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National Press Release
 | Magna announces first quarter resultsPublished 2009-05-06 10:03By Magna International Inc. |
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THREE MONTHS ENDED
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March 31, March 31,
2009 2008
---------- ----------
Sales $ 3,574 $ 6,622
Operating (loss) income $ (230) $ 286
Net (loss) income $ (200) $ 207
Diluted (loss) earnings per share $ (1.79) $ 1.78
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All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars.
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THREE MONTHS ENDED MARCH 31, 2009
---------------------------------
We posted sales of
During the first quarter of 2009, North American average dollar content per vehicle increased by 4% while our European average dollar content per vehicle decreased by 4%, each compared to the first quarter of 2008. In addition, North American and European vehicle production declined 50% and 40%, respectively, each compared to the first quarter of 2008.
Complete vehicle assembly sales decreased 63% to
During the first quarter of 2009, operating loss was
During the first quarter ended
A more detailed discussion of our consolidated financial results for the first quarter ended
DIVIDENDS
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Our Board of Directors yesterday voted to suspend our quarterly dividend with respect to our Class A Subordinate Voting Shares and Class B shares.
We are the most diversified global automotive supplier. We design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Our capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; as well as complete vehicle engineering and assembly.
We have approximately 70,000 employees in 240 manufacturing operations and 86 product development, engineering and sales centres in 25 countries.
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We will hold a conference call for interested analysts and shareholders
to discuss our first quarter results on Wednesday, May 6, 2009 at
1:30 p.m. EST. The conference call will be chaired by Vincent J. Galifi,
Executive Vice-President and Chief Financial Officer. The number to use
for this call is 1-800-892-9785. The number for overseas callers is
1-212-231-2910. Please call in 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 Tuesday
morning prior to the call.
For further information, please contact Louis Tonelli, Vice-President,
Investor Relations at 905-726-7035.
For teleconferencing questions, please contact Karin Kaminski at
905-726-7103.
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FORWARD-LOOKING STATEMENTS
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The previous discussion may contain statements that, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. We use words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements 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, including, without limitation: the potential for an extended global recession, including its impact on our liquidity; declining production volumes and sales levels; the impact of government financial intervention in the automotive industry; restructuring of the global automotive industry, including the bankruptcy of Chrysler and the risk of the bankruptcy of other customers; the financial distress of some of our suppliers and the risk of their insolvency, bankruptcy or financial restructuring; restructuring and/or downsizing costs related to the rationalization of some of our operations; impairment charges; shifts in technology; our ability to successfully grow our sales to non-traditional customers; a reduction in the production volumes of certain vehicles, such as certain light trucks; our dependence on outsourcing by our customers; risks of conducting business in foreign countries, including
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For further information about Magna, please see our website at
www.magna.com. Copies of financial data and other publicly filed
documents are available through the internet on the Canadian Securities
Administrators' System for Electronic Document Analysis and Retrieval
(SEDAR) which can be accessed at www.sedar.com and on the United States
Securities and Exchange Commission's Electronic Data Gathering, Analysis
and Retrieval System (EDGAR) which can be accessed at www.sec.gov.
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MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations and
Financial Position
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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 and average dollar content per vehicle, which are in U.S. dollars, unless otherwise noted. When we use the terms "we", "us", "our" or "Magna", we are referring to Magna International Inc. and its subsidiaries and jointly controlled entities, unless the context otherwise requires.
This MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the three months ended
This MD&A has been prepared as at
OVERVIEW
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We are the most diversified global automotive supplier. We design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Our capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; as well as complete vehicle engineering and assembly. We follow a corporate policy of functional and operational decentralization, pursuant to which we conduct our operations through divisions, each of which is an autonomous business unit operating within pre-determined guidelines. As at
Our operations are segmented on a geographic basis between
HIGHLIGHTS
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The first quarter of 2009 was among the most difficult periods in the history of Magna due to exceptionally low production volumes at our customers. Vehicle production in
The low North American production volumes are substantially attributable to weak sales and high dealer inventory levels, particularly in the U.S. In the fourth quarter of 2008, U.S. vehicle sales dropped to annualized rates not seen in more than 25 years, and there has been no recovery in these sales rates to date in 2009. European vehicle production declined at a slower pace, due in part to "scrappage" programs announced by certain European governments, including
Our first quarter 2009 financial results reflect the challenging environment we are facing. Our total sales declined 46% in the first quarter of 2009, as compared to the first quarter of 2008, as a result of the significant declines in vehicle production in our two principal markets, along with a 63% decline in complete vehicle assembly sales, and declines in Rest of World sales and tooling and other sales. Operating income for the first quarter of 2009 decreased
Last week, Chrysler, our fourth largest customer based on 2008 consolidated sales, filed for bankruptcy protection in
In addition, General Motors, our largest customer, representing approximately 19% of our global sales in the first quarter of 2009, has received billions of dollars in government loans and is in need of further loans, has been given a mandate by the U.S. Government to restructure and present an acceptable plan for future viability by the end of this month. Depending on the U.S. Government's assessment of this plan, and other factors, General Motors may seek bankruptcy protection. We are unable to assess the extent to which General Motors' restructuring actions, including potentially filing for bankruptcy protection, would impact our financial position or our operations. However, since both Chrysler and General Motors are significant customers, their respective restructurings could have a material negative impact on our financial position and operations.
We have taken a number of actions to offset the vehicle production declines, and have initiated further cost-saving measures that we expect will benefit our financial results for the remainder of this year and continue into next year. However, General Motors and Chrysler have both recently announced extended shutdowns of certain of their assembly plants and significant production cuts at other plants over the coming months. As a result, our sales and earnings will continue to be negatively impacted in the short term.
This ongoing period of extremely low auto production in
INDUSTRY TRENDS AND RISKS
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Our success is 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 their various vehicle programs. A number of other economic, industry and risk factors discussed in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended
- On April 30, 2009, Chrysler LLC (including its U.S. subsidiaries)
filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy
Code in U.S. Bankruptcy Court for the Southern District of New York.
As of the date of this MD&A, Chrysler's Canadian, Mexican and other
international operations are not part of any bankruptcy filing. Given
the complexity of Chapter 11 proceedings, we cannot predict whether
Chrysler can successfully restructure and emerge from bankruptcy
protection quickly. In the event that Chrysler is not successful in
restructuring under Chapter 11, its assets could be liquidated under
Chapter 7 of the U.S. Bankruptcy Code. It is too early to determine
the impact to Magna of Chrysler's bankruptcy filing.
- Chrysler anticipates its Chapter 11 restructuring process to be
completed within a period of 30 to 60 days from the bankruptcy filing
and has announced that most of its manufacturing operations will be
temporarily idled during such restructuring period. Given the
potential for a drawn-out bankruptcy process or a liquidation of
Chrysler's assets, we cannot predict when normal production schedules
will resume at Chrysler facilities or whether they will resume at
all.
- The continuing impact of the global recession on the global
automotive industry and the rejection of General Motor's Viability
Plan by the U.S. Auto Task Force, together with the precedent of
Chrysler's bankruptcy filing, have further elevated the risk of a
bankruptcy filing by General Motors possibly by the end of May 2009.
- In light of current inventory levels and low demand for its
automobiles, General Motors recently announced that it intends to
schedule shutdowns of a significant portion of its assembly
operations in North America during the second and third quarters of
2009. These shutdowns, combined with those at Chrysler during its
restructuring, will further significantly reduce North American
production volumes, which will adversely impact our operations and
results for 2009.
- In response to recent customer risks, Magna is taking certain
protective measures, including participation in the U.S. Automotive
Supplier Support Program ("ASSP") recently implemented by the U.S.
Treasury Department in respect of both Chrysler and General Motors,
and the Accounts Receivable Insurance ("ARI") program sponsored by
the Canadian Federal Government and administered by the Canadian
Export Development Corporation. Magna's participation in the ASSP and
ARI programs, and other actions taken by Magna and its subsidiaries,
while significant to mitigate Magna's financial exposure to Chrysler
and General Motors, will not provide full protection for Magna's
Chrysler and General Motors receivables. It is too early to determine
the extent to which Magna's receivables will be protected.
- As previously disclosed, we continue to review potential alternatives
regarding the future of General Motors' European subsidiary Opel AG,
including any role we may play in a potential transaction.
Participation in any such transaction could be material, although the
specific opportunities and risks would vary depending on the nature
of such participation, if any.
RESULTS OF OPERATIONS
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Average Foreign Exchange
For the three months
ended March 31,
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2009 2008 Change
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1 Canadian dollar equals U.S. dollars 0.802 0.997 - 20%
1 euro equals U.S. dollars 1.302 1.499 - 13%
1 British pound equals U.S. dollars 1.434 1.979 - 28%
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The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct business and our U.S. dollar reporting currency. The significant changes in these foreign exchange rates for the three months ended
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, primarily in
Finally, holding gains and losses on foreign currency denominated monetary items, which are recorded in selling, general and administrative expenses, impact reported results.
Sales
For the three months
ended March 31,
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2009 2008 Change
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Vehicle Production Volumes (millions of units)
North America 1.728 3.487 - 50%
Europe 2.537 4.196 - 40%
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Average Dollar Content Per Vehicle
North America $ 909 $ 874 + 4%
Europe $ 454 $ 473 - 4%
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Sales
External Production
North America $ 1,571 $ 3,049 - 48%
Europe 1,152 1,985 - 42%
Rest of World 108 121 - 11%
Complete Vehicle Assembly 401 1,086 - 63%
Tooling, Engineering and Other 342 381 - 10%
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Total Sales $ 3,574 $ 6,622 - 46%
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External Production Sales -
External production sales in
Our average dollar content per vehicle grew by 4% or
- the launch of new programs during or subsequent to the first quarter
of 2008, including:
- the Ford F-Series;
- the Dodge Ram;
- the BMW X6/Hybrid;
- the Ford Flex; and
- the Dodge Challenger;
- increased production and/or content on certain programs, including:
- GM's full-sized pickups; and
- the Ford Escape, Mercury Mariner and Mazda Tribute; and
- acquisitions completed subsequent to the first quarter of 2008,
including
- a substantial portion of Plastech Engineered Products Inc.'s
("Plastech") exteriors business; and
- a stamping and sub-assembly facility in Birmingham, Alabama from
Ogihara America Corporation ("Ogihara").
These factors were partially offset by:
- the impact of lower production and/or content on certain programs,
including:
- the Ford Edge and Lincoln MKX;
- the Chevrolet Cobalt and Pontiac G5;
- the Chevrolet Equinox, Pontiac Torrent and Suzuki XL7;
- GM's full-sized SUV's;
- the Ford Fusion, Mercury Milan and Lincoln MKZ;
- the Chevrolet Impala; and
- the Ford Explorer and Mercury Mountaineer;
- a decrease in reported U.S. dollar sales due to the weakening of the
Canadian dollar against the U.S. dollar;
- programs that ended production during or subsequent to the first
quarter of 2008, including:
- the Chevrolet Trailblazer and GMC Envoy; and
- the Dodge Durango and Chrysler Aspen; and
- customer price concessions subsequent to the first quarter of 2008.
External Production Sales -
External production sales in
Our average dollar content per vehicle declined by 4% or
- a decrease in reported U.S. dollar sales due to the weakening of the
euro and British pound, each against the U.S. dollar;
- the impact of lower production and/or content on certain programs,
including:
- the BMW X3;
- the Ford Transit; and
- the Mercedes-Benz C-Class;
- the sale of certain facilities during or subsequent to the first
quarter of 2008; and
- customer price concessions subsequent to the first quarter of 2008.
These factors were partially offset by:
- the launch of new programs during or subsequent to the first quarter
of 2008, including:
- the Audi Q5;
- the Volkswagen Golf; and
- the Opel/Vauxhall Insignia; and
- increased production and/or content on certain programs, including
- the smart fortwo; and
- the Volkswagen Tiguan.
External Production Sales - Rest of World
External production sales in Rest of World decreased 11% or $13 million to
$108 million for the first quarter of 2009 compared to $121 million for the
first quarter of 2008. The decrease in production sales is primarily as a
result of:
- a decrease in reported U.S. dollar sales as a result of the weakening
of the Brazilian real, Korean Won and South African Rand, each
against the U.S. dollar;
- decreased production and/or content on certain programs, particularly
in Korea.
These factors were partially offset by:
- the launch of new programs during or subsequent to the first quarter
of 2008 in China;
- increased production and/or content on certain programs in Brazil and
South Africa; and
- an increase in reported U.S. dollar sales as a result of the
strengthening of the Chinese Renminbi against the U.S. dollar.
Complete Vehicle Assembly Sales
The terms of our various vehicle assembly contracts differ with respect to the ownership of components and supplies related to the assembly process and the method of determining the selling price to the OEM customer. Under certain contracts we are acting as principal and purchased components and systems in assembled vehicles are included in our inventory and cost of goods sold. These costs are reflected on a full-cost basis in the selling price of the final assembled vehicle to the OEM customer. Other contracts provide that third party components and systems are held on consignment by us, and the selling price to the OEM customer reflects a value-added assembly fee only.
Production levels of the various vehicles assembled by us have an impact on the level of our sales and profitability. In addition, the relative proportion of programs accounted for on a full-cost basis and programs accounted for on a value-added basis, also impacts our level of sales and operating margin percentage, but may not necessarily affect our overall level of profitability. Assuming no change in total vehicles assembled, a relative increase in the assembly of vehicles accounted for on a full-cost basis has the effect of increasing the level of total sales, however, because purchased components are included in cost of goods sold, profitability as a percentage of total sales is reduced. Conversely, a relative increase in the assembly of vehicles accounted for on a value-added basis has the effect of reducing the level of total sales and increasing profitability as a percentage of total sales.
For the three months
ended March 31,
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2009 2008 Change
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Complete Vehicle Assembly Sales $ 401 $ 1,086 - 63%
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Complete Vehicle Assembly Volumes (Units)
Full-Costed:
BMW X3, Mercedes-Benz G-Class, and
Saab 9(3) Convertible 11,751 32,881 - 64%
Value-Added:
Jeep Grand Cherokee, Chrysler 300, and
Jeep Commander 292 10,665 - 97%
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12,043 43,546 - 72%
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Complete vehicle assembly sales decreased 63% or
In particular, the decrease in complete vehicle assembly sales is primarily as a result of:
- a decrease in assembly volumes for the BMW X3, Saab 9(3) Convertible,
Chrysler 300, Jeep Commander and Grand Cherokee; and
- a decrease in reported U.S. dollar sales due to the weakening of the
euro against the U.S. dollar.
These factors were partially offset by higher assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased 10% or
In the first quarter of 2009 the major programs for which we recorded tooling, engineering and other sales were:
- the Chevrolet Silverado;
- the MINI Crossman;
- the Cadillac SRX and Saab 9-4X;
- the Chevrolet Equinox and Suzuki XL7;
- the Porsche Panamera;
- the BMW X3;
- the Ford Taurus;
- the Hummer H3; and
- the Cadillac DTS and Cadillac CTS.
In the first quarter of 2008 the major programs for which we recorded
tooling, engineering and other sales were:
- the BMW Z4, X3 and 1-Series;
- GM's full-size pickups;
- the Peugeot A58;
- the Landrover Freelander;
- the Audi A5;
- the Cadillac SRX and Saab 9-4X;
- the Dodge Grand Caravan and Chrysler Town & Country;
- the Ford F-Series; and
- the MINI Cooper.
In addition, tooling, engineering and other sales decreased as a result of the weakening of the euro and Canadian dollar, each against the U.S. dollar.
Gross Margin
Gross margin decreased
- incremental costs associated with restructuring and downsizing
activities, primarily in North America;
- additional supplier insolvency costs;
- amortization of deferred wage buydown assets at a powertrain systems
facility in the United States; and
- customer price concessions subsequent to the first quarter of 2008.
These factors were partially offset by:
- a decrease in complete vehicle assembly sales which have a lower
gross margin than our consolidated average;
- productivity and efficiency improvements at certain facilities;
- lower employee profit sharing;
- the decrease in tooling sales that earn low or no margins; and
- the benefit of restructuring and downsizing activities that were
undertaken during or subsequent to the first quarter of 2008.
Depreciation and Amortization
Depreciation and amortization costs decreased 23% or
- the write-down of certain assets subsequent to the first quarter of
2008, in particular at a powertrain facility in the United States and
certain interiors and exteriors facilities in North America;
- a decrease in reported U.S. dollar depreciation and amortization due
to the weakening of the Canadian dollar and euro, each against the
U.S. dollar; and
- the sale or disposition of certain facilities subsequent to the first
quarter of 2008.
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 8.4% for the first quarter of 2009 compared to 5.4% for the first quarter of 2008. This increase was substantially due to the significant decrease in sales as a result of significantly lower vehicle production volumes. SG&A expense decreased 16% or
- lower incentive compensation;
- reduced spending at certain facilities as a result of restructuring
activities and downsizing that were initiated subsequent to the first
quarter of 2008;
- a decrease in reported U.S. dollar SG&A expense due to the weakening
of the Canadian dollar and euro, each against the U.S. dollar;
- management cost saving initiatives, including lower travel costs and
consulting fees;
- a $17 million write-down of our investment in asset-backed commercial
paper ("ABCP") during the first quarter of 2008; and
- the sale or disposition of certain facilities during or subsequent to
the first quarter of 2008.
These factors were partially offset by:
- $9 million reduction of capital taxes in Canada recorded during the
first quarter of 2008; and
- higher restructuring and downsizing costs.
Earnings (loss) before Interest and Taxes ("EBIT")(1)
For the three months
ended March 31,
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2009 2008 Change
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North America $ (89) $ 147 $ (236)
Europe (119) 119 (238)
Rest of World (1) 7 (8)
Corporate and Other (18) (6) (12)
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Total EBIT $ (227) $ 267 $ (494)
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(1) EBIT is defined as income (loss) from operations before income taxes
presented on our unaudited interim consolidated financial statements
before net interest expense (income).
EBIT in
- incremental costs associated with restructuring and downsizing
activities;
- additional supplier insolvency costs;
- amortization of deferred wage buydown assets at a powertrain systems
facility in the United States;
- electric vehicle development costs; and
- customer price concessions subsequent to the first quarter of 2008.
These factors were partially offset by:
- lower affiliation fees paid to corporate;
- lower incentive compensation;
- the reduction of employee profit sharing to $nil in the first quarter
of 2009;
- the benefit of restructuring and downsizing activities that were
undertaken during or subsequent to the first quarter of 2008; and
- incremental margin earned related to the acquisitions from Ogihara
and Plastech.
EBIT in
- cost incurred at new facilities in Russia as we continue to pursue
opportunities in this market;
- costs incurred in preparation for upcoming launches or for programs
that have not fully ramped up production;
- incremental costs associated with downsizing activities; and
- customer price concessions subsequent to the first quarter of 2008.
These factors were partially offset by:
- the reduction of employee profit sharing to $nil in the first quarter
of 2009;
- lower affiliation fees paid to corporate; and
- lower incentive compensation.
Rest of World
Rest of World EBIT decreased
- lower sales;
- operational inefficiencies at certain facilities; and
- cost incurred at new facilities, primarily in India.
Corporate and Other
Corporate and Other EBIT declined $12 million to a loss of $18 million for
the first quarter of 2009 compared to a loss of $6 million for the first
quarter of 2008 primarily as a result of:
- a decrease in affiliation fees earned from our divisions; and
- a decrease in equity income earned.
These factors were partially offset by:
- a $17 million write-down of our investment in ABCP during the first
quarter of 2008;
- decreased executive compensation; and
- lower charitable and social contributions.
Interest Expense (Income), net
During the first quarter of 2009, we recorded net interest expense of $3
million, compared to $19 million of net interest income for the first quarter
of 2008. The $22 million decrease in net interest income is as a result of:
- a decrease in interest income earned on lower cash and cash
equivalent balances; and
- a decrease in interest income earned due to lower interest rates.
These factors were partially offset by a reduction in interest expense on long-term debt due to the repayments of our senior unsecured notes related to the acquisition of New Venture Gear ("NVG").
Operating Income (Loss)
Operating income decreased
Income Taxes
Our effective income tax rate on operating income (excluding equity income) decreased to 13.0% for the first quarter of 2009 compared to 28.3% for the first quarter of 2008. The decrease in the effective income tax rate is primarily as a result of an increase in losses not benefited, primarily at our facilities in
Net Income (Loss)
Net income decreased
Earnings (Loss) per Share
For the three months
ended March 31,
--------------------
2009 2008 Change
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Earnings (loss) per Class A Subordinate
Voting or Class B Share
Basic $ (1.79) $ 1.80 $ (3.59)
Diluted $ (1.79) $ 1.78 $ (3.57)
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Average number of Class A Subordinate Voting
and Class B Shares outstanding (millions)
Basic 111.7 114.8 - 3%
Diluted 111.7 117.2 - 5%
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Diluted earnings per share decreased
The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of Class A Subordinate Voting Shares subsequent to the first quarter of 2008 under the terms of our ongoing Normal Course Issuer Bid and to a reduction in the number of diluted shares associated with debentures and stock options since such shares were anti-dilutive in the first quarter of 2009.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
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Cash Flow from Operations
For the three months
ended March 31,
--------------------
2009 2008 Change
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Net (loss) income $ (200) $ 207
Items not involving current cash flows 209 235
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9 442 $ (433)
Changes in non-cash operating assets and
liabilities (52) (218)
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Cash (used for) provided from operating
activities $ (43) $ 224 $ (267)
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Cash flow from operations before changes in non-cash operating assets and liabilities decreased
For the
three months
ended March 31,
--------------------
2009 2008
-------------------------------------------------------------------------
Depreciation and amortization $ 169 $ 219
Amortization of other assets included in cost of
goods sold 20 17
Other non-cash charges 12 29
Amortization of employee wage buydown 6 -
Future income taxes and non-cash portion of current
taxes 2 (23)
Equity income - (7)
-------------------------------------------------------------------------
Items not involving current cash flows $ 209 $ 235
-------------------------------------------------------------------------
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The
Cash invested in non-cash operating assets and liabilities amounted to
For the
three months
ended March 31,
--------------------
2009 2008
-------------------------------------------------------------------------
Accounts receivable $ 234 $ (413)
Inventories 36 (50)
Income taxes receivable (63) (129)
Prepaid expenses and other (2) (1)
Accounts payable (273) 266
Accrued salaries and wages 29 77
Other accrued liabilities (7) 40
Deferred revenue (6) (8)
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Changes in non-cash operating assets and liabilities $ (52) $ (218)
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The decrease in accounts receivable, inventory and accounts payable in the first quarter of 2009 was primarily due to the reduction in production activities related to the general downturn in the automotive sector. The increase in income taxes receivable was primarily due to losses that can be carried back to prior years in
Capital and Investment Spending
For the three months
ended March 31,
--------------------
2009 2008 Change
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Fixed asset additions $ (96) $ (128)
Investments and other assets (22) (32)
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Fixed assets, investments and other assets
additions (118) (160)
Purchase of subsidiaries - (8)
Proceeds from disposition 4 6
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Cash used for investing activities $ (114) $ (162) $ 48
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Fixed assets, investments and other assets additions
In the first quarter of 2009 we invested
In the first quarter of 2009, we invested
Purchase of subsidiaries
During the first quarter of 2008, we acquired two small electronics facilities for cash consideration of
Proceeds from disposition
Proceeds from disposal in the first quarter of 2009 and 2008 were
Financing
For the three months
ended March 31,
--------------------
2009 2008 Change
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Decrease in bank indebtedness $ (762) $ (9)
Repayments of debt (5) (67)
Issues of debt 1 2
Repurchase of Class A Subordinate Voting
Shares - (113)
Cash dividends paid (21) (41)
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Cash used for financing activities $ (787) $ (228) $ (559)
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In
The repayments of debt in the first quarter of 2008 include the repayment of the fourth series of senior unsecured notes issued in connection with the NVG acquisition. The final series of senior unsecured notes was repaid in the fourth quarter of 2008.
During the first quarter of 2008, we purchased 1.6 million Class A Subordinate Voting Shares for an aggregate purchase price of
Cash dividends paid per Class A Subordinate Voting or Class B Share were
Financing Resources
As at As at
March December
31, 2009 31, 2008 Change
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Liabilities
Bank indebtedness $ 124 $ 909
Long-term debt due within one year 232 157
Long-term debt 54 143
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410 1,209
Shareholders' equity 7,047 7,363
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Total capitalization $ 7,457 $ 8,572 $ (1,115)
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Total capitalization decreased by
The decrease in liabilities is primarily as a result of the repayment of the outstanding lines of credit in February and
The decrease in shareholders' equity was primarily as a result of:
- net loss incurred during the first quarter of 2009 (as discussed
above), partially offset by the reclassification of net losses on
cash flow hedges from accumulated other comprehensive income to net
loss;
- a $135 million decrease in accumulated net realized and unrealized
gains on translation of net investment in foreign operations,
primarily as a result of the weakening of the Canadian dollar and
euro, each against the U.S. dollar between December 31, 2008 and
March 31, 2009; and
- dividends paid during the first quarter of 2009.
Cash Resources
During the first quarter of 2009, our cash resources decreased by
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that would be outstanding if all of the outstanding options and Subordinated Debentures issued and outstanding at
Class A Subordinate Voting and Class B Shares 112,613,071
Subordinated Debentures (i) 1,096,589
Stock options (ii) 3,820,060
-------------------------------------------------------------------------
117,529,720
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) The above amounts include shares issuable if the holders of the
6.5% Convertible Subordinated Debentures exercise their conversion
option but exclude Class A Subordinate Voting Shares issuable,
only at our option, to settle interest and principal related to
the 6.5% Convertible Subordinated Debentures on redemption or
maturity. The number of Class A Subordinate Voting Shares issuable
at our option is dependent on the trading price of Class A
Subordinate Voting Shares at the time we elect to settle the 6.5%
Convertible Subordinated Debenture interest and principal with
shares.
The above amounts also exclude Class A Subordinate Voting Shares
issuable, only at our option, to settle the 7.08% Subordinated
Debentures on redemption or maturity. The number of shares
issuable is dependent on the trading price of Class A Subordinate
Voting Shares at redemption or maturity of the 7.08% Subordinated
Debentures.
(ii) Options to purchase Class A Subordinate Voting 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 first quarter of 2009 that are outside the ordinary course of our business. Refer to our MD&A included in our 2008 Annual Report.
Long-term receivables in other assets are reflected net of outstanding borrowings from a finance subsidiary of Saab for
RELATED PARTIES
-------------------------------------------------------------------------
As at
During the first quarter of 2009, we entered into an agreement to purchase approximately 100 acres of real estate located in
COMMITMENTS AND CONTINGENCIES
-------------------------------------------------------------------------
From time to time, we may be contingently liable for litigation and other claims.
Refer to note 24 of our 2008 audited consolidated financial statements, which describes these claims.
CONTROLS AND PROCEDURES
-------------------------------------------------------------------------
There have been no changes in our internal controls over financial reporting that occurred during the three months ended
FORWARD-LOOKING STATEMENTS
-------------------------------------------------------------------------
The previous discussion may contain statements that, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. We use words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements 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, including, without limitation: the potential for an extended global recession, including its impact on our liquidity; declining production volumes and sales levels; the impact of government financial intervention in the automotive industry; restructuring of the global automotive industry, including the bankruptcy of Chrysler and the risk of the bankruptcy of other customers; the financial distress of some of our suppliers and the risk of their insolvency, bankruptcy or financial restructuring; restructuring and/or downsizing costs related to the rationalization of some of our operations; impairment charges; shifts in technology; our ability to successfully grow our sales to non-traditional customers; a reduction in the production volumes of certain vehicles, such as certain light trucks; our dependence on outsourcing by our customers; risks of conducting business in foreign countries, including
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(U.S. dollars in millions, except per share figures)
Three months ended
March 31,
--------------------
Note 2009 2008
-------------------------------------------------------------------------
Sales $ 3,574 $ 6,622
-------------------------------------------------------------------------
Costs and expenses
Cost of goods sold 3,330 5,784
Depreciation and amortization 169 219
Selling, general and administrative 6, 9 302 359
Interest expense (income), net 3 (19)
Equity income - (7)
-------------------------------------------------------------------------
Income (loss) from operations before
income taxes (230) 286
Income taxes (30) 79
-------------------------------------------------------------------------
Net (loss) income (200) 207
Other comprehensive (loss) income: 9
Net realized and unrealized (losses) gains
on translation of net investment in foreign
operations (135) 50
Repurchase of shares - (15)
Net unrealized gains (losses) on cash flow
hedges 4 (13)
Reclassifications of net losses (gains) on
cash flow hedges to net (loss) income 34 (5)
-------------------------------------------------------------------------
Comprehensive (loss) income $ (297) $ 224
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per Class A Subordinate
Voting or Class B Share:
Basic $ (1.79) $ 1.80
Diluted $ (1.79) $ 1.78
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash dividends paid per Class A Subordinate
Voting or Class B Share $ 0.18 $ 0.36
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of Class A Subordinate Voting
and Class B Shares outstanding during the
period (in millions):
Basic 111.7 114.8
Diluted 111.7 117.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(U.S. dollars in millions)
Three months ended
March 31,
--------------------
2009 2008
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 3,357 $ 3,526
Net (loss) income (200) 207
Dividends on Class A Subordinate Voting and
Class B Shares (21) (41)
Repurchase of Class A Subordinate Voting Shares - (45)
-------------------------------------------------------------------------
Retained earnings, end of period $ 3,136 $ 3,647
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in millions)
Three months ended
March 31,
--------------------
Note 2009 2008
-------------------------------------------------------------------------
Cash provided from (used for):
OPERATING ACTIVITIES
Net (loss) income $ (200) $ 207
Items not involving current cash flows 2 209 235
-------------------------------------------------------------------------
9 442
Changes in non-cash operating assets and
liabilities 2 (52) (218)
-------------------------------------------------------------------------
Cash (used for) provided from operating
activities (43) 224
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Fixed asset additions (96) (128)
Purchase of subsidiaries - (8)
Increase in investments and other assets 3 (22) (32)
Proceeds from disposition 4 6
-------------------------------------------------------------------------
Cash used for investment activities (114) (162)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in bank indebtedness 10 (762) (9)
Repayments of debt (5) (67)
Issues of debt 1 2
Repurchase of Class A Subordinate Voting
Shares - (113)
Dividends (21) (41)
-------------------------------------------------------------------------
Cash used for financing activities (787) (228)
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (65) 44
-------------------------------------------------------------------------
Net decrease in cash and cash equivalents
during the period (1,009) (122)
Cash and cash equivalents, beginning of period 2,757 2,954
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,748 $ 2,832
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions)
As at As at
March December
Note 31, 2009 31, 2008
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 1,748 $ 2,757
Accounts receivable 2,546 2,821
Inventories 1,578 1,647
Income taxes receivable 74 11
Prepaid expenses and other 110 115
-------------------------------------------------------------------------
6,056 7,351
-------------------------------------------------------------------------
Investments 11 191 194
Fixed assets, net 3,527 3,701
Goodwill 1,141 1,160
Future tax assets 160 182
Other assets 3 610 601
-------------------------------------------------------------------------
$ 11,685 $ 13,189
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 124 $ 909
Accounts payable 2,469 2,744
Accrued salaries and wages 470 448
Other accrued liabilities 4 729 835
Long-term debt due within one year 232 157
-------------------------------------------------------------------------
4,024 5,093
-------------------------------------------------------------------------
Deferred revenue 24 31
Long-term debt 54 143
Other long-term liabilities 5 403 423
Future tax liabilities 133 136
-------------------------------------------------------------------------
4,638 5,826
-------------------------------------------------------------------------
Shareholders' equity
Capital stock 7
Class A Subordinate Voting Shares
(issued: 111,886,242; December 31,
2008 - 111,879,059) 3,611 3,605
Class B Shares
(convertible into Class A Subordinate
Voting Shares)
(issued: 726,829) - -
Contributed surplus 8 63 67
Retained earnings 3,136 3,357
Accumulated other comprehensive income 9 237 334
-------------------------------------------------------------------------
7,047 7,363
-------------------------------------------------------------------------
$ 11,685 $ 13,189
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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. 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 United States dollars following
Canadian generally accepted accounting principles ("GAAP") with
respect to the preparation of interim financial information.
Accordingly, they do not include all the information and footnotes
required in the preparation of annual financial statements and
therefore should be read in conjunction with the December 31, 2008
audited consolidated financial statements and notes included in the
Company's 2008 Annual Report. These interim consolidated financial
statements have been prepared using the same accounting policies as
the December 31, 2008 annual consolidated financial statements,
except the Company restrospectively adopted the new Canadian
Institute of Chartered Accountants Handbook Section 3064, "Goodwill
and Intangible Assets", with no restatement of prior periods. The
adoption of these recommendations had no material impact on the
interim consolidated financial statements.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments, which consist only of
normal and recurring adjustments, necessary to present fairly the
financial position at March 31, 2009 and the results of operations
and cash flows for the three-month periods ended March 31, 2009 and
2008.
2. DETAILS OF CASH FROM OPERATING ACTIVITIES
(a) Items not involving current cash flows:
Three months ended
March 31,
--------------------
2009 2008
---------------------------------------------------------------------
Depreciation and amortization $ 169 $ 219
Amortization of other assets included in cost of
goods sold 20 17
Other non-cash charges 12 29
Amortization of employee wage buydown (note 3) 6 -
Future income taxes and non-cash portion of current
taxes 2 (23)
Equity income - (7)
---------------------------------------------------------------------
$ 209 $ 235
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Changes in non-cash operating assets and liabilities:
Three months ended
March 31,
--------------------
2009 2008
---------------------------------------------------------------------
Accounts receivable $ 234 $ (413)
Inventories 36 (50)
Income taxes receivable (63) (129)
Prepaid expenses and other (note 3) (2) (1)
Accounts payable (273) 266
Accrued salaries and wages 29 77
Other accrued liabilities (7) 40
Deferred revenue (6) (8)
---------------------------------------------------------------------
$ (52) $ (218)
---------------------------------------------------------------------
---------------------------------------------------------------------
3. OTHER ASSETS
Other assets consist of:
March December
31, 2009 31, 2008
---------------------------------------------------------------------
Preproduction costs related to long-term supply
agreements with contractual guarantee for
reimbursement $ 261 $ 230
Long-term receivables (a) 66 67
Patents and licences, net 50 54
Employee wage buydown, net 47 52
Other, net 186 198
---------------------------------------------------------------------
$ 610 $ 601
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) Long-term receivables are reflected net of outstanding
borrowings from a finance subsidiary of SAAB for $13 million
(2008 - $16 million) since the Company has a legal right of
set-off of its long-term receivable from SAAB payable to the
Company against such borrowings and intends to settle the
related amounts simultaneously.
4. WARRANTY
The following is a continuity of the Company's warranty accruals:
2009 2008
---------------------------------------------------------------------
Balance, beginning of period $ 75 $ 103
Expense, net 5 10
Settlements (10) (11)
Foreign exchange and other (2) 3
---------------------------------------------------------------------
Balance, March 31, $ 68 $ 105
---------------------------------------------------------------------
---------------------------------------------------------------------
5. EMPLOYEE FUTURE BENEFIT PLANS
The Company recorded employee future benefit expenses as follows:
Three months ended
March 31,
--------------------
2009 2008
---------------------------------------------------------------------
Defined benefit pension plan and other $ 3 $ 5
Termination and long service arrangements 8 9
Retirement medical benefits plan 3 3
---------------------------------------------------------------------
$ 14 $ 17
---------------------------------------------------------------------
---------------------------------------------------------------------
6. STOCK-BASED COMPENSATION
(a) Incentive Stock Option Plan
The following is a continuity schedule of options outstanding (number
of options in the table below are expressed in whole numbers):
2009 2008
----------------------------- -----------------------------
Options outstanding Options outstanding
------------------- -------------------
Number of Number of
Number options Number options
of Exercise exercis- of Exercise exercis-
options price(i) able options price(i) able
-------------------------------------------------------------------------
Beginning of
period 2,746,145 82.01 2,724,145 2,942,203 82.66 2,912,877
Granted (ii) 1,075,000 33.09 - 5,000 74.50 -
Exercised - - - (1,230) 55.00 (1,230)
Cancelled (1,085) 68.55 (1,085) (10,000) 97.47 (10,000)
Vested - - - - - 10,326
-------------------------------------------------------------------------
March 31 3,820,060 68.25 2,723,060 2,935,973 82.61 2,911,973
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) The exercise price noted above represents the weighted average
exercise price in Canadian dollars.
(ii) The options granted in the first quarter of 2009 are for a term of
10 years from the grant date and vest one-third on each of the
first, second and third anniversaries of the grant date.
The weighted average assumptions used in measuring the fair value of
stock options granted or modified and the compensation expense
recorded in selling, general and administrative expenses are as
follows:
Three months ended
March 31,
--------------------
2009 2008
---------------------------------------------------------------------
Risk-free interest rate 1.66% 3.56%
Expected dividend yield 2.05% 2.02%
Expected volatility 31% 22%
Expected time until exercise 4 years 4 years
---------------------------------------------------------------------
Weighted average fair value of options granted
or modified in the period (Cdn$) $ 7.20 $ 13.65
---------------------------------------------------------------------
Compensation expense recorded in selling, general and administrative
expenses during the three-month periods ended March 31, 2009 and 2008
was less than $1 million, respectively.
(b) Long-term retention program
Information about the Company's long-term retention program is as
follows:
Three months ended
March 31,
--------------------
2009 2008
---------------------------------------------------------------------
Class A Subordinate Voting Shares awarded and
not released 685,989 823,477
---------------------------------------------------------------------
Reduction in stated value of Class A Subordinate
Voting Shares $ 45 $ 51
---------------------------------------------------------------------
Unamortized compensation expense recorded as a
reduction of shareholders' equity $ 34 $ 35
---------------------------------------------------------------------
Compensation expense recorded in selling, general and administrative
expenses during the three-month period ended March 31, 2009 was
$2 million (2008 - $2 million).
7. CAPITAL STOCK
(a) Changes in the Class A Subordinate Voting Shares for the three-
month period ended March 31, 2009 consist of the following
(numbers of shares in the following table are expressed in whole
numbers):
Subordinate Voting
--------------------------
Number of Stated
shares value
-----------------------------------------------------------------
Issued and outstanding at
December 31, 2008 111,879,059 $ 3,605
Issued under the Dividend Reinvestment
Plan 7,183 -
Release of restricted stock - 6
-----------------------------------------------------------------
Issued and outstanding at
March 31, 2009 111,886,242 $ 3,611
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) The following table presents the maximum number of shares that
would be outstanding if all the dilutive instruments outstanding
at May 4, 2009 were exercised or converted:
Class A Subordinate Voting and Class B Shares 112,613,071
Subordinated Debentures (i) 1,096,589
Stock options (ii) 3,820,060
-----------------------------------------------------------------
117,529,720
-----------------------------------------------------------------
-----------------------------------------------------------------
(i) The above amounts include shares issuable if the holders of
the 6.5% Convertible Subordinated Debentures exercise their
conversion option but exclude Class A Subordinate Voting
Shares issuable, only at the Company's option, to settle
interest and principal related to the 6.5% Convertible
Subordinated Debentures on redemption or maturity. The
number of Class A Subordinate Voting Shares issuable at the
Company's option is dependent on the trading price of
Class A Subordinate Voting Shares at the time the Company
elects to settle the 6.5% Convertible Subordinated Debenture
interest and principal with shares. All or part of the 6.5%
Convertible Subordinate Debentures are currently redeemable
at the Company's option.
The above amounts also exclude Class A Subordinate Voting
Shares issuable, only at the Company's option, to settle the
7.08% Subordinated Debentures on redemption or maturity. The
number of shares issuable is dependent on the trading price
of Class A Subordinate Voting Shares at redemption or
maturity of the 7.08% Subordinated Debentures.
(ii) Options to purchase Class A Subordinate Voting 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.
8. CONTRIBUTED SURPLUS
Contributed surplus consists of accumulated stock option compensation
expense less the fair value of options at the grant date that have
been exercised and credited to Class A Subordinate Voting Shares, the
accumulated restricted stock compensation expense and the value of
the holders' conversion option on the 6.5% Convertible Subordinated
Debentures. The following is a continuity schedule of contributed
surplus:
2009 2008
---------------------------------------------------------------------
Stock-based compensation
Balance, beginning of period $ 64 $ 55
Stock-based compensation expense 2 2
Exercise of options - -
Release of restricted stock (6) (4)
---------------------------------------------------------------------
Balance, March 31, 60 53
Holders' conversion option 3 3
---------------------------------------------------------------------
$ 63 $ 56
---------------------------------------------------------------------
---------------------------------------------------------------------
9. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following is a continuity schedule of accumulated other
comprehensive income:
2009 2008
---------------------------------------------------------------------
Accumulated net unrealized gains on translation
of net investment in foreign operations
Balance, beginning of period $ 447 $ 1,360
Net unrealized (losses) gains on translation
of net investment in foreign operations (135) 50
Repurchase of shares - (15)
---------------------------------------------------------------------
Balance, March 31 312 1,395
---------------------------------------------------------------------
Accumulated net unrealized (loss) on cash flow
hedges (i)
Balance, beginning of period (113) (10)
Net unrealized gains (losses) on cash flow hedges 4 (13)
Reclassifications of net losses (gains) on cash
flow hedges to net income 34 (5)
---------------------------------------------------------------------
Balance, March 31 (75) (28)
---------------------------------------------------------------------
Total accumulated other comprehensive income $ 237 $ 1,367
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) The amount of income tax benefit (expense) that has been netted
in the amounts above is as follows:
2009 2008
---------------------------------------------------------------
Balance, beginning of period $ 48 $ 4
Net unrealized (gains) losses on cash
flow hedges (4) 6
Reclassifications of net (gains) losses
on cash flow hedges to net (loss) income (15) 2
---------------------------------------------------------------
Balance, March 31 $ 29 $ 12
---------------------------------------------------------------
The amount of other comprehensive loss that is expected to be
reclassified to net income (loss) over the next 12 months is
$72 million (net of income tax benefit of $19 million).
10. CAPITAL DISCLOSURES
The Company manages capital in order to ensure it has adequate
borrowing capacity and financial structure to allow financial
flexibility and to provide an adequate return to shareholders. In
order to maintain or adjust the capital structure, the Company may
adjust the amount of dividends paid to shareholders, issue new
shares, purchase shares for cancellation or increase or decrease the
amount of debt outstanding.
The Company monitors capital using the ratio of debt to total
capitalization. Debt includes bank indebtedness and long-term debt as
shown in the balance sheet. Total capitalization includes debt and
all components of shareholders' equity.
The Company's capitalization and debt to total capitalization is as
follows:
March December
31, 2009 31, 2008
---------------------------------------------------------------------
Liabilities
Bank indebtedness $ 124 $ 909
Long-term debt due within one year 232 157
Long-term debt 54 143
---------------------------------------------------------------------
410 1,209
Shareholders' equity 7,047 7,363
---------------------------------------------------------------------
Total capitalization $ 7,457 $ 8,572
---------------------------------------------------------------------
---------------------------------------------------------------------
Debt to total capitalization 5.5% 14.1%
---------------------------------------------------------------------
---------------------------------------------------------------------
During the first quarter of 2009, the Company repaid $768 million of
borrowings under the Company's five-year revolving term facility.
11. FINANCIAL INSTRUMENTS
(a) The Company's financial assets and financial liabilities consist
of the following:
March December
31, 2009 31, 2008
---------------------------------------------------------------------
Held for trading
Cash and cash equivalents $ 1,748 $ 2,757
Investment in ABCP 64 -
---------------------------------------------------------------------
$ 1,812 $ 2,757
---------------------------------------------------------------------
---------------------------------------------------------------------
Held to maturity investments
Investment in ABCP $ - $ 64
Severance investments 9 9
---------------------------------------------------------------------
$ 9 $ 73
---------------------------------------------------------------------
---------------------------------------------------------------------
Loans and Receivables
Accounts receivable $ 2,546 $ 2,821
Long-term receivables included in other assets 66 67
Income taxes receivable 74 11
---------------------------------------------------------------------
$ 2,686 $ 2,899
---------------------------------------------------------------------
---------------------------------------------------------------------
Other financial liabilities
Bank indebtedness $ 124 $ 909
Long-term debt (including portion due within
one year) 286 300
Accounts payable 2,469 2,744
Accrued salaries and wages 470 448
Other accrued liabilities 729 835
---------------------------------------------------------------------
$ 4,078 $ 5,236
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Fair value
The Company determined the estimated fair values of its financial
instruments based on valuation methodologies it believes are
appropriate; however, considerable judgment is required to develop
these estimates. Accordingly, these estimated fair values are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The estimated fair value amounts can be
materially affected by the use of different assumptions or
methodologies. The methods and assumptions used to estimate the fair
value of financial instruments are described below:
Cash and cash equivalents, bank indebtedness, accounts payable,
accrued salaries and wages, other accrued liabilities and income
taxes receivable.
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 March 31, 2009, the Company held Canadian third party asset-backed
commercial paper ("ABCP") with a face value of Cdn$134 million. The
carrying value and estimated fair value of this investment was
Cdn$79 million (December 31, 2008 - Cdn$79 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 $232 million due within one year.
Due to the short period to maturity of this debt, the carrying value
as presented in the consolidated balance sheet is a reasonable
estimate of its fair value.
(c) Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash and cash equivalents, accounts receivable,
held to maturity investments, and foreign exchange forward contracts
with positive fair values.
The Company's held for trading investments include an investment in
ABCP. Given the continuing uncertainties regarding the value of the
underlying assets, the amount and timing over cash flows and the risk
of collateral calls in the event that spreads widened considerably,
the Company could be exposed to further losses on its investment.
Cash and cash equivalents, which consists of short-term investments,
are only invested in governments, bank term deposits and bank
commercial paper with an investment grade credit rating. Credit risk
is further reduced by limiting the amount which is invested in
certain governments or any major financial institution.
The Company is also exposed to credit risk from the potential default
by any of its counterparties on its foreign exchange forward
contracts. The Company mitigates this credit risk by dealing with
counterparties who are major financial institutions that the Company
anticipates will satisfy their obligations under the contracts.
In the normal course of business, the Company is exposed to credit
risk from its customers, substantially all of which are in the
automotive industry and are subject to credit risks associated with
the automotive industry. Sales to the Company's three largest
customers, General Motors, Ford and Chrysler represented 44% of the
Company's total sales.
On April 30, 2009, Chrysler (including its U.S. subsidiaries) filed
for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy
Code. The Company's sales to Chrysler for the three months ended
March 31, 2009 were $388 million or 10.9% of consolidated sales. As
at March 31, 2009, accounts receivable from Chrysler were
$282 million, a portion of which is expected to be covered by
production receivables support programs sponsored by the Canadian and
United States governments. Although Chrysler filed motions to
continue operating in the ordinary course, including by continuing to
pay suppliers under normal terms and conditions, Chrysler also
announced that it would cease production while it is in bankruptcy
protection. The Company is currently unable to assess the extent to
which the Chrysler filing will impact the Company's financial
position and operations. The inability of Chrysler to successfully
restructure represents a material credit risk to the Company.
The Company's sales to General Motors for the three months ended
March 31, 2009 were $679 million or 19.0% of consolidated sales. As
at March 31, 2009, accounts receivable from General Motors were
$346 million. General Motors has received billions of dollars in
government loans from the U.S. government and has been given a
mandate to restructure and present an acceptable plan for future
viability by the end of May 2009. Depending on the government's
assessment of this plan, General Motors may be forced to seek some
measure of bankruptcy protection. The inability of General Motors to
complete a successful restructuring and plan for future viability
represents a material credit risk to the Company.
For the three months ended March 31, 2009, sales to the Company's six
largest customers (including the Detroit 3) represented 82% of our
total sales, and substantially all of our sales are to customers in
which the Company has ongoing contractual relationships.
(d) Currency risk
The Company is exposed to fluctuations in foreign exchange rates when
manufacturing facilities have committed to the delivery of products
for which the selling price has been quoted in currencies other than
the facilities' functional currency, or when materials and equipment
are purchased in currencies other than the facilities' functional
currency. In an effort to manage this net foreign exchange exposure,
the Company employs hedging programs, primarily through the use of
foreign exchange forward contracts.
As at March 31, 2009, the net foreign exchange exposure was not
material.
(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
our 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
long-term debt instruments as the interest rates on these instruments
are fixed.
12. SEGMENTED INFORMATION
Three months ended
March 31, 2009
-------------------------------------------
Fixed
Total External assets,
sales sales EBIT(i) net
---------------------------------------------------------------------
North America
Canada $ 723 $ 655 $ 639
United States 902 864 743
Mexico 275 246 367
Eliminations (118) - -
---------------------------------------------------------------------
1,782 1,765 $ (89) 1,749
Europe
Euroland 1,441 1,411 1,040
Great Britain 142 142 67
Other European countries 161 134 195
Eliminations (40) - -
---------------------------------------------------------------------
1,704 1,687 (119) 1,302
Rest of World 130 121 (1) 170
Corporate and Other (42) 1 (18) 306
---------------------------------------------------------------------
Total reportable segments $ 3,574 $ 3,574 $ (227) 3,527
Current assets 6,056
Investments, goodwill and
other assets 2,102
---------------------------------------------------------------------
Consolidated total assets $ 11,685
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended
March 31, 2008
-------------------------------------------
Fixed
Total External assets,
sales sales EBIT(i) net
---------------------------------------------------------------------
North America
Canada $ 1,587 $ 1,501 $ 1,045
United States 1,389 1,339 958
Mexico 449 398 371
Eliminations (166) - -
---------------------------------------------------------------------
3,259 3,238 $ 147 2,374
Europe
Euroland 2,771 2,717 1,197
Great Britain 320 320 97
Other European countries 252 217 151
Eliminations (64) - -
---------------------------------------------------------------------
3,279 3,254 119 1,445
Rest of World 141 128 7 154
Corporate and Other (57) 2 (6) 306
---------------------------------------------------------------------
Total reportable segments $ 6,622 $ 6,622 $ 267 4,279
Current assets 9,182
Investments, goodwill and
other assets 2,293
---------------------------------------------------------------------
Consolidated total assets $ 15,754
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) EBIT represents operating income from operations before income
taxes and net interest income.
13. RELATED PARTY TRANSACTIONS
As at March 5, 2009, the Company was owed approximately
Cdn$1.9 million from MEC (the "MEC Receivable") in respect of head
office rent and other shared services. On March 5, 2009, MEC and
certain of its subsidiaries filed voluntary petitions for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code and obtained
recognition of the Chapter 11 proceedings from the Ontario Superior
Court of Justice. The MEC Receivable is an unsecured obligation of
MEC and the Company has recorded a reserve for doubtful accounts
against the entire amount of this receivable.
During the first quarter of 2009, the Company entered into an
agreement to purchase approximately 100 acres of real estate located
in Austria from MEC for $6.0 million ((euro)4.6 million). The
transaction was reviewed by the Corporate Governance and Compensation
Committee and approved by the independent members of Magna's Board of
Directors following the unanimous recommendation of the Corporate
Governance and Compensation Committee. The transaction closed on
April 28, 2009.
14. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform
to the current period's method of presentation.
SOURCE Magna International Inc.
