AURORA, ON, May 8, 2014 /CNW/ - Magna International Inc. (TSX: MG; NYSE: MGA) today reported financial results for the first quarter ended March
31, 2014.
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THREE MONTHS ENDED
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March 31, 2014
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March 31, 2013
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Sales
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$
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8,961
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$
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8,361
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Adjusted EBIT(1)
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$
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605
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$
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467
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Income from operations before income taxes
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$
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581
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$
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457
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Net income attributable to Magna International Inc.
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$
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393
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$
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369
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Diluted earnings per share
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$
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1.76
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$
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1.57
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All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars.
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(1)
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Adjusted EBIT is the measure of segment profit or loss as reported in
the Company's attached unaudited interim consolidated financial
statements.
Adjusted EBIT represents income from operations before income taxes;
interest expense, net; and other expense, net.
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THREE MONTHS ENDED MARCH 31, 2014
We posted sales of $8.96 billion for the first quarter ended March 31,
2014, an increase of 7% over the first quarter of 2013. We achieved
this sales increase in a period when vehicle production increased 4% in
North America and 8% in Europe, each relative to the first quarter of
2013. In the first quarter of 2014, our North American, European, and
Asian production sales, as well as tooling, engineering and other sales
and complete vehicle assembly sales all increased, while our Rest of
World production sales declined, each relative to the comparable
quarter in 2013.
Complete vehicle assembly sales increased 2% to $813 million for the
first quarter of 2014 compared to $798 million for the first quarter of
2013, while complete vehicle assembly volumes decreased 5% to
approximately 36,000 units.
During the first quarter of 2014, income from operations before income
taxes was $581 million, net income attributable to Magna International
Inc. was $393 million and diluted earnings per share were $1.76,
increases of $124 million, $24 million and $0.19, respectively, each
compared to the first quarter of 2013.
Excluding other expense, after tax in the first quarters of 2014 and
2013 and the impact of the Austrian tax reform in the first quarter of
2014, income from operations before income taxes, net income
attributable to Magna International Inc. and diluted earnings per share
increased $140 million, $70 million and $0.40 respectively, each
compared to the first quarter of 2013.
During the first quarter ended March 31, 2014, we generated cash from
operations of $671 million before changes in non-cash operating assets
and liabilities, and invested $197 million in non-cash operating assets
and liabilities. Total investment activities for the first quarter of
2014 were $271 million, including $217 million in fixed asset additions
and $54 million in investments and other assets.
A more detailed discussion of our consolidated financial results for the
first quarter ended March 31, 2014 is contained in the Management's
Discussion and Analysis of Results of Operations and Financial Position
and the unaudited interim consolidated financial statements and notes
thereto, which are attached to this Press Release.
DIVIDENDS
Yesterday, our Board of Directors declared a quarterly dividend of $0.38
with respect to our outstanding Common Shares for the quarter ended
March 31, 2014. This dividend is payable on June 13, 2014 to
shareholders of record on May 30, 2014.
OTHER MATTERS
Subject to approval by the Toronto Stock Exchange and the New York Stock
Exchange, our Board of Directors approved an amendment to our normal
course issuer bid to increase the maximum number of Common Shares that
may be purchased under the Bid from 12 million to 20 million of our
Common Shares. The new maximum represents approximately 9.0% of our
public float of Common Shares as of November 6, 2013. No other terms
of the Bid have been amended.
UPDATED 2014 OUTLOOK
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Light Vehicle Production (Units)
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North America
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16.8 million
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Europe
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19.5 million
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Production Sales
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North America
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$17.1 - $17.7 billion
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Europe
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$9.8 - $10.2 billion
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Asia
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$1.6 - $1.8 billion
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Rest of World
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$0.7 - $0.8 billion
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Total Production Sales
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$29.2 - $30.5 billion
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Complete Vehicle Assembly Sales
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$2.9 - $3.2 billion
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Total Sales
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$34.9 - $36.6 billion
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Operating Margin(1)
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Mid to high 6% range
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Tax Rate(1)
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Approximately 24.5%
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Capital Spending
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Approximately $1.4 billion
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(1)
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Excluding other expense, net
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In this 2014 outlook, in addition to 2014 light vehicle production, we
have assumed no material acquisitions or divestitures. In addition, we
have assumed that foreign exchange rates for the most common currencies
in which we conduct business relative to our U.S. dollar reporting
currency will approximate current rates.
ABOUT MAGNA
We are a leading global automotive supplier with 315 manufacturing
operations and 82 product development, engineering and sales centres in
29 countries. We have over 128,000 employees focused on delivering
superior value to our customers through innovative products and
processes, and World Class Manufacturing. Our product capabilities
include producing body, chassis, interior, exterior, seating,
powertrain, electronic, vision, closure and roof systems and modules,
as well as complete vehicle engineering and contract manufacturing.
Our Common Shares trade on the Toronto Stock Exchange (MG) and the New
York Stock Exchange (MGA). For further information about Magna, visit
our website at www.magna.com.
We will hold a conference call for interested analysts and shareholders
to discuss our first quarter results on Thursday, May 8, 2014 at 2:00
p.m. EDT. The conference call will be chaired by Don Walker, Chief
Executive Officer. The number to use for this call is 1-800-272-6255.
The number for overseas callers is 1-416-981-9093. Please call in at
least 10 minutes prior to the call. We will also webcast the conference
call at www.magna.com. The slide presentation accompanying the conference call will be
available on our website Thursday afternoon prior to the call.
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FORWARD‑LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking statements" or "forward-looking information" within
the meaning of applicable securities legislation, including, but not
limited to, statements relating to Magna's expected production sales,
based on expected light vehicle production in North America and Europe;
Magna's expected production sales in the North America, Europe, Asia
and Rest of World segments; total sales; complete vehicle assembly
sales; consolidated operating margin; effective income tax rate; fixed
asset expenditures; and future purchases of our Common Shares under the
Normal Course Issuer Bid. The 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 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. Any such forward-looking
statements are based on information currently available to us, and are
based on assumptions and analyses made by us in light of our experience
and our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe are
appropriate in the circumstances. However, whether actual results and
developments will conform with our expectations and predictions is
subject to a number of risks, assumptions and uncertainties, many of
which are beyond our control, and the effects of which can be difficult
to predict, including, without limitation: the impact of economic or
political conditions on consumer confidence, consumer demand for
vehicles and vehicle production; restructuring, downsizing or other
significant non-recurring costs, including in our European business;
fines or penalties imposed by antitrust and regulatory authorities,
including the German Cartel Office; our ability to grow our business
with Asian-based customers; continued underperformance of one or more
of our operating Divisions; ongoing pricing pressures, including our
ability to offset price concessions demanded by our customers; our
ability to successfully launch material new or takeover business;
shifts in market share away from our top customers; shifts in market
shares among vehicles or vehicle segments, or shifts away from vehicles
on which we have significant content; risks of conducting business in
foreign markets, including China, India, Russia, Brazil, Argentina,
Eastern Europe and other non-traditional markets for us; a prolonged
disruption in the supply of components to us from our suppliers;
shutdown of our or our customers' or sub-suppliers' production
facilities due to a work stoppage or labour dispute; scheduled
shutdowns of our customers' production facilities (typically in the
third and fourth quarters of each calendar year); our ability to
successfully compete with other automotive suppliers; a reduction in
outsourcing by our customers or the loss of a material production or
assembly program; the termination or non-renewal by our customers of
any material production purchase order; our ability to consistently
develop innovative products or processes; impairment charges related to
goodwill and long-lived assets; exposure to, and ability to offset,
volatile commodities prices; fluctuations in relative currency values;
our ability to successfully identify, complete and integrate
acquisitions or achieve anticipated synergies; our ability to conduct
sufficient due diligence on acquisition targets; warranty and recall
costs; risk of production disruptions due to natural disasters; pension
liabilities; legal claims and/or regulatory actions against us; changes
in our mix of earnings between jurisdictions with lower tax rates and
those with higher tax rates, as well as our ability to fully benefit
tax losses; other potential tax exposures; changes in credit ratings
assigned to us; changes in laws and governmental regulations; costs
associated with compliance with environmental laws and regulations;
liquidity risks as a result of an unanticipated deterioration of
economic conditions; our ability to achieve future investment returns
that equal or exceed past returns; the unpredictability of, and
fluctuation in, the trading price of our Common Shares; and other
factors set out in our Annual Information Form filed with securities
commissions in Canada and our annual report on Form 40-F filed with the
United States Securities and Exchange Commission, and subsequent
filings. In evaluating forward-looking statements, we caution readers
not to place undue reliance on any forward-looking statements and
readers should specifically consider the various factors which could
cause actual events or results to differ materially from those
indicated by such forward-looking statements. Unless otherwise required
by applicable securities laws, we do not intend, nor do we undertake
any obligation, to update or revise any forward-looking statements to
reflect subsequent information, events, results or circumstances or
otherwise.
For further information about Magna, please see our website at www.magna.com. Copies of financial data and other publicly filed documents are
available through the internet on the Canadian Securities
Administrators' System for Electronic Document Analysis and Retrieval
(SEDAR) which can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's
Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which
can be accessed at www.sec.gov
|
MAGNA INTERNATIONAL INC.
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 Magna
International Inc. and its subsidiaries and jointly controlled
entities, unless the context otherwise requires.
This MD&A should be read in conjunction with the unaudited interim
consolidated financial statements for the three months ended March 31,
2014 included in this press release, and the audited consolidated
financial statements and MD&A for the year ended December 31, 2013
included in our 2013 Annual Report to Shareholders.
This MD&A has been prepared as at May 7, 2014.
OVERVIEW
We are a leading global automotive supplier with 315 manufacturing
operations and 82 product development, engineering and sales centres in
29 countries. We have over 128,000 employees focused on delivering
superior value to our customers through innovative products and
processes, and World Class Manufacturing. Our product capabilities
include producing body, chassis, interior, exterior, seating,
powertrain, electronic, vision, closure and roof systems and modules,
as well as complete vehicle engineering and contract manufacturing. Our
Common Shares trade on the Toronto Stock Exchange (MG) and the New York
Stock Exchange (MGA). We follow a corporate policy of functional and
operational decentralization, pursuant to which we conduct our
operations through divisions, each of which is an autonomous business
unit operating within pre-determined guidelines.
HIGHLIGHTS
North American light vehicle production increased 4% in the first
quarter of 2014, compared to the first quarter of 2013, to 4.2 million
units. In Europe, light vehicle production increased 8% in the first
quarter of 2014 to 5.1 million units.
Our first quarter 2014 total sales increased 7% over the first quarter
of 2013 to $8.96 billion. Our North American, European and Asian
production sales, as well as complete vehicle assembly sales and
tooling, engineering and other sales all increased over the comparable
quarter while Rest of World production sales declined $54 million.
Adjusted EBIT(1) increased 30% to $605 million in the first quarter of 2014, compared to
$467 million in the first quarter of 2013.
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Our North America segment reported Adjusted EBIT of $443 million for the
first quarter of 2014. This compared to Adjusted EBIT of $381 million,
including $39 million of amortization related to the August 2012
acquisition of Magna E-Car Systems partnership ("E-Car"), for the first
quarter of 2013. The E-Car acquisition intangibles were fully amortized
at the end of 2013.
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Our Europe segment generated Adjusted EBIT of $127 million in the first
quarter of 2014 compared to $72 million in the first quarter of 2013,
which represents our ninth consecutive quarter of year-over-year
improvement.
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Our Asia segment reported Adjusted EBIT of $29 million in the first
quarter of 2014 compared to $11 million in the first quarter of 2013.
This increase in part reflects the launch of business in existing and
recently constructed facilities.
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Our Rest of World segment posted an Adjusted EBIT loss of $13 million
for the first quarter of 2014, compared to an Adjusted EBIT loss of $11
million in the first quarter of 2013. We remain highly focused on
reducing our losses in South America over the next couple of years by
addressing commercial challenges and reducing operational
inefficiencies.
Lastly, during the first quarter of 2014, we repurchased 2.7 million
Common Shares, and subsequent to the first quarter repurchased an
additional 1.4 million Common Shares for aggregate consideration of
$377 million pursuant to our outstanding normal course issuer bid that
expires in November 2014.
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1 Adjusted EBIT represents income from operations before income taxes;
interest expense, net; and other expense, net
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FINANCIAL RESULTS SUMMARY
During the first quarter of 2014, we posted sales of $8.96 billion, an
increase of 7% over the first quarter of 2013. This higher sales level
was a result of increases in our North American, European and Asian
production sales, complete vehicle assembly sales, and tooling,
engineering and other sales partially offset by lower Rest of World
production sales. Comparing the first quarter of 2014 to 2013:
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North American vehicle production increased 4% and our North American
production sales increased 9% to $4.41 billion;
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European vehicle production increased 8% and our European production
sales increased 8% to $2.63 billion;
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Asian production sales increased 25% to $381 million;
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Rest of World production sales decreased 26% to $157 million;
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Complete vehicle assembly volumes decreased 5% while sales increased 2%
to $813 million; and
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Tooling, engineering and other sales increased by 3% to $569 million.
During the first quarter of 2014, we earned income from operations
before income taxes of $581 million compared to $457 million for the
first quarter of 2013. Excluding Other Expense recorded in the first
quarters of 2014 and 2013, as discussed in the "Other Expense" section,
the $140 million increase in income from operations before income taxes
was primarily as a result of:
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margins earned on higher production sales;
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incremental margin earned on new programs that launched during or
subsequent to the first quarter of 2013;
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intangible asset amortization of $39 million, recorded in the first
quarter of 2013, related to the acquisition and re-measurement of
E-Car;
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productivity and efficiency improvements at certain facilities;
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the benefit of restructuring and downsizing activities recently
undertaken; and
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higher equity income.
These factors were partially offset by:
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operational inefficiencies and other costs at certain facilities;
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$10 million of cash received related to the settlement of asset-backed
commercial paper ("ABCP") between the Investment Industry Regulatory
Organization of Canada and financial institutions in the first quarter
of 2013;
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higher incentive compensation;
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increased pre-operating costs incurred at new facilities;
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a larger amount of employee profit sharing;
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a $2 million net decrease in valuation gains in respect of ABCP; and
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net customer price concessions subsequent to the first quarter of 2013.
During the first quarter of 2014, net income attributable to Magna
International Inc. was $393 million, an increase of $24 million
compared to the first quarter of 2013 and diluted earnings per share
increased $0.19 to $1.76 for the first quarter of 2014 compared to
$1.57 for the first quarter of 2013. Other Expense, after tax, and the
Austrian Tax Reform impacted net income attributable to Magna
International Inc. and diluted earnings per share as follows:
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For the three months ended March 31,
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2014
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2013
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Net Income
Attributable
to Magna
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Diluted
Earnings
per Share
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Net Income
Attributable
to Magna
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Diluted
Earnings
per Share
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Other expense
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$
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22
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$
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0.10
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$
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6
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$
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0.02
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Income tax effect:
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Other expense
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(2)
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(0.01)
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—
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—
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Austrian tax reform
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32
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0.14
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—
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—
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Net income impact
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$
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52
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$
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0.23
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$
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6
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$
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0.02
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Other Expense and the Austrian Tax Reform are discussed in the "Other
Expense" and "Income Taxes" sections, respectively.
Excluding the negative impact for the first quarters of 2014 and 2013 of
$52 million and $6 million, respectively, net income attributable to
Magna International Inc. for the first quarter of 2014 increased $70
million compared to the first quarter of 2013.
Excluding the $0.23 per share negative impact for the first quarter of
2014 and the $0.02 per share negative impact for the first quarter of
2013, diluted earnings per share increased $0.40, as a result of the
increase in net income attributable to Magna International Inc. and a
decrease in the weighted average number of diluted shares outstanding
during the first quarter of 2014. The decrease in the weighted average
number of diluted shares outstanding was primarily due to the
repurchase and cancellation of Common Shares, during or subsequent to
the first quarter of 2013, pursuant to our normal course issuer bids
partially offset by the issue of Common Shares related to the exercise
of stock options and an increase in the number of diluted options
outstanding as a result of an increase in the trading price of our
common stock.
INDUSTRY TRENDS AND RISKS
Our success is primarily dependent upon the levels of North American and
European car and light truck production by our customers and the
relative amount of content we have on various programs. OEM production
volumes in different regions may be impacted by factors which may vary
from one region to the next, including but not limited to general
economic and political conditions, consumer confidence levels, interest
rates, credit availability, energy and fuel prices, international
conflicts, labour relations issues, regulatory requirements, trade
agreements, infrastructure, legislative changes, and environmental
emissions and safety standards. These factors and a number of other
economic, industry and risk factors which also affect our success,
including such things as relative currency values, commodities prices,
price reduction pressures from our customers, the financial condition
of our supply base and competition from manufacturers with operations
in low cost countries, are discussed in our Annual Information Form and
Annual Report on Form 40-F, each in respect of the year ended December
31, 2013, and remain substantially unchanged in respect of the first
quarter ended March 31, 2014.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
For the three months
ended March 31,
|
|
2014
|
2013
|
Change
|
1 Canadian dollar equals U.S. dollars
|
0.907
|
0.991
|
- 8%
|
1 euro equals U.S. dollars
|
1.371
|
1.319
|
+ 4%
|
1 British pound equals U.S. dollars
|
1.655
|
1.550
|
+ 7%
|
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 March 31, 2014 impacted the reported U.S.
dollar amounts of our sales, expenses and income.
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 MARCH 31, 2014
Sales
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended March 31,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
Vehicle Production Volumes (millions of units)
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
4.190
|
|
|
4.015
|
|
+
|
4%
|
|
Europe
|
|
|
5.130
|
|
|
4.762
|
|
+
|
8%
|
Sales
|
|
|
|
|
|
|
|
|
|
|
External Production
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
4,407
|
|
$
|
4,047
|
|
+
|
9%
|
|
|
Europe
|
|
|
2,634
|
|
|
2,446
|
|
+
|
8%
|
|
|
Asia
|
|
|
381
|
|
|
305
|
|
+
|
25%
|
|
|
Rest of World
|
|
|
157
|
|
|
211
|
|
-
|
26%
|
|
Complete Vehicle Assembly
|
|
|
813
|
|
|
798
|
|
+
|
2%
|
|
Tooling, Engineering and Other
|
|
|
569
|
|
|
554
|
|
+
|
3%
|
Total Sales
|
|
$
|
8,961
|
|
$
|
8,361
|
|
+
|
7%
|
External Production Sales - North America
External production sales in North America increased 9% or $360 million
to $4.41 billion for the first quarter of 2014 compared to $4.05
billion for the first quarter of 2013, primarily as a result of:
-
the launch of new programs during or subsequent to the first quarter of
2013, including the:
-
Jeep Cherokee; and
-
GM full-size pickups and SUVs; and
-
higher production volumes on certain existing programs.
These factors were partially offset by:
-
a $133 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of the Canadian dollar against the U.S. dollar;
and
-
net customer price concessions subsequent to the first quarter of 2013.
External Production Sales - Europe
External production sales in Europe increased 8% or $188 million to
$2.63 billion for the first quarter of 2014 compared to $2.45 billion
for the first quarter of 2013, primarily as a result of:
-
a $73 million increase in reported U.S. dollar sales primarily as a
result of the strengthening of the euro against the U.S. dollar;
-
the launch of new programs during or subsequent to the first quarter of
2013, including the:
-
Skoda Octavia;
-
Range Rover Sport; and
-
Mercedes-Benz GLA; and
-
higher production volumes on certain existing programs.
These factors were partially offset by:
-
a decrease in content on certain programs, including the MINI Cooper;
and
-
net customer price concessions subsequent to the first quarter of 2013.
External Production Sales - Asia
External production sales in Asia increased 25% or $76 million to $381
million for the first quarter of 2014 compared to $305 million for the
first quarter of 2013, primarily as a result of:
-
higher production volumes on certain existing programs; and
-
the launch of new programs during or subsequent to the first quarter of
2013, primarily in China.
These factors were partially offset by net customer price concessions
subsequent to the first quarter of 2013.
External Production Sales - Rest of World
External production sales in Rest of World decreased 26% or $54 million
to $157 million for the first quarter of 2014 compared to $211 million
for the first quarter of 2013, primarily as a result of:
-
a $39 million decrease in reported U.S. dollar sales as a result of the
weakening of foreign currencies against the U.S. dollar, including the
Brazilian real and Argentine peso; and
-
lower production volumes on certain existing programs.
Complete Vehicle Assembly Sales
|
|
|
For the three months
ended March 31,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
Complete Vehicle Assembly Sales
|
|
$
|
813
|
|
$
|
798
|
|
+
|
2%
|
Complete Vehicle Assembly Volumes (Units)
|
|
|
|
|
|
|
|
|
|
|
MINI Countryman, Mercedes-Benz G-Class, MINI Paceman, and Peugeot RCZ
|
|
|
35,658
|
|
|
37,439
|
|
-
|
5%
|
Complete vehicle assembly sales increased 2% or $15 million to $813
million for the first quarter of 2014 compared to $798 million for the
first quarter of 2013 while assembly volumes decreased 5% or 1,781
units.
The increase in complete vehicle assembly sales is primarily as a result
of:
-
a $31 million increase in reported U.S. dollar sales as a result of the
strengthening of the euro against the U.S. dollar; and
-
an increase in assembly volumes for the:
-
Mercedes-Benz G-Class; and
-
MINI Countryman.
These factors were partially offset by a decrease in assembly volumes
for the MINI Paceman.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 3% or $15 million to $569
million for the first quarter of 2014 compared to $554 million for the
first quarter of 2013.
In the first quarter of 2014, the major programs for which we recorded
tooling, engineering and other sales were the:
-
MINI Countryman;
-
Ford Mustang;
-
QOROS 3;
-
Chrysler 200;
-
Chevrolet Suburban and Tahoe, GMC Yukon and Cadillac Escalade;
-
Ford Transit;
-
Honda Fit;
-
Ford F-Series; and
-
Peugeot RCZ.
In the first quarter of 2013, the major programs for which we recorded
tooling, engineering and other sales were the:
-
Jeep Grand Cherokee;
-
Chevrolet Suburban, Tahoe, Silverado and Avalanche;
-
QOROS 3;
-
MINI Countryman;
-
Ford Fusion;
-
Mercedes-Benz Actros;
-
Ford Fiesta;
-
Chevrolet Impala;
-
GMC Acadia; and
-
Ford Transit.
Cost of Goods Sold and Gross Margin
|
|
|
For the three months
ended March 31,
|
|
|
|
2014
|
|
|
2013
|
Sales
|
|
$
|
8,961
|
|
$
|
8,361
|
Cost of goods sold
|
|
|
|
|
|
|
|
Material
|
|
|
5,712
|
|
|
5,345
|
|
Direct labour
|
|
|
575
|
|
|
520
|
|
Overhead
|
|
|
1,475
|
|
|
1,452
|
|
|
|
7,762
|
|
|
7,317
|
Gross margin
|
|
$
|
1,199
|
|
$
|
1,044
|
|
|
|
|
|
|
|
Gross margin as a percentage of sales
|
|
|
13.4%
|
|
|
12.5%
|
Cost of goods sold increased $445 million to $7.76 billion for the first
quarter of 2014 compared to $7.32 billion for the first quarter of 2013
primarily as a result of:
-
higher material, overhead and labour costs associated with the increase
in sales, including wage increases at certain operations; and
-
a larger amount of employee profit sharing.
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 Canadian dollar and Brazilian real, both
against the U.S. dollar partially offset by the strengthening of the
euro against the U.S. dollar; and
-
lower warranty costs of $2 million.
Gross margin increased $155 million to $1.20 billion for the first
quarter of 2014 compared to $1.04 billion for the first quarter of 2013
and gross margin as a percentage of sales increased to 13.4% for the
first quarter of 2014 compared to 12.5% for the first quarter of 2013.
The increase in gross margin as a percentage of sales was primarily due
to:
-
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;
-
lower restructuring and downsizing costs; and
-
lower warranty costs.
These factors were partially offset by:
-
operational inefficiencies and other costs at certain facilities;
-
increased pre-operating costs incurred at new facilities;
-
a larger amount of employee profit sharing;
-
higher costs incurred in preparation for upcoming launches; and
-
an increase in tooling, engineering and other sales that have low or no
margins.
Depreciation and Amortization
Depreciation and amortization costs decreased $38 million to
$217 million for the first quarter of 2014 compared to $255 million for
the first quarter of 2013 primarily as a result of intangible asset
amortization of $39 million, recorded in the first quarter of 2013,
related to the acquisition and re-measurement of E-Car.
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.7% for the first quarter of
2014 compared to 4.4% for the first quarter of 2013. SG&A expense
increased $58 million to $425 million for the first quarter of 2014
compared to $367 million for the first quarter of 2013 primarily as a
result of:
-
an increase in reported U.S. dollar SG&A related to foreign exchange;
-
$10 million of cash received related to the settlement of ABCP between
the Investment Industry Regulatory Organization of Canada and financial
institutions in the first quarter of 2013;
-
higher labour and other costs to support the growth in sales, including
wage increases at certain operations;
-
higher incentive compensation;
-
increased costs incurred at new facilities; and
-
a $2 million net decrease in valuation gains in respect of ABCP.
These factors were partially offset by lower stock-based compensation.
Equity Income
Equity income increased $3 million to $48 million for the first quarter
of 2014 compared to $45 million for the first quarter of 2013 primarily
as a result of higher income generated by most of our equity accounted
investments.
Other Expense, net
During the first quarters of 2014 and 2013, we recorded net
restructuring charges of $22 million and $6 million, ($20 million and
$6 million after tax) respectively, in Europe at our exterior and
interior systems operations. We expect full year 2014 restructuring
charges to be approximately $75 million.
Segment Analysis
Given the differences between the regions in which we operate, our
operations are segmented on a geographic basis. Consistent with the
above, our internal financial reporting segments key internal operating
performance measures between North America, Europe, Asia and Rest of
World for purposes of presentation to the chief operating decision
maker to assist in the assessment of operating performance, the
allocation of resources, and our long-term strategic direction and
future global growth.
Our chief operating decision maker uses Adjusted EBIT as the measure of
segment profit or loss, since we believe Adjusted EBIT is the most
appropriate measure of operational profitability or loss for our
reporting segments. Adjusted EBIT represents income from operations
before income taxes; interest expense, net; and other expense, net.
During the fourth quarter of 2013, we began reporting Asia and Rest of
World as separate reporting segments.
|
|
|
For the three months ended March 31,
|
|
|
|
External Sales
|
|
|
Adjusted EBIT
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
North America
|
|
$
|
4,642
|
|
$
|
4,288
|
|
$
|
354
|
|
$
|
443
|
|
$
|
381
|
|
$
|
62
|
Europe
|
|
|
3,727
|
|
|
3,505
|
|
|
222
|
|
|
127
|
|
|
72
|
|
|
55
|
Asia
|
|
|
428
|
|
|
334
|
|
|
94
|
|
|
29
|
|
|
11
|
|
|
18
|
Rest of World
|
|
|
161
|
|
|
231
|
|
|
(70)
|
|
|
(13)
|
|
|
(11)
|
|
|
(2)
|
Corporate and Other
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
19
|
|
|
14
|
|
|
5
|
Total reportable segments
|
|
$
|
$ 8,961
|
|
$
|
8,361
|
|
$
|
600
|
|
$
|
605
|
|
$
|
467
|
|
$
|
138
|
Excluded from Adjusted EBIT for the three months ended March 31, 2014
and 2013 was $22 million and $6 million, respectively, of net
restructuring costs recorded in our Europe segment, as discussed in the
"Other Expense" section.
North America
Adjusted EBIT in North America increased $62 million to $443 million for
the first quarter of 2014 compared to $381 million for the first
quarter of 2013 primarily as a result of:
-
margins earned on higher production sales;
-
intangible asset amortization of $39 million, recorded in the first
quarter of 2013, related to the acquisition and re-measurement of
E-Car;
-
the benefit of restructuring and downsizing activities recently
undertaken;
-
lower warranty costs of $2 million; and
-
productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
-
operational inefficiencies and other costs at certain facilities;
-
higher costs incurred in preparation for upcoming launches;
-
increased pre-operating costs incurred at new facilities;
-
increased stock-based compensation;
-
higher incentive compensation;
-
higher affiliation fees paid to Corporate;
-
a larger amount of employee profit sharing; and
-
lower equity income.
Europe
Adjusted EBIT in Europe increased $55 million to $127 million for the
first quarter of 2014 compared to $72 million for the first quarter of
2013 primarily as a result of:
-
margins earned on higher production sales;
-
the benefit of restructuring and downsizing activities recently
undertaken;
-
lower costs incurred in preparation for upcoming launches; and
-
productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
-
higher affiliation fees paid to Corporate;
-
higher pre-operating costs incurred at new facilities;
-
a larger amount of employee profit sharing;
-
operational inefficiencies and other costs at certain facilities; and
-
increased stock-based compensation.
Asia
Adjusted EBIT in Asia increased $18 million to $29 million for the first
quarter of 2014 compared to $11 million for the first quarter of 2013
primarily as a result of:
-
margins earned on higher production sales, including margins earned on
the launch of new facilities and new programs; and
-
higher equity income.
These factors were partially offset by:
-
higher launch costs; and
-
higher affiliation fees paid to Corporate.
Rest of World
Rest of World Adjusted EBIT decreased $2 million to a loss of $13
million for the first quarter of 2014 compared to a loss of $11 million
for the first quarter of 2013 primarily as a result of:
-
higher production costs, including inflationary increases, that we have
not been fully successful in passing through to our customers;
-
increased commodity costs;
-
higher incentive compensation;
-
lower equity income; and
-
higher launch costs.
These factors were partially offset by:
-
productivity and efficiency improvements at certain facilities;
-
the benefit of restructuring and downsizing activities recently
undertaken; and
-
net customer price increases subsequent to the first quarter of 2013.
Corporate and Other
Corporate and Other Adjusted EBIT increased $5 million to $19 million
for the first quarter of 2014 compared to $14 million for the first
quarter of 2013 primarily as a result of:
-
an increase in affiliation fees earned from our divisions; and
-
decreased stock-based compensation.
These factors were partially offset by:
-
$10 million of cash received related to the settlement of ABCP between
the Investment Industry Regulatory Organization of Canada and financial
institutions in the first quarter of 2013; and
-
a $2 million net decrease in valuation gains in respect of ABCP.
Interest Expense, net
During the first quarter of 2014, we recorded net interest expense of $2
million compared to $4 million for the first quarter of 2013. The
decrease in interest expense is primarily as a result of higher
interest income and a decrease in interest expense as a result of lower
debt.
Income from Operations before Income Taxes
Income from operations before income taxes increased $124 million to
$581 million for the first quarter of 2014 compared to $457 million for
the first quarter of 2013. Excluding Other Expense, discussed in the
"Other Expense" section, income from operations before income taxes for
the first quarter of 2014 increased $140 million. The increase in
income from operations before income taxes is the result of the
increase in Adjusted EBIT and the decrease in net interest expense, as
discussed above.
Income Taxes
|
|
|
For the three months ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
Income taxes as reported
|
|
$
|
189
|
|
|
32.5
|
|
$
|
90
|
|
|
19.7
|
Austrian Tax Reform
|
|
|
(32)
|
|
|
(5.3)
|
|
|
—
|
|
|
—
|
Tax effect on Other expense, net
|
|
|
2
|
|
|
(0.8)
|
|
|
—
|
|
|
(0.3)
|
|
|
$
|
159
|
|
|
26.4
|
|
$
|
90
|
|
|
19.4
|
For the first quarter of 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the European Union. Furthermore,
any foreign losses used by Austrian entities arising in those non
European Union subsidiaries are subject to recapture in Austria. As a
consequence of this change, we have taken a charge to income tax
expense of $32 million ("Austrian Tax Reform").
Excluding the Austrian Tax Reform and Other Expense, after tax, the
effective income tax rate increased to 26.4% for the first quarter of
2014 compared to 19.4% for the first quarter of 2013 primarily a result
of:
-
favourable audit settlements, recorded in the first quarter of 2013; and
-
the benefit of permanent items, recorded in the first quarter of 2013.
These factors were partially offset by a reduction in losses not
benefitted in Europe and South America.
Net Income
Net income of $392 million for the first quarter of 2014 increased $25
million compared to the first quarter of 2013. Excluding Other Expense,
after tax, discussed in the "Other Expense" section and the Austrian
Tax Reform as discussed in the "Income Taxes" section, net income
increased $71 million. The increase in net income is the result of the
increase in income from operations before income taxes partially offset
by higher income taxes.
Net Loss Attributable to Non-controlling Interests
Net loss attributable to non-controlling interests was $1 million for
the first quarter of 2014 compared to $2 million for the first quarter
of 2013.
Net Income Attributable to Magna International Inc.
Net income attributable to Magna International Inc. of $393 million for
the first quarter of 2014 increased $24 million compared to the first
quarter of 2013. Excluding Other Expense, after tax, discussed in the
"Other Expense" section and the Austrian Tax Reform as discussed in the
"Income Taxes" section, net income attributable to Magna International
Inc. increased $70 million as a result of the increase in net income,
as discussed above.
Earnings per Share
|
|
|
For the three months
ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.78
|
|
$
|
1.59
|
|
+
|
12%
|
|
Diluted
|
|
$
|
1.76
|
|
$
|
1.57
|
|
+
|
12%
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding (millions)
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
220.3
|
|
|
232.5
|
|
-
|
5%
|
|
Diluted
|
|
|
223.5
|
|
|
235.2
|
|
-
|
5%
|
Diluted earnings per share increased $0.19 to $1.76 for the first
quarter of 2014 compared to $1.57 for the first quarter of 2013. Other
Expense, after tax and the Austrian Tax Reform negatively impacted
diluted earnings per share in the first quarter of 2014 and 2013 by
$0.23 and $0.02 respectively. Other Expense and Austrian Tax Reform are
discussed in the "Other Expense" and "Income Taxes" sections,
respectively. Excluding these amounts, diluted earnings per share
increased $0.40 as a result of the increase in net income attributable
to Magna International Inc. and a decrease in the weighted average
number of diluted shares outstanding during the first quarter of 2014.
The decrease in the weighted average number of diluted shares
outstanding was primarily due to the repurchase and cancellation of
Common Shares, during or subsequent to the first quarter of 2013,
pursuant to our normal course issuer bids partially offset by the issue
of Common Shares related to the exercise of stock options and an
increase in the number of diluted options outstanding as a result of an
increase in the trading price of our common stock.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
For the three months
ended March 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
392
|
|
$
|
367
|
|
|
|
Items not involving current cash flows
|
|
279
|
|
|
240
|
|
|
|
|
|
671
|
|
|
607
|
|
$
|
64
|
Changes in non-cash operating assets and liabilities
|
|
(197)
|
|
|
(456)
|
|
|
|
Cash provided from operating activities
|
$
|
474
|
|
$
|
151
|
|
$
|
323
|
Cash flow from operations before changes in non-cash operating assets
and liabilities increased $64 million to $671 million for the first
quarter of 2014 compared to $607 million for the first quarter of 2013.
The increase in cash flow from operations was due to the $25 million
increase in net income, as discussed above, and a $39 million increase
in items not involving current cash flows. Items not involving current
cash flows are comprised of the following:
|
|
|
For the three months
ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
217
|
|
$
|
255
|
Other non-cash charges
|
|
|
43
|
|
|
24
|
Deferred income taxes and non-cash portion of current taxes
|
|
|
38
|
|
|
(24)
|
Amortization of other assets included in cost of goods sold
|
|
|
29
|
|
|
30
|
Equity income
|
|
|
(48)
|
|
|
(45)
|
Items not involving current cash flows
|
|
$
|
279
|
|
$
|
240
|
Cash invested in non-cash operating assets and liabilities amounted to
$197 million for the first quarter of 2014 compared to $456 million for
the first quarter of 2013. The change in non-cash operating assets and
liabilities is comprised of the following sources (and uses) of cash:
|
|
|
For the three months
ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(834)
|
|
$
|
(974)
|
Inventories
|
|
|
(29)
|
|
|
(158)
|
Prepaid expenses and other
|
|
|
9
|
|
|
(27)
|
Accounts payable
|
|
|
328
|
|
|
328
|
Accrued salaries and wages
|
|
|
105
|
|
|
101
|
Other accrued liabilities
|
|
|
168
|
|
|
315
|
Income taxes payable
|
|
|
56
|
|
|
(42)
|
Deferred revenue
|
|
|
―
|
|
|
1
|
Changes in non-cash operating assets and liabilities
|
|
$
|
(197)
|
|
$
|
(456)
|
The increase in accounts receivable, accounts payable, accrued salaries
and wages and other accrued liabilities in the first quarter of 2014
was primarily due to an increase in production activities at the end of
the first quarter of 2014 compared to the end of 2013.
Capital and Investment Spending
|
|
|
For the three months
ended March 31,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions
|
|
$
|
(217)
|
|
$
|
(194)
|
|
|
|
Investments and other assets
|
|
|
(54)
|
|
|
(48)
|
|
|
|
Fixed assets, investments and other assets additions
|
|
|
(271)
|
|
|
(242)
|
|
|
|
Proceeds from disposition
|
|
|
37
|
|
|
30
|
|
|
|
Cash used for investment activities
|
|
$
|
(234)
|
|
$
|
(212)
|
|
$
|
(22)
|
Fixed assets, investments and other assets additions
In the first quarter of 2014, we invested $217 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 2014 was for
facilities and manufacturing equipment for programs that will be
launching subsequent to the first quarter of 2014.
In the first quarter of 2014, we invested $44 million in other assets
related primarily to fully reimbursable engineering costs and tooling
for programs that launched during the first quarter of 2014 or will be
launching subsequent to the first quarter of 2014.
Proceeds from disposition
In the first quarter of 2014, the $37 million of proceeds include normal
course fixed and other asset disposals.
Financing
|
|
|
For the three months
ended March 31,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in bank indebtedness
|
|
$
|
3
|
|
$
|
(26)
|
|
|
|
Repayments of debt
|
|
|
(70)
|
|
|
(41)
|
|
|
|
Issues of debt
|
|
|
31
|
|
|
32
|
|
|
|
Issues of Common Shares on exercise of stock options
|
|
|
25
|
|
|
39
|
|
|
|
Settlement of stock options
|
|
|
―
|
|
|
(23)
|
|
|
|
Repurchase of Common Shares
|
|
|
(240)
|
|
|
(88)
|
|
|
|
Dividends
|
|
|
(83)
|
|
|
(73)
|
|
|
|
Cash used for financing activities
|
|
$
|
(334)
|
|
$
|
(180)
|
|
$
|
(154)
|
During the first quarter of 2014, we repurchased 2.7 million Common
Shares for aggregate cash consideration of $240 million under our
normal course issuer bid.
Cash dividends paid per Common Share were $0.38 for the first quarter of
2014, for a total of $83 million.
Financing Resources
|
|
|
As at
|
|
|
As at
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$
|
46
|
|
$
|
41
|
|
|
|
|
Long-term debt due within one year
|
|
|
196
|
|
|
230
|
|
|
|
|
Long-term debt
|
|
|
97
|
|
|
102
|
|
|
|
|
|
|
339
|
|
|
373
|
|
|
|
Non-controlling interest
|
|
|
15
|
|
|
16
|
|
|
|
Shareholders' equity
|
|
|
9,591
|
|
|
9,623
|
|
|
|
Total capitalization
|
|
$
|
9,945
|
|
$
|
10,012
|
|
$
|
(67)
|
|
|
|
|
|
|
|
|
|
|
Total capitalization decreased by $67 million to $9.95 billion at March
31, 2014 compared to $10.01 billion at December 31, 2013, primarily as
a result of a $34 million decrease in liabilities and a $32 million
decrease in shareholders' equity.
The decrease in shareholders' equity was primarily as a result of:
-
the $240 million repurchase and cancellation of 2.7 million Common
Shares in connection with our normal course issuer bid;
-
the $112 million net unrealized loss on translation of our net
investment in foreign operations;
-
dividends paid during the first quarter of 2014; and
-
the $31 million net unrealized loss on cash flow hedges.
This factor was partially offset by net income earned of $392 million in
the first quarter of 2014.
The decrease in liabilities relates primarily to the net repayments of
our bank term debt.
Cash Resources
During the first quarter of 2014, our cash resources decreased by
$115 million to $1.44 billion as a result of the cash used for
financing and investing activities and the unfavourable effect of
foreign exchange, partially offset by cash provided from operating
activities, all as discussed above. In addition to our cash resources,
at March 31, 2014 we had term and operating lines of credit totalling
$2.55 billion of which $2.22 billion was unused and available.
During the first quarter of 2014, we filed a short form base shelf
prospectus with the Ontario Securities Commission and a corresponding
shelf registration statement with the United States Securities and
Exchange Commission on Form F-10. The filings provide for the potential
offering in Ontario and the United States of up to an aggregate of U.S.
$2.00 billion of debt securities from time to time over a 25 month
period.
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 May 7, 2014 were
exercised:
Common Shares
|
217,843,968
|
Stock options (i)
|
4,709,053
|
|
222,553,021
|
(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 2014
that are outside the ordinary course of our business. Refer to our MD&A
included in our 2013 Annual Report.
SUBSEQUENT EVENTS
Subject to approval by the Toronto Stock Exchange and the New York Stock
Exchange, our Board of Directors approved an amendment to our normal
course issuer bid to increase the maximum number of Common Shares that
may be purchased from 12 million to 20 million. The new maximum
represents approximately 9.0% of our public float of Common Shares as
of November 6, 2013. No other terms of the normal course issuer bid
have been amended.
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 14 of our unaudited interim consolidated financial
statements for the three months ended March 31, 2014, which describes
these claims.
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 December 31,
2013.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over financial
reporting that occurred during the three months ended March 31, 2014
that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking information" or "forward-looking statements" within
the meaning of applicable securities legislation, including, but not
limited to, statements relating to: implementation of improvement plans
in our underperforming operations, and/or restructuring actions;
improved future results in South America through actions to address
commercial challenges and reduce operational inefficiencies; and future
purchases of our Common Shares under the Normal Course Issuer Bid. The
forward-looking information in this MD&A 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 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. Any such forward-looking statements are based on
information currently available to us, and are based on assumptions and
analyses made by us in light of our experience and our perception of
historical trends, current conditions and expected future developments,
as well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments will
conform with our expectations and predictions is subject to a number of
risks, assumptions and uncertainties, many of which are beyond our
control, and the effects of which can be difficult to predict,
including, without limitation the impact of economic or political
conditions on consumer confidence, consumer demand for vehicles and
vehicle production; restructuring, downsizing or other significant
non-recurring costs, including in our European business; fines or
penalties imposed by antitrust and regulatory authorities, including
the German Cartel Office; our ability to grow our business with
Asian-based customers; continued underperformance of one or more of our
operating Divisions; ongoing pricing pressures, including our ability
to offset price concessions demanded by our customers; our ability to
successfully launch material new or takeover business; shifts in market
share away from our top customers; shifts in market shares among
vehicles or vehicle segments, or shifts away from vehicles on which we
have significant content; risks of conducting business in foreign
markets, including China, India, Russia, Brazil, Argentina, Eastern
Europe and other non-traditional markets for us; a prolonged disruption
in the supply of components to us from our suppliers; shutdown of our
or our customers' or sub-suppliers' production facilities due to a work
stoppage or labour dispute; scheduled shutdowns of our customers'
production facilities (typically in the third and fourth quarters of
each calendar year); our ability to successfully compete with other
automotive suppliers; a reduction in outsourcing by our customers or
the loss of a material production or assembly program; the termination
or non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; impairment charges related to goodwill and long-lived
assets; exposure to, and ability to offset, volatile commodities
prices; fluctuations in relative currency values; our ability to
successfully identify, complete and integrate acquisitions or achieve
anticipated synergies; our ability to conduct sufficient due diligence
on acquisition targets; warranty and recall costs; risk of production
disruptions due to natural disasters; pension liabilities; legal claims
and/or regulatory actions against us; changes in our mix of earnings
between jurisdictions with lower tax rates and those with higher tax
rates, as well as our ability to fully benefit tax losses; other
potential tax exposures; changes in credit ratings assigned to us;
changes in laws and governmental regulations; costs associated with
compliance with environmental laws and regulations; liquidity risks as
a result of an unanticipated deterioration of economic conditions; our
ability to achieve future investment returns that equal or exceed past
returns; the unpredictability of, and fluctuation in, the trading price
of our Common Shares; and other factors set out in our Annual
Information Form filed with securities commissions in Canada and our
annual report on Form 40-F filed with the United States Securities and
Exchange Commission, and subsequent filings. In evaluating
forward-looking statements, we caution readers not to place undue
reliance on any forward-looking statements and readers should
specifically consider the various factors which could cause actual
events or results to differ materially from those indicated by such
forward-looking statements. Unless otherwise required by applicable
securities laws, we do not intend, nor do we undertake any obligation,
to update or revise any forward-looking statements to reflect
subsequent information, events, results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
|
|
|
|
Three months ended
March 31,
|
|
Note
|
|
|
2014
|
|
|
2013
|
Sales
|
|
|
$
|
8,961
|
|
$
|
8,361
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
7,762
|
|
|
7,317
|
|
Depreciation and amortization
|
|
|
|
217
|
|
|
255
|
|
Selling, general and administrative
|
10
|
|
|
425
|
|
|
367
|
|
Interest expense, net
|
|
|
|
2
|
|
|
4
|
|
Equity income
|
|
|
|
(48)
|
|
|
(45)
|
|
Other expense, net
|
2
|
|
|
22
|
|
|
6
|
Income from operations before income taxes
|
|
|
|
581
|
|
|
457
|
Income taxes
|
6
|
|
|
189
|
|
|
90
|
Net income
|
|
|
|
392
|
|
|
367
|
Net loss attributable to non-controlling interests
|
|
|
|
1
|
|
|
2
|
Net income attributable to Magna International Inc.
|
|
|
$
|
393
|
|
$
|
369
|
|
|
|
|
|
|
|
|
Earnings per Common Share:
|
3
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
1.78
|
|
$
|
1.59
|
|
Diluted
|
|
|
$
|
1.76
|
|
$
|
1.57
|
Cash dividends paid per Common Share
|
|
|
$
|
0.38
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
Average number of Common Shares outstanding during the
period [in millions]:
|
3
|
|
|
|
|
|
|
|
Basic
|
|
|
|
220.3
|
|
|
232.5
|
|
Diluted
|
|
|
|
223.5
|
|
|
235.2
|
|
|
|
|
|
|
|
|
|
See accompanying notes
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
|
|
|
Three months ended
March 31,
|
|
Note
|
|
|
2014
|
|
|
2013
|
Net income
|
|
|
$
|
392
|
|
$
|
367
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
12
|
|
|
|
|
|
|
|
Net unrealized loss on translation of net investment
in foreign operations
|
|
|
|
(112)
|
|
|
(133)
|
|
Net unrealized (loss) gain on available-for-sale investments
|
|
|
|
(1)
|
|
|
1
|
|
Net unrealized (loss) gain on cash flow hedges
|
|
|
|
(31)
|
|
|
8
|
|
Reclassification of net gain on cash flow hedges
to net income
|
|
|
|
(1)
|
|
|
(6)
|
|
Reclassification of net loss on pensions to net income
|
|
|
|
1
|
|
|
3
|
Other comprehensive loss
|
|
|
|
(144)
|
|
|
(127)
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
248
|
|
|
240
|
Comprehensive loss attributable to non-controlling interests
|
|
|
|
1
|
|
|
2
|
Comprehensive income attributable to
|
|
|
|
|
|
|
|
Magna International Inc.
|
|
|
$
|
249
|
|
$
|
242
|
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
|
|
|
|
Three months ended
March 31,
|
|
Note
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Cash provided from (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
392
|
|
$
|
367
|
Items not involving current cash flows
|
4
|
|
|
279
|
|
|
240
|
|
|
|
|
671
|
|
|
607
|
Changes in non-cash operating assets and liabilities
|
4
|
|
|
(197)
|
|
|
(456)
|
Cash provided from operating activities
|
|
|
|
474
|
|
|
151
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES
|
|
|
|
|
|
|
|
Fixed asset additions
|
|
|
|
(217)
|
|
|
(194)
|
Increase in investments and other assets
|
|
|
|
(54)
|
|
|
(48)
|
Proceeds from disposition
|
|
|
|
37
|
|
|
30
|
Cash used for investing activities
|
|
|
|
(234)
|
|
|
(212)
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Increase (decrease) in bank indebtedness
|
|
|
|
3
|
|
|
(26)
|
Repayments of debt
|
|
|
|
(70)
|
|
|
(41)
|
Issues of debt
|
|
|
|
31
|
|
|
32
|
Issues of Common Shares on exercise of stock options
|
|
|
|
25
|
|
|
39
|
Settlement of stock options
|
|
|
|
—
|
|
|
(23)
|
Repurchase of Common Shares
|
11
|
|
|
(240)
|
|
|
(88)
|
Dividends
|
|
|
|
(83)
|
|
|
(73)
|
Cash used for financing activities
|
|
|
|
(334)
|
|
|
(180)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
(21)
|
|
|
(34)
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents during the period
|
|
|
|
(115)
|
|
|
(275)
|
Cash and cash equivalents, beginning of period
|
|
|
|
1,554
|
|
|
1,522
|
Cash and cash equivalents, end of period
|
|
|
$
|
1,439
|
|
$
|
1,247
|
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
|
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
Note
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
4
|
|
$
|
1,439
|
|
$
|
1,554
|
Accounts receivable
|
|
|
|
6,026
|
|
|
5,246
|
Inventories
|
5
|
|
|
2,646
|
|
|
2,637
|
Deferred tax assets
|
|
|
|
241
|
|
|
275
|
Prepaid expenses and other
|
|
|
|
199
|
|
|
211
|
|
|
|
|
10,551
|
|
|
9,923
|
|
|
|
|
|
|
|
|
Investments
|
13
|
|
|
390
|
|
|
391
|
Fixed assets, net
|
|
|
|
5,388
|
|
|
5,441
|
Goodwill
|
|
|
|
1,427
|
|
|
1,440
|
Deferred tax assets
|
|
|
|
129
|
|
|
120
|
Other assets
|
7
|
|
|
663
|
|
|
675
|
|
|
|
$
|
18,548
|
|
$
|
17,990
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
$
|
46
|
|
$
|
41
|
Accounts payable
|
|
|
|
5,027
|
|
|
4,781
|
Accrued salaries and wages
|
|
|
|
805
|
|
|
704
|
Other accrued liabilities
|
8
|
|
|
1,709
|
|
|
1,538
|
Income taxes payable
|
|
|
|
38
|
|
|
6
|
Deferred tax liabilities
|
|
|
|
27
|
|
|
9
|
Long-term debt due within one year
|
|
|
|
196
|
|
|
230
|
|
|
|
|
7,848
|
|
|
7,309
|
|
|
|
|
|
|
|
|
Long-term employee benefit liabilities
|
9
|
|
|
535
|
|
|
532
|
Long-term debt
|
|
|
|
97
|
|
|
102
|
Other long-term liabilities
|
|
|
|
274
|
|
|
208
|
Deferred tax liabilities
|
6
|
|
|
188
|
|
|
200
|
|
|
|
|
8,942
|
|
|
8,351
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
Capital stock
|
|
|
|
|
|
|
|
Common Shares
[issued: 219,148,064; December 31, 2013 - 221,151,704]
|
11
|
|
|
4,217
|
|
|
4,230
|
Contributed surplus
|
|
|
|
74
|
|
|
69
|
Retained earnings
|
|
|
|
5,135
|
|
|
5,011
|
Accumulated other comprehensive income
|
12
|
|
|
165
|
|
|
313
|
|
|
|
|
9,591
|
|
|
9,623
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
15
|
|
|
16
|
|
|
|
|
9,606
|
|
|
9,639
|
|
|
|
$
|
18,548
|
|
$
|
17,990
|
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
|
|
|
|
Common Shares
|
|
|
Contri-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Stated
|
|
|
buted
|
|
|
Retained
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
Note
|
|
|
Number
|
|
|
Value
|
|
|
Surplus
|
|
|
Earnings
|
|
|
AOCI (i)
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
[in millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
|
221.2
|
|
$
|
4,230
|
|
$
|
69
|
|
$
|
5,011
|
|
$
|
313
|
|
$
|
16
|
|
$
|
9,639
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
(1)
|
|
|
392
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144)
|
|
|
|
|
|
(144)
|
Shares issued on exercise of stock options
|
|
|
|
0.6
|
|
|
32
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
25
|
Release of restricted stock
|
|
|
|
|
|
|
5
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Repurchase and cancellation under normal course issuer bid
|
11
|
|
|
(2.7)
|
|
|
(52)
|
|
|
|
|
|
(184)
|
|
|
(4)
|
|
|
|
|
|
(240)
|
Stock-based compensation expense
|
10
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
Settlement of stock options
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification from liability
|
10
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
Dividends paid
|
|
|
|
|
|
|
2
|
|
|
|
|
|
(85)
|
|
|
|
|
|
|
|
|
(83)
|
Balance, March 31, 2014
|
|
|
|
219.1
|
|
$
|
4,217
|
|
$
|
74
|
|
$
|
5,135
|
|
$
|
165
|
|
$
|
15
|
|
$
|
9,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Contri-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
Stated
|
|
|
buted
|
|
|
Retained
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
Note
|
|
|
Number
|
|
|
Value
|
|
|
Surplus
|
|
|
Earnings
|
|
|
AOCI (i)
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
[in millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
|
233.1
|
|
$
|
4,391
|
|
$
|
80
|
|
$
|
4,462
|
|
$
|
496
|
|
$
|
29
|
|
$
|
9,458
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
(2)
|
|
|
367
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127)
|
|
|
|
|
|
(127)
|
Shares issued on exercise of stock options
|
|
|
|
1.3
|
|
|
53
|
|
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
39
|
Release of restricted stock
|
|
|
|
|
|
|
7
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Repurchase and cancellation under normal course issuer bid
|
11
|
|
|
(1.6)
|
|
|
(30)
|
|
|
|
|
|
(53)
|
|
|
(5)
|
|
|
|
|
|
(88)
|
Stock-based compensation expense
|
10
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
Settlement of stock options
|
10
|
|
|
|
|
|
|
|
|
(9)
|
|
|
(10)
|
|
|
|
|
|
|
|
|
(19)
|
Dividends paid
|
|
|
|
0.1
|
|
|
2
|
|
|
|
|
|
(75)
|
|
|
|
|
|
|
|
|
(73)
|
Balance, March 31, 2013
|
|
|
|
232.9
|
|
$
|
4,423
|
|
$
|
59
|
|
$
|
4,693
|
|
$
|
364
|
|
$
|
27
|
|
$
|
9,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
AOCI is Accumulated Other Comprehensive Income.
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
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 Magna
International Inc. and its subsidiaries [collectively "Magna" or the
"Company"] have been prepared in United States dollars following United
States generally accepted accounting principles ["GAAP"] as further
discussed in note 1[b] and the accounting policies as set out in note 1
to the annual consolidated financial statements for the year ended
December 31, 2013.
The unaudited interim consolidated financial statements do not conform
in all respects to the requirements of GAAP for annual financial
statements. Accordingly, these unaudited interim consolidated financial
statements should be read in conjunction with the December 31, 2013
audited consolidated financial statements and notes included in the
Company's 2013 Annual Report.
In the opinion of management, 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 March 31, 2014 and the results of operations,
cash flows and changes in equity for the three months ended March 31,
2014 and 2013.
[b] 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 Europe typically shutdown vehicle production
during portions of August and one week in December.
2. OTHER EXPENSE, NET
During the first quarters of 2014 and 2013, the Company recorded net
restructuring charges of $22 million and $6 million [$20 million and $6
million after tax], respectively, in Europe at its exterior and
interior systems operations.
3. EARNINGS PER SHARE
|
|
Three months ended
|
|
|
March 31,
|
|
|
2014
|
|
|
2013
|
Basic earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International Inc.
|
|
$
|
393
|
|
|
$
|
369
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding
|
|
|
220.3
|
|
|
|
232.5
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share
|
|
$
|
1.78
|
|
|
$
|
1.59
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International Inc.
|
|
$
|
393
|
|
|
$
|
369
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding
|
|
|
220.3
|
|
|
|
232.5
|
Adjustments
|
|
|
|
|
|
|
|
|
Stock options and restricted stock [a]
|
|
|
3.2
|
|
|
|
2.7
|
|
|
|
223.5
|
|
|
|
235.2
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share
|
|
$
|
1.76
|
|
|
$
|
1.57
|
[a]
|
For the three months ended March 31, 2014, diluted earnings per Common
Share exclude 0.2 million [2013 - 0.3 million] Common Shares issuable
under the Company's Incentive Stock Option Plan because these options
were not "in-the-money".
|
4. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
|
March 31,
|
|
December 31,
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
Bank term deposits, bankers acceptances and government paper
|
$
|
1,269
|
|
|
$
|
1,331
|
Cash
|
|
170
|
|
|
|
223
|
|
$
|
1,439
|
|
|
$
|
1,554
|
[b] Items not involving current cash flows:
|
Three months ended
|
|
March 31,
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
217
|
|
|
$
|
255
|
Deferred income taxes and non-cash portion of current taxes
|
|
38
|
|
|
|
(24)
|
Amortization of other assets included in cost of goods sold
|
|
29
|
|
|
|
30
|
Equity income
|
|
(48)
|
|
|
|
(45)
|
Other non-cash charges
|
|
43
|
|
|
|
24
|
|
$
|
279
|
|
|
$
|
240
|
[c] Changes in non-cash operating assets and liabilities:
|
Three months ended
|
|
March 31,
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
(834)
|
|
|
$
|
(974)
|
Inventories
|
|
(29)
|
|
|
|
(158)
|
Prepaid expenses and other
|
|
9
|
|
|
|
(27)
|
Accounts payable
|
|
328
|
|
|
|
328
|
Accrued salaries and wages
|
|
105
|
|
|
|
101
|
Other accrued liabilities
|
|
168
|
|
|
|
315
|
Income taxes receivable/payable
|
|
56
|
|
|
|
(42)
|
Deferred revenue
|
|
—
|
|
|
|
1
|
|
$
|
(197)
|
|
|
$
|
(456)
|
5. INVENTORIES
Inventories consist of:
|
March 31,
|
|
|
December 31,
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Raw materials and supplies
|
$
|
959
|
|
|
$
|
947
|
Work-in-process
|
|
279
|
|
|
|
273
|
Finished goods
|
|
326
|
|
|
|
339
|
Tooling and engineering
|
|
1,082
|
|
|
|
1,078
|
|
$
|
2,646
|
|
|
$
|
2,637
|
Tooling and engineering inventory represents costs incurred on tooling
and engineering services contracts in excess of billed and unbilled
amounts included in accounts receivable.
6. INCOME TAXES
For the first quarter of 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the European Union. Furthermore,
any foreign losses used by Austrian entities arising in those non
European Union subsidiaries are subject to recapture in Austria. As a
consequence of this change, the Company has taken a charge to tax
expense of $32 million.
7. OTHER ASSETS
Other assets consist of:
|
March 31,
|
|
|
December 31,
|
|
2014
|
|
|
2013
|
Preproduction costs related to long-term supply agreements with
contractual guarantee for reimbursement
|
$
|
298
|
|
|
$
|
291
|
Customer relationship intangibles
|
|
135
|
|
|
|
143
|
Long-term receivables
|
|
107
|
|
|
|
111
|
Patents and licences, net
|
|
42
|
|
|
|
44
|
Pension overfunded status
|
|
26
|
|
|
|
26
|
Unrealized gain on cash flow hedges
|
|
18
|
|
|
|
20
|
Other, net
|
|
37
|
|
|
|
40
|
|
$
|
663
|
|
|
$
|
675
|
8. WARRANTY
The following is a continuity of the Company's warranty accruals:
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
91
|
|
|
$
|
94
|
Expense, net
|
|
|
7
|
|
|
|
9
|
Settlements
|
|
|
(7)
|
|
|
|
(5)
|
Foreign exchange and other
|
|
|
—
|
|
|
|
8
|
Balance, March 31
|
|
$
|
91
|
|
|
$
|
106
|
9. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
|
Three months ended
|
|
March 31,
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Defined benefit pension plans and other
|
|
$
|
3
|
|
|
$
|
4
|
Termination and long service arrangements
|
|
|
9
|
|
|
|
8
|
|
|
$
|
12
|
|
|
$
|
12
|
10. STOCK-BASED COMPENSATION
[a] Incentive Stock Option Plan
The following is a continuity schedule of options outstanding [number of
options in the table below are expressed in whole numbers]:
|
|
|
2014
|
|
|
2013
|
|
|
|
Options outstanding
|
|
|
|
|
|
Options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
Exercise
|
|
|
of options
|
|
|
Number
|
|
|
Exercise
|
|
|
of options
|
|
|
|
of options
|
|
|
price (i)
|
|
|
exercisable
|
|
|
of options
|
|
|
price (i)
|
|
|
exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
4,758,108
|
|
|
41.82
|
|
|
2,847,109
|
|
|
6,623,242
|
|
|
35.39
|
|
|
3,227,574
|
Granted
|
|
|
751,300
|
|
|
106.71
|
|
|
—
|
|
|
1,060,000
|
|
|
57.02
|
|
|
—
|
Exercised (ii)
|
|
|
(680,352)
|
|
|
39.49
|
|
|
(680,352)
|
|
|
(2,178,383)
|
|
|
29.76
|
|
|
(2,178,383)
|
Cancelled
|
|
|
(16,999)
|
|
|
52.19
|
|
|
(6,000)
|
|
|
(37,500)
|
|
|
50.17
|
|
|
(20,000)
|
Vested
|
|
|
—
|
|
|
—
|
|
|
779,384
|
|
|
—
|
|
|
—
|
|
|
2,105,503
|
March 31
|
|
|
4,812,057
|
|
|
52.24
|
|
|
2,940,141
|
|
|
5,467,359
|
|
|
41.73
|
|
|
3,134,694
|
(i)
|
The exercise price noted above represents the weighted average exercise
price in Canadian dollars.
|
|
|
(ii)
|
During the three months ended March 31, 2013, 849,999 options were
exercised on a cashless basis in accordance with the applicable stock
option plans. On exercise, cash payments totalling $23 million were
made to the stock option holders.
|
|
|
|
All cash payments were calculated using the difference between the aggregate fair market value of the Option
Shares based on the closing price of the Company's Common Shares on the
Toronto Stock Exchange ["TSX"] on the date of exercise and the
aggregate Exercise Price of all such options surrendered.
|
The weighted average assumptions used in measuring the fair value of
stock options granted and/or modified and the compensation expense
recorded in selling, general and administrative expenses are as
follows:
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
1.60%
|
|
|
1.32%
|
Expected dividend yield
|
|
|
2.00%
|
|
|
2.00%
|
Expected volatility
|
|
|
29%
|
|
|
34%
|
Expected time until exercise
|
|
|
4.5 years
|
|
|
4.5 years
|
|
|
|
|
|
|
|
Weighted average fair value of options granted period [Cdn$]
|
|
$
|
22.94
|
|
$
|
14.02
|
[b] Long-term retention program
The following is a continuity of the stock that has not been released to
executives and is reflected as a reduction in the stated value of the
Company's Common Shares [number of Common Shares in the table below are
expressed in whole numbers]:
|
|
|
2014
|
|
|
2013
|
|
|
|
Number
|
Stated
|
|
|
Number
|
Stated
|
|
|
|
of shares
|
value
|
|
|
of Shares
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awarded and not released, beginning of period
|
|
|
730,476
|
|
$
|
25
|
|
|
882,988
|
|
$
|
30
|
Release of restricted stock
|
|
|
(143,152)
|
|
|
(4)
|
|
|
(152,512)
|
|
|
(5)
|
Awarded and not released, March 31
|
|
|
587,324
|
|
$
|
21
|
|
|
730,476
|
|
$
|
25
|
[c] Restricted stock unit program
The following is a continuity schedule of restricted stock unit programs
outstanding [number of stock units in the table below are expressed in
whole numbers]:
|
|
|
2014
|
|
|
2013
|
|
|
|
Equity
|
|
|
Liability
|
|
|
Equity (i)
|
|
|
|
|
|
Equity
|
|
|
Liability
|
|
|
Liability
|
|
|
|
|
|
|
classified
|
|
|
classified
|
|
|
classified
|
|
|
|
|
|
classified
|
|
|
classified
|
|
|
classified
|
|
|
|
|
|
|
RSUs
|
|
|
RSUs
|
|
|
DSUs
|
|
|
Total
|
|
|
RSUs
|
|
|
RSUs
|
|
|
DSUs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
|
|
631,854
|
|
|
30,119
|
|
|
127,447
|
|
|
789,420
|
|
|
605,430
|
|
|
20,099
|
|
|
206,923
|
|
|
832,452
|
Granted
|
|
|
50,809
|
|
|
8,025
|
|
|
6,315
|
|
|
65,149
|
|
|
70,636
|
|
|
14,825
|
|
|
10,013
|
|
|
95,474
|
Dividend equivalents
|
|
|
253
|
|
|
153
|
|
|
529
|
|
|
935
|
|
|
415
|
|
|
194
|
|
|
1,206
|
|
|
1,815
|
Released
|
|
|
(8,259)
|
|
|
—
|
|
|
—
|
|
|
(8,259)
|
|
|
(8,259)
|
|
|
—
|
|
|
(113,007)
|
|
|
(121,266)
|
Balance, March 31
|
|
|
674,657
|
|
|
38,297
|
|
|
134,291
|
|
|
847,245
|
|
|
668,222
|
|
|
35,118
|
|
|
105,135
|
|
|
808,475
|
|
|
(i)
|
Effective January 1, 2014, the Deferred Share Units ["DSUs"] awarded
under the Non-Employee Director Share-Based Compensation Plan will be
settled by delivering Magna Common Shares equal to the whole DSUs
credited to the Independent Director in satisfaction of the redemption
value of the DSUs. Previously, the DSUs were settled in cash.
Accordingly, effective January 1, 2014, the DSUs are accounted for
through equity.
|
[d] Compensation expense related to Stock-based compensation
Stock-based compensation expense recorded in selling, general and
administrative expenses related to the above programs is as follows:
|
Three months ended
|
|
March 31,
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
Incentive Stock Option Plan
|
|
$
|
4
|
|
$
|
4
|
Long-term retention
|
|
|
1
|
|
|
1
|
Restricted stock unit
|
|
|
5
|
|
|
3
|
|
|
|
10
|
|
|
8
|
Fair value adjustment for liability classified DSUs
|
|
|
—
|
|
|
2
|
Total stock-based compensation expense
|
|
$
|
10
|
|
$
|
10
|
11. COMMON SHARES
[a] The Company repurchased shares under normal course issuer bids as
follows:
|
|
|
2014
|
|
|
2013
|
|
|
|
Number
|
|
|
Cash
|
|
|
Number
|
|
|
Cash
|
|
|
|
of shares
|
|
|
consideration
|
|
|
of shares
|
|
|
consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
2,710,000
|
|
$
|
240
|
|
|
1,593,615
|
|
$
|
88
|
Subsequent to quarter end, the Company purchased for cancellation
1,407,100 Common Shares under a normal course issuer bid for cash
consideration of $137 million through a pre-defined automatic
securities purchase plan with a designated broker.
[b] The following table presents the maximum number of shares that would
be outstanding if all the dilutive instruments outstanding at May 7,
2014 were exercised or converted:
Common Shares
|
|
|
217,843,968
|
Stock options (i)
|
|
|
4,709,053
|
|
|
|
222,553,021
|
(i)
|
Options to purchase Common Shares are exercisable by the holder in
accordance with the vesting provisions and upon payment of the exercise
price as may be determined from time to time pursuant to the Company's
stock option plans.
|
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following is a continuity schedule of accumulated other
comprehensive income:
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Accumulated net unrealized gain on translation of net investment in
foreign operations
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
454
|
|
$
|
629
|
|
Net unrealized loss
|
|
|
(112)
|
|
|
(133)
|
|
Repurchase of shares under normal course issuer bid
|
|
|
(4)
|
|
|
(5)
|
|
Balance, March 31
|
|
|
338
|
|
|
491
|
|
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on cash flow hedges (i)
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
(20)
|
|
|
34
|
|
Net unrealized (loss) gain
|
|
|
(31)
|
|
|
8
|
|
Reclassification of net gain to net income
|
|
|
(1)
|
|
|
(6)
|
|
Balance, March 31
|
|
|
(52)
|
|
|
36
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on pensions (ii)
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
(117)
|
|
|
(168)
|
|
Reclassification of net loss to net income
|
|
|
1
|
|
|
3
|
|
Balance, March 31
|
|
|
(116)
|
|
|
(165)
|
|
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on available-for-sale investments
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
(4)
|
|
|
1
|
|
Net unrealized (loss) gain
|
|
|
(1)
|
|
|
1
|
|
Balance, March 31
|
|
|
(5)
|
|
|
2
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
165
|
|
$
|
364
|
|
|
(i)
|
The amount of income tax benefit (obligation) that has been netted in
the accumulated net unrealized (loss) gain on cash flow hedges is as
follows:
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
5
|
|
|
$
|
(13)
|
|
|
Net unrealized loss (gain)
|
|
|
10
|
|
|
|
(4)
|
|
|
Reclassification of net gain to net income
|
|
|
1
|
|
|
|
2
|
|
|
Balance, March 31
|
|
$
|
16
|
|
|
$
|
(15)
|
|
|
(ii)
|
The amount of income tax benefit that has been netted in the accumulated
net unrealized loss on pensions is as follows:
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
14
|
|
|
$
|
36
|
|
|
Reclassification of net loss to net income
|
|
|
—
|
|
|
|
(1)
|
|
|
Balance, March 31
|
|
$
|
14
|
|
|
$
|
35
|
The amount of other comprehensive loss that is expected to be
reclassified to net income over the next 12 months is $15 million [net
of income taxes of $3 million].
13. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of
the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Held for trading
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,439
|
|
|
$
|
1,554
|
|
Investment in ABCP
|
|
|
90
|
|
|
|
92
|
|
|
$
|
1,529
|
|
|
$
|
1,646
|
|
|
|
|
|
|
|
|
Held to maturity investments
|
|
|
|
|
|
|
|
|
Severance investments
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
Loans and receivables
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
6,026
|
|
|
$
|
5,246
|
|
Long-term receivables included in other assets
|
|
|
107
|
|
|
|
111
|
|
|
$
|
6,133
|
|
|
$
|
5,357
|
|
|
|
|
|
|
|
|
Other financial liabilities
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$
|
46
|
|
|
$
|
41
|
|
Long-term debt (including portion due within one year)
|
|
|
293
|
|
|
|
332
|
|
Accounts payable
|
|
|
5,027
|
|
|
|
4,781
|
|
|
$
|
5,366
|
|
|
$
|
5,154
|
|
|
|
|
|
|
|
|
Derivatives designated as effective hedges, measured at fair value
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
40
|
|
|
$
|
42
|
|
|
Other assets
|
|
|
18
|
|
|
|
20
|
|
|
Other accrued liabilities
|
|
|
(50)
|
|
|
|
(37)
|
|
|
Other long-term liabilities
|
|
|
(40)
|
|
|
|
(28)
|
|
|
|
(32)
|
|
|
|
(3)
|
|
Natural gas contracts
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
(1)
|
|
|
|
(1)
|
|
|
$
|
(33)
|
|
|
$
|
(4)
|
[b] Derivatives designated as effected hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges
at gross fair values in the Consolidated Balance Sheets. However,
master netting and other similar arrangements allow net settlements
under certain conditions. The following table shows the Company's
derivative foreign currency contracts at gross fair value as reflected
in the Consolidated Balance Sheets and the unrecognized impacts of
master netting arrangements:
|
|
Gross
|
|
Gross
|
|
|
|
|
|
amounts
|
|
amounts
|
|
|
|
|
|
presented
|
|
not offset
|
|
|
|
|
|
in Consolidated
|
|
in Consolidated
|
|
|
|
|
|
Balance Sheets
|
|
Balance Sheets
|
|
Net amounts
|
|
|
|
|
|
|
|
|
|
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
58
|
|
$
|
49
|
|
$
|
9
|
Liabilities
|
|
$
|
(90)
|
|
$
|
(49)
|
|
$
|
(41)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
62
|
|
$
|
42
|
|
$
|
20
|
Liabilities
|
|
$
|
(65)
|
|
$
|
(42)
|
|
$
|
(23)
|
[c] Fair value
The Company determined the estimated fair values of its financial
instruments based on valuation methodologies it believes are
appropriate; however, considerable judgment is required to develop
these estimates. Accordingly, these estimated fair values are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The estimated fair value amounts can be
materially affected by the use of different assumptions or
methodologies. The methods and assumptions used to estimate the fair
value of financial instruments are described below:
Cash and cash equivalents, accounts receivable, bank indebtedness and
accounts payable.
Due to the short period to maturity of the instruments, the carrying
values as presented in the consolidated balance sheets are reasonable
estimates of fair values.
Investments
At March 31, 2014, the Company held Canadian third party asset-backed
commercial paper ["ABCP"] with a face value of Cdn$107 million
[December 31, 2013 - Cdn$107 million]. The carrying value and estimated
fair value of this investment was Cdn$100 million [December 31, 2013 -
Cdn$99 million]. As fair value information is not readily determinable
for the Company's investment in ABCP, the fair value was based on a
valuation technique estimating the fair value from the perspective of a
market participant.
At March 31, 2014, the Company held available-for-sale investments in
publicly traded companies. The carrying value and fair value of these
investments was $4 million, which was based on the closing share price
of the investments on March 31, 2014.
Term debt
The Company's term debt includes $196 million due within one year. Due
to the short period to maturity of this debt, the carrying value as
presented in the consolidated balance sheets is a reasonable estimate
of its fair value.
[d] Credit risk
The Company's financial assets that are exposed to credit risk consist
primarily of cash and cash equivalents, accounts receivable, held to
maturity investments, and foreign exchange forward contracts with
positive fair values.
The Company's held for trading investments include an investment in
ABCP. Given the continuing uncertainties regarding the value of the
underlying assets, the amount and timing of cash flows and the risk of
collateral calls in the event that spreads widened considerably, the
Company could be exposed to further losses on its investment.
Cash and cash equivalents, which consists of short-term investments, are
only invested in governments, bank term deposits and bank commercial
paper with an investment grade credit rating. Credit risk is further
reduced by limiting the amount which is invested in certain governments
or any major financial institution.
The Company is also exposed to credit risk from the potential default by
any of its counterparties on its foreign exchange forward contracts.
The Company mitigates this credit risk by dealing with counterparties
who are major financial institutions that the Company anticipates will
satisfy their obligations under the contracts.
In the normal course of business, the Company is exposed to credit risk
from its customers, substantially all of which are in the automotive
industry and are subject to credit risks associated with the automotive
industry. For the three- month period ended March 31, 2014, sales to
the Company's six largest customers represented 83% of the Company's
total sales and substantially all of its sales are to customers in
which the Company has ongoing contractual relationships.
[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 instruments as the interest rates on these instruments are
fixed.
[f] Currency risk and foreign exchange contracts
The Company operates globally, which gives rise to a risk that its
earnings and cash flows may be adversely impacted by fluctuations in
foreign exchange rates. The Company is exposed to fluctuations in
foreign exchange rates when manufacturing facilities have committed to
the delivery of products for which the selling price has been quoted in
currencies other than the facilities' functional currency, or when
materials and equipment are purchased in currencies other than the
facilities' functional currency.
In an effort to manage this net foreign exchange exposure, the Company
uses foreign exchange forward contracts for the sole purpose of hedging
certain of the Company's future committed Canadian dollar, U.S. dollar,
euro and British pound outflows and inflows. All derivative
instruments, including foreign exchange contracts, are recorded on the
interim consolidated balance sheet at fair value. To the extent that
cash flow hedges are effective, the change in their fair value is
recorded in other comprehensive income; any ineffective portion is
recorded in net income. Amounts accumulated in other comprehensive
income are reclassified to net income in the period in which the hedged
item affects net income.
At March 31, 2014, the Company had outstanding foreign exchange forward
contracts representing commitments to buy and sell various foreign
currencies. Significant commitments are as follows:
|
|
|
Buys
|
|
|
Sells
|
|
|
|
|
|
|
|
For Canadian dollars
|
|
|
|
|
|
|
|
U.S. amount
|
|
|
222
|
|
|
1,328
|
|
euro amount
|
|
|
53
|
|
|
9
|
|
Korean won amount
|
|
|
19,605
|
|
|
—
|
|
|
|
|
|
|
|
|
For U.S. dollars
|
|
|
|
|
|
|
|
Peso amount
|
|
|
7,306
|
|
|
278
|
|
Korean won amount
|
|
|
1,301
|
|
|
—
|
|
|
|
|
|
|
|
|
For euros
|
|
|
|
|
|
|
|
U.S. amount
|
|
|
99
|
|
|
235
|
|
GBP amount
|
|
|
30
|
|
|
38
|
|
Czech Koruna amount
|
|
|
4,734
|
|
|
8
|
|
Polish Zlotys amount
|
|
|
189
|
|
|
—
|
Forward contracts mature at various dates through 2019. Foreign
currency exposures are reviewed quarterly.
14. CONTINGENCIES
In the ordinary course of business activities, the Company may be
contingently liable for litigation and claims with customers,
suppliers, former employees and other parties. In addition, the Company
may be, or could become, liable to incur environmental remediation
costs to bring environmental contamination levels back within
acceptable legal limits. On an ongoing basis, the Company assesses the
likelihood of any adverse judgments or outcomes to these matters as
well as 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 November 1997, the Company and two of its subsidiaries were sued
by KS Centoco Ltd., an Ontario-based steering wheel manufacturer in
which the Company has a 23% equity interest, and by Centoco Holdings
Limited, the owner of the remaining 77% equity interest in KS Centoco
Ltd. In March 1999, the plaintiffs were granted leave to make
substantial amendments to the original statement of claim in order to
add several new defendants and claim additional remedies, and in
February 2006, the plaintiffs further amended their claim to add an
additional remedy. The amended statement of claim alleges, among other
things:
-
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 in North
America, other than through MST Automotive Inc., a company to be 77%
owned by Magna and 23% owned by Centoco Holdings Limited;
-
the plaintiff's exclusive entitlement to certain airbag technologies in
North America pursuant to an exclusive licence agreement, together with
an accounting of all revenues and profits resulting from the alleged
use by the Company, TRW Inc. ["TRW"] and other unrelated third party
automotive supplier defendants of such technology in North America;
-
a conspiracy by the Company, TRW and others to deprive KS Centoco Ltd.
of the benefits of such airbag technology in North America and to cause
Centoco Holdings Limited to sell to TRW its interest in KS Centoco Ltd.
in conjunction with the Company's sale to TRW of its interest in MST
Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; and
-
oppression by the defendants.
The plaintiffs are seeking, amongst other things, damages of
approximately Cdn$3.5 billion. Document production, completion of
undertakings and examinations for discovery are substantially complete,
although limited additional examinations for discovery may occur. A
trial is not expected to commence until 2015, at the earliest. The
Company believes it has valid defences to the plaintiffs' claims and
therefore intends to continue to vigorously defend this case.
Notwithstanding the amount of time which has transpired since the claim
was filed, these legal proceedings remain at an early stage and,
accordingly, it is not possible to predict their outcome.
[b] On September 24, 2013, representatives of the Bundeskartellamt, the
German Federal Cartel Office [the "Cartel Office"], attended at one of
the Company's operating divisions in Germany to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automobile textile coverings and components, particularly
trunk linings. Investigations of this nature can continue for several
years. Where wrongful conduct is found, the Cartel Office has the
authority to impose administrative fines that are calculated in
accordance with formula-based guidelines tied to the level of affected
sales, the gravity of the infringement, the consolidated sales of the
group of companies to which the offending entity belongs, as well as
other mitigating and aggravating factors.
The Company's policy is to comply with all applicable laws, including
antitrust and competition laws. In light of the early stage of the
investigation, management is unable to predict its duration or outcome,
including whether any operating division of the Company could be found
liable for any violation of law or the extent of any fine, if found to
be liable. In the event of any such violation, any fines imposed under
the Cartel Office guidelines referred to above could have a material
adverse effect on Magna's profitability in the year such fine is
imposed.
[c] In certain circumstances, the Company is at risk for warranty costs
including product liability and recall costs. Due to the nature of the
costs, the Company makes its best estimate of the expected future costs
[note 8]; however, the ultimate amount of such costs could be materially
different. The Company continues to experience increased customer
pressure to assume greater warranty responsibility. Currently, under
most customer agreements, the Company only accounts for existing or
probable claims. Under certain complete vehicle engineering and
assembly contracts, the Company records an estimate of future
warranty-related costs based on the terms of the specific customer
agreements, and the specific customer's warranty experience.
15. SEGMENTED INFORMATION
Given the differences between the regions in which the Company operates,
Magna's operations are segmented on a geographic basis. Consistent
with the above, the Company's internal financial reporting separately
segments key internal operating performance measures between North
America, Europe, Asia and Rest of World for purposes of presentation to
the chief operating decision maker to assist in the assessment of
operating performance, the allocation of resources, and the long-term
strategic direction and future global growth of the Company.
The Company's chief operating decision maker uses Adjusted EBIT as the
measure of segment profit or loss, since management believes Adjusted
EBIT is the most appropriate measure of operational profitability or
loss for its reporting segments. Adjusted EBIT represents income from
operations before income taxes; interest expense, net; and other
expense, net.
The accounting policies of each segment are the same as those set out
under "Significant Accounting Policies" [note 1] and intersegment sales and transfers are accounted for at fair market
value. During the fourth quarter of 2013, the Company began reporting
Asia and Rest of World as separate reporting segments.
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
Total
|
|
|
External
|
|
|
Adjusted
|
|
|
assets,
|
|
|
Total
|
|
|
External
|
|
|
Adjusted
|
|
|
assets,
|
|
|
|
sales
|
|
|
sales
|
|
|
EBIT
|
|
|
net
|
|
|
sales
|
|
|
sales
|
|
|
EBIT
|
|
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
1,604
|
|
$
|
1,487
|
|
|
|
|
$
|
574
|
|
$
|
1,681
|
|
$
|
1,553
|
|
|
|
|
$
|
633
|
|
United States
|
|
|
2,321
|
|
|
2,197
|
|
|
|
|
|
1,117
|
|
|
1,954
|
|
|
1,843
|
|
|
|
|
|
987
|
|
Mexico
|
|
|
1,039
|
|
|
958
|
|
|
|
|
|
609
|
|
|
965
|
|
|
892
|
|
|
|
|
|
577
|
|
Eliminations
|
|
|
(296)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
(288)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
4,668
|
|
|
4,642
|
|
$
|
443
|
|
|
2,300
|
|
|
4,312
|
|
|
4,288
|
|
$
|
381
|
|
|
2,197
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great Britain)
|
|
|
3,080
|
|
|
3,015
|
|
|
|
|
|
1,392
|
|
|
2,902
|
|
|
2,835
|
|
|
|
|
|
1,416
|
|
Great Britain
|
|
|
182
|
|
|
182
|
|
|
|
|
|
73
|
|
|
218
|
|
|
216
|
|
|
|
|
|
53
|
|
Eastern Europe
|
|
|
628
|
|
|
530
|
|
|
|
|
|
656
|
|
|
527
|
|
|
454
|
|
|
|
|
|
570
|
|
Eliminations
|
|
|
(117)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
(95)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
3,773
|
|
|
3,727
|
|
|
127
|
|
|
2,121
|
|
|
3,552
|
|
|
3,505
|
|
|
72
|
|
|
2,039
|
Asia
|
|
|
463
|
|
|
428
|
|
|
29
|
|
|
596
|
|
|
364
|
|
|
334
|
|
|
11
|
|
|
570
|
Rest of World
|
|
|
161
|
|
|
161
|
|
|
(13)
|
|
|
102
|
|
|
231
|
|
|
231
|
|
|
(11)
|
|
|
129
|
Corporate and Other
|
|
|
(104)
|
|
|
3
|
|
|
19
|
|
|
269
|
|
|
(98)
|
|
|
3
|
|
|
14
|
|
|
237
|
Total reportable segments
|
|
|
8,961
|
|
|
8,961
|
|
|
605
|
|
|
5,388
|
|
|
8,361
|
|
|
8,361
|
|
|
467
|
|
|
5,172
|
Other expense, net
|
|
|
|
|
|
|
|
|
(22)
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
|
|
$
|
8,961
|
|
$
|
8,961
|
|
$
|
581
|
|
|
5,388
|
|
$
|
8,361
|
|
$
|
8,361
|
|
$
|
457
|
|
|
5,172
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
10,551
|
|
|
|
|
|
|
|
|
|
|
|
9,866
|
Investments, goodwill,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets
|
|
|
|
|
|
|
|
|
|
|
|
2,609
|
|
|
|
|
|
|
|
|
|
|
|
2,723
|
Consolidated total assets
|
|
|
|
|
|
|
|
|
|
|
$
|
18,548
|
|
|
|
|
|
|
|
|
|
|
$
|
17,761
|
16. SUBSEQUENT EVENTS
Subject to approval by the TSX and the New York Stock Exchange, the
Board of Directors approved an amendment to the Company's normal course
issuer bid to increase the maximum number of Common Shares that may be
purchased from 12 million to 20 million. The new maximum represents
approximately 9.0% of the Company's public float of Common Shares as of
November 6, 2013. No other terms of the normal course issuer bid have
been amended.
17. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to
the current period's method of presentation.
SOURCE Magna International Inc.