UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULES 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 2004
Commission File Number: 0-29712
DOREL INDUSTRIES INC.
________________________________________________________________________________________________
1255 Greene Ave, Suite 300, Westmount, Quebec, Canada H3Z 2A4
_________________________________________________________________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F
[ ]
Form 40-F
[ X ]
Indicate by check mark whether the registrant by furnishing the information in this Form is also thereby furnishing
the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
[ ]
No
[ X ]
Dorel Industries Inc.
Management’s Discussion and Analysis
For the three months ended March 31, 2004
All figures in US dollars
Management’s Discussion and Analysis of Financial Conditions and Results of Operations (« MD & A ») should be read in conjunction with the unaudited interim consolidated financial statements for the three months ended March 31, 2004 and the audited consolidated financial statements and MD & A for the year ended December 30, 2003.
Note that there have been no significant changes with regards to “Corporate Objectives, Core Businesses and Strategies”, “Risks” and “Critical Accounting Policies and Estimates” to those outlined in the annual MD & A contained in the Company’s 2003 Annual Report. As such, they are not repeated herein. The information in this MD & A is current as of April 28, 2004.
SIGNIFICANT EVENT IN THE FIRST QUARTER OF 2004
In the first quarter of 2004, the Company acquired Wisconsin-based Pacific Cycle, LLC, a designer and supplier of bicycles and other recreational products. The total value of the all-cash transaction was US$320.6 million, including an estimate of acquisition costs, and was financed through amended debt facilities. Pacific Cycle’s annual sales are in excess of US$325 million. Founded in 1977, Pacific Cycle is a leader in the design, marketing and distribution of high quality, branded bicycles and other recreational products. Best known for itsSchwinn, MongooseandGTbicycle brands, the Company also markets products under theRoadmaster, InStep,Pacific,andMurraylabels. Pacific Cycle combines these well-known brands with long-established, efficient Asian sourcing. It distributes its brands through its strong relationships with high volume retail ers, particularly in the mass channel as well as sporting goods chains and specialty independent dealers. This broad distribution has enabled Pacific Cycle to garner an industry-leading 27% share of total U.S. bicycle sales including 44% of the bicycle sales in the mass merchant sector. Pacific’s brand portfolio enables it to serve virtually all consumer demographics, price categories and bicycling styles. Pacific will be run as a stand-alone Dorel division and will be reported under a third segment to be known as Recreational/Leisure.
RESULTS OF OPERATIONS
Overview
Revenues for the first quarter ended March 31, 2004 were up 41.5% to US$391.8 million, compared to the US$276.9 million posted a year ago. Earnings increased slightly to US$19.6 million compared to US$19.2 million. Diluted earnings per share was US$0.60 per share in both 2004 and 2003. Organic sales growth accounted for approximately 6% of the increase. Newly acquired Pacific Cycle contributed US$52.0 million of the sales increase and Ampafrance and Carina, both acquired during 2003, added approximately US$39 million in 2004.
Earnings were negatively impacted as the Company expensed an additional US$6.5 million due to a dispute with one of its insurance carriers. The insurance company’s refusal to honour its policy, despite fully paid up premiums, resulted in a shortfall in Dorel‘s planned liability reserves. The Company disagrees with the position being asserted by the insurer and has engaged in legal proceedings with the insurance company. The Company is optimistic that it will be able to prove its position. Should a decision be made in the Company’s favour, the recovery will be included in net income in future periods.
An analysis of the variation of after tax earnings from 2003 to 2004 is as follows (figures in thousands):
Earnings from operations by Segment: | |
Recreation/Leisure (Pacific Cycle) | $ 6,494 |
Home Furnishings decrease | (6,577) |
Juvenile increase | 5,906 |
Product liability charge | (6,500) |
Total earnings from operations decrease | (677) |
Higher interest costs | (3,614) |
Impact of lower tax rate | 4,030 |
Other | 614 |
Total increase | $ 353 |
The causes of these variations over last year are discussed below.
Segmented Results
Significant segmented figures are presented in Note 7 to these interim financial statements. Further industry segment detail is presented below:
Juvenile
2004 | 2003 | Change |
$ (‘000) | % of sales | $ (‘000) | % of sales | $ (‘000) | % |
Sales | $ 206,547 | 100.0% | $ 165,901 | 100.0% | $ 40,646 | 24.5% |
Gross Profit | 63,644 | 30.8% | 49,322 | 29.7% | 14,322 | 29.0% |
Operating Expenses | 37,482 | 18.1% | 23,996 | 14.5% | 13,486 | 56.2% |
Amortization | 6,499 | 3.1% | 5,060 | 3.1% | 1,439 | 28.4% |
Research and Development | 1,293 | 0.6% | 1,302 | 0.8% | (9) | -0.7% |
Earnings from operations | $ 18,370 | 8.9% | $ 18,964 | 11.4% | $ (594) | -3.1% |
The Juvenile segment sales increase in the quarter was driven by all of the Company’s operating units. Overall, organic sales growth in the Juvenile segment was 9%. All of the sales growth in North America was organic and sales were up by 11.4% over last year’s first quarter and 22% versus the Company’s fourth quarter results. This sales increase can be attributed to new products introduced in the fourth quarter of 2003. In particular, sales of the two most significant categories of products, car seat and strollers, increased in the quarter by over 15% and 10% respectively. In Europe, the segment benefited from an extra month’s sales at Ampafrance, acquired in February 2003, which helped increase sales by 50% over last year.
Gross margins improved by 110 basis points over the prior year. Margins in Europe are generally higher than in North America and European margins remained constant with last year. However the greater proportion of European sales in the quarter helped increase margins. In North America, US margins were consistent with the prior year while the Company’s Canadian operations posted higher margins, benefiting from the strong Canadian dollar versus its US counterpart. Operating expenses as a percentage of sales increased by 370 basis points mainly as a result of the cost associated with the insurance company dispute in the amount of US$6.5 million.
Home Furnishings
2004 | 2003 | Change |
$ (‘000) | % of sales | $ (‘000) | % of sales | $ (‘000) | % |
Sales | $ 129,913 | 100.0% | $ 110,418 | 100.0% | $ 19,495 | 17.7% |
Gross Profit | 18,987 | 14.6% | 24,532 | 22.2% | (5,545) | -22.6% |
Licensing and commission income | 1,453 | 1.1% | 567 | 0.5% | 886 | 156.3% |
Operating Expenses | 9,112 | 7.0% | 7,345 | 6.7% | 1,767 | 24.1% |
Amortization | 1,875 | 1.4% | 1,673 | 1.5% | 202 | 12.1% |
Research and Development | 439 | 0.3% | 490 | 0.4% | (51) | -10.4% |
Earnings from operations | $ 9,014 | 6.9% | $ 15,591 | 14.1% | $ (6,577) | -42.2% |
Total revenues in the Home Furnishings segment increased by 18.4% over last year. This increase came from both the contribution of sales to customers and products associated with the Carina acquisition of September 2003 and from organic growth. Earnings from operations decreased 42.2% to US$9.0 million from US$15.6 million a year ago. Gross margins declined by 760 basis points in the quarter. The principal reasons for this decrease were higher board prices, aggressive pricing to customers and the strength of the Canadian dollar. Unlike the Juvenile segment, a strong Canadian dollar reduces the segment’s profitability as certain items are manufactured in Canada and shipped to the United States. Operating costs remained in line at 7.0% of sales as opposed to 6.7% of sales in 2003.
Recreational / Leisure
The quarter includes the results for two months of newly acquired Pacific Cycle. Upon acquisition, guidance was issued for sales of between $335 million and $375 million for the 11 months of 2004. Earnings from operations as a percentage of sales were expected to be between 11.5% and 12.5%. The results for the first quarter were in line with these expectations.
2004 |
$ (‘000) | % of sales |
Sales | $ 51,976 | 100.0% |
Gross Profit | 9,564 | 18.4% |
Licensing and commission income | 1,956 | 3.8% |
Operating Expenses | 4,848 | 9.3% |
Amortization | 178 | 0.3% |
Earnings from operations | $ 6,494 | 12.5% |
Other Expenses
Interest expense in 2004 was higher than 2003, due to the higher borrowings associated with the acquisition of Pacific Cycle. The Company continues to benefit from the low interest environment and interest incurred on non-fixed debt averaged 3.25% in the quarter. Overall the Company’s average interest rate was below 5%. Corporate expenses were consistent with the prior year. The Company’s income tax rate decreased from 30.0% in 2003 to 16.3% in 2004. The tax rate in 2004 was expected to be in the range of 20% in light of the Company’s overall corporate structure, encompassing the newly acquired Pacific Cycle. The US$6.5 million charge booked in the quarter had the impact of lowering the rate below 20% as the charge was incurred in a high tax rate jurisdiction. Should the Company recover this amount and all other assumptions remain the same, the rate should return to the 20 % range. It should be noted the Company’s overall tax rate is based on the expected tax rate for the full year and is based on expected results for the full year. A significant change in the Company’s earnings, or the jurisdiction in which those earnings are earned, will have an impact on the rate for the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
During the first quarter of 2004, cash flow from operating activities was US$54.2 million compared to US$9.3 million in 2003, an improvement of US$44.9 million. The principal reason was the timing of accounts payable and income tax disbursements in 2004 versus 2003, which accounted for US$41.3 million of the improvement. Financing activities provided US$277.3 million in the quarter, detailed as follows:
$ (‘000) |
Borrowed for acquisition of Pacific Cycle | $ 288,026 |
Balance of sale incurred on acquisition of Pacific Cycle | 21,788 |
Debt repaid in the quarter | (35,161) |
Proceeds from issuance of capital stock | 1,524 |
Increase in bank indebtedness | 1,080 |
$ 277,257 |
Pacific Cycle was acquired in the quarter at a total cost of US$320.6 million, including an estimate of related acquisition costs. Excluding the Pacific acquisition, the Company’s net disbursements on various investing activities in 2004 were US$13.3 million, versus US$5.8 million in the prior year, an increase of US$7.5 million. Most of the increase was due to the ongoing factory expansion underway at DJG USA in Columbus, Indiana, as well as increased capital spending on new product development, specifically in the Juvenile segment.
Balance Sheet
The Company’s balance sheet changed significantly from year-end due to the Pacific Cycle acquisition. Details of the assets and liabilities acquired can be found in Note 2 to the March 31, 2004 interim financial statements. As can be seen, major assets acquired were accounts receivable and inventories, offset by current accounts payable. If these acquired assets and liabilities are removed from the March 31, 2004 balance sheet, the balance sheet is consistent with the year-end and all significant working capital ratios remained constant.
Goodwill acquired with Pacific Cycle was recorded at US$284.4 million in the quarter. However, the allocation of the purchase price in a major business acquisition necessarily involves a number of estimates as well as gathering information over a number of months following the date of acquisition. The Company has performed only a preliminary evaluation of Pacific Cycle’s assets and liabilities. The Company will be continuing to evaluate the value of these assets and liabilities and accordingly there will be changes to the assigned values. In particular, several of Pacific Cycle’s trademarks are being revalued at their fair market value. As a result, the goodwill amount above will be reduced for these trademarks’ value before the end of the fiscal year.
Debt levels at March 31, 2004, net of cash on hand, were US$532.2 million compared to US$227.1 million at December 30, 2003, an increase of US$255.2 million. Details of the change are provided above in the cash flow analysis.
OTHER INFORMATION
As required under new National Instrument 51-102, the Company is required in its Management Discussion and Analysis, to disclose the designation and number of principal amount of each class and series of its shares outstanding. Therefore, these items are listed below as of March 31, 2004. There were no significant changes to these values in the period between the quarter end and the date of the preparation of this MD & A.
The capital stock of the Company is as follows:
•
An unlimited number of Class "A" Multiple Voting Shares without nominal or par value, convertible at any time at the option of the holder into Class "B" Subordinate Voting Shares on a one-for-one basis, and;
•
An unlimited number of Class "B" Subordinate Voting Shares without nominal or par value, convertible into Class "A" Multiple Voting Shares, under certain circumstances, if an offer is made to purchase the Class "A" shares.
Details of the issued and outstanding shares are as follows:
Class A | Class B | Total |
Number | $ (‘000) | Number | $ (‘000) | $ (‘000) |
4,832,294 | $ 2,119 | 27,860,398 | $ 155,678 | $ 157,797 |
OUTLOOK
In light of the US$6.5 million pre-tax expense recorded in the Company’s first quarter results, the Company is reducing its previously issued guidance for fiscal 2004 by US$0.13 per share, to earnings of between US$3.12 to US$3.22 per share.
FORWARD LOOKING STATEMENTS
Certain sections of this Management’s Discussion and Analysis may contain forward looking statements. Such statements, based on the current expectations of management, inherently involve numerous risks and uncertainties, known and unknown. Actual future results may differ. The risks, uncertainties and other factors that could influence actual results are described in the "Risks and Uncertainties" section of the Management’s Discussion and Analysis contained in the Company’s annual report for 2003 and in the Corporation’s Annual Information Form.
DOREL INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2004
ALL FIGURES IN THOUSANDS OF US $
as at March 31, 2004 (unaudited) | as at December 30, 2003 (audited) |
ASSETS | ||
CURRENT ASSETS | ||
Cash and cash equivalents | $ 14,512 | $ 13,877 |
Funds held by a ceding insurer | 6,837 | 6,803 |
Accounts receivable | 254,004 | 210,905 |
Inventories | 249,899 | 207,371 |
Prepaid expenses | 10,284 | 10,719 |
Future income taxes | 8,377 | 9,184 |
543,913 | 458,859 | |
CAPITAL ASSETS | 150,978 | 147,837 |
GOODWILL | 659,392 | 380,535 |
DEFERRED CHARGES | 20,449 | 18,501 |
INTANGIBLE ASSETS | 83,118 | 85,448 |
FUTURE INCOME TAXES | 8,321 | 8,382 |
OTHER ASSETS | 10,745 | 10,995 |
$ 1,476,914 | $ 1,110,557 |
LIABILITIES | ||
CURRENT LIABILITIES | ||
Bank indebtedness | $ 3,735 | $ 764 |
Accounts payable and accrued liabilities | 332,247 | 253,145 |
Income taxes payable | 1,527 | 2,037 |
Balance of sale payable | 5,454 | - |
Current portion of long-term debt | 7,678 | 7,758 |
350,640 | 263,704 |
LONG-TERM DEBT (Note 4) | 535,337 | 282,421 |
PENSION OBLIGATION | 13,999 | 13,818 |
BALANCE OF SALE PAYABLE | 18,649 | 2,314 |
FUTURE INCOME TAXES | 43,129 | 45,148 |
OTHER LONG-TERM LIABILITIES | 8,705 | 8,266 |
SHAREHOLDERS’ EQUITY | ||
CAPITAL STOCK | 157,797 | 156,274 |
RETAINED EARNINGS | 307,185 | 287,583 |
CUMULATIVE TRANSLATION ADJUSTMENT | 41,474 | 51,029 |
506,456 | 494,886 |
$ 1,476,914 | $ 1,110,557 |
DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS
2004 | 2003 |
Sales | $ 388,436 | $ 276,319 |
Licensing and commission income | 3,409 | 566 |
TOTAL REVENUE | 391,845 | 276,885 |
EXPENSES | ||
Cost of sales | 302,241 | 202,465 |
Operating | 48,781 | 34,741 |
Amortization | 8,952 | 7,263 |
Research and development costs | 1,732 | 1,793 |
Interest on long-term debt | 6,558 | 3,111 |
Other interest (earned) | 163 | (4) |
368,427 | 249,369 |
Income before income taxes | 23,418 | 27,516 |
Income taxes | 3,816 | 8,267 |
NET INCOME | $ 19,602 | $ 19,249 |
EARNINGS PER SHARE | ||
Basic | $ 0.60 | $ 0.61 |
Diluted | $ 0.60 | $ 0.60 |
SHARES OUTSTANDING (Note 3) | ||
Basic – weighted average | 32,646,534 | 31,475,066 |
Diluted – weighted average | 32,886,099 | 32,191,725 |
DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
ALL FIGURES IN THOUSANDS OF US $
2004 | 2003 |
CASH PROVIDED BY (USED IN): | ||
OPERATING ACTIVITIES | ||
Net income | $ 19,602 | $ 19,249 |
Adjustments for: | ||
Amortization | 8,952 | 7,263 |
Deferred income taxes | (3,574) | (69) |
Gain on disposal of capital assets | - | (131) |
Funds held by ceding insurer | (33) | - |
24,947 | 26,312 |
Changes in non-cash working capital: | ||
Account receivable | (19,637) | (17,611) |
Inventories | 7,317 | 3,717 |
Prepaid expenses | 2,960 | (386) |
Accounts payable and other liabilities | 35,929 | 8,172 |
Income taxes payable | 2,679 | (10,885) |
29,248 | (16,994) |
CASH PROVIDED BY OPERATING ACTIVITIES | 54,195 | 9,317 |
FINANCING ACTIVITIES | ||
Increase in long-term debt | 252,865 | 178,305 |
Balance of sale and other amounts payable | 21,788 | 29,393 |
Issuance of capital stock | 1,524 | 4,776 |
Repurchase of capital stock | - | (129) |
Increase in bank indebtedness | 1,080 | 566 |
CASH PROVIDED BY FINANCING ACTIVITIES | 277,257 | 212,911 |
INVESTING ACTIVITIES | ||
Acquisition of subsidiary company | (320,575) | (247,198) |
Cash acquired | 3,734 | 7,207 |
(316,841) | (239,991) | |
Additions to capital assets – net | (7,989) | (2,999) |
Deferred charges | (5,053) | (2,538) |
Intangible assets | (254) | (245) |
CASH USED IN INVESTING ACTIVITIES | (330,136) | (245,773) |
Effect of exchange rate changes on cash | (680) | 72 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 635 | (23,473) |
Cash and cash equivalents, beginning of period | 13,877 | 54,450 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ 14,512 | $ 30,977 |
DOREL INDUSTRIES INC.
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 (unaudited)
ALL FIGURES IN THOUSANDS OF US $
2004 | 2003 |
BALANCE, BEGINNING OF PERIOD | $ 287,583 | $ 212,660 |
Net income | 19,602 | 19,249 |
Premium paid on repurchase of shares | - | (103) |
BALANCE, END OF PERIOD | $ 307,185 | $ 231,806 |
Notes to the Consolidated Financial Statements
As at March 31, 2004
All figures in thousands of US$, except share amounts (Unaudited)
1. Accounting Policies
Basis of Presentation
These interim consolidated financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) using the U.S. dollar as the reporting currency. They have been prepared on a basis consistent with those followed in the most recent audited financial statements with the exception of the changes in accounting policies as indicated below. These interim consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s audited financial statements for the year ended December 30, 2003.
Change in Accounting Policies
Stock Based Compensation
In 2003, the Canadian Institute of Chartered Accountants (CICA) modified Section 3870 “Stock Based Compensation and other Stock Based Payments”, which the Company has adopted on a prospective basis. As a result, effective for fiscal years beginning before January 1, 2004, the Company is required to recognize as an expense to income, all stock options granted, modified or settled using the fair value based method. As the Company has elected for prospective treatment of this section, only option grants issued in 2003 or later have an impact on operating results.
In addition, pro-forma disclosure is required for all options granted between January 1, 2002, the Company’s original adoption date of CICA Section 3870, and January 1, 2003. The Company’s net income and earnings per share would be reduced by these option grants to the following pro-forma amounts:
2004 | 2003 |
Net income | As reported | $ 19,602 | $ 19,249 |
Pro forma | $ 19,200 | $ 18,897 | |
Basic Earnings per share | As reported | $ 0.60 | $ 0.61 |
Pro forma | $ 0.59 | $ 0.60 | |
Fully diluted earnings per share | As reported | $ 0.60 | $ 0.60 |
Pro forma | $ 0.59 | $ 0.59 |
Pro-forma figures were computed using assumptions consistent with those followed in the Company’s most recent audited financial statements.
Hedging Relationships
Effective January 1, 2004, the Company has adopted the recommendations of the Canadian Institute of Chartered Accountants Accounting Guideline 13 “Hedging Relationships”, which establishes certain conditions for when hedge accounting may be applied. Any derivative instrument that does not qualify for hedge accounting will be reported on a mark-to-market basis in income. The Company has determined that its foreign currency hedging policies and practices qualify as hedges for accounting purposes and therefore, there is no impact on the Company’s operating results. The Company’s interest rate swap instrument is not considered as a hedge for accounting purposes and is therefore recognized at fair value and the resulting gain or loss in recorded in earnings. This change in accounting treatment did not have a material impact on the Company’s results.
Segmented Information
During the first quarter of 2004 the Company acquired Pacific Cycle, LLC. In accordance with Canadian Generally Accepted Accounting Principles (GAAP), the operations of Pacific Cycle are reported as a separate reporting segment referred to as “Recreational/Leisure”. Segmented results can be found in Note 7 to these financial statements.
Reclassifications
Certain of the prior year’s accounts have been reclassified to conform to the 2004 financial statement presentation.
2. Business Acquisition
On February 3, 2004, the Company acquired all the outstanding shares of Pacific Cycle, LLC, a designer and supplier of bicycles and other recreational products for a total consideration of $320.6 million, including an estimate of all related acquisition costs. The majority of the acquisition cost was financed through long-term debt with the balance being paid with cash on hand. In addition, a balance of sale of $21.8 million, remains to be paid and is included in liabilities.
The combination has been recorded under the purchase method of accounting with the results of operations of the acquired business being included in the accompanying consolidated financial statements since the date of acquisition
The assets acquired and liabilities assumed consist of the following:
Assets | |
Cash | $ 3,734 |
Accounts receivable | 31,587 |
Inventories | 50,953 |
Capital assets | 1,758 |
Other | 2,391 |
Goodwill | 284,398 |
374,821 | |
Liabilities | |
Accounts payable and other current liabilities | 54,246 |
Total purchase price | $ 320,575 |
Allocation of the purchase price in a major business acquisition necessarily involves a number of estimates as well as gathering information over a number of months following the date of acquisition. Given the timing of the acquisition, the Company has performed only a preliminary evaluation of Pacific Cycle’s assets and liabilities. The Company will be continuing to evaluate the value of these assets and liabilities and accordingly there will be changes to the assigned values. In particular, several of Pacific Cycle’s trademarks are being revalued at their fair market value. As a result, the goodwill amount above will be reduced for these trademarks’ value.
3. Earnings per Share
The following table provides a reconciliation between the number of basic and fully diluted shares outstanding:
2004 | 2003 |
Weighted daily average number of Class “A” Multiple and Class “B” Subordinate Voting Shares | 32,646,534 | 31,475,066 |
Dilutive effect stock options and share purchase warrants | 239,565 | 716,659 |
Weighted average number of diluted shares | 32,886,099 | 32,191,725 |
Number of anti-dilutive stock options or share purchase warrants excluded from fully diluted earnings per share calculation | 541,500 | 100,000 |
4. Long-term Debt
Effective January 29, 2004 the Company amended its unsecured credit facility, increasing availability to $470.0 million. This increased availability replaced the Company’s previous limit of $245 million as disclosed in the Company’s year end financial statements dated December 30, 2003. As at March 31, 2004, an amount of $350.0 million relating to this facility is included in long-term debt.
The Company may grant stock options on the Class “B” Subordinate Voting Shares, at the discretion of the board of directors, to senior executives and certain key employees. The exercise price is the market price of the securities at the date the options may be granted. No option may be exercised during the first year following its granting and is exercisable, on a cumulative basis, at the rate of 25% in each of the following four years, and will expire no later than the year 2009.
The Company's stock option plan is as follows:
Three months ended March 31, 2004 | Year Ended December 30, 2003 |
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price |
Options outstanding, beginning of period | 1,099,750 | $ 21.52 | 2,079,000 | $ 16.55 |
Granted | 541,500 | 33.74 | 151,000 | 24.67 |
Exercised | (73,750) | 20.67 | (1,118,250) | 12.39 |
Cancelled | - | - | (12,000) | 21.75 |
Options outstanding, end of period | 1,567,500 | $ 25.78 | 1,099,750 | $ 21.52 |
A summary of options outstanding as of March 31, 2004 is as follows:
Total Outstanding | Total exerciseable |
Options | Range of Exercise Prices | Weighted Average Exercise Price | Options | Weighted Average Exercise Price |
95,250 | $16.00 - $18.00 | $17.61 | 62,000 | $17.87 |
930,750 | $20.41 - $27.47 | $21.95 | 144,500 | $21.28 |
541,500 | $33.74 | $33.74 | - | - |
1,567,500 | $25.78 | 206,500 | $20.26 |
6. Product Liability
As detailed in the Company’s year-end consolidated financial statements, the Company is insured for product liability, by the use of both traditional insurance and by the Company's wholly owned subsidiary, Dorel Insurance Corporation, which functions as a captive insurance company, providing a self-funded insurance program to mitigate its product liability exposure.
The estimated product liability exposure was calculated by an independent actuary based on historical sales volumes, past claims history and management and actuarial assumptions. The estimated exposure includes incidents that have occurred, as well as incidents anticipated to occur. Significant assumptions used in the actuarial model include management’s estimates for pending claims, product life cycle, discount rates, and the frequency and severity of product incidents.
The Company has recorded an additional provision in the amount of $6,500 in connection with a dispute with one of its insurers over the aggregate amount of insurance available to the Company, including one claim that came due in the quarter. The Company disagrees with the position being asserted by the insurer and has engaged in legal proceedings with the insurance company. Should a decision be made in the Company’s favour, the recovery will be included in net income in future periods.
7. Segmented Information
Industry Segments
Total | Juvenile | Home Furnishings | Recreational/Leisure |
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 |
Total Revenues | $ 391,846 | $ 276,886 | $ 206,547 | $ 165,901 | $ 131,367 | $ 110,985 | $ 53,932 | $ - |
Cost of sales | 296,241 | 202,465 | 142,903 | 116,579 | 110,927 | 85,886 | 41,411 | - |
Operating expenses | 53,175 | 33,133 | 38,775 | 25,298 | 9,551 | 7,835 | 4,849 | - |
Amortization | 8,552 | 6,733 | 6,499 | 5,060 | 1,875 | 1,673 | 178 | - |
Earnings from Operations | 33,878 | 34,555 | $ 18,370 | $ 18,964 | $ 9,014 | $ 15,591 | $ 6,494 | $ - |
Interest | 6,721 | 3,108 | ||||||
Corporate expenses | 3,739 | 3,931 | ||||||
Income taxes | 3,816 | 8,267 |
Net income | $ 19,602 | $ 19,249 |
Geographic Segments-Origin
Sales |
2004 | 2003 |
Canada | $ 53,884 | $ 39,042 | ||||||
United States | 242,905 | 173,123 | ||||||
Europe | 84,206 | 56,048 | ||||||
Other foreign countries | 10,851 | 8,673 |
Total | $ 391,846 | $ 276,886 |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DOREL INDUSTRIES INC.
By: /s/ Martin Schwartz_____________
Martin Schwartz
Title: President, Chief Executive Officer
By: /s/ Jeffrey Schwartz_____________
Jeffrey Schwartz
Title: Chief Financial Officer, Secretary
May 14, 2004
