note 3. Earnings per share

Basic earnings (loss) per share from continuing operations and basic net
earnings (loss) per share for the three months ended December 31, 2006 and
January 1, 2006 are based on the weighted average common shares outstanding
(2006 -- 13,113,323 shares; 2005 -- 13,099,640 shares). Diluted earnings
(loss) per share from continuing operations and diluted net earnings
(loss) per share for the three months ended December 31, 2006 and
January 1, 2006 are based on the diluted weighted average common shares
outstanding (2006 -- 13,128,199 shares; 2005 -- 13,118,707 shares).

Basic earnings (loss) per share from continuing operations and basic net
earnings (loss) per share for the twelve months ended December 31, 2006 and
January 1, 2006 are based on the weighted average common shares
outstanding (2006 -- 13,113,379 shares; 2005 -- 13,096,049 shares).
Diluted earnings (loss) per share from continuing operations and diluted
net earnings (loss) per share for the twelve months ended December 31,
2006 and January 1, 2006 are based on the diluted weighted average common
shares outstanding (2006 -- 13,128,255 shares; 2005 -- 13,116,146 shares).

Note 4. Consolidated statement of cash flows

The following is additional information to the statement of cash flows.

Change in non-cash operating
working capital Three months ended Twelve months ended
-----------------------------------------------
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
-----------------------------------------------

Accounts receivable $11,729 $10,229 $5,042 $7,416
Inventories (3,729) (7,659) 6,340 (2,195)
Prepaid expenses 1,476 1,473 (233) 811
Accounts payable and
accrued liabilities 4,483 1,312 2,864 (6,817)
Restructuring charge - (5,878) (866) 918
Income taxes receivable/payable (1,854) (1,914) 5,715 1,895
-----------------------------------------------
$12,105 ($2,437) $18,862 $2,028
-----------------------------------------------

Note 5. Employee benefits

The Company's net benefit plan expense, which is recorded in cost of sales
and selling, general and administration expenses, is as follows:


Three months ended Twelve months ended
-----------------------------------------------
December 31, January 1, December 31, January 1,
2006 2006 2006 2006
-----------------------------------------------

Pension benefit plan $646 $593 $2,494 $2,442
Other benefit plans 298 251 1,192 1,004
-----------------------------------------------
$944 $844 $3,686 $3,446
-----------------------------------------------

Note 6. Segment information

The Company operates in the automotive industry in three geographic
segments, North America, Europe and Asia. The Company's manufacturing
facilities, where appropriate, are geographically situated to align with
the physical location of its customer base. The Company evaluates segment
performance based on earnings or loss before income taxes.

The Company accounts for inter-segment sales at current market prices. All
Corporate costs not directly allocated to the European or Asian operations
have been allocated to the North American segment.


Three months ended December 31, 2006
-------------------------------------
Inter-segment
-------------
North America Europe Asia Eliminations Total
------------- ------ ----- ------------ ------
Sales to external
customers $63,454 $23,303 $16 ($2,087) $84,686
Earnings (loss) from
continuing operations (1,617) (666) (842) 70 (3,055)
Investment income 217 - - - 217
Interest expense 176 - - - 176
Depreciation and
amortization 7,100 2,320 40 - 9,460
Income taxes (1,565) 34 (9) - (1,540)
Purchase of property,
plant and equipment $1,225 $2,377 $3,642 $- $7,244
and other assets


Three months ended January 1, 2006
-------------------------------------
Inter-segment
-------------
North America Europe Asia Eliminations Total
------------- ------ ----- ------------ ------
Sales to external
customers $77,456 $11,596 $- ($1,227) $87,825
Earnings (loss) from
continuing operations (16,982) (3,348) - - (20,330)
Investment income 211 - - - 211
Interest expense 500 - - - 500
Depreciation and
amortization 8,311 1,755 - - 10,066
Restructuring charge 27,795 - - - 27,795
Income taxes (9,207) 12 - - (9,195)
Purchase of property,
plant and equipment $2,990 $2,166 $- $- $5,156
and other assets


Twelve months ended December 31, 2006
-------------------------------------
Inter-segment
-------------
North America Europe Asia Eliminations Total
------------- ------ ----- ------------ ------
Sales to external
customers $300,016 $79,827 $121 ($8,966) $370,998
Earnings (loss) from
continuing operations 6,979 (548) (1,444) (100) 4,887
Investment income 458 - - - 458
Interest expense 1,618 - - - 1,618
Depreciation and
amortization 29,950 8,004 50 - 38,004
Income taxes 3,380 67 9 - 3,456

Purchase of property, plant and
equipment and other assets $10,881 $8,337 $9,288 $- $28,506


Twelve months ended January 1, 2006
-------------------------------------
Inter-segment
-------------
North America Europe Asia Eliminations Total
------------- ------ ----- ------------ ------
Sales to external
customers $333,651 $49,259 $- ($1,227) $381,683
Earnings (loss) from
continuing operations (10,418) (11,232) - - (21,650)
Investment income 306 - - - 306
Interest expense 1,902 - - - 1,902
Depreciation and
amortization 30,934 7,843 - - 38,777
Restructuring charge 38,295 - - - 38,295
Income taxes (5,482) 70 - (5,412)
Purchase of property,
plant and equipment
and other assets $17,262 $4,897 $- $- $22,159


December 31, 2006
-----------------
Discontinued
------------
North America Europe Asia Operations Total
------------- ------- -------- ---------- --------
Total Assets $303,554 $129,336 $11,620 $471 $444,981
Property, plant
and equipment $180,426 $98,587 $8,284 $- $287,297
---------------------------------------------------------------------------


January 1, 2006
---------------
Discontinued
------------
North America Europe Asia Operations Total
------------- ------- -------- ---------- --------
Total Assets $343,677 $108,978 $- $4,413 $457,068
Property, plant
and equipment $206,171 $87,538 $- $- $293,709

Note 7. Comparative figures

Certain of the comparative figures have been reclassified to conform with
the presentation adopted at December 31, 2006.

Contact Information

  • Wescast Industries Inc.
    Mr. David Dean
    Vice President, Finance
    (519) 750-0000
    Website: www.wescast.com