Exhibit 99.2
Magna International Inc.
Third Quarter Report
2022
MAGNA INTERNATIONAL INC.
Management's
Discussion and Analysis of Results of Operations and Financial Position
Unless otherwise noted, all amounts in this Management's
Discussion and Analysis of Results of Operations and Financial Position ["MD&A"] are in U.S. dollars and all tabular amounts
are in millions of U.S. dollars, except per share figures, which are in U.S. dollars. When we use the terms "we", "us",
"our" or "Magna", we are referring to Magna International Inc. and its subsidiaries and jointly controlled entities,
unless the context otherwise requires.
This MD&A should be read in conjunction with
the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2022 included in this
Quarterly Report, and the audited consolidated financial statements and MD&A for the year ended December 31, 2021 included in
our 2021 Annual Report to Shareholders.
This MD&A may contain statements that are
forward looking. Refer to the "Forward-Looking Statements" section in this MD&A for a more detailed discussion of our use
of forward-looking statements.
This MD&A has been prepared as at November 3,
2022.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to results presented in accordance
with accounting principles generally accepted in the United States of America ["U.S. GAAP"], this report includes the use of
Adjusted earnings before interest and taxes ["Adjusted EBIT"], Adjusted EBIT as a percentage of sales, Adjusted diluted earnings
per share, Return on Invested Capital, Adjusted Return on Invested Capital and Return on Equity [collectively, the "Non-GAAP Measures"].
We believe these non-GAAP financial measures provide additional information that is useful to investors in understanding our underlying
performance and trends through the same financial measures employed by our management for this purpose. Readers should be aware that
Non-GAAP Measures have no standardized meaning under U.S. GAAP and accordingly may not be comparable to the calculation of similar measures
by other companies. We believe that Return on Invested Capital and Return on Equity are useful to both management and investors in their
analysis of our results of operations and reflect our ability to generate returns. Similarly, we believe that Adjusted EBIT, Adjusted
EBIT as a percentage of sales, Adjusted diluted earnings per share and Adjusted Return on Invested Capital provide useful information
to our investors for measuring our operational performance as they exclude certain items that are not reflective of ongoing operating
profit or loss and facilitate a comparison with prior periods. The presentation of any Non-GAAP Measures should not be considered in
isolation or as a substitute for our related financial results prepared in accordance with U.S. GAAP. Non-GAAP financial measures are
presented together with the most directly comparable U.S. GAAP financial measure, and a reconciliation to the most directly comparable
U.S. GAAP financial measure, can be found in the "Non-GAAP Financial Measures Reconciliation" section of this MD&A.
HIGHLIGHTS
In the third quarter of 2022:
| • | Global
light vehicle production increased 24% from the third quarter of 2021, including increases of 24%
and 25% in our two largest markets of North America and Europe, respectively. The increase largely
reflects the significant industry production disruptions during the third quarter of 2021 caused
by global semiconductor chip shortages. These industry production disruptions continued in the third
quarter of 2022, but to a lesser extent than we experienced in the third quarter of 2021. |
| • | Total sales
increased 17% to $9.3 billion, compared to $7.9 billion in the third quarter of 2021. Excluding the impact of foreign currency translation,
sales increased 27% largely reflecting higher global light vehicle production, the launch of new programs and customer price increases
to recover certain higher production input costs. |
| • | Diluted
earnings per share were $1.00 and adjusted diluted earnings per share were $1.07. Adjusted diluted
earnings per share increased $0.51 compared to the third quarter of 2021, primarily reflecting contribution
on higher sales, higher commercial settlements, and a $45 million provision on engineering service
contracts with the automotive unit of Evergrande in the third quarter of 2021, partially offset
by higher net production input costs and operating inefficiencies at a facility in Europe. |
| • | Cash from
operating activities was $238 million, a decrease of $162 million from the third quarter of 2021. |
| • | We returned
$305 million to shareholders by way of share repurchases and dividends. |
| • | We invested
in Yulu Mobility, India’s largest electrified mobility provider and together with Yulu
Mobility, established a new battery swapping entity ("Yulu Energy") to support the rapid
growth in electrification of mobility and required infrastructure. Our combined investment in Yulu
Mobility and Yulu Energy was $77 million. |
Subject to the approval by the Toronto Stock
Exchange and the New York Stock Exchange, our Board of Directors approved a new Normal Course Issuer Bid ("NCIB") to purchase
up to 28.4 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 15, 2022 and will terminate one year later.
OVERVIEW
OUR BUSINESS(1)
Magna is more than one of the world’s largest
suppliers in the automotive space. We are a mobility technology company with a global, entrepreneurial-minded team of over 170,000(2) employees
and an organizational structure designed to innovate like a startup. With 65+ years of expertise, and a systems approach to design, engineering
and manufacturing that touches nearly every aspect of the vehicle, we are positioned to support advancing mobility in a transforming
industry. Our global network includes 345 manufacturing operations and 90 product development, engineering and sales centres spanning
28 countries. Our common shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA).
1 Manufacturing operations, product
development, engineering and sales centres include certain operations accounted for under the equity method.
2 Number of employees includes over
160,000 employees at our wholly owned or controlled entities and over 10,000 employees at certain operations accounted for under the
equity method.
Magna
International Inc. Third Quarter Report 2022 1
INDUSTRY
TRENDS & RISKS
Our operating results are primarily dependent
on the levels of North American, European and Chinese car and light truck production by our customers. While we supply systems and components
to every major original equipment manufacturer ["OEM"], we do not supply systems and components for every vehicle, nor is the
value of our content consistent from one vehicle to the next. As a result, customer and program mix relative to market trends, as well
as the value of our content on specific vehicle production programs, are also important drivers of our results.
OEM production volumes are generally aligned
with vehicle sales levels and thus affected by changes in such levels. Aside from vehicle sales levels, production volumes are typically
impacted by a range of factors, including: general macroeconomic and political conditions; supply chains and infrastructure; availability
and relative cost of skilled labour; energy supply; labour disruptions; free trade arrangements; tariffs; relative currency values; commodities
prices; regulatory considerations, including those related to environmental emissions and safety standards; and other factors. Additionally,
COVID-19 has and may continue to impact vehicle production volumes, including through: mandatory lockdowns/stay-at-home orders which
restrict production; elevated employee absenteeism; and supply chain disruptions.
Overall vehicle sales levels are significantly
affected by changes in consumer confidence levels, which may in turn be impacted by consumer perceptions and general trends related to
the job, housing and stock markets, as well as inflation, and other macroeconomic and political factors. Other factors which typically
impact vehicle sales levels and thus production volumes include: interest rates and/or availability of credit; fuel and energy prices;
relative currency values; and other factors. Additionally, COVID-19 has and may continue to impact vehicle sales, including through mandatory
lockdowns/stay-at-home orders which restrict consumers' ability to purchase vehicles, as well as through a deterioration in consumer
confidence.
While the foregoing economic, political and other
factors are part of the general context in which the global automotive industry operates, there have been a number of significant industry
trends that are shaping the future of the industry and creating opportunities and risks for automotive suppliers. We continue to implement
a business strategy which is rooted in our best assessment as to the rate and direction of change in the automotive industry, including
with respect to trends related to vehicle electrification and advanced driver assistance systems, as well as new mobility business models/"mobility-as-a-service"
["MaaS"]. Our short- and medium-term operational success, as well as our ability to create long-term value through our business
strategy, are subject to a number of risks and uncertainties. Significant industry trends, our business strategy and the major risks
we face, are discussed in our Annual Information Form ["AIF"] and Annual Report on Form 40-F ["Form 40-F"]
in respect of the year ended December 31, 2021, together with subsequent filings. Those industry trends and risk factors remain
substantially unchanged in respect of the third quarter ended September 30, 2022, except as follows:
| • | Russian
Invasion of Ukraine: Magna’s operations in Russia remain substantially idled. In
the second quarter of this year, we recorded a $376 million impairment charge against the
value of our balance sheet investments, including deferred cumulative translation losses. |
The ongoing conflict continues to create or exacerbate
a broad range of risks, including with respect to:
| • | global
vehicle production volumes; |
| • | inflationary
pressures, including in commodities and transportation/logistics; |
| • | energy
security in Western Europe, particularly with respect to natural gas supply; and |
At this time, natural gas
inventories in Europe appear to be adequate to avoid production disruptions in the upcoming winter of 2022/2023 based on
International Energy Agency [“IEA”] projections. Additionally, spot market pricing has eased due to improved supply
conditions. However, a number of factors, including a harsher than expected winter and/or unforseen supply shocks or demand spikes,
could have a material impact to energy supply and pricing. A material deterioration in energy supply and pricing, and/or in
any of the other risks above, could have a material adverse effect on our business and results of operations.
| • | Inflation
and Interest Rates: We continue to experience higher commodity, freight and energy costs,
as well as wages, in most markets in which we operate, with such pressures expected to persist
into 2023. Additionally, we may continue to experience price increases or surcharges from
sub-suppliers in connection with the inflationary pressures they face. The inability to offset
inflationary price increases through continuous improvement actions, price increases to our
customers or modifications to our own products or otherwise, could have an adverse effect
on our earnings. |
Increasing global inflation rates
have spurred a cycle of monetary policy tightening, including through central bank increases to key short term lending rates. Both the
availability and cost of credit are factors affecting consumer confidence, which is a critical driver of vehicle sales and thus automotive
production. Additionally, vehicle affordability to consumers is becoming more challenged due to a combination of factors, including:
elevated vehicle pricing resulting from inflationary cost increases and vehicle production constraints; higher prices for electric vehicles;
and increasing vehicle finance costs due to rising interest rates. A material, sustained decrease in consumer demand for vehicles could
result in further reductions to vehicle production from current levels, which could have a material adverse effect on our profitability
and financial condition.
2
Magna International Inc. Third Quarter Report 2022
RESULTS OF OPERATIONS
AVERAGE FOREIGN EXCHANGE
| | |
For the three months
ended September 30, | | |
For the nine months
ended September 30, | |
| | |
2022 | | |
2021 | | |
Change | | |
2022 | | |
2021 | | |
Change | |
| 1 Canadian dollar equals U.S. dollars | |
| 0.765 | | |
| 0.794 | | |
- | 4 | % | |
| 0.779 | | |
| 0.799 | | |
- | 3 | % |
| 1 euro equals U.S. dollars | |
| 1.006 | | |
| 1.178 | | |
- | 15 | % | |
| 1.064 | | |
| 1.196 | | |
- | 11 | % |
| 1 Chinese renminbi equals U.S. dollars | |
| 0.146 | | |
| 0.155 | | |
- | 6 | % | |
| 0.152 | | |
| 0.155 | | |
- | 2 | % |
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 results of operations for which the functional
currency is not the U.S. dollar are translated into U.S. dollars using the average exchange rates 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.
LIGHT VEHICLE PRODUCTION VOLUMES
Our operating results are mostly dependent on
light vehicle production in the regions reflected in the table below:
Light Vehicle Production Volumes (thousands
of units)
| | |
For the three months
ended September 30, | | |
For the nine months
ended September 30, | |
| | |
2022 | | |
2021 | | |
Change | | |
2022 | | |
2021 | | |
Change | |
| North America | |
| 3,635 | | |
| 2,921 | | |
+ | 24 | % | |
| 10,843 | | |
| 9,886 | | |
+ | 10 | % |
| Europe | |
| 3,752 | | |
| 2,997 | | |
+ | 25 | % | |
| 11,769 | | |
| 12,028 | | |
- | 2 | % |
| China | |
| 6,949 | | |
| 5,464 | | |
+ | 27 | % | |
| 18,951 | | |
| 17,214 | | |
+ | 10 | % |
Magna International Inc. Third Quarter Report 2022 3
RESULTS OF OPERATIONS –
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
SALES
Sales increased 17% or $1,349 million to $9.27
billion for the third quarter of 2022 compared to $7.92 billion for the third quarter of 2021. Excluding a $774 million decrease in reported U.S. sales as a result of the net weakening of foreign currencies against the U.S.
dollar, sales increased 27% primarily due to higher global light vehicle
production and assembly volumes. The increase largely reflects the significant industry production disruptions during the third quarter
of 2021 caused by global semiconductor chip shortages. These industry production disruptions continued in the third quarter of 2022,
but to a lesser extent than we experienced in the third quarter of 2021. In addition, sales increased due to:
| • | the
launch of new programs during or subsequent to the third quarter of 2021; and |
| • | customer
price increases to recover certain higher production input costs. |
These factors were partially offset by:
| • | lower sales as a result of the substantial suspension of operations
at our Russian facilities; and |
| • | customer
price concessions subsequent to the third quarter of 2021. |
COST OF GOODS SOLD
| | |
For the three months
ended September 30, | | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Material | |
$ | 5,732 | | |
$ | 4,744 | | |
$ | 988 | |
| Direct labour | |
| 676 | | |
| 626 | | |
| 50 | |
| Overhead | |
| 1,718 | | |
| 1,515 | | |
| 203 | |
| Cost of goods sold | |
$ | 8,126 | | |
$ | 6,885 | | |
$ | 1,241 | |
Cost of goods sold increased $1.24 billion to
$8.13 billion for the third quarter of 2022 compared to $6.89 billion for the third quarter of 2021, primarily due to:
| • | higher
materials, direct labour and overhead associated with higher sales; |
| • | higher
net production input costs, including energy, commodity, labour and freight costs; and |
| • | operating
inefficiencies at a facility in Europe. |
These factors were partially offset by the net weakening of foreign
currencies against the U.S. dollar, which decreased reported U.S. dollar cost of goods sold by $660 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $44 million
to $341 million for the third quarter of 2022 compared to $385 million for the third quarter of 2021 primarily due to the net weakening
of foreign currencies against the U.S. dollar, which decreased reported U.S. dollar depreciation and amortization by $27 million and
the end of production and related depreciation of certain programs.
4 Magna International Inc. Third Quarter Report 2022
SELLING, GENERAL AND ADMINISTRATIVE ["SG&A"]
SG&A expense decreased $67 million to $387
million for the third quarter of 2022 compared to $454 million for the third quarter of 2021, primarily as a result of:
| • | a
$45 million provision on an engineering services contract with the automotive unit of Evergrande
in our Complete Vehicles segment during the third quarter of 2021; |
| • | the
net weakening of foreign currencies against the U.S. dollar, which decreased reported U.S.
dollar SG&A expense by $23 million; and |
| • | higher
transactional foreign exchange gains. |
These factors were partially offset by higher
labour and benefit costs.
INTEREST EXPENSE, NET
During the third quarter of 2022, we recorded
net interest expense of $18 million compared to $22 million for the third quarter of 2021. The $4 million decrease is primarily a result
of interest savings due to the redemption of the Cdn$425 million 3.1000% Senior Notes during the first quarter of 2022.
EQUITY INCOME
Equity income decreased $7 million to $27 million
for the third quarter of 2022 compared to $34 million for the third quarter of 2021, primarily as a result of higher net production input
costs at certain equity-accounted entities; higher electrification spending by our LG Magna e-Powertrain Co., Ltd. joint venture;
partially offset by earnings on higher sales at certain equity-accounted entities.
OTHER EXPENSE, NET
| |
|
For the three months |
|
| |
|
ended September 30, |
|
| |
|
2022 |
|
|
2021 |
|
| Restructuring and impairments (1) |
|
$ |
14 |
|
|
$ |
24 |
|
| Losses on investments (2) |
|
|
9 |
|
|
|
81 |
|
| Loss on sale of business (3) |
|
|
— |
|
|
|
75 |
|
| |
|
$ |
23 |
|
|
$ |
180 |
|
| (1) | Restructuring and impairments |
During the third quarter of 2022, the GAC-Group and Stellantis decided to terminate their GAC-Stellantis joint venture in China. As a
result, we recorded a provision against our associated assets of $10 million [$9 million after tax] in our Body Exteriors & Structures
segment and $4 million [$3 million after tax] in our Power & Vision segment, respectively.
During the third quarter of 2021,
we recorded restructuring and impairment charges of $16 million [$14 million after tax] in our Body Exteriors & Structures segment,
$4 million [$3 million after tax] in our Seating Systems segment and $4 million [$3 million after tax] in our Power & Vision
segment.
| |
|
For the three months |
|
| |
|
ended September 30, |
|
| |
|
2022 |
|
|
2021 |
|
| Revaluation of public company warrants |
|
$ |
7 |
|
|
$ |
54 |
|
| Revaluation of public and private equity investments |
|
|
2 |
|
|
|
27 |
|
| Other Expense,
net |
|
|
9 |
|
|
|
81 |
|
| Tax effect |
|
|
(2 |
) |
|
|
(17 |
) |
| Net
loss attributable to Magna |
|
$ |
7 |
|
|
$ |
64 |
|
| (3) | Loss on sale of business |
During the third quarter of 2021,
we sold three Body Exteriors & Structures operations in Germany. Under the terms of the arrangement, we provided the buyer with
$41 million of funding, resulting in a loss on disposal of $75 million [$75 million after tax].
Magna International Inc. Third Quarter Report 2022 5
INCOME FROM OPERATIONS BEFORE INCOME TAXES
Income from operations before income taxes was
$400 million for the third quarter of 2022 compared to $27 million for the third quarter of 2021. This $373 million increase is a result
of the following changes, each as discussed above:
| |
|
For the three months
ended September 30, |
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change |
|
| Sales |
|
$ |
9,268 |
|
|
$ |
7,919 |
|
|
$ |
1,349 |
|
| Costs and expenses Cost of goods sold |
|
|
8,126 |
|
|
|
6,885 |
|
|
|
1,241 |
|
| Depreciation and amortization |
|
|
341 |
|
|
|
385 |
|
|
|
(44 |
) |
| Selling, general & administrative |
|
|
387 |
|
|
|
454 |
|
|
|
(67 |
) |
| Interest expense, net |
|
|
18 |
|
|
|
22 |
|
|
|
(4 |
) |
| Equity income |
|
|
(27 |
) |
|
|
(34 |
) |
|
|
7 |
|
| Other expense, net |
|
|
23 |
|
|
|
180 |
|
|
|
(157 |
) |
| Income from operations before income taxes |
|
$ |
400 |
|
|
$ |
27 |
|
|
$ |
373 |
|
INCOME TAXES
| |
|
For the three months ended September 30, |
|
| |
|
2022 |
|
|
2021 |
|
| Income Taxes as reported |
|
$ |
104 |
|
|
|
26.0 |
% |
|
$ |
10 |
|
|
|
37.0 |
% |
| Tax effect on Other Expense, net |
|
|
4 |
|
|
|
(0.5 |
) |
|
|
21 |
|
|
|
(22.0 |
) |
| |
|
$ |
108 |
|
|
|
25.5 |
% |
|
$ |
31 |
|
|
|
15.0 |
% |
Excluding the tax effect on Other expense, net,
our effective income tax rate increased to 25.5% for the third quarter of 2022 compared to 15.0% for the third quarter of 2021 primarily
due to a decrease in the benefit of research and development credits and a change in mix of earnings. These factors were partially offset
by favourable changes in our reserves for uncertain tax positions.
INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
Income attributable to non-controlling interests
was $7 million for the third quarter of 2022 compared to $6 million for the third quarter of 2021, primarily due to higher net income
at our non-wholly owned operations in China.
NET INCOME ATTRIBUTABLE TO MAGNA INTERNATIONAL
INC.
Net income attributable to Magna International
Inc. was $289 million for the third quarter of 2022 compared to $11 million for the third quarter of 2021. This $278 million increase
was as a result of: an increase in income from operations before income taxes of $373 million; partially offset by an increase in income
taxes of $94 million; and an increase of $1 million in income attributable to non-controlling interests.
6 Magna International Inc. Third Quarter Report 2022
EARNINGS PER SHARE
| | |
For the three months
ended September
30, | | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Earnings per Common Share | |
$ | 1.01 | | |
$ | 0.04 | | |
| — | |
| Basic | |
| | | |
| | | |
| | |
| Diluted | |
$ | 1.00 | | |
$ | 0.04 | | |
| — | |
| Weighted average number of Common Shares outstanding (millions) | |
| | | |
| | | |
| | |
| Basic | |
| 287.9 | | |
| 300.7 | | |
- | 4 | % |
| Diluted | |
| 288.5 | | |
| 302.6 | | |
- | 5 | % |
| Adjusted diluted earnings per share | |
$ | 1.07 | | |
$ | 0.56 | | |
+ | 91 | % |
Diluted earnings per share was $1.00 for the
third quarter of 2022 compared to $0.04 for the third quarter of 2021. The $0.96 increase was as a result of higher net income attributable
to Magna International Inc., as discussed above, and a decrease in the weighted average number of diluted shares outstanding during the
third quarter of 2022. 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 2021, pursuant to our normal course issuer bids and a decrease
in diluted shares related to outstanding stock options as a result of the decrease in our share price.
Other expense, net, after tax, negatively impacted
diluted earnings per share by $0.07 in the third quarter of 2022, and $0.52 in the third quarter of 2021, respectively, as discussed
in the "Other expense, net" and "Income Taxes" sections above.
Adjusted diluted earnings per share, as reconciled
in the "Non-GAAP Financial Measures Reconciliation" section, was $1.07 for the third quarter of 2022 compared to $0.56 in the
third quarter of 2021, an increase of $0.51.
Magna International Inc. Third Quarter Report 2022 7
NON-GAAP
PERFORMANCE MEASURES – FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022
ADJUSTED EBIT AS A PERCENTAGE OF SALES
The table below shows the change in Magna's Sales
and Adjusted EBIT by segment and the impact each segment's changes had on Magna's Adjusted EBIT as a percentage of sales for the third
quarter of 2022 compared to the third quarter of 2021:
| | |
Sales | | |
Adjusted EBIT | | |
Adjusted EBIT as a percentage of sales | |
| Third quarter of 2021 | |
$ | 7,919 | | |
$ | 229 | | |
| 2.9 | % |
| Increase (decrease) related to: | |
| | | |
| | | |
| | |
| Body Exteriors & Structures | |
| 791 | | |
| 127 | | |
+ | 1.1 | % |
| Power & Vision | |
| 410 | | |
| 50 | | |
+ | 0.4 | % |
| Seating Systems | |
| 172 | | |
| 13 | | |
+ | 0.1 | % |
| Complete Vehicles | |
| (42 | ) | |
| 35 | | |
+ | 0.4 | % |
| Corporate and Other | |
| 18 | | |
| (13 | ) | |
- | 0.1 | % |
| Third quarter of 2022 | |
$ | 9,268 | | |
$ | 441 | | |
| 4.8 | % |
Adjusted EBIT as a percentage of sales increased
to 4.8% for the third quarter of 2022 compared to 2.9% for the third quarter of 2021 primarily due to:
| • | earnings
on higher sales; |
| • | higher
favourable commercial settlements; |
| • | a
provision on an engineering services contract with the automotive unit of Evergrande in our
Complete Vehicles segment during the third quarter of 2021; |
| • | higher
tooling contribution in the third quarter of 2022 compared to the third quarter of 2021;
and |
| • | divestitures,
net of acquisitions subsequent to the third quarter of 2021. |
These factors were partially offset by:
| • | higher
net production input costs, including energy, commodity, labour and freight costs; |
| • | operating
inefficiencies at a facility in Europe; |
| • | higher
net warranty costs; and |
| • | reduced earnings as a result of the substantial suspension of operations
at our Russian facilities. |
8 Magna International Inc. Third Quarter Report 2022
ADJUSTED RETURN ON INVESTED CAPITAL AND RETURN
ON INVESTED CAPITAL
Adjusted Return on Invested Capital increased
to 8.4% for the third quarter of 2022 compared to 4.8% for the third quarter of 2021 as a result of an increase in Adjusted After-tax
operating profits and lower Average Invested Capital. Other expense, net, after tax negatively impacted Return on Invested Capital by
0.5% in the third quarter of 2022 and by 3.9% in the third quarter of 2021.
Average Invested Capital decreased $687 million
to $15.62 billion for the third quarter of 2022 compared to $16.31 billion for the third quarter of 2021. Factors decreasing Average
Invested Capital were:
| • | the
net weakening of foreign currencies against the U.S. dollar; and |
| • | the
impairment of our Russian assets recorded during the second quarter of 2022. |
These factors were partially offset by:
| • | an
increase in average changes in operating assets and liabilities; and |
| • | acquisitions,
net of divestitures during and subsequent to third quarter of 2021. |
RETURN ON EQUITY
Return on Equity was 10.4% for the third quarter
of 2022 compared to 0.4% for the third quarter of 2021. This increase was due to higher net income attributable to Magna and lower average
shareholders' equity. Other expense, net, after tax negatively impacted Return on Equity by 0.7% in the third quarter of 2022 and by
5.1% in the third quarter of 2021.
Magna International Inc. Third Quarter Report 2022 9
SEGMENT ANALYSIS
We are a global automotive supplier that has
complete vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior,
seating, powertrain, active driver assistance, electronics, mechatronics, mirrors, lighting and roof systems. We also have electronic
and software capabilities across many of these areas.
Our reporting segments are: Body Exteriors &
Structures; Power & Vision; Seating Systems; and Complete Vehicles.
| | |
For the three months
ended September 30, | |
| | |
Sales | | |
Adjusted EBIT | |
| | |
2022 | | |
2021 | | |
Change | | |
2022 | | |
2021 | | |
Change | |
| Body Exteriors &Structures | |
$ | 3,976 | | |
$ | 3,185 | | |
$ | 791 | | |
$ | 225 | | |
$ | 98 | | |
$ | 127 | |
| Power & Vision | |
| 2,911 | | |
| 2,501 | | |
| 410 | | |
| 117 | | |
| 67 | | |
| 50 | |
| Seating Systems | |
| 1,295 | | |
| 1,123 | | |
| 172 | | |
| 35 | | |
| 22 | | |
| 13 | |
| Complete Vehicles | |
| 1,213 | | |
| 1,255 | | |
| (42 | ) | |
| 65 | | |
| 30 | | |
| 35 | |
| Corporate and Other | |
| (127 | ) | |
| (145 | ) | |
| 18 | | |
| (1 | ) | |
| 12 | | |
| (13 | ) |
| Total reportable segments | |
$ | 9,268 | | |
$ | 7,919 | | |
$ | 1,349 | | |
$ | 441 | | |
$ | 229 | | |
$ | 212 | |
BODY EXTERIORS & STRUCTURES
| | |
For the three months
ended September 30, | | |
| | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Sales | |
$ | 3,976 | | |
$ | 3,185 | | |
$ | 791 | | |
+ | 25 | % |
| Adjusted EBIT | |
$ | 225 | | |
$ | 98 | | |
$ | 127 | | |
+ | 130 | % |
| Adjusted EBIT as a percentage of sales | |
| 5.7 | % | |
| 3.1 | % | |
| | | |
+ | 2.6 | % |
Sales – Body Exteriors & Structures
Sales increased 25% or $791 million to $3.98
billion for the third quarter of 2022 compared to $3.19 billion for the third quarter of 2021 primarily due to higher global light vehicle
production. The increase largely reflects the significant industry production disruptions during the third quarter of 2021 caused by
global semiconductor chip shortages. These industry production disruptions continued in the third quarter of 2022, but to a lesser extent
than we experienced in the third quarter of 2021. In addition, sales increased due to:
| • | the launch
of programs during or subsequent to the third quarter of 2021, including the: |
| • | Jeep
Wagoneer and Grand Wagoneer; |
| • | customer
price increases to recover certain higher production input costs; and |
| • | acquisitions,
net of divestitures subsequent to the third quarter of 2021, which increased sales by $15 million. |
These factors were partially offset by:
| • | the net
weakening of foreign currencies against the U.S. dollar, which decreased reported U.S. dollar sales
by $209 million; |
| • | lower sales as a result of the substantial suspension of operations
at our Russian facilities; and |
| • | customer
price concessions subsequent to the third quarter of 2021. |
10 Magna International Inc. Third Quarter Report 2022
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Body Exteriors & Structures
Adjusted EBIT increased $127 million to $225
million for the third quarter of 2022 compared to $98 million for the third quarter of 2021 and Adjusted EBIT as a percentage of sales
increased to 5.7% from 3.1%. These increases were primarily due to:
| • | earnings
on higher sales; |
| • | higher
favourable commercial settlements; |
| • | higher
tooling contribution in the third quarter of 2022 compared to the third quarter of 2021; and |
| • | divestitures,
net of acquisitions subsequent to the third quarter of 2021. |
These factors were partially offset by:
| • | higher
net production input costs, including commodity, energy, labour and freight costs; |
| • | operating
inefficiencies at a facility in Europe; and |
| • | reduced earnings as a result of the substantial suspension of operations
at our Russian facilities. |
POWER & VISION
| | |
For the three months
ended September 30, | | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Sales | |
$ | 2,911 | | |
$ | 2,501 | | |
$ | 410 | | |
+ | 16 | % |
| Adjusted EBIT | |
$ | 117 | | |
$ | 67 | | |
$ | 50 | | |
+ | 75 | % |
| Adjusted EBIT as a percentage of sales | |
| 4.0 | % | |
| 2.7 | % | |
| | | |
+ | 1.3 | % |
Sales – Power & Vision
Sales increased 16% or $410 million to $2.91
billion for the third quarter of 2022 compared to $2.50 billion for the third quarter of 2021 primarily due to higher global light vehicle
production. The increase largely reflects the significant industry production disruptions during the third quarter of 2021 caused by
global semiconductor chip shortages. These industry production disruptions continued in the third quarter of 2022, but to a lesser extent
than we experienced in the third quarter of 2021. In addition, sales increased due to:
| • | the launch
of programs during or subsequent to the third quarter of 2021, including the: |
| • | customer
price increases to recover certain higher production input costs. |
These factors were partially offset by:
| • | the net
weakening of foreign currencies against the U.S. dollar, which decreased reported U.S. dollar sales
by $239 million; and |
| • | net customer
price concessions subsequent to the third quarter of 2021. |
Magna International Inc. Third Quarter Report 2022 11
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Power & Vision
Adjusted EBIT increased $50 million to $117 million
for the third quarter of 2022 compared to $67 million for the third quarter of 2021 and Adjusted EBIT as a percentage of sales increased
to 4.0% from 2.7%. These increases were primarily due to:
| • | earnings
on higher sales; and |
| • | higher
net favourable commercial settlements. |
These factors were partially offset by:
| • | higher
net production input costs, including energy, commodity, labour and freight costs; |
| • | higher
net warranty costs of $14 million; |
| • | higher
launch costs; and |
| • | the
net weakening of foreign currencies against the U.S. dollar, which had an $8 million unfavourable
impact on reported U.S. dollar Adjusted EBIT. |
SEATING SYSTEMS
| | |
For the three months
ended September 30, | | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Sales | |
$ | 1,295 | | |
$ | 1,123 | | |
$ | 172 | | |
+ | 15 | % |
| Adjusted EBIT | |
$ | 35 | | |
$ | 22 | | |
$ | 13 | | |
+ | 59 | % |
| Adjusted EBIT as a percentage of sales | |
| 2.7 | % | |
| 2.0 | % | |
| | | |
+ | 0.7 | % |
Sales – Seating Systems
Sales increased 15% or $172 million to $1.30
billion for the third quarter of 2022 compared to $1.12 billion for the third quarter of 2021 primarily due to higher global light vehicle
production. The increase largely reflects the significant industry production disruptions during the third quarter of 2021 caused by
global semiconductor chip shortages. These industry production disruptions continued in the third quarter of 2022, but to a lesser extent
than we experienced in the third quarter of 2021. In addition, sales increased due to:
| • | the launch
of programs during or subsequent to the third quarter of 2021, including the: |
| • | customer
price increases to recover certain higher production input costs. |
These factors were partially offset by:
| • | the net
weakening of foreign currencies against the U.S. dollar, which decreased reported U.S. dollar sales
by $103 million; |
| • | lower sales as a result of the substantial suspension of operations
at our Russian facilities; |
| • | divestitures
subsequent to the third quarter of 2021, which decreased sales by $9 million; and |
| • | net customer
price concessions subsequent to the third quarter of 2021. |
12 Magna International Inc. Third Quarter Report 2022
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Seating Systems
Adjusted EBIT increased $13 million to $35 million
for the third quarter of 2022 compared to $22 million for the third quarter of 2021 and Adjusted EBIT as a percentage of sales increased
to 2.7% from 2.0%. These increases were primarily due to:
| • | earnings
on higher sales; and |
| • | favourable
commercial settlements. |
These factors were partially offset by:
| • | higher
net production input costs, including commodity, labour, energy and freight costs; |
| • | higher
launch costs; and |
| • | the net
weakening of foreign currencies against the U.S. dollar, which had a $9 million unfavourable impact
on reported U.S. dollar Adjusted EBIT. |
COMPLETE VEHICLES
| | |
For the three months
ended September 30, | | |
| | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Complete
Vehicle Assembly Volumes (thousands of units)(i) | |
| 24.9 | | |
| 23.3 | | |
| 1.6 | | |
+ | 7 | % |
| Sales | |
$ | 1,213 | | |
$ | 1,255 | | |
$ | (42 | ) | |
- | 3 | % |
| Adjusted EBIT | |
$ | 65 | | |
$ | 30 | | |
$ | 35 | | |
+ | 117 | % |
| Adjusted EBIT as a percentage of sales | |
| 5.4 | % | |
| 2.4 | % | |
| | | |
+ | 3.0 | % |
| (i) | Vehicles
produced at our Complete Vehicle operations are included in Europe Light Vehicle Production
volumes. |
Sales – Complete Vehicles
Sales decreased 3% or $42 million to $1.21 billion
for the third quarter of 2022 compared to $1.25 billion for the third quarter of 2021 while assembly volumes increased 7%. The decrease
in sales is primarily as a result of a $207 million decrease in reported U.S. dollar sales as a result of the weakening of the euro against
the U.S. dollar.
Magna International Inc. Third Quarter Report 2022 13
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Complete Vehicles
Adjusted EBIT increased $35 million to $65 million
for the third quarter of 2022 compared to $30 million for the third quarter of 2021 and Adjusted EBIT as a percentage of sales increased
to 5.4% from 2.4%. These increases were primarily due to a $45 million provision on an engineering services contract with the automotive
unit of Evergrande during the third quarter of 2021 and higher earnings due to higher assembly volumes, net of contractual fixed cost
recoveries on certain programs.
These factors were partially offset by higher
net production input costs, including energy and labour costs and the net weakening of the euro against the U.S. dollar, which had a
$10 million unfavourable impact on reported U.S. dollar Adjusted EBIT.
CORPORATE AND OTHER
Adjusted EBIT was a loss of $1 million for the
third quarter of 2022 compared to earnings of $12 million for the third quarter of 2021. The $13 million decrease was primarily the result
of:
| • | higher
costs to accelerate our operational excellence initiatives; |
| • | lower equity
income; and |
| • | higher
transactional foreign exchange losses. |
These factors were partially offset by an increase
in fees received from our divisions.
14 Magna International Inc. Third Quarter Report 2022
FINANCIAL CONDITION, LIQUIDITY
AND CAPITAL RESOURCES
OPERATING ACTIVITIES
| | |
For the three months
ended September 30, | | |
| |
| |
|
2022 | |
2021 | | |
Change | |
| Net income | |
$ | 296 | | |
$ | 17 | | |
| | |
| Items not involving
current cash flows | |
| 295 | | |
| 515 | | |
| | |
| | |
| 591 | | |
| 532 | | |
$ | 59 | |
| Changes in operating
assets and liabilities | |
| (353 | ) | |
| (132 | ) | |
| (221 | ) |
| Cash provided from
operating activities | |
$ | 238 | | |
$ | 400 | | |
$ | (162 | ) |
Cash provided from operating activities
Comparing the third quarters of 2022 to 2021,
cash provided from operating activities decreased $162 million primarily as a result of an increase in production costs. Specifically,
the decrease is primarily a result of:
| • | a $370 million increase in cash paid for materials
and overhead; |
| • | a $96 million increase in cash paid for taxes; |
| • | a $83 million increase in cash paid for labour;
and |
| • | a $40 million decrease in dividends received
from equity investments. |
These factors were partially offset by:
| • | a $404 million increase in cash received from
customers; and |
| • | a $17 million decrease in cash paid for interest. |
Changes in operating assets and liabilities
During the third quarter of 2022, we used cash
of $353 million for operating assets and liabilities primarily consisting of:
| • | $352 million increase in production accounts
receivable due to timing of collection of receivables in the third quarter of 2022; |
| • | $110 million decrease in other accrued liabilities;
and |
| • | $53 million increase in inventory related to
ongoing supply chain and customers disruptions. |
These uses of cash were partially offset by $200
million increase in trade payables due to higher purchases in the third quarter of 2022 and $44 million increase in accrued wages.
Magna International Inc. Third Quarter Report 2022 15
INVESTING ACTIVITIES
| | |
For the three months
ended September 30, | | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Fixed asset additions | |
$ | (364 | ) | |
$ | (334 | ) | |
| | |
| Increase in investments, other assets and intangible assets | |
| (125 | ) | |
| (101 | ) | |
| | |
| Increase in public and private equity investments | |
| (25 | ) | |
| (3 | ) | |
| | |
| Fixed assets, investments, other assets and intangible assets additions | |
| (514 | ) | |
| (438 | ) | |
| | |
| Proceeds from dispositions | |
| 41 | | |
| 10 | | |
| | |
| Increase in equity method investments | |
| — | | |
| (454 | ) | |
| | |
| Funding provided on sale of business | |
| — | | |
| (41 | ) | |
| | |
| Cash used for investing activities | |
$ | (473 | ) | |
$ | (923 | ) | |
$ | 450 | |
Cash used for investing activities in the third
quarter of 2022 was $450 million lower compared to the third quarter of 2021. The change was primarily due to the $454 million of cash
used to fund the acquisition of a 49% non-controlling interest in LG Magna e-Powertrain Co., Ltd. ["LME"] and $41 million
of funding provided on sale of business during the third quarter of 2021.
FINANCING ACTIVITIES
| | |
For the three months
ended September 30, | | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Repurchase of Commons Shares | |
$ | (180 | ) | |
$ | (5 | ) | |
| | |
| Dividends paid | |
| (125 | ) | |
| (130 | ) | |
| | |
| Repayments of debt | |
| (26 | ) | |
| (24 | ) | |
| | |
| Dividends paid to non-controlling interests | |
| (10 | ) | |
| (2 | ) | |
| | |
| Issue of Common Shares on exercise of stock options | |
| 1 | | |
| 3 | | |
| | |
| Increase in short-term borrowings | |
| 2 | | |
| — | | |
| | |
| Issues of debt | |
| 14 | | |
| 11 | | |
| | |
| Cash used for financing activities | |
$ | (324 | ) | |
$ | (147 | ) | |
$ | (177 | ) |
During the third quarter of 2022 we repurchased
3.1 million Common Shares under our normal course issuer bid for aggregate cash consideration of $180 million.
Cash dividends paid per Common Share were $0.45
for the third quarter of 2022 compared to $0.43 for the third quarter of 2021.
16 Magna International Inc. Third Quarter Report 2022
FINANCING RESOURCES
| |
|
As at
September 30, |
|
As at
December 31, |
|
|
|
|
| |
|
2022 |
|
2021 |
|
|
Change |
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt due within one year |
|
$ |
95 |
|
|
$ |
455 |
|
|
|
|
|
| Current portion of operating lease liabilities |
|
|
266 |
|
|
|
274 |
|
|
|
|
|
| Long-term debt |
|
|
3,325 |
|
|
|
3,538 |
|
|
|
|
|
| Operating lease liabilities |
|
|
1,254 |
|
|
|
1,406 |
|
|
|
|
|
| |
|
$ |
4,940 |
|
|
$ |
5,673 |
|
|
$ |
(733 |
) |
Financial liabilities decreased $733 million to
$4.94 billion as at September 30, 2022 primarily as a result of redeeming the Cdn$425 million [$336 million] 3.100% Senior Notes
during the first quarter of 2022 and the weakening of foreign currencies against the U.S. dollar.
CASH RESOURCES
In the third quarter of 2022, our cash resources
decreased by $562 million to $1.1 billion, primarily as a result of 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, 2022, we had term
and operating lines of credit totaling $3.7 billion, of which $3.5 billion was unused and available.
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, 2022 were exercised:
| Common Shares | |
| 285,819,254 | |
| Stock options (i) | |
| 6,015,877 | |
| | |
| 291,835,131 | |
| (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
There have been no material changes with respect
to the contractual obligations requiring annual payments during the nine months ended September 30, 2022 that are outside the ordinary
course of our business. Refer to our MD&A included in our 2021 Annual Report.
Magna International Inc. Third Quarter Report 2022 17
RESULTS OF OPERATIONS –
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
| | |
For the nine months ended September 30, | |
| | |
Sales | | |
Adjusted EBIT | |
| | |
2022 | | |
2021 | | |
Change | | |
2022 | | |
2021 | | |
Change | |
| Body Exteriors & Structures | |
$ | 12,000 | | |
$ | 10,857 | | |
$ | 1,143 | | |
$ | 645 | | |
$ | 652 | | |
$ | (7 | ) |
| Power & Vision | |
| 8,845 | | |
| 8,538 | | |
| 307 | | |
| 362 | | |
| 567 | | |
| (205 | ) |
| Seating Systems | |
| 3,924 | | |
| 3,592 | | |
| 332 | | |
| 86 | | |
| 103 | | |
| (17 | ) |
| Complete Vehicles | |
| 3,891 | | |
| 4,595 | | |
| (704 | ) | |
| 178 | | |
| 189 | | |
| (11 | ) |
| Corporate and Other | |
| (388 | ) | |
| (450 | ) | |
| 62 | | |
| 35 | | |
| 45 | | |
| (10 | ) |
| Total reportable segments | |
$ | 28,272 | | |
$ | 27,132 | | |
$ | 1,140 | | |
$ | 1,306 | | |
$ | 1,556 | | |
$ | (250 | ) |
BODY EXTERIORS & STRUCTURES
| |
|
For the nine months |
|
|
|
|
|
|
|
| |
|
ended September 30, |
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change |
|
| Sales |
|
$ |
12,000 |
|
|
$ |
10,857 |
|
|
$ |
1,143 |
|
|
+ |
11 |
% |
| Adjusted EBIT |
|
$ |
645 |
|
|
$ |
652 |
|
|
$ |
(7 |
) |
|
- |
1 |
% |
| Adjusted EBIT as a percentage of sales |
|
|
5.4 |
% |
|
|
6.0 |
% |
|
|
|
|
|
- |
0.6 |
% |
Sales – Body Exteriors & Structures
Sales increased 11% or $1.14 billion to $12.00
billion for the nine months ended September 30, 2022 compared to $10.86 billion for the nine months ended September 30, 2021,
primarily due to:
| • | the launch of programs during or subsequent to
the first nine months of 2022, including the: |
| • | Jeep Wagoneer and Grand Wagoneer; |
| • | higher global light vehicle production. The increase
largely reflects the significant industry production disruptions during the first nine months of 2021 caused by global semiconductor chip
shortages. These industry production disruptions continued in the first nine months of 2022, but to a lesser extent than we experienced
in the first nine months of 2021; and |
| • | customer price increases to recover certain higher
production input costs. |
These factors were partially offset by:
| • | the net weakening of foreign currencies against
the U.S. dollar, which decreased reported U.S. dollar sales by $469 million; |
| • | divestitures, net of acquisitions subsequent
to the first nine months of 2021, which decreased sales by $155 million; |
| • | lower sales as a result of the substantial suspension of operations
at our Russian facilities; and |
| • | net customer price concessions subsequent to
the first nine months of 2021. |
18 Magna International Inc. Third Quarter Report 2022
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Body Exteriors & Structures
Adjusted EBIT decreased $7 million to $645 million
for the nine months ended September 30, 2022 compared to $652 million for the nine months ended September 30, 2021 and Adjusted
EBIT as a percentage of sales decreased to 5.4% from 6.0%. These decreases were primarily due to:
| • | higher net production input costs, including
energy, labour, commodity and freight costs; |
| • | inefficiencies and other costs at certain underperforming
facilities; |
| • | reduced earnings as a result of the substantial suspension of operations
at our Russian facilities; |
| • | the net weakening of foreign currencies against
the U.S. dollar that had a $16 million unfavourable impact on reported U.S. dollar Adjusted EBIT; |
| • | higher pre-operating costs incurred at new facilities;
and |
| • | a favourable value-added tax settlement in Brazil
during the second quarter of 2021. |
These factors were partially offset by:
| • | earnings on higher sales; |
| • | higher favourable commercial settlements; |
| • | divestitures, net of acquisitions subsequent
to the third quarter of 2021; and |
| • | higher tooling contribution in the third quarter
of 2022 compared to the third quarter of 2021. |
POWER & VISION
| |
|
For the nine months |
|
|
|
|
|
|
|
| |
|
ended September 30, |
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
|
Change |
|
| Sales |
|
$ |
8,845 |
|
|
$ |
8,538 |
|
|
$ |
307 |
|
|
+ |
4 |
% |
| Adjusted EBIT |
|
$ |
362 |
|
|
$ |
567 |
|
|
$ |
(205 |
) |
|
- |
36 |
% |
| Adjusted EBIT as a percentage of sales |
|
|
4.1 |
% |
|
|
6.6 |
% |
|
|
|
|
|
- |
2.5 |
% |
Magna International Inc. Third Quarter Report 2022 19
Sales – Power & Vision
Sales increased 4% or $307 million to $8.85 billion
for the nine months ended September 30, 2022 compared to $8.54 billion for the nine months ended September 30, 2021, primarily
due to:
| • | the
launch of programs during or subsequent to the first nine months of 2021, including the: |
| • | Jeep
Wagoneer and Grand Wagoneer; and |
| • | higher
global light vehicle production. The increase largely reflects the significant industry production
disruptions during the first nine months of 2021 caused by global semiconductor chip shortages.
These industry production disruptions continued in the first nine months of 2022, but to
a lesser extent than we experienced in the first nine months of 2021; |
| • | an
acquisition during the first nine months of 2021, which increased sales by $37 million; and |
| • | customer
price increases to recover certain higher production input costs. |
These factors were partially offset by:
| • | the
net weakening of foreign currencies against the U.S. dollar, which decreased reported U.S.
dollar sales by $527 million; and |
| • | net customer
price concessions subsequent to the first nine months of 2021. |
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Power & Vision
Adjusted EBIT decreased $205 million to $362
million for the nine months ended September 30, 2022 compared to $567 million for the nine months ended September 30, 2021
and Adjusted EBIT as a percentage of sales decreased to 4.1% from 6.6%. These decreases were primarily due to:
| • | higher
net production input costs, including commodity, energy, freight, and labour costs; |
| • | higher
electrification spending, including at certain equity-accounted entities; |
| • | inefficiencies
and other costs at certain underperforming facilities; |
| • | the
net weakening of foreign currencies against the U.S. dollar, which had a $13 million unfavourable
impact on reported U.S. dollar Adjusted EBIT; and |
| • | a
favourable value-added tax settlement in Brazil during the second quarter of 2021. |
These factors were partially offset by:
| • | earnings
on higher sales; and |
| • | higher
net favourable commercial settlements. |
20 Magna International Inc. Third Quarter Report 2022
SEATING SYSTEMS
| | |
For the nine months
ended
September 30, | | |
| | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Sales | |
$ | 3,924 | | |
$ | 3,592 | | |
$ | 332 | | |
+ | 9 | % |
| Adjusted EBIT | |
$ | 86 | | |
$ | 103 | | |
$ | (17 | ) | |
- | 17 | % |
| Adjusted EBIT as a percentage of sales | |
| 2.2 | % | |
| 2.9 | % | |
| | | |
- | 0.7 | % |
Sales – Seating Systems
Sales increased 9% or $332 million to $3.92 billion
for the nine months ended September 30, 2022 compared to $3.59 billion for the nine months ended September 30, 2021, primarily
due to:
| • | the
launch of programs during or subsequent to the first nine months of 2022, including the: |
| • | higher
global light vehicle production. The increase largely reflects the significant industry production
disruptions during the first nine months of 2021 caused by global semiconductor chip shortages.
These industry production disruptions continued in the first nine months of 2022, but to
a lesser extent than we experienced in the first nine months of 2021; and |
| • | customer
price increases to recover certain higher production input costs. |
These factors were partially offset by:
| • | the
net weakening of foreign currencies against the U.S. dollar, which decreased reported U.S.
dollar sales by $241 million; |
| • | divestitures
subsequent to the first nine months of 2021, which decreased sales by $26 million; |
| • | lower sales as a result of the substantial suspension of operations
at our Russian facilities; and |
| • | net
customer price concessions subsequent to the first nine months of 2021. |
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Seating Systems
Adjusted EBIT decreased $17 million to $86 million
for the nine months ended September 30, 2022 compared to $103 million for the nine months ended September 30, 2021 and Adjusted
EBIT as a percentage of sales decreased to 2.2% from 2.9%. These decreases were primarily due to:
| • | higher
net production input costs, including commodity, labour, freight, and energy costs; |
| • | the
net weakening of foreign currencies against the U.S. dollar, which had a $12 million unfavourable
impact on reported U.S. dollar Adjusted EBIT; |
| • | reduced earnings as a result of the substantial suspension of operations
at our Russian facilities; and |
| • | a
favourable value-added tax settlement in Brazil during the second quarter of 2021. |
Magna International Inc. Third Quarter Report 2022 21
These factors were partially offset by:
| • | earnings
on higher sales; and |
| • | favourable
commercial settlements during the first nine months of 2022. |
COMPLETE VEHICLES
| | |
For the nine months
ended September 30, | | |
| | |
| |
| | |
2022 | | |
2021 | | |
Change | |
| Complete Vehicle Assembly Volumes (thousands of units)(i) | |
| 80.5 | | |
| 92.9 | | |
| (12.4 | ) | |
- | 13 | % |
| Sales | |
$ | 3,891 | | |
$ | 4,595 | | |
$ | (704 | ) | |
- | 15 | % |
| Adjusted EBIT | |
$ | 178 | | |
$ | 189 | | |
$ | (11 | ) | |
- | 6 | % |
| Adjusted EBIT as a percentage of sales | |
| 4.6 | % | |
| 4.1 | % | |
| | | |
+ | 0.5 | % |
| (i) | Vehicles produced at our Complete
Vehicle operations are included in Europe Light Vehicle Production volumes. |
Sales – Complete Vehicles
Sales decreased 15% or $704 million to $3.89
billion for the nine months ended September 30, 2022 compared to $4.60 billion for the nine months ended September 30, 2021
and assembly volumes decreased 13%. The decrease in sales is primarily as a result of a $484 million decrease in reported U.S. dollar
sales as a result of the weakening of the euro against the U.S. dollar and the impact of lower assembly volumes, partially offset by
favourable program mix.
Adjusted EBIT and Adjusted EBIT as a percentage
of sales – Complete Vehicles
Adjusted EBIT decreased $11 million to $178 million
for the nine months ended September 30, 2022 compared to $189 million for the nine months ended September 30, 2021 while Adjusted
EBIT as a percentage of sales increased to 4.6% from 4.1%. The net weakening of the euro against the U.S. dollar had a $19 million unfavourable
impact on reported U.S. dollar Adjusted EBIT. Excluding this factor, Adjusted EBIT and Adjusted EBIT as a percentage of sales were higher
primarily due to:
| • | a
$45 million provision on an engineering services contract with the automotive unit of Evergrande
in our Complete Vehicles segment during the nine months ended September 30, 2021; and |
These factors were partially offset by:
| • | lower
assembly volumes, net of contractual fixed cost recoveries on certain programs; |
| • | higher
net production input costs, including energy and labour costs; and |
| • | lower
margins on engineering programs. |
22 Magna International Inc. Third Quarter Report 2022
CORPORATE AND OTHER
Adjusted EBIT was $35 million for the nine months
ended September 30, 2022 compared to $45 million for the nine months ended September 30, 2021. The $10 million decrease was
primarily the result of:
| • | higher
costs to accelerate our operational excellence initiatives; |
| • | lower
equity income; and |
| • | transactional
foreign exchange losses in the nine months ended September 30, 2022 compared to gains
in the nine months ended September 30, 2021. |
These factors were partially offset by:
| • | amortization
related to public company securities; and |
| • | lower
incentive compensation and employee profit sharing. |
NON-GAAP
PERFORMANCE MEASURES - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022
ADJUSTED EBIT AS A PERCENTAGE OF SALES
The table below shows the change in Magna's Sales
and Adjusted EBIT by segment and the impact each segment's changes have on Magna's Adjusted EBIT as a percentage of sales for the nine
months ended September 30, 2022 compared to the nine months ended September 30, 2021:
| | |
| | |
| | |
Adjusted
EBIT | |
| | |
| | |
Adjusted | | |
as
a percentage | |
| | |
Sales | | |
EBIT | | |
of
sales | |
| Nine
months ended September 30, 2021 | |
$ | 27,132 | | |
$ | 1,556 | | |
|
5.7 | % |
| Increase
related to: | |
| | | |
| | | |
|
| |
| Body
Exteriors & Structures | |
| 1,143 | | |
| (7 | ) | |
- |
0.3 | % |
| Power &
Vision | |
| 307 | | |
| (205 | ) | |
- |
0.8 | % |
| Seating
Systems | |
| 332 | | |
| (17 | ) | |
- |
0.1 | % |
| Complete
Vehicles | |
| (704 | ) | |
| (11 | ) | |
+ |
0.1 | % |
| Corporate
and Other | |
| 62 | | |
| (10 | ) | |
|
— | |
| Nine months
ended September 30, 2022 | |
$ | 28,272 | | |
$ | 1,306 | | |
|
4.6 | % |
Adjusted EBIT as a percentage of sales decreased
to 4.6% for the nine months ended September 30, 2022 compared to 5.7% for the nine months ended September 30, 2021 primarily
due to:
| • | higher
net production input costs, including commodity, energy, labour, and freight costs; |
| • | inefficiencies
and other costs at certain underperforming facilities; |
| • | reduced earnings as a result of the substantial suspension of operations
at our Russian facilities; |
| • | a
favourable value-added tax settlement in Brazil during the first nine months of 2021; and |
| • | higher
electrification spending, including at certain equity-accounted entities. |
These factors were partially offset by:
| • | earnings
on higher sales; |
| • | higher
favourable commercial settlements; |
| • | a
provision on an engineering services contract with the automotive unit of Evergrande in our
Complete Vehicles segment during nine months ended September 30, 2021; |
| • | divestitures,
net of acquisitions subsequent to the nine months ended September 30, 2021; and |
| • | amortization
related to public company securities. |
Magna International Inc. Third Quarter Report 2022 23
RETURN ON INVESTED CAPITAL
Adjusted Return on Invested Capital decreased
to 8.5% for the nine months ended September 30, 2022 compared to 10.3% for the nine months ended September 30, 2021 as a result
of a decrease in Adjusted After-tax operating profits partially offset by lower Average Invested Capital. Other expense, net, after tax
and Adjustments to Deferred Tax Valuation Allowances negatively impacted Return on Invested Capital by 3.6% in the first nine months
of 2022 and by 1.0% in the first nine months of 2021.
Average Invested Capital decreased $91 million
to $15.90 billion for the nine months ended September 30, 2022 compared to $16.00 billion for the nine months ended September 30,
2021, primarily due to:
| • | the
net weakening of foreign currencies against the U.S. dollar; |
| • | the
impairment of our Russian assets recorded during the first nine months of 2022; and |
These factors were partially offset by:
| • | acquisitions,
net of divestitures during and subsequent to the first nine months of 2021; and |
| • | an
increase in average changes in operating assets and liabilities. |
RETURN ON EQUITY
Return on Equity was 5.7% for the nine months
ended September 30, 2022 compared to 11.6% for the nine months ended September 30, 2021. This decrease was due to lower net
income attributable to Magna partially offset by lower average shareholders' equity. Other expense, net, after tax and Adjustments to
Deferred Tax Valuation Allowances negatively impacted Return on Equity by 5.0% in the first nine months of 2022 and negatively impacted
Return on Equity by 1.2% in the first nine months of 2021.
24 Magna International Inc. Third Quarter Report 2022
NON-GAAP FINANCIAL MEASURES RECONCILIATION
The reconciliation of Non-GAAP financial measures is as follows:
ADJUSTED EBIT
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income | |
$ | 296 | | |
$ | 17 | | |
$ | 530 | | |
$ | 1,075 | |
| Add: | |
| | | |
| | | |
| | | |
| | |
| Interest expense, net | |
| 18 | | |
| 22 | | |
| 64 | | |
| 56 | |
| Other expense, net | |
| 23 | | |
| 180 | | |
| 510 | | |
| 128 | |
| Income taxes | |
| 104 | | |
| 10 | | |
| 202 | | |
| 297 | |
| Adjusted EBIT | |
$ | 441 | | |
$ | 229 | | |
$ | 1,306 | | |
$ | 1,556 | |
ADJUSTED EBIT AS A PERCENTAGE OF SALES
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Sales | |
$ | 9,268 | | |
$ | 7,919 | | |
$ | 28,272 | | |
$ | 27,132 | |
| Adjusted EBIT | |
$ | 441 | | |
$ | 229 | | |
$ | 1,306 | | |
$ | 1,556 | |
| Adjusted EBIT as a percentage of sales | |
| 4.8 | % | |
| 2.9 | % | |
| 4.6 | % | |
| 5.7 | % |
ADJUSTED DILUTED EARNINGS PER SHARE
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income attributable to Magna International Inc. | |
$ | 289 | | |
$ | 11 | | |
$ | 497 | | |
$ | 1,050 | |
| Add (deduct): | |
| | | |
| | | |
| | | |
| | |
| Other expense, net | |
| 23 | | |
| 180 | | |
| 510 | | |
| 128 | |
| Tax effect on Other expense, net | |
| (4 | ) | |
| (21 | ) | |
| (44 | ) | |
| (16 | ) |
| Adjustments to Deferred Tax Valuation Allowances | |
| — | | |
| — | | |
| (29 | ) | |
| — | |
| Adjusted net income attributable to Magna International Inc. | |
| 308 | | |
| 170 | | |
| 934 | | |
| 1,162 | |
| Diluted weighted
average number of Common Shares outstanding during the period (millions) | |
| 288.5 | | |
| 302.6 | | |
| 292.6 | | |
| 303.2 | |
| Adjusted diluted earnings per share | |
$ | 1.07 | | |
$ | 0.56 | | |
$ | 3.19 | | |
$ | 3.83 | |
Magna International Inc. Third Quarter Report 2022 25
RETURN ON INVESTED CAPITAL AND ADJUSTED RETURN ON INVESTED CAPITAL
Return on Invested Capital is calculated as After-tax
operating profits divided by Average Invested Capital for the period. Adjusted Return on Invested Capital is calculated as Adjusted After-tax
operating profits divided by Average Invested Capital for the period. Average Invested Capital for the three month period is averaged
on a two-fiscal quarter basis and for the nine month period is averaged on a four-fiscal quarter basis.
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income | |
$ | 296 | | |
$ | 17 | | |
$ | 530 | | |
$ | 1,075 | |
| Add (deduct): | |
| | | |
| | | |
| | | |
| | |
| Interest expense, net | |
| 18 | | |
| 22 | | |
| 64 | | |
| 56 | |
| Income taxes on
interest expense, net at Magna's effective income tax rate: | |
| (5 | ) | |
| (3 | ) | |
| (14 | ) | |
| (10 | ) |
| After-tax operating profits | |
| 309 | | |
| 36 | | |
| 580 | | |
| 1,121 | |
| Other expense, net | |
| 23 | | |
| 180 | | |
| 510 | | |
| 128 | |
| Tax effect on Other expense, net | |
| (4 | ) | |
| (21 | ) | |
| (44 | ) | |
| (16 | ) |
| Adjustments to Deferred Tax Valuation Allowances | |
| — | | |
| — | | |
| (29 | ) | |
| — | |
| Adjusted After-tax operating profits | |
$ | 328 | | |
$ | 195 | | |
$ | 1,017 | | |
$ | 1,233 | |
| | |
As at September 30, | |
| | |
2022 | | |
2021 | |
| Total Assets | |
$ | 26,667 | | |
$ | 28,514 | |
| Excluding: | |
| | | |
| | |
| Cash and cash equivalents | |
| (1,102 | ) | |
| (2,748 | ) |
| Deferred tax assets | |
| (488 | ) | |
| (405 | ) |
| Less Current Liabilities | |
| (9,878 | ) | |
| (9,372 | ) |
| Excluding: | |
| | | |
| | |
| Long-term debt due within one year | |
| 95 | | |
| 101 | |
| Current portion of operating lease liabilities | |
| 266 | | |
| 269 | |
| Invested Capital | |
$ | 15,560 | | |
$ | 16,359 | |
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| After-tax operating profits | |
$ | 309 | | |
$ | 36 | | |
$ | 580 | | |
$ | 1,121 | |
| Average Invested Capital | |
$ | 15,624 | | |
$ | 16,311 | | |
$ | 15,904 | | |
$ | 15,995 | |
| Return on Invested Capital | |
| 7.9 | % | |
| 0.9 | % | |
| 4.9 | % | |
| 9.3 | % |
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Adjusted After-tax operating profits | |
$ | 328 | | |
$ | 195 | | |
$ | 1,017 | | |
$ | 1,233 | |
| Average Invested Capital | |
$ | 15,624 | | |
$ | 16,311 | | |
$ | 15,904 | | |
$ | 15,995 | |
| Adjusted Return on Invested Capital | |
| 8.4 | % | |
| 4.8 | % | |
| 8.5 | % | |
| 10.3 | % |
26 Magna International Inc. Third Quarter Report 2022
RETURN ON EQUITY
Return on Equity is discussed in the "Non-GAAP
Performance Measures" section and is calculated in the table below:
| | |
For the three months | | |
For the nine months | |
| | |
ended September 30, | | |
ended September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income attributable to Magna International Inc. | |
$ | 289 | | |
$ | 11 | | |
$ | 497 | | |
$ | 1,050 | |
| Average Shareholders' Equity | |
$ | 11,095 | | |
$ | 12,305 | | |
$ | 11,614 | | |
$ | 12,095 | |
| Return on Equity | |
| 10.4 | % | |
| 0.4 | % | |
| 5.7 | % | |
| 11.6 | % |
SUBSEQUENT EVENTS
NORMAL COURSE ISSUER BID
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
to purchase up to 28.4 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 its obligations to its deferred profit sharing plans. The normal course issuer bid is expected to commence on or about
November 15, 2022 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 alternative
trading systems in Canada and the U.S., or by such other means permitted by the TSX, including by private agreement or specific share
repurchase program 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 14, "Contingencies" of our
unaudited interim consolidated financial statements for the three and nine months ended September 30, 2022, which describes these
claims.
For a discussion of risk factors relating to
legal and other claims/actions against us, refer to "Item 5. Risk Factors" in our Annual Information Form and Annual Report
on Form 40-F, each in respect of the year ended December 31, 2021.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls
over financial reporting that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Magna International Inc. Third Quarter Report 2022 27
FORWARD-LOOKING STATEMENTS
Certain statements in this MD&A may constitute
"forward-looking information" or "forward-looking statements" (collectively, "forward-looking statements").
Any such forward-looking statements are intended to provide information about management's current expectations and plans and may not
be appropriate for other purposes. Forward-looking statements may include financial and other projections, as well as statements regarding
our future plans, strategic 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",
"aim", "forecast", "outlook", "project", "estimate", "target" and similar
expressions suggesting future outcomes or events to identify forward-looking statements.
The following table identifies the material forward-looking
statements contained in this document, together with the material potential risks that we currently believe could cause actual results
to differ materially from such forward-looking statements. Readers should also consider all of the risk factors which follow below the
table:
| Material Forward-Looking Statement |
Material Potential Risks Related to Applicable Forward-Looking Statement |
| Russian Invasion of Ukraine |
· |
Impact on global economic growth |
| |
· |
Disruption of production in Russia |
| |
· |
Lower industry production volumes and lower Magna sales |
| |
· |
Higher energy, commodity, transportation/logistics and other
input costs |
| |
· |
Potential disruption of energy supply to Western European operations,
particularly natural gas |
| |
· |
Disruption of supply chains, including potential worsening
of semiconductor chip shortage |
| |
· |
Increasing cybersecurity threats |
| |
· |
Expropriation risks |
| Impact of energy shortages/rationing initiatives |
· |
Risks related to production shutdowns due to energy shortages/rationing.
These risks include: |
| |
|
· |
Lower sales |
| |
|
· |
Higher energy costs |
| |
|
· |
Premium freight costs to expedite shipments; and/or other unrecoverable
costs |
| |
· |
Price increases from sub-suppliers that have been negatively
impacted by production inefficiencies, premium freight costs and/or other costs related to production shutdowns resulting from energy
rationing |
| Impact of supply chain disruptions |
· |
Risks related to supply chain disruptions include: |
| |
|
· |
Lower sales |
| |
|
· |
Higher
commodity costs |
| |
|
· |
Production inefficiencies due to production lines being stopped/restarted
unexpectedly |
| |
|
· |
Premium freight costs to expedite shipments; and/or other unrecoverable
costs |
| |
|
· |
Price increases from sub-suppliers that have been negatively
impacted by production inefficiencies, premium freight costs and/or other costs related to the commodity shortages |
| Inflationary price increases |
· |
Commodity cost volatility |
| |
· |
Increase
in our cost structure as a result of inability to offset inflationary price increases through continuous improvement actions, price increases,
adjustments to our own operations or otherwise |
| |
· |
Price increases or surcharges from sub-suppliers in connection
with inflationary pressures they face |
| |
· |
Skilled labour attraction/retention, including as a result
of wage pressures in some markets |
| Rising interest rates |
· |
Impact of higher interest rates and availability of credit
on consumer confidence and in turn vehicle sales and vehicle production |
| Vehicle affordability deterioration |
· |
The impact of a deterioration in vehicle affordability on consumer
demand for vehicles, and in turn vehicle sales and vehicle production |
28 Magna International Inc. Third Quarter Report 2022
Forward-looking statements are based on information
currently available to us, and are based on assumptions and analyses made by us in light of our experience and our perception of historical
trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.
While we believe we have a reasonable basis for making any such forward-looking statements, they are not a guarantee of future performance
or outcomes. Whether actual results and developments conform to 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:
| Risks Related to the Automotive Industry |
| |
| · |
economic cyclicality; |
| · |
regional production volume declines, including as a result
of deteriorating vehicle affordability; |
| · |
intense competition; |
| · |
potential restrictions on free trade; |
| · |
trade disputes/tariffs; |
| |
| Customer and Supplier Related Risks |
| |
| · |
concentration of sales with
six customers; |
| · |
emergence of potentially disruptive Electric Vehicle OEMs,
including risks related to limited revenues/operating history of new OEM entrants; |
| · |
OEM consolidation and cooperation; |
| · |
shifts in market shares among vehicles or vehicle segments; |
| · |
shifts in consumer "take rates" for products we sell; |
| · |
dependence on outsourcing; |
| · |
quarterly sales fluctuations; |
| · |
potential loss of any material purchase orders; |
| · |
a deterioration in the financial condition of our supply base; |
| |
| Manufacturing Operational Risks |
| |
| · |
risks arising from Russia’s invasion of Ukraine and compliance
with the sanctions regime imposed in response; |
| · |
impact of the semiconductor chip shortage on OEM production
volumes and on the efficiency of our operations; |
| · |
risks related to COVID-19; |
| · |
supply disruptions and higher costs to mitigate such disruptions; |
| · |
regional energy shortages and price increases; |
| · |
skilled labour attraction/retention; |
| · |
product and new facility launch risks; |
| · |
operational underperformance; |
| · |
restructuring costs; |
| · |
impairment
charges; |
| · |
labour disruptions; |
| · |
climate change risks; |
| · |
leadership succession; |
| |
| IT Security/Cybersecurity Risks |
| |
| · |
IT/Cybersecurity breach; |
| · |
product cybersecurity breach; |
| Pricing Risks |
| |
| · |
inflationary pressures; |
| · |
pricing risks following time
of quote or award of new business; |
| · |
price concessions; |
| · |
commodity cost volatility; |
| · |
declines in scrap steel/aluminum prices; |
| |
| Warranty / Recall Risks |
| |
| · |
costs related to repair or replace defective products, including
due to a recall; |
| · |
warranty or recall costs that
exceed warranty provisions or insurance coverage limits; |
| · |
product liability claims; |
| |
| Acquisition Risks |
| |
| · |
competition for strategic acquisition targets; |
| · |
inherent merger and acquisition
risks; |
| · |
acquisition integration risk; |
| |
| Other Business Risks |
| |
| · |
risks related to conducting
business through joint ventures; |
| · |
our ability to consistently develop and commercialize innovative
products or processes; |
| · |
intellectual property risks; |
| · |
our changing business risk profile as a result of increased
investment in electrification and autonomous/assisted driving, including: higher R&D and engineering costs, and challenges in quoting
for profitable returns on products for which we may not have significant quoting experience; |
| · |
risks of conducting business in foreign markets; |
| · |
fluctuations in relative currency values; |
| · |
tax risks; |
| · |
reduced
financial flexibility as a result of an economic shock; |
| · |
changes
in credit ratings assigned to us. |
| |
| Legal, Regulatory and Other Risks |
| |
| · |
antitrust risk; |
| · |
legal claims and/or regulatory actions against us; and changes
in laws and regulations, including those related to vehicle emissions or made as a result of the COVID-19 pandemic. |
In evaluating forward-looking statements,
we caution readers not to place undue reliance on any forward-looking statement. Additionally, 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,
including the risks, assumptions and uncertainties above which are:
| · | discussed
under the "Industry Trends and Risks" heading of our Management's Discussion
and Analysis; and |
| · | set
out in our Annual Information Form filed with securities commissions in Canada, our
annual report on Form 40-F filed with the United States Securities and Exchange Commission,
and subsequent filings. |
Readers should also consider discussion of
our risk mitigation activities with respect to certain risk factors, which can also be found in our Annual Information Form.
Magna International Inc. Third Quarter Report 2022 29
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 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Sales | |
15 | | |
$ | 9,268 | | |
$ | 7,919 | | |
$ | 28,272 | | |
$ | 27,132 | |
| Costs
and expenses | |
| | |
| | | |
| | | |
| | | |
| | |
| Cost of
goods sold | |
| | |
| 8,126 | | |
| 6,885 | | |
| 24,785 | | |
| 23,275 | |
| Depreciation
and amortization | |
| | |
| 341 | | |
| 385 | | |
| 1,070 | | |
| 1,123 | |
| Selling,
general and administrative | |
| | |
| 387 | | |
| 454 | | |
| 1,183 | | |
| 1,303 | |
| Interest
expense, net | |
| | |
| 18 | | |
| 22 | | |
| 64 | | |
| 56 | |
| Equity income | |
| | |
| (27 | ) | |
| (34 | ) | |
| (72 | ) | |
| (125 | ) |
| Other
expense, net | |
2 | | |
| 23 | | |
| 180 | | |
| 510 | | |
| 128 | |
| Income from
operations before income taxes | |
| | |
| 400 | | |
| 27 | | |
| 732 | | |
| 1,372 | |
| Income
taxes | |
10 | | |
| 104 | | |
| 10 | | |
| 202 | | |
| 297 | |
| Net
income | |
| | |
| 296 | | |
| 17 | | |
| 530 | | |
| 1,075 | |
| Income
attributable to non-controlling interests | |
| | |
| (7 | ) | |
| (6 | ) | |
| (33 | ) | |
| (25 | ) |
| Net
income attributable to Magna International Inc. | |
| | |
$ | 289 | | |
$ | 11 | | |
$ | 497 | | |
$ | 1,050 | |
| Earnings per Common Share: | |
3 | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| | |
$ | 1.01 | | |
$ | 0.04 | | |
$ | 1.70 | | |
$ | 3.49 | |
| Diluted | |
| | |
$ | 1.00 | | |
$ | 0.04 | | |
$ | 1.70 | | |
$ | 3.46 | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Cash dividends
paid per Common Share | |
| | |
$ | 0.45 | | |
$ | 0.43 | | |
$ | 1.35 | | |
$ | 1.29 | |
| |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average number of
Common Shares outstanding during the period
[in millions]: | |
3 | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| | |
| 287.9 | | |
| 300.7 | | |
| 291.9 | | |
| 300.9 | |
| Diluted | |
| | |
| 288.5 | | |
| 302.6 | | |
| 292.8 | | |
| 303.2 | |
See
accompanying notes
30 Magna International Inc. Third Quarter Report 2022
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
[Unaudited]
[U.S. dollars in millions]
| | |
| | |
Three months ended | | |
Nine months ended | |
| | |
| | |
September 30, | | |
September 30, | |
| | |
Note | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income | |
| | |
$ | 296 | | |
$ | 17 | | |
$ | 530 | | |
$ | 1,075 | |
| Other comprehensive loss, net of tax: | |
12 | | |
| | | |
| | | |
| | | |
| | |
| Net unrealized loss on translation of net
investment in foreign operations | |
| | |
| (474 | ) | |
| (124 | ) | |
| (920 | ) | |
| (127 | ) |
| Net unrealized (loss) gain on cash flow hedges | |
| | |
| (56 | ) | |
| (22 | ) | |
| (51 | ) | |
| 25 | |
| Reclassification of net gain on cash flow
hedges to net income | |
| | |
| (6 | ) | |
| (19 | ) | |
| (25 | ) | |
| (37 | ) |
| Reclassification of net loss on pensions to net income | |
| | |
| 2 | | |
| 3 | | |
| 4 | | |
| 7 | |
| Reserve for cumulative translation losses | |
| | |
| — | | |
| — | | |
| 203 | | |
| — | |
| Pension and post retirement benefits | |
| | |
| — | | |
| 1 | | |
| 1 | | |
| 2 | |
| Other comprehensive loss | |
| | |
| (534 | ) | |
| (161 | ) | |
| (788 | ) | |
| (130 | ) |
| Comprehensive (loss) income | |
| | |
| (238 | ) | |
| (144 | ) | |
| (258 | ) | |
| 945 | |
| Comprehensive loss (income) attributable to non-controlling interests | |
| | |
| 16 | | |
| (7 | ) | |
| 14 | | |
| (28 | ) |
| Comprehensive
(loss) income attributable to Magna International Inc. | |
| | |
$ | (222 | ) | |
$ | (151 | ) | |
$ | (244 | ) | |
$ | 917 | |
See accompanying notes
Magna International Inc. Third Quarter Report 2022 31
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
| | |
| | |
As at | | |
As at | |
| | |
| | |
September 30, | | |
December 31, | |
| | |
Note | | |
2022 | | |
2021 | |
| ASSETS | |
| | |
| | | |
| | |
| Current assets | |
| | |
| | | |
| | |
| Cash and cash equivalents | |
5 | | |
$ | 1,102 | | |
$ | 2,948 | |
| Accounts receivable | |
| | |
| 7,082 | | |
| 6,307 | |
| Inventories | |
6 | | |
| 4,108 | | |
| 3,969 | |
| Prepaid expenses and other | |
| | |
| 269 | | |
| 278 | |
| | |
| | |
| 12,561 | | |
| 13,502 | |
| Investments | |
7 | | |
| 1,323 | | |
| 1,593 | |
| Fixed assets, net | |
| | |
| 7,470 | | |
| 8,293 | |
| Operating lease right-of-use assets | |
| | |
| 1,545 | | |
| 1,700 | |
| Intangible assets, net | |
| | |
| 438 | | |
| 493 | |
| Goodwill | |
| | |
| 1,931 | | |
| 2,122 | |
| Deferred tax assets | |
| | |
| 488 | | |
| 421 | |
| Other assets | |
8 | | |
| 911 | | |
| 962 | |
| | |
| | |
$ | 26,667 | | |
$ | 29,086 | |
| | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
| | | |
| | |
| Current liabilities | |
| | |
| | | |
| | |
| Accounts payable | |
| | |
$ | 6,624 | | |
$ | 6,465 | |
| Other accrued liabilities | |
9 | | |
| 1,986 | | |
| 2,156 | |
| Accrued salaries and wages | |
| | |
| 810 | | |
| 851 | |
| Income taxes payable | |
| | |
| 97 | | |
| 200 | |
| Long-term debt due within one year | |
| | |
| 95 | | |
| 455 | |
| Current portion of operating lease liabilities | |
| | |
| 266 | | |
| 274 | |
| | |
| | |
| 9,878 | | |
| 10,401 | |
| Long-term debt | |
| | |
| 3,325 | | |
| 3,538 | |
| Operating lease liabilities | |
| | |
| 1,254 | | |
| 1,406 | |
| Long-term employee benefit liabilities | |
| | |
| 617 | | |
| 700 | |
| Other long-term liabilities | |
| | |
| 397 | | |
| 376 | |
| Deferred tax liabilities | |
| | |
| 350 | | |
| 440 | |
| | |
| | |
| 15,821 | | |
| 16,861 | |
| Shareholders' equity | |
| | |
| | | |
| | |
| Capital stock | |
| | |
| | | |
| | |
| Common Shares | |
| | |
| | | |
| | |
| [issued: 285,903,854; December 31, 2021 – 300,527,416] | |
11 | | |
| 3,294 | | |
| 3,403 | |
| Contributed surplus | |
| | |
| 103 | | |
| 102 | |
| Retained earnings | |
| | |
| 8,676 | | |
| 9,231 | |
| Accumulated other comprehensive loss | |
12 | | |
| (1,632 | ) | |
| (900 | ) |
| | |
| | |
| 10,441 | | |
| 11,836 | |
| Non-controlling interests | |
| | |
| 405 | | |
| 389 | |
| | |
| | |
| 10,846 | | |
| 12,225 | |
| | |
| | |
$ | 26,667 | | |
$ | 29,086 | |
See accompanying notes
32 Magna International Inc. Third Quarter Report 2022
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 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Cash provided from (used for): | |
| | |
| | | |
| | | |
| | | |
| | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| OPERATING ACTIVITIES | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income | |
| | |
$ | 296 | | |
$ | 17 | | |
$ | 530 | | |
$ | 1,075 | |
| Items not involving current cash flows | |
5 | | |
| 295 | | |
| 515 | | |
| 1,370 | | |
| 1,205 | |
| | |
| | |
| 591 | | |
| 532 | | |
| 1,900 | | |
| 2,280 | |
| Changes in operating assets and liabilities | |
5 | | |
| (353 | ) | |
| (132 | ) | |
| (1,061 | ) | |
| (691 | ) |
| Cash provided from operating activities | |
| | |
| 238 | | |
| 400 | | |
| 839 | | |
| 1,589 | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| INVESTMENT ACTIVITIES | |
| | |
| | | |
| | | |
| | | |
| | |
| Fixed asset additions | |
| | |
| (364 | ) | |
| (334 | ) | |
| (931 | ) | |
| (823 | ) |
| Increase in equity method investments | |
7 | | |
| — | | |
| (454 | ) | |
| — | | |
| (454 | ) |
| Increase in investments, other assets and intangible assets | |
| | |
| (125 | ) | |
| (101 | ) | |
| (269 | ) | |
| (298 | ) |
| Funding provided on sale of business | |
2 | | |
| — | | |
| (41 | ) | |
| 6 | | |
| (41 | ) |
| Increase in public and private equity investments | |
| | |
| (25 | ) | |
| (3 | ) | |
| (29 | ) | |
| (23 | ) |
| Proceeds from disposition | |
| | |
| 41 | | |
| 10 | | |
| 104 | | |
| 49 | |
| Settlement of long-term receivable from non-consolidated JV | |
| | |
| — | | |
| — | | |
| — | | |
| 50 | |
| Business combinations | |
| | |
| — | | |
| — | | |
| — | | |
| 18 | |
| Cash used for investing activities | |
| | |
| (473 | ) | |
| (923 | ) | |
| (1,119 | ) | |
| (1,522 | ) |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| FINANCING ACTIVITIES | |
| | |
| | | |
| | | |
| | | |
| | |
| Issues of debt | |
| | |
| 14 | | |
| 11 | | |
| 45 | | |
| 34 | |
| Increase (decrease) in short-term borrowings | |
| | |
| 2 | | |
| — | | |
| 3 | | |
| (101 | ) |
| Repayments of debt | |
| | |
| (26 | ) | |
| (24 | ) | |
| (417 | ) | |
| (105 | ) |
| Issue of Common Shares on exercise of stock options | |
| | |
| 1 | | |
| 3 | | |
| 5 | | |
| 136 | |
| Tax withholdings on vesting of equity awards | |
| | |
| — | | |
| — | | |
| (15 | ) | |
| (12 | ) |
| Contributions to subsidiaries by non-controlling interests | |
| | |
| — | | |
| — | | |
| 5 | | |
| — | |
| Repurchase of Common Shares | |
11 | | |
| (180 | ) | |
| (5 | ) | |
| (775 | ) | |
| (266 | ) |
| Dividends paid to non-controlling interests | |
| | |
| (10 | ) | |
| (2 | ) | |
| (22 | ) | |
| (10 | ) |
| Dividends paid | |
| | |
| (125 | ) | |
| (130 | ) | |
| (388 | ) | |
| (387 | ) |
| Cash used for financing activities | |
| | |
| (324 | ) | |
| (147 | ) | |
| (1,559 | ) | |
| (711 | ) |
| |
| | |
| | | |
| | | |
| | | |
| | |
| Effect of exchange
rate changes on cash, cash equivalents and restricted cash equivalents | |
| | |
| (3 | ) | |
| (8 | ) | |
| (7 | ) | |
| 18 | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
| Net decrease in cash and cash equivalents during the period | |
| | |
| (562 | ) | |
| (678 | ) | |
| (1,846 | ) | |
| (626 | ) |
| Cash, cash equivalents and restricted
cash equivalents, beginning of period | |
| | |
| 1,664 | | |
| 3,426 | | |
| 2,948 | | |
| 3,374 | |
| Cash and cash equivalents, end of period | |
5 | | |
$ | 1,102 | | |
$ | 2,748 | | |
$ | 1,102 | | |
$ | 2,748 | |
See accompanying notes
Magna International Inc. Third Quarter Report 2022 33
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN EQUITY
[Unaudited]
[U.S. dollars in millions]
| | |
| | |
Nine
months ended September 30, 2022 | |
| | |
| | |
Common
Shares | | |
| | |
| | |
| | |
Non- | | |
| |
| | |
| | |
| | |
Stated | | |
Contributed | | |
Retained | | |
| | |
controlling | | |
Total | |
| | |
Note | | |
Number | | |
Value | | |
Surplus | | |
Earnings | | |
AOCL(i) | | |
Interest | | |
Equity | |
| | |
| | |
[in
millions] | | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance,
December 31, 2021 | |
| | |
| 297.9 | | |
$ | 3,403 | | |
$ | 102 | | |
$ | 9,231 | | |
$ | (900 | ) | |
$ | 389 | | |
$ | 12,225 | |
| Net
income | |
| | |
| | | |
| | | |
| | | |
| 497 | | |
| | | |
| 33 | | |
| 530 | |
| Other
comprehensive loss | |
| | |
| | | |
| | | |
| | | |
| | | |
| (741 | ) | |
| (47 | ) | |
| (788 | ) |
| Shares
issued on exercise of stock options | |
| | |
| 0.1 | | |
| 6 | | |
| (1 | ) | |
| | | |
| | | |
| | | |
| 5 | |
| Release
of stock and stock units | |
| | |
| 0.5 | | |
| 20 | | |
| (20 | ) | |
| | | |
| | | |
| | | |
| | |
| Tax
withholdings on vesting of equity rewards | |
| | |
| (0.2 | ) | |
| (2 | ) | |
| | | |
| (13 | ) | |
| | | |
| | | |
| (15 | ) |
| Repurchase
and cancellation under normal course issuer bid | |
11 | | |
| (12.4 | ) | |
| (140 | ) | |
| | | |
| (644 | ) | |
| 9 | | |
| | | |
| (775 | ) |
| Stock-based
compensation expense | |
| | |
| | | |
| | | |
| 22 | | |
| | | |
| | | |
| | | |
| 22 | |
| Business
Combinations | |
4 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 47 | | |
| 47 | |
| Contribution
by non-controlling interests | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 5 | | |
| 5 | |
| Dividends
paid to non-controlling Interests | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (22 | ) | |
| (22 | ) |
| Dividends
paid | |
| | |
| | | |
| 7 | | |
| | | |
| (395 | ) | |
| | | |
| | | |
| (388 | ) |
| Balance,
September 30, 2022 | |
| | |
| 285.9 | | |
$ | 3,294 | | |
$ | 103 | | |
$ | 8,676 | | |
$ | (1,632 | ) | |
$ | 405 | | |
$ | 10,846 | |
| | |
| | |
Three
months ended September 30, 2022 | |
| | |
| | |
Common
Shares | | |
| | |
| | |
| | |
Non- | | |
| |
| | |
| | |
| | |
Stated | | |
Contributed | | |
Retained | | |
| | |
controlling | | |
Total | |
| | |
Note | | |
Number | | |
Value | | |
Surplus | | |
Earnings | | |
AOCL(i) | | |
Interest | | |
Equity | |
| | |
| | |
[in
millions] | | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance,
June 30, 2022 | |
| | |
| 289.0 | | |
$ | 3,326 | | |
$ | 96 | | |
$ | 8,662 | | |
$ | (1,124 | ) | |
$ | 384 | | |
$ | 11,344 | |
| Net
income | |
| | |
| | | |
| | | |
| | | |
| 289 | | |
| | | |
| 7 | | |
| 296 | |
| Other
comprehensive loss | |
| | |
| | | |
| | | |
| | | |
| | | |
| (511 | ) | |
| (23 | ) | |
| (534 | ) |
| Shares
issued on exercise of stock options | |
| | |
| | | |
| 1 | | |
| | | |
| | | |
| | | |
| | | |
| 1 | |
| Repurchase
and cancellation under normal course issuer bid | |
11 | | |
| (3.1 | ) | |
| (36 | ) | |
| | | |
| (147 | ) | |
| 3 | | |
| | | |
| (180 | ) |
| Stock-based
compensation expense | |
| | |
| | | |
| | | |
| 7 | | |
| | | |
| | | |
| | | |
| 7 | |
| Business
Combinations | |
4 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 47 | | |
| 47 | |
| Dividends
paid to non-controlling interests | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (10 | ) | |
| (10 | ) |
| Dividends
paid | |
| | |
| | | |
| 3 | | |
| | | |
| (128 | ) | |
| | | |
| | | |
| (125 | ) |
| Balance,
September 30, 2022 | |
| | |
| 285.9 | | |
$ | 3,294 | | |
$ | 103 | | |
$ | 8,676 | | |
$ | (1,632 | ) | |
$ | 405 | | |
$ | 10,846 | |
(i) AOCL
is Accumulated Other Comprehensive Loss.
See accompanying notes
34 Magna International Inc. Third Quarter Report 2022
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN EQUITY
[Unaudited]
[U.S. dollars in millions]
| |
|
|
|
|
|
Nine months ended September 30, 2021 |
|
| |
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
| |
|
|
|
|
|
|
|
Stated |
|
|
Contributed |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
Total |
|
| |
|
Note |
|
|
Number |
|
|
Value |
|
|
Surplus |
|
|
Earnings |
|
|
AOCL (i) |
|
|
Interest |
|
|
Equity |
|
| |
|
|
|
|
[in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2020 |
|
|
|
|
|
|
300.5 |
|
|
$ |
3,271 |
|
|
$ |
128 |
|
|
$ |
8,704 |
|
|
$ |
(733 |
) |
|
$ |
350 |
|
|
$ |
11,720 |
|
| Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,050 |
|
|
|
|
|
|
|
25 |
|
|
|
1,075 |
|
| Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133 |
) |
|
|
3 |
|
|
|
(130 |
) |
| Shares issued on exercise of stock options |
|
|
|
|
|
|
2.9 |
|
|
|
164 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136 |
|
| Release of stock and stock units |
|
|
|
|
|
|
0.4 |
|
|
|
17 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tax withholdings on vesting of equity rewards |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
| Repurchase and cancellation under normal course issuer bid |
|
|
|
|
|
|
(3.1 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
(235 |
) |
|
|
1 |
|
|
|
|
|
|
|
(266 |
) |
| Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
| Business combinations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
19 |
|
| Dividends paid to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(10 |
) |
| Dividends paid |
|
|
|
|
|
|
0.1 |
|
|
|
7 |
|
|
|
|
|
|
|
(394 |
) |
|
|
|
|
|
|
|
|
|
|
(387 |
) |
| Balance, September 30, 2021 |
|
|
|
|
|
|
300.8 |
|
|
$ |
3,425 |
|
|
$ |
107 |
|
|
$ |
9,115 |
|
|
$ |
(865 |
) |
|
$ |
387 |
|
|
$ |
12,169 |
|
| |
|
|
|
|
|
Three months ended September 30, 2021 |
|
| |
|
|
|
|
Common Shares |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
| |
|
|
|
|
|
|
|
Stated |
|
|
Contributed |
|
|
Retained |
|
|
|
|
|
controlling |
|
|
Total |
|
| |
|
Note |
|
|
Number |
|
|
Value |
|
|
Surplus |
|
|
Earnings |
|
|
AOCL (i) |
|
|
Interest |
|
|
Equity |
|
| |
|
|
|
|
[in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2021 |
|
|
|
|
|
|
300.7 |
|
|
$ |
3,416 |
|
|
$ |
104 |
|
|
$ |
9,241 |
|
|
$ |
(703 |
) |
|
$ |
382 |
|
|
$ |
12,440 |
|
| Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
6 |
|
|
|
17 |
|
| Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162 |
) |
|
|
1 |
|
|
|
(161 |
) |
| Shares issued on exercise of stock options |
|
|
|
|
|
|
0.1 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
| Release of stock and stock units |
|
|
|
|
|
|
0.1 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Repurchase and cancellation under normal course issuer bid |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
| Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
| Dividends paid to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
| Dividends paid |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
(132 |
) |
|
|
|
|
|
|
|
|
|
|
(130 |
) |
| Balance, September 30, 2021 |
|
|
|
|
|
|
300.8 |
|
|
$ |
3,425 |
|
|
$ |
107 |
|
|
$ |
9,115 |
|
|
$ |
(865 |
) |
|
$ |
387 |
|
|
$ |
12,169 |
|
| (i) | AOCL is Accumulated Other Comprehensive Loss. |
See accompanying notes
Magna International Inc. Third Quarter Report 2022 35
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, 2021 audited
consolidated financial statements and notes thereto included in the Company's 2021 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 as at September 30, 2022 and the results of operations, changes in equity, and cash flows for the three and nine-month periods
ended September 30, 2022 and 2021.
The preparation of the unaudited interim
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported and disclosed in the interim consolidated financial statements and accompanying notes. Due to the inherent uncertainty involved
in making estimates, actual results could ultimately differ from those estimates.
36 Magna International Inc. Third Quarter Report 2022
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]
| | |
Three months ended
September 30, | | |
Nine months ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Restructuring and impairments | |
| [a] | | |
$ | 14 | | |
| 24 | | |
$ | 390 | | |
| 83 | |
| Losses (gains) on investments | |
| [b] | | |
| 9 | | |
| 81 | | |
| 120 | | |
| 10 | |
| Loss on sale of business | |
| [c] | | |
| — | | |
| 75 | | |
| — | | |
| 75 | |
| Gain on business combinations | |
| [d] | | |
| — | | |
| — | | |
| — | | |
| (40 | ) |
| | |
| | | |
$ | 23 | | |
$ | 180 | | |
$ | 510 | | |
$ | 128 | |
| | [a] |
Restructuring
and impairments |
During the third quarter of 2022, the GAC-Group and Stellantis decided to terminate their GAC-Stellantis joint venture in China. As a
result, the Company recorded a provision against its associated assets of $10 million [$9 million after tax] in its Body Exteriors &
Structures segment and $4 million [$3 million after tax] in its Power & Vision segment, respectively.
As at September 30, 2022, the Company’s
operations in Russia remain substantially idled and production is not expected to resume before 2024. In accordance with U.S. GAAP,
as a result of the expected lack of future cashflows and the continuing uncertainties connected with the Russian economy, the Company
recorded a $376 million [$361 million after tax] impairment charge related to its investment in Russia during the second quarter of 2022.
This included net asset impairments of $173 million and a $203 million reserve against the related foreign currency translation losses
that are included in accumulated other comprehensive loss. The net asset impairments consisted of $163 million and $10 million in our
Body Exteriors & Structures segment and our Seating segment, respectively.
For the three and nine months ended
September 30, 2021, the Company recorded restructuring and impairment charges of $16 million [$14 million after tax] in its Body
Exteriors & Structures segment, and $4 million [$3 million after tax] in its Seating Systems segment. Restructuring charges
for the three and nine months ended September 30, 2021 of $4 million [$3 million after tax] and $63 million [$49 million after
tax], respectively were also recorded in its Power & Vision segment.
| | [b] |
Losses
(gains) on investments |
| | |
Three months ended
September 30, | | |
Nine months ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revaluation of public company warrants | |
$ | 7 | | |
$ | 54 | | |
$ | 96 | | |
$ | — | |
| Revaluation of public and private equity investments | |
| 2 | | |
| 27 | | |
| 27 | | |
| 10 | |
| Gain on sale of public equity investments | |
| — | | |
| — | | |
| (3 | ) | |
| — | |
| Other expense, net | |
| 9 | | |
| 81 | | |
| 120 | | |
| 10 | |
| Tax effect | |
| (2 | ) | |
| (17 | ) | |
| (27 | ) | |
| (3 | ) |
| Net loss attributable to Magna | |
$ | 7 | | |
$ | 64 | | |
$ | 93 | | |
$ | 7 | |
| | [c] |
Loss
on sale of business |
During the third quarter of 2021, the
Company sold three Body Exteriors & Structures operations in Germany. Under the terms of the arrangement, the Company provided
the buyer with $41 million of funding, resulting in a loss on disposal of $75 million [$75 million after tax].
| | [d] |
Gain on
business combinations |
During the first quarter of 2021, the
Company acquired a 65% equity interest and a controlling financial interest in Chongqing Hongli Zhixin Scientific Technology Development
Group LLC. The acquisition included an additional 15% equity interest in two entities for which the Company previously used equity accounting.
On the change in basis of accounting, the Company recognized a $22 million gain [$22 million after tax].
The Company also recorded a gain of
$18 million [$18 million after tax] in connection with the distribution of substantially all of the assets of the Company's European joint
venture, Getrag Ford Transmission GmbH.
Magna International Inc. Third Quarter Report 2022 37
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]
| | |
Three months ended
September
30, | | |
Nine months ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Basic earnings per Common Share: | |
| | | |
| | | |
| | | |
| | |
| Net income attributable to Magna International Inc. | |
$ | 289 | | |
$ | 11 | | |
$ | 497 | | |
$ | 1,050 | |
| Weighted
average number of Common Shares outstanding | |
| 287.9 | | |
| 300.7 | | |
| 291.9 | | |
| 300.9 | |
| Basic
earnings per Common Share | |
$ | 1.01 | | |
$ | 0.04 | | |
$ | 1.70 | | |
$ | 3.49 | |
| Diluted earnings per Common Share [a]: | |
| | | |
| | | |
| | | |
| | |
| Net income attributable to Magna International Inc. | |
$ | 289 | | |
$ | 11 | | |
$ | 497 | | |
$ | 1,050 | |
| Weighted
average number of Common Shares outstanding | |
| 287.9 | | |
| 300.7 | | |
| 291.9 | | |
| 300.9 | |
| Adjustments Stock options and restricted stock | |
| 0.6 | | |
| 1.9 | | |
| 0.9 | | |
| 2.3 | |
| | |
| 288.5 | | |
| 302.6 | | |
| 292.8 | | |
| 303.2 | |
| Diluted
earnings per Common Share | |
$ | 1.00 | | |
$ | 0.04 | | |
$ | 1.70 | | |
$ | 3.46 | |
| [a] | For the three and nine months ended September 30, 2022, diluted earnings
per Common Share excluded 1.4 million and 1.3 million [2021 – 0.6 million and 0.3 million] Common Shares, respectively, issuable
under the Company's Incentive Stock Option Plan because these options were not "in-the-money". The dilutive effect of participating
securities using the two-class method was excluded from the calculation of earnings per share because the effect would be immaterial. |
On September 11, 2022, Magna invested
$25 million in Yulu Mobility, an electrified mobility provider in India and together with Yulu Mobility, established a new battery swapping
entity ("Yulu Energy") to support electrification of mobility and required infrastructure. Under the terms of the arrangement,
Yulu Mobility contributed certain assets and intellectual property for a 49% interest in Yulu Energy and Magna contributed cash of $52
million for a 51% controlling interest in Yulu Energy.
The investment in Yulu Mobility has
been recorded in investments on the consolidated balance sheets and the investment in Yulu Energy was accounted for as a business combination.
The following table summarizes the net effect of the business combination on the Company’s consolidated balance sheet as at September 30,
2022:
| Fixed assets, net | |
$ | 2 | |
| Goodwill | |
| 20 | |
| Intangible assets, net | |
| 33 | |
| Deferred tax liabilities | |
| (8 | ) |
| | |
| 47 | |
| Non-controlling interests | |
| (47 | ) |
| | |
$ | — | |
38 Magna International Inc. Third Quarter Report 2022
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]
| 5. | DETAILS OF CASH FROM OPERATING ACTIVITIES |
| [a] | Cash, and cash equivalents: |
| | |
September 30,
2022 | | |
December 31,
2021 | |
| Bank term deposits and bankers' acceptances | |
$ | 488 | | |
$ | 1,984 | |
| Cash | |
| 614 | | |
| 964 | |
| | |
$ | 1,102 | | |
$ | 2,948 | |
| [b] | Items not involving current cash flows: |
| | |
Three months ended
September 30, | | |
Nine months ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Depreciation and amortization | |
$ | 341 | | |
$ | 385 | | |
$ | 1,070 | | |
$ | 1,123 | |
| Amortization of other assets included in cost of goods sold | |
| 49 | | |
| 67 | | |
| 127 | | |
| 202 | |
| Deferred revenue amortization | |
| (54 | ) | |
| (29 | ) | |
| (163 | ) | |
| (149 | ) |
| Dividends received in excess of equity income | |
| (26 | ) | |
| 7 | | |
| (16 | ) | |
| 9 | |
| Future tax recovery | |
| (22 | ) | |
| (68 | ) | |
| (141 | ) | |
| (42 | ) |
| Other non-cash (recoveries) charges | |
| (2 | ) | |
| (3 | ) | |
| 12 | | |
| 18 | |
| Non-cash portion of Other expense, net [note 2] | |
| 9 | | |
| 156 | | |
| 120 | | |
| 44 | |
| Impairment Charges | |
| — | | |
| — | | |
| 361 | | |
| — | |
| | |
$ | 295 | | |
$ | 515 | | |
$ | 1,370 | | |
$ | 1,205 | |
| [c] | Changes in operating assets and liabilities: |
| | |
Three months ended
September 30, | | |
Nine months ended
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Accounts receivable | |
$ | (601 | ) | |
$ | 327 | | |
$ | (1,339 | ) | |
$ | 384 | |
| Inventories | |
| (208 | ) | |
| (247 | ) | |
| (527 | ) | |
| (808 | ) |
| Prepaid expenses and other | |
| (7 | ) | |
| 7 | | |
| 6 | | |
| - | |
| Accounts payable | |
| 427 | | |
| (224 | ) | |
| 680 | | |
| (424 | ) |
| Accrued salaries and wages | |
| 78 | | |
| 11 | | |
| 33 | | |
| 98 | |
| Other accrued liabilities | |
| (5 | ) | |
| (17 | ) | |
| 180 | | |
| 7 | |
| Income taxes payable | |
| (37 | ) | |
| 11 | | |
| (94 | ) | |
| 52 | |
| | |
$ | (353 | ) | |
$ | (132 | ) | |
$ | (1,061 | ) | |
$ | (691 | ) |
Inventories consist of:
| |
|
September 30, | |
December 31, | |
| |
|
2022 | |
2021 | |
| Raw materials and supplies | |
$ | 1,695 | | |
$ | 1,598 | |
| Work-in-process | |
| 439 | | |
| 400 | |
| Finished goods | |
| 511 | | |
| 506 | |
| Tooling and engineering | |
| 1,463 | | |
| 1,465 | |
| | |
$ | 4,108 | | |
$ | 3,969 | |
Tooling and engineering inventory represents
costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.
Magna International Inc. Third Quarter Report 2022 39
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]
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Equity method investments | |
$ | 915 | | |
$ | 1,031 | |
| Public and private equity investments | |
| 310 | | |
| 358 | |
| Warrants | |
| 98 | | |
| 204 | |
| | |
$ | 1,323 | | |
$ | 1,593 | |
Cumulative
unrealized gains and losses on equity securities held as at September 30, 2022 were $76 million and $127 million [$84 million and
$21 million as at December 31, 2021], respectively.
Other
assets consist of:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Preproduction
costs related to long-term supply agreements | |
$ | 610 | | |
$ | 668 | |
| Long-term
receivables | |
| 197 | | |
| 184 | |
| Pension overfunded
status | |
| 41 | | |
| 41 | |
| Unrealized
gain on cash flow hedges | |
| 22 | | |
| 11 | |
| Other,
net | |
| 41 | | |
| 58 | |
| | |
$ | 911 | | |
$ | 962 | |
The
following is a continuity of the Company's warranty accruals, included in Other accrued liabilities:
| | |
2022 | | |
2021 | |
| Balance, beginning of period | |
$ | 247 | | |
$ | 284 | |
| Expense, net | |
| 17 | | |
| 27 | |
| Settlements | |
| (4 | ) | |
| (28 | ) |
| Business Combinations | |
| — | | |
| 2 | |
| Foreign exchange and other | |
| (5 | ) | |
| (6 | ) |
| Balance, March 31 | |
| 255 | | |
| 279 | |
| Expense, net | |
| 7 | | |
| 26 | |
| Settlements | |
| (14 | ) | |
| (12 | ) |
| Foreign exchange and other | |
| (9 | ) | |
| 2 | |
| Balance, June 30 | |
| 239 | | |
| 295 | |
| Expense, net | |
| 30 | | |
| 16 | |
| Settlements | |
| (34 | ) | |
| (26 | ) |
| Foreign exchange and other | |
| (8 | ) | |
| (4 | ) |
| Balance, September 30 | |
$ | 227 | | |
$ | 281 | |
40 Magna International Inc. Third Quarter Report 2022
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]
For
the three and nine months ended September 30, 2022, the Company’s effective income tax rate does not reflect the customary
rate due to losses in Europe that could not be recognized. The nine-month rate is also adversely affected by the impairment charges described
in note 2 (negatively affected the income tax rate by 8%) which is partially offset by a partial release of valuation allowances against
deferred tax assets resulting from a tax reorganization.
| [a] | The Company
repurchased shares under normal course issuer bids as follows: |
| | |
2022 | | |
2021 | |
| | |
Number of
shares | | |
Cash
consideration | | |
Number of
shares | | |
Cash
consideration | |
| First Quarter | |
| 5,834,073 | | |
$ | 383 | | |
| 1,831,827 | | |
$ | 162 | |
| Second Quarter | |
| 3,521,906 | | |
| 212 | | |
| 1,009,037 | | |
| 99 | |
| Third Quarter | |
| 3,114,100 | | |
| 180 | | |
| 62,659 | | |
| 5 | |
| | |
| 12,470,079 | | |
$ | 775 | | |
| 2,903,523 | | |
$ | 266 | |
| [b] | The following
table presents the maximum number of shares that would be outstanding if all the dilutive
instruments outstanding at November 3, 2022 were exercised or converted: |
| Common Shares | |
| 285,819,254 |
| Stock
options (i) | |
| 6,015,877 |
| | |
| 291,835,131 |
| (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. |
Magna International Inc. Third Quarter Report 2022 41
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]
| 12. | ACCUMULATED OTHER COMPREHENSIVE
LOSS |
The
following is a continuity schedule of accumulated other comprehensive loss:
| | |
2022 | | |
2021 | |
| Accumulated net unrealized loss on translation of net investment in foreign operations | |
| | | |
| | |
| Balance, beginning of period | |
$ | (735 | ) | |
$ | (551 | ) |
| Net unrealized loss | |
| (96 | ) | |
| (105 | ) |
| Repurchase of shares under normal course issuer bid | |
| 3 | | |
| 1 | |
| Balance, March 31 | |
| (828 | ) | |
| (655 | ) |
| Repurchase of shares under normal course issuer bid | |
| 3 | | |
| — | |
| Reserve for cumulative translation losses | |
| 203 | | |
| — | |
| Net unrealized (loss) gain | |
| (326 | ) | |
| 100 | |
| Balance, June 30 | |
| (948 | ) | |
| (555 | ) |
| Net unrealized loss | |
| (451 | ) | |
| (125 | ) |
| Repurchase of shares under normal course issuer bid | |
| 3 | | |
| — | |
| Balance, September 30 | |
| (1,396 | ) | |
| (680 | ) |
| Accumulated
net unrealized gain (loss) on cash flow hedges (i) | |
| | | |
| | |
| Balance, beginning of period | |
| 24 | | |
| 42 | |
| Net unrealized gain | |
| 55 | | |
| 13 | |
| Reclassification of net gain to net income | |
| (6 | ) | |
| (8 | ) |
| Balance, March 31 | |
| 73 | | |
| 47 | |
| Net unrealized (loss) gain | |
| (50 | ) | |
| 34 | |
| Reclassification of net gain to net income | |
| (13 | ) | |
| (10 | ) |
| Balance, June 30 | |
| 10 | | |
| 71 | |
| Net unrealized loss | |
| (56 | ) | |
| (22 | ) |
| Reclassification of net gain to net income | |
| (6 | ) | |
| (19 | ) |
| Balance, September 30 | |
| (52 | ) | |
| 30 | |
| Accumulated net unrealized loss on pensions | |
| | | |
| | |
| Balance, beginning of period | |
| (189 | ) | |
| (224 | ) |
| Revaluation | |
| 1 | | |
| — | |
| Reclassification of net loss to net income | |
| 1 | | |
| 3 | |
| Balance, March 31 | |
| (187 | ) | |
| (221 | ) |
| Revaluation | |
| — | | |
| 1 | |
| Reclassification of net loss to net income | |
| 1 | | |
| 1 | |
| Balance, June 30 | |
| (186 | ) | |
| (219 | ) |
| Revaluation | |
| — | | |
| 1 | |
| Reclassification of net loss to net income | |
| 2 | | |
| 3 | |
| Balance, September 30 | |
| (184 | ) | |
| (215 | ) |
| Total accumulated other comprehensive loss | |
$ | (1,632 | ) | |
$ | (865 | ) |
| (i) | The
amount of income tax expense that has been netted in the accumulated net unrealized gain
on cash flow hedges is as follows: |
| | |
2022 | | |
2021 | |
| Balance, beginning of period | |
$ | (8 | ) | |
$ | (15 | ) |
| Net unrealized gain | |
| (18 | ) | |
| (4 | ) |
| Reclassifications
of net gain to net income | |
| 2 | | |
| 3 | |
| Balance, March 31 | |
| (24 | ) | |
| (16 | ) |
| Net unrealized loss (gain) | |
| 17 | | |
| (12 | ) |
| Reclassifications
of net gain to net income | |
| 4 | | |
| 4 | |
| Balance, June 30 | |
| (3 | ) | |
| (24 | ) |
| Net unrealized loss | |
| 20 | | |
| 8 | |
| Reclassifications of net gain to net income | |
| 2 | | |
| 6 | |
| Balance, September 30 | |
$ | 19 | | |
$ | (10 | ) |
The
amount of other comprehensive loss that is expected to be reclassified to net income over the next 12 months is $23 million.
42 Magna International Inc. Third Quarter Report 2022
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]
| [a] | Financial
assets and liabilities |
The Company's
financial assets and financial liabilities consist of the following:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Financial
assets | |
| | | |
| | |
| Cash
and cash equivalents | |
$ | 1,102 | | |
$ | 2,948 | |
| Accounts
receivable | |
| 7,082 | | |
| 6,307 | |
| Warrants
and public and private equity investments | |
| 408 | | |
| 562 | |
| Long-term
receivables included in other assets | |
| 197 | | |
| 184 | |
| | |
$ | 8,789 | | |
$ | 10,001 | |
| Financial
liabilities | |
| | | |
| | |
| Long-term
debt (including portion due within one year) | |
$ | 3,420 | | |
$ | 3,993 | |
| Accounts
payable | |
| 6,624 | | |
| 6,465 | |
| | |
$ | 10,044 | | |
$ | 10,458 | |
| Derivatives
designated as effective hedges, measured at fair value | |
| | | |
| | |
| Foreign
currency contracts | |
| | | |
| | |
| Prepaid
expenses | |
$ | 58 | | |
$ | 34 | |
| Other assets | |
| 22 | | |
| 11 | |
| Other accrued
liabilities | |
| (80 | ) | |
| (12 | ) |
| Other
long-term liabilities | |
| (60 | ) | |
| (8 | ) |
| | |
$ | (60 | ) | |
$ | 25 | |
| [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, 2022 | |
| | | |
| | | |
| | |
| Assets | |
$ | 80 | | |
$ | 61 | | |
$ | 19 | |
| Liabilities | |
$ | (140 | ) | |
$ | (61 | ) | |
$ | (79 | ) |
| December 31, 2021 | |
| | | |
| | | |
| | |
| Assets | |
$ | 45 | | |
$ | 14 | | |
$ | 31 | |
| Liabilities | |
$ | (20 | ) | |
$ | (14 | ) | |
$ | (6 | ) |
Magna International Inc. Third Quarter Report 2022 43
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]
| 13. | Financial
instruments (CONTINUED) |
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 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.
Publicly
traded and private equity securities
The fair
value of the Company’s investments in publicly traded equity securities is determined using the closing price on the measurement
date, as reported on the stock exchange on which the securities are traded. [Level 1 input based on the GAAP fair value hierarchy.]
The Company
estimates the value of its private equity securities based on valuation methods using the observable transaction price at the transaction
date and other observable inputs including rights and obligations of the securities held by the Company. [Level 3 input based on the
GAAP fair value hierarchy.]
Warrants
The Company
estimates the value of its warrants based on the quoted prices in the active market for Fisker's common shares. [Level 2 inputs based
on the GAAP fair value hierarchy.]
Term
debt
The Company's
term debt includes $95 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, 2022, the net book value
of the Company's Senior Notes was $3.3 billion and the estimated fair value was $3.1 billion.
The Company's
financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, and foreign exchange
forward contracts with positive fair values.
Cash
and cash equivalents which consists of short-term investments, are only invested in bank term deposits and bank commercial paper with
primarily an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in certain major
financial institutions.
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.
44 Magna International Inc. Third Quarter Report 2022
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]
| 13. | Financial
instruments (CONTINUED) |
| [d] | Credit
risk (continued) |
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,
2022, sales to the Company's six largest customers represented 79% of the Company's sales, and substantially all of the Company's sales
are to customers with which it has ongoing contractual relationships. In determining the allowance for expected credit losses, the Company
considers changes in customer's credit ratings, liquidity, customer’s historical payments and loss experience, current economic
conditions, and the Company's expectations of future economic conditions.
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 cash and cash equivalents is impacted more by investment decisions made and the
demands to have available cash on hand, than by movements in 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, and/or
the purchase of materials and equipment 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,
2022, the Company had outstanding foreign exchange forward contracts representing commitments to buy and sell various foreign currencies.
Significant commitments are as follows:
| | | |
For Canadian dollars | | |
For U.S. dollars | | |
For Euros | |
| | | |
| | |
Weighted | | |
| | |
Weighted | | |
| | |
Weighted | | |
Czech | | |
Weighted | |
| | | |
U.S. dollar | | |
average | | |
Peso | | |
average | | |
U.S. dollar | | |
average | | |
Koruna | | |
average | |
| | | |
amount | | |
rate | | |
amount | | |
rate | | |
amount | | |
rate | | |
Amount | | |
rate | |
| Buy | | |
| 134 | | |
| 0.77388 | | |
| 13,919 | | |
| 0.04409 | | |
| 148 | | |
| 0.87736 | | |
| 6,742 | | |
| 0.03753 | |
| (Sell) | | |
| (1,706 | ) | |
| 1.28373 | | |
| (27 | ) | |
| 0.00191 | | |
| (222 | ) | |
| 1.14012 | | |
| — | | |
| — | |
Forward
contracts mature at various dates through 2025. Foreign currency exposures are reviewed quarterly.
Public
equity securities and warrants
The Company's
public equity securities and warrants are subject to market price risk due to the risk of loss in value that would result from a decline
in the market price of the common shares or underlying common shares.
Magna International Inc. Third Quarter Report 2022 45
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]
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.
The
Company's policy is to comply with all applicable laws, including antitrust and competition laws. Based on a previously completed global
review of legacy antitrust risks which led to a September 2020 settlement with the European Commission and a June 2022 settlement
with Brazil’s federal competition authority involving in both cases the supply of closure systems, Magna does not currently anticipate
any material liabilities. However, we could be subject to restitution settlements, civil proceedings, reputational damage and other consequences,
including as a result of the matters specifically referred to above.
Magna
is a global automotive supplier which has complete vehicle engineering and contract manufacturing expertise, as well as product capabilities
which include body, chassis, exterior, seating, powertrain, active driver assistance, electronics, mirrors & lighting, mechatronics,
and roof systems. Magna also has electronic and software capabilities across many of these areas.
The
Company is organized under four operating segments: Body Exteriors & Structures, Power & Vision, Seating Systems, and
Complete Vehicles. These segments have been determined on the basis of technological opportunities, product similarities, and market
and operating factors, and are also the Company's reportable segments.
The
Company's chief operating decision maker uses Adjusted Earnings before Interest and Income Taxes ["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 is calculated by taking Net income (loss) and adding back Income taxes, Interest expense,
net, and Other expense, net.
46 Magna International Inc. Third Quarter Report 2022
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]
| 15. | Segmented
Information (CONTINUED) |
| [a] | The
following tables show segment information for the Company's reporting segments and a reconciliation
of Adjusted EBIT to the Company's consolidated net income (loss): |
| | |
Three months ended September 30, 2022 | |
| | |
| | |
| | |
| | |
Depreciation | | |
Equity | | |
Fixed | |
| | |
Total | | |
External | | |
Adjusted | | |
and | | |
loss | | |
asset | |
| | |
sales | | |
sales | | |
EBIT [ii] | | |
amortization | | |
(income) | | |
additions | |
| Body Exteriors & Structures | |
$ | 3,976 | | |
$ | 3,918 | | |
$ | 225 | | |
$ | 171 | | |
$ | 5 | | |
$ | 184 | |
| Power & Vision | |
| 2,911 | | |
| 2,852 | | |
| 117 | | |
| 122 | | |
| (31 | ) | |
| 140 | |
| Seating Systems | |
| 1,295 | | |
| 1,292 | | |
| 35 | | |
| 20 | | |
| (5 | ) | |
| 24 | |
| Complete Vehicles | |
| 1,213 | | |
| 1,203 | | |
| 65 | | |
| 25 | | |
| (1 | ) | |
| 16 | |
| Corporate & Other [i] | |
| (127 | ) | |
| 3 | | |
| (1 | ) | |
| 3 | | |
| 5 | | |
| — | |
| Total Reportable Segments | |
$ | 9,268 | | |
$ | 9,268 | | |
$ | 441 | | |
$ | 341 | | |
$ | (27 | ) | |
$ | 364 | |
| | |
Three months ended September 30, 2021 | |
| | |
| | |
| | |
| | |
Depreciation | | |
Equity | | |
Fixed | |
| | |
Total | | |
External | | |
Adjusted | | |
and | | |
loss | | |
asset | |
| | |
sales | | |
sales | | |
EBIT [ii] | | |
amortization | | |
income | | |
additions | |
| Body Exteriors & Structures | |
$ | 3,185 | | |
$ | 3,111 | | |
$ | 98 | | |
$ | 189 | | |
$ | 3 | | |
$ | 168 | |
| Power & Vision | |
| 2,501 | | |
| 2,449 | | |
| 67 | | |
| 141 | | |
| (31 | ) | |
| 136 | |
| Seating Systems | |
| 1,123 | | |
| 1,113 | | |
| 22 | | |
| 23 | | |
| (3 | ) | |
| 17 | |
| Complete Vehicles | |
| 1,255 | | |
| 1,243 | | |
| 30 | | |
| 26 | | |
| (1 | ) | |
| 8 | |
| Corporate & Other [i] | |
| (145 | ) | |
| 3 | | |
| 12 | | |
| 6 | | |
| (2 | ) | |
| 5 | |
| Total Reportable Segments | |
$ | 7,919 | | |
$ | 7,919 | | |
$ | 229 | | |
$ | 385 | | |
$ | (34 | ) | |
$ | 334 | |
| | |
Nine months ended September 30, 2022 | |
| | |
| | |
| | |
| | |
Depreciation | | |
Equity | | |
Fixed | |
| | |
Total | | |
External | | |
Adjusted | | |
and | | |
loss | | |
asset | |
| | |
sales | | |
sales | | |
EBIT [ii] | | |
amortization | | |
(income) | | |
additions | |
| Body Exteriors & Structures | |
$ | 12,000 | | |
$ | 11,818 | | |
$ | 645 | | |
$ | 535 | | |
$ | 10 | | |
$ | 487 | |
| Power & Vision | |
| 8,845 | | |
| 8,675 | | |
| 362 | | |
| 380 | | |
| (72 | ) | |
| 341 | |
| Seating Systems | |
| 3,924 | | |
| 3,908 | | |
| 86 | | |
| 64 | | |
| (9 | ) | |
| 59 | |
| Complete Vehicles | |
| 3,891 | | |
| 3,862 | | |
| 178 | | |
| 79 | | |
| (3 | ) | |
| 41 | |
| Corporate & Other [i] | |
| (388 | ) | |
| 9 | | |
| 35 | | |
| 12 | | |
| 2 | | |
| 3 | |
| Total Reportable Segments | |
$ | 28,272 | | |
$ | 28,272 | | |
$ | 1,306 | | |
$ | 1,070 | | |
$ | (72 | ) | |
$ | 931 | |
| | |
Nine months ended September 30, 2021 | |
| | |
| | |
| | |
| | |
Depreciation | | |
Equity | | |
Fixed | |
| | |
Total | | |
External | | |
Adjusted | | |
and | | |
loss | | |
asset | |
| | |
sales | | |
sales | | |
EBIT [ii] | | |
amortization | | |
(income) | | |
additions | |
| Body Exteriors & Structures | |
$ | 10,857 | | |
$ | 10,638 | | |
$ | 652 | | |
$ | 554 | | |
$ | 8 | | |
$ | 400 | |
| Power & Vision | |
| 8,538 | | |
| 8,372 | | |
| 567 | | |
| 409 | | |
| (116 | ) | |
| 341 | |
| Seating Systems | |
| 3,592 | | |
| 3,557 | | |
| 103 | | |
| 69 | | |
| (7 | ) | |
| 39 | |
| Complete Vehicles | |
| 4,595 | | |
| 4,557 | | |
| 189 | | |
| 76 | | |
| (3 | ) | |
| 34 | |
| Corporate & Other [i] | |
| (450 | ) | |
| 8 | | |
| 45 | | |
| 15 | | |
| (7 | ) | |
| 9 | |
| Total Reportable Segments | |
$ | 27,132 | | |
$ | 27,132 | | |
$ | 1,556 | | |
$ | 1,123 | | |
$ | (125 | ) | |
$ | 823 | |
| [i] | Included
in Corporate and Other Adjusted EBIT are intercompany fees charged to the automotive segments. |
Magna International Inc. Third Quarter Report 2022 47
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]
| 15. | Segmented
Information (CONTINUED) |
| [ii] | The
following table reconciles Net income to Adjusted EBIT: |
| | |
Three months ended | | |
Nine months ended | |
| | |
September 30, | | |
September 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Net income | |
$ | 296 | | |
$ | 17 | | |
$ | 530 | | |
$ | 1,075 | |
| Add: | |
| | | |
| | | |
| | | |
| | |
| Interest expense, net | |
| 18 | | |
| 22 | | |
| 64 | | |
| 56 | |
| Other expense, net | |
| 23 | | |
| 180 | | |
| 510 | | |
| 128 | |
| Income taxes | |
| 104 | | |
| 10 | | |
| 202 | | |
| 297 | |
| Adjusted EBIT | |
$ | 441 | | |
$ | 229 | | |
$ | 1,306 | | |
$ | 1,556 | |
| [b] | The
following table shows Goodwill for the Company's reporting segments: |
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Body Exteriors & Structures | |
$ | 431 | | |
$ | 471 | |
| Power & Vision | |
| 1,128 | | |
| 1,269 | |
| Seating Systems | |
| 256 | | |
| 270 | |
| Complete Vehicles | |
| 96 | | |
| 112 | |
| Corporate and Other | |
| 20 | | |
| — | |
| Total Reportable Segments | |
$ | 1,931 | | |
$ | 2,122 | |
| [c] | The
following table shows Net Assets for the Company's reporting segments: |
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Body Exteriors & Structures | |
$ | 7,019 | | |
$ | 7,349 | |
| Power & Vision | |
| 5,920 | | |
| 6,066 | |
| Seating Systems | |
| 1,391 | | |
| 1,379 | |
| Complete Vehicles | |
| 620 | | |
| 623 | |
| Corporate & Other | |
| 693 | | |
| 813 | |
| Total Reportable Segments | |
$ | 15,643 | | |
$ | 16,230 | |
The following table reconciles Total Assets to Net Assets:
| | |
September 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Total Assets | |
$ | 26,667 | | |
$ | 29,086 | |
| Deduct assets not included in segment net assets: | |
| | | |
| | |
| Cash and cash equivalents | |
| (1,102 | ) | |
| (2,948 | ) |
| Deferred tax assets | |
| (488 | ) | |
| (421 | ) |
| Long-term receivables from joint venture partners | |
| (14 | ) | |
| (15 | ) |
| Deduct liabilities included in segment net assets: | |
| | | |
| | |
| Accounts payable | |
| (6,624 | ) | |
| (6,465 | ) |
| Accrued salaries and wages | |
| (810 | ) | |
| (851 | ) |
| Other accrued liabilities | |
| (1,986 | ) | |
| (2,156 | ) |
| Segment Net Assets | |
$ | 15,643 | | |
$ | 16,230 | |
48 Magna
International Inc. Third Quarter Report 2022
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]
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 28.4 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 its obligations to its deferred profit sharing plans. The normal
course issuer bid is expected to commence on or about November 15, 2022 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 alternative trading systems in Canada and the U.S., or by such other means permitted by the TSX, including by
private agreement or specific share repurchase program at a discount to the prevailing market price, pursuant to an issuer bid exemption
order issued by a securities regulatory authority.
Magna International Inc. Third Quarter Report 2022 49
CORPORATE
OFFICE
Magna International Inc.
337 Magna Drive
Aurora, Ontario
Canada L4G 7K1
Telephone: (905) 726-2462
www.magna.com
TRANSFER
AGENT AND REGISTRAR
Canada – Common Shares
Computershare Trust Company of Canada
100 University Avenue, 8th
Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone: 1 (800) 564-6253
United States – Common Shares
Computershare Trust Company N.A.
462 S. 4th Street
Louisville, Kentucky, USA 40202
Telephone: 1 (800) 962-4284
From all other countries
Telephone: 1 (514) 982-7555
www.computershare.com
EXCHANGE
LISTINGS
Common Shares
| Toronto Stock Exchange |
MG |
| The New York Stock Exchange |
MGA |
Shareholders wishing
to communicate with the non-management members of the Magna Board of Directors may do so by contacting the Chairman of Board through
the office of Magna’s Corporate Secretary at 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 (905) 726-7070.
Annual Report
Copies of the Annual
Report may be obtained from: The Corporate Secretary, Magna International Inc., 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 or 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.
