A GLOBAL CONSUMER PRODUCTS COMPANY

Transcription

A G L O B A L C O N S U M E R P R O D U C T S C O M PA N Y
DOREL INDUSTRIES INC. 2003 ANNUAL REPORT
Did you know?
Dorel is the world’s largest juvenile products company
in its categories. Dorel sells more bicycles than anyone else
in North America. Dorel is among the top two ready-to-assemble
furniture manufacturers in North America. Dorel’s brands are
some of the most powerful in juvenile products, RTA furniture
and the sporting goods industry.
Table of Contents
Message to Shareholders 2 | The Dorel Business Model 6 | The Power of Dorel’s Brands 8 | Pacific Cycle 10 | A Proven Business Model 12
A Growing Portfolio of Strong Brands 12 | Dorel’s Brand Drive Gears up with Schwinn 13 | Corporate Governance 14
Dorel Industries Inc.
1255 Greene Avenue, Suite 300, Montreal, Quebec, Canada H3Z 2A4
T: 514.934.3034 F: 514.934.9379 www.dorel.com
Message from our Chief Operating Officer 16 | 11-year Financial Retrospective 18 | Management’s Discussion and Analysis 20
Management’s and Auditors’ Reports 35 | Financial Statements 36 | Corporate Information 63
Financial Highlights
Sales
1,200,000
17.3% Change
1,000,000
Recreational/Leisure
600,000
DIVISIONS
DIVISION
Dorel Juvenile Group USA
Dorel Juvenile Group Europe
Ampafrance
Cosco Home & Office
Ameriwood
Dorel Asia
Pacific Cycle
PRODUCT RANGE
PRODUCT RANGE
Infant car seats; Strollers; High chairs; Playpens;
Toddler beds; Early learning/infant health/safety aids
Metal folding furniture; Step stools;
Ladders; Futons; Imported furniture items
Office/home office furniture; Entertainment units
DESIGN/PRODUCT DEVELOPMENT CENTRES
20,000
Madison, Wisconsin
Lake Forest, California
Longmont, Colorado
10,000
SHOWROOMS
Mississauga, Ontario
03
Earnings per diluted share
Madison, Wisconsin
Vacaville, California
Olney, Illinois
2.5
16.0% Change
2.0
OPERATING FACILITIES
Columbus, Indiana
Cornwall, Ontario
Dowagiac, Michigan
Greenwood, Indiana
02
0,000
St. Louis, Missouri
Montreal, Quebec
Ontario, California
Sabadell, Spain
Telgate, Italy
Vila do Conde, Portugal
Cologne, Germany
40,000
30,000
High Point, North Carolina
Columbus, Indiana
Greenwood, Indiana
Cholet, France
Helmond, Holland
Lausanne, Switzerland
Borehamwood, United Kingdom
50,000
($'000)
Mass merchants; Furniture stores;
Hardware/home centres; Office superstores;
Department stores
SHOWROOMS
60,000
CUSTOMERS
Columbus, Indiana
21.8% Change
70,000
CUSTOMERS
Mass merchants; Sporting goods stores;
Independent bicycle dealers; Specialty retailers
80,000
75.0
Columbus, Indiana
Helmond, Holland
Bicycles; Ride-on toys; Licensed products (including
safety equipment, electric scooters, apparel, skateboards
and more); Other recreational products
Montreal, Quebec
Ontario, California
Tiffin, Ohio
Wright City, Missouri
1.5
($)
Canton, Massachusetts
Cholet, France
03
Net income
1.0
0.5
2.32
02
0
PRODUCT RANGE
CUSTOMERS
Mass merchants; Department stores;
Hardware/home centres; Specialty boutiques
200,000
1,163.8
DIVISIONS
992.1
400,000
As of February 2004
61.6
Home Furnishings
2.00
Juvenile
($'000)
800,000
02
03
0.0
Other key financial measures
(IN MILLIONS OF US DOLLARS, UNLESS OTHERWISE INDICATED)
2003
2002
% CHANGE
1,110.6
290.9
614.7
93.2
80.7
212.2
Gross margin (%)
Return on shareholders’ equity (%)
Debt to equity ratio
26.3
15.2
0.59
23.4
17.4
0.26
Weighted average number of
diluted shares outstanding (000s)
32,407
30,739
Total assets
Total debt
5.4
Sales
1,200,000
17.3% Change
1,000,000
600,000
DIVISIONS
DIVISION
Ampafrance
Cosco Home & Office
Ameriwood
Dorel Asia
Pacific Cycle
PRODUCT RANGE
PRODUCT RANGE
20,000
Madison, Wisconsin
Longmont, Colorado
10,000
SHOWROOMS
03
Madison, Wisconsin
Olney, Illinois
2.5
16.0% Change
2.0
Columbus, Indiana
Cornwall, Ontario
Dowagiac, Michigan
Greenwood, Indiana
02
0,000
St. Louis, Missouri
Montreal, Quebec
Ontario, California
Sabadell, Spain
Telgate, Italy
Cologne, Germany
40,000
30,000
Columbus, Indiana
Greenwood, Indiana
Cholet, France
Helmond, Holland
50,000
($'000)
Department stores
SHOWROOMS
60,000
CUSTOMERS
Columbus, Indiana
21.8% Change
70,000
CUSTOMERS
80,000
75.0
Columbus, Indiana
Helmond, Holland
Montreal, Quebec
Ontario, California
Tiffin, Ohio
1.5
($)
Cholet, France
03
Net income
1.0
0.5
2.32
02
0
PRODUCT RANGE
CUSTOMERS
200,000
1,163.8
DIVISIONS
992.1
400,000
As of February 2004
61.6
Home Furnishings
2.00
Juvenile
($'000)
800,000
02
03
0.0
2003
2002
% CHANGE
1,110.6
290.9
614.7
93.2
80.7
212.2
Gross margin (%)
26.3
15.2
0.59
23.4
17.4
0.26
32,407
30,739
Total assets
Total debt
5.4
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2003 Annual Report
2003 Milestones
First Quarter
• Dorel announces and concludes acquisition of juvenile products
Profile
Dorel is a global consumer products
company which designs, manufactures
or sources, markets and distributes
a diverse portfolio of powerful product
brands, marketed through its Juvenile,
Home Furnishings, and Recreational/Leisure
segments. US operations include the Dorel
Juvenile Group USA, which incorporates the
Cosco and Safety 1st brands; Ameriwood
Industries, Cosco Home & Office; and
Pacific Cycle, which includes the Schwinn,
Mongoose, GT, InSTEP and Roadmaster
brands. In Canada, Dorel operates Dorel
Juvenile Group Canada; Ridgewood Industries
and Dorel Home Products. The Dorel Juvenile
Group Europe carries out activities
throughout Europe, under the Maxi-Cosi,
Quinny, Safety 1st, Bébé Confort, Babidéal,
MonBébé and Baby Relax brands.
Dorel Asia sources and imports home
furnishings. Dorel employs approximately
5,000 people in fourteen countries. 2003 sales
were US$1.2 billion. 2004 sales are expected
to be between US$1.6 – US$1.8 billion.
manufacturer Ampafrance, positioning the Company as the global leader
in the industry.
• Dorel secures new long-term financing with the sale of US$110.0 million
of Senior Guaranteed Notes. The funds were used to finance the purchase
of Ampafrance.
• Dorel posts fiscal 2002 year end revenue of US$992.0 million and net
income of US$61.6 million; US$2.05 EPS, fully diluted.
• Harold (Sonny) Gordon, Q.C., appointed to Board of Directors. Mr. Gordon
has a diverse background of governmental, legal and business experience.
Second Quarter
• Q1 (ended March 31, 2003) results announced: revenues of US$276.9 million,
up 8.6%, and a 22.4% increase in net income of US$19.2 million;
EPS of US$0.61.
• Dorel Juvenile Group USA unveils exciting line-up of new products
at International Juvenile Products Manufacturers Association (JPMA) show,
including revolutionary neat! Diaper Disposal System.
• CEO Martin Schwartz tells annual general meeting audience that Dorel
is launching a global initiative strategy with China continuing to play
a growing factor in all operations.
Third Quarter
• Q2 (ended June 30, 2003) results announced: a 10.3% increase in revenues
to US$264.7 million and a 9.2% increase in net income to US$16.3 million
or EPS of US$0.50. Six month revenue reaches US$541.7 million; net income
at $35.5 million or US$1.13 per share.
• Dorel acquires North America’s fastest growing RTA furniture manufacturer,
Carina Furniture Industries Ltd. of Toronto. Purchase ranks Dorel as among
the top two in North American RTA furniture industry.
Fourth Quarter
• Q3 (ended September 30, 2003) results announced: revenues
up 16.5% to US$298.5 million; net income up 14.8% to US$18.8 million
or US$0.59 per share. Nine month revenue reaches US$840.1 million;
net income at $54.3 million or US$1.72 per share.
Dorel is the parent corporation of a number of independently
operated subsidiaries incorporated in various countries
throughout the world, including, without limitation,
Dorel Juvenile Group, Inc., a Massachusetts corporation
and Ameriwood Industries, Inc., a Delaware corporation,
each operating in the United States, as well as operating
subsidiaries in Europe and Asia. In some instances, references
in this Annual Report to “Dorel” may include the operations
of those subsidiaries.
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2003 Annual Report
Message to Shareholders
WE ACHIEVED MAJOR PROGRESS
IN OUR GROWTH STRATEGY BY
COMPLETING TWO ACQUISITIONS,
BOTH IMMEDIATELY ACCRETIVE
TO EARNINGS, WHILE PREPARING
FOR A THIRD.
2003 was a milestone year for Dorel as we became a billion dollar corporation,
a world leader in juvenile products and North America’s number two ready-toassemble (RTA) furniture producer. Immediately subsequent to year-end we also
became the largest player in the US bicycle industry. These events will steadily
drive your Company toward its second billion dollars in revenue. 2004 sales are
expected to be between US$1.6 and US$1.8 billion. We achieved major progress
in our growth strategy by completing two acquisitions, both immediately accretive
to earnings, while preparing for a third. This included Ampafrance, Carina Furniture
Industries in Canada and, US-based Pacific Cycle, our largest purchase ever. While
we are cautious for 2004, we are confident the year will set new records in
profitability. The addition of the new Recreational/Leisure Segment through Pacific
Cycle provides exciting opportunities.
Acquisitions reinforce growth
The US economy and by extension, the retail environment, has been choppy during
the past couple of years and remains somewhat uncertain. Retailers, principally in
the United States, were highly prudent in their buying patterns through much of
2003 as consumers were selective in their purchases. This was particularly the
case in our Juvenile Segment as 2003 sales levels in the US were somewhat
disappointing, a trend that was reversed in the fourth quarter. While year-over-year
sales of RTA furniture in our Home Furnishings Segment were up, margins were lower
due to aggressive pricing and some higher raw material prices.
The purchase of Ampafrance and its four highly dominant juvenile brands during
the first quarter of fiscal 2003 compensated for the weaker US climate. Overall
Juvenile Segment sales rose almost 28 % for the year, while earnings from operations
grew over 53 %. Similarly, the acquisition of Carina in the third quarter, has allowed
the Company to strengthen its presence in retail RTA furniture sectors where it has
previously not had a solid share of certain markets. These acquisitions are fundamental
to Dorel’s proven growth strategy that dates back to 1988 when we bought Cosco
in the US. Our record is clear. We buy companies that fit our specific business
model and that provide consistent future internal growth. While we will continue to
seek out profitable new companies, we will tirelessly work to ensure efficiencies
that lead to profitability in all of our businesses.
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2003 Annual Report
Martin
Schwartz
President
& CEO
2003 highlights
Juvenile
To this end, a number of important issues were addressed throughout 2003
to correct certain situations. For example, we had fallen behind in the 12-18 month
product development cycle in juvenile, resulting in a lack of sufficient new products
in 2002. This translated into weak US sales through the first half of 2003.
We moved decisively to fix the problem with a major reorientation of our product
development process. As a result, fourth quarter year-over-year juvenile sales in the
US increased more than 10% while earnings from operations rose significantly.
Several new products were launched incorporating innovation, quality, convenience
and, above all, safety. These included new stroller platforms featuring European
styling; an Eddie Bauer collection of wood high chairs, step stools and basinets;
the Safety 1st neat! Diaper Disposal System, truly superior to others on the market,
as well as additions to the line of Safety 1st nursery monitors. Reaction to these and
other introductions presented at the two major juvenile shows in the United States and
Germany was enthusiastic.
Gross margins improved year-over-year as a result of lower material costs, improvements
in distribution expenses and significantly less customer reductions at Dorel Juvenile
Group USA.
In Europe, the addition of Ampafrance has made Dorel significantly stronger.
Market share in France is now fifteen times greater than it was through Dorel
Juvenile Group Europe. As well, Ampafrance’s more comprehensive range of
products has made it one of the top players in Spain, Italy and Portugal and it is
also the market leader in Switzerland and Belgium. Our geographic breakdown of
sales which was 91% North American and 9% European/other in 2002 shifted to
76% North American and 24% European/other this past year.
We are also leveraging Ampafrance’s management strength with a new structure.
All European juvenile operations report to Ampafrance’s CEO, under an expanded
Dorel Juvenile Group Europe. New Managing Directors were appointed for MaxiMiliaan B.V. and Ampafrance, both of whom report to the CEO. While senior
responsibility for Europe has been centralized, the operations of Ampafrance and
Maxi-Miliaan B.V. have not been completely merged. Rather, the strengths of each
Company are being better utilized by applying one consistent vision for all of Europe.
IN EUROPE, THE ADDITION OF
AMPAFRANCE HAS MADE DOREL
SIGNIFICANTLY STRONGER. MARKET
SHARE IN FRANCE IS NOW FIFTEEN
TIMES GREATER THAN IT WAS THROUGH
DOREL JUVENILE GROUP EUROPE.
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2003 Annual Report
Home Furnishings
Dorel’s home furnishings businesses—Ameriwood, Cosco Home & Office and Dorel
Asia—were all profitable in 2003. While the ready-to-assemble furniture component
was flat, this was a standout performance when compared to others in the industry.
CARINA WAS PURCHASED FOR
ITS BROADER PRODUCT LINE
AND CUSTOMER BASE AND ADDS
EXCITING NEW OPPORTUNITIES.
IT HAS BEEN NORTH AMERICA’S
FASTEST GROWING RTA FURNITURE
MANUFACTURER FOR THE PAST TWO
YEARS, AND ITS ADDITION RANKS DOREL
SECOND AMONG THE RTA FURNITURE
PRODUCERS IN NORTH AMERICA.
Concerted efforts by the RTA furniture divisions in seeking opportunities for growth
and in product development, both with domestic and imported products, mitigated
the top line impact. However, aggressive pricing, higher board prices and the strong
Canadian dollar lowered margins. New designs with solid wood fronts as well as
imported products to complement domestic production, offered a unique look and
value to consumers. The division increased its market share and expanded its presence
with mass merchants. As conditions improve, we are confident Dorel’s RTA furniture
unit will continue to lead the industry.
Carina was purchased for its broader product line and customer base and adds
exciting new opportunities. It has been North America’s fastest growing RTA furniture
manufacturer for the past two years, and its addition ranks Dorel second among
the RTA furniture producers in North America. Carina provides important added
access to office superstore and do-it-yourself retail chains in the United States and
Canada.
Cosco Home & Office, which produces step stools, ladders, folding furniture and
chairs, introduced a number of new items including some under the Samsonite label.
The Samsonite brand has opened many doors as customers are expressing
a strong desire for their products. The division also secured several incremental
step stool listings in Europe, where the product line is gaining momentum. Dorel Asia
is expected to contribute an improved performance in 2004 with several new accounts.
A track record of growth
Over the past five years, Dorel has recorded a compound annual growth rate of
32% in earnings and 19% in sales. This continuing success results from a combination
of factors underpinned by a corporate culture of continuous improvement.
We consistently attempt to raise the bar in everything we do, from purchasing and
new product development to the quality of the acquisitions we make.
Our brands are strong and have been getting stronger through acquisitions.
The purchase of Pacific Cycle in 2004, with its powerful platform of brands, provides
significant potential for growth both domestically and internationally. This increased
basket of Dorel products, generally sold at popular, opening price points, will serve
the Company well as we are solidly entrenched with all mass merchants, creating
strong distribution channels, and opening numerous opportunities.
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2003 Annual Report
Outlook
The ability to see things through a crystal ball is far from a perfect science. This
has never been more the case than over the past two years as the result of the
unforeseen events which have affected all of us. Clarity remains elusive and leads
us to be conservative looking forward. While we did see improvement in the US
retail climate through the second half of 2003, the consumer is not yet back in force.
New juvenile products launched during the second half of 2003 provide the momentum
for new sales. The potential for growth in Europe is significant. There are
approximately four million births each year in Europe, roughly the same number as
in the US, and the industry is very fragmented. With our new focused approach
in Europe, we feel we can attain a presence and size abroad similar to that of our
North American juvenile operations. Due to raw material price increases, the readyto-assemble furniture industry is likely to face challenges during 2004, but we are taking
measures to counteract these pressures. As a result, margins will improve
progressively through the year. Pacific Cycle is a new business for us, and we are being
prudent in our expectations. Along with this exciting new company comes an
excellent management team and a powerful portfolio of brands, truly a winning
combination with great potential.
OUR BRANDS ARE STRONG AND HAVE
BEEN GETTING STRONGER THROUGH
ACQUISITIONS. THE PURCHASE OF
PACIFIC CYCLE, WITH ITS POWERFUL
PLATFORM OF BRANDS, PROVIDES
SIGNIFICANT POTENTIAL FOR GROWTH
BOTH DOMESTICALLY AND
INTERNATIONALLY.
Overall, we are maintaining a cautious, conservative outlook for 2004. We have made
many changes over the past year in our on-going drive of continuous improvement
and profitable growth. We have added significantly to Dorel’s operations. This, clearly,
is a much larger Company. 2004 will be a year of integration where all energies
will be focused on identifying and implementing efficiencies. Despite recent high
borrowings to finance acquisitions, we are confident that we will be able to rapidly
pay down debt in the year ahead as free cash flow is expected to be in excess of
US$100 million in 2004.
I wish to thank our employees and suppliers around the world for their role
in making Dorel a respected global consumer products company. They help design,
manufacture and distribute the products that consumers are increasingly using in
their daily lives. Our relationships with our customers continue to strengthen as we
introduce more exciting products. And our commitment to our shareholders for
continued profitability remains unwavering. We thank you all for your support.
Martin Schwartz
President and Chief Executive Officer
February 23, 2004
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2003 Annual Report
The Dorel Business Model
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2003 Annual Report
Global vision that provokes growth
Dorel’s vision for growth as a global consumer products company is built upon
its ability to adhere to a highly-disciplined program of organic growth and strategic
acquisitions, a culture of low-cost production and management’s skill of continuous
improvement across all Company businesses. Dorel’s proven program combines
the in-house design of exciting, quality consumer products; a balance of domestic
and off-shore production and the development of strong customer relationships.
It is this model which serves both Dorel’s traditional divisions and is the formula
the Company seeks when acquiring new, growth operations.
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2003 Annual Report
The Power of Dorel’s Brands
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2003 Annual Report
Global brands that provoke growth
Dorel’s growth as a global consumer products company has been accelerated by the addition
of several recognized brands. Criteria for the Company’s acquisitions include immediate
profitability and existing strong brands. This can be traced back to 1988 when Dorel bought
Cosco, well-known in the US for its line of car seats and strollers. Subsequent purchases
have included Maxi-Cosi, Quinny and Ampafrance’s four solid brands including Bébé Confort,
Babidéal, MonBébé and Baby Relax in Europe as well as Safety 1st and most recently
Schwinn, Mongoose, GT, InSTEP and Roadmaster in the US. Ameriwood, Carina and SystemBuild
have also been added to Ridgewood, Dorel’s original RTA furniture operation. In addition,
Dorel has entered into several successful licenses with well-known brand names such as
Eddie Bauer and Samsonite.
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2003 Annual Report
Pacific Cycle
BACK ROW (LEFT TO RIGHT): JEFF FREHNER, VP HR, General Counsel | BRUNO MAIER, VP New Business Dev. & Licensing | BOB HABERSAAT, VP Sales, Sporting Goods
BOB IPPOLITO, Executive VP, Product Development & Customer Service | ALICE TILLET, VP Sales
FRONT ROW: BYRON SMITH, Chief Operating Officer & President | CHRIS HORNUNG, Chairman & CEO | ROB GOOZE, Executive VP, Supply Chair | PAUL SILVER, VP Marketing
MISSING: JIM CONINX, Executive VP, Finance & Chief Finance Officer | NICK ABDRADE, VP, Independent Bicycle Dealer Sales
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2003 Annual Report
Global opportunities that provoke growth
In February 2004 Dorel added a significant new dimension to its businesses with the acquisition
of Pacific Cycle. Best known for its Schwinn, Mongoose and GT bicycle brands, Pacific Cycle
is a leader in the design, marketing and distribution of high quality, branded bicycles
and other recreational products. Pacific Cycle sells more bicycles than anyone in the US.
Its portfolio of powerful brands is one of the strongest in the sporting goods industry.
Its business model parallels Dorel’s and provides opportunities to strengthen Dorel’s position
as a global consumer products company. Existing Pacific Cycle management is remaining
and the unit will be run as a stand-alone business.
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2003 Annual Report
A Proven Business Model
DOREL HAS PRACTICED A HIGHLY
DISCIPLINED GROWTH STRATEGY SINCE
ITS 1987 IPO. A COMBINATION OF
INTERNAL GROWTH AND PRUDENT
ACQUISITIONS HAS PROVIDED A TEN
YEAR CAGR RATE OF 20.5% IN SALES AND
30.6% IN EARNINGS. MANAGEMENT
HAS CONSISTENTLY MAINTAINED
ITS FOCUS ON THE COMPANY’S BUSINESS
MODEL -- CLEARLY EVIDENT WITH
THE 2004 PURCHASE OF PACIFIC CYCLE.
IT IS THIS STRICT ADHERENCE TO THE
OVERALL PLAN PLUS THE PROGRESSIVE
REINFORCEMENT OF DOREL’S PORTFOLIO
OF POWERFUL BRANDS THAT CONTINUES
TO DRIVE PROFITABILITY.
A catalyst to Dorel’s evolution as a global consumer products company has been
its ability to develop and continuously improve key strengths which are consistently
applied across all Company businesses. The strategy combines the in-house design
of exciting, quality consumer products; a balance of domestic production and off-shore
sourcing, and the development of strong customer relationships. It is this model
which has not only served Dorel’s traditional divisions but is the formula the
Company seeks when acquiring new, growth operations.
It starts with the right products at the right price. Product development is a highly
integral component. Each segment has the required resources to create the necessary
pipeline of new products. The Dorel Juvenile Group’s Design and Development
Centre in Canton, Massachusetts is augmented by Ampafrance’s talented team in
Cholet, France. While continents apart, the two groups interact to ensure that
consumer concerns for safety, quality and convenience are fully addressed and in
a manner that respects the diverse market tastes. Ameriwood’s RTA furniture
designs are created and perfected at the division’s Wright City, Missouri facility,
while Cosco Home & Office delivers the latest in ladders, folding furniture and step
stools from its base in Columbus, Indiana. Added to this growing pool of creative minds
is Pacific Cycle’s R&D department, turning out the bicycle models most Americans are
buying.
Dorel has analyzed what to produce at its own facilities and what to outsource.
This is vital to the Company’s success. For example, the Dorel Juvenile Group’s
Columbus, Indiana factory, which produces car seats, was completely revamped
and enlarged to 1.3 million square feet in 2003. Construction of the “Factory of the
Future” commenced shortly after the Company determined that the local Columbus
option provided significant cost savings and increased efficiencies. Conversely,
strollers are made in Asia. It is this highly flexible and successful manufacturing
model that led Dorel to investigate Pacific Cycle, which long ago, perfected the
concept of domestic design and off-shore production. Strict quality control is
uncompromising to the point that Dorel has offices in Shanghai and Shenzhen to
oversee all Asian production.
Dorel’s strong relationships with its customers and its proven capacity of serving
the largest mass merchants has earned it many Vendor of the Year awards as well
as the prestigious distinction of Category Captain in many of the sectors it serves.
It is this trust and loyalty of its wide base of customers that enables to Dorel to
grow its businesses through new product offerings. The Company pays considerable
attention to ensuring that its customer service is second to none. It maintains
individual offices in close proximity to key retailers, with staff totally dedicated to
these important merchants.
A Growing Portfolio of Strong Brands
Dorel’s growth as a global consumer products company has been accelerated in
recent years by the addition of several recognized brands. In 2000, Dorel purchased
Safety 1st. Who hasn’t seen the “Baby on Board” sign? Numerous new Safety 1st
products have been developed by Dorel’s design teams. Others are being marketed
under the well-known brand.
In Europe, Maxi-Cosi and Quinny, two names associated with quality juvenile
products, formed the base of the Corporation’s growth abroad. That platform was
given a major boost with the 2003 purchase of Ampafrance. Ampafrance’s products
under the Bébé Confort, Babidéal, MonBébé and Baby Relax brands, are universally
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2003 Annual Report
known in France. Through them, Ampafrance is one of the top three players in
Spain, Italy and Portugal and is also a market leader in Switzerland and Belgium. Few
European competitors match the comprehensive range of products offered. There
is also strong cross marketing. A line of Safety 1st products has been introduced in
Europe.
The RTA furniture division, already strong with the Ameriwood, Charleswood and
Ridgewood names, was further strengthened with last year’s purchase of the Carina
and SystemBuild brands. Dorel also has licensing arrangements with well-known
brands such as Eddie Bauer, a highly successful juvenile label, Disney and Samsonite.
Most recently, in February 2004, Dorel inherited one of the best known sporting goods
brands, Schwinn bicycles, through its acquisition of Pacific Cycle.
Dorel’s Brand Drive
Gears up with Schwinn
The addition of Pacific Cycle, a designer and supplier of bicycles and other
recreational products, adds a significant additional dimension to Dorel, classified
under a new reporting segment, Recreational/Leisure. Pacific Cycle is best known
for its Schwinn, Mongoose and GT bicycle brands. With an 88% market awareness,
Schwinn is an American icon and is one of the most widely recognized brands
in the sporting goods industry with a long-established reputation for high quality
bicycles. Mongoose has a 73% market awareness and is particularly well
known in the aggressive, performance-oriented BMX bicycle and freestyle riding
market. Pacific Cycle also markets products under the Roadmaster, InSTEP and
Pacific labels.
Pacific Cycle sells more bicycles than anyone else in the US bicycle industry and
its portfolio of powerful brands allows it to license them domestically and
internationally, providing additional revenues. Pacific’s brand portfolio enables it to
serve virtually all consumer demographics, price categories and bicycling tastes.
Pacific Cycle’s business model is very similar to Dorel’s and provides numerous
growth opportunities. Pacific Cycle designs its bicycles domestically and manufactures
off-shore through long and solidly established Asian sourcing. It distributes its brands
through strong relationships with high volume retailers, particularly in the mass
merchant channel as well as sporting goods chains and specialty independent
dealers. This broad distribution and intensive marketing have enabled Pacific Cycle
to garner an industry-leading 27% share of total US bicycle sales, including 44% in
the mass merchant sector. Dorel intends to leverage Pacific’s powerful brands to
create a platform for future growth in leisure and fitness products, including natural
extensions in its juvenile segment.
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2003 Annual Report
Corporate Governance
The Board of Directors of Dorel Industries Inc.
and its management are committed to maintaining
the highest standards of corporate governance
identified in Canada, United States and Europe.
The Board of Directors is responsible for
overseeing the business and affairs of the
Company, and providing guidance and direction
to management in order to attain corporate
objectives and to maximize shareholder value.
These stewardship functions are carried out
directly by the Board and its Committees.
In 2003, the Board met six times with a 98% attendance record. At each meeting,
the Independent Directors meet without management or the related Directors.
In 2003, the position of Lead Director was created, and Mr. Maurice Tousson,
a long-standing independent board member was appointed to the post. During
the year, an original board member, Mr. Bruce Kaufman, stepped down and was
replaced by a new independent director, Mr. Harold P. (Sonny) Gordon, Q.C.
Dorel has two Committees of the Board, the Audit Committee and the Human
Resources and Corporate Governance Committee. Both are composed solely of
independent board members. These committees are each responsible for certain
corporate governance functions in accordance with their respective Terms of Reference.
The Audit Committee Terms of Reference were revised to ensure conformity with all
Canadian and United States regulatory requirements. In total there were five meetings
of the Audit Committee and the Human Resources and Corporate Governance
Committee. Attendance at these meetings averaged 93%.
Over the past two years, the Audit Committee has been central to the creation
or modification of certain of the Company’s policies: there is now an amended
policy of financial reporting to be adhered to by applicable personnel; procedures
for “whistle blowing” and “incident reporting” to be followed throughout the Company;
a policy on consulting services, including non-audit services provided by the Company’s
auditors; a trading restriction and blackout period policy with respect to the trading
of Dorel shares for all employees; a policy governing all press releases issued
by the Company and a disclosure policy to be adhered to by all management
and other employees with access to confidential information about the Company.
An expanded code of business conduct for all Dorel employees was also created.
15
2003 Annual Report
A more detailed description of corporate governance practices is contained in the
Management Proxy Circular of the Company issued in connection with this annual
report. The Directors of the Company, and their related biographies, principal occupations
and Committee appointments are listed in this report.
It has been one of Dorel’s long standing objectives to have a majority independent
board. In 2004, the Company intends to add two additional Board members,
bringing the number of Directors to nine, of which a majority will be independent.
Certification of Disclosure
Controls and Procedures
The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating
the effectiveness of the Company’s “disclosure controls and procedures” have
concluded such controls and procedures are adequate and effective and are designed
to ensure that material information relating to the Company and its consolidated
subsidiaries is made known to them. Subsequent to the Evaluation Date, there were
no significant changes in the Company’s internal controls or, to their knowledge,
in other factors that could significantly affect the Company’s disclosure controls
and procedures. These certifications can be found in the Company’s December 30,
2003 Form 40-F filed with the SEC.
16
2003 Annual Report
Message from our
Chief Operating Officer
Pierre
Dupuis
Vice-President,
Chief Operating
Officer
Dorel made solid progress through 2003, a year of intensive activity that saw
the Company complete two acquisitions and prepare for a third. Two of these
purchases, Ampafrance and US-based Pacific Cycle, were the largest ever made by
Dorel, while the third, Carina Furniture Industries, was highly strategic to our readyto-assemble furniture business. All were immediately accretive to earnings and have
presented exciting opportunities.
Ampafrance’s integration into our juvenile activities in Europe has been exceedingly
smooth, given the extent of its operations. In its first year with Dorel, Ampafrance
has performed as anticipated. Not only has it provided the Company with important
market share in southern Europe, but it has rounded out the juvenile product offerings
and has provided added stature throughout Europe.
While Ampafrance contributed to juvenile’s results through 2003, our northern
Europe operations did not perform to expectations. This was due to a combination
of poor economic conditions and some internal shor tcomings. The situation has
been addressed with the naming of Ampafrance’s President, Dominique Favario,
as President and CEO of the Dorel Juvenile Group Europe, which now encompasses
all operations including those of Maxi-Miliaan and Ampafrance.
DOREL MADE SOLID PROGRESS
THROUGH 2003, A YEAR OF INTENSIVE
ACTIVITY THAT SAW THE COMPANY
COMPLETE TWO ACQUISITIONS AND
PREPARE FOR A THIRD. TWO OF THESE
PURCHASES, AMPAFRANCE AND
US-BASED PACIFIC CYCLE, WERE THE
LARGEST EVER MADE BY DOREL,
WHILE THE THIRD, CARINA FURNITURE
INDUSTRIES, WAS HIGHLY STRATEGIC
TO OUR READY-TO-ASSEMBLE
FURNITURE BUSINESS. ALL WERE
IMMEDIATELY ACCRETIVE TO
EARNINGS AND HAVE PRESENTED
EXCITING OPPORTUNITIES.
Carina has been fully incorporated into the RTA furniture businesses. Carina, with its
well-known Carina and SystemBuild brands, was purchased in September 2003,
primarily for its sales, customer base and new distribution channels, such as office
superstores and do-it-yourself retail chains, areas where Dorel was not well
represented. Consolidation in the first quarter of 2004 of Dorel’s RTA furniture facilities
will result in significant cost synergies. Carina’s Brampton, Ontario factory was closed
as it could not meet Dorel’s stringent efficiency targets. A large part of the production
has been transferred to the division’s highly efficient Cornwall, Ontario plant.
Sourcing and purchasing
Dorel has continued to refine its global sourcing operations to maintain its low-cost
production advantage. Attentive cost and productivity management throughout the
company is essential. To this end, all divisions work in close concert to ensure that
the Company’s global presence and buying force are fully leveraged. Just one
example is the uniform procurement of buckles and harnesses for car seats in both
Europe and America. This type of control on manufacturing and sourcing, coupled
with an increased elimination of waste and a marked decrease in customer
deductions for performance issues, helped boost juvenile margins.
To further this important initiative and to maximize growing opportunities in the Orient,
Dorel has also strengthened its office in China. While Dorel has been a factor in
the Orient for many years, the Company continues to further develop its on-site
presence there. This past year the majority of the quality assurance and quality control
operations were moved in-house, reducing costs and ensuring a higher degree
of control over all manufacturing in China.
Notwithstanding the discipline of Dorel’s global purchasing programs, certain raw
material increases, such as particle board, are inevitable and must be closely
monitored. As discussed elsewhere in this report, these costs must be controlled
to ensure that margins are respected. As always, while Dorel seeks growth,
this growth must be profitable.
17
2003 Annual Report
Product development remains a top priority. Development teams have been strengthened
across all Dorel businesses. Special concentration through 2003 was placed on
the development of new juvenile products, including a totally new line of strollers
in North America. Exciting new car seats were also introduced in Europe and North
America. One example which has been particularly well received by retailers is the
Safety 1st neat! Diaper Disposal System, which provides superior odor elimination and
simple operation for caregivers.
New, improved RTA furniture items were also introduced incorporating decorative solid
wood components. Reaction to the high-quality look of these units has been excellent,
not only setting them apart from the competition, but resulting in additional market
share as well.
Cosco Home & Office also launched a number of new items including a molded
banquet table line as well as stackable chairs in the commercial/office channel
under the Samsonite label. The Samsonite brand has opened many doors as
commercial customers are expressing a strong desire for its products.
Dorel Asia continued to gain in importance through the year with its development
and sourcing of upscale furniture lines such as bedroom suites and leather furniture.
People and teams
Dorel divisions were successful in attracting high quality new talent in many key
positions. An increasing amount of time and effort is being devoted to continually
assessing and developing Company managers. Representation at major accounts
was enhanced with the recruitment of additional experienced Dorel sales professionals.
Labor peace was again guaranteed for the next few years with the successful
renegotiation of collective agreements. This was accomplished smoothly without
any labour disruptions.
Special Projects
Dorel Juvenile Group USA’s new US$26 million juvenile Factory of the Future and
new distribution centre in Columbus, Indiana will be completed this year.
The new state-of-the-art complex, to be used for the manufacture of all car seats
and other large plastic components, is replacing the current plant and is
consolidating a distribution centre located over 50 kilometers away. While various
other scenarios were considered, extensive analysis concluded that the Columbus
location provided the best scenario for significant cost savings, increased
efficiencies and an improved response to customers.
An inventive program has been completed at the Dorel Home Product’s factory in
Montreal, Quebec. A new technology has been researched and developed in-house for
the production of mattresses used in Ameriwood’s highly popular futons. The process
uses the “airlaid” concept and significantly improves the product while greatly reducing
manufacturing costs. The US$4 million investment is the first of its type in North
America and promises to generate excellent returns in the very near future.
Yet another project was the implementation of an ERP system in the juvenile divisions
in Europe and North America. This is already improving service and streamlining
internal processes.
2003 has been a highly active and exciting year with several major projects being
coordinated, many on a simultaneous basis. The efficient and professional manner
in which all files and projects have been handled is a tribute to the thousands who
work for Dorel. It is my privilege to be associated with this organization.
Pierre Dupuis
Vice-President,
Chief Operating Officer
18
2003 Annual Report
11-year Financial Retrospective
Operating Results
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
2003
Sales
2002
2001
1,163,766
992,073
916,769
Cost of sales
857,606
760,423
718,123
Gross profit
306,160
231,650
198,646
as percent of sales
26.3%
23.4%
21.7%
205,534
145,956
147,353
–
–
20,000
100,626
85,694
31,293
8.6%
8.6%
3.4%
Income taxes
25,600
24,099
4,731
Net earnings from continuing operations
75,026
61,595
26,562
6.4%
6.2%
2.9%
–
–
75,026
61,595
25,504
6.4%
6.2%
2.8%
Basic*
2.36
2.05
0.94
Fully diluted*
2.32
2.00
0.93
Operating expenses
Restructuring costs and other one-time charges
Pre-tax earnings
as percent of sales
as percent of sales
Income (loss) from discontinued operations
Net earnings
as percent of sales
( 1,058 )
Earnings per share from continuing operations
Earnings per share
* Adjusted to account for the weighted daily
average number of shares outstanding.
Basic*
2.36
2.05
0.91
Fully diluted*
2.32
2.00
0.89
15.54
11.31
7.52
** Based on the number of shares
outstanding at year end.
All per share amounts have been adjusted
to give retroactive recognition to the
two-for-one stock split that took place in 1998.
Figures for 1995 and prior have not been
restated for discontinued operations.
Book value per share at end of year**
19
2003 Annual Report
2000
1999
1998
1997
1996
1995
1994
1993
757,540
596,702
492,554
351,989
283,913
268,682
231,278
180,119
582,741
452,974
381,826
264,789
212,078
205,417
179,805
143,680
174,799
143,728
110,729
87,200
71,835
63,265
51,473
36,439
23.1%
24.1%
22.5%
24.8%
25.3%
23.5%
22.3%
20.2%
127,356
85,996
74,635
61,024
55,161
52,081
42,537
28,556
12,037
–
10,066
–
–
–
–
–
35,406
57,732
26,027
26,176
16,674
11,184
8,935
7,883
4.7%
9.7%
5.3%
7.4%
5.9%
4.2%
3.9%
4.4%
5,432
17,756
8,330
8,862
5,991
3,716
3,345
2,690
29,974
39,977
17,697
17,314
10,683
7,468
5,590
5,194
4.0%
6.7%
3.6%
4.9%
3.8%
2.8%
2.4%
2.9%
( 12,668 )
( 1,401 )
1,000
225
85
–
–
–
17,306
38,576
18,697
17,539
10,768
7,468
5,590
5,194
2.3%
6.5%
3.8%
5.0%
3.8%
2.8%
2.4%
2.9%
1.07
1.43
0.65
0.69
0.45
0.32
0.24
0.22
1.05
1.41
0.65
0.69
0.43
0.30
0.24
0.22
0.62
1.38
0.69
0.71
0.46
0.32
0.24
0.22
0.61
1.36
0.69
0.70
0.44
0.30
0.24
0.22
6.75
6.55
5.63
4.26
5.77
2.48
2.19
1.86
20
2003 Annual Report
Management’s Discussion
and Analysis
of financial position and results of operations
THIS MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION
AND RESULTS OF
OPERATIONS (“MD&A”)
SHOULD BE READ IN
CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL
STATEMENTS OF THE
COMPANY’S FISCAL YEARS
ENDED DECEMBER 30,
2003, 2002 AND 2001 AS
WELL AS THE NOTES TO
THE FINANCIAL
STATEMENTS. UNLESS
OTHERWISE INDICATED,
ALL FIGURES ARE IN US
DOLLARS. THIS MD&A IS
CURRENT AS OF MARCH
26, 2004. ADDITIONAL
INFORMATION RELATING TO
THE COMPANY, INCLUDING
THE COMPANY’S ANNUAL
INFORMATION FORM
(“AIF”), ARE AVAILABLE
ON-LINE AT
WWW.SEDAR.COM.
Corporate Objectives,
Core Businesses and Strategies
Overview
Dorel Industries’ goal is to be one of the premier consumer products companies in North America
and Europe. The Company carries out its business in two distinct product areas; juvenile products
and home furnishings. Subsequent to year end, the Company announced the acquisition of
Pacific Cycle, a designer and supplier of bicycles and other recreational products. As such, a new
reporting segment, Recreational/Leisure has been created for fiscal 2004. These segments consist
of several operating divisions or subsidiaries. Each is managed independently by a separate group of
managers. Management of the Company coordinates the businesses of each segment and maximizes
cross-selling, cross-marketing, procurement and other complementary business opportunities.
The Juvenile Segment operates in both North America and Europe. The North American operations
are headquartered from Columbus, Indiana and consist of the Dorel Juvenile Group USA and Dorel
Juvenile Group Canada. Facilities are also located in California, Massachusetts and Quebec.
The principal brand names in North America are Cosco and Safety 1st. In addition, both have a
licensing agreement with the well-recognized Eddie Bauer brand name. In Europe, the Juvenile
group is headquartered from Cholet, France and includes Ampafrance, and Maxi-Miliaan, based in
Helmond, Holland. In addition, major production facilities are located in Telgate, Italy and Vila do
Conde, Portugal with sales and/or distribution units in Spain, the United Kingdom, Germany, Belgium,
Austria and Switzerland. In Europe, products are marketed under the brand names Bébé Confort, MaxiCosi, Quinny, Babidéal, MonBébé, Baby Relax and Safety 1st.
The Home Furnishings Segment consists of the Ameriwood Industries group as well as Cosco
Home & Office Products and Dorel Asia. The Ameriwood group specializes in ready-to-assemble
(RTA) furniture and is headquartered in Wright City, Missouri. In addition to Missouri, significant
manufacturing and distribution facilities are located in Michigan, Ohio, Ontario and Quebec.
Brand names used by the Ameriwood group are Ameriwood, Ridgewood, Charleswood, Carina
and SystemBuild. Cosco Home & Of fice is located in Columbus, Indiana and in addition to
selling under the Cosco brand has a licensing agreement with the Samsonite luggage company.
Dorel Asia specializes in sourcing finished goods from the Orient for sale in North America.
The Company’s head office is based in Montreal, Quebec, Canada. In addition to the facilities
above, the Company’s subsidiaries have North American showrooms in Toronto, Ontario and High
Point, North Carolina. In total, the Company operates in fourteen countries with sales made
throughout the world and employs approximately 5,000 people.
Dorel’s ultimate goal is to satisfy consumer needs while achieving maximum financial results
for its shareholders. This is accomplished by emphasizing high quality products that are accessible
to all consumers and by continually investing in new product development. The Company’s growth
has resulted from both increasing sales of existing businesses and by acquiring businesses that
Management believes add value to the Company.
21
2003 Annual Report
Sales Philosophy and Channels of Distribution
Dorel conducts its business through a variety of sales and distribution arrangements. These consist
of salaried employees; individual agents who carry the Company's products on either an exclusive
or non-exclusive basis; individual specialized agents who sell products, including Dorel's,
exclusively to one customer such as a major discount chain; and sales agencies which themselves
employ their own sales force. While retailers carry out the bulk of the advertising of Dorel’s
products, the Juvenile Segment does advertise and promote its products through the use of
advertisements in specific magazines and multi-product brochures.
Dorel believes that its commitment to providing a high quality, industry-leading level of service has
allowed it to develop particularly successful and mutually beneficial relationships with major retailers.
As an example of this commitment to service, the Company has been awarded more than
40 Awards of Excellence from its major customers since 1992. This level of customer satisfaction
has been achieved by fostering particularly close contacts between Dorel’s sales representatives
and the customers. To this end, permanent, full-service agency account teams dedicated
exclusively to certain major accounts have been established. These dedicated account teams
provide these customers with the assurance that inventory and supply requirements will be met
and that any problems will be immediately addressed.
Geographic Distribution of Sales
2003
Europe and elsewhere 24%
North America 76%
2002
Europe and elsewhere 9%
Operating Segments
Juvenile Segment
The Juvenile Segment manufactures and imports products such as infant car seats, strollers, high
chairs, toddler beds, playpens, swings and infant health and safety aids. Dorel is among the three
largest juvenile products companies in North America along with Graco (a part of the Newell Group
of companies) and Evenflo Company Inc., and when combined with its European operations, is the
largest juvenile products company in the world, within its categories.
Although Dorel manufactures and sells juvenile products at all price levels—entry level to high-end
price points—Dorel's products are designed for consumers whose priorities are safety and quality
at reasonable prices. Its products are sold principally through mass merchants, department
stores and hardware/home centres. In recent years, licensing agreements with well-recognized
brand names have accelerated the entry into the higher priced juvenile products market. In Europe,
Dorel also sells higher-end juvenile products to boutiques and smaller stores along with major
European chains.
Home Furnishings Segment
The Home Furnishings Segment produces ready-to-assemble (RTA) furniture, metal folding
furniture, futons, step stools, ladders and other impor ted furniture items. RTA furniture is
manufactured and packaged as component parts and is assembled by the consumer and consists
of office furniture, metal and wood home office furniture, computer tables, microwave stands,
entertainment and home theater units. RTA furniture, by its nature, is a reasonably priced
alternative to traditional wooden furniture. Home furnishings are sold mainly to mass merchants,
office superstores and hardware/home centres. With the acquisition of Carina Furniture Industries
Ltd. (Carina), Dorel is now the second largest producer of RTA furniture in North America. The
Company’s competitors include Bush Industries, O’Sullivan Industries and Sauder. Besides these
large RTA furniture manufacturers, the home furnishings industry segment that Dorel competes in
is characterized by a large number of smaller competitors. As such, there is little market share
information available that would determine the Company’s size or performance in relation to these
competitors.
North America 91%
22
2003 Annual Report
Business Acquisitions
Part of Dorel’s growth strategy is through strategic acquisitions. In 2003 Dorel made two business
acquisitions.
In February 2003 Dorel acquired Ampa Development SAS (Ampafrance) of Cholet, France, a developer,
manufacturer, marketer and distributor of juvenile products including strollers, car seats and other
juvenile products for a total consideration of $247.2 million, including all related acquisition costs.
Founded in 1875, Ampafrance was a privately-held organization universally known in France
through its major brands: Bébé Confor t, Babidéal, MonBébé and Baby Relax. The Company’s
brands are extremely well-recognized and have gained wide acceptance from consumers for their
high quality, broad and innovative product lines that incorporate state-of-the-art features and up-to-date
fashion. Ampafrance or Bébé Confort, as it is widely known throughout much of Europe, is a
leading force in the French market with long-established distribution channels through
independent retailers and mass merchants. Products, in all price categories, include prams,
strollers, car seats, high chairs, beds, play yards, safety aids, apparel as well as feeding accessories.
Prior to being acquired, Ampafrance’s sales in the fiscal year ended September 30, 2002 were
approximately $187.0 million. It has manufacturing facilities in France, Italy and Por tugal and
employs over 1,000 people. They are an ideal addition to Dorel’s existing European operations.
Dorel’s traditional strength in Europe is in the North in countries such as the Netherlands, Germany,
the UK and Belgium. On the other hand, Ampafrance is strong mainly in France, Spain, Italy and
Portugal. A large portion of Ampafrance’s products are currently manufactured in their own
European factories, backed by lines of imported products.
In September 2003, the Company acquired all the outstanding common shares of Carina,
a developer, manufacturer, marketer and distributor of ready-to-assemble (RTA) furniture for a total
consideration of $39.9 million, including all related acquisition costs. The addition of Carina, and
its SystemBuild brand is expected to make Dorel second among the RTA furniture producers in
North America and will allow the Company to strengthen retail sectors where it has not had a solid
share of the market. It is a highly strategic complement to Dorel’s current RTA furniture operations
in that Carina has excellent relationships in the office superstore and do-it-yourself retail chains
in both the US and Canada. It opens markets where traditionally the Company has not been strong
with retailers such as Lowe’s, Menards, OfficeMax, Staples, Home Depot, Home Hardware, and
Wal-Mart Canada.
Subsequent to year-end and therefore not included in any of the figures contained herein,
the Company signed a purchase agreement to acquire Wisconsin-based Pacific Cycle, a designer
and supplier of bicycles and other recreational products. The total value of the all-cash transaction
was $310.0 million and is being financed through amended debt facilities. Pacific Cycle’s annual
sales are in excess of $325.0 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 its Schwinn, Mongoose and GT bicycle brands, the Company also markets products
under the Roadmaster, InSTEP and Pacific labels. Pacific Cycle combines these well-known
brands with long-established, efficient Asian sourcing. It distributes its brands through its strong
relationships with high volume retailers, 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 US 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 repor ted under a third segment to be known as Recreational/Leisure.
23
2003 Annual Report
Selected Financial Information
(ALL FIGURES IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT FOR THE YEARS ENDED
December 30, 2003
December 30, 2002
December 30, 2001
% OF
% OF
%
% OF
$
SALES
$
SALES
CHANGE
$
SALES
SALES
EXPENSES
Cost of sales
Operating
Amortization
Amortization of goodwill
Research and development costs
Product liability
Interest on long-term debt
Other interest
1,163,766
100.0%
992,073
100.0%
17.3%
916,769
100.0%
857,606
153,741
29,251
–
6,465
–
15,512
565
73.7%
13.2%
2.5%
–
0.6%
–
1.4%
0.0%
760,423
106,969
24,850
–
3,698
–
9,987
452
76.7%
10.8%
2.5%
–
0.4%
–
1.0%
0.0%
12.8%
43.7%
17.7%
–
74.8%
–
55.3%
25.0%
718,123
97,164
21,168
7,990
2,569
20,000
17,643
819
78.3%
10.6%
2.3%
0.9%
0.3%
2.2%
1.9%
0.1%
1,063,140
Income from continuing operations
before income taxes
906,379
885,476
100,626
8.6%
85,694
8.6%
17.4%
31,293
3.4%
Income taxes
25,600
2.2%
24,099
2.4%
6.2%
4,731
0.5%
75,026
6.4%
61,595
6.2%
21.8%
26,562
2.9%
Loss from discontinued operations
–
NET INCOME
75,026
–
6.4%
–
61,595
–
6.2%
–
21.8%
( 1,058 )
25,504
( 0.1 %)
2.8%
EARNINGS PER SHARE
Basic
2.36
2.05
0.94
Net income
2.36
2.05
0.91
2.32
2.00
0.93
Net income
2.32
2.00
0.89
Diluted
Dec. 30,
2003
Total assets
SELECTED BALANCE SHEET DATA AS AT
Dec. 30,
Dec. 30,
2002
2001
1,110,557
614,742
610,123
Long-term financial liabilities
Long-term debt
290,179
84,846
227,389
Other long-term liabilities
10,580
516
537
24
2003 Annual Report
2003 versus 2002
Income Statement
Sales growth in the year was driven by the Ampafrance acquisition in February 2003 and Carina in
September 2003. The acquisitions of Ampafrance in Europe and Carina in Canada allowed the Company
to expand its business and diversify both its customer base and product range. With the exception
of Dorel Juvenile Group USA, all divisions posted either sales increases or relatively flat results when
compared to 2002. Despite the sales decrease and higher product liability costs at Dorel Juvenile
Group USA, net income for that subsidiary was similar to that of last year. The Ameriwood RTA furniture
group suffered margin pressure throughout the year, but effectively offset this with the continued turn
around of the Dorel Home Products futon business.
Total Sales
5 year CAGR – 19%
1,200,000
($'000)
1,000,000
800,000
600,000
757,540
916,769
992,073
1,163,766
200,000
596,702
400,000
99
00
01
02
03
0
The gross margin improvement of 290 basis points can be attributed not only to the higher
margins at Ampafrance, but also to substantial improvements at Dorel Juvenile Group USA and
Dorel Juvenile Group Canada. These improvements were offset somewhat by a slight decrease
within the Home Furnishings Segment.
The above two factors were the principal drivers behind the Company’s ability to deliver a 22%
increase in net income for the year. More detailed expense and earnings analysis can be found
within the segmented results discussion that follows.
Foreign exchange rates were a negative issue in 2003 for many multi-national Canadian corporations
as the US dollar weakened against its Canadian counterpart. In Dorel’s case, this negative was felt in
the Home Furnishings Segment where three Canadian plants manufactured and exported products to
the US. Fortunately, with the Juvenile Segment the increased proportion of European business within
the Dorel group provided an offset against this negative impact. In addition Dorel Juvenile Group
Canada, an importer of US dollar denominated goods benefited on sales to its Canadian customers.
Therefore, the overall impact of exchange rates on the Company’s earnings was not material.
EBITDA from Continuing Operations
5 year CAGR – 21%
150,000
Balance Sheet
The Company’s balance sheet changed significantly in the year due to both business acquisitions
and foreign exchange rates. Financial leverage increased in the year as both of the acquisitions
were financed with debt.
120,000
90,000
The increase in total assets of $496.0 million can be summarized as follows:
60,000
88,733
98,914
120,983
145,954
30,000
79,421
($'000)
Interest expenses in 2003 were up from 2002 as a direct result of borrowings for the Ampafrance and
Carina acquisitions. Income taxes increased slightly to $25.6 million from $24.1 million in 2002. However,
Dorel’s tax rate decreased in 2003 from 28.1% to 25.4%. This change in the tax rate is attributable to the
proportionate change in pre-tax profits in the different tax jurisdictions in which Dorel operates.
99
00
01
02
03
0
Acquisition of Ampafrance and Carina
Conversion of Euro denominated assets
Other
$408.0
69.0
19.0
Total
$496.0
The reasons for the increase in long-term debt of $205.0 million can be summarized as follows:
Acquisition of Ampafrance and Carina
Repurchase of securitized receivables
Reduction of bank indebtedness and in cash at year-end
Free cash flow generated in the year
Received from stock issuance
Other
$228.0
28.0
26.0
( 60.0 )
( 18.0 )
1.0
Total
$205.0
Two of the most significant changes in the assets were in goodwill and other intangibles. The Ampafrance
acquisition created $160.5 million of goodwill and $65.8 million of other intangibles. Additional details
regarding this acquisition may be found in Note 3 to the financial statements. The intangibles were recognized
for the strength of the Ampafrance trademarks, principally the Bébé Confort name. The acquisition of Carina
also created goodwill in the amount of $34.6 million. Over and above these acquisitions, the foreign
exchange conversion of the European companies within Dorel at the end of 2003 increased the overall value
of goodwill by approximately $30.0 million and of intangibles by $11.0 million respectively.
25
2003 Annual Report
The long-term future (previously referred to as deferred) income tax liability on the balance sheet
was also affected by the Ampafrance acquisition. Increases in the values of capital assets and
other intangibles at the time of acquisition resulted in the creation of a long-term future tax liability
of $32.0 million. This accounts for the majority of the increase over last year’s figure of $10.3
million to the 2003 year-end figure of $45.1 million.
Working capital at the end of 2003 was $195.2 million compared to $173.8 million in 2002.
Equity increased to $494.9 million from $354.0 million.
The Company’s subsidiaries are considered as self-sustaining. As such, any foreign exchange
fluctuations on conversion of non-US functional currency subsidiaries to the US dollar are included
in the Cumulative Translation Adjustment (CTA) account as opposed to the income statement. In
2004, exchange rates had a positive impact on the balance sheet as the CTA account increased
from $2.9 million to $51.0 million.
2002 versus 2001
Earnings per Share (diluted)
5 year CAGR – 27%
2.5
2.0
($)
1.0
Total asset levels were consistent year-to-year. Long-term debt repayments of $142.0 million was
made with the free cash flow generated by the Company in 2002, as well as the net proceeds of a
share offering in the amount of $72.4 million. The Company had issued 2,929,200 shares from
treasury for gross proceeds of CAN$112.8 million.
1.36
0.61
0.89
2.00
2.32
0.5
99
00
01
02
03
0.0
Though slightly higher over the prior year, operating costs, amortization and research and development expenses were not materially different between the two years. Two exceptions were the
amortization of goodwill, which was eliminated in 2002 in conjunction with the new accounting
standards adopted at that time and a one-time product liability cost of $20.0 million that was
incurred in 2001 in connection with the establishment of a new self-insurance program for a
portion of Dorel's insurance coverage. Due to drastic increases in insurance costs, Dorel made a
strategic decision to become less reliant on traditional insurance by increasing its self-insurance
product liability program and lessening its dependence on third-party insurers. The one-time
charge was based on the Company’s latest actuarial reports and was not related to specific
cases. It was a general provision required as part of increased self-insurance to address the
potential liability risks and associated costs of the Company’s products currently in the market
place.
Earnings
5 year CAGR – 32%
80,000
70,000
60,000
50,000
40,000
30,000
61,595
75,026
10,000
25,504
20,000
17,306
($'000)
Interest expenses in 2002 were down from 2001 as improved cash flow and the funds received
from a stock issuance in May 2002 reduced debt levels significantly throughout the year. Income
taxes jumped to $24.1 million from $4.7 million based on the Company’s much improved pre-tax
income. Dorel’s tax rate increased in 2002 from 12% to 28%. The increase in the tax rate is
attributable to the proportionate change in pre-tax profits in the different tax jurisdictions in which
Dorel operates. Due to the fact pre-tax earnings were much lower in 2001 and that certain fixed
costs are tax deductible regardless of the pre-tax earnings levels within a given jurisdiction, the
rate was significantly reduced in that year. Finally, an amount of $1.0 million was expensed in
2001 in connection with the final closure of the Fort Smith crib manufacturing facility that was
included in the discontinued operations figure in the 2000 year-end results.
1.5
38,576
Unlike in 2003, sales growth in 2002 versus 2001 was driven substantially by organic growth.
The only acquisition in 2001 was that of Quint B.V. (also known as Quinny), located in the
Netherlands. It was a strategic acquisition as it opened up the stroller market for Dorel’s other
Dutch company, Maxi-Miliaan. The sales of Quinny strollers in Europe, car seat sales in North
America and success in Dorel’s imported home furnishings businesses accounted for the 8%
sales increase in 2002. The 130 basis point improvement in gross margins came from both
business segments. In Juvenile, a great deal of emphasis was placed on controlling customer
deductions for such things as returns and other allowances. In both North America and Europe,
duplicate expenses incurred in 2001 in connection with revamped distribution networks were
eliminated. In Home Furnishings, lower material costs and improved efficiencies within the RTA
furniture group and in the futon business accounted for the bulk of the improvement.
99
00
01
02
03
0
26
2003 Annual Report
Quarterly Results
(ALL FIGURES IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
MARCH 31
2003
Sales
Cost of sales
Gross profit
as percent of sales
QUARTER ENDED
JUNE 30
SEPT. 30
2003
2003
DEC. 30
2003
TOTAL
276,885
202,465
264,740
188,404
298,464
223,629
323,677
243,108
1,163,766
857,606
74,420
76,336
74,835
80,569
306,160
26.9%
28.8%
25.1%
24.9%
26.3%
Expenses
Operating
Amortization
Other interest
34,741
7,263
1,793
3,111
(4)
39,972
7,039
2,089
4,202
264
36,457
7,459
2,872
4,159
238
42,571
7,490
( 289 )
4,040
67
153,741
29,251
6,465
15,512
565
Total expenses
46,904
53,566
51,185
53,879
205,534
Income before taxes
as percent of sales
Income taxes
27,516
9.9%
8,267
22,770
8.6%
6,509
23,650
7.9%
4,883
26,690
8.2%
5,941
100,626
8.6%
25,600
Net income
19,249
16,261
18,767
20,749
as percent of sales
Earnings per share
Basic
Diluted
7.0%
0.61
0.60
MARCH 31
2002
Sales
Cost of sales
Gross profit
as percent of sales
6.1%
0.51
0.50
6.3%
0.59
0.58
QUARTER ENDED
JUNE 30
SEPT. 30
2002
2002
6.4%
75,026
6.4%
0.64
0.64
DEC. 30
2002
TOTAL
254,983
195,220
239,992
184,370
256,110
196,637
240,988
184,196
992,073
760,423
59,763
55,622
59,473
56,792
231,650
23.4%
23.2%
23.2%
23.6%
23.4%
Expenses
Operating
Amortization
Other interest
26,750
5,979
1,086
3,239
( 24)
24,725
6,045
1,585
2,228
151
26,324
6,119
1,503
2,492
212
29,170
6,707
( 476)
2,028
113
106,969
24,850
3,698
9,987
452
Total expenses
37,030
34,734
36,650
37,542
145,956
Income before taxes
as percent of sales
Income taxes
22,733
8.9%
7,005
20,888
8.7%
5,992
22,823
8.9%
6,478
19,250
8.0%
4,624
85,694
8.6%
24,099
Net income
15,728
14,896
16,345
14,626
61,595
as percent of sales
Earnings per share
Basic
Diluted
6.2%
0.56
0.55
6.2%
0.50
0.49
6.4%
0.52
0.51
6.1%
0.47
0.46
6.2%
27
2003 Annual Report
There were no significant events that materially affected the Company’s operating results in the
fourth quarter of either 2003 or 2002. One expense line item that is inconsistent with the first
three quarters is research and development (R & D). The expense in the fourth quarter of both
years was lower when compared to the other three quarters. This is due to the fact that within the
Juvenile segment, it is the Company’s policy to capitalize and amortize over a period of two years
those costs that meet specific criteria as identified under Canadian GAAP. Only when successful
new products are identified can costs pertaining to those products be capitalized. As was the case
in the fourth quarter, this can have the impact of costs being capitalized that were previously
expensed.
Dorel’s seasonality of sales can vary from year to year. In 2003, the fourth quarter was the
strongest of the year, even when removing the impact of the two acquisitions in the year. The
seasonality excluding acquisitions is shown below. One trend that is consistent is that sales tend
to be their lowest during the second quarter of the year. The acquisition of Pacific Cycle in 2004
will have an impact on the Company’s overall seasonality of sales as the second quarter for the
bicycle industry is its strongest. This will have the effect of further reducing the sales variations
by quarter in 2004.
Sales Seasonality
Sales By Quarter – 2001 to 2003
(Adjusted for acquisitions in 2003)
(Not adjusted for acquisitions in 2003)
1.2
350,000
2001
2002
2003
Q1
Q2
Q3
Q4
Sales ($'000)
300,000
1.0
250,000
200,000
150,000
0.8
323,677
298,464
264,740
276,885
240,988
256,110
239,992
254,983
219,472
233,528
218,619
50,000
245,150
100,000
0
Q1
Q2
Q3
2001
Q4
2002
2003
Segmented Results
DOREL’S SEGMENTED RESULTS ARE SUMMARIZED BELOW (ALL FIGURES IN THOUSANDS OF DOLLARS)
$
2003
% OF
SALES
JUVENILE
Sales
Gross profit
Operating expenses
Amortization
Research and development
Earnings from operations
670,106
200,879
108,020
22,157
4,777
65,925
100.0%
30.0%
16.1%
3.3%
0.7%
9.8%
528,446
129,541
68,146
16,291
2,115
42,989
100.0%
24.5%
12.9%
3.1%
0.4%
8.1%
HOME FURNISHINGS
Sales
Gross profit
Operating expenses
Amortization
Research and development
Earnings from operations
493,660
105,281
30,752
6,009
1,688
66,832
100.0%
21.3%
6.2%
1.2%
0.3%
13.5%
463,627
102,109
28,701
7,294
1,583
64,531
100.0%
22.0%
6.2%
1.6%
0.3%
13.9%
$
2002
% OF
SALES
CHANGE
$
%
141,660
71,338
39,874
5,866
2,662
22,936
26.8%
55.1%
58.5%
36.0%
125.9%
53.4%
Note: Effective January 1, 2003, the Ready-to-Assemble furniture and Home Furnishings segments
as previously reported, were combined into one operating segment referred to as Home Furnishings.
This change reflects the similar nature of customers, products, production processes and
distribution channels employed by the business units that make up these operating segments. The
prior years have been restated to reflect the combination of these segments.
30,033
3,172
2,051
( 1,285 )
105
2,301
6.5%
3.1%
7.1%
( 17.6% )
6.6%
3.6%
28
2003 Annual Report
Juvenile Segment
The acquisition of Ampafrance in February 2003 was the single largest event in the Juvenile Segment.
As can be seen in the segmented information contained in Note 25, sales originating in Europe
jumped to 23% of Dorel’s overall sales in 2003 versus only 9% in 2002 and all of this increase
was in the Juvenile Segment. Dorel’s European operations as a whole helped compensate for
what was a disappointing sales year in the US. However as a positive, margins in the USA climbed
by over 300 basis points. When Dorel Juvenile Group USA is combined with the Company’s
Canadian operations, North America as whole managed to maintain the same level of profitability
as last year on approximately $50.0 million dollars less of sales.
Juvenile Sales
5 year CAGR – 32%
800,000
700,000
($'000)
600,000
500,000
400,000
300,000
369,582
503,892
528,446
670,106
100,000
231,094
200,000
99
00
01
02
03
0
Operating expenses in the Juvenile Segment were also impacted by Ampafrance. Approximately
two-thirds of the increase in dollar terms was due to the inclusion of the new acquisition. The
remaining increase in costs was at both Dorel Juvenile Group USA and in Dorel’s other European
operations. In the US, higher product liability costs, offset by a reduction in selling expenses,
accounted for approximately one half of the increase. It should be noted that product liability
costs were higher than the prior year, but were as anticipated. In Europe, the stronger Euro and
certain one-time costs in association with the integration of Ampafrance, accounted for the other
half of the increase.
Amortization was higher in 2003, again due to the inclusion of Ampafrance (approximately one-half
of the increase), but also due to higher amortization at Dorel Juvenile Group Europe where the
amortization of R & D costs were higher than the prior year. R & D costs, other than amortization,
increased over last year due to the inclusion of Ampafrance.
This segment benefited from the weakness of the US dollar at an operational level in both North
America at Dorel Juvenile Group Canada and in Europe at Ampafrance. Dorel Juvenile Group
Europe was less able to capitalize on the situation as they had hedged their purchases at rates
similar to last year’s. Translation of the European results themselves also benefited the Company
this year. It should be noted that these positives helped offset the negative impact of exchange
felt in the Home Furnishings Segment whose Canadian production facilities were hurt by the rising
costs associated of a US functional company operating in Canada and shipping to the US.
At the beginning of 2003, the Company had provided guidance for 2003 sales to reach between
$710.0 and $750.0 million with earnings from operations to range from between 10% to 11% of
sales. During the year, the sales guidance was lowered to $675.0 to $715.0 million while
earnings from operations were maintained at the same percentage of sales. The final actual
sales figure was $670.1 million and earnings from operations was 9.8% of sales. This was just
below the guidance issued, due principally to lower sales in the US as a result of the lack of timely
new product introductions. This trend was reversed in the fourth quarter of 2003 and Juvenile
sales reached their highest levels ever.
Home Furnishings Segment
Home Furnishings Sales
5 year CAGR – 9%
500,000
300,000
412,877
463,627
493,660
100,000
387,958
200,000
365,609
($'000)
400,000
99
00
01
02
03
0
The Home Furnishings Segment acquired Carina in September 2003. Therefore, their results are
included for only four months of the year. Cosco Home & Office and Dorel Asia continue to grow
but only accounted for one-third of the segment’s sales. The real driver of this segment remains
the RTA furmiture business. Consisting of Ameriwood, Dorel Home Products and now Carina, RTA
furntirue sales increased over the prior year, though organic sales growth was relatively flat. When
compared to others in the RTA furniture industry this is a standout performance. Margins were
eroded by pricing pressure, some cost increases and the weak US dollar which affected the
Company’s Canadian plants. The addition of Carina and its sales channels and the strong performance
of the futon business allowed the RTA furniture group as a whole to match last year’s earnings levels.
The Dorel Home Products futon plant in particular has become one of the most cost effective in the
Dorel group. In 2001 this plant was losing money, whereas in 2003 it contributed positively to earnings.
Gross margins for the segment decreased slightly in 2003. This decrease was due mainly to both
some cost increases in raw materials, mainly board prices, and price reductions given to the
Company’s customers on RTA furniture products. Operating costs for the segment as a whole
were well contained. Costs did, however, increase disproportionately at Cosco Home & Office, as
this division continues to incur “infrastructure” costs in order to transform itself into a standalone unit, separate from the Dorel Juvenile Group USA unit within the Juvenile Segment.
Additional operating costs also came along with the Carina acquisition, however they are
expected to decrease in 2004 with the anticipated plant closure.
29
2003 Annual Report
For the year, the segment met earnings expectations despite some sales disappointments. In 2003
preliminary guidance called for sales of between $500.0 and $550.0 million with earnings from
operations of between 13% and 14% of sales. Actual results were sales of $494.0 million with
earnings of 13.5% of sales. The slight shortfall in actual sales versus the guidance was in the
RTA furniture group as both Cosco Home & Office and Dorel Asia met and or exceeded expectations.
Liquidity and Capital Resources
Cash Flow
Free cash flow, defined as cash flow from operations less capital expenditures was $60.2 million
in 2003 versus $101.7 million in 2002, detailed as follows (figures in thousands of dollars):
112,924
80,716
32,208
( 20,356 )
34,809
( 12,098 )
( 4,833 )
12,831
24,931
15,208
( 6,748 )
( 33,187 )
9,878
( 27,306 )
1,915
( 2,478 )
46,222
( 48,700 )
110,447
126.938
( 16,491 )
( 34,076 )
( 11,659 )
( 4,491 )
( 15,840 )
( 5,818 )
( 3,571 )
( 18,236 )
( 5,841 )
( 920 )
( 50,226 )
( 25,229 )
( 24,997 )
60,220
101,709
( 41,489 )
Cash Flow from Operations vs. Sales
150,000
In 2001, the Company had entered into an agreement with a third party to sell eligible accounts
receivable at a discount. Under this agreement, the Company acted as the servicer of the
receivable and was permitted to sell, on a revolving basis, additional eligible accounts receivable
to the extent amounts were collected on previously sold receivables. This agreement was
terminated in 2003 with the repurchase of accounts receivable in the amount of $27.8 million.
Finally, a total of $16.2 million was capitalized in reference to deferred research and development
costs, costs in connection with new borrowings and other patents, trademarks and licences.
750,000
110,447
250,000
126,938
30,000
47,152
500,000
49,313
60,000
99
00
01
02
03
0
0
Cash Flow from Operations
Sales
Sales ($'000)
596,702
90,000
1,250,000
1,000,000
31,981
Cash Flow ($'000)
120,000
Also a new process for futon mattress production, unique in North America, was being installed
at Dorel Home Products. This $4.0 million project will allow for more efficient, environmentally
friendly production going forward. This will provide the Company with an edge in both quality and
manufacturing cost. The first mattresses using the new machinery were produced during the first
quarter of 2004. In addition, there are two major computer implementations in progress at Dorel
Juvenile Group USA and at Dorel Juvenile Group Europe. These four projects make up the great
majority of the $26.2 million listed as construction-in-progress in Note 6. The increase in deferred
charges in 2003 can be attributed to additional spending on new product development, including
spending at Ampafrance, as well as costs associated with new debt facilities that were put into
place in the year.
1,163,766
During 2003, cash flow from operations declined $16.5 million. The main reasons for the decrease
were higher inventory levels at the end of 2003 as well as the timing of accounts payable
disbursements and income tax payments in 2003 versus the prior year. In the year, $34.1 million
was spent on capital assets, a significant increase over the prior year. Newly acquired Ampafrance
accounted for approximately $4.5 million of this amount, with existing businesses accounting for
the difference. The “Factory of the Future” project at Columbus, Indiana facility was started and
as of December 30, 2003 was approximately one-third complete. When originally announced, this
project was budgeted to cost approximately $26.0 million and was scheduled to be completed in
mid-2004. The project’s timeline and cost remains on plan.
992,073
FREE CASHFLOW
CHANGE
916,769
Cash flow from operations
Less:
Additions to capital assets – net
Deferred charges
Intangible assets
2002
757,540
Cash flow from operations before
changes in non-cash working capital
Change in:
Inventories
Accounts payable and other liabilities
Income taxes payable
Other
2003
30
2003 Annual Report
Effective February 10, 2003, the Company issued $55.0 million of Series "A" Senior Guaranteed
Notes and $55.0 million of Series "B" Senior Guaranteed Notes, bearing interest at 5.09% and
5.63%, respectively, with principal repayments due on February 11, 2008 and February 10, 2010.
These notes were in addition to notes already issued by the Company.
Effective March 31, 2003 the Company obtained a $250.0 million unsecured credit facility. This
facility replaced the Company’s previous facility. As of December 30, 2003 the Company was
compliant with all covenants under this facility. Subsequent to year, this facility was amended to
allow for borrowings up to $470.0 million to allow for the acquisition of Pacific Cycle. In connection
with the new higher borrowing levels, certain covenants were amended. The Company expects to
remain compliant with all covenant requirements going forward.
Contractual Obligations
THE FOLLOWING IS A TABLE OF ALL CONTRACTUAL OBLIGATIONS AS OF DECEMBER 30, 2003
(FIGURES IN THOUSANDS OF DOLLARS):
TOTAL
LESS THAN
1 YEAR
1-3
YEARS
4-5
YEARS
AFTER
5 YEARS
Lease commitments
Long-term debt
70,231
290,179
17,186
7,758
25,159
112,135
14,668
70,092
13,218
100,194
Total contractual obligations
360,410
24,944
137,294
84,760
113,412
CONTRACTUAL OBLIGATIONS
As detailed previously, the Company is in the midst of a significant plant expansion at Dorel Juvenile
Group USA. As such, it has commitments to various contractors and suppliers of equipment to complete
the expansion. It is expected that these funds will be disbursed in 2004.
Over and above long-term debt in the contractual obligation table, included in the Company’s longterm liabilities are the following amounts:
Post-retirement benefit obligation: As detailed in Note 15, this amount of $13.8 million
pertains to one of the Company's subsidiaries defined benefit post-retirement plan
for specific employees. Funding of the plan in 2004 is expected to range from $0 to $1.9 million.
Other long-term liabilities, which consists of (in millions of dollars):
– Government mandated employee savings plans in Europe,
the majority of which are due after five years
$6.5
– A balance of sale in reference to the Carina acquisition, due in 2005
2.3
– Environmental liability, due over an indeterminable period
0.5
– Other, due throughout the next five years
1.3
$10.6
Risks and Uncertainties
Product Liability
As with all manufacturers of products designed for use by consumers, Dorel is subject to
numerous product liability claims, particularly in the US. At Dorel, there is an ongoing effort to
improve quality control and to ensure the safety of its products. Dorel has made a strategic
decision to become less reliant on traditional insurance by increasing its self-insurance product
liability program and lessening its dependence on third-party insurers. Although Dorel believes its
product liability insurance structure is sufficient, no assurance can be given that a judgment will
not be rendered against it in an amount exceeding the amount of insurance coverage or in respect
of a claim for which Dorel is not insured.
Credit Risk
Most of Dorel’s sales are to major retail chains. In recent years, the retail environment has been
highly competitive. If major retailers cease operations, there could be a material adverse effect on
the Company’s consolidated results of operations. It should be noted that the Company conducts
ongoing credit reviews and maintains credit insurance on selected accounts to minimize these
types of risks.
31
2003 Annual Report
Concentration of Sales
For the year ended December 30, 2003, approximately 49% of Dorel’s sales were made to its two
largest customers. This compares to 69% of Dorel’s sales made to its three largest customers in
2002. Dorel does not have long-term contracts with its customers, and as such sales are
dependent upon Dorel’s continuing ability to deliver attractive products at a reasonable price,
combined with high levels of service. There can be no assurance that Dorel will be able to sell to
such customers on an economically advantageous basis in the future or that such customers will
continue to buy from Dorel.
Foreign Currency
Effective January 1, 2003, as a result of the increasing proportion of operating, financing and
investing activities denominated in the US dollar, the Company’s principal Canadian operations
changed their functional currency from the Canadian dollar to the US dollar. As a result of this
change, all monetary assets and liabilities of the Company’s non-European operations
denominated in currencies other than the US dollar are translated at the rates of exchange
prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in
currencies other than the US dollar are translated at historical exchange rates. Resulting income
and expenses are translated at the approximate exchange rates in effect when the transaction
occurred.
Dorel’s operating units outside of the US assume the majority of the Company’s foreign exchange
risk with respect to both its purchases and sales. Dorel’s Canadian operations tend to benefit
from a stronger US dollar as large portions of its sales are to the US and the majority of its costs
are in Canadian dollars. Dorel’s European operations tend to suffer from a stronger US dollar as
large portions of its purchases are in US dollars while its sales are not. Where advantageous, the
Company uses futures and forward contracts to hedge against these adverse fluctuations in
currency.
The Company’s subsidiaries are considered self-sustaining. As such any foreign exchange fluctuations
that occur upon the translation of their local currency financial statements are reflected in the CTA
account on the balance sheet as opposed to the consolidated income statement.
Environmental
All Dorel segments currently operate within existing environmental regulations. Dorel made nominal
capital expenditures with respect to environmental protection matters in 2003. Dorel assumed
certain environmental liabilities and contingencies associated with the Michigan plant acquired
with the purchase of Ameriwood in 1998. A provision at December 30, 2003 of $0.5 million has
been set-up in connection with this liability. Any amounts incurred in excess of the provision are
not expected to have a material adverse affect on the Company.
Raw Material Costs
Dorel purchases both raw materials and finished goods. The main commodity items purchased for
production include particle board, plastic resins, linerboard, and textiles. Particle board prices
were generally lower in 2003 than 2002, reaching very low levels for the first part of the year with
prices starting to increase towards year end. Plastic resin prices also increased in 2003.
Linerboard prices remained relatively constant throughout 2003. Textile prices fluctuated in 2003,
with cotton prices increasing significantly towards year-end and polyester staple fiber costs also
rising towards year end. The largest commodities in the Company’s purchased finished goods are
steel, aluminum and wood. In addition, Dorel is among the world’s largest 50 purchasers of ocean
freight container transport from the Orient. Container freight costs were higher in 2003 relative to
2002 as supply was tight in both eastbound trans-pacific and Asia-Europe lanes. As a result, the
Company is exposed to market risk related to changes in the prices of these commodity items.
32
2003 Annual Report
Critical Accounting Policies and Estimates
These statements have been prepared in accordance with Canadian Generally Accepted
Accounting Principles. The preparation of these financial statements requires estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. A complete list of all relevant account
policies is listed in Note 2 to the financial statements.
The Company believes the following are the most critical accounting policies that affect Dorel’s
results as presented herein and that would have the most material effect on the financial
statements should these policies change or be applied in a different manner:
• Goodwill: Under the new rules it is required that goodwill with an indefinite life will no longer be
amortized to income. Instead, the Company must determine at least once annually whether the
fair value of each reporting unit to which goodwill has been attributed is less than the carrying
value of the reporting unit’s net assets including goodwill, thus indicating impairment. The fair
value of a reporting unit and assets and liabilities within a reporting unit may be determined
using alternative methods for market valuation, including quoted market prices, discounted
cash flows and net realizable values. In estimating the fair value of a reporting unit, the
Company chose a valuation method and made assumptions and estimates in a number of
areas, including future cash flows and discount rates.
• Product Liability: The Company is insured for product liability by the use of both traditional and
self-funded insurance to mitigate its product liability exposure. The estimated product liability
exposure was calculated by an independent actuarial firm 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 on units sold
prior to December 30, 2003. 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.
• Pension Plans and Post Retirement Benefits: The costs of pension and other postretirement
benefits are calculated based on assumptions determined by management, with the assistance
of independent actuarial firms and consultants. These assumptions include the long-term rate
of return on pension assets, discount rates for pension and other post-retirement benefits
obligations, expected service period, salary increases, retirement ages of employees and health
care cost trend rates.
• Allowances for Sales Returns and other Customer Programs: At the time revenue is recognized
certain provisions may also be recorded, including returns and allowances, which involve
estimates based on current discussions with applicable customers, historical experience with a
particular customer and/or product, and other relevant factors. Historical sales returns,
allowances, write-offs, changes in our internal credit policies and customer concentrations are
used when evaluating the adequacy of our allowance for sales returns. In addition, the Company
records estimated reductions to revenue for customer programs and incentive offerings,
including special pricing agreements, promotions, advertising allowances and other volumebased incentives. Historical sales data, written and verbal agreements, customer vendor
agreements, changes in our internal credit policies and customer concentrations are analyzed
when evaluating the adequacy of our allowances.
• Foreign Currency Translation: The financial statements of the Company’s self-sustaining
operations whose functional currency is other than the US dollar are translated from such
functional currency to the US dollar using the current rate method. Resulting unrealized gains or
losses are accumulated as a separate component of shareholders’ equity. If any of the Company’s
foreign currency subsidiaries were to be deemed as integrated as opposed to self-sustaining,
these gains or losses would be included in the income statement as opposed to the balance sheet
and could materially affect the results for the year.
33
2003 Annual Report
Future Accounting Changes
As a result of accounting pronouncements by the Canadian Institute of Chartered Accountants,
the following two accounting changes are required beginning in 2004:
• Stock Based Compensation: The Company will adopt, on a prospective basis, effective for fiscal
years beginning before January 1, 2004, the Canadian Institute of Chartered Accountants Section
3870 “Stock Based Compensation and other Stock Based Payments” which will require the
Company 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 will have an impact on Dorel’s operating
results. Given the volume of stock options issued by the Company, this accounting change is not
expected to have a material impact in 2004.
• Hedging Relationships: Effective January 1, 2004, the Company will adopt the recommendations
of the Canadian Institute of Chartered Accountants Guideline 13 “Hedging Relationships”,
which establishes certain conditions for when hedge accounting may be applied. The Company is
studying the new guideline and is preparing for the implementation of the hedging provisions. Any
derivative instrument that does not qualify for hedge accounting will be reported on a mark-to-market
basis in income.
Outlook
Guidance for 2004 was issued on January 14, 2004 and it was announced that Dorel expects
to earn from $3.25 to $3.35 per diluted share for the fiscal year ending December 30. This
guidance includes the announced acquisition of US-based bicycle designer and supplier,
Pacific Cycle. With the acquisition of Pacific Cycle, Dorel will now have a third reporting segment,
“Recreational/Leisure”, in addition to its current Juvenile and Home Furnishings segments.
Juvenile Segment
For 2004, the Juvenile Segment is expected to record sales of between $750.0 million
and $800.0 million, with earnings from operations of between 10% and 11% of sales.
Growth will come both from Dorel’s traditional juvenile businesses as well as from Ampafrance,
acquired a year ago. As Ampafrance was acquired in February of 2003, the majority of the sales
increase in this segment will be internally generated. With the acquisition of Ampafrance and its
powerful juvenile brands, Dorel significantly strengthened its market share throughout Europe in
2003. In 2004 this solid position should benefit from an even more cohesive plan that is evolving
under the recently expanded Dorel Juvenile Group Europe, headed by Ampafrance President
Dominique Favario. In North America several new juvenile products were launched during the
second half of 2003 last year and Dorel is expecting that these new products will drive new sales.
The strong Canadian dollar and the strong Euro should help both the segment’s European and
Canadian operations in 2004.
Home Furnishings Segments
For 2004, the Home Furnishings Segments should record sales of between $540.0 million and
$590.0 million, with earnings from operations of between 11% and 12% of sales. Growth will be
derived both organically and from the recently acquired Carina. Of the three business units within
the segment, RTA furniture provides the dominant portion of Home Furnishings revenues and earnings.
The acquisition of Carina has provided a broader product line and customer base. This along with
aggressive sales efforts means that RTA furniture revenues are expected to increase as market
share continues to grow.
34
2003 Annual Report
However, several issues are expected to lower margins. Some of the new business that is expected
will be at lesser margins than historically achieved. In addition board prices have increased quite
dramatically since the fall of 2003 and with capacity reductions in the board industry, prices are
expected to continue to rise into the foreseeable future. This will negatively effect margins in the
short term, but the Company is hopeful that it will be able to counteract some of these pressures
during the second half of the year. The continued strength of the Canadian dollar also affects RTA
furniture’s profitability. A portion of Dorel’s RTA furniture sales in the US are generated from
Canadian factories. As the Canadian dollar compared to the US dollar is expected to remain
stronger in 2004 versus 2003, this will put pressure on earnings. The segment’s other two units,
Cosco Home & Office and Dorel Asia, are both import businesses and are unaffected by the
strength of the Canadian dollar. Both continue to grow and are expected to contribute improved
performances in 2004. Cosco Home & Office will be broadening its product line in 2004 and Dorel
Asia is expected to add several new accounts.
Recreational/Leisure Segment
The Pacific Cycle transaction was closed in early in February of 2004. Sales in the new
Recreational/Leisure Segment are expected to be in the range of $335.0 million to $375.0 million
for the 11 months of 2004. Earnings from operations as a percentage of sales are expected to
be between 11.5% and 12.5%. As this is a new business for Dorel, the Company is being prudent
in its expectations. As was announced in January 2004, the management team at Pacific is
remaining with Dorel.
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 this Management’s Discussion and Analysis and in the
Corporation’s Annual Information Form.
35
2003 Annual Report
Management’s Report
Dorel Industries Inc.’s Annual Report for the year ended December 30, 2003,
and the financial statements included herein, were prepared by the
Corporation’s Management and approved by the Board of Directors. The Audit
Committee of the Board is responsible for reviewing the financial statements in
detail and for ensuring that the Corporation’s internal control systems, management
policies and accounting practices are adhered to.
The financial statements contained in this Annual Report have been prepared
in accordance with the accounting policies which are enunciated in said report
and which Management believes to be appropriate for the activities of the
Corporation. The external auditors appointed by the Corporation’s shareholders,
Martin Schwartz
Goldsmith Hersh, have audited these financial statements and their report
appears below. All information given in this Annual Report is consistent with the
financial statements included herein.
Jeffrey Schwartz
Chief Financial Officer
Auditors’ Report
To the Shareholders of Dorel Industries Inc.
We have audited the consolidated balance sheets of DOREL INDUSTRIES INC.
as at December 30, 2003 and 2002 and the consolidated statements of
income, retained earnings and cash flows for each of the years in the three year
period ended December 30, 2003. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 30,
2003 and 2002 and the results of its operations and its cash flows for each of
the years in the three year period ended December 30, 2003, in accordance
Chartered Accountants
with Canadian generally accepted accounting principles.
Montreal, Quebec
February 23, 2004
36
2003 Annual Report
Consolidated Balance Sheet
AS AT DECEMBER 30, 2003 (IN THOUSANDS OF U.S. DOLLARS)
2003
2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable (Note 4)
Inventories (Note 5)
Prepaid expenses
Funds held by ceding insurer (Note 21)
Future income taxes (Note 22)
CAPITAL ASSETS (Note 6)
DEFERRED CHARGES (Note 7)
GOODWILL (Note 8)
INTANGIBLE ASSETS (Note 9)
FUTURE INCOME TAXES (Note 22)
OTHER ASSETS (Note 15)
$
13,877
210,905
207,371
10,719
6,803
9,184
$
54,450
98,267
142,157
10,465
11,298
11,114
458,859
327,751
147,837
95,374
18,501
14,111
380,535
155,669
85,448
5,818
8,382
4,619
10,995
11,400
$ 1,110,557
$
614,742
37
2003 Annual Report
2003
2002
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 10)
Accounts payable and accrued liabilities (Note 11)
Income taxes payable
Current portion of long-term debt
$
764
253,145
2,037
7,758
$
8,346
131,805
11,721
2,061
263,704
153,933
282,421
82,785
OTHER LONG-TERM LIABILITIES (Note 13)
10,580
516
POST-RETIREMENT BENEFIT OBLIGATION (Note 15)
13,818
13,213
FUTURE INCOME TAXES (Note 22)
45,148
10,289
CAPITAL STOCK (Note 16)
156,274
138,446
RETAINED EARNINGS
287,583
212,660
51,029
2,900
494,886
354,006
LONG-TERM DEBT (Note 12)
SHAREHOLDERS’ EQUITY
CUMULATIVE TRANSLATION ADJUSTMENT (Note 18)
$ 1,110,557
COMMITMENTS (Note 19)
CONTINGENT LIABILITIES (Note 20)
PRODUCT LIABILITY (Note 21)
APPROVED ON BEHALF OF THE BOARD
Martin Schwartz
Director
See accompanying notes.
Jeffrey Schwartz
Director
$
614,742
38
2003 Annual Report
Consolidated Statement of Retained Earnings
FOR THE YEAR ENDED DECEMBER 30, 2003 (IN THOUSANDS OF U.S. DOLLARS)
2003
Balance, beginning of year
$
Net income
$
75,026
Share issue expenses (net of income taxes $1,072)
( 103 )
$
287,583
153,223
2001
$
61,595
–
Premium paid on repurchase of shares (Note 16)
BALANCE, END OF YEAR
212,660
2002
$
127,719
25,504
( 1,990 )
–
( 168 )
–
212,660
$
153,223
Consolidated Statement of Income
FOR THE YEAR ENDED DECEMBER 30, 2003 (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
2003
SALES
$ 1,163,766
2002
$
992,073
2001
$
916,769
EXPENSES
Cost of sales
Operating
Amortization
Product liability (Note 21)
Other interest
857,606
153,741
29,251
6,465
–
15,512
565
760,423
106,969
24,850
3,698
–
9,987
452
718,123
97,164
21,168
2,569
20,000
17,643
819
1,063,140
906,379
877,486
100,626
85,694
39,298
21,014
4,586
19,388
4,711
( 973 )
5,704
25,600
24,099
4,731
75,026
61,595
34,552
–
–
7,990
INCOME FROM CONTINUING OPERATIONS
75,026
61,595
LOSS FROM DISCONTINUED OPERATIONS
–
–
INCOME FROM OPERATIONS BEFORE INCOME TAXES
AND AMORTIZATION OF GOODWILL
Income taxes (Note 22)
Current
Future
INCOME FROM CONTINUING OPERATIONS
BEFORE AMORTIZATION OF GOODWILL
NET INCOME
26,562
( 1,058 )
$
75,026
$
61,595
$
25,504
$
$
$
–
–
2.36
$
$
$
–
–
2.05
$
$
$
1.23
0.94
0.91
$
$
$
–
–
2.32
$
$
$
–
–
2.00
$
$
$
1.21
0.93
0.89
EARNINGS PER SHARE (Note 23)
Basic
Income from continuing operations before amortization of goodwill
Net income
Fully diluted
Income from continuing operations before amortization of goodwill
Net income
39
2003 Annual Report
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED DECEMBER 30, 2003 (IN THOUSANDS OF U.S. DOLLARS)
2003
2002
2001
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
$
Adjustments for:
Amortization
Future income taxes
Loss (gain) on disposal of capital assets
Funds held by ceding insurer
Changes in non-cash working capital (Note 24)
75,026
$
61,595
$
26,562
29,251
–
4,586
( 433 )
4,495
24,850
–
4,711
858
( 11,298 )
21,168
7,990
5,704
( 146 )
–
112,925
( 2,478 )
80,716
46,222
61,278
( 14,126 )
CASH PROVIDED BY OPERATING ACTIVITIES
110,447
126,938
47,152
FINANCING ACTIVITIES
Bank indebtedness
Long-term debt
Balance of sale and other amounts payable
Issuance of capital stock
Repurchase of capital stock
Share issue expenses
( 12,551 )
198,228
3,853
17,854
( 129 )
–
( 902 )
( 142,704 )
–
75,472
( 218 )
( 3,062 )
3,258
( 31,712 )
–
528
–
–
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
207,255
( 71,414 )
( 27,926 )
INVESTING ACTIVITIES
Acquisition of subsidiary companies
Cash acquired
( 287,060 )
7,207
Sale (repurchase) of accounts receivable
Additions to capital assets – net
Deferred charges
Intangible assets
Other assets
CASH USED IN INVESTING ACTIVITIES
NET CASH USED IN DISCONTINUED OPERATIONS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents, beginning of year
$
( 9,156 )
548
( 279,853 )
( 27,750 )
( 34,076 )
( 11,659 )
( 4,491 )
–
–
–
( 15,840 )
( 5,818 )
( 3,571 )
2,120
( 8,608 )
27,750
( 11,199 )
( 7,050 )
( 4,424 )
( 1,000 )
( 357,829 )
( 23,109 )
( 4,531 )
–
OTHER
Effect of exchange rate changes on cash
CASH AND CASH EQUIVALENTS, END OF YEAR
–
–
–
( 3,675 )
( 446 )
3,395
950
( 40,573 )
35,810
11,970
54,450
18,640
6,670
13,877
$
54,450
$
18,640
40
2003 Annual Report
Notes to Consolidated Financial Statements
AS AT DECEMBER 30, 2003 (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
Note 1 – Nature of Operations
Dorel Industries Inc. is a consumer products manufacturer and importer of juvenile products and home furnishings. The Company’s business
segments are juvenile furniture and accessories, and home furnishings. The principal markets for the Company’s products are the United States,
Canada and Europe.
Note 2 – Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP) using
the U.S. dollar as the reporting currency.
The material differences between Canadian GAAP and United States GAAP are described and reconciled in Note 27.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries from the date of their
acquisition. All significant inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and revenue and expenses during the period reported. Significant estimates and assumptions were used
to evaluate the carrying value of long-lived assets, valuation allowances for accounts receivable and inventories, restructuring reserves,
liabilities for potential litigation claims and settlements including product liability and assets and obligations related to employee pension
and post-retirement benefits. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be necessary. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized upon shipment of product and transfer of ownership to the customer. Provisions for customer sales allowances
and incentives are made at the time of product shipment.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
Accounts Receivable
The retained interest recorded upon the sale of accounts receivable is calculated based on the estimated fair value at the date of sale.
To obtain fair values, management uses its best estimate of the future expected cash flows based on historical deductions for returns
and allowances. Gains or losses on the sale of accounts receivable are recorded to the extent actual collections differ from the estimated
fair value at the date of sale.
Inventories
Raw material inventories are valued at the lower of cost and replacement cost. Finished goods inventories are valued at the lower of cost
and net realizable value. Cost is determined on a first-in; first-out basis, and on a last-in; first-out basis for one of the Company’s subsidiaries.
Amortization
Capital assets are amortized as follows:
Buildings
Machinery and equipment
Moulds
Furniture and fixtures
Vehicles
Computer equipment
Leasehold improvements
METHOD
Straight-line
Declining balance
Straight-line
Declining balance
Declining balance
Declining balance
Straight-line
RATE
40 years
15%
3 to 5 years
20%
30%
30%
5 years
Deferred charges
Deferred charges are carried at cost less accumulated amortization.
Research and Development Costs
The Company incurred costs on activities which relate to research and development of new products. Research costs are expensed
as they are incurred. Development costs are also expensed as incurred unless they meet specific criteria related to technical, market
and financial feasibility. The Company incurred $16,855 (2002 – $9,109, 2001 – $9,940) of research and development costs of which
$6,465 (2002 – $3,698, 2001 – $2,569) were expensed and $10,390 (2002 – $5,411, 2001 – $6,921) were deferred and are being
amortized to operations on a straight-line basis over a period of two years. Related amortization amounted to $7,404 (2002 – $3,754,
2001 – $2,734).
Financing Costs
The Company incurred certain costs related to the issue of long-term debt. These amounts are amortized to operations on a straightline basis over the terms of the related long-term debt.
41
2003 Annual Report
Note 2 – Accounting Policies (cont.)
Goodwill
Goodwill represents the excess of the purchase price over the fair values assigned to identifiable net assets acquired of subsidiary
companies. Effective January 1, 2002, the Company adopted the Canadian Institute of Chartered Accountants new recommendations under
Section 3062, “Goodwill and Other Intangible Assets”. The new rules require that goodwill with an indefinite life will no longer be amortized
to income. Instead, the Company must determine at least once annually whether the fair value of each reporting unit to which goodwill has been
attributed is less than the carrying value of the reporting unit’s net assets including goodwill, thus indicating impairment. Any impairments
are then recorded as a separate charge against income and a reduction of the carrying value of goodwill. An impairment adjustment in the
carrying value of goodwill was not required for the years ended December 30, 2003 and 2002.
Intangible Assets
Intangible assets are valued at cost:
Trademarks
Trademarks acquired during the year as part of the acquisition of Ampa Development SAS, as described in Note 3, have an indefinite life
and are therefore not subject to amortization. They are tested annually for impairment or more frequently when events or changes in circumstances
indicate that the trademarks might be impaired. The impairment test compares the carrying amount of the trademarks with its fair value.
Patents
Patents are amortized by the straight-line method over their expected useful lives.
Licences
Certain licences are amortized in line with sales of products for which the licences have been acquired, while others are amortized by the
straight line method over their expected useful lives.
Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets for potential impairment on an ongoing basis. The Company considers
projected future operating results, trends and other circumstances in making such evaluations. Impaired assets are written down to
estimated fair value, being determined based on the present value of future cash flows.
Foreign Currency
The financial statements of self-sustaining operations whose functional currency is other than the United States dollar are translated from
such functional currency to the United States dollar using the current rate method. Under this method, assets and liabilities are translated
at the rates in effect at the balance sheet date. Income and expenses are translated at average rates of exchange for the year. Resulting
unrealized gains or losses are accumulated as a separate component of shareholders’ equity.
Foreign currency transactions and balances are translated using the temporal method. Under this method all monetary assets and liabilities
are translated at the exchange rates prevailing at the balance sheet date. Non-monetary assets and liabilities are translated at historical
exchange rates. Income and expenses are translated at the average exchange rates for the year, except for amortization which is translated
on the same basis as the related assets. Translation gains and losses are reflected in net income.
Derivative Financial Instruments
The Company uses a number of derivative financial instruments, mainly foreign exchange contracts and interest-rate swap agreements
to reduce its exposure to fluctuations in interest rates and foreign exchange rates. These derivative financial instruments are used as
a method for meeting the risk reduction objectives of the Company by generating offsetting cash flows related to the underlying position in respect
of amount and timing and are measured for effectiveness on an ongoing basis. The Company does not use derivative financial instruments
for trading purposes. The foreign currency gains and losses on these contracts are not recognized in the consolidated financial statements until
the underlying transaction is recorded in net income. Payments and receipts under interest-rate swap agreements are recognized as adjustments
to interest expense.
Pension Plans and Post-Retirement Benefits
Pension Plans
The Company's subsidiaries maintain defined benefit plans and defined contribution plans for their employees. Pension benefit obligations
under the defined benefit plans are determined annually by independent actuaries using management's assumptions and the accrued
benefit method. The plans provide benefits based on a defined benefit amount and length of service.
Pension expense consists of the following:
• the cost of pension benefits provided in exchange for employees' services rendered in the period.
• interest on the actuarial present value of accrued pension benefits less earnings on pension fund assets.
• amounts which represent the amortization of the unrecognized net pension assets that arose when accounting policies were first
applied and subsequent gains or losses arising from changes in actuarial assumptions, and experience gains or losses related to return
on assets on the straight-line basis, over the expected average remaining service life of the employee group.
Post-Retirement Benefits Other Than Pensions
Post-retirement benefits other than pensions, include health care and life insurance benefits for retired employees. The costs of providing
these benefits are accrued over the working lives of employees in a manner similar to pension costs.
Significant elements in determining the assets or liabilities and related income or expense for these plans are the expected return on plan
assets, the discount rate used to value future payment streams, expected trends in health care costs, and other actuarial assumptions.
Annually, the Company evaluates the significant assumptions to be used to value its pension and post-retirement plan assets and liabilities
based on current market conditions and expectations of future costs.
42
2003 Annual Report
Note 2 – Accounting Policies (cont.)
Future Income Taxes
Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items
and their corresponding tax values using the enacted income tax rate in effect at the balance sheet date. Future income tax assets are recognized
only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized.
Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment
or substantive enactment.
Environmental Liabilities
Liabilities are recorded when environmental claims or remedial efforts are probable, and the costs can be reasonably estimated.
Environmental expenditures related to current operations are generally expensed as incurred.
Stock-Based Compensation
Effective January 1, 2002, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants Section 3870,
“Stock-Based Compensation and Other Stock-Based Payments”. This standard applies to awards granted after January 1, 2002, and is to be
applied prospectively. The Company will not change the method currently used to account for stock options granted to employees,
but will provide the required pro-forma disclosures on the impact of the fair value method, which produces estimated compensation
charges. The Company’s stock option plan and other disclosures are outlined in Note 17.
Reclassifications
Certain of the prior years’ accounts have been reclassified to conform to the 2003 financial statement presentation. Effective January 1,
2003, the Ready-to-Assemble and Home Furnishings segments as previously reported, were combined into one operating segment referred
to as Home Furnishings. This change reflects the similar nature of customers, products, production processes and distribution channels
employed by the business units that make up these operating segments. The prior years have been restated to reflect the combination
of these segments.
Accounting Changes
Effective January 1, 2003, as result of the increasing proportion of operating, financing and investing activities denominated in the U.S. dollar,
the Company’s principal Canadian operations changed their functional currency from the Canadian dollar to the U.S. dollar. As a result
of this change, all monetary assets and liabilities of the Company’s non-European operations denominated in currencies other than
the U.S. dollar are translated at the rates of exchange prevailing at the balance sheet date. Non-monetary assets and liabilities denominated
in currencies other than the U.S. dollar are translated at historical exchange rates. Resulting income and expenses are translated
at the approximate exchange rates in effect when the transaction occurred.
For the period January 1, 2000 to December 30, 2002 the U.S. dollar had been adopted as the Company’s reporting currency and accordingly
the financial statements of the Canadian operations were translated to the U.S. dollar using the current rate method, with any resulting
unrealized gains or losses accumulated as a separate component of shareholders’ equity.
The Company’s European operations continue to maintain the Euro as their functional currency.
Future Accounting Changes
Stock Based Compensation
The Company will adopt, on a prospective basis, effective for fiscal years beginning before January 1, 2004, the Canadian Institute
of Chartered Accountants Section 3870 “Stock Based Compensation and other Stock Based Payments” which will require the Company
to recognize as an expense to income, all stock options granted, modified or settled using the fair value based method.
Hedging Relationships
Effective January 1, 2004, the Company will adopt the recommendations of the Canadian Institute of Chartered Accountants Guideline
13 “Hedging Relationships”, which establishes certain conditions for when hedge accounting may be applied. The Company is studying
the new guideline and is preparing for the implementation of the hedging provisions. Any derivative instrument that does not qualify
for hedge accounting will be reported on a mark-to-market basis in income.
43
2003 Annual Report
Note 3 – Business Acquisitions
On February 14, 2003, the Company acquired all the outstanding common shares of Ampa Development SAS (Ampafrance) a developer, manufacturer,
marketer and distributor of juvenile products including strollers, car seats and other juvenile products for a total consideration of $247,198, including all
related acquisition costs. The cost of the acquisition was financed through long-term debt with the balance being paid in cash.
The assets and liabilities assumed consist of the following:
Assets
Cash
Accounts receivable
Inventories
Capital assets
Trademarks
Other
Goodwill
$
7,207
56,662
29,396
25,288
65,823
1,371
160,459
346,206
Liabilities
Accounts payable and accrued liabilities
Future income taxes
Long-term debt and other long-term liabilities
64,819
27,217
6,972
99,008
Total purchase price
$
247,198
Goodwill in the amount of $160,459 is not deductible for income tax purposes and is included in the Company’s Juvenile segment
as reported in Note 25 of the financial statements.
The following unaudited pro-forma financial information assumes the acquisition had occurred on January 1, of each year:
Net sales
Net income
2003
2002
$ 1,185,511
$
75,596
$ 1,168,862
$
69,428
On September 5, 2003, the Company acquired all the outstanding common shares of Carina Furniture Industries Ltd., a developer, manufacturer,
marketer and distributor of ready-to-assemble (RTA) furniture for a total consideration of $39,862, including all related acquisition costs. The cost
of the acquisition was financed through long-term debt with a balance of sale of $2,314 which is included in the Company’s other long-term
liabilities.
The assets acquired and liabilities assumed consist of the following:
Assets
Accounts receivable
Inventories
Capital assets
Future income taxes
Other assets
Goodwill
$
9,551
7,319
5,461
3,263
1,293
34,628
61,515
Liabilities
Bank indebtedness
18,097
3,556
21,653
$
39,862
Included as part of the acquisition cost, the Company provided for $9,980 of restructuring costs in connection with the closure of the Carina
manufacturing facility. This amount is included in the accounts payable and accrued liabilities figure of $18,097 above. Of this, $7,994
is being provided for the lease cancellation and other related exit costs while $1,986 is for severance and other employee-related expenses.
It is anticipated that the closure will occur within the first half of the year with all related costs resolved by September 2004.
Goodwill in the amount of $34,628 is not deductible for income tax purposes and is included in the Company’s Home Furnishings operating
segment as reported in Note 25 of the financial statements.
44
2003 Annual Report
Note 3 – Business Acquisitions (cont.)
The following unaudited pro-forma financial information assumes the acquisition had occurred on January 1 of each year:
Net sales
Net income
2003
2002
$ 1,221,623
$
76,722
$ 1,212,620
$
71,569
On April 27, 2001, the Company acquired all the outstanding shares of Quint B.V., a developer and distributor of juvenile products including
strollers and furniture for a total consideration of $9,156, which was financed through long-term debt.
The assets acquired and liabilities assumed consist of the following:
Assets
Cash
Accounts receivable
Inventories
Capital assets
Goodwill
$
548
1,995
3,117
276
7,924
13,860
Liabilities
Long-term debt
3,915
789
4,704
$
9,156
These combinations have 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.
Note 4 – Accounts Receivable
Accounts receivable consists of the following:
2003
Accounts receivable
Allowance for anticipated credits
Allowance for doubtful accounts
2002
$
256,195
( 40,005 )
( 5,285 )
$
158,006
( 54,711 )
( 5,028 )
$
210,905
$
98,267
In 2001, the Company had entered into an agreement with a third party to sell $30 million of eligible accounts receivable at a discount.
Under this agreement, the Company acted as the servicer of the receivable and was permitted to sell, on a revolving basis, additional
eligible accounts receivable to the extent amounts were collected on previously sold receivables. This agreement was terminated in 2003.
As at December 30, 2002, the Company had sold $30,000 of accounts receivable under this agreement and excluded this amount
from the balance of accounts receivable as at December 30, 2002. The Company also recorded a retained interest in the sold receivables
representing the estimated fair value retained at the date of sale. At December 30, 2002 the retained interest totalled $750 and was included
in prepaid expenses.
On January 22, 2002, one of the Company’s larger customers, K-Mart Corporation (“K-Mart”) and 37 of its subsidiaries filed voluntary petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code. As at December 30, 2002, the Company had included in accounts
receivable, gross pre-petition receivables from K-Mart totalling approximately $22,918. In addition, the Company had provided for its
allowance for anticipated credits certain reserves for returns and allowances, advertising and other anticipated deductions related
specifically to the gross pre-petition receivables. Management asserted that it would be granted the right of offset for these anticipated
deductions through the bankruptcy claims administration process. Insurance claims were filed representing a significant portion of its net
pre-petition receivables from K-Mart. During the year, the Company received from K-Mart and its insurance carriers amounts which resulted
in no further losses being recognized from this related receivable.
45
2003 Annual Report
Note 5 – Inventories
Inventories consist of the following:
2003
Raw materials
Work in process
Finished goods
2002
$
56,540
9,073
141,758
$
32,508
7,107
102,542
$
207,371
$
142,157
Note 6 – Capital Assets
COST
Land
Buildings
Moulds
Furniture and fixtures
Vehicles
Computer equipment
Leasehold improvements
Construction in progress
Assets under capital lease
ACCUMULATED
AMORTIZATION
NET
2003
2002
$
10,805
54,474
77,578
76,219
5,616
762
10,732
3,736
26,154
5,504
$
–
12,699
43,236
55,035
3,372
592
6,455
2,228
–
126
$
10,805
41,775
34,342
21,184
2,244
170
4,277
1,508
26,154
5,378
$
1,799
33,195
27,714
17,640
2,088
107
4,476
1,215
7,140
–
$
271,580
$
123,743
$
147,837
$
95,374
Construction in progress consists of the following major categories:
2003
Buildings and leasehold improvements
Moulds
Computer equipment
2002
$
7,919
6,497
7,875
3,863
$
87
936
6,117
–
$
26,154
$
7,140
Note 7 – Deferred Charges
2003
Development costs
Financing costs
Other
2002
$
15,117
1,996
1,388
$
11,002
1,125
2,984
$
18,501
$
14,111
Amor tization of deferred development costs and all other deferred charges amounted to $7,404 (2002 – $3,754, 2001 – $2,734)
and $1,023 (2002 – $1,633, 2001 – $1,297), respectively.
Upon the acquisition of Safety 1st, Inc., the Company capitalized a fixed rate interest swap acquired as part of the transaction, based on its
fair value at the date of acquisition. The notional amount of the swap agreement totals $35,000. The agreement requires the Company
to pay a fixed rate of 6.38% in exchange for 3-month LIBOR and matures on December 1, 2004. The capitalized swap is amortized using
the straight-line method from the acquisition date over the remaining term of the agreement. Periodic interest settlements are recorded in interest
expense, net. As at December 30, 2003, the net book value of the swap included in other deferred charges is $311 (2002 – $623).
46
2003 Annual Report
Note 8 – Goodwill
The following table summarizes the impact of adopting the new standard:
2003
2002
2001
Net income
$
75,026
–
$
61,595
–
$
25,504
7,990
Adjusted net income
$
75,026
$
61,595
$
33,494
Adjusted basic earnings per share
$
2.36
$
2.05
$
1.20
Adjusted fully diluted earnings per share
$
2.32
$
2.00
$
1.17
Note 9 – Intangible Assets
COST
Trademarks
Patents
Licences
ACCUMULATED
AMORTIZATION
NET
2003
2002
$
77,025
9,569
2,962
$
–
2,746
1,362
$
77,025
6,823
1,600
$
–
4,354
1,463
$
89,556
$
4,108
$
85,448
$
5,818
Note 10 – Bank Indebtedness
The average interest rates on the outstanding borrowings for 2003 and 2002 were 2.99% and 4.89%, respectively. As at December 30, 2003,
the Company had unused and available bank lines of credit amounting to approximately $39,395 (2002 – $26,109), renegotiated annually.
Note 11 – Accounts Payable and Accrued Liabilities
2003
Accounts payable
Salaries payable
Product liability
2002
$
198,873
19,565
34,707
$
91,178
13,405
27,222
$
253,145
$
131,805
47
2003 Annual Report
Note 12 – Long-Term Debt
2003
2002
Series “A” Senior Guaranteed Notes
Bearing interest at 6.80 % per annum with principal
repayments commencing in 2004 as follows:
•
•
•
•
5
1
2
1
annual instalments of $1,000 ending in July 2008
instalment of $8,500 in July 2009
annual instalments of $10,000 ending in July 2011
final instalment of $16,500 ending in July 2012
$
Bearing interest at 5.09% per annum in February 2008
50,000
$
50,000
55,000
–
55,000
–
Bearing interest at 7.50% per annum with principal
repayments in 5 annual instalments of $4,800
ending in April 2008
24,000
25,500
Bearing interest at 7.63% per annum with principal
repayments in 5 annual instalments of $1,600
ending in June 2008
8,000
8,500
Series “B” Senior Guaranteed Notes
Bearing interest at 5.63% per annum repayable in February 2010
Term Notes
Revolving Bank Loans
Bearing interest at various rates per annum,
averaging 2.30% based on LIBOR or U.S. bank rates,
total availability of $245,000 (2002 – $250,000).
97,000
–
Other
268
846
Obligations under capital lease
911
–
290,179
84,846
7,758
2,061
Current portion
$
282,421
$
82,785
The aggregate repayments in subsequent years of existing long-term debt will be:
FISCAL YEAR ENDING
AMOUNT
2004
2005
2006
2007
2008
$
7,758
7,564
104,571
7,565
62,527
$
189,985
Note 13 – Other Long-Term Liabilities
2003
Employee compensation
Balance of sale
Other
2002
$
6,521
2,314
1,745
$
–
–
516
$
10,580
$
516
48
2003 Annual Report
Note 14 – Financial Instruments
In the normal course of business, the Company uses various financial instruments, including derivative financial instruments, for purposes
other than trading. The Company uses derivative financial instruments as outlined in Note 2, to reduce exposure to fluctuations in interest
rates and foreign exchange rates. The derivative financial instruments include foreign exchange contracts and interest rate swaps. The nonderivative financial instruments include those as outlined below. By their nature, all such instruments involve risk, including market risk and
the credit risk of non performance by counterparties. These financial instruments are subject to normal credit standards, financial controls,
risk management as well as monitoring procedures.
Fair Value of Recognized Financial Instruments
Following is a table which sets out the fair values of recognized financial instruments using the valuation methods and assumptions described below:
December 30, 2003
CARRYING
FAIR
VALUE
VALUE
December 30, 2002
CARRYING
FAIR
VALUE
VALUE
Financial Assets
Cash and cash equivalents
Accounts receivable
Interest rate swap
$
13,877
210,905
311
$
13,877
210,905
(1,772)
$
54,450
98,267
623
$
54,450
98,267
(3,191)
Financial Liabilities
Bank indebtedness
Long-term debt
Other long-term debt liabilities
764
253,145
290,179
10,580
764
253,145
294,220
10,580
8,346
131,805
84,846
516
8,346
131,805
88,388
516
The carrying amounts shown in the table above are those which are included in the balance sheet and/or notes to the financial statements.
Determination of Fair Value
The following methods and assumptions were used to estimate the fair values of each class of financial instruments:
Cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities – The carrying amounts
approximate fair value because of the short maturity of those financial instruments.
Interest rate swap – The fair value is computed based on the difference between mid-market levels and the fixed swap rate as at December 30,
2003.
Long-term debt – The fair value is estimated based on discounting expected future cash flows at the discount rates which represent
borrowing rates presently available to the Company for loans with similar terms and maturity.
Letters of credit – As described in Note 19, the Company has certain letter of credit facilities of which management does not expect
any material losses to result from these instruments.
Other long-term liabilities – The carrying amounts approximate their fair value.
Foreign Exchange Risk Management
The Company enters into various types of foreign exchange contracts to manage its exposure to foreign currency risk as indicated in the following table:
December 30, 2003
NOTIONAL
FAIR
AMOUNT
VALUE
Future contracts
Forward exchange contracts
Options
$ 32,404
9,120
7,250
$ 33,352
8,696
6,595
December 30, 2002
NOTIONAL
FAIR
AMOUNT
VALUE
$
9,318
5.000
–
$
9,508
5,355
–
December 30, 2001
NOTIONAL
FAIR
AMOUNT
VALUE
$ 20,820
301
–
$ 20,780
298
–
The term of the currency derivatives ranges from three to twelve months. The Company’s market risk with respect to foreign exchange contracts
is limited to the exchange rate differential.
Deferred unrealized gains (losses) on these contracts are presented in the following table, showing the periods in which they are expected
to be recognized in income.
2003
2002
2001
To be recognized within
Three months
Six months
Nine months
Twelve months
$
( 650 )
( 45 )
269
295
$
370
31
67
75
$
( 18 )
( 10 )
(7)
(8)
$
( 131 )
$
545
$
( 43 )
49
2003 Annual Report
Note 14 – Financial Instruments (cont.)
Concentrations of Credit Risk
Substantially all accounts receivable arise from sales to the retail industry. Sales to two major customers represented 49.0% of total sales.
In 2002 and 2001, there were three major customers representing 68.6% and 66.4% of total sales respectively. Accounts receivable
from these customers comprised 42.7% and 50.8% of the total at December 30, 2003 and 2002, respectively.
Note 15 – Benefit Plans
Pension Benefits
One of the Company's subsidiaries maintain defined benefit pension plans for specific employees. Obligations under the defined benefit
plans are determined annually by independent actuaries using management’s assumptions and the accrued benefit method. The plans provide
benefits based on a defined benefit amount and length of service.
Information regarding the Company’s defined benefit plans is as follows:
2003
2002
Accrued benefit obligation:
Current service cost
Interest cost
Plan amendments
Benefits paid
Actuarial losses
$
Balance, end of year
18,117
389
1,222
–
( 1,130 )
1,392
$
16,835
353
1,204
( 144 )
( 1,139 )
1,008
19,990
18,117
Fair value, beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
17,885
3,236
500
( 1,130 )
17,041
( 2,717 )
4,700
( 1,139 )
Fair value, end of year
20,491
17,885
501
9,109
1,385
( 232 )
10,101
1,531
Plan assets:
Funded status-plan surplus (deficit)
Unamortized actuarial loss
Unamortized prior service cost
Accrued benefit asset
$
10,995
$
11,400
The accrued benefit asset relating to pension benefits is included in other assets.
Net pension costs for the defined benefit plan comprise the following:
2003
Current service cost, net of employee contributions
Interest cost
Expected return on assets
Amortization of prior service costs
Amortization of net actuarial (gain)/loss
Amortization of transition obligation
$
Pension expense (benefit):
$
390
1,222
( 1,560 )
146
708
–
906
Total expense under the defined contribution plans was $2,285 (2002 – $2,197, 2001 – $1,416).
2002
$
$
353
1,204
( 1,617 )
146
173
( 24 )
235
2001
$
327
1,176
( 1,635 )
110
–
( 63 )
$
( 85 )
50
2003 Annual Report
Note 15 – Benefit Plans (cont.)
Post-Retirement Benefits
One of the Company’s subsidiaries maintains a defined benefit post-retirement benefit plan for substantially all its employees.
Information regarding this Company’s post-retirement benefit plan is as follows:
2003
2002
Accrued benefit obligation:
Current service cost
Interest cost
Plan amendments
Benefits paid
Actuarial (gains)/losses
$
11,167
770
777
145
( 940 )
38
$
11,881
9,076
392
731
–
( 555 )
1,523
11,167
Plan assets:
Employer contributions
Benefits paid
940
( 940 )
Fair value, end of year
555
( 555 )
–
Funded status-plan deficit
Unamortized actuarial (gain)/loss
Unamortized prior service costs
–
( 11,881 )
( 787 )
( 1,150 )
Accrued benefit liability
$
( 13,818 )
( 11,167 )
( 749 )
( 1,297 )
$
( 13,213 )
Net costs for the post-retirement benefit plan comprise the following:
2003
2002
2001
Current service cost, net of employee contributions
Interest cost
Amortization of net actuarial (gain)/loss
Amortization of prior service costs
$
504
777
( 147 )
–
$
392
732
( 147 )
( 66 )
$
306
807
( 92 )
( 37 )
Net benefit plan expense
$
1,134
$
911
$
984
Assumptions
Weighted average assumptions used to determine benefit obligations as at December 30:
PENSION BENEFITS
2003
Discount rate
Rate of compensation increase
6.25%
n/a
2002
6.75%
n/a
POST-RETIREMENT
BENEFITS
2003
6.25%
n/a
2002
6.75%
n/a
Weighted-average assumptions used to determine
net periodic cost for the years ended December 30:
PENSION BENEFITS
2003
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
6.75%
9.00%
n/a
2002
7.50%
9.50%
n/a
2001
7.50%
9.50%
n/a
POST-RETIREMENT BENEFITS
2003
6.75%
n/a
n/a
2002
7.50%
n/a
n/a
2001
7.50%
n/a
n/a
Plan assets are measured using the fair value method. Unamortized actuarial gains and losses and prior service costs are recognized over
the expected average remaining service period. The measurement date used for pension benefits was December 30 for both 2003 and 2002.
For post-retirement benefits, the measurement dates were December 30 and September 30 respectively.
51
2003 Annual Report
Note 15 – Benefit Plans (cont.)
The expected long-term rate of return on plan assets reflected the average rate of earnings expected on the funds invested or to be invested
to provide for the benefits included in the projected benefit obligation. In estimating that rate, appropriate considerations were given
to the returns being earned by the plan assets in the fund and rates of return expected to be available to reinvestment. More specifically,
the Company determined that based on the plan's policy and asset allocation, the benchmarking indices showed a 9.81% historical return
on a 30-year look back basis. Combined with the actively managed investment options to outper form the indices, 9% was selected
as an appropriate and conservatively reasonable rate for the expected long-term rate of return on plan assets.
As at December 30, 2003, plan assets consisted of the following major categories:
2003
Equity securities
Debt securities
Fixed income securities
$
2002
11,996
5,785
2,710
$
9,160
8,407
318
$20,491
$
17,885
In 2004 the Company expects to make contributions to its pension plan in the range of $0 to $1,944.
The Company’s health benefit costs were estimated to increase with an annual rate of 10% during 2003 (2002 – 9%) decreasing
to an annual growth rate of 5% in 2009 and thereafter. Assumed health care cost trends have a significant effect on the amounts reported
for health care plans. A one percentage point change in assumed health care cost rates would have the following effects:
1 PERCENTAGE
POINT INCREASE
Effect on total of service and interest cost
Effect on post-retirement benefit obligation
$
$
205
1,409
1 PERCENTAGE
POINT DECREASE
$
$
( 175 )
( 1,319 )
Other
Certain of the Company’s subsidiaries have elected to act as self-insurer for certain costs related to all active employee health and accident
programs. The expense for the year ended December 30, 2003 was $7,941 (2002 – $9,388, 2001 – $9,007) under this self-insured
benefit program.
Certain of the Company’s subsidiaries maintain a non-qualified deferred compensation plan for certain highly compensated employees,
which provides for employer contributions, and are held in a trust. The total contributions made under these plans for the year ended
December 30, 2003 was $46 (2002 – $65, 2001 – $15).
52
2003 Annual Report
Note 16 – Capital Stock
The capital stock of the Company is as follows:
Authorized
An unlimited number of preferred shares without nominal or par value, issuable in series.
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.
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:
2003
NUMBER
2002
AMOUNT
NUMBER
2,156
4,940,360
AMOUNT
Class “A” Multiple Voting Shares
4,909,460
Converted from Class “A” to Class “B”
(1)
$
( 36,900 )
( 17 )
$
( 30,900 )
2,168
( 12 )
4,872,560
2,139
4,909,460
2,156
26,396,232
136,290
23,230,132
60,855
36,900
17
30,900
12
200,000
3,974
2,929,200
72,435
1,118,250
13,880
216,000
3,037
Class “B” Subordinate Voting Shares
Converted from Class “A” to Class “B”
Issuance of capital stock
(2)
Issued under stock option plan
Repurchase of capital stock
TOTAL CAPITAL STOCK
(3)
(1)
( 5,000 )
( 26 )
27,746,382
154,135
$
156,274
( 10,000 )
( 49 )
26,396,232
136,290
$
138,446
1. During the year, the Company converted 36,900 (2002 – 30,900) Class “A” Multiple Voting Shares into Class “B” Subordinate Voting
Shares at an average rate of $0.46 per share (2002 – $0.40 per share).
2. Under an agreement dated April 26, 2002 between the Company and a syndicate of underwriters led by CIBC World Markets Inc., the
Company agreed to sell and the underwriters agreed to purchase 2,929,200 Class “B” Subordinate Voting Shares at a price of $24.73
($CAN 38.50) for an aggregate consideration of $72,435 ($CAN 112,774) all pursuant to a prospectus dated May 8, 2002.
On September 21, 2000, the Company granted to Hasbro, Inc. as partial consideration for the licence agreement, 200,000 share
purchase warrants to purchase 200,000 Class “B” Subordinate Voting Shares at an exercise price of $19.87 ($CAN 30.00)
expiring no later than September 21, 2005. In January 2003, Hasbro, Inc. exercised the 200,000 share purchase warrants
3. Under a Normal Course Issuer Bid effective August 11, 2003, the Company indicated its intention to purchase up to 200,000 Class “B”
Subordinate Voting Shares at the prevailing market price. The program expires on August 10, 2004. During the year, the Company
purchased for cancellation by way of a Normal Course Issuer Bid on the Toronto Stock Exchange 5,000 (2002 – 10,000) Class “B”
Subordinate Voting shares for the total consideration of $129 (2002 – $217).
53
2003 Annual Report
Note 17 – Stock Options
Under various plans, 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. The maximum number of Class “B” Subordinate Voting Shares which may be issued under the plans is 4,500,000.
No option granted 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 2008.
The Company’s stock option plan is as follows:
2003
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
Options outstanding, beginning of year
Granted
Exercised
Cancelled
Options outstanding, end of year
2002
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
2,079,000
151,000
( 1,118,250 )
( 12,000 )
$
16.55
24.67
12.39
21.75
1,414,000
884,000
( 216,000 )
( 3,000 )
$
13.69
20.80
15.24
18.53
1,099,750
$
21.52
2,079,000
$
16.55
A summary of options outstanding at December 30, 2003 is as follows:
TOTAL OUTSTANDING
TOTAL EXERCISABLE
RANGE OF
EXERCISE PRICES
OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE
WEIGHTED AVERAGE
CONTRACTUAL
REMAINING LIFE
$ 16.00 – $ 18.00
110,000
$ 17.61
1.32
76,750
$ 17.87
$ 20.41 – $ 27.47
989,750
$ 21.95
3.41
203,500
$ 21.28
$ 16.00 – $ 27.47
1,099,750
$ 21.52
3.20
280,250
$ 20.34
OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE
If the Company had elected to recognize compensation costs based on the fair value at the date of grant, consistent with the provisions
of the Canadian Institute of Chartered Accountants Section 3870, the Company’s net income and earnings per share would have been
reduced to the following pro-forma amounts:
2003
2002
Net income
As reported
Pro forma
$
$
75,026
73,796
$
$
61,595
61,595
Basic earnings per share
As reported
Pro forma
$
$
2.36
2.32
$
$
2.05
2.05
Fully diluted earnings per share
As reported
Pro forma
$
$
2.32
2.28
$
$
2.00
2.00
$
8.64
$
7.70
Weighted-average fair value of options granted during the year
The above pro-forma net income and earnings per share were computed using the fair value of granted options as at the date of grant
as calculated by the Black-Scholes option method. In order to perform the calculation, the following weighted average assumptions were made:
2003
Risk-free interest rate
2002
3.99%
4.33%
Nil
Nil
Volatility factor of the expected market price of the Company’s share capital
33.5%
34.9%
Term to maturity
3.60
2.38
Dividend yield
54
2003 Annual Report
Note 18 – Cumulative Translation Adjustment
An analysis of the cumulative translation adjustment included in shareholders' equity is as follows:
2003
$
Translation of self-sustaining foreign operations
2,900
2002
$
48,129
$
51,029
( 4,334 )
2001
$
7,234
$
2,900
( 410 )
( 3,924 )
$
( 4,334 )
Note 19 – Commitments
a) The Company has entered into long-term lease agreements bearing various expiry dates to the year 2012. The minimum annual rentals
exclusive of additional charges will be as follows:
FISCAL YEAR ENDING
2004
2005
2006
2007
2008
AMOUNT
$
17,186
14,634
10,525
8,296
6,372
$
57,013
b) The Company has letter of credit facilities totalling $30,944 (2002 – $33,000) of which unaccepted letters of credit outstanding
as at December 30, 2003 and 2002 amount to $18,916 and $22,152, respectively.
Note 20 – Contingent Liabilities
The Company is involved in various legal actions and party to a number of other claims or potential claims that have arisen in the normal
course of business, the outcome of which is not yet determinable. In the opinion of management, based on information presently available,
any monetary liability or financial impact of such lawsuits, claims or potential claims to which the Company might be subject would not be material
to the consolidated financial position of the Company and the consolidated results of operations.
Note 21 – Product Liability
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 self funded insurance program includes third party insurance coverage which is limited to the fair value of the assets held
by the captive insurance company. The Company also has various excess insurance policies for product liability incidents which occurred prior
to December 30, 2003.
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 on units sold prior to December 30, 2003. 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.
As at December 30, 2003, the Company’s total exposure related to current and future product liability incidents was estimated to
range from $34,138 to $38,867. The Company’s recorded liability of $34,707 and $27,222 as at December 30, 2003 and 2002,
respectively, represents the Company’s total estimated exposure after considering the excess insurance coverage available.
Funds Held by Ceding Insurer
Dorel Insurance Corporation, the captive insurance company, has entered into a reinsurance agreement whereby funds are withheld by
the ceding insurer, for the purpose of payment of net losses related to product liability claims. These funds bear interest at a rate of 1.64%
per annum.
55
2003 Annual Report
Note 22 – Income Taxes
Variations of income tax expense from the basic Canadian Federal and Provincial combined tax rates applicable to income from operations
before income taxes are as follows:
2003
PROVISION FOR INCOME TAXES
ADD (DEDUCT) EFFECT OF:
Non-deductible amortization
Difference in effective tax rates
of foreign subsidiaries
Recovery of income taxes arising
from the use of unrecorded tax benefits
Other – net
ACTUAL PROVISION FOR INCOME TAXES
$ 35,219
–
2002
35.0%
$ 29,993
–
2001
35.0%
–
$ 10,952
–
35.0%
2,640
8.4
( 8.5 )
( 6,234 )
( 6.2 )
( 2,761 )
( 3.2 )
( 2,648 )
( 2,998 )
( 387 )
( 3.0 )
( 0.4 )
( 2,979 )
( 154 )
( 3.5 )
( 0.2 )
( 6.127 ) ( 19.6 )
( 86 ) ( 0.2 )
$ 25,600
25.4%
$ 24,099
28.1%
$
4,731
15.1%
The following presents the Canadian and foreign components of income from operations before income taxes and income tax expense
for the years ended December 30:
2003
2002
2001
Details of income from operations:
Domestic
Foreign
Income from operations before income taxes
$
13,513
87,113
$
14,868
70,826
$
( 59 )
31,352
$
100,626
$
85,694
$
31,293
$
5,773
15,241
$
4,907
14,481
$
( 1,208 )
235
Details of income tax expense:
Current
Domestic
Foreign
21,014
19,388
( 973 )
Future
Domestic
Foreign
Total income taxes
$
402
4,184
( 208 )
4,919
319
5,385
4,586
4,711
5,704
25,600
$
24,099
$
4,731
56
2003 Annual Report
Note 22 – Income Taxes (cont.)
The components of future taxes are as follows:
2003
2002
Current future income tax assets
Reserves and allowances
Operating loss carry forwards
Other
Net current future income tax assets
$
8,057
1,029
98
$
11,081
–
33
$
9,184
$
11,114
$
773
3,878
1,401
2,330
$
773
3,074
772
–
$
8,382
$
4,619
$
17,052
27,648
448
$
7,255
2,775
259
$
45,148
$
10,289
Long-term future income tax assets
Share issue costs
Employee pensions
Other
Total long-term future income tax assets
Long-term future income tax liabilities
Capital assets
Intangible assets
Other
Total long-term future income tax liabilities
Note 23 – Earnings Per Share
The following table provides a reconciliation between the number of basic and fully diluted shares outstanding:
Weighted daily average number of Class “A”
Multiple and Class “B” Subordinate Voting Shares
Dilutive effect of stock options and share purchase warrants
Weighted average number of diluted shares
Number of anti-dilutive stock options or share purchase warrants
excluded from fully diluted earnings per share calculation
2003
2002
2001
31,837,343
30,097,165
28,159,026
569,381
642,073
409,504
32,406,724
30,739,238
28,568,566
136,000
100,000
200,000
2002
2001
Note 24 – Statement of Cash Flows
Net changes in non-cash working capital balances relating to continuing operations are as follows:
2003
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes
$
( 8,062 )
( 20,356 )
3,229
34,809
( 12,098 )
$
( 950 )
12,831
( 5,798 )
24,931
15,208
$
2,320
( 10,646 )
245
2,042
( 8,087 )
Total
$
( 2,478 )
$
46,222
$
( 14,126 )
Supplementary disclosure:
2003
Interest paid
Income taxes paid
Income taxes received
$
10,749
36,792
9,810
2002
$
9,342
12,983
5,400
2001
$
17,556
1,456
–
57
2003 Annual Report
Note 25 – Segmented Information
The Company’s significant business segments include:
• Juvenile Products Segment: Engaged in the design, manufacture and distribution of children’s furniture and accessories which include
infant car seats, strollers, high chairs, toddler beds, cribs and infant health and safety aids.
• Home Furnishings Segment: Engaged in the design, manufacture and distribution of ready-to-assemble furniture and home furnishings
which includes metal folding furniture, futons, step stools, ladders and other imported furniture items.
The accounting policies used to prepare the information by business segment are the same as those used to prepare the consolidated
financial statements of the Company as described in Note 2.
The Company evaluates financial performance based on measures of income from continuing operations before interest, income taxes,
amortization of goodwill and special items. Inter-segment sales were immaterial for the years ended December 30, 2003, 2002, and 2001.
Geographic Segments
SALES
CAPITAL ASSETS AND GOODWILL
2003
2002
2001
2003
2002
2001
Canada
United States
Europe
Other foreign countries
$ 174,262
670,109
266,719
52,676
$ 157,153
708,850
84,693
41,377
$ 145,672
682,417
77,624
11,056
$ 53,753
225,583
248,979
57
$ 11,152
214,224
25,652
15
$ 11,800
219,429
18,750
11
Total
$1,163,766
$ 992,073
$ 916,769
$ 528,372
$ 251,043
$ 249,990
Industry Segments
TOTAL
2003
SALES
2002
JUVENILE
2001
$ 1,163,766 $ 992,073 $ 916,769
Cost of sales and operating expenses
Amortization
1,002,843
28,166
860,968
23,585
810,516
20,031
132,757
107,520
86,222
Interest
Income taxes
Corporate expenses
Product liability
16,077
25,600
16,054
–
10,439
24,099
11,387
–
18,462
4,731
8,477
20,000
before amortization of goodwill
$
75,026 $ 61,595 $ 34,552
Income from segment operations
2003
2002
HOME FURNISHINGS
2001
$ 670,106 $ 528,446 $503,892
582,024
22,157
$
469,166
16,291
2003
2001
$ 493,660 $463,627 $ 412,877
452,226
13,326
65,925 $ 42,989 $ 38,340
2002
420,819
6,009
$
391,802
7,294
358,290
6,705
66,832 $ 64,531 $ 47,882
Total assets
$ 1,087,714 $ 543,483 $ 542,609
$ 876,164 $ 366,838 $378,211
$ 211,550 $176,645 $ 164,398
Additions to capital assets
$
$
$
6,059 $
5,557 $
2,970
33,779 $ 15,817 $ 11,454
27,720 $ 10,260 $ 8,484
Goodwill
The continuity of goodwill by business is as follows:
Additions
Amortization
Foreign exchange and other
$
155,669 $ 151,624 $ 148,896
195,087
–
7,924
–
–
( 7,990 )
29,779
4,045
2,794
$ 151,247 $ 147,202 $144,199 $
160,459
–
7,924
–
–
( 7,715 )
29,779
4,045
2,794
4,422 $
34,628
–
–
4,422 $
–
–
–
4,697
–
( 275 )
–
$
380,535 $ 155,669 $ 151,624
$ 341,485 $ 151,247 $147,202
39,050 $
4,422 $
4,422
$
58
2003 Annual Report
Note 25 – Segmented Information (cont.)
TOTAL
2003
2002
2001
Reconciliations:
Net Income
Total income from continuing operations before amortization of goodwill
$
75,026
$
61,595
$
34,552
–
–
7,990
–
–
1,058
Net income
$
75,026
$
61,595
$
25,504
Total assets for reportable segments
Corporate assets
$ 1,087,714
22,843
$
543,483
71,259
$
542,609
25,965
Total assets
$ 1,110,557
$
614,742
$
568,574
Total Assets
Concentration of Credit Risk
Sales to major customers were concentrated as follows:
CANADA
2003
2002
UNITED STATES
2001
2003
2002
FOREIGN
2001
2003
2002
2001
Juvenile
1.7%
1.2%
1.3%
19.2%
30.8%
29.4%
0.3%
–
–
Home furnishings
7.8%
10.2%
10.8%
15.8%
22.7%
24.4%
4.2%
3.7%
0.5%
Note 26 – Subsequent Event
On January 12, 2004, the Company signed a purchase agreement to acquire the shares of Pacific Cycle LLC, a designer, marketer and supplier
of bicycles and other recreational products located in Madison, Wisconsin, for a total consideration of approximately $310,000, excluding
acquisition costs. This acquisition will be financed through additional debt facilities and cash. The Company is presently in the process
of allocating the cost of the purchase to the net assets acquired.
Note 27 – United States Accounting Principles
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada
(Canadian GAAP) which, in the case of the Company, conform in all material respects with those in the United States (U.S. GAAP) and with
the requirements of the Securities and Exchange Commission (SEC), except as follows:
Deferred Charges
Canadian GAAP allows for the deferral and amortization of development costs if specific criteria are met. Under U.S. GAAP all costs
classified as development costs are expensed as incurred.
Pension Plans and Post Retirement Benefits Other than Pensions
Under U.S. GAAP, if the accumulated benefit obligation exceeds the market value of plan assets, a minimum liability for the excess is recognized
to the extent that the liability recorded in the balance sheet is less than the minimum liability. Any portion of this additional liability that
relates to unrecognized past service cost is recognized as an intangible asset which the remainder is charged to other comprehensive
income. Canadian GAAP has no such requirement to record a minimum liability.
Accounting for Derivative Instruments and Hedging Activities
SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” requires that all derivative instruments, including those
embedded in other contracts, be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in income from operations or other comprehensive income depending on the intended use of the derivative, its resulting
designation and its effectiveness. If a derivative instrument is designated as a hedge and meets the criteria for hedge effectiveness,
an offset to income from operations is available but only to the extent that the hedge is effective. The ineffective portion of the change
in fair value of a derivative instrument that meets the hedge criteria is recognized in current income from operations.
Goodwill
Under Canadian GAAP, certain incremental costs incurred in connection with an acquisition were allowed to be included in either the allocation
of the purchase price to the acquired assets and liabilities, or in the results of the Consolidated Statement of Income. U.S. GAAP requires
that certain incremental costs be included as part of the purchase price allocation and resulting goodwill.
59
2003 Annual Report
Note 27 – United States Accounting Principles (cont.)
Income Before Amortization of Goodwill
Under Canadian GAAP, Section 1581 “Business Combinations” permits amortization of goodwill to be presented net-of-tax on a separate line
in the Consolidated Statement of Income. This presentation is not currently permitted under U.S. GAAP.
Stock Options
The United States Financial Accounting Standards Board has issued standard SFAS No. 123 for accounting for stock based compensation.
The Company has elected to continue to account for its stock-based compensation plan under the guidelines of Accounting Principles Board
Opinion No. 25 for purposes of reconciliation to U.S. GAAP; however, additional disclosure as required by the guidelines of SFAS No. 123
is included below.
In accordance with Company policy, the exercise price of the Company’s employee stock option equals the market price of the underlying
stock on the date of grant. Accordingly, under the rules of APB 25, no related compensation expense was recorded in the Company’s results
of operations for U.S. GAAP purposes.
If the Company had elected to recognize compensation costs based on the fair value at the date of grant, consistent with the provisions
of SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the following pro-forma amounts:
2003
Pro-forma income from continuing operations for U.S. GAAP
$
Pro-forma net income for U.S. GAAP
$
72,199
2002
2001
$
59,723
–
$
20,165
( 1,058 )
72,199
$
59,723
$
19,107
$
$
2.27
2.27
$
$
1.99
1.99
$
$
0.72
0.68
$
$
2.23
2.23
$
$
1.94
1.94
$
$
0.71
0.67
–
Pro-forma earnings per share:
Basic
Pro-forma income from continuing operations
Pro-forma net income
Fully Diluted
Pro-forma income from continuing operations
Pro-forma net income
The above pro-forma net income and earnings per share were computed using the fair value of granted options as at the date of grant as
calculated by the Black-Scholes option method. In order to perform the calculation the following weighted average assumptions were made
for fiscal years 2003, 2002 and 2001:
2003
Risk-free interest rate
Dividend yield
Volatility factor of the expected market price
of the Company’s share capital
Term to maturity
2002
2001
3.99%
Nil
4.33%
Nil
5.81%
Nil
33.50%
3.60
34.9%
2.38
35.40%
1.67
Retained Earnings
Under Canadian GAAP, stock issue costs are shown as an adjustment to retained earnings. Under U.S. GAAP, the carr ying amount of
capital stock is shown net of issue costs.
60
2003 Annual Report
The following table reconciles the net income as reported on the consolidated statement of income to the net income that would have been
reported had the financial statements been prepared in accordance with the United States Accounting Principles and the requirements of the SEC:
2003
in accordance with Canadian GAAP
Adjustments to reconcile financial statements to U.S. GAAP:
Deferred product development costs
Accounting for derivatives
Goodwill amortization
Interest expense
Income taxes
$
75,026
2002
$
( 3,002 )
1,057
26,562
–
–
–
–
709
467
( 3,964 )
( 2,264 )
( 402 )
( 675 )
2,583
( 849 )
( 4,722 )
–
( 655 )
–
( 1,236 )
( 849 )
in accordance with U.S. GAAP
73,790
60,746
–
–
Net income in accordance with U.S. GAAP
$
( 1,648 )
332
( 1,236 )
Cumulative effect of change in adopting SFAS No. 133.
“Accounting for Derivative Instruments and Hedging
Activities”, net of income taxes
61,595
2001
( 5,387 )
21,175
( 1,058 )
$
73,790
$
60,746
$
20,117
Basic
Net income
$
$
2.32
2.32
$
$
2.02
2.02
$
$
0.75
0.71
Fully Diluted
Net income
$
$
2.28
2.28
$
$
1.98
1.98
$
$
0.74
0.70
Earnings per share:
61
2003 Annual Report
The following summarizes the balance sheet amounts in accordance with U.S. GAAP where different from the amounts reported
under Canadian GAAP:
2003
Inventories
Deferred charges
Goodwill
Other assets
Deferred income tax asset – net long-term
Deferred income tax liability – net long-term
Other long-term liabilities
Capital stock
Retained earnings
Minimum pension adjustment
Cumulative translation adjustment
$
206,867
3,701
382,167
2002
$
–
–
253,311
32,811
1,772
152,495
280,337
–
2,743
157,370
12,931
1,182
143,248
–
3,191
134,667
207,118
( 6,263 )
2,565
–
50,402
2003
2002
The components of deferred taxes are as follows:
Current deferred income tax assets
Reserves and allowances
Other
Net Current Deferred Income Tax Assets
$
8,057
1,029
98
$
11,081
$
9,184
$
11,114
$
1,401
773
3,213
3,878
998
2,634
$
4,610
773
1,773
3,074
1,393
438
–
33
Long-term deferred income tax assets
Employee pensions
Share issue costs
Development costs
Derivatives
Other
Total long-term deferred income tax assets
12,897
12,061
Long-term deferred income tax liabilitie
Employee pensions
Capital assets
Intangible assets
169
17,891
27,648
154
7,950
2,775
Total long-term deferred income tax liabilities
45,708
10,879
Net Long-Term Deferred Income Tax Asset (Liabilities)
$
( 32,811 )
$
1,182
62
2003 Annual Report
The Company’s Statement of Cash Flows determined in accordance with U.S. GAAP would be as follows:
2003
2002
2001
Operating activities
Financing activities
Investing activities
Net cash used in discontinued operations
Effect of exchange rates on cash
$
100,172
207,254
( 347,553 )
–
( 446 )
$
121,592
( 71,414 )
( 17,763 )
–
3,395
$
40,451
( 36,534 )
10,778
( 3,675 )
950
Increase (decrease) in cash
$
( 40,573 )
$
35,810
$
11,970
Comprehensive Income
The United States Financial Accounting Standards Board has issued, SFAS No. 130, “Reporting Comprehensive Income”. For the Company,
the principal difference between net income, as historically reported in the consolidated statement of income and comprehensive income,
is foreign currency translation recorded in shareholders’ equity and minimum pension liability not yet recognized as a net periodic pension
cost. Comprehensive income is as follows:
2003
Net income in accordance with U.S. GAAP
$
Foreign currency translation adjustments
73,790
2002
$
31,284
60,746
2001
$
4,702
20,117
( 2,623 )
( 6,263 )
Minimum pension liability adjustments
–
Cumulative effect of change in adopting SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities”,
net of income taxes
–
–
( 413 )
Realization of deferred amounts net of income taxes
–
–
413
Comprehensive income
$
105,074
$
59,185
–
$
17,494
63
2003 Annual Report
Corporate Information
Directors
Officers
Martin Schwartz
Martin Schwartz
President and
Chief Executive Officer
Pierre Dupuis
Vice-President, Chief Operating Officer
Jeff Segel
Executive Vice-President,
Sales and Marketing
Alan Schwartz
Alan Schwartz
Executive Vice-President, Sales and Marketing
Operations
Jeffrey Schwartz
Chief Financial Officer
and Secretary
Executive Vice-President, Operations
Jeff Segel
Jeffrey Schwartz
Chief Financial Officer and Secretary
Frank Rana
Vice-President, Finance and Assistant-Secretary
Hani Basile
Vice-President, Corporate Management
Maurice Tousson*
Ed Wyse
Lead Director
Vice-President, Global Procurement
Dr. Laurent Picard* C.C.
Harold P. “Sonny” Gordon*, Q.C.
* Members of the Audit and Human Resources
and Corporate Governance Committees
Annual Meeting of Shareholders
Friday, May 28, 2004 at 11:00 AM
Omni Hotel, Salon Pierre de Coubertin
1050 Sherbrooke Street West, Montreal, Quebec, Canada
64
2003 Annual Report
Major Operations
Home Furnishings
Head Office
Juvenile
Ameriwood Industries
Robert Klassen, President
1255 Greene Avenue, Suite 300
Montreal, Quebec, Canada H3Z 2A4
2525 State Street
Columbus, Indiana, USA 47201
Canton Commerce Centre
45 Dan Road
Canton, Massachusetts, USA 02021
Dorel Juvenile Group Canada
12345 Albert-Hudon Blvd., Suite 100
Montreal, Quebec, Canada H1G 3K9
Dominique Favario, President
AMPAFRANCE
9 Boulevard du Poitou, Zone Industriel
49309 Cholet
Cedex France
Via verdi, 14
24060 Telgate (Bergamo) Italy
Lugar de Varziela
Arvore
4480 Vila do Conde, Portugal
C/Pare Rodés no 26
Edificio Del Lac Center
Torre A 4o 2a
08208 Sabadell (Barcelona)
Spain
Rue de Genève 77 bis
1004 Lausanne
Switzerland
MAXI-MILIAAN
Grasbeemd 28
5705 DG Helmond, Holland
Augustinusstrasse 11b
D-50226 Frechen – Konigsdorf
Germany
DOREL U.K.
Hertsmere House, Shenley Road
Borehamwood, Hertfordshire
WD6 1TE United Kingdom
305 East South First Street
Wright City, Missouri, USA 63390
202 Spaulding Street
Dowagiac, Michigan, USA 49047
458 Second Avenue
Tiffin, Ohio, USA 44883
3305 Loyalist Street
Cornwall, Ontario, Canada K6H 6W6
12345 Albert-Hudon Blvd., Suite 100
Montreal, Quebec, Canada H1G 3K9
Lawyers
Heenan Blaikie LLP
1250 René-Lévesque Blvd. West
Suite 2500
Montreal, Quebec, Canada H3B 4Y1
Auditors
Canada: Goldsmith Hersh
1411 Fort Street, Suite 200
Montreal, Quebec, Canada H3H 2N6
Cosco Home & Office
Tom Szczurek, President
2525 State Street
Columbus, Indiana, USA 47201
USA: Deloitte & Touche LLP
111 Monument Circle
Bank One Tower, Suite 2000
Indianapolis, Indiana, USA 46204-5120
Dorel Asia SRL
South Ramp
Grantley Adams International Airport
Christ Church, Barbados
Europe: KPMG LLP
18, rue du Pin
4300 Nantes
France
Showrooms
1365 Midway Blvd., Unit 27, Suite 100
Mississauga, Ontario, Canada L5T 2J5
Transfer Agent & Registrar
Commerce and Design Building
201 West Commerce Street, 9th Floor
High Point, North Carolina, USA 27260
Computershare Investor Services Inc.
100 University Avenue, 9th Floor
Toronto, Ontario, Canada M5J 2Y1
service@computershare.com
Investor Relations
Pacific Cycle
4902 Hammersley Road
Madison, Wisconsin, USA 53711
4730 E. Radio Tower Lane
P.O. Box 344
Olney, Illinois, USA 62450-0344
2041 Cessna Drive
Vacaville, California, USA 95688-8712
Dorel – Asian Office
31F, Jinzhong Square, No. 98
Huai Hai Zhong Road, Shanghai 200021
P.R. China
Maison Brison
Rick Leckner
3201 Graham Blvd.
T.M.R., Quebec, Canada H3R 1K1
Tel.: (514) 731-0000
Fax: (514) 731-4525
email: brison1@maisonbrison.com
Stock Exchange Listing
Share Symbols
TSE – DII.A; DII.B
NASDAQ – DIIB
Written, designed and produced : Maison Brison Inc.
Bruce Cazenave, President
Sales
1,200,000
17.3% Change
1,000,000
600,000
DIVISIONS
DIVISION
Ampafrance
Cosco Home & Office
Ameriwood
Dorel Asia
Pacific Cycle
PRODUCT RANGE
PRODUCT RANGE
20,000
Madison, Wisconsin
Longmont, Colorado
10,000
SHOWROOMS
03
Madison, Wisconsin
Olney, Illinois
2.5
16.0% Change
2.0
Columbus, Indiana
Cornwall, Ontario
Dowagiac, Michigan
Greenwood, Indiana
02
0,000
St. Louis, Missouri
Montreal, Quebec
Ontario, California
Sabadell, Spain
Telgate, Italy
Cologne, Germany
40,000
30,000
Columbus, Indiana
Greenwood, Indiana
Cholet, France
Helmond, Holland
50,000
($'000)
Department stores
SHOWROOMS
60,000
CUSTOMERS
Columbus, Indiana
21.8% Change
70,000
CUSTOMERS
80,000
75.0
Columbus, Indiana
Helmond, Holland
Montreal, Quebec
Ontario, California
Tiffin, Ohio
1.5
($)
Cholet, France
03
Net income
1.0
0.5
2.32
02
0
PRODUCT RANGE
CUSTOMERS
200,000
1,163.8
DIVISIONS
992.1
400,000
As of February 2004
61.6
Home Furnishings
2.00
Juvenile
($'000)
800,000
02
03
0.0
2003
2002
% CHANGE
1,110.6
290.9
614.7
93.2
80.7
212.2
Gross margin (%)
26.3
15.2
0.59
23.4
17.4
0.26
32,407
30,739
Total assets
Total debt
5.4
Did you know?
Dorel is the world’s largest juvenile products company
in its categories. Dorel sells more bicycles than anyone else
in North America. Dorel is among the top two ready-to-assemble
furniture manufacturers in North America. Dorel’s brands are
some of the most powerful in juvenile products, RTA furniture
and the sporting goods industry.
Table of Contents
Message to Shareholders 2 | The Dorel Business Model 6 | The Power of Dorel’s Brands 8 | Pacific Cycle 10 | A Proven Business Model 12
A Growing Portfolio of Strong Brands 12 | Dorel’s Brand Drive Gears up with Schwinn 13 | Corporate Governance 14
1255 Greene Avenue, Suite 300, Montreal, Quebec, Canada H3Z 2A4
T: 514.934.3034 F: 514.934.9379 www.dorel.com
Message from our Chief Operating Officer 16 | 11-year Financial Retrospective 18 | Management’s Discussion and Analysis 20
Management’s and Auditors’ Reports 35 | Financial Statements 36 | Corporate Information 63

A GLOBAL CONSUMER PRODUCTS COMPANY

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