Press Release - Magna Announces First Quarter Results
| THREE MONTHS ENDED | |||||
| March 31, 2015 | March 31, 2014 | ||||
| Sales | $ | 8,330 | $ | 8,961 | |
| Adjusted EBIT(1) | $ | 642 | $ | 605 | |
| Income from operations before income taxes | $ | 631 | $ | 581 | |
| Net income attributable to Magna International Inc. | $ | 465 | $ | 393 | |
| Diluted earnings per share | $ | 1.12 | $ | 0.88 | |
| All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars. (1) Adjusted EBIT is the measure of segment profit or loss as reported in the Company's attached unaudited interim consolidated financial statement. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense, net. | |||||
THREE MONTHS ENDED
We posted sales of
Complete vehicle assembly sales decreased 28% to
During the first quarter of 2015, income from operations before income
taxes was
Excluding other expense, after tax and the impact of the Austrian tax
reform, each in the first quarter of 2014, income from operations
before income taxes, net income attributable to
During the first quarter ended
We have been refining our product portfolio to focus on certain key
areas of the vehicle, reflected in our agreements this year to sell
substantially all of our interiors operations, our battery pack
business, as well as our sale last year of certain non-core composites
operations. At the same time, we have been taking steps to expand in
other areas such as metalforming, where we recently announced a joint
venture in
A more detailed discussion of our consolidated financial results for the
first quarter ended
DIVIDENDS
Yesterday, our Board of Directors declared a quarterly dividend of
UPDATED 2015 OUTLOOK
Our updated 2015 outlook below excludes full year 2015 financial
information for the interiors operations we intend to sell, pursuant to
our agreement with
|
Light Vehicle Production (Units) North America Europe |
17.4 million 20.2 million | |||
|
Production Sales North America Europe Asia Rest of World |
$17.2 billion - $17.8 billion $6.9 billion - $7.3 billion $1.7 billion - $1.9 billion $0.6 billion - $0.7 billion | |||
| Total Production Sales | $26.4 billion - $27.7 billion | |||
| Complete Vehicle Assembly Sales | $2.1 billion - $2.4 billion | |||
| Total Sales | $30.8 billion - $32.5 billion | |||
| Operating Margin(1) | High 7% range | |||
| Tax Rate(1) | Approximately 26% | |||
| Capital Spending | $1.3 billion - $1.5 billion | |||
| (1) Excluding other expense, net | ||||
In this 2015 outlook, in addition to 2015 light vehicle production, we have assumed no material acquisitions or divestitures other than the interiors divestiture noted above. 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 316 manufacturing
operations and 87 product development, engineering and sales centres in
29 countries. We have approximately 133,000 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
| We will hold a conference call for interested analysts and shareholders to discuss our first quarter results on Thursday, May 7, 2015 at 2:00 p.m. EDT. The conference call will be chaired by Don Walker, Chief Executive Officer. The number to use for this call is 1-800-735-5968. The number for overseas callers is 1-416-620-9188. 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 Thursday afternoon prior to the call. |
FORWARD-LOOKING STATEMENTS
This press release contains statements that constitute "forward-looking
statements" or "forward-looking information" within the meaning of
applicable securities legislation, including, but not limited to,
statements relating to: Magna's forecasts of light vehicle production
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 ended
This MD&A has been prepared as at
OVERVIEW
We are a leading global automotive supplier with 316 manufacturing
operations and 87 product development, engineering and sales centres in
29 countries. We have approximately 133,000 employees focused on
delivering superior value to our customers through innovative products,
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 and European light vehicle production each declined marginally in the first quarter of 2015, compared to the first quarter of 2014, to 4.1 million and 5.1 million units, respectively.
We posted sales of
Our Adjusted EBIT(1) increased 6% to
-
North America : Adjusted EBIT of$460 million for the first quarter of 2015, increased 4% compared to$443 million for the first quarter of 2014. This compares to the segment's total sales which increased less than 1% to$4.70 billion in the first quarter of 2015 compared to the first quarter of 2014. -
Europe : Adjusted EBIT of$124 million for the first quarter of 2015, declined$3 million or 2% from the first quarter of 2014, while segment total sales declined$660 million or 17% from the first quarter of 2014 to the first quarter of 2015. -
Asia : This segment reported its ninth consecutive quarter of improved year over year results, with Adjusted EBIT of$47 million for the first quarter of 2015, compared to$29 million for the first quarter of 2014. -
Rest of World: Our Adjusted EBIT loss of
$4 million for the first quarter of 2015 compared to an Adjusted EBIT loss of$13 million in the first quarter of 2014, reflecting our progress in reducing operating losses in this segment.
Lastly, subsequent to the first quarter of 2015, we signed an agreement
to sell substantially all of our interiors operations to
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 first quarter of 2015, we posted sales of
-
North American vehicle production decreased marginally but our North
American production sales increased 1% to
$4.46 billion ; -
European vehicle production decreased marginally and our European
production sales decreased 17% to
$2.18 billion ; -
Asian production sales increased 10% to
$421 million ; -
Rest of World production sales decreased 17% to
$131 million ; -
Complete vehicle assembly volumes decreased 23% and sales decreased
$229 million to $584 million ; and -
Tooling, engineering and other sales decreased 2% to
$559 million .
During the first quarter of 2015, we earned income from operations
before income taxes of
- incremental margin earned on new programs that launched during or subsequent to the first quarter of 2014;
-
the expiration, at the end of 2014, of our consulting agreements with
Frank Stronach ; - productivity and efficiency improvements at certain facilities; and
- higher equity income.
These factors were partially offset by:
- lower recoveries associated with scrap steel;
- higher launch costs;
- a greater amount of employee profit sharing;
- operational inefficiencies at certain facilities;
-
a
$1 million net decrease in valuation gains in respect of ABCP; and - net customer price concessions subsequent to the first quarter of 2014.
During the first quarter of 2015, net income attributable to
| For the three months ended March 31, | ||||||||||||
| 2015 | 2014 | |||||||||||
| Net Income | Diluted | Net Income | Diluted | |||||||||
| Attributable | Earnings | Attributable | Earnings | |||||||||
| to Magna | per Share | to Magna | per Share | |||||||||
| Other expense | $ | — | $ | — | $ | 22 | $ | 0.05 | ||||
| Income tax effect: | ||||||||||||
| Other expense | — | — | (2) | — | ||||||||
| Austrian tax reform | — | — | 32 | 0.07 | ||||||||
| $ | — | $ | — | $ | 52 | $ | 0.12 | |||||
Excluding the
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 | |||||||
| ended March 31, | |||||||
| 2015 | 2014 | Change | |||||
| 1 Canadian dollar equals U.S. dollars | 0.808 | 0.907 | - | 11% | |||
| 1 euro equals U.S. dollars | 1.129 | 1.371 | - | 18% | |||
| 1 British pound equals U.S. dollars | 1.517 | 1.655 | - | 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 ended
The results of operations whose 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 March 31, | |||||||||
| 2015 | 2014 | Change | |||||||
| Vehicle Production Volumes (millions of units) | |||||||||
| North America | 4.102 | 4.118 | — | ||||||
| Europe | 5.095 | 5.119 | — | ||||||
| Sales | |||||||||
| External Production | |||||||||
| North America | $ | 4,456 | $ | 4,407 | + 1% | ||||
| Europe | 2,179 | 2,634 | - 17% | ||||||
| Asia | 421 | 381 | + 10% | ||||||
| Rest of World | 131 | 157 | - 17% | ||||||
| Complete Vehicle Assembly | 584 | 813 | - 28% | ||||||
| Tooling, Engineering and Other | 559 | 569 | - 2% | ||||||
| Total Sales | $ | 8,330 | $ | 8,961 | - 7% | ||||
External Production Sales -
Reported external production sales in
-
the launch of new programs during or subsequent to the first quarter of
2014, including the:
- GM full-size pickups and SUVs;
- Ford Transit;
- Ford Mustang;
- BWM X4; and
- Chrysler 200.
This factor was partially offset by:
- lower production volumes on certain existing programs;
-
a
$159 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar; -
net divestitures subsequent to the first quarter of 2014, which
negatively impacted sales by
$22 million ; and - net customer price concessions subsequent to the first quarter of 2014.
External Production Sales -
Reported external production sales in
-
a
$477 million decrease in reported U.S. dollar sales primarily as a result of the weakening of foreign currencies against the U.S. dollar, including the euro and Russian ruble; - lower production volumes on certain existing programs;
- programs that ended production during or subsequent to the first quarter of 2014; and
- net customer price concessions subsequent to the first quarter of 2014.
These factors were partially offset by:
-
the launch of new programs during or subsequent to the first quarter of
2014, including the:
- MINI 3-Door and 5-Door Hatchback;
- Ford Transit; and
- Land Rover Discovery Sport.
External Production Sales -
Reported external production sales in
This factor was partially offset by:
- lower production volumes on certain existing programs;
-
a
$10 million decrease in reported U.S. dollar sales primarily as a result of the weakening of foreign currencies against the U.S. dollar, including the Chinese renminbi and South Korean won; - programs that ended production during or subsequent to the first quarter of 2014; and
- net customer price concessions subsequent to the first quarter of 2014.
External Production Sales - Rest of World
Reported external production sales in Rest of World decreased 17% or
- lower production volumes on certain existing programs;
-
a
$27 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Brazilian real and Argentine peso; and - programs that ended production during or subsequent to the first quarter of 2014.
These factors were partially offset by:
-
the launch of new programs during or subsequent to the first quarter of
2014, primarily in
Brazil ; and - net customer price increases subsequent to the first quarter of 2014.
Complete Vehicle Assembly Sales
| For the three months | |||||||||||||
| ended March 31, | |||||||||||||
| 2015 | 2014 | Change | |||||||||||
| Complete Vehicle Assembly Sales | $ | 584 | $ | 813 | - 28% | ||||||||
| Complete Vehicle Assembly Volumes (Units) | 27,343 | 35,658 | - 23% | ||||||||||
Reported complete vehicle assembly sales decreased
The decrease in complete vehicle assembly sales is primarily as a result of:
-
a
$127 million decrease in reported U.S. dollar sales as a result of the weakening of the euro against the U.S. dollar; and - a decrease in assembly volumes for the MINI Countryman.
These factors were partially offset by an increase in assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Reported tooling, engineering and other sales decreased 2% or
In the first quarter of 2015, the major programs for which we recorded tooling, engineering and other sales were the:
- Ford F-Series;
- Skoda Fabia;
- Honda HR-V and Vezel;
- MINI Countryman;
- Land Rover Discovery Sport;
- Ford Edge;
-
BMW 1-Series; and - GMC Acadia, Buick Enclave and Chevrolet Traverse.
In the first quarter of 2014, the major programs for which we recorded tooling, engineering and other sales were the:
- MINI Countryman;
- Ford Mustang;
- QOROS 3;
- Chrysler 200;
- Chevrolet Suburban and Tahoe, GMC Yukon and Cadillac Escalade;
- Ford Transit;
- Honda Fit;
- Ford F-Series; and
- Peugeot RCZ.
The weakening of certain foreign currencies against the U.S. dollar,
including the euro, Czech koruna, Canadian dollar and Russian ruble had
an unfavourable impact of
Cost of Goods Sold and Gross Margin
| For the three months | ||||||
| ended March 31, | ||||||
| 2015 | 2014 | |||||
| Sales | $ | 8,330 | $ | 8,961 | ||
| Cost of goods sold | ||||||
| Material | 5,241 | 5,712 | ||||
| Direct labour | 563 | 575 | ||||
| Overhead | 1,379 | 1,475 | ||||
| 7,183 | 7,762 | |||||
| Gross margin | $ | 1,147 | $ | 1,199 | ||
| Gross margin as a percentage of sales | 13.8% | 13.4% | ||||
Reported cost of goods sold decreased
- higher material, overhead and labour costs associated with the increase in sales;
- higher launch costs; and
- a greater amount of employee profit sharing.
These factors were partially offset by productivity and efficiency improvements at certain facilities.
Gross margin decreased
- productivity and efficiency improvements at certain facilities; and
- a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content than our consolidated average.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- lower recoveries associated with scrap steel;
- higher launch costs;
- an increase in the proportion of tooling, engineering and other sales relative to total sales, that have low or no margins; and
- a greater amount of employee profit sharing.
Depreciation and Amortization
Depreciation and amortization costs decreased
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.3% for the first quarter of
2015 compared to 4.7% for the first quarter of 2014. SG&A expense
decreased
Equity Income
Equity income increased
Other Expense, net
During the first quarter of 2014, we recorded net restructuring charges
of
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 separately 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.
| For the three months ended March 31, | ||||||||||||||
| Total Sales | Adjusted EBIT | |||||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||
| North America | $ | 4,697 | $ | 4,668 | $ | 29 | $ | 460 | $ | 443 | $ | 17 | ||
| Europe | 3,113 | 3,773 | (660) | 124 | 127 | (3) | ||||||||
| Asia | 483 | 463 | 20 | 47 | 29 | 18 | ||||||||
| Rest of World | 133 | 161 | (28) | (4) | (13) | 9 | ||||||||
| Corporate and Other | (96) | (104) | 8 | 15 | 19 | (4) | ||||||||
| Total reportable segments | $ | 8,330 | $ | 8,961 | $ | (631) | $ | 642 | $ | 605 | $ | 37 | ||
Excluded from Adjusted EBIT for the three months ended
Reported Adjusted EBIT in
- higher equity income;
- lower affiliation fees paid to Corporate;
- margins earned on higher production sales;
- decreased pre-operating costs incurred at new facilities;
- decreased stock-based compensation; and
- productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
- lower recoveries associated with scrap steel;
- higher launch costs;
- a greater amount of employee profit sharing;
- operational inefficiencies at certain facilities;
-
higher warranty costs of
$4 million ; and - net customer price concessions subsequent to the first quarter of 2014.
Reported Adjusted EBIT in
- productivity and efficiency improvements at certain facilities;
- lower affiliation fees paid to Corporate; and
-
lower warranty costs of
$4 million .
These factors were partially offset by:
- lower equity income;
- higher launch costs;
- operational inefficiencies at certain facilities; and
- net customer price concessions subsequent to the first quarter of 2014.
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 affiliation fees paid to Corporate.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- higher launch costs; and
- net customer price concessions subsequent to the first quarter of 2014.
Rest of World
Adjusted EBIT in Rest of World increased
- productivity and efficiency improvements at certain facilities;
- a decrease in reported U.S. dollar EBIT loss due to the weakening of the Brazilian real against the U.S. dollar;
- lower launch costs; and
- net customer price increases subsequent to the first quarter of 2014.
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.
Corporate and Other
Corporate and Other Adjusted EBIT decreased
- a decrease in affiliation fees earned from our divisions;
- increased stock-based compensation; and
-
a
$1 million net decrease in valuation gains in respect of ABCP.
These factors were partially offset by the expiration, at the end of
2014, of our consulting agreements with
Interest Expense, net
During the first quarter of 2015, we recorded net interest expense of
Income from Operations before Income Taxes
Income from operations before income taxes increased
| Income Taxes | ||||||||
| 2015 | 2014 | |||||||
| $ | % | $ | % | |||||
| Income taxes as reported | $ | 167 | 26.5 | $ | 189 | 32.5 | ||
| Tax effect on Other expense, net | — | — | 2 | (0.8) | ||||
| Austrian Tax Reform | — | — | (32) | (5.3) | ||||
| $ | 167 | 26.5 | $ | 159 | 26.4 | |||
For 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
Excluding the Austrian Tax Reform and Other Expense, after tax, the
effective income tax rate increased to 26.5% for the first quarter of
2015 compared to 26.4% for the first quarter of 2014 primarily as a
result of lower favourable audit settlements and an increase in
permanent items offset by a reduction in losses not benefitted in
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 (restated)
| For the three months | |||||||||||
| ended March 31, | |||||||||||
| 2015 | 2014 | Change | |||||||||
| Earnings per Common Share | |||||||||||
| Basic | $ | 1.14 | $ | 0.89 | + | 28% | |||||
| Diluted | $ | 1.12 | $ | 0.88 | + | 27% | |||||
| Weighted average number of Common Shares outstanding (millions) | |||||||||||
| Basic | 409.3 | 440.6 | - | 7% | |||||||
| Diluted | 415.0 | 447.0 | - | 7% | |||||||
Diluted earnings per share increased
The decrease in the weighted average number of diluted shares outstanding was due to the purchase and cancellation of Common Shares, during or subsequent to the first quarter of 2014, pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
| For the three months | ||||||||
| ended March 31, | ||||||||
| 2015 | 2014 | Change | ||||||
| Net income | $ | 464 | $ | 392 | ||||
| Items not involving current cash flows | 188 | 279 | ||||||
| 652 | 671 | $ | (19) | |||||
| Changes in operating assets and liabilities | (358) | (197) | ||||||
| Cash provided from operating activities | $ | 294 | $ | 474 | $ | (180) | ||
Cash flow from operations before changes in operating assets and
liabilities decreased
| For the three months | ||||||
| ended March 31, | ||||||
| 2015 | 2014 | |||||
| Depreciation and amortization | $ | 205 | $ | 217 | ||
| Amortization of other assets included in cost of goods sold | 29 | 29 | ||||
| Other non-cash charges | 3 | 6 | ||||
| Equity income in excess of dividends received | (18) | (11) | ||||
| Deferred income taxes | (31) | 38 | ||||
| Items not involving current cash flows | $ | 188 | $ | 279 | ||
Cash invested in operating assets and liabilities amounted to
| For the three months | ||||||
| ended March 31, | ||||||
| 2015 | 2014 | |||||
| Accounts receivable | $ | (543) | $ | (834) | ||
| Inventories | (124) | (29) | ||||
| Prepaid expenses and other | (15) | 9 | ||||
| Accounts payable | 146 | 328 | ||||
| Accrued salaries and wages | 74 | 105 | ||||
| Other accrued liabilities | 51 | 168 | ||||
| Income taxes payable/receivable | 53 | 56 | ||||
| Changes in operating assets and liabilities | $ | (358) | $ | (197) | ||
The increase in accounts receivable, accounts payable and accrued salaries and wages in the first quarter of 2015 was primarily due to an increase in production activities at the end of the first quarter of 2015 compared to the end of 2014. The increase in inventories was primarily due to increased tooling inventory to support upcoming launches and higher production inventory due to the increase in production activities at the end of the first quarter of 2015 compared to the end of 2014.
Capital and Investment Spending
| For the three months | |||||||||
| ended March 31, | |||||||||
| 2015 | 2014 | Change | |||||||
| Fixed asset additions | $ | (280) | $ | (217) | |||||
| Investments and other assets | (42) | (54) | |||||||
| Fixed assets, investments and other assets additions | (322) | (271) | |||||||
| Purchase of subsidiaries | (1) | — | |||||||
| Proceeds from disposition | 25 | 37 | |||||||
| Cash used for investment activities | $ | (298) | $ | (234) | $ | (64) | |||
Fixed assets, investments and other assets additions
In the first quarter of 2015, we invested
In the first quarter of 2015, we invested
Proceeds from disposition
In the first quarter of 2015, the
Financing
| For the three months | ||||||||
| ended March 31, | ||||||||
| 2015 | 2014 | Change | ||||||
| Increase in bank indebtedness | $ | 73 | $ | 3 | ||||
| Issues of debt | 15 | 31 | ||||||
| Issues of Common Shares on exercise of stock options | 6 | 25 | ||||||
| Repayments of debt | (45) | (70) | ||||||
| Repurchase of Common Shares | — | (240) | ||||||
| Dividends paid | (89) | (83) | ||||||
| Cash used for financing activities | $ | (40) | $ | (334) | $ | 294 | ||
The increase in bank indebtedness primarily relates to an increase in outstanding cheques.
Repayments of debt consist of reductions of term debt in our
Cash dividends paid per Common Share were
Financing Resources
| As at | As at | |||||||||
| March 31, | December 31, | |||||||||
| 2015 | 2014 | Change | ||||||||
| Liabilities | ||||||||||
| Bank indebtedness | $ | 85 | $ | 33 | ||||||
| Long-term debt due within one year | 160 | 184 | ||||||||
| Long-term debt | 797 | 811 | ||||||||
| 1,042 | 1,028 | |||||||||
| Non-controlling interests | 13 | 14 | ||||||||
| Shareholders' equity | 8,560 | 8,659 | ||||||||
| Total capitalization | $ | 9,615 | $ | 9,701 | $ | (86) | ||||
Total capitalization decreased by
The decrease in shareholders' equity was primarily as a result of:
-
the
$438 million net unrealized loss on translation of our net investment in operations whose functional currency is not the U.S. dollar; -
$89 million of dividends paid during the first quarter of 2015; and -
the
$65 million net unrealized loss on cash flow hedges.
These factors were partially offset by the
Cash Resources
During the first quarter of 2015, our cash resources decreased by
On
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 | 410,776,410 | |||
| Stock options (i) | 9,390,712 | |||
| 420,167,122 | ||||
| (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 first quarter of 2015 that are outside the ordinary course of our business. Refer to our MD&A included in our 2014 Annual Report.
SUBSEQUENT EVENTS
Consistent with our strategy to refine our product portfolio and increase our footprint in emerging markets, we recently announced the following:
(a) Divestiture of Interiors Operations
On
(b) Formation of Joint Venture
On
(c) Sale of Battery Systems
On
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 three 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 three 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;
statements relating to the strategic benefits expected to result from
the sale of substantially all of our interiors operations (the
"Transaction"). The forward-looking statements or forward-looking
information in this press release is presented for the purpose of
providing information about management's current expectations and plans
and such information may not be appropriate for other purposes.
Forward-looking statements or forward-looking information may include
financial and other projections, as well as statements regarding our
future plans, objectives or economic performance, or the assumptions
underlying any of the foregoing, and other statements that are not
recitations of historical fact. We use words such as "may", "would",
"could", "should", "will", "likely", "expect", "anticipate", "believe",
"intend", "plan", "forecast", "outlook", "project", "estimate" and
similar expressions suggesting future outcomes or events to identify
forward-looking statements or forward-looking information. Any such
forward-looking statements or forward-looking information are based on
information currently available to us, and are based on assumptions and
analyses made by us in light of our experience and our perception of
historical trends, current conditions and expected future developments,
as well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments will
conform with our expectations and predictions is subject to a number of
risks, assumptions and uncertainties, many of which are beyond our
control, and the effects of which can be difficult to predict,
including, without limitation: the impact of economic or political
conditions on consumer confidence, consumer demand for vehicles and
vehicle production; fluctuations in relative currency values;
restructuring, downsizing and/or other significant non-recurring costs;
continued underperformance of one or more of our operating Divisions;
ongoing pricing pressures, including our ability to offset price
concessions demanded by our customers; our ability to successfully
launch material new or takeover business; shifts in market share away
from our top customers; inability to grow our business with OEMs;
shifts in market shares among vehicles or vehicle segments, or shifts
away from vehicles on which we have significant content; risks of
conducting business in foreign markets, including
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
| Three months ended March 31, | |||||||||
| Note | 2015 | 2014 | |||||||
| Sales | $ | 8,330 | $ | 8,961 | |||||
| Costs and expenses | |||||||||
| Cost of goods sold | 7,183 | 7,762 | |||||||
| Depreciation and amortization | 205 | 217 | |||||||
| Selling, general and administrative | 10 | 355 | 425 | ||||||
| Interest expense, net | 11 | 2 | |||||||
| Equity income | (55) | (48) | |||||||
| Other expense, net | 2 | — | 22 | ||||||
| Income from operations before income taxes | 631 | 581 | |||||||
| Income taxes | 6 | 167 | 189 | ||||||
| Net income | 464 | 392 | |||||||
| Net loss attributable to non-controlling interests | 1 | 1 | |||||||
| Net income attributable to Magna International Inc. | $ | 465 | $ | 393 | |||||
| Earnings per Common Share (restated - see note 1): | 3 | ||||||||
| Basic | $ | 1.14 | $ | 0.89 | |||||
| Diluted | $ | 1.12 | $ | 0.88 | |||||
| Cash dividends paid per Common Share (restated) | $ | 0.22 | $ | 0.19 | |||||
|
Weighted average number of Common Shares outstanding during the period [in millions] (restated): | 3 | ||||||||
| Basic | 409.3 | 440.6 | |||||||
| Diluted | 415.0 | 447.0 | |||||||
| See accompanying notes |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
[Unaudited]
[U.S. dollars in millions]
| Three months ended March 31, | |||||||||
| Note | 2015 | 2014 | |||||||
| Net income | $ | 464 | $ | 392 | |||||
| Other comprehensive income (loss), net of tax: | 12 | ||||||||
| Net unrealized loss on translation of net investment in foreign operations | (438) | (112) | |||||||
| Net unrealized gain (loss) on available-for-sale investments | 1 | (1) | |||||||
| Net unrealized loss on cash flow hedges | (65) | (31) | |||||||
| Reclassification of net loss (gain) on cash flow hedges to net income | 11 | (1) | |||||||
| Reclassification of net loss on pensions to net income | 1 | 1 | |||||||
| Pension and post retirement benefits | (1) | — | |||||||
| Other comprehensive loss | (491) | (144) | |||||||
| Comprehensive (loss) income | (27) | 248 | |||||||
| Comprehensive loss attributable to non-controlling interests | 1 | 1 | |||||||
| Comprehensive (loss) income attributable to Magna International Inc. | $ | (26) | $ | 249 | |||||
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
| Three months ended March 31, | ||||||||
| Note | 2015 | 2014 | ||||||
| Cash provided from (used for): | ||||||||
| OPERATING ACTIVITIES | ||||||||
| Net income | $ | 464 | $ | $ 392 | ||||
| Items not involving current cash flows | 4 | 188 | 279 | |||||
| 652 | 671 | |||||||
| Changes in non-cash operating assets and liabilities | 4 | (358) | (197) | |||||
| Cash provided from operating activities | 294 | 474 | ||||||
| INVESTMENT ACTIVITIES | ||||||||
| Fixed asset additions | (280) | (217) | ||||||
| Purchase of subsidiaries | (1) | — | ||||||
| Increase in investments and other assets | (42) | (54) | ||||||
| Proceeds from disposition | 25 | 37 | ||||||
| Cash used for investing activities | (298) | (234) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Increase in bank indebtedness | 73 | 3 | ||||||
| Repayments of debt | (45) | (70) | ||||||
| Issues of debt | 15 | 31 | ||||||
| Issues of Common Shares on exercise of stock options | 6 | 25 | ||||||
| Repurchase of Common Shares | 11 | — | (240) | |||||
| Dividends | (89) | (83) | ||||||
| Cash used for financing activities | (40) | (334) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (76) | (21) | ||||||
| Net decrease in cash and cash equivalents during the period | (120) | (115) | ||||||
| Cash and cash equivalents, beginning of period | 1,253 | 1,554 | ||||||
| Cash and cash equivalents, end of period | $ | 1,133 | $ | 1,439 | ||||
| See accompanying notes |
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
| Note | As at March 31, 2015 |
As at December 31, 2014 | |||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | 4 | $ | 1,133 | $ | 1,253 | ||||||
| Accounts receivable | 5,895 | 5,635 | |||||||||
| Inventories | 5 | 2,731 | 2,757 | ||||||||
| Income taxes receivable | — | 16 | |||||||||
| Deferred tax assets | 208 | 186 | |||||||||
| Prepaid expenses and other | 184 | 160 | |||||||||
| 10,151 | 10,007 | ||||||||||
| Investments | 13 | 422 | 419 | ||||||||
| Fixed assets, net | 5,468 | 5,664 | |||||||||
| Goodwill | 1,275 | 1,350 | |||||||||
| Deferred tax assets | 154 | 147 | |||||||||
| Other assets | 7 | 516 | 552 | ||||||||
| $ | 17,986 | $ | 18,139 | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Bank indebtedness | $ | 85 | $ | 33 | |||||||
| Accounts payable | 5,013 | 5,105 | |||||||||
| Accrued salaries and wages | 758 | 730 | |||||||||
| Other accrued liabilities | 8 | 1,541 | 1,538 | ||||||||
| Income taxes payable | 27 | — | |||||||||
| Deferred tax liabilities | 22 | 21 | |||||||||
| Long-term debt due within one year | 160 | 184 | |||||||||
| 7,606 | 7,611 | ||||||||||
| Long-term debt | 797 | 811 | |||||||||
| Long-term employee benefit liabilities | 9 | 535 | 580 | ||||||||
| Other long-term liabilities | 327 | 292 | |||||||||
| Deferred tax liabilities | 148 | 172 | |||||||||
| 9,413 | 9,466 | ||||||||||
| Shareholders' equity | |||||||||||
| Capital stock | |||||||||||
| Common Shares | |||||||||||
| [issued: 410,613,154; December 31, 2014 - 410,325,270 (restated)] | 11 | 3,995 | 3,979 | ||||||||
| Contributed surplus | 86 | 83 | |||||||||
| Retained earnings | 5,528 | 5,155 | |||||||||
| Accumulated other comprehensive loss | 12 | (1,049) | (558) | ||||||||
| 8,560 | 8,659 | ||||||||||
| Non-controlling interests | 13 | 14 | |||||||||
| 8,573 | 8,673 | ||||||||||
| $ | 17,986 | $ | 18,139 | ||||||||
See accompanying notes
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
| Common Shares | ||||||||||||||||||||||
| Note | Number | Stated Value | Contri- buted Surplus | Retained Earnings | AOCI (i) | Non- controlling Interest | Total Equity | |||||||||||||||
| [in millions] | ||||||||||||||||||||||
| Balance, December 31, 2014 | 410.3 | $ | 3,979 | $ | 83 | $ | 5,155 | $ | (558) | $ | 14 | $ | 8,673 | |||||||||
| Net income | 465 | (1) | 464 | |||||||||||||||||||
| Other comprehensive loss | (491) | (491) | ||||||||||||||||||||
| Shares issued on exercise of stock options | 0.3 | 8 | (2) | 6 | ||||||||||||||||||
| Release of restricted stock | 5 | (5) | — | |||||||||||||||||||
| Stock-based compensation expense | 10 | 10 | 10 | |||||||||||||||||||
| Dividends paid | 3 | (92) | (89) | |||||||||||||||||||
| Balance, March 31, 2015 | 410.6 | $ | 3,995 | $ | 86 | $ | 5,528 | $ | (1,049) | $ | 13 | $ | 8,573 | |||||||||
| Common Shares | ||||||||||||||||||||||
| Note | Number | Stated Value | Contri- buted Surplus | Retained Earnings | AOCI (i) | Non- controlling Interest | Total Equity | |||||||||||||||
| [in millions (restated)] | ||||||||||||||||||||||
| Balance, December 31, 2013 | 442.3 | $ | 4,230 | $ | 69 | $ | 5,011 | $ | 313 | $ | 16 | $ | 9,639 | |||||||||
| Net income | 393 | (1) | 392 | |||||||||||||||||||
| Other comprehensive loss | (144) | (144) | ||||||||||||||||||||
| Shares issued on exercise of stock options | 1.3 | 32 | (7) | 25 | ||||||||||||||||||
| Release of restricted stock | 5 | (5) | — | |||||||||||||||||||
| Repurchase and cancellation | ||||||||||||||||||||||
| under normal course issuer bid | 11 | (5.4) | (52) | (184) | (4) | (240) | ||||||||||||||||
| Stock-based compensation expense | 10 | 10 | 10 | |||||||||||||||||||
| Reclassification from liability | 10 | 7 | 7 | |||||||||||||||||||
| Dividends paid | 0.1 | 2 | (85) | (83) | ||||||||||||||||||
| Balance, March 31, 2014 | 438.3 | $ | 4,217 | $ | 74 | $ | 5,135 | $ | 165 | $ | 15 | $ | 9,606 | |||||||||
| (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. 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] Stock Split
On
Accordingly, all of the Company's issued and outstanding Common Shares, incentive stock options, and restricted and deferred stock units have been restated for all periods presented to reflect the stock split. In addition, earnings per Common Share, Cash dividends paid per Common Share, weighted average exercise price for stock options and the weighted average fair value of options granted have been restated for all periods presented to reflect the stock split.
[c] Future Accounting Standard
Revenue Recognition
In
[d] 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 first quarter 2014, the Company recorded net restructuring
charges of
3. EARNINGS PER SHARE
Earnings per share are computed as follows and have been restated to reflect the effect of the Stock Split [Note 1]:
| Three months ended March 31, | ||||||||
| 2015 | 2014 | |||||||
| Basic earnings per Common Share: | ||||||||
| Net income attributable to Magna International Inc. | $ | 465 | $ | 393 | ||||
| Weighted average number of Common Shares outstanding | 409.3 | 440.6 | ||||||
| Basic earnings per Common Share | $ | 1.14 | $ | 0.89 | ||||
| Diluted earnings per Common Share: | ||||||||
| Net income attributable to Magna International Inc. | $ | 465 | $ | 393 | ||||
| Weighted average number of Common Shares outstanding | 409.3 | 440.6 | ||||||
| Adjustments | ||||||||
| Stock options and restricted stock [a] | 5.7 | 6.4 | ||||||
| 415.0 | 447.0 | |||||||
| Diluted earnings per Common Share | $ | 1.12 | $ | 0.88 | ||||
| [a] |
For the three months ended March 31, 2015, diluted earnings per Common
Share exclude 0.5 million [2014 - 0.4 million (restated)] 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:
| March 31, | December 31, | ||||||
| 2015 | 2014 | ||||||
| Bank term deposits, bankers acceptances and government paper | $ | 993 | $ | 1,058 | |||
| Cash | 140 | 195 | |||||
| $ | 1,133 | $ | 1,253 |
[b] Items not involving current cash flows:
| Three months ended March 31, | |||||||
| 2015 | 2014 | ||||||
| Depreciation and amortization | $ | 205 | $ | 217 | |||
| Amortization of other assets included in cost of goods sold | 29 | 29 | |||||
| Other non-cash charges | 3 | 6 | |||||
| Equity income in excess of dividends received | (18) | (11) | |||||
| Deferred income taxes | (31) | 38 | |||||
| $ | 188 | $ | 279 | ||||
[c] Changes in non-cash operating assets and liabilities:
| Three months ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Accounts receivable | $ | (543) | $ | (834) | ||||
| Inventories | (124) | (29) | ||||||
| Prepaid expenses and other | (15) | 9 | ||||||
| Accounts payable | 146 | 328 | ||||||
| Accrued salaries and wages | 74 | 105 | ||||||
| Other accrued liabilities | 51 | 168 | ||||||
| Income taxes receivable/payable | 53 | 56 | ||||||
| $ | (358) | $ |
(197) | |||||
5. INVENTORIES
Inventories consist of:
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Raw materials and supplies | $ | 898 | $ | 914 | ||||
| Work-in-process | 242 | 241 | ||||||
| Finished goods | 316 | 362 | ||||||
| Tooling and engineering | 1,275 | 1,240 | ||||||
| $ | 2,731 | $ | 2,757 |
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
For 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:
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
|
Preproduction costs related to long-term supply agreements with contractual guarantee for reimbursement | $ | 247 | $ | 259 | ||||
| Customer relationship intangibles | 92 | 108 | ||||||
| Long-term receivables | 82 | 87 | ||||||
| Patents and licences, net | 34 | 36 | ||||||
| Pension overfunded status | 13 | 13 | ||||||
| Unrealized gain on cash flow hedges | 12 | 8 | ||||||
| Other, net | 36 | 41 | ||||||
| $ | 516 | $ | 552 |
8. WARRANTY
The following is a continuity of the Company's warranty accruals:
| 2015 | 2014 | |||||||
| Balance, beginning of period | $ | 88 | $ | 91 | ||||
| Expense, net | 7 | 7 | ||||||
| Settlements | (10) | (7) | ||||||
| Foreign exchange and other | (6) | — | ||||||
| Balance, March 31 | $ | 79 | $ | 91 |
9. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
| Three months ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| Defined benefit pension plans and other | $ | 4 | $ | 3 | ||||
| Termination and long service arrangements | 7 | 9 | ||||||
| $ | 11 | $ | 12 | |||||
10. 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] and has been restated to reflect the effect of the Stock Split [note 1]:
| 2015 | 2014 | |||||||||||||||||
| 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 | 8,314,658 | 27.03 | 4,614,488 | 9,516,216 | 20.91 | 5,694,218 | ||||||||||||
| Granted | 1,614,336 | 68.24 | — | 1,502,600 | 53.36 | — | ||||||||||||
| Exercised | (239,362) | 29.49 | (239,362) | (1,360,704) | 19.75 | (1,360,704) | ||||||||||||
| Cancelled | (103,332) | 34.30 | — | (33,998) | 26.10 | (12,000) | ||||||||||||
| Vested | — | — | 1,965,904 | — | — | 1,558,768 | ||||||||||||
| March 31 | 9,586,300 | 33.83 | 6,341,030 | 9,624,114 | 26.12 | 5,880,282 | ||||||||||||
| (i) | The exercise price noted above represents the weighted average exercise price in Canadian dollars. |
The weighted average assumptions used in measuring the fair value of stock options granted are as follows:
| Three months ended | |||||||
| March 31, | |||||||
| 2015 | 2014 | ||||||
| Risk free interest rate | 0.97% | 1.60% | |||||
| Expected dividend yield | 2.00% | 2.00% | |||||
| Expected volatility | 26% | 29% | |||||
| Expected time until exercise | 4.6 years | 4.5 years | |||||
| Weighted average fair value of options granted in period [Cdn$] (restated) | $ | 12.84 | $ | 11.47 | |||
[b] Long-term retention program
The following is a continuity of the stock that has not been released to 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] and has been restated to reflect the effect of the Stock Split [note 1]:
| 2015 | 2014 | ||||||||||||||
| Number | Stated | Number | Stated | ||||||||||||
| of shares | value | of shares | value | ||||||||||||
| Awarded and not released, beginning of period | 1,174,648 | $ | 20 | 1,460,952 | $ | 25 | |||||||||
| Release of restricted stock | (286,312) | (4) | (286,304) | (5) | |||||||||||
| Awarded and not released, March 31 | 888,336 | $ | 16 | 1,174,648 | $ | 20 | |||||||||
[c] Restricted stock unit program
The following is a continuity schedule of restricted stock unit programs outstanding [number of stock units in the table below are expressed in whole numbers] and has been restated to reflect the effect of the Stock Split [note 1]:
| 2015 | 2014 | |||||||||||||||||||||
| Equity | Liability | Equity | Equity | Liability | Equity | |||||||||||||||||
| classified | classified | classified | classified | classified | classified | |||||||||||||||||
| RSUs | RSUs | DSUs | Total | RSUs | RSUs | DSUs | Total | |||||||||||||||
| Balance, beginning of period | 985,278 | 46,052 | 303,261 | 1,334,591 | 1,263,708 | 60,238 | 254,894 | 1,578,840 | ||||||||||||||
| Granted | 120,958 | 15,790 | 12,112 | 148,860 | 101,618 | 16,050 | 12,630 | 130,298 | ||||||||||||||
| Dividend equivalents | 424 | 262 | 1,009 | 1,695 | 505 | 306 | 1,058 | 1,869 | ||||||||||||||
| Released | (16,518) | — | — | (16,518) | (16,518) | — | — | (16,518) | ||||||||||||||
| Balance, March 31 | 1,090,142 | 62,104 | 316,382 | 1,468,628 | 1,349,313 | 76,594 | 268,582 | 1,694,489 | ||||||||||||||
[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 March 31, | ||||||||
| 2015 | 2014 | |||||||
| Incentive Stock Option Plan | $ | 3 | $ | 4 | ||||
| Long-term retention | 1 | 1 | ||||||
| Restricted stock unit | 6 | 5 | ||||||
| Total stock-based compensation expense | $ | 10 | $ | 10 | ||||
11. COMMON SHARES
[a] During the first quarter of 2014, the Company repurchased 5,420,000
shares [restated to reflect the effect of the Stock Split [note 1]] under a normal course issuer bid for cash consideration of
[b] The following table presents the maximum number of shares that would
be outstanding if all the dilutive instruments outstanding at
| Common Shares | 410,776,410 | |||||||||||
| Stock options (i) | 9,390,712 | |||||||||||
| 420,167,122 |
| (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. |
12. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is a continuity schedule of accumulated other comprehensive (loss) income:
| 2015 | 2014 | ||||||||
| Accumulated net unrealized (loss) gain on translation of net investment in foreign operations | |||||||||
| Balance, beginning of period | $ | (255) | $ | 454 | |||||
| Net unrealized loss | (438) | (112) | |||||||
| Repurchase of shares under normal course issuer bid | — | (4) | |||||||
| Balance, March 31 | (693) | 338 | |||||||
| Accumulated net unrealized loss on cash flow hedges (i) | |||||||||
| Balance, beginning of period | (113) | (20) | |||||||
| Net unrealized loss | (65) | (31) | |||||||
| Reclassification of net loss (gain) to net income | 11 | (1) | |||||||
| Balance, March 31 | (167) | (52) | |||||||
| Accumulated net unrealized loss on pensions (ii) | |||||||||
| Balance, beginning of period | (186) | (117) | |||||||
| Net unrealized loss | (1) | — | |||||||
| Reclassification of net loss to net income | 1 | 1 | |||||||
| Balance, March 31 | (186) | (116) | |||||||
| Accumulated net unrealized loss on available-for-sale investments | |||||||||
| Balance, beginning of period | (4) | (4) | |||||||
| Net unrealized gain (loss) | 1 | (1) | |||||||
| Balance, March 31 | (3) | (5) | |||||||
| Total accumulated other comprehensive (loss) income | $ | (1,049) | $ | 165 | |||||
(i) The amount of income tax benefit that has been netted in the accumulated net unrealized loss on cash flow hedges is as follows:
| 2015 | 2014 | |||||||
| Balance, beginning of period | $ 44 | $ 5 | ||||||
| Net unrealized loss | 27 | 10 | ||||||
| Reclassification of net (loss) gain to net income | (5) | 1 | ||||||
| Balance, March 31 | $ 66 | $ 16 | ||||||
(ii) The amount of income tax benefit that has been netted in the
accumulated net unrealized loss on pensions is as follows:
| 2015 | 2014 | |||||||
| Balance, beginning of period | $ 36 | $ 14 | ||||||
| Reclassification of net loss to net income | — | — | ||||||
| Balance, March 31 | $ 36 | $ 14 | ||||||
The amount of other comprehensive loss that is expected to be
reclassified to net income over the next 12 months is
13. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of the following:
| March 31, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Trading | |||||||||
| Cash and cash equivalents | $ | 1,133 | $ | 1,253 | |||||
| Investment in ABCP | 82 | 88 | |||||||
| $ | 1,215 | $ | 1,341 | ||||||
| Held to maturity investments | |||||||||
| Severance investments | $ | 4 | $ | 4 | |||||
| Available-for-sale | |||||||||
| Equity investments | $ | 6 | $ | 5 | |||||
| Loans and receivables | |||||||||
| Accounts receivable | $ | 5,895 | $ | 5,635 | |||||
| Long-term receivables included in other assets | 82 | 87 | |||||||
| $ | 5,977 | $ | 5,722 | ||||||
| Other financial liabilities | |||||||||
| Bank indebtedness | $ | 85 | $ | 33 | |||||
| Long-term debt (including portion due within one year) | 957 | 995 | |||||||
| Accounts payable | 5,013 | 5,105 | |||||||
| $ | 6,055 | $ | 6,133 | ||||||
| Derivatives designated as effective hedges, measured at fair value | |||||||||
| Foreign currency contracts | |||||||||
| Prepaid expenses | $ | 40 | $ | 22 | |||||
| Other assets | 12 | 8 | |||||||
| Other accrued liabilities | (144) | (93) | |||||||
| Other long-term liabilities | (124) | (82) | |||||||
| (216) | (145) | ||||||||
| Commodity contracts | |||||||||
| Other accrued liabilities | (1) | (1) | |||||||
| $ | (217) | $ | (146) | ||||||
[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 | |||||||||||
| March 31, 2015 | |||||||||||||
| Assets | $ | 52 | $ | 49 | $ | 3 | |||||||
| Liabilities | $ | (267) | $ | (49) | $ | (218) | |||||||
| December 31, 2014 | |||||||||||||
| Assets | $ | 30 | $ | 28 | $ | 2 | |||||||
| Liabilities | $ | (174) | $ | (28) | $ | (146) | |||||||
[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 consolidated balance sheets are reasonable estimates of fair values.
Investments
At
At
Term debt
The Company's term debt includes
Senior Notes
At
[d] Currency risk and foreign exchange contracts
At
| Buys | Sells | ||||||||
| For Canadian dollars | |||||||||
| U.S. amount | 283 | 1,372 | |||||||
| euro amount | 56 | 10 | |||||||
| Korean won amount | 22,022 | — | |||||||
| For U.S. dollars | |||||||||
| Peso amount | 8,146 | 113 | |||||||
| Korean won amount | 35,210 | — | |||||||
| For euros | |||||||||
| U.S. amount | 207 | 406 | |||||||
| GBP amount | 18 | 45 | |||||||
| Czech Koruna amount | 6,245 | — | |||||||
| Polish Zlotys amount | 271 | — | |||||||
Forward contracts mature at various dates through 2019. Foreign currency exposures are reviewed quarterly.
14. 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 often continue for several years. Where wrongful conduct is found, the relevant antitrust authority can, depending on the jurisdiction, initiate administrative or criminal legal proceedings and impose administrative or criminal fines or penalties taking into account several mitigating and aggravating factors. In the case of the German Federal Cartel Office, administrative fines are tied to the level of affected sales and the consolidated sales of the group of companies to which the offending entity belongs. At this time, management is unable to predict the duration or outcome of the German and Brazilian investigations, including whether any operating divisions of the Company will be found liable for any violation of law or the extent or magnitude of any liability, if found to be liable.
The Company's policy is to comply with all applicable laws, including antitrust and competition laws. The Company has initiated a global review focused on antitrust risk led by a team of external counsel. If any antitrust violation is found as a result of the above-referenced investigations or otherwise, Magna could be subject to fines, penalties and civil, administrative or criminal legal proceedings that could have a material adverse effect on Magna's profitability in the year in which any such fine or penalty is imposed or the outcome of any such proceeding is determined. Additionally, Magna could be subject to other consequences, including reputational damage, which could have a material adverse effect on the Company.
[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.
15. SEGMENTED INFORMATION
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 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 | ||||||||||||||||||||||||
| March 31, 2015 | March 31, 2014 | ||||||||||||||||||||||||
| Fixed | Fixed | ||||||||||||||||||||||||
| Total | External | Adjusted | assets, | Total | External | Adjusted | assets, | ||||||||||||||||||
| sales | sales | EBIT | net | sales | sales | EBIT | net | ||||||||||||||||||
| North America | |||||||||||||||||||||||||
| Canada | $ | 1,464 | $ | 1,359 | $ | 610 | $ | 1,604 | $ | 1,487 | $ | 574 | |||||||||||||
| United States | 2,408 | 2,303 | 1,280 | 2,321 | 2,197 | 1,117 | |||||||||||||||||||
| Mexico | 1,095 | 1,011 | 671 | 1,039 | 958 | 609 | |||||||||||||||||||
| Eliminations | (270) | — | — | (296) | — | — | |||||||||||||||||||
| 4,697 | 4,673 | $ 460 | 2,561 | 4,668 | 4,642 | $ 443 | 2,300 | ||||||||||||||||||
| Europe | |||||||||||||||||||||||||
| Western Europe | |||||||||||||||||||||||||
| (excluding Great Britain) | 2,404 | 2,342 | 1,213 | 3,080 | 3,015 | 1,392 | |||||||||||||||||||
| Great Britain | 200 | 199 | 105 | 182 | 182 | 73 | |||||||||||||||||||
| Eastern Europe | 602 | 528 | 499 | 628 | 530 | 656 | |||||||||||||||||||
| Eliminations | (93) | — | — | (117) | — | — | |||||||||||||||||||
| 3,113 | 3,069 | 124 | 1,817 | 3,773 | 3,727 | 127 | 2,121 | ||||||||||||||||||
| Asia | 483 | 455 | 47 | 665 | 463 | 428 | 29 | 596 | |||||||||||||||||
| Rest of World | 133 | 133 | (4) | 67 | 161 | 161 | (13) | 102 | |||||||||||||||||
| Corporate and Other | (96) | — | 15 | 358 | (104) | 3 | 19 | 269 | |||||||||||||||||
| Total reportable segments | 8,330 | 8,330 | 642 | 5,468 | 8,961 | 8,961 | 605 | 5,388 | |||||||||||||||||
| Other expense, net | — | (22) | |||||||||||||||||||||||
| Interest expense, net | (11) | (2) | |||||||||||||||||||||||
| $ | 8,330 | $ | 8,330 | $ | 631 | 5,468 | $ | 8,961 | $ | 8,961 | $ | 581 | 5,388 | ||||||||||||
| Current assets | 10,151 | 10,551 | |||||||||||||||||||||||
| Investments, goodwill, deferred tax assets and other assets | 2,367 | 2,609 | |||||||||||||||||||||||
| Consolidated total assets | $ | 17,986 | $ | 18,548 | |||||||||||||||||||||
16. SUBSEQUENT EVENTS
[a] Divestiture of Interiors Operations
On
[b] Formation of Joint Venture
On
[c] Sale of Battery Systems
On
[d] Credit Facility Extension
On
SOURCE
Louis Tonelli, Vice-President, Investor Relations at 905-726-7035.
For teleconferencing questions, please contact Nancy Hansford at 905-726-7108.