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Proc-Type: 2001,MIC-CLEAR
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0001047469-04-010903.txt : 20040405
0001047469-04-010903.hdr.sgml : 20040405
20040405172601
ACCESSION NUMBER: 0001047469-04-010903
CONFORMED SUBMISSION TYPE: 6-K
PUBLIC DOCUMENT COUNT: 22
CONFORMED PERIOD OF REPORT: 20031231
FILED AS OF DATE: 20040405
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DECOMA INTERNATIONAL INC
CENTRAL INDEX KEY: 0000853867
STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714]
IRS NUMBER: 980098420
STATE OF INCORPORATION: A6
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 6-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17946
FILM NUMBER: 04718449
BUSINESS ADDRESS:
STREET 1: 50 CASMIR CT
CITY: CONCORD, ONTARIO
STATE: A6
ZIP: L4K 4J5
BUSINESS PHONE: 9056692888
MAIL ADDRESS:
STREET 1: 50 CASMIR COURT
CITY: CONCORD, ONTARIO
STATE: A6
ZIP: L4K 4J5
6-K
1
a2131935z6-k.htm
FORM 6-K
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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the month of April ,
2004
Commission
File
Number 000-17946
DECOMA INTERNATIONAL INC.
(Translation of registrant's name into English)
50
Casmir Court, Concord, Ontario, Canada L4K 4J5
(Address of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under cover Form 20-F or
Form 40-F. Form 20-F o Form 40-F ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely
to provide an attached annual report to security holders.
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to
furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or
legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a
press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a
Form 6-K submission or other Commission filing on EDGAR.
Indicate
by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to
Rule 12g3-2(b) under the Securities Exchange Act of
1934. Yes o No ý
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
DECOMA INTERNATIONAL INC
(Registrant) |
|
|
By: |
/s/ R. DAVID BENSON R. David Benson R. David Benson, Executive Vice-President,
Secretary and General Counsel |
Date April 5,
2004
EXHIBITS
Exhibit 99.1 |
|
2003 Annual Report to Shareholders of the Registrant containing the consolidated audited financial statements of the Registrant for the year ended December 31, 2003 together with Management's Discussion and Analysis
of Results of Operations and Financial Position, commencing at page 15 thereof. |
Exhibit 99.2 |
|
Letter of Invitation, Notice of Annual Meeting of Shareholders of the Registrant to be held on May 3, 2004, in Toronto, Canada and Management Information Circular dated April 5, 2004. |
Exhibit 99.3 |
|
Proxy form for Class A Subordinate Voting Shareholders of the Registrant. |
Exhibit 99.4 |
|
Notice to Non-Registered Shareholders of the Registrant. |
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SIGNATURES
EXHIBITS
EX-99.1
3
a2131935zex-99_1.htm
EXHIBIT 99.1
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EXHIBIT 99.1
[PHOTO]
outfront
DECOMA INTERNATIONAL INC.
Annual Report 2003
DECOMA INTERNATIONAL INC. is a full service supplier of exterior vehicle appearance systems for the world's automotive industry. Decoma designs, engineers and
manufactures automotive exterior components and systems which include fascias (bumpers), front and rear end modules, plastic body panels, roof modules, exterior trim components, sealing and greenhouse
systems and lighting components for cars and light trucks (including sport utility vehicles and mini vans).
All amounts in this Annual Report are expressed in U.S. dollars unless otherwise noted.
CONTENTS
Up Front Financial Highlights |
|
1 |
Front-page News 2003 Achievements |
|
2 |
Front and Centre To Our Shareholders |
|
4 |
Frontline Employee Shareholders and Employee's Charter |
|
6 |
New Frontiers |
|
8 |
Front Runners |
|
10 |
Front-to-Back |
|
12 |
Financial Review |
|
14 |
This
Annual Report contains forward looking statements within the meaning of applicable securities legislation. As such, readers are specifically referred to the "Forward Looking Statements" section
of the Management's Discussion and Analysis of Results of Operations and Financial Position set out on page 34 of this report.
up front
FINANCIAL HIGHLIGHTS
|
|
Sales
(millions) |
Consolidated Sales By Customer |
Years ended
July 31 Years ended
December 31
Net Income
(millions)
Years ended
July 31 Years ended
December 31
Diluted Earning Per Share
Years ended December 31
Capital Expenditures and Investments, Net
(Excluding business acquisitions and dispositions) (millions)
Years ended
July 31 Years ended
December 31 |
2003
2002 |
Impact of "Other charges" and "Other income" as disclosed in the Company's consolidated financial
statements, included elsewhere herein.
Annual Report 2003 1
front-page news
2003 FINANCIAL ACHIEVEMENTS
-
- Total
sales reach a record $2,356 million, increasing 15% over the previous year, despite unprecedented pricing pressure from OEMs and lower vehicle production
volumes in North America and Europe.
-
- Average
content per vehicle increases from $85 to $95 in North America, and from $30 to $39 in Europe. North American production sales increase 8% to $1,507 million
and in Europe production sales increase 31% to $647 million.
-
- Decoma's
North American business with new domestic Asian and European OEMs continues to grow.
2003 OPERATING ACHIEVEMENTS
-
- Performance
remains extremely strong in North America. In Europe, Decoma completes a comprehensive review and undertakes decisive action to improve operating performance.
-
- The
forward lighting assets of Federal Mogul are successfully integrated into Autosystems, adding new facilities in Mexico and Ohio and an engineering centre in Virginia.
-
- Decoma
secures its first contract incorporating a TPV application for sealing systems.
-
- Decoma
expands its global presence, launching four new facilities in Europe and continues to construct a new mould and paint facility in the southern United States.
Investments in major capital projects are on time and on budget.
DECOMA'S GLOBAL FACILITIES
Manufacturing Facilities
|
|
Product Development and Engineering Facilities
|
Austria |
|
1 |
|
Mexico |
|
2 |
|
Canada |
|
1 |
|
Japan |
|
1 |
Belgium |
|
3 |
|
Poland |
|
1 |
|
Czech Republic |
|
1 |
|
United Kingdom |
|
1 |
Canada |
|
19 |
|
United Kingdom |
|
2 |
|
France |
|
1 |
|
United States |
|
2 |
Germany |
|
7 |
|
United States |
|
6 |
|
Germany |
|
1 |
|
|
|
|
DECOMA'S PRODUCT RANGE
|
|
|
|
|
|
|
Front End Modules |
|
Claddings |
|
Hard Tonneaus |
|
Window Surround |
Lighting |
|
Running Boards |
|
Light Bars |
|
Modules |
Front Fenders |
|
Rear Fenders |
|
"C" Pillars |
|
Sealing Systems |
Wheel Opening |
|
Rear End Modules |
|
"B" Pillars |
|
Grilles |
Mouldings |
|
Rear Tail Lamps |
|
Roof Modules |
|
Specialty Vehicle Packages |
DECOMA'S TOP FIVE PLATFORMS
North America
|
|
Europe
|
Ford Explorer
Chrysler Sebring/Stratus
Ford Crown Victoria/
Grand Marquis |
|
Chrysler Ram Pick-Up
Chrysler Intrepid/
300M/Concorde |
|
Mercedes Benz C Class
VW Group T5 Transit Van
Opel Epsilon |
|
Audi B6 (A4)
BMW Mini |
2
[PHOTOS]
Roof Module |
|
VWT5 Front End Module |
|
Composite Tailgate |
Exterior Appearance Package |
|
Aston Martin Headlamp |
|
Porsche 911 Rear Fascia |
Composite Running Board |
|
Automated Roof Rack |
|
Lexus Grille |
FRONT AND CENTRE
TO OUR SHAREHOLDERS
2003 was another tremendous year for Decoma. Total sales and content per vehicle increased to record levels in both North America and Europe, despite lower
vehicle production volumes. The last 12 months were marked by unprecedented pricing pressure from our OEM customers, however, we were able to offset these pressures in North America thanks to
the positive impact of recent acquisitions, new facility and program start-ups, take-over business and productivity improvements.
We
continued to expand our global reach with the construction of a new mould and paint facility in the southern United States and a new paint facility in Belgium. We also enhanced
our front end module presence in Europe with new facilities in Austria, Belgium and Poland. These investments will further our market leadership and position Decoma for sales and earnings growth in
the coming years.
We
also made excellent progress in our content per vehicle growth through the second quarter acquisition of the forward lighting original equipment assets of Federal Mogul, which
resulted in the addition of new facilities in Mexico and Ohio and an engineering centre in Virginia. This acquisition, when combined with the earlier acquisition of Autosystems and organic growth in
this segment, has positioned Decoma as a leading player in North America's automotive forward lighting market. This growth is integral to our strategy to meet our customers' increasing demand for more
fully integrated front end module systems.
FINANCIAL OVERVIEW
Total sales for 2003 grew to a record $2,356 million compared with $2,057 million in 2002. Currency translation had a positive impact on Decoma's
sales: excluding this impact, total sales still increased by a healthy 5%.
Reported
operating income, net income and diluted earnings per share declined in 2003 to $151.2 million, $71.9 million and $0.77, respectively, primarily as a result of the
United Kingdom impairment and continental Europe paint consolidation charges.
Excluding
other charges, other income and the future net tax liability revaluation as a result of changes to Ontario future tax rates, operating income and net income declined
$7.0 million and $2.5 million respectively. This decline is the result of new facility investments, combined with customer pricing pressures, the changeover of a number of large
production programs in North America, operating losses from certain European operations and lower production volumes on certain high content programs. These declines, in combination with the issuance
of Convertible Debentures in 2003, resulted in a decline in diluted earnings per share of $0.08.
NORTH AMERICA: MOMENTUM REMAINS STRONG
The momentum we've built in recent years in Decoma's North American operations remains strong. Despite a decline in vehicle production volumes to
15.9 million units from 16.3 million units in 2002, North American production sales grew 8% to $1,507 million, while content per vehicle grew from $85 to a record $95. This growth
was driven by the positive effects of currency translation, the previously noted acquisition of Federal Mogul's forward lighting operations, take-over business, sales on previously
launched programs and strong volumes on certain high content platforms. As the demand for more fully integrated systems increases, Decoma is positioned to capitalize on this opportunity, which will in
turn result in expanded content per vehicle.
EUROPE: DECISIVE ACTION
European sales and content per vehicle grew in 2003, despite virtually level European vehicle production volumes of 16.4 million units in 2003 compared to
16.3 million units in 2002. Production sales grew to $647 million, while content per vehicle grew from $30 to $39. This growth was driven by the addition of new facilities in late 2002
and in 2003, including new facility start-ups in Austria, Germany, Poland and in Belgium, with the Company's new paint line and the take-over of an existing assembly and
sequencing facility. European sales and content growth also benefited from currency translation and continued growth in our front end module business.
While
we're encouraged by these gains, profitability in certain European operations did not meet our expectations. In response, we took decisive action in the fourth quarter by
implementing management changes, conducting a review of our continental European operating facilities and intensifying our efforts to apply proven operating best practices throughout our European
operations.
In
connection with this review, we have now undertaken rationalizing certain of our German and Belgium painting operations with a view to optimizing our manufacturing and paint capacity
utilization in these regions. Certain of these actions resulted in the previously announced charges taken in the fourth quarter, which total approximately $11.4 million.
4 Decoma International Inc.
We
are confident that this is the most appropriate strategy to reduce operating overheads and improve long-term earnings at these German and Belgium facilities in 2005 and
beyond.
In
conjunction with our continental Europe review, we also completed our review of the United Kingdom marketplace and determined that we needed to write-down the
carrying value of certain of our long-lived assets in this market. This write-down, which totalled $12.4 million, will have no impact on our United Kingdom
operations going forward.
FROM CHALLENGES TO OPPORTUNITIES
Our North American domestic OEM customers remain locked in a competitive battle for market share that shows no sign of abating. As a result, Decoma continues to
be under intense pricing pressure from our customers. In response to these challenges, Decoma has continued to develop innovative strategies, products and technologies, which we believe will provide
the Company with a distinct advantage over our competitors.
Decoma
has also been able to leverage the growth of new domestic OEMs in North America into new opportunities for our North American and European businesses. In 2003 we secured a
number of new domestic OEM contracts, primarily for our trim products. These inroads provide an excellent foundation for developing relationships with our new domestic customers, as well as the
opportunity to showcase highly engineered products such as lighting and lift gate modules.
We're
meeting the pressure of pricing demands head-on, by applying the most innovative thinking in the industry to our products and processes in order to drive out costs and
improve productivity. This push for continuous improvement has long been an integral part of the Decoma culture. Actively rewarding employees at every level of the organization for proposing ideas to
reduce costs and improve profits makes Decoma a highly rewarding place to work, while at the same time positioning the Company to offset competitive pressures more effectively than our competitors.
In
2003, for example, more than 2,500 individual employees were involved in our Winning Teams program, which rewards employees for submitting proposals that result in measurable cost
reductions or productivity gains. This enthusiastic involvement resulted in more than 600 submissions for improvements.
In
2001, Decoma incorporated Six Sigma into our culture as a problem-solving methodology for driving productivity, quality and business improvements. To date, 31 Decoma divisions
are participating in Six Sigma activities, with 58 employees specially trained to apply Six Sigma problem-solving tools and methodologies. Eighty-six projects have been completed so far,
allowing us to achieve significant annual savings, and we plan to expand Six Sigma in 2004.
Ideas
in Motion is a program that rewards Decoma employees for proposing commercially viable ideas for products, processes and strategies. In 2003, we received 178 proposals, some of
which have led to new patent applications.
In
addition, the considerable investment a minimum of 7 percent of pretax profit the Company makes
each year in research and development helps us introduce innovative, effective products and technologies to meet pricing demands while creating high-value, functional solutions that appeal
to OEMs and their customers.
OUT IN FRONT
It's an achievement to be out in front. It's an even greater challenge to remain there. The coming year will be another year of significant investment to solidify
our position as one of the world's leading suppliers of exterior components and systems. We have a record number of program launches in 2004, which will lay critical groundwork for success well into
the future. The investments made in new programs and facilities in 2003 and continuing into 2004 will strengthen our market leadership and position Decoma for even greater growth.
Our
commitment to improving operating performance in Europe will remain a top priority. We'll continue to expand into new market segments, particularly lighting and composites, which
offer excellent growth opportunities.
In
closing, I wish to thank our Board of Directors, our shareholders and the entire Decoma team. It is their dedication, creativity, skill and collaboration that keep Decoma out in
front.
[SIGNATURE]
Alan J. Power
President
and Chief Executive Officer
Annual Report 2003 5
Autosystems America Ohio, U.S.A. |
|
Decoform Saarland, Germany |
|
Decoma Graz Steiermark, Austria |
Merplas Merseyside, UK |
|
Belplas Limburg, Belgium |
|
Formatex Wielkopolska, Poland |
Polybrite Ontario, Canada |
|
Decostar Georgia, U.S.A. |
|
Litetek Matamoros, Mexico |
|
|
|
|
|
[PHOTO] |
|
[PHOTO] |
|
[PHOTO] |
|
|
|
|
|
[PHOTO] |
|
[PHOTO] |
|
[PHOTO] |
|
|
|
|
|
[PHOTO] |
|
[PHOTO] |
|
[PHOTO]
|
EMPLOYEE SHAREHOLDERS
Corporate Constitution
EMPLOYEE EQUITY AND PROFIT PARTICIPATION
Ten percent of Decoma's profit before tax will be allocated to employees. These funds will be used for the purchase of Decoma shares in trust for employees and
for cash distributions to employees, recognizing length of service.
SHAREHOLDER PROFIT PARTICIPATION
Decoma will distribute, on average, twenty percent of its annual net profit after-tax to shareholders.
MANAGEMENT PROFIT PARTICIPATION
To obtain long-term contractual commitment from senior management, the Company provides a compensation arrangement which, in addition to a base salary
below industry standards, allows for the distribution of up to six percent of Decoma's profit before tax.
RESEARCH AND DEVELOPMENT
Decoma will allocate a minimum of seven percent of its profit before tax for research and development to ensure the long-term viability of the
Company.
SOCIAL RESPONSIBILITY
The Company will allocate a maximum of two percent of its profit before tax for charitable, cultural, educational, and political purposes to support the basic
fabric of society.
MINIMUM PROFIT PERFORMANCE
Management has an obligation to produce a profit. If Decoma does not generate a minimum after-tax return of four percent on share capital for two
consecutive years, the Class A shareholders, voting as a class, will have the right to elect additional directors.
BOARD OF DIRECTORS
Decoma believes that outside directors provide independent counsel and discipline. A majority of the members of Decoma's Board of Directors will be outsiders.
UNRELATED INVESTMENTS
Class A and Class B shareholders, with each class voting separately, will have the right to approve any investment in an unrelated business in the
event such investment together with all other investments in unrelated businesses exceeds twenty percent of Decoma's equity.
CONSTITUTIONAL AMENDMENTS
Any change to Decoma's Corporate Constitution will require the approval of the Class A and Class B shareholders, with each class voting separately.
EMPLOYEE'S CHARTER
Decoma is committed to an operating philosophy which is based on fairness and concern for people. This philosophy is part of Decoma's Fair Enterprise culture in
which employees and management share in the responsibility to ensure the success of the company. It includes these principles:
Job Security
Being competitive by making a better product for a better price is the best way to enhance job security. Decoma is committed to working together with its
employees to help protect their job security. To assist its employees, Decoma will provide:
-
- Job
Counselling
-
- Training
-
- Employee
Assistance Programs
A Safe and Healthful Workplace
Decoma strives to provide its employees with a working environment which is safe and healthful.
Fair Treatment
Decoma offers equal opportunities based on an individual's qualifications and performance, free from discrimination or favouritism.
Competitive Wages and Benefits
Decoma will provide its employees with information which will enable them to compare their total compensation, including total wages and total benefits with those
earned by employees of their competitors, as well as with other plants in their community. If an employee's total compensation is found not to be competitive, then their wages will be adjusted.
Employee Equity and Profit Participation
Decoma believes that every employee should share in the financial success of the company.
Communication and Information
Through regular monthly meetings between management and employees and through publications, Decoma will provide its employees with information so that they will
know what is going on in the Company and within the industry.
The Hotline
Should an employee have a problem, or feel the above principles are not being met, we encourage them to call the Hotline or use the self-addressed
Hotline Envelopes to register their complaints. Employees do not have to give their name, but if they do, it will be held in strict confidence. Hotline Investigators will answer the employee's call.
The Hotline is committed to investigate and resolve all concerns or complaints and must report the outcome to the Global Human Resources Department. Hotline Number
1-800-263-1691.
Employee Relations Advisory Board
The Employee Relations Advisory Board is a group of people who have proven recognition and credibility relating to humanitarian and social issues. This Board will
monitor, advise and ensure that Decoma operates within the spirit of the Decoma Employee's Charter and the principles of Decoma's Corporate Constitution.
7
MAKING OUR MARK IN EMERGING MARKETS.
Adding new features and integrating additional Decoma components into our window surround modules delivers benefits to our OEM customers, their customers and to
Decoma. Our window surrounds can now incorporate multiple trim elements, glass division posts and fixed glass in a single assembly. For the front door window surround, Decoma recently
co-developed a system to integrate the rearview mirror base into the surround, reducing labour and improving the ability to run vehicles with very different trim requirements on the same
lines. For drivers, the end result is improved fit and finish and wind noise. From a manufacturing and assembly standpoint, modular systems decrease the number of parts, thereby lowering assembly time
for both Decoma and OEMs, and reducing the overall cost of the systems.
THE FUTURE IS LIGHTER AND STRONGER.
Research and development is a core Decoma commitment and one that's showcased superbly in our lightweight composites expertise. We're taking a leading role in
developing stronger, yet lighter components that will help our OEM customers achieve cost savings and weight savings, which in turn can translate into greater fuel efficiency. Fabricating body panels
in carbon fibre composites long used in racing and niche vehicles can yield significantly stiffer, stronger parts
weighing up to 35% less than the same parts made with conventional steel, aluminum and sheet moulding composites. As carbon fibre prices decrease, this promise grows. This prototype carbon fibre
composite Jeep TJ hood, developed by Decoma, is validating that potential, helping our researchers determine the ideal combination of resins and reinforcement materials for future commercial-scale
applications.
front runners
front-to-back
[PHOTO]
LEADING THE DRIVE TO MODULARIZE.
The trend toward modular assembly is revolutionizing the way vehicles are built, and it's a trend that Decoma is ideally poised to exploit. Decoma's modular capabilities,
showcased here in the 2005 Volkswagon Golf, are unmatched in our industry. By 2007, Decoma will be the global leader in front end modules, in a market that only promises to grow as the drive to
modularize becomes as prevalent in North America as it currently is in Europe. Decoma is working with European OEMs as they transform assembly techniques to allow for the integration of
increasingly complex modules, and structuring to respond with sequencing centres that deliver components in sequence to our customers' assembly plants.
FINANCIAL REVIEW
Management's Discussion and Analysis of Results of Operations and Financial Position |
|
15 |
Management's Responsibility for Financial Reporting |
|
35 |
Auditors' Report |
|
35 |
Significant Accounting Policies |
|
36 |
Consolidated Balance Sheets |
|
40 |
Consolidated Statements of Income and Retained Earnings |
|
41 |
Consolidated Statements of Cash Flows |
|
42 |
Notes to Consolidated Financial Statements |
|
43 |
Historical Financial Summary |
|
70 |
Decoma's Board of Directors, Officers and Operations Management |
|
72 |
Investor Information |
|
73 |
14 Decoma International Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL POSITION
All amounts in this Management's Discussion and Analysis of Results of Operations and Financial Position ("MD&A") are in U.S. dollars unless otherwise
noted. This MD&A is current as of February 25, 2004 and should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2003, included
elsewhere herein.
Impact of Translation of Foreign Currency Results of Operations into the Company's U.S. Dollar Reporting Currency
|
|
Years Ended December 31,
|
|
|
2003
|
|
2002
|
|
% Change
|
1 Cdn. dollar equals U.S. dollars |
|
0.716 |
|
0.637 |
|
12.4% |
1 Euro equals U.S. dollars |
|
1.132 |
|
0.946 |
|
19.7% |
1 British Pound equals U.S. dollars |
|
1.635 |
|
1.503 |
|
8.8% |
|
|
|
|
|
|
|
The
preceding table reflects the average foreign exchange rates between the primary currencies in which the Company conducts business and its U.S. dollar reporting currency.
Significant changes in the exchange rates of these currencies against the U.S. dollar impact the reported U.S. dollar amounts of the Company's results of operations.
The
results of foreign operations are translated into U.S. dollars using the average exchange rates in the table above for the relevant period. Throughout this MD&A reference is
made to the impact of translation of foreign operations on reported U.S. dollar amounts where significant.
In
addition to the impact of movements in exchange rates on translation of foreign operations into U.S. dollars, the Company's results can also be influenced by the impact of
movements in exchange rates on foreign currency transactions (such as raw material purchases denominated in foreign currencies). However, as a result of historical hedging programs employed by the
Company, foreign currency transactions in the current period have not been fully impacted by the recent movements in exchange rates. Readers are asked to refer to the "Financial Condition, Liquidity
and Capital Resources Forward Foreign Currency Contracts" section of this MD&A for further discussion. The Company records foreign currency transactions at the
hedged rate.
Finally,
holding gains and losses on foreign currency denominated monetary items, which are recorded in selling, general and administrative expenses, impact reported results. This MD&A
makes reference to the impact of these amounts where significant.
OVERVIEW
The following table isolates the year over year impact of certain unusual income and expense items on the Company's key earnings measures.
(U.S. dollars, in millions except per share figures)
|
|
Operating Income
|
|
|
|
Net Income
|
|
|
|
Diluted EPS
|
|
|
2002 as reported |
|
$ |
173.7 |
|
|
|
$ |
93.0 |
|
|
|
$ |
1.03 |
|
|
Addback Merplas deferred preproduction expenditures write-off |
|
|
8.3 |
|
|
|
|
8.3 |
|
|
|
|
0.08 |
|
|
Deduct other income in 2002 |
|
|
|
|
|
|
|
(3.4 |
) |
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted 2002 base |
|
|
182.0 |
|
|
|
|
97.9 |
|
|
|
|
1.08 |
|
|
United Kingdom impairment charge |
|
|
(12.4 |
) |
|
|
|
(12.4 |
) |
|
|
|
(0.12 |
) |
|
Continental Europe paint capacity consolidation charges |
|
|
(11.4 |
) |
|
|
|
(11.4 |
) |
|
|
|
(0.11 |
) |
|
Future net tax liability revaluation |
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
(0.01 |
) |
|
Other income in 2003 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
0.01 |
|
|
Decrease over adjusted 2002 base |
|
|
(7.0 |
) |
(4%) |
|
|
(2.5 |
) |
(3%) |
|
|
(0.08 |
) |
(7%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 as reported |
|
$ |
151.2 |
|
|
|
$ |
71.9 |
|
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
sales grew to $2,355.8 million in 2003. Total sales benefited $204.1 million from translation. Excluding the impact of translation, total sales increased
$95.0 million or 5% over 2002 due primarily to the acquisition of certain of Federal Mogul's original equipment automotive lighting operations (the "FM Lighting Acquisition") in the second
quarter of 2003, sales at recent new facility startups and higher tooling sales.
As
shown in the table above, diluted earnings per share in 2003 was impacted by:
-
- the
United Kingdom impairment and continental Europe paint capacity consolidation charges (see the "Other Charges" section of this MD&A for further discussion);
-
- the
revaluation of future net tax liabilities due to an increase in the future Ontario, Canada income tax rate (see the "Results of
Operations Years Ended December 31, 2003 and 2002 Income Taxes" section of this MD&A for further discussion); and
Annual Report 2003 15
-
- other
income from the permanent repatriation of funds from foreign operations (see the "Results of Operations Years Ended
December 31, 2003 and 2002 Other Income" section of this MD&A for further discussion).
Similarly,
2002 diluted earnings per share was impacted by:
-
- the
Merplas deferred preproduction expenditures write-off (see the "Other Charges" section of this MD&A for further discussion); and
-
- other
income from the disposition of a non-core North American operating division and from the permanent repatriation of funds from foreign operations (see the
"Results of Operations Years Ended December 31, 2003 and 2002 Other Income" section of this MD&A for further
discussion).
Excluding
the above items, diluted earnings per share declined $0.08 in 2003 compared to 2002. This decline is primarily attributable to an increase in the average number of diluted
Class A Subordinate Voting and Class B Shares outstanding due to the issuance in March 2003 of Cdn. $100 million of 6.5% convertible unsecured subordinated debentures (the
"Convertible Debentures") and to the issuance of 451,400 and 548,600 Class A Subordinate Voting Shares to the Decoma employee deferred profit sharing program during the third quarter of 2002
and second quarter of 2003, respectively, and due to a $2.5 million decline in net income. The decline in net income was due to a $7.0 million reduction in operating income primarily as
a result of an $8.0 million increase in European operating losses and an $8.4 million increase in corporate segment losses primarily the result of foreign exchange losses on
U.S. dollar denominated monetary items held in Canada. These reductions were partially offset by a $9.4 million increase in North American operating income.
OTHER CHARGES
Year Ended December 31, 2003
UNITED KINGDOM IMPAIRMENT CHARGE
The Company operates two facilities in the United Kingdom, Merplas and Sybex. Given the magnitude of Merplas' historic losses, the Merplas results have
been separately disclosed in the Company's MD&A in order to better explain the performance of the European operating segment.
The
Merplas facility was initially built to service the X400 program assembled at Jaguar's Halewood plant, and other Jaguar programs, including the X100 program, with additional capacity
to service other future business opportunities. Production volumes on the Jaguar X400 and X100 programs continue at levels that are well below original planning volume estimates of 115,000 and 11,000,
respectively. In 2003, production volumes were approximately 52,700 and 6,500 for the X400 and X100, respectively. Despite low volumes, Merplas has steadily reduced its operating losses from
$23.4 million in 2001 to $11.5 million in 2003 through its continuous improvement efforts.
The
Sybex facility's major programs include the BMW Mini and various Rover and Ford PAG Landrover programs. Sybex's operating income in 2003 and 2002 was $1.2 million and
$0.5 million, respectively. While BMW Mini program volumes are strong, long-term Rover volumes are subject to uncertainty. In addition, declines in Sybex's current Landrover
business were expected to be offset by the award of Landrover's Freelander fascia program which will launch in 2006 (Freelander volumes are expected to approximate 75,000 vehicles annually after ramp
up). However, as a result of Ford PAG's decision to produce its 2006 Freelander program at its Halewood, England plant, the Company has decided to relocate its related 2006 Freelander fascia
production from Sybex to the closer Merplas facility.
Upon
completion of the 2004 business planning process, the Company identified a number of indicators of United Kingdom long-lived asset impairment including the
continuation of budgeted United Kingdom operating losses, uncertain long-term production volumes for the United Kingdom market in general which affect certain of the
Company's existing programs, and excess paint capacity in the United Kingdom market.
These
impairment indicators required the Company to assess its United Kingdom asset base for recoverability. Estimated discounted future cash flows were used to determine the
amount of the write-down. The result of this assessment was a write-down of $12.4 million of certain of the long-lived assets at the Company's Sybex
facility. Although Merplas has experienced significant historic operating losses, the decision to relocate the 2006 Freelander fascia program from Sybex to Merplas significantly improves Merplas'
long-term outlook. However, without additional new business, Sybex's long-term outlook deteriorates. Although the possibility of obtaining incremental new business remains, the
Company has been unable to advance incremental business opportunities for Sybex to the point of concluding they are reasonably probable.
This
write-down will have no near term impact on operations at either Merplas or Sybex, which will continue their operations in the normal course.
As
a result of cumulative losses in the United Kingdom, this impairment charge has not been tax effected.
This
impairment charge had no impact on depreciation expense in 2003. However, as a result of the impairment charge, depreciation expense in 2004 is expected to be reduced by
approximately $2.5 million.
CONTINENTAL EUROPE PAINT CAPACITY CONSOLIDATION CHARGES
During 2003, the Company completed, and committed to, a plan to consolidate its continental Europe paint capacity. This plan entails mothballing the Company's
Decoform paint line in Germany and transferring Decoform's painted trim and fascia business to the Company's newer paint lines at its Decorate and Belplas facilities in Germany and Belgium,
respectively. Decoform will continue to mold and assemble products for Decorate.
The
consolidation required the write-down of the carrying value of the Decoform paint line by $4.8 million. The consolidation will also result in severance costs
associated with a reduction of the Decoform workforce of 284 employees. Severance costs of $6.7 million were accrued in 2003.
16 Decoma International Inc.
Decoform
employees have a contractual notice period of up to two quarters following the quarter in which individual notice is given. The consolidation plan envisions substantially all
employees working through their contractual notice periods with paint line production transfers and employee terminations completed by the end of 2004.
A
continuity of the severance accrual related to this consolidation plan is as follows:
(U.S. dollars in millions)
|
|
|
Expensed |
|
$ |
6,658 |
Payments |
|
|
|
Currency translation |
|
|
141 |
|
|
|
Balance, December 31, 2003 |
|
$ |
6,799 |
|
|
|
There
will be no reduction in sales as a result of the consolidation of these operations. The consolidation will avoid the need for significant future capital expenditures at the
Decoform facility and Decoma believes that the consolidation will also improve long-term EBIT at the affected facilities in 2005 and beyond by reducing operating overheads and paint line
depreciation and by improving the utilization rates within the Company's Decorate and Belplas paint operations.
These
continental Europe paint capacity consolidation charges have resulted in large accounting losses in Germany and create both taxable temporary difference and loss carryforward
future tax assets. A full valuation allowance has been provided against these future tax assets resulting in no net tax recovery against these charges in the consolidated income statement.
Year Ended December 31, 2002
GOODWILL AND DEFERRED PREPRODUCTION EXPENDITURES
In 2002, the Company adopted the new accounting recommendations of The Canadian Institute of Chartered Accountants for goodwill and other intangible assets. Upon
initial adoption of these recommendations, the Company recorded a goodwill write-down of $12.3 million related to its United Kingdom reporting unit. This
write-down was charged against January 1, 2002 opening retained earnings. As part of its assessment of goodwill impairment, the Company also reviewed the recoverability of deferred
preproduction expenditures at its Merplas facility. As a result of this review, $8.3 million of deferred preproduction expenditures were written off as a charge against income in the second
quarter of 2002. As a result of cumulative losses in the United Kingdom, this write-down has not been tax effected.
RESULTS OF OPERATIONS
Years Ended December 31, 2003 and 2002
SALES
|
|
Years Ended December 31,
|
|
|
|
2003
|
|
2002
|
|
% Change
|
|
Light Vehicle Production Volumes [in millions] |
|
|
|
|
|
|
|
|
|
|
North America |
|
|
15.864 |
|
|
16.323 |
|
(3% |
) |
|
Western Europe |
|
|
16.428 |
|
|
16.341 |
|
1% |
|
|
|
|
|
|
|
|
|
Average Content Per Vehicle [U.S. dollars] |
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
95 |
|
$ |
85 |
|
12% |
|
|
Europe |
|
|
39 |
|
|
30 |
|
30% |
|
|
|
|
|
|
|
|
|
Production Sales [U.S. dollars in millions] |
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
1,506.8 |
|
$ |
1,391.5 |
|
8% |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
Excluding Merplas |
|
|
616.1 |
|
|
457.1 |
|
35% |
|
|
|
Merplas |
|
|
30.4 |
|
|
34.7 |
|
(12% |
) |
|
|
|
|
|
|
|
|
|
|
Total Europe |
|
|
646.5 |
|
|
491.8 |
|
31% |
|
Global Tooling and Other Sales |
|
|
202.5 |
|
|
173.4 |
|
17% |
|
|
|
|
|
|
|
|
|
Total Sales |
|
$ |
2,355.8 |
|
$ |
2,056.7 |
|
15% |
|
|
|
|
|
|
|
|
|
Annual Report 2003 17
Average
content per vehicle in North America and in Europe has been calculated by dividing the Company's North American and European production sales by the industry's North American and
European light vehicle production volumes, respectively. Excluding the effects of translation, continued growth in average content per vehicle provides a measure of the Company's ability to sell its
products onto new vehicle platforms and/or expand its sales onto existing vehicle platforms. Increases in average content per vehicle may result from any one or more of: the award of takeover
business; the acquisition of competitors; the expansion of the Company's existing product markets (i.e. the conversion of bumpers from steel to plastic); and the introduction of new products.
North America
North American production sales grew by 8% to $1,506.8 million in 2003.
A
3% decline in North American vehicle production volumes negatively impacted sales by $42.0 million. However, this decline was offset by significant growth in North American
content per vehicle. North American content per vehicle grew $10 or 12% to approximately $95.
Translation
of Canadian dollar sales into the Company's U.S. dollar reporting currency added approximately $102.1 million to production sales and $6 to North American
content per vehicle. In addition, the FM Lighting Acquisition added approximately $51.9 million to production sales and $3 to North American content per vehicle.
The
remaining net $3.3 million increase in production sales and $1 increase in North American content per vehicle was due to:
-
- new
takeover business including certain General Motors lighting and Ford running board programs;
-
- sales
on programs that launched during or subsequent to 2002 including the General Motors GMX 367 (Grand Prix) and the GMX 380 (Malibu) programs, the DaimlerChrysler AN
(Dakota) program serviced by a new Michigan based specialty vehicle assembly facility launched by the Company in the fourth quarter of 2002, the Ford U231 (Aviator) program and the BMW E85 (Z4)
program amongst others; and
-
- strong
volumes on other high content production programs including the General Motors GMX 210 (Impala), GMX 320 (Cadillac CTS) and GMT 820 C and D (Cadillac Escalade and
Denali SUV) programs, the DaimlerChrysler DR (Ram pickup) program and the Ford U222 (Expedition) program.
These
increases were partially offset by:
-
- end
of production on the DaimlerChrysler LH (Concorde, Intrepid and 300M) program during 2003 (the new Daimler Chrysler LX program did not launch until the first quarter of
2004);
-
- lower
production volumes as a result of the changeover of the Ford WIN 126 (Windstar) program to the V229 (Freestar) program during the year (V229 (Freestar) fascia
production was transferred by Ford to a competitor at the end of 2003);
-
- end
of production on the General Motors MS2000 (Grand Prix) program;
-
- lower
production volumes on certain other long running high content programs including the Ford U152 (Explorer) and EN114 (Crown Victoria, Grand Marquis) programs and the
DaimlerChrysler JR (Stratus, Sebring and Sebring Convertible), RS (Minivan) and PT Cruiser programs;
-
- reduced
painting content on the GMT 805 (Avalanche) and GMT 806 (Escalade EXT) programs and end of production during 2002 on the Ford CT120 (Escort) 4 door program all in
Mexico;
-
- reduced
content on the DaimlerChrysler RS (Minivan) program;
-
- the
closure of the Company's specialty vehicle operation in Montreal due to the end of production of the F Car (Camaro, Firebird) at General Motors' St. Therese assembly
plant in the third quarter of 2002; and
-
- the
impact of OEM price concessions.
North American Vehicle Production Volumes
(in millions) |
|
North American Average Content Per Vehicle |
|
North American Production Sales
(in millions) |
|
|
|
|
|
Europe
European production sales increased 31% to $646.5 million in 2003 on substantially level production volumes. European content per vehicle grew $9 or 30% to
approximately $39 for 2003. Content growth was driven by the translation of Euro and British Pound sales into the Company's U.S. dollar reporting currency. This added approximately
$83.1 million to European production sales and $5 to European content per vehicle.
Content
growth was also driven by sales at recent new facility startups in the latter part of 2002 and in 2003 including the launch of the VW Group T5 (Transit Van) fascia and front end
module assembly and sequencing program at the Company's new Modultec and Formatex facilities in Germany and Poland; the launch of the DaimlerChrysler Mercedes E Class 4 Matic front end module
assembly and sequencing program at the Company's new Graz, Austria facility; the launch of the VW Group A5 (Golf) program in the fourth quarter of 2003 including fascia production at the Company's new
Belplas paint line and front end module assembly and sequencing at the Company's new Brussels Sequencing Centre.
These new facilities collectively added approximately $102.9 million to production sales and $6 to European content per vehicle.
18 Decoma International Inc.
The
remaining net $31.3 million reduction in production sales and $2 reduction in content per vehicle is due to a number of factors including a decline in production volumes on
the Jaguar X400 program produced at Merplas. Merplas' sales declined from $34.7 million in 2002 to $30.4 million in 2003. Adjusting to eliminate the impact of translation of British
Pound sales into U.S. dollars, Merplas' sales declined $7.3 million. In addition, European production sales and content were negatively impacted by lower volumes on certain long running
high content programs such as the DaimlerChrysler Mercedes C Class and various Rover programs and end of production of DaimlerChrysler Mercedes E Class trim production, Landrover Discovery fascia
production and the Audi TT hard top program. These factors were partially offset by the launch of various new Audi production programs at the Company's facilities in Germany and strong BMW Mini
volumes.
European Vehicle Production Volumes
(in millions) |
|
European Average Content Per Vehicle |
|
European Production Sales
(in millions) |
|
|
|
|
|
Global Tooling and Other
Tooling and other sales on a global basis increased 17% to $202.5 million for 2003. The increase came in both North America and Europe and is primarily
related to translation of Canadian dollar, Euro and British pound sales into the Company's U.S. dollar reporting currency which added $18.8 million to tooling sales. The remaining
$10.3 million or 6% increase relates to new program launches including the Ford U204 (Escape) refresh program in North America and the VW Group A5 (Golf) program in Europe.
Sales by Customer
The Company' s sales by customer breakdown for 2003 and 2002 was as follows:
|
|
Year Ended December 31, 2003
|
|
Year Ended December 31, 2002
|
|
|
North America
|
|
Europe
|
|
Global
|
|
North America
|
|
Europe
|
|
Global
|
Traditional "Big 3" Brands |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ford |
|
25.4% |
|
2.1% |
|
27.5% |
|
26.5% |
|
2.1% |
|
28.6% |
|
GM / Opel / Vauxhall |
|
22.6% |
|
1.8% |
|
24.4% |
|
23.9% |
|
1.4% |
|
25.3% |
|
Chrysler |
|
12.6% |
|
0.8% |
|
13.4% |
|
13.9% |
|
0.7% |
|
14.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60.6% |
|
4.7% |
|
65.3% |
|
64.3% |
|
4.2% |
|
68.5% |
|
VW Group |
|
0.1% |
|
8.8% |
|
8.9% |
|
0.1% |
|
4.7% |
|
4.8% |
|
Mercedes |
|
|
|
8.7% |
|
8.7% |
|
|
|
9.4% |
|
9.4% |
|
BMW |
|
0.6% |
|
1.7% |
|
2.3% |
|
0.5% |
|
1.6% |
|
2.1% |
|
Ford Premier Automotive Group ("Ford PAG") |
|
0.1% |
|
2.1% |
|
2.2% |
|
0.1% |
|
2.3% |
|
2.4% |
|
Renault Nissan |
|
1.5% |
|
0.5% |
|
2.0% |
|
1.6% |
|
0.6% |
|
2.2% |
|
Other |
|
5.5% |
|
5.1% |
|
10.6% |
|
5.6% |
|
5.0% |
|
10.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.4% |
|
31.6% |
|
100.0% |
|
72.2% |
|
27.8% |
|
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Included above are sales to Asian new domestics |
|
4.1% |
|
0.1% |
|
4.2% |
|
3.8% |
|
0.3% |
|
4.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company continues to grow it sales with original equipment manufacturer ("OEM") customers outside the traditional "Big 3" automotive brands.
The
growth in sales to the VW Group is the result of the launch of the VW Group T5 (Transit Van) and A5 (Golf) fascia and front end module programs and the recent launch of a number of
new Audi programs. The Company's sales to the VW Group are expected to continue to grow as the VW A5 (Golf) program ramps up and the VW SLW (City Car) program launches at Formatex. Sales to Mercedes
are also expected to grow with the launch of both the A Class program in the second half of 2004 and the Decostar facility in 2005.
Annual Report 2003 19
The
Company's largest production sales programs for 2003 in each of North America and Europe included:
North America
-
- Ford
U152 (Explorer)
-
- DaimlerChrysler
JR (Stratus, Sebring and Sebring Convertible)
-
- Ford
EN114 (Crown Victoria and Grand Marquis)
-
- DaimlerChrysler
DR (Ram pick up)
-
- DaimlerChrysler
LH (Concorde, Intrepid and 300M)
Europe
-
- DaimlerChrysler
Mercedes C Class
-
- VW
Group T5 (Transit Van)
-
- BMW
Mini
-
- Audi
B6 (A4)
-
- Opel
Epsilon
The
DaimlerChrysler LH (Concorde, Intrepid and 300M) program remained one of the Company's largest North American production sales programs despite the fact that this program ended in
the third quarter of 2003 and the new LX program does not start up until the first quarter of 2004.
Although
the Company has significant North American business with General Motors, including a number of individually significant programs such as the GMX 210 (Impala), individual General
Motors' programs are outside the Company's top 5 sales dollar programs.
Global Tooling and Other Sales
(in millions) |
|
Sales by Customer |
|
|
|
GROSS MARGIN
Gross margin increased to $464.7 million in 2003 compared to $423.4 million in 2002. As a percentage of total sales, gross margin declined to 19.7%
compared to 20.6% for 2003 and 2002, respectively.
The
gross margin percentage in North America was substantially unchanged at 25.0% in 2003 compared to 24.7% in 2002. The Company's ongoing continuous improvement programs, favourable
purchase price variances on net U.S. dollar purchases within the Company's Canadian operations and increased claims for eligible research and development investment tax credits enabled the
North American segment to successfully offset the impact of the changeover of a number of large North American production programs; lower North American production volumes including lower volumes on
certain long running high content programs; OEM price concessions; spending at the Company's Decostar facility; increased costs within the Company's systems integration operations with the launch of
two new facilities in 2003 and costs in preparation for the launch of additional facilities in 2004; growth in the Company's lighting business which currently operates at lower margins; and FM
Lighting Acquisition integration costs.
European
gross margin declined to 8.2% in 2003 compared to 9.8% in 2002. The decline in the European gross margin percentage is due primarily to new facility startups and the growth in
front end module assembly and sequencing sales and the lower margins associated with purchased components. In addition, continued operating inefficiencies and other performance issues at the Company's
Prometall and Decoform facilities negatively impacted gross margin. These negative impacts were partially offset by improvements at Merplas and within the Company's paint operations at its Decorate
trim facility.
The
competitive environment within the automotive industry continues to cause the Company's customers to increase pressure for price concessions and to finance or absorb more engineering
costs related to product design, tooling costs and certain capital and other items. The Company has been largely successful in the past in responding to these pressures through improved operating
efficiencies and cost reductions. However, customer pressure for price concessions has intensified in recent quarters. Although the Company remains highly focused on continuous improvement activities,
continued significant incremental price concessions could have an adverse impact on the Company's gross margin percentage.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs increased to $89.9 million for 2003 compared to $78.3 million for 2002. Of this increase, $7.1 million is
attributable to the translation of Canadian dollar, Euro and British Pound depreciation expense into the Company's U.S. dollar reporting currency. The Company's ongoing capital spending program
also contributed to increased depreciation expense including commencement of depreciation at the Company's new Belplas paint line in the fourth quarter of 2003. These increases were partially offset
by a reduction in Merplas deferred preproduction amortization as a result of the 2002 write-down of Merplas' deferred preproduction expenditures. Depreciation expense in 2002 includes
$0.7 million of Merplas deferred preproduction amortization prior to the write-down.
20 Decoma International Inc.
Depreciation
as a percentage of total sales was substantially unchanged at 3.8% in 2003 and 2002.
Depreciation
on capital invested at Decostar will not commence until commercial production begins which is now scheduled for the first quarter of 2005.
SELLING, GENERAL AND ADMINISTRATIVE ("S, G&A")
S,G&A costs were $175.3 million for 2003, up from $137.9 million for 2002. This increase reflects the translation of Canadian dollar, Euro and
British Pound S,G&A costs into the Company's U.S. dollar reporting currency which increased reported S,G&A dollars by $15.0 million. In addition, foreign exchange losses increased by
$7.8 million in 2003 compared to 2002 largely on U.S. dollar denominated monetary items held in Canada. The impact of the Company's change in accounting policy to expense stock options
granted on or after January 1, 2003 increased S,G&A expense by $0.3 million (readers are asked to refer to note 4 to the Company's consolidated financial statements for the
year ended December 31, 2003, included elsewhere herein).
The
remaining $14.3 million increase in S,G&A expense is related to the Company's Decostar and Belplas projects; the FM Lighting Acquisition; and additional S,G&A expense at
recently launched facilities including Modultec, Formatex, Graz and the Brussels Sequencing Centre in Europe and increased costs within the Company's systems integration operations with the launch of
two new facilities in 2003 and costs in preparation for the launch of additional facilities in 2004.
As
a percentage of total sales, S,G&A increased to 7.4% for 2003 compared to 6.7% for 2002.
In
addition to the benefits provided by Magna International Inc. and it's subsidiaries ("Magna") to Decoma under the affiliation agreement noted below, Magna provides certain
management and administrative services to the Company, including specialized legal, environmental, immigration, tax, treasury, information systems (including wide area network infrastructure and
support services) and employee relations services (including administration of Decoma's Employee Equity Participation and Profit Sharing Program), in return for a specific amount negotiated between
the Company and Magna which includes an allocated share of the facility and overhead costs dedicated to providing these services. The Company is currently in discussions with Magna with respect to a
formal long-term agreement detailing these arrangements. The cost of management and administrative services provided by Magna and included in S,G&A was $4.2 million for 2003
compared to $3.6 million for 2002. The increase is due to translation of Canadian dollar fees into the Company's U.S. dollar reporting currency and to an increase in the cost of the
services provided.
AFFILIATION AND SOCIAL FEES
The Company is party to an affiliation agreement with Magna that provides for the payment by Decoma of an affiliation fee. The affiliation agreement provides the
Company with, amongst other things, certain trademark rights, access to Magna's management and to its operating principles and policies, internal audit services, Tier 1 development assistance, global
expansion assistance, vehicle system integration and modular product strategy assistance and sharing of best practices in areas such as new management techniques, employee benefits and programs,
marketing and technology development initiatives.
As
previously disclosed, the Company entered into an amended agreement with Magna effective August 1, 2002. Affiliation fees payable under the amended agreement were reduced to 1%
of Decoma's consolidated net sales (as defined in the agreement) from the 1.5% rate that previously applied. In addition, the amended agreement provides for a fee holiday on 100% of consolidated net
sales derived from future business acquisitions in the calendar year of the acquisition and 50% of consolidated net sales derived from future business acquisitions in the first calendar year following
the year of acquisition. The amended agreement also entitled Decoma to a credit equal to 0.25% of Decoma's consolidated net sales for the period from January 1, 2002 to July 31, 2002. In
addition, Decoma was entitled to a credit equal to 1.5% of 2001 consolidated net sales derived from the acquisition of Autosystems and 50% of 1.25% of January 1, 2002 to July 31, 2002
consolidated net sales derived from Autosystems.
Decoma's
corporate constitution specifies that the Company will allocate a maximum of 2% of its profit before tax to support social and charitable activities. The Company pays 1.5% of
its consolidated pretax profits to Magna which in turn allocates such amount to social and other charitable programs on behalf of Magna and its affiliated companies, including Decoma.
Affiliation
and social fees expense for 2003 decreased to $24.5 million from $25.3 million for 2002. Affiliation fee expense in 2002 was 1.25% through July 31 and
1.0% thereafter on consolidated net sales, less the Autosystems related fee holiday. Affiliation fees for 2003 were 1.0% of consolidated net sales, less the acquisition related fee holidays primarily
related to the FM Lighting Acquisition. The decrease in the 2003 affiliation and social fees expense is the result of a lower effective affiliation fee rate in 2003 compared to 2002 and reduced social
fee expenses due to a reduction in the pretax profits on which the social fees are calculated, partially offset by an increase in consolidated net sales on which the affiliation fees are calculated.
Affiliation
and social fee expense as a percentage of total sales declined to 1.0% in 2003 compared to 1.2% in 2002.
Annual Report 2003 21
OPERATING INCOME
|
|
Years Ended December 31,
|
|
[U.S. dollars in millions]
|
|
2003
|
|
2002
|
|
% Change
|
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
213.8 |
|
$ |
204.4 |
|
5% |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
Excluding Merplas and other charges |
|
|
(10.8 |
) |
|
1.8 |
|
|
|
|
|
Merplas excluding deferred preproduction expenditures write-off |
|
|
(11.5 |
) |
|
(16.1 |
) |
29% |
|
|
|
Merplas deferred preproduction expenditures write-off |
|
|
|
|
|
(8.3 |
) |
|
|
|
|
United Kingdom impairment charge |
|
|
(12.4 |
) |
|
|
|
|
|
|
|
Continental Europe paint capacity consolidation charges |
|
|
(11.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe |
|
|
(46.1 |
) |
|
(22.6 |
) |
(104% |
) |
|
Corporate |
|
|
(16.5 |
) |
|
(8.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Operating Income |
|
$ |
151.2 |
|
$ |
173.7 |
|
(13% |
) |
|
|
|
|
|
|
|
|
As
a percentage of total sales, operating income before other charges was 7.4% for 2003 compared to 8.8% for 2002.
The
increase in the corporate segment operating loss is attributable to an increase in foreign exchange losses of $7.6 million on U.S. dollar denominated monetary items
held in Canada, one time severance costs and the impact of the Company's change in accounting policy to expense stock options granted on or after January 1, 2003 which added $0.3 million
to the corporate segment operating loss.
North America
North American operating income increased $9.4 million to $213.8 million for 2003. As a percentage of total North American sales, North American
operating income was 13.2% in 2003 compared to 13.7% in 2002.
The
0.5% decline in North American operating income as a percentage of total sales is the result of:
-
- a
0.8% increase in S,G&A expenses as a percentage of total sales from 5.8% in 2002 to 6.6% in 2003 as a result of increased costs related to the Company's lighting business
including integration costs related to the FM Lighting Acquisition, increased costs related to Decostar and the Company's systems integration operations and the impact of a temporary reduction in
sales as a result of the changeover of a number of large production programs including end of production on the DaimlerChrysler LH (Concorde, Intrepid and 300M) program (the new DaimlerChrysler LX
program does not launch until the first quarter of 2004) without a similar temporary reduction in S,G&A costs; and
-
- a
0.1% increase in depreciation expense as a percent of total sales from 3.7% in 2002 to 3.8% in 2003; partially offset by
-
- a
0.1% reduction in affiliation and social fees as a percentage of total sales as a result of the reduction in the affiliation fee rate and as a result of the acquisition
fee holiday related to the FM Lighting Acquisition, partially offset by the elimination of the acquisition affiliation fee holiday related to the 2001 acquisition of Autosystems; and
-
- a
0.3% improvement in the North American gross margin percentage.
Europe
European operating losses were negatively impacted by the United Kingdom impairment and continental Europe paint capacity consolidated charges, partially
offset by the Merplas deferred preproduction expenditures write-off in 2002. Excluding other charges, European operating income declined $8.0 million. European operating income
continues to be negatively impacted by efficiency and other performance issues at the Company's Prometall and Decoform facilities. Operating income at these facilities declined by $10.0 million
in 2003 compared to 2002. In addition to the impact of operating inefficiencies, this decline is also the result of:
-
- costs
associated with various Audi production programs recently launched at these facilities;
-
- costs
associated with various Porsche programs that will launch in 2004 at a new assembly and sequencing facility in Zuffenhausen, Germany with fascia and related trim
production originally scheduled to come from the Company's existing Decoform facility and from third parties (Decoform Porsche production has now been shifted to Belplas as a result of the Company's
continental Europe paint capacity consolidation plan); and
-
- costs
associated with the transfer, to a new facility located in Germany, and start-up of the Prometall operations.
In
addition, the Company's Decotrim exterior trim facility in Belgium continues to be impacted by competitive pricing pressures and open capacity. Decotrim's operating losses grew
$0.6 million in 2003 compared to 2002.
Operating
results were also negatively impacted by costs incurred to support European sales growth including:
-
- costs
associated with establishing the Company's Formatex moulding, assembly and sequencing facility located in Poland to service the VW Group T5 (Transit Van) and the SLW
(City Car) Polish production programs; and
22 Decoma International Inc.
-
- costs
associated with the construction and launch of the Company's new Belplas paint line and the takeover of the Brussels Sequencing Centre both to service a portion of the
production volume on the VW Group A5 (Golf) program commencing in the fourth quarter of 2003.
The
aggregate net change in operating income in 2003 compared to 2002 at Formatex, Belplas and the Brussels Sequencing Centre was a reduction of $9.4 million.
Finally,
during the fourth quarter of 2003, the Company completed the acquisition of HDO Galvano-und Oberflächentechnik GmbH ("HDO") which operated a
chroming line adjacent to the Company's Idoplas facility. The line is being converted to allow for grille chroming and will be integrated into Idoplas' operations. The Company expects to launch the
chroming line in early 2004 and commence the insourcing of grille chroming business currently outsourced by Decoma's European operations at that time. As a result, the fourth quarter of 2003 was
negatively impacted by chroming line start-up and launch costs.
The
above costs were partially offset by:
-
- income
now being generated at the Company's Modultec mould in colour, assembly and sequencing facility which was launched in Germany in the fourth quarter of 2002 to supply
the VW Group T5 (Transit Van) program and the Company's Graz, Austria assembly and sequencing facility which was launched in the first quarter of 2003 to supply Magna Steyr's DaimlerChrysler Mercedes
E Class 4 Matic program (the aggregate net change in operating income in 2003 compared to 2002 at Modultec and Graz, was an improvement of $1.4 million); and
-
- improvements
at the Company's other European facilities, most notably within the paint operations at its Decorate trim facility in Germany and continued strong operating
profits generated at the Company's Innoplas fascia facility in Germany despite lower production volumes on its highest content program, the DaimlerChrysler Mercedes C Class, and costs associated with
the DaimlerChrysler Mercedes A Class program that will launch in the second half of 2004 (operating income at these two facilities combined improved $5.3 million in 2003 compared to 2002).
Finally,
Merplas' operating loss before other charges improved to $11.5 million for 2003 compared to a loss of $16.1 million in 2002. Adjusting to eliminate the impact of
translation of British Pound operating losses into U.S. dollars, Merplas' operating loss declined $6.0 million in 2003 compared to 2002. This improvement was realized despite the reduced
fixed cost coverage effects of a significant drop in production sales as a result of lower Jaguar X400 production volumes. The improvement relates, in part, to the recovery of tooling and engineering
costs that were expensed in prior periods. However, the balance of the improvement reflects the impact of significant operating improvements implemented at Merplas over the last two years.
EQUITY INCOME
Income from equity accounted investments, which includes the Company's 40% share of Bestop, Inc. ("Bestop") and Modular Automotive Systems, LLC,
increased to $1.8 million for 2003 compared to $0.5 million for 2002 due to closure costs in 2002 with respect to one of Bestop's facilities and the resulting improvement in operating
performance as a result of the closure.
INTEREST EXPENSE
Interest expense for 2003 declined to $10.7 million compared to $12.0 million for 2002 as a result of a reduction in average interest bearing net
debt (including bank indebtedness, long-term debt including current portion and debt
due to Magna including current portion, less cash and cash equivalents) levels and interest capitalized on the Company's Decostar and Belplas paint line projects of $1.3 million in 2003 (nil in
2002) partially offset by translation of Canadian dollar and Euro interest into the Company's U.S. dollar reporting currency. In addition, lower interest rates on debt due to Magna contributed
to the reduction. The original interest rate on the first and second tranches of Euro denominated debt due to Magna was 7.0%. The first and second tranches were due October 1, 2002 and
October 1, 2003, respectively. However, since the original maturity dates of this debt, the Company, with Magna's consent, was extending the repayment of this debt at 90 day intervals at
market interest rates ranging from 3.14% to 4.29%. Substantially all of this debt was repaid in December 2003.
Interest
on debt due to Magna and its affiliates and included in reported interest expense amounted to $11.3 million in 2003 compared to $10.1 million in 2002. This
increase is the result of translation of Canadian dollar and Euro interest into the Company's U.S. dollar reporting currency partially offset by the interest rate reductions described above.
AMORTIZATION OF DISCOUNT ON CONVERTIBLE SERIES PREFERRED SHARES
The Company's amortization of the discount on the portion of the Convertible Series Preferred Shares held by Magna classified as debt increased to
$8.6 million for 2003 compared to $8.4 million for 2002. The increase reflects the translation of Canadian dollar amortization into the Company's U.S. dollar reporting currency
and increased amortization on the Series 4 and 5 Convertible Series Preferred Shares as the liability amount approaches face value, partially offset by lower amortization as a result of
the discount on the Series 3 Convertible Series Preferred Shares being fully amortized as of July 31, 2002. As of December 31, 2003, the Series 4 Convertible Series
Preferred Shares are fully amortized. Therefore, amortization in 2004 will be reduced as it will be limited to amortization on the Series 5 Convertible Series Preferred Shares only.
OTHER INCOME
Other income in 2003 of $1.4 million represents the recognition in income of a pro rata amount of the Company's cumulative translation adjustment
account on the permanent repatriation of $75 million of the Company's net investment in its United States operations. This amount was not subject to tax.
Annual Report 2003 23
Other
income in 2002 includes a $3.9 million gain on the sale of a non-core North American operating division. Income tax expense for 2002 includes $1.0 million
related to this gain. In addition, other income in 2002 includes $0.5 million as a result of the recognition in income of a pro rata amount of the Company's cumulative translation
adjustment account on the permanent repatriation of Euro 10 million of the Company's net investment in its continental Europe operations. This amount was not subject to tax.
INCOME TAXES
The Company's effective income tax rate for 2003 increased to 46.8% from 41.2% for 2002. As explained in the "Other Charges" section of this MD&A, the other
charges in 2003 and 2002 were not tax effected which negatively impacted the Company's effective tax rate. Similarly, the Company's other income in 2003 and 2002 was either fully or partially not
subject to tax. In addition, as a result of an increase in future Ontario, Canada income tax rates and the resulting required revaluation of the Company's future net tax liabilities, the Company's
2003 tax expense increased by $1.1 million. Excluding other charges, other income and the future net tax liability revaluation as a result of Ontario, Canada future tax rate changes, the
Company's effective tax rate for 2003 was substantially unchanged at 39.4% compared to 39.6% for 2002.
The
Company's effective tax rate continues to be high due to Convertible Series Preferred Share amortization which is not deductible for tax purposes and losses which are not being tax
benefited primarily in the United Kingdom, Germany, Belgium and Poland. Cumulative unbenefited tax loss carryforwards total approximately $143 million. Substantially all of these losses
have no expiry date and will be available to shelter future taxable income in these jurisdictions.
NET INCOME
Net income for 2003 declined to $71.9 million from $93.0 million for 2002.
Excluding
the impact of other charges, other income and the future net tax liability revaluation, the Company's net income declined $2.5 million (readers are asked to refer to the
"Overview" section of this MD&A for further discussion). The decline in net income was due to reduced operating income partially offset by lower interest expense.
FINANCING CHARGES
The deduction from net income of financing charges on the Convertible Series Preferred Shares held by Magna (comprised of dividends declared on the Convertible
Series Preferred Shares less the reduction of the Convertible Series Preferred Shares dividend equity component) decreased to $4.5 million for 2003 compared to $4.8 million for 2002. The
decrease reflects the conversion of the Series 1, 2 and 3 Convertible Series Preferred Shares into the Company's Class A Subordinate Voting Shares in August 2003 partially offset
by the translation of Canadian dollar dividends into the Company's U.S. dollar reporting currency.
In
March of 2003, the Company issued the Convertible Debentures. Financing charges, net of income tax recoveries, related to the Convertible Debentures were $3.0 million in 2003.
The Company has the option to settle Convertible Debenture interest, and principal on redemption or maturity, with Class A Subordinate Voting Shares. In addition, the holders of the Convertible
Debentures have the right to convert into Class A Subordinate Voting Shares at a fixed price at any time. As a result, under current Canadian generally accepted accounting principles ("GAAP"),
the Convertible Debentures are presented as equity and the carrying costs associated with the Debentures are charged to retained earnings. Therefore, Convertible Debenture carrying charges do not
impact net income. However, because interest on the Convertible Debentures is paid in preference to common shareholders, the Convertible Debenture carrying charges reduce net income attributable to
Class A Subordinate Voting and Class B Shares.
The
Canadian Institute of Chartered Accountants recently amended Handbook Section 3860, "Financial Instruments Disclosure and
Presentation", to require certain obligations that may be settled with an entity's own equity instruments to be reflected as a liability. The amendments must be adopted in the Company's 2005
consolidated financial statements with retroactive application. Upon adoption, the Convertible Debentures currently presented entirely within equity on the consolidated balance sheet will have to be
presented in part as a liability and in part as equity and the related liability carrying costs will be presented as a charge to net income.
DILUTED EARNINGS PER SHARE
|
|
Years Ended December 31,
|
|
|
|
2003
|
|
2002
|
|
% Change
|
|
Earnings per Class A Subordinate Voting or Class B Share [U.S. dollars] |
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.88 |
|
$ |
1.30 |
|
(32% |
) |
|
Diluted
|
|
0.77
|
|
1.03
|
|
(25%
|
)
|
Average number of Class A Subordinate Voting and Class B Shares outstanding [in millions] |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
73.4 |
|
|
67.8 |
|
8% |
|
|
Diluted
|
|
104.3
|
|
98.3
|
|
6%
|
|
24 Decoma International Inc.
The
increase in the weighted average number of basic Class A Subordinate Voting and Class B Shares outstanding is due to the issuance of 14,895,729 Class A
Subordinate Voting Shares on conversion of the Series 1, 2 and 3 Convertible Series Preferred Shares during the third quarter of 2003. This transaction negatively impacted basic earnings per
share but had no impact on diluted shares outstanding or diluted earnings per share. Readers are asked to refer to the "Consolidated Capitalization" section of this MD&A for further discussion
regarding the conversion.
Diluted
earnings per share for 2003 declined to $0.77. Excluding the impact of other charges, other income and the future net tax liability revaluation, the Company's diluted earnings
per share declined $0.08 (readers are asked to refer to the "Overview" section of this MD&A for further discussion). This decline is primarily attributable to an increase in the average number of
diluted Class A Subordinate Voting and Class B Shares outstanding due to the issuance in March 2003 of the Convertible Debentures and to the issuance of 451,400 and 548,600
Class A Subordinate Voting Shares to the Decoma employee deferred profit sharing program during the third quarter of 2002 and second quarter of 2003, respectively, and due to the
$2.5 million decline in net income.
The
maximum number of shares that would be outstanding if all of the Company's stock options, Convertible Series Preferred Shares and Convertible Debentures issued and outstanding as at
December 31, 2003 were exercised or converted would be 108.8 million. (Refer to note 14 of the Company's consolidated financial statements, included elsewhere herein, for further
discussion.)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows for the Years Ended December 31, 2003 and 2002
|
|
Years Ended December 31,
|
|
[U.S. dollars in millions]
|
|
2003
|
|
2002
|
|
EBITDA before non-cash impairment charges |
|
|
|
|
|
|
|
|
North America |
|
$ |
276.2 |
|
$ |
259.9 |
|
|
Europe |
|
|
|
|
|
|
|
|
|
Excluding Merplas |
|
|
14.2 |
|
|
21.7 |
|
|
|
Merplas |
|
|
(9.0 |
) |
|
(13.2 |
) |
|
|
Continental Europe paint capacity consolidation charges |
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total Europe |
|
|
(1.5 |
) |
|
8.5 |
|
|
Corporate |
|
|
(16.5 |
) |
|
(8.1 |
) |
|
|
|
|
|
|
|
|
|
258.2 |
|
|
260.3 |
|
Interest, cash taxes and other operating cash flows |
|
|
(74.7 |
) |
|
(71.7 |
) |
|
|
|
|
|
|
Cash flow from operations before changes in non-cash working capital |
|
|
183.5 |
|
|
188.6 |
|
Cash (invested in) generated from non-cash working capital |
|
|
(51.6 |
) |
|
50.0 |
|
Fixed and other asset spending, net |
|
|
|
|
|
|
|
|
North America |
|
|
(114.2 |
) |
|
(57.5 |
) |
|
Europe |
|
|
(71.3 |
) |
|
(50.6 |
) |
Acquisition spending |
|
|
|
|
|
|
|
|
North America |
|
|
(13.3 |
) |
|
(2.6 |
) |
|
Europe |
|
|
(5.8 |
) |
|
|
|
Proceeds from disposition of operating division |
|
|
|
|
|
5.7 |
|
Convertible Debenture interest payments |
|
|
(3.8 |
) |
|
|
|
Dividends |
|
|
|
|
|
|
|
|
Convertible Series Preferred Shares |
|
|
(12.2 |
) |
|
(12.1 |
) |
|
Class A Subordinate Voting and Class B Shares |
|
|
(18.8 |
) |
|
(14.2 |
) |
|
|
|
|
|
|
Cash generated and available for debt reduction (shortfall to be financed) |
|
|
(107.5 |
) |
|
107.3 |
|
Repayments of debt due to Magna |
|
|
(72.4 |
) |
|
(7.8 |
) |
Net decrease in long-term debt |
|
|
(0.1 |
) |
|
(10.9 |
) |
Net increase (decrease) in bank indebtedness |
|
|
109.7 |
|
|
(110.3 |
) |
Issuance of Convertible Debentures |
|
|
66.1 |
|
|
|
|
Issuances of Class A Subordinate Voting Shares |
|
|
4.7 |
|
|
4.7 |
|
Foreign exchange on cash and cash equivalents |
|
|
11.0 |
|
|
4.8 |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
11.5 |
|
$ |
(12.2 |
) |
|
|
|
|
|
|
The
Company has presented EBITDA before non-cash impairment charges as supplementary information concerning the cash flows of the Company and its operating segments. The
breakdown of both EBITDA before non-cash impairment charges and fixed and other asset and acquisition spending by segment provides readers with an indication of where cash is being
generated and used. The Company defines EBITDA before non-cash impairment charges (totalling $258.2 million and $260.3 million in 2003 and 2002, respectively) as operating
income ($151.2 million and $173.7 million in 2003 and 2002, respectively) plus depreciation and amortization ($89.9 million and $78.3 million in 2003 and 2002,
respectively) plus the United Kingdom impairment charge ($12.4 million in 2003) plus the non-cash portion of the continental Europe paint capacity consolidation charges
($4.8 million in 2003) and plus the Merplas deferred preproduction expenditures write-off ($8.3 million in 2002) based on the respective amounts presented in the Company's
consolidated statements of income included elsewhere herein. However, EBITDA before non-cash impairment charges does not have any standardized meaning under Canadian GAAP and is,
therefore, unlikely to be comparable to similar measures presented by other issuers.
Annual Report 2003 25
CASH GENERATED AND AVAILABLE FOR DEBT REDUCTION (SHORTFALL TO BE FINANCED)
Investments in non-cash working capital, capital and acquisition spending, Convertible Debenture interest and dividends exceeded cash generated from
operations by $107.5 million for 2003 compared to an excess of cash generated from operations, non-cash working capital and proceeds from disposition over capital and acquisition
spending and dividends of $107.3 million in 2002. This change was due primarily to $51.6 million being invested in non-cash working capital in 2003 compared to
$50.0 million being generated from non-cash working capital in 2002. The increase in working capital is primarily the result of increased European working capital with higher sales
from new facilities, increases in tooling related amounts and an increase in taxes receivable partially offset by accruals related to the continental Europe paint capacity consolidation plan.
In
addition, increased capital and acquisition spending and dividends and Convertible Debenture interest also contributed to the usage of cash.
Investing Activities
Capital spending, excluding acquisition spending, on a global basis totalled $185.5 million in 2003.
Given
economic uncertainties throughout 2001 and 2002, the Company eliminated or delayed planned capital spending wherever possible. However, capital spending for 2003 has increased. The
increase reflects spending to complete the Belgium paint line during 2003, continued Decostar spending, European spending related to new program launches including spending for the DaimlerChrysler A
Class program which will launch in 2004 and spending due to prior deferrals of previously planned facility upgrade and other process related and improvement projects. Spending on Decostar will
continue in 2004. Spending for 2004 is expected to approximate $151 million. Readers are asked to refer to the "Financial Condition, Liquidity and Capital
Resources Unused and Available Financing Resources" section of this MD&A for further discussion.
Acquisition
spending in 2003 includes $10.4 million for the FM Lighting Acquisition, $2.9 million for the repayment of promissory notes that arose on the May 2001
acquisition of the remaining minority interest in the Company's Mexican operations and $5.8 million for the acquisition of HDO in Europe.
Dividends
Dividends paid on the Company's Convertible Series Preferred Shares were $12.2 million for 2003 up from $12.1 million in 2002 due to translation of
Canadian dollar dividends into the Company's U.S. dollar reporting currency partially offset by
reduced dividends as a result of the conversion of the Series 1, 2 and 3 Convertible Series Preferred Shares into Class A Subordinate Voting Shares during the year.
Dividends
paid in 2003 on Class A Subordinate Voting and Class B Shares totalled $18.8 million. This represents dividends paid of US$0.07 per share in respect of the
three month periods ended September 30 and June 30, 2003 and US$0.06 per share in respect of the three month periods ended March 31, 2003 and December 31, 2002.
Dividends
paid during 2002 on Class A Subordinate Voting and Class B Shares totalled $14.2 million representing dividends declared of US$0.06 in respect of the three
month period ended September 30, 2002 and US$0.05 per share in respect of the three month periods ended June 30 and March 31, 2002 and December 31, 2001.
Subsequent
to December 31, 2003, the board of directors of the Company declared a dividend of US$0.07 per Class A Subordinate Voting and Class B Share in respect of
the three month period ended December 31, 2003.
FINANCING ACTIVITIES
The $107.5 million shortfall in cash generated from operations over cash invested in non-cash working capital, capital and acquisition
spending, Convertible Debenture interest and dividends, was covered with $66.1 million raised through the issuance of Convertible Debentures, the issuance of $4.7 million Class A
Subordinate Voting Shares to the Decoma employee deferred profit sharing plan and with additional draws on the Company's $300 million operating credit facility. The Company's
$300 million operating credit facility was also drawn upon to fund the repayment of $72.4 million of debt due to Magna. As a result, bank indebtedness grew to $177.3 million at
December 31, 2003 compared to $55.0 million at December 31, 2002. Cash and cash equivalents at December 31, 2003 were $93.5 million compared to $82.1 million
at December 31, 2002.
The
Company's bank indebtedness is currently drawn substantially in Canada. However, the Company held cash primarily in the United States, Europe and Mexico at the year end.
Although there are no long-term restrictions on the flow of funds from one jurisdiction to the other, there may be costs, such as withholding taxes, to move funds between jurisdictions. As
a result, the Company is not always able to immediately apply the cash held in certain jurisdictions against bank borrowings in other jurisdictions.
26 Decoma International Inc.
CONSOLIDATED CAPITALIZATION
[U.S. dollars in millions]
|
|
December 31, 2003
|
|
|
|
December 31, 2002
|
|
|
Cash and cash equivalents |
|
$ |
(93.5 |
) |
|
|
$ |
(82.1 |
) |
|
Bank indebtedness |
|
|
177.3 |
|
|
|
|
55.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83.8 |
|
|
|
|
(27.1 |
) |
|
Debt due within twelve months |
|
|
|
|
|
|
|
|
|
|
|
Due to Magna, repaid subsequent to year end (previously due December 31, 2003) |
|
|
3.5 |
|
|
|
|
38.3 |
|
|
|
Due to Magna March 31, 2004 (previously due December 31, 2003) |
|
|
46.5 |
|
|
|
|
64.2 |
|
|
|
Due to Magna December 31, 2004 |
|
|
90.6 |
|
|
|
|
|
|
|
|
Other |
|
|
6.0 |
|
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146.6 |
|
|
|
|
110.5 |
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
Due to Magna December 31, 2004 |
|
|
|
|
|
|
|
75.1 |
|
|
|
Other |
|
|
11.2 |
|
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
Net Conventional Debt |
|
$ |
241.6 |
|
24.0% |
|
$ |
168.2 |
|
22.6% |
|
|
|
|
|
|
|
|
|
Liability portion of Convertible Series |
|
|
|
|
|
|
|
|
|
|
Preferred Shares, held by Magna |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
150.6 |
|
|
|
$ |
95.6 |
|
|
|
Long-term |
|
|
|
|
|
|
|
116.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150.6 |
|
15.0% |
|
$ |
211.8 |
|
28.5% |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
Convertible Debentures |
|
$ |
66.1 |
|
6.6% |
|
$ |
|
|
|
|
Other |
|
|
547.5 |
|
54.4% |
|
|
362.7 |
|
48.9% |
|
|
|
|
|
|
|
|
|
|
|
$ |
613.6 |
|
61.0% |
|
$ |
362.7 |
|
48.9% |
|
|
|
|
|
|
|
|
|
Total Capitalization |
|
$ |
1,005.8 |
|
100.0% |
|
$ |
742.7 |
|
100.0% |
|
|
|
|
|
|
|
|
|
During
the year, Magna converted the Series 1, 2 and 3 Convertible Series Preferred Shares into Decoma Class A Subordinate Voting Shares at a fixed conversion price of Cdn.
$10.07 per Class A Subordinate Voting Share. Decoma issued 14,895,729 Class A Subordinate Voting Shares on conversion.
The
Convertible Debentures and the remaining Series 4 and 5 Convertible Series Preferred Shares are also convertible into Class A Subordinate Voting Shares at the
holders' option at fixed prices (Cdn. $13.25 per share in the case of the Debentures and Cdn. $13.20 per share in the case of the Series 4 and 5 Convertible Series Preferred Shares). The
Company's Class A Subordinate Voting Shares closed at Cdn. $12.42 on February 12, 2004, and have traded between Cdn. $8.81 and Cdn. $14.95 over the 52 week period ended
February 12, 2004. As a result, it is possible that all, or a portion, of the Convertible Debentures and the Series 4 and 5 Convertible Series Preferred Shares will be settled
with Class A Subordinate Voting Shares if the holders' exercise their fixed price conversion options. The possible conversions of the Company's Convertible Debentures and Series 4
and 5 Convertible Series Preferred Shares into Class A Subordinate Voting Shares is reflected in the Company's reported full year diluted earnings per share.
In
addition to the fixed price conversion options noted above, Magna may retract the Convertible Series Preferred Shares for cash at their face value after December 31, 2003 in
the case of the Series 4 Convertible Series Preferred Shares and commencing December 31, 2004 in the case of the Series 5 Convertible Series Preferred Shares. Accordingly, the
liability portion of the Series 4 and 5 Convertible Series Preferred Shares is shown as current in the Company's consolidated balance sheet.
Should
the holders' of the Convertible Debentures not exercise their fixed price conversion option, they are entitled to receive cash on redemption or maturity (subject to the Company's
option of retiring the Convertible Debentures with Class A Subordinate Voting Shares in which case the number of Class A Subordinate Voting Shares issuable is based on 95% of the trading
price of the Company's Class A Subordinate Voting Shares for the 20 consecutive trading days ending five trading days prior to the date fixed for redemption or maturity).
The
Convertible Debentures mature on March 10, 2010 but are redeemable at the Company's option between March 31, 2007 and March 31, 2008 if the weighted average
trading price of the Company's Class A Subordinate Voting Shares is not less than Cdn. $16.5625 for the 20 consecutive trading days ending five trading days preceding the date on which notice
of redemption is given. Subsequent to March 31, 2008, all or part of the Convertible Debentures are redeemable at the Company's option at any time.
The
Company can call the Series 4 and 5 Convertible Series Preferred Shares for redemption commencing December 31, 2005.
The
Company's Net Conventional Debt to Total Capitalization at December 31, 2003 was 24.0% compared to 22.6% at December 31, 2002. This measure treats the Company's hybrid
Convertible Debenture and Convertible Series Preferred Share instruments like equity rather than debt given their possible conversion into Class A Subordinate Voting Shares.
Annual Report 2003 27
The
Company's Net Conventional Debt plus the liability portions of the Convertible Series Preferred Shares to Total Capitalization, has improved to 39.0% at December 31, 2003
compared to 51.1% at December 31, 2002. This measure treats the liability portions of the Convertible Series Preferred Shares like debt rather than equity given their possible retraction for
cash.
The
Company's Net Conventional Debt plus the liability portions of the Convertible Series Preferred Shares plus the Convertible Debentures to Total Capitalization was 45.6% at
December 31, 2003 compared to 51.1% at December 31, 2002. In addition to the liability portions of the Convertible Series Preferred Shares, this measure treats the Convertible Debentures
like debt rather than equity given the possibility of settling them for cash on maturity or redemption rather than for Class A Subordinate Voting Shares.
Readers
are asked to refer to the "Results of Operations Years Ended December 31, 2003 and
2002 Financing Charges" section of this MD&A for a discussion regarding the impact of a pending accounting change in 2005 that will impact the accounting for,
and presentation of, the Company's Convertible Debentures.
UNUSED AND AVAILABLE FINANCING RESOURCES
At December 31, 2003 the Company had cash on hand of $93.5 million and $122.7 million of unused and available credit representing the unused
and available portion of the Company's $300 million extendible, revolving credit facility that expires on May 27, 2004 at which time Decoma may request, subject to lender approval,
further revolving 364 day extensions.
Debt,
excluding bank indebtedness, that comes due in the next twelve months totals $146.6 million including debt due to Magna consisting of $3.5 million repaid subsequent
to year end, $46.5 million due March 31, 2004 and $90.6 million due December 31, 2004.
Since
the original maturity of the amounts due March 31, 2004, the Company, with Magna's consent, has been extending the repayment of this debt at 90 day intervals at
market interest rates. Although the Company expects Magna to continue to extend the repayment date for this debt, there can be no assurance that Magna will do so.
The
Company anticipates that working capital investments, capital expenditures and currently scheduled repayments of debt will exceed cash generated from operations in 2004. As a result,
the Company is dependent on its lenders to continue to revolve its existing $300 million credit facility. Although the Company expects the credit facility will continue to revolve, there can be
no assurance that it will continue to revolve under terms and conditions as favourable as those currently in place. In addition, the Company may seek additional debt or equity financing and/or pursue
further extensions of the maturity dates of debt due to Magna or work with Magna to establish a new fixed long-term amortization schedule related to this debt.
In
addition to the above unused and available financing resources, the Company sponsors a finance program for tooling suppliers to finance tooling under construction for the Company.
Under this program, the facility provider orders tooling from suppliers and subsequently sells such tooling to the Company. The facility provider makes advances to tooling suppliers based on tool
build milestones approved by the Company. On completion of the tooling the facility provider sells the tooling to the Company for an amount equal to cumulative advances. In the event of tooling
supplier default, the Company will purchase in progress tooling for an amount approximating cumulative advances.
A
number of Magna affiliated companies are sponsors under this facility. The maximum facility amount is $100 million and is available to individual sponsors on an uncommitted
demand basis subject to individual sponsor sub limits and, therefore, the facility provider may, at any time, refuse to purchase additional tooling under this facility. The Company's sub limit is
$35 million. As at December 31, 2003, $0.3 million had been advanced to tooling suppliers under the Company's portion of this facility. This amount is included in accounts
payable.
OFF BALANCE SHEET FINANCING
The Company's off balance sheet financing arrangements are limited to operating lease contracts.
A
number of the Company's facilities are subject to operating leases with Magna and with third parties. Operating lease expense for facilities in 2003 amounted to $24.8 million
including $11.8 million under lease arrangements with affiliates of Magna. As of December 31, 2003, operating lease commitments for facilities totalled $25.6 million for 2004
including $13.1 million under lease arrangements with affiliates of Magna. For 2008, total operating lease commitments for facilities totalled $19.2 million including
$11.9 million under lease arrangements with affiliates of Magna. In certain situations, the Company has posted letters of credit to collateralize lease obligations.
The
Company also has third party operating lease commitments for equipment. These leases are generally of shorter duration. Operating lease expense for equipment in 2003 amounted to
$5.8 million. As of December 31, 2003, operating lease commitments for equipment totalled $8.2 million for 2004. For 2008, operating lease commitments for equipment totalled
$3.3 million.
Although
the Company's consolidated contractual annual lease commitments decline year by year, existing leases will either be renewed or replaced resulting in lease commitments being
sustained at current levels or the Company will incur capital expenditures to acquire equivalent capacity.
28 Decoma International Inc.
FORWARD FOREIGN CURRENCY CONTRACTS
The Company operates in North America and Europe, which gives rise to a risk that its earnings, cash flows and shareholders' equity may be adversely impacted by
fluctuations in foreign exchange rates amongst the four principal currencies in which the Company currently conducts business; namely, the U.S. and Canadian dollars, the British Pound and the Euro.
Operating
as a global company, Decoma transacts business through operating divisions whose functional currency is generally the currency of the division's country of residence, except
for the Company's operations in Mexico where the functional currency is the U.S. dollar. To protect against the reduction in value of foreign currency cash flows resulting from foreign currency
customer and supplier contracts, the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its cash flows denominated in currencies other than the
applicable division's functional currency with forward contracts.
The
Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or
cash flows of hedged items.
Any
gains and losses on these hedging instruments, including the forward premium or discount on a forward foreign currency contract relating to the period prior to consummation of the
foreign currency cash flow, are recognized in the same period as, and as part of, the hedged transaction. The Company does not enter into forward foreign currency contracts for speculative purposes.
At
December 31, 2003, the Company's outstanding forward foreign currency contracts included contracts to sell Canadian dollars in return for U.S. dollars totalling Cdn.
$37.0 million and Cdn. $10.3 million in 2004 and 2005, respectively, at weighted average rates of 0.7334 U.S. dollars per Canadian dollar.
Similarly,
at December 31, 2003, the Company's United Kingdom operations had outstanding forward foreign currency contracts to sell British pounds in return for Euros
totalling GBP 5.8 million and GBP 2.6 million in 2004 and 2005, respectively, at weighted average rates of 1.4950 Euros per British Pound.
These
contracts are designated and effective as hedges of the Canadian operations' net U.S. dollar purchase requirements and the United Kingdom operations' net Euro
purchase requirements, respectively, primarily for raw materials.
In
addition, the Company's outstanding forward foreign currency contracts included contracts to sell Euros in return for U.S. dollars totalling $11.4 million in 2004 at
weighted average rates of 1.1725 U.S. dollars per Euro which are designated and effective as hedges of the European operations' U.S. dollar affiliation fee payment requirements.
RETURN ON INVESTMENT
Decoma defines after tax return on common equity as net income attributable to Class A Subordinate Voting and Class B Shares over shareholders'
equity excluding Convertible Debentures and the equity portion of Convertible Series Preferred Shares. After tax return on common equity was 15% and 29% for the years ended December 31, 2003
and 2002, respectively. The decline reflects the United Kingdom impairment and continental Europe paint capacity consolidation charges, the conversion of the Series 1, 2 and 3
Convertible Series Preferred Shares into Class A Subordinate Voting Shares and translation, particularly of European net assets into the Company's U.S. dollar reporting currency.
Each
operating segment's return on investment is measured using return on funds employed. Return on funds employed is defined as operating income plus equity income divided by
long-term assets, excluding future tax assets, plus non-cash working capital. Return on funds employed represents a return on investment measure before the impacts of capital
structure. The Company views capital structure as a corporate, rather than operating segment, decision.
|
|
Return on
Funds Employed
|
|
|
|
|
|
|
|
Funds Employed
|
|
|
|
Years Ended December 31,
|
|
|
|
As at December 31,
|
|
[U.S. dollars in millions]
|
|
2003
|
|
2002
|
|
2003
|
|
2002
|
|
North America |
|
34% |
|
35% |
|
$ |
720.1 |
|
$ |
569.3 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Merplas |
|
(14% |
) |
1% |
|
|
283.1 |
|
|
193.6 |
|
|
Merplas |
|
(42% |
) |
(66% |
) |
|
28.7 |
|
|
26.9 |
|
Corporate |
|
n/a |
|
n/a |
|
|
21.0 |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
Global |
|
17% |
|
22% |
|
$ |
1,052.9 |
|
$ |
789.7 |
|
|
|
|
|
|
|
|
|
|
|
Annual Report 2003 29
Return
on funds employed was 17% in 2003. Return on funds employed for 2003 compared to 2002 was negatively impacted by the United Kingdom impairment and continental Europe paint
capacity consolidation charges; increased non-cash working capital investments; and increased investments in Europe, particularly with the new Belplas paint line, and in North America at
Decostar. Translation, particularly of European funds employed into the Company's U.S. dollar reporting currency, also negatively impacted return on funds employed. These negative impacts were
partially offset by the 2002 write-down of Merplas deferred preproduction expenditures.
OTHER SELECTED FINANCIAL INFORMATION
The Company is required to disclose its contractual obligations as of December 31, 2003 as follows:
|
|
As at December 31, 2003
|
[U.S. dollars in millions]
|
|
Less than 1 year
|
|
2-3 years
|
|
4-5 years
|
|
More than 5 years
|
Long-term debt and capital lease obligations |
|
$ |
146.6 |
|
$ |
7.3 |
|
$ |
3.3 |
|
$ |
0.6 |
Liability portion of Convertible Series Preferred Shares |
|
|
150.6 |
|
|
|
|
|
|
|
|
|
Operating lease commitments |
|
|
33.8 |
|
|
62.1 |
|
|
47.4 |
|
|
100.3 |
Purchase obligations(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations and commitments |
|
$ |
331.0 |
|
$ |
69.4 |
|
$ |
50.7 |
|
$ |
100.9 |
|
|
|
|
|
|
|
|
|
- [i]
- The
Company had no unconditional purchase obligations other than those related to inventory, services, tooling and fixed assets in the ordinary course of
business.
In addition to the above, the Company's obligations with respect to employee future benefit plans, which have been actuarially determined, were
$7.5 million at December 31, 2003 broken down as follows:
[U.S. dollars in millions]
|
|
Canada & U.S. Pension
|
|
German Pension
|
|
Canada & U.S. Post Retirement Medical
|
|
Total
|
|
Projected benefit obligation |
|
$ |
6.8 |
|
$ |
3.3 |
|
$ |
9.0 |
|
$ |
19.1 |
|
Less plan assets |
|
|
(5.2 |
) |
|
|
|
|
|
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
Unfunded amount |
|
|
1.6 |
|
|
3.3 |
|
|
9.0 |
|
|
13.9 |
|
Unrecognized past service costs and actuarial losses |
|
|
(1.3 |
) |
|
|
|
|
(5.1 |
) |
|
(6.4 |
) |
|
|
|
|
|
|
|
|
|
|
Amount recognized in other long-term liabilities |
|
$ |
0.3 |
|
$ |
3.3 |
|
$ |
3.9 |
|
$ |
7.5 |
|
|
|
|
|
|
|
|
|
|
|
The Company is also required to disclose the following selected annual information for the most recent three fiscal years:
|
|
Years Ended December 31,
|
[U.S. dollars, in millions except per share figures]
|
|
2003
|
|
2002
|
|
2001
|
Total sales |
|
$ |
2,355.8 |
|
$ |
2,056.7 |
|
$ |
1,815.9 |
Net income |
|
|
71.9 |
|
|
93.0 |
|
|
68.7 |
Earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.88 |
|
|
1.30 |
|
|
1.00 |
|
Diluted |
|
|
0.77 |
|
|
1.03 |
|
|
0.81 |
Cash dividends declared per Class A Subordinate Voting and Class B Share in respect of each period |
|
|
0.27 |
|
|
0.22 |
|
|
0.20 |
Total assets |
|
|
1,525.5 |
|
|
1,192.5 |
|
|
1,169.2 |
Total long-term liabilities, excluding future taxes |
|
|
18.7 |
|
|
205.7 |
|
|
310.7 |
|
|
|
|
|
|
|
Changes
in total sales, net income and earnings and cash dividends per Class A Subordinate Voting or Class B Share between 2003 and 2002 are explained in this MD&A. The
growth in total assets is a result of translation of Canadian dollar, Euro and British Pound operations into the Company's U.S. dollar reporting currency, capital spending and investments in
non-cash working capital. Long-term liabilities at December 31, 2002 includes debt due to Magna of $75.1 million and the liability portions of the Series 4
and 5 Convertible Series Preferred Shares of $116.1 million. These amounts are current at December 31, 2003.
30 Decoma International Inc.
The
growth in 2002 sales and earnings compared to 2001 is the result of strong performance by the Company's North American segment. The ramp up of programs that launched in 2001, the
Autosystems lighting acquisition, takeover programs that launched at the beginning of 2002, favourable production volume program mix and a year with relatively few major new program launches and
associated launch costs all contributed to strong sales and earnings in North America. In the Company's Europe segment, production sales increased as a result of the ramp up of the BMW Mini and Jaguar
X400 programs and as a result of translation of Euro and British Pound sales into the Company's U.S. dollar reporting currency. However, combined production sales in Germany and Belgium,
measured in Euros, declined as a result of lower vehicle production volumes including lower volumes on certain high content programs. This sales decline, in conjunction with costs to support
significant future European sales growth, contributed to a decline in European, excluding Merplas, operating income. Merplas, on the other hand, reduced its operating losses before the
write-off of deferred preproduction expenditures.
The
Company is also required to disclose the following selected quarterly information for the most recent eight quarters:
|
|
Three Month Periods Ended
|
[U.S. dollars, in millions except per share figures]
|
|
December 31, 2003
|
|
September 30, 2003
|
|
June 30, 2003
|
|
March 31, 2003
|
Total sales |
|
$ |
646.2 |
|
$ |
556.4 |
|
$ |
592.1 |
|
$ |
561.1 |
Net income |
|
|
(3.8 |
) |
|
14.7 |
|
|
33.8 |
|
|
27.2 |
Earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
(0.06 |
) |
|
0.17 |
|
|
0.46 |
|
|
0.38 |
|
Diluted |
|
|
(0.06 |
) |
|
0.16 |
|
|
0.34 |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
Three Month Periods Ended
|
[U.S. dollars, in millions except per share figures]
|
|
December 31, 2002
|
|
September 30, 2002
|
|
June 30, 2002
|
|
March 31, 2002
|
Total sales |
|
$ |
528.2 |
|
$ |
465.5 |
|
$ |
565.8 |
|
$ |
497.1 |
Net income |
|
|
23.1 |
|
|
18.6 |
|
|
27.4 |
|
|
23.9 |
Earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.32 |
|
|
0.26 |
|
|
0.39 |
|
|
0.34 |
|
Diluted |
|
|
0.25 |
|
|
0.21 |
|
|
0.30 |
|
|
0.27 |
|
|
|
|
|
|
|
|
|
Sales
in 2003 compared to 2002 benefited from translation of Canadian, Euro and British Pound sales into the Company's U.S. dollar reporting currency, sales at new European start
up facilities and the FM Lighting acquisition commencing in the second quarter of 2002. Net income and earnings per Class A Subordinate Voting or Class B Share in the fourth quarter of
2003 was negatively impacted by the United Kingdom impairment and continental Europe paint capacity consolidation charges. Earnings in the second half of 2003 compared to 2002 were impacted by
North American program changeovers, lower vehicle production volumes on certain high content programs, Decostar costs, customer pricing pressures, foreign exchange losses on U.S. dollar
denominated monetary items held in Canada and increased losses in Europe particularly in the third quarter of 2003. The third quarter is affected by the normal seasonal effects of lower vehicle
production volumes as a result of OEM summer shutdowns.
CRITICAL ACCOUNTING POLICIES
General
The Company's discussion and analysis of its results of operations and financial position is based upon the consolidated financial statements, which have been
prepared in accordance with Canadian GAAP. Note 26 to the Company's consolidated financial statements sets out the material differences between Canadian and United States GAAP.
The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the
related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable in the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. On an on-going basis, the Company evaluates its estimates.
However, actual results may differ from these estimates under different assumptions or conditions.
The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Management has discussed the development and selection of the following critical accounting policies with the audit committee of the board of directors and the audit committee has reviewed the
Company's disclosure relating to critical accounting policies in this MD&A.
Annual Report 2003 31
Revenue Recognition
SEPARATELY PRICED TOOLING CONTRACTS
With respect to its contracts with OEMs for particular vehicle programs, the Company performs multiple revenue-generating activities. The most common
arrangement is where, in addition to contracting for the production and sale of parts, the Company also has a separately priced contract with the OEM for related tooling costs. Under these
arrangements, the Company either constructs the tools at its in-house tool shop or contracts with third party tooling vendors to construct and supply tooling to be used by the Company in
the production of parts for the OEM. On completion of the tooling build, and upon acceptance of the tooling by the OEM, the Company sells the separately priced tooling to the OEM pursuant to a
separate tooling purchase order.
Revenues
and cost of sales from separately priced tooling contracts are presented on a gross basis in the consolidated statements of income when the Company is acting as principal and is
subject to significant risks and rewards in connection with the process of bringing the tool to its final state and in the post-sale dealings with its customers. Otherwise, components of
revenue and related costs are presented on a net basis. To date, revenues and cost of sales on separately priced tooling contracts have been reported on a gross basis.
Revenues
from separately priced tooling contracts are recognized substantially on a completed contract basis. The completed contract method recognizes revenue and cost of sales only when
the contract is completed and the tool is accepted by the customer. All costs, net of customer advances, are reported in tooling inventory in the Company's consolidated balance sheet until that time.
Tooling
contract prices are generally fixed, however, price changes, change orders and program cancellations may affect the ultimate amount of revenue recorded with respect to a
contract. Contract costs are estimated at the time of signing the contract and are reviewed at each reporting date. Adjustments to the original estimates of total contract costs are often required as
work progresses under the contract and as experience is gained, even though the scope of the work under the contract may not change. When the current estimates of total contract revenue and total
contract costs indicate a loss, a provision for the entire loss on the contract is made. Factors that are considered in arriving at the forecasted loss on a contract include, amongst others, cost
over-runs, non-reimbursable costs, change orders and potential price changes.
For
United States GAAP purposes, the Company reports a United States GAAP difference with respect to separately priced tooling contracts manufactured at the Company's
in-house tooling division when such tools will be used by the Company to service a subsequent parts production program. Given the potential for profit on tooling manufactured
in-house and based on the detailed requirements of the United States Securities and Exchange Commission's Staff Accounting Bulletin No. 101, the Company concluded that
revenues and cost of sales on such tooling should be deferred and amortized on a gross basis over the subsequent parts production program for United States GAAP purposes.
The
Emerging Issues Task Force recently issue Abstract 00-21, "Accounting for Revenue Arrangements With Multiple Deliverables" (EITF 00-21"). In addition,
the CICA recently issued Emerging Issues Committee Abstract No. 142, "Revenue Arrangements with Multiple Deliverables" (EIC-142'). These Abstracts provide guidance on an accounting
by a vendor for arrangements involving multiple deliverables. They specifically address how a vendor determines whether an arrangement involving multiple deliverables contains more than one unit of
accounting and they also address how consideration should be measured and allocated to the separate units of accounting in the arrangement. These Abstracts are effective for revenue arrangements
entered into by the Company on or after January 1, 2004. The impact of these pronouncements on the Company's consolidated financial statements has not been determined.
FRONT END MODULE CONTRACTS
Modularization, where the Company is required to coordinate the design, manufacture, integration and assembly of a large number of individual parts and components
into a modular system for delivery to the customer's vehicle assembly plant, is a growing trend in the Automotive industry. The principle modular system in the Company's product area is a front end
module ("FEM") which combines fascias and bumper systems with a number of related components such as grilles, lighting, electrical and cooling systems. The Company has received a number of recent FEM
contracts in Europe. Under these contracts, the Company manufactures a portion of the products included in the FEM but also purchases components from various sub-suppliers and assembles
such components into the completed module. The Company recognizes FEM revenues and cost of sales on a gross basis when the Company has a combination of: primary responsibility for providing the FEM to
the customer; responsibility for styling and/or product design specifications; latitude in establishing sub-supplier pricing; responsibility for validation of sub-supplier part
quality; inventory risk on sub-supplier parts; exposure to warranty; exposure to credit risk on the sale of the FEM to the customer; and other factors. Otherwise, the Company recognizes
revenue on a net basis.
To
date, revenues and cost of sales on the Company's FEM contracts have been reported on a gross basis except in those rare circumstances where the fascia component of the FEM is not
manufactured by Decoma.
Amortized Engineering and Customer Owned Tooling Arrangements
The Company incurs pre-production engineering research and development ("ER&D") costs related to the products it produces for its customers under
long-term supply agreements. The Company expenses ER&D costs, which are paid for as part of subsequent related parts production piece price amounts, as incurred unless a contractual
guarantee for reimbursement exists.
Unlike
revenues and expenses related to separately priced tooling contracts, the Company expenses all costs as incurred related to the design and development of moulds, dies and other
tools that the Company will not own and that will be used in, and reimbursed as part of the piece-price amount for, subsequent related parts production. Such costs are capitalized only when the supply
agreement provides the Company with a contractual guarantee for reimbursement of costs or the non-cancelable right to use the moulds, dies and other tools during the supply agreement.
32 Decoma International Inc.
ER&D
and customer owned tooling costs capitalized in "Other assets" are amortized on a units of production basis over the related parts production long-term supply agreement.
As at December 31, 2003, total ER&D and customer owned tooling costs capitalized in other assets amounted to $9.4 million and $5.1 million, respectively.
Asset Impairments
GOODWILL
Effective January 1, 2002, goodwill is subject to an annual impairment test or more frequently when an event or circumstance occurs that more likely than
not reduces the fair value of a reporting unit below its carrying value.
FIXED ASSETS
The Company evaluates fixed assets for impairment whenever indicators of impairment exist. Indicators of impairment include prolonged operating losses or a
decision to dispose of, or otherwise change the use of, an existing fixed asset. If the sum of the future undiscounted cash flows expected to result from the asset is less than the reported value of
the asset, an asset impairment must be recognized in the financial statements for the difference. The amount of impairment to recognize is calculated by subtracting the fair value of the asset from
the reported value of the asset.
The
Company believes that accounting estimates related to both goodwill and fixed asset impairment assessments are "critical accounting estimates" because: (i) they are subject to
significant measurement uncertainty and are susceptible to change as management is required to make forward looking assumptions regarding the impact of improvement plans on current operations,
insourcing and other new business opportunities, program price and cost assumptions on current and future business, the timing of new program launches and future forecasted production volumes; and
(ii) any resulting impairment loss could have a material impact on the Company's consolidated net income and on the amount of fixed assets reported on the Company's consolidated balance sheet.
Asset Retirement Obligations
For United States GAAP purposes, Statement of Financial Accounting Standard No. 133, "Accounting for Asset Retirement Obligations" ("Statement
133"), was adopted by the Company on January 1, 2003. This standard requires the Company to estimate and accrue for the present value of its obligations to restore leased premises at the end of
the lease. At lease inception, the present value of this obligation is recognized as other long-term liabilities with a corresponding amount recognized in fixed assets. The fixed asset
amount is amortized, and the liability amount is accreted, over the period from lease inception to the time the Company expects to vacate the premises resulting in both depreciation and interest
charges in the consolidated statements of income.
For
Canadian GAAP purposes, similar accounting requirements become effective on January 1, 2004. The adoption of these requirements on January 1, 2004 for Canadian GAAP is
expected to result in the cumulative effect of an accounting change of $1.0 million being recognized as a charge to opening retained earnings, the recognition of a long-term
liability of $3.2 million, the recognition of a fixed asset of $1.8 million, the recognition of a future tax asset of $0.3 million and currency translation adjustment debits of
$0.1 million.
Future Income Tax Assets
At December 31, 2003, the Company had recorded future tax assets (net of related valuation allowances) in respect of loss carryforwards and share issue
costs of $10.6 million. Of this amount, $1.2 million is matched by reversing future tax liabilities. The remaining future tax assets of $9.4 million relate primarily to the
Company's German operations and its Canadian holding company.
The
Company evaluates quarterly the realizability of its future tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors
used to assess the likelihood of realization are the Company's forecast of future taxable income and available tax planning strategies that could be implemented to realize the future tax assets. The
Company has and continues to use tax planning strategies to realize future tax assets in order to avoid the potential loss of benefits.
At
December 31, 2003, the Company had gross income tax loss carryforwards of approximately $143 million, which relate to operations in the United Kingdom, Germany,
Belgium and Poland, the tax benefits of which have not been recognized in the consolidated financial statements. Substantially all of these tax loss carryforwards have no expiry date. If operations
improve to profitable levels in these jurisdictions, and such improvements are sustained for a prolonged period of time, the Company's earnings will benefit from these loss carryforward pools.
Employee Defined Benefit Plans
The determination of the obligation and expense for defined benefit pension and other post-retirement benefits, such as retiree healthcare and medical
benefits, is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are included in note 12 to the Company's consolidated
financial statements and include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation costs. Actual results that differ
from the assumptions used are accumulated and, if outside of a 10% corridor, are amortized over future periods and, therefore, impact the recognized expense and recorded obligation in future periods.
While
the Company's current obligation and annual expense under existing employee benefit plans are not significant, significant differences in actual experience, significant changes in
assumptions or significant new plan enhancements could materially affect the Company's future employee benefit obligations and future expense.
Annual Report 2003 33
FORWARD LOOKING STATEMENTS
The contents of this MD&A contain statements which, to the extent that they are not recitations of historical fact, constitute "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The words "estimate", "anticipate", "believe", "expect" and similar expressions are intended to identify forward looking
statements. Persons reading this MD&A are cautioned that such statements are only predictions and that the Company's actual future results or performance may be materially different. In evaluating
such forward looking statements readers should specifically consider the various risk factors which could cause actual events or results to differ materially from those indicated by such forward
looking statements. These risks and uncertainties include, but are not limited to, specific risks relating to the Company's relationship with its customers, the automotive industry in general and the
economy as a whole. Such risks include, without limitation; the Company's reliance on its major OEM customers; increased pricing concession and cost absorption pressures from the Company's customers;
the impact of production volumes and product mix on the Company's financial performance, including changes in the actual customer production volumes compared to original planning volumes; program
delays and/or cancellations; the extent, nature and duration of purchasing or leasing incentive programs offered by automotive manufacturers and the impact of such programs on future consumer demand;
warranty, recall and product liability costs and risks; the continuation and extent of automotive outsourcing by automotive manufacturers; changes in vehicle pricing and the resulting impact on
consumer demand; the Company's operating and/or financial performance, including the affect of new accounting standards that are promulgated from time to time (such as the ongoing requirement for
impairment testing of long-lived assets) on the Company's financial results; the Company's ability to finance its business requirements and access capital markets; the Company's continued
compliance with credit facility covenant requirements; trade and labour issues or disruptions impacting the Company's operations and those of its customers; the Company's ability to identify, complete
and integrate acquisitions and to realize projected synergies relating thereto; the impact of environmental related matters including emission regulations; risks associated with the launch of new
facilities, including cost overruns and construction delays; technological developments by the Company's competitors; fluctuations in fuel prices and availability; electricity and natural gas cost
volatility; government and regulatory policies and the Company's ability to anticipate or respond to changes therein; the Company's relationship with Magna; currency exposure risk; fluctuations in
interest rates; changes in consumer and business confidence levels; consumer personal debt levels; disruptions to the economy relating to acts of terrorism or war; and other changes in the competitive
environment in which the Company operates. In addition, and without limiting the above, readers are cautioned that the specific forward looking statements contained herein relating to the Company's
ability to successfully implement European improvement plans; the possible conversion of the Company's Convertible Debentures and Convertible Series Preferred Shares to Class A Subordinate
Voting Shares; the Company's ability to raise necessary future financing; capital spending estimates; and the recoverability of the Company's remaining goodwill and other long lived assets, are all
subject to significant risk and uncertainty. Readers are also referred to the discussion of "Other Factors" set out in the Company's Annual Information Form dated May 20th, 2003, wherein
certain of the above risk factors are discussed in further detail. The Company expressly disclaims any intention and undertakes no obligation to update or revise any forward looking statements
contained in this MD&A to reflect subsequent information, events or circumstances or otherwise.
34 Decoma International Inc.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND
AUDITORS' REPORT
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Decoma's management is responsible for the preparation and presentation of the consolidated financial statements and all other information in this Annual Report.
The consolidated financial statements were prepared by management in accordance with Canadian generally accepted accounting principles. Where alternative accounting methods exist, management has
selected those that it considered to be the most appropriate in the circumstances. The preparation of the consolidated financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported therein. Management has determined such amounts on a reasonable and prudent basis to present fairly,
in all material respects, the consolidated financial statements; however, actual results may differ from these estimates. Financial information presented elsewhere in this Annual Report has been
prepared by management on a basis consistent with the consolidated financial statements. The consolidated financial statements have been reviewed by the Audit Committee and approved by the Board of
Directors of Decoma.
Management
is responsible for the development and maintenance of systems of internal accounting and administrative controls of high quality consistent with reasonable cost. Such systems
are designed to provide reasonable assurance that the financial information is accurate, relevant and reliable, and that Decoma's assets are appropriately accounted for and adequately safeguarded.
Decoma's
Audit Committee is appointed by the Board of Directors and is comprised of outside directors. The Audit Committee meets periodically with management, as well as with the
internal auditors and the independent auditors, to satisfy itself that each is properly discharging its responsibilities, to review the consolidated financial statements and the independent Auditors'
Report and to discuss significant financial reporting issues and auditing matters. The Audit Committee reports its findings to the Board of Directors for consideration when approving the consolidated
financial statements for issuance to the shareholders. The Audit Committee also considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the
independent auditors.
The
consolidated financial statements have been audited by Ernst & Young LLP, the independent auditors, in accordance with Canadian and United States generally
accepted auditing standards on behalf of the shareholders of Decoma. The Auditors' Report outlines the nature of their examination and their opinion on Decoma's consolidated financial statements. The
independent auditors have full and unrestricted access to the Audit Committee.
/s/ S. RANDALL SMALLBONE |
|
/s/ GUY R. JONES |
S. RANDALL SMALLBONE |
|
GUY R. JONES |
Executive Vice-President, Finance and Chief Financial Officer |
|
Vice-President, Finance |
AUDITORS' REPORT
To the Shareholders of Decoma International Inc.
We have audited the consolidated balance sheets of Decoma International Inc. as at December 31, 2003
and 2002 and the consolidated statements of income and retained earnings and cash flows for each of the years in the three year period ended December 31, 2003. These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with Canadian generally accepted auditing standards and United States generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the
results of its operations and its cash flows for each of the years in the three year period ended December 31, 2003 in accordance with Canadian generally accepted accounting principles.
As
described in note 4 to these consolidated financial statements, the Company changed its accounting policies for stock-based compensation and goodwill.
|
|
/s/ ERNST & YOUNG LLP |
TORONTO, CANADA |
|
ERNST & YOUNG LLP |
February 12, 2004 |
|
Chartered Accountants |
Annual Report 2003 35
SIGNIFICANT ACCOUNTING POLICIES
December 31, 2003
BASIS OF PRESENTATION
Decoma International Inc. ["Decoma"] is a full service supplier of exterior vehicle appearance systems for the world's automotive
industry. Decoma designs, engineers and manufactures automotive exterior components and systems which include fascias [bumpers], front and rear end modules, plastic body
panels, roof modules, exterior trim components, sealing and greenhouse systems and lighting components for cars and light trucks [including sport utility vehicles and mini
vans].
The
consolidated financial statements of Decoma have been prepared following Canadian generally accepted accounting principles ["Canadian GAAP"]. These principles
are also in conformity, in all material respects, with United States generally accepted accounting principles ["United States GAAP"], except as described in
note 26 to the consolidated financial statements.
The
consolidated financial statements include the accounts of Decoma and its subsidiaries [collectively, the "Company"]. All significant intercompany balances and
transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's operations having a functional currency other than the U.S. dollar are translated into the Company's
U.S. dollar reporting currency using the exchange rate in effect at the year end and revenues and expenses are translated at the average rate during the year. Exchange gains or losses on
translation of the Company's net equity investment in these operations are deferred as a separate component of shareholders' equity.
The
appropriate amounts of exchange gains or losses accumulated in the separate component of shareholders' equity are reflected in income when there is a reduction, as a result of
capital transactions, in the Company's net investment in the operations that gave rise to such exchange gains and losses.
Foreign
exchange gains and losses on transactions occurring in a currency different than an operation's functional currency are reflected in income except for gains and losses on foreign
exchange contracts used to hedge specific future commitments in foreign currencies. Gains or losses on these contracts are accounted for as a component of the related hedged transaction.
CYCLICALITY OF OPERATIONS
Substantially all revenue is derived from sales to the North American and European facilities of the major automobile manufacturers. The Company's operations are
exposed to the cyclicality inherent in the automotive industry and to changes in the economic and competitive environments in which the Company operates. The Company is dependent on continued
relationships with the major automobile manufacturers.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect: the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and the reported
amounts of revenue and expenses during the reporting period. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent; however,
actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on account, demand deposits and short-term investments with remaining maturities of less than three months at
acquisition.
INVENTORIES
Production inventories and tooling inventories manufactured in-house are valued at the lower of cost and net realizable value, with cost being
determined substantially on a first-in, first-out basis. Cost includes the cost of materials plus direct labour applied to the product and the applicable share of manufacturing
overhead.
Outsourced
tooling inventories are valued at the lower of subcontracted costs and net realizable value.
INVESTMENTS
The Company accounts for investments in which it has significant influence on the equity basis.
36 Decoma International Inc.
FIXED ASSETS
Fixed assets are recorded at historical cost which includes acquisition and development costs. Development costs include direct construction costs, interest
capitalized on construction in progress and land under development and indirect costs wholly attributable to development.
Depreciation
is provided on a straight-line basis over the estimated useful lives of fixed assets at annual rates of 21/2% to 5% for buildings, 7% to 10% for
general purpose equipment and 10% to 33% for special purpose equipment.
Historically,
certain costs incurred in establishing new facilities which required substantial time to reach commercial production capability were capitalized as deferred preproduction
costs. Amortization of these costs is provided over periods of up to five years from the date commercial production is achieved. As of December 31, 2003, capitalized deferred preproduction
costs are minimal [see note 8].
IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses long-lived assets for recoverability whenever indicators of impairment exist. If the carrying value of the asset exceeds the
estimated undiscounted cash flows from the use of the asset, an impairment loss is recognized. Impairment losses are measured as the amount by which the asset's carrying value exceeds its fair value.
Fair valued is based on discounted cash flows.
GOODWILL
Prior to January 1, 2002, goodwill was amortized over a period of 20 years.
Effective
January 1, 2002, goodwill is no longer amortized and is subject to an annual impairment test. Goodwill impairment is assessed based on a comparison of the fair value of
an individual reporting unit to the underlying carrying value of the reporting unit's net assets including goodwill. When the carrying amount of the reporting unit exceeds its fair value, the fair
value of the reporting unit's goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The fair value of goodwill is determined in the same manner as in a
business combination.
REVENUE RECOGNITION
Revenue from the sale of manufactured products is recognized upon shipment to [or receipt by customers depending on contractual terms],
and acceptance by, customers when the price is fixed or determinable and collectibility is reasonably assured.
Revenues
from separately priced tooling contracts are recognized substantially on a completed contract basis.
Revenues
and cost of sales, including amounts from separately priced tooling contracts, are presented on a gross basis in the consolidated statements of income when the Company is acting
as principal and is subject to significant risks and rewards in connection with the process of bringing the product to its final state and in the post-sale dealings with its customers.
Otherwise, components of revenue and related costs are presented on a net basis.
PREPRODUCTION COSTS RELATED TO LONG-TERM SUPPLY AGREEMENTS
Costs incurred [net of customer subsidies] related to design and engineering, which are paid for as part of subsequent related parts
production piece price amounts, are expensed as incurred unless a contractual guarantee for reimbursement exists.
Costs
incurred [net of customer subsidies] related to the design and development of moulds, dies and other tools that the Company does not own [and
that will be used in, and paid for as part of the piece price amount for, subsequent related parts production] are expensed as incurred unless the supply agreement provides a contractual
guarantee for reimbursement or the non-cancelable right to use the moulds, dies and other tools during the supply agreement.
Costs
deferred in the above circumstances are amortized on a units of production basis to cost of goods sold over the anticipated term of the supply agreement.
RESEARCH AND DEVELOPMENT
Research costs are expensed as incurred and development costs which meet certain criteria where future benefit is reasonably certain are deferred to the extent of
their estimated recovery.
EMPLOYEE FUTURE BENEFIT PLANS
The cost of providing benefits through defined benefit pensions and post-retirement benefits other than pensions is actuarially determined and
recognized in earnings using the projected benefit method prorated on service and management's best estimate of expected plan investment performance, compensation increases, retirement ages of
employees, future termination levels and long-term interest rates. Plan assets are measured at fair value. Prior service costs related to plan amendments are amortized on a straight line
basis over the expected average remaining service life of employees. Changes in assumptions and experience gains and losses outside a 10% corridor are recognized in income over the expected average
remaining service life of employees.
Annual Report 2003 37
The
cost of providing benefits through defined contribution pension plans is charged to earnings in the period in respect of which contributions become payable.
STOCK-BASED COMPENSATION
Prior to 2003, no compensation expense was recognized for stock options granted under the Company's fixed price Incentive Stock Option Plan [the
"Option Plan"].
Commencing
in 2003, the fair value of stock options granted, modified or settled on or after January 1, 2003 is recognized on a straight-line basis over the applicable
stock option vesting period as compensation expense in selling, general and administrative expenses in the consolidated statements of income and contributed surplus in the consolidated balance sheets.
On the exercise of stock options, consideration received and the accumulated contributed surplus amount is credited to capital stock.
For
stock options granted prior to January 1, 2003 which are not accounted for at fair value, pro forma earnings disclosure showing the impact of fair value accounting is
included in note 15.
The
fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model. This model requires the input of a number of assumptions including dividend
yields, expected stock price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect management's best estimates, they involve inherent
uncertainties based on market conditions generally outside of the control of the Company.
GOVERNMENT ASSISTANCE
The Company makes periodic applications for financial assistance under available government assistance programs in the various jurisdictions in which the Company
operates. Grants relating to capital expenditures are reflected as a reduction of the cost of the related assets. Grants and tax credits relating to current operating expenditures are recorded as a
reduction of expense at the time the grant or tax credit is earned and receipt thereof is reasonably assured. The Company may also receive loans which are recorded as liabilities in amounts equal to
the cash received.
INCOME TAXES
The Company follows the liability method of tax allocation for accounting for income taxes. Under the liability method of tax allocation, future tax assets and
liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Income
taxes related to unremitted earnings of foreign subsidiaries are not provided for by the Company as such earnings are considered to be reinvested for the foreseeable future.
CONVERTIBLE SERIES PREFERRED SHARES HELD BY MAGNA
Three key attributes of the Company's Convertible Series Preferred Shares held by Magna International Inc. ["Magna"] have been
valued as of their date of issuance and are presented separately in the Company's consolidated financial statements. These attributes are:
-
- the
holder's right to retract the Convertible Series Preferred Shares at their face amount after certain specified dates;
-
- the
holder's right to receive non-cumulative cash dividends; and
-
- the
holder's ability to convert the Convertible Series Preferred Shares into Class A Subordinate Voting Shares of the Company at a fixed price.
The
retraction attribute is a liability of the Company and is presented as debt at the present value of the face amount which becomes payable, at the option of the holder, after certain
specified dates. The resulting discount is amortized to income systematically from the date of issuance until the date each series of the Convertible Series Preferred Shares becomes retractable.
The
non-cumulative dividend is not considered debt-related as the Company is not contractually obligated to make dividend payments. However, a value has been
assigned to the possible stream of future dividends and this amount is presented as equity. As dividends are declared, the amount of the dividend is included in financing charges on Convertible Series
Preferred Shares in the consolidated statements of income. In addition, as dividends are declared, a systematically calculated portion of this equity component is reversed and included in financing
charges on Convertible Series Preferred Shares in the consolidated statements of income.
The
conversion feature is similar to a stock warrant as it provides the holder with the option to exchange their Convertible Series Preferred Shares for Class A Subordinate Voting
Shares of the Company at a fixed price. This attribute is also classified as equity.
38 Decoma International Inc.
CONVERTIBLE DEBENTURES
The key attributes of the Company's Convertible Debentures are separately valued and accounted for as follows:
-
- the
present value of principal and interest [each of which can, at the option of the Company, be settled with the issuance of Class A Subordinate Voting
Shares] has been presented as equity. The present value was determined using a discount rate of 7.75% reflecting an estimate of the coupon rate that the Convertible Debentures would have
borne absent the holders' conversion feature. The resulting discount is accreted to the Convertible Debentures' face value over the period from issuance to unrestricted redemption
[March 31, 2008] through periodic charges, net of income taxes, presented as financing charges on Convertible Debentures in the consolidated statements of income; and
-
- the
holders' conversion feature is similar to a stock warrant as it provides the holder with the option to exchange their Convertible Debentures for Class A
Subordinate Voting Shares at a fixed price. The residual approach was used to value this attribute and this amount is also presented as equity.
SUBORDINATED DEBENTURES
The Company's Subordinated Debentures, which were repaid during 2001, were recorded in part as debt and in part as equity.
The
debt component consisted of the present value of the future interest payments on the Subordinated Debentures to maturity and was presented as debenture interest obligation. Interest
on the debt component was accrued over time and recognized as a charge against income.
The
equity component included the present value of the principal amount of the Subordinated Debentures which could, at the option of the Company, be satisfied by delivering such number
of Class A Subordinate Voting Shares of the Company to a registered trustee for the sale to open bidders as required to satisfy the payment obligations. This equity component was accreted to
the face value of the Subordinated Debentures over the term to maturity through periodic charges, net of income taxes, presented as financing charges on Subordinated Debentures in the consolidated
statements of income.
EARNINGS PER CLASS A SUBORDINATE VOTING OR CLASS B SHARE
Basic earnings per Class A Subordinate Voting or Class B Share are calculated on net income attributable to Class A Subordinate Voting and
Class B Shares using the weighted average number of Class A Subordinate Voting and Class B Shares outstanding during the year.
Diluted
earnings per Class A Subordinate Voting or Class B Share are calculated on the weighted average number of Class A Subordinate Voting and Class B
Shares that would have been outstanding during the year had all Convertible Series Preferred Shares and Convertible Debentures been converted at the beginning of the year [or date of
issuance, if later] into Class A Subordinate Voting Shares based on each instrument's holders' fixed price conversion option, if such conversions are dilutive. In addition, the
weighted average number of Class A Subordinate Voting and Class B Shares used to determine diluted earnings per share includes an adjustment for stock options outstanding using the
treasury stock method. Under the treasury stock method:
-
- the
exercise of options is assumed to be at the beginning of the period [or date of issuance, if later];
-
- the
proceeds from the exercise of options, plus future period compensation expense on options granted on or after January 1, 2003, are assumed to be used to purchase
Class A Subordinate Voting Shares at the average market price during the period; and
-
- the
incremental number of Class A Subordinate Voting Shares [the difference between the number of shares assumed issued and the number of shares assumed
purchased] is included in the denominator of the diluted earnings per share computation.
Annual Report 2003 39
CONSOLIDATED BALANCE SHEETS
|
|
As at December 31,
|
[U.S. dollars in thousands]
|
|
Note
|
|
2003
|
|
2002
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
93,545 |
|
$ |
82,059 |
|
Accounts receivable |
|
24 |
|
|
395,040 |
|
|
306,870 |
|
Inventories |
|
6 |
|
|
216,502 |
|
|
160,091 |
|
Income taxes receivable |
|
|
|
|
4,015 |
|
|
|
|
Prepaid expenses and other |
|
|
|
|
18,267 |
|
|
15,902 |
|
|
|
|
|
|
|
|
|
|
|
|
727,369 |
|
|
564,922 |
|
|
|
|
|
|
|
Investments |
|
7 |
|
|
20,781 |
|
|
17,382 |
|
|
|
|
|
|
|
Fixed assets, net |
|
8 |
|
|
680,497 |
|
|
525,463 |
|
|
|
|
|
|
|
Goodwill, net |
|
4, 5 |
|
|
71,106 |
|
|
62,008 |
|
|
|
|
|
|
|
Future tax assets |
|
9 |
|
|
10,556 |
|
|
6,015 |
|
|
|
|
|
|
|
Other assets |
|
|
|
|
18,390 |
|
|
16,745 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,528,699 |
|
$ |
1,192,535 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
10 |
|
$ |
177,288 |
|
$ |
55,021 |
|
Accounts payable |
|
24 |
|
|
226,114 |
|
|
187,656 |
|
Accrued salaries and wages |
|
|
|
|
68,298 |
|
|
59,715 |
|
Other accrued liabilities |
|
|
|
|
77,260 |
|
|
54,104 |
|
Income taxes payable |
|
9 |
|
|
|
|
|
13,336 |
|
Long-term debt due within one year |
|
10 |
|
|
4,856 |
|
|
6,918 |
|
Debt due to Magna and its affiliates within one year |
|
10 |
|
|
141,804 |
|
|
103,536 |
|
Convertible Series Preferred Shares, held by Magna |
|
11 |
|
|
150,572 |
|
|
95,639 |
|
|
|
|
|
|
|
|
|
|
|
|
846,192 |
|
|
575,925 |
|
|
|
|
|
|
|
Long-term debt |
|
10 |
|
|
11,194 |
|
|
9,677 |
|
|
|
|
|
|
|
Long-term debt due to Magna and its affiliates |
|
10 |
|
|
|
|
|
75,094 |
|
|
|
|
|
|
|
Convertible Series Preferred Shares, held by Magna |
|
11 |
|
|
|
|
|
116,140 |
|
|
|
|
|
|
|
Other long-term liabilities |
|
12 |
|
|
7,462 |
|
|
4,837 |
|
|
|
|
|
|
|
Future tax liabilities |
|
9 |
|
|
50,214 |
|
|
48,114 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
10, 17 |
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
Convertible Debentures |
|
13 |
|
|
66,127 |
|
|
|
|
Convertible Series Preferred Shares |
|
11 |
|
|
8,826 |
|
|
18,765 |
|
Class A Subordinate Voting Shares |
|
14 |
|
|
287,137 |
|
|
172,488 |
|
Class B Shares |
|
14 |
|
|
30,594 |
|
|
30,594 |
|
Contributed surplus |
|
4 |
|
|
267 |
|
|
|
|
Retained earnings |
|
|
|
|
156,984 |
|
|
111,450 |
|
Currency translation adjustment |
|
16 |
|
|
63,702 |
|
|
29,451 |
|
|
|
|
|
|
|
|
|
|
|
|
613,637 |
|
|
362,748 |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,528,699 |
|
$ |
1,192,535 |
|
|
|
|
|
|
|
On
behalf of the Board:
/s/ JOHN T. MAYBERRY |
|
/s/ JENNIFER J. JACKSON |
JOHN T. MAYBERRY |
|
JENNIFER J. JACKSON |
Director and Chairman of the Audit Committee |
|
Director and Member of the Audit Committee |
See accompanying notes
40 Decoma International Inc.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
|
|
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
Note
|
|
2003
|
|
2002
|
|
2001
|
|
Sales |
|
24 |
|
$ |
2,355,830 |
|
$ |
2,056,673 |
|
$ |
1,815,869 |
|
Cost of goods sold |
|
23, 24 |
|
|
1,891,153 |
|
|
1,633,225 |
|
|
1,450,360 |
|
Depreciation and amortization |
|
4 |
|
|
89,894 |
|
|
78,284 |
|
|
81,360 |
|
Selling, general and administrative |
|
4, 19, 24 |
|
|
175,267 |
|
|
137,859 |
|
|
115,722 |
|
Affiliation and social fees |
|
24 |
|
|
24,541 |
|
|
25,311 |
|
|
27,110 |
|
Other charges |
|
2, 3, 4 |
|
|
23,785 |
|
|
8,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
151,190 |
|
|
173,693 |
|
|
141,317 |
|
Equity income |
|
7 |
|
|
(1,844 |
) |
|
(521 |
) |
|
(15 |
) |
Interest expense, net |
|
10, 24 |
|
|
10,693 |
|
|
11,984 |
|
|
19,095 |
|
Amortization of discount on Convertible Series Preferred Shares, held by Magna |
|
11, 24 |
|
|
8,631 |
|
|
8,351 |
|
|
9,276 |
|
Other income |
|
20 |
|
|
(1,387 |
) |
|
(4,369 |
) |
|
(2,780 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest |
|
|
|
|
135,097 |
|
|
158,248 |
|
|
115,741 |
|
Income taxes |
|
9 |
|
|
63,195 |
|
|
65,223 |
|
|
46,222 |
|
Minority interest |
|
5 |
|
|
|
|
|
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
71,902 |
|
$ |
93,025 |
|
$ |
68,676 |
|
|
|
|
|
|
|
|
|
|
|
Financing charges on Convertible Series Preferred Shares held by Magna, Convertible Debentures and Subordinated Debentures, net of taxes |
|
11, 13, 21, 24 |
|
$ |
(7,552 |
) |
$ |
(4,792 |
) |
$ |
(6,474 |
) |
Loss on retirement of Subordinated Debentures, net of taxes |
|
20 |
|
|
|
|
|
|
|
|
(1,717 |
) |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares |
|
|
|
|
64,350 |
|
|
88,233 |
|
|
60,485 |
|
Retained earnings, beginning of year |
|
|
|
|
111,450 |
|
|
49,768 |
|
|
156 |
|
Dividends on Class A Subordinate Voting and Class B Shares |
|
14 |
|
|
(18,816 |
) |
|
(14,247 |
) |
|
(10,873 |
) |
Adjustment for change in accounting policy for goodwill |
|
4 |
|
|
|
|
|
(12,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings, end of year |
|
|
|
$ |
156,984 |
|
$ |
111,450 |
|
$ |
49,768 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
22 |
|
$ |
0.88 |
|
$ |
1.30 |
|
$ |
1.00 |
|
|
Diluted |
|
22 |
|
$ |
0.77 |
|
$ |
1.03 |
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
Average number of Class A Subordinate Voting and Class B Shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
22 |
|
|
73,420 |
|
|
67,800 |
|
|
60,456 |
|
|
Diluted |
|
22 |
|
|
104,283 |
|
|
98,307 |
|
|
90,584 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
Annual Report 2003 41
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
Note
|
|
2003
|
|
2002
|
|
2001
|
|
Cash provided from (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
71,902 |
|
$ |
93,025 |
|
$ |
68,676 |
|
Items not involving current cash flows |
|
23 |
|
|
111,595 |
|
|
95,557 |
|
|
92,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,497 |
|
|
188,582 |
|
|
160,710 |
|
Changes in non-cash working capital |
|
23 |
|
|
(51,621 |
) |
|
50,011 |
|
|
(920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,876 |
|
|
238,593 |
|
|
159,790 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
|
|
(177,906 |
) |
|
(99,940 |
) |
|
(68,472 |
) |
Acquisitions of subsidiaries, net of cash acquired |
|
5 |
|
|
(16,169 |
) |
|
|
|
|
(20,051 |
) |
Less remaining purchase price payable |
|
5 |
|
|
(2,899 |
) |
|
(2,584 |
) |
|
5,187 |
|
Increase in investments and other assets |
|
|
|
|
(8,057 |
) |
|
(9,708 |
) |
|
(6,251 |
) |
Proceeds from dispositions of fixed and other assets |
|
|
|
|
455 |
|
|
1,578 |
|
|
1,492 |
|
Proceeds from disposition of operating division, net |
|
20 |
|
|
|
|
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204,576 |
) |
|
(104,918 |
) |
|
(88,095 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in bank indebtedness |
|
10 |
|
|
109,689 |
|
|
(110,339 |
) |
|
80,774 |
|
Repayments of debt due to Magna and its affiliates |
|
10 |
|
|
(72,417 |
) |
|
(7,836 |
) |
|
(85,435 |
) |
Decrease in long-term debt |
|
10 |
|
|
(179 |
) |
|
(10,844 |
) |
|
(14,770 |
) |
Issuance of Convertible Debentures |
|
13 |
|
|
66,128 |
|
|
|
|
|
|
|
Issuances of Class A Subordinate Voting Shares, net |
|
14 |
|
|
4,715 |
|
|
4,663 |
|
|
111,346 |
|
Repayment of Subordinated Debentures |
|
20 |
|
|
|
|
|
|
|
|
(74,252 |
) |
Convertible Debentures interest payments |
|
13 |
|
|
(3,751 |
) |
|
|
|
|
|
|
Repayment of Subordinated Debenture interest obligation |
|
20 |
|
|
|
|
|
|
|
|
(20,762 |
) |
Dividends on Convertible Series Preferred Shares |
|
11 |
|
|
(12,177 |
) |
|
(12,098 |
) |
|
(11,085 |
) |
Dividends on Class A Subordinate Voting and Class B Shares |
|
14 |
|
|
(18,816 |
) |
|
(14,247 |
) |
|
(12,599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,192 |
|
|
(150,701 |
) |
|
(26,783 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
10,994 |
|
|
4,814 |
|
|
(682 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents during the year |
|
|
|
|
11,486 |
|
|
(12,212 |
) |
|
44,230 |
|
Cash and cash equivalents, beginning of year |
|
|
|
|
82,059 |
|
|
94,271 |
|
|
50,041 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
|
|
$ |
93,545 |
|
$ |
82,059 |
|
$ |
94,271 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
42 Decoma International Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
The
significant accounting policies followed by the Company are set out under "Significant Accounting Policies" preceding these consolidated financial statements.
2. UNITED KINGDOM IMPAIRMENT CHARGE
Upon
completion of the 2004 business planning process, the Company identified a number of indicators of United Kingdom long-lived asset impairment including the continuation of
United Kingdom budgeted operating losses, uncertain long-term production volumes for the United Kingdom market in general which affect certain of the Company's existing
programs, and excess paint capacity in the United Kingdom market. In addition, Ford of Europe's decision to produce its 2006 Freelander program at Ford facilities in Halewood, England, has
caused the Company to relocate its related 2006 Freelander fascia production from Sybex to the closer Merplas facility.
Under
Canadian GAAP, these impairment indicators required the Company to assess its United Kingdom asset base for recoverability. Estimated discounted future cash flows were used to determine
the amount of the write-down. The result was a write-down of $12.4 million of certain of the assets of the
Company's Sybex facility. This write-down will have no near term impact on operations at the Company's United Kingdom facilities which will continue their operations in the normal
course.
As
a result of cumulative losses in the United Kingdom, this impairment charge has not been tax benefited.
3. CONTINENTAL EUROPE PAINT CAPACITY CONSOLIDATION CHARGES
During
2003, the Company completed, and committed to, a plan to consolidate its continental Europe paint capacity. This plan entails mothballing the Company's Decoform paint line in Germany and
transferring Decoform's painted trim and fascia business to the Company's newer paint lines at its Decorate and Belplas facilities in Germany and Belgium, respectively. Decoform will continue to mold
and assemble products for the Company's Decorate facility.
The
consolidation required the write-down of the carrying value of the Decoform paint line by $4.8 million. The consolidation will also result in severance costs associated with a
reduction of the Decoform workforce of 284 employees. Severance costs of $6.7 million were accrued in 2003.
Decoform
employees have a contractual notice period of up to two quarters following the quarter in which individual notice is given. The consolidation plan envisions substantially all employees
working through their contractual notice periods with paint line production transfers completed by the end of 2004.
A
continuity of the severance accrual related to this consolidation plan is as follows:
[U.S. dollars in thousands]
|
|
|
Expensed in the three month period ended December 31, 2003 |
|
$ |
6,658 |
Payments |
|
|
|
Currency translation |
|
|
141 |
|
|
|
Balance, December 31, 2003 |
|
$ |
6,799 |
|
|
|
The
continental Europe paint capacity consolidation charges have resulted in large accounting losses in Germany and create both taxable temporary difference and loss carry forward future tax assets. A
full valuation allowance has been provided against these future tax assets resulting in no net tax recovery in the consolidated statement of income against these charges.
4. ACCOUNTING POLICY CHANGES
Stock-based Compensation
As
provided for by new accounting recommendations of The Canadian Institute of Chartered Accountants [the "CICA"] and as explained under "Significant Accounting
Policies Stock-based Compensation", the fair value of stock options granted, modified or settled on or after January 1, 2003 is recognized on a
straight-line basis over the applicable stock option vesting period as compensation expense in selling, general and administrative expenses in the consolidated statements of income. For
stock options granted prior to January 1, 2003 which are not accounted for at fair value, pro forma earnings disclosure showing the impact of fair value accounting is included in
note 15. The impact of this accounting policy change on reported net income and earnings per share is as follows:
Annual Report 2003 43
[U.S. dollars, in thousands except per share figures]
|
|
Year ended
December 31, 2003
|
Increase in selling, general and administrative expenses |
|
$ |
267 |
|
|
|
Reduction of net income |
|
$ |
267 |
|
|
|
Reduction of earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
Basic |
|
$ |
|
|
Diluted |
|
$ |
|
|
|
|
Goodwill and Deferred Preproduction Expenditures
In
2002, the Company adopted the new accounting recommendations of the CICA for goodwill and other intangible assets. These accounting recommendations require that all business combinations initiated
after June 30, 2001 be accounted for using the purchase method of accounting, provide new criteria to determine when acquired intangible assets should be recognized separately from goodwill and
employ new non-amortization and impairment rules for existing goodwill and indefinite life intangible assets.
Upon
initial adoption of these recommendations, the Company recorded a goodwill write-down of $12.3 million related to its United Kingdom reporting unit. This
write-down was charged against January 1, 2002 opening retained earnings. As part of its initial assessment of goodwill impairment, the Company also reviewed the recoverability of
deferred preproduction expenditures at its Merplas United Kingdom facility. As a result of this review, $8.3 million of deferred preproduction expenditures were written off as a charge
against income in 2002. As a result of cumulative losses in the United Kingdom, this write-down was not tax effected.
In
addition, commencing in 2002, the Company ceased recording amortization of existing goodwill. The Company does not have any indefinite life intangible assets meeting the
non-amortization criteria under the new accounting recommendations. The Company's results for 2001 include goodwill amortization. Had the Company's 2001 results been restated to eliminate
goodwill amortization, adjusted net income and earnings per share would have been as follows:
[U.S. dollars, in thousands except per share figures]
|
|
Year ended
December 31, 2001
|
Net income, as reported |
|
$ |
68,676 |
Restatement to eliminate goodwill amortization |
|
|
4,192 |
|
|
|
Adjusted net income |
|
$ |
72,868 |
|
|
|
Adjusted earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
Basic |
|
$ |
1.07 |
|
Diluted |
|
$ |
0.85 |
|
|
|
5. BUSINESS ACQUISITIONS
Acquisitions in the year ended December 31, 2003
Federal Mogul Lighting
During
the second quarter of 2003, the Company entered into an agreement to acquire Federal Mogul's original equipment automotive lighting operations in Matamoros, Mexico, a distribution centre in
Brownsville, Texas, an assembly operation in Toledo, Ohio and certain of the engineering operations, contracts and equipment at Federal Mogul's original equipment automotive lighting operations in
Hampton, Virginia. The total purchase price was $10.4 million. The transaction closed on April 14, 2003 with a transition of the Hampton, Virginia contracts and assets over the balance
of 2003.
The
net effect of the transaction on the Company's consolidated balance sheet was as follows:
[U.S. dollars in thousands]
|
|
|
Non-cash working capital |
|
$ |
8,023 |
Fixed assets |
|
|
2,338 |
|
|
|
Net assets acquired |
|
$ |
10,361 |
|
|
|
HDO
On
October 1, 2003, the Company acquired the shares of HDO Galvano-und Oberflächentechnik GmbH ["HDO"]. HDO operated a chroming line
adjacent to the Company's Idoplas facility in Germany. The line is being converted to allow for grille chroming and will be integrated into Idoplas' operations. The Company expects to launch the
chroming line in early 2004 and commence the insourcing of grille chroming business previously outsourced by Decoma's European operations. Total consideration paid in connection with the acquisition
amounted to $5.8 million. The acquisition has been accounted for by the purchase method in these consolidated financial statements from the date of acquisition.
44 Decoma International Inc.
The
net effect of the transaction on the Company's consolidated balance sheet was as follows:
[U.S. dollars in thousands]
|
|
|
|
Non-cash working capital |
|
$ |
(430 |
) |
Fixed assets |
|
|
6,238 |
|
|
|
|
|
Net assets acquired |
|
$ |
5,808 |
|
|
|
|
|
Acquisitions in the year ended December 31, 2001
Autosystems
On
September 28, 2001, the Company acquired the lighting components manufacturing business and related fixed and working capital assets of Autosystems Manufacturing Inc.
["Autosystems"] from the court appointed receiver and monitor of Autosystems.
Autosystems
is located in Ontario and its principal customers include General Motors Corporation and Visteon Corporation. Total consideration paid in connection with the acquisition amounted to
$12.3 million. The acquisition has been accounted for by the purchase method in these consolidated financial statements from the date of acquisition.
The
net effect of the transaction on the Company's consolidated balance sheet was as follows:
[U.S. dollars in thousands]
|
|
|
Non-cash working capital |
|
$ |
2,200 |
Fixed assets |
|
|
10,070 |
|
|
|
Net assets acquired |
|
$ |
12,270 |
|
|
|
Decomex
In
May 2001, the Company acquired the remaining 30% minority interest in Decomex Inc. ["Decomex"] from Corporación Activa, S.A. de C.V.
Decomex operates fascia moulding and finishing operations in Mexico.
Total
consideration paid in connection with the acquisition amounted to $7.8 million which gave rise to goodwill of $0.1 million. The purchase price was satisfied with cash of
$2.6 million and by the issuance of $5.2 million of prime rate promissory notes which were repaid during 2002 and 2003.
The
acquisition has been accounted for by the purchase method in these consolidated financial statements from the date of acquisition.
Pro Forma Impact
If
the Federal Mogul Lighting and HDO acquisitions occurred on January 1, 2002, there would have been no material impact to the Company's sales or net income.
6. INVENTORIES
Inventories
consist of:
|
|
As at December 31,
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
Raw materials and supplies |
|
$ |
72,529 |
|
$ |
48,281 |
Work-in-process |
|
|
21,070 |
|
|
19,029 |
Finished goods |
|
|
29,077 |
|
|
28,383 |
Tooling, net of customer advances of $41,494 [2002 $41,968] |
|
|
93,826 |
|
|
64,398 |
|
|
|
|
|
|
|
$ |
216,502 |
|
$ |
160,091 |
|
|
|
|
|
7. INVESTMENTS
Investments
consist of the Company's 40% interests in Bestop Inc. ["Bestop"] and Modular Automotive Systems LLC ["MAS"]. The Company's
investment in Bestop includes goodwill of $8.9 million as at December 31, 2003 [2002 $7.3 million].
Annual Report 2003 45
8. FIXED ASSETS
Fixed
assets consist of:
|
|
As at December 31,
|
|
|
|
2003
|
|
2002
|
|
[U.S. dollars in thousands]
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
Land |
|
$ |
18,335 |
|
$ |
16,100 |
|
|
Buildings and leasehold improvements |
|
|
186,382 |
|
|
139,004 |
|
|
Machinery and equipment |
|
|
1,034,150 |
|
|
797,413 |
|
|
Construction in progress |
|
|
83,615 |
|
|
56,204 |
|
|
|
|
|
|
|
|
|
|
1,322,482 |
|
|
1,008,721 |
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
Buildings and leasehold improvements |
|
|
(57,709 |
) |
|
(43,835 |
) |
|
Machinery and equipment |
|
|
(584,530 |
) |
|
(440,075 |
) |
|
|
|
|
|
|
|
|
|
680,243 |
|
|
524,811 |
|
Deferred preproduction costs, net |
|
|
254 |
|
|
652 |
|
|
|
|
|
|
|
|
|
$ |
680,497 |
|
$ |
525,463 |
|
|
|
|
|
|
|
Notes:
- [i]
- Interest
capitalized on construction in progress during the year ended December 31, 2003 was $1.3 million [2002 and
2001 nil].
9. INCOME TAXES
- [a]
- The provision for income taxes differs from the expense that would be obtained by applying Canadian statutory
rates as a result of the following:
|
|
Years ended December 31,
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
Canadian statutory income tax rate |
|
36.6 |
% |
38.6 |
% |
41.7 |
% |
Manufacturing and processing profits deduction |
|
(2.1 |
) |
(2.4 |
) |
(3.8 |
) |
Foreign rate differentials |
|
(2.3 |
) |
(2.2 |
) |
(4.6 |
) |
|
|
|
|
|
|
|
|
|
|
32.2 |
% |
34.0 |
% |
33.3 |
% |
Losses not benefited |
|
12.0 |
|
6.0 |
|
6.5 |
|
Amortization of discount on Convertible Series Preferred Shares held by Magna |
|
2.3 |
|
2.0 |
|
3.3 |
|
Utilization of losses not previously benefited |
|
|
|
(0.3 |
) |
(2.5 |
) |
Non-deductible goodwill amortization |
|
|
|
|
|
1.2 |
|
Other income [see note 20] |
|
(0.4 |
) |
(0.4 |
) |
(1.0 |
) |
Future net tax liability revaluation due to Ontario income tax rate changes |
|
0.9 |
|
|
|
(1.4 |
) |
Earnings of equity investees |
|
(0.5 |
) |
(0.1 |
) |
|
|
Other |
|
0.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
Effective income tax rate on income before income taxes and minority interest |
|
46.8 |
% |
41.2 |
% |
39.9 |
% |
|
|
|
|
|
|
|
|
- [b]
- The details of income before income taxes and minority interest by jurisdiction are as follows:
|
|
Years ended December 31,
|
|
|
2003
|
|
2002
|
|
2001
|
[U.S. dollars in thousands]
|
|
|
Canadian |
|
$ |
88,696 |
|
$ |
79,412 |
|
$ |
52,746 |
Foreign |
|
|
46,401 |
|
|
78,836 |
|
|
62,995 |
|
|
|
|
|
|
|
|
|
$ |
135,097 |
|
$ |
158,248 |
|
$ |
115,741 |
|
|
|
|
|
|
|
46 Decoma International Inc. 2003
- [c]
- The
details of the income tax provision are as follows:
|
|
Years ended December 31,
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
[U.S. dollars in thousands]
|
|
|
|
Current provision |
|
|
|
|
|
|
|
|
|
|
|
Canadian federal taxes |
|
$ |
22,993 |
|
$ |
15,673 |
|
$ |
14,275 |
|
|
Canadian provincial taxes |
|
|
9,475 |
|
|
7,794 |
|
|
6,914 |
|
|
Foreign taxes |
|
|
37,992 |
|
|
40,581 |
|
|
22,455 |
|
|
|
|
|
|
|
|
|
|
|
|
70,460 |
|
|
64,048 |
|
|
43,644 |
|
|
|
|
|
|
|
|
|
Future provision |
|
|
|
|
|
|
|
|
|
|
|
Canadian federal taxes |
|
|
(1,435 |
) |
|
3,160 |
|
|
(1,588 |
) |
|
Canadian provincial taxes |
|
|
(741 |
) |
|
1,571 |
|
|
(766 |
) |
|
Foreign taxes |
|
|
(5,089 |
) |
|
(3,556 |
) |
|
4,932 |
|
|
|
|
|
|
|
|
|
|
|
|
(7,265 |
) |
|
1,175 |
|
|
2,578 |
|
|
|
|
|
|
|
|
|
|
|
$ |
63,195 |
|
$ |
65,223 |
|
$ |
46,222 |
|
|
|
|
|
|
|
|
|
- [d]
- Future income taxes have been provided on temporary and timing differences which consist of the following:
|
|
Years ended December 31,
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
[U.S. dollars in thousands]
|
|
|
|
Tax depreciation in excess of (less than) book depreciation |
|
$ |
(2,501 |
) |
$ |
1,851 |
|
$ |
3,953 |
|
Preproduction and contract costs, capitalized for accounting [net of amortization] deducted for tax |
|
|
(836 |
) |
|
(2,650 |
) |
|
(713 |
) |
Tax losses benefited |
|
|
(6,513 |
) |
|
(3,200 |
) |
|
(914 |
) |
Utilization of loss carryforwards |
|
|
|
|
|
6,524 |
|
|
662 |
|
Reversal of tax losses previously benefited |
|
|
1,851 |
|
|
|
|
|
|
|
Future income tax revaluation due to Ontario income tax rate changes |
|
|
1,119 |
|
|
|
|
|
(1,605 |
) |
Amortization of share issue costs and other temporary differences |
|
|
(385 |
) |
|
(1,350 |
) |
|
1,195 |
|
|
|
|
|
|
|
|
|
|
|
$ |
(7,265 |
) |
$ |
1,175 |
|
$ |
2,578 |
|
|
|
|
|
|
|
|
|
- [e]
- Future tax assets and liabilities consist of the following temporary differences:
|
|
As at December 31,
|
|
|
|
2003
|
|
2002
|
|
[U.S. dollars in thousands]
|
|
|
|
Assets: |
|
|
|
|
|
|
|
Tax benefit of loss carryforwards |
|
|
|
|
|
|
|
|
Post-acquisition |
|
$ |
55,259 |
|
$ |
26,403 |
|
Share issue costs |
|
|
777 |
|
|
964 |
|
|
|
|
|
|
|
|
|
|
56,036 |
|
|
27,367 |
|
Valuation allowance against tax benefit of loss carryforwards |
|
|
|
|
|
|
|
|
Post-acquisition |
|
|
(45,480 |
) |
|
(21,352 |
) |
|
|
|
|
|
|
|
|
|
10,556 |
|
|
6,015 |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Tax depreciation in excess of book depreciation |
|
|
(49,032 |
) |
|
(45,153 |
) |
Deferred costs |
|
|
(238 |
) |
|
(1,074 |
) |
Other |
|
|
(944 |
) |
|
(1,887 |
) |
|
|
|
|
|
|
|
|
|
(50,214 |
) |
|
(48,114 |
) |
|
|
|
|
|
|
Net future income taxes |
|
$ |
(39,658 |
) |
$ |
(42,099 |
) |
|
|
|
|
|
|
Annual Report 2003 47
- [f]
- At December 31, 2003, the Company has gross income tax loss carryforwards of approximately
$143.2 million, which relate to certain entities in the United Kingdom, Belgium, Germany and Poland, the tax benefits of which have not been recognized in the consolidated financial
statements. Of the total losses, $141.6 million have no expiry date and $1.6 million expire within 5 years.
- [g]
- Consolidated retained earnings includes approximately $104.9 million at December 31, 2003 of
undistributed earnings of foreign subsidiaries that may be subject to tax if remitted to the Canadian parent company. No provision has been made for such taxes as these earnings are considered to be
reinvested for the foreseeable future.
10. DEBT AND COMMITMENTS
- [a]
- At December 31, 2003, the Company had total lines of credit of $316.0 million. Of this amount,
$300 million is represented by an extendible revolving credit facility that expires on May 27, 2004, at which time the Company may request, subject to lender approval, further revolving
364 day extensions. The unused and available lines of credit at December 31, 2003 were approximately $122.7 million.
Draws
under the Company's $300 million credit facility bear interest at prime plus 0% to 0.375% depending on the Company's consolidated debt to capitalization position. In addition, the Company
pays a commitment fee of 0.175% to 0.3% of the undrawn portion of the facility depending on the Company's consolidated debt to capitalization position.
The
facility contains a number of covenants including maximum indebtedness, maximum consolidated debt to capitalization and minimum interest and fixed charge coverage, all as defined in the credit
agreement. Each of these covenants is measured quarterly. The Company has been in compliance with these covenants through December 31, 2003.
Bank
indebtedness at December 31, 2003 is denominated in Canadian dollars.
- [b]
- The Company's long-term debt consists of the following:
|
|
As at December 31,
|
|
|
2003
|
|
2002
|
[U.S. dollars in thousands]
|
|
|
Bank debt denominated in Euros [i] |
|
$ |
10,877 |
|
$ |
13,665 |
Notes payable denominated in Canadian dollars |
|
|
|
|
|
2,550 |
Capital lease obligations denominated in Euros |
|
|
4,978 |
|
|
337 |
Other |
|
|
195 |
|
|
43 |
|
|
|
|
|
|
|
|
16,050 |
|
|
16,595 |
Less due within one year |
|
|
4,856 |
|
|
6,918 |
|
|
|
|
|
|
|
$ |
11,194 |
|
$ |
9,677 |
|
|
|
|
|
Note:
- [i]
- Substantially
all of this debt is unsecured and bears interest at EURIBOR plus 0.1%.
- [c]
- The Company's debt due to Magna and its affiliates consists of the following:
|
|
As at December 31,
|
|
|
2003
|
|
2002
|
[U.S. dollars in thousands]
|
|
|
Debt denominated in Canadian dollars [i] |
|
$ |
46,512 |
|
$ |
38,256 |
Debt denominated in Euros [ii] |
|
|
94,128 |
|
|
139,324 |
Capital lease obligation denominated in Euros |
|
|
1,164 |
|
|
1,050 |
|
|
|
|
|
|
|
|
141,804 |
|
|
178,630 |
Less due within one year |
|
|
141,804 |
|
|
103,536 |
|
|
|
|
|
|
|
$ |
|
|
$ |
75,094 |
|
|
|
|
|
Notes:
- [i]
- This
debt initially bore interest at 7.5% and was repayable in 2001. In addition to the maturity date, the interest rate on this debt was subsequently
renegotiated to 4.85% effective September 2001, 3.10% effective January 1, 2002, 3.60% effective April 1, 2002, 3.83% effective July 1, 2002, 3.90% effective
October 1, 2002, 3.85% effective January 1, 2003, 4.25% effective April 1, 2003, 4.19% effective July 1, 2003, 3.86% effective October 1, 2003 and 3.65% effective
January 1, 2004. The maturity date of the Cdn. $60 million debt has been extended to March 31, 2004.
48 Decoma International Inc. 2003
- [ii]
- This
debt, comprised of three tranches, initially bore interest at 7.0%, 7.0% and 7.5%, respectively, and was repayable October 1, 2002,
October 1, 2003 and December 31, 2004, respectively. The maturity date and the interest rate on the first tranche was renegotiated to 4.29% effective October 2, 2002, 3.86%
effective January 2, 2003, 3.51% effective April 2, 2003, 3.14% effective July 2, 2003 and 3.32% effective October 2, 2003. The maturity date and the interest rate on the
second tranche was renegotiated to 3.32% effective October 2, 2003. Substantially all of the first and second tranches were repaid in December 2003. The remaining portions of the first
and second tranches outstanding at December 31, 2003 have subsequently been repaid. The third and final tranche of this debt, totalling Euro 72.0 million, continues to be due
December 31, 2004 and bears interest at its original rate of 7.5%.
- [d]
- Future principal repayments on long-term debt are estimated to be as follows:
[U.S. dollars in thousands]
|
|
Third
parties
|
|
Magna and
its affiliates
|
|
Total
|
2004 |
|
$ |
4,856 |
|
$ |
141,804 |
|
$ |
146,660 |
2005 |
|
|
5,430 |
|
|
|
|
|
5,430 |
2006 |
|
|
1,903 |
|
|
|
|
|
1,903 |
2007 |
|
|
1,504 |
|
|
|
|
|
1,504 |
2008 |
|
|
1,815 |
|
|
|
|
|
1,815 |
Thereafter |
|
|
542 |
|
|
|
|
|
542 |
|
|
|
|
|
|
|
|
|
$ |
16,050 |
|
$ |
141,804 |
|
$ |
157,854 |
|
|
|
|
|
|
|
- [e]
- Net interest expense includes:
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
2,779 |
|
$ |
4,592 |
|
$ |
4,506 |
|
|
Long-term |
|
|
705 |
|
|
211 |
|
|
3,169 |
|
|
Intercompany to Magna and its affiliates |
|
|
11,325 |
|
|
10,109 |
|
|
13,900 |
|
|
|
|
|
|
|
|
|
|
|
|
14,809 |
|
|
14,912 |
|
|
21,575 |
|
Less: Interest capitalized |
|
|
(1,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,546 |
|
|
14,912 |
|
|
21,575 |
|
Interest income |
|
|
(2,853 |
) |
|
(2,928 |
) |
|
(2,480 |
) |
|
|
|
|
|
|
|
|
Net interest expense |
|
$ |
10,693 |
|
$ |
11,984 |
|
$ |
19,095 |
|
|
|
|
|
|
|
|
|
Interest
paid in cash for the year ended December 31, 2003 was $14.2 million [2002 $14.9 million;
2001 $19.2 million].
- [f]
- At December 31, 2003, the Company had commitments under operating leases requiring future annual rental
payments as follows:
|
|
Facilities
|
|
Equipment
and other
|
|
|
[U.S. dollars in thousands]
|
|
Third
parties
|
|
Magna and
its affiliates
|
|
Third
parties
|
|
Total
|
2004 |
|
$ |
12,470 |
|
$ |
13,129 |
|
$ |
8,247 |
|
$ |
33,846 |
2005 |
|
|
12,702 |
|
|
13,119 |
|
|
6,601 |
|
|
32,422 |
2006 |
|
|
11,029 |
|
|
12,931 |
|
|
5,679 |
|
|
29,639 |
2007 |
|
|
8,448 |
|
|
12,783 |
|
|
3,614 |
|
|
24,845 |
2008 |
|
|
7,273 |
|
|
11,889 |
|
|
3,347 |
|
|
22,509 |
Thereafter |
|
|
48,220 |
|
|
49,970 |
|
|
2,148 |
|
|
100,338 |
|
|
|
|
|
|
|
|
|
|
|
$ |
100,142 |
|
$ |
113,821 |
|
$ |
29,636 |
|
$ |
243,599 |
|
|
|
|
|
|
|
|
|
In
the year ended December 31, 2003, operating lease expense amounted to approximately $30.6 million [2002 $24.6 million;
2001 $22.1 million].
Annual Report 2003 49
11. CONVERTIBLE SERIES PREFERRED SHARES HELD BY MAGNA
During 2003, the Series 1, 2 and 3 Convertible Series Preferred Shares held by Magna were converted into Class A Subordinate Voting Shares at a
fixed conversion price of Cdn. $10.07 per Class A Subordinate Voting Share. Decoma issued 14,895,729 Class A Subordinate Voting Shares on conversion.
The
Company's Convertible Series Preferred Shares which remain outstanding at December 31, 2003 are as follows:
|
|
|
|
Face Value
|
|
|
|
|
|
|
Number of
Shares
|
|
Non-Cumulative
Dividend Rate
|
|
Conversion
Price
|
|
|
Per Share
|
|
Total
|
Series 4 |
|
1,000,000 |
|
Cdn. $100 |
|
Cdn. $100,000,000 |
|
5.75% |
|
Cdn. $13.20 |
Series 5 |
|
1,000,000 |
|
Cdn. $100 |
|
Cdn. $100,000,000 |
|
5.75% |
|
Cdn. $13.20 |
The
Convertible Series Preferred Shares are:
-
- retractable
at their carrying value by the holders thereof after December 31, 2003 in the case of Series 4 and commencing December 31, 2004 in
the case of Series 5;
-
- redeemable
at their carrying value and subject to purchase for cancellation by the Company commencing December 31, 2005; and
-
- convertible
into Class A Subordinate Voting Shares of the Company at the option of the holder at a conversion price of Cdn. $13.20.
Dividends
are non-cumulative and payable on a quarterly basis.
The
portion of the Convertible Series Preferred Shares classified as debt is as follows:
[U.S. dollars in thousands]
|
|
Series 1
|
|
Series 2
|
|
Series 3
|
|
Series 4
|
|
Series 5
|
|
Total
|
|
Balance, December 31, 2000 |
|
$ |
33,328 |
|
$ |
32,526 |
|
$ |
31,120 |
|
$ |
54,796 |
|
$ |
51,331 |
|
$ |
203,101 |
|
Amortization of discount |
|
|
|
|
|
786 |
|
|
1,334 |
|
|
3,695 |
|
|
3,461 |
|
|
9,276 |
|
Currency translation |
|
|
(1,992 |
) |
|
(1,976 |
) |
|
(1,900 |
) |
|
(3,383 |
) |
|
(3,170 |
) |
|
(12,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001 |
|
|
31,336 |
|
|
31,336 |
|
|
30,554 |
|
|
55,108 |
|
|
51,622 |
|
|
199,956 |
|
Amortization of discount |
|
|
|
|
|
|
|
|
795 |
|
|
3,901 |
|
|
3,655 |
|
|
8,351 |
|
Currency translation |
|
|
544 |
|
|
544 |
|
|
530 |
|
|
957 |
|
|
897 |
|
|
3,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002 |
|
|
31,880 |
|
|
31,880 |
|
|
31,879 |
|
|
59,966 |
|
|
56,174 |
|
|
211,779 |
|
Amortization of discount |
|
|
|
|
|
|
|
|
|
|
|
4,235 |
|
|
4,396 |
|
|
8,631 |
|
Currency translation |
|
|
3,946 |
|
|
3,946 |
|
|
3,947 |
|
|
13,319 |
|
|
12,482 |
|
|
37,640 |
|
Conversion |
|
|
(35,826 |
) |
|
(35,826 |
) |
|
(35,826 |
) |
|
|
|
|
|
|
|
(107,478 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
77,520 |
|
$ |
73,052 |
|
$ |
150,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
portion of the Convertible Series Preferred Shares included in shareholders' equity is as follows:
|
|
As at December 31,
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
Warrant portion [relating to conversion feature] |
|
$ |
4,028 |
|
$ |
6,370 |
Dividend portion [relating to possible future non-cumulative dividends] |
|
|
4,798 |
|
|
12,395 |
|
|
|
|
|
|
|
$ |
8,826 |
|
$ |
18,765 |
|
|
|
|
|
50 Decoma International Inc.
12. EMPLOYEE FUTURE BENEFIT PLANS
Prior
to 2001, Decoma's Corporate Constitution required that 10% of employee pre-tax profits before profit sharing [as defined in the Corporate Constitution] for
any fiscal period be allocated to an employee equity and profit participation program [the "Decoma EEPPP"] consisting of the Decoma deferred profit sharing plan and a cash
distribution to eligible employees of Decoma. Eligible Canadian and United States employees participate in the Decoma EEPPP. During 2001, Decoma amended its Corporate Constitution to allow for
the introduction of a defined benefit pension plan as part of the Decoma EEPPP. All employees that participate in the Decoma EEPPP were, and all new employees are, given the option of continuing in
the original Decoma EEPPP or receiving a reduced entitlement under the original Decoma EEPPP plus a defined benefit pension. The defined benefit pension is payable to retirees based on years of
service and compensation levels.
The
Company also sponsors a post-retirement medical benefits plan covering eligible employees and retirees in Canada and the United States. Retirees age 60 or older with ten or more
years of service will be eligible for benefits. Benefits are subject to a fixed cap based on years of service.
Certain
of the Company's European subsidiaries sponsor defined benefit pension arrangements for their employees.
The
significant actuarial assumptions adopted in measuring the Company's projected benefit obligations at December 31, 2003 are as follows:
Discount rate |
|
5% to 6.75% |
Rate of compensation increase |
|
4% |
Expected return on plan assets |
|
8% |
|
|
|
Information
about the Company's defined benefit pension and post-retirement medical benefits plans is as follows:
|
|
As at December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
Projected benefit obligation: |
|
|
|
|
|
|
|
Beginning of year |
|
$ |
11,200 |
|
$ |
6,940 |
|
Current service and interest costs |
|
|
3,637 |
|
|
2,807 |
|
Actuarial losses and changes in assumptions |
|
|
2,176 |
|
|
1,112 |
|
Benefits paid |
|
|
(95 |
) |
|
(55 |
) |
Currency translation |
|
|
2,297 |
|
|
396 |
|
|
|
|
|
|
|
End of year |
|
$ |
19,215 |
|
$ |
11,200 |
|
|
|
|
|
|
|
Plan assets at fair value: |
|
|
|
|
|
|
|
Beginning of year |
|
$ |
2,556 |
|
$ |
|
|
Employer contributions |
|
|
2,039 |
|
|
2,697 |
|
Return on plan assets |
|
|
244 |
|
|
(122 |
) |
Benefits paid |
|
|
(48 |
) |
|
(19 |
) |
Currency translation |
|
|
422 |
|
|
|
|
|
|
|
|
|
|
End of year |
|
$ |
5,213 |
|
$ |
2,556 |
|
|
|
|
|
|
|
Amount recognized in the consolidated balance sheets: |
|
|
|
|
|
|
|
Unfunded amount |
|
$ |
14,002 |
|
$ |
8,644 |
|
Unrecognized past service costs |
|
|
(3,996 |
) |
|
(3,629 |
) |
Unrecognized actuarial losses |
|
|
(2,544 |
) |
|
(178 |
) |
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets |
|
$ |
7,462 |
|
$ |
4,837 |
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Net periodic cost: |
|
|
|
|
|
|
|
|
|
|
Current service and interest costs |
|
$ |
3,637 |
|
$ |
2,807 |
|
$ |
2,041 |
|
Amortization of past service costs |
|
|
233 |
|
|
212 |
|
|
209 |
|
Return on plan assets |
|
|
(245 |
) |
|
(64 |
) |
|
|
|
Amortization of actuarial (losses) gains |
|
|
1 |
|
|
(30 |
) |
|
(3 |
) |
|
|
|
|
|
|
|
|
Total cost of benefits |
|
$ |
3,626 |
|
$ |
2,925 |
|
$ |
2,247 |
|
|
|
|
|
|
|
|
|
Annual Report 2003 51
13. CONVERTIBLE DEBENTURES
On
March 27, 2003, the Company issued Cdn. $100 million of unsecured, subordinated Convertible Debentures bearing interest at 6.5% and maturing March 31, 2010. The Convertible
Debentures are convertible at the option of the holder at any time into the Company's Class A Subordinate Voting Shares at a fixed conversion price of Cdn. $13.25 per share. All or part of the
Convertible Debentures are redeemable at the Company's option between March 31, 2007 and March 31, 2008 if the weighted average trading price of the Company's Class A Subordinate
Voting Shares is not less than Cdn. $16.5625 for the 20 consecutive trading days ending five trading days preceding the date on which notice of redemption is given. Subsequent to March 31,
2008, all or part of the Convertible Debentures are redeemable at the Company's option at any time. On redemption or maturity, the Company will have the option of retiring the Convertible Debentures
with Class A Subordinate Voting Shares in which case the number of Class A Subordinate Voting Shares issuable is based on 95% of the trading price of the Company's Class A
Subordinate Voting Shares for the 20 consecutive trading days ending five trading days prior to the date fixed for redemption or maturity. In addition, the Company may elect from time to time to issue
and deliver freely tradeable Class A Subordinate Voting Shares to a trustee in order to raise funds to satisfy the obligation to pay interest on the Convertible Debentures.
As
a result of these terms and as explained under "Significant Accounting Policies Convertible Debentures", the Convertible Debentures are presented as equity.
14. CAPITAL STOCK
- [a]
- Class A Subordinate Voting Shares and Class B Shares
Class A Subordinate Voting Shares without par value [unlimited amount authorized] are entitled to one vote per share at all meetings of
shareholders and participate equally as to cash dividends with each Class B Share.
Class B
Shares without par value [unlimited amount authorized] are entitled to 20 votes per share at all meetings of shareholders, participate equally as to cash
dividends with each Class A Subordinate Voting Share and may be converted at any time into fully-paid Class A Subordinate Voting Shares on a
one-for-one basis.
In
the event that either the Class A Subordinate Voting Shares or the Class B Shares are subdivided or consolidated, the other class shall be similarly changed to preserve the relative
position of each class.
Outstanding
Class A Subordinate Voting Shares and Class B Shares included in shareholders' equity as at December 31, 2003, 2002, 2001 and 2000 are as follows:
|
|
Class A Subordinate Voting Shares
|
|
Class B Shares
|
[U.S. dollars in thousands]
|
|
Number of shares
|
|
Stated Value
|
|
Number of shares
|
|
Stated Value
|
Balance, December 31, 2000 |
|
19,551,649 |
|
$ |
56,479 |
|
31,909,091 |
|
$ |
30,594 |
Issuance of Class A Subordinate Voting Shares through public offering [i] |
|
16,100,000 |
|
|
111,131 |
|
|
|
|
|
Issuance of Class A Subordinate Voting Shares on exercise of stock options |
|
35,250 |
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001 |
|
35,686,899 |
|
|
167,825 |
|
31,909,091 |
|
|
30,594 |
Issuance of Class A Subordinate Voting Shares to the Decoma deferred profit sharing plan |
|
451,400 |
|
|
4,554 |
|
|
|
|
|
Issuance of Class A Subordinate Voting Shares on exercise of stock options |
|
16,000 |
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002 |
|
36,154,299 |
|
|
172,488 |
|
31,909,091 |
|
|
30,594 |
Issuance of Class A Subordinate Voting Shares to Decoma deferred profit sharing plan |
|
548,600 |
|
|
4,715 |
|
|
|
|
|
Issuance of Class A Subordinate Voting Shares on conversion of Series 1, 2 and 3 Convertible Series Preferred Shares [see note 11] |
|
14,895,729 |
|
|
109,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
|
51,598,628 |
|
$ |
287,137 |
|
31,909,091 |
|
$ |
30,594 |
|
|
|
|
|
|
|
|
|
- [i]
- The
Company completed a public offering of Class A Subordinate Voting Shares in June 2001. The details of the proceeds from the offering are as
follows:
52 Decoma International Inc.
[U.S. dollars in thousands]
|
|
|
|
Total proceeds on 16,100,000 shares at Cdn. $10.85 per share |
|
$ |
114,621 |
|
Expenses of the issue, net of taxes |
|
|
(3,490 |
) |
|
|
|
|
|
|
$ |
111,131 |
|
|
|
|
|
- [b]
- 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 the outstanding options,
Convertible Debentures and Convertible Series Preferred Shares issued and outstanding at December 31, 2003 were exercised or converted:
|
|
Number of Shares
|
Class A Subordinate Voting Shares outstanding at December 31, 2003 |
|
51,598,628 |
Class B Shares outstanding at December 31, 2003 |
|
31,909,091 |
Options to purchase Class A Subordinate Voting Shares |
|
2,640,000 |
Convertible Debentures, convertible by the holders at Cdn. $13.25 per share |
|
7,547,170 |
Convertible Series Preferred Shares |
|
|
|
Series 4, convertible at Cdn. $13.20 per share |
|
7,575,758 |
|
Series 5, convertible at Cdn. $13.20 per share |
|
7,575,758 |
|
|
|
|
|
108,846,405 |
|
|
|
The
above amounts include shares issuable if the holders of the Convertible Debentures exercise their fixed price conversion option but exclude Class A Subordinate Voting Shares issuable, only
at the Company's option, to settle interest and principal related to the Convertible Debentures. The number of Class A Subordinate Voting Shares issuable at the Company's option is dependent on
the trading price of Class A Subordinate Voting Shares at the time the Company elects to settle Convertible Debenture interest and principal with shares.
- [c]
- Dividends
Dividends were declared and paid in respect of the following periods on outstanding Class A Subordinate Voting and Class B Shares:
[U.S. dollars, in thousands except per share figures]
|
|
Per Class A Subordinate Voting and Class B Share
|
|
Total
|
Two month period ended December 31, 2000 |
|
$ |
0.03 |
|
$ |
1,544 |
Three month period ended March 31, 2001 |
|
$ |
0.05 |
|
|
2,573 |
Three month period ended June 30, 2001 |
|
$ |
0.05 |
|
|
3,378 |
Three month period ended September 30, 2001 |
|
$ |
0.05 |
|
|
3,378 |
|
|
|
|
|
Charged to retained earnings during the year ended December 31, 2001 |
|
|
|
|
$ |
10,873 |
|
|
|
|
|
Three month period ended December 31, 2001 |
|
$ |
0.05 |
|
$ |
3,380 |
Three month period ended March 31, 2002 |
|
$ |
0.05 |
|
|
3,380 |
Three month period ended June 30, 2002 |
|
$ |
0.05 |
|
|
3,403 |
Three month period ended September 30, 2002 |
|
$ |
0.06 |
|
|
4,084 |
|
|
|
|
|
Charged to retained earnings during the year ended December 31, 2002 |
|
|
|
|
$ |
14,247 |
|
|
|
|
|
Three month period ended December 31, 2002 |
|
$ |
0.06 |
|
$ |
4,084 |
Three month period ended March 31, 2003 |
|
$ |
0.06 |
|
|
4,084 |
Three month period ended June 30, 2003 |
|
$ |
0.07 |
|
|
4,802 |
Three month period ended September 30, 2003 |
|
$ |
0.07 |
|
|
5,846 |
|
|
|
|
|
Charged to retained earnings during the year ended December 31, 2003 |
|
|
|
|
$ |
18,816 |
|
|
|
|
|
Annual Report 2003 53
15. INCENTIVE STOCK OPTIONS
Under
the Option Plan adopted by the Company on March 2, 1998, the Company may grant options to purchase Class A Subordinate Voting Shares to present and future officers, directors,
other full-time employees or consultants of the Company. The maximum number of shares reserved to be issued for options is 4,100,000. The number of reserved but unoptioned shares at
December 31, 2003 is 1,408,750. The total number of shares issued from exercised stock options from the inception date of the plan is 51,250.
All
options granted are for a term of no more than ten years from the date of the grant. The options granted under Tranche 1 vest 121/2% on the grant date, 121/2%
on July 31, 1998 and 121/2% on each of the following six years. The options granted under Tranche 2 vest 331/3% on the grant date and 162/3%
on each of the following four anniversaries of the grant. The options granted under Tranche 3 vest 371/2% on July 31, 1999 and 121/2% on July 31 of
each of the following five years. The options granted under Tranche 4, 6, 7, 8, 9, 10, 11 and 12 vest 20% on the grant date and 20% on each of the following four anniversaries of the grant. The
options granted under Tranche 5 vest 60% on the grant date and 20% on each of December 31, 2000 and December 31, 2001.
The
following is a continuity schedule of options outstanding:
|
|
Number
|
|
Weighted Average Exercise Price
|
|
Number of Options Exercisable
|
|
Outstanding at December 31, 2000 |
|
1,426,250 |
|
Cdn. $11.99 |
|
803,250 |
|
Granted |
|
405,000 |
|
Cdn. $11.92 |
|
|
|
Exercised |
|
(35,250 |
) |
Cdn. $9.50 |
|
(35,250 |
) |
Vested |
|
|
|
|
|
321,000 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2001 |
|
1,796,000 |
|
Cdn. $12.02 |
|
1,089,000 |
|
Granted |
|
435,000 |
|
Cdn. $17.53 |
|
|
|
Exercised |
|
(16,000 |
) |
Cdn. $10.59 |
|
(16,000 |
) |
Cancelled |
|
(20,000 |
) |
Cdn. $11.24 |
|
(4,000 |
) |
Vested |
|
|
|
|
|
375,000 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2002 |
|
2,195,000 |
|
Cdn. $13.13 |
|
1,444,000 |
|
Granted |
|
455,000 |
|
Cdn. $12.43 |
|
|
|
Cancelled |
|
(10,000 |
) |
Cdn. $10.30 |
|
(4,000 |
) |
Vested |
|
|
|
|
|
339,000 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2003 |
|
2,640,000 |
|
Cdn. $13.02 |
|
1,779,000 |
|
|
|
|
|
|
|
|
|
At
December 31, 2003, the outstanding options consist of the following:
|
|
|
|
Options Outstanding
|
|
|
|
|
Exercise Price
|
|
Number
|
|
Remaining Contractual Life
|
|
Number of Options Exercisable
|
Tranche 1 |
|
Cdn. $9.50 |
|
320,000 |
|
4.1 years |
|
280,000 |
Tranche 2 |
|
Cdn. $13.55 |
|
750,000 |
|
3.6 years |
|
750,000 |
Tranche 3 |
|
Cdn. $11.55 |
|
40,000 |
|
4.1 years |
|
35,000 |
Tranche 4 |
|
Cdn. $11.00 |
|
205,000 |
|
6.4 years |
|
164,000 |
Tranche 5 |
|
Cdn. $11.25 |
|
60,000 |
|
6.0 years |
|
60,000 |
Tranche 6 |
|
Cdn. $10.08 |
|
55,000 |
|
7.2 years |
|
33,000 |
Tranche 7 |
|
Cdn. $10.30 |
|
10,000 |
|
7.3 years |
|
6,000 |
Tranche 8 |
|
Cdn. $12.40 |
|
310,000 |
|
7.8 years |
|
186,000 |
Tranche 9 |
|
Cdn. $16.85 |
|
10,000 |
|
8.3 years |
|
4,000 |
Tranche 10 |
|
Cdn. $17.55 |
|
425,000 |
|
8.5 years |
|
170,000 |
Tranche 11 |
|
Cdn. $12.50 |
|
425,000 |
|
9.1 years |
|
85,000 |
Tranche 12 |
|
Cdn. $11.47 |
|
30,000 |
|
9.2 years |
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,640,000 |
|
|
|
1,779,000 |
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
|
|
Cdn. $13.02 |
|
|
|
Cdn. $12.70 |
|
|
|
|
|
|
|
|
|
Weighted average remaining contractual life |
|
|
|
|
|
6.3 years |
|
|
|
|
|
|
|
|
|
|
|
54 Decoma International Inc.
The
fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model using the following weighted average assumptions for stock options issued in each period
indicated:
|
|
Years ended December 31,
|
|
|
2003
|
|
2002
|
|
2001
|
Risk free interest rate |
|
3.0% |
|
2.7% |
|
3.1% |
Expected dividend yield |
|
3.2% |
|
1.9% |
|
1.8% |
Expected volatility |
|
39% |
|
37% |
|
28% |
Expected life of options |
|
5 years |
|
5 years |
|
6 years |
|
|
|
|
|
|
|
Stock
options granted prior to January 1, 2003 are not accounted for at fair value. Had these stock options been accounted for at fair value, the Company's net income attributable to
Class A Subordinate Voting and Class B Shares would have been:
|
|
Years ended December 31,
|
|
[U.S. dollars, in thousands except per share figures]
|
|
2003
|
|
2002
|
|
2001
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares |
|
$ |
64,350 |
|
$ |
88,233 |
|
$ |
60,485 |
|
Pro forma adjustments for the fair value of stock options granted prior to
January 1, 2003 |
|
|
(947 |
) |
|
(1,019 |
) |
|
(1,199 |
) |
|
|
|
|
|
|
|
|
Pro forma net income attributable to Class A Subordinate Voting and Class B Shares |
|
$ |
63,403 |
|
$ |
87,214 |
|
$ |
59,286 |
|
|
|
|
|
|
|
|
|
Pro forma earnings per Class A Subordinate Voting or Class B Share |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.86 |
|
$ |
1.29 |
|
$ |
0.98 |
|
|
Diluted |
|
$ |
0.76 |
|
$ |
1.02 |
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
16. CURRENCY TRANSLATION ADJUSTMENT
The
following is a continuity schedule of the currency translation adjustment account included in shareholders' equity:
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Balance, beginning of year |
|
$ |
29,451 |
|
$ |
22,848 |
|
$ |
22,346 |
|
Translation adjustments |
|
|
35,638 |
|
|
7,098 |
|
|
3,282 |
|
Amount recognized in income [see note 20] |
|
|
(1,387 |
) |
|
(495 |
) |
|
(2,780 |
) |
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
63,702 |
|
$ |
29,451 |
|
$ |
22,848 |
|
|
|
|
|
|
|
|
|
17. CONTINGENCIES
In
the ordinary course of business activities, the Company may be contingently liable for litigation and claims with customers, suppliers and former employees. In addition, the Company may be, or
could become, liable to incur environmental remediation costs to bring environmental contamination levels back within acceptable legal limits. On an on-going basis, the Company assesses
the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable costs and losses. A determination of the provision required, if any, for these
contingencies is made after analysis of each individual issue. The required provision may change in the future due to new developments in each matter or changes in approach such as a change in
settlement strategy in dealing with these matters.
In
certain circumstances, the Company is at risk for warranty costs including product liability and recall costs. Product liability provisions are established based on the Company's best estimate of
the amounts necessary to settle existing claims on product default issues. Recall costs are costs incurred when the Company and/or the customer decide, either voluntarily or involuntarily, to recall a
product due to a known or suspected performance issue. Costs typically include the cost of the product being replaced, the customer's cost of the recall and labour to remove and replace the defective
part. When a decision to recall a product has been made or is probable, the Company's estimated cost of the recall is recorded as a charge to net income in that period. In making this estimate,
judgment is required as to the number of units that may be returned as a result of the recall, the total cost of the recall campaign, the ultimate negotiated sharing of the cost between the Company
and the customer and, in some cases, the extent to which a supplier to the Company will share in the recall cost. Due to the nature of the costs, the Company makes its best estimate of the expected
future costs, however, the ultimate amount of such costs could be materially different. Given the nature of the Company's products, to date, the Company has not experienced significant warranty,
including product liability and recall, costs. However, the Company continues to experience increased customer pressure to assume greater warranty responsibility. Currently the Company only accounts
for existing or probable claims, however, a significant increase in warranty responsibility could require the Company to consider accounting for possible future claims.
Annual Report 2003 55
18. FINANCIAL INSTRUMENTS
- [a]
- Fair Value
The methods and assumptions used to estimate the fair value of financial instruments are described below.
Cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities
Due
to the short period to maturity of these instruments, the carrying values as presented in the consolidated balance sheets are reasonable estimates of their fair value.
Investments
Fair
value information is not readily available. However, management believes the market value to be in excess of the carrying value of investments.
Long-term debt
The
fair value of the Company's long-term debt (including the liability portion of the Convertible Series Preferred Shares and long-term debt due to Magna and its affiliates)
is estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of arrangements. The fair values are not necessarily indicative of the
amounts that the Company may incur in actual market transactions.
The
fair value of the Company's long-term debt approximates its carrying value with the following exceptions:
|
|
As at December 31, 2003
|
|
As at December 31, 2002
|
[U.S. dollars in thousands]
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Long-term debt due to Magna and its affiliates [including current portion] |
|
$ |
141,804 |
|
$ |
145,469 |
|
$ |
178,630 |
|
$ |
183,496 |
Convertible Series Preferred Shares, held by Magna [liability portion] |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
150,572 |
|
$ |
152,317 |
|
$ |
95,639 |
|
$ |
94,151 |
|
Long-term |
|
$ |
|
|
$ |
|
|
$ |
116,140 |
|
$ |
121,190 |
|
|
|
|
|
|
|
|
|
- [b]
- Credit Risk
The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents and accounts receivable.
Cash
and cash equivalents which consists of short-term investments, including commercial paper, is only invested in governments and corporations with an investment grade credit rating.
Credit risk is further reduced by limiting the amount which is invested in any one government or corporation.
The
Company, in the normal course of business, is exposed to credit risk from its customers, substantially all of which are in the automotive industry.
The
Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange forward contracts. The Company mitigates this credit risk by dealing with
counterparties who are major financial institutions and which the Company anticipates will satisfy their obligations under the contracts.
56 Decoma International Inc.
- [c]
- Interest Rate Risk
The following table summarizes the Company' s exposure to interest rate risk as at December 31, 2003:
[U.S. dollars in thousands]
|
|
Floating rate
|
|
Fixed interest rate maturing within 5 years
|
|
Non-interest bearing
|
|
Total
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
93,545 |
|
$ |
|
|
$ |
|
|
$ |
93,545 |
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
395,040 |
|
|
395,040 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
|
(177,288 |
) |
|
|
|
|
|
|
|
(177,288 |
) |
|
Accounts payable |
|
|
|
|
|
|
|
|
(226,114 |
) |
|
(226,114 |
) |
|
Long-term debt including current portion |
|
|
(10,877 |
) |
|
(5,173 |
) |
|
|
|
|
(16,050 |
) |
|
Long-term debt due to Magna and its affiliates including current portion |
|
|
|
|
|
(141,804 |
) |
|
|
|
|
(141,804 |
) |
|
Convertible Series Preferred Shares held by Magna including current portion |
|
|
|
|
|
(150,572 |
) |
|
|
|
|
(150,572 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(94,620 |
) |
$ |
(297,549 |
) |
$ |
168,926 |
|
$ |
(223,243 |
) |
|
|
|
|
|
|
|
|
|
|
Average fixed rate |
|
|
|
|
|
5.93% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- [d]
- Foreign Exchange Risk
The Company operates in North America and Europe, which gives rise to a risk that its earnings, cash flows and shareholders' equity may be adversely impacted by fluctuations in
foreign exchange rates amongst four principal currencies; namely, the U.S. and Canadian dollars, the British Pound and the Euro.
Operating
as a global company, Decoma transacts business through operating divisions whose functional currency is the currency of the division's country of residency, except for the Company's
operations in Mexico where the functional currency is the U.S. dollar. To protect against the reduction in value of foreign currency cash flows resulting from foreign currency customer and
supplier contracts, the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its cash flows denominated in foreign currencies with forward contracts.
The
Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This
process includes linking all derivatives to specific assets and liabilities on the consolidated balance sheets or to specific firm commitments or forecasted transactions. The Company also formally
assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows
of hedged items.
Any
gains and losses on these hedging instruments, including the forward premium or discount on a forward foreign currency contract relating to the period prior to consummation of the foreign currency
cash flow, are recognized in the same period as, and as part of, the hedged transaction. The Company does not enter into forward foreign currency contracts for speculative purposes.
At
December 31, 2003, the Company had outstanding forward foreign currency contracts to buy (sell) as follows [in thousands, except rates]:
For Euro
|
|
British Pounds
|
|
Weighted Average Rate
|
2004 |
|
(5,833 |
) |
1.4997 |
2005 |
|
(2,644 |
) |
1.4845 |
|
|
|
|
|
|
|
(8,477 |
) |
1.4950 |
|
|
|
|
|
Annual Report 2003 57
For U.S. Dollars
|
|
Cdn. Dollars
|
|
Weighted Average Rate
|
|
Euro
|
|
Weighted Average Rate
|
2004 |
|
(36,995 |
) |
0.7345 |
|
(11,421 |
) |
1.1725 |
2005 |
|
(10,280 |
) |
0.7296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,275 |
) |
0.7334 |
|
(11,421 |
) |
1.1725 |
|
|
|
|
|
|
|
|
|
Based
on forward foreign exchange rates as at December 31, 2003 for contracts with similar remaining terms to maturity, the unrecognized net losses relating to the Company's forward foreign
currency contracts are approximately $1.6 million.
If
the Company's forward foreign currency contracts cease to be effective as hedges, for example, if projected net foreign cash outflows decline significantly, previously unrecognized gains or losses
pertaining to the portion of the hedging transaction in excess of projected foreign currency denominated cash outflows would be recognized in income at the time this condition was identified.
- [e]
- Electricity Swap Contracts
The Company uses electricity swap contracts to manage the cash flow risk for a portion of its forecasted Ontario electricity purchases over the period to April 2005.
Swaps outstanding at December 31, 2003 have an annual notional energy volume of approximately 176,000 megawatt hours ("MWh") under which the Company pays a fixed average price of Cdn. $52.21
per MWh and receives a floating average price per MWh based on the hourly Ontario energy price. The net settlements under the electricity swap contracts are recognized in the same period as, and as
part of, the hedged transactions. The Company does not enter into electricity swap contracts for speculative purposes.
The
Company's estimate of the fair value of these electricity contracts as at December 31, 2003 is $0.6 million, representing a financial benefit to the Company. In 2002, the Ontario
government passed legislation which fixes the electricity price for low volume and designated customers. Although the Company is not directly affected by the legislation, this has disrupted the
forward market for Ontario electricity contracts and significantly reduced liquidity. The Company has estimated fair value based on available broker quotes but given the current illiquidity of the
market, the fair value is subject to significant measurement uncertainty.
19. FOREIGN EXCHANGE
Selling,
general and administrative expenses are net of foreign exchange (losses) income of:
|
|
Years ended December 31,
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
Foreign exchange (losses) income |
|
$ |
(7,259 |
) |
$ |
494 |
|
$ |
526 |
|
|
|
|
|
|
|
20. OTHER INCOME
- [a]
- During 2003, the Company permanently repatriated $75 million from its United States operations.
This repatriation gave rise to the recognition of a pro rata amount of the Company's cumulative translation adjustment account. This amount, totalling $1.4 million, has been included in
other income and is not subject to tax.
- [b]
- During 2002, the Company completed the divestiture of one of its non-core North American divisions.
The division was engaged in the coating of automotive parts. The Company recorded other income of $3.9 million related to this transaction, representing the excess of sale proceeds over the
carrying value of the fixed and working capital assets of this division and direct costs related to the transaction. Income taxes includes an expense of $1.0 million related to this
transaction.
- [c]
- During 2002, the Company permanently repatriated Euro 10 million from its European operations.
This repatriation gave rise to the recognition of a pro rata amount of the Company's cumulative translation adjustment account. This amount, totalling $0.5 million, has been included in
other income and is not subject to tax.
- [d]
- On October 16, 2000, Decoma issued $32 million and $58 million of 9.5% unsecured
Subordinated Debentures at par, as partial consideration for the October 2000 acquisition of the remaining interest in the Conix group of companies [the "Conix Group"].
The Subordinated Debentures were repaid with cash in June and November of 2001, respectively.
The
November 2001 repayment of the $58 million Subordinated Debenture gave rise to a foreign exchange loss. There were no substantial foreign exchange losses on the June 2001
repayment of the $32 million Subordinated Debenture. Decoma funded the repayment of the $58 million Subordinated Debenture in part by $25 million that was permanently repatriated
from the Company's United States operations. The $25 million repatriation and $58 million repayment transactions gave rise to the following income statement amounts during 2001:
58 Decoma International Inc.
[U.S. dollars in thousands]
|
|
|
|
Recognition of pro rata amount of cumulative translation adjustment on repatriation presented as other income |
|
$ |
2,780 |
|
|
|
|
|
Income before income taxes and minority interest |
|
|
2,780 |
|
Income tax recovery |
|
|
|
|
|
|
|
|
Net income |
|
|
2,780 |
|
Foreign exchange loss on retirement of Subordinated Debenture, net of taxes |
|
|
(1,717 |
) |
|
|
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares |
|
$ |
1,063 |
|
|
|
|
|
21. FINANCING CHARGES ON CONVERTIBLE SERIES PREFERRED SHARES HELD BY MAGNA,
CONVERTIBLE DEBENTURES AND SUBORDINATED DEBENTURES
Financing charges on Convertible Series Preferred Shares, Convertible Debentures and Subordinated Debentures, net of taxes, as presented in the consolidated
statements of income include the following:
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Dividends declared on Convertible Series Preferred Shares |
|
$ |
(12,177 |
) |
$ |
(12,098 |
) |
$ |
(9,836 |
) |
Reduction of Convertible Series Preferred Shares dividend equity component |
|
|
7,663 |
|
|
7,306 |
|
|
6,353 |
|
Financing charges on Convertible Debentures, net of taxes |
|
|
(3,038 |
) |
|
|
|
|
|
|
Financing charges on Subordinated Debentures, net of taxes |
|
|
|
|
|
|
|
|
(2,991 |
) |
|
|
|
|
|
|
|
|
|
|
$ |
(7,552 |
) |
$ |
(4,792 |
) |
$ |
(6,474 |
) |
|
|
|
|
|
|
|
|
22. EARNINGS PER SHARE
|
|
Years ended December 31,
|
[U.S. dollars in thousands except per share figures]
|
|
2003
|
|
2002
|
|
2001
|
BASIC EARNINGS PER CLASS A SUBORDINATE VOTING AND CLASS B SHARE |
|
|
|
|
|
|
|
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares |
|
$ |
64,350 |
|
$ |
88,233 |
|
$ |
60,485 |
|
|
|
|
|
|
|
Average number of Class A Subordinate Voting and Class B shares outstanding during the year |
|
|
73,420 |
|
|
67,800 |
|
|
60,456 |
|
|
|
|
|
|
|
Basic earnings per Class A Subordinate Voting and Class B Share |
|
$ |
0.88 |
|
$ |
1.30 |
|
$ |
1.00 |
|
|
|
|
|
|
|
DILUTED EARNINGS PER CLASS A SUBORDINATE VOTING AND CLASS B SHARE |
|
|
|
|
|
|
|
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares |
|
$ |
64,350 |
|
$ |
88,233 |
|
$ |
60,485 |
Adjustments [net of related tax effects] for: |
|
|
|
|
|
|
|
|
|
|
Amortization of discount on Convertible Series Preferred Shares |
|
|
8,631 |
|
|
8,351 |
|
|
9,276 |
|
Financing charges on Convertible Series Preferred Shares, held by Magna |
|
|
4,514 |
|
|
4,792 |
|
|
3,483 |
|
Financing charges on Convertible Debentures |
|
|
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
80,533 |
|
$ |
101,376 |
|
$ |
73,244 |
|
|
|
|
|
|
|
Average number of Class A Subordinate Voting and Class B Shares outstanding during the year |
|
|
73,420 |
|
|
67,800 |
|
|
60,456 |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
Class A Subordinate Voting Shares issuable on conversion of Convertible Series Preferred Shares |
|
|
24,988 |
|
|
30,047 |
|
|
30,047 |
|
Class A Subordinate Voting Shares issuable on conversion of Convertible Debentures |
|
|
5,757 |
|
|
|
|
|
|
|
Stock options determined using the treasury stock method |
|
|
118 |
|
|
460 |
|
|
81 |
|
|
|
|
|
|
|
|
|
|
104,283 |
|
|
98,307 |
|
|
90,584 |
|
|
|
|
|
|
|
Diluted earnings per Class A Subordinate Voting and Class B Share |
|
$ |
0.77 |
|
$ |
1.03 |
|
$ |
0.81 |
|
|
|
|
|
|
|
Diluted earnings per Class A Subordinate Voting and Class B Share for the year ended December 31, 2003 exclude 1.9 million
[2002 0.4 million; 2001 1.1 million] Class A Subordinate Voting Shares
issuable under the Company's Option Plan as such options were not in the money during the year.
Annual Report 2003 59
23. DETAILS OF CASH FROM OPERATING ACTIVITIES
- [a]
- Items not involving current cash flows are as follows:
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Depreciation and amortization |
|
$ |
89,894 |
|
$ |
78,284 |
|
$ |
81,360 |
|
Other asset amortization included in cost of goods sold |
|
|
3,904 |
|
|
1,509 |
|
|
461 |
|
Future income taxes |
|
|
(7,265 |
) |
|
1,175 |
|
|
2,578 |
|
Equity income |
|
|
(1,844 |
) |
|
(521 |
) |
|
(15 |
) |
Minority interest |
|
|
|
|
|
|
|
|
843 |
|
Amortization of discount on Convertible Series Preferred Shares |
|
|
8,631 |
|
|
8,351 |
|
|
9,276 |
|
United Kingdom impairment charge |
|
|
12,355 |
|
|
|
|
|
|
|
Continental Europe paint capacity consolidation charges |
|
|
4,772 |
|
|
|
|
|
|
|
Deferred preproduction expenditures write-off [see note 4] |
|
|
|
|
|
8,301 |
|
|
|
|
Gain on sale of operating division [see note 20] |
|
|
|
|
|
(3,874 |
) |
|
|
|
Currency translation adjustment [see note 20] |
|
|
(1,387 |
) |
|
(495 |
) |
|
(2,780 |
) |
Other |
|
|
2,535 |
|
|
2,827 |
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
$ |
111,595 |
|
$ |
95,557 |
|
$ |
92,034 |
|
|
|
|
|
|
|
|
|
- [b]
- Changes in non-cash working capital are as follows:
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Accounts receivable |
|
$ |
(37,147 |
) |
$ |
(21,626 |
) |
$ |
(12,284 |
) |
Inventories |
|
|
(18,370 |
) |
|
36,580 |
|
|
(52,286 |
) |
Prepaid expenses and other |
|
|
122 |
|
|
1,547 |
|
|
7,885 |
|
Accounts payable and accrued liabilities |
|
|
20,324 |
|
|
26,829 |
|
|
39,461 |
|
Income taxes payable or receivable |
|
|
(16,550 |
) |
|
6,681 |
|
|
16,304 |
|
|
|
|
|
|
|
|
|
|
|
$ |
(51,621 |
) |
$ |
50,011 |
|
$ |
(920 |
) |
|
|
|
|
|
|
|
|
24. TRANSACTIONS WITH RELATED PARTIES
Amounts
included in the consolidated statements of income with respect to transactions with Magna and its affiliates include:
|
|
Years ended December 31,
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
Affiliation and social fees |
|
$ |
24,541 |
|
$ |
25,311 |
|
$ |
27,110 |
Management and administrative services included in selling, general and administrative expenses |
|
|
4,236 |
|
|
3,568 |
|
|
3,481 |
Rent |
|
|
11,811 |
|
|
8,929 |
|
|
6,695 |
Interest |
|
|
11,325 |
|
|
10,109 |
|
|
13,900 |
Amortization of discount on Convertible Series Preferred Shares |
|
|
8,631 |
|
|
8,351 |
|
|
9,276 |
Financing charges on Convertible Series Preferred Shares |
|
|
4,514 |
|
|
4,792 |
|
|
3,483 |
|
|
|
|
|
|
|
|
|
$ |
65,058 |
|
$ |
61,060 |
|
$ |
63,945 |
|
|
|
|
|
|
|
Sales of materials to Magna and Magna subsidiaries |
|
$ |
32,894 |
|
$ |
13,086 |
|
$ |
19,892 |
|
|
|
|
|
|
|
The
Company is party to an affiliation agreement with Magna that provides for the payment by the Company of an affiliation fee.
On
June 25, 2002, the Company entered into an agreement with Magna to amend the terms of its existing affiliation agreement. The amended agreement, which became effective August 1, 2002,
provides for a term of nine years and five months, expiring on December 31, 2011, and thereafter is renewable on a year to year basis at the parties' option.
The
affiliation agreement provides the Company with, amongst other things, certain trademark rights, access to Magna's management and to its operating principles and policies, internal audit services,
Tier 1 development assistance, global expansion assistance, vehicle system integration and modular product strategy assistance and sharing of best practices in areas such as new management techniques,
employee benefits and programs, marketing and technology development initiatives.
60 Decoma International Inc.
Affiliation
fees payable under the amended agreement were reduced to 1% of Decoma's consolidated net sales [as defined in the agreement] from the 1.5% that previously applied.
In addition, the amended agreement provides for a fee holiday on 100% of consolidated net sales derived from future business acquisitions in the calendar year of the acquisition and 50% of
consolidated net sales derived from future business acquisitions in the first calendar year following the year of acquisition. The amended agreement also provided Decoma with a credit of 0.25% of
Decoma's consolidated net sales for the period from January 1, 2002 to July 31, 2002 and a credit equal to 1.5% of 2001 consolidated net sales derived from the 2001 acquisition of
Autosystems and 50% of 1.25% of January 1, 2002 to July 31, 2002 consolidated net sales derived from Autosystems.
Decoma's
corporate constitution specifies that the Company will allocate a maximum of 2% of its profit before tax to support social and charitable activities. The Company pays 1.5% of its consolidated
pretax profits to Magna which in turn allocates such amount to social and other charitable programs on behalf of Magna and its affiliated companies, including Decoma.
In
addition to affiliation and social fees payable to Magna, the Company pays Magna a negotiated amount for certain management and administrative services including specialized legal, environmental,
immigration, tax, treasury, information systems [including wide area network infrastructure and support services] and employee relations services [including
administration of the Decoma EEPPP] and an allocated share of the facility and overhead costs dedicated to providing these services.
Prior
to January 1, 2002 certain of the Company's European employees participated in the Magna employee equity and profit participation program [the "Magna EEPPP"].
Costs associated with the Magna EEPPP that have been expensed in these consolidated financial statements were nil for the years ended December 31, 2003 and 2002
[2001 $1.1 million].
Various
land and buildings used in operations are leased from Magna affiliates under operating lease agreements. The operating lease agreements with Magna affiliates are effected on normal commercial
terms [see note 10]. Prior to August 29, 2003, these Magna affiliates [collectively "MID"] were subsidiaries of Magna. On
August 29, 2003, pursuant to a planned reorganization of Magna, the shares of MID were distributed to the shareholders of Magna. As a result of the distribution, MID became directly controlled
by the controlling shareholder of Magna which shareholder indirectly controls Decoma. As a result, MID continues to be a related party of Decoma. Related party rent expense was $7.4 million for
the period from January 1, 2003 to August 29, 2003 and $ 4.4 million for the period from August 30, 2003 to December 31, 2003.
Sales
to MAS during the year ended December 31, 2003 were $40.3 million [2002 $48.5 million;
2001 $54.2 million] and accounts receivable from MAS as at December 31, 2003 were $6.3 million
[2002 $5.0 million].
Included
in accounts receivable are trade amounts due from Magna and its affiliates in the amount of $4.5 million at 2003
[2002 $1.4 million].
Included
in accounts payable are trade amounts due to Magna and its affiliates in the amount of $21.1 million at December 31, 2003
[2002 $24.9 million].
25. SEGMENTED INFORMATION
The
Company operates in one industry segment, the automotive exteriors business. As at December 31, 2003, the Company had 27 manufacturing facilities in North America and 14 in
Europe. In addition, the Company had 8 product development and engineering centers.
The
Company's European divisions operate separately from the Company's North American divisions as a result of differences in customer mix and business environment. The Company's internal financial
reports, which are reviewed by executive management including the Company's President and Chief Executive Officer, segment divisional results between North America and Europe. This segmentation
recognizes the different geographic business risks faced by the Company's North American and European divisions, including vehicle production volumes in North America and Europe, foreign currency
exposure, differences in OEM customer mix, the level of customer outsourcing and the nature of products and systems outsourced.
The
accounting policies of each segment are the same as those set out under "Significant Accounting Policies" preceding these consolidated financial statements and intersegment sales and transfers are
accounted for at fair market value.
Annual Report 2003 61
- [a]
- The following tables show certain information with respect to segment disclosures:
|
|
Year ended December 31, 2003
|
|
[U.S. dollars in thousands]
|
|
North America
|
|
Europe
|
|
Corporate
|
|
Total
|
|
|
Total sales |
|
$ |
1,616,812 |
|
$ |
744,497 |
|
$ |
|
|
$ |
2,361,309 |
|
|
Intersegment sales |
|
|
(2,885 |
) |
|
(2,594 |
) |
|
|
|
|
(5,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
1,613,927 |
|
$ |
741,903 |
|
$ |
|
|
$ |
2,355,830 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
62,407 |
|
$ |
27,487 |
|
$ |
|
|
$ |
89,894 |
|
|
|
|
|
|
|
|
|
|
|
|
Other charges [notes 2 and 3] |
|
$ |
|
|
$ |
23,785 |
|
$ |
|
|
$ |
23,785 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
213,804 |
|
$ |
(46,109 |
) |
$ |
(16,505 |
) |
$ |
151,190 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity income |
|
$ |
(1,844 |
) |
$ |
|
|
$ |
|
|
$ |
(1,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
$ |
32,825 |
|
$ |
17,184 |
|
$ |
(39,316 |
) |
$ |
10,693 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on Convertible Series Preferred Shares, held by Magna |
|
$ |
|
|
$ |
|
|
$ |
8,631 |
|
$ |
8,631 |
|
|
|
|
|
|
|
|
|
|
|
|
Other income [note 20] |
|
$ |
|
|
$ |
|
|
$ |
(1,387 |
) |
$ |
(1,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
449,571 |
|
$ |
230,926 |
|
$ |
|
|
$ |
680,497 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
$ |
108,884 |
|
$ |
69,022 |
|
$ |
|
|
$ |
177,906 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
50,174 |
|
$ |
20,932 |
|
$ |
|
|
$ |
71,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2002
|
|
[U.S. dollars in thousands]
|
|
North America
|
|
Europe
|
|
Corporate
|
|
Total
|
|
|
Total sales |
|
$ |
1,486,975 |
|
$ |
572,613 |
|
$ |
|
|
$ |
2,059,588 |
|
|
Intersegment sales |
|
|
(1,588 |
) |
|
(1,327 |
) |
|
|
|
|
(2,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
1,485,387 |
|
$ |
571,286 |
|
$ |
|
|
$ |
2,056,673 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
55,454 |
|
$ |
22,830 |
|
$ |
|
|
$ |
78,284 |
|
|
|
|
|
|
|
|
|
|
|
|
Other charges [note 4] |
|
$ |
|
|
$ |
8,301 |
|
$ |
|
|
$ |
8,301 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
204,431 |
|
$ |
(22,595 |
) |
$ |
(8,143 |
) |
$ |
173,693 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity income |
|
$ |
(521 |
) |
$ |
|
|
$ |
|
|
$ |
(521 |
) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
$ |
27,196 |
|
$ |
19,826 |
|
$ |
(35,038 |
) |
$ |
11,984 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on Convertible Series Preferred Shares, held by Magna |
|
$ |
|
|
$ |
|
|
$ |
8,351 |
|
$ |
8,351 |
|
|
|
|
|
|
|
|
|
|
|
|
Other income [note 20] |
|
$ |
(3,874 |
) |
$ |
|
|
$ |
(495 |
) |
$ |
(4,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
358,675 |
|
$ |
166,788 |
|
$ |
|
|
$ |
525,463 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
$ |
54,505 |
|
$ |
45,435 |
|
$ |
|
|
$ |
99,940 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
44,728 |
|
$ |
17,280 |
|
$ |
|
|
$ |
62,008 |
|
|
|
|
|
|
|
|
|
|
|
62 Decoma International Inc. 2003
|
|
Year ended December 31, 2001
|
|
[U.S. dollars in thousands]
|
|
North America
|
|
Europe
|
|
Corporate
|
|
Total
|
|
Total sales |
|
$ |
1,286,108 |
|
$ |
534,578 |
|
$ |
|
|
$ |
1,820,686 |
|
Intersegment sales |
|
|
(4,501 |
) |
|
(316 |
) |
|
|
|
|
(4,817 |
) |
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
|
$ |
1,281,607 |
|
$ |
534,262 |
|
$ |
|
|
$ |
1,815,869 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
57,278 |
|
$ |
24,082 |
|
$ |
|
|
$ |
81,360 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
146,556 |
|
$ |
2,404 |
|
$ |
(7,643 |
) |
$ |
141,317 |
|
|
|
|
|
|
|
|
|
|
|
Equity income |
|
$ |
(15 |
) |
$ |
|
|
$ |
|
|
$ |
(15 |
) |
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
$ |
23,652 |
|
$ |
18,825 |
|
$ |
(23,382 |
) |
$ |
19,095 |
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on Convertible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series Preferred Shares, held by Magna |
|
$ |
|
|
$ |
|
|
$ |
9,276 |
|
$ |
9,276 |
|
|
|
|
|
|
|
|
|
|
|
Other income [note 20] |
|
$ |
|
|
$ |
|
|
$ |
(2,780 |
) |
$ |
(2,780 |
) |
|
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
356,989 |
|
$ |
134,785 |
|
$ |
|
|
$ |
491,774 |
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
$ |
44,670 |
|
$ |
23,802 |
|
$ |
|
|
$ |
68,472 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
44,298 |
|
$ |
27,218 |
|
$ |
|
|
$ |
71,516 |
|
|
|
|
|
|
|
|
|
|
|
- [b]
- For the year ended December 31, 2003, sales to the Company's three largest customers amounted to 30%,
25% and 22% [2002 31%, 26% and 24%; 2001 32%, 22% and 26%] of total sales, respectively.
- [c]
- The following tables show certain information with respect to geographic segmentation:
|
|
Year ended December 31, 2003
|
[U.S. dollars in thousands]
|
|
Canada
|
|
Europe
|
|
United States, Mexico, Other
|
|
Total
|
Sales |
|
$ |
1,020,866 |
|
$ |
744,497 |
|
$ |
590,467 |
|
$ |
2,355,830 |
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
216,934 |
|
$ |
230,926 |
|
$ |
232,637 |
|
$ |
680,497 |
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
30,552 |
|
$ |
20,932 |
|
$ |
19,622 |
|
$ |
71,106 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2002
|
[U.S. dollars in thousands]
|
|
Canada
|
|
Europe
|
|
United States, Mexico, Other
|
|
Total
|
Sales |
|
$ |
903,646 |
|
$ |
572,613 |
|
$ |
580,414 |
|
$ |
2,056,673 |
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
174,103 |
|
$ |
166,788 |
|
$ |
184,572 |
|
$ |
525,463 |
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
25,129 |
|
$ |
17,280 |
|
$ |
19,599 |
|
$ |
62,008 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2001
|
[U.S. dollars in thousands]
|
|
Canada
|
|
Europe
|
|
United States, Mexico, Other
|
|
Total
|
Sales |
|
$ |
801,872 |
|
$ |
534,578 |
|
$ |
479,419 |
|
$ |
1,815,869 |
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
171,114 |
|
$ |
134,785 |
|
$ |
185,875 |
|
$ |
491,774 |
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
24,701 |
|
$ |
27,218 |
|
$ |
19,597 |
|
$ |
71,516 |
|
|
|
|
|
|
|
|
|
26. UNITED STATES GAAP
The
Company's consolidated financial statements are prepared using Canadian GAAP which conforms with United States GAAP except for the following:
- [a]
- Convertible Debentures
Under United States GAAP, the Convertible Debentures would not have been accounted for as equity as required under Canadian GAAP. Under United States GAAP, the
Convertible Debentures would be presented as a liability and the required interest payments would be presented as interest expense in the consolidated statements of income and translation adjustments
on the Canadian dollar denominated liability would impact other comprehensive income.
Annual Report 2003 63
- [b]
- Convertible Series Preferred Shares
Under United States GAAP, the Company would not have accounted for the Convertible Series Preferred Shares as part equity and part debt as required under Canadian GAAP.
Under United States GAAP, the Convertible Series Preferred Shares would be shown at their face value outside of shareholders' equity and the non-cumulative dividend would be
deducted from net income attributable to Class A Subordinate Voting and Class B Shares.
- [c]
- Subordinated Debentures
Under United States GAAP, the Company would not have accounted for the Subordinated Debentures as part equity and part debt as required under Canadian GAAP. Under
United States GAAP, the entire face amount of the Subordinated Debentures would be treated as a liability, the required interest payments would be recorded as interest expense and foreign
exchange gains and losses on the liability would impact net income.
- [d]
- Goodwill and Deferred Preproduction Expenditures
Under United States GAAP, the Company would have expensed all preproduction costs as incurred. Accordingly, in addition to the deduction of Canadian GAAP deferred
preproduction additions and the addback of Canadian GAAP deferred preproduction amortization, the Merplas deferred preproduction expenditures write-off [see
note 4] is also added back to arrive at United States GAAP earnings as these expenditures were expensed for United States GAAP in prior years.
The
elimination of deferred preproduction costs also results in higher goodwill for United States GAAP purposes related to the Company's October 2000 acquisition of the remaining
interest in the Conix Group. The portion of this higher goodwill amount that is related to Merplas, which was part of the Conix Group, has been written off for United States GAAP as part of the
Company's initial adoption of the goodwill impairment rules in 2002 [see note 4]. Under United States GAAP, the 2002 goodwill write-off as a result of
the Company's
initial adoption of the goodwill impairment rules is reported as a cumulative catch-up adjustment for a change in accounting policy.
- [e]
- Derivative Instruments
The Company uses foreign exchange forward contracts to manage foreign exchange risk from its underlying customer contracts. In particular, the Company uses foreign exchange
forward contracts for the sole purpose of hedging certain of its future committed U.S. dollar and Euro outflows. Under Canadian GAAP, gains and losses on these contracts are accounted for as a
component of the related hedged transaction.
Under
United States GAAP, the Company follows Statement of Financial Accounting Standards No. 133 ["Statement 133"], "Accounting for Derivative Instruments and
Hedging Activities", as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging
activities. Statement 133 requires a company to recognize all of its derivative instruments, whether designated in hedging relationships or not, on the balance sheet at fair value. The accounting for
changes in the fair value [i.e., gains or losses] of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship.
Statement 133 establishes certain criteria to be met in order to designate a derivative instrument as a hedge and to deem a hedge as effective.
Effective
January 1, 2002, the Company implemented a new treasury management system that complies with the documentation requirements for hedge accounting under Statement 133. As a result, for
the year ended December 31, 2001 the Company's derivative portfolio was not eligible for hedge accounting despite the fact that management considered its portfolio to be an effective foreign
currency risk management tool and an economic hedge of its future committed U.S. dollar and Euro outflows.
The
Company has recorded a loss of $0.1 million in the year ended December 31, 2003 related to the Company's derivative portfolio for purposes of reconciling to United States GAAP
[2002 $0.2 million loss; 2001 $0.4 million loss].
The
Company has reviewed its other commercial contracts outstanding as at December 31, 2003, 2002 and 2001 in relation to Statement 133 and has concluded that there are no embedded derivatives
as defined in the Statement.
- [f]
- Minimum Pension Liability
Under United States GAAP, in certain periods the Company would have reported an additional minimum liability for employee future benefits since the accumulated benefit
obligation for certain pension plans exceeds the projected benefit obligation. The offsetting effect of the additional minimum liability is reported as an adjustment to other comprehensive income.
64 Decoma International Inc. 2003
- [g]
- Reduction in Stated Capital
During 2001, the Company's shareholders approved a special resolution authorizing a reduction in the stated capital of Decoma's Class A Subordinate Voting and
Class B Shares which reduction eliminated a deficit. Under United States GAAP, the reduction in stated capital of the Class A Subordinate Voting and Class B Shares to
absorb the Company's deficit would not impact the accounting value of Class A Subordinate Voting and Class B Shares and retained earnings.
- [h]
- Revenue Recognition
In December 1999, the United States Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ["SAB 101"].
In
the normal course of business, the Company enters into arrangements with its customers to design, engineer, build or subcontract the building of tools, dies, moulds and production equipment and
processes [collectively "tooling"]. Under separately priced tooling contracts, such tooling is sold to the customer upon completion but is retained by the Company and used in
subsequent related parts production. With the introduction of SAB 101, under United States GAAP, the in-house manufacture of tooling and the subsequent related parts
production are regarded as a single arrangement. Previously, the Company recognized revenue from such tooling arrangements separately on completion of the tooling build. Effective August 1,
2000, for purposes of United States GAAP, the Company recognizes sales and related cost of sales for these tooling activities over the estimated life of the subsequent parts production
arrangement. There was no impact to retained earnings as a result of the cumulative effect of adopting this new United States GAAP policy effective August 1, 2000.
For
the year ended December 31, 2003, revenues and expenses under United States GAAP are lower by $6.5 million
[2002 $6.5 million; 2001 $5.0 million] and $4.2 million
[2002 $5.1 million; 2001 $4.2 million], respectively, and net income attributable
to Class A Subordinate Voting and Class B Shares was lower by $1.5 million [2002 $0.9 million;
2001 $0.5 million].
During
the year ended December 31, 2003, the Company recognized $1.8 million in sales [2002 $4.0 million;
2001 $5.6 million] and $1.7 million of cost of goods sold
[2002 $3.7 million; 2001 $5.1 million] that was included in the cumulative effect
adjustment as of August 1, 2000.
- [i]
- Reporting Currency
Effective January 1, 2001, the Company adopted the U.S. dollar as its reporting currency. Prior to this change the Canadian dollar had been used as the Company's
reporting currency. Under Canadian GAAP, the Company's financial statements for all periods presented through December 31, 2000 were translated from Canadian dollars to U.S. dollars
using the exchange rate in effect on January 1, 2001. Under United States GAAP, the financial statements for the periods prior to the change in reporting currency must be translated to
U.S. dollars using the current rate method, which method uses specific year end or specific annual average exchange rates as appropriate. As a result, although total shareholders' equity is not
impacted, the reported amounts for Class A Subordinate Voting and Class B Shares, retained earnings and accumulated other comprehensive income differ under United States GAAP.
- [j]
- Cumulative Translation Adjustment
As described in note 20, under Canadian GAAP, during 2003, 2002 and 2001 the Company recognized portions of its cumulative translation adjustment in income on the
repatriation of certain amounts from its foreign operations. Under United States GAAP, the partial repatriation of a foreign investment does not result in the recognition in income of a portion
of the cumulative translation adjustment. Under United States GAAP, the recognition in income of the cumulative translation adjustment occurs only upon the complete, or substantially complete,
liquidation of a foreign investment.
- [k]
- Electricity Swap Contracts
As described in note 18 [e], the Company uses electricity swap contracts to manage the cash flow risk from its electricity purchase requirements
in Ontario, Canada. Under both Canadian and United States GAAP, these swap contracts are accounted for using hedge accounting and the net swap settlements are recognized in the same period as,
and as part of, the hedge transaction. For United States GAAP purposes, the Company also reflects the estimated fair value of the swap contracts on the balance sheet with an offsetting
adjustment to other comprehensive income.
- [l]
- Asset Retirement Obligation
Under United States GAAP, Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ["Statement
143"], was adopted by the Company January 1, 2003. The standard requires the Company to estimate and accrue for the present value of its obligations to restore leased premises at
the end of the lease. At lease inception, the present value of this obligation is recognized as other long-term liabilities with a corresponding amount recognized in fixed assets. The
fixed asset amount is amortized, and the liability amount is accreted, over the period from lease inception to the time the Company expects to vacate the premises resulting in both depreciation and
interest charges in the consolidated statements of income. The adoption of Statement 143 resulted in the cumulative effect of an accounting change of $0.7 million being charged against income,
the recognition of a liability of $2.6 million, the recognition of a fixed asset of $1.7 million and the recognition of a future tax asset of $0.2 million all at January 1,
2003.
Annual Report 2003 65
- [m]
- Consolidated Statements of Income
The following table presents net income under United States GAAP:
|
|
Years ended December 31,
|
|
[U.S. dollars, in thousands, except per share figures]
|
|
2003
|
|
2002
|
|
2001
|
|
Net income under Canadian GAAP |
|
$ |
71,902 |
|
$ |
93,025 |
|
$ |
68,676 |
|
Adjustments [net of related tax effects] for: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on Convertible Series Preferred Shares |
|
|
8,631 |
|
|
8,351 |
|
|
9,276 |
|
|
Interest on Convertible Debentures |
|
|
(2,555 |
) |
|
|
|
|
|
|
|
Deferred preproduction expenditures |
|
|
1,361 |
|
|
10,221 |
|
|
1,868 |
|
|
Derivative instruments |
|
|
(91 |
) |
|
(232 |
) |
|
(392 |
) |
|
Amortization of tooling income |
|
|
(1,550 |
) |
|
(933 |
) |
|
(526 |
) |
|
Impact of asset retirement obligations |
|
|
(304 |
) |
|
|
|
|
|
|
|
Cumulative translation adjustment |
|
|
(1,387 |
) |
|
(495 |
) |
|
(2,780 |
) |
|
Amortization of goodwill |
|
|
|
|
|
|
|
|
(181 |
) |
|
Additional interest on Subordinated Debentures |
|
|
|
|
|
|
|
|
(2,991 |
) |
|
Foreign exchange loss on Subordinated Debentures |
|
|
|
|
|
|
|
|
(2,181 |
) |
|
|
|
|
|
|
|
|
Net income under United States GAAP before cumulative catch-up adjustments |
|
|
76,007 |
|
|
109,937 |
|
|
70,769 |
|
Cumulative catch-up adjustment for change in accounting policy for asset retirement obligations |
|
|
(720 |
) |
|
|
|
|
|
|
Cumulative catch-up adjustment for change in accounting policy for goodwill |
|
|
|
|
|
(15,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income under United States GAAP |
|
|
75,287 |
|
|
94,273 |
|
|
70,769 |
|
Dividends on Convertible Series Preferred Shares |
|
|
(12,177 |
) |
|
(12,098 |
) |
|
(9,836 |
) |
|
|
|
|
|
|
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares under United States GAAP |
|
$ |
63,110 |
|
$ |
82,175 |
|
$ |
60,933 |
|
|
|
|
|
|
|
|
|
Earnings per Class A Subordinate Voting or Class B Share under United States GAAP |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative catch-up adjustment |
|
$ |
0.87 |
|
$ |
1.44 |
|
$ |
1.01 |
|
|
|
After cumulative catch-up adjustment |
|
$ |
0.86 |
|
$ |
1.21 |
|
$ |
1.01 |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative catch-up adjustment |
|
$ |
0.75 |
|
$ |
1.12 |
|
$ |
0.78 |
|
|
|
After cumulative catch-up adjustment |
|
$ |
0.75 |
|
$ |
0.96 |
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
- [n]
- Comprehensive Income
The following table presents comprehensive income under United States GAAP:
|
|
Years ended December 31,
|
|
[U.S. dollars in thousands]
|
|
2003
|
|
2002
|
|
2001
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares under United States GAAP |
|
$ |
63,110 |
|
$ |
82,175 |
|
$ |
60,933 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange gains on translation of self-sustaining foreign operations |
|
|
24,424 |
|
|
6,568 |
|
|
5,148 |
|
|
Minimum pension liability |
|
|
|
|
|
214 |
|
|
(214 |
) |
|
Electricity swap contracts |
|
|
(357 |
) |
|
734 |
|
|
|
|
|
Derivative instruments |
|
|
(369 |
) |
|
689 |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
Comprehensive income attributable to Class A Subordinate Voting and Class B Shares under United States GAAP |
|
$ |
86,808 |
|
$ |
90,380 |
|
$ |
65,848 |
|
|
|
|
|
|
|
|
|
66 Decoma International Inc.
- [o]
- Consolidated Balance Sheets
The following tables present significant items in the consolidated balance sheets that would have been affected had the consolidated financial statements been prepared under
United States GAAP:
|
|
As at December 31, 2003
|
|
|
|
|
|
Note 26 reference
|
|
|
|
[U.S. dollars in thousands]
|
|
Canadian GAAP
|
|
(a) (b)
|
|
(d)
|
|
(e), (h), (j), (k)
|
|
(g), (i)
|
|
(l)
|
|
United States GAAP
|
|
Investments |
|
$ |
20,781 |
|
|
|
|
|
|
|
|
|
(8 |
) |
$ |
20,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net |
|
$ |
680,497 |
|
|
|
(254 |
) |
|
|
|
|
1,796 |
|
$ |
682,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
71,106 |
|
|
|
(1,085 |
) |
|
|
|
|
|
|
$ |
70,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
18,390 |
|
2,328 |
|
(372 |
) |
|
|
|
|
|
|
$ |
20,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
(226,114 |
) |
|
|
|
|
(5,543 |
) |
|
|
|
|
$ |
(231,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future tax liabilities, net |
|
$ |
(39,658 |
) |
|
|
238 |
|
2,273 |
|
|
|
307 |
|
$ |
(36,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debentures |
|
$ |
|
|
(77,519 |
) |
|
|
|
|
|
|
|
|
$ |
(77,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series Preferred Shares Current |
|
$ |
(150,572 |
) |
(4,467 |
) |
|
|
|
|
|
|
|
|
$ |
(155,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
$ |
(7,462 |
) |
|
|
|
|
|
|
|
|
(3,247 |
) |
$ |
(10,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debentures |
|
$ |
(66,127 |
) |
66,127 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Convertible Series Preferred Shares |
|
|
(8,826 |
) |
8,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Subordinate Voting Shares |
|
|
(287,137 |
) |
2,457 |
|
|
|
|
|
(16,577 |
) |
|
|
|
(301,257 |
) |
|
Class B Shares |
|
|
(30,594 |
) |
|
|
|
|
|
|
(36,145 |
) |
|
|
|
(66,739 |
) |
|
Contributed surplus |
|
|
(267 |
) |
|
|
|
|
|
|
|
|
|
|
|
(267 |
) |
|
Retained earnings |
|
|
(156,984 |
) |
(7,641 |
) |
1,612 |
|
8,031 |
|
27,607 |
|
1,024 |
|
|
(126,351 |
) |
|
Accumulated other comprehensive income |
|
|
(63,702 |
) |
9,890 |
|
(140 |
) |
(4,761 |
) |
25,115 |
|
128 |
|
|
(33,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(613,637 |
) |
79,659 |
|
1,472 |
|
3,270 |
|
|
|
1,152 |
|
$ |
(528,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report 2003 67
|
|
As at December 31, 2002
|
|
|
|
|
|
Note 26 reference
|
|
|
|
[U.S. dollars in thousands]
|
|
Canadian GAAP
|
|
(b)
|
|
(d)
|
|
(e), (h), (j), (k)
|
|
(g), (i)
|
|
United States GAAP
|
|
Fixed assets, net |
|
$ |
525,463 |
|
|
|
(651 |
) |
|
|
|
|
$ |
524,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net |
|
$ |
62,008 |
|
|
|
(1,085 |
) |
|
|
|
|
$ |
60,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
16,745 |
|
|
|
(2,171 |
) |
|
|
|
|
$ |
14,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
(187,656 |
) |
|
|
|
|
(1,379 |
) |
|
|
$ |
(189,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future tax liabilities, net |
|
$ |
(42,099 |
) |
|
|
1,074 |
|
476 |
|
|
|
$ |
(40,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series Preferred Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
(95,639 |
) |
|
|
|
|
|
|
|
|
$ |
(95,639 |
) |
|
Long-term |
|
$ |
(116,140 |
) |
(11,378 |
) |
|
|
|
|
|
|
$ |
(127,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
$ |
(4,837 |
) |
|
|
|
|
|
|
|
|
$ |
(4,837 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series Preferred Shares |
|
$ |
(18,765 |
) |
18,765 |
|
|
|
|
|
|
|
$ |
|
|
|
Class A Subordinate Voting Shares |
|
|
(172,488 |
) |
|
|
|
|
|
|
(16,577 |
) |
|
(189,065 |
) |
|
Class B Shares |
|
|
(30,594 |
) |
|
|
|
|
|
|
(36,145 |
) |
|
(66,739 |
) |
|
Retained earnings |
|
|
(111,450 |
) |
(6,191 |
) |
2,973 |
|
5,003 |
|
27,607 |
|
|
(82,058 |
) |
|
Accumulated other comprehensive income |
|
|
(29,451 |
) |
(1,196 |
) |
(140 |
) |
(4,100 |
) |
25,115 |
|
|
(9,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(362,748 |
) |
11,378 |
|
2,833 |
|
903 |
|
|
|
$ |
(347,634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- [p]
- Stock-based Compensation
The Company's Canadian GAAP approach to stock-based compensation is consistent with United States GAAP. However, given that net income attributable to Class A
Subordinate Voting and Class B Shares before pro forma adjustments for the fair value of stock options granted prior to January 1, 2003 differs between United States and
Canadian GAAP, pro forma net income attributable to Class A Subordinate Voting and Class B Shares differs between United States and Canadian GAAP.
For
purposes of pro forma disclosures, the Company's net income attributable to Class A Subordinate Voting and Class B Shares, based on the fair value of all stock options at the
grant date, would have been:
|
|
Years ended December 31,
|
|
[U.S. dollars, in thousands except per share figures]
|
|
2003
|
|
2002
|
|
2001
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares under United States GAAP |
|
$ |
63,110 |
|
$ |
82,175 |
|
$ |
60,933 |
|
Pro forma adjustments for the fair value of stock options granted prior to January 1, 2003 [see note 15] |
|
|
(947 |
) |
|
(1,019 |
) |
|
(1,199 |
) |
|
|
|
|
|
|
|
|
Pro forma net income attributable to Class A Subordinate Voting and Class B Shares under United States GAAP |
|
$ |
62,163 |
|
$ |
81,156 |
|
$ |
59,734 |
|
|
|
|
|
|
|
|
|
Pro forma earnings per Class A Subordinate Voting or Class B Share under United States GAAP |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.85 |
|
$ |
1.20 |
|
$ |
0.99 |
|
|
Diluted |
|
$ |
0.74 |
|
$ |
0.95 |
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
68 Decoma International Inc.
- [q]
- Variable Interest Entities
One of the Company's German subsidiaries has entered into an operating lease for a facility constructed at a cost of approximately $12 million. Such facility is owned by
a partnership that has been substantially debt financed to fund the construction. The partnership is owned directly and indirectly by a leasing company. The partnership has entered into a lease
agreement with the leasing company which in turn has entered into a sublease with the Company's German subsidiary. Such sublease is for an initial term of 19 years with a 5 year renewal
option. Although the Company's German subsidiary has options to acquire either the facility under lease or the partnership, the Company's obligations under this arrangement are limited to those in its
operating lease agreement.
- [r]
- New Accounting Pronouncements
Under Staff Accounting Bulletin No. 74, the Company is required to disclose certain information relating to new accounting standards which have not yet been adopted due
to delayed effective dates.
Canadian GAAP standards:
In
2003, the CICA amended Handbook section 3860, "Financial Instruments Disclosure and Presentation", to require certain obligations that may be settled
with an entity's own equity instruments to be reflected as a liability. The amendments must be adopted in the Company's 2005 consolidated financial statements with retroactive application. Upon
adoption, the Convertible Debentures currently presented entirely within equity on the consolidated balance sheet will have to be presented in part as a liability and in part as equity and the related
liability carrying costs will be presented as a charge against net income.
In
2003, the CICA issued Emerging Issues Committee Abstract No. 142, "Revenue Arrangements with Multiple Deliverables" ["EIC-142"], which provides guidance
on accounting by a vendor for arrangements involving multiple deliverables. It specifically 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. The guidance in EIC-142 is applicable
for revenue arrangements with multiple deliverables entered into by the Company on or after January 1, 2004. Although the Company is currently reviewing EIC-142, the impact of this
Abstract, if any, on the Company's consolidated financial statements has not been determined.
In
2003, the CICA issued 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. This new section is effective for the Company's 2004 fiscal year and harmonizes Canadian requirements with existing United States
GAAP. The adoption of this section on January 1, 2004 is expected to result in the cumulative effect of an accounting change of $1.0 million being recognized as a charge to opening
retained earnings, the recognition of a long-term liability of $3.2 million, the recognition of a fixed asset of $1.8 million, the recognition of a future tax asset of
$0.3 million and currency translation adjustment debits of $0.1 million.
In
2003, the CICA issued Accounting Guideline AcG-15, "Consolidation of Variable Interest Entities", to provide guidance for applying the principles in Handbook section 1590,
"Subsidiaries", to certain entities. Although the CICA is contemplating amendments to the Guideline, it is expected to be effective for the Company's 2005 fiscal year. Although the Company is
currently reviewing AcG-15, the impact of the Guideline, if any, on the Company's consolidated financial statements has not been determined.
In
2003, the CICA finalized amendments to Accounting Guideline AcG-13, "Hedging Relationships", that clarified certain of the requirements in AcG-13 and provided additional
application guidance. AcG-13 is applicable for the Company's 2004 fiscal year. The Company does not expect the adoption of this Guideline to have a material impact on its consolidated
financial statements.
United States GAAP Standards:
In
2003, the Financial Accounting Standards Board ["FASB"] finalized Emerging Issues Task Force Abstract No. 00-21, "Revenue Arrangements with Multiple
Deliverables" ["EITF 00-21"]. The guidance in this Abstract is consistent with the guidance in EIC-142, which was recently issued by the CICA.
The guidance in EITF 00-21 is applicable for revenue arrangements with multiple deliverables that the Company enters into on or after January 1, 2004.
In
2003, the FASB amended Interpretation No. 46, "Consolidation of Variable Interest Entities" ["FIN 46R"]. FIN 46R requires that a variable interest
entity ["VIE"] be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE's activities and/or is entitled to receive a majority of
the VIE's residual returns. For the Company, the requirements of FIN 46R apply in 2003 for all VIEs created after January 31, 2003. For VIEs created before January 31, 2003, the
requirements of FIN 46R apply as of December 31, 2004 for a VIE that does not meet the definition of a special-purpose entity ["SPE"] and as of January 1,
2004 for a VIE that is an SPE.
Although
the Company is currently reviewing EITF 00-21 and FIN 46R (with respect to VIEs created before January 31, 2003), the impact, if any, of these pronouncements
on the Company's consolidated financial statements has not been determined.
Annual Report 2003 69
Historical Financial Summary
|
|
Years ended December 31,
|
|
Five month period ended December 31, 2000
|
|
Years ended July 31,
|
|
[U.S. dollars in thousands, except per share figures]
|
|
]2003
|
|
2002
|
|
2001
|
|
2000
|
|
2000
|
|
1999
|
|
1998
|
|
EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
2,355,830 |
|
$ |
2,056,673 |
|
$ |
1,815,869 |
|
$ |
1,558,536 |
|
$ |
663,340 |
|
$ |
1,479,255 |
|
$ |
1,332,584 |
|
$ |
1,064,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges |
|
|
23,785 |
|
|
8,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
151,190 |
|
|
173,693 |
|
|
141,317 |
|
|
112,326 |
|
|
42,315 |
|
|
109,353 |
|
|
73,482 |
|
|
78,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing expense (1) |
|
|
19,324 |
|
|
20,335 |
|
|
28,371 |
|
|
22,275 |
|
|
9,341 |
|
|
21,471 |
|
|
20,201 |
|
|
15,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
(1,387 |
) |
|
(4,369 |
) |
|
(2,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest |
|
|
135,097 |
|
|
158,248 |
|
|
115,741 |
|
|
90,567 |
|
|
33,174 |
|
|
88,330 |
|
|
53,226 |
|
|
60,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
71,902 |
|
|
93,025 |
|
|
68,676 |
|
|
53,090 |
|
|
20,073 |
|
|
49,593 |
|
|
30,350 |
|
|
34,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Class A Subordinate Voting and Class B Shares |
|
|
64,350 |
|
|
88,233 |
|
|
60,485 |
|
|
50,332 |
|
|
18,178 |
|
|
47,834 |
|
|
28,458 |
|
|
33,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Class A Subordinate Voting and Class B Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.88 |
|
$ |
1.30 |
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.77 |
|
$ |
1.03 |
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from operating activities before changes in non-cash working capital |
|
$ |
183,497 |
|
$ |
188,582 |
|
$ |
160,710 |
|
$ |
130,444 |
|
$ |
49,840 |
|
$ |
127,651 |
|
$ |
91,666 |
|
$ |
90,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital |
|
|
(51,621 |
) |
|
50,011 |
|
|
(920 |
) |
|
(12,580 |
) |
|
(48,282 |
) |
|
(23,553 |
) |
|
7,668 |
|
|
(26,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed and other asset and investment spending, net |
|
|
(185,508 |
) |
|
(108,070 |
) |
|
(73,231 |
) |
|
(88,566 |
) |
|
(30,780 |
) |
|
(83,743 |
) |
|
(138,594 |
) |
|
(137,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition spending |
|
|
(19,068 |
) |
|
(2,584 |
) |
|
(14,864 |
) |
|
(43,424 |
) |
|
(43,424 |
) |
|
|
|
|
|
|
|
(81,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposition of operating division, net |
|
|
|
|
|
5,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debentures interest payments |
|
|
(3,751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Convertible Series Preferred Shares |
|
|
(12,177 |
) |
|
(12,098 |
) |
|
(11,085 |
) |
|
(5,000 |
) |
|
(1,250 |
) |
|
(4,999 |
) |
|
(4,999 |
) |
|
(2,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Class A Subordinate Voting and Class B Shares |
|
|
(18,816 |
) |
|
(14,247 |
) |
|
(12,599 |
) |
|
(6,610 |
) |
|
(1,725 |
) |
|
(6,037 |
) |
|
(4,599 |
) |
|
(862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash generated from (used in) financing activities excluding dividends and Convertible Debentures interest payments |
|
|
107,936 |
|
|
(124,356 |
) |
|
(3,099 |
) |
|
47,602 |
|
|
83,735 |
|
|
(15,934 |
) |
|
30,107 |
|
|
218,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
$ |
11,486 |
|
$ |
(12,212 |
) |
$ |
44,230 |
|
$ |
21,088 |
|
$ |
7,809 |
|
$ |
(7,458 |
) |
$ |
(19,022 |
) |
$ |
62,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 Decoma International Inc.
|
|
December 31,
|
|
July 31,
|
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
2000
|
|
1999
|
FINANCIAL POSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash working capital (2) |
|
$ |
262,152 |
|
$ |
168,052 |
|
$ |
204,768 |
|
$ |
194,748 |
|
$ |
121,291 |
|
$ |
101,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
1,528,699 |
|
|
1,192,535 |
|
|
1,169,159 |
|
|
1,089,850 |
|
|
834,883 |
|
|
830,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
93,545 |
|
|
82,059 |
|
|
94,271 |
|
|
50,041 |
|
|
42,232 |
|
|
49,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
|
177,288 |
|
|
55,021 |
|
|
159,959 |
|
|
83,695 |
|
|
13,879 |
|
|
19,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (including current portion) (3) |
|
|
16,050 |
|
|
16,595 |
|
|
27,508 |
|
|
61,103 |
|
|
28,252 |
|
|
31,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt due to Magna and its affiliates (including current portion) |
|
|
141,804 |
|
|
178,630 |
|
|
164,532 |
|
|
254,968 |
|
|
26,850 |
|
|
35,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Series Preferred Shares, held by Magna (including current portion) |
|
|
150,572 |
|
|
211,779 |
|
|
199,956 |
|
|
203,101 |
|
|
95,855 |
|
|
91,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
6,872 |
|
|
6,909 |
|
|
9,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity (4) |
|
$ |
613,637 |
|
$ |
362,748 |
|
$ |
297,106 |
|
$ |
212,152 |
|
$ |
419,430 |
|
$ |
404,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1.
- Financing
expense includes interest expense and amortization of discount on Convertible Series Preferred Shares.
- 2.
- Non-cash
working capital excludes cash and cash equivalents, bank indebtedness, current portion of long-term debt, current portion of debt due to Magna and its
affiliates and current portion of the liability component of the Convertible Series Preferred Shares.
- 3.
- Long-term
debt includes debenture interest obligation.
- 4.
- Shareholders'
equity includes the Convertible Debentures and the equity portions of the Subordinated Debentures and Convertible Series Preferred Shares and Magna's net investment in
MES and DET prior to the completion of the Global Exteriors Transaction.
Annual Report 2003 71
Decoma's Board of Directors, Officers and Operations Management
BOARD OF DIRECTORS
NEIL G. DAVIS B.A., LL.B.
Partner, Davis Webb Schulze & Moon LLP
Neil G. Davis is a partner with the law firm of Davis Webb Schulze & Moon LLP where he practices in general law with emphasis on municipal, planning and environmental
work and expertise in commercial real estate and corporate law. He also serves as Chairman of the Georgian Bay Trust Foundation, a past director of Community Care Access Centre of Peel, past Governor
of Sheridan College, past Chair of leadership gifts for YMCA Capital Campaign, past Director of a number of local community charities and social organizations. Mr. Davis is a director of Intier
Automotive Inc. and has been a director of Decoma since April 16, 2001.
ROBERT J. FULLER B. Com., LL.B., Q.C.
Senior Partner, Miller Thomson LLP
Robert J. Fuller is a senior partner in the law firm Miller Thomson LLP, a full service law firm with offices in Toronto, Markham, Edmonton, Calgary, Vancouver,
Whitehorse and Washington, D.C., and affiliations throughout the world. His
practice involves individual and corporate planning from a broad perspective, both domestic and international. He serves on the boards of directors of numerous companies. Mr. Fuller has been a
director of Decoma since March 2, 1998.
JENNIFER J. JACKSON
President, Berger Jackson Capital Services, Inc.
Jennifer J. Jackson, is President of Berger Jackson Capital Services, Inc. and a Principal of Berger Jackson Capital Management, LLC and Berger Jackson
Capital L.P., general partners for the Berger Jackson group of private investment partnerships, providing investment and financial advice to individual, corporate and institutional clients. She
has provided strategic direction and developed strategic relationships for a number of companies. Ms. Jackson has been a director of Decoma since March 2, 1998.
VINCENT J. GALIFI B. Com., C.A.
Executive Vice-President and Chief Financial Officer, Magna International Inc.
Vincent J. Galifi is Executive Vice-President and Chief Financial Officer of Magna International Inc., a leading global supplier of technologically advanced
automotive systems, components and complete modules. Mr. Galifi is a director of Intier Automotive Inc. and Tesma International Inc. and was appointed a director of Decoma on
February 25, 2004.
FRANK E. MACHER B.S., Mech Eng, M.B.A.
Retired Chairman and Chief Executive Officer, Federal-Mogul Corporation
Frank E. Macher retired as Chairman and Chief Executive Officer of Federal-Mogul Corporation, one of the largest independent suppliers to the world's automakers, in
January 2004 and remains a director. He is also a director of Tenneco Automotive Inc. and a member of the Board of Trustees of Kettering University. He has served on the Industry
Manufacturing Advisory Council for Stanford University, the MIT Leaders for Manufacturing Council and the Detroit Historical Society. Mr. Macher has been a director of Decoma since
January 6, 1999.
JOHN T. MAYBERRY B.A. Psych, LL.D.
Retired Chair of the Board and Chief Executive Officer, Dofasco Inc.
John T. Mayberry retired as Chair of the Board and Chief Executive Officer and a director of Dofasco Inc., in May 2003. He is a director of the Bank of Nova
Scotia, MDS Inc., CFM Corporation, Inco Limited and Hatch Consulting. He participates in a number of industry-related associations and is the Chairman and a director of the International Iron
and Steel Institute. Mr. Mayberry has been a director of Decoma since March 2, 1998.
ALAN J. POWER B. Eng Mech
President and Chief Executive Officer, Decoma International Inc.
Alan J. Power is President and Chief Executive Officer of Decoma International Inc. He has directed Decoma's global growth since becoming President in 1993, having
commenced his career with the Magna group in 1987. In 1999, Mr. Power became a member of Top 40 Under 40 and in 2001 received the "Leader of the Year" award from the Canadian Plastics
Industries Association. In September 2002, he was appointed co-chair of the CAPC (Canadian Automotive Partnership Council) Innovation Working Committee. Mr. Power is a member
of the Magna Technical Training Centre Advisory Committee and has been a director of Decoma since December 3, 1997.
SIEGFRIED WOLF, Ing.
Executive Vice-Chairman, Magna International Inc.
Siegfried Wolf is Executive Vice-Chairman and a director of Magna International Inc., a leading global supplier of technologically advanced automotive
systems, components and complete modules. Mr. Wolf is a director of Tesma International Inc. and Intier Automotive Inc. and has been a director of Decoma since April 2,
2002.
OFFICERS
SIEGFRIED WOLF
Chairman of the Board
ALAN J. POWER
President and Chief Executive Officer
R. DAVID BENSON
Executive Vice-President, Secretary and General Counsel
DOUGLAS M. HARRISON
Executive Vice-President, Planning and Corporate Development
S. RANDALL SMALLBONE
Executive Vice-President, Finance and Chief Financial Officer
GREGORY J. WALTON
Executive Vice-President, Sales and Marketing
GUY R. JONES
Vice-President, Finance
DAVID M. ONGARO
Treasurer
OPERATIONS MANAGEMENT
TERRY L. BALL
President, Exterior Trim
ROBERT A. BROWNLEE
President, Fascia Operations and Managing Director, Decoma Europe
JAMES R. DROUILLARD
Executive Vice-President, Product Development
GREGORY J. WALTON
Executive Vice-President, Systems Integration
W. STEPHEN SLOAN
Vice-President, Information Technology
72 Decoma International Inc.
Investor Information
CANADA
|
|
TSX Class A Subordinate Voting Shares
|
2003 Quarter
|
|
Volume
|
|
High
|
|
Low
|
|
Close
|
(Canadian dollars except volume)
|
|
|
1st |
|
9,384,011 |
|
13.85 |
|
8.81 |
|
10.09 |
2nd |
|
7,209,897 |
|
11.90 |
|
9.70 |
|
11.59 |
3rd |
|
4,383,207 |
|
14.65 |
|
11.55 |
|
13.51 |
4th |
|
4,192,101 |
|
14.95 |
|
11.98 |
|
13.28 |
|
|
|
|
|
|
|
|
|
|
|
TSX 6.5% Convertible Unsecured Subordinated Debentures (trading commenced March 27, 2003)
|
2003 Quarter
|
|
Volume
|
|
High
|
|
Low
|
|
Close
|
(Canadian dollars except volume)
|
|
|
1st |
|
117,350 |
|
101.00 |
|
99.60 |
|
100.50 |
2nd |
|
183,520 |
|
109.20 |
|
100.50 |
|
108.50 |
3rd |
|
279,060 |
|
122.50 |
|
108.00 |
|
117.00 |
4th |
|
88,790 |
|
125.00 |
|
114.00 |
|
117.00 |
|
|
|
|
|
|
|
|
|
|
|
TSX Class A Subordinate Voting Shares
|
2002 Quarter
|
|
Volume
|
|
High
|
|
Low
|
|
Close
|
(Canadian dollars except volume)
|
|
|
1st |
|
2,022,686 |
|
19.10 |
|
15.00 |
|
16.90 |
2nd |
|
3,134,823 |
|
21.10 |
|
15.50 |
|
17.00 |
3rd |
|
2,013,611 |
|
17.99 |
|
12.55 |
|
13.05 |
4th |
|
5,845,602 |
|
15.25 |
|
10.56 |
|
12.32 |
|
|
|
|
|
|
|
|
|
UNITED STATES
|
|
NASDAQ Class A Subordinate Voting Shares
|
2003 Quarter
|
|
Volume
|
|
High
|
|
Low
|
|
Close
|
(U.S. dollars except volume)
|
|
|
1st |
|
474,498 |
|
9.00 |
|
5.85 |
|
6.64 |
2nd |
|
133,581 |
|
8.90 |
|
6.71 |
|
8.58 |
3rd |
|
697,928 |
|
10.72 |
|
8.25 |
|
10.11 |
4th |
|
245,840 |
|
11.36 |
|
8.80 |
|
10.30 |
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Class A Subordinate Voting Shares
|
2002 Quarter
|
|
Volume
|
|
High
|
|
Low
|
|
Close
|
(U.S. dollars except volume)
|
|
|
1st |
|
129,303 |
|
12.23 |
|
9.37 |
|
10.58 |
2nd |
|
391,817 |
|
13.85 |
|
9.80 |
|
11.22 |
3rd |
|
261,805 |
|
11.74 |
|
7.86 |
|
8.26 |
4th |
|
544,014 |
|
9.80 |
|
6.63 |
|
7.86 |
|
|
|
|
|
|
|
|
|
Transfer Agents & Registrars
CANADA
Class A
Subordinate Voting Shares
Computershare Trust Company of Canada, Toronto, Canada
6.5%
Convertible Unsecured Subordinated Debentures
Computershare Trust Company of Canada, Toronto, Canada
UNITED STATES
Class A
Subordinate Voting Shares
Computershare Trust Company, Inc., Golden, Colorado, U.S.A.
Stock Listings
Class A
Subordinate Voting Shares
Toronto Stock Exchange DEC. A
NASDAQ National Market DECA
6.5%
Convertible Unsecured Subordinated Debentures
Toronto Stock Exchange DEC. DB
Auditors
Ernst &
Young LLP
Toronto, Canada
Principal Bankers
Royal
Bank of Canada
Citibank Canada
Toronto, Canada
Investor Information
Shareholders
seeking assistance or information about the Company are requested to contact:
S.
Randall Smallbone
Executive Vice-President,
Finance and Chief Financial Officer
50
Casmir Court,
Concord Ontario,
Canada L4K 4J5
Telephone: (905) 669-2888
Fax: (905) 669-5075
Annual Meeting
Monday,
May 3, 2004
at 3:00 p.m.
The
Design Exchange
Toronto Dominion Centre
Ernst & Young Tower
234 Bay Street, 2nd Floor
Toronto, Ontario, Canada
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DECOMA INTERNATIONAL INC. Casmir Court, Concord, Ontario
Canada L4K 4J5
Tel: 905-669-2888 Fax: 905-669-5075
|
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FINANCIAL HIGHLIGHTS
DECOMA'S GLOBAL FACILITIES
DECOMA'S PRODUCT RANGE
DECOMA'S TOP FIVE PLATFORMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003
EX-99.2
4
a2131935zex-99_2.htm
EXHIBIT 99.2
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Exhibit 99.2
April 5,
2004
Dear
Shareholder:
On
behalf of management and our Board of Directors, we extend a cordial invitation to you to attend the 2004 Annual Meeting of Shareholders of Decoma International Inc.
This
year's Annual Meeting will be held at the Design Exchange, 234 Bay Street, Toronto, Ontario, commencing at 3:00 p.m. (Toronto time) on Monday, May 3, 2004. The Notice of Meeting,
Management Information Circular and form of proxy for our Class A Subordinate Voting Shares are enclosed with this letter.
We
encourage you to attend the Annual Meeting. Whether you attend or not, please consider completing and returning your enclosed form of proxy.
Non-registered
shareholders should refer to the section of the enclosed Management Information Circular entitled "Appointment and Revocation of
Proxies Non-Registered Shareholders" to find out how to attend or instruct an intermediary on the voting of their shares.
We
hope to see you at the Annual Meeting.
Yours
truly,
"Alan J. Power" (signed)
Alan J. Power
President and Chief Executive Officer
|
DECOMA INTERNATIONAL INC.
50 Casmir Court ~ Concord ~ Ontario ~ Canada ~ L4K 4J5 ~ Tel 905-669-2888 ~ Fax 905-669-5075 ~ www.decoma.com |
NOTICE OF MEETING OF SHAREHOLDERS
NOTICE
is hereby given that the Annual Meeting of Shareholders of Decoma International Inc. ("Decoma" or the "Corporation") will be held at the Design Exchange, 234 Bay Street, Toronto,
Ontario, Canada, on Monday, May 3, 2004, commencing at 3:00 p.m. (Toronto time), for the following purposes:
- (a)
- to
receive the Consolidated Financial Statements of the Corporation for the year ended December 31, 2003, and the Report of the Auditor thereon;
- (b)
- to
elect directors;
- (c)
- to
reappoint the Auditor, based on the recommendation of the Audit Committee of the Board of Directors, and authorize the Audit Committee to fix the Auditor's remuneration; and
- (d)
- to
transact such further or other business or matters as may properly come before the meeting or any adjournment(s) thereof.
Only
shareholders of record at the close of business on March 25, 2004, will be entitled to receive notice of the meeting.
Decoma's
2003 Annual Report contains the Consolidated Financial Statements of the Corporation for the year ended December 31, 2003, and the report of the Auditor thereon. The Management
Information Circular dated April 5, 2004 (the "Circular") and form of proxy for the Class A Subordinate Voting Shares are enclosed with this Notice of Meeting. The Circular provides
additional information concerning the matters to be dealt with at the meeting. If you are unable to be present at the Meeting in person, please complete, date and sign the enclosed proxy and return it
to the Secretary of the Corporation in the envelope provided for that purpose.
By
order of the Board of Directors,
"R. David Benson" (signed)
Executive
Vice-President,
Secretary and General Counsel
April 5,
2004
Concord, Ontario
|
DECOMA INTERNATIONAL INC.
50 Casmir Court ~ Concord ~ Ontario ~ Canada ~ L4K 4J5 ~ Tel 905-669-2888 ~ Fax 905-669-5075 ~ www.decoma.com |
MANAGEMENT INFORMATION CIRCULAR
This Management Information Circular (the "Circular") is furnished to the shareholders of Decoma International Inc. ("Decoma" or the "Corporation") in
connection with the solicitation by and on behalf of management and the board of directors of the Corporation of proxies to be used at the Annual
Meeting of Shareholders (the "Meeting") of the Corporation to be held at the Design Exchange, 234 Bay Street, Toronto, Ontario, Canada, on Monday, May 3, 2004, commencing at 3:00 p.m.
(Toronto time), and at any adjournment(s) thereof, for the purposes set forth in the attached Notice of Annual Meeting of Shareholders (the "Notice").
This
Circular, the Notice and the accompanying form of proxy are being mailed on or about April 5, 2004, to shareholders of record of the Corporation as of the close of business
on March 25, 2004. The Corporation will bear all costs associated with the preparation and mailing of this Circular, the Notice and the accompanying form of proxy, as well as the costs of the
solicitation of proxies. The solicitation will be primarily by mail; however, officers and regular employees of the Corporation may also directly solicit proxies (but not for additional compensation)
personally, by telephone or fax or by other means of electronic transmission. Banks, brokerage houses and other custodians and nominees or fiduciaries will be requested to forward proxy solicitation
material to their principals and to obtain authorizations for the execution of proxies, and will be reimbursed for their reasonable expenses in doing so. (See "Appointment and Revocation of
Proxies Non-Registered Holders".)
All
references to dollar amounts in this Circular are to U.S. dollars unless otherwise stated.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the accompanying form of proxy are officers of the Corporation. A shareholder has the right to appoint a person (who
need not be a shareholder of the Corporation) as nominee to attend and act for and on such shareholder's behalf at the Meeting, other than the management nominees named in the accompanying form of
proxy. This right may be exercised either by striking out the names of the management nominees where they appear on the front of the form of proxy and by inserting in the blank
space provided the name of the other person the shareholder wishes to appoint, or by completing and submitting another proper form of proxy naming such other person as proxy.
A
shareholder who has given a proxy, in addition to revocation in any other manner permitted by applicable Canadian law, may revoke the proxy within the time periods described in this
Circular by an instrument in writing executed by the shareholder or by his/her attorney authorized in writing or, if the shareholder is a body corporate, by an officer or attorney thereof duly
authorized.
Shareholders
desiring to be represented at the Meeting by proxy or to revoke a proxy previously given, must deposit their form of proxy or revocation of proxy, addressed to the Secretary
of the Corporation, at one of the following locations: (i) the principal executive offices of the Corporation at 50 Casmir Court, Concord, Ontario, Canada L4K 4J5;
(ii) the offices of Computershare Trust Company of Canada, 100 University Avenue, 9th Floor, Toronto, Ontario, Canada M5J 2Y1; or (iii) the
offices of Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, Colorado, USA 80401 (mailing address P.O. Box 1596, Denver, Colorado, USA
80201); in each case, at any time up to and including the last business day preceding the day of the Meeting, or any adjournment(s) thereof, at which the proxy is to be used. If a shareholder who has
completed a proxy attends the Meeting in person, any votes cast by such shareholder on a poll will be counted and the proxy will be disregarded.
Non-Registered Holders
Only registered shareholders, or the persons that they appoint as their proxies, are permitted to attend and vote at the Meeting. However, in many cases, shares
beneficially owned by a holder (a "Non-Registered Holder") are registered either (i) in the name of an intermediary that the Non-Registered Holder deals with in respect
of the shares, such as, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of registered plans; or (ii) in the name of a depository (such as The
Canadian Depository for Securities Limited) of which the intermediary is a participant.
In
accordance with the requirements of National Instrument 54-101 of the Canadian securities laws, the Corporation will be distributing copies of the Notice, this Circular,
the accompanying form of proxy and the Decoma Annual Report (collectively, the "meeting materials") to the depository and intermediaries for further distribution to Non-Registered Holders.
Intermediaries are required to forward the meeting materials to Non-Registered Holders and receive voting instructions from them unless a Non-Registered Holder has waived the
right to receive the meeting materials. Intermediaries often use service companies to forward the meeting materials to Non-Registered Holders. Generally, Non-Registered Holders
who have not waived the right to receive the meeting materials will either (i) be given a voting instruction form which must be completed and signed by the Non-Registered Holder in
accordance with the directions set out on the voting instruction form (which may, in some cases, permit the completion of the voting instruction form by telephone); or (ii) less typically, be
given a proxy which has already been signed by the intermediary (usually by way of a facsimile, stamped signature) which is restricted as to the number of shares beneficially owned by the
Non-Registered Holder, but which is otherwise uncompleted. In this case, the Non-Registered Holder who wishes to submit the proxy should otherwise properly complete and deposit
it with the Corporation, Computershare Trust Company of Canada or Computershare Trust Company, Inc., as described above. This proxy need not be signed by the Non-Registered Holder.
In
either case, the purpose of these procedures is to permit Non-Registered Holders to direct the voting of the shares which they beneficially own. Should a
Non-Registered Holder who receives a proxy signed by the intermediary wish to attend and vote at the Meeting in person (or have another person attend and vote on behalf of the
Non-Registered Holder), the Non-Registered Holder should strike out the names of the persons named in the proxy and insert the name of the Non-Registered Holder (or
such other person) in the blank space provided. A Non-Registered Holder who receives a voting instruction form should follow the corresponding instructions on the form. In either case, Non-Registered Holders should carefully
follow the instructions of their intermediaries and their intermediaries' service
companies.
A
Non-Registered Holder may revoke a voting instruction form (or proxy) or a waiver of the right to receive the meeting materials given to an intermediary, at any time, by
written notice to the intermediary, except that an intermediary is not required to act on a revocation of a voting instruction form (or proxy) or a revocation of a waiver of the right to receive the
meeting materials that is not received by the intermediary at least seven days prior to the Meeting.
VOTING OF PROXIES
The shares represented by any valid proxy in favour of the management nominees named in the accompanying form of proxy will be voted for
or withheld from voting (abstain) on the election of directors and the reappointment of the Auditor, based on the recommendation of the Audit Committee of the Board of Directors, and the authorization
of the Audit Committee to fix the remuneration of the Auditor, in accordance with any specifications or instructions made by a shareholder on the form of proxy. In the absence of any such
specifications or instruction, such shares will be voted: FOR the election as directors of the management nominees named in this Circular and FOR the reappointment of Ernst &
Young L.L.P. as Auditor, based on the recommendation of the Audit Committee of the Board of Directors, and the authorization of the Audit Committee to fix the Auditor's
remuneration.
2
The
accompanying form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in the Notice and with
respect to such other business or matters which may properly come before the Meeting or any adjournment(s) thereof. As of the date of this Circular, the Corporation is not aware of any other matter to
be raised at the Meeting.
RECORD DATE
The Board has fixed the close of business on March 25, 2004, as the record date (the "Record Date") for the Meeting. Only holders of record of
Class A Subordinate Voting Shares and Class B Shares as of the close of business on the Record Date are entitled to receive notice of and to attend and vote at the Meeting, except that,
in accordance with applicable law, a transferee of Class A Subordinate Voting Shares or Class B Shares acquired after the Record Date shall be entitled to vote at the Meeting if such
transferee produces properly endorsed share certificates or otherwise establishes ownership of such shares, and has demanded not later than ten days before the Meeting that the name of such transferee
be included in the list of shareholders entitled to vote at the Meeting or any adjournments or postponements thereof.
VOTING SECURITIES AND THEIR PRINCIPAL HOLDERS
As at March 25, 2004, there were issued and outstanding 51,598,778 Class A Subordinate Voting Shares. Holders of Class A Subordinate Voting
Shares as at the time of taking any vote on the date of the Meeting are entitled to cast one (1) vote per Class A Subordinate Voting Share held by them on each matter to be acted on at
the Meeting.
As
at March 25, 2004, there were issued and outstanding 31,909,091 Class B Shares. Holders of Class B Shares as at the time of taking any vote on the date of the
Meeting are entitled to cast twenty (20) votes per Class B Share held by them on each matter to be acted on at the Meeting.
The
following table sets forth information with respect to the only shareholders known to the directors or officers of the Corporation who own beneficially, directly or indirectly, or
exercise control or direction over, more than 10% of the issued and outstanding Class A Subordinate Voting Shares or Class B Shares of the Corporation, as at March 25, 2004:
|
|
Class of Shares
|
|
Number
of Shares
|
|
Per Cent
of Class
|
Magna International Inc. (1) |
|
Class A Subordinate Voting |
|
23,026,062 |
|
44.6% |
1265058 Ontario Inc. (2) |
|
Class A Subordinate Voting |
|
6,604,816 |
|
12.8% |
Magna International Inc. (1) |
|
Class B |
|
24,957,125 |
|
78.2% |
1265058 Ontario Inc. (2) |
|
Class B |
|
6,951,966 |
|
21.8% |
- (1)
- The
Stronach Trust controls Magna International Inc. ("Magna") through the right to direct the votes attached to Magna's Class B shares. Mr. Frank Stronach, a
former director of the Corporation (resigned September 16, 1998) and the founder and Chairman of Magna and Ms. Belinda Stronach, a former director and former Chairman of the Corporation
(resigned January 20, 2004) and the former President and Chief Executive Officer of Magna, together with two other family members, are the trustees of the Stronach Trust. Mr. Stronach
and Ms. Stronach are also two of the members of the class of potential beneficiaries of the Stronach Trust.
- (2)
- 1265058
Ontario Inc. ("1265058") is a wholly-owned subsidiary of Magna.
3
The Corporation has been advised that Magna and 1265058 intend to vote their respective Class A Subordinate Voting Shares and
Class B Shares, as applicable, for the election as directors of the management nominees named in this Circular and for the reappointment of Ernst & Young L.L.P. as Auditor, based
on the recommendation of the Audit Committee of the Board of Directors, and the authorization of the Audit Committee to fix the Auditor's remuneration.
FINANCIAL STATEMENTS AND AUDITOR'S REPORT
Management, on behalf of the Board, will submit to the shareholders at the Meeting the Consolidated Financial Statements of the Corporation for the year ended
December 31, 2003, and the Report of the Auditor thereon, but no vote by the shareholders with respect thereto is required or proposed to be taken. The Consolidated Financial Statements and
Auditor's Report are included in the Corporation's 2003 Annual Report which is being mailed to shareholders with the Notice and this Circular.
BUSINESS TO BE TRANSACTED AT THE MEETING
ELECTION OF DIRECTORS
Under the Corporation's restated articles of incorporation dated April 14, 1998 (the "Articles"), the Board consists of a minimum of three and a maximum of
fifteen directors. A special resolution passed by the shareholders of the Corporation on March 2, 1998, authorizes the directors to determine the number of directors of the Corporation from
time to time. The number of directors is currently fixed at eight. The term of office of each director expires at the time of the Meeting unless successors are not elected, in which case the directors
remain in office until their successors are elected by the shareholders of the Corporation.
Management
proposes to nominate, and the persons named in the accompanying form of proxy will vote for (in the absence of specifications or instructions to abstain from voting on the
proxy), the election of the eight persons whose names are set forth below, all of whom are now and have been directors of the Corporation for the periods indicated, but will not vote for a greater
number of persons than the number of nominees named in the form of proxy. A shareholder may withhold his/her vote from any individual nominee by striking a line through the
particular nominee's name in the form of proxy. Management does not contemplate that any of the nominees will be unable to serve as a director. If, as a result of circumstances
not now contemplated, any nominee is unavailable to serve as a director of the Corporation, the proxy will be voted for the election of such other person or persons as management (in consultation with
the then remaining directors) may select. Each director elected will hold office until the close of the next annual meeting of the shareholders of the Corporation, or until his/her respective
successor is elected or appointed in accordance with applicable law and the Corporation's by-laws.
4
The
following table sets forth information with respect to each of the eight management nominees for director, including the number of Class A Subordinate Voting Shares, deferred
share units ("Directors' Deferred Share Units" or "DDSUs") and Class B Shares beneficially owned, directly or indirectly, or over which control or direction is exercised, by each such nominee,
as at March 25, 2004:
Name and Residence of Nominee
|
|
Director Since
|
|
Other Positions and Offices Presently Held with the Corporation
|
|
Principal Occupation
|
|
Class A Subordinate Voting Shares
|
|
DDSUs
|
|
Class B Shares
|
Neil G. Davis (3)
Brampton, Ontario |
|
April 16, 2001 |
|
None |
|
Partner, Davis Webb Schulze & Moon LLP (barristers & solicitors) |
|
3,960 |
|
Nil |
|
Nil |
Robert J. Fuller (4)
Toronto, Ontario |
|
March 2, 1998 |
|
None |
|
Senior Partner, Miller Thomson LLP (barristers & solicitors) |
|
4,000 |
|
Nil |
|
Nil |
Vincent J. Galifi (3)
Toronto, Ontario |
|
February 25, 2004 |
|
None |
|
Executive Vice-President and Chief Financial Officer, Magna International Inc. |
|
57,757 |
|
Nil |
|
Nil |
Jennifer J. Jackson (2, 4)
Toronto, Ontario |
|
March 2, 1998 |
|
None |
|
President, Berger Jackson Capital Services, Inc. (private investment funds) |
|
Nil |
|
Nil |
|
Nil |
Frank E. Macher (1, 2, 3)
Ann Arbor, Michigan |
|
January 6, 1999 |
|
None |
|
retired |
|
Nil |
|
18,041 |
|
Nil |
John T. Mayberry (2)
Burlington, Ontario |
|
March 2, 1998 |
|
None |
|
retired |
|
10,700 |
|
Nil |
|
Nil |
Alan J. Power (4)
King City, Ontario |
|
December 3, 1997 |
|
President and Chief Executive Officer |
|
President and Chief Executive Officer of the Corporation |
|
71,106 |
|
Nil |
|
Nil |
Siegfried Wolf
Weikersdorf, Austria |
|
April 2, 2002 |
|
None |
|
Executive Vice-Chairman, Magna International Inc. |
|
277,510 |
|
Nil |
|
Nil |
- (1)
- Lead
Director
- (2)
- Member
of the Audit Committee.
- (3)
- Member
of the Compensation and Corporate Governance Committee.
- (4)
- Member
of the Health and Safety and Environmental Committee.
Each of the nominees has held the principal occupation identified above for the past five years with the exception of Mr. Macher who
retired as Chief Executive Officer and Chairman of the Board of Federal-Mogul Corporation on January 11, 2004, Mr. Mayberry who retired as Chair of the Board and Chief Executive Officer
of Dofasco Inc. on May 2, 2003, and Mr. Wolf who has been an Executive Vice-Chairman of Magna since May 2002.
All
of the Corporation's outside directors were granted 10,000 options to purchase Class A Subordinate Voting Shares upon their election as a director and upon the completion of
every five year period of continuous service as a director under the Corporation's Amended and Restated Incentive Stock Option Plan ("Stock Option Plan"). Messrs. Power and Wolf were also
granted 10,000 options to purchase Class A Subordinate Voting Shares upon their election as directors pursuant to the same Stock Option Plan.
All
of the eight management nominees were elected as directors by the shareholders of the Corporation at the annual meeting of shareholders held on May 5, 2003, with the exception
of Mr. Galifi, who was appointed a director and a member and Chairman of the Compensation and Corporate Governance Committee at the meeting of the Board held on February 25, 2004, to
fill the vacancy created by the resignation of Ms. Belinda Stronach as a member of the Board on January 20, 2004.
5
A
majority of the nominees for directors are considered to be "unrelated" and outside directors for the purposes of the Toronto Stock Exchange ("TSX") corporate governance guidelines
(the "TSX Guidelines") and "independent" for the purposes of the NASDAQ Stock Market Inc. ("NASDAQ") new corporate governance listing requirements ("NASDAQ Rules"). See "Report on Corporate
Governance" for a discussion of directors' independence from management.
There
are no contracts, arrangements or understandings between any management nominee and any other person (other than the directors and officers of the Corporation acting solely in such
capacity) pursuant to which the nominee has been or is to be elected as a director.
Failure
by the Corporation to meet the requirements of its Corporate Constitution (the "Corporate Constitution") relating to the payment of "Required Dividends" (as defined in the
Corporate Constitution) or the minimum return on stated capital required by the terms of the Class A Subordinate Voting Shares will entitle the holders of the Class A Subordinate Voting
Shares, as a class, to certain rights to elect directors, the exercise of which could result in changes in the composition of the Board as discussed below under "Report on Corporate
Governance Corporate Constitution".
The
directors and officers of the Corporation as a group (14 persons) owned beneficially or exercised control or direction over 499,602 Class A Subordinate Voting Shares, or
approximately 1% of the class, and none of the Class B Shares, as at March 25, 2004. See also "Voting Securities and Their Principal Holders".
REAPPOINTMENT OF AUDITOR
At the Meeting, pursuant to the recommendation and nomination of the Audit Committee, the shareholders will be asked to reappoint Ernst &
Young L.L.P. as the Auditor of the Corporation. Ernst & Young L.L.P. has been the Auditor of Decoma and its predecessors since 1989. The persons named in the accompanying form of
proxy will, in the case of a ballot and in the absence of specifications or instructions not to vote (abstain) on the form of proxy, vote for the reappointment of Ernst & Young L.L.P. as
the Auditor of the Corporation to hold office until the next annual meeting of shareholders of the Corporation, based on the recommendation of the Audit Committee, and the authorization of the Audit
Committee to fix the Auditor's remuneration. Representatives of Ernst & Young L.L.P. are expected to attend the Meeting and will have an opportunity to make a statement if they so
desire. Such representatives are also expected to be available to respond to appropriate questions.
REPORT OF THE AUDIT COMMITTEE
Audit Committee
The Audit Committee, pursuant to the Corporation's by-laws and its Charter, has responsibility to oversee the Corporation's financial affairs as well
as the specific responsibility to review the Corporation's quarterly and annual financial statements and other financial information and report to the Board on these matters. In addition, this
committee is responsible for evaluating the performance of, reviewing the independence of, reviewing and approving the annual fees of and making recommendations to the shareholders of the Corporation
as to the annual appointment of the Auditor. Part of the committee's responsibilities involves the review and approval of the Corporation's disclosure regarding Management's Discussion and Analysis of
Results of Operations and Financial Position prior to its inclusion in the Corporation's Annual Report and quarterly reports to shareholders. The committee has certain responsibilities relating to
internal and external audits, internal controls and procedures, the application of accounting principles, financial reporting and integrity, guidance, risk assessment and other matters. The committee
met seven times during fiscal 2003 with management, representatives of the Auditor and representatives of the Corporation's Internal Audit Department, both together and separately in each case.
6
All members of the committee are considered by the Corporation to be "unrelated" under the TSX Guidelines and "independent" under the NASDAQ Rules and the applicable provisions of the Sarbanes-Oxley Act of 2002 ("SOX"). See "Report on Corporate Governance Items 2
and 3 of the TSX Guidelines".
The
committee periodically reviews and reassesses the adequacy of its Charter. The committee has considered the effect of the various audit committee reforms set forth in SOX and in the
NASDAQ Rules on the committee's existing Charter and the form of possible amendments to be made to reflect these matters. During 2003, the committee approved such amendments. The amended Charter dated
February 25, 2004, is attached to this Management Information Circular as Schedule "A".
Auditor Independence
The committee has discussed with the Auditor its independence from management and the Corporation and has considered whether the provision of
non-audit services is compatible with maintaining the Auditor's independence. Fees paid to the Auditor for services provided in fiscal 2003 and fiscal 2002 were as follows:
|
|
Fiscal 2003
|
|
Fiscal 2002
|
Audit services (1) |
|
$ |
836,966 |
|
$ |
689,953 |
Audit-related services (2) |
|
$ |
186,692 |
|
$ |
58,831 |
Tax services (3) |
|
$ |
240,690 |
|
$ |
240,179 |
Other services (4) |
|
$ |
19,291 |
|
$ |
29,375 |
- (1)
- Includes
all fees in respect of services performed in order to comply with generally accepted auditing standards ("GAAS"). In some cases, these may include an appropriate allocation
of fees for tax services or accounting consultations, to the extent such services were necessary to comply with GAAS.
- (2)
- Generally
consists of fees paid in respect of assurance and related services (e.g., due diligence), including such things as employee benefit plan audits, due diligence
relating to M&A, accounting consultations and audits in connection with acquisitions, internal control reviews, attest services that are not required by statute or regulation and consultation
concerning financial accounting and reporting standards.
- (3)
- Includes
all fees paid in respect of services performed by the Auditor's tax professionals, except those services required in order to comply with GAAS which are included under "Audit
services". Tax services include tax compliance, tax planning and tax advice.
- (4)
- Consists
of fees in respect of all services not falling under any of the foregoing categories.
For the period commencing October 2002 to and including December 31, 2003, the committee pre-approved all fees to be
paid to the Auditor. A formal audit services pre-approval policy was adopted by the Corporation on February 3, 2004.
7
Audit Committee Report
In connection with the Consolidated Financial Statements for the fiscal year ended December 31, 2003, the committee has (i) reviewed and discussed
the audited Consolidated Financial Statements with senior management, (ii) discussed with the Auditor the matters required to be discussed by the Canadian Institute of Chartered Accountants
("CICA") and the U.S. Statement on Auditing Standards No. 61 (Communication with Audit Committees) as amended, (iii) received and reviewed with the Auditor the written disclosures
and related letter from the Auditor required by the CICA and U.S. Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees) and discussed with the
Auditor the independence of the Auditor as auditor of the Corporation and (iv) reviewed with the Auditor its Audit Report on the Consolidated Financial Statements (the "Audit Report").
Management
is responsible for the Corporation's internal controls and the financial reporting process. Ernst & Young L.L.P. is responsible for performing an independent
audit on the Corporation's Consolidated Financial Statements in accordance with Canadian GAAS and U.S. GAAS and issuing an auditor report thereon. The committee's responsibility is to monitor
and oversee these processes in accordance with its Charter.
Based
on these reviews and discussions and a review of the Audit Report, the committee has recommended to the Board, and the Board has approved, the inclusion of the audited Consolidated
Financial Statements in the Corporation's Annual Report, and other forms and reports required to be filed with applicable Canadian securities commissions, the U.S. Securities and Exchange
Commission (the "SEC") and applicable stock exchanges in respect of the fiscal year ended December 31, 2003.
The
foregoing report is dated as of March 23, 2004, and is submitted by the Audit Committee of the Board.
|
|
John T. Mayberry |
|
Jennifer J. Jackson |
|
Frank E. Macher |
|
|
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth a summary of all annual, long-term and other compensation earned for services in all capacities to the Corporation and
its subsidiaries, in respect of its three most recently completed fiscal periods, with respect to individuals who were, as at December 31, 2003, the Chief Executive Officer and the four other
most highly compensated executive officers (collectively, the "Named Executive Officers") of the Corporation.
|
|
|
|
Annual Compensation (1)
|
|
Long-Term Compensation Awards
|
|
|
Name and Principal Position
|
|
Financial Year
|
|
Salary
|
|
Bonus (2)
|
|
Other Annual Compensation
|
|
Securities Under Options Granted
|
|
All Other Compensation
|
Alan J. Power
President and
Chief Executive Officer |
|
2003
2002
2001 |
|
$ $ $ |
110,000
110,000
110,000 |
|
$ $ $ |
1,725,553
1,885,075
832,755 |
|
(3) |
|
100,000
100,000
100,000 |
|
Nil
Nil
Nil |
S. Randall Smallbone
Executive Vice-President,
Finance and Chief Financial Officer |
|
2003
2002
2001 |
|
$ $ $ |
108,000
108,000
88,000 |
|
$ $ $ |
431,388
471,269
305,343 |
|
(3) |
|
35,000
35,000
25,000 |
|
Nil
Nil
Nil |
R. David Benson
Executive Vice-President,
Secretary and General Counsel |
|
2003
2002
2001 |
|
$ $ $ |
108,000
108,000
88,000 |
|
$ $ $ |
379,622
414,716
277,585 |
|
(3) |
|
30,000
30,000
25,000 |
|
Nil
Nil
Nil |
Gregory J. Walton
Executive Vice-President,
Sales and Marketing |
|
2003
2002
2001 |
|
$ $ $ |
108,000
108,000
88,000 |
|
$ $ $ |
379,622
414,716
277,585 |
|
(3) |
|
30,000
30,000
20,000 |
|
Nil
Nil
Nil |
Douglas M. Harrison
Executive Vice-President,
Planning & Corporate Development |
|
2003
2002
2001 |
|
$ $ $ |
108,000
108,000
88,000 |
|
$ $ $ |
258,833
282,761
173,490 |
|
(3) |
|
30,000
30,000
15,000 |
|
Nil
Nil
Nil |
- (1)
- For
fiscal year 2001, base salaries were determined in U.S. dollars. Bonus compensation, although determined in Canadian dollars, has been converted for presentation purposes
into U.S. dollars at the 2001 average exchange rate of 1.54925. For fiscal years 2002 and 2003, both base salaries and bonus compensation were determined and reported in U.S. dollars.
- (2)
- Incentive
bonuses are directly related to the financial performance of the Corporation. See "Employment Contracts" below.
- (3)
- Perquisites
and other personal benefits do not exceed the lesser of Cdn$50,000 and 10% of the total annual salary and bonus for each Named Executive Officer.
8
Stock Option Plan, Grants and Exercises
The Stock Option Plan enables the Corporation to provide incentive stock options and stock appreciation rights in respect of Class A Subordinate Voting
Shares of the Corporation to eligible directors, senior officers, employees and consultants of the Corporation and its subsidiaries. The maximum number of shares for which options and stock
appreciation rights may be granted under the Stock Option Plan is 4,100,000 Class A Subordinate Voting Shares, subject to certain adjustments. The option price is to be established at the time
of the grant, but cannot be less than the closing price of the Class A Subordinate Voting Shares on the TSX (with respect to options denominated in Canadian currency) or NASDAQ (with respect to
options denominated in U.S. currency) on the trading day immediately prior to the date of the grants. Each option is exercisable in such manner as may be determined at the time of the grant,
and options granted will be for terms not exceeding ten years. Under the Stock Option Plan, the Corporation does not provide any financial assistance to participants in order to facilitate the
purchase of Class A Subordinate Voting Shares thereunder.
As
at December 31, 2003, options to purchase an aggregate of 2,640,000 Class A Subordinate Voting Shares at prices ranging from Cdn$9.50 per share (being the initial public
offering price for the Class A Subordinate Voting Shares) to Cdn$17.55 per share (being the market closing price(s) of the Class A Subordinate Voting Shares on the TSX on the trading day
immediately prior to the date of the grant of the applicable options as required by the terms of the Stock Option Plan), were outstanding under the Stock Option Plan. The expiration dates for these
options range between July 31, 2007 and March 2, 2013.
9
The
following table sets forth certain information with respect to the grant of options under the Stock Option Plan to the Named Executive Officers during the year ended
December 31, 2003:
Options Granted During the Financial Year Ended December 31, 2003, to Named Executive Officers
Name
|
|
Class A Subordinate Voting Shares Under Options Granted (#)
|
|
% of Total Options Granted in the Period
|
|
Exercise Price
(Cdn$/Security)
|
|
Market Value of Securities Underlying Options on the Date of Grant
(Cdn$/Security)
|
|
Expiration Date
|
Alan J. Power |
|
100,000 |
|
23.5% |
|
12.50 |
|
12.50 |
|
February 17, 2013 |
S. Randall Smallbone |
|
35,000 |
|
8.2% |
|
12.50 |
|
12.50 |
|
February 17, 2013 |
R. David Benson |
|
30,000 |
|
7.1% |
|
12.50 |
|
12.50 |
|
February 17, 2013 |
Gregory Walton |
|
30,000 |
|
7.1% |
|
12.50 |
|
12.50 |
|
February 17, 2013 |
Douglas M. Harrison |
|
30,000 |
|
7.1% |
|
12.50 |
|
12.50 |
|
February 17, 2013 |
The
following table sets forth certain information with respect to the aggregate number of unexercised options granted to the Named Executive Officers which were outstanding on
December 31, 2003, and the value of such options at such date. During 2003, none of the options granted to Named Executive Officers were exercised or surrendered.
Named Executive Officers' Aggregate Option Exercises During the Year Ended December 31, 2003,
and Year-End Option Values
|
|
Class A Subordinate Voting Shares Acquired on Exercise
|
|
|
|
Number of Unexercised
Options at
December 31, 2003
|
|
Value of Unexercised
Options at
December 31, 2003 (1)
|
|
|
Aggregate Value Realized on Exercise
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
|
(#)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(Cdn$)
|
|
(Cdn$)
|
Alan J. Power |
|
Nil |
|
Nil |
|
385,000 |
|
200,000 |
|
902,600.00 |
|
210,700.00 |
S. Randall Smallbone |
|
Nil |
|
Nil |
|
106,750 |
|
63,250 |
|
235,095.00 |
|
60,205.00 |
R. David Benson |
|
Nil |
|
Nil |
|
77,250 |
|
52,750 |
|
149,145.00 |
|
43,855.00 |
Gregory Walton |
|
Nil |
|
Nil |
|
65,500 |
|
49,500 |
|
77,555.00 |
|
32,245.00 |
Douglas M. Harrison |
|
Nil |
|
Nil |
|
53,750 |
|
46,250 |
|
77,715.00 |
|
30,885.00 |
- (1)
- Based
on the difference between Cdn$13.28, being the closing trading price of the Corporation's Class A Subordinate Voting Shares on the TSX on December 31, 2003, and
the exercise price of the related options, of all in-the-money options.
On January 6, 2004, an additional 10,000 options were granted to one of the Corporation's outside directors on his completion of five years
of continuous service as a director pursuant to the provisions of the Stock Option Plan. On February 25, 2004, a further 320,000 options were granted to senior officers and certain employees of
the Corporation, including the Named Executive Officers, and to officers of certain subsidiaries of the Corporation.
Pension Plans
None of Decoma's Named Executive Officers participate in any of the pension plans provided by the Corporation. Commencing August 1, 1998, the Corporation
adopted the Employee Equity Participation and Profit Sharing Program ("EPSP") to foster employee participation in the profits and share ownership of Decoma. Commencing January 1, 2001, the
Corporation adopted a defined benefit pension plan option (the "Pension Plan Option") for its eligible North American employees, which operates in conjunction with the EPSP. On December 16,
2002, the Pension Plan Option was amended by resolution of the Compensation and Corporate Governance Committee to provide for the purchase of past service credits by eligible plan participants. See
"Compensation and Corporate Governance Committee Report on Executive Compensation" and "Report on Corporate Governance".
10
Employment Contracts
The Corporation has entered into an employment contract with Mr. Power in connection with his position as President and Chief Executive Officer of Decoma.
The term of the contract commenced March 2, 1998, and continues to apply to Mr. Power's employment until terminated in accordance with its terms. Mr. Power's employment contract
provides for a base salary of $110,000, an annual cash bonus based on a specified percentage of Decoma's and certain of its affiliates' adjusted pre-tax profits before profit sharing, the
grant of certain stock options (see "Compensation of Directors and Executive Officers Stock Option Plan, Grants and Exercises" above), the maintenance of the
ownership of a minimum number of Decoma Class A Subordinate Voting Shares by Mr. Power, certain insurance and other fringe benefits, and certain confidentiality and
non-competition obligations. The agreement also contains a termination provision permitting Mr. Power's employment to be terminated by the Corporation by giving advance written
notice of termination for a prescribed period of time or by paying a retiring allowance to Mr. Power in lieu thereof in the amount of Cdn$300,000. No notice or severance payment is required to
be given or made by the Corporation for a termination for just cause or on the voluntary resignation of Mr. Power.
The
Corporation has also entered into an employment contract with Mr. Smallbone in his capacity as Executive Vice-President, Finance and Chief Financial Officer. The
term of the contract commenced August 1, 2003, and continues until earlier terminated in accordance with its terms. Mr. Smallbone's employment contract provides for a base salary of
$108,000, an annual cash bonus based on a specified percentage of Decoma's and certain of its affiliates' adjusted pre-tax profits before profit sharing, the ownership by
Mr. Smallbone of a minimum number of Decoma Class A Subordinate Voting Shares, certain insurance and other fringe benefits, as well as certain confidentiality and
non-competition obligations. Mr. Smallbone's employment contract further provides that his employment may be terminated by the Corporation either by giving advance written notice of
termination for a prescribed period of time or by paying a retiring allowance in lieu thereof in the amount of $300,000 or an amount equal to Mr. Smallbone's base salary and annual bonus for
the fiscal year preceding the termination date, whichever is greater. No notice or severance payment is required to be given or made by the Corporation for a termination for just cause or on the
voluntary resignation of Mr. Smallbone.
In
their capacities as Executive Vice-President, Secretary and General Counsel, Executive Vice-President, Sales and Marketing and Executive
Vice-President, Planning and Corporate Development, Messrs. Benson, Walton and Harrison, respectively, are under employment contracts with Decoma of indefinite terms which commenced
August 1, 2003. These contracts provide for, among other items, an annual base salary of $108,000, an annual cash bonus based on specified percentages of Decoma's and certain of its affiliates'
adjusted pre-tax profits before profit sharing, the ownership of a minimum number of Decoma Class A Subordinate Voting Shares, certain insurance and other fringe benefits, as well
as certain confidentiality and non-competition provisions. The contracts also contain termination provisions which provide for notice of termination or payments in lieu thereof in amounts
equal to the greater of $300,000 or the particular individual's base salary and annual bonus for the preceding fiscal year.
No
payments are required to be made under any employment contract with the Named Executive Officers in the event of a change in the control of the Corporation. The maximum total amount
payable by the Corporation pursuant to such contracts for severance is approximately $2,100,000 in the aggregate, plus any annual bonus entitlement pro rated to the date of termination.
11
Directors' Compensation
Directors who are neither employees of the Corporation nor directors or officers of Magna were paid an annual retainer of $20,000 and a meeting fee of $1,000 for
attendance at each meeting of the Board during 2003. Such directors were also paid an annual committee retainer of $2,500 (Committee Chairmen and the lead director each received an additional $10,000
annual retainer) and a meeting fee of $1,000 for attendance at meetings of each Committee of the Board. Compensation for the execution of written resolutions at the rate of $250 each was also provided
to directors who are not employees of Decoma nor directors or officers of Magna. These directors are also entitled to compensation for Board and Committee work and travel days at the rate of $1,500
per day. Eligible directors are also entitled to be reimbursed for travelling and other out-of-pocket expenses incurred by them in attending meetings of the Board or any
Committee.
To
encourage the directors to align their interests with shareholders, the Corporation has a Directors' Compensation Plan (the "Plan"). Under the Plan, outside directors may receive all
or a percentage of their total directors' fees in the form of cash, Class A Subordinate Voting Shares or DDSUs, each of which has a value equal to the market value of a Class A
Subordinate Voting Share at the commencement of the relevant fiscal quarter. A DDSU is a bookkeeping entry credited to the account of an individual director, which cannot be converted to cash until
the director ceases to be a member of the Board or the boards of directors of the Corporation's subsidiaries. The value of a DDSU, when converted to cash, will be equivalent of the market value of a
Class A Subordinate Voting Share at the time the conversion takes place. DDSUs will attract dividends in the form of additional DDSUs at the same rate as dividends on Class A Subordinate
Voting Shares.
None
of the stock options granted to the directors under the Stock Option Plan have been exercised to date.
The
total amount of directors' fees paid or deferred for 2003 was $298,206.
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The composition and mandate of the Compensation and Corporate Governance Committee are set out under "Report on Corporate
Governance Statement of Corporate Governance Practices Item 9 of the TSX
Guidelines" below. In respect of the year 2003, the Compensation and Corporate Governance Committee met on eight occasions to, among other matters:
- (i)
- review
the annual compensation paid to the Chief Executive Officer and Chief Financial Officer and receive the report of the Chief Executive Officer on annual
compensation paid to senior management of the Corporation and certain of its subsidiaries;
- (ii)
- make
certain amendments and adjustments to base salary and percentage bonus amounts of certain members of senior management of the Corporation and certain of its
subsidiaries based on the report and recommendations of the Chief Executive Officer;
12
- (iii)
- review
and make recommendations regarding the grant of additional stock options to members of senior management of the Corporation and certain of its subsidiaries;
- (iv)
- consider
certain long-term executive compensation and retention arrangements; and
- (v)
- review
and approve the Corporation's proxy materials relating to executive compensation for its annual meeting held on May 5, 2003.
Based
upon the committee's prior extensive review of the salary, bonus and benefits compensation of all of the Corporation's senior management, including the Named Executive Officers,
during 2002, as detailed in the Management Information Circular dated April 4, 2003, the committee remains of the view that the current compensation arrangements for such members of Executive
Management are, in the aggregate, adequate and competitive with current industry standards.
Decoma
has adopted the organizational and operating policies and principles utilized by Magna for many years, certain of which have been embodied in the Corporate Constitution. The
Corporate Constitution balances the interests of shareholders, employees and management by specifically defining the rights of employees (including management) and investors to participate in the
Corporation's profits, and reflects certain operational and compensation philosophies which align employee (including management) and shareholder interests. These philosophies and the Corporate
Constitution assist in maintaining an entrepreneurial environment or culture at Decoma which encourages flexibility, productivity, ingenuity and innovation. Two key elements of this entrepreneurial
culture are the emphasis on decentralization, which provides a high degree of autonomy at all levels of operation, as well as the direct participation in profits by eligible employees (including
management), all of whom are also shareholders of the Corporation. It is Decoma's objective to maintain its entrepreneurial culture. Accordingly, the Corporation intends to continue to apply its
established compensation philosophies, which have been essential to its ability to attract, retain and motivate skilled, entrepreneurial employees at all levels of the Decoma organization, while
assisting in the alignment of the interests of Decoma's shareholders and employees.
Consistent
with the Corporate Constitution, certain managers who have senior operational or corporate responsibilities receive a remuneration package consisting of a base salary (which
generally is lower than comparable industry standards) and an annual incentive bonus based on direct profit participation at the operating level at which such manager is involved. All other eligible
North American employees of Decoma are currently members of the Decoma EPSP.
The
Corporation adopted the EPSP in respect of fiscal 1999 and subsequent years pursuant to which the eligible North American employees of Decoma participate in 10% of Decoma's Employee
Pre-Tax Profits Before Profit Sharing (as defined in the Corporate Constitution) (see "Compensation of Directors and Executive Officers Pension
Plans"). The Decoma EPSP invests primarily in Class A Subordinate Voting Shares of the Corporation. Participating employees can allocate a portion of their share of the Decoma Employee
Pre-Tax Profits Before Profit Sharing to contributions under the Pension Plan Option.
13
The
Compensation and Corporate Governance Committee, in accordance with its mandate, is required to consider and apply, among other things, the historical operating philosophies and
policies of the Corporation, including the Corporate Constitution, direct profit participation, mandatory stock ownership and use of stock options issued under the Stock Option Plan, to align the
interests of management and shareholders and to create shareholder value. The Committee, therefore, applies the following criteria in determining or reviewing recommendations for compensation for
management, including where applicable, the executive officers of the Corporation:
Base Salaries. Base salaries should generally be below base salaries for comparable positions within North American industrial companies
(including the automotive parts supply industry) and are not customarily increased on an annual basis. As a result, fixed compensation costs are contained or minimized, with financial rewards coming
principally from variable incentive compensation.
Incentive Compensation. The amount of direct profit participation and, therefore, the amount of compensation "at risk" increases with the
level of performance and/or responsibility. Due to the variable nature of profit participation, incentive cash compensation is generally reduced in cyclical or other down periods due to reduced
profits. As a result, executive officers are encouraged to emphasize consistent profitability over the medium to long term to ensure stable levels of annual compensation. Under the Corporate
Constitution, the aggregate incentive bonuses paid and payable to corporate management (which includes the Named Executive Officers) in respect of any fiscal year shall not exceed 6% of the
Corporation's Pre-Tax Profits Before Profit Sharing (as defined in the Corporate Constitution) for such year.
Long-Term Incentives. Minimum stock ownership in the Corporation is generally required of all profit participators (including
the Named Executive Officers) in order to align their interests with those of shareholders and to encourage the enhancement of shareholder value. In addition, upon the award of options under the
Corporation's Stock Option Plan, extended vesting periods are frequently used to encourage option recipients to remain as employees or senior officers of Decoma over the long term.
Written Employment Contracts. The Corporation extensively utilizes written employment contracts with its executive and senior officers and
members of group or divisional management to reflect the terms of their respective employment, including compensation, severance, stock ownership, confidentiality and non-competition
arrangements. Prior to the entry into, renewal and/or material amendment of employment contracts with executive or senior officers of the Corporation, the Compensation and Corporate Governance
Committee reviews such officer's compensation in the context of Decoma's historical compensation philosophies and policies, such officer's individual performance and relevant industry comparators,
with the objective of ensuring that the compensation payable to such officer is, in the circumstances, commensurate with the Corporation's performance and is primarily "at risk".
Decoma
believes that its continued growth, strong financial returns and growth in shareholder value justify significant financial rewards for its executive and senior officers which are
contingent on the continued profitability of the Corporation.
The
foregoing report for the year 2003 has been approved by and is submitted by the current Compensation and Corporate Governance Committee of the Board for inclusion in this Circular.
|
|
Vincent J. Galifi |
|
Neil G. Davis |
|
Frank E. Macher |
|
|
14
SHARE PERFORMANCE GRAPH
The following graph compares the cumulative total return (including reinvestment of dividends) for Cdn$100 invested in Class A Subordinate Voting Shares of
Decoma with the S&P/TSX Composite Total Return Index, as at the most recent five calendar year-ends.
(amounts in Cdn$)
|
|
Jan 1/99
|
|
Dec 31/99
|
|
Dec 31/00
|
|
Dec 31/01
|
|
Dec 31/02
|
|
Dec 31/03
|
Decoma Class A Subordinate Voting Shares |
|
100.00 |
|
85.89 |
|
74.50 |
|
130.06 |
|
106.16 |
|
119.36 |
S&P/TSX Composite Total Return Index |
|
100.00 |
|
131.71 |
|
139.12 |
|
121.63 |
|
106.50 |
|
134.97 |
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
None of the directors, executive officers or senior officers of the Corporation nor any associates of such persons are or were indebted at any time during 2003 to
the Corporation or its subsidiaries in connection with the purchase of the Corporation's securities or in respect of any other matter.
INTERESTS OF MANAGEMENT AND OTHER INSIDERS IN CERTAIN TRANSACTIONS
Affiliation Agreement
The Corporation is party to an affiliation agreement with Magna that provides for the payment by Decoma of an affiliation fee. On June 25, 2002, the
Corporation entered into an agreement with Magna to amend the terms of its then existing affiliation agreement. The amended agreement, which became effective August 1, 2002, provides for a term
of nine years and five months, expiring on December 31, 2011, and thereafter is renewable on a year-to-year basis at the parties' option. Affiliation fees payable under
the amended agreement were reduced to 1% of Decoma's consolidated net sales (as defined in the agreement) from the 1.5% that previously applied. In addition, the amended agreement provides for a fee
holiday on 100% of consolidated net sales derived from the particular acquisition in the calendar year in which the acquisition occurs and 50% of consolidated net sales derived from future business
acquisitions in the first calendar year following the year of acquisition.
15
Social Fees
Decoma's Corporate Constitution specifies that the Corporation will allocate a maximum of 2% of its profit before tax to support social and charitable activities.
Decoma fulfils this requirement principally through social and charitable programs coordinated by Magna on behalf of itself and its affiliates and accordingly, pays Magna a fee which is applied for
these purposes.
Administrative Services
Magna provides certain management and administration services to Decoma, including legal, environmental, immigration, tax, treasury, information systems and
employee relations services in return for a specific amount negotiated between the Corporation and Magna. In respect of 2003, the aggregate amount paid for such services was $4.2 million.
Registration Rights Agreement
The Corporation and Magna are parties to a registration rights agreement (the "Registration Rights Agreement") pursuant to which Magna may require the
Corporation's assistance in selling Class A Subordinate Voting Shares held by Magna under an offering by prospectus in Canada or in the United States. In addition, Magna has certain
rights to participate in offerings of Class A Subordinate Voting Shares undertaken by the Corporation after January 1, 2004, by requiring that up to 35% of the offered shares be
comprised of Magna's holdings of Class A Subordinate Voting Shares. Magna will bear all underwriter's commissions and discounts associated with any shares it sells, however, the Corporation
will bear the expenses (other than underwriter's commissions and discounts) associated with the Magna share sales effected under the Registration Rights Agreement. The Corporation is not permitted to
grant to any person registration rights which are superior in any fashion to those granted to Magna under the Registration Rights Agreement without Magna's approval.
Inter-Company Purchases
Decoma's manufacturing plants buy from and sell products to Magna's plants on an ongoing basis in the normal course of their business. As such, Magna is both a
supplier to and customer of Decoma. These transactions typically are on normal commercial terms.
Other
than the above noted matters, there have been no material transactions in 2003 in which any insider of the Corporation has had a material interest.
REPORT ON CORPORATE GOVERNANCE
The Board believes that sound corporate governance structures and practices are essential to the well-being of the Corporation and its shareholders.
Decoma has adopted certain structures and procedures to ensure that effective corporate governance practices are followed and that Decoma's Board functions independently of management. These
provisions are embodied in the Corporate Constitution and governance practices discussed below.
In
addition to the Corporate Constitution, the Corporation is subject to a number of legislative and regulatory corporate governance requirements and guidelines including those of the
TSX, NASDAQ, the SEC and under SOX. Recently, these legislative and regulatory bodies have promulgated and adopted a number of new or modified rules and regulations in the area of corporate governance
which will apply to the Corporation. In particular, NASDAQ has adopted the NASDAQ Rules and certain provisions of SOX have been implemented by the SEC which will directly impact upon the Corporation's
corporate governance practices.
16
The
Corporation is in compliance with those provisions of the above-noted initiatives which have been implemented and which currently apply to the Corporation. The Corporation will
continue to monitor and assess those initiatives that remain at the proposal stage or which currently do not apply to the Corporation with a view to making appropriate changes to the Corporation's
corporate governance structures as and when these initiatives are finalized and implemented.
The
following is a discussion of the Corporation's Corporate Constitution and a comparative review of the Corporation's current corporate governance practices relative to the current TSX
Guidelines for corporate governance. Where applicable, those provisions of the NASADQ Rules and SOX which either currently, or will in the future apply to the Corporation have also been noted and are
discussed below.
Corporate Constitution
Decoma is a majority-owned and controlled subsidiary of Magna (see "Voting Securities and Their Principal Holders") and, together with Decoma's predecessors, has
been part of the Magna family of companies since 1989. Magna's unique, entrepreneurial corporate culture includes certain principles and corporate governance practices prescribed by Magna's corporate
constitution. Decoma has applied the same principles and corporate governance practices, and, as a separate public company, has adopted the Corporate Constitution.
The
Corporate Constitution, which forms part of Decoma's Articles, attempts to strike a balance among Decoma's stakeholders its employees,
managers and investors by specifically defining their respective rights to participate in the Corporation's profits, while at the same time imposing certain
responsibilities or disciplines on management. Elements of these rights and disciplines include:
-
- the
entitlement of shareholders to certain minimum annual dividend distributions of not less than, on average, 20% of annual after-tax profits;
-
- the
allocation of a minimum of 7% of the Corporation's pre-tax profits to research and development activities;
-
- the
allocation of a maximum of 2% of the Corporation's pre-tax profits to the support of social objectives;
-
- the
allocation of 10% of the Corporation's employee pre-tax profits to eligible employees through the Decoma Employee Equity Participation and Profit Sharing
Program;
-
- the
application of incentive, profit-based compensation arrangements for management of the Corporation;
-
- the
restriction on investments by the Corporation in unrelated businesses where the amount of any such particular investment, together with all other investments in
unrelated businesses, exceeds 20% of the Corporation's equity;
-
- the
requirement for a majority of the members of the Board to be individuals who are not officers or employees of the Corporation, nor persons related to such officers or
employees, and that a minimum of two directors not be officers or employees of the Corporation or its affiliates (including Magna), or directors of the Corporation's affiliates (including Magna), nor
persons related to any such officers, employees or directors; and
17
-
- the
ability of Class A Subordinate Voting shareholders to directly elect directors, if, on average, a minimum after tax return of 4% on share capital is not achieved
over a rolling consecutive two fiscal year basis.
Statement of Corporate Governance Practices
The following is a statement of the Corporation's existing corporate governance practices with specific reference to the TSX Guidelines and those provisions of
the NASDAQ Rules and SOX which either currently, or will in the future apply to the Corporation.
Item 1 of the TSX Guidelines:
The board of directors of every corporation should explicitly assume responsibility for the stewardship of the corporation, and as part of
the overall stewardship responsibility, should assume responsibility for the following matters: (a) adoption of a strategic planning process; (b) identification of the principal risks of
the corporation's business and ensuring the implementation of appropriate systems to manage these risks: (c) succession planning; (d) a communications policy; and (e) integrity of
the corporation's internal control and management information systems.
The
Board oversees the business and affairs of the Corporation, supervises the day-to-day conduct of business by senior management, establishes or approves
overall corporate policies where required and involves itself jointly with management in ensuring the creation of shareholder value and the preservation and protection of the Corporation's assets. On
March 23, 2004, the Board adopted a formal mandate (the "Board Charter") which, in addition to the items noted below, clarifies the Board's role and responsibilities in the areas of the Board's
size, composition, independence, administrative functions, committee structures, compensation and executive management oversight responsibilities. To carry out its duties, the Board holds regularly
scheduled Board meetings on a fiscal quarterly basis, with additional meetings scheduled when required. A separate strategic planning and business plan review meeting is also held each fiscal year.
There were eleven meetings of the Board during 2003. In addition, there is continuing communication between senior management and Board members on an informal basis and through Committee meetings.
The
TSX Guidelines emphasize the stewardship responsibilities of a board to oversee the conduct of the business and to supervise management (which is responsible for the
day-to-day conduct of the business) and specifically identify five matters which are regarded as the principal responsibilities to be discharged by a board. These matters,
which are in addition to the Board's legal obligations under the Business Corporations Act (Ontario), are each considered below.
- (a)
- Adoption of a Strategic Planning Process. The Board is directly involved in Decoma's strategic planning process. Prior to
the commencement of each fiscal year, the Board participates in a meeting with management devoted solely to strategic planning and business plan reviews in which future trends and risks in the
automotive industry over a three to five year horizon are jointly identified. The strategic planning and business plan review meeting in respect of the 2003 fiscal year was held in
December 2002. The corresponding meeting for the 2004 fiscal year was held in December 2003. The Corporation's capital expenditures budget for the following year is tabled for approval
at such meeting. Additionally, updates on industry trends, product strategies, new product developments, major new business awards, capital expenditures and specific problem areas/action plans are
presented by Decoma's management and discussed as part of a management report at each regular quarterly Board meeting.
18
- (b)
- Managing Risk. By means of both the annual strategic planning and business plan review meeting and quarterly updates at
Board meetings, the Board identifies and reviews with management the principal business risks and receives reports of management's assessment of, and proposed responses to, those risks as they
develop. This process enables the Board as a whole to actively and appropriately manage all significant risks applicable to Decoma's business. In addition, the Audit Committee itself has an important
role in implementing and monitoring systems put in place to deal with the risks which fall within its mandate of reviewing the financial results of the Corporation, including the monitoring of
internal and external audits of Decoma's accounts, the review and oversight of internal financial control procedures and other matters in relation to Decoma's financial affairs.
- (c)
- Appointing, Training and Monitoring Senior Management. Decoma has continued Magna's long-established policy of
profit-based compensation in order to attract, retain and motivate skilled and entrepreneurial management and employees, as reflected in the Corporate Constitution. At the corporate level, the
Compensation and Corporate Governance Committee effectively reviews and implements such profit-based compensation policies to ensure that management performance (as measured by the Corporation's
profitability) bears a direct relationship to their levels of compensation. Through its review of all corporate officer appointments, including the Chief Executive Officer, the Board and the
Compensation and Corporate Governance Committee are directly involved in management succession and manpower planning issues. The Chief Executive Officer addresses management succession and development
with the Compensation and Corporate Governance Committee as part of the annual review meeting held in respect of each fiscal year. While the responsibility for direct training has traditionally been
left to senior management, the Board satisfies itself that the necessary levels of skill and experience exist when reviewing the appointments of corporate officers.
- (d)
- Communications Policy. The Board regularly reviews and monitors the programs being implemented by management to
effectively communicate with the Corporation's stakeholders, including shareholders, employees and the general public. The Chief Financial Officer and the Secretary of the Corporation are primarily
responsible for initiating and responding to all shareholder communications. The Board reviews and approves all material investor communications, including press releases involving the dissemination
of quarterly financial or other material information and all corporate disclosure documents. The Corporation has adopted a corporate disclosure policy which, among other matters, formalizes the above
practices. This policy was reviewed and amended in March of 2003 to reflect the establishment of a corporate disclosure committee comprised of members of senior management which has been charged with
formal responsibility for reviewing and approving the Corporation's public disclosure communications and regulatory filings. This committee reports to the Chief Executive Officer, the Chief Financial
Officer and to the Audit Committee of the Board. The Corporation also places great emphasis on its employee communications programs, including the management of its Employee's Charter. These programs
include monthly employee communications meetings, the publication of employee newsletters, divisional employee opinion surveys and, through the Corporation's continued affiliation with Magna, the
maintenance of an employee hotline and divisional fairness committees to directly address individual employee concerns.
19
- (e)
- Integrity of Internal Control and Management Information Systems. The Board, through the Audit Committee, has ensured that
effective systems are in place to monitor the integrity of the Corporation's internal control and management information systems in its delegated areas. The Audit Committee meets quarterly prior to,
and reports at, each quarterly Board meeting. During these meetings, the Audit Committee meets with both internal and external auditors to review the Corporation's internal control and management
information systems. Additionally, management formally reports to the Environmental and Health and Safety Committee on an annual basis the status of all material environmental and occupational health
and safety matters affecting the Corporation and its operating divisions, as such matters may arise from the divisional environmental and health and safety audit programs maintained by Decoma. In the
event that these monitoring and review systems reveal material environmental or health and safety non-compliance issues (which, to date, has not been the case), management would promptly
communicate such matters to the Board, together with proposed budgets and remediation plans, for review and consideration by the Board. In keeping with Decoma's commitment in the Employee's Charter to
maintain safe and healthful workplaces, employees at all levels are encouraged to communicate to management and, where appropriate, directly to the Board, all concerns and incidents relating to
environmental and health and safety issues.
Items 2 and 3 of the TSX Guidelines:
The Board of directors of every corporation should be constituted with a majority of individuals who qualify as "unrelated directors". An
unrelated director is a director who is independent of management and is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially
interfere with the director's ability to act with a view to the best interests of the corporation, other than interests and relationships arising from shareholding. A related director is a director
who is not an unrelated director. If the corporation has a significant shareholder, in addition to a majority of unrelated directors, the board should include a number of directors who do not have
interests in or relationships with either the corporation or the significant shareholder. A significant shareholder is a shareholder with the ability to exercise a majority of the votes for election
of the board of directors. The application of the definition of "unrelated director" to the circumstances of each individual director should be the responsibility of the board which will be required
to be disclosed on an annual basis whether the board has a majority of unrelated directors or, in the case of a corporation with a significant shareholder, whether the board is constituted with the
appropriate number of directors which are not related to either the corporation or the significant shareholder. Management directors are related directors. The board will also be required to disclose
on an annual basis the analysis of the application of the principles supporting this conclusion.
20
In
addition to the TSX Guidelines, the NASDAQ Rules will require that a majority of the board of directors must be comprised of "independent" directors as defined by the NASDAQ Rules. In
general, to qualify as an independent director under the NASDAQ Rules, an individual must not be an officer or employee of the Corporation or its subisdiaries and must have no relationship with the
Corporation, which, in the determination of the Board, interferes with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ Rules also specify a number
of specific relationships that will, if applicable, preclude a finding of independence. The NASDAQ Rules will further require the Board to affirmatively make and disclose its determination of
independence each year.
The
Corporate Constitution also requires that a majority of the members of the Board be individuals who are not officers or employees of the Corporation, nor persons related to such
officers or employees, and that a minimum of two directors not be officers or employees of the Corporation or its affiliates (including Magna), or directors of the Corporation's affiliates (including
Magna), nor persons related to such officers, employees or directors.
In
order to assess the Corporation's compliance with the TSX Guidelines, the pending NASDAQ Rules relating to independence and its Corporate Constitution, the Board has considered the
circumstances of each of the members of the Board and have concluded that Messrs. Davis, Fuller, Macher and Mayberry and Ms. Jackson are "unrelated directors" within the meaning of the
TSX Guidelines and satisfy the definition of independence provided under the NASDAQ Rules. Mr. Fuller has represented Magna and the Stronach Trust periodically since 1969 and has advised the
Board that the dollar value of the fees from this representation has not been material. In addition, Mr. Fuller is not a person deemed not to be independent by virtue of the types of
relationships specified by the NASDAQ Rules. Accordingly, the Board considers Mr. Fuller to be an "unrelated director" within the meaning of the TSX Guidelines and an "independent" director
under the NASDAQ Rules. Mr. Macher recently retired as the Chairman and Chief Executive Officer of Federal-Mogul Corporation, an automotive parts manufacturer which has no material supplier
relationship with Decoma and which is not considered to be in competition with Decoma in any material respect. Mr. Macher is also not a person deemed not to be independent by virtue of the
types of relationships specified by the NASDAQ Rules. As such, the Board considers Mr. Macher to be an "unrelated director" within the meaning of the TSX Guidelines and "independent" within the
meaning of the NASDAQ Rules. Mr. Mayberry recently retired as the Chair of the Board and Chief Executive Officer of Dofasco Inc., a manufacturer of flat-rolled steel and
tubing products used in the manufacture of automobiles and automotive parts. Decoma does not purchase significant levels of steel products from Dofasco. Mr. Mayberry is not a person deemed not
to be independent by virtue of the types of relationships specified by the NASDAQ Rules. As such, the Board considers Mr. Mayberry to be an "unrelated director" within the meaning of the TSX
Guidelines and "independent" within the meaning of the NASDAQ Rules. The Board has also considered the circumstances and relationships relating to both Mr. Davis and Ms. Jackson and has
concluded that both individuals are "unrelated directors" under the TSX Guidelines and "independent" within the NASDAQ Rules.
The
remaining Board members are considered to be related. Mr. Power, as President and Chief Executive Officer of Decoma, is a member of management. Mr. Galifi is an officer
of Magna and a director of certain of its affiliates. Mr. Wolf is a director and officer of Magna and certain of its affiliates. Mr. Wolf, newly elected as Chairman of the Board of
Decoma, is not, as such, considered to be part of Decoma's Executive Management as he is not involved in the day-to-day management of the business and affairs of Decoma. The
Board believes that its current composition more than adequately reflects the investment in the Corporation by its minority shareholders.
21
Item 4 of the TSX Guidelines:
The board of directors of every corporation should appoint a committee of directors composed exclusively of outside,
i.e., non-management directors, a majority of whom are unrelated directors, with the responsibility for proposing to the full board new nominees to the board and for assessing
directors on an ongoing basis.
Decoma
has not established a separate nomination committee as recommended by the TSX Guidelines. In addition, as a "controlled company" (as defined under the NASDAQ Rules), the
Corporation will not be required to have a nomination committee under such rules. However, pursuant to the Board Charter, the Lead Director assists in the selection, review and nomination of suitable
candidates for board positions as required from time to time. The Board Charter also addresses a number of issues normally considered by a nomination committee, such as the size, composition and
effectiveness of the Board. The Board is satisfied that the matters normally considered by a nomination committee have been effectively addressed by the Board in the past and will continue to be
appropriately addressed in the context of the structure outlined above.
Item 5 of the TSX Guidelines:
Every board of directors should implement a process to be carried out by the nominating committee or other appropriate committee for
assessing the effectiveness of the board as a whole, the committees of the board and the contribution of individual directors.
The
Board has delegated to the Compensation and Corporate Governance Committee the responsibility for annually assessing and overseeing the evaluation of the effectiveness of the Board
as a whole and the individual committees of the Board. In this regard, the Compensation and Corporate Governance Committee distributed a self-assessment questionnaire to each member of the
Board in respect of board meetings and activities during 2003. In particular, Board members were asked to comment on the areas of board priorities, board responsibilities, board operations, board
effectiveness and the roles and effectiveness of each of the Board's standing committees. Results of the questionnaire responses were reviewed by the Lead Director in consultation with the
Corporations's General Counsel, with both the Compensation and Corporate Governance Committee and the Board's outside directors. Based upon the results of this self-assessment, the
Compensation and Corporate Governance Committee was satisfied with the overall effectiveness, role, size and composition of the Board and its committees and, as such, no changes were recommended to be
made in these areas.
Item 6 of the TSX Guidelines:
Every corporation, as an integral element of the process of appointing new directors, should provide an orientation and education program
for new recruits to the board.
Decoma
has taken steps to ensure that its new Board members are provided with a basic understanding of its business to assist them in contributing effectively from the outset of their
election or appointment. This education process includes supplying a comprehensive orientation manual and enabling each new member to meet with senior management and operational personnel and to visit
the Corporation's manufacturing and other facilities. Such facility visits and meetings with corporate and operational management are encouraged throughout the term of each director's tenure.
22
Item 7 of the TSX Guidelines:
Every board of directors should examine its size and, with a view to determining the impact of the number upon effectiveness, undertake
where appropriate, a program to reduce the number of directors to a number which facilitates more effective decision-making.
The
Board currently consists of eight members. The Board reviews its size from time to time in order to ensure that it remains of a size which is conducive to effective and efficient
communication and decision making. As noted above, the results of the Board's self-assessment questionnaire concluded that the Board's current size was conducive to effective
decision-making.
Item 8 of the TSX Guidelines:
The board of directors should review the adequacy and form of the compensation of directors and ensure the compensation realistically
reflects the responsibilities and risks involved in being an effective director.
Directors
who are not employees of Decoma nor directors or officers of Magna are currently paid those annual, per meeting and other fees referred to under "Compensation of Directors and
Executive Officers Directors' Compensation" above. Decoma reviews these compensation levels periodically in light of comparable companies of similar size and
global presence, both within and outside the automotive industry, in order to ascertain that the level of compensation paid by Decoma to its directors realistically reflects the responsibilities and
risks involved in serving as a Board member. The Board currently considers existing forms and levels of director compensation to be adequate and reflective of current responsibilities and risks
involved in being an effective director.
Item 9 of the TSX Guidelines:
Committees of the board of directors should generally be composed of outside directors, a majority of whom are unrelated directors,
although some board committees, such as the executive committee, may include one or more inside directors.
The
Board has established three standing Committees: the Compensation and Corporate Governance Committee, the Audit Committee and the Health and Safety and Environmental Committee, in
order to permit directors to delegate and share responsibilities and to devote the necessary expertise and resources to particular areas. The Corporation does not have an executive committee. Other
committees are established by the Board from time to time as circumstances require including, without limitation, special committees of outside and independent directors of the Board to review related
party transactions. Each of these committees has specifically defined responsibilities which have been established by the Board. A majority of the members of the Compensation and Corporate Governance
Committee and the Health and Safety and Environmental Committees and, as noted above, all of the members of the Audit Committee currently consist of "unrelated directors" under the TSX Guidelines and
"independent" directors under the NASDAQ Rules.
23
The
Compensation and Corporate Governance Committee is comprised of three directors. During 2003, the committee consisted of Ms. Stronach (the Chairman) who resigned in
January 2004, Mr. Davis and Mr. Macher. The vacancy on the committee created by Ms. Stronach's resignation, was filled by the apointment of Mr. Galifi as a director
and a member and the Chairman of the Compensation and Corporate Governance Committee on February 25, 2004. Messrs. Davis and Macher are considered to be "unrelated directors" within the
meaning of the TSX Guidelines and "independent" under the NASDAQ Rules. Mr. Galifi is a "related" director. Although the NASDAQ Rules will require a fully independent compensation committee,
"controlled companies" such as Decoma will be exempt from this requirement. In accordance with its mandate, the Compensation and Corporate Governance Committee meets not less than annually to review
and make recommendations to the Board in respect of (i) the direct and indirect compensation, benefits and perquisites (cash and non-cash) of the Chief Executive Officer, the
President, the Chief Financial Officer and any other individual employed by the Corporation that the Board determines from time to time to be a member of executive management (collectively, "Executive
Management"), and reviews the Chief Executive Officer's report to the Committee with respect to the compensation, benefits and perquisites of the other members of corporate management and/or senior
officers of the Corporation, and (ii) the Corporation's policies regarding management benefits and perquisites. The committee also reviews and approves the disclosure relating to the
compensation of directors and officers of the Corporation, the report on executive compensation and the report on corporate governance contained in its management information circular or other
documents prior to their distribution to the shareholders of the Corporation, prepares the Report of the Compensation Committee contained therein, and performs such other functions as requested or
delegated by the Board from time to time as required. The Compensation and Corporate Governance Committee administers Decoma's Stock Option Plan and oversees the Corporation's Pension Committee and is
responsibile for corporate governance matters including developing the Corporation's approach to corporate governance issues, assessing the effectiveness of the system of corporate governance of the
Corporation as a whole and approving the Corporation's response to the TSX Guidelines (see "Report on Corporate Governance" above).
The
Audit Committee is comprised of three directors. During 2003, the committee consisted of Mr. Mayberry (the Chairman), Mr. Macher and Ms. Jackson, all of whom are
considered to be "unrelated directors" within the meaning of the TSX Guidelines and "independent" under the NASDAQ Rules and applicable SOX requirements. The committee does not currently possess an
audit committee "financial expert" within the definition contained in SOX. However, the Board has considered and concluded that each of the current members of the Audit Committee possess the necessary
degree and level of financial literacy mandated by the NASDAQ Rules. Further, the Board has reviewed and concluded that one or more of the current Audit Committee members possess the level of
financial sophistication required by the NASDAQ Rules. Based on the above, the Board considers the current Audit Committee to be of a composition and level of financial expertise to enable it to
effectively carry out its roles and responsibilities in compliance with its Charter and applicable law. As such, the Board has concluded that an audit committee "financial expert" is not required at
this point in time. However, consistent with its focus on best practices, the Audit Committee intends to consider the possibility of adding a "financial expert" to the committee in the coming year,
subject to the availability of suitable candidates. The Audit Committee operates under the Corporation's by-laws and applicable law, and in accordance with the Audit Committee Charter.
Pursuant to its Charter, the Audit Committee has general authority in relation to the Corporation's financial affairs as well as the specific obligations to: review and approve the Auditor's annual
fees; review the Corporation's quarterly and annual financial statements and report thereon to the Board; and nominate candidates for the appointment of auditors to the shareholders of the Corporation
for election annually. The Audit Committee also has certain additional responsibilities relating to internal and external audits, internal controls and procedures, application of significant
accounting principles, financial reporting and integrity, oversight of the Auditor and other related matters. In accordance with its Charter, the Audit Committee meets following each fiscal quarter of
the Corporation to carry out its mandate.
24
The
Health and Safety and Environmental Committee is comprised of three directors: Mr. Fuller (the Chairman), Ms. Jackson and Mr. Power. Ms. Jackson and
Mr. Fuller are "unrelated directors" within the meaning of the TSX Guidelines and "independent" under the NASDAQ Rules. As noted above, Mr. Power is a "related" director. In accordance
with its mandate, the Health and Safety and Environmental Committee meets not less than annually to review, make recommendations and advise the Board with respect to environmental and health and
safety matters.
As
noted above, the Board has adopted the Board Charter which codifies the division of responsibilities between the Board, its various committees and management.
Item 10 of the TSX Guidelines:
Every board of directors should expressly assume responsibility for, or assign to a committee of directors the general responsibility for,
developing the corporation's approach to governance issues. This committee would, among other things, be responsible for the corporation's response to these governance
guidelines.
As
noted above, the Board has delegated to the Compensation and Corporate Governance Committee responsibility for developing the Corporation's approach to governance issues, for
assessing the effectiveness of the Corporation's system of corporate governance as a whole and for the Corporation's response to the TSX Guidelines.
Item 11 of the TSX Guidelines:
The board of directors, together with the CEO, should develop position descriptions for the board and for the CEO, involving the
definition of the limits to management's responsibilities. In addition, the board should approve or develop the corporate objectives which the CEO is responsible for meeting.
The
TSX Guidelines also discuss other issues which arise out of the relationship between the Board and management, including a recommendation that the limits of their respective
responsibilities be defined. As noted above, the primary legal mechanism implemented by Decoma to ensure Board independence from management is the "outside" director requirement in the Corporate
Constitution and the existence of a majority of what the Corporation believes are "unrelated" and "independent" directors. In addition, the Board Charter delineates the various areas of responsibility
and the relationship between the Board and Management of the Corporation. The Board Charter also provides that the Board is responsible, in consultation with the Corporation's Chief Executive Officer,
for determining the principal roles and responsibilities of the Corporation's Chief Executive Officer. Additionally, as previously indicated, each of the Board's committees has clearly defined
responsibilities. Subject to those powers which it has specifically delegated, the Board retains all residual authority to manage or supervise the management of the business and affairs of Decoma.
Item 12 of the TSX Guidelines:
Every board of directors should have in place appropriate structures and procedures to ensure that the board can function independently of
management. An appropriate structure would be to (i) appoint a chair of the board who is not a member of management with responsibility to ensure the board discharges its responsibilities or
(ii) adopt alternate means such as assigning this responsibility to a committee of the board or to a director, sometimes referred to as the "lead director". Appropriate procedures may involve
the board meeting on a regular basis without management present or may involve expressly assigning the responsibility for administering the board's relationship to management or a committee of the
board.
25
Mr. Power
is the President and Chief Executive Officer and serves as a director of Decoma. During 2003, Ms. Stronach was the Chairman of the Board, which is a
non-executive position, as she was not involved in the day-to-day management of the business and affairs of the Corporation. As noted above (see
"Item 4 of the TSX Guidelines"), in March of 2003, the Board appointed Mr. Macher to act in the capacity of "lead director". In keeping
with past assessments, the Corporation continues to believe that its present Board size facilitates direct and immediate communication between the "unrelated directors" and management, and permits
individual directors to directly involve themselves in specific matters where their personal inclination or experience will assist the Board and management in dealing with a particular issue. It is
expected that "unrelated directors" will continue to assume this role as circumstances warrant in the future. During 2003, the outside and "unrelated" members of Decoma's board met in executive
session, absent members of management and related directors, following each quarterly meeting of directors.
Item 13 of the TSX Guidelines:
The audit committee of every board of directors should be composed only of outside directors. The roles and responsibilities of the audit
committee should be specifically defined so as to provide appropriate guidance to audit committee members as to their duties. The audit committee should have direct communication channels with the
internal and external auditors to discuss and review specific issues as appropriate. The audit committee duties should include oversight responsibility for management reporting on internal control.
While it is management's responsibility to design and implement an effective system of internal control, it is the responsibility of the audit committee to ensure that management has done
so.
As
noted above, the Audit Committee of the Corporation is composed of three "unrelated" directors and meets the independence requirements of both the NASDAQ Rules and SOX. As required by
the NASDAQ Rules, none of the members of the Audit Committee has participated in the preparation of the financial statements of the Corporation or any subsidiary of the Corporation during the past
three years. The Committee meets regularly following the conclusion of each fiscal quarter and the year-end of the Corporation at which time members of the Committee engage in direct
communications with both the internal and external auditors of the Corporation and the Corporation's financial management. Such communications involve a regular assessment of the adequacy of both the
internal and external financial reporting and audit processes of the Corporation, management's participation and levels of cooperation and a review and discussion of specific issues as circumstances
warrant. During each such meeting, the Committee engages in in camera discussions with each of the internal auditor, the external auditor and
representatives of the Corporation's senior financial management so as to cultivate frank and open discussions with each of these groups.
Item 14 of the TSX Guidelines:
The board of directors should implement a system which enables an individual director to engage an outside advisor at the expense of the
corporation in appropriate circumstances. The engagement of the outside advisor should be subject to the approval of an appropriate committee of the board.
26
The
Board and each committee of the Board, pursuant to their respective charters and/or mandates, as applicable, are empowered to engage outside advisors at the expense of the
Corporation where required in the course of their duties. The Board would also consider requests to retain outside advisors at the expense of the Corporation by individual directors or Committee
members on their respective merits at the time that any such request was made.
Other NASDAQ Requirements
Code of Conduct and Ethics
In addition to the above noted matters, pursuant to the NASDAQ Rules, the Board is currently reviewing and considering for adoption, a code of conduct and ethics.
The code will apply to all of the Corporation's directors, officers and employees and will address the basic principles, standards and other code provisions that are mandated under the NASDAQ Rules
and SOX.
Executive Sessions of Outside Directors
As noted above, the independent directors of the Corporation meet in executive session, absent the related directors and members of management, on a regular basis
following each quarterly board meeting.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Corporation participates with Magna in the purchase of directors' and officers' liability insurance, which provides, among other things, coverage for
executive liability of up to Cdn$255 million (per occurrence and in the aggregate for all claims made during the policy period of January 1, 2002 through August 1, 2004) for
directors and officers of the Corporation and its affiliates (including Magna), subject to a Cdn$250,000 aggregate deductible for executive indemnification. This policy does not provide coverage for
losses arising from the breach of fiduciary responsibilities under statutory or common law or from the violation or enforcement of pollutant laws and regulations. Decoma's allocation of the premium
payable in respect of this policy for 2003 for the executive indemnification portion of this insurance policy is approximately Cdn$156,200.
The
Board is currently reviewing the adequacy of existing coverage in light of additional liabilities which may be imposed on directors and officers as a result of the various regulatory
initiatives noted above.
SHAREHOLDER PROPOSALS
Proposals from shareholders for inclusion in the 2005 management information circular must be received by the Secretary at the principal executive offices of the
Corporation, at 50 Casmir Court, Concord, Ontario, Canada L4K 4J5, on or before March 10, 2005.
OTHER MATTERS
Management is not aware of any amendments or variations to matters identified in the Notice or of any other matters that are to be presented for action to the
Meeting, other than those described in the Notice.
27
Information
stated in this Circular is dated as at March 25, 2004, except where otherwise indicated. The contents and the mailing of this Circular have been approved by the Board.
"Alan J. Power" (signed) |
|
"R. David Benson" (signed) |
Alan J. Power
President and
Chief Executive Officer |
|
R. David Benson
Executive Vice-President,
Secretary and General Counsel |
28
The Corporation will file an Annual Information Form with respect to the year ended December 31, 2003, with the Ontario Securities Commission and a corresponding annual
report on Form 40-F with the United States Securities and Exchange Commission. A copy of the most recent Annual Information Form, this Circular and Decoma's 2003 Annual
Report containing the Consolidated Financial Statements of the Corporation for the year ended December 31, 2003, the Report of the Auditor thereon and Management's Discussion and Analysis of
Operations and Financial Position, are available on the Corporation's website www.decoma.com and will be sent to any person upon request in writing
addressed to the Secretary at the principal executive offices of the Corporation set out in this Circular. Such copies will be sent to any shareholder without charge.
29
SCHEDULE "A"
DECOMA INTERNATIONAL INC.
(the "Company")
AUDIT COMMITTEE CHARTER
Purpose
The audit committee of the Board of Directors of the Company (the "Committee") shall provide assistance to the board of directors of the Company (the "Board") in
fulfilling its oversight responsibilities with respect to the Company's financial reports and other financial matters, including without limitation, reviewing the Company's financial reporting
process; reviewing the Company's system of internal accounting and financial controls; appointing, approving the funding of and overseeing the performance of the Company's Independent Auditor (as
hereinafter defined); reviewing the performance of the Company's Internal Auditors (as hereinafter defined); reviewing the Independent Auditor's qualifications and independence; and reviewing the
Company's compliance with such financial ethics policies and such other applicable legal and regulatory requirements in effect from time to time which impact upon the financial affairs of the Company.
In so doing, it is the responsibility of the Committee to maintain free and open communication between the Board, the Independent Auditor, the Internal Auditors, and the financial management of the
Company.
In
discharging its oversight role as aforesaid, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities,
financial resources and personnel of the Company and the authority to engage independent counsel and other advisors as it deems reasonably necessary to carry out its duties hereunder.
Composition and Expertise
The Committee shall be comprised of not less than three (3) and not more than five (5) members, all of whom shall be independent of management of
the Company and of the Company's majority shareholder. All Committee members shall be financially literate, and shall have such accounting or financial management expertise as is required to comply
with applicable legal, regulatory and listing requirements. Determinations as to whether a particular director satisfies the requirements for membership on the Committee will be made by the Board with
reference to the independence and experience criteria of applicable legal, regulatory and listing requirements. Without limiting the generality of the foregoing, a member of the Committee shall not be
considered to be "independent" if such individual receives consulting, advisory or other compensatory fees from the Company other than director and committee fees or is considered to be affiliated
with the Company or its subsidiaries. The Board shall annually appoint the members of the Committee and appoint a chairman from amongst those appointed, to hold office until the next annual meeting of
shareholders of the Company. The members of the Committee shall serve at the pleasure of the Board and vacancies occurring from time to time shall be filled by the Board.
Meetings
A majority of the members of the Committee shall constitute a quorum and all actions of the Committee shall be taken by a majority of the members present at the
meeting. Meetings of the Committee shall be called by the chairman of the Committee and may be called by any member of the Committee, or by the chairman, the president, the chief executive officer,
the chief financial officer, the vice-president, finance or the Independent Auditor of the Company. Unless otherwise specified by the chairman of the Committee, the secretary of the
Company shall act as secretary of the Committee and shall provide the Independent Auditor and the chairman, the president, the chief executive officer, the chief financial officer, the
vice-president, finance and the Internal Auditors of the Company and each member of the Committee with notice of each meeting of the Committee and each shall be entitled to attend each
such meeting. The Committee shall meet within:
- (a)
- forty
five (45) days (or such shorter period as may be required to accommodate applicable filing periods) following the end of each of the first three fiscal quarters of the
Company and prior to the release of quarterly earnings to review the financial results of the Company for the preceding fiscal quarter as provided herein; and
- (b)
- within
ninety (90) days (or such shorter period as may be required to accommodate applicable filing periods) following the fiscal year end of the Company to review the audited
financial statements of the Company for the preceding fiscal year and to report thereon to the Board as provided herein.
Duties and Responsibilities
In carrying out its oversight responsibilities, the Committee believes that its policies and procedures should remain flexible in order to enable it to react to
changes in circumstances and conditions so as to ensure that the corporate accounting and reporting practices of the Company are in accordance with all applicable legal, regulatory and listing
requirements.
In
carrying out these responsibilities, the Committee shall:
-
- review
the adequacy of this Charter at least annually and at such other intervals as the Committee or the Board determines.
-
- be
directly responsible for the appointment and termination (subject to applicable shareholder ratification), approval of compensation for and oversight of the Independent
Auditor to be selected to audit the books, records and accounts of the Company and its divisions and subsidiaries (the "Independent Auditor"). The Independent Auditor shall be accountable to the
Committee and the Board.
-
- review
and concur with or reject management's appointment, termination or replacement of the internal auditors of the Company (the "Internal Auditors").
-
- meet
with the Independent Auditor, the financial management of the Company and the Internal Auditors to review the scope of the proposed audit and timely quarterly reviews
for the current year and the procedures to be utilized, and at the conclusion thereof, review such audit or review, including any comments or recommendations of the Independent Auditor or Internal
Auditors, as applicable.
-
- review
and approve in advance all non-audit accounting services otherwise permitted by law to be provided by the Independent Auditor to the Company provided that
the Committee may pre-approve such services within designated thresholds on an annual basis and provided further that the Committee may delegate pre-approval authority for
services in excess of such thresholds, if any, to a Committee member or members. Any approvals granted by such persons shall be reported on at the next regularly scheduled meeting of the Committee as
a whole.
-
- review,
at least annually and at each other interval as the Committee or the Board determines, the internal audit function of the Company including the independence and
authority of its reporting obligations, the proposed audit plans for the coming year and the co-ordination of such plans with the Independent Auditor.
-
- review
and discuss with the Independent Auditor, at least annually and at each other interval as the Committee or the Board determines, all significant relationships which
the Independent Auditor and its affiliates have with the Company and its affiliates in order to determine the auditor's independence including (i) requesting, receiving and reviewing, on a
periodic basis, a formal written statement delineating all relationships between them which may reasonably be considered to bear on the independence of the Independent Auditor with respect to the
Company; (ii) discussing with the Independent Auditor any disclosed relationships or services that may impact the objectivity and independence of the Independent Auditor; and
(iii) recommending that the Board take appropriate action and response to the Independent Auditor's report to oversee the independence of the Independent Auditor.
ii
-
- review,
at least annually and at each other interval as the Committee or the Board determines, the adequacy and effectiveness of the accounting and financial controls of the
Company, any recommendations for the improvement for such internal controls or particular areas where new or more detailed controls or procedures are desirable, and the status of any actions taken
regarding such matters.
-
- review
as required by applicable legal and regulatory requirements, management's annual review and assessment of the effectiveness of its internal financial controls and
procedures in respect of each fiscal year of the Company and, as and when applicable, the Independent Auditor's attestation of such assessment.
-
- review
the annual audited financial statements of the Company and the quarterly unaudited financial statements of the Company and management's discussion and analysis of
financial condition and results of operations relating thereto and, where appropriate, recommend the approval of such statements to the Board. In connection with such review, the Committee shall also
receive and review the report of the Independent Auditor on all critical accounting policies and practices relating thereto; all alternative treatments of financial information contained therein and
discussed with the financial management of the Company and the ramifications of such treatments and the Independent Auditor's preferred treatment thereof if different from that adopted; and any other
material written communications between the Independent Auditor and the financial management of the Company in respect of such matters.
-
- review
with each of the Independent Auditor, financial management of the Company and the Internal Auditors, at least annually and at such other intervals as the Committee or
the Board determines, any significant financial risks or exposures to the Company of which they are aware, if any, and assess the steps management has taken to minimize such risks, if any, to the
Company.
-
- provide
sufficient opportunity for the Independent Auditor, the financial management of the Company and the Internal Auditors to each meet with the Committee alone without
members of the other parties, as applicable, being present to discuss the co-operation that each party has received from the others during the course of such audit or review, and such
other matters as the Committee deems appropriate, as applicable.
-
- review
and, where appropriate, approve all public disclosure documents containing financial information of the Company prior to its release, including without limitation,
all earnings related press releases and all earnings related guidance and any revisions thereto.
-
- annually
prepare a report to the shareholders of the Company as required by applicable legal and regulatory requirements.
-
- review
the Company's disclosure in the proxy statements for its annual meeting of shareholders. In addition, include a copy of this Charter in the annual report to
shareholders or the proxy statement at least
tri-annually or the year after any significant amendments to the Charter are made, or as otherwise required by applicable legal and regulatory requirements.
-
- review
reports received from time to time from regulators and other legal and regulatory matters that may have a material effect on the financial statements of the Company
or related Company compliance policies.
-
- establish
(within the time periods mandated by applicable legal and regulatory requirements) and administer procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal accounting controls or audit related matters and the confidential, anonymous submission of complaints by employees of the Company
regarding accounting or auditing matters. The Committee may delegate the administration of such complaints procedures to the Internal Auditors provided that the Internal Auditors shall provide the
Committee with periodic reports on such matter.
iii
-
- keep
a record of the actions and proceedings of the Committee and report thereon to the Board periodically or whenever requested to do so.
-
- as
applicable, review the Company's code of ethics as it pertains to the Company's senior financial management and, where applicable, any requests for waivers from or
variances to such code of ethics.
-
- review
with the Company's legal counsel, legal compliance matters or any legal matter that could have a significant impact on the Company's financial statements and, where
applicable, receive and review such counsel's reports, if any, as are required by applicable law to be provided to the Committee.
-
- oversee
the implementation and adoption of the Company's corporate disclosure policy, as amended from time to time, and oversee the administration of such policy by the
Company's corporate disclosure committee.
-
- perform
such other activities consistent with this Charter, the Company's articles of incorporation, by-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
While
the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Such functions are the responsibility of financial management of the Company, the
Internal Auditor and the Independent Auditor, as applicable. Nor is it the duty of the Audit Committee to conduct investigations, to resolve disagreements, if any, amongst the financial management of
the Company, the Independent Auditor or the Internal Auditors or to ensure compliance with laws and regulations. Nothing contained in this Charter is intended to expand applicable standards of
liability under statutory or regulatory requirements for the directors of the Company. The purposes and procedures outlined in this Charter are meant to serve as guidelines rather than inflexible
rules and the Committee is encouraged to adopt such additional procedures and standards as it deems necessary from time to time to fulfill its responsibilities.
iv
QuickLinks
Exhibit 99.2
NOTICE OF MEETING OF SHAREHOLDERS
MANAGEMENT INFORMATION CIRCULAR
APPOINTMENT AND REVOCATION OF PROXIES
VOTING OF PROXIES
RECORD DATE
VOTING SECURITIES AND THEIR PRINCIPAL HOLDERS
FINANCIAL STATEMENTS AND AUDITOR'S REPORT
BUSINESS TO BE TRANSACTED AT THE MEETING
REPORT OF THE AUDIT COMMITTEE
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Options Granted During the Financial Year Ended December 31, 2003, to Named Executive Officers
Named Executive Officers' Aggregate Option Exercises During the Year Ended December 31, 2003, and Year-End Option Values
COMPENSATION AND CORPORATE GOVERNANCE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
SHARE PERFORMANCE GRAPH
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
INTERESTS OF MANAGEMENT AND OTHER INSIDERS IN CERTAIN TRANSACTIONS
REPORT ON CORPORATE GOVERNANCE
Statement of Corporate Governance Practices
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
SHAREHOLDER PROPOSALS
OTHER MATTERS
DECOMA INTERNATIONAL INC. (the "Company") AUDIT COMMITTEE CHARTER
EX-99.3
5
a2131935zex-99_3.htm
EXHIBIT 99.3
Exhibit 99.3
CLASS A SUBORDINATE VOTING SHARES PROXY
THIS PROXY IS SOLICITED BY AND ON BEHALF OF MANAGEMENT
AND THE BOARD OF DIRECTORS OF DECOMA INTERNATIONAL INC. |
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The
undersigned shareholder of Decoma International Inc. (the "Corporation") hereby appoints Siegfried Wolf, or failing him Alan J. Power, or failing him R. David Benson, or instead of any of
them
as
the proxyholder of the undersigned, with full power of substitution, in respect of all the Class A Subordinate Voting Shares of the Corporation held by the undersigned, to attend at, and to
act and vote on behalf of the undersigned in respect of all matters that may come before, the Annual Meeting of Shareholders of the Corporation on Monday, May 3,
2004, and any and all adjournments thereof, and, without limiting the general authority conferred by this proxy, the undersigned hereby specifically directs such proxyholder as
follows:
- (a)
- to
vote FOR [ ] or ABSTAIN
[ ] in respect of:
the election of Neil G. Davis, Robert J. Fuller, Vincent J. Galifi, Jennifer J. Jackson, Frank E. Macher, John T. Mayberry, Alan J. Power and Siegfried Wolf as directors;
(To withhold your vote from any individual nominee,
strike a line through the individual nominee's name.)
- (b)
- to
vote FOR [ ] or ABSTAIN
[ ] in respect of:
the reappointment of Ernst & Young LLP as the Auditor of the Corporation, based on the recommendation of the Audit Committee of the Board of Directors, and authorizing the Audit
Committee to fix the Auditor's remuneration; and
- (c)
- to
transact such other business as may properly come before the Meeting or any adjournment thereof.
This proxy confers discretionary authority to vote on amendments or variations to the matters identified in the Notice of Annual Meeting of Shareholders and on all other
business or matters as may properly come before the meeting or any adjournment(s) thereof.
The proxy holder will vote for the management nominees for the office of director and for the reappointment of Ernst & Young LLP as the Auditor of the Corporation
and authorizing the audit committee of the board of directors to fix the Auditor's remuneration, where a choice for each such matter is not specified in this proxy.
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The undersigned confirms the express wish that this document and the documents relating hereto, including the Circular, be in English only. Le soussigné confirme sa volonté expresse que ce document et les
documents se rattachant à la présente, y compris la circulaire d'information et de procuration de la direction soient rédigés en anglais seulement. |
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The undersigned hereby revokes any proxy previously given. |
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Date |
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, 2004 |
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Signature |
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NOTES:
- 1.
- This
proxy must be signed by the shareholder or his/her attorney duly authorized in writing.
- 2.
- If
the shareholder is a corporation, this proxy must be executed by an officer or attorney thereof duly authorized in writing.
- 3.
- Please
date this proxy. If not dated, it shall be deemed to be dated the day on which it was mailed.
- 4.
- A shareholder has the right to appoint a person to attend and to act for him/her on his/her
behalf at the Meeting other than the management nominees named
above. Such right may be exercised by striking out the names of Siegfried Wolf, Alan J. Power and R. David Benson and inserting in the space provided the name of the person to
be appointed, who need not be a shareholder of the Corporation, or by completing another proper form of proxy.
REGISTERED SHAREHOLDERS ONLY MAY VOTE THIS PROXY BY FAX AT (416) 263-9524 OR
1-866-249-7775.
If your address as shown is incorrect, please provide your correct address when returning this proxy.
EX-99.4
6
a2131935zex-99_4.htm
EXHIBIT 99.4
QuickLinks
-- Click here to rapidly navigate through this document
Exhibit 99.4
NOTICE TO NON-REGISTERED SHAREHOLDERS
TO RECEIVE 2004 QUARTERLY REPORTS
Decoma International Inc. maintains a Supplemental Mailing List which includes the names of shareholders whose shares are registered in the name of a broker, bank or
other intermediary rather than in their own names. Decoma mails quarterly reports directly to such non-registered shareholders on the Supplemental Mailing List. This List is in addition
to, and separate from, the Registered Shareholder Mailing List maintained by Decoma's Registrar and Transfer Agent.
Our Supplemental Mailing List is re-created annually. If you are a non-registered shareholder and wish to be added to our Supplemental Mailing List so
as to receive quarterly reports, please complete the reply section below and return this Notice with your completed proxy, or separately, to the address noted below.
Registered shareholders will continue to receive quarterly report mailings and need not reply.
Non-registered
shareholders who wish to receive Decoma's 2004 mailings should send their address information as set out below, to:
Via Mail: |
|
Via Fax: |
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Via Email: |
Betty-Ann Jarzab
Decoma International Inc.
50 Casmir Court
Concord, ON, Canada
L4K 4J5 |
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Betty-Ann Jarzab
Fax: (905) 669-5532 |
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info@decoma.com |
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PLEASE COMPLETE AND RETURN THIS FORM |
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................................................................................................................................................................................................................................................. |
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April 5, 2004 |
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To
receive quarterly financial material from Decoma International Inc. (CUSIP 24359C 10 0), please PRINT your name and address in the space below and return this notice to Decoma.
NAME OF NON-REGISTERED SHAREHOLDER |
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MAILING ADDRESS |
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Postal Code/Zip Code |
QuickLinks
NOTICE TO NON-REGISTERED SHAREHOLDERS TO RECEIVE 2004 QUARTERLY REPORTS
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