ROYAL LASER TECH CORPORATION - Morningstar, Inc.
Transcript of ROYAL LASER TECH CORPORATION - Morningstar, Inc.
ROYAL LASER TECH CORPORATION
A N N U A L R E P O R T 2 0 0 0
E N G I N E E R I N G • P R O T O T Y P I N G • P R O D U C T I O N • S T A M P I N G • A S S E M B L Y
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
FISCAL 2000 HIGHLIGHTS
In the most significant transaction in the company’s history, Royal Laser sold its
seven continents division and acquired a 15% minority interest in OSF Inc.,
North America’s largest manufacturer of retail store fixtures. An after-tax gain
of approximately $16 million was recorded on the transaction. This transaction
also resulted in Royal Laser receiving approximately $31 million in cash, which
substantially improved the Company’s financial position.
Revenue from all operations grew for the 9th year in a row to $60 million.
Shareholders equity grew to approximately $57 million by year end, and net
book value per common share was approximately $5.40 at April 30, 2000.
At year end, our automotive and industrial sales order backlog was at
record levels.
The Company received its first two hydroform presses by July 2000 and
completed construction of its Brampton hydroform building in April 2000.
The Company negotiated the acquisition of SCS International before the end
of the fiscal year and closed the transaction on July 12, 2000.
T A B L E O F C O N T E N T S
Message to Shareholders2 Acquisitions and
Divestitures6 Technologies and Capabilities10 Strengthened
ManagementTeam
14 AutomotiveIndustry
16 ManagementDiscussion andAnalysis
18 23 Financials
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
Brought to you by Global Reports
F I S C A L 2 0 0 0
HIGHLIGHTSFINANCIAL
$66
60
54
48
42
36
30
24
18
12
6
0 1996 1997 1998 1999 2000
mill
ions
of
$
$5.5$9.7
$19.4
$45.4
$60.3
A N N U A L S A L E S
$22
20
18
16
14
12
10
8
6
4
2
0 1996 1997 1998 1999 2000
mill
ions
of
$
$0.7 $1.5$3.3
$5.6
$19.8
N E T E A R N I N G S
Brought to you by Global Reports
2
AN INCREDIBLE YEAR
Royal Laser continued to grow its operations and sales in fiscal 2000. Combined sales from
continued and discontinued operations were $60.3 million compared to $45.4 million in the
previous fiscal year. Revenues from our automotive/industrial operations increased to
$26.9 million, a 37% increase from the previous fiscal year. Revenue from our store fixture
operations during the period of ownership in fiscal 2000 was $33.4 million.
With continued growth came the need to focus our customer services on either one or both of
these sectors. It became increasingly obvious to management that in both the store fixture industry
and the automotive/industrial sectors, which are extremely competitive and consolidating, we had
to continue to grow rapidly and to focus our operations and our array of customer services. We
also needed to make some significant, immediate decisions that would impact the long-term future
and success of the Company.
Fiscal 2000 became a watershed year in which three of the most significant transactions in the
history of the Company were completed or negotiated: first, the combination of our store fixture
operations with those of OSF Inc. through the sale of our seven continents store fixture division in
return for a significant minority equity interest and cash; second, the installation of hydroforming
technology in our Brampton facility; third the acquisition of SCS International, a stamping, seat
assembly and pulley manufacturer operating primarily in the automotive sector, in a transaction
negotiated in fiscal 2000 and successfully completed in the first quarter of fiscal 2001.
OSF INC. TRANSACTION
Our take-over bid for OSF Inc., launched in the fall of 1999, was premised on the desire to become
a major player in the retail store fixture industry. However, once the auction process raised bidding
MESSAGE TOSHAREHOLDERS
Fiscal 2000 was a year of
continued financial and
customer growth for
Royal Laser. It was also a
watershed year in which
three of the most significant
transactions in the history
of the Company were
completed or negotiated.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
3
levels to prices above which we and our shareholders were willing to pay, the sale of our sevencontinents store fixture division and the related acquisition of a significant minority equity interest
in OSF Inc. became, in our view, the ideal solution. We completed this transaction only after significant
deliberations amongst our management and shareholders regarding the future direction of Royal
Laser. The substantial cash proceeds from this transaction and the opportunity to hold a significant
minority 15% interest in North America’s largest retail store fixture manufacturer made this an
outstanding transaction for Royal Laser and our shareholders, as well as the most significant
transaction in our history.
HYDROFORMING TECHNOLOGY INITIATIVE
Royal Laser made a significant investment in two new hydroforming machines, which will produce
revenue in fiscal 2001. As well, we completed the construction of the Brampton hydroform
facilities. Our commitment to developing expertise in hydroforming will continue to advance Royal
Laser’s already strong reputation as a leading edge user of new technology in manufacturing. The
number of hydroform components in the automotive sector has been increasing yearly and it is
projected that hydroforming applications will continue to substantially increase. We are also
positioned to provide hydroforming services to non-automotive sectors.
SCS INTERNATIONAL ACQUISITION
The third significant transaction in fiscal 2000 was the acquisition of SCS International, which
closed in July, 2000. The acquisition of SCS provides Royal Laser with additional strong stamping,
seat assembly and pulley fabrication capabilities.
In summary, these three key transactions have provided Royal Laser with a strong financial position,
the expanded technologies and capabilities to be successful moving forward. We believe we have the
ability and focus to provide a full basket of services to customers in the automotive and industrial
sectors. In this report we will discuss in greater detail our capabilities and services.
STRENGTH IN MANAGEMENT AND OPERATIONS
The Company has also strengthened it’s senior management team over the past year. In January,
2000, Mike Farrugia joined our team as our Chief Operating Officer. With the completion of the SCS
transaction, Mr. George Schacht, a senior automotive industry executive, also joined our senior
management team. These are important additions. At Royal Laser, we continue to maintain our
traditional lean management style, but at the same time add depth where required.
Operationally, we have structured our operations and services and set up our sales approach to
truly provide a full basket of services to meet our customer needs. However, consistent with our
traditional approach, we intend to continue to focus on certain niche services for our customers.
We consider prototyping, assemblies and smaller volume production runs as examples of niches
that fit our skill sets and potentially provide higher profit margins for the Company.
The result of the seven
continents transaction
and the proceeds generated
thereby gave impetus to
an accelerated expansion
of Royal Laser’s automotive
/industrial operations.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
4
EARNINGS INCREASE
Our net income for fiscal 2000 was almost $20 million, a record, compared to approximately
$5.6 million in the prior fiscal year. The significant jump in earnings is primarily attributable to the
net earnings from discontinued operations of approximately $18.6 million. Our continuing
operations during the 2000 fiscal year suffered from the change in focus of the Company,
some idle capacity resulting from the seven continents transaction, by an expensive and
costly outsourcing relationship in our Lakeshore plant (which has been terminated), by a union
organizing drive at that plant that failed and, to some extent, as a result of the high degree of
management attention required in our seven continents and OSF initiatives. Both the take-over
bid and the OSF merger transaction required a significant amount of management time and focus.
We believe that Royal Laser’s operations will be significantly more profitable commencing the
middle of the current fiscal year.
STRONG CUSTOMER RELATIONSHIPS
The success of Royal Laser has primarily come from the services provided by our people and
technology, and the ongoing support of our customers. During the fiscal year we have taken steps
to deepen our relationships with key customers. We have taken steps to continue to improve our
quality and our on-time delivery systems as we grow.
Heading into fiscal 2001 we are also forging new customer relationships. OSF is now a significant
customer as a result of a supply agreement. The customers of SCS now have a new array of services
and a financially stronger supplier as a result of the purchase by Royal Laser. With the expansion
of our business into hydroforming, Royal Laser has created a whole new set of customers.
COMMITTED ORDERS
Our sales order backlog for automotive/industrial is greater than it ever has been. As a result of the
continued growth we have taken the following steps to continue to ensure customer focus and
quality service:
A We have divided our sales group into general industrial markets and the automotive sector. Our
sales people must have strong industry knowledge to support customer needs.
B We have continued the implementation of a full manufacturing resource planning (MRP)
process to ensure accurate scheduling, tracking and product being manufactured.
C We have established an ongoing review program for non-profitable customer relationships and
have taken steps to improve their profitability or else redirected our resources to customers that
provide appropriate margins. We have upgraded the role of quality in the organization and recently
hired a senior director of quality.
Customers have been a critical element to the success of Royal Laser and our customer focus will
not be diminished as we continue to grow.
Committed sales orders
for automotive/industrial
is greater than ever.
Customers have been a critical
element to the success of
Royal Laser and our customer
focus will not be diminished
as we continue to grow.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
5
POTENTIAL FOR GROWTH
As we end one fiscal year and enter into another, we always take stock of our Company and its
prospects. While fiscal 2000 has been a watershed year, we are confident that Royal Laser’s
position is as strong as it has ever been. Our shareholders’ equity has grown to approximately
$57 million and net book value per common share was approximately $5.40 at April 30, 2000. We
have modern, state of the art plant and equipment, including over 400,000 square feet of space.
We have an increasingly sophisticated workforce of over 500 employees. Our sales potential based
on our committed sales orders and on the size and number of quotes and opportunities before us
has never been greater, even before the sale of the seven continents division. While we are not
satisfied with the recent operating results of the ongoing operations, we are excited about the
substantial opportunities now before us.
OUR CHALLENGE IN THE MARKETS
While normally we do not comment on Royal Laser’s share price, we do recognize that it has
declined during the past year. We believe that part of that may be from some investor
disappointment that we did not successfully acquire OSF Inc., and part of it may reflect the fact
that the Company needs to prove to shareholders that it can be successful as a company focused
on the automotive/industrial sector. Royal Laser certainly accepts this challenge and believes
that we can be very successful, and that this will be demonstrated over time and will be seen
in future results.
We also believe that we have suffered the same fate as many other non-technology or small
capitalization companies which have many good things to report to shareholders, solid balance
sheets and good prospects. In that sense, Royal Laser has been something of a market victim. Over
time, we believe success and patience are rewarded by the market, and a continued strong
financial performance will bring better results for our shareholders and investors.
ROYAL LASER TECH CORPORATION
We continue to express our appreciation to all members of the Royal Laser team, the many skilled
and motivated employees for their efforts in the past year. We also thank our customers and
shareholders for their ongoing support.
Bill IannaciPresident and CEO
Robert P. WildeboerChairman
A sampling of pulleys fabricatedby SCS.
A flat cutting laser at ourClaireville location.
A water jet cutter at ourClaireville location.
Brought to you by Global Reports
S U C C E S S F U L D E C I S I O N S
AND DIVESTITURESACQUISITIONS
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
7
A Major New Initiative HYDROFORM SOLUTIONSOur ability to identify technical or market based needs and to satisfy these needs with successful
acquisitions has become a core competency at Royal Laser. In the last three years we have acquired
certain niche technical skills with the acquisition of The Laser Machining Centre (December 1997),
Ellero Machining Centre Ltd. (April 1998) and Bantam Electric Ltd. (April 1998). While these
companies were small and the transactions not significant, all of these acquisitions have
successfully assisted us in our growth and in our learning processes. Successful acquisitions are not
easy, and the best teacher is experience.
During fiscal 2000, we announced the expansion of our business into hydroforming technology. We
purchased two 600 ton hydroform presses and related technology which arrived during the
spring/summer of 2000. We also purchased our new Brampton hydroform building in September
1999. This major new initiative into the hydroforming business will provide revenue growth in
future years.
At Royal Laser, internally
generated growth has
continued each year for the
last ten years. When this
internal growth is supported
by successful acquisitions,
an even more successful and
strategic company results.
Our first hydroform press at our Brampton facility.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
8
New AcquisitionSCS INTERNATIONALDuring the spring of 2000 we negotiated the purchase of SCS International (Manufacturing) Inc.,
a company with metal stamping, seat assembly and pulley fabrication capabilities. SCS’s president,
Mr. Georg Schacht, was a senior executive with one of the world’s largest Tier I automotive
suppliers. He will continue in a key role with Royal Laser. SCS is capable of stamping a wide variety
of parts and has niche expertise in seat assemblies. Their substantial knowledge and credibility in
the automotive industry and their assembly capabilities will be major assets to Royal Laser in
coming years. We completed our final due diligence and closed this transaction on July 12, 2000.
The total purchase price was approximately $10 million.
SCS has booked profitable business in excess of $25 million annually for the next six years with
substantial opportunities to increase these sales quickly. SCS has two divisions; its largest division,
Stamp-A-Tron, is located in Markham and its smaller, Steelmatic division is located in Concord. We
have already commenced the operational integration of SCS with the announced closing of the
Concord plant and the movement of its assets and people to our larger and more efficient
Carlingview facility. The Carlingview plant will allow more growth of this business. The Markham
plant is a core asset of SCS and will be supported by Royal Laser in its growth.
seven continentsOSF TRANSACTIONIn April 1998, we completed our first significant acquisition, a $9 million purchase of sevencontinents Enterprises. seven continents is in the store fixture industry, selling fixtures and
forms, with a reputation as a producer of the finest quality forms in North America.
We combined that business with our own, and grew the combined store fixture business such that
after almost two years its month over month sales had doubled from the time we acquired
seven continents.
Paying Attention to
INDUSTRY TRENDS
In the fall of 1999 we identified store fixture industry trends of rapid growth and consolidation.
The quick increases in size of our most significant competitors in the United States caused us to
conclude that we needed to get bigger, quickly, to be able to provide competitive services to the
largest retailers who were also consolidating quickly. Accordingly, we commenced a takeover bid
for OSF Inc., North America’s largest store fixture manufacturer and a virtual neighbour to Royal
Laser in the northwest part of Toronto.
Quality inspection at our Markham(Stamp-A-Tron) division.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
9
Maintaining an Equity Interest in a
PROFITABLE COMPANY
Our share for share exchange takeover bid for OSF, launched in the fall of 1999, initially received
support from OSF shareholders but when a competitive all cash bid arose it became less clear that
Royal Laser would be successful in the takeover bid. We concluded, after discussions with many of
our shareholders, that an increase in our offer would be too expensive for our shareholders and
that we should pursue other alternatives. Ultimately, Royal Laser’s competitive bidder offered
approximately $48 million in cash and equity in OSF Inc. and up to $20 million in contingent
consideration for the seven continents store fixture business. Royal Laser effectively joined the
competitive bidder in the successful acquisition of OSF Inc. Royal Laser’s interest in OSF Inc. (which
now includes seven continents) is 15% plus an option to acquire an additional 5% interest. We
also concluded that the new management team at OSF Inc. was capable of successfully leading OSF
Inc. This comfort level combined with our representation on the board assisted in the conclusion
that a 15% passive interest in the most significant store fixture company in North America was
better than a 100% interest in a smaller store fixture company that may have had trouble
competing in light of current competitive trends. The cash injection from this transaction was also
important to support our other growth initiatives.
Computer controlled water jetcutter at our Claireville location.
Our automated material transferlaser manufacturing cell in ourClaireville location.
One of our many multi-axis Trumpf laser cutting machines.
Our wide-body Trumpf 4030industrial laser machine.
Brought to you by Global Reports
A N D C A P A B I L I T I E S
TECHNOLOGIESEXPANDED
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
11
The resources gained from our recent acquisitions and the OSF transaction,
combined with our existing operations, position us to offer customers broader
capabilities using the latest equipment and technologies.
ENGINEERING
Royal Laser has a large engineering department with a broad range of skills to assist in the design
and engineering of new products. We have substantial experience ranging from single part design
and engineering to large multi-part modules.
With any type of technology, knowledge is the key to success. Royal Laser has mechanical and
design engineering capabilities. We also have the ability to design both tools and parts. We are
capable of working with various types of drawings. We are able to communicate electronically with
the customers’ engineering department to relay and receive data in a real time environment.
Through all of these capabilities we are able to provide our customers with a broad range of
engineering skills.
PROTOTYPING
Since its inception, Royal Laser has developed an outstanding reputation for its prototyping skills.
Whether it is in assisting a small tool and die shop in the development of tooling or working with
large automotive OEM’s in designing and creating prototype frames for automobiles, we have a
broad range of prototyping skills including our engineering, industrial laser technology and CNC
bending capabilities which are all necessary for quality prototype parts. This diversity of skill assists
in the creation of quality samples for products ranging from simple parts to more complex
assemblies. We have recently been working on a prototype frame assembly for an entire bus.
It is in this infant stage of product development that Royal Laser’s knowledge and expertise can
really be demonstrated. Our diverse range of processes allows the customer to work with us from
beginning to end in the design of new parts. We can also use specific processes to assist in areas
where the customer may lack the equipment. Either way we strive to blend our capabilities and
knowledge with our customers in a way that they can follow the job through the shop or have a
completed part delivered to their door. Our prototype capabilities extend to many industries.
During fiscal 2000 we
continued to expand
our technologies and
capabilities. We now
have the capability to
provide a full basket
of services for many
of our customers.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
12
HYDROFORMING
Our most recent endeavor in new technology has resulted in two hydroform presses installed at
our Brampton facility. Hydroforming has some significant advantages over conventional stamping:
lower tooling costs and fewer parts that are lighter, stronger and with consistent metal wall
thickness. Royal Laser’s hydroform machines have the versatility to run a wide range of parts for
the automotive and industrial sectors. Royal Laser is committed to finding new applications for this
technology and has already begun working with our existing customers to find ways to incorporate
hydroforming technology into the fabrication of both existing and new parts. The amount of
hydroform components in the automotive sector has increased each year and projections are that
this use will continue to increase substantially. Royal Laser is also positioned to provide hydroform
services to other industries. For example, applications for hydroforming have been identified in the
appliance and store fixture industries.
LASER CUTTING
In 1990 Royal Laser invested in flat cutting laser technology and began to develop better ways to
use and to commercially exploit the technology. Royal Laser was leading edge in its use of flat
cutting lasers. A few years later it invested in multi-axis laser machines and again was a leader in
the development of practical uses for the equipment. We are now one of North America’s largest
users of laser technology and use lasers as part of a series of production processes and have
developed a truly value added array of services around laser cutting capabilities.
Our multi-axis lasers are used for both prototyping and higher volume production for automotive,
aerospace and industrial consumption. In addition to cutting flat metal, we provide trimming and
hole piercing services for multi-dimensional parts.
Our lasers have the versatility to cut a variety of metals. Our four kilowatt laser machines are able
to cut up to 1” thick mild steel. With over 10 years experience in this technology we have the
knowledge and ability to cut a range of parts from simple to intricate.
Royal Laser has always
been a leader in new
technology investment.
Our first ‘Anton-Bauer’ hydroformpress at our Brampton facility.
Our quality control CMM measuringmachine in our Brampton facility.
Inside the jaws of our hydroform press.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
13
COMPLETE ASSEMBLY
Royal Laser has assembly capabilities in all of its plants, from large welded assemblies for the
transportation industry to smaller ones for the store fixture industry. Royal Laser uses its expertise
in this area to respond to our customers’ needs. Throughout the organization we have the know-
how to complete prototype jobs or high volume robotic assemblies. Through the use of Mig, Tig
and spot welding we are able to complete a variety of assembly work in aluminum, stainless steel
or mild steel. We have recently commenced a large production and assembly job for
environmentally friendly, attractive garbage recycling bins made of stainless steel.
In the transportation sector, we have recently completed a full bus frame assembly and we have
completed large complex part assemblies for the rail car industry. Our SCS International division
specializes in seat assemblies for the automotive industry. For many years we have assembled
various store fixture products with exacting attention to detail to the finished look.
STAMPING
Through our recently acquired SCS International division we have a full range of stamping
capabilities. SCS has been stamping parts for the automotive sector for many years but its
stamping capabilities extend to many industries. It has presses capable of handling almost any job.
It has automatic and transfer press capabilities.
The key to our core stamping capabilities is our value-added services that complement stamping.
We can complete almost any type of assembly. For example, a specialty of SCS is seat assemblies,
which incorporate stamping and tube bending capabilities. We are capable of adjusting to and
advising on all engineering changes made by our customer. Our Steelmatic-Carlingview location
has painting and plating lines. We also have groove forming equipment that is used for building
pulleys and similar parts. We have been fabricating pulleys for several years. SCS has many years
of stamping experience and a broad range of stamping equipment capable of handling a wide
variety of stamped parts.
Our core services and
capabilities are supported by
a wide variety of other
advanced equipment such as
water-jet cutting, machining,
CNC bending equipment and
plasma cutting capabilities.
Assembling a frame sub-assembly.
Brought to you by Global Reports
The management of Royal Laser believes that it is capable of growing Royal Laser
into a significant player in the North American automotive and industrial
marketplace. To ensure our success continues, the need to broaden our
management team in terms of experience and skill was important. In this section
we highlight the roles and experience of Royal Laser’s senior management team.
STRENGTHENEDMANAGEMENT TEAM
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
15
The Company believes that its strengthened management team will provide
the motivation and leadership to move the Company to become a significant
North American supplier.
Bill Iannaci was the majority founder of Royal Laser and has been and continues to be the driver
of the business. With his strong technical and engineering skills he has identified and driven the
investment in all of Royal Laser’s new technologies. He has strong relationships with many of our
large customers and has an outstanding sense of what their future needs will be. As the Company
grows Bill Iannaci has set up a strong entrepreneurial, operational and financial team around him
to allow him to continue to focus the Company and drive its growth.
Mike Farrugia joined Royal Laser in January 2000, initially as the head of our hydroform operations,
and now as Chief Operating Officer, with full responsibility for all day-to-day operating activities
of the Company. He was formerly a senior manufacturing and purchasing executive with a large
railcar manufacturer and, prior to that, a large aircraft manufacturer. Both of these companies had
annual sales in excess of $1 billion. He has outstanding knowledge of processes, operational
structures and strategies for growing companies, which will prove invaluable for Royal Laser.
Greg Van Staveren joined Royal Laser early in 1998. Previously, he was a partner with one of
Canada’s largest public accounting and consulting firms. He had been there for over 17 years.
He works closely with other senior management in all financial and business matters involving
the Company, and is also responsible for the Company’s information technology and human
resource departments.
Georg Schacht joined Royal Laser as a result of the acquisition of SCS International. SCS was
founded by Georg approximately 6 years ago and he acted as its president throughout this period.
Georg is a former senior executive of one of the world’s largest Tier I automotive suppliers. Georg
will provide Royal Laser with key senior experience in the automotive sector and assist strategically
in the growth of its technology base.
Gary Anderson was a founder of the Company with Bill Iannaci. Gary provides management
support for key customers and provides senior project management support on larger
prototype jobs.
Bill Iannaci, President and CEO
Mike Farrugia, Chief Operating Officer
Greg Van Staveren CA, CPA, CMA,
Chief Financial Officer
Georg Schacht, Automotive Division Sales
and Operations Strategy
Gary Anderson, Executive Vice President
Brought to you by Global Reports
The automotive industry is one of North America’s largest, with a market size
reaching into the hundreds of billions of dollars. Several developments in the
automotive industry are substantially altering the environment for independent
suppliers, including:
(i) the participation by suppliers in the design and engineering of
automotive components at an early stage of the design process;
(ii) the consolidation of the Original Equipment Manufacturers
(OEMs) supplier base;
(iii) increased outsourcing of components, assemblies and complete systems
from OEMs to sophisticated, independent suppliers; and
(iv) the expansion of foreign-owned OEMs and their increased emphasis on
North American-sourced content. In addition to increased supplier
dependency, OEMs are coming under substantial regulatory and
competitive pressure to reduce vehicle weight materials and improve
manufacturing processes including hydroforming and laser cutting.
INDUSTRYAUTOMOTIVE
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
17
BUILDING A STRONG REPUTATION
Royal Laser is establishing niche markets and a strong reputation to build on in this industry. Our
medium and long-term plans are to position Royal Laser as the supplier of a broad basket of
services supported by strong technical capabilities. We intend to position ourselves to accept and
deliver complete assemblies. Our broad range of capabilities will result in a more complete service
package and will spare the customer the inconvenience and the cost of multiple suppliers and the
necessity to coordinate their outputs. Our service package starts with concurrent engineering, and
proceeds through prototyping and solidification of the design, project management services,
fabrication of components and sub-assemblies, final assembly and shipment of the product to the
customer’s point-of-use.
Our existing services to the automotive sector are supplied through: Stamp-a-Tron Manufacturing
Ltd., our stamping division, which also produces seat assemblies; Steelmatic Manufacturing Inc.,
which produces pulleys; and Hydroform Solutions, which supplies hydroforming services and
5-axis laser cutting. Stamp-A-Tron and Steelmatic are part of SCS International which was
purchased subsequent to year end. Our automotive operations are housed in three very modern
facilities totaling 250,000 square feet. Two of these locations are QS 9000 certified and the third
one is establishing systems congruent with QS requirements.
EXPANDING SERVICES
Our services to the automotive sector are expanding. We supply stampings and assemblies for
engine, body, interior and suspension parts. We have hydroformed prototype rails and have laser
cut high volume automobile cross members and fuel rails. We stamp and assemble complete
production seat frames for various Tier 1 companies and we produce a myriad of pulleys for
production and service-market use.
We believe that our market opportunities in the automotive sector are substantial and that with
continued senior management support and a strong financial commitment we will successfully
exploit these opportunities.
In addition to increased
supplier dependency, OEMs
are coming under substantial
regulatory and competitive
pressure to reduce vehicle
weight and improve
manufacturing processes
including hydroforming
and laser cutting.
Our SCS International division specializes in seat assembliesfor the automotive industry.
Brought to you by Global Reports
FISCAL 2000
DISCUSSION & ANALYSISMANAGEMENT
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
19
OPERATIONS OVERVIEW
The financial statements for the year ended April 30, 2000 were materially impacted by the sale of
seven continents/acquisition of an interest in OSF Inc. The prior year and the current year results
have been restated to present the seven continents division as a discontinued operation.
Revenue for the fiscal year ended April 30, 2000 increased to $60 million (including $33.4 million
from the seven continents division). This represents an increase of approximately $14.9 million or
33% from fiscal 1999.
Gross profit as a percentage of sales in continuing automotive/industrial operations was 27%
compared to 41% in the prior fiscal year. This substantial decrease in margin was caused in part by
substantial costs relating to an outsource supplier relationship that was intended to be an
acquisition for the Company. The costs of handling and terminating the outsource relationship,
including reclaiming this work in house, were substantial. Margins were also impacted by two large
customers, where Royal Laser was unable to get pricing concessions on material cost increases
until after the fiscal year end. Certain idle capacity costs also arose in the last two months of the
year as a result of the seven continents sale.
Selling, administration and general costs were approximately $2.3 million or 8.7% of sales in the
current year compared to $1.9 million or 9.6% of sales in fiscal 1999. The Company does not
consider this to be a significant fluctuation given the substantial changes in the business during
the year.
Amortization of capital assets increased to approximately $3.0 million compared to approximately
$2.1 million in the prior fiscal year. Increases in amortization charges were expected as the
Company has incurred substantial capital expenditures in the last two fiscal years. With recent and
ongoing purchases of new laser technology and hydroform equipment, amortization of capital
assets should continue to increase in future years.
The increase in sales
to $26.9 million from
automotive/industrial
operations represents
a 37% increase from
fiscal 1999.
Engineering and Computer Aided Design.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
20
Income taxes in the prior fiscal year were unusually low as a result of the acquisition of the Laser
Machining Centre (LMC) in fiscal 1998 and its available loss carry forwards. Income tax expense as
a percentage of earnings in fiscal 2000 was 39% which is approximately 3% higher than the
combined income tax rates arising if full manufacturing and processing tax deductions were
available. The difference was primarily caused by prior year tax reassessments.
Net earnings from continuing operations were approximately $1.2 million compared to
approximately $2.8 million in fiscal 1999. The decline in profitability was primarily caused by a
reduction in gross margin, by increased amortization expense and by a more normalized tax
provision in fiscal 2000. The Company expects that margins will continue to be poor in the first part
of fiscal 2001 but expects substantial improvement in the second half.
The net earnings for the year of approximately $20 million compared to approximately $5.6 million
in the prior year were primarily a result of the net earnings from discontinued operations of
approximately $18.9 million.
We believe that our 15% investment in OSF Inc. will be a successful one. In our financial statements
we have recorded this investment at cost, which means that we will only record our share of OSF
earnings when we receive a cash dividend or if we dispose of the investment. OSF is in a cyclical
business so its financial results are very dependent on its shipments in the pre-Christmas, October,
November period. Based on booked orders it appears that OSF will have a good fiscal year.
$2.00
1.80
1.60
1.40
1.20
1.00
.80
.60
.40
.20
0 1997 1998 1999 2000
$0.24
$0.49$0.58
$1.84*
E A R N I N G S P E R S H A R E* Includes gain on sale of
store fixture division
$6.00
5.40
4.80
4.20
3.60
3.00
2.40
1.80
1.20
0.60
0 1997 1998 1999 2000
$0.83
$2.23
$3.54
$5.38
S H A R E H O L D E R S E Q U I T YBook value per share
We have recently commencedproduction and assembly ofthese familiar recycling bins.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
21
CAPITAL AND INVESTMENT SPENDING
Fiscal 2000 was a record year for Royal Laser in terms of capital spending. We incurred
approximately $25.9 million in new capital spending, compared to approximately $12.1 million in
the prior year. We purchased and completed the construction of the Brampton hydroform facility
for approximately $13 million. We have paid $5.4 million to date on hydroform equipment. We
have also continued to add to our laser technology through the purchase of $5.3 million in new
laser equipment. All of these capital expenditures have added to the capabilities of Royal Laser. In
fiscal 2001, we expect a substantial reduction in capital spending, as we have sufficient plant and
equipment in place to grow our business.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000 the Company did not raise new equity and, in fact, commenced a normal course
share buyback program. By August 2000, we had repurchased approximately 200,000 common
shares at an average price of approximately $4.25. Approximately $28 million in cash relating to
the seven continents transaction was received in fiscal 2000. By August 2000, much of this had
been spent on income taxes on the transaction, hydroform equipment, the purchase of SCS and
working capital investments. At April 30, Royal Laser had approximately $19.9 million of net
working capital compared to approximately $12.7 million at April 30, 1999. We had unused
operating and equipment borrowing capacity of approximately $14 million at April 30, 2000. While
this borrowing capacity is sufficient in the short term, more capital will be required if exponential
growth occurs.
$11
10
9
8
7
6
5
4
3
2
1
0 1995 1996 1997 1998 1999 2000
mill
ions
of
$
$0.8$1.4
$2.8
$6.5
$10.8
E B I T D A **Earnings before Interest, Taxes,
Depreciation and Amortization and sale of store fixture division
$10.8
Engineering and Computer Aided Design.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
22
RISK AND UNCERTAINTIES
The Company is exposed to a number of risks and uncertainties that could impact future results.
The nature of the Company’s business, especially in the automotive sector, means that it is affected
by general economic conditions. While the Company is not dependent on any particular customer,
the loss of big accounts could also impact results. Based on the budget for fiscal 2001 no customer
should exceed 10% of sales.
People represent Royal Laser’s biggest cost and are key to service quality. The Company does not
have a union and has a history of excellent relations with its vital human resources and these
relations will continue to be important to future success. During fiscal 2000, the United
Steelmakers of America were successful in organizing a unionization vote at our Lakeshore
location. Ultimately, our employees voted overwhelmingly in favour of a non-union environment.
While metal represents an important cost component to Royal Laser, the ability to share the cost
with customers due to the custom nature of the business reduces this risk to some extent. During
much of fiscal 2000, metal price increases hurt Royal Laser with two of our customers, as we were
unable to pass price increases immediately to these customers. Price increases to these customers
were implemented in fiscal 2001. A small proportion of Royal Laser’s debt bears interest at variable
rates which reduces the impact of interest rates increases. In the next 12 months less than 30% of
revenues are expected to be in US dollars but this percentage is expected to increase in future years.
The Company does not have any foreign currency contracts outstanding.
The Company is in a capital intensive business and therefore needs to be financially able to
purchase new equipment and technology on a timely basis.
OUTLOOK
Fiscal 2000 was a year of financial and operational consolidation and of substantial capital
expenditures to lay the foundation for future growth. In fiscal 2001 and 2002, we expect to begin
to utilize our plant technologies and capacities more fully. We expect a substantial decline in capital
spending and, ultimately, a return to strong operational profitability. Our operations will be
constantly reviewed to improve efficiency and to take costs out of the system. No new acquisitions
are planned but our strengthened management team is always poised for market
based opportunities.
Royal Laser continues to seek newheavy industrial customers.
Growing markets such asaerospace provide manyopportunities for Royal Laser.
Brought to you by Global Reports
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements for Royal Laser Tech Corporation are the
responsibility of management and have been prepared in accordance with generally accepted
accounting principles and, where appropriate, reflect estimates based on management’s
judgement. In addition, all other information contained in this annual report is also the
responsibility of management. The Company maintains systems of internal accounting and
administrative controls designed to provide reasonable assurance that the financial information
provided is accurate and complete and that all assets are properly safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for
financial reporting and is ultimately responsible for reviewing and approving the consolidated
financial statements. The Board appoints the Audit Committee comprised of a majority of non-
management directors that meets with management and KPMG LLP, the external auditors, at least
once a year to review among other things accounting policies, annual financial statements, the
results of the external audit examination and the Management Discussion and Analysis included in
this annual report. The Audit Committee reports its findings to the Board of Directors so that the
Board may properly approve the Financial Statements.
FINANCIALSFISCAL 2000
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
24
AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Royal Laser Tech Corporation as at April 30,
2000 and 1999 and the consolidated statements of earnings and retained earnings and cash flows
for the years then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at April 30, 2000 and 1999 and the results of its operations
and its cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
Toronto, Canada
August 21, 2000
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
25
ConsolidatedBalance Sheets
April 30, 2000 and 1999 (thousands of dollars) 2000 1999
ASSETS
Current assets:Cash and cash equivalents $ 23,352 $ 260Marketable securities — 6,643Accounts receivable 9,674 9,364Inventories (note 3) 3,040 5,518Prepaid expenses 1,221 974
37,287 22,759
Loan receivable (note 4) 403 575Capital assets (note 5) 46,325 27,370Investment in OSF Inc., at cost 17,800 —Goodwill, net of accumulated amortization of $330 — 6,653
$ 101,815 $ 57,357
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:Bank indebtedness (note 6) $ — $ 4,991Accounts payable and accrued liabilities 7,738 3,594Income taxes payable 6,446 285Current portion of long-term debt (note 7) 3,246 1,273
17,430 10,143
Long-term debt (note 7) 24,287 8,311Deferred income taxes 2,633 1,008
Shareholders’ equity:Share capital (note 8) 26,260 26,452Retained earnings 31,205 11,443
57,465 37,895
$ 101,815 $ 57,357
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Bill Iannaci Gary AndersonDirector Director
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
26
Consolidated Statements of Earnings and Retained Earnings
Years ended April 30, 2000 and 1999 (thousands of dollars, except per share amounts) 2000 1999[restated note 1(a)]
Sales – all operations $ 60,294 $ 45,386Sales – discontinued operations 33,407 25,803
Sales – continuing operations 26,887 19,583
Cost of sales 19,721 11,480
Gross profit 7,166 8,103
ExpensesSelling, administrative and general 2,329 1,888Amortization 3,001 2,148Interest on long-term debt 774 530Interest income (net) (128) (206)Gain on sale of marketable securities (827) —
5,149 4,360
Earnings from continuing operations before income taxes 2,017 3,743
Income taxes (note 9): 825 950
Net earnings from continuing operations 1,192 2,793
Discontinued operations (note 2) 18,570 2,789
Net earnings for the year 19,762 5,582
Retained earnings, beginning of year 11,443 5,861
Retained earnings, end of year $ 31,205 $ 11,443
EARNINGS PER SHARE
Basic– continuing operations $ 0.11 $ 0.29– discontinued operations 1.73 0.29
– total 1.84 0.58
Fully diluted– continuing operations 0.10 0.25– discontinued operations 1.64 0.25
– total 1.74 0.50
Weighted average number of common shares outstanding 10,713,050 9,528,299
See accompanying notes to consolidated financial statements.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
27
Consolidated Statements of Cash Flows
Years ended April 30, 2000 and 1999 (thousands of dollars) 2000 1999[restated note 1(a)]
Cash provided by (used in):
OPERATIONSNet earnings from continuing operations $ 1,192 $ 2,793
Items not requiring cash:Amortization 4,112 2,791Deferred income taxes 1,625 1,137Net earnings from discontinued operations 2,615 2,789Loss on disposal of capital assets 17 12Gain on sale of marketable securities (827) —
8,734 9,522
Changes in non-cash working capital itemsAccounts receivable (4,002) (304)Accounts payable and accrued liabilities 2,663 (1,981)Income taxes payable (539) (366)Inventories (3,561) (2,313)Prepaid expenses (740) (481)
2,555 4,077
FINANCING ACTIVITIESIssue (repurchase) of share capital, net (192) 10,880Issuance of long-term debt 20,249 3,666Repayment of long-term debt (2,300) (3,234)Increase (decrease) in bank indebtedness (4,991) 4,819
12,766 16,131
INVESTING ACTIVITIESPurchase of capital assets (25,952) (12,193)Proceeds on disposal of capital assets 315 390Purchase of subsidiaries, including cash deficiencies assumed of nil — (927)Increase in marketable securities (824) (6,643)Loan receivable 172 (575)Proceeds on sale of marketable securities 8,294 —Proceeds on disposal of store fixture division, net of disposal costs of $2,084 25,766 —
$ 7,771 $ (19,948)
Increase in cash and cash equivalents 23,092 260
Cash and cash equivalents, beginning of year 260 —
Cash and cash equivalents, end of year $ 23,352 $ 260
SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest $ 1,698 $ 755Cash paid for income taxes $ 1,839 $ 2,266
See accompanying notes to consolidated financial statements.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
28
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
The Company was incorporated under the Ontario Business Corporations Act on February 10, 1987. It designs, engineers, manufacturesand sells custom metal products.
1. Summary of significant accounting policies:
(a) Presentation:The consolidated financial statements are prepared in accordance with generally accepted accounting principles in Canada.The consolidated financial statements include the accounts of the Company and those of its wholly owned subsidiaries.For the years presented, the consolidated statements of earnings and cash flows and the relevant accompanying notesreclassify the Company’s seven continents store fixture division as “discontinued operations” as discussed in note 2.
(b) Cash and cash equivalents:Cash and cash equivalents consistent of cash and short term money market instruments.
(c) Marketable securities:Marketable securities are presented at cost, which approximates market value.
(d) Inventories:Raw materials are valued at the lower of cost and replacement cost. Finished goods and work in progress are stated at thelower of cost and net realizable value.
(e) Capital assets:Capital assets are recorded at cost, including capitalized interest, net of investment tax credits received, less accumulatedamortization. Amortization is provided for over the estimated useful lives of the capital assets at the following ratesand bases:
Basis Rate
Building and improvements Declining balance 4%Manufacturing equipment Declining balance 15%Motor and delivery vehicles Declining balance 30%Office and computer equipment Declining balance 20%
(f) Goodwill:Goodwill is amortized on a straight-line basis over 20 years. Goodwill is regularly evaluated by reviewing the expectedfuture cash flows taking into account associated business risks. Any impairment of goodwill would be charged againstearnings in the year it occurs.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
29
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
1. Summary of significant accounting policies, (cont’d):
(g) Revenue recognition:Revenue is recognized when goods are shipped or services provided.
(h) Income taxes:The Company follows the deferral method of tax allocation accounting, whereby deferred income taxes result from timingdifferences in the recognition of income and expenses for income tax and financial statement purposes.
(i) Translation of foreign currencies:Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates in effect at thebalance sheet date. Realized and unrealized gains and losses on translation are reflected in net earnings.
(j) Stock-based compensation plans:The Company has a stock-based compensation plan. Options are granted at the fair value of the Company’s common shareson the date of the grant of the options. No compensation expense is recognized for these plans when stock options areissued to employees. Any consideration paid by employees on exercise of stock options or purchase of stock is credited toshare capital.
(k) Use of estimates:The preparation of financial statements in conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during theyear. Actual results could differ from these estimates.
2. Discontinued operations and business disposition:
On March 21, 2000 the Company sold its seven continents store fixture division to OSF Inc. for proceeds of $48,650 consistingof $31,150 cash and $17,500 in OSF Inc. common equity. In addition, $300 in acquisition costs relating to the OSF investmentwere capitalized. $3,000 of the cash is a holdback that is due September 21, 2000 and is included in accounts receivable. TheCompany can also earn up to an additional $20,000 in contingent payments if the revenues earned by seven continents andOSF over the next two years exceed certain negotiated amounts. These contingent payments have not been recorded in thesefinancial statements and will be recorded when the amounts are determinable. The investment in OSF Inc. representsapproximately 15% (20% including an equity option) of the outstanding share capital of OSF Inc. and will be accounted forusing the cost method. The Company recognized a net after-tax gain of $15,955 ($22,655 before tax). seven continentsoperating results for the periods presented are reflected as “discontinued operations.” The statements of earnings and cash flowsfor 1999 have been restated to classify the results of discontinued operations as separate components.
Period ended Year endedMarch 21, 2000 April 30, 1999
Sales $ 33,407 $ 25,803
Operating income $ 4,715 $ 3,738Income taxes (2,100) (949)
Net operating earnings from discontinued operations 2,615 2,789Net gain on disposition 15,955 –
Net operating earnings from discontinued operations $ 18,570 $ 2,789
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
30
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
2. Discontinued operations and business dispositions, (cont’d):
The Company’s balance sheet included the following net assets related to the seven continents division prior to the sale.
As at As atMarch 21, 2000 April 30, 1999
Working capital $ 11,521 $ 7,532Fixed assets 2,859 5,523Goodwill 6,347 6,653
$ 20,727 $ 19,708
3. Inventories:
2000 1999
Raw materials $ 1,206 $ 1,554Work in progress 948 1,454Finished goods 886 2,510
$ 3,040 $ 5,518
4. Loan receivable:
The loan receivable bears interest at 1% per month and is secured by a second mortgage on an industrial building.Principal payments are due in the year ended April 30, 2002.
5. Capital assets:
2000 1999
Accumulated Net book Net bookCost amortization value value
Land $ 6,708 $ – $ 6,708 $ 2,742Buildings and improvements 17,566 574 16,992 6,664Manufacturing equipment 26,124 5,363 20,761 15,468Motor and delivery vehicles 532 229 303 344Office and computer equipment 2,359 798 1,561 1,190Leasehold improvements — — — 962
$ 53,289 $ 6,964 $ 46,325 $ 27,370
6. Bank indebtedness:
Bank indebtedness is comprised of a bank-operating loan that bears interest at the Company’s bankers’ prime rate. Assecurity for the bank indebtedness and the building term loans (note 7), the Company has provided a general securityagreement over all assets of the Company, and is subject to certain financial and operating covenants.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
31
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
7. Long-term debt:
2000 1999
Variable rate equipment loans with interestthereon payable monthly at a floating rate atprime and quarterly principal installments of $580 $ 10,943 —
Building term loan, secured by a first collateral mortgageon the Company’s Brampton property, with interestthereon payable at 7% per annum with monthly principalpayments of $108 to September 2004. 6,911 —
Building term loans, secured by first collateral mortgages onthe Company’s Etobicoke and Mississauga properties, withinterest thereon payable at 6.40% per annum with monthlyinstallments (principal and interest) of $51 to May, 2002. 5,512 $ 5,774
Fixed rate equipment loans with interest thereon payablemonthly with fixed rates ranging from 1.87% to 8.25% per annum,(with an average of 7%) payable in aggregate monthly installmentsof $84 (principal and interest) and maturing November 2001 to May 2004. 3,041 2,318
US dollar equipment loans with interest thereon payable monthly withfixed rates of 7.4% to 8% per annum, payable in aggregate monthlyinstallments of $26 US (principal and interest) and maturing from May 2001to January 2004. 1,126 1,492
27,533 9,584Less current portion 3,246 1,273
$ 24,287 $ 8,311
Principal payments required for subsequent years are as follows:
2001 $ 3,2462002 3,2182003 7,4242004 7,8852005 5,760
$ 27,533
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
32
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
8. Share Capital:
(i) Common Shares
Number Amount
Authorized – unlimited number of common sharesIssued and outstanding:Balance April 30, 1998 7,994,000 $ 9,168For acquisition of Ellero 62,000 407For exercise of employee options 37,800 80For exercise of underwriter options 100,000 200For exercise of Special Warrants 2,500,000 16,597
Balance April 30, 1999 10,693,800 $ 26,452
For exercise of employee options 38,500 23Repurchase of common shares (53,300) (215)
Balance April 30, 2000 10,679,000 $ 26,260
Pursuant to private placements in March 1998 and May 1998, the Company issued and sold 1,500,000 special warrants forgross proceeds of $6,450 and 1,000,000 special warrants for gross proceeds of $11,000 respectively. The special warrantswere exchanged in October 1998 in accordance with their terms and common shares were issued on a one for one basis.
(ii) Stock option planThe Company’s stock option plan allows the board of directors of the Company to grant options to employees to purchaseup to 1,100,000 common shares. Options granted under the stock option plan may have a term not exceeding ten years.All of the options granted are fully vested.
A summary of the Company’s stock option plan as of April 30, 2000 and 1999 and the changes during the years then endedis presented below:
2000 1999
Average AverageExercise Exercise
Shares Price Shares Price
Outstanding, beginning of year 752,700 $ 4.54 618,500 $ 2.60Granted 88,750 7.57 172,000 11.00Exercised (54,318) 2.14 (37,800) 2.10Cancelled (34,500) 7.35 —
Outstanding, end of year 752,632 $ 4.94 752,700 $ 4.54
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
33
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
The following is a summary of options issued and outstanding under the stock plan
Number outstanding atApril 30, 2000 Exercise Price Expiry Date Granted
216,382 $ 2.00 September 2001 and July 2002 September 1996202,500 2.75 July 2002 July 1997100,000 4.05 April 2003 January 199818,750 6.00 January 2010 January 200050,000 8.00 September 2009 September 1997
165,000 11.00 August 2003 August 1998
752,632
9. Income taxes:
Income tax expense, including both the current and deferred portions, varies from the amounts that would be computed byapplying the basic federal and provincial income tax rates aggregating 44.6% (1999 - 44.6%) to income before taxes, asshown in the following table.
2000 1999
Basic rate applied to earnings before income taxes $ 13,202 $ 3,338
Increase (decrease) in income taxes resulting from:Non-deductible expenses 54 24Manufacturing and processing profits deduction (2,846) (673)Benefit of research and development tax credits (50) (50)Non-taxable portion of gain on disposal of seven continents division (1,492) —Benefit of tax losses from acquisitions — (316)Other 757 (424)
Income tax expense $ 9,625 $ 1,899
Income taxes applicable to:Continuing operations 825 950Discontinued operations 8,800 949
$ 9,625 $ 1,899
Effective income tax rate 32.5% 25.4%
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
34
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
10. Financial instruments:
The carrying values of cash and cash equivalents, marketable securities, accounts receivable and accounts payable andaccrued liabilities, income taxes payable and bank indebtedness approximate their fair value due to the relatively shortperiods to maturity of these instruments.
The carrying value of the loan receivable and long-term debt approximates fair value as the terms and conditions ofborrowing arrangements are comparable to current market terms and conditions for similar items.
It is not practicable to estimate the fair value of the investment in OSF Inc. as it is not publicly traded.
11. Segmented information:
Management has determined that the company operates in one dominant industry segment which involves themanufacture and sale of custom metal products. All of the Company’s operations, assets and employees are locatedin Canada.
Revenues by geographic region are summarized as follows:
2000 1999
Continuing operations:Canada $ 25,122 $ 16,908Export sales to the United States 1,765 2,675
Discounted operations:Canada 3,362 5,658Export sales to the United States 30,045 20,145
$ 60,294 $ 45,386
12. Commitments:
(a) The Company leases office equipment and vehicles under long-term operating leases. The aggregate minimum annuallease payments are as follows:
2001 $ 1032002 1102003 562004 22
$ 291
(b) The Company has agreed to purchase additional equipment for approximately $5,480.
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
35
Notes to Consolidated Financial StatementsYears ended April 30, 2000 and 1999 (in thousands of dollars, unless otherwise indicated)
13. Subsequent event:
On July 12, 2000 the Company acquired all of the outstanding shares of a privately held company, SCS InternationalManufacturing Inc. (“SCS”). SCS, through its two operating subsidiaries, Steelmatic Manufacturing Inc. and Stamp-A-TronManufacturing Inc., manufactures and sells stamped metal parts and seat assemblies primarily to the automotive sector.This acquisition will be accounted for by the purchase method effective July 12, 2000. The fair market value of the assetsand liabilities acquired has been estimated based on information available. These estimates are subject to adjustments.
Non-cash current assets $ 6,144Bank indebtedness (902)Capital assets 3,957Long-term debt (2,096)Accounts payable and accrued liabilities (4,563)Deferred income taxes payable (288)Goodwill 7,848
Total consideration $ 10,100
Total consideration was paid as follows:Cash $ 5,000$5,000 in installments payable over 5 years 5,000Acquisition costs 100
$ 10,100
Brought to you by Global Reports
A N N U A L R E P O R T 2 0 0 0 R O Y A L L A S E R
36
CORPORATE HEAD OFFICERoyal Laser Tech Corporation25 Claireville Drive, Etobicoke, Ontario, Canada, M9W 5Z7 T: 416.675.2737F: 416.675.9156E: [email protected] W: www.royal-laser.com
BOARD OF DIRECTORSRobert P. Wildeboer, Chairman (1) (2)
Partner, Wildeboer Rand Thomson Apps & Dellelce
William Iannaci, Vice-Chairman (1)
President and CEO, Royal Laser Tech Corporation
Gary Anderson (2)
Executive Vice-President, Royal Laser Tech Corporation
Ken AlbrightPresident, Seven Continents Inc.
Suleiman Rashid (1) (2)
Corporate Director, Toronto, Canada
(1) Member, Compensation Committee(2) Member, Audit Committee
CORPORATE OFFICERSWilliam Iannaci President and CEOGreg Van Staveren Vice-President of Finance and CFOMichael Farrugia Chief Operating Officer Gary Anderson Executive Vice-PresidentRobert Watson Vice-President of Operations Robert P. Wildeboer Chairman/Secretary
STOCK LISTINGThe Toronto Stock Exchange (TSE): RLT
Registrar and Transfer Agent Montreal Trust100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1 T: 416.263.9701F: 416.981.9800
Certificate Transfers and Address ChangesMontreal Trust100 University Avenue, 8th Floor, Toronto, Ontario, M5J 2Y1 T: 416.263.9701 F: 416.981.9800
Shareholder InquiresInvestor RelationsRoyal Laser Tech Corporation 340 Carlingview Drive, Etobicoke, Ontario, Canada, M9W 5G5T: 416.213.8877F: 416.213.1861E: [email protected]
All other inquires should be directed to: Greg Van Staveren, CFO, Royal Laser Tech Corporation 25 Claireville Drive, Etobicoke, Ontario, Canada, M9W 5Z7 T: 416.675.2737F: 416.675.9156E: [email protected]
AuditorsKPMGSuite 3300 Commerce Court WestP.O. Box 31 Stn. Commerce Court Toronto, Ontario, M5L 1B2 T: 416.777.8500F: 416.777.8818
Annual General MeetingNovember 2nd, 20004:00 p.m. (Toronto Time) Royal Laser Tech Corporation Hydroform Solutions Facility1995 Williams Parkway, Brampton, Ontario, L6S 6E5T: 905.799.2498F: 905.799.3490
Brought to you by Global Reports
Royal Laser Tech Corporation
Royal Laser
Royal Laser - Light Industrial
25 Claireville Drive
Etobicoke, Ontario M9W 5Z7
Royal Laser - Heavy Industrial
2457 Lakeshore Road West
Mississauga, Ontario L5J 1J9
Hydroform Solutions
1995 Williams Parkway
Brampton, Ontario L6S 6E5
SCS International
Stamp-A-Tron Manufacturing Ltd.
60 Travail Road
Markham, Ontario L3S 3J1
Steelmatic Manufacturing Ltd
340 Carlingview Drive
Etobicoke, Ontario M9W 5G5
Brought to you by Global Reports
Brought to you by Global Reports