Decoma announces record fiscal 2001 first quarter results
7 December 2000
Decoma announces record fiscal 2001 first quarter results
CONCORD, ON, Dec. 6 - Decoma International Inc.
today announced its financial results for the first quarter of
fiscal 2001 ended October 31, 2000.
Three Months Ended
October 31
(millions of Canadian dollars,
except per share figures) 2000 1999
Sales $ 325.6 $ 259.3
Operating Income $ 37.9 $ 25.6
Net Income $ 23.5 $ 17.7
Fully diluted earnings per share $ 0.41 $ 0.33
Weighted average number of shares outstanding on
a fully diluted basis (millions) 59.4 59.2
Sales were a record $325.6 million for the first quarter of fiscal 2001,
an increase of 26% compared to the first quarter of fiscal 2000. This increase
is impressive as North American and Mexican vehicle production remained flat
for the quarter at 4.7 million units. The increase is the result of a number
of factors including the launch of a number of new programs that the Company
has been awarded and the impact of the previously announced Conix acquisition
which resulted in additional sales of $19.8 million in the quarter. The higher
sales level reflects a 17% increase in Decoma's North American and Mexican
content per vehicle to $61.07.
Tooling sales included in the above were $38.3 million for the first
quarter of fiscal 2001, compared to $14.0 million for the comparable period in
fiscal 2000. The increase in tooling for the first quarter of fiscal 2001 is
the result of significant new program launches in fiscal 2001.
Operating income in the first quarter of fiscal 2001 was up 48% to $37.9
million compared to $25.6 million in the first quarter of fiscal 2000. This
improvement reflects the higher contribution due to sales growth and improved
margins offset by increases in S,G&A, depreciation and affiliation fees.
Equity income in the first quarter of fiscal 2001 was $1.4 million,
compared to $4.2 million in the comparable period of fiscal 2000. This
decrease was the result of launch costs due to a number of new programs, the
launch of a new facility and the delay of certain new vehicle programs.
Net income for the first quarter of fiscal 2001 increased 33% to $23.5
million compared to $17.7 million for the first quarter of fiscal 2000.
Fully diluted earnings per share increased by 24% to $0.41 per share for
the first quarter of fiscal 2001 compared to $0.33 per share for the
comparable period in fiscal 2000. The weighted average number of shares
outstanding on a fully diluted basis during the first quarter of fiscal 2001
was 59.4 million compared to 59.2 million in the first quarter of fiscal 2000.
During the first quarter of fiscal 2001 cash generated from operations
was $35.4 million after investing $3.5 million in non-cash working capital.
Investment in fixed assets during the quarter totalled $9.5 million.
Decoma also announced that the Global Exteriors Transaction between
Decoma and Magna International Inc. received the requisite minority
shareholder approval at its Annual and Special Meeting of shareholders held on
December 6, 2000. Subject to customary routine closing conditions, the
transaction is scheduled to be completed on January 5, 2001. Commenting on the
transaction, Al Power, President and CEO of Decoma, stated that "we are very
pleased that the transaction has received the overwhelming support of the
Company's minority shareholders and we look forward to capitalizing on the
opportunities that we anticipate the transaction will provide. The transaction
will position Decoma as a truly global supplier of exterior systems by
providing the company with expanded geographic markets and important new
customer relationships."
On December 6, 2000 Decoma announced that its Board of Directors declared
a quarterly dividend in respect of the first quarter of fiscal 2001 of $0.06
per share on the Class A Subordinate Voting Shares and Class B Shares payable
on January 15, 2001 to shareholders of record on December 29, 2000. This
dividend is in addition to that paid on the 5% Convertible Series Preferred
Shares, and is in keeping with the shareholder profit participation commitment
set out in Decoma's Corporate Constitution.
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DECOMA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
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(Unaudited)
(Canadian dollars in thousands)
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As at As at
October July
31, 2000 31, 2000
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ASSETS
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Current assets:
Cash and cash equivalents $ 54,966 $ 50,702
Accounts receivable 202,296 115,339
Inventories 94,984 83,429
Prepaid expenses and other 16,283 7,405
Accounts receivable from related companies 5,664 3,006
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374,193 259,881
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Investments 51,722 50,264
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Fixed assets, net 539,595 412,561
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Goodwill, net (note 5) 96,774 -
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Future tax assets (note 4) 2,748 3,179
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Other assets 10,089 10,198
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$ 1,075,121 $ 736,083
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Bank indebtedness $ 98,819 $ 20,821
Accounts payable 131,415 76,781
Accrued salaries and wages 30,592 24,264
Other accrued liabilities 31,395 22,912
Income taxes payable 865 401
Long-term debt due within one year 10,716 831
Debt due to Magna within one year 38,967 40,280
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342,769 186,290
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Long-term debt 44,555 35,511
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Debentures' interest obligation (note 5) 33,897 -
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Future tax liabilities (note 4) 41,405 32,879
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Convertible Series Preferred Shares 144,805 143,802
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Minority interest 10,306 10,365
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Shareholders' equity:
Convertible Series Preferred Shares (note 6)
(convertible into Class A Subordinate Voting
Shares) (authorized: 1,500,000, issued:
1,500,000) 8,692 9,939
Class A Subordinate Voting Shares (note 6)
(authorized: unlimited, issued: 11,218,316) 103,661 103,661
Class B Shares (note 6)
(convertible into Class A Subordinate Voting
Shares) (authorized: unlimited, issued
31,909,091) 95,303 95,303
Subordinated Debentures (note 5) 103,560 -
Retained earnings 125,424 103,994
Currency translation adjustment 20,744 14,339
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457,384 327,236
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$ 1,075,121 $ 736,083
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DECOMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
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(Unaudited)
(Canadian dollars in thousands,
except per share figures)
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Three Months Ended
October 31
2000 1999
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Sales $ 325,561 $ 259,264
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Cost of goods sold 251,879 201,299
Depreciation and amortization 14,111 12,906
Selling, general and administrative 16,107 15,140
Affiliation fees and other charges 5,595 4,309
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Operating income (note 2) 37,869 25,610
Equity income 1,458 4,165
Interest expense, net (1,307) (1,412)
Amortization of discount on Convertible
Series Preferred Shares (1,003) (1,447)
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Income before income taxes and minority interest 37,017 26,916
Income taxes (note 4) 13,535 9,534
Minority interest (50) (300)
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Net income 23,532 17,682
Dividends on Convertible Series Preferred Shares,
net of return of capital (628) (679)
Financing charges on Subordinated Debentures
(note 5) (230) -
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Net income attributable to Class A Subordinate
Voting Shares and Class B Shares 22,674 17,003
Retained earnings, beginning of period 103,994 56,600
Dividends on Class A Subordinate Voting Shares
and Class B Shares (2,588) (2,156)
Cumulative adjustment for change in accounting
policy (note 4) 1,344 -
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Retained earnings, end of period $ 125,424 $ 71,447
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Earnings per Class A Subordinate Voting
Share or Class B Share
Basic $0.53 $0.39
Fully diluted $0.41 $0.33
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Average number of Class A Subordinate
Voting Shares and Class B Shares
outstanding (in millions)
Basic 43.1 43.1
Fully diluted 59.4 59.2
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DECOMA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
(Canadian dollars in thousands)
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Three Months Ended
October 31
2000 1999
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Cash provided from (used for):
OPERATING ACTIVITIES
Net income $ 23,532 $ 17,682
Items not involving current cash flows 15,430 8,156
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38,962 25,838
Changes in non-cash working capital (3,560) (18,693)
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35,402 7,145
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INVESTING ACTIVITIES
Fixed asset additions (9,542) (21,021)
Acquisition of subsidiary net of cash acquired
(note 5) (65,145) -
(Increase) decrease in investments and other (653) 481
Proceeds from disposition of fixed assets 3 23
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(75,337) (20,517)
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FINANCING ACTIVITIES
Decrease in debt due to Magna (2,513) (5,092)
Increase (decrease) in bank indebtedness 49,283 (26,895)
Issues of long term debt 930 14,547
Repayments of long term debt (398) -
Dividends on Class A Subordinate Voting Shares
and Class B Shares (2,588) (2,156)
Dividends on Convertible Series Preferred
Shares (1,875) (1,875)
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42,839 (21,471)
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Effect of exchange rate changes on cash and
cash equivalents 1,360 (842)
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Net increase (decrease) in cash and cash
equivalents during the period 4,264 (35,685)
Cash and cash equivalents, beginning of period 50,702 67,811
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Cash and cash equivalents, end of period $ 54,966 $ 32,126
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DECOMA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
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October 31, 2000
1. Basis of Presentation
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 at October 31, 2000 and the results of operations and cash
flows for the three month periods ended October 31, 2000 and October
31, 1999.
2. Operating Income
Operating income, as defined in the Company's July 31, 2000 year-end
Consolidated Financial Statements includes the deduction of financing
costs. The interim Consolidated Financial Statements have changed
operating income to exclude any deduction for financing costs.
Management believes the new presentation to be a better measurement of
operating income as a result of the anticipated increase in financing
costs assuming completion of the Global Exteriors Transaction as
described in the Company's Annual Management Information Circular
dated November 6, 2000.
3. Change of Fiscal Year End and Change in Reporting Currency
On August 4, 2000, the Board of Directors of the Company approved a
change in the fiscal year end of Decoma from July 31st to December
31st. The current fiscal year will be reported on as the five month
period ending December 31, 2000. In addition, commencing with the new
fiscal year ending December 31, 2001, the Board also approved the
change in the Company's financial reporting currency to U.S. dollars.
These changes place the Company on a basis consistent with its parent
company, Magna International Inc., reflect the increasingly global
nature of Decoma's business and will enable the Company's financial
performance to be compared more readily with that of its peer group
within the automotive parts supply industry.
4. Change in Accounting Policy - Future Tax
In fiscal 2001, 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.
Prior-year Consolidated Financial Statements have not been restated.
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 substantially 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, 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.
The cumulative effect, as at August 1, 2000, of adopting these
recommendations was a reduction in future tax liabilities and an
increase in retained earnings of $1.3 million. There was no material
impact on the comparative quarter's net income.
5. Acquisition of Subsidiary
On October 16, 2000, the Company acquired the minority interest from
Visteon Corporation in Conix Canada Inc., Conix Corporation, Conix
U.K. Ltd. and Conix Belgium N.V., (collectively the "Conix Group").
The Conix Group operates fascia moulding and finishing operations in
Canada, the United States, England and Belgium. Prior to the
completion of this transaction, Decoma and Visteon Corporation jointly
controlled the Conix Group and the results of the Conix Group were
included in Decoma's Consolidated Financial Statements on a 51%
proportionate basis.
The total consideration paid in connection with the acquisition
amounted to $201.9 million (net of cash acquired of $10.7 million).
The acquisition has been accounted for by the purchase method with the
results of operations of the acquired 49% interest in the Conix Group
included in the Consolidated Financial Statements of the Company from
the date of acquisition.
The net effect of the transaction on the Company's consolidated
balance sheet was as follows:
(Canadian dollars in thousands)
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Non-cash working capital $ 36,140
Fixed assets, net 124,463
Bank indebtedness (28,715)
Future income taxes (8,217)
Long-term debt (including portion due within one year) (18,498)
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Net assets 105,173
Goodwill (i) 96,691
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Total purchase price, net of cash acquired 201,864
9.5% Subordinated Debentures (U.S. $90,000) issued on
acquisition (ii) 136,719
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Cash paid, net of cash acquired $ 65,145
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Notes:
i. Goodwill arising on the purchase is being amortized over 20 years.
The Company reviews the valuation and amortization periods of
goodwill whenever events or changes in circumstances warrant such a
review. In doing so, the Company evaluates whether there has been a
permanent impairment in the value of the unamortized goodwill based
on the estimated undiscounted cash flows of each business to which
the goodwill relates.
ii. The Company issued $136.7 million (U.S. $90 million) of 9.5%
Subordinated Debentures at par, payable to Visteon Corporation. The
Subordinated Debentures are unsecured and are denominated in U.S.
dollars. The Subordinated Debentures are redeemable at any time at
par plus accrued and unpaid interest. Upon their redemption or on
their maturity on October 16, 2003, the Company may, at its option,
satisfy the amounts payable under the Subordinated Debentures by
delivering such number of Class A Subordinate Voting Shares to a
registered trustee for sale to open bidders as required to satisfy
the payment obligation. Interest on the obligation is payable in
U.S. dollars on a quarterly basis.
The Subordinated Debentures are recorded in part as debt and in part
as shareholders' equity.
The debt component of the Subordinated Debentures consists of the
present value of the future interest payments to maturity and is
presented as Debentures' interest obligation. Interest on the debt
component is accrued over time and recognized as a charge against
income.
The equity component of the Subordinated Debentures represents the
present value of the principal amount which, as noted above, can be
satisfied by the issuance of Class A Subordinate Voting Shares of the
Company at the option of the Company. This amount will be accreted
to the face value of the Subordinated Debentures over the term to
maturity through periodic charges, net of income taxes, to retained
earnings. The equity component is disclosed as Subordinated
Debentures in shareholders' equity.
6. Capital Stock
Class and Series of Outstanding Securities
The Company's share structure has remained consistent with that in
place as at July 31, 2000. For details concerning the nature of the
Company's securities, please refer to Note 10 "Convertible Series
Preferred Shares" and Note 11 "Capital Stock" of the Company's 2000
Annual Report.
Options and Convertible Securities
The following table presents the maximum number of shares that would
be outstanding if all of the outstanding options and Convertible
Series Preferred Shares issued and outstanding as at October 31, 2000
were exercised or converted:
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Number of
Shares
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Class A Subordinate Voting Shares outstanding as at
October 31, 2000 11,218,316
Class B Shares outstanding as at October 31, 2000 31,909,091
Options to purchase Class A Subordinate Voting Shares 1,426,250
Convertible Series Preferred Shares, convertible at
$10.07 per share 14,895,729
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59,449,386
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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 as at October 31, 2000 is 2,673,750.
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 (refer to note 5 for further details).
7. Segmented Information
Decoma follows a corporate policy of functional and operational
decentralization. The Company conducts its operations through
divisions that function as autonomous operating units. 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.
Prior to the acquisition of the minority interest from Visteon
Corporation in the Conix Group (refer to note 5) management reviewed
the operating results of the Company along two primary segments;
namely, directly controlled and jointly controlled. As a result of
the acquisition, management has reorganized responsibilities such that
segment reporting will now be along geographic boundaries.
The following tables show certain information with respect to segment
disclosures:
(Canadian dollars in thousands) Three months ended October 31, 2000
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North
America Europe Total
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Sales $ 317,699 $ 7,890 $ 325,589
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Inter-segment sales (28) - (28)
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Sales to external customers $ 317,671 $ 7,890 $ 325,561
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Depreciation and amortization $ 13,615 $ 496 $ 14,111
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Operating income (loss) $ 38,359 $ (490) $ 37,869
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Interest expense, net $ 1,113 $ 194 $ 1,307
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Fixed assets, net $ 461,056 $ 78,539 $ 539,595
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Fixed asset additions $ 6,797 $ 2,745 $ 9,542
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Goodwill, net $ 55,318 $ 41,456 $ 96,774
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(Canadian dollars in thousands) Three months ended October 31, 2000
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North
America Europe Total
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Sales $ 259,063 $ 3,949 $ 263,012
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Inter-segment sales (3,748) - (3,748)
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Sales to external customers $ 255,315 $ 3,949 $ 259,264
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Depreciation and amortization $ 12,696 $ 210 $ 12,906
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Operating income $ 25,597 $ 13 $ 25,610
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Interest expense, net $ 1,297 $ 115 $ 1,412
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Fixed assets, net $ 374,709 $ 31,322 $ 406,031
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Fixed asset additions $ 9,775 $ 11,246 $ 21,021
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8. Comparative Consolidated Financial Statements
Certain comparative figures have been reclassified to conform to the
current period's method of presentation.
9. Subsequent Event
The Directors of Magna International Inc. ("Magna") and Decoma have
agreed, subject to shareholder approval, to the sale and purchase,
respectively, of Magna's 100% interest in Magna's exterior systems
businesses in Europe and Magna's 60% interest in Decoma Exterior Trim
Inc. for consideration of $565 million, subject to adjustment for
changes in exchange rates to the date of closing. Consideration is
comprised of $265 million of intercompany debt, $200 million of Decoma
Convertible Series Preferred Shares and $100 million of Decoma Class A
Subordinate Voting Shares. The acquisition is currently anticipated to
occur in early January 2001.