Decoma announces results for the first quarter
of 2001
CONCORD, ON, April 30 - Decoma International Inc.
today announced its financial results for the first
quarter of 2001 ended March 31, 2001.
Three Month Periods
(millions of U.S. dollars, Ended March 31
except per share figures) 2001 2000
Sales $ 444.1 $ 387.5
Operating Income $ 34.7 $ 38.8
Net Income $ 15.6 $ 20.5
Diluted earnings per share $ 0.21 N/A
Weighted average number of shares
outstanding on a diluted basis (millions) 81.5 N/A
Sales increased 15% to $444.1 million for the first quarter of 2001
compared to $387.5 million in the three month period ended March 31, 2000.
North American (including Mexican) production sales grew by 14% to $284.2
million in the first quarter of 2001 compared to $248.3 million in the three
month period ended March 31, 2000. North American (including Mexican) content
per vehicle grew to approximately $71 compared to $52 for the three month
period ended March 31, 2000. This increase was achieved during a period when
North American (including Mexican) vehicle production volumes decreased 17% to
4.0 million units from 4.8 million units in the three month period ended March
31, 2000. European production sales increased by 10% to $119.6 million for the
first quarter of 2001 compared to $108.5 million in the three month period
ended March 31, 2000. Western European content per vehicle was approximately
$27 compared to $25 for the three month period ended March 31, 2000. Western
European vehicle production volumes were 4.5 million units for the first
quarter of 2001 compared to 4.4 million units for the three month period ended
March 31, 2000. The increase in sales in North America and Europe is
attributable to a number of factors including the full consolidation of the
Conix Group in the current quarter, (as compared to 51% of the Conix Group
which was proportionately consolidated in the three month period ended March
31, 2000), strong volumes on certain existing programs and the launch of new
programs partially offset by customer launch delays and the correction of
customer vehicle inventories reflecting the slower growth in the economy.
Tooling sales were $40.3 million for the first quarter of 2001 compared
to $30.7 million for the three month period ended March 31, 2000.
Operating income declined from $38.8 million for the three month period
ended March 31, 2000 to $34.7 million for the three month period ended March
31, 2001 due primarily to lower vehicle production volumes, the short notice
of customer plant shut downs, the launch of new facilities and programs,
customer price reductions and higher natural gas costs during the first
quarter of 2001. These cost impacts were partially offset by cost savings
generated from our employees' continuous improvement efforts and contributions
from new programs launched in the period.
Net income for the three month period ended March 31, 2001 was $15.6
million compared to $20.5 million for the three month period ended March 31,
2000. This decrease is attributable to the lower operating income described
above, an increase in interest expense primarily related to indebtedness
incurred to fund the acquisition of the remaining interest in the Conix Group,
an increase in the amortization of the discount on the Convertible Series
Preferred Shares as a result of the additional Convertible Series Preferred
Shares issued as partial consideration for the Global Exteriors Transaction
and higher minority interest expense, partially offset by a decrease in the
Company's effective tax rate
For the first quarter of 2001 diluted earnings per share were $0.21.
Earnings per share have not been presented for the three month period ended
March 31, 2000. The Global Exteriors Transaction resulted in significant
changes to the Company's capital structure. As a result, historical earnings
per share measures are not meaningful. Pro forma earnings per share measures,
which give effect to the changes in the Company's capital structure and other
items, are provided in note 9 to the unaudited interim consolidated financial
statements.
Pro forma diluted earnings per share, before pro forma adjustments for
the Conix Group acquisition, were $0.25 for the three month period ended March
31, 2000. The decline in diluted earnings per share is a result of lower net
income and higher financing charges in the three month period ended March 31,
2001 as compared to the three month period ended March 31, 2000.
During the first quarter of 2001, cash generated from operations was
$36.3 million before changes in non-cash working capital, substantially
unchanged from the three month period ended March 31, 2000. During the first
quarter of 2001, the Company invested $15.2 million in fixed assets.
Commenting on these results, Al Power, Decoma's President and Chief
Executive Officer stated: "Our first quarter results clearly demonstrate that
we are capitalizing on the opportunities available in our markets. Despite the
significant slowdown in vehicle production, Decoma has been able to make
strong gains in market share in both North America and Europe. With the
recently completed acquisitions, Decoma now possesses one of the widest range
of products, processes and manufacturing capabilities and one of the most
diverse customer bases of any company in the automotive exterior supply
industry. Going forward, we anticipate continued strong growth in sales as
well as improved financial performance resulting from the significant increase
in our size and the cost savings arising from our integration efforts."
At its meeting today, Decoma's Board of Directors declared a dividend in
respect of the first quarter of 2001 of U.S. $0.05 per share on the Class A
Subordinate Voting Shares and Class B Shares payable on May 31, 2001 to
shareholders of record on May 15, 2001. This dividend represents an
approximate 10% increase compared to the dividend paid for the two month
period ended December 31, 2000, prorated for a three month period. The
dividend is in addition to those declared on the 5% and 5.75% Convertible
Series Preferred Shares.
Decoma also announced today that it has filed a preliminary prospectus
with the securities regulatory authorities in certain of the provinces of
Canada for a public offering of Class A Subordinate Voting Shares. The
offering is to be underwritten by a syndicate led by RBC Dominion Securities
Inc. which also includes CIBC World Markets Inc., TD Securities Inc., BMO
Nesbitt Burns Inc., Salomon Smith Barney Canada Inc., Scotia Capital Inc. and
Griffiths McBurney & Partners. The terms of the offering, including the price
per Class A Subordinate Voting Share and the size of the offering, are
expected to be determined towards the end of May.
The preliminary prospectus relating to these securities has not yet
become final for the purpose of distribution to the public. This press release
shall not constitute an offer to sell or the solicitation of an offer to buy,
nor shall there be any sale of these securities in any province of Canada in
which such offer, solicitation or sale would be unlawful prior to
qualification or registration under the securities laws of such jurisdictions.
The Class A Subordinate Voting Shares have not been and will not be registered
under the United States Securities Act of 1933, as amended (the "Act"), and
may not be offered or sold in the United States or to U.S. persons except
pursuant to registration under the Act or an applicable exemption under the
Act.
Decoma will hold a conference call to discuss the results for the first
quarter of 2001 on Thursday, May 3, 2001 at 9:30 a.m. EST. The dial-in numbers
for the conference call are (416) 641-6448 and (877) 331-7860 for out of town
callers with call-in required 10 minutes prior to the start of the conference
call. The conference call will be chaired by S. Randall Smallbone, Vice
President, Finance and Chief Financial Officer. Attending the conference call
will be Alan J. Power, President and Chief Executive Officer of Decoma
together with other members of senior management. 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 30 days.
Decoma is a full service supplier of exterior appearance systems for the
world's automotive industry. The Company 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 and sealing and greenhouse systems for cars and light trucks
(including sport utility vehicles and mini-vans). Decoma has approximately
13,500 employees in 37 manufacturing, engineering and product development
facilities in Canada, the United States, Mexico, Germany, Belgium, England and
Japan.
This press release contains "forward looking statements" within the
meaning of applicable securities legislation. Such statements involve
important risks and uncertainties that may cause actual results or
anticipated events to be materially different from those expressed or
implied herein. These factors include, but are not limited to, risks
relating to the automotive industry, pricing concessions and cost
absorptions, reliance on major OEM customers, production volumes and
product mix, currency exposure, environmental matters, new facilities,
trade and labour relations, technological developments by the Company's
competitors, government and regulatory policies, changes in the
competitive environment in which the Company operates and the Company's
ability to raise necessary financing. In this regard, readers are
referred to the Company's Form 20-F for its fiscal year ended July 31,
2000, and subsequent SEC filings.
DECOMA INTERNATIONAL INC.
Consolidated Balance Sheets
As at March 31, 2001 and December 31, 2000
(Unaudited)
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As at As at
March 31, December 31,
(U.S. dollars in thousands) 2001 2000
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ASSETS
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Current assets:
Cash and cash equivalents $ 44,462 $ 50,041
Accounts receivable 301,390 265,913
Inventories 127,090 127,748
Income taxes receivable 2,255 6,991
Prepaid expenses and other 20,692 18,920
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495,889 469,613
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Investments 17,049 16,984
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Fixed assets, net 487,277 507,646
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Goodwill, net 74,435 78,737
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Future tax assets (note 11) 4,608 4,662
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Other assets 7,901 12,208
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$ 1,087,159 $ 1,089,850
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Bank indebtedness $ 90,001 $ 83,695
Accounts payable 157,887 159,386
Accrued salaries and wages 40,911 36,375
Other accrued liabilities 47,682 31,387
Long-term debt due within one year 1,079 7,736
Debt due to Magna within one year (note 7) 98,067 114,560
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435,627 433,139
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Long-term debt 29,681 32,604
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Long-term debt due to Magna 133,756 140,408
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Convertible Series Preferred Shares,
held by Magna (note 7) 195,521 203,101
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Debenture interest obligation 19,116 20,763
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Future tax liabilities (note 11) 40,878 40,967
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Minority interest 7,168 6,872
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Shareholders' equity:
Subordinated Debentures 71,782 70,153
Convertible Series Preferred Shares (note 6) 32,062 32,424
Class A Subordinate Voting Shares (note 6) 56,479 56,479
Class B Shares (note 6) 30,594 30,594
Retained earnings 12,669 -
Currency translation adjustment 21,826 22,346
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225,412 211,996
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$ 1,087,159 $ 1,089,850
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DECOMA INTERNATIONAL INC.
Consolidated Statements of Income,
Retained Earnings and Magna's Net Investment
Three month periods ended March 31, 2001 and 2000
(Unaudited)
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Three Month Periods
Ended March 31
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(U.S. dollars in thousands,
except per share figures) 2001 2000
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Sales $ 444,050 $ 387,476
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Cost of goods sold 356,640 306,479
Depreciation and amortization 19,522 15,239
Selling, general and administrative 25,847 21,297
Affiliation fees and other charges 7,351 5,644
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Operating income 34,690 38,817
Equity loss (income) 57 (177)
Interest expense, net 5,954 4,650
Amortization of discount on Convertible
Series Preferred Shares 2,434 982
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Income before income taxes and
minority interest 26,245 33,362
Income taxes (note 11) 10,372 13,384
Minority interest 287 (481)
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Net income $ 15,586 $ 20,459
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Financing charges on Convertible
Series Preferred Shares and
Subordinated Debentures $ 1,373 $ 436
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Net income attributable to Class A
Subordinate Voting and Class B Shares 14,213 20,023
Retained earnings, beginning of period - 47,359
Magna's net investment, beginning of period - 236,832
Dividends on Class A Subordinate Voting
and Class B Shares (1,544) (1,437)
Net contribution by (distribution to) Magna - (29,949)
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Retained earnings and Magna's net
investment, end of period $ 12,669 $ 272,828
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Earnings per Class A Subordinate
Voting or Class B Share
Basic (notes 8 and 9) $ 0.28 -
Diluted (notes 8 and 9) $ 0.21 -
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Average number of Class A Subordinate Voting
and Class B Shares outstanding (in millions)
Basic (notes 8 and 9) 51.5 -
Diluted (notes 8 and 9) 81.5 -
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DECOMA INTERNATIONAL INC.
Consolidated Statements of Cash Flows
Three month periods ended March 31, 2001 and 2000
(Unaudited)
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Three Month Periods
Ended March 31
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(U.S. dollars in thousands) 2001 2000
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Cash provided from (used for):
OPERATING ACTIVITIES
Net income $ 15,586 $ 20,459
Items not involving current cash flows 20,720 16,513
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36,306 36,972
Changes in non-cash working capital (4,938) 7,249
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31,368 44,221
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INVESTING ACTIVITIES
Fixed asset additions (15,206) (26,176)
Increase in investments and other (2,040) (1,946)
Proceeds from disposition of fixed assets 613 201
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(16,633) (27,921)
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FINANCING ACTIVITIES
Increase in bank indebtedness 6,306 31,942
Repayments of long term debt, net (7,963) (27,591)
Repayments of debt due to Magna (14,180) (9,757)
Repayments of debenture interest obligation (1,055) -
Net distribution to Magna - (14,079)
Dividends on Convertible Series
Preferred Shares (1,250) (1,250)
Dividends on Class A Subordinate Voting
and Class B Shares (1,725) (1,437)
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(19,867) (22,172)
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Effect of exchange rate changes on
cash and cash equivalents (447) 369
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Net increase (decrease) in cash and cash
equivalents during the period (5,579) (5,503)
Cash and cash equivalents, beginning of period 50,041 28,953
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Cash and cash equivalents, end of period $ 44,462 $ 23,450
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DECOMA INTERNATIONAL INC.
Notes to Consolidated Financial Statements
Three month periods ended March 31, 2001 and 2000
(Unaudited)
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1. The Company
Decoma International Inc. ("Decoma") 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 and sealing and greenhouse systems for
cars and light trucks (including sport utility vehicles and mini
vans). The Company changed its fiscal year end from July 31 to
December 31 effective December 31, 2000. As a result, interim
results are now presented on a calendar quarter basis.
2. Basis of Presentation
The unaudited interim consolidated financial statements of Decoma
International Inc. and its subsidiaries have been prepared following
Canadian generally accepted accounting principles except that certain
disclosures required for annual financial statements have not been
included.
On January 5, 2001, Decoma acquired 100% of Magna International
Inc.'s ("Magna") European exterior parts operations ("MES") and
Magna's 60% equity interest in Decoma Exterior Trim Inc. ("DET")
(collectively the "Global Exteriors Transaction"). Prior to the
completion of the Global Exteriors Transaction, Magna held an
approximate 89% equity interest in Decoma. On completion of the
Global Exteriors Transaction, Magna held an approximate 91% equity
interest in Decoma. Accordingly, the Global Exteriors Transaction has
been accounted for by Decoma using continuity of interest accounting,
which is similar to pooling of interests accounting. Under this basis
of accounting, the historical consolidated financial statements of
Decoma prior to the completion of the Global Exteriors Transaction
("Old Decoma"), MES and DET are combined at book value on a
retroactive basis. These unaudited interim consolidated financial
statements give retroactive effect to the Global Exteriors
Transaction and combine the financial position, results of operations
and cash flows of Old Decoma, MES and DET (collectively the
"Company") and should be read in conjunction with the Company's
audited supplemental consolidated financial statements for the five
month period ended December 31, 2000 which were included in the
Company's Report to Shareholders for the period then ended. The
supplemental consolidated financial statements have now become the
historical consolidated financial statements of the Company and
supersede the historical consolidated financial statements previously
published by Old Decoma.
Effective January 1, 2001, the Company changed its reporting currency
to the U.S. dollar. In accordance with accounting principles
generally accepted in Canada, the comparative amounts have been
restated to U.S. dollars using the January 1, 2001 exchange rate of
Cdn. $1.5002 per U.S. $1.00. All current period amounts for the
Company's operations having a functional currency other than the U.S.
dollar have been translated to U.S. dollars using the current rate
method which uses the average exchange rate during the period to
translate revenues, expenses and cash flows and the period-end rate
to translate assets and liabilities.
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 March 31, 2001 and the results of its
operations and cash flows for the three month periods ended March 31,
2001 and 2000.
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 generally accepted accounting
principles requires management to make estimates and assumptions that
affect the amounts reported in the unaudited interim consolidated
financial statements and accompanying notes. Management believes that
the estimates utilized in preparing its unaudited interim
consolidated financial statements are reasonable and prudent;
however, actual results could differ from these estimates.
5. Contingencies
In the ordinary course of business activities, the Company may
be contingently liable for litigation and claims with customers,
suppliers and former employees. 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 of the
Company.
6. Capital Stock
Class and Series of Outstanding Securities
For details concerning the nature of the Company's securities,
please refer to Note 11 "Convertible Series Preferred Shares"
and Note 12 "Capital Stock" of the Company's December 31, 2000
supplemental consolidated financial statements which were included
in the Company's Report to Shareholders for the five month period
then ended.
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 3,500,000
Class A Subordinate Voting Shares Unlimited 19,551,649
Class B Shares
(Convertible into Class A
Subordinate Voting Shares) Unlimited 31,909,091
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Options and Convertible Securities
The following table presents the maximum number of Class A
Subordinate Voting and Class B Shares that would be outstanding
if all of the outstanding options and Convertible Series Preferred
Shares issued and outstanding as at March 31, 2001 were exercised
or converted:
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Number of Shares
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Class A Subordinate Voting Shares
outstanding at March 31, 2001 19,551,649
Class B Shares outstanding at March 31, 2001 31,909,091
Options to purchase Class A
Subordinate Voting Shares 1,491,250
Convertible Series Preferred Shares,
convertible at Cdn. $10.07 per share 14,895,729
Convertible Series Preferred Shares,
convertible at Cdn. $13.20 per share 15,151,515
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82,999,234
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The above amounts exclude Class A Subordinate Voting Shares
that can be issued at the Company's option to settle the
Subordinated Debentures on redemption or maturity.
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 March 31, 2001
is 2,608,750.
The Company has reserved 1,000,000 Class A Subordinate Voting
Shares for future issuances to the Company's employee deferred
profit sharing plan.
7. Amounts Due to Magna
The liability amounts for the Series 1 and 2 Convertible Series
Preferred Shares are presented as long-term liabilities since Magna
has indicated that it will not exercise its retraction rights related
to these shares before July 1, 2002.
The repayment of $12.1 million of debt due to Magna on March 31, 2001
plus accrued and unpaid interest has been postponed until later in
2001.
8. Earnings Per Share
In December 2000, the Canadian Institute of Chartered Accountants
issued new accounting recommendations for the presentation and
disclosure of basic and diluted earnings per share. Effective January
1, 2001, the Company adopted these new recommendations on a
retroactive basis. The most significant change under the new
recommendations is the use of the "treasury stock method" instead of
the "imputed earnings approach" in computing diluted earnings per
share. Under the treasury stock method:
- exercise of options are assumed at the beginning of the period (or
at the time of issuance, if later);
- the proceeds from exercise are assumed to be used to purchase
Class A Subordinate Voting Shares at the average market price
during the period; and
- the incremental number of Class A Subordinate Voting Shares (the
difference between the number of shares assumed issued and the
number of shares assumed purchased) are included in the
denominator of the diluted earnings per share computation.
9. Pro Forma Earnings Per Share for the Three Month Period Ended
March 31, 2000
The following pro forma adjustments, each as a result of the Global
Exteriors Transaction, have been made to arrive at pro forma earnings
per share for the three month period ended March 31, 2000.
- adjustments to reflect the Company's new capital structure;
- adjustments that give effect to the affiliation fees and other
charges that would have been payable to Magna had the Company been
the owner of MES and DET throughout the period;
- changes to employee profit sharing expense arising from the
inclusion of DET profits and eligible DET employees in the revised
Company profit sharing pool; and
- the tax effect of the foregoing adjustments, where applicable,
using an assumed income tax rate of 38% and 40% for adjustments
applicable to Canada and Germany, respectively.
In addition to the Class A Subordinate Voting Shares, Class B Shares
and other Decoma dilutive instruments outstanding as of December 31,
2000, pro forma earnings per Class A Subordinate Voting or Class B
Share also reflect the issuance to Magna of 8,333,333 Class A
Subordinate Voting Shares as part of the Global Exteriors Transaction
and also reflect 15,151,515 Class A Subordinate Voting Shares
issuable to Magna on conversion of the Series 4 and 5 Convertible
Series Preferred Shares also issued to Magna as part of the Global
Exteriors Transaction.
The following table summarizes the calculation of pro forma earnings
per share:
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Three Month Period
Ended March 31
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(U.S. dollars in thousands) 2000
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Net income attributable to Class A
Subordinate Voting and Class B Shares $ 20,023
Pro forma adjustments (net of tax effects):
Series 4 and 5 Convertible Series
Preferred Shares (2,182)
Interest on debt due to Magna (26)
Net adjustment to affiliation fees
and other charges (384)
Net adjustment to employee profit sharing expense (754)
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Pro forma net income attributable to Class A
Subordinate Voting and Class B Shares $ 16,677
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Pro forma earnings per Class A Subordinate
Voting or Class B Share
Basic $ 0.32
Diluted $ 0.25
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Average number of pro forma Class A Subordinate
Voting and Class B Shares outstanding
(in millions)
Basic 51.5
Diluted 81.5
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The retroactive adoption of the new recommendations of the Canadian
Institute of Chartered Accountants for the presentation and
disclosure of basic and diluted earnings per share (see note 8)
reduced the average number of pro forma diluted Class A Subordinate
Voting and Class B Shares outstanding by 1.4 million and had no
impact on pro forma diluted earnings per Class A Subordinate Voting
or Class B Share for the three month period ended March 31, 2000.
10. Segmented Information
The Company operates in one industry segment, the automotive
exteriors business. The Company follows a corporate policy of
functional and operational decentralization. It conducts its
operations through divisions that function as autonomous operating
units. As at March 31, 2001, the Company had 22 manufacturing
facilities in North America and 10 in Europe. In addition, the
Company had 5 product development and engineering centres. Divisional
operating results and each division's annual business plan and
capital spending budget are reviewed by executive management,
including the Company's President and Chief Executive Officer.
The Company's European divisions are managed separately from its
North American divisions as a result of differences in customer mix
and business environment. The Company's internal financial reports
aggregate and 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 exposures, differences in 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:
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Three Month Period Ended March 31, 2001
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(U.S. dollars North
in thousands) America Europe Corporate Total
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Sales $307,639 $137,419 $ - $445,058
Intersegment sales (1,008) - - (1,008)
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Sales to external
customers $306,631 $137,419 $ - $444,050
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Depreciation and
amortization $ 13,835 $ 5,592 $ 95 $ 19,522
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Operating income $ 28,464 $ 5,560 $ 666 $ 34,690
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Equity loss (income) $ 57 $ - $ - $ 57
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Interest expense, net $ 2,826 $ 4,619 $ (1,491) $ 5,954
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Amortization of
discount on
Convertible Series
Preferred Shares $ - $ - $ 2,434 $ 2,434
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Fixed assets, net $351,885 $131,362 $ 4,030 $487,277
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Capital expenditures $ 11,174 $ 4,012 $ 20 $ 15,206
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Goodwill, net $ 34,730 $ 39,705 $ - $ 74,435
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Three Month Period Ended March 31, 2000
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(U.S. dollars North
in thousands) America Europe Corporate Total
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Sales $271,108 $116,959 $ - $388,067
Intersegment sales (591) - - (591)
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Sales to external
customers $270,517 $116,959 $ - $387,476
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Depreciation and
amortization $ 10,598 $ 4,528 $ 113 $ 15,239
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Operating income $ 31,818 $ 6,709 $ 290 $ 38,817
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Equity loss (income) $ (177) $ - $ - $ (177)
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Interest expense, net $ 1,497 $ 2,674 $ 479 $ 4,650
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Amortization of discount
on Convertible Series
Preferred Shares $ - $ - $ 982 $ 982
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Fixed assets, net $301,613 $107,278 $ 4,483 $413,374
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Capital expenditures $ 16,368 $ 9,808 $ - $ 26,176
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Goodwill, net $ - $ 15,717 $ - $ 15,717
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11. Future Taxes
As previously reported in the December 31, 2000 supplemental
consolidated financial statements included in the Company's Report to
Shareholders for the period then ended, commencing August 1, 2000 on
a prospective basis, the Company adopted the liability method of tax
allocation for accounting for income taxes as provided for in the new
recommendations of The Canadian Institute of Chartered Accountants.
Under the liability method of tax allocation, future tax assets and
liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured
using the substantively enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Prior to the adoption of the new recommendations, and as accounted
for in the three month period ended March 31, 2000, income tax
expense was determined using the deferral method of tax allocation.
Under this method, future tax expense was based on items of income
and expense that were reported in different years in the financial
statements and tax returns and measured at the tax rate in effect in
the year the difference originated.
There was no material impact on net income for the three month period
ended March 31, 2000 as a result of applying the deferral method
rather than the liability method of tax allocation.
12. Subsequent Event
On April 30, 2001, the Company filed a preliminary prospectus with
the applicable regulatory authorities in Canada for an offering from
treasury of Class A Subordinate Voting Shares of the Company.
DECOMA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations
and Financial Position
Three month periods ended March 31, 2001 and 2000
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OVERVIEW
On January 5, 2001, Decoma International Inc. ("Decoma") completed the
purchase from Magna International Inc. ("Magna") of Magna's European
exterior parts operations ("MES") and Magna's 60% interest in Decoma
Exterior Trim Inc. ("DET") (collectively, the "Global Exteriors
Transaction"). Prior to the completion of the Global Exteriors
Transaction, Magna held an approximate 89% equity interest in Decoma. On
completion of the Global Exteriors Transaction, Magna held an approximate
91% equity interest in Decoma. Accordingly, the Global Exteriors
Transaction has been accounted for by Decoma using continuity of interest
accounting, which is similar to pooling of interests accounting. Under
this basis of accounting, the historical consolidated financial
statements of Decoma prior to the completion of the Global Exteriors
Transaction ("Old Decoma"), MES and DET are combined at book value on a
retroactive basis. The unaudited interim consolidated financial
statements for the three month periods ended March 31, 2001 and 2000 (the
"Interim Consolidated Financial Statements") give retroactive effect to
the Global Exteriors Transaction and combine the financial position,
results of operations and cash flows of Old Decoma, MES and DET (the
"Company").
On October 16, 2000, the Company acquired Visteon Corporation's 49%
minority interest in Conix Canada Inc., Conix Corporation, Conix U.K.
Limited ("Conix UK") and Conix Belgium N.V. ("Conix Belgium")
(collectively, the "Conix Group"), thereby increasing the Company's
ownership level of the Conix Group to 100% (the "Conix Transaction").
Prior to October 16, 2000, the Interim Consolidated Financial Statements
reflect the Company's 51% interest in the Conix Group using the
proportionate consolidation method. From October 16, 2000 forward, the
Interim Consolidated Financial Statements reflect the Company's 100%
interest in the Conix Group on a fully consolidated basis.
The Company changed its fiscal year end from July 31 to December 31
effective December 31, 2000. As a result, interim results are now
presented on a calendar quarter basis. The Company has also changed its
reporting currency to U.S. dollars effective January 1, 2001. These
changes recognize the increased global nature of the Company's business
and will enable the Company's financial performance to be compared more
readily to that of its peer group within the automotive parts supply
industry. The change in reporting currency has been made in accordance
with Canadian generally accepted accounting principles. See note 2 to the
Interim Consolidated Financial Statements. All amounts in this
Management's Discussion and Analysis of Results of Operations and
Financial Position ("MD&A") are in U.S. dollars unless otherwise noted.
This MD&A should be read in conjunction with the Company's supplemental
consolidated financial statements and MD&A for the five month period
ended December 31, 2000, each included in the Company's Report to
Shareholders for the period then ended, and the Interim Consolidated
Financial Statements included elsewhere herein.
RESULTS OF OPERATIONS
Sales
The Company's sales for the three month period ended March 31, 2001 grew
15% to $444.1 million compared to $387.5 million for the three month
period ended March 31, 2000. North American production sales grew by 14%
to $284.2 million in the three month period ended March 31, 2001 compared
to $248.3 million in the three month period ended March 31, 2000. This
increase was driven by growth in average North American (including
Mexico) content per vehicle. North American (including Mexico) content
per vehicle grew to approximately $71 compared to $52 for the three month
period ended March 31, 2000. The increase in content relates primarily to
the additional sales recorded due to the full consolidation of the Conix
Group in the three month period ended March 31, 2001 as a result of the
Conix Transaction. Strong volumes for the DaimlerChrysler PT Cruiser
(PT44) produced in Mexico and the launch of other new programs also
contributed to the increases in content. Content growth was negatively
impacted by customer delays in the launch of new vehicle programs
including the Ford Explorer (U152) program.
Increases in North American production sales driven by content growth
were partially offset by vehicle production volume declines. Production
volumes declined as our customers rapidly adjusted their inventory levels
in light of the slowing economy. The total North American (including
Mexico) production of passenger cars and light trucks for the three month
period ended March 31, 2001 was 4.0 million vehicles representing a
decrease of 17% from the 4.8 million vehicles produced in the three month
period ended March 31, 2000.
European production sales increased by 10% to $119.6 million in the three
month period ended March 31, 2001 compared to $108.5 million in the three
month period ended March 31, 2000. Western European content per vehicle
was approximately $27 compared to $25 for the three month period ended
March 31, 2000. The increase in content reflects the acquisition of the
remaining 49% interest in the Conix Group and additional sales generated
from new programs added at Conix Belgium. The weakening of the Euro and
British pound against the Canadian and U.S. dollars negatively impacted
European sales and partially offset these increases in content per
vehicle. The average exchange rate for the Euro and British pound used
for U.S. dollar reporting (under Canadian generally accepted accounting
principles) declined 3% and 6%, respectively, for the three month period
ended March 31, 2001 compared to the three month period ended March 31,
2000. Before the effects of translation, average Western European content
per vehicle grew by 13%. Strong Western European vehicle production
volumes and a favourable mix in the Company's products, including strong
DaimlerChrysler C Class production volumes, also contributed to the
increases in production sales. Western European vehicle production
volumes were 4.5 million units for the three month period ended March 31,
2001 compared to 4.4 million units for the three month period ended March
31, 2000.
Tooling sales on a global basis increased 31% for the three month period
ended March 31, 2001 to $40.3 million compared to $30.7 million for the
three month period ended March 31, 2000. The growth in tooling sales is a
result of the Company's increased share of the global market resulting
from the ongoing awards of a number of new and replacement customer
programs.
Gross Margin
Gross margin as a percentage of total sales for the three month period
ended March 31, 2001 was 19.7% compared to 20.9% for the three month
period ended March 31, 2000.
North American gross margins were negatively impacted by DaimlerChrysler
and other OEM price reductions effective January 1, 2001, lower vehicle
production volumes on the DaimlerChrysler LH platform, short notice of
previously unscheduled customer production shutdowns, the general slowing
of vehicle production volumes including light truck (particularly SUV and
mini-van) volumes, lower gross margins associated with a new exterior
trim facility, launch costs that are now being incurred in connection
with a significant new program that had previously been delayed by the
customer, increases in utility (including natural gas) and other costs
and increased tooling sales which generate little or no margin. These
declines were partially offset by significant improvements at the
Company's facility in Mexico and cost savings from continuous improvement
efforts aimed at offsetting the impact of continued customer pricing
pressures.
European gross margins were negatively impacted by start up losses at the
Conix UK facility that supplies the new Jaguar X400 program, launch costs
for the BMW Mini program and certain short term operating inefficiencies
at two other facilities in Europe acquired through the Global Exteriors
Transaction. These declines were partially offset by increased
contributions from new programs at Conix Belgium and other improvements
at certain facilities in continental Europe.
The Conix UK facility has experienced certain launch challenges. Yields
and operating efficiencies will be below expectation early in 2001.
However, improvement plans are currently being implemented to address
these operating issues.
Depreciation and Amortization
Depreciation and amortization costs increased from $15.2 million in the
three month period ended March 31, 2000 to $19.5 million in the three
month period ended March 31, 2001. This increase in depreciation and
amortization expense reflects the amortization of goodwill of $1.0
million recorded in respect of the Conix Transaction, the addition of the
49% portion of the Conix Group's depreciation expense and the Company's
continuing investment in capital equipment to support new production
programs and facilities. As a percentage of sales, depreciation and
amortization costs increased to 4.4% in the three month period ended
March 31, 2001 from 3.9% in the three month period ended March 31, 2000.
Selling, General and Administrative ("S,G&A")
S,G&A costs increased from $21.3 million in the three month period ended
March 31, 2000 to $25.8 million in the three month period ended March 31,
2001. As a percentage of sales, S,G&A increased from 5.5% in the three
month period ended March 31, 2000 to 5.8% in the three month period ended
March 31, 2001. The increase in S,G&A expense reflects the addition of
the 49% portion of the Conix Group's S,G&A expense, increases in sales
and marketing expenses directed at securing new North American and
European module contracts, increases in bad debt expense, costs
associated with the Company's change in year end and other increases in
S,G&A to support the higher sales levels.
Affiliation Fees and Other Charges
The Company pays fees to Magna for certain rights and services provided
under the terms of affiliation agreements and other arrangements with
Magna. These fees are based on the Company's sales and pre-tax profits
and also include charges for specific services rendered. The fees and
charges paid to Magna in the three month period ended March 31, 2001
increased to $7.4 million from $5.6 million in the three month period
ended March 31, 2000. The increase in affiliation fees reflects the
addition of both of the 49% interest in the Conix Group acquired through
the Conix Transaction and the European operations acquired through the
Global Exteriors Transaction to the Company's sales and pre-tax profit
bases on which affiliation fees are paid, less the fees previously paid
by the European operations.
Operating Income
Operating income declined from $38.8 million in the three month period
ended March 31, 2000 to $34.7 million in the three month period ended
March 31, 2001.
North American operating income declined from $31.8 million in the three
month period ended March 31, 2000 to $28.5 million in the three month
period ended March 31, 2001 due to DaimlerChrysler and other OEM price
reductions effective January 1, 2001, lower vehicle production volumes on
the DaimlerChrysler LH platform, short notice of previously unscheduled
customer production shutdowns, the general slowing of vehicle production
volumes including light volumes, lower operating income associated with a
new exterior trim facility, launch costs that are now being incurred in
connection with a significant new program that had previously been
delayed by the customer and increases in utility, including natural gas,
and other costs. These declines were partially offset by significant
improvements at the Company's facility in Mexico and cost savings from
continuous improvement efforts aimed at offsetting the impact of
continued customer pricing pressures.
European operating income declined from $6.7 million in the three month
period ended March 31, 2000 to $5.6 million in the three month period
ended March 31, 2001 due to start up losses at the Conix UK facility,
launch costs for the new BMW Mini program and certain short term
operating inefficiencies at two other facilities in Europe acquired
through the Global Exteriors Transaction. These declines were partially
offset by increased contributions from new programs at Conix Belgium and
other improvements at certain facilities in continental Europe.
Equity Income
Income from equity accounted investments, which includes the Company's
40% share of income earned by each of Bestop, Inc. ("Bestop") and Modular
Automotive Systems, LLC, was a loss of $0.1 million in the three month
period ended March 31, 2001 compared to income of $0.2 million in the
three month period ended March 31, 2000. Bestop's results were negatively
impacted by lower North American vehicle production volumes in the three
month period ended March 31, 2001.
EBITDA
EBITDA, including equity income, was unchanged at $54.2 million for the
three month periods ended March 31, 2001 and 2000. EBITDA as a percentage
of sales declined from 14% for the three month period ended March 31,
2000 to 12% for the three month period ended March 31, 2001 as a result
of lower operating income.
Interest Expense
Interest expense for the three month period ended March 31, 2001 was $6.0
million compared to $4.7 million in the three month period ended
March 31, 2000. This increase is due to financing costs associated with
the Conix Transaction and interest costs associated with the debt
acquired on completion of the Global Exteriors Transaction.
Amortization of Discount on Convertible Series Preferred Shares
The Company's amortization of the discount on the portion of the
Convertible Series Preferred Shares classified as debt increased to $2.4
million in the three month period ended March 31, 2001 from $1.0 million
in the three month period ended March 31, 2000. The increase reflects the
amortization of the discount on the Series 4 and 5 Convertible Series
Preferred Shares issued on completion of the Global Exteriors Transaction
partially offset by lower amortization as a result of the Series 1
Convertible Series Preferred Shares being fully amortized as of July 31,
2000.
Income Taxes
The Company's effective income tax rate for the three month period ended
March 31, 2001 decreased to 39.5% from 40.1% in the three month period
ended March 31, 2000. The lower tax rate for the three month period ended
March 31, 2001 is attributable to favourable foreign rate differentials
and a reduction in losses not tax benefited primarily as a result of
comparative period losses at the Company's Mexican facility partially
offset by start up losses in the current period at the Company's Conix
England facility.
Net Income
Net income for the three month period ended March 31, 2001 was $15.6
million compared to $20.5 million for the three month period ended
March 31, 2000. This decrease is attributable to lower operating income,
an increase in interest expense and in the amortization of the discount
on the Convertible Series Preferred Shares and higher minority interest
expense, partially offset by a decrease in the Company's effective tax
rate.
Financing Charges
The deduction from net income of dividends declared and paid on the
Convertible Series Preferred Shares (net of return of capital) was
substantially unchanged at $0.5 million in the three month period ended
March 31, 2001 compared to $0.4 million in the three month period ended
March 31, 2000.
In the three month period ended March 31, 2001, the Company had an
additional financing charge of $0.9 million related to the issuance of
$90 million 9.5% Subordinated Debentures as partial consideration in the
Conix Transaction. The charge to retained earnings, net of tax, reflects
the accretion to face value of the present value of the principal portion
of the Subordinated Debentures over their term to maturity.
Earnings Per Share
Diluted earnings per share for the three month period ended March 31,
2001 were $0.21.
Earnings per share has not been presented for the three month period
ended March 31, 2000. The Global Exteriors Transaction resulted in
significant changes to the Company's capital structure. As a result,
historical earnings per share measures are not meaningful. Pro forma
earnings per share measures, which give effect to the changes in the
Company's capital structure and other items, are provided in note 9 to
the unaudited interim consolidated financial statements.
Pro forma diluted earnings per share, before pro forma adjustments for
the Conix Transaction, were $0.25 for the three months ended March 31,
2000. The decline in diluted earnings per share is a result of lower net
income and higher financing charges in the three month period ended
March 31, 2001 as compared to the three month period ended March 31,
2000.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow From Operations
Cash flows provided from operating activities before changes in non-cash
working capital were substantially unchanged at $36.3 million for the
three month period ended March 31, 2001 compared to $37.0 million for
the three month period ended March 31, 2000. Lower net income in the
three month period ended March 31, 2001 compared to the three month
period ended March 31, 2000 was offset by increases in non-cash expenses,
primarily depreciation and amortization.
Cash invested in non-cash working capital was $4.9 million in the three
month period ended March 31, 2001 compared to cash provided from non-cash
working capital of $7.2 million in the three month period ended March 31,
2000. Current period cash invested in non-cash working capital was
primarily related to an increase in accounts receivable to support the
higher sales level.
Investment Activities
Cash used in investing activities was $16.6 million for the three month
period ended March 31, 2001 compared to $27.9 million for the three month
period ended March 31, 2000. The primary use of cash for investing
activities was for capital expenditures. Cash used for capital
expenditures was $15.2 million and $26.2 million for the three month
periods ended March 31, 2001 and 2000, respectively. Capital expenditures
for the three month period ended March 31, 2001 were lower than
expenditures in the three month period ended March 31, 2000 as the
comparative period included higher costs related to the build of a new
exterior trim facility and the Conix UK facility and the expansion of the
Conix Belgium facility.
Capital spending for calendar 2001 is expected to be approximately $117.0
million primarily to support newly awarded production contracts, required
improvements, a new moulding facility in Germany and other process
related expenditures. Management believes that cash balances on hand,
existing unutilized credit facilities, additional credit facilities that
are currently under negotiation, possible future financings and
internally generated cash from operations will be sufficient to meet all
planned capital expenditure requirements.
Financing Activities
Cash used in financing activities was $19.9 million and $22.2 million in
the three month periods ended March 31, 2001 and 2000, respectively. Cash
used in financing activities included net repayments of debt (including
bank indebtedness, long-term debt, debt due to Magna and debenture
interest obligation) of $16.9 million and $5.4 million in the three month
periods ended March 31, 2001 and 2000, respectively. Cash used in
financing activities in the three month period ended March 31, 2000 also
included net distributions to Magna by MES and DET of $14.1 million.
Dividends
In addition to dividends on the Convertible Series Preferred Shares,
the Company has declared dividends on its Class A Subordinate Voting
and Class B Shares of U.S. $0.05 per share in respect of the three
month period ended March 31, 2001.
Consolidated Capitalization
The Company's net debt (including bank indebtedness, long-term debt
including current portion, debt due to Magna, debenture interest
obligation and the liability portion of the Convertible Series Preferred
Shares, less cash and cash equivalents) to total capitalization
(including net debt, minority interest and shareholders' equity), all
as determined in accordance with Canadian generally accepted accounting
principles, was 69% at March 31, 2001 compared to 72% at December 31,
2000. The reduction in the net debt to total capitalization was due
to debt repayments during the period and the impact of exchange rate
changes.
Management expects that the debt reflected in the unaudited interim
consolidated balance sheet will be repaid through cash flow from
operations, existing unutilized credit facilities, additional credit
facilities that are currently under negotiation, possible conversions of
preferred share liabilities and possible future financings including the
equity offering described in note 12 to the Interim Consolidated
Financial Statements.
FORWARD LOOKING STATEMENTS
The contents of this MD&A contain statements which, to the extent that
they are not recitations of historical fact, constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange
Act of 1934. The words "estimate", "anticipate", "believe", "expect", and
similar expressions are intended to identify forward-looking statements.
Such forward-looking information involves important risks and
uncertainties that could materially alter results in the future from
those expressed in any forward-looking statements made by, or on behalf
of, the Company. These risks and uncertainties include, but are not
limited to, risks relating to the automotive industry, pricing
concessions and cost absorptions, reliance on major OEM customers,
production volumes and product mix, currency exposure, environmental
matters, new facilities, trade and labour relations, technological
developments by the Company's competitors, government and regulatory
policies, changes in the competitive environment in which the Company
operates and the Company's ability to raise necessary financing. Persons
reading this MD&A are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating
such forward-looking statements readers should specifically consider the
various factors which could cause actual events or results to differ
materially from those indicated by such forward-looking statements. The
Company expressly disclaims any intention and undertakes no obligation to
update or revise any forward-looking statements contained in this MD&A to
reflect subsequent information, events or circumstances or otherwise.
