Press Release - Magna Announces Third Quarter and Year to Date Results
THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Sales | $ | 8,820 | $ | 8,338 | $ | 27,245 | $ | 25,661 | ||||
Adjusted EBIT(1) | $ | 605 | $ | 444 | $ | 1,920 | $ | 1,458 | ||||
Income from operations before income taxes | $ | 589 | $ | 391 | $ | 1,862 | $ | 1,391 | ||||
Net income attributable to Magna International Inc. | $ | 470 | $ | 319 | $ | 1,373 | $ | 1,103 | ||||
Diluted earnings per share | $ | 2.19 | $ | 1.39 | $ | 6.26 | $ | 4.74 | ||||
All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars. (1)We believe Adjusted EBIT is the most appropriate measure of operational profitability or loss of our reporting segments. Adjusted EBIT represents income from operations before taxes; interest expense, net; and other expense, net. |
THREE MONTHS ENDED
We posted sales of
Complete vehicle assembly sales increased 9% to
During the third quarter of 2014, income from operations before income
taxes was
Excluding other expense, after tax for the third quarters of 2014 and
2013, income from operations before income taxes, net income
attributable to
During the third quarter ended
NINE MONTHS ENDED
We posted sales of
During the nine months ended
Complete vehicle assembly sales increased 3% to
During the nine months ended
Excluding other expense, after tax for the nine months ended
During the nine months ended
A more detailed discussion of our consolidated financial results for the
third quarter and nine months ended
DIVIDENDS
Today, our Board of Directors declared a quarterly dividend of
OTHER MATTERS
Subject to approval by the
UPDATED 2014 OUTLOOK
Light Vehicle Production (Units) | |||||
North America | 17.0 million | ||||
Europe | 20.2 million | ||||
Production Sales | |||||
North America | $17.9 - $18.3 billion | ||||
Europe | $9.7 - $10.0 billion | ||||
Asia | $1.6 - $1.7 billion | ||||
Rest of World | $0.6 - $0.7 billion | ||||
Total Production Sales | $29.8 - $30.7 billion | ||||
Complete Vehicle Assembly Sales | $3.1 - $3.3 billion | ||||
Total Sales | $35.8 - $37.0 billion | ||||
Operating Margin(1) | Approximately 6.9% | ||||
Tax Rate(1,2) | Approximately 24.5% | ||||
Capital Spending | Approximately $1.4 billion | ||||
(1)Excluding other expense, net (2)Excluding the impact of the Austrian tax reform |
In this 2014 outlook, in addition to 2014 light vehicle production, we have assumed no material acquisitions or divestitures. In addition, we have assumed that foreign exchange rates for the most common currencies in which we conduct business relative to our U.S. dollar reporting currency will approximate current rates.
ABOUT MAGNA
We are a leading global automotive supplier with 312 manufacturing
operations and 83 product development, engineering and sales centres in
29 countries. We have over 130,000 employees focused on delivering
superior value to our customers through innovative processes and World
Class Manufacturing. Our product capabilities include producing body,
chassis, interior, exterior, seating, powertrain, electronic, vision,
closure and roof systems and modules, as well as complete vehicle
engineering and contract manufacturing. Our common shares trade on the
We will hold a conference call for interested analysts and shareholders to discuss our third quarter results on Wednesday, November 5, 2014 at 8:30 a.m. EST. The conference call will be chaired by Don Walker, Chief Executive Officer. The number to use for this call is 1-800-381-7839. The number for overseas callers is 1-212-231-2913. Please call in at least 10 minutes prior to the call. We will also webcast the conference call at www.magna.com. The slide presentation accompanying the conference call will be available on our website Wednesday morning prior to the call. |
FORWARD-LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking information" or "forward-looking statements" within
the meaning of applicable securities legislation, including, but not
limited to, statements relating to: forecast light vehicle production
volumes in
For further information about Magna, please see our website at www.magna.com. Copies of financial data and other publicly filed documents are available through the internet on the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be accessed at www.sec.gov. |
Management's Discussion and Analysis of Results of Operations and
Financial Position
Unless otherwise noted, all amounts in this Management's Discussion and
Analysis of Results of Operations and Financial Position ("MD&A") are
in U.S. dollars and all tabular amounts are in millions of U.S.
dollars, except per share figures, which are in U.S. dollars. When we
use the terms "we", "us", "our" or "Magna", we are referring to
This MD&A should be read in conjunction with the unaudited interim
consolidated financial statements for the three months and nine months
ended
This MD&A has been prepared as at
OVERVIEW
We are a leading global automotive supplier with 312 manufacturing
operations and 83 product development, engineering and sales centres in
29 countries. We have over 130,000 employees focused on delivering
superior value to our customers through innovative products and
processes, and World Class Manufacturing. Our product capabilities
include producing body, chassis, interior, exterior, seating,
powertrain, electronic, vision, closure and roof systems and modules,
as well as complete vehicle engineering and contract manufacturing. Our
Common Shares trade on the
HIGHLIGHTS
North American light vehicle production increased 8% in the third quarter of 2014 to 4.2 million units and European light vehicle production increased 4% in the third quarter of 2014 to 4.7 million units, each compared to the third quarter of 2013.
Our third quarter 2014 sales increased 6% over the third quarter of 2013
to
Adjusted EBIT(1) increased 36% to
-
Our
North America segment generated Adjusted EBIT of$470 million for the third quarter of 2014. This compared to Adjusted EBIT of$365 million , including$39 million of amortization related to theAugust 2012 acquisition of Magna E-Car Systems partnership ("E-Car"), for the third quarter of 2013. The E-Car acquisition intangibles were fully amortized at the end of 2013.
-
Our
Europe segment reported Adjusted EBIT of$83 million in the third quarter of 2014, compared to$72 million in the third quarter of 2013. This represents our eleventh consecutive quarter of year-over-year improved Adjusted EBIT in ourEurope segment.
-
Our
Asia segment posted an Adjusted EBIT of$39 million in the third quarter of 2014, compared to$29 million in the comparable quarter of 2013. The increase largely reflects the launch of business in existing and recently constructed facilities.
-
Our Rest of World segment reported an Adjusted EBIT loss of
$6 million in the third quarter of 2014, compared to a loss of$27 million in the third quarter of 2013. We continue to focus on reducing operating losses and addressing commercial challenges inSouth America , the most substantial market in our Rest of World segment.
During the third quarter of 2014, we purchased for cancellation 5.7
million Common Shares for cash consideration of
Lastly, subject to approval by the
1 We believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense, net.
FINANCIAL RESULTS SUMMARY
During the third quarter of 2014, we posted sales of
-
North American vehicle production increased 8% and our North American
production sales increased 10% to
$4.43 billion ; -
European vehicle production increased 4% while our European production
sales decreased 1% to
$2.35 billion ; -
Asian production sales increased 13% to
$406 million ; -
Rest of World production sales decreased 17% to
$179 million ; -
Complete vehicle assembly volumes decreased 5% while sales increased 9%
to
$740 million ; and -
Tooling, engineering and other sales increased by 3% to
$719 million .
During the third quarter of 2014, we earned income from operations
before income taxes of
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during or subsequent to the third quarter of 2013;
-
intangible asset amortization of
$39 million , recorded in the third quarter of 2013, related to the acquisition and re-measurement of E-Car; -
approximately
$10 million of insurance recoveries related to a fire, in the second quarter of 2014, at a body and chassis facility inNorth America ; - productivity and efficiency improvements at certain facilities;
- the benefit of restructuring and downsizing activities recently undertaken; and
-
a
$1 million net increase in valuation gains in respect of asset-backed commercial paper ("ABCP").
These factors were partially offset by:
- higher launch costs, including unanticipated costs at certain interiors facilities;
-
higher warranty costs of
$21 million ; - higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- operational inefficiencies and other costs at certain facilities;
- a greater amount of employee profit sharing;
- increased commodity costs;
- lower equity income; and
- net customer price concessions subsequent to the third quarter of 2013.
During the third quarter of 2014, net income attributable to
For the three months ended September 30, | ||||||||||||
2014 | 2013 | |||||||||||
Net Income | Diluted | Net Income | Diluted | |||||||||
Attributable | Earnings | Attributable | Earnings | |||||||||
to Magna | per Share | to Magna | per Share | |||||||||
Other expense | $ | 7 | $ | 0.03 | $ | 48 | $ | 0.20 | ||||
Income tax effect | (1) | — | (15) | (0.06) | ||||||||
Net income impact | $ | 6 | $ | 0.03 | $ | 33 | $ | 0.14 |
Excluding the negative impact of Other Expense, after tax, for the third
quarters of 2014 and 2013 of
Excluding the
INDUSTRY TRENDS AND RISKS
Our success is primarily dependent upon the levels of North American and
European car and light truck production by our customers and the
relative amount of content we have on various programs. OEM production
volumes in different regions may be impacted by factors which may vary
from one region to the next, including but not limited to: general
economic and political conditions; consumer confidence levels; interest
rates; credit availability; energy and fuel prices; relative currency
values; commodities prices; international conflicts; labour relations
issues; regulatory requirements; trade agreements; infrastructure;
legislative changes; and environmental emissions and safety standards.
These factors together with such specific factors as: operational
inefficiencies; costs incurred to launch new or takeover business;
restructuring, downsizing and other significant non-recurring costs;
price reduction pressures from our customers; warranty and recall
costs; the financial condition of our supply base; and competition from
manufacturers with operations in low cost countries, are discussed in
our Annual Information Form and Annual Report on Form 40-F, each in
respect of the year ended
RESULTS OF OPERATIONS
Average Foreign Exchange
For the three months | For the nine months | ||||||||||||
ended September 30, | ended September 30, | ||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||
1 Canadian dollar equals U.S. dollars | 0.919 | 0.962 | - | 4% | 0.914 | 0.977 | - | 6% | |||||
1 euro equals U.S. dollars | 1.326 | 1.325 | — | 1.356 | 1.317 | + | 3% | ||||||
1 British pound equals U.S. dollars | 1.669 | 1.552 | + | 8% | 1.669 | 1.546 | + | 8% |
The preceding table reflects the average foreign exchange rates between
the most common currencies in which we conduct business and our U.S.
dollar reporting currency. The changes in these foreign exchange rates
for the three months and nine months ended
The results of operations for which the functional currency is not the U.S. dollar are translated into U.S. dollars using the average exchange rates in the table above for the relevant period. Throughout this MD&A, reference is made to the impact of translation of foreign operations on reported U.S. dollar amounts where relevant.
Our results can also be affected by the impact of movements in exchange rates on foreign currency transactions (such as raw material purchases or sales denominated in foreign currencies). However, as a result of hedging programs employed by us, foreign currency transactions in the current period have not been fully impacted by movements in exchange rates. We record foreign currency transactions at the hedged rate where applicable.
Finally, foreign exchange gains and losses on revaluation and/or settlement of monetary items denominated in a currency other than an operation's functional currency impact reported results. These gains and losses are recorded in selling, general and administrative expense.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED
Sales
For the three months | |||||||||||
ended September 30, | |||||||||||
2014 | 2013 | Change | |||||||||
Vehicle Production Volumes (millions of units) | |||||||||||
North America | 4.180 | 3.873 | + | 8% | |||||||
Europe | 4.651 | 4.483 | + | 4% | |||||||
Sales | |||||||||||
External Production | |||||||||||
North America | $ | 4,429 | $ | 4,025 | + | 10% | |||||
Europe | 2,347 | 2,364 | - | 1% | |||||||
Asia | 406 | 359 | + | 13% | |||||||
Rest of World | 179 | 215 | - | 17% | |||||||
Complete Vehicle Assembly | 740 | 680 | + | 9% | |||||||
Tooling, Engineering and Other | 719 | 695 | + | 3% | |||||||
Total Sales | $ | 8,820 | $ | 8,338 | + | 6% |
External Production Sales -
External production sales in
- the launch of new programs during or subsequent to the third quarter of 2013, including the:
- Lincoln MKC;
-
Chrysler 200; and - BMW X4; and
- higher production volumes on certain existing programs.
The launch of new programs was partially offset by:
-
a
$69 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar; and - net customer price concessions subsequent to the third quarter of 2013.
External Production Sales -
External production sales in
- a decrease in content on certain programs, including the:
- MINI Cooper; and
- Mercedes-Benz C-Class;
- lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the third quarter of 2013.
These factors were partially offset by the launch of new programs during
or subsequent to the third quarter of 2013, including the
External Production Sales -
External production sales in
External Production Sales - Rest of World
External production sales in Rest of World decreased 17% or
- lower production volumes on certain existing programs; and
-
a
$14 million decrease in reported U.S. dollar sales as a result of the net weakening of foreign currencies against the U.S. dollar, including the Argentine peso.
These factors were partially offset by net customer price increases subsequent to the third quarter of 2013.
Complete Vehicle Assembly Sales
For the three months | |||||||||
ended September 30, | |||||||||
2014 | 2013 | Change | |||||||
Complete Vehicle Assembly Sales | $ | 740 | $ | 680 | + | 9% | |||
Complete Vehicle Assembly Volumes (Units) | 32,204 | 33,818 | - | 5% |
Complete vehicle assembly sales increased
The increase in complete vehicle assembly sales is primarily as a result of an increase in assembly volumes for the Mercedes-Benz G-Class partially offset by a decrease in assembly volumes for the MINI Paceman and Peugeot RCZ.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 3% or
In the third quarter of 2014, the major programs for which we recorded tooling, engineering and other sales were the:
- BMW X6;
- Ford Mustang;
- Dodge Charger;
- MINI Countryman;
- Porsche Panamera;
- Chevrolet Cruze; and
- Volkswagen Golf.
In the third quarter of 2013, the major programs for which we recorded tooling, engineering and other sales were the:
- Ford Transit;
- GM full-size pickups and SUVs;
- Jeep Cherokee;
- BMW X5;
- Ford Fusion;
- Mercedes-Benz M-Class;
- QOROS 3;
- Mercedes-Benz CLA-Class; and
- Dodge Durango.
Cost of Goods Sold and Gross Margin
For the three months | |||||||
ended September 30, | |||||||
2014 | 2013 | ||||||
Sales | $ | 8,820 | $ | 8,338 | |||
Cost of goods sold | |||||||
Material | 5,611 | 5,331 | |||||
Direct labour | 556 | 538 | |||||
Overhead | 1,469 | 1,404 | |||||
7,636 | 7,273 | ||||||
Gross margin | $ | 1,184 | $ | 1,065 | |||
Gross margin as a percentage of sales | 13.4% | 12.8% |
Cost of goods sold increased
- higher material, overhead and labour costs associated with the increase in sales, including wage increases at certain operations;
- higher launch costs, including unanticipated costs at certain interiors facilities; and
- a greater amount of employee profit sharing.
These factors were partially offset by a decrease in cost of goods sold as a result of the net weakening of foreign currencies against the U.S. dollar, including the weakening of the Canadian dollar and Argentine peso partially offset by the strengthening of the British pound.
Gross margin increased
- productivity and efficiency improvements at certain facilities;
- a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content than our consolidated average; and
-
insurance recoveries related to a fire, in the second quarter of 2014,
at a body and chassis facility in
North America .
These factors were partially offset by:
-
higher launch costs, including unanticipated costs at certain interiors
facilities in
North America andEurope ; - operational inefficiencies and other costs at certain facilities;
- higher warranty costs;
- a greater amount of employee profit sharing;
- increased pre-operating costs incurred at new facilities;
- increased commodity costs; and
- an increase in tooling, engineering and other sales that have low or no margins.
Depreciation and Amortization
Depreciation and amortization costs decreased
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.6% for the third quarter of
2014 compared to 4.9% for the third quarter of 2013. SG&A expense
decreased
- a decrease in reported U.S. dollar SG&A related to foreign exchange; and
-
a
$1 million net increase in valuation gains in respect of ABCP.
These factors were partially offset by:
- higher labour and other costs to support the growth in sales, including wage increases at certain operations; and
- higher incentive compensation.
Equity Income
Equity income decreased
Other Expense, net
During the three and nine months ended
During the three and nine months ended
Segment Analysis
Given the differences between the regions in which we operate, our
operations are segmented on a geographic basis. Consistent with the
above, our internal financial reporting segments key internal operating
performance measures between
Our chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since we believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense, net.
During the fourth quarter of 2013, we began reporting
For the three months ended September 30, | |||||||||||||||||||
External Sales | Adjusted EBIT | ||||||||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||
North America | $ | 4,760 | $ | 4,355 | $ | 405 | $ | 470 | $ | 365 | $ | 105 | |||||||
Europe | 3,410 | 3,366 | 44 | 83 | 72 | 11 | |||||||||||||
Asia | 456 | 395 | 61 | 39 | 29 | 10 | |||||||||||||
Rest of World | 190 | 217 | (27) | (6) | (27) | 21 | |||||||||||||
Corporate and Other | 4 | 5 | (1) | 19 | 5 | 14 | |||||||||||||
Total reportable | |||||||||||||||||||
segments | $ | 8,820 | $ | 8,338 | $ | 482 | $ | 605 | $ | 444 | $ | 161 |
Excluded from Adjusted EBIT for the third quarters of 2014 and 2013 was
Adjusted EBIT in
- margins earned on higher production sales;
-
intangible asset amortization of
$39 million , recorded in the third quarter of 2013, related to the acquisition and re-measurement of E-Car; -
approximately
$10 million of insurance recoveries related to a fire, in the second quarter of 2014, at a body and chassis facility inNorth America ; and - productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
-
higher warranty costs of
$16 million ; - higher launch costs, including unanticipated costs at certain interiors facilities;
- higher affiliation fees paid to Corporate;
- higher incentive compensation and stock-based compensation;
- operational inefficiencies and other costs at certain facilities;
- increased pre-operating costs incurred at new facilities;
- a greater amount of employee profit sharing;
- higher commodity costs; and
- lower equity income.
Adjusted EBIT in
- the benefit of restructuring and downsizing activities recently undertaken;
- productivity and efficiency improvements at certain facilities;
- lower downsizing costs; and
- higher equity income.
These factors were partially offset by:
-
higher launch costs, including unanticipated costs at certain interiors
facilities in the
United Kingdom ; -
higher warranty costs of
$5 million ; - higher pre-operating costs incurred at new facilities;
- a greater amount of employee profit sharing;
- higher affiliation fees paid to Corporate;
- increased commodity costs; and
- operational inefficiencies and other costs at certain facilities.
Adjusted EBIT in
- higher launch costs;
- lower equity income; and
- operational inefficiencies and other costs at certain facilities.
Rest of World
Rest of World Adjusted EBIT improved
- the benefit of restructuring and downsizing activities recently undertaken;
- productivity and efficiency improvements at certain facilities; and
- net customer price increases subsequent to the third quarter of 2013.
These factors were partially offset by:
- higher production costs, including inflationary increases, that we have not been fully successful in passing through to our customers;
- higher launch costs;
- increased commodity costs; and
- higher affiliation fees paid to Corporate.
Corporate and Other
Corporate and Other Adjusted EBIT increased
Interest Expense, net
During the third quarter of 2014, we recorded net interest expense of
Income from Operations before Income Taxes
Income from operations before income taxes increased
Income Taxes
For the three months ended September 30, | |||||||||
2014 | 2013 | ||||||||
$ | % | $ | % | ||||||
Income taxes as reported | $ | 120 | 20.4 | $ | 73 | 18.7 | |||
Tax effect on Other expense, net | 1 | (0.1) | 15 | 1.3 | |||||
$ | 121 | 20.3 | $ | 88 | 20.0 |
Excluding Other Expense, after tax, the effective income tax rate increased to 20.3% for the third quarter of 2014 compared to 20.0% for the third quarter of 2013 primarily as a result of:
- lower favourable audit settlements;
- a valuation allowance release in the third quarter of 2013; and
- a change in mix of earnings, whereby proportionately more income was earned in jurisdictions with higher tax rates.
These factors were partially offset by:
-
a reduction in losses not benefitted in
Europe andSouth America ; and - non-creditable withholding tax recorded in the third quarter of 2013.
Net Income
Net income of
Net Loss Attributable to Non-controlling Interests
Net loss attributable to non-controlling interests was
Net Income Attributable to
Net income attributable to
Earnings per Share
For the three months | ||||||||||
ended September 30, | ||||||||||
2014 | 2013 | Change | ||||||||
Earnings per Common Share | ||||||||||
Basic | $ | 2.22 | $ | 1.41 | + | 57% | ||||
Diluted | $ | 2.19 | $ | 1.39 | + | 58% | ||||
Weighted average number of Common Shares outstanding (millions) | ||||||||||
Basic | 211.2 | 226.4 | - | 7% | ||||||
Diluted | 214.2 | 229.5 | - | 7% |
Diluted earnings per share increased
The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of Common Shares, during or subsequent to the third quarter of 2013, pursuant to our normal course issuer bids partially offset by an increase in the number of diluted options outstanding as a result of an increase in the trading price of our common stock and the issue of Common Shares related to the exercise of stock options.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
For the three months | |||||||||
ended September 30, | |||||||||
2014 | 2013 | Change | |||||||
Net income | $ | 469 | $ | 318 | |||||
Items not involving current cash flows | 268 | 256 | |||||||
737 | 574 | $ | 163 | ||||||
Changes in operating assets and liabilities | (18) | (110) | |||||||
Cash provided from operating activities | $ | 719 | $ | 464 | $ | 255 |
Cash flow from operations before changes in operating assets and
liabilities increased
For the three months | ||||||
ended September 30, | ||||||
2014 | 2013 | |||||
Depreciation and amortization | $ | 224 | $ | 264 | ||
Amortization of other assets included in cost of goods sold | 41 | 34 | ||||
Deferred income taxes | 6 | (28) | ||||
Other non-cash charges | 9 | 7 | ||||
Equity income in excess of dividends received | (12) | (21) | ||||
Items not involving current cash flows | $ | 268 | $ | 256 |
Cash invested in operating assets and liabilities amounted to
For the three months | ||||||
ended September 30, | ||||||
2014 | 2013 | |||||
Accounts receivable | $ | 119 | $ | (223) | ||
Inventories | (184) | 48 | ||||
Prepaid expenses and other | 8 | (13) | ||||
Accounts payable | (1) | (71) | ||||
Accrued salaries and wages | 81 | 71 | ||||
Other accrued liabilities | (31) | 77 | ||||
Income taxes payable | (10) | — | ||||
Deferred revenue | — | 1 | ||||
Changes in operating assets and liabilities | $ | (18) | $ | (110) |
The decrease in accounts receivable was primarily due to lower production sales at the end of the third quarter of 2014. The increase in inventories was primarily due to higher tooling inventory and increased production inventory to support launch activities. The increase in accrued salaries and wages was primarily due to employee profit sharing.
Capital and Investment Spending
For the three months | |||||||||
ended September 30, | |||||||||
2014 | 2013 | Change | |||||||
Fixed asset additions | $ | (315) | $ | (280) | |||||
Investments and other assets | (50) | (67) | |||||||
Fixed assets, investments and other assets additions | (365) | (347) | |||||||
Proceeds from disposition | 74 | 30 | |||||||
Cash used for investment activities | $ | (291) | $ | (317) | $ | 26 |
Fixed assets, investments and other assets additions
In the third quarter of 2014, we invested
In the third quarter of 2014, we invested
Proceeds from disposition
In the third quarter of 2014, the
Financing
For the three months | |||||||||
ended September 30, | |||||||||
2014 | 2013 | Change | |||||||
Issues of debt | $ | 29 | $ | 26 | |||||
Increase (decrease) in bank indebtedness | 14 | (9) | |||||||
Repayments of debt | (46) | (41) | |||||||
Issues of Common Shares on exercise of stock options | 6 | 10 | |||||||
Repurchase of Common Shares | (614) | (298) | |||||||
Dividends | (79) | (71) | |||||||
Cash used for financing activities | $ | (690) | $ | (383) | $ | (307) |
During the third quarter of 2014, we repurchased 5.7 million Common
Shares for aggregate cash consideration of
Cash dividends paid per Common Share were
Financing Resources
As at | As at | |||||||||
September 30, | December 31, | |||||||||
2014 | 2013 | Change | ||||||||
Liabilities | ||||||||||
Bank indebtedness | $ | 58 | $ | 41 | ||||||
Long-term debt due within one year | 195 | 230 | ||||||||
Long-term debt | 822 | 102 | ||||||||
1,075 | 373 | |||||||||
Non-controlling interests | 14 | 16 | ||||||||
Shareholders' equity | 9,031 | 9,623 | ||||||||
Total capitalization | $ | 10,120 | $ | 10,012 | $ | 108 |
Total capitalization increased by
The increase in liabilities relates primarily to long-term debt issued
in relation to the
The decrease in shareholders' equity was primarily as a result of:
-
the
$1.43 billion repurchase and cancellation of 14.1 million Common Shares under our normal course issuer bid in the first nine months of 2014; -
the
$358 million net unrealized loss on translation of our net investment in foreign operations; -
$241 million of dividends paid during the first nine months of 2014; and -
the
$24 million net unrealized loss on cash flow hedges.
These factors were partially offset by:
-
$1.37 billion of net income earned in the first nine months of 2014; and -
$43 million of shares issued on exercise of stock options.
Cash Resources
During the third quarter of 2014, our cash resources decreased by
On
During the first quarter of 2014, we filed a short form base shelf
prospectus with the
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that would be
outstanding if all of the outstanding options at
Common Shares | 207,354,943 | |||
Stock options (i) | 4,324,471 | |||
211,679,414 |
(i) | Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to our stock option plans. |
Contractual Obligations and Off-Balance Sheet Financing
There have been no material changes with respect to the contractual
obligations requiring annual payments during the third quarter of 2014
that are outside the ordinary course of our business, other than the
issue of the
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED
Sales
For the nine months | ||||||||||
ended September 30, | ||||||||||
2014 | 2013 | Change | ||||||||
Vehicle Production Volumes (millions of units) | ||||||||||
North America | 12.787 | 12.148 | + | 5% | ||||||
Europe | 15.199 | 14.403 | + | 6% | ||||||
Sales | ||||||||||
External Production | ||||||||||
North America | $ | 13,583 | $ | 12,373 | + | 10% | ||||
Europe | 7,643 | 7,370 | + | 4% | ||||||
Asia | 1,189 | 992 | + | 20% | ||||||
Rest of World | 499 | 670 | - | 26% | ||||||
Complete Vehicle Assembly | 2,346 | 2,274 | + | 3% | ||||||
Tooling, Engineering and Other | 1,985 | 1,982 | — | |||||||
Total Sales | $ | 27,245 | $ | 25,661 | + | 6% |
External Production Sales -
External production sales in
-
the launch of new programs during or subsequent to the nine months ended
September 30, 2013 , including the: - Jeep Cherokee;
- GM full-size pickups and SUVs;
- Nissan Rogue;
- Lincoln MKC; and
- BMW X4; and
- higher production volumes on certain existing programs.
These factors were partially offset by:
-
a
$305 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar; and -
net customer price concessions subsequent to
September 30, 2013 .
External Production Sales -
External production sales in
-
the launch of new programs during or subsequent to the nine months ended
September 30, 2013 , including the: - Mercedes-Benz GLA;
- Skoda Octavia; and
- Range Rover Sport; and
-
a
$181 million increase in reported U.S. dollar sales primarily as a result of the strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
- a decrease in content on certain programs, including the MINI Cooper and the Mercedes-Benz C-Class;
- lower production volumes on certain existing programs; and
-
net customer price concessions subsequent to
September 30, 2013 .
External Production Sales -
External production sales in
- higher production volumes on certain existing programs;
-
the launch of new programs during or subsequent to the nine months ended
September 30, 2013 , primarily inChina , including theAudi Q3 and the Ford Mondeo; and -
a
$5 million net increase in reported U.S. dollar sales as a result of the strengthening of foreign currencies against the U.S. dollar, including the Korean won.
These factors were partially offset by net customer price concessions
subsequent to
External Production Sales - Rest of World
External production sales in Rest of World decreased 26% or
- lower production volumes on certain existing programs;
-
a
$80 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Argentine peso and Brazilian real; and -
a decrease in content on certain programs, including the
Mercedes-Benz C-Class.
These factors were partially offset by net customer price increases
subsequent to the nine months ended
Complete Vehicle Assembly Sales
For the nine months | |||||||||
ended September 30, | |||||||||
2014 | 2013 | Change | |||||||
Complete Vehicle Assembly Sales | $ | 2,346 | $ | 2,274 | + | 3% | |||
Complete Vehicle Assembly Volumes (Units) | 102,161 | 109,862 | - | 7% |
Complete vehicle assembly sales increased 3%, or
The increase in complete vehicle assembly sales is primarily as a result of:
- an increase in assembly volumes for the Mercedes-Benz G-Class and the MINI Countryman; and
-
a
$72 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.
These factors were partially offset by a decrease in assembly volumes for the MINI Paceman.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased
In the nine months ended
- MINI Countryman;
- Ford Mustang;
- Ford Transit;
- BMW X6;
- BMW X4;
- QOROS 3;
- Mercedes-Benz M-Class;
- Porsche Panamera; and
- Peugeot RCZ.
In the nine months ended
- Ford Transit;
- GM full-size pickups and SUVs;
- Ford Fusion;
- QOROS 3;
- Skoda Octavia;
- Jeep Grand Cherokee;
- MINI Countryman; and
- MINI Paceman.
Segment Analysis
For the nine months ended September 30, | |||||||||||||||||||
External Sales | Adjusted EBIT | ||||||||||||||||||
2014 | 2013 | Change | 2014 | 2013 | Change | ||||||||||||||
North America | $ | 14,500 | $ | 13,232 | $ | 1,268 | $ | 1,450 | $ | 1,168 | $ | 282 | |||||||
Europe | 10,881 | 10,626 | 255 | 335 | 264 | 71 | |||||||||||||
Asia | 1,334 | 1,090 | 244 | 110 | 59 | 51 | |||||||||||||
Rest of World | 519 | 696 | (177) | (30) | (55) | 25 | |||||||||||||
Corporate and Other | 11 | 17 | (6) | 55 | 22 | 33 | |||||||||||||
Total reportable | |||||||||||||||||||
segments | $ | 27,245 | $ | 25,661 | $ | 1,584 | $ | 1,920 | $ | 1,458 | $ | 462 |
Excluded from Adjusted EBIT for the nine months ended
Adjusted EBIT in
- margins earned on higher production sales;
-
intangible asset amortization of
$118 million , recorded in the first nine months of 2013, related to the acquisition and re-measurement of E-Car; - productivity and efficiency improvements at certain facilities; and
- higher equity income.
These factors were partially offset by:
- higher launch costs, including unanticipated costs at certain interiors facilities;
- operational inefficiencies and other costs at certain facilities;
- higher affiliation fees paid to Corporate;
- a greater amount of employee profit sharing;
-
approximately
$15 million of costs incurred, net of insurance recoveries, related to a fire, in the second quarter of 2014, at a body and chassis facility inNorth America ; - increased pre-operating costs incurred at new facilities;
-
higher warranty costs of
$11 million ; - higher incentive compensation; and
- increased stock-based compensation.
Adjusted EBIT in
- margins earned on higher production sales;
- the benefit of restructuring and downsizing activities recently undertaken;
- productivity and efficiency improvements at certain facilities;
- lower downsizing costs; and
- higher equity income.
These factors were partially offset by:
-
higher launch costs, including unanticipated costs at certain interiors
facilities in the
United Kingdom ; - higher affiliation fees paid to Corporate;
- higher pre-operating costs incurred at new facilities;
- a greater amount of employee profit sharing;
- operational inefficiencies and other costs at certain facilities;
-
higher warranty costs of
$3 million ; and - increased stock-based compensation.
Adjusted EBIT in
- margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;
- higher equity income; and
- lower pre-operating costs incurred at new facilities.
These factors were partially offset by:
- higher costs incurred in preparation for upcoming launches;
- higher affiliation fees paid to Corporate;
- higher incentive compensation; and
- operational inefficiencies and other costs at certain facilities.
Rest of World
Rest of World Adjusted EBIT improved
- productivity and efficiency improvements at certain facilities;
- the benefit of restructuring and downsizing activities recently undertaken;
- an decrease in reported U.S. dollar EBIT loss due to the weakening of the Brazilian real and Argentine peso, each against the U.S. dollar;
- lower affiliation fees paid to Corporate; and
-
net customer price increases subsequent to the nine months ended
September 30, 2013 .
These factors were partially offset by:
- higher production costs, including inflationary increases, that we have not been fully successful in passing through to our customers;
- higher costs incurred in preparation for upcoming launches;
- increased commodity costs; and
-
higher warranty costs of
$1 million .
Corporate and Other
Corporate and Other Adjusted EBIT increased
- an increase in affiliation fees earned from our divisions; and
- decreased stock-based compensation.
These factors were partially offset by:
- higher incentive compensation;
-
$10 million of cash received related to the settlement of ABCP between theInvestment Industry Regulatory Organization of Canada and financial institutions in the first quarter of 2013; and -
a
$2 million net decrease in valuation gains in respect of ABCP.
SUBSEQUENT EVENTS
Normal Course Issuer Bid
Subject to approval by the TSX and the
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other claims.
Refer to note 15 of our unaudited interim consolidated financial
statements for the nine months ended
For a discussion of risk factors relating to legal and other
claims/actions against us, refer to "Item 3. Description of the
Business - Risk Factors" in our Annual Information Form and Annual
Report on Form 40-F, each in respect of the year ended
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over financial
reporting that occurred during the nine months ended
FORWARD-LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking information" or "forward-looking statements" within
the meaning of applicable securities legislation, including, but not
limited to, statements relating to: implementation of improvement plans
in our underperforming operations, and/or restructuring actions;
improved future results in
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
Three months ended | Nine months ended | |||||||||||||
September 30, | September 30, | |||||||||||||
Note | 2014 | 2013 | 2014 | 2013 | ||||||||||
Sales | $ | 8,820 | $ | 8,338 | $ | 27,245 | $ | 25,661 | ||||||
Costs and expenses | ||||||||||||||
Cost of goods sold | 7,636 | 7,273 | 23,553 | 22,384 | ||||||||||
Depreciation and amortization | 224 | 264 | 664 | 779 | ||||||||||
Selling, general and administrative | 11 | 407 | 411 | 1,265 | 1,188 | |||||||||
Interest expense, net | 9 | 5 | 18 | 13 | ||||||||||
Equity income | (52) | (54) | (157) | (148) | ||||||||||
Other expense, net | 2 | 7 | 48 | 40 | 54 | |||||||||
Income from operations before income taxes | 589 | 391 | 1,862 | 1,391 | ||||||||||
Income taxes | 6 | 120 | 73 | 491 | 294 | |||||||||
Net income | 469 | 318 | 1,371 | 1,097 | ||||||||||
Net loss attributable to non-controlling interests | 1 | 1 | 2 | 6 | ||||||||||
Net income attributable to Magna International Inc. | $ | 470 | $ | 319 | $ | 1,373 | $ | 1,103 | ||||||
Earnings per Common Share: | 3 | |||||||||||||
Basic | $ | 2.22 | $ | 1.41 | $ | 6.35 | $ | 4.80 | ||||||
Diluted | $ | 2.19 | $ | 1.39 | $ | 6.26 | $ | 4.74 | ||||||
Cash dividends paid per Common Share | $ | 0.38 | $ | 0.32 | $ | 1.14 | $ | 0.96 | ||||||
Average number of Common Shares outstanding during | ||||||||||||||
the period [in millions]: | 3 | |||||||||||||
Basic | 211.2 | 226.4 | 216.0 | 229.8 | ||||||||||
Diluted | 214.2 | 229.5 | 219.1 | 232.6 | ||||||||||
See accompanying notes |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
Note | 2014 | 2013 | 2014 | 2013 | ||||||||
Net income | $ | 469 | $ | 318 | $ | 1,371 | $ | 1,097 | ||||
Other comprehensive (loss) income, net of tax: | 13 | |||||||||||
Net unrealized (loss) gain on translation of net investment in foreign operations | (346) | 142 | (358) | (82) | ||||||||
Net unrealized gain (loss) on available-for-sale investments | 1 | (1) | — | (5) | ||||||||
Net unrealized (loss) gain on cash flow hedges | (42) | 23 | (24) | (5) | ||||||||
Reclassification of net (gain) loss on cash flow hedges to net income | (1) | — | 4 | (12) | ||||||||
Reclassification of net loss on pensions to net income | — | 3 | 3 | 9 | ||||||||
Other comprehensive (loss) income | (388) | 167 | (375) | (95) | ||||||||
Comprehensive income | 81 | 485 | 996 | 1,002 | ||||||||
Comprehensive loss attributable to non-controlling interests | 1 | 2 | 2 | 7 | ||||||||
Comprehensive income attributable to Magna International Inc. | $ | 82 | $ | 487 | $ | 998 | $ | 1,009 | ||||
See accompanying notes |
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
Three months ended | Nine months ended | |||||||||||||
September 30, | September 30, | |||||||||||||
Note | 2014 | 2013 | 2014 | 2013 | ||||||||||
Cash provided from (used for): | ||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||
Net income | $ | 469 | $ | 318 | $ | 1,371 | $ | 1,097 | ||||||
Items not involving current cash flows | 4 | 268 | 256 | 785 | 788 | |||||||||
737 | 574 | 2,156 | 1,885 | |||||||||||
Changes in operating assets and liabilities | 4 | (18) | (110) | (363) | (578) | |||||||||
Cash provided from operating activities | 719 | 464 | 1,793 | 1,307 | ||||||||||
INVESTMENT ACTIVITIES | ||||||||||||||
Fixed asset additions | (315) | (280) | (916) | (706) | ||||||||||
Increase in investments and other assets | (50) | (67) | (152) | (158) | ||||||||||
Proceeds from disposition | 74 | 30 | 126 | 90 | ||||||||||
Cash used for investing activities | (291) | (317) | (942) | (774) | ||||||||||
FINANCING ACTIVITIES | ||||||||||||||
Issues of debt | 9 | 29 | 26 | 824 | 83 | |||||||||
Increase (decrease) in bank indebtedness | 14 | (9) | 19 | (14) | ||||||||||
Repayments of debt | (46) | (41) | (131) | (142) | ||||||||||
Settlement of stock options | — | — | — | (23) | ||||||||||
Issue of Common Shares | 6 | 10 | 43 | 60 | ||||||||||
Repurchase of Common Shares | 12 | (614) | (298) | (1,429) | (723) | |||||||||
Contribution to subsidiaries by non-controlling interests | — | — | — | 4 | ||||||||||
Dividends paid | (79) | (71) | (241) | (216) | ||||||||||
Cash used for financing activities | (690) | (383) | (915) | (971) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | (59) | 21 | (55) | (20) | ||||||||||
Net decrease in cash and cash equivalents | ||||||||||||||
during the period | (321) | (215) | (119) | (458) | ||||||||||
Cash and cash equivalents, beginning of period | 1,756 | 1,279 | 1,554 | 1,522 | ||||||||||
Cash and cash equivalents, end of period | $ | 1,435 | $ | 1,064 | $ | 1,435 | $ | 1,064 | ||||||
See accompanying notes |
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
As at | As at | |||||||
September 30, | December 31, | |||||||
Note | 2014 | 2013 | ||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 4 | $ | 1,435 | $ | 1,554 | |||
Accounts receivable | 5,776 | 5,246 | ||||||
Inventories | 5 | 2,810 | 2,637 | |||||
Deferred tax assets | 206 | 275 | ||||||
Prepaid expenses and other | 180 | 211 | ||||||
10,407 | 9,923 | |||||||
Investments | 14 | 454 | 391 | |||||
Fixed assets, net | 5,413 | 5,441 | ||||||
Goodwill | 1,382 | 1,440 | ||||||
Deferred tax assets | 146 | 120 | ||||||
Other assets | 7 | 623 | 675 | |||||
$ | 18,425 | $ | 17,990 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities | ||||||||
Bank indebtedness | $ | 58 | $ | 41 | ||||
Accounts payable | 4,993 | 4,781 | ||||||
Accrued salaries and wages | 746 | 704 | ||||||
Other accrued liabilities | 8 | 1,582 | 1,538 | |||||
Income taxes payable | 33 | 6 | ||||||
Deferred tax liabilities | 26 | 9 | ||||||
Long-term debt due within one year | 195 | 230 | ||||||
7,633 | 7,309 | |||||||
Long-term debt | 9 | 822 | 102 | |||||
Long-term employee benefit liabilities | 10 | 505 | 532 | |||||
Other long-term liabilities | 260 | 208 | ||||||
Deferred tax liabilities | 6 | 160 | 200 | |||||
9,380 | 8,351 | |||||||
Shareholders' equity | ||||||||
Capital stock | ||||||||
Common Shares | ||||||||
[issued: 208,284,943; December 31, 2013 - 221,151,704] | 12 | 4,026 | 4,230 | |||||
Contributed surplus | 88 | 69 | ||||||
Retained earnings | 5,004 | 5,011 | ||||||
Accumulated other comprehensive (loss) income | 13 | (87) | 313 | |||||
9,031 | 9,623 | |||||||
Non-controlling interests | 14 | 16 | ||||||
9,045 | 9,639 | |||||||
$ | 18,425 | $ | 17,990 | |||||
See accompanying notes |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
Common Shares | Contri- | Non- | ||||||||||||||
Stated | buted | Retained | controlling | Total | ||||||||||||
Note | Number | Value | Surplus | Earnings | AOCI (i) | Interests | Equity | |||||||||
[in millions] | ||||||||||||||||
Balance, December 31, 2013 | 221.2 | $ | 4,230 | $ | 69 | $ | 5,011 | $ | 313 | $ | 16 | $ | 9,639 | |||
Net income | 1,373 | (2) | 1,371 | |||||||||||||
Other comprehensive loss | (375) | (375) | ||||||||||||||
Shares issued on exercise of stock | ||||||||||||||||
options | 1.1 | 55 | (12) | 43 | ||||||||||||
Repurchase and cancellation under | ||||||||||||||||
normal course issuer bid | 12 | (14.1) | (272) | (1,132) | (25) | (1,429) | ||||||||||
Release of restricted stock | 5 | (5) | — | |||||||||||||
Release of restricted stock units | 1 | (1) | — | |||||||||||||
Stock-based compensation expense | 11 | 30 | 30 | |||||||||||||
Reclassification of liability | 11 | 7 | 7 | |||||||||||||
Dividends paid | 0.1 | 7 | (248) | (241) | ||||||||||||
Balance, September 30, 2014 | 208.3 | $ | 4,026 | $ | 88 | $ | 5,004 | $ | (87) | $ | 14 | $ | 9,045 | |||
Common Shares | Contri- | Non- | ||||||||||||||
Stated | buted | Retained | controlling | Total | ||||||||||||
Note | Number | Value | Surplus | Earnings | AOCI (i) | Interests | Equity | |||||||||
[in millions] | ||||||||||||||||
Balance, December 31, 2012 | 233.1 | $ | 4,391 | $ | 80 | $ | 4,462 | $ | 496 | $ | 29 | $ | 9,458 | |||
Net income | 1,103 | (6) | 1,097 | |||||||||||||
Other comprehensive loss | (94) | (1) | (95) | |||||||||||||
Issues of shares by subsidiaries | 4 | 4 | ||||||||||||||
Shares issued on exercise of stock | ||||||||||||||||
options | 1.9 | 81 | (21) | 60 | ||||||||||||
Repurchase and cancellation under | ||||||||||||||||
normal course issuer bid | 12 | (10.5) | (200) | (490) | (33) | (723) | ||||||||||
Release of restricted stock | 6 | (6) | — | |||||||||||||
Release of restricted stock units | 1 | (1) | — | |||||||||||||
Stock-based compensation expense | 11 | 26 | 26 | |||||||||||||
Settlement of stock options | 11 | (9) | (10) | (19) | ||||||||||||
Dividends paid | 0.2 | 8 | (224) | (216) | ||||||||||||
Balance, September 30, 2013 | 224.7 | $ | 4,287 | $ | 69 | $ | 4,841 | $ | 369 | $ | 26 | $ | 9,592 | |||
(i) AOCI is Accumulated Other Comprehensive Income. | ||||||||||||||||
See accompanying notes |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
[All amounts in U.S. dollars and all tabular amounts in millions unless
otherwise noted]
1. SIGNIFICANT ACCOUNTING POLICIES
[a] Basis of Presentation
The unaudited interim consolidated financial statements of
The unaudited interim consolidated financial statements do not conform
in all respects to the requirements of GAAP for annual financial
statements because they do not include all of the information and notes
required for complete financial statements. Accordingly, these
unaudited interim consolidated financial statements should be read in
conjunction with the
The unaudited interim consolidated financial statements reflect all
adjustments, which consist only of normal and recurring adjustments,
necessary to present fairly the financial position at
[b] Accounting Changes
Revenue Recognition
In
[c] Seasonality
The Company's businesses are generally not seasonal. However, the
Company's sales and profits are closely related to its automotive
customers' vehicle production schedules. The Company's largest North
American customers typically halt production for approximately two
weeks in July and one week in December. Additionally, many of the
Company's customers in
2. OTHER EXPENSE, NET
During the three and nine months ended
During the three and nine months ended
3. EARNINGS PER SHARE
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||
Basic earnings per Common Share: | |||||||||||||
Net income attributable to Magna International Inc. | $ | 470 | $ | 319 | $ | 1,373 | $ | 1,103 | |||||
Average number of Common Shares outstanding | 211.2 | 226.4 | 216.0 | 229.8 | |||||||||
Basic earnings per Common Share | $ | 2.22 | $ | 1.41 | $ | 6.35 | $ | 4.80 | |||||
Diluted earnings per Common Share: | |||||||||||||
Net income attributable to Magna International Inc. | $ | 470 | $ | 319 | $ | 1,373 | $ | 1,103 | |||||
Average number of Common Shares outstanding | 211.2 | 226.4 | 216.0 | 229.8 | |||||||||
Adjustments | |||||||||||||
Stock options and restricted stock [a] | 3.0 | 3.1 | 3.1 | 2.8 | |||||||||
214.2 | 229.5 | 219.1 | 232.6 | ||||||||||
Diluted earnings per Common Share | $ | 2.19 | $ | 1.39 | $ | 6.26 | $ | 4.74 |
[a] | For the nine months ended September 30, 2013, diluted earnings per Common Share exclude 0.1 million Common Shares issuable under the Company's Incentive Stock Option Plan because these options were not "in-the-money". |
4. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
September 30, | December 31, | |||||
2014 | 2013 | |||||
Bank term deposits, bankers' acceptances and government paper | $ | 1,268 | $ | 1,331 | ||
Cash | 167 | 223 | ||||
$ | 1,435 | $ | 1,554 |
[b] Items not involving current cash flows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Depreciation and amortization | $ | 224 | $ | 264 | $ | 664 | $ | 779 | ||||
Amortization of other assets included in cost of goods sold | 41 | 34 | 112 | 100 | ||||||||
Other non-cash charges | 9 | 7 | 25 | 12 | ||||||||
Deferred income taxes | 6 | (28) | 31 | (55) | ||||||||
Equity income in excess of dividends received | (12) | (21) | (47) | (48) | ||||||||
$ | 268 | $ | 256 | $ | 785 | $ | 788 |
[c] Changes in operating assets and liabilities:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Accounts receivable | $ | 119 | $ | (223) | $ | (754) | $ | (1,171) | ||||
Inventories | (184) | 48 | (311) | (203) | ||||||||
Prepaid expenses and other | 8 | (13) | 12 | (46) | ||||||||
Accounts payable | (1) | (71) | 441 | 454 | ||||||||
Accrued salaries and wages | 81 | 71 | 79 | 100 | ||||||||
Other accrued liabilities | (31) | 77 | 116 | 339 | ||||||||
Income taxes payable | (10) | — | 57 | (51) | ||||||||
Deferred revenue | — | 1 | (3) | — | ||||||||
$ | (18) | $ | (110) | $ | (363) | $ | (578) |
5. INVENTORIES
Inventories consist of:
September 30, | December 31, | |||||
2014 | 2013 | |||||
Raw materials and supplies | $ | 972 | $ | 947 | ||
Work-in-process | 265 | 273 | ||||
Finished goods | 349 | 339 | ||||
Tooling and engineering | 1,224 | 1,078 | ||||
$ | 2,810 | $ | 2,637 |
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.
6. INCOME TAXES
During the first quarter of 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the
7. OTHER ASSETS
Other assets consist of:
September 30, | December 31, | |||||
2014 | 2013 | |||||
Preproduction costs related to long-term supply agreements with contractual guarantee for reimbursement | $ | 281 | $ | 291 | ||
Customer relationship intangibles | 114 | 143 | ||||
Long-term receivables | 112 | 111 | ||||
Patents and licences, net | 39 | 44 | ||||
Unrealized gain on cash flow hedges | 10 | 20 | ||||
Pension overfunded status | 26 | 26 | ||||
Other, net | 41 | 40 | ||||
$ | 623 | $ | 675 |
8. WARRANTY
The following is a continuity of the Company's warranty accruals:
2014 | 2013 | |||||
Balance, beginning of period | $ | 91 | $ | 94 | ||
Expense, net | 7 | 9 | ||||
Settlements | (7) | (5) | ||||
Foreign exchange and other | — | 8 | ||||
Balance, March 31 | 91 | 106 | ||||
Expense, net | 7 | 11 | ||||
Settlements | (8) | (6) | ||||
Foreign exchange and other | — | (9) | ||||
Balance, June 30 | 90 | 102 | ||||
Expense, net | 23 | 2 | ||||
Settlements | (10) | (16) | ||||
Foreign exchange and other | (6) | 2 | ||||
Balance, September 30 | $ | 97 | $ | 90 |
9. LONG-TERM DEBT
[a] On
[b] On
10. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Defined benefit pension plan and other | $ | 2 | $ | 4 | $ | 9 | $ | 12 | ||||
Termination and long service arrangements | 8 | 10 | 24 | 24 | ||||||||
Retirement medical benefit plan | 1 | — | 2 | 1 | ||||||||
$ | 11 | $ | 14 | $ | 35 | $ | 37 |
11. STOCK-BASED COMPENSATION
[a] Incentive Stock Option Plan
The following is a continuity schedule of options outstanding [number of options in the table below are expressed in whole numbers]:
2014 | 2013 | |||||||||||
Options outstanding | Options outstanding | |||||||||||
Number | Number | |||||||||||
Number | Exercise | of options | Number | Exercise | of options | |||||||
of options | price (i) | exercisable | of options | price (i) | exercisable | |||||||
Beginning of period | 4,758,108 | 41.82 | 2,847,109 | 6,623,242 | 35.39 | 3,227,574 | ||||||
Granted | 751,300 | 106.71 | — | 1,060,000 | 57.02 | — | ||||||
Exercised (ii) | (680,352) | 39.49 | (680,352) | (2,178,383) | 29.76 | (2,178,383) | ||||||
Cancelled | (16,999) | 52.19 | (6,000) | (37,500) | 50.17 | (20,000) | ||||||
Vested | — | — | 779,384 | — | — | 2,105,503 | ||||||
March 31 | 4,812,057 | 52.24 | 2,940,141 | 5,467,359 | 41.73 | 3,134,694 | ||||||
Exercised | (296,035) | 41.97 | (296,035) | (329,881) | 37.05 | (329,881) | ||||||
Cancelled | (10,500) | 73.85 | — | (81,665) | 52.05 | (11,667) | ||||||
June 30 | 4,505,522 | 52.86 | 2,644,106 | 5,055,813 | 41.87 | 2,793,146 | ||||||
Exercised | (171,051) | 38.53 | (171,051) | (259,315) | 41.56 | (259,315) | ||||||
September 30 | 4,334,471 | 53.43 | 2,473,055 | 4,796,498 | 41.89 | 2,533,831 |
(i) | The exercise price noted above represents the weighted average exercise price in Canadian dollars. |
(ii) | During the three months ended March 31, 2013, 849,999 options were exercised on a cashless basis in accordance with the applicable stock option plans. On exercise, cash payments totalling $23 million were made to the stock option holders. |
All cash payments were calculated using the difference between the aggregate fair market value of the Option Shares based on the closing price of the Company's Common Shares on the Toronto Stock Exchange ["TSX"] on the date of exercise and the aggregate Exercise Price of all such options surrendered. |
The weighted average assumptions used in measuring the fair value of stock options granted are as follows:
Nine months ended | ||||||
September 30, | ||||||
2014 | 2013 | |||||
Risk free interest rate | 1.60% | 1.32% | ||||
Expected dividend yield | 2.00% | 2.00% | ||||
Expected volatility | 29% | 34% | ||||
Expected time until exercise | 4.5 years | 4.5 years | ||||
Weighted average fair value of options granted in period [Cdn$] | $ | 22.94 | $ | 14.02 |
[b] Long-term retention program
The following is a continuity of the stock that has not been released to the executives and is reflected as a reduction in the stated value of the Company's Common Shares [number of Common Shares in the table below are expressed in whole numbers]:
2014 | 2013 | |||||||||||
Number | Stated | Number | Stated | |||||||||
of shares | value | of shares | value | |||||||||
Awarded and not released, beginning of period | 730,476 | $ | 25 | 882,988 | $ | 30 | ||||||
Release of restricted stock | (143,152) | (5) | (152,512) | (5) | ||||||||
Awarded and not released, March 31, June 30 and September 30 | 587,324 | $ | 20 | 730,476 | $ | 25 |
[c] Restricted stock unit program
The following is a continuity schedule of Restricted stock units ["RSUs"] and Independent Director stock units ["DSUs"] outstanding [number of stock units in the table below are expressed in whole numbers]:
2014 | 2013 | |||||||||||||||
Equity | Liability | Equity (i) | Equity | Liability | Liability | |||||||||||
classified | classified | classified | classified | classified | classified | |||||||||||
RSUs | RSUs | DSUs | Total | RSUs | RSUs | DSUs | Total | |||||||||
Balance, beginning of period | 631,854 | 30,119 | 127,447 | 789,420 | 605,430 | 20,099 | 206,923 | 832,452 | ||||||||
Granted | 50,809 | 8,025 | 6,315 | 65,149 | 70,636 | 13,825 | 10,013 | 94,474 | ||||||||
Dividend equivalents | 253 | 153 | 529 | 935 | 415 | 189 | 1,206 | 1,810 | ||||||||
Released | (8,259) | — | — | (8,259) | (8,259) | — | (113,007) | (121,266) | ||||||||
Balance, March 31 | 674,657 | 38,297 | 134,291 | 847,245 | 668,222 | 34,113 | 105,135 | 807,470 | ||||||||
Granted | 55,242 | 1,000 | 5,357 | 61,599 | 71,391 | — | 7,523 | 78,914 | ||||||||
Dividend equivalents | 233 | 139 | 489 | 861 | 348 | 158 | 626 | 1,132 | ||||||||
Released | — | — | — | — | (10,386) | — | — | (10,386) | ||||||||
Balance, June 30 | 730,132 | 39,436 | 140,137 | 909,705 | 729,575 | 34,271 | 113,284 | 877,130 | ||||||||
Granted | 35,657 | — | 4,842 | 40,499 | 40,779 | — | 7,538 | 48,317 | ||||||||
Dividend equivalents | 171 | 131 | 489 | 791 | 252 | 136 | 463 | 851 | ||||||||
Forfeitures | — | (410) | — | (410) | — | — | — | — | ||||||||
Released | (12,730) | — | — | (12,730) | — | — | — | — | ||||||||
Balance, September 30 | 753,230 | 39,157 | 145,468 | 937,855 | 770,606 | 34,407 | 121,285 | 926,298 |
(i) | Effective January 1, 2014, the Deferred Share Units ["DSUs"] awarded under the Non-Employee Director Share-Based Compensation Plan will be settled by delivering Magna Common Shares equal to the whole DSUs credited to the Independent Director in satisfaction of the redemption value of the DSUs. Previously, the DSUs were settled in cash. Accordingly, effective January 1, 2014, the DSUs are accounted for through equity. |
[d] Compensation expense related to stock-based compensation
Stock-based compensation expense recorded in selling, general and administrative expenses related to the above programs is as follows:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||
Incentive Stock Option Plan | $ | 4 | $ | 4 | $ | 11 | $ | 12 | ||||
Long-term retention | 1 | 1 | 3 | 3 | ||||||||
Restricted stock unit | 5 | 3 | 17 | 11 | ||||||||
10 | 8 | 31 | 26 | |||||||||
Fair value adjustment for liability classified DSUs | — | 1 | — | 5 | ||||||||
Total stock-based compensation expense | $ | 10 | $ | 9 | $ | 31 | $ | 31 |
12. COMMON SHARES
[a] The Company repurchased shares under normal course issuer bids as follows:
2014 | 2013 | |||||||||
Number | Cash | Number | Cash | |||||||
of shares | consideration | of shares | consideration | |||||||
First Quarter | 2,710,000 | $ | 240 | 1,593,615 | $ | 88 | ||||
Second Quarter | 5,718,181 | 575 | 5,194,188 | 337 | ||||||
Third Quarter | 5,654,422 | 614 | 3,697,973 | 298 | ||||||
14,082,603 | $ | 1,429 | 10,485,776 | $ | 723 |
The Company can purchase up to 20 million shares under a normal course
issuer bid that will terminate no later than
Refer to Subsequent Event Note 17 for more information regarding the Company's Normal Course Issuer Bids.
[b] The following table presents the maximum number of shares that would
be outstanding if all the dilutive instruments outstanding at
Common Shares | 207,354,943 | ||||||||||
Stock options (i) | 4,324,471 | ||||||||||
211,679,414 |
(i) | Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to the Company's stock option plans. |
13. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is a continuity schedule of accumulated other comprehensive (loss) income:
2014 | 2013 | ||||||
Accumulated net unrealized gain on translation of net investment in foreign operations | |||||||
Balance, beginning of period | $ | 454 | $ | 629 | |||
Net unrealized loss | (112) | (133) | |||||
Repurchase of shares under normal course issuer bid | (4) | (5) | |||||
Balance, March 31 | 338 | 491 | |||||
Net unrealized gain (loss) | 100 | (91) | |||||
Repurchase of shares under normal course issuer bid | (11) | (17) | |||||
Balance, June 30 | 427 | 383 | |||||
Net unrealized (loss) gain | (346) | 143 | |||||
Repurchase of shares under normal course issuer bid | (10) | (11) | |||||
Balance, September 30 | 71 | 515 | |||||
Accumulated net unrealized (loss) gain on cash flow hedges (i) | |||||||
Balance, beginning of period | (20) | 34 | |||||
Net unrealized (loss) gain | (31) | 8 | |||||
Reclassification of net gain to net income | (1) | (6) | |||||
Balance, March 31 | (52) | 36 | |||||
Net unrealized gain (loss) | 49 | (36) | |||||
Reclassification of net loss (gain) to net income | 6 | (6) | |||||
Balance, June 30 | 3 | (6) | |||||
Net unrealized (loss) gain | (42) | 23 | |||||
Reclassification of net gain to net income | (1) | — | |||||
Balance, September 30 | (40) | 17 | |||||
Accumulated net unrealized loss on available-for-sale investments | |||||||
Balance, beginning of period | (4) | 1 | |||||
Net unrealized (loss) gain | (1) | 1 | |||||
Balance, March 31 | (5) | 2 | |||||
Net unrealized loss | — | (5) | |||||
Balance, June 30 | (5) | (3) | |||||
Net unrealized gain (loss) | 1 | (1) | |||||
Balance, September 30 | (4) | (4) | |||||
Accumulated net unrealized loss on pensions (ii) | |||||||
Balance, beginning of period | (117) | (168) | |||||
Reclassification of net loss to net income | 1 | 3 | |||||
Balance, March 31 | (116) | (165) | |||||
Reclassification of net loss to net income | 2 | 3 | |||||
Balance, June 30 | (114) | (162) | |||||
Reclassification of net loss to net income | — | 3 | |||||
Balance, September 30 | (114) | (159) | |||||
Total accumulated other comprehensive (loss) income | $ | (87) | $ | 369 |
(i) |
The amount of income tax benefit (obligation) that has been netted in
the accumulated net unrealized (loss) gain on cash flow hedges is as
follows: |
2014 | 2013 | |||||||||||
Balance, beginning of period | $ | 5 | $ | (13) | ||||||||
Net unrealized loss (gain) | 10 | (4) | ||||||||||
Reclassifications of net gain to net income | 1 | 2 | ||||||||||
Balance, March 31 | 16 | (15) | ||||||||||
Net unrealized (gain) loss | (18) | 13 | ||||||||||
Reclassifications of net (loss) gain to net income | (1) | 3 | ||||||||||
Balance, June 30 | (3) | 1 | ||||||||||
Net unrealized loss (gain) | 16 | (8) | ||||||||||
Reclassifications of net gain to net income | 1 | — | ||||||||||
Balance, September 30 | $ | 14 | $ | (7) |
(ii) | The amount of income tax benefit that has been netted in the accumulated net unrealized loss on pensions is as follows: |
2014 | 2013 | |||||||||||||||||
Balance, beginning of period | $ | 14 | $ | 36 | ||||||||||||||
Reclassification of net loss to net income | — | (1) | ||||||||||||||||
Balance, March 31 | 14 | 35 | ||||||||||||||||
Reclassification of net loss to net income | — | (1) | ||||||||||||||||
Balance, June 30 | 14 | 34 | ||||||||||||||||
Reclassification of net loss to net income | (1) | (1) | ||||||||||||||||
Balance, September 30 | $ | 13 | $ | 33 |
The amount of other comprehensive loss that is expected to be
reclassified to net income over the next 12 months is
14. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of the following:
September 30, | December 31, | ||||||
2014 | 2013 | ||||||
Held for trading | |||||||
Cash and cash equivalents | $ | 1,435 | $ | 1,554 | |||
Investment in asset-backed commercial paper | 90 | 92 | |||||
$ | 1,525 | $ | 1,646 | ||||
Held to maturity investments | |||||||
Severance investments | $ | 5 | $ | 5 | |||
Available-for-sale | |||||||
Equity investments | $ | 6 | $ | 4 | |||
Loans and receivables | |||||||
Accounts receivable | $ | 5,776 | $ | 5,246 | |||
Long-term receivables included in other assets | 112 | 111 | |||||
$ | 5,888 | $ | 5,357 | ||||
Other financial liabilities | |||||||
Bank indebtedness | $ | 58 | $ | 41 | |||
Long-term debt [including portion due within one year] | 1,017 | 332 | |||||
Accounts payable | 4,993 | 4,781 | |||||
$ | 6,068 | $ | 5,154 |
September 30, | December 31, | |||||||
2014 | 2013 | |||||||
Derivatives designated as effective hedges, measured at fair value | ||||||||
Foreign currency contracts | ||||||||
Prepaid expenses | $ | 29 | $ | 42 | ||||
Other assets | 10 | 20 | ||||||
Other accrued liabilities | (50) | (37) | ||||||
Other long-term liabilities | (36) | (28) | ||||||
(47) | (3) | |||||||
Natural gas contracts | ||||||||
Other accrued liabilities | — | (1) | ||||||
$ | (47) | $ | (4) |
[b] Derivatives designated as effective hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges at gross fair values in the Consolidated Balance Sheets. However, master netting and other similar arrangements allow net settlements under certain conditions. The following table shows the Company's derivative foreign currency contracts at gross fair value as reflected in the Consolidated Balance Sheets and the unrecognized impacts of master netting arrangements:
Gross | Gross | |||||||||
amounts | amounts | |||||||||
presented | not offset | |||||||||
in Consolidated | in Consolidated | |||||||||
Balance Sheets | Balance Sheets | Net amounts | ||||||||
September 30, 2014 | ||||||||||
Assets | $ | 39 | $ | 34 | $ | 5 | ||||
Liabilities | $ | (86) | $ | (34) | $ | (52) | ||||
December 31, 2013 | ||||||||||
Assets | $ | 62 | $ | 42 | $ | 20 | ||||
Liabilities | $ | (65) | $ | (42) | $ | (23) |
[c] Fair value
The Company determined the estimated fair values of its financial instruments based on valuation methodologies it believes are appropriate; however, considerable judgment is required to develop these estimates. Accordingly, these estimated fair values are not necessarily indicative of the amounts the Company could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of financial instruments are described below:
Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable.
Due to the short period to maturity of the instruments, the carrying values as presented in the interim consolidated balance sheets are reasonable estimates of fair values.
Investments
At
At
Term debt
The Company's term debt includes
Senior Notes
At
[d] Credit risk
The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, held to maturity investments, and foreign exchange forward contracts with positive fair values.
The Company's held for trading investments include an investment in ABCP. Given the continuing uncertainties regarding the value of the underlying assets, the amount and timing over cash flows and the risk of collateral calls in the event that spreads widened considerably, the Company could be exposed to further losses on its investment.
Cash and cash equivalents, which consists of short-term investments, are only invested in governments, bank term deposits and bank commercial paper with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in certain governments or any major financial institution.
The Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major financial institutions that the Company anticipates will satisfy their obligations under the contracts.
In the normal course of business, the Company is exposed to credit risk
from its customers, substantially all of which are in the automotive
industry and are subject to credit risks associated with the automotive
industry. For the three and nine-month periods ended
[e] Interest rate risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In particular, the amount of interest income earned on the Company's cash and cash equivalents is impacted more by the investment decisions made and the demands to have available cash on hand, than by movements in the interest rates over a given period.
In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on these instruments are fixed.
[f] Currency risk and foreign exchange contracts
The Company operates globally, which gives rise to a risk that its earnings and cash flows may be adversely impacted by fluctuations in foreign exchange rates. The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to the delivery of products for which the selling price has been quoted in currencies other than the facilities' functional currency, or when materials and equipment are purchased in currencies other than the facilities' functional currency.
In an effort to manage this net foreign exchange exposure, the Company uses foreign exchange forward contracts for the sole purpose of hedging certain of the Company's future committed Canadian dollar, U.S. dollar, euro, British pound and Indian rupee outflows and inflows. All derivative instruments, including foreign exchange contracts, are recorded on the interim consolidated balance sheet at fair value. To the extent that cash flow hedges are effective, the change in their fair value is recorded in other comprehensive income; any ineffective portion is recorded in net income. Amounts accumulated in other comprehensive income are reclassified to net income in the period in which the hedged item affects net income.
At
Buys | Sells | ||||
For Canadian dollars | |||||
U.S. dollar amount | 229 | 1,187 | |||
euro amount | 74 | 10 | |||
For U.S. dollars | |||||
Peso amount | 6,608 | 314 | |||
For euros | |||||
U.S. dollar amount | 84 | 224 | |||
British pounds amount | 13 | 17 | |||
Czech koruna amount | 3,823 | 7 |
Forward contracts mature at various dates through 2019. Foreign currency exposures are reviewed quarterly.
15. CONTINGENCIES
From time to time, the Company may become involved in regulatory proceedings, or become liable for legal, contractual and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others. On an ongoing basis, the Company attempts to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, together with potential ranges of probable costs and losses. A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue. The required provision may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
[a] In
- breach of fiduciary duty by the Company and two of its subsidiaries;
-
breach by the Company of its binding letter of intent with
KS Centoco Ltd. , including its covenant not to have any interest, directly or indirectly, in any entity that carries on the airbag business inNorth America , other than throughMST Automotive Inc. , a company to be 77% owned by Magna and 23% owned byCentoco Holdings Limited ; -
the plaintiff's exclusive entitlement to certain airbag technologies in
North America pursuant to an exclusive licence agreement, together with an accounting of all revenues and profits resulting from the alleged use by the Company,TRW Inc. ["TRW"] and other unrelated third party automotive supplier defendants of such technology inNorth America ; -
a conspiracy by the Company, TRW and others to deprive
KS Centoco Ltd. of the benefits of such airbag technology inNorth America and to causeCentoco Holdings Limited to sell to TRW its interest inKS Centoco Ltd. in conjunction with the Company's sale to TRW of its interest inMST Automotive GmbH andTEMIC Bayern-Chemie Airbag GmbH ; and - oppression by the defendants.
The plaintiffs are seeking, amongst other things, damages of
approximately
[b] In
In
Proceedings of this nature can continue for several years. Where wrongful conduct is found, the relevant antitrust authority can impose administrative fines in accordance with formula-based guidelines tied to the level of affected sales, subject to other mitigating and aggravating factors including, in the case of the German Federal Cartel Office, the consolidated sales of the group of companies to which the offending entity belongs.
The Company's policy is to comply with all applicable laws, including antitrust and competition laws. In light of the early stage of the investigations, management is unable to predict their duration or outcome, including whether any operating divisions of the Company could be found liable for any violation of law or the extent of any fine, if found to be liable. In the event of any such violation, any fine imposed could have a material adverse effect on Magna's profitability in the year such fine is imposed.
[c] In certain circumstances, the Company is at risk for warranty costs including product liability and recall costs. Due to the nature of the costs, the Company makes its best estimate of the expected future costs [note 8]; however, the ultimate amount of such costs could be materially different. The Company continues to experience increased customer pressure to assume greater warranty responsibility. Currently, under most customer agreements, the Company only accounts for existing or probable claims. Under certain complete vehicle engineering and assembly contracts, the Company records an estimate of future warranty-related costs based on the terms of the specific customer agreements, and the specific customer's warranty experience.
16. Segmented Information
Given the differences between the regions in which the Company operates,
Magna's operations are segmented on a geographic basis. Consistent with
the above, the Company's internal financial reporting separately
segments key internal operating performance measures between
The Company's chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since management believes Adjusted EBIT is the most appropriate measure of operational profitability or loss for its reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense, net.
The accounting policies of each segment are the same as those set out
under "Significant Accounting Policies" [note 1] and intersegment sales and transfers are accounted for at fair market
value. During the fourth quarter of 2013, the Company began reporting
The following tables show segment information for the Company's reporting segments and a reconciliation of Adjusted EBIT to the Company's consolidated income from operations before income taxes:
Three months ended | Three months ended | |||||||||||||||||||
September 30, 2014 | September 30, 2013 | |||||||||||||||||||
Fixed | Fixed | |||||||||||||||||||
Total | External | Adjusted | assets, | Total | External | Adjusted | assets, | |||||||||||||
sales | sales | EBIT | net | sales | sales | EBIT | net | |||||||||||||
North America | ||||||||||||||||||||
Canada | $ | 1,641 | $ | 1,529 | $ | 578 | $ | 1,578 | $ | 1,453 | $ | 617 | ||||||||
United States | 2,362 | 2,239 | 1,152 | 2,071 | 1,956 | 1,083 | ||||||||||||||
Mexico | 1,071 | 992 | 605 | 1,020 | 946 | 585 | ||||||||||||||
Eliminations | (286) | — | — | (286) | — | — | ||||||||||||||
4,788 | 4,760 | $ | 470 | 2,335 | 4,383 | 4,355 | $ | 365 | 2,285 | |||||||||||
Europe | ||||||||||||||||||||
Western Europe excluding | ||||||||||||||||||||
Great Britain | 2,771 | 2,697 | 1,323 | 2,735 | 2,680 | 1,413 | ||||||||||||||
Great Britain | 190 | 190 | 89 | 222 | 220 | 62 | ||||||||||||||
Eastern Europe | 545 | 523 | 614 | 538 | 466 | 587 | ||||||||||||||
Eliminations | (40) | — | — | (89) | — | — | ||||||||||||||
3,466 | 3,410 | 83 | 2,026 | 3,406 | 3,366 | 72 | 2,062 | |||||||||||||
Asia | 494 | 456 | 39 | 637 | 436 | 395 | 29 | 578 | ||||||||||||
Rest of World | 190 | 190 | (6) | 90 | 217 | 217 | (27) | 112 | ||||||||||||
Corporate and Other | (118) | 4 | 19 | 325 | (104) | 5 | 5 | 222 | ||||||||||||
Total reportable segments | 8,820 | 8,820 | 605 | 5,413 | 8,338 | 8,338 | 444 | 5,259 | ||||||||||||
Other expense, net | (7) | (48) | ||||||||||||||||||
Interest expense, net | (9) | (5) | ||||||||||||||||||
$ | 8,820 | $ | 8,820 | $ | 589 | 5,413 | $ | 8,338 | $ | 8,338 | $ | 391 | 5,259 | |||||||
Current assets | 10,407 | 10,069 | ||||||||||||||||||
Investments, goodwill, | ||||||||||||||||||||
deferred tax assets, and | ||||||||||||||||||||
other assets | 2,605 | 2,738 | ||||||||||||||||||
Consolidated total assets | $ | 18,425 | $ | 18,066 |
Nine months ended | Nine months ended | ||||||||||||||||||
September 30, 2014 | September 30, 2013 | ||||||||||||||||||
Fixed | Fixed | ||||||||||||||||||
Total | External | Adjusted | assets, | Total | External | Adjusted | assets, | ||||||||||||
sales | sales | EBIT | net | sales | sales | EBIT | net | ||||||||||||
North America | |||||||||||||||||||
Canada | $ | 5,040 | $ | 4,676 | $ | 578 | $ | 5,001 | $ | 4,620 | $ | 617 | |||||||
United States | 7,233 | 6,851 | 1,152 | 6,189 | 5,839 | 1,083 | |||||||||||||
Mexico | 3,219 | 2,973 | 605 | 2,998 | 2,773 | 585 | |||||||||||||
Eliminations | (908) | — | — | (874) | — | — | |||||||||||||
14,584 | 14,500 | $ | 1,450 | 2,335 | 13,314 | 13,232 | $ 1,168 | 2,285 | |||||||||||
Europe | |||||||||||||||||||
Western Europe excluding | |||||||||||||||||||
Great Britain | 8,901 | 8,689 | 1,323 | 8,643 | 8,451 | 1,413 | |||||||||||||
Great Britain | 567 | 567 | 89 | 717 | 711 | 62 | |||||||||||||
Eastern Europe | 1,842 | 1,625 | 614 | 1,684 | 1,464 | 587 | |||||||||||||
Eliminations | (275) | — | — | (280) | — | — | |||||||||||||
11,035 | 10,881 | 335 | 2,026 | 10,764 | 10,626 | 264 | 2,062 | ||||||||||||
Asia | 1,443 | 1,334 | 110 | 637 | 1,198 | 1,090 | 59 | 578 | |||||||||||
Rest of World | 519 | 519 | (30) | 90 | 696 | 696 | (55) | 112 | |||||||||||
Corporate and Other | (336) | 11 | 55 | 325 | (311) | 17 | 22 | 222 | |||||||||||
Total reportable segments | 27,245 | 27,245 | 1,920 | 5,413 | 25,661 | 25,661 | 1,458 | 5,259 | |||||||||||
Other expense, net | (40) | (54) | |||||||||||||||||
Interest expense, net | (18) | (13) | |||||||||||||||||
$ | 27,245 | $ | 27,245 | $ | 1,862 | 5,413 | $ | 25,661 | $ | 25,661 | $ | 1,391 | 5,259 | ||||||
Current assets | 10,407 | 10,069 | |||||||||||||||||
Investments, goodwill | |||||||||||||||||||
deferred tax assets and | |||||||||||||||||||
other assets | 2,605 | 2,738 | |||||||||||||||||
Consolidated total assets | $ | 18,425 | $ | 18,066 |
17. Subsequent events
Normal Course Issuer Bid
Subject to approval by the TSX and the
18. Comparative Figures
Certain of the comparative figures have been reclassified to conform to the current period's method of presentation.
SOURCE
Louis Tonelli, Vice-President, Investor Relations at 905-726-7035 .
For teleconferencing questions, please contact Nancy Hansford at 905-726-7108.