Sting Ray owner posts record 2004 results - BikeBiz

Sting Ray owner posts record 2004 results

Dorel Industries Inc. of Canada today announced fourth quarter and year-end results for its fiscal year ended December 30, 2004. Revenues for the fourth quarter rose to $462m, up 42.7 percent from the $323.7m posted same period last year. "Our consumer brands helped propel sales, predominantly Schwinn's reborn Sting Ray bicycle, which generated unprecedented sales for a single Dorel product," said Martin Schwartz, Dorel president and CEO.
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Net income for the fourth quarter jumped 69.6% to $34.7m from $20.5m. Income per share for the final quarter was $1.05 fully diluted, compared to $0.63 per share in the fourth the previous year.

For fiscal 2004, Dorel posted revenues of $1.7 billion, up 44.8% from the $1.2 billion last year. Net income for the full year amounted to $100.1m or$3.04 per share fully diluted, compared to 2003 net income of $74.2m or US$2.29 per share.

Here's the figures:


-------------------------------------------------------------------------

Fourth quarter ended December 30

-------------------------------------------------------------------------

All figures in thousands of US $, except per share amounts

2004 2003 Change %

-------------------------------------------------------------------------

Revenue 461,958 323,677 42.7%

Net income 34,721 20,478 69.6%

Per share - Basic 1.06 0.63 67.8%

Per share - Diluted 1.05 0.63 68.2%

-------------------------------------------------------------------------

Average number of shares

outstanding -

diluted weighted average 32,924,736 32,664,874

-------------------------------------------------------------------------

-------------------------------------------------------------------------

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Summary of Financial Highlights

-------------------------------------------------------------------------

Year ended December 30

-------------------------------------------------------------------------

All figures in thousands of US $, except per share amounts

2004 2003 Change %

-------------------------------------------------------------------------

Revenue 1,684,870 1,163,766 44.8%

Net income 100,076 74,200 34.9%

Per share - Basic 3.06 2.33 31.2%

Per share - Diluted 3.04 2.29 32.8%

-------------------------------------------------------------------------

Average number of shares

outstanding -

diluted weighted average 32,915,232 32,406,724

-------------------------------------------------------------------------

-------------------------------------------------------------------------


Juvenile

Juvenile segment revenues for the fourth quarter were up 12.9% to US$193.1 million from last year's fourth quarter US$171 million. Earnings from operations for the period increased 20.3% to US$18.7 million from US$15.5 million. 2004 revenues rose 13.2% to US$758.4 million from US$670.1 million a year ago. Earnings from operations grew 1.8% year-over-year to US$65.9 million, compared to US$64.8 million in 2003.

Dorel Europe's fourth quarter sales in U.S. dollars increased 23%, while earnings jumped 176%. Gross margins in Europe continued to improve throughout the year and in the fourth quarter were at their highest levels since the Ampafrance acquisition. Dorel Europe represented 40% of the Juvenile segment's sales in U.S. dollars for the full year and accounted for almost 60% of its earnings. All three operating units based in France, Holland and the United Kingdom posted earnings increases, with the majority of the improvement at Dorel Nederland as new management reversed previous year losses.

The Dorel Juvenile Group (DJG) in North America posted fourth quarter revenues 6% higher than the prior year, while earnings declined due principally to a change in product mix, increased raw material costs, and increased distribution costs resulting from significantly higher inventory levels. For the year, juvenile revenues in North America increased 10%, however, competitive pricing pressures, higher costs in raw materials and product liability costs reduced earnings by approximately 30% from last year's levels. Earnings excluding the higher product liability costs in 2004 decreased less than 4%.

Home Furnishings

Home Furnishings segment revenues for the fourth quarter decreased 5.1% to US$144.9 million from last year's US$152.7 million. Earnings from operations for the period decreased 30% to US$14.2 million from US$20.3 million. 2004 revenues rose 9.5% to US$540.6 from US$493.7 a year ago. However, earnings from operations fell 35% year-over-year to US$43.4 million compared to US$66.7 million last year.

Results in the Home Furnishings segment were impacted by decreased earnings at the Ameriwood ready-to-assemble (RTA) group. Raw material costs, primarily for board, were also an important factor in the reduced earnings. At their peak, board prices were 50% higher over the prior year. Price increases to customers were implemented throughout the second half of the year, however they did not fully offset the higher costs incurred. Offsetting declines at Ameriwood was Dorel Asia, which recorded its most profitable year, and Cosco Home & Office which posted significant revenue gains over last year.

Recreational/Leisure

Fourth quarter revenues and earnings in the Recreational/Leisure segment were their highest of the year with revenues of US$123.9 million and earnings of US$15.7 million. For the year, which includes eleven months of activity, revenues were US$385.9 million and earnings reached US$49.4 million, or 12.8% as a percentage of revenues. Upon acquisition it was expected that this new segment would account for revenues of US$350 million to US$375 million with earnings from operations of 12% to 13% of revenues.

Success was driven by the Schwinn Sting-Ray bicycle, which proved to be one of the most successful bicycle launches ever. Over 500,000 bicycles were sold to several large retailers. The exposure generated by the Sting-Ray also re-invigorated the already exceptional Schwinn brand name.

Dorel's Tax Rate

The income tax rate for 2004 was 6.4%, lower than the previously expected range of 11% to 12%. The difference was due to a combination of factors including; a change in the jurisdictions in which income was earned, a revaluation of long-term future tax balances due to a change in enacted tax rates in Europe, the recognition of future tax benefits due to loss carry- forwards previously unrecognized in the United Kingdom as well as other previously unrecognized tax credits in both Europe and North America. Please refer to the Outlook section below for the 2005 tax rate.

Balance Sheet and Cash Flow

Free cash flow, defined as cash provided by operating activities less net additions to capital assets, deferred charges and intangible assets, was US$66.2 million for 2004, up 10% from US$60.2 million in 2003. The free cash flow increase was less than anticipated due to higher than expected inventory and accounts receivable balances.

The higher levels of inventory and receivables were primarily the result of higher sales activities and did not have a negative effect on the Company's working capital ratios. The number of days in receivables and inventory both improved slightly over 2003 at 55 days and 78 days respectively as compared to 56 and 80 as at December 30, 2003.

Other

Dorel has restated the 2003 balance sheet classification of certain assets and liabilities, in connection with Dorel's acquisition of Ampafrance SA and Carina Furniture Limited in 2003. Specifically, Dorel has recognized: (i) customer-relationship intangible assets in the amount of US$36.9 million; and (ii) long-term future tax liabilities in the amount of US$12.9 million. This change in accounting treatment has: (i) reduced the amount of goodwill initially recorded by US$24 million; and (ii) resulted in a non-cash charge of US$0.8 million in each of 2003 and 2004, thereby reducing fully diluted earnings per share by US$0.03 in 2003 and 2004. These changes are pursuant to a review of Dorel's 2003 annual financial statements by the Autorite des marches financiers (the "AMF"), conducted as part of their Continuous Disclosure Review Program.

Subsequent to year-end, on February 11, 2005, the Company settled a dispute with one of its product liability insurance carriers for the amount of US$9.8 million. As at December 30, 2004, this gain was contingent upon a successful resolution of the dispute. As a result, the amount received will be applied against operating expenses in 2005. Though this recovery will have a positive impact on 2005 full year results, most of the amount received will be offset by other expected claim settlements in the first quarter of the year.

Outlook

In lieu of specific earnings guidance, Dorel is providing an outline of its expectations for 2005.

- Sales - Sales growth is expected to be from 5% to 10%.

- Cost of sales - Commodity prices were high in 2004 and were the largest

contributor to decreased gross margins. Commodity prices remain high

and are not currently expected to decrease. As such, gross margin

levels are expected to only improve marginally.

- Borrowing costs - Costs are expected to rise slightly with higher

interest rates on floating rate debt expected to increase. However, it

is anticipated that free cash flow will approximate US$100 million and

is expected to be applied against debt.

- Currencies - Based on current exchange rates, the Company anticipates

that currencies will have a similar impact on earnings in 2005 as in

2004.

- Effective Tax Rate - The 2005 tax rate is expected to be in the range

of 15% to 20%. More than half of the anticipated increase is due to a

greater proportion of earnings and slightly higher 2005 tax rates

anticipated in North America. The balance of the increase expected is

due to changes in the mix of earnings in the Company's other operating

jurisdictions.

- Capital Expenditures - Capital expenditures for 2005 are expected to be

in the mid US$30 million range versus US$49.3 million in 2004.

Commentary

"Dorel will continue to build on its past accomplishments through 2005. Several important operational adjustments were made as major acquisitions were integrated. We are confident that our team is further equipped and motivated to grow organically. The aggressive product development initiatives introduced at all Dorel divisions are expected to drive sales and will continue to provide our customers with the products their consumers want. This has never been made clearer than with the overwhelming success of Dorel Juvenile Group's new ride-on category of toy vehicles and the Sting-Ray bicycle. We expect more of the same this year in our three segments.

"Our strong brands are increasingly creating a greater awareness of Dorel. I am encouraged that the initial signs for 2005 are promising. The Conference Board, a non-profit research group in New York, reported that its index of consumer confidence rose in late 2004 to its best reading since last July. The Conference Board reported the rebound to be broad-based with consumers expecting a stronger economy over the next several months. This augurs well for consumer product companies such as Dorel," concluded Mr. Schwartz.

CONFERENCE CALL

Dorel Industries Inc. will hold a conference call to discuss these results today at 1:30 P.M. Eastern Time. Interested parties can join the call by dialling (514) 807-8791 (Montreal or overseas) or (800) 814-4861 (elsewhere in North America). The conference call can also be accessed via live webcast at www.newswire.ca or www.q1234.com . If you are unable to call in at this time, you may access a tape recording of the meeting by calling 1-877-289-8525 and entering the passcode 21115716(pound key) on your phone. This tape recording will be available on Wednesday, March 9 as of 3:30 P.M. until 11:59 P.M. on Wednesday, March 16.

Complete financial statements will be available on the Company's website, www.dorel.com, and will be available through the SEDAR and EDGAR websites.

Profile

Dorel Industries (TSX: DII.SV, DII.MV; NASDAQ: DIIB) is a global consumer products company engaged in the designing, manufacturing and marketing of a diverse portfolio of powerful consumer brands, sold through its Juvenile, Home Furnishings, and Recreational/Leisure segments. Headquartered in Montreal, Dorel employs approximately 5,000 people in fourteen countries. Dorel also has offices in Shanghai and Shenzhen, China which oversee the sourcing, engineering and logistics of all Asian operations. 2004 sales were US$1.7 billion.

US operations include Dorel Juvenile Group USA, which markets the Cosco and Safety 1st brands as well Eddie Bauer and Disney Baby licensed products; Ameriwood Industries, which markets ready-to-assemble products under the Ameriwood, Carina, SystemBuild, Altra Furniture and Ridgewood/Charleswood brands as well as California Closets and Trading Spaces licenses; Cosco Home & Office, which markets home/office products under the Cosco and Cosco Ability Essentials brands and Samsonite license; and Pacific Cycle, which markets the Schwinn, Mongoose, GT, InSTEP and Roadmaster brands. In Canada, Dorel operates Dorel Canada, Ridgewood Industries and Dorel Home Products. Dorel Europe markets juvenile products throughout Europe, under the Bebe Confort, Maxi- Cosi, Quinny, Safety 1st, Babideal, and Baby Relax brands. Dorel Asia sources and imports home furnishings products.

Forward-Looking Statements

Except for historical information provided herein, this press release may

contain information and statements of a forward-looking nature concerning

the future performance of the Company. These statements are based on

suppositions and uncertainties as well as on management's best possible

evaluation of future events. Such factors may include, without excluding

other considerations, fluctuations in quarterly results, evolution in

customer demand for the Company's products and services, the impact of

price pressures exerted by competitors, and general market trends or

economic changes. As a result, readers are advised that actual results

may differ from expected results.


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DOREL INDUSTRIES INC.

CONSOLIDATED BALANCE SHEET

ALL FIGURES IN THOUSANDS OF US $

As at December 30

2004 2003

(As restated)

ASSETS

CURRENT ASSETS

Cash and cash equivalents $ 11,288 $ 13,877

Funds held by ceding insurer 7,920 6,803

Accounts receivable 286,529 210,905

Inventories 292,991 207,371

Prepaid expenses 12,756 10,719

Future income taxes 24,027 14,386

----------- -----------

635,511 464,061

CAPITAL ASSETS 163,707 147,837

GOODWILL 512,546 353,316

DEFERRED CHARGES 20,983 18,501

INTANGIBLE ASSETS 262,968 125,946

FUTURE INCOME TAXES 10,401 8,307

OTHER ASSETS 10,786 10,995

----------- -----------

$ 1,616,902 $ 1,128,963

----------- -----------

----------- -----------

LIABILITIES

CURRENT LIABILITIES

Bank indebtedness $ 1,915 $ 764

Accounts payable and accrued liabilities 354,738 253,145

Income taxes payable 5,629 2,037

Balance of sale 7,773 -

Future income taxes 1,379 629

Current portion of long-term debt 7,686 7,758

----------- -----------

379,120 264,333

LONG-TERM DEBT 505,816 282,421

----------- -----------

PENSION OBLIGATION 14,676 13,818

----------- -----------

BALANCE OF SALE 5,278 2,314

----------- -----------

FUTURE INCOME TAXES 75,719 63,832

----------- -----------

OTHER LONG-TERM LIABILITIES 8,014 8,266

----------- -----------

SHAREHOLDERS' EQUITY

CAPITAL STOCK 160,876 156,274

CONTRIBUTED SURPLUS 1,081 -

RETAINED EARNINGS 386,833 286,757

CUMULATIVE TRANSLATION ADJUSTMENT 79,489 50,948

----------- -----------

628,279 493,979

----------- -----------

$ 1,616,902 $ 1,128,963

----------- -----------

----------- -----------

DOREL INDUSTRIES INC.

CONSOLIDATED STATEMENT OF INCOME

ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS

Fourth quarter ended Year ended

December 30 December 30

----------------------- -----------------------

2004 2003 2004 2003

(As restated) (As restated)

Sales $ 457,378 $ 322,087 $ 1,666,748 $ 1,158,666

Licensing and

commission income 4,580 1,590 18,122 5,100

----------- ----------- ----------- -----------

TOTAL REVENUE 461,958 323,677 1,684,870 1,163,766

----------- ----------- ----------- -----------

EXPENSES

Cost of sales 357,175 243,108 1,291,422 857,606

Operating 51,770 42,572 211,362 153,741

Amortization 9,346 7,906 36,189 30,526

Research and development

costs 1,729 (289) 6,420 6,465

Interest on long-term

debt 7,799 4,040 29,311 15,512

Other interest 206 68 3,193 565

----------- ----------- ----------- -----------

428,025 297,405 1,577,897 1,064,415

----------- ----------- ----------- -----------

Income before income

taxes 33,933 26,272 106,973 99,351

Income taxes (788) 5,794 6,897 25,151

----------- ----------- ----------- -----------

NET INCOME $ 34,721 $ 20,478 $ 100,076 $ 74,200

----------- ----------- ----------- -----------

----------- ----------- ----------- -----------

EARNINGS PER SHARE:

Basic $1.06 $0.63 $3.06 $2.33

----------- ----------- ----------- -----------

----------- ----------- ----------- -----------

Diluted $1.05 $0.63 $3.04 $2.29

----------- ----------- ----------- -----------

----------- ----------- ----------- -----------

SHARES OUTSTANDING:

Basic - weighted

average 32,785,978 32,440,593 32,728,727 31,837,343

Diluted - weighted

average 32,924,736 32,664,874 32,915,232 32,406,724

DOREL INDUSTRIES INC.

CONSOLIDATED STATEMENT OF RETAINED EARNINGS

ALL FIGURES IN THOUSANDS OF US $

Year ended December 30

-----------------------

2004 2003

(As restated)

BALANCE, BEGINNING OF PERIOD $ 286,757 $ 212,660

Net income 100,076 74,200

Premium paid on repurchase of shares - (103)

----------- -----------

BALANCE, END OF PERIOD $ 386,833 $ 286,757

----------- -----------

----------- -----------

DOREL INDUSTRIES INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

ALL FIGURES IN THOUSANDS OF US $

Fourth quarter ended Year ended

December 30 December 30

----------------------- -----------------------

CASH PROVIDED BY : 2004 2003 2004 2003

(As restated) (As restated)

OPERATING ACTIVITIES

Net income $ 34,721 $ 20,478 $ 100,076 $ 74,200

Adjustments for:

Amortization 9,346 7,906 36,189 30,526

Deferred income

taxes (1,996) 4,200 (4,439) 4,137

Funds held by

ceding insurer 1,835 (28) (1,117) 4,495

Stock based

compensation 1,081 - 1,081 -

Loss (gain) on

disposal of

capital assets 398 20 808 (433)

----------- ----------- ----------- -----------

45,385 32,576 132,598 112,925

----------- ----------- ----------- -----------

Changes in non-cash

working capital:

Accounts receivable (12,069) (3,786) (36,138) (8,062)

Inventories 5,506 (14,067) (28,769) (20,356)

Prepaid expenses

and other assets (1,490) 4,307 813 3,229

Accounts payable

and accrued

liabilities (3,957) 26,001 42,588 34,809

Income taxes payable (1,880) (2,969) 4,450 (12,098)

----------- ----------- ----------- -----------

(13,890) 9,486 (17,055) (2,478)

----------- ----------- ----------- -----------

CASH PROVIDED BY

(USED IN) OPERATING

ACTIVITIES 31,495 42,062 115,543 110,447

FINANCING ACTIVITIES

Increase in long-

term debt (26,186) (27,158) 223,892 198,228

Balance of sale and

other long-term

liabilities (10,173) - 10,738 3,853

Issuance of capital

stock 214 9,980 3,908 17,854

Repurchase of

capital stock - - - (129)

Increase (decrease)

in bank

indebtedness 973 (979) 1,005 (12,551)

----------- ----------- ----------- -----------

CASH PROVIDED BY

FINANCING

ACTIVITIES (35,172) (18,157) 239,543 207,255

----------- ----------- ----------- -----------

INVESTING ACTIVITIES

Acquisition of

subsidiary

companies 9,554 (140) (310,976) (287,060)

Cash on hand - - 3,734 7,207

----------- ----------- ----------- -----------

9,554 (140) (307,242) (279,853)

Repurchase of

accounts

receivable - - - (27,750)

Additions to

capital assets

- net (7,672) (14,748) (32,600) (34,076)

Deferred charges (3,961) (6,163) (13,688) (11,659)

Intangible assets (238) (3,685) (3,029) (4,491)

----------- ----------- ----------- -----------

CASH USED IN

INVESTING

ACTIVITIES (2,317) (24,736) (356,559) (357,829)

----------- ----------- ----------- -----------

Effect of exchange

rate changes on

cash (518) 344 (1,116) (446)

----------- ----------- ----------- -----------

NET INCREASE

(DECREASE) IN CASH (6,512) (487) (2,589) (40,573)

Cash, beginning

of period 17,800 14,364 13,877 54,450

----------- ----------- ----------- -----------

CASH, END OF PERIOD $ 11,288 $ 13,877 $ 11,288 $ 13,877

----------- ----------- ----------- -----------

----------- ----------- ----------- -----------

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