Press Release - Magna Announces First Quarter Results
THREE MONTHS ENDED |
|||||||
March 31, 2016 |
March 31, 2015 |
||||||
Sales |
$ |
8,900 |
$ |
7,772 |
|||
Adjusted EBIT(1) |
$ |
698 |
$ |
631 |
|||
Income from continuing operations before |
|||||||
income taxes |
$ |
675 |
$ |
621 |
|||
Net income from continuing operations |
|||||||
attributable to Magna International Inc. |
$ |
492 |
$ |
455 |
|||
Diluted earnings per share |
|||||||
from continuing operations |
$ |
1.22 |
$ |
1.10 |
|||
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 (income) expense, net. |
Commenting on the completion of the Getrag acquisition early in 2016,
THREE MONTHS ENDED
We posted sales of
Our complete vehicle assembly sales decreased 1% in the first quarter of 2016, compared to the first quarter of 2015, while our complete vehicle assembly volumes decreased 15% from the comparable quarter to approximately 23,000 units.
During the first quarter of 2016, income from continuing operations before income taxes was
During the first quarter ended
A more detailed discussion of our consolidated financial results for the first quarter ended
RETURN OF CAPITAL TO SHAREHOLDERS
During the first quarter of 2016, Magna repurchased 7.3 million shares for
Yesterday, our Board of Directors declared a quarterly dividend of
OTHER MATTERS
On
UPDATED 2016 OUTLOOK
Light Vehicle Production (Units) |
|||||
North America |
18.0 million |
||||
Europe |
21.3 million |
||||
Production Sales |
|||||
North America |
$19.5 billion - $20.1 billion |
||||
Europe |
$8.8 billion - $9.2 billion |
||||
Asia |
$2.1 billion - $2.3 billion |
||||
Rest of World |
$0.3 billion - $0.4 billion |
||||
Total Production Sales |
$30.7 billion - $32.0 billion |
||||
Complete Vehicle Assembly Sales |
$1.9 billion - $2.2 billion |
||||
Total Sales |
$35.5 billion - $37.2 billion |
||||
EBIT Margin(1) |
High 7% range |
||||
Interest Expense, net |
Approximately $90 million |
||||
Tax Rate(1) |
25% - 26% |
||||
Capital Spending |
$1.8 billion - $2.0 billion |
||||
(1) Excluding other expense, net |
In this 2016 outlook, in addition to 2016 light vehicle production, we have assumed no material acquisitions or divestitures. In addition, we have assumed that foreign exchange rates for the most common currencies in which we conduct business relative to our U.S. dollar reporting currency will approximate current rates.
ABOUT MAGNA
We are a leading global automotive supplier with 306 manufacturing operations and 92 product development, engineering and sales centres in 29 countries. We have over 147,000 employees focused on delivering superior value to our customers through innovative products and processes, and World Class Manufacturing. These figures include manufacturing operations, product development, engineering and sales centres and employees in equity-accounted operations. Our product capabilities include producing body, chassis, 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
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
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
In 2015, we sold substantially all of our interiors operations (excluding our seating operations). The assets and liabilities, and operating results for the previously reported interiors operations are presented as discontinued operations and have therefore been excluded from both continuing operations and segment results for all periods presented in the attached financial statements. This Management's Discussion and Analysis reflects the results of continuing operations, unless otherwise noted.
This MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the three months ended March 31, 2016 included in this press release, and the audited consolidated financial statements and MD&A for the year ended December 31, 2015 included in our 2015 Annual Report to Shareholders.
This MD&A has been prepared as at
OVERVIEW
Our Business
We are a leading global automotive supplier with 306 manufacturing operations and 92 product development, engineering and sales centres in 29 countries. We have over 147,000 employees focused on delivering superior value to our customers through innovative products and processes, and World Class Manufacturing. These figures include manufacturing operations, product development, engineering and sales centres and employees in equity-accounted operations. Our product capabilities include producing body, chassis, 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
Industry Trends and Risks
Our operating results are 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. Original equipment manufacturers ("OEMs") 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
HIGHLIGHTS
- Light vehicle production remained strong in our two largest markets. North American and European light vehicle production increased 10% and 7%, respectively, compared to the first quarter of 2015;
- Our sales increased 15% to
$8.90 billion , compared to$7.77 billion in the first quarter of 2015; - Adjusted EBIT(1) increased 11% to
$698 million ; - Diluted earnings per share from continuing operations rose 11% to
$1.22 , compared to$1.10 in the first quarter of 2015; - We generated cash flow from operations of
$298 million ; - We completed the acquisition of the
Getrag Group of Companies ("Getrag"), one of the world's leading independent suppliers of automotive transmissions, and a leader in the market for dual-clutch transmissions ("DCTs"), a product which is expected to experience high growth over the next decade; - We returned
$300 million to shareholders in the form of share repurchases; and - We returned
$95 million to shareholders in the form of dividends including a$0.03 increase in cash dividends paid per Common Share to$0.25 .
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. |
RESULTS OF OPERATIONS
Average Foreign Exchange
For the three months |
||||||||
ended March 31, |
||||||||
2016 |
2015 |
Change |
||||||
1 Canadian dollar equals U.S. dollars |
0.728 |
0.808 |
- 10% |
|||||
1 euro equals U.S. dollars |
1.103 |
1.129 |
- 2% |
|||||
1 British pound equals U.S. dollars |
1.431 |
1.517 |
- 6% |
|||||
1 Chinese renminbi equals U.S. dollars |
0.153 |
0.160 |
- 4% |
|||||
1 Brazilian real equals U.S. dollars |
0.256 |
0.351 |
- 27% |
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, |
|||||||||||
2016 |
2015 |
Change |
|||||||||
Vehicle Production Volumes(millions of units) |
|||||||||||
North America |
4.511 |
4.106 |
+ |
10% |
|||||||
Europe |
5.613 |
5.226 |
+ |
7% |
|||||||
Sales |
|||||||||||
External Production |
|||||||||||
North America |
$ |
4,764 |
$ |
4,225 |
+ |
13% |
|||||
Europe |
2,266 |
1,895 |
+ |
20% |
|||||||
Asia |
507 |
403 |
+ |
26% |
|||||||
Rest of World |
80 |
131 |
- |
39% |
|||||||
Complete Vehicle Assembly |
596 |
600 |
- |
1% |
|||||||
Tooling, Engineering and Other |
687 |
518 |
+ |
33% |
|||||||
Total Sales |
$ |
8,900 |
$ |
7,772 |
+ |
15% |
External Production Sales -
Reported external production sales in
- the launch of new programs during or subsequent to the first quarter of 2015, including the:
- Ford Edge and Lincoln MKX;
- Ford F-150 pickups; and
- Chevrolet Malibu.
- higher production volumes on certain existing programs; and
- the acquisition of Getrag during the first quarter of 2016, which positively impacted sales by
$160 million .
These factors were partially offset by:
- a
$155 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 the Chevrolet Cruze as a result of the changeover to and production ramp up of the next generation model; and
- net customer price concessions subsequent to the first quarter of 2015.
External Production Sales -
Reported external production sales in
- acquisitions during or subsequent to the first quarter of 2015, which positively impacted sales by
$360 million , includingGetrag and Stadco Automotive Ltd. ("Stadco"); - the launch of new programs during or subsequent to the first quarter of 2015, including the:
- Audi A4 and A4 Cabrio;
- BMW X1;
- Volkswagen Superb; and
- Volkswagen Caddy.
These factors were partially offset by:
- a
$67 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, British pound, Turkish lira and Russian ruble; - the sale of our battery pack business during the second quarter of 2015;
- programs that ended production during or subsequent to the first quarter of 2015; and
- net customer price concessions subsequent to the first quarter of 2015.
External Production Sales -
Reported external production sales in
- acquisitions during or subsequent to the first quarter of 2015, including the partnership agreement in
China ("theXingqiaorui Partnership ") with Chongqing Xingqiaorui and the acquisition of Getrag, which positively impacted sales by$69 million ; and - the launch of new programs during or subsequent to the first quarter of 2015, primarily in
China .
These factors were partially offset by:
- a
$27 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Chinese renminbi against the U.S. dollar; and - net customer price concessions subsequent to the first quarter of 2015.
External Production Sales - Rest of World
Reported external production sales in Rest of World decreased 39% or
This factor decrease was partially offset by:
- higher production volumes on certain existing programs;
- the launch of new programs during or subsequent to the first quarter of 2015, primarily in
Brazil ; and - net customer price increases subsequent to the first quarter of 2015.
Complete Vehicle Assembly Sales
For the three months |
||||||
ended March 31, |
||||||
2016 |
2015 |
Change |
||||
Complete Vehicle Assembly Sales |
$ |
596 |
$ |
600 |
- 1% |
|
Complete Vehicle Assembly Volumes (Units) |
23,235 |
27,343 |
- 15% |
Reported complete vehicle assembly sales decreased
The decrease in complete vehicle assembly sales is primarily as a result of:
- a decrease in assembly volumes for the MINI Countryman and Paceman, as these programs near the end of production;
- the end of production of the Peugeot RCZ at our
Magna Steyr facility during the third quarter of 2015; and - a
$12 million decrease in reported U.S. dollar sales as a result of the weakening of the euro against the U.S. dollar.
These factors were partially offset by an increase in assembly volumes for the Mercedes-Benz G-Class which has a higher average selling price per vehicle compared to the MINI programs.
Tooling, Engineering and Other Sales
Reported tooling, engineering and other sales increased 33% or
In the first quarter of 2016, the major programs for which we recorded tooling, engineering and other sales were the:
- Chevrolet Cruze;
- Chrysler Pacifica;
- Ford Figo Aspire;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford Escape;
- BMW X5;
- Chevrolet Equinox, Captivia and GMC Terrain;
BMW 5-Series;- Volkswagen Tiguan; and
- Opel
Astra .
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.
Acquisitions during or subsequent to the first quarter of 2015, including Getrag, had a favourable impact on our reported tooling, engineering and other sales, while the weakening of certain foreign currencies against the U.S. dollar had an unfavourable impact of
Cost of Goods Sold and Gross Margin
For the three months |
|||||
ended March 31, |
|||||
2016 |
2015 |
||||
Sales |
$ |
8,900 |
$ |
7,772 |
|
Cost of goods sold |
|||||
Material |
5,578 |
4,888 |
|||
Direct labour |
621 |
519 |
|||
Overhead |
1,420 |
1,261 |
|||
7,619 |
6,668 |
||||
Gross margin |
$ |
1,281 |
$ |
1,104 |
|
Gross margin as a percentage of sales |
14.4% |
14.2% |
Cost of goods sold increased
- higher material, overhead and labour costs associated with the increase in sales;
- operational inefficiencies at certain facilities, in particular at certain body and chassis operations in
North America ; - lower recoveries associated with scrap steel;
- higher launch costs;
- higher warranty costs of
$11 million ; - increased pre-operating costs incurred at new facilities; and
- a greater amount of employee profit sharing.
These factors were partially offset by:
- a decrease in reported U.S. dollar cost of goods sold as a result of the weakening of foreign currencies against the U.S. dollar, including the Canadian dollar, the euro, Chinese renminbi, British pound, Turkish lira, and Russian ruble;
- productivity and efficiency improvements at certain facilities; and
- decreased commodity costs.
Gross margin increased
- productivity and efficiency improvements at certain facilities;
- a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content than our consolidated average; and
- decreased commodity costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities, in particular at certain body and chassis operations in
North America ; - higher launch costs;
- lower recoveries associated with scrap steel;
- an increase in the proportion of tooling, engineering and other sales relative to total sales, that have low or no margins;
- higher warranty costs; and
- increased pre-operating costs incurred at new facilities.
Depreciation and Amortization
Depreciation and amortization costs increased
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.4% for the first quarter of 2016 compared to 4.2% for the first quarter of 2015. SG&A expense increased
- net foreign exchange losses incurred in the first quarter of 2016 compared to net foreign exchange gains incurred in the first quarter of 2015;
- acquisitions during or subsequent to the first quarter of 2015;
- higher labour and benefit costs;
- higher incentive and executive compensation;
- higher costs to support our global compliance programs; and
- costs related to the investment in our information technology infrastructure.
These factors were partially offset by:
- the weakening of the Canadian dollar against the U.S. dollar; and
- a favourable intellectual property infringement settlement in relation to our electronics business.
Equity Income
Equity income increased
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. During the first quarter of 2016 and 2015, no other expense, net was recorded in any segment.
For the three months ended March 31, |
|||||||||||||
Total Sales |
Adjusted EBIT |
||||||||||||
2016 |
2015 |
Change |
2016 |
2015 |
Change |
||||||||
North America |
$ |
5,080 |
$ |
4,457 |
$ |
623 |
$ |
489 |
$ |
453 |
$ |
36 |
|
Europe |
3,242 |
2,818 |
424 |
161 |
128 |
33 |
|||||||
Asia |
625 |
463 |
162 |
51 |
42 |
9 |
|||||||
Rest of World |
81 |
133 |
(52) |
(11) |
(4) |
(7) |
|||||||
Corporate and Other |
(128) |
(99) |
(29) |
8 |
12 |
(4) |
|||||||
Total reportable segments |
$ |
8,900 |
$ |
7,772 |
$ |
1,128 |
$ |
698 |
$ |
631 |
$ |
67 |
Adjusted EBIT in
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- a favourable intellectual property infringement settlement in relation to our electronics business;
- the acquisition of Getrag during the first quarter of 2016; and
- decreased commodity costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities, in particular at certain body and chassis operations;
- lower recoveries associated with scrap steel;
- a decrease in reported U.S. dollar Adjusted EBIT as a result of the weakening of the Canadian dollar against the U.S. dollar;
- higher launch costs;
- higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- higher warranty costs of
$3 million ; - higher affiliation fees paid to Corporate; and
- insurance recoveries received during the first quarter of 2015, related to a fire at a body and chassis facility during the second quarter of 2014.
Adjusted EBIT in
- acquisitions during or subsequent to the first quarter of 2015;
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- the sale of our battery pack business during the second quarter of 2015; and
- decreased commodity costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher launch costs;
- a decrease in reported U.S. dollar Adjusted EBIT as a result of the weakening of certain foreign currencies against the U.S. dollar;
- higher warranty costs of
$3 million ; and - a higher amount of employee profit sharing.
Adjusted EBIT in
- acquisitions during or subsequent to the first quarter of 2015;
- margins earned on higher production sales; and
- productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of
$5 million ; - higher launch costs; and
- increased pre-operating costs incurred at new facilities.
Rest of World
Adjusted EBIT in Rest of World decreased
This decrease was partially offset by:
- a decrease in reported U.S. dollar Adjusted EBIT loss due to the weakening of the Brazilian real against the U.S. dollar; and
- net customer price increases subsequent to the first quarter of 2015.
Corporate and Other
Corporate and Other Adjusted EBIT decreased
Interest Expense, net
During the first quarter of 2016, we recorded net interest expense of
$650 million of 4.150% fixed-rate senior notes issued during the third quarter of 2015;- €550 million of 1.900% fixed-rate senior notes issued during the fourth quarter of 2015; and
Cdn$425 million of 3.100% fixed-rate senior notes issued during the fourth quarter of 2015.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- acquisitions during or subsequent to the first quarter of 2015;
- a favourable intellectual property infringement settlement in relation to our electronics business;
- decreased commodity costs; and
- the sale of our battery pack business during the second quarter of 2015.
These factors were partially offset by:
- operational inefficiencies at certain facilities, in particular at certain body and chassis operations in
North America ; - higher launch costs;
- lower recoveries associated with scrap steel;
- a decrease in reported U.S. dollar Adjusted EBIT as a result of the weakening of the Canadian dollar against the U.S. dollar;
- the
$13 million increase in interest expense, net, as discussed above; - higher warranty costs of
$11 million ; - higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- higher costs to support our global compliance programs; and
- insurance recoveries received during the first quarter of 2015, related to a fire at a body and chassis facility during the second quarter of 2014.
Income Taxes
The effective income tax rate decreased to 25.5% for the first quarter of 2016 compared to 26.9% for the first quarter of 2015 primarily as a result of favourable audit settlements related to prior taxation years and the effect of an increase in equity income partially offset by an increase in losses not benefitted primarily in
Income (Loss) from Continuing Operations Attributable to Non-Controlling Interests
Income from continuing operations attributable to non-controlling interests increased to
Net Income Attributable to
Net income attributable to
Earnings per Share
For the three months |
|||||||
ended March 31, |
|||||||
2016 |
2015 |
Change |
|||||
Basic earnings per Common Share |
|||||||
Continuing operations |
$ |
1.23 |
$ |
1.11 |
+ |
11% |
|
Attributable to Magna International Inc. |
$ |
1.23 |
$ |
1.14 |
+ |
8% |
|
Diluted earnings per Common Share |
|||||||
Continuing operations |
$ |
1.22 |
$ |
1.10 |
+ |
11% |
|
Attributable to Magna International Inc. |
$ |
1.22 |
$ |
1.12 |
+ |
9% |
|
Weighted average number of Common Shares outstanding (millions) |
|||||||
Basic |
400.4 |
409.3 |
- |
2% |
|||
Diluted |
403.2 |
415.0 |
- |
3% |
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 first quarter of 2015, pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
For the three months |
||||||||
ended March 31, |
||||||||
2016 |
2015 |
Change |
||||||
Net income from continuing operations |
$ |
503 |
$ |
454 |
||||
Items not involving current cash flows |
264 |
175 |
||||||
767 |
629 |
$ |
138 |
|||||
Changes in operating assets and liabilities |
(469) |
(349) |
||||||
Cash provided from operating activities |
$ |
298 |
$ |
280 |
$ |
18 |
Cash flow from operations before changes in operating assets and liabilities increased
For the three months |
||||||
ended March 31, |
||||||
2016 |
2015 |
|||||
Depreciation and amortization |
$ |
246 |
$ |
194 |
||
Amortization of other assets included in cost of goods sold |
33 |
23 |
||||
Other non-cash charges |
14 |
3 |
||||
Deferred income taxes |
4 |
(27) |
||||
Equity income in excess of dividends received |
(33) |
(18) |
||||
Items not involving current cash flows |
$ |
264 |
$ |
175 |
Cash invested in operating assets and liabilities amounted to
For the three months |
||||||||||
ended March 31, |
||||||||||
2016 |
2015 |
|||||||||
Accounts receivable |
$ |
(697) |
$ |
(477) |
||||||
Inventories |
(125) |
(126) |
||||||||
Prepaid expenses and other |
18 |
(14) |
||||||||
Accounts payable |
195 |
114 |
||||||||
Accrued salaries and wages |
111 |
64 |
||||||||
Other accrued liabilities |
(19) |
38 |
||||||||
Income taxes receivable/payable |
48 |
52 |
||||||||
Changes in operating assets and liabilities |
$ |
(469) |
$ |
(349) |
The increase in accounts receivable and accounts payable and accrued salaries and wages in the first quarter of 2016 was primarily due to an increase in production activities at the end of the first quarter of 2016 compared to the end of 2015. 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 2016 compared to the end of 2015.
Capital and Investment Spending
For the three months |
||||||
ended March 31, |
||||||
2016 |
2015 |
Change |
||||
Fixed asset additions |
$ |
(346) |
$ |
(266) |
||
Investments and other assets |
(54) |
(37) |
||||
Fixed asset, investment and other asset additions |
(400) |
(303) |
||||
Business combinations |
(1,782) |
(1) |
||||
Proceeds from disposition |
18 |
24 |
||||
Cash used in discontinued operations |
— |
(32) |
||||
Cash used for investment activities |
$ |
(2,164) |
$ |
(312) |
$ |
(1,852) |
Fixed asset, investment and other asset additions
In the first quarter of 2016, we invested $346 million in fixed assets. While investments were made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in the first quarter of 2016 was for manufacturing equipment for programs that will be launching subsequent to the first quarter of 2016.
In the first quarter of 2016, we invested
Business combinations
In
Proceeds from disposition
In the first quarter of 2016, the
Financing
For the three months |
|||||||||
ended March 31, |
|||||||||
2016 |
2015 |
Change |
|||||||
Issues of debt |
$ |
59 |
$ |
15 |
|||||
(Decrease) increase in short-term borrowings |
(48) |
69 |
|||||||
Repayments of debt |
(27) |
(43) |
|||||||
Issues of Common Shares |
23 |
6 |
|||||||
Repurchase of Common Shares |
(300) |
— |
|||||||
Dividends paid |
(95) |
(89) |
|||||||
Cash used for financing activities |
$ |
(388) |
$ |
(42) |
$ |
(346) |
The decrease in short-term borrowings primarily relates to the repayment of bank debt acquired as part of the acquisition of Getrag, partially offset by the establishment of a euro-commercial paper program [the "Program"] in the first quarter of 2016.
During the first quarter of 2016, we purchased 7.3 million Common Shares for aggregate cash consideration of
Cash dividends paid per Common Share were
Financing Resources
As at March 31, 2016 |
As at December 31, 2015 |
||||||||||
Change |
|||||||||||
Liabilities |
|||||||||||
Short-term borrowings |
$ |
388 |
$ |
25 |
|||||||
Long-term debt due within one year |
273 |
211 |
|||||||||
Long-term debt |
2,500 |
2,327 |
|||||||||
3,161 |
2,563 |
||||||||||
Non-controlling interest |
469 |
151 |
|||||||||
Shareholders' equity |
9,455 |
8,966 |
|||||||||
Total capitalization |
$ |
13,085 |
$ |
11,680 |
$ |
1,405 |
Total capitalization increased by
The increase in liabilities relates primarily to:
- the establishment of the Program in the first quarter of 2016 of which
$228 million of Commercial Paper was outstanding as ofMarch 31, 2016 ; and - higher bank indebtedness and long-term debt primarily as a result of the acquisition of Getrag in the first quarter of 2016.
The increase in shareholders' equity was primarily as a result of:
- the
$503 million of net income earned in the first quarter of 2016; - the
$256 million net unrealized gain on translation of our net investment in operations whose functional currency is not the U.S. dollar; and - the
$69 million net unrealized gain on cash flow hedges.
These factors were partially offset by:
- the
$300 million repurchase and cancellation of 7.3 million Common Shares under our normal course issuer bid during 2015; and $95 million of dividends paid during the first quarter of 2016.
The increase in non-controlling interest was primarily as a result of acquisitions during or subsequent to the first quarter of 2015.
Cash Resources
During the first quarter of 2016, our cash resources decreased by
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 |
396,696,162 |
||||||||||||
Stock options (i) |
7,898,406 |
||||||||||||
404,594,568 |
(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 2016 that are outside the ordinary course of our business. Refer to our MD&A included in our 2015 Annual Report.
SUBSEQUENT EVENT
Credit Facility Increase and Extension
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 the expected growth of the Dual Clutch Transmission ("DCT") product segment. 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 potential for a deterioration of economic conditions or an extended period of economic uncertainty; declines in consumer confidence and the impact on production volume levels; fluctuations in relative currency values; continuing global or regional economic uncertainty; restructuring, downsizing and/or other significant non-recurring costs; 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; our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to conduct appropriate due diligence on acquisition targets; an increase in our risk profile as a result of completed acquisitions; shifts in market share away from our top customers; shifts in market shares among vehicles or vehicle segments, or shifts away from vehicles on which we have significant content; inability to sustain or grow our business; 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 |
2016 |
2015 |
||||||
Sales |
$ |
8,900 |
$ |
7,772 |
||||
Costs and expenses |
||||||||
Cost of goods sold |
7,619 |
6,668 |
||||||
Depreciation and amortization |
246 |
194 |
||||||
Selling, general and administrative |
392 |
330 |
||||||
Interest expense, net |
23 |
10 |
||||||
Equity income |
(55) |
(51) |
||||||
Income from continuing operations before income taxes |
675 |
621 |
||||||
Income taxes |
172 |
167 |
||||||
Net income from continuing operations |
503 |
454 |
||||||
Income from discontinued operations, net of tax |
2 |
— |
10 |
|||||
Net income |
503 |
464 |
||||||
(Income) loss from continuing operations attributable to |
||||||||
non-controlling interest |
(11) |
1 |
||||||
Net income attributable to Magna International Inc. |
$ |
492 |
$ |
465 |
||||
Basic earnings per share: |
3 |
|||||||
Continuing operations |
$ |
1.23 |
$ |
1.11 |
||||
Discontinued operations |
— |
0.03 |
||||||
Attributable to Magna International Inc. |
$ |
1.23 |
$ |
1.14 |
||||
Diluted earnings per share: |
3 |
|||||||
Continuing operations |
$ |
1.22 |
$ |
1.10 |
||||
Discontinued operations |
— |
0.02 |
||||||
Attributable to Magna International Inc. |
$ |
1.22 |
$ |
1.12 |
||||
Cash dividends paid per Common Share |
$ |
0.25 |
$ |
0.22 |
||||
Weighted average number of Common Shares outstanding |
||||||||
during the period [in millions]: |
3 |
|||||||
Basic |
400.4 |
409.3 |
||||||
Diluted |
403.2 |
415.0 |
See accompanying notes
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
[Unaudited]
[U.S. dollars in millions]
Three months ended |
|||||||
March 31, |
|||||||
Note |
2016 |
2015 |
|||||
Net income |
$ |
503 |
$ |
464 |
|||
Other comprehensive income (loss), net of tax: |
13 |
||||||
Net unrealized income (loss) on translation of net investment in foreign operations |
261 |
(438) |
|||||
Net unrealized gain on available-for-sale investments |
— |
1 |
|||||
Net unrealized gain (loss) on cash flow hedges |
69 |
(65) |
|||||
Reclassification of net loss on cash flow hedges to net income |
36 |
11 |
|||||
Reclassification of net loss on pensions to net income |
1 |
1 |
|||||
Pension and post retirement benefits |
(2) |
(1) |
|||||
Other comprehensive income (loss) |
365 |
(491) |
|||||
Comprehensive income (loss) |
868 |
(27) |
|||||
Comprehensive (income) loss attributable to non-controlling interests |
(16) |
1 |
|||||
Comprehensive income (loss) attributable to |
|||||||
Magna International Inc. |
$ |
852 |
$ |
(26) |
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
Three months ended |
|||||
March 31, |
|||||
Note |
2016 |
2015 |
|||
Cash provided from (used for): |
|||||
OPERATING ACTIVITIES |
|||||
Net income from continuing operations |
$ |
503 |
$ |
454 |
|
Items not involving current cash flows |
4 |
264 |
175 |
||
767 |
629 |
||||
Changes in operating assets and liabilities |
4 |
(469) |
(349) |
||
Cash provided from operating activities |
298 |
280 |
|||
INVESTMENT ACTIVITIES |
|||||
Fixed asset additions |
(346) |
(266) |
|||
Purchase of subsidiaries |
5 |
(1,782) |
(1) |
||
Increase in investments and other assets |
(54) |
(37) |
|||
Proceeds from disposition |
18 |
24 |
|||
Cash used in discontinued operations |
— |
(32) |
|||
Cash used for investing activities |
(2,164) |
(312) |
|||
FINANCING ACTIVITIES |
|||||
Issues of debt |
59 |
15 |
|||
(Decrease) increase in short-term borrowings |
(48) |
69 |
|||
Repayments of debt |
(27) |
(43) |
|||
Issues of Common Shares on exercise of stock options |
23 |
6 |
|||
Repurchase of Common Shares |
12 |
(300) |
— |
||
Dividends |
(95) |
(89) |
|||
Cash used for financing activities |
(388) |
(42) |
|||
Effect of exchange rate changes on cash and cash equivalents |
16 |
(76) |
|||
Net decrease in cash and cash equivalents during the period |
(2,238) |
(150) |
|||
Cash and cash equivalents, beginning of period |
2,863 |
1,249 |
|||
Cash and cash equivalents, end of period |
$ |
625 |
$ |
1,099 |
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
As at |
As at |
||||||
March 31, |
December 31, |
||||||
Note |
2016 |
2015 |
|||||
ASSETS |
|||||||
Current assets |
|||||||
Cash and cash equivalents |
4 |
$ |
625 |
$ |
2,863 |
||
Accounts receivable |
6,546 |
5,439 |
|||||
Inventories |
6 |
2,864 |
2,564 |
||||
Prepaid expenses and other |
9 |
403 |
278 |
||||
10,438 |
11,144 |
||||||
Investments |
5, 14 |
2,226 |
399 |
||||
Fixed assets, net |
6,745 |
6,005 |
|||||
Goodwill |
5, 7 |
1,831 |
1,344 |
||||
Deferred tax assets |
296 |
271 |
|||||
Other assets |
8 |
844 |
524 |
||||
$ |
22,380 |
$ |
19,687 |
||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|||||||
Current liabilities |
|||||||
Short-term borrowings |
9 |
$ |
388 |
$ |
25 |
||
Accounts payable |
5,221 |
4,746 |
|||||
Accrued salaries and wages |
817 |
660 |
|||||
Other accrued liabilities |
10 |
1,858 |
1,512 |
||||
Income taxes payable |
179 |
122 |
|||||
Long‑term debt due within one year |
273 |
211 |
|||||
8,736 |
7,276 |
||||||
Long‑term debt |
2,500 |
2,327 |
|||||
Long-term employee benefit liabilities |
653 |
504 |
|||||
Other long‑term liabilities |
269 |
331 |
|||||
Deferred tax liabilities |
298 |
132 |
|||||
12,456 |
10,570 |
||||||
Shareholders' equity |
|||||||
Capital stock |
|||||||
Common Shares |
|||||||
[issued: 396,678,447; December 31, 2015 – 402,264,201] |
12 |
3,911 |
3,942 |
||||
Contributed surplus |
101 |
107 |
|||||
Retained earnings |
6,547 |
6,387 |
|||||
Accumulated other comprehensive loss |
13 |
(1,104) |
(1,470) |
||||
9,455 |
8,966 |
||||||
Non-controlling interests |
469 |
151 |
|||||
9,924 |
9,117 |
||||||
$ |
22,380 |
$ |
19,687 |
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 |
AOCL (i) |
Non- controlling Interest |
Total Equity |
||||||||
[in millions] |
|||||||||||||||
Balance, December 31, 2015 |
402.3 |
$ |
3,942 |
$ |
107 |
$ |
6,387 |
$ |
(1,470) |
$ |
151 |
$ |
9,117 |
||
Net income |
492 |
11 |
503 |
||||||||||||
Other comprehensive income |
360 |
5 |
365 |
||||||||||||
Shares issued on exercise of |
|||||||||||||||
stock options |
1.7 |
32 |
(9) |
23 |
|||||||||||
Release of stock and stock units |
7 |
(7) |
— |
||||||||||||
Repurchase and cancellation under |
|||||||||||||||
normal course issuer bid |
12 |
(7.3) |
(71) |
(236) |
7 |
(300) |
|||||||||
Stock-based compensation expense |
10 |
10 |
|||||||||||||
Contributions by non-controlling |
|||||||||||||||
interest |
(1) |
(1) |
|||||||||||||
Acquisition |
5 |
(1) |
303 |
302 |
|||||||||||
Dividends paid |
1 |
(96) |
(95) |
||||||||||||
Balance, March 31, 2016 |
396.7 |
$ |
3,911 |
$ |
101 |
$ |
6,547 |
$ |
(1,104) |
$ |
469 |
$ |
9,924 |
||
Common Shares |
|||||||||||||||
Note |
Number |
Stated Value |
Contri- buted Surplus |
Retained Earnings |
AOCL (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 stock and stock units |
5 |
(5) |
— |
||||||||||||
Stock-based compensation |
|||||||||||||||
expense |
10 |
10 |
|||||||||||||
Dividends paid |
3 |
(92) |
(89) |
||||||||||||
Balance, March 31, 2015 |
410.6 |
$ |
3,995 |
$ |
86 |
$ |
5,528 |
$ |
(1,049) |
$ |
13 |
$ |
8,573 |
||
(i) AOCL is Accumulated Other Comprehensive Loss. |
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 reflect all adjustments, which consist only of normal and recurring adjustments, necessary to present fairly the financial position at
[b] Accounting Changes
Simplifying the Presentation of Debt Issuance Costs
In the first quarter of 2016, the Company adopted Accounting Standards Update No. 2015-03 "Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". This guidance requires that debt issuance costs be presented as a direct reduction to the carrying amount of the related debt in the balance sheet rather than as an asset. Consequently, the Company has reclassified
[c] Future Accounting Standards
Revenue Recognition
In
Leases
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. DISCONTINUED OPERATIONS
At
There were no amounts related to the interiors operations classified as discontinued operations for the three month period ended
|
$ |
589 |
||||||
Costs and expenses |
||||||||
Cost of goods sold |
546 |
|||||||
Depreciation and amortization |
11 |
|||||||
Selling, general and administrative |
25 |
|||||||
Equity income |
(4) |
|||||||
Income from discontinued operations before income taxes |
11 |
|||||||
Income taxes |
1 |
|||||||
Income from discontinued operations, net of tax |
$ |
10 |
3. EARNINGS PER SHARE
Earnings per share are computed as follows:
Three months ended |
|||||||
March 31, |
|||||||
2016 |
2015 |
||||||
Income available to Common shareholders: |
|||||||
Net income from continuing operations |
$ |
503 |
$ |
454 |
|||
(Loss) income from continuing operations attributable to |
|||||||
non-controlling interest |
(11) |
1 |
|||||
Net income attributable to Magna International Inc. from |
|||||||
controlling operations |
492 |
455 |
|||||
Income from discontinued operations, net of tax |
— |
10 |
|||||
Net income attributable to Magna International Inc. |
$ |
492 |
$ |
465 |
|||
Weighted average shares outstanding: |
|||||||
Basic |
400.4 |
409.3 |
|||||
Adjustments |
|||||||
Stock options and restricted stock [a] |
2.8 |
5.7 |
|||||
Diluted |
403.2 |
415.0 |
[a] |
For the three months ended March 31, 2016, diluted earnings per Common Share excludes 3.8 million [2015 – 0.5 million] Common Shares issuable under the Company's Incentive Stock Option Plan because these options were not "in-the-money". |
Three months ended |
||||||||||||||
March 31, |
||||||||||||||
2016 |
2015 |
|||||||||||||
Earnings per Common Share: |
||||||||||||||
Basic: |
||||||||||||||
Continuing operations |
$ |
1.23 |
$ |
1.11 |
||||||||||
Discontinued operations |
— |
0.03 |
||||||||||||
Attributable to Magna International Inc. |
$ |
1.23 |
$ |
1.14 |
||||||||||
Diluted: |
||||||||||||||
Continuing operations |
$ |
1.22 |
$ |
1.10 |
||||||||||
Discontinued operations |
— |
0.02 |
||||||||||||
Attributable to Magna International Inc. |
$ |
1.22 |
$ |
1.12 |
4. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
March 31, 2016 |
December 31, 2015 |
||||
Bank term deposits, bankers' acceptances and government paper |
$ |
328 |
$ |
2,572 |
|
Cash |
297 |
291 |
|||
$ |
625 |
$ |
2,863 |
[b] Items not involving current cash flows:
Three months ended |
|||||||
2016 |
2015 |
||||||
Depreciation and amortization |
$ |
246 |
$ |
194 |
|||
Amortization of other assets included in cost of goods sold |
33 |
23 |
|||||
Other non-cash charges |
14 |
3 |
|||||
Deferred income taxes |
4 |
(27) |
|||||
Equity income in excess of dividends received |
(33) |
(18) |
|||||
$ |
264 |
$ |
175 |
[c] Changes in operating assets and liabilities:
Three months ended |
|||||||||||||
2016 |
2015 |
||||||||||||
Accounts receivable |
$ |
(697) |
$ |
(477) |
|||||||||
Inventories |
(125) |
(126) |
|||||||||||
Prepaid expenses and other |
18 |
(14) |
|||||||||||
Accounts payable |
195 |
114 |
|||||||||||
Accrued salaries and wages |
111 |
64 |
|||||||||||
Other accrued liabilities |
(19) |
38 |
|||||||||||
Income taxes payable |
48 |
52 |
|||||||||||
$ |
(469) |
$ |
(349) |
5. ACQUISITION
On
The acquisition of Getrag was accounted for as a business combination. The following table summarizes the provisional amounts recognized for assets acquired and liabilities assumed at their estimated fair values:
Preliminary amounts recognized |
|||||||||||
Cash |
$ |
136 |
|||||||||
Non-cash working capital |
(466) |
||||||||||
Investments |
1,719 |
||||||||||
Fixed assets |
468 |
||||||||||
Goodwill |
430 |
||||||||||
Other assets |
60 |
||||||||||
Intangibles |
218 |
||||||||||
Deferred tax assets |
43 |
||||||||||
Long-term employee benefit liabilities |
(125) |
||||||||||
Long-term debt |
(116) |
||||||||||
Other long-term liabilities |
(9) |
||||||||||
Deferred tax liabilities |
(137) |
||||||||||
Non-controlling interest |
(303) |
||||||||||
Consideration paid |
1,918 |
||||||||||
Less: Cash acquired |
(136) |
||||||||||
Net cash outflow |
$ |
1,782 |
The preliminary purchase price allocation is subject to change and may be subsequently adjusted to reflect final valuation results and other adjustments.
The investments amount includes the following equity investments that were acquired as part of the business combination:
Ownership |
Preliminary |
||||
Percentage |
Investment Balance |
||||
Getrag Ford Transmission GmbH |
50.0% |
$ |
434 |
||
Getrag (Jiangxi) Transmission Co., Ltd ["GJT"] (i) |
50.0% |
$ |
1,122 |
||
Dongfeng Getrag Transmission Co. Ltd |
50.0% |
$ |
163 |
(i) |
GJT is 66.7% owned by one of the Company's consolidated subsidiaries which has a 25% non-controlling interest. As a result, the preliminary investment balance was derived using 66.7% of the fair value. |
The Company will account for the investments under the equity method since it has the ability to exercise significant influence but does not hold a controlling financial interest.
Recognized goodwill is attributable to the assembled workforce, expected synergies and other intangible assets that do not qualify for separate recognition. Substantially all of the goodwill recognized was assigned to the Company's European segment and is not deductible for tax purposes.
Intangible assets consist primarily of amounts recognized for the fair value of customer contracts and patents. These amortizable intangible assets are being amortized on a straight line basis over their estimated useful lives.
Sales and net income for the acquired Getrag entities for the three months ended
Pro forma
If the acquisition of Getrag occurred on
6. INVENTORIES
Inventories consist of:
March 31, |
December 31, |
|||||||||||||||
2016 |
2015 |
|||||||||||||||
Raw materials and supplies |
$ |
984 |
$ |
843 |
||||||||||||
Work-in-process |
284 |
246 |
||||||||||||||
Finished goods |
336 |
311 |
||||||||||||||
Tooling and engineering |
1,260 |
1,164 |
||||||||||||||
$ |
2,864 |
$ |
2,564 |
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. GOODWILL
The following is a continuity of the Company's goodwill:
Balance at December 31, 2015 |
$ |
1,344 |
||||||||||||||||
Acquisition [note 5] |
430 |
|||||||||||||||||
Foreign exchange and other |
57 |
|||||||||||||||||
Balance at March 31, 2016 |
$ |
1,831 |
8. OTHER ASSETS
Other assets consist of:
March 31, |
December 31, |
|||||
2016 |
2015 |
|||||
Preproduction costs related to long-term supply agreements with |
||||||
contractual guarantee for reimbursement |
$ |
315 |
$ |
276 |
||
Customer relationship intangibles |
300 |
75 |
||||
Long-term receivables |
91 |
87 |
||||
Patents and licences, net |
54 |
37 |
||||
Unrealized gain on cash flow hedges |
24 |
5 |
||||
Pension overfunded status |
17 |
17 |
||||
Other, net |
43 |
27 |
||||
$ |
844 |
$ |
524 |
9. SHORT-TERM BORROWINGS
The Company's short-term borrowings consist of the following:
March 31, |
December 31, |
|||||||||||||||||
2016 |
2015 |
|||||||||||||||||
Bank indebtedness |
$ |
160 |
$ |
25 |
||||||||||||||
Commercial paper |
228 |
— |
||||||||||||||||
$ |
388 |
$ |
25 |
In connection with the acquisition, the Company acquired a revolving credit facility that is drawn in euros. The Company is required to secure any amounts outstanding under the loan with a U.S. dollar cash deposit of 110% of the outstanding loan amount. As at
In the first quarter of 2016, the Company established a euro-commercial paper program [the "Program"]. Under the Program, the Company may issue euro-commercial paper notes [the "notes"] up to a maximum aggregate amount of €500 million or its equivalent in alternative currencies. Any notes issued will be guaranteed by the Company. The proceeds from the issuance of any notes will be used for general corporate purposes. As of
10. WARRANTY
The following is a continuity of the Company's warranty accruals:
2016 |
2015 |
|||||||||||||||
Balance, beginning of period |
$ |
59 |
$ |
80 |
||||||||||||
Expense, net |
19 |
8 |
||||||||||||||
Settlements |
(17) |
(10) |
||||||||||||||
Acquisition [note 5] |
172 |
— |
||||||||||||||
Foreign exchange and other |
4 |
(6) |
||||||||||||||
Balance, March 31 |
$ |
237 |
$ |
72 |
The warranty obligation assumed as a result of the acquisition was recognized at its estimated fair value of
11. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
Three months ended |
|||||||||||
2016 |
2015 |
||||||||||
Defined benefit pension plans and other |
$ |
4 |
$ |
4 |
|||||||
Termination and long-term service arrangements |
8 |
7 |
|||||||||
$ |
12 |
$ |
11 |
12. CAPITAL STOCK
[a] During the first quarter of 2016, the Company repurchased 7,277,425 shares 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 |
396,696,162 |
|||||||||||||||||||||
Stock options (i) |
7,898,406 |
|||||||||||||||||||||
404,594,568 |
(i) Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to the Company's stock option plans.
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a continuity schedule of accumulated other comprehensive loss:
2016 |
2015 |
|||||
Accumulated net unrealized loss gain on translation of net investment in foreign |
||||||
operations |
||||||
Balance, beginning of period |
$ |
(1,042) |
$ |
(255) |
||
Net unrealized gain (loss) |
256 |
(438) |
||||
Repurchase of shares under normal course issuer bid |
7 |
— |
||||
Balance, March 31 |
(779) |
(693) |
||||
Accumulated net unrealized loss on cash flow hedges (i) |
||||||
Balance, beginning of period |
(262) |
(113) |
||||
Net unrealized gain (loss) |
69 |
(65) |
||||
Reclassification of net loss to net income |
36 |
11 |
||||
Balance, March 31 |
(157) |
(167) |
||||
Accumulated net unrealized loss on available-for-sale investments |
||||||
Balance, beginning of period |
(1) |
(4) |
||||
Net unrealized loss |
— |
1 |
||||
Balance, March 31 |
(1) |
(3) |
||||
Accumulated net unrealized loss on pensions (ii) |
||||||
Balance, beginning of period |
(165) |
(186) |
||||
Net unrealized loss |
(2) |
(1) |
||||
Acquisition [note 5] |
(1) |
— |
||||
Reclassification of net loss to net income |
1 |
1 |
||||
Balance, March 31 |
(167) |
(186) |
||||
Total accumulated other comprehensive loss |
$ |
(1,104) |
$ |
(1,049) |
(i) The amount of income tax benefit that has been netted in the accumulated net unrealized loss on cash flow hedges is as follows:
2016 |
2015 |
||||||||||
Balance, beginning of period |
$ |
97 |
$ |
44 |
|||||||
Net unrealized loss |
(24) |
27 |
|||||||||
Reclassification of net loss to net income |
(14) |
(5) |
|||||||||
Balance, March 31 |
$ |
59 |
$ |
66 |
(ii) The amount of income tax benefit that has been netted in the accumulated net unrealized loss on pensions is as follows:
2016 |
2015 |
|||||||||||||
Balance, beginning of period |
$ |
31 |
$ |
36 |
||||||||||
Net unrealized loss |
(2) |
— |
||||||||||||
Balance, March 31 |
$ |
29 |
$ |
36 |
The amount of other comprehensive loss that is expected to be reclassified to net income over the next 12 months is
14. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of the following:
March 31, |
December 31 |
||||||||
2016 |
2015 |
||||||||
Trading |
|||||||||
Cash and cash equivalents |
$ |
625 |
$ |
2,863 |
|||||
Investment in asset-backed commercial paper |
78 |
73 |
|||||||
Equity investments |
6 |
4 |
|||||||
$ |
709 |
$ |
2,940 |
||||||
Held to maturity investments |
|||||||||
Severance investments |
$ |
3 |
$ |
3 |
|||||
Loans and receivables |
|||||||||
Accounts receivable |
$ |
6,546 |
$ |
5,439 |
|||||
Long-term receivables included in other assets |
91 |
87 |
|||||||
$ |
6,637 |
$ |
5,526 |
||||||
Other financial liabilities |
|||||||||
Bank indebtedness |
$ |
160 |
$ |
25 |
|||||
Commercial paper |
228 |
— |
|||||||
Long-term debt (including portion due within one year) |
2,773 |
2,557 |
|||||||
Accounts payable |
5,221 |
4,746 |
|||||||
$ |
8,382 |
$ |
7,328 |
||||||
Derivatives designated as effective hedges, measured at |
|||||||||
fair value Foreign currency contracts |
|||||||||
Prepaid expenses |
$ |
24 |
$ |
27 |
|||||
Other assets |
24 |
4 |
|||||||
Other accrued liabilities |
(157) |
(191) |
|||||||
Other long-term liabilities |
(79) |
(152) |
|||||||
$ |
(188) |
$ |
(312) |
[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 |
Net amounts |
||||||||||||
March 31, 2016 |
||||||||||||||
Assets |
$ |
48 |
$ |
45 |
$ |
3 |
||||||||
Liabilities |
$ |
(236) |
$ |
(45) |
$ |
(191) |
||||||||
December 31, 2015 |
||||||||||||||
Assets |
$ |
31 |
$ |
30 |
$ |
1 |
||||||||
Liabilities |
$ |
(343) |
$ |
(30) |
$ |
(313) |
[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, short-term borrowings 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
Term debt
The Company's term debt includes
Senior Notes
The fair value of our senior notes are classified as Level 1 when we use quoted prices in active markets and Level 2 when the quoted prices are from less active markets or when other observable inputs are used to determine fair value. 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.
Cash and cash equivalents, which consists of short-term investments, are only invested in governments, bank term deposits and bank commercial paper with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in certain governments or any major financial institution.
The Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major financial institutions that the Company anticipates will satisfy their obligations under the contracts.
In the normal course of business, the Company is exposed to credit risk from its customers, substantially all of which are in the automotive industry and are subject to credit risks associated with the automotive industry. For the three month period ended
[e] Interest rate risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In particular, the amount of interest income earned on the Company's cash and cash equivalents is impacted more by the investment decisions made and the demands to have available cash on hand, than by movements in the interest rates over a given period.
In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on these instruments are fixed.
[f] Currency risk and foreign exchange contracts
The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to the delivery of products for which the selling price has been quoted in currencies other than the facilities' functional currency, and when materials and equipment are purchased in currencies other than the facilities' functional currency. In an effort to manage this net foreign exchange exposure, the Company employs hedging programs, primarily through the use of foreign exchange forward contracts
At
Buys |
Sells |
||||||
For Canadian dollars |
|||||||
U.S. amount |
222 |
2,219 |
|||||
euro amount |
46 |
6 |
|||||
Korean won amount |
28,700 |
— |
|||||
For U.S. dollars |
|||||||
Peso amount |
12,752 |
70 |
|||||
Korean won amount |
25,823 |
— |
|||||
For euros |
|||||||
U.S. amount |
170 |
267 |
|||||
GBP amount |
4 |
30 |
|||||
Czech Koruna amount |
6,164 |
2 |
|||||
Polish Zlotys amount |
327 |
13 |
Forward contracts mature at various dates through 2019. Foreign currency exposures are reviewed quarterly.
15. CONTINGENCIES
From time to time, the Company may become involved in regulatory proceedings, or become liable for legal, contractual and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others. On an ongoing basis, the Company attempts to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, together with potential ranges of probable costs and losses. A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue. The required provision may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
[a] In
- breach of fiduciary duty by the Company and two of its subsidiaries;
- breach by the Company of its binding letter of intent with
KS Centoco Ltd. , including its covenant not to have any interest, directly or indirectly, in any entity that carries on the airbag business inNorth America , other than throughMST Automotive Inc. , a company to be 77% owned by Magna and 23% owned byCentoco Holdings Limited ; - the plaintiff's exclusive entitlement to certain airbag technologies in
North America pursuant to an exclusive licence agreement [the "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 ; - inducement by the Company of a breach of the Licence Agreement by TRW;
- 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
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. At this time, management is unable to predict the duration or outcome of the Brazilian investigation, 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 10]; 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, and with respect to our transmission systems programs, the Company records an estimate of future warranty-related costs based on the terms of the specific customer agreements, and the specific customer's (or our) warranty experience.
16. 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 March 31, 2016 |
Three months ended March 31, 2015 |
||||||||||||||||||
Total sales |
External |
Adjusted |
Fixed |
Total |
External |
Adjusted |
Fixed |
||||||||||||
North America |
|||||||||||||||||||
Canada |
$ |
1,634 |
$ |
1,509 |
$ |
694 |
$ |
1,464 |
$ |
1,360 |
$ |
610 |
|||||||
United States |
2,484 |
2,376 |
1,456 |
2,259 |
2,154 |
1,221 |
|||||||||||||
Mexico |
1,281 |
1,171 |
836 |
1,001 |
917 |
643 |
|||||||||||||
Eliminations |
(319) |
— |
— |
(267) |
— |
— |
|||||||||||||
5,080 |
5,056 |
$ |
489 |
2,986 |
4,457 |
4,431 |
$ |
453 |
2,474 |
||||||||||
Europe |
|||||||||||||||||||
Western Europe |
|||||||||||||||||||
(excluding Great Britain) |
2,600 |
2,512 |
1,814 |
2,253 |
2,190 |
1,166 |
|||||||||||||
Great Britain |
193 |
192 |
138 |
93 |
93 |
40 |
|||||||||||||
Eastern Europe |
540 |
474 |
528 |
550 |
489 |
450 |
|||||||||||||
Eliminations |
(91) |
— |
— |
(78) |
— |
— |
|||||||||||||
3,242 |
3,178 |
161 |
2,480 |
2,818 |
2,772 |
128 |
1,656 |
||||||||||||
Asia |
625 |
584 |
51 |
803 |
463 |
436 |
42 |
662 |
|||||||||||
Rest of World |
81 |
81 |
(11) |
61 |
133 |
133 |
(4) |
67 |
|||||||||||
Corporate and Other |
(128) |
1 |
8 |
415 |
(99) |
— |
12 |
358 |
|||||||||||
Total reportable segments |
8,900 |
8,900 |
698 |
6,745 |
7,772 |
7,772 |
631 |
5,217 |
|||||||||||
Interest expense, net |
(23) |
(10) |
|||||||||||||||||
$ |
8,900 |
$ |
8,900 |
$ |
675 |
6,745 |
$ |
7,772 |
$ |
7,772 |
$ |
621 |
5,217 |
||||||
Current assets |
10,438 |
10,187 |
|||||||||||||||||
Investments, goodwill, |
|||||||||||||||||||
deferred tax assets and other assets |
5,197 |
2,281 |
|||||||||||||||||
Noncurrent assets held for sale |
— |
336 |
|||||||||||||||||
Consolidated total assets |
$ |
22,380 |
$ |
18,021 |
17. SUBSEQUENT EVENT
Credit Facility Increase and Extension
On
SOURCE
please contact Louis Tonelli, Vice-President, Investor Relations at 905-726‑7035. For teleconferencing questions, please contact Nancy Hansford at 905-726‑7108.