AURORA, ON, Aug. 7, 2015 /PRNewswire/ - Magna International Inc. (TSX: MG; NYSE: MGA) today reported financial results for the second quarter ended June
30, 2015.
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| THREE MONTHS ENDED JUNE 30, |
| SIX MONTHS ENDED JUNE 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Sales
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| $ | 8,133 |
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$
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8,911
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| $ | 15,905 |
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$
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17,366
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Adjusted EBIT(1) |
| $ | 677 |
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$
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722
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| $ | 1,308 |
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$
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1,340
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Income from continuing operations before
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income taxes
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| $ | 726 |
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$
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704
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| $ | 1,347 |
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$
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1,298
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Net income from continuing operations
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attributable to Magna International Inc.
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| $ | 538 |
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$
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519
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| $ | 993 |
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$
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921
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Diluted earnings per share
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from continuing operations
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| $ | 1.29 |
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$
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1.18
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| $ | 2.39 |
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$
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2.08
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All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars.
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(1) |
Adjusted EBIT is the measure of segment profit or loss as reported in
the Company's attached unaudited interim consolidated financial
statements.
Adjusted EBIT represents income from operations before income taxes;
interest expense, net; and other expense, net.
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BASIS OF PRESENTATION
In the second quarter of 2015, we signed an agreement to sell
substantially all of our interiors operations to Grupo Antolin, a
leading global supplier of automotive interior systems. The purchase
price for the operations, excluding certain assets, is approximately
$525 million, subject to customary closing adjustments. We will
continue managing our seating operations which are not included in this
arrangement. The assets and liabilities, and operating results for the
previously reported interiors operations are presented as discontinued
operations, and have therefore been excluded from continuing operations
for all periods presented in this press release.
THREE MONTHS ENDED JUNE 30, 2015
We posted sales of $8.1 billion for the second quarter ended June 30,
2015, a decrease of 9% from the second quarter of 2014. The weakening
of certain currencies against our U.S. dollar reporting currency, in
particular the euro and Canadian dollar, had a significant negative
impact on our reported sales for the second quarter of 2015. Foreign
currency translation reduced our sales by approximately $890 million,
as compared to the second quarter of 2014. Excluding the impact of
foreign currency translation, our sales increased 1% in the second
quarter of 2015, compared to the second quarter of 2014. North
American light vehicle production increased 3% to 4.6 million units and
European light vehicle production increased marginally to 5.4 million
units in the second quarter of 2015, compared to the second quarter of
2014.
Excluding the impact of foreign currency translation, our complete
vehicle assembly sales decreased 8% in the second quarter of 2015,
compared to the second quarter of 2014. Complete vehicle assembly
volumes decreased 17% to approximately 28,500 units.
During the second quarter of 2015, income from continuing operations
before income taxes was $726 million, net income from continuing
operations was $538 million and diluted earnings per share from
continuing operations were $1.29, increases of $22 million, $19 million
and $0.11 respectively, each compared to the second quarter of 2014.
For the second quarter of 2015, other (income) expense positively
impacted income from continuing operations before income taxes by $57
million, net income from continuing operations attributable to Magna
International Inc. by $42 million, and diluted earnings per share from
continuing operations by $0.10, respectively.
For the second quarter of 2014, other (income) expense negatively
impacted income from continuing operations before income taxes by $11
million, net income from continuing operations attributable to Magna
International Inc. by $10 million, and diluted earnings per share from
continuing operations by $0.02, respectively.
During the second quarter ended June 30, 2015, we generated cash from
operations of $711 million before changes in operating assets and
liabilities, and invested $271 million in operating assets and
liabilities. Total investment activities for the second quarter of 2015
were $402 million, including $361 million in fixed asset additions and
$41 million in investments and other assets.
SIX MONTHS ENDED JUNE 30, 2015
We posted sales of $15.9 billion for the six months ended June 30, 2015,
a decrease of 8% from the six months ended June 30, 2014. The weakening
of certain currencies against our U.S. dollar reporting currency, in
particular the euro and Canadian dollar, had a significant negative
impact on our reported sales for the first six months of 2015. Foreign
currency translation reduced our sales by approximately $1.7 billion,
as compared to the first six months of 2014. Excluding the impact of
foreign currency translation, our sales increased 2% in the first six
months of 2015, compared to the first six months of 2014.
During the six months ended June 30, 2015, vehicle production increased
1% to 8.7 million units in North America and increased 1% to 10.6
million units in Europe, each compared to the first six months of 2014.
Excluding the impact of foreign currency translation, our complete
vehicle assembly sales decreased 10% in the first six months of 2015,
compared to the first six months of 2014. Complete vehicle assembly
volumes decreased 20% to approximately 56,000 units.
During the six months ended June 30, 2015, income from continuing
operations before income taxes was $1.4 billion, net income from
continuing operations was $993 million and diluted earnings per share
from continuing operations were $2.39, increases of $49 million, $72
million and $0.31, respectively, each compared to the first six months
of 2014.
For the six months ended June 30, 2015, other (income) expense
positively impacted income from continuing operations before income
taxes by $57 million, net income from continuing operations
attributable to Magna International Inc. by $42 million, and diluted
earnings per share from continuing operations by $0.10, respectively.
For the six months ended June 30, 2014, other (income) expense
negatively impacted income from continuing operations before income
taxes by $33 million. In addition, for the six months ended June 30,
2014, other (income) expense and the impact of the Austrian tax reform
together negatively impacted net income from continuing operations
attributable to Magna International Inc. by $62 million, and diluted
earnings per share from continuing operations by $0.14, respectively.
During the six months ended June 30, 2015, we generated cash from
operations before changes in operating assets and liabilities of $1.3
billion, and invested $620 million in operating assets and liabilities.
Total investment activities for the first six months of 2015 were $706
million, including $627 million in fixed asset additions, $78 million
in investments and other assets and $1 million to purchase
subsidiaries.
A more detailed discussion of our consolidated financial results for the
second quarter and six months ended June 30, 2015 is contained in the
Management's Discussion and Analysis of Results of Operations and
Financial Position and the unaudited interim consolidated financial
statements and notes thereto, which are attached to this Press Release.
DIVIDENDS
Yesterday, our Board of Directors declared a quarterly dividend of $0.22
with respect to our outstanding Common Shares for the quarter ended
June 30, 2015. This dividend is payable on September 11, 2015 to
shareholders of record on August 28, 2015.
UPDATED 2015 OUTLOOK
The table below reflects our 2015 outlook and 2014 actual results, both
from continuing operations:
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| 2015 Outlook |
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| 2014 Actual |
Light Vehicle Production (Units)
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North America
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17.4 million
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17.0 million
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Europe
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20.3 million
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20.1 million
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Production Sales
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North America
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$17.3 - $17.9 billion
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$17.4 billion
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Europe
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$6.8 - $7.2 billion
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$8.8 billion
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Asia
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$1.6 - $1.8 billion
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$1.6 billion
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Rest of World
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$0.5 - $0.6 billion
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$0.7 billion
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Total Production Sales
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$26.2 - $27.5 billion
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$28.5 billion
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Complete Vehicle Assembly Sales
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$2.2 - $2.5 billion
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$3.2 billion
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Total Sales
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$30.9 - $32.6 billion
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$34.4 billion
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Operating Margin(1) |
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Approximately 8%
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7.7%
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Tax Rate(1) |
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Approximately 26%
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25.0%
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Capital Spending
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$1.3 - $1.5 billion
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$1.5 billion
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(1) Excluding other (income) expense, net |
In this 2015 outlook, in addition to 2015 light vehicle production, we
have assumed no material acquisitions or divestitures other than the
divestiture of substantially all of our interior operations as
discussed above. In addition, we have assumed that foreign exchange
rates for the most common currencies in which we conduct business
relative to our U.S. dollar reporting currency will approximate current
rates.
ABOUT MAGNA
We are a leading global automotive supplier with 319 manufacturing
operations and 85 product development, engineering and sales centres in
29 countries. We have over 136,000 employees focused on delivering
superior value to our customers through innovative products and
processes, and World Class Manufacturing. Our product capabilities
include producing body, chassis, interior, exterior, seating,
powertrain, electronic, vision, closure and roof systems and modules,
as well as complete vehicle engineering and contract manufacturing.
Our Common Shares trade on the Toronto Stock Exchange (MG) and the New
York Stock Exchange (MGA). For further information about Magna, visit
our website at www.magna.com.
We will hold a conference call for interested analysts and shareholders
to discuss our second quarter results on Friday, August 7, 2015 at 8:00
a.m. EDT. The conference call will be chaired by Don Walker, Chief
Executive Officer. The number to use for this call is 1-800-743-9807.
The number for overseas callers is 1-416-641-6701. 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 Friday morning prior to the call.
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 2015; complete vehicle assembly sales; consolidated
operating margin, effective income tax rate; fixed asset expenditures;
and statements relating to the sale of substantially all of our
Interiors operations to Grupo Antolin (the "Grupo Transaction") . The
forward-looking information in this document is presented for the
purpose of providing information about management's current
expectations and plans and such information may not be appropriate for
other purposes. Forward-looking statements may include financial and
other projections, as well as statements regarding our future plans,
objectives or economic performance, or the assumptions underlying any
of the foregoing, and other statements that are not recitations of
historical fact. We use words such as "may", "would", "could",
"should", "will", "likely", "expect", "anticipate", "believe",
"intend", "plan", "forecast", "outlook", "project", "estimate" and
similar expressions suggesting future outcomes or events to identify
forward-looking statements. Any such forward-looking statements are
based on information currently available to us, and are based on
assumptions and analyses made by us in light of our experience and our
perception of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate in
the circumstances. However, whether actual results and developments
will conform with our expectations and predictions is subject to a
number of risks, assumptions and uncertainties, many of which are
beyond our control, and the effects of which can be difficult to
predict, including, without limitation: the impact of economic or
political conditions on consumer confidence, consumer demand for
vehicles and vehicle production; fluctuations in relative currency
values; restructuring, downsizing and/or other significant
non-recurring costs; continued underperformance of one or more of our
operating Divisions; our ability to successfully launch material new or
takeover business; shifts in market share away from our top customers;
inability to grow our business with OEMs; shifts in market shares among
vehicles or vehicle segments, or shifts away from vehicles on which we
have significant content; a prolonged disruption in the supply of
components to us from our suppliers; shutdown of our or our customers'
or sub-suppliers' production facilities due to a labour disruption;
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; 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; impairment charges related to
goodwill and long-lived assets; exposure to, and ability to offset,
volatile commodities prices; risk of production disruptions due to
natural disasters or other catastrophic events; the security and
reliability of our IT systems; legal claims and/or regulatory actions
against us, including the ongoing antitrust investigations being
conducted by German and Brazilian authorities; changes in our mix of
earnings between jurisdictions with lower tax rates and those with
higher tax rates, as well as our ability to fully benefit tax losses;
other potential tax exposures; changes in credit ratings assigned to
us; the consummation of the Grupo Transaction; the satisfaction or
waiver of conditions to complete the Grupo Transaction, including
obtaining required regulatory approvals; warranty or indemnity
obligations to the purchaser in the Grupo Transaction in relation to
pre-closing liabilities; our ability to successfully identify, complete
and integrate acquisitions or achieve anticipated synergies; our
ability to conduct appropriate due diligence on acquisition targets;
risks of conducting business in foreign markets, including China,
India, Russia, Eastern Europe, Thailand, Brazil, Argentina and other
non-traditional markets for us; ongoing pricing pressures, including
our ability to offset price concessions demanded by our customers; our
ability to consistently develop innovative products or processes;
warranty and recall costs; pension liabilities; changes in laws and
governmental regulations; costs associated with compliance with
environmental laws and regulations; liquidity risks as a result of an
unanticipated deterioration of economic conditions; our ability to
achieve future investment returns that equal or exceed past returns;
the unpredictability of, and fluctuation in, the trading price of our
Common Shares; and other factors set out in our Annual Information Form
filed with securities commissions in Canada and our annual report on
Form 40-F filed with the United States Securities and Exchange
Commission, and subsequent filings. In evaluating forward-looking
statements, we caution readers not to place undue reliance on any
forward-looking statements and readers should specifically consider the
various factors which could cause actual events or results to differ
materially from those indicated by such forward-looking statements.
Unless otherwise required by applicable securities laws, we do not
intend, nor do we undertake any obligation, to update or revise any
forward-looking statements to reflect subsequent information, events,
results or circumstances or otherwise.
For further information about Magna, please see our website at www.magna.com. Copies of financial data and other publicly filed documents are
available through the internet on the Canadian Securities
Administrators' System for Electronic Document Analysis and Retrieval
(SEDAR) which can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's
Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which
can be accessed at www.sec.gov
MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations and
Financial Position
Unless otherwise noted, all amounts in this Management's Discussion and
Analysis of Results of Operations and Financial Position ("MD&A") are
in U.S. dollars and all tabular amounts are in millions of U.S.
dollars, except per share figures, which are in U.S. dollars. When we
use the terms "we", "us", "our" or "Magna", we are referring to Magna
International Inc. and its subsidiaries and jointly controlled
entities, unless the context otherwise requires.
This MD&A should be read in conjunction with the unaudited interim
consolidated financial statements for the three months and six months
ended June 30, 2015 included in this press release, and the audited
consolidated financial statements and MD&A for the year ended
December 31, 2014 included in our 2014 Annual Report to Shareholders.
This MD&A has been prepared as at August 5, 2015.
OVERVIEW
We are a leading global automotive supplier with 319 manufacturing
operations and 85 product development, engineering and sales centres in
29 countries. We have over 136,000 employees focused on delivering
superior value to our customers through innovative products, processes
and World Class Manufacturing. Our product capabilities include
producing body, chassis, interior, exterior, seating, powertrain,
electronic, vision, closure and roof systems and modules, as well as
complete vehicle engineering and contract manufacturing. Our common
shares trade on the Toronto Stock Exchange (MG) and the New York Stock
Exchange (MGA). For further information about Magna, visit our website
at www.magna.com.
HIGHLIGHTS
Basis of Presentation
In the second quarter of 2015, we signed an agreement to sell
substantially all of our interiors operations to Grupo Antolin, a
leading global supplier of automotive interior systems. The purchase
price for the operations, excluding certain assets, is approximately
$525 million, subject to customary closing adjustments. We will
continue managing our seating operations which are not included in this
arrangement. 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.
Operations
North American light vehicle production increased 3% to 4.5 million
units and European light vehicle production increased marginally to 5.3
million units, each in the second quarter of 2015 compared to the
second quarter of 2014.
We posted sales of $8.13 billion for the second quarter of 2015, a
decrease of $778 million or 9% from the second quarter of 2014. The
weakening of certain currencies against our U.S. dollar reporting
currency, in particular the euro and Canadian dollar, once again had a
significant impact on our reported sales in the second quarter of 2015.
Foreign exchange translation reduced our sales in the second quarter of
2015 by approximately $890 million, as compared to the second quarter
of 2014. Excluding the negative impact of foreign currency translation,
sales increased 1% in the second quarter of 2015, compared to the
second quarter of 2014.
Our Adjusted EBIT(1) decreased 6% to $677 million in the second quarter of 2015, compared to
the second quarter of 2014.
- North America: Adjusted EBIT of $525 million for the second quarter of
2015 declined 3% compared to $539 million for the second quarter of
2014. Segment total sales declined modestly in the second quarter of
2015 compared to the second quarter of 2014.
- Europe: Adjusted EBIT of $120 million for the second quarter of 2015
declined 16% or $23 million from the second quarter of 2014, while
segment total sales declined 21% from the second quarter of 2014 to the
second quarter of 2015.
- Asia: Adjusted EBIT was $31 million in the second quarter of 2015,
compared to $41 million for the second quarter of 2014. Segment total
sales declined modestly in the second quarter of 2015 compared to the
second quarter of 2014.
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Rest of World: Our Adjusted EBIT loss of $8 million for the second
quarter of 2015 compared to an Adjusted EBIT loss of $11 million in the
second quarter of 2014. Segment total sales declined 26% to $125
million for the second quarter of 2015 compared to the second quarter
of 2014.
1 We believe Adjusted EBIT is the most appropriate measure of operational
profitability or loss for our reporting segments. Adjusted EBIT
represents income from operations before income taxes; interest
expense, net; and other expense, net.
Investment
Subsequent to the second quarter of 2015, we signed an agreement to
acquire the Getrag Group of Companies ("Getrag"), one of the world's
largest suppliers of transmissions. Getrag has an 80-year history in
transmissions and is a technology leader, offering a range of
transmission systems. The purchase price for 100% of the equity of
Getrag is approximately €1.75 billion. This represents an enterprise
value of approximately €2.45 billion less proportionate net debt and
proportionate pension liabilities, which together are estimated to be
approximately €700 million at closing. The purchase price is subject to
working capital and other customary purchase price adjustments. The
transaction is subject to customary closing conditions including
regulatory approval, and is expected to close near the end of 2015.
FINANCIAL RESULTS SUMMARY
During the second quarter of 2015, we posted sales of $8.13 billion, a
decrease of 9% from the second quarter of 2014. This lower sales level
was substantially a result of a decrease in reported U.S. dollar sales
due to the weakening of foreign currencies against the U.S. dollar.
Comparing the second quarter of 2015 to 2014:
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North American vehicle production increased 3% and our North American
production sales increased 1% to $4.58 billion;
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European vehicle production increased marginally but our European
production sales decreased 23% to $1.83 billion;
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Asian production sales increased marginally to $390 million;
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Rest of World production sales decreased 23% to $125 million;
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Complete vehicle assembly volumes decreased 17% and sales decreased 26%
to $607 million; and
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Tooling, engineering and other sales decreased 10% to $599 million.
During the second quarter of 2015, we earned income from continuing
operations before income taxes of $726 million compared to $704 million
for the second quarter of 2014. Excluding other (income) expense, net
("Other Income" or "Other Expense"), as discussed in the "Other Income"
section, income from continuing operations before income taxes
decreased $46 million primarily as a result of:
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the negative impact of foreign exchange translation from the weakening
of foreign currencies, including the euro and Canadian dollar, against
the U.S. dollar;
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lower recoveries associated with scrap steel;
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higher launch costs;
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operational inefficiencies at certain facilities;
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higher warranty costs of $3 million;
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higher incentive compensation;
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lower equity income;
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a $1 million net decrease in valuation gains in respect of ABCP; and
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net customer price concessions subsequent to the second quarter of 2014.
These factors were partially offset by:
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incremental margin earned on new programs that launched during or
subsequent to the second quarter of 2014;
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costs incurred related to a fire at a body and chassis facility in North
America, during the second quarter of 2014;
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the expiration, at the end of 2014, of our consulting agreements with
Frank Stronach;
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decreased commodity costs;
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a lower amount of employee profit sharing; and
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productivity and efficiency improvements at certain facilities.
During the second quarter of 2015, net income attributable to Magna
International Inc. from continuing operations was $538 million, an
increase of $19 million compared to the second quarter of 2014 and
diluted earnings per share from continuing operations increased $0.11
to $1.29 for the second quarter of 2015 compared to the second quarter
of 2014. Other Income and Other Expense, after tax, as discussed in the
"Other Income" section impacted net income attributable to Magna
International Inc. from continuing operations and diluted earnings per
share from continuing operations as follows:
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| For the three months ended June 30, |
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| 2015 |
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2014
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| Net Income |
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| Diluted |
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Net Income
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Diluted
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| Attributable |
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| Earnings |
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Attributable
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Earnings
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| to Magna |
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to Magna
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per Share
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Other (income) expense |
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| | $ | (57) |
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| $ | (0.14) |
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$
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11
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$
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0.02
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Income tax effect |
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| 15 |
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| 0.04 |
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(1)
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—
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| $ | (42) |
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| $ | (0.10) |
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$
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10
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$
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0.02
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Excluding the $42 million positive impact for the second quarter of 2015
and the $10 million negative impact for the second quarter of 2014, net
income attributable to Magna International Inc. from continuing
operations for the second quarter of 2015 decreased $33 million
compared to the second quarter of 2014.
Excluding the $0.10 per share positive impact for the second quarter of
2015 and the $0.02 per share negative impact for the second quarter of
2014, diluted earnings per share from continuing operations decreased
$0.01, as a result of the decrease in net income attributable to Magna
International Inc. from continuing operations partially offset by a
decrease in the weighted average number of diluted shares outstanding
during the second quarter of 2015. The decrease in the weighted average
number of diluted shares outstanding was due to the purchase and
cancellation of Common Shares, during or subsequent to the second
quarter of 2014, pursuant to our normal course issuer bids.
INDUSTRY TRENDS AND RISKS
Our success is primarily dependent upon the levels of North American and
European car and light truck production by our customers and the
relative amount of content we have on various programs. OEM production
volumes in different regions may be impacted by factors which may vary
from one region to the next, including but not limited to: general
economic and political conditions; consumer confidence levels; interest
rates; credit availability; energy and fuel prices; relative currency
values; commodities prices; international conflicts; labour relations
issues; regulatory requirements; trade agreements; infrastructure;
legislative changes; and environmental emissions and safety standards.
These factors together with other factors affecting our performance
such as: operational inefficiencies; costs incurred to launch new or
takeover business; price reduction pressures from our customers;
warranty and recall costs; commodities and scrap prices; restructuring,
downsizing and other significant non-recurring costs; and the financial
condition of our supply base, are discussed in our Annual Information
Form and Annual Report on Form 40-F, each in respect of the year ended
December 31, 2014, and remain substantially unchanged in respect of the
second quarter ended June 30, 2015.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
|
|
|
|
| For the three months |
|
|
| For the six months |
|
|
|
|
|
| ended June 30, |
|
|
| ended June 30, |
|
|
|
|
|
| 2015 |
|
|
|
2014
|
|
|
Change
|
|
|
| 2015 |
|
|
|
2014
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Canadian dollar equals U.S. dollars
|
|
|
|
|
| 0.813 |
|
|
|
0.917
|
|
|
-
|
11%
|
|
|
| 0.811 |
|
|
|
0.912
|
|
|
-
|
11%
|
1 euro equals U.S. dollars
|
|
|
|
|
|
1.107 |
|
|
|
1.371
|
|
|
-
|
19%
|
|
|
| 1.118 |
|
|
|
1.371
|
|
|
-
|
18%
|
1 British pound equals U.S. dollars
|
|
|
|
|
| 1.533 |
|
|
|
1.683
|
|
|
-
|
9%
|
|
|
| 1.525 |
|
|
|
1.669
|
|
|
-
|
9%
|
The preceding table reflects the average foreign exchange rates between
the most common currencies in which we conduct business and our U.S.
dollar reporting currency. The changes in these foreign exchange rates
for the three months and six months ended June 30, 2015 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 JUNE 30, 2015
Sales
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes (millions of units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
| 4.546 |
|
|
|
|
4.412
|
|
|
|
+
|
3%
|
|
Europe |
|
|
|
|
|
| 5.347 |
|
|
|
|
5.325
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
| $ | 4,583 |
|
|
|
$
|
4,519
|
|
|
|
+
|
1%
|
|
|
Europe
|
|
|
|
|
|
| 1,829 |
|
|
|
|
2,360
|
|
|
|
-
|
23%
|
|
|
Asia |
|
|
|
|
|
| 390 |
|
|
|
|
389
|
|
|
|
|
—
|
|
|
Rest of World |
|
|
|
|
|
| 125 |
|
|
|
|
163
|
|
|
|
-
|
23%
|
|
Complete Vehicle Assembly |
|
|
|
|
|
| 607 |
|
|
|
|
817
|
|
|
|
-
|
26%
|
|
Tooling, Engineering and Other
|
|
|
|
|
|
|
599 |
|
|
|
|
663
|
|
|
|
-
|
10%
|
Total Sales
|
|
|
|
|
| $ | 8,133 |
|
|
|
$
|
8,911
|
|
|
|
-
|
9%
|
External Production Sales - North America
Reported external production sales in North America increased 1% or $64
million to $4.58 billion for the second quarter of 2015 compared to
$4.52 billion for the second quarter of 2014, primarily as a result of:
-
the launch of new programs during or subsequent to the second quarter of
2014, including the:
-
Ford Transit;
-
Ford Edge;
-
Mercedes-Benz C-Class;
-
Ford Mustang; and
-
Chevrolet Colorado and GMC Canyon.
This factor was partially offset by:
-
a $175 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of the Canadian dollar against the U.S. dollar;
-
lower production volumes on certain existing programs;
-
programs that ended production during or subsequent to the second
quarter of 2014;
-
net divestitures subsequent to the second quarter of 2014, which
negatively impacted sales by $27 million; and
-
net customer price concessions subsequent to the second quarter of 2014.
External Production Sales - Europe
Reported external production sales in Europe decreased 23% or $531
million to $1.83 billion for the second quarter of 2015 compared to
$2.36 billion for the second quarter of 2014, primarily as a result of:
-
a $444 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of foreign currencies against the U.S. dollar,
including the euro and Czech koruna;
-
lower production volumes on certain existing programs;
-
programs that ended production during or subsequent to the second
quarter of 2014; and
-
net customer price concessions subsequent to the second quarter of 2014.
These factors were partially offset by the launch of new programs during
or subsequent to the second quarter of 2014.
External Production Sales - Asia
Reported external production sales in Asia increased $1 million to $390
million for the second quarter of 2015 compared to $389 million for the
second quarter of 2014, primarily as a result of the launch of new
programs during or subsequent to the second quarter of 2014, primarily
in China and India.
This factor was partially offset by:
-
lower production volumes on certain existing programs;
-
a $4 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of foreign currencies against the U.S. dollar,
including the South Korean won; and
-
net customer price concessions subsequent to the second quarter of 2014.
External Production Sales - Rest of World
Reported external production sales in Rest of World decreased 23% or $38
million to $125 million for the second quarter of 2015 compared to $163
million for the second quarter of 2014, primarily as a result of:
-
lower production volumes on certain existing programs; and
-
a $40 million decrease in reported U.S. dollar sales as a result of the
weakening of foreign currencies against the U.S. dollar, including the
Brazilian real.
These factors were partially offset by:
-
the launch of new programs during or subsequent to the second quarter of
2014, primarily in Brazil; and
-
net customer price increases subsequent to the second quarter of 2014.
Complete Vehicle Assembly Sales
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales
|
|
|
|
|
| $ | 607 |
|
|
|
$
|
817
|
|
|
|
-
|
26%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Volumes (Units)
|
|
|
|
|
|
| 28,343 |
|
|
|
|
34,299
|
|
|
|
-
|
17%
|
Reported complete vehicle assembly sales decreased $210 million, to $607
million for the second quarter of 2015 compared to $817 million for the
second quarter of 2014 and assembly volumes decreased 17% or 5,956
units.
The decrease in complete vehicle assembly sales is primarily as a result
of:
-
a $146 million decrease in reported U.S. dollar sales as a result of the
weakening of the euro against the U.S. dollar; and
-
a decrease in assembly volumes for the MINI Countryman.
These factors were partially offset by an increase in assembly volumes
for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Reported tooling, engineering and other sales decreased 10% or $64
million to $599 million for the second quarter of 2015 compared to $663
million for the second quarter of 2014.
In the second quarter of 2015, the major programs for which we recorded
tooling, engineering and other sales were the:
-
Ford F-Series and F-Series SuperDuty;
-
GMC Acadia, Buick Enclave and Chevrolet Traverse;
-
Ford Edge;
-
Honda Pilot;
-
MINI Countryman;
-
Lincoln MKX; and
-
Chevrolet Cruze.
In the second quarter of 2014, the major programs for which we recorded
tooling, engineering and other sales were the:
-
BMW X4;
-
MINI Countryman;
-
Ford Transit;
-
Mercedes-Benz M-Class;
-
Lincoln MKC;
-
Dodge Challenger;
-
QOROS 3; and
-
Acura TL.
The weakening of certain foreign currencies against the U.S. dollar,
including the euro and Canadian dollar had an unfavourable impact of
$80 million on our reported tooling, engineering and other sales.
Cost of Goods Sold and Gross Margin
|
|
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
$
| 8,133 |
|
|
|
$
|
8,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material |
|
|
|
|
|
|
|
|
| 5,124 |
|
|
|
|
5,664
|
|
Direct labour |
|
|
|
|
|
|
|
|
| 541 |
|
|
|
|
555
|
|
Overhead |
|
|
|
|
|
|
|
|
| 1,297 |
|
|
|
|
1,407
|
|
|
|
|
|
|
|
|
|
| 6,962 |
|
|
|
|
7,626
|
Gross margin
|
|
|
|
|
|
|
|
| $ | 1,171 |
|
|
|
$
|
1,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of sales
|
|
|
|
|
|
|
|
|
| 14.4% |
|
|
|
|
14.4%
|
Reported cost of goods sold decreased $664 million to $6.96 billion for
the second quarter of 2015 compared to $7.63 billion for the second
quarter of 2014. Reported U.S. dollar cost of goods sold decreased due
to the weakening of foreign currencies against the U.S. dollar,
including the euro, Canadian dollar and Czech koruna. Excluding the
effect of foreign exchange translation, costs of goods sold increased
primarily as a result of:
-
higher material, overhead and labour costs associated with the increase
in sales;
-
lower recoveries associated with scrap steel;
-
higher launch costs; and
-
operational inefficiencies at certain facilities.
These factors were partially offset by:
-
costs incurred related to a fire at a body and chassis facility in North
America, during the second quarter of 2014;
-
decreased commodity costs; and
-
productivity and efficiency improvements at certain facilities.
Gross margin decreased $114 million to $1.17 billion for the second
quarter of 2015 compared to $1.29 billion for the second quarter of
2014 and gross margin as a percentage of sales was 14.4% for the second
quarters of 2015 and 2014. Gross margin as a percentage of sales was
positively impacted by:
-
a decrease in the proportion of complete vehicle assembly sales relative
to total sales, which have a higher material content than our
consolidated average;
-
productivity and efficiency improvements at certain facilities;
-
costs incurred related to a fire at a body and chassis facility in North
America, during the second quarter of 2014;
-
a decrease in the proportion of sales earned in Europe relative to total
sales, which have a lower margin than our consolidated average,
primarily due to weakening of the euro against the U.S. dollar;
-
decreased commodity costs; and
-
a lower amount of employee profit sharing.
These factors were partially offset by:
-
operational inefficiencies at certain facilities;
-
lower recoveries associated with scrap steel;
-
higher launch costs; and
-
higher warranty costs.
Depreciation and Amortization
Depreciation and amortization costs decreased $13 million to
$198 million for the second quarter of 2015 compared to $211 million
for the second quarter of 2014. The lower depreciation and amortization
was primarily as a result of a decrease in reported U.S. dollar
depreciation and amortization largely as a result of the weakening of
the euro, Canadian dollar and Russian ruble, each against the U.S.
dollar partially offset by higher depreciation related to new
facilities.
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.3% for the second quarter of
2015 compared to 4.6% for the second quarter of 2014. SG&A expense
decreased $59 million to $348 million for the second quarter of 2015
compared to $407 million for the second quarter of 2014 primarily as a
result of weakening of the euro, Canadian dollar, Brazilian real and
Russian ruble, each against the U.S. dollar and the expiration, at the
end of 2014, of our consulting agreements with Frank Stronach partially
offset by higher incentive compensation.
Equity Income
Equity income decreased $3 million to $52 million for the second quarter
of 2015 compared to $55 million for the second quarter of 2014.
Other (Income) Expense, net
During the second quarter of 2015, we sold our battery pack business to
Samsung SDI for proceeds of approximately $120 million, resulting in a
gain of $57 million ($42 million after tax).
During the second and first quarters of 2014, we recorded net
restructuring charges of $11 million and $22 million ($10 million and
$20 million after tax), respectively, 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 expense, net.
|
|
|
|
|
| For the three months ended June 30, |
|
|
|
|
|
| Total Sales |
|
| Adjusted EBIT |
|
|
|
|
|
|
| 2015 |
|
|
|
2014
|
|
|
|
Change
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
| $ | 4,877 |
|
|
$
|
4,889
|
|
|
$
|
(12)
|
|
| $ |
| 525 |
|
|
$
|
|
539
|
|
|
$
|
(14)
|
Europe |
|
|
|
|
|
| 2,774 |
|
|
|
3,500
|
|
|
|
(726)
|
|
|
|
| 120 |
|
|
|
|
143
|
|
|
|
(23)
|
Asia |
|
|
|
|
|
| 466 |
|
|
|
472
|
|
|
|
(6)
|
|
|
|
| 31 |
|
|
|
|
41
|
|
|
|
(10)
|
Rest of World |
|
|
|
|
|
| 125 |
|
|
|
168
|
|
|
|
(43)
|
|
|
|
| (8) |
|
|
|
|
(11)
|
|
|
|
3
|
Corporate and Other |
|
|
|
|
|
| (109) |
|
|
|
(118)
|
|
|
|
9
|
|
|
|
| 9 |
|
|
|
|
10
|
|
|
|
(1)
|
Total reportable
segments
|
|
|
|
|
| $ | 8,133 |
|
|
$
|
8,911
|
|
|
$
|
(778)
|
|
| $ |
| 677 |
|
|
$
|
|
722
|
|
|
$
|
(45)
|
Excluded from Adjusted EBIT for the three months ended June 30, 2015 and
2014 were the following Other Income and Other Expense items, which
have been discussed in the "Other Income" section.
|
|
|
|
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
|
|
|
|
|
|
|
|
| $ |
| (57) |
|
|
$
|
|
—
|
|
Restructuring |
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
| (57) |
|
|
$
|
|
11
|
North America
Reported Adjusted EBIT in North America decreased $14 million to $525
million for the second quarter of 2015 compared to $539 million for the
second quarter of 2014. Reported U.S. dollar Adjusted EBIT was
negatively impacted by the weakening of the Canadian dollar against the
U.S. dollar. Excluding the effect of foreign exchange translation,
Adjusted EBIT increased primarily as a result of:
-
costs incurred related to a fire at a body and chassis facility, during
the second quarter of 2014;
-
lower affiliation fees paid to Corporate;
-
margins earned on higher production sales;
-
decreased commodity costs;
-
a lower amount of employee profit sharing;
-
decreased pre-operating costs incurred at new facilities; and
-
productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
-
lower recoveries associated with scrap steel;
-
higher launch costs;
-
operational inefficiencies at certain facilities;
-
higher warranty costs of $4 million; and
-
net customer price concessions subsequent to the second quarter of 2014.
Europe
Reported Adjusted EBIT in Europe decreased $23 million to $120 million
for the second quarter of 2015 compared to $143 million for the second
quarter of 2014. Reported U.S. dollar Adjusted EBIT was negatively
impacted by the weakening of foreign currencies against the U.S.
dollar, including the euro and Czech koruna. Excluding the effect of
foreign exchange translation, Adjusted EBIT increased primarily as a
result of:
-
productivity and efficiency improvements at certain facilities;
-
lower affiliation fees paid to Corporate;
-
decreased commodity costs;
-
a lower amount of employee profit sharing; and
-
lower warranty costs of $1 million.
These factors were partially offset by:
-
higher launch costs;
-
operational inefficiencies at certain facilities;
-
lower equity income;
-
increased pre-operating costs incurred at new facilities; and
-
net customer price concessions subsequent to the second quarter of 2014.
Asia
Adjusted EBIT in Asia decreased $10 million to $31 million for the
second quarter of 2015 compared to $41 million for the second quarter
of 2014 primarily as a result of:
-
increased pre-operating costs incurred at new facilities;
-
higher launch costs; and
-
net customer price concessions subsequent to the second quarter of 2014.
These factors were partially offset by:
-
margins earned on higher production sales, including margins earned on
the launch of new facilities and new programs;
-
higher equity income; and
-
lower affiliation fees paid to Corporate.
Rest of World
Adjusted EBIT in Rest of World increased $3 million to a loss of $8
million for the second quarter of 2015 compared to a loss of $11
million for the second quarter of 2014 primarily as a result of:
-
productivity and efficiency improvements at certain facilities;
-
a decrease in reported U.S. dollar EBIT loss due to the weakening of the
Brazilian real against the U.S. dollar; and
-
net customer price increases subsequent to the second quarter of 2014.
These factors were partially offset by higher production costs,
including inflationary increases, that we have not been fully
successful in passing through to our customers.
Corporate and Other
Corporate and Other Adjusted EBIT decreased $1 million to $9 million for
the second quarter of 2015 compared to $10 million for the second
quarter of 2014 primarily as a result of:
-
a decrease in affiliation fees earned from our divisions;
-
a greater amount of employee profit sharing;
-
higher incentive compensation; and
-
a $1 million net decrease in valuation gains in respect of ABCP.
These factors were partially offset by the expiration, at the end of
2014, of our consulting agreements with Frank Stronach.
Interest Expense, net
During the second quarter of 2015, we recorded net interest expense of
$8 million compared to $7 million for the second quarter of 2014. The
$1 million increase is primarily as a result of incremental interest
expense on the $750 million 3.625% fixed rate Senior Notes issued
during the second quarter of 2014 (the "Senior Notes").
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased $22
million to $726 million for the second quarter of 2015 compared to $704
million for the second quarter of 2014. Excluding Other Income and
Other Expense, discussed in the "Other Income" section, income from
continuing operations before income taxes for the second quarter of
2015 decreased $46 million. The decrease in income from continuing
operations before income taxes is the result of the decrease in
Adjusted EBIT and the increase in net interest expense, as discussed
above.
Income Taxes
|
|
|
|
|
| For the three months ended June 30, |
|
|
|
|
|
| 2015 |
|
|
|
2014
|
|
|
|
|
|
|
|
| $ |
|
|
| % |
|
|
|
|
|
$
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes as reported |
|
|
|
|
| $ |
| 191 |
|
|
| 26.3 |
|
|
|
$
|
|
185
|
|
|
|
26.3
|
Tax effect on Other Income and Other Expense
|
|
|
|
|
|
|
| (15) |
|
|
| — |
|
|
|
|
|
1
|
|
|
|
(0.3)
|
|
|
|
|
|
| $ |
| 176 |
|
|
| 26.3 |
|
|
|
$
|
|
186
|
|
|
|
26.0
|
Excluding Other Income and Other Expense, after tax, the effective
income tax rate increased to 26.3% for the second quarter of 2015
compared to 26.0% for the second quarter of 2014 primarily as a result
of a change in the mix of earnings whereby proportionately more income
was earned in jurisdictions with higher income tax rates.
Loss from Discontinued Operations, net of tax
Loss income from discontinued operations, net of tax reflects the
results of our interiors operations which have been reclassified to
discontinued operations as a result of the agreement, during the second
quarter of 2015, for the sale of this business.
|
|
|
| Three months ended |
|
|
|
| June 30, |
|
|
|
|
| 2015 |
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
| $ | 695 |
|
|
|
$
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
| 653 |
|
|
|
|
|
569
|
|
Depreciation and amortization
|
|
|
|
| 2 |
|
|
|
|
|
12
|
|
Selling, general and administrative
|
|
|
|
| 29 |
|
|
|
|
|
26
|
|
Equity income
|
|
|
|
|
(4) |
|
|
|
|
|
(2)
|
Income (loss) from discontinued operations before income taxes
|
|
|
|
| 15 |
|
|
|
|
|
(12)
|
Income taxes
|
|
|
|
| 70 |
|
|
|
|
|
(3)
|
Loss from discontinued operations, net of tax |
|
|
| $ | (55) |
|
|
|
$
|
|
(9)
|
Loss from discontinued operations, net of tax increased $46 million to
$55 million for the second quarter of 2015 compared to $9 million for
the second quarter of 2014 primarily as a result of increased income
taxes, including $60 million of deferred tax expense relating to timing
differences that will become payable upon closing of the transaction
partially offset by productivity and efficiency improvements at certain
facilities, particularly in North America and lower depreciation costs.
Loss from Continuing Operations Attributable to Non-Controlling
Interests
Loss from continuing operations attributable to non-controlling
interests was $3 million for the second quarter of 2015 and $nil for
the second quarter of 2014.
Net Income Attributable to Magna International Inc.
Net income attributable to Magna International Inc. of $483 million for
the second quarter of 2015 decreased $27 million compared to the second
quarter of 2014. Excluding Other Income and Other Expense, after tax,
as discussed in the "Other Income" section, net income attributable to
Magna International Inc. decreased $79 million primarily as a result of
the decrease in net income from continuing operations before income
taxes and the increase in the loss from discontinued operations, net of
tax, partially offset by lower income taxes, as discussed above.
Earnings per Share (restated)
|
|
|
| For the three months |
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
| $ |
| 1.31 |
|
|
$
|
|
1.20
|
|
|
+
|
9%
|
|
Attributable to Magna International Inc.
|
|
|
| $ |
| 1.18 |
|
|
$
|
|
1.18
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
| $ |
| 1.29 |
|
|
$
|
|
1.18
|
|
|
+
|
9%
|
|
Attributable to Magna International Inc.
|
|
|
| $ |
| 1.16 |
|
|
$
|
|
1.16
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding (millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
| 409.8 |
|
|
|
|
433.2
|
|
|
-
|
5%
|
|
Diluted |
|
|
|
|
| 415.4 |
|
|
|
|
439.2
|
|
|
-
|
5%
|
Diluted earnings per share from continuing operations increased $0.11 to
$1.29 for the second quarter of 2015 compared to $1.18 for the second
quarter of 2014. Other Income and Other Expense, after tax, positively
impacted diluted earnings per share from continuing operations by $0.10
in the second quarter of 2015 and negatively impacted diluted earnings
per share from continuing operations by $0.02 in the second quarter of
2014 as discussed in the "Other Income" section. Excluding the $0.10
per share positive impact for the second quarter of 2015 and the $0.02
per share negative impact for the second quarter of 2014, diluted
earnings per share from continuing operations decreased $0.01, as a
result of the decrease in net income attributable to Magna
International Inc. from continuing operations partially offset by a
decrease in the weighted average number of diluted shares outstanding
during the second quarter of 2015.
The decrease in the weighted average number of diluted shares
outstanding was due to the purchase and cancellation of Common Shares,
during or subsequent to the second quarter of 2014, pursuant to our
normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
|
|
|
| $ |
| 535 |
|
|
$
|
|
519
|
|
|
|
|
Items not involving current cash flows
|
|
|
|
|
| |
| 176 |
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
| 711 |
|
|
|
|
746
|
|
|
$
|
(35)
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
| (271) |
|
|
|
|
(136)
|
|
|
|
|
Cash provided from operating activities
|
|
|
|
|
| $ |
| 440 |
|
|
$
|
|
610
|
|
|
$
|
(170)
|
Cash flow from operations before changes in operating assets and
liabilities decreased $35 million to $711 million for the second
quarter of 2015 compared to $746 million for the second quarter of
2014. The decrease in cash flow from operations was due to a $51
million decrease in items not involving current cash flows partially
offset by a $16 million increase in net income from continuing
operations. Items not involving current cash flows are comprised of the
following:
|
|
|
| For the three months |
|
|
|
| ended June 30, |
|
|
|
|
|
| 2015 |
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
| $ |
| 198 |
|
|
|
$
|
|
211
|
Amortization of other assets included in cost of goods sold |
|
|
|
|
| 27 |
|
|
|
|
|
40
|
Deferred income taxes
|
|
|
|
|
| 11 |
|
|
|
|
|
(11)
|
Other non-cash charges |
|
|
|
|
| 9 |
|
|
|
|
|
9
|
Equity income in excess of dividends received |
|
|
|
|
| (12) |
|
|
|
|
|
(22)
|
Non-cash portion of Other Income |
|
|
|
|
| (57) |
|
|
|
|
|
—
|
Items not involving current cash flows
|
|
|
| $ |
| 176 |
|
|
|
$
|
|
227
|
Cash invested in operating assets and liabilities amounted to $271
million for the second quarter of 2015 compared to $136 million for the
second quarter of 2014. The change in operating assets and liabilities
is comprised of the following sources (and uses) of cash:
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
| $ |
| 5 |
|
|
|
$
|
|
(52)
|
Inventories |
|
|
|
|
|
|
|
| (143) |
|
|
|
|
|
(81)
|
Prepaid expenses and other |
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
(7)
|
Accounts payable |
|
|
|
|
|
|
|
| (15) |
|
|
|
|
|
108
|
Accrued salaries and wages
|
|
|
|
|
|
|
|
| (119) |
|
|
|
|
|
(107)
|
Other accrued liabilities |
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
(20)
|
Income taxes payable/receivable
|
|
|
|
|
|
|
|
| (3) |
|
|
|
|
|
23
|
Changes in operating assets and liabilities
|
|
|
|
|
|
| $ |
| (271) |
|
|
|
$
|
|
(136)
|
The increase in inventories was primarily due to increased tooling
inventory to support upcoming launches. The decrease in accrued
salaries and wages was primarily due to employee profit sharing
payments.
Capital and Investment Spending
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
|
2014
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions
|
|
|
|
| $ |
| (361) |
|
|
|
$
|
|
(362)
|
|
|
|
|
Investments and other assets
|
|
|
|
|
|
| (41) |
|
|
|
|
|
(48)
|
|
|
|
|
Fixed assets, investments and other assets additions |
|
|
|
|
|
| (402) |
|
|
|
|
|
(410)
|
|
|
|
|
Proceeds from disposition |
|
|
|
|
|
| 118 |
|
|
|
|
|
16
|
|
|
|
|
Cash used in discontinued operations |
|
|
|
|
|
| (9) |
|
|
|
|
|
(36)
|
|
|
|
|
Cash used for investment activities
|
|
|
|
| $ |
| (293) |
|
|
|
$
|
|
(430)
|
|
|
$
|
137
|
Fixed assets, investments and other assets additions
In the second quarter of 2015, we invested $361 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 second quarter of 2015 was for
manufacturing equipment for programs that will be launching subsequent
to the second quarter of 2015.
In the second quarter of 2015, we invested $41 million in other assets
related primarily to fully reimbursable tooling and engineering costs
for programs that launched during the second quarter of 2015 or will be
launching subsequent to the second quarter of 2015.
Proceeds from disposition
In the second quarter of 2015, the $118 million of proceeds include cash
related to the sale of our battery pack business to Samsung SDI.
Financing
|
|
|
|
| For the three months |
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
|
2014
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in bank indebtedness
|
|
|
|
| $ |
| 1 |
|
|
|
$
|
|
—
|
|
|
|
|
Issues of debt |
|
|
|
|
|
| 16 |
|
|
|
|
|
763
|
|
|
|
|
Issues of Common Shares on exercise of stock options |
|
|
|
|
|
| 7 |
|
|
|
|
|
12
|
|
|
|
|
Repayments of debt |
|
|
|
|
|
| (11) |
|
|
|
|
|
(15)
|
|
|
|
|
Repurchase of Common Shares |
|
|
|
|
|
| (5) |
|
|
|
|
|
(575)
|
|
|
|
|
Dividends paid |
|
|
|
|
|
| (90) |
|
|
|
|
|
(79)
|
|
|
|
|
Cash used for financing activities
|
|
|
|
| $ |
| (82) |
|
|
|
$
|
|
106
|
|
|
$
|
(188)
|
Cash dividends paid per Common Share were $0.22 for the second quarter
of 2015, for a total of $90 million.
Financing Resources
|
|
|
|
|
|
|
| As at |
|
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, |
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
|
|
|
| $ | 77 |
|
|
|
$
|
30
|
|
|
|
|
|
|
Long-term debt due within one year |
|
|
|
|
|
|
| 167 |
|
|
|
|
183
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
| 796 |
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,040 |
|
|
|
|
1,025
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
|
|
| 10 |
|
|
|
|
14
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
| 9,050 |
|
|
|
|
8,659
|
|
|
|
|
|
Total capitalization
|
|
|
|
|
|
| $ | 10,100 |
|
|
|
$
|
9,698
|
|
|
|
$
|
402
|
Total capitalization increased by $402 million to $10.10 billion at June
30, 2015 compared to $9.70 billion at December 31, 2014, primarily as a
result of a $391 million increase in shareholders' equity and a $15
million increase in liabilities.
The increase in shareholders' equity was primarily as a result of the
$948 million of net income earned in the first six months of 2015.
These factors were partially offset by:
-
the $375 million net unrealized loss on translation of our net
investment in operations whose functional currency is not the U.S.
dollar;
- $179 million of dividends paid during the first six months of 2015; and
-
the $67 million net unrealized loss on cash flow hedges.
Cash Resources
During the second quarter of 2015, our cash resources increased by
$64 million to $1.16 billion as a result of the cash provided from
operating activities partially offset by cash used for investing and
financing activities, as discussed above. In addition to our cash
resources at June 30, 2015, we had term and operating lines of credit
totalling $2.52 billion of which $2.21 billion was unused and
available.
On April 24, 2015, our $2.25 billion revolving credit facility maturing
June 20, 2019 was extended to June 22, 2020. The facility includes a
$200 million Asian tranche, a $50 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 August 5, 2015 were
exercised:
Common Shares
|
410,979,525
|
Stock options (i)
|
9,220,638
|
|
420,200,163
|
(i) Options to purchase Common Shares are exercisable by the holder in
accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time
pursuant to our stock option plans. |
Contractual Obligations and Off-Balance Sheet Financing
There have been no material changes with respect to the contractual
obligations requiring annual payments during the second quarter of 2015
that are outside the ordinary course of our business. Refer to our MD&A
included in our 2014 Annual Report.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2015
Sales
|
|
|
|
| For the six months |
|
|
|
|
|
|
|
|
|
| ended June 30, |
|
|
|
|
|
|
|
|
|
|
| 2015 |
|
|
|
|
2014
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes (millions of units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
| 8.656 |
|
|
|
|
8.530
|
|
|
|
+
|
1%
|
|
Europe
|
|
|
|
|
| 10.574 |
|
|
|
|
10.444
|
|
|
|
+
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
| $ | 8,808 |
|
|
|
$
|
8,729
|
|
|
|
+
|
1%
|
|
|
Europe |
|
|
|
|
| 3,724 |
|
|
|
|
4,706
|
|
|
|
-
|
21%
|
|
|
Asia |
|
|
|
|
| 793 |
|
|
|
|
757
|
|
|
|
+
|
5%
|
|
|
Rest of World |
|
|
|
|
| 256 |
|
|
|
|
320
|
|
|
|
-
|
20%
|
|
Complete Vehicle Assembly |
|
|
|
|
| 1,207 |
|
|
|
|
1,654
|
|
|
|
-
|
27%
|
|
Tooling, Engineering and Other |
|
|
|
|
| 1,117 |
|
|
|
|
1,200
|
|
|
|
-
|
7%
|
Total Sales
|
|
|
|
| $ | 15,905 |
|
|
|
$
|
17,366
|
|
|
|
-
|
8%
|
External Production Sales - North America
External production sales in North America increased 1% or $79 million
to $8.81 billion for the six months ended June 30, 2015 compared to
$8.73 billion for the six months ended June 30, 2014 primarily as a
result of:
-
the launch of new programs during or subsequent to the six months ended
June 30, 2014, including the:
-
Ford Transit;
-
GM full-size pickups and SUVs;
-
Ford Mustang;
-
Chrysler 200; and
-
Mercedes-Benz C-Class.
This factor was partially offset by:
-
lower production volumes on certain existing programs;
-
a $336 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of the Canadian dollar against the U.S. dollar;
-
net divestitures subsequent to the second quarter of 2014, which
negatively impacted sales by $50 million;
-
programs that ended production during or subsequent to the six months
ended June 30, 2014; and
-
net customer price concessions subsequent to the six months ended June
30, 2014.
External Production Sales - Europe
External production sales in Europe decreased 21% or $982 million to
$3.72 billion for the six months ended June 30, 2015 compared to $4.71
billion for the six months ended June 30, 2014 primarily as a result
of:
-
a $872 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of foreign currencies against the U.S. dollar,
including the euro, Russian ruble and Czech koruna;
-
lower production volumes on certain existing programs;
-
programs that ended production during or subsequent to the six months
ended June 30, 2014; and
-
net customer price concessions subsequent to the six months ended June
30, 2014.
These factors were partially offset by the launch of new programs during
or subsequent to the six months ended June 30, 2014, including the Ford
Transit.
External Production Sales - Asia
External production sales in Asia increased 5% or $36 million to $793
million for the six months ended June 30, 2015 compared to $757 million
for the six months ended June 30, 2014 primarily as a result of the
launch of new programs during or subsequent to the six months ended
June 30, 2014, primarily in China and India.
This factor was partially offset by:
-
lower production volumes on certain existing programs;
-
a $12 million decrease in reported U.S. dollar sales primarily as a
result of the weakening of foreign currencies against the U.S. dollar,
including the Chinese renminbi and South Korean won;
-
programs that ended production during or subsequent to the six months
ended June 30, 2014; and
-
net customer price concessions subsequent to the second quarter of 2014.
External Production Sales - Rest of World
External production sales in Rest of World decreased 20% or $64 million
to $256 million for the six months ended June 30, 2015 compared to $320
million for the six months ended June 30, 2014 primarily as a result
of:
-
lower production volumes on certain existing programs;
-
a $66 million decrease in reported U.S. dollar sales as a result of the
weakening of foreign currencies against the U.S. dollar, including the
Brazilian real; and
-
programs that ended production during or subsequent to the six months
ended June 30, 2014.
These factors were partially offset by:
-
the launch of new programs during or subsequent to the second quarter of
2014, primarily in Brazil; and
-
net customer price increases subsequent to the six months ended June 30,
2014.
Complete Vehicle Assembly Sales
| For the six months |
|
|
|
| ended June 30, |
|
|
|
|
| 2015 |
|
2014
|
|
|
Change
|
Complete Vehicle Assembly Sales
| $ | 1,207 |
$
|
1,654
|
|
-
|
27%
|
Complete Vehicle Assembly Volumes (Units)
|
| 55,686 |
|
69,957
|
|
-
|
20%
|
Complete vehicle assembly sales decreased 27%, or $447 million, to $1.21
billion for the six months ended June 30, 2015 compared to
$1.65 billion for the six months ended June 30, 2014 and assembly
volumes decreased 20% or 14,271 units.
The decrease in complete vehicle assembly sales is primarily as a result
of:
-
a $276 million decrease in reported U.S. dollar sales as a result of the
weakening of the euro against the U.S. dollar; and
-
a decrease in assembly volumes for the MINI Countryman.
These factors were partially offset by an increase in assembly volumes
for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased 7% or $83 million to
$1.12 billion for the six months ended June 30, 2015 compared to $1.20
billion for the six months ended June 30, 2014.
In the six months ended June 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;
-
Ford Edge;
-
MINI Countryman;
-
Skoda Fabia;
-
Honda HR-V and Vezel; and
-
Honda Pilot.
In the six months ended June 30, 2014, the major programs for which we
recorded tooling, engineering and other sales were the:
-
BMW X4;
-
MINI Countryman;
-
Ford Transit;
-
QOROS 3;
-
Mercedes-Benz M-Class;
-
Ford Mustang;
-
Honda Fit;
-
Peugeot RCZ; and
-
Chrysler 200.
The weakening of certain foreign currencies against the U.S. dollar,
including the euro, Canadian dollar and Czech koruna had an unfavourable impact of $153
million on our reported tooling, engineering and other sales.
Segment Analysis
|
|
| For the six months ended June 30, |
|
| Total Sales |
|
| Adjusted EBIT |
|
|
| 2015 |
|
2014
|
|
Change
|
|
|
| 2015 |
|
2014
|
|
Change
|
North America
|
| $ | 9,334 |
$
|
9,349
|
$
|
(15)
|
|
| $ | 978 |
$
|
991
|
$
|
(13)
|
Europe |
|
| 5,592 |
|
6,991
|
|
(1,399)
|
|
|
| 248 |
|
279
|
|
(31)
|
Asia |
|
| 929 |
|
922
|
|
7
|
|
|
| 73 |
|
68
|
|
5
|
Rest of World |
|
| 258 |
|
329
|
|
(71)
|
|
|
| (12) |
|
(24)
|
|
12
|
Corporate and Other
| |
| (208) |
|
(225)
|
|
17
|
|
|
| 21 |
|
26
|
|
(5)
|
Total reportable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments
|
| $ | 15,905 |
$
|
17,366
|
$
|
(1,461)
|
|
| $ | 1,308 |
$
|
1,340
|
$
|
(32)
|
Excluded from Adjusted EBIT for the six months ended June 30, 2015 and
2014 were the following Other Income and Other Expense items, which
have been discussed in the "Other Income" section.
|
| For the six months |
|
| ended June 30, |
|
|
| 2015 |
|
2014
|
Europe |
|
|
|
|
|
|
Gain on sale
|
| $ | (57) |
$
|
—
|
|
Restructuring |
|
| — |
|
33
|
|
| $ | (57) |
$
|
33
|
North America
Adjusted EBIT in North America decreased $13 million to $978 million for
the six months ended June 30, 2015 compared to $991 million for the six
months ended June 30, 2014. Reported U.S. dollar Adjusted EBIT was
negatively impacted by the weakening of the Canadian dollar against the
U.S. dollar. Excluding the effect of foreign exchange translation,
Adjusted EBIT increased primarily as a result of:
-
costs incurred related to a fire at a body and chassis facility, during
the second quarter of 2014;
-
lower affiliation fees paid to Corporate;
-
margins earned on higher production sales;
-
higher equity income;
-
decreased commodity costs;
-
decreased pre-operating costs incurred at new facilities;
-
decreased stock-based compensation; and
-
productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
-
lower recoveries associated with scrap steel;
-
higher launch costs;
-
higher warranty costs of $8 million;
-
operational inefficiencies at certain facilities; and
-
net customer price concessions subsequent to the second quarter of 2014.
Europe
Adjusted EBIT in Europe decreased $31 million to $248 million for the
six months ended June 30, 2015 compared to $279 million for the six
months ended June 30, 2014. Reported U.S. dollar Adjusted EBIT was
negatively impacted by the weakening of foreign currencies against the
U.S. dollar, including the euro, Czech koruna and Russian ruble.
Excluding the effect of foreign exchange translation, Adjusted EBIT
increased primarily as a result of:
-
productivity and efficiency improvements at certain facilities;
-
lower affiliation fees paid to Corporate;
-
decreased commodity costs; and
-
lower warranty costs of $4 million.
These factors were partially offset by:
-
higher launch costs;
-
lower equity income;
-
operational inefficiencies at certain facilities;
-
increased pre-operating costs incurred at new facilities; and
-
net customer price concessions subsequent to the second quarter of 2014.
Asia
Adjusted EBIT in Asia increased $5 million to $73 million for the six
months ended June 30, 2015 compared to $68 million for the six months
ended June 30, 2014 primarily as a result of:
-
margins earned on higher production sales, including margins earned on
the launch of new facilities and new programs;
-
higher equity income;
-
a lower amount of employee profit sharing; and
-
lower affiliation fees paid to Corporate.
These factors were partially offset by:
-
increased pre-operating costs incurred at new facilities;
-
higher launch costs; and
-
net customer price concessions subsequent to the second quarter of 2014.
Rest of World
Rest of World Adjusted EBIT improved $12 million to a loss of $12
million for the six months ended June 30, 2015 compared to a loss of
$24 million for the six months ended June 30, 2014 primarily as a
result of:
-
productivity and efficiency improvements at certain facilities;
-
a decrease in reported U.S. dollar EBIT loss due to the weakening of the
Brazilian real against the U.S. dollar; and
-
net customer price increases subsequent to the second quarter of 2014.
These factors were partially offset by higher production costs,
including inflationary increases, that we have not been fully
successful in passing through to our customers.
Corporate and Other
Corporate and Other Adjusted EBIT decreased $5 million to $21 million
for the six months ended June 30, 2015 compared to $26 million for the
six months ended June 30, 2014 primarily as a result of:
-
a decrease in affiliation fees earned from our divisions;
-
increased stock-based compensation;
-
a greater amount of employee profit sharing; and
-
a $2 million net decrease in valuation gains in respect of ABCP.
These factors were partially offset by the expiration, at the end of
2014, of our consulting agreements with Frank Stronach.
SUBSEQUENT EVENT
Subsequent to the second quarter of 2015, we signed an agreement to
acquire the Getrag Group of Companies, one of the world's largest
suppliers of transmissions. Getrag has an 80-year history in
transmissions and is a technology leader, offering a range of
transmission systems. The purchase price for 100% of the equity of
Getrag is approximately €1.75 billion. This represents an enterprise
value of approximately €2.45 billion less proportionate net debt and
proportionate pension liabilities, which together are estimated to be
approximately €700 million at closing. The purchase price is subject to
working capital and other customary purchase price adjustments. The
transaction is subject to customary closing conditions including
regulatory approval, and is expected to close near the end of 2015.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal
and/or regulatory actions and proceedings and other claims.
Refer to note 16 of our unaudited interim consolidated financial
statements for the six months ended June 30, 2015, 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,
2014.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over financial
reporting that occurred during the six months ended June 30, 2015 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 statements" or "forward-looking information" within
the meaning of applicable securities legislation, including, but not
limited to, statements relating to: the acquisition of the Getrag group
of companies (the "Getrag Transaction"); and the sale of substantially
all of our interiors operations to Grupo Antolin (the "Grupo
Transaction"). The forward-looking information in this document is
presented for the purpose of providing information about management's
current expectations and plans and such information may not be
appropriate for other purposes. Forward-looking statements may include
financial and other projections, as well as statements regarding our
future plans, objectives or economic performance, or the assumptions
underlying any of the foregoing, and other statements that are not
recitations of historical fact. We use words such as "may", "would",
"could", "should", "will", "likely", "expect", "anticipate", "believe",
"intend", "plan", "forecast", "outlook", "project", "estimate" and
similar expressions suggesting future outcomes or events to identify
forward-looking statements. Any such forward-looking statements are
based on information currently available to us, and are based on
assumptions and analyses made by us in light of our experience and our
perception of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate in
the circumstances. However, whether actual results and developments
will conform with our expectations and predictions is subject to a
number of risks, assumptions and uncertainties, many of which are
beyond our control, and the effects of which can be difficult to
predict, including, without limitation: the impact of economic or
political conditions on consumer confidence, consumer demand for
vehicles and vehicle production; fluctuations in relative currency
values; restructuring, downsizing and/or other significant
non-recurring costs; continued underperformance of one or more of our
operating Divisions; our ability to successfully launch material new or
takeover business; shifts in market share away from our top customers;
inability to grow our business with OEMs; shifts in market shares among
vehicles or vehicle segments, or shifts away from vehicles on which we
have significant content; a prolonged disruption in the supply of
components to us from our suppliers; shutdown of our or our customers'
or sub-suppliers' production facilities due to a labour disruption;
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; 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; impairment charges related to
goodwill and long-lived assets; exposure to, and ability to offset,
volatile commodities prices; risk of production disruptions due to
natural disasters or other catastrophic events; the security and
reliability of our IT systems; legal claims and/or regulatory actions
against us, including the ongoing antitrust investigations being
conducted by German and Brazilian authorities; changes in our mix of
earnings between jurisdictions with lower tax rates and those with
higher tax rates, as well as our ability to fully benefit tax losses;
other potential tax exposures; changes in credit ratings assigned to
us; the consummation of the Getrag Transaction and the Grupo
Transaction; the satisfaction or waiver of conditions to complete the
Getrag Transaction and the Grupo Transaction, including obtaining
required regulatory approvals; warranty or indemnity obligations to the
purchaser in the Grupo Transaction in relation to pre-closing
liabilities; our ability to successfully identify, complete and
integrate acquisitions or achieve anticipated synergies; our ability to
conduct appropriate due diligence on acquisition targets; risks of
conducting business in foreign markets, including China, India, Russia,
Eastern Europe, Thailand, Brazil, Argentina and other non-traditional
markets for us; ongoing pricing pressures, including our ability to
offset price concessions demanded by our customers; our ability to
consistently develop innovative products or processes; warranty and
recall costs; pension liabilities; changes in laws and governmental
regulations; costs associated with compliance with environmental laws
and regulations; liquidity risks as a result of an unanticipated
deterioration of economic conditions; our ability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; and other factors set out in our Annual Information Form
filed with securities commissions in Canada and our annual report on
Form 40-F filed with the United States Securities and Exchange
Commission, and subsequent filings. In evaluating forward looking
statements, we caution readers not to place undue reliance on any
forward-looking statements and readers should specifically consider the
various factors which could cause actual events or results to differ
materially from those indicated by such forward-looking statements.
Unless otherwise required by applicable securities laws, we do not
intend, nor do we undertake any obligation, to update or revise any
forward-looking statements to reflect subsequent information, events,
results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
|
|
|
| Three months ended |
| Six months ended |
|
|
|
| June 30, |
| June 30, |
|
|
Note
|
|
|
2015 |
|
2014
|
|
| 2015 |
|
2014
|
Sales
|
|
|
| $ | 8,133 | $
|
8,911
|
| $ | 15,905 |
$
|
17,366
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
6,962 |
| 7,626
|
|
| 13,630 |
|
14,900
|
|
Depreciation and amortization
|
|
|
|
| 198 |
|
211
|
|
|
392 |
|
417
|
|
Selling, general and administrative
|
|
12
|
|
|
348 |
|
407
|
|
|
678 |
|
810
|
|
Interest expense, net
|
|
|
|
| 8 |
|
7
|
|
| 18 |
|
9
|
|
Equity income
|
|
|
|
|
(52) |
|
(55)
|
|
| (103) |
|
(101)
|
|
Other (income) expense, net
|
|
3
|
|
|
(57) |
|
11
|
|
| (57) |
|
33
|
Income from continuing operations before income taxes
|
|
|
|
| 726 |
|
704
|
|
| 1,347 |
|
1,298
|
Income taxes
|
|
7
|
|
| 191 |
|
185
|
|
| 358 |
|
378
|
Net income from continuing operations |
|
|
|
| 535 |
|
519
|
|
| 989 |
|
920
|
Loss from discontinued operations, net of tax
|
|
2
|
|
|
(55) |
|
(9)
|
|
|
(45) |
|
(18)
|
Net income
|
|
|
|
| 480 |
|
510
|
|
|
944 |
|
902
|
Loss from continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-controlling interests
|
|
|
|
| 3 |
|
—
|
|
| 4 |
|
1
|
Net income attributable to Magna International Inc. |
|
|
| $ |
483 |
$
|
510
|
|
$ |
948 |
$
|
903
|
Basic earnings per share (restated - see note 1):
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
| $ | 1.31 |
$
|
1.20
|
| $ | 2.42 |
$
|
2.11
|
|
Discontinued operations |
|
|
|
| (0.13) |
|
(0.02)
|
|
| (0.11) |
|
(0.04)
|
|
Attributable to Magna International Inc.
|
|
|
| $ | 1.18 | $
|
1.18
|
| $ | 2.31 |
$
|
2.07
|
Diluted earnings per share (restated):
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
| $ | 1.29 |
$
|
1.18
|
| $ | 2.39 |
$
|
2.08
|
|
Discontinued operations |
|
|
|
| (0.13) |
|
(0.02)
|
|
| (0.11) |
|
(0.04)
|
|
Attributable to Magna International Inc.
|
|
|
| $ | 1.16 | $
|
1.16
|
| $ | 2.28 |
$
|
2.04
|
Cash dividends paid per Common Share (restated)
|
|
|
| $ | 0.22 | $
|
0.19
|
| $ | 0.44 |
$
|
0.38
|
Average number of Common Shares outstanding during
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the period [in millions] (restated):
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
| 409.8 |
|
433.2
|
|
| 409.6 |
|
436.9
|
|
|
Diluted |
|
|
|
| 415.4 |
|
439.2
|
|
| 415.2 |
|
443.1
|
See accompanying notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
|
|
| Three months ended June 30, |
| Six months ended June 30, |
|
Note
|
| 2015 |
|
2014
|
| 2015 |
|
2014
|
Net income
|
|
| $ | 480 |
|
$
| 510
|
| $ |
944 |
|
$
| 902
|
Other comprehensive income (loss), net of tax:
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on translation of net investment in foreign
operations
|
|
|
|
63 |
|
|
100
|
|
|
(375) |
|
|
(12)
|
|
Net unrealized gain (loss) on available-for-sale investments
|
|
|
| 1 |
|
|
—
|
|
|
2 |
|
|
(1)
|
|
Net unrealized (loss) gain on cash flow hedges
|
|
|
|
(2) |
|
|
49
|
|
|
(67) |
|
|
18
|
|
Reclassification of net loss on cash flow hedges to net income
|
|
|
|
21 |
|
|
6
|
|
|
32 |
|
|
5
|
|
Reclassification of net loss on pensions to net income
|
|
|
|
2 |
|
|
2
|
|
|
3 |
|
|
3
|
|
Pension and post retirement benefits
|
|
|
|
— |
|
|
—
|
|
|
(1) |
|
| —
|
Other comprehensive income (loss) |
|
|
| 85 |
|
| 157
|
|
| (406) |
|
| 13
|
Comprehensive income
|
|
|
|
565 |
|
|
667
|
|
|
538 |
|
|
915
|
Comprehensive loss attributable to non-controlling interests
|
|
|
|
3 |
|
|
—
|
|
|
4 |
|
|
1
|
Comprehensive income attributable to Magna International Inc. |
|
| $ | 568 |
|
$
| 667
|
| $ | 542 |
|
$
| 916
|
See accompanying notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
|
|
| Three months ended June 30, |
| Six months ended June 30, |
|
Note
|
| 2015 |
|
2014
|
| 2015 |
|
2014
|
Cash provided from (used for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
| $ |
535 |
|
$
| 519
|
| $ |
989 |
|
$
| 920
|
Items not involving current cash flows
|
5
|
|
|
176 |
|
| 227
|
|
|
351 |
|
| 497
|
|
|
|
| 711 |
|
| 746
|
|
| 1,340 |
|
| 1,417
|
Changes in operating assets and liabilities
|
5
|
|
|
(271) |
|
|
(136)
|
|
|
(620) |
|
| (315)
|
Cash provided from operating activities |
|
|
| 440 |
|
| 610
|
|
| 720 |
|
| 1,102
|
INVESTMENT ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions
|
|
|
| (361) |
|
| (362)
|
|
|
(627) |
|
|
(565)
|
Purchase of subsidiaries
|
|
|
|
— |
|
| —
|
|
|
(1) |
|
|
—
|
Increase in investments and other assets
|
|
|
| (41) |
|
| (48)
|
|
|
(78) |
|
|
(99)
|
Proceeds from disposition
|
|
|
| 15 |
|
| 16
|
|
|
39 |
|
| 50
|
Proceeds on disposal of battery pack business
|
3
|
|
| 103 |
|
|
—
|
|
|
103 |
|
|
—
|
Cash used in discontinued operations
|
|
|
| (9) |
|
| (36)
|
|
| (41) |
|
| (63)
|
Cash used for investing activities
|
|
|
|
(293) |
|
| (430)
|
|
|
(605) |
|
|
(677)
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in bank indebtedness
|
|
|
| 1 |
|
| —
|
|
|
70 |
|
|
3
|
Issues of debt
|
10
|
|
| 16 |
|
| 763
|
|
| 31 |
|
| 794
|
Repayments of debt
|
|
|
| (11) |
|
| (15)
|
|
|
(54) |
|
| (85)
|
Issue of Common Shares on exercise of stock options
|
|
|
| 7 |
|
|
12
|
|
|
13 |
|
| 37
|
Repurchase of Common Shares
|
13
|
|
|
(5) |
|
|
(575)
|
|
|
(5) |
|
| (815)
|
Dividends
|
|
|
|
(90) |
|
| (79)
|
|
|
(179) |
|
|
(162)
|
Cash (used for) provided from financing activities
|
|
|
| (82) |
|
| 106
|
|
|
(124) |
|
|
(228)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
| (1) |
|
| 30 |
|
|
(77) |
|
|
6
|
Net increase (decrease) in cash and cash equivalents during the period
|
|
|
| 64 |
|
| 316
|
|
|
(86) |
|
| 203
|
Cash and cash equivalents, beginning of period
|
|
|
| 1,099 |
|
| 1,438
|
|
|
1,249 |
|
|
1,551
|
Cash and cash equivalents of continuing operations, end of period
|
|
| $ |
1,163 |
|
$
| 1,754
|
| $ |
1,163 |
|
$
|
1,754
|
See accompanying notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
|
Note
|
| As at June 30, 2015 |
|
As at
December 31,
2014
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents
|
5
|
| $ | 1,163 |
|
$
| 1,249
|
Accounts receivable
|
|
|
|
5,574 |
|
|
5,316
|
Inventories
|
6
|
|
| 2,676 |
|
|
2,525
|
Income taxes receivable
|
|
|
|
— |
|
|
13
|
Deferred tax assets
|
|
|
|
180 |
|
| 181
|
Prepaid expenses and other
|
|
|
| 162 |
|
|
150
|
Assets held for sale
|
2
|
|
| 1,096 |
|
| 609
|
|
|
|
| 10,851 |
|
|
10,043
|
|
|
|
|
|
|
|
|
Investments
|
15
|
|
|
403 |
|
|
379
|
Fixed assets, net
|
|
|
|
5,406 |
|
|
5,402
|
Goodwill
|
|
|
| 1,272 |
|
|
1,337
|
Deferred tax assets
|
|
|
|
145 |
|
|
139
|
Other assets
|
8
|
|
|
490 |
|
|
526
|
Noncurrent assets held for sale
|
2
|
|
|
— |
|
| 348
|
|
|
| $ | 18,567 |
|
$
| 18,174
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Bank indebtedness
|
|
| $ | 77 |
|
$
|
30
|
Accounts payable
|
|
|
| 4,691 |
|
|
4,765
|
Accrued salaries and wages
|
|
|
| 637 |
|
|
686
|
Other accrued liabilities
|
9
|
|
|
1,447 |
|
|
1,448
|
Income taxes payable
|
|
|
| 8 |
|
|
—
|
Deferred tax liabilities |
|
|
| 78 |
|
| 21
|
Long-term debt due within one year
|
|
|
|
167 |
|
|
183
|
Liabilities held for sale
|
2
|
|
| 624 |
|
| 514
|
|
|
|
| 7,729 |
|
|
7,647
|
Long-term debt
|
10
|
|
|
796 |
|
|
812
|
Long-term employee benefit liabilities
|
11
|
|
|
524 |
|
|
559
|
Other long-term liabilities
|
|
|
|
304 |
|
|
278
|
Deferred tax liabilities
|
7
|
|
| 154 |
|
|
171
|
Long-term liabilities held for sale
|
2
|
|
|
— |
|
| 34
|
|
|
|
| 9,507 |
|
|
9,501
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
Capital stock
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
[issued: 410,974,525; December 31, 2014 - 410,325,270 (restated)]
|
13
|
|
| 4,006 |
|
|
3,979
|
Contributed surplus
|
|
|
|
94 |
|
|
83
|
Retained earnings
|
|
|
| 5,914 |
|
|
5,155
|
Accumulated other comprehensive loss
|
14
|
|
| (964) |
|
|
(558)
|
|
|
|
| 9,050 |
|
|
8,659
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
10 |
|
|
14
|
|
|
|
| 9,060 |
|
|
8,673
|
|
|
| $ | 18,567 |
|
$
|
18,174
|
See accompanying notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
|
|
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
Note
|
| Number |
| Stated Value |
| Contri- buted Surplus |
| Retained Earnings |
| AOCI (i) |
| Non- controlling Interest |
| Total Equity |
|
|
| [in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014 |
|
| 410.3
|
|
$
|
3,979
|
|
$
|
83
|
|
$
|
5,155
|
|
$
|
(558)
|
|
$
|
14
|
|
$
|
8,673
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
948
|
|
|
|
|
|
(4)
|
|
|
944
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406)
|
|
|
|
|
|
(406)
|
Shares issued on exercise of stock options
|
|
|
0.6
|
|
|
17
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
13
|
Exempt share purchase
|
|
|
|
|
|
(1)
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
(5)
|
Release of restricted stock
|
|
|
|
|
|
5
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Stock-based compensation expense
|
12
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
Dividends paid
|
|
|
0.1
|
|
|
6
|
|
|
|
|
|
(185)
|
|
|
|
|
|
|
|
|
(179)
|
Balance, June 30, 2015 |
|
| 411.0 |
| $ | 4,006 |
| $ | 94 |
| $ | 5,914 |
| $ | (964) |
| $ | 10 |
| $ | 9,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Shares |
|
|
|
|
|
|
|
|
|
|
|
Note
|
| Number |
| Stated Value |
| Contri- buted Surplus |
| Retained Earnings |
| AOCI (i) |
| Non- controlling Interest |
| Total Equity |
|
|
| [in millions (restated)] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
| 442.3
|
|
$
|
4,230
|
|
$
|
69
|
|
$
|
5,011
|
|
$
|
313
|
|
$
|
16
|
|
$
|
9,639
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
|
|
(1)
|
|
|
902
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
13
|
Issues of shares by subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued on exercise of stock options
|
|
|
2.0
|
|
|
47
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
37
|
Repurchase and cancellation under normal course issuer bid
|
12
|
|
(16.9)
|
|
|
(162)
|
|
|
|
|
|
(638)
|
|
|
(15)
|
|
|
|
|
|
(815)
|
Release of restricted stock
|
|
|
|
|
|
5
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Stock-based compensation expense
|
11
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
Reclassification from liability
|
11
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
Dividends paid
|
|
|
0.1
|
|
|
5
|
|
|
|
|
|
(167)
|
|
|
|
|
|
|
|
|
(162)
|
Balance, June 30, 2014 |
|
| 427.5 |
| $ | 4,125 |
| $ | 81 |
| $ | 5,109 |
| $ | 311 |
| $ | 15 |
| $ | 9,641 |
(i) AOCI is Accumulated Other Comprehensive Income. |
See accompanying notes |
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 U.S. generally
accepted accounting principles ["GAAP"] and the accounting policies as
set out in note 1 to the annual consolidated financial statements for
the year ended December 31, 2014.
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, 2014
audited consolidated financial statements and notes included in the
Company's 2014 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 June 30, 2015 and
the results of operations, changes in equity and cash flows for the
three and six-month periods ended June 30, 2015 and 2014.
[b] Stock Split
On March 25, 2015, the Company completed a two-for-one stock split,
which was implemented by way of a stock dividend, whereby shareholders
received an additional Common Share for each Common Share held. All
equity-based compensation plans or arrangements were adjusted to
reflect the issuance of additional Common Shares.
Accordingly, all of the Company's issued and outstanding Common Shares,
incentive stock options, and restricted and deferred stock units have
been restated for all periods presented to reflect the stock split. In
addition, earnings per Common Share, Cash dividends paid per Common
Share, weighted average exercise price for stock options and the
weighted average fair value of options granted have been restated for
all periods presented to reflect the stock split.
[c] Discontinued Operations
The Company reports financial results for discontinued operations
separately from continuing operations to distinguish the financial
impact of disposal transactions from ongoing operations. Discontinued
operations reporting only occurs when the disposal of a component or a
group of components of the Company represents a strategic shift that
will have a major impact on the Company's operations and financial
results. In the second quarter of 2015, the Company announced the
signing of an agreement to sell substantially all of its interiors
operations to Grupo Antolin. Accordingly, the assets and liabilities,
operating results and operating cash flows for the previously reported
interiors operations are presented as discontinued operations separate
from the Company's continuing operations. Prior period financial
information has been reclassified to present the interiors operations
as a discontinued operation, and has therefore been excluded from both
continuing operations and segment results in these interim consolidated
financial statements and the notes to the interim consolidated
financial statements, unless otherwise noted. Refer to Note 2
Discontinued Operations for further information regarding the Company's
discontinued operations.
[d] Future Accounting Standard
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 may be adopted
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.
2. DISCONTINUED OPERATIONS
In the second quarter of 2015, the Company entered into an agreement for
the sale of substantially all of its interiors operations ["the
disposed interiors operations"] to Grupo Antolin. The purchase price
for such disposed interiors operations, excluding certain assets, is
approximately $525 million, subject to customary closing adjustments.
The transaction is expected to close in the third quarter of 2015. The
Company does not anticipate significant continuing involvement with the
disposed interiors operations subsequent to the close of the
transaction.
The Company determined that the assets and liabilities of the disposed
interiors operations met the criteria to be classified as held for sale
as of June 30, 2015. Accordingly, the held for sale assets and
liabilities of the disposed interiors operations were reclassified in
the consolidated balance sheet at June 30, 2015 to current assets held
for sale or current liabilities held for sale, respectively, as the
sale of such assets and liabilities is expected within one year, and to
current or long-term assets or liabilities held for sale, as
appropriate, for prior periods.
The following table summarizes the carrying value of the major classes
of assets and liabilities of the discontinued operations which were
classified as held for sale as of June 30, 2015:
|
|
| June 30, 2015 |
|
|
|
December 31,
2014
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
| $ |
35 |
|
|
$
|
4
|
Accounts receivable
|
|
| 446 |
|
|
|
355
|
Inventories
|
|
| 240 |
|
|
|
232
|
Income taxes receivable
|
|
| — |
|
|
|
3
|
Prepaid expenses and other
|
|
| 11 |
|
|
|
10
|
Deferred tax assets
|
|
| 16 |
|
|
|
12
|
Fixed assets, net
|
|
| 273 |
|
|
|
263
|
Goodwill
|
|
|
12
|
|
|
|
12
|
Investments
|
|
| 41 |
|
|
|
40
|
Other assets
|
|
| 22 |
|
|
|
26
|
Total assets of the discontinued operations classified as held for sale
|
| $ | 1,096 |
|
|
$
|
957
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
| $ 8 |
|
|
|
$ 3
|
Accounts payable
|
|
| 413 |
|
|
|
376
|
Accrued salaries and wages
|
|
| 48 |
|
|
|
44
|
Other accrued liabilities
|
|
| 116 |
|
|
|
91
|
Income taxes payable
|
|
| 7 |
|
|
|
—
|
Long-term debt due within one year
|
|
| 1 |
|
|
|
1
|
Long-term employee benefit liabilities
|
|
|
19 |
|
|
|
20
|
Other long-term liabilities
|
|
| 12 |
|
|
|
12
|
Deferred tax liabilities
|
|
|
— |
|
|
|
1
|
Total liabilities of the discontinued operations classified as held for
sale
|
| $ | 624 |
|
|
$
|
548
|
Since the estimated purchase price of the disposed interiors operations
less costs to sell exceeded the carrying value of such operations as at
June 30, 2015, no adjustments to the long-lived assets were necessary.
A reconciliation of the major classes of line items constituting loss
from discontinued operations, net of tax as presented in the statements
of income is as follows:
|
| Three months ended June 30, |
| Six months ended June 30, |
|
| 2015 |
|
2014
|
| 2015 |
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
| $ | 695 |
|
$
| 593
|
| $ |
1,284 |
|
$
| 1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
653 |
|
| 569
|
|
|
1,199 |
|
| 1,100
|
|
Depreciation and amortization
|
|
| 2 |
|
|
12
|
|
|
13 |
|
|
23
|
|
Selling, general and administrative
|
|
| 29 |
|
|
26
|
|
|
54 |
|
|
49
|
|
Equity income
|
|
| (4) |
|
|
(2)
|
|
|
(8) |
|
|
(4)
|
Income (loss) from discontinued operations before income taxes
|
|
| 15 |
|
|
(12)
|
|
|
26 |
|
|
(25)
|
Income taxes [i]
|
|
| 70 |
|
|
(3)
|
|
|
71 |
|
|
(7)
|
Loss from discontinued operations, net of tax |
| $ |
(55) |
|
$
|
(9)
|
| $ |
(45) |
|
$
| (18)
|
[i] Income taxes include $60 million of deferred tax expense relating to
timing differences that will become payable upon closing of the
transaction.
The interiors operations were previously included within all of the
Company's reporting segments except for Rest of World.
3. OTHER (INCOME) EXPENSE, NET
|
|
| Six months ended June 30, |
|
|
| 2015 |
|
2014
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
|
|
|
Gain on disposal
|
[a]
|
| $ |
(57) |
|
$
| —
|
|
Restructuring
|
[b]
|
|
| — |
|
|
11
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
|
Restructuring |
[b]
|
|
| — |
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (57) |
|
$
|
33
|
For the six months ended June 30, 2015:
[a] Gain on disposal
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].
For the six months ended June 30, 2014:
[b] Restructuring
During the second and first quarters of 2014, the Company recorded net
restructuring charges of $11 million and $22 million [$10 million and
$20 million after tax], respectively, in Europe at its exterior systems
operations.
4. EARNINGS PER SHARE
Earnings per share are computed as follows and have been restated to
reflect the effect of the Stock Split [note1]:
|
| Three months ended June 30 | Six months ended June 30 |
|
|
| 2015 |
|
|
2014
|
|
|
2015 |
|
|
2014
|
Income available to Common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
| $ | 535 |
| $ |
519
|
| $ | 989 |
| $
|
920
|
Loss from continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-controlling interests
|
|
| 3 |
|
| —
|
|
| 4 |
|
| 1
|
Net income attributable to Magna International Inc. from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations
|
|
| 538 |
|
|
519
|
|
|
993 |
|
|
921
|
Loss from discontinued operations
|
|
| (55) |
|
| (9)
|
|
| (45) |
|
| (18)
|
Net income attributable to Magna International Inc.
|
| $ | 483 |
| $
|
510
|
|
$ | 948 |
| $
|
903
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 409.8 |
|
| 433.2
|
|
|
409.6 |
|
| 436.9
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock [i]
|
|
| 5.6 |
|
|
6.0
|
|
|
5.6 |
|
|
6.2
|
Diluted |
|
| 415.4 |
|
| 439.2
|
|
|
415.2 |
|
|
443.1
|
|
|
[i]
|
For the six months ended June 30, 2014, diluted earnings per Common
Share exclude 0.1 million
Common Shares issuable under the Company's Incentive Stock Option Plan
because these options
were not "in-the-money".
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
| $ | 1.31 |
| $
|
1.20
|
|
$ | 2.42 |
|
$
|
2.11
|
|
Discontinued operations |
|
| (0.13) |
|
| (0.02)
|
|
| (0.11) |
|
|
(0.04)
|
|
Attributable to Magna International Inc.
|
| $ | 1.18 |
| $
|
1.18
|
|
$ | 2.31 |
| $
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
| $ | 1.29 |
| $
|
1.18
|
|
$ | 2.39 |
|
$
|
2.08
|
|
Discontinued operations |
|
| (0.13) |
|
|
(0.02)
|
|
| (0.11) |
|
|
(0.04)
|
|
Attributable to Magna International Inc.
|
| $ | 1.16 |
| $
|
1.16
|
|
$ | 2.28 |
|
$
|
2.04
|
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
|
|
| June 30, 2015 |
|
|
December 31,
2014
|
|
|
|
|
|
|
|
Bank term deposits, bankers' acceptances and government paper
|
| $ | 1,058 |
|
$
|
1,058
|
Cash
|
|
| 105 |
|
|
191
|
|
| $ | 1,163 |
|
$
|
1,249
|
[b] Items not involving current cash flows:
|
|
| Three months ended June 30, |
| Six months ended June 30, |
|
|
| 2015 |
|
|
2014
|
|
| 2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$ | 198 | |
$
|
211
|
| $ | 392 | |
$
|
417
|
Amortization of other assets included in cost of goods sold |
|
| 27 |
|
|
40
| |
| 50 |
|
|
69
|
Deferred income taxes
|
|
|
11 |
|
| (11)
|
|
|
(16) |
|
| 29
|
Other non-cash charges
|
|
|
9 |
|
|
9
|
|
| 12 |
|
| 15
|
Equity income in excess of dividends received
|
|
|
(12) |
|
| (22)
|
|
| (30) |
| |
(33)
|
Non-cash portion of Other Income [note 3]
|
|
|
(57) |
|
| —
| |
| (57) |
|
| —
|
|
| $ | 176 |
| $
|
227
|
|
$ | 351 |
| $
|
497
|
[c] Changes in operating assets and liabilities:
| Three months ended June 30, |
| Six months ended June 30, |
|
|
| 2015 |
|
|
2014
|
|
|
2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
| $ | 5 |
|
$
|
(52)
|
|
$ | (472) |
| $
|
(852)
|
Inventories |
|
| (143) |
|
|
(81)
|
|
|
(269) |
|
| (98)
|
Prepaid expenses and other
|
|
|
2 |
|
|
(7)
|
|
|
(12) |
|
| 3
|
Accounts payable
|
|
|
(15) |
|
| 108
|
|
|
99 |
|
| 424
|
Accrued salaries and wages
|
|
|
(119) |
|
| (107)
|
|
|
(55) |
|
| (13)
|
Other accrued liabilities
|
|
| 2 |
|
| (20)
|
|
| 40 |
|
| 141
|
Income taxes payable
|
|
| (3) |
|
|
23
|
|
|
49 |
|
|
80
|
|
| $ | (271) |
| $
|
(136)
|
|
$ | (620) |
| $
|
(315)
|
6. INVENTORIES
Inventories consist of:
|
|
|
|
| June 30,
|
|
December 31,
|
|
|
|
|
| 2015
|
|
2014
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
|
|
|
$ | 838 |
|
$
|
846
|
Work-in-process
|
|
|
|
|
|
240 |
|
|
233
|
Finished goods
|
|
|
|
|
|
296 |
|
|
338
|
Tooling and engineering
|
|
|
|
|
|
1,302 |
|
|
1,108
|
|
|
|
|
| $ | 2,676 |
|
$
|
2,525
|
Tooling and engineering inventory represents costs incurred on tooling
and engineering services contracts in excess of billed and unbilled
amounts included in accounts receivable.
7. INCOME TAXES
During the first quarter of 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the European Union. Furthermore,
any foreign losses used by Austrian entities arising in those non
European Union subsidiaries are subject to recapture in Austria. As a
consequence of this change, the Company recorded a charge to tax
expense of $32 million.
8. OTHER ASSETS
Other assets consist of:
|
| June 30, |
|
December 31,
|
|
| 2015 |
|
2014
|
|
|
|
|
|
Preproduction costs related to long-term supply agreements with
|
|
|
|
|
|
|
|
contractual guarantee for reimbursement
|
| $ | 240 |
|
$
|
243
|
Customer relationship intangibles
|
|
|
89 |
|
|
108
|
Long-term receivables
|
|
|
77 |
|
|
85
|
Patents and licences, net
|
|
| 30 |
|
|
32
|
Pension overfunded status
|
|
| 13 |
|
|
13
|
Unrealized gain on cash flow hedges
|
|
|
9 |
|
|
8
|
Other, net
|
|
| 32 |
|
|
37
|
|
| $ | 490 |
|
$
|
526
|
9. WARRANTY
The following is a continuity of the Company's warranty accruals:
|
|
|
|
|
| 2015
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
|
|
$ | 80 |
|
|
| $
|
81
|
Expense, net
|
|
|
|
|
|
8 |
|
|
|
| 7
|
Settlements
|
|
|
|
|
|
(10) |
|
|
|
| (7)
|
Foreign exchange and other
|
|
|
|
|
|
(6) |
|
|
|
| —
|
Balance, March 31
|
|
|
|
|
|
72 |
|
|
|
| 81
|
Expense, net
|
|
|
|
|
| 10 |
|
|
|
|
7
|
Settlements
|
|
|
|
|
|
(10) |
|
|
|
|
(8)
|
Foreign exchange and other
|
|
|
|
|
|
1 |
|
|
|
|
(1)
|
Balance, June 30
|
|
|
|
|
$ | 73 |
|
|
|
$
|
79
|
10. LONG-TERM DEBT
On April 24, 2015, the Company's $2.25 billion revolving credit facility
maturing June 20, 2019 was extended to June 22, 2020. The facility
includes a $200 million Asian tranche, a $50 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.
11. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as follows:
| Three months ended |
| Six months ended |
| June 30, |
| June 30, |
|
|
| 2015 |
|
|
2014
|
|
| 2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan and other
|
| $ | 3 |
|
$
| 4
|
| $ |
7 |
|
$
| 7
|
Termination and long service arrangements |
|
| 5 |
|
| 7
|
|
|
12 |
|
| 16
|
Retirement medical benefit plan
|
|
| 1 |
|
|
1
|
|
|
1 |
|
|
1
|
|
| $ | 9 |
|
$
| 12
|
| $ |
20 |
|
$
| 24
|
12. STOCK-BASED COMPENSATION
[a] Incentive Stock Option Plan
The following is a continuity schedule of options outstanding [number of
options in the table below are expressed in whole numbers] and has been
restated to reflect the effect of the Stock Split [note 1]:
| 2015 |
|
2014
|
| Options outstanding |
|
|
Options outstanding
|
|
|
|
| Number |
|
|
|
Number
|
| Number | Exercise | of options |
|
Number
|
Exercise
|
of options
|
| of options | price (i) | exercisable |
|
of options
|
price (i) |
exercisable
|
|
|
|
|
|
|
|
|
Beginning of period
|
8,314,658 | 27.03 | 4,614,488 |
| 9,516,216
|
20.91
|
5,694,218
|
Granted
|
1,614,336 | 68.24 |
— |
| 1,502,600
|
53.36
|
—
|
Exercised
|
(239,362) | 29.49 | (239,362) |
| (1,360,704)
|
19.75
|
(1,360,704)
|
Cancelled
|
(103,332) | 34.30 | — |
| (33,998)
|
26.10
|
(12,000)
|
Vested
|
— | — |
1,965,904 |
| —
|
—
|
1,558,768
|
March 31
|
9,586,300 | 33.83 | 6,341,030 |
| 9,624,114
|
26.12
|
5,880,282
|
Exercised
|
(308,424) | 26.33 | (308,424) |
| (592,070)
|
20.99
|
(592,070)
|
Cancelled
|
(48,906) | 46.96 |
(2) |
|
(21,000)
|
36.93
|
—
|
June 30
|
9,228,970 | 34.01 |
6,032,604 |
|
9,011,044
|
26.43
|
5,288,212
|
(i) The exercise price noted above represents the weighted average exercise
price in Canadian dollars.
The weighted average assumptions used in measuring the fair value of
stock options granted are as follows:
| Six months ended |
| June 30, |
|
|
| 2015 |
|
|
2014
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
0.97% |
|
|
1.60%
|
Expected dividend yield
|
|
|
2.00% |
|
|
2.00%
|
Expected volatility
|
|
|
26% |
|
|
29%
|
Expected time until exercise
|
|
|
4.6 years |
|
|
4.5 years
|
Weighted average fair value of options granted in period [Cdn$]
(restated)
|
| $ |
12.84 |
|
$
|
11.47
|
[b] Long-term retention program
The following is a continuity of the stock that has not been released to
executives and is reflected as a reduction in the stated value of the
Company's Common Shares [number of Common Shares in the table below are
expressed in whole numbers]. The number of shares have been restated
to reflect the effect of the Stock Split [note 1]:
| 2015 |
|
|
2014
|
|
|
| Number |
|
| Stated |
|
|
Number
|
|
|
Stated
|
|
|
| of shares |
|
| value |
|
|
of shares
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awarded and not released, beginning of period |
|
| 1,174,648 |
| $ | 20 |
|
| 1,460,952
|
|
$
| 25
|
Release of restricted stock
|
|
|
(286,312) |
|
| (4) |
|
|
(286,304)
|
|
|
(5)
|
Awarded and not released, March 31 and June 30
|
|
|
888,336 |
| $ | 16 |
|
|
1,174,648
|
|
$
|
20
|
[c] Restricted stock unit program
The following is a continuity schedule of restricted stock unit programs
outstanding [number of stock units in the table below are expressed in
whole numbers] and has been restated to reflect the effect of the Stock
Split [note 1]:
| 2015 |
|
2014
|
| Equity | Liability | Equity |
|
|
Equity
|
Liability
|
Equity
|
|
| classified | classified | classified |
|
|
classified
|
classified
|
classified
|
|
| RSUs | RSUs | DSUs | Total |
|
RSUs
|
RSUs
|
DSUs
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
985,278 | 46,052 | 303,261 | 1,334,591 |
| 1,263,709
|
60,238
|
254,894
|
1,578,841
|
Granted
|
120,958 | 15,922 | 12,112 | 148,992 |
| 101,619
|
16,050
|
12,630
|
130,299
|
Dividend equivalents
|
424 | 262 | 1,009 | 1,695 |
| 505
|
306
|
1,058
|
1,869
|
Released
|
(16,518) | — | — | (16,518) |
| (16,518)
|
—
|
—
|
(16,518)
|
Balance, March 31 | 1,090,142 | 62,236 | 316,382 | 1,468,760 |
|
1,349,315
|
76,594
|
268,582
|
1,694,491
|
Granted
|
93,821 | — | 9,793 | 103,614 |
| 110,484
|
2,000
|
10,714
|
123,198
|
Dividend equivalents
|
475 | 235 | 1,199 | 1,909 |
| 467
|
278
|
979
|
1,724
|
Balance, June 30
| 1,184,438 | 62,471 | 327,374 | 1,574,283 |
|
1,460,266
|
78,872
|
280,275
|
1,819,413
|
[d] Compensation expense related to stock-based compensation
Stock-based compensation expense recorded in selling, general and
administrative expenses related to the above programs is as follows:
|
| Three months ended |
|
| Six months ended |
|
| June 30, |
|
| June 30, |
|
|
| 2015 |
|
|
2014
|
|
| 2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock Option Plan
|
| $ |
3 |
|
$
| 3
|
| $ | 6 |
|
$
|
7
|
Long-term retention
|
|
|
1 |
|
| 1
|
|
| 2 |
|
|
2
|
Restricted stock unit
|
|
|
6 |
|
| 5
|
|
| 12 |
|
|
10
|
Total stock-based compensation expense
|
| $ |
10 |
|
$
|
9
|
| $ |
20 |
|
$
|
19
|
13. COMMON SHARES
[a] During the second and first quarters of 2014, the Company
repurchased 11,436,362 shares and 5,240,000 respectively, under normal
course issuer bids for cash consideration of $575 million and $240
million, respectively [restated to reflect the effect of the Stock
Split [note1]].
[b] The following table presents the maximum number of shares that would
be outstanding if all the dilutive instruments outstanding at August 5,
2015 were exercised or converted:
Common Shares
|
|
|
410,979,525
|
Stock options (i)
|
|
|
9,220,638
|
|
|
|
420,200,163
|
(i) Options to purchase Common Shares are exercisable by the holder in
accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to
time pursuant to the Company's stock option plans. |
14. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is a continuity schedule of accumulated other
comprehensive (loss) income:
|
|
| 2015 |
|
2014
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on translation of net investment
in foreign
operations
|
|
|
|
|
|
|
|
Balance, beginning of period
|
| $ |
(255) |
|
$
| 454
|
|
Net unrealized loss
|
|
| (438) |
|
| (112)
|
|
Repurchase of shares under normal course issuer bid
|
|
| — |
|
| (4)
|
|
Balance, March 31
|
|
| (693) |
|
|
338
|
|
Net unrealized gain
|
|
| 63 |
|
|
100
|
|
Repurchase of shares under normal course issuer bid
|
|
| — |
|
|
(11)
|
|
Balance, June 30
|
|
| (630) |
|
|
427
|
|
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on cash flow hedges (i) |
|
|
|
|
|
|
|
Balance, beginning of period
|
|
| (113) |
|
|
(20)
|
|
Net unrealized loss
|
|
| (65) |
|
|
(31)
|
|
Reclassification of net loss (gain) to net income
|
|
| 11 |
|
|
(1)
|
|
Balance, March 31
|
|
| (167)
|
|
|
(52)
|
|
Net unrealized (loss) gain
|
|
| (2) |
|
|
49
|
|
Reclassification of net loss to net income
|
|
| 21 |
|
|
6
|
|
Balance, June 30
|
|
| (148) |
|
|
3
|
|
|
| 2015 |
|
|
2014
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on pensions (ii) |
|
|
|
|
|
|
|
Balance, beginning of period
|
|
| (186) |
|
|
(117)
|
|
Net unrealized loss
|
|
|
(1) |
|
|
—
|
|
Reclassification of net loss to net income
|
|
| 1 |
|
|
1
|
|
Balance, March 31
|
|
|
(186) |
|
|
(116)
|
|
Reclassification of net loss to net income
|
|
|
2 |
|
|
2
|
|
Balance, June 30
|
|
|
(184) |
|
|
(114)
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on available-for-sale investments
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
(4) |
|
|
(4)
|
|
Net unrealized gain (loss)
|
|
|
1 |
|
|
(1)
|
|
Balance, March 31
|
|
|
(3) |
|
|
(5)
|
|
Net unrealized gain
|
|
|
1 |
|
|
—
|
|
Balance, June 30
|
|
|
(2) |
|
|
(5)
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss) income
|
| $ | (964) |
|
$
| 311
|
|
|
(i) | The amount of income tax benefit (obligation) that has been netted in
the accumulated net unrealized (loss) gain on cash flow hedges is as follows: |
|
|
|
|
| 2015 |
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| $ | 44 |
|
| $ | 5 |
Net unrealized loss |
|
|
| 27 |
|
|
| 10 |
Reclassifications of net (loss) gain to net income |
|
|
| (5) |
|
|
| 1 |
Balance, March 31 |
|
|
| 66 |
|
|
| 16 |
Net unrealized gain |
|
|
| (1) |
|
|
| (18) |
Reclassifications of net gain to net income |
|
|
| (8) |
|
|
| (1) |
Balance, June 30 |
|
| $ | 57 |
|
| $ | (3) |
|
(ii) | The amount of income tax benefit that has been netted in the accumulated
net unrealized loss on pensions is as follows: |
|
|
|
|
|
| 2015 |
|
|
| 2014 |
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
| $ | 36 |
|
| $ | 14 |
Reclassification of net loss to net income |
|
|
| — |
|
|
| — |
Balance, March 31 |
|
|
| 36 |
|
|
| 14 |
Reclassification of net loss to net income |
|
|
| (1) |
|
|
| — |
Balance, June 30 |
|
| $ | 35 |
|
| $ | 14 |
The amount of other comprehensive income that is expected to be
reclassified to net income over the next 12 months is $80 million [net
of income taxes of $31 million].
15. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial liabilities consist of
the following:
|
| June 30,
|
|
December 31,
|
|
| 2015
|
|
2014
|
|
|
|
|
|
Held for trading
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ | 1,163 |
|
$
|
1,249
|
|
Investment in asset-backed commercial paper |
|
| 83 |
|
|
88
|
|
|
$ | 1,246 |
|
$
|
1,337
|
|
|
|
|
|
|
|
Held to maturity investments
|
|
|
|
|
|
|
|
Severance investments
|
|
$ | 4 |
|
$
|
4
|
|
|
|
|
|
|
|
Available-for-sale
|
|
|
|
|
|
|
|
Equity investments
|
|
$ | 6 |
|
$
|
5
|
|
|
|
|
|
|
|
Loans and receivables
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ | 5,574 |
|
$
|
5,316
|
|
Long-term receivables included in other assets
|
|
|
77 |
|
|
85
|
|
|
$ | 5,651 |
|
$
|
5,401
|
|
|
|
|
|
|
|
Other financial liabilities
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$ | 77 |
|
$
|
30
|
|
Long-term debt (including portion due within one year)
|
|
|
963 |
|
|
995
|
|
Accounts payable
|
|
|
4,691 |
|
|
4,765
|
|
|
$ | 5,731 |
|
$
|
5,790
|
|
|
|
|
|
|
|
Derivatives designated as effective hedges, measured at fair value
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$ | 24 |
|
$
|
21
|
|
|
Other assets
|
|
|
9 |
|
|
8
|
|
|
Other accrued liabilities
|
|
| (125) |
|
|
(90)
|
|
|
Other long-term liabilities
|
|
| (93) |
|
|
(80)
|
|
|
| (185) |
|
|
(141)
|
Natural gas contracts
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
|
(1) |
|
|
(1)
|
|
|
$ | (186) |
|
$
|
(142)
|
[b] Derivatives designated as effective hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges
at gross fair values in the Consolidated Balance Sheets. However,
master netting and other similar arrangements allow net settlements
under certain conditions. The following table shows the Company's
derivative foreign currency contracts at gross fair value as reflected
in the Consolidated Balance Sheets and the unrecognized impacts of
master netting arrangements:
|
| Gross |
| Gross |
|
|
|
|
| amounts |
| amounts |
|
|
|
|
| presented |
| not offset |
|
|
|
|
| in consolidated |
| in consolidated |
|
|
|
|
| balance sheets |
| balance sheets |
| Net amounts |
|
|
|
|
|
|
|
|
|
|
June 30, 2015 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ | 32 |
| $ | 32 |
| $ | — |
|
Liabilities
|
|
$ | (218) |
| $ | (32) |
| $ | (186) |
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$
| 30
|
|
$
|
28
|
|
$
|
2
|
|
Liabilities
|
|
$
| (174)
|
|
$
|
(28)
|
|
$
|
(146)
|
[c] Fair value
The Company determined the estimated fair values of its financial
instruments based on valuation methodologies it believes are
appropriate; however, considerable judgment is required to develop
these estimates. Accordingly, these estimated fair values are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The estimated fair value amounts can be
materially affected by the use of different assumptions or
methodologies. The methods and assumptions used to estimate the fair
value of financial instruments are described below:
Cash and cash equivalents, accounts receivable, bank indebtedness and
accounts payable.
Due to the short period to maturity of the instruments, the carrying
values as presented in the interim consolidated balance sheets are
reasonable estimates of fair values.
Investments
At June 30, 2015, the Company held Canadian third party asset-backed
commercial paper ["ABCP"] with a face value of Cdn$107 million
[December 31, 2014 - Cdn$107 million]. The carrying value and estimated
fair value of this investment was Cdn$103 million [December 31, 2014 -
Cdn$102 million]. As fair value information is not readily determinable
for the Company's investment in ABCP, the fair value was based on a
valuation technique estimating the fair value from the perspective of a
market participant.
At June 30, 2015, the Company held available-for-sale investments in
publicly traded companies. The carrying value and fair value of these
investments was $6 million, which was based on the closing share price
of the investments on June 30, 2015.
Term debt
The Company's term debt includes $167 million due within one year. Due
to the short period to maturity of this debt, the carrying value as
presented in the interim consolidated balance sheets is a reasonable
estimate of its fair value.
Senior Notes
At June 30, 2015, the total estimated fair value of the Senior Notes was
approximately $732 million, determined primarily using active market
prices, categorized as Level 1 inputs within the ASC 820 fair value
hierarchy.
[d] Credit risk
The Company's financial assets that are exposed to credit risk consist
primarily of cash and cash equivalents, accounts receivable, held to
maturity investments, and foreign exchange forward contracts with
positive fair values.
The Company's held for trading investments include an investment in
ABCP. Given the continuing uncertainties regarding the value of the
underlying assets, the amount and timing over cash flows and the risk
of collateral calls in the event that spreads widened considerably, the
Company could be exposed to further losses on its investment.
Cash and cash equivalents, which consists of short-term investments, are
only invested in governments, bank term deposits and bank commercial
paper with an investment grade credit rating. Credit risk is further
reduced by limiting the amount which is invested in certain governments
or any major financial institution.
The Company is also exposed to credit risk from the potential default by
any of its counterparties on its foreign exchange forward contracts.
The Company mitigates this credit risk by dealing with counterparties
who are major financial institutions that the Company anticipates will
satisfy their obligations under the contracts.
In the normal course of business, the Company is exposed to credit risk
from its customers, substantially all of which are in the automotive
industry and are subject to credit risks associated with the automotive
industry. For both the three and six-month periods ended June 30, 2015,
sales to the Company's six largest customers represented 83% of the
Company's total sales, 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
At June 30, 2015, 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
|
|
|
|
|
|
225
|
|
|
|
|
1,580
|
|
euro amount
|
|
|
|
|
|
60
|
|
|
|
|
8
|
|
Korean won amount
|
|
|
|
|
|
21,306
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
For U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
Peso amount
|
|
|
|
|
|
7,440
|
|
|
|
|
27
|
|
Korean won amount
|
|
|
|
|
|
30,917
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
For euros
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. amount
|
|
|
|
|
|
191
|
|
|
|
|
378
|
|
GBP amount
|
|
|
|
|
|
4
|
|
|
|
|
29
|
|
Czech Koruna amount
|
|
|
|
|
|
5,090
|
|
|
|
|
—
|
|
Polish Zlotys amount
|
|
|
|
|
|
235
|
|
|
|
|
—
|
Forward contracts mature at various dates through 2019. Foreign currency
exposures are reviewed quarterly.
16.CONTINGENCIES
From time to time, the Company may become involved in regulatory
proceedings, or become liable for legal, contractual and other claims
by various parties, including customers, suppliers, former employees,
class action plaintiffs and others. On an ongoing basis, the Company
attempts to assess the likelihood of any adverse judgments or outcomes
to these proceedings or claims, together with potential ranges of
probable costs and losses. A determination of the provision required,
if any, for these contingencies is made after analysis of each
individual issue. The required provision may change in the future due
to new developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
[a] In November 1997, the Company and two of its subsidiaries were sued
by KS Centoco Ltd., an Ontario-based steering wheel manufacturer in
which the Company has a 23% equity interest, and by Centoco Holdings
Limited, the owner of the remaining 77% equity interest in KS Centoco
Ltd. In March 1999, the plaintiffs were granted leave to make
substantial amendments to the original statement of claim in order to
add several new defendants and claim additional remedies and, in
February 2006, the plaintiffs further amended their claim to add an
additional remedy. The amended statement of claim alleges, among other
things:
-
breach of fiduciary duty by the Company and two of its subsidiaries;
-
breach by the Company of its binding letter of intent with KS Centoco
Ltd., including its covenant not to have any interest, directly or
indirectly, in any entity that carries on the airbag business in North
America, other than through MST Automotive Inc., a company to be 77%
owned by Magna and 23% owned by Centoco Holdings Limited;
-
the plaintiff's exclusive entitlement to certain airbag technologies in
North America pursuant to an exclusive licence agreement, together with
an accounting of all revenues and profits resulting from the alleged
use by the Company, TRW Inc. ["TRW"] and other unrelated third party
automotive supplier defendants of such technology in North America;
-
a conspiracy by the Company, TRW and others to deprive KS Centoco Ltd.
of the benefits of such airbag technology in North America and to cause
Centoco Holdings Limited to sell to TRW its interest in KS Centoco Ltd.
in conjunction with the Company's sale to TRW of its interest in MST
Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; and
-
oppression by the defendants.
The plaintiffs are seeking, amongst other things, damages of
approximately Cdn$3.5 billion. Document production, completion of
undertakings and examinations for discovery are substantially complete,
although limited additional examinations for discovery may occur. A
trial is not expected to commence until 2017, at the earliest. The
Company believes it has valid defences to the plaintiffs' claims and
therefore intends to continue to vigorously defend this case.
Notwithstanding the amount of time which has transpired since the claim
was filed, these legal proceedings remain at an early stage and,
accordingly, it is not possible to predict their outcome.
[b] In September 2013, representatives of the Bundeskartellamt, the
German Federal Cartel Office, attended at one of the Company's
operating divisions in Germany to obtain information in connection with
an ongoing antitrust investigation relating to suppliers of automotive
textile coverings and components, particularly trunk linings.
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. In the case of the German Federal Cartel Office,
administrative fines are tied to the level of affected sales and the
consolidated sales of the group of companies to which the offending
entity belongs. At this time, management is unable to predict the
duration or outcome of the German and Brazilian investigations,
including whether any operating divisions of the Company will be found
liable for any violation of law or the extent or magnitude of any
liability, if found to be liable.
The Company's policy is to comply with all applicable laws, including
antitrust and competition laws. The Company has initiated a global
review focused on antitrust risk led by a team of external counsel. If
any antitrust violation is found as a result of the above-referenced
investigations or otherwise, Magna could be subject to fines, penalties
and civil, administrative or criminal legal proceedings that could have
a material adverse effect on Magna's profitability in the year in which
any such fine or penalty is imposed or the outcome of any such
proceeding is determined. Additionally, Magna could be subject to other
consequences, including reputational damage, which could have a
material adverse effect on the Company.
[c] In certain circumstances, the Company is at risk for warranty costs
including product liability and recall costs. Due to the nature of the
costs, the Company makes its best estimate of the expected future costs
[note 9]; however, the ultimate amount of such costs could be materially
different. The Company continues to experience increased customer
pressure to assume greater warranty responsibility. Currently, under
most customer agreements, the Company only accounts for existing or
probable claims. Under certain complete vehicle engineering and
assembly contracts, the Company records an estimate of future
warranty-related costs based on the terms of the specific customer
agreements, and the specific customer's warranty experience.
17. SEGMENTED INFORMATION
The Company's chief operating decision maker uses Adjusted EBIT as the
measure of segment profit or loss, since management believes Adjusted
EBIT is the most appropriate measure of operational profitability or
loss for its reporting segments. Adjusted EBIT represents income from
continuing operations before income taxes; interest expense, net; and
other (income) expense, net.
The following tables show segment information for the Company's
reporting segments and a reconciliation of Adjusted EBIT to the
Company's consolidated income from continuing operations before income
taxes:
|
|
| Three months ended
June 30, 2015 |
|
|
Three months ended
June 30, 2014
|
|
|
| Total sales |
|
| External sales |
|
| Adjusted EBIT |
|
| Fixed assets, net |
|
|
Total
sales
|
|
|
External
sales
|
|
|
Adjusted
EBIT
|
|
|
Fixed
assets,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
| $ | 1,576 |
| $ | 1,458 |
|
|
|
| $ | 649 |
|
$
|
1,794
|
|
$
|
1,659
|
|
|
|
|
$
|
596
|
|
United States
|
|
| 2,535 |
|
| 2,426 | |
|
|
|
| 1,291 | |
|
2,396
|
|
|
2,260
|
|
|
|
|
|
1,079
|
|
Mexico
|
|
| 1,054 | |
| 965 |
|
|
| |
| 668 |
|
| 1,024
|
|
|
937
|
|
|
|
|
|
584
|
|
Eliminations
|
|
|
(288) | |
| — |
|
|
|
|
| — |
|
| (325)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
| 4,877 |
|
| 4,849 |
| $ | 525 |
|
| 2,608 |
|
|
4,889
|
|
|
4,856
|
|
$
|
539
|
|
|
2,259
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great Britain) |
|
| 2,248 | |
| 2,183 |
|
| |
|
| 1,185 | |
|
2,879
|
|
|
2,804
|
|
|
|
|
|
1,331
|
|
Great Britain |
|
| 102 | |
| 102 |
|
|
| |
| 43 |
|
| 97
|
|
|
97
|
|
|
|
|
|
38
|
|
Eastern Europe |
|
| 498 | |
| 438 | |
|
|
|
| 467 | |
|
626
|
|
|
545
|
|
|
|
|
|
619
|
|
Eliminations |
|
| (74) | |
| — | |
| |
|
| — |
|
| (102)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
| 2,774 | |
| 2,723 |
|
| 120 | |
| 1,695 |
|
| 3,500
|
|
|
3,446
|
|
|
143
|
|
|
1,988
|
Asia |
|
| 466 |
|
| 434 | |
| 31 | |
| 664 |
|
| 472
|
|
|
437
|
|
|
41
|
|
|
610
|
Rest of World
|
|
| 125 | |
| 125 |
|
| (8) |
|
| 69 |
|
| 168
|
|
|
169
|
|
|
(11)
|
|
|
103
|
Corporate and Other |
|
| (109) |
|
| 2 |
|
| 9 |
|
| 370 |
|
| (118)
|
|
|
3
|
|
|
10
|
|
|
360
|
Total reportable segments |
|
| 8,133 | |
| 8,133 | |
| 677 | |
| 5,406 |
|
|
8,911
|
|
|
8,911
|
|
|
722
|
|
|
5,320
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
(11)
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(8) | |
| |
|
|
|
|
|
|
|
| (7)
|
|
|
|
|
| $ | 8,133 |
| $ | 8,133 |
| $ | 726 | |
| 5,406 |
|
$
|
8,911
|
|
$
|
8,911
|
|
$
|
704
|
|
|
5,320
|
Current assets |
|
|
|
|
|
|
|
|
|
|
| 10,851 |
|
|
|
|
|
|
|
|
|
|
|
11,100
|
Investments, goodwill, deferred tax assets, and other assets |
|
|
|
|
|
|
|
|
|
|
| 2,310 |
|
|
|
|
|
|
|
|
|
|
|
2,558
|
Noncurrent assets held for sale
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
383
|
Consolidated total assets |
|
|
|
|
|
|
|
|
|
| $ | 18,567 |
|
|
|
|
|
|
|
|
|
|
$
|
19,361
|
|
|
|
|
|
|
|
|
|
|
| Six months ended
June 30, 2015 |
|
|
Six months ended
June 30, 2014
|
|
|
| Total sales |
|
|
External sales |
|
| Adjusted EBIT |
|
| Fixed assets, net
|
|
|
Total
sales
|
|
|
External
sales
|
|
|
Adjusted
EBIT
|
|
|
Fixed
assets,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
| $ | 3,040 |
| $ | 2,818 |
|
|
|
| $ | 649 |
|
$
|
3,398
|
|
$
|
3,146
|
|
|
|
|
$
|
596
|
|
United States
|
|
|
4,794 |
|
| 4,580 |
|
|
|
| | 1,291 |
|
| 4,584
|
|
|
4,325
|
|
|
|
|
|
1,079
|
|
Mexico
|
|
| 2,055 |
|
| 1,882 |
|
| |
|
| 668 |
|
| 1,984
|
|
|
1,817
|
|
|
|
|
|
584
|
|
Eliminations
|
|
|
(555) |
|
| — |
| |
|
|
| — |
|
| (617)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
| 9,334 |
|
| 9,280 |
| $ | 978 |
|
| 2,608 |
|
|
9,349
|
|
|
9,288
|
|
$
|
991
|
|
|
2,259
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great Britain) |
|
| 4,501 |
|
| 4,373 |
|
|
|
|
| 1,185 |
| |
5,792
|
|
|
5,654
|
|
|
|
|
|
1,331
|
|
Great Britain |
|
| 195 |
| | 195 |
| |
|
|
| 43 |
|
| 189
|
|
|
188
|
|
|
|
|
|
38
|
|
Eastern Europe |
|
| 1,048 |
| | 927 |
|
|
|
|
| 467 |
|
| 1,215
|
|
|
1,048
|
|
|
|
|
|
619
|
|
Eliminations |
|
| (152) |
| | — |
|
| |
|
| — |
|
| (205)
|
|
|
—
|
|
|
|
|
|
—
|
|
|
| 5,592 |
|
| 5,495 |
|
| 248 |
|
| 1,695 |
|
| 6,991
|
|
|
6,890
|
|
|
279
|
|
|
1,988
|
Asia |
|
| 929 |
|
| 870 |
|
| 73 |
|
| 664 |
|
| 922
|
|
|
851
|
|
|
68
|
|
|
610
|
Rest of World
|
|
| 258 |
|
| 258 |
|
| (12) |
|
| 69 |
|
| 329
|
|
|
329
|
|
|
(24)
|
|
|
103
|
Corporate and Other |
|
| (208) |
| | 2 |
|
| 21 |
|
| 370 |
|
| (225)
|
|
|
8
|
|
|
26
|
|
|
360
|
Total reportable segments |
|
| 15,905 |
|
| 15,905 |
|
| 1,308 |
|
| 5,406 |
|
| 17,366
|
|
|
17,366
|
|
|
1,340
|
|
|
5,320
|
Other income (expense), net
|
|
|
|
|
|
|
|
| 57
|
|
|
|
|
|
|
|
|
|
|
|
(33)
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(18) |
|
|
|
|
|
|
|
|
|
|
|
(9)
|
|
|
|
|
| $ | 15,905 |
| $ | 15,905 |
| $ | 1,347 |
| | 5,406 |
|
$
|
17,366
|
|
$
|
17,366
|
|
$
|
1,298
|
|
|
5,320
|
Current assets |
|
|
|
|
|
|
|
|
|
|
| 10,851 |
|
|
|
|
|
|
|
|
|
|
| 11,100
|
Investments, goodwill deferred tax assets and other assets |
|
|
|
|
|
|
|
|
|
|
| 2,310 |
|
|
|
|
|
|
|
|
|
|
|
2,558
|
Noncurrent assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
383
|
Consolidated total assets |
|
|
|
|
|
|
|
|
|
| $ | 18,567 |
|
|
|
|
|
|
|
|
|
|
$
|
19,361
|
18. SUBSEQUENT EVENT
Subsequent to the second quarter of 2015, the Company signed an
agreement to acquire the Getrag Group of Companies ["Getrag"]. The
purchase price for 100% of the equity of Getrag is approximately €1.75
billion, subject to working capital and other customary purchase price
adjustments. The transaction is subject to customary closing conditions
including regulatory approval, and is expected to close near the end of
2015.
SOURCE Magna International Inc.