AURORA, ON, Aug. 5, 2016 /CNW/ - Magna International Inc.
(TSX: MG; NYSE: MGA) today reported financial results for the
second quarter ended June 30, 2016.
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THREE MONTHS ENDED
JUNE 30,
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SIX MONTHS ENDED
JUNE 30,
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2016
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2015
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2016
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2015
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Sales
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$
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9,443
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$
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8,133
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$
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18,343
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$
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15,905
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Adjusted EBIT(1)
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$
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789
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$
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677
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$
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1,487
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$
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1,308
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Income from continuing operations
before
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$
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767
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$
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726
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$
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1,442
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$
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1,347
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income taxes
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Net income from continuing
operations
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$
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558
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$
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538
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$
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1,050
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$
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993
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attributable to Magna International
Inc.
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Diluted earnings per share
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$
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1.41
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$
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1.29
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$
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2.63
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$
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2.39
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from continuing operations
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All results are reported in millions of U.S.
dollars, except per share figures, which are in U.S.
dollars.
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(1) Adjusted EBIT is the measure of
segment profit or loss as reported in the Company's attached
unaudited interim consolidated financial
statements.
Adjusted EBIT represents income from operations
before income taxes; interest expense, net; and other income,
net.
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Don Walker, Magna's Chief
Executive Officer commented: "We had a record second quarter in
sales, adjusted EBITDA, and adjusted EBIT. Contributing to
our results has been the organization's continuing focus on
manufacturing excellence and operational improvements. Going
forward, we plan to remain highly focused on innovation to
strengthen our competitive positioning for the Car of the
Future."
THREE MONTHS ENDED JUNE 30,
2016
We posted sales of $9.4 billion
for the second quarter ended June 30,
2016, an increase of 16% over the second quarter of 2015.
North American and European light vehicle production increased 2%
and 6%, respectively, in the second quarter of 2016 compared to the
second quarter of 2015.
Our complete vehicle assembly sales increased 7% in the second
quarter of 2016, compared to the second quarter of 2015, while our
complete vehicle assembly volumes decreased 9% from the comparable
quarter to approximately 26,000 units.
During the second quarter of 2016, income from continuing
operations before income taxes was $767
million and net income from continuing operations
attributable to Magna International Inc. was $558 million, increases of 6% and 4%
respectively, both compared to the second quarter of 2015.
Diluted earnings per share from continuing operations increased 9%
in the second quarter of 2016, which includes the favourable impact
of a reduced share count.
During the second quarter ended June 30,
2016, we generated cash from operations of $864 million before changes in operating assets
and liabilities, and invested $151
million in operating assets and liabilities. Total
investment activities for the second quarter of 2016 were
$543 million, including
$409 million in fixed asset additions, $103 million in investments and other assets and
$31 million to purchase
subsidiaries.
SIX MONTHS ENDED JUNE 30,
2016
We posted sales of $18.3 billion
for the six months ended June 30,
2016, an increase of 15% from the six months ended
June 30, 2015. Excluding the
impact of foreign currency translation, our sales increased 18% in
the first six months of 2016, compared to the first six months of
2015. North American and European light vehicle production
increased 6% and 7%, respectively, in the first six months of 2016
compared to the first six months of 2015.
Our complete vehicle assembly sales increased 3% in the first
six months of 2016, compared to the first six months of 2015.
Complete vehicle assembly volumes decreased 13% to approximately
49,000 units.
During the six months ended June 30,
2016, income from continuing operations before income taxes
was $1.4 billion, net income from
continuing operations attributable to Magna International Inc. was
$1.1 billion and diluted earnings per
share from continuing operations were $2.63, increases of $95
million, $57 million and
$0.24, respectively, each compared to
the first six months of 2015.
During the six months ended June 30,
2016, we generated cash from operations before changes in
operating assets and liabilities of $1.6
billion, and invested $620
million in operating assets and liabilities. Total
investment activities for the first six months of 2016 were
$2.7 billion, including $1.8 billion to purchase subsidiaries,
$755 million in fixed asset additions and $157 million in investments and other
assets.
A more detailed discussion of our consolidated financial results
for the second quarter and six months ended June 30, 2016 is contained in the Management's
Discussion and Analysis of Results of Operations and Financial
Position and the unaudited interim consolidated financial
statements and notes thereto, which are attached to this Press
Release.
RETURN OF CAPITAL TO SHAREHOLDERS
During the six months ended June 30,
2016, Magna repurchased 15.1 million shares for $608 million pursuant to our Normal Course Issuer
Bid ("NCIB") which expires in November 2016. We have 22.3
million shares remaining and available for purchase under the
NCIB.
Yesterday, our Board of Directors declared a quarterly dividend
of $0.25 with respect to our
outstanding Common Shares for the quarter ended June 30, 2016. This dividend is payable
on August 26, 2016 to shareholders of record on September 9, 2016.
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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21.4 million
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Production Sales
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North America
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$19.4 - $20.0 billion
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Europe
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$8.8 - $9.2 billion
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Asia
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$2.1 - $2.3 billion
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Rest of World
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$0.3 - $0.4 billion
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Total Production Sales
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$30.6 - $31.9 billion
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Complete Vehicle Assembly Sales
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$2.0 - $2.3 billion
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Total Sales
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$35.5 - $37.2 billion
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EBIT Margin(2)
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Approximately 8%
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Interest Expense, net
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Approximately $90 million
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Tax Rate(2)
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Approximately 26%
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Capital Spending
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$1.8 - $2.0 billion
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(2)
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Excluding other expense, net
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In this 2016 outlook, in addition to 2016 light vehicle
production, we have assumed no material acquisitions or
divestitures. In addition, we have assumed that foreign exchange
rates for the most common currencies in which we conduct business
relative to our U.S. dollar reporting currency will approximate
current rates.
ABOUT MAGNA
We are a leading global automotive supplier with 309
manufacturing operations(3) and 99 product development,
engineering and sales centres(3) in 29 countries. We
have over 152,000 employees(3) 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, active driver assistance, 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.
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(3)
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These figures include manufacturing operations,
product development, engineering and sales centres and employees in
certain equity-accounted operations.
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We will hold a conference call for interested analysts and
shareholders to discuss our second quarter results on Friday, August 5, 2016 at 8:00 a.m. EDT. The conference call will be
chaired by Don Walker, Chief
Executive Officer. The number to use for this call is
1-800-272-6255. The number for overseas callers is 1-303-223-2686.
Please call in at least 10 minutes prior to the call. We will also
webcast the conference call at www.magna.com. The
slide presentation accompanying the conference call will be
available on our website Friday morning prior to the call.
FORWARD‑LOOKING STATEMENTS
This press release contains statements that constitute
"forward-looking statements" or "forward-looking information"
within the meaning of applicable securities legislation, including,
but not limited to, statements relating to: Magna's forecasts of
light vehicle production in North
America and Europe;
expected consolidated sales, based on such light vehicle production
volumes; production sales, including expected split by segment, in
its North America, Europe, Asia
and Rest of World segments for 2016; complete vehicle assembly
sales; consolidated EBIT margin, net interest expense; effective
income tax rate; fixed asset expenditures; and future returns of
capital to our shareholders, including through dividends or share
repurchases. The forward-looking 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;
fluctuations in relative currency values; continuing global or
regional economic uncertainty; the potential impact of the
United Kingdom's anticipated exit
from the European union; restructuring, downsizing and/or other
significant non-recurring costs; underperformance of one or more of
our operating divisions; ongoing pricing pressures, including our
ability to offset price concessions demanded by our customers; our
ability to successfully launch material new or takeover business;
our ability to successfully identify, complete and integrate
acquisitions or achieve anticipated synergies; our ability to
conduct appropriate due diligence on acquisition targets; an
increase in our risk profile as a result of completed
acquisitions; shifts in market share away from our top customers;
shifts in market shares among vehicles or vehicle segments, or
shifts away from vehicles on which we have significant content;
inability to sustain or grow our business; risks of conducting
business in foreign markets, including China, India,
Eastern Europe, Brazil and other non-traditional markets for
us; a prolonged disruption in the supply of components to us from
our suppliers; work stoppages and labour relations disputes;
scheduled shutdowns of our customers' production facilities
(typically in the third and fourth quarters of each calendar year);
our ability to successfully compete with other automotive
suppliers; a reduction in outsourcing by our customers or the loss
of a material production or assembly program; the termination or
non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; exposure to, and ability to offset, volatile commodities
prices; warranty and recall costs; restructuring actions by OEMs,
including plant closures; shutdown of our or our customers' or
sub-suppliers' production facilities due to a labour disruption;
risk of production disruptions due to natural disasters or
catastrophic event; the security and reliability of our information
technology systems; pension liabilities; legal claims and/or
regulatory actions against us; changes in our mix of earnings
between jurisdictions with lower tax rates and those with higher
tax rates, as well as our ability to fully benefit tax losses;
impairment charges related to goodwill, long-lived assets and
deferred tax assets; other potential tax exposures; changes in
credit ratings assigned to us; changes in laws and governmental
regulations; costs associated with compliance with environmental
laws and regulations; liquidity risks; inability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; and other factors set out in our Annual Information
Form filed with securities commissions in Canada and our annual report on Form 40-F
filed with the United States Securities and Exchange Commission,
and subsequent filings. In evaluating forward-looking statements,
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
six months ended June 30, 2016 included in this press release,
and the audited consolidated financial statements and MD&A for
the year ended December 31, 2015 included in our 2015
Annual Report to Shareholders.
This MD&A has been prepared as at August 4, 2016.
OVERVIEW
Our Business
We are a leading global automotive supplier with 309
manufacturing operations(1) and 99 product development,
engineering and sales centres(1) in 29 countries. We
have over 152,000 employees(1) 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, active driver assistance, 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.
Industry Trends and Risks
Our operating results are primarily dependent upon the levels of
North American and European car and light truck production by our
customers and the relative amount of content we have on various
programs. Original equipment manufacturers' ("OEMs") production
volumes in different regions may be impacted by factors which may
vary from one region to the next, including but not limited to:
general economic and political conditions; consumer confidence
levels; interest rates; credit availability; energy and fuel
prices; relative currency values; commodities prices; international
conflicts; labour relations issues; regulatory requirements; trade
agreements; infrastructure; legislative changes; and environmental
emissions and safety standards. These factors together with other
factors affecting our performance such as: operational
inefficiencies; costs incurred to launch new or takeover business;
price reduction pressures from our customers; warranty and recall
costs; commodities and scrap prices; restructuring, downsizing and
other significant non-recurring costs; and the financial condition
of our supply base, are discussed in our Annual Information Form
and Annual Report on Form 40-F, each in respect of the year ended
December 31, 2015, and remain
substantially unchanged in respect of the second quarter ended
June 30, 2016, except to the extent
that the United Kingdom's
anticipated exit from the European Union may create economic
uncertainty, reduce consumer confidence, impair trade relationships
between the United Kingdom and
members of the European Union, result in a long-term realignment in
the value of the British pound relative to other currencies, lead
to the closure of any of our customers' assembly plants in the
United Kingdom, or otherwise
directly or indirectly have a material adverse effect on our
operations, profitability or results of operations.
HIGHLIGHTS
1
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These figures include manufacturing operations,
product development, engineering and sales centres and employees in
certain equity-accounted operations.
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2
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We believe Adjusted EBIT is the most appropriate
measure of operational profitability or loss for our reporting
segments. Adjusted EBIT represents income from operations before
income taxes; interest expense, net; and other income,
net.
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- We posted new records in total sales, North American and
European production sales, Adjusted EBIT(2), and Income
from continuing operations before income taxes;
- Light vehicle production in our two largest markets,
North America and Europe, increased 2% and 6%, respectively,
compared to the second quarter of 2015;
- Our sales increased 16% to $9.44
billion, compared to $8.13
billion in the second quarter of 2015;
- Adjusted EBIT increased 17% to $789
million;
- Diluted earnings per share from continuing operations rose 9%
to $1.41, compared to $1.29 in the second quarter of 2015;
- We generated cash flow from operations of $713 million;
- We returned $308 million to
shareholders in the form of share repurchases and $98 million in the form of dividends.
RESULTS OF OPERATIONS
Average Foreign Exchange
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For the three months
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For the six months
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ended June 30,
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ended June 30,
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2016
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2015
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Change
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2016
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2015
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Change
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1 Canadian dollar equals U.S.
dollars
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0.776
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0.813
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5%
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0.752
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0.811
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-
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7%
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1 euro equals U.S.
dollars
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1.129
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1.107
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+
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2%
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1.116
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1.118
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—
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1 British pound equals U.S.
dollars
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1.435
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1.533
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-
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6%
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1.433
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1.525
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-
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6%
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1 Chinese renminbi equals U.S.
dollars
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0.153
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0.161
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-
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5%
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0.153
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0.161
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-
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5%
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1 Brazilian real equals U.S.
dollars
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0.285
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0.325
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-
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12%
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0.271
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0.338
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-
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20%
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The preceding table reflects the average foreign exchange rates
between the most common currencies in which we conduct business and
our U.S. dollar reporting currency. The changes in these foreign
exchange rates for the three months and six ended June 30, 2016 impacted the reported U.S. dollar
amounts of our sales, expenses and income.
The results of operations whose functional currency is not the
U.S. dollar are translated into U.S. dollars using the average
exchange rates in the table above for the relevant period.
Throughout this MD&A, reference is made to the impact of
translation of foreign operations on reported U.S. dollar amounts
where relevant.
Our results can also be affected by the impact of movements in
exchange rates on foreign currency transactions (such as raw
material purchases or sales denominated in foreign currencies).
However, as a result of hedging programs employed by us, foreign
currency transactions in the current period have not been fully
impacted by movements in exchange rates. We record foreign currency
transactions at the hedged rate where applicable.
Finally, foreign exchange gains and losses on revaluation and/or
settlement of monetary items denominated in a currency other than
an operation's functional currency impact reported results. These
gains and losses are recorded in selling, general and
administrative expense.
RESULTS OF OPERATIONS – FOR THE THREE MONTHS ENDED
JUNE 30, 2016
Sales
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For the three months
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ended June 30,
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2016
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2015
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Change
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Vehicle Production Volumes (millions of
units)
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North America
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4.598
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4.528
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+
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2%
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Europe
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5.812
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5.488
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+
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6%
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Sales
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External Production
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North America
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$
4,902
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$
4,583
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+
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7%
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Europe
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2,486
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1,829
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+
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36%
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Asia
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499
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390
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+
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28%
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Rest of
World
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107
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125
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-
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14%
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Complete Vehicle Assembly
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652
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607
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+
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7%
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Tooling, Engineering and Other
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797
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599
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+
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33%
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Total Sales
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$
9,443
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$
8,133
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+
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16%
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External Production Sales - North
America
Reported external production sales in North America increased 7% or $319 million to $4.90
billion for the second quarter of 2016 compared to
$4.58 billion for the second quarter
of 2015, primarily as a result of:
- the launch of new programs during or subsequent to the second
quarter of 2015, including the:
- Chrysler Pacifica;
- Lincoln MKX;
- Chevrolet Malibu; and
- Chevrolet Camaro.
- the acquisition of the Getrag Group of Companies ("Getrag")
during the first quarter of 2016, which positively impacted
production sales by $154 million;
and
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a $73 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of the Canadian dollar against the U.S. dollar;
- the contribution of two manufacturing facilities into an equity
accounted joint venture during the third quarter of 2015, which
negatively impacted production sales by $32
million; and
- net customer price concessions subsequent to the second quarter
of 2015.
External Production Sales - Europe
Reported external production sales in Europe increased 36% or $657 million to $2.49
billion for the second quarter of 2016 compared to
$1.83 billion for the second quarter
of 2015, primarily as a result of:
- acquisitions during or subsequent to the second quarter of
2015, which positively impacted production sales by $396 million, including Getrag which positively
impacted production sales by $307
million;
- the launch of new programs during or subsequent to the second
quarter of 2015, including the:
- Audi A4;
- Skoda Superb;
- BMW X1; and
- Mercedes-Benz E-Class.
- higher production volumes on certain existing programs;
and
- a $5 million increase in reported
U.S. dollar production sales primarily as a result of the
strengthening of the euro against the U.S. dollar, partially offset
by the weakening of foreign currencies against the U.S. dollar,
including the Russian ruble and British pound.
These factors were partially offset by net customer price
concessions subsequent to the second quarter of 2015.
External Production Sales - Asia
Reported external production sales in Asia increased 28% or $109 million to $499
million for the second quarter of 2016 compared to
$390 million for the second quarter
of 2015, primarily as a result of:
- the launch of new programs during or subsequent to the second
quarter of 2015, primarily in China;
- higher production volumes on certain existing programs;
and
- acquisitions during or subsequent to the second quarter of
2015, including the partnership agreement in China ("the Xingqiaorui Partnership") with
Chongqing Xingqiaorui and the acquisition of Getrag, which
positively impacted production sales by $48
million.
These factors were partially offset by:
- a $26 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including
the Chinese renminbi and South Korean won; and
- net customer price concessions subsequent to the second quarter
of 2015.
External Production Sales - Rest of World
Reported external production sales in Rest of World decreased
14% or $18 million to $107 million for the second quarter of 2016
compared to $125 million for the
second quarter of 2015, primarily as a result of:
- a $26 million decrease in
reported U.S. dollar production sales as a result of the weakening
of foreign currencies against the U.S. dollar, including the
Argentine peso and Brazilian real; and
- lower production volumes on certain existing programs.
These factors were partially offset by:
- the launch of new programs during or subsequent to the second
quarter of 2015, primarily in Brazil; and
- net customer price increases subsequent to the second quarter
of 2015.
Complete Vehicle Assembly Sales
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For the three months
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ended June 30,
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2016
|
2015
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Change
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Complete Vehicle Assembly
Sales
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$
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652
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$
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607
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+
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7%
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Complete Vehicle Assembly Volumes
(Units)
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25,715
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28,343
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-
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9%
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Reported complete vehicle assembly sales increased $45 million, to $652
million for the second quarter of 2016 compared to
$607 million for the second quarter
of 2015 while assembly volumes decreased 9% or 2,628 units.
The increase in complete vehicle assembly sales is primarily as
a result of:
- an increase in assembly volumes for the Mercedes-Benz G-Class
which has a higher average selling price per vehicle compared to
the MINI programs; and
- a $13 million increase in
reported U.S. dollar complete vehicle assembly sales as a result of
the strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
- a decrease in assembly volumes for the MINI Countryman and
Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of
2015.
Tooling, Engineering and Other Sales
Reported tooling, engineering and other sales increased 33% or
$198 million to $797 million for the second quarter of 2016
compared to $599 million for the
second quarter of 2015.
In the second quarter of 2016, the major programs for which we
recorded tooling, engineering and other sales were the:
- Chrysler Pacifica;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Cruze;
- Ford Fusion;
- Jeep Renegade;
- Lincoln Continental;
- Chevrolet Equinox, Captivia and GMC Terrain; and
- Chevrolet Silverado and GMC Sierra.
In the second quarter of 2015, the major programs for which we
recorded tooling, engineering and other sales were the:
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford Edge;
- Honda Pilot;
- MINI Countryman;
- Lincoln MKX; and
- Chevrolet Cruze.
Acquisitions during or subsequent to the second quarter of 2015,
including Getrag, had a favourable impact on our reported tooling,
engineering and other sales, while the weakening of certain foreign
currencies against the U.S. dollar had an unfavourable impact of
$9 million on our reported tooling,
engineering and other sales.
Cost of Goods Sold and Gross Margin
|
For the three months
|
|
ended June 30,
|
|
2016
|
2015
|
|
|
|
Sales
|
$
|
9,443
|
$
|
8,133
|
|
|
|
Cost of goods sold
|
|
|
|
Material
|
5,941
|
5,124
|
|
Direct
labour
|
627
|
541
|
|
Overhead
|
1,477
|
1,297
|
|
8,045
|
6,962
|
Gross margin
|
$
|
1,398
|
$
|
1,171
|
|
|
|
Gross margin as a percentage of
sales
|
14.8%
|
14.4%
|
Cost of goods sold increased $1.08
billion to $8.05 billion for
the second quarter of 2016 compared to $6.96
billion for the second quarter of 2015 primarily as a result
of:
- higher material, overhead and labour costs associated with the
increase in sales;
- acquisitions during or subsequent to the second quarter of
2015;
- higher launch costs;
- operational inefficiencies at certain facilities;
- increased pre-operating costs incurred at new facilities;
- a higher amount of employee profit sharing; and
- higher warranty costs of $2
million.
These factors were partially offset by:
- a net decrease in reported U.S. dollar cost of goods sold
primarily due to the weakening of the Canadian dollar, Chinese
renminbi, Russian ruble, Argentine peso, Brazilian real and British
pound each against the U.S. dollar partially offset by the
strengthening of the euro against the U.S. dollar.
- productivity and efficiency improvements at certain
facilities;
- net divestitures during or subsequent to the second quarter of
2015;
- decreased commodity costs; and
- higher recoveries associated with scrap steel.
Gross margin increased $227
million to $1.40 billion for
the second quarter of 2016 compared to $1.17
billion for the second quarter of 2015 and gross margin as a
percentage of sales increased to 14.8% for the second quarter of
2016 compared to 14.4% for the second quarter of 2015. The increase
in gross margin as a percentage of sales was primarily due to:
- productivity and efficiency improvements at certain
facilities;
- decreased commodity costs;
- a decrease in the proportion of complete vehicle assembly sales
relative to total sales, which have a higher material content than
our consolidated average; and
- higher recoveries associated with scrap steel.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- an increase in the proportion of tooling, engineering and other
sales relative to total sales, that have low or no margins;
- higher launch costs;
- increased pre-operating costs incurred at new facilities;
- the acquisition of Getrag during the first quarter of
2016;
- a higher amount of employee profit sharing; and
- higher warranty costs.
Depreciation and Amortization
Depreciation and amortization costs increased $64 million to $262 million for the second
quarter of 2016 compared to $198 million for the second
quarter of 2015. The higher depreciation and amortization was
primarily as a result of acquisitions during or subsequent to the
second quarter of 2015, including the acquisition of Getrag; the
acquisition of Stadco Automotive Ltd. ("Stadco"); and the
Xingqiaorui Partnership, and increased capital deployed at existing
facilities partially offset by a decrease in reported U.S. dollar
depreciation and amortization largely as a result of the weakening
of certain foreign currencies against the U.S. dollar.
Selling, General and Administrative
("SG&A")
SG&A expense as a percentage of sales was 4.4% for the
second quarter of 2016 compared to 4.3% for the second quarter of
2015. SG&A expense increased $66
million to $414 million for
the second quarter of 2016 compared to $348
million for the second quarter of 2015 primarily as a result
of:
- acquisitions during or subsequent to the second quarter of
2015;
- higher labour and benefit costs;
- higher costs to support our global compliance programs;
- higher incentive and executive compensation;
- higher costs related to the investment in our information
technology infrastructure; and
- the strengthening of the euro against the U.S. dollar.
These factors were partially offset by the weakening of the
Canadian dollar, Mexican peso, Argentine peso and Chinese renminbi,
each against the U.S. dollar.
Equity Income
Equity income increased $15
million to $67 million for the
second quarter of 2016 compared to $52
million for the second quarter of 2015 primarily as a result
of the acquisition of Getrag in the first quarter of 2016.
Other Income, net
During the second quarter of 2015, we sold our battery pack
business to Samsung SDI for proceeds of approximately $120 million, resulting in a gain of $57 million ($42
million after tax).
Segment Analysis
Given the differences between the regions in which we operate,
our operations are segmented on a geographic basis. Consistent with
the above, our internal financial reporting separately segments key
internal operating performance measures between North America, Europe, Asia
and Rest of World for purposes of presentation to the chief
operating decision maker to assist in the assessment of operating
performance, the allocation of resources, and our long-term
strategic direction and future global growth.
Our chief operating decision maker uses Adjusted EBIT as the
measure of segment profit or loss, since we believe Adjusted EBIT
is the most appropriate measure of operational profitability or
loss for our reporting segments. Adjusted EBIT represents income
from operations before income taxes; interest expense, net; and
other income, net.
|
For the three months ended June
30,
|
|
Total Sales
|
|
|
Adjusted EBIT
|
|
2016
|
2015
|
Change
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
5,317
|
$
|
4,877
|
$
|
440
|
|
$
|
544
|
$
|
525
|
$
|
19
|
Europe
|
|
3,512
|
|
2,774
|
|
738
|
|
|
196
|
|
120
|
|
76
|
Asia
|
|
620
|
|
466
|
|
154
|
|
|
51
|
|
31
|
|
20
|
Rest of World
|
|
111
|
|
125
|
|
(14)
|
|
|
(5)
|
|
(8)
|
|
3
|
Corporate and Other
|
|
(117)
|
|
(109)
|
|
(8)
|
|
|
3
|
|
9
|
|
(6)
|
Total reportable segments
|
$
|
9,443
|
$
|
8,133
|
$
|
1,310
|
|
$
|
789
|
$
|
677
|
$
|
112
|
Excluded from Adjusted EBIT for the three months ended
June 30, 2015 was a gain of
$57 million in our Europe reporting segment, which has been
discussed in the "Other Income" section.
North America
Adjusted EBIT in North America
increased $19 million to $544 million for the second quarter of 2016
compared to $525 million for the second quarter of 2015
primarily as a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- the acquisition of Getrag during the first quarter of
2016;
- higher recoveries associated with scrap steel;
- lower warranty costs of $4
million; and
- decreased commodity costs.
These factors were partially offset by:
- higher launch costs;
- increased pre-operating costs incurred at new facilities;
- operational inefficiencies at certain facilities;
- a decrease in reported U.S. dollar Adjusted EBIT as a result of
the weakening of the Canadian dollar against the U.S. dollar;
- a higher amount of employee profit sharing;
- higher incentive compensation;
- higher affiliation fees paid to Corporate; and
- net customer price concessions subsequent to the second quarter
of 2015.
Europe
Adjusted EBIT in Europe
increased $76 million to $196 million for the second quarter of 2016
compared to $120 million for the second quarter of 2015,
primarily as a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- acquisitions during or subsequent to the second quarter of
2015;
- decreased commodity costs;
- the sale of our battery pack business during the second quarter
of 2015; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of $6
million;
- higher launch costs;
- a higher amount of employee profit sharing;
- higher affiliation fees paid to Corporate;
- a decrease in reported U.S. dollar Adjusted EBIT primarily as a
result of the weakening of foreign currencies against the U.S.
dollar, including the Russian ruble and British pound; and
- net customer price concessions subsequent to the second quarter
of 2015.
Asia
Adjusted EBIT in Asia increased
$20 million to $51 million for the second quarter of 2016
compared to $31 million for the
second quarter of 2015 primarily as a result of:
- margins earned on higher production sales, including margins
earned on the launch of new facilities and new programs;
- acquisitions during or subsequent to the second quarter of
2015; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- a decrease in reported U.S. dollar Adjusted EBIT due to the
weakening of the Chinese renminbi against the U.S. dollar;
- higher launch costs; and
- net customer price concessions subsequent to the second quarter
of 2015.
Rest of World
Adjusted EBIT in Rest of World increased $3 million to a loss of $5
million for the second quarter of 2016 compared to a loss of
$8 million for the second quarter of
2015 primarily as a result of:
- productivity and efficiency improvements at certain
facilities;
- a decrease in reported U.S. dollar Adjusted EBIT loss due to
the weakening of the Argentine peso and Brazilian real against the
U.S. dollar;
- decreased pre-operating costs incurred at new facilities;
and
- net customer price increases subsequent to the second quarter
of 2015.
Corporate and Other
Adjusted EBIT in Corporate and Other decreased $6 million to $3
million for the second quarter of 2016 compared to
$9 million for the second quarter of
2015 primarily as a result of:
- higher costs to support our global compliance programs;
- a higher amount of employee profit sharing; and
- higher incentive compensation.
These factors were partially offset by an increase in
affiliation fees earned from our divisions.
Interest Expense, net
During the second quarter of 2016, we recorded net interest
expense of $22 million compared to
$8 million for the second quarter of
2015. The $14 million increase
is primarily as a result of interest expense incurred on the
issuance of senior, unsecured debt (the "Senior Debt") during the
third and fourth quarters of 2015.
Income from Continuing Operations before Income
Taxes
Income from continuing operations before income taxes increased
$41 million to $767 million for the second quarter of 2016
compared to $726 million for the
second quarter of 2015. Excluding Other Income, discussed in
the "Other Income" section, income from continuing operations
before income taxes for the second quarter of 2016 increased
$98 million. The increase in income
from continuing operations before income taxes is the result
of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- acquisitions during or subsequent to the second quarter of
2015;
- decreased commodity costs;
- the sale of our battery pack business during the second quarter
of 2015; and
- higher recoveries associated with scrap steel.
These factors were partially offset by:
- higher launch costs;
- operational inefficiencies at certain facilities;
- the $14 million increase in
interest expense, net, as discussed above;
- increased pre-operating costs incurred at new facilities;
- higher costs to support our global compliance programs;
- a decrease in reported U.S. dollar Adjusted EBIT as a result of
the weakening of the Canadian dollar, Chinese renminbi, Russian
ruble, and British pound each against the U.S. dollar, partially
offset by a decrease in reported U.S. dollar Adjusted EBIT loss due
to the weakening of the Argentine peso and Brazilian real against
the U.S. dollar;
- a higher amount of employee profit sharing;
- higher incentive compensation; and
- higher warranty costs of $2
million.
Income Taxes
|
For the three months ended June
30,
|
|
2016
|
|
2015
|
|
$
|
%
|
|
$
|
%
|
|
|
|
|
|
|
Income taxes as reported
|
$
|
206
|
|
26.9
|
|
$
|
191
|
|
26.3
|
Tax effect on Other Income
|
|
—
|
|
—
|
|
|
(15)
|
|
—
|
|
$
|
206
|
|
26.9
|
|
$
|
176
|
|
26.3
|
Excluding Other Income, after tax, the effective income tax rate
increased to 26.9% for the second quarter of 2016 compared to 26.3%
for the second quarter of 2015 primarily as a result of an increase
in non-deductible foreign exchange adjustments related to the
re-measurement of financial statement balances of foreign
subsidiaries that are maintained in a currency other than their
functional currency partially offset by an increase in research and
development credits in North
America and a reduction in losses not benefitted in
Europe and Asia.
(Income) Loss from Continuing Operations Attributable to
Non-Controlling Interests
Income from continuing operations attributable to
non-controlling interests increased to $3
million for the second quarter of 2016 compared to a loss
from continuing operations attributable to non-controlling
interests of $3 million for the
second quarter of 2015.
Net Income Attributable to Magna International
Inc.
Net income attributable to Magna International Inc. of
$558 million for the second quarter
of 2016 increased $75 million
compared to the second quarter of 2015. Excluding Other
Income, after tax, as discussed in the "Other Income" section, net
income attributable to Magna International Inc. increased
$117 million primarily as a result of
the increase in net income from continuing operations before income
taxes and the decrease in the loss from discontinued operations
partially offset by higher income taxes and an increase in the
(income) loss from continuing operations attributable to
non-controlling interests, as discussed above.
Earnings per Share
|
For the three months
|
|
|
|
ended June 30,
|
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
Basic earnings per Common Share
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.42
|
$
|
1.31
|
+
|
8%
|
|
Attributable to Magna International
Inc.
|
$
|
1.42
|
$
|
1.18
|
+
|
20%
|
|
|
|
|
|
|
|
Diluted earnings per Common Share
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.41
|
$
|
1.29
|
+
|
9%
|
|
Attributable to Magna International
Inc.
|
$
|
1.41
|
$
|
1.16
|
+
|
22%
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding
(millions)
|
|
|
|
|
|
|
|
Basic
|
|
393.7
|
|
409.8
|
-
|
4%
|
|
Diluted
|
|
395.7
|
|
415.4
|
-
|
5%
|
Diluted earnings per share from continuing operations increased
$0.12 to $1.41 for the second quarter of 2016 compared to
$1.29 for the second quarter of 2015.
Other Income, after tax, positively impacted diluted earnings per
share from continuing operations by $0.10 in the second quarter of 2015 as discussed
in the "Other Income" section. Excluding the $0.10 per share positive impact for the second
quarter of 2015 diluted earnings per share from continuing
operations increased $0.22, as a
result of the increase in net income attributable to Magna
International Inc. from continuing operations and a decrease in the
weighted average number of diluted shares outstanding during the
second quarter of 2016.
The decrease in the weighted average number of diluted shares
outstanding was primarily due to the purchase and cancellation of
Common Shares, during or subsequent to the second quarter of 2015,
pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
For the three months
|
|
|
|
ended June 30,
|
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
Net income from continuing
operations
|
$
|
561
|
$
|
535
|
|
|
Items not involving current cash
flows
|
|
303
|
|
176
|
|
|
|
|
864
|
|
711
|
$
|
153
|
Changes in operating assets and
liabilities
|
|
(151)
|
|
(271)
|
|
|
Cash provided from operating
activities
|
$
|
713
|
$
|
440
|
$
|
273
|
Cash provided from operating activities before changes in
operating assets and liabilities increased $153 million for the second quarter of 2016
compared to the second quarter of 2015 primarily as a result
of:
- an increase in cash received from customers of $1.31 billion as a result of higher total sales
as discussed above; and
- higher dividends received from equity investments of
$26 million.
These factors were partially offset by:
- higher cash paid for material, labour and overhead of
$812 million, $179 million and $111
million, respectively, each primarily associated with the
increase in sales and other factors discussed in the Cost of Goods
Sold and Gross Margin section above;
- higher cash paid relating to SG&A costs of $45 million;
- higher cash paid relating to income taxes of $29 million; and
- higher net interest expense of $6
million as discussed above.
Changes in operating assets and liabilities increased
$120 million for the second quarter
of 2016 compared to the second quarter of 2015 primarily due to the
release of a $125 million cash
deposit that was restricted under the terms of a revolving credit
facility and therefore included in the prepaid expenses and other
balance as of March 31, 2016.
The cash was released due to the repayment of the outstanding
balance on the revolving credit facility.
Capital and Investment Spending
|
For the three months
|
|
|
|
ended June 30,
|
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
Fixed asset additions
|
$
|
(409)
|
$
|
(361)
|
|
|
Investments and other assets
|
|
(103)
|
|
(41)
|
|
|
Fixed assets, investments and other assets
additions
|
|
(512)
|
|
(402)
|
|
|
Purchase of subsidiaries
|
|
(31)
|
|
—
|
|
|
Proceeds from disposition
|
|
19
|
|
15
|
|
|
Proceeds on disposal of battery pack
business
|
|
—
|
|
103
|
|
|
Cash used in discontinued
operations
|
|
—
|
|
(9)
|
|
|
Cash used for investment activities
|
$
|
(524)
|
$
|
(293)
|
$
|
(231)
|
Fixed asset, investment and other asset additions
In the second quarter of 2016, we invested $409 million in
fixed assets. While investments were made to refurbish or replace
assets consumed in the normal course of business and for
productivity improvements, a large portion of the investment in the
second quarter of 2016 was for manufacturing equipment for programs
that will be launching subsequent to the second quarter of
2016.
In the second quarter of 2016, we invested $85 million in other assets related primarily to
fully reimbursable tooling and engineering costs for programs that
launched during the second quarter of 2016 or will be launching
subsequent to the second quarter of 2016. In addition, we invested
$18 million in equity accounted investments.
Purchase of subsidiaries
In the second quarter of 2016, we invested $31 million to acquire 100% of the equity
interest in Telemotive AG, an engineering service provider in the
field of automotive electronics. The acquired business
has sales primarily to BMW, Volkswagen and Daimler.
Proceeds from disposition
In the second quarter of 2016, the $19
million of proceeds include normal course fixed and other
asset disposals and $9 million
relating to the sale of an investment in a public company.
Proceeds on disposal of battery pack business
In the second quarter of 2015, the $103
million of proceeds is cash related to the sale of our
battery pack business to Samsung SDI.
Financing
|
For the three months
|
|
|
ended June 30,
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
Issues of debt
|
$
|
202
|
$
|
16
|
|
|
Increase in short-term borrowings
|
|
60
|
|
1
|
|
|
Repayments of debt
|
|
(71)
|
|
(11)
|
|
|
Issue of Common Shares on exercise of stock
options
|
|
3
|
|
7
|
|
|
Repurchase of Common Shares
|
|
(308)
|
|
(5)
|
|
|
Dividends
|
|
(98)
|
|
(90)
|
|
|
Cash used for financing activities
|
$
|
(212)
|
$
|
(82)
|
$
|
(130)
|
During the second quarter of 2016, we purchased 7.8 million
Common Shares for aggregate cash consideration of $308 million under our normal course issuer
bid.
Cash dividends paid per Common Share were $0.25 for the second quarter of 2016, for a total
of $98 million.
Financing Resources
|
As at
|
As at
|
|
|
June 30,
|
December 31,
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
441
|
$
|
25
|
|
|
|
Long-term debt due within one
year
|
|
423
|
|
211
|
|
|
|
Long-term debt
|
|
2,454
|
|
2,327
|
|
|
|
|
3,318
|
|
2,563
|
|
|
Non-controlling interests
|
|
462
|
|
151
|
|
|
Shareholders' equity
|
|
9,538
|
|
8,966
|
|
|
Total capitalization
|
$
|
13,318
|
$
|
11,680
|
$
|
1,638
|
Total capitalization increased by $1.64
billion to $13.32 billion at
June 30, 2016 compared to
$11.68 billion at
December 31, 2015, primarily as a result of a
$755 million increase in liabilities,
a $572 million increase in
shareholders' equity and a $311
million increase in non-controlling interest.
The increase in liabilities relates primarily to:
- the issuance of $233 million of
euro-commercial paper [the "euro-Program"] in the first quarter of
2016 as part of our overall strategy to realign our capital and
reduce cash balances on hand. The euro-program allows us to
minimize the amount of cash on hand to run our business in
Europe by providing funding on a
more flexible and cost effective basis compared to drawing on our
revolving credit facility;
- higher bank indebtedness primarily as a result an increase in
non-cash working capital and cash deployed for the repurchase and
cancellation of Common Shares under our normal course issuer bid
during 2016; and
- higher long-term debt primarily as a result of the acquisition
of Getrag in the first quarter of 2016.
The increase in shareholders' equity was primarily as a result
of:
- the $1.06 billion of net income
earned in the first six months of 2016;
- the $148 million net unrealized
gain on translation of our net investment in operations whose
functional currency is not the U.S. dollar; and
- the $58 million net unrealized
gain on cash flow hedges.
These factors were partially offset by:
- the $608 million repurchase and
cancellation of 15.1 million Common Shares under our normal course
issuer bid during 2016; and
- $193 million of dividends paid
during the first six months of 2016.
The increase in non-controlling interest was primarily as a
result of acquisitions during or subsequent to the second quarter
of 2015.
Cash Resources
During the second quarter of 2016, our cash resources decreased
by $28 million to $597 million
as a result of the cash used for investing and financing activities
partially offset by cash provided from operating activities, as
discussed above. In addition to our cash resources at June 30, 2016, we had term and operating lines of
credit totalling $3.12 billion of
which $2.19 billion was unused and
available.
On May 2, 2016, the Company
increased its revolving credit facility by $500 million to $2.75 billion and extended the
final maturity date from June 22,
2020 to June 22,
2021. The facility includes a $200 million Asian tranche, a $100 million Mexican tranche and a tranche for
Canada, U.S. and Europe, which is fully transferable between
jurisdictions and can be drawn in U.S. dollars, Canadian dollars or
euros.
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that
would be outstanding if all of the outstanding options at
August 4, 2016 were exercised:
Common
Shares
|
389,039,171
|
Stock options
(i)
|
7,705,023
|
|
396,744,194
|
|
|
(i)
|
Options to purchase Common Shares are exercisable by
the holder in accordance with the vesting provisions and upon
payment of the exercise price as may be determined from time to
time pursuant to our stock option plans.
|
Contractual Obligations and Off‑Balance Sheet
Financing
There have been no material changes with respect to the
contractual obligations requiring annual payments during the second
quarter of 2016 that are outside the ordinary course of our
business. Refer to our MD&A included in our 2015 Annual
Report.
RESULTS OF OPERATIONS – FOR THE SIX MONTHS ENDED JUNE 30, 2016
Sales
|
|
For the six months
ended June 30,
|
|
|
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
Vehicle Production Volumes (millions of
units)
|
|
|
|
|
North America
|
9.115
|
8.634
|
+
|
6%
|
|
Europe
|
11.477
|
10.716
|
+
|
7%
|
|
|
|
|
Sales
|
|
|
|
|
External Production
|
|
|
|
|
|
North
America
|
$
|
9,666
|
$
|
8,808
|
+
|
10%
|
|
|
Europe
|
4,752
|
3,724
|
+
|
28%
|
|
|
Asia
|
1,006
|
793
|
+
|
27%
|
|
|
Rest of World
|
187
|
256
|
-
|
27%
|
|
Complete Vehicle Assembly
|
1,248
|
1,207
|
+
|
3%
|
|
Tooling, Engineering and Other
|
1,484
|
1,117
|
+
|
33%
|
Total Sales
|
$
|
18,343
|
$
|
15,905
|
+
|
15%
|
External Production Sales - North
America
External production sales in North
America increased 10% or $858
million to $9.67 billion for
the six months ended June 30, 2016 compared to
$8.81 billion for the six months
ended June 30, 2015 primarily as a
result of:
- the launch of new programs during or subsequent to the six
months ended June 30, 2015, including
the:
- Ford Edge and Lincoln MKX;
- Chrysler Pacifica; and
- Chevrolet Malibu.
- higher production volumes on certain existing programs;
and
- the acquisition of Getrag during the first quarter of 2016,
which positively impacted production sales by $314 million.
These factors were partially offset by:
- a $228 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of the Canadian dollar against the U.S. dollar;
- lower production volumes on the Chevrolet Cruze as a result of
the changeover to and production ramp up of the next generation
model;
- divestitures subsequent to the second quarter of 2015, which
negatively impacted production sales by $56
million; and
- net customer price concessions subsequent to the six months
ended June 30, 2015.
External Production Sales - Europe
External production sales in Europe increased 28% or $1.03 billion to $4.75
billion for the six months ended June
30, 2016 compared to $3.72
billion for the six months ended June
30, 2015 primarily as a result of:
- net acquisitions during or subsequent to the six months ended
June 30, 2015, which positively
impacted production sales by $756
million, including Getrag which positively impacted
production sales by $587
million;
- the launch of new programs during or subsequent to the six
months ended June 30, 2015, including
the:
- Audi A4;
- Skoda Superb;
- BMW X1; and
- Volkswagen Touran.
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a $63 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including
the Russian ruble, British pound and Turkish lira;
- programs that ended production during or subsequent to the six
months ended June 30, 2015; and
- net customer price concessions subsequent to the six months
ended June 30, 2015.
External Production Sales - Asia
External production sales in Asia increased 27% or $213 million to $1.01
billion for the six months ended June 30, 2016
compared to $793 million for the six
months ended June 30, 2015 primarily
as a result of:
- the launch of new programs during or subsequent to the second
quarter of 2015, primarily in China;
- acquisitions during or subsequent to the second quarter of
2015, including the Xingqiaorui Partnership and Getrag, which
positively impacted production sales by $117
million; and
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a $53 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including
the Chinese renminbi and South Korean won; and
- net customer price concessions subsequent to the second quarter
of 2015.
External Production Sales - Rest of World
External production sales in Rest of World decreased 27% or
$69 million to $187 million for the six months ended
June 30, 2016 compared to $256
million for the six months ended June
30, 2015 primarily as a result of:
- a $61 million decrease in
reported U.S. dollar production sales as a result of the weakening
of foreign currencies against the U.S. dollar, including the
Brazilian real and Argentine peso; and
- lower production volumes on certain existing programs.
These factors were partially offset by:
- the launch of new programs during or subsequent to the second
quarter of 2015, primarily in Brazil; and
- net customer price increases subsequent to the second quarter
of 2015.
Complete Vehicle Assembly Sales
|
For the six months
ended June 30,
|
|
|
2016
|
2015
|
Change
|
|
|
|
|
Complete Vehicle Assembly
Sales
|
$
|
1,248
|
$
|
1,207
|
+
|
3%
|
|
|
|
|
Complete Vehicle Assembly Volumes
(Units)
|
48,950
|
55,686
|
-
|
12%
|
Complete vehicle assembly sales increased 3%, or $41 million, to $1.25
billion for the six months ended June
30, 2016 compared to $1.21 billion for the six months ended
June 30, 2015 and assembly volumes
decreased 12% or 6,736 units.
The increase in complete vehicle assembly sales is primarily as
a result of an increase in assembly volumes for the Mercedes-Benz
G-Class which has a higher average selling price per vehicle
compared to the MINI programs.
These factors were partially offset by:
- a decrease in assembly volumes for the MINI Countryman and
Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of
2015.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 33% or
$367 million to $1.48 billion for the six months ended
June 30, 2016 compared to
$1.12 billion for the six months
ended June 30, 2015.
In the six months ended June 30,
2016, the major programs for which we recorded tooling,
engineering and other sales were the:
- Chrysler Pacifica;
- Chevrolet Cruze;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford Figo Aspire;
- Chevrolet Equinox, Captivia and GMC Terrain;
- Lincoln Continental;
- Jeep Renegade; and
- Ford Fusion.
In the six months ended June 30,
2015, the major programs for which we recorded tooling,
engineering and other sales were the:
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Ford Edge;
- MINI Countryman;
- Skoda Fabia;
- Honda HR-V and Vezel; and
- Honda Pilot.
Acquisitions during or subsequent to the six months ended
June 30, 2015, including Getrag, had
a favourable impact on our reported tooling, engineering and other
sales, while the weakening of certain foreign currencies against
the U.S. dollar had an unfavourable impact of $29 million on our reported tooling, engineering
and other sales.
Segment Analysis
|
For the six months ended June
30,
|
|
Total Sales
|
|
Adjusted EBIT
|
|
2016
|
2015
|
Change
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
|
North America
|
$
|
10,397
|
$
|
9,334
|
$
|
1,063
|
|
$
|
1,033
|
$
|
978
|
$
|
55
|
Europe
|
6,754
|
5,592
|
1,162
|
|
357
|
248
|
109
|
Asia
|
1,245
|
929
|
316
|
|
102
|
73
|
29
|
Rest of World
|
192
|
258
|
(66)
|
|
(16)
|
(12)
|
(4)
|
Corporate and Other
|
(245)
|
(208)
|
(37)
|
|
11
|
21
|
(10)
|
Total reportable
|
|
|
|
|
|
|
|
|
segments
|
$
|
18,343
|
$
|
15,905
|
$
|
2,438
|
|
$
|
1,487
|
$
|
1,308
|
$
|
179
|
Excluded from Adjusted EBIT for the six months ended
June 30, 2015 was a gain of
$57 million in our Europe reporting segment, which has been
discussed in the "Other Income" section.
North America
Adjusted EBIT in North America
increased $55 million to $1.03 billion for the six months ended
June 30, 2016 compared to
$978 million for the six months ended June 30, 2015 primarily as a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- the acquisition of Getrag during the first quarter of
2016;
- a favourable intellectual property infringement settlement in
relation to our electronics business; and
- decreased commodity costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities, in particular
at two body and chassis operations;
- a decrease in reported U.S. dollar Adjusted EBIT as a result of
the weakening of the Canadian dollar against the U.S. dollar;
- higher launch costs;
- increased pre-operating costs incurred at new facilities;
- lower recoveries associated with scrap steel;
- higher incentive compensation;
- higher affiliation fees paid to Corporate;
- a higher amount of employee profit sharing;
- insurance recoveries received during the first quarter of 2015,
related to a fire at a body and chassis facility during the second
quarter of 2014; and
- net customer price concessions subsequent to the second quarter
of 2015.
Europe
Adjusted EBIT in Europe
increased $109 million to
$357 million for the six months ended
June 30, 2016 compared to
$248 million for the six months ended
June 30, 2015, primarily as a result
of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the second quarter of
2015, including Stadco and Getrag;
- productivity and efficiency improvements at certain
facilities;
- decreased commodity costs; and
- the sale of our battery pack business during the second quarter
of 2015.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher launch costs;
- higher warranty costs of $9
million;
- a higher amount of employee profit sharing;
- a decrease in reported U.S. dollar Adjusted EBIT primarily as a
result of the weakening of foreign currencies against the U.S.
dollar, including the Russian ruble, British pound and Turkish
lira;
- higher affiliation fees paid to Corporate; and
- net customer price concessions subsequent to the second quarter
of 2015.
Asia
Adjusted EBIT in Asia increased
$29 million to $102 million for the six months ended
June 30, 2016 compared to
$73 million for the six months ended
June 30, 2015 primarily as a result
of:
- margins earned on higher production sales, including margins
earned on the launch of new facilities and new programs;
- acquisitions during or subsequent to the second quarter of
2015; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- higher launch costs;
- higher warranty costs of $5
million;
- a decrease in reported U.S. dollar Adjusted EBIT due to the
weakening of the Chinese renminbi against the U.S. dollar;
- a higher amount of employee profit sharing; and
- net customer price concessions subsequent to the second quarter
of 2015.
Rest of World
Adjusted EBIT in Rest of World decreased $4 million to a loss of $16 million for the six months ended June 30, 2016 compared to a loss of $12 million for the six months ended June 30, 2015 primarily as a result of margins
earned on lower production sales.
This factor was partially offset by:
- a decrease in reported U.S. dollar Adjusted EBIT loss due to
the weakening of the Brazilian real and Argentine peso against the
U.S. dollar;
- productivity and efficiency improvements at certain facilities;
and
- net customer price increases subsequent to the second quarter
of 2015.
Corporate and Other
Corporate and Other Adjusted EBIT decreased $10 million to $11
million for the six months ended June
30, 2016 compared to $21
million for the six months ended June
30, 2015 primarily as a result of:
- higher costs to support our global compliance programs;
and
- higher incentive compensation.
These factors were partially offset by an increase in
affiliation fees earned from our divisions.
SUBSEQUENT EVENT
On July 15, 2016, the Company
established a U.S. commercial paper program (the "U.S. Program").
Under the U.S. Program, the Company may issue U.S. commercial paper
notes (the "U.S. notes") up to a maximum aggregate amount of U.S.
$500 million. The U.S. Program will
be backstopped by the Company's existing global credit facility.
The proceeds from the issuance of any U.S. notes will be used for
general corporate purposes.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation,
legal and/or regulatory actions and proceedings and other
claims.
Refer to note 16 of our unaudited interim consolidated financial
statements for the three months ended June
30, 2016, which describes these claims.
For a discussion of risk factors relating to legal and other
claims/actions against us, refer to "Item 3. Description of the
Business – Risk Factors" in our Annual Information Form and Annual
Report on Form 40-F, each in respect of the year ended December 31, 2015.
CONTROLS AND PROCEDURES
During the first quarter of 2016, we acquired Getrag. Other than
the addition of Getrag's operations to our internal control over
financial reporting and any related changes in control to integrate
Getrag, there have been no changes in our internal control over
financial reporting that occurred during the six months ended
June 30, 2016 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
FORWARD‑LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking information" or "forward-looking statements"
within the meaning of applicable securities legislation, including,
but not limited to, statements relating to the future issuances of
Notes under our U.S. commercial paper program. 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; fluctuations in relative
currency values; continuing global or regional economic
uncertainty; the potential impact of the United Kingdom's anticipated exit from the
European union; restructuring, downsizing and/or other significant
non-recurring costs; underperformance of one or more of our
operating divisions; ongoing pricing pressures, including our
ability to offset price concessions demanded by our customers; our
ability to successfully launch material new or takeover business;
our ability to successfully identify, complete and integrate
acquisitions or achieve anticipated synergies; our ability to
conduct appropriate due diligence on acquisition targets; an
increase in our risk profile as a result of completed
acquisitions; shifts in market share away from our top customers;
shifts in market shares among vehicles or vehicle segments, or
shifts away from vehicles on which we have significant content;
inability to sustain or grow our business; risks of conducting
business in foreign markets, including China, India,
Eastern Europe, Brazil and other non-traditional markets for
us; a prolonged disruption in the supply of components to us from
our suppliers; work stoppages and labour relations disputes;
scheduled shutdowns of our customers' production facilities
(typically in the third and fourth quarters of each calendar year);
our ability to successfully compete with other automotive
suppliers; a reduction in outsourcing by our customers or the loss
of a material production or assembly program; the termination or
non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; exposure to, and ability to offset, volatile commodities
prices; warranty and recall costs; restructuring actions by OEMs,
including plant closures; shutdown of our or our customers' or
sub-suppliers' production facilities due to a labour disruption;
risk of production disruptions due to natural disasters or
catastrophic event; the security and reliability of our information
technology systems; pension liabilities; legal claims and/or
regulatory actions against us; changes in our mix of earnings
between jurisdictions with lower tax rates and those with higher
tax rates, as well as our ability to fully benefit tax losses;
impairment charges related to goodwill, long-lived assets and
deferred tax assets; other potential tax exposures; changes in
credit ratings assigned to us; changes in laws and governmental
regulations; costs associated with compliance with environmental
laws and regulations; liquidity risks; inability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; and other factors set out in our Annual Information
Form filed with securities commissions in Canada and our annual report on Form 40-F
filed with the United States Securities and Exchange Commission,
and subsequent filings. In evaluating forward-looking statements or
forward-looking information, we caution readers not to place undue
reliance on any forward-looking statements or forward-looking
information, and readers should specifically consider the various
factors which could cause actual events or results to differ
materially from those indicated by such forward-looking statements
or forward-looking information. Unless otherwise required by
applicable securities laws, we do not intend, nor do we undertake
any obligation, to update or revise any forward-looking statements
or forward-looking information to reflect subsequent information,
events, results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF
INCOME
[Unaudited]
[U.S. dollars in millions,
except per share figures]
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
Note
|
2016
|
2015
|
|
2016
|
2015
|
|
|
|
|
|
|
|
Sales
|
|
$
|
9,443
|
$
|
8,133
|
|
$
|
18,343
|
$
|
15,905
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
8,045
|
6,962
|
|
15,664
|
13,630
|
|
Depreciation and amortization
|
|
262
|
198
|
|
508
|
392
|
|
Selling, general and administrative
|
|
414
|
348
|
|
806
|
678
|
|
Interest expense, net
|
|
22
|
8
|
|
45
|
18
|
|
Equity income
|
|
(67)
|
(52)
|
|
(122)
|
(103)
|
|
Other income, net
|
3
|
—
|
(57)
|
|
—
|
(57)
|
Income from continuing operations before income
taxes
|
|
767
|
726
|
|
1,442
|
1,347
|
Income taxes
|
|
206
|
191
|
|
378
|
358
|
Net income from continuing
operations
|
|
561
|
535
|
|
1,064
|
989
|
Loss from discontinued operations, net of
tax
|
2
|
—
|
(55)
|
|
—
|
(45)
|
Net income
|
|
561
|
480
|
|
1,064
|
944
|
(Income) loss from continuing operations attributable
to
|
|
|
|
|
|
|
|
non-controlling interests
|
|
(3)
|
3
|
|
(14)
|
4
|
Net income attributable to Magna International
Inc.
|
|
$
|
558
|
$
|
483
|
|
$
|
1,050
|
$
|
948
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
4
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.42
|
$
|
1.31
|
|
$
|
2.65
|
$
|
2.42
|
|
Discontinued operations
|
|
—
|
(0.13)
|
|
—
|
(0.11)
|
|
Attributable to Magna International
Inc.
|
|
$
|
1.42
|
$
|
1.18
|
|
$
|
2.65
|
$
|
2.31
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
4
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
1.41
|
$
|
1.29
|
|
$
|
2.63
|
$
|
2.39
|
|
Discontinued operations
|
|
—
|
(0.13)
|
|
—
|
(0.11)
|
|
Attributable to Magna International
Inc.
|
|
$
|
1.41
|
$
|
1.16
|
|
$
|
2.63
|
$
|
2.28
|
|
|
|
|
|
|
|
Cash dividends paid per Common
Share
|
|
$
|
0.25
|
$
|
0.22
|
|
$
|
0.50
|
$
|
0.44
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding
during
|
|
|
|
|
|
|
|
the period [in millions]:
|
4
|
|
|
|
|
|
|
|
Basic
|
|
393.7
|
409.8
|
|
397.0
|
409.6
|
|
|
Diluted
|
|
395.7
|
415.4
|
|
399.4
|
415.2
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars
in millions]
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
Note
|
2016
|
2015
|
|
2016
|
2015
|
|
|
|
|
|
|
|
Net income
|
|
$
|
561
|
$
|
480
|
|
$
|
1,064
|
$
|
944
|
|
|
|
|
|
|
|
Other comprehensive income, net of
tax:
|
14
|
|
|
|
|
|
|
Net unrealized (loss) gain on translation of net
investment
|
|
|
|
|
|
|
|
|
in foreign
operations
|
|
(120)
|
63
|
|
141
|
(375)
|
|
Net unrealized gain on available-for-sale
investments
|
|
—
|
1
|
|
—
|
2
|
|
Net unrealized (loss) gain on cash flow
hedges
|
|
(11)
|
(2)
|
|
58
|
(67)
|
|
Reclassification of net loss on cash flow hedges
to
|
|
|
|
|
|
|
|
|
net income
|
|
35
|
21
|
|
71
|
32
|
|
Reclassification of net loss on pensions to net
income
|
|
1
|
2
|
|
2
|
3
|
|
Pension and post retirement
benefits
|
|
—
|
—
|
|
(2)
|
(1)
|
Other comprehensive (loss)
income
|
|
(95)
|
85
|
|
270
|
(406)
|
|
|
|
|
|
|
|
Comprehensive income
|
|
466
|
565
|
|
1,334
|
538
|
Comprehensive loss (income) attributable to
non-controlling interests
|
|
9
|
3
|
|
(7)
|
4
|
Comprehensive income attributable
to
|
|
|
|
|
|
|
|
Magna International Inc.
|
|
$
|
475
|
$
|
568
|
|
$
|
1,327
|
$
|
542
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
[Unaudited]
[U.S. dollars in
millions]
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
|
|
|
|
|
|
Note
|
2016
|
2015
|
|
2016
|
2015
|
|
|
|
|
|
|
|
Cash provided from (used
for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income from continuing
operations
|
|
$
|
561
|
$
|
535
|
|
$
|
1,064
|
$
|
989
|
Items not involving current cash
flows
|
5
|
303
|
176
|
|
567
|
351
|
|
|
864
|
711
|
|
1,631
|
1,340
|
Changes in operating assets and
liabilities
|
5
|
(151)
|
(271)
|
|
(620)
|
(620)
|
Cash provided from operating
activities
|
|
713
|
440
|
|
1,011
|
720
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES
|
|
|
|
|
|
|
Fixed asset additions
|
|
(409)
|
(361)
|
|
(755)
|
(627)
|
Purchase of subsidiaries
|
6
|
(31)
|
—
|
|
(1,813)
|
(1)
|
Increase in investments and other
assets
|
|
(103)
|
(41)
|
|
(157)
|
(78)
|
Proceeds from
disposition
|
|
19
|
15
|
|
37
|
39
|
Proceeds on disposal of battery pack
business
|
3
|
—
|
103
|
|
—
|
103
|
Cash used in discontinued
operations
|
|
—
|
(9)
|
|
—
|
(41)
|
Cash used for investing
activities
|
|
(524)
|
(293)
|
|
(2,688)
|
(605)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Issues of
debt
|
|
202
|
16
|
|
261
|
31
|
Increase in short-term borrowings
|
|
60
|
1
|
|
12
|
70
|
Repayments of debt
|
|
(71)
|
(11)
|
|
(98)
|
(54)
|
Issue of Common Shares on exercise of stock
options
|
|
3
|
7
|
|
26
|
13
|
Repurchase of Common Shares
|
13
|
(308)
|
(5)
|
|
(608)
|
(5)
|
Dividends
|
|
(98)
|
(90)
|
|
(193)
|
(179)
|
Cash used for financing
activities
|
|
(212)
|
(82)
|
|
(600)
|
(124)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
(5)
|
(1)
|
|
11
|
(77)
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
|
|
|
|
|
|
during the
period
|
|
(28)
|
64
|
|
(2,266)
|
(86)
|
Cash and cash equivalents, beginning of
period
|
|
625
|
1,099
|
|
2,863
|
1,249
|
Cash and cash equivalents, end of
period
|
|
$
|
597
|
$
|
1,163
|
|
$
|
597
|
$
|
1,163
|
|
|
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE
SHEETS
[Unaudited]
[U.S. dollars in
millions]
|
Note
|
As at
June 30,
2016
|
As at
December 31,
2015
|
|
|
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
5
|
$
|
597
|
$
|
2,863
|
Accounts receivable
|
|
6,843
|
5,439
|
Inventories
|
7
|
2,841
|
2,564
|
Prepaid expenses and other
|
|
276
|
278
|
|
|
10,557
|
11,144
|
|
|
|
|
Investments
|
6, 15
|
2,214
|
399
|
Fixed assets, net
|
|
6,838
|
6,005
|
Goodwill
|
6, 8
|
1,849
|
1,344
|
Deferred tax assets
|
|
273
|
271
|
Other assets
|
9
|
855
|
524
|
|
|
$
|
22,586
|
$
|
19,687
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Short-term borrowings
|
10
|
$
|
441
|
$
|
25
|
Accounts payable
|
|
5,260
|
4,746
|
Accrued salaries and wages
|
|
735
|
660
|
Other accrued liabilities
|
11
|
1,877
|
1,512
|
Income taxes payable
|
|
146
|
122
|
Long‑term debt due within one year
|
|
423
|
211
|
|
|
8,882
|
7,276
|
|
|
|
|
Long‑term debt
|
|
2,454
|
2,327
|
Long-term employee benefit
liabilities
|
|
640
|
504
|
Other long‑term liabilities
|
|
310
|
331
|
Deferred tax liabilities
|
|
300
|
132
|
|
|
12,586
|
10,570
|
|
|
|
|
Shareholders' equity
|
|
|
|
Capital stock
|
|
|
|
|
Common Shares
|
|
|
|
|
|
[issued: 389,039,171; December 31, 2015 –
402,264,201]
|
13
|
3,839
|
3,942
|
Contributed surplus
|
|
110
|
107
|
Retained earnings
|
|
6,769
|
6,387
|
Accumulated other comprehensive
loss
|
14
|
(1,180)
|
(1,470)
|
|
|
9,538
|
8,966
|
|
|
|
|
Non-controlling interests
|
|
462
|
151
|
|
|
10,000
|
9,117
|
|
|
$
|
22,586
|
$
|
19,687
|
|
|
|
|
See accompanying notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in
millions]
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
Number
|
|
|
Stated
Value
|
|
|
Contri-
buted
Surplus
|
|
|
Retained
Earnings
|
|
|
AOCL (i)
|
|
|
Non-
controlling
Interest
|
|
|
Total
Equity
|
|
|
[in millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
402.3
|
|
$
|
3,942
|
|
$
|
107
|
|
$
|
6,387
|
|
$
|
(1,470)
|
|
$
|
151
|
|
$
|
9,117
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,050
|
|
|
|
|
|
14
|
|
|
1,064
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
277
|
|
|
(7)
|
|
|
270
|
Contributions by non-controlling
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1)
|
Shares issued on exercise of stock
options
|
|
1.8
|
|
|
36
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
26
|
Release of stock and stock units
|
|
|
|
|
7
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Repurchase and cancellation under
normal course issuer bid
|
13
|
(15.1)
|
|
|
(148)
|
|
|
|
|
|
(473)
|
|
|
13
|
|
|
|
|
|
(608)
|
Stock-based compensation
expense
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
Acquisition
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
305
|
Dividends paid
|
|
|
|
|
2
|
|
|
|
|
|
(195)
|
|
|
|
|
|
|
|
|
(193)
|
Balance, June 30, 2016
|
|
389.0
|
|
$
|
3,839
|
|
$
|
110
|
|
$
|
6,769
|
|
$
|
(1,180)
|
|
$
|
462
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
Number
|
|
|
Stated
Value
|
|
|
Contri-
buted
Surplus
|
|
|
Retained
Earnings
|
|
|
AOCL (i)
|
|
|
Non-
controlling
Interest
|
|
|
Total
Equity
|
|
|
[in millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
|
410.3
|
|
$
|
3,979
|
|
$
|
83
|
|
$
|
5,155
|
|
$
|
(558)
|
|
$
|
14
|
|
$
|
8,673
|
Net income
|
|
|
|
|
|
|
|
|
|
|
948
|
|
|
|
|
|
(4)
|
|
|
944
|
Other comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406)
|
|
|
|
|
|
(406)
|
Shares issued on exercise of stock
options
|
|
0.6
|
|
|
17
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
13
|
Exempt share purchase
|
|
|
|
|
(1)
|
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
(5)
|
Release of restricted stock
|
|
|
|
|
5
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
Dividends
paid
|
|
0.1
|
|
|
6
|
|
|
|
|
|
(185)
|
|
|
|
|
|
|
|
|
(179)
|
Balance, June 30, 2015
|
|
411.0
|
|
$
|
4,006
|
|
$
|
94
|
|
$
|
5,914
|
|
$
|
(964)
|
|
$
|
10
|
|
$
|
9,060
|
|
|
|
(i) AOCL is Accumulated Other Comprehensive
Loss
|
|
|
|
|
|
See accompanying notes
|
|
|
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM
CONSOLIDATED FINANCIAL
STATEMENTS
[Unaudited]
[All amounts in U.S.
dollars and all tabular amounts in millions unless otherwise
noted]
1. SIGNIFICANT ACCOUNTING POLICIES
[a] Basis of presentation
The unaudited interim consolidated financial statements of Magna
International Inc. and its subsidiaries [collectively "Magna" or
the "Company"] have been prepared in U.S. dollars following
accounting principles generally accepted in the United States of America
["GAAP"]. The unaudited interim consolidated financial
statements do not conform in all respects to the requirements of
GAAP for annual financial statements. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the December 31,
2015 audited consolidated financial statements and notes
thereto included in the Company's 2015 Annual Report.
The unaudited interim consolidated financial statements reflect
all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
June 30, 2016 and the results of
operations, changes in equity and cash flows for the three and six
month periods ended June 30, 2016 and
2015.
[b] Future Accounting Standards
Revenue Recognition
In May 2014, the FASB issued ASU
No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU
2014-09), to supersede nearly all existing revenue recognition
guidance under GAAP. The core principle of ASU 2014-09 is to
recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration that is
expected to be received for those goods or services. In
July 2015, the FASB deferred the
effective date to annual reporting periods beginning after
December 15, 2017 [including interim
reporting periods within those periods]. ASU 2014-09 is
effective for the Company in the first quarter of fiscal 2018 using
either of two methods: [i] retrospective to each prior reporting
period presented with the option to elect certain practical
expedients as defined within ASU 2014-09; or [ii] retrospective
with the cumulative effect of initially applying ASU 2014-09
recognized at the date of initial application and providing certain
additional disclosures as defined per ASU 2014-09. The Company is
currently evaluating the impact of its pending adoption of ASU
2014-09 on its consolidated financial statements.
Leases
In February 2016, the FASB issued
ASU No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to supersede
nearly all existing lease guidance under GAAP. The guidance would
require lessees to recognize most leases on their balance sheets as
lease liabilities with corresponding right-of-use
assets. ASU 2016-02 is effective for the Company in the
first quarter of fiscal 2019 using a modified retrospective
approach with the option to elect certain practical
expedients. The Company is currently evaluating the impact of
its pending adoption of ASU 2016-02 on its consolidated financial
statements.
[c] Seasonality
The Company's businesses are generally not seasonal. However,
the Company's sales and profits are closely related to its
automotive customers' vehicle production schedules. The Company's
largest North American customers typically halt production for
approximately two weeks in July and one week in December.
Additionally, many of the Company's customers in Europe typically shutdown vehicle production
during portions of August and one week in December.
2. DISCONTINUED OPERATIONS
At June 30, 2015, the Company
determined that its interiors operations met the criteria to be
classified as discontinued operations, which required retrospective
application to financial information for all periods presented.
Refer to the Company's 2015 Annual Report for additional
information on the Company's Discontinued Operations.
There were no amounts related to the interiors operations
classified as discontinued operations for the three and six month
periods ended June 30, 2016. The
following table summarizes the results of the interiors operations
classified as discontinued operations for the three and six month
periods ended June 30,
2015:
|
Three months ended
June 30, 2015
|
|
Six months ended
June 30, 2015
|
|
|
|
|
|
|
Sales
|
$
|
695
|
|
$
|
1,284
|
|
|
|
|
|
|
Costs and expense
|
|
|
|
|
|
|
Cost of goods sold
|
|
653
|
|
|
1,199
|
|
Depreciation and amortization
|
|
2
|
|
|
13
|
|
Selling, general and
administrative
|
|
29
|
|
|
54
|
|
Equity income
|
|
(4)
|
|
|
(8)
|
Income from discontinued operations before income
taxes
|
|
15
|
|
|
26
|
Income taxes [i]
|
|
70
|
|
|
71
|
Loss from discontinued operations, net of
tax
|
$
|
(55)
|
|
|
(45)
|
|
|
[i]
|
Income taxes included $60 million of deferred tax
expense relating to timing differences that became payable upon
closing of the transaction.
|
3. OTHER INCOME, NET
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].
4. EARNINGS PER SHARE
Earnings per share are computed as follows:
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Income available to Common
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing
operations
|
$
|
561
|
$
|
535
|
|
$
|
1,064
|
$
|
989
|
(Loss) income from continuing operations attributable
to
|
|
|
|
|
|
|
|
|
|
|
non-controlling interests
|
|
(3)
|
|
3
|
|
|
(14)
|
|
4
|
Net income attributable to Magna International Inc.
from
|
|
|
|
|
|
|
|
|
|
|
continuing operations
|
|
558
|
|
538
|
|
|
1,050
|
|
993
|
Loss from discontinued operations
|
|
—
|
|
(55)
|
|
|
—
|
|
(45)
|
Net income attributable to Magna International
Inc.
|
$
|
558
|
$
|
483
|
|
$
|
1,050
|
$
|
948
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
393.7
|
|
409.8
|
|
|
397.0
|
|
409.6
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
[a]
|
|
2.0
|
|
5.6
|
|
|
2.4
|
|
5.6
|
Diluted
|
|
395.7
|
|
415.4
|
|
|
399.4
|
|
415.2
|
|
|
[a]
|
For the three and six months ended June 30, 2016,
diluted earnings per Common Share excludes 2.9 million and 3.4
million Common Shares issuable under the Company's Incentive Stock
Option Plan because these options were not
"in-the-money".
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.42
|
$
|
1.31
|
|
$
|
2.65
|
$
|
2.42
|
|
Discontinued operations
|
|
—
|
|
(0.13)
|
|
|
—
|
|
(0.11)
|
|
Attributable to Magna International
Inc.
|
$
|
1.42
|
$
|
1.18
|
|
$
|
2.65
|
$
|
2.31
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.41
|
$
|
1.29
|
|
$
|
2.63
|
$
|
2.39
|
|
Discontinued operations
|
|
—
|
|
(0.13)
|
|
|
—
|
|
(0.11)
|
|
Attributable to Magna International
Inc.
|
$
|
1.41
|
$
|
1.16
|
|
$
|
2.63
|
$
|
2.28
|
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
|
June 30,
2016
|
|
December 31,
2015
|
Bank term deposits, bankers' acceptances and
government paper
|
$
|
90
|
|
$
|
2,572
|
Cash
|
|
507
|
|
|
291
|
|
$
|
597
|
|
$
|
2,863
|
[b] Items not involving current cash
flows:
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
Depreciation and amortization
|
$
|
262
|
$
|
198
|
|
$
|
508
|
$
|
392
|
Amortization of other assets included in cost of
goods sold
|
|
32
|
|
27
|
|
|
65
|
|
50
|
Deferred income taxes
|
|
7
|
|
11
|
|
|
11
|
|
(16)
|
Other non-cash charges
|
|
3
|
|
9
|
|
|
17
|
|
12
|
Equity income in excess of dividends
received
|
|
(1)
|
|
(12)
|
|
|
(34)
|
|
(30)
|
Non-cash portion of Other Income [note
3]
|
|
—
|
|
(57)
|
|
|
—
|
|
(57)
|
|
$
|
303
|
$
|
176
|
|
$
|
567
|
$
|
351
|
[c] Changes in operating assets and
liabilities:
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
Accounts receivable
|
$
|
(281)
|
$
|
5
|
|
$
|
(978)
|
$
|
(472)
|
Inventories
|
|
(5)
|
|
(143)
|
|
|
(130)
|
|
(269)
|
Prepaid expenses and other
|
|
120
|
|
2
|
|
|
138
|
|
(12)
|
Accounts payable
|
|
112
|
|
(15)
|
|
|
307
|
|
99
|
Accrued salaries and wages
|
|
(77)
|
|
(119)
|
|
|
34
|
|
(55)
|
Other accrued liabilities
|
|
(7)
|
|
2
|
|
|
(26)
|
|
40
|
Income taxes payable
|
|
(13)
|
|
(3)
|
|
|
35
|
|
49
|
|
$
|
(151)
|
$
|
(271)
|
|
$
|
(620)
|
$
|
(620)
|
6. ACQUISITIONS
Acquisition of Getrag
On January 4, 2016, the Company
completed the acquisition of 100% of the common shares and voting
interests of the Getrag Group of Companies ["Getrag"]. Getrag
is a global supplier of automotive transmission systems, including
manual, automated-manual, dual clutch, hybrid and other advanced
systems. The purchase price was $1.8
billion [net of $136 million
cash acquired], and is subject to working capital and other
customary purchase price adjustments. The acquired business
has sales primarily to BMW, Audi, Jiangling Motors, Ford, Volvo and
Dongfeng.
The acquisition of Getrag was accounted for as a business
combination. The following table summarizes the provisional
amounts recognized for assets acquired and liabilities assumed at
their estimated fair
values:
|
Preliminary amounts
recognized at June 30, 2016
|
|
|
|
Cash
|
$
|
136
|
Non-cash working capital
|
|
(459)
|
Investments
|
|
1,736
|
Fixed assets
|
|
483
|
Goodwill
|
|
442
|
Other assets
|
|
59
|
Intangibles
|
|
223
|
Deferred tax assets
|
|
43
|
Long-term employee benefit
liabilities
|
|
(125)
|
Long-term debt
|
|
(117)
|
Other long-term liabilities
|
|
(52)
|
Deferred tax liabilities
|
|
(144)
|
Non-controlling interest
|
|
(307)
|
Consideration paid
|
|
1,918
|
Less: Cash acquired
|
|
(136)
|
Net cash outflow
|
$
|
1,782
|
The preliminary purchase price allocations are subject to change
and may be subsequently adjusted to reflect final valuation results
and other adjustments. During the three months ended
June 30, 2016 there were no
significant adjustments made to the preliminary purchase price
allocation.
The investments amount includes the following equity investments
that were acquired as part of the business combination:
|
Ownership
percentage
|
|
Preliminary
investment balance
|
|
|
|
|
|
Getrag Ford Transmission GmbH
|
50.0%
|
|
$
|
444
|
Getrag (Jiangxi) Transmission Co., Ltd ["GJT"]
(i)
|
50.0%
|
|
$
|
1,124
|
Dongfeng Getrag Transmission Co.
Ltd
|
50.0%
|
|
$
|
168
|
|
|
(i)
|
GJT is 66.7% owned by one of the
Company's consolidated subsidiaries which has a 25%
non-controlling interest. As a result, the preliminary
investment balance was derived using 66.7% of the fair
value.
|
The Company accounts for the investments under the equity method
since it has the ability to exercise significant influence but does
not hold a controlling financial interest.
Recognized goodwill is attributable to the assembled workforce,
expected synergies and other intangible assets that do not qualify
for separate recognition. Substantially all of the goodwill
recognized was assigned to the Company's European segment and is
not deductible for tax purposes.
Intangible assets consist primarily of amounts recognized for
the fair value of customer contracts and patents. These
amortizable intangible assets are being amortized on a straight
line basis over their estimated useful lives.
Sales for the acquired Getrag entities for the three and six
months ended June 30, 2016 were
$527 million and $1.0 billion, respectively. Net income for the
three and six months ended June 30,
2016 were $15 million and
$23 million, respectively.
The following table provides consolidated supplemental pro forma
information as if the acquisition of Getrag had occurred on
January 1, 2015.
|
Three months ended
June 30, 2015
|
|
Six months ended
June 30, 2015
|
|
|
|
|
|
|
Sales
|
$
|
8,625
|
|
$
|
16,907
|
Net income attributable to Magna International
Inc.
|
$
|
474
|
|
$
|
937
|
The unaudited pro forma financial results do not include any
anticipated synergies or other expected benefits of the
acquisition. This information is presented for informational
purposes only and is not indicative of future operating
results.
Other
During the second quarter of 2016, the Company acquired 100% of
the equity interest in Telemotive AG, an engineering service
provider in the field of automotive electronics. The acquired
business has sales primarily to BMW, Volkswagen and Daimler.
7. INVENTORIES
Inventories consist of:
|
June 30, 2016
|
|
December 31,
2015
|
|
|
|
|
|
|
Raw materials and supplies
|
$
|
992
|
|
$
|
843
|
Work-in-process
|
|
299
|
|
|
246
|
Finished goods
|
|
319
|
|
|
311
|
Tooling and engineering
|
|
1,231
|
|
|
1,164
|
|
$
|
2,841
|
|
$
|
2,564
|
Tooling and engineering inventory represents costs incurred on
tooling and engineering services contracts in excess of billed and
unbilled amounts included in accounts receivable.
8. GOODWILL
The following is a continuity of the Company's goodwill:
|
|
|
|
Balance at December 31, 2015
|
$
|
1,344
|
Acquisition [note 6]
|
|
430
|
Foreign exchange and other
|
|
57
|
Balance at March 31, 2016
|
|
1,831
|
Acquisitions [note 6]
|
|
52
|
Foreign exchange and other
|
|
(34)
|
Balance at June 30, 2016
|
$
|
1,849
|
9. OTHER ASSETS
Other assets consist
of:
|
June 30, 2016
|
|
December 31,
2015
|
|
|
|
|
|
|
Preproduction costs related to long-term supply
agreements with
contractual guarantee for
reimbursement
|
$
|
345
|
|
$
|
276
|
Customer relationship intangibles
|
|
284
|
|
|
75
|
Long-term receivables
|
|
103
|
|
|
87
|
Patents and licences, net
|
|
42
|
|
|
37
|
Unrealized gain on cash flow hedges
|
|
15
|
|
|
5
|
Pension overfunded status
|
|
17
|
|
|
17
|
Other, net
|
|
49
|
|
|
27
|
|
$
|
855
|
|
$
|
524
|
10. SHORT-TERM BORROWINGS
The Company's short-term borrowings consist of the
following:
|
June 30, 2016
|
|
December 31,
2015
|
|
|
|
|
|
|
Bank indebtedness
|
$
|
208
|
|
$
|
25
|
Euro-commercial paper
|
|
233
|
|
|
—
|
|
$
|
441
|
|
$
|
25
|
In the first quarter of 2016, the Company established a
euro-commercial paper program [the "euro-Program"]. Under the
euro-Program, the Company may issue euro-commercial paper notes
[the "euro notes"] up to a maximum aggregate amount of €500 million
or its equivalent in alternative currencies. Any euro notes issued
will be guaranteed by the Company. The proceeds from the issuance
of any euro notes will be used for general corporate
purposes. As of June 30, 2016,
$233 million [€211 million] of euro
notes were outstanding, with a weighted-average interest rate of
-0.05%, and maturities generally less than three months.
11. WARRANTY
The following is a continuity of the Company's warranty
accruals:
|
2016
|
|
2015
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
59
|
|
$
|
80
|
Expense, net
|
|
19
|
|
|
8
|
Settlements
|
|
(17)
|
|
|
(10)
|
Acquisition [note 6]
|
|
172
|
|
|
—
|
Foreign exchange and other
|
|
4
|
|
|
(6)
|
Balance, March 31
|
|
237
|
|
|
72
|
Expense, net
|
|
12
|
|
|
10
|
Settlements
|
|
(14)
|
|
|
(10)
|
Foreign exchange and other
|
|
(2)
|
|
|
1
|
Balance, June 30
|
$
|
233
|
|
$
|
73
|
During the first quarter of 2016, the warranty obligation
assumed as a result of the acquisition was recognized as its
estimated fair value of $172
million. Of this amount, $127
million relates to a pre-acquisition settlement agreement
negotiated with a customer and a supplier for a specific
performance issue.
12. LONG-TERM EMPLOYEE BENEFIT
LIABILITIES
The Company recorded long-term employee benefit expenses as
follows:
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan and
other
|
$
|
5
|
$
|
3
|
|
$
|
9
|
$
|
7
|
Termination and long service
arrangements
|
|
7
|
|
5
|
|
|
15
|
|
12
|
Retirement medical benefit plan
|
|
1
|
|
1
|
|
|
1
|
|
1
|
|
$
|
13
|
$
|
9
|
|
$
|
25
|
$
|
20
|
13. CAPITAL STOCK
[a] During the second and first quarters of
2016, the Company repurchased 7,823,637 and 7,277,425 shares
respectively, under a normal course issuer bid for cash
consideration of $308 million and
$300 million,
respectively.
[b] The following table presents the maximum
number of shares that would be outstanding if all the dilutive
instruments outstanding at August 4,
2016 were exercised or converted:
Common
Shares
|
389,039,171
|
Stock options
(i)
|
7,705,023
|
|
396,744,194
|
|
|
(i)
|
Options to purchase Common Shares are exercisable by
the holder in accordance with the vesting provisions and upon
payment of the exercise price as may be determined from time to
time pursuant to the Company's stock option
plans.
|
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a continuity schedule of accumulated other
comprehensive loss:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Accumulated net unrealized loss on translation of net
investment in foreign
operations
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
(1,042)
|
|
|
$
(255)
|
|
Net unrealized gain (loss)
|
|
256
|
|
|
(438)
|
|
Repurchase of shares under normal course issuer
bid
|
|
7
|
|
|
—
|
|
Balance, March 31
|
|
(779)
|
|
|
(693)
|
|
Net unrealized (loss) gain
|
|
(108)
|
|
|
63
|
|
Repurchase of shares under normal course issuer
bid
|
|
6
|
|
|
—
|
|
Balance, June 30
|
|
(881)
|
|
|
(630)
|
|
|
|
|
|
|
Accumulated net unrealized loss on cash flow hedges
(i)
|
|
|
|
|
|
|
Balance, beginning of period
|
|
(262)
|
|
|
(113)
|
|
Net unrealized gain (loss)
|
|
69
|
|
|
(65)
|
|
Reclassification of net loss to net
income
|
|
36
|
|
|
11
|
|
Balance, March 31
|
|
(157)
|
|
|
(167)
|
|
Net unrealized loss
|
|
(11)
|
|
|
(2)
|
|
Reclassification of net loss to net
income
|
|
35
|
|
|
21
|
|
Balance, June 30
|
|
(133)
|
|
|
(148)
|
|
|
|
|
|
|
Accumulated net unrealized loss on available-for-sale
investments
|
|
|
|
|
|
|
Balance, beginning of period
|
|
(1)
|
|
|
(4)
|
|
Net unrealized gain
|
|
—
|
|
|
1
|
|
Balance, March 31
|
|
(1)
|
|
|
(3)
|
|
Net unrealized gain
|
|
—
|
|
|
1
|
|
Balance, June 30
|
|
(1)
|
|
|
(2)
|
|
|
|
|
|
|
Accumulated net unrealized loss on pensions
(ii)
|
|
|
|
|
|
|
Balance, beginning of period
|
|
(165)
|
|
|
(186)
|
|
Net unrealized loss
|
|
(2)
|
|
|
(1)
|
|
Acquisition [note 6]
|
|
(1)
|
|
|
—
|
|
Reclassification of net loss to net
income
|
|
1
|
|
|
1
|
|
Balance, March 31
|
|
(167)
|
|
|
(186)
|
|
Acquisition [note 6]
|
|
1
|
|
|
—
|
|
Reclassification of net loss to net
income
|
|
1
|
|
|
2
|
|
Balance, June 30
|
|
(165)
|
|
|
(184)
|
|
|
|
|
|
|
Total accumulated other comprehensive
loss
|
$
|
(1,180)
|
|
|
$
(964)
|
(i) The amount of income tax benefit that
has been netted in the accumulated net unrealized (loss) gain on
cash flow hedges is as
follows:
|
2016
|
|
2015
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
97
|
|
$
|
44
|
Net unrealized (loss) gain
|
|
(24)
|
|
|
27
|
Reclassifications of net loss to net
income
|
|
(14)
|
|
|
(5)
|
Balance, March 31
|
|
59
|
|
|
66
|
Net unrealized gain (loss)
|
|
6
|
|
|
(1)
|
Reclassifications of net loss to net
income
|
|
(13)
|
|
|
(8)
|
Balance, June 30
|
$
|
52
|
|
$
|
57
|
(ii) The amount of income tax
benefit that has been netted in the accumulated net unrealized loss
on pensions is as
follows:
|
2016
|
|
2015
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
31
|
|
$
|
36
|
Net unrealized loss
|
|
(2)
|
|
|
—
|
Balance, March 31
|
|
29
|
|
|
36
|
Reclassification of net loss to net
income
|
|
(1)
|
|
|
(1)
|
Balance, June
30
|
$
|
28
|
|
$
|
35
|
The amount of other comprehensive loss that is expected to
be reclassified to net income over the next 12 months is
$128 million.
15. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and financial
liabilities consist of the following:
|
June 30,
2016
|
|
December 31,
2015
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
597
|
|
$
|
2,863
|
|
Investment in asset-backed commercial
paper
|
|
78
|
|
|
73
|
|
Equity investments
|
|
—
|
|
|
4
|
|
$
|
675
|
|
$
|
2,940
|
|
|
|
|
|
|
Held to maturity investments
|
|
|
|
|
|
|
Severance investments
|
$
|
3
|
|
$
|
3
|
|
|
|
|
|
|
Loans and receivables
|
|
|
|
|
|
|
Accounts receivable
|
$
|
6,843
|
|
$
|
5,439
|
|
Long-term receivables included in other
assets
|
|
103
|
|
|
87
|
|
$
|
6,946
|
|
$
|
5,526
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Other financial liabilities
|
|
|
|
|
|
|
Bank indebtedness
|
$
|
208
|
|
$
|
25
|
|
Commercial paper
|
|
233
|
|
|
—
|
|
Long-term debt (including portion due within one
year)
|
|
2,877
|
|
|
2,557
|
|
Accounts payable
|
|
5,260
|
|
|
4,746
|
|
$
|
8,578
|
|
$
|
7,328
|
|
|
|
|
|
|
Derivatives designated as effective hedges, measured
at fair value
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
|
|
|
|
|
Prepaid expenses
|
$
|
21
|
|
$
|
27
|
|
|
Other assets
|
|
15
|
|
|
4
|
|
|
Other accrued liabilities
|
|
(142)
|
|
|
(191)
|
|
|
Other long-term
liabilities
|
|
(64)
|
|
|
(152)
|
|
$
|
(170)
|
|
$
|
(312)
|
[b] Derivatives designated as effective hedges,
measured at fair value
The Company presents derivatives that are designated as
effective hedges at gross fair values in the Consolidated Balance
Sheets. However, master netting and other similar arrangements
allow net settlements under certain conditions. The following table
shows the Company's derivative foreign currency contracts at gross
fair value as reflected in the Consolidated Balance Sheets and the
unrecognized impacts of master netting arrangements:
|
Gross
amounts
presented
in consolidated
balance sheets
|
Gross amounts
not offset
in consolidated
balance sheets
|
Net amounts
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
Assets
|
$
|
36
|
$
|
34
|
$
|
2
|
|
Liabilities
|
$
|
(206)
|
$
|
(34)
|
$
|
(172)
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Assets
|
$
|
31
|
$
|
30
|
$
|
1
|
|
Liabilities
|
$
|
(343)
|
$
|
(30)
|
$
|
(313)
|
[c] Fair value
The Company determined the estimated fair values of its
financial instruments based on valuation methodologies it believes
are appropriate; however, considerable judgment is required to
develop these estimates. Accordingly, these estimated fair values
are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The estimated fair value
amounts can be materially affected by the use of different
assumptions or methodologies. The methods and assumptions used to
estimate the fair value of financial instruments are described
below:
Cash and cash equivalents, accounts receivable, short-term
borrowings and accounts payable.
Due to the short period to maturity of the instruments, the
carrying values as presented in the consolidated balance sheets are
reasonable estimates of fair values.
Investments
At June 30, 2016, the Company held
Canadian third party asset-backed commercial paper ["ABCP"] with a
face value of Cdn$107 million
[December 31, 2015 - Cdn$107
million]. The carrying value and estimated fair value of this
investment was Cdn$102 million
[December 31, 2015 - Cdn$101
million]. As fair value information is not readily determinable for
the Company's investment in ABCP, the fair value was based on a
valuation technique estimating the fair value from the perspective
of a market participant.
Term debt
The Company's term debt includes $423
million due within one year. Due to the short period to
maturity of this debt, the carrying value as presented in the
consolidated balance sheets is a reasonable estimate of its fair
value.
Senior Notes
The fair value of our senior notes are classified as Level 1
when we use quoted prices in active markets and Level 2 when the
quoted prices are from less active markets or when other observable
inputs are used to determine fair value. At June 30, 2016, the net book value of the
Company's Senior Notes was $2.33
billion and the estimated fair value was $2.52 billion, determined primarily using active
market prices.
[d] Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash and cash equivalents, accounts
receivable, held to maturity investments, and foreign exchange
forward contracts with positive fair values.
Cash and cash equivalents, which consists of short-term
investments, are only invested in governments, bank term deposits
and bank commercial paper with an investment grade credit rating.
Credit risk is further reduced by limiting the amount which is
invested in certain governments or any major financial
institution.
The Company is also exposed to credit risk from the potential
default by any of its counterparties on its foreign exchange
forward contracts. The Company mitigates this credit risk by
dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under
the contracts.
In the normal course of business, the Company is exposed to
credit risk from its customers, substantially all of which are in
the automotive industry and are subject to credit risks associated
with the automotive industry. For the three and six month periods
ended June 30, 2016, sales to the
Company's six largest customers represented 82% and 83% of the
Company's total sales, respectively, and substantially all of the
Company's sales are to customers in which it has ongoing
contractual relationships.
[e] Interest rate risk
The Company is not exposed to significant interest rate risk due
to the short-term maturity of its monetary current assets and
current liabilities. In particular, the amount of interest income
earned on the Company's cash and cash equivalents is impacted more
by the investment decisions made and the demands to have available
cash on hand, than by movements in the interest rates over a given
period.
In addition, the Company is not exposed to interest rate risk on
its term debt and Senior Notes as the interest rates on these
instruments are fixed.
[f] Currency risk and foreign exchange
contracts
The Company is exposed to fluctuations in foreign exchange rates
when manufacturing facilities have committed to the delivery of
products for which the selling price has been quoted in currencies
other than the facilities' functional currency, and when materials
and equipment are purchased in currencies other than the
facilities' functional currency. In an effort to manage this net
foreign exchange exposure, the Company employs hedging programs,
primarily through the use of foreign exchange forward
contracts.
At June 30, 2016, the Company had
outstanding foreign exchange forward contracts representing
commitments to buy and sell various foreign currencies. Significant
commitments are as follows:
|
Buys
|
Sells
|
|
|
|
For Canadian dollars
|
|
|
|
U.S. amount
|
197
|
2,292
|
|
euro amount
|
46
|
10
|
|
Korean won amount
|
30,400
|
—
|
|
|
|
For U.S. dollars
|
|
|
|
Peso amount
|
6,748
|
7
|
|
Korean won amount
|
26,381
|
—
|
|
|
|
For euros
|
|
|
|
U.S. amount
|
180
|
235
|
|
GBP amount
|
9
|
31
|
|
Czech Koruna amount
|
5,837
|
3
|
|
Polish Zlotys amount
|
286
|
5
|
Forward contracts mature at various dates through 2020. Foreign
currency exposures are reviewed quarterly.
16. CONTINGENCIES
From time to time, the Company may become involved in regulatory
proceedings, or become liable for legal, contractual and other
claims by various parties, including customers, suppliers, former
employees, class action plaintiffs and others. On an ongoing basis,
the Company attempts to assess the likelihood of any adverse
judgments or outcomes to these proceedings or claims, together with
potential ranges of probable costs and losses. A determination of
the provision required, if any, for these contingencies is made
after analysis of each individual issue. The required provision may
change in the future due to new developments in each matter or
changes in approach such as a change in settlement strategy in
dealing with these matters.
[a] In November
1997, the Company and two of its subsidiaries were sued by
KS Centoco Ltd., an Ontario-based
steering wheel manufacturer in which the Company has a 23% equity
interest, and by Centoco Holdings Limited, the owner of the
remaining 77% equity interest in KS Centoco Ltd. In March 1999, the plaintiffs were granted leave to
make substantial amendments to the original statement of claim in
order to add several new defendants and claim additional remedies
and, in February 2006, the plaintiffs
further amended their claim to add an additional remedy. In
February 2016, a consent order was
granted allowing the Plaintiffs to file a fresh statement of claim
which includes an additional remedy and reduces certain aggravated
and punitive damages claimed. The 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
2014, the Conselho Administrativo de Defesa Economica,
Brazil's Federal competition
authority, attended at one of the Company's operating divisions in
Brazil to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related
products.
Proceedings of this nature can often continue for several years.
Where wrongful conduct is found, the relevant antitrust authority
can, depending on the jurisdiction, initiate administrative or
criminal legal proceedings and impose administrative or criminal
fines or penalties taking into account several mitigating and
aggravating factors. At this time, management is unable to
predict the duration or outcome of the Brazilian investigation,
including whether any operating divisions of the Company will be
found liable for any violation of law or the extent or magnitude of
any liability, if found to be liable.
The Company's policy is to comply with all applicable laws,
including antitrust and competition laws. The Company has initiated
a global review focused on antitrust risk led by a team of external
counsel. If any antitrust violation is found as a result of the
above-referenced investigations or otherwise, Magna could be
subject to fines, penalties and civil, administrative or criminal
legal proceedings that could have a material adverse effect on
Magna's profitability in the year in which any such fine or penalty
is imposed or the outcome of any such proceeding is determined.
Additionally, Magna could be subject to other consequences,
including reputational damage, which could have a material adverse
effect on the Company.
[c] In certain circumstances, the Company is
at risk for warranty costs including product liability and recall
costs. Due to the nature of the costs, the Company makes its best
estimate of the expected future costs [note 11]; however,
the ultimate amount of such costs could be materially different.
The Company continues to experience increased customer pressure to
assume greater warranty responsibility. Currently, under most
customer agreements, the Company only accounts for existing or
probable claims. Under certain complete vehicle engineering and
assembly contracts, and with respect to our transmission systems
programs, the Company records an estimate of future
warranty-related costs based on the terms of the specific customer
agreements, and the specific customer's [or the Company's] warranty
experience.
17. SEGMENTED INFORMATION
The Company's chief operating decision maker uses Adjusted EBIT
as the measure of segment profit or loss, since management believes
Adjusted EBIT is the most appropriate measure of operational
profitability or loss for its reporting segments. Adjusted EBIT
represents income from continuing operations before income taxes;
interest expense, net; and other income, net.
The following tables show segment information for the Company's
reporting segments and a reconciliation of Adjusted EBIT to the
Company's consolidated income from continuing operations before
income taxes:
|
|
Three months ended
|
|
Three months ended
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
Fixed
|
|
Total
|
External
|
Adjusted
|
assets,
|
|
Total
|
External
|
Adjusted
|
assets,
|
|
sales
|
sales
|
EBIT
|
net
|
|
sales
|
sales
|
EBIT
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
$
|
1,777
|
$
|
1,642
|
|
|
$
|
702
|
|
$
|
1,576
|
$
|
1,458
|
|
|
$
|
649
|
|
United States
|
|
2,551
|
|
2,473
|
|
|
|
1,510
|
|
|
2,535
|
|
2,426
|
|
|
|
1,291
|
|
Mexico
|
|
1,305
|
|
1,180
|
|
|
|
903
|
|
|
1,054
|
|
965
|
|
|
|
668
|
|
Eliminations
|
|
(316)
|
|
—
|
|
|
|
—
|
|
|
(288)
|
|
—
|
|
|
|
—
|
|
|
5,317
|
|
5,295
|
$
|
544
|
|
3,115
|
|
|
4,877
|
|
4,849
|
$
|
525
|
|
2,608
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great Britain)
|
|
2,834
|
|
2,751
|
|
|
|
1,813
|
|
|
2,248
|
|
2,183
|
|
|
|
1,185
|
|
Great Britain
|
|
189
|
|
188
|
|
|
|
128
|
|
|
102
|
|
102
|
|
|
|
43
|
|
Eastern Europe
|
|
591
|
|
517
|
|
|
|
529
|
|
|
498
|
|
438
|
|
|
|
467
|
|
Eliminations
|
|
(102)
|
|
—
|
|
|
|
—
|
|
|
(74)
|
|
—
|
|
|
|
—
|
|
|
3,512
|
|
3,456
|
|
196
|
|
2,470
|
|
|
2,774
|
|
2,723
|
|
120
|
|
1,695
|
Asia
|
|
620
|
|
580
|
|
51
|
|
773
|
|
|
466
|
|
434
|
|
31
|
|
664
|
Rest of World
|
|
111
|
|
111
|
|
(5)
|
|
65
|
|
|
125
|
|
125
|
|
(8)
|
|
69
|
Corporate and Other
|
|
(117)
|
|
1
|
|
3
|
|
415
|
|
|
(109)
|
|
2
|
|
9
|
|
370
|
Total reportable
segments
|
|
9,443
|
|
9,443
|
|
789
|
|
6,838
|
|
|
8,133
|
|
8,133
|
|
677
|
|
5,406
|
Other income, net
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
57
|
|
|
Interest expense, net
|
|
|
|
|
|
(22)
|
|
|
|
|
|
|
|
|
(8)
|
|
|
|
$
|
9,443
|
$
|
9,443
|
$
|
767
|
|
6,838
|
|
$
|
8,133
|
$
|
8,133
|
$
|
726
|
|
5,406
|
Current assets
|
|
|
|
|
|
|
|
10,557
|
|
|
|
|
|
|
|
|
10,851
|
Investments, goodwill,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets
|
|
|
|
|
|
|
|
5,191
|
|
|
|
|
|
|
|
|
2,310
|
Consolidated total assets
|
|
|
|
|
|
|
$
|
22,586
|
|
|
|
|
|
|
$
|
|
18,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Six months ended
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
|
|
|
Fixed
|
|
|
|
|
Fixed
|
|
Total
|
External
|
Adjusted
|
assets,
|
|
Total
|
External
|
Adjusted
|
assets,
|
|
sales
|
sales
|
EBIT
|
net
|
|
sales
|
sales
|
EBIT
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
$
|
3,411
|
$
|
3,151
|
|
|
$
|
702
|
|
$
|
3,040
|
$
|
2,818
|
|
|
$
|
649
|
|
United States
|
|
5,035
|
|
4,849
|
|
|
|
1,510
|
|
|
4,794
|
|
4,580
|
|
|
|
1,291
|
|
Mexico
|
|
2,586
|
|
2,351
|
|
|
|
903
|
|
|
2,055
|
|
1,882
|
|
|
|
668
|
|
Eliminations
|
|
(635)
|
|
—
|
|
|
|
—
|
|
|
(555)
|
|
—
|
|
|
|
—
|
|
|
10,397
|
|
10,351
|
$
|
1,033
|
|
3,115
|
|
|
9,334
|
|
9,280
|
$
|
978
|
|
2,608
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great Britain)
|
|
5,434
|
|
5,263
|
|
|
|
1,813
|
|
|
4,501
|
|
4,373
|
|
|
|
1,185
|
|
Great Britain
|
|
382
|
|
380
|
|
|
|
128
|
|
|
195
|
|
195
|
|
|
|
43
|
|
Eastern Europe
|
|
1,131
|
|
991
|
|
|
|
529
|
|
|
1,048
|
|
927
|
|
|
|
467
|
|
Eliminations
|
|
(193)
|
|
—
|
|
|
|
—
|
|
|
(152)
|
|
—
|
|
|
|
—
|
|
|
6,754
|
|
6,634
|
|
357
|
|
2,470
|
|
|
5,592
|
|
5,495
|
|
248
|
|
1,695
|
Asia
|
|
1,245
|
|
1,164
|
|
102
|
|
773
|
|
|
929
|
|
870
|
|
73
|
|
664
|
Rest of World
|
|
192
|
|
192
|
|
(16)
|
|
65
|
|
|
258
|
|
258
|
|
(12)
|
|
69
|
Corporate and Other
|
|
(245)
|
|
2
|
|
11
|
|
415
|
|
|
(208)
|
|
2
|
|
21
|
|
370
|
Total reportable
segments
|
|
18,343
|
|
18,343
|
|
1,487
|
|
6,838
|
|
|
15,905
|
|
15,905
|
|
1,308
|
|
5,406
|
Other income, net
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
57
|
|
|
Interest expense, net
|
|
|
|
|
|
(45)
|
|
|
|
|
|
|
|
|
(18)
|
|
|
|
$
|
18,343
|
$
|
18,343
|
$
|
1,442
|
|
6,838
|
|
$
|
15,905
|
$
|
15,905
|
$
|
1,347
|
|
5,406
|
Current assets
|
|
|
|
|
|
|
|
10,557
|
|
|
|
|
|
|
|
|
10,851
|
Investments, goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other assets
|
|
|
|
|
|
|
|
5,191
|
|
|
|
|
|
|
|
|
2,310
|
Consolidated total assets
|
|
|
|
|
|
|
$
|
22,586
|
|
|
|
|
|
|
$
|
|
18,567
|
18. SUBSEQUENT EVENT
On July 15, 2016, the Company
established a U.S. commercial paper program [the "U.S.
Program"]. Under the U.S. Program, the Company may issue U.S.
commercial paper notes [the "U.S. notes"] up to a maximum aggregate
amount of U.S. $500 million.
The U.S. Program will be backstopped by Company's existing global
credit facility. The proceeds from the issuance of any U.S.
notes will be used for general corporate purposes.
SOURCE Magna International Inc.