Decoma Announces Financial Results for Third Quarter 2003 (Part 1)
CONCORD, Ontario, November 5 /PRNewswire/ -- Strong Content Per
Vehicle Growth from Recent Acquisitions and New Facility Start-ups
Decoma International Inc. (TSX: DEC.A; NASDAQ: DECA) today
announced financial results for the third quarter ended September
30, 2003. Financial Highlights -------------------- (US$, in
millions except Three Months Nine Months per share figures) Ended
September 30, Ended September 30, 2003 2002 2003 2002 Sales US$
556.4 US$ 465.5 US$1,709.7 US$1,528.5 Operating income US$ 28.9 US$
36.1 US$ 132.8 US$ 131.0 Net income US$ 14.8 US$ 18.6 US$ 75.9 US$
69.9 Diluted earnings per share US$ 0.16 US$ 0.21 US$ 0.80 US$ 0.78
Weighted average diluted shares outstanding 106.4 98.4 103.5 98.3
Commenting on the above results, Al Power, Decoma's President and
Chief Executive Officer, said: "These results are in line with
management expectations and our previous guidance for the full 2003
year. Despite lower overall production volumes during the third
quarter, we continued to increase sales and content per vehicle as
the result of recent acquisitions, new facility start-ups, new
programs and takeover contracts. Lower income for the quarter
reflects the substantial investments we are making in new
facilities to support future sales and earnings growth, the impact
of program changeovers, continuing OEM pricing pressures and the
impact of performance issues at certain European facilities which
we are proactively addressing." Results of Operations
--------------------- Total sales increased 20% to US$556.4 million
in the third quarter and by 12% to US$1,709.7 million for the nine
month period ended September 30, 2003. Third quarter 2003 sales
included a positive impact of approximately US$41.8 million as a
result of currency translation. Excluding the impact of currency
translation, sales grew US$49.1 million or 10%. During the third
quarter of 2003, vehicle production volumes declined 3% in North
America and remained level in Europe. Despite lower volumes,
Decoma's production sales increased 10% in North America and 23% in
Europe, while average content per vehicle increased 16% to US$94 in
North America and 24% to US$42 in Europe. Decoma's sales and
content growth in North America was driven by the translation of
Canadian dollar sales into the Company's U.S. dollar reporting
currency, which added approximately US$25.2 million to production
sales and US$7 to content, as well as the recent acquisition of
Federal Mogul's original equipment automotive lighting operations,
which added US$16.5 million to production sales and US$5 to North
American content per vehicle. Sales and content growth also
benefited from new takeover business, sales on programs launched
during or subsequent to the third quarter of 2002 and strong
volumes on certain high content production programs. In Europe,
sales and content growth were driven by recent new facilities added
in the latter part of 2002 and early 2003. New facility start-ups
in Germany, Poland and Austria, along with the takeover of an
existing facility in Belgium, added approximately US$26.8 million
to production sales and US$7 to European content per vehicle during
the third quarter. European sales and content growth also benefited
from the translation of Euro and British Pound sales into the
Company's U.S. dollar reporting currency, which added approximately
US$14.3 million to production sales and US$4 to content during the
period. Operating income in the third quarter of 2003 declined to
US$28.9 million, compared with US$36.1 million for the same period
last year. These results primarily reflect losses incurred during
the quarter at certain European operations. To address these
efficiency and performance issues, Robert Brownlee, Decoma's
President of North American Fascia Operations, has assumed
management responsibility for Decoma's European operations. In
respect of the Company's UK operations, operating losses at the
Company's Merplas facility in the United Kingdom continued to
improve during the third quarter. The decline in operating income
for the third quarter also reflects the impact of costs incurred to
support future sales growth and investments in new facilities in
the southern U.S., Belgium and Poland. Finally, the impact on
operating income of program changeovers, lower production volumes
on certain high-content programs, continued OEM customer pricing
pressures and foreign exchange losses negatively impacted results.
Operating income for the nine month period ended September 30, 2003
increased to US$132.8 million, compared to US$131.0 million for the
same period last year. Net income for the third quarter of 2003 was
US$14.8 million (US$0.16 per diluted share), compared to US$18.6
million (US$0.21 per diluted share) for the third quarter of 2002.
Net income for the nine month period September 30, 2003 increased
to US$75.9 million (US$0.80 per diluted share), compared with
US$69.9 million (US$0.78 per diluted share) for the comparable
period in 2002. Capital spending increased in the third quarter of
2003 reflecting substantial investments in new facilities to
support the Company's future growth. Capital spending, excluding
acquisition spending, totaled US$49.1 million in the third quarter
of 2003 and US$120.3 million for the nine month period ended
September 30, 2003. Quarterly Dividend ------------------ At its
meeting today, Decoma's Board of Directors declared a third quarter
2003 dividend of US$0.07 per share on Class A Subordinate Voting
and Class B Shares payable on December 15, 2003 to shareholders of
record on November 28, 2003. Outlook ------- Commenting on the
Company's outlook, Randy Smallbone, Decoma's Executive Vice
President and Chief Financial Officer, said: "While significant
investments in new facilities and program changeovers will continue
to impact our results, these investments are positioning Decoma for
future growth. Although we continue to face challenges in Europe,
we believe that the corrective actions we have taken will have a
significant impact on our ability to address these issues moving
forward". Full Year 2003 -------------- Decoma's outlook for full
year vehicle production remains unchanged from prior guidance. The
Company estimates that North American light vehicle production
volumes will be approximately 15.9 million units in 2003, or
approximately 2% lower than 2002. Decoma estimates that European
production volumes will be approximately 16.0 million units, also
approximately 2% lower than 2002 volumes. Decoma's content per
vehicle for 2003 is expected to be in the range of US$90 to US$92
in North America and between US$39 and US$41 in Europe. Based on
these assumptions and the factors discussed in the "Outlook"
section of the Management's Discussion and Analysis of Results of
Operations and Financial Position ("MD&A") attached to this
press release, the Company expects its full year 2003 sales to
range between US$2,275 million to US$2,360 million, which is
unchanged from prior guidance. Approved capital spending for the
year remains at US$195 million. Diluted earnings per share for
2003, before possible charges, if any, related to the Company's
United Kingdom review and its continental Europe review (more fully
discussed in the attached MD&A), is also expected to be within
our previous guidance of US$0.92 to US$1.04. Forward Looking
Information --------------------------- This press release contains
"forward looking statements" within the meaning of applicable
securities legislation. Readers are cautioned that such statements
are only predictions and involve important risks and uncertainties
that may cause actual results or anticipated events to be
materially different from those expressed or implied herein. In
this regard, readers are referred to the Company's Annual
Information Form for the year ended December 31, 2002, filed with
the Canadian securities commissions and as an annual report on Form
40-F with the United States Securities and Exchange Commission, and
subsequent public filings, and the discussion of risks and
uncertainties set out in the "Forward Looking Statements" section
of the MD&A for the three and nine month periods ended
September 30, 2003, which is attached to this press release. The
Company disclaims any intention and undertakes no obligation to
update or revise any forward looking statements to reflect
subsequent information, events or circumstances or otherwise. About
the Company ----------------- Decoma designs, engineers and
manufactures automotive exterior components and systems which
include fascias (bumpers), front and rear end modules, plastic body
panels, roof modules, exterior trim components, sealing and
greenhouse systems and lighting components for cars and light
trucks (including sport utility vehicles and mini-vans). Decoma has
approximately 15,000 employees in 49 manufacturing, engineering and
product development facilities in Canada, the United States,
Mexico, Germany, Belgium, England, France, Austria, Poland, the
Czech Republic and Japan. Conference Call ---------------
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Decoma management will hold a conference call to discuss third
quarter 2003 results on Wednesday, November 5, 2003 at 9:30 a.m.
EST. The dial-in numbers for the conference call are +1 (416)
640-4127 (local) or 1 (800) 814-4853 for out of town callers, with
call-in required 10 minutes prior to the start of the conference
call. The conference call will be recorded and copies of the
recording will be made available by request. The conference call
will also be available by live webcast at
http://www.newswire.ca/webcast and will be available for a period
of 90 days.
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Contact Information -------------------- For further information
about Decoma, please visit the Company's website at
http://www.decoma.com/. Readers are asked to refer to the MD&A
attached to this release for a more detailed discussion of the
third quarter 2003 results. DECOMA INTERNATIONAL INC. Consolidated
Balance Sheets (Unaudited)
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As at As at September 30, December 31, (U.S. dollars in thousands)
2003 2002
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ASSETS
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Current assets: Cash and cash equivalents US$ 61,663 US$ 82,059
Accounts receivable 441,359 306,870 Inventories 195,115 160,091
Income taxes receivable 7,073 - Prepaid expenses and other 18,851
15,902
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724,061 564,922
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Investments 19,974 17,382
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Fixed assets, net 626,987 525,463
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Goodwill, net (note 7) 68,056 62,008
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Future tax assets 11,117 6,015
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Other assets 16,505 16,745
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US$1,466,700 US$1,192,535
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities: Bank indebtedness (note 8(b)) US$ 80,242 US$
55,021 Accounts payable 220,669 187,656 Accrued salaries and wages
67,551 59,715 Other accrued liabilities 81,911 54,104 Income taxes
payable - 13,336 Long-term debt due within one year 4,477 6,918
Debt due to Magna and related parties within one year (note 8(c))
115,944 103,536 Convertible Series Preferred Shares, held by Magna
(note 8(a)) 73,027 95,639
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643,821 575,925
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Long-term debt 6,474 9,677
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Long-term debt due to Magna and related parties (note 8(c)) 82,628
75,094
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Convertible Series Preferred Shares, held by Magna (note 8(a))
68,407 116,140
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Other long-term liabilities 6,831 4,837
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Future tax liabilities 50,989 48,114
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Shareholders' equity: Debentures (note 9) 67,845 - Convertible
Series Preferred Shares (note 10) 10,776 18,765 Class A Subordinate
Voting Shares (note 10) 287,137 172,488 Class B Shares (note 10)
30,594 30,594 Retained earnings 167,949 111,450 Currency
translation adjustment 43,249 29,451
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607,550 362,748
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US$1,466,700 US$1,192,535
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See accompanying notes
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DECOMA INTERNATIONAL INC. Consolidated Statements of Income and
Retained Earnings (Unaudited)
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------------------------------------------------ Three Month
Periods Nine Month Periods Ended September 30, Ended September 30,
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(U.S. dollars, in thousands except share and per share figures)
2003 2002 2003 2002
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Sales US$556,444 US$465,518US$1,709,671US$1,528,485
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Cost of goods sold 457,402 371,693 1,370,209 1,213,115 Depreciation
and amortisation 22,258 19,806 64,321 58,438 Selling, general and
administrative (note 5) 42,215 32,541 124,046 98,066 Affiliation
and social fees 5,663 5,366 18,337 19,573 Other charge (note 7) - -
- 8,301
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Operating income 28,906 36,112 132,758 130,992 Equity (income) loss
(406) 305 (1,428) (474) Interest expense, net 2,551 3,065 7,828
9,474 Amortisation of discount on Convertible Series Preferred
Shares 2,316 2,028 6,617 6,413 Other income (note 6) - - (1,387)
(3,874)
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Income before income taxes 24,445 30,714 121,128 119,453 Income
taxes 9,686 12,092 45,249 49,523
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Net income US$ 14,759 US$ 18,622 US$ 75,879 US$ 69,930
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Financing charges on Convertible Series Preferred Shares and
Debentures, net of taxes (note 9) US$ (2,459) US$ (1,137) US$
(6,410) US$ (3,495)
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Net income attributable to Class A Subordinate Voting and Class B
Shares 12,300 17,485 69,469 66,435 Retained earnings, beginning of
period 160,451 79,654 111,450 49,768 Dividends on Class A
Subordinate Voting and Class B Shares (4,802) (3,403) (12,970)
(10,163) Adjustment for change in accounting policy for goodwill
(note 7) - - - (12,304)
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Retained earnings, end of period US$ 167,949 US$ 93,736 US$167,949
US$ 93,736
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Earnings per Class A Subordinate Voting or Class B Share Basic US$
0.17 US$ 0.26 US$ 1.00 US$ 0.98 Diluted US$ 0.16 US$ 0.21 US$ 0.80
US$ 0.78
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Average number of Class A Subordinate Voting and Class B Shares
outstanding (in millions) Basic 73.2 67.9 69.8 67.7 Diluted 106.4
98.4 103.5 98.3
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See accompanying notes
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DECOMA INTERNATIONAL INC. Consolidated Statements of Cash Flows
(unaudited)
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Three Month Periods Nine Month Periods Ended September 30, Ended
September 30,
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(U.S. dollars, in thousands 2003 2002 2003 2002
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Cash provided from (used for): OPERATING ACTIVITIES Net income US$
14,759 US$ 18,622 US$ 75,879 US$ 69,930 Items not involving current
cash flows 22,704 22,862 63,918 73,981
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37,463 41,484 139,797 143,911 Changes in non-cash working capital
(33,106) (7,186) (95,212) 3,541
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4,357 34,298 44,585 147,452
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INVESTING ACTIVITIES Fixed asset additions (48,435) (18,762)
(118,678) (50,376) Increase in investments and other assets (757)
(1,770) (2,082) (4,196) Business acquisitions (note 13) (4,984) -
(13,260) (2,584) Proceeds from disposition of fixed and other
assets 123 173 457 225 Proceeds from disposition of operating
division, net (note 6(b)) - 340 - 5,736
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(54,053) (20,019) (133,563) (51,195)
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FINANCING ACTIVITIES Increase (decrease) in bank indebtedness
67,313 15,251 19,323 (75,372) Repayments of long term debt (3,327)
(361) (4,159) (10,483) Repayments of debt due to Magna and related
parties (26) - (77) (7,836) Issuance of Debentures (note 9) - -
66,128 - Debentures interest payments - - (1,252) - Issuances of
Class A Subordinate Voting Shares (note 10) - 4,554 4,715 4,663
Dividends on Convertible Series Preferred Shares (3,403) (3,031)
(9,986) (9,076) Dividends on Class A Subordinate Voting and Class B
Shares (4,802) (3,403) (12,970) (10,163)
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55,755 13,010 61,722 (108,267)
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Effect of exchange rate changes on cash and cash equivalents 430
(832) 6,860 1,736
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Net increase (decrease) in cash and cash equivalents during the
period 6,489 26,457 (20,396) (10,274) Cash and cash equivalents,
beginning of period 55,174 57,540 82,059 94,271
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Cash and cash equivalents, end of period US$ 61,663 US$ 83,997 US$
61,663 US$ 83,997
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See accompanying notes
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DECOMA INTERNATIONAL INC. Notes to Consolidated Financial
Statements (Unaudited)
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1. The Company Decoma International Inc. ("Decoma" or the
"Company") is a full service supplier of exterior vehicle
appearance systems for the world's automotive industry. Decoma
designs, engineers and manufactures automotive exterior components
and systems which include fascias (bumpers), front and rear end
modules, plastic body panels, roof modules, exterior trim
components, sealing and greenhouse systems and lighting components
for cars and light trucks (including sport utility vehicles and
mini vans). 2. Basis of Presentation The unaudited interim
consolidated financial statements of Decoma have been prepared in
U.S. dollars in accordance with Canadian generally accepted
accounting principles ("GAAP"), except that certain disclosures
required for annual financial statements have not been included.
Accordingly, the unaudited interim consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31,
2002 (the Company's "annual financial statements") which were
included in the Company's annual report to shareholders for the
year then ended. The unaudited interim consolidated financial
statements have been prepared on a basis that is consistent with
the accounting policies set out in the Company's annual financial
statements. In the opinion of management, the unaudited interim
consolidated financial statements reflect all adjustments, which
consist only of normal and recurring items, necessary to present
fairly the financial position of the Company as at September 30,
2003 and the results of its operations and cash flows for the three
and nine month periods ended September 30, 2003 and 2002. 3.
Cyclicality of Operations Substantially all revenue is derived from
sales to the North American and European facilities of the major
automobile manufacturers. The Company's operations are exposed to
the cyclicality inherent in the automotive industry and to changes
in the economic and competitive environments in which the Company
operates. The Company is dependent on continued relationships with
the major automobile manufacturers. 4. Use of Estimates The
preparation of the unaudited interim consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the
unaudited interim consolidated financial statements and
accompanying notes. Management believes that the estimates utilised
in preparing its unaudited interim consolidated financial
statements are reasonable and prudent; however, actual results
could differ from these estimates. 5. Foreign Exchange Selling,
general and administrative expenses ("SG&A") are net of
earnings (losses) resulting from foreign exchange of:
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Three Month Periods Nine Month Periods Ended September 30, Ended
September 30,
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(U.S. dollars, in thousands 2003 2002 2003 2002
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Foreign exchange (loss) income US$ (1,351) US$ (106) US$ (6,251)
US$ 19
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6. Other Income (a) During the first quarter of 2003, the Company
permanently repatriated US$75 million from its United States
operations. This repatriation gave rise to the recognition of a pro
rata amount of the Company's cumulative translation adjustment
account. This amount, totalling US$1.4 million, has been included
in other income and is not subject to tax. (b) During the first
quarter of 2002, the Company completed the divestiture of one of
its non-core North American divisions. The division was engaged in
the coating of automotive parts. The Company recorded other income
of US$3.9 million related to this transaction, representing the
excess of sale proceeds over the carrying value of the fixed and
working capital assets of this division and direct costs related to
the transaction. Income taxes includes an expense of US$1.0 million
related to this transaction. 7. Goodwill and Deferred Preproduction
Expenditures In 2002, the Company adopted the new accounting
recommendations of The Canadian Institute of Chartered Accountants
for goodwill and other intangible assets. Upon initial adoption of
these recommendations, the Company recorded a goodwill write-down
of US$12.3 million related to its United Kingdom reporting unit.
This write-down was charged against January 1, 2002 opening
retained earnings. As part of its assessment of goodwill
impairment, the Company also reviewed the recoverability of
deferred preproduction expenditures at its Merplas United Kingdom
facility. As a result of this review, US$8.3 million of deferred
preproduction expenditures were written off as a charge against
income in the second quarter of 2002. Refer to note 2 to the
Company's annual financial statements for further information. 8.
Debt (a) Convertible Series Preferred Shares During the third
quarter of 2003, the Series 1, 2 and 3 Convertible Series Preferred
Shares held by Magna International Inc. ("Magna") were converted
into Class A Subordinate Voting Shares at a fixed conversion price
of Cdn$10.07 per Class A Subordinate Voting Share. Decoma issued
14,895,729 Class A Subordinate Voting Shares on conversion. The
liability amounts for the Series 4 Convertible Series Preferred
Shares are presented as current liabilities. The Series 4
Convertible Series Preferred Shares are retractable by Magna at
their aggregate face value of Cdn$100 million after December 31,
2003. These shares are also convertible by Magna into the Company's
Class A Subordinate Voting Shares at a fixed conversion price of
Cdn$13.20 per share. The liability amounts for the Series 5
Convertible Series Preferred Shares are presented as long-term
liabilities as these are not retractable by Magna until December
31, 2004. These shares are also convertible by Magna into the
Company's Class A Subordinate Voting Shares at a fixed conversion
price of Cdn$13.20 per share. The Series 4 and 5 Convertible Series
Preferred Shares are redeemable by the Company commencing December
31, 2005. (b) Credit Facility At September 30, 2003 the Company had
lines of credit totaling US$325.7 million. Of this amount, US$300
million is represented by an extendible, revolving credit facility
that expires on May 27, 2004, at which time the Company may
request, subject to lender approval, further revolving 364-day
extensions. The unused and available lines of credit at September
30, 2003 were approximately US$234.8 million. (c) Debt Due to Magna
and Related Parties The Company's debt due to Magna and related
parties consists of the following:
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September 30, December 31, (U.S. dollars in thousands) 2003 2002
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Debt denominated in Canadian dollars(i) US$ 44,293 US$ 38,256 Debt
denominated in Euros(ii) 153,199 139,324 Lease obligation
denominated in Euros 1,080 1,050
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198,572 178,630 Less due within one year 115,944 103,536
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US$ 82,628 US$ 75,094
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Notes: (i) The debt denominated in Canadian dollars arose on
closing of the Global Exteriors Transaction. This debt initially
bore interest at 7.5% and was repayable in 2001. In addition to the
maturity date, the interest rate on this debt was subsequently
renegotiated to 4.85% effective September 4, 2001, 3.10% effective
January 1, 2002, 3.60% effective April 1, 2002, 3.83% effective
July 1, 2002, 3.90% effective October 1, 2002, 3.85% effective
January 1, 2003, 4.25% effective April 1, 2003, 4.19% effective
July 1, 2003 and 3.86% effective October 1, 2003. The maturity date
of this Cdn$60 million debt has been extended to December 31, 2003.
(ii) The debt denominated in Euros arose on closing of the Global
Exteriors Transaction. The debt initially bore interest at 7.0% to
7.5% and was repayable over the period to December 31, 2004 with
the first tranche of the principal due October 1, 2002. In addition
to the maturity date, the interest rate on the first tranche of the
principal was renegotiated to 4.29% effective October 2, 2002,
3.86% effective January 2, 2003, 3.51% effective April 2, 2003,
3.14% effective July 2, 2003 and 3.32% effective October 2, 2003.
Of the debt outstanding at September 30, 2003, US$70.6 million is
due January 1, 2004 and US$82.6 million is due December 31, 2004.
9. Debentures On March 27, 2003, the Company issued Cdn$100 million
of 6.5% convertible unsecured subordinated debentures (the
"Debentures") maturing March 31, 2010. The Debentures are
convertible at the option of the holder at any time into the
Company's Class A Subordinate Voting Shares at a fixed conversion
price of Cdn$13.25 per share. All or part of the Debentures are
redeemable at the Company's option between March 31, 2007 and March
31, 2008 if the weighted average trading price of the Company's
Class A Subordinate Voting Shares is not less than Cdn$16.5625 for
the 20 consecutive trading days ending five trading days preceding
the date on which notice of redemption is given. Subsequent to
March 31, 2008, all or part of the Debentures are redeemable at the
Company's option at any time. On redemption or maturity, the
Company will have the option of retiring the Debentures with Class
A Subordinate Voting Shares in which case the number of Class A
Subordinate Voting Shares issuable is based on 95% of the trading
price of the Company's Class A Subordinate Voting Shares for the 20
consecutive trading days ending five trading days prior to the date
fixed for redemption or maturity. In addition, the Company may
elect from time to time to issue and deliver freely tradeable Class
A Subordinate Voting Shares to a trustee in order to raise funds to
satisfy the obligation to pay interest on the Debentures. Under
Canadian GAAP, the key attributes of the Debentures are separately
valued and accounted for as follows: - the present value of
principal and interest (each of which can, at the option of the
Company, be settled with the issuance of Class A Subordinate Voting
Shares) has been presented as equity. The present value was
determined using a discount rate of 7.75% reflecting an estimate of
the coupon rate that the Debentures would have borne absent the
holders' conversion feature. The resulting discount is accreted to
the Debentures' face value over the period from issuance to
unrestricted redemption (March 31, 2008) through periodic charges,
net of income taxes, to retained earnings; and - the holders'
conversion feature is similar to a stock warrant as it provides the
holder with the option to exchange their Debentures for Class A
Subordinate Voting Shares at a fixed price. The residual approach
was used to value this attribute and this amount is also presented
as equity. In addition to the impact on diluted earnings per share
of the Company's Convertible Series Preferred Shares and issued and
outstanding stock options, diluted earnings per share have been
calculated based on the weighted average number of Class A
Subordinate Voting and Class B Shares that would have been
outstanding during the period had the holders of the Debentures
exercised their fixed price conversion rights at the date of
issuance of the Debentures. 10. Capital Stock Class and Series of
Outstanding Securities For details concerning the nature of the
Company's securities, please refer to note 11, "Convertible Series
Preferred Shares", and note 12, "Capital Stock", of the Company's
annual financial statements. The following table summarises the
outstanding share capital of the Company:
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Authorised Issued
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Convertible Series Preferred Shares (Convertible into Class A
Subordinate Voting Shares) 3,500,000 2,000,000 Preferred Shares,
issuable in series Unlimited - Class A Subordinate Voting Shares
Unlimited 51,598,628 Class B Shares (Convertible into Class A
Subordinate Voting Shares) Unlimited 31,909,091
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During the second quarter of 2003, the Company issued 548,600 Class
A Subordinate Voting Shares to the Decoma employee deferred profit
sharing plan. During the third quarter of 2003, the Company issued
14,895,729 Class A Subordinate Voting Shares on conversion of the
Series 1, 2 and 3 Convertible Series Preferred Shares (see note
8(a)). Incentive Stock Options Information concerning the Company's
Incentive Stock Option Plan is included in note 12, "Capital
Stock", of the Company's annual financial statements. The following
is a continuity schedule of options outstanding:
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Weighted Average Number of Exercise Options Number Price
Exercisable
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Outstanding at December 31, 2002 2,195,000 Cdn$ 13.13 1,444,000
Granted 455,000 Cdn$ 12.43 Cancelled (10,000) Cdn$ 10.30 (4,000)
Vested 277,000
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Outstanding at September 30, 2003 2,640,000 Cdn$ 13.02 1,717,000
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The maximum number of shares reserved to be issued for stock
options is 4,100,000 Class A Subordinate Voting Shares. The number
of reserved but unoptioned shares at September 30, 2003 is
1,408,750. The total number of shares issued from exercised stock
options, from the inception date of the plan, is 51,250. The fair
value of stock options is estimated at the grant date using the
Black-Scholes option pricing model using the following weighted
average assumptions for stock options issued in each period
indicated (no stock options were issued during the three month
periods ended September 30, 2003 and 2002):
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Nine Month Periods Ended September 30,
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(U.S. dollars in thousands) 2003 2002
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Risk free interest rate 3.0% 2.7% Expected dividend yield 3.2% 1.9%
Expected volatility 39% 37% Expected life of options (years) 5 5
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The Black-Scholes option valuation model, as well as other
currently accepted option valuation models, was developed for use
in estimating the fair value of freely tradable options which are
fully transferable and have no vesting restrictions. In addition,
this model requires the input of highly subjective assumptions,
including future stock price volatility and expected time until
exercise. Because the Company's outstanding options have
characteristics which are significantly different from those of
traded options, and because changes in any of the assumptions can
materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options. However, for
purposes of pro forma disclosures, the Company's net income
attributable to Class A Subordinate Voting and Class B Shares,
based on the fair value of all stock options at the grant date,
would have been:
---------------------------------------------------------------------
Three Month Periods Nine Month Periods Ended September 30, Ended
September 30,
---------------------------------------------------------------------
(U.S. dollars, in thousands except per share figures) 2003 2002
2003 2002
---------------------------------------------------------------------
Net income attributable to Class A Subordinate Voting and Class B
Shares US$ 12,300 US$ 17,485 US$ 69,469 US$ 66,435 Pro forma
adjustments for the fair value of stock option grants (316) (218)
(868) (816)
---------------------------------------------------------------------
Pro forma net income attributable to Class A Subordinate Voting and
Class B Shares US$ 11,984 US$ 17,267 US$ 68,601 US$ 65,619
---------------------------------------------------------------------
---------------------------------------------------------------------
Pro forma earnings per Class A Subordinate Voting or Class B Share
Basic US$ 0.16 US$ 0.25 US$ 0.98 US$ 0.97 Diluted US$ 0.16 US$ 0.21
US$ 0.79 US$ 0.77
---------------------------------------------------------------------
---------------------------------------------------------------------
Maximum Shares The following table presents the maximum number of
shares that would be outstanding if all of the outstanding options,
Convertible Series Preferred Shares and Debentures issued and
outstanding as at September 30, 2003 were exercised or converted:
---------------------------------------------------------------------
Number of Shares
---------------------------------------------------------------------
Class A Subordinate Voting Shares outstanding at September 30, 2003
51,598,628 Class B Shares outstanding at September 30, 2003
31,909,091 Options to purchase Class A Subordinate Voting Shares
2,640,000 Debentures, convertible by the holders at Cdn$13.25 per
share 7,547,170 Convertible Series Preferred Shares, convertible at
Cdn$13.20 per share 15,151,516
---------------------------------------------------------------------
108,846,405
---------------------------------------------------------------------
---------------------------------------------------------------------
The above amounts include shares issuable if the holders of the
Debentures exercise their conversion option but exclude Class A
Subordinate Voting Shares issuable, only at the Company's option,
to settle interest and principal related to the Debentures. The
number of Class A Subordinate Voting Shares issuable at the
Company's option is dependent on the trading price of Class A
Subordinate Voting Shares at the time the Company elects to settle
Debenture interest and principal with shares. 11. Contingencies In
the ordinary course of business activities, the Company may be
contingently liable for litigation and claims with customers,
suppliers and former employees and for environmental remediation
costs. Management believes that adequate provisions have been
recorded in the accounts where required. Although it is not
possible to estimate the extent of potential costs and losses, if
any, management believes, but can provide no assurance, that the
ultimate resolution of such contingencies would not have a material
adverse effect on the financial position and results of operations
of the Company. 12. Segmented Information The Company operates in
one industry segment, the automotive exteriors business. As at
September 30, 2003, the Company had 27 manufacturing facilities in
North America and 14 in Europe. In addition, the Company had 8
product development and engineering centres. The Company's European
divisions are managed separately from the Company's North American
divisions as a result of differences in customer mix and business
environment. The Company's internal financial reports, which are
reviewed by executive management including the Company's President
and Chief Executive Officer, segment divisional results between
North America and Europe. This segmentation recognises the
different geographic business risks faced by the Company's North
American and European divisions, including vehicle production
volumes in North America and Europe, foreign currency exposure,
differences in OEM customer mix, the level of customer outsourcing
and the nature of products and systems outsourced. The accounting
policies of each segment are consistent with those used in the
preparation of the unaudited interim consolidated financial
statements. Inter-segment sales and transfers are accounted for at
fair market value. The following tables show certain information
with respect to segment disclosures.
---------------------------------------------------------------------
Three Month Period Ended September 30, 2003
---------------------------------------------------------------------
(U.S. dollars in North thousands) America Europe Corporate Total
---------------------------------------------------------------------
Sales US$373,358 US$183,738 US$ - US$557,096 Inter-segment sales
(136) (516) - (652)
---------------------------------------------------------------------
Sales to external customers US$373,222 US$183,222 US$ - US$556,444
---------------------------------------------------------------------
Depreciation and amortisation US$ 15,776 US$ 6,482 US$ - US$ 22,258
---------------------------------------------------------------------
Operating income (loss) US$ 42,923 US$ (9,017) US$ (5,000) US$
28,906
---------------------------------------------------------------------
Equity income US$ (406) US$ - US$ - US$ (406)
---------------------------------------------------------------------
Interest expense (income), net US$ 7,762 US$ 4,557 US$ (9,768) US$
2,551
---------------------------------------------------------------------
Amortisation of discount on Convertible Series Preferred Shares US$
- US$ - US$ 2,316 US$ 2,316
---------------------------------------------------------------------
Fixed assets, net US$423,966 US$203,021 US$ - US$626,987
---------------------------------------------------------------------
Fixed asset additions US$ 29,599 US$ 18,876 US$ - US$ 48,435
---------------------------------------------------------------------
Goodwill, net US$ 48,711 US$ 19,345 US$ - US$ 68,056
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Period Ended September 30, 2002
---------------------------------------------------------------------
(U.S. dollars in North thousands) America Europe Corporate Total
---------------------------------------------------------------------
Sales US$331,098 US$135,227 US$ - US$466,325 Inter-segment sales
(205) (602) - (807)
---------------------------------------------------------------------
Sales to external customers US$330,893 US$134,625 US$ - US$465,518
---------------------------------------------------------------------
Depreciation and amortisation US$ 14,036 US$ 5,770 US$ - US$ 19,806
---------------------------------------------------------------------
Operating income (loss) US$ 42,133 US$ (3,656) US$ (2,365) US$
36,112
---------------------------------------------------------------------
Equity loss US$ 305 US$ - US$ - US$ 305
---------------------------------------------------------------------
Interest expense (income), net US$ 8,930 US$ 4,972 US$(10,837) US$
3,065
---------------------------------------------------------------------
Amortisation of discount on Convertible Series Preferred Shares US$
- US$ - US$ 2,028 US$ 2,028
---------------------------------------------------------------------
Fixed assets, net US$351,067 US$138,248 US$ - US$489,315
---------------------------------------------------------------------
Fixed asset additions US$ 9,596 US$ 9,166 US$ - US$ 18,762
---------------------------------------------------------------------
Goodwill, net US$ 44,579 US$ 16,508 US$ - US$ 61,087
---------------------------------------------------------------------
DATASOURCE: Decoma International Inc. .
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