- Third quarter record sales up 16%, well above 3% growth in global light vehicle production
- Third quarter record diluted earnings per share from continuing operations increased 14%
- $288 million returned to shareholders through share repurchases and dividends
AURORA, ON, Nov. 3, 2016 /PRNewswire/ - Magna International
Inc. (TSX: MG; NYSE: MGA) today reported financial results for the third quarter ended September 30,
2016.
|
THREE MONTHS ENDED
SEPTEMBER 30,
|
|
NINE MONTHS ENDED
SEPTEMBER 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
8,849
|
|
$
|
7,661
|
|
$
|
27,192
|
|
$
|
23,566
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBIT(1)
|
$
|
715
|
|
$
|
565
|
|
$
|
2,202
|
|
$
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
$
|
692
|
|
$
|
680
|
|
$
|
2,134
|
|
$
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to Magna International Inc.
|
$
|
503
|
|
$
|
470
|
|
$
|
1,553
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing operations
|
$
|
1.29
|
|
$
|
1.13
|
|
$
|
3.92
|
|
$
|
3.53
|
|
|
|
|
|
|
|
|
|
|
|
|
All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars.
|
(1) Adjusted EBIT is the measure of segment profit or
loss as reported in the Company's attached unaudited interim consolidated financial
statements. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other income,
net.
|
THREE MONTHS ENDED SEPTEMBER 30, 2016
We posted sales of $8.8 billion for the third quarter ended September 30,
2016, an increase of 16% over the third quarter of 2015. This strong year over year growth was achieved despite
North American light vehicle production increasing only 1% and European light vehicle production declining 2%, compared to the
third quarter of 2015.
Our complete vehicle assembly sales decreased 4% in the third quarter of 2016, compared to the third quarter of 2015, while
our complete vehicle assembly volumes decreased 19% from the comparable quarter to approximately 19,000 units. The
decreases largely reflect that we were nearing end of production of the MINI Countryman and Paceman.
During the third quarter of 2016, income from continuing operations before income taxes was $692
million and net income from continuing operations attributable to Magna International Inc. was $503
million, increases of 2% and 7% respectively, both compared to the third quarter of 2015. Diluted earnings per share
from continuing operations increased $0.16 or 14% in the third quarter of 2016, which includes the
favourable impact of a reduced share count.
During the third quarter ended September 30, 2016, we generated cash from operations of
$796 million before changes in operating assets and liabilities, and invested $139 million in operating assets and liabilities. Total investment activities for the third quarter of 2016
were $556 million, including $390 million in fixed asset additions and $166 million in investments and other assets.
NINE MONTHS ENDED SEPTEMBER 30, 2016
We posted sales of $27.2 billion for the nine months ended September 30,
2016, an increase of 15% from the nine months ended September 30, 2015. Excluding the
impact of foreign currency translation, our sales increased 17% in the first nine months of 2016, compared to the first nine
months of 2015. In comparison, North American and European light vehicle production increased 4% and 5%, respectively, in
the first nine months of 2016 compared to the first nine months of 2015.
Our complete vehicle assembly sales increased 1% in the first nine months of 2016, compared to the first nine months of
2015. Complete vehicle assembly volumes decreased 14% to approximately 68,000 units. The volume decrease largely
reflects that we were nearing end of production of the MINI Countryman and Paceman.
During the nine months ended September 30, 2016, income from continuing operations before income
taxes was $2.1 billion and net income from continuing operations attributable to Magna
International Inc. was $1.6 billion, increases of $107 million and
$90 million, respectively, both compared to the first nine months of 2015. Diluted earnings
per share from continuing operations increased $0.39 or 11% for the nine months ended September 30, 2016, which includes the favourable impact of a reduced share count.
During the nine months ended September 30, 2016, we generated cash from operations before
changes in operating assets and liabilities of $2.4 billion, and invested $759 million in operating assets and liabilities. Total investment activities for the first nine months of 2016
were $3.3 billion, including $1.8 billion to purchase subsidiaries,
$1.1 billion in fixed asset additions and $323 million in
investments and other assets.
A more detailed discussion of our consolidated financial results for the third quarter and nine months ended September 30, 2016 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.
RETURN OF CAPITAL TO SHAREHOLDERS
During the three and nine months ended September 30, 2016, Magna repurchased 4.7 million shares
for $191 million and 19.8 million shares for $799 million,
respectively, pursuant to our existing Normal Course Issuer Bid which expires in November 2016.
Today, our Board of Directors declared a quarterly dividend of $0.25 with respect to our
outstanding Common Shares for the quarter ended September 30, 2016. This dividend is payable on
December 9, 2016 to shareholders of record on November 25, 2016.
OTHER MATTERS
Subject to the approval by the Toronto Stock Exchange and the New York Stock Exchange, our Board of Directors approved a
Normal Course Issuer Bid ("NCIB") to purchase up to 38 million of our Common Shares, representing approximately 10% of our public
float of Common Shares. This NCIB is expected to commence on or about November 14, 2016 and
will terminate one year later.
UPDATED 2016 OUTLOOK
|
|
|
|
|
Light Vehicle Production
(Units)
|
|
|
|
|
|
North America
|
|
|
17.8 million
|
|
|
Europe
|
|
|
21.5 million
|
|
|
|
|
|
|
Production Sales
|
|
|
|
|
|
North America
|
|
|
$19.2 - $19.6 billion
|
|
|
Europe
|
|
|
$9.0 - $9.3 billion
|
|
|
Asia
|
|
|
$2.1 - $2.2 billion
|
|
|
Rest of World
|
|
|
$0.4 - $0.5 billion
|
|
|
Total Production
Sales
|
|
|
$30.7 - $31.6 billion
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales
|
|
|
$2.0 - $2.2 billion
|
|
|
|
|
|
|
Total Sales
|
|
|
$35.8 - $37.0 billion
|
|
|
|
|
|
|
EBIT Margin(2)
|
|
|
Approximately 8%
|
|
|
|
|
|
|
Interest Expense, net
|
|
|
Approximately $90 million
|
|
|
|
|
|
|
Tax Rate(2)
|
|
|
Approximately 26%
|
|
|
|
|
|
|
Capital Spending
|
|
|
$1.8 - $1.9 billion
|
|
|
|
|
|
|
(2) Excluding other expense, net
|
In this 2016 outlook, in addition to 2016 light vehicle production, we have assumed no material acquisitions or divestitures.
In addition, we have assumed that foreign exchange rates for the most common currencies in which we conduct business relative to
our U.S. dollar reporting currency will approximate current rates.
We will hold a conference call for interested analysts and shareholders to discuss our third quarter results on Thursday, November 3, 2016 at 8:30 a.m. EDT. The conference call will be chaired
by Don Walker, Chief Executive Officer. The number to use for this call is 1-800-926-6571. The
number for overseas callers is 1-416-981-9025. 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 morning prior to the call.
TAGS
Quarterly earnings, record quarter, financial results, sales growth
ABOUT MAGNA INTERNATIONAL
We are a leading global automotive supplier with 312 manufacturing operations(3) and 98 product development,
engineering and sales centres(3) in 29 countries. We have over 155,000 employees(3) focused on delivering
superior value to our customers through innovative products and processes, and world class manufacturing. We have complete
vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior,
seating, powertrain, electronic, active driver assistance, vision, closure and roof systems. Our common shares trade on the
Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further information about Magna, visit our website at
www.magna.com.
___________________
|
(3)
|
These figures include manufacturing operations, product development,
engineering and sales centres and employees in certain equity-accounted operations
|
FORWARD-LOOKING STATEMENTS
This press release contains statements that constitute "forward-looking statements" or "forward-looking information" within
the meaning of applicable securities legislation, including, but not limited to, statements relating to: Magna's forecasts of
light vehicle production in North America and Europe; expected
consolidated sales, based on such light vehicle production volumes; production sales, including expected split by segment, in its
North America, Europe, Asia
and Rest of World segments for 2016; complete vehicle assembly sales; consolidated EBIT margin, net interest expense; effective
income tax rate; fixed asset expenditures; and future returns of capital to our shareholders, including through dividends or
share repurchases. The forward-looking statements or forward-looking information in this press release is presented for the
purpose of providing information about management's current expectations and plans and such information may not be appropriate
for other purposes. Forward-looking statements or forward-looking information may include financial and other projections, as
well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the
foregoing, and other statements that are not recitations of historical fact. We use words such as "may", "would", "could",
"should", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "outlook", "project", "estimate" and
similar expressions suggesting future outcomes or events to identify forward-looking statements or forward-looking information.
Any such forward-looking statements or forward-looking information are based on information currently available to us, and are
based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current
conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. However,
whether actual results and developments will conform with our expectations and predictions is subject to a number of risks,
assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict,
including, without limitation: the potential for a deterioration of economic conditions or an extended period of economic
uncertainty; a decline in consumer confidence, which would be expected to result in lower production volume levels; economic or
political uncertainty, including as a result of the U.K.'s potential exit from the European Union and/or the outcome of the 2016
U.S. Presidential election; legal claims and/or regulatory actions against us, including without limitation any proceedings that
may arise out of our global review focused on anti-trust risk; 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; restructuring, downsizing and/or other significant non-recurring costs;
our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to
conduct appropriate due diligence on acquisition targets; an increase in our risk profile as a result of completed
acquisitions; shifts in market share away from our top customers; shifts in market shares among vehicles or vehicle segments, or
shifts away from vehicles on which we have significant content; inability to sustain or grow our business; risks of conducting
business in foreign markets, including China, India,
Eastern Europe, Brazil and other non-traditional markets for
us; fluctuations in relative currency values; a prolonged disruption in the supply of components to us from our suppliers; work
stoppages and labour relations disputes; 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;
exposure to, and ability to offset, volatile commodities prices; warranty and recall costs; restructuring actions by OEMs,
including plant closures; shutdown of our or our customers' or sub-suppliers' production facilities due to a labour disruption;
risk of production disruptions due to natural disasters or catastrophic event; the security and reliability of our information
technology systems; pension liabilities; 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; impairment charges related to goodwill, long-lived assets
and deferred tax assets; 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; inability 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 or forward-looking information, we caution readers
not to place undue reliance on any forward-looking statements or forward-looking information, 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 or forward-looking information. 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 or forward-looking information to
reflect subsequent information, events, results or circumstances or otherwise.
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.
In 2015, we sold substantially all of our interiors operations (excluding our seating operations). The assets and liabilities,
and operating results for the previously reported interiors operations are presented as discontinued operations and have
therefore been excluded from both continuing operations and segment results for all periods presented in the attached financial
statements. This Management's Discussion and Analysis reflects the results of continuing operations, unless otherwise noted.
This MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the three months
and nine months ended September 30, 2016 included in this press release, and the audited consolidated financial statements
and MD&A for the year ended December 31, 2015 included in our 2015 Annual Report to Shareholders.
This MD&A has been prepared as at November 3, 2016.
HIGHLIGHTS
- We posted new third quarter records in total sales and diluted earnings per share from continuing operations;
- Total sales increased 16% to $8.85 billion, compared to $7.66
billion in the third quarter of 2015. The 16% increase represents strong performance compared to global light vehicle
production which only increased 3% in the third quarter of 2016;
- North American production sales increased 13%, compared to North American light vehicle production which increased 1%;
- European production sales increased 29%, while European light vehicle production decreased 2%;
- Asian production sales increased 58%, compared to an 8% increase in Asian light vehicle production;
- Adjusted EBIT(1) increased 27% to $715 million, from $565
million in the third quarter of 2015;
- Diluted earnings per share from continuing operations increased 14% to $1.29, compared to
$1.13 in the third quarter of 2015;
- We generated cash from operating activities of $657 million, compared to $596 million in the third quarter of 2015;
- We returned $191 million to shareholders in the form of share repurchases and $97 million in the form of dividends;
- Early October marked the end of production of MINI Countryman and Paceman models at our Magna
Steyr facility in Graz, Austria. Over the lifetime of the two models, we produced over
606,000 units. Magna Steyr is currently preparing for the launches of the new BMW 5-Series as
well as two Jaguar Land Rover programs;
- Subject to approval by the Toronto Stock Exchange ("TSX") and the New York Stock Exchange ("NYSE"), our Board of Directors
approved a new normal course issuer bid ("NCIB") to purchase up to 38 million of our Common Shares, representing approximately
10% of our public float of Common Shares.
OVERVIEW
Our Business
We are a leading global automotive supplier with 312 manufacturing operations(2) and 98 product development,
engineering and sales centres(2) in 29 countries. We have over 155,000 employees(2) focused on delivering
superior value to our customers through innovative products and processes, and world class manufacturing. We have complete
vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior,
seating, powertrain, electronic, active driver assistance, vision, closure and roof systems. Our common shares trade on the
Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further information about Magna, visit our website at
www.magna.com.
___________________
|
1
|
We believe Adjusted EBIT is the most appropriate measure of operational
profitability or loss for our reporting segments. Adjusted EBIT represents income from operations before income taxes;
interest expense, net; and other income, net.
|
2
|
These figures include manufacturing operations, product development,
engineering and sales centres and employees in certain equity-accounted operations.
|
Industry Trends and Risks
Our operating results are primarily dependent upon the levels of North American and European car and light truck production by
our customers and the relative amount of content we have on various programs. Original equipment manufacturers' ("OEMs")
production volumes in different regions may be impacted by factors which may vary from one region to the next, including but not
limited to: general economic and political conditions; consumer confidence levels; interest rates; credit availability; energy
and fuel prices; relative currency values; commodities prices; international conflicts; labour relations issues; regulatory
requirements; trade agreements; infrastructure; legislative changes; and environmental emissions and safety standards. These
factors together with other factors affecting our performance such as: operational inefficiencies; costs incurred to launch new
or takeover business; price reduction pressures from our customers; warranty and recall costs; commodities and scrap prices;
restructuring, downsizing and other significant non-recurring costs; and the financial condition of our supply base, are
discussed in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended December 31, 2015, and remain substantially unchanged in respect of the third quarter ended September 30, 2016, except to the extent that:
- the United Kingdom's anticipated exit from the European Union may create economic
uncertainty, reduce consumer confidence, impair trade relationships between the United Kingdom
and members of the European Union, result in a long-term realignment in the value of the British pound relative to other
currencies, lead to the closure of any of our customers' assembly plants in the United
Kingdom, or otherwise directly or indirectly have a material adverse effect on our operations, profitability or results
of operations; and
- the outcome of the November 8, 2016, U.S. election may result in lower consumer confidence
levels, whether as a result of general economic or political uncertainty, rising interest rates, increased volatility in
capital markets, an increase in protectionist measures or other factors. Consumer confidence levels impact consumer demand for
vehicles, which in turn impacts vehicle production levels. A significant decline in vehicle production could have a material
adverse effect on our profitability.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
For the three months
|
|
For the nine months
|
|
ended September 30,
|
|
ended September 30,
|
|
2016
|
2015
|
Change
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
|
1 Canadian dollar equals U.S. dollars
|
0.766
|
0.766
|
—
|
|
0.757
|
0.796
|
- 5%
|
1 euro equals U.S. dollars
|
1.116
|
1.113
|
—
|
|
1.116
|
1.116
|
—
|
1 British pound equals U.S. dollars
|
1.313
|
1.551
|
- 15%
|
|
1.393
|
1.534
|
- 9%
|
1 Chinese renminbi equals U.S. dollars
|
0.150
|
0.159
|
- 6%
|
|
0.152
|
0.160
|
- 5%
|
1 Brazilian real equals U.S. dollars
|
0.308
|
0.285
|
+ 8%
|
|
0.283
|
0.320
|
- 12%
|
The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct
business and our U.S. dollar reporting currency. The changes in these foreign exchange rates for the three months and nine months
ended September 30, 2016 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 SEPTEMBER 30, 2016
Sales
|
|
For the three months
|
|
|
|
ended September 30,
|
|
|
|
2016
|
|
2015
|
Change
|
|
|
|
|
|
|
Vehicle Production Volumes (millions of units)
|
|
|
|
|
|
|
North America
|
|
4.320
|
|
4.294
|
+ 1%
|
|
Europe
|
|
4.680
|
|
4.760
|
- 2%
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
External Production
|
|
|
|
|
|
|
|
North
America
|
$
|
4,837
|
$
|
4,281
|
+ 13%
|
|
|
Europe
|
|
2,184
|
|
1,696
|
+ 29%
|
|
|
Asia
|
|
548
|
|
346
|
+ 58%
|
|
|
Rest of World
|
|
119
|
|
111
|
+ 7%
|
|
Complete Vehicle Assembly
|
|
503
|
|
522
|
- 4%
|
|
Tooling, Engineering and Other
|
|
658
|
|
705
|
- 7%
|
Total Sales
|
$
|
8,849
|
$
|
7,661
|
+ 16%
|
External Production Sales - North America
External production sales in North America increased 13% or $556
million to a third quarter record of $4.84 billion compared to $4.28
billion for the third quarter of 2015, primarily as a result of:
- the launch of new programs during or subsequent to the third quarter of 2015, including the:
- Cadillac XT5;
- Chrysler Pacifica;
- GMC Acadia;
- Chevrolet Cruze;
- Chevrolet Camaro; and
- Lincoln Continental; and
- the acquisition of the Getrag Group of Companies ("Getrag") during the first quarter of 2016, which positively impacted
production sales by $142 million.
These factors were partially offset by:
- lower production volumes on certain existing programs;
- the contribution of two manufacturing facilities into an equity-accounted joint venture during the third quarter of 2015,
which negatively impacted production sales by $11 million; and
- net customer price concessions subsequent to the third quarter of 2015.
External Production Sales - Europe
External production sales in Europe increased 29% or $488
million to a third quarter record of $2.18 billion compared to $1.70
billion for the third quarter of 2015, primarily as a result of:
- acquisitions during or subsequent to the third quarter of 2015, which positively impacted production sales by $326 million, including Getrag which positively impacted production sales by $248
million; and
- the launch of new programs during or subsequent to the third quarter of 2015, including the:
- Audi A3 and A3 Sportback;
- Mercedes-Benz E-Class;
- Audi A4;
- BMW X1; and
- Volkswagen Tiguan.
These factors were partially offset by:
- a $21 million decrease in reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the British Pound;
- lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the third quarter of 2015.
External Production Sales - Asia
External production sales in Asia increased 58% or $202 million
to an all-time quarterly record of $548 million compared to $346
million for the third quarter of 2015, primarily as a result of:
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in China; and
- acquisitions during or subsequent to the third quarter of 2015, including the partnership agreement in China ("the Xingqiaorui Partnership") with Chongqing Xingqiaorui and the acquisition of Getrag, which
positively impacted production sales by $76 million.
These factors were partially offset by:
- a $25 million decrease in reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the Chinese renminbi; and
- net customer price concessions subsequent to the third quarter of 2015.
External Production Sales - Rest of World
External production sales in Rest of World increased 7% or $8 million to $119 million for the third quarter of 2016 compared to $111 million for the third
quarter of 2015, primarily as a result of:
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in Brazil; and
- net customer price increases subsequent to the third quarter of 2015.
These factors were partially offset by:
- lower production volumes on certain existing programs; and
- an $8 million decrease in reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the Argentine peso, partially offset by the strengthening of the Brazilian real
against the U.S. dollar.
Complete Vehicle Assembly Sales
|
For the three months
|
|
|
|
ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales
|
$
|
503
|
$
|
522
|
|
- 4%
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Volumes (Units)
|
|
18,682
|
|
23,176
|
|
- 19%
|
Complete vehicle assembly sales decreased 4% or $19 million to $503
million for the third quarter of 2016 compared to $522 million for the third quarter of 2015
and assembly volumes decreased 19% or 4,494 units.
The decrease in complete vehicle assembly sales is primarily as a result of:
- a decrease in assembly volumes for the MINI Countryman and Paceman, as these programs neared the end of production;
and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third
quarter of 2015.
These factors were partially offset by an increase in assembly volumes for the Mercedes-Benz G-Class which has a higher
average selling price per vehicle compared to the MINI programs.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased 7% or $47 million to $658
million for the third quarter of 2016 compared to $705 million for the third quarter of
2015.
In the third quarter of 2016, the major programs for which we recorded tooling, engineering and other sales were the:
- Mercedes-Benz E-Class;
- Chevrolet Malibu;
- BMW 5-Series;
- Ford F-Series SuperDuty;
- Jeep Grand Cherokee;
- Porsche Panamera;
- Ford Transit; and
- Chevrolet Cruze.
In the third quarter of 2015, the major programs for which we recorded tooling, engineering and other sales were the:
- Audi A4;
- Chevrolet Cruze;
- Chevrolet Equinox and GMC Terrain;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Opel Astra;
- Volkswagen Golf;
- BMW 2-Series;
- Volkswagen Touran; and
- Skoda Superb.
Acquisitions during or subsequent to the third quarter of 2015, including Getrag, increased our reported tooling,
engineering and other sales, while the weakening of certain foreign currencies against the U.S. dollar, including the Chinese
renminbi had an unfavourable impact of $3 million on our reported tooling, engineering and other
sales.
Cost of Goods Sold and Gross Margin
|
For the three months
|
|
ended September 30,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Sales
|
$
|
8,849
|
$
|
7,661
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
|
Material
|
|
5,525
|
|
4,839
|
|
Direct
labour
|
|
576
|
|
507
|
|
Overhead
|
|
1,457
|
|
1,247
|
|
|
7,558
|
|
6,593
|
Gross margin
|
$
|
1,291
|
$
|
1,068
|
|
|
|
|
|
Gross margin as a percentage of sales
|
|
14.6%
|
|
13.9%
|
Cost of goods sold increased $965 million to $7.56 billion for the
third quarter of 2016 compared to $6.59 billion for the third quarter of 2015 primarily as a result
of:
- higher material, overhead and labour costs associated with the increase in sales;
- acquisitions subsequent to the third quarter of 2015;
- operational inefficiencies at certain facilities, including one body and chassis operation in North America;
- higher warranty costs of $25 million;
- a higher amount of employee profit sharing;
- higher severance costs; and
- lower recoveries associated with scrap steel.
These factors were partially offset by:
- a net decrease in reported U.S. dollar cost of goods sold primarily due to the weakening of the Chinese renminbi, British
pound and Argentine peso each against the U.S. dollar partially offset by the strengthening of the Brazilian real against the
U.S. dollar;
- productivity and efficiency improvements at certain facilities;
- decreased commodity costs;
- net divestitures during or subsequent to the third quarter of 2015; and
- decreased pre-operating costs incurred at new facilities.
Gross margin increased $223 million to $1.29 billion for the third
quarter of 2016 compared to $1.07 billion for the third quarter of 2015 and gross margin as a
percentage of sales increased to 14.6% for the third quarter of 2016 compared to 13.9% for the third quarter of 2015. 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 tooling, engineering and other sales relative to total sales, that have low or no
margins;
- decreased commodity costs;
- a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material
content than our consolidated average; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one body and chassis operation in North America;
- higher warranty costs;
- the acquisition of Getrag during the first quarter of 2016;
- a higher amount of employee profit sharing;
- higher severance costs; and
- lower recoveries associated with scrap steel.
Depreciation and Amortization
Depreciation and amortization costs increased $73 million to $270 million for the third
quarter of 2016 compared to $197 million for the third quarter of 2015. The higher depreciation and amortization was
primarily as a result of increased capital deployed at existing and new facilities and acquisitions during or subsequent to the
third quarter of 2015, including the acquisition of Getrag; the acquisition of Stadco Automotive Ltd. ("Stadco"); and the
Xingqiaorui Partnership.
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.2% for the third quarter of 2016 compared to 4.7% for the third quarter of
2015. SG&A expense increased $13 million to $371 million for the
third quarter of 2016 compared to $358 million for the third quarter of 2015 primarily as a result
of:
- acquisitions during or subsequent to the third quarter of 2015;
- higher labour and benefit costs;
- higher incentive and executive compensation;
- increased costs incurred at new facilities; and
- higher costs to support our global compliance programs.
These factors were partially offset by an insurance recovery, net of costs incurred, related to a fire in the second quarter
of 2016 at a body and chassis facility in Europe.
Equity Income
Equity income increased $13 million to $65 million for the third
quarter of 2016 compared to $52 million for the third quarter of 2015 primarily as a result of the
acquisition of Getrag in the first quarter of 2016.
Other Income, net
For the three months ended September 30, 2016, there were no amounts included in Other Income,
net.
During the third quarter of 2015, we contributed two manufacturing facilities and received a 49% interest in a newly formed
joint venture and cash proceeds of $118 million. Total consideration was valued at $160 million, and as a result we recognized a gain of $136 million ($80 million after tax). In addition, during the third quarter of 2015 we recorded net restructuring
charges of $12 million ($12 million after tax) in Europe at our exterior systems operations.
Segment Analysis
Given the differences between the regions in which we operate, our operations are segmented on a geographic basis. Consistent
with the above, our internal financial reporting separately segments key internal operating performance measures between
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 income, net.
|
For the three months ended September 30,
|
|
Total Sales
|
|
Adjusted EBIT
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
5,109
|
$
|
4,591
|
$
|
518
|
|
$
|
512
|
$
|
455
|
$
|
57
|
Europe
|
|
3,102
|
|
2,642
|
|
460
|
|
|
115
|
|
91
|
|
24
|
Asia
|
|
654
|
|
428
|
|
226
|
|
|
64
|
|
13
|
|
51
|
Rest of World
|
|
129
|
|
115
|
|
14
|
|
|
(5)
|
|
(7)
|
|
2
|
Corporate and Other
|
|
(145)
|
|
(115)
|
|
(30)
|
|
|
29
|
|
13
|
|
16
|
Total reportable segments
|
$
|
8,849
|
$
|
7,661
|
$
|
1,188
|
|
$
|
715
|
$
|
565
|
$
|
150
|
Excluded from Adjusted EBIT for the three months ended September 30, 2015 were the following
Other Income and Other Expense items, which have been discussed in the "Other Income, net" section. There were no amounts
included in Other Income, net for the three months ended September 30, 2016.
|
|
|
|
|
For the three months
|
|
|
|
|
|
ended September 30,
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
Gain on disposal
|
|
|
|
|
$
|
(136)
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(124)
|
North America
Adjusted EBIT in North America increased $57 million to
$512 million for the third quarter of 2016 compared to $455 million for the third quarter of
2015 primarily as a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- the acquisition of Getrag during the first quarter of 2016;
- decreased commodity costs; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- higher warranty costs of $17 million;
- operational inefficiencies at certain facilities, including one body and chassis operation;
- lower equity income;
- higher affiliation fees paid to Corporate;
- a higher amount of employee profit sharing;
- lower recoveries associated with scrap steel;
- higher severance costs;
- higher incentive compensation; and
- net customer price concessions subsequent to the third quarter of 2015.
Europe
Adjusted EBIT in Europe increased $24 million to $115 million for the third quarter of 2016 compared to $91 million for the third quarter of 2015 primarily
as a result of:
- an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis
facility in Europe;
- productivity and efficiency improvements at certain facilities;
- acquisitions during or subsequent to the third quarter of 2015;
- margins earned on higher production sales;
- lower affiliation fees paid to Corporate; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of $7 million;
- a higher amount of employee profit sharing;
- lower equity income;
- a decrease in reported U.S. dollar Adjusted EBIT due to the weakening of the British pound against the U.S. dollar;
- higher severance costs; and
- net customer price concessions subsequent to the third quarter of 2015.
Asia
Adjusted EBIT in Asia increased $51 million to $64 million for the third quarter of 2016 compared to $13 million for the third
quarter of 2015 primarily as a result of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015, including Getrag and the Xingqiaorui Partnership; and
- higher equity income.
These factors were partially offset by a decrease in reported U.S. dollar Adjusted EBIT due to the weakening of the Chinese
renminbi against the U.S. dollar.
Rest of World
Adjusted EBIT in Rest of World increased $2 million to a loss of $5
million for the third quarter of 2016 compared to a loss of $7 million for the third quarter
of 2015 primarily as a result of:
- net customer price increases subsequent to the third quarter of 2015; and
- decreased commodity costs.
These factors were partially offset by higher severance costs.
Corporate and Other
Adjusted EBIT in Corporate and Other increased $16 million to $29
million for the third quarter of 2016 compared to $13 million for the third quarter of 2015
primarily as a result of:
- an increase in affiliation fees earned from our divisions;
- lower costs related to the investment in our information technology infrastructure; and
- lower consulting costs.
Interest Expense, net
During the third quarter of 2016, we recorded net interest expense of $23 million compared to
$9 million for the third quarter of 2015. The $14 million
increase is primarily as a result of interest expense incurred on the issuance of senior, unsecured debt (the "Senior Debt")
during the third and fourth quarters of 2015.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased $12 million to $692 million for the third quarter of 2016 compared to $680 million for the third
quarter of 2015. Excluding Other Income, net, discussed in the "Other Income, net" section, income from continuing
operations before income taxes for the third quarter of 2016 increased $136 million. The increase
in income from continuing operations before income taxes is the result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- acquisitions during or subsequent to the third quarter of 2015;
- an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis
facility in Europe;
- decreased commodity costs;
- decreased pre-operating costs incurred at new facilities;
- lower costs related to the investment in our information technology infrastructure; and
- lower consulting costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one body and chassis operation in North America;
- higher warranty costs of $25 million;
- the $14 million increase in interest expense, net, as discussed above;
- a higher amount of employee profit sharing;
- higher incentive compensation; and
- higher severance costs.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30,
|
|
2016
|
|
2015
|
|
$
|
%
|
|
$
|
%
|
Income taxes as reported
|
$
|
178
|
|
25.7
|
|
$
|
211
|
|
31.0
|
Tax effect on Other Income, net
|
|
—
|
|
—
|
|
|
(56)
|
|
(3.1)
|
|
$
|
178
|
|
25.7
|
|
$
|
155
|
|
27.9
|
Excluding Other Income, net, after tax, the effective income tax rate decreased to 25.7% for the third quarter of 2016
compared to 27.9% for the third quarter of 2015 primarily as a result of:
- a decrease in non-deductible foreign exchange adjustments related to the re-measurement of financial statement balances of
foreign subsidiaries that are maintained in a currency other than their functional currency;
- an increase in research and development credits in North America; and
- an increase in equity income.
These factors were partially offset by a change in our reserve for uncertain tax positions.
(Income) Loss from Continuing Operations Attributable to Non-Controlling Interests
Income from continuing operations attributable to non-controlling interests increased to $11
million for the third quarter of 2016 compared to a loss from continuing operations attributable to non-controlling
interests of $1 million for the third quarter of 2015, primarily due to acquisitions during or
subsequent to the third quarter of 2015, including Getrag and the Xingqiaorui Partnership.
Net Income Attributable to Magna International Inc.
Net income attributable to Magna International Inc. of $503 million for the third quarter of
2016 decreased $86 million compared to the third quarter of 2015. Excluding Other Income,
net, after tax, as discussed in the "Other Income, net" section, net income attributable to Magna International Inc. decreased
$18 million primarily as a result of the decrease in the income from discontinued operations,
higher income taxes and an increase in the (income) loss from continuing operations attributable to non-controlling interests
partially offset by the increase in net income from continuing operations before income taxes, as discussed above.
Earnings per Share
|
For the three months
|
|
|
|
ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Basic earnings per Common Share
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.30
|
$
|
1.15
|
|
+ 13%
|
|
Attributable to Magna International Inc.
|
$
|
1.30
|
$
|
1.44
|
|
- 10%
|
|
|
|
|
|
|
|
Diluted earnings per Common Share
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.29
|
$
|
1.13
|
|
+ 14%
|
|
Attributable to Magna International
Inc.
|
$
|
1.29
|
$
|
1.42
|
|
- 9%
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding (millions)
|
|
|
|
|
|
|
|
Basic
|
|
387.1
|
|
408.5
|
|
- 5%
|
|
Diluted
|
|
389.0
|
|
413.8
|
|
- 6%
|
Diluted earnings per share from continuing operations increased $0.16 to a third quarter record
of $1.29 compared to $1.13 for the third quarter of 2015. Other
Income, net, after tax, positively impacted diluted earnings per share from continuing operations by $0.16 in the third quarter of 2015 as discussed in the "Other Income, net" section. Excluding the $0.16 per share positive impact for the third quarter of 2015 diluted earnings per share from continuing
operations increased $0.32, as a result of the increase in net income attributable to Magna
International Inc. from continuing operations and a decrease in the weighted average number of diluted shares outstanding during
the third quarter of 2016.
The decrease in the weighted average number of diluted shares outstanding was primarily due to the purchase and cancellation
of Common Shares, during or subsequent to the third quarter of 2015, pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
For the three months
|
|
|
|
|
ended September 30,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
514
|
$
|
469
|
|
|
|
Items not involving current cash flows
|
|
282
|
|
94
|
|
|
|
|
|
796
|
|
563
|
|
$
|
233
|
Changes in operating assets and liabilities
|
|
(139)
|
|
33
|
|
|
|
Cash provided from operating activities
|
$
|
657
|
$
|
596
|
|
$
|
61
|
Cash provided from operating activities before changes in operating assets and liabilities increased $233 million for the third quarter of 2016 compared to the third quarter of 2015 primarily as a result of:
- an increase in cash received from customers of $1.19 billion as a result of higher total
sales as discussed above;
- lower cash paid relating to income taxes of $19 million; and
- higher dividends received from equity investments of $8 million.
These factors were partially offset by:
- higher cash paid for material, labour and overhead of $682 million, $162 million and $121 million, respectively, each primarily associated with the
increase in sales and other factors discussed in the Cost of Goods Sold and Gross Margin section above; and
- higher net interest expense of $12 million as discussed in the Interest Expense, net section
above.
Changes in operating assets and liabilities decreased $172 million for the third quarter of 2016
compared to the third quarter of 2015 primarily due to the increase in tooling and production inventory balances to support
current and future program launches.
Capital and Investment Spending
|
For the three months
|
|
|
|
|
ended September 30,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Fixed asset additions
|
$
|
(390)
|
$
|
(360)
|
|
|
|
Investments and other assets
|
|
(166)
|
|
(74)
|
|
|
|
Fixed assets, investments and other assets additions
|
|
(556)
|
|
(434)
|
|
|
|
Restricted cash deposits
|
|
(180)
|
|
—
|
|
|
|
Proceeds from disposition
|
|
26
|
|
11
|
|
|
|
Sale of Interiors
|
|
—
|
|
473
|
|
|
|
Proceeds on disposal of facilities
|
|
—
|
|
118
|
|
|
|
Cash used in discontinued operations
|
|
—
|
|
(15)
|
|
|
|
Cash (used for) provided from investment activities
|
$
|
(710)
|
$
|
153
|
|
$
|
(863)
|
Fixed assets, investments and other assets additions
In the third quarter of 2016, we invested $390 million in fixed assets. While investments were made to refurbish or
replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in
the third quarter of 2016 was for manufacturing equipment for programs that will be launching subsequent to the third quarter of
2016.
We provided an $84 million loan to one of our equity-accounted joint ventures, we invested
$77 million in other assets related primarily to fully reimbursable tooling, planning, and
engineering costs for programs that launched during the third quarter of 2016 or will be launching subsequent to the third
quarter of 2016 and we invested $5 million in equity-accounted investments.
Restricted cash deposits
In the third quarter of 2016, we had $180 million invested in short-term restricted cash
deposits. These deposits secure $165 million drawn on a euro credit facility with a bank that
includes a netting arrangement that provides for the legal right of set-off.
Proceeds from disposition
In the third quarter of 2016, the $26 million of proceeds include normal course fixed and other
asset disposals.
Sale of Interiors
On August 31, 2015 we sold substantially all of our interiors operations (excluding our seating
operations) and received $473 million of proceeds, net of transaction costs during the third
quarter of 2015.
Proceeds on disposal of facilities
In the third quarter of 2015, we received $118 million of proceeds related to the formation of
the joint venture for the manufacture and sale of roof and other accessories for the Jeep market to OEM as well as aftermarket
customers.
Financing
|
For the three months
|
|
|
|
|
ended September 30,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Issues of debt
|
$
|
3
|
$
|
659
|
|
|
|
Increase (decrease) in short-term borrowings
|
|
350
|
|
(41)
|
|
|
|
Repayments of debt
|
|
(237)
|
|
(16)
|
|
|
|
Issue of Common Shares on exercise of stock options
|
|
2
|
|
6
|
|
|
|
Repurchase of Common Shares
|
|
(191)
|
|
(346)
|
|
|
|
Contributions by subsidiaries by non-controlling interests
|
|
—
|
|
10
|
|
|
|
Dividends
|
|
(97)
|
|
(91)
|
|
|
|
Cash (used for) provided from financing activities
|
$
|
(170)
|
$
|
181
|
|
$
|
(351)
|
Issues of debt in the third quarter of 2015 relate primarily to the issue of $650 million of
4.150% fixed-rate Senior Notes which mature on October 1, 2025.
During the third quarter of 2016 we issued $265 million of U.S. commercial paper [the "U.S.
Program"] and we borrowed $165 million against a euro credit facility. These increases were
offset by a reduction in our bank indebtedness.
A portion of the proceeds from the issue of the U.S. Program were used to repay $169 million on
our global credit facility. We also repaid bank debt within our Asia segment that is
included in debt repayments.
Repurchases of Common Shares during the third quarter of 2016 includes 4.7 million Common Shares repurchased for aggregate
cash consideration of $191 million under our normal course issuer bid.
Cash dividends paid per Common Share were $0.25 for the third quarter of 2016, for a total of
$97 million.
Financing Resources
|
|
As at
|
|
As at
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
631
|
$
|
25
|
|
|
|
|
Long-term debt due within one year
|
|
201
|
|
211
|
|
|
|
|
Long-term debt
|
|
2,450
|
|
2,327
|
|
|
|
|
|
3,282
|
|
2,563
|
|
|
|
Non-controlling interests
|
|
474
|
|
151
|
|
|
|
Shareholders' equity
|
|
9,798
|
|
8,966
|
|
|
|
Total capitalization
|
$
|
13,554
|
$
|
11,680
|
|
$
|
1,874
|
Total capitalization increased by $1.87 billion to $13.55 billion
at September 30, 2016 compared to $11.68 billion at
December 31, 2015, primarily as a result of an $832 million increase in shareholders'
equity, a $719 million increase in liabilities and a $323 million
increase in non-controlling interest.
The increase in liabilities relates primarily to:
- the issuance of $265 million of U.S. commercial paper [the "U.S. Program"] in the third
quarter of 2016 and the issuance of $258 million of euro-commercial paper [the "euro-Program"] in
the first quarter of 2016. These programs allow us to minimize the amount of cash on hand to run our business by providing
funding on a more flexible and cost effective basis compared to drawing on our revolving credit facility;
- higher short-term borrowings are primarily as a result of an increase in non-cash working capital and cash deployed for the
repurchase and cancellation of Common Shares under our normal course issuer bid during 2016; and
- higher long-term debt primarily as a result of the acquisition of Getrag in the first quarter of 2016.
The increase in shareholders' equity was primarily as a result of:
- the $1.58 billion of net income earned in the first nine months of 2016;
- the $172 million net unrealized gain on translation of our net investment in operations whose
functional currency is not the U.S. dollar; and
- the $39 million net unrealized gain on cash flow hedges.
These factors were partially offset by:
- the $799 million repurchase and cancellation of 19.8 million Common Shares under our normal
course issuer bid during 2016; and
- $290 million of dividends paid during the first nine months of 2016.
The increase in non-controlling interest was primarily as a result of acquisitions during or subsequent to the third quarter
of 2015.
Cash Resources
During the third quarter of 2016, our cash resources decreased by $233 million to $364
million as a result of the cash used for investing and financing activities, partially offset by cash provided from
operating activities, as discussed above. In addition to our cash resources at September 30, 2016,
we had term and operating lines of credit totalling $2.97 billion of which $2.08 billion was unused and available.
The Company maintains a revolving credit facility of $2.75 billion with a maturity date of
June 22, 2021. The facility includes a $200 million Asian
tranche, a $100 million Mexican tranche and a tranche for Canada,
U.S. and Europe, which is fully transferable between jurisdictions and can be drawn in U.S.
dollars, Canadian dollars or euros.
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
November 3, 2016 were exercised:
Common Shares
|
|
|
|
|
384,409,283
|
Stock options (i)
|
|
|
|
|
7,614,131
|
|
|
|
|
|
392,023,414
|
(i)
|
Options to purchase Common Shares are exercisable by the holder in
accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time
pursuant to our stock option plans.
|
Contractual Obligations and Off‑Balance Sheet Financing
There have been no material changes with respect to the contractual obligations requiring annual payments during the third
quarter of 2016 that are outside the ordinary course of our business. Refer to our MD&A included in our 2015 Annual
Report.
Subsequent to the third quarter of 2016 we entered into binding agreements to extend the leases for 11 properties as discussed
in the "Subsequent Events" section.
RESULTS OF OPERATIONS – FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
Sales
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Vehicle Production Volumes (millions of units)
|
|
|
|
|
|
|
|
North America
|
|
13.428
|
|
12.928
|
|
+ 4%
|
|
Europe
|
|
16.263
|
|
15.474
|
|
+ 5%
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
External Production
|
|
|
|
|
|
|
|
|
North
America
|
$
|
14,503
|
$
|
13,089
|
|
+ 11%
|
|
|
Europe
|
|
6,936
|
|
5,420
|
|
+ 28%
|
|
|
Asia
|
|
1,554
|
|
1,139
|
|
+ 36%
|
|
|
Rest of World
|
|
306
|
|
367
|
|
- 17%
|
|
Complete Vehicle Assembly
|
|
1,751
|
|
1,729
|
|
+ 1%
|
|
Tooling, Engineering and Other
|
|
2,142
|
|
1,822
|
|
+ 18%
|
Total Sales
|
$
|
27,192
|
$
|
23,566
|
|
+ 15%
|
External Production Sales - North America
External production sales in North America increased 11% or $1.41
billion to a record of $14.50 billion for the nine months ended September 30, 2016 compared to $13.09 billion for the nine months ended
September 30, 2015 primarily as a result of:
- the launch of new programs during or subsequent to the nine months ended September 30, 2015,
including the:
- Chrysler Pacifica;
- Ford Edge and Lincoln MKX;
- Cadillac XT5;
- Mercedes-Benz R-Class and GLE Coupe; and
- Chevrolet Malibu;
- the acquisition of Getrag during the first quarter of 2016, which positively impacted production sales by $456 million; and
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a $225 million decrease in reported U.S. dollar sales primarily as a result of the weakening
of the Canadian dollar against the U.S. dollar;
- the contribution of two manufacturing facilities into an equity-accounted joint venture during the third quarter of 2015,
which negatively impacted production sales by $67 million;
- lower production volumes on the Chevrolet Cruze as a result of the changeover to and production ramp up of the next
generation model; and
- net customer price concessions subsequent to the nine months ended September 30, 2015.
External Production Sales - Europe
External production sales in Europe increased 28% or $1.52
billion to a record of $6.94 billion for the nine months ended September 30, 2017 compared to $5.42 billion for the nine months ended
September 30, 2015 primarily as a result of:
- net acquisitions during or subsequent to the nine months ended September 30, 2015, which
positively impacted production sales by $1.10 billion, including Getrag which positively impacted
production sales by $835 million;
- the launch of new programs during or subsequent to the nine months ended September 30, 2015,
including the:
- Audi A4;
- BMW X1;
- Skoda Superb;
- Audi A3 and A3 Sportback; and
- Mercedes-Benz E-Class.
These factors were partially offset by:
- a $84 million decrease in reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including the British pound, Russian ruble and Turkish lira;
- lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the nine months ended September 30, 2015.
External Production Sales - Asia
External production sales in Asia increased 36% or $415 million
to an all-time record of $1.55 billion for the nine months ended September
30, 2016 compared to $1.14 billion for the nine months ended September 30, 2015 primarily as a result of:
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in China; and
- acquisitions during or subsequent to the third quarter of 2015, including the Xingqiaorui Partnership and Getrag, which
positively impacted production sales by $198 million.
These factors were partially offset by:
- a $79 million decrease in reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including the Chinese renminbi and South Korean won; and
- net customer price concessions subsequent to the third quarter of 2015.
External Production Sales - Rest of World
External production sales in Rest of World decreased 17% or $61 million to $306 million for the nine months ended September 30, 2016 compared to $367
million for the nine months ended September 30, 2015 primarily as a result of:
- a $69 million decrease in reported U.S. dollar production sales as a result of the weakening
of foreign currencies against the U.S. dollar, including the Argentine peso and Brazilian real; and
- lower production volumes on certain existing programs.
These factors were partially offset by:
- the launch of new programs during or subsequent to the third quarter of 2015, primarily in Brazil; and
- net customer price increases subsequent to the third quarter of 2015.
Complete Vehicle Assembly Sales
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales
|
$
|
1,751
|
$
|
1,729
|
|
+ 1%
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Volumes (Units)
|
|
67,631
|
|
78,862
|
|
- 14%
|
Complete vehicle assembly sales increased 1% or $22 million to $1.75
billion for the nine months ended September 30, 2016 compared to $1.73 billion for the nine months ended September 30, 2015 and assembly
volumes decreased 14% or 11,231 units.
The increase in complete vehicle assembly sales is primarily as a result of:
- an increase in assembly volumes for the Mercedes-Benz G-Class which has a higher average selling price per vehicle compared
to the MINI programs; and
- a $4 million increase in reported U.S. dollar complete vehicle assembly sales as a result of
the strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
- a decrease in assembly volumes for the MINI Countryman and Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third
quarter of 2015.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 18% or $320 million to $2.14 billion for the nine months ended September 30, 2016 compared to
$1.82 billion for the nine months ended September 30, 2015.
In the nine months ended September 30, 2016, the major programs for which we recorded tooling,
engineering and other sales were the:
- Chrysler Pacifica;
- Chevrolet Cruze;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Equinox, Captiva and GMC Terrain;
- Ford Figo Aspire;
- Jeep Renegade;
- Mini Countryman;
- Lincoln Continental; and
- BMW 5-Series.
In the nine months ended September 30, 2015, the major programs for which we recorded tooling,
engineering and other sales were the:
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Cruze;
- Audi A4;
- MINI Countryman;
- Ford Edge;
- Skoda Fabia;
- Chevrolet Equinox and GMC Terrain; and
- Honda HR-V.
Acquisitions during or subsequent to the nine months ended September 30, 2016, including Getrag,
increased our reported tooling, engineering and other sales, while the weakening of certain foreign currencies against the U.S.
dollar, including the Canadian dollar, Chinese renminbi, Indian rupee, Russian ruble, and Great
Britain pound had an unfavourable impact of $32 million on our reported tooling, engineering
and other sales.
Segment Analysis
|
For the nine months ended September 30,
|
|
Total Sales
|
|
Adjusted EBIT
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
15,506
|
$
|
13,925
|
$
|
1,581
|
|
$
|
1,545
|
$
|
1,433
|
$
|
112
|
Europe
|
|
9,856
|
|
8,234
|
|
1,622
|
|
|
472
|
|
339
|
|
133
|
Asia
|
|
1,899
|
|
1,357
|
|
542
|
|
|
166
|
|
86
|
|
80
|
Rest of World
|
|
321
|
|
373
|
|
(52)
|
|
|
(21)
|
|
(19)
|
|
(2)
|
Corporate and Other
|
|
(390)
|
|
(323)
|
|
(67)
|
|
|
40
|
|
34
|
|
6
|
Total reportable segments
|
$
|
27,192
|
$
|
23,566
|
$
|
3,626
|
|
$
|
2,202
|
$
|
1,873
|
$
|
329
|
There were no amounts included in Other Income, net for the nine months ended September 30,
2016. Excluded from Adjusted EBIT for the nine months ended September 30, 2015
were the following Other Income and Other Expense items:
|
|
|
|
|
For the nine months
|
|
|
|
|
|
ended September 30,
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
Gain on sale
|
|
|
|
|
$
|
(136)
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Gain on sale
|
|
|
|
|
|
(57)
|
|
Restructuring
|
|
|
|
|
|
12
|
|
|
|
|
|
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(181)
|
The gain on sale in North America and restructuring in Europe have been described in the three months ended September 30, 2016 "Other
Income, net" section.
During the second quarter of 2015, we sold our battery pack business to Samsung SDI for gross proceeds of $120 million, resulting in a gain of $57 million ($42
million after tax).
North America
Adjusted EBIT in North America increased $112 million to
$1.55 billion for the nine months ended September 30, 2016 compared
to $1.43 billion for the nine months ended September 30, 2015
primarily as a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain facilities;
- the acquisition of Getrag during the first quarter of 2016;
- decreased commodity costs; and
- a favourable intellectual property infringement settlement in relation to our electronics business.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one body and chassis operation;
- a decrease in reported U.S. dollar EBIT due to the weakening of the Canadian dollar against the U.S. dollar;
- lower recoveries associated with scrap steel;
- higher warranty costs of $16 million;
- lower equity income;
- higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- higher affiliation fees paid to Corporate;
- higher launch costs;
- a higher amount of employee profit sharing;
- higher severance costs;
- insurance recoveries received during the first quarter of 2015, related to a fire at a body and chassis facility during the
second quarter of 2014; and
- net customer price concessions subsequent to the nine months ended September 30, 2015.
Europe
Adjusted EBIT in Europe increased $133 million to $472 million for the nine months ended September 30, 2016 compared to
$339 million for the nine months ended September 30, 2015 primarily as a result of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015, including Stadco and Getrag;
- productivity and efficiency improvements at certain facilities;
- an insurance recovery, net of costs incurred, related to a fire in the second quarter of 2016 at a body and chassis
facility in Europe;
- decreased commodity costs; and
- the sale of our battery pack business during the second quarter of 2015.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of $16 million;
- a higher amount of employee profit sharing;
- a decrease in reported U.S. dollar Adjusted EBIT primarily as a result of the weakening of foreign currencies against the
U.S. dollar, including the British pound, Russian ruble and Turkish lira;
- higher affiliation fees paid to Corporate;
- higher launch costs;
- higher incentive compensation; and
- net customer price concessions subsequent to the nine months ended September 30, 2015.
Asia
Adjusted EBIT in Asia increased $80 million to $166 million for the nine months ended September 30, 2016 compared to
$86 million for the nine months ended September 30, 2015 primarily as
a result of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015, including the Xingqiaorui Partnership and Getrag;
- productivity and efficiency improvements at certain facilities; and
- higher equity income.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- a decrease in reported U.S. dollar Adjusted EBIT due to the weakening of the Chinese renminbi against the U.S. dollar;
- higher warranty costs of $6 million;
- a higher amount of employee profit sharing;
- operational inefficiencies at certain facilities; and
- net customer price concessions subsequent to the nine months ended September 30, 2015.
Rest of World
Adjusted EBIT in Rest of World decreased $2 million to a loss of $21
million for the nine months ended September 30, 2016 compared to a loss of $19 million for the nine months ended September 30, 2015 primarily as a result of
decreased margins earned on lower production sales.
This factor was partially offset by:
- net customer price increases subsequent to the nine months ended September 30, 2015;
- a decrease in reported U.S. dollar Adjusted EBIT loss due to the weakening of the Brazilian real and Argentine peso against
the U.S. dollar; and
- decreased commodity costs.
Corporate and Other
Corporate and Other Adjusted EBIT increased $6 million to $40
million for the nine months ended September 30, 2016 compared to $34
million for the nine months ended September 30, 2015 primarily as a result of:
- an increase in affiliation fees earned from our divisions; and
- lower consulting costs.
These factors were partially offset by:
- higher costs to support our global compliance programs; and
- higher incentive compensation.
SUBSEQUENT EVENTS
Commitments
In October 2016, we entered into binding agreements to extend the leases for 11 properties for a
period of 3 to 16 years. For the extended lease terms the incremental annual rental payments are as follows:
For the 12 months ended December 31,
|
|
|
|
|
|
2017
|
$
|
13
|
2018
|
|
27
|
2019
|
|
28
|
2020
|
|
36
|
2021
|
|
39
|
Thereafter
|
|
438
|
|
$
|
581
|
Normal Course Issuer Bid
Subject to approval by the TSX and the NYSE, our Board of Directors approved a new normal course issuer bid to purchase up to
38 million of our Common Shares, representing approximately 10% of our public float of Common Shares. The primary purposes of the
normal course issuer bid are purchases for cancellation as well as purchases to fund our stock-based compensation awards or
programs and/or our obligations to our deferred profit sharing plans. The normal course issuer bid is expected to commence on or
about November 14, 2016 and will terminate one year later. All purchases of Common Shares will be
made at the market price at the time of purchase in accordance with the rules and policies of the TSX or on the NYSE in
compliance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934. Purchases may also be made through other published
markets, or by such other means permitted by the TSX, including by private agreement at a discount to the prevailing market
price, pursuant to an issuer bid exemption order issued by a securities regulatory authority.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other
claims.
Refer to note 16 of our unaudited interim consolidated financial statements for the three and nine months ended September 30, 2016, 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, 2015.
CONTROLS AND PROCEDURES
During the first quarter of 2016, we acquired Getrag. Other than the addition of Getrag's operations to our internal control
over financial reporting and any related changes in control to integrate Getrag, there have been no changes in our internal
control over financial reporting that occurred during the nine months ended September 30, 2016 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 the future
issuances of Notes under our U.S. commercial paper and euro-commercial paper programs; and future repurchases of Common Shares
under our normal course issuer bid. The forward-looking statements or forward-looking information in this document is
presented for the purpose of providing information about management's current expectations and plans and such information may not
be appropriate for other purposes. Forward-looking statements or forward-looking information may include financial and other
projections, as well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying
any of the foregoing, and other statements that are not recitations of historical fact. We use words such as "may", "would",
"could", "should", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "outlook", "project",
"estimate" and similar expressions suggesting future outcomes or events to identify forward-looking statements or forward-looking
information. Any such forward-looking statements or forward-looking information are based on information currently available to
us, and are based on assumptions and analyses made by us in light of our experience and our perception of historical trends,
current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.
However, whether actual results and developments will conform with our expectations and predictions is subject to a number of
risks, assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict,
including, without limitation: the potential for a deterioration of economic conditions or an extended period of economic
uncertainty; a decline in consumer confidence, which would be expected to result in lower production volume levels; economic or
political uncertainty, including as a result of the U.K.'s potential exit from the European Union and/or the outcome of the 2016
U.S. Presidential election; legal claims and/or regulatory actions against us, including without limitation any proceedings that
may arise out of our global review focused on anti-trust risk; 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; restructuring, downsizing and/or other significant non-recurring costs;
our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to
conduct appropriate due diligence on acquisition targets; an increase in our risk profile as a result of completed
acquisitions; shifts in market share away from our top customers; shifts in market shares among vehicles or vehicle segments, or
shifts away from vehicles on which we have significant content; inability to sustain or grow our business; risks of conducting
business in foreign markets, including China, India,
Eastern Europe, Brazil and other non-traditional markets for
us; fluctuations in relative currency values; a prolonged disruption in the supply of components to us from our suppliers; work
stoppages and labour relations disputes; 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;
exposure to, and ability to offset, volatile commodities prices; warranty and recall costs; restructuring actions by OEMs,
including plant closures; shutdown of our or our customers' or sub-suppliers' production facilities due to a labour disruption;
risk of production disruptions due to natural disasters or catastrophic event; the security and reliability of our information
technology systems; pension liabilities; 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; impairment charges related to goodwill, long-lived assets
and deferred tax assets; 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; inability 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 or forward-looking information, we caution readers
not to place undue reliance on any forward-looking statements or forward-looking information, 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 or forward-looking information. 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 or forward-looking information 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
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
Note
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
8,849
|
$
|
7,661
|
|
$
|
27,192
|
$
|
23,566
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
7,558
|
|
6,593
|
|
|
23,222
|
|
20,223
|
|
Depreciation and amortization
|
|
|
270
|
|
197
|
|
|
778
|
|
589
|
|
Selling, general and administrative
|
|
|
371
|
|
358
|
|
|
1,177
|
|
1,036
|
|
Interest expense, net
|
|
|
23
|
|
9
|
|
|
68
|
|
27
|
|
Equity income
|
|
|
(65)
|
|
(52)
|
|
|
(187)
|
|
(155)
|
|
Other income, net
|
3
|
|
—
|
|
(124)
|
|
|
—
|
|
(181)
|
Income from continuing operations before income taxes
|
|
|
692
|
|
680
|
|
|
2,134
|
|
2,027
|
Income taxes
|
|
|
178
|
|
211
|
|
|
556
|
|
569
|
Net income from continuing operations
|
|
|
514
|
|
469
|
|
|
1,578
|
|
1,458
|
Income from discontinued operations, net of tax
|
2
|
|
—
|
|
119
|
|
|
—
|
|
74
|
Net income
|
|
|
514
|
|
588
|
|
|
1,578
|
|
1,532
|
(Income) loss from continuing operations attributable to non-controlling
interests
|
|
|
(11)
|
|
1
|
|
|
(25)
|
|
5
|
Net income attributable to Magna International Inc.
|
|
$
|
503
|
$
|
589
|
|
$
|
1,553
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
4
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.30
|
$
|
1.15
|
|
$
|
3.94
|
$
|
3.58
|
|
Discontinued operations
|
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna International
Inc.
|
|
$
|
1.30
|
$
|
1.44
|
|
$
|
3.94
|
$
|
3.76
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
4
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.29
|
$
|
1.13
|
|
$
|
3.92
|
$
|
3.53
|
|
Discontinued operations
|
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna International Inc.
|
|
$
|
1.29
|
$
|
1.42
|
|
$
|
3.92
|
$
|
3.71
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per Common Share
|
|
$
|
0.25
|
$
|
0.22
|
|
$
|
0.75
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding during the period [in
millions]:
|
4
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
387.1
|
|
408.5
|
|
|
393.7
|
|
409.2
|
|
Diluted
|
|
|
389.0
|
|
413.8
|
|
|
395.9
|
|
414.7
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
Note
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
514
|
$
|
588
|
|
$
|
1,578
|
$
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax:
|
14
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on translation of net investment in foreign
operations
|
|
|
25
|
|
(275)
|
|
|
166
|
|
(650)
|
|
Net unrealized loss on available-for-sale investments
|
|
|
—
|
|
(2)
|
|
|
—
|
|
—
|
|
Net unrealized (loss) gain on cash flow hedges
|
|
|
(19)
|
|
(123)
|
|
|
39
|
|
(190)
|
|
Reclassification of net loss on cash flow hedges to net income
|
|
|
27
|
|
24
|
|
|
98
|
|
56
|
|
Reclassification of net loss on investments to net income
|
|
|
—
|
|
3
|
|
|
—
|
|
3
|
|
Reclassification of net loss on pensions to net income
|
|
|
1
|
|
2
|
|
|
3
|
|
5
|
|
Pension and post retirement benefits
|
|
|
—
|
|
(1)
|
|
|
(2)
|
|
(2)
|
Other comprehensive income (loss)
|
|
|
34
|
|
(372)
|
|
|
304
|
|
(778)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
548
|
|
216
|
|
|
1,882
|
|
754
|
Comprehensive (income) loss attributable to non-controlling
interests
|
|
|
(12)
|
|
1
|
|
|
(19)
|
|
5
|
Comprehensive income attributable to Magna International Inc.
|
|
$
|
536
|
$
|
217
|
|
$
|
1,863
|
$
|
759
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
Note
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
514
|
$
|
469
|
|
$
|
1,578
|
$
|
1,458
|
Items not involving current cash flows
|
5
|
|
282
|
|
94
|
|
|
849
|
|
445
|
|
|
|
796
|
|
563
|
|
|
2,427
|
|
1,903
|
Changes in operating assets and liabilities
|
5
|
|
(139)
|
|
33
|
|
|
(759)
|
|
(587)
|
Cash provided from operating activities
|
|
|
657
|
|
596
|
|
|
1,668
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions
|
|
|
(390)
|
|
(360)
|
|
|
(1,145)
|
|
(987)
|
Purchase of subsidiaries
|
6
|
|
—
|
|
—
|
|
|
(1,813)
|
|
(1)
|
Increase in investments and other assets
|
|
|
(166)
|
|
(74)
|
|
|
(323)
|
|
(152)
|
Increase in restricted cash deposits
|
10
|
|
(180)
|
|
—
|
|
|
(180)
|
|
—
|
Proceeds from disposition
|
|
|
26
|
|
11
|
|
|
63
|
|
50
|
Sale of Interiors
|
3
|
|
—
|
|
473
|
|
|
—
|
|
473
|
Proceeds on disposal of facilities
|
|
|
—
|
|
118
|
|
|
—
|
|
221
|
Cash used in discontinued operations
|
|
|
—
|
|
(15)
|
|
|
—
|
|
(56)
|
Cash (used for) provided from investing activities
|
|
|
(710)
|
|
153
|
|
|
(3,398)
|
|
(452)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issues of debt
|
|
|
3
|
|
659
|
|
|
264
|
|
690
|
Increase (decrease) in short-term borrowings
|
|
|
350
|
|
(41)
|
|
|
362
|
|
29
|
Repayments of debt
|
|
|
(237)
|
|
(16)
|
|
|
(335)
|
|
(70)
|
Issue of Common Shares on exercise of stock options
|
|
|
2
|
|
6
|
|
|
28
|
|
19
|
Repurchase of Common Shares
|
13
|
|
(191)
|
|
(346)
|
|
|
(799)
|
|
(351)
|
Contributions by non-controlling interest of subsidiaries
|
|
|
—
|
|
10
|
|
|
—
|
|
10
|
Dividends
|
|
|
(97)
|
|
(91)
|
|
|
(290)
|
|
(270)
|
Cash (used for) provided from financing activities
|
|
|
(170)
|
|
181
|
|
|
(770)
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(10)
|
|
(78)
|
|
|
1
|
|
(155)
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents during the
period
|
|
|
(233)
|
|
852
|
|
|
(2,499)
|
|
766
|
Cash and cash equivalents, beginning of period
|
|
|
597
|
|
1,163
|
|
|
2,863
|
|
1,249
|
Cash and cash equivalents, end of period
|
|
$
|
364
|
$
|
2,015
|
|
$
|
364
|
$
|
2,015
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
|
|
As at
|
|
As at
|
|
|
September 30,
|
|
December 31,
|
|
Note
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
5
|
$
|
364
|
|
$
|
2,863
|
Accounts receivable
|
|
|
6,879
|
|
|
5,439
|
Inventories
|
7
|
|
3,090
|
|
|
2,564
|
Prepaid expenses and other
|
10
|
|
247
|
|
|
278
|
|
|
|
10,580
|
|
|
11,144
|
|
|
|
|
|
|
|
Investments
|
6, 15
|
|
2,244
|
|
|
399
|
Fixed assets, net
|
|
|
7,009
|
|
|
6,005
|
Goodwill
|
6, 8
|
|
1,865
|
|
|
1,344
|
Deferred tax assets
|
|
|
275
|
|
|
271
|
Other assets
|
9
|
|
975
|
|
|
524
|
|
|
$
|
22,948
|
|
$
|
19,687
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term borrowings
|
10
|
$
|
631
|
|
$
|
25
|
Accounts payable
|
|
|
5,379
|
|
|
4,746
|
Accrued salaries and wages
|
|
|
801
|
|
|
660
|
Other accrued liabilities
|
11
|
|
1,857
|
|
|
1,512
|
Income taxes payable
|
|
|
100
|
|
|
122
|
Long‑term debt due within one year
|
|
|
201
|
|
|
211
|
|
|
|
8,969
|
|
|
7,276
|
|
|
|
|
|
|
|
Long‑term debt
|
|
|
2,450
|
|
|
2,327
|
Long-term employee benefit liabilities
|
|
|
652
|
|
|
504
|
Other long‑term liabilities
|
|
|
296
|
|
|
331
|
Deferred tax liabilities
|
|
|
309
|
|
|
132
|
|
|
|
12,676
|
|
|
10,570
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
Capital stock
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
[issued: 384,409,283; December 31, 2015 – 402,264,201]
|
13
|
|
3,798
|
|
|
3,942
|
Contributed surplus
|
|
|
117
|
|
|
107
|
Retained earnings
|
|
|
7,026
|
|
|
6,387
|
Accumulated other comprehensive loss
|
14
|
|
(1,143)
|
|
|
(1,470)
|
|
|
|
9,798
|
|
|
8,966
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
474
|
|
|
151
|
|
|
|
10,272
|
|
|
9,117
|
|
|
$
|
22,948
|
|
$
|
19,687
|
|
|
|
|
|
|
|
See accompanying notes
|
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
|
|
AOCL (i)
|
|
Interest
|
|
Equity
|
|
|
[in millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
402.3
|
|
$
|
3,942
|
|
$
|
107
|
|
$
|
6,387
|
|
$
|
(1,470)
|
|
$
|
151
|
|
$
|
9,117
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
|
|
|
|
25
|
|
|
1,578
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
(6)
|
|
|
304
|
Contributions by non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1)
|
Shares issued on exercise of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
|
|
1.8
|
|
|
41
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
28
|
Release of stock and stock units
|
|
|
|
|
7
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Repurchase and cancellation under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
normal course issuer
bid
|
13
|
(19.8)
|
|
|
(195)
|
|
|
|
|
|
(621)
|
|
|
17
|
|
|
|
|
|
(799)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
Acquisition
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
305
|
Dividends paid
|
|
0.1
|
|
|
3
|
|
|
|
|
|
(293)
|
|
|
|
|
|
|
|
|
(290)
|
Balance, September 30, 2016
|
|
384.4
|
|
$
|
3,798
|
|
$
|
117
|
|
$
|
7,026
|
|
$
|
(1,143)
|
|
$
|
474
|
|
$
|
10,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Contri-
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Stated
|
|
buted
|
|
Retained
|
|
|
|
controlling
|
|
Total
|
|
Note
|
Number
|
|
Value
|
|
Surplus
|
|
Earnings
|
|
AOCL (i)
|
|
Interest
|
|
Equity
|
|
|
[in millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
410.3
|
|
$
|
3,979
|
|
$
|
83
|
|
$
|
5,155
|
|
$
|
(558)
|
|
$
|
14
|
|
$
|
8,673
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,537
|
|
|
|
|
|
(5)
|
|
|
1,532
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(778)
|
|
|
|
|
|
(778)
|
Shares issued on exercise of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
|
|
1.2
|
|
|
25
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
19
|
Repurchase and cancellation under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
normal course issuer bid
|
13
|
(7.2)
|
|
|
(72)
|
|
|
|
|
|
(286)
|
|
|
7
|
|
|
|
|
|
(351)
|
Release of stock and stock units
|
|
|
|
|
6
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
Reclassification of liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
9
|
Dividends paid
|
|
0.1
|
|
|
6
|
|
|
|
|
|
(276)
|
|
|
|
|
|
|
|
|
(270)
|
Balance, September 30, 2015
|
|
404.4
|
|
$
|
3,944
|
|
$
|
100
|
|
$
|
6,130
|
|
$
|
(1,329)
|
|
$
|
18
|
|
$
|
8,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) AOCL is Accumulated Other Comprehensive Loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
|
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 U.S. dollars following accounting principles generally accepted in the United States of America ["GAAP"]. 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,
2015 audited consolidated financial statements and notes thereto included in the Company's 2015 Annual Report.
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 September 30, 2016 and the
results of operations, changes in equity and cash flows for the three and nine month periods ended September 30, 2016 and 2015.
[b] Future Accounting Standards
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606
(ASU 2014-09)", to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to
recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that
is expected to be received for those goods or services. In July 2015, the FASB deferred the
effective date to annual reporting periods beginning after December 15, 2017 [including interim
reporting periods within those periods]. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2018 using
either of two methods: [i] retrospective to each prior reporting period presented with the option to elect certain practical
expedients as defined within ASU 2014-09; or [ii] retrospective with the cumulative effect of initially applying ASU 2014-09
recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The
Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to
supersede nearly all existing lease guidance under GAAP. The guidance would require lessees to recognize most leases on their
balance sheets as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for the Company
in the first quarter of fiscal 2019 using a modified retrospective approach with the option to elect certain practical
expedients. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated
financial statements.
[c] Seasonality
The Company's businesses are generally not seasonal. However, the Company's sales and profits are closely related to its
automotive customers' vehicle production schedules. The Company's largest North American customers typically halt production for
approximately two weeks in July and one week in December. Additionally, many of the Company's customers in Europe typically shutdown vehicle production during portions of August and one week in December.
2. DISCONTINUED OPERATIONS
At June 30, 2015, the Company determined that its interiors operations met the criteria to be
classified as discontinued operations, which required retrospective application to financial information for all periods
presented. Refer to the Company's 2015 Annual Report for additional information on the Company's Discontinued Operations.
There were no amounts related to the interiors operations classified as discontinued operations for the three and nine month
periods ended September 30, 2016. The following table summarizes the results of the interiors
operations classified as discontinued operations for the three and nine month periods ended September 30,
2015:
|
Three months ended
|
|
Nine months ended
|
|
September 30, 2015
|
|
September 30, 2015
|
|
|
|
|
|
|
Sales
|
$
|
453
|
|
$
|
1,737
|
|
|
|
|
|
|
Costs and expense
|
|
|
|
|
|
|
Cost of goods sold
|
|
436
|
|
|
1,635
|
|
Depreciation and amortization
|
|
—
|
|
|
13
|
|
Selling, general and
administrative
|
|
4
|
|
|
58
|
|
Equity income
|
|
(3)
|
|
|
(11)
|
Income from discontinued operations before income taxes
|
|
16
|
|
|
42
|
Income taxes [i]
|
|
(51)
|
|
|
20
|
Income from discontinued operations before gain on divestiture
|
|
67
|
|
|
22
|
Gain on divestiture of discontinued operations, net of tax [i]
|
|
52
|
|
|
52
|
Income from discontinued operations, net of tax
|
$
|
119
|
|
$
|
74
|
|
|
[i]
|
In the second quarter of 2015, income taxes included $60 million of
deferred tax expense relating to timing differences that became payable upon closing of the transaction and therefore in
the third quarter of 2015 are included in the gain on divestiture of discontinued operations, net of
tax.
|
3. OTHER INCOME, NET
|
|
Nine months ended September 30, 2015
|
|
|
|
|
Third Quarter
|
|
|
|
|
Gain on disposal
|
[a]
|
$
|
(136)
|
|
Restructuring
|
[b]
|
|
12
|
|
|
|
(124)
|
|
|
|
|
Second Quarter
|
|
|
|
|
Gain on disposal
|
[a]
|
|
(57)
|
|
|
|
|
|
|
$
|
(181)
|
For the three and nine months ended September 30, 2016, there were no amounts included in Other
Income, net.
For the nine months ended September 30, 2015:
[a] Gain on disposal
During the third quarter of 2015, the Company contributed two manufacturing facilities and received a 49% interest in a newly
formed joint venture and cash proceeds of $118 million. Total consideration was valued at
$160 million and as a result the Company recognized a gain of $136
million [$80 million after tax].
During the second quarter of 2015, the company sold its battery pack business to Samsung SDI for gross proceeds of
approximately $120 million, resulting in a gain of $57 million
[$42 million after tax].
[b] Restructuring
During the third quarter of 2015, the Company recorded net restructuring charges of $12 million,
after tax in Europe related to its exterior systems operations.
4. EARNINGS PER SHARE
Earnings per share are computed as follows:
|
Three months ended
|
|
Nine months ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Income available to Common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
$
|
514
|
$
|
469
|
|
$
|
1,578
|
$
|
1,458
|
(Loss) income from continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
non-controlling interests
|
|
(11)
|
|
1
|
|
|
(25)
|
|
5
|
Net income attributable to Magna International Inc.
|
|
|
|
|
|
|
|
|
|
|
from continuing
operations
|
|
503
|
|
470
|
|
|
1,553
|
|
1,463
|
Income from discontinued operations
|
|
—
|
|
119
|
|
|
—
|
|
74
|
Net income attributable to Magna International Inc.
|
$
|
503
|
$
|
589
|
|
$
|
1,553
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
387.1
|
|
408.5
|
|
|
393.7
|
|
409.2
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
[a]
|
|
1.9
|
|
5.3
|
|
|
2.2
|
|
5.5
|
Diluted
|
|
389.0
|
|
413.8
|
|
|
395.9
|
|
414.7
|
|
|
[a]
|
For the three and nine months ended September 30, 2016, diluted earnings
per Common Share excludes 5.2 million and 3.0 million Common Shares issuable under the Company's Incentive Stock Option
Plan because these options were not "in-the-money".
|
|
Three months ended
|
|
Nine months ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.30
|
$
|
1.15
|
|
$
|
3.94
|
$
|
3.58
|
|
Discontinued operations
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna International Inc.
|
$
|
1.30
|
$
|
1.44
|
|
$
|
3.94
|
$
|
3.76
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.29
|
$
|
1.13
|
|
$
|
3.92
|
$
|
3.53
|
|
Discontinued operations
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna International Inc.
|
$
|
1.29
|
$
|
1.42
|
|
$
|
3.92
|
$
|
3.71
|
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Bank term deposits, bankers' acceptances and government paper
|
$
|
113
|
|
$
|
2,572
|
Cash
|
|
251
|
|
|
291
|
|
$
|
364
|
|
$
|
2,863
|
[b] Items not involving current cash flows:
|
Three months ended
|
|
Nine months ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
270
|
$
|
197
|
|
$
|
778
|
$
|
589
|
Amortization of other assets included in cost of goods sold
|
|
35
|
|
32
|
|
|
100
|
|
82
|
Deferred income taxes
|
|
(3)
|
|
11
|
|
|
8
|
|
(5)
|
Other non-cash charges
|
|
4
|
|
9
|
|
|
21
|
|
21
|
Equity income in excess of dividends received
|
|
(24)
|
|
(19)
|
|
|
(58)
|
|
(49)
|
Non-cash portion of Other Income [note 3]
|
|
—
|
|
(136)
|
|
|
—
|
|
(193)
|
|
$
|
282
|
$
|
94
|
|
$
|
849
|
$
|
445
|
[c] Changes in operating assets and liabilities:
|
Three months ended
|
|
Nine months ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
(26)
|
$
|
(116)
|
|
$
|
(1,004)
|
$
|
(588)
|
Inventories
|
|
(232)
|
|
(62)
|
|
|
(362)
|
|
(331)
|
Prepaid expenses and other
|
|
38
|
|
3
|
|
|
176
|
|
(9)
|
Accounts payable
|
|
96
|
|
68
|
|
|
403
|
|
167
|
Accrued salaries and wages
|
|
62
|
|
125
|
|
|
96
|
|
70
|
Other accrued liabilities
|
|
(20)
|
|
(13)
|
|
|
(46)
|
|
27
|
Income taxes payable
|
|
(57)
|
|
28
|
|
|
(22)
|
|
77
|
|
$
|
(139)
|
$
|
33
|
|
$
|
(759)
|
$
|
(587)
|
6. ACQUISITIONS
Acquisition of Getrag
On January 4, 2016, the Company completed the acquisition of 100% of the common shares and
voting interests of the Getrag Group of Companies ["Getrag"]. Getrag is a global supplier of automotive transmission
systems, including manual, automated-manual, dual clutch, hybrid and other advanced systems. The purchase price was
$1.8 billion [net of $136 million cash acquired], and is subject to
working capital and other customary purchase price adjustments. The acquired business has sales primarily to BMW, Audi,
Jiangling Motors, Ford, Volvo and Dongfeng.
The acquisition of Getrag was accounted for as a business combination. The following table summarizes the provisional
amounts recognized for assets acquired and liabilities assumed at their estimated fair values:
|
Preliminary amounts
|
|
recognized at September 30, 2016
|
|
|
|
|
|
Cash
|
|
|
$
|
136
|
Non-cash working capital
|
|
|
|
(459)
|
Investments
|
|
|
|
1,736
|
Fixed assets
|
|
|
|
483
|
Goodwill
|
|
|
|
442
|
Other assets
|
|
|
|
59
|
Intangibles
|
|
|
|
223
|
Deferred tax assets
|
|
|
|
43
|
Long-term employee benefit liabilities
|
|
|
|
(125)
|
Long-term debt
|
|
|
|
(117)
|
Other long-term liabilities
|
|
|
|
(52)
|
Deferred tax liabilities
|
|
|
|
(144)
|
Non-controlling interest
|
|
|
|
(307)
|
Consideration paid
|
|
|
|
1,918
|
Less: Cash acquired
|
|
|
|
(136)
|
Net cash outflow
|
|
|
$
|
1,782
|
The preliminary purchase price allocations are subject to change and may be subsequently adjusted to reflect final valuation
results and other adjustments. During the three months ended September 30, 2016 there were no
adjustments made to the preliminary purchase price allocation.
The investments amount includes the following equity investments that were acquired as part of the business combination:
|
Ownership
|
|
Preliminary
|
|
percentage
|
|
investment balance
|
|
|
|
|
|
Getrag Ford Transmission GmbH
|
50.0%
|
|
$
|
444
|
Getrag (Jiangxi) Transmission Co., Ltd ["GJT"] (i)
|
50.0%
|
|
$
|
1,124
|
Dongfeng Getrag Transmission Co. Ltd
|
50.0%
|
|
$
|
168
|
|
|
(i)
|
GJT is 66.7% owned by one of the Company's consolidated subsidiaries
which has a 25% non-controlling interest. As a result, the preliminary investment balance was derived using 66.7%
of the fair value.
|
The Company accounts for the investments under the equity method since it has the ability to exercise significant influence
but does not hold a controlling financial interest.
Recognized goodwill is attributable to the assembled workforce, expected synergies and other intangible assets that do not
qualify for separate recognition. All of the goodwill recognized was assigned to the Company's European segment.
Intangible assets consist primarily of amounts recognized for the fair value of customer contracts and patents. These
amortizable intangible assets are being amortized on a straight-line basis over a 15 year estimated useful life.
Sales for the acquired Getrag entities for the three and nine months ended September 30, 2016
were $450 million and $1.5 billion, respectively. Net income for the
three and nine months ended September 30, 2016 were $13 million and
$37 million, respectively.
The following table provides consolidated supplemental pro forma information as if the acquisition of Getrag had occurred on
January 1, 2015.
|
Three months ended
|
|
Nine months ended
|
|
September 30, 2015
|
|
September 30, 2015
|
|
|
|
|
|
|
Sales
|
$
|
8,135
|
|
$
|
25,042
|
Net income attributable to Magna International Inc.
|
$
|
608
|
|
$
|
1,545
|
The unaudited pro forma financial results do not include any anticipated synergies or other expected benefits of the
acquisition. This information is presented for informational purposes only and is not indicative of future operating
results.
Other
During the second quarter of 2016, the Company acquired 100% of the equity interest in Telemotive AG, an engineering service
provider in the field of automotive electronics. The acquired business has sales primarily to BMW, Volkswagen and
Daimler.
7. INVENTORIES
Inventories consist of:
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Raw materials and supplies
|
$
|
1,052
|
|
$
|
843
|
Work-in-process
|
|
300
|
|
|
246
|
Finished goods
|
|
343
|
|
|
311
|
Tooling and engineering
|
|
1,395
|
|
|
1,164
|
|
$
|
3,090
|
|
$
|
2,564
|
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed
and unbilled amounts included in accounts receivable.
8. GOODWILL
The following is a continuity of the Company's goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
|
$
|
1,344
|
Acquisition [note 6]
|
|
|
|
|
430
|
Foreign exchange and other
|
|
|
|
|
57
|
Balance, March 31, 2016
|
|
|
|
|
1,831
|
Acquisitions [note 6]
|
|
|
|
|
52
|
Foreign exchange and other
|
|
|
|
|
(34)
|
Balance, June 30, 2016
|
|
|
|
|
1,849
|
Foreign exchange and other
|
|
|
|
|
16
|
Balance, September 30, 2016
|
|
|
|
$
|
1,865
|
9. OTHER ASSETS
Other assets consist of:
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Preproduction costs related to long-term supply agreements
|
|
|
|
|
|
|
with contractual guarantee for
reimbursement
|
$
|
372
|
|
$
|
276
|
Customer relationship intangibles
|
|
282
|
|
|
75
|
Long-term receivables
|
|
197
|
|
|
87
|
Patents and licences, net
|
|
41
|
|
|
37
|
Unrealized gain on cash flow hedges
|
|
12
|
|
|
5
|
Pension overfunded status
|
|
17
|
|
|
17
|
Other, net
|
|
54
|
|
|
27
|
|
$
|
975
|
|
$
|
524
|
10. SHORT-TERM BORROWINGS
The Company's short-term borrowings consist of the following:
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Bank indebtedness
|
$
|
108
|
|
$
|
25
|
Commercial paper
|
|
523
|
|
|
—
|
|
$
|
631
|
|
$
|
25
|
In the third quarter of 2016, the Company entered into an agreement for a credit facility that is drawn in euros. The
Company is required to secure any amounts drawn on the facility with a USD cash deposit of 105% of the outstanding euro
balance. As of September 30, 2016, the gross amount outstanding under the credit facility was
$165 million. The credit agreement includes a netting arrangement with the bank that provides
for the legal right of setoff. Accordingly, as at September 30, 2016, this liability balance
was offset against the related restricted cash deposit of $180 million. The remaining net
cash deposit of $15 million was included in the Prepaid expenses and other balance, and is
restricted under the terms of the loan.
During the third quarter of 2016, the Company established a U.S. commercial paper program [the "U.S. Program"]. Under
the U.S. Program, the Company may issue U.S. commercial paper notes [the "U.S. notes"] up to a maximum aggregate amount of U.S.
$500 million. The U.S. Program will be supported by the Company's existing global credit
facility. The proceeds from the issuance of any U.S. notes will be used for general corporate purposes. As of
September 30, 2016, $265 million of U.S notes were outstanding, with
a weighted-average interest rate of 0.81%, and maturities generally less than three months.
In the first quarter of 2016, the Company established a euro-commercial paper program [the "euro-Program"]. Under the
euro-Program, the Company may issue euro-commercial paper notes [the "euro notes"] up to a maximum aggregate amount of €500
million or its equivalent in alternative currencies. Any euro notes issued will be guaranteed by the Company. The proceeds from
the issuance of any euro notes will be used for general corporate purposes. As of September 30,
2016, $258 million [€230 million] of euro notes were outstanding, with a weighted-average
interest rate of -0.04%, and maturities generally less than three months.
11. WARRANTY
The following is a continuity of the Company's warranty accruals:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
59
|
|
$
|
80
|
Expense, net
|
|
19
|
|
|
8
|
Settlements
|
|
(17)
|
|
|
(10)
|
Acquisition [note 6]
|
|
172
|
|
|
—
|
Foreign exchange and other
|
|
4
|
|
|
(6)
|
Balance, March 31
|
|
237
|
|
|
72
|
Expense, net
|
|
12
|
|
|
10
|
Settlements
|
|
(14)
|
|
|
(10)
|
Foreign exchange and other
|
|
(2)
|
|
|
1
|
Balance, June 30
|
|
233
|
|
|
73
|
Expense, net
|
|
26
|
|
|
1
|
Settlements
|
|
(4)
|
|
|
(10)
|
Foreign exchange and other
|
|
(1)
|
|
|
(5)
|
Balance, September 30
|
$
|
254
|
|
$
|
59
|
During the first quarter of 2016, the warranty obligation assumed as a result of the acquisition was recognized at its
estimated fair value of $172 million. Of this amount, $127
million relates to a pre-acquisition settlement agreement negotiated with a customer and a supplier for a specific
performance issue.
12. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
|
Three months ended
|
|
Nine months ended
|
|
September 30,
|
|
September 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan and other
|
$
|
4
|
$
|
3
|
|
$
|
13
|
$
|
10
|
Termination and long service arrangements
|
|
7
|
|
8
|
|
|
22
|
|
20
|
Retirement medical benefit plan
|
|
—
|
|
—
|
|
|
1
|
|
1
|
|
$
|
11
|
$
|
11
|
|
$
|
36
|
$
|
31
|
13. CAPITAL STOCK
[a]
|
The Company repurchased shares under normal course issuer bids as
follows:
|
|
|
|
|
2016
|
|
2015
|
|
|
Number
|
|
Cash
|
|
Number
|
|
Cash
|
|
|
of shares
|
|
consideration
|
|
of shares
|
|
consideration
|
|
First Quarter
|
7,277,425
|
$
|
300
|
|
—
|
$
|
—
|
|
Second Quarter
|
7,823,637
|
|
308
|
|
—
|
|
—
|
|
Third Quarter
|
4,706,220
|
|
190
|
|
7,246,514
|
|
346
|
|
|
19,807,282
|
$
|
798
|
|
7,246,514
|
$
|
346
|
|
|
|
|
|
|
|
|
|
[b]
|
The following table presents the maximum number of shares that would be
outstanding if all the dilutive instruments
outstanding at November 3, 2016 were exercised or converted:
|
|
|
|
Common Shares
|
384,409,283
|
|
Stock options (i)
|
7,614,131
|
|
|
392,023,414
|
|
|
|
|
(i)
|
Options to purchase Common Shares are exercisable by the holder in
accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time
pursuant to the Company's stock option plans.
|
|
|
|
|
|
14. ACCUMULATED OTHER COMPREHENSIVE
LOSS
The following is a continuity schedule of accumulated other comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on translation of net investment in foreign
operations
|
|
Balance, beginning of
period
|
|
|
$
|
(1,042)
|
|
|
$
|
(255)
|
|
|
Net unrealized gain (loss)
|
|
|
|
256
|
|
|
|
(438)
|
|
|
Repurchase of shares under normal course issuer bid
|
|
|
|
7
|
|
|
|
—
|
|
|
Balance, March 31
|
|
|
|
(779)
|
|
|
|
(693)
|
|
|
Net unrealized (loss) gain
|
|
|
|
(108)
|
|
|
|
63
|
|
|
Repurchase of shares under normal course issuer bid
|
|
|
|
6
|
|
|
|
—
|
|
|
Balance, June 30
|
|
|
|
(881)
|
|
|
|
(630)
|
|
|
Net unrealized gain (loss)
|
|
|
|
24
|
|
|
|
(275)
|
|
|
Repurchase of shares under normal course issuer bid
|
|
|
|
4
|
|
|
|
7
|
|
|
Balance, September 30
|
|
|
|
(853)
|
|
|
|
(898)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on cash flow hedges
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
(262)
|
|
|
|
(113)
|
|
|
Net unrealized gain (loss)
|
|
|
|
69
|
|
|
|
(65)
|
|
|
Reclassification of net loss to net income
|
|
|
|
36
|
|
|
|
11
|
|
|
Balance, March 31
|
|
|
|
(157)
|
|
|
|
(167)
|
|
|
Net unrealized loss
|
|
|
|
(11)
|
|
|
|
(2)
|
|
|
Reclassification of net loss to net income
|
|
|
|
35
|
|
|
|
21
|
|
|
Balance, June 30
|
|
|
|
(133)
|
|
|
|
(148)
|
|
|
Net unrealized loss
|
|
|
|
(19)
|
|
|
|
(123)
|
|
|
Reclassification of net loss to net income
|
|
|
|
27
|
|
|
|
24
|
|
|
Balance, September 30
|
|
|
|
(125)
|
|
|
|
(247)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on available-for-sale
investments
|
|
Balance, beginning of period
|
|
|
|
(1)
|
|
|
|
(4)
|
|
|
Net unrealized gain
|
|
|
|
—
|
|
|
|
1
|
|
|
Balance, March 31
|
|
|
|
(1)
|
|
|
|
(3)
|
|
|
Net unrealized gain
|
|
|
|
—
|
|
|
|
1
|
|
|
Balance, June 30
|
|
|
|
(1)
|
|
|
|
(2)
|
|
|
Net unrealized loss
|
|
|
|
—
|
|
|
|
(2)
|
|
|
Reclassification of net loss to net income
|
|
|
|
—
|
|
|
|
3
|
|
|
Balance, September 30
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on pensions (ii)
|
|
Balance, beginning of period
|
|
|
|
(165)
|
|
|
|
(186)
|
|
|
Net unrealized loss
|
|
|
|
(2)
|
|
|
|
(1)
|
|
|
Acquisition [note 6]
|
|
|
|
(1)
|
|
|
|
—
|
|
|
Reclassification of net loss to net income
|
|
|
|
1
|
|
|
|
1
|
|
|
Balance, March 31
|
|
|
|
(167)
|
|
|
|
(186)
|
|
|
Acquisition [note 6]
|
|
|
|
1
|
|
|
|
—
|
|
|
Reclassification of net loss to net income
|
|
|
|
1
|
|
|
|
2
|
|
|
Balance, June 30
|
|
|
|
(165)
|
|
|
|
(184)
|
|
|
Net unrealized loss
|
|
|
|
—
|
|
|
|
(1)
|
|
|
Reclassification of net loss to net income
|
|
|
|
1
|
|
|
|
2
|
|
|
Balance, September 30
|
|
|
|
(164)
|
|
|
|
(183)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
|
$
|
(1,143)
|
|
|
$
|
(1,329)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
The amount of income tax benefit that has been netted in the accumulated
net unrealized (loss) gain on cash flow hedges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
$
|
97
|
|
|
$
|
44
|
|
|
|
|
Net unrealized (loss) gain
|
|
|
|
(24)
|
|
|
27
|
|
|
|
|
Reclassifications of net loss to net income
|
|
|
|
(14)
|
|
|
(5)
|
|
|
|
|
Balance, March 31
|
|
|
|
59
|
|
|
66
|
|
|
|
|
Net unrealized gain (loss)
|
|
|
|
6
|
|
|
(1)
|
|
|
|
|
Reclassifications of net loss to net income
|
|
|
|
(13)
|
|
|
(8)
|
|
|
|
|
Balance, June 30
|
|
|
|
52
|
|
|
57
|
|
|
|
|
Net unrealized gain
|
|
|
|
7
|
|
|
47
|
|
|
|
|
Reclassifications of net loss to net income
|
|
|
|
(10)
|
|
|
(10)
|
|
|
|
|
Balance, September 30
|
|
|
|
$
|
49
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
The amount of income tax benefit that has been netted in the accumulated
net unrealized loss on pensions is as follows:|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
$
|
31
|
|
|
$
|
36
|
|
|
|
|
Net unrealized loss
|
|
|
|
(2)
|
|
|
—
|
|
|
|
|
Balance, March 31
|
|
|
|
29
|
|
|
36
|
|
|
|
|
Reclassification of net loss to net income
|
|
|
|
(1)
|
|
|
(1)
|
|
|
|
|
Balance, June 30
|
|
|
|
$
|
28
|
|
|
$
|
35
|
|
|
|
|
Net unrealized loss
|
|
|
|
—
|
|
|
(1)
|
|
|
|
|
Reclassification of net loss to net income
|
|
|
|
—
|
|
|
(1)
|
|
|
|
|
Balance, September 30
|
|
|
|
$
|
28
|
|
|
$
|
33
|
|
The amount of other comprehensive loss that is expected to be reclassified to net income over the next 12 months is
$124 million.
15. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of the following:
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
|
|
|
Trading
|
|
|
|
|
Cash and cash equivalents
|
$
|
364
|
|
$
|
2,863
|
|
Investment in asset-backed commercial paper
|
79
|
|
73
|
|
Equity investments
|
—
|
|
4
|
|
$
|
443
|
|
$
|
2,940
|
|
|
|
|
Held to maturity investments
|
|
|
|
|
Severance investments
|
$
|
3
|
|
$
|
3
|
|
|
|
|
Loans and receivables
|
|
|
|
|
Accounts receivable
|
$
|
6,879
|
|
$
|
5,439
|
|
Long-term receivables included in other assets
|
197
|
|
87
|
|
$
|
7,076
|
|
$
|
5,526
|
|
|
|
|
Other financial liabilities
|
|
|
|
|
Bank indebtedness
|
$
|
108
|
|
$
|
25
|
|
Commercial paper
|
523
|
|
—
|
|
Long-term debt (including portion due within one year)
|
2,651
|
|
2,557
|
|
Accounts payable
|
5,379
|
|
4,746
|
|
$
|
8,661
|
|
$
|
7,328
|
|
|
|
|
Derivatives designated as effective hedges, measured at fair
value
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
Prepaid expenses
|
$
|
17
|
|
$
|
27
|
|
|
Other assets
|
12
|
|
4
|
|
|
Other accrued liabilities
|
(131)
|
|
(191)
|
|
|
Other long-term liabilities
|
(53)
|
|
(152)
|
|
$
|
(155)
|
|
$
|
(312)
|
|
|
|
|
|
|
[b] Derivatives designated as effective hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges at gross fair values in the Consolidated Balance
Sheets. However, master netting and other similar arrangements allow net settlements under certain conditions. The following
table shows the Company's derivative foreign currency contracts at gross fair value as reflected in the Consolidated Balance
Sheets and the unrecognized impacts of master netting arrangements:
|
Gross
|
|
Gross
|
|
|
|
amounts
|
|
amounts
|
|
|
|
presented
|
|
not offset
|
|
|
|
in consolidated
|
|
in consolidated
|
|
|
|
balance sheets
|
|
balance sheets
|
|
Net amounts
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Assets
|
$
|
29
|
|
$
|
25
|
|
$
|
4
|
|
Liabilities
|
$
|
(184)
|
|
$
|
(25)
|
|
$
|
(159)
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Assets
|
$
|
31
|
|
$
|
30
|
|
$
|
1
|
|
Liabilities
|
$
|
(343)
|
|
$
|
(30)
|
|
$
|
(313)
|
|
|
|
|
|
|
[c] Fair value
The Company determined the estimated fair values of its financial instruments based on valuation methodologies it believes are
appropriate; however, considerable judgment is required to develop these estimates. Accordingly, these estimated fair values are
not necessarily indicative of the amounts the Company could realize in a current market exchange. The estimated fair value
amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to
estimate the fair value of financial instruments are described below
Cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable.
Due to the short period to maturity of the instruments, the carrying values as presented in the consolidated balance sheets
are reasonable estimates of fair values.
Investments
At September 30, 2016, the Company held Canadian third party asset-backed commercial paper
["ABCP"] with a face value of Cdn$107 million [December 31, 2015 -
Cdn$107 million]. The carrying value and estimated fair value of this investment was Cdn$104
million [December 31, 2015 - Cdn$101 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.
Term debt
The Company's term debt includes $201 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.
Senior Notes
The fair value of our senior notes are classified as Level 1 when we use quoted prices in active markets and Level 2 when the
quoted prices are from less active markets or when other observable inputs are used to determine fair value. At
September 30, 2016, the net book value of the Company's Senior Notes was $2.34 billion and the estimated fair value was $2.55 billion, determined
primarily using active market prices.
[d] Credit risk
The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts
receivable, held to maturity investments, and foreign exchange forward contracts with positive fair values.
Cash and cash equivalents, which consists of short-term investments, are only invested in governments, bank term deposits and
bank commercial paper with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is
invested in certain governments or any major financial institution.
The Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange
forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under the contracts.
In the normal course of business, the Company is exposed to credit risk from its customers, substantially all of which are in
the automotive industry and are subject to credit risks associated with the automotive industry. For the three and nine month
periods ended September 30, 2016, sales to the Company's six largest customers represented 84% and
83% of the Company's total sales, respectively, and substantially all of the Company's sales are to customers in which it 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 and Senior Notes as the interest rates on these
instruments are fixed.
[f] Currency risk and foreign exchange contracts
The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to the delivery
of products for which the selling price has been quoted in currencies other than the facilities' functional currency, and when
materials and equipment are purchased in currencies other than the facilities' functional currency. In an effort to manage this
net foreign exchange exposure, the Company employs hedging programs, primarily through the use of foreign exchange forward
contracts.
At September 30, 2016, 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
|
154
|
|
(2,125)
|
|
euro amount
|
31
|
|
(7)
|
|
Korean won amount
|
26,400
|
|
—
|
|
|
|
|
|
For U.S. dollars
|
|
|
|
|
Peso amount
|
5,630
|
|
—
|
|
Korean won amount
|
22,878
|
|
—
|
|
|
|
|
|
For euros
|
|
|
|
|
U.S. amount
|
153
|
|
(202)
|
|
GBP amount
|
—
|
|
(30)
|
|
Czech Koruna amount
|
5,187
|
|
(8)
|
|
Polish Zlotys amount
|
247
|
|
(4)
|
|
|
|
|
|
Forward contracts mature at various dates through 2020. Foreign currency exposures are reviewed quarterly.
16. CONTINGENCIES
From time to time, the Company may become involved in regulatory proceedings, or become liable for legal, contractual and
other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others. On an
ongoing basis, the Company attempts to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims,
together with potential ranges of probable costs and losses. A determination of the provision required, if any, for these
contingencies is made after analysis of each individual issue. The required provision may change in the future due to new
developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
[a] In 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. In February 2016, a consent
order was granted allowing the Plaintiffs to file a fresh statement of claim which includes an additional remedy and reduces
certain aggravated and punitive damages claimed [the "Main Action"]. The fresh 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 [the "Licence Agreement"], together with an accounting of all revenues and profits
resulting from the alleged use by the Company, TRW Inc. ["TRW"] and other unrelated third party automotive supplier defendants
of such technology in North America;
- inducement by the Company of a breach of the Licence Agreement by TRW;
- a conspiracy by the Company, TRW and others to deprive KS Centoco Ltd. of the benefits of such airbag technology 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, among other things, damages of approximately Cdn$2.56 billion in the
Main Action. Document production, completion of undertakings and examinations for discovery are substantially complete, although
limited additional examinations for discovery are expected to occur.
In April 2016, the Company filed a new claim against Centoco Holdings Limited and KS Centoco
Ltd. seeking an order under the Ontario Business Corporations Act to wind-up the business
and affairs of KS Centoco Ltd. and distribute its assets to the shareholders [the "Wind-Up Action"]. In June 2016, Centoco Holdings Limited and KS Centoco Ltd. filed a statement of defence and counterclaim in the
Wind-Up Action alleging breach of fiduciary duty and bad faith performance of contractual obligations by the Company and two of
its officers who were the Company's representatives on KS Centoco Ltd.'s Board of Directors for a number of years [the "Centoco
Counterclaim"]. Pursuant to the Centoco Counterclaim, Centoco Holdings Limited and KS Centoco Ltd. are claiming damages of
approximately Cdn$1.8 billion.
Both actions will be tried together at a trial scheduled to commence on October 30, 2017. The
claims and damages in the Centoco Counterclaim substantially duplicate those described in the Main Action and, as a result, the
Company believes that there is no incremental liability due to the Centoco Counterclaim. The Company also believes it has valid
defences to the claims made by Centoco Holdings Limited and KS Centoco Ltd. in both actions and therefore intends to continue to
vigorously defend these two cases. Due to the nature of the claims made and potential damages alleged by Centoco Holdings Limited
and KS Centoco Ltd., the Company is unable to predict the final outcome of these claims.
[b] In September 2014, the Conselho Administrativo de Defesa Economica,
Brazil's Federal competition authority, attended at one of the Company's operating divisions in
Brazil to obtain information in connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years. Where wrongful conduct is found, the relevant antitrust
authority can, depending on the jurisdiction, initiate administrative or criminal legal proceedings and impose administrative or
criminal fines or penalties taking into account several mitigating and aggravating factors. At this time, management is
unable to predict the duration or outcome of the Brazilian investigation, including whether any operating divisions of the
Company will be found liable for any violation of law or the extent or magnitude of any liability, if found to be liable.
The Company's policy is to comply with all applicable laws, including antitrust and competition laws. The Company has
initiated a global review focused on antitrust risk led by a team of external counsel. If any antitrust violation is found as a
result of the above-referenced investigations or otherwise, Magna could be subject to fines, penalties and civil, administrative
or criminal legal proceedings that could have a material adverse effect on Magna's profitability in the year in which any such
fine or penalty is imposed or the outcome of any such proceeding is determined. Additionally, Magna could be subject to other
consequences, including reputational damage, which could have a material adverse effect on the Company.
[c] In certain circumstances, the Company is at risk for warranty costs including product liability and
recall costs. Due to the nature of the costs, the Company makes its best estimate of the expected future costs [note 11];
however, the ultimate amount of such costs could be materially different. The Company continues to experience increased customer
pressure to assume greater warranty responsibility. Currently, under most customer agreements, the Company only accounts for
existing or probable claims. Under certain complete vehicle engineering and assembly contracts, and with respect to our
transmission systems programs, the Company records an estimate of future warranty-related costs based on the terms of the
specific customer agreements, and the specific customer's [or the Company's] warranty experience.
17. SEGMENTED INFORMATION
The Company's chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since management
believes Adjusted EBIT is the most appropriate measure of operational profitability or loss for its reporting segments. Adjusted
EBIT represents income from continuing operations before income taxes; interest expense, net; and other income, net.
The following tables show segment information for the Company's reporting segments and a reconciliation of Adjusted EBIT to
the Company's consolidated income from continuing operations before income taxes:
|
|
Three months ended
|
|
Three months ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
Fixed
|
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
1,609
|
|
$
|
1,466
|
|
|
|
$
|
708
|
|
$
|
1,538
|
|
$
|
1,419
|
|
|
|
$
|
620
|
|
United States
|
|
2,601
|
|
2,502
|
|
|
|
1,545
|
|
2,318
|
|
2,225
|
|
|
|
1,332
|
|
Mexico
|
|
1,266
|
|
1,116
|
|
|
|
932
|
|
1,030
|
|
921
|
|
|
|
707
|
|
Eliminations
|
|
(367)
|
|
—
|
|
|
|
—
|
|
(295)
|
|
—
|
|
|
|
—
|
|
|
5,109
|
|
5,084
|
|
$
|
512
|
|
3,185
|
|
4,591
|
|
4,565
|
|
$
|
455
|
|
2,659
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great Britain)
|
|
|
2,534
|
|
2,424
|
|
|
|
1,890
|
|
2,152
|
|
2,061
|
|
|
|
1,197
|
|
Great Britain
|
|
129
|
|
129
|
|
|
|
131
|
|
80
|
|
79
|
|
|
|
47
|
|
Eastern Europe
|
|
532
|
|
468
|
|
|
|
557
|
|
500
|
|
446
|
|
|
|
455
|
|
Eliminations
|
|
(93)
|
|
—
|
|
|
|
—
|
|
(90)
|
|
—
|
|
|
|
—
|
|
|
3,102
|
|
3,021
|
|
115
|
|
2,578
|
|
2,642
|
|
2,586
|
|
91
|
|
1,699
|
Asia
|
|
654
|
|
612
|
|
64
|
|
765
|
|
428
|
|
392
|
|
13
|
|
647
|
Rest of World
|
|
129
|
|
128
|
|
(5)
|
|
63
|
|
115
|
|
114
|
|
(7)
|
|
56
|
Corporate and Other
|
|
(145)
|
|
4
|
|
29
|
|
418
|
|
(115)
|
|
4
|
|
13
|
|
389
|
Total reportable segments
|
|
8,849
|
|
8,849
|
|
715
|
|
7,009
|
|
7,661
|
|
7,661
|
|
565
|
|
5,450
|
Other income, net
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
124
|
|
|
Interest expense, net
|
|
|
|
|
|
(23)
|
|
|
|
|
|
|
|
(9)
|
|
|
|
|
$
|
8,849
|
|
$
|
8,849
|
|
$
|
692
|
|
7,009
|
|
$
|
7,661
|
|
$
|
7,661
|
|
$
|
680
|
|
5,450
|
Current assets
|
|
|
|
|
|
|
|
10,580
|
|
|
|
|
|
|
|
10,784
|
Investments, goodwill,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets
|
|
|
|
|
|
|
5,359
|
|
|
|
|
|
|
|
2,359
|
Consolidated total assets
|
|
|
|
|
|
|
|
$
|
22,948
|
|
|
|
|
|
|
|
$
|
18,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
Nine months ended
|
|
September 30, 2016
|
|
September 30, 2015
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
Fixed
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
$
|
5,020
|
|
$
|
4,617
|
|
|
|
$
|
708
|
|
$
|
4,578
|
|
$
|
4,237
|
|
|
|
$
|
620
|
|
United States
|
7,636
|
|
7,351
|
|
|
|
1,545
|
|
7,112
|
|
6,805
|
|
|
|
1,332
|
|
Mexico
|
3,852
|
|
3,467
|
|
|
|
932
|
|
3,085
|
|
2,803
|
|
|
|
707
|
|
Eliminations
|
(1,002)
|
|
—
|
|
|
|
—
|
|
(850)
|
|
—
|
|
|
|
—
|
|
15,506
|
|
15,435
|
|
$
|
1,545
|
|
3,185
|
|
13,925
|
|
13,845
|
|
$
|
1,433
|
|
2,659
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great Britain)
|
7,968
|
|
7,687
|
|
|
|
1,890
|
|
6,653
|
|
6,434
|
|
|
|
1,197
|
|
Great Britain
|
511
|
|
509
|
|
|
|
131
|
|
275
|
|
274
|
|
|
|
47
|
|
Eastern Europe
|
1,663
|
|
1,459
|
|
|
|
557
|
|
1,548
|
|
1,373
|
|
|
|
455
|
|
Eliminations
|
(286)
|
|
—
|
|
|
|
—
|
|
(242)
|
|
—
|
|
|
|
—
|
|
9,856
|
|
9,655
|
|
472
|
|
2,578
|
|
8,234
|
|
8,081
|
|
339
|
|
1,699
|
Asia
|
1,899
|
|
1,776
|
|
166
|
|
765
|
|
1,357
|
|
1,262
|
|
86
|
|
647
|
Rest of World
|
321
|
|
320
|
|
(21)
|
|
63
|
|
373
|
|
372
|
|
(19)
|
|
56
|
Corporate and Other
|
(390)
|
|
6
|
|
40
|
|
418
|
|
(323)
|
|
6
|
|
34
|
|
389
|
Total reportable segments
|
27,192
|
|
27,192
|
|
2,202
|
|
7,009
|
|
23,566
|
|
23,566
|
|
1,873
|
|
5,450
|
Other income, net
|
|
|
|
|
—
|
|
|
|
|
|
|
|
181
|
|
|
Interest expense, net
|
|
|
|
|
(68)
|
|
|
|
|
|
|
|
(27)
|
|
|
|
|
$
|
27,192
|
|
$
|
27,192
|
|
$
|
2,134
|
|
7,009
|
|
$
|
23,566
|
|
$
|
23,566
|
|
$
|
2,027
|
|
5,450
|
Current assets
|
|
|
|
|
|
|
10,580
|
|
|
|
|
|
|
|
10,784
|
Investments, goodwill,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets
|
|
|
|
|
|
|
5,359
|
|
|
|
|
|
|
|
2,359
|
Consolidated total assets
|
|
|
|
|
|
|
$
|
22,948
|
|
|
|
|
|
|
|
$
|
18,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. SUBSEQUENT EVENTS
Commitments
In October 2016, the Company entered into binding agreements to extend the leases for 11
properties for a period of 3 to 16 years. For the extended lease terms the incremental annual rental payments are as
follows:
For the 12 months ended December 31,
|
|
|
|
2017
|
$
|
13
|
2018
|
27
|
2019
|
28
|
2020
|
36
|
2021
|
39
|
Thereafter
|
438
|
|
$
|
581
|
|
|
|
Normal Course Issuer Bid
Subject to approval by the Toronto Stock Exchange ["TSX"] and the New York Stock Exchange ["NYSE"], the Company's Board of
Directors approved a new normal course issuer bid to purchase up to 38 million of the Company's Common Shares, representing
approximately 10% of the Company's public float of Common Shares. The primary purposes of the normal course issuer bid are
purchases for cancellation as well as purchases to fund the Company's stock-based compensation awards or programs and/or its
obligations to its deferred profit sharing plans. The normal course issuer bid is expected to commence on or about November 14, 2016 and will terminate one year later. All purchases of Common Shares will be made at the market
price at the time of purchase in accordance with the rules and policies of the TSX or on the NYSE in compliance with Rule 10b-18
under the U.S. Securities Exchange Act of 1934. Purchases may also be made through other published markets, or by such other
means permitted by the TSX, including by private agreement at a discount to the prevailing market price, pursuant to an issuer
bid exemption order issued by a securities regulatory authority.
SOURCE Magna International Inc.