Magna announces fourth quarter and 2002 fiscal year results
Aurora, Ontario, February 24 -- Magna International Inc. (TSX: MG.A, MG.B; NYSE: MGA) today reported sales, profits and earnings per share for the fourth quarter and year ended December 31, 2002.
-------------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
------------------------ -------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2002 2001 2002 2001
--------- -------------- --------- ---------------
Sales US$ 12,971 US$ 11,026 US$ 3,550 US$ 2,829
Net income US$ 554 US$ 579 (2,3) US$ 110 US$ 118 (2,3)
Net income from
operations (1) US$ 550 US$ 521 US$ 110 US$ 120
Diluted earnings
per share US$ 5.82 US$ 6.20 (3) US$ 1.10 US$ 1.28 (3)
Diluted earnings
per share
from operations (1) US$ 5.77 US$ 5.56 US$ 1.10 US$ 1.30
Net income and net income from operations, and diluted earnings per share
and diluted earnings per share from operations include the impact of
certain non-cash charges during the fourth quarter of 2002.
In accordance with new recommendations of The Canadian Institute of
Chartered Accountants ("CICA"), in the fourth quarter of 2002 the Company
recorded a US$36 million non-cash impairment charge related to goodwill and
fixed assets at certain under performing European interior and die-casting
operations owned by Intier Automotive Inc. and Tesma International Inc.,
respectively, both of which are publicly traded subsidiaries of the
Company. In addition, Magna Entertainment Corp., also a publicly traded
subsidiary of the Company, recorded an US$18 million non-cash impairment
charge related to the writedown of racing licenses and fixed assets at
two racetracks. The impact of these non-cash impairment charges to net
income for the fourth quarter and full year 2002 was US$34 million. The
impact to diluted earnings per share for the fourth quarter and full year
2002 was US$0.35 and US$0.37, respectively.
For more information, see notes 2 and 3 to the Interim Unaudited Fourth
Quarter and 2002 Consolidated Financial Statements attached.
-------------------------------------------------------------------------
(1) The Company measures and presents net income from operations and
diluted earnings per share from operations because they are measures
that are widely used by analysts and investors in evaluating the
operating performance of the Company. However, net income from
operations and diluted earnings per share from operations do not have
any standardised meaning under Canadian Generally Accepted Accounting
Principles and are therefore unlikely to be comparable to similar
measures presented by other companies.
Net income from operations and diluted earnings per share from
operations are based on net income and diluted earnings per share as
prepared in accordance with Canadian Generally Accepted Accounting
Principles, with the following adjustments:
YEAR ENDED THREE MONTHS ENDED
------------------------- -------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2002 2001 2002 2001
----------- ----------- ----------- -------------
Net income
as reported US$ 554 US$ 579 US$ 110 US$ 118
Exclude:
Other income
(net of related
taxes) (4) (46) - 2
Future income
tax recovery - (12) - -
----------- ----------- ----------- -------------
Net income from
operations US$ 550 US$ 521 US$ 110 US$ 120
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Diluted earnings
per share
as reported US$ 5.82 US$ 6.20 US$ 1.10 US$ 1.28
Exclude:
Other income
(net of
related taxes) (0.05) (0.51) - 0.02
Future income
tax recovery - (0.13) - -
----------- ----------- ----------- -------------
Diluted earnings
per share
from operations US$ 5.77 US$ 5.56 US$ 1.10 US$ 1.30
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Diluted earnings per share from operations for the year ended
December 31, 2002 is calculated using 92.0 million shares (2001 -
91.4 million). Diluted earnings per share from operations for the
fourth quarter of 2002 is calculated using 95.8 million shares
(2001 - 90.0 million).
For more information, see notes 4, 5 and 6 to the Interim Unaudited
Fourth Quarter and 2002 Consolidated Financial Statements attached.
(2) Net income has been restated due to an accounting policy change
related to foreign currency translation, as required by the new
recommendations of the CICA. The impact of the new recommendations on
the Company's consolidated statement of income for the twelve month
and three-month periods ended December 31, 2001 was to decrease net
income by US$1 million and US$1 million, respectively. For more
information see note 2 to the Interim Unaudited Fourth Quarter and
2002 Consolidated Financial Statements attached.
(3) In accordance with new recommendations of the CICA, the Company no
longer records amortisation expense for goodwill and indefinite life
intangible assets. If goodwill and indefinite life intangible assets
had not been amortised during the year ended December 31, 2001, net
income and diluted earnings per share would have increased by
US$19 million and US$0.21, respectively. If goodwill and indefinite life
intangible assets had not been amortised during the three months
ended December 31, 2001, net income and diluted earnings per share
would have increased by US$5 million and US$0.06, respectively. For more
information see notes 2 and 3 to the Interim Unaudited Fourth Quarter
and 2002 Consolidated Financial Statements attached.
-------------------------------------------------------------------------
All results are reported in millions of U.S. dollars,
except per share figures.
-------------------------------------------------------------------------
- Year ended December 31, 2002
Sales for the twelve months ended December 31, 2002 were US$13.0 billion, an increase of 18% over the twelve months ended December 31, 2001. During the year North American light vehicle production increased by 6% and European light vehicle production declined approximately 1%. The higher sales level in 2002 reflects increases over 2001 of 30% in European content per vehicle, 7% in North American content per vehicle, 20% in tooling and other automotive sales and the increased North American light vehicle production.
The Company earned net income from operations(1) for the twelve months ended December 31, 2002 of US$550 million, representing an increase of 6% over the twelve months ended December 31, 2001, despite the non-cash impairment charges of US$34 million discussed above. Excluding these charges, net income from operations(1) would have been US$584 million, an increase of 12% over the twelve months ended December 31, 2001. Net income for the twelve months ended December 31, 2002 was US$554 million.
Diluted earnings per share from operations(1) were US$5.77 for the twelve months ended December 31, 2002, representing an increase of 4% over the twelve months ended December 31, 2001, despite the non-cash impairment charges of US$0.37 discussed above. Excluding these charges, diluted earning per share from operations(1) would have been US$6.14, an increase of 10% over the twelve months ended December 31, 2001. Diluted earnings per share for the twelve months ended December 31, 2002 were US$5.82.
Cash generated from operations before changes in non-cash working capital for the twelve months ended December 31, 2002 was US$1.1 billion. Total investment activities for the twelve months ended December 31, 2002 were US$1.2 billion, including US$185 million in investments and other assets, US$135 million to purchase subsidiaries, and US$898 million in fixed assets of which US$106 million relates to the purchase of the Eurostar facility from DaimlerChrysler.
Three months ended December 31, 2002
The Company posted sales of US$3.6 billion for the three months ended December 31, 2002, an increase of 25% over the three months ended December 31, 2001. The higher sales level in the fourth quarter of 2002 reflects increases over the fourth quarter of 2001 of 26% in European content per vehicle, 20% in North American content per vehicle, 35% in tooling and other automotive sales, and increased light vehicle production of 1% in North America and 5% in Europe.
The Company earned net income from operations(1) for the three months ended December 31, 2002 of US$110 million, compared to US$120 million for the three months ended December 31, 2001. Excluding the non-cash impairment charges of US$34 million discussed above, net income from operations(1) would have been US$144 million, an increase of 20% over the three months ended December 31, 2001. Net income for the three months ended December 31, 2002 was US$110 million.
Diluted earnings per share from operations(1) were US$1.10 for the three months ended December 31, 2002, compared to US$1.30 for the three months ended December 31, 2001. Excluding the non-cash impairment charges of US$0.35 discussed above, diluted earning per share from operations(1) would have been US$1.45, an increase of 12% over the three months ended December 31, 2001. Diluted earnings per share for the three months ended December 31, 2002 were US$1.10.
Cash generated from operations before changes in non-cash working capital was US$294 million for the three months ended December 31, 2002. Total investment activities for the three months ended December 31, 2002 were US$534 million, including US$305 million in fixed assets, US$132 million to purchase subsidiaries and US$97 million in investments and other assets.
Commenting on the 2002 fiscal year, Belinda Stronach, Magna's President and Chief Executive Officer stated: "I am pleased with our many achievements during the past year. We continued to post strong financial results, setting a new record for sales and, excluding the non-cash impairment charges, a new record for diluted earnings per share from operations. We took steps to improve our market positions at Magna Steyr with the purchase of the Eurostar facility and in our mirrors group with the acquisition of Donnelly. We also strengthened management at all levels of the organisation. Our backlog of business combined with our strong balance sheet positions Magna for continued success in 2003 and beyond."
- Other matters
The Company also announced that its Board of Directors today declared its regular quarterly dividend with respect to its outstanding Class A Subordinate Voting Shares and Class B Shares for the fiscal quarter ended December 31, 2002. The dividend of U.S. US$0.34 per share is payable on March 18, 2003 to shareholders of record on March 7, 2003.
- 2003 outlook
The outlook figures below exclude the impact of possible future acquisitions.
For the first quarter of 2003, the Company revised upwards its expectations for North American light vehicle production volumes, from 4.0 million to 4.2 million units, reflecting strong OEM production schedules. Based on this revision, the Company now expects automotive sales for the first quarter of 2003 to be between US$3.2 billion and US$3.4 billion, and expects diluted earnings per share from operations(1) to be at the high end or to exceed the range of US$1.25 to US$1.45 previously disclosed in its press release dated January 7, 2003.
For the full year 2003, the Company continues to expect light vehicle production to be approximately 16.0 million units and 16.2 million units, for North America and Europe, respectively. Further, the Company continues to expect full year 2003 automotive sales to be in the range of US$13.3 billion and US$14.1 billion, and diluted earnings per share from operations(1) to be in the range of US$5.90 to US$6.40, all as previously described in its press release dated January 7, 2003.
Magna, one of the most diversified automotive suppliers in the world, designs, develops and manufactures automotive systems, assemblies, modules and components, and engineers and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks in North America, Europe, Mexico, South America and Asia. Magna's products include: interior products, including complete seats, instrument and door panel systems and sound insulation, and closure systems through Intier Automotive Inc.; stamped, hydroformed and welded metal parts and assemblies through Cosma International; exterior and interior mirror, lighting and engineered glass systems, including advanced electronics through Magna Donnelly Corporation; a variety of plastic parts and exterior decorative systems including body panels and fascias through Decoma International Inc.; various engine, transmission, fuelling and cooling components through Tesma International Inc.; and a variety of drivetrain components and complete vehicle engineering and assembly through Magna Steyr. Magna's non-automotive activities are conducted through Magna Entertainment Corp.
Magna has approximately 73,000 employees in 199 manufacturing operations and 46 product development and engineering centres in 22 countries.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
-------------------------------------------------------------------------
(Unaudited)
(United States dollars in millions, except per share figures)
-------------------------------------------------------------------------
Year ended Three months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2002 2001 2002 2001
-------------------------------------------------------------------------
(restated, (restated,
see note 2) see note 2)
Sales:
Automotive US$ 12,422 US$ 10,507 US$ 3,443 US$ 2,734
Magna Entertainment Corp. 549 519 107 95
-------------------------------------------------------------------------
12,971 11,026 3,550 2,829
-------------------------------------------------------------------------
Automotive costs and expenses:
Cost of goods sold 10,273 8,588 2,866 2,247
Depreciation and amortisation 422 399 116 103
Selling, general and
administrative 780 687 221 182
Interest expense (income), net (13) 2 (8) (1)
Equity income (23) (16) (6) (3)
Impairment charges (note 3) 36 - 36 -
Magna Entertainment Corp.
costs and expenses 554 496 129 104
Magna Entertainment Corp.
impairment charges (note 3) 18 - 18 -
-------------------------------------------------------------------------
Operating income - automotive 947 847 218 206
Operating income (loss) -
Magna Entertainment Corp. (23) 23 (40) (9)
-------------------------------------------------------------------------
Operating income 924 870 178 197
Other income (loss) (note 4) 4 46 - (2)
-------------------------------------------------------------------------
Income before income taxes
and minority interest 928 916 178 195
Income taxes (note 5) 317 289 67 68
Minority interest 57 48 1 9
-------------------------------------------------------------------------
Net income US$ 554 US$ 579 US$ 110 US$ 118
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Financing charges on Preferred
Securities and other
paid-in capital US$ (26) US$ (44) US$ (5) US$ (9)
Foreign exchange loss on the
redemption of Convertible
Subordinated Debentures (note 6) (11) (10) - -
-------------------------------------------------------------------------
Net income available to Class A
Subordinate Voting and
Class B Shareholders 517 525 105 109
Retained earnings, beginning of
period 2,217 1,789 2,498 2,136
Dividends on Class A Subordinate
Voting and Class B Shares (121) (109) (33) (28)
Adjustment for change in
accounting policy related
to goodwill (note 2) (42) - - -
Repurchase of Class A Subordinate
Voting Shares (note 9) (1) - - -
Distribution on transfer of
business to subsidiary (note 7) - 14 - -
Cumulative adjustment for change
in accounting policy related to
foreign currency
translation (note 2) - (2) - -
-------------------------------------------------------------------------
Retained earnings, end of period US$ 2,570 US$ 2,217 US$ 2,570 US$ 2,217
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per Class A Subordinate
Voting or Class B Share (note 2):
Basic US$ 5.83 US$ 6.55 US$ 1.10 US$ 1.31
Diluted US$ 5.82 US$ 6.20 US$ 1.10 US$ 1.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash dividends paid per
Class A Subordinate Voting
or Class B Share US$ 1.36 US$ 1.36 US$ 0.34 US$ 0.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of Class A
Subordinate Voting and
Class B Shares outstanding
during the period (in millions):
Basic 88.7 80.1 95.4 83.1
Diluted 92.0 91.4 95.8 90.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
(Unaudited)
(United States dollars in millions)
-------------------------------------------------------------------------
Year ended Three months ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2002 2001 2002 2001
-------------------------------------------------------------------------
(restated, (restated,
see note 2) see note 2)
Cash provided from (used for):
OPERATING ACTIVITIES
Net income US$ 554 US$ 579 US$ 110 US$ 118
Items not involving
current cash flows 590 444 184 128
-------------------------------------------------------------------------
1,144 1,023 294 246
Changes in non-cash
working capital 248 (10) 247 179
Increase (decrease)
in deferred revenue 68 16 (1) 1
-------------------------------------------------------------------------
1,460 1,029 540 426
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Automotive fixed asset additions (791) (486) (270) (189)
Magna Entertainment Corp.
fixed asset additions (107) (39) (35) (13)
Purchase of subsidiaries (note 8) (135) (40) (132) (8)
Decrease (increase) in investments (1) (3) 1 3
Increase in other assets (184) (43) (98) (13)
Proceeds from disposition of
investments and other 39 97 15 26
-------------------------------------------------------------------------
(1,179) (514) (519) (194)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Net repayments of debt (94) (43) (6) (54)
Redemption of Convertible
Subordinated Debentures (note 6) - (121) - -
Issues of subordinated
debentures by subsidiaries 72 - 72 -
Repayments of debentures' interest
obligations (13) (33) - (2)
Preferred Securities distributions (24) (28) (6) (7)
Redemption of Subordinated
Debentures by subsidiary - (90) - (56)
Issues of Class A Subordinate
Voting Shares 19 27 - 15
Repurchase of Class A Subordinate
Voting Shares (note 9) (2) - - -
Issues of shares by subsidiaries
(note 4) 208 184 - -
Dividends paid to minority
interests (14) (9) (5) (2)
Dividends (119) (109) (33) (28)
-------------------------------------------------------------------------
33 (222) 22 (134)
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents 23 (23) 19 (5)
-------------------------------------------------------------------------
Net increase in cash and cash
equivalents during the period 337 270 62 93
Cash and cash equivalents,
beginning of period 890 620 1,165 797
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period US$ 1,227 US$ 890 US$ 1,227 US$ 890
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(Unaudited)
(United States dollars in millions)
-------------------------------------------------------------------------
December December
31, 2002 31, 2001
-------------------------------------------------------------------------
(restated,
see note 2)
ASSETS
Current assets:
Cash and cash equivalents US$ 1,227 US$ 890
Accounts receivable 2,140 1,752
Inventories 918 842
Prepaid expenses and other 84 74
-------------------------------------------------------------------------
4,369 3,558
-------------------------------------------------------------------------
Investments 114 88
Fixed assets, net 4,415 3,595
Goodwill, net (notes 2, 3) 467 259
Future tax assets 176 114
Other assets (notes 2, 3) 601 287
-------------------------------------------------------------------------
US$ 10,142 US$ 7,901
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness US$ 272 US$ 308
Accounts payable 2,040 1,435
Accrued salaries and wages 312 228
Other accrued liabilities 199 158
Income taxes payable 62 62
Long-term debt due within one year 51 54
-------------------------------------------------------------------------
2,936 2,245
-------------------------------------------------------------------------
Deferred revenue 92 16
Long-term debt 366 244
Debentures' interest obligation (note 6) 106 114
Other long-term liabilities 186 85
Future tax liabilities 325 274
Minority interest 710 441
-------------------------------------------------------------------------
4,721 3,419
-------------------------------------------------------------------------
Shareholders' equity:
Capital stock
Class A Subordinate Voting Shares (notes 6 and 9)
(issued: 94,477,224; December 31, 2001 - 82,244,518) 2,487 1,682
Class B Shares
(convertible into Class A Subordinate Voting Shares)
(issued: 1,096,509; December 31, 2001 - 1,097,009) 1 1
Preferred Securities 277 277
Other paid-in capital (note 6) 64 463
Retained earnings 2,570 2,217
Currency translation adjustment 22 (158)
-------------------------------------------------------------------------
5,421 4,482
-------------------------------------------------------------------------
US$ 10,142 US$ 7,901
-------------------------------------------------------------------------
-------------------------------------------------------------------------
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------
(Unaudited)
(All amounts in U.S. dollars and all tabular amounts in millions unless
otherwise noted)
-------------------------------------------------------------------------
1. Basis of Presentation
The unaudited interim consolidated financial statements have been
prepared in U.S. dollars following the accounting policies as set out
in the 2001 annual consolidated financial statements, except as
described in note 2.
The unaudited interim consolidated financial statements do not
conform in all respects to the requirements of generally accepted
accounting principles for annual financial statements. Accordingly,
these unaudited interim consolidated financial statements should be
read in conjunction with the 2001 annual consolidated financial
statements.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments, which consist only of
normal and recurring adjustments, necessary to present fairly the
financial position of the Company at December 31, 2002 and the
results of operations and cash flows for the twelve month and three
month periods ended December 31, 2002 and 2001.
2. Accounting Changes
(a) Impairment of Long-Lived Assets
In December 2002, The Canadian Institute of Chartered Accountants
("CICA") issued Handbook Section 3063 "Impairment of Long-lived
Assets" ("CICA 3063"). The Company early adopted these new
recommendations on a prospective basis effective January 1, 2002.
The most significant change under the new recommendations is to
require that impairment losses on long-lived assets be measured
as the amount by which the asset's carrying value exceeds its
fair value; previously, Canadian GAAP required that asset
impairment be measured as the amount by which the asset's
carrying value exceeded the undiscounted future cash flow from
the use of the asset. The new recommendations conform Canadian
GAAP as it applies to impairment of long-lived assets with U.S.
GAAP.
(b) Foreign Currency Translation
In December 2001, the CICA amended Handbook Section 1650 "Foreign
Currency Translation". Effective January 1, 2002, the Company
adopted these new recommendations on a retroactive basis. The
most significant change under the new recommendations is to
eliminate the deferral and amortisation method for unrealised
translation gains and losses on long-term monetary assets and
liabilities. Unrealised translation gains and losses on long-term
monetary assets and liabilities are now reflected in income.
The retroactive changes to the consolidated statement of income
for the twelve month and three month periods ended December 31,
2001 are as follows:
Year ended Three months ended
December 31, 2001 December 31, 2001
-----------------------------------------------------------------
Increase in selling,
general and administrative US$ 2 US$ 2
-----------------------------------------------------------------
Decrease in operating income (2) (2)
Decrease in income taxes (1) (1)
-----------------------------------------------------------------
Decrease in net income US$ (1) US$ (1)
-----------------------------------------------------------------
-----------------------------------------------------------------
In addition, for the twelve-month and three month periods ended
December 31, 2001, basic earnings per Class A Subordinate Voting
or Class B Share decreased US$0.02 and US$0.01, respectively.
The retroactive changes to the consolidated balance sheet as at
December 31, 2001 are as follows:
2001
-----------------------------------------------------------------
Decrease in other assets US$ (5)
-----------------------------------------------------------------
Decrease in future tax liabilities US$ (2)
-----------------------------------------------------------------
Decrease in retained earnings US$ (3)
-----------------------------------------------------------------
(c) Goodwill and Other Intangible Assets
In September 2001, the CICA issued Handbook Section 1581,
"Business Combinations" ("CICA 1581") and Handbook Section 3062,
"Goodwill and Other Intangible Assets" ("CICA 3062"). CICA 1581
requires that all business combinations initiated after June 30,
2001 be accounted for using the purchase method of accounting. In
addition, CICA 1581 provides new criteria to determine when an
acquired intangible asset should be recognised separately from
goodwill.
CICA 3062 requires the application of the non-amortisation and
impairment rules for existing goodwill and intangible assets
which meet the criteria for indefinite life. In accordance with
CICA 3062, effective January 1, 2002, the Company adopted these
new recommendations prospectively without restatement of any
comparable period. Upon adoption of the recommendations, the
Company ceased recording amortisation of goodwill and indefinite
life intangible assets. On an adjusted basis, the Company's net
income and basic and diluted earnings per Class A Subordinate
Voting or Class B Share would have been as follows:
Year ended Three months ended
December 31, 2001 December 31, 2001
-----------------------------------------------------------------
Net income as reported US$ 579 US$ 118
Restatement to eliminate
amortisation of goodwill and
indefinite life intangible assets 19 5
-----------------------------------------------------------------
Adjusted net income US$ 598 US$ 123
-----------------------------------------------------------------
-----------------------------------------------------------------
Basic earnings per share
as reported US$ 6.55 US$ 1.31
Restatement to eliminate
amortisation of goodwill and
indefinite life intangible assets 0.24 0.06
-----------------------------------------------------------------
Adjusted basic earnings per share US$ 6.79 US$ 1.37
-----------------------------------------------------------------
-----------------------------------------------------------------
Diluted earnings per share
as reported US$ 6.20 US$ 1.28
Restatement to eliminate
amortisation of goodwill and
indefinite life intangible assets 0.21 0.06
-----------------------------------------------------------------
Adjusted diluted earnings per share US$ 6.41 US$ 1.34
-----------------------------------------------------------------
-----------------------------------------------------------------
Prior to the current standard coming into effect, goodwill
impairment was assessed based on the estimated future
undiscounted cash flows for the business to which goodwill
relates. Under CICA 3062, goodwill impairment is assessed based
on a comparison of the fair value of a reporting unit to the
underlying carrying value of the reporting unit's net assets,
including goodwill. Under CICA 3062, upon initial adoption of the
goodwill valuation standards, any writedown of goodwill that is a
result of an identified impairment is charged to opening retained
earnings at January 1, 2002. Thereafter, goodwill must be
assessed for impairment on an annual basis and any required
writedown would be charged against income (see note 3).
In accordance with CICA 3062, the Company completed its initial
impairment review of goodwill and indefinite life intangible
assets, represented by racing licenses held by Magna
Entertainment Corp. ("MEC"). Based on this review, the Company
recorded a goodwill writedown of US$51 million, of which
US$15 million related to Decoma International Inc.'s ("Decoma")
U.K. reporting unit and US$36 million related to Intier Automotive
Inc.'s ("Intier") European seating and latching systems reporting
units. Of the total goodwill writedown of US$51 million,
US$42 million was charged against January 1, 2002 opening retained
earnings, representing Magna's ownership interest in the
writedowns of Decoma and Intier. The balance of the goodwill
writedown of US$9 million was reflected as a reduction in January
1, 2002 opening minority interest.
(d) Stock-Based Compensation
In November 2001, the CICA issued Handbook Section 3870 "Stock-
Based Compensation and Other Stock-Based Payments". CICA 3870
requires that all stock-based awards granted to non-employees
must be accounted for at fair value. The new standard also
encourages, but does not require, the use of the fair value
method for all stock-based compensation paid to employees.
Specifically, the fair value method does not have to be applied
to option plans where the only choice is for the employee to pay
the exercise price and obtain stock. The new standard only
applies to awards granted after the adoption date. The Company
has prospectively adopted CICA 3870 effective January 1, 2002 and
has elected to continue accounting for employee stock options
using the intrinsic value method. The adoption of CICA 3870 had
no effect on the Company's reported earnings for the twelve month
and three month periods ended December 31, 2002 (see note 10).