AURORA, ON, Feb. 25, 2015 /CNW/ - Magna International Inc.
(TSX: MG; NYSE: MGA) today reported financial results for the
fourth quarter and year ended December
31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
DECEMBER 31, |
|
YEAR ENDED
DECEMBER 31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
9,396 |
|
$ |
9,174 |
|
$ |
36,641 |
|
$ |
34,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBIT(1) |
|
$ |
712 |
|
$ |
607 |
|
$ |
2,632 |
|
$ |
2,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes |
|
$ |
677 |
|
$ |
514 |
|
$ |
2,539 |
|
$ |
1,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International
Inc. |
|
$ |
509 |
|
$ |
458 |
|
$ |
1,882 |
|
$ |
1,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.44 |
|
$ |
2.03 |
|
$ |
8.69 |
|
$ |
6.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
All results are reported in millions of U.S. dollars, except per
share figures, which are in U.S. dollars.
(1) We believe Adjusted EBIT is the most
appropriate measure of operational profitability or loss of our
reporting segments.
Adjusted EBIT represents income from operations before taxes;
interest expense, net; and other expense, net. |
THREE MONTHS ENDED DECEMBER 31, 2014
We posted sales of $9.40
billion for the fourth quarter ended December 31, 2014, an increase of 2% over the
fourth quarter of 2013. We achieved this sales increase in a period
when vehicle production increased 5% in North America and 3% in Europe, both relative to the fourth quarter of
2013.
Complete vehicle assembly sales decreased 9% to
$721 million for the fourth quarter
of 2014 compared to $788 million
for the fourth quarter of 2013, while complete vehicle assembly
volumes decreased 10% to approximately 33,000 units.
For the fourth quarter of 2014, adjusted EBIT
increased 17% to $712 million
compared to $607 million for the
fourth quarter of 2013.
For the fourth quarter of 2014, income from
operations before income taxes was $677
million, net income attributable to Magna International Inc.
was $509 million and diluted earnings
per share were $2.44, increases of
$163 million, $51 million and $0.41, respectively, each compared to the fourth
quarter of 2013.
Excluding other expense, net after tax and net
loss attributable to non-controlling interests, and excluding
certain tax items recorded in the fourth quarter of 2013, income
from operations before income taxes, net income attributable to
Magna International Inc. and diluted earnings per share increased
$97 million, $57 million and $0.44, respectively, in the fourth quarter of
2014 compared to the fourth quarter of 2013.
For the fourth quarter ended December 31, 2014, we generated cash from
operations of $881 million before
changes in operating assets and liabilities, and $118 million in operating assets and liabilities.
Total investment activities for the fourth quarter of 2014 were
$716 million, including $670 million in fixed asset additions,
$23 million in investments and other
assets and $23 million to purchase
subsidiaries.
YEAR ENDED DECEMBER 31,
2014
We posted sales of $36.64
billion for the year ended December
31, 2014, an increase of 5% over the year ended December 31, 2013. This higher sales level
reflected increases in our North
America, Europe and
Asia production sales as well as
higher tooling, engineering and other sales and complete vehicle
assembly sales, partially offset by lower Rest of World production
sales.
For the year ended December 31, 2014, vehicle production increased
5% to 17.0 million units in North
America and increased 4% to 20.1 million units in
Europe, each compared to 2013.
Complete vehicle assembly sales increased
modestly to $3.07 billion for the
year ended December 31, 2014 compared
to $3.06 billion for the year ended
December 31, 2013, while complete
vehicle assembly volumes decreased 8% to approximately 135,000
units.
For the year ended December 31, 2014, adjusted EBIT increased 27% to
$2.63 billion compared to
$2.07 billion for the year ended
December 31, 2013.
For the year ended December 31, 2014, income from operations before
income taxes was $2.54 billion, net
income attributable to Magna International Inc. was $1.88 billion and diluted earnings per share were
$8.69, increases of $634 million, $321
million and $1.93,
respectively, each compared to 2013.
Excluding other expense, net after tax and net
loss attributable to non-controlling interests and excluding
certain income tax items recorded in 2014 and 2013, income from
operations before income taxes, net income attributable to Magna
International Inc. and diluted earnings per share increased
$554 million, $356 million and $2.10, respectively, in 2014 compared to
2013.
For the year ended December 31, 2014, we generated cash from
operations before changes in operating assets and liabilities of
$3.04 billion, and used $245 million in operating assets and liabilities.
Total investment activities for 2014 were $1.78 billion, including $1.59 billion in fixed asset additions, a
$175 million increase in investments
and other assets and $23 million to
purchase subsidiaries.
Don Walker,
Magna's Chief Executive Officer stated: "We are pleased with last
year's strong financial performance, which was the direct result of
improved operating earnings in every reporting segment compared to
2013. While the recent strengthening of the U.S. dollar has
impacted our reported results, we remain optimistic about Magna's
future and continue to invest heavily in capital and innovation to
support our future growth in North
America, Europe and
Asia. This growth reinforces
the trust our customers place in Magna to be one of their key
supplier partners as they expand around the world."
A more detailed discussion of our consolidated
financial results for the fourth quarter and year ended
December 31, 2014 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.
STOCK SPLIT BY DIVIDEND AND DUE BILL TRADING
Our Board of Directors has approved a
two-for-one stock split of the Company's outstanding Common Shares.
The two-for-one stock split will be implemented by way of a stock
dividend. Subject to regulatory approval, shareholders will receive
one additional Common Share of the Company for each Common Share
held. The stock dividend will be payable on March 25, 2015, to shareholders of record at the
close of business on March 11,
2015.
The Company's Common Shares will commence
trading on a "due bill" basis, at the opening of business on
Monday, March 9, 2015 until
Wednesday, March 25, 2015,
inclusively. Accordingly, ex-dividend (post-split) trading in the
Common Shares will commence on the Toronto Stock Exchange ("TSX")
at the opening of business on Thursday,
March 26, 2015.
The TSX has been advised that trading in the
Common Shares on the New York Stock Exchange ("NYSE") from
March 9, 2015 until March 25, 2015, inclusively, will also be on a
"due bill" basis and that ex-distribution (post-split) trading in
the Common Shares will commence on the NYSE on March 26, 2015.
The Company is ascribing no monetary value to
the stock dividend. All equity-based compensation plans or
arrangements and our normal course issuer bid will be adjusted to
reflect the stock split. Shareholders should retain their existing
share certificates and not return their share certificates to the
Company or its transfer agent.
INCREASED QUARTERLY CASH DIVIDEND
Our Board of Directors also declared a quarterly
dividend with respect to our outstanding Common Shares for the
quarter ended December 31, 2014. The
Board increased the dividend by 16% to $0.44 per share ($0.22 per share after giving effect to the
two-for-one stock split referred to above). This dividend is
payable on March 27, 2015 to
shareholders of record on March 13,
2015.
Vince Galifi,
Magna's Chief Financial Officer, commented: "Our quarterly
dividend of $0.44, an increase of
16%, represents a record dividend rate for Magna. Our ongoing
actions to utilize our balance sheet to both grow our business and
return capital to shareholders reflect not only our significant
cash flow generation but the confidence our Board has in Magna's
future."
UPDATED 2015 OUTLOOK
|
|
|
|
|
Light Vehicle Production (Units) |
|
|
|
|
|
North America |
|
17.4 million |
|
|
|
Europe |
|
20.4 million |
|
|
|
|
|
|
|
Production Sales |
|
|
|
|
|
North America |
|
$17.4 billion - $18.0
billion |
|
|
|
Europe |
|
$8.3 billion - $8.7 billion |
|
|
|
Asia |
|
$1.9 billion - $2.1 billion |
|
|
|
Rest of World |
|
$0.6
billion - $0.7 billion |
|
|
|
Total Production Sales |
|
$28.2 billion - $29.5
billion |
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales |
|
$2.2 billion - $2.5 billion |
|
|
|
|
|
|
|
Total Sales |
|
$33.1 billion - $34.8
billion |
|
|
|
|
|
|
|
Operating Margin* |
|
Low to mid 7% range |
|
|
|
|
|
|
|
Tax Rate* |
|
25% - 26% |
|
|
|
|
|
|
|
Capital Spending |
|
$1.4 billion - $1.6 billion |
|
|
|
|
|
|
|
* Excluding other
expense (income), net |
In this outlook, in addition to 2015 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
313 manufacturing operations and 84 product development,
engineering and sales centres in 28 countries. We have
approximately 131,000 employees focused on delivering superior
value to our customers through innovative products, processes and
World Class Manufacturing. Our product capabilities include
producing body, chassis, interior, exterior, seating, powertrain,
electronic, vision, closure and roof systems and modules, as well
as complete vehicle engineering and contract manufacturing. Our
common shares trade on the Toronto Stock Exchange (MG) and the
New York Stock Exchange (MGA). For
further information about Magna, visit our website at
www.magna.com.
We will hold a conference call for interested analysts and
shareholders to discuss our fourth quarter and year end 2014
results on Wednesday, February 25, 2015 at 8:00 a.m. EST. The
conference call will be chaired by Donald J. Walker, Chief
Executive Officer. The number to use for this call is
1-800-658-7107. The number for overseas callers is 1-416-981-9095.
Please call in at least 10 minutes prior to the call. We will also
webcast the conference call at www.magna.com. The slide
presentation accompanying the conference call will be available on
our website Monday morning prior to the call. |
FORWARD-LOOKING STATEMENTS
This press release contains statements that constitute
"forward-looking statements" or "forward-looking information"
within the meaning of applicable securities legislation, including,
but not limited to, statements relating to: Magna's forecasts of
light vehicle production in North
America, Europe and
China; expected consolidated
sales, based on such light vehicle production volumes; production
sales, including expected split by segment, in its North America, Europe, Asia
and Rest of World segments for 2015; complete vehicle assembly
sales; consolidated operating margin, effective income tax rate;
and fixed asset expenditures. The forward-looking information in
this document is presented for the purpose of providing information
about management's current expectations and plans and such
information may not be appropriate for other purposes.
Forward-looking statements may include financial and other
projections, as well as statements regarding our future plans,
objectives or economic performance, or the assumptions underlying
any of the foregoing, and other statements that are not recitations
of historical fact. We use words such as "may", "would", "could",
"should", "will", "likely", "expect", "anticipate", "believe",
"intend", "plan", "forecast", "outlook", "project", "estimate" and
similar expressions suggesting future outcomes or events to
identify forward-looking statements. Any such forward-looking
statements are based on information currently available to us, and
are based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current
conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. However,
whether actual results and developments will conform with our
expectations and predictions is subject to a number of risks,
assumptions and uncertainties, many of which are beyond our
control, and the effects of which can be difficult to predict,
including, without limitation: the impact of economic or political
conditions on consumer confidence, consumer demand for vehicles and
vehicle production; fluctuations in relative currency values;
restructuring, downsizing and/or other significant non-recurring
costs; continued underperformance of one or more of our operating
Divisions; ongoing pricing pressures, including our ability to
offset price concessions demanded by our customers; our ability to
successfully launch material new or takeover business; shifts in
market share away from our top customers; inability to grow our
business with OEMs; shifts in market shares among vehicles or
vehicle segments, or shifts away from vehicles on which we have
significant content; risks of conducting business in foreign
markets, including China,
India, Russia, Eastern
Europe, Thailand,
Brazil, Argentina and other non-traditional markets
for us; a prolonged disruption in the supply of components to us
from our suppliers; shutdown of our or our customers' or
sub-suppliers' production facilities due to a labour disruption;
scheduled shutdowns of our customers' production facilities
(typically in the third and fourth quarters of each calendar year);
our ability to successfully compete with other automotive
suppliers; reduction in outsourcing by our customers or the
loss of a material production or assembly program; the termination
or non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; impairment charges related to goodwill and long-lived
assets; exposure to, and ability to offset, volatile commodities
prices; our ability to successfully identify, complete and
integrate acquisitions or achieve anticipated synergies; our
ability to conduct appropriate due diligence on acquisition
targets; warranty and recall costs; risk of production disruptions
due to natural disasters or other catastrophic events; the security
and reliability of our IT systems; pension liabilities; legal
claims and/or regulatory actions against us, including the ongoing
antitrust investigations being conducted by German and Brazilian
authorities; changes in our mix of earnings between jurisdictions
with lower tax rates and those with higher tax rates, as well as
our ability to fully benefit tax losses; other potential tax
exposures; changes in credit ratings assigned to us; changes in
laws and governmental regulations; costs associated with compliance
with environmental laws and regulations; liquidity risks as a
result of an unanticipated deterioration of economic conditions;
our ability to achieve future investment returns that equal or
exceed past returns; the unpredictability of, and fluctuation
in, the trading price of our Common Shares; and other factors set
out in our Annual Information Form filed with securities
commissions in Canada and our
annual report on Form 40-F filed with the United States Securities
and Exchange Commission, and subsequent filings. In evaluating
forward-looking statements, we caution readers not to place undue
reliance on any forward-looking statements and readers should
specifically consider the various factors which could cause actual
events or results to differ materially from those indicated by such
forward-looking statements. Unless otherwise required by applicable
securities laws, we do not intend, nor do we undertake any
obligation, to update or revise any forward-looking statements to
reflect subsequent information, events, results or circumstances or
otherwise.
For further information about Magna, please see our website
at www.magna.com. Copies of financial data and other
publicly filed documents are available through the internet on the
Canadian Securities Administrators' System for Electronic Document
Analysis and Retrieval (SEDAR) which can be accessed at
www.sedar.com and on the United States Securities and Exchange
Commission's Electronic Data Gathering, Analysis and Retrieval
System (EDGAR) which can be accessed at
www.sec.gov. |
MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations
and Financial Position
Unless otherwise noted, all amounts in this Management's
Discussion and Analysis of Results of Operations and Financial
Position ("MD&A") are in U.S. dollars and all tabular amounts
are in millions of U.S. dollars, except per share figures, which
are in U.S. dollars. When we use the terms "we", "us", "our" or
"Magna", we are referring to Magna International Inc. and its
subsidiaries and jointly controlled entities, unless the context
otherwise requires.
This MD&A should be read in conjunction with
the unaudited interim consolidated financial statements for the
three months and year ended December
31, 2014 included in this press release, and the
audited consolidated financial statements and MD&A for the year
ended December 31, 2013
included in our 2013 Annual Report to Shareholders.
This MD&A has been prepared as at
February 24, 2015.
OVERVIEW
We are a leading global automotive supplier with 313
manufacturing operations and 84 product development, engineering
and sales centres in 28 countries. We have approximately 131,000
employees focused on delivering superior value to our customers
through innovative products, processes and World Class
Manufacturing. Our product capabilities include producing body,
chassis, interior, exterior, seating, powertrain, electronic,
vision, closure and roof systems and modules, as well as complete
vehicle engineering and contract manufacturing. Our common shares
trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further
information about Magna, visit our website at www.magna.com.
HIGHLIGHTS
Operations
Global light vehicle production grew once again
in 2014, the fifth straight yearly increase following the 2008-2009
recession. In our two most significant markets, North American
light vehicle production increased 5% in 2014 to 17.0 million
units, and European light vehicle production rose 4% to 20.1
million units.
Our 2014 sales were a record $36.64 billion, an increase of 5% over 2013. Our
North America, Europe, and Asia production sales, as well as our tooling,
engineering and other sales all rose to record levels in 2014, and
complete vehicle assembly sales increased modestly over 2013.
Adjusted EBIT1 for 2014 was a record
$2.63 billion, compared to
$2.07 billion in 2013, representing
an increase of 27%.
In our North
America segment, 2014 was another year of excellent results.
Total sales increased 10% over 2013 to $19.71 billion, reflecting the launch of new
programs and higher North American light vehicle production.
Adjusted EBIT of $1.99 billion
increased 10% from 2013, excluding $158
million of amortization in 2013 related to the August 2012 acquisition of Magna E-Car Systems
Partnership ("E-Car"). This increase was mainly driven by our
higher sales in 2014.
In our Europe
segment, we continued to improve operating results. Total sales
declined modestly to $14.71 billion
from $14.72 billion in 2013. Adjusted
EBIT rose for the third consecutive year, up 16% to $434 million in 2014 compared to $375 million in 2013. The largest factors
contributing to the net increase in Adjusted EBIT were productivity
and efficiency improvements at certain facilities and the benefit
of restructuring and downsizing activities recently undertaken,
partially offset by higher launch costs, including inefficiencies
at certain interiors facilities in the United Kingdom.
In our Asia
segment, total sales increased $299
million or 18% in 2014 compared to 2013 mainly as a result
of the launch of new programs with Magna content, particularly in
China, together with higher light
vehicle production in Asia.
Adjusted EBIT was $162 million for
2014, an increase of 91% over $85
million in 2013. The higher Adjusted EBIT largely reflects
margins earned on the higher sales.
In our Rest of World segment, total sales
decreased 22% to $695 million, mainly
reflecting the impact of the weakening of foreign currencies
against the U.S. dollar, and lower production volumes on certain
vehicle programs. Our Rest of World Adjusted EBIT loss declined by
$41 million in 2014 to a loss of
$35 million largely through a
combination of productivity and efficiency improvements at certain
facilities and the benefit of restructuring and downsizing
activities recently undertaken.
1 We believe Adjusted EBIT is the
most appropriate measure of operational profitability or loss for
our reporting segments. Adjusted EBIT represents income from
operations before income taxes; interest expense, net; and other
expense, net.
Stock Split
On February 24,
2015, our Board of Directors approved a two-for-one stock
split, to be implemented by way of a stock dividend, whereby our
shareholders will receive an additional Common Share for each
Common Share held. The stock dividend will be payable on
March 25, 2015, to shareholders of
record at the close of business on March 11,
2015. All equity-based compensation plans or arrangements
and our normal course issuer bid (discussed below) will be adjusted
to reflect the stock split.
Capital Allocation
In early 2014, we announced our intention to
move towards a capital structure that we believe is appropriate for
our business, and also to reduce cash levels, while retaining
enough cash to manage our day-to-day needs throughout the year. We
expect to reach our desired cash and debt levels by the end of 2015
through a combination of investment in our business (predominantly
through capital spending and acquisitions) and return of capital to
shareholders (through dividends and repurchases of our Common
Shares). To this end:
- We invested $1.78 billion in our
business during 2014, including fixed assets, acquisitions,
investments and other assets.
- Aggregate dividends paid to shareholders in 2014 amounted to
$316 million. On February 24, 2015, our Board of Directors
declared a dividend of U.S. $0.44 per
share (U.S. $0.22 after giving effect
to the two-for-one stock split referred to above). This dividend
rate is a new record, representing an increase of 16% over the
third quarter of 2014 dividend.
- We repurchased 17.5 million shares in 2014, returning an
additional $1.78 billion to
shareholders. In November 2014, our
Board of Directors approved a new normal course issuer bid ("NCIB")
to purchase up to 20 million of our Common Shares (40 million
Common Shares after giving effect to the stock split), representing
approximately 9.7% of our public float of Common Shares.
Approximately 17.6 million shares (approximately 35.2 million
shares after giving effect to the stock split) remain available
under the current NCIB, which will terminate in November 2015.
- During the second quarter of 2014, we issued $750 million of 3.625% fixed-rate Senior Notes
which mature on June 15, 2024.
Going Forward
We anticipate another year of increased global
light vehicle production in 2015, including modest increases in
each of North America and
Europe, and further strong
production growth in China.
While we continue to launch additional business
on a large number of new programs around the world, the weakening
of a number of currencies, in particular the Canadian dollar and
the euro, each against our U.S. dollar reporting currency, is
expected to negatively impact our reported sales and earnings.
We remain positive about our operations around
the world, exclusive of currency translation. Continued strong
performance in a number of our facilities, improving
underperforming operations and launching a significant number of
new programs and facilities around the world together should
contribute meaningfully to consolidated sales and earnings in the
future.
FINANCIAL RESULTS SUMMARY
During 2014, we posted sales of $36.64 billion, an increase of 5% from 2013. This
higher sales level was a result of increases in our North American,
European and Asian production sales as well as complete vehicle
assembly sales and tooling, engineering and other sales partially
offset by lower Rest of World production sales. Comparing 2014 to
2013:
- North American vehicle production increased 5% and our North
American production sales increased 9% to $18.28 billion;
- European vehicle production increased 4% and our European
production sales increased 1% to $10.01
billion;
- Asian production sales increased 18% to $1.64 billion;
- Rest of World production sales decreased 22% to $668 million;
- Complete vehicle assembly volumes decreased 8% while sales
increased $5 million to $3.07 billion; and
- Tooling, engineering and other sales increased 5% to
$2.97 billion.
During 2014, we earned income from operations
before income taxes of $2.54 billion
compared to $1.91 billion for 2013.
Excluding other expense, net ("Other Expense") recorded in 2014 and
2013, as discussed in the "Other Expense" section, the $554 million increase in income from operations
before income taxes was primarily as a result of:
- margins earned on higher production sales;
- incremental margin earned on new programs that launched during
or subsequent to 2013;
- intangible asset amortization of $158
million, recorded in 2013, related to the acquisition and
re-measurement of E-Car;
- productivity and efficiency improvements at certain
facilities;
- the benefit of restructuring and downsizing activities recently
undertaken;
- higher equity income; and
- lower downsizing costs.
These factors were partially offset by:
- higher launch costs, including unanticipated costs at certain
interiors facilities;
- higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- a greater amount of employee profit sharing;
- operational inefficiencies and other costs at certain
facilities;
- approximately $15 million of
costs incurred, net of insurance recoveries, related to a fire at a
body and chassis facility in North
America;
- increased commodity costs;
- $10 million of cash received
related to the settlement of asset-backed commercial paper ("ABCP")
between the Investment Industry Regulatory Organization of
Canada and financial institutions
in the first quarter of 2013;
- higher warranty costs of $7
million;
- a favourable earn-out settlement during 2013 in Rest of
World;
- a $5 million net decrease in
valuation gains in respect of ABCP; and
- net customer price concessions subsequent to 2013.
During 2014, net income attributable to Magna
International Inc. was $1.88 billion,
an increase of $321 million compared
to 2013 and diluted earnings per share increased $1.93 to $8.69 for
2014 compared to $6.76 for 2013.
Other Expense, after tax and the Austrian Tax Reform and Deferred
Tax Adjustments, as discussed in the "Other Expense" and "Income
Taxes" sections, respectively, impacted net income attributable to
Magna International Inc. and diluted earnings per share as
follows:
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
Net Income
Attributable
to Magna |
|
|
Diluted
Earnings
per Share |
|
|
Net Income
Attributable
to Magna |
|
|
Diluted
Earnings
per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense |
|
|
|
|
|
$ |
64 |
|
|
$ |
0.29 |
|
|
$ |
144 |
|
|
0.63 |
Income tax effect: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
|
|
|
|
(11) |
|
|
|
(0.05) |
|
|
|
(28) |
|
|
(0.12) |
|
Austrian tax
reform |
|
|
|
|
|
|
32 |
|
|
|
0.15 |
|
|
|
- |
|
|
- |
|
Deferred tax
adjustments |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(57) |
|
|
(0.25) |
Net income
impact |
|
|
|
|
|
|
85 |
|
|
|
0.39 |
|
|
|
59 |
|
|
0.26 |
Non-controlling
interests |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(9) |
|
|
(0.04) |
|
|
|
|
|
|
$ |
85 |
|
|
$ |
0.39 |
|
|
$ |
50 |
|
|
0.22 |
Excluding, from the proceeding table, the negative
impact for 2014 and 2013 of $85
million and $50 million,
respectively, net income attributable to Magna International Inc.
for 2014 increased $356 million
compared to 2013.
Excluding, from the proceeding table, the
$0.39 and the $0.22 per share negative impact for 2014 and
2013, respectively, diluted earnings per share increased
$2.10, as a result of the increase in
net income attributable to Magna International Inc. and a decrease
in the weighted average number of diluted shares outstanding during
2014. The decrease in the weighted average number of diluted shares
outstanding was due to the purchase and cancellation of Common
Shares, during or subsequent to 2013, pursuant to our normal course
issuer bids partially offset by an increase in the number of
diluted options outstanding as a result of an increase in the
trading price of our common stock and the issue of Common Shares
related to the exercise of stock options.
INDUSTRY TRENDS AND RISKS
A number of general trends which have been impacting the
automotive industry and our business in recent years are expected
to continue, including the following:
- the consolidation of vehicle platforms and proliferation of
high-volume platforms supporting multiple vehicles and produced in
multiple locations;
- the long-term growth of the automotive industry in China, India
and other high-growth/low cost markets, including accelerated
movement of component and vehicle design, development, engineering
and manufacturing to certain of these markets;
- the growth of the B to D vehicle segments (subcompact to
mid-size cars), particularly in developing markets;
- the extent to which innovation in the automotive industry is
being driven by governmental regulation of fuel economy and carbon
dioxide/greenhouse gas emissions, vehicle safety and vehicle
recyclability;
- the growth of cooperative alliances and arrangements among
competing automotive OEMs, including shared purchasing of
components; joint engine, powertrain and/or platform development;
engine, powertrain and platform sharing; and joint vehicle
hybridization and electrification initiatives and other forms of
cooperation;
- the growing importance of electronics in the automotive value
chain;
- the consolidation of automotive suppliers; and
- the exertion of pricing pressure by OEMs.
The following are some of the more significant
risks that could affect our ability to achieve our desired
results:
- The global automotive industry is cyclical. A worsening of
economic and political conditions, including through rising
interest rates or inflation, rising unemployment, increasing energy
prices, declining real estate values, increased volatility in
global capital markets, international conflicts, sovereign debt
concerns, an increase in protectionist measures and/or other
factors, may result in lower consumer confidence, which has a
significant impact on consumer demand for vehicles. Vehicle
production is closely related to consumer demand. A significant
decline in production volumes from current levels could have a
material adverse effect on our profitability.
- Although our financial results are reported in U.S. dollars, a
significant portion of our sales and operating costs are realized
in Canadian dollars, euros, British pounds and other currencies.
Our profitability is affected by movements of the U.S. dollar
against the Canadian dollar, the euro, the British pound and other
currencies in which we generate revenues and incur expenses.
Significant long-term fluctuations in relative currency values, in
particular a significant change in the relative values of the U.S.
dollar, Canadian dollar, euro or British pound, could have an
adverse effect on our profitability and financial condition and any
sustained change in such relative currency values could adversely
impact our competitiveness in certain geographic regions.
- The automotive industry has in recent years been the subject of
increased government enforcement of antitrust and competition laws,
particularly by the United States Department of Justice and the
European Commission. Currently, investigations are being conducted
in several product areas, and these regulators or those in other
jurisdictions could choose to initiate investigations in these or
other product areas.
In September 2013, representatives of
the Bundeskartellamt, the German Federal Cartel Office, attended at
one of the Company's operating Divisions in Germany to obtain information in connection
with an ongoing antitrust investigation relating to suppliers of
automotive textile coverings and components, particularly trunk
linings.
In September 2014, the Conselho
Administrativo de Defesa Economica, Brazil's Federal competition authority,
attended at one of the Company's operating divisions in
Brazil to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years.
Where wrongful conduct is found, the relevant antitrust authority
can, depending on the jurisdiction, initiate administrative or
criminal legal proceedings and impose administrative or criminal
fines or penalties taking into account several mitigating and
aggravating factors.
In the case of the German Federal Cartel Office, absent aggravating
factors, the maximum fine under the guidelines is typically 10% of
the affected sales for the infringement period multiplied by a
factor based on the consolidated sales of the group of companies to
which the offending entity belongs. If applied to a company with
Magna's level of consolidated sales, this factor is approximately
five, which could result in a maximum fine of approximately 50% of
the affected sales for the relevant period. Additional information
regarding these guidelines is publicly available on the German
Federal Cartel Office's website. At this time, management is unable
to predict the duration or outcome of the German and Brazilian
investigations, including whether any operating divisions of the
Company will be found liable for any violation of law or the extent
or magnitude of any liability, if found to be liable.
The Company's policy is to comply with all applicable laws,
including antitrust and competition laws. The Company has initiated
a global review focused on antitrust risk led by a team of external
counsel. If any antitrust violation is found as a result of the
above-referenced investigations or otherwise, Magna could be
subject to fines, penalties and civil, administrative or criminal
legal proceedings that could have a material adverse effect on
Magna's profitability in the year in which any such fine or penalty
is imposed or the outcome of any such proceeding is determined.
Additionally, Magna could be subject to other consequences,
including reputational damage, which could have a material adverse
effect on the Company.
- We may sell some product lines and/or downsize, close or sell
some of our operating divisions. By taking such actions, we may
incur restructuring, downsizing and/or other significant
non-recurring costs. These costs may be higher in some countries
than others and could have a material adverse effect on our
profitability.
- Although we are working to turn around financially
underperforming operating divisions, there is no guarantee that we
will be successful in doing so in the short to medium term or that
the expected improvements will be fully realized or realized at
all. The continued underperformance of one or more operating
divisions could have a material adverse effect on our profitability
and operations.
- We face ongoing pricing pressure from OEMs, including through:
long-term supply agreements with mutually agreed price reductions
over the life of the agreement; incremental annual price concession
demands; pressure to absorb costs related to product design,
engineering and tooling and other items previously paid for
directly by OEMs; pressure to assume or offset commodities cost
increases; and refusal to fully offset inflationary price
increases. OEMs possess significant leverage over their suppliers
as a result of their purchasing power and the highly competitive
nature of the automotive supply industry. As a result of the broad
portfolio of parts we supply to our six major OEM customers, such
customers may be able to exert greater leverage over us as compared
to our competitors. We attempt to offset price concessions and
costs in a number of ways, including through negotiations with our
customers, improved operating efficiencies and cost reduction
efforts. Our inability to fully offset price concessions or costs
previously paid for by OEMs could have a material adverse effect on
our profitability.
- The launch of new business is a complex process, the success of
which depends on a wide range of factors, including the production
readiness of our and our suppliers' manufacturing facilities and
manufacturing processes, as well as factors related to tooling,
equipment, employees, initial product quality and other factors.
Our failure to successfully launch material new or takeover
business could have an adverse effect on our profitability.
- Although we supply parts to all of the leading OEMs, a
significant majority of our sales are to six customers: General
Motors, Fiat-Chrysler, Ford, BMW, Daimler and Volkswagen. While we
have diversified our customer base somewhat in recent years and
continue to attempt to further diversify, there is no assurance we
will be successful. Shifts in market share away from our top
customers could have a material adverse effect on our
profitability.
- While we supply parts for a wide variety of vehicles produced
globally, we do not supply parts for all vehicles produced, nor is
the number or value of parts evenly distributed among the vehicles
for which we do supply parts. Shifts in market shares among
vehicles or vehicle segments, particularly shifts away from
vehicles on which we have significant content and shifts away from
vehicle segments in which our sales may be more heavily
concentrated, could have a material adverse effect on our
profitability.
- In light of the amount of business we currently have with our
largest customers in North America
and Europe, our opportunities for
incremental growth with these customers may be limited. The amount
of business we have with Asian-based OEMs, including Toyota,
Nissan, Hyundai/Kia and Honda, generally lags that of our largest
customers, due in part to the existing relationships between such
Asian-based OEMs and their preferred suppliers. There is no
certainty that we can achieve growth with Asian-based OEMs, nor
that any such growth will offset slower growth we may experience
with our largest customers in North
America and Europe. As a
result, our inability to grow our business with OEMs could have a
material adverse effect on our profitability.
- While we continue to expand our manufacturing footprint with a
view to taking advantage of opportunities in markets such as
China, India, Eastern
Europe, Thailand,
Brazil and other non-traditional
markets for us, we cannot guarantee that we will be able to fully
realize such opportunities. Additionally, the establishment of
manufacturing operations in new markets carries its own risks,
including those relating to: political, civil and economic
instability and uncertainty; corruption risks; high inflation and
our ability to recover inflation-related cost increases; trade,
customs and tax risks; expropriation risks; currency exchange
rates; currency controls; limitations on the repatriation of funds;
insufficient infrastructure; competition to attract and retain
qualified employees; and other risks associated with conducting
business internationally. Expansion of our business in
non-traditional markets is an important element of our strategy
and, as a result, our exposure to the risks described above may be
greater in the future. The likelihood of such occurrences and their
potential effect on us vary from country to country and are
unpredictable, however, the occurrence of any such risks could have
an adverse effect on our operations, financial condition and
profitability.
- A disruption in the supply of components to us from our
suppliers could cause the temporary shut-down of our or our
customers' production lines. Any prolonged supply disruption,
including due to the inability to re-source or in-source
production, could have a material adverse effect on our
profitability.
- Some of our manufacturing facilities are unionized, as are many
manufacturing facilities of our customers and suppliers. Unionized
facilities are subject to the risk of labour disruptions from time
to time, including as a result of restructuring actions taken by
us, our customers and other suppliers. We cannot predict whether or
when any labour disruption may arise, or how long such a disruption
could last. A significant labour disruption could lead to a lengthy
shutdown of our or our customers' and/or our suppliers' production
lines, which could have a material adverse effect on our operations
and profitability.
- Our business is generally not seasonal. However, our sales and
profits are closely related to our automotive customers' vehicle
production schedules. Our largest North American customers
typically halt production for approximately two weeks in July and
one week in December. In addition, many of our customers in
Europe typically shut down vehicle
production during portions of August and one week in December.
These scheduled shutdowns of our customers' production facilities
could cause our sales and profitability to fluctuate when comparing
fiscal quarters in any given year.
- The automotive supply industry is highly competitive. As a
result of our diversified automotive business, some competitors in
each of our product capabilities have greater market share than we
do, or increasing market share in product areas which are
experiencing higher growth rates. As the trend towards
consolidation of automotive suppliers continues, we expect our
competitors will be larger and have greater access to financial and
other resources than is currently the case. Failure to successfully
compete with existing or new competitors could have an adverse
effect on our operations and profitability.
- We depend on the outsourcing of components, modules and
assemblies, as well as complete vehicles, by OEMs. The extent of
OEM outsourcing is influenced by a number of factors, including:
relative cost, quality and timeliness of production by suppliers as
compared to OEMs; capacity utilization; OEMs' perceptions regarding
the strategic importance of certain components/modules to them;
labour relations among OEMs, their employees and unions; and other
considerations. A reduction in outsourcing by OEMs, or the loss of
any material production or assembly programs combined with the
failure to secure alternative programs with sufficient volumes and
margins, could have a material adverse effect on our
profitability.
- Contracts from our customers consist of blanket purchase orders
which generally provide for the supply of components for a
customer's annual requirements for a particular vehicle, instead of
a specific quantity of products. These blanket purchase orders can
be terminated by a customer at any time and, if terminated, could
result in our incurring various pre-production, engineering and
other costs which we may not recover from our customer and which
could have an adverse effect on our profitability.
- We continue to invest in technology and innovation which we
believe will be critical to our long-term growth. Our ability to
anticipate changes in technology and to successfully develop and
introduce new and enhanced products and/or manufacturing processes
on a timely basis will be a significant factor in our ability to
remain competitive. If we are unsuccessful or are less successful
than our competitors in consistently developing innovative products
and/or processes, we may be placed at a competitive disadvantage,
which could have a material adverse effect on our profitability and
financial condition.
- We recorded significant impairment charges related to goodwill
and long-lived assets in recent years and may continue to do so in
the future. The early termination, loss, renegotiation of the terms
of, or delay in the implementation of, any significant production
contract could be indicators of impairment. In addition, to the
extent that forward-looking assumptions regarding: the impact of
turnaround plans on underperforming operations; new business
opportunities; program price and cost assumptions on current and
future business; the timing and success of new program launches;
and forecast production volumes; are not met, any resulting
impairment loss could have a material adverse effect on our
profitability.
- Prices for certain key raw materials and commodities used in
our parts, including steel and resin, continue to be volatile. To
the extent we are unable to offset commodity price increases by
passing such increases to our customers, by engineering products
with reduced commodity content, through hedging strategies, or
otherwise, such additional commodity costs could have an adverse
effect on our profitability.
- We intend to continue to pursue acquisitions in those product
areas which we have identified as key to our business strategy.
However, we may not be able to identify suitable acquisition
targets or successfully acquire any suitable targets which we
identify. Additionally, we may not be able to successfully
integrate or achieve anticipated synergies from those acquisitions
which we do complete, and/or such acquisitions may be dilutive in
the short to medium term, which could have a material adverse
effect on our profitability.
- Although we seek to conduct appropriate levels of due diligence
of our acquisition targets, these efforts may not always prove to
be sufficient in identifying all risks and liabilities related to
the acquisition, including as a result of limited access to
information, time constraints for conducting due diligence,
inability to access target company facilities and/or personnel or
other limitations on the due diligence process. As a result, we may
become subject to liabilities or risks not discovered through our
due diligence efforts, which could have a material adverse effect
on our profitability.
- Our customers continue to demand that we bear the cost of the
repair and replacement of defective products which are either
covered under their warranty or are the subject of a recall by
them. Warranty provisions are established based on our best
estimate of the amounts necessary to settle existing or probable
claims on product defect issues. Recall costs are costs incurred
when government regulators and/or our customers decide to recall a
product due to a known or suspected performance issue and we are
required to participate either voluntarily or involuntarily.
Currently, under most customer agreements, we only account for
existing or probable warranty claims. Under certain complete
vehicle engineering and assembly contracts, we record an estimate
of future warranty-related costs based on the terms of the specific
customer agreements and the specific customer's warranty
experience. While we possess considerable historical warranty and
recall data and experience with respect to the products we
currently produce, we have little or no warranty and recall data
which allows us to establish accurate estimates of, or provisions
for, future warranty or recall costs relating to new products,
assembly programs or technologies being brought into production or
acquired by us. The obligation to repair or replace such products
could have a material adverse effect on our profitability and
financial condition.
- Our manufacturing facilities are subject to risks associated
with natural disasters or other catastrophic events, including
fires, floods, hurricanes and earthquakes. The occurrence of any of
these disasters could cause the total or partial destruction of a
manufacturing facility, thus preventing us from supplying products
to our customers and disrupting production at their facilities for
an indeterminate period of time. The inability to promptly resume
the supply of products following a natural disaster or catastrophic
event at a manufacturing facility could have a material adverse
effect on our operations and profitability.
- The reliability and security of our information technology (IT)
systems is important to our business and operations. Although we
have established and continue to enhance security controls intended
to protect our IT systems and infrastructure, there is no guarantee
that such security measures will be effective in preventing
unauthorized physical access or cyber-attacks. A significant breach
of our IT systems could: cause disruptions in our manufacturing
operations; lead to the loss, destruction or inappropriate use of
sensitive data; or result in theft of our or our customers'
intellectual property or confidential information. If any of the
foregoing events occurs, we may be subject to a number of
consequences, including reputational damage, which could have a
material adverse effect on our Company.
- Some of our current and former employees in Canada and the
United States participate in defined benefit pension plans.
Although these plans have been closed to new participants, existing
participants in Canada continue to
accrue benefits. Our defined benefit pension plans are not fully
funded and our pension funding obligations could increase
significantly due to a reduction in the funding status caused by a
variety of factors, including: weak performance of capital markets;
declining interest rates; failure to achieve sufficient investment
returns; investment risks inherent in the investment portfolios of
the plans; and other factors. A significant increase in our pension
funding obligations could have a material adverse effect on our
profitability and financial condition.
- From time to time, we may become involved in regulatory
proceedings, or become liable for legal, contractual and other
claims by various parties, including customers, suppliers, former
employees, class action plaintiffs and others. Depending on the
nature or duration of any potential proceedings or claims, we may
incur substantial costs and expenses and may be required to devote
significant management time and resources to the matters. On an
ongoing basis, we attempt to assess the likelihood of any adverse
judgments or outcomes to these proceedings or claims, although it
is difficult to predict final outcomes with any degree of
certainty. Except as disclosed from time to time in our
consolidated financial statements and/or our MD&A, we do not
believe that any of the proceedings or claims to which we are party
will have a material adverse effect on our profitability, however,
we cannot provide any assurance to this effect.
- We have incurred losses in some countries which we may not be
able to fully or partially offset against income we have earned in
those countries. In some cases, we may not be able to utilize these
losses at all if we cannot generate profits in those countries
and/or if we have ceased conducting business in those countries
altogether. Our inability to utilize tax losses could materially
adversely affect our profitability. At any given time, we may face
other tax exposures arising out of changes in tax or transfer
pricing laws, tax reassessments or otherwise. To the extent we
cannot implement measures to offset these exposures, they may have
a material adverse effect on our profitability.
- We believe we will have sufficient financial resources
available to successfully execute our business plan, even in the
event of another global recession similar to that of 2008-2009.
However, as a result of the reduction of our excess cash in
connection with our balance sheet strategy, we may have less
financial flexibility than we have had in the last few years. The
occurrence of an economic shock not contemplated in our business
plan, a rapid deterioration of economic conditions or a more
prolonged recession than that experienced in 2008-2009 could result
in the depletion of our cash resources, which could have a material
adverse effect on our operations and financial condition.
- In recent years, we have invested significant amounts of money
in our business through capital expenditures to support new
facilities, expansion of existing facilities, purchases of
production equipment and acquisitions. Returns achieved on such
investments in the past are not necessarily indicative of the
returns we may achieve on future investments and our inability to
achieve returns on future investments which equal or exceed returns
on past investments could have a material adverse effect on our
level of profitability.
- Trading prices of our Common Shares cannot be predicted and may
fluctuate significantly due to a variety of factors, many of which
are outside our control, including: general economic and stock
market conditions; variations in our operating results and
financial condition; differences between our actual operating and
financial results and those expected by investors and stock
analysts; changes in recommendations made by stock analysts,
whether due to factors relating to us, our customers, the
automotive industry or otherwise; significant news or events
relating to our primary customers, including the release of vehicle
production and sales data; investor and stock analyst perceptions
about the prospects for our or our primary customers' respective
businesses or the automotive industry; and other factors.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
|
|
|
|
|
For the three months |
|
|
|
For the year |
|
|
|
|
|
|
ended
December 31, |
|
|
|
ended
December 31, |
|
|
|
|
|
|
2014 |
|
|
|
2013 |
|
|
Change |
|
|
|
2014 |
|
|
|
2013 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Canadian dollar equals U.S.
dollars |
|
|
|
|
|
0.881 |
|
|
|
0.953 |
|
|
- 8% |
|
|
|
0.906 |
|
|
|
0.971 |
|
|
- 7% |
1 euro equals U.S. dollars |
|
|
|
|
|
1.250 |
|
|
|
1.361 |
|
|
- 8% |
|
|
|
1.330 |
|
|
|
1.328 |
|
|
- |
1 British pound equals U.S. dollars |
|
|
|
|
|
1.583 |
|
|
|
1.619 |
|
|
- 2% |
|
|
|
1.648 |
|
|
|
1.564 |
|
|
+ 5% |
The preceding table reflects the average foreign
exchange rates between the most common currencies in which we
conduct business and our U.S. dollar reporting currency. The
changes in these foreign exchange rates for the three months and
year ended December 31, 2014 impacted
the reported U.S. dollar amounts of our sales, expenses and
income.
The results of operations whose functional
currency is not the U.S. dollar are translated into U.S. dollars
using the average exchange rates in the table above for the
relevant period. Throughout this MD&A, reference is made to the
impact of translation of foreign operations on reported U.S. dollar
amounts where relevant.
Our results can also be affected by the impact
of movements in exchange rates on foreign currency transactions
(such as raw material purchases or sales denominated in foreign
currencies). However, as a result of hedging programs employed by
us, foreign currency transactions in the current period have not
been fully impacted by movements in exchange rates. We record
foreign currency transactions at the hedged rate where
applicable.
Finally, foreign exchange gains and losses on
revaluation and/or settlement of monetary items denominated in a
currency other than an operation's functional currency impact
reported results. These gains and losses are recorded in selling,
general and administrative expense.
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2014
Sales
|
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
|
|
ended
December 31, |
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes
(millions of units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
17.019 |
|
|
|
|
16.180 |
|
|
|
|
+ 5% |
|
Europe |
|
|
|
|
|
20.086 |
|
|
|
|
19.348 |
|
|
|
|
+ 4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
$ |
18,282 |
|
|
|
$ |
16,744 |
|
|
|
|
+ 9% |
|
|
Europe |
|
|
|
|
|
10,013 |
|
|
|
|
9,957 |
|
|
|
|
+ 1% |
|
|
Asia |
|
|
|
|
|
1,640 |
|
|
|
|
1,391 |
|
|
|
|
+ 18% |
|
|
Rest of World |
|
|
|
|
|
668 |
|
|
|
|
858 |
|
|
|
|
- 22% |
|
Complete Vehicle
Assembly |
|
|
|
|
|
3,067 |
|
|
|
|
3,062 |
|
|
|
|
- |
|
Tooling, Engineering and
Other |
|
|
|
|
|
2,971 |
|
|
|
|
2,823 |
|
|
|
|
+ 5% |
Total Sales |
|
|
|
|
$ |
36,641 |
|
|
|
$ |
34,835 |
|
|
|
|
+ 5% |
External Production Sales - North
America
External production sales in North America increased 9% or $1.54 billion to $18.28
billion for 2014 compared to $16.74
billion for 2013, primarily as a result of:
- the launch of new programs during or subsequent to 2013,
including the:
-
- Jeep Cherokee;
- GM full-size pickups and SUVs;
- Lincoln MKC;
- Nissan Rogue; and
- BWM X4; and
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a $433 million decrease in
reported U.S. dollar sales primarily as a result of the weakening
of the Canadian dollar against the U.S. dollar;
- programs that ended production during or subsequent to 2013;
and
- net customer price concessions subsequent to 2013.
External Production Sales - Europe
External production sales in Europe increased 1% or $56 million to $10.01
billion for 2014 compared to $9.96
billion for 2013, primarily as a result of:
- the launch of new programs during or subsequent to 2013,
including the:
-
- Mercedes-Benz GLA;
- Porsche Macan;
- Skoda Octavia;
- Mercedes-Benz A-Class;
- Range Rover Sport; and
- Mercedes-Benz S-Class.
This factor was partially offset by:
- lower production volumes on certain existing programs;
- a decrease in content on certain programs, including the MINI
Cooper and the Mercedes-Benz C-Class;
- programs that ended production during or subsequent to
2013;
- a $45 million decrease in
reported U.S. dollar sales primarily as a result of the net
weakening of foreign currencies against the U.S. dollar, including
the Russian ruble; and
- net customer price concessions subsequent to 2013.
External Production Sales - Asia
External production sales in Asia increased 18% or $249 million to $1.64
billion for 2014 compared to $1.39
billion for 2013, primarily as a result of:
- the launch of new programs during or subsequent to 2013,
primarily in China, India and South
Korea, including the Audi Q3 and the Ford EcoSport; and
- higher production volumes on certain existing programs.
These factors were partially offset by net
customer price concessions subsequent to 2013.
External Production Sales - Rest of
World
External production sales in Rest of World
decreased 22% or $190 million to
$668 million for 2014 compared to
$858 million for 2013, primarily as a
result of:
- a $108 million decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the Argentine peso
and Brazilian real;
- lower production volumes on certain existing programs;
- programs that ended production during or subsequent to 2013;
and
- a decrease in content on certain programs, including the
Mercedes-Benz C-Class.
These factors were partially offset by:
- the launch of new programs during or subsequent to 2013,
primarily in Brazil; and
- net customer price increases subsequent to 2013.
Complete Vehicle Assembly Sales
|
|
|
|
|
For the
year |
|
|
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
Change |
Complete Vehicle Assembly Sales |
|
|
|
|
$ |
3,067 |
|
|
|
$ |
3,062 |
|
|
|
- |
Complete Vehicle Assembly
Volumes (Units) |
|
|
|
|
|
135,126 |
|
|
|
|
146,566 |
|
|
|
- 8% |
Complete vehicle assembly sales increased
$5 million, to $3.07 billion for 2014 compared to $3.06 billion for 2013 while assembly
volumes decreased 8% or 11,440 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;
and
- an $11 million increase in
reported U.S. dollar sales as a result of the strengthening of the
euro against the U.S. dollar.
These factors were partially offset by a
decrease in assembly volumes for the MINI Paceman and the Peugeot
RCZ.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased
5% or $148 million to $2.97 billion for 2014 compared to $2.82 billion for 2013.
In 2014, the major programs for which we
recorded tooling, engineering and other sales were the:
- Ford Transit;
- MINI Countryman;
- Ford F-Series and F-Series Super Duty;
- QOROS 3;
- Ford Mustang;
- BMW X6;
- Mercedes-Benz M-Class;
- BMW X4; and
- Porsche Panamera.
In 2013, the major programs for which we recorded tooling,
engineering and other sales were the:
- GM full-size pickups and SUVs;
- Ford Transit;
- QOROS 3;
- Ford Fusion;
- Mercedes-Benz M-Class;
- MINI Countryman;
- Skoda Octavia;
- MINI Cooper;
- MINI Paceman; and
- Jeep Grand Cherokee.
In addition, tooling, engineering and other
sales decreased as a result of the weakening of certain foreign
currencies against the U.S dollar, including the Canadian dollar
and Russian ruble.
Cost of Goods Sold and Gross
Margin
|
|
|
|
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
ended
December 31, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
$ |
36,641 |
|
|
|
$ |
34,835 |
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material |
|
|
|
|
|
|
|
|
23,344 |
|
|
|
|
22,293 |
|
Direct labour |
|
|
|
|
|
|
|
|
2,310 |
|
|
|
|
2,272 |
|
Overhead |
|
|
|
|
|
|
|
|
5,969 |
|
|
|
|
5,722 |
|
|
|
|
|
|
|
|
|
31,623 |
|
|
|
|
30,287 |
Gross margin |
|
|
|
|
|
|
|
$ |
5,018 |
|
|
|
$ |
4,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a
percentage of sales |
|
|
|
|
|
|
|
|
13.7% |
|
|
|
|
13.1% |
Cost of goods sold increased $1.34 billion to $31.62
billion for 2014 compared to $30.29
billion for 2013 primarily as a result of:
- higher material, overhead and labour costs associated with the
increase in sales, including wage increases at certain
operations;
- higher launch costs, including unanticipated costs at certain
interiors facilities;
- increased pre-operating costs incurred at new facilities;
and
- a greater amount of employee profit sharing.
These factors were partially offset by:
- a decrease in cost of goods sold as a result of the net
weakening of foreign currencies against the U.S. dollar, including
the weakening of the Canadian dollar, Russian ruble, Argentine peso
and Brazilian real partially offset by the strengthening of the
British pound and euro; and
- productivity and efficiency improvements at certain
facilities.
Gross margin increased $470
million to $5.02 billion for
2014 compared to $4.55 billion for
2013 and gross margin as a percentage of sales increased to 13.7%
for 2014 compared to 13.1% for 2013. The increase in gross margin
as a percentage of sales was primarily due to:
- productivity and efficiency improvements at certain facilities;
and
- a decrease in the proportion of complete vehicle assembly sales
relative to total sales, which have a higher material content than
our consolidated average.
These factors were partially offset by:
- higher launch costs, including unanticipated costs at certain
interiors facilities;
- operational inefficiencies and other costs at certain
facilities;
- increased pre-operating costs incurred at new facilities;
- a greater amount of employee profit sharing;
- an increase in tooling, engineering and other sales that have
low or no margins;
- increased commodity costs; and
- higher warranty costs.
Depreciation and Amortization
Depreciation and amortization costs decreased
$173 million to $0.89 billion for 2014 compared to
$1.06 billion for 2013. The
lower depreciation and amortization was primarily as a result
of:
- intangible asset amortization of $158
million recorded in 2013 related to the acquisition and
re-measurement of E-Car; and
- a decrease in reported U.S. dollar depreciation and
amortization primarily as a result of the weakening of the Canadian
dollar and Russian ruble, each against the U.S. dollar.
Selling, General and Administrative
("SG&A")
SG&A expense as a percentage of sales was
4.7% for 2014 compared to 4.6% for 2013. SG&A expense increased
$91 million to $1.71 billion for 2014 compared to $1.62 billion for 2013 primarily as a result
of:
- higher incentive compensation;
- higher labour and other costs to support the growth in sales,
including wage increases at certain operations;
- increased costs incurred at new facilities;
- $10 million of cash received
related to the settlement of ABCP between the Investment Industry
Regulatory Organization of Canada
and financial institutions in 2013;
- a $5 million net decrease in
revaluation gains in respect of ABCP; and
- a greater amount of employee profit sharing.
Equity Income
Equity income increased $15 million to $211
million for 2014 compared to $196
million for 2013.
Other Expense, net
During 2014 and 2013, we recorded Other Expense
items as follows:
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
Net
Income |
|
Diluted |
|
|
|
|
|
Net Income |
|
Diluted |
|
|
|
|
Operating |
|
Attributable |
|
Earnings |
|
|
Operating |
|
Attributable |
|
Earnings |
|
|
|
|
Income |
|
to Magna |
|
per Share |
|
|
Income |
|
to Magna |
|
per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
|
|
$ |
6 |
|
$ |
5 |
|
$ |
0.02 |
|
|
$ |
35 |
|
$ |
25 |
|
$ |
0.11 |
|
Impairment of long-lived assets
(1) |
|
|
|
|
18 |
|
|
12 |
|
|
0.06 |
|
|
|
33 |
|
|
21 |
|
|
0.09 |
|
Impairment of goodwill
(1) |
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
22 |
|
|
22 |
|
|
0.10 |
|
|
|
|
|
24 |
|
|
17 |
|
|
0.08 |
|
|
|
90 |
|
|
68 |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
(1) |
|
|
|
|
7 |
|
|
6 |
|
|
0.03 |
|
|
|
48 |
|
|
33 |
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
(1) |
|
|
|
|
11 |
|
|
10 |
|
|
0.05 |
|
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
(1) |
|
|
|
|
22 |
|
|
20 |
|
|
0.09 |
|
|
|
6 |
|
|
6 |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year other expense,
net |
|
|
|
$ |
64 |
|
$ |
53 |
|
$ |
0.24 |
|
|
$ |
144 |
|
$ |
107 |
|
$ |
0.47 |
(1) |
Restructuring and Impairment Charges |
|
|
|
[a] |
For the year ended December 31, 2014 |
|
|
|
|
|
(i) |
Restructuring |
|
|
|
|
|
|
|
During 2014, we recorded net restructuring charges of $46
million ($41 million after tax) in Europe at our exterior and
interior systems operations. |
|
|
|
|
|
|
|
During 2015, we expect to record additional restructuring
charges of approximately $40 million. |
|
|
|
|
|
|
(ii) |
Impairments of long-lived assets |
|
|
|
|
|
|
|
In conjunction with our annual business planning cycle, during
the fourth quarter of 2014, we recorded long-lived asset impairment
charges of $18 million ($12 million after tax). The impairment
related to fixed assets at an interiors operation in the United
States. |
|
|
|
|
|
[b] |
For the year ended December 31, 2013 |
|
|
|
|
|
(i) |
Restructuring |
|
|
|
|
|
|
|
During 2013, we recorded net restructuring charges of $89
million ($64 million after tax), in Europe at our exterior and
interior systems operations related primarily to the closure of a
facility in Belgium. |
|
|
|
|
|
|
(ii) |
Impairments of long-lived assets |
|
|
|
|
|
|
|
During the fourth quarter of 2013, we recorded long-lived asset
impairment charges of $33 million ($21 million after tax and
non-controlling interests) consisting of $23 million in North
America and $10 million in Rest of World. The impairment charges
related to battery research equipment in North America and fixed
assets at our Seating operations in South America. |
|
|
|
|
|
|
(iii) |
Impairment of goodwill |
|
|
|
|
|
|
|
During the fourth quarter of 2013, we recorded goodwill
impairment charges of $22 million ($22 million after tax) in Rest
of World related to our metal stamping operations. |
Segment Analysis
Given the differences between the regions in
which we operate, our operations are segmented on a geographic
basis. Consistent with the above, our internal financial reporting
separately segments key internal operating performance measures
between North America,
Europe, Asia and Rest of World for purposes of
presentation to the chief operating decision maker to assist in the
assessment of operating performance, the allocation of resources,
and our long-term strategic direction and future global growth.
Our chief operating decision maker uses Adjusted
EBIT as the measure of segment profit or loss, since we believe
Adjusted EBIT is the most appropriate measure of operational
profitability or loss for our reporting segments. Adjusted EBIT
represents income from operations before income taxes; interest
expense, net; and other expense, net.
|
|
|
|
For
the year ended December 31, |
|
|
|
|
External Sales |
|
|
Adjusted EBIT |
|
|
|
|
|
2014 |
|
|
|
2013 |
|
|
|
Change |
|
|
|
2014 |
|
|
|
2013 |
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
$ |
19,603 |
|
|
$ |
17,859 |
|
|
$ |
1,744 |
|
|
$ |
1,992 |
|
|
$ |
1,645 |
|
|
$ |
347 |
Europe |
|
|
|
|
14,494 |
|
|
|
14,525 |
|
|
|
(31) |
|
|
|
434 |
|
|
|
375 |
|
|
|
59 |
Asia |
|
|
|
|
1,837 |
|
|
|
1,539 |
|
|
|
298 |
|
|
|
162 |
|
|
|
85 |
|
|
|
77 |
Rest of World |
|
|
|
|
694 |
|
|
|
889 |
|
|
|
(195) |
|
|
|
(35) |
|
|
|
(76) |
|
|
|
41 |
Corporate and Other |
|
|
|
|
13 |
|
|
|
23 |
|
|
|
(10) |
|
|
|
79 |
|
|
|
36 |
|
|
|
43 |
Total reportable
segments |
|
|
|
$ |
36,641 |
|
|
$ |
34,835 |
|
|
$ |
1,806 |
|
|
$ |
2,632 |
|
|
$ |
2,065 |
|
|
$ |
567 |
Excluded from Adjusted EBIT for 2014 and 2013
were the following Other Expense items, which have been discussed
in the "Other Expense" section.
|
|
|
|
|
|
|
|
For the
year |
|
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived
assets |
|
|
|
|
|
|
|
$ |
18 |
|
|
|
$ |
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
|
|
|
|
|
|
46 |
|
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
|
|
- |
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
64 |
|
|
|
$ |
144 |
North
America
Adjusted EBIT in North
America increased $347 million
to $1.99 billion for 2014 compared to
$1.65 million for 2013 primarily
as a result of:
- margins earned on higher production sales;
- intangible asset amortization of $158
million, recorded in 2013, related to the acquisition and
re-measurement of E-Car;
- productivity and efficiency improvements at certain facilities;
and
- higher equity income.
These factors were partially offset by:
- higher launch costs, including unanticipated costs at certain
interiors facilities;
- operational inefficiencies and other costs at certain
facilities;
- increased pre-operating costs incurred at new facilities;
- higher affiliation fees paid to Corporate;
- a greater amount of employee profit sharing;
- a decrease in reported U.S. dollar EBIT due to the weakening of
the Canadian dollar against the U.S. dollar;
- higher warranty costs of $18
million;
- higher incentive compensation;
- approximately $15 million of
costs incurred, net of insurance recoveries, related to a fire at a
body and chassis facility;
- increased commodity costs;
- increased stock-based compensation; and
- net customer price concessions subsequent to 2013.
Europe
Adjusted EBIT in Europe increased $59
million to $434 million for
2014 compared to $375 million
for 2013 primarily as a result of:
- margins earned on higher production sales;
- the benefit of restructuring and downsizing activities recently
undertaken;
- lower warranty costs of $15
million;
- productivity and efficiency improvements at certain
facilities;
- lower downsizing costs;
- higher equity income; and
- decreased commodity costs.
These factors were partially offset by:
- higher launch costs, including unanticipated costs at certain
interiors facilities in the United
Kingdom;
- increased pre-operating costs incurred at new facilities;
- higher affiliation fees paid to Corporate;
- a greater amount of employee profit sharing;
- operational inefficiencies and other costs at certain
facilities;
- increased stock-based compensation; and
- net customer price concessions subsequent to 2013.
Asia
Adjusted EBIT in Asia increased $77
million to $162 million for
2014 compared to $85 million for 2013
primarily as a result of:
- margins earned on higher production sales, including margins
earned on the launch of new facilities and new programs;
- higher equity income; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- higher launch costs;
- higher affiliation fees paid to Corporate;
- higher warranty costs of $2
million; and
- net customer price concessions subsequent to 2013.
Rest of World
Adjusted EBIT in Rest of World increased
$41 million to a loss of $35 million for 2014 compared to a loss of
$76 million for 2013 primarily as a
result of:
- productivity and efficiency improvements at certain
facilities;
- the benefit of restructuring and downsizing activities recently
undertaken;
- a decrease in reported U.S. dollar EBIT loss due to the
weakening of the Brazilian real and Argentine peso, each against
the U.S. dollar;
- lower affiliation fees paid to Corporate; and
- net customer price increases subsequent to 2013.
These factors were partially offset by:
- higher production costs, including inflationary increases, that
we have not been fully successful in passing through to our
customers;
- a favourable earn-out settlement during 2013;
- increased commodity costs;
- higher launch costs;
- higher warranty costs of $1
million; and
- higher incentive compensation.
Corporate and Other
Corporate and Other Adjusted EBIT increased
$43 million to $79 million for 2014 compared to $36 million for 2013 primarily as a result
of:
- an increase in affiliation fees earned from our divisions;
and
- decreased stock-based compensation.
These factors were partially offset by:
- higher incentive compensation;
- $10 million of cash received
related to the settlement of ABCP between the Investment Industry
Regulatory Organization of Canada
and financial institutions in the first quarter of 2013; and
- a $5 million net decrease in
valuation gains in respect of ABCP.
Interest Expense, net
During 2014, we recorded net interest expense of
$29 million compared to $16 million for 2013. The $13 million increase is primarily as a result of
interest expense on the $750 million
3.625% fixed rate Senior Notes issued during the second quarter of
2014 (the "Senior Notes"), partially offset by interest income
earned on higher investment balances.
Income from Operations before Income
Taxes
Income from operations before income taxes
increased $634 million to
$2.54 billion for 2014 compared to
$1.91 billion for 2013. Excluding
Other Expense, discussed in the "Other Expense" section, income
from operations before income taxes for 2014 increased $554 million. The increase in income from
operations before income taxes is the result of the increase in
Adjusted EBIT partially offset by the increase in net interest
expense, as discussed above.
Income Taxes
|
|
|
|
|
|
2014 |
|
|
|
2013 |
|
|
|
|
|
|
|
$ |
|
|
|
% |
|
|
|
|
$ |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes as
reported |
|
|
|
|
|
$ |
659 |
|
|
|
26.0 |
|
|
|
$ |
360 |
|
|
|
18.9 |
Tax effect on Other expense, net |
|
|
|
|
|
|
11 |
|
|
|
(0.2) |
|
|
|
|
28 |
|
|
|
- |
Austrian Tax
Reform |
|
|
|
|
|
|
(32) |
|
|
|
(1.3) |
|
|
|
|
- |
|
|
|
- |
Mexican flat
tax |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
36 |
|
|
|
1.8 |
Valuation
allowances |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
21 |
|
|
|
1.0 |
|
|
|
|
|
|
$ |
638 |
|
|
|
24.5 |
|
|
|
$ |
445 |
|
|
|
21.7 |
For 2014, the Austrian government enacted
legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the European Union.
Furthermore, any foreign losses used by Austrian entities arising
in those non European Union subsidiaries are subject to recapture
in Austria. As a consequence of
this change, we have taken a charge to income tax expense of
$32 million ("Austrian Tax
Reform").
For 2013, we had valuation allowances against
our deferred tax assets in certain European countries. These
valuation allowances were required because of historical losses and
uncertainty as to the timing of when we would be able to generate
the necessary level of earnings to recover these deferred tax
assets. Over the past few years, some of our European operations
have delivered sustained profits which, together with forecasted
profits have allowed us to release a portion of the valuation
allowances set up against our European deferred tax assets.
Additionally, during 2013, we released a portion of our valuation
allowance in China. The effect of
these valuation allowance releases in 2013 is $21 million. Finally, we recorded a $36 million deferred tax benefit as a result of
the elimination of the Mexican flat tax. The valuation allowances
and elimination of the Mexican flat tax (the "Deferred Tax
Adjustments") totaled $57 million in
2013.
Excluding Other Expense, after tax, the Austrian
Tax Reform and the Deferred Tax Adjustments, the effective income
tax rate increased to 24.5% for 2014 compared to 21.7% for 2013
primarily as a result of:
- lower favourable audit settlements; and
- an increase in permanent items.
These factors were partially offset by:
- a reduction in losses not benefitted in South America and Asia; and
- non-creditable withholding tax recorded in 2013.
Net Income
Net income of $1.88
billion for 2014 increased $335
million compared to 2013. Excluding Other Expense, after
tax, as discussed in the "Other Expense" section and the Austrian
Tax Reform and Deferred Tax Adjustments as discussed in the "Income
Taxes" section, net income increased $361
million. The increase in net income is the result of the
increase in income from operations before income taxes partially
offset by higher income taxes.
Net Loss Attributable to Non-controlling
Interests
Net loss attributable to non-controlling
interests decreased $14 million to
$2 million for 2014 compared to
$16 million for 2013 primarily as a
result of impairments of long-lived assets in 2013 as discussed in
the "Other Expense" section and improved operating performance at
certain subsidiaries in China that
have non-controlling interests.
Net Income Attributable to Magna
International Inc.
Net income attributable to Magna International
Inc. of $1.88 billion for 2014
increased $321 million compared to
2013. Excluding Other Expense, after tax and net loss attributable
to non-controlling interests, as discussed in the "Other Expense"
section and the Austrian Tax Reform and Deferred Tax Adjustments as
discussed in the "Income Taxes" section, net income attributable to
Magna International Inc. increased $356
million primarily as a result of the increase in net income,
as discussed above.
Earnings per Share
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
ended
December 31, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
8.81 |
|
|
|
$ |
6.85 |
|
|
|
+ 29% |
Diluted |
|
|
|
$ |
8.69 |
|
|
|
$ |
6.76 |
|
|
|
+ 29% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares
outstanding (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
213.6 |
|
|
|
|
227.9 |
|
|
|
- 6% |
Diluted |
|
|
|
|
216.6 |
|
|
|
|
230.8 |
|
|
|
- 6% |
Diluted earnings per share increased
$1.93 to $8.69 for 2014 compared to $6.76 for 2013. Other Expense, after tax, net
loss attributable to non-controlling interests and the Austrian Tax
Reform and Deferred Tax Adjustments, negatively impacted diluted
earnings per share by $0.39 and
$0.22 in 2014 and 2013, respectively.
Other Expense and the Austrian Tax Reform and Deferred Tax
Adjustments are discussed in the "Other Expense" and "Income Taxes"
sections, respectively. Excluding the $0.39 and the $0.22
per share negative impact for 2014 and 2013, respectively, diluted
earnings per share increased $2.10,
as a result of the increase in net income attributable to Magna
International Inc. and a decrease in the weighted average number of
diluted shares outstanding during 2014.
The decrease in the weighted average number of
diluted shares outstanding was due to the purchase and cancellation
of Common Shares, during or subsequent to 2013, pursuant to our
normal course issuer bids partially offset by an increase in the
number of diluted options outstanding as a result of an increase in
the trading price of our common stock and the issue of Common
Shares related to the exercise of stock options.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
$ |
1,880 |
|
|
|
$ |
1,545 |
|
|
|
|
|
Items not involving current cash
flows |
|
|
|
|
|
|
1,157 |
|
|
|
|
1,149 |
|
|
|
|
|
|
|
|
|
|
|
|
3,037 |
|
|
|
|
2,694 |
|
|
|
$ |
343 |
Changes in operating assets and
liabilities |
|
|
|
|
|
|
(245) |
|
|
|
|
(127) |
|
|
|
|
|
Cash provided from operating activities |
|
|
|
|
|
$ |
2,792 |
|
|
|
$ |
2,567 |
|
|
|
$ |
225 |
Cash flow from operations before changes in
operating assets and liabilities increased $343 million to $3.04
million for 2014 compared to $2.69
billion for 2013. The increase in cash flow from operations
was due to a $335 million increase in
net income, as discussed above and an $8
million increase in items not involving current cash flows.
Items not involving current cash flows are comprised of the
following:
|
|
|
|
For the year |
|
|
|
|
ended
December 31, |
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
|
$ |
890 |
|
|
|
$ |
1,063 |
Amortization of other assets included in cost of
goods sold |
|
|
|
|
148 |
|
|
|
|
138 |
Deferred income
taxes |
|
|
|
|
94 |
|
|
|
|
(100) |
Other non-cash
charges |
|
|
|
|
36 |
|
|
|
|
23 |
Impairment
charges |
|
|
|
|
18 |
|
|
|
|
55 |
Equity income in excess of dividends
received |
|
|
|
|
(29) |
|
|
|
|
(30) |
Items not involving current cash
flows |
|
|
|
$ |
1,157 |
|
|
|
$ |
1,149 |
Cash invested in operating assets and
liabilities amounted to $245 million
for 2014 compared to $127 million for
2013. The change in operating assets and liabilities is comprised
of the following sources (and uses) of cash:
|
|
|
|
|
|
For the
year |
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
$ |
(767) |
|
|
|
$ |
(584) |
Inventories |
|
|
|
|
|
|
(343) |
|
|
|
|
(141) |
Prepaid expenses and
other |
|
|
|
|
|
|
5 |
|
|
|
|
(56) |
Accounts
payable |
|
|
|
|
|
|
677 |
|
|
|
|
325 |
Accrued salaries and
wages |
|
|
|
|
|
|
82 |
|
|
|
|
87 |
Other accrued
liabilities |
|
|
|
|
|
|
79 |
|
|
|
|
298 |
Income taxes
payable |
|
|
|
|
|
|
22 |
|
|
|
|
(56) |
Changes in operating assets and
liabilities |
|
|
|
|
|
$ |
(245) |
|
|
|
$ |
(127) |
Higher accounts receivable relate primarily to
the timing of cash receipts from customers for production sales and
increased accrued tooling and engineering receivables in
December 2014. The increase in
inventories was primarily due to increased tooling inventory in
Europe and higher production
inventory to support higher sales activities and for upcoming
launches. The increase in accounts payable was primarily due to
timing of payments. The increase in accrued salaries and wages was
primarily due to timing of accrued wages, increased incentive
compensation and employee profit sharing accruals.
Capital and Investment
Spending
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
|
ended
December 31, |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
|
$ |
(1,586) |
|
|
|
$ |
(1,169) |
|
|
|
|
|
Investments and other assets |
|
|
|
|
(175) |
|
|
|
|
(192) |
|
|
|
|
|
Fixed assets, investments and
other assets additions |
|
|
|
|
(1,761) |
|
|
|
|
(1,361) |
|
|
|
|
|
Purchase of subsidiaries |
|
|
|
|
(23) |
|
|
|
|
(9) |
|
|
|
|
|
Proceeds from disposition |
|
|
|
|
167 |
|
|
|
|
163 |
|
|
|
|
|
Cash used for investment activities |
|
|
|
$ |
(1,617) |
|
|
|
$ |
(1,207) |
|
|
|
$ |
(410) |
Fixed assets, investments and other assets additions
In 2014, we invested $1.59 billion in fixed assets. While
investments were made to refurbish or replace assets consumed in
the normal course of business and for productivity improvements, a
large portion of the investment in 2014 was for manufacturing
equipment for programs that will be launching subsequent to 2014
and for facilities, including $105
million for the purchase of eight leased facilities in
Mexico from Granite Real Estate
Investment Trust.
In 2014, we invested $153
million in other assets related primarily to fully
reimbursable tooling and engineering costs for programs that
launched during 2014 or will be launching subsequent to 2014. In
addition, we invested $22 million in
equity accounted investments.
Purchase of subsidiaries
In October 2014,
we acquired Techform Group of Companies, an automotive supplier of
hinges, door locking rods and other closure products, which has
operations in Canada, the United States and China, for cash consideration of $23 million.
In November 2013,
we acquired the remaining 49% interest of Textile Competence Centre
Kft, a textile plant in Germany
for cash consideration of $9 million.
Prior to the acquisition, we were fully consolidating this entity
with non-controlling interest equal to the 49% interest not owned
by us.
Proceeds from disposition
In 2014, the $167
million of proceeds include cash related to the disposal of
certain non-core exteriors facilities in North America and normal course fixed and
other asset disposals.
Financing
|
|
|
|
For the year |
|
|
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issues of debt |
|
|
|
$ |
860 |
|
|
|
$ |
151 |
|
|
|
|
|
Issues of Common Shares on
exercise of stock options |
|
|
|
|
49 |
|
|
|
|
63 |
|
|
|
|
|
Increase (decrease) in bank
indebtedness |
|
|
|
$ |
1 |
|
|
|
$ |
(18) |
|
|
|
|
|
Repayments of debt |
|
|
|
|
(189) |
|
|
|
|
(173) |
|
|
|
|
|
Repurchase of Common
Shares |
|
|
|
|
(1,783) |
|
|
|
|
(1,020) |
|
|
|
|
|
Settlement of stock options |
|
|
|
|
- |
|
|
|
|
(23) |
|
|
|
|
|
Contribution to subsidiaries by
non-controlling interests |
|
|
|
|
- |
|
|
|
|
4 |
|
|
|
|
|
Dividends paid |
|
|
|
|
(316) |
|
|
|
|
(284) |
|
|
|
|
|
Cash used for financing activities |
|
|
|
$ |
(1,378) |
|
|
|
$ |
(1,300) |
|
|
|
$ |
(78) |
Issues of debt relates primarily to the issue of
the $750 million Senior Notes. The
Senior Notes are senior unsecured obligations, interest is payable
on June 15 and December 15 of each year, and do not include any
financial covenants. We may redeem the Senior Notes in whole or in
part at any time, and from time to time, at specified redemption
prices determined in accordance with the terms of the indenture
governing the Senior Notes.
During 2014, we purchased for cancellation 17.4
million Common Shares for an aggregate purchase price of
$1.78 billion under our normal course
issuer bids.
Cash dividends paid per Common Share were
$1.52 for 2014, for a total of
$316 million.
Financing Resources
|
|
|
|
As at |
|
|
As at |
|
|
|
|
|
|
|
|
|
December
31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
|
|
$ |
33 |
|
|
$ |
41 |
|
|
|
|
|
|
Long-term debt due within one
year |
|
|
|
|
184 |
|
|
|
230 |
|
|
|
|
|
|
Long-term debt |
|
|
|
|
811 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
1,028 |
|
|
|
373 |
|
|
|
|
|
Non-controlling
interests |
|
|
|
|
14 |
|
|
|
16 |
|
|
|
|
|
Shareholders'
equity |
|
|
|
|
8,659 |
|
|
|
9,623 |
|
|
|
|
|
Total capitalization |
|
|
|
$ |
9,701 |
|
|
$ |
10,012 |
|
|
|
$ |
(311) |
Total capitalization decreased by $311 million to $9.70
billion at December 31, 2014
compared to $10.01 billion at
December 31, 2013,
primarily as a result of a $964
million decrease in shareholders' equity partially offset by
a $655 million increase in
liabilities.
The decrease in shareholders' equity was
primarily as a result of:
- the $1.78 billion repurchase and
cancellation of 17.4 million Common Shares under our normal course
issuer bids during 2014;
- the $681 million net unrealized
loss on translation of our net investment in foreign
operations;
- $316 million of dividends paid
during 2014; and
- the $103 million net unrealized
loss on cash flow hedges.
These factors were partially offset by the
$1.88 billion of net income earned in
2014.
The increase in liabilities relates primarily to
long-term debt issued in relation to the $750 million Senior Notes partially offset by net
repayments of our bank term debt.
Cash Resources
During 2014, our cash resources decreased by
$301 million to $1.25 billion 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 December 31,
2014, we had term and operating lines of credit totalling
$2.57 billion of which $2.29 billion was unused and available.
On May 16, 2014,
our $2.25 billion revolving credit
facility maturing June 20, 2018 was
extended to June 20, 2019. The
facility includes a $200 million
Asian tranche, a $50 million Mexican
tranche and a tranche for Canada,
U.S. and Europe, which is fully
transferable between jurisdictions and can be drawn in U.S.
dollars, Canadian dollars or euros.
During the first quarter of 2014, we filed a
short form base shelf prospectus with the Ontario Securities
Commission and a corresponding shelf registration statement with
the United States Securities and Exchange Commission on Form F-10.
The filings provide for the potential offering in Ontario and the
United States of up to an aggregate of $2.00 billion of debt securities from time to
time over a 25 month period. During the second quarter of 2014, we
issued $750 million of Senior Notes
under the filings.
Maximum Number of Shares Issuable
The following table presents the maximum number
of shares that would be outstanding if all of the outstanding
options at February 24, 2015 were
exercised:
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205,170,260 |
Stock options (i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,098,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,268,298 |
(i) |
Options to purchase Common Shares are exercisable by the
holder in accordance with the vesting provisions and upon payment
of the exercise price as may be determined from time to time
pursuant to our stock option plans. |
Contractual Obligations and Off-Balance Sheet
Financing
A purchase obligation is defined as an agreement
to purchase goods or services that is enforceable and legally
binding on us and that specifies all significant terms, including:
fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the
transaction. Consistent with our customer obligations,
substantially all of our purchases are made under purchase orders
with our suppliers which are requirements based and accordingly do
not specify minimum quantities. Other long-term liabilities are
defined as long-term liabilities that are recorded on our
consolidated balance sheet. Based on this definition, the following
table includes only those contracts which include fixed or minimum
obligations.
At December 31,
2014, we had contractual obligations requiring annual
payments as follows:
|
|
|
|
|
|
|
|
|
|
2016- |
|
|
|
2018- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
2017 |
|
|
|
2019 |
|
|
Thereafter |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
$ |
306 |
|
|
$ |
510 |
|
|
$ |
356 |
|
|
$ |
382 |
|
|
$ |
1,554 |
Long-term debt |
|
|
|
|
|
184 |
|
|
|
37 |
|
|
|
18 |
|
|
|
757 |
|
|
|
996 |
Unconditional Purchase
Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials and Services |
|
|
|
|
|
2,052 |
|
|
|
158 |
|
|
|
7 |
|
|
|
6 |
|
|
|
2,223 |
|
Capital |
|
|
|
|
|
420 |
|
|
|
36 |
|
|
|
12 |
|
|
|
1 |
|
|
|
469 |
Total contractual
obligations |
|
|
|
|
$ |
2,962 |
|
|
$ |
741 |
|
|
$ |
393 |
|
|
$ |
1,146 |
|
|
$ |
5,242 |
Our unfunded obligations with respect to
employee future benefit plans, which have been actuarially
determined, were $574 million at
December 31, 2014. These obligations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination and |
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
Retirement |
|
|
Long Service |
|
|
|
|
|
|
|
|
|
|
|
|
Liability |
|
|
Liability |
|
|
Arrangements |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit
obligation |
|
|
|
|
|
$ |
540 |
|
|
$ |
41 |
|
|
$ |
340 |
|
|
$ |
|
921 |
Less plan assets |
|
|
|
|
|
|
(347) |
|
|
|
- |
|
|
|
- |
|
|
|
|
(347) |
Unfunded
amount |
|
|
|
|
|
$ |
193 |
|
|
$ |
41 |
|
|
$ |
340 |
|
|
$ |
|
574 |
Our off-balance sheet financing arrangements are
limited to operating lease contracts.
The majority of our facilities are subject to
operating leases. Operating lease payments in 2014 for facilities
were $286 million. Operating lease
commitments in 2015 for facilities are expected to be $258 million. A majority of our existing
lease agreements generally provide for periodic rent escalations
based either on fixed-rate step increases, or on the basis of a
consumer price index adjustment (subject to certain caps).
We also have operating lease commitments for
equipment. These leases are generally of shorter duration.
Operating lease payments for equipment were $58 million for 2014, and are expected to be
$48 million in 2014.
Although our consolidated contractual annual
lease commitments decline year by year, we expect that existing
leases will either be renewed or replaced, or alternatively, we
will incur capital expenditures to acquire equivalent capacity.
Foreign Currency Activities
Our North American operations negotiate sales
contracts with OEMs for payment in both U.S. and Canadian dollars.
Materials and equipment are purchased in various currencies
depending upon competitive factors, including relative currency
values. Our North American operations use labour and materials
which are paid for in both U.S. and Canadian dollars. Our Mexican
operations generally use the U.S. dollar as the functional
currency.
Our European operations negotiate sales
contracts with OEMs for payment principally in euros and British
pounds. The European operations' material, equipment and labour are
paid for principally in euros and British pounds.
We employ hedging programs, primarily through
the use of foreign exchange forward contracts, in an effort to
manage our foreign exchange exposure, which arises when
manufacturing facilities have committed to the delivery of products
for which the selling price has been quoted in foreign currencies.
These commitments represent our contractual obligations to deliver
products over the duration of the product programs, which can last
a number of years. The amount and timing of the forward contracts
will be dependent upon a number of factors, including anticipated
production delivery schedules and anticipated production costs,
which may be paid in the foreign currency. In addition, we enter
into foreign exchange contracts to manage foreign exchange exposure
with respect to internal funding arrangements. Despite these
measures, significant long-term fluctuations in relative currency
values, in particular a significant change in the relative values
of the U.S. dollar, Canadian dollar, euro or British pound, could
have an adverse effect on our profitability and financial condition
(as discussed throughout this MD&A).
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED
DECEMBER 31, 2014
Sales
|
|
|
|
|
|
For the three months |
|
|
|
|
|
|
|
|
|
|
ended
December 31, |
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes
(millions of units) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
4.231 |
|
|
|
|
4.032 |
|
|
|
+ 5% |
|
Europe |
|
|
|
|
|
|
5.065 |
|
|
|
|
4.913 |
|
|
|
+ 3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
$ |
4,699 |
|
|
|
$ |
4,371 |
|
|
|
+ 8% |
|
|
Europe |
|
|
|
|
|
|
2,370 |
|
|
|
|
2,587 |
|
|
|
- 8% |
|
|
Asia |
|
|
|
|
|
|
451 |
|
|
|
|
399 |
|
|
|
+ 13% |
|
|
Rest of World |
|
|
|
|
|
|
169 |
|
|
|
|
188 |
|
|
|
- 10% |
|
Complete Vehicle
Assembly |
|
|
|
|
|
|
721 |
|
|
|
|
788 |
|
|
|
- 9% |
|
Tooling, Engineering and
Other |
|
|
|
|
|
|
986 |
|
|
|
|
841 |
|
|
|
+ 17% |
Total Sales |
|
|
|
|
|
$ |
9,396 |
|
|
|
$ |
9,174 |
|
|
|
+ 2% |
External Production Sales - North America
External production sales in North America increased 8% or $328 million to $4.70
billion for the three months ended December 31, 2014 compared to $4.37 billion for the three months ended
December 31, 2013, primarily as a
result of the launch of new programs during or subsequent to the
fourth quarter of 2013, including the Ford Transit, the Lincoln MKC
and the BMW X4.
This factor was partially offset by:
- a $127 million decrease in
reported U.S. dollar sales primarily as a result of the weakening
of the Canadian dollar against the U.S. dollar;
- lower production volumes on certain existing programs;
- divestitures, net of acquisitions completed during or
subsequent to the fourth quarter of 2013; and
- net customer price concessions subsequent to the fourth quarter
of 2013.
External Production Sales - Europe
External production sales in Europe decreased 8% or $217 million to $2.37
billion for the three months ended December 31, 2014 compared to $2.59 billion for the three months ended
December 31, 2013, primarily as a
result of:
- a $225 million decrease in
reported U.S. dollar sales primarily as a result of the weakening
of the euro and Russian ruble, each against the U.S. dollar;
- lower production volumes on certain existing programs;
- a decrease in content on certain programs, including the
Mercedes-Benz C-Class;
- programs that ended production during or subsequent to the
fourth quarter of 2013; and
- net customer price concessions subsequent to the fourth quarter
of 2013.
These factors were partially offset by the
launch of new programs during or subsequent to the fourth quarter
of 2013, including the Mercedes-Benz GLA, the Ford Transit and the
Porsche Macan.
External Production Sales - Asia
External production sales in Asia increased 13% or $52 million to $451
million for the three months ended December 31, 2014 compared to $399 million for the three months ended
December 31, 2013, primarily as a
result of higher production volumes on certain existing programs
and the launch of new programs during or subsequent to the fourth
quarter of 2013, primarily in China. These factors were partially offset by
a $5 million decrease in reported
U.S. dollar sales primarily as a result of the weakening of the
Chinese renminbi against the U.S. dollar and net customer price
concessions subsequent to the fourth quarter of 2013.
External Production Sales - Rest of
World
External production sales in Rest of World
decreased 10% or $19 million to
$169 million for the three months
ended December 31, 2014 compared
to $188 million for the three months
ended December 31, 2013, primarily as
a result of:
- a $29 million decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the Brazilian real
and Argentine peso;
- programs that ended production during or subsequent to the
fourth quarter of 2013;
- lower production volumes on certain existing programs; and
- a decrease in content on certain programs, including the
Mercedes-Benz C-Class.
These factors were partially offset by:
- the launch of new programs during or subsequent to the fourth
quarter of 2013, primarily in Brazil; and
- net customer price increases subsequent to the fourth quarter
of 2013.
Complete Vehicle Assembly Sales
|
|
|
|
|
|
For the three months |
|
|
|
|
|
|
|
|
|
|
ended
December 31, |
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
Change |
Complete Vehicle Assembly Sales |
|
|
|
|
|
$ |
721 |
|
|
|
$ |
788 |
|
|
|
- 9% |
Complete Vehicle Assembly Volumes
(Units) |
|
|
|
|
|
|
32,965 |
|
|
|
|
36,704 |
|
|
|
- 10% |
Complete vehicle assembly sales decreased 9%, or
$67 million, to $721 million for the three months ended
December 31, 2014 compared to
$788 million for the three
months ended December 31, 2013 and
assembly volumes decreased 10% or 3,739 units.
The decrease in complete vehicle assembly sales
is primarily as a result of:
- a $63 million decrease in
reported U.S. dollar sales as a result of the weakening of the euro
against the U.S. dollar; and
- a decrease in assembly volumes for the MINI Paceman and the
Peugeot RCZ.
These factors were partially offset by an
increase in assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased
17% or $145 million to $986 million for the three months ended
December 31, 2014 compared to
$841 million for the three months
ended December 31, 2013.
In the three months ended December 31, 2014, the major programs for which
we recorded tooling, engineering and other sales were the:
- Ford F-Series and F-Series Super Duty;
- Ford Transit;
- Nissan NP300 Navara;
- Mercedes-Benz C-Class;
- Ford Mondeo;
- Buick Enclave, GMC Acadia and Chevrolet Traverse;
- Skoda Octavia; and
- Volkswagen Golf.
In the three months ended December 31, 2013, the major programs for which
we recorded tooling, engineering and other sales were the:
- MINI Cooper;
- Mercedes-Benz M-Class;
- GM full-size pickups and SUVs;
- QOROS 3;
- Opel Zafira;
- MINI Countryman;
- Mercedes-Benz Vito;
- Volkswagen Golf; and
- Ford Transit.
In addition, tooling, engineering and other
sales decreased as a result of the weakening of foreign currencies
against the U.S dollar, including the euro, Russian ruble and
Canadian dollar.
Segment Analysis
|
|
|
|
For
the three months ended December 31, |
|
|
|
|
External Sales |
|
|
Adjusted EBIT |
|
|
|
|
|
2014 |
|
|
|
2013 |
|
|
Change |
|
|
|
2014 |
|
|
|
2013 |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
$ |
5,103 |
|
|
$ |
4,627 |
|
|
$ |
476 |
|
|
$ |
542 |
|
|
$ |
477 |
|
|
$ |
65 |
Europe |
|
|
|
|
3,613 |
|
|
|
3,899 |
|
|
|
(286) |
|
|
|
99 |
|
|
|
111 |
|
|
|
(12) |
Asia |
|
|
|
|
503 |
|
|
|
449 |
|
|
|
54 |
|
|
|
52 |
|
|
|
26 |
|
|
|
26 |
Rest of World |
|
|
|
|
175 |
|
|
|
193 |
|
|
|
(18) |
|
|
|
(5) |
|
|
|
(21) |
|
|
|
16 |
Corporate and Other |
|
|
|
|
2 |
|
|
|
6 |
|
|
|
(4) |
|
|
|
24 |
|
|
|
14 |
|
|
|
10 |
Total reportable segments |
|
|
|
$ |
9,396 |
|
|
$ |
9,174 |
|
|
$ |
222 |
|
|
$ |
712 |
|
|
$ |
607 |
|
|
$ |
105 |
Excluded from Adjusted EBIT for the three months
ended December 31, 2014 and 2013 were
the following Other Expense items, which have been discussed in the
"Other Expense" section.
|
|
|
|
|
|
|
|
|
For the three
months |
|
|
|
|
|
|
|
|
|
ended December 31, |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived
assets |
|
|
|
|
|
|
|
|
$ |
18 |
|
|
|
$ |
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24 |
|
|
|
$ |
90 |
North
America
Adjusted EBIT in North
America increased $65 million
to $542 million for the three months
ended December 31, 2014 compared to
$477 million for the three
months ended December 31, 2013
primarily as a result of:
- margins earned on higher production sales;
- intangible asset amortization of $40
million, recorded in the fourth quarter of 2013, related to
the acquisition and re-measurement of E-Car;
- higher equity income; and
- productivity and efficiency improvements at certain
facilities.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- higher incentive compensation;
- increased commodity costs;
- higher warranty costs of $8
million;
- higher launch costs, including unanticipated costs at certain
interiors facilities;
- operational inefficiencies and other costs at certain
facilities;
- higher affiliation fees paid to Corporate;
- a greater amount of employee profit sharing; and
- net customer price concessions subsequent to the three months
ended December 31, 2013.
Europe
Adjusted EBIT in Europe decreased $12
million to $99 million for the
three months ended December 31, 2014
compared to $111 million for the
three months ended December 31, 2013
primarily as a result of:
- higher launch costs, including unanticipated costs at certain
interiors facilities in the United
Kingdom;
- increased pre-operating costs incurred at new facilities;
- a greater amount of employee profit sharing;
- higher affiliation fees paid to Corporate;
- higher incentive compensation;
- operational inefficiencies and other costs at certain
facilities; and
- net customer price concessions subsequent to the three months
ended December 31, 2013.
These factors were partially offset by:
- lower warranty costs of $18
million;
- productivity and efficiency improvements at certain facilities;
and
- decreased commodity costs.
Asia
Adjusted EBIT in Asia increased $26
million to $52 million for the
three months ended December 31, 2014
compared to $26 million for the three
months ended December 31, 2013
primarily as a result of margins earned on higher production sales,
including margins earned on the launch of new facilities and new
programs partially offset by:
- higher launch costs; and
- higher affiliation fees paid to Corporate.
Rest of World
Adjusted EBIT in Rest of World increased
$16 million to a loss of $5 million for the three months ended
December 31, 2014 compared to a loss
of $21 million for the three months
ended December 31, 2013 primarily as
a result of:
- the benefit of restructuring and downsizing activities recently
undertaken;
- productivity and efficiency improvements at certain
facilities;
- lower launch costs;
- higher equity income; and
- net customer price increases subsequent to the three months
ended December 31, 2013.
These factors were partially offset by:
- higher production costs, including inflationary increases, that
we have not been fully successful in passing through to our
customers;
- a favourable earn-out settlement during the three months ended
December 31, 2013; and
- higher warranty costs of $1
million.
Corporate and Other
Corporate and Other Adjusted EBIT increased
$10 million to $24 million for the three months ended
December 31, 2014 compared to
$14 million for the three months
ended December 31, 2013 primarily as
a result of an increase in affiliation fees earned from our
divisions partially offset by higher incentive compensation and a
$3 million net decrease in valuation
gains in respect of ABCP.
FUTURE CHANGES IN ACCOUNTING POLICIES
Revenue Recognition
In May 2014, the
FASB issued Accounting Standards Update 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. ASU 2014-09 is effective for
us in the first quarter of fiscal 2017 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. We are currently evaluating the impact of the
pending adoption of ASU 2014-09 on our consolidated financial
statements.
SUBSEQUENT EVENTS
Stock Split
On February 24,
2015, our Board of Directors approved a two-for-one stock
split, to be implemented by way of a stock dividend, whereby our
shareholders will receive an additional Common Share for each
Common Share held. The stock dividend will be payable on
March 25, 2015, to shareholders of
record at the close of business on March 11,
2015. All equity-based compensation plans or arrangements
and our normal course issuer bid will be adjusted to reflect the
stock split.
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 17 of our unaudited interim
consolidated financial statements for the three months and year
ended December 31, 2014, 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, 2013.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over
financial reporting that occurred during 2014 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: Magna's forecasts of
light vehicle production globally and in North America, Europe and China; implementation of our capital strategy,
including investments in our business through capital expenditures
and acquisitions, and returns of capital to our shareholders
through dividends and share repurchases; the timing and success of
new program launches; expected operating performance and earnings
in our operating segments; and implementation of improvement plans
in our underperforming operations, and/or restructuring actions,
including the expected level of restructuring charges for 2015. 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 impact of economic or
political conditions on consumer confidence, consumer demand for
vehicles and vehicle production; fluctuations in relative currency
values; restructuring, downsizing and/or other significant
non-recurring costs; continued underperformance of one or more of
our operating Divisions; ongoing pricing pressures, including our
ability to offset price concessions demanded by our customers; our
ability to successfully launch material new or takeover business;
shifts in market share away from our top customers; inability to
grow our business with OEMs; shifts in market shares among vehicles
or vehicle segments, or shifts away from vehicles on which we have
significant content; risks of conducting business in foreign
markets, including China,
India, Russia, Eastern
Europe, Thailand,
Brazil, Argentina and other non-traditional markets
for us; a prolonged disruption in the supply of components to us
from our suppliers; shutdown of our or our customers' or
sub-suppliers' production facilities due to a labour disruption;
scheduled shutdowns of our customers' production facilities
(typically in the third and fourth quarters of each calendar year);
our ability to successfully compete with other automotive
suppliers; reduction in outsourcing by our customers or the
loss of a material production or assembly program; the termination
or non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; impairment charges related to goodwill and long-lived
assets; exposure to, and ability to offset, volatile commodities
prices; our ability to successfully identify, complete and
integrate acquisitions or achieve anticipated synergies; our
ability to conduct appropriate due diligence on acquisition
targets; warranty and recall costs; risk of production disruptions
due to natural disasters or other catastrophic events; the security
and reliability of our IT systems; pension liabilities; legal
claims and/or regulatory actions against us, including the ongoing
antitrust investigations being conducted by German and Brazilian
authorities; changes in our mix of earnings between jurisdictions
with lower tax rates and those with higher tax rates, as well as
our ability to fully benefit tax losses; other potential tax
exposures; changes in credit ratings assigned to us; changes in
laws and governmental regulations; costs associated with compliance
with environmental laws and regulations; liquidity risks as a
result of an unanticipated deterioration of economic conditions;
our ability to achieve future investment returns that equal or
exceed past returns; the unpredictability of, and fluctuation
in, the trading price of our Common Shares; and other factors set
out in our Annual Information Form filed with securities
commissions in Canada and our
annual report on Form 40-F filed with the United States Securities
and Exchange Commission, and subsequent filings. In evaluating
forward-looking statements or forward-looking information, we
caution readers not to place undue reliance on any forward-looking
statements or forward-looking information, and readers should
specifically consider the various factors which could cause actual
events or results to differ materially from those indicated by such
forward-looking statements or forward-looking information. Unless
otherwise required by applicable securities laws, we do not intend,
nor do we undertake any obligation, to update or revise any
forward-looking statements or forward-looking information to
reflect subsequent information, events, results or circumstances or
otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
|
|
|
Three months
ended |
|
Year
ended |
|
|
|
December 31, |
|
December 31, |
|
Note |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
$ |
9,396 |
|
$ |
9,174 |
|
$ |
36,641 |
|
$ |
34,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
8,070 |
|
|
7,903 |
|
|
31,623 |
|
|
30,287 |
|
Depreciation and
amortization |
|
|
|
226 |
|
|
284 |
|
|
890 |
|
|
1,063 |
|
Selling, general and
administrative |
13 |
|
|
442 |
|
|
428 |
|
|
1,707 |
|
|
1,616 |
|
Interest expense,
net |
|
|
|
11 |
|
|
3 |
|
|
29 |
|
|
16 |
|
Equity income |
|
|
|
(54) |
|
|
(48) |
|
|
(211) |
|
|
(196) |
|
Other expense, net |
2 |
|
|
24 |
|
|
90 |
|
|
64 |
|
|
144 |
Income from operations
before income taxes |
|
|
|
677 |
|
|
514 |
|
|
2,539 |
|
|
1,905 |
Income taxes |
12 |
|
|
168 |
|
|
66 |
|
|
659 |
|
|
360 |
Net
income |
|
|
|
509 |
|
|
448 |
|
|
1,880 |
|
|
1,545 |
Net loss attributable to
non-controlling interests |
|
|
|
— |
|
|
10 |
|
2 |
|
|
16 |
Net income
attributable to Magna International Inc. |
|
|
$ |
509 |
|
$ |
458 |
|
$ |
1,882 |
|
$ |
1,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common
Share: |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
$ |
2.47 |
|
$ |
2.06 |
|
$ |
8.81 |
|
$ |
6.85 |
|
Diluted |
|
|
$ |
2.44 |
|
$ |
2.03 |
|
$ |
8.69 |
|
$ |
6.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per
Common Share |
|
|
$ |
0.38 |
|
$ |
0.32 |
|
$ |
1.52 |
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of Common Shares outstanding during the period [in
millions]: |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
206.2 |
|
|
222.1 |
|
|
213.6 |
|
|
227.9 |
|
Diluted |
|
|
|
209.1 |
|
|
225.4 |
|
|
216.6 |
|
|
230.8 |
|
See accompanying
notes |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
|
|
|
Three months
ended |
|
Year
ended |
|
|
|
December 31, |
|
December 31, |
|
Note |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
$ |
509 |
|
$ |
448 |
|
$ |
1,880 |
|
$ |
1,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss,
net of tax: |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized loss on translation of
net investment in foreign operations |
|
|
|
(323) |
|
|
(52) |
|
|
(681) |
|
|
(134) |
|
Net unrealized loss on cash flow
hedges |
|
|
|
(79) |
|
|
(34) |
|
|
(103) |
|
|
(39) |
|
Reclassification of net loss (gain)
on cash flow hedges to net income |
|
|
|
6 |
|
|
(3) |
|
|
10 |
|
|
(15) |
|
Reclassification of net (gain) loss
on pensions to net income |
|
|
|
— |
|
|
(2) |
|
|
3 |
|
|
7 |
|
Pension and post retirement
benefits |
|
|
|
(72) |
|
|
44 |
|
|
(72) |
|
|
44 |
|
Net unrealized loss on
available-for-sale investments |
|
|
|
— |
|
|
— |
|
|
— |
|
|
(5) |
Other comprehensive
loss |
|
|
|
(468) |
|
|
(47) |
|
|
(843) |
|
|
(142) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income |
|
|
|
41 |
|
|
401 |
|
|
1,037 |
|
|
1,403 |
Comprehensive loss
attributable to non-controlling interests |
|
|
|
— |
|
|
10 |
|
|
2 |
|
|
17 |
Comprehensive income
attributable to Magna International Inc. |
|
|
$ |
41 |
|
$ |
411 |
|
$ |
1,039 |
|
$ |
1,420 |
|
See accompanying
notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
|
|
|
Three months
ended |
|
Year
ended |
|
|
|
December 31, |
|
December 31, |
|
Note |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from (used
for): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
$ |
509 |
|
$ |
448 |
|
$ |
1,880 |
|
$ |
1,545 |
Items not involving current cash
flows |
4 |
|
|
372 |
|
|
361 |
|
|
1,157 |
|
|
1,149 |
|
|
|
|
881 |
|
|
809 |
|
|
3,037 |
|
|
2,694 |
Changes in operating assets and
liabilities |
4 |
|
|
118 |
|
|
451 |
|
|
(245) |
|
|
(127) |
Cash provided from operating
activities |
|
|
|
999 |
|
|
1,260 |
|
|
2,792 |
|
|
2,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
|
(670) |
|
|
(463) |
|
|
(1,586) |
|
|
(1,169) |
Purchase of subsidiaries |
5 |
|
|
(23) |
|
|
(9) |
|
|
(23) |
|
|
(9) |
Increase in investments and other
assets |
|
|
|
(23) |
|
|
(34) |
|
|
(175) |
|
|
(192) |
Proceeds from disposition |
|
|
|
41 |
|
|
73 |
|
|
167 |
|
|
163 |
Cash used for investing
activities |
|
|
|
(675) |
|
|
(433) |
|
|
(1,617) |
|
|
(1,207) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issues of debt |
10 |
|
|
36 |
|
|
68 |
|
|
860 |
|
|
151 |
(Decrease) increase in bank
indebtedness |
|
|
|
(18) |
|
|
(4) |
|
|
1 |
|
|
(18) |
Repayments of debt |
|
|
|
(58) |
|
|
(31) |
|
|
(189) |
|
|
(173) |
Issue of Common Shares |
|
|
|
6 |
|
|
3 |
|
|
49 |
|
|
63 |
Settlement of stock
options |
|
|
|
— |
|
|
— |
|
|
— |
|
|
(23) |
Repurchase of Common
Shares |
14 |
|
|
(354) |
|
|
(297) |
|
|
(1,783) |
|
|
(1,020) |
Contribution to subsidiaries by
non-controlling interests |
|
|
|
— |
|
|
— |
|
|
— |
|
|
4 |
Dividends paid |
|
|
|
(75) |
|
|
(68) |
|
|
(316) |
|
|
(284) |
Cash used for financing
activities |
|
|
|
(463) |
|
|
(329) |
|
|
(1,378) |
|
|
(1,300) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents |
|
|
|
(43) |
|
|
(8) |
|
|
(98) |
|
|
(28) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and
cash equivalents during the period |
|
|
|
(182) |
|
|
490 |
|
|
(301) |
|
|
32 |
Cash and cash equivalents, beginning
of period |
|
|
|
1,435 |
|
|
1,064 |
|
|
1,554 |
|
|
1,522 |
Cash and cash equivalents, end of
period |
|
|
$ |
1,253 |
|
$ |
1,554 |
|
$ |
1,253 |
|
$ |
1,554 |
|
See accompanying
notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions, except shares issued]
As at December
31, |
Note |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
Cash and cash
equivalents |
4 |
|
$ |
1,253 |
|
$ |
1,554 |
Accounts
receivable |
|
|
|
5,635 |
|
|
5,246 |
Inventories |
6 |
|
|
2,757 |
|
|
2,637 |
Income taxes
receivable |
|
|
|
16 |
|
|
— |
Deferred tax
assets |
12 |
|
|
186 |
|
|
275 |
Prepaid expenses and
other |
|
|
|
160 |
|
|
211 |
|
|
|
|
10,007 |
|
|
9,923 |
|
|
|
|
|
|
|
|
Investments |
16 |
|
|
419 |
|
|
391 |
Fixed assets,
net |
|
|
|
5,664 |
|
|
5,441 |
Goodwill |
7 |
|
|
1,350 |
|
|
1,440 |
Deferred tax
assets |
12 |
|
|
147 |
|
|
120 |
Other assets |
8 |
|
|
552 |
|
|
675 |
|
|
|
$ |
18,139 |
|
$ |
17,990 |
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
$ |
33 |
|
$ |
41 |
Accounts
payable |
|
|
|
5,105 |
|
|
4,781 |
Accrued salaries and
wages |
|
|
|
730 |
|
|
704 |
Other accrued
liabilities |
9 |
|
|
1,538 |
|
|
1,538 |
Income taxes
payable |
|
|
|
— |
|
|
6 |
Deferred tax
liabilities |
12 |
|
|
21 |
|
|
9 |
Long-term debt due within
one year |
|
|
|
184 |
|
|
230 |
|
|
|
|
7,611 |
|
|
7,309 |
|
|
|
|
|
|
|
|
Long-term debt |
10 |
|
|
811 |
|
|
102 |
Long-term employee
benefit liabilities |
11 |
|
|
580 |
|
|
532 |
Other long-term
liabilities |
|
|
|
292 |
|
|
208 |
Deferred tax
liabilities |
12 |
|
|
172 |
|
|
200 |
|
|
|
|
9,466 |
|
|
8,351 |
|
|
|
|
|
|
|
|
Shareholders'
equity |
|
|
|
|
|
|
|
Capital stock |
|
|
|
|
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
[issued: 205,162,635; 2013 -
221,151,704] |
14 |
|
|
3,979 |
|
|
4,230 |
Contributed
surplus |
|
|
|
83 |
|
|
69 |
Retained
earnings |
|
|
|
5,155 |
|
|
5,011 |
Accumulated other
comprehensive (loss) income |
15 |
|
|
(558) |
|
|
313 |
|
|
|
|
8,659 |
|
|
9,623 |
|
|
|
|
|
|
|
|
Non-controlling
interests |
|
|
|
14 |
|
|
16 |
|
|
|
|
8,673 |
|
|
9,639 |
|
|
|
$ |
18,139 |
|
$ |
17,990 |
|
See accompanying
notes |
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
|
|
|
Common Shares |
|
Contri- |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
Stated |
|
buted |
|
Retained |
|
|
|
|
controlling |
|
Total |
|
Note |
|
Number |
|
Value |
|
Surplus |
|
Earnings |
|
AOCI
(i) |
|
Interests |
|
Equity |
|
|
|
[in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2012 |
|
|
233.1 |
|
$ |
4,391 |
|
$ |
80 |
|
$ |
4,462 |
|
$ |
496 |
|
$ |
29 |
|
$ |
9,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
1,561 |
|
|
|
|
|
(16) |
|
|
1,545 |
Other comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141) |
|
|
(1) |
|
|
(142) |
Issues of shares by
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
4 |
Shares issued on exercise of stock
options |
|
|
2.0 |
|
|
84 |
|
|
(21) |
|
|
|
|
|
|
|
|
|
|
|
63 |
Repurchase and cancellation under
normal course issuer bid |
14 |
|
(14.1) |
|
|
(271) |
|
|
|
|
|
(707) |
|
|
(42) |
|
|
|
|
|
(1,020) |
Release of restricted
stock |
|
|
|
|
|
6 |
|
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
— |
Release of restricted stock
units |
|
|
|
|
|
9 |
|
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
— |
Stock-based compensation
expense |
13 |
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
Settlement of stock
options |
13 |
|
|
|
|
|
|
|
(9) |
|
|
(10) |
|
|
|
|
|
|
|
|
(19) |
Dividends paid |
|
|
0.2 |
|
|
11 |
|
|
|
|
|
(295) |
|
|
|
|
|
|
|
|
(284) |
Balance, December 31,
2013 |
|
|
221.2 |
|
|
4,230 |
|
|
69 |
|
|
5,011 |
|
|
313 |
|
|
16 |
|
|
9,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
1,882 |
|
|
|
|
|
(2) |
|
|
1,880 |
Other comprehensive
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(843) |
|
|
|
|
|
(843) |
Shares issued on exercise of stock
options |
|
|
1.3 |
|
|
63 |
|
|
(12) |
|
|
|
|
|
|
|
|
|
|
|
51 |
Repurchase and cancellation under
normal course issuer bid |
14 |
|
(17.4) |
|
|
(342) |
|
|
|
|
|
(1,413) |
|
|
(28) |
|
|
|
|
|
(1,783) |
Release of restricted
stock |
|
|
|
|
|
5 |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
— |
Release of restricted stock
units |
|
|
|
|
|
14 |
|
|
(14) |
|
|
|
|
|
|
|
|
|
|
|
— |
Stock-based compensation
expense |
13 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
38 |
Reclassification of
liability |
13 |
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
7 |
Dividends paid |
|
|
0.1 |
|
|
9 |
|
|
|
|
|
(325) |
|
|
|
|
|
|
|
|
(316) |
Balance, December 31,
2014 |
|
|
205.2 |
|
$ |
3,979 |
|
$ |
83 |
|
$ |
5,155 |
|
$ |
(558) |
|
$ |
14 |
|
$ |
8,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) AOCI is Accumulated
Other Comprehensive Income. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes |
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
[All amounts in U.S. dollars and all tabular amounts in millions
unless otherwise noted]
1. SIGNIFICANT ACCOUNTING POLICIES
[a] Basis of Presentation
The unaudited interim consolidated financial
statements of Magna International Inc. and its subsidiaries
[collectively "Magna" or the "Company"] have been prepared in U.S.
dollars following U.S. generally accepted accounting principles
["GAAP"] and the accounting policies as set out in note 1 to the
annual consolidated financial statements for the year ended
December 31, 2013.
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,
2013 audited consolidated financial statements and notes
included in the Company's 2013 Annual Report.
The unaudited interim consolidated financial
statements reflect all adjustments, which consist only of normal
and recurring adjustments, necessary to present fairly the
financial position at December 31,
2014 and the results of operations, changes in equity and
cash flows for the three-month and years ended December 31, 2014 and 2013.
[b] Accounting Changes
Future Accounting Standards
Revenue Recognition
In May 2014, the
FASB issued Accounting Standards Update 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. ASU 2014-09 is effective for
the Company in the first quarter of fiscal 2017 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.
[c] Seasonality
The Company's businesses are generally not
seasonal. However, the Company's sales and profits are closely
related to its automotive customers' vehicle production schedules.
The Company's largest North American customers typically halt
production for approximately two weeks in July and one week in
December. Additionally, many of the Company's customers in
Europe typically shutdown vehicle
production during portions of August and one week in December.
2. OTHER EXPENSE, NET
|
|
|
|
Year
ended |
|
|
|
|
December 31, |
|
|
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter |
|
|
|
|
|
|
|
|
|
Restructuring |
|
[a, c] |
|
$ |
6 |
|
$ |
35 |
|
Impairment of long-lived
assets |
|
[b, d] |
|
|
18 |
|
|
33 |
|
Impairment of goodwill |
|
[e] |
|
|
— |
|
|
22 |
|
|
|
|
|
24 |
|
|
90 |
|
|
|
|
|
|
|
|
|
|
Third
Quarter |
|
|
|
|
|
|
|
|
|
Restructuring |
|
[a, c] |
|
|
7 |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
Second
Quarter |
|
|
|
|
|
|
|
|
|
Restructuring |
|
[a] |
|
|
11 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
First
Quarter |
|
|
|
|
|
|
|
|
|
Restructuring |
|
[a, c] |
|
|
22 |
|
|
6 |
|
|
|
|
$ |
64 |
|
$ |
144 |
For the year ended December 31,
2014:
[a] Restructuring
During 2014, the Company recorded net
restructuring charges of $46 million
[$41 million after tax] in
Europe at its exterior and
interior systems operations.
[b] Impairment of long-lived assets
In conjunction with its annual business planning
cycle, during the fourth quarter of 2014, the Company recorded
long-lived asset impairment charges of $18
million [$12 million after
tax] related to fixed assets at an interior systems facility in
the United States.
For the year ended December 31,
2013:
[c] Restructuring
During 2013, the Company recorded net
restructuring charges of $89 million
[$64 million after tax], in
Europe at its exterior and
interior systems operations related primarily to the closure of a
facility in Belgium.
[d] Impairment of long-lived assets
During the fourth quarter of 2013, the Company
recorded long-lived asset impairment charges of $33 million [$21
million after tax and non-controlling interests] consisting
of $23 million in North America and $10
million in Rest of World. The impairment charges
related to battery research equipment in Canada and fixed assets at the Company's
Seating operations in South
America.
[e] Impairment of goodwill
During the fourth quarter of 2013, the Company recorded goodwill
impairment charges of $22 million
[$22 million after tax] in Rest of
World related to the Company's metal stamping operations.
3. EARNINGS PER SHARE
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Magna International Inc. |
|
$ |
509 |
|
$ |
458 |
|
$ |
1,882 |
|
$ |
1,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Common Shares outstanding during the period |
|
|
206.2 |
|
|
222.1 |
|
|
213.6 |
|
|
227.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
Common Share |
|
$ |
2.47 |
|
$ |
2.06 |
|
$ |
8.81 |
|
$ |
6.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Magna International Inc. |
|
$ |
509 |
|
$ |
458 |
|
$ |
1,882 |
|
$ |
1,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Common Shares outstanding during the period |
|
|
206.2 |
|
|
222.1 |
|
|
213.6 |
|
|
227.9 |
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock
[a] |
|
|
2.9 |
|
|
3.3 |
|
|
3.0 |
|
|
2.9 |
|
|
|
209.1 |
|
|
225.4 |
|
|
216.6 |
|
|
230.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
Common Share |
|
$ |
2.44 |
|
$ |
2.03 |
|
$ |
8.69 |
|
$ |
6.76 |
[a] For both years ended December 31, 2014 and 2013, diluted earnings per
Common Share exclude 0.1 million Common Shares issuable under the
Company's Incentive Stock Option Plan because these options were
not "in-the-money".
4. DETAILS OF CASH FROM OPERATING
ACTIVITIES
[a] Cash and cash equivalents:
|
|
December
31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Bank term deposits, bankers'
acceptances and government paper |
|
$ |
1,058 |
|
$ |
1,331 |
Cash |
|
|
195 |
|
|
223 |
|
|
$ |
1,253 |
|
$ |
1,554 |
[b] Items not involving current cash
flows:
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
226 |
|
$ |
284 |
|
$ |
890 |
|
$ |
1,063 |
Amortization of other assets
included in cost of goods sold |
|
|
36 |
|
|
38 |
|
|
148 |
|
|
138 |
Deferred income
taxes |
|
|
63 |
|
|
(45) |
|
|
94 |
|
|
(100) |
Other non-cash
charges |
|
|
11 |
|
|
11 |
|
|
36 |
|
|
23 |
Impairment
charges |
|
|
18 |
|
|
55 |
|
|
18 |
|
|
55 |
Equity income in excess of
dividends received |
|
|
18 |
|
|
18 |
|
|
(29) |
|
|
(30) |
|
|
$ |
372 |
|
$ |
361 |
|
$ |
1,157 |
|
$ |
1,149 |
[c] Changes in operating assets and liabilities:
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(13) |
|
$ |
587 |
|
$ |
(767) |
|
$ |
(584) |
Inventories |
|
|
(32) |
|
|
62 |
|
|
(343) |
|
|
(141) |
Prepaid expenses and
other |
|
|
(7) |
|
|
(10) |
|
|
5 |
|
|
(56) |
Accounts payable |
|
|
239 |
|
|
(129) |
|
|
677 |
|
|
325 |
Accrued salaries and
wages |
|
|
3 |
|
|
(13) |
|
|
82 |
|
|
87 |
Other accrued
liabilities |
|
|
(37) |
|
|
(41) |
|
|
79 |
|
|
298 |
Income taxes payable |
|
|
(35) |
|
|
(5) |
|
|
22 |
|
|
(56) |
|
|
$ |
118 |
|
$ |
451 |
|
$ |
(245) |
|
$ |
(127) |
5. ACQUISITIONS
Acquisitions in the year ended December 31, 2014
In October 2014,
the Company acquired Techform Group of Companies, an automotive
supplier of hinges, door locking rods and other closure products,
which has operations in Canada,
the United States and China, for cash consideration of $23 million.
The net effect of this acquisition on the
Company's 2014 consolidated balance sheet were increases in fixed
assets of $21 million, goodwill of
$3 million, other assets of
$4 million, long-term debt of
$4 million and deferred tax
liabilities of $1 million.
Acquisitions in the year ended December 31, 2013
In November 2013,
the Company acquired the remaining 49% interest of Textile
Competence Centre Kft, a textile plant in Germany for cash consideration of $9 million. Prior to the acquisition, the Company
was fully consolidating this entity and recording a non-controlling
interest equal to the 49% interest not owned by the Company.
The net effect of this and other small
acquisitions on the Company's 2013 consolidated balance sheet were
increases in fixed assets of $5
million, goodwill of $3
million, other assets of $2
million, and other long-term liabilities of $2 million and a reduction of non-controlling
interest of $1 million.
6. INVENTORIES
Inventories consist of:
|
|
December
31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Raw materials and
supplies |
|
$ |
914 |
|
$ |
947 |
Work-in-process |
|
|
241 |
|
|
273 |
Finished goods |
|
|
362 |
|
|
339 |
Tooling and engineering |
|
|
1,240 |
|
|
1,078 |
|
|
$ |
2,757 |
|
$ |
2,637 |
Tooling and engineering inventory represents
costs incurred on tooling and engineering services contracts in
excess of billed and unbilled amounts included in accounts
receivable.
7. GOODWILL
The following is a continuity of the Company's
goodwill:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Balance, beginning of
period |
|
$ |
1,440 |
|
$ |
1,473 |
Acquisitions [note
5] |
|
|
— |
|
|
51 |
Foreign exchange and other |
|
|
(13) |
|
|
(23) |
Balance, March 31 |
|
|
1,427 |
|
|
1,501 |
Acquisitions [note
5] |
|
|
— |
|
|
(6) |
Foreign exchange and
other |
|
|
7 |
|
|
(10) |
Balance, June
30 |
|
|
1,434 |
|
|
1,485 |
Acquisitions [note
5] |
|
|
— |
|
|
(40) |
Foreign exchange and
other |
|
|
(52) |
|
|
27 |
Balance, September
30 |
|
|
1,382 |
|
|
1,472 |
Acquisitions [note
5] |
|
|
3 |
|
|
(4) |
Impairment [note
2] |
|
|
— |
|
|
(22) |
Foreign exchange and
other |
|
|
(35) |
|
|
(6) |
Balance, December 31 |
|
$ |
1,350 |
|
$ |
1,440 |
8. OTHER ASSETS
Other assets consist of:
|
|
December
31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Preproduction costs related to
long-term supply agreements with contractual guarantee for
reimbursement |
|
$ |
259 |
|
$ |
291 |
Customer relationship
intangibles |
|
|
108 |
|
|
143 |
Long-term receivables |
|
|
87 |
|
|
111 |
Patents and licences,
net |
|
|
36 |
|
|
44 |
Pension overfunded
status |
|
|
13 |
|
|
26 |
Unrealized gain on cash flow
hedges |
|
|
8 |
|
|
20 |
Other, net |
|
|
41 |
|
|
40 |
|
|
$ |
552 |
|
$ |
675 |
9. WARRANTY
The following is a continuity of the Company's
warranty accruals:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
91 |
|
$ |
94 |
Expense, net |
|
|
7 |
|
|
9 |
Settlements |
|
|
(7) |
|
|
(5) |
Foreign exchange and other |
|
|
— |
|
|
8 |
Balance, March
31 |
|
|
91 |
|
|
106 |
Expense, net |
|
|
7 |
|
|
11 |
Settlements |
|
|
(8) |
|
|
(6) |
Foreign exchange and
other |
|
|
— |
|
|
(9) |
Balance, June
30 |
|
|
90 |
|
|
102 |
Expense, net |
|
|
23 |
|
|
2 |
Settlements |
|
|
(10) |
|
|
(16) |
Foreign exchange and
other |
|
|
(6) |
|
|
2 |
Balance, September
30 |
|
|
97 |
|
|
90 |
Expense, net |
|
|
10 |
|
|
18 |
Settlements |
|
|
(15) |
|
|
(19) |
Foreign exchange and
other |
|
|
(4) |
|
|
2 |
Balance, December 31 |
|
$ |
88 |
|
$ |
91 |
10. LONG-TERM DEBT
[a] On June 16,
2014, the Company issued $750
million of 3.625% fixed-rate Senior Notes which mature
on June 15, 2024. The Senior Notes are senior
unsecured obligations, interest is payable on June 15 and December 15 of each year, and do not include
any financial covenants. The Company may redeem the Senior Notes in
whole or in part at any time, and from time to time, at specified
redemption prices determined in accordance with the terms of the
indenture governing the Senior Notes.
[b] On May 16,
2014, the Company's $2.25
billion revolving credit facility maturing June 20, 2018 was extended to June 20, 2019. The facility includes a
$200 million Asian tranche, a
$50 million Mexican tranche and a
tranche for Canada, U.S. and
Europe, which is fully
transferable between jurisdictions and can be drawn in U.S.
dollars, Canadian dollars or euros.
11. LONG-TERM EMPLOYEE BENEFIT
LIABILITIES
The Company recorded long-term employee benefit
expenses as follows:
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan and
other |
|
$ |
6 |
|
$ |
6 |
|
$ |
15 |
|
$ |
18 |
Termination and long service
arrangements |
|
|
24 |
|
|
17 |
|
|
48 |
|
|
41 |
Retirement medical benefit
plan |
|
|
(2) |
|
|
(2) |
|
|
— |
|
|
(1) |
|
|
$ |
28 |
|
$ |
21 |
|
$ |
63 |
|
$ |
58 |
12. INCOME TAXES
[a] During the first quarter of 2014, the
Austrian government enacted legislation abolishing the utilization
of foreign losses, where the foreign subsidiary is not a member of
the European Union. Furthermore, any foreign losses used by
Austrian entities arising in those non European Union subsidiaries
are subject to recapture in Austria. As a consequence of this change, the
Company recorded a charge to tax expense of $32 million in the first quarter of 2014.
[b] During 2013, the Company released a
$21 million position of its valuation
allowances related to certain European countries and China. In addition, the Company recorded
a $36 million deferred tax benefit as
a result of the elimination of the Mexican flat tax.
13. STOCK-BASED COMPENSATION
[a] Incentive Stock Option Plan
The following is a continuity schedule of
options outstanding [number of options in the table below are
expressed in whole numbers]:
|
|
2014 |
|
2013 |
|
|
Options outstanding |
|
|
|
Options outstanding |
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
Number |
|
|
Number |
|
Exercise |
|
of options |
|
Number |
|
Exercise |
|
of options |
|
|
of options |
|
price (i) |
|
exercisable |
|
of options |
|
price (i) |
|
exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
4,758,108 |
|
41.82 |
|
2,847,109 |
|
6,623,242 |
|
35.39 |
|
3,227,574 |
Granted |
|
751,300 |
|
106.71 |
|
— |
|
1,060,000 |
|
57.02 |
|
— |
Exercised (ii) |
|
(680,352) |
|
39.49 |
|
(680,352) |
|
(2,178,383) |
|
29.76 |
|
(2,178,383) |
Cancelled |
|
(16,999) |
|
52.19 |
|
(6,000) |
|
(37,500) |
|
50.17 |
|
(20,000) |
Vested |
|
— |
|
— |
|
779,384 |
|
— |
|
— |
|
2,105,503 |
March 31 |
|
4,812,057 |
|
52.24 |
|
2,940,141 |
|
5,467,359 |
|
41.73 |
|
3,134,694 |
Exercised |
|
(296,035) |
|
41.97 |
|
(296,035) |
|
(329,881) |
|
37.05 |
|
(329,881) |
Cancelled |
|
(10,500) |
|
73.85 |
|
— |
|
(81,665) |
|
52.05 |
|
(11,667) |
June 30 |
|
4,505,522 |
|
52.86 |
|
2,644,106 |
|
5,055,813 |
|
41.87 |
|
2,793,146 |
Exercised |
|
(171,051) |
|
38.53 |
|
(171,051) |
|
(259,315) |
|
41.56 |
|
(259,315) |
September 30 |
|
4,334,471 |
|
53.43 |
|
2,473,055 |
|
4,796,498 |
|
41.89 |
|
2,533,831 |
Exercised |
|
(177,142) |
|
38.78 |
|
(177,142) |
|
(38,390) |
|
50.49 |
|
(38,390) |
Vested |
|
— |
|
— |
|
11,331 |
|
— |
|
— |
|
351,668 |
December 31 |
|
4,157,329 |
|
54.05 |
|
2,307,244 |
|
4,758,108 |
|
41.82 |
|
2,847,109 |
(i) |
The exercise price noted above
represents the weighted average exercise price in Canadian
dollars. |
|
|
(ii) |
During the three months ended
March 31, 2013, 849,999 options were exercised on a cashless basis
in accordance with the applicable stock option plans. On exercise,
cash payments totalling $23 million were made to the stock option
holders. |
|
|
|
All cash payments were calculated
using the difference between the aggregate fair market value
of the Option Shares based on the closing price of the Company's
Common Shares on the Toronto Stock Exchange ["TSX"] on the date of
exercise and the aggregate Exercise Price of all such options
surrendered. |
The weighted average assumptions used in
measuring the fair value of stock options granted are as
follows:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Risk free interest
rate |
|
|
1.60% |
|
|
1.32% |
Expected dividend
yield |
|
|
2.00% |
|
|
2.00% |
Expected
volatility |
|
|
29% |
|
|
34% |
Expected time until
exercise |
|
4.5 years |
|
4.5 years |
|
|
|
|
|
|
|
Weighted average fair value of
options granted in period [Cdn$] |
|
$ |
22.94 |
|
$ |
14.02 |
[b] Long-term retention program
The following is a continuity of the stock that
has not been released to the executives and is reflected as a
reduction in the stated value of the Company's Common Shares
[number of Common Shares in the table below are expressed in whole
numbers]:
|
|
2014 |
|
2013 |
|
|
Number |
|
Stated |
|
Number |
|
Stated |
|
|
of shares |
|
value |
|
of shares |
|
value |
|
|
|
|
|
|
|
|
|
|
|
Awarded and not released,
beginning of period |
|
730,476 |
|
$ |
25 |
|
882,988 |
|
$ |
30 |
Release of restricted
stock |
|
(143,152) |
|
|
(5) |
|
(152,512) |
|
|
(5) |
Awarded and not released, March
31, June 30, September 30 and December 31 |
|
587,324 |
|
$ |
20 |
|
730,476 |
|
$ |
25 |
[c] Restricted stock unit
program
The following is a continuity schedule of
Restricted stock units ["RSUs"] and Independent Director stock
units ["DSUs"] outstanding [number of stock units in the table
below are expressed in whole numbers]:
|
|
2014 |
|
2013 |
|
|
Equity |
|
Liability |
|
Equity (i) |
|
|
|
Equity |
|
Liability |
|
Liability |
|
|
|
|
classified |
|
classified |
|
classified |
|
|
|
classified |
|
classified |
|
classified |
|
|
|
|
RSUs |
|
RSUs |
|
DSUs |
|
Total |
|
RSUs |
|
RSUs |
|
DSUs |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period |
|
631,854 |
|
30,119 |
|
127,447 |
|
789,420 |
|
605,430 |
|
20,099 |
|
206,923 |
|
832,452 |
Granted |
|
50,809 |
|
8,025 |
|
6,315 |
|
65,149 |
|
70,636 |
|
13,825 |
|
10,013 |
|
94,474 |
Dividend equivalents |
|
253 |
|
153 |
|
529 |
|
935 |
|
415 |
|
189 |
|
1,206 |
|
1,810 |
Released |
|
(8,259) |
|
— |
|
— |
|
(8,259) |
|
(8,259) |
|
— |
|
(113,007) |
|
(121,266) |
Balance, March
31 |
|
674,657 |
|
38,297 |
|
134,291 |
|
847,245 |
|
668,222 |
|
34,113 |
|
105,135 |
|
807,470 |
Granted |
|
55,242 |
|
1,000 |
|
5,357 |
|
61,599 |
|
71,391 |
|
— |
|
7,523 |
|
78,914 |
Dividend equivalents |
|
233 |
|
139 |
|
489 |
|
861 |
|
348 |
|
158 |
|
626 |
|
1,132 |
Released |
|
— |
|
— |
|
— |
|
— |
|
(10,386) |
|
— |
|
— |
|
(10,386) |
Balance, June 30 |
|
730,132 |
|
39,436 |
|
140,137 |
|
909,705 |
|
729,575 |
|
34,271 |
|
113,284 |
|
877,130 |
Granted |
|
35,657 |
|
— |
|
4,842 |
|
40,499 |
|
40,779 |
|
— |
|
7,538 |
|
48,317 |
Dividend equivalents |
|
171 |
|
131 |
|
489 |
|
791 |
|
252 |
|
136 |
|
463 |
|
851 |
Forfeitures |
|
— |
|
(410) |
|
— |
|
(410) |
|
— |
|
— |
|
— |
|
— |
Released |
|
(12,730) |
|
— |
|
— |
|
(12,730) |
|
— |
|
— |
|
— |
|
— |
Balance, September
30 |
|
753,230 |
|
39,157 |
|
145,468 |
|
937,855 |
|
770,606 |
|
34,407 |
|
121,285 |
|
926,298 |
Granted |
|
39,818 |
|
— |
|
5,622 |
|
45,440 |
|
42,035 |
|
— |
|
5,642 |
|
47,677 |
Dividend equivalents |
|
182 |
|
143 |
|
540 |
|
865 |
|
247 |
|
141 |
|
520 |
|
908 |
Released |
|
(300,591) |
|
(16,274) |
|
— |
|
(316,865) |
|
(181,034) |
|
(4,429) |
|
— |
|
(185,463) |
Balance, December
31 |
|
492,639 |
|
23,026 |
|
151,630 |
|
667,295 |
|
631,854 |
|
30,119 |
|
127,447 |
|
789,420 |
(i) |
Effective January 1, 2014, the
Deferred Share Units ["DSUs"] awarded under the Non-Employee
Director Share-Based Compensation Plan will be settled upon an
Independent Director's retirement from the Board by delivering
Magna Common Shares equal to the whole DSUs credited to the
Independent Director. Previously, the DSUs were settled in cash.
Accordingly, effective January 1, 2014, the DSUs are accounted for
through equity. |
[d] Compensation expense related to stock-based
compensation
Stock-based compensation expense recorded in
selling, general and administrative expenses related to the above
programs is as follows:
|
|
Three months
ended |
|
Year
ended |
|
|
December 31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Stock Option Plan |
|
$ |
4 |
|
$ |
3 |
|
$ |
15 |
|
$ |
15 |
Long-term retention |
|
|
1 |
|
|
1 |
|
|
4 |
|
|
4 |
Restricted stock unit |
|
|
4 |
|
|
5 |
|
|
21 |
|
|
16 |
|
|
|
9 |
|
|
9 |
|
|
40 |
|
|
35 |
Fair value adjustment for
liability classified DSUs |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
Total stock-based compensation
expense |
|
$ |
9 |
|
$ |
9 |
|
$ |
40 |
|
$ |
40 |
14. COMMON SHARES
[a] The Company repurchased shares
under a normal course issuer bids as follows:
|
|
2014 |
|
2013 |
|
|
Number |
|
Cash |
|
Number |
|
Cash |
|
|
of shares |
|
consideration |
|
of shares |
|
consideration |
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
2,710,000 |
|
$ |
240 |
|
1,593,615 |
|
$ |
88 |
Second Quarter |
|
5,718,181 |
|
|
575 |
|
5,194,188 |
|
|
337 |
Third Quarter |
|
5,654,422 |
|
|
614 |
|
3,697,973 |
|
|
298 |
Fourth Quarter |
|
3,452,299 |
|
|
337 |
|
3,596,545 |
|
|
290 |
|
|
17,534,902 |
|
$ |
1,766 |
|
14,082,321 |
|
$ |
1,013 |
The Company can purchase up to 20 million shares
under a normal course issuer bid that will terminate no later than
November 12, 2015.
[b] The following table presents the
maximum number of shares that would be outstanding if all the
dilutive instruments outstanding at February
24, 2015 were exercised or converted:
Common Shares |
205,170,260 |
Stock options (i) |
4,098,038 |
|
209,268,298 |
(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. |
15. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is a continuity schedule of
accumulated other comprehensive (loss) income:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
Accumulated net
unrealized (loss) gain on translation of net investment in foreign
operations |
|
|
|
|
|
|
|
Balance, beginning of
period |
|
$ |
454 |
|
$ |
629 |
|
Net unrealized loss |
|
|
(112) |
|
|
(133) |
|
Repurchase of shares under normal
course issuer bids |
|
|
(4) |
|
|
(5) |
|
Balance, March 31 |
|
|
338 |
|
|
491 |
|
Net unrealized gain
(loss) |
|
|
100 |
|
|
(91) |
|
Repurchase of shares under normal
course issuer bids |
|
|
(11) |
|
|
(17) |
|
Balance, June 30 |
|
|
427 |
|
|
383 |
|
Net unrealized (loss)
gain |
|
|
(346) |
|
|
143 |
|
Repurchase of shares under normal
course issuer bids |
|
|
(10) |
|
|
(11) |
|
Balance, September 30 |
|
|
71 |
|
|
515 |
|
Net unrealized loss |
|
|
(323) |
|
|
(52) |
|
Repurchase of shares under normal
course issuer bids |
|
|
(3) |
|
|
(9) |
|
Balance, December 31 |
|
|
(255) |
|
|
454 |
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on cash flow hedges (i) |
|
|
|
|
|
|
|
Balance, beginning of
period |
|
|
(20) |
|
|
34 |
|
Net unrealized (loss)
gain |
|
|
(31) |
|
|
8 |
|
Reclassification of net gain to
net income |
|
|
(1) |
|
|
(6) |
|
Balance, March 31 |
|
|
(52) |
|
|
36 |
|
Net unrealized gain
(loss) |
|
|
49 |
|
|
(36) |
|
Reclassification of net loss
(gain) to net income |
|
|
6 |
|
|
(6) |
|
Balance, June 30 |
|
|
3 |
|
|
(6) |
|
Net unrealized (loss)
gain |
|
|
(42) |
|
|
23 |
|
Reclassification of net gain on
cash flow hedges to net income |
|
|
(1) |
|
|
— |
|
Balance, September 30 |
|
|
(40) |
|
|
17 |
|
Net unrealized loss |
|
|
(79) |
|
|
(34) |
|
Reclassification of net loss
(gain) on cash flow hedges to net income |
|
|
6 |
|
|
(3) |
|
Balance, December 31 |
|
|
(113) |
|
|
(20) |
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on available-for-sale investments |
|
|
|
|
|
|
|
Balance, beginning of
period |
|
|
(4) |
|
|
1 |
|
Net unrealized (loss)
gain |
|
|
(1) |
|
|
1 |
|
Balance, March 31 |
|
|
(5) |
|
|
2 |
|
Net unrealized loss |
|
|
— |
|
|
(5) |
|
Balance, June 30 |
|
|
(5) |
|
|
(3) |
|
Net unrealized gain (loss)
|
|
|
1 |
|
|
(1) |
|
Balance, September 30 |
|
|
(4) |
|
|
(4) |
|
Net unrealized loss |
|
|
— |
|
|
— |
|
Balance, December 31 |
|
|
(4) |
|
|
(4) |
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on pension (ii) |
|
|
|
|
|
|
|
Balance, beginning of
period |
|
|
(117) |
|
|
(168) |
|
Reclassification of net loss to
net income |
|
|
1 |
|
|
3 |
|
Balance, March 31 |
|
|
(116) |
|
|
(165) |
|
Reclassification of net loss to
net income |
|
|
2 |
|
|
3 |
|
Balance, June 30 |
|
|
(114) |
|
|
(162) |
|
Reclassification of net loss to
net income |
|
|
— |
|
|
3 |
|
Balance, September 30 |
|
|
(114) |
|
|
(159) |
|
Net unrealized (loss)
gain |
|
|
(72) |
|
|
44 |
|
Reclassification of net gain to
net income |
|
|
— |
|
|
(2) |
|
Balance, December 31 |
|
|
(186) |
|
|
(117) |
|
|
|
|
|
|
|
|
Total accumulated
other comprehensive (loss) income |
|
$ |
(558) |
|
$ |
313 |
|
|
|
(i) |
The amount of income tax benefit
that has been netted in the accumulated net unrealized loss on cash
flow hedges is as follows: |
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period |
|
$ |
5 |
|
$ |
(13) |
|
|
|
|
|
|
Net unrealized loss
(gain) |
|
|
10 |
|
|
(4) |
|
|
|
|
|
|
Reclassifications of net gain to net income |
|
|
1 |
|
|
2 |
|
|
|
|
|
|
Balance, March
31 |
|
|
16 |
|
|
(15) |
|
|
|
|
|
|
Net unrealized (gain) loss
|
|
|
(18) |
|
|
13 |
|
|
|
|
|
|
Reclassifications of net (loss) gain to net
income |
|
|
(1) |
|
|
3 |
|
|
|
|
|
|
Balance, June
30 |
|
|
(3) |
|
|
1 |
|
|
|
|
|
|
Net unrealized loss
(gain) |
|
|
16 |
|
|
(8) |
|
|
|
|
|
|
Reclassifications of net gain to net income |
|
|
1 |
|
|
— |
|
|
|
|
|
|
Balance, September
30 |
|
|
14 |
|
|
(7) |
|
|
|
|
|
|
Net unrealized
loss |
|
|
32 |
|
|
10 |
|
|
|
|
|
|
Reclassifications of net (loss) gain to net
income |
|
|
(2) |
|
|
1 |
|
|
|
|
|
|
Balance, December 31 |
|
$ |
44 |
|
$ |
4 |
|
|
|
(ii) |
The amount of income tax benefit
that has been netted in the accumulated net unrealized loss on
pension is as follows: |
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period |
|
$ |
14 |
|
$ |
36 |
|
|
|
|
|
|
Reclassification of net loss to net income |
|
|
— |
|
|
(1) |
|
|
|
|
|
|
Balance, March
31 |
|
|
14 |
|
|
35 |
|
|
|
|
|
|
Reclassification of net loss to net income |
|
|
— |
|
|
(1) |
|
|
|
|
|
|
Balance, June
30 |
|
|
14 |
|
|
34 |
|
|
|
|
|
|
Reclassification of net loss to net income |
|
|
(1) |
|
|
(1) |
|
|
|
|
|
|
Balance, September
30 |
|
|
13 |
|
|
33 |
|
|
|
|
|
|
Net unrealized loss
(gain) |
|
|
23 |
|
|
(21) |
|
|
|
|
|
|
Reclassification of net gain to net income |
|
|
— |
|
|
2 |
|
|
|
|
|
|
Balance, December 31 |
|
$ |
36 |
|
$ |
14 |
The amount of other comprehensive loss that is
expected to be reclassified to net income over the next 12 months
is $55 million [net of income
taxes of $21 million].
16. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and
financial liabilities consist of the following:
|
|
December
31, |
|
December 31, |
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
$ |
1,253 |
|
$ |
1,554 |
|
Investment in
asset-backed commercial paper |
|
|
88 |
|
|
92 |
|
|
$ |
1,341 |
|
$ |
1,646 |
|
|
|
|
|
|
|
|
|
Held to maturity
investments |
|
|
|
|
|
|
|
Severance
investments |
|
$ |
4 |
|
$ |
5 |
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
Equity
investments |
|
$ |
5 |
|
$ |
4 |
|
|
|
|
|
|
|
|
|
Loans and
receivables |
|
|
|
|
|
|
|
Accounts
receivable |
|
$ |
5,635 |
|
$ |
5,246 |
|
Long-term receivables
included in other assets |
|
|
87 |
|
|
111 |
|
|
$ |
5,722 |
|
$ |
5,357 |
|
|
|
|
|
|
|
|
|
Other financial
liabilities |
|
|
|
|
|
|
|
Bank
indebtedness |
|
$ |
33 |
|
$ |
41 |
|
Long-term debt
[including portion due within one year] |
|
|
995 |
|
|
332 |
|
Accounts
payable |
|
|
5,105 |
|
|
4,781 |
|
|
$ |
6,133 |
|
$ |
5,154 |
|
|
|
|
|
|
|
|
|
Derivatives designated
as effective hedges, measured at fair value |
|
|
|
|
|
|
|
Foreign currency
contracts |
|
|
|
|
|
|
|
|
Prepaid expenses and
other |
|
$ |
22 |
|
$ |
42 |
|
|
Other assets |
|
|
8 |
|
|
20 |
|
|
Other accrued liabilities |
|
|
(93) |
|
|
(37) |
|
|
Other long-term liabilities |
|
|
(82) |
|
|
(28) |
|
|
|
(145) |
|
|
(3) |
|
Commodity
contracts |
|
|
|
|
|
|
|
|
Other accrued
liabilities |
|
|
(1) |
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
$ |
(146) |
|
$ |
(4) |
[b] Derivatives designated as effective hedges, measured
at fair value
The Company presents derivatives that are
designated as effective hedges at gross fair values in the
consolidated balance sheets. However, master netting and other
similar arrangements allow net settlements under certain
conditions. The following table shows the Company's derivative
foreign currency contracts at gross fair value as reflected in the
consolidated balance sheets and the unrecognized impacts of master
netting arrangements:
|
|
Gross |
|
Gross |
|
|
|
|
|
amounts |
|
amounts |
|
|
|
|
|
presented |
|
not
offset |
|
|
|
|
|
in
consolidated |
|
in
consolidated |
|
|
|
|
|
balance
sheets |
|
balance
sheets |
|
Net
amounts |
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
30 |
|
$ |
28 |
|
$ |
2 |
|
Liabilities |
|
$ |
(174) |
|
$ |
(28) |
|
$ |
(146) |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$ |
62 |
|
$ |
42 |
|
$ |
20 |
|
Liabilities |
|
$ |
(65) |
|
$ |
(42) |
|
$ |
(23) |
[c] Fair value
The Company determined the estimated fair values
of its financial instruments based on valuation methodologies it
believes are appropriate; however, considerable judgment is
required to develop these estimates. Accordingly, these estimated
fair values are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The estimated
fair value amounts can be materially affected by the use of
different assumptions or methodologies. The methods and assumptions
used to estimate the fair value of financial instruments are
described below:
Cash and cash equivalents, accounts
receivable, bank indebtedness and accounts payable.
Due to the short period to maturity of the
instruments, the carrying values as presented in the interim
consolidated balance sheets are reasonable estimates of fair
values.
Investments
At December 31,
2014, the Company held Canadian third party asset-backed
commercial paper ["ABCP"] with a face value of Cdn$107 million [December
31, 2013 - Cdn$107 million]. The carrying value and
estimated fair value of this investment was Cdn$102 million [December
31, 2013 - Cdn$99 million]. As
fair value information is not readily determinable for the
Company's investment in ABCP, the fair value was based on a
valuation technique estimating the fair value from the perspective
of a market participant.
At December 31,
2014, the Company held available-for-sale investments in
publicly traded companies. The carrying value and fair value of
these investments was $5 million,
which was based on the closing share price of the investments on
December 31, 2014.
Term debt
The Company's term debt includes $184 million due within one year. Due to the
short period to maturity of this debt, the carrying value as
presented in the interim consolidated balance sheets is a
reasonable estimate of its fair value.
Senior Notes
At December 31,
2014, the total estimated fair value of the Senior Notes was
approximately $755 million,
determined primarily using active market prices, categorized as
Level 1 inputs within GAAP's fair value hierarchy.
[d] Credit risk
The Company's financial assets that are exposed
to credit risk consist primarily of cash and cash equivalents,
accounts receivable, held to maturity investments, and foreign
exchange forward contracts with positive fair values.
The Company's trading investments include an
investment in ABCP. Given the continuing uncertainties regarding
the value of the underlying assets, the amount and timing of cash
flows and the risk of collateral calls in the event that spreads
widened considerably, the Company could be exposed to further
losses on its investment.
Cash and cash equivalents, which consists of
short-term investments, are only invested in governments, bank term
deposits and bank commercial paper with an investment grade credit
rating. Credit risk is further reduced by limiting the amount which
is invested in certain governments or any major financial
institution.
The Company is also exposed to credit risk from
the potential default by any of its counterparties on its foreign
exchange forward contracts. The Company mitigates this credit risk
by dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under
the contracts.
In the normal course of business, the Company is
exposed to credit risk from its customers, substantially all of
which are in the automotive industry and are subject to credit
risks associated with the automotive industry. For the three month
period and year ended December 31,
2014, sales to the Company's six largest customers
represented 84% and 83% of the Company's total sales, respectively,
and substantially all of the Company's sales are to customers in
which it has ongoing contractual relationships.
[e] Interest rate risk
The Company is not exposed to significant
interest rate risk due to the short-term maturity of its monetary
current assets and current liabilities. In particular, the amount
of interest income earned on the Company's cash and cash
equivalents is impacted more by the investment decisions made and
the demands to have available cash on hand, than by movements in
the interest rates over a given period.
In addition, the Company is not exposed to
interest rate risk on its term debt and Senior Notes as the
interest rates on these instruments are fixed.
[f] Currency risk and foreign
exchange contracts
The Company operates globally, which gives rise
to a risk that its earnings and cash flows may be adversely
impacted by fluctuations in foreign exchange rates. The Company is
exposed to fluctuations in foreign exchange rates when
manufacturing facilities have committed to the delivery of products
for which the selling price has been quoted in currencies other
than the facilities' functional currency, or when materials and
equipment are purchased in currencies other than the facilities'
functional currency.
In an effort to manage this net foreign exchange
exposure, the Company uses foreign exchange forward contracts for
the sole purpose of hedging certain of the Company's future
committed Canadian dollar, U.S. dollar, euro and British pound
outflows and inflows. All derivative instruments, including foreign
exchange contracts, are recorded on the interim consolidated
balance sheet at fair value. To the extent that cash flow hedges
are effective, the change in their fair value is recorded in other
comprehensive income; any ineffective portion is recorded in net
income. Amounts accumulated in other comprehensive income are
reclassified to net income in the period in which the hedged item
affects net income.
At December 31,
2014, the Company had outstanding foreign exchange forward
contracts representing commitments to buy and sell various foreign
currencies. Significant commitments are as follows:
|
|
Buys |
|
Sells |
|
|
|
|
|
For Canadian
dollars |
|
|
|
|
|
U.S. dollar amount |
|
267 |
|
1,328 |
|
euro amount |
|
65 |
|
15 |
|
|
|
|
|
For U.S. dollars |
|
|
|
|
|
Peso amount |
|
8,067 |
|
123 |
|
|
|
|
|
For euros |
|
|
|
|
|
U.S. dollar amount |
|
112 |
|
288 |
|
British pounds amount |
|
13 |
|
38 |
|
Czech koruna amount |
|
4,935 |
|
— |
Forward contracts mature at various dates
through 2019. Foreign currency exposures are reviewed
quarterly.
17. CONTINGENCIES
From time to time, the Company may become
involved in regulatory proceedings, or become liable for legal,
contractual and other claims by various parties, including
customers, suppliers, former employees, class action plaintiffs and
others. On an ongoing basis, the Company attempts to assess the
likelihood of any adverse judgments or outcomes to these
proceedings or claims, together with potential ranges of probable
costs and losses. A determination of the provision required, if
any, for these contingencies is made after analysis of each
individual issue. The required provision may change in the future
due to new developments in each matter or changes in approach such
as a change in settlement strategy in dealing with these
matters.
[a] In November
1997, the Company and two of its subsidiaries were sued by
KS Centoco Ltd., an Ontario-based
steering wheel manufacturer in which the Company has a 23% equity
interest, and by Centoco Holdings Limited, the owner of the
remaining 77% equity interest in KS Centoco Ltd. In March 1999, the plaintiffs were granted leave to
make substantial amendments to the original statement of claim in
order to add several new defendants and claim additional remedies,
and in February 2006, the plaintiffs
further amended their claim to add an additional remedy. The
amended statement of claim alleges, among other things:
- breach of fiduciary duty by the Company and two of its
subsidiaries;
- breach by the Company of its binding letter of intent with KS
Centoco Ltd., including its covenant not to have any interest,
directly or indirectly, in any entity that carries on the airbag
business in North America, other
than through MST Automotive Inc., a company to be 77% owned by
Magna and 23% owned by Centoco Holdings Limited;
- the plaintiff's exclusive entitlement to certain airbag
technologies in North America
pursuant to an exclusive licence agreement, together with an
accounting of all revenues and profits resulting from the alleged
use by the Company, TRW Inc. ["TRW"] and other unrelated third
party automotive supplier defendants of such technology in
North America;
- a conspiracy by the Company, TRW and others to deprive KS
Centoco Ltd. of the benefits of such airbag technology in
North America and to cause Centoco
Holdings Limited to sell to TRW its interest in KS Centoco Ltd. in
conjunction with the Company's sale to TRW of its interest in MST
Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; and
- oppression by the defendants.
The plaintiffs are seeking, amongst other
things, damages of approximately Cdn$3.5
billion. Document production, completion of undertakings and
examinations for discovery are substantially complete, although
limited additional examinations for discovery may occur. A trial is
not expected to commence until 2016, at the earliest. The Company
believes it has valid defences to the plaintiffs' claims and
therefore intends to continue to vigorously defend this case.
Notwithstanding the amount of time which has transpired since the
claim was filed, these legal proceedings remain at an early stage
and, accordingly, it is not possible to predict their outcome.
[b] In September
2013, representatives of the Bundeskartellamt, the German
Federal Cartel Office, attended at one of the Company's operating
divisions in Germany to obtain
information in connection with an ongoing antitrust investigation
relating to suppliers of automotive textile coverings and
components, particularly trunk linings.
In September 2014,
the Conselho Administrativo de Defesa Economica, Brazil's Federal competition authority,
attended at one of the Company's operating divisions in
Brazil to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related products.
Proceedings of this nature can often continue
for several years. Where wrongful conduct is found, the relevant
antitrust authority can, depending on the jurisdiction, initiate
administrative or criminal legal proceedings and impose
administrative or criminal fines or penalties taking into account
several mitigating and aggravating factors. In the case of the
German Federal Cartel Office, administrative fines are tied to the
level of affected sales and the consolidated sales of the group of
companies to which the offending entity belongs. At this time,
management is unable to predict the duration or outcome of the
German and Brazilian investigations, including whether any
operating divisions of the Company will be found liable for any
violation of law or the extent or magnitude of any liability, if
found to be liable.
The Company's policy is to comply with all
applicable laws, including antitrust and competition laws. The
Company has initiated a global review focused on antitrust risk led
by a team of external counsel. If any antitrust violation is found
as a result of the above-referenced investigations or otherwise,
Magna could be subject to fines, penalties and civil,
administrative or criminal legal proceedings that could have a
material adverse effect on Magna's profitability in the year in
which any such fine or penalty is imposed or the outcome of any
such proceeding is determined. Additionally, Magna could be subject
to other consequences, including reputational damage, which could
have a material adverse effect on the Company.
[c] In certain circumstances, the Company
is at risk for warranty costs including product liability and
recall costs. Due to the nature of the costs, the Company makes its
best estimate of the expected future costs [note 9];
however, the ultimate amount of such costs could be materially
different. The Company continues to experience increased customer
pressure to assume greater warranty responsibility. Currently,
under most customer agreements, the Company only accounts for
existing or probable claims. Under certain complete vehicle
engineering and assembly contracts, the Company records an estimate
of future warranty-related costs based on the terms of the specific
customer agreements, and the specific customer's warranty
experience.
18. SEGMENTED INFORMATION
Given the differences between the regions in
which the Company operates, Magna's operations are segmented on a
geographic basis. Consistent with the above, the Company's internal
financial reporting separately segments key internal operating
performance measures between North
America, Europe,
Asia and Rest of World for
purposes of presentation to the chief operating decision maker to
assist in the assessment of operating performance, the allocation
of resources, and the long-term strategic direction and future
global growth of the Company.
The Company's chief operating decision maker
uses Adjusted EBIT as the measure of segment profit or loss, since
management believes Adjusted EBIT is the most appropriate measure
of operational profitability or loss for its reporting segments.
Adjusted EBIT represents income from operations before income
taxes; interest expense, net; and other expense, net.
The accounting policies of each segment are the
same as those set out under "Significant Accounting Policies"
[note 1] and intersegment sales and transfers are accounted
for at fair market value.
The following tables show segment information
for the Company's reporting segments and a reconciliation of
Adjusted EBIT to the Company's consolidated income from operations
before income taxes:
|
|
Three months
ended |
|
Three months
ended |
|
|
December 31, 2014 |
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
Total |
|
External |
|
Adjusted |
|
assets, |
|
Total |
|
External |
|
Adjusted |
|
assets, |
|
|
sales |
|
sales |
|
EBIT |
|
net |
|
sales |
|
sales |
|
EBIT |
|
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
1,759 |
|
$ |
1,648 |
|
|
|
|
$ |
638 |
|
$ |
1,733 |
|
$ |
1,603 |
|
|
|
|
$ |
601 |
|
United States |
|
|
2,547 |
|
|
2,401 |
|
|
|
|
|
1,260 |
|
|
2,220 |
|
|
2,099 |
|
|
|
|
|
1,135 |
|
Mexico |
|
|
1,138 |
|
|
1,054 |
|
|
|
|
|
655 |
|
|
995 |
|
|
925 |
|
|
|
|
|
611 |
|
Eliminations |
|
|
(316) |
|
|
— |
|
|
|
|
|
— |
|
|
(308) |
|
|
— |
|
|
|
|
|
— |
|
|
|
5,128 |
|
|
5,103 |
|
$ |
542 |
|
|
2,553 |
|
|
4,640 |
|
|
4,627 |
|
$ |
477 |
|
|
2,347 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great
Britain) |
|
|
2,874 |
|
|
2,798 |
|
|
|
|
|
1,359 |
|
|
3,170 |
|
|
3,093 |
|
|
|
|
|
1,463 |
|
Great
Britain |
|
|
216 |
|
|
214 |
|
|
|
|
|
98 |
|
|
258 |
|
|
257 |
|
|
|
|
|
70 |
|
Eastern
Europe |
|
|
738 |
|
|
601 |
|
|
|
|
|
555 |
|
|
633 |
|
|
549 |
|
|
|
|
|
636 |
|
Eliminations |
|
|
(157) |
|
|
— |
|
|
|
|
|
— |
|
|
(107) |
|
|
— |
|
|
|
|
|
— |
|
|
|
3,671 |
|
|
3,613 |
|
|
99 |
|
|
2,012 |
|
|
3,954 |
|
|
3,899 |
|
|
111 |
|
|
2,169 |
Asia |
|
|
540 |
|
|
503 |
|
|
52 |
|
|
650 |
|
|
486 |
|
|
449 |
|
|
26 |
|
|
597 |
Rest of
World |
|
|
176 |
|
|
175 |
|
|
(5) |
|
|
82 |
|
|
193 |
|
|
193 |
|
|
(21) |
|
|
102 |
Corporate and
Other |
|
|
(119) |
|
|
2 |
|
|
24 |
|
|
367 |
|
|
(99) |
|
|
6 |
|
|
14 |
|
|
226 |
Total reportable
segments |
|
|
9,396 |
|
|
9,396 |
|
|
712 |
|
|
5,664 |
|
|
9,174 |
|
|
9,174 |
|
|
607 |
|
|
5,441 |
Other expense,
net |
|
|
|
|
|
|
|
|
(24) |
|
|
|
|
|
|
|
|
|
|
|
(90) |
|
|
|
Interest expense,
net |
|
|
|
|
|
|
|
|
(11) |
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
$ |
9,396 |
|
$ |
9,396 |
|
$ |
677 |
|
|
5,664 |
|
$ |
9,174 |
|
$ |
9,174 |
|
$ |
514 |
|
|
5,441 |
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
10,007 |
|
|
|
|
|
|
|
|
|
|
|
9,923 |
Investments, goodwill,
deferred tax assets, and other
assets |
|
|
|
|
|
|
|
|
|
|
|
2,468 |
|
|
|
|
|
|
|
|
|
|
|
2,626 |
Consolidated total
assets |
|
|
|
|
|
|
|
|
|
|
$ |
18,139 |
|
|
|
|
|
|
|
|
|
|
$ |
17,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended |
|
Year
ended |
|
|
December 31, 2014 |
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
Total |
|
External |
|
Adjusted |
|
assets, |
|
Total |
|
External |
|
Adjusted |
|
assets, |
|
|
sales |
|
sales |
|
EBIT |
|
net |
|
sales |
|
sales |
|
EBIT |
|
net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,799 |
|
$ |
6,324 |
|
|
|
|
$ |
638 |
|
$ |
6,734 |
|
$ |
6,223 |
|
|
|
|
$ |
601 |
|
United States |
|
|
9,780 |
|
|
9,252 |
|
|
|
|
|
1,260 |
|
|
8,409 |
|
|
7,938 |
|
|
|
|
|
1,135 |
|
Mexico |
|
|
4,357 |
|
|
4,027 |
|
|
|
|
|
655 |
|
|
3,993 |
|
|
3,698 |
|
|
|
|
|
611 |
|
Eliminations |
|
|
(1,224) |
|
|
— |
|
|
|
|
|
— |
|
|
(1,182) |
|
|
— |
|
|
|
|
|
— |
|
|
|
19,712 |
|
|
19,603 |
|
$ |
1,992 |
|
|
2,553 |
|
|
17,954 |
|
|
17,859 |
|
$ |
1,645 |
|
|
2,347 |
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great
Britain) |
|
|
11,775 |
|
|
11,487 |
|
|
|
|
|
1,359 |
|
|
11,813 |
|
|
11,544 |
|
|
|
|
|
1,463 |
|
Great
Britain |
|
|
783 |
|
|
781 |
|
|
|
|
|
98 |
|
|
975 |
|
|
968 |
|
|
|
|
|
70 |
|
Eastern Europe |
|
|
2,580 |
|
|
2,226 |
|
|
|
|
|
555 |
|
|
2,317 |
|
|
2,013 |
|
|
|
|
|
636 |
|
Eliminations |
|
|
(432) |
|
|
— |
|
|
|
|
|
— |
|
|
(387) |
|
|
— |
|
|
|
|
|
— |
|
|
|
14,706 |
|
|
14,494 |
|
|
434 |
|
|
2,012 |
|
|
14,718 |
|
|
14,525 |
|
|
375 |
|
|
2,169 |
Asia |
|
|
1,983 |
|
|
1,837 |
|
|
162 |
|
|
650 |
|
|
1,684 |
|
|
1,539 |
|
|
85 |
|
|
597 |
Rest of
World |
|
|
695 |
|
|
694 |
|
|
(35) |
|
|
82 |
|
|
889 |
|
|
889 |
|
|
(76) |
|
|
102 |
Corporate and
Other |
|
|
(455) |
|
|
13 |
|
|
79 |
|
|
367 |
|
|
(410) |
|
|
23 |
|
|
36 |
|
|
226 |
Total reportable
segments |
|
|
36,641 |
|
|
36,641 |
|
|
2,632 |
|
|
5,664 |
|
|
34,835 |
|
|
34,835 |
|
|
2,065 |
|
|
5,441 |
Other expense,
net |
|
|
|
|
|
|
|
|
(64) |
|
|
|
|
|
|
|
|
|
|
|
(144) |
|
|
|
Interest expense,
net |
|
|
|
|
|
|
|
|
(29) |
|
|
|
|
|
|
|
|
|
|
|
(16) |
|
|
|
|
|
$ |
36,641 |
|
$ |
36,641 |
|
$ |
2,539 |
|
|
5,664 |
|
$ |
34,835 |
|
$ |
34,835 |
|
$ |
1,905 |
|
|
5,441 |
Current
assets |
|
|
|
|
|
|
|
|
|
|
|
10,007 |
|
|
|
|
|
|
|
|
|
|
|
9,923 |
Investments, goodwill
deferred tax assets and other
assets |
|
|
|
|
|
|
|
|
|
|
|
2,468 |
|
|
|
|
|
|
|
|
|
|
|
2,626 |
Consolidated total
assets |
|
|
|
|
|
|
|
|
|
|
$ |
18,139 |
|
|
|
|
|
|
|
|
|
|
$ |
17,990 |
19. SUBSEQUENT EVENTS
Stock Split
On February 24,
2015 the Board of Directors approved a two-for-one stock
split, to be implemented by way of a stock dividend, whereby
shareholders of the Company will receive an additional Common Share
for each Common Share held. The stock dividend will be payable on
March 25, 2015, to shareholders of
record at the close of business on March 11,
2015. All equity-based compensation plans or arrangements
and normal course issuer bid will be adjusted to reflect the
issuance of additional Common Shares due to the declaration of the
stock split.
SOURCE Magna International Inc.