AURORA, ON,
March 3, 2014 /PRNewswire/ - Magna
International Inc. (TSX: MG; NYSE: MGA) today reported
financial results for the fourth quarter and year ended
December 31, 2013.
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THREE MONTHS ENDED
DECEMBER 31, |
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YEAR ENDED
DECEMBER 31, |
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2013 |
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2012 |
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2013 |
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2012 |
Sales |
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$ |
9,174 |
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$ |
8,033 |
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$ |
34,835 |
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$ |
30,837 |
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Adjusted EBIT(1) |
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$ |
607 |
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$ |
387 |
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$ |
2,065 |
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$ |
1,658 |
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Income from operations before income
taxes |
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$ |
514 |
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$ |
341 |
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$ |
1,905 |
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$ |
1,750 |
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Net income attributable to Magna
International Inc. |
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$ |
458 |
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$ |
351 |
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$ |
1,561 |
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$ |
1,433 |
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Diluted earnings per share |
|
$ |
2.03 |
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$ |
1.49 |
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$ |
6.76 |
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$ |
6.09 |
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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 (income), net; and other expense (income),
net. |
THREE MONTHS ENDED DECEMBER 31, 2013
We posted sales of $9.17
billion for the fourth quarter ended December 31, 2013, an increase of 14% over the
fourth quarter of 2012. We achieved this sales increase in a period
when vehicle production increased 6% in North America and 5% in Europe, both relative to the fourth quarter of
2012. In the fourth quarter of 2013, our North American, European,
and Asian production sales, as well as tooling, engineering and
other sales and complete vehicle assembly sales all increased while
our Rest of World production sales declined relative to the
comparable quarter in 2012.
Complete vehicle assembly sales increased 13% to
$788 million for the fourth quarter
of 2013 compared to $697 million
for the fourth quarter of 2012, while complete vehicle assembly
volumes increased 17% to approximately 37,000 units.
For the fourth quarter of 2013, adjusted EBIT
increased 57% to $607 million
compared to $387 million for the
fourth quarter of 2012.
For the fourth quarter of 2013, income from
operations before income taxes was $514
million, net income attributable to Magna International Inc.
was $458 million and diluted earnings
per share were $2.03, increases of
$173 million, $107 million and $0.54, respectively, each compared to the fourth
quarter of 2012.
Excluding other expense (income), net after tax
and net loss attributable to non-controlling interests, the income
tax valuation allowance releases and the impact of the elimination
of the Mexican flat tax recorded in the fourth quarters of 2013 and
2012, income from operations before income taxes, net income
attributable to Magna International Inc. and diluted earnings per
share increased $218 million,
$166 million and $0.79, respectively, each compared to the fourth
quarter of 2012.
For the fourth quarter ended December 31, 2013, we generated cash from
operations of $809 million before
changes in non-cash operating assets and liabilities, and
$451 million in non-cash operating
assets and liabilities. Total investment activities for the fourth
quarter of 2013 were $506 million,
including $463 million in fixed
asset additions, $34 million in
investments and other assets and $9
million to purchase subsidiaries.
YEAR ENDED DECEMBER 31,
2013
We posted sales of $34.84
billion for the year ended December
31, 2013, an increase of 13% over the year ended
December 31, 2012. This higher sales
level reflected increases in our North American, European, Asian
and Rest of World production sales as well as higher tooling,
engineering and other sales, and complete vehicle assembly
sales.
For the year ended December 31, 2013, vehicle production increased
5% to 16.2 million units in North
America and decreased 1% to 19.3 million units in
Europe, each compared to 2012.
Complete vehicle assembly sales increased 20% to
$3.06 billion for the year ended
December 31, 2013 compared to
$2.56 billion for the year ended
December 31, 2012, while complete
vehicle assembly volumes increased 19% to approximately 147,000
units.
For the year ended December 31, 2013, adjusted EBIT increased 25% to
$2.07 billion compared to
$1.66 billion for the year ended
December 31, 2012.
For the year ended December 31, 2013, income from operations before
income taxes was $1.91 billion, net
income attributable to Magna International Inc. was $1.56 billion and diluted earnings per share were
$6.76, increases of $155 million, $128
million and $0.67,
respectively, each compared to 2012.
Excluding other expense (income), net after tax
and net loss attributable to non-controlling interests, the income
tax valuation allowance releases and the impact of the elimination
of the Mexican flat tax recorded in 2013 and 2012, income from
operations before income taxes, net income attributable to Magna
International Inc. and diluted earnings per share increased
$407 million, $351 million and $1.62, respectively, each compared to 2012.
For the year ended December 31, 2013, we generated cash from
operations before changes in non-cash operating assets and
liabilities of $2.69 billion, and
invested $127 million in non-cash
operating assets and liabilities. Total investment activities for
the year of 2013 were $1.37 billion,
including $1.17 billion in fixed
asset additions, a $192 million
increase in investments and other assets and $9 million to purchase subsidiaries.
Don Walker,
Magna's Chief Executive Officer commented: "2013 was another strong
year for Magna. We maintained our solid performance in
North America, and made further
progress in improving profitability in Europe. Recent investments in
Asia have begun to yield returns,
even while we continue to invest in the region. Lastly, our
business in South America, while
still challenging, is poised to generate some improvement going
forward."
A more detailed discussion of our consolidated
financial results for the fourth quarter and year ended
December 31, 2013 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
Friday, our Board of Directors declared a
quarterly dividend of $0.38 per share
with respect to our outstanding Common Shares for the quarter ended
December 31, 2013. This dividend is
payable on March 28, 2014 to
shareholders of record on March 14,
2014.
Vince Galifi,
Magna's Chief Financial Officer, stated: "Our quarterly
dividend per share of $0.38, an
increase of 19%, is a new record for us. In addition, we recently
stated our intention to accelerate the utilization of our balance
sheet to further invest in our business and return capital to
shareholders over the next two years. These actions reflect our
ongoing strong results and the confidence our Board has in Magna's
future."
UPDATED 2014 OUTLOOK |
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Light Vehicle
Production (Units)
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North America |
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16.7 million |
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Europe |
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19.3 million |
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Production Sales
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North America |
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$16.6 billion - $17.2
billion |
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Europe |
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$9.5 billion - $9.9 billion |
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Asia |
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$1.6 billion - $1.8 billion |
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Rest of World |
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$0.7
billion - $0.8 billion |
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Total Production Sales |
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$28.4 billion -
$29.7 billion |
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Complete Vehicle
Assembly Sales |
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$2.8 billion -
$3.1 billion |
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Total Sales |
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$33.8 billion -
$35.5 billion |
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Operating Margin* |
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Mid 6% range |
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Tax Rate* |
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Approximately 24.5% |
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Capital Spending |
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Approximately
$1.4 billion |
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* Excluding other expense (income), net |
In this 2014 outlook, in addition to 2014 light
vehicle production, we have assumed no material acquisitions or
divestitures. In addition, we have assumed that foreign exchange
rates for the most common currencies in which we conduct business
relative to our U.S. dollar reporting currency will approximate
current rates.
ABOUT MAGNA
We are a leading global automotive supplier with
316 manufacturing operations and 84 product development,
engineering and sales centres in 29 countries. We have over 125,000
employees focused on delivering superior value to our customers
through innovative 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 fourth quarter and year end 2013
results on Monday, March 3, 2014 at
8:00 a.m. EST. The conference call
will be chaired by Donald J. Walker,
Chief Executive Officer. The number to use for this call is
1-800-381-7839. The number for overseas callers is 1-212-231-2901.
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 Monday 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 Western 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 2014; complete vehicle assembly
sales; consolidated operating margin, effective income tax rate;
fixed asset expenditures; implementation of action plans and
operating results improvement in our underperforming operations;
expansion of our business in high growth regions, including
Asia; and implementation of our
balance sheet strategy, including through returns of capital to our
shareholders. 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 potential for a deterioration of economic
conditions or an extended period of economic uncertainty; declines
in consumer confidence and the impact on production volume levels;
continuing economic uncertainty in various geographic regions,
including Western Europe;
inability to sustain or grow our business with OEMs; restructuring
actions by OEMs, including plant closures; restructuring,
downsizing and/or other significant non-recurring costs; continued
underperformance of one or more of our operating divisions; ongoing
pricing pressures, including our ability to offset price
concessions demanded by our customers; our ability to successfully
launch material new or takeover business; shifts in market share
away from our top customers; shifts in market shares among vehicles
or vehicle segments, or shifts away from vehicles on which we have
significant content; risks of conducting business in foreign
markets, including China,
Russia, India, Argentina and Brazil and other non-traditional markets for
us; a prolonged disruption in the supply of components to us from
our suppliers; scheduled shutdowns of our customers' production
facilities (typically in the third and fourth quarters of each
calendar year); shutdown of our or our customers' or sub-suppliers'
production facilities due to a labour disruption; our ability to
successfully compete with other automotive suppliers; a reduction
in outsourcing by our customers or the loss of a material
production or assembly program; the termination or non-renewal by
our customers of any material production purchase order; our
inability to consistently develop innovative products or processes;
impairment charges related to goodwill and long-lived assets;
exposure to, and ability to offset, volatile commodities prices;
fluctuations in relative currency values; our ability to
successfully identify, complete and integrate acquisitions or
achieve anticipated synergies; our ability to conduct appropriate
due diligence on acquisition targets; warranty and recall costs;
risk of production disruptions due to natural disasters; pension
liabilities; legal claims and/or regulatory actions against us,
including the ongoing antitrust investigation being conducted by
the German Federal Cartel Office; 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; inability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; work stoppages and labour relations disputes;
changes in credit ratings assigned to us; changes in laws and
governmental regulations; costs associated with compliance with
environmental laws and regulations; 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
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 year ended December
31, 2013 included in this press release, and the
audited consolidated financial statements and MD&A for the year
ended December 31, 2012
included in our 2012 Annual Report to Shareholders.
This MD&A has been prepared as at
February 28, 2014.
OVERVIEW
We are a leading global automotive supplier with 316
manufacturing operations and 84 product development, engineering
and sales centres in 29 countries. We have over 125,000 employees
focused on delivering superior value to our customers through
innovative processes and World Class Manufacturing. Our product
capabilities include producing body, chassis, interior, exterior,
seating, powertrain, electronic, vision, closure and roof systems
and modules, as well as complete vehicle engineering and contract
manufacturing. Our Common Shares trade on the Toronto Stock
Exchange (MG) and the New York Stock Exchange (MGA). We follow a
corporate policy of functional and operational decentralization,
pursuant to which we conduct our operations through divisions, each
of which is an autonomous business unit operating within
pre-determined guidelines.
HIGHLIGHTS
Operations
Global light vehicle production increased once
again in 2013, representing the fourth straight year of production
growth. In our two primary markets, North American light vehicle
production increased 5% to 16.2 million units, while European light
vehicle production declined 1% to 19.3 million units.
Our 2013 total sales were a record $34.84 billion, an increase of 13% over 2012.
North American, European, Asian and Rest of World production sales,
as well as tooling and other sales all increased to record levels
in 2013, and complete vehicle assembly sales increased 20% in 2013,
compared to 2012.
Adjusted EBIT1 for 2013 was a record
$2.07 billion, compared to
$1.66 billion for 2012, representing
an increase of 25%. Margin earned on the higher sales as well as a
higher Adjusted EBIT percentage of sales drove the $407 million increase over 2012.
In our North
America segment, our strong performance continued in 2013.
Total sales increased 10% over 2012 to $17.95 billion, driven by the launch of new
programs and higher North American light vehicle production, and
Adjusted EBIT increased 8% as compared to 2012 to $1.65 billion. Adjusted EBIT for 2013 included
$158 million of amortization related
to the August 2012 acquisition of
Magna E-Car Systems Partnership ("E-Car"), while Adjusted EBIT for
2012 included $52 million of
amortization related to the E-Car acquisition.
In our Europe
segment, total sales increased by $2.01
billion or 16% to $14.72
billion in 2013, despite the 1% decline in European light
vehicle production. This largely reflects the higher average euro
relative to the U.S. dollar, acquisitions previously completed and
the launch of new business during 2013 compared to 2012. We
reported a 127% increase in Adjusted EBIT in our Europe segment to $375
million for 2013, compared to $165
million for 2012. Margins earned on higher sales, including
sales related to new launches, improved results at certain
underperforming operations and the benefits of restructuring and
downsizing activities were the primary drivers of improved earnings
in Europe.
In our Asia
segment, total sales increased $395
million or 31% in 2013 compared to 2012, driven by higher
light vehicle production as well as the launch of new business,
particularly in China. Adjusted
EBIT was $85 million for 2013, a 73%
increase over $49 million in 2012.
The improvement mainly reflects margins earned on the higher sales
level in 2013 compared to 2012.
In our Rest of World segment, total sales
increased $67 million or 8% during
2013, while our Adjusted EBIT loss was $76
million for 2013, compared to an Adjusted EBIT loss of
$77 million for 2012. Our South
American operations continued to be hampered in 2013 by higher
production costs, particularly inflationary increases that we have
been unable to pass on to our customers.
___________________________
1 Adjusted EBIT represents income from operations before
income taxes; interest expense, net; and other expense (income),
net
Investments
In 2013, we once again made significant
investments in our business, totalling $1.37
billion, including fixed assets, investments, and other
assets.
Our fixed asset spending in 2013 was
$1.17 billion, as we continued to
invest both in our traditional markets and to further expand our
footprint in growing regions. Furthermore, we spent $192 million for investments and other
assets.
Return of Capital to
Shareholders
In 2013, aggregate dividends paid to
shareholders amounted to $284
million. On February 28, 2014
our Board of Directors declared a dividend of U.S. $0.38 per share, a new record, representing an
increase of 19% over the third quarter of 2013 dividend.
In 2013, we also repurchased 14.1 million
shares, returning an additional $1.02
billion to shareholders.
In November 2013,
our Board of Directors approved a normal course issuer bid to
purchase up to 12 million of our issued and outstanding Common
Shares, representing 5.4% of our public float of Common Shares.
Approximately 9.49 million shares remain available under the normal
course issuer bid, which will terminate in November 2014.
Going Forward
We are forecasting another year of light vehicle
production growth in North
America, driven by the ongoing strengthening of North
American auto sales. In addition, we anticipate continued strong
operating performance in our North
America segment.
We are forecasting European light vehicle
production in 2014 to be approximately in line with 2013. We have
made improvements to our European operations and have been
increasing our footprint in Eastern
Europe. In addition, we have been taking, and will continue
to take, restructuring actions, predominantly in Western Europe, reflecting both our ongoing
strategic assessment of our business and our response to OEM
facility actions. During 2014, we expect to record additional
restructuring charges of approximately $75
million in Europe. We
expect our restructuring and continued operational improvement
plans to yield further increased earnings in Europe over time.
We expect to generate improved results in our
Asia segment, driven by lower new
facility costs and higher sales, as new facilities ramp-up. Lastly,
in our Rest of World segment we expect to benefit from actions we
are taking to address commercial challenges and to improve on
operational inefficiencies in South
America.
FINANCIAL RESULTS SUMMARY
During 2013, we posted sales of $34.84
billion, an increase of 13% from 2012. This higher sales
level was a result of increases in our North American, European,
Asian and Rest of World production sales, our complete vehicle
assembly sales and tooling, engineering and other sales. Comparing
2013 to 2012:
- North American vehicle production increased 5% and our North
American production sales increased 9% to $16.74 billion;
- European vehicle production decreased 1% while our European
production sales increased 13% to $9.96
billion;
- Asia production sales
increased 35% to $1.39 billion;
- Rest of World production sales increased 7% to $858 million;
- Complete vehicle assembly volumes increased 19% and sales
increased 20% to $3.06 billion;
and
- Tooling, engineering and other sales increased 22% to
$2.82 billion.
During 2013, we earned income from operations
before income taxes of $1.91 billion
compared to $1.75 billion for 2012.
Excluding other expense (income), net ("Other Expense" or "Other
Income") recorded in 2013 and 2012, as discussed in the "Other
Expense" section, the $407 million
increase in income from operations before income taxes was
primarily as a result of:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to 2012;
- the benefit of restructuring and downsizing activities recently
undertaken in Europe;
- productivity and efficiency improvements at certain
facilities;
- higher equity income;
- acquisitions completed during or subsequent to 2012, including
ixetic Verwaltungs GmbH ("ixetic");
- improved pricing on certain unprofitable contracts, primarily
in Europe;
- lower restructuring and downsizing costs;
- $10 million of cash received
related to the settlement of asset-backed commercial paper ("ABCP")
between the Investment Industry Regulatory Organization of
Canada and financial
institutions;
- a loss on disposal of an investment in the second quarter of
2012;
- net favourable settlement of certain commercial items,
primarily in Europe;
- favourable earn-out settlement in Rest of World;
- lower commodity costs;
- lower stock-based compensation; and
- lower warranty costs of $3
million.
These factors were partially offset by:
- incremental intangible asset amortization of $106 million related to the acquisition and
re-measurement of E-Car;
- programs that ended production during or subsequent to
2012;
- a larger amount of employee profit sharing;
- higher costs incurred in preparation for upcoming
launches;
- higher incentive compensation;
- the recovery of due diligence costs in the second quarter of
2012;
- a $7 million net decrease in
revaluation gain in respect of ABCP;
- increased pre-operating costs incurred at new facilities;
and
- operational inefficiencies and other costs at certain
facilities.
During 2013, net income attributable to Magna
International Inc. was $1.56 billion,
an increase of $128 million compared
to 2012 and diluted earnings per share increased $0.67 to $6.76 for
2013 compared to $6.09 for 2012.
Other Expense and Other Income, after tax and the Deferred Tax
Adjustments impacted net Income attributable to Magna International
Inc. and diluted earnings per share as follows:
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2013 |
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2012 |
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|
Net Income |
|
Diluted |
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|
|
Net Income |
|
Diluted |
|
|
|
Attributable |
|
Earnings |
|
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|
Attributable |
|
Earnings |
|
|
|
to Magna |
|
per Share |
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|
|
to Magna |
|
per Share |
Other expense
(income) |
|
$ |
144 |
$ |
0.63 |
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|
$ |
(108) |
|
(0.45) |
Income tax effect: |
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|
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Other expense (income) |
|
|
(28) |
|
(0.12) |
|
|
|
|
24 |
|
0.10 |
|
Deferred tax adjustments |
|
|
(57) |
|
(0.25) |
|
|
|
|
(89) |
|
(0.38) |
Net income impact |
|
|
59 |
|
0.26 |
|
|
|
|
(173) |
|
(0.73) |
Non-controlling interests |
|
|
(9) |
|
(0.04) |
|
|
|
|
— |
|
— |
|
|
$ |
50 |
$ |
0.22 |
|
|
|
$ |
(173) |
|
(0.73) |
Other Expense and Other Income, and the Deferred
Tax Adjustments are discussed in the "Other Expense" and "Income
Taxes" sections, respectively.
Excluding the $50
million negative impact for 2013 and the $173 million positive impact for 2012, Net income
attributable to Magna International Inc. for 2013 increased
$351 million compared to 2012.
Excluding the $0.22 per share negative impact for 2013 and the
$0.73 per share positive impact for
2012, diluted earnings per share increased $1.62, as a result of the increase in net income
attributable to Magna International Inc. and a decrease in the
weighted average number of diluted shares outstanding during 2013.
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 2012, pursuant to our normal course
issuer bids and the cashless exercise of options, partially offset
by the issue of Common Shares related to the exercise of stock
options, an increase in the number of diluted options outstanding
as a result of an increase in the trading price of our common stock
and stock options issued subsequent to 2012.
INDUSTRY TRENDS AND RISKS
A number of general trends which have been impacting the
automotive industry and our business in recent years are expected
to continue, including the following:
- the consolidation of vehicle platforms and proliferation of
high-volume platforms supporting multiple vehicles and produced in
multiple locations;
- the long-term growth of the automotive industry in China, India
and other high-growth/low cost markets, including accelerated
movement of component and vehicle design, development, engineering
and manufacturing to certain of these markets;
- the growth of the A to C vehicle segments (micro to compact
cars), particularly in developing markets;
- the extent to which innovation in the automotive industry is
being driven by governmental regulation of fuel economy and carbon
dioxide/greenhouse gas emissions, vehicle safety and vehicle
recyclability;
- the growth of cooperative alliances and arrangements among
competing automotive OEMs, including shared purchasing of
components; joint engine, powertrain and/or platform development;
engine, powertrain and platform sharing; and joint vehicle
hybridization and electrification initiatives and other forms of
cooperation;
- the growing importance of electronics in the automotive value
chain;
- the consolidation of automotive suppliers; and
- the ongoing exertion of pricing pressure by OEMs.
The following are some of the more significant
risks that could affect our ability to achieve our desired
results:
- The global automotive industry is cyclical. A worsening of
economic and political conditions, including through rising
interest rates or inflation, high unemployment, increasing energy
prices, declining real estate values, increased volatility in
global capital markets, international conflicts, sovereign debt
concerns, an increase in protectionist measures and/or other
factors, may result in lower consumer confidence, which has a
significant impact on consumer demand for vehicles. Vehicle
production is closely related to consumer demand. A significant
decline in production volumes from current levels could have a
material adverse effect on our profitability.
- The European automotive industry continues to experience
significant overcapacity, elevated levels of vehicle inventory,
reduced consumer demand for vehicles and depressed production
volumes and sales levels. In response to these conditions, some
OEMs are restructuring their European operations, including through
plant closures, and other OEMs may take similar actions. In
addition to planned actions, we may take additional restructuring
or downsizing actions. In such an event, we may incur
restructuring, downsizing and/or other significant non-recurring
costs in our European operations, which could have a material
adverse effect on our profitability.
- The automotive industry has in recent years been the subject of
increased government enforcement of antitrust and competition laws,
particularly by the United States Department of Justice and the
European Commission. Currently, investigations are being conducted
in several product areas. We understand that investigations of this
nature can continue for several years, and regulators in other
jurisdictions could choose to initiate investigations in existing
or other product areas. Where wrongful conduct is found, antitrust
regulators have the authority to impose significant civil or
criminal penalties.
On September 24, 2013,
representatives of the Bundeskartellamt, the German Federal Cartel
Office (the "Cartel Office"), attended at one of the Company's
operating Divisions in Germany to
obtain information in connection with an ongoing antitrust
investigation relating to suppliers of automobile textile coverings
and components, particularly trunk linings. In light of the early
stage of the Cartel Office investigation, we are unable to predict
its duration or outcome, including whether any operating Division
of the Company could be found liable for any violation of law or
the extent of any fine, if found to be liable. The Cartel Office
has the authority to impose administrative fines which it
calculates in accordance with formula-based guidelines tied to the
level of affected sales. The formula also takes into account the
gravity of the infringement, as well as other mitigating and
aggravating factors. Absent aggravating factors, the maximum fine
is typically 10% of the affected sales for the infringement period
multiplied by a factor based on the consolidated sales of the group
of companies to which the offending entity belongs. If applied to a
company with Magna's level of consolidated sales, this factor is
approximately five, which could result in a maximum fine of
approximately 50% of the affected sales. Additional information
regarding these guidelines is publicly available on the Cartel
Office's website.
Our policy is to comply with all applicable laws, including
antitrust and competition laws. In the event of any violation of
such laws, any fines imposed by a regulatory authority, including
by the Cartel Office under the guidelines referred to above, could
have a material adverse effect on our profitability in the year
such fine is imposed.
- In light of the amount of business we currently have with our
largest customers in North America
and Europe, our opportunities for
incremental growth with these customers may be limited. The amount
of business we have with Asian-based OEMs, including Toyota,
Nissan, Hyundai/Kia and Honda, generally lags that of our largest
customers, due in part to the existing relationships between such
Asian-based OEMs and their preferred suppliers. There is no
certainty that we can achieve growth with Asian-based OEMs, nor
that any such growth will offset slower growth we may experience
with our largest customers in North
America and Europe. Our
inability to sustain or grow our business with OEMs could have a
material adverse effect on our profitability.
- We may sell some product lines and/or downsize, close or sell
some of our operating divisions. By taking such actions, we may
incur restructuring, downsizing and/or other significant
non-recurring costs. These costs may be higher in some countries
than others and could have a material adverse effect on our
profitability.
- Although we are working to turn around financially
underperforming operating divisions, there is no guarantee that we
will be successful in doing so in the short to medium term. The
continued underperformance of one or more operating divisions could
have a material adverse effect on our profitability and
operations.
- We face ongoing pricing pressure from OEMs, including through:
long-term supply agreements with mutually agreed price reductions
over the life of the agreement; incremental annual price concession
demands; and pressure to absorb costs related to product design,
engineering and tooling and other items previously paid for
directly by OEMs. OEMs possess significant leverage over their
suppliers as a result of their purchasing power and the highly
competitive nature of the automotive supply industry. We attempt to
offset price concessions and costs in a number of ways, including
through negotiations with our customers, improved operating
efficiencies and cost reduction efforts. Our inability to fully
offset price concessions or costs previously paid for by OEMs could
have an adverse effect on our profitability.
- The launch of new business is a complex process, the success of
which depends on a wide range of factors, including the production
readiness of our and our suppliers' manufacturing facilities and
manufacturing processes, as well as factors related to tooling,
equipment, employees, initial product quality and other factors.
Our failure to successfully launch material new or takeover
business could have an adverse effect on our profitability.
- Although we supply parts to all of the leading OEMs, a
significant majority of our sales are to six customers: General
Motors, Fiat-Chrysler, BMW, Ford, Volkswagen and Daimler. While we
have diversified our customer base somewhat in recent years and
continue to attempt to further diversify, there is no assurance we
will be successful. Shifts in market share away from our top
customers could have a material adverse effect on our
profitability.
- While we supply parts for a wide variety of vehicles produced
globally, we do not supply parts for all vehicles produced, nor is
the number or value of parts evenly distributed among the vehicles
for which we do supply parts. Shifts in market shares among
vehicles or vehicle segments, particularly shifts away from
vehicles on which we have significant content and shifts away from
vehicle segments in which our sales may be more heavily
concentrated, could have a material adverse effect on our
profitability.
- While we continue to expand our manufacturing footprint with a
view to taking advantage of opportunities in markets such as
China, Russia, India
and Brazil and other
non-traditional markets for us, we cannot guarantee that we will be
able to fully realize such opportunities. Additionally, the
establishment of manufacturing operations in new markets carries
its own risks, including those relating to political, civil and
economic instability and uncertainty; corruption risks; high
inflation and our ability to recover inflation-related cost
increases; trade, customs and tax risks; expropriation risks;
currency exchange rates; currency controls; limitations on the
repatriation of funds; insufficient infrastructure; and other risks
associated with conducting business internationally. Expansion of
our business in non-traditional markets is an important element of
our strategy and, as a result, our exposure to the risks described
above may be greater in the future. The likelihood of such
occurrences and their potential effect on us vary from country to
country and are unpredictable, however, the occurrence of any such
risks could have an adverse effect on our operations, financial
condition and profitability.
- A disruption in the supply of components to us from our
suppliers could cause the temporary shut-down of our or our
customers' production lines. Any prolonged supply disruption,
including due to the inability to re-source or in-source
production, could have a material adverse effect on our
profitability.
- Some of our manufacturing facilities are unionized, as are many
manufacturing facilities of our customers and suppliers. Unionized
facilities are subject to the risk of labour disruptions from time
to time, including as a result of restructuring actions taken by
us, our customers and other suppliers. We cannot predict whether or
when any labour disruption may arise, or how long it lasts if it
does arise. A significant labour disruption could lead to a lengthy
shutdown of our or our customers' and/or our suppliers' production
lines, which could have a material adverse effect on our operations
and profitability.
- The automotive supply industry is highly competitive. As a
result of our diversified automotive business, some competitors in
each of our product capabilities have greater market share than we
do. Failure to successfully compete with existing or new
competitors could have an adverse effect on our operations and
profitability.
- We depend on the outsourcing of components, modules and
assemblies, as well as complete vehicles, by OEMs. The extent of
OEM outsourcing is influenced by a number of factors, including:
relative cost, quality and timeliness of production by suppliers as
compared to OEMs; capacity utilization; OEMs' perceptions regarding
the strategic importance of certain components/modules to them;
labour relations among OEMs, their employees and unions; and other
considerations. A reduction in outsourcing by OEMs, or the loss of
any material production or assembly programs combined with the
failure to secure alternative programs with sufficient volumes and
margins, could have a material adverse effect on our
profitability.
- Contracts from our customers consist of blanket purchase orders
which generally provide for the supply of components for a
customer's annual requirements for a particular vehicle, instead of
a specific quantity of products. These blanket purchase orders can
be terminated by a customer at any time and, if terminated, could
result in our incurring various pre-production, engineering and
other costs which we may not recover from our customer and which
could have an adverse effect on our profitability.
- We continue to invest in technology and innovation which we
believe will be critical to our long-term growth. Our ability to
anticipate changes in technology and to successfully develop and
introduce new and enhanced products and/or manufacturing processes
on a timely basis will be a significant factor in our ability to
remain competitive. If we are unsuccessful or are less successful
than our competitors in consistently developing innovative products
and/or processes, we may be placed at a competitive disadvantage,
which could have a material adverse effect on our profitability and
financial condition.
- We recorded significant impairment charges related to goodwill
and long-lived assets in recent years and may continue to do so in
the future. The early termination, loss, renegotiation of the terms
of, or delay in the implementation of, any significant production
contract could be indicators of impairment. In addition, to the
extent that forward-looking assumptions regarding: the impact of
turnaround plans on underperforming operations; new business
opportunities; program price and cost assumptions on current and
future business; the timing and success of new program launches;
and forecast production volumes; are not met, any resulting
impairment loss could have a material adverse effect on our
profitability.
- Prices for certain key raw materials and commodities used in
our parts, including steel and resin, continue to be volatile. To
the extent we are unable to offset commodity price increases by
passing such increases to our customers, by engineering products
with reduced commodity content, through hedging strategies, or
otherwise, such additional commodity costs could have an adverse
effect on our profitability.
- Although our financial results are reported in U.S. dollars, a
significant portion of our sales and operating costs are realized
in Canadian dollars, euros, British pounds and other currencies.
Our profitability is affected by movements of the U.S. dollar
against the Canadian dollar, the euro, the British pound and other
currencies in which we generate revenues and incur expenses.
Significant long-term fluctuations in relative currency values, in
particular a significant change in the relative values of the U.S.
dollar, Canadian dollar, euro or British pound, could have an
adverse effect on our profitability and financial condition and any
sustained change in such relative currency values could adversely
impact our competitiveness in certain geographic regions
- We intend to continue to pursue acquisitions in those product
areas which we have identified as key to our business strategy.
However, we may not be able to identify suitable acquisition
targets or successfully acquire any suitable targets which we
identify. Additionally, we may not be able to successfully
integrate or achieve anticipated synergies from those acquisitions
which we do complete, which could have a material adverse effect on
our profitability.
- Although we seek to conduct appropriate levels of due diligence
of our acquisition targets, these efforts may not always prove to
be sufficient in identifying all risks and liabilities related to
the acquisition, including as a result of limited access to
information, time constraints for conducting due diligence,
inability to access target company plants and/or personnel or other
limitations on the due diligence process. As a result, we may
become subject to liabilities or risks not discovered through our
due diligence efforts, which could have a material adverse effect
on our profitability.
- Our customers continue to demand that we bear the cost of the
repair and replacement of defective products which are either
covered under their warranty or are the subject of a recall by
them. Warranty provisions are established based on our best
estimate of the amounts necessary to settle existing or probable
claims on product defect issues. Recall costs are costs incurred
when government regulators and/or our customers decide to recall a
product due to a known or suspected performance issue and we are
required to participate either voluntarily or involuntarily.
Currently, under most customer agreements, we only account for
existing or probable warranty claims. Under certain complete
vehicle engineering and assembly contracts, we record an estimate
of future warranty-related costs based on the terms of the specific
customer agreements and the specific customer's warranty
experience. While we possess considerable historical warranty and
recall data and experience with respect to the products we
currently produce, we have little or no warranty and recall data
which allows us to establish accurate estimates of, or provisions
for, future warranty or recall costs relating to new products,
assembly programs or technologies being brought into production.
The obligation to repair or replace such products could have a
material adverse effect on our profitability and financial
condition.
- Our manufacturing facilities are subject to risks associated
with natural disasters, including fires, floods, hurricanes and
earthquakes. The occurrence of any of these disasters could cause
the total or partial destruction of a manufacturing facility, thus
preventing us from supplying products to our customers and
disrupting production at their facilities for an indeterminate
period of time. The inability to promptly resume the supply of
products following a natural disaster at a manufacturing facility
could have a material adverse effect on our operations and
profitability.
- Some of our current and former employees in Canada and the
United States participate in defined benefit pension plans.
Although these plans have been closed to new participants, existing
participants in Canada continue to
accrue benefits. Our defined benefit pension plans are not fully
funded and our pension funding obligations could increase
significantly due to a reduction in the funding status caused by a
variety of factors, including: weak performance of capital markets;
declining interest rates; failure to achieve sufficient investment
returns; investment risks inherent in the investment portfolios of
the plans; and other factors. A significant increase in our pension
funding obligations could have an adverse effect on our
profitability and financial condition.
- From time to time, we 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. Depending on the
nature or duration of any potential proceedings or claims, we may
incur substantial costs and expenses and may be required to devote
significant management time and resources to the matters. On an
ongoing basis, we attempt to assess the likelihood of any adverse
judgments or outcomes to these proceedings or claims, although it
is difficult to predict final outcomes with any degree of
certainty. Except as disclosed from time to time in our
consolidated financial statements, we do not believe that any of
the proceedings or claims to which we are party will have a
material adverse effect on our profitability; however, we cannot
provide any assurance to this effect.
- We have incurred losses in some countries which we may not be
able to fully or partially offset against income we have earned in
those countries. In some cases, we may not be able to utilize these
losses at all if we cannot generate profits in those countries
and/or if we have ceased conducting business in those countries
altogether. Our inability to utilize tax losses could materially
adversely affect our profitability. At any given time, we may face
other tax exposures arising out of changes in tax or transfer
pricing laws, tax reassessments or otherwise. To the extent we
cannot implement measures to offset these exposures, they may have
a material adverse effect on our profitability.
- In recent years, we have invested significant amounts of money
in our business through capital expenditures to support new
facilities, expansion of existing facilities, purchases of
production equipment and acquisitions. Returns achieved on such
investments in the past are not necessarily indicative of the
returns we may achieve on future investments and our inability to
achieve returns on future investments which equal or exceed returns
on past investments could have a material adverse effect on our
level of profitability.
- We believe we will have sufficient available cash to
successfully execute our business plan and balance sheet strategy,
even in the event of another global recession similar to that of
2008-2009. However, uncertain economic conditions create
significant planning risks for us. The occurrence of an economic
shock not contemplated in our business plan, a rapid deterioration
of economic conditions or a more prolonged recession than that
experienced in 2008-2009 could result in the depletion of our cash
resources, which could have a material adverse effect on our
operations and financial condition.
- Trading prices of our Common Shares cannot be predicted and may
fluctuate significantly due to a variety of factors, many of which
are outside our control, including: general economic and stock
market conditions; variations in our operating results and
financial condition; differences between our actual operating and
financial results and those expected by investors and stock
analysts; changes in recommendations made by stock analysts,
whether due to factors relating to us, our customers, the
automotive industry or otherwise; significant news or events
relating to our primary customers, including the release of vehicle
production and sales data; investor and stock analyst perceptions
about the prospects for our or our primary customers' respective
businesses or the automotive industry; and other factors.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
For the three
months |
|
|
For the
year |
|
ended December 31, |
|
|
ended December 31, |
|
2013 |
|
2012 |
|
Change |
|
|
2013 |
|
2012 |
|
Change |
1 Canadian dollar equals U.S. dollars |
0.953 |
|
1.010 |
|
- |
6% |
|
|
0.971 |
|
1.001 |
|
- |
3% |
1 euro equals U.S. dollars |
1.361 |
|
1.298 |
|
+ |
5% |
|
|
1.328 |
|
1.286 |
|
+ |
3% |
1 British pound equals U.S. dollars |
1.619 |
|
1.607 |
|
+ |
1% |
|
|
1.564 |
|
1.585 |
|
- |
1% |
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
year ended December 31, 2013 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 YEAR ENDED DECEMBER 31, 2013
Sales
|
|
|
For the
year |
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
2013 |
|
2012 |
|
Change |
Vehicle Production Volumes
(millions of units) |
|
|
|
|
|
|
|
|
|
North America |
|
|
16.188 |
|
15.450 |
|
+ |
5% |
|
Europe |
|
|
19.313 |
|
19.432 |
|
- |
1% |
Sales |
|
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
16,744 |
$ |
15,336 |
|
+ |
9% |
|
|
Europe |
|
|
9,957 |
|
8,786 |
|
+ |
13% |
|
|
Asia |
|
|
1,391 |
|
1,034 |
|
+ |
35% |
|
|
Rest of World |
|
|
858 |
|
803 |
|
+ |
7% |
|
Complete Vehicle Assembly |
|
|
3,062 |
|
2,561 |
|
+ |
20% |
|
Tooling, Engineering and
Other |
|
|
2,823 |
|
2,317 |
|
+ |
22% |
Total Sales |
|
$ |
34,835 |
$ |
30,837 |
|
+ |
13% |
External Production Sales - North America
External production sales in North America increased 9% or $1.40 billion to $16.74
billion for 2013 compared to $15.34
billion for 2012, primarily as a result of:
- the launch of new programs during or subsequent to 2012,
including the:
-
- Ford Fusion and Lincoln MKZ;
- Jeep Cherokee;
- GM full-size pickups;
- Honda Accord;
- Chevrolet Impala; and
- Tesla Model S;
- higher production volumes on certain existing programs;
- acquisitions completed during or subsequent to 2012 which
positively impacted sales by $155
million, including STT Technologies ("STT"); and
- an increase in content on certain programs, including the:
-
- Buick Enclave, GMC Acadia and Chevrolet Traverse; and
- Jeep Grand Cherokee.
These factors were partially offset by:
- programs that ended production during or subsequent to 2012,
including the Jeep Liberty;
- a decrease in reported U.S. dollar sales primarily as a result
of the weakening of the Canadian dollar against the U.S.
dollar;
- a decrease in content on certain programs, including the Jeep
Patriot and Compass; and
- net customer price concessions subsequent to 2012.
External Production Sales - Europe
External production sales in Europe increased 13% or $1.17 billion to $9.96
billion for 2013 compared to $8.79
billion for 2012, primarily as a result of:
- the launch of new programs during or subsequent to 2012,
including the:
-
- Mercedes-Benz A-Class;
- MINI Paceman;
- Mercedes-Benz CLA-Class;
- Ford Kuga; and
- Skoda Rapid and SEAT Toledo;
- acquisitions completed during or subsequent to 2012, which
positively impacted sales by $466
million, including ixetic and BDW technologies group ("BDW")
and the re-acquisition of an interior systems operation; and
- a $233 million increase in
reported U.S. dollar sales primarily as a result of the
strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
- lower production volumes on certain existing programs;
- programs that ended production during or subsequent to 2012;
and
- net customer price concessions subsequent to 2012.
External Production Sales - Asia
External production sales in Asia increased 35% or $357 million to $1.39
billion for 2013 compared to $1.03
billion for 2012, primarily as a result of:
- higher production volumes on certain existing programs;
- the launch of new programs during or subsequent to 2012,
primarily in China;
- a $25 million increase in
reported U.S. dollar sales as a result of the net strengthening of
foreign currencies against the U.S. dollar, including the Chinese
Renminbi; and
- acquisitions completed during or subsequent to 2012, which
positively impacted sales by $18
million, including ixetic.
These factors were partially offset by net
customer price concessions subsequent to 2012.
External Production Sales - Rest of
World
External production sales in Rest of World
increased 7% or $55 million to
$858 million for 2013 compared to
$803 million for 2012, primarily as a
result of:
- the launch of new programs during or subsequent to 2012,
primarily in Argentina and
Brazil;
- higher production volumes on certain existing programs;
and
- net customer price increases subsequent to 2012.
These factors were partially offset by:
- a $106 million decrease in
reported U.S. dollar sales as a result of the net weakening of
foreign currencies against the U.S. dollar, including the Brazilian
real and Argentine peso; and
- programs that ended production during or subsequent to
2012.
Complete Vehicle Assembly Sales
|
|
|
For the
year |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
2012 |
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales |
|
$ |
3,062 |
$ |
2,561 |
|
|
+ |
20% |
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Volumes
(Units) |
|
|
146,566 |
|
123,602 |
|
|
+ |
19% |
Complete vehicle assembly sales increased 20%,
or $501 million, to $3.06 billion for 2013 compared to $2.56 billion for 2012 and assembly volumes
increased 19% or 22,964 units.
The increase in complete vehicle assembly sales
is primarily as a result of:
- the launch of the MINI Paceman during the fourth quarter of
2012;
- an increase in assembly volumes for the Mercedes-Benz G-Class;
and
- a $93 million increase in
reported U.S. dollar sales as a result of the strengthening of the
euro against the U.S. dollar.
These factors were partially offset by:
- the end of production of the Aston Martin Rapide at our
Magna Steyr facility during the
second quarter of 2012; and
- a decrease in assembly volumes for the Peugeot RCZ.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased
22% or $506 million to $2.82 billion for 2013 compared to $2.32 billion for 2012.
In 2013, the major programs for which we
recorded tooling, engineering and other sales were the:
- GM full-size pickups and SUVs;
- Ford Transit;
- Qoros 3;
- Ford Fusion;
- Mercedes-Benz M-Class;
- MINI Countryman;
- Skoda Octavia;
- MINI Cooper;
- MINI Paceman; and
- Jeep Grand Cherokee;
In 2012, the major programs for which we
recorded tooling, engineering and other sales were the:
- Ford Fusion;
- MINI Countryman;
- Mercedes-Benz M-Class;
- Chevrolet Trax;
- Qoros 3;
- Opel Cascada Convertible;
- Chevrolet Spin;
- Ford Escape;
- Infiniti hatchback program;
- Dodge Dart; and
- Ford Transit.
In addition, tooling, engineering and other
sales increased as a result of the net strengthening of foreign
currencies against the U.S dollar, including the strengthening of
the euro partially offset by the weakening of the Canadian
dollar.
Cost of Goods Sold and Gross Margin
|
|
|
For the
year |
|
|
|
ended December 31, |
|
|
|
2013 |
|
2012 |
Sales |
|
$ |
34,835 |
$ |
30,837 |
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
Material |
|
|
22,293 |
|
19,706 |
|
Direct labour |
|
|
2,272 |
|
2,038 |
|
Overhead |
|
|
5,722 |
|
5,275 |
|
|
|
30,287 |
|
27,019 |
Gross margin |
|
$ |
4,548 |
$ |
3,818 |
Gross margin as a percentage of sales |
|
|
13.1% |
|
12.4% |
Cost of goods sold increased $3.27 billion to $30.29
billion for 2013 compared to $27.02
billion for 2012 primarily as a result of:
- higher material, overhead and labour costs associated with the
increase in sales, including wage increases at certain
operations;
- $684 million related to
acquisitions completed during or subsequent to 2012, including
ixetic, STT, E-Car and the re-acquisition of an interior systems
operation;
- increased pre-operating costs incurred at new facilities;
- a net increase in reported U.S. dollar cost of goods sold
primarily due to the strengthening of the euro against the U.S.
dollar partially offset by the weakening of the Canadian dollar,
Brazilian real and Argentine peso, each against the U.S. dollar;
and
- a larger amount of employee profit sharing.
Gross margin increased $730 million to $4.55
billion for 2013 compared to $3.82
billion for 2012 and gross margin as a percentage of sales
increased to 13.1% for 2013 compared to 12.4% for 2012. The
increase in gross margin as a percentage of sales was primarily due
to:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to 2012;
- improved pricing on certain unprofitable contracts;
- lower commodity costs;
- the closure of certain facilities;
- lower warranty costs; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- an increase in complete vehicle assembly sales which have a
higher material content than our consolidated average;
- a larger amount of employee profit sharing;
- an increase in tooling, engineering and other sales that have
low or no margins;
- the re-acquisition, during 2012, of an interior systems
operation;
- higher costs incurred in preparation for upcoming
launches;
- increased pre-operating costs incurred at new facilities;
- programs that ended production during or subsequent to 2012;
and
- operational inefficiencies and other costs at certain
facilities.
Depreciation and Amortization
Depreciation and amortization costs increased
$262 million to $1.06 billion for 2013 compared to
$0.80 billion for 2012. The
higher depreciation and amortization was primarily as a result
of:
- incremental intangible asset amortization of $106 million related to the acquisition and
re-measurement of E-Car;
- $80 million related to
acquisitions completed during or subsequent to 2012, including
ixetic, E-Car and STT;
- depreciation related to new facilities; and
- other capital spending during or subsequent to 2012.
Selling, General and Administrative
("SG&A")
SG&A expense as a percentage of sales was
4.6% for 2013 compared to 4.9% for 2012. SG&A expense increased
$106 million to $1.62 billion for 2013 compared to $1.51 billion for 2012 primarily as a result
of:
- higher labour and other costs to support the growth in sales,
including wage increases at certain operations;
- increased costs incurred at new facilities;
- $25 million related to
acquisitions completed during or subsequent to 2012, including
ixetic, E-Car, and STT;
- higher incentive compensation;
- a $7 million net decrease in
revaluation gains in respect of ABCP; and
- higher employee profit sharing.
These factors were partially offset by:
- lower restructuring and downsizing costs;
- $10 million of cash received
related to the settlement of ABCP between the Investment Industry
Regulatory Organization of Canada
and financial institutions;
- a loss on disposal of an investment in 2012; and
- lower stock-based compensation.
Equity Income
Equity income increased $45 million to $196
million for 2013 compared to $151
million for 2012. Equity income for 2012 included
$35 million of equity loss related to
our investment in E-Car and $5
million of equity income related to our investment in STT.
Excluding this $30 million net equity
loss, the $15 million increase in
equity income is primarily as a result of higher income from most
of our equity accounted investments.
Other Expense (Income), net
During the three months and years ended
December 31, 2013 and 2012, we
recorded Other Expense and Other Income items as follows:
|
|
|
|
2013 |
|
|
|
2012 |
|
|
|
|
|
|
Net Income |
|
Diluted |
|
|
|
|
|
Net Income |
|
Diluted |
|
|
|
|
Operating |
|
Attributable |
|
Earnings |
|
|
|
Operating |
|
Attributable |
|
Earnings |
|
|
|
|
Income |
|
to Magna |
|
per Share |
|
|
|
Income |
|
to Magna |
|
per Share |
Fourth
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
(1) |
|
|
$ |
35 |
$ |
25 |
$ |
0.11 |
|
|
$ |
55 |
$ |
53 |
$ |
0.23 |
|
Impairment of long-lived assets
(1) |
|
|
|
33 |
|
21 |
|
0.09 |
|
|
|
25 |
|
23 |
|
0.10 |
|
Impairment of goodwill
(1) |
|
|
|
22 |
|
22 |
|
0.10 |
|
|
|
— |
|
— |
|
— |
|
Re-measurement gain of STT
(2) |
|
|
|
— |
|
— |
|
— |
|
|
|
(35) |
|
(35) |
|
(0.15) |
|
|
|
|
90 |
|
68 |
|
0.30 |
|
|
|
45 |
|
41 |
|
0.18 |
Third
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
(1) |
|
|
|
48 |
|
33 |
|
0.14 |
|
|
|
— |
|
— |
|
— |
|
Re-measurement gain of E-Car
(2) |
|
|
|
— |
|
— |
|
— |
|
|
|
(153) |
|
(125) |
|
(0.53) |
|
|
|
|
48 |
|
33 |
|
0.14 |
|
|
|
(153) |
|
(125) |
|
(0.53) |
First
Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
(1) |
|
|
|
6 |
|
6 |
|
0.02 |
|
|
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year other expense (income), net |
|
|
$ |
144 |
$ |
107 |
$ |
0.47 |
|
|
$ |
(108) |
$ |
(84) |
$ |
(0.35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Restructuring and Impairment
Charges
[a] For the year ended December 31, 2013
(i) Restructuring Costs
As a result of recent customer announcements
related to plant closures, the profitability of certain facilities
and the level of future booked business, we determined that
restructuring would have to be completed in our traditional
European markets in order to remain cost competitive over the
long-term. As a result, during the fourth, third and first quarters
of 2013, we recorded net restructuring charges of $35 million ($25
million after tax), $48
million ($33 million after
tax) and $6 million ($6 million after tax), respectively, in
Europe at our exterior and
interior systems operations related primarily to the closure of a
facility in Belgium.
Substantially all of these restructuring costs
remain to be paid subsequent to 2013.
During 2014, we expect to record additional
restructuring charges of approximately $75
million.
(ii) Impairments of Long-lived
Assets
In conjunction with our annual business planning
cycle, during the fourth quarter of 2013 we recorded long-lived
asset impairment charges of $33
million ($21 million after tax
and non-controlling interests) consisting of $23 million in North
America and $10 million in
Rest of World. The impairment charges related to battery research
equipment in North America and
fixed assets at our Seating operations in South America.
(iii) Impairment of
Goodwill
In conjunction with our annual business planning
cycle, during the fourth quarter of 2013 we recorded goodwill
impairment charges of $22 million
($22 million after tax) in Rest of
World related to our metal stamping operations.
[b] For the year ended December 31, 2012
(i) Restructuring Costs
During the fourth quarter of 2012, we recorded
restructuring charges of $55 million
($53 million after tax) in
Europe primarily at our exterior
and interior systems and complete vehicle and engineering services
operations.
(ii) Impairments of Long-lived
Assets
During the fourth quarter of 2012 we recorded
long-lived asset impairment charges of $23
million ($22 million after
tax) in Europe and $2 million ($1
million after tax) in North
America. In Europe, the
impairment charges related primarily to fixed assets at our
exterior and interior systems operations.
(2) Re-measurement gains
(i) STT Technologies
Inc.
On October 26,
2012, we acquired the remaining 50% interest in STT for cash
consideration of $55 million. STT is
a manufacturer of automotive pumps with operations in Canada and Mexico. Prior to the acquisition, we accounted
for this investment using the equity method of accounting.
The incremental investment in STT was accounted
for under the business acquisition method of accounting as a step
acquisition which requires that we re-measure our pre-existing
investment in STT at fair value and recognize any gains or losses
in income. The estimated fair value of our investment immediately
before the closing date was $55
million, which resulted in the recognition of a non-cash
gain of $35 million ($35 million after tax).
(ii) Magna E-Car Systems LP
On August 31,
2012, we acquired the controlling 27% interest in E-Car from
a company affiliated with the Stronach Group for cash consideration
of $75 million.
Prior to the acquisition, we held the 73%
non-controlling interest in E-Car and accounted for this investment
using the equity method of accounting. The incremental investment
in E-Car was accounted for under the business acquisition method of
accounting as a step acquisition which requires that we re-measure
our pre-existing investment in E-Car at fair value and recognize
any gains or losses in income. The estimated fair value of our
partnership interest immediately before the closing date was
$205 million, which resulted in the
recognition of a non-cash gain of $153
million ($125 million after
tax).
Segment Analysis
Given the differences between the regions in
which we operate, our operations are segmented on a geographic
basis. Beginning in the fourth quarter of 2013, our segments
consist of North America,
Europe, Asia and Rest of World. Consistent with the
above, our internal financial reporting segments key internal
operating performance measures between North America, Europe, Asia
and Rest of World for purposes of presentation to the chief
operating decision maker to assist in the assessment of operating
performance, the allocation of resources, and our long-term
strategic direction and future global growth.
Our chief operating decision maker uses Adjusted
EBIT as the measure of segment profit or loss, since we believe
Adjusted EBIT is the most appropriate measure of operational
profitability or loss for our reporting segments. Adjusted EBIT
represents income from operations before income taxes; interest
expense, net; and other expense (income), net.
|
|
|
For the year ended December
31, |
|
|
|
External Sales |
|
|
|
Adjusted EBIT |
|
|
|
2013 |
|
2012 |
|
Change |
|
|
|
2013 |
|
2012 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
17,859 |
$ |
16,241 |
$ |
1,618 |
|
|
$ |
1,645 |
$ |
1,521 |
$ |
124 |
Europe |
|
|
14,525 |
|
12,563 |
|
1,962 |
|
|
|
375 |
|
165 |
|
210 |
Asia |
|
|
1,539 |
|
1,187 |
|
352 |
|
|
|
85 |
|
49 |
|
36 |
Rest of World |
|
|
889 |
|
823 |
|
66 |
|
|
|
(76) |
|
(77) |
|
1 |
Corporate and
Other |
|
|
23 |
|
23 |
|
— |
|
|
|
36 |
|
— |
|
36 |
Total reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
$ |
34,835 |
$ |
30,837 |
$ |
3,998 |
|
|
$ |
2,065 |
$ |
1,658 |
$ |
407 |
Excluded from Adjusted EBIT for 2013 and 2012
were the following Other Expense and Other Income items, which have
been discussed in the "Other Expense" section.
|
|
|
|
For the
year |
|
|
|
|
ended December 31, |
|
|
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
Impairment charges |
|
|
$ |
23 |
$ |
2 |
|
Re-measurement gain of STT |
|
|
|
— |
|
(35) |
|
|
|
|
23 |
|
(33) |
Europe |
|
|
|
|
|
|
|
Restructuring charges |
|
|
|
89 |
|
55 |
|
Impairment charges |
|
|
|
— |
|
23 |
|
|
|
|
89 |
|
78 |
Rest of World |
|
|
|
|
|
|
|
Impairment charges |
|
|
|
32 |
|
— |
Corporate and Other |
|
|
|
|
|
|
|
Re-measurement gain of E-Car |
|
|
|
— |
|
(153) |
|
|
|
$ |
144 |
$ |
(108) |
North
America
Adjusted EBIT in North
America increased $124 million
to $1.65 billion for 2013 compared to
$1.52 million for 2012 primarily
as a result of:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to 2012;
- lower restructuring and downsizing costs;
- decreased pre-operating costs incurred at new facilities;
- the benefit of restructuring and downsizing activities recently
undertaken; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- incremental intangible asset amortization of $106 million related to the acquisition and
re-measurement of E-Car;
- programs that ended production during or subsequent to
2012;
- operational inefficiencies and other costs at certain
facilities;
- higher costs incurred in preparation for upcoming
launches;
- a larger amount of employee profit sharing;
- higher affiliation fees paid to Corporate; and
- increased commodity costs.
Europe
Adjusted EBIT in Europe increased $210
million to $375 million for
2013 compared to $165 million
for 2012 primarily as a result of:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to 2012;
- improved pricing on certain unprofitable contracts;
- acquisitions completed during or subsequent to 2012, including
ixetic;
- the benefit of restructuring and downsizing activities recently
undertaken;
- lower costs incurred in preparation for upcoming launches;
- decreased commodity costs;
- net favourable settlement of certain commercial items;
- higher equity income;
- decreased pre-operating costs incurred at new facilities;
and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- a larger amount of employee profit sharing;
- higher affiliation fees paid to corporate;
- higher restructuring and downsizing costs;
- higher incentive compensation; and
- operational inefficiencies and other costs at certain
facilities.
Asia
Asia Adjusted EBIT increased $36 million to $85
million for 2013 compared to $49
million for 2012 primarily as a result of:
- margins earned on higher production sales, including margins
earned on the launch of new facilities and new programs;
- productivity and efficiency improvements at certain
facilities;
- higher equity income; and
- lower warranty costs of $2
million.
These factors were partially offset by:
- increased costs related to new facilities;
- a larger amount of employee profit sharing;
- higher costs incurred in preparation for upcoming
launches;
- higher affiliation fees paid to Corporate; and
- higher incentive compensation.
Rest of World
Rest of World Adjusted EBIT increased
$1 million to a loss of $76 million for 2013 compared to a loss of
$77 million for 2012 primarily as a
result of:
- margins earned on higher production sales, including margins
earned on the launch of new facilities and new programs;
- productivity and efficiency improvements at certain
facilities;
- favourable earn-out settlement;
- lower restructuring and downsizing costs; and
- net customer price increases subsequent to 2012.
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;
- increased costs related to new facilities;
- higher affiliation fees paid to Corporate;
- higher costs incurred in preparation for upcoming launches;
and
- higher incentive compensation.
Corporate and Other
Corporate and Other Adjusted EBIT increased
$36 million to $36 million for 2013 compared to $nil for 2012.
The loss related to our equity accounted investment in E-Car
included in Corporate and Other was $35
million for 2012. Excluding E-Car, Corporate and Other
Adjusted EBIT increased $1 million to
$36 million for 2013 compared to
$35 million for 2012 primarily as a
result of:
- an increase in affiliation fees earned from our divisions;
- $10 million of cash received
related to the settlement of ABCP between the Investment Industry
Regulatory Organization of Canada
and financial institutions;
- a loss on disposal of an investment in the second quarter of
2012; and
- lower stock-based compensation.
These factors were partially offset by:
- costs incurred to evaluate the effectiveness of our supply
base;
- higher incentive compensation;
- the recovery of due diligence costs in the second quarter of
2012; and
- a $7 million net decrease in
revaluation gains in respect of ABCP.
Interest Expense, net
During 2013 and 2012, we recorded net interest
expense of $16 million.
Income from Operations before Income
Taxes
Income from operations before income taxes
increased $155 million to
$1.91 billion for 2013 compared to
$1.75 billion for 2012. Excluding
Other Expense and Other Income, discussed in the "Other Expense"
section, income from operations before income taxes for 2013
increased $407 million. The increase
in income from operations before income taxes is the result of the
increase in EBIT, as discussed above.
Income Taxes
|
|
|
|
2013 |
|
|
|
2012 |
|
|
|
|
$ |
% |
|
|
|
$ |
% |
|
|
|
|
|
|
|
|
|
|
|
Income taxes as reported |
|
|
$ |
360 |
18.9 |
|
|
$ |
324 |
18.5 |
Valuation allowances |
|
|
|
21 |
1.0 |
|
|
|
89 |
5.4 |
Mexican flat tax |
|
|
|
36 |
1.8 |
|
|
|
— |
— |
Tax effect on Other expense (income),
net |
|
|
|
28 |
— |
|
|
|
(24) |
(0.2) |
|
|
|
$ |
445 |
21.7 |
|
|
$ |
389 |
23.7 |
For the year ended December 31, 2013, we had a valuation allowance
against our deferred tax assets in certain European countries.
These valuation allowances were required because of historical
losses and uncertainty as to the timing of when we would be able to
generate the necessary level of earnings to recover these deferred
tax assets. Over the past few years, some of our European
operations have delivered sustained profits which, together with
forecasted profits have allowed us to release a portion of the
valuation allowances set up against our European deferred tax
assets. Additionally, during 2013, we released a portion of our
valuation allowance in China. The
effect of these valuation allowance releases in 2013 is
$21 million. Finally, we recorded a
$36 million deferred tax benefit as a
result of the elimination of the Mexican flat tax.
For the year ended December 31, 2012, we had valuation allowances
against our deferred tax assets in the United Kingdom and Germany. Based on financial forecasts and
continued anticipated growth, we released a portion of the
valuation allowance set up against our deferred tax assets in the
United Kingdom; and in
Germany, the BDW and ixetic
acquisitions allowed us to release a portion of the valuation
allowance set up against our German deferred tax assets.
Additionally, during 2012 we released a portion of our valuation
allowances in Mexico and
China, which were partially offset
by a new valuation allowance against all of our deferred tax assets
in Brazil. The net effect of all
these valuation allowance releases in 2012 is $89 million.
The valuation allowances and elimination of the
Mexican flat tax (the "Deferred Tax Adjustments") totaled
$57 million and $89 million in 2013 and 2012, respectively.
Excluding Other Expense and Other Income, after
tax, and the Deferred Tax Adjustments, the effective income tax
rate decreased to 21.7% for 2013 compared to 23.7% for 2012
primarily as result of favourable audit settlements of prior
taxation years and a reduction in losses not benefitted in
Europe partially offset by
non-creditable withholding tax on the repatriation of funds to
Canada.
Net Income
Net income of $1.55
billion for 2013 increased $119
million compared to 2012. Excluding Other Expense and Other
Income, after tax, as discussed in the "Other Expense" section and
the Deferred Tax Adjustments as discussed in the "Income Taxes"
section, net income increased $351
million. The increase in net income is the result of the
increase in income from operations before income taxes partially
offset by higher income taxes.
Net Loss Attributable to Non-controlling
Interests
Net loss attributable to non-controlling
interests increased $9 million to
$16 million for 2013 compared to
$7 million for 2012 as a result of
impairments of long-lived assets discussed in the "Other Expense"
section.
Net Income Attributable to Magna
International Inc.
Net income attributable to Magna International
Inc. of $1.56 billion for 2013
increased $128 million compared to
2012. Excluding Other Expense and Other Income, after tax and net
loss attributable to non-controlling interests, as discussed in the
"Other Expense" section and the Deferred Tax Adjustments as
discussed in the "Income Taxes" section, net income attributable to
Magna International Inc. increased $351
million as a result of the increase in net income, as
discussed above.
Earnings per Share
|
|
|
|
For the
year |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
2012 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
$ |
6.85 |
$ |
6.17 |
|
+ |
11% |
|
Diluted |
|
|
$ |
6.76 |
$ |
6.09 |
|
+ |
11% |
Average number of Common Shares outstanding
(millions) |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
227.9 |
|
232.4 |
|
- |
2% |
|
Diluted |
|
|
|
230.8 |
|
235.2 |
|
- |
2% |
Diluted earnings per share increased
$0.67 to $6.76 for 2013 compared to $6.09 for 2012. Other Expense and Other Income,
after tax and net loss attributable to non-controlling interests
and the Deferred Tax Adjustments, negatively impacted diluted
earnings per share in 2013 by $0.22
and positively impacted diluted earnings per share in 2012 by
$0.73. Other Expense and Other Income
and the Deferred Tax Adjustments are discussed in the "Other
Expense" and "Income Taxes" sections, respectively. Excluding the
$0.22 per share negative impact for
2013 and the $0.73 per share positive
impact for 2012, diluted earnings per share increased $1.62, as a result of the increase in net income
attributable to Magna International Inc. and a decrease in the
weighted average number of diluted shares outstanding during
2013.
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 2012, pursuant to our
normal course issuer bids and the cashless exercise of options,
partially offset by the issue of Common Shares related to the
exercise of stock options, an increase in the number of diluted
options outstanding as a result of an increase in the trading price
of our common stock and stock options issued subsequent to
2012.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
|
|
For the
year |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
2012 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
$ |
1,545 |
$ |
1,426 |
|
|
|
Items not involving current cash flows |
|
|
|
1,149 |
|
708 |
|
|
|
|
|
|
|
2,694 |
|
2,134 |
|
$ |
560 |
Changes in non-cash operating assets and liabilities |
|
|
|
(127) |
|
72 |
|
|
|
Cash provided from operating activities |
|
|
$ |
2,567 |
$ |
2,206 |
|
$ |
361 |
Cash flow from operations before changes in
non-cash operating assets and liabilities increased $560 million to $2.69
million for 2013 compared to $2.13
billion for 2012. The increase in cash flow from operations
was due to a $441 million increase in
items not involving current cash flows and a $119 million increase in net income, as discussed
above. Items not involving current cash flows are comprised of the
following:
|
|
|
|
For the
year |
|
|
|
|
ended December 31, |
|
|
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
$ |
1,063 |
$ |
801 |
Other non-cash charges |
|
|
|
189 |
|
154 |
Amortization of other assets included in cost of goods
sold |
|
|
|
138 |
|
113 |
Impairment charges |
|
|
|
55 |
|
25 |
Non-cash portion of Other expense (income),
net |
|
|
|
— |
|
(188) |
Deferred income taxes |
|
|
|
(100) |
|
(46) |
Equity income |
|
|
|
(196) |
|
(151) |
Items not involving current cash flows |
|
|
$ |
1,149 |
$ |
708 |
Cash invested in non-cash operating assets and
liabilities amounted to $127 million
for 2013 compared to cash provided from operations of $72 million for 2012. The change in non-cash
operating assets and liabilities is comprised of the following
sources (and uses) of cash:
|
|
|
|
For the
year |
|
|
|
|
ended December 31, |
|
|
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
Accounts receivable |
|
|
$ |
(584) |
$ |
(46) |
Inventories |
|
|
|
(141) |
|
(315) |
Prepaid expenses and other |
|
|
|
(56) |
|
36 |
Accounts payable |
|
|
|
329 |
|
249 |
Accrued salaries and wages |
|
|
|
87 |
|
37 |
Other accrued liabilities |
|
|
|
298 |
|
97 |
Income taxes payable |
|
|
|
(56) |
|
16 |
Deferred revenue |
|
|
|
(4) |
|
(2) |
Changes in non-cash operating assets and
liabilities |
|
|
$ |
(127) |
$ |
72 |
Higher accounts receivable relate primarily to
the increase in production sales during 2013, particularly in
December 2013 compared to
December 2012. The increase in
inventories was primarily due to increased production inventory to
support higher sales activities and for upcoming launches. The
increase in accounts payable was primarily due to timing of
payments. The increase in accrued salaries and wages was primarily
due to restructuring, employee profit sharing and vacation
accruals. Higher other accrued liabilities relate to the increase
in sales and restructuring costs.
Capital and Investment
Spending
|
|
|
|
For the
year |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
2012 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
$ |
(1,169) |
$ |
(1,274) |
|
|
|
Investments and other assets |
|
|
|
(192) |
|
(122) |
|
|
|
Fixed assets, investments and other assets
additions |
|
|
|
(1,361) |
|
(1,396) |
|
|
|
Purchase of subsidiaries |
|
|
|
(9) |
|
(525) |
|
|
|
Proceeds from disposition |
|
|
|
163 |
|
106 |
|
|
|
Cash used for investment activities |
|
|
$ |
(1,207) |
$ |
(1,815) |
|
$ |
608 |
Fixed assets, investments and other assets additions
In 2013, we invested $1.17 billion 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 2013 was for manufacturing
equipment for programs that will be launching subsequent to
2013.
In 2013, we invested $188
million in other assets related primarily to fully
reimbursable tooling and engineering costs for programs that
launched during 2013 or will be launching subsequent to 2013.
Purchase of subsidiaries
During November
2013, we acquired the remaining 49% interest of Textile
Competence Centre Kft, a textile plant in Germany for cash consideration of $9 million. Prior to the acquisition, we were
fully consolidating this entity with non-controlling interest equal
to the 49% interest not owned by us.
During 2012, we invested $525 million to purchase subsidiaries, including
the acquisitions of:
- ixetic, a manufacturer of automotive vacuum, engine and
transmission pumps, which has operations in Germany, Bulgaria and China as well as representation in
Brazil, India, Japan
and the United States. The
acquired business has sales primarily to BMW, Daimler, Volkswagen,
Schaeffler, ZF, Ford, Chrysler, Renault-Nissan and Toyota;
- the controlling 27% interest in the E-Car partnership;
- the remaining 50% interest in STT; and
- BDW, a structural casting supplier of aluminium components,
which has operations in Germany,
Poland and Hungary with sales primarily to Volkswagen,
Audi, Porsche, Mercedes-Benz, Ferrari and ZF.
Proceeds from disposition
In 2013, the $163
million of proceeds include normal course fixed and other
asset disposals.
Financing
|
|
|
|
For the
year |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
2012 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in bank indebtedness |
|
|
$ |
(18) |
$ |
42 |
|
|
|
Repayments of debt |
|
|
|
(173) |
|
(309) |
|
|
|
Issues of debt |
|
|
|
151 |
|
348 |
|
|
|
Issues of Common Shares on exercise of stock
options |
|
|
|
63 |
|
14 |
|
|
|
Repurchase of Common Shares |
|
|
|
(1,020) |
|
(40) |
|
|
|
Settlement of stock options |
|
|
|
(23) |
|
(19) |
|
|
|
Contribution to subsidiaries by non-controlling
interests |
|
|
|
4 |
|
— |
|
|
|
Dividends paid |
|
|
|
(284) |
|
(252) |
|
|
|
Cash used for financing activities |
|
|
$ |
(1,300) |
$ |
(216) |
|
$ |
(1,084) |
During 2013, we purchased for cancellation 14.1
million Common Shares for an aggregate purchase price of
$1.02 billion under our normal course
issuer bids.
During 2013, 849,999 options were exercised on a
cashless basis in accordance with the applicable stock option
plans. On exercise, cash payments totalling $23 million were made to the stock option holders
which represented the difference between the aggregate fair market
value of the Option Shares based on the closing price of our Common
Shares on the Toronto Stock Exchange ("TSX") on the date of
exercise and the aggregate Exercise Price of all such options
surrendered.
Cash dividends paid per Common Share were
$1.28 for 2013, for a total of
$284 million.
Financing Resources
|
|
|
|
As at |
|
|
As at |
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
|
$ |
41 |
|
$ |
71 |
|
|
|
|
Long-term debt due within one year |
|
|
|
230 |
|
|
249 |
|
|
|
|
Long-term debt |
|
|
|
102 |
|
|
112 |
|
|
|
|
|
|
|
373 |
|
|
432 |
|
|
|
Non-controlling interest |
|
|
|
16 |
|
|
29 |
|
|
|
Shareholders' equity |
|
|
|
9,623 |
|
|
9,429 |
|
|
|
Total capitalization |
|
|
$ |
10,012 |
|
$ |
9,890 |
|
$ |
122 |
Total capitalization increased by $122 million to $10.01
billion at December 31, 2013
compared to $9.89 billion at
December 31, 2012,
primarily as a result of a $194
million increase in shareholders' equity partially offset by
a $59 million decrease in
liabilities.
The increase in shareholders' equity was
primarily as a result of net income earned in 2013 partially offset
by:
- the repurchase of Common Shares in connection with our normal
course issuer bids;
- dividends paid during 2013; and
- the $134 million net unrealized
loss on translation of net investment in foreign operations.
The decrease in liabilities relates primarily to
reduced bank indebtedness and lower bank term debt in our
Asia and Rest of World
segments.
Cash Resources
During 2013, our cash resources increased by
$32 million to $1.55 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 December 31,
2013, we had term and operating lines of credit totalling
$2.56 billion of which $2.20 billion was unused and available.
On June 20, 2013,
we amended our previous $2.25 billion
revolving credit facility to become a five year facility with a
maturity of June 20, 2018. The
facility now 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 February 28, 2014 were
exercised:
Common Shares |
|
|
|
|
|
221,187,872 |
Stock options (i) |
|
|
|
|
|
4,704,940 |
|
|
|
|
|
|
225,892,812 |
(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
A purchase obligation is defined as an agreement
to purchase goods or services that is enforceable and legally
binding on us and that specifies all significant terms, including:
fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the
transaction. Consistent with our customer obligations,
substantially all of our purchases are made under purchase orders
with our suppliers which are requirements based and accordingly do
not specify minimum quantities. Other long-term liabilities are
defined as long-term liabilities that are recorded on our
consolidated balance sheet. Based on this definition, the following
table includes only those contracts which include fixed or minimum
obligations.
At December 31,
2013, we had contractual obligations requiring annual
payments as follows:
|
|
|
|
|
|
|
2015- |
|
|
2017- |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2016 |
|
|
2018 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
$ |
343 |
|
$ |
576 |
|
$ |
397 |
|
$ |
402 |
|
$ |
1,718 |
Long-term debt |
|
|
|
230 |
|
|
61 |
|
|
33 |
|
|
8 |
|
|
332 |
Unconditional Purchase
Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials and Services |
|
|
|
1,621 |
|
|
113 |
|
|
7 |
|
|
3 |
|
|
1,744 |
|
Capital |
|
|
|
240 |
|
|
27 |
|
|
15 |
|
|
— |
|
|
282 |
Total contractual obligations |
|
|
$ |
2,434 |
|
$ |
777 |
|
$ |
452 |
|
$ |
413 |
|
$ |
4,076 |
Our unfunded obligations with respect to
employee future benefit plans, which have been actuarially
determined, were $516 million at
December 31, 2013. These obligations
are as follows:
|
|
|
|
|
|
|
|
Termination and |
|
|
|
|
|
|
|
Pension |
|
Retirement |
|
Long Service |
|
|
|
|
|
|
|
Liability |
|
Liability |
|
Arrangements |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
|
$ |
454 |
$ |
36 |
$ |
354 |
|
$ |
844 |
Less plan assets |
|
|
|
(328) |
|
— |
|
— |
|
|
(328) |
Unfunded amount |
|
|
$ |
126 |
$ |
36 |
$ |
354 |
|
$ |
516 |
Our off-balance sheet financing arrangements are
limited to operating lease contracts.
The majority of our facilities are subject to
operating leases. Operating lease payments in 2013 for facilities
were $304 million. Operating lease
commitments in 2014 for facilities are expected to be $293 million. A majority of our existing
lease agreements generally provide for periodic rent escalations
based either on fixed-rate step increases, or on the basis of a
consumer price index adjustment (subject to certain caps).
We also have operating lease commitments for
equipment. These leases are generally of shorter duration.
Operating lease payments for equipment were $59 million for 2013, and are expected to be
$50 million in 2014.
Although our consolidated contractual annual
lease commitments decline year by year, we expect that existing
leases will either be renewed or replaced, or alternatively, we
will incur capital expenditures to acquire equivalent capacity.
Foreign Currency Activities
Our North American operations negotiate sales
contracts with OEMs for payment in both U.S. and Canadian dollars.
Materials and equipment are purchased in various currencies
depending upon competitive factors, including relative currency
values. Our North American operations use labour and materials
which are paid for in both U.S. and Canadian dollars. Our Mexican
operations generally use the U.S. dollar as the functional
currency.
Our European operations negotiate sales
contracts with OEMs for payment principally in euros and British
pounds. The European operations' material, equipment and labour are
paid for principally in euros and British pounds.
We employ hedging programs, primarily through
the use of foreign exchange forward contracts, in an effort to
manage our foreign exchange exposure, which arises when
manufacturing facilities have committed to the delivery of products
for which the selling price has been quoted in foreign currencies.
These commitments represent our contractual obligations to deliver
products over the duration of the product programs, which can last
a number of years. The amount and timing of the forward contracts
will be dependent upon a number of factors, including anticipated
production delivery schedules and anticipated production costs,
which may be paid in the foreign currency. In addition, we enter
into foreign exchange contracts to manage foreign exchange exposure
with respect to internal funding arrangements. Despite these
measures, significant long-term fluctuations in relative currency
values, in particular a significant change in the relative values
of the U.S. dollar, Canadian dollar, euro or British pound, could
have an adverse effect on our profitability and financial condition
(as discussed throughout this MD&A).
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED
DECEMBER 31, 2013
Sales
|
|
|
|
For the three months |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes
(millions of units) |
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
4.038 |
|
|
3.817 |
|
+ |
6% |
|
Europe |
|
|
|
4.919 |
|
|
4.705 |
|
+ |
5% |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
$ |
4,371 |
|
$ |
3,878 |
|
+ |
13% |
|
|
Europe |
|
|
|
2,587 |
|
|
2,209 |
|
+ |
17% |
|
|
Asia |
|
|
|
399 |
|
|
310 |
|
+ |
29% |
|
|
Rest of World |
|
|
|
188 |
|
|
211 |
|
- |
11% |
|
Complete Vehicle Assembly |
|
|
|
788 |
|
|
697 |
|
+ |
13% |
|
Tooling, Engineering and
Other |
|
|
|
841 |
|
|
728 |
|
+ |
16% |
Total Sales |
|
|
$ |
9,174 |
|
$ |
8,033 |
|
+ |
14% |
External Production Sales - North America
External production sales in North America increased 13% or $493 million to $4.37
billion for the three months ended December 31, 2013 compared to $3.88 billion for the three months ended
December 31, 2012, primarily as a
result of:
- the launch of new programs during or subsequent to the fourth
quarter of 2012, including the:
-
- Jeep Cherokee;
- Ford Fusion and Lincoln MKZ;
- GM full-size pickups; and
- Chevrolet Impala;
- higher production volumes on certain existing programs;
- an increase in content on certain programs, including the;
-
- Jeep Grand Cherokee; and
- Buick Enclave, GMC Acadia and Chevrolet Traverse; and
- acquisitions completed during or subsequent to the fourth
quarter of 2012 which positively impacted sales by $21 million, including STT.
These factors were partially offset by:
- a decrease in reported U.S. dollar sales primarily as a result
of the weakening of the Canadian dollar against the U.S. dollar;
and
- net customer price concessions subsequent to the fourth quarter
of 2012.
External Production Sales - Europe
External production sales in Europe increased 17% or $378 million to $2.59
billion for the three months ended December 31, 2013 compared to $2.21 billion for the three months ended
December 31, 2012, primarily as a
result of:
- a $93 million increase in
reported U.S. dollar sales primarily as a result of the
strengthening of the euro against the U.S. dollar;
- acquisitions completed during or subsequent to the fourth
quarter of 2012, which positively impacted sales by $75 million, including ixetic;
- the launch of new programs during or subsequent to the fourth
quarter of 2012, including the:
-
- Mercedes-Benz CLA-Class;
- MINI Paceman; and
- Volkswagen Jetta; and
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a decrease in content on certain programs, including the MINI
Cooper; and
- net customer price concessions subsequent to the fourth quarter
of 2012.
External Production Sales - Asia
External production sales in Asia increased 29% or $89 million to $399
million for the three months ended December 31, 2013 compared to $310 million for the three months ended
December 31, 2012, primarily as a
result of:
- higher production volumes on certain existing programs;
- the launch of new programs during or subsequent to the fourth
quarter of 2012, primarily in China; and
- a $7 million increase in reported
U.S. dollar sales as a result of the net strengthening of foreign
currencies against the U.S. dollar, including the Chinese
Renminbi.
These factors were partially offset by net
customer price concessions subsequent to the fourth quarter of
2012.
External Production Sales - Rest of
World
External production sales in Rest of World
decreased 11% or $23 million to
$188 million for the three months
ended December 31, 2013 compared
to $211 million for the three months
ended December 31, 2012, primarily as
a result of a $26 million decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the Brazilian real
and Argentine peso partially offset by:
- net customer price increases subsequent to the fourth quarter
of 2012; and
- higher production volumes on certain existing programs.
Complete Vehicle Assembly Sales
|
|
|
|
For the three months |
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales |
|
|
$ |
788 |
|
$ |
697 |
|
+ |
13% |
|
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Volumes
(Units) |
|
|
|
36,704 |
|
|
31,450 |
|
+ |
17% |
Complete vehicle assembly sales increased 13%,
or $91 million, to $788 million for the three months ended
December 31, 2013 compared to
$697 million for the three
months ended December 31, 2012 and
assembly volumes increased 17% or 5,254 units.
The increase in complete vehicle assembly sales
is primarily as a result of:
- the launch of the MINI Paceman during the fourth quarter of
2012;
- a $37 million increase in
reported U.S. dollar sales as a result of the strengthening of the
euro against the U.S. dollar; and
- an increase in assembly volumes for the Mercedes-Benz
G-Class.
These factors were partially offset by a
decrease in assembly volumes for the Peugeot RCZ.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased
16% or $113 million to $841 million for the three months ended
December 31, 2013 compared to
$728 million for the three months
ended December 31, 2012.
In the three months ended December 31, 2013, the major programs for which
we recorded tooling, engineering and other sales were the:
- MINI Cooper;
- Mercedes-Benz M-Class;
- GM full-size pickups and SUVs;
- Qoros 3;
- Opel Zafira
- MINI Countryman;
- Mercedes-Benz Vito;
- Volkswagen Golf; and
- Ford Transit.
In the three months ended December 31, 2012, the major programs for which
we recorded tooling, engineering and other sales were the:
- Fiat Viaggio;
- MINI Countryman;
- Mercedes-Benz M-Class;
- BMW 6-Series;
- Opel Cascada Convertible;
- Ford Transit;
- Volkswagen up!; and
- Ford Escape.
In addition, tooling, engineering and other
sales increased as a result of the net strengthening of foreign
currencies against the U.S dollar, including the strengthening of
the euro partially offset by the weakening of the Canadian
dollar.
Segment Analysis
|
|
|
|
For the three months ended December 31,
|
|
|
|
|
External Sales |
|
|
|
Adjusted EBIT |
|
|
|
|
2013 |
|
|
2012 |
|
|
Change |
|
|
|
2013 |
|
|
2012 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
$ |
4,627 |
|
$ |
4,098 |
|
$ |
529 |
|
|
$ |
477 |
|
$ |
373 |
|
$ |
104 |
Europe |
|
|
|
3,899 |
|
|
3,333 |
|
|
566 |
|
|
|
111 |
|
|
24 |
|
|
87 |
Asia |
|
|
|
449 |
|
|
377 |
|
|
72 |
|
|
|
26 |
|
|
20 |
|
|
6 |
Rest of World |
|
|
|
193 |
|
|
219 |
|
|
(26) |
|
|
|
(21) |
|
|
(28) |
|
|
7 |
Corporate and
Other |
|
|
|
6 |
|
|
6 |
|
|
— |
|
|
|
14 |
|
|
(2) |
|
|
16 |
Total reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
|
$ |
9,174 |
|
$ |
8,033 |
|
$ |
1,141 |
|
|
$ |
607 |
|
$ |
387 |
|
$ |
220 |
Excluded from Adjusted EBIT for the three months
ended December 31, 2013 and 2012 were
the following Other Expense and Other Income items, which have been
discussed in the "Other Expense" section.
|
|
|
|
For the three months |
|
|
|
|
ended December 31, |
|
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
Impairment charges |
|
|
$ |
23 |
|
$ |
2 |
|
Re-measurement gain of STT |
|
|
|
— |
|
|
(35) |
|
|
|
|
23 |
|
|
(33) |
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
Restructuring charges |
|
|
|
35 |
|
|
55 |
|
Impairment charges |
|
|
|
— |
|
|
23 |
|
|
|
|
35 |
|
|
78 |
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
32 |
|
|
— |
|
|
|
$ |
90 |
|
$ |
45 |
North
America
Adjusted EBIT in North
America increased $104 million
to $477 million for the three months
ended December 31, 2013 compared to
$373 million for the three
months ended December 31, 2012
primarily as a result of:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to the three months ended December 31, 2012;
- decreased commodity costs;
- higher equity income;
- decreased pre-operating costs incurred at new facilities;
and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- operational inefficiencies and other costs at certain
facilities;
- higher costs incurred in preparation for upcoming
launches;
- a larger amount of employee profit sharing;
- higher affiliation fees paid to Corporate; and
- higher incentive compensation.
Europe
Adjusted EBIT in Europe increased $87
million to $111 million for
the three months ended December 31,
2013 compared to $24 million for the three months ended
December 31, 2012 primarily as a
result of:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to the three months ended December 31, 2012;
- improved pricing on certain unprofitable contracts;
- lower costs incurred in preparation for upcoming launches;
- the benefit of restructuring and downsizing activities recently
undertaken;
- acquisitions completed during or subsequent to the three months
ended December 31, 2012, including
ixetic;
- decreased pre-operating costs incurred at new facilities;
- higher equity income;
- decreased commodity costs;
- lower warranty costs of $1
million; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- a larger amount of employee profit sharing;
- higher affiliation fees paid to Corporate;
- higher restructuring and downsizing costs;
- higher incentive compensation; and
- operational inefficiencies and other costs at certain
facilities.
Asia
Asia Adjusted EBIT increased $6 million to $26
million for the three months ended December 31, 2013 compared to $20 million for the three months ended
December 31, 2012 primarily as a
result of:
- margins earned on higher production sales, including margins
earned on the launch of new facilities and new programs;
- productivity and efficiency improvements at certain
facilities;
- decreased costs related to new facilities; and
- higher equity income.
These factors were partially offset by:
- higher costs incurred in preparation for upcoming
launches;
- a larger amount of employee profit sharing; and
- higher affiliation fees paid to Corporate.
Rest of World
Rest of World Adjusted EBIT increased
$7 million to a loss of $21 million for the three months ended
December 31, 2013 compared to a loss
of $28 million for the three months
ended December 31, 2012 primarily as
a result of:
- productivity and efficiency improvements at certain
facilities;
- favourable earn-out settlement; and
- decreased costs related to new facilities.
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;
- higher costs incurred in preparation for upcoming
launches;
- lower equity income; and
- higher incentive compensation.
Corporate and Other
Corporate and Other Adjusted EBIT increased
$16 million to $14 million for the three months ended
December 31, 2013 compared to a loss
of $2 million for the three months
ended December 31, 2012 primarily as
a result of:
- an increase in affiliation fees earned from our divisions;
- lower stock-based compensation; and
- a $1 million net increase in
revaluation gains in respect of ABCP.
These factors were partially offset by:
- costs incurred to evaluate the effectiveness of our supply
base;
- lower equity income; and
- higher incentive compensation.
FUTURE CHANGES IN ACCOUNTING POLICIES
Unrecognized tax benefits
In July 2013, the
FASB issued ASU 2013-11, Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,
or a Tax Credit Carryforward Exists. ASU 2013-11 clarifies guidance
and eliminates diversity in practice on the presentation of
unrecognized tax benefits when a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward exists at the
reporting date. The guidance is effective for annual reporting
periods beginning on or after December 15,
2013 and subsequent interim periods. We currently present
our unrecognized tax benefits in accordance with ASU 2013-11 and
therefore this pronouncement will not result in a change to our
consolidated financial statements.
Joint and several liability
arrangements
In February 2013,
the FASB issued ASU 2013-04, "Obligations Resulting from Joint and
Several Liability Arrangements for Which the Total Amount of the
Obligation Is Fixed at the Reporting Date". ASU 2013-04 requires
reporting and disclosure about obligations resulting from joint and
several liability arrangements within the scope of Subtopic 405-40
for which the total amount of the obligation is fixed at the
reporting date. ASU 2013-04 is effective for fiscal years and
interim periods beginning after December 15,
2013. The impact, if any, on our consolidated financial
statements is currently being assessed.
SUBSEQUENT EVENTS
Under Austria's
current group taxation system, an Austrian entity may utilize the
tax losses of all direct foreign subsidiaries. On February 28, 2014, the Austrian government
enacted legislation abolishing the utilization of foreign losses,
where the direct foreign subsidiary is not a member of the European
Union. Furthermore, any foreign losses previously used by Austrian
entities arising in those direct non European Union subsidiaries
will be subject to recapture in Austria. Currently, we have Austrian entities
that directly hold subsidiaries in Russia and India that will be affected by this new rule.
In light of this legislation, we anticipate taking a charge to tax
expense of approximately $25 million to $30
million during the first quarter of 2014. The tax is payable
over three years, commencing in 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 18 of our unaudited interim
consolidated financial statements for the three months and year
ended December 31, 2013, 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, 2012.
CONTROLS AND PROCEDURES
There have been no changes in our internal
controls over financial reporting that occurred during 2013 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking information" or "forward-looking statements"
within the meaning of applicable securities legislation, including,
but not limited to, statements relating to: light vehicle
production and operating performance in our reporting segments;
implementation of improvement plans in our underperforming
operations, and/or restructuring actions, including but not limited
to, Western Europe and
South America; the expected amount
of restructuring charges; continued strong operating performance in
North America; improved future
earnings in Europe; expected
results improvements and higher sales in Asia; and future repurchases of Common Shares
under our Normal Course Issuer Bid. The forward-looking information
in this MD&A is presented for the purpose of providing
information about management's current expectations and plans and
such information may not be appropriate for other purposes.
Forward-looking statements may include financial and other
projections, as well as statements regarding our future plans,
objectives or economic performance, or the assumptions underlying
any of the foregoing, and other statements that are not recitations
of historical fact. We use words such as "may", "would", "could",
"should", "will", "likely", "expect", "anticipate", "believe",
"intend", "plan", "forecast", "outlook", "project", "estimate" and
similar expressions suggesting future outcomes or events to
identify forward-looking statements. Any such forward-looking
statements are based on information currently available to us, and
are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current
conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. However,
whether actual results and developments will conform with our
expectations and predictions is subject to a number of risks,
assumptions and uncertainties, many of which are beyond our
control, and the effects of which can be difficult to predict,
including, without limitation: the potential for a deterioration of
economic conditions or an extended period of economic uncertainty;
declines in consumer confidence and the impact on production volume
levels; continuing economic uncertainty in various geographic
regions, including Western Europe;
our ability to sustain or grow our business with OEMs;
restructuring actions by OEMs, including plant closures;
restructuring, downsizing and/or other significant non-recurring
costs; continued underperformance of one or more of our operating
divisions; ongoing pricing pressures, including our ability to
offset price concessions demanded by our customers; our ability to
successfully launch material new or takeover business; shifts in
market share away from our top customers; shifts in market shares
among vehicles or vehicle segments, or shifts away from vehicles on
which we have significant content; risks of conducting business in
foreign markets, including China,
Russia, India, Argentina and Brazil and other non-traditional markets for
us; a prolonged disruption in the supply of components to us from
our suppliers; scheduled shutdowns of our customers' production
facilities (typically in the third and fourth quarters of each
calendar year); shutdown of our or our customers' or sub-suppliers'
production facilities due to a labour disruption; our ability to
successfully compete with other automotive suppliers; a reduction
in outsourcing by our customers or the loss of a material
production or assembly program; the termination or non-renewal by
our customers of any material production purchase order; our
ability to consistently develop innovative products or processes;
impairment charges related to goodwill and long-lived assets;
exposure to, and ability to offset, volatile commodities prices;
fluctuations in relative currency values; our ability to
successfully identify, complete and integrate acquisitions or
achieve anticipated synergies; our ability to conduct appropriate
due diligence on acquisition targets; warranty and recall costs;
risk of production disruptions due to natural disasters; pension
liabilities; legal claims and/or regulatory actions against us,
including the ongoing antitrust investigation being conducted by
the German Federal Cartel Office; 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; inability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; work stoppages and labour relations disputes;
changes in credit ratings assigned to us; changes in laws and
governmental regulations; costs associated with compliance with
environmental laws and regulations; 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 |
|
Year
ended |
|
|
|
December 31, |
|
December 31, |
|
|
Note |
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
$ |
9,174 |
$ |
8,033 |
|
$ |
34,835 |
$ |
30,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
7,903 |
|
7,047 |
|
|
30,287 |
|
27,019 |
|
Depreciation and amortization |
|
|
|
284 |
|
243 |
|
|
1,063 |
|
801 |
|
Selling, general and administrative |
|
14 |
|
428 |
|
400 |
|
|
1,616 |
|
1,510 |
|
Interest expense, net |
|
|
|
3 |
|
1 |
|
|
16 |
|
16 |
|
Equity income |
|
|
|
(48) |
|
(44) |
|
|
(196) |
|
(151) |
|
Other expense (income), net |
|
2 |
|
90 |
|
45 |
|
|
144 |
|
(108) |
Income from operations before income
taxes |
|
|
|
514 |
|
341 |
|
|
1,905 |
|
1,750 |
Income taxes |
|
13 |
|
66 |
|
(9) |
|
|
360 |
|
324 |
Net income |
|
|
|
448 |
|
350 |
|
|
1,545 |
|
1,426 |
Net loss attributable to non-controlling
interests |
|
|
|
10 |
|
1 |
|
|
16 |
|
7 |
Net income attributable to Magna International
Inc. |
|
|
$ |
458 |
$ |
351 |
|
$ |
1,561 |
$ |
1,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share: |
|
3 |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
$ |
2.06 |
$ |
1.51 |
|
$ |
6.85 |
$ |
6.17 |
|
Diluted |
|
|
$ |
2.03 |
$ |
1.49 |
|
$ |
6.76 |
$ |
6.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per Common Share |
|
|
$ |
0.320 |
$ |
0.275 |
|
$ |
1.280 |
$ |
1.100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of Common Shares outstanding
during |
|
|
|
|
|
|
|
|
|
|
|
the period [in millions]: |
|
3 |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
222.1 |
|
232.0 |
|
|
227.9 |
|
232.4 |
|
Diluted |
|
|
|
225.4 |
|
234.8 |
|
|
230.8 |
|
235.2 |
See accompanying
notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME |
|
|
|
|
[Unaudited] |
|
|
|
|
[U.S. dollars in millions] |
|
|
|
|
|
|
|
|
|
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
Note |
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
448 |
$ |
350 |
|
$ |
1,545 |
$ |
1,426 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net
of tax: |
16 |
|
|
|
|
|
|
|
|
|
|
Net unrealized (loss) gain on
translation of net investment |
|
|
|
|
|
|
|
|
|
|
|
in foreign operations |
|
|
(52) |
|
56 |
|
|
(134) |
|
88 |
|
Net unrealized loss on
available-for-sale investments |
|
|
— |
|
(2) |
|
|
(5) |
|
(4) |
|
Net unrealized (loss) gain on cash
flow hedges |
|
|
(34) |
|
(1) |
|
|
(39) |
|
75 |
|
Reclassification of net gain on cash
flow hedges to |
|
|
|
|
|
|
|
|
|
|
|
net income |
|
|
(3) |
|
(11) |
|
|
(15) |
|
(18) |
|
Reclassification of net (gain) loss on
pensions to net income |
|
|
(2) |
|
11 |
|
|
7 |
|
11 |
|
Pension and post retirement
benefits |
|
|
44 |
|
(72) |
|
|
44 |
|
(72) |
Other comprehensive (loss)
income |
|
|
(47) |
|
(19) |
|
|
(142) |
|
80 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
401 |
|
331 |
|
|
1,403 |
|
1,506 |
Comprehensive loss (income)
attributable to non-controlling |
|
|
|
|
|
|
|
|
|
|
|
interests |
|
|
10 |
|
(1) |
|
|
17 |
|
5 |
Comprehensive income attributable
to |
|
|
|
|
|
|
|
|
|
|
|
Magna International Inc. |
|
$ |
411 |
$ |
330 |
|
$ |
1,420 |
$ |
1,511 |
See accompanying
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MAGNA INTERNATIONAL INC. |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
[Unaudited] |
|
|
|
|
|
|
|
|
|
|
[U.S. dollars in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
Note |
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used
for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
448 |
$ |
350 |
|
$ |
1,545 |
$ |
1,426 |
Items not involving current cash
flows |
4 |
|
361 |
|
164 |
|
|
1,149 |
|
708 |
|
|
|
809 |
|
514 |
|
|
2,694 |
|
2,134 |
Changes in non‑cash operating assets and
liabilities |
4 |
|
451 |
|
559 |
|
|
(127) |
|
72 |
Cash provided from operating
activities |
|
|
1,260 |
|
1,073 |
|
|
2,567 |
|
2,206 |
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
(463) |
|
(478) |
|
|
(1,169) |
|
(1,274) |
Purchase of subsidiaries |
5 |
|
(9) |
|
(446) |
|
|
(9) |
|
(525) |
Increase in investments and other
assets |
|
|
(34) |
|
(25) |
|
|
(192) |
|
(122) |
Proceeds from disposition |
|
|
73 |
|
13 |
|
|
163 |
|
106 |
Cash used for investing
activities |
|
|
(433) |
|
(936) |
|
|
(1,207) |
|
(1,815) |
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in bank
indebtedness |
|
|
(4) |
|
22 |
|
|
(18) |
|
42 |
Repayments of debt |
|
|
(31) |
|
(28) |
|
|
(173) |
|
(309) |
Settlement of stock options |
|
|
— |
|
— |
|
|
(23) |
|
(19) |
Issues of debt |
|
|
68 |
|
19 |
|
|
151 |
|
348 |
Issue of Common Shares |
|
|
3 |
|
9 |
|
|
63 |
|
14 |
Repurchase of Common Shares |
15 |
|
(297) |
|
(19) |
|
|
(1,020) |
|
(40) |
Contribution to subsidiaries by
non-controlling interests |
|
|
— |
|
— |
|
|
4 |
|
— |
Dividends paid |
|
|
(68) |
|
(63) |
|
|
(284) |
|
(252) |
Cash used for financing
activities |
|
|
(329) |
|
(60) |
|
|
(1,300) |
|
(216) |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
|
|
(8) |
|
(2) |
|
|
(28) |
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
during the period |
|
|
490 |
|
75 |
|
|
32 |
|
197 |
Cash and cash equivalents, beginning of
period |
|
|
1,064 |
|
1,447 |
|
|
1,522 |
|
1,325 |
Cash and cash equivalents, end of
period |
|
$ |
1,554 |
$ |
1,522 |
|
$ |
1,554 |
$ |
1,522 |
See
accompanying notes |
|
|
|
|
|
|
|
|
|
|
|
|
MAGNA INTERNATIONAL
INC. |
|
|
|
|
|
CONSOLIDATED BALANCE
SHEETS |
|
|
|
|
|
[Unaudited] |
|
|
|
|
|
[U.S. dollars in
millions] |
|
|
|
|
|
|
|
|
|
|
|
As at December 31, |
Note |
|
2013 |
|
2012 |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
4 |
$ |
1,554 |
$ |
1,522 |
Accounts receivable |
|
|
5,246 |
|
4,774 |
Inventories |
6 |
|
2,637 |
|
2,512 |
Deferred tax assets |
13 |
|
275 |
|
170 |
Prepaid expenses and other |
|
|
211 |
|
157 |
|
|
|
9,923 |
|
9,135 |
|
|
|
|
|
|
Investments |
17 |
|
391 |
|
385 |
Fixed assets, net |
|
|
5,441 |
|
5,273 |
Goodwill |
7 |
|
1,440 |
|
1,473 |
Deferred tax assets |
13 |
|
120 |
|
90 |
Other assets |
8 |
|
675 |
|
753 |
|
|
$ |
17,990 |
$ |
17,109 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Bank indebtedness |
|
$ |
41 |
$ |
71 |
Accounts payable |
|
|
4,781 |
|
4,450 |
Accrued salaries and wages |
|
|
704 |
|
617 |
Other accrued liabilities |
9 |
|
1,538 |
|
1,185 |
Income taxes payable |
|
|
6 |
|
93 |
Deferred tax liabilities |
|
|
9 |
|
19 |
Long‑term debt due within one
year |
10 |
|
230 |
|
249 |
|
|
|
7,309 |
|
6,684 |
|
|
|
|
|
|
Long-term employee benefit
liabilities |
11 |
|
532 |
|
560 |
Long‑term debt |
10 |
|
102 |
|
112 |
Other long‑term liabilities |
12 |
|
208 |
|
154 |
Deferred tax liabilities |
|
|
200 |
|
141 |
|
|
|
8,351 |
|
7,651 |
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
[issued: 221,151,704; 2012 - 233,115,783] |
15 |
|
4,230 |
|
4,391 |
Contributed surplus |
|
|
69 |
|
80 |
Retained earnings |
|
|
5,011 |
|
4,462 |
Accumulated other comprehensive
income |
16 |
|
313 |
|
496 |
|
|
|
9,623 |
|
9,429 |
|
|
|
|
|
|
Non-controlling interests |
|
|
16 |
|
29 |
|
|
|
9,639 |
|
9,458 |
|
|
$ |
17,990 |
$ |
17,109 |
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
Interests |
|
|
Total
Equity |
|
|
|
[in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011 |
|
|
233.3 |
|
$ |
4,373 |
|
$ |
63 |
|
$ |
3,317 |
|
$ |
422 |
|
$ |
27 |
|
$ |
8,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
1,433 |
|
|
|
|
|
(7) |
|
|
1,426 |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78 |
|
|
2 |
|
|
80 |
Acquisitions of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
7 |
Shares issued on exercise of stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options |
|
|
0.4 |
|
|
19 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
14 |
Repurchase and cancellation under
normal course issuer bid |
15 |
|
(0.8) |
|
|
(18) |
|
|
|
|
|
(20) |
|
|
(4) |
|
|
|
|
|
(42) |
Release of restricted stock |
|
|
|
|
|
5 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
— |
Release of restricted stock units |
|
|
|
|
|
5 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
— |
Stock-based compensation expense |
14 |
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
Settlement of stock options |
14 |
|
|
|
|
|
|
|
(7) |
|
|
(9) |
|
|
|
|
|
|
|
|
(16) |
Dividends paid |
|
|
0.2 |
|
|
7 |
|
|
|
|
|
(259) |
|
|
|
|
|
|
|
|
(252) |
Balance, December 31, 2012 |
|
|
233.1 |
|
|
4,391 |
|
|
80 |
|
|
4,462 |
|
|
496 |
|
|
29 |
|
|
9,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
1,561 |
|
|
|
|
|
(16) |
|
|
1,545 |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141) |
|
|
(1) |
|
|
(142) |
Issues of shares by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
4 |
Shares issued on exercise of stock
options |
|
|
2.0 |
|
|
84 |
|
|
(21) |
|
|
|
|
|
|
|
|
|
|
|
63 |
Repurchase and cancellation under
normal course issuer bid |
15 |
|
(14.1) |
|
|
(271) |
|
|
|
|
|
(707) |
|
|
(42) |
|
|
|
|
|
(1,020) |
Release of restricted stock |
|
|
|
|
|
6 |
|
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
— |
Release of restricted stock units |
|
|
|
|
|
9 |
|
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
— |
Stock-based compensation expense |
14 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
Settlement of stock options |
14 |
|
|
|
|
|
|
|
(9) |
|
|
(10) |
|
|
|
|
|
|
|
|
(19) |
Dividends paid |
|
|
0.2 |
|
|
11 |
|
|
|
|
|
(295) |
|
|
|
|
|
|
|
|
(284) |
Balance, December 31, 2013 |
|
|
221.2 |
|
$ |
4,230 |
|
$ |
69 |
|
$ |
5,011 |
|
$ |
313 |
|
$ |
16 |
|
$ |
9,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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"] as further discussed in note 1[b] and the accounting
policies as set out in note 1 to the annual consolidated financial
statements for the year ended December 31,
2012.
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,
2012 audited consolidated financial statements and notes
included in the Company's 2012 Annual Report.
In the opinion of management, the unaudited
interim consolidated financial statements reflect all adjustments,
which consist only of normal and recurring adjustments, necessary
to present fairly the financial position at December 31, 2013 and the results of operations,
changes in equity and cash flows for the three-month periods and
years ended December 31, 2013 and
2012.
[b] Accounting Changes
Intangibles
In July 2012, the
Financial Accounting Standards Board issued Accounting Standards
Update ["ASU"] 2012-02, "Intangibles - Goodwill and Other (Topic
350): Testing Indefinite-Lived Intangible Assets for Impairment".
ASU 2012-02 provides an option to first perform a qualitative
assessment to determine whether it is more-likely-than-not that an
indefinite-lived intangible asset is impaired. The adoption of this
ASU did not have a material impact on the Company's consolidated
financial statements.
[c] Seasonality
The Company's businesses are generally not
seasonal. However, the Company's sales and profits are closely
related to its automotive customers' vehicle production schedules.
The Company's largest North American customers typically halt
production for approximately two weeks in July and one week in
December. Additionally, many of the Company's customers in
Europe typically shutdown vehicle
production during portions of August and one week in December.
2. OTHER EXPENSE (INCOME), NET
|
|
Year
ended |
|
|
December 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
Fourth Quarter |
|
|
|
|
|
|
|
Restructuring |
[a, d] |
$ |
35 |
|
$ |
55 |
|
Impairment of long-lived assets |
[b, e] |
|
33 |
|
|
25 |
|
Impairment of goodwill |
[c] |
|
22 |
|
|
— |
|
Re-measurement gain of STT |
[f] |
|
— |
|
|
(35) |
|
|
|
90 |
|
|
45 |
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
Restructuring |
[a] |
|
48 |
|
|
— |
|
Re-measurement gain of E-Car |
[f] |
|
— |
|
|
(153) |
|
|
|
48 |
|
|
(153) |
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
Restructuring |
[a] |
|
6 |
|
|
— |
|
|
$ |
144 |
|
$ |
(108) |
For the year ended December 31,
2013:
[a] Restructuring
As a result of recent customer announcements
related to plant closures, the profitability of certain facilities
and the level of future booked business, management determined that
restructuring would have to be completed in our traditional
European markets in order to remain cost competitive over the
long-term. As a result, during the fourth, third and first
quarters of 2013, the Company recorded net restructuring charges of
$35 million [$25 million after tax], $48 million [$33
million after tax] and $6
million [$6 million after
tax], respectively, in Europe at
its exterior and interior systems operations related primarily to
the closure of a facility in Belgium.
Substantially all of these restructuring costs
will be paid subsequent to 2013.
[b] Impairment of long-lived assets
In conjunction with its annual business planning
cycle, during the fourth quarter of 2013 the Company recorded
long-lived asset impairment charges of $33
million [$21 million after tax
and non-controlling interests] consisting of $23 million in North
America and $10 million in
Rest of World. The impairment charges related to battery
research equipment in North
America and fixed assets at the Company's Seating operations
in South America.
[c] Impairment of goodwill
In conjunction with its annual business planning
cycle, during the fourth quarter of 2013 the Company recorded
goodwill impairment charges of $22
million [$22 million after
tax] in Rest of World related to the Company's metal stamping
operations.
For the year ended December 31,
2012:
[d] Restructuring
During the fourth quarter of 2012, the Company
recorded restructuring charges of $55
million [$53 million after
tax] in Europe primarily at its
exterior and interior systems and complete vehicle and engineering
services operations.
[e] Impairment of long-lived assets
During the fourth quarter of 2012 the Company
recorded long-lived asset impairment charges of $23 million [$22
million after tax] in Europe and $2
million [$1 million after tax]
in North America. In Europe,
the impairment charges related primarily to fixed assets at the
Company's exterior and interior systems operations.
[f] Re-measurement gains
[i] STT Technologies Inc.
On October 26,
2012, the Company acquired the remaining 50% interest in STT
Technologies Inc. ["STT"] for cash consideration of $55 million. STT is a manufacturer of
automotive pumps with operations in Canada and Mexico. Prior to the acquisition, the Company
accounted for this investment using the equity method of
accounting.
The incremental investment in STT was accounted
for under the business acquisition method of accounting as a step
acquisition which requires that Magna re-measures its pre-existing
investment in STT at a fair value and recognize any gains or losses
in income. The estimated fair value of Magna's investment
immediately before the closing date was $55
million, which resulted in the recognition of a non-cash
gain of $35 million [$35 million after tax].
[ii] Magna E-Car Systems LP
On August 31,
2012, the Company acquired the controlling 27% interest in
the Magna E-Car Systems L.P. ["E-Car"] partnership from a company
affiliated with the Stronach Group for cash consideration of
$75 million.
Prior to the acquisition, the Company held the
remaining 73% non-controlling interest in E-Car and accounted for
this investment using the equity method of accounting. The
incremental investment in E-Car was accounted for under the
business acquisition method of accounting as a step acquisition
which requires that Magna re-measure its pre-existing investment in
E-Car at fair value and recognize any gains or losses in income.
The estimated fair value of Magna's partnership interest
immediately before the closing date was $205
million, which resulted in the recognition of a non-cash
gain of $153 million [$125 million after tax], which is recorded in
Other expense (income), net on the Consolidated Statements of
Income.
3. EARNINGS PER SHARE
|
Three months
ended |
|
Year
ended |
|
December 31, |
|
December 31, |
|
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International
Inc. |
$ |
458 |
$ |
351 |
|
$ |
1,561 |
$ |
1,433 |
|
|
|
|
|
|
|
|
|
|
Average number of Common Shares
outstanding |
|
222.1 |
|
232.0 |
|
|
227.9 |
|
232.4 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share |
$ |
2.06 |
$ |
1.51 |
|
$ |
6.85 |
$ |
6.17 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International
Inc. |
$ |
458 |
$ |
351 |
|
$ |
1,561 |
$ |
1,433 |
|
|
|
|
|
|
|
|
|
|
Average number of Common Shares
outstanding |
|
222.1 |
|
232.0 |
|
|
227.9 |
|
232.4 |
Adjustments |
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock [a] |
|
3.3 |
|
2.8 |
|
|
2.9 |
|
2.8 |
|
|
225.4 |
|
234.8 |
|
|
230.8 |
|
235.2 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share |
$ |
2.03 |
$ |
1.49 |
|
$ |
6.76 |
$ |
6.09 |
[a] |
For the three months and year ended December 31, 2013, diluted
earnings per Common Share exclude nil [2012 - 2.5 million] and 0.1
million [2012 - 2.3 million] Common Shares issuable under the
Company's Incentive Stock Option Plan, respectively, because these
options were not "in-the-money". |
4. DETAILS OF CASH FROM OPERATING
ACTIVITIES
[a] Cash and cash equivalents:
|
|
December 31, |
|
December 31, |
|
|
2013 |
|
2012 |
|
|
|
|
|
Bank term deposits, bankers' acceptances and government
paper |
$ |
1,331 |
$ |
1,220 |
Cash |
|
223 |
|
302 |
|
$ |
1,554 |
$ |
1,522 |
[b] Items not involving current cash
flows:
|
Three months ended |
|
Year
ended |
|
December 31, |
|
December 31, |
|
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
$ |
284 |
$ |
243 |
|
$ |
1,063 |
$ |
801 |
Other non-cash charges |
|
77 |
|
48 |
|
|
189 |
|
154 |
Impairment charges |
|
55 |
|
25 |
|
|
55 |
|
25 |
Amortization of other assets included in cost of goods
sold |
|
38 |
|
31 |
|
|
138 |
|
113 |
Non-cash portion of Other expense (income),
net |
|
— |
|
(35) |
|
|
— |
|
(188) |
Deferred income taxes |
|
(45) |
|
(104) |
|
|
(100) |
|
(46) |
Equity income |
|
(48) |
|
(44) |
|
|
(196) |
|
(151) |
|
$ |
361 |
$ |
164 |
|
$ |
1,149 |
$ |
708 |
[c] Changes in non-cash operating assets and
liabilities:
|
Three months ended |
|
|
Year
ended |
|
December 31, |
|
|
December 31, |
|
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
$ |
587 |
$ |
580 |
|
$ |
(584) |
$ |
(46) |
Inventories |
|
62 |
|
60 |
|
|
(141) |
|
(315) |
Prepaid expenses and other |
|
(10) |
|
40 |
|
|
(56) |
|
36 |
Accounts payable |
|
(125) |
|
27 |
|
|
329 |
|
249 |
Accrued salaries and wages |
|
(13) |
|
(21) |
|
|
87 |
|
37 |
Other accrued liabilities |
|
(41) |
|
(117) |
|
|
298 |
|
97 |
Income taxes payable |
|
(5) |
|
(11) |
|
|
(56) |
|
16 |
Deferred revenue |
|
(4) |
|
1 |
|
|
(4) |
|
(2) |
|
$ |
451 |
$ |
559 |
|
$ |
(127) |
$ |
72 |
5. ACQUISITIONS
Acquisitions in the year ended December 31, 2013
In November 2013,
the Company acquired the remaining 49% interest of Textile
Competence Centre Kft, a textile plant in Germany for cash consideration of $9 million. Prior to the acquisition, the Company
was fully consolidating this entity and recording a non-controlling
interest equal to the 49% interest not owned by the Company.
The net effect of this and other small
acquisitions on the Company's 2013 consolidated balance sheet were
increases in fixed assets of $5
million, goodwill of $3
million, other assets of $2
million, and other long-term liabilities of $2 million and a reduction of non-controlling
interest of $1 million.
Acquisitions in the year ended December 31, 2012
In January 2012,
the Company acquired BDW technologies group, a structural casting
supplier of aluminium components, which has operations in
Germany, Poland and Hungary. The acquired business has sales
primarily to Volkswagen, Audi, Porsche, Mercedes-Benz, Ferrari and
ZF.
During the third quarter of 2011 the Company
sold an interior systems operation [the "Business"] located in
Germany. Subsequent to disposal,
the Business continued to incur significant financial losses. By
the end of the first quarter of 2012, the Business was experiencing
severe liquidity issues. Although the Company had no legal
obligation to do so, in light of customer relationship issues and
other relevant considerations, on June 4,
2012, the Company re-acquired the Business.
As more fully described in note 2, on
August 31, 2012 the Company acquired
the controlling 27% interest in the E-Car partnership for cash
consideration of $56 million [net of
$19 million cash acquired]. The
incremental investment in E-Car was accounted for under the
business acquisition method of accounting as a step acquisition
which requires that all assets acquired and liabilities of E-Car be
measured at fair value. The purchase equation allocated
$210 million to intangible assets
which are primarily technology based intangibles. Given the
continuing uncertainties regarding the timing and magnitude of a
viable electric vehicle industry, competing electric vehicle
technologies, significantly larger competitors, and other factors,
the Company determined that the intangible assets would be
amortized on a straight-line basis over the period ended
December 31, 2013. At December 31, 2013, these intangible assets have
been fully amortized [note 8].
As more fully described in note 2, on
October 26, 2012 the Company acquired
the remaining 50% interest in STT. The incremental investment in
STT required that all assets acquired and liabilities of STT be
measured at fair value.
In December 2012,
the Company acquired ixetic Verwaltungs GmbH ["ixetic"], a
manufacturer of automotive vacuum, engine and transmission pumps,
which has operations in Germany,
Bulgaria and China as well as representation in
Brazil, India, Japan
and the United States. The
acquired business has sales primarily to BMW, Daimler, Volkswagen,
Schaeffler, ZF, Ford, Chrysler, Renault-Nissan and Toyota.
The total consideration for these acquisitions
was $525 million paid in cash
[net of cash acquired].
The net effect of the acquisitions on the
Company's 2012 consolidated balance sheet and as well as certain
adjustments recorded during 2013 to the preliminary purchase price
allocations are as follows:
|
|
2012 |
|
|
|
|
|
|
Preliminary |
|
2013 |
|
Final |
|
|
Allocation |
|
Adjustments |
|
Allocation |
|
|
|
|
|
|
|
Non-cash working capital |
$ |
(129) |
$ |
(47) |
$ |
(176) |
Investments |
|
3 |
|
(3) |
|
— |
Fixed assets |
|
501 |
|
(36) |
|
466 |
Goodwill |
|
289 |
|
(2) |
|
286 |
Other assets |
|
94 |
|
99 |
|
193 |
Deferred tax assets |
|
— |
|
5 |
|
3 |
Purchase intangibles |
|
215 |
|
— |
|
215 |
Long-term employee benefit liabilities |
|
(49) |
|
1 |
|
(48) |
Long-term debt |
|
(25) |
|
(2) |
|
(23) |
Other long-term liabilities |
|
(35) |
|
— |
|
(37) |
Deferred tax liabilities |
|
(68) |
|
(15) |
|
(83) |
Non-controlling interests |
|
(11) |
|
— |
|
(11) |
Fair value of net assets (excluding cash) |
$ |
785 |
$ |
— |
$ |
785 |
The above adjustments had an insignificant
impact on the 2013 consolidated statement of income since the
adjustments related primarily to the acquisitions that were
completed in the fourth quarter of 2012.
6. INVENTORIES
Inventories consist of:
|
|
December 31, |
|
December 31, |
|
|
2013 |
|
2012 |
|
|
|
|
|
Raw materials and supplies |
$ |
947 |
$ |
911 |
Work-in-process |
|
273 |
|
260 |
Finished goods |
|
339 |
|
283 |
Tooling and engineering |
|
1,078 |
|
1,058 |
|
$ |
2,637 |
$ |
2,512 |
|
|
|
|
|
Tooling and engineering inventory represents costs incurred on
tooling and engineering services contracts in excess of billed and
unbilled amounts included in accounts receivable.
7. GOODWILL
The following is a continuity of the Company's
goodwill:
|
|
2013 |
|
|
2012 |
Balance, beginning of period |
$ |
1,473 |
|
$ |
1,196 |
Acquisitions [note 5] |
|
51 |
|
|
34 |
Foreign exchange and other |
|
(23) |
|
|
(23) |
Balance, March 31 |
|
1,501 |
|
|
1,207 |
Acquisitions [note 5] |
|
(6) |
|
|
10 |
Foreign exchange and other |
|
(10) |
|
|
(13) |
Balance, June 30 |
|
1,485 |
|
|
1,204 |
Acquisitions [note 5] |
|
(40) |
|
|
14 |
Foreign exchange and other |
|
27 |
|
|
14 |
Balance, September 30 |
|
1,472 |
|
|
1,232 |
Acquisitions [note 5] |
|
(4) |
|
|
231 |
Impairment [note 2] |
|
(22) |
|
|
— |
Foreign exchange and other |
|
(6) |
|
|
10 |
Balance, December 31 |
$ |
1,440 |
|
$ |
1,473 |
8. OTHER ASSETS
Other assets consist of:
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2013 |
|
|
2012 |
Preproduction costs related to long-term supply
agreements with contractual guarantee for reimbursement |
|
$ |
291 |
|
|
$ 297 |
Long-term receivables |
|
|
111 |
|
|
95 |
Patents and licences, net |
|
|
44 |
|
|
40 |
Unrealized gain on cash flow hedges |
|
|
20 |
|
|
32 |
E-Car intangible [note 5] |
|
|
— |
|
|
158 |
Customer relationship intangibles [note
5] |
|
|
143 |
|
|
93 |
Pension overfunded status |
|
|
26 |
|
|
— |
Other, net |
|
|
40 |
|
|
38 |
|
|
$ |
675 |
|
|
$ 753 |
9. WARRANTY
The following is a continuity of the Company's
warranty accruals:
|
|
2013 |
|
|
|
2012 |
Balance, beginning of period |
$ |
94 |
|
|
$ |
76 |
Expense, net |
|
9 |
|
|
|
10 |
Settlements |
|
(5) |
|
|
|
(5) |
Foreign exchange and other |
|
8 |
|
|
|
2 |
Balance, March 31 |
|
106 |
|
|
|
83 |
Expense, net |
|
11 |
|
|
|
9 |
Settlements |
|
(6) |
|
|
|
(7) |
Foreign exchange and other |
|
(9) |
|
|
|
(1) |
Balance, June 30 |
|
102 |
|
|
|
84 |
Expense, net |
|
2 |
|
|
|
4 |
Settlements |
|
(16) |
|
|
|
(10) |
Foreign exchange and other |
|
2 |
|
|
|
5 |
Balance, September 30 |
|
90 |
|
|
|
83 |
Expense, net |
|
18 |
|
|
|
20 |
Settlements |
|
(19) |
|
|
|
(24) |
Foreign exchange and other |
|
2 |
|
|
|
15 |
Balance, December 31 |
$ |
91 |
|
|
$ |
94 |
10. LONG-TERM DEBT
On June 20, 2013,
the Company amended its existing $2.25
billion revolving credit facility to become a five year
facility with a maturity of June 20,
2018. The facility now 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 |
Year
ended |
|
|
December 31, |
December 31, |
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
Defined benefit pension plan and other |
$ |
6 |
|
$ |
5 |
|
$ |
18 |
|
$ |
13 |
Termination and long service
arrangements |
|
17 |
|
|
21 |
|
|
41 |
|
|
41 |
Retirement medical benefit
plan |
|
(2) |
|
|
(1) |
|
|
(1) |
|
|
1 |
|
$ |
21 |
|
$ |
25 |
|
$ |
58 |
|
$ |
55 |
12. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of:
|
|
December 31, |
|
|
December 31, |
|
|
2013 |
|
|
2012 |
Long-term portion of income taxes
payable |
$ |
133 |
|
$ |
94 |
Asset retirement obligation |
|
40 |
|
|
39 |
Long-term portion of fair value of
hedges |
|
28 |
|
|
10 |
Deferred revenue |
|
7 |
|
|
11 |
|
$ |
208 |
|
$ |
154 |
13. INCOME TAXES
Accounting standards require that the Company
assess whether valuation allowances should be established or
maintained against its deferred tax assets, based on consideration
of all available evidence, using a "more likely than not" standard.
The factors the Company uses to assess the likelihood of
realization are its history of losses, forecasts of future pre-tax
income and tax planning strategies that could be implemented to
realize the deferred tax assets.
For the year ended December 31, 2013
The Company had valuation allowances against its
deferred tax assets in certain European countries. These
valuation allowances were required because of historical losses and
uncertainty as to the timing of when the Company would be able to
generate the necessary level of earnings to recover these deferred
tax assets. Over the past few years, some of the Company's
European operations have delivered sustained profits which together
with forecasted profits have allowed the Company to release a
portion of the valuation allowances set up against its European
deferred tax assets. Additionally, during 2013, the Company
released a portion of its valuation allowance in China. The effect of these valuation allowance
releases in 2013 is $21 million.
Finally, the Company recorded a $36
million deferred tax benefit as a result of the elimination
of the Mexican flat tax.
For the year ended December 31, 2012
For the year ended December 31, 2012, the Company had valuation
allowances against its deferred tax assets in the United Kingdom and Germany. Based on financial forecasts and
continued anticipated growth, the Company released a portion of the
valuation allowance set up against its deferred tax assets in the
United Kingdom; and in
Germany, the BDW and ixetic
acquisitions allowed the Company to release a portion of the
valuation allowance set up against its German deferred tax assets.
Additionally, during 2012 the Company released a portion of its
valuation allowances in Mexico and
China, which were partially offset
by a new valuation allowance against all of its deferred tax assets
in Brazil. The net effect of all
these valuation allowance releases in 2012 was $89 million.
14. 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]:
|
|
|
2013 |
|
|
|
|
|
2012 |
|
|
|
Options
outstanding |
|
|
|
Options outstanding |
|
|
|
Number
of options |
|
Exercise
price (i) |
|
Number
of options
exercisable |
|
Number
of options |
|
Exercise
price (i) |
|
Number
of options
exercisable |
Beginning of period |
6,623,242 |
|
35.39 |
|
3,227,574 |
|
6,867,367 |
|
31.54 |
|
2,066,700 |
Granted |
1,060,000 |
|
57.02 |
|
— |
|
1,341,500 |
|
48.22 |
|
— |
Exercised (ii) |
(2,178,383) |
|
29.76 |
|
(2,178,383) |
|
(321,454) |
|
25.83 |
|
(321,454) |
Cancelled |
(37,500) |
|
50.17 |
|
(20,000) |
|
— |
|
— |
|
— |
Vested |
— |
|
— |
|
2,105,503 |
|
— |
|
— |
|
2,366,667 |
March 31 |
5,467,359 |
|
41.73 |
|
3,134,694 |
|
7,887,413 |
|
34.61 |
|
4,111,913 |
Granted |
— |
|
— |
|
— |
|
47,500 |
|
48.22 |
|
— |
Exercised |
(329,881) |
|
37.05 |
|
(329,881) |
|
(5,000) |
|
32.75 |
|
(5,000) |
Cancelled |
(81,665) |
|
52.05 |
|
(11,667) |
|
(46,966) |
|
57.14 |
|
(36,966) |
June 30 |
5,055,813 |
|
41.87 |
|
2,793,146 |
|
7,882,947 |
|
34.56 |
|
4,069,947 |
Exercised (iii) |
(259,315) |
|
41.56 |
|
(259,315) |
|
(950,405) |
|
27.46 |
|
(950,405) |
Cancelled |
— |
|
— |
|
— |
|
(6,000) |
|
50.66 |
|
(2,000) |
September 30 |
4,796,498 |
|
41.89 |
|
2,533,831 |
|
6,926,542 |
|
35.52 |
|
3,117,542 |
Exercised |
(38,390) |
|
50.49 |
|
(38,390) |
|
(248,300) |
|
35.62 |
|
(248,300) |
Cancelled |
— |
|
— |
|
— |
|
(55,000) |
|
49.99 |
|
(20,001) |
Vested |
— |
|
— |
|
351,668 |
|
— |
|
— |
|
378,333 |
December 31 |
4,758,108 |
|
41.82 |
|
2,847,109 |
|
6,623,242 |
|
35.39 |
|
3,227,574 |
(i) The exercise price noted above
represents the weighted average exercise price in Canadian
dollars.
(ii) In the first quarter of
2013, 849,999 options were exercised on a cashless basis in
accordance with the applicable stock option plans. On
exercise, cash payments totalling $23
million were made to the stock option holders.
(iii) In the third quarter of 2012,
900,001 options were exercised on a cashless basis in accordance
with the applicable stock option plans. On exercise, cash payments
totalling $15 million were made to
the stock option holders.
All cash payments were calculated using
the difference between the aggregate fair market value of the
Option Shares based on the closing price of the Company's Common
Shares on the Toronto Stock Exchange ["TSX"] on the date of
exercise and the aggregate Exercise Price of all such options
surrendered.
The weighted average assumptions used in
measuring the fair value of stock options granted are as
follows:
|
|
2013 |
|
|
2012 |
Risk free interest
rate |
|
1.32% |
|
|
2.23% |
Expected dividend
yield |
|
2.00% |
|
|
2.00% |
Expected
volatility |
|
34% |
|
|
43% |
Expected time until
exercise |
|
4.5 years |
|
|
4.5 years |
Weighted average fair value of options granted in
period [Cdn$] |
$ |
14.02 |
|
$ |
15.37 |
[b] Long-term retention program
The following is a continuity of the stock that
has not been released to the 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]:
|
2013 |
|
|
2012 |
|
Number
of shares |
|
|
Stated
value |
|
|
Number
of shares |
|
|
Stated
value |
Awarded and not released, beginning of
period |
882,988 |
|
$ |
30 |
|
|
1,026,304 |
|
$ |
35 |
Release of restricted stock |
(152,512) |
|
|
(5) |
|
|
(143,316) |
|
|
(5) |
Awarded and not released, March
31, June 30, September 30 and December 31 |
730,476 |
|
$ |
25 |
|
|
882,988 |
|
$ |
$ 30 |
[c] Restricted stock unit
program
The following is a continuity schedule of
Restricted stock units ["RSUs"] and Independent Director stock
units ["DSUs"] outstanding [number of stock units in the table
below are expressed in whole numbers]:
|
2013 |
|
|
2012 |
|
Equity
classified
RSUs |
Liability
classified
RSUs |
Liability
classified
DSUs |
Total |
|
|
Equity
classified
RSUs |
Liability
classified
RSUs |
Liability
classified
DSUs |
Total |
Balance, beginning of
period |
605,430 |
20,099 |
206,923 |
832,452 |
|
|
367,726 |
29,806 |
198,446 |
595,978 |
Granted |
70,636 |
13,825 |
10,013 |
94,474 |
|
|
94,238 |
15,364 |
8,565 |
118,167 |
Dividend equivalents |
415 |
189 |
1,206 |
1,810 |
|
|
467 |
263 |
1,201 |
1,931 |
Released |
(8,259) |
— |
(113,007) |
(121,266) |
|
|
(8,259) |
— |
— |
(8,259) |
Balance, March 31 |
668,222 |
34,113 |
105,135 |
807,470 |
|
|
454,172 |
45,433 |
208,212 |
707,817 |
Granted |
71,391 |
— |
7,523 |
78,914 |
|
|
101,672 |
— |
8,838 |
110,510 |
Dividend equivalents |
348 |
158 |
626 |
1,132 |
|
|
558 |
325 |
1,522 |
2,405 |
Released |
(10,386) |
— |
— |
(10,386) |
|
|
(10,123) |
— |
— |
(10,123) |
Balance, June 30 |
729,575 |
34,271 |
113,284 |
877,130 |
|
|
546,279 |
45,758 |
218,572 |
810,609 |
Granted |
40,779 |
— |
7,538 |
48,317 |
|
|
68,540 |
— |
9,778 |
78,318 |
Dividend equivalents |
252 |
136 |
463 |
851 |
|
|
438 |
279 |
1,252 |
1,969 |
Released |
— |
— |
— |
— |
|
|
— |
— |
(34,124) |
(34,124) |
Balance, September 30 |
770,606 |
34,407 |
121,285 |
926,298 |
|
|
615,257 |
46,037 |
195,478 |
856,772 |
Granted |
42,035 |
— |
5,642 |
47,677 |
|
|
55,681 |
— |
10,275 |
65,956 |
Dividend equivalents |
247 |
141 |
520 |
908 |
|
|
432 |
266 |
1,170 |
1,868 |
Released |
(181,034) |
(4,429) |
— |
(185,463) |
|
|
(65,940) |
(26,204) |
— |
(92,144) |
Balance, December 31 |
631,854 |
30,119 |
127,447 |
789,420 |
|
|
605,430 |
20,099 |
206,923 |
832,452 |
[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 |
|
Year ended |
|
December 31, |
|
December 31, |
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
Incentive Stock Option Plan |
$ |
3 |
|
$ |
5 |
|
$ |
15 |
|
$ |
19 |
Long-term retention |
|
1 |
|
|
2 |
|
|
4 |
|
|
5 |
Restricted stock unit |
|
5 |
|
|
3 |
|
|
16 |
|
|
14 |
|
|
9 |
|
|
10 |
|
|
35 |
|
|
38 |
Fair value adjustment for liability classified
DSUs |
|
— |
|
|
1 |
|
|
5 |
|
|
4 |
Total stock-based compensation expense |
$ |
9 |
|
$ |
11 |
|
$ |
40 |
|
$ |
42 |
15. COMMON SHARES
[a] On November 9,
2012, the TSX accepted the Company's Notice of Intention to
Make a Normal Course Issuer Bid relating to the purchase for
cancellation, as well as purchases to fund the Company's
stock-based compensation awards or programs and/or the Company's
obligations to its deferred profit sharing plans, of up to
12,000,000 Magna Common Shares [the "2012 Bid"], representing 5.2%
of the Company's public float of Common Shares. The 2012 Bid
commenced on November 13, 2012 and
terminated on November 12, 2013
pursuant to which the Company has purchased 12,000,000 shares.
On November 8, 2013, the TSX
accepted the Company's Notice of Intention to Make a Normal Course
Issuer Bid relating to the purchase for cancellation, as well as
purchases to fund the Company's stock-based compensation awards or
programs and/or the Company's obligations to its deferred profit
sharing plans, of up to 12,000,000 Magna Common Shares [the "2013
Bid"], representing 5.4% of the Company's public float of Common
Shares. The Bid commenced on November 13,
2013 and will terminate no later than November 12, 2014. As at December 31, 2013, the Company has purchased
2,509,723 shares under the 2013 Bid.
All purchases of Common Shares are made at the
market price at the time of purchase in accordance with the rules
and policies of the TSX. Purchases may also be made on the NYSE in
compliance with Rule 10b-18 under the U.S. Securities Exchange Act
of 1934.
The Company repurchased shares under a normal
course issuer bids as follows:
|
2013 |
|
|
2012 |
|
Number
of shares |
|
|
Cash
consideration |
|
|
Number
of shares |
|
|
Cash
consideration |
First Quarter |
1,593,615 |
|
$ |
88 |
|
|
150 |
|
$ |
— |
Second Quarter |
5,194,188 |
|
|
337 |
|
|
— |
|
|
— |
Third Quarter |
3,697,973 |
|
|
298 |
|
|
467,480 |
|
|
21 |
Fourth Quarter |
3,596,545 |
|
|
290 |
|
|
427,402 |
|
|
19 |
|
14,082,321 |
|
$ |
1,013 |
|
|
895,032 |
|
$ |
40 |
[b] The following table presents the
maximum number of shares that would be outstanding if all the
dilutive instruments outstanding at February
28, 2014 were exercised or converted:
Common Shares |
|
|
|
221,187,872 |
Stock options (i) |
|
|
|
4,704,940 |
|
|
|
|
225,892,812 |
(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. |
16. ACCUMULATED OTHER COMPREHENSIVE
INCOME
The following is a continuity schedule of
accumulated other comprehensive income:
|
|
|
|
2013 |
|
|
2012 |
Accumulated net unrealized gain on translation of
net investment in foreign operations |
|
|
|
|
|
|
|
Balance, beginning of period |
$ |
629 |
|
$ |
547 |
|
|
Net unrealized (loss) gain on translation of net
investment in foreign operations |
|
(133) |
|
|
98 |
|
|
Repurchase of shares under normal course issuer
bids |
|
(5) |
|
|
— |
|
|
Balance, March 31 |
|
491 |
|
|
645 |
|
|
Net unrealized loss on translation of net
investment in foreign operations |
|
(91) |
|
|
(194) |
|
|
Repurchase of shares under normal course issuer
bids |
|
(17) |
|
|
— |
|
|
Balance, June 30 |
|
383 |
|
|
451 |
|
|
Net unrealized gain on translation of net
investment in foreign operations |
|
143 |
|
|
128 |
|
|
Repurchase of shares under normal course issuer
bids |
|
(11) |
|
|
(2) |
|
|
Balance, September 30 |
|
515 |
|
|
577 |
|
|
Net unrealized (loss) gain on translation of net
investment in foreign operations |
|
(52) |
|
|
54 |
|
|
Repurchase of shares under normal course issuer
bids |
|
(9) |
|
|
(2) |
|
|
Balance, December 31 |
|
454 |
|
|
629 |
|
|
|
|
|
|
|
|
Accumulated net
unrealized (loss) gain on cash flow hedges (i) |
|
|
|
|
|
|
|
Balance, beginning of period |
|
34 |
|
|
(23) |
|
|
Net unrealized gain on cash flow hedges |
|
8 |
|
|
51 |
|
|
Reclassification of net (gain) loss on cash flow hedges to net
income |
|
(6) |
|
|
3 |
|
|
Balance, March 31 |
|
36 |
|
|
31 |
|
|
Net unrealized loss on cash flow hedges |
|
(36) |
|
|
(14) |
|
|
Reclassification of net gain on cash flow hedges to net
income |
|
(6) |
|
|
(8) |
|
|
Balance, June 30 |
|
(6) |
|
|
9 |
|
|
Net unrealized gain on cash flow hedges |
|
23 |
|
|
39 |
|
|
Reclassification of net gain on cash flow hedges to net
income |
|
— |
|
|
(2) |
|
|
Balance, September 30 |
|
17 |
|
|
46 |
|
|
Net unrealized loss on cash flow hedges |
|
(34) |
|
|
(1) |
|
|
Reclassification of net gain on cash flow hedges to net
income |
|
(3) |
|
|
(11) |
|
|
Balance, December 31 |
|
(20) |
|
|
34 |
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on pension(ii) |
|
|
|
|
|
|
|
Balance, beginning of period |
|
(168) |
|
|
(107) |
|
|
Reclassification of net loss on pensions to net income |
|
3 |
|
|
— |
|
|
Balance, March 31 |
|
(165) |
|
|
(107) |
|
|
Reclassification of net loss on pensions to net
income |
|
3 |
|
|
— |
|
|
Balance, June 30 |
|
(162) |
|
|
(107) |
|
|
Reclassification of net loss on pensions to net
income |
|
3 |
|
|
— |
|
|
Balance, September 30 |
|
(159) |
|
|
(107) |
|
|
Net unrealized gain (loss) on pension |
|
44 |
|
|
(72) |
|
|
Reclassification of net (gain) loss on pensions to net
income |
|
(2) |
|
|
(11) |
|
|
Balance, December 31 |
|
(117) |
|
|
(168) |
|
|
|
|
|
|
|
|
Accumulated net
unrealized (loss) gain on available-for-sale investments |
|
|
|
|
|
|
|
Balance, beginning of period |
|
1 |
|
|
5 |
|
|
Net unrealized gain (loss) on investments |
|
1 |
|
|
(3) |
|
|
Balance, March 31 |
|
2 |
|
|
2 |
|
|
Net unrealized loss on investments |
|
(5) |
|
|
(1) |
|
|
Balance, June 30 |
|
(3) |
|
|
1 |
|
|
Net unrealized (loss) gain on investments |
|
(1) |
|
|
2 |
|
|
Balance, September 30 |
|
(4) |
|
|
3 |
|
|
Net unrealized loss on investments |
|
— |
|
|
(2) |
|
|
Balance, December 31 |
|
(4) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income |
$ |
313 |
|
$ |
496 |
(i) |
The
amount of income tax benefit (obligation) that has been netted in
the accumulated net unrealized gain (loss) on cash flow hedges is
as follows: |
|
|
|
|
2013 |
|
2012 |
|
|
|
|
|
|
Balance, beginning of period |
$ |
(13) |
$ |
12 |
|
Net unrealized gain |
|
(4) |
|
(21) |
|
Reclassifications of net gain (loss) to net
income |
|
2 |
|
(1) |
|
Balance, March 31 |
|
(15) |
|
(10) |
|
Net unrealized loss |
|
13 |
|
7 |
|
Reclassifications of net gain to net income |
|
3 |
|
2 |
|
Balance, June 30 |
|
1 |
|
(1) |
|
Net unrealized gain |
|
(8) |
|
(14) |
|
Reclassifications of net gain to net income |
|
— |
|
1 |
|
Balance, September 30 |
|
(7) |
|
(14) |
|
Net unrealized loss (gain) |
|
10 |
|
(2) |
|
Reclassifications of net gain to net income |
|
1 |
|
3 |
|
Balance, December 31 |
$ |
4 |
$ |
(13) |
|
|
|
|
|
|
(ii) |
The amount of income
tax benefit that has been netted in the accumulated net unrealized
loss on pension and post retirement benefits is as
follows: |
|
|
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
Balance, beginning of period |
$ |
36 |
$ |
24 |
|
Reclassification of net loss to net income |
|
(1) |
|
— |
|
Balance, March 31 |
|
35 |
|
24 |
|
Reclassification of net (loss) gain to net
income |
|
(1) |
|
1 |
|
Balance, June 30 |
|
34 |
|
25 |
|
Reclassification of net loss to net income |
|
(1) |
|
— |
|
Balance, September 30 |
|
33 |
|
25 |
|
Reclassification of net gain (loss) to net
income |
|
2 |
|
(4) |
|
Net unrealized (gain) loss |
|
(21) |
|
15 |
|
Balance, December 31 |
$ |
14 |
$ |
36 |
The amount of other comprehensive loss that is
expected to be reclassified to net income over the next 12 months
is $1 million [net of income
taxes of $1 million].
17. Financial instruments
[a] The Company's financial assets and
financial liabilities consist of the following:
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2013 |
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Held for trading |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
1,554 |
|
|
|
$ |
1,522 |
|
Investment in asset-backed commercial
paper |
|
|
|
|
92 |
|
|
|
|
90 |
|
|
|
|
$ |
1,646 |
|
|
|
$ |
1,612 |
|
|
|
|
|
|
|
|
|
|
|
Held to maturity investments |
|
|
|
|
|
|
|
|
|
|
|
Severance investments |
|
|
|
$ |
5 |
|
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
Equity investments |
|
|
|
$ |
4 |
|
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
Loans and receivables |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
$ |
5,246 |
|
|
|
$ |
4,774 |
|
Long-term receivables included in
other assets |
|
|
|
|
111 |
|
|
|
|
95 |
|
|
|
|
$ |
5,357 |
|
|
|
$ |
4,869 |
|
|
|
|
|
|
|
|
|
|
|
Other financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
|
|
$ |
41 |
|
|
|
$ |
71 |
|
Long-term debt [including portion due
within one year] |
|
|
|
|
332 |
|
|
|
|
361 |
|
Accounts payable |
|
|
|
|
4,781 |
|
|
|
|
4,450 |
|
|
|
|
$ |
5,154 |
|
|
|
$ |
4,882 |
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as effective
hedges, measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
$ |
42 |
|
|
|
$ |
37 |
|
Other assets |
|
|
|
|
|
20 |
|
|
|
|
32 |
|
Other accrued liabilities |
|
|
|
|
|
(37) |
|
|
|
|
(11) |
|
Other long-term liabilities |
|
|
|
|
|
(28) |
|
|
|
|
(9) |
|
|
|
|
|
(3) |
|
|
|
|
49 |
|
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
— |
|
|
|
|
2 |
|
Other accrued liabilities |
|
|
|
|
|
(1) |
|
|
|
|
(3) |
|
Other long-term liabilities |
|
|
|
|
|
— |
|
|
|
|
(1) |
|
|
|
|
|
(1) |
|
|
|
|
(2) |
|
|
|
|
$ |
(4) |
|
|
|
$ |
47 |
[b] 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 December 31,
2013, the Company held Canadian third party asset-backed
commercial paper ["ABCP"] with a face value of Cdn$107 million [December
31, 2012 - Cdn$107 million]. The carrying value and
estimated fair value of this investment was Cdn$99 million [December
31, 2012 - Cdn$90 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 December 31,
2013, the Company held available-for-sale investments in
publicly traded companies. The carrying value and fair value of
these investments was $4 million,
which was based on the closing share price of the investments on
December 31, 2013.
Term debt
The Company's term debt includes $230 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.
[c] Credit risk
The Company's financial assets that are exposed
to credit risk consist primarily of cash and cash equivalents,
accounts receivable, held to maturity investments, and foreign
exchange forward contracts with positive fair values.
The Company's held for trading investments
include an investment in ABCP. Given the continuing uncertainties
regarding the value of the underlying assets, the amount and timing
of cash flows and the risk of collateral calls in the event that
spreads widened considerably, the Company could be exposed to
further losses on its investment.
Cash and cash equivalents, which consists of
short-term investments, are only invested in governments, bank term
deposits and bank commercial paper with an investment grade credit
rating. Credit risk is further reduced by limiting the amount which
is invested in certain governments or any major financial
institution.
The Company is also exposed to credit risk from
the potential default by any of its counterparties on its foreign
exchange forward contracts. The Company mitigates this credit risk
by dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under
the contracts.
In the normal course of business, the Company is
exposed to credit risk from its customers, substantially all of
which are in the automotive industry and are subject to credit
risks associated with the automotive industry. For both the three
month period and year ended December 31,
2013, 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.
[d] Interest rate risk
The Company is not exposed to significant
interest rate risk due to the short-term maturity of its monetary
current assets and current liabilities. In particular, the amount
of interest income earned on the Company's cash and cash
equivalents is impacted more by the investment decisions made and
the demands to have available cash on hand, than by movements in
the interest rates over a given period.
In addition, the Company is not exposed to
interest rate risk on its term debt instruments as the interest
rates on these instruments are fixed.
[e] Currency risk and foreign exchange contracts
The Company operates globally, which gives rise
to a risk that its earnings and cash flows may be adversely
impacted by fluctuations in foreign exchange rates. The Company is
exposed to fluctuations in foreign exchange rates when
manufacturing facilities have committed to the delivery of products
for which the selling price has been quoted in currencies other
than the facilities' functional currency, or when materials and
equipment are purchased in currencies other than the facilities'
functional currency.
In an effort to manage this net foreign exchange
exposure, the Company uses foreign exchange forward contracts for
the sole purpose of hedging certain of the Company's future
committed Canadian dollar, U.S. dollar, euro, British pound and
Indian rupee outflows and inflows. All derivative instruments,
including foreign exchange contracts, are recorded on the interim
consolidated balance sheet at fair value. To the extent that cash
flow hedges are effective, the change in their fair value is
recorded in other comprehensive income; any ineffective portion is
recorded in net income. Amounts accumulated in other comprehensive
income are reclassified to net income in the period in which the
hedged item affects net income.
At December 31,
2013, 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. dollar amount |
|
|
|
|
278 |
|
|
|
1,260 |
|
euro amount |
|
|
|
|
59 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
For U.S. dollars |
|
|
|
|
|
|
|
|
|
|
Peso amount |
|
|
|
|
6,192 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
For euros |
|
|
|
|
|
|
|
|
|
|
U.S. dollar amount |
|
|
|
|
45 |
|
|
|
254 |
|
British pounds amount |
|
|
|
|
43 |
|
|
|
58 |
|
Czech koruna amount |
|
|
|
|
3,632 |
|
|
|
8 |
|
Polish zlotys amount |
|
|
|
|
188 |
|
|
|
— |
Forward contracts mature at various dates
through 2018. Foreign currency exposures are reviewed
quarterly.
As a result of the hedging programs employed,
foreign currency transactions in any given period may not be fully
impacted by movements in exchange rates. As at December 31, 2013, the net foreign exchange
exposure was not material.
18. CONTINGENCIES
[a] In the ordinary course of business
activities, the Company may be contingently liable for litigation
and claims with customers, suppliers, former employees and other
parties. In addition, the Company may be, or could become, liable
to incur environmental remediation costs to bring environmental
contamination levels back within acceptable legal limits. On an
ongoing basis, the Company assesses the likelihood of any adverse
judgments or outcomes to these matters as well as potential ranges
of probable costs and losses.
A determination of the provision required, if
any, for these contingencies is made after analysis of each
individual issue. The required provision may change in the future
due to new developments in each matter or changes in approach such
as a change in settlement strategy in dealing with these
matters.
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 late 2014, 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] A putative class action lawsuit
alleging violations of the United States Securities Exchange Act of
1934 was filed in May 2012 in the
United States District Court, Southern District of New York, against the Company, its Chief
Executive Officer and its Chief Financial Officer, as well as its
founder. Boilermaker-Blacksmith National Pension Trust ["BBNPT"]
was appointed the lead plaintiff on an uncontested motion in
July 2012. BBNPT subsequently filed
an amended complaint in October 2012,
following which the defendants filed a motion seeking dismissal of
the lawsuit. On August 23, 2013, the
Court granted the Company's motion and dismissed the lawsuit "with
prejudice". BBNPT appealed to the United
States Court of Appeals for the Second Circuit and filed an
appellant brief on December 18, 2013.
Following discussions between the parties, on January 16, 2014, the United States District
Court entered a Stipulation and Order regarding dismissal of the
Appeal, as agreed by the parties. In accordance with that
Stipulation and Order, BBNPT filed a motion to voluntarily dismiss
the appeal, which the Court of Appeal granted on January 30, 2014, ending the action.
[c] On September 24,
2013, representatives of the Bundeskartellamt, the German
Federal Cartel Office [the "Cartel Office"], attended at one of the
Company's operating divisions in Germany to obtain information in connection
with an ongoing antitrust investigation relating to suppliers of
automobile textile coverings and components, particularly trunk
linings. Investigations of this nature can continue for several
years. Where wrongful conduct is found, the Cartel Office has the
authority to impose administrative fines that are calculated in
accordance with formula-based guidelines tied to the level of
affected sales, the gravity of the infringement, the consolidated
sales of the group of companies to which the offending entity
belongs, as well as other mitigating and aggravating factors.
The Company's policy is to comply with all
applicable laws, including antitrust and competition laws. In light
of the early stage of the investigation, management is unable to
predict its duration or outcome, including whether any operating
division of the Company could be found liable for any violation of
law or the extent of any fine, if found to be liable. In the event
of any such violation, any fines imposed under the Cartel Office
guidelines referred to above could have a material adverse effect
on Magna's profitability in the year such fine is imposed.
[d] 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.
19. SEGMENTED INFORMATION
Given the differences between the regions in
which the Company operates, Magna's operations are segmented on a
geographic basis. Beginning in the fourth quarter of 2013,
the Company's segments consist of North
America, Europe,
Asia and Rest of World. Consistent
with the above, the Company's internal financial reporting
separately segments key internal operating performance measures
between North America,
Europe, Asia and Rest of World for purposes of
presentation to the chief operating decision maker to assist in the
assessment of operating performance, the allocation of resources,
and the long-term strategic direction and future global growth of
the Company.
The Company's chief operating decision maker
uses Adjusted EBIT as the measure of segment profit or loss, since
management believes Adjusted EBIT is the most appropriate measure
of operational profitability or loss for its reporting segments.
Adjusted EBIT represents income from operations before income
taxes; interest expense, net; and other expense (income), net.
The accounting policies of each segment are the
same as those set out under "Significant Accounting Policies"
[note 1] and intersegment sales and transfers are accounted
for at fair market value.
The following tables show segment information for the Company's
reporting segments and a reconciliation of Adjusted EBIT to the
Company's consolidated income from operations before income
taxes:
|
Three months
ended |
|
Three months ended |
|
December 31, 2013 |
|
December
31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
Total |
|
|
External |
|
|
Adjusted |
|
|
assets, |
|
|
|
Total |
|
|
External |
|
|
Adjusted |
|
|
assets, |
|
|
sales |
|
|
sales |
|
|
EBIT |
|
|
net |
|
|
|
sales |
|
|
sales |
|
|
EBIT |
|
|
net |
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
$ |
1,733 |
|
$ |
1,603 |
|
|
|
|
$ |
601 |
|
|
$ |
1,621 |
|
$ |
1,496 |
|
|
|
|
$ |
660 |
|
United States |
|
2,220 |
|
|
2,099 |
|
|
|
|
|
1,135 |
|
|
|
1,902 |
|
|
1,788 |
|
|
|
|
|
973 |
|
Mexico |
|
995 |
|
|
925 |
|
|
|
|
|
611 |
|
|
|
882 |
|
|
814 |
|
|
|
|
|
573 |
|
Eliminations |
|
(308) |
|
|
— |
|
|
|
|
|
— |
|
|
|
(280) |
|
|
— |
|
|
|
|
|
— |
|
|
4,640 |
|
|
4,627 |
|
$ |
477 |
|
|
2,347 |
|
|
|
4,125 |
|
|
4,098 |
|
$ |
373 |
|
|
2,206 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Britain) |
|
3,170 |
|
|
3,093 |
|
|
|
|
|
1,463 |
|
|
|
2,653 |
|
|
2,606 |
|
|
|
|
|
1,490 |
|
Great Britain |
|
258 |
|
|
257 |
|
|
|
|
|
70 |
|
|
|
261 |
|
|
257 |
|
|
|
|
|
58 |
|
Eastern Europe |
|
633 |
|
|
549 |
|
|
|
|
|
636 |
|
|
|
516 |
|
|
470 |
|
|
|
|
|
584 |
|
Eliminations |
|
(107) |
|
|
— |
|
|
|
|
|
— |
|
|
|
(57) |
|
|
— |
|
|
|
|
|
— |
|
|
3,954 |
|
|
3,899 |
|
|
111 |
|
|
2,169 |
|
|
|
3,373 |
|
|
3,333 |
|
|
24 |
|
|
2,132 |
Asia |
|
486 |
|
|
449 |
|
|
26 |
|
|
597 |
|
|
|
401 |
|
|
377 |
|
|
20 |
|
|
558 |
Rest of World |
|
193 |
|
|
193 |
|
|
(21) |
|
|
102 |
|
|
|
218 |
|
|
219 |
|
|
(28) |
|
|
128 |
Corporate and Other
(i) |
|
(99) |
|
|
6 |
|
|
14 |
|
|
226 |
|
|
|
(84) |
|
|
6 |
|
|
(2) |
|
|
249 |
Total reportable
segments |
|
9,174 |
|
|
9,174 |
|
|
607 |
|
|
5,441 |
|
|
|
8,033 |
|
|
8,033 |
|
|
387 |
|
|
5,273 |
Other expense,
net |
|
|
|
|
|
|
|
(90) |
|
|
|
|
|
|
|
|
|
|
|
|
(45) |
|
|
|
Interest expense,
net |
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
$ |
9,174 |
|
$ |
9,174 |
|
$ |
514 |
|
|
5,441 |
|
|
$ |
8,033 |
|
$ |
8,033 |
|
$ |
341 |
|
|
5,273 |
Current
assets |
|
|
|
|
|
|
|
|
|
|
9,923 |
|
|
|
|
|
|
|
|
|
|
|
|
9,135 |
Investments, goodwill, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets, and |
|
|
|
|
|
|
|
|
|
|
2,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,701 |
Consolidated total
assets |
|
|
|
|
|
|
|
|
|
$ |
17,990 |
|
|
|
|
|
|
|
|
|
|
|
$ |
17,109 |
(i) |
For the three months ended December 31, 2012, Corporate and
Other includes $nil equity loss related to the Company's investment
in E-Car. |
|
|
Year ended |
|
Year ended |
|
|
December 31, 2013 |
|
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
Total |
|
|
External |
|
|
Adjusted |
|
|
assets, |
|
|
Total |
|
|
External |
|
|
Adjusted |
|
|
assets, |
|
|
|
sales |
|
|
sales |
|
|
EBIT |
|
|
net |
|
|
sales |
|
|
sales |
|
|
EBIT |
|
|
net |
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,734 |
|
$ |
6,223 |
|
|
|
|
$ |
601 |
|
$ |
6,343 |
|
$ |
5,907 |
|
|
|
|
$ |
660 |
|
United States |
|
|
8,409 |
|
|
7,938 |
|
|
|
|
|
1,135 |
|
|
7,518 |
|
|
7,053 |
|
|
|
|
|
973 |
|
Mexico |
|
|
3,993 |
|
|
3,698 |
|
|
|
|
|
611 |
|
|
3,520 |
|
|
3,281 |
|
|
|
|
|
573 |
|
Eliminations |
|
|
(1,182) |
|
|
— |
|
|
|
|
|
— |
|
|
(1,046) |
|
|
— |
|
|
|
|
|
— |
|
|
|
17,954 |
|
|
17,859 |
|
$ |
1,645 |
|
|
2,347 |
|
|
16,335 |
|
|
16,241 |
|
$ |
1,521 |
|
|
2,206 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Britain) |
|
|
11,813 |
|
|
11,544 |
|
|
|
|
|
1,463 |
|
|
10,089 |
|
|
9,927 |
|
|
|
|
|
1,490 |
|
Great Britain |
|
|
975 |
|
|
968 |
|
|
|
|
|
70 |
|
|
961 |
|
|
952 |
|
|
|
|
|
58 |
|
Eastern Europe |
|
|
2,317 |
|
|
2,013 |
|
|
|
|
|
636 |
|
|
1,847 |
|
|
1,684 |
|
|
|
|
|
584 |
|
Eliminations |
|
|
(387) |
|
|
— |
|
|
|
|
|
— |
|
|
(188) |
|
|
— |
|
|
|
|
|
— |
|
|
|
14,718 |
|
|
14,525 |
|
|
375 |
|
|
2,169 |
|
|
12,709 |
|
|
12,563 |
|
|
165 |
|
|
2,132 |
Asia |
|
|
1,684 |
|
|
1,539 |
|
|
85 |
|
|
597 |
|
|
1,289 |
|
|
1,187 |
|
|
49 |
|
|
558 |
Rest of World |
|
|
889 |
|
|
889 |
|
|
(76) |
|
|
102 |
|
|
822 |
|
|
823 |
|
|
(77) |
|
|
128 |
Corporate and Other
(i) |
|
|
(410) |
|
|
23 |
|
|
36 |
|
|
226 |
|
|
(318) |
|
|
23 |
|
|
— |
|
|
249 |
Total reportable
segments |
|
|
34,835 |
|
|
34,835 |
|
|
2,065 |
|
|
5,441 |
|
|
30,837 |
|
|
30,837 |
|
|
1,658 |
|
|
5,273 |
Other (expense) income,
net |
|
|
|
|
|
|
|
|
(144) |
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
Interest expense,
net |
|
|
|
|
|
|
|
|
(16) |
|
|
|
|
|
|
|
|
|
|
|
(16) |
|
|
|
|
|
$ |
34,835 |
|
$ |
34,835 |
|
$ |
1,905 |
|
|
5,441 |
|
$ |
30,837 |
|
$ |
30,837 |
|
$ |
1,750 |
|
|
5,273 |
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
9,923 |
|
|
|
|
|
|
|
|
|
|
|
9,135 |
Investments, goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
assets |
|
|
|
|
|
|
|
|
|
|
|
2,626 |
|
|
|
|
|
|
|
|
|
|
|
2,701 |
Consolidated total
assets |
|
|
|
|
|
|
|
|
|
|
$ |
17,990 |
|
|
|
|
|
|
|
|
|
|
$ |
17,109 |
(i) |
For the year ended December 31, 2012, Corporate and Other
includes $35 million equity loss related to the Company's
investment in E-Car. |
20. SUBSEQUENT EVENTS
Under Austria's
current group taxation system, an Austrian entity may utilize the
tax losses of all direct foreign subsidiaries. On February 28, 2014, the Austrian government
enacted legislation abolishing the utilization of foreign losses,
where the direct foreign subsidiary is not a member of the European
Union. Furthermore, any foreign losses previously used by Austrian
entities arising in those direct non European Union subsidiaries
will be subject to recapture in Austria. Currently, the Company has Austrian
entities that directly hold subsidiaries in Russia and India that will be affected by this new rule.
In light of this legislation, the Company anticipates taking a
charge to tax expense of approximately $25
million to $30 million during the first quarter of 2014. The
tax is payable over three years, commencing in 2015.
21. COMPARATIVE FIGURES
Certain of the comparative figures have been
reclassified to conform to the current period's method of
presentation.
SOURCE Magna International Inc.