Intier announces 2003 third quarter and year to date results
NEWMARKET, ON, Nov. 3 /PRNewswire-FirstCall/ -- Intier Automotive
Inc. (TSX: IAI.A, NASDAQ: IAIA) today reported financial results
for the third quarter ended September 30, 2003. Sales were $1,069
million for the third quarter ended 2003 up 15% as compared to $932
million for the third quarter ended September 30, 2002. Diluted
earnings per share for the third quarter ended September 30, 2003
were $0.16 as compared to diluted earnings per share of $0.25 for
the third quarter ended September 30, 2002.
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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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2003 2002 2003 2002
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Sales $ 1,069.1 $ 931.6 $ 3,232.9 $ 2,806.9 Operating income $ 20.0
$ 26.6 $ 90.1 $ 106.4 Net income $ 8.3 $ 12.9 $ 41.8 $ 52.3 Diluted
earnings per share $ 0.16 $ 0.25 $ 0.80 $ 0.96
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Sales increased $137.5 million to $1,069.1 million for the three
month period ended September 30, 2003. Approximately $72 million,
or 52%, of this increase is due to the positive impact of foreign
exchange translation related to the strengthening Canadian dollar,
euro and British Pound relative to the U.S. dollar. North American
production sales grew to $593.6 million in the third quarter of
2003 compared to $523.3 million in the third quarter of 2002 as a
result of the positive impact of higher North American average
dollar content per vehicle and the strengthening of the Canadian
dollar, offset by lower production volumes. North American light
vehicle production volumes decreased approximately 3% to 3.7
million units for the three month period ended September 30, 2003
as compared to 3.8 million units for the three month period ended
September 30, 2002. North American average dollar content per
vehicle increased 19% to $162 for the third quarter of 2003
compared to $136 for the third quarter of 2002. New products that
contributed to this increase included the Company's complete seats,
headliner and interior trim for the Ford Freestar and the Mercury
Monterey, 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, the complete seats for the
Chrysler Pacifica launched during the first quarter of 2003, and
the complete seats and overhead system for the Saturn ION launched
in the fourth quarter of 2002. Western European production sales
increased to $366.6 million for the third quarter of 2003 compared
to $311.1 million for the third quarter of 2002 as a result of
growth in the Western European average dollar content per vehicle
and the positive impact related to the strengthening of the euro
and British Pound. Western European vehicle production volumes
remained relatively flat at approximately 3.6 million units for the
three month periods ended September 30, 2003 and 2002. Western
European average dollar content per vehicle increased 15% to $100
for the third quarter of 2003 compared to $87 for the third quarter
of 2002. New products that contributed to this increase included
the instrument panel, console, door panels and other interior trim
for the BMW 6 Series and new products launched in the first quarter
of 2003 and the fourth quarter of 2002 including the instrument
panel, console and door panels for the new Jaguar XJ Series, door
panels for the Toyota Avensis and cockpit module for the Nissan
Micra. Consolidated tooling and engineering sales for the three
month period ended September 30, 2003 increased by 12% to $108.9
from $97.2 million for the three month period ended September 30,
2002. Operating income for the third quarter of 2003 declined to
$20.0 million compared to $26.6 million for the third quarter of
2002. Operating income was adversely impacted by higher than
expected launch costs on significant new business that commenced
production during the third quarter. Other factors contributing to
the lower operating income included higher costs associated with
new facilities launching new products during the second half of
2003 and early in the first quarter of 2004, lower North American
vehicle production volumes, customer price reductions, the adverse
impact of the strengthening euro on operating losses at certain
European operations and higher selling, general and administrative
expenses associated with the increased sales. Cash generated from
operations before changes in working capital during the third
quarter of fiscal 2003 was $37.1 million. Cash invested in working
capital of $95.9 million, including amounts for new product
launches, resulted in cash used in operating activities of $58.8
million. Investment activities during the third quarter of 2003
were $35.0 million resulting in a net use of cash before financing
activities of $93.8 million for the quarter. Diluted earnings per
share was $0.16 for the three month period ended September 30,
2003, compared to diluted earnings per share of $0.25 for the three
month period ended September 30, 2002. Commenting on the third
quarter results, Don Walker, the Company's President and Chief
Executive Officer, stated "During the third quarter, we launched a
significant number of new products, primarily in North America.
Although the costs associated with these launches exceeded our
expectations, we remain confident that the incremental sales
associated with these new products will result in higher
profitability in 2004". Intier Automotive's Board of Directors
declared a dividend in respect of the third quarter of 2003 of
US$0.10 per share on the Class A Subordinate Voting and Class B
Shares payable on or after December 15, 2003 to shareholders of
record on November 28, 2003. The Board also declared a dividend of
US$2,763,125 on the outstanding Convertible Series 1 and 2
Preferred Shares payable on or after December 31, 2003 to holders
of the Convertible Series Preferred Shares of record on November
28, 2003. 2003 OUTLOOK ------------ For the full year, North
American light vehicle production volumes are expected to decrease
to approximately 15.9 million units from 16.3 million units in
2002. Western Europe production volumes are expected to decrease to
approximately 16.0 million units compared to 16.3 million units in
2002. Full year average content per vehicle is expected to increase
16% to 18% in North America and 24% to 26% in Western Europe for
the full year 2003 compared to 2002. Based on these production
volume estimates, product mix and foreign exchange rate assumptions
and tooling and engineering sales estimates, 2003 total sales are
expected to be between $4.40 billion and $4.45 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 23,800 employees at 68 manufacturing facilities, and
17 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 and other
developments on Tuesday, November 4, 2003 at 9:00 a.m. EST (Toronto
Time). The number to use for this call is 1-800-298-3006. Overseas
callers should use 416-641-6690. 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 21163946). The conference call
will be chaired by Don Walker, President and Chief Executive
Officer 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
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(U.S. dollars in millions) As at As at September December 30, 31,
2003 2002
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(Unaudited) (Audited) ASSETS
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Current assets: Cash and cash equivalents $ 205.9 $ 241.3 Accounts
receivable 740.2 579.9 Inventories 364.7 261.7 Prepaid expenses and
other 32.5 27.8 Income taxes receivable 2.6 5.5
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1,345.9 1,116.2
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Fixed assets, net 521.3 478.1
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Goodwill 110.2 100.7
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Future tax assets 75.4 75.5
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Other assets 19.9 11.3
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$ 2,072.7 $ 1,781.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities: Bank indebtedness $ 83.8 $ 48.6 Accounts
payable 800.2 658.0 Accrued salaries and wages 71.6 74.3 Other
accrued liabilities 78.0 50.2 Long-term debt due within one year
4.1 4.2 Series 1 Convertible Series Preferred Shares (note 9) 106.9
-
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1,144.6 835.3
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Long-term debt 32.2 31.8
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Other long-term liabilities 32.3 25.6
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Convertible Series Preferred Shares (note 9) 104.6 206.2
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Future tax liabilities 38.5 38.0
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Minority interest 1.1 0.9
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Shareholders' equity: Convertible Series Preferred Shares (note 6)
14.3 22.0 Class A Subordinate Voting Shares (note 6) 83.8 71.8
Class B Shares (note 6) 495.8 495.8 Retained earnings 45.7 17.2
Currency translation adjustment 79.8 37.2
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719.4 644.0
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$ 2,072.7 $ 1,781.8
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INTIER AUTOMOTIVE INC. CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
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(U.S. dollars in millions, except per share figures and numbers of
shares)
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Three month periods Nine month periods ended September 30, ended
September 30,
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2003 2002 2003 2002
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(Unaudited) (Unaudited) Sales $ 1,069.1 $ 931.6 $ 3,232.9 $ 2,806.9
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Cost of goods sold 950.4 819.5 2,851.5 2,448.7 Depreciation and
amortization 26.1 22.5 73.7 64.1 Selling, general and
administrative 57.4 48.8 169.0 144.4 Affiliation and social fees
15.2 14.2 48.6 43.3
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Operating income 20.0 26.6 90.1 106.4 Interest expense (income),
net 0.3 (1.2) 1.0 (0.6) Amortization of discount on Convertible
Series Preferred Shares 3.1 2.9 9.1 8.6 Equity loss 0.3 - 0.1 -
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Income before income taxes and minority interest 16.3 24.9 79.9
98.4 Income taxes 8.1 11.7 37.8 46.2 Minority interest (0.1) 0.3
0.3 (0.1)
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Net income $ 8.3 $ 12.9 $ 41.8 $ 52.3
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Financing charge on Convertible Series Preferred Shares 0.3 0.5 0.9
1.3
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Net income attributable to Class A Subordinate Voting and Class B
Shares 8.0 12.4 40.9 51.0 Retained earnings, beginning of period
42.7 14.0 17.2 15.9 Adjustment for change in accounting policy for
goodwill (note 4) - - - (35.7) Dividends on Class A Subordinate
Voting and Class B Shares (5.0) (2.4) (12.4) (7.2)
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Retained earnings, end of period $ 45.7 $ 24.0 $ 45.7 $ 24.0
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Earnings per Class A Subordinate Voting or Class B Share (note 7)
Basic $ 0.16 $ 0.26 $ 0.84 $ 1.06 Diluted $ 0.16 $ 0.25 $ 0.80 $
0.96 Average number of Class A Subordinate Voting and Class B
Shares outstanding (in millions) (note 7) Basic 48.8 48.2 48.5 48.2
Diluted 48.8 63.7 63.4 63.7
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INTIER AUTOMOTIVE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
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(U.S. dollars in millions)
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Three month periods Nine month periods ended September 30, ended
September 30,
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2003 2002 2003 2002
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(Unaudited) (Unaudited) Cash provided from (used for): OPERATING
ACTIVITIES Net income $ 8.3 $ 12.9 $ 41.8 $ 52.3 Items not
involving current cash flows 28.8 29.9 97.3 90.9
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37.1 42.8 139.1 143.2 Change in non-cash working capital (95.9) 0.6
(99.3) 89.4
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(58.8) 43.4 39.8 232.6
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INVESTMENT ACTIVITIES Fixed asset additions (29.7) (34.6) (86.8)
(87.4) Increase in investments and other assets (5.4) (1.4) (10.5)
(2.1) Proceeds from disposition of fixed assets and other 0.1 0.3
0.2 2.8
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(35.0) (35.7) (97.1) (86.7)
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FINANCING ACTIVITIES Increase in bank indebtedness 57.2 24.2 30.3
31.7 Repayments of long-term debt and other long-term liabilities
(1.8) (3.7) (5.3) (3.3) Dividends on Class A Subordinate Voting and
Class B Shares (5.0) (2.4) (12.4) (7.2) Dividends on Convertible
Series Preferred Shares (2.8) (2.8) (8.4) (5.6) Issue of Class A
Subordinate Voting Shares (note 6) 1.4 0.1 7.9 0.1
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49.0 15.4 12.1 15.7
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Effect of exchange rate changes on cash and cash equivalents (0.7)
(2.6) 9.8 3.0
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Net (decrease) increase in cash and cash equivalents during the
period (45.5) 20.5 (35.4) 164.6 Cash and cash equivalents,
beginning of period 251.4 221.2 241.3 77.1
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Cash and cash equivalents, end of period $ 205.9 $ 241.7 $ 205.9 $
241.7
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (All amounts in
U.S. dollars unless otherwise noted and all tabular amounts in
millions, except per share figures and number of shares) (All
amounts as at September 30, 2003 and for the three and nine month
periods ended September 30, 2003 and 2002 are unaudited). 1. BASIS
OF PRESENTATION The unaudited interim consolidated financial
statements have been prepared following the accounting policies as
set out in the 2002 annual consolidated financial statements
included in the Company's 2002 Annual Report to shareholders. The
unaudited interim consolidated financial statements do not conform
in all respects to the requirements of Canadian generally accepted
accounting principles for annual financial statements. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the 2002 annual consolidated financial
statements as included in the Company's 2002 Annual Report. 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, 2003, and the
results of operations and cash flows for the three and nine month
periods ended September 30, 2003 and 2002. 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 require
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. CHANGE IN ACCOUNTING
POLICY FOR GOODWILL In 2002, the Company adopted the new accounting
recommendations of The Canadian Institute of Chartered Accountants
for goodwill. Upon initial adoption of these recommendations, the
Company recorded a goodwill writedown of $35.7 million, of which
$27.6 million, $5.6 million and $2.5 million related to reporting
units in the Interior Europe, Closure and Interior North America
reporting segments, respectively. The total goodwill writedown was
charged against January 1, 2002 opening retained earnings. 5.
CONTINGENCIES In the ordinary course of business activities, the
Company may be contingently liable for litigation and claims with
customers, suppliers and former employees 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 2002
audited consolidated financial statements included in the Company's
2002 Annual Report. 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 amount of these guarantees are not
individually or in aggregate significant. 6. CAPITAL STOCK Class
and Series of Outstanding Securities 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 2002 audited consolidated financial statements included in
the Company's 2002 Annual Report. 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 2,210,500 Preferred Shares,
issuable in series Unlimited - Class A Subordinate Voting Shares
(i),(ii) Unlimited 6,301,515 Class B Shares (Convertible into Class
A Subordinate Voting Shares) Unlimited 42,751,938
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(i) On August 25, 2003, Magna International Inc. (Magna) exercised
its right to convert 39,500 Series 1 Convertible Series Preferred
Shares into Class A Subordinate Voting Shares of the Company. The
Company's 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 261,762 Class A
Subordinate Voting Shares of the Company. (ii) The stated value of
Class A Subordinate Voting Shares increased by $1.4 million and
$7.9 million during the three and nine month periods ended
September 30, 2003, respectively, representing 88,147 shares and
558,562 shares, respectively, issued to fund the Company's Employee
Equity Participation and Profit Participation Program. 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,
2003 were exercised or converted:
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Number of Shares
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Class A Subordinate Voting Shares outstanding as at September 30,
2003 6,301,515 Class B Shares outstanding as at September 30, 2003
42,751,938 Options to purchase Class A Subordinate Voting Shares
3,095,000 Convertible Series Preferred Shares, convertible at
$15.09 per share 14,648,775
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66,797,228
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The number of shares reserved to be issued for stock options is
5,995,000 Class A Subordinate Voting Shares of which 2,900,000 are
reserved but unoptioned at September 30, 2003. The total number of
shares issued from exercised stock options, from the inception date
of the plan, is 5,000. The total number of options to purchase
Class A Subordinate Voting Shares that have been cancelled, from
the inception of the plan, is 131,000. The total number of options
to purchase Class A Subordinate Voting Shares that have expired,
from the inception of the plan, is 4,000. 7. EARNINGS PER SHARE The
following table summarizes the calculation of earnings per share
for the three and nine month periods ended September 30, 2003 and
2002.
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Three month Nine month periods ended periods ended September 30,
September 30,
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2003 2002 2003 2002
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Basic earnings per Class A Subordinate Voting or Class B Share: Net
income attributable to Class A Subordinate Voting and Class B
Shares $ 8.0 $ 12.4 $ 40.9 $ 51.0
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Average number of Class A Subordinate Voting and Class B Shares
outstanding during the period 48.8 48.2 48.5 48.2
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Basic earnings per Class A Subordinate Voting or Class B Share $
0.16 $ 0.26 $ 0.84 $ 1.06
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Diluted earnings per Class A Subordinate Voting or Class B Share:
Net income attributable to Class A Subordinate Voting and Class B
Shares $ 8.0 $ 12.4 $ 40.9 $ 51.0
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Adjustments (net of related tax effects): Amortization of discount
on Convertible Series Preferred Shares - 2.9 9.1 8.6 Financing
charge on Convertible Series Preferred Shares - 0.5 0.9 1.3
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$ 8.0 $ 15.8 $ 50.9 $ 60.9
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Average number of Class A Subordinate Voting and Class B Shares
outstanding during the period 48.8 48.2 48.5 48.2 Convertible
Series Preferred Shares - 14.9 14.9 14.9 Stock options - 0.6 - 0.6
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48.8 63.7 63.4 63.7
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Diluted earnings per Class A Subordinate Voting or Class B Share $
0.16 $ 0.25 $ 0.80 $ 0.96
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For the three month period ending September 30, 2003, diluted
earnings per Class A Subordinate Voting or Class B Share excludes
2,530,000 incentive stock options in the money during the period
and 2,210,500 Convertible Series Preferred Shares, which are both
anti- dilutive, and therefore not included in the above earnings
per share calculation. For the nine month period ending September
30, 2003, diluted earnings per Class A Subordinate Voting or Class
B Share exclude the 3,095,000 incentive stock options which were
not in the money during the period. 8. STOCK-BASED COMPENSATION (a)
Information concerning the Company's Incentive Stock Option Plan is
included in note 14 "Capital Stock" of the 2002 audited
consolidated financial statements included in the Company's 2002
Annual Report. The following is a continuity schedule of options
outstanding: Canadian dollar options
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Weighted average Options Number exercise price exercisable
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Outstanding at December 31, 2002 1,720,000 Cdn.$ 21.92 641,000
Cancelled (10,000) Cdn.$ 21.00 (4,000) Vested - - 338,000
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Outstanding at September 30, 2003 1,710,000 Cdn.$ 21.92 975,000
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U.S. dollar options
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Weighted average Options Number exercise price exercisable
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Outstanding at December 31, 2002 1,435,000 U.S.$ 14.38 587,000
Cancelled (20,000) U.S.$ 13.70 (8,000) Cancelled (30,000) U.S.$
16.40 (6,000) Vested - - 247,000
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Outstanding at September 30, 2003 1,385,000 U.S.$ 14.35 820,000
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(b) The Company does not recognize compensation expense for its
outstanding fixed price stock options. Under CICA 3870, the Company
is required to disclose compensation expense for fixed stock
options issued subsequent to January 1, 2002, assuming compensation
expense for the stock option plan had been determined based upon
the fair value at the grant date, consistent with the methodology
prescribed by the CICA. The fair value of stock options is
estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
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Three month Nine month periods ended periods ended September 30,
September 30,
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2003 2002 2003 2002
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Risk free interest rate - 4.14% - 4.14% - 5.27% Expected dividend
yield - 1.20% - 1.20% Expected volatility - 37% - 26% - 37%
Expected time until exercise - 5 years - 5 years
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For the three and nine month periods ending September 30, 2003 no
options were granted under the Company's Incentive Stock Option
Plan. The Black-Scholes options valuation model used by the Company
to determine fair values was developed for use in estimating the
fair value of freely traded options which are fully transferable
and have no vesting restrictions. In addition, this model requires
the input of highly subjective assumptions, including future stock
price volatility and expected time until exercise. Because the
Company's outstanding stock options have characteristics which are
significantly different from those of traded options, and because
changes in any of the assumptions can materially affect the fair
value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of
the stock options. For purposes of pro forma disclosures, the
Company's net income and basic and diluted earnings per Class A
Subordinate Voting or Class B Share for the three and nine month
periods ended September 30, 2003 and 2002 would have been:
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Three month Nine month periods ended periods ended September 30,
September 30,
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2003 2002 2003 2002
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Pro forma net income attributable to Class A Subordinate Voting and
Class B Shares $ 7.9 $ 11.7 $ 40.7 $ 50.2 Pro forma earnings per
Class A Subordinate Voting or Class B Share Basic $ 0.16 $ 0.24 $
0.84 $ 1.04 Diluted $ 0.16 $ 0.24 $ 0.80 $ 0.94
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The weighted average fair value of options granted subsequent to
January 1, 2002 and outstanding during the three and nine month
periods ending September 30, 2003 was $5.62 per option. The
weighted average fair value of the 605,000 options granted during
the three month period ending September 30, 2002 was $5.71 per
option and the weighted average fair value of the 675,000 options
granted during the nine month period ending September 30, 2002 was
$5.71 per option. 9. CONVERTIBLE SERIES PREFERRED SHARES The
liability amount for Series 1 Convertible Series Preferred Shares
is presented as current liabilities. The Series 1 Convertible
Series Preferred Shares are retractable by Magna International Inc.
at their carrying value of $108,550,000, together with all declared
and unpaid dividends, after December 31, 2003. These shares are
also convertible by Magna into the Company's Class A Subordinate
Voting Shares at a fixed conversion price of U.S.$15.09 per Class A
Subordinate Voting Share. The liability amount for Series 2
Convertible Series Preferred Shares is presented as long-term
liabilities, as they are not retractable by Magna until after
December 31, 2004. These shares are also convertible by Magna into
the Company's Class A Subordinate Voting Shares at a fixed
conversion price of U.S.$15.09 per Class A Subordinate Voting
Share. The Series 1 and 2 Convertible Series Preferred Shares are
redeemable by the Company commencing December 31, 2005. 10.
SEGMENTED INFORMATION The Company's segmented results of operations
are as follows:
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Three month period ended Three month period ended September 30,
2003 September 30, 2002
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Fixed Fixed Total Operating assets, Total Operating assets, Sales
income net Sales income net
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Interior Systems North America $ 483.5 $ 13.0 $ 245.5 $ 420.5 $
19.7 $ 208.2 Europe 361.4 3.7 168.4 321.1 0.2 167.8 Closure Systems
224.8 3.1 106.7 190.9 6.7 87.6 Corporate, other and intersegment
eliminations (0.6) 0.2 0.7 (0.9) - 0.2
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Total reportable segments $1,069.1 $ 20.0 521.3 $ 931.6 $ 26.6
463.8 Current assets 1,345.9 1,142.0 Goodwill, future tax and other
assets 205.5 201.0
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Consolidated total assets $2,072.7 $1,806.8
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-
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- Nine month period ended Nine month period ended September 30,
2003 September 30, 2002
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- Fixed Fixed Total Operating assets, Total Operating assets, Sales
income net Sales income net
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Interior Systems North America $1,384.6 $ 48.5 $ 245.5 $1,319.1 $
80.1 $ 208.2 Europe 1,134.3 6.0 168.4 887.0 5.2 167.8 Closure
Systems 716.7 34.8 106.7 602.4 24.4 87.6 Corporate, other and
intersegment eliminations (2.7) 0.8 0.7 (1.6) (3.3) 0.2
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Total reportable segments $3,232.9 $90.1 521.3 $2,806.9 $106.4
463.8 Current assets 1,345.9 1,142.0 Goodwill, future tax and other
assets 205.5 201.0
---------------------------------------------------------------------
Consolidated total assets $2,072.7 $1,806.8
---------------------------------------------------------------------
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Effective January 2003, the Company's Closure operations underwent
an organizational structure change, effectively changing
management's reporting and assessment of operating results for
resource allocation decisions and performance assessment to be on a
global basis. Consistent with these changes in the Company's
business operations, the Closure segment, beginning January 2003 is
reported on a global basis. All comparative period amounts have
been restated to conform to the current period presentation. 11.
DEBT AND COMMITMENTS During the three month period ending September
30, 2003, the Company entered into an operating lease agreement for
vehicle parts tooling ("tooling"). The lease facility provides for
the funding of the tooling costs in tranches prior to December 31,
2003 with a commitment to fund up to approximately $39 million of
tooling with lease payments being paid over five years from the
lease commencement date. The lease will commence when all tooling
costs are funded which will be on or prior to December 31, 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2003 This Management's Discussion and Analysis of the
Results of Operations and Financial Condition ("MD&A") for the
three and nine month periods ended September 30, 2003 should be
read in conjunction with the accompanying unaudited interim
Consolidated Financial Statements for the three and nine month
periods ended September 30, 2003 and the audited Consolidated
Financial Statements and MD&A of Intier Automotive Inc. (the
"Company") for the year ended December 31, 2002, as included in the
2002 Annual Report. 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 closure modules that focus on system integration
activities for door, midgate and tailgate modules and closure
mechanisms including latching systems, glass moving systems, power
systems and wiper systems. The Company directly supplies most of
the major automobile manufacturers in the world. The Company's
operations consist of two business segments, the Interior and
Closure businesses, which are generally aligned on a product basis
with the corresponding purchasing and engineering groups of the
Company's customers. Effective January 2003, the Company's Closure
operations underwent an organizational structure change,
effectively changing management's reporting and assessment of
operating results for resource allocation decisions and performance
assessment to be on a global basis. Consistent with these changes
in the Company's business operations, the Closure segment,
beginning January 2003 is reported on a global basis. As a result,
the Company has presented the Closure business as one reportable
business segment to reflect the new global approach for segment
wide growth. The Company's Interior segment continues to be
segregated between North America and Europe. For the three month
period ended September 30, 2003, the Company's Interior segment
accounted for approximately 79% and 84% of the Company's
consolidated sales and operating income, and the Company's Closure
segment accounted for approximately 21% and 15% of the Company's
consolidated sales and operating income. Corporate income increased
the Company's consolidated operating income for the three month
period ended September 30, 2003 by approximately 1%. The following
are the highlights of the third quarter of 2003: - Total sales
increased $137 million, or by 15% to $1,069 million compared to
$932 million for the third quarter of 2002; - Average content per
vehicle increased in both North America and Europe due to increased
market penetration and the positive impact of foreign exchange
translation on sales. New products launched during the third
quarter of 2003 included the complete seats, headliner and interior
trim for the Ford Freestar and the Mercury Monterey, 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, the window regulators for the Chrysler Minivan,
and the instrument panel, console, door panels and other interior
trim for the BMW 6 Series; - Higher start-up costs at both new and
existing facilities launching new products in the second half of
2003 and early in the first quarter of 2004. In addition to the
products launched in the third quarter of 2003, new products,
launching over the next four months include the instrument panel
and seat tracks for the Chevrolet Colorado/GMC Canyon, the complete
seats, headliner and instrument panel for the GM Equinox, the cargo
management and other interior trim for the BMW X3 and the complete
seats for the VW Portaro; - North American light vehicle production
was approximately 3.7 million units, representing a 3% decrease
from the third quarter of 2002. Western European vehicle production
remained relatively flat at approximately 3.6 million units; - The
OEMs in both North America and Europe continue to offer various
price and financing incentives to their customers. As a result, the
Company's pricing to its OEM customers has been under pressure
resulting in higher price reductions in the third quarter of 2003
compared to the third quarter of the prior year; and - Operating
income was $20.0 million compared to $26.6 million in the third
quarter of 2002. 2003 OUTLOOK For the full year, North American
light vehicle production volumes are expected to decrease to
approximately 15.9 million units from 16.3 million units in 2002.
Western Europe production volumes are expected to decrease to
approximately 16.0 million units compared to 16.3 million units in
2002. Full year average content per vehicle is expected to increase
16% to 18% in North America and 24% to 26% in Western Europe for
the full year 2003 compared to 2002. Based on these production
volume estimates, product mix and foreign exchange rate assumptions
and tooling and engineering sales estimates, 2003 total sales are
expected to be between $4.40 billion and $4.45 billion. 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; - Increasing
price reduction pressures from the Customer could reduce 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; - 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 euro, the British Pound 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 increased labour redundancies,
employee benefit and severance costs in certain higher cost
jurisdictions in which the Company currently carries on business,
relocation and start-up costs, as well as certain other risks
associated with doing business abroad, 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 - Average Foreign Exchange Rates
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended Nine month periods ended September 30,
September 30,
-------------------------------------------------------------------------
2003 2002 Change 2003 2002 Change
-------------------------------------------------------------------------
1 Canadian dollar equals U.S. dollars 0.7245 0.6397 13.3% 0.7012
0.6371 10.1% 1 euro equals U.S. dollars 1.1244 0.9837 14.3% 1.1121
0.9273 19.9% 1 British Pound equals U.S. dollars 1.6087 1.5486 3.9%
1.6105 1.4794 8.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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. As a
result of the significant strengthening in the functional
currencies noted above, third quarter 2003 sales and operating
income have increased by approximately $72 million and $1 million
respectively from the third quarter of 2002. The year to date sales
and operating income have increased by approximately $243 million
and $3 million respectively from the nine month period of 2002.
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 September 30, 2003 and 2002 Sales (in
millions, except average dollar content per vehicle)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Vehicle production volumes North America 3.7 3.8 Europe 3.6 3.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average dollar content per vehicle North America $ 162 $ 136 Europe
$ 100 $ 87
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production sales - Interior Systems North America $ 416.0 $ 371.7
Europe 327.8 279.7 Production sales - Closure Systems 216.4 183.0
-------------------------------------------------------------------------
960.2 834.4
-------------------------------------------------------------------------
Tooling and engineering sales 108.9 97.2
-------------------------------------------------------------------------
Total sales $ 1,069.1 $ 931.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production Sales - Interior Systems: North America: North American
production sales for the Interior business increased 12% to $416.0
million for the third quarter of 2003 compared to $371.7 million
for the third quarter of 2002, primarily due to the strengthening
of the Canadian dollar relative to the U.S. dollar and the increase
in average dollar content per vehicle. The increase in average
dollar content per vehicle was attributable to new product launches
including the complete seats, headliner and interior trim for the
Ford Freestar and the Mercury Monterey, the complete interior,
excluding seats, for the Cadillac SRX, the seat mechanisms for the
Honda Accord and Pilot and the door panels for the Chevrolet
Malibu, in the third quarter of 2003 and the complete seats for the
Chrysler Pacifica in the first quarter of 2003 and the complete
seats and overhead system for the Saturn ION in the fourth quarter
of 2002. These increases were offset by a 3% decrease in North
American light vehicle production volumes, including lower vehicle
volumes on certain of the Company's high content programs and by
customer price reductions. Europe: European production sales for
the Interior business increased 17% to $327.8 million for the third
quarter of 2003 compared to $279.7 million for the third quarter of
2002. This growth was primarily attributable to the strengthening
of the euro and British Pound relative to the U.S. dollar and to
the increase in average dollar content per vehicle as a result of
new product launches in the third quarter of 2003 including the
instrument panel, door panels, console and other interior trim for
the BMW 6 Series and new products launched in the first quarter of
2003 and the fourth quarter of 2002 including the instrument panel,
console and door panels for the new Jaguar XJ Series, door panels
for the Toyota Avensis and the cockpit module for the Nissan Micra.
Production Sales - Closure Systems: Production sales for the
Closure business increased 18% to $216.4 million for the third
quarter of 2003 from $183.0 million for the third quarter of 2002.
This growth was primarily due to the strengthening of the Canadian
dollar and euro relative to the U.S. dollar, and the increase in
average dollar content per vehicle as a result of new product
launches in the third quarter of 2003 including window regulators
for the Chrysler Minivan, and other new products launched in the
first quarter of 2003 and the fourth quarter of 2002. These
increases were partially offset by a 3% decrease in North American
vehicle production volumes including lower volumes on certain of
the Company's high content programs and by customer price
reductions. Tooling and Engineering Sales: The Company's
consolidated tooling and engineering sales increased 12% to $108.9
million from $97.2 million for the third quarter of 2002. Tooling
and engineering sales increased by $11.2 million to $100.6 million
in the Interior business and increased by $0.5 million to $8.3
million in the Closure business for the third quarter of 2003
compared to the third quarter of 2002. Gross Margin
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Gross margin $ 118.7 $ 112.1
-------------------------------------------------------------------------
Gross margin as a percentage of total sales 11.1% 12.0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gross margin as a percentage of sales decreased from 12.0% to 11.1%
as a result of customer price reductions, higher than expected
launch costs on significant new business that commenced production
during the third quarter, higher costs associated with new
facilities launching new products during the second half of 2003
and early in the first quarter of 2004, and lower vehicle
production volumes on certain of the Company's high content
programs. These decreases have been partially offset by lower net
engineering costs. Operating Income
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Gross margin $ 118.7 $ 112.1 Less: Depreciation and amortization
26.1 22.5 Selling, general and administrative 57.4 48.8 Affiliation
and social fees 15.2 14.2
-------------------------------------------------------------------------
Operating income $ 20.0 $ 26.6
-------------------------------------------------------------------------
Depreciation and amortization as a percentage of total sales 2.4%
2.4%
-------------------------------------------------------------------------
Selling, general and administrative expenses as a percentage of
total sales 5.4% 5.2%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and amortization: Depreciation and amortization
expense increased by $3.6 million to $26.1 million for the third
quarter of 2003 from $22.5 million for the third quarter of 2002.
This was attributable to additional depreciation expense as a
result of the Company's continuing investment in capital equipment
to support new production programs and facilities, and the
strengthening of the Canadian dollar, euro, and British Pound
relative to the U.S. dollar, which had the effect of increasing
U.S. dollar reported depreciation and amortization expense in the
third quarter of 2003 compared to the third quarter of 2002. This
was partially offset by lower depreciation expense in the third
quarter of 2003 compared to the third quarter of 2002 as a result
of the impairment loss on long-lived assets recognized in the
fourth quarter of 2002. Selling, general and administrative:
Selling, general and administrative ("SG&A") costs increased by
$8.6 million to $57.4 million for the third quarter of 2003 from
$48.8 million for the third quarter of 2002. This increase is
primarily a result of the strengthening of the Canadian dollar,
euro and British Pound relative to the U.S. dollar which had the
effect of increasing U.S. dollar reported SG&A expense, costs
associated with start-up facilities in North America and Europe,
and the incremental costs associated with the increase in
production sales. As a percentage of total sales, SG&A
increased to 5.4% for the third quarter of 2003 compared to 5.2%
for the third quarter of 2002. 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 third quarter of 2003 were $15.2 million
reflecting an increase of $1.0 million compared to $14.2 million
expensed in the third quarter of 2002. The increase in fees is
reflective of the increase in sales in the third quarter of 2003
compared to the third quarter of 2002, partially offset by the
stepdown of the affiliation fee rate to 1% on annual sales in
excess of $3.0 billion as provided under the terms of the Company's
affiliation agreement with Magna. Operating Income
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Interior Systems North America $ 13.0 $ 19.7 Europe 3.7 0.2 Closure
Systems 3.1 6.7 Corporate 0.2 -
-------------------------------------------------------------------------
Operating income $ 20.0 $ 26.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating Income - Interior Systems: North America: Operating
income for the North American Interior business decreased by $6.7
million to $13.0 million for the third quarter of 2003 from $19.7
million for the third quarter of 2002. The negative impact was
primarily due to customer price reductions, higher than expected
launch costs, higher costs associated with new facilities launching
new products during the second half of 2003 and early in the first
quarter of 2004, a 3% decrease in North American light vehicle
production volumes, including lower vehicle volumes on certain of
the Company's high content programs, increased depreciation and
amortization expense, and increased SG&A costs and affiliation
fees associated with the increase in sales. These decreases have
been partially offset by increased production sales from new
product launches and the strengthening of the Canadian dollar
relative to the U.S. dollar. Europe: Operating income for the
European Interior business increased by $3.5 million from $0.2
million for the third quarter of 2002 to $3.7 million for the third
quarter of 2003. The increase was attributable to lower net
engineering costs, and by the strengthening of the euro and British
Pound relative to the U.S dollar which had the effect of increasing
U.S dollar reported operating income. These increases have been
partially offset by increased start up costs associated with new
products, the strengthening of the euro and British pound relative
to the U.S. dollar which magnified operating losses at certain
European operations on translation to the Company's U.S. dollar
reporting currency, increased depreciation and amortization
expense, and increased SG&A costs and affiliation fees
associated with the increase in sales. Operating Income - Closure
Systems Operating income for the Closure business decreased by $3.6
million to $3.1 million in the third quarter of 2003 from $6.7
million in the third quarter of 2002. Operating income was
negatively impacted by a 3% decrease in North American light
vehicle production volumes including lower volumes on certain of
the Company's high content programs, customer price reductions,
increased costs associated with the launch of new products during
the third quarter of 2003, increased SG&A costs and affiliation
fees associated with the increase in sales, increased depreciation
and amortization expense, and the strengthening of the euro to the
U.S. dollar which had the effect of increasing operating losses at
certain European operations. These negative impacts were partially
offset by the strengthening of the Canadian dollar and euro
relative to the U.S. dollar which increased the Company's reported
U.S. dollar operating income, increased sales from new product
launches and operating improvements at certain European operations.
Operating Income - Corporate Operating income for corporate for the
third quarter of 2003, remained relatively flat at $0.2 million
compared to a nil balance for the comparable period. Other Items
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Operating income $ 20.0 $ 26.6 Interest expense (income), net 0.3
(1.2) Amortization of discount on Convertible Series Preferred
Shares 3.1 2.9 Equity loss 0.3 -
-------------------------------------------------------------------------
Income before income taxes and minority interest 16.3 24.9 Income
taxes 8.1 11.7 Minority interest (0.1) 0.3
-------------------------------------------------------------------------
Net income 8.3 12.9 Financing charge on Convertible Series
Preferred Shares 0.3 0.5
-------------------------------------------------------------------------
Net income attributable to Class A Subordinate Voting and Class B
Shares $ 8.0 $ 12.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest expense, net: The Company's interest expense for the third
quarter of 2003 increased $1.5 million to $0.3 million compared to
interest income of $1.2 million for the third quarter of 2002,
primarily a result of interest income on a tax refund received in
the third quarter of 2002 and due 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 $3.1 million charge relating
to the Company's amortization of the discount on the Convertible
Series Preferred Shares classified as debt was incurred during the
third quarter of 2003 compared to $2.9 million in the third quarter
of 2002. Income taxes: The effective tax rate on income before
income taxes and minority interest was approximately 50% for the
third quarter of 2003 as compared to 47% for the third quarter of
2002. The increase was the result of higher tax losses not
benefited and the impact of amortization of the discount on the
Convertible Series Preferred Shares. Net income: Net income for the
third quarter of 2003 was $8.3 million as compared to $12.9 million
for the third quarter of 2002. The decrease was attributable to
lower operating income resulting from increased customer price
reductions, increased start up costs for both new and existing
facilities launching new products in the second half of 2003 and
early in the first quarter of 2004, a 3% reduction in North
American light vehicle production volumes including lower vehicle
volumes on certain of the Company's high content programs,
increased depreciation and amortization expense as a result of the
Company's continuing investment in capital equipment to support new
production programs and facilities, increased SG&A costs and
affiliation fees associated with the increase in sales, higher
interest expense and the strengthening of the euro and British
Pound relative to the U.S. dollar which had the effect of
increasing operating losses at certain European operations. This
was partially offset by increased sales from new product launches,
lower net engineering costs, operating efficiencies at certain
European operations, and the strengthening of the Canadian dollar
relative to the U.S. dollar which had the effect of increasing U.S.
dollar reported operating income. Financing charge: The deduction
from net income of dividends declared and paid on the Convertible
Series Preferred Shares (net of return of capital) was $0.3 million
for the third quarter of 2003 compared to $0.5 million for the
third quarter of 2002. Earnings Per Share
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Earnings per Class A Subordinate Voting or Class B Share (US $)
Basic $ 0.16 $ 0.26 Diluted $ 0.16 $ 0.25
-------------------------------------------------------------------------
Average number of Class A Subordinate Voting and Class B Shares
outstanding (in millions) Basic 48.8 48.2 Diluted 48.8 63.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings per Class A Subordinate Voting or Class B Share
for the third quarter of 2003 was $0.16 compared to $0.25 for the
third quarter of 2002. The decrease in diluted earnings per Class A
Subordinate Voting or Class B Share is a result of lower net income
for the third quarter of 2003 compared to the third quarter of
2002. On August 25, 2003, Magna International Inc. (Magna)
exercised its options to convert 39,500 Series 1 Convertible Series
Preferred Shares into Class A Subordinate Voting Shares of the
Company. The 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 261,762
Class A Subordinate Voting Shares of the Company. This conversion
had no impact on the diluted earnings per Class A Subordinate
Voting or Class B Share. Overview of Nine Month Periods Ended
September 30, 2003 and 2002 Sales (in millions, except average
dollar content per vehicle)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine month periods ended September 30,
-------------------------------------------------------------------------
2003 2002 Vehicle production volumes North America 12.0 12.5 Europe
12.3 12.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average dollar content per vehicle North America $ 151 $ 133 Europe
$ 92 $ 73
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production sales - Interior Systems North America $ 1,253.1 $
1,185.0 Europe 1,008.2 790.5 Production sales - Closure Systems
679.0 570.5
-------------------------------------------------------------------------
2,940.3 2,546.0
-------------------------------------------------------------------------
Tooling and engineering sales 292.6 260.9
-------------------------------------------------------------------------
Total sales $ 3,232.9 $ 2,806.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Production Sales - Interior Systems: North America: North American
production sales for the Interior business increased 6% to $1,253.1
million for the nine month period ended September 30, 2003 compared
to $1,185.0 million for the nine month period ended September 30,
2002. This growth was primarily due to the strengthening of the
Canadian dollar relative to the U.S. dollar and to new product
launches as measured by the Company's higher average content per
vehicle. New product launches included the complete seats,
headliner and interior trim for the Ford Freestar and the Mercury
Monterey, the complete interior, excluding seats, for the Cadillac
SRX, the seat mechanisms for the Honda Accord and Pilot and the
door panels for the Chevrolet Malibu in the third quarter of 2003,
the complete seats for the Chrysler Pacifica in the first quarter
of 2003 and the complete seats and overhead system for the Saturn
ION in the fourth quarter of 2002. The increases were offset by a
4% decrease in North American light vehicle production volumes,
including lower vehicle volumes on certain of the Company's high
content programs, and by customer price reductions. Europe:
European production sales for the Interior business increased 28%
to $1,008.2 million for nine month period ended September 30, 2003
compared to $790.5 million for the nine month period ended
September 30, 2002. This growth was primarily attributable to the
strengthening of the euro and British Pound relative to the U.S.
dollar and to the increased average dollar content per vehicle as a
result of new product launches in the third quarter of 2003
including the instrument panel, door panels, console and other
interior trim for the BMW 6 Series and new products launched in the
first quarter of 2003 and the fourth quarter of 2002, including the
instrument panel, console and door panels for the new Jaguar XJ
series, door panels for the Toyota Avensis and the cockpit module
for the Nissan Micra. Production Sales - Closure Systems:
Production sales for the Closure business increased 19% to $679.0
million for the nine month period ended September 30, 2003 from
$570.5 million for the nine month period ended September 30, 2002.
The increase in production sales was primarily due to the
strengthening of the euro and the Canadian dollar relative to the
U.S. dollar and the increase in average dollar content per vehicle
as a result of new products launched in the third quarter of 2003
including window regulators for the Chrysler Minivan, and other new
products launched in the first quarter of 2003 and the fourth
quarter of 2002. These increases have been partially offset by a 4%
decrease in North American light vehicle production volumes and
lower volumes on certain of the Company's high content programs and
by customer price reductions. Tooling and Engineering Sales: The
Company's consolidated tooling and engineering sales for the nine
month period ended September 30, 2003 increased 12% to $292.6
million from $260.9 million for the nine month period ended
September 30, 2002. Tooling and engineering sales increased by
$25.9 million to $254.9 million in the Interior business and
increased by $5.8 million to $37.7 million in the Closure business
for the nine month period ended September 30, 2003. Operating
Income
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Interior Systems North America $ 48.5 $ 80.1 Europe 6.0 5.2 Closure
Systems 34.8 24.4 Corporate 0.8 (3.3)
-------------------------------------------------------------------------
Operating Income $ 90.1 $ 106.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Operating Income - Interior Systems North America: Operating income
for the North American Interior business decreased by $31.6 million
to $48.5 million for the nine month period ended September 30, 2003
from $80.1 million for the nine month period ended September 30,
2002. The decrease in operating income was primarily due to higher
than expected launch costs during the third quarter, increased
costs associated with new facilities launching new products in the
second half of 2003 and early in the first quarter of 2004,
customer price reductions, a 4% decline in North American light
vehicle volumes, including lower vehicle volumes on certain of the
Company's high content programs, increased depreciation and
amortization expense and increased SG&A costs and affiliation
fees associated with the increase in sales. These decreases have
been partially offset by increased production sales from new
product launches and the strengthening of the Canadian dollar
relative to the U.S. dollar. Europe: Operating income for the
European Interior business increased by $0.8 million from $5.2
million for the nine month period ended September 30, 2002 to $6.0
million for the nine month period ended September 30, 2003. The
increase is attributable to increased volumes on specific customer
platforms and by the strengthening of the euro and the British
Pound relative to the U.S. dollar which had the effect of
increasing U.S. dollar reported operating income. These increases
are partially offset by start up costs associated with new
products, increased depreciation and amortization expense,
increased SG&A costs and affiliation fees associated with the
increase in sales and by the strengthening of the euro and the
British Pound relative to the U.S. dollar which had the effect of,
magnifying operating losses on translation to the Company's U.S.
dollar reporting currency. Operating Income - Closure Systems:
Operating income for the Closure business increased by $10.4
million from $24.4 million in the nine month period ended September
30, 2002 to $34.8 million in the nine month period ended September
30, 2003. The increased operating income was due primarily to
increased sales from new product launches, the strengthening of the
Canadian dollar relative to the U.S. dollar, and operating
improvements at certain European operations. These increases were
partially offset by a 4% decline in North American light vehicle
volumes, including lower vehicle volumes on certain of the
Company's high content programs, customer price reductions,
increased costs associated with the launch of new products during
the third quarter of 2003, increased SG&A costs and affiliation
fees associated with the increase in production sales and the
strengthening of the euro to the U.S. dollar which had the effect
of increasing operating losses at certain European operations.
Operating Income - Corporate The operating income for corporate
increased by $4.1 million from an operating loss of $3.3 million
for the nine month period ended September 30, 2002 to operating
income of $0.8 million for the nine month period ended September
30, 2003 as a result of additional costs being charged to the
Company's operating segments. FINANCIAL CONDITION, LIQUIDITY AND
CAPITAL RESOURCES Three Month Periods Ended September 30, 2003 and
2002 Cash from Operating Activities
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three month periods ended September 30,
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Net income $ 8.3 $ 12.9 Items not involving current cash flows 28.8
29.9
-------------------------------------------------------------------------
37.1 42.8 Change in non-cash working capital (95.9) 0.6
-------------------------------------------------------------------------
$ (58.8) $ 43.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the third quarter of 2003, cash from operations before
changes in working capital decreased by $5.7 million to $37.1
million from $42.8 million for the third quarter of 2002. The
decrease was a result of a decrease in net income of $4.6 million
and a decrease in non-cash items of $1.1 million. The $95.9 million
of cash invested in working capital during the third quarter of
2003 is the result of a $61.1 million increase in accounts
receivable, a $21.3 million increase in inventories and a $13.5
million decrease in accounts payable and accrued liabilities. The
increase in non-cash working capital is primarily attributable to
the launch of new products and the timing of receipt of customer
payments. Investment Activities
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Three month periods ended September 30,
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2003 2002
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Fixed assets additions $ (29.7) $ (34.6) Investments and other
asset additions (5.4) (1.4) Proceeds from disposition of fixed
assets and other 0.1 0.3
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$ (35.0) $ (35.7)
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Cash used for fixed assets, investment and other asset spending was
$35.1 million and $36.0 million for the third quarters of 2003 and
2002, respectively reflecting the Company's continuing investment
program to support new and replacement production programs. This
use of funds was partially offset by cash received from normal
course fixed and other asset dispositions of $0.1 million and 0.3
million for the three month periods ended September 30, 2003 and
2002, respectively. Financing Activities
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Three month periods ended September 30,
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2003 2002
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Increase in bank indebtedness $ 57.2 $ 24.2 Repayments of long-term
debt and other long-term liabilities (1.8) (3.7) Dividends on Class
A Subordinate Voting and Class B Shares (5.0) (2.4) Dividends on
Convertible Series Preferred Shares (2.8) (2.8) Issue of Class A
Subordinate Voting Shares 1.4 0.1
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$ 49.0 $ 15.4
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Cash generated from financing activities was $49.0 million for the
third quarter of 2003 compared to $15.4 million for the third
quarter of 2002. Cash generated from financing activities for the
third quarter of 2003 included increases in bank indebtedness, net
of repayments of long-term debt and other long-term liabilities of
$55.4 million. Cash generated from financing activities for the
third quarter of 2002 included increases in bank indebtedness, net
of repayments of long-term debt and other long-term liabilities of
$20.5 million. Dividends paid during the third quarter of 2003 and
the third quarter of 2002 were $5.0 million and $2.4 million,
respectively, in respect of Class A Subordinate Voting and Class B
Shares representing a $0.05 per share increase in the dividend paid
for each Class A Subordinate Voting and Class B Shares. In respect
of the Convertible Series Preferred Shares, $2.8 million was paid
out in the third quarter of 2003 and 2002. In addition, in the
third quarter of 2003, 88,147 Class A Subordinate Voting Shares
were issued for total proceeds of $1.4 million to fund the
Company's Employee Equity and Profit Participation Program. Cash
generated from financing activities for the third quarter of 2002
included $0.1 million of proceeds as a result of the exercise of
stock options for Class A Subordinate Voting Shares. Nine Month
Periods Ended September 30, 2003 and 2002 Cash from Operating
Activities
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Nine month periods ended September 30,
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2003 2002
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Net income $ 41.8 $ 52.3 Items not involving current cash flows
97.3 90.9
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139.1 143.2 Change in non-cash working capital (99.3) 89.4
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$ 39.8 $ 232.6
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During the nine month period ended September 30, 2003, cash
generated from operations before changes in working capital
decreased by $4.1 million to $139.1 million from $143.2 million for
the nine month period ended September 30, 2002. The decrease was a
result of a decrease in net income of $10.5 million partially
offset by an increase in non-cash items of $6.4 million including
higher depreciation expense. The $99.3 million of cash invested in
working capital during the nine month period ended September 30,
2003 is the result of a $116.2 million increase in accounts
receivable and a $84.2 million increase in inventories offset by a
$101.1 million increase in accounts payable and accrued
liabilities. The increase in accounts receivable, inventories and
accounts payable and accrued liabilities, is primarily due to
increased sales from new programs launched late in 2002 and in the
first nine months of 2003, increased tooling sales and the timing
of receipt of customer payments. Investment Activities
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Nine month periods ended September 30,
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2003 2002
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Fixed asset additions $ (86.8) $ (87.4) Investment and other asset
additions (10.5) (2.1) Proceeds from disposition of fixed assets
and other 0.2 2.8
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$ (97.1) $ (86.7)
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Cash used for investment activities during the nine month period
ended September 30, 2003 increased to $97.1 million compared to
$86.7 million during the nine month period ended September 30,
2002. Cash used for fixed and other asset spending was $97.3
million and $89.5 million for the nine month periods ended
September 30, 2003 and 2002, respectively. This use of funds was
partially offset by cash received from normal course fixed and
other asset dispositions of $0.2 million and $2.8 million during
the nine month periods ended September 30, 2003 and 2002
respectively. Financing Activities
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Nine month periods ended September 30,
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2003 2002
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Increase in bank indebtedness $ 30.3 $ 31.7 Repayments of long-term
debt and other long-term liabilities (5.3) (3.3) Dividends on Class
A Subordinate Voting and Class B Shares (12.4) (7.2) Dividends on
Convertible Series Preferred Shares (8.4) (5.6) Issue of Class A
Subordinate Voting Shares 7.9 0.1
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$ 12.1 $ 15.7
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Cash generated from financing activities was $12.1 million for the
nine month period ended September 30, 2003 compared to $15.7
million for the nine month period ended September 30, 2002. Cash
generated from financing activities for the nine month period ended
September 30, 2003 included increases in bank indebtedness, net of
repayments of long-term debt and other long-term liabilities of
$25.0 million. Cash generated from financing activities for the
nine month period ended September 30, 2002 included increases in
bank indebtedness, net of repayments of long-term debt and other
long-term liabilities of $28.4 million. Dividends paid during the
nine month periods ended September 30, 2003 and 2002 were $12.4
million and $7.2 million, respectively in respect of the Class A
Subordinate Voting and Class B Shares. Dividends paid during the
nine month periods ended September 30, 2003 and 2002 were $8.4
million and $5.6 million, respectively in respect of the
Convertible Series Preferred Shares. In addition, 558,562 of Class
A Subordinate Voting Shares were issued for total proceeds of $7.9
million to fund the Company's Employee Equity and Profit
Participation Program. Unused and Available Financing Resources
Cash on hand decreased to $205.9 million at September 30, 2003 from
$241.3 million at December 31, 2002. At September 30, 2003, the
Company had credit facilities of $498.3 million, of which $362.6
million are unused and available. $299.2 million of the unused and
available facilities represents the unused and available portion of
the Company's $385 million three year revolving credit facility
which expires September 27, 2004. In addition to the above unused
and available financing resources, the Company and certain of its
North American subsidiaries sponsor a tooling finance program for
tooling suppliers to finance tooling under construction. Under this
program, the facility provider orders tooling from tooling
suppliers and subsequently sells such tooling to the sponsor or its
designee. The facility provider makes advances to tooling suppliers
based on tool build milestones approved by the sponsor or its
designee. On completion of the tooling, the facility provider sells
the tooling to the sponsor or its designee for an amount equal to
cumulative advances. In the event of tooling supplier default, the
sponsor will purchase in progress tooling for an amount
approximating cumulative advances. As at September 30, 2003, $50.8
million had been advanced to tooling suppliers under this facility.
This amount is included in accounts payable on the Company's
September 30, 2003 consolidated balance sheet. During the three
month period ending September 30, 2003, the Company entered into an
operating lease agreement for vehicle parts tooling ("tooling").
The lease facility provides for the funding of the tooling costs in
tranches prior to December 31, 2003 with a commitment to fund up to
approximately $39 million of tooling with lease payments being paid
over five years from the lease commencement date. The lease will
commence when all tooling costs are funded which will be on or
prior to December 31, 2003. 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. During the remainder of 2003, the Company will
continue to incur design, engineering and tooling costs, primarily
related to newly awarded production contracts with production
planned to start during 2004 through to 2006. 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. Capital and
investment spending for existing businesses and projects is
expected to range between $130 million and $150 million for 2003.
The majority of capital spending in 2003 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 2003 planned cash
requirements from its cash balances on hand, existing credit
facilities and cash provided from operations. A decrease in
estimated vehicle production volumes could adversely impact cash
provided from operating activities in 2003. Cash used in operating
activities totalled $58.8 million for the three month period ended
September 30, 2003 compared to cash from operating activities of
$43.4 million for the three month period ended September 2002.
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. DATASOURCE: Intier
Automotive Inc. CONTACT: Michael McCarthy, Executive Vice-President
and Chief Financial Officer of Intier at (905) 830-5824. For
teleconferencing questions, please call Karen Lesey at Intier at
(905) 898-5200 Ext. 7042
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