Decoma announces financial results for fourth quarter & year
end 2003 Sales up 22% in the fourth quarter and 15% for the full
year CONCORD, ON, Feb. 25 /PRNewswire-FirstCall/ -- Decoma
International Inc. (TSX:DEC.A; NASDAQ:DECA) today announced
financial results for the fourth quarter and year ended December
31, 2003. Financial Highlights -------------------- Three Months
Year Ended December 31, Ended December31, (US$, in millions, except
per share figures) 2003 2002 2003 2002 Sales $646.2 $528.2 $2,355.8
$2,056.7 Operating income $ 18.6 $ 42.7 $ 151.2 $ 173.7 Net income
($ 3.8) $ 23.1 $ 71.9 $ 93.0 Diluted earnings per share ($0.06) $
0.25 $ 0.77 $ 1.03 Weighted average diluted shares outstanding 83.5
98.3 104.3 98.3 Commenting on the above results, Al Power, Decoma's
President and Chief Executive Officer, noted: "Despite lower
overall production volumes, we increased sales and content per
vehicle in both the fourth quarter and full year. These increases
are the result of recent acquisitions, new facility start-ups, new
programs and takeover contracts. Our loss for the fourth quarter
and lower income for the full year are primarily attributable to
our previously announced decision to write-down certain assets in
the United Kingdom and consolidate paint capacity in continental
Europe. We believe these actions will help improve the Company's
long-term financial performance in Europe." Results of Operations
--------------------- Total sales increased22% to $646.2 million in
the fourth quarter and 15% to $2,355.8 million for the full year
ended December 31, 2003. Full year sales benefited $204.1 million
from currency translation. Excluding the impact of currency
translation, full year sales grew $95.0 million or 5% over 2002.
For the year ended December 31, 2003, vehicle production volumes
declined 3% in North America and increased 1% in Europe. Despite
lower overall volumes, Decoma's production sales increased 8% to
$1,506.8 million in North America and 31% to $646.5 million in
Europe. Average content per vehicle in 2003 increased 12% to $95 in
North America and 30% to $39 in Europe. Decoma's full year 2003
sales and content in North America benefited significantly from the
translation of Canadian dollar sales into the Company's U.S. dollar
reporting currency, which added approximately $102.1 million to
production sales and $6 to content per vehicle. In addition to
currency translation, sales and content benefited from Decoma's
acquisitionof Federal Mogul's original equipment automotive
lighting operations, which added $51.9 million to production sales
and $3 to North American content per vehicle. Sales and content
growth also benefited from new takeover business, sales on programs
launched during or subsequent to 2002 and strong volumes on certain
high content production programs. In Europe, full year 2003 sales
and content growth were driven by the translation of Euro and
British Pound sales into the Company's U.S. dollar
reportingcurrency, which added approximately $83.1 million to
European production sales and $5 to content per vehicle. Content
growth was also driven by sales at new facilities added in the
latter part of 2002 and in 2003. New facility start-ups in Austria,
Germany and Poland, the start up of the Company's new Belgian paint
line and the takeover of an existing sequencing facility in Belgium
collectively added approximately $102.9 million to production sales
and $6 to European content per vehicle. Operating income in the
fourth quarter of 2003 declined to $18.6 million, compared to $42.7
million for the same period last year. This decline largely
reflects the above noted United Kingdom impairment and continental
Europe paint capacity consolidation charges of $23.8 million. These
charges are explained in the "Other Charges" section of the
Management's Discussion and Analysis ("MD&A") attached to this
press release. Operating income for the year ended December 31,
2003 was $151.2 million compared to $173.7million the previous
year. These results reflect losses in Europe as a result of the
$23.8 million of charges described above, efficiency and other
performance issues at certain facilities, as well as costs incurred
to support European sales growth, including investments in new
facilities. Net losses for the fourth quarter of 2003 were $3.8
million (a loss of $0.06 per diluted share), including the impact
of $23.8 million in charges described above, compared to net income
of $23.1 million (income of$0.25 per diluted share) for the fourth
quarter of 2002. Net income for the year ended December 31, 2003
declined to $71.9 million ($0.77 per diluted share), from $93.0
million ($1.03 per diluted share) in 2002. In addition to the U.K.
impairment and continental Europe paint capacity consolidation
charges, which reduced diluted earnings per share by $0.23 in 2003,
diluted earnings per share were impacted by an increase in the
average number of diluted Class A Subordinate Voting and Class B
shares outstanding at the end of the period. Capital spending for
the year ended December 31, 2003 totalled $185.5 million,
reflecting substantial investments in new facilities to support the
Company's future growth in both North America and Europe. Quarterly
Dividend ------------------ At its meeting today, Decoma's Board of
Directors declared a fourth quarter 2003 dividend of US$0.07 per
share on Class A Subordinate Voting and Class B shares payable on
March 19, 2004 to shareholders of record on March 9, 2004. Outlook
------- Commenting on the Company's outlook, Randy Smallbone,
Decoma's Executive Vice-President, Finance and Chief Financial
Officer, said: "This past year was a year of investment for our
Company, during which significant costs were incurred to support
new facilities and program changeovers. These investments were
necessary to support future sales and earnings growth. While our
recent decision to write-down and consolidate certain European
assets resulted in a loss in the fourth quarter, we believe we have
taken the proactive measures necessary to address challenges in
Europe. We are optimistic that these actions, combined with
contributions from new start-ups and new program launches will
allow Decoma to return to positive earnings growth." Full Year 2004
North American light vehicle production is estimated at 16.1
million vehicles for 2004, an increase of approximately 2% over
2003 vehicle production volumes of 15.9 million units. Western
European light vehicle production is estimated at 16.3 million
vehicles for 2004, substantially unchanged from 2003 vehicle
production volumes of 16.4 million units. The Company's outlook
assumes that average exchange rates for the Canadian dollar, Euro
and British Pound relative to the U.S. dollar will approximate the
average exchange rates experienced in the fourth quarter of 2003.
As a result of the above factors, 2004 North American content per
vehicle is expected to be between $95 and $100, European content
per vehicle is expected to be between $50 and $56 and total sales
are expected to range between $2,530 million and $2,750 million.
North American content per vehicle in 2006 is expected to approach
$120. This represents a compound average growth rate over 2003
content per vehicle of 8%. European content per vehicle in 2006 is
expected to approximate $55 representing a compound average growth
rate over 2003 of 12%. Capital spending for 2004 is expected to
approximate $151 million. Director Appointment --------------------
Decoma also announced today that Mr. Vincent J. Galifi has been
appointed to Decoma's Board of Directors. Mr. Siegfried Wolf has
also been appointed as Chairman of the Board of Directors to
replace Ms. Belinda Stronach who resigned from the Company's Board
of Directors on January 20, 2004. 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 tothe 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 twelve month periods ended
December 31, 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 utilityvehicles 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 fourth
quarter and full year 2003 results on Thursday, February 26, 2004
at9:30 a.m. EST. The dial-in numbers for the conference call are
(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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Readers are asked to refer to the MD&A attached to this release
for a more detailed discussion of the fourth quarter and full year
2003 results. DECOMA INTERNATIONAL INC. Consolidated Balance Sheets
(Unaudited)
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As at As at December 31, December 31, (U.S. dollars in thousands)
2003 2002
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ASSETS
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Current assets: Cash and cash equivalents $ 93,545 $ 82,059
Accountsreceivable 395,040 306,870 Inventories 216,502 160,091
Income taxes receivable 4,015 - Prepaid expenses and other 18,267
15,902
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727,369 564,922
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Investments 20,781 17,382
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Fixed assets, net 680,497 525,463
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Goodwill, net (note 7) 71,106 62,008
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Future tax assets 10,556 6,015
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Other assets 18,390 16,745
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$ 1,528,699 $ 1,192,535
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities: Bank indebtedness (note 9(b)) $ 177,288 $
55,021 Accounts payable 226,114 187,656 Accrued salaries and wages
68,298 59,715 Other accrued liabilities 77,260 54,104 Income taxes
payable - 13,336 Long-term debt due within one year 4,856 6,918
Debt due to Magna and its affiliates within one year (note 9(c))
141,804 103,536 Convertible Series Preferred Shares, held by Magna
(note 9(a)) 150,572 95,639
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846,192 575,925
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Long-term debt 11,194 9,677
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Long-term debt due to Magna and its affiliates (note 9(c)) - 75,094
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Convertible Series Preferred Shares, held by Magna (note 9(a)) -
116,140
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Other long-term liabilities 7,462 4,837
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Future tax liabilities 50,214 48,114
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Shareholders' equity: Convertible Debentures (note 10) 66,127 -
Convertible Series Preferred Shares (note 11) 8,826 18,765 Class A
Subordinate Voting Shares (note 11) 287,137 172,488 Class B Shares
(note 11) 30,594 30,594 Contributed surplus (note 7) 267 - Retained
earnings 156,984 111,450 Currency translation adjustment 63,702
29,451
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613,637 362,748
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$ 1,528,699 $ 1,192,535
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See accompanying notes DECOMA INTERNATIONAL INC. Consolidated
Statements of Income and Retained Earnings (Unaudited)
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--------------------------------------------------- Three Month
Periods Twelve Month Periods Ended December 31, Ended December 31,
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(U.S. dollars, in thousands except share and per share figures)
2003 2002 2003 2002
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Sales $ 646,159 $ 528,188 $ 2,355,830 $ 2,056,673
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Cost of goods sold 520,944 420,110 1,891,153 1,633,225 Depreciation
and amortization 25,573 19,846 89,894 78,284 Selling, general and
administrative (notes 7 & 14) 51,021 39,793 175,267 137,859
Affiliation and social fees 6,204 5,738 24,541 25,311 Other charges
(notes 5, 6 & 7) 23,785 - 23,785 8,301
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Operating income 18,632 42,701 151,190 173,693 Equity income (416)
(47) (1,844) (521) Interest expense, net 2,865 2,510 10,693 11,984
Amortization of discount on Convertible Series Preferred Shares,
held by Magna 2,014 1,938 8,631 8,351 Other income (note 15) -
(495) (1,387) (4,369)
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Income before income taxes 14,169 38,795 135,097 158,248 Income
taxes 17,946 15,700 63,195 65,223
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Net (loss) income $ (3,777) $ 23,095 $ 71,902 $ 93,025
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Financing charges on Convertible Series Preferred Shares held by
Magna and Convertible Debentures, net of taxes (note 10) $ (1,142)
$ (1,297) $ (7,552) $ (4,792)
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Net (loss) income attributable to Class A Subordinate Voting and
Class B Shares (4,919) 21,798 64,350 88,233 Retained earnings,
beginning of period 167,749 93,736 111,450 49,768 Dividends on
Class A Subordinate Voting and Class B Shares (5,846) (4,084)
(18,816) (14,247) Adjustment for change in accounting policy for
goodwill (note 7) - - - (12,304)
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Retained earnings, end of period $ 156,984 $ 111,450 $ 156,984 $
111,450
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Earnings per Class A Subordinate Voting or Class B Share Basic $
(0.06) $ 0.32 $ 0.88 $ 1.30 Diluted $ (0.06) $ 0.25 $ 0.77 $ 1.03
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Average number of Class A Subordinate Voting and Class B Shares
outstanding (in millions) Basic 83.5 68.1 73.4 67.8 Diluted 83.5
98.3 104.3 98.3
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See accompanying notes DECOMA INTERNATIONAL INC. Consolidated
Statements of Cash Flows (Unaudited)
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Three Month Periods Twelve Month Periods Ended December 31, Ended
December 31,
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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 (loss)
income $ (3,777) $ 23,095 $ 71,902 $ 93,025 Items not involving
current cash flows 47,477 21,576 111,595 95,557
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43,700 44,671 183,497 188,582 Changes in non-cash working capital
43,591 46,470 (51,621) 50,011
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87,291 91,141 131,876 238,593
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INVESTING ACTIVITIES Fixed asset additions (59,228) (49,564)
(177,906) (99,940) Increase in investments and other assets (5,975)
(5,512) (8,057) (9,708) Business acquisitions (note 8) (5,808) -
(19,068) (2,584) Proceeds from disposition of fixed and other
assets (2) 1,353 455 1,578 Proceeds from disposition of operating
division, net (note 15(c)) - - - 5,736
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(71,013) (53,723) (204,576) (104,918)
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FINANCING ACTIVITIES Increase (decrease) in bank indebtedness
90,366 (34,967) 109,689 (110,339) Repayments of debt due to Magna
and its affiliates (72,340) - (72,417) (7,836) Increase (decrease)
in long term debt 3,980 (361) (179) (10,844) Issuance of
Convertible Debentures (note 10) - - 66,128 Issuances of Class A
Subordinate Voting Shares (note 11) - - 4,715 4,663 Convertible
Debentures interest payments (2,499) - (3,751) Dividends on
Convertible Series Preferred Shares (2,191) (3,022) (12,177)
(12,098) Dividends on Class A Subordinate Voting and Class B Shares
(5,846) (4,084) (18,816) (14,247)
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11,470 (42,434) 73,192 (150,701)
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Effect of exchange rate changes on cash and cash equivalents 4,134
3,078 10,994 4,814
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Net increase (decrease) in cash and cash equivalents during the
period 31,882 (1,938) 11,486 (12,212) Cash andcash equivalents,
beginning of period 61,663 83,997 82,059 94,271
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Cash and cash equivalents, end of period $ 93,545 $ 82,059 $ 93,545
$ 82,059
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See accompanying notes DECOMA INTERNATIONAL INC. Notes to
Consolidated Financial Statements Three and twelve month periods
ended December 31, 2003 and 2002 (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 December 31,
2003 and the results of its operations and cash flows for the three
and twelve month periods ended December 31, 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 reported amounts of
assets and liabilities; the disclosureof contingent assets and
liabilities at the date of the unaudited interim consolidated
financial statements; and the reported amounts of revenue and
expenses during the period. Management believes that the estimates
utilized in preparing its unaudited interim consolidated financial
statements are reasonable and prudent; however, actual results
could differ from these estimates. 5. United Kingdom Impairment
Charge Upon completion of the 2004 business planning process, the
Company identified a number of indicators of United Kingdom
long-lived asset impairment including the continuation of United
Kingdom budgeted operating losses, uncertain long-term production
volumes for the United Kingdom market in general which affect
certain of the Company's existing programs, and excess paint
capacity in the United Kingdom market. In addition, Ford of
Europe's decision to produce its 2006 Freelander program at Ford
facilities in Halewood, England, has caused the Company to relocate
its related 2006 Freelander fascia production from Sybex to the
closer Merplas facility. Under Canadian GAAP, these impairment
indicators required the Company to assess its United Kingdom asset
base for recoverability. Estimated discounted future cash flows
were used to determine the amount of the write-down. The result was
a write-down of $12.4 million in the three month period ended
December 31, 2003 of certain of the assets of the Company's Sybex
facility. This write-down will have no near term impact on
operations at the Company's United Kingdom facilities which will
continue their operations in the normal course. As a result of
cumulative losses in the United Kingdom, this impairment charge has
not been tax effected. 6. Continental Europe Paint Capacity
Consolidation Charges During the three month period ended December
31, 2003, the Company completed, and committed to, a plan to
consolidate its continental Europe paint capacity. This plan
entails mothballing the Company's Decoform paint line in Germany
and transferring Decoform's painted trim and fascia business to the
Company's newer paint lines at its Decorate and Belplas facilities
in Germany and Belgium, respectively. Decoform will continue to
mold and assemble products for the Company's Decorate facility. The
consolidation required the write-down of the carrying value of the
Decoform paint line. The consolidation will also result in
severance costs associated with a reduction of the Decoform
workforce of 284 employees. Total charges in 2003 related to the
continental Europe paint capacity consolidation plan were $11.4
million. Decoform employees have a contractual notice period of up
to two quarters following the quarter in which individual notice is
given. The consolidation plan envisions substantially all employees
working through their contractual notice periods with paint line
production transfers completed by the end of 2004. These
continental Europe paint capacity consolidation charges have
resulted in large accounting losses in Germany and create both
taxable temporary difference and loss carryforward future tax
assets. A full valuation allowance has been provided against these
future tax assets resulting in no net tax recovery in the
consolidated statement of income against these charges. 7.
Accounting Policy Changes Stock-based Compensation As provided for
by new accounting recommendations of The Canadian Institute of
Chartered Accountants (the "CICA"), the fair value of stock options
granted, modified or settled on or after January 1, 2003 is
recognized on a straight-line basis over the applicable stock
option vesting period as compensation expense in selling, general
and administrative expenses in the consolidated statements of
income. For stock options granted prior to January 1, 2003 which
are not accounted for at fair value, pro forma earnings disclosure
showing the impact of fair value accounting is included in note 12.
The impact of this accounting policy change on reported net income
and earnings per share is as follows: Three Month Twelve Month
(U.S. dollars, in thousands Period Ended Period Ended except per
share figures) December 31, 2003 December 31, 2003
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Increase in selling, general and administrative expenses $ 67 $ 267
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Reduction of net income $ 67 $ 267
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Reduction of earnings per Class A Subordinate Voting or Class B
Share Basic $ - $ - Diluted $ - $ -
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Goodwill and Deferred Preproduction Expenditures In 2002, the
Company adopted the new accounting recommendations of the CICA for
goodwill and other intangible assets. These accounting
recommendations require that all business combinations initiated
after June 30, 2001 be accounted for using the purchase method of
accounting, provide new criteria to determine when acquired
intangible assets should be recognized separately from goodwill and
employ new non-amortization and impairment rules for existing
goodwill and indefinite lifeintangible assets. Upon initial
adoption of these recommendations, the Company recorded a goodwill
write-down of $12.3 million related to its United Kingdom reporting
unit. This write-down was charged against January 1, 2002 opening
retainedearnings. As part of its initial 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, $8.3 million of deferred
preproduction expenditures were written off as a charge against
income in 2002. As a result of cumulative losses in the United
Kingdom, this write-down was not tax effected. In addition,
commencing in 2002, the Company ceased recording amortization of
existing goodwill. The Company does not have any indefinite life
intangible assets meeting the non-amortization criteria under the
new accounting recommendations. 8. Business Acquisitions (a) During
the fourth quarter of 2003, the Company acquired the shares of HDO
Galvano-und Oberflachentechnik GmbH ("HDO"). HDO operated a
chroming line adjacent to the Company's Idoplas facility in
Germany. The line is being converted to allow for grille chroming
and will be integrated into Idoplas' operations. The Company
expects to launch the chroming line in 2004 and commence the
insourcing of grille chroming business previously outsourced by
Decoma's European operations. Total consideration paid in
connection with the acquisition amounted to $5.8 million. (b)
During the second quarter of 2003, the Company entered into an
agreement to acquire Federal Mogul's original equipment automotive
lighting operations in Matamoros, Mexico, a distribution centre in
Brownsville, Texas, an assembly operation in Toledo, Ohio and
certain of the engineering operations, contracts and equipment at
Federal Mogul's original equipment automotive lighting operations
in Hampton, Virginia. The total purchase price was $10.4 million.
The transaction closed on April 14, 2003 with a transition of the
Hampton, Virginia contracts and assets over the balance of 2003.
(c) During both the second quarter of 2002 and the second quarter
of 2003, the Company repaid two promissory notes that were due May
31, 2002 and 2003, respectively, each in the amount of Cdn$4.0
million that arose on the May 2001 acquisition of the remaining
minority interest in Decomex Inc. 9. 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 and 5 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 and the
Series 5 Convertible Series Preferred are retractable by Magna at
their aggregate face value of Cdn$100 million commencing 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 and are redeemable by the Company
commencing December 31, 2005. (b) Credit Facility At December 31,
2003 the Company had lines of credit totaling $316.0 million. Of
this amount, $300 million is represented by an extendible,
revolving credit facility that expires on May 27, 2004, at which
time the Company may request, subject tolender approval, further
revolving 364-day extensions. The unused and available lines of
credit at December 31, 2003 were approximately $122.7 million. (c)
Debt Due to Magna and its Affiliates The Company's debt due to
Magna and its affiliatesconsists of the following:
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(U.S. dollars in thousands) December 31, December 31, 2003 2002
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Debt denominated in Canadian dollars (i) $ 46,512 $ 38,256 Debt
denominated in Euros (ii) 94,128 139,324 Capital lease obligation
denominated in Euros 1,164 1,050
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141,804 178,630 Less due within one year 141,804 103,536
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$ - $ 75,094
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Notes: (i) 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 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 January1, 2003, 4.25% effective
April 1, 2003, 4.19% effective July 1, 2003, 3.86% effective
October 1, 2003 and 3.65% effective January 1, 2004. The maturity
date of the Cdn$60 million debt has been extended to March 31,
2004. (ii) This debt, comprised of three tranches, initially bore
interest at 7.0%, 7.0% and 7.5%, respectively, and was repayable
October 1, 2002, October 1, 2003 and December 31, 2004,
respectively. The maturity date and the interest rate on the first
tranche 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. The
maturity date and the interest rate on the second tranche was
renegotiated to 3.32% effective October 2, 2003. Substantially all
of the first and second tranches were repaid in December 2003. The
remaining portions of the first and second tranches outstanding at
December 31, 2003 have subsequently been repaid. The third and
final tranche of this debt, totaling Euro 72.0 million, continues
to be due December 31, 2004 and bears interest at its original rate
of 7.5%. 10. Convertible Debentures On March 27, 2003, the Company
issued Cdn$100 million of unsecured, subordinated Convertible
Debentures bearing interest at 6.5% andmaturing March 31, 2010. The
Convertible 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
Convertible 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 Convertible Debentures are redeemable at the Company's option
at any time. On redemption or maturity, the Companywill have the
option of retiring the Convertible 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 Convertible
Debentures. Under Canadian GAAP, the key attributes of the
Convertible Debentures are separately valued and accounted for as
follows: - thepresent 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
Convertible Debentures would have borne absent the holders'
conversion feature. The resulting discount is accreted to the
Convertible Debentures' face value over the period from issuance to
unrestricted redemption (March 31, 2008) through periodic charges,
net of income taxes, presented as financing charges on Convertible
Debentures in the consolidated statements of income; and - the
holders' conversion feature is similar to a stock warrant as it
provides the holder with the option to exchange their Convertible
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 Convertible Debentures exercised their fixed price
conversion rights at the date of issuance of the Convertible
Debentures. 11. Capital Stock Class and Series of Outstanding
Securities For details concerning the nature of the Company's
securities, refer to note 11, "Convertible Series Preferred
Shares", and note 12, "Capital Stock", of the Company's annual
financial statements. The following table summarizes the
outstanding share capital of the Company:
-------------------------------------------------------------------------
Authorized Issued
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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
9(a)). 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
Convertible Debentures issued and outstanding as at December 31,
2003 were exercised or converted:
-------------------------------------------------------------------------
Number of Shares
-------------------------------------------------------------------------
Class A Subordinate Voting Shares outstanding at December 31, 2003
51,598,628 Class B Shares outstanding at December 31, 2003
31,909,091 Options to purchase Class A Subordinate Voting Shares
2,640,000 Convertible Debentures, convertible by the holders at
Cdn$13.25 per share 7,547,170 Convertible Series Preferred Shares,
convertible at Cdn$13.20 per share 15,151,516
-------------------------------------------------------------------------
108,846,405
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The above amounts include shares issuable if the holders of the
Convertible Debentures exercise their conversion option but exclude
Class A Subordinate Voting Shares issuable, only at the Company's
option, to settle interest and principal related to the Convertible
Debentures. The number of Class A Subordinate Voting Shares
issuable at the Company's option is dependent on the trading price
of Class A Subordinate Voting Shares at the time the Company elects
to settle Convertible Debenture interest and principal with shares.
12. Incentive Stock Options Information concerning the Company's
Incentive Stock Option Plan is included in note 12, "Capital
Stock", of the Company's annual financial statements. The following
is a continuity schedule of options outstanding:
-------------------------------------------------------------------------
Weighted Average Number of Exercise Options Number PriceExercisable
-------------------------------------------------------------------------
Outstanding at December 31, 2002 2,195,000 Cdn$ 13.13 1,444,000
Granted 455,000 Cdn$ 12.43 Cancelled (10,000) Cdn$ 10.30 (4,000)
Vested 339,000
-------------------------------------------------------------------------
Outstanding at December 31, 2003 2,640,000 Cdn$ 13.02 1,779,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 December 31, 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 December 31, 2003 and 2002):
-------------------------------------------------------------------------
Twelve Month Periods Ended December 31,
-------------------------------------------------------------------------
(U.S. dollars in thousands) 2003 2002
-------------------------------------------------------------------------
Risk free interest rate 3.0% 2.7% Expected dividend yield 3.2% 1.9%
Expected volatility 39% 37% Expected life of options 5 years 5
years
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock options granted prior to January 1, 2003 arenot accounted for
at fair value. Had these stock options been accounted for at fair
value, the Company's net income attributable to Class A Subordinate
Voting and Class B Shares would have been:
-------------------------------------------------------------------------
Three Month Periods Twelve Month Periods Ended December 31, Ended
December 31,
-------------------------------------------------------------------------
(U.S. dollars, in thousands except per share figures) 2003 2002
2003 2002
-------------------------------------------------------------------------
Net (loss) income attributable to Class A Subordinate Voting and
Class B Shares $ (4,919) $ 21,798 $ 64,350 $ 88,233 Pro forma
adjustments for the fair value of stock options granted prior to
January 1, 2003 (254) (203) (947) (1,019)
-------------------------------------------------------------------------
Pro forma net (loss) income attributable to Class A Subordinate
Voting and Class B Shares $ (5,173) $ 21,595 $ 63,403 $ 87,214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Pro forma earnings per Class A Subordinate Voting or Class B Share
Basic $ (0.06)$ 0.32 $ 0.86 $ 1.29 Diluted $ (0.06) $ 0.25 $ 0.76 $
1.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
13. 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. 14. Foreign Exchange Selling,
general and administrative expenses are net of earnings (losses)
resulting from foreign exchange of:
-------------------------------------------------------------------------
Three Month Periods Twelve Month Periods Ended December 31, Ended
December 31,
-------------------------------------------------------------------------
(U.S. dollars in thousands) 2003 2002 2003 2002
-------------------------------------------------------------------------
Foreign exchange (losses) income $ (1,008) $ 475 $ (7,259) $ 494
-------------------------------------------------------------------------
-------------------------------------------------------------------------
15. Other Income (a) During the first quarter of 2003, the Company
permanently repatriated $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 $1.4 million, has been included in
other income and is not subject to tax. (b) During the fourth
quarter of 2002, the Company permanently repatriated Euro 10
million from its European operations. This repatriation gave rise
to the recognition of a pro rata amount of the Company's cumulative
translation adjustment account. This amount, totalling $0.5
million, has been included in other income and is not subject to
tax. (c) 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 $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 $1.0 million related to this transaction.
16.Segmented Information The Company operates in one industry
segment, the automotive exteriors business. As at December 31,
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 operate 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 recognizes the
different geographic business risks faced bythe 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 December 31, 2003
-------------------------------------------------------------------------
(U.S. dollars North in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 436,310 $ 212,969 $ - $ 649,279 Inter-segment sales (2,358)
(762) - (3,120)
-------------------------------------------------------------------------
Sales to external customers$ 433,952 $ 212,207 $ - $ 646,159
-------------------------------------------------------------------------
Depreciation and amortization $ 17,242 $ 8,331 $ - $ 25,573
-------------------------------------------------------------------------
Other charges (notes 5 & 6) $ - $ 23,785 $ - $ 23,785
-------------------------------------------------------------------------
Operating income (loss) $ 54,335 $ (34,201) $ (1,502) $ 18,632
-------------------------------------------------------------------------
Equity income $ (416) $ - $ - $ (416)
-------------------------------------------------------------------------
Interest expense (income), net $ 11,912 $ 3,802 $ (12,849) $ 2,865
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares $ -
$ - $ 2,014 $ 2,014
-------------------------------------------------------------------------
Fixed assets, net $ 449,571 $ 230,926 $ - $ 680,497
-------------------------------------------------------------------------
Fixed asset additions $ 31,361 $ 27,867 $ - $ 59,228
-------------------------------------------------------------------------
Goodwill, net $ 50,174 $ 20,932 $ - $ 71,106
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Month Period Ended December 31, 2002
-------------------------------------------------------------------------
(U.S. dollars North in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 368,220 $ 160,964 $ - $ 529,184 Inter-segment sales (308)
(688) - (996)
-------------------------------------------------------------------------
Sales to external customers $ 367,912 $ 160,276 $ - $ 528,188
-------------------------------------------------------------------------
Depreciation and amortization $ 14,445 $ 5,401 $ - $ 19,846
-------------------------------------------------------------------------
Operating income (loss) $ 55,652 $ (10,355) $ (2,596) $ 42,701
-------------------------------------------------------------------------
Equity income $ (47) $ - $ - $ (47)
-------------------------------------------------------------------------
Interest expense (income), net $ 8,935 $ 4,461 $ (10,886) $ 2,510
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares $ -
$ - $ 1,938 $ 1,938
-------------------------------------------------------------------------
Other income (note 15) $ - $ - $ (495) $ (495)
-------------------------------------------------------------------------
Fixed assets, net $ 358,675 $ 166,788 $ - $ 525,463
-------------------------------------------------------------------------
Fixed asset additions $ 23,828 $ 25,736 $ - $ 49,564
-------------------------------------------------------------------------
Goodwill, net $ 44,728 $ 17,280 $ - $ 62,008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Month Period Ended December 31, 2003
-------------------------------------------------------------------------
(U.S. dollars North in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 1,616,812 $ 744,497 $ - $ 2,361,309 Inter-segment sales
(2,885) (2,594) - (5,479)
-------------------------------------------------------------------------
Sales to external customers $ 1,613,927 $ 741,903 $ - $ 2,355,830
-------------------------------------------------------------------------
Depreciation and amortization $ 62,407 $ 27,487 $ - $ 89,894
-------------------------------------------------------------------------
Other charges (notes 5 & 6) $ - $ 23,785 $ - $ 23,785
-------------------------------------------------------------------------
Operating income (loss) $ 213,804 $ (46,109) $ (16,505)$ 151,190
-------------------------------------------------------------------------
Equity income $ (1,844) $ - $ - $ (1,844)
-------------------------------------------------------------------------
Interest expense (income), net $ 32,825 $ 17,184 $ (39,316) $
10,693
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares $ -
$ - $ 8,631 $ 8,631
-------------------------------------------------------------------------
Other income (note 15) $ - $ - $ (1,387) $ (1,387)
-------------------------------------------------------------------------
Fixed assets, net $ 449,571 $ 230,926 $ - $ 680,497
-------------------------------------------------------------------------
Fixed asset additions $ 108,884 $ 69,022 $ - $ 177,906
-------------------------------------------------------------------------
Goodwill, net $ 50,174 $ 20,932 $ - $ 71,106
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Month Period Ended December 31, 2002
-------------------------------------------------------------------------
(U.S. dollars North in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 1,486,975 $ 572,613 $ - $ 2,059,588 Inter-segment sales
(1,588) (1,327) - (2,915)
-------------------------------------------------------------------------
Sales to external customers $ 1,485,387 $ 571,286$ - $ 2,056,673
-------------------------------------------------------------------------
Depreciation and amortization $ 55,454 $ 22,830 $ - $ 78,284
-------------------------------------------------------------------------
Other charge (note 7) $ - $ 8,301 $ - $ 8,301
-------------------------------------------------------------------------
Operating income (loss) $ 204,431 $ (22,595) $ (8,143) $ 173,693
-------------------------------------------------------------------------
Equity income $ (521) $ - $ - $ (521)
-------------------------------------------------------------------------
Interest expense (income), net $ 27,196 $ 19,826 $ (35,038) $
11,984
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares $ -
$ - $ 8,351 $ 8,351
-------------------------------------------------------------------------
Other income (note 15) $ (3,874) $ - $ (495) $ (4,369)
-------------------------------------------------------------------------
Fixed assets, net $ 358,675 $ 166,788 $ - $ 525,463
-------------------------------------------------------------------------
Fixed asset additions $ 54,505 $ 45,435 $ - $ 99,940
-------------------------------------------------------------------------
Goodwill, net $ 44,728 $ 17,280 $ - $ 62,008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DATASOURCE: Decoma International Inc. CONTACT: S. Randall
Smallbone, Executive Vice-President, Finance and Chief Financial
Officer of Decoma at (905) 669-2888. For further information about
Decoma, please visit the Company's website at
http://www.decoma.com/ /FIRST AND FINAL ADD TO FOLLOW
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