MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Intier Automotive Inc. 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. 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 Intier Automotive Inc.
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 the Company's assets are appropriately accounted for and adequately safeguarded.
The Company's Audit Committee is appointed by the Board of Directors annually and is comprised solely of outside independent 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 and the approval of their fees.
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 Intier Automotive Inc. The Auditors' Report outlines the nature of their examination and their opinion on the consolidated financial statements of the Company. The independent auditors have full and unrestricted access to the Audit Committee.
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DONALD J. WALKER | MICHAEL E. MCCARTHY |
Newmarket, Canada
February 28, 2005
AUDITORS' REPORT
To the Shareholders of Intier Automotive Inc.
We have audited the consolidated balance sheets of Intier Automotive Inc. as at December 31, 2004 and 2003 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall fina ncial statement presentation. We believe that ours audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles.
As described in Note 2 to these consolidated financial statements, the Company changed its accounting policies for revenue recognition and asset retirement obligations.
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ERNST & YOUNG LLP | |
Toronto, Canada
February 18, 2005, except as to Note 25 (c)
which is as of February 28, 2005
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company directly supplies most of the major automobile manufacturers in the world with approximately 24,100 employees at 74 manufacturing facilities and 15 product development, engineering and testing centres in North America, Europe, Brazil and Asia Pacific.
The consolidated financial statements of Intier Automotive Inc. (the "Company") have been prepared in U.S. dollars 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 ("U.S. GAAP"), except as described in note 24 to the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The Company's subsidiaries are included in these consolidated financial statements using the purchase method of accounting from the date they were acquired by Magna International Inc. ("Magna"). The Company accounts for its interests in jointly controlled entities using the proportionate consolidation method. All significant intercompany balances and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's operations having a functional currency other than the U.S. dollar are translated into U.S. dollars 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 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 other 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 and losses on these contracts are accounted for as a component of the related hedged transaction. In addition, gains and losses from foreign denominated debt designated as a hedge on the Company's net investments in foreign operations are not included in income, but are shown in the currency translation account.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include 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
Investments in which the Company has significant influence are accounted for on the equity basis.
CAPITAL ASSETS
Capital assets are recorded at historical cost, which includes acquisition and development costs less related investment tax credits. 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 capital assets at annual rates of 2 1/2% to 5% for buildings, 7% to 10% for general purpose equipment and 10% to 30% for special purpose equipment. Assets under capital leases are amortized over the respective lease terms.
Costs incurred in establishing new facilities, which require substantial time to reach commercial production capability, are expensed as incurred.
LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment whenever indicators of impairment exist. Indicators of impairment may include goodwill impairment, prolonged operating losses or a decision to cease or dispose of, or otherwise change the use of an existing long-lived asset.
An impairment loss is recognized when the carrying value of an asset to be held and used exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. An impairment loss is measured as the amount by which the assets carrying value exceeds its fair value. Discounted cash flows are used to determine fair value.
GOODWILL
Goodwill represents the excess of the cost of an acquired enterprise over the net of amounts assigned to assets acquired and liabilities assumed less any subsequent writedowns for impairment. Goodwill is subject to an annual impairment test. Goodwill impairment is evaluated between annual tests upon the occurrence of certain events or circumstances. Goodwill impairment is assessed based on a comparison of the fair value of a 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 impairment loss, if any. The fair value of the goodwill is determined using the estimated discounted future cash flows of the reporting unit.
PRE-PRODUCTION 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 design and development costs for 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-cancellable right to use the moulds, dies and other tools during the supply agreement.
Costs deferred in the above circumstances are included in other assets and amortized on a units of production basis to cost of goods sold over the anticipated term of the supply agreement.
EMPLOYEE BENEFIT PLANS
The cost of providing benefits through defined benefit pensions, lump sum termination and long service payment arrangements and post-retirement benefits other than pensions is actuarially determined and recognized in income using the projected benefit method prorated on service and management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. Differences arising from plan amendments, past service costs, changes in assumptions and experience gains and losses outside of a 10% corridor are recognized in income over the expected average remaining service life of employees or in the case of retirees the remaining life expectancy.
Plan assets are valued at fair value, where fair value is equal to the market value at the balance sheet date.
The cost of providing benefits through defined contribution pension plans is charged to earnings in the period in respect of which contributions become payable.
ASSET RETIREMENT OBLIGATIONS
The Company recognizes its obligations to restore leased premises at the end of the lease by recording at lease inception the present value of this obligation as other long-term liabilities with a corresponding amount recognized as capital assets. The capital 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.
CONVERTIBLE SERIES PREFERRED SHARES
Three key attributes of the Company's Convertible Series Preferred Shares have been valued as of their date of issuance and are presented separately in the Company's consolidated financial statements. These attributes are:
i) | The retraction of the Convertible Series Preferred Shares at their carrying value by the holders; |
ii) | The non-cumulative cash dividend payable in respect of the Convertible Series Preferred Shares; and |
iii) | The ability to convert the Convertible Series Preferred Shares into Class A Subordinate Voting Shares at a fixed price. |
The retraction attribute is a liability of the Company and is presented as current portion of long-term debt because it is at the option of the holder. The non-cumulative nature of the dividend means that it is dissimilar to an interest payment on debt and, therefore, the long-term debt is presented as the net present value of (i.e., at a discount to) the carrying value which becomes payable, at the option of the holder, on the retraction dates. The resultant discount is amortized to income systematically from the date of issuance until the date of retraction for each series of the Convertible Series Preferred Shares.
The non-cumulative dividend, for reasons indicated above, is not considered debt-related. However, because holders of the Convertible Series Preferred Shares expect to receive dividends and it was the Company's expectation, at the date of issuance, to pay dividends, there is a value to the expected stream of dividend payments. The net present value of this expected dividend stream has, therefore, been presented as equity. As dividends are declared, a systematically calculated portion of the dividend is shown as a return of capital and is deducted from the amount presented as equity. The dividends on the Convertible Series Preferred Shares as presented in the consolidated statements of income and retained earnings reflect the actual dividend declared net of the amount considered a return on capital.
The third attribute, the conversion feature, is similar to a stock warrant in that it provides holders with the option to exchange their Convertible Series Preferred Shares for Class A Subordinate Voting Shares at a fixed price. The residual approach was used to value this attribute and this amount is classified as equity.
REVENUE RECOGNITION
Revenue from the sale of manufactured products is recognized when the price is fixed or determinable, in accordance with mutually agreed upon pricing, collectibility is reasonably assured, upon shipment to (or receipt) by customers depending on contractual terms, and acceptance by customers of the products in accordance with mutually agreed upon specifications and quality standards detailed in the underlying contract arrangements. The Company's current long-term contracts do not include any guaranteed minimum purchase requirements.
Separately priced engineering and tooling contracts are accounted for as a separate revenue element only in circumstances where the tooling or engineering has value to the customer on a stand-alone basis and there is objective and reliable evidence of the fair value of the subsequent parts production.
Revenue from engineering service and tooling contracts that qualify as separate revenue elements are recognized substantially on a completed contract basis. In addition, revenues are recognized on a percentage of completion basis in respect of design and engineering services provided to customers under certain long-term contracts. Percentage of completion is determined based on the proportion of accumulated expenditures to date as compared to total anticipated expenditures.
Revenue and cost of sales, including amounts from separately priced engineering and 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 revenues and related costs are presented on a net basis.
GOVERNMENT FINANCING
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 eligible expenses are incurred. In the case of certain foreign subsidiaries, the Company receives tax super allowances which are accounted for as a reduction of income tax expense. The Company also receives loans which are recorded as liabilities in amounts equal to the cash received.
RESEARCH AND DEVELOPMENT
Research costs are expensed as incurred. Development costs for which contractual agreements have been entered into that guarantee reimbursement by the customer are deferred to the extent of their estimated recovery. All other development costs are expensed as incurred.
INCOME TAXES
The Company uses 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 carrying value and the tax cost 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.
STOCK-BASED COMPENSATION
Effective January 1, 2003, the Company prospectively adopted the fair value method for recognizing compensation expense for stock options granted under its Incentive Stock Option Plan (the "Option Plan"). Under the prospective method of adoption, compensation expense is recognized for fixed price stock options granted, modified, or settled after January 1, 2003, based upon the fair value of the options at the grant date.
Prior to 2003, no compensation expense was recognized for stock options granted under the Option Plan. For stock options granted during 2002, pro forma net income and earnings per share 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 expected 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. If other assumptions are used, stock-based compensation expense could be significantly impacted.
Compensation expense is recognized over the vesting period of the options granted, and is recorded in selling, general and administrative expenses in the consolidated statement of income and contributed surplus in the consolidated balance sheet. On the exercise of stock options, the consideration received and the accumulated contributed surplus amount is credited to Class A Subordinate Voting Shares.
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 been converted at the beginning of the year (or date of issuance, if later) into Class A Subordinate Voting Shares based on the holder's 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 at the date of issuance, if later); |
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USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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 in its financial results.
COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the current year method of presentation.
Prior years have been adjusted to reflect the retroactive restatement for asset retirement obligations and discontinued operations (see note 2 and 3).
CONSOLIDATED BALANCE SHEETS
As at December 31 | |||||
(U.S. dollars in millions) | Note | 2004 | 2003 | ||
(restated-2,3) | |||||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 364.2 | $ | 216.7 | |
Accounts receivable | 22 | 840.0 | 801.1 | ||
Inventories | 7 | 316.9 | 299.0 | ||
Prepaid expenses and other | 31.9 | 36.9 | |||
Discontinued operations | 3 | - | 17.6 | ||
1,553.0 | 1,371.3 | ||||
Capital assets, net | 8, 9 | 605.1 | 566.9 | ||
Goodwill | 9 | 128.2 | 116.4 | ||
Future tax assets | 10 | 62.8 | 70.7 | ||
Other assets | 6 | 39.3 | 21.8 | ||
Discontinued operations | 3 | - | 2.2 | ||
$ | 2,388.4 | $ | 2,149.3 | ||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
Current liabilities: | |||||
Bank indebtedness | 11 | $ | 36.2 | $ | 29.1 |
Accounts payable | 22 | 872.3 | 816.0 | ||
Accrued salaries and wages | 84.2 | 72.6 | |||
Other accrued liabilities | 5 | 95.4 | 100.4 | ||
Income taxes payable | 10 | 5.7 | 3.5 | ||
Long-term debt due within one year | 11 | 4.9 | 4.4 | ||
Convertible Series Preferred Shares | 14 | 217.2 | 108.6 | ||
Discontinued operations | 3 | - | 19.2 | ||
1,315.9 | 1,153.8 | ||||
Long-term debt | 11, 22 | 29.5 | 31.4 | ||
Other long-term liabilities | 12, 13 | 46.5 | 40.1 | ||
Convertible Series Preferred Shares | 14 | - | 106.1 | ||
Future tax liabilities | 10 | 60.2 | 44.9 | ||
Minority interest | 1.2 | 1.1 | |||
Discontinued operations | 3 | - | 5.7 | ||
Shareholders' equity: | |||||
Convertible Series Preferred Shares | 14 | 6.4 | 11.8 | ||
Class A Subordinate Voting Shares | 15 | 104.8 | 86.1 | ||
Class B Shares | 15 | 495.8 | 495.8 | ||
Contributed surplus | 16 | 1.1 | 0.6 | ||
Retained earnings | 165.2 | 57.4 | |||
Currency translation adjustment | 18 | 161.8 | 114.5 | ||
935.1 | 766.2 | ||||
$ | 2,388.4 | $ | 2,149.3 | ||
Commitments and contingencies (notes 11 and 23)
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31 | |||||||||
(U.S. dollars in millions, except per share figures and numbers of shares) | Note | 2004 | 2003 | 2002 | |||||
(restated-2,3) | (restated-2,3) | ||||||||
Sales | 22 | $ | 5,474.2 | $ | 4,582.7 | $ | 3,795.6 | ||
Cost of goods sold | 22 | 4,781.4 | 4,054.6 | 3,315.7 | |||||
Depreciation and amortization | 9 | 113.4 | 100.0 | 85.6 | |||||
Selling, general and administrative | 16 | 261.9 | 235.8 | 195.2 | |||||
Affiliation and social fees | 22 | 71.4 | 61.4 | 54.3 | |||||
Other charges | 9 | - | - | 7.8 | |||||
Operating income | 246.1 | 130.9 | 137.0 | ||||||
Interest expense (income), net | 11, 22 | 3.2 | 1.5 | (1.6) | |||||
Amortization of discount on Convertible Series | 14, 22 | 6.4 | 12.4 | 11.6 | |||||
Equity income | 6 | (0.8) | (0.4) | (0.6) | |||||
Income before income taxes and minority | 237.3 | 117.4 | 127.6 | ||||||
Income taxes | 10 | 89.0 | 60.6 | 66.5 | |||||
Minority interest | - | 0.2 | (0.9) | ||||||
Net income from continuing operations | 148.3 | 56.6 | 62.0 | ||||||
Net loss (income) from discontinued operations | 3 | 14.9 | (4.8) | 14.1 | |||||
Net income | $ | 133.4 | $ | 61.4 | $ | 47.9 | |||
Financing charge on Convertible Series | 14, 22 | 5.7 | 1.1 | 1.9 | |||||
Net income attributable to Class A Subordinate | $ | 127.7 | $ | 60.3 | $ | 46.0 | |||
Retained earnings, beginning of year | 57.4 | 14.4 | 15.9 | ||||||
Adjustment for change in accounting policy for | 9 | - | - | (35.7) | |||||
Adjustment for change in accounting policy for asset retirement obligations | 2 | - | - | (2.1) | |||||
Dividends on Class A Subordinate Voting and | (19.9) | (17.3) | (9.7) | ||||||
Retained earnings, end of year | $ | 165.2 | $ | 57.4 | $ | 14.4 | |||
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Basic | $ | 2.87 | $ | 1.14 | $ | 1.25 | |||
Diluted | $ | 2.38 | $ | 1.09 | $ | 1.16 | |||
Earnings per Class A Subordinate Voting or | 4 | ||||||||
Basic | $ | 2.57 | $ | 1.24 | $ | 0.95 | |||
Diluted | $ | 2.15 | $ | 1.16 | $ | 0.94 | |||
Average number of Class A Subordinate Voting | 4 | ||||||||
Basic | 49.7 | 48.6 | 48.2 | ||||||
Diluted | 64.9 | 63.5 | 63.6 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 | ||||||||
(U.S. dollars in millions) | Note | 2004 | 2003 | 2002 | ||||
(restated-2,3) | (restated-2,3) | |||||||
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Net income from continuing operations | $ | 148.3 | $ | 56.6 | $ | 62.0 | ||
Items not involving current cash flows | 20 | 155.8 | 148.0 | 139.2 | ||||
304.1 | 204.6 | 201.2 | ||||||
Change in non-cash working capital | 20 | 10.7 | (58.5) | 109.3 | ||||
314.8 | 146.1 | 310.5 | ||||||
INVESTMENT ACTIVITIES | ||||||||
Capital asset additions | (118.9) | (129.6) | (135.1) | |||||
Increase in investments and other assets | (20.5) | (11.6) | (3.1) | |||||
Proceeds from disposition of capital assets and other | 2.4 | 1.2 | 4.8 | |||||
Discontinued operations | (19.8) | 6.4 | 3.5 | |||||
(156.8) | (133.6) | (129.9) | ||||||
FINANCING ACTIVITIES | ||||||||
Increase (decrease) in bank indebtedness | 3.3 | (26.7) | 0.6 | |||||
Net repayments of long-term debt and other long-term liabilities | (8.4) | (9.5) | (4.6) | |||||
Issue of Class A Subordinate Voting Shares | 15 | 14.7 | 10.2 | 0.1 | ||||
Dividends on Class A Subordinate Voting and | 15 | (19.9) | (17.3) | (9.7) | ||||
Dividends on Convertible Series Preferred Shares | 14, 15 | (13.7) | (11.1) | (8.4) | ||||
(24.0) | (54.4) | (22.0) | ||||||
Effect of exchange rate changes on cash and | 13.5 | 17.3 | 5.8 | |||||
Net increase (decrease) in cash and cash | 147.5 | (24.6) | 164.4 | |||||
Cash and cash equivalents, beginning of year | 216.7 | 241.3 | 76.9 | |||||
Cash and cash equivalents, end of year | $ | 364.2 | $ | 216.7 | $ | 241.3 | ||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in U.S. dollars unless otherwise noted and all tabular amounts in millions, except per share figures and number of shares).
1. | SIGNIFICANT ACCOUNTING POLICIES |
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The retroactive changes to the Consolidated Balance Sheet at December 31, 2003 are as follows: | |||
Capital assets | $ | 5.7 | |
Discontinued operations | 0.4 | ||
$ | 6.1 | ||
Other long-term liabilities | $ | 10.7 | |
Future tax liabilities | (1.0) | ||
Discontinued operations | 0.9 | ||
Retained earnings | (3.7) | ||
Currency translation | (0.8) | ||
$ | 6.1 | ||
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Stock-Based Compensation | |
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Goodwill | |
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Impairment of Long-Lived Assets | |
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As at December 31 | 2004 | 2003 | ||||
ASSETS | ||||||
Current Assets | ||||||
Accounts receivable | $ | - | $ | 9.6 | ||
Inventories | - | 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 | |||
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Current Liabilities | ||||||
Bank indebtedness | $ | - | $ | 0.6 | ||
Accounts payable | - | 14.8 | ||||
Accrued salaries and wages | - | 2.4 | ||||
Other accrued liabilities | - | 1.4 | ||||
- | 19.2 | |||||
Long-term debt | - | 1.6 | ||||
Other long-term liabilities | - | 4.1 | ||||
Net investment | - | (5.1) | ||||
$ | - | $ | 19.8 | |||
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Years ended December 31 | 2004 | 2003 | 2002 | ||||||||
| $ | 45.1 | $ | 130.5 | $ | 116.9 | |||||
Cost of goods sold | 51.4 | 122.4 | 110.6 | ||||||||
Depreciation and amortization (ii) | - | - | 3.3 | ||||||||
Selling, general and administrative | 6.9 | 2.5 | 2.4 | ||||||||
Affiliation and social fees | 0.2 | 1.2 | 1.0 | ||||||||
Other charges (ii) | - | - | 15.8 | ||||||||
Operating (loss) income | (13.4) | 4.4 | (16.2) | ||||||||
Interest expense, net | 0.1 | 0.1 | 0.1 | ||||||||
(Loss) income before income taxes | (13.5) | 4.3 | (16.3) | ||||||||
Income taxes | 1.4 | (0.5) | (2.2) | ||||||||
Net (loss) income | $ | (14.9) | $ | 4.8 | $ | (14.1) | |||||
(Loss) earnings per Class A Subordinate Voting or | |||||||||||
Basic | $ | (0.30) | $ | 0.10 | $ | (0.30) | |||||
Diluted | $ | (0.23) | $ | 0.07 | $ | (0.22) | |||||
(i) | Sales for the year ended December 31, 2004 include $32.3 million of intercompany sales (for the years ended December 31, 2003 and 2002 - $58.6 million and $50.9 million, respectively) | ||||||||||
(ii) | In 2002, the Company assessed the recoverability of its long-lived assets and, as a result, reduced the carrying value of the capital assets of the discontinued operations by $15.8 million to nil. | ||||||||||
Statement of Cash Flows: | |||||||||||
Years ended December 31 | 2004 | 2003 | 2002 | ||||||||
Cash provided from (used for): | |||||||||||
OPERATING ACTIVITIES | |||||||||||
Net (loss) income | $ | (14.9) | $ | 4.8 | $ | (14.1) | |||||
Items not involving current cash flows | 9.8 | 2.9 | 17.0 | ||||||||
(5.1) | 7.7 | 2.9 | |||||||||
Change in non-cash working capital | (5.1) | (0.5) | 2.1 | ||||||||
(10.2) | 7.2 | 5.0 | |||||||||
INVESTING ACTIVITIES | |||||||||||
Capital asset additions | - | - | (1.7) | ||||||||
- | - | (1.7) | |||||||||
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(Decrease) increase in bank indebtedness | (0.6) | 0.6 | - | ||||||||
Issues (repayments) of debt and other long-term liabilities | 10.8 | (7.8) | (3.5) | ||||||||
10.2 | (7.2) | (3.5) | |||||||||
Net change in cash and cash equivalents during the year | - | - | (0.2) | ||||||||
Cash and cash equivalents, beginning of year | - | - | 0.2 | ||||||||
Cash and cash equivalents, end of year | $ | - | $ | - | $ | - | |||||
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|
|
Years ended December 31 | 2004 | 2003 | 2002 | |||||
Basic earnings per Class A Subordinate Voting | ||||||||
Net income from continuing operations attributable to Class A Subordinate Voting and Class B Shares | $ | 142.6 |
| 55.5 |
| 60.1 | ||
Average number of Class A Subordinate Voting | 49.7 | 48.6 | 48.2 | |||||
Basic earnings per Class A Subordinate Voting or | $ | 2.87 |
| 1.14 |
| 1.25 | ||
Diluted earnings per Class A Subordinate | ||||||||
Net income from continuing operations attributable to Class A Subordinate Voting and Class B Shares | $ | 142.6 |
| 55.5 |
| 60.1 | ||
Adjustments (net of related tax effects): | ||||||||
Amortization of discount on Convertible Series | 6.4 | 12.4 | 11.6 | |||||
Financing charge on Convertible Series | 5.7 | 1.1 | 1.9 | |||||
$ | 154.7 | $ | 69.0 | $ | 73.6 | |||
Average number of Class A Subordinate Voting | 49.7 | 48.6 | 48.2 | |||||
Convertible Series Preferred Shares | 14.5 | 14.8 | 14.9 | |||||
Stock options | 0.7 | 0.1 | 0.5 | |||||
64.9 | 63.5 | 63.6 | ||||||
Diluted earnings per Class A Subordinate Voting or | $ | 2.38 |
| 1.09 |
| 1.16 | ||
|
Years ended December 31 | 2004 | 2003 | 2002 | |||||
Basic earnings per Class A Subordinate | ||||||||
Net income attributable to Class A Subordinate Voting | $ | 127.7 | $ | 60.3 |
| 46.0 | ||
Average number of Class A Subordinate Voting | $ | 49.7 | $ | 48.6 |
| 48.2 | ||
Basic earnings per Class A Subordinate Voting or | $ | 2.57 | $ | 1.24 |
| 0.95 | ||
Diluted earnings per Class A Subordinate | ||||||||
Net income attributable to Class A Subordinate | $ | 127.7 | $ | 60.3 |
| 46.0 | ||
Adjustments (net of related tax effects): | ||||||||
Amortization of discount on Convertible Series | 6.4 | 12.4 | 11.6 | |||||
Financing charge on Convertible Series Preferred | 5.7 | 1.1 | 1.9 | |||||
$ | 139.8 | $ | 73.8 | $ | 59.5 | |||
Average number of Class A Subordinate Voting and | 49.7 | 48.6 | 48.2 | |||||
Convertible Series Preferred Shares | 14.5 | 14.8 | 14.9 | |||||
Stock options | 0.7 | 0.1 | 0.5 | |||||
64.9 | 63.5 | 63.6 | ||||||
Diluted earnings per Class A Subordinate | $ | 2.15 | $ | 1.16 |
| 0.94 | ||
5. | RESTRUCTURING PROVISIONS |
At December 31, 2004, the Company had a provision for severance and termination costs of $0.2 million (December 31, 2003 - $0.5 million) relating to the downsizing of one of the Company's under-performing divisions. Net income for the years ended December 31, 2003 and 2002 included restructuring charges of $2.7 million and $2.8 million, respectively, relating to this provision. During the year ended December 31, 2004, the Company utilized $0.3 million of this provision (for the years ended December 31, 2003 and 2002 - $2.6 million and $1.6 million, respectively). | |
|
6. | OTHER ASSETS | ||
| |||
| |||
| |||
2004 | 2003 | ||
Deferred development costs, beginning of year | 10.7 | 2.4 | |
Additions | 16.2 | 10.3 | |
Amortization and disposal | (1.8) | (2.6) | |
Foreign exchange | 1.6 | 0.6 | |
Deferred development costs, end of year | 26.7 | 10.7 | |
In addition, the Company incurred engineering, design, research and development costs of $145.9 million for the year ended December 31, 2004 (for the years ended December 31, 2003 and 2002 - $156.9 million and $173.2 million, respectively). |
|
|
|
As at December 31 | 2004 | 2003 | |||
Raw materials and supplies | $ | 110.5 | $ | 95.5 | |
Work-in-process | 29.6 | 31.0 | |||
Finished goods | 38.2 | 40.7 | |||
Tooling and engineering | 138.6 | 131.8 | |||
$ | 316.9 | $ | 299.0 | ||
Tooling and engineering inventory represents costs incurred on separately priced tooling and engineering services contracts in excess of unbilled amounts included in accounts receivable as a result of the application of percentage of completion accounting on certain of the Company's tooling and engineering service contracts. Unbilled amounts included in accounts receivable at December 31, 2004 totalled $21.0 million (December 31, 2003 - $46.8 million). |
8. | CAPITAL ASSETS |
|
As at December 31 | 2004 | 2003 | |||||
Cost | |||||||
Land | $ | 12.5 | $ | 10.6 | |||
Buildings | 54.7 | 47.4 | |||||
Leasehold improvements | 42.3 | 35.6 | |||||
Asset retirement obligations | 6.1 | 6.6 | |||||
Machinery and equipment | 1,146.0 | 946.9 | |||||
Assets under capital leases (i) | 28.4 | 27.6 | |||||
Construction in progress (ii) | 22.1 | 33.4 | |||||
$ | 1,312.1 | $ | 1,108.1 | ||||
Less: accumulated depreciation | |||||||
Buildings | (16.4) | (12.6) | |||||
Leasehold improvements | (20.5) | (17.3) | |||||
Asset retirement obligations | (0.5) | (0.9) | |||||
Machinery and equipment | (658.6) | (500.6) | |||||
Assets under capital leases (i) | (11.0) | (9.8) | |||||
$ | 605.1 | $ | 566.9 | ||||
(i) | Assets under capital leases at December 31, 2004 includes $17.3 million of land and buildings leased by the Company from a related party, MI Developments Inc. ("MID") (December 31, 2003 - $17.5 million). These lease agreements were entered into during the year ended December 31, 1998 (see note 11(f)). These assets under capital leases were valued at the present value of the minimum lease payments and transferred to the Company at Magna's historical cost. | ||||||
(ii) | Construction in process includes expenditures incurred to date, including deposits, for machinery and equipment, assembly lines and facility upgrades and expansions which are still in progress or are not yet in service as at the balance sheet date. Accordingly, depreciation on these assets will commence when the assets are put into use. | ||||||
(iii) | No interest was capitalized to capital assets during the periods presented. |
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| |
| |
| |
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10. | INCOME TAXES | |
|
|
Years ended December 31 | 2004 | 2003 | 2002 | ||||
Canadian statutory income tax expense | $ | 85.7 | $ | 43.0 | $ | 49.2 | |
Manufacturing and processing profits deduction | (2.6) | (1.8) | (4.1) | ||||
Foreign rate differentials | (4.0) | (2.5) | (6.3) | ||||
Losses not benefited | 5.0 | 12.7 | 19.5 | ||||
Amortization of discount on Convertible Series Preferred Shares | 2.2 | 4.1 | 3.8 | ||||
Other | 2.7 | 5.1 | 4.4 | ||||
Income tax expense | $ | 89.0 | $ | 60.6 | $ | 66.5 | |
(b) | The details of the income tax provision are as follows: | ||||||||
Years ended December 31 | 2004 | 2003 | 2002 | ||||||
Current provision: | |||||||||
Canadian federal taxes | $ | 22.9 | $ | 15.9 | $ | 18.4 | |||
Provincial taxes | 10.7 | 6.5 | 9.1 | ||||||
Foreign taxes | 22.2 | 17.1 | 7.0 | ||||||
55.8 | 39.5 | 34.5 | |||||||
Future provision: | |||||||||
Canadian federal taxes | 8.2 | 1.1 | 0.7 | ||||||
Provincial taxes | 4.5 | 0.5 | 0.3 | ||||||
Foreign taxes | 20.5 | 19.5 | 31.0 | ||||||
33.2 | 21.1 | 32.0 | |||||||
$ | 89.0 | $ | 60.6 | $ | 66.5 | ||||
(c) | Future income taxes have been provided on temporary differences, which consist of the following: | ||||||||
Years ended December 31 | 2004 | 2003 | 2002 | ||||||
Net tax losses utilized | $ | 17.7 | $ | 14.2 | $ | 33.5 | |||
Capital assets tax depreciation greater than | 17.2 | 5.9 | 3.5 | ||||||
Other assets tax depreciation (less than) greater than | (1.7) | 1.0 | (5.0) | ||||||
$ | 33.2 | $ | 21.1 | $ | 32.0 | ||||
(d) | Future tax assets and liabilities consist of the following temporary differences: | |||||||
As at December 31 | 2004 | 2003 | ||||||
Benefit of tax loss carryforwards | $ | 102.6 | $ | 89.7 | ||||
Capital assets | (45.4) | (28.3) | ||||||
Other assets | 34.9 | 20.4 | ||||||
92.1 | 81.8 | |||||||
Valuation allowance | (89.5) | (56.0) | ||||||
Future tax assets, net | $ | 2.6 | $ | 25.8 | ||||
Represented on the balance sheet as follows: | ||||||||
Future tax assets | $ | 62.8 | $ | 70.7 | ||||
Future tax liabilities | (60.2) | (44.9) | ||||||
$ | 2.6 | $ | 25.8 | |||||
During the year the valuation allowance increased by $8.9 million in connection with previously recognized future tax assets. | ||
|
| |
(f) | Canadian income before income taxes and minority interest was $132.4 million for the year ended December 31, 2004 (for the years ended December 31, 2003 and 2002 - $52.3 million and $74.5 million, respectively). The corresponding amounts for foreign operations were $104.9 million for the year ended December 31, 2004 (for the years ended December 31, 2003 and 2002 - $65.1 million and $53.1 million, respectively). |
(g) | At December 31, 2004, the Company had income tax loss carryforwards of approximately $252.0 million that relate to certain foreign subsidiaries, the tax benefits of which have not been recognized in the consolidated financial statements. Of the total losses, $210.7 million expire between 2005 and 2019 and the remainder have no expiry date. | |
(h) | At December 31, 2004, $194.0 million of undistributed earnings of foreign subsidiaries and jointly controlled entities may be subject to tax if remitted to Canada. No provision has been made for such taxes as these earnings are considered to be reinvested for the foreseeable future. |
11. | DEBT AND COMMITMENTS | |
(a) | The Company's long-term debt, which is substantially unsecured, consists of the following: |
As at December 31 | 2004 | 2003 | |||
Loans from governments with a weighted average interest rate of approximately 3% denominated primarily in euros | $ | 7.6 | $ | 8.0 | |
Bank term debt at a weighted average interest rate of approximately 4% denominated primarily in euros | 4.8 | 5.6 | |||
Obligations under capital leases at an implicit rate of 7.6% (i) | 21.9 | 22.0 | |||
Other | 0.1 | 0.2 | |||
34.4 | 35.8 | ||||
Less due within one year | 4.9 | 4.4 | |||
$ | 29.5 | $ | 31.4 | ||
(i) | Obligations under capital leases includes $21.4 million at December 31, 2004 of obligations for land and buildings leased by the Company from a related party, MID (December 31, 2003 - $22.0 million). These agreements were entered into during the year ended December 31, 1998 (see note 11(f)). |
(b) | At December 31, 2004, future principal repayments on long-term debt (excluding obligations under capital leases) are estimated to be as follows: |
2005 | 3.6 | |||||||||
2006 | 2.4 | |||||||||
2007 | 3.0 | |||||||||
2008 | 2.1 | |||||||||
2009 | 1.1 | |||||||||
Thereafter | 0.3 | |||||||||
$ | 12.5 | |||||||||
|
|
|
(d) | Interest expense (income) includes: |
Years ended December 31 | 2004 | 2003 | 2002 | |||||
Interest expense: | ||||||||
Current | $ | 5.9 | $ | 5.2 | $ | 4.8 | ||
Long-term | 1.1 | 0.6 | 0.5 | |||||
Intercompany to Magna and other related parties | 2.0 | 1.4 | 2.0 | |||||
9.0 | 7.2 | 7.3 | ||||||
Interest income: | ||||||||
Current | (5.8) | (5.7) | (8.9) | |||||
Interest expense (income), net | $ | 3.2 | $ | 1.5 | $ | (1.6) | ||
Interest paid in cash for the year ended December 31, 2004 was $8.7 million (for the years ended December 31, 2003 and 2002 - $7.0 million and $6.7 million, respectively). | ||||||||
|
|
Third parties | Magna and other related parties | ||||||
2005 | 57.4 | 14.8 | |||||
2006 | 45.6 | 14.1 | |||||
2007 | 43.4 | 14.3 | |||||
2008 | 40.1 | 13.8 | |||||
2009 | 21.9 | 13.3 | |||||
Thereafter | 47.4 | 42.0 | |||||
$ | 255.8 | $ | 112.3 | ||||
| |||||||
|
|
2005 | 3.4 | ||||||
2006 | 3.4 | ||||||
2007 | 3.4 | ||||||
2008 | 3.4 | ||||||
2009 | 3.7 | ||||||
Thereafter | 14.0 | ||||||
31.3 | |||||||
Less interest and other charges | 9.9 | ||||||
Obligations under capital leases | 21.4 | ||||||
Less current portion | 1.2 | ||||||
Long-term portion of obligations under capital leases | $ | 20.2 | |||||
(g) | During the year ended December 31, 2003, the Company entered into an operating lease agreement for vehicle parts tooling. The lease facility requires payments for tooling costs, which totaled approximately $39 million, be made monthly over the lease term expiring in August 2008. The lease commenced when all tooling costs were funded which was prior to December 31, 2003. | |||
During the year ended December 31, 2004, the Company entered into a second operating lease agreement for vehicle parts tooling. The lease facility requires payments for tooling costs, which totaled approximately $10 million, be made monthly over the lease term expiring January 2008. The lease commenced when all tooling costs were funded which was prior to December 31, 2004. | ||||
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2004 | 2003 | |||
Discount rate | 5.50% | 5.40% | ||
Rate of compensation increase | 3.15% | 3.50% | ||
The weighted average of significant actuarial assumptions used in measuring the Company's net periodic pension benefit costs are as follows: |
2004 | 2003 | 2002 | ||
Discount rate | 5.40% | 5.50% | 5.60% | |
Rate of compensation increase | 3.50% | 3.45% | 3.35% | |
Expected return on plan assets | 7.45% | 7.40% | 7.50% | |
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| |||||||
Years ended December 31 | 2004 | 2003 | |||||
Projected Benefit Obligations: | |||||||
Beginning of year | $ | 42.9 | $ | 31.7 | |||
Current service cost | 6.2 | 5.4 | |||||
Current interest cost | 1.7 | 1.1 | |||||
Participant contributions | 1.0 | - | |||||
Actuarial losses, net and changes in actuarial assumptions | 0.9 | 3.5 | |||||
Benefits paid | (3.2) | (4.1) | |||||
Plan divestiture | (15.3) | - | |||||
Currency translation | 2.5 | 5.4 | |||||
End of year | $ | 36.7 | $ | 43.0 | |||
Plan assets at fair value: | |||||||
Beginning of year | $ | 14.4 | $ | 9.7 | |||
Return on plan assets | 0.5 | 1.3 | |||||
Employer contributions | 5.3 | 6.3 | |||||
Participant contributions | 1.0 | - | |||||
Benefits paid | (3.2) | (4.1) | |||||
Plan divestiture | (9.8) | - | |||||
Currency translation | 0.5 | 1.2 | |||||
End of year | $ | 8.7 | $ | 14.4 | |||
Unfunded amount | $ | 28.0 | $ | 28.6 | |||
Unrecognized actuarial losses, net | (3.1) | (6.3) | |||||
Net amount recognized in the consolidated balance sheets | $ | 24.9 | $ | 22.3 | |||
| $ | 28.9 | $ | 37.4 | |||
| 2004 | 2003 | 2002 | ||||
| |||||||
Current service cost | $ | 6.2 | $ | 5.4 | $ | 5.6 | |
Current interest cost | 1.7 | 1.1 | 2.1 | ||||
Expected return on plan assets | (0.9) | (0.6) | (2.2) | ||||
Actuarial losses | 0.3 | - | - | ||||
Plan Divestiture | (1.2) | - | - | ||||
$ | 6.1 | $ | 5.9 | $ | 5.5 | ||
Company employees, who historically participated in a United Kingdom defined benefit plan, became deferred retirees, for purposes of such plan, concurrent with the sale of the discontinued operation. The liability for their historic service was retained by the discontinued operation and as such, the effect has been reflected as a plan divestiture. |
Defined Contribution Plans | |
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|
|
The weighted average of significant actuarial assumptions used in measuring the Company's projected post retirement medical benefit obligations are as follows: | |||||
2004 | 2003 | ||||
Discount rate | 6.10% | 6.00% | |||
The weighted average of actuarial assumptions used in measuring the Company's net post retirement medical periodic benefit costs are as follows: | |||||
2004 | 2003 | 2002 | |||
Discount rate | 6.00% | 6.75% | 7.50% | ||
Information about the Company's post-retirement medical benefit plans is as follows: | |||||||
Years ended December 31 | 2004 | 2003 | |||||
Benefit obligations: | |||||||
Beginning of year | $ | 18.7 | $ | 8.2 | |||
Current service cost | 0.9 | 0.7 | |||||
Current interest cost | 1.1 | 1.0 | |||||
Actuarial (gains) losses, net and changes in actuarial assumptions | (1.2) | 8.8 | |||||
Benefits paid | (0.8) | (0.8) | |||||
Currency translation | 0.3 | 0.8 | |||||
End of year | $ | 19.0 | $ | 18.7 | |||
Plan assets at fair value: | |||||||
Beginning of year | $ | - | $ | - | |||
Employer contributions | 0.8 | 0.8 | |||||
Benefits paid | (0.8) | (0.8) | |||||
End of year | $ | - | $ | - | |||
Unfunded amount | $ | 19.0 | $ | 18.7 | |||
Unrecognized past service obligation | (4.7) | (3.9) | |||||
Unrecognized actuarial losses, net | (4.4) | (7.7) | |||||
Net amount recognized in the consolidated balance sheets | $ | 9.9 | $ | 7.1 | |||
Years ended December 31 | 2004 | 2003 | 2002 | ||||
Net periodic benefit cost: | |||||||
Current service cost | $ | 0.9 | $ | 0.7 | $ | 0.5 | |
Current interest cost | 1.1 | 1.0 | 0.3 | ||||
Past service costs | 0.2 | 0.2 | 0.2 | ||||
Actuarial losses | 0.5 | 0.5 | - | ||||
$ | 2.7 | $ | 2.4 | $ | 1.0 | ||
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| ||||||
Target Allocation | Percentage of Plan Assets at December 31, | |||||
2005 | 2004 | 2003 | ||||
Equity Securities | 50 - 75% | 63% | 72% | |||
Fixed Income Securities | 5 - 45% | 35% | 23% | |||
Cash and Cash Equivalents | 0 - 40% | 2% | 5% | |||
100% | 100% | |||||
The Company follows a balanced investment strategy, which matches asset risks and returns with the maturity and demographics of the plan members. |
Expected Cash Flows | |
|
Defined Benefit Plans | Post-Retirement Benefit Plans | ||||||
Employer Contributions | $ | 2.9 | $ | - | |||
Expected Benefits Payments | |||||||
2005 | $ | 0.5 | $ | 0.8 | |||
2006 | $ | 0.7 | $ | 0.9 | |||
2007 | $ | 0.7 | $ | 0.9 | |||
2008 | $ | 0.8 | $ | 0.9 | |||
2009 | $ | 1.0 | $ | 1.0 | |||
2010 - 2014 | $ | 8.4 | $ | 5.5 | |||
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2004 | 2003 | ||||
Beginning of year | $ | 10.7 | $ | 8.8 | |
Accretion expense | 0.7 | 0.6 | |||
Amounts settled | (0.5) | - | |||
Foreign exchange | 0.8 | 1.3 | |||
End of year | 11.7 | 10.7 | |||
14. | CONVERTIBLE SERIES PREFERRED SHARES |
|
Number of Shares | ||
Preferred Shares, Series 1 | 1,046,650 | |
Preferred Shares, Series 2 | 1,125,000 | |
| ||
· | Carrying value of $100 per share; | |
· | Fixed preferential non-cumulative cash dividend of $5.00 per share per annum payable on a quarterly basis; | |
· | Retractable at their carrying value, together with all declared and unpaid dividends, by the holders thereof on or after December 31, 2003 in the case of the Preferred Shares, Series 1; and after December 31, 2004 in the case of the Preferred Shares, Series 2; | |
· | Redeemable at their carrying value, together with all declared and unpaid dividends, and subject to purchase for cancellation by the Company commencing December 31, 2005; and | |
· | Convertible into Class A Subordinate Voting Shares at the option of the holder at a price of $15.09 per share. |
The Convertible Preferred Shares, Series 1 with 1,125,000 shares and Series 2 with 1,125,000 shares, were issued to Magna in August 2001 in satisfaction of $225.0 million of the Company's indebtedness to Magna. On June 22, 2004 and on December 9, 2004, Magna exercised its right to convert 27,500 and 11,350 Series 1 Convertible Preferred Shares, respectively, into Class A Subordinate Shares of the Company. The Company's Series Preferred Shares are convertible by Magna at a fixed conversion price of U.S. $15.09 per Class A Subordinate Voting Share and accordingly, Magna received 182,239 and 75,215 Class A Subordinate Voting Shares, respectively of the Company. | |
|
The portion of the Convertible Series Preferred Shares classified as debt is as follows: | ||||||||
Series 1 | Series 2 | Total | ||||||
Balance, December 31, 2002 | $ | 106.1 | $ | 100.1 | $ | 206.2 | ||
Conversion of Series 1 Preferred Shares into Class A Subordinate Voting Shares | (3.9) | - | (3.9) | |||||
Amortization of discount | 6.4 | 6.0 | 12.4 | |||||
Balance, December 31, 2003 | $ | 108.6 | $ | 106.1 | $ | 214.7 | ||
Conversion of Series 1 Preferred Shares into Class A Subordinate Voting Shares | (3.9) | - | (3.9) | |||||
Amortization of discount | - | 6.4 | 6.4 | |||||
Balance, December 31, 2004 | $ | 104.7 | $ | 112.5 | $ | 217.2 | ||
|
2004 | 2003 | ||||||
Warrant portion (relating to conversion feature) | $ | 6.4 | $ | 6.6 | |||
Dividend stream portion (relating to non-cumulative dividends) | - | 5.2 | |||||
$ | 6.4 | $ | 11.8 | ||||
15. | CAPITAL STOCK |
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| |
| |
|
Outstanding Class A Subordinate Voting Shares and Class B Shares included in shareholders' equity as at December 31, 2004, 2003 and 2002 are as follows: |
Class A Subordinate Voting Shares | Class B Shares | |||||||
Number of Shares | Stated Value | Number of Shares | Stated Value | |||||
Balance, December 31, 2002 | 5,481,191 | $ | 71.8 | 42,751,938 | $ | 495.8 | ||
Issuance of Class A Subordinate Voting Shares on exercise of stock options | 7,200 | 0.1 | - | - | ||||
Conversion of Series 1 Convertible Series Preferred Shares into Class A Subordinate Voting Shares (i) | 261,762 | 4.1 | - | - | ||||
Issuance of Class A Subordinate Voting Shares to fund Employee Equity and Profit Participation Program (iii) | 681,108 | 10.1 | - | - | ||||
Balance, December 31, 2003 | 6,431,261 | $ | 86.1 | 42,751,938 | $ | 495.8 | ||
Issuance of Class A Subordinate Voting Shares on exercise of stock options | 141,400 | 2.3 | - | - | ||||
Conversion of Series 1 Convertible Series Preferred Shares into Class A Subordinate Voting Shares (ii) | 257,454 | 4.0 | - | - | ||||
Issuance of Class A Subordinate Voting Shares to fund the Employee Equity and Profit Participation Program (iii) | 674,499 | 12.4 | - | - | ||||
Balance, December 31, 2004 | 7,504,614 | $ | 104.8 | 42,751,938 | $ | 495.8 | ||
(i) | On August 25, 2003, Magna exercised its right to convert 39,500 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. $15.09 per Class A Subordinate Voting Share and accordingly, Magna received 261,762 Class A Subordinate Voting Shares of the Company. | |
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Incentive Stock Options | |
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| |
|
Canadian dollar options | Number | Weighted average exercise price | Options exercisable | ||||
Outstanding at December 31, 2002 | 1,720,000 | Cdn.$ | 21.92 | 641,000 | |||
Granted | 296,000 | Cdn.$ | 22.55 | ||||
Exercised | (3,700) | Cdn.$ | 21.00 | (3,700) | |||
Cancelled | (10,000) | Cdn.$ | 21.00 | (4,000) | |||
Vested | 398,200 | ||||||
Outstanding at December 31, 2003 | 2,002,300 | Cdn.$ | 22.02 | 1,031,500 | |||
Exercised | (77,300) | Cdn.$ | 22.36 | (77,300) | |||
Vested | 398,200 | ||||||
Outstanding at December 31, 2004 | 1,925,000 | Cdn.$ | 22.00 | 1,352,400 | |||
U.S. dollar options | Number | Weighted average exercise price | Options exercisable | ||
Outstanding at December 31, 2002 | 1,435,000 | U.S.$ | 14.38 | 587,000 | |
Granted | 175,500 | U.S.$ | 17.27 | ||
Exercised | (3,500) | U.S.$ | 13.72 | (3,500) | |
Cancelled | (50,000) | U.S.$ | 15.33 | (14,000) | |
Vested | 287,100 | ||||
Outstanding at December 31, 2003 | 1,557,000 | U.S.$ | 14.68 | 856,600 | |
Exercised | (64,100) | U.S.$ | 13.85 | (64,100) | |
Vested | 287,100 | ||||
Outstanding at December 31, 2004 | 1,492,900 | U.S.$ | 14.71 | 1,079,600 | |
At December 31, 2004, the outstanding options consist of the following: |
Canadian dollar options outstanding | Exercise price | Number | Remaining contractual life (years) | Options exercisable | ||
Tranche 1 | $ | 21.00 | 1,312,000 | 6.6 | 1,040,000 | |
Tranche 2 | $ | 21.00 | 10,000 | 6.6 | 8,000 | |
Tranche 3 | $ | 23.56 | 40,000 | 7.1 | 32,000 | |
Tranche 6 | $ | 29.40 | 5,000 | 7.5 | 4,000 | |
Tranche 7 | $ | 26.85 | 227,000 | 7.6 | 129,000 | |
Tranche 8 | $ | 21.00 | 35,000 | 7.9 | 21,000 | |
Tranche 9 | $ | 22.55 | 296,000 | 6.0 | 118,400 | |
1,925,000 | 1,352,400 | |||||
Weighted Average Exercise Price | $ | 22.00 | ||||
Weighted Average Remaining Contractual Life | 6.7 | |||||
U.S. dollar options outstanding | Exercise price | Number | Remaining contractual life (years) | Options exercisable | ||
Tranche 1 | $ | 13.72 | 1,003,400 | 6.6 | 816,400 | |
Tranche 2 | $ | 13.72 | 12,000 | 6.6 | 8,000 | |
Tranche 4 | $ | 18.34 | 20,000 | 7.2 | 16,000 | |
Tranche 5 | $ | 18.78 | 5,000 | 7.4 | 4,000 | |
Tranche 7 | $ | 16.40 | 277,000 | 7.6 | 165,000 | |
Tranche 9 | $ | 17.27 | 175,500 | 6.0 | 70,200 | |
1,492,900 | 1,079,600 | |||||
Weighted Average Exercise Price | $ | 14.71 | ||||
Weighted Average Remaining Contractual Life | 6.7 | |||||
Maximum Number of Shares |
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Number of Shares | |||
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Class B Shares outstanding as at December 31, 2004 | 42,751,938 | ||
Options to purchase Class A Subordinate Voting Shares | 3,417,900 | ||
Convertible Series Preferred Shares, convertible at $15.09 per share | 14,391,318 | ||
68,065,770 | |||
Dividends | |
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Per Class A Subordinate Voting and Class B Share | Total | |||||||
Three month period ended December 31, 2001 | $ | 0.05 | $ | 2.4 | ||||
Three month period ended March 31, 2002 | $ | 0.05 | $ | 2.4 | ||||
Three month period ended June 30, 2002 | $ | 0.05 | $ | 2.4 | ||||
Three month period ended September 30, 2002 | $ | 0.05 | $ | 2.5 | ||||
Charged to retained earnings during the year ended December 31, 2002 | $ | 9.7 | ||||||
Three month period ended December 31, 2002 | $ | 0.05 | $ | 2.4 | ||||
Three month period ended March 31, 2003 | $ | 0.10 | $ | 5.0 | ||||
Three month period ended June 30, 2003 | $ | 0.10 | $ | 5.0 | ||||
Three month period ended September 30, 2003 | $ | 0.10 | $ | 4.9 | ||||
Charged to retained earnings during the year ended December 31, 2003 | $ | 17.3 | ||||||
Three month period ended December 31, 2003 | $ | 0.10 | $ | 4.9 | ||||
Three month period ended March 31, 2004 | $ | 0.10 | $ | 5.0 | ||||
Three month period ended June 30, 2004 | $ | 0.10 | $ | 5.1 | ||||
Three month period ended September 30, 2004 | $ | 0.10 | $ | 4.9 | ||||
Charged to retained earning during the year ended December 31, 2004 | $ | 19.9 | ||||||
Dividends declared on outstanding Series 1 and Series 2 Convertible Preferred Shares aggregated to $10.9 million for the year ended December 31, 2004 (for the year ended December 31, 2003 and 2002 - $11.2 million and $11.3 million, respectively). Dividends paid on outstanding Series 1 and Series 2 Convertible Preferred Shares aggregated to $13.7 million for the year ended December 31, 2004 (for the year ended December 31, 2003 and 2002 - $11.1 million and $8.4 million, respectively). |
16. | STOCK-BASED COMPENSATION | ||||
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2004 | 2003 | ||||
Balance, beginning of year | $ | 0.6 | $ | - | |
Stock option compensation expense | 0.5 | 0.6 | |||
Balance, end of year | $ | 1.1 | $ | 0.6 | |
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The weighted-average fair value of options granted during the year ended December 31, 2003 was $5.52 per option and was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: |
Risk free interest rate | 3.25% - 4.09% | |
Expected dividend yield | 2.34% | |
Expected volatility | 39% | |
Expected time until exercise | 5 years | |
If the fair value recognition provisions would have been adopted effective January 1, 2002 for all stock options granted during 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 would have been as follows: | ||||||||||||
Years ended December 31 | 2004 | 2003 | 2002 | |||||||||
Pro forma net income attributable to Class A Subordinate Voting and Class B Shares from continuing operations | $ | 141.9 | $ | 54.7 | $ | 59.0 | ||||||
Pro forma earnings per Class A Subordinate Voting or Class B Share | ||||||||||||
Basic | $ | 2.86 | $ | 1.13 | $ | 1.22 | ||||||
Diluted | $ | 2.37 | $ | 1.07 | $ | 1.14 | ||||||
The weighted average fair value of options granted during the year ended December 31, 2002 was $5.63 per option and was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: | ||||||||||||
Risk free interest rate | 3.96% - 5.27% | |||||||||||
Expected dividend yield | 1.20% | |||||||||||
Expected volatility | 26% - 37% | |||||||||||
Expected time until exercise | 5 years | |||||||||||
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The Company had outstanding foreign exchange forward contracts representing commitments to buy (sell) foreign currencies in exchange for Canadian dollars as follows: |
December 31, 2004 | U.S. dollar amount | Weighted average | Euro amount | Weighted average | ||||
2005 | $ | 167.7 | 1.3288 | 2.9 | 1.4537 | |||
2005 | (135.9) | 1.4101 | (11.2) | 1.5788 | ||||
2006 | 99.6 | 1.3563 | - | - | ||||
2006 | (30.5) | 1.3827 | - | - | ||||
2007 | 63.9 | 1.3322 | - | - | ||||
2007 | (10.3) | 1.3771 | - | - | ||||
2008 | 22.7 | 1.3227 | - | - | ||||
2008 | (6.3) | 1.3762 | ||||||
2009 | 5.1 | 1.2441 | - | - | ||||
$ | 176.0 | (8.3) | ||||||
At December 31, 2004, the Company had other outstanding foreign exchange contracts to buy and sell various foreign currencies in exchange for either euros, U.S. dollars or British Pounds. The total amount of such contracts were to sell euros 3.9 million, and sell British Pounds 1.8 million, and buy U.S. dollars 42.7 million against various currencies. | |
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Due to the short period to maturity of the instruments, the carrying values as presented in the consolidated balance sheets are reasonable estimates of fair value. | |
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The fair value of the Company's long-term debt (including debt portion of the Convertible Series Preferred Shares), based on current rates for debt with similar terms and maturities, is not materially different from its carrying value. |
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Cash and cash equivalents which consist of short-term investments, including commercial paper, are only invested in governments and corporations with an investment grade credit rating. Credit risk is further reduced by limiting the amount that is invested in any one government or corporation. | |
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Interest Rate Risk | |
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The following table summarizes the Company's interest rate risk as at December 31, 2004: |
Floating | Fixed | Non-interest bearing | Total | ||||||||
Financial Assets: | |||||||||||
Cash and cash equivalents | $ | 364.2 | $ | - | $ | - | $ | 364.2 | |||
Accounts receivable | - | - | 840.0 | 840.0 | |||||||
Financial Liabilities: | |||||||||||
Bank indebtedness | (36.2) | - | - | (36.2) | |||||||
Accounts payable and all other accrued liabilities and payables | - | - | (1,057.6) | (1,057.6) | |||||||
Long-term debt due within one year | - | (4.9) | - | (4.9) | |||||||
Long-term debt | - | (29.5) | - | (29.5) | |||||||
Convertible Series Preferred Shares | - | (217.2) | - | (217.2) | |||||||
Other long-term liabilities | (46.5) | - | - | (46.5) | |||||||
$ | 281.5 | $ | (251.6) | $ | (217.6) | $ | (187.7) | ||||
Average fixed rate of long-term debt | 5.1% | ||||||||||
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The following table provides a summary of interest rate swap contracts and their aggregated weighted-average rates at December 31: | ||||||
2004 | 2003 | |||||
Interest rate swap: | ||||||
Notional amount | $ | 34.8 | $ | 39.7 | ||
Average fixed rate paid | 4.02% | 4.02% | ||||
Average floating rate received | 2.30% | 2.77% | ||||
Electricity Swaps | |
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19. | INTERESTS IN JOINTLY CONTROLLED ENTITIES |
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Balance Sheets | |||||
December 31 | 2004 | 2003 | |||
�� | |||||
Current assets | $ | 62.9 | $ | 70.3 | |
Long-term assets | $ | 41.5 | $ | 42.6 | |
Current liabilities | $ | 40.0 | $ | 51.1 | |
Long-term liabilities | $ | 27.6 | $ | 28.2 | |
Statements of income | |||||||
Years ended December 31 | 2004 | 2003 | 2002 | ||||
Sales | $ | 247.4 | $ | 291.8 | $ | 180.3 | |
Costs of goods sold, expenses and income taxes | 242.3 | 284.1 | 176.1 | ||||
Net income | $ | 5.1 | $ | 7.7 | $ | 4.2 | |
Statements of cash flows | |||||||
Years ended December 31 | 2004 | 2003 | 2002 | ||||
Cash provided from (used for): | |||||||
Operating activities | $ | 2.8 | $ | 12.3 | $ | 16.9 | |
Investment activities | $ | (2.6) | $ | (4.2) | $ | (6.3) | |
Financing activities | $ | (3.9) | $ | (7.2) | $ | (7.7) | |
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Years ended December 31 | 2004 | 2003 | 2002 | ||||
Depreciation and amortization | $ | 113.4 | $ | 100.0 | $ | 85.6 | |
Future income taxes | 33.2 | 21.1 | 32.0 | ||||
Pension and post retirement medical benefit obligations | 8.8 | 8.3 | 6.5 | ||||
Loss on disposals of capital assets | 0.2 | 3.3 | 2.1 | ||||
Other charges | - | - | 7.8 | ||||
Amortization of discount on Convertible Series Preferred Shares | 6.4 | 12.4 | 11.6 | ||||
Other | (6.2) | 2.9 | (6.4) | ||||
$ | 155.8 | $ | 148.0 | $ | 139.2 | ||
Changes in non-cash working capital |
Years ended December 31 | 2004 | 2003 | 2002 | ||||
Accounts receivable | $ | (14.4) | $ | (149.4) | $ | 31.6 | |
Inventories | (8.1) | (7.7) | (3.7) | ||||
Prepaid expenses and other | 6.3 | (4.2) | (1.6) | ||||
Accounts payable and accrued liabilities | 26.9 | 102.8 | 83.0 | ||||
$ | 10.7 | $ | (58.5) | $ | 109.3 | ||
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Year ended December 31, 2004 | Total sales | Depreciation and amortization | Operating income (loss) | Goodwill, | Capital | Capital assets, | |||||||
North America | $ | 2,677.8 | $ | 50.5 | $ | 174.9 | $ | 54.9 | $ | 60.9 | $ | 275.1 | |
Europe | 1,657.7 | 35.3 | 10.5 | 52.2 | 29.4 | 201.6 | |||||||
Closure Systems | 1,153.0 | 27.3 | 61.2 | 21.1 | 28.5 | 127.7 | |||||||
Corporate, other and intersegment eliminations | (14.3) | 0.3 | (0.5) | - | 0.1 | 0.7 | |||||||
Total reportable segments | $ | 5,474.2 | $ | 113.4 | $ | 246.1 | $ | 128.2 | $ | 118.9 | 605.1 | ||
Year ended December 31, 2003 | Total sales | Depreciation and amortization | Operating | Goodwill, | Capital | Capital assets, | |||||||
Interior Systems | |||||||||||||
North America | $ | 2,088.5 | $ | 42.8 | $ | 87.5 | $ | 52.6 | $ | 68.0 | $ | 258.7 | |
Europe | 1,500.3 | 33.3 | (0.5) | 46.2 | 32.2 | 190.4 | |||||||
Closure Systems | 998.6 | 23.8 | 43.8 | 17.6 | 29.0 | 117.1 | |||||||
Corporate, other and intersegment eliminations | (4.7) | 0.1 | 0.1 | - | 0.4 | 0.7 | |||||||
Total reportable segments | $ | 4,582.7 | $ | 100.0 | $ | 130.9 | $ | 116.4 | $ | 129.6 | 566.9 | ||
Year ended December 31, 2002 | Total sales | Depreciation and amortization | Operating income (loss) (i) | Goodwill, | Capital | Capital assets, | |||||||
Interior Systems | |||||||||||||
North America | $ | 1,774.4 | $ | 36.9 | $ | 108.4 | $ | 47.6 | $ | 65.5 | $ | 222.8 | |
Europe | 1,212.3 | 28.4 | (8.0) | 38.8 | 39.5 | 166.0 | |||||||
Closure Systems | 818.2 | 20.2 | 34.4 | 14.3 | 29.8 | 94.4 | |||||||
Corporate, other and intersegment eliminations | (9.3) | 0.1 | 2.2 | - | 0.3 | 0.4 | |||||||
Total reportable segments | $ | 3,795.6 | $ | 85.6 | $ | 137.0 | $ | 100.7 | $ | 135.1 | $ | 483.6 | |
(i) | Interior Systems Europe includes $7.8 million of other charges (see note 9). |
(b) | The following tables show certain information with respect to geographic segmentations: |
Year ended December 31, 2004 | Canada | United States and Other | Continental Europe | United Kingdom | Total | ||||||
Sales | $ | 2,016.2 | $ | 1,566.7 | $ | 1,196.4 | $ | 694.9 | $ | 5,474.2 | |
Capital assets, net | $ | 169.4 | $ | 175.9 | $ | 203.6 | $ | 56.2 | $ | 605.1 | |
Goodwill, net | $ | 40.4 | $ | 22.5 | $ | 39.0 | $ | 26.3 | $ | 128.2 | |
Year ended December 31, 2003 | Canada | United States and Other | Continental Europe | United Kingdom | Total | ||||||
Sales | $ | 1,553.0 | $ | 1,340.7 | $ | 1,032.4 | $ | 656.6 | $ | 4,582.7 | |
Capital assets, net | $ | 153.6 | $ | 165.4 | $ | 191.0 | $ | 56.9 | $ | 566.9 | |
Goodwill, net | $ | 38.2 | $ | 22.5 | $ | 33.9 | $ | 21.8 | $ | 116.4 | |
Year ended December 31, 2002 | Canada | United States and Other | Continental Europe | United Kingdom | Total | ||||||
Sales | $ | 1,171.0 | $ | 1,256.2 | $ | 871.7 | $ | 496.7 | $ | 3,795.6 | |
Capital assets, net | $ | 83.3 | $ | 181.9 | $ | 163.9 | $ | 54.5 | $ | 483.6 | |
Goodwill, net | $ | 31.1 | $ | 22.5 | $ | 27.7 | $ | 19.4 | $ | 100.7 | |
(c) | For the year ended December 31, 2004, sales to the three largest customers amount to 24%, 22% and 20% (for the year ended December 31, 2003 - 27%, 23%, and 16%; for the year ended December 31, 2002 - 30%, 19% and 19%) of total sales, respectively. |
22. | TRANSACTIONS WITH RELATED PARTIES |
Years ended December 31 | 2004 | 2003 | 2002 | ||||
Charges by Magna and other related parties | |||||||
Interest expense, net | $ | 2.0 | $ | 1.4 | $ | 2.0 | |
Amortization of discount on Convertible Series | $ | 6.4 | $ | 12.4 | $ | 11.6 | |
Financing charge on Convertible Series Preferred Shares | $ | 5.7 | $ | 1.1 | $ | 1.9 | |
Management and administrative services | $ | 5.5 | $ | 3.6 | $ | 1.9 | |
Affiliation and social fees | $ | 71.4 | $ | 61.4 | $ | 54.3 | |
Rent | $ | 13.6 | $ | 12.5 | $ | 10.8 | |
Depreciation of assets under capital lease | $ | 1.8 | $ | 1.6 | $ | 1.7 | |
Sales of materials to Magna and other related parties | $ | 38.4 | $ | 14.5 | $ | 13.9 | |
Purchases of materials from Magna and other related parties | $ | 24.2 | $ | 21.3 | $ | 22.4 | |
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b) | In November 1997, Magna and two of its subsidiaries were sued by KS Centoco Ltd., an Ontario-based steering wheel manufacturer in which Magna has a 23% equity interest, and by Centoco Holdings Limited, the owner of the remaining 77% equity interest in KS Centoco Ltd. On March 5, 1999, the plaintiffs were granted leave to make substantial amendments to the original statement of claim in order to add several new defendants and claim additional remedies. The amended statement of claim now includes the Company's Advanced Car Technology Systems 50% joint venture ("ACTS") as a named defendant to the lawsuit and alleges, among other things: | ||
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d) | 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: | |||
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(g) | As described in note 17, the Company uses electricity swap contracts to manage the cash flow risk from its electricity purchase contracts in Ontario, Canada. Under both Canadian GAAP and U.S. GAAP, these swap contracts are accounted for as hedges and the net swap settlements are recognized in the same period as, and as part of, the hedged transaction. For U.S. GAAP purposes only, the Company reflects the fair value of the swap contract on the balance sheet with an offsetting adjustment to other comprehensive income. | |
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(j) | The following table presents net income, comprehensive income and basic earnings per share under U.S. GAAP: |
Years ended December 31 | 2004 | 2003 | 2002 | ||||
(restated-(a)) | (restated-(a)) | ||||||
Net income attributable to Class A Subordinate Voting and Class B Shares under Canadian GAAP | $ | 127.7 | $ | 60.3 | $ | 46.0 | |
Adjustments (net of related tax effects): | |||||||
Amortization of discount on Convertible Series Preferred Shares (c) | 6.4 | 12.4 | 11.6 | ||||
Return of capital on Convertible Series Preferred Shares (c) | (5.2) | (10.0) | (9.4) | ||||
Unrealized foreign exchange gains on revaluations of Convertible Series Preferred Shares (c) | 14.8 | 43.8 | 3.8 | ||||
In-house tooling and engineering (d) | 0.5 | 0.2 | 0.1 | ||||
Derivative instruments (f) | 0.1 | 0.6 | (4.2) | ||||
Non-employee stock option compensation expense (e) | (0.8) | (0.8) | (0.8) | ||||
Asset retirement obligations (i) | - | - | 0.7 | ||||
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP before cumulative catch-up adjustment | $ | 143.5 | $ | 106.5 | $ | 47.8 | |
Cumulative adjustment for change in accounting policy related to asset retirement obligations (i) | - | (2.8) | - | ||||
Cumulative adjustment for change in accounting policy related to goodwill (h) | - | - | (35.7) | ||||
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP after cumulative catch-up adjustment | $ | 143.5 | $ | 103.7 | $ | 12.1 | |
Other comprehensive income (net of related tax effects): | |||||||
Derivative instruments (f) | 0.1 | 2.0 | 9.9 | ||||
Electricity swap contracts (g) | (0.1) | (0.2) | 0.3 | ||||
Adjustment for derivative instruments, matured during the period, included in the cumulative adjustment at January 1, 2001 (f) | (0.1) | (0.6) | 4.2 | ||||
Unrealized foreign exchange gains on translation of self-sustaining foreign entities | 32.5 | 34.3 | 38.3 | ||||
Comprehensive income under U.S. GAAP | $ | 175.9 | $ | 139.2 | $ | 64.8 | |
Basic earnings per Class A Subordinate Voting or Class B Share: | |||||||
Before cumulative catch-up adjustment | $ | 2.89 | $ | 2.19 | $ | 0.99 | |
Cumulative adjustment | $ | - | $ | (0.06) | $ | (0.74) | |
After cumulative catch-up adjustment | $ | 2.89 | $ | 2.13 | $ | 0.25 | |
Average number of Class A Subordinate Voting and Class B Shares outstanding during the period | 49.7 | 48.6 | 48.2 | ||||
The following table presents diluted earnings per share information under U.S. GAAP for the year ended December 31, 2004, 2003 and 2002:
2004 | 2003 | 2002 | |||||
(restated-(a)) | (restated-(a)) | ||||||
Net income attributable to Class A Subordinate Voting and Class B Shares under U.S. | $ | 143.5 | $ | 106.5 | $ | 47.8 | |
Adjustments (net of related tax effect): | |||||||
Return of capital and financing charge on Convertible Series Preferred Shares | 10.9 | 11.1 | 11.3 | ||||
Unrealized foreign exchange gains on revaluation of Convertible Series | (14.8) | (43.8) | (3.8) | ||||
$ | 139.6 | $ | 73.8 | $ | 55.3 | ||
Cumulative adjustment for change in | - | (2.8) | - | ||||
Cumulative adjustment for change in | - | - | (35.7) | ||||
Net income attributable to Class A | $ | 139.6 | $ | 71.0 | $ | 19.6 | |
Diluted earnings per Class A Subordinate | |||||||
Before cumulative catch-up adjustment | $ | 2.15 | $ | 1.16 | $ | 0.87 | |
Cumulative adjustment | - | (0.04) | (0.56) | ||||
After cumulative catch-up adjustment | $ | 2.15 | $ | 1.12 | $ | 0.25 | |
Average number of Class A Subordinate | 49.7 | 48.6 | 48.2 | ||||
Convertible Series Preferred Shares | 14.5 | 14.8 | 14.9 | ||||
Stock options | 0.7 | 0.1 | 0.5 | ||||
64.9 | 63.5 | 63.6 | |||||
(k) | The reconciling items that impact net income for U.S. GAAP will not change the amounts reported for total cash provided from (used for) operating activities, investment activities or financing activities. | |
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December 31, 2004 | Canadian GAAP | Derivative instruments | In-house tooling and engineering | Convertible Series Preferred Shares | U.S. GAAP | ||||||
Future tax assets | $ | 62.8 | 4.2 | 0.3 | - | $ | 67.3 | ||||
Other accrued liabilities | $ | 95.4 | 12.0 | 0.8 | - | $ | 108.2 | ||||
Convertible Series Preferred | $ | 217.2 | - | - | (217.2) | $ | - | ||||
Convertible Series Preferred | $ | - | - | - | 217.2 | $ | 217.2 | ||||
Shareholders' Equity | $ | 935.1 | (7.8) | (0.5) | - | $ | 926.8 | ||||
December 31, 2003 | Canadian GAAP | Electricity swaps | Derivative instruments | In-house tooling and engineering | Convertible Series Preferred Shares | U.S. GAAP | |||
Future tax assets | $ | 70.7 | (0.1) | 4.3 | 0.5 | - | $ | 75.4 | |
Other accrued liabilities | $ | 100.4 | (0.2) | 12.2 | 1.5 | - | $ | 113.9 | |
Convertible Series Preferred Shares (liability) | $ | 214.7 | - | - | - | (214.7) | $ | - | |
Convertible Series Preferred | $ | - | - | - | - | 221.1 | $ | 221.1 | |
Shareholders' Equity | $ | 766.2 | 0.1 | (7.9) | (1.0) | (6.4) | $ | 751.0 | |
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2004 | 2003 | 2002 | |||||
Pro forma net income attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP after cumulative catch-up adjustment | $ | 140.9 | $ | 101.1 | $ | 9.1 | |
Pro forma earnings per Class A Subordinate Voting or Class B Share | |||||||
Basic | $ | 2.84 | $ | 2.08 | $ | 0.19 | |
Diluted | $ | 2.11 | $ | 1.08 | $ | 0.19 | |
The fair value of the stock options were estimated at the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions: | ||
Risk free interest rate | 3.96% - 5.27% | ||
Expected dividend yield | 1.20% | ||
Expected volatility | 26% - 37% | ||
Expected time until exercise | 5 years | ||
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