Intier (NASDAQ:IAIA)
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Intier announces 2004 third quarter and year to date results
NEWMARKET, ON, Nov. 2 /PRNewswire-FirstCall/ -- Intier Automotive Inc. (TSX:
IAI.A, NASDAQ: IAIA) today reported financial results for the third quarter
ended September 30, 2004. Operating income increased to $48.2 million for the
three months ended September 30, 2004 compared to operating income of $17.6
million for the three months ended September 30, 2003. Improved operating
income contributed to diluted earnings per share from continuing operations of
$0.45 for the third quarter ended September 30, 2004 as compared to diluted
earnings per share from continuing operations of $0.12 for the third quarter
ended September 30, 2003.
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All results are reported in millions of U.S. dollars, except earnings
per share figures, in accordance with Canadian Generally Accepted
Accounting Principles.
THREE MONTH PERIODS NINE MONTH PERIODS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(Unaudited) (Unaudited)
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2004 2003 2004 2003
(3) (1)(2)(3) (2)(3) (1)(2)(3)
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Sales $ 1,272.1 $ 1,039.2 $ 4,035.4 $ 3,138.0
Operating income $ 48.2 $ 17.6 $ 175.3 $ 84.9
Net income from continuing
operations $ 27.4 $ 6.1 $ 99.1 $ 37.3
Diluted earnings per share
from continuing
operations $ 0.45 $ 0.12 $ 1.61 $ 0.73
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(1) Effective January 1, 2004, the Company adopted the Canadian Institute
of Chartered Accountants Handbook Section 3110 "Asset Retirement
Obligations." See Note 4 to the Unaudited Interim Consolidated
Financial Statements.
(2) On January 31, 2004, the Company completed an agreement to sell a
manufacturing facility reported in the European Interior Systems
segment with an effective date of January 1, 2004. As required by the
Canadian Institute of Chartered Accountants Handbook Section 3475
"Disposal of Long Lived Assets and Discontinued Operations" ("CICA
3475"), the financial results of the manufacturing facility's
operations have been separately disclosed as discontinued operations.
(3) On September 1, 2004, the Company sold a manufacturing facility
reported in the European Interior Systems segment. As required by the
Canadian Institute of Chartered Accountants Handbook Section 3475
"Disposal of Long Lived Assets and Discontinued Operations" ("CICA
3475"), the financial results of the manufacturing facility's
operations have been separately disclosed as discontinued operations.
Sales increased 22% to $1,272.1 million for the three month period ended
September 30, 2004 compared to $1,039.2 million for the three month period
ended September 30, 2003. This growth is attributable to our increased average
dollar content per vehicle in North America resulting from new products
launched during the first nine months of 2004 and the second half of 2003. The
strengthening of the Canadian dollar, euro and British pound relative to the
U.S. dollar also contributed to sales growth.
North American production sales grew to $781.6 million in the third quarter of
2004 compared to $593.6 million in the third quarter of 2003 as a result of the
higher North American average dollar content per vehicle. North American
average dollar content per vehicle increased to $215 for the third quarter of
2004 compared to $162 for the third quarter of 2003. New products that
contributed to this increase included the interior integration, overhead
system, instrument panel and door panels for the Cadillac STS and the complete
seats for the Mercury Mariner. North American light vehicle production volumes
decreased 1% to approximately 3.6 million units for the three month period
ended September 30, 2004 compared to 3.7 million units for the three month
period ended September 30, 2003.
Western European production sales increased 17% to $396.0 million for the third
quarter of 2004 from $337.9 million for the third quarter of 2003. This
increase is primarily the result of the strengthening of the British Pound and
euro relative to the U.S. dollar. New products launched in the first nine
months of 2004 and in the second half of 2003 also contributed to the increased
sales. 2004 launches included the door panels for the BMW 1 Series; a modular
side door latch for a number of Audi programs; and the door panels, interior
trim, carpet and cargo management system for the Mercedes A-Class. Western
European average dollar content per vehicle increased to $106 for the third
quarter of 2004 compared to $93 for the third quarter of 2003. Western European
vehicle production volumes increased 2% to 3.7 million units for the third
quarter of 2004 compared to 3.6 million units for the third quarter of 2003.
Consolidated tooling and engineering sales for the three month period ended
September 30, 2004 decreased by 12% to $94.5 million from $107.7 million for
the three month period ended September 30, 2003.
Operating income for the third quarter of 2004 increased to $48.2 million
compared to $17.6 million for the third quarter of 2003. This increase was
primarily attributable to higher sales resulting from new products, lower
launch costs and increased operating efficiencies at certain divisions compared
to the same period in the previous year. These improvements were partially
offset by higher raw material prices, increased selling, general and
administrative costs and higher depreciation expense.
The Company continued to generate positive cash flow from operating activities.
During the third quarter of fiscal 2004, cash generated from operations before
changes in working capital was $61.2 million. $57.7 million of cash was
invested in working capital resulting in total cash from operating activities
of $3.5 million.
Diluted earnings per share from continuing operations were $0.45 for the three
month period ended September 30, 2004 compared to diluted earnings per share
from continuing operations of $0.12 for the three month period ended September
30, 2003.
Diluted earnings per share were $0.36 for the three month period ended
September 30, 2004 compared to diluted earnings per share of $0.16 for the
three month period ended September 30, 2003. These diluted earnings per share
amounts include the impact of the losses associated with the sale of
discontinued operations.
Commenting on the third quarter results, Don Walker, the Company's President
and Chief Executive Officer, stated " We are pleased with the results of the
third quarter. Investments made in support of new successful products that
started production over the past year are contributing to improvement in our
gross margin and earnings. Also, during the third quarter we substantially
completed our European restructuring with the sale of a non- strategic
manufacturing division".
Intier Automotive's Board of Directors declared a dividend in respect of the
third quarter of 2004 of US$0.10 per share on the Class A Subordinate Voting
and Class B Shares payable on or after December 15, 2004 to shareholders of
record on November 30, 2004. The Board also declared a dividend of US$2,728,750
on the outstanding Convertible Series 1 and 2 Preferred Shares payable on or
after December 31, 2004 to holders of the Convertible Series Preferred Shares
of record on November 30, 2004.
As previously announced on October 25, 2004, Intier's Board of Directors has
received a proposal from Magna International Inc. to acquire all of the
outstanding shares of Intier not owned by Magna by way of a court-approved plan
of arrangement under Ontario Law. On November 2, 2004 Intier's Board of
Directors established a Special Committee of independent Directors consisting
of Lawrence Worrall (Chairman) and Neil Davis to consider and make
recommendations to the Intier Board regarding Magna's proposal. Following
receipt of the Special Committee's recommendations, the Intier Board will
respond to Magna's proposal.
2004 OUTLOOK
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For the full year, North American and European light vehicle production volumes
are expected to be approximately 15.9 million and 16.2 million units,
respectively. Full year average dollar content per vehicle is expected to be
between $205 and $210 for North America and $97 to $103 for Europe. Based on
these production volume estimates, product mix and foreign exchange rate
assumptions and tooling and engineering sales estimates, 2004 total sales are
expected to be between $5.2 billion and $5.4 billion.
Intier is a global full service supplier and integrator of automotive interior
and closure components, systems and modules. It directly supplies most of the
major automobile manufacturers in the world with approximately 24,000 employees
at 73 manufacturing facilities, and 15 product development, engineering and
testing centres in North America, Europe, Brazil, Japan and China.
Intier will hold a conference call to discuss the third quarter results on
Thursday November 4, 2004 at 9:30 a.m. EST (Toronto Time). The number to use
for this call is 1 800-296-1907. Overseas callers should use 1-416-641-6706.
Please call in 10 minutes prior to the conference call. For anyone unable to
listen to the scheduled call, the rebroadcast number will be 1 800 558-5253 and
416-626-4100 (reservation number is 21211808). The conference call will be
chaired by Don Walker, President, Chief Executive Officer and Chairman and
Michael McCarthy, Executive Vice-President and Chief Financial Officer.
This press release may contain forward-looking statements within the meaning of
applicable securities legislation. Such statements involve certain risks,
assumptions and uncertainties which may cause actual future results and
performance of Intier Automotive Inc. (the "Company") to be materially
different from those expressed or implied in these statements. These risks,
assumptions and uncertainties include, but are not limited to: industry
cyclicality, including reductions or increases in production volumes; trade and
labour disruption; pricing concessions and cost absorptions; product warranty,
recall and product liability costs; the Company's financial performance;
changes in the economic and competitive markets in which the Company competes;
relationships with OEM customers; customer price pressures; the Company's
dependence on certain vehicle programs; currency exposure; energy prices; and
certain other risks, assumptions and uncertainties disclosed in the Company's
public filings. 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.
INTIER AUTOMOTIVE INC.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in millions)
(Unaudited)
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September 30, December 31,
2004 2003
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(restated -
notes 4,5)
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ASSETS
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Current assets:
Cash and cash equivalents $ 298.4 $ 216.7
Accounts receivable 910.2 801.1
Inventories 334.8 299.0
Prepaid expenses and other 40.7 36.9
Discontinued operations (note 5) - 17.6
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1,584.1 1,371.3
Capital assets, net 563.5 566.9
Goodwill 119.4 116.4
Future tax assets 64.8 70.7
Other assets 30.0 21.8
Discontinued operations (note 5) - 2.2
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$ 2,361.8 $ 2,149.3
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Bank indebtedness $ 58.9 $ 29.1
Accounts payable 907.3 816.0
Accrued salaries and wages 79.7 72.6
Other accrued liabilities (note 6) 112.4 100.4
Income taxes payable 3.9 3.5
Long-term debt due within one year 4.4 4.4
Convertible Series Preferred Shares (note 10) 216.6 108.6
Discontinued operations (note 5) - 19.2
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1,383.2 1,153.8
Long-term debt 28.4 31.4
Other long-term liabilities 43.1 40.1
Convertible Series Preferred Shares (note 10) - 106.1
Future tax liabilities 59.0 44.9
Minority interest 1.4 1.1
Discontinued operations (note 5) - 5.7
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Shareholders' equity:
Convertible Series Preferred Shares (note 8) 7.8 11.8
Class A Subordinate Voting Shares (note 8) 100.5 86.1
Class B Shares (note 8) 495.8 495.8
Contributed surplus (note 9) 1.0 0.6
Retained earnings 122.2 57.4
Currency translation adjustment 119.4 114.5
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846.7 766.2
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$ 2,361.8 $ 2,149.3
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INTIER AUTOMOTIVE INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(U.S. dollars in millions, except per share figures and
numbers of shares)
(Unaudited)
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Three month periods Nine month periods
ended September 30, ended September 30,
2004 2003 2004 2003
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(restated - (restated -
notes 4,5) notes 4,5)
Sales $ 1,272.1 $ 1,039.2 $ 4,035.4 $ 3,138.0
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Cost of goods sold (note 6) 1,114.1 923.5 3,530.8 2,764.2
Depreciation and
amortization 28.8 26.2 82.9 74.1
Selling, general and
administrative (note 9) 64.6 57.0 192.8 167.1
Affiliation and social fees 16.4 14.9 53.6 47.7
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Operating income 48.2 17.6 175.3 84.9
Interest expense, net - 0.3 1.7 0.9
Amortization of discount
on Convertible Series
Preferred Shares 1.6 3.1 4.7 9.1
Equity loss (income) 0.1 0.3 (0.6) 0.1
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Income before income taxes
and minority interest 46.5 13.9 169.5 74.8
Income taxes 19.2 7.9 70.1 37.2
Minority interest (0.1) (0.1) 0.3 0.3
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Net income from continuing
operations $ 27.4 $ 6.1 $ 99.1 $ 37.3
Net loss (income) from
discontinued operations
(note 5) 5.8 (2.0) 14.9 (3.8)
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Net income 21.6 8.1 84.2 41.1
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Financing charge on
Convertible Series
Preferred Shares 1.5 0.3 4.4 0.9
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Net income attributable to
Class A Subordinate Voting
and Class B Shares 20.1 7.8 79.8 40.2
Retained earnings,
beginning of period 107.2 39.4 57.4 17.2
Adjustment for change in
accounting policy for asset
retirement obligations - - - (2.8)
Dividends on Class A
Subordinate Voting and
Class B Shares (5.1) (5.0) (15.0) (12.4)
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Retained earnings,
end of period $ 122.2 $ 42.2 $ 122.2 $ 42.2
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Earnings per Class A
Subordinate Voting or
Class B Share from
continuing operations
Basic $ 0.52 $ 0.12 $ 1.91 $ 0.75
Diluted $ 0.45 $ 0.12 $ 1.61 $ 0.73
Earnings per Class A
Subordinate Voting or
Class B Share
Basic $ 0.40 $ 0.16 $ 1.61 $ 0.83
Diluted $ 0.36 $ 0.16 $ 1.38 $ 0.79
Average number of Class A
Subordinate Voting and
Class B Shares outstanding
(in millions)
Basic 49.9 48.8 49.6 48.5
Diluted 65.0 48.8 64.6 63.4
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INTIER AUTOMOTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in millions)
(Unaudited)
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Three month periods Nine month periods
ended September 30, ended September 30,
2004 2003 2004 2003
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(restated - (restated -
notes 4,5) notes 4,5)
Cash provided from (used for):
OPERATING ACTIVITIES
Net income from continuing
operations $ 27.4 $ 6.1 $ 99.1 $ 37.3
Items not involving current
cash flows 33.8 28.4 117.1 95.8
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61.2 34.5 216.2 133.1
Change in non-cash
working capital (57.7) (90.7) (41.6) (97.1)
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3.5 (56.2) 174.6 36.0
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INVESTMENT ACTIVITIES
Capital asset additions (21.4) (29.7) (74.0) (86.8)
Investments and other asset
additions (4.5) (5.4) (13.1) (10.5)
Proceeds from disposition of
capital assets and other 0.4 0.1 1.2 0.2
Discontinued operations (15.9) (5.7) (19.8) (1.1)
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(41.4) (40.7) (105.7) (98.2)
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FINANCING ACTIVITIES
Increase in bank
indebtedness 22.9 57.5 29.1 29.9
Net repayments of long-
term debt and other
long-term liabilities (2.5) (1.5) (6.5) (4.2)
Issue of Class A Subordinate
Voting Shares 3.1 1.4 11.6 7.9
Dividends on Class A
Subordinate Voting and
Class B Shares (5.1) (5.0) (15.0) (12.4)
Dividends on Convertible
Series Preferred Shares (2.9) (2.8) (8.4) (8.4)
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15.5 49.6 10.8 12.8
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Effect of exchange rate
changes on cash and
cash equivalents 5.6 (0.7) 2.0 9.8
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Net increase (decrease) in
cash and cash equivalents
during the period (16.8) (48.0) 81.7 (39.6)
Cash and cash equivalents,
beginning of period 315.2 249.7 216.7 241.3
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Cash and cash equivalents,
end of period $ 298.4 $ 201.7 $ 298.4 $ 201.7
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars unless otherwise noted and all tabular
amounts in millions, except per share figures and number of shares.)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements have been
prepared following the accounting policies as set out in the 2003
annual audited consolidated financial statements included in the
Company's 2003 Annual Report to Shareholders, except for the
accounting changes set out below.
The unaudited interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principals ("GAAP"), except that certain disclosures required for
annual financial statements have not been included. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the 2003 annual audited consolidated
financial statements as included in the Company's 2003 Annual Report
to Shareholders.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments, which consist only of
normal and recurring adjustments, necessary to present fairly the
financial position of the Company at September 30, 2004, and the
results of operations and cash flows for the three and nine month
periods ended September 30, 2004 and 2003.
2. CYCLICALITY
Substantially all revenue is derived from sales to North American and
European facilities of the major automobile manufacturers. The
Company's operations are exposed to the cyclicality inherent in the
automobile 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.
3. USE OF ESTIMATES
The preparation of the unaudited interim consolidated financial
statements in conformity with Canadian 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.
4. ACCOUNTING CHANGES
Asset Retirement Obligations
Effective January 1, 2004, the Company adopted the Canadian Institute
of Chartered Accountants ("CICA") Handbook Section 3110, "Asset
Retirement Obligations", which establishes standards for the
recognition, measurement and disclosure of asset retirement
obligations and the related asset retirement costs. The Company has
adopted this section retroactively and as such, the financial
statements of the prior period have been adjusted accordingly.
The retroactive changes to the Consolidated Balance Sheet at
December 31, 2003 are as follows:
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Capital assets $ 6.1
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$ 6.1
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Other long-term liabilities $ 11.6
Future tax liabilities (1.0)
Retained earnings (3.7)
Currency translation (0.8)
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$ 6.1
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Net income for the three and nine month periods ended September 30,
2003 was reduced by $0.2 million and $0.7 million, respectively. The
change had no impact on basic and diluted earnings per share for the
three month period. Basic and diluted earnings per share for the nine
month period were reduced by $0.01.
Revenue Arrangements with Multiple Deliverables
The Company adopted CICA Emerging Issues Committee Abstract No. 142,
"Revenue Arrangements with Multiple Deliverables" ("EIC-142")
prospectively for new revenue arrangements with multiple deliverables
entered into by the Company on or after January 1, 2004. The Company
enters into such multiple element arrangements where it has
separately priced tooling contracts that are entered into at the same
time as contracts for subsequent parts production or vehicle
assembly. EIC-142 addresses how a vendor determines whether an
arrangement involving multiple deliverables contains more than one
unit of accounting and also addresses how consideration should be
measured and allocated to the separate units of accounting in the
arrangement. Separately priced tooling can be accounted for as a
separate revenue element only in circumstances where the tooling has
value to the customer on a standalone basis and there is objective
and reliable evidence of the fair value of the subsequent parts
production or vehicle assembly. The adoption of EIC-142 did not have
a material effect on the Company's revenue or earnings for the three
and nine month periods ended September 30, 2004.
Stock-Based Compensation
In accordance with the CICA amended Handbook Section 3870 "Stock-
Based Compensation and other Stock-Based Payments" ("CICA 3870"),
effective January 1, 2003, the Company prospectively adopted without
restatement of any comparable period the fair value method for
recognizing compensation expense for fixed price stock options. As a
result, during the three and nine month periods ended September 30,
2004, the Company recognized compensation expense of $0.1 million and
$0.4 million, respectively. There was no compensation expense
recognized during the three and nine month periods ended September
30, 2003.
5. DISCONTINUED OPERATIONS
On September 1, 2004, the Company sold a manufacturing facility
reported in the Europe Interior Systems segment. The impact of the
sale was a net loss of $5.8 million. The loss on the sale is included
in discontinued operations for the three and nine month periods ended
September 30, 2004.
On January 31, 2004, the Company completed an agreement to sell a
manufacturing facility reported in the Europe Interior Systems
segment with an effective date of January 1, 2004. The impact of the
sale was a net loss of $5.3 million, which included a $1.8 million
write-off of future tax assets. The loss on the sale is included in
discontinued operations for the nine month period ended September 30,
2004.
The financial results of the two facilities' operations have been
separately disclosed as discontinued operations for the three and
nine month periods ended September 30, 2004 and 2003.
The balance sheet, statements of income and statements of cash flows
related to discontinued operations are as follows:
Balance Sheet:
December 31,
2003
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ASSETS
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Current Assets
Accounts receivable $ 9.6
Inventory 5.9
Prepaid expenses and other 1.0
Income taxes receivable 1.1
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17.6
Capital assets, net 0.4
Future tax assets 1.8
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$ 19.8
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LIABILITIES AND NET INVESTMENT
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Current Liabilities
Bank indebtedness $ 0.6
Accounts payable 14.8
Accrued salaries and wages 2.4
Other accrued liabilities 1.4
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19.2
Long-term debt 1.6
Other long-term liabilities 4.1
Net investment (5.1)
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$ 19.8
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Statements of Income:
Three month periods Nine month periods
ended September 30, ended September 30,
2004 2003 2004 2003
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Sales $ 5.8 $ 29.9 $ 45.1 $ 94.9
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Costs of goods sold 9.5 27.1 51.6 87.8
Selling, general and
administrative 2.1 0.4 6.8 1.9
Affiliation and
social fees - 0.3 0.2 0.9
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Operating (loss) income (5.8) 2.1 (13.5) 4.3
Income taxes - 0.1 1.4 0.5
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Net (loss) income $ (5.8) $ 2.0 $ (14.9) $ 3.8
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Statements of Cash Flows:
Three month periods Nine month periods
ended September 30, ended September 30,
2004 2003 2004 2003
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Cash provided from
(used for):
OPERATING ACTIVITIES
Net (loss) income $ (5.8) $ 2.0 $ (14.9) $ 3.8
Items not involving
current cash flows 2.4 0.6 9.8 2.2
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(3.4) 2.6 (5.1) 6.0
Change in non-cash
working capital (6.5) (5.2) (5.1) (2.2)
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(9.9) (2.6) (10.2) 3.8
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FINANCING ACTIVITIES
(Decrease) increase in
bank indebtedness (0.3) (0.3) (0.6) 0.4
Issues of debt and other
long-term liabilities 10.2 5.4 10.8 -
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9.9 5.1 10.2 0.4
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Net change in cash and
cash equivalents
during the period - 2.5 - 4.2
Cash and cash equivalents,
beginning of period - 1.7 - -
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Cash and cash equivalents,
end of period $ - $ 4.2 $ - $ 4.2
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6. RESTRUCTURING PROVISIONS
During the first quarter of 2004, the Company recorded a
restructuring charge of $2.5 million for severance and termination
costs related to the closure of a manufacturing facility formerly
reported in the Closure Systems segment. As at September 30, 2004,
$1.8 million of this provision for severance and termination costs is
included in other accrued liabilities.
7. COMMITMENTS AND CONTINGENCIES
a) During the quarter ended September 30, 2004, the Company renewed
its unsecured, revolving term credit facility on terms similar to
its previous facility, bearing interest at variable rates not
exceeding the prime rate of interest. The credit facility
contains similar negative and affirmative financial and operating
covenants and events of default customary for credit facilities
of this nature, including requirements that the Company maintain
certain financial ratios and restrictions on its ability to incur
or guarantee additional indebtedness or to dispose of assets as
well as the right of lenders to declare all outstanding
indebtedness to be immediately due and payable upon the
occurrence of an event of default. In addition to the North
American tranche, which is now $365.0 million, the new facility
also includes a (euro) 100.0 million European tranche. The
facility was renewed for an additional 3 years and expires on
September 16, 2007.
b) The Company has recently been named with Ford Motor Company and
the Company's sister affiliate Magna Donnelly as a defendant in
class action proceedings in the Ontario Superior Court of Justice
as well as state courts in North Carolina and Florida as a result
of its role as a supplier to Ford of door latches, and in certain
cases door latch assemblies, for the Ford F-150, F-250,
Expedition, Lincoln Navigator and Blackwood vehicles produced by
Ford between November 1995 and April 2000. Other class
proceedings in Massachusetts and other states are anticipated. In
these proceedings, plaintiffs are seeking compensatory damages
(in an amount to cover the cost of repairing the vehicles as well
to reimburse owners of the vehicles for their alleged diminution
in value), punitive damages, attorney fees and interest. Each of
the class actions have similar claims and allege that the door
latch systems are defective and do not comply with applicable
motor vehicle safety legislation and that the defendants
conspired to hide the alleged defects from the end use consumer.
These class proceedings are in the very early stages and have not
been certified by any court. The Company denies these allegations
and intends to vigorously defend the lawsuits, including taking
steps to consolidate the state class proceedings to federal court
whenever possible. Given the early stages of the proceedings, it
is not possible to predict their outcome.
c) On June 10, 2004, the Company was served with a Statement of
claim issued in the Ontario Superior Court of Justice by C-MAC
Invotronics Inc., a subsidiary of Solectron Corporation. The
plaintiff is a supplier of electro-mechanical and electronic
automotive parts and components to the Company. The Statement of
claim alleges, among other things:
- improper use by the Company of the plaintiff's confidential
information and technology in order to design and manufacture
certain automotive parts and components; and
- breach of contract related to a failure by the Company to
fulfill certain preferred sourcing obligations arising under a
strategic alliance agreement signed by the parties at the time
of the Company's disposition of the Invotronic's business
division to the plaintiff in September, 2000.
The plaintiffs are seeking, among other things, compensatory
damages in the amount of Cdn. $150 million and punitive damages
in the amount of Cdn. $10 million. Despite the early stages of
the litigation, the Company believes it has valid defenses to the
plaintiffs' claims and therefore intends to defend this case
vigorously.
d) In the ordinary course of business activities, the Company may be
contingently liable for litigation and claims with customers,
suppliers and former employees and for environmental remediation
costs. Management believes that adequate provisions have been
recorded in the accounts where required. Although it is not
possible to estimate the extent of potential costs and losses, if
any, management believes, but can provide no assurance that the
ultimate resolution of such contingencies would not have a
material adverse effect on the financial position and results of
operations of the Company. Please refer to Note 22
"Contingencies" in the 2003 audited consolidated financial
statements included in the Company's 2003 Annual Report to
Shareholders.
e) The Company has guarantees to third parties that include future
rent, utility costs, workers compensation claims under
development, commitments linked to maintaining specific
employment, customs duties and obligations linked to performance
of specific vehicle programs. The amounts of these guarantees are
not individually or in aggregate significant.
f) During the second quarter of 2004, the Company entered into an
operating lease agreement for vehicle parts tooling. The lease
facility requires lease payments for tooling costs, which
approximated $10.0 million, be made monthly over the lease term
expiring in January 2008. The lease commenced when all tooling
costs were funded on June 18, 2004.
8. CAPITAL STOCK
Class and Series of Outstanding Securities
The Company's share structure has remained consistent with that in
place as at December 31, 2003. For details concerning the nature of
the Company's securities, please refer to Note 13 "Convertible Series
Preferred Shares" and note 14 "Capital Stock" in the 2003 audited
consolidated financial statements included in the Company's 2003
Annual Report to Shareholders.
The following table summarizes the outstanding share capital of the
Company:
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Authorized Issued
---------------------------------------------------------------------
Convertible Series Preferred Shares
(Convertible into Class A Subordinate
Voting Shares) (i) 2,250,000 2,183,000
Preferred Shares, issuable in series Unlimited -
Class A Subordinate Voting Shares
(i), (ii), (iii) Unlimited 7,299,503
Class B Shares
(Convertible into Class A Subordinate
Voting Shares) Unlimited 42,751,938
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(i) On June 22, 2004, Magna International Inc. ("Magna") exercised
its right to convert 27,500 Series 1 Convertible Preferred
Shares into Class A Subordinate Voting Shares of the Company.
The Company's Convertible Series Preferred Shares are
convertible by Magna at a fixed conversion price of U.S.$15.09
per Class A Subordinate Voting Share and accordingly, Magna
received 182,239 Class A Subordinate Voting Shares of the
Company.
(ii) The stated value of Class A Subordinate Voting Shares increased
by $2.9 million and $10.7 million during the three and nine
month periods ended September 30, 2004, representing 162,012
and 617,253 shares issued to the Company's Employee Equity and
Profit Participation Program.
(iii) The stated value of Class A Subordinate Voting Shares also
increased by $0.2 million and $0.9 million during the three and
nine month periods ended September 30, 2004, representing
10,000 shares and 68,750 shares issued on the exercise of stock
options granted under the Company's Incentive Stock Option
Plan.
Maximum Number of Shares
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 September 30, 2004 were exercised
or converted:
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Number of Shares
---------------------------------------------------------------------
Class A Subordinate Voting Shares outstanding as at
September 30, 2004 7,299,503
Class B Shares outstanding as at September 30, 2004 42,751,938
Options to purchase Class A Subordinate Voting Shares 3,490,550
Convertible Series Preferred Shares, convertible at
$15.09 per share 14,466,534
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68,008,525
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The number of shares reserved to be issued for stock options is
5,919,050 Class A Subordinate Voting Shares of which 2,428,500 are
reserved but unoptioned at September 30, 2004.
Incentive Stock Options
Information concerning the Company's Incentive Stock Option Plan is
included in note 14 "Capital Stock" of the 2003 audited consolidated
financial statements included in the Company's 2003 Annual Report to
Shareholders. The following is a continuity schedule of options
outstanding:
Canadian dollar options Number Weighted average Options
exercise price exercisable
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Outstanding at December 31,
2003 2,002,300 Cdn.$ 22.02 1,031,500
Exercised (1,600) Cdn.$ 21.00 (1,600)
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Outstanding at March 31,
2004 2,000,700 Cdn.$ 22.02 1,029,900
Exercised (9,700) Cdn.$ 21.00 (9,700)
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Outstanding at June 30,
2004 1,991,000 Cdn.$ 22.02 1,020,200
Vested 338,000
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Outstanding at September 30,
2004 1,991,000 Cdn.$ 22.02 1,358,200
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U.S. dollar options Number Weighted average Options
exercise price exercisable
---------------------------------------------------------------------
Outstanding at December 31,
2003 1,557,000 U.S.$ 14.68 856,600
Exercised (19,100) U.S.$ 13.72 (19,100)
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Outstanding at March 31,
2004 1,537,900 U.S.$ 14.69 837,500
Exercised (28,350) U.S.$ 13.72 (28,350)
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Outstanding at June 30,
2004 1,509,550 U.S.$ 14.71 809,150
Exercised (10,000) U.S.$ 14.52 (10,000)
Vested 247,000
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Outstanding at September 30,
2004 1,499,550 U.S.$ 14.71 1,046,150
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9. STOCK-BASED COMPENSATION
Prior to 2003, the Company did not recognize compensation expense for
its outstanding fixed price stock options. Effective January 1, 2003,
the Company adopted the fair value recognition provisions of CICA
3870 for all stock options granted after January 1, 2003. The fair
value of stock options is estimated at the date of grant using the
Black-Scholes options pricing model.
For the three month and nine month periods ended September 30, 2004,
the compensation expense recognized in selling, general and
administrative expense and credited to contributed surplus related to
the Company's outstanding fixed price stock options amounted to
approximately $0.1 million and $0.4 million, respectively (for the
three and nine month periods ended September 30, 2003 - nil and nil,
respectively).
For the three month and nine month periods ended September 30, 2004
and 2003, no options were granted under the Company's Incentive Stock
Option Plan.
If the fair value recognition provisions would have been adopted
effective January 1, 2002 for all stock options granted after
January 1, 2002, the Company's pro forma net income from continuing
operations attributable to Class A Subordinate Voting and Class B
Shares and pro forma basic and diluted earnings per Class A
Subordinate Voting or Class B Share for the three and nine months
ended September 30, 2004 and 2003 would have been as follows:
Three month periods Nine month periods
ended September 30, ended September 30,
2004 2003 2004 2003
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Pro forma net income
attributable to Class A
Subordinate Voting and
Class B Shares from
continuing operations $ 25.8 $ 5.6 $ 94.2 $ 35.8
Pro forma earnings per
Class A Subordinate
Voting or Class B share
from continuing
operations
Basic $ 0.52 $ 0.11 $ 1.90 $ 0.74
Diluted $ 0.44 $ 0.11 $ 1.60 $ 0.72
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10. CONVERTIBLE SERIES PREFERRED SHARES
The liability amount for Series 1 and Series 2 Convertible Preferred
Shares are presented as current liabilities. The Series 1 Convertible
Preferred Shares are retractable by Magna at their carrying value of
$105.8 million, together with all declared and unpaid dividends,
after December 31, 2003. The Series 2 Convertible Preferred Shares
are retractable by Magna at their carrying value of $110.8 million,
together with all declared and unpaid dividends, after December 31,
2004. The Series 1 and Series 2 Convertible Preferred Shares are also
convertible by Magna into the Company's Class A Subordinate Voting
Shares at a fixed conversion price of U.S.$15.09 per Class A
Subordinate Voting Share. The Series 1 and Series 2 Convertible
Preferred Shares are redeemable by the Company commencing
December 31, 2005.
11. EMPLOYEE BENEFIT EXPENSE
The Company recorded pension and other employee future benefit
expenses as follows:
Three month periods Nine month periods
ended September 30, ended September 30,
2004 2003 2004 2003
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Defined benefit pension
plans $ 1.6 $ 1.7 $ 5.3 $ 4.7
Post retirement medical
benefit plans 0.7 0.8 2.1 1.7
Other 0.4 0.3 1.3 0.9
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Total $ 2.7 $ 2.8 $ 8.7 $ 7.3
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12. SEGMENTED INFORMATION
The Company's segmented results of operations are as follows:
---------------------------------------------------------------------
---------------------------------------------------------------------
Three month period ended Three month period ended
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
Capital Capital
Total Operating assets, Total Operating assets,
Sales income net Sales income net
---------------------------------------------------------------------
Interior
Systems
North
America $ 607.3 $ 32.8 $ 258.6 $ 483.5 $ 13.0 $ 246.1
Europe 401.9 1.9 186.7 331.5 1.3 173.2
Closure
Systems 267.3 15.0 117.5 224.8 3.1 106.7
Corporate,
other and
intersegment
eliminations (4.4) (1.5) 0.7 (0.6) 0.2 0.7
---------------------------------------------------------------------
Total
reportable
segments $1,272.1 $ 48.2 $ 563.5 $1,039.2 $ 17.6 $ 526.7
Current
assets 1,584.1 1,325.0
Goodwill,
future
tax and
other
assets 214.2 203.8
Assets of
discontinued
operations - 23.0
----------------------------------------------------------------------
Consolidated
total assets $2,361.8 $2,078.5
----------------------------------------------------------------------
----------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine month period ended Nine month period ended
September 30, 2004 September 30, 2003
---------------------------------------------------------------------
Operating Capital Capital
Total income assets, Total Operating assets,
Sales (loss) net Sales income net
---------------------------------------------------------------------
Interior
Systems
North
America $2,007.2 $ 131.6 $ 258.6 $1,384.6 $ 48.5 $ 246.1
Europe 1,177.6 (4.6) 186.7 1,039.4 0.8 173.2
Closure
Systems 858.2 49.1 117.5 716.7 34.8 106.7
Corporate,
other and
intersegment
eliminations (7.6) (0.8) 0.7 (2.7) 0.8 0.7
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Total
reportable
segments $4,035.4 $ 175.3 $ 563.5 $3,138.0 $ 84.9 $ 526.7
Current
assets 1,584.1 1,325.0
Goodwill,
future
tax and
other
assets 214.2 203.8
Assets of
discontinued
operations - 23.0
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Consolidated
total assets $2,361.8 $2,078.5
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13. SUBSEQUENT EVENTS
On October 25, 2004, Magna International Inc. ("Magna") announced a
proposal to acquire all of the outstanding Class A Subordinate Voting
Shares of Intier not owned by Magna by way of a court-approved plan
of arrangement under Ontario law. In addition to court approval and
Intier Board of Directors approval, the transaction requires the
approval of the Class A Subordinate Voting shareholders of Intier, by
way of a majority of the votes cast by holders other than Magna and
its affiliates and other insiders. On November 2, 2004, Intier's
Board of Directors established a Special Committee of independent
Directors consisting of Lawrence Worrall (Chairman) and Neil Davis to
consider and make recommendations to the Intier Board regarding
Magna's proposal. Following receipt of the Special Committee's
recommendations, the Intier Board will respond to Magna's proposal.
14. COMPARABLE FIGURES
Certain of the comparative figures have been reclassified to conform
to the current period method of presentation.
FIRST AND FINAL ADD TO FOLLOW
DATASOURCE: Intier Automotive Inc.
CONTACT: Michael McCarthy, Executive Vice-President and Chief Financial
Officer of Intier, (905) 898-5200; For teleconferencing questions, please call
Karen Lesey at Intier at (905) 898-5200 Ext. 7042