Press Release - Magna Announces Record Third Quarter and Year to Date Results
- Third quarter record sales up 16%, well above 3% growth in global light vehicle production
- Third quarter record diluted earnings per share from continuing operations increased 14%
$288 million returned to shareholders through share repurchases and dividends
THREE MONTHS ENDED |
NINE MONTHS ENDED |
|||||||||||
2016 |
2015 |
2016 |
2015 |
|||||||||
Sales |
$ |
8,849 |
$ |
7,661 |
$ |
27,192 |
$ |
23,566 |
||||
Adjusted EBIT(1) |
$ |
715 |
$ |
565 |
$ |
2,202 |
$ |
1,873 |
||||
Income from continuing operations |
||||||||||||
before income taxes |
$ |
692 |
$ |
680 |
$ |
2,134 |
$ |
2,027 |
||||
Net income from continuing operations |
||||||||||||
attributable to Magna International Inc. |
$ |
503 |
$ |
470 |
$ |
1,553 |
$ |
1,463 |
||||
Diluted earnings per share |
||||||||||||
from continuing operations |
$ |
1.29 |
$ |
1.13 |
$ |
3.92 |
$ |
3.53 |
||||
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 |
THREE MONTHS ENDED
We posted sales of
Our complete vehicle assembly sales decreased 4% in the third quarter of 2016, compared to the third quarter of 2015, while our complete vehicle assembly volumes decreased 19% from the comparable quarter to approximately 19,000 units. The decreases largely reflect that we were nearing end of production of the MINI Countryman and Paceman.
During the third quarter of 2016, income from continuing operations before income taxes was
During the third quarter ended
NINE MONTHS ENDED
We posted sales of
Our complete vehicle assembly sales increased 1% in the first nine months of 2016, compared to the first nine months of 2015. Complete vehicle assembly volumes decreased 14% to approximately 68,000 units. The volume decrease largely reflects that we were nearing end of production of the MINI Countryman and Paceman.
During the nine months ended
During the nine months ended
A more detailed discussion of our consolidated financial results for the third quarter and nine months ended
RETURN OF CAPITAL TO SHAREHOLDERS
During the three and nine months ended
Today, our Board of Directors declared a quarterly dividend of
OTHER MATTERS
Subject to the approval by the
UPDATED 2016 OUTLOOK
Light Vehicle Production (Units) |
|||||
North America |
17.8 million |
||||
Europe |
21.5 million |
||||
Production Sales |
|||||
North America |
$19.2 - $19.6 billion |
||||
Europe |
$9.0 - $9.3 billion |
||||
Asia |
$2.1 - $2.2 billion |
||||
Rest of World |
$0.4 - $0.5 billion |
||||
Total Production Sales |
$30.7 - $31.6 billion |
||||
Complete Vehicle Assembly Sales |
$2.0 - $2.2 billion |
||||
Total Sales |
$35.8 - $37.0 billion |
||||
EBIT Margin(2) |
Approximately 8% |
||||
Interest Expense, net |
Approximately $90 million |
||||
Tax Rate(2) |
Approximately 26% |
||||
Capital Spending |
$1.8 - $1.9 billion |
||||
(2) 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.
We will hold a conference call for interested analysts and shareholders to discuss our third quarter results on
TAGS
Quarterly earnings, record quarter, financial results, sales growth
ABOUT
We are a leading global automotive supplier with 312 manufacturing operations(3) and 98 product development, engineering and sales centres(3) in 29 countries. We have over 155,000 employees(3) focused on delivering superior value to our customers through innovative products and processes, and world class manufacturing. We have complete vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure and roof systems. Our common shares trade on the
___________________ |
|
(3) |
These figures include manufacturing operations, product development, engineering and sales centres and employees in certain equity-accounted operations |
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
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 and nine months ended September 30, 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
HIGHLIGHTS
- We posted new third quarter records in total sales and diluted earnings per share from continuing operations;
- Total sales increased 16% to
$8.85 billion , compared to$7.66 billion in the third quarter of 2015. The 16% increase represents strong performance compared to global light vehicle production which only increased 3% in the third quarter of 2016; - North American production sales increased 13%, compared to North American light vehicle production which increased 1%;
- European production sales increased 29%, while European light vehicle production decreased 2%;
- Asian production sales increased 58%, compared to an 8% increase in Asian light vehicle production;
- Adjusted EBIT(1) increased 27% to
$715 million , from$565 million in the third quarter of 2015; - Diluted earnings per share from continuing operations increased 14% to
$1.29 , compared to$1.13 in the third quarter of 2015; - We generated cash from operating activities of
$657 million , compared to$596 million in the third quarter of 2015; - We returned
$191 million to shareholders in the form of share repurchases and$97 million in the form of dividends; - Early October marked the end of production of MINI Countryman and Paceman models at our
Magna Steyr facility inGraz, Austria . Over the lifetime of the two models, we produced over 606,000 units.Magna Steyr is currently preparing for the launches of the newBMW 5-Series as well as two Jaguar Land Rover programs; - Subject to approval by the
Toronto Stock Exchange ("TSX") and theNew York Stock Exchange ("NYSE"), our Board of Directors approved a new normal course issuer bid ("NCIB") to purchase up to 38 million of our Common Shares, representing approximately 10% of our public float of Common Shares.
OVERVIEW
Our Business
We are a leading global automotive supplier with 312 manufacturing operations(2) and 98 product development, engineering and sales centres(2) in 29 countries. We have over 155,000 employees(2) focused on delivering superior value to our customers through innovative products and processes, and world class manufacturing. We have complete vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior, seating, powertrain, electronic, active driver assistance, vision, closure and roof systems. Our common shares trade on the
___________________ |
|
1 |
We believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other income, net. |
2 |
These figures include manufacturing operations, product development, engineering and sales centres and employees in certain equity-accounted operations. |
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
- the
United Kingdom's anticipated exit from theEuropean Union may create economic uncertainty, reduce consumer confidence, impair trade relationships between theUnited Kingdom and members of theEuropean Union , result in a long-term realignment in the value of the British pound relative to other currencies, lead to the closure of any of our customers' assembly plants in theUnited Kingdom , or otherwise directly or indirectly have a material adverse effect on our operations, profitability or results of operations; and - the outcome of the
November 8, 2016 , U.S. election may result in lower consumer confidence levels, whether as a result of general economic or political uncertainty, rising interest rates, increased volatility in capital markets, an increase in protectionist measures or other factors. Consumer confidence levels impact consumer demand for vehicles, which in turn impacts vehicle production levels. A significant decline in vehicle production could have a material adverse effect on our profitability.
RESULTS OF OPERATIONS
Average Foreign Exchange
For the three months |
For the nine months |
||||||
ended September 30, |
ended September 30, |
||||||
2016 |
2015 |
Change |
2016 |
2015 |
Change |
||
1 Canadian dollar equals U.S. dollars |
0.766 |
0.766 |
— |
0.757 |
0.796 |
- 5% |
|
1 euro equals U.S. dollars |
1.116 |
1.113 |
— |
1.116 |
1.116 |
— |
|
1 British pound equals U.S. dollars |
1.313 |
1.551 |
- 15% |
1.393 |
1.534 |
- 9% |
|
1 Chinese renminbi equals U.S. dollars |
0.150 |
0.159 |
- 6% |
0.152 |
0.160 |
- 5% |
|
1 Brazilian real equals U.S. dollars |
0.308 |
0.285 |
+ 8% |
0.283 |
0.320 |
- 12% |
The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct business and our U.S. dollar reporting currency. The changes in these foreign exchange rates for the three months and nine months ended
The results of operations 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 September 30, |
|||||||
2016 |
2015 |
Change |
|||||
Vehicle Production Volumes (millions of units) |
|||||||
North America |
4.320 |
4.294 |
+ 1% |
||||
Europe |
4.680 |
4.760 |
- 2% |
||||
Sales |
|||||||
External Production |
|||||||
North America |
$ |
4,837 |
$ |
4,281 |
+ 13% |
||
Europe |
2,184 |
1,696 |
+ 29% |
||||
Asia |
548 |
346 |
+ 58% |
||||
Rest of World |
119 |
111 |
+ 7% |
||||
Complete Vehicle Assembly |
503 |
522 |
- 4% |
||||
Tooling, Engineering and Other |
658 |
705 |
- 7% |
||||
Total Sales |
$ |
8,849 |
$ |
7,661 |
+ 16% |
External Production Sales -
External production sales in
- the launch of new programs during or subsequent to the third quarter of 2015, including the:
- Cadillac XT5;
- Chrysler Pacifica;
- GMC Acadia;
- Chevrolet Cruze;
- Chevrolet Camaro; and
- Lincoln
Continental ; and
- the acquisition of the
Getrag Group of Companies ("Getrag") during the first quarter of 2016, which positively impacted production sales by$142 million .
These factors were partially offset by:
- lower production volumes on certain existing programs;
- the contribution of two manufacturing facilities into an equity-accounted joint venture during the third quarter of 2015, which negatively impacted production sales by
$11 million ; and - net customer price concessions subsequent to the third quarter of 2015.
External Production Sales -
External production sales in
- acquisitions during or subsequent to the third quarter of 2015, which positively impacted production sales by
$326 million , including Getrag which positively impacted production sales by$248 million ; and - the launch of new programs during or subsequent to the third quarter of 2015, including the:
- Audi A3 and A3 Sportback;
- Mercedes-Benz E-Class;
- Audi A4;
- BMW X1; and
- Volkswagen Tiguan.
These factors were partially offset by:
- a
$21 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the British Pound; - lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the third quarter of 2015.
External Production Sales -
External production sales in
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in
China ; and - acquisitions during or subsequent to the third quarter of 2015, including the partnership agreement in
China ("theXingqiaorui Partnership ") with Chongqing Xingqiaorui and the acquisition of Getrag, which positively impacted production sales by$76 million .
These factors were partially offset by:
- a
$25 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Chinese renminbi; and - net customer price concessions subsequent to the third quarter of 2015.
External Production Sales - Rest of World
External production sales in Rest of World increased 7% or
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in
Brazil ; and - net customer price increases subsequent to the third quarter of 2015.
These factors were partially offset by:
- lower production volumes on certain existing programs; and
- an
$8 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Argentine peso, partially offset by the strengthening of the Brazilian real against the U.S. dollar.
Complete Vehicle Assembly Sales
For the three months |
||||||
ended September 30, |
||||||
2016 |
2015 |
Change |
||||
Complete Vehicle Assembly Sales |
$ |
503 |
$ |
522 |
- 4% |
|
Complete Vehicle Assembly Volumes (Units) |
18,682 |
23,176 |
- 19% |
Complete vehicle assembly sales decreased 4% or
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 neared the end of production; and
- the end of production of the Peugeot RCZ at our
Magna Steyr facility during the third quarter of 2015.
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
Tooling, engineering and other sales decreased 7% or
In the third quarter of 2016, the major programs for which we recorded tooling, engineering and other sales were the:
- Mercedes-Benz E-Class;
- Chevrolet Malibu;
BMW 5-Series;- Ford F-Series SuperDuty;
- Jeep Grand Cherokee;
- Porsche Panamera;
- Ford Transit; and
- Chevrolet Cruze.
In the third quarter of 2015, the major programs for which we recorded tooling, engineering and other sales were the:
- Audi A4;
- Chevrolet Cruze;
- Chevrolet Equinox and GMC Terrain;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Opel
Astra ; - Volkswagen Golf;
BMW 2-Series;- Volkswagen Touran; and
- Skoda Superb.
Acquisitions during or subsequent to the third quarter of 2015, including Getrag, increased our reported tooling, engineering and other sales, while the weakening of certain foreign currencies against the U.S. dollar, including the Chinese renminbi had an unfavourable impact of
Cost of Goods Sold and Gross Margin
For the three months |
|||||
ended September 30, |
|||||
2016 |
2015 |
||||
Sales |
$ |
8,849 |
$ |
7,661 |
|
Cost of goods sold |
|||||
Material |
5,525 |
4,839 |
|||
Direct labour |
576 |
507 |
|||
Overhead |
1,457 |
1,247 |
|||
7,558 |
6,593 |
||||
Gross margin |
$ |
1,291 |
$ |
1,068 |
|
Gross margin as a percentage of sales |
14.6% |
13.9% |
Cost of goods sold increased
- higher material, overhead and labour costs associated with the increase in sales;
- acquisitions subsequent to the third quarter of 2015;
- operational inefficiencies at certain facilities, including one body and chassis operation in
North America ; - higher warranty costs of
$25 million ; - a higher amount of employee profit sharing;
- higher severance costs; and
- lower recoveries associated with scrap steel.
These factors were partially offset by:
- a net decrease in reported U.S. dollar cost of goods sold primarily due to the weakening of the Chinese renminbi, British pound and Argentine peso each against the U.S. dollar partially offset by the strengthening of the Brazilian real against the U.S. dollar;
- productivity and efficiency improvements at certain facilities;
- decreased commodity costs;
- net divestitures during or subsequent to the third quarter of 2015; and
- decreased pre-operating costs incurred at new facilities.
Gross margin increased
- productivity and efficiency improvements at certain facilities;
- a decrease in the proportion of tooling, engineering and other sales relative to total sales, that have low or no margins;
- decreased commodity costs;
- 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 pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one body and chassis operation in
North America ; - higher warranty costs;
- the acquisition of Getrag during the first quarter of 2016;
- a higher amount of employee profit sharing;
- higher severance costs; and
- lower recoveries associated with scrap steel.
Depreciation and Amortization
Depreciation and amortization costs increased
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.2% for the third quarter of 2016 compared to 4.7% for the third quarter of 2015. SG&A expense increased
- acquisitions during or subsequent to the third quarter of 2015;
- higher labour and benefit costs;
- higher incentive and executive compensation;
- increased costs incurred at new facilities; and
- higher costs to support our global compliance programs.
These factors were partially offset by an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis facility in
Equity Income
Equity income increased
Other Income, net
For the three months ended
During the third quarter of 2015, we contributed two manufacturing facilities and received a 49% interest in a newly formed joint venture and cash proceeds 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 income, net.
For the three months ended September 30, |
|||||||||||||
Total Sales |
Adjusted EBIT |
||||||||||||
2016 |
2015 |
Change |
2016 |
2015 |
Change |
||||||||
North America |
$ |
5,109 |
$ |
4,591 |
$ |
518 |
$ |
512 |
$ |
455 |
$ |
57 |
|
Europe |
3,102 |
2,642 |
460 |
115 |
91 |
24 |
|||||||
Asia |
654 |
428 |
226 |
64 |
13 |
51 |
|||||||
Rest of World |
129 |
115 |
14 |
(5) |
(7) |
2 |
|||||||
Corporate and Other |
(145) |
(115) |
(30) |
29 |
13 |
16 |
|||||||
Total reportable segments |
$ |
8,849 |
$ |
7,661 |
$ |
1,188 |
$ |
715 |
$ |
565 |
$ |
150 |
Excluded from Adjusted EBIT for the three months ended
For the three months |
|||||||
ended September 30, |
|||||||
2015 |
|||||||
North America |
|||||||
Gain on disposal |
$ |
(136) |
|||||
Europe |
|||||||
Restructuring |
12 |
||||||
$ |
(124) |
Adjusted EBIT in
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- the acquisition of Getrag during the first quarter of 2016;
- decreased commodity costs; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- higher warranty costs of
$17 million ; - operational inefficiencies at certain facilities, including one body and chassis operation;
- lower equity income;
- higher affiliation fees paid to Corporate;
- a higher amount of employee profit sharing;
- lower recoveries associated with scrap steel;
- higher severance costs;
- higher incentive compensation; and
- net customer price concessions subsequent to the third quarter of 2015.
Adjusted EBIT in
- an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis facility in
Europe ; - productivity and efficiency improvements at certain facilities;
- acquisitions during or subsequent to the third quarter of 2015;
- margins earned on higher production sales;
- lower affiliation fees paid to Corporate; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of
$7 million ; - a higher amount of employee profit sharing;
- lower equity income;
- a decrease in reported U.S. dollar Adjusted EBIT due to the weakening of the British pound against the U.S. dollar;
- higher severance costs; and
- net customer price concessions subsequent to the third quarter of 2015.
Adjusted EBIT in
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015, including Getrag and the
Xingqiaorui Partnership ; and - higher equity income.
These factors were partially offset by a decrease in reported U.S. dollar Adjusted EBIT due to the weakening of the Chinese renminbi against the U.S. dollar.
Rest of World
Adjusted EBIT in Rest of World increased
- net customer price increases subsequent to the third quarter of 2015; and
- decreased commodity costs.
These factors were partially offset by higher severance costs.
Corporate and Other
Adjusted EBIT in Corporate and Other increased
- an increase in affiliation fees earned from our divisions;
- lower costs related to the investment in our information technology infrastructure; and
- lower consulting costs.
Interest Expense, net
During the third quarter of 2016, we recorded net interest expense of
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 third quarter of 2015;
- an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis facility in
Europe ; - decreased commodity costs;
- decreased pre-operating costs incurred at new facilities;
- lower costs related to the investment in our information technology infrastructure; and
- lower consulting costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one body and chassis operation in
North America ; - higher warranty costs of
$25 million ; - the
$14 million increase in interest expense, net, as discussed above; - a higher amount of employee profit sharing;
- higher incentive compensation; and
- higher severance costs.
Income Taxes
For the three months ended September 30, |
|||||||||
2016 |
2015 |
||||||||
$ |
% |
$ |
% |
||||||
Income taxes as reported |
$ |
178 |
25.7 |
$ |
211 |
31.0 |
|||
Tax effect on Other Income, net |
— |
— |
(56) |
(3.1) |
|||||
$ |
178 |
25.7 |
$ |
155 |
27.9 |
Excluding Other Income, net, after tax, the effective income tax rate decreased to 25.7% for the third quarter of 2016 compared to 27.9% for the third quarter of 2015 primarily as a result of:
- a decrease in non-deductible foreign exchange adjustments related to the re-measurement of financial statement balances of foreign subsidiaries that are maintained in a currency other than their functional currency;
- an increase in research and development credits in
North America ; and - an increase in equity income.
These factors were partially offset by a change in our reserve for uncertain tax positions.
(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 September 30, |
|||||||
2016 |
2015 |
Change |
|||||
Basic earnings per Common Share |
|||||||
Continuing operations |
$ |
1.30 |
$ |
1.15 |
+ 13% |
||
Attributable to Magna International Inc. |
$ |
1.30 |
$ |
1.44 |
- 10% |
||
Diluted earnings per Common Share |
|||||||
Continuing operations |
$ |
1.29 |
$ |
1.13 |
+ 14% |
||
Attributable to Magna International Inc. |
$ |
1.29 |
$ |
1.42 |
- 9% |
||
Weighted average number of Common Shares outstanding (millions) |
|||||||
Basic |
387.1 |
408.5 |
- 5% |
||||
Diluted |
389.0 |
413.8 |
- 6% |
Diluted earnings per share from continuing operations increased
The decrease in the weighted average number of diluted shares outstanding was primarily due to the purchase and cancellation of Common Shares, during or subsequent to the third 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 September 30, |
|||||||
2016 |
2015 |
Change |
|||||
Net income from continuing operations |
$ |
514 |
$ |
469 |
|||
Items not involving current cash flows |
282 |
94 |
|||||
796 |
563 |
$ |
233 |
||||
Changes in operating assets and liabilities |
(139) |
33 |
|||||
Cash provided from operating activities |
$ |
657 |
$ |
596 |
$ |
61 |
Cash provided from operating activities before changes in operating assets and liabilities increased
- an increase in cash received from customers of
$1.19 billion as a result of higher total sales as discussed above; - lower cash paid relating to income taxes of
$19 million ; and - higher dividends received from equity investments of
$8 million .
These factors were partially offset by:
- higher cash paid for material, labour and overhead of
$682 million ,$162 million and$121 million , respectively, each primarily associated with the increase in sales and other factors discussed in the Cost of Goods Sold and Gross Margin section above; and - higher net interest expense of
$12 million as discussed in the Interest Expense, net section above.
Changes in operating assets and liabilities decreased
Capital and Investment Spending
For the three months |
|||||||
ended September 30, |
|||||||
2016 |
2015 |
Change |
|||||
Fixed asset additions |
$ |
(390) |
$ |
(360) |
|||
Investments and other assets |
(166) |
(74) |
|||||
Fixed assets, investments and other assets additions |
(556) |
(434) |
|||||
Restricted cash deposits |
(180) |
— |
|||||
Proceeds from disposition |
26 |
11 |
|||||
Sale of Interiors |
— |
473 |
|||||
Proceeds on disposal of facilities |
— |
118 |
|||||
Cash used in discontinued operations |
— |
(15) |
|||||
Cash (used for) provided from investment activities |
$ |
(710) |
$ |
153 |
$ |
(863) |
Fixed assets, investments and other assets additions
In the third quarter of 2016, we invested $390 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 third quarter of 2016 was for manufacturing equipment for programs that will be launching subsequent to the third quarter of 2016.
We provided an
Restricted cash deposits
In the third quarter of 2016, we had
Proceeds from disposition
In the third quarter of 2016, the
Sale of Interiors
On
Proceeds on disposal of facilities
In the third quarter of 2015, we received
Financing
For the three months |
|||||||
ended September 30, |
|||||||
2016 |
2015 |
Change |
|||||
Issues of debt |
$ |
3 |
$ |
659 |
|||
Increase (decrease) in short-term borrowings |
350 |
(41) |
|||||
Repayments of debt |
(237) |
(16) |
|||||
Issue of Common Shares on exercise of stock options |
2 |
6 |
|||||
Repurchase of Common Shares |
(191) |
(346) |
|||||
Contributions by subsidiaries by non-controlling interests |
— |
10 |
|||||
Dividends |
(97) |
(91) |
|||||
Cash (used for) provided from financing activities |
$ |
(170) |
$ |
181 |
$ |
(351) |
Issues of debt in the third quarter of 2015 relate primarily to the issue of
During the third quarter of 2016 we issued
A portion of the proceeds from the issue of the U.S. Program were used to repay
Repurchases of Common Shares during the third quarter of 2016 includes 4.7 million Common Shares repurchased for aggregate cash consideration of
Cash dividends paid per Common Share were
Financing Resources
As at |
As at |
|||||||
September 30, |
December 31, |
|||||||
2016 |
2015 |
Change |
||||||
Liabilities |
||||||||
Short-term borrowings |
$ |
631 |
$ |
25 |
||||
Long-term debt due within one year |
201 |
211 |
||||||
Long-term debt |
2,450 |
2,327 |
||||||
3,282 |
2,563 |
|||||||
Non-controlling interests |
474 |
151 |
||||||
Shareholders' equity |
9,798 |
8,966 |
||||||
Total capitalization |
$ |
13,554 |
$ |
11,680 |
$ |
1,874 |
Total capitalization increased by
The increase in liabilities relates primarily to:
- the issuance of
$265 million of U.S. commercial paper [the "U.S. Program"] in the third quarter of 2016 and the issuance of$258 million of euro-commercial paper [the "euro-Program"] in the first quarter of 2016. These programs allow us to minimize the amount of cash on hand to run our business by providing funding on a more flexible and cost effective basis compared to drawing on our revolving credit facility; - higher short-term borrowings are primarily as a result of an increase in non-cash working capital and cash deployed for the repurchase and cancellation of Common Shares under our normal course issuer bid during 2016; and
- higher 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
$1.58 billion of net income earned in the first nine months of 2016; - the
$172 million net unrealized gain on translation of our net investment in operations whose functional currency is not the U.S. dollar; and - the
$39 million net unrealized gain on cash flow hedges.
These factors were partially offset by:
- the
$799 million repurchase and cancellation of 19.8 million Common Shares under our normal course issuer bid during 2016; and $290 million of dividends paid during the first nine months of 2016.
The increase in non-controlling interest was primarily as a result of acquisitions during or subsequent to the third quarter of 2015.
Cash Resources
During the third quarter of 2016, our cash resources decreased by $233 million to
The Company maintains a revolving credit facility of
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 |
384,409,283 |
||||
Stock options (i) |
7,614,131 |
||||
392,023,414 |
(i) |
Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to our stock option plans. |
Contractual Obligations and Off‑Balance Sheet Financing
There have been no material changes with respect to the contractual obligations requiring annual payments during the third quarter of 2016 that are outside the ordinary course of our business. Refer to our MD&A included in our 2015 Annual Report.
Subsequent to the third quarter of 2016 we entered into binding agreements to extend the leases for 11 properties as discussed in the "Subsequent Events" section.
RESULTS OF OPERATIONS – FOR THE NINE MONTHS ENDED
Sales
For the nine months |
||||||||
ended September 30, |
||||||||
2016 |
2015 |
Change |
||||||
Vehicle Production Volumes (millions of units) |
||||||||
North America |
13.428 |
12.928 |
+ 4% |
|||||
Europe |
16.263 |
15.474 |
+ 5% |
|||||
Sales |
||||||||
External Production |
||||||||
North America |
$ |
14,503 |
$ |
13,089 |
+ 11% |
|||
Europe |
6,936 |
5,420 |
+ 28% |
|||||
Asia |
1,554 |
1,139 |
+ 36% |
|||||
Rest of World |
306 |
367 |
- 17% |
|||||
Complete Vehicle Assembly |
1,751 |
1,729 |
+ 1% |
|||||
Tooling, Engineering and Other |
2,142 |
1,822 |
+ 18% |
|||||
Total Sales |
$ |
27,192 |
$ |
23,566 |
+ 15% |
External Production Sales -
External production sales in
- the launch of new programs during or subsequent to the nine months ended
September 30, 2015 , including the:- Chrysler Pacifica;
- Ford Edge and Lincoln MKX;
- Cadillac XT5;
- Mercedes-Benz R-Class and GLE Coupe; and
- Chevrolet Malibu;
- the acquisition of Getrag during the first quarter of 2016, which positively impacted production sales by
$456 million ; and - higher production volumes on certain existing programs.
These factors were partially offset by:
- a
$225 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar; - the contribution of two manufacturing facilities into an equity-accounted joint venture during the third quarter of 2015, which negatively impacted production sales by
$67 million ; - 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 nine months ended
September 30, 2015 .
External Production Sales -
External production sales in
- net acquisitions during or subsequent to the nine months ended
September 30, 2015 , which positively impacted production sales by$1.10 billion , including Getrag which positively impacted production sales by$835 million ; - the launch of new programs during or subsequent to the nine months ended
September 30, 2015 , including the:- Audi A4;
- BMW X1;
- Skoda Superb;
- Audi A3 and A3 Sportback; and
- Mercedes-Benz E-Class.
These factors were partially offset by:
- a
$84 million decrease in reported U.S. dollar production sales primarily as a result of the weakening of foreign currencies against the U.S. dollar, including the British pound, Russian ruble and Turkish lira; - lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the nine months ended
September 30, 2015 .
External Production Sales -
External production sales in
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in
China ; and - acquisitions during or subsequent to the third quarter of 2015, including the
Xingqiaorui Partnership and Getrag, which positively impacted production sales by$198 million .
These factors were partially offset by:
- a
$79 million decrease in reported U.S. dollar production sales primarily as a result of the weakening of foreign currencies against the U.S. dollar, including the Chinese renminbi and South Korean won; and - net customer price concessions subsequent to the third quarter of 2015.
External Production Sales - Rest of World
External production sales in Rest of World decreased 17% or
- a
$69 million decrease in reported U.S. dollar production sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Argentine peso and Brazilian real; and - lower production volumes on certain existing programs.
These factors were partially offset by:
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in
Brazil ; and - net customer price increases subsequent to the third quarter of 2015.
Complete Vehicle Assembly Sales
For the nine months |
||||||
ended September 30, |
||||||
2016 |
2015 |
Change |
||||
Complete Vehicle Assembly Sales |
$ |
1,751 |
$ |
1,729 |
+ 1% |
|
Complete Vehicle Assembly Volumes (Units) |
67,631 |
78,862 |
- 14% |
Complete vehicle assembly sales increased 1% or
The increase in complete vehicle assembly sales is primarily as a result of:
- an increase in assembly volumes for the Mercedes-Benz G-Class which has a higher average selling price per vehicle compared to the MINI programs; and
- a
$4 million increase in reported U.S. dollar complete vehicle assembly sales as a result of the strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
- a decrease in assembly volumes for the MINI Countryman and Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our
Magna Steyr facility during the third quarter of 2015.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 18% or
In the nine months ended
- Chrysler Pacifica;
- Chevrolet Cruze;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Equinox, Captiva and GMC Terrain;
- Ford Figo Aspire;
- Jeep Renegade;
- Mini Countryman;
- Lincoln
Continental ; and BMW 5-Series.
In the nine months ended
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Cruze;
- Audi A4;
- MINI Countryman;
- Ford Edge;
- Skoda Fabia;
- Chevrolet Equinox and GMC Terrain; and
- Honda HR-V.
Acquisitions during or subsequent to the nine months ended
Segment Analysis
For the nine months ended September 30, |
|||||||||||||
Total Sales |
Adjusted EBIT |
||||||||||||
2016 |
2015 |
Change |
2016 |
2015 |
Change |
||||||||
North America |
$ |
15,506 |
$ |
13,925 |
$ |
1,581 |
$ |
1,545 |
$ |
1,433 |
$ |
112 |
|
Europe |
9,856 |
8,234 |
1,622 |
472 |
339 |
133 |
|||||||
Asia |
1,899 |
1,357 |
542 |
166 |
86 |
80 |
|||||||
Rest of World |
321 |
373 |
(52) |
(21) |
(19) |
(2) |
|||||||
Corporate and Other |
(390) |
(323) |
(67) |
40 |
34 |
6 |
|||||||
Total reportable segments |
$ |
27,192 |
$ |
23,566 |
$ |
3,626 |
$ |
2,202 |
$ |
1,873 |
$ |
329 |
There were no amounts included in Other Income, net for the nine months ended
For the nine months |
|||||||
ended September 30, |
|||||||
2015 |
|||||||
North America |
|||||||
Gain on sale |
$ |
(136) |
|||||
Europe |
|||||||
Gain on sale |
(57) |
||||||
Restructuring |
12 |
||||||
(45) |
|||||||
$ |
(181) |
The gain on sale in
During the second quarter of 2015, we sold our battery pack business to
Adjusted EBIT in
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- the acquisition of Getrag during the first quarter of 2016;
- decreased commodity costs; and
- a favourable intellectual property infringement settlement in relation to our electronics business.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one body and chassis operation;
- a decrease in reported U.S. dollar EBIT due to the weakening of the Canadian dollar against the U.S. dollar;
- lower recoveries associated with scrap steel;
- higher warranty costs of
$16 million ; - lower equity income;
- higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- higher affiliation fees paid to Corporate;
- higher launch costs;
- a higher amount of employee profit sharing;
- higher severance costs;
- 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; and
- net customer price concessions subsequent to the nine months ended
September 30, 2015 .
Adjusted EBIT in
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015, including Stadco and Getrag;
- productivity and efficiency improvements at certain facilities;
- an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis facility in
Europe ; - 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;
- higher warranty costs of
$16 million ; - a higher amount of employee profit sharing;
- a decrease in reported U.S. dollar Adjusted EBIT primarily as a result of the weakening of foreign currencies against the U.S. dollar, including the British pound, Russian ruble and Turkish lira;
- higher affiliation fees paid to Corporate;
- higher launch costs;
- higher incentive compensation; and
- net customer price concessions subsequent to the nine months ended
September 30, 2015 .
Adjusted EBIT in
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015, including the
Xingqiaorui Partnership and Getrag; - productivity and efficiency improvements at certain facilities; and
- higher equity income.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- a decrease in reported U.S. dollar Adjusted EBIT due to the weakening of the Chinese renminbi against the U.S. dollar;
- higher warranty costs of
$6 million ; - a higher amount of employee profit sharing;
- operational inefficiencies at certain facilities; and
- net customer price concessions subsequent to the nine months ended
September 30, 2015 .
Rest of World
Adjusted EBIT in Rest of World decreased
This factor was partially offset by:
- net customer price increases subsequent to the nine months ended
September 30, 2015 ; - a decrease in reported U.S. dollar Adjusted EBIT loss due to the weakening of the Brazilian real and Argentine peso against the U.S. dollar; and
- decreased commodity costs.
Corporate and Other
Corporate and Other Adjusted EBIT increased
- an increase in affiliation fees earned from our divisions; and
- lower consulting costs.
These factors were partially offset by:
- higher costs to support our global compliance programs; and
- higher incentive compensation.
SUBSEQUENT EVENTS
Commitments
In
For the 12 months ended December 31, |
||
2017 |
$ |
13 |
2018 |
27 |
|
2019 |
28 |
|
2020 |
36 |
|
2021 |
39 |
|
Thereafter |
438 |
|
$ |
581 |
Normal Course Issuer Bid
Subject to approval by the TSX and the
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other claims.
Refer to note 16 of our unaudited interim consolidated financial statements for the three and nine months ended
For a discussion of risk factors relating to legal and other claims/actions against us, refer to "Item 3. Description of the Business – Risk Factors" in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended
CONTROLS AND PROCEDURES
During the first quarter of 2016, we acquired Getrag. Other than the addition of Getrag's operations to our internal control over financial reporting and any related changes in control to integrate Getrag, there have been no changes in our internal control over financial reporting that occurred during the nine months ended
FORWARD‑LOOKING STATEMENTS
The previous discussion contains statements that constitute "forward-looking information" or "forward-looking statements" within the meaning of applicable securities legislation, including, but not limited to, statements relating to the future issuances of Notes under our U.S. commercial paper and euro-commercial paper programs; and future repurchases of Common Shares under our normal course issuer bid. The forward-looking statements or forward-looking information in this document 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; a decline in consumer confidence, which would be expected to result in lower production volume levels; economic or political uncertainty, including as a result of the
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
Three months ended |
Nine months ended |
||||||||||
September 30, |
September 30, |
||||||||||
Note |
2016 |
2015 |
2016 |
2015 |
|||||||
Sales |
$ |
8,849 |
$ |
7,661 |
$ |
27,192 |
$ |
23,566 |
|||
Costs and expenses |
|||||||||||
Cost of goods sold |
7,558 |
6,593 |
23,222 |
20,223 |
|||||||
Depreciation and amortization |
270 |
197 |
778 |
589 |
|||||||
Selling, general and administrative |
371 |
358 |
1,177 |
1,036 |
|||||||
Interest expense, net |
23 |
9 |
68 |
27 |
|||||||
Equity income |
(65) |
(52) |
(187) |
(155) |
|||||||
Other income, net |
3 |
— |
(124) |
— |
(181) |
||||||
Income from continuing operations before income taxes |
692 |
680 |
2,134 |
2,027 |
|||||||
Income taxes |
178 |
211 |
556 |
569 |
|||||||
Net income from continuing operations |
514 |
469 |
1,578 |
1,458 |
|||||||
Income from discontinued operations, net of tax |
2 |
— |
119 |
— |
74 |
||||||
Net income |
514 |
588 |
1,578 |
1,532 |
|||||||
(Income) loss from continuing operations attributable to non-controlling interests |
(11) |
1 |
(25) |
5 |
|||||||
Net income attributable to Magna International Inc. |
$ |
503 |
$ |
589 |
$ |
1,553 |
$ |
1,537 |
|||
Basic earnings per share: |
4 |
||||||||||
Continuing operations |
$ |
1.30 |
$ |
1.15 |
$ |
3.94 |
$ |
3.58 |
|||
Discontinued operations |
— |
0.29 |
— |
0.18 |
|||||||
Attributable to Magna International Inc. |
$ |
1.30 |
$ |
1.44 |
$ |
3.94 |
$ |
3.76 |
|||
Diluted earnings per share: |
4 |
||||||||||
Continuing operations |
$ |
1.29 |
$ |
1.13 |
$ |
3.92 |
$ |
3.53 |
|||
Discontinued operations |
— |
0.29 |
— |
0.18 |
|||||||
Attributable to Magna International Inc. |
$ |
1.29 |
$ |
1.42 |
$ |
3.92 |
$ |
3.71 |
|||
Cash dividends paid per Common Share |
$ |
0.25 |
$ |
0.22 |
$ |
0.75 |
$ |
0.66 |
|||
Weighted average number of Common Shares outstanding during the period [in millions]: |
4 |
||||||||||
Basic |
387.1 |
408.5 |
393.7 |
409.2 |
|||||||
Diluted |
389.0 |
413.8 |
395.9 |
414.7 |
|||||||
See accompanying notes |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
Three months ended |
Nine months ended |
||||||||||
September 30, |
September 30, |
||||||||||
Note |
2016 |
2015 |
2016 |
2015 |
|||||||
Net income |
$ |
514 |
$ |
588 |
$ |
1,578 |
$ |
1,532 |
|||
Other comprehensive income, net of tax: |
14 |
||||||||||
Net unrealized gain (loss) on translation of net investment in foreign operations |
25 |
(275) |
166 |
(650) |
|||||||
Net unrealized loss on available-for-sale investments |
— |
(2) |
— |
— |
|||||||
Net unrealized (loss) gain on cash flow hedges |
(19) |
(123) |
39 |
(190) |
|||||||
Reclassification of net loss on cash flow hedges to net income |
27 |
24 |
98 |
56 |
|||||||
Reclassification of net loss on investments to net income |
— |
3 |
— |
3 |
|||||||
Reclassification of net loss on pensions to net income |
1 |
2 |
3 |
5 |
|||||||
Pension and post retirement benefits |
— |
(1) |
(2) |
(2) |
|||||||
Other comprehensive income (loss) |
34 |
(372) |
304 |
(778) |
|||||||
Comprehensive income |
548 |
216 |
1,882 |
754 |
|||||||
Comprehensive (income) loss attributable to non-controlling interests |
(12) |
1 |
(19) |
5 |
|||||||
Comprehensive income attributable to Magna International Inc. |
$ |
536 |
$ |
217 |
$ |
1,863 |
$ |
759 |
|||
See accompanying notes |
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
Three months ended |
Nine months ended |
|||||||||
September 30, |
September 30, |
|||||||||
Note |
2016 |
2015 |
2016 |
2015 |
||||||
Cash provided from (used for): |
||||||||||
OPERATING ACTIVITIES |
||||||||||
Net income from continuing operations |
$ |
514 |
$ |
469 |
$ |
1,578 |
$ |
1,458 |
||
Items not involving current cash flows |
5 |
282 |
94 |
849 |
445 |
|||||
796 |
563 |
2,427 |
1,903 |
|||||||
Changes in operating assets and liabilities |
5 |
(139) |
33 |
(759) |
(587) |
|||||
Cash provided from operating activities |
657 |
596 |
1,668 |
1,316 |
||||||
INVESTMENT ACTIVITIES |
||||||||||
Fixed asset additions |
(390) |
(360) |
(1,145) |
(987) |
||||||
Purchase of subsidiaries |
6 |
— |
— |
(1,813) |
(1) |
|||||
Increase in investments and other assets |
(166) |
(74) |
(323) |
(152) |
||||||
Increase in restricted cash deposits |
10 |
(180) |
— |
(180) |
— |
|||||
Proceeds from disposition |
26 |
11 |
63 |
50 |
||||||
Sale of Interiors |
3 |
— |
473 |
— |
473 |
|||||
Proceeds on disposal of facilities |
— |
118 |
— |
221 |
||||||
Cash used in discontinued operations |
— |
(15) |
— |
(56) |
||||||
Cash (used for) provided from investing activities |
(710) |
153 |
(3,398) |
(452) |
||||||
FINANCING ACTIVITIES |
||||||||||
Issues of debt |
3 |
659 |
264 |
690 |
||||||
Increase (decrease) in short-term borrowings |
350 |
(41) |
362 |
29 |
||||||
Repayments of debt |
(237) |
(16) |
(335) |
(70) |
||||||
Issue of Common Shares on exercise of stock options |
2 |
6 |
28 |
19 |
||||||
Repurchase of Common Shares |
13 |
(191) |
(346) |
(799) |
(351) |
|||||
Contributions by non-controlling interest of subsidiaries |
— |
10 |
— |
10 |
||||||
Dividends |
(97) |
(91) |
(290) |
(270) |
||||||
Cash (used for) provided from financing activities |
(170) |
181 |
(770) |
57 |
||||||
Effect of exchange rate changes on cash and cash equivalents |
(10) |
(78) |
1 |
(155) |
||||||
Net (decrease) increase in cash and cash equivalents during the period |
(233) |
852 |
(2,499) |
766 |
||||||
Cash and cash equivalents, beginning of period |
597 |
1,163 |
2,863 |
1,249 |
||||||
Cash and cash equivalents, end of period |
$ |
364 |
$ |
2,015 |
$ |
364 |
$ |
2,015 |
||
See accompanying notes |
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
As at |
As at |
|||||||
September 30, |
December 31, |
|||||||
Note |
2016 |
2015 |
||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
5 |
$ |
364 |
$ |
2,863 |
|||
Accounts receivable |
6,879 |
5,439 |
||||||
Inventories |
7 |
3,090 |
2,564 |
|||||
Prepaid expenses and other |
10 |
247 |
278 |
|||||
10,580 |
11,144 |
|||||||
Investments |
6, 15 |
2,244 |
399 |
|||||
Fixed assets, net |
7,009 |
6,005 |
||||||
Goodwill |
6, 8 |
1,865 |
1,344 |
|||||
Deferred tax assets |
275 |
271 |
||||||
Other assets |
9 |
975 |
524 |
|||||
$ |
22,948 |
$ |
19,687 |
|||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Current liabilities |
||||||||
Short-term borrowings |
10 |
$ |
631 |
$ |
25 |
|||
Accounts payable |
5,379 |
4,746 |
||||||
Accrued salaries and wages |
801 |
660 |
||||||
Other accrued liabilities |
11 |
1,857 |
1,512 |
|||||
Income taxes payable |
100 |
122 |
||||||
Long‑term debt due within one year |
201 |
211 |
||||||
8,969 |
7,276 |
|||||||
Long‑term debt |
2,450 |
2,327 |
||||||
Long-term employee benefit liabilities |
652 |
504 |
||||||
Other long‑term liabilities |
296 |
331 |
||||||
Deferred tax liabilities |
309 |
132 |
||||||
12,676 |
10,570 |
|||||||
Shareholders' equity |
||||||||
Capital stock |
||||||||
Common Shares |
||||||||
[issued: 384,409,283; December 31, 2015 – 402,264,201] |
13 |
3,798 |
3,942 |
|||||
Contributed surplus |
117 |
107 |
||||||
Retained earnings |
7,026 |
6,387 |
||||||
Accumulated other comprehensive loss |
14 |
(1,143) |
(1,470) |
|||||
9,798 |
8,966 |
|||||||
Non-controlling interests |
474 |
151 |
||||||
10,272 |
9,117 |
|||||||
$ |
22,948 |
$ |
19,687 |
|||||
See accompanying notes |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
Common Shares |
Contri- |
Non- |
|||||||||||||||||||
Stated |
buted |
Retained |
controlling |
Total |
|||||||||||||||||
Note |
Number |
Value |
Surplus |
Earnings |
AOCL (i) |
Interest |
Equity |
||||||||||||||
[in millions] |
|||||||||||||||||||||
Balance, December 31, 2015 |
402.3 |
$ |
3,942 |
$ |
107 |
$ |
6,387 |
$ |
(1,470) |
$ |
151 |
$ |
9,117 |
||||||||
Net income |
1,553 |
25 |
1,578 |
||||||||||||||||||
Other comprehensive income (loss) |
310 |
(6) |
304 |
||||||||||||||||||
Contributions by non-controlling interest |
(1) |
(1) |
|||||||||||||||||||
Shares issued on exercise of stock |
|||||||||||||||||||||
options |
1.8 |
41 |
(13) |
28 |
|||||||||||||||||
Release of stock and stock units |
7 |
(7) |
— |
||||||||||||||||||
Repurchase and cancellation under |
|||||||||||||||||||||
normal course issuer bid |
13 |
(19.8) |
(195) |
(621) |
17 |
(799) |
|||||||||||||||
Stock-based compensation expense |
30 |
30 |
|||||||||||||||||||
Acquisition |
6 |
305 |
305 |
||||||||||||||||||
Dividends paid |
0.1 |
3 |
(293) |
(290) |
|||||||||||||||||
Balance, September 30, 2016 |
384.4 |
$ |
3,798 |
$ |
117 |
$ |
7,026 |
$ |
(1,143) |
$ |
474 |
$ |
10,272 |
||||||||
Common Shares |
Contri- |
Non- |
|||||||||||||||||||
Stated |
buted |
Retained |
controlling |
Total |
|||||||||||||||||
Note |
Number |
Value |
Surplus |
Earnings |
AOCL (i) |
Interest |
Equity |
||||||||||||||
[in millions] |
|||||||||||||||||||||
Balance, December 31, 2014 |
410.3 |
$ |
3,979 |
$ |
83 |
$ |
5,155 |
$ |
(558) |
$ |
14 |
$ |
8,673 |
||||||||
Net income |
1,537 |
(5) |
1,532 |
||||||||||||||||||
Other comprehensive loss |
(778) |
(778) |
|||||||||||||||||||
Shares issued on exercise of stock |
|||||||||||||||||||||
options |
1.2 |
25 |
(6) |
19 |
|||||||||||||||||
Repurchase and cancellation under |
|||||||||||||||||||||
normal course issuer bid |
13 |
(7.2) |
(72) |
(286) |
7 |
(351) |
|||||||||||||||
Release of stock and stock units |
6 |
(6) |
— |
||||||||||||||||||
Stock-based compensation expense |
29 |
29 |
|||||||||||||||||||
Reclassification of liability |
9 |
9 |
|||||||||||||||||||
Dividends paid |
0.1 |
6 |
(276) |
(270) |
|||||||||||||||||
Balance, September 30, 2015 |
404.4 |
$ |
3,944 |
$ |
100 |
$ |
6,130 |
$ |
(1,329) |
$ |
18 |
$ |
8,863 |
||||||||
(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] Future Accounting Standards
Revenue Recognition
In
Leases
In
[c] Seasonality
The Company's businesses are generally not seasonal. However, the Company's sales and profits are closely related to its automotive customers' vehicle production schedules. The Company's largest North American customers typically halt production for approximately two weeks in July and one week in December. Additionally, many of the Company's customers in
2. DISCONTINUED OPERATIONS
At
There were no amounts related to the interiors operations classified as discontinued operations for the three and nine month periods ended
Three months ended |
Nine months ended |
|||||
September 30, 2015 |
September 30, 2015 |
|||||
Sales |
$ |
453 |
$ |
1,737 |
||
Costs and expense |
||||||
Cost of goods sold |
436 |
1,635 |
||||
Depreciation and amortization |
— |
13 |
||||
Selling, general and administrative |
4 |
58 |
||||
Equity income |
(3) |
(11) |
||||
Income from discontinued operations before income taxes |
16 |
42 |
||||
Income taxes [i] |
(51) |
20 |
||||
Income from discontinued operations before gain on divestiture |
67 |
22 |
||||
Gain on divestiture of discontinued operations, net of tax [i] |
52 |
52 |
||||
Income from discontinued operations, net of tax |
$ |
119 |
$ |
74 |
[i] |
In the second quarter of 2015, income taxes included $60 million of deferred tax expense relating to timing differences that became payable upon closing of the transaction and therefore in the third quarter of 2015 are included in the gain on divestiture of discontinued operations, net of tax. |
3. OTHER INCOME, NET
Nine months ended September 30, 2015 |
||||
Third Quarter |
||||
Gain on disposal |
[a] |
$ |
(136) |
|
Restructuring |
[b] |
12 |
||
(124) |
||||
Second Quarter |
||||
Gain on disposal |
[a] |
(57) |
||
$ |
(181) |
For the three and nine months ended
For the nine months ended
[a] Gain on disposal
During the third quarter of 2015, the Company contributed two manufacturing facilities and received a 49% interest in a newly formed joint venture and cash proceeds of
During the second quarter of 2015, the company sold its battery pack business to
[b] Restructuring
During the third quarter of 2015, the Company recorded net restructuring charges of
4. EARNINGS PER SHARE
Earnings per share are computed as follows:
Three months ended |
Nine months ended |
||||||||||
September 30, |
September 30, |
||||||||||
2016 |
2015 |
2016 |
2015 |
||||||||
Income available to Common shareholders: |
|||||||||||
Net income from continuing operations |
$ |
514 |
$ |
469 |
$ |
1,578 |
$ |
1,458 |
|||
(Loss) income from continuing operations attributable to |
|||||||||||
non-controlling interests |
(11) |
1 |
(25) |
5 |
|||||||
Net income attributable to Magna International Inc. |
|||||||||||
from continuing operations |
503 |
470 |
1,553 |
1,463 |
|||||||
Income from discontinued operations |
— |
119 |
— |
74 |
|||||||
Net income attributable to Magna International Inc. |
$ |
503 |
$ |
589 |
$ |
1,553 |
$ |
1,537 |
|||
Weighted average shares outstanding: |
|||||||||||
Basic |
387.1 |
408.5 |
393.7 |
409.2 |
|||||||
Adjustments |
|||||||||||
Stock options and restricted stock [a] |
1.9 |
5.3 |
2.2 |
5.5 |
|||||||
Diluted |
389.0 |
413.8 |
395.9 |
414.7 |
[a] |
For the three and nine months ended September 30, 2016, diluted earnings per Common Share excludes 5.2 million and 3.0 million Common Shares issuable under the Company's Incentive Stock Option Plan because these options were not "in-the-money". |
Three months ended |
Nine months ended |
|||||||||
September 30, |
September 30, |
|||||||||
2016 |
2015 |
2016 |
2015 |
|||||||
Earnings per Common Share: |
||||||||||
Basic: |
||||||||||
Continuing operations |
$ |
1.30 |
$ |
1.15 |
$ |
3.94 |
$ |
3.58 |
||
Discontinued operations |
— |
0.29 |
— |
0.18 |
||||||
Attributable to Magna International Inc. |
$ |
1.30 |
$ |
1.44 |
$ |
3.94 |
$ |
3.76 |
||
Diluted: |
||||||||||
Continuing operations |
$ |
1.29 |
$ |
1.13 |
$ |
3.92 |
$ |
3.53 |
||
Discontinued operations |
— |
0.29 |
— |
0.18 |
||||||
Attributable to Magna International Inc. |
$ |
1.29 |
$ |
1.42 |
$ |
3.92 |
$ |
3.71 |
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
September 30, |
December 31, |
||||
2016 |
2015 |
||||
Bank term deposits, bankers' acceptances and government paper |
$ |
113 |
$ |
2,572 |
|
Cash |
251 |
291 |
|||
$ |
364 |
$ |
2,863 |
[b] Items not involving current cash flows:
Three months ended |
Nine months ended |
||||||||
September 30, |
September 30, |
||||||||
2016 |
2015 |
2016 |
2015 |
||||||
Depreciation and amortization |
$ |
270 |
$ |
197 |
$ |
778 |
$ |
589 |
|
Amortization of other assets included in cost of goods sold |
35 |
32 |
100 |
82 |
|||||
Deferred income taxes |
(3) |
11 |
8 |
(5) |
|||||
Other non-cash charges |
4 |
9 |
21 |
21 |
|||||
Equity income in excess of dividends received |
(24) |
(19) |
(58) |
(49) |
|||||
Non-cash portion of Other Income [note 3] |
— |
(136) |
— |
(193) |
|||||
$ |
282 |
$ |
94 |
$ |
849 |
$ |
445 |
[c] Changes in operating assets and liabilities:
Three months ended |
Nine months ended |
||||||||
September 30, |
September 30, |
||||||||
2016 |
2015 |
2016 |
2015 |
||||||
Accounts receivable |
$ |
(26) |
$ |
(116) |
$ |
(1,004) |
$ |
(588) |
|
Inventories |
(232) |
(62) |
(362) |
(331) |
|||||
Prepaid expenses and other |
38 |
3 |
176 |
(9) |
|||||
Accounts payable |
96 |
68 |
403 |
167 |
|||||
Accrued salaries and wages |
62 |
125 |
96 |
70 |
|||||
Other accrued liabilities |
(20) |
(13) |
(46) |
27 |
|||||
Income taxes payable |
(57) |
28 |
(22) |
77 |
|||||
$ |
(139) |
$ |
33 |
$ |
(759) |
$ |
(587) |
6. ACQUISITIONS
Acquisition of Getrag
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 at September 30, 2016 |
||||
Cash |
$ |
136 |
||
Non-cash working capital |
(459) |
|||
Investments |
1,736 |
|||
Fixed assets |
483 |
|||
Goodwill |
442 |
|||
Other assets |
59 |
|||
Intangibles |
223 |
|||
Deferred tax assets |
43 |
|||
Long-term employee benefit liabilities |
(125) |
|||
Long-term debt |
(117) |
|||
Other long-term liabilities |
(52) |
|||
Deferred tax liabilities |
(144) |
|||
Non-controlling interest |
(307) |
|||
Consideration paid |
1,918 |
|||
Less: Cash acquired |
(136) |
|||
Net cash outflow |
$ |
1,782 |
The preliminary purchase price allocations are subject to change and may be subsequently adjusted to reflect final valuation results and other adjustments. During the three months ended
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% |
$ |
444 |
|
Getrag (Jiangxi) Transmission Co., Ltd ["GJT"] (i) |
50.0% |
$ |
1,124 |
|
Dongfeng Getrag Transmission Co. Ltd |
50.0% |
$ |
168 |
(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 accounts 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. All of the goodwill recognized was assigned to the Company's European segment.
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 a 15 year estimated useful life.
Sales for the acquired Getrag entities for the three and nine months ended
The following table provides consolidated supplemental pro forma information as if the acquisition of Getrag had occurred on
Three months ended |
Nine months ended |
||||
September 30, 2015 |
September 30, 2015 |
||||
Sales |
$ |
8,135 |
$ |
25,042 |
|
Net income attributable to Magna International Inc. |
$ |
608 |
$ |
1,545 |
The unaudited pro forma financial results do not include any anticipated synergies or other expected benefits of the acquisition. This information is presented for informational purposes only and is not indicative of future operating results.
Other
During the second quarter of 2016, the Company acquired 100% of the equity interest in
7. INVENTORIES
Inventories consist of:
September 30, |
December 31, |
||||
2016 |
2015 |
||||
Raw materials and supplies |
$ |
1,052 |
$ |
843 |
|
Work-in-process |
300 |
246 |
|||
Finished goods |
343 |
311 |
|||
Tooling and engineering |
1,395 |
1,164 |
|||
$ |
3,090 |
$ |
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.
8. GOODWILL
The following is a continuity of the Company's goodwill:
Balance at December 31, 2015 |
$ |
1,344 |
|||
Acquisition [note 6] |
430 |
||||
Foreign exchange and other |
57 |
||||
Balance, March 31, 2016 |
1,831 |
||||
Acquisitions [note 6] |
52 |
||||
Foreign exchange and other |
(34) |
||||
Balance, June 30, 2016 |
1,849 |
||||
Foreign exchange and other |
16 |
||||
Balance, September 30, 2016 |
$ |
1,865 |
9. OTHER ASSETS
Other assets consist of:
September 30, |
December 31, |
|||||
2016 |
2015 |
|||||
Preproduction costs related to long-term supply agreements |
||||||
with contractual guarantee for reimbursement |
$ |
372 |
$ |
276 |
||
Customer relationship intangibles |
282 |
75 |
||||
Long-term receivables |
197 |
87 |
||||
Patents and licences, net |
41 |
37 |
||||
Unrealized gain on cash flow hedges |
12 |
5 |
||||
Pension overfunded status |
17 |
17 |
||||
Other, net |
54 |
27 |
||||
$ |
975 |
$ |
524 |
10. SHORT-TERM BORROWINGS
The Company's short-term borrowings consist of the following:
September 30, |
December 31, |
||||
2016 |
2015 |
||||
Bank indebtedness |
$ |
108 |
$ |
25 |
|
Commercial paper |
523 |
— |
|||
$ |
631 |
$ |
25 |
In the third quarter of 2016, the Company entered into an agreement for a credit facility that is drawn in euros. The Company is required to secure any amounts drawn on the facility with a USD cash deposit of 105% of the outstanding euro balance. As of
During the third quarter of 2016, the Company established a U.S. commercial paper program [the "U.S. Program"]. Under the U.S. Program, the Company may issue U.S. commercial paper notes [the "U.S. notes"] up to a maximum aggregate amount of U.S.
In the first quarter of 2016, the Company established a euro-commercial paper program [the "euro-Program"]. Under the euro-Program, the Company may issue euro-commercial paper notes [the "euro notes"] up to a maximum aggregate amount of €500 million or its equivalent in alternative currencies. Any euro notes issued will be guaranteed by the Company. The proceeds from the issuance of any euro notes will be used for general corporate purposes. As of
11. 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 6] |
172 |
— |
|||
Foreign exchange and other |
4 |
(6) |
|||
Balance, March 31 |
237 |
72 |
|||
Expense, net |
12 |
10 |
|||
Settlements |
(14) |
(10) |
|||
Foreign exchange and other |
(2) |
1 |
|||
Balance, June 30 |
233 |
73 |
|||
Expense, net |
26 |
1 |
|||
Settlements |
(4) |
(10) |
|||
Foreign exchange and other |
(1) |
(5) |
|||
Balance, September 30 |
$ |
254 |
$ |
59 |
During the first quarter of 2016, the warranty obligation assumed as a result of the acquisition was recognized at its estimated fair value of
12. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
Three months ended |
Nine months ended |
||||||||
September 30, |
September 30, |
||||||||
2016 |
2015 |
2016 |
2015 |
||||||
Defined benefit pension plan and other |
$ |
4 |
$ |
3 |
$ |
13 |
$ |
10 |
|
Termination and long service arrangements |
7 |
8 |
22 |
20 |
|||||
Retirement medical benefit plan |
— |
— |
1 |
1 |
|||||
$ |
11 |
$ |
11 |
$ |
36 |
$ |
31 |
13. CAPITAL STOCK
[a] |
The Company repurchased shares under normal course issuer bids as follows: |
|||||||
2016 |
2015 |
|||||||
Number |
Cash |
Number |
Cash |
|||||
of shares |
consideration |
of shares |
consideration |
|||||
First Quarter |
7,277,425 |
$ |
300 |
— |
$ |
— |
||
Second Quarter |
7,823,637 |
308 |
— |
— |
||||
Third Quarter |
4,706,220 |
190 |
7,246,514 |
346 |
||||
19,807,282 |
$ |
798 |
7,246,514 |
$ |
346 |
|||
[b] |
The following table presents the maximum number of shares that would be outstanding if all the dilutive instruments |
|||||||
Common Shares |
384,409,283 |
|||||||
Stock options (i) |
7,614,131 |
|||||||
392,023,414 |
(i) |
Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to the Company's stock option plans. |
||||||||
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a continuity schedule of accumulated other comprehensive loss: |
||||||||||
2016 |
2015 |
|||||||||
Accumulated net unrealized loss 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) |
||||||||
Net unrealized (loss) gain |
(108) |
63 |
||||||||
Repurchase of shares under normal course issuer bid |
6 |
— |
||||||||
Balance, June 30 |
(881) |
(630) |
||||||||
Net unrealized gain (loss) |
24 |
(275) |
||||||||
Repurchase of shares under normal course issuer bid |
4 |
7 |
||||||||
Balance, September 30 |
(853) |
(898) |
||||||||
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) |
||||||||
Net unrealized loss |
(11) |
(2) |
||||||||
Reclassification of net loss to net income |
35 |
21 |
||||||||
Balance, June 30 |
(133) |
(148) |
||||||||
Net unrealized loss |
(19) |
(123) |
||||||||
Reclassification of net loss to net income |
27 |
24 |
||||||||
Balance, September 30 |
(125) |
(247) |
||||||||
2016 |
2015 |
|||||||||
Accumulated net unrealized loss on available-for-sale investments |
||||||||||
Balance, beginning of period |
(1) |
(4) |
||||||||
Net unrealized gain |
— |
1 |
||||||||
Balance, March 31 |
(1) |
(3) |
||||||||
Net unrealized gain |
— |
1 |
||||||||
Balance, June 30 |
(1) |
(2) |
||||||||
Net unrealized loss |
— |
(2) |
||||||||
Reclassification of net loss to net income |
— |
3 |
||||||||
Balance, September 30 |
(1) |
(1) |
||||||||
Accumulated net unrealized loss on pensions (ii) |
||||||||||
Balance, beginning of period |
(165) |
(186) |
||||||||
Net unrealized loss |
(2) |
(1) |
||||||||
Acquisition [note 6] |
(1) |
— |
||||||||
Reclassification of net loss to net income |
1 |
1 |
||||||||
Balance, March 31 |
(167) |
(186) |
||||||||
Acquisition [note 6] |
1 |
— |
||||||||
Reclassification of net loss to net income |
1 |
2 |
||||||||
Balance, June 30 |
(165) |
(184) |
||||||||
Net unrealized loss |
— |
(1) |
||||||||
Reclassification of net loss to net income |
1 |
2 |
||||||||
Balance, September 30 |
(164) |
(183) |
||||||||
Total accumulated other comprehensive loss |
$ |
(1,143) |
$ |
(1,329) |
||||||
(i) |
The amount of income tax benefit that has been netted in the accumulated net unrealized (loss) gain on cash flow hedges is as follows: |
|||||||||||||
2016 |
2015 |
|||||||||||||
Balance, beginning of period |
$ |
97 |
$ |
44 |
||||||||||
Net unrealized (loss) gain |
(24) |
27 |
||||||||||||
Reclassifications of net loss to net income |
(14) |
(5) |
||||||||||||
Balance, March 31 |
59 |
66 |
||||||||||||
Net unrealized gain (loss) |
6 |
(1) |
||||||||||||
Reclassifications of net loss to net income |
(13) |
(8) |
||||||||||||
Balance, June 30 |
52 |
57 |
||||||||||||
Net unrealized gain |
7 |
47 |
||||||||||||
Reclassifications of net loss to net income |
(10) |
(10) |
||||||||||||
Balance, September 30 |
$ |
49 |
$ |
94 |
||||||||||
(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 |
||||||||||||
Reclassification of net loss to net income |
(1) |
(1) |
||||||||||||
Balance, June 30 |
$ |
28 |
$ |
35 |
||||||||||
Net unrealized loss |
— |
(1) |
||||||||||||
Reclassification of net loss to net income |
— |
(1) |
||||||||||||
Balance, September 30 |
$ |
28 |
$ |
33 |
The amount of other comprehensive loss 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:
September 30, |
December 31, |
||||||
2016 |
2015 |
||||||
Trading |
|||||||
Cash and cash equivalents |
$ |
364 |
$ |
2,863 |
|||
Investment in asset-backed commercial paper |
79 |
73 |
|||||
Equity investments |
— |
4 |
|||||
$ |
443 |
$ |
2,940 |
||||
Held to maturity investments |
|||||||
Severance investments |
$ |
3 |
$ |
3 |
|||
Loans and receivables |
|||||||
Accounts receivable |
$ |
6,879 |
$ |
5,439 |
|||
Long-term receivables included in other assets |
197 |
87 |
|||||
$ |
7,076 |
$ |
5,526 |
||||
Other financial liabilities |
|||||||
Bank indebtedness |
$ |
108 |
$ |
25 |
|||
Commercial paper |
523 |
— |
|||||
Long-term debt (including portion due within one year) |
2,651 |
2,557 |
|||||
Accounts payable |
5,379 |
4,746 |
|||||
$ |
8,661 |
$ |
7,328 |
||||
Derivatives designated as effective hedges, measured at fair value |
|||||||
Foreign currency contracts |
|||||||
Prepaid expenses |
$ |
17 |
$ |
27 |
|||
Other assets |
12 |
4 |
|||||
Other accrued liabilities |
(131) |
(191) |
|||||
Other long-term liabilities |
(53) |
(152) |
|||||
$ |
(155) |
$ |
(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 |
||||||||
amounts |
amounts |
||||||||
presented |
not offset |
||||||||
in consolidated |
in consolidated |
||||||||
balance sheets |
balance sheets |
Net amounts |
|||||||
September 30, 2016 |
|||||||||
Assets |
$ |
29 |
$ |
25 |
$ |
4 |
|||
Liabilities |
$ |
(184) |
$ |
(25) |
$ |
(159) |
|||
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 and nine month periods ended
[e] Interest rate risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In particular, the amount of interest income earned on the Company's cash and cash equivalents is impacted more by the investment decisions made and the demands to have available cash on hand, than by movements in the interest rates over a given period.
In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on these instruments are fixed.
[f] Currency risk and foreign exchange contracts
The Company 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 |
154 |
(2,125) |
||
euro amount |
31 |
(7) |
||
Korean won amount |
26,400 |
— |
||
For U.S. dollars |
||||
Peso amount |
5,630 |
— |
||
Korean won amount |
22,878 |
— |
||
For euros |
||||
U.S. amount |
153 |
(202) |
||
GBP amount |
— |
(30) |
||
Czech Koruna amount |
5,187 |
(8) |
||
Polish Zlotys amount |
247 |
(4) |
||
Forward contracts mature at various dates through 2020. 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 [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, among other things, damages of approximately
In
Both actions will be tried together at a trial scheduled to commence on
[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 11]; 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 the Company'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, 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 |
Three months ended |
||||||||||||||||||||||||||
September 30, 2016 |
September 30, 2015 |
||||||||||||||||||||||||||
Fixed |
Fixed |
||||||||||||||||||||||||||
Total |
External |
Adjusted |
assets, |
Total |
External |
Adjusted |
assets, |
||||||||||||||||||||
sales |
sales |
EBIT |
net |
sales |
sales |
EBIT |
net |
||||||||||||||||||||
North America |
|||||||||||||||||||||||||||
Canada |
$ |
1,609 |
$ |
1,466 |
$ |
708 |
$ |
1,538 |
$ |
1,419 |
$ |
620 |
|||||||||||||||
United States |
2,601 |
2,502 |
1,545 |
2,318 |
2,225 |
1,332 |
|||||||||||||||||||||
Mexico |
1,266 |
1,116 |
932 |
1,030 |
921 |
707 |
|||||||||||||||||||||
Eliminations |
(367) |
— |
— |
(295) |
— |
— |
|||||||||||||||||||||
5,109 |
5,084 |
$ |
512 |
3,185 |
4,591 |
4,565 |
$ |
455 |
2,659 |
||||||||||||||||||
Europe |
|||||||||||||||||||||||||||
Western Europe |
|||||||||||||||||||||||||||
(excluding Great Britain) |
2,534 |
2,424 |
1,890 |
2,152 |
2,061 |
1,197 |
|||||||||||||||||||||
Great Britain |
129 |
129 |
131 |
80 |
79 |
47 |
|||||||||||||||||||||
Eastern Europe |
532 |
468 |
557 |
500 |
446 |
455 |
|||||||||||||||||||||
Eliminations |
(93) |
— |
— |
(90) |
— |
— |
|||||||||||||||||||||
3,102 |
3,021 |
115 |
2,578 |
2,642 |
2,586 |
91 |
1,699 |
||||||||||||||||||||
Asia |
654 |
612 |
64 |
765 |
428 |
392 |
13 |
647 |
|||||||||||||||||||
Rest of World |
129 |
128 |
(5) |
63 |
115 |
114 |
(7) |
56 |
|||||||||||||||||||
Corporate and Other |
(145) |
4 |
29 |
418 |
(115) |
4 |
13 |
389 |
|||||||||||||||||||
Total reportable segments |
8,849 |
8,849 |
715 |
7,009 |
7,661 |
7,661 |
565 |
5,450 |
|||||||||||||||||||
Other income, net |
— |
124 |
|||||||||||||||||||||||||
Interest expense, net |
(23) |
(9) |
|||||||||||||||||||||||||
$ |
8,849 |
$ |
8,849 |
$ |
692 |
7,009 |
$ |
7,661 |
$ |
7,661 |
$ |
680 |
5,450 |
||||||||||||||
Current assets |
10,580 |
10,784 |
|||||||||||||||||||||||||
Investments, goodwill, |
|||||||||||||||||||||||||||
deferred tax assets, and |
|||||||||||||||||||||||||||
other assets |
5,359 |
2,359 |
|||||||||||||||||||||||||
Consolidated total assets |
$ |
22,948 |
$ |
18,593 |
|||||||||||||||||||||||
Nine months ended |
Nine months ended |
||||||||||||||||||||||||
September 30, 2016 |
September 30, 2015 |
||||||||||||||||||||||||
Fixed |
Fixed |
||||||||||||||||||||||||
Total |
External |
Adjusted |
assets, |
Total |
External |
Adjusted |
assets, |
||||||||||||||||||
sales |
sales |
EBIT |
net |
sales |
sales |
EBIT |
net |
||||||||||||||||||
North America |
|||||||||||||||||||||||||
Canada |
$ |
5,020 |
$ |
4,617 |
$ |
708 |
$ |
4,578 |
$ |
4,237 |
$ |
620 |
|||||||||||||
United States |
7,636 |
7,351 |
1,545 |
7,112 |
6,805 |
1,332 |
|||||||||||||||||||
Mexico |
3,852 |
3,467 |
932 |
3,085 |
2,803 |
707 |
|||||||||||||||||||
Eliminations |
(1,002) |
— |
— |
(850) |
— |
— |
|||||||||||||||||||
15,506 |
15,435 |
$ |
1,545 |
3,185 |
13,925 |
13,845 |
$ |
1,433 |
2,659 |
||||||||||||||||
Europe |
|||||||||||||||||||||||||
Western Europe |
|||||||||||||||||||||||||
(excluding Great Britain) |
7,968 |
7,687 |
1,890 |
6,653 |
6,434 |
1,197 |
|||||||||||||||||||
Great Britain |
511 |
509 |
131 |
275 |
274 |
47 |
|||||||||||||||||||
Eastern Europe |
1,663 |
1,459 |
557 |
1,548 |
1,373 |
455 |
|||||||||||||||||||
Eliminations |
(286) |
— |
— |
(242) |
— |
— |
|||||||||||||||||||
9,856 |
9,655 |
472 |
2,578 |
8,234 |
8,081 |
339 |
1,699 |
||||||||||||||||||
Asia |
1,899 |
1,776 |
166 |
765 |
1,357 |
1,262 |
86 |
647 |
|||||||||||||||||
Rest of World |
321 |
320 |
(21) |
63 |
373 |
372 |
(19) |
56 |
|||||||||||||||||
Corporate and Other |
(390) |
6 |
40 |
418 |
(323) |
6 |
34 |
389 |
|||||||||||||||||
Total reportable segments |
27,192 |
27,192 |
2,202 |
7,009 |
23,566 |
23,566 |
1,873 |
5,450 |
|||||||||||||||||
Other income, net |
— |
181 |
|||||||||||||||||||||||
Interest expense, net |
(68) |
(27) |
|||||||||||||||||||||||
$ |
27,192 |
$ |
27,192 |
$ |
2,134 |
7,009 |
$ |
23,566 |
$ |
23,566 |
$ |
2,027 |
5,450 |
||||||||||||
Current assets |
10,580 |
10,784 |
|||||||||||||||||||||||
Investments, goodwill, |
|||||||||||||||||||||||||
deferred tax assets and |
|||||||||||||||||||||||||
other assets |
5,359 |
2,359 |
|||||||||||||||||||||||
Consolidated total assets |
$ |
22,948 |
$ |
18,593 |
|||||||||||||||||||||
18. SUBSEQUENT EVENTS
Commitments
In
For the 12 months ended December 31, |
||
2017 |
$ |
13 |
2018 |
27 |
|
2019 |
28 |
|
2020 |
36 |
|
2021 |
39 |
|
Thereafter |
438 |
|
$ |
581 |
|
Normal Course Issuer Bid
Subject to approval by the
SOURCE