Decoma announces financial results for second quarter and first
half of fiscal 2004 Strong sales and content growth in Europe from
new facilities CONCORD, ON, Aug. 4 /PRNewswire-FirstCall/ -- Decoma
International Inc. (TSX:DEC.A; NASDAQ:DECA) today announced its
financial results for the second quarter and six months ended June
30, 2004. Financial Highlights -------------------- Three Months
Six Months Ended June 30, Ended June 30, (US$, in millions except
per share figures) 2004 2003 2004 2003 Sales $ 668.2 $ 592.1
$1,370.6 $1,153.2 Operating income $ 41.2 $ 56.9 $ 87.8 $ 103.5 Net
income $ 24.6 $ 33.8 $ 51.8 $ 60.9 Diluted earnings per share $
0.24 $ 0.34 $ 0.51 $ 0.64 Weighted average diluted shares
outstanding (millions) 106.3 105.8 106.3 102.1 Commenting on the
above results and the Company's outlook, Al Power, Decoma's
President and Chief Executive Officer, noted: "We are pleased with
our top line growth driven by strong sales increases in Europe. As
expected, our earnings have been impacted by the investments we
have made in new facility start-ups and new product launches.
Earnings have also been impacted by continuing customer and
competitive pricing pressures and by lower North American
production sales after adjusting for translation. While overall
market conditions remain challenging and are likely to continue to
depress our margins in the second half of the year, we remain
focused on continuous improvement and profitable long-term growth.
In addition to a number of significant launches planned for the
second half of the year, North American customers have begun to
source front end module programs for 2007/2008 vehicles and, based
on our success in Europe, we expect this to be a significant growth
opportunity for Decoma. We remain optimistic about our long term
growth opportunities and expect continued growth in both our core
products and the successful commercialization of many new
technologies." Results of Operations --------------------- Total
2004 sales increased 13% to $668.2 million for the second quarter
and rose 19% to $1,371 million for the first half of fiscal 2004.
Second quarter sales benefited $19.2 million from currency
translation. Excluding the impact of currency translation, sales
grew $56.9 million or 10% over the second quarter of 2003. Strong
sales growth at newer European facilities accounted for most of the
increase. During the second quarter of 2004, vehicle production
volumes remained essentially flat in North America and rose 2% in
Europe. Decoma's production sales fell 1% to $391.8 million in
North America but increased 44% to $220.9 million in Europe.
Average content per vehicle declined $1 or 1% to $94 in North
America and grew $15 or 43% to $50 in Europe. North American sales
were negatively impacted by end of production on the Ford Windstar
program, the ramp up of the DaimlerChrysler LX program, recent
incremental price concessions and lower volumes and installation
rates on certain high content production programs. These factors
were partially offset by the acquisition of Federal Mogul's
original equipment automotive lighting operations which added $7
million to production sales and $2 to North American content per
vehicle quarter over quarter. The translation of Canadian dollar
sales into the Company's U.S. dollar reporting currency also added
approximately $6.7 million to production sales and $2 to North
American content per vehicle. In Europe, sales and content growth
were driven by the ramp-up of new facilities, including the VW
Group Golf program in Belgium. Sales at new European facilities
collectively added approximately $41.9 million to production sales
and $10 to European content per vehicle. 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 $10.4 million to European production
sales and $2 to content per vehicle during the period. Operating
income in the second quarter of 2004 declined to $41.2 million.
North American operating income declined as a result of lower
production volumes on certain high-content programs, incremental
customer pricing pressures, lower installation rates of select trim
products and planned spending increases at Decostar. Operating
losses in Europe improved from the levels in each of the three
previous quarters but rose from the second quarter of 2003. The
increased loss as compared to the second quarter of 2003 reflects
the start up of the Belplas paint line as well as inefficiencies
being addressed through the Company's European paint capacity
consolidation plan. Operating income for the first six months of
fiscal 2004 declined to $87.8 million from $103.6 million for the
same period last year. Net income for the second quarter of 2004
declined to $24.6 million ($0.24 per diluted share) from $33.8
million ($0.34 per diluted share) for the same period last year.
Net income for the first six months of 2004 decreased to $51.8
million ($0.51 per diluted share), compared with $60.9 million
($0.64 per diluted share) for the same period in 2003. Diluted
earnings per share declined in the first half of 2004, primarily as
a result of lower operating income and an increase in the average
number of diluted Class A Subordinate Voting and Class B Shares
outstanding as compared with the same period in 2003. Quarterly
Dividend ------------------ Decoma's Board of Directors has
declared a second quarter 2004 dividend of US$0.07 per share on
Class A Subordinate Voting and Class B shares payable on September
15, 2004 to shareholders of record on August 31, 2004. Outlook
------- The Company's outlook for full year vehicle production
remains unchanged from prior guidance. As previously announced,
Decoma's North American content per vehicle for fiscal 2004 is
expected to be between $97 and $100, while European content per
vehicle is expected to be between $52 and $56. Total sales are
expected to range between $2.6 billion and $2.8 billion. These
figures are based on estimated 2004 light vehicle production of
16.0 million vehicles in North America and 16.4 million vehicles in
Western Europe. The Company's outlook also 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 second quarter of 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 to the Company's Annual
Information Form for the year ended December 31, 2003, 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 six month periods ended June 30,
2004, 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, liftgates
and running boards, 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 15,500 employees
in 50 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 its first
quarter results for 2004 on Thursday, August 5, 2004 at 9:30 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 on 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
please 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/. Readers are asked to refer to
the Management's Discussion and Analysis of Results of Operations
and Financial Position ("MD&A") attached to this release for a
more detailed discussion of the second quarter results for fiscal
2004. DECOMA INTERNATIONAL INC. Consolidated Balance Sheets
(Unaudited)
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As at As at June 30, December 31, 2004 2003 (restated - (U.S.
dollars in thousands) see note 5)
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ASSETS
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Current assets: Cash and cash equivalents $ 115,080 $ 93,545
Accounts receivable 440,998 395,040 Inventories 229,456 216,502
Income taxes receivable 23,981 4,015 Prepaid expenses and other
21,938 18,267
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831,453 727,369
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Investments (note 5) 21,794 20,773
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Fixed assets, net (note 5) 685,786 682,294
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Goodwill, net 69,796 71,106
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Future tax assets 7,980 10,556
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Other assets 14,909 18,390
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$1,631,718 $1,530,488
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities: Bank indebtedness (note 6(b)) $ 191,847 $
177,288 Accounts payable 267,687 226,114 Accrued salaries and wages
70,982 68,298 Other accrued liabilities 100,304 77,260 Long-term
debt due within one year 4,354 4,856 Debt due to Magna and its
affiliates within one year (note 6(c)) 134,918 141,804 Convertible
Series Preferred Shares, held by Magna (note 6(a)) 149,007 150,572
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919,099 846,192
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Long-term debt 10,466 11,194
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Other long-term liabilities (note 5) 11,835 10,784
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Future tax liabilities (note 5) 50,700 49,879
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Shareholders' equity: Convertible Debentures (note 12) 66,748
66,127 Convertible Series Preferred Shares (note 7) 6,334 8,826
Class A Subordinate Voting Shares (note 7) 287,146 287,137 Class B
Shares (note 7) 30,594 30,594 Contributed surplus (note 5) 459 267
Deferred compensation (note 8(b)) (4,087) - Retained earnings
192,373 155,975 Currency translation adjustment (note 5) 60,051
63,513
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639,618 612,439
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$1,631,718 $1,530,488
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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 Six Month Periods Ended June 30, Ended June 30,
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(U.S. dollars, in thousands except per share figures)
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2004 2003 2004 2003 (restated - (restated - see note 5) see note 5)
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Sales $ 668,207 $ 592,084 $1,370,616 $1,153,227
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Cost of goods sold 551,912 465,221 1,130,060 912,896 Depreciation
and amortization 23,850 21,826 47,948 42,146 Selling, general and
administrative (notes 5 and 9) 45,104 41,598 91,370 81,965
Affiliation and social fees 6,891 6,494 14,188 12,674 Other charge
adjustment (note 11) (728) - (728) -
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Operating income 41,178 56,945 87,778 103,546 Equity income (731)
(591) (1,334) (1,020) Interest expense, net 2,892 2,528 5,582 5,277
Amortization of discount on Convertible Series Preferred Shares,
held by Magna 1,196 2,255 2,408 4,301 Other income (note 13) - - -
(1,387)
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Income before income taxes 37,821 52,753 81,122 96,375 Income taxes
13,246 18,959 29,337 35,519
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Net income $ 24,575 $ 33,794 $ 51,785 $ 60,856
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Financing charges on Convertible Series Preferred Shares held by
Magna and Convertible Debentures, net of taxes (note 12) $ (2,139)
$ (2,487) $ (3,696) $ (3,951)
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Net income attributable to Class A Subordinate Voting and Class B
Shares 22,436 31,307 48,089 56,905 Retained earnings, beginning of
period 175,782 133,092 156,984 111,450 Dividends on Class A
Subordinate Voting and Class B Shares (5,845) (4,084) (11,691)
(8,168) Adjustment for change in accounting policies (note 5) -
(863) (1,009) (735)
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Retained earnings, end of period $ 192,373 $ 159,452 $ 192,373 $
159,452
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Earnings per Class A Subordinate Voting or Class B Share Basic
(note 16) $ 0.27 $ 0.46 $ 0.58 $ 0.84 Diluted (note 16) $ 0.24 $
0.34 $ 0.51 $ 0.64
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Average number of Class A Subordinate Voting and Class B Shares
outstanding (in thousands) Basic (note 16) 83,350 68,136 83,429
68,100 Diluted (note 16) 106,331 105,779 106,331 102,113
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See accompanying notes DECOMA INTERNATIONAL INC. Consolidated
Statements of Cash Flows (Unaudited)
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Three Month Periods Six Month Periods Ended June 30, Ended June 30,
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2004 2003 2004 2003 (restated - (restated - (U.S. dollars in
thousands) see note 5) see note 5)
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Cash provided from (used for): OPERATING ACTIVITIES Net income $
24,575 $ 33,794 $ 51,785 $ 60,856 Items not involving current cash
flows 21,134 21,394 49,737 41,478
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45,709 55,188 101,522 102,334 Changes in non-cash working capital
(22,611) (58,613) (13,143) (62,106)
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23,098 (3,425) 88,379 40,228
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INVESTING ACTIVITIES Fixed asset additions (28,425) (42,679)
(60,633) (70,243) Increase in investments and other assets (700)
(623) (1,333) (1,325) Business acquisitions (note 15) - (8,276) -
(8,276) Proceeds from disposition of fixed and other assets 19 84
91 334
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(29,106) (51,494) (61,875) (79,510)
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FINANCING ACTIVITIES Increase (decrease) in bank indebtedness
55,931 (28,323) 17,692 (47,990) Repayments of long-term debt (253)
(421) (866) (832) Repayments of debt due to Magna and its
affiliates (35) (26) (3,604) (51) Issuance of Convertible
Debentures (note 12) - - - 66,128 Convertible Debenture interest
payments (2,386) (1,252) (2,386) (1,252) Issuances of Class A
Subordinate Voting Shares (note 7) 7 4,715 7 4,715 Dividends on
Convertible Series Preferred Shares (2,129) (3,442) (4,291) (6,583)
Dividends on Class A Subordinate Voting and Class B Shares (5,845)
(4,084) (11,691) (8,168)
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45,290 (32,833) (5,139) 5,967
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Effect of exchange rate changes on cash and cash equivalents 627
4,109 170 6,430
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Net increase (decrease) in cash and cash equivalents during the
period 39,909 (83,643) 21,535 (26,885) Cash and cash equivalents,
beginning of period 75,171 138,817 93,545 82,059
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Cash and cash equivalents, end of period $ 115,080 $ 55,174 $
115,080 $ 55,174
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See accompanying notes DECOMA INTERNATIONAL INC. Notes to
Consolidated Financial Statements (Unaudited) Three and six month
periods ended June 30, 2004 and 2003
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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, liftgates and running boards, 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,
2003 (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 except for those accounting policy changes described in
note 5. 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 June 30, 2004
and the results of its operations and cash flows for the three and
six month periods ended June 30, 2004 and 2003. 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 disclosure of 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. 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 8. The impact of this
accounting policy change on reported net income and earnings per
share is as follows:
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Three Month Periods Six Month Periods Ended June 30, Ended June 30,
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(U.S. dollars, in thousands except per share figures) 2004 2003
2004 2003
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Increase in selling, general and administrative expenses $ 117 $ 67
$ 192 $ 134
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Reduction of net income $ 117 $ 67 $ 192 $ 134
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Reduction of earnings per Class A Subordinate Voting or Class B
Share Basic $ - $ - $ - $ - Diluted $ - $ - $ - $ -
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Asset Retirement Obligations As provided for by new accounting
recommendations of the CICA, the Company is required to estimate
and accrue for the present value of its obligations to restore
leased premises at the end of the lease. At lease inception, the
present value of this obligation is recognized as other long-term
liabilities with a corresponding amount recognized in fixed assets.
The fixed asset amount is amortized, and the liability amount is
accreted, over the period from lease inception to the time the
Company expects to vacate the premises resulting in both
depreciation and additional rent in cost of sales in the
consolidated statements of income. These requirements were adopted
by the Company on January 1, 2004 with retroactive restatement. As
a result, for the three month period ended June 30, 2003 opening
retained earnings was reduced by $796,000 and net income was
reduced by $69,000. Basic and diluted earnings per share were
unchanged. For the six month period ended June 30, 2003 opening
retained earnings was reduced by $735,000 and net income was
reduced by $130,000. Basic and diluted earnings per share were
unchanged. At December 31, 2003 investments were reduced by $8,000,
fixed assets were increased by $1,797,000, other long term
liabilities were increased by $3,322,000, future tax liabilities
were reduced by $335,000, retained earnings was reduced by
$1,009,000 and the currency translation adjustment account
decreased by $189,000. Net income for the three and six month
periods ended June 30, 2004 were reduced by $82,000 and $165,000,
respectively. Separately Priced Tooling Contracts The Company
adopted CICA Emerging Issues Committee Abstract No. 142, "Revenue
Arrangements with Multiple Deliverables" (EIC-142), prospectively
for new revenue arrangements with multiple deliverables entered
into by the Company on or after January 1, 2004. The Company enters
into such multiple element arrangements where it has separately
priced tooling contracts that are entered into at the same time as
contracts for subsequent parts production. EIC-142 addresses how a
vendor determines whether an arrangement involving multiple
deliverables contains more than one unit of accounting and also
addresses how consideration should be measured and allocated to the
separate units of accounting in the arrangement. Separately priced
tooling can be accounted for as a separate revenue element only in
circumstances where the tooling has value to the customer on a
standalone basis and there is objective and reliable evidence of
the fair value of the subsequent parts production. The adoption of
EIC-142 did not have a material effect on the Company's revenue or
earnings for the three and six month periods ended June 30, 2004.
6. Debt (a) Convertible Series Preferred Shares 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 at any time by Magna
International Inc. ("Magna") at their aggregate face value of
Cdn$100 million and the Series 5 Convertible Series Preferred
Shares 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 June 30, 2004 the Company had lines of credit totaling
$314.8 million. Of this amount, $300 million is represented by an
extendible, revolving credit facility that expires on September 30,
2004. The unused and available lines of credit at June 30, 2004
were approximately $108.2 million. (c) Debt Due to Magna and its
Affiliates The Company's debt due to Magna and its affiliates
consists of the following:
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June 30, December 31, (U.S. dollars in thousands) 2004 2003
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Debt denominated in Canadian dollars(i) $ 45,276 $ 46,512 Debt
denominated in Euros(ii) 88,577 94,128 Capital lease obligation
denominated in Euros 1,065 1,164
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134,918 141,804 Less due within one year 134,918 141,804
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$ - $ -
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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 quarterly. The
interest rate was 3.85% effective January 1, 2003, 4.25% effective
April 1, 2003, 4.19% effective July 1, 2003, 3.86% effective
October 1, 2003, 3.65% effective January 1, 2004, 3.07% effective
April 1, 2004 and 3.09% effective July 1, 2004. The maturity date
of the Cdn$60 million debt has been extended to September 30, 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 were repaid in January 2004. 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%. 7. 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 Held by
Magna", and note 14, "Capital Stock", of the Company's annual
financial statements. The following table summarizes the
outstanding share capital of the Company:
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Authorized 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 51,599,778 Class B Shares (Convertible into Class A
Subordinate Voting Shares) Unlimited 31,909,091
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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 June 30, 2004 were exercised or
converted:
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Number of Shares
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Class A Subordinate Voting Shares outstanding at June 30, 2004
51,599,778 Class B Shares outstanding at June 30, 2004 31,909,091
Options to purchase Class A Subordinate Voting Shares 2,854,000
Convertible Debentures, convertible by the holders at Cdn$13.25 per
share 7,547,019 Convertible Series Preferred Shares, convertible at
Cdn$13.20 per share 15,151,516
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109,061,404
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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.
8. Stock-based Compensation (a) Incentive Stock Options Information
concerning the Company's Incentive Stock Option Plan is included in
note 15, "Incentive Stock Options", 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, 2003 2,640,000 Cdn$13.02 1,779,000
Granted 330,000 Cdn$11.79 - Exercised (1,000) Cdn $9.50 (1,000)
Cancelled (115,000) Cdn$13.06 (57,000) Vested 285,000
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Outstanding at June 30, 2004 2,854,000 Cdn$12.88 2,006,000
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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 June 30, 2004 is 1,193,750.
The total number of shares issued from exercised stock options,
from the inception date of the plan, is 52,250. 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 June 30, 2004 and June 30, 2003):
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Six Month Periods Ended June 30,
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(U.S. dollars in thousands) 2004 2003
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Risk free interest rate 2.8% 3.0% Expected dividend yield 3.0% 3.2%
Expected volatility 37% 39% Expected life of options 5 years 5
years
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Stock options granted prior to January 1, 2003 are not 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 Six Month Periods Ended Periods Ended June 30, June 30,
-------------------------------------------------------------------------
(U.S. dollars, in thousands except per share figures) 2004 2003
2004 2003
-------------------------------------------------------------------------
Net income attributable to Class A Subordinate Voting and Class B
Shares $ 22,436 $ 31,307 $ 48,089 $ 56,905 Pro forma adjustments
for the fair value of stock options granted prior to January 1,
2003 (215) (239) (323) (452)
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Pro forma net income attributable to Class A Subordinate Voting and
Class B Shares $ 22,221 $ 31,068 $ 47,766 $ 56,453
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Pro forma earnings per Class A Subordinate Voting or Class B Share
Basic $ 0.27 $ 0.46 $ 0.57 $ 0.83 Diluted $ 0.24 $ 0.34 $ 0.51 $
0.63
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(b) Restricted Share Agreement During the three month period ended
June 30, 2004, the Company entered into a new employment agreement
and long term retention arrangement with its CEO. The CEO was paid
a special bonus of $1.9 million. In addition, restricted shares
were sold to the CEO. Provided the CEO remains with Decoma until
December 31, 2007 and certain other conditions are met, the
restricted shares will be released to the CEO over the period from
January 1, 2008 to December 31, 2017 in annual increments provided
he continues to comply with certain conditions under the
arrangement. 451,685 Class A Subordinate Voting Shares, which were
acquired on the open market at a cost of $4.1 million, were sold to
the CEO under the arrangement. The purchase price paid by the CEO
was at a discount to the acquisition cost of $4.1 million which was
determined with reference to the nature and duration of the
restrictions. The total net cost to the Company of these
arrangements is being amortized to compensation expense from the
award date through December 31, 2017. 451,685 Class A Subordinate
Voting Shares, which have not yet been released to the CEO, and
unamortized compensation expense of $4.1 million at June 30, 2004
have been presented as a reduction of shareholders' equity. In
addition, these shares have been excluded in the calculation of
basic earnings per share but have been included in the calculation
of diluted earnings per share. 9. Additional Expense Information
Selling, general and administrative expenses are net of earnings
(losses) resulting from foreign exchange of:
-------------------------------------------------------------------------
Three Month Periods Six Month Periods Ended June 30, Ended June 30,
-------------------------------------------------------------------------
(U.S. dollars in thousands) 2004 2003 2004 2003
-------------------------------------------------------------------------
Foreign exchange income (losses) $ 797 $ (2,268) $ 1,036 $ (4,900)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As disclosed in Note 12, "Employee Future Benefit Plans", to the
Company's annual financial statements, the Company sponsors certain
defined benefit pension and post-retirement medical benefit
arrangements. The aggregate amount expensed for these arrangements
was as follows:
-------------------------------------------------------------------------
Three Month Periods Six Month Periods Ended June 30, Ended June 30,
-------------------------------------------------------------------------
(U.S. dollars in thousands) 2004 2003 2004 2003
-------------------------------------------------------------------------
Net expense $ 1,419 $ 1,050 $ 2,458 $ 2,019
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Contingencies (a) 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. (b) Ford Motor Company
("Ford") recently updated its Production Purchasing Global Terms
and Conditions (the "Global Terms") effective for shipments from
Decoma International Corp. ("DIC") and its subsidiaries
(collectively the "Supplier") to Ford on or after January 1, 2004.
DIC is a direct significant subsidiary of Decoma International Inc.
Under the Global Terms, Ford and its "related companies"
(collectively the "Ford Group" or the "Buyer") have the right to
set off against the Supplier's receivables from the Ford Group
amounts owing to the Ford Group by the Supplier's "related
companies". "Related companies" is defined under the Global Terms
to include any parent company of the Buyer or the Supplier, as
appropriate, and any subsidiary or affiliate in which any of them
owns or controls at least 25% of the voting stock, partnership
interest or other ownership interest. Where DIC acts as a
"Supplier", Decoma interprets the Global Terms to mean that
"related companies" would include Decoma International Inc. (as the
parent company of DIC) and its direct and indirect subsidiaries and
at least 25% owned entities (collectively the "Decoma Group") but
would not include Magna and its direct and indirect subsidiaries
and at least 25% owned entities other than the Decoma Group
(collectively the "Magna Group"). Ford may assert that the term
"related companies" includes, in relation to DIC or other Suppliers
in the Decoma Group, the Magna Group and attempt to set off a Magna
Group liability against a Decoma Group receivable. To date, Ford
has not attempted to take such action against Decoma. If the Ford
Group took such an action against Decoma in respect of a material
liability of the Magna Group, such action could have a material
adverse impact on Decoma's financial condition and liquidity. Any
such action by Ford would be contested by Decoma at such time. (c)
The Company's Anotech division in North America is currently
incurring operating losses as a result of the underutilization of
its anodizing assets. The Company is currently reviewing the long
term prospects for these assets which had a net book value of
approximately $12.0 million at June 30, 2004. As a result of these
circumstances and prior to completion of the analysis currently
underway, the recoverability of this net book value amount is
subject to measurement uncertainty. Readers are asked to refer to
the Company's Management's Discussion and Analysis of Results of
Operations and Financial Position which is included elsewhere
herein for further discussion regarding Anotech. 11. 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 will result in
severance costs associated with a reduction of the Decoform
workforce. Severance costs for 284 employees were accrued in the
three month period ended December 31, 2003. 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. The severance accrual has been
reduced by $0.7 million to reflect the Company's current best
estimate of costs. This reduction primarily reflects the benefits
of being able to retain more Decoform employees than originally
planned as a result of increases in expected future mold and
assembly volumes at Decoform. A continuity of the severance accrual
related to this consolidation plan is as follows: (U.S. dollars, in
thousands)
-------------------------------------------------------------------------
Balance, December 31, 2003 $ 6,799 Payments (50) Currency
translation (258)
-------------------------------------------------------------------------
Balance, March 31, 2004 6,491 Payments (65) Adjustments (728)
Currency translation 94
-------------------------------------------------------------------------
Balance, June 30, 2004 $ 5,792
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. Convertible Debentures On March 27, 2003, the Company issued
Cdn$100 million of unsecured, subordinated Convertible Debentures
bearing interest at 6.5% and maturing March 31, 2010. See note 13
to the Company's annual financial statements for further discussion
on the Convertible Debentures. 13. Other Income 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, totaling $1.4 million,
has been included in other income and is not subject to tax. 14.
Segmented Information The Company operates in one industry segment,
the automotive exteriors business. As at June 30, 2004, the Company
had 27 manufacturing facilities in North America and 15 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 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 June 30, 2004
-------------------------------------------------------------------------
North (U.S. dollars in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 422,021 $ 246,659 $ - $ 668,680 Inter-segment sales (18)
(455) - (473)
-------------------------------------------------------------------------
Sales to external customers $ 422,003 $ 246,204 $ - $ 668,207
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization $ 16,441 $ 7,409 $ - $ 23,850
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other charge adjustment (note 11) $ - $ (728) $ - $ (728)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income (loss) $ 49,845 $ (5,237) $ (3,430) $ 41,178
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Equity income $ (731) $ - $ - $ (731)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense (income), net $ 12,905 $ 2,363 $ (12,376) $ 2,892
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares,
held by Magna $ - $ - $ 1,196 $ 1,196
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed assets, net $ 447,256 $ 238,530 $ - $ 685,786
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed asset additions $ 20,386 $ 8,039 $ - $ 28,425
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill, net $ 49,359 $ 20,437 $ - $ 69,796
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Month Period Ended June 30, 2003
-------------------------------------------------------------------------
North (U.S. dollars in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 412,346 $ 180,442 $ - $ 592,788 Inter-segment sales (189)
(515) - (704)
-------------------------------------------------------------------------
Sales to external customers $ 412,157 $ 179,927 $ - $ 592,084
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization $ 15,266 $ 6,560 $ - $ 21,826
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income (loss) $ 62,476 $ (156) $ (5,375) $ 56,945
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Equity income $ (591) $ - $ - $ (591)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense (income), net $ 7,262 $ 4,489 $ (9,223) $ 2,528
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares,
held by Magna $ - $ - $ 2,255 $ 2,255
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed assets, net $ 410,605 $ 190,345 $ - $ 600,950
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed asset additions $ 27,150 $ 15,529 $ - $ 42,679
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill, net $ 48,834 $ 19,311 $ - $ 68,145
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six Month Period Ended June 30, 2004
-------------------------------------------------------------------------
North (U.S. dollars in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 880,535 $ 491,055 $ - $1,371,590 Inter-segment sales (24)
(950) - (974)
-------------------------------------------------------------------------
Sales to external customers $ 880,511 $ 490,105 $ - $1,370,616
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization $ 33,265 $ 14,683 $ - $ 47,948
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other charge adjustment (note 11) $ - $ (728) $ - $ (728)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income (loss) $ 109,248 $ (15,949) $ (5,521) $ 87,778
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Equity income $ (1,334) $ - $ - $ (1,334)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense (income), net $ 27,007 $ 4,437 $ (25,862) $ 5,582
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares,
held by Magna $ - $ - $ 2,408 $ 2,408
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed assets, net $ 447,256 $ 238,530 $ - $ 685,786
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed asset additions $ 35,554 $ 25,079 $ - $ 60,633
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill, net $ 49,359 $ 20,437 $ - $ 69,796
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six Month Period Ended June 30, 2003
-------------------------------------------------------------------------
North (U.S. dollars in thousands) America Europe Corporate Total
-------------------------------------------------------------------------
Sales $ 807,144 $ 347,790 $ - $1,154,934 Inter-segment sales (391)
(1,316) - (1,707)
-------------------------------------------------------------------------
Sales to external customers $ 806,753 $ 346,474 $ - $1,153,227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization $ 29,440 $ 12,706 $ - $ 42,146
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating income (loss) $ 116,451 $ (2,968) $ (9,937) $ 103,546
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Equity income $ (1,020) $ - $ - $ (1,020)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense (income), net $ 13,151 $ 8,825 $ (16,699) $ 5,277
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization of discount on Convertible Series Preferred Shares,
held by Magna $ - $ - $ 4,301 $ 4,301
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other income (note 13) $ - $ - $ (1,387) $ (1,387)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed assets, net $ 410,605 $ 190,345 $ - $ 600,950
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed asset additions $ 47,964 $ 22,279 $ - $ 70,243
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Goodwill, net $ 48,834 $ 19,311 $ - $ 68,145
-------------------------------------------------------------------------
-------------------------------------------------------------------------
15. Business Acquisitions Federal Mogul Lighting During the second
quarter of 2003, the Company entered into an agreement to acquire
Federal Mogul's original equipment automotive lighting operations
in Matamoras, Mexico, a distribution centre in Brownsville, Texas,
an assembly operation in Toledo, Ohio and certain of the
engineering operations, contracts and equipment at Federal Moguls'
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.
The net effect of the transaction on the Company's consolidation
balance sheet was as follows: Non-cash working capital $ 8,023
Fixed assets 2,338
-------------------------------------------------------------------------
Net assets acquired $ 10,361
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The acquisition has been accounted for by the purchase method in
these unaudited interim consolidated financial statements from the
date of transaction. Decomex In May 2001, the Company acquired the
remaining 30% minority interest in Decomex Inc. ("Decomex") from
Corporation Activa, S.A. de C.V. Decomex operates fascia moulding
and finishing operations in Mexico. Total consideration paid in
connection with the acquisition amounted to $7.8 million which gave
rise to goodwill of $0.1 million. The purchase price was satisfied
with cash of $2.6 million and by the issuance of $5.2 million of
prime rate promissory notes which were repaid during 2002 and 2003.
16. Earnings Per Share
-------------------------------------------------------------------------
Three Month Periods Six Month Periods Ended June 30, Ended June 30,
-------------------------------------------------------------------------
(U.S. dollars, in thousands except per share figures) 2004 2003
2004 2003
-------------------------------------------------------------------------
Basic earnings per Class A Subordinate Voting and Class B Share Net
income attributable to Class A Subordinate Voting and Class B
Shares $ 22,436 $ 31,307 $ 48,089 $ 56,905
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of Class A Subordinate Voting and Class B Shares
outstanding during the period 83,508 68,136 83,508 68,100
Adjustments for: Deferred compensation (note 8(b)) (158) - (79) -
-------------------------------------------------------------------------
83,350 68,136 83,429 68,100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings per Class A Subordinate Voting and Class B Share $
0.27 $ 0.46 $ 0.58 $ 0.84
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per Class A Subordinate Voting and Class B Share
Net income attributable to Class A Subordinate Voting and Class B
Shares $ 22,436 $ 31,307 $ 48,089 $ 56,905 Adjustments (net of
related tax effects) for: Amortization of discount on Convertible
Series Preferred Shares 1,196 2,255 2,408 4,301 Financing charges
on Convertible Series Preferred Shares, held by Magna 1,131 1,522
1,651 2,940 Financing charges on Convertible Debentures 1,008 965
2,045 1,011
-------------------------------------------------------------------------
$ 25,771 $ 36,049 $ 54,193 $ 65,157
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of Class A Subordinate Voting and Class B Shares
outstanding during the period 83,350 68,136 83,429 68,100
Adjustments for: Class A Subordinate Voting Shares issuable on
conversion of Convertible Series Preferred Shares 15,152 30,047
15,152 30,047 Class A Subordinate Voting Shares issuable on
conversion of Convertible Debentures 7,547 7,547 7,547 3,898 Stock
options determined using the treasury stock method 124 49 124 68
Deferred compensation (note 8(b)) 158 - 79 -
-------------------------------------------------------------------------
106,331 105,779 106,331 102,113
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per Class A Subordinate Voting and Class B Share $
0.24 $ 0.34 $ 0.51 $ 0.64
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FIRST AND FINAL ADD TO FOLLOW DATASOURCE: Decoma International Inc.
CONTACT: S. Randall Smallbone, Executive Vice President, Finance
and Chief Financial Officer of Decoma at (905) 669-2888
Copyright