AURORA, ON, Feb. 26, 2016 /PRNewswire/ - Magna
International Inc. (TSX: MG; NYSE: MGA) today reported
financial results for the fourth quarter and year ended
December 31, 2015.
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THREE MONTHS ENDED
DECEMBER 31, |
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YEAR ENDED
DECEMBER 31, |
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2015 |
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2014 |
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2015 |
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2014 |
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Sales |
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$ |
8,568 |
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$ |
8,790 |
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$ |
32,134 |
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$ |
34,403 |
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Adjusted EBIT(1) |
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$ |
656 |
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$ |
714 |
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$ |
2,529 |
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$ |
2,681 |
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Income from continuing operations before |
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income taxes |
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$ |
624 |
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$ |
696 |
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$ |
2,651 |
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$ |
2,605 |
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Net income from continuing operations |
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attributable to Magna International Inc. |
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$ |
483 |
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$ |
516 |
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$ |
1,946 |
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$ |
1,924 |
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Diluted earnings per share |
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from continuing operations |
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$ |
1.19 |
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$ |
1.23 |
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$ |
4.72 |
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$ |
4.44 |
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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. |
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Adjusted EBIT
represents income from operations before income taxes; interest
expense, net; and other (income) expense, net. |
BASIS OF PRESENTATION
In the third quarter of 2015, we sold
substantially all of our interiors operations (excluding our
seating operations). The assets and liabilities, and operating
results for the previously reported interiors operations are
presented as discontinued operations and have therefore been
excluded from both continuing operations and segment results for
all periods presented in the attached financial statements. This
Press Release reflects the results of continuing operations, unless
otherwise noted.
THREE MONTHS ENDED DECEMBER 31, 2015
We posted sales of $8.6
billion for the fourth quarter ended December 31, 2015, a decrease of 3% from the
fourth quarter of 2014. The weakening of certain currencies against
our U.S. dollar reporting currency, in particular the euro and
Canadian dollar, had a significant negative impact on our reported
sales for the fourth quarter of 2015. Foreign currency
translation reduced our sales by approximately $770 million, as compared to the fourth quarter
of 2014. Excluding the impact of foreign currency
translation, our sales increased 6% in the fourth quarter of 2015,
compared to the fourth quarter of 2014. North American light
vehicle production increased 4% to 4.5 million units and European
light vehicle production increased 7% to 5.5 million units in the
fourth quarter of 2015, compared to the fourth quarter of 2014.
Excluding the impact of foreign currency
translation, our complete vehicle assembly sales decreased 3% in
the fourth quarter of 2015, compared to the fourth quarter of
2014. Complete vehicle assembly volumes decreased 24% to
approximately 25,000 units.
During the fourth quarter of 2015, income from
continuing operations before income taxes was $624 million, net income from continuing
operations attributable to Magna International Inc. was
$483 million and diluted earnings per
share from continuing operations were $1.19, decreases of $72
million, $33 million and
$0.04 respectively, each compared to
the fourth quarter of 2014.
For the fourth quarter of 2015, other expense
(income) negatively impacted income from continuing operations
before income taxes by $15 million,
net income from continuing operations attributable to Magna
International Inc. by $15 million,
and diluted earnings per share from continuing operations by
$0.03, respectively.
During the fourth quarter ended December 31, 2015, we generated cash from
operations of $773 million before
changes in operating assets and liabilities and $243 million in operating assets and liabilities.
Total investment activities for the fourth quarter of 2015 were
$894 million, including $604 million in fixed asset additions,
$221 million in acquisitions and
$69 million in investments and other
assets.
YEAR ENDED DECEMBER 31,
2015
We posted sales of $32.1
billion for the year ended December
31, 2015, a decrease of 7% from the year ended December 31, 2014. The weakening of certain
currencies against our U.S. dollar reporting currency, in
particular the euro and Canadian dollar, had a significant negative
impact on our reported sales in 2015. Foreign currency
translation reduced our sales by approximately $3.35 billion, as compared to 2014.
Excluding the impact of foreign currency translation, our sales
increased 3% in 2015, compared to 2014.
In 2015, vehicle production increased 3% to 17.5
million units in North America and
increased 4% to 21.0 million units in Europe, each compared to 2014.
Excluding the impact of foreign currency
translation, our complete vehicle assembly sales decreased 10% in
2015, compared to 2014. Complete vehicle assembly volumes
decreased 23% to approximately 104,000 units.
For the year ended December 31, 2015, income from continuing
operations before income taxes was $2.7
billion, net income from continuing operations attributable
to Magna International Inc. was $1.9
billion and diluted earnings per share from continuing
operations were $4.72, increases of
$46 million, $22 million and $0.28, respectively, each compared to 2014.
For the year ended December 30, 2015, other expense (income)
positively impacted income from continuing operations before income
taxes by $166 million, net income
from continuing operations attributable to Magna International Inc.
by $95 million, and diluted earnings
per share from continuing operations by $0.23 respectively.
During 2015, we generated cash from operations
before changes in operating assets and liabilities of $2.7 billion, and invested $344 million in operating assets and liabilities.
Total investment activities for 2015 were $2.0 billion, including $1.6 billion in fixed asset additions,
$222 million in acquisitions and
$221 million in investments other
assets.
Don Walker,
Magna's Chief Executive Officer commented: "Overall, we are
satisfied with the progress we made during 2015. We took
important steps to reposition our product portfolio for the future,
in particular entering into a transaction to acquire Getrag, and
disposing of substantially all of our interiors business.
On the operations front, excluding the negative
translation impact from the strengthening of the U.S. dollar, we
reported strong results. We have experienced some challenges
in certain facilities which we are working to overcome.
Looking forward, we are excited about Magna's
future. We are confident that our ability to integrate our
vast capabilities, a competitive advantage compared to our peers,
together with our accelerated innovation activities, leave us well
positioned to remain a key supplier partner to automotive
manufacturers. We believe this strong positioning will enable
us to drive continued growth."
A more detailed discussion of our consolidated
financial results for the fourth quarter and year ended
December 31, 2015 is contained in the
Management's Discussion and Analysis of Results of Operations and
Financial Position and the unaudited interim consolidated financial
statements and notes thereto, which are attached to this Press
Release.
INCREASED QUARTERLY CASH DIVIDEND
Our Board of Directors also declared a quarterly
dividend with respect to our outstanding Common Shares for the
quarter ended December 31, 2015. The
Board increased the dividend by 14% to $0.25 per share. This dividend is payable
on March 24, 2016 to shareholders of
record on March 11, 2016.
Vince Galifi,
Magna's Chief Financial Officer, stated: "Our quarterly dividend of
$0.25, an increase of 14%, represents
a record dividend rate for Magna. This is the sixth straight
year of dividend increase in the fourth quarter, reflecting our
commitment to returning capital to shareholders and the ongoing
confidence our Board has in Magna's future."
UPDATED 2016 OUTLOOK
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Light Vehicle Production (Units) |
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North America |
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18.0 million |
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Europe |
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21.0 million |
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Production Sales |
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North America |
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$19.2 billion - $19.8 billion |
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Europe |
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$8.6 billion - $9.0 billion |
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Asia |
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$2.1 billion - $2.3 billion |
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Rest of World |
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$0.4
billion - $0.5 billion |
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Total Production Sales |
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$30.3 billion - $31.6 billion |
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Complete Vehicle Assembly Sales |
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$1.7 billion - $2.0 billion |
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Total Sales |
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$34.6 billion - $36.3 billion |
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Adjusted EBIT(1) |
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High 7% range |
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Interest Expense, net |
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Approximately $80 million |
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Tax Rate(2) |
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25% - 26% |
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Capital Spending |
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$1.8 billion - $2.0 billion |
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(1) |
We
believe Adjusted EBIT is the most appropriate measure of
operational profitability or loss for our reporting
segments.
Adjusted EBIT represents income from operations before income
taxes; interest expense, net; and other expense (income),
net. |
(2) |
Excluding other expense (income), net |
In this outlook, in addition to 2016 light
vehicle production, we have assumed no material unannounced
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
305 manufacturing operations and 93 product development,
engineering and sales centres in 29 countries. We have over
139,000 employees focused on delivering superior value to our
customers through innovative products and processes, and World
Class Manufacturing. Our product capabilities include
producing body, chassis, 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 2015
results on Friday, February 26, 2016 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
1-800-682-8921. The number for overseas callers is 1-303-223-4361.
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 Europe; expected consolidated sales, based on
such light vehicle production volumes; production sales, including
expected split by segment, in its North
America, Europe,
Asia and Rest of World segments
for 2016; complete vehicle assembly sales; Adjusted EBIT; net
interest expense; effective income tax rate; fixed asset
expenditures; implementation of improvement plans in our
underperforming divisions and/or restructuring actions;
implementation of our business strategy including repositioning of
our product portfolio and our accelerated innovation activities;
growth prospects for our business; and future returns of capital to
our shareholders, including through dividends or share repurchases.
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 global or regional
economic uncertainty; underperformance of one or more of our
operating divisions; our ability to successfully launch material
new or takeover business; risks of conducting business in foreign
markets, including China,
Russia, India, Argentina and Brazil and other non-traditional markets for
us; legal claims and/or regulatory actions against us; 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; ongoing pricing pressures, including our
ability to offset price concessions demanded by our customers;
warranty and recall costs; inability to sustain or grow our
business; our ability to successfully compete with other automotive
suppliers; 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; a
shift away from technologies in which we are investing; 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;
restructuring actions by OEMs, including plant closures;
restructuring, downsizing and/or other significant non-recurring
costs; 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; a prolonged disruption in
the supply of components to us from our suppliers; impairment
charges related to goodwill, long-lived assets and deferred tax
assets; risk of production disruptions due to natural disasters;
pension liabilities; changes in our mix of earnings between
jurisdictions with lower tax rates and those with higher tax rates,
as well as our ability to fully benefit tax losses; other potential
tax exposures; inability to achieve future investment returns that
equal or exceed past returns; risks arising due to the failure of a
major financial institution; liquidity risks; bankruptcy or
insolvency of a major customer or supplier; 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
MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations
and Financial Position
Unless otherwise noted, all amounts in this Management's
Discussion and Analysis of Results of Operations and Financial
Position ("MD&A") are in U.S. dollars and all tabular amounts
are in millions of U.S. dollars, except per share figures, which
are in U.S. dollars. When we use the terms "we", "us", "our" or
"Magna", we are referring to Magna International Inc. and its
subsidiaries and jointly controlled entities, unless the context
otherwise requires.
In 2015, we sold substantially all of our
interiors operations (excluding our seating operations). The assets
and liabilities, and operating results for the previously reported
interiors operations are presented as discontinued operations and
have therefore been excluded from both continuing operations and
segment results for all periods presented in the attached financial
statements. This Management's Discussion and Analysis reflects the
results of continuing operations, unless otherwise noted.
This MD&A should be read in conjunction with
the unaudited interim consolidated financial statements for the
three months and year ended December
31, 2015 included in this press release, and the
audited consolidated financial statements and MD&A for the year
ended December 31, 2014
included in our 2014 Annual Report to Shareholders.
This MD&A has been prepared as at
February 25, 2016.
OVERVIEW
We are a leading global automotive supplier with 292
manufacturing operations and 83 product development, engineering
and sales centres in 29 countries. As of December 31, 2015, we have approximately 129,000
employees focused on delivering superior value to our customers
through innovative products and processes, and World Class
Manufacturing. Our product capabilities include producing body,
chassis, exterior, seating, powertrain, electronic, vision, closure
and roof systems and modules, as well as complete vehicle
engineering and contract manufacturing. Our common shares
trade on the Toronto Stock Exchange (MG) and the New York Stock
Exchange (MGA). For further information about Magna, visit our
website at www.magna.com.
HIGHLIGHTS
Operations
2015 marked the sixth consecutive year of
increased global light vehicle production. In our two most
significant markets, North American light vehicle production
increased 3% to 17.5 million units and European light vehicle
production increased 4% to 21.0 million units, each in 2015
compared to 2014.
We posted consolidated sales of $32.13 billion in 2015, a decrease of
$2.27 billion or 7% from 2014.
Although our financial results are reported in U.S. dollars, we
also generate sales in various other currencies, including the euro
and Canadian dollar. The weakening of these and other functional
currencies against the U.S. dollar reduced our reported sales by
approximately $3.35 billion in 2015
as compared to 2014. Excluding the negative impact of foreign
currency translation, our sales increased 3% compared to 2014.
Overall, our Adjusted EBIT(1)
decreased 6% to $2.53 billion in 2015
compared to $2.68 billion in
2014.
During 2015, net income attributable to Magna
International Inc. from continuing operations was $1.95 billion, an increase of $22 million compared to 2014 and diluted earnings
per share from continuing operations increased $0.28 to $4.72 for
2015 compared to 2014. Excluding the after tax impact of other
(income) expense, net, and the Austrian Tax Reform, as discussed in
the "Other (income) expense, net" and "Income Taxes" sections,
respectively, net Income attributable to Magna International Inc.
from continuing operations decreased $146
million and diluted earnings per share from continuing
operations decreased $0.12.
__________________________________________________________ |
1 |
We believe Adjusted EBIT is the most appropriate measure
of operational profitability or loss for our reporting segments.
Adjusted EBIT represents income from continuing operations before
income taxes; interest expense, net; and other (income) expense,
net. |
Strategic Repositioning of Product
Portfolio
We undertook a number of actions in 2015 to
reposition our product portfolio including the expansion of our
powertrain product segment, which is expected to grow more rapidly,
while exiting other product areas which are not critical to our
future growth plans. Some of these actions include:
- Agreeing to acquire the Getrag Group of Companies ("Getrag"),
one of the world's largest suppliers of transmissions;
- Acquiring Stadco Automotive Ltd. ("Stadco") a supplier of steel
and aluminum stampings as well as vehicle assemblies based in the
United Kingdom;
- Forming a partnership in China
with Chongqing Xingqiaorui (the "Xingqiaorui Partnership"), a Tier
one supplier of automotive body-in-white components to Changan
Ford;
- Buying the head-up display and electronic components business
units of Philips & Lite-On Digital Solutions ("PLDS") in
Germany, as well as the PLDS
ultrasonic sensor business in Taiwan;
- Contributing our aftermarket Jeep roof tops business into a
joint venture;
- Selling substantially all of our interiors operations
(excluding our seating operations); and
- Selling our battery pack business.
Capital Structure
In early 2014, we announced our intention to
move towards a capital structure that we believe is appropriate for
our business, and also to reduce cash levels, while retaining
enough cash to manage our day-to-day needs throughout the year.
After giving effect to the closing of the Getrag transaction, we
have achieved the target capital structure through investments for
future growth in the form of capital spending and acquisitions,
together with return of capital to shareholders through dividends
and share repurchases. Some specific actions that realigned our
capital structure include:
- Investing $1.29 billion in our
business during 2015, including fixed assets, acquisitions net of
divestitures, investments and other assets. In addition, we
invested €1.75 billion in cash plus assumed debt in January 2016, to acquire Getrag;
- Returning a total of $354 million
to shareholders in the form of dividends. On February 25, 2016, our Board of Directors
declared a dividend of U.S $0.25 per
share;
- Returning an additional $515
million to shareholders through the repurchase of 10.6
million shares in 2015; and
- Issuance of senior, unsecured debt denominated in U.S. dollars,
Canadian dollars and euro, respectively.
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 non-traditional markets, including accelerated movement
of component and vehicle design, development, engineering and
manufacturing to certain of these markets;
- the growth of the B to D vehicle segments (subcompact to
mid-size 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 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, rising 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. Consumer
confidence has a significant impact on consumer demand for
vehicles, which in turn impacts, vehicle production. A significant
decline in vehicle production volumes from current levels could
have a material 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 and other currencies. Our profitability
is affected by movements of the U.S. dollar against the Canadian
dollar, the euro 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 or euro, 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.
- 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, and these regulators or those in other
jurisdictions could choose to initiate investigations in these or
other product areas.
In September 2014, the Conselho
Administrativo de Defesa Economica, Brazil's Federal competition authority,
attended at one of the Company's operating divisions in
Brazil to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years.
Where wrongful conduct is found, the relevant antitrust authority
can, depending on the jurisdiction, initiate administrative or
criminal legal proceedings and impose administrative or criminal
fines or penalties taking into account several mitigating and
aggravating factors.
At this time, management is unable to predict the duration or
outcome of the Brazilian investigation, including whether any
operating divisions of the Company will be found liable for any
violation of law or the extent or magnitude of any liability, if
found to be liable.
The Company's policy is to comply with all applicable laws,
including antitrust and competition laws. The Company has initiated
a global review focused on antitrust risk led by a team of external
counsel. If any antitrust violation is found as a result of the
above-referenced investigation or otherwise, Magna could be subject
to fines, penalties and civil, administrative or criminal legal
proceedings that could have a material adverse effect on Magna's
profitability in the year in which any such fine or penalty is
imposed or the outcome of any such proceeding is determined.
Additionally, Magna could be subject to other consequences,
including reputational damage, which could have a material adverse
effect on the Company.
- 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 underperforming
operating divisions, there is no guarantee that we will be
successful in doing so in the short to medium term or that the
expected improvements will be fully realized or realized at all.
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; pressure to assume or offset commodities cost
increases; and refusal to fully offset inflationary price
increases. OEMs possess significant leverage over their suppliers
due to their purchasing power and the highly competitive nature of
the automotive supply industry. As a result of the broad portfolio
of parts we supply to our six largest OEM customers, such customers
may be able to exert greater leverage over us as compared to our
competitors. 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 a material 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,
as well as factors related to manufacturing processes, 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.
- 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, and/or such acquisitions may be dilutive in
the short to medium term, which could have a material adverse
effect on our profitability.
- The successful completion of one or more significant
acquisitions could increase our risk profile, including through the
assumption of incremental regulatory/compliance, pricing, supply
chain, commodities, labour relations, litigation, environmental,
pensions, warranty, recall, IT, tax or other risks. 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 facilities and/or personnel or
other limitations in the due diligence process. Additionally, we
may identify risks and liabilities through our acquisition due
diligence efforts that we are not able to sufficiently mitigate
through appropriate contractual protections. The realization of any
such risks could have a material 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, Ford, Daimler, Volkswagen and BMW. 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.
- 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 Japanese, Korean and Chinese-based OEMs
generally lags that of our largest customers, due in part to the
existing relationships between such 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. As a result, our inability to grow our
business with Asian-based OEMs 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, India, Eastern
Europe, Thailand,
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; competition to attract and retain
qualified employees; 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 such a disruption
could last. 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.
- Our business is generally not seasonal. However, our sales and
profits are closely related to our automotive customers' vehicle
production schedules. Our largest North American customers
typically halt production for approximately two weeks in July and
one week in December. In addition, many of our customers in
Europe typically shut down vehicle
production during portions of August and one week in December.
These scheduled shutdowns of our customers' production facilities
could cause our sales and profitability to fluctuate when comparing
fiscal quarters in any given year.
- The automotive supply industry is highly competitive. As a
result of our diversified automotive business, some competitors
have greater market share than we do in some product areas or
geographic regions, or increasing market share in product areas or
geographic regions which are experiencing higher growth rates. As
the trends towards globalization and consolidation of automotive
suppliers continue, we expect our competitors will be larger and
have greater access to financial and other resources than is
currently the case. We may also face new, global competitors in
some product areas which emerge from non-traditional markets, such
as China, and act as industry
consolidators. 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.
- 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. Some of our manufacturing facilities
generate a significant amount of scrap steel and recover some of
the value through scrap steel sales. Scrap steel prices declined
significantly in 2015 and may decline further, which could have an
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 or
acquired by us. 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 or other catastrophic event, including
fires, floods, hurricanes and earthquakes. The occurrence of any of
these disasters or catastrophic event could cause the total or
partial destruction of our or our sub-supplier's 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 or catastrophic
event at a manufacturing facility could have a material adverse
effect on our operations and profitability.
- The reliability and security of our information technology (IT)
systems is important to our business and operations. Although we
have established and continue to enhance security controls intended
to protect our IT systems and infrastructure, there is no guarantee
that such security measures will be effective in preventing
unauthorized physical access or cyber-attacks. A significant breach
of our IT systems could: cause disruptions in our manufacturing
operations; lead to the loss, destruction or inappropriate use of
sensitive data; or result in theft of our or our customers'
intellectual property or confidential information. If any of the
foregoing events occurs, we may be subject to a number of
consequences, including reputational damage, which could have a
material adverse effect on our Company.
- 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 a material 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 and/or our Management's
Discussion & Analysis, 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.
- 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.
- We believe we will have sufficient financial resources
available to successfully execute our business plan, even in the
event of another global recession similar to that of 2008-2009.
However, as a result of the reduction of our excess cash in
connection with our capital structure strategy, we may have less
financial flexibility than we have had in the last few years. 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.
- 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.
- 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, |
|
|
2015 |
|
2014 |
|
Change |
|
2015 |
|
2014 |
|
Change |
1 Canadian dollar equals U.S. dollars |
|
0.749 |
|
0.881 |
|
- 15% |
|
0.784 |
|
0.906 |
|
- 13% |
1 euro equals U.S. dollars |
|
1.094 |
|
1.250 |
|
- 12% |
|
1.111 |
|
1.330 |
|
- 16% |
1 British pound equals U.S. dollars |
|
1.516 |
|
1.583 |
|
- 4% |
|
1.529 |
|
1.648 |
|
- 7% |
1 Chinese renminbi equals U.S. dollars |
|
0.156 |
|
0.163 |
|
- 4% |
|
0.159 |
|
0.162 |
|
- 2% |
1 Brazilian real equals U.S. dollars |
|
0.260 |
|
0.393 |
|
- 34% |
|
0.305 |
|
0.426 |
|
- 28% |
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, 2015 impacted
the reported U.S. dollar amounts of our sales, expenses and
income.
The results of operations whose functional
currency is not the U.S. dollar are translated into U.S. dollars
using the average exchange rates in the table above for the
relevant period. Throughout this MD&A, reference is made to the
impact of translation of foreign operations on reported U.S. dollar
amounts where relevant.
Our results can also be affected by the impact
of movements in exchange rates on foreign currency transactions
(such as raw material purchases or sales denominated in foreign
currencies). However, as a result of hedging programs employed by
us, foreign currency transactions in the current period have not
been fully impacted by movements in exchange rates. We record
foreign currency transactions at the hedged rate where
applicable.
Finally, foreign exchange gains and losses on
revaluation and/or settlement of monetary items denominated in a
currency other than an operation's functional currency impact
reported results. These gains and losses are recorded in selling,
general and administrative expense.
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2015
Sales
|
|
For the year |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Vehicle Production
Volumes (millions of units) |
|
|
|
|
|
|
|
|
|
|
North America |
|
|
17.473 |
|
|
17.003 |
|
|
+ 3% |
|
Europe |
|
|
20.992 |
|
|
20.108 |
|
|
+ 4% |
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
17,759 |
|
$ |
17,398 |
|
|
+ 2% |
|
|
Europe |
|
|
7,252 |
|
|
8,843 |
|
|
- 18% |
|
|
Asia |
|
|
1,612 |
|
|
1,579 |
|
|
+ 2% |
|
|
Rest of World |
|
|
454 |
|
|
668 |
|
|
- 32% |
|
Complete Vehicle
Assembly |
|
|
2,357 |
|
|
3,160 |
|
|
- 25% |
Tooling, Engineering and
Other |
|
|
2,700 |
|
|
2,755 |
|
|
- 2% |
Total Sales |
|
$ |
32,134 |
|
$ |
34,403 |
|
|
- 7% |
External Production Sales - North America
External production sales in North America increased 2% or $361 million to $17.76
billion for 2015 compared to $17.40
billion for 2014, primarily as a result of the launch of new
programs during or subsequent to 2014, including the:
- Ford Transit;
- Ford Mustang;
- Ford Edge;
- Chevrolet Colorado and GMC Canyon;
- Mercedes-Benz C-Class; and
- GM full-size SUVs.
These factors were partially offset by:
- an $863 million decrease in
reported U.S. dollar sales primarily as a result of the weakening
of the Canadian dollar against the U.S. dollar;
- lower production sales on existing programs;
- net divestitures during or subsequent to 2014, which negatively
impacted sales by $87 million;
and
- net customer price concessions subsequent to 2014.
External Production Sales - Europe
External production sales in Europe decreased 18% or $1.59 billion to $7.25
billion for 2015 compared to $8.84
billion for 2014, primarily as a result of:
- a $1.46 billion decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the euro, Russian
ruble, Czech koruna and Polish zloty;
- lower production sales on existing programs;
- programs that ended production during or subsequent to 2014;
and
- net customer price concessions subsequent to 2014.
These factors were partially offset by the
launch of new programs during or subsequent to 2014, including
the:
- Volkswagen Caddy;
- Volkswagen Passat;
- Ford Transit;
- BMW 2-Series; and
- BMW X4.
External Production Sales - Asia
External production sales in Asia increased 2% or $33 million to $1.61
billion for 2015 compared to $1.58
billion for 2014, primarily as a result of:
- the launch of new programs during or subsequent to 2014,
primarily in China and
India; and
- acquisitions subsequent to 2014, including the Xingqiaorui
Partnership, which positively impacted sales by $18 million.
These factors were partially offset by:
- a $47 million decrease in
reported U.S. dollar as a result of the weakening of foreign
currencies against the U.S. dollar, including the Chinese
renminbi;
- lower production sales on existing programs; and
- net customer price concessions subsequent to 2014.
External Production Sales - Rest of
World
External production sales in Rest of World
decreased 32% or $214 million to
$454 million for 2015 compared to
$668 million for 2014, primarily as a
result of:
- a $149 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
- lower production sales on existing programs.
These factors were partially offset by:
- the launch of new programs during or subsequent to 2014,
primarily in Brazil; and
- net customer price increases subsequent to 2014.
Complete Vehicle Assembly Sales
|
|
For the year |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
Complete Vehicle Assembly Sales |
|
$ |
2,357 |
|
$ |
3,160 |
|
|
- 25% |
Complete Vehicle Assembly Volumes
(Units) |
|
|
103,904 |
|
|
135,126 |
|
|
- 23% |
Complete vehicle assembly sales decreased 25% or
$803 million to $2.36 billion for 2015 compared to $3.16 billion for 2014 and assembly volumes
decreased 23% or 31,222 units.
The decrease in complete vehicle assembly sales
is primarily as a result of:
- a $494 million decrease in
reported U.S. dollar sales as a result of the weakening of the euro
against the U.S. dollar;
- a decrease in assembly volumes for the MINI Countryman and
Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of
2015.
These factors were partially offset by an
increase in assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased
2% or $55 million to $2.70 billion for 2015 compared to $2.76 billion for 2014.
In 2015, the major programs for which we
recorded tooling, engineering and other sales were the:
- Chevrolet Cruze;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford F-Series and F-Series Super Duty;
- Audi A4;
- MINI Countryman;
- Chevrolet Equinox and GMC Terrain;
- Ford Edge;
- Chrysler Pacifica and Dodge Caravan;
- BMW 2-Series; and
- Mercedes-Benz M-Class.
In 2014, the major programs for which we
recorded tooling, engineering and other sales were the:
- Ford Transit;
- MINI Countryman;
- Ford Mustang;
- QOROS 3;
- Ford F-Series and F-Series Super Duty;
- Mercedes-Benz M-Class;
- BMW X4;
- Mercedes-Benz C-Class; and
- Volkswagen Golf;
The weakening of certain foreign currencies
against the U.S. dollar, including the euro, Canadian dollar
and Czech koruna had an unfavourable impact of $332 million on our reported tooling, engineering
and other sales.
Cost of Goods Sold and Gross
Margin
|
|
For the
year |
|
|
ended December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
Sales |
|
$ |
32,134 |
|
$ |
34,403 |
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
|
|
Material |
|
|
20,270 |
|
|
21,864 |
|
Direct labour |
|
|
2,115 |
|
|
2,130 |
|
Overhead |
|
|
5,174 |
|
|
5,474 |
|
|
|
27,559 |
|
|
29,468 |
Gross margin |
|
$ |
4,575 |
|
$ |
4,935 |
|
|
|
|
|
|
|
Gross margin as a percentage of
sales |
|
|
14.2% |
|
|
14.3% |
Cost of goods sold decreased $1.91 billion to $27.56
billion for 2015 compared to $29.47
billion for 2014 primarily as a result of:
- a decrease in reported U.S. dollar cost of goods sold as a
result of the weakening of foreign currencies against the U.S.
dollar, including the euro and Canadian dollar;
- decreased commodity costs;
- lower warranty costs of $20
million;
- costs incurred, net of insurance recoveries, related to a fire
at a body and chassis facility in North
America, during 2014; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- higher material, overhead and labour costs associated with the
increase in local currency sales, in particular in North America;
- operational inefficiencies at certain facilities, in particular
at certain body and chassis operations in North America;
- lower recoveries associated with scrap steel; and
- higher launch costs.
Gross margin decreased $360 million to $4.58
billion for 2015 compared to $4.94
billion for 2014 and gross margin as a percentage of sales
decreased to 14.2% for 2015 compared to 14.3% for 2014. The
decrease in gross margin as a percentage of sales was primarily due
to:
- lower recoveries associated with scrap steel;
- operational inefficiencies at certain facilities, in particular
at certain body and chassis operations in North America;
- higher launch costs; and
- an increase in the proportion of tooling, engineering and other
sales relative to total sales, that have low or no margins.
These factors were partially offset by:
- a decrease in the proportion of complete vehicle assembly sales
relative to total sales, which have a higher material content than
our consolidated average;
- a decrease in the proportion of sales earned in Europe relative to total sales, which have a
lower margin than our consolidated average;
- decreased commodity costs;
- lower warranty costs;
- costs incurred, net of insurance recoveries, related to a fire
at a body and chassis facility in North
America, during 2014; and
- productivity and efficiency improvements at certain
facilities.
Depreciation and Amortization
Depreciation and amortization costs decreased
$43 million to $802 million for 2015 compared to
$845 million for 2014. The lower
depreciation and amortization was primarily as a result of a
decrease in reported U.S. dollar depreciation and amortization
largely as a result of the weakening of the euro, Canadian dollar
and Russian ruble, each against the U.S. dollar partially offset by
higher depreciation related to new facilities and increased capital
employed at existing facilities.
Selling, General and Administrative
("SG&A")
SG&A expense as a percentage of sales was
4.5% for 2015 compared to 4.7% for 2014. SG&A expense decreased
$164 million to $1.45 billion for 2015 compared to $1.61 billion for 2014 primarily as a result
of:
- the weakening of the euro, Canadian dollar, Russian ruble and
Brazilian real, each against the U.S. dollar; and
- the expiration, at the end of 2014, of our consulting
agreements with Frank Stronach.
These factors were partially offset by:
- higher costs to support our global compliance programs;
- costs related to the investment in our information technology
infrastructure;
- higher professional and consulting costs; and
- a $4 million net decrease in
valuation gains in respect of asset-backed commercial paper
("ABCP").
Equity Income
Equity income increased $1 million to $204
million for 2015 compared to $203
million for 2014.
Other (Income) Expense, net
During the three months and years ended
December 31, 2015 and 2014, we
recorded other (income) expense, net ("Other Income" or "Other
Expense") items as follows:
|
|
2015 |
|
2014 |
|
|
|
|
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 (1) |
|
$ |
15 |
|
$ |
15 |
|
$ |
0.03 |
|
$ |
6 |
|
$ |
5 |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal (2) |
|
|
(136) |
|
|
(80) |
|
|
(0.19) |
|
|
— |
|
|
— |
|
|
— |
|
Restructuring
(1) |
|
|
12 |
|
|
12 |
|
|
0.03 |
|
|
7 |
|
|
6 |
|
|
0.01 |
|
|
|
(124) |
|
|
(68) |
|
|
(0.16) |
|
|
7 |
|
|
6 |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal (2) |
|
|
(57) |
|
|
(42) |
|
|
(0.10) |
|
|
— |
|
|
— |
|
|
— |
|
Restructuring (1) |
|
|
— |
|
|
— |
|
|
— |
|
|
11 |
|
|
10 |
|
|
0.02 |
|
|
|
(57) |
|
|
(42) |
|
|
(0.10) |
|
|
11 |
|
|
10 |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
20 |
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year other (income) expense,
net |
|
$ |
(166) |
|
$ |
(95) |
|
$ |
(0.23) |
|
$ |
46 |
|
$ |
41 |
|
$ |
0.09 |
(1) Restructuring
[a] For the year ended December 31, 2015
During 2015, we recorded net restructuring
charges of $27 million ($27 million after tax) primarily in Germany related at our exterior systems and
roof systems operations.
[b] For the year ended December 31, 2014
During 2014, we recorded net restructuring
charges of $46 million ($41 million after tax), in Europe at our exterior systems operations.
(2) Gains on disposal
During the third quarter of 2015, we entered
into a joint venture arrangement for the manufacture and sale of
roof and other accessories for the Jeep market to original
equipment manufacturers as well as aftermarket customers. We
contributed two manufacturing facilities and received a 49%
interest in the newly formed joint venture and cash proceeds of
$118 million. Total consideration was
valued at $160 million and as a
result we recognized a gain of $136
million ($80 million after
tax). We account for our ownership as an equity investment since we
have significant influence through our voting rights, but do not
control the joint venture.
During the second quarter of 2015, we sold our
battery pack business to Samsung SDI for gross proceeds of
$120 million, resulting in a gain of
$57 million ($42 million after tax).
Segment Analysis
Given the differences between the regions in
which we operate, our operations are segmented on a geographic
basis. Consistent with the above, our internal financial reporting
separately segments key internal operating performance measures
between North America,
Europe, Asia and Rest of World for purposes of
presentation to the chief operating decision maker to assist in the
assessment of operating performance, the allocation of resources,
and our long-term strategic direction and future global growth.
Our chief operating decision maker uses Adjusted
EBIT as the measure of segment profit or loss, since we believe
Adjusted EBIT is the most appropriate measure of operational
profitability or loss for our reporting segments. Adjusted EBIT
represents income from continuing operations before income taxes;
interest expense, net; and other expense (income), net.
|
|
For
the year ended December 31, |
|
|
Total
Sales |
|
Adjusted EBIT |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
19,015 |
|
$ |
18,761 |
|
$ |
254 |
|
$ |
1,934 |
|
$ |
2,003 |
|
$ |
(69) |
Europe |
|
|
11,123 |
|
|
13,502 |
|
|
(2,379) |
|
|
451 |
|
|
502 |
|
|
(51) |
Asia |
|
|
1,981 |
|
|
1,919 |
|
|
62 |
|
|
149 |
|
|
150 |
|
|
(1) |
Rest of World |
|
|
461 |
|
|
695 |
|
|
(234) |
|
|
(25) |
|
|
(35) |
|
|
10 |
Corporate and
Other |
|
|
(446) |
|
|
(474) |
|
|
28 |
|
|
20 |
|
|
61 |
|
|
(41) |
Total reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
$ |
32,134 |
|
$ |
34,403 |
|
$ |
(2,269) |
|
$ |
2,529 |
|
$ |
2,681 |
|
$ |
(152) |
Excluded from Adjusted EBIT for 2015 and 2014
were the following other expense (income), net items, which have
been discussed in the "Other Expense" section.
|
|
|
For the
year |
|
|
|
ended December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
Gain on sale |
|
$ |
(136) |
|
$ |
— |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
Gain on sale |
|
|
(57) |
|
|
— |
|
Restructuring |
|
|
27 |
|
|
46 |
|
|
|
(30) |
|
|
46 |
|
|
|
|
|
|
|
|
|
$ |
(166) |
|
$ |
46 |
North
America
Adjusted EBIT in North
America decreased $69 million
to $1.93 billion for 2015 compared to
$2.00 billion for 2014 primarily
as a result of:
- lower recoveries associated with scrap steel;
- a decrease in reported U.S. dollar EBIT due to the weakening of
the Canadian dollar against the U.S. dollar;
- higher launch costs;
- operational inefficiencies at certain facilities, in particular
at certain body and chassis operations;
- a higher amount of employee profit sharing; and
- net customer price concessions subsequent to of 2014.
These factors were partially offset by:
- margins earned on higher production sales;
- lower affiliation fees paid to Corporate;
- decreased commodity costs;
- costs incurred, net of insurance recoveries, related to a fire
at a body and chassis facility, during the second quarter of
2014;
- lower warranty costs of $11
million;
- higher equity income; and
- productivity and efficiency improvements at certain
facilities.
Europe
Adjusted EBIT in Europe decreased $51
million to $451 million for
2015 compared to $502 million
for 2014 primarily as a result of:
- a decrease in reported U.S. dollar EBIT as a result of the
weakening of foreign currencies against the U.S. dollar, including
the euro, Czech koruna and Russian ruble;
- higher launch costs;
- decreased margins earned on lower production sales;
- operational inefficiencies at certain facilities;
- lower equity income; and
- net customer price concessions subsequent to 2014.
These factors were partially offset by:
- lower affiliation fees paid to Corporate;
- decreased commodity costs;
- lower warranty costs of $5
million;
- productivity and efficiency improvements at certain facilities;
and
- a lower amount of employee profit sharing.
Asia
Adjusted EBIT in Asia decreased $1
million to $149 million for
2015 compared to $150 million for
2014 primarily as a result of:
- increased pre-operating costs incurred at new facilities;
- higher launch costs;
- a decrease in reported U.S. dollar EBIT as a result of the
weakening of foreign currencies against the U.S. dollar, including
the Chinese renminbi; and
- net customer price concessions subsequent to 2014.
These factors were partially offset by:
- increased margins due to higher production sales;
- a lower amount of employee profit sharing;
- lower affiliation fees paid to Corporate;
- lower warranty costs of $4
million;
- higher equity income; and
- decreased commodity costs.
Rest of World
Adjusted EBIT in Rest of World increased
$10 million to a loss of $25 million for 2015 compared to a loss of
$35 million for 2014 primarily as a
result of:
- productivity and efficiency improvements at certain
facilities;
- a decrease in reported U.S. dollar EBIT loss due to the
weakening of the Brazilian real against the U.S. dollar;
- decreased commodity costs;
- lower affiliation fees paid to Corporate; and
- net customer price increases subsequent to 2014.
These factors were partially offset by:
- decreased margins earned on lower production sales;
- higher production costs, including inflationary increases, that
we have not been fully successful in passing through to our
customers; and
- lower equity income.
Corporate and Other
Corporate and Other Adjusted EBIT decreased
$41 million to $20 million for 2015 compared to $61 million for 2014 primarily as a result
of:
- a decrease in affiliation fees earned from our divisions;
- higher costs to support our global compliance program;
- costs related to the investment in our information technology
infrastructure;
- higher professional and consulting costs;
- a $4 million net decrease in
valuation gains in respect of ABCP;
- increased stock-based compensation; and
- a higher amount of employee profit sharing.
These factors were partially offset by the
expiration, at the end of 2014, of our consulting agreements with
Frank Stronach.
Interest Expense, net
During 2015, we recorded net interest expense of
$44 million compared to $30 million for 2014. The $14 million increase is primarily as a result of
interest expense on:
- the following issuances of senior, unsecure debt (the "Senior
Debt") during 2015:
-
- $650 million of 4.150% fixed-rate
senior notes maturing on October 1,
2025;
- €550 million of 1.900% fixed-rate senior notes maturing on
November 24, 2023; and
- Cdn$425 million of 3.100%
fixed-rate senior notes maturing on December
15, 2022; and
- $750 million of 3.625% fixed rate
senior notes issued during 2014.
These factors were partially offset by lower
interest expense as a result of lower debt in Asia and South
America.
Income from Continuing Operations before
Income Taxes
Income from continuing operations before income
taxes increased $46 million to
$2.65 billion for 2015 compared to
$2.61 billion for 2014. Excluding
Other Income and Other Expense, discussed in the "Other Expense"
section, income from continuing operations before income taxes for
2015 decreased $166 million primarily
as a result of:
- the negative impact of foreign exchange translation from the
weakening of foreign currencies, including the Canadian dollar and
euro, each against the U.S. dollar;
- operational inefficiencies at certain facilities, in particular
at certain body and chassis operations in North America;
- lower recoveries associated with scrap steel;
- higher launch costs;
- the $14 million increase in
interest expense, net, as discussed above;
- a $4 million net decrease in
valuation gains in respect of ABCP;
- a higher amount of employee profit sharing;
- increased pre-operating costs incurred at new facilities;
and
- net customer price concessions subsequent to 2014.
These factors were partially offset by:
- increased margins due to higher production sales;
- the expiration, at the end of 2014, of our consulting
agreements with Frank Stronach;
- decreased commodity costs;
- lower warranty costs of $20
million;
- costs incurred, net of insurance recoveries, related to a fire
at a body and chassis facility in North
America, during 2014;
- lower incentive compensation; and
- productivity and efficiency improvements at certain
facilities.
Income Taxes
|
|
2015 |
|
2014 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes as reported |
|
$ |
711 |
|
|
26.8 |
|
$ |
683 |
|
|
26.2 |
Tax effect on Other Income and Other Expense |
|
|
(71) |
|
|
(1.0) |
|
|
5 |
|
|
(0.3) |
Austrian Tax Reform |
|
|
— |
|
|
— |
|
|
(32) |
|
|
(1.2) |
|
|
$ |
640 |
|
|
25.8 |
|
$ |
656 |
|
|
24.7 |
For 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses where the
foreign subsidiary is not a member of the European Union.
Furthermore, any foreign losses used by Austrian entities arising
in those non European Union subsidiaries are subject to recapture
in Austria. As a consequence of
this change, in 2014 we have recorded a charge to income tax
expense of $32 million ("Austrian Tax
Reform").
Excluding Other Income and Other Expense, after
tax, and the Austrian Tax Reform, the effective income tax rate
increased to 25.8% for 2015 compared to 24.7% for 2014 primarily as
result of:
- higher non-creditable withholding tax;
- lower favourable audit settlements in 2015; and
- an increase in permanent items.
These factors were partially offset by a benefit
recorded on the write-off of historical tax basis in one of our
South American subsidiaries.
Income (loss) from Discontinued Operations,
net of tax
Income (loss) from discontinued operations, net
of tax reflects the results of our interiors operations which are
classified as discontinued operations. During the third quarter of
2015, we sold these operations.
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
Sales |
|
$ |
1,737 |
|
$ |
2,394 |
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
Cost of goods sold |
|
|
1,635 |
|
|
2,310 |
|
Depreciation and
amortization |
|
|
13 |
|
|
45 |
|
Selling, general and administrative |
|
|
58 |
|
|
95 |
|
Equity income |
|
|
(11) |
|
|
(8) |
|
Other expense, net |
|
|
— |
|
|
18 |
Income (loss) from discontinued
operations before income taxes |
|
|
42 |
|
|
(66) |
Income taxes |
|
|
20 |
|
|
(24) |
|
|
|
22 |
|
|
(42) |
Gain on divestiture of discontinued
operations, net of tax |
|
|
45 |
|
|
— |
Income (loss) from discontinued
operations, net of tax |
|
$ |
67 |
|
$ |
(42) |
Income (loss) from discontinued operations, net
of tax increased $109 million to
$67 million for 2015 compared to a
loss of $42 million for 2014
primarily as a result of the $45
million after-tax gain on divestiture, lower SG&A and
depreciation costs partially offset by increased income taxes.
Loss from Continuing Operations
Attributable to Non-controlling Interests
Loss from continuing operations attributable to
non-controlling interests increased $4
million to $6 million for 2015
compared to $2 million for 2014.
Net Income Attributable to Magna
International Inc.
Net income attributable to Magna International
Inc. of $2.01 billion for 2015
increased $131 million compared to
2014. Excluding Other Income and Other Expense, after tax, and the
Austrian Tax Reform as discussed in the "Other Expense" and the
"Income Taxes" sections, respectively, net income attributable to
Magna International Inc. decreased $37
million primarily as a result of the decrease in net income
from continuing operations before income taxes partially offset by
the income from discontinued operations, net of tax and lower
income taxes, as discussed above.
Earnings per Share (restated)
|
|
For the year |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.78 |
|
$ |
4.50 |
|
|
+ 6% |
|
Attributable to Magna International
Inc. |
|
$ |
4.94 |
|
$ |
4.41 |
|
|
+ 12% |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
4.72 |
|
$ |
4.44 |
|
|
+ 6% |
|
Attributable to Magna International
Inc. |
|
$ |
4.88 |
|
$ |
4.34 |
|
|
+ 12% |
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Common Shares outstanding (millions) |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
407.5 |
|
|
427.1 |
|
|
- 5% |
|
Diluted |
|
|
412.7 |
|
|
433.2 |
|
|
- 5% |
Diluted earnings per share from continuing operations increased
$0.28 to $4.72 for 2015 compared to $4.44 for 2014. Other Income and Other Expense,
after tax, and the Austrian Tax Reform positively impacted diluted
earnings per share from continuing operations by $0.23 in 2015 and negatively impacted diluted
earnings per share from continuing operations by $0.17 in 2014. Other Income and Other Expense and
the Austrian Tax Reform are discussed in the "Other Income" and
"Income Taxes" sections, respectively. Excluding these impacts,
diluted earnings per share from continuing operations decreased
$0.12 as a result of the decrease in
net income attributable to Magna International Inc. from continuing
operations partially offset by a decrease in the weighted average
number of diluted shares outstanding during the 2015.
The decrease in the weighted average number of
diluted shares outstanding was due to the purchase and cancellation
of Common Shares, during or subsequent to 2014, pursuant to our
normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
For the year |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
1,940 |
|
$ |
1,922 |
|
|
|
Items not involving current cash
flows |
|
|
736 |
|
|
1,102 |
|
|
|
|
|
|
2,676 |
|
|
3,024 |
|
$ |
(348) |
Changes in operating assets and
liabilities |
|
|
(344) |
|
|
(202) |
|
|
|
Cash provided from operating activities |
|
$ |
2,332 |
|
$ |
2,822 |
|
$ |
(490) |
Cash flow from operations before changes in
operating assets and liabilities decreased $348 million to $2.68
billion for 2015 compared to $3.02
billion for 2014. The decrease in cash flow from operations
was due to a $366 million decrease in
items not involving current cash flows partially offset by an
$18 million increase in net income
from continuing operations. Items not involving current cash flows
are comprised of the following:
|
|
For the year |
|
|
ended December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
802 |
|
$ |
845 |
Amortization of other assets included in cost of
goods sold |
|
|
110 |
|
|
132 |
Other non-cash charges |
|
|
44 |
|
|
35 |
Deferred income taxes |
|
|
(7) |
|
|
113 |
Equity income in excess of dividends
received |
|
|
(20) |
|
|
(23) |
Non-cash portion of Other Income |
|
|
(193) |
|
|
— |
Items not involving current cash flows |
|
$ |
736 |
|
$ |
1,102 |
Cash invested in operating assets and
liabilities amounted to $344 million
for 2015 compared to $202 million for
2014. The change in operating assets and liabilities is comprised
of the following sources (and uses) of cash:
|
|
For the year |
|
|
ended December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(410) |
|
$ |
(760) |
Inventories |
|
|
(241) |
|
|
(275) |
Prepaid expenses and other |
|
|
13 |
|
|
3 |
Accounts payable |
|
|
139 |
|
|
634 |
Accrued salaries and wages |
|
|
43 |
|
|
74 |
Other accrued liabilities |
|
|
72 |
|
|
80 |
Income taxes payable |
|
|
40 |
|
|
42 |
Changes in non-cash operating assets and
liabilities |
|
$ |
(344) |
|
$ |
(202) |
Higher accounts receivable relate primarily to
higher tooling receivables related to program launches. The
increase in inventories was primarily due to higher production
inventory to support launch activities and increased tooling
inventory in North America. The
increase in accounts payable was primarily due to timing of
payments.
Capital and Investment
Spending
|
|
For the
year |
|
|
|
|
ended December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
$ |
(1,591) |
|
$ |
(1,495) |
|
|
|
Investments and other assets |
|
|
(221) |
|
|
(172) |
|
|
|
Fixed assets, investments and other assets
additions |
|
|
(1,812) |
|
|
(1,667) |
|
|
|
Purchase of subsidiaries |
|
|
(222) |
|
|
(23) |
|
|
|
Proceeds from disposition |
|
|
61 |
|
|
164 |
|
|
|
Proceeds on disposal of facilities |
|
|
221 |
|
|
— |
|
|
|
Sale of Interiors |
|
|
520 |
|
|
— |
|
|
|
Cash used in discontinued operations |
|
|
(56) |
|
|
(120) |
|
|
|
Cash used for investment activities |
|
$ |
(1,288) |
|
$ |
(1,646) |
|
$ |
358 |
Fixed assets, investments and other assets additions
In 2015, we invested $1.59 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 2015 was for manufacturing
equipment for programs that will be launching subsequent to
2015.
In 2015, we invested $200
million in other assets related primarily to fully
reimbursable tooling and engineering costs for programs that
launched during 2015 or will be launching subsequent to 2015. In
addition, we invested $21 million in
equity accounted investments.
Purchase of subsidiaries
During 2015, we invested $222 million to purchase subsidiaries,
including:
- forming a Xingqiaorui Partnership. Under the terms of the
arrangement, Chongqing Xingqiaorui ("Xingqiaorui"), tranferred a
53% controlling interest in its three China manufacturing facilities and cash
consideration of $36 million. In
exchange, we transferred a 47% non-controlling equity interest in
our Chongqing manufacturing
facility and cash consideration of $130
million to Xingqiaorui; and
- Stadco, based in the United
Kingdom, is a supplier of steel and aluminum stampings as
well as vehicle assemblies primarily to Jaguar and Land Rover.
Proceeds from disposition
In 2015, the $61
million of proceeds include normal course fixed and other
asset disposal.
Proceeds on disposal of facilities
During 2015, we received $221 million of proceeds on disposal of
facilities related to the:
- sale of our battery pack business to Samsung SDI; and
- formation of a joint venture for the manufacture and sale of
roof and other accessories for the Jeep market to original
equipment manufacturers as well as aftermarket customers.
Sale of Interiors
On August 31,
2015, we sold substantially all of our interiors operations
(excluding our seating operations) and received $520 million of proceeds, net of transaction
costs.
Financing
|
|
For the year |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
Issues of debt |
|
$ |
1,608 |
|
$ |
860 |
|
|
|
Increase (decrease) in bank
indebtedness |
|
|
25 |
|
|
(2) |
|
|
|
Repayments of debt |
|
|
(99) |
|
|
(188) |
|
|
|
Issues of Common Shares |
|
|
35 |
|
|
49 |
|
|
|
Repurchase of Common
Shares |
|
|
(515) |
|
|
(1,783) |
|
|
|
Contribution to subsidiaries by non-controlling
interests |
|
|
41 |
|
|
— |
|
|
|
Dividends paid |
|
|
(354) |
|
|
(316) |
|
|
|
Cash provided by (used for) financing
activities |
|
$ |
741 |
|
$ |
(1,380) |
|
$ |
2,121 |
Issues of debt relates primarily to the issue of
the Senior Debt during 2015. The Senior Debt are senior unsecured
obligations and do not include any financial covenants. We may
redeem the Senior Debt in whole or in part at any time, at
specified redemption prices determined in accordance with the terms
of each of the respective indentures governing the Senior Debt. The
funds raised through these offerings were used for general
corporate purposes, including capital expenditures, as well as the
acquisition of Getrag.
During 2015, we purchased for cancellation 10.6
million Common Shares for an aggregate purchase price of
$515 million under our normal course
issuer bids.
Cash dividends paid per Common Share were
$0.88 for 2015, for a total of
$354 million.
Financing Resources
|
|
As at |
|
As at |
|
|
|
|
|
December
31, |
|
December 31, |
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
25 |
|
$ |
30 |
|
|
|
|
Long-term debt due within one year |
|
|
211 |
|
|
183 |
|
|
|
|
Long-term debt |
|
|
2,346 |
|
|
812 |
|
|
|
|
|
|
2,582 |
|
|
1,025 |
|
|
|
Non-controlling
interest |
|
|
151 |
|
|
14 |
|
|
|
Shareholders' equity |
|
|
8,966 |
|
|
8,659 |
|
|
|
Total capitalization |
|
$ |
11,699 |
|
$ |
9,698 |
|
$ |
2,001 |
Total capitalization increased by $2.00 billion to $11.70
billion at December 31, 2015
compared to $9.70 billion at
December 31, 2014 as a
result of a $1.56 billion increase in
liabilities, a $307 million increase
in shareholders' equity and a $137
million increase in non-controlling interest.
The increase in liabilities relates primarily to
the Senior Debt issued during 2015.
The increase in shareholders' equity was
primarily as a result of the $2.01
billion of net income earned in 2015.
This factor was partially offset by:
- the $798 million net unrealized
loss on translation of our net investment in foreign operations
whose functional currency is not the U.S. dollar;
- the $515 million repurchase and
cancellation of 10.6 million Common Shares under our normal course
issuer bid during 2015;
- $354 million of dividends paid
during 2015; and
- the $244 million net unrealized
loss on cash flow hedges.
The increase in non-controlling interest
primarily relates to the formation of the Xingqiaorui
Partnership.
Cash Resources
During 2015, our cash resources increased by
$1.61 billion to $2.86 billion as a result of the cash provided
from operating and financing activities partially offset by cash
used for investing activities, as discussed above. In addition to
our cash resources at December 31,
2015, we had term and operating lines of credit totalling
$2.55 billion of which $2.25 billion was unused and available.
On April 24, 2015,
our $2.25 billion revolving credit
facility maturing June 20, 2019 was
extended to June 22, 2020. The
facility includes a $200 million
Asian tranche, a $50 million Mexican
tranche and a tranche for Canada,
U.S. and Europe, which is fully
transferable between jurisdictions and can be drawn in U.S.
dollars, Canadian dollars or euros.
During the first quarter of 2014, we filed a
short form base shelf prospectus with the Ontario Securities
Commission and a corresponding shelf registration statement with
the United States Securities and Exchange Commission on Form F-10.
The filings provide for the potential offering of up to an
aggregate of $2.00 billion of debt
securities from time to time over a 25 month period. During 2015,
we issued $650 million of 4.150%
fixed-rate senior notes maturing on October
1, 2025 and €550 million of 1.900% fixed-rate senior notes
maturing on November 24, 2023 under
the filings. We also issued Cdn$425
million of 3.100% fixed-rate senior notes maturing on
December 15, 2022 by way of private
placement to accredited investors in Canada. The funds raised through these
offerings were used for general corporate purposes, including
capital expenditures, as well as the acquisition of Getrag. During
the second quarter of 2014, we issued $750
million of 3.625% fixed-rate senior notes which mature on
June 15, 2024 under the filings.
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 25, 2016 were
exercised:
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
402,264,201 |
Stock options (i) |
|
|
|
|
|
|
|
|
|
|
|
|
7,310,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
409,574,361 |
(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,
2015, we had contractual obligations requiring annual
payments as follows:
|
|
|
|
|
|
2017- |
|
|
2019 - |
|
|
|
|
|
|
|
|
|
2016 |
|
|
2018 |
|
|
2020 |
|
|
Thereafter |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
268 |
|
$ |
417 |
|
$ |
299 |
|
$ |
283 |
|
$ |
1,267 |
Long-term debt |
|
|
211 |
|
|
30 |
|
|
5 |
|
|
2,311 |
|
|
2,557 |
Unconditional purchase
obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials and services |
|
|
2,325 |
|
|
144 |
|
|
26 |
|
|
6 |
|
|
2,501 |
|
Capital |
|
|
442 |
|
|
73 |
|
|
40 |
|
|
18 |
|
|
573 |
Total contractual
obligations |
|
$ |
3,246 |
|
$ |
664 |
|
$ |
370 |
|
$ |
2,618 |
|
$ |
6,898 |
Our unfunded obligations with respect to
employee future benefit plans, which have been actuarially
determined, were $494 million at
December 31, 2015. These obligations
are as follows:
|
|
|
|
|
|
|
|
|
Termination and |
|
|
|
|
|
|
Pension |
|
|
Retirement |
|
|
Long Service |
|
|
|
|
|
|
Liability |
|
|
Liability |
|
|
Arrangements |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
493 |
|
$ |
32 |
|
$ |
295 |
|
$ |
820 |
Less plan assets |
|
|
(326) |
|
|
— |
|
|
— |
|
|
(326) |
Unfunded amount |
|
$ |
167 |
|
$ |
32 |
|
$ |
295 |
|
$ |
494 |
Our off-balance sheet financing arrangements are
limited to operating lease contracts.
We have facilities that are subject to operating
leases. Operating lease payments in 2015 for facilities were
$232 million. Operating lease
commitments in 2016 for facilities are expected to be $227 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 $53 million for 2015, and are expected to be
$41 million in 2016.
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, 2015
Sales
|
|
For the three
months |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
Vehicle Production
Volumes (millions of units) |
|
|
|
|
|
|
|
|
|
|
North America |
|
|
4.546 |
|
|
4.377 |
|
|
+ 4% |
|
Europe |
|
|
5.538 |
|
|
5.193 |
|
|
+ 7% |
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
4,670 |
|
$ |
4,465 |
|
|
+ 5% |
|
|
Europe |
|
|
1,832 |
|
|
2,077 |
|
|
- 12% |
|
|
Asia |
|
|
473 |
|
|
431 |
|
|
+ 10% |
|
|
Rest of World |
|
|
87 |
|
|
169 |
|
|
- 49% |
|
Complete Vehicle
Assembly |
|
|
628 |
|
|
743 |
|
|
- 15% |
|
Tooling, Engineering and
Other |
|
|
878 |
|
|
905 |
|
|
- 3% |
|
Total Sales |
|
$ |
8,568 |
|
$ |
8,790 |
|
|
- 3% |
External Production Sales - North America
External production sales in North America increased 5% or $205 million to $4.67
billion for the three months ended December 31, 2015 compared to $4.47 billion for the three months ended
December 31, 2014, primarily as a
result of:
- the launch of new programs during or subsequent to the fourth
quarter of 2014, including the:
-
- Ford F-Series;
- Lincoln MKX;
- Nissan Navara; and
- Mercedes-Benz GLE Coupe; and
- higher production sales on existing programs.
These factors were partially offset by:
- a $264 million decrease in
reported U.S. dollar sales primarily as a result of the weakening
of the Canadian dollar against the U.S. dollar;
- net divestitures subsequent to the fourth quarter of 2014,
which negatively impacted sales by $21
million; and
- net customer price concessions subsequent to the fourth quarter
of 2014.
External Production Sales - Europe
External production sales in Europe decreased 12% or $245 million to $1.83
billion for the three months ended December 31, 2015 compared to $2.08 billion for the three months ended
December 31, 2014, primarily as a
result of:
- a $269 million decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the euro, Russian
ruble and Czech koruna;
- lower production sales on existing programs;
- programs that ended production during or subsequent to the
fourth quarter of 2014; and
- net customer price concessions subsequent to the fourth quarter
of 2014.
These factors were partially offset by:
- launch of new programs during or subsequent to the fourth
quarter of 2014, including the:
-
- BMW X1;
- BMW 7-Series;
- Audi A4; and
- Volkswagen Touran; and
- acquisitions subsequent to the fourth quarter of 2014, which
positively impacted sales by $20
million.
External Production Sales - Asia
External production sales in Asia increased 10% or $42 million to $473
million for the three months ended December 31, 2015 compared to $431 million for the three months ended
December 31, 2014, primarily as a
result of:
- the launch of new programs during or subsequent to the fourth
quarter of 2014, primarily in China and India; and
- acquisitions subsequent to the fourth quarter of 2014,
including the Xingqiaorui Partnership, which positively impacted
sales by $16 million.
These factors were partially offset by:
- a $21 million decrease in
reported U.S. dollar as a result of the weakening of foreign
currencies against the U.S. dollar, including the Chinese renminbi;
and
- net customer price concessions subsequent to the fourth quarter
of 2014.
External Production Sales - Rest of
World
External production sales in Rest of World
decreased 49% or $82 million to
$87 million for the three months
ended December 31, 2015 compared
to $169 million for the three months
ended December 31, 2014, primarily as
a result of:
- a $37 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
- lower production sales on existing programs.
These factors were partially offset by net
customer price increases subsequent to the fourth quarter of
2014.
Complete Vehicle Assembly Sales
|
|
|
For the three
months |
|
|
|
|
|
ended December 31, |
|
|
|
|
|
2015 |
|
|
2014 |
|
|
Change |
Complete Vehicle Assembly Sales |
|
$ |
628 |
|
$ |
743 |
|
|
- 15% |
Complete Vehicle Assembly Volumes
(Units) |
|
|
25,042 |
|
|
32,965 |
|
|
- 24% |
Complete vehicle assembly sales decreased 15%,
or $115 million, to $628 million for the three months ended
December 31, 2015 compared to
$743 million for the three
months ended December 31, 2014 and
assembly volumes decreased 24% or 7,923 units.
The decrease in complete vehicle assembly sales
is primarily as a result of:
- a $94 million decrease in
reported U.S. dollar sales as a result of the weakening of the euro
against the U.S. dollar;
- a decrease in assembly volumes for the MINI Countryman and
Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of
2015.
These factors were partially offset by an
increase in assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased
3% or $27 million to $878 million for the three months ended
December 31, 2015 compared to
$905 million for the three months
ended December 31, 2014.
In the three months ended December 31, 2015, the major programs for which
we recorded tooling, engineering and other sales were the:
- Chevrolet Cruze;
- Buick Enclave, GMC Acadia and Chevrolet Traverse;
- Chevrolet Malibu;
- Audi A4;
- Chrysler Pacifica and Dodge Caravan;
- Chevrolet Volt;
- Chevrolet Equinox and GMC Terrain; and
- Cadillac CT6.
In the three months ended December 31, 2014, the major programs for which
we recorded tooling, engineering and other sales were the:
- Ford F-Series and F-Series Super Duty;
- Ford Transit;
- Nissan NP300 Navara;
- Mercedes-Benz C-Class;
- Ford Mondeo;
- Buick Enclave, GMC Acadia and Chevrolet Traverse;
- Skoda Octavia; and
- Volkswagen Golf.
The weakening of certain foreign currencies
against the U.S. dollar, including the euro and Canadian dollar had
an unfavourable impact of $83 million
on our reported tooling, engineering and other sales.
Segment Analysis
|
|
For
the three months ended December 31, |
|
|
Total
Sales |
|
Adjusted EBIT |
|
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
2015 |
|
|
2014 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America |
|
$ |
5,090 |
|
$ |
4,871 |
|
$ |
219 |
|
$ |
501 |
|
$ |
537 |
|
$ |
(36) |
Europe |
|
|
2,889 |
|
|
3,348 |
|
|
(459) |
|
|
112 |
|
|
116 |
|
|
(4) |
Asia |
|
|
624 |
|
|
518 |
|
|
106 |
|
|
63 |
|
|
47 |
|
|
16 |
Rest of
World |
|
|
88 |
|
|
176 |
|
|
(88) |
|
|
(6) |
|
|
(5) |
|
|
(1) |
Corporate and
Other |
|
|
(123) |
|
|
(123) |
|
|
— |
|
|
(14) |
|
|
19 |
|
|
(33) |
Total reportable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
segments |
|
$ |
8,568 |
|
$ |
8,790 |
|
$ |
(222) |
|
$ |
656 |
|
$ |
714 |
|
$ |
(58) |
Excluded from Adjusted EBIT for the three months
ended December 31, 2015 and 2014 was
$15 million and $6 million, respectively of net restructuring
costs recorded in our Europe
segment as discussed in the "Other Expense" section.
North
America
Adjusted EBIT in North
America decreased $36 million
to $501 million for the three months
ended December 31, 2015 compared to
$537 million for the three
months ended December 31, 2014
primarily as a result of:
- lower recoveries associated with scrap steel;
- higher launch costs;
- a decrease in reported U.S. dollar EBIT due to the weakening of
the Canadian dollar against the U.S. dollar;
- operational inefficiencies and other costs at certain
facilities, in particular at certain body and chassis
operations;
- lower equity income;
- a higher amount of employee profit sharing; and
- net customer price concessions subsequent to the three months
ended December 31, 2014.
These factors were partially offset by:
- decreased commodity costs;
- lower affiliation fees paid to Corporate;
- lower warranty costs of $5
million;
- margins earned on higher production sales; and
- productivity and efficiency improvements at certain
facilities.
Europe
Adjusted EBIT in Europe decreased $4
million to $112 million for
the three months ended December 31,
2015 compared to $116 million for the three months ended
December 31, 2014 primarily as a
result of:
- a decrease in reported U.S. dollar EBIT as a result of the
weakening of foreign currencies against the U.S. dollar, including
the euro;
- higher warranty costs of $5
million;
- higher launch costs;
- a higher amount of employee profit sharing;
- operational inefficiencies and other costs at certain
facilities; and
- net customer price concessions subsequent to the three months
ended December 31, 2014.
These factors were partially offset by:
- lower affiliation fees paid to Corporate;
- decreased commodity costs; and
- productivity and efficiency improvements at certain
facilities.
Asia
Adjusted EBIT in Asia increased $16
million to $63 million for the
three months ended December 31, 2015
compared to $47 million for the three
months ended December 31, 2014
primarily as a result of:
- increased margins due to higher production sales;
- lower warranty costs of $3
million;
- higher equity income;
- lower launch costs; and
- lower affiliation fees paid to Corporate.
These factors were partially offset by:
- a decrease in reported U.S. dollar EBIT as a result of the
weakening of foreign currencies against the U.S. dollar, including
the Chinese renminbi; and
- net customer price concessions subsequent to the three months
ended December 31, 2014.
Rest of World
Adjusted EBIT in Rest of World decreased
$1 million to a loss of $6 million for the three months ended
December 31, 2015 compared to a loss
of $5 million for the three months
ended December 31, 2014 primarily as
a result of:
- decreased margins earned on lower production sales; and
- higher production costs, including inflationary increases, that
we have not been fully successful in passing through to our
customers.
These factors were partially offset by:
- a decrease in reported U.S. dollar EBIT loss due to the
weakening of the Brazilian real against the U.S. dollar;
- productivity and efficiency improvements at certain facilities;
and
- net customer price increases subsequent to the three months
ended December 31, 2014.
Corporate and Other
Corporate and Other Adjusted EBIT decreased
$33 million to a loss of $14 million for the three months ended
December 31, 2015 compared to
$19 million for the three months
ended December 31, 2014 primarily as
a result of:
- a decrease in affiliation fees earned from our divisions;
- higher costs to support our global compliance program; and
- costs related to the investment in our information technology
infrastructure.
These factors were partially offset by the
expiration, at the end of 2014, of our consulting agreements with
Frank Stronach.
SUBSEQUENT EVENT
Acquisition of Getrag
In the third quarter of 2015, we signed an
agreement to acquire 100% of the common shares and voting interest
of Getrag. Getrag is a global supplier of automotive transmission
systems including manual, automated-manual, dual clutch, hybrid and
other advanced systems. The transaction was completed on
January 4, 2016.
The total consideration transferred by Magna was
€1.75 billion in cash, and is subject to working capital and other
customary purchase price adjustments. The acquisition of Getrag
will be accounted for as a business combination under the
acquisition method of accounting. We will record the assets
acquired and liabilities assumed at their fair values as of the
acquisition date. Due to the limited amount of time since the
acquisition date, the preliminary acquisition valuation for the
business combination is incomplete at this time. As a result, we
are unable to provide the amounts recognized as of the acquisition
date for the major classes of assets acquired and liabilities
assumed, including the information required for valuation of
intangible assets and goodwill.
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, 2015, which
describes these claims.
For a discussion of risk factors relating to
legal and other claims/actions against us, refer to "Item 3.
Description of the Business - Risk Factors" in our Annual
Information Form and Annual Report on Form 40-F, each in respect of
the year ended December 31, 2014.
CONTROLS AND PROCEDURES
There have been no changes in our internal
controls over financial reporting that occurred during 2015 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
The previous discussion contains statements that
constitute "forward-looking information" or "forward-looking
statements" within the meaning of applicable securities
legislation, including, but not limited to, statements relating to:
the expected growth of the powertrain product segment; and
continued implementation of our capital structure strategy,
including investments in our business through capital expenditures
and acquisitions, and returns of capital to our shareholders
through dividends and share repurchases. The forward-looking
statements or forward-looking information in this press release is
presented for the purpose of providing information about
management's current expectations and plans and such information
may not be appropriate for other purposes. Forward-looking
statements or forward-looking information may include financial and
other projections, as well as statements regarding our future
plans, objectives or economic performance, or the assumptions
underlying any of the foregoing, and other statements that are not
recitations of historical fact. We use words such as "may",
"would", "could", "should", "will", "likely", "expect",
"anticipate", "believe", "intend", "plan", "forecast", "outlook",
"project", "estimate" and similar expressions suggesting future
outcomes or events to identify forward-looking statements or
forward-looking information. Any such forward-looking statements or
forward-looking information are based on information currently
available to us, and are based on assumptions and analyses made by
us in light of our experience and our perception of historical
trends, current conditions and expected future developments, as
well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments
will conform with our expectations and predictions is subject to a
number of risks, assumptions and uncertainties, many of which are
beyond our control, and the effects of which can be difficult to
predict, including, without limitation: the potential for a
deterioration of economic conditions or an extended period of
economic uncertainty; declines in consumer confidence and the
impact on production volume levels; continuing global or regional
economic uncertainty; underperformance of one or more of our
operating divisions; our ability to successfully launch material
new or takeover business; risks of conducting business in foreign
markets, including China,
Russia, India, Argentina and Brazil and other non-traditional markets for
us; legal claims and/or regulatory actions against us; 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; ongoing pricing pressures, including our
ability to offset price concessions demanded by our customers;
warranty and recall costs; inability to sustain or grow our
business; our ability to successfully compete with other automotive
suppliers; 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; a
shift away from technologies in which we are investing; 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;
restructuring actions by OEMs, including plant closures;
restructuring, downsizing and/or other significant non-recurring
costs; 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; a prolonged disruption in
the supply of components to us from our suppliers; impairment
charges related to goodwill, long-lived assets and deferred tax
assets; risk of production disruptions due to natural disasters;
pension liabilities; changes in our mix of earnings between
jurisdictions with lower tax rates and those with higher tax rates,
as well as our ability to fully benefit tax losses; other potential
tax exposures; inability to achieve future investment returns that
equal or exceed past returns; risks arising due to the failure of a
major financial institution; liquidity risks; bankruptcy or
insolvency of a major customer or supplier; 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 or forward-looking
information, we caution readers not to place undue reliance on any
forward-looking statements or forward-looking information, and
readers should specifically consider the various factors which
could cause actual events or results to differ materially from
those indicated by such forward-looking statements or
forward-looking information. Unless otherwise required by
applicable securities laws, we do not intend, nor do we undertake
any obligation, to update or revise any forward-looking statements
or forward-looking information to reflect subsequent information,
events, results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
|
|
|
|
Three months ended |
|
Year
ended |
|
|
|
|
December 31, |
|
December 31, |
|
|
Note |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
$ |
8,568 |
|
$ |
8,790 |
|
$ |
32,134 |
|
$ |
34,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
7,336 |
|
|
7,493 |
|
|
27,559 |
|
|
29,468 |
|
Depreciation and
amortization |
|
|
|
|
213 |
|
|
214 |
|
|
802 |
|
|
845 |
|
Selling, general and
administrative |
|
14 |
|
|
412 |
|
|
420 |
|
|
1,448 |
|
|
1,612 |
|
Interest expense, net |
|
|
|
|
17 |
|
|
12 |
|
|
44 |
|
|
30 |
|
Equity income |
|
|
|
|
(49) |
|
|
(51) |
|
|
(204) |
|
|
(203) |
|
Other expense (income), net |
|
3 |
|
|
15 |
|
|
6 |
|
|
(166) |
|
|
46 |
Income from operations before income
taxes |
|
|
|
|
624 |
|
|
696 |
|
|
2,651 |
|
|
2,605 |
Income taxes |
|
13 |
|
|
142 |
|
|
180 |
|
|
711 |
|
|
683 |
Net income from continuing
operations |
|
|
|
|
482 |
|
|
516 |
|
|
1,940 |
|
|
1,922 |
(Loss) income from
discontinued operations, net of tax |
|
2 |
|
|
(7) |
|
|
(7) |
|
|
67 |
|
|
(42) |
Net income |
|
|
|
|
475 |
|
|
509 |
|
|
2,007 |
|
|
1,880 |
Loss from continuing operations
attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-controlling interests |
|
|
|
|
1 |
|
|
— |
|
|
6 |
|
|
2 |
Net income attributable to Magna
International Inc. |
|
|
|
$ |
476 |
|
$ |
509 |
|
$ |
2,013 |
|
$ |
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
(restated): |
|
1, 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
$ |
1.20 |
|
$ |
1.25 |
|
$ |
4.78 |
|
$ |
4.50 |
|
Discontinued
operations |
|
|
|
|
(0.02) |
|
|
(0.02) |
|
|
0.16 |
|
|
(0.09) |
|
Attributable to Magna International
Inc. |
|
|
|
$ |
1.18 |
|
$ |
1.23 |
|
$ |
4.94 |
|
$ |
4.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
(restated): |
|
1, 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
$ |
1.19 |
|
$ |
1.23 |
|
$ |
4.72 |
|
$ |
4.44 |
|
Discontinued
operations |
|
|
|
|
(0.02) |
|
|
(0.01) |
|
|
0.16 |
|
|
(0.10) |
|
Attributable to Magna International
Inc. |
|
|
|
$ |
1.17 |
|
$ |
1.22 |
|
$ |
4.88 |
|
$ |
4.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per Common Share
(restated) |
|
1 |
|
$ |
0.22 |
|
$ |
0.38 |
|
$ |
0.88 |
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Common Shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period [in millions]
(restated): |
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
402.6 |
|
|
412.4 |
|
|
407.5 |
|
|
427.1 |
|
|
Diluted |
|
|
|
|
407.0 |
|
|
418.3 |
|
|
412.7 |
|
|
433.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes |
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
|
|
|
|
|
|
|
Three months
ended |
|
|
Year
ended |
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Note |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
475 |
|
$ |
509 |
|
$ |
2,007 |
|
$ |
1,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of
tax: |
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on translation of
net investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in foreign operations |
|
|
|
|
(149) |
|
|
(323) |
|
|
(800) |
|
|
(681) |
|
Net unrealized loss on cash flow
hedges |
|
|
|
|
(54) |
|
|
(79) |
|
|
(244) |
|
|
(103) |
|
Reclassification of net loss on cash
flow hedges to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net income |
|
|
|
|
39 |
|
|
6 |
|
|
95 |
|
|
10 |
|
Reclassification of net loss on
pensions to net income |
|
|
|
|
2 |
|
|
— |
|
|
7 |
|
|
3 |
|
Reclassification of net loss on
investments to net income |
|
|
|
|
— |
|
|
— |
|
|
3 |
|
|
— |
Pension and post retirement
benefits |
|
|
|
|
16 |
|
|
(72) |
|
|
14 |
|
|
(72) |
Other comprehensive
loss |
|
|
|
|
(146) |
|
|
(468) |
|
|
(925) |
|
|
(843) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
329 |
|
|
41 |
|
|
1,082 |
|
|
1,037 |
Comprehensive loss attributable to
non-controlling interests |
|
|
|
|
2 |
|
|
- |
|
|
8 |
|
|
2 |
Comprehensive
income attributable to Magna International Inc. |
|
|
|
$ |
331 |
|
$ |
41 |
|
$ |
1,090 |
|
$ |
1,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used
for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing
operations |
|
|
|
$ |
482 |
|
$ |
516 |
|
$ |
1,940 |
|
$ |
1,922 |
Items not involving current cash
flows |
|
5 |
|
|
291 |
|
|
343 |
|
|
736 |
|
|
1,102 |
|
|
|
|
|
773 |
|
|
859 |
|
|
2,676 |
|
|
3,024 |
Changes in operating assets and
liabilities |
|
5 |
|
|
243 |
|
|
130 |
|
|
(344) |
|
|
(202) |
Cash provided from operating
activities |
|
|
|
|
1,016 |
|
|
989 |
|
|
2,332 |
|
|
2,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
|
|
(604) |
|
|
(632) |
|
|
(1,591) |
|
|
(1,495) |
Purchase of subsidiaries |
|
6 |
|
|
(221) |
|
|
(23) |
|
|
(222) |
|
|
(23) |
Increase in investments and other
assets |
|
|
|
|
(69) |
|
|
(22) |
|
|
(221) |
|
|
(172) |
Proceeds from disposition |
|
|
|
|
11 |
|
|
38 |
|
|
61 |
|
|
164 |
Proceeds on disposal of
facilities |
|
3 |
|
|
— |
|
|
— |
|
|
221 |
|
|
— |
Sale of Interiors |
|
2 |
|
|
47 |
|
|
— |
|
|
520 |
|
|
— |
Cash used in discontinued
operations |
|
2 |
|
|
— |
|
|
(27) |
|
|
(56) |
|
|
(120) |
Cash used for investing
activities |
|
|
|
|
(836) |
|
|
(666) |
|
|
(1,288) |
|
|
(1,646) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issues of debt |
|
11 |
|
|
918 |
|
|
36 |
|
|
1,608 |
|
|
860 |
(Decrease) increase in bank
indebtedness |
|
|
|
|
(4) |
|
|
(21) |
|
|
25 |
|
|
(2) |
Repayments of debt |
|
|
|
|
(29) |
|
|
(58) |
|
|
(99) |
|
|
(188) |
Issue of Common Shares |
|
|
|
|
16 |
|
|
6 |
|
|
35 |
|
|
49 |
Repurchase of Common Shares |
|
15 |
|
|
(164) |
|
|
(354) |
|
|
(515) |
|
|
(1,783) |
Contribution to subsidiaries by
non-controlling interests |
|
|
|
|
31 |
|
|
— |
|
|
41 |
|
|
— |
Dividends paid |
|
|
|
|
(84) |
|
|
(75) |
|
|
(354) |
|
|
(316) |
Cash provided from (used for)
financing activities |
|
|
|
|
684 |
|
|
(466) |
|
|
741 |
|
|
(1,380) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
|
(16) |
|
|
(44) |
|
|
(171) |
|
|
(98) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the period |
|
|
|
|
848 |
|
|
(187) |
|
|
1,614 |
|
|
(302) |
Cash and cash equivalents, beginning
of period |
|
|
|
|
2,015 |
|
|
1,436 |
|
|
1,249 |
|
|
1,551 |
Cash and cash equivalents, end of
period |
|
|
|
$ |
2,863 |
|
$ |
1,249 |
|
$ |
2,863 |
|
$ |
1,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes |
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
|
|
|
|
As at |
|
As at |
|
|
|
|
December 31, |
|
December 31, |
|
|
Note |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
5 |
|
$ |
2,863 |
|
$ |
1,249 |
Accounts receivable |
|
|
|
|
5,439 |
|
|
5,316 |
Inventories |
|
7 |
|
|
2,564 |
|
|
2,525 |
Income taxes receivable |
|
|
|
|
— |
|
|
13 |
Prepaid expenses and other |
|
|
|
|
278 |
|
|
150 |
Assets held for sale |
|
2 |
|
|
— |
|
|
609 |
|
|
|
|
|
11,144 |
|
|
9,862 |
|
|
|
|
|
|
|
|
|
Investments |
|
17 |
|
|
399 |
|
|
379 |
Fixed assets, net |
|
|
|
|
6,005 |
|
|
5,402 |
Goodwill |
|
6, 8 |
|
|
1,344 |
|
|
1,337 |
Deferred tax assets |
|
|
|
|
271 |
|
|
220 |
Other assets |
|
9 |
|
|
543 |
|
|
526 |
Noncurrent assets held for sale |
|
2 |
|
|
— |
|
|
348 |
|
|
|
|
$ |
19,706 |
|
$ |
18,074 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Bank indebtedness |
|
|
|
|
$ 25 |
|
|
$ 30 |
Accounts payable |
|
|
|
|
4,746 |
|
|
4,765 |
Accrued salaries and wages |
|
|
|
|
660 |
|
|
686 |
Other accrued liabilities |
|
10 |
|
|
1,512 |
|
|
1,448 |
Income taxes payable |
|
|
|
|
122 |
|
|
— |
Long-term debt due within one
year |
|
|
|
|
211 |
|
|
183 |
Liabilities held for sale |
|
2 |
|
|
— |
|
|
514 |
|
|
|
|
|
7,276 |
|
|
7,626 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
11 |
|
|
2,346 |
|
|
812 |
Long-term employee benefit
liabilities |
|
12 |
|
|
504 |
|
|
559 |
Other long-term liabilities |
|
|
|
|
331 |
|
|
278 |
Deferred tax liabilities |
|
|
|
|
132 |
|
|
92 |
Long-term liabilities held for
sale |
|
2 |
|
|
— |
|
|
34 |
|
|
|
|
|
10,589 |
|
|
9,401 |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
[issued: 402,264,201; December 31, 2014 -
410,325,270 (restated)] |
|
1, 15 |
|
|
3,942 |
|
|
3,979 |
Contributed surplus |
|
|
|
|
107 |
|
|
83 |
Retained earnings |
|
|
|
|
6,387 |
|
|
5,155 |
Accumulated other comprehensive
loss |
|
16 |
|
|
(1,470) |
|
|
(558) |
|
|
|
|
|
8,966 |
|
|
8,659 |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
151 |
|
|
14 |
|
|
|
|
|
9,117 |
|
|
8,673 |
|
|
|
|
$ |
19,706 |
|
$ |
18,074 |
|
|
|
|
|
|
|
|
|
See accompanying notes |
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
|
|
|
|
|
Common
Shares |
|
|
Contri- |
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
Stated |
|
|
buted |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
Total |
|
|
Note |
|
|
Number |
|
|
Value |
|
|
Surplus |
|
|
Earnings |
|
|
AOCL
(i) |
|
|
Interests |
|
|
Equity |
|
|
|
|
|
[in millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(restated)] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2013 |
|
|
|
|
442.3 |
|
$ |
4,230 |
|
$ |
69 |
|
$ |
5,011 |
|
$ |
313 |
|
$ |
16 |
|
$ |
9,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,882 |
|
|
|
|
|
(2) |
|
|
1,880 |
Other comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(843) |
|
|
|
|
|
(843) |
Shares issued on exercise of
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options |
|
|
|
|
2.6 |
|
|
63 |
|
|
(12) |
|
|
|
|
|
|
|
|
|
|
|
51 |
Repurchase and cancellation under |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
normal course issuer bid |
|
14 |
|
|
(34.8) |
|
|
(342) |
|
|
|
|
|
(1,413) |
|
|
(28) |
|
|
|
|
|
(1,783) |
Release of restricted
stock |
|
|
|
|
|
|
|
5 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
— |
Release of restricted stock
units |
|
|
|
|
|
|
|
14 |
|
|
(14) |
|
|
|
|
|
|
|
|
|
|
|
— |
Stock-based compensation expense |
|
13 |
|
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
38 |
Reclassification of liability |
|
13 |
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
Dividends paid |
|
|
|
|
0.2 |
|
|
9 |
|
|
|
|
|
(325) |
|
|
|
|
|
|
|
|
(316) |
Balance, December 31,
2014 |
|
|
|
|
410.3 |
|
|
3,979 |
|
|
83 |
|
|
5,155 |
|
|
(558) |
|
|
14 |
|
|
8,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,013 |
|
|
|
|
|
(6) |
|
|
2,007 |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(923) |
|
|
(2) |
|
|
(925) |
Shares issued on exercise of
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options |
|
|
|
|
2.4 |
|
|
45 |
|
|
(10) |
|
|
|
|
|
|
|
|
|
|
|
35 |
Release of restricted stock |
|
|
|
|
|
|
|
5 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
— |
Release of restricted stock
units |
|
|
|
|
|
|
|
12 |
|
|
(12) |
|
|
|
|
|
|
|
|
|
|
|
— |
Repurchase and cancellation under |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
normal course issuer bid |
|
14 |
|
|
(10.6) |
|
|
(108) |
|
|
|
|
|
(418) |
|
|
11 |
|
|
|
|
|
(515) |
Contribution by non-controlling
interests |
|
6 |
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
29 |
|
|
46 |
Purchase of non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
(2) |
Acquisition |
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116 |
|
|
116 |
Stock-based compensation expense |
|
13 |
|
|
|
|
|
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
36 |
Dividends paid |
|
|
|
|
0.2 |
|
|
9 |
|
|
|
|
|
(363) |
|
|
|
|
|
|
|
|
(354) |
Balance, December 31,
2015 |
|
|
|
|
402.3 |
|
$ |
3,942 |
|
$ |
107 |
|
$ |
6,387 |
|
$ |
(1,470) |
|
$ |
151 |
|
$ |
9,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) AOCL is Accumulated Other
Comprehensive Loss. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes |
|
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
[All amounts in U.S. dollars and all tabular amounts in millions
unless otherwise noted]
1. SIGNIFICANT ACCOUNTING POLICIES
[a] Basis of Presentation
The unaudited interim consolidated financial
statements of Magna International Inc. and its subsidiaries
[collectively "Magna" or the "Company"] have been prepared in U.S.
dollars following U.S. generally accepted accounting principles
["GAAP"] and the accounting policies as set out in note 1 to the
annual consolidated financial statements for the year ended
December 31, 2014.
The unaudited interim consolidated financial
statements do not conform in all respects to the requirements of
GAAP for annual financial statements. Accordingly, these unaudited
interim consolidated financial statements should be read in
conjunction with the December 31,
2014 audited consolidated financial statements and notes
included in the Company's 2014 Annual Report.
The unaudited interim consolidated financial
statements reflect all adjustments, which consist only of normal
and recurring adjustments, necessary to present fairly the
financial position at December 31,
2015 and the results of operations, changes in equity and
cash flows for the three-month and years ended December 31, 2015 and 2014.
[b] Stock Split
On March 25, 2015,
the Company completed a two-for-one stock split, which was
implemented by way of a stock dividend, whereby shareholders
received an additional Common Share for each Common Share held. All
equity-based compensation plans or arrangements were adjusted to
reflect the issuance of additional Common Shares.
Accordingly, all of the Company's issued and
outstanding Common Shares, incentive stock options, and restricted
and deferred stock units have been restated for all periods
presented to reflect the stock split. In addition, earnings per
Common Share, Cash dividends paid per Common Share, weighted
average exercise price for stock options and the weighted average
fair value of options granted have been restated for all periods
presented to reflect the stock split.
[c] Discontinued Operations
The Company reports financial results for
discontinued operations separately from continuing operations to
distinguish the financial impact of disposal transactions from
ongoing operations. Discontinued operations reporting only occurs
when the disposal of a component or a group of components of the
Company represents a strategic shift that will have a major impact
on the Company's operations and financial results. In the
third quarter of 2015, the Company sold substantially all of its
interiors operations. Accordingly, the assets and liabilities,
operating results and operating cash flows for the previously
reported interiors operations are presented as discontinued
operations separate from the Company's continuing operations.
Prior period financial information has been reclassified to present
the interiors operations as a discontinued operation, and has
therefore been excluded from both continuing operations and segment
results in these interim consolidated financial statements and the
notes to the interim consolidated financial statements, unless
otherwise noted. Refer to Note 2 Discontinued Operations for
further information regarding the Company's discontinued
operations.
[d] Accounting Changes
In November 2015,
the Financial Accounting Standards Board ["FASB"] issued Accounting
Standards Update ["ASU"] No. 2015-17, Income Taxes (Topic
740): Balance Sheet Classification of Deferred Taxes.
This guidance requires entities to classify deferred tax
liabilities and assets as noncurrent in a classified statement of
financial position. The guidance is effective for interim and
annual periods beginning after December 15,
2016, and may be applied either prospectively to all
deferred tax liabilities and assets or retrospectively to all
periods presented. As permitted, the Company elected to early adopt
this guidance effective December 31,
2015, and has applied the guidance retrospectively.
Accordingly, $181 million,
$21 million and $79 million of deferred taxes have been
reclassified from current deferred tax assets, current deferred tax
liabilities and long-term deferred tax liabilities, respectively,
to long-term deferred tax assets in the accompanying consolidated
balance sheet as at December 31,
2014.
[e] Future Accounting Standards
Simplifying the Presentation of Debt Issuance
Costs
In April 2015, the
FASB issued ASU No. 2015-03, "Interest — Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs". This guidance requires debt issuance costs to be
recorded as a direct reduction of the debt liability on the balance
sheet rather than as an asset. The provisions of this update are
effective as of January 1, 2016, and
are not expected to have a significant impact on the Company.
Revenue Recognition
In May 2014, the
FASB issued ASU No. 2014-09, Revenue from Contracts with Customers:
Topic 606 (ASU 2014-09), to supersede nearly all existing revenue
recognition guidance under GAAP. The core principle of ASU 2014-09
is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the
consideration that is expected to be received for those goods or
services. In July 2015, the FASB
deferred the effective date to annual reporting periods beginning
after December 15, 2017 [including
interim reporting periods within those periods]. ASU 2014-09 may be
adopted using one of two methods: [i] retrospective to each prior
reporting period presented with the option to elect certain
practical expedients as defined within ASU 2014-09;
or [ii] retrospective with the cumulative effect
of initially applying ASU 2014-09 recognized at the date of initial
application and providing certain additional disclosures as defined
per ASU 2014-09. The Company is currently evaluating the impact of
its pending adoption of ASU 2014-09 on its consolidated financial
statements.
Leases
In February 2016, the FASB issued ASU
No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to supersede nearly
all existing lease guidance under GAAP. The guidance would require
lessees to recognize most leases on their balance sheets as lease
liabilities with corresponding right-of-use assets. ASU 2016-02 is
effective for the Company in the first quarter of fiscal 2019 using
a modified retrospective approach with the option to elect certain
practical expedients. The Company is currently evaluating the
impact of its pending adoption of ASU 2016-02 on its consolidated
financial statements.
[f] Seasonality
The Company's businesses are generally not
seasonal. However, the Company's sales and profits are closely
related to its automotive customers' vehicle production schedules.
The Company's largest North American customers typically halt
production for approximately two weeks in July and one week in
December. Additionally, many of the Company's customers in
Europe typically shutdown vehicle
production during portions of August and one week in December.
2. DISCONTINUED OPERATIONS
On August 31,
2015, the Company sold substantially all of its interiors
operations ["the interiors operations"]. The Company
recognized a gain on the divestiture within income from
discontinued operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposal, net of transaction
costs |
|
|
|
$ |
549 |
Net assets disposed |
|
|
|
|
438 |
Pretax gain on divestiture |
|
|
|
|
111 |
Income taxes |
|
|
|
|
66 |
Gain on divestiture, net of tax |
|
|
|
$ |
45 |
The following table summarizes the carrying
value of the major classes of assets and liabilities of the
discontinued operations which were reflected as held for sale in
the consolidated balance sheet at December
31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
4 |
Accounts receivable |
|
|
|
|
355 |
Inventories |
|
|
|
|
232 |
Income taxes receivable |
|
|
|
|
3 |
Prepaid expenses and other |
|
|
|
|
10 |
Deferred tax assets |
|
|
|
|
12 |
Fixed assets, net |
|
|
|
|
263 |
Goodwill |
|
|
|
|
12 |
Investments |
|
|
|
|
40 |
Other assets |
|
|
|
|
26 |
Total assets of the discontinued operations classified as held
for sale |
|
|
|
$ |
957 |
|
|
|
|
|
|
Bank indebtedness |
|
|
|
$ |
3 |
Accounts payable |
|
|
|
|
376 |
Accrued salaries and wages |
|
|
|
|
44 |
Other accrued liabilities |
|
|
|
|
91 |
Long-term debt due within one year |
|
|
|
|
1 |
Long-term employee benefit liabilities |
|
|
|
|
20 |
Other long-term liabilities |
|
|
|
|
12 |
Deferred tax liabilities |
|
|
|
|
1 |
Total liabilities of the discontinued operations classified as
held for sale |
|
|
|
$ |
548 |
A reconciliation of the major classes of line
items constituting (loss) income from discontinued operations, net
of tax as presented in the statements of income is as follows:
|
|
Three months ended |
|
Year ended |
|
|
December 31, |
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Sales |
|
$ |
— |
|
$ |
642 |
|
$ |
1,737 |
|
$ |
2,394 |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
— |
|
|
612 |
|
|
1,635 |
|
|
2,310 |
|
Depreciation and amortization |
|
|
— |
|
|
12 |
|
|
13 |
|
|
45 |
|
Selling, general and administrative |
|
|
— |
|
|
22 |
|
|
58 |
|
|
95 |
|
Equity income |
|
|
— |
|
|
(3) |
|
|
(11) |
|
|
(8) |
|
Other expense, net |
|
|
— |
|
|
18 |
|
|
— |
|
|
18 |
(Loss) income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes and gain on divestiture |
|
|
— |
|
|
(19) |
|
|
42 |
|
|
(66) |
Income taxes |
|
|
— |
|
|
(12) |
|
|
20 |
|
|
(24) |
(Loss) income from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
before gain on divestiture |
|
|
— |
|
|
(7) |
|
|
22 |
|
|
(42) |
(Loss) gain on divestiture of discontinued
operations, net of tax |
|
|
(7) |
|
|
— |
|
|
45 |
|
|
— |
(Loss) income from discontinued operations, net of
tax |
|
$ |
(7) |
|
$ |
(7) |
|
$ |
67 |
|
$ |
(42) |
The interiors operations were previously
included within all of the Company's reporting segments except for
Rest of World.
3. OTHER EXPENSE (INCOME), NET
|
|
|
|
|
|
Year
ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
[a, c] |
|
|
$ |
15 |
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal |
|
|
[b] |
|
|
|
(136) |
|
|
— |
|
Restructuring |
|
|
[a, c] |
|
|
|
12 |
|
|
7 |
|
|
|
|
|
|
|
(124) |
|
|
7 |
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal |
|
|
[a] |
|
|
|
(57) |
|
|
— |
|
Restructuring |
|
|
[c] |
|
|
|
— |
|
|
11 |
|
|
|
|
|
|
|
(57) |
|
|
11 |
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
[c] |
|
|
|
— |
|
|
22 |
|
|
|
|
|
|
$ |
(166) |
|
$ |
46 |
For the year ended December 31,
2015:
[a] Restructuring
During 2015, the Company recorded net
restructuring charges of $27 million
[$27 million after tax] primarily in
Germany related to its exterior
systems and roof systems operations.
[b] Gain on disposal
During the third quarter of 2015, the Company
entered into a joint venture arrangement for the manufacture and
sale of roof and other accessories for the Jeep market to original
equipment manufacturers as well as aftermarket customers. The
Company contributed two manufacturing facilities and received a 49%
interest in the newly formed joint venture and cash proceeds of
$118 million. Total consideration was
valued at $160 million and as a
result the Company recognized a gain of $136
million [$80 million after
tax]. The Company will account for its ownership as an equity
investment since Magna has significant influence through its voting
rights, but does not control the joint venture.
During the second quarter of 2015, the company
sold its battery pack business to Samsung SDI for gross proceeds of
approximately $120 million, resulting
in a gain of $57 million
[$42 million after tax].
For the year ended December 31,
2014:
[c] Restructuring
During 2014, the Company recorded net
restructuring charges of $46 million
[$41 million after tax] in
Europe at its exterior systems
operations.
4. EARNINGS PER SHARE
Earnings per share are computed as follows [restated [note
1]]:
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Common
shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
482 |
|
$ |
516 |
|
$ |
1,940 |
|
$ |
1,922 |
Loss from continuing operations attributable
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
non-controlling interests |
|
|
1 |
|
|
— |
|
|
6 |
|
|
2 |
Net income attributable to Magna International Inc.
from |
|
|
|
|
|
|
|
|
|
|
|
|
|
continuing operations |
|
|
483 |
|
|
516 |
|
|
1,946 |
|
|
1,924 |
(Loss) income from discontinued operations, net of
tax |
|
|
(7) |
|
|
(7) |
|
|
67 |
|
|
(42) |
Net income attributable to Magna International
Inc. |
|
$ |
476 |
|
$ |
509 |
|
$ |
2,013 |
|
$ |
1,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
402.6 |
|
|
412.4 |
|
|
407.5 |
|
|
427.1 |
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock [i] |
|
|
4.4 |
|
|
5.9 |
|
|
5.2 |
|
|
6.1 |
Diluted |
|
|
407.0 |
|
|
418.3 |
|
|
412.7 |
|
|
433.2 |
[i] |
For the three months and year ended December 31, 2015, diluted
earnings per Common Share exclude 1.6 million and 0.9 million [2014
- 0.1 million] Common Shares issuable under the Company's Incentive
Stock Option Plan because these options were not
"in-the-money". |
Earnings per Common Share:
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.20 |
|
$ |
1.25 |
|
$ |
4.78 |
|
$ |
4.50 |
|
Discontinued operations |
|
|
(0.02) |
|
|
(0.02) |
|
|
0.16 |
|
|
(0.09) |
|
Attributable to Magna International Inc. |
|
$ |
1.18 |
|
$ |
1.23 |
|
$ |
4.94 |
|
$ |
4.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.19 |
|
$ |
1.23 |
|
$ |
4.72 |
|
$ |
4.44 |
|
Discontinued operations |
|
|
(0.02) |
|
|
(0.01) |
|
|
0.16 |
|
|
(0.10) |
|
Attributable to Magna International Inc. |
|
$ |
1.17 |
|
$ |
1.22 |
|
$ |
4.88 |
|
$ |
4.34 |
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
Bank term deposits, bankers' acceptances and
government paper |
|
|
$ |
2,572 |
|
|
$ |
1,058 |
Cash |
|
|
|
291 |
|
|
|
191 |
|
|
|
$ |
2,863 |
|
|
$ |
1,249 |
[b] Items not involving current cash
flows:
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
213 |
|
$ |
214 |
|
$ |
802 |
|
$ |
845 |
Equity income in excess of dividends received |
|
|
29 |
|
|
21 |
|
|
(20) |
|
|
(23) |
Amortization of other assets included in cost of goods
sold |
|
|
28 |
|
|
28 |
|
|
110 |
|
|
132 |
Other non-cash charges |
|
|
23 |
|
|
8 |
|
|
44 |
|
|
35 |
Non-cash portion of Other expense (income), net [note
3] |
|
|
— |
|
|
— |
|
|
(193) |
|
|
— |
Deferred income taxes |
|
|
(2) |
|
|
72 |
|
|
(7) |
|
|
113 |
|
|
$ |
291 |
|
$ |
343 |
|
$ |
736 |
|
$ |
1,102 |
[c] Changes in operating assets and
liabilities:
|
|
Three months ended |
|
Year ended |
|
|
December 31, |
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
178 |
|
$ |
(62) |
|
$ |
(410) |
|
$ |
(760) |
Inventories |
|
|
90 |
|
|
(11) |
|
|
(241) |
|
|
(275) |
Prepaid expenses and other |
|
|
22 |
|
|
2 |
|
|
13 |
|
|
3 |
Accounts payable |
|
|
(28) |
|
|
230 |
|
|
139 |
|
|
634 |
Accrued salaries and wages |
|
|
(27) |
|
|
17 |
|
|
43 |
|
|
74 |
Other accrued liabilities |
|
|
45 |
|
|
(20) |
|
|
72 |
|
|
80 |
Income taxes payable |
|
|
(37) |
|
|
(26) |
|
|
40 |
|
|
42 |
|
|
$ |
243 |
|
$ |
130 |
|
$ |
(344) |
|
$ |
(202) |
6. BUSINESS COMBINATIONS
Acquisitions in the year ended December 31, 2015
On December 10,
2015, the Company entered into a partnership agreement in
China with Chongqing Xingqiaorui
[the "Xingqiaorui Partnership"]. Chongqing Xingqiaorui
["Xingqiaorui"] is a Tier one supplier of automotive body-in-white
components to Changan Ford. Under the terms of the arrangement,
Xingqiaorui transferred a 53% controlling interest in its three
China manufacturing facilities and
cash consideration of $36
million. In exchange, the Company transferred a 47%
non-controlling equity interest in its Chongqing manufacturing facility and cash
consideration of $130 million to
Xingqiaorui.
The acquisition of the 53% controlling interest
in the China manufacturing
facilities was accounted for as a business combination, and the
Company recorded the assets acquired and liabilities assumed at
their acquisition date fair values. For the partial sale of
the Company's Chongqing
manufacturing facility, no revaluation occurred since the Company
maintained its controlling interest. The difference between the
cash consideration received and the amount allocated to the
Non-controlling interest resulted in a gain of $20 million, which was credited to contributed
surplus.
On November 30,
2015, the Company acquired a 100% interest in Stadco
Automotive Ltd. ["Stadco"] for total cash consideration of
$115 million. Stadco, based in the
United Kingdom, is a supplier of
steel and aluminum stampings as well as vehicle assemblies
primarily to Jaguar and Land Rover.
The net effect of the acquisitions on the Company's 2015
consolidated balance sheet is as follows:
|
|
|
Xingqiaorui |
|
|
|
|
|
|
|
|
|
|
|
Partnership |
|
Stadco |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
$ |
23 |
|
$ |
1 |
|
$ |
— |
|
$ |
24 |
Non-cash working capital |
|
|
|
(35) |
|
|
(3) |
|
|
1 |
|
|
(37) |
Fixed assets |
|
|
|
164 |
|
|
107 |
|
|
— |
|
|
271 |
Goodwill, net |
|
|
|
107 |
|
|
13 |
|
|
— |
|
|
120 |
Other assets |
|
|
|
10 |
|
|
— |
|
|
1 |
|
|
11 |
Long-term employee benefit liabilities |
|
|
|
— |
|
|
— |
|
|
(1) |
|
|
(1) |
Other long-term liabilities |
|
|
|
(5) |
|
|
— |
|
|
— |
|
|
(5) |
Deferred tax liabilities |
|
|
|
(18) |
|
|
(3) |
|
|
— |
|
|
(21) |
Non-controlling interests |
|
|
|
(116) |
|
|
— |
|
|
— |
|
|
(116) |
Consideration paid |
|
|
|
130 |
|
|
115 |
|
|
1 |
|
|
246 |
Less: Cash acquired |
|
|
|
(23) |
|
|
(1) |
|
|
— |
|
|
(24) |
Net cash outflow |
|
|
$ |
107 |
|
$ |
114 |
|
$ |
1 |
|
$ |
222 |
The Company's purchase price allocations are
preliminary and subject to revision as additional information
regarding the fair value of assets and liabilities becomes
available. Adjustments in the purchase price allocations may
require an adjustment to the amounts allocated to goodwill.
Acquisitions in the year ended December 31, 2014
In October 2014,
the Company acquired Techform Group of Companies, an automotive
supplier of hinges, door locking rods and other closure products,
which has operations in Canada,
the United States and China, for cash consideration of $23 million.
The net effect of this acquisition on the
Company's 2014 consolidated balance sheet were increases in fixed
assets of $21 million, goodwill of
$3 million, other assets of
$4 million, long-term debt of
$4 million and deferred tax
liabilities of $1 million.
7. INVENTORIES
Inventories consist of:
|
|
|
December
31, |
|
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
|
$ |
843 |
|
|
$ |
846 |
Work-in-process |
|
|
|
246 |
|
|
|
233 |
Finished goods |
|
|
|
311 |
|
|
|
338 |
Tooling and engineering |
|
|
|
1,164 |
|
|
|
1,108 |
|
|
|
$ |
2,564 |
|
|
$ |
2,525 |
Tooling and engineering inventory represents
costs incurred on tooling and engineering services contracts in
excess of billed and unbilled amounts included in accounts
receivable.
8. GOODWILL
The following is a continuity of the Company's
goodwill:
|
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
|
|
$ |
1,337 |
|
|
$ |
1,427 |
Foreign exchange and other |
|
|
|
|
|
(74) |
|
|
|
(13) |
Balance, March 31 |
|
|
|
|
|
1,263 |
|
|
|
1,414 |
Divestiture |
|
|
|
|
|
(7) |
|
|
|
— |
Foreign exchange and other |
|
|
|
|
|
16 |
|
|
|
7 |
Balance, June 30 |
|
|
|
|
|
1,272 |
|
|
|
1,421 |
Foreign exchange and other |
|
|
|
|
|
(21) |
|
|
|
(51) |
Balance, September 30 |
|
|
|
|
|
1,251 |
|
|
|
1,370 |
Acquisitions [note 6] |
|
|
|
|
|
120 |
|
|
|
3 |
Foreign exchange and other |
|
|
|
|
|
(27) |
|
|
|
(36) |
Balance, December 31 |
|
|
|
|
$ |
1,344 |
|
|
$ |
1,337 |
9. OTHER ASSETS
Other assets consist of:
|
|
|
|
December
31, |
|
|
December 31, |
|
|
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
Preproduction costs related to long-term supply agreements
with
contractual guarantee for reimbursement |
|
|
|
$ |
276 |
|
|
$ |
243 |
Long-term receivables |
|
|
|
|
87 |
|
|
|
85 |
Customer relationship intangibles |
|
|
|
|
75 |
|
|
|
108 |
Patents and licences, net |
|
|
|
|
37 |
|
|
|
32 |
Pension overfunded status |
|
|
|
|
17 |
|
|
|
13 |
Unrealized gain on cash flow hedges |
|
|
|
|
5 |
|
|
|
8 |
Other, net |
|
|
|
|
46 |
|
|
|
37 |
|
|
|
|
$ |
543 |
|
|
$ |
526 |
10. WARRANTY
The following is a continuity of the Company's
warranty accruals:
|
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
|
|
$ |
80 |
|
|
$ |
81 |
Expense, net |
|
|
|
|
|
8 |
|
|
|
7 |
Settlements |
|
|
|
|
|
(10) |
|
|
|
(7) |
Foreign exchange and other |
|
|
|
|
|
(6) |
|
|
|
— |
Balance, March 31 |
|
|
|
|
|
72 |
|
|
|
81 |
Expense, net |
|
|
|
|
|
10 |
|
|
|
7 |
Settlements |
|
|
|
|
|
(10) |
|
|
|
(8) |
Foreign exchange and other |
|
|
|
|
|
1 |
|
|
|
(1) |
Balance, June 30 |
|
|
|
|
|
73 |
|
|
|
79 |
Expense, net |
|
|
|
|
|
1 |
|
|
|
23 |
Settlements |
|
|
|
|
|
(10) |
|
|
|
(9) |
Foreign exchange and other |
|
|
|
|
|
(5) |
|
|
|
(5) |
Balance, September 30 |
|
|
|
|
|
59 |
|
|
|
88 |
Expense, net |
|
|
|
|
|
7 |
|
|
|
9 |
Settlements |
|
|
|
|
|
(23) |
|
|
|
(14) |
Foreign exchange and other |
|
|
|
|
|
16 |
|
|
|
(3) |
Balance, December 31 |
|
|
|
|
$ |
59 |
|
|
$ |
80 |
11. LONG-TERM DEBT
[a] On December 7,
2015, the Company issued Cdn$425
million of 3.100% fixed-rate Senior Notes which mature
on December 15, 2022. Interest is payable on June 15 and December
15 of each year.
On November 17,
2015, the Company issued €550 million of 1.900% fixed-rate
Senior Notes which mature on November 24, 2023. Interest
is payable annually on November
24.
On September 16,
2015, the Company issued $650
million of 4.150% fixed-rate Senior Notes which mature
on October 1, 2025. Interest is payable on
April 1 and October 1 of each year.
On June 16, 2014,
the Company issued $750 million of
3.625% fixed-rate Senior Notes which mature on June
15, 2024. Interest is payable on June
15 and December 15 of each
year.
All of the Senior Notes are senior unsecured
obligations and do not include any financial covenants. The
Company may redeem the Senior Notes in whole or in part at any
time, at specified redemption prices determined in accordance with
the terms of each of the respective indentures governing the Senior
Notes. All of the Senior Notes were issued for general
corporate purposes.
[b] On April 24,
2015, the Company's $2.25
billion revolving credit facility maturing June 20, 2019 was extended to June 22,
2020. The facility includes a $200
million Asian tranche, a $50
million Mexican tranche and a tranche for Canada, the U.S. and Europe, which is fully transferable between
jurisdictions and can be drawn in U.S. dollars, Canadian dollars or
euros.
12. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit
expenses as follows:
|
|
|
Three months ended |
|
|
Year ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan and other |
|
|
$ |
4 |
|
|
$ |
6 |
|
|
$ |
14 |
|
|
$ |
15 |
Termination and long service arrangements |
|
|
|
21 |
|
|
|
23 |
|
|
|
41 |
|
|
|
47 |
Retirement medical benefit plan |
|
|
|
— |
|
|
|
(2) |
|
|
|
1 |
|
|
|
— |
|
|
|
$ |
25 |
|
|
$ |
27 |
|
|
$ |
56 |
|
|
$ |
62 |
13. INCOME TAXES
During 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the European Union.
Furthermore, any foreign losses used by Austrian entities arising
in those non European Union subsidiaries are subject to recapture
in Austria. As a consequence
of this change, the Company recorded a charge to tax expense of
$32 million in 2014.
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 - restated [note 1]]:
|
|
2015 |
|
2014 |
|
|
Options outstanding |
|
|
|
Options outstanding |
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
Number |
|
|
Number |
|
Exercise |
|
of options |
|
Number |
|
Exercise |
|
of options |
|
|
of
options |
|
price
(i) |
|
exercisable |
|
of
options |
|
price
(i) |
|
exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
8,314,658 |
|
27.03 |
|
4,614,488 |
|
9,516,216 |
|
20.91 |
|
5,694,218 |
Granted |
|
1,614,336 |
|
68.24 |
|
— |
|
1,502,600 |
|
53.36 |
|
— |
Exercised |
|
(239,362) |
|
29.49 |
|
(239,362) |
|
(1,360,704) |
|
19.75 |
|
(1,340,704) |
Cancelled |
|
(103,332) |
|
34.30 |
|
— |
|
(33,998) |
|
26.10 |
|
(12,000) |
Vested |
|
— |
|
— |
|
1,965,904 |
|
— |
|
— |
|
1,558,768 |
March 31 |
|
9,586,300 |
|
33.83 |
|
6,341,030 |
|
9,624,114 |
|
26.12 |
|
5,880,282 |
Exercised |
|
(308,424) |
|
26.33 |
|
(308,424) |
|
(592,070) |
|
20.99 |
|
(592,070) |
Cancelled |
|
(48,906) |
|
46.96 |
|
(2) |
|
(21,000) |
|
36.93 |
|
— |
June 30 |
|
9,228,970 |
|
34.01 |
|
6,032,604 |
|
9,011,044 |
|
26.43 |
|
5,288,212 |
Exercised |
|
(600,834) |
|
14.22 |
|
(600,833) |
|
(342,102) |
|
19.27 |
|
(342,102) |
Cancelled |
|
(10,910) |
|
56.11 |
|
— |
|
— |
|
— |
|
— |
September 30 |
|
8,617,226 |
|
35.36 |
|
5,431,771 |
|
8,668,942 |
|
26.72 |
|
4,946,110 |
Exercised |
|
(1,238,412) |
|
15.87 |
|
(1,238,412) |
|
(354,284) |
|
19.39 |
|
(354,284) |
Cancelled |
|
(29,398) |
|
49.56 |
|
— |
|
— |
|
— |
|
— |
Vested |
|
— |
|
— |
|
— |
|
— |
|
— |
|
22,662 |
December 31 |
|
7,349,416 |
|
38.59 |
|
4,193,359 |
|
8,314,658 |
|
27.03 |
|
4,614,488 |
(i) |
The exercise price noted above represents the weighted
average exercise price in Canadian dollars. |
The weighted average assumptions used in
measuring the fair value of stock options granted are as
follows:
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
|
0.97% |
|
|
|
1.60% |
Expected dividend yield |
|
|
|
2.00% |
|
|
|
2.00% |
Expected volatility |
|
|
|
26% |
|
|
|
29% |
Expected time until exercise |
|
|
4.6 years |
|
|
4.5
years |
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted in period [Cdn$]
[restated [note 1]] |
|
|
$ |
12.84 |
|
|
$ |
11.47 |
[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 - restated [note 1]]:
|
|
|
2015 |
|
|
2014 |
|
|
|
Number |
|
Stated |
|
|
Number |
|
Stated |
|
|
|
of
shares |
|
value |
|
|
of shares |
|
value |
Awarded and not released, beginning of
period |
|
|
1,174,648 |
|
$ |
20 |
|
|
1,460,952 |
|
$ |
25 |
Release of restricted stock |
|
|
(286,312) |
|
|
(4) |
|
|
(286,304) |
|
|
(5) |
Awarded and not released, March 31, June 30,
September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
and December 31 |
|
|
888,336 |
|
$ |
16 |
|
|
1,174,648 |
|
$ |
20 |
[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 - restated [note
1]]:
|
|
2015 |
|
2014 |
|
|
Equity |
|
Liability |
|
Equity |
|
|
|
Equity |
|
Liability |
|
Equity |
|
|
|
|
classified |
|
classified |
|
classified |
|
|
|
classified |
|
classified |
|
classified |
|
|
|
|
RSUs |
|
RSUs |
|
DSUs |
|
Total |
|
RSUs |
|
RSUs |
|
DSUs |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
985,278 |
|
46,052 |
|
303,261 |
|
1,334,591 |
|
1,263,709 |
|
60,238 |
|
254,894 |
|
1,578,841 |
Granted |
|
120,958 |
|
15,922 |
|
12,112 |
|
148,992 |
|
101,619 |
|
16,050 |
|
12,630 |
|
130,299 |
Dividend equivalents |
|
424 |
|
262 |
|
1,009 |
|
1,695 |
|
505 |
|
306 |
|
1,058 |
|
1,869 |
Released |
|
(16,518) |
|
— |
|
— |
|
(16,518) |
|
(16,518) |
|
— |
|
— |
|
(16,518) |
Balance, March 31 |
|
1,090,142 |
|
62,236 |
|
316,382 |
|
1,468,760 |
|
1,349,315 |
|
76,594 |
|
268,582 |
|
1,694,491 |
Granted |
|
93,821 |
|
— |
|
9,793 |
|
103,614 |
|
110,484 |
|
2,000 |
|
10,714 |
|
123,198 |
Dividend equivalents |
|
475 |
|
235 |
|
1,199 |
|
1,909 |
|
467 |
|
278 |
|
979 |
|
1,724 |
Balance, June 30 |
|
1,184,438 |
|
62,471 |
|
327,374 |
|
1,574,283 |
|
1,460,266 |
|
78,872 |
|
280,275 |
|
1,819,413 |
Granted |
|
72,317 |
|
— |
|
10,953 |
|
83,270 |
|
71,314 |
|
— |
|
9,684 |
|
80,998 |
Dividend equivalents |
|
347 |
|
281 |
|
1,491 |
|
2,119 |
|
342 |
|
262 |
|
977 |
|
1,581 |
Forfeitures |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(820) |
|
— |
|
(820) |
Released |
|
(25,861) |
|
— |
|
— |
|
(25,861) |
|
(25,460) |
|
— |
|
— |
|
(25,460) |
Balance, September
30 |
|
1,231,241 |
|
62,752 |
|
339,818 |
|
1,633,811 |
|
1,506,462 |
|
78,314 |
|
290,936 |
|
1,875,712 |
Granted |
|
69,326 |
|
— |
|
11,097 |
|
80,423 |
|
79,636 |
|
— |
|
11,244 |
|
90,880 |
Dividend equivalents |
|
387 |
|
316 |
|
1,769 |
|
2,472 |
|
364 |
|
286 |
|
1,081 |
|
1,731 |
Released |
|
(453,248) |
|
(28,236) |
|
— |
|
(481,484) |
|
(601,184) |
|
(32,548) |
|
— |
|
(633,732) |
Balance, December
31 |
|
847,706 |
|
34,832 |
|
352,684 |
|
1,235,222 |
|
985,278 |
|
46,052 |
|
303,261 |
|
1,334,591 |
[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
December 31, |
|
|
|
Year
ended
December 31, |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
|
2015 |
|
|
|
2014 |
Incentive Stock Option Plan |
|
$ |
3 |
|
|
$ |
4 |
|
|
|
$ |
12 |
|
|
$ |
15 |
Long-term retention |
|
|
1 |
|
|
|
1 |
|
|
|
|
4 |
|
|
|
4 |
Restricted stock unit |
|
|
4 |
|
|
|
4 |
|
|
|
|
20 |
|
|
|
21 |
Total stock-based compensation expense |
|
$ |
8 |
|
|
$ |
9 |
|
|
|
$ |
36 |
|
|
$ |
40 |
15. COMMON SHARES
[a] The Company repurchased shares under
normal course issuer bids as follows [restated [note1]]:
|
|
2015 |
|
|
|
2014 |
|
|
Number
of shares |
|
|
Cash
consideration |
|
|
|
Number
of shares |
|
|
Cash
consideration |
First Quarter |
|
— |
|
|
$ |
— |
|
|
|
5,420,000 |
|
|
$ |
240 |
Second Quarter |
|
— |
|
|
|
— |
|
|
|
11,436,362 |
|
|
|
575 |
Third Quarter |
|
7,246,514 |
|
|
|
346 |
|
|
|
11,308,844 |
|
|
|
614 |
Fourth Quarter |
|
3,505,970 |
|
|
|
155 |
|
|
|
6,904,598 |
|
|
|
337 |
|
|
10,752,484 |
|
|
$ |
501 |
|
|
|
35,069,804 |
|
|
$ |
1,766 |
The Company can purchase up to 40 million shares
under a normal course issuer bid that will terminate no later than
November 12, 2016.
[b] The following table presents the
maximum number of shares that would be outstanding if all the
dilutive instruments outstanding at February
25, 2016 were exercised or converted:
Common Shares |
|
|
|
|
|
402,264,201 |
Stock options (i) |
|
|
|
|
|
7,310,160 |
|
|
|
|
|
|
409,574,361 |
(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 LOSS
The following is a continuity schedule of
accumulated other comprehensive loss:
|
|
|
2015 |
|
|
|
2014 |
Accumulated net unrealized loss on
translation of net investment in foreign operations |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
(255) |
|
|
$ |
454 |
|
Net unrealized loss |
|
|
(438) |
|
|
|
(112) |
|
Repurchase of shares under normal course issuer
bids |
|
|
— |
|
|
|
(4) |
|
Balance, March 31 |
|
|
(693) |
|
|
|
338 |
|
Net unrealized gain |
|
|
63 |
|
|
|
100 |
|
Repurchase of shares under normal course issuer
bids |
|
|
— |
|
|
|
(11) |
|
Balance, June 30 |
|
|
(630) |
|
|
|
427 |
|
Net unrealized loss |
|
|
(275) |
|
|
|
(346) |
|
Repurchase of shares under normal course issuer
bids |
|
|
7 |
|
|
|
(10) |
|
Balance, September 30 |
|
|
(898) |
|
|
|
71 |
|
Net unrealized loss |
|
|
(148) |
|
|
|
(323) |
|
Repurchase of shares under normal course issuer
bids |
|
|
4 |
|
|
|
(3) |
|
Balance, December 31 |
|
|
(1,042) |
|
|
|
(255) |
Accumulated net unrealized loss on
cash flow hedges (i) |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
(113) |
|
|
|
(20) |
|
Net unrealized loss |
|
|
(65) |
|
|
|
(31) |
|
Reclassification of net loss (gain) to net
income |
|
|
11 |
|
|
|
(1) |
|
Balance, March 31 |
|
|
(167) |
|
|
|
(52) |
|
Net unrealized (loss) gain |
|
|
(2) |
|
|
|
49 |
|
Reclassification of net loss to net income |
|
|
21 |
|
|
|
6 |
|
Balance, June 30 |
|
|
(148) |
|
|
|
3 |
|
Net unrealized loss |
|
|
(123) |
|
|
|
(42) |
|
Reclassification of net loss (gain) on cash flow
hedges to net income |
|
|
24 |
|
|
|
(1) |
|
Balance, September 30 |
|
|
(247) |
|
|
|
(40) |
|
Net unrealized loss |
|
|
(54) |
|
|
|
(79) |
|
Reclassification of net loss on cash flow hedges
to net income |
|
|
39 |
|
|
|
6 |
|
Balance, December 31 |
|
|
(262) |
|
|
|
(113) |
Accumulated net unrealized loss on
available-for-sale investments |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
(4) |
|
|
|
(4) |
|
Net unrealized gain (loss) |
|
|
1 |
|
|
|
(1) |
|
Balance, March 31 |
|
|
(3) |
|
|
|
(5) |
|
Net unrealized gain |
|
|
1 |
|
|
|
— |
|
Balance, June 30 |
|
|
(2) |
|
|
|
(5) |
|
Net unrealized (loss) gain |
|
|
(2) |
|
|
|
1 |
|
Reclassification of net loss to net
income |
|
|
3 |
|
|
|
— |
|
Balance, September 30, December 31 |
|
|
(1) |
|
|
|
(4) |
Accumulated net unrealized loss on
pension (ii) |
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
|
(186) |
|
|
|
(117) |
|
Net unrealized loss |
|
|
(1) |
|
|
|
— |
|
Reclassification of net loss to net
income |
|
|
1 |
|
|
|
1 |
|
Balance, March 31 |
|
|
(186) |
|
|
|
(116) |
|
Reclassification of net loss to net
income |
|
|
2 |
|
|
|
2 |
|
Balance, June 30 |
|
|
(184) |
|
|
|
(114) |
|
Net unrealized loss |
|
|
(1) |
|
|
|
— |
|
Reclassification of net loss to net
income |
|
|
2 |
|
|
|
— |
|
Balance, September 30 |
|
|
(183) |
|
|
|
(114) |
|
Net unrealized gain (loss) |
|
|
16 |
|
|
|
(72) |
|
Reclassification of net loss to net income |
|
|
2 |
|
|
|
— |
|
Balance, December 31 |
|
|
(165) |
|
|
|
(186) |
Total accumulated other comprehensive
loss |
|
$ |
(1,470) |
|
|
$ |
(558) |
(i) The amount of income tax benefit
that has been netted in the accumulated net unrealized loss on cash
flow hedges is as follows:
|
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
Balance, beginning of period |
|
$ |
44 |
|
|
$ |
5 |
|
|
|
Net unrealized loss |
|
|
27 |
|
|
|
10 |
|
|
|
Reclassifications of
net (loss) gain to net income |
|
|
(5) |
|
|
|
1 |
|
|
|
Balance, March 31 |
|
|
66 |
|
|
|
16 |
|
|
|
Net unrealized gain |
|
|
(1) |
|
|
|
(18) |
|
|
|
Reclassifications of
net loss to net income |
|
|
(8) |
|
|
|
(1) |
|
|
|
Balance, June 30 |
|
|
57 |
|
|
|
(3) |
|
|
|
Net unrealized loss |
|
|
47 |
|
|
|
16 |
|
|
|
Reclassifications of
net (loss) gain to net income |
|
|
(10) |
|
|
|
1 |
|
|
|
Balance, September 30 |
|
|
94 |
|
|
|
14 |
|
|
|
Net unrealized loss |
|
|
19 |
|
|
|
32 |
|
|
|
Reclassifications of
net loss to net income |
|
|
(16) |
|
|
|
(2) |
|
|
|
Balance, December
31 |
|
$ |
97 |
|
|
$ |
44 |
|
|
|
|
|
|
|
|
|
|
|
(ii) The amount of income tax benefit that has been
netted in the accumulated net unrealized loss on pension is as
follows
|
|
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
Balance, beginning of period |
|
$ |
36 |
|
|
$ |
14 |
|
|
|
Reclassification of
net loss to net income |
|
|
— |
|
|
|
— |
|
|
|
Balance, March 31 |
|
|
36 |
|
|
|
14 |
|
|
|
Reclassification of
net loss to net income |
|
|
(1) |
|
|
|
— |
|
|
|
Balance, June 30 |
|
|
35 |
|
|
|
14 |
|
|
|
Net unrealized gain |
|
|
(1) |
|
|
|
— |
|
|
|
Reclassification of
net loss to net income |
|
|
(1) |
|
|
|
(1) |
|
|
|
Balance, September 30 |
|
|
33 |
|
|
|
13 |
|
|
|
Net unrealized (gain)
loss |
|
|
(2) |
|
|
|
23 |
|
|
|
Balance, December
31 |
|
$ |
31 |
|
|
$ |
36 |
The amount of other comprehensive loss that is
expected to be reclassified to net income over the next 12 months
is $185 million.
17. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and
financial liabilities consist of the following:
|
|
|
December 31, |
|
|
|
December 31, |
|
|
|
2015 |
|
|
|
2014 |
Trading |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,863 |
|
|
$ |
1,249 |
|
Investment in asset-backed commercial
paper |
|
|
73 |
|
|
|
88 |
|
Equity investments |
|
|
4 |
|
|
|
— |
|
|
$ |
2,940 |
|
|
$ |
1,337 |
Available-for-sale |
|
|
|
|
|
|
|
|
Equity investments |
|
$ |
— |
|
|
$ |
5 |
Held to maturity investments |
|
|
|
|
|
|
|
|
Severance investments |
|
$ |
3 |
|
|
$ |
4 |
Loans and receivables |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
5,439 |
|
|
$ |
5,316 |
|
Long-term receivables included in
other assets |
|
|
87 |
|
|
|
85 |
|
|
$ |
5,526 |
|
|
$ |
5,401 |
Other financial liabilities |
|
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
$ 25 |
|
|
$ |
30 |
|
Long-term debt (including portion due
within one year) |
|
|
2,557 |
|
|
|
995 |
|
Accounts payable |
|
|
4,746 |
|
|
|
4,765 |
|
|
$ |
7,328 |
|
|
$ |
5,790 |
Derivatives designated as effective
hedges, measured at fair value |
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
|
|
|
|
|
|
|
|
Prepaid expenses |
|
$ |
27 |
|
|
$ |
$ 21 |
|
|
Other assets |
|
|
4 |
|
|
|
8 |
|
|
Other accrued liabilities |
|
|
(191) |
|
|
|
(90) |
|
|
Other long-term liabilities |
|
|
(152) |
|
|
|
(80) |
|
|
|
(312) |
|
|
|
(141) |
|
Commodity contracts |
|
|
|
|
|
|
|
|
|
Other accrued liabilities |
|
|
— |
|
|
|
(1) |
|
|
$ |
(312) |
|
|
$ |
(142) |
[b] Derivatives designated as effective
hedges, measured at fair value
The Company presents derivatives that are
designated as effective hedges at gross fair value in the
consolidated balance sheets. However, master netting and other
similar arrangements allow net settlements under certain
conditions. The following table shows the Company's derivative
foreign currency contracts at gross fair value as reflected in the
consolidated balance sheets and the unrecognized impact of master
netting arrangements:
|
|
Gross
amounts
presented
in consolidated
balance sheets |
|
|
Gross
amounts
not offset
in consolidated
balance sheets |
|
|
Net
amounts |
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
31 |
|
|
$ |
30 |
|
|
$ |
1 |
|
Liabilities |
|
$ |
(343) |
|
|
$ |
(30) |
|
|
$ |
(313) |
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
29 |
|
|
$ |
28 |
|
|
$ |
1 |
|
Liabilities |
|
$ |
(170) |
|
|
$ |
(28) |
|
|
$ |
(142) |
[c] Fair value
The Company determined the estimated fair values
of its financial instruments based on valuation methodologies it
believes are appropriate; however, considerable judgment is
required to develop these estimates. Accordingly, these estimated
fair values are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The estimated
fair value amounts can be materially affected by the use of
different assumptions or methodologies. The methods and assumptions
used to estimate the fair value of financial instruments are
described below:
Cash and cash equivalents, accounts
receivable, bank indebtedness and accounts payable.
Due to the short period to maturity of the
instruments, the carrying values as presented in the interim
consolidated balance sheets are reasonable estimates of fair
values.
Investments
At December 31,
2015, the Company held Canadian third party asset-backed
commercial paper ["ABCP"] with a face value of Cdn$107 million [December
31, 2014 - Cdn$107 million]. The carrying value and
estimated fair value of this investment was Cdn$101 million [December
31, 2014 - Cdn$102 million].
As fair value information is not readily determinable for the
Company's investment in ABCP, the fair value was based on a
valuation technique estimating the fair value from the perspective
of a market participant.
Term debt
The Company's term debt includes $211 million due within one year. Due to the
short period to maturity of this debt, the carrying value as
presented in the interim consolidated balance sheets is a
reasonable estimate of its fair value.
Senior Notes
At December 31,
2015, the net book value of the Company's Senior Notes was
$2.30 billion and the estimated fair
value was $2.31 billion, determined
primarily using active market prices, categorized as Level 1 inputs
within the Accounting Standards Codification 820 fair value
hierarchy.
[d] Credit risk
The Company's financial assets that are exposed
to credit risk consist primarily of cash and cash equivalents,
accounts receivable, held to maturity investments, and foreign
exchange forward contracts with positive fair values.
Cash and cash equivalents, which consists of
short-term investments, are only invested in governments, bank term
deposits and bank commercial paper with an investment grade credit
rating. Credit risk is further reduced by limiting the amount which
is invested in certain governments or any major financial
institution.
The Company is also exposed to credit risk from
the potential default by any of its counterparties on its foreign
exchange forward contracts. The Company mitigates this credit risk
by dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under
the contracts.
In the normal course of business, the Company is
exposed to credit risk from its customers, substantially all of
which are in the automotive industry and are subject to credit
risks associated with the automotive industry. For the three month
period and year ended December 31,
2015, sales to the Company's six largest customers
represented 84% and 83% of the Company's total sales, respectively,
and substantially all of the Company's sales are to customers in
which it has ongoing contractual relationships.
[e] Interest rate risk
The Company is not exposed to significant
interest rate risk due to the short-term maturity of its monetary
current assets and current liabilities. In particular, the amount
of interest income earned on the Company's cash and cash
equivalents is impacted more by the investment decisions made and
the demands to have available cash on hand, than by movements in
the interest rates over a given period.
In addition, the Company is not exposed to
interest rate risk on its term debt and Senior Notes as the
interest rates on these instruments are fixed.
[f] Currency risk and foreign
exchange contracts
At December 31,
2015, the Company had outstanding foreign exchange forward
contracts representing commitments to buy and sell various foreign
currencies. Significant commitments are as follows:
|
|
|
|
Buys |
|
|
|
Sells |
For Canadian dollars |
|
|
|
|
|
|
|
|
|
U.S. dollar amount |
|
|
|
283 |
|
|
|
2,320 |
|
euro amount |
|
|
|
58 |
|
|
|
11 |
|
Korean won amount |
|
|
|
32,600 |
|
|
|
— |
For U.S. dollars |
|
|
|
|
|
|
|
|
|
Peso amount |
|
|
|
7,717 |
|
|
|
— |
|
Korean won amount |
|
|
|
29,618 |
|
|
|
— |
For euros |
|
|
|
|
|
|
|
|
|
U.S. dollar amount |
|
|
|
159 |
|
|
|
(301) |
|
British pounds amount |
|
|
|
11 |
|
|
|
(33) |
|
Czech koruna amount |
|
|
|
6,576 |
|
|
|
(2) |
Forward contracts mature at various dates
through 2020. Foreign currency exposures are reviewed
quarterly.
18. CONTINGENCIES
From time to time, the Company may become
involved in regulatory proceedings, or become liable for legal,
contractual and other claims by various parties, including
customers, suppliers, former employees, class action plaintiffs and
others. On an ongoing basis, the Company attempts to assess the
likelihood of any adverse judgments or outcomes to these
proceedings or claims, together with potential ranges of probable
costs and losses. A determination of the provision required, if
any, for these contingencies is made after analysis of each
individual issue. The required provision may change in the future
due to new developments in each matter or changes in approach such
as a change in settlement strategy in dealing with these
matters.
[a] In November
1997, the Company and two of its subsidiaries were sued by
KS Centoco Ltd., an Ontario-based
steering wheel manufacturer in which the Company has a 23% equity
interest, and by Centoco Holdings Limited, the owner of the
remaining 77% equity interest in KS Centoco Ltd. In March 1999, the plaintiffs were granted leave to
make substantial amendments to the original statement of claim in
order to add several new defendants and claim additional remedies
and, in February 2006, the plaintiffs
further amended their claim to add an additional remedy. In
February 2016, a consent order was
granted allowing the Plaintiffs to file a fresh statement of claim
which includes an additional remedy and reduces certain aggravated
and punitive damages claimed. The fresh statement of claim
alleges, among other things:
- breach of fiduciary duty by the Company and two of its
subsidiaries;
- breach by the Company of its binding letter of intent with KS
Centoco Ltd., including its covenant not to have any interest,
directly or indirectly, in any entity that carries on the airbag
business in North America, other
than through MST Automotive Inc., a company to be 77% owned by
Magna and 23% owned by Centoco Holdings Limited;
- the plaintiff's exclusive entitlement to certain airbag
technologies in North America
pursuant to an exclusive licence agreement [the "Licence
Agreement"], together with an accounting of all revenues and
profits resulting from the alleged use by the Company, TRW Inc.
["TRW"] and other unrelated third party automotive supplier
defendants of such technology in North
America;
- inducement by the Company of a breach of the Licence Agreement
by TRW;
- a conspiracy by the Company, TRW and others to deprive KS
Centoco Ltd. of the benefits of such airbag technology in
North America and to cause Centoco
Holdings Limited to sell to TRW its interest in KS Centoco Ltd. in
conjunction with the Company's sale to TRW of its interest in MST
Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; and
- oppression by the defendants.
The plaintiffs are seeking, amongst other
things, damages of approximately Cdn$2.56
billion. Document production, completion of undertakings and
examinations for discovery are substantially complete, although
limited additional examinations for discovery are expected to
occur. A trial is not expected to commence until 2017. The Company
believes it has valid defences to the plaintiffs' claims and
therefore intends to continue to vigorously defend this case.
Notwithstanding the amount of time which has transpired since the
claim was filed, these legal proceedings remain at an early stage
and, accordingly, it is not possible to predict their outcome.
[b] In September
2013, representatives of the Bundeskartellamt, the German
Federal Cartel Office, attended at one of the Company's operating
divisions in Germany to obtain
information in connection with an ongoing antitrust investigation
relating to suppliers of automotive textile coverings and
components, particularly trunk linings. In January 2016, the German Federal Cartel Office
closed its investigation without taking any action against the
Company or any of its operating divisions.
In September 2014,
the Conselho Administrativo de Defesa Economica, Brazil's Federal competition authority,
attended at one of the Company's operating divisions in
Brazil to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related products.
Proceedings of this nature can often continue
for several years. Where wrongful conduct is found, the relevant
antitrust authority can, depending on the jurisdiction, initiate
administrative or criminal legal proceedings and impose
administrative or criminal fines or penalties taking into account
several mitigating and aggravating factors. At this time,
management is unable to predict the duration or outcome of the
Brazilian investigation, including whether any operating divisions
of the Company will be found liable for any violation of law or the
extent or magnitude of any liability, if found to be liable.
The Company's policy is to comply with all
applicable laws, including antitrust and competition laws. The
Company has initiated a global review focused on antitrust risk led
by a team of external counsel. If any antitrust violation is found
as a result of the above-referenced investigations or otherwise,
Magna could be subject to fines, penalties and civil,
administrative or criminal legal proceedings that could have a
material adverse effect on Magna's profitability in the year in
which any such fine or penalty is imposed or the outcome of any
such proceeding is determined. Additionally, Magna could be subject
to other consequences, including reputational damage, which could
have a material adverse effect on the Company.
[c] In certain circumstances, the Company
is at risk for warranty costs including product liability and
recall costs. Due to the nature of the costs, the Company makes its
best estimate of the expected future costs [note 10];
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
The Company's chief operating decision maker
uses Adjusted EBIT as the measure of segment profit or loss, since
management believes Adjusted EBIT is the most appropriate measure
of operational profitability or loss for its reporting segments.
Adjusted EBIT represents income from continuing operations before
income taxes; interest expense, net; and other expense (income),
net.
The following tables show segment information
for the Company's reporting segments and a reconciliation of
Adjusted EBIT to the Company's consolidated income from continuing
operations before income taxes:
|
|
Three months ended
December 31, 2015 |
|
|
|
|
Three months ended
December 31, 2014 |
|
|
Total
sales |
|
|
External
sales |
|
|
Adjusted
EBIT |
|
|
Fixed
assets,
net |
|
|
|
|
Total
sales |
|
|
External
sales |
|
|
Adjusted
EBIT |
|
|
Fixed
assets,
net |
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
1,751 |
|
|
$ |
1,619 |
|
|
|
|
|
|
$ |
647 |
|
|
|
|
$ |
1,759 |
|
|
$ |
1,648 |
|
|
|
|
|
|
$ |
638 |
|
United States |
|
|
2,491 |
|
|
|
2,378 |
|
|
|
|
|
|
|
1,431 |
|
|
|
|
|
2,388 |
|
|
|
2,241 |
|
|
|
|
|
|
|
1,204 |
|
Mexico |
|
|
1,176 |
|
|
|
1,066 |
|
|
|
|
|
|
|
756 |
|
|
|
|
|
1,039 |
|
|
|
955 |
|
|
|
|
|
|
|
626 |
|
Eliminations |
|
|
(328) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
(315) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
5,090 |
|
|
|
5,063 |
|
|
$ |
501 |
|
|
|
2,834 |
|
|
|
|
|
4,871 |
|
|
|
4,844 |
|
|
$ |
537 |
|
|
|
2,468 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great
Britain) |
|
|
2,283 |
|
|
|
2,202 |
|
|
|
|
|
|
|
1,279 |
|
|
|
|
|
2,686 |
|
|
|
2,611 |
|
|
|
|
|
|
|
1,302 |
|
Great Britain |
|
|
129 |
|
|
|
129 |
|
|
|
|
|
|
|
145 |
|
|
|
|
|
108 |
|
|
|
107 |
|
|
|
|
|
|
|
36 |
|
Eastern Europe |
|
|
562 |
|
|
|
500 |
|
|
|
|
|
|
|
474 |
|
|
|
|
|
690 |
|
|
|
570 |
|
|
|
|
|
|
|
498 |
|
Eliminations |
|
|
(85) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
(136) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
2,889 |
|
|
|
2,831 |
|
|
|
112 |
|
|
|
1,898 |
|
|
|
|
|
3,348 |
|
|
|
3,288 |
|
|
|
116 |
|
|
|
1,836 |
Asia |
|
|
624 |
|
|
|
584 |
|
|
|
63 |
|
|
|
820 |
|
|
|
|
|
518 |
|
|
|
481 |
|
|
|
47 |
|
|
|
648 |
Rest of World |
|
|
88 |
|
|
|
88 |
|
|
|
(6) |
|
|
|
54 |
|
|
|
|
|
176 |
|
|
|
175 |
|
|
|
(5) |
|
|
|
82 |
Corporate and Other |
|
|
(123) |
|
|
|
2 |
|
|
|
(14) |
|
|
|
399 |
|
|
|
|
|
(123) |
|
|
|
2 |
|
|
|
19 |
|
|
|
368 |
Total reportable
segments |
|
|
8,568 |
|
|
|
8,568 |
|
|
|
656 |
|
|
|
6,005 |
|
|
|
|
|
8,790 |
|
|
|
8,790 |
|
|
|
714 |
|
|
|
5,402 |
Other expense, net |
|
|
|
|
|
|
|
|
|
|
(15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) |
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
(17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12) |
|
|
|
|
|
|
$ |
8,568 |
|
|
$ |
8,568 |
|
|
$ |
624 |
|
|
|
6,005 |
|
|
|
|
$ |
8,790 |
|
|
$ |
8,790 |
|
|
$ |
696 |
|
|
|
5,402 |
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,862 |
Investments, goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,462 |
Noncurrent assets held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348 |
Consolidated total
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,074 |
|
|
Year ended
December 31, 2015 |
|
|
|
|
Year ended
December 31, 2014 |
|
|
Total
sales |
|
|
External
sales |
|
|
Adjusted
EBIT |
|
|
Fixed
assets,
net |
|
|
|
|
Total
sales |
|
|
External
sales |
|
|
Adjusted
EBIT |
|
|
Fixed
assets,
net |
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,329 |
|
|
$ |
5,856 |
|
|
|
|
|
|
$ |
647 |
|
|
|
|
$ |
6,799 |
|
|
$ |
6,324 |
|
|
|
|
|
|
$ |
638 |
|
United States |
|
|
9,603 |
|
|
|
9,183 |
|
|
|
|
|
|
|
1,431 |
|
|
|
|
|
9,194 |
|
|
|
8,666 |
|
|
|
|
|
|
|
1,204 |
|
Mexico |
|
|
4,261 |
|
|
|
3,869 |
|
|
|
|
|
|
|
756 |
|
|
|
|
|
3,984 |
|
|
|
3,653 |
|
|
|
|
|
|
|
626 |
|
Eliminations |
|
|
(1,178) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
(1,216) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
19,015 |
|
|
|
18,908 |
|
|
$ |
1,934 |
|
|
|
2,834 |
|
|
|
|
|
18,761 |
|
|
|
18,643 |
|
|
$ |
2,003 |
|
|
|
2,468 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great
Britain) |
|
|
8,936 |
|
|
|
8,635 |
|
|
|
|
|
|
|
1,279 |
|
|
|
|
|
11,086 |
|
|
|
10,794 |
|
|
|
|
|
|
|
1,302 |
|
Great Britain |
|
|
404 |
|
|
|
404 |
|
|
|
|
|
|
|
145 |
|
|
|
|
|
385 |
|
|
|
384 |
|
|
|
|
|
|
|
36 |
|
Eastern Europe |
|
|
2,110 |
|
|
|
1,873 |
|
|
|
|
|
|
|
474 |
|
|
|
|
|
2,397 |
|
|
|
2,102 |
|
|
|
|
|
|
|
498 |
|
Eliminations |
|
|
(327) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
(366) |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
11,123 |
|
|
|
10,912 |
|
|
|
451 |
|
|
|
1,898 |
|
|
|
|
|
13,502 |
|
|
|
13,280 |
|
|
|
502 |
|
|
|
1,836 |
Asia |
|
|
1,981 |
|
|
|
1,846 |
|
|
|
149 |
|
|
|
820 |
|
|
|
|
|
1,919 |
|
|
|
1,773 |
|
|
|
150 |
|
|
|
648 |
Rest of World |
|
|
461 |
|
|
|
461 |
|
|
|
(25) |
|
|
|
54 |
|
|
|
|
|
695 |
|
|
|
694 |
|
|
|
(35) |
|
|
|
82 |
Corporate and Other |
|
|
(446) |
|
|
|
7 |
|
|
|
20 |
|
|
|
399 |
|
|
|
|
|
(474) |
|
|
|
13 |
|
|
|
61 |
|
|
|
368 |
Total reportable
segments |
|
|
32,134 |
|
|
|
32,134 |
|
|
|
2,529 |
|
|
|
6,005 |
|
|
|
|
|
34,403 |
|
|
|
34,403 |
|
|
|
2,681 |
|
|
|
5,402 |
Other income
(expense), net |
|
|
|
|
|
|
|
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46) |
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
(44) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30) |
|
|
|
|
|
|
$ |
32,134 |
|
|
$ |
32,134 |
|
|
$ |
2,651 |
|
|
|
6,005 |
|
|
|
|
$ |
34,403 |
|
|
$ |
34,403 |
|
|
$ |
2,605 |
|
|
|
5,402 |
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,862 |
Investments, goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,462 |
Noncurrent assets held for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348 |
Consolidated total
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,074 |
20. SUBSEQUENT EVENT
Acquisition of Getrag
In the third quarter of 2015, the Company signed
an agreement to acquire 100% of the common shares and voting
interest of the Getrag Group of Companies ["Getrag"]. Getrag
is a global supplier of automotive transmission systems including
manual, automated-manual, dual clutch, hybrid and other advanced
systems. The transaction was completed on January 4, 2016.
The total consideration transferred by the
Company was €1.75 billion in cash, and is subject to working
capital and other customary purchase price adjustments. The
acquisition of Getrag will be accounted for as a business
combination under the acquisition method of accounting. The Company
will record the assets acquired and liabilities assumed at their
fair values as of the acquisition date. Due to the limited amount
of time since the acquisition date, the preliminary acquisition
valuation for the business combination is incomplete at this time.
As a result, the Company is unable to provide the amounts
recognized as of the acquisition date for the major classes of
assets acquired and liabilities assumed, including the information
required for valuation of intangible assets and goodwill.
SOURCE Magna International Inc.