Press Release - Magna Announces Second Quarter and Year to Date Results
| THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | ||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Sales | $ | 8,133 | $ | 8,911 | $ | 15,905 | $ | 17,366 | |||||
| Adjusted EBIT(1) | $ | 677 | $ | 722 | $ | 1,308 | $ | 1,340 | |||||
| Income from continuing operations before | |||||||||||||
| income taxes | $ | 726 | $ | 704 | $ | 1,347 | $ | 1,298 | |||||
| Net income from continuing operations | |||||||||||||
| attributable to Magna International Inc. | $ | 538 | $ | 519 | $ | 993 | $ | 921 | |||||
| Diluted earnings per share | |||||||||||||
| from continuing operations | $ | 1.29 | $ | 1.18 | $ | 2.39 | $ | 2.08 | |||||
| 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
statements. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense, net. | ||||||||||||
BASIS OF PRESENTATION
In the second quarter of 2015, we signed an agreement to sell
substantially all of our interiors operations to
THREE MONTHS ENDED
We posted sales of
Excluding the impact of foreign currency translation, our complete vehicle assembly sales decreased 8% in the second quarter of 2015, compared to the second quarter of 2014. Complete vehicle assembly volumes decreased 17% to approximately 28,500 units.
During the second quarter of 2015, income from continuing operations
before income taxes was
For the second quarter of 2015, other (income) expense positively
impacted income from continuing operations before income taxes by
For the second quarter of 2014, other (income) expense negatively
impacted income from continuing operations before income taxes by
During the second quarter ended
SIX MONTHS ENDED
We posted sales of
During the six months ended
Excluding the impact of foreign currency translation, our complete vehicle assembly sales decreased 10% in the first six months of 2015, compared to the first six months of 2014. Complete vehicle assembly volumes decreased 20% to approximately 56,000 units.
During the six months ended
For the six months ended
For the six months ended
During the six months ended
A more detailed discussion of our consolidated financial results for the
second quarter and six months ended
DIVIDENDS
Yesterday, our Board of Directors declared a quarterly dividend of
UPDATED 2015 OUTLOOK
The table below reflects our 2015 outlook and 2014 actual results, both from continuing operations:
| 2015 Outlook | 2014 Actual | ||||||
| Light Vehicle Production (Units) | | ||||||
| North America | 17.4 million | 17.0 million | |||||
| Europe | 20.3 million | 20.1 million | |||||
| Production Sales | | ||||||
| North America | $17.3 - $17.9 billion | $17.4 billion | |||||
| Europe | $6.8 - $7.2 billion | $8.8 billion | |||||
| Asia | $1.6 - $1.8 billion | $1.6 billion | |||||
| Rest of World | $0.5 - $0.6 billion | $0.7 billion | |||||
| Total Production Sales | $26.2 - $27.5 billion | $28.5 billion | |||||
| Complete Vehicle Assembly Sales | $2.2 - $2.5 billion | $3.2 billion | |||||
| Total Sales | $30.9 - $32.6 billion | $34.4 billion | |||||
| Operating Margin(1) | Approximately 8% | 7.7% | |||||
| Tax Rate(1) | Approximately 26% | 25.0% | |||||
| Capital Spending | $1.3 - $1.5 billion | $1.5 billion | |||||
| (1) Excluding other (income) expense, net | |||||||
In this 2015 outlook, in addition to 2015 light vehicle production, we have assumed no material acquisitions or divestitures other than the divestiture of substantially all of our interior operations as discussed 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 319 manufacturing
operations and 85 product development, engineering and sales centres in
29 countries. We have over 136,000 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 second quarter results on
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
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 six months
ended
This MD&A has been prepared as at
OVERVIEW
We are a leading global automotive supplier with 319 manufacturing
operations and 85 product development, engineering and sales centres in
29 countries. We have over 136,000 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
Basis of Presentation
In the second quarter of 2015, we signed an agreement to sell
substantially all of our interiors operations to
Operations
North American light vehicle production increased 3% to 4.5 million units and European light vehicle production increased marginally to 5.3 million units, each in the second quarter of 2015 compared to the second quarter of 2014.
We posted sales of
Our Adjusted EBIT(1) decreased 6% to
-
North America : Adjusted EBIT of$525 million for the second quarter of 2015 declined 3% compared to$539 million for the second quarter of 2014. Segment total sales declined modestly in the second quarter of 2015 compared to the second quarter of 2014.
-
Europe : Adjusted EBIT of$120 million for the second quarter of 2015 declined 16% or$23 million from the second quarter of 2014, while segment total sales declined 21% from the second quarter of 2014 to the second quarter of 2015.
-
Asia: Adjusted EBIT was
$31 million in the second quarter of 2015, compared to$41 million for the second quarter of 2014. Segment total sales declined modestly in the second quarter of 2015 compared to the second quarter of 2014.
-
Rest of World: Our Adjusted EBIT loss of
$8 million for the second quarter of 2015 compared to an Adjusted EBIT loss of$11 million in the second quarter of 2014. Segment total sales declined 26% to$125 million for the second quarter of 2015 compared to the second quarter of 2014.
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.
Investment
Subsequent to the second quarter of 2015, we signed an agreement to
acquire the
FINANCIAL RESULTS SUMMARY
During the second quarter of 2015, we posted sales of
-
North American vehicle production increased 3% and our North American
production sales increased 1% to
$4.58 billion ; -
European vehicle production increased marginally but our European
production sales decreased 23% to
$1.83 billion ; -
Asian production sales increased marginally to
$390 million ; -
Rest of World production sales decreased 23% to
$125 million ; -
Complete vehicle assembly volumes decreased 17% and sales decreased 26%
to
$607 million ; and -
Tooling, engineering and other sales decreased 10% to
$599 million .
During the second quarter of 2015, we earned income from continuing
operations before income taxes of
- the negative impact of foreign exchange translation from the weakening of foreign currencies, including the euro and Canadian dollar, against the U.S. dollar;
- lower recoveries associated with scrap steel;
- higher launch costs;
- operational inefficiencies at certain facilities;
-
higher warranty costs of
$3 million ; - higher incentive compensation;
- lower equity income;
-
a
$1 million net decrease in valuation gains in respect of ABCP; and - net customer price concessions subsequent to the second quarter of 2014.
These factors were partially offset by:
- incremental margin earned on new programs that launched during or subsequent to the second quarter of 2014;
-
costs incurred related to a fire at a body and chassis facility in
North America , during the second quarter of 2014; -
the expiration, at the end of 2014, of our consulting agreements with
Frank Stronach ; - decreased commodity costs;
- a lower amount of employee profit sharing; and
- productivity and efficiency improvements at certain facilities.
During the second quarter of 2015, net income attributable to
| For the three months ended June 30, | ||||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||||
| Net Income | Diluted | Net Income | Diluted | |||||||||||||||||||||
| Attributable | Earnings | Attributable | Earnings | |||||||||||||||||||||
| to Magna | per Share | to Magna | per Share | |||||||||||||||||||||
| Other (income) expense | $ | (57) | $ | (0.14) | $ | 11 | $ | 0.02 | ||||||||||||||||
| Income tax effect | 15 | 0.04 | (1) | — | ||||||||||||||||||||
| $ | (42) | $ | (0.10) | $ | 10 | $ | 0.02 | |||||||||||||||||
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 other factors affecting our performance
such as: operational inefficiencies; costs incurred to launch new or
takeover business; price reduction pressures from our customers;
warranty and recall costs; commodities and scrap prices; restructuring,
downsizing and other significant non-recurring costs; and the financial
condition of our supply base, 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 six months | |||||||||||||||||||||||||
| ended June 30, | ended June 30, | |||||||||||||||||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||||||||||||
| 1 Canadian dollar equals U.S. dollars | 0.813 | 0.917 | - | 11% | 0.811 | 0.912 | - | 11% | ||||||||||||||||||
| 1 euro equals U.S. dollars | 1.107 | 1.371 | - | 19% | 1.118 | 1.371 | - | 18% | ||||||||||||||||||
| 1 British pound equals U.S. dollars | 1.533 | 1.683 | - | 9% | 1.525 | 1.669 | - | 9% | ||||||||||||||||||
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 six 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 June 30, | |||||||||||||||||||
| 2015 | 2014 | Change | |||||||||||||||||
| Vehicle Production Volumes (millions of units) | |||||||||||||||||||
| North America | 4.546 | 4.412 | + | 3% | |||||||||||||||
| Europe | 5.347 | 5.325 | — | ||||||||||||||||
| Sales | |||||||||||||||||||
| External Production | |||||||||||||||||||
| North America | $ | 4,583 | $ | 4,519 | + | 1% | |||||||||||||
| Europe | 1,829 | 2,360 | - | 23% | |||||||||||||||
| Asia | 390 | 389 | — | ||||||||||||||||
| Rest of World | 125 | 163 | - | 23% | |||||||||||||||
| Complete Vehicle Assembly | 607 | 817 | - | 26% | |||||||||||||||
| Tooling, Engineering and Other | 599 | 663 | - | 10% | |||||||||||||||
| Total Sales | $ | 8,133 | $ | 8,911 | - | 9% | |||||||||||||
External Production Sales -
Reported external production sales in
-
the launch of new programs during or subsequent to the second quarter of
2014, including the:
-
Ford Transit;
-
Ford Edge;
-
Mercedes-Benz C-Class;
-
Ford Mustang; and
-
Chevrolet Colorado and
GMC Canyon .
-
Ford Transit;
This factor was partially offset by:
-
a
$175 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar; - lower production volumes on certain existing programs;
- programs that ended production during or subsequent to the second quarter of 2014;
-
net divestitures subsequent to the second quarter of 2014, which
negatively impacted sales by
$27 million ; and - net customer price concessions subsequent to the second quarter of 2014.
External Production Sales -
Reported external production sales in
-
a
$444 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 Czech koruna; - lower production volumes on certain existing programs;
- programs that ended production during or subsequent to the second quarter of 2014; and
- net customer price concessions subsequent to the second quarter of 2014.
These factors were partially offset by the launch of new programs during or subsequent to the second quarter of 2014.
External Production Sales -
Reported external production sales in
This factor was partially offset by:
- lower production volumes on certain existing programs;
-
a
$4 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 South Korean won; and - net customer price concessions subsequent to the second quarter of 2014.
External Production Sales - Rest of World
Reported external production sales in Rest of World decreased 23% or
- lower production volumes on certain existing programs; and
-
a
$40 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.
These factors were partially offset by:
-
the launch of new programs during or subsequent to the second quarter of
2014, primarily in
Brazil ; and - net customer price increases subsequent to the second quarter of 2014.
Complete Vehicle Assembly Sales
| For the three months | |||||||||||||||||
| ended June 30, | |||||||||||||||||
| 2015 | 2014 | Change | |||||||||||||||
| Complete Vehicle Assembly Sales | $ | 607 | $ | 817 | - | 26% | |||||||||||
| Complete Vehicle Assembly Volumes (Units) | 28,343 | 34,299 | - | 17% | |||||||||||||
Reported complete vehicle assembly sales decreased
The decrease in complete vehicle assembly sales is primarily as a result of:
-
a
$146 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 10% or
In the second quarter of 2015, the major programs for which we recorded tooling, engineering and other sales were the:
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford Edge;
- Honda Pilot;
- MINI Countryman;
- Lincoln MKX; and
- Chevrolet Cruze.
In the second quarter of 2014, the major programs for which we recorded tooling, engineering and other sales were the:
- BMW X4;
- MINI Countryman;
- Ford Transit;
- Mercedes-Benz M-Class;
- Lincoln MKC;
- Dodge Challenger;
- QOROS 3; and
- Acura TL.
The weakening of certain foreign currencies against the U.S. dollar,
including the euro and Canadian dollar had an unfavourable impact of
Cost of Goods Sold and Gross Margin
| For the three months | ||||||||||||||||
| ended June 30, | ||||||||||||||||
| 2015 | 2014 | |||||||||||||||
| Sales | $ | 8,133 | $ | 8,911 | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Material | 5,124 | 5,664 | ||||||||||||||
| Direct labour | 541 | 555 | ||||||||||||||
| Overhead | 1,297 | 1,407 | ||||||||||||||
| 6,962 | 7,626 | |||||||||||||||
| Gross margin | $ | 1,171 | $ | 1,285 | ||||||||||||
| Gross margin as a percentage of sales | 14.4% | 14.4% | ||||||||||||||
Reported cost of goods sold decreased
- higher material, overhead and labour costs associated with the increase in sales;
- lower recoveries associated with scrap steel;
- higher launch costs; and
- operational inefficiencies at certain facilities.
These factors were partially offset by:
-
costs incurred related to a fire at a body and chassis facility in
North America , during the second quarter of 2014; - decreased commodity costs; and
- productivity and efficiency improvements at certain facilities.
Gross margin decreased
- a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content than our consolidated average;
- productivity and efficiency improvements at certain facilities;
-
costs incurred related to a fire at a body and chassis facility in
North America , during the second quarter of 2014; -
a decrease in the proportion of sales earned in
Europe relative to total sales, which have a lower margin than our consolidated average, primarily due to weakening of the euro against the U.S. dollar; - decreased commodity costs; and
- a lower amount of employee profit sharing.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- lower recoveries associated with scrap steel;
- higher launch costs; and
- higher warranty costs.
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 second quarter of
2015 compared to 4.6% for the second quarter of 2014. SG&A expense
decreased
Equity Income
Equity income decreased
Other (Income) Expense, net
During the second quarter of 2015, we sold our battery pack business to
During the second and first quarters 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 June 30, | |||||||||||||||||||||||||||||
| Total Sales | Adjusted EBIT | ||||||||||||||||||||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||
| North America | $ | 4,877 | $ | 4,889 | $ | (12) | $ | 525 | $ | 539 | $ | (14) | |||||||||||||||||
| Europe | 2,774 | 3,500 | (726) | 120 | 143 | (23) | |||||||||||||||||||||||
| Asia | 466 | 472 | (6) | 31 | 41 | (10) | |||||||||||||||||||||||
| Rest of World | 125 | 168 | (43) | (8) | (11) | 3 | |||||||||||||||||||||||
| Corporate and Other | (109) | (118) | 9 | 9 | 10 | (1) | |||||||||||||||||||||||
|
Total reportable segments | | | | | | $ | 8,133 | | | $ | 8,911 | | | $ | (778) | | | $ | | 677 | | | $ | | 722 | | | $ | (45) |
Excluded from Adjusted EBIT for the three months ended
| For the three months | |||||||||||||||||||
| ended June 30, | |||||||||||||||||||
| 2015 | 2014 | ||||||||||||||||||
| Europe | |||||||||||||||||||
| Gain on sale | $ | (57) | $ | — | |||||||||||||||
| Restructuring | — | 11 | |||||||||||||||||
| $ | (57) | $ | 11 | ||||||||||||||||
Reported Adjusted EBIT in
- costs incurred related to a fire at a body and chassis facility, during the second quarter of 2014;
- lower affiliation fees paid to Corporate;
- margins earned on higher production sales;
- decreased commodity costs;
- a lower amount of employee profit sharing;
- decreased pre-operating costs incurred at new facilities; and
- productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
- lower recoveries associated with scrap steel;
- higher launch costs;
- operational inefficiencies at certain facilities;
-
higher warranty costs of
$4 million ; and - net customer price concessions subsequent to the second quarter of 2014.
Reported Adjusted EBIT in
- productivity and efficiency improvements at certain facilities;
- lower affiliation fees paid to Corporate;
- decreased commodity costs;
- a lower amount of employee profit sharing; and
-
lower warranty costs of
$1 million .
These factors were partially offset by:
- higher launch costs;
- operational inefficiencies at certain facilities;
- lower equity income;
- increased pre-operating costs incurred at new facilities; and
- net customer price concessions subsequent to the second quarter of 2014.
Adjusted EBIT in
- increased pre-operating costs incurred at new facilities;
- higher launch costs; and
- net customer price concessions subsequent to the second quarter of 2014.
These factors were partially offset by:
- 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.
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; and
- net customer price increases subsequent to the second 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;
- a greater amount of employee profit sharing;
- higher incentive 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 second quarter of 2015, we recorded net interest expense of
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased
Income Taxes
| For the three months ended June 30, | ||||||||||||||||||||||
| 2015 | 2014 | |||||||||||||||||||||
| $ | % | $ | % | |||||||||||||||||||
| Income taxes as reported | $ | 191 | 26.3 | $ | 185 | 26.3 | ||||||||||||||||
| Tax effect on Other Income and Other Expense | (15) | — | 1 | (0.3) | ||||||||||||||||||
| $ | 176 | 26.3 | $ | 186 | 26.0 | |||||||||||||||||
Excluding Other Income and Other Expense, after tax, the effective income tax rate increased to 26.3% for the second quarter of 2015 compared to 26.0% for the second quarter of 2014 primarily as a result of a change in the mix of earnings whereby proportionately more income was earned in jurisdictions with higher income tax rates.
Loss from Discontinued Operations, net of tax
Loss income from discontinued operations, net of tax reflects the results of our interiors operations which have been reclassified to discontinued operations as a result of the agreement, during the second quarter of 2015, for the sale of this business.
| Three months ended | ||||||||||||
| June 30, | ||||||||||||
| 2015 | 2014 | |||||||||||
| Sales | $ | 695 | $ | 593 | ||||||||
| Costs and expenses | ||||||||||||
| Cost of goods sold | 653 | 569 | ||||||||||
| Depreciation and amortization | 2 | 12 | ||||||||||
| Selling, general and administrative | 29 | 26 | ||||||||||
| Equity income | (4) | (2) | ||||||||||
| Income (loss) from discontinued operations before income taxes | 15 | (12) | ||||||||||
| Income taxes | 70 | (3) | ||||||||||
| Loss from discontinued operations, net of tax | $ | (55) | $ | (9) | ||||||||
Loss from discontinued operations, net of tax increased
Loss from Continuing Operations Attributable to Non-Controlling Interests
Loss from continuing operations attributable to non-controlling
interests was
Net Income Attributable to
Net income attributable to
Earnings per Share (restated)
| For the three months | ||||||||||||||||
| ended June 30, | ||||||||||||||||
| 2015 | 2014 | Change | ||||||||||||||
| Basic earnings per Common Share | ||||||||||||||||
| Continuing operations | $ | 1.31 | $ | 1.20 | + | 9% | ||||||||||
| Attributable to Magna International Inc. | $ | 1.18 | $ | 1.18 | — | |||||||||||
| Diluted earnings per Common Share | ||||||||||||||||
| Continuing operations | $ | 1.29 | $ | 1.18 | + | 9% | ||||||||||
| Attributable to Magna International Inc. | $ | 1.16 | $ | 1.16 | — | |||||||||||
| Weighted average number of Common Shares outstanding (millions) | ||||||||||||||||
| Basic | 409.8 | 433.2 | - | 5% | ||||||||||||
| Diluted | 415.4 | 439.2 | - | 5% | ||||||||||||
Diluted earnings per share from continuing operations 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 second 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 June 30, | |||||||||||||||||
| 2015 | 2014 | Change | |||||||||||||||
| Net income from continuing operations | $ | 535 | $ | 519 | |||||||||||||
| Items not involving current cash flows | 176 | 227 | |||||||||||||||
| 711 | 746 | $ | (35) | ||||||||||||||
| Changes in operating assets and liabilities | (271) | (136) | |||||||||||||||
| Cash provided from operating activities | $ | 440 | $ | 610 | $ | (170) | |||||||||||
Cash flow from operations before changes in operating assets and
liabilities decreased
| For the three months | ||||||||||||
| ended June 30, | ||||||||||||
| 2015 | 2014 | |||||||||||
| Depreciation and amortization | $ | 198 | $ | 211 | ||||||||
| Amortization of other assets included in cost of goods sold | 27 | 40 | ||||||||||
| Deferred income taxes | 11 | (11) | ||||||||||
| Other non-cash charges | 9 | 9 | ||||||||||
| Equity income in excess of dividends received | (12) | (22) | ||||||||||
| Non-cash portion of Other Income | (57) | — | ||||||||||
| Items not involving current cash flows | $ | 176 | $ | 227 | ||||||||
Cash invested in operating assets and liabilities amounted to
| For the three months | |||||||||||||||
| ended June 30, | |||||||||||||||
| 2015 | 2014 | ||||||||||||||
| Accounts receivable | $ | 5 | $ | (52) | |||||||||||
| Inventories | (143) | (81) | |||||||||||||
| Prepaid expenses and other | 2 | (7) | |||||||||||||
| Accounts payable | (15) | 108 | |||||||||||||
| Accrued salaries and wages | (119) | (107) | |||||||||||||
| Other accrued liabilities | 2 | (20) | |||||||||||||
| Income taxes payable/receivable | (3) | 23 | |||||||||||||
| Changes in operating assets and liabilities | $ | (271) | $ | (136) | |||||||||||
The increase in inventories was primarily due to increased tooling inventory to support upcoming launches. The decrease in accrued salaries and wages was primarily due to employee profit sharing payments.
Capital and Investment Spending
| For the three months | |||||||||||||||||
| ended June 30, | |||||||||||||||||
| 2015 | 2014 | Change | |||||||||||||||
| Fixed asset additions | $ | (361) | $ | (362) | |||||||||||||
| Investments and other assets | (41) | (48) | |||||||||||||||
| Fixed assets, investments and other assets additions | (402) | (410) | |||||||||||||||
| Proceeds from disposition | 118 | 16 | |||||||||||||||
| Cash used in discontinued operations | (9) | (36) | |||||||||||||||
| Cash used for investment activities | $ | (293) | $ | (430) | $ | 137 | |||||||||||
Fixed assets, investments and other assets additions
In the second quarter of 2015, we invested
In the second quarter of 2015, we invested
Proceeds from disposition
In the second quarter of 2015, the
Financing
| For the three months | |||||||||||||||||
| ended June 30, | |||||||||||||||||
| 2015 | 2014 | Change | |||||||||||||||
| Increase in bank indebtedness | $ | 1 | $ | — | |||||||||||||
| Issues of debt | 16 | 763 | |||||||||||||||
| Issues of Common Shares on exercise of stock options | 7 | 12 | |||||||||||||||
| Repayments of debt | (11) | (15) | |||||||||||||||
| Repurchase of Common Shares | (5) | (575) | |||||||||||||||
| Dividends paid | (90) | (79) | |||||||||||||||
| Cash used for financing activities | $ | (82) | $ | 106 | $ | (188) | |||||||||||
Cash dividends paid per Common Share were
Financing Resources
| As at | As at | ||||||||||||||||||
| June 30, | December 31, | ||||||||||||||||||
| 2015 | 2014 | Change | |||||||||||||||||
| Liabilities | |||||||||||||||||||
| Bank indebtedness | $ | 77 | $ | 30 | |||||||||||||||
| Long-term debt due within one year | 167 | 183 | |||||||||||||||||
| Long-term debt | 796 | 812 | |||||||||||||||||
| 1,040 | 1,025 | ||||||||||||||||||
| Non-controlling interests | 10 | 14 | |||||||||||||||||
| Shareholders' equity | 9,050 | 8,659 | |||||||||||||||||
| Total capitalization | $ | 10,100 | $ | 9,698 | $ | 402 | |||||||||||||
Total capitalization increased by
The increase in shareholders' equity was primarily as a result of the
These factors were partially offset by:
-
the
$375 million net unrealized loss on translation of our net investment in operations whose functional currency is not the U.S. dollar; -
$179 million of dividends paid during the first six months of 2015; and -
the
$67 million net unrealized loss on cash flow hedges.
Cash Resources
During the second quarter of 2015, our cash resources increased 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 | 410,979,525 |
| Stock options (i) | 9,220,638 |
| 420,200,163 | |
| (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 second quarter of 2015 that are outside the ordinary course of our business. Refer to our MD&A included in our 2014 Annual Report.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED
Sales
| For the six months | ||||||||||||||||||
| ended June 30, | ||||||||||||||||||
| 2015 | 2014 | Change | ||||||||||||||||
| Vehicle Production Volumes (millions of units) | ||||||||||||||||||
| North America | 8.656 | 8.530 | + | 1% | ||||||||||||||
| Europe | 10.574 | 10.444 | + | 1% | ||||||||||||||
| Sales | ||||||||||||||||||
| External Production | ||||||||||||||||||
| North America | $ | 8,808 | $ | 8,729 | + | 1% | ||||||||||||
| Europe | 3,724 | 4,706 | - | 21% | ||||||||||||||
| Asia | 793 | 757 | + | 5% | ||||||||||||||
| Rest of World | 256 | 320 | - | 20% | ||||||||||||||
| Complete Vehicle Assembly | 1,207 | 1,654 | - | 27% | ||||||||||||||
| Tooling, Engineering and Other | 1,117 | 1,200 | - | 7% | ||||||||||||||
| Total Sales | $ | 15,905 | $ | 17,366 | - | 8% | ||||||||||||
External Production Sales -
External production sales in
-
the launch of new programs during or subsequent to the six months ended
June 30, 2014 , including the:
-
Ford Transit;
-
GM full-size pickups and SUVs;
-
Ford Mustang;
-
Chrysler 200; and
- Mercedes-Benz C-Class.
-
Ford Transit;
This factor was partially offset by:
- lower production volumes on certain existing programs;
-
a
$336 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 second quarter of 2014, which
negatively impacted sales by
$50 million ; -
programs that ended production during or subsequent to the six months
ended
June 30, 2014 ; and -
net customer price concessions subsequent to the six months ended
June 30, 2014 .
External Production Sales -
External production sales in
-
a
$872 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, Russian ruble and Czech koruna; - lower production volumes on certain existing programs;
-
programs that ended production during or subsequent to the six months
ended
June 30, 2014 ; and -
net customer price concessions subsequent to the six months ended
June 30, 2014 .
These factors were partially offset by the launch of new programs during
or subsequent to the six months ended
External Production Sales -
External production sales in
This factor was partially offset by:
- lower production volumes on certain existing programs;
-
a
$12 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 six months
ended
June 30, 2014 ; and - net customer price concessions subsequent to the second quarter of 2014.
External Production Sales - Rest of World
External production sales in Rest of World decreased 20% or
- lower production volumes on certain existing programs;
-
a
$66 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 -
programs that ended production during or subsequent to the six months
ended
June 30, 2014 .
These factors were partially offset by:
-
the launch of new programs during or subsequent to the second quarter of
2014, primarily in
Brazil ; and -
net customer price increases subsequent to the six months ended
June 30, 2014 .
Complete Vehicle Assembly Sales
| For the six months | |||||||
| ended June 30, | |||||||
| 2015 | 2014 | Change | |||||
| Complete Vehicle Assembly Sales | $ | 1,207 | $ | 1,654 | - | 27% | |
| Complete Vehicle Assembly Volumes (Units) | 55,686 | 69,957 | - | 20% | |||
Complete vehicle assembly sales decreased 27%, or
The decrease in complete vehicle assembly sales is primarily as a result of:
-
a
$276 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
Tooling, engineering and other sales decreased 7% or
In the six months ended
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford Edge;
- MINI Countryman;
- Skoda Fabia;
- Honda HR-V and Vezel; and
- Honda Pilot.
In the six months ended
- BMW X4;
- MINI Countryman;
- Ford Transit;
- QOROS 3;
- Mercedes-Benz M-Class;
- Ford Mustang;
- Honda Fit;
- Peugeot RCZ; and
- Chrysler 200.
The weakening of certain foreign currencies against the U.S. dollar,
including the euro, Canadian dollar and Czech koruna had an unfavourable impact of
Segment Analysis
| For the six months ended June 30, | ||||||||||||||||
| Total Sales | Adjusted EBIT | |||||||||||||||
| 2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||
| North America | $ | 9,334 | $ | 9,349 | $ | (15) | $ | 978 | $ | 991 | $ | (13) | ||||
| Europe | 5,592 | 6,991 | (1,399) | 248 | 279 | (31) | ||||||||||
| Asia | 929 | 922 | 7 | 73 | 68 | 5 | ||||||||||
| Rest of World | 258 | 329 | (71) | (12) | (24) | 12 | ||||||||||
| Corporate and Other | (208) | (225) | 17 | 21 | 26 | (5) | ||||||||||
| Total reportable | ||||||||||||||||
| segments | $ | 15,905 | $ | 17,366 | $ | (1,461) | $ | 1,308 | $ | 1,340 | $ | (32) | ||||
Excluded from Adjusted EBIT for the six months ended
| For the six months | ||||||
| ended June 30, | ||||||
| 2015 | 2014 | |||||
| Europe | ||||||
| Gain on sale | $ | (57) | $ | — | ||
| Restructuring | — | 33 | ||||
| $ | (57) | $ | 33 | |||
Adjusted EBIT in
- costs incurred related to a fire at a body and chassis facility, during the second quarter of 2014;
- lower affiliation fees paid to Corporate;
- margins earned on higher production sales;
- higher equity income;
- decreased commodity costs;
- 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;
-
higher warranty costs of
$8 million ; - operational inefficiencies at certain facilities; and
- net customer price concessions subsequent to the second quarter of 2014.
Adjusted EBIT in
- productivity and efficiency improvements at certain facilities;
- lower affiliation fees paid to Corporate;
- decreased commodity costs; and
-
lower warranty costs of
$4 million .
These factors were partially offset by:
- higher launch costs;
- lower equity income;
- operational inefficiencies at certain facilities;
- increased pre-operating costs incurred at new facilities; and
- net customer price concessions subsequent to the second 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;
- a lower amount of employee profit sharing; 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 second quarter of 2014.
Rest of World
Rest of World Adjusted EBIT improved
- 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; and
- net customer price increases subsequent to the second 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;
- a greater amount of employee profit sharing; and
-
a
$2 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
SUBSEQUENT EVENT
Subsequent to the second quarter of 2015, we signed an agreement to
acquire 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 16 of our unaudited interim consolidated financial
statements for the six 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 six months ended
FORWARD-LOOKING STATEMENTS
The previous discussion 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: the acquisition of the Getrag group
of companies (the "Getrag Transaction"); and the sale of substantially
all of our interiors operations to
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
| Three months ended | Six months ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| Note | 2015 | 2014 | 2015 | 2014 | ||||||||||
| Sales | $ | 8,133 | $ | 8,911 | $ | 15,905 | $ | 17,366 | ||||||
| Costs and expenses | ||||||||||||||
| Cost of goods sold | 6,962 | 7,626 | 13,630 | 14,900 | ||||||||||
| Depreciation and amortization | 198 | 211 | 392 | 417 | ||||||||||
| Selling, general and administrative | 12 | 348 | 407 | 678 | 810 | |||||||||
| Interest expense, net | 8 | 7 | 18 | 9 | ||||||||||
| Equity income | (52) | (55) | (103) | (101) | ||||||||||
| Other (income) expense, net | 3 | (57) | 11 | (57) | 33 | |||||||||
| Income from continuing operations before income taxes | 726 | 704 | 1,347 | 1,298 | ||||||||||
| Income taxes | 7 | 191 | 185 | 358 | 378 | |||||||||
| Net income from continuing operations | 535 | 519 | 989 | 920 | ||||||||||
| Loss from discontinued operations, net of tax | 2 | (55) | (9) | (45) | (18) | |||||||||
| Net income | 480 | 510 | 944 | 902 | ||||||||||
| Loss from continuing operations attributable to | ||||||||||||||
| non-controlling interests | 3 | — | 4 | 1 | ||||||||||
| Net income attributable to Magna International Inc. | $ | 483 | $ | 510 | $ | 948 | $ | 903 | ||||||
| Basic earnings per share (restated - see note 1): | 4 | |||||||||||||
| Continuing operations | $ | 1.31 | $ | 1.20 | $ | 2.42 | $ | 2.11 | ||||||
| Discontinued operations | (0.13) | (0.02) | (0.11) | (0.04) | ||||||||||
| Attributable to Magna International Inc. | $ | 1.18 | $ | 1.18 | $ | 2.31 | $ | 2.07 | ||||||
| Diluted earnings per share (restated): | 4 | |||||||||||||
| Continuing operations | $ | 1.29 | $ | 1.18 | $ | 2.39 | $ | 2.08 | ||||||
| Discontinued operations | (0.13) | (0.02) | (0.11) | (0.04) | ||||||||||
| Attributable to Magna International Inc. | $ | 1.16 | $ | 1.16 | $ | 2.28 | $ | 2.04 | ||||||
| Cash dividends paid per Common Share (restated) | $ | 0.22 | $ | 0.19 | $ | 0.44 | $ | 0.38 | ||||||
| Average number of Common Shares outstanding during | ||||||||||||||
| the period [in millions] (restated): | 4 | |||||||||||||
| Basic | 409.8 | 433.2 | 409.6 | 436.9 | ||||||||||
| Diluted | 415.4 | 439.2 | 415.2 | 443.1 | ||||||||||
| See accompanying notes | ||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| Note | 2015 | 2014 | 2015 | 2014 | ||||||||||
| Net income | $ | 480 | $ | 510 | $ | 944 | $ | 902 | ||||||
| Other comprehensive income (loss), net of tax: | 14 | |||||||||||||
| Net unrealized gain (loss) on translation of net investment in foreign operations | 63 | 100 | (375) | (12) | ||||||||||
| Net unrealized gain (loss) on available-for-sale investments | 1 | — | 2 | (1) | ||||||||||
| Net unrealized (loss) gain on cash flow hedges | (2) | 49 | (67) | 18 | ||||||||||
| Reclassification of net loss on cash flow hedges to net income | 21 | 6 | 32 | 5 | ||||||||||
| Reclassification of net loss on pensions to net income | 2 | 2 | 3 | 3 | ||||||||||
| Pension and post retirement benefits | — | — | (1) | — | ||||||||||
| Other comprehensive income (loss) | 85 | 157 | (406) | 13 | ||||||||||
| Comprehensive income | 565 | 667 | 538 | 915 | ||||||||||
| Comprehensive loss attributable to non-controlling interests | 3 | — | 4 | 1 | ||||||||||
| Comprehensive income attributable to Magna International Inc. | $ | 568 | $ | 667 | $ | 542 | $ | 916 | ||||||
| See accompanying notes | ||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| Note | 2015 | 2014 | 2015 | 2014 | |||||||||
| Cash provided from (used for): | |||||||||||||
| OPERATING ACTIVITIES | |||||||||||||
| Net income from continuing operations | $ | 535 | $ | 519 | $ | 989 | $ | 920 | |||||
| Items not involving current cash flows | 5 | 176 | 227 | 351 | 497 | ||||||||
| 711 | 746 | 1,340 | 1,417 | ||||||||||
| Changes in operating assets and liabilities | 5 | (271) | (136) | (620) | (315) | ||||||||
| Cash provided from operating activities | 440 | 610 | 720 | 1,102 | |||||||||
| INVESTMENT ACTIVITIES | |||||||||||||
| Fixed asset additions | (361) | (362) | (627) | (565) | |||||||||
| Purchase of subsidiaries | — | — | (1) | — | |||||||||
| Increase in investments and other assets | (41) | (48) | (78) | (99) | |||||||||
| Proceeds from disposition | 15 | 16 | 39 | 50 | |||||||||
| Proceeds on disposal of battery pack business | 3 | 103 | — | 103 | — | ||||||||
| Cash used in discontinued operations | (9) | (36) | (41) | (63) | |||||||||
| Cash used for investing activities | (293) | (430) | (605) | (677) | |||||||||
| FINANCING ACTIVITIES | |||||||||||||
| Increase in bank indebtedness | 1 | — | 70 | 3 | |||||||||
| Issues of debt | 10 | 16 | 763 | 31 | 794 | ||||||||
| Repayments of debt | (11) | (15) | (54) | (85) | |||||||||
| Issue of Common Shares on exercise of stock options | 7 | 12 | 13 | 37 | |||||||||
| Repurchase of Common Shares | 13 | (5) | (575) | (5) | (815) | ||||||||
| Dividends | (90) | (79) | (179) | (162) | |||||||||
| Cash (used for) provided from financing activities | (82) | 106 | (124) | (228) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (1) | 30 | (77) | 6 | |||||||||
| Net increase (decrease) in cash and cash equivalents during the period | 64 | 316 | (86) | 203 | |||||||||
| Cash and cash equivalents, beginning of period | 1,099 | 1,438 | 1,249 | 1,551 | |||||||||
| Cash and cash equivalents of continuing operations, end of period | $ | 1,163 | $ | 1,754 | $ | 1,163 | $ | 1,754 | |||||
| See accompanying notes | |||||||||||||
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
| Note | As at June 30, 2015 |
As at December 31, 2014 | |||||||
| ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | 5 | $ | 1,163 | $ | 1,249 | ||||
| Accounts receivable | 5,574 | 5,316 | |||||||
| Inventories | 6 | 2,676 | 2,525 | ||||||
| Income taxes receivable | — | 13 | |||||||
| Deferred tax assets | 180 | 181 | |||||||
| Prepaid expenses and other | 162 | 150 | |||||||
| Assets held for sale | 2 | 1,096 | 609 | ||||||
| 10,851 | 10,043 | ||||||||
| Investments | 15 | 403 | 379 | ||||||
| Fixed assets, net | 5,406 | 5,402 | |||||||
| Goodwill | 1,272 | 1,337 | |||||||
| Deferred tax assets | 145 | 139 | |||||||
| Other assets | 8 | 490 | 526 | ||||||
| Noncurrent assets held for sale | 2 | — | 348 | ||||||
| $ | 18,567 | $ | 18,174 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| Current liabilities | |||||||||
| Bank indebtedness | $ | 77 | $ | 30 | |||||
| Accounts payable | 4,691 | 4,765 | |||||||
| Accrued salaries and wages | 637 | 686 | |||||||
| Other accrued liabilities | 9 | 1,447 | 1,448 | ||||||
| Income taxes payable | 8 | — | |||||||
| Deferred tax liabilities | 78 | 21 | |||||||
| Long-term debt due within one year | 167 | 183 | |||||||
| Liabilities held for sale | 2 | 624 | 514 | ||||||
| 7,729 | 7,647 | ||||||||
| Long-term debt | 10 | 796 | 812 | ||||||
| Long-term employee benefit liabilities | 11 | 524 | 559 | ||||||
| Other long-term liabilities | 304 | 278 | |||||||
| Deferred tax liabilities | 7 | 154 | 171 | ||||||
| Long-term liabilities held for sale | 2 | — | 34 | ||||||
| 9,507 | 9,501 | ||||||||
| Shareholders' equity | |||||||||
| Capital stock | |||||||||
| Common Shares | |||||||||
| [issued: 410,974,525; December 31, 2014 - 410,325,270 (restated)] | 13 | 4,006 | 3,979 | ||||||
| Contributed surplus | 94 | 83 | |||||||
| Retained earnings | 5,914 | 5,155 | |||||||
| Accumulated other comprehensive loss | 14 | (964) | (558) | ||||||
| 9,050 | 8,659 | ||||||||
| Non-controlling interests | 10 | 14 | |||||||
| 9,060 | 8,673 | ||||||||
| $ | 18,567 | $ | 18,174 | ||||||
| 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 | 948 | (4) | 944 | ||||||||||||||||||
| Other comprehensive income | (406) | (406) | |||||||||||||||||||
| Shares issued on exercise of stock options | 0.6 | 17 | (4) | 13 | |||||||||||||||||
| Exempt share purchase | (1) | (4) | (5) | ||||||||||||||||||
| Release of restricted stock | 5 | (5) | — | ||||||||||||||||||
| Stock-based compensation expense | 12 | 20 | 20 | ||||||||||||||||||
| Dividends paid | 0.1 | 6 | (185) | (179) | |||||||||||||||||
| Balance, June 30, 2015 | 411.0 | $ | 4,006 | $ | 94 | $ | 5,914 | $ | (964) | $ | 10 | $ | 9,060 | ||||||||
| 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 | 903 | (1) | 902 | ||||||||||||||||||
| Other comprehensive income | 13 | 13 | |||||||||||||||||||
| Issues of shares by subsidiaries | |||||||||||||||||||||
| Shares issued on exercise of stock options | 2.0 | 47 | (10) | 37 | |||||||||||||||||
| Repurchase and cancellation under normal course issuer bid | 12 | (16.9) | (162) | (638) | (15) | (815) | |||||||||||||||
| Release of restricted stock | 5 | (5) | — | ||||||||||||||||||
| Stock-based compensation expense | 11 | 20 | 20 | ||||||||||||||||||
| Reclassification from liability | 11 | 7 | 7 | ||||||||||||||||||
| Dividends paid | 0.1 | 5 | (167) | (162) | |||||||||||||||||
| Balance, June 30, 2014 | 427.5 | $ | 4,125 | $ | 81 | $ | 5,109 | $ | 311 | $ | 15 | $ | 9,641 | ||||||||
| (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] Discontinued Operations
The Company reports financial results for discontinued operations
separately from continuing operations to distinguish the financial
impact of disposal transactions from ongoing operations. Discontinued
operations reporting only occurs when the disposal of a component or a
group of components of the Company represents a strategic shift that
will have a major impact on the Company's operations and financial
results. In the second quarter of 2015, the Company announced the
signing of an agreement to sell substantially all of its interiors
operations to
[d] Future Accounting Standard
Revenue Recognition
In
2. DISCONTINUED OPERATIONS
In the second quarter of 2015, the Company entered into an agreement for
the sale of substantially all of its interiors operations ["the
disposed interiors operations"] to
The Company determined that the assets and liabilities of the disposed
interiors operations met the criteria to be classified as held for sale
as of
The following table summarizes the carrying value of the major classes
of assets and liabilities of the discontinued operations which were
classified as held for sale as of
| June 30, 2015 |
December 31, 2014 | ||||||
| Cash and cash equivalents | $ | 35 | $ | 4 | |||
| Accounts receivable | 446 | 355 | |||||
| Inventories | 240 | 232 | |||||
| Income taxes receivable | — | 3 | |||||
| Prepaid expenses and other | 11 | 10 | |||||
| Deferred tax assets | 16 | 12 | |||||
| Fixed assets, net | 273 | 263 | |||||
| Goodwill | 12 | 12 | |||||
| Investments | 41 | 40 | |||||
| Other assets | 22 | 26 | |||||
| Total assets of the discontinued operations classified as held for sale | $ | 1,096 | $ | 957 | |||
| Bank indebtedness | $ 8 | $ 3 | |||||
| Accounts payable | 413 | 376 | |||||
| Accrued salaries and wages | 48 | 44 | |||||
| Other accrued liabilities | 116 | 91 | |||||
| Income taxes payable | 7 | — | |||||
| Long-term debt due within one year | 1 | 1 | |||||
| Long-term employee benefit liabilities | 19 | 20 | |||||
| Other long-term liabilities | 12 | 12 | |||||
| Deferred tax liabilities | — | 1 | |||||
| Total liabilities of the discontinued operations classified as held for sale | $ | 624 | $ | 548 |
Since the estimated purchase price of the disposed interiors operations
less costs to sell exceeded the carrying value of such operations as at
A reconciliation of the major classes of line items constituting loss from discontinued operations, net of tax as presented in the statements of income is as follows:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Sales | $ | 695 | $ | 593 | $ | 1,284 | $ | 1,143 | |||||
| Costs and expenses | |||||||||||||
| Cost of goods sold | 653 | 569 | 1,199 | 1,100 | |||||||||
| Depreciation and amortization | 2 | 12 | 13 | 23 | |||||||||
| Selling, general and administrative | 29 | 26 | 54 | 49 | |||||||||
| Equity income | (4) | (2) | (8) | (4) | |||||||||
| Income (loss) from discontinued operations before income taxes | 15 | (12) | 26 | (25) | |||||||||
| Income taxes [i] | 70 | (3) | 71 | (7) | |||||||||
| Loss from discontinued operations, net of tax | $ | (55) | $ | (9) | $ | (45) | $ | (18) | |||||
[i] Income taxes include
The interiors operations were previously included within all of the Company's reporting segments except for Rest of World.
3. OTHER (INCOME) EXPENSE, NET
| Six months ended June 30, | ||||||||
| 2015 | 2014 | |||||||
| Second Quarter | ||||||||
| Gain on disposal | [a] | $ | (57) | $ | — | |||
| Restructuring | [b] | — | 11 | |||||
| First Quarter | ||||||||
| Restructuring | [b] | — | 22 | |||||
| $ | (57) | $ | 33 | |||||
For the six months ended
[a] Gain on disposal
During the second quarter of 2015, the company sold its battery pack
business to
For the six months ended
[b] Restructuring
During the second and first quarters of 2014, the Company recorded net
restructuring charges of
4. EARNINGS PER SHARE
Earnings per share are computed as follows and have been restated to reflect the effect of the Stock Split [note1]:
| Three months ended June 30 | Six months ended June 30 | ||||||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||||||
| Income available to Common shareholders: | |||||||||||||
| Net income from continuing operations | $ | 535 | $ | 519 | $ | 989 | $ | 920 | |||||
| Loss from continuing operations attributable to | |||||||||||||
| non-controlling interests | 3 | — | 4 | 1 | |||||||||
| Net income attributable to Magna International Inc. from | |||||||||||||
| continuing operations | 538 | 519 | 993 | 921 | |||||||||
| Loss from discontinued operations | (55) | (9) | (45) | (18) | |||||||||
| Net income attributable to Magna International Inc. | $ | 483 | $ | 510 | $ | 948 | $ | 903 | |||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 409.8 | 433.2 | 409.6 | 436.9 | |||||||||
| Adjustments | |||||||||||||
| Stock options and restricted stock [i] | 5.6 | 6.0 | 5.6 | 6.2 | |||||||||
| Diluted | 415.4 | 439.2 | 415.2 | 443.1 | |||||||||
| [i] |
For the six months ended June 30, 2014, 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". | ||||||||||||
| Earnings per Common Share: | |||||||||||||
| Basic: | |||||||||||||
| Continuing operations | $ | 1.31 | $ | 1.20 | $ | 2.42 | $ | 2.11 | |||||
| Discontinued operations | (0.13) | (0.02) | (0.11) | (0.04) | |||||||||
| Attributable to Magna International Inc. | $ | 1.18 | $ | 1.18 | $ | 2.31 | $ | 2.07 | |||||
| Diluted: | |||||||||||||
| Continuing operations | $ | 1.29 | $ | 1.18 | $ | 2.39 | $ | 2.08 | |||||
| Discontinued operations | (0.13) | (0.02) | (0.11) | (0.04) | |||||||||
| Attributable to Magna International Inc. | $ | 1.16 | $ | 1.16 | $ | 2.28 | $ | 2.04 | |||||
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
| June 30, 2015 |
December 31, 2014 | |||||
| Bank term deposits, bankers' acceptances and government paper | $ | 1,058 | $ | 1,058 | ||
| Cash | 105 | 191 | ||||
| $ | 1,163 | $ | 1,249 |
[b] Items not involving current cash flows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||
| Depreciation and amortization | $ | 198 | $ | 211 | $ | 392 | $ | 417 | ||||
| Amortization of other assets included in cost of goods sold | 27 | 40 | 50 | 69 | ||||||||
| Deferred income taxes | 11 | (11) | (16) | 29 | ||||||||
| Other non-cash charges | 9 | 9 | 12 | 15 | ||||||||
| Equity income in excess of dividends received | (12) | (22) | (30) | (33) | ||||||||
| Non-cash portion of Other Income [note 3] | (57) | — | (57) | — | ||||||||
| $ | 176 | $ | 227 | $ | 351 | $ | 497 | |||||
[c] Changes in operating assets and liabilities:
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||
| Accounts receivable | $ | 5 | $ | (52) | $ | (472) | $ | (852) | ||||
| Inventories | (143) | (81) | (269) | (98) | ||||||||
| Prepaid expenses and other | 2 | (7) | (12) | 3 | ||||||||
| Accounts payable | (15) | 108 | 99 | 424 | ||||||||
| Accrued salaries and wages | (119) | (107) | (55) | (13) | ||||||||
| Other accrued liabilities | 2 | (20) | 40 | 141 | ||||||||
| Income taxes payable | (3) | 23 | 49 | 80 | ||||||||
| $ | (271) | $ | (136) | $ | (620) | $ | (315) | |||||
6. INVENTORIES
Inventories consist of:
| June 30, | December 31, | ||||||||
| 2015 | 2014 | ||||||||
| Raw materials and supplies | $ | 838 | $ | 846 | |||||
| Work-in-process | 240 | 233 | |||||||
| Finished goods | 296 | 338 | |||||||
| Tooling and engineering | 1,302 | 1,108 | |||||||
| $ | 2,676 | $ | 2,525 | ||||||
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.
7. 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
8. OTHER ASSETS
Other assets consist of:
| June 30, | December 31, | ||||||
| 2015 | 2014 | ||||||
| Preproduction costs related to long-term supply agreements with | |||||||
| contractual guarantee for reimbursement | $ | 240 | $ | 243 | |||
| Customer relationship intangibles | 89 | 108 | |||||
| Long-term receivables | 77 | 85 | |||||
| Patents and licences, net | 30 | 32 | |||||
| Pension overfunded status | 13 | 13 | |||||
| Unrealized gain on cash flow hedges | 9 | 8 | |||||
| Other, net | 32 | 37 | |||||
| $ | 490 | $ | 526 | ||||
9. WARRANTY
The following is a continuity of the Company's warranty accruals:
| 2015 | 2014 | ||||||||||
| Balance, beginning of period | $ | 80 | $ | 81 | |||||||
| Expense, net | 8 | 7 | |||||||||
| Settlements | (10) | (7) | |||||||||
| Foreign exchange and other | (6) | — | |||||||||
| Balance, March 31 | 72 | 81 | |||||||||
| Expense, net | 10 | 7 | |||||||||
| Settlements | (10) | (8) | |||||||||
| Foreign exchange and other | 1 | (1) | |||||||||
| Balance, June 30 | $ | 73 | $ | 79 |
10. LONG-TERM DEBT
On
11. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
| Three months ended | Six months ended | |||||||||||
| June 30, | June 30, | |||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||
| Defined benefit pension plan and other | $ | 3 | $ | 4 | $ | 7 | $ | 7 | ||||
| Termination and long service arrangements | 5 | 7 | 12 | 16 | ||||||||
| Retirement medical benefit plan | 1 | 1 | 1 | 1 | ||||||||
| $ | 9 | $ | 12 | $ | 20 | $ | 24 | |||||
12. 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 | |
| Exercised | (308,424) | 26.33 | (308,424) | (592,070) | 20.99 | (592,070) | |
| Cancelled | (48,906) | 46.96 | (2) | (21,000) | 36.93 | — | |
| June 30 | 9,228,970 | 34.01 | 6,032,604 | 9,011,044 | 26.43 | 5,288,212 | |
(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:
| Six months ended | ||||||
| June 30, | ||||||
| 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]. The number of shares have 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 and June 30 | 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 | 1,263,709 | 60,238 | 254,894 | 1,578,841 | |
| Granted | 120,958 | 15,922 | 12,112 | 148,992 | 101,619 | 16,050 | 12,630 | 130,299 | |
| 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 | 62,236 | 316,382 | 1,468,760 | 1,349,315 | 76,594 | 268,582 | 1,694,491 | |
| Granted | 93,821 | — | 9,793 | 103,614 | 110,484 | 2,000 | 10,714 | 123,198 | |
| Dividend equivalents | 475 | 235 | 1,199 | 1,909 | 467 | 278 | 979 | 1,724 | |
| Balance, June 30 | 1,184,438 | 62,471 | 327,374 | 1,574,283 | 1,460,266 | 78,872 | 280,275 | 1,819,413 | |
[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 | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Incentive Stock Option Plan | $ | 3 | $ | 3 | $ | 6 | $ | 7 | ||||||||
| Long-term retention | 1 | 1 | 2 | 2 | ||||||||||||
| Restricted stock unit | 6 | 5 | 12 | 10 | ||||||||||||
| Total stock-based compensation expense | $ | 10 | $ | 9 | $ | 20 | $ | 19 | ||||||||
13. COMMON SHARES
[a] During the second and first quarters of 2014, the Company
repurchased 11,436,362 shares and 5,240,000 respectively, under normal
course issuer bids 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 | 410,979,525 | |||
| Stock options (i) | 9,220,638 | |||
| 420,200,163 | ||||
| (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. | ||||
14. 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 | |||||
| Net unrealized gain | 63 | 100 | |||||
| Repurchase of shares under normal course issuer bid | — | (11) | |||||
| Balance, June 30 | (630) | 427 | |||||
| Accumulated net unrealized (loss) gain 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) | |||||
| Net unrealized (loss) gain | (2) | 49 | |||||
| Reclassification of net loss to net income | 21 | 6 | |||||
| Balance, June 30 | (148) | 3 | |||||
| 2015 | 2014 | ||||||
| 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) | |||||
| Reclassification of net loss to net income | 2 | 2 | |||||
| Balance, June 30 | (184) | (114) | |||||
| 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) | |||||
| Net unrealized gain | 1 | — | |||||
| Balance, June 30 | (2) | (5) | |||||
| Total accumulated other comprehensive (loss) income | $ | (964) | $ | 311 | |||
| (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: | ||||||||
| 2015 | 2014 | ||||||||
| Balance, beginning of period | $ | 44 | $ | 5 | |||||
| Net unrealized loss | 27 | 10 | |||||||
| Reclassifications of net (loss) gain to net income | (5) | 1 | |||||||
| Balance, March 31 | 66 | 16 | |||||||
| Net unrealized gain | (1) | (18) | |||||||
| Reclassifications of net gain to net income | (8) | (1) | |||||||
| Balance, June 30 | $ | 57 | $ | (3) | |||||
| (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 | |||||||
| Reclassification of net loss to net income | (1) | — | |||||||
| Balance, June 30 | $ | 35 | $ | 14 | |||||
The amount of other comprehensive income that is expected to be
reclassified to net income over the next 12 months is
15. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of the following:
| June 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Held for trading | ||||||||
| Cash and cash equivalents | $ | 1,163 | $ | 1,249 | ||||
| Investment in asset-backed commercial paper | 83 | 88 | ||||||
| $ | 1,246 | $ | 1,337 | |||||
| Held to maturity investments | ||||||||
| Severance investments | $ | 4 | $ | 4 | ||||
| Available-for-sale | ||||||||
| Equity investments | $ | 6 | $ | 5 | ||||
| Loans and receivables | ||||||||
| Accounts receivable | $ | 5,574 | $ | 5,316 | ||||
| Long-term receivables included in other assets | 77 | 85 | ||||||
| $ | 5,651 | $ | 5,401 | |||||
| Other financial liabilities | ||||||||
| Bank indebtedness | $ | 77 | $ | 30 | ||||
| Long-term debt (including portion due within one year) | 963 | 995 | ||||||
| Accounts payable | 4,691 | 4,765 | ||||||
| $ | 5,731 | $ | 5,790 | |||||
|
Derivatives designated as effective hedges, measured at fair value | ||||||||
| Foreign currency contracts | ||||||||
| Prepaid expenses | $ | 24 | $ | 21 | ||||
| Other assets | 9 | 8 | ||||||
| Other accrued liabilities | (125) | (90) | ||||||
| Other long-term liabilities | (93) | (80) | ||||||
| (185) | (141) | |||||||
| Natural gas contracts | ||||||||
| Other accrued liabilities | (1) | (1) | ||||||
| $ | (186) | $ | (142) | |||||
[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 | ||||||||
| June 30, 2015 | ||||||||||
| Assets | $ | 32 | $ | 32 | $ | — | ||||
| Liabilities | $ | (218) | $ | (32) | $ | (186) | ||||
| 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 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 both the three and six-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
At
| Buys | Sells | |||||||||||
| For Canadian dollars | ||||||||||||
| U.S. amount | 225 | 1,580 | ||||||||||
| euro amount | 60 | 8 | ||||||||||
| Korean won amount | 21,306 | — | ||||||||||
| For U.S. dollars | ||||||||||||
| Peso amount | 7,440 | 27 | ||||||||||
| Korean won amount | 30,917 | — | ||||||||||
| For euros | ||||||||||||
| U.S. amount | 191 | 378 | ||||||||||
| GBP amount | 4 | 29 | ||||||||||
| Czech Koruna amount | 5,090 | — | ||||||||||
| Polish Zlotys amount | 235 | — | ||||||||||
Forward contracts mature at various dates through 2019. Foreign currency exposures are reviewed quarterly.
16. 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 9]; 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.
17. 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 continuing operations before income taxes; interest expense, net; and other (income) 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 continuing operations before income taxes:
| Three months ended June 30, 2015 |
Three months ended June 30, 2014 | ||||||||||||||||||||||||
| Total sales | External sales | Adjusted EBIT | Fixed assets, net |
Total sales |
External sales |
Adjusted EBIT |
Fixed assets, net | ||||||||||||||||||
| North America | |||||||||||||||||||||||||
| Canada | $ | 1,576 | $ | 1,458 | $ | 649 | $ | 1,794 | $ | 1,659 | $ | 596 | |||||||||||||
| United States | 2,535 | 2,426 | 1,291 | 2,396 | 2,260 | 1,079 | |||||||||||||||||||
| Mexico | 1,054 | 965 | 668 | 1,024 | 937 | 584 | |||||||||||||||||||
| Eliminations | (288) | — | — | (325) | — | — | |||||||||||||||||||
| 4,877 | 4,849 | $ | 525 | 2,608 | 4,889 | 4,856 | $ | 539 | 2,259 | ||||||||||||||||
| Europe | |||||||||||||||||||||||||
| Western Europe (excluding Great Britain) | 2,248 | 2,183 | 1,185 | 2,879 | 2,804 | 1,331 | |||||||||||||||||||
| Great Britain | 102 | 102 | 43 | 97 | 97 | 38 | |||||||||||||||||||
| Eastern Europe | 498 | 438 | 467 | 626 | 545 | 619 | |||||||||||||||||||
| Eliminations | (74) | — | — | (102) | — | — | |||||||||||||||||||
| 2,774 | 2,723 | 120 | 1,695 | 3,500 | 3,446 | 143 | 1,988 | ||||||||||||||||||
| Asia | 466 | 434 | 31 | 664 | 472 | 437 | 41 | 610 | |||||||||||||||||
| Rest of World | 125 | 125 | (8) | 69 | 168 | 169 | (11) | 103 | |||||||||||||||||
| Corporate and Other | (109) | 2 | 9 | 370 | (118) | 3 | 10 | 360 | |||||||||||||||||
| Total reportable segments | 8,133 | 8,133 | 677 | 5,406 | 8,911 | 8,911 | 722 | 5,320 | |||||||||||||||||
| Other income (expense), net | 57 | (11) | |||||||||||||||||||||||
| Interest expense, net | (8) | (7) | |||||||||||||||||||||||
| $ | 8,133 | $ | 8,133 | $ | 726 | 5,406 | $ | 8,911 | $ | 8,911 | $ | 704 | 5,320 | ||||||||||||
| Current assets | 10,851 | 11,100 | |||||||||||||||||||||||
| Investments, goodwill, deferred tax assets, and other assets | 2,310 | 2,558 | |||||||||||||||||||||||
| Noncurrent assets held for sale | — | 383 | |||||||||||||||||||||||
| Consolidated total assets | $ | 18,567 | $ | 19,361 | |||||||||||||||||||||
| Six months ended June 30, 2015 |
Six months ended June 30, 2014 | |||||||||||||||||||||||||
| Total sales |
External sales | Adjusted EBIT | Fixed assets, net |
Total sales |
External sales |
Adjusted EBIT |
Fixed assets, net | |||||||||||||||||||
| North America | ||||||||||||||||||||||||||
| Canada | $ | 3,040 | $ | 2,818 | $ | 649 | $ | 3,398 | $ | 3,146 | $ | 596 | ||||||||||||||
| United States | 4,794 | 4,580 | 1,291 | 4,584 | 4,325 | 1,079 | ||||||||||||||||||||
| Mexico | 2,055 | 1,882 | 668 | 1,984 | 1,817 | 584 | ||||||||||||||||||||
| Eliminations | (555) | — | — | (617) | — | — | ||||||||||||||||||||
| 9,334 | 9,280 | $ | 978 | 2,608 | 9,349 | 9,288 | $ | 991 | 2,259 | |||||||||||||||||
| Europe | ||||||||||||||||||||||||||
| Western Europe (excluding Great Britain) | 4,501 | 4,373 | 1,185 | 5,792 | 5,654 | 1,331 | ||||||||||||||||||||
| Great Britain | 195 | 195 | 43 | 189 | 188 | 38 | ||||||||||||||||||||
| Eastern Europe | 1,048 | 927 | 467 | 1,215 | 1,048 | 619 | ||||||||||||||||||||
| Eliminations | (152) | — | — | (205) | — | — | ||||||||||||||||||||
| 5,592 | 5,495 | 248 | 1,695 | 6,991 | 6,890 | 279 | 1,988 | |||||||||||||||||||
| Asia | 929 | 870 | 73 | 664 | 922 | 851 | 68 | 610 | ||||||||||||||||||
| Rest of World | 258 | 258 | (12) | 69 | 329 | 329 | (24) | 103 | ||||||||||||||||||
| Corporate and Other | (208) | 2 | 21 | 370 | (225) | 8 | 26 | 360 | ||||||||||||||||||
| Total reportable segments | 15,905 | 15,905 | 1,308 | 5,406 | 17,366 | 17,366 | 1,340 | 5,320 | ||||||||||||||||||
| Other income (expense), net | 57 | (33) | ||||||||||||||||||||||||
| Interest expense, net | (18) | (9) | ||||||||||||||||||||||||
| $ | 15,905 | $ | 15,905 | $ | 1,347 | 5,406 | $ | 17,366 | $ | 17,366 | $ | 1,298 | 5,320 | |||||||||||||
| Current assets | 10,851 | 11,100 | ||||||||||||||||||||||||
| Investments, goodwill deferred tax assets and other assets | 2,310 | 2,558 | ||||||||||||||||||||||||
| Noncurrent assets held for sale | — | 383 | ||||||||||||||||||||||||
| Consolidated total assets | $ | 18,567 | $ | 19,361 | ||||||||||||||||||||||
18. SUBSEQUENT EVENT
Subsequent to the second quarter of 2015, the Company signed an
agreement to acquire the
SOURCE