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