Decoma announces financial results for third quarter 2003 (Part 1)
CONCORD, Ontario, November 5 -- - Strong Content Per Vehicle Growth from Recent Acquisitions and New Facility Start-ups
Decoma International Inc. (TSX: DEC.A; NASDAQ: DECA) today announced financial results for the third quarter ended September 30, 2003.
Financial Highlights
--------------------
(US$, in millions except Three Months Nine Months
per share figures) Ended September 30, Ended September 30,
2003 2002 2003 2002
Sales US$ 556.4 US$ 465.5 US$1,709.7 US$1,528.5
Operating income US$ 28.9 US$ 36.1 US$ 132.8 US$ 131.0
Net income US$ 14.8 US$ 18.6 US$ 75.9 US$ 69.9
Diluted earnings per share US$ 0.16 US$ 0.21 US$ 0.80 US$ 0.78
Weighted average diluted
shares outstanding 106.4 98.4 103.5 98.3
Commenting on the above results, Al Power, Decoma's President and Chief Executive Officer, said: "These results are in line with management expectations and our previous guidance for the full 2003 year. Despite lower overall production volumes during the third quarter, we continued to increase sales and content per vehicle as the result of recent acquisitions, new facility start-ups, new programs and takeover contracts. Lower income for the quarter reflects the substantial investments we are making in new facilities to support future sales and earnings growth, the impact of program changeovers, continuing OEM pricing pressures and the impact of performance issues at certain European facilities which we are proactively addressing."
Results of Operations
---------------------
Total sales increased 20% to US$556.4 million in the third quarter and by 12% to US$1,709.7 million for the nine month period ended September 30, 2003. Third quarter 2003 sales included a positive impact of approximately US$41.8 million as a result of currency translation. Excluding the impact of currency translation, sales grew US$49.1 million or 10%.
During the third quarter of 2003, vehicle production volumes declined 3% in North America and remained level in Europe. Despite lower volumes, Decoma's production sales increased 10% in North America and 23% in Europe, while average content per vehicle increased 16% to US$94 in North America and 24% to US$42 in Europe.
Decoma's sales and content growth in North America was driven by the translation of Canadian dollar sales into the Company's U.S. dollar reporting currency, which added approximately US$25.2 million to production sales and US$7 to content, as well as the recent acquisition of Federal Mogul's original equipment automotive lighting operations, which added US$16.5 million to production sales and US$5 to North American content per vehicle. Sales and content growth also benefited from new takeover business, sales on programs launched during or subsequent to the third quarter of 2002 and strong volumes on certain high content production programs.
In Europe, sales and content growth were driven by recent new facilities added in the latter part of 2002 and early 2003. New facility start-ups in Germany, Poland and Austria, along with the takeover of an existing facility in Belgium, added approximately US$26.8 million to production sales and US$7 to European content per vehicle during the third quarter. European sales and content growth also benefited from the translation of Euro and British Pound sales into the Company's U.S. dollar reporting currency, which added approximately US$14.3 million to production sales and US$4 to content during the period.
Operating income in the third quarter of 2003 declined to US$28.9 million, compared with US$36.1 million for the same period last year. These results primarily reflect losses incurred during the quarter at certain European operations. To address these efficiency and performance issues, Robert Brownlee, Decoma's President of North American Fascia Operations, has assumed management responsibility for Decoma's European operations. In respect of the Company's UK operations, operating losses at the Company's Merplas facility in the United Kingdom continued to improve during the third quarter.
The decline in operating income for the third quarter also reflects the impact of costs incurred to support future sales growth and investments in new facilities in the southern U.S., Belgium and Poland. Finally, the impact on operating income of program changeovers, lower production volumes on certain high-content programs, continued OEM customer pricing pressures and foreign exchange losses negatively impacted results.
Operating income for the nine month period ended September 30, 2003 increased to US$132.8 million, compared to US$131.0 million for the same period last year.
Net income for the third quarter of 2003 was US$14.8 million (US$0.16 per diluted share), compared to US$18.6 million (US$0.21 per diluted share) for the third quarter of 2002.
Net income for the nine month period September 30, 2003 increased to US$75.9 million (US$0.80 per diluted share), compared with US$69.9 million (US$0.78 per diluted share) for the comparable period in 2002.
Capital spending increased in the third quarter of 2003 reflecting substantial investments in new facilities to support the Company's future growth. Capital spending, excluding acquisition spending, totaled US$49.1 million in the third quarter of 2003 and US$120.3 million for the nine month period ended September 30, 2003.
Quarterly Dividend
------------------
At its meeting today, Decoma's Board of Directors declared a third quarter 2003 dividend of US$0.07 per share on Class A Subordinate Voting and Class B Shares payable on December 15, 2003 to shareholders of record on November 28, 2003.
Outlook
-------
Commenting on the Company's outlook, Randy Smallbone, Decoma's Executive Vice President and Chief Financial Officer, said: "While significant investments in new facilities and program changeovers will continue to impact our results, these investments are positioning Decoma for future growth. Although we continue to face challenges in Europe, we believe that the corrective actions we have taken will have a significant impact on our ability to address these issues moving forward".
Full Year 2003
--------------
Decoma's outlook for full year vehicle production remains unchanged from prior guidance. The Company estimates that North American light vehicle production volumes will be approximately 15.9 million units in 2003, or approximately 2% lower than 2002. Decoma estimates that European production volumes will be approximately 16.0 million units, also approximately 2% lower than 2002 volumes.
Decoma's content per vehicle for 2003 is expected to be in the range of US$90 to US$92 in North America and between US$39 and US$41 in Europe.
Based on these assumptions and the factors discussed in the "Outlook" section of the Management's Discussion and Analysis of Results of Operations and Financial Position ("MD&A") attached to this press release, the Company expects its full year 2003 sales to range between US$2,275 million to US$2,360 million, which is unchanged from prior guidance. Approved capital spending for the year remains at US$195 million. Diluted earnings per share for 2003, before possible charges, if any, related to the Company's United Kingdom review and its continental Europe review (more fully discussed in the attached MD&A), is also expected to be within our previous guidance of US$0.92 to US$1.04.
Forward Looking Information
---------------------------
This press release contains "forward looking statements" within the meaning of applicable securities legislation. Readers are cautioned that such statements are only predictions and involve important risks and uncertainties that may cause actual results or anticipated events to be materially different from those expressed or implied herein. In this regard, readers are referred to the Company's Annual Information Form for the year ended December 31, 2002, filed with the Canadian securities commissions and as an annual report on Form 40-F with the United States Securities and Exchange Commission, and subsequent public filings, and the discussion of risks and uncertainties set out in the "Forward Looking Statements" section of the MD&A for the three and nine month periods ended September 30, 2003, which is attached to this press release. The Company disclaims any intention and undertakes no obligation to update or revise any forward looking statements to reflect subsequent information, events or circumstances or otherwise.
About the Company
-----------------
Decoma designs, engineers and manufactures automotive exterior components and systems which include fascias (bumpers), front and rear end modules, plastic body panels, roof modules, exterior trim components, sealing and greenhouse systems and lighting components for cars and light trucks (including sport utility vehicles and mini-vans). Decoma has approximately 15,000 employees in 49 manufacturing, engineering and product development facilities in Canada, the United States, Mexico, Germany, Belgium, England, France, Austria, Poland, the Czech Republic and Japan.
Conference Call
---------------
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Decoma management will hold a conference call to discuss third quarter
2003 results on Wednesday, November 5, 2003 at 9:30 a.m. EST. The dial-in
numbers for the conference call are +1 (416) 640-4127 (local) or
1 (800) 814-4853 for out of town callers, with call-in required 10
minutes prior to the start of the conference call. The conference call
will be recorded and copies of the recording will be made available by
request. The conference call will also be available by live webcast at
http://www.newswire.ca/webcast and will be available for a period of 90 days.
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Contact Information
--------------------
For further information about Decoma, please visit the Company's website at http://www.decoma.com/.
Readers are asked to refer to the MD&A attached to this release for a more detailed discussion of the third quarter 2003 results.
DECOMA INTERNATIONAL INC.
Consolidated Balance Sheets
(Unaudited)
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As at As at
September 30, December 31,
(U.S. dollars in thousands) 2003 2002
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ASSETS
-------------------------------------------------------------------------
Current assets:
Cash and cash equivalents US$ 61,663 US$ 82,059
Accounts receivable 441,359 306,870
Inventories 195,115 160,091
Income taxes receivable 7,073 -
Prepaid expenses and other 18,851 15,902
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724,061 564,922
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Investments 19,974 17,382
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Fixed assets, net 626,987 525,463
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Goodwill, net (note 7) 68,056 62,008
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Future tax assets 11,117 6,015
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Other assets 16,505 16,745
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US$1,466,700 US$1,192,535
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LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Current liabilities:
Bank indebtedness (note 8(b)) US$ 80,242 US$ 55,021
Accounts payable 220,669 187,656
Accrued salaries and wages 67,551 59,715
Other accrued liabilities 81,911 54,104
Income taxes payable - 13,336
Long-term debt due within one year 4,477 6,918
Debt due to Magna and related parties
within one year (note 8(c)) 115,944 103,536
Convertible Series Preferred Shares,
held by Magna (note 8(a)) 73,027 95,639
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643,821 575,925
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Long-term debt 6,474 9,677
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Long-term debt due to Magna
and related parties (note 8(c)) 82,628 75,094
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Convertible Series Preferred Shares,
held by Magna (note 8(a)) 68,407 116,140
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Other long-term liabilities 6,831 4,837
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Future tax liabilities 50,989 48,114
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Shareholders' equity:
Debentures (note 9) 67,845 -
Convertible Series Preferred Shares
(note 10) 10,776 18,765
Class A Subordinate Voting Shares
(note 10) 287,137 172,488
Class B Shares (note 10) 30,594 30,594
Retained earnings 167,949 111,450
Currency translation adjustment 43,249 29,451
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607,550 362,748
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US$1,466,700 US$1,192,535
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See accompanying notes
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DECOMA INTERNATIONAL INC.
Consolidated Statements of Income and Retained Earnings
(Unaudited)
-------------------------------------------------------------------------
------------------------------------------------
Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
-------------------------------------------------------------------------
(U.S. dollars,
in thousands
except share and
per share figures) 2003 2002 2003 2002
-------------------------------------------------------------------------
Sales US$556,444 US$465,518US$1,709,671US$1,528,485
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Cost of goods sold 457,402 371,693 1,370,209 1,213,115
Depreciation and
amortisation 22,258 19,806 64,321 58,438
Selling, general and
administrative (note 5) 42,215 32,541 124,046 98,066
Affiliation and social fees 5,663 5,366 18,337 19,573
Other charge (note 7) - - - 8,301
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Operating income 28,906 36,112 132,758 130,992
Equity (income) loss (406) 305 (1,428) (474)
Interest expense, net 2,551 3,065 7,828 9,474
Amortisation of discount
on Convertible Series
Preferred Shares 2,316 2,028 6,617 6,413
Other income (note 6) - - (1,387) (3,874)
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Income before income taxes 24,445 30,714 121,128 119,453
Income taxes 9,686 12,092 45,249 49,523
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Net income US$ 14,759 US$ 18,622 US$ 75,879 US$ 69,930
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Financing charges on
Convertible Series
Preferred Shares and
Debentures,
net of taxes (note 9) US$ (2,459) US$ (1,137) US$ (6,410) US$ (3,495)
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Net income attributable
to Class A Subordinate
Voting and
Class B Shares 12,300 17,485 69,469 66,435
Retained earnings,
beginning of period 160,451 79,654 111,450 49,768
Dividends on Class A
Subordinate Voting
and Class B Shares (4,802) (3,403) (12,970) (10,163)
Adjustment for change
in accounting policy for
goodwill (note 7) - - - (12,304)
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Retained earnings,
end of period US$ 167,949 US$ 93,736 US$167,949 US$ 93,736
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Earnings per Class A
Subordinate Voting
or Class B Share
Basic US$ 0.17 US$ 0.26 US$ 1.00 US$ 0.98
Diluted US$ 0.16 US$ 0.21 US$ 0.80 US$ 0.78
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Average number of
Class A Subordinate
Voting and Class B
Shares outstanding
(in millions)
Basic 73.2 67.9 69.8 67.7
Diluted 106.4 98.4 103.5 98.3
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See accompanying notes
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DECOMA INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(unaudited)
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Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
-------------------------------------------------------------------------
(U.S. dollars,
in thousands 2003 2002 2003 2002
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Cash provided from
(used for):
OPERATING ACTIVITIES
Net income US$ 14,759 US$ 18,622 US$ 75,879 US$ 69,930
Items not involving
current cash flows 22,704 22,862 63,918 73,981
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37,463 41,484 139,797 143,911
Changes in non-cash
working capital (33,106) (7,186) (95,212) 3,541
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4,357 34,298 44,585 147,452
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INVESTING ACTIVITIES
Fixed asset additions (48,435) (18,762) (118,678) (50,376)
Increase in investments
and other assets (757) (1,770) (2,082) (4,196)
Business acquisitions
(note 13) (4,984) - (13,260) (2,584)
Proceeds from disposition
of fixed and other assets 123 173 457 225
Proceeds from disposition
of operating division,
net (note 6(b)) - 340 - 5,736
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(54,053) (20,019) (133,563) (51,195)
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FINANCING ACTIVITIES
Increase (decrease)
in bank indebtedness 67,313 15,251 19,323 (75,372)
Repayments of long
term debt (3,327) (361) (4,159) (10,483)
Repayments of debt due to
Magna and related parties (26) - (77) (7,836)
Issuance of Debentures
(note 9) - - 66,128 -
Debentures interest payments - - (1,252) -
Issuances of Class A
Subordinate Voting Shares
(note 10) - 4,554 4,715 4,663
Dividends on Convertible
Series Preferred Shares (3,403) (3,031) (9,986) (9,076)
Dividends on Class A
Subordinate Voting and
Class B Shares (4,802) (3,403) (12,970) (10,163)
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55,755 13,010 61,722 (108,267)
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Effect of exchange rate
changes on cash and
cash equivalents 430 (832) 6,860 1,736
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Net increase (decrease)
in cash and cash
equivalents during
the period 6,489 26,457 (20,396) (10,274)
Cash and cash equivalents,
beginning of period 55,174 57,540 82,059 94,271
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Cash and cash equivalents,
end of period US$ 61,663 US$ 83,997 US$ 61,663 US$ 83,997
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See accompanying notes
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DECOMA INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Unaudited)
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1. The Company
Decoma International Inc. ("Decoma" or the "Company") is a full
service supplier of exterior vehicle appearance systems for the
world's automotive industry. Decoma designs, engineers and
manufactures automotive exterior components and systems which include
fascias (bumpers), front and rear end modules, plastic body panels,
roof modules, exterior trim components, sealing and greenhouse
systems and lighting components for cars and light trucks (including
sport utility vehicles and mini vans).
2. Basis of Presentation
The unaudited interim consolidated financial statements of Decoma
have been prepared in U.S. dollars in accordance with Canadian
generally accepted accounting principles ("GAAP"), except that
certain disclosures required for annual financial statements have not
been included. Accordingly, the unaudited interim consolidated
financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended
December 31, 2002 (the Company's "annual financial statements") which
were included in the Company's annual report to shareholders for the
year then ended.
The unaudited interim consolidated financial statements have been
prepared on a basis that is consistent with the accounting policies
set out in the Company's annual financial statements.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments, which consist only of
normal and recurring items, necessary to present fairly the financial
position of the Company as at September 30, 2003 and the results of
its operations and cash flows for the three and nine month periods
ended September 30, 2003 and 2002.
3. Cyclicality of Operations
Substantially all revenue is derived from sales to the North American
and European facilities of the major automobile manufacturers. The
Company's operations are exposed to the cyclicality inherent in the
automotive industry and to changes in the economic and competitive
environments in which the Company operates. The Company is dependent
on continued relationships with the major automobile manufacturers.
4. Use of Estimates
The preparation of the unaudited interim consolidated financial
statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the
unaudited interim consolidated financial statements and accompanying
notes. Management believes that the estimates utilised in preparing
its unaudited interim consolidated financial statements are
reasonable and prudent; however, actual results could differ from
these estimates.
5. Foreign Exchange
Selling, general and administrative expenses ("SG&A") are net of
earnings (losses) resulting from foreign exchange of:
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Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
---------------------------------------------------------------------
(U.S. dollars,
in thousands 2003 2002 2003 2002
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Foreign exchange
(loss) income US$ (1,351) US$ (106) US$ (6,251) US$ 19
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6. Other Income
(a) During the first quarter of 2003, the Company permanently
repatriated US$75 million from its United States operations.
This repatriation gave rise to the recognition of a pro rata
amount of the Company's cumulative translation adjustment
account. This amount, totalling US$1.4 million, has been included
in other income and is not subject to tax.
(b) During the first quarter of 2002, the Company completed the
divestiture of one of its non-core North American divisions.
The division was engaged in the coating of automotive parts.
The Company recorded other income of US$3.9 million related to
this transaction, representing the excess of sale proceeds over
the carrying value of the fixed and working capital assets of
this division and direct costs related to the transaction.
Income taxes includes an expense of US$1.0 million related to
this transaction.
7. Goodwill and Deferred Preproduction Expenditures
In 2002, the Company adopted the new accounting recommendations of
The Canadian Institute of Chartered Accountants for goodwill and
other intangible assets. Upon initial adoption of these
recommendations, the Company recorded a goodwill write-down of
US$12.3 million related to its United Kingdom reporting unit. This
write-down was charged against January 1, 2002 opening retained
earnings. As part of its assessment of goodwill impairment, the
Company also reviewed the recoverability of deferred preproduction
expenditures at its Merplas United Kingdom facility. As a result of
this review, US$8.3 million of deferred preproduction expenditures were
written off as a charge against income in the second quarter of 2002.
Refer to note 2 to the Company's annual financial statements for
further information.
8. Debt
(a) Convertible Series Preferred Shares
During the third quarter of 2003, the Series 1, 2 and 3
Convertible Series Preferred Shares held by Magna International
Inc. ("Magna") were converted into Class A Subordinate Voting
Shares at a fixed conversion price of Cdn$10.07 per Class A
Subordinate Voting Share. Decoma issued 14,895,729 Class A
Subordinate Voting Shares on conversion.
The liability amounts for the Series 4 Convertible Series
Preferred Shares are presented as current liabilities. The
Series 4 Convertible Series Preferred Shares are retractable by
Magna at their aggregate face value of Cdn$100 million after
December 31, 2003. These shares are also convertible by Magna
into the Company's Class A Subordinate Voting Shares at a fixed
conversion price of Cdn$13.20 per share.
The liability amounts for the Series 5 Convertible Series
Preferred Shares are presented as long-term liabilities as
these are not retractable by Magna until December 31, 2004.
These shares are also convertible by Magna into the Company's
Class A Subordinate Voting Shares at a fixed conversion price
of Cdn$13.20 per share.
The Series 4 and 5 Convertible Series Preferred Shares are
redeemable by the Company commencing December 31, 2005.
(b) Credit Facility
At September 30, 2003 the Company had lines of credit totaling
US$325.7 million. Of this amount, US$300 million is represented
by an extendible, revolving credit facility that expires on
May 27, 2004, at which time the Company may request, subject to
lender approval, further revolving 364-day extensions. The
unused and available lines of credit at September 30, 2003 were
approximately US$234.8 million.
(c) Debt Due to Magna and Related Parties
The Company's debt due to Magna and related parties consists of
the following:
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September 30, December 31,
(U.S. dollars in thousands) 2003 2002
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Debt denominated in Canadian dollars(i) US$ 44,293 US$ 38,256
Debt denominated in Euros(ii) 153,199 139,324
Lease obligation denominated in Euros 1,080 1,050
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198,572 178,630
Less due within one year 115,944 103,536
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US$ 82,628 US$ 75,094
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Notes:
(i) The debt denominated in Canadian dollars arose on closing of
the Global Exteriors Transaction. This debt initially bore
interest at 7.5% and was repayable in 2001. In addition to the
maturity date, the interest rate on this debt was subsequently
renegotiated to 4.85% effective September 4, 2001, 3.10%
effective January 1, 2002, 3.60% effective April 1, 2002, 3.83%
effective July 1, 2002, 3.90% effective October 1, 2002, 3.85%
effective January 1, 2003, 4.25% effective April 1, 2003, 4.19%
effective July 1, 2003 and 3.86% effective October 1, 2003. The
maturity date of this Cdn$60 million debt has been extended to
December 31, 2003.
(ii) The debt denominated in Euros arose on closing of the Global
Exteriors Transaction. The debt initially bore interest at 7.0%
to 7.5% and was repayable over the period to December 31, 2004
with the first tranche of the principal due October 1, 2002. In
addition to the maturity date, the interest rate on the first
tranche of the principal was renegotiated to 4.29% effective
October 2, 2002, 3.86% effective January 2, 2003, 3.51%
effective April 2, 2003, 3.14% effective July 2, 2003 and 3.32%
effective October 2, 2003. Of the debt outstanding at September
30, 2003, US$70.6 million is due January 1, 2004 and
US$82.6 million is due December 31, 2004.
9. Debentures
On March 27, 2003, the Company issued Cdn$100 million of 6.5%
convertible unsecured subordinated debentures (the "Debentures")
maturing March 31, 2010. The Debentures are convertible at the option
of the holder at any time into the Company's Class A Subordinate
Voting Shares at a fixed conversion price of Cdn$13.25 per share. All
or part of the Debentures are redeemable at the Company's option
between March 31, 2007 and March 31, 2008 if the weighted average
trading price of the Company's Class A Subordinate Voting Shares is
not less than Cdn$16.5625 for the 20 consecutive trading days ending
five trading days preceding the date on which notice of redemption is
given. Subsequent to March 31, 2008, all or part of the Debentures
are redeemable at the Company's option at any time. On redemption or
maturity, the Company will have the option of retiring the Debentures
with Class A Subordinate Voting Shares in which case the number of
Class A Subordinate Voting Shares issuable is based on 95% of the
trading price of the Company's Class A Subordinate Voting Shares for
the 20 consecutive trading days ending five trading days prior to the
date fixed for redemption or maturity. In addition, the Company may
elect from time to time to issue and deliver freely tradeable Class A
Subordinate Voting Shares to a trustee in order to raise funds to
satisfy the obligation to pay interest on the Debentures.
Under Canadian GAAP, the key attributes of the Debentures are
separately valued and accounted for as follows:
- the present value of principal and interest (each of which can, at
the option of the Company, be settled with the issuance of Class A
Subordinate Voting Shares) has been presented as equity. The
present value was determined using a discount rate of 7.75%
reflecting an estimate of the coupon rate that the Debentures
would have borne absent the holders' conversion feature. The
resulting discount is accreted to the Debentures' face value over
the period from issuance to unrestricted redemption (March 31,
2008) through periodic charges, net of income taxes, to retained
earnings; and
- the holders' conversion feature is similar to a stock warrant as
it provides the holder with the option to exchange their
Debentures for Class A Subordinate Voting Shares at a fixed price.
The residual approach was used to value this attribute and this
amount is also presented as equity.
In addition to the impact on diluted earnings per share of the
Company's Convertible Series Preferred Shares and issued and
outstanding stock options, diluted earnings per share have been
calculated based on the weighted average number of Class A
Subordinate Voting and Class B Shares that would have been
outstanding during the period had the holders of the Debentures
exercised their fixed price conversion rights at the date of issuance
of the Debentures.
10. Capital Stock
Class and Series of Outstanding Securities
For details concerning the nature of the Company's securities, please
refer to note 11, "Convertible Series Preferred Shares", and note 12,
"Capital Stock", of the Company's annual financial statements.
The following table summarises the outstanding share capital of the
Company:
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Authorised Issued
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Convertible Series Preferred Shares
(Convertible into Class A
Subordinate Voting Shares) 3,500,000 2,000,000
Preferred Shares, issuable in series Unlimited -
Class A Subordinate Voting Shares Unlimited 51,598,628
Class B Shares
(Convertible into Class A Subordinate
Voting Shares) Unlimited 31,909,091
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During the second quarter of 2003, the Company issued 548,600 Class A
Subordinate Voting Shares to the Decoma employee deferred profit
sharing plan.
During the third quarter of 2003, the Company issued 14,895,729 Class
A Subordinate Voting Shares on conversion of the Series 1, 2 and 3
Convertible Series Preferred Shares (see note 8(a)).
Incentive Stock Options
Information concerning the Company's Incentive Stock Option Plan is
included in note 12, "Capital Stock", of the Company's annual
financial statements. The following is a continuity schedule of
options outstanding:
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Weighted
Average Number of
Exercise Options
Number Price Exercisable
---------------------------------------------------------------------
Outstanding at December 31, 2002 2,195,000 Cdn$ 13.13 1,444,000
Granted 455,000 Cdn$ 12.43
Cancelled (10,000) Cdn$ 10.30 (4,000)
Vested 277,000
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Outstanding at September 30, 2003 2,640,000 Cdn$ 13.02 1,717,000
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The maximum number of shares reserved to be issued for stock options
is 4,100,000 Class A Subordinate Voting Shares. The number of
reserved but unoptioned shares at September 30, 2003 is 1,408,750.
The total number of shares issued from exercised stock options, from
the inception date of the plan, is 51,250.
The fair value of stock options is estimated at the grant date using
the Black-Scholes option pricing model using the following weighted
average assumptions for stock options issued in each period indicated
(no stock options were issued during the three month periods ended
September 30, 2003 and 2002):
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Nine Month Periods
Ended September 30,
---------------------------------------------------------------------
(U.S. dollars in thousands) 2003 2002
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Risk free interest rate 3.0% 2.7%
Expected dividend yield 3.2% 1.9%
Expected volatility 39% 37%
Expected life of options (years) 5 5
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The Black-Scholes option valuation model, as well as other currently
accepted option valuation models, was developed for use in estimating
the fair value of freely tradable options which are fully
transferable and have no vesting restrictions. In addition, this
model requires the input of highly subjective assumptions, including
future stock price volatility and expected time until exercise.
Because the Company's outstanding options have characteristics which
are significantly different from those of traded options, and because
changes in any of the assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of
its stock options.
However, for purposes of pro forma disclosures, the Company's net
income attributable to Class A Subordinate Voting and Class B Shares,
based on the fair value of all stock options at the grant date, would
have been:
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Three Month Periods Nine Month Periods
Ended September 30, Ended September 30,
---------------------------------------------------------------------
(U.S. dollars, in
thousands except per
share figures) 2003 2002 2003 2002
---------------------------------------------------------------------
Net income attributable
to Class A Subordinate
Voting and Class B
Shares US$ 12,300 US$ 17,485 US$ 69,469 US$ 66,435
Pro forma adjustments
for the fair value
of stock option
grants (316) (218) (868) (816)
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Pro forma net income
attributable to Class
A Subordinate Voting
and Class B Shares US$ 11,984 US$ 17,267 US$ 68,601 US$ 65,619
---------------------------------------------------------------------
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Pro forma earnings per
Class A Subordinate
Voting or Class B
Share
Basic US$ 0.16 US$ 0.25 US$ 0.98 US$ 0.97
Diluted US$ 0.16 US$ 0.21 US$ 0.79 US$ 0.77
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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 Debentures issued and outstanding as at
September 30, 2003 were exercised or converted:
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Number of Shares
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Class A Subordinate Voting Shares outstanding
at September 30, 2003 51,598,628
Class B Shares outstanding at September 30, 2003 31,909,091
Options to purchase Class A Subordinate
Voting Shares 2,640,000
Debentures, convertible by the holders
at Cdn$13.25 per share 7,547,170
Convertible Series Preferred Shares,
convertible at Cdn$13.20 per share 15,151,516
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108,846,405
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The above amounts include shares issuable if the holders of the
Debentures exercise their conversion option but exclude Class A
Subordinate Voting Shares issuable, only at the Company's option, to
settle interest and principal related to the Debentures. The number
of Class A Subordinate Voting Shares issuable at the Company's option
is dependent on the trading price of Class A Subordinate Voting
Shares at the time the Company elects to settle Debenture interest
and principal with shares.
Continued. (see part 2)
For further information: S. Randall Smallbone, Executive Vice President, Finance and Chief Financial Officer of Decoma at +1 (905) 669-2888