UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER PURSUANT TO RULES 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
November 3, 2006
Commission File Number: 0-29712
DOREL INDUSTRIES INC.
________________________________________________________________________________________________
1255 Greene Ave, Suite 300, Westmount, Quebec, Canada H3Z 2A4
_________________________________________________________________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F
[ ]
Form 40-F
[ X ]
Indicate by check mark whether the registrant by furnishing the information in this Form is also thereby furnishing
the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
[ ]
No
[ X ]
![[nr03nov06002.gif]](nr03nov06002.gif)
“Revenues increased in both the Juvenile and Recreational/Leisure segments and the negative trend in sales was reversed in Home Furnishings during the quarter. In Juvenile, sales in both North America and Europe continued to be strong. Home Furnishings revenues increased by 19% from the second quarter with these increases occurring in all of the segment’s operating divisions. Ameriwood continued to focus on the repositioning of its business into three units: Domestic, Global Sourcing and Dorel Home Products. At Pacific Cycle gas-powered motor scooters continue to gain acceptance in the market and bicycle sales were strong in the independent bicycle dealer (IBD) chain,” stated Dorel President and CEO, Martin Schwartz.
Summary of Financial Highlights | |||
Third quarter ended September 30 | |||
All figures in thousands of US $, except per share amounts | |||
| 2006 | 2005 | Change % |
Revenue | 436,300 | 423,329 | 3.1% |
Adjusted Net income | 25,073 | 25,610 | -2.1% |
Per share - Basic | 0.76 | 0.78 | -2.6% |
Per share - Diluted | 0.76 | 0.78 | -2.6% |
Net Income | 25,073 | 19,826 | 26.5% |
Per share - Basic | 0.76 | 0.60 | 26.7% |
Per share - Diluted | 0.76 | 0.60 | 26.7% |
Average number of shares outstanding - |
|
|
|
diluted weighted average | 32,861,092 | 32,923,907 |
|
Summary of Financial Highlights | |||
Nine Months ended September 30 | |||
All figures in thousands of US $, except per share amounts | |||
| 2006 | 2005 | Change % |
Revenue | 1,323,238 | 1,330,607 | -0.6% |
Adjusted Net income | 67,190 | 74,559 | -9.9% |
Per share - Basic | 2.04 | 2.27 | -10.1% |
Per share - Diluted | 2.04 | 2.27 | -10.1% |
Net Income | 67,190 | 68,776 | -2.3% |
Per share - Basic | 2.04 | 2.09 | -2.4% |
Per share - Diluted | 2.04 | 2.09 | -2.4% |
Average number of shares outstanding - |
|
|
|
diluted weighted average | 32,860,268 | 32,946,621 |
|
Juvenile Segment
Third quarter Juvenile revenue was up 3.7% to US$217.0 million from US$209.3 million during the same period a year ago. Earnings from operations decreased 16.2% to US$23.8 million compared to US$28.4 million last year. Of the decline of US$4.6 million, US$3.3 million was attributable to higher product liability costs with the remainder of the decline due principally to lower gross margins in the U.S. For the nine months, revenue increased 4.3% to US$673.4 million from US$645.6 million a year ago, while earnings from operations dipped 2.1% to US$74.1 million from US$75.7 million. As in the quarter, product liability costs continued to run higher than 2005 levels, with an increase of US$9.5 million year-to-date.
In North America, revenues for the quarter declined slightly from US$126.7 million in 2005 to US$123.5 million in the current year. Year-to-date revenues in North America were up 4.4% over the prior year, totalling US$389.1 million. Organic sales growth in Europe for the quarter was 8.5% and was 6.1% year-to-date. In U.S. dollars these increases were 13.2% and 4.1% respectively increasing to US$93.6 million for the quarter and US$284.3 million year-to-date. These increases were principally in Northern Europe and in the United Kingdom.
A new Safety 1st booster seat, to accommodate larger children, was released during the quarter at a major mass merchant customer. In addition, several new Safety 1st items are being launched through the fourth quarter, including a new convertible car seat and new small furniture items. A strong focus is on product development where a number of product platforms are being overhauled. The Quinny stroller, designed in Europe and which has already proven popular with Canadian consumers, will be introduced to the specialty channel in the US in the second quarter of 2007. Continued strong sales of the Maxi Cosi and Quinny lines produced a solid third quarter in Europe. Reaction to Dorel Europe’s new lines at the August Cologne, Germany Juvenile show was excellent and the exhibit was one of the busiest.
Home Furnishings Segment
Home Furnishings revenue for the quarter was flat year-over-year at US$142.8 million compared to US$143.2 million a year ago. Earnings from operations for the quarter rose 62.5% to US$13.0 million versus adjusted earnings of US$8.0 million last year. For the nine months, revenue was down 5.7% to US$396.7 million from US$420.5 million. Year-to-date, adjusted earnings from operations were down 8.0%, to US$23.0 million from adjusted earnings US$25.0 million last year. Excluded from these adjusted figures are all restructuring costs. In 2005 these restructuring costs were US$8.9 million for the quarter and year-to-date. For 2006 these costs were only US$35,000 in the third quarter and US$717,000 year-to-date recorded through cost of sales. Unadjusted earnings from operations in 2006 for the quarter and year-to-date were US$13.0 million and US$22.3 million respectively. Unadjusted earnings from operations in 2005 for the quarter and year-to-date were a loss of US$0.9 million and earnings of US$16.1 million respectively.
For the segment as a whole, third quarter adjusted gross margins improved from 2005 levels reaching 17.5% in 2006 versus 13.0% in 2005. Unadjusted margins in the third quarter of 2005 were 11.2%, including restructuring costs of US$2.5 million recorded through cost of sales. This margin improvement was principally achieved through improvements at Ameriwood’s RTA division. Excluding the portion of the US$5.0 million dollar insurance recovery recorded in the third quarter of 2006 that pertains to prior periods, margins in the quarter were 15.7% as opposed to the 17.5% reported.
Sales of ready-to-assemble (RTA) furniture declined by US$4.2 million from the third quarter of 2005, or 7.6%, due principally to lower sales to the mass merchant channel. Versus the second quarter of 2006, RTA sales increased by 11.9%. Ameriwood’s futon sales rebounded during the third quarter, with a strong back-to-college showing. Ameriwood has repositioned its business into three distinct units: Domestic, Global Sourcing and Dorel Home Products. While Ameriwood has been importing a portion of products and furniture components for some time, the new focused global sourcing initiative is expected to yield positive results in 2007. Concurrently, efforts are underway to ensure the lowest cost position in domestic production and price increases with Ameriwood’s customers have been successfully implemented.
Revenues during the third quarter at Dorel Asia increased by 16% over 2005. Dorel Asia was successful with new juvenile groupings and is continuing to make headway in this category at the mass merchant level. The division is also widening its product assortment with existing customers. Cosco Home & Office sales declined by 7.3% where ladders and step stools performed well and there was clear retail traction in healthcare products with a chain wide shipment to a national drug store chain. However these good performances were offset by declines in sales of folding furniture.
Recreational/Leisure Segment
Third quarter Recreational/Leisure revenue increased 7.9% to US$76.4 million from US$70.8 million last year. Earnings from operations were down 4.8% to US$6.0 million from US$6.3 million. Gross margins in the third quarter of 2006 were 20.0%, consistent with the 20.6% recorded in 2005. As a result, gross margin dollars earned in the quarter increased by US$0.7 million over last year. However, offsetting this were higher selling, general and administration costs in the amount of US$9.0 million in 2006 versus US$8.0 million in 2005. Higher selling costs to develop the scooter program and higher legal costs were the principal reasons for the increase.
For the nine months, revenue has dropped 4.3% to US$253.2 million from US$264.5 million. As a result of these decreased revenues and lower gross margins, year-to-date earnings from operations have decreased 34.2% to US$18.7 million from US$28.4 million. Year-to-date margins were 18.6% in 2006 as compared to 21.5% in 2005. Excluding a second quarter inventory reserve, 2006 year-to-date gross margins would have been 20.0%, with the decline over 2005 levels due to a less favourable product mix. Year-to-date selling, general and administration costs were virtually unchanged at US$27.6 million versus US$27.7 million in 2005.
The revenue increase in the quarter was prompted by a combination of growing sales of Schwinn gas-powered motor scooters, new customers in the IBD chain as well as sales of other recreational products. The gas motor scooter dealer network continues to increase with further gains anticipated by year end. Shipments of the new 2007 150 cc model began in September and response has been strong and re-orders are already being placed. Pacific’s new concept Schwinn electric bicycle was unveiled at both the Euro Bike Show in Germany and at Interbike in Las Vegas. Equipped with the latest innovations in battery technology, the units are the lightest and most durable on the market. A single charge will last for approximately 65 kilometres, depending on user weight, climate and terrain. The new bicycle is totally hybrid and can be used either as a conventional or electric unit.
Other
Corporate expenses in the third quarter of 2006 are net of a foreign exchange gain of US$1.2 million. This gain arose on the reduction of certain investments in the Company’s subsidiary companies. This non-cash income amount represents an amount of US$0.04 per diluted share. The Company’s tax rate in the quarter was 19.0%, as compared to 10.6% in the third quarter of 2005. The majority of the increase was due to higher earnings in higher tax rate jurisdictions. In addition, following a change in the tax rate in one of the Company’s taxation jurisdictions, deferred tax liabilities were increased raising the Company’s tax rate in the quarter by several points. The Company’s year-to-date tax rate is currently 13.9% compared to 15.4% in 2005. Expectations continue to be that the Company’s annual tax rate will be in the range of 15% to 20%.
Cash Flow
Cash flow from operations in 2006 for the nine months ended September 30 was US$67.3 million compared to US$42.0 million in 2005. Year-to-date free cash flow was US$49.1 million as compared to US$20.1 million in 2005, an improvement of US$29.0 million. Free cash flow, a non-GAAP financial measure is defined as cash provided by operating activities less capital expenditures and variations in funds held by ceding insurer. Inventory levels increased from year-end by US$36.1 million, excluding the impact of foreign exchange. The majority of this increase was expected as it is to service fourth quarter shipping needs. Therefore, year-end inventory levels for 2006 are expected to decline from the current US$320.3 million.
CONFERENCE CALL
Dorel Industries Inc. will hold a conference call to discuss these results today at 1:00 P.M. Eastern Time. Interested parties can join the call by dialling 1-800-814-4853. The conference call can also be accessed via live webcast at www.dorel.com , 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 21206762# on your phone. This tape recording will be available on Friday, November 3, 2006 as of 3:00 P.M. until 11:59 P.M. on Friday, November 10, 2006.
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.A, DII.B; 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 4,500 people in fourteen countries. Dorel also has eight offices in China, headquartered in Shanghai, which oversee the sourcing, engineering and logistics of the Company’s Asian supplier chain. 2005 sales were US$1.8 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 furniture products under the Ameriwood, Carina, SystemBuild, Altra Furniture and Ridgewood/Charleswood brands as well as the California Closets license; Cosco Home & Office, which markets home/office products under the Cosco brand and Samsonite license as well as home healthcare products under the Cosco Ability Essentials and Adepta brands; and Pacific Cycle, which markets the Schwinn, Mongoose, GT, InSTEP, Playsafe and Roadmaster brands. In Canada, Dorel operates Dorel Distribution Canada, Ridgewood Industries and Dorel Home Products. Dorel Europe markets juvenile products throughout Europe, under the Bébé Confort, Maxi-Cosi, Quinny, Safety 1st, Babidéal, Mon Bébé and Baby Relax brands. Dorel Asia sources and imports home furnishings products.
Caution Concerning 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 Dorel Industries Inc. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. The business of the Company and these forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ from expected results. Important factors which could cause such differences may include, without excluding other considerations, increases in raw material costs, particularly for key input factors such as particle board and resins; increases in ocean freight container costs; failure of new products to meet demand expectations; changes to the Company’s effective income tax rate as a result of changes in the anticipated geographic mix of revenues; the impact of price pressures exerted by competitors, and settlements for product liability cases which exceed the Company’s insurance coverage limits. A description of the above mentioned items and certain additional risk factors are discussed in the Company’s Annual MD&A and Annual Information Form, filed with the securities regulatory authorities in Canada and the U.S. The risk factors outlined in the previously mentioned documents are specifically incorporated herein by reference. The Company’s business, financial condition, or operating results could be materially adversely affected if any of these risks and uncertainties were to materialize. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
CONSOLIDATED BALANCE SHEET
ALL FIGURES IN THOUSANDS OF US $
| As at |
| As at | |||
|
|
| (unaudited) |
| (audited) | |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
Cash |
|
| $ 16,036 |
|
| $ 12,345 |
Accounts receivable |
|
| 276,269 |
|
| 287,225 |
Income taxes receivable |
|
| 9,547 |
|
| 14,817 |
Inventories |
|
| 320,250 |
|
| 279,265 |
Prepaid expenses |
|
| 9,501 |
|
| 10,288 |
Funds held by ceding insurer |
|
| – |
|
| 3,647 |
Future income taxes |
|
| 26,870 |
|
| 26,060 |
|
|
| 658,473 |
|
| 633,647 |
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
| 143,456 |
|
| 144,248 |
DEFERRED CHARGES |
|
| 14,860 |
|
| 15,561 |
INTANGIBLE ASSETS |
|
| 258,078 |
|
| 253,245 |
GOODWILL |
|
| 493,560 |
|
| 481,518 |
OTHER ASSETS |
|
| 10,023 |
|
| 10,750 |
ASSETS HELD FOR SALE |
|
| 3,633 |
|
| 3,699 |
|
|
| $ 1,582,083 |
|
| $ 1,542,668 |
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
Bank indebtedness |
|
| $ 7,099 |
|
| $ 4,828 |
Accounts payable and accrued liabilities |
|
| 297,367 |
|
| 305,922 |
Income taxes payable |
|
| 12,249 |
|
| 18,483 |
Balance of sale payable |
|
| – |
|
| 4,946 |
Current portion of long-term debt |
|
| 241,439 |
|
| 8,025 |
|
|
| 558,154 |
|
| 342,204 |
|
|
|
|
|
|
|
LONG-TERM DEBT |
|
| 162,897 |
|
| 439,634 |
BALANCE OF SALE PAYABLE |
|
| 665 |
|
| 665 |
PENSION & POST-RETIREMENT BENEFIT OBLIGATIONS |
|
| 20,576 |
|
| 19,081 |
FUTURE INCOME TAXES |
|
| 70,469 |
|
| 62,986 |
OTHER LONG-TERM LIABILITIES |
|
| 5,515 |
|
| 5,656 |
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
CAPITAL STOCK |
|
| 162,545 |
|
| 162,503 |
CONTRIBUTED SURPLUS |
|
| 5,548 |
|
| 3,639 |
RETAINED EARNINGS |
|
| 545,345 |
|
| 478,155 |
CUMULATIVE TRANSLATION ADJUSTMENT |
|
| 50,369 |
|
| 28,145 |
|
|
| 763,807 |
|
| 672,442 |
|
|
| $ 1,582,083 |
|
| $ 1,542,668 |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF INCOME
ALL FIGURES IN THOUSANDS OF US $, EXCEPT PER SHARE AMOUNTS
| Third Quarter Ended |
| Nine Months Ended | ||||||
| Sept. 30, 2006 | Sept. 30, 2005 | Sept. 30, 2006 | Sept. 30, 2005 | |||||
| (unaudited) |
| (unaudited) |
| (unaudited) |
| (unaudited) | ||
|
|
|
|
|
|
|
| ||
Sales | $ 431,019 |
| $ 418,835 |
| $ 1,305,313 |
| $ 1,314,640 | ||
Licensing and commission income | 5,281 |
| 4,494 |
| 17,925 |
| 15,967 | ||
TOTAL REVENUE | 436,300 |
| 423,329 |
| 1,323,238 |
| 1,330,607 | ||
|
|
|
|
|
|
|
| ||
EXPENSES |
|
|
|
|
|
|
| ||
Cost of sales | 330,541 |
| 327,029 |
| 1,022,198 |
| 1,027,930 | ||
Selling, general and administrative expenses | 56,017 |
| 47,930 |
| 166,151 |
| 155,722 | ||
Depreciation and amortization | 9,031 |
| 9,905 |
| 27,101 |
| 28,552 | ||
Research and development costs | 2,177 |
| 1,560 |
| 6,710 |
| 6,212 | ||
Restructuring costs | – |
| 6,432 |
| – |
| 6,432 | ||
Interest on long-term debt | 7,563 |
| 7,829 |
| 22,823 |
| 23,378 | ||
Other interest | 31 |
| 478 |
| 234 |
| 1,072 | ||
| 405,360 |
| 401,163 |
| 1,245,217 |
| 1,249,298 | ||
|
|
|
|
|
|
|
| ||
Income before income taxes | 30,940 |
| 22,166 |
| 78,021 |
| 81,309 | ||
|
|
|
|
|
|
|
| ||
Income taxes | 5,867 |
| 2,340 |
| 10,831 |
| 12,533 | ||
|
|
|
|
|
|
|
| ||
NET INCOME | $ 25,073 |
| $ 19,826 |
| $ 67,190 |
| $ 68,776 | ||
|
|
|
|
|
|
|
| ||
EARNINGS PER SHARE |
|
|
|
|
|
|
| ||
Basic | $ 0.76 |
| $ 0.60 |
| $ 2.04 |
| $ 2.09 | ||
Diluted | $ 0.76 |
| $ 0.60 |
| $ 2.04 |
| $ 2.09 | ||
|
|
|
|
|
|
|
| ||
SHARES OUTSTANDING |
|
|
|
|
|
|
| ||
Basic – weighted average | 32,860,942 |
| 32,858,942 |
| 32,860,132 |
| 32,829,357 | ||
Diluted – weighted average | 32,861,092 |
| 32,923,907 |
| 32,860,268 |
| 32,946,621 | ||
|
|
|
|
|
|
|
| ||
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
ALL FIGURES IN THOUSANDS OF US $
|
| Nine Months Ended | ||||
|
| Sept. 30, 2006 |
| Sept. 30, 2005 | ||
|
|
| (unaudited) |
|
| (unaudited) |
|
|
|
|
|
|
|
BALANCE, BEGINNING OF PERIOD |
|
| $ 478,155 |
|
| $ 386,833 |
Net income |
|
| 67,190 |
|
| 68,776 |
|
|
|
|
|
|
|
BALANCE, END OF PERIOD |
|
| $ 545,345 |
|
| $ 455,609 |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENT OF CASH FLOWS
ALL FIGURES IN THOUSANDS OF US $
SEGMENTED INFORMATION
ALL FIGURES IN THOUSANDS OF US $
Industry Segments
| For The Third Quarter Ended September 30, | |||||||||
|
| Total | Juvenile | Home Furnishings | Recreational / Leisure | |||||
|
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |
Total Revenue |
|
|
|
|
|
|
|
|
| |
Cost of sales |
| 330,541 | 327,029 | 151,590 | 143,699 | 117,813 | 127,119 | 61,138 | 56,211 | |
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
| |
Depreciation & amortization |
|
|
|
|
|
|
|
|
| |
Research and development costs |
|
|
|
|
|
|
|
|
| |
Restructuring costs |
|
|
|
|
|
|
|
|
| |
Earnings from Operations |
|
|
|
|
|
|
|
|
| |
Interest |
| 7,594 | 8,307 |
|
|
|
|
|
| |
Corporate expenses |
|
|
|
|
|
|
|
|
| |
Income taxes |
| 5,867 | 2,340 |
|
|
|
|
|
| |
Net income |
| $ 25,073 | $ 19,826 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
SEGMENTED INFORMATION (CONTINUED)
ALL FIGURES IN THOUSANDS OF US $
| For The Nine Months Ended September 30, | |||||||
|
| Total | Juvenile | Home Furnishings | Recreational / Leisure | |||
| 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 |
Total Revenue |
|
|
|
|
|
|
|
|
Cost of sales | 1,022,198 | 1,027,930 | 477,146 | 455,471 | 338,947 | 364,749 | 206,105 | 207,710 |
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
|
|
|
|
|
|
Research and development costs |
|
|
|
|
|
|
|
|
Restructuring costs |
|
|
|
|
|
|
| |
Earnings from Operations |
|
|
|
|
|
|
|
|
Interest | 23,057 | 24,450 |
|
|
|
|
|
|
Corporate expenses |
|
|
|
|
|
|
|
|
Income taxes | 10,831 | 12,533 |
|
|
|
|
|
|
Net income | $ 67,190 | $ 68,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Segments – Origin of Revenues
| Third Quarter Ended |
| Nine Months Ended | ||||
| 2006 |
| 2005 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
|
Canada | $ 55,593 |
| $ 49,154 |
| $ 143,608 |
| $ 140,906 |
United States | 249,326 |
| 258,951 |
| 783,253 |
| 821,688 |
Europe | 93,566 |
| 82,626 |
| 284,202 |
| 272,995 |
Other foreign countries | 37,815 |
| 32,598 |
| 112,175 |
| 95,018 |
Total | $ 436,300 |
| $ 423,329 |
| $ 1,323,238 |
| $ 1,330,607 |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DOREL INDUSTRIES INC.
By: /s/ Martin Schwartz_____________
Martin Schwartz
Title: President and Chief Executive Officer
By: /s/ Jeffrey Schwartz_____________
Jeffrey Schwartz
Title: Executive Vice-President,
Chief Financial Officer
November 6, 2006