- Third quarter record sales up 16%, well above 3% growth in
global light vehicle production
- Third quarter record diluted earnings per share from
continuing operations increased 14%
- $288 million returned to
shareholders through share repurchases and dividends
AURORA, ON, Nov. 3, 2016 /PRNewswire/ - Magna International
Inc. (TSX: MG; NYSE: MGA) today reported financial results for the
third quarter ended September 30,
2016.
|
THREE MONTHS
ENDED
SEPTEMBER 30,
|
|
NINE MONTHS
ENDED
SEPTEMBER 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
8,849
|
|
$
|
7,661
|
|
$
|
27,192
|
|
$
|
23,566
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBIT(1)
|
$
|
715
|
|
$
|
565
|
|
$
|
2,202
|
|
$
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
before income
taxes
|
$
|
692
|
|
$
|
680
|
|
$
|
2,134
|
|
$
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from
continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to Magna
International Inc.
|
$
|
503
|
|
$
|
470
|
|
$
|
1,553
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing
operations
|
$
|
1.29
|
|
$
|
1.13
|
|
$
|
3.92
|
|
$
|
3.53
|
|
|
|
|
|
|
|
|
|
|
|
|
All results are
reported in millions of U.S. dollars, except per share figures,
which are in U.S. dollars.
|
(1)
Adjusted EBIT is the measure of segment profit or loss as reported
in the Company's attached unaudited interim consolidated
financial
statements. Adjusted EBIT represents income from operations before
income taxes; interest expense, net; and other income, net.
|
THREE MONTHS ENDED SEPTEMBER 30,
2016
We posted sales of $8.8 billion
for the third quarter ended September 30,
2016, an increase of 16% over the third quarter of
2015. This strong year over year growth was achieved despite
North American light vehicle production increasing only 1% and
European light vehicle production declining 2%, compared to the
third quarter of 2015.
Our complete vehicle assembly sales decreased 4% in the third
quarter of 2016, compared to the third quarter of 2015, while our
complete vehicle assembly volumes decreased 19% from the comparable
quarter to approximately 19,000 units. The decreases largely
reflect that we were nearing end of production of the MINI
Countryman and Paceman.
During the third quarter of 2016, income from continuing
operations before income taxes was $692
million and net income from continuing operations
attributable to Magna International Inc. was $503 million, increases of 2% and 7%
respectively, both compared to the third quarter of 2015.
Diluted earnings per share from continuing operations increased
$0.16 or 14% in the third quarter of
2016, which includes the favourable impact of a reduced share
count.
During the third quarter ended September
30, 2016, we generated cash from operations of $796 million before changes in operating assets
and liabilities, and invested $139
million in operating assets and liabilities. Total
investment activities for the third quarter of 2016 were
$556 million, including
$390 million in fixed asset additions and $166 million in investments and other
assets.
NINE MONTHS ENDED SEPTEMBER 30,
2016
We posted sales of $27.2 billion
for the nine months ended September 30,
2016, an increase of 15% from the nine months ended
September 30, 2015. Excluding
the impact of foreign currency translation, our sales increased 17%
in the first nine months of 2016, compared to the first nine months
of 2015. In comparison, North American and European light
vehicle production increased 4% and 5%, respectively, in the first
nine months of 2016 compared to the first nine months of 2015.
Our complete vehicle assembly sales increased 1% in the first
nine months of 2016, compared to the first nine months of
2015. Complete vehicle assembly volumes decreased 14% to
approximately 68,000 units. The volume decrease largely
reflects that we were nearing end of production of the MINI
Countryman and Paceman.
During the nine months ended September
30, 2016, income from continuing operations before income
taxes was $2.1 billion and net income
from continuing operations attributable to Magna International Inc.
was $1.6 billion, increases of
$107 million and $90 million, respectively, both compared to the
first nine months of 2015. Diluted earnings per share from
continuing operations increased $0.39
or 11% for the nine months ended September
30, 2016, which includes the favourable impact of a reduced
share count.
During the nine months ended September
30, 2016, we generated cash from operations before changes
in operating assets and liabilities of $2.4
billion, and invested $759
million in operating assets and liabilities. Total
investment activities for the first nine months of 2016 were
$3.3 billion, including $1.8 billion to purchase subsidiaries,
$1.1 billion in fixed asset
additions and $323 million in
investments and other assets.
A more detailed discussion of our consolidated financial results
for the third quarter and nine months ended September 30, 2016 is contained in the
Management's Discussion and Analysis of Results of Operations and
Financial Position and the unaudited interim consolidated financial
statements and notes thereto, which are attached to this Press
Release.
RETURN OF CAPITAL TO SHAREHOLDERS
During the three and nine months ended September 30, 2016, Magna repurchased 4.7 million
shares for $191 million and 19.8
million shares for $799 million,
respectively, pursuant to our existing Normal Course Issuer Bid
which expires in November 2016.
Today, our Board of Directors declared a quarterly dividend of
$0.25 with respect to our outstanding
Common Shares for the quarter ended September 30, 2016. This dividend is payable on
December 9, 2016 to shareholders of
record on November 25, 2016.
OTHER MATTERS
Subject to the approval by the Toronto Stock Exchange and the
New York Stock Exchange, our Board of Directors approved a Normal
Course Issuer Bid ("NCIB") to purchase up to 38 million of our
Common Shares, representing approximately 10% of our public float
of Common Shares. This NCIB is expected to commence on or
about November 14, 2016 and will
terminate one year later.
UPDATED 2016 OUTLOOK
|
|
|
|
|
Light Vehicle
Production
(Units)
|
|
|
|
|
|
North
America
|
|
|
17.8
million
|
|
|
Europe
|
|
|
21.5
million
|
|
|
|
|
|
|
Production
Sales
|
|
|
|
|
|
North
America
|
|
|
$19.2 - $19.6
billion
|
|
|
Europe
|
|
|
$9.0 - $9.3
billion
|
|
|
Asia
|
|
|
$2.1 - $2.2
billion
|
|
|
Rest of
World
|
|
|
$0.4 - $0.5
billion
|
|
|
Total Production
Sales
|
|
|
$30.7 - $31.6
billion
|
|
|
|
|
|
|
Complete Vehicle
Assembly Sales
|
|
|
$2.0 - $2.2
billion
|
|
|
|
|
|
|
Total
Sales
|
|
|
$35.8 - $37.0
billion
|
|
|
|
|
|
|
EBIT
Margin(2)
|
|
|
Approximately
8%
|
|
|
|
|
|
|
Interest Expense,
net
|
|
|
Approximately $90
million
|
|
|
|
|
|
|
Tax
Rate(2)
|
|
|
Approximately
26%
|
|
|
|
|
|
|
Capital
Spending
|
|
|
$1.8 - $1.9
billion
|
|
|
|
|
|
|
(2) Excluding other
expense, net
|
In this 2016 outlook, in addition to 2016 light vehicle
production, we have assumed no material acquisitions or
divestitures. In addition, we have assumed that foreign exchange
rates for the most common currencies in which we conduct business
relative to our U.S. dollar reporting currency will approximate
current rates.
We will hold a conference call for interested analysts and
shareholders to discuss our third quarter results on Thursday, November 3, 2016 at 8:30 a.m. EDT. The conference call will be
chaired by Don Walker, Chief
Executive Officer. The number to use for this call is
1-800-926-6571. The number for overseas callers is 1-416-981-9025.
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 Thursday morning prior to the call.
TAGS
Quarterly earnings, record quarter, financial results, sales
growth
ABOUT MAGNA INTERNATIONAL
We are a leading global automotive supplier with 312 manufacturing
operations(3) and 98 product development, engineering
and sales centres(3) in 29 countries. We have over
155,000 employees(3) focused on delivering superior
value to our customers through innovative products and processes,
and world class manufacturing. We have complete vehicle
engineering and contract manufacturing expertise, as well as
product capabilities which include body, chassis, exterior,
seating, powertrain, electronic, active driver assistance, vision,
closure and roof systems. 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.
___________________
|
(3)
|
These figures include
manufacturing operations, product development, engineering and
sales centres and employees in certain equity-accounted
operations
|
FORWARD-LOOKING STATEMENTS
This press release contains statements that constitute
"forward-looking statements" or "forward-looking information"
within the meaning of applicable securities legislation, including,
but not limited to, statements relating to: Magna's forecasts of
light vehicle production in North
America and Europe;
expected consolidated sales, based on such light vehicle production
volumes; production sales, including expected split by segment, in
its North America, Europe, Asia
and Rest of World segments for 2016; complete vehicle assembly
sales; consolidated EBIT margin, net interest expense; effective
income tax rate; fixed asset expenditures; and future returns of
capital to our shareholders, including through dividends or share
repurchases. The forward-looking statements or forward-looking
information in this press release is presented for the purpose of
providing information about management's current expectations and
plans and such information may not be appropriate for other
purposes. Forward-looking statements or forward-looking information
may include financial and other projections, as well as statements
regarding our future plans, objectives or economic performance, or
the assumptions underlying any of the foregoing, and other
statements that are not recitations of historical fact. We use
words such as "may", "would", "could", "should", "will", "likely",
"expect", "anticipate", "believe", "intend", "plan", "forecast",
"outlook", "project", "estimate" and similar expressions suggesting
future outcomes or events to identify forward-looking statements or
forward-looking information. Any such forward-looking statements or
forward-looking information are based on information currently
available to us, and are based on assumptions and analyses made by
us in light of our experience and our perception of historical
trends, current conditions and expected future developments, as
well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments
will conform with our expectations and predictions is subject to a
number of risks, assumptions and uncertainties, many of which are
beyond our control, and the effects of which can be difficult to
predict, including, without limitation: the potential for a
deterioration of economic conditions or an extended period of
economic uncertainty; a decline in consumer confidence, which would
be expected to result in lower production volume levels; economic
or political uncertainty, including as a result of the U.K.'s
potential exit from the European Union and/or the outcome of the
2016 U.S. Presidential election; legal claims and/or regulatory
actions against us, including without limitation any proceedings
that may arise out of our global review focused on anti-trust risk;
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; restructuring, downsizing
and/or other significant non-recurring costs; our ability to
successfully identify, complete and integrate acquisitions or
achieve anticipated synergies; our ability to conduct appropriate
due diligence on acquisition targets; an increase in our risk
profile as a result of completed acquisitions; shifts in
market share away from our top customers; shifts in market shares
among vehicles or vehicle segments, or shifts away from vehicles on
which we have significant content; inability to sustain or grow our
business; risks of conducting business in foreign markets,
including China, India, Eastern
Europe, Brazil and other
non-traditional markets for us; fluctuations in relative currency
values; a prolonged disruption in the supply of components to us
from our suppliers; work stoppages and labour relations disputes;
scheduled shutdowns of our customers' production facilities
(typically in the third and fourth quarters of each calendar year);
our ability to successfully compete with other automotive
suppliers; a reduction in outsourcing by our customers or the loss
of a material production or assembly program; the termination or
non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; exposure to, and ability to offset, volatile commodities
prices; warranty and recall costs; restructuring actions by OEMs,
including plant closures; shutdown of our or our customers' or
sub-suppliers' production facilities due to a labour disruption;
risk of production disruptions due to natural disasters or
catastrophic event; the security and reliability of our information
technology systems; pension liabilities; changes in our mix of
earnings between jurisdictions with lower tax rates and those with
higher tax rates, as well as our ability to fully benefit tax
losses; impairment charges related to goodwill, long-lived assets
and deferred tax assets; other potential tax exposures; changes in
credit ratings assigned to us; changes in laws and governmental
regulations; costs associated with compliance with environmental
laws and regulations; liquidity risks; inability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; and other factors set out in our Annual Information
Form filed with securities commissions in Canada and our annual report on Form 40-F
filed with the United States Securities and Exchange Commission,
and subsequent filings. In evaluating forward-looking statements or
forward-looking information, we caution readers not to place undue
reliance on any forward-looking statements or forward-looking
information, and readers should specifically consider the various
factors which could cause actual events or results to differ
materially from those indicated by such forward-looking statements
or forward-looking information. Unless otherwise required by
applicable securities laws, we do not intend, nor do we undertake
any obligation, to update or revise any forward-looking statements
or forward-looking information to reflect subsequent information,
events, results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations
and Financial Position
Unless otherwise noted, all amounts in this Management's
Discussion and Analysis of Results of Operations and Financial
Position ("MD&A") are in U.S. dollars and all tabular amounts
are in millions of U.S. dollars, except per share figures, which
are in U.S. dollars. When we use the terms "we", "us", "our" or
"Magna", we are referring to Magna International Inc. and its
subsidiaries and jointly controlled entities, unless the context
otherwise requires.
In 2015, we sold substantially all of our interiors operations
(excluding our seating operations). The assets and liabilities, and
operating results for the previously reported interiors operations
are presented as discontinued operations and have therefore been
excluded from both continuing operations and segment results for
all periods presented in the attached financial statements. This
Management's Discussion and Analysis reflects the results of
continuing operations, unless otherwise noted.
This MD&A should be read in conjunction with the unaudited
interim consolidated financial statements for the three months and
nine months ended September 30, 2016 included in this press
release, and the audited consolidated financial statements and
MD&A for the year ended December 31, 2015 included in
our 2015 Annual Report to Shareholders.
This MD&A has been prepared as at November 3, 2016.
HIGHLIGHTS
- We posted new third quarter records in total sales and diluted
earnings per share from continuing operations;
- Total sales increased 16% to $8.85
billion, compared to $7.66
billion in the third quarter of 2015. The 16% increase
represents strong performance compared to global light vehicle
production which only increased 3% in the third quarter of
2016;
- North American production sales increased 13%, compared to
North American light vehicle production which increased 1%;
- European production sales increased 29%, while European light
vehicle production decreased 2%;
- Asian production sales increased 58%, compared to an 8%
increase in Asian light vehicle production;
- Adjusted EBIT(1) increased 27% to $715 million, from $565
million in the third quarter of 2015;
- Diluted earnings per share from continuing operations increased
14% to $1.29, compared to
$1.13 in the third quarter of
2015;
- We generated cash from operating activities of $657 million, compared to $596 million in the third quarter of 2015;
- We returned $191 million to
shareholders in the form of share repurchases and $97 million in the form of dividends;
- Early October marked the end of production of MINI Countryman
and Paceman models at our Magna
Steyr facility in Graz,
Austria. Over the lifetime of the two models, we produced
over 606,000 units. Magna Steyr is
currently preparing for the launches of the new BMW 5-Series as
well as two Jaguar Land Rover programs;
- Subject to approval by the Toronto Stock Exchange ("TSX") and
the New York Stock Exchange ("NYSE"), our Board of Directors
approved a new normal course issuer bid ("NCIB") to purchase up to
38 million of our Common Shares, representing approximately 10% of
our public float of Common Shares.
OVERVIEW
Our Business
We are a leading global automotive supplier with 312
manufacturing operations(2) and 98 product development,
engineering and sales centres(2) in 29 countries. We
have over 155,000 employees(2) focused on delivering
superior value to our customers through innovative products and
processes, and world class manufacturing. We have complete
vehicle engineering and contract manufacturing expertise, as well
as product capabilities which include body, chassis, exterior,
seating, powertrain, electronic, active driver assistance, vision,
closure and roof systems. 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.
___________________
|
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 income, net.
|
2
|
These figures include
manufacturing operations, product development, engineering and
sales centres and employees in certain equity-accounted
operations.
|
Industry Trends and Risks
Our operating results are primarily dependent upon the levels of
North American and European car and light truck production by our
customers and the relative amount of content we have on various
programs. Original equipment manufacturers' ("OEMs") production
volumes in different regions may be impacted by factors which may
vary from one region to the next, including but not limited to:
general economic and political conditions; consumer confidence
levels; interest rates; credit availability; energy and fuel
prices; relative currency values; commodities prices; international
conflicts; labour relations issues; regulatory requirements; trade
agreements; infrastructure; legislative changes; and environmental
emissions and safety standards. These factors together with other
factors affecting our performance such as: operational
inefficiencies; costs incurred to launch new or takeover business;
price reduction pressures from our customers; warranty and recall
costs; commodities and scrap prices; restructuring, downsizing and
other significant non-recurring costs; and the financial condition
of our supply base, are discussed in our Annual Information Form
and Annual Report on Form 40-F, each in respect of the year ended
December 31, 2015, and remain
substantially unchanged in respect of the third quarter ended
September 30, 2016, except to the
extent that:
- the United Kingdom's
anticipated exit from the European Union may create economic
uncertainty, reduce consumer confidence, impair trade relationships
between the United Kingdom and
members of the European Union, result in a long-term realignment in
the value of the British pound relative to other currencies, lead
to the closure of any of our customers' assembly plants in the
United Kingdom, or otherwise
directly or indirectly have a material adverse effect on our
operations, profitability or results of operations; and
- the outcome of the November 8,
2016, U.S. election may result in lower consumer confidence
levels, whether as a result of general economic or political
uncertainty, rising interest rates, increased volatility in capital
markets, an increase in protectionist measures or other factors.
Consumer confidence levels impact consumer demand for vehicles,
which in turn impacts vehicle production levels. A significant
decline in vehicle production could have a material adverse effect
on our profitability.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
For the three
months
|
|
For the nine
months
|
|
ended September
30,
|
|
ended September
30,
|
|
2016
|
2015
|
Change
|
|
2016
|
2015
|
Change
|
|
|
|
|
|
|
|
|
1 Canadian dollar
equals U.S. dollars
|
0.766
|
0.766
|
—
|
|
0.757
|
0.796
|
-
5%
|
1 euro equals U.S.
dollars
|
1.116
|
1.113
|
—
|
|
1.116
|
1.116
|
—
|
1 British pound
equals U.S. dollars
|
1.313
|
1.551
|
-
15%
|
|
1.393
|
1.534
|
-
9%
|
1 Chinese renminbi
equals U.S. dollars
|
0.150
|
0.159
|
-
6%
|
|
0.152
|
0.160
|
-
5%
|
1 Brazilian real
equals U.S. dollars
|
0.308
|
0.285
|
+
8%
|
|
0.283
|
0.320
|
-
12%
|
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 nine months ended
September 30, 2016 impacted the
reported U.S. dollar amounts of our sales, expenses and income.
The results of operations whose functional currency is not the
U.S. dollar are translated into U.S. dollars using the average
exchange rates in the table above for the relevant period.
Throughout this MD&A, reference is made to the impact of
translation of foreign operations on reported U.S. dollar amounts
where relevant.
Our results can also be affected by the impact of movements in
exchange rates on foreign currency transactions (such as raw
material purchases or sales denominated in foreign currencies).
However, as a result of hedging programs employed by us, foreign
currency transactions in the current period have not been fully
impacted by movements in exchange rates. We record foreign currency
transactions at the hedged rate where applicable.
Finally, foreign exchange gains and losses on revaluation and/or
settlement of monetary items denominated in a currency other than
an operation's functional currency impact reported results. These
gains and losses are recorded in selling, general and
administrative expense.
RESULTS OF OPERATIONS – FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2016
Sales
|
|
For the three
months
|
|
|
|
ended September
30,
|
|
|
|
2016
|
|
2015
|
Change
|
|
|
|
|
|
|
Vehicle Production
Volumes (millions of units)
|
|
|
|
|
|
|
North
America
|
|
4.320
|
|
4.294
|
+
1%
|
|
Europe
|
|
4.680
|
|
4.760
|
-
2%
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
External
Production
|
|
|
|
|
|
|
|
North
America
|
$
|
4,837
|
$
|
4,281
|
+
13%
|
|
|
Europe
|
|
2,184
|
|
1,696
|
+
29%
|
|
|
Asia
|
|
548
|
|
346
|
+
58%
|
|
|
Rest of
World
|
|
119
|
|
111
|
+
7%
|
|
Complete Vehicle
Assembly
|
|
503
|
|
522
|
-
4%
|
|
Tooling, Engineering
and Other
|
|
658
|
|
705
|
-
7%
|
Total
Sales
|
$
|
8,849
|
$
|
7,661
|
+
16%
|
External Production Sales - North
America
External production sales in North
America increased 13% or $556
million to a third quarter record of $4.84 billion compared to $4.28 billion for the third quarter of 2015,
primarily as a result of:
- the launch of new programs during or subsequent to the third
quarter of 2015, including the:
- Cadillac XT5;
- Chrysler Pacifica;
- GMC Acadia;
- Chevrolet Cruze;
- Chevrolet Camaro; and
- Lincoln Continental; and
- the acquisition of the Getrag Group of Companies ("Getrag")
during the first quarter of 2016, which positively impacted
production sales by $142
million.
These factors were partially offset by:
- lower production volumes on certain existing programs;
- the contribution of two manufacturing facilities into an
equity-accounted joint venture during the third quarter of 2015,
which negatively impacted production sales by $11 million; and
- net customer price concessions subsequent to the third quarter
of 2015.
External Production Sales - Europe
External production sales in Europe increased 29% or $488 million to a third quarter record of
$2.18 billion compared to
$1.70 billion for the third quarter
of 2015, primarily as a result of:
- acquisitions during or subsequent to the third quarter of 2015,
which positively impacted production sales by $326 million, including Getrag which positively
impacted production sales by $248
million; and
- the launch of new programs during or subsequent to the third
quarter of 2015, including the:
- Audi A3 and A3 Sportback;
- Mercedes-Benz E-Class;
- Audi A4;
- BMW X1; and
- Volkswagen Tiguan.
These factors were partially offset by:
- a $21 million decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the British
Pound;
- lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the third quarter
of 2015.
External Production Sales - Asia
External production sales in Asia increased 58% or $202 million to an all-time quarterly record of
$548 million compared to $346 million for the third quarter of 2015,
primarily as a result of:
- the launch of new programs during or subsequent to the third
quarter of 2015, primarily in China; and
- acquisitions during or subsequent to the third quarter of 2015,
including the partnership agreement in China ("the Xingqiaorui Partnership") with
Chongqing Xingqiaorui and the acquisition of Getrag, which
positively impacted production sales by $76
million.
These factors were partially offset by:
- a $25 million decrease in
reported U.S. dollar sales as a result of the weakening of foreign
currencies against the U.S. dollar, including the Chinese renminbi;
and
- net customer price concessions subsequent to the third quarter
of 2015.
External Production Sales - Rest of World
External production sales in Rest of World increased 7% or
$8 million to $119 million for the third quarter of 2016
compared to $111 million for the
third quarter of 2015, primarily as a result of:
- the launch of new programs during or subsequent to the third
quarter of 2015, primarily in Brazil; and
- net customer price increases subsequent to the third quarter of
2015.
These factors were partially offset by:
- lower production volumes on certain existing programs; and
- an $8 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,
partially offset by the strengthening of the Brazilian real against
the U.S. dollar.
Complete Vehicle Assembly Sales
|
For the three
months
|
|
|
|
ended September
30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Complete Vehicle
Assembly Sales
|
$
|
503
|
$
|
522
|
|
-
4%
|
|
|
|
|
|
|
|
Complete Vehicle
Assembly Volumes (Units)
|
|
18,682
|
|
23,176
|
|
-
19%
|
Complete vehicle assembly sales decreased 4% or $19 million to $503
million for the third quarter of 2016 compared to
$522 million for the third quarter of
2015 and assembly volumes decreased 19% or 4,494 units.
The decrease in complete vehicle assembly sales is primarily as
a result of:
- a decrease in assembly volumes for the MINI Countryman and
Paceman, as these programs neared the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of
2015.
These factors were partially offset by an increase in assembly
volumes for the Mercedes-Benz G-Class which has a higher average
selling price per vehicle compared to the MINI programs.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased 7% or
$47 million to $658 million for the third quarter of 2016
compared to $705 million for the
third quarter of 2015.
In the third quarter of 2016, the major programs for which we
recorded tooling, engineering and other sales were the:
- Mercedes-Benz E-Class;
- Chevrolet Malibu;
- BMW 5-Series;
- Ford F-Series SuperDuty;
- Jeep Grand Cherokee;
- Porsche Panamera;
- Ford Transit; and
- Chevrolet Cruze.
In the third quarter of 2015, the major programs for which we
recorded tooling, engineering and other sales were the:
- Audi A4;
- Chevrolet Cruze;
- Chevrolet Equinox and GMC Terrain;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Opel Astra;
- Volkswagen Golf;
- BMW 2-Series;
- Volkswagen Touran; and
- Skoda Superb.
Acquisitions during or subsequent to the third quarter of
2015, including Getrag, increased our reported tooling, engineering
and other sales, while the weakening of certain foreign currencies
against the U.S. dollar, including the Chinese renminbi had an
unfavourable impact of $3 million on
our reported tooling, engineering and other sales.
Cost of Goods Sold and Gross Margin
|
For the three
months
|
|
ended September
30,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Sales
|
$
|
8,849
|
$
|
7,661
|
|
|
|
|
|
Cost of goods
sold
|
|
|
|
|
|
Material
|
|
5,525
|
|
4,839
|
|
Direct
labour
|
|
576
|
|
507
|
|
Overhead
|
|
1,457
|
|
1,247
|
|
|
7,558
|
|
6,593
|
Gross
margin
|
$
|
1,291
|
$
|
1,068
|
|
|
|
|
|
Gross margin as a
percentage of sales
|
|
14.6%
|
|
13.9%
|
Cost of goods sold increased $965
million to $7.56 billion for
the third quarter of 2016 compared to $6.59
billion for the third quarter of 2015 primarily as a result
of:
- higher material, overhead and labour costs associated with the
increase in sales;
- acquisitions subsequent to the third quarter of 2015;
- operational inefficiencies at certain facilities, including one
body and chassis operation in North
America;
- higher warranty costs of $25
million;
- a higher amount of employee profit sharing;
- higher severance costs; and
- lower recoveries associated with scrap steel.
These factors were partially offset by:
- a net decrease in reported U.S. dollar cost of goods sold
primarily due to the weakening of the Chinese renminbi, British
pound and Argentine peso each against the U.S. dollar partially
offset by the strengthening of the Brazilian real against the U.S.
dollar;
- productivity and efficiency improvements at certain
facilities;
- decreased commodity costs;
- net divestitures during or subsequent to the third quarter of
2015; and
- decreased pre-operating costs incurred at new facilities.
Gross margin increased $223
million to $1.29 billion for
the third quarter of 2016 compared to $1.07
billion for the third quarter of 2015 and gross margin as a
percentage of sales increased to 14.6% for the third quarter of
2016 compared to 13.9% for the third quarter of 2015. The increase
in gross margin as a percentage of sales was primarily due to:
- productivity and efficiency improvements at certain
facilities;
- a decrease in the proportion of tooling, engineering and other
sales relative to total sales, that have low or no margins;
- decreased commodity costs;
- a decrease in the proportion of complete vehicle assembly sales
relative to total sales, which have a higher material content than
our consolidated average; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one
body and chassis operation in North
America;
- higher warranty costs;
- the acquisition of Getrag during the first quarter of
2016;
- a higher amount of employee profit sharing;
- higher severance costs; and
- lower recoveries associated with scrap steel.
Depreciation and Amortization
Depreciation and amortization costs increased $73 million to $270 million for the third
quarter of 2016 compared to $197 million for the third quarter
of 2015. The higher depreciation and amortization was primarily as
a result of increased capital deployed at existing and new
facilities and acquisitions during or subsequent to the third
quarter of 2015, including the acquisition of Getrag; the
acquisition of Stadco Automotive Ltd. ("Stadco"); and the
Xingqiaorui Partnership.
Selling, General and Administrative
("SG&A")
SG&A expense as a percentage of sales was 4.2% for the third
quarter of 2016 compared to 4.7% for the third quarter of 2015.
SG&A expense increased $13
million to $371 million for
the third quarter of 2016 compared to $358
million for the third quarter of 2015 primarily as a result
of:
- acquisitions during or subsequent to the third quarter of
2015;
- higher labour and benefit costs;
- higher incentive and executive compensation;
- increased costs incurred at new facilities; and
- higher costs to support our global compliance programs.
These factors were partially offset by an insurance recovery,
net of costs incurred, related to a fire in the second quarter of
2016 at a body and chassis facility in Europe.
Equity Income
Equity income increased $13
million to $65 million for the
third quarter of 2016 compared to $52
million for the third quarter of 2015 primarily as a result
of the acquisition of Getrag in the first quarter of 2016.
Other Income, net
For the three months ended September 30,
2016, there were no amounts included in Other Income,
net.
During the third quarter of 2015, we contributed two
manufacturing facilities and received a 49% interest in a newly
formed joint venture and cash proceeds of $118 million. Total consideration was valued at
$160 million, and as a result we
recognized a gain of $136 million
($80 million after tax). In
addition, during the third quarter of 2015 we recorded net
restructuring charges of $12 million
($12 million after tax) in
Europe at our exterior systems
operations.
Segment Analysis
Given the differences between the regions in which we operate,
our operations are segmented on a geographic basis. Consistent with
the above, our internal financial reporting separately segments key
internal operating performance measures between North America, Europe, Asia
and Rest of World for purposes of presentation to the chief
operating decision maker to assist in the assessment of operating
performance, the allocation of resources, and our long-term
strategic direction and future global growth.
Our chief operating decision maker uses Adjusted EBIT as the
measure of segment profit or loss, since we believe Adjusted EBIT
is the most appropriate measure of operational profitability or
loss for our reporting segments. Adjusted EBIT represents income
from operations before income taxes; interest expense, net; and
other income, net.
|
For the three
months ended September 30,
|
|
Total
Sales
|
|
Adjusted
EBIT
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
5,109
|
$
|
4,591
|
$
|
518
|
|
$
|
512
|
$
|
455
|
$
|
57
|
Europe
|
|
3,102
|
|
2,642
|
|
460
|
|
|
115
|
|
91
|
|
24
|
Asia
|
|
654
|
|
428
|
|
226
|
|
|
64
|
|
13
|
|
51
|
Rest of
World
|
|
129
|
|
115
|
|
14
|
|
|
(5)
|
|
(7)
|
|
2
|
Corporate and
Other
|
|
(145)
|
|
(115)
|
|
(30)
|
|
|
29
|
|
13
|
|
16
|
Total reportable
segments
|
$
|
8,849
|
$
|
7,661
|
$
|
1,188
|
|
$
|
715
|
$
|
565
|
$
|
150
|
Excluded from Adjusted EBIT for the three months ended
September 30, 2015 were the following
Other Income and Other Expense items, which have been discussed in
the "Other Income, net" section. There were no amounts
included in Other Income, net for the three months ended
September 30, 2016.
|
|
|
|
|
For the three
months
|
|
|
|
|
|
ended September
30,
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
Gain on
disposal
|
|
|
|
|
$
|
(136)
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(124)
|
North America
Adjusted EBIT in North America
increased $57 million to $512 million for the third quarter of 2016
compared to $455 million for the third quarter of 2015
primarily as a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- the acquisition of Getrag during the first quarter of
2016;
- decreased commodity costs; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- higher warranty costs of $17
million;
- operational inefficiencies at certain facilities, including one
body and chassis operation;
- lower equity income;
- higher affiliation fees paid to Corporate;
- a higher amount of employee profit sharing;
- lower recoveries associated with scrap steel;
- higher severance costs;
- higher incentive compensation; and
- net customer price concessions subsequent to the third quarter
of 2015.
Europe
Adjusted EBIT in Europe
increased $24 million to $115 million for the third quarter of 2016
compared to $91 million for the third quarter of 2015
primarily as a result of:
- an insurance recovery, net of costs incurred, related to a fire
in the second quarter of 2016 at a body and chassis facility in
Europe;
- productivity and efficiency improvements at certain
facilities;
- acquisitions during or subsequent to the third quarter of
2015;
- margins earned on higher production sales;
- lower affiliation fees paid to Corporate; and
- decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of $7
million;
- a higher amount of employee profit sharing;
- lower equity income;
- a decrease in reported U.S. dollar Adjusted EBIT due to the
weakening of the British pound against the U.S. dollar;
- higher severance costs; and
- net customer price concessions subsequent to the third quarter
of 2015.
Asia
Adjusted EBIT in Asia increased
$51 million to $64 million for the third quarter of 2016
compared to $13 million for the third
quarter of 2015 primarily as a result of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015,
including Getrag and the Xingqiaorui Partnership; and
- higher equity income.
These factors were partially offset by a decrease in reported
U.S. dollar Adjusted EBIT due to the weakening of the Chinese
renminbi against the U.S. dollar.
Rest of World
Adjusted EBIT in Rest of World increased $2 million to a loss of $5
million for the third quarter of 2016 compared to a loss of
$7 million for the third quarter of
2015 primarily as a result of:
- net customer price increases subsequent to the third quarter of
2015; and
- decreased commodity costs.
These factors were partially offset by higher severance
costs.
Corporate and Other
Adjusted EBIT in Corporate and Other increased $16 million to $29
million for the third quarter of 2016 compared to
$13 million for the third quarter of
2015 primarily as a result of:
- an increase in affiliation fees earned from our divisions;
- lower costs related to the investment in our information
technology infrastructure; and
- lower consulting costs.
Interest Expense, net
During the third quarter of 2016, we recorded net interest
expense of $23 million compared to
$9 million for the third quarter of
2015. The $14 million increase
is primarily as a result of interest expense incurred on the
issuance of senior, unsecured debt (the "Senior Debt") during the
third and fourth quarters of 2015.
Income from Continuing Operations before Income
Taxes
Income from continuing operations before income taxes increased
$12 million to $692 million for the third quarter of 2016
compared to $680 million for the
third quarter of 2015. Excluding Other Income, net, discussed
in the "Other Income, net" section, income from continuing
operations before income taxes for the third quarter of 2016
increased $136 million. The increase
in income from continuing operations before income taxes is the
result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- acquisitions during or subsequent to the third quarter of
2015;
- an insurance recovery, net of costs incurred, related to a fire
in the second quarter of 2016 at a body and chassis facility in
Europe;
- decreased commodity costs;
- decreased pre-operating costs incurred at new facilities;
- lower costs related to the investment in our information
technology infrastructure; and
- lower consulting costs.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one
body and chassis operation in North
America;
- higher warranty costs of $25
million;
- the $14 million increase in
interest expense, net, as discussed above;
- a higher amount of employee profit sharing;
- higher incentive compensation; and
- higher severance costs.
Income Taxes
|
|
|
|
|
|
|
|
|
|
|
For the three
months ended September 30,
|
|
2016
|
|
2015
|
|
$
|
%
|
|
$
|
%
|
Income taxes as
reported
|
$
|
178
|
|
25.7
|
|
$
|
211
|
|
31.0
|
Tax effect on Other
Income, net
|
|
—
|
|
—
|
|
|
(56)
|
|
(3.1)
|
|
$
|
178
|
|
25.7
|
|
$
|
155
|
|
27.9
|
Excluding Other Income, net, after tax, the effective income tax
rate decreased to 25.7% for the third quarter of 2016 compared to
27.9% for the third quarter of 2015 primarily as a result of:
- a decrease in non-deductible foreign exchange adjustments
related to the re-measurement of financial statement balances of
foreign subsidiaries that are maintained in a currency other than
their functional currency;
- an increase in research and development credits in North America; and
- an increase in equity income.
These factors were partially offset by a change in our reserve
for uncertain tax positions.
(Income) Loss from Continuing Operations Attributable to
Non-Controlling Interests
Income from continuing operations attributable to
non-controlling interests increased to $11
million for the third quarter of 2016 compared to a loss
from continuing operations attributable to non-controlling
interests of $1 million for the third
quarter of 2015, primarily due to acquisitions during or subsequent
to the third quarter of 2015, including Getrag and the Xingqiaorui
Partnership.
Net Income Attributable to Magna International
Inc.
Net income attributable to Magna International Inc. of
$503 million for the third quarter of
2016 decreased $86 million compared
to the third quarter of 2015. Excluding Other Income, net,
after tax, as discussed in the "Other Income, net" section, net
income attributable to Magna International Inc. decreased
$18 million primarily as a result of
the decrease in the income from discontinued operations, higher
income taxes and an increase in the (income) loss from continuing
operations attributable to non-controlling interests partially
offset by the increase in net income from continuing operations
before income taxes, as discussed above.
Earnings per Share
|
For the three
months
|
|
|
|
ended September
30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Basic earnings per
Common Share
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.30
|
$
|
1.15
|
|
+
13%
|
|
Attributable to Magna
International Inc.
|
$
|
1.30
|
$
|
1.44
|
|
-
10%
|
|
|
|
|
|
|
|
Diluted earnings per
Common Share
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.29
|
$
|
1.13
|
|
+
14%
|
|
Attributable to Magna
International
Inc.
|
$
|
1.29
|
$
|
1.42
|
|
-
9%
|
|
|
|
|
|
|
|
Weighted average
number of Common Shares outstanding (millions)
|
|
|
|
|
|
|
|
Basic
|
|
387.1
|
|
408.5
|
|
-
5%
|
|
Diluted
|
|
389.0
|
|
413.8
|
|
-
6%
|
Diluted earnings per share from continuing operations increased
$0.16 to a third quarter record of
$1.29 compared to $1.13 for the third quarter of 2015. Other
Income, net, after tax, positively impacted diluted earnings per
share from continuing operations by $0.16 in the third quarter of 2015 as discussed
in the "Other Income, net" section. Excluding the $0.16 per share positive impact for the third
quarter of 2015 diluted earnings per share from continuing
operations increased $0.32, as a
result of the increase in net income attributable to Magna
International Inc. from continuing operations and a decrease in the
weighted average number of diluted shares outstanding during the
third quarter of 2016.
The decrease in the weighted average number of diluted shares
outstanding was primarily due to the purchase and cancellation of
Common Shares, during or subsequent to the third quarter of 2015,
pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
For the three
months
|
|
|
|
|
ended September
30,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Net income from
continuing operations
|
$
|
514
|
$
|
469
|
|
|
|
Items not involving
current cash flows
|
|
282
|
|
94
|
|
|
|
|
|
796
|
|
563
|
|
$
|
233
|
Changes in operating
assets and liabilities
|
|
(139)
|
|
33
|
|
|
|
Cash provided from
operating activities
|
$
|
657
|
$
|
596
|
|
$
|
61
|
Cash provided from operating activities before changes in
operating assets and liabilities increased $233 million for the third quarter of 2016
compared to the third quarter of 2015 primarily as a result of:
- an increase in cash received from customers of $1.19 billion as a result of higher total sales
as discussed above;
- lower cash paid relating to income taxes of $19 million; and
- higher dividends received from equity investments of
$8 million.
These factors were partially offset by:
- higher cash paid for material, labour and overhead of
$682 million, $162 million and $121
million, respectively, each primarily associated with the
increase in sales and other factors discussed in the Cost of Goods
Sold and Gross Margin section above; and
- higher net interest expense of $12
million as discussed in the Interest Expense, net section
above.
Changes in operating assets and liabilities decreased
$172 million for the third quarter of
2016 compared to the third quarter of 2015 primarily due to the
increase in tooling and production inventory balances to support
current and future program launches.
Capital and Investment Spending
|
For the three
months
|
|
|
|
|
ended September
30,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Fixed asset
additions
|
$
|
(390)
|
$
|
(360)
|
|
|
|
Investments and other
assets
|
|
(166)
|
|
(74)
|
|
|
|
Fixed assets,
investments and other assets additions
|
|
(556)
|
|
(434)
|
|
|
|
Restricted cash
deposits
|
|
(180)
|
|
—
|
|
|
|
Proceeds from
disposition
|
|
26
|
|
11
|
|
|
|
Sale of
Interiors
|
|
—
|
|
473
|
|
|
|
Proceeds on disposal
of facilities
|
|
—
|
|
118
|
|
|
|
Cash used in
discontinued operations
|
|
—
|
|
(15)
|
|
|
|
Cash (used for)
provided from investment activities
|
$
|
(710)
|
$
|
153
|
|
$
|
(863)
|
Fixed assets, investments and other assets additions
In the third quarter of 2016, we invested $390 million in
fixed assets. While investments were made to refurbish or replace
assets consumed in the normal course of business and for
productivity improvements, a large portion of the investment in the
third quarter of 2016 was for manufacturing equipment for programs
that will be launching subsequent to the third quarter of 2016.
We provided an $84 million loan to
one of our equity-accounted joint ventures, we invested
$77 million in other assets related
primarily to fully reimbursable tooling, planning, and engineering
costs for programs that launched during the third quarter of
2016 or will be launching subsequent to the third quarter of 2016
and we invested $5 million in
equity-accounted investments.
Restricted cash deposits
In the third quarter of 2016, we had $180
million invested in short-term restricted cash
deposits. These deposits secure $165
million drawn on a euro credit facility with a bank that
includes a netting arrangement that provides for the legal right of
set-off.
Proceeds from disposition
In the third quarter of 2016, the $26
million of proceeds include normal course fixed and other
asset disposals.
Sale of Interiors
On August 31, 2015 we sold
substantially all of our interiors operations (excluding our
seating operations) and received $473
million of proceeds, net of transaction costs during the
third quarter of 2015.
Proceeds on disposal of facilities
In the third quarter of 2015, we received $118 million of proceeds related to the formation
of the joint venture for the manufacture and sale of roof and other
accessories for the Jeep market to OEM as well as aftermarket
customers.
Financing
|
For the three
months
|
|
|
|
|
ended September
30,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Issues of
debt
|
$
|
3
|
$
|
659
|
|
|
|
Increase (decrease)
in short-term borrowings
|
|
350
|
|
(41)
|
|
|
|
Repayments of
debt
|
|
(237)
|
|
(16)
|
|
|
|
Issue of Common
Shares on exercise of stock options
|
|
2
|
|
6
|
|
|
|
Repurchase of Common
Shares
|
|
(191)
|
|
(346)
|
|
|
|
Contributions by
subsidiaries by non-controlling interests
|
|
—
|
|
10
|
|
|
|
Dividends
|
|
(97)
|
|
(91)
|
|
|
|
Cash (used for)
provided from financing activities
|
$
|
(170)
|
$
|
181
|
|
$
|
(351)
|
Issues of debt in the third quarter of 2015 relate primarily to
the issue of $650 million of 4.150%
fixed-rate Senior Notes which mature
on October 1, 2025.
During the third quarter of 2016 we issued $265 million of U.S. commercial paper [the "U.S.
Program"] and we borrowed $165
million against a euro credit facility. These
increases were offset by a reduction in our bank indebtedness.
A portion of the proceeds from the issue of the U.S. Program
were used to repay $169 million on
our global credit facility. We also repaid bank debt within
our Asia segment that is included
in debt repayments.
Repurchases of Common Shares during the third quarter of 2016
includes 4.7 million Common Shares repurchased for aggregate cash
consideration of $191 million under
our normal course issuer bid.
Cash dividends paid per Common Share were $0.25 for the third quarter of 2016, for a total
of $97 million.
Financing Resources
|
|
As
at
|
|
As at
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
$
|
631
|
$
|
25
|
|
|
|
|
Long-term debt due
within one year
|
|
201
|
|
211
|
|
|
|
|
Long-term
debt
|
|
2,450
|
|
2,327
|
|
|
|
|
|
3,282
|
|
2,563
|
|
|
|
Non-controlling
interests
|
|
474
|
|
151
|
|
|
|
Shareholders'
equity
|
|
9,798
|
|
8,966
|
|
|
|
Total
capitalization
|
$
|
13,554
|
$
|
11,680
|
|
$
|
1,874
|
Total capitalization increased by $1.87
billion to $13.55 billion at
September 30, 2016 compared to
$11.68 billion at
December 31, 2015, primarily as a result of an
$832 million increase in
shareholders' equity, a $719 million
increase in liabilities and a $323
million increase in non-controlling interest.
The increase in liabilities relates primarily to:
- the issuance of $265 million of
U.S. commercial paper [the "U.S. Program"] in the third quarter of
2016 and the issuance of $258 million
of euro-commercial paper [the "euro-Program"] in the first quarter
of 2016. These programs allow us to minimize the amount of cash on
hand to run our business by providing funding on a more flexible
and cost effective basis compared to drawing on our revolving
credit facility;
- higher short-term borrowings are primarily as a result of an
increase in non-cash working capital and cash deployed for the
repurchase and cancellation of Common Shares under our normal
course issuer bid during 2016; and
- higher long-term debt primarily as a result of the acquisition
of Getrag in the first quarter of 2016.
The increase in shareholders' equity was primarily as a result
of:
- the $1.58 billion of net income
earned in the first nine months of 2016;
- the $172 million net unrealized
gain on translation of our net investment in operations whose
functional currency is not the U.S. dollar; and
- the $39 million net unrealized
gain on cash flow hedges.
These factors were partially offset by:
- the $799 million repurchase and
cancellation of 19.8 million Common Shares under our normal course
issuer bid during 2016; and
- $290 million of dividends paid
during the first nine months of 2016.
The increase in non-controlling interest was primarily as a
result of acquisitions during or subsequent to the third quarter of
2015.
Cash Resources
During the third quarter of 2016, our cash resources decreased
by $233 million to $364 million
as a result of the cash used for investing and financing
activities, partially offset by cash provided from operating
activities, as discussed above. In addition to our cash resources
at September 30, 2016, we had term
and operating lines of credit totalling $2.97 billion of which $2.08 billion was unused and available.
The Company maintains a revolving credit facility of
$2.75 billion with a maturity date of
June 22, 2021. The
facility includes a $200 million
Asian tranche, a $100 million Mexican
tranche and a tranche for Canada,
U.S. and Europe, which is fully
transferable between jurisdictions and can be drawn in U.S.
dollars, Canadian dollars or euros.
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that
would be outstanding if all of the outstanding options at
November 3, 2016 were exercised:
Common
Shares
|
|
|
|
|
384,409,283
|
Stock options
(i)
|
|
|
|
|
7,614,131
|
|
|
|
|
|
392,023,414
|
(i)
|
Options to
purchase Common Shares are exercisable by the holder in accordance
with the vesting provisions and upon payment of the exercise price
as may be determined from time to time pursuant to our stock option
plans.
|
Contractual Obligations and Off‑Balance Sheet
Financing
There have been no material changes with respect to the
contractual obligations requiring annual payments during the third
quarter of 2016 that are outside the ordinary course of our
business. Refer to our MD&A included in our 2015 Annual
Report.
Subsequent to the third quarter of 2016 we entered into binding
agreements to extend the leases for 11 properties as discussed in
the "Subsequent Events" section.
RESULTS OF OPERATIONS – FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2016
Sales
|
For the nine
months
|
|
|
|
ended September
30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Vehicle Production
Volumes (millions of units)
|
|
|
|
|
|
|
|
North
America
|
|
13.428
|
|
12.928
|
|
+
4%
|
|
Europe
|
|
16.263
|
|
15.474
|
|
+
5%
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
External
Production
|
|
|
|
|
|
|
|
|
North
America
|
$
|
14,503
|
$
|
13,089
|
|
+
11%
|
|
|
Europe
|
|
6,936
|
|
5,420
|
|
+
28%
|
|
|
Asia
|
|
1,554
|
|
1,139
|
|
+
36%
|
|
|
Rest of
World
|
|
306
|
|
367
|
|
-
17%
|
|
Complete Vehicle
Assembly
|
|
1,751
|
|
1,729
|
|
+
1%
|
|
Tooling, Engineering
and Other
|
|
2,142
|
|
1,822
|
|
+
18%
|
Total
Sales
|
$
|
27,192
|
$
|
23,566
|
|
+
15%
|
External Production Sales - North
America
External production sales in North
America increased 11% or $1.41
billion to a record of $14.50
billion for the nine months ended September 30, 2016 compared to $13.09 billion for the nine months ended
September 30, 2015 primarily as a
result of:
- the launch of new programs during or subsequent to the nine
months ended September 30, 2015,
including the:
- Chrysler Pacifica;
- Ford Edge and Lincoln MKX;
- Cadillac XT5;
- Mercedes-Benz R-Class and GLE Coupe; and
- Chevrolet Malibu;
- the acquisition of Getrag during the first quarter of 2016,
which positively impacted production sales by $456 million; and
- higher production volumes on certain existing programs.
These factors were partially offset by:
- a $225 million decrease in
reported U.S. dollar sales primarily as a result of the weakening
of the Canadian dollar against the U.S. dollar;
- the contribution of two manufacturing facilities into an
equity-accounted joint venture during the third quarter of 2015,
which negatively impacted production sales by $67 million;
- lower production volumes on the Chevrolet Cruze as a result of
the changeover to and production ramp up of the next generation
model; and
- net customer price concessions subsequent to the nine months
ended September 30, 2015.
External Production Sales - Europe
External production sales in Europe increased 28% or $1.52 billion to a record of $6.94 billion for the nine months ended
September 30, 2017 compared to
$5.42 billion for the nine months
ended September 30, 2015 primarily as
a result of:
- net acquisitions during or subsequent to the nine months ended
September 30, 2015, which positively
impacted production sales by $1.10
billion, including Getrag which positively impacted
production sales by $835
million;
- the launch of new programs during or subsequent to the nine
months ended September 30, 2015,
including the:
- Audi A4;
- BMW X1;
- Skoda Superb;
- Audi A3 and A3 Sportback; and
- Mercedes-Benz E-Class.
These factors were partially offset by:
- a $84 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including
the British pound, Russian ruble and Turkish lira;
- lower production volumes on certain existing programs; and
- net customer price concessions subsequent to the nine months
ended September 30, 2015.
External Production Sales - Asia
External production sales in Asia increased 36% or $415 million to an all-time record of
$1.55 billion for the nine months
ended September 30, 2016 compared to
$1.14 billion for the nine months
ended September 30, 2015 primarily as
a result of:
- the launch of new programs during or subsequent to the third
quarter of 2015, primarily in China; and
- acquisitions during or subsequent to the third quarter of 2015,
including the Xingqiaorui Partnership and Getrag, which positively
impacted production sales by $198
million.
These factors were partially offset by:
- a $79 million decrease in
reported U.S. dollar production sales primarily as a result of the
weakening of foreign currencies against the U.S. dollar, including
the Chinese renminbi and South Korean won; and
- net customer price concessions subsequent to the third quarter
of 2015.
External Production Sales - Rest of World
External production sales in Rest of World decreased 17% or
$61 million to $306 million for the nine months ended
September 30, 2016 compared to $367 million for the nine months ended
September 30, 2015 primarily as a
result of:
- a $69 million decrease in
reported U.S. dollar production sales as a result of the weakening
of foreign currencies against the U.S. dollar, including the
Argentine peso and Brazilian real; and
- lower production volumes on certain existing programs.
These factors were partially offset by:
- the launch of new programs during or subsequent to the third
quarter of 2015, primarily in Brazil; and
- net customer price increases subsequent to the third quarter of
2015.
Complete Vehicle Assembly Sales
|
For the nine
months
|
|
|
|
ended September
30,
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
Complete Vehicle
Assembly Sales
|
$
|
1,751
|
$
|
1,729
|
|
+
1%
|
|
|
|
|
|
|
|
Complete Vehicle
Assembly Volumes (Units)
|
|
67,631
|
|
78,862
|
|
-
14%
|
Complete vehicle assembly sales increased 1% or $22 million to $1.75
billion for the nine months ended September 30, 2016 compared to $1.73 billion for the nine months ended
September 30, 2015 and assembly
volumes decreased 14% or 11,231 units.
The increase in complete vehicle assembly sales is primarily as
a result of:
- an increase in assembly volumes for the Mercedes-Benz G-Class
which has a higher average selling price per vehicle compared to
the MINI programs; and
- a $4 million increase in reported
U.S. dollar complete vehicle assembly sales as a result of the
strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
- a decrease in assembly volumes for the MINI Countryman and
Paceman, as these programs near the end of production; and
- the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of
2015.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 18% or
$320 million to $2.14 billion for the nine months ended
September 30, 2016 compared to
$1.82 billion for the nine months
ended September 30, 2015.
In the nine months ended September 30,
2016, the major programs for which we recorded tooling,
engineering and other sales were the:
- Chrysler Pacifica;
- Chevrolet Cruze;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Equinox, Captiva and GMC Terrain;
- Ford Figo Aspire;
- Jeep Renegade;
- Mini Countryman;
- Lincoln Continental; and
- BMW 5-Series.
In the nine months ended September 30,
2015, the major programs for which we recorded tooling,
engineering and other sales were the:
- Ford F-Series and F-Series SuperDuty;
- GMC Acadia, Buick Enclave and Chevrolet Traverse;
- Chevrolet Cruze;
- Audi A4;
- MINI Countryman;
- Ford Edge;
- Skoda Fabia;
- Chevrolet Equinox and GMC Terrain; and
- Honda HR-V.
Acquisitions during or subsequent to the nine months ended
September 30, 2016, including Getrag,
increased our reported tooling, engineering and other sales, while
the weakening of certain foreign currencies against the U.S.
dollar, including the Canadian dollar, Chinese renminbi, Indian
rupee, Russian ruble, and Great
Britain pound had an unfavourable impact of $32 million on our reported tooling, engineering
and other sales.
Segment Analysis
|
For the nine
months ended September 30,
|
|
Total
Sales
|
|
Adjusted
EBIT
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
$
|
15,506
|
$
|
13,925
|
$
|
1,581
|
|
$
|
1,545
|
$
|
1,433
|
$
|
112
|
Europe
|
|
9,856
|
|
8,234
|
|
1,622
|
|
|
472
|
|
339
|
|
133
|
Asia
|
|
1,899
|
|
1,357
|
|
542
|
|
|
166
|
|
86
|
|
80
|
Rest of
World
|
|
321
|
|
373
|
|
(52)
|
|
|
(21)
|
|
(19)
|
|
(2)
|
Corporate and
Other
|
|
(390)
|
|
(323)
|
|
(67)
|
|
|
40
|
|
34
|
|
6
|
Total reportable
segments
|
$
|
27,192
|
$
|
23,566
|
$
|
3,626
|
|
$
|
2,202
|
$
|
1,873
|
$
|
329
|
There were no amounts included in Other Income, net for the nine
months ended September 30,
2016. Excluded from Adjusted EBIT for the nine
months ended September 30, 2015 were
the following Other Income and Other Expense items:
|
|
|
|
|
For the nine
months
|
|
|
|
|
|
ended September
30,
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
Gain on
sale
|
|
|
|
|
$
|
(136)
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
Gain on
sale
|
|
|
|
|
|
(57)
|
|
Restructuring
|
|
|
|
|
|
12
|
|
|
|
|
|
|
(45)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(181)
|
The gain on sale in North
America and restructuring in Europe have been described in the three months
ended September 30, 2016 "Other
Income, net" section.
During the second quarter of 2015, we sold our battery pack
business to Samsung SDI for gross proceeds of $120 million, resulting in a gain of $57 million ($42
million after tax).
North America
Adjusted EBIT in North America
increased $112 million to
$1.55 billion for the nine months
ended September 30, 2016 compared to
$1.43 billion for the nine months
ended September 30, 2015 primarily as
a result of:
- margins earned on higher production sales;
- productivity and efficiency improvements at certain
facilities;
- the acquisition of Getrag during the first quarter of
2016;
- decreased commodity costs; and
- a favourable intellectual property infringement settlement in
relation to our electronics business.
These factors were partially offset by:
- operational inefficiencies at certain facilities, including one
body and chassis operation;
- a decrease in reported U.S. dollar EBIT due to the weakening of
the Canadian dollar against the U.S. dollar;
- lower recoveries associated with scrap steel;
- higher warranty costs of $16
million;
- lower equity income;
- higher incentive compensation;
- increased pre-operating costs incurred at new facilities;
- higher affiliation fees paid to Corporate;
- higher launch costs;
- a higher amount of employee profit sharing;
- higher severance costs;
- insurance recoveries received during the first quarter of 2015,
related to a fire at a body and chassis facility during the second
quarter of 2014; and
- net customer price concessions subsequent to the nine months
ended September 30, 2015.
Europe
Adjusted EBIT in Europe
increased $133 million to
$472 million for the nine months
ended September 30, 2016 compared to
$339 million for the nine months ended September 30, 2015 primarily as a result of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015,
including Stadco and Getrag;
- productivity and efficiency improvements at certain
facilities;
- an insurance recovery, net of costs incurred, related to a fire
in the second quarter of 2016 at a body and chassis facility in
Europe;
- decreased commodity costs; and
- the sale of our battery pack business during the second quarter
of 2015.
These factors were partially offset by:
- operational inefficiencies at certain facilities;
- higher warranty costs of $16
million;
- a higher amount of employee profit sharing;
- a decrease in reported U.S. dollar Adjusted EBIT primarily as a
result of the weakening of foreign currencies against the U.S.
dollar, including the British pound, Russian ruble and Turkish
lira;
- higher affiliation fees paid to Corporate;
- higher launch costs;
- higher incentive compensation; and
- net customer price concessions subsequent to the nine months
ended September 30, 2015.
Asia
Adjusted EBIT in Asia increased
$80 million to $166 million for the nine months ended
September 30, 2016 compared to
$86 million for the nine months ended
September 30, 2015 primarily as a
result of:
- margins earned on higher production sales;
- acquisitions during or subsequent to the third quarter of 2015,
including the Xingqiaorui Partnership and Getrag;
- productivity and efficiency improvements at certain facilities;
and
- higher equity income.
These factors were partially offset by:
- increased pre-operating costs incurred at new facilities;
- a decrease in reported U.S. dollar Adjusted EBIT due to the
weakening of the Chinese renminbi against the U.S. dollar;
- higher warranty costs of $6
million;
- a higher amount of employee profit sharing;
- operational inefficiencies at certain facilities; and
- net customer price concessions subsequent to the nine months
ended September 30, 2015.
Rest of World
Adjusted EBIT in Rest of World decreased $2 million to a loss of $21 million for the nine months ended
September 30, 2016 compared to a loss
of $19 million for the nine months
ended September 30, 2015 primarily as
a result of decreased margins earned on lower production sales.
This factor was partially offset by:
- net customer price increases subsequent to the nine months
ended September 30, 2015;
- a decrease in reported U.S. dollar Adjusted EBIT loss due to
the weakening of the Brazilian real and Argentine peso against the
U.S. dollar; and
- decreased commodity costs.
Corporate and Other
Corporate and Other Adjusted EBIT increased $6 million to $40
million for the nine months ended September 30, 2016 compared to $34 million for the nine months ended
September 30, 2015 primarily as a
result of:
- an increase in affiliation fees earned from our divisions;
and
- lower consulting costs.
These factors were partially offset by:
- higher costs to support our global compliance programs;
and
- higher incentive compensation.
SUBSEQUENT EVENTS
Commitments
In October 2016, we entered into
binding agreements to extend the leases for 11 properties for a
period of 3 to 16 years. For the extended lease terms the
incremental annual rental payments are as follows:
For the 12 months
ended December 31,
|
|
|
|
|
|
2017
|
$
|
13
|
2018
|
|
27
|
2019
|
|
28
|
2020
|
|
36
|
2021
|
|
39
|
Thereafter
|
|
438
|
|
$
|
581
|
Normal Course Issuer Bid
Subject to approval by the TSX and the NYSE, our Board of
Directors approved a new normal course issuer bid to purchase up to
38 million of our Common Shares, representing approximately 10% of
our public float of Common Shares. The primary purposes of the
normal course issuer bid are purchases for cancellation as well as
purchases to fund our stock-based compensation awards or programs
and/or our obligations to our deferred profit sharing plans. The
normal course issuer bid is expected to commence on or about
November 14, 2016 and will terminate
one year later. All purchases of Common Shares will be made at the
market price at the time of purchase in accordance with the rules
and policies of the TSX or on the NYSE in compliance with Rule
10b-18 under the U.S. Securities Exchange Act of 1934. Purchases
may also be made through other published markets, or by such other
means permitted by the TSX, including by private agreement at a
discount to the prevailing market price, pursuant to an issuer bid
exemption order issued by a securities regulatory authority.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation,
legal and/or regulatory actions and proceedings and other
claims.
Refer to note 16 of our unaudited interim consolidated financial
statements for the three and nine months ended September 30, 2016, which describes these
claims.
For a discussion of risk factors relating to legal and other
claims/actions against us, refer to "Item 3. Description of the
Business – Risk Factors" in our Annual Information Form and Annual
Report on Form 40-F, each in respect of the year ended December 31, 2015.
CONTROLS AND PROCEDURES
During the first quarter of 2016, we acquired Getrag. Other than
the addition of Getrag's operations to our internal control over
financial reporting and any related changes in control to integrate
Getrag, there have been no changes in our internal control over
financial reporting that occurred during the nine months ended
September 30, 2016 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
FORWARD‑LOOKING STATEMENTS
The previous discussion contains statements that constitute
"forward-looking information" or "forward-looking statements"
within the meaning of applicable securities legislation, including,
but not limited to, statements relating to the future issuances of
Notes under our U.S. commercial paper and euro-commercial paper
programs; and future repurchases of Common Shares under our normal
course issuer bid. The forward-looking statements or
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 or forward-looking
information may include financial and other projections, as well as
statements regarding our future plans, objectives or economic
performance, or the assumptions underlying any of the foregoing,
and other statements that are not recitations of historical fact.
We use words such as "may", "would", "could", "should", "will",
"likely", "expect", "anticipate", "believe", "intend", "plan",
"forecast", "outlook", "project", "estimate" and similar
expressions suggesting future outcomes or events to identify
forward-looking statements or forward-looking information. Any such
forward-looking statements or forward-looking information are based
on information currently available to us, and are based on
assumptions and analyses made by us in light of our experience and
our perception of historical trends, current conditions and
expected future developments, as well as other factors we believe
are appropriate in the circumstances. However, whether actual
results and developments will conform with our expectations and
predictions is subject to a number of risks, assumptions and
uncertainties, many of which are beyond our control, and the
effects of which can be difficult to predict, including, without
limitation: the potential for a deterioration of economic
conditions or an extended period of economic uncertainty; a decline
in consumer confidence, which would be expected to result in lower
production volume levels; economic or political uncertainty,
including as a result of the U.K.'s potential exit from the
European Union and/or the outcome of the 2016 U.S. Presidential
election; legal claims and/or regulatory actions against us,
including without limitation any proceedings that may arise out of
our global review focused on anti-trust risk; 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; restructuring, downsizing and/or other
significant non-recurring costs; our ability to successfully
identify, complete and integrate acquisitions or achieve
anticipated synergies; our ability to conduct appropriate due
diligence on acquisition targets; an increase in our risk profile
as a result of completed acquisitions; shifts in market share
away from our top customers; shifts in market shares among vehicles
or vehicle segments, or shifts away from vehicles on which we have
significant content; inability to sustain or grow our business;
risks of conducting business in foreign markets, including
China, India, Eastern
Europe, Brazil and other
non-traditional markets for us; fluctuations in relative currency
values; a prolonged disruption in the supply of components to us
from our suppliers; work stoppages and labour relations disputes;
scheduled shutdowns of our customers' production facilities
(typically in the third and fourth quarters of each calendar year);
our ability to successfully compete with other automotive
suppliers; a reduction in outsourcing by our customers or the loss
of a material production or assembly program; the termination or
non-renewal by our customers of any material production purchase
order; our ability to consistently develop innovative products or
processes; exposure to, and ability to offset, volatile commodities
prices; warranty and recall costs; restructuring actions by OEMs,
including plant closures; shutdown of our or our customers' or
sub-suppliers' production facilities due to a labour disruption;
risk of production disruptions due to natural disasters or
catastrophic event; the security and reliability of our information
technology systems; pension liabilities; changes in our mix of
earnings between jurisdictions with lower tax rates and those with
higher tax rates, as well as our ability to fully benefit tax
losses; impairment charges related to goodwill, long-lived assets
and deferred tax assets; other potential tax exposures; changes in
credit ratings assigned to us; changes in laws and governmental
regulations; costs associated with compliance with environmental
laws and regulations; liquidity risks; inability to achieve future
investment returns that equal or exceed past returns; the
unpredictability of, and fluctuation in, the trading price of our
Common Shares; and other factors set out in our Annual Information
Form filed with securities commissions in Canada and our annual report on Form 40-F
filed with the United States Securities and Exchange Commission,
and subsequent filings. In evaluating forward-looking statements or
forward-looking information, we caution readers not to place undue
reliance on any forward-looking statements or forward-looking
information, and readers should specifically consider the various
factors which could cause actual events or results to differ
materially from those indicated by such forward-looking statements
or forward-looking information. Unless otherwise required by
applicable securities laws, we do not intend, nor do we undertake
any obligation, to update or revise any forward-looking statements
or forward-looking information to reflect subsequent information,
events, results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[Unaudited]
[U.S. dollars in millions, except per share figures]
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September
30,
|
|
September
30,
|
|
Note
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
8,849
|
$
|
7,661
|
|
$
|
27,192
|
$
|
23,566
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
|
7,558
|
|
6,593
|
|
|
23,222
|
|
20,223
|
|
Depreciation and
amortization
|
|
|
270
|
|
197
|
|
|
778
|
|
589
|
|
Selling, general and
administrative
|
|
|
371
|
|
358
|
|
|
1,177
|
|
1,036
|
|
Interest expense,
net
|
|
|
23
|
|
9
|
|
|
68
|
|
27
|
|
Equity
income
|
|
|
(65)
|
|
(52)
|
|
|
(187)
|
|
(155)
|
|
Other income,
net
|
3
|
|
—
|
|
(124)
|
|
|
—
|
|
(181)
|
Income from
continuing operations before income taxes
|
|
|
692
|
|
680
|
|
|
2,134
|
|
2,027
|
Income
taxes
|
|
|
178
|
|
211
|
|
|
556
|
|
569
|
Net income from
continuing operations
|
|
|
514
|
|
469
|
|
|
1,578
|
|
1,458
|
Income from
discontinued operations, net of tax
|
2
|
|
—
|
|
119
|
|
|
—
|
|
74
|
Net
income
|
|
|
514
|
|
588
|
|
|
1,578
|
|
1,532
|
(Income) loss from
continuing operations attributable to non-controlling
interests
|
|
|
(11)
|
|
1
|
|
|
(25)
|
|
5
|
Net income
attributable to Magna International Inc.
|
|
$
|
503
|
$
|
589
|
|
$
|
1,553
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share:
|
4
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
1.30
|
$
|
1.15
|
|
$
|
3.94
|
$
|
3.58
|
|
Discontinued
operations
|
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna
International
Inc.
|
|
$
|
1.30
|
$
|
1.44
|
|
$
|
3.94
|
$
|
3.76
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share:
|
4
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
1.29
|
$
|
1.13
|
|
$
|
3.92
|
$
|
3.53
|
|
Discontinued
operations
|
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna
International Inc.
|
|
$
|
1.29
|
$
|
1.42
|
|
$
|
3.92
|
$
|
3.71
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
per Common Share
|
|
$
|
0.25
|
$
|
0.22
|
|
$
|
0.75
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Common Shares outstanding during the period [in
millions]:
|
4
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
387.1
|
|
408.5
|
|
|
393.7
|
|
409.2
|
|
Diluted
|
|
|
389.0
|
|
413.8
|
|
|
395.9
|
|
414.7
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Unaudited]
[U.S. dollars in millions]
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September
30,
|
|
September
30,
|
|
Note
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
514
|
$
|
588
|
|
$
|
1,578
|
$
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax:
|
14
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain
(loss) on translation of net investment in foreign
operations
|
|
|
25
|
|
(275)
|
|
|
166
|
|
(650)
|
|
Net unrealized loss
on available-for-sale investments
|
|
|
—
|
|
(2)
|
|
|
—
|
|
—
|
|
Net unrealized (loss)
gain on cash flow hedges
|
|
|
(19)
|
|
(123)
|
|
|
39
|
|
(190)
|
|
Reclassification of
net loss on cash flow hedges to net income
|
|
|
27
|
|
24
|
|
|
98
|
|
56
|
|
Reclassification of
net loss on investments to net income
|
|
|
—
|
|
3
|
|
|
—
|
|
3
|
|
Reclassification of
net loss on pensions to net income
|
|
|
1
|
|
2
|
|
|
3
|
|
5
|
|
Pension and post
retirement benefits
|
|
|
—
|
|
(1)
|
|
|
(2)
|
|
(2)
|
Other
comprehensive income (loss)
|
|
|
34
|
|
(372)
|
|
|
304
|
|
(778)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
548
|
|
216
|
|
|
1,882
|
|
754
|
Comprehensive
(income) loss attributable to non-controlling interests
|
|
|
(12)
|
|
1
|
|
|
(19)
|
|
5
|
Comprehensive
income attributable to Magna International Inc.
|
|
$
|
536
|
$
|
217
|
|
$
|
1,863
|
$
|
759
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in millions]
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September
30,
|
|
September
30,
|
|
Note
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided from
(used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net income from
continuing operations
|
|
$
|
514
|
$
|
469
|
|
$
|
1,578
|
$
|
1,458
|
Items not involving
current cash flows
|
5
|
|
282
|
|
94
|
|
|
849
|
|
445
|
|
|
|
796
|
|
563
|
|
|
2,427
|
|
1,903
|
Changes in operating
assets and liabilities
|
5
|
|
(139)
|
|
33
|
|
|
(759)
|
|
(587)
|
Cash provided from
operating activities
|
|
|
657
|
|
596
|
|
|
1,668
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Fixed asset
additions
|
|
|
(390)
|
|
(360)
|
|
|
(1,145)
|
|
(987)
|
Purchase of
subsidiaries
|
6
|
|
—
|
|
—
|
|
|
(1,813)
|
|
(1)
|
Increase in
investments and other assets
|
|
|
(166)
|
|
(74)
|
|
|
(323)
|
|
(152)
|
Increase in
restricted cash deposits
|
10
|
|
(180)
|
|
—
|
|
|
(180)
|
|
—
|
Proceeds from
disposition
|
|
|
26
|
|
11
|
|
|
63
|
|
50
|
Sale of
Interiors
|
3
|
|
—
|
|
473
|
|
|
—
|
|
473
|
Proceeds on disposal
of facilities
|
|
|
—
|
|
118
|
|
|
—
|
|
221
|
Cash used in
discontinued operations
|
|
|
—
|
|
(15)
|
|
|
—
|
|
(56)
|
Cash (used for)
provided from investing activities
|
|
|
(710)
|
|
153
|
|
|
(3,398)
|
|
(452)
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Issues of
debt
|
|
|
3
|
|
659
|
|
|
264
|
|
690
|
Increase (decrease)
in short-term borrowings
|
|
|
350
|
|
(41)
|
|
|
362
|
|
29
|
Repayments of
debt
|
|
|
(237)
|
|
(16)
|
|
|
(335)
|
|
(70)
|
Issue of Common
Shares on exercise of stock options
|
|
|
2
|
|
6
|
|
|
28
|
|
19
|
Repurchase of Common
Shares
|
13
|
|
(191)
|
|
(346)
|
|
|
(799)
|
|
(351)
|
Contributions by
non-controlling interest of subsidiaries
|
|
|
—
|
|
10
|
|
|
—
|
|
10
|
Dividends
|
|
|
(97)
|
|
(91)
|
|
|
(290)
|
|
(270)
|
Cash (used for)
provided from financing activities
|
|
|
(170)
|
|
181
|
|
|
(770)
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
|
(10)
|
|
(78)
|
|
|
1
|
|
(155)
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash and cash equivalents during the period
|
|
|
(233)
|
|
852
|
|
|
(2,499)
|
|
766
|
Cash and cash
equivalents, beginning of period
|
|
|
597
|
|
1,163
|
|
|
2,863
|
|
1,249
|
Cash and cash
equivalents, end of period
|
|
$
|
364
|
$
|
2,015
|
|
$
|
364
|
$
|
2,015
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
|
|
As
at
|
|
As at
|
|
|
September
30,
|
|
December
31,
|
|
Note
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
5
|
$
|
364
|
|
$
|
2,863
|
Accounts
receivable
|
|
|
6,879
|
|
|
5,439
|
Inventories
|
7
|
|
3,090
|
|
|
2,564
|
Prepaid expenses and
other
|
10
|
|
247
|
|
|
278
|
|
|
|
10,580
|
|
|
11,144
|
|
|
|
|
|
|
|
Investments
|
6, 15
|
|
2,244
|
|
|
399
|
Fixed assets,
net
|
|
|
7,009
|
|
|
6,005
|
Goodwill
|
6, 8
|
|
1,865
|
|
|
1,344
|
Deferred tax
assets
|
|
|
275
|
|
|
271
|
Other
assets
|
9
|
|
975
|
|
|
524
|
|
|
$
|
22,948
|
|
$
|
19,687
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Short-term
borrowings
|
10
|
$
|
631
|
|
$
|
25
|
Accounts
payable
|
|
|
5,379
|
|
|
4,746
|
Accrued salaries and
wages
|
|
|
801
|
|
|
660
|
Other accrued
liabilities
|
11
|
|
1,857
|
|
|
1,512
|
Income taxes
payable
|
|
|
100
|
|
|
122
|
Long‑term debt due
within one year
|
|
|
201
|
|
|
211
|
|
|
|
8,969
|
|
|
7,276
|
|
|
|
|
|
|
|
Long‑term
debt
|
|
|
2,450
|
|
|
2,327
|
Long-term employee
benefit liabilities
|
|
|
652
|
|
|
504
|
Other long‑term
liabilities
|
|
|
296
|
|
|
331
|
Deferred tax
liabilities
|
|
|
309
|
|
|
132
|
|
|
|
12,676
|
|
|
10,570
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
Capital
stock
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
|
|
|
|
|
|
[issued: 384,409,283;
December 31, 2015 – 402,264,201]
|
13
|
|
3,798
|
|
|
3,942
|
Contributed
surplus
|
|
|
117
|
|
|
107
|
Retained
earnings
|
|
|
7,026
|
|
|
6,387
|
Accumulated other
comprehensive loss
|
14
|
|
(1,143)
|
|
|
(1,470)
|
|
|
|
9,798
|
|
|
8,966
|
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
474
|
|
|
151
|
|
|
|
10,272
|
|
|
9,117
|
|
|
$
|
22,948
|
|
$
|
19,687
|
|
|
|
|
|
|
|
See accompanying
notes
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
|
|
Common
Shares
|
|
Contri-
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Stated
|
|
buted
|
|
Retained
|
|
|
|
controlling
|
|
Total
|
|
Note
|
Number
|
|
Value
|
|
Surplus
|
|
Earnings
|
|
AOCL
(i)
|
|
Interest
|
|
Equity
|
|
|
[in
millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
|
402.3
|
|
$
|
3,942
|
|
$
|
107
|
|
$
|
6,387
|
|
$
|
(1,470)
|
|
$
|
151
|
|
$
|
9,117
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,553
|
|
|
|
|
|
25
|
|
|
1,578
|
Other comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
(6)
|
|
|
304
|
Contributions by
non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1)
|
Shares issued on
exercise of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
|
|
1.8
|
|
|
41
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
28
|
Release of stock and
stock units
|
|
|
|
|
7
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Repurchase and
cancellation under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
normal course issuer
bid
|
13
|
(19.8)
|
|
|
(195)
|
|
|
|
|
|
(621)
|
|
|
17
|
|
|
|
|
|
(799)
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
Acquisition
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
305
|
|
|
305
|
Dividends
paid
|
|
0.1
|
|
|
3
|
|
|
|
|
|
(293)
|
|
|
|
|
|
|
|
|
(290)
|
Balance, September
30, 2016
|
|
384.4
|
|
$
|
3,798
|
|
$
|
117
|
|
$
|
7,026
|
|
$
|
(1,143)
|
|
$
|
474
|
|
$
|
10,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
Contri-
|
|
|
|
|
|
Non-
|
|
|
|
|
|
Stated
|
|
buted
|
|
Retained
|
|
|
|
controlling
|
|
Total
|
|
Note
|
Number
|
|
Value
|
|
Surplus
|
|
Earnings
|
|
AOCL
(i)
|
|
Interest
|
|
Equity
|
|
|
[in
millions]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2014
|
|
410.3
|
|
$
|
3,979
|
|
$
|
83
|
|
$
|
5,155
|
|
$
|
(558)
|
|
$
|
14
|
|
$
|
8,673
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,537
|
|
|
|
|
|
(5)
|
|
|
1,532
|
Other comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(778)
|
|
|
|
|
|
(778)
|
Shares issued on
exercise of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
|
|
1.2
|
|
|
25
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
19
|
Repurchase and
cancellation under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
normal course issuer
bid
|
13
|
(7.2)
|
|
|
(72)
|
|
|
|
|
|
(286)
|
|
|
7
|
|
|
|
|
|
(351)
|
Release of stock and
stock units
|
|
|
|
|
6
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
Reclassification of
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
9
|
Dividends
paid
|
|
0.1
|
|
|
6
|
|
|
|
|
|
(276)
|
|
|
|
|
|
|
|
|
(270)
|
Balance, September
30, 2015
|
|
404.4
|
|
$
|
3,944
|
|
$
|
100
|
|
$
|
6,130
|
|
$
|
(1,329)
|
|
$
|
18
|
|
$
|
8,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
AOCL is Accumulated Other Comprehensive Loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes
|
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
[All amounts in U.S. dollars and all tabular amounts in millions
unless otherwise noted]
1. SIGNIFICANT ACCOUNTING POLICIES
[a] Basis of presentation
The unaudited interim consolidated financial statements of Magna
International Inc. and its subsidiaries [collectively "Magna" or
the "Company"] have been prepared in U.S. dollars following
accounting principles generally accepted in the United States of America
["GAAP"]. The unaudited interim consolidated financial
statements do not conform in all respects to the requirements of
GAAP for annual financial statements. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the December 31,
2015 audited consolidated financial statements and notes
thereto included in the Company's 2015 Annual Report.
The unaudited interim consolidated financial statements reflect
all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
September 30, 2016 and the results of
operations, changes in equity and cash flows for the three and nine
month periods ended September 30,
2016 and 2015.
[b] Future Accounting Standards
Revenue Recognition
In May 2014, the FASB issued ASU
No. 2014-09, "Revenue from Contracts with Customers: Topic 606 (ASU
2014-09)", to supersede nearly all existing revenue recognition
guidance under GAAP. The core principle of ASU 2014-09 is to
recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration that is
expected to be received for those goods or services. In
July 2015, the FASB deferred the
effective date to annual reporting periods beginning after
December 15, 2017 [including interim
reporting periods within those periods]. ASU 2014-09 is
effective for the Company in the first quarter of fiscal 2018 using
either of two methods: [i] retrospective to each prior reporting
period presented with the option to elect certain practical
expedients as defined within ASU 2014-09; or [ii] retrospective
with the cumulative effect of initially applying ASU 2014-09
recognized at the date of initial application and providing certain
additional disclosures as defined per ASU 2014-09. The Company is
currently evaluating the impact of its pending adoption of ASU
2014-09 on its consolidated financial statements.
Leases
In February 2016, the FASB issued
ASU No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to supersede
nearly all existing lease guidance under GAAP. The guidance would
require lessees to recognize most leases on their balance sheets as
lease liabilities with corresponding right-of-use
assets. ASU 2016-02 is effective for the Company in the
first quarter of fiscal 2019 using a modified retrospective
approach with the option to elect certain practical
expedients. The Company is currently evaluating the impact of
its pending adoption of ASU 2016-02 on its consolidated financial
statements.
[c] Seasonality
The Company's businesses are generally not seasonal. However,
the Company's sales and profits are closely related to its
automotive customers' vehicle production schedules. The Company's
largest North American customers typically halt production for
approximately two weeks in July and one week in December.
Additionally, many of the Company's customers in Europe typically shutdown vehicle production
during portions of August and one week in December.
2. DISCONTINUED OPERATIONS
At June 30, 2015, the Company
determined that its interiors operations met the criteria to be
classified as discontinued operations, which required retrospective
application to financial information for all periods presented.
Refer to the Company's 2015 Annual Report for additional
information on the Company's Discontinued Operations.
There were no amounts related to the interiors operations
classified as discontinued operations for the three and nine month
periods ended September 30, 2016. The
following table summarizes the results of the interiors operations
classified as discontinued operations for the three and nine month
periods ended September 30, 2015:
|
Three months
ended
|
|
Nine months
ended
|
|
September 30,
2015
|
|
September 30,
2015
|
|
|
|
|
|
|
Sales
|
$
|
453
|
|
$
|
1,737
|
|
|
|
|
|
|
Costs and
expense
|
|
|
|
|
|
|
Cost of goods
sold
|
|
436
|
|
|
1,635
|
|
Depreciation and
amortization
|
|
—
|
|
|
13
|
|
Selling, general and
administrative
|
|
4
|
|
|
58
|
|
Equity
income
|
|
(3)
|
|
|
(11)
|
Income from
discontinued operations before income taxes
|
|
16
|
|
|
42
|
Income taxes
[i]
|
|
(51)
|
|
|
20
|
Income from
discontinued operations before gain on divestiture
|
|
67
|
|
|
22
|
Gain on divestiture
of discontinued operations, net of tax [i]
|
|
52
|
|
|
52
|
Income from
discontinued operations, net of tax
|
$
|
119
|
|
$
|
74
|
|
|
[i]
|
In the second quarter
of 2015, income taxes included $60 million of deferred tax expense
relating to timing differences that became payable upon closing of
the transaction and therefore in the third quarter of 2015 are
included in the gain on divestiture of discontinued operations, net
of tax.
|
3. OTHER INCOME, NET
|
|
Nine months ended
September 30, 2015
|
|
|
|
|
Third
Quarter
|
|
|
|
|
Gain on
disposal
|
[a]
|
$
|
(136)
|
|
Restructuring
|
[b]
|
|
12
|
|
|
|
(124)
|
|
|
|
|
Second
Quarter
|
|
|
|
|
Gain on
disposal
|
[a]
|
|
(57)
|
|
|
|
|
|
|
$
|
(181)
|
For the three and nine months ended September 30, 2016, there were no amounts
included in Other Income, net.
For the nine months ended September
30, 2015:
[a] Gain on disposal
During the third quarter of 2015, the Company contributed two
manufacturing facilities and received a 49% interest in a newly
formed joint venture and cash proceeds of $118 million. Total consideration was valued at
$160 million and as a result the
Company recognized a gain of $136
million [$80 million after
tax].
During the second quarter of 2015, the company sold its battery
pack business to Samsung SDI for gross proceeds of approximately
$120 million, resulting in a gain of
$57 million [$42 million after tax].
[b] Restructuring
During the third quarter of 2015, the Company recorded net
restructuring charges of $12 million,
after tax in Europe related to its
exterior systems operations.
4. EARNINGS PER SHARE
Earnings per share are computed as follows:
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Income available
to Common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from
continuing operations
|
$
|
514
|
$
|
469
|
|
$
|
1,578
|
$
|
1,458
|
(Loss) income from
continuing operations attributable to
|
|
|
|
|
|
|
|
|
|
|
non-controlling
interests
|
|
(11)
|
|
1
|
|
|
(25)
|
|
5
|
Net income
attributable to Magna International Inc.
|
|
|
|
|
|
|
|
|
|
|
from continuing
operations
|
|
503
|
|
470
|
|
|
1,553
|
|
1,463
|
Income from
discontinued operations
|
|
—
|
|
119
|
|
|
—
|
|
74
|
Net income
attributable to Magna International Inc.
|
$
|
503
|
$
|
589
|
|
$
|
1,553
|
$
|
1,537
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
387.1
|
|
408.5
|
|
|
393.7
|
|
409.2
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and
restricted stock
[a]
|
|
1.9
|
|
5.3
|
|
|
2.2
|
|
5.5
|
Diluted
|
|
389.0
|
|
413.8
|
|
|
395.9
|
|
414.7
|
|
|
[a]
|
For the three and
nine months ended September 30, 2016, diluted earnings per Common
Share excludes 5.2 million and 3.0 million Common Shares issuable
under the Company's Incentive Stock Option Plan because these
options were not "in-the-money".
|
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Earnings per
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.30
|
$
|
1.15
|
|
$
|
3.94
|
$
|
3.58
|
|
Discontinued
operations
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna
International Inc.
|
$
|
1.30
|
$
|
1.44
|
|
$
|
3.94
|
$
|
3.76
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.29
|
$
|
1.13
|
|
$
|
3.92
|
$
|
3.53
|
|
Discontinued
operations
|
|
—
|
|
0.29
|
|
|
—
|
|
0.18
|
|
Attributable to Magna
International Inc.
|
$
|
1.29
|
$
|
1.42
|
|
$
|
3.92
|
$
|
3.71
|
5. DETAILS OF CASH FROM OPERATING ACTIVITIES
[a] Cash and cash equivalents:
|
September
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Bank term deposits,
bankers' acceptances and government paper
|
$
|
113
|
|
$
|
2,572
|
Cash
|
|
251
|
|
|
291
|
|
$
|
364
|
|
$
|
2,863
|
[b] Items not involving current cash
flows:
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
|
270
|
$
|
197
|
|
$
|
778
|
$
|
589
|
Amortization of other
assets included in cost of goods sold
|
|
35
|
|
32
|
|
|
100
|
|
82
|
Deferred income
taxes
|
|
(3)
|
|
11
|
|
|
8
|
|
(5)
|
Other non-cash
charges
|
|
4
|
|
9
|
|
|
21
|
|
21
|
Equity income in
excess of dividends received
|
|
(24)
|
|
(19)
|
|
|
(58)
|
|
(49)
|
Non-cash portion of
Other Income [note 3]
|
|
—
|
|
(136)
|
|
|
—
|
|
(193)
|
|
$
|
282
|
$
|
94
|
|
$
|
849
|
$
|
445
|
[c] Changes in operating assets and
liabilities:
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
$
|
(26)
|
$
|
(116)
|
|
$
|
(1,004)
|
$
|
(588)
|
Inventories
|
|
(232)
|
|
(62)
|
|
|
(362)
|
|
(331)
|
Prepaid expenses and
other
|
|
38
|
|
3
|
|
|
176
|
|
(9)
|
Accounts
payable
|
|
96
|
|
68
|
|
|
403
|
|
167
|
Accrued salaries and
wages
|
|
62
|
|
125
|
|
|
96
|
|
70
|
Other accrued
liabilities
|
|
(20)
|
|
(13)
|
|
|
(46)
|
|
27
|
Income taxes
payable
|
|
(57)
|
|
28
|
|
|
(22)
|
|
77
|
|
$
|
(139)
|
$
|
33
|
|
$
|
(759)
|
$
|
(587)
|
6. ACQUISITIONS
Acquisition of Getrag
On January 4, 2016, the Company
completed the acquisition of 100% of the common shares and voting
interests of the Getrag Group of Companies ["Getrag"]. Getrag
is a global supplier of automotive transmission systems, including
manual, automated-manual, dual clutch, hybrid and other advanced
systems. The purchase price was $1.8
billion [net of $136 million
cash acquired], and is subject to working capital and other
customary purchase price adjustments. The acquired business
has sales primarily to BMW, Audi, Jiangling Motors, Ford, Volvo and
Dongfeng.
The acquisition of Getrag was accounted for as a business
combination. The following table summarizes the provisional
amounts recognized for assets acquired and liabilities assumed at
their estimated fair values:
|
Preliminary
amounts
|
|
recognized at
September 30, 2016
|
|
|
|
|
|
Cash
|
|
|
$
|
136
|
Non-cash working
capital
|
|
|
|
(459)
|
Investments
|
|
|
|
1,736
|
Fixed
assets
|
|
|
|
483
|
Goodwill
|
|
|
|
442
|
Other
assets
|
|
|
|
59
|
Intangibles
|
|
|
|
223
|
Deferred tax
assets
|
|
|
|
43
|
Long-term employee
benefit liabilities
|
|
|
|
(125)
|
Long-term
debt
|
|
|
|
(117)
|
Other long-term
liabilities
|
|
|
|
(52)
|
Deferred tax
liabilities
|
|
|
|
(144)
|
Non-controlling
interest
|
|
|
|
(307)
|
Consideration
paid
|
|
|
|
1,918
|
Less: Cash
acquired
|
|
|
|
(136)
|
Net cash
outflow
|
|
|
$
|
1,782
|
The preliminary purchase price allocations are subject to change
and may be subsequently adjusted to reflect final valuation results
and other adjustments. During the three months ended
September 30, 2016 there were no
adjustments made to the preliminary purchase price allocation.
The investments amount includes the following equity investments
that were acquired as part of the business combination:
|
Ownership
|
|
Preliminary
|
|
percentage
|
|
investment
balance
|
|
|
|
|
|
Getrag Ford
Transmission GmbH
|
50.0%
|
|
$
|
444
|
Getrag (Jiangxi)
Transmission Co., Ltd ["GJT"] (i)
|
50.0%
|
|
$
|
1,124
|
Dongfeng Getrag
Transmission Co. Ltd
|
50.0%
|
|
$
|
168
|
|
|
(i)
|
GJT is 66.7% owned
by one of the Company's consolidated subsidiaries which has a 25%
non-controlling interest. As a result, the preliminary
investment balance was derived using 66.7% of the fair
value.
|
The Company accounts for the investments under the equity method
since it has the ability to exercise significant influence but does
not hold a controlling financial interest.
Recognized goodwill is attributable to the assembled workforce,
expected synergies and other intangible assets that do not qualify
for separate recognition. All of the goodwill recognized was
assigned to the Company's European segment.
Intangible assets consist primarily of amounts recognized for
the fair value of customer contracts and patents. These
amortizable intangible assets are being amortized on a
straight-line basis over a 15 year estimated useful life.
Sales for the acquired Getrag entities for the three and nine
months ended September 30, 2016 were
$450 million and $1.5 billion, respectively. Net income for the
three and nine months ended September 30,
2016 were $13 million and
$37 million, respectively.
The following table provides consolidated supplemental pro forma
information as if the acquisition of Getrag had occurred on
January 1, 2015.
|
Three months
ended
|
|
Nine months
ended
|
|
September 30,
2015
|
|
September 30,
2015
|
|
|
|
|
|
|
Sales
|
$
|
8,135
|
|
$
|
25,042
|
Net income
attributable to Magna International Inc.
|
$
|
608
|
|
$
|
1,545
|
The unaudited pro forma financial results do not include any
anticipated synergies or other expected benefits of the
acquisition. This information is presented for informational
purposes only and is not indicative of future operating
results.
Other
During the second quarter of 2016, the Company acquired 100% of
the equity interest in Telemotive AG, an engineering service
provider in the field of automotive electronics. The acquired
business has sales primarily to BMW, Volkswagen and Daimler.
7. INVENTORIES
Inventories consist of:
|
September
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Raw materials and
supplies
|
$
|
1,052
|
|
$
|
843
|
Work-in-process
|
|
300
|
|
|
246
|
Finished
goods
|
|
343
|
|
|
311
|
Tooling and
engineering
|
|
1,395
|
|
|
1,164
|
|
$
|
3,090
|
|
$
|
2,564
|
Tooling and engineering inventory represents costs incurred on
tooling and engineering services contracts in excess of billed and
unbilled amounts included in accounts receivable.
8. GOODWILL
The following is a continuity of the Company's goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2015
|
|
|
|
$
|
1,344
|
Acquisition [note
6]
|
|
|
|
|
430
|
Foreign exchange and
other
|
|
|
|
|
57
|
Balance, March 31,
2016
|
|
|
|
|
1,831
|
Acquisitions [note
6]
|
|
|
|
|
52
|
Foreign exchange and
other
|
|
|
|
|
(34)
|
Balance, June 30,
2016
|
|
|
|
|
1,849
|
Foreign exchange and
other
|
|
|
|
|
16
|
Balance, September
30, 2016
|
|
|
|
$
|
1,865
|
9. OTHER ASSETS
Other assets consist of:
|
September
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Preproduction costs
related to long-term supply agreements
|
|
|
|
|
|
|
with contractual
guarantee for
reimbursement
|
$
|
372
|
|
$
|
276
|
Customer relationship
intangibles
|
|
282
|
|
|
75
|
Long-term
receivables
|
|
197
|
|
|
87
|
Patents and licences,
net
|
|
41
|
|
|
37
|
Unrealized gain on
cash flow hedges
|
|
12
|
|
|
5
|
Pension overfunded
status
|
|
17
|
|
|
17
|
Other, net
|
|
54
|
|
|
27
|
|
$
|
975
|
|
$
|
524
|
10. SHORT-TERM BORROWINGS
The Company's short-term borrowings consist of the
following:
|
September
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Bank
indebtedness
|
$
|
108
|
|
$
|
25
|
Commercial
paper
|
|
523
|
|
|
—
|
|
$
|
631
|
|
$
|
25
|
In the third quarter of 2016, the Company entered into an
agreement for a credit facility that is drawn in euros. The
Company is required to secure any amounts drawn on the facility
with a USD cash deposit of 105% of the outstanding euro
balance. As of September 30,
2016, the gross amount outstanding under the credit facility
was $165 million. The credit
agreement includes a netting arrangement with the bank that
provides for the legal right of setoff. Accordingly, as at
September 30, 2016, this liability
balance was offset against the related restricted cash deposit of
$180 million. The remaining net
cash deposit of $15 million was
included in the Prepaid expenses and other balance, and is
restricted under the terms of the loan.
During the third quarter of 2016, the Company established a U.S.
commercial paper program [the "U.S. Program"]. Under the U.S.
Program, the Company may issue U.S. commercial paper notes [the
"U.S. notes"] up to a maximum aggregate amount of U.S. $500 million. The U.S. Program will be
supported by the Company's existing global credit facility.
The proceeds from the issuance of any U.S. notes will be used for
general corporate purposes. As of September 30, 2016, $265
million of U.S notes were outstanding, with a
weighted-average interest rate of 0.81%, and maturities generally
less than three months.
In the first quarter of 2016, the Company established a
euro-commercial paper program [the "euro-Program"]. Under the
euro-Program, the Company may issue euro-commercial paper notes
[the "euro notes"] up to a maximum aggregate amount of €500 million
or its equivalent in alternative currencies. Any euro notes issued
will be guaranteed by the Company. The proceeds from the issuance
of any euro notes will be used for general corporate
purposes. As of September 30,
2016, $258 million [€230
million] of euro notes were outstanding, with a weighted-average
interest rate of -0.04%, and maturities generally less than three
months.
11. WARRANTY
The following is a continuity of the Company's warranty
accruals:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
59
|
|
$
|
80
|
Expense,
net
|
|
19
|
|
|
8
|
Settlements
|
|
(17)
|
|
|
(10)
|
Acquisition [note
6]
|
|
172
|
|
|
—
|
Foreign exchange and
other
|
|
4
|
|
|
(6)
|
Balance, March
31
|
|
237
|
|
|
72
|
Expense,
net
|
|
12
|
|
|
10
|
Settlements
|
|
(14)
|
|
|
(10)
|
Foreign exchange and
other
|
|
(2)
|
|
|
1
|
Balance, June
30
|
|
233
|
|
|
73
|
Expense,
net
|
|
26
|
|
|
1
|
Settlements
|
|
(4)
|
|
|
(10)
|
Foreign exchange and
other
|
|
(1)
|
|
|
(5)
|
Balance, September
30
|
$
|
254
|
|
$
|
59
|
During the first quarter of 2016, the warranty obligation
assumed as a result of the acquisition was recognized at its
estimated fair value of $172
million. Of this amount, $127
million relates to a pre-acquisition settlement agreement
negotiated with a customer and a supplier for a specific
performance issue.
12. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
The Company recorded long-term employee benefit expenses as
follows:
|
Three months
ended
|
|
Nine months
ended
|
|
September
30,
|
|
September
30,
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Defined benefit
pension plan and other
|
$
|
4
|
$
|
3
|
|
$
|
13
|
$
|
10
|
Termination and long
service arrangements
|
|
7
|
|
8
|
|
|
22
|
|
20
|
Retirement medical
benefit plan
|
|
—
|
|
—
|
|
|
1
|
|
1
|
|
$
|
11
|
$
|
11
|
|
$
|
36
|
$
|
31
|
13. CAPITAL STOCK
[a]
|
The Company
repurchased shares under normal course issuer bids as
follows:
|
|
|
|
|
2016
|
|
2015
|
|
|
Number
|
|
Cash
|
|
Number
|
|
Cash
|
|
|
of
shares
|
|
consideration
|
|
of shares
|
|
consideration
|
|
First
Quarter
|
7,277,425
|
$
|
300
|
|
—
|
$
|
—
|
|
Second
Quarter
|
7,823,637
|
|
308
|
|
—
|
|
—
|
|
Third
Quarter
|
4,706,220
|
|
190
|
|
7,246,514
|
|
346
|
|
|
19,807,282
|
$
|
798
|
|
7,246,514
|
$
|
346
|
|
|
|
|
|
|
|
|
|
[b]
|
The following table
presents the maximum number of shares that would be outstanding if
all the dilutive instruments
outstanding at November 3, 2016 were
exercised or converted:
|
|
|
|
Common
Shares
|
384,409,283
|
|
Stock options
(i)
|
7,614,131
|
|
|
392,023,414
|
|
|
|
|
(i)
|
Options to
purchase Common Shares are exercisable by the holder in accordance
with the vesting provisions and upon payment of the exercise price
as may be determined from time to time pursuant to the Company's
stock option plans.
|
|
|
|
|
|
14. ACCUMULATED OTHER COMPREHENSIVE
LOSS
The following is a
continuity schedule of accumulated other comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on translation of net investment in foreign
operations
|
|
Balance, beginning of
period
|
|
|
$
|
(1,042)
|
|
|
$
|
(255)
|
|
|
Net unrealized gain
(loss)
|
|
|
|
256
|
|
|
|
(438)
|
|
|
Repurchase of shares
under normal course issuer bid
|
|
|
|
7
|
|
|
|
—
|
|
|
Balance, March
31
|
|
|
|
(779)
|
|
|
|
(693)
|
|
|
Net unrealized (loss)
gain
|
|
|
|
(108)
|
|
|
|
63
|
|
|
Repurchase of shares
under normal course issuer bid
|
|
|
|
6
|
|
|
|
—
|
|
|
Balance, June
30
|
|
|
|
(881)
|
|
|
|
(630)
|
|
|
Net unrealized gain
(loss)
|
|
|
|
24
|
|
|
|
(275)
|
|
|
Repurchase of shares
under normal course issuer bid
|
|
|
|
4
|
|
|
|
7
|
|
|
Balance, September
30
|
|
|
|
(853)
|
|
|
|
(898)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on cash flow hedges (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
|
|
|
(262)
|
|
|
|
(113)
|
|
|
Net unrealized gain
(loss)
|
|
|
|
69
|
|
|
|
(65)
|
|
|
Reclassification of
net loss to net income
|
|
|
|
36
|
|
|
|
11
|
|
|
Balance, March
31
|
|
|
|
(157)
|
|
|
|
(167)
|
|
|
Net unrealized
loss
|
|
|
|
(11)
|
|
|
|
(2)
|
|
|
Reclassification of
net loss to net income
|
|
|
|
35
|
|
|
|
21
|
|
|
Balance, June
30
|
|
|
|
(133)
|
|
|
|
(148)
|
|
|
Net unrealized
loss
|
|
|
|
(19)
|
|
|
|
(123)
|
|
|
Reclassification of
net loss to net income
|
|
|
|
27
|
|
|
|
24
|
|
|
Balance, September
30
|
|
|
|
(125)
|
|
|
|
(247)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on available-for-sale investments
|
|
Balance, beginning of
period
|
|
|
|
(1)
|
|
|
|
(4)
|
|
|
Net unrealized
gain
|
|
|
|
—
|
|
|
|
1
|
|
|
Balance, March
31
|
|
|
|
(1)
|
|
|
|
(3)
|
|
|
Net unrealized
gain
|
|
|
|
—
|
|
|
|
1
|
|
|
Balance, June
30
|
|
|
|
(1)
|
|
|
|
(2)
|
|
|
Net unrealized
loss
|
|
|
|
—
|
|
|
|
(2)
|
|
|
Reclassification of
net loss to net income
|
|
|
|
—
|
|
|
|
3
|
|
|
Balance, September
30
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated net
unrealized loss on pensions (ii)
|
|
Balance, beginning of
period
|
|
|
|
(165)
|
|
|
|
(186)
|
|
|
Net unrealized
loss
|
|
|
|
(2)
|
|
|
|
(1)
|
|
|
Acquisition [note
6]
|
|
|
|
(1)
|
|
|
|
—
|
|
|
Reclassification of
net loss to net income
|
|
|
|
1
|
|
|
|
1
|
|
|
Balance, March
31
|
|
|
|
(167)
|
|
|
|
(186)
|
|
|
Acquisition [note
6]
|
|
|
|
1
|
|
|
|
—
|
|
|
Reclassification of
net loss to net income
|
|
|
|
1
|
|
|
|
2
|
|
|
Balance, June
30
|
|
|
|
(165)
|
|
|
|
(184)
|
|
|
Net unrealized
loss
|
|
|
|
—
|
|
|
|
(1)
|
|
|
Reclassification of
net loss to net income
|
|
|
|
1
|
|
|
|
2
|
|
|
Balance, September
30
|
|
|
|
(164)
|
|
|
|
(183)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated
other comprehensive loss
|
|
|
$
|
(1,143)
|
|
|
$
|
(1,329)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
The amount of
income tax benefit that has been netted in the accumulated net
unrealized (loss) gain on cash flow hedges is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
|
|
|
$
|
97
|
|
|
$
|
44
|
|
|
|
|
Net unrealized
(loss) gain
|
|
|
|
(24)
|
|
|
27
|
|
|
|
|
Reclassifications
of net loss to net income
|
|
|
|
(14)
|
|
|
(5)
|
|
|
|
|
Balance, March
31
|
|
|
|
59
|
|
|
66
|
|
|
|
|
Net unrealized
gain (loss)
|
|
|
|
6
|
|
|
(1)
|
|
|
|
|
Reclassifications
of net loss to net income
|
|
|
|
(13)
|
|
|
(8)
|
|
|
|
|
Balance, June
30
|
|
|
|
52
|
|
|
57
|
|
|
|
|
Net unrealized
gain
|
|
|
|
7
|
|
|
47
|
|
|
|
|
Reclassifications
of net loss to net income
|
|
|
|
(10)
|
|
|
(10)
|
|
|
|
|
Balance, September
30
|
|
|
|
$
|
49
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
The amount of
income tax benefit that has been netted in the accumulated net
unrealized loss on pensions is as follows:|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
of period
|
|
|
|
$
|
31
|
|
|
$
|
36
|
|
|
|
|
Net unrealized
loss
|
|
|
|
(2)
|
|
|
—
|
|
|
|
|
Balance, March
31
|
|
|
|
29
|
|
|
36
|
|
|
|
|
Reclassification
of net loss to net income
|
|
|
|
(1)
|
|
|
(1)
|
|
|
|
|
Balance, June
30
|
|
|
|
$
|
28
|
|
|
$
|
35
|
|
|
|
|
Net unrealized
loss
|
|
|
|
—
|
|
|
(1)
|
|
|
|
|
Reclassification
of net loss to net income
|
|
|
|
—
|
|
|
(1)
|
|
|
|
|
Balance, September
30
|
|
|
|
$
|
28
|
|
|
$
|
33
|
|
The amount of other comprehensive loss that is expected to be
reclassified to net income over the next 12 months is $124 million.
15. FINANCIAL INSTRUMENTS
[a] The Company's financial assets and
financial liabilities consist of the following:
|
|
|
|
|
September
30,
|
|
December
31,
|
|
2016
|
|
2015
|
|
|
|
|
Trading
|
|
|
|
|
Cash and cash
equivalents
|
$
|
364
|
|
$
|
2,863
|
|
Investment in
asset-backed commercial paper
|
79
|
|
73
|
|
Equity
investments
|
—
|
|
4
|
|
$
|
443
|
|
$
|
2,940
|
|
|
|
|
Held to maturity
investments
|
|
|
|
|
Severance
investments
|
$
|
3
|
|
$
|
3
|
|
|
|
|
Loans and
receivables
|
|
|
|
|
Accounts
receivable
|
$
|
6,879
|
|
$
|
5,439
|
|
Long-term receivables
included in other assets
|
197
|
|
87
|
|
$
|
7,076
|
|
$
|
5,526
|
|
|
|
|
Other financial
liabilities
|
|
|
|
|
Bank
indebtedness
|
$
|
108
|
|
$
|
25
|
|
Commercial
paper
|
523
|
|
—
|
|
Long-term debt
(including portion due within one year)
|
2,651
|
|
2,557
|
|
Accounts
payable
|
5,379
|
|
4,746
|
|
$
|
8,661
|
|
$
|
7,328
|
|
|
|
|
Derivatives
designated as effective hedges, measured at fair value
|
|
|
|
|
Foreign currency
contracts
|
|
|
|
|
|
Prepaid
expenses
|
$
|
17
|
|
$
|
27
|
|
|
Other
assets
|
12
|
|
4
|
|
|
Other accrued
liabilities
|
(131)
|
|
(191)
|
|
|
Other long-term
liabilities
|
(53)
|
|
(152)
|
|
$
|
(155)
|
|
$
|
(312)
|
|
|
|
|
|
|
[b] Derivatives designated as effective hedges,
measured at fair value
The Company presents derivatives that are designated as
effective hedges at gross fair values in the Consolidated Balance
Sheets. However, master netting and other similar arrangements
allow net settlements under certain conditions. The following table
shows the Company's derivative foreign currency contracts at gross
fair value as reflected in the Consolidated Balance Sheets and the
unrecognized impacts of master netting arrangements:
|
Gross
|
|
Gross
|
|
|
|
amounts
|
|
amounts
|
|
|
|
presented
|
|
not
offset
|
|
|
|
in
consolidated
|
|
in
consolidated
|
|
|
|
balance
sheets
|
|
balance
sheets
|
|
Net
amounts
|
|
|
|
|
|
|
September 30,
2016
|
|
|
|
|
|
|
Assets
|
$
|
29
|
|
$
|
25
|
|
$
|
4
|
|
Liabilities
|
$
|
(184)
|
|
$
|
(25)
|
|
$
|
(159)
|
|
|
|
|
|
|
December 31,
2015
|
|
|
|
|
|
|
Assets
|
$
|
31
|
|
$
|
30
|
|
$
|
1
|
|
Liabilities
|
$
|
(343)
|
|
$
|
(30)
|
|
$
|
(313)
|
|
|
|
|
|
|
[c] Fair value
The Company determined the estimated fair values of its
financial instruments based on valuation methodologies it believes
are appropriate; however, considerable judgment is required to
develop these estimates. Accordingly, these estimated fair values
are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The estimated fair value
amounts can be materially affected by the use of different
assumptions or methodologies. The methods and assumptions used to
estimate the fair value of financial instruments are described
below
Cash and cash equivalents, accounts receivable, short-term
borrowings and accounts payable.
Due to the short period to maturity of the instruments, the
carrying values as presented in the consolidated balance sheets are
reasonable estimates of fair values.
Investments
At September 30, 2016, the Company
held Canadian third party asset-backed commercial paper ["ABCP"]
with a face value of Cdn$107 million
[December 31, 2015 - Cdn$107
million]. The carrying value and estimated fair value of this
investment was Cdn$104 million
[December 31, 2015 - Cdn$101
million]. As fair value information is not readily determinable for
the Company's investment in ABCP, the fair value was based on a
valuation technique estimating the fair value from the perspective
of a market participant.
Term debt
The Company's term debt includes $201
million due within one year. Due to the short period to
maturity of this debt, the carrying value as presented in the
consolidated balance sheets is a reasonable estimate of its fair
value.
Senior Notes
The fair value of our senior notes are classified as Level 1
when we use quoted prices in active markets and Level 2 when the
quoted prices are from less active markets or when other observable
inputs are used to determine fair value. At September 30, 2016, the net book value of the
Company's Senior Notes was $2.34
billion and the estimated fair value was $2.55 billion, determined primarily using active
market prices.
[d] Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash and cash equivalents, accounts
receivable, held to maturity investments, and foreign exchange
forward contracts with positive fair values.
Cash and cash equivalents, which consists of short-term
investments, are only invested in governments, bank term deposits
and bank commercial paper with an investment grade credit rating.
Credit risk is further reduced by limiting the amount which is
invested in certain governments or any major financial
institution.
The Company is also exposed to credit risk from the potential
default by any of its counterparties on its foreign exchange
forward contracts. The Company mitigates this credit risk by
dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under
the contracts.
In the normal course of business, the Company is exposed to
credit risk from its customers, substantially all of which are in
the automotive industry and are subject to credit risks associated
with the automotive industry. For the three and nine month periods
ended September 30, 2016, 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 is exposed to fluctuations in foreign exchange rates
when manufacturing facilities have committed to the delivery of
products for which the selling price has been quoted in currencies
other than the facilities' functional currency, and when materials
and equipment are purchased in currencies other than the
facilities' functional currency. In an effort to manage this net
foreign exchange exposure, the Company employs hedging programs,
primarily through the use of foreign exchange forward
contracts.
At September 30, 2016, the Company
had outstanding foreign exchange forward contracts representing
commitments to buy and sell various foreign currencies. Significant
commitments are as follows:
|
Buys
|
|
Sells
|
|
|
|
|
For Canadian
dollars
|
|
|
|
|
U.S.
amount
|
154
|
|
(2,125)
|
|
euro
amount
|
31
|
|
(7)
|
|
Korean won
amount
|
26,400
|
|
—
|
|
|
|
|
|
For U.S.
dollars
|
|
|
|
|
Peso
amount
|
5,630
|
|
—
|
|
Korean won
amount
|
22,878
|
|
—
|
|
|
|
|
|
For euros
|
|
|
|
|
U.S.
amount
|
153
|
|
(202)
|
|
GBP amount
|
—
|
|
(30)
|
|
Czech Koruna
amount
|
5,187
|
|
(8)
|
|
Polish Zlotys
amount
|
247
|
|
(4)
|
|
|
|
|
|
Forward contracts mature at various dates through 2020. Foreign
currency exposures are reviewed quarterly.
16. CONTINGENCIES
From time to time, the Company may become involved in regulatory
proceedings, or become liable for legal, contractual and other
claims by various parties, including customers, suppliers, former
employees, class action plaintiffs and others. On an ongoing basis,
the Company attempts to assess the likelihood of any adverse
judgments or outcomes to these proceedings or claims, together with
potential ranges of probable costs and losses. A determination of
the provision required, if any, for these contingencies is made
after analysis of each individual issue. The required provision may
change in the future due to new developments in each matter or
changes in approach such as a change in settlement strategy in
dealing with these matters.
[a] In November 1997,
the Company and two of its subsidiaries were sued by KS Centoco
Ltd., an Ontario-based steering
wheel manufacturer in which the Company has a 23% equity interest,
and by Centoco Holdings Limited, the owner of the remaining 77%
equity interest in KS Centoco Ltd. In March
1999, the plaintiffs were granted leave to make substantial
amendments to the original statement of claim in order to add
several new defendants and claim additional remedies and, in
February 2006, the plaintiffs further
amended their claim to add an additional remedy. In February 2016, a consent order was granted
allowing the Plaintiffs to file a fresh statement of claim which
includes an additional remedy and reduces certain aggravated and
punitive damages claimed [the "Main Action"]. The fresh
statement of claim alleges, among other things:
- breach of fiduciary duty by the Company and two of its
subsidiaries
- breach by the Company of its binding letter of intent with KS
Centoco Ltd., including its covenant not to have any interest,
directly or indirectly, in any entity that carries on the airbag
business in North America, other
than through MST Automotive Inc., a company to be 77% owned by
Magna and 23% owned by Centoco Holdings Limited;
- the plaintiff's exclusive entitlement to certain airbag
technologies in North America
pursuant to an exclusive licence agreement [the "Licence
Agreement"], together with an accounting of all revenues and
profits resulting from the alleged use by the Company, TRW Inc.
["TRW"] and other unrelated third party automotive supplier
defendants of such technology in North
America;
- inducement by the Company of a breach of the Licence Agreement
by TRW;
- a conspiracy by the Company, TRW and others to deprive KS
Centoco Ltd. of the benefits of such airbag technology in
North America and to cause Centoco
Holdings Limited to sell to TRW its interest in KS Centoco Ltd. in
conjunction with the Company's sale to TRW of its interest in MST
Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; and
- oppression by the defendants.
The plaintiffs are seeking, among other things, damages of
approximately Cdn$2.56 billion in the
Main Action. Document production, completion of undertakings and
examinations for discovery are substantially complete, although
limited additional examinations for discovery are expected to
occur.
In April 2016, the Company filed a
new claim against Centoco Holdings Limited and KS Centoco Ltd.
seeking an order under the Ontario
Business Corporations Act to wind-up the business and
affairs of KS Centoco Ltd. and distribute its assets to the
shareholders [the "Wind-Up Action"]. In June
2016, Centoco Holdings Limited and KS Centoco Ltd. filed a
statement of defence and counterclaim in the Wind-Up Action
alleging breach of fiduciary duty and bad faith performance of
contractual obligations by the Company and two of its officers who
were the Company's representatives on KS Centoco Ltd.'s Board of
Directors for a number of years [the "Centoco Counterclaim"].
Pursuant to the Centoco Counterclaim, Centoco Holdings Limited and
KS Centoco Ltd. are claiming damages of approximately Cdn$1.8 billion.
Both actions will be tried together at a trial scheduled to
commence on October 30, 2017. The
claims and damages in the Centoco Counterclaim substantially
duplicate those described in the Main Action and, as a result, the
Company believes that there is no incremental liability due to the
Centoco Counterclaim. The Company also believes it has valid
defences to the claims made by Centoco Holdings Limited and KS
Centoco Ltd. in both actions and therefore intends to continue to
vigorously defend these two cases. Due to the nature of the claims
made and potential damages alleged by Centoco Holdings Limited and
KS Centoco Ltd., the Company is unable to predict the final outcome
of these claims.
[b] In September
2014, the Conselho Administrativo de Defesa Economica,
Brazil's Federal competition
authority, attended at one of the Company's operating divisions in
Brazil to obtain information in
connection with an ongoing antitrust investigation relating to
suppliers of automotive door latches and related
products.
Proceedings of this nature can often continue for several years.
Where wrongful conduct is found, the relevant antitrust authority
can, depending on the jurisdiction, initiate administrative or
criminal legal proceedings and impose administrative or criminal
fines or penalties taking into account several mitigating and
aggravating factors. At this time, management is unable to
predict the duration or outcome of the Brazilian investigation,
including whether any operating divisions of the Company will be
found liable for any violation of law or the extent or magnitude of
any liability, if found to be liable.
The Company's policy is to comply with all applicable laws,
including antitrust and competition laws. The Company has initiated
a global review focused on antitrust risk led by a team of external
counsel. If any antitrust violation is found as a result of the
above-referenced investigations or otherwise, Magna could be
subject to fines, penalties and civil, administrative or criminal
legal proceedings that could have a material adverse effect on
Magna's profitability in the year in which any such fine or penalty
is imposed or the outcome of any such proceeding is determined.
Additionally, Magna could be subject to other consequences,
including reputational damage, which could have a material adverse
effect on the Company.
[c] In certain circumstances, the Company is
at risk for warranty costs including product liability and recall
costs. Due to the nature of the costs, the Company makes its best
estimate of the expected future costs [note 11]; however,
the ultimate amount of such costs could be materially different.
The Company continues to experience increased customer pressure to
assume greater warranty responsibility. Currently, under most
customer agreements, the Company only accounts for existing or
probable claims. Under certain complete vehicle engineering and
assembly contracts, and with respect to our transmission systems
programs, the Company records an estimate of future
warranty-related costs based on the terms of the specific customer
agreements, and the specific customer's [or the Company's] warranty
experience.
17. SEGMENTED INFORMATION
The Company's chief operating decision maker uses Adjusted EBIT
as the measure of segment profit or loss, since management believes
Adjusted EBIT is the most appropriate measure of operational
profitability or loss for its reporting segments. Adjusted EBIT
represents income from continuing operations before income taxes;
interest expense, net; and other income, net.
The following tables show segment information for the Company's
reporting segments and a reconciliation of Adjusted EBIT to the
Company's consolidated income from continuing operations before
income taxes:
|
|
Three months
ended
|
|
Three months
ended
|
|
|
September 30,
2016
|
|
September 30,
2015
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
Fixed
|
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
1,609
|
|
$
|
1,466
|
|
|
|
$
|
708
|
|
$
|
1,538
|
|
$
|
1,419
|
|
|
|
$
|
620
|
|
United
States
|
|
2,601
|
|
2,502
|
|
|
|
1,545
|
|
2,318
|
|
2,225
|
|
|
|
1,332
|
|
Mexico
|
|
1,266
|
|
1,116
|
|
|
|
932
|
|
1,030
|
|
921
|
|
|
|
707
|
|
Eliminations
|
|
(367)
|
|
—
|
|
|
|
—
|
|
(295)
|
|
—
|
|
|
|
—
|
|
|
5,109
|
|
5,084
|
|
$
|
512
|
|
3,185
|
|
4,591
|
|
4,565
|
|
$
|
455
|
|
2,659
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great
Britain)
|
|
|
2,534
|
|
2,424
|
|
|
|
1,890
|
|
2,152
|
|
2,061
|
|
|
|
1,197
|
|
Great
Britain
|
|
129
|
|
129
|
|
|
|
131
|
|
80
|
|
79
|
|
|
|
47
|
|
Eastern
Europe
|
|
532
|
|
468
|
|
|
|
557
|
|
500
|
|
446
|
|
|
|
455
|
|
Eliminations
|
|
(93)
|
|
—
|
|
|
|
—
|
|
(90)
|
|
—
|
|
|
|
—
|
|
|
3,102
|
|
3,021
|
|
115
|
|
2,578
|
|
2,642
|
|
2,586
|
|
91
|
|
1,699
|
Asia
|
|
654
|
|
612
|
|
64
|
|
765
|
|
428
|
|
392
|
|
13
|
|
647
|
Rest of
World
|
|
129
|
|
128
|
|
(5)
|
|
63
|
|
115
|
|
114
|
|
(7)
|
|
56
|
Corporate and
Other
|
|
(145)
|
|
4
|
|
29
|
|
418
|
|
(115)
|
|
4
|
|
13
|
|
389
|
Total reportable
segments
|
|
8,849
|
|
8,849
|
|
715
|
|
7,009
|
|
7,661
|
|
7,661
|
|
565
|
|
5,450
|
Other income,
net
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
124
|
|
|
Interest expense,
net
|
|
|
|
|
|
(23)
|
|
|
|
|
|
|
|
(9)
|
|
|
|
|
$
|
8,849
|
|
$
|
8,849
|
|
$
|
692
|
|
7,009
|
|
$
|
7,661
|
|
$
|
7,661
|
|
$
|
680
|
|
5,450
|
Current
assets
|
|
|
|
|
|
|
|
10,580
|
|
|
|
|
|
|
|
10,784
|
Investments,
goodwill,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets,
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
assets
|
|
|
|
|
|
|
5,359
|
|
|
|
|
|
|
|
2,359
|
Consolidated total
assets
|
|
|
|
|
|
|
|
$
|
22,948
|
|
|
|
|
|
|
|
$
|
18,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
Nine months
ended
|
|
September
30, 2016
|
|
September 30,
2015
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
Fixed
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
Total
|
|
External
|
|
Adjusted
|
|
assets,
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
sales
|
|
sales
|
|
EBIT
|
|
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
$
|
5,020
|
|
$
|
4,617
|
|
|
|
$
|
708
|
|
$
|
4,578
|
|
$
|
4,237
|
|
|
|
$
|
620
|
|
United
States
|
7,636
|
|
7,351
|
|
|
|
1,545
|
|
7,112
|
|
6,805
|
|
|
|
1,332
|
|
Mexico
|
3,852
|
|
3,467
|
|
|
|
932
|
|
3,085
|
|
2,803
|
|
|
|
707
|
|
Eliminations
|
(1,002)
|
|
—
|
|
|
|
—
|
|
(850)
|
|
—
|
|
|
|
—
|
|
15,506
|
|
15,435
|
|
$
|
1,545
|
|
3,185
|
|
13,925
|
|
13,845
|
|
$
|
1,433
|
|
2,659
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding Great
Britain)
|
7,968
|
|
7,687
|
|
|
|
1,890
|
|
6,653
|
|
6,434
|
|
|
|
1,197
|
|
Great
Britain
|
511
|
|
509
|
|
|
|
131
|
|
275
|
|
274
|
|
|
|
47
|
|
Eastern
Europe
|
1,663
|
|
1,459
|
|
|
|
557
|
|
1,548
|
|
1,373
|
|
|
|
455
|
|
Eliminations
|
(286)
|
|
—
|
|
|
|
—
|
|
(242)
|
|
—
|
|
|
|
—
|
|
9,856
|
|
9,655
|
|
472
|
|
2,578
|
|
8,234
|
|
8,081
|
|
339
|
|
1,699
|
Asia
|
1,899
|
|
1,776
|
|
166
|
|
765
|
|
1,357
|
|
1,262
|
|
86
|
|
647
|
Rest of
World
|
321
|
|
320
|
|
(21)
|
|
63
|
|
373
|
|
372
|
|
(19)
|
|
56
|
Corporate and
Other
|
(390)
|
|
6
|
|
40
|
|
418
|
|
(323)
|
|
6
|
|
34
|
|
389
|
Total reportable
segments
|
27,192
|
|
27,192
|
|
2,202
|
|
7,009
|
|
23,566
|
|
23,566
|
|
1,873
|
|
5,450
|
Other income,
net
|
|
|
|
|
—
|
|
|
|
|
|
|
|
181
|
|
|
Interest expense,
net
|
|
|
|
|
(68)
|
|
|
|
|
|
|
|
(27)
|
|
|
|
|
$
|
27,192
|
|
$
|
27,192
|
|
$
|
2,134
|
|
7,009
|
|
$
|
23,566
|
|
$
|
23,566
|
|
$
|
2,027
|
|
5,450
|
Current
assets
|
|
|
|
|
|
|
10,580
|
|
|
|
|
|
|
|
10,784
|
Investments,
goodwill,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred tax assets
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
assets
|
|
|
|
|
|
|
5,359
|
|
|
|
|
|
|
|
2,359
|
Consolidated total
assets
|
|
|
|
|
|
|
$
|
22,948
|
|
|
|
|
|
|
|
$
|
18,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. SUBSEQUENT EVENTS
Commitments
In October 2016, the Company
entered into binding agreements to extend the leases for 11
properties for a period of 3 to 16 years. For the extended
lease terms the incremental annual rental payments are as
follows:
For the 12 months
ended December 31,
|
|
|
|
2017
|
$
|
13
|
2018
|
27
|
2019
|
28
|
2020
|
36
|
2021
|
39
|
Thereafter
|
438
|
|
$
|
581
|
|
|
|
Normal Course Issuer Bid
Subject to approval by the Toronto Stock Exchange ["TSX"] and
the New York Stock Exchange ["NYSE"], the Company's Board of
Directors approved a new normal course issuer bid to purchase up to
38 million of the Company's Common Shares, representing
approximately 10% of the Company's public float of Common Shares.
The primary purposes of the normal course issuer bid are purchases
for cancellation as well as purchases to fund the Company's
stock-based compensation awards or programs and/or its obligations
to its deferred profit sharing plans. The normal course issuer bid
is expected to commence on or about November
14, 2016 and will terminate one year later. All purchases of
Common Shares will be made at the market price at the time of
purchase in accordance with the rules and policies of the TSX or on
the NYSE in compliance with Rule 10b-18 under the U.S. Securities
Exchange Act of 1934. Purchases may also be made through other
published markets, or by such other means permitted by the TSX,
including by private agreement at a discount to the prevailing
market price, pursuant to an issuer bid exemption order issued by a
securities regulatory authority.
SOURCE Magna International Inc.