Intier announces 2004 second quarter and year to date results
NEWMARKET, ON, Aug. 3 /PRNewswire-FirstCall/ -- Intier Automotive
Inc. (TSX: IAI.A, NASDAQ: IAIA) today reported financial results
for the second quarter ended June 30, 2004. Diluted earnings per
share for the second quarter ended June 30, 2004 were $0.61 as
compared to diluted earnings per share from continuing operations
of $0.36 for the second quarter ended June 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 SIX MONTH
PERIODS ENDED JUNE 30, ENDED JUNE 30, (Unaudited) (Unaudited)
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2004 2003 2004 2003 (1),(2) (1),(2)
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Sales $ 1,409.5 $ 1,120.7 $ 2,802.6 $ 2,140.6 Operating income $
67.9 $ 39.9 $ 122.9 $ 70.6 Net income from continuing operations $
38.0 $ 19.7 $ 67.9 $ 34.1 Net income $ 38.0 $ 19.4 $ 62.6 $ 33.0
Diluted earnings per share from continuing operations $ 0.61 $ 0.36
$ 1.10 $ 0.63 Diluted earnings per share $ 0.61 $ 0.35 $ 1.02 $
0.62
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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 sold a manufacturing facility reported in the European
Interior Systems segment with an effective date of sale 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. Sales increased 26% to
$1,409.5 million for the three month period ended June 30, 2004
compared to $1,120.7 million for the three month period ended June
30, 2003. This growth is attributable primarily to increased
average dollar content per vehicle in North America resulting from
new products launched during the first half of 2004 and the second
half of 2003. The strengthening of the euro and British pound
relative to the U.S. dollar also contributed to sales growth in
Europe. North American production sales grew to $909.2 million in
the second quarter of 2004 compared to $637.2 million in the second
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 $218 for the second quarter of 2004
compared to $153 for the second quarter of 2003. New products that
contributed to this increase included the complete seats, headliner
and instrument panel for the Chevrolet Equinox and the second and
third row stow in floor seats for the DaimlerChrysler minivan.
North American light vehicle production volumes remained relatively
unchanged at approximately 4.2 million units for the three month
periods ended June 30, 2004 and 2003. Western European production
sales increased 9% to $419.4 million for the second quarter of 2004
from $383.3 million for the second 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
second quarter of 2004 and in the second half of 2003 also
contributed to the increased sales. Second quarter of 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
$95 for the second quarter of 2004 compared to $88 for the second
quarter of 2003. Western European vehicle production volumes
increased 2% to 4.4 million units for the second quarter of 2004
compared to 4.3 million units for the second quarter of 2003.
Consolidated tooling and engineering sales for the three month
period ended June 30, 2004 decreased by 19% to $80.9 million from
$100.2 million for the three month period ended June 30, 2003.
Operating income for the second quarter of 2004 increased to $67.9
million compared to $39.9 million for the second quarter of 2003.
This increase was primarily attributable to higher sales resulting
from new products, lower start up costs at new facilities 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 free cash after investment
activities. During the second quarter of fiscal 2004, cash
generated from operations before changes in working capital was
$85.9 million. An additional $10.3 million of cash was generated
from working capital resulting in total cash from operating
activities of $96.2 million. Investment activities during the
second quarter of 2004 were $32.6 million resulting in free cash
before financing activities of $63.6 million for the quarter.
Diluted earnings per share were $0.61 for the three month period
ended June 30, 2004 compared to diluted earnings per share from
continuing operations of $0.36 for the three month period ended
June 30, 2003. Commenting on the second quarter results, Don
Walker, the Company's President and Chief Executive Officer, stated
"We are pleased with our results in the past quarter. This is a
reflection of the significant investments in product launches made
over the past two years and of our continued concentration on
operational efficiencies worldwide. Looking forward, we intend to
focus on commercializing many of our new technologies for our
customers." Intier Automotive's Board of Directors declared a
dividend in respect of the second quarter of 2004 of US$0.10 per
share on the Class A Subordinate Voting and Class B Shares payable
on or after September 15, 2004 to shareholders of record on August
31, 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 September 30, 2004 to holders of the Convertible Series
Preferred Shares of record on August 31, 2004. 2004 OUTLOOK
------------ For the full year, North American and European light
vehicle production volumes are expected to be approximately 16.0
million and 16.4 million units, respectively. Full year average
dollar content per vehicle is expected to be between $200 and $205
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 23,700 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 second quarter results
on Thursday, August 5, 2004 at 1:30 p.m. EST (Toronto Time). The
number to use for this call is 1 800-396-0424. Overseas callers
should use 1-416-641-6657. 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 21202583). 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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June 30, December 31, 2004 2003 (restated - notes 4,5)
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ASSETS
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Current assets: Cash and cash equivalents $ 315.2 $ 216.7 Accounts
receivable 921.1 805.5 Inventories 288.3 302.9 Prepaid expenses and
other 39.6 37.8 Discontinued operations - 7.3
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1,564.2 1,370.2 Capital assets, net 559.9 567.3 Goodwill 114.8
116.4 Future tax assets 62.6 70.7 Other assets 28.3 21.8
Discontinued operations - 1.8
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$ 2,329.8 $ 2,148.2
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities: Bank indebtedness $ 35.1 $ 29.7 Accounts
payable 930.2 827.3 Accrued salaries and wages 75.0 74.2 Other
accrued liabilities (note 6) 117.3 101.3 Income taxes payable 2.6
2.4 Long-term debt due within one year 4.4 4.4 Convertible Series
Preferred Shares (note 10) 215.0 108.6 Discontinued operations -
4.8
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1,379.6 1,152.7 Long-term debt 30.8 33.0 Other long-term
liabilities 47.4 44.2 Convertible Series Preferred Shares (note 10)
- 106.1 Future tax liabilities 56.7 44.9 Minority interest 1.5 1.1
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Shareholders' equity: Convertible Series Preferred Shares (note 8)
9.2 11.8 Class A Subordinate Voting Shares (note 8) 97.4 86.1 Class
B Shares (note 8) 495.8 495.8 Contributed surplus (note 9) 0.9 0.6
Retained earnings 107.2 57.4 Currency translation adjustment 103.3
114.5
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813.8 766.2
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$ 2,329.8 $ 2,148.2
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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 Six month periods ended June 30, ended June 30,
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2004 2003 2004 2003
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(restated - (restated - notes 4,5) notes 4,5) Sales $ 1,409.5 $
1,120.7 $ 2,802.6 $ 2,140.6
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Cost of goods sold (note 6) 1,229.2 982.2 2,458.8 1,878.3
Depreciation and amortization 27.2 24.4 54.1 47.9 Selling, general
and administrative (note 9) 66.1 56.8 129.4 110.8 Affiliation and
social fees 19.1 17.4 37.4 33.0
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Operating income 67.9 39.9 122.9 70.6 Interest expense, net 0.6 0.5
1.7 1.0 Amortization of discount on Convertible Series Preferred
Shares 1.6 3.0 3.1 6.0 Equity (income) loss (0.3) 0.1 (0.7) (0.2)
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Income before income taxes and minority interest 66.0 36.3 118.8
63.8 Income taxes 27.9 16.3 50.5 29.3 Minority interest 0.1 0.3 0.4
0.4
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Net income from continuing operations $ 38.0 $ 19.7 $ 67.9 $ 34.1
Net loss from discontinued operations - 0.3 5.3 1.1
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Net income 38.0 19.4 62.6 33.0
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Financing charge on Convertible Series Preferred Shares 1.4 0.2 2.9
0.6
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Net income attributable to Class A Subordinate Voting and Class B
Shares 36.6 19.2 59.7 32.4 Retained earnings, beginning of period
75.6 25.2 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 (5.0) (5.0) (9.9) (7.4)
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Retained earnings, end of period $ 107.2 $ 39.4 $ 107.2 $ 39.4
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Earnings per Class A Subordinate Voting or Class B Share from
continuing operations Basic $ 0.74 $ 0.40 $ 1.32 $ 0.69 Diluted $
0.61 $ 0.36 $ 1.10 $ 0.63 Earnings per Class A Subordinate Voting
or Class B Share Basic $ 0.74 $ 0.40 $ 1.21 $ 0.67 Diluted $ 0.61 $
0.35 $ 1.02 $ 0.62 Average number of Class A Subordinate Voting and
Class B Shares outstanding (in millions) Basic 49.6 48.4 49.4 48.3
Diluted 64.7 63.3 64.4 63.2
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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 Six month periods ended June 30, ended June 30,
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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 $ 38.0 $ 19.7 $ 67.9 $ 34.1 Items not involving current
cash flows 47.9 36.2 85.4 68.7
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85.9 55.9 153.3 102.8 Change in non-cash working capital 10.3
(48.2) 16.3 (3.5)
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96.2 7.7 169.6 99.3
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INVESTMENT ACTIVITIES Capital asset additions (27.3) (33.2) (52.6)
(57.1) Investments and other asset additions (5.4) (3.9) (9.9)
(5.8) Proceeds from disposition of capital assets and other 0.1 -
0.8 0.1
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(32.6) (37.1) (61.7) (62.8)
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FINANCING ACTIVITIES Increase (decrease) in bank indebtedness 13.8
(30.7) 5.9 (26.9) Net repayments of long-term debt and other
long-term liabilities (2.4) (2.5) (4.8) (3.5) Issue of Class A
Subordinate Voting Shares 3.1 6.5 8.5 6.5 Dividends on Class A
Subordinate Voting and Class B Shares (5.0) (5.0) (9.9) (7.4)
Dividends on Convertible Series Preferred Shares (2.8) (2.8) (5.5)
(5.6)
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6.7 (34.5) (5.8) (36.9)
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Effect of exchange rate changes on cash and cash equivalents (0.6)
9.0 (3.6) 10.5
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Net increase (decrease) in cash and cash equivalents during the
period 69.7 (54.9) 98.5 10.1 Cash and cash equivalents, beginning
of period 245.5 306.3 216.7 241.3
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Cash and cash equivalents, end of period $ 315.2 $ 251.4 $ 315.2 $
251.4
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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 June 30, 2004, and the results of operations and
cash flows for the three and six month periods ended June 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 six month periods ended June 30, 2003
was reduced by $0.3 million and $0.5 million, respectively. Basic
and diluted earnings per share for the three month period were
reduced by $0.01 and nil, respectively. Basic and diluted earnings
per share for the six month period were reduced by $0.01 and $0.01,
respectively. 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 six month
periods ended June 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 six month periods ended June 30,
2004, the Company recognized compensation expense of $0.2 million
and $0.3 million, respectively. There was no compensation expense
recognized during the three and six month periods ended June 30,
2003. 5. DISCONTINUED OPERATIONS On January 31, 2004, the Company
sold a manufacturing facility reported in the Europe Interior
Systems segment with an effective date of sale of January 1, 2004.
The impact of the sale was a net loss from discontinued operations
of $5.3 million, which included a $1.8 million write-off of future
tax assets. The loss from discontinued operations was recognized in
the three month period ended March 31, 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. The Company's assets, liabilities and equity, revenues
and expenses and cash flows related to discontinued operations are
as follows: Balance Sheet: As at December 31 2003
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ASSETS
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Current Assets Accounts receivable $ 5.2 Inventory 2.0 Prepaid
expenses and other 0.1
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7.3 Future tax assets 1.8
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$ 9.1
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LIABILITIES AND NET INVESTMENT
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Current Liabilities Accounts payable $ 3.5 Accrued salaries and
wages 0.8 Other accrued liabilities 0.5
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4.8 Net investment 4.3
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$ 9.1
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Statement of Income: Three month Six month period ended period
ended June 30, 2003 June 30, 2003
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Sales $ 11.5 $ 23.2
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Costs of goods sold 11.0 22.8 Selling, general and administrative
0.4 0.8 Affiliation and social fees 0.2 0.4
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Operating loss (0.1) (0.8) Income taxes 0.2 0.3
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Net loss $ (0.3) $ (1.1)
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Statement of Cash Flow: Three month Six month period ended period
ended June 30, 2003 June 30, 2003
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Cash provided from (used for): OPERATING ACTIVITIES Net loss $
(0.3) (1.1) Items not involving current cash flows 0.2 0.3
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(0.1) (0.8) Change in non-cash working capital (1.8) 0.1
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(1.9) (0.7) FINANCING ACTIVITIES Issues of debt 1.9 0.7 Net change
in cash and cash equivalents during the period - - Cash and cash
equivalents, beginning of period - -
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Cash and cash equivalents, end of period $ - $ -
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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 June 30, 2004, $2.0 million of this provision for
severance and termination costs is included in other accrued
liabilities. 7. COMMITMENTS AND CONTINGENCIES a) 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. b) 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. c) In February 2003, the CICA
issued Accounting Guideline No. 14, "Disclosure of Guarantees"
("AcG-14"). Consistent with AcG-14, the Company has provided
disclosure about guarantees as required for interim periods
beginning on or after January 1, 2003. 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.
d) 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
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Convertible Series Preferred Shares(i) (Convertible into Class A
Subordinate Voting Shares) 2,250,000 2,183,000 Preferred Shares,
issuable in series Unlimited - Class A Subordinate Voting Shares
(i),(ii),(iii) Unlimited 7,127,491 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 $2.6
million and $7.7 million during the three and six month periods
ended June 30, 2004, representing 146,633 and 455,241 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 $0.5 million and $0.8 million during the three and six
month periods ended June 30, 2004, representing 38,050 shares and
58,750 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 June 30, 2004 were exercised or
converted: Number of Shares
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Class A Subordinate Voting Shares outstanding as at June 30, 2004
7,127,491 Class B Shares outstanding as at June 30, 2004 42,751,938
Options to purchase Class A Subordinate Voting Shares 3,500,550
Convertible Series Preferred Shares, convertible at $15.09 per
share 14,466,534
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67,846,513
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The number of shares reserved to be issued for stock options is
5,929,050 Class A Subordinate Voting Shares of which 2,428,500 are
reserved but unoptioned at June 30, 2004. Incentive Stock Options
Information concerning the Company's Incentive Stock Option Plan is
included in note 14 "Capital Stock" of the 2003 audited
consolidated financial statements included in the Company's 2003
Annual Report to Shareholders. The following is a continuity
schedule of options outstanding: Canadian dollar options Weighted
average Options Number exercise price exercisable
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Outstanding at December 31, 2003 2,002,300 Cdn.$ 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
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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
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U.S. dollar options Weighted average Options Number exercise price
exercisable
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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
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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
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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 six month periods
ended June 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 $0.2 million and $0.3
million respectively (for the three and six month periods ended
June 30, 2003 - nil and nil, respectively). For the three month and
six month periods ended June 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 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 six months ended June 30, 2004 and 2003 would
have been as follows: Three month periods Six month periods ended
June 30, ended June 30, 2004 2003 2004 2003
---------------------------------------------------------------------
Pro forma net income attributable to Class A Subordinate Voting and
Class B Shares from continuing operations $ 36.4 $ 19.3 $ 64.6 $
33.1 Pro forma earnings per Class A Subordinate Voting or Class B
share from continuing operations Basic $ 0.73 $ 0.40 $ 1.31 $ 0.69
Diluted $ 0.61 $ 0.36 $ 1.10 $ 0.63
---------------------------------------------------------------------
---------------------------------------------------------------------
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 $109.2 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
Six month periods ended June 30, ended June 30, 2004 2003 2004 2003
---------------------------------------------------------------------
Defined benefit pension plans $ 2.5 $ 2.9 $ 5.4 $ 4.2 Post
retirement medical benefit plans 0.6 0.4 1.2 0.9 Other 0.4 0.3 0.9
0.6
---------------------------------------------------------------------
Total $ 3.5 $ 3.6 $ 7.5 $ 5.7
---------------------------------------------------------------------
---------------------------------------------------------------------
12. SEGMENTED INFORMATION The Company's segmented results of
operations are as follows: Three month period ended Three month
period ended June 30, 2004 June 30, 2003
---------------------------------------------------------------------
Operating Capital Operating Capital Total income assets, Total
income assets, Sales (loss) net Sales (loss) net
---------------------------------------------------------------------
Interior Systems North America $ 726.2 $ 53.5 $ 256.7 $ 473.4 $
22.9 $ 243.2 Europe 398.1 (3.6) 187.3 393.6 (0.5) 174.8 Closure
Systems 286.9 17.0 115.3 255.0 17.1 105.9 Corporate, other and
intersegment eliminations (1.7) 1.0 0.6 (1.3) 0.4 0.8
---------------------------------------------------------------------
Total reportable segments $1,409.5 $ 67.9 $ 559.9 $1,120.7 $ 39.9 $
524.7 Current assets 1,564.2 1,302.3 Goodwill, future tax and other
assets 205.7 196.3 Assets of discontinued operations - 9.5
---------------------------------------------------------------------
Consolidated total assets $2,329.8 $2,032.8
---------------------------------------------------------------------
---------------------------------------------------------------------
Six month period ended Six month period ended June 30, 2004 June
30, 2003
---------------------------------------------------------------------
Operating Capital Operating Capital Total income assets, Total
income assets, Sales (loss) net Sales (loss) net
---------------------------------------------------------------------
Interior Systems North America $1,399.9 $ 98.7 $ 256.7 $ 901.1 $
35.5 $ 243.2 Europe 815.0 (10.7) 187.3 749.7 2.8 174.8 Closure
Systems 590.9 34.2 115.3 491.9 31.7 105.9 Corporate, other and
intersegment eliminations (3.2) 0.7 0.6 (2.1) 0.6 0.8
---------------------------------------------------------------------
Total reportable segments $2,802.6 $ 122.9 $ 559.9 $2,140.6 $ 70.6
$ 524.7 Current assets 1,564.2 1,302.3 Goodwill, future tax and
other assets 205.7 196.3 Assets of discontinued operations - 9.5
---------------------------------------------------------------------
Consolidated total assets $2,329.8 $2,032.8
---------------------------------------------------------------------
---------------------------------------------------------------------
13. SUBSEQUENT EVENTS Subsequent to June 30, 2004, the Company
signed a letter of intent to proceed with the sale of one of its
facilities in the European Interior Systems segment. The
transaction is expected to close during the third quarter of 2004.
The impact on the Company is expected to be a loss from disposal of
approximately $7.0 million to $9.0 million, which will be presented
as part of discontinued operations in the third quarter of 2004.
14. COMPARABLE FIGURES Certain of the comparative figures have been
reclassified to conform to the current period method of
presentation. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION FOR THE THREE AND SIX MONTH
PERIODS ENDED JUNE 30, 2004 This Management's Discussion and
Analysis of the Results of Operations and Financial Condition
("MD&A") for the three and six month periods ended June 30,
2004 was prepared as of August 3, 2004 and should be read in
conjunction with the accompanying unaudited interim Consolidated
Financial Statements for the three and six month periods ended June
30, 2004 and the audited Consolidated Financial Statements and
MD&A of Intier Automotive Inc. (the "Company") for the year
ended December 31, 2003, as included in the 2003 Annual Report to
Shareholders. This Management's Discussion and Analysis discusses
results of operations from continuing operations unless otherwise
noted (see Note 5 "Discontinued Operations" in the accompanying
June 30, 2004 unaudited interim Consolidated Financial Statements).
All amounts in this MD&A are in U.S. dollars unless otherwise
noted. OVERVIEW The Company is a global full service supplier of
automotive interior and closure components, systems and modules
whose principal products include interior systems, such as seating
systems, cockpit systems, sidewall systems, cargo management
systems and overhead, floor and acoustic systems and related
components; and closure systems, including latching systems, glass
moving systems, power sliding doors and liftgates, mid-door and
tailgate modules, wiper systems and door modules. The Company
directly supplies most of the major automobile manufacturers in the
world. The Company's operations consist of two business segments,
Interior and Closure businesses, which are generally aligned on a
product basis with the corresponding purchasing and engineering
groups of the Company's customers. For the three month period ended
June 30, 2004, the Company's Interior segment accounted for
approximately 80% and 74% of the Company's consolidated sales and
operating income, the Company's Closure segment accounted for
approximately 20% and 25% of the Company's consolidated sales and
operating income and Corporate income accounted for approximately
1% of the Company's consolidated operating income. The following
are the highlights of the Company's financial performance for the
second quarter of 2004: - Total sales increased 26% to $1,409
million compared to $1,121 million for the second quarter of 2003.
- Average dollar content on North American produced vehicles in the
second quarter of 2004 increased by $65 to $218 as compared to $153
in the second quarter of 2003. Western European average dollar
content per vehicle increased by $7 to $95 in the second quarter of
2004, compared to $88 in the second quarter of 2003. The growth in
content in North America was primarily attributable to increased
market penetration and the growth in Europe was primarily
attributable to the strengthening of the euro and British Pound
relative to the U.S. dollar. - New products launched during the
second quarter of 2004 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. - North American light vehicle
production remained relatively unchanged at 4.2 million units and
Western European vehicle production increased approximately 2% to
4.4 million units, compared to the second quarter of 2003. -
Operating income increased by 70% to $67.9 million from $39.9
million in the second quarter of 2003. Industry Risks and Trends
The following is a summary of some of the more significant risks
and trends in the automotive industry that could affect the
Company's financial results: - An economic downturn could reduce or
eliminate the Company's profitability. The global automotive
industry is cyclical and is sensitive to changes in economic
conditions such as interest rates, consumer demand, commodity
prices and international conflicts; - Increasing price reduction
pressures from the Customer could reduce sales and profit margins;
- The Company is under increasing pressure to absorb more costs
related to product design and engineering and tooling as well as
other items previously paid for directly by automobile
manufacturers that could reduce profit margins; - Shift in market
share among vehicles could have an adverse effect on the Company's
sales and profit margins; - The Company's profitability is affected
by movements of the U.S. dollar against the Canadian dollar, the
British Pound, the euro and other currencies in which the Company
generates revenues; - The Company is under increasing pressure to
move operations to lower cost jurisdictions like Mexico, China and
Eastern Europe. The impact to the Company could include higher
costs associated with the impairment of redundant assets and labour
in certain higher cost jurisdictions in which the Company currently
carries on business, relocation and start-up costs, all of which
would adversely impact profit in the short term; and - The
Company's customers are increasingly requesting that each of their
suppliers bear the cost of the repair and replacement of defective
products which are either covered under automobile manufacturer's
warranty or are the subject of a recall by the customer and which
were improperly designed, manufactured or assembled by their
suppliers. The Company is also subject to the risk of exposure to
product liability claims in the event that the failure of the
Company's products results in bodily injury and/or property damage.
RESULTS OF OPERATIONS Impact of Foreign Currency Translation Three
month periods Six month periods ended June 30, ended June 30,
-------------------------------------------------------------------------
2004 2003 Change 2004 2003 Change
-------------------------------------------------------------------------
1 Canadian dollar equals U.S. dollars 0.7352 0.7171 3% 0.7466
0.6895 8% 1 euro equals U.S. dollars 1.2055 1.1391 6% 1.2268 1.1059
11% 1 British Pound equals U.S. dollars 1.8068 1.6208 11% 1.8236
1.6114 13%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Company's results are directly affected by the average exchange
rate used to translate the results of its operations having a
functional currency other than the U.S. dollar into U.S. dollars.
The preceding table reflects the average foreign exchange rates
between the primary currencies in which the Company conducts
business and the Company's U.S. dollar reporting currency. These
exchange rates have been used to translate the results of foreign
operations into U.S. dollars. Throughout this MD&A, reference
is made to the impact of foreign exchange on reported U.S. dollar
amounts where relevant. Three Month Periods Ended June 30, 2004 and
2003 Sales (in millions, except average dollar content per vehicle)
Three month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Vehicle production volumes North America 4.2 4.2 Europe 4.4 4.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average dollar content per vehicle North America $ 218 $ 153 Europe
$ 95 $ 88
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production sales - Interior Systems North America $ 683.8 $ 443.7
Europe 364.2 338.2 Production sales - Closure Systems 280.6 238.6
-------------------------------------------------------------------------
1,328.6 1,020.5 Tooling and engineering sales 80.9 100.2
-------------------------------------------------------------------------
Total sales $ 1,409.5 $ 1,120.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production Sales - Interior Systems: North America: North American
production sales for the Interior business increased 54% to $683.8
million for the second quarter of 2004 compared to $443.7 million
for the second quarter of 2003. This growth was primarily
attributable to an increase in average dollar content per vehicle.
The increase in average dollar content per vehicle was attributable
to new products launched during the first half of 2004 including
the complete seats, headliner and instrument panel for the
Chevrolet Equinox; and the second and third row stow in floor seats
for the DaimlerChrysler minivans and also to new products launched
during the second half of 2003 including the complete seats,
overhead system and interior trim for the Ford Freestar and Mercury
Monterey; the integration of the complete interior, excluding seats
for the Cadillac SRX; the seat mechanisms for the Honda Accord and
Pilot; the door panels for the Chevrolet Malibu; and the cockpit
module and seat tracks for the Chevrolet Colorado and the GMC
Canyon. Europe: European production sales for the Interior business
increased 8% to $364.2 million for the second quarter of 2004
compared to $338.2 million for the second quarter of 2003. This
growth was primarily due to the strengthening of the euro and
British Pound relative to the U.S. dollar. New products launched in
the second quarter of 2004 including the door panels for the BMW 1
Series; and the door panels, interior trim, carpet and cargo
management system for the Mercedes A-Class; and new products
launched in the second half of 2003 also contributed to the
increased sales. Production Sales - Closure Systems: Production
sales for the Closure business increased $42.0 million to $280.6
million for the second quarter of 2004 from $238.6 million for the
second quarter of 2003. The increase in production sales is due to
an increase in average dollar content per vehicle, which is
primarily a result of the launch of a modular side door latch for a
number of Audi programs in 2004 as well as other new products
launched in 2003. Production sales for the Closure business have
also been positively impacted by the strengthening of the euro and
the Canadian dollar relative to the U.S. dollar. Tooling and
Engineering Sales: The Company's consolidated tooling and
engineering sales for the second quarter of 2004 decreased by $19.3
million to $80.9 million from $100.2 million for the second quarter
of 2003 due to a lower number of new product launches during the
second quarter of 2004 compared to the second quarter of 2003.
Tooling and engineering sales decreased by $9.1 million to $74.6
million in the Interior business and decreased by $10.2 million to
$6.3 million in the Closure business for the second quarter of 2004
compared to the second quarter of 2003. Gross Margin Three month
periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Gross margin $ 180.3 $ 138.5
-------------------------------------------------------------------------
Gross margin as a percentage of total sales 12.8% 12.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gross margin increased by $41.8 million to $180.3 million in the
second quarter of 2004 compared to $138.5 million in the second
quarter of 2003. As a percentage of total sales, gross margin
increased to 12.8% for the second quarter of 2004 compared to 12.4%
for the comparable quarter of 2003. This increase is a result of
sales from new products launched during the first half of 2004 and
the second half of 2003, lower costs associated with launch of new
products and new facilities as compared to the second quarter of
2003, operating improvements at certain divisions, approximately $3
million of incremental investment tax credits as compared to the
second quarter of 2003 and the strengthening of the British Pound,
euro and Canadian dollar relative to the U.S. dollar. These
increases have been partially offset by increased raw material
prices and operating inefficiencies at a certain division.
Operating Income Three month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Gross margin $ 180.3 $ 138.5 Less: Depreciation and amortization
27.2 24.4 Selling, general and administrative 66.1 56.8 Affiliation
and social fees 19.1 17.4
-------------------------------------------------------------------------
Operating income $ 67.9 $ 39.9
-------------------------------------------------------------------------
Depreciation and amortization as a percentage of total sales 1.9%
2.2%
-------------------------------------------------------------------------
Selling, general and administrative expenses as a percentage of
total sales 4.7% 5.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization: Depreciation and amortization
expense increased by $2.8 million to $27.2 million for the second
quarter of 2004 from $24.4 million for the second quarter of 2003.
$3.3 million of the increase was due to additional depreciation
expense as a result of the Company's continuing investment in
capital equipment to support new programs and facilities and the
strengthening of the Canadian dollar, euro, and British Pound
relative to the U.S. dollar. This increase was partially offset by
$0.5 million of lower depreciation expense relating to the closure
of facilities in the first quarter of 2004. Selling, general and
administrative: Selling, general and administrative ("SG&A")
costs increased by $9.3 million to $66.1 million for the second
quarter of 2004 from $56.8 million for the second quarter of 2003.
$10.6 million of the increase in SG&A costs was primarily
attributable to the incremental costs associated with the launch of
new products and new facilities and the strengthening of the
Canadian dollar, euro and British Pound relative to the U.S.
dollar. This increase was partially offset by $1.3 million of lower
SG&A costs resulting from the closure of facilities in the
first quarter of 2004. Affiliation and social fees: The Company
pays fees to Magna for certain rights provided under the terms of
the Company's affiliation agreements and contributes a portion of
its social commitment obligation under its Corporate Constitution
pursuant to a social commitment agreement with Magna. These fees
and social commitment contributions are based on the Company's
sales and pretax profits. The fees and contributions to Magna
expensed during the second quarter of 2004 were $19.1 million
reflecting an increase of $1.7 million compared to $17.4 million
expensed in the second quarter of 2003. The increase in fees is
reflective of the increase in sales and pretax profits in the
second quarter of 2004 compared to the second quarter of 2003.
Operating Income: Three month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Interior Systems North America $ 53.5 $ 22.9 Europe (3.6) (0.5)
Closure Systems 17.0 17.1 Corporate 1.0 0.4
-------------------------------------------------------------------------
Operating income $ 67.9 $ 39.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating Income - Interior Systems: North America: Operating
income for the North American Interior business increased by $30.6
million to $53.5 million for the second quarter of 2004 from $22.9
million. Operating income was positively impacted by $35.2 million
primarily as a result of increased sales from new products
launched, increased sales on certain high content programs, lower
costs associated with fewer launches of new products and new
facilities offset by increased raw material prices, a $5.8 million
improvement in operating income at a previous underperforming
division and $2.7 million of incremental investment tax credits.
These increases have been partially offset by a $10.3 million
increase in selling, general and administrative costs and
affiliation fees associated with the growth in sales and by a $2.8
million increase in depreciation and amortization expense resulting
from the Company's continuing investment in capital equipment to
support new production programs and facilities. Europe: Operating
loss for the European Interior business increased $3.1 million to
$3.6 million for the second quarter of 2004 from $0.5 million for
the second quarter of 2003. The negative impact was primarily due
to a $2.7 million operating income deterioration at one particular
division due to lower sales and operating inefficiencies. Operating
Income - Closure Systems: Operating income for the Closure business
decreased by $0.1 million to $17.0 million for the second quarter
of 2004 from $17.1 million for the second quarter of 2003.
Operating income increased by $3.0 million as a result of operating
income improvements at a previous underperforming division. This
was offset by a $2.3 million increase in selling, general and
administrative costs and affiliation fees associated with the
increase in sales and by $0.8 million resulting from increased
costs associated with the launch of new products, new facilities
and raw materials offset by higher sales from new products.
Operating Income - Corporate: Operating income for corporate for
the second quarter of 2004 was $1.0 million as compared to $0.4
million for the comparable period in the prior year. Other Items
Three month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Operating income $ 67.9 $ 39.9 Interest expense, net 0.6 0.5
Amortization of discount on Convertible Series Preferred Shares 1.6
3.0 Equity (income) loss (0.3) 0.1
-------------------------------------------------------------------------
Income before income taxes and minority interest 66.0 36.3 Income
taxes 27.9 16.3 Minority interest 0.1 0.3
-------------------------------------------------------------------------
Net income from continuing operations 38.0 19.7 Net loss from
discontinued operations - 0.3
-------------------------------------------------------------------------
Net income 38.0 19.4 Financing charge on Convertible Series
Preferred Shares 1.4 0.2
-------------------------------------------------------------------------
Net income attributable to Class A Subordinate Voting and Class B
Shares $ 36.6 $ 19.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense, net: The Company's interest expense for the
second quarter of 2004 increased $0.1 million to $0.6 million
compared to $0.5 million for the second quarter of 2003, primarily
due to charges on bank indebtedness and long-term debt balances and
to lower interest income earned on cash balances. Amortization of
discount on Convertible Series Preferred Shares: As part of the
reorganization of the Company in August 2001, $225 million of
Convertible Series Preferred Shares were issued to Magna. As a
result, a $1.6 million charge relating to the Company's
amortization of the discount on the Convertible Series Preferred
Shares classified as debt was incurred during the second quarter of
2004 compared to $3.0 million in the second quarter of 2003. The
decrease of amortization of discount on Convertible Series
Preferred Shares is reflective of the Series 1 Convertible
Preferred Shares being fully amortized at December 31, 2003. Income
taxes: The effective tax rate on income before income taxes and
minority interest was 42% for the second quarter of 2004 compared
to 45% for the second quarter of 2003. Excluding the impact of
losses not benefited, the non-deductible amortization of discount
on Convertible Series Preferred Shares and a $3.1 million valuation
allowance for future taxes recorded in the second quarter of 2004,
the effective tax rate was approximately 33% for the second quarter
of 2004 as compared to 32% for the second quarter of 2003. Net
income from continuing operations: Net income from continuing
operations for the second quarter of 2004 was $38.0 million as
compared to $19.7 million for the second quarter of 2003. The
increase was attributable to increased operating income resulting
primarily from increased sales from new products launched during
the first half of 2004 and the second half of 2003, lower costs
associated with the launch of new products, operating income
improvements at certain underperforming divisions, incremental
investment tax credits and lower amortization of discount on
Convertible Series Preferred Shares. These increases were partially
offset by increased raw material prices, increased SG&A costs
and affiliation fees associated with the increase in sales,
increased depreciation and amortization expense resulting from the
Company's continuing investment in capital equipment to support new
production programs and facilities and increased income tax
expense. Net loss from discontinued operations: Net loss from
discontinued operations for the second quarter of 2003 relates to
the sale of a manufacturing facility during the first quarter of
2004 formerly 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", the results of the discontinued
operations have been segregated from the results of continuing
operations. For the second quarter of 2003, the Company incurred a
net loss from discontinued operations of $0.3 million on $11.5
million of sales. For the full year of 2003, the Company incurred a
net loss from discontinued operations of $0.4 million on $47.5
million of sales. Financing Charge: The deduction from net income
of dividends declared and paid on the Convertible Series Preferred
Shares (net of return of capital) was $1.4 million for the second
quarter of 2004 compared to $0.2 million for second quarter of
2003. The increase is a result of the dividend equity component of
the Series 1 Convertible Preferred Shares being fully utilized.
Earnings Per Share Three month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Earnings per Class A Subordinate Voting or Class B Share from
continuing operations (U.S. $) Basic $ 0.74 $ 0.40 Diluted $ 0.61 $
0.36
-------------------------------------------------------------------------
Earnings per Class A Subordinate Voting or Class B Share (U.S.$)
Basic $ 0.74 $ 0.40 Diluted $ 0.61 $ 0.35
-------------------------------------------------------------------------
Average number of Class A Subordinate Voting and Class B Shares
outstanding (in millions) Basic 49.6 48.4 Diluted 64.7 63.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per Class A Subordinate Voting or Class B Share
from continuing operations for the second quarter of 2004 was $0.61
compared to $0.36 for the second quarter of 2003. The increase in
diluted earnings per Class A Subordinate Voting or Class B Share
from continuing operations is a result of higher net income for the
second quarter of 2004 compared to the second quarter of 2003. The
impact of discontinued operations on diluted earnings per Class A
Subordinate Voting or Class B Share for the second quarters of 2004
and 2003 was nil and a reduction of $0.01, respectively. The 2003
full year impact of discontinued operations on diluted earnings per
share was a reduction of $0.01. 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 Series 1 and Series 2
Convertible Preferred Shares are convertible by Magna at a fixed
conversion price of $15.09 per Class A Subordinate Voting Share and
accordingly, Magna received 182,239 Class A Subordinate Voting
Shares of the Company. During the second quarter of 2004, the
Company issued 146,633 Class A Subordinate Voting Shares to the
Intier Employee Equity and Profit Participation Program. The
remaining increase in the average number of Class A Subordinate
Voting and Class B Shares outstanding relates to the exercise of
stock options granted under the Company's Incentive Stock Option
Plan. Overview of Six Month Periods Ended June 30, 2004 and 2003
Sales (in millions, except average dollar content per vehicle) Six
month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Vehicle production volumes North America 8.3 8.3 Europe 8.8 8.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average dollar content per vehicle North America $ 213 $ 146 Europe
$ 99 $ 86
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production sales - Interior Systems North America $ 1,304.2 $ 836.5
Europe 757.2 658.1 Production sales - Closure Systems 576.4 462.6
-------------------------------------------------------------------------
2,637.8 1,957.2
-------------------------------------------------------------------------
Tooling and engineering sales 164.8 183.4
-------------------------------------------------------------------------
Total sales $ 2,802.6 $ 2,140.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production Sales - Interior Systems: North America: North American
production sales for the Interior business increased 56% to
$1,304.2 million for the first half of 2004 compared to $836.5
million for the first half of 2003. This growth was due to an
increase in average dollar content per vehicle and to the
strengthening of the Canadian dollar relative to the U.S. dollar.
The increase in average dollar content per vehicle was attributable
to new products launched during the first half of 2004 including
the complete seats, headliner and instrument panel for the
Chevrolet Equinox; the second and third row stow in floor seats for
the DaimlerChrysler minivans and to new products launched during
the second half of 2003 including the complete seats, overhead
system and interior trim for the Ford Freestar and Mercury
Monterey; the integration of the complete interior, excluding
seats, for the Cadillac SRX; the seat mechanisms for the Honda
Accord and Pilot; the door panels for the Chevrolet Malibu and the
cockpit module and seat tracks for the Chevrolet Colorado and the
GMC Canyon. Europe: European production sales for the Interior
business increased 15% to $757.2 million for the first half of 2004
compared to $658.1 million for the first half of 2003. This growth
was primarily due to the strengthening of the euro and British
Pound relative to the U.S. dollar. New products launched in the
first half of 2004, including the door panels for the BMW 1 Series;
and the door panels, interior trim, carpet and cargo management
system for the Mercedes A-Class and new products launched during
the second half of 2003 also contributed to the increased sales.
Production Sales - Closure Systems: Production sales for the
Closure business increased 25% to $576.4 million for the first half
of 2004 from $462.6 million for the first half of 2003. The
increase in production sales was primarily due to the increase in
average dollar content per vehicle from the six month period ended
June 30, 2003, and the strengthening of the euro and Canadian
dollar relative to the U.S. dollar. The increase in average dollar
content per vehicle is primarily a result of the launch of a
modular side door latch for a number of Audi programs as well as
other new programs launched during 2003. Tooling and Engineering
Sales: The Company's consolidated tooling and engineering sales for
the first half of 2004 decreased 10% to $164.8 million from $183.4
million for the first half of 2003 due to a lower number of new
product launches during the first half of 2004 compared to the
first half of 2003. Tooling and engineering sales decreased by $3.7
million to $150.3 million in Interior business and decreased by
$14.9 million to $14.5 million in the Closure business for the
first half of 2004. Operating Income Six month periods ended June
30, 2004 2003
-------------------------------------------------------------------------
Interior Systems North America $ 98.7 $ 35.5 Europe (10.7) 2.8
Closure Systems 34.2 31.7 Corporate 0.7 0.6
-------------------------------------------------------------------------
Operating Income $ 122.9 $ 70.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating Income - Interior Systems: North America: Operating
income for the North American Interior business increased by $63.2
million to $98.7 million for the first half of 2004 from $35.5
million for the first half of 2003. Operating income was positively
impacted by $74.4 million primarily as a result of increased sales
from new product launches, increased sales on certain high content
programs, lower costs associated with fewer launches of new
products and new facilities offset by increased raw material
prices, a $10.1 million improvement in operating income at a
previous underperforming division and $5.0 million of incremental
investment tax credits. These increases have been partially offset
by $20.4 million of increased SG&A costs and affiliation fees
associated with the increase in sales and by $5.9 million of
increased depreciation and amortization expense resulting from the
Company's continuing investment in capital equipment to support new
production programs and facilities. Europe: Operating income for
the European Interior business decreased by $13.5 million to an
operating loss of $10.7 million for the first half of 2004 from
operating income of $2.8 million for the first half of 2003. The
decrease is primarily attributable to a $4.0 million charge
relating to the writedown of inventory at two reorganized
facilities and a $5.6 million operating income deterioration at one
particular division due to lower sales and operating
inefficiencies. Operating Income - Closure Systems: Operating
income for the Closure business increased by $2.5 million to $34.2
million in the first half of 2004 from $31.7 million in the first
half of 2003. Operating income was positively impacted by $8.6
million primarily as a result of a $6.0 million operating income
improvement at a previous underperforming division, $1.5 million of
incremental investment tax credits and $1.1 million as a result of
increased sales from new products; the strengthening of the euro
and Canadian dollar offset by increased raw material prices and
increased costs associated with the launch of new products and new
facilities. These increases were partially offset by a $2.5 million
charge for severance and termination costs related to the closure
of a division and by $3.6 million of increased SG&A costs and
affiliation fees associated with the increase in sales. Operating
Loss - Corporate: The operating income for corporate increased by
$0.1 million from $0.6 million in the first half of 2003 to $0.7
million in the first half of 2004. FINANCIAL CONDITION, LIQUIDITY
AND CAPITAL RESOURCES Three Month Periods Ended June 30, 2004 and
2003 Operating Activities Three month periods ended June 30, 2004
2003
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Net income from continuing operations $ 38.0 $ 19.7 Items not
involving current cash flows 47.9 36.2
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85.9 55.9 Change in non-cash working capital 10.3 (48.2)
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$ 96.2 $ 7.7
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During the second quarter of 2004, cash from operations before
changes in working capital increased by $30.0 million to $85.9
million from $55.9 million for the second quarter of 2003. The
increase was primarily a result of an increase in net income from
continuing operations of $18.3 million and an increase in non-cash
items of $11.7 million due primarily to higher depreciation and
future tax expense. The $10.3 million of cash generated from
working capital during the second quarter of 2003 is the result of
a $14.9 million decrease in accounts receivable, a $13.7 million
decrease in inventories offset by a $14.7 million decrease in
accounts payable and accrued liabilities and a $3.6 million
increase in other working capital. Investment Activities Three
month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Capital asset additions $ (27.3) $ (33.2) Investments and other
asset additions (5.4) (3.9) Proceeds from disposition of capital
assets and other 0.1 -
-------------------------------------------------------------------------
$ (32.6) $ (37.1)
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Cash used for capital assets, investment and other asset spending
was $32.7 million for the second quarter of 2004 compared to $37.1
million for the second quarter of 2003. This use of funds in the
second quarter of 2004 was partially offset by cash received from
normal course capital and other asset dispositions of $0.1 million.
Financing Activities Three month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Increase (decrease) in bank indebtedness $ 13.8 $ (30.7) Net
repayments of long-term debt and other long-term liabilities (2.4)
(2.5) Dividends on Class A Subordinate Voting and Class B Shares
(5.0) (5.0) Dividends on Convertible Series Preferred Shares (2.8)
(2.8) Issue of Class A Subordinate Voting Shares 3.1 6.5
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$ 6.7 $ (34.5)
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Cash generated from financing activities was $6.7 million for the
second quarter of 2004 compared to cash used in financing
activities of $34.5 million for the second quarter of 2003. Cash
generated from financing activities for the second quarter of 2004
included net issuances of debt (including bank indebtedness,
long-term debt and other long-term liabilities) of $11.4 million.
Cash used in financing activities for the second quarter of 2003
included net repayments of debt of $33.2 million. Dividends paid
during the second quarters of 2004 and 2003 were $0.10 per Class A
Subordinate Voting and Class B Share totalling $5.0 million.
Dividends paid on Convertible Series Preferred Shares for the
second quarters of 2004 and 2003 were $2.8 million. During the
second quarter of 2004, 146,633 Class A Subordinate Voting Shares
were issued to the Intier Employee Equity and Profit Participation
Program for total proceeds of $2.6 million compared to 470,415
Class A Subordinate Voting Shares issued during the second quarter
of 2003 for total proceeds of $6.5 million. The remainder of the
proceeds from the issue of Class A Subordinate Voting Shares for
the second quarter of 2004 relate to the exercise of options
granted under the Company's Incentive Stock Option Plan. Six Month
Periods Ended June 30, 2004 and 2003 Operating Activities Six month
periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Net income from continuing operations $ 67.9 $ 34.1 Items not
involving current cash flows 85.4 68.7
-------------------------------------------------------------------------
153.3 102.8 Change in non-cash working capital 16.3 (3.5)
-------------------------------------------------------------------------
$ 169.6 $ 99.3
-------------------------------------------------------------------------
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During the first half of 2004, cash generated from operations
before changes in working capital increased by $50.5 million to
$153.3 million from $102.8 million for the first half of 2003. The
increase was primarily a result of an increase in net income from
continuing operations of $33.8 million as well as an increase in
non-cash items of $16.7 million due primarily to higher
depreciation and future tax expense. The $16.3 million of cash
generated from working capital during the first half of 2004 is a
result of a $135.2 million increase in accounts payable and accrued
liabilities and a $10.5 million decrease in inventories, offset by
$127.0 million increase in accounts receivable and a $2.4 million
increase in other working capital. The increase in accounts
receivable and accounts payable and accrued liabilities is
primarily due to increased sales from new programs launched in the
latter half of 2003 and in the first half of 2004. Investment
Activities Six month periods ended June 30, 2004 2003
-------------------------------------------------------------------------
Capital asset additions $ (52.6) $ (57.1) Investment and other
asset additions (9.9) (5.8) Proceeds from disposition of capital
assets and other 0.8 0.1
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$ (61.7) $ (62.8)
-------------------------------------------------------------------------
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Cash used for investment activities during the first half of 2004
decreased to $61.7 million compared to $62.8 million during the
first half of 2003. Cash used for capital and other asset spending
was $62.5 million and $62.9 million for the first half of 2004 and
2003, respectively. This use of funds was partially offset by cash
received from normal course fixed and other asset dispositions of
$0.8 million and $0.1 million during the first half of 2004 and
2003 respectively. Financing Activities Six month periods ended
June 30, 2004 2003
-------------------------------------------------------------------------
Increase (decrease) in bank indebtedness $ 5.9 $ (26.9) Net
repayments of long-term debt and other long-term liabilities (4.8)
(3.5) Dividends on Class A Subordinate Voting and Class B Shares
(9.9) (7.4) Dividends on Convertible Series Preferred Shares (5.5)
(5.6) Issue of Class A Subordinate Voting Shares 8.5 6.5
-------------------------------------------------------------------------
$ (5.8) $ (36.9)
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-------------------------------------------------------------------------
Cash used in financing activities was $5.8 million for the first
half of 2004 compared to $36.9 million for the first half of 2003.
Cash used in financing activities for the first half of 2004
included net issuances of debt (including bank indebtedness,
long-term debt and other long-term liabilities) of $1.1 million
compared to net repayments of debt of $30.4 million for the first
half of 2003. Dividends paid during the first half of 2004 were
$0.20 per Class A Subordinate Voting and Class B Share totalling
$9.9 million compared to $0.15 per Class A Subordinate Voting and
Class B Share during the first half of 2003, totalling $7.4
million. Dividends paid on Convertible Series Preferred Shares for
the first half of 2004 were $5.5 million compared to $5.6 million
for the first half of 2003. During the first half of 2004, 455,241
Class A Subordinate Voting Shares were issued to the Intier
Employee Equity and Profit Participation Program for total proceeds
of $7.7 million compared to 470,415 Class A Subordinate Voting
Shares issued in the first half of 2003 for total proceeds of $6.5
million. The remainder of the proceeds from the issue of Class A
Subordinate Voting Shares for the first half of 2004 relate to the
exercise of options granted under the Company's Incentive Stock
Option Plan. Consolidated Capitalization The Company's net cash
(including bank indebtedness, long-term debt including current
portion, and the liability portion of the Convertible Series
Preferred Shares, less cash and cash equivalents) to total
capitalization (including net cash and shareholders' equity), was
3.8% at June 30, 2004 compared to net debt to total capitalization
of 7.8% at December 31, 2003. The above total capitalization
figures treat the liability portion ($215.0 million and $214.7
million as at June 30, 2004 and December 31, 2003, respectively) of
the Convertible Series Preferred Shares as debt. The Series 1
Convertible Preferred Shares are retractable by Magna on or after
December 31, 2003 and the Series 2 Convertible Preferred Shares are
retractable by Magna on or after December 31, 2004. These
instruments are also convertible into Intier Class A Subordinate
Voting Shares at a fixed conversion price of U.S.$15.09 per Class A
Subordinate Voting Share. Unused and Available Financing Resources
Cash on hand increased to $315.2 million at June 30, 2004 from
$216.7 million at December 31, 2003. At June 30, 2004, the Company
had credit facilities of $503.6 million, of which $423.4 million
are unused and available. $347.9 million of the unused and
available facilities represent the unused and available portion of
the Company's $385 million three year revolving credit facility
that expires September 27, 2004. The Company is in the advanced
stages of renewing the three year revolving credit facility on
similar terms to the existing facility. The Company anticipates
renewal of the facility prior to September 27, 2004. In addition to
the above unused and available financing resources, the Company and
certain of its North American subsidiaries sponsored a tooling
finance program for tooling suppliers to finance tooling under
construction. Under this program, the facility provider ordered
tooling from tooling suppliers and will subsequently sell such
tooling to the sponsor or its designee. The facility provider made,
and continues to make on previously ordered tooling, advances to
tooling suppliers based on tool build milestones approved by the
sponsor or its designee. On completion of the tooling, the facility
provider will sell the tooling to the sponsor or its designee for
an amount equal to cumulative advances including carrying costs. In
the event of tooling supplier default, the sponsor will purchase in
progress tooling for an amount approximating cumulative advances.
As at June 30, 2004, $26.5 million had been advanced to tooling
suppliers under the Company's portion of this facility. This amount
is included in accounts payable on the Company's June 30, 2004
unaudited Consolidated Balance Sheet. The Company typically
receives a contract or production purchase order from an automobile
manufacturer to produce a component, assembly, module or system for
one or more vehicle model years. As part of these contracts, the
Company may be required to absorb costs relating to product design
and engineering and tooling costs and recover these costs by
increasing the unit price of the related products. If estimated
production volumes are not achieved, the Company may not fully
recover these costs. It is expected that the Company will continue
to incur increasing amounts of design and engineering and tooling
costs, primarily related to newly awarded production contracts with
production planned to start during the remainder of 2004 through to
2006. Capital and investment spending for existing businesses and
projects is expected to range between $120 million and $140 million
for 2004. The majority of capital spending in 2004 relates to the
award of new production contracts and includes spending for new
machinery and equipment, new production facilities, maintenance
improvements and planned efficiency enhancements. Management
believes the Company is in a position to meet all of 2004 planned
cash requirements from its cash balances on hand and cash provided
from operations. A decrease in estimated vehicle production volumes
could adversely impact cash provided from operating activities in
2004. Cash provided from operating activities totalled $169.6
million and $99.3 million for the six month periods ended June 2004
and 2003 respectively. Off Balance Sheet Financing 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 January 2008. The
lease commenced when all tooling costs were funded on June 18,
2004. Guarantees In February of 2003, the CICA approved an
Accounting Guideline, AcG-14, "Disclosure of Guarantees"
("AcG-14"). The guidelines require financial statement disclosures
to be made by a guarantor about its obligations under guarantees.
The Guideline is applicable for interim and annual periods
beginning on or after January 1, 2003. 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 amount of
these guarantees is not individually or in aggregate significant.
Contingencies 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. 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. The Company has a number of arrangements in Canada,
the United States, the United Kingdom and Europe which provide
pension and future employee benefits to its retired and current
employees. Pension arrangements include statutory pension plans as
well as similar arrangements, which provide pension benefits as
required by statute. The Company has obligations under its defined
benefit pension plans and other statutory plans. Unfunded
unrecognized net actuarial gains and losses are amortized and
charged to earnings over the average remaining service period of
active employees. All pension plans and similar arrangements are
funded to the minimum legal funding requirement. In certain plans,
there is no legal requirement to fund the obligation until such
time as they are actually incurred and as a result these
arrangements are unfunded. In the event that any of these plans are
terminated or wound up, an immediate payment of all unfunded
amounts may be required and these amounts could materially exceed
the current unfunded position. 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: Capital assets $ 6.1
-------------------------------------------------------------------------
$ 6.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other long-term liabilities $ 11.6 Future tax liabilities (1.0)
Retained earnings (3.7) Currency translation (0.8)
-------------------------------------------------------------------------
$ 6.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income for the three and six month periods ended June 30, 2003
was reduced by $0.3 million and $0.5 million respectively. Basic
and diluted earnings per share for the three month period ended
June 30, 2003 were reduced by $0.01 and nil, respectively. Basic
and diluted earnings per share for the six month period ended June
30, 2003 were reduced by $0.01 and $0.01, respectively. 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 six month periods ended June 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 six month periods ended
June 30, 2004, the Company recognized compensation expense of $0.2
million and $0.3 million respectively. There was no compensation
expense recognized during the three and six month periods ended
June 30, 2003. Subsequent Events Subsequent to June 30, 2004, the
Company signed a letter of intent to proceed with the sale of one
of its facilities in the European Interior Systems segment. The
transaction is expected to close during the third quarter of 2004.
The impact on the Company is expected to be a loss from disposal of
approximately $7.0 million to $9.0 million, which will be presented
as part of discontinued operations in the third quarter of 2004.
Additional Information Additional information relating to the
Company, including the Company's Annual Information Form is
available on SEDAR at http://www.sedar.com/. DATASOURCE: Intier
Automotive Inc. CONTACT: Michael McCarthy, Executive Vice-President
and Chief Financial Officer of Intier at (905) 898-5200. For
teleconferencing questions, please call Karen Lesey at Intier at
(905) 898-5200 Ext. 7042.
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