Magna Announces First Quarter Results
AURORA, ON, May 8, 2003 -- Magna International Inc. (TSX: MG.A, MG.B; NYSE: MGA) today reported sales, profits and earnings per share for the first quarter ended March 31, 2003.
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THREE MONTHS ENDED
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March 31, March 31,
2003 2002
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Sales $ 3,766 $ 3,121
Net income $ 162 $ 153
Diluted earnings per share $ 1.65 $ 1.65
Average number of diluted shares outstanding
(millions) 95.8 90.6
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All results are reported in millions of U.S. dollars,
except per share figures.
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The Company posted record sales of $3.8 billion for the first quarter ended March 31, 2003, an increase of 21% over the first quarter of 2002. Automotive sales for the first quarter of 2003 increased 22% from the first quarter of 2002. The higher sales reflect a 33% increase in European content per vehicle, a 13% increase in North American content per vehicle, a 16% increase in tooling and other sales, and increased vehicle production in North America and Europe of 2% and 1%, respectively.
Net income for the first quarter of 2003 was $162 million, representing a 6% increase over net income of $153 million for the first quarter of 2002.
Diluted earnings per share of $1.65 for the first quarter of 2003 was unchanged from the first quarter of 2002. Diluted earnings per share for the first quarter of 2003 reflects an increase in net income and a higher average number of diluted shares outstanding due to the Donnelly acquisition in the fourth quarter of 2002.
During the first quarter of 2003 cash generated from operations before changes in non-cash working capital was $330 million. Total investment activities during the quarter were $162 million, including $115 million in automotive fixed assets additions, $13 million in MEC fixed asset additions, and $34 million in other assets.
Belinda Stronach, Magna's President and Chief Executive Officer stated: "We delivered another strong quarter, including record sales, increased net income, and diluted earnings per share that matched last year's first quarter record. We were able to achieve these operating results in a quarter in which we incurred costs for an unprecedented amount of business to be launched in 2003."
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 first quarter ended March 31, 2003. The dividend of U.S. $0.34 per share is payable on June 16, 2003 to shareholders of record on May 30, 2003.
2003 OUTLOOK ------------
The Company remains cautious about North American and European vehicle production volumes for the remainder of 2003 due to uncertainty about general economic conditions.
For the second quarter of 2003, the Company expects average dollar content per vehicle in North America to range between $495 and $510 and in Europe between $265 and $280. In addition, the Company has assumed that second quarter 2003 vehicle volumes will be approximately 4.1 million units in North America and 4.2 million units in Europe. Based on expected average dollar content per vehicle in North America and Europe, the vehicle volume assumptions and anticipated tooling and other automotive sales, the Company expects its automotive sales for the second quarter of 2003 to be between $3.4 billion and $3.6 billion and diluted earnings per share from operations(1) to be in the range of $1.50 to $1.70.
The Company expects full year 2003 average dollar content per vehicle in North America to range between $490 and $510 and in Europe between $280 and $300. Further, the Company is assuming full year 2003 vehicle production volumes of approximately 15.8 million units in North America and approximately 16.1 million units in Europe. Based on expected average dollar content per vehicle in North America and Europe, the vehicle volume assumptions and anticipated tooling and other automotive sales, the Company expects its automotive sales for the full year 2003 to range from $13.4 billion to $14.3 billion, compared to 2002 automotive sales of $12.4 billion. In addition, diluted earnings per share from operations(1) for 2003 are expected to be in the range of $6.00 to $6.40.
In addition, the Company expects that full year 2003 spending for fixed assets for its automotive business will be in the range of $750 million to $800 million, compared to $791 million in 2002.
Magna, the most diversified automotive supplier 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: automotive interior and closure components, systems and modules through Intier Automotive Inc.; metal body systems, components, assemblies and modules through Cosma International; exterior and interior mirror and engineered glass systems through Magna Donnelly; fascias, front and rear end modules, plastic body panels, exterior trim components and systems, greenhouse and sealing systems, roof modules and lighting components through Decoma International Inc.; various engine, transmission and fueling systems and 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 72,000 employees in 202 manufacturing operations and 45 product development and engineering centres in 22 countries.
(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 standardized 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 but exclude Other income (net of related taxes), and in
the case of diluted earnings per share, the dilutive impacts of
foreign exchange losses on redemption of Convertible Subordinated
Debentures.
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Magna will hold a conference call for interested analysts and
shareholders to discuss the first quarter results and other developments
on Friday, May 9, 2003 at 10:30 a.m. EST. The number to use for this call
is 1 800-470-5906. Please call in 10 minutes prior to the conference
call. The number for overseas callers is 1 416-641-6704. Magna will also
webcast the conference call and will include presentation slides at
www.magna.com. The conference call will be chaired by Belinda Stronach,
President and Chief Executive Officer.
For further information: please contact Vincent Galifi or Louis Tonelli
at (905) 726-7100. For teleconferencing questions, please call
(905) 726-7103.
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MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
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(Unaudited)
(United States dollars in millions, except per share figures)
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Three months ended
March 31, March 31,
Note 2003 2002
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Sales:
Automotive $ 3,496 $ 2,872
Magna Entertainment Corp. 270 249
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3,766 3,121
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Automotive costs and expenses:
Cost of goods sold 2,887 2,362
Depreciation and amortization 118 99
Selling, general and administrative 235 180
Interest expense, net (3) 1
Equity income (4) (4)
Magna Entertainment Corp. costs and expenses 248 217
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Operating income - automotive 263 234
Operating income - Magna Entertainment Corp. 22 32
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Income before income taxes and minority
interest 285 266
Income taxes 99 92
Minority interest 24 21
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Net income $ 162 $ 153
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Financing charges on Preferred Securities
and other paid-in capital (4) (9)
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Net income available to Class A Subordinate
Voting and Class B Shareholders $ 158 $ 144
Retained earnings, beginning of period 2,570 2,217
Adjustment for change in accounting policy
relating to goodwill 2 - (42)
Dividends on Class A Subordinate Voting
and Class B Shares (32) (29)
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Retained earnings, end of period $ 2,696 $ 2,290
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Earnings per Class A Subordinate Voting or
Class B Share:
Basic $ 1.65 $ 1.73
Diluted $ 1.65 $ 1.65
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Cash dividends paid per Class A Subordinate
Voting or Class B Share $ 0.34 $ 0.34
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Average number of Class A Subordinate Voting
and Class B Shares outstanding during the
period (in millions):
Basic 95.6 83.4
Diluted 95.8 90.6
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See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(United States dollars in millions)
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Three months ended
March 31, March 31,
Note 2003 2002
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Cash provided from (used for):
OPERATING ACTIVITIES
Net income $ 162 $ 153
Items not involving current cash flows 168 137
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330 290
Changes in non-cash working capital 55 80
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385 370
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INVESTMENT ACTIVITIES
Automotive fixed asset additions (115) (109)
Magna Entertainment Corp. fixed
asset additions (13) (14)
Purchase of subsidiaries - (1)
Increase in other assets (34) (13)
Proceeds from disposition of
investments and other 6 10
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(156) (127)
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FINANCING ACTIVITIES
Net repayments of debt (7) (53)
Issues of subordinated debentures
by subsidiary 66 -
Repayments of debentures' interest
obligations (1) (10)
Preferred Securities distributions (6) (7)
Issues of Class A Subordinate Voting Shares 2 16
Issues of shares by subsidiaries - 1
Dividends paid to minority interests (3) (3)
Dividends (32) (29)
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19 (85)
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Effect of exchange rate changes on cash
and cash equivalents 33 (1)
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Net increase in cash and cash equivalents
during the period 281 157
Cash and cash equivalents, beginning of period 1,227 890
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Cash and cash equivalents, end of period $ 1,508 $ 1,047
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See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(United States dollars in millions)
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March 31, December
Note 2003 31, 2002
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ASSETS
Current assets
Cash and cash equivalents $ 1,508 $ 1,227
Accounts receivable 2,275 2,140
Inventories 1,001 918
Prepaid expenses and other 93 84
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4,887 4,369
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Investments 121 114
Fixed assets, net 4,530 4,415
Goodwill, net 2 476 467
Future tax assets 180 176
Other assets 622 601
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$ 10,806 $ 10,142
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 274 $ 272
Accounts payable 2,243 2,040
Accrued salaries and wages 356 312
Other accrued liabilities 221 199
Income taxes payable 42 62
Long-term debt due within one year 51 51
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3,187 2,936
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Deferred revenue 95 92
Long-term debt 380 366
Debentures' interest obligation 108 106
Other long-term liabilities 190 186
Future tax liabilities 336 325
Minority interest 3 817 710
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5,113 4,721
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Shareholders' equity
Capital stock 4
Class A Subordinate Voting Shares
(issued: 94,520,386; December 31, 2002 -
94,477,224) 2,489 2,487
Class B Shares
(convertible into Class A Subordinate
Voting Shares) (issued: 1,096,509) 1 1
Preferred Securities 277 277
Other paid-in capital 65 64
Retained earnings 2,696 2,570
Currency translation adjustment 165 22
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5,693 5,421
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$ 10,806 $ 10,142
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See accompanying notes
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars and all tabular amounts in millions unless
otherwise noted)
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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 2002 annual consolidated financial statements.
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 2002 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 at March 31, 2003 and the results of operations
and cash flows for the three-month periods ended March 31, 2003 and
2002.
2. Goodwill and Other Intangible Assets
In 2002, the Company adopted the new accounting recommendations of
The Canadian Institute of Chartered Accountants for goodwill and
other intangible assets. Upon initial adoption of these
recommendations, the Company recorded a goodwill writedown of
$51 million, of which $15 million related to Decoma International
Inc.' s ("Decoma") U.K. reporting unit and $36 million related to
Intier Automotive Inc.'s ("Intier") Interiors Europe, Closures Europe
and Interiors North America reporting segments. Of the total goodwill
writedown of $51 million, $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 $9 million was reflected as a
reduction in January 1, 2002 opening minority interest.
3. Debentures Issued by Subsidiary
On March 27, 2003, Decoma issued Cdn.$100 million of 6.55%
convertible unsecured subordinated debentures maturing March 31,
2010. The subordinated debentures are convertible at any time into
Decoma Class A Subordinate Voting Shares at a fixed conversion price
of Cdn$13.25 per share. All or part of the subordinated debentures
are redeemable at Decoma's option between March 31, 2007 and
March 31, 2008 if the weighted average trading price of the Decoma's
Class A Subordinate Voting Shares is not less than Cdn.$16.5625 for
the 20 consecutive trading days ending five trading days preceding
the date on which notice of redemption is given. Subsequent to
March 31, 2008, all or part of the subordinated debentures are
redeemable at Decoma's option at any time. On redemption or maturity,
Decoma will have the option of retiring the Debentures with Decoma
Class A Subordinate Voting Shares and in addition, Decoma may elect
from time to time to issue and deliver freely tradable Class A
Subordinate Voting Shares to a trustee in order to raise funds to
satisfy the obligation to pay interest on the Debentures.
The present value of the principal and interest of the subordinated
debentures and the value ascribed to the holders conversion option
are included in Decoma's equity. Accordingly, such amount is
classified in minority interest in the Company's consolidated balance
sheet.
4. Capital Stock
The following table presents the maximum number of Class A
Subordinate Voting and Class B Shares that would be outstanding if
all dilutive instruments outstanding at March 31, 2003 were
exercised:
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Class A Subordinate Voting and Class B
Shares outstanding at March 31, 2003 95.6
Stock options (note 5) 3.7
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99.3
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The above amounts exclude Class A Subordinate Voting Shares issuable,
at the Company's option, to settle the 7.08% subordinated debentures
and Preferred Securities on redemption or maturity.
5. Stock Based Compensation
(a) The following is a continuity schedule of options outstanding
(number of options in the table below are expressed in whole
numbers and have not been rounded to the nearest million):
Options outstanding
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Weighted
average Number
Number exercise of options
of options price exercisable
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Outstanding at
December 31, 2002 3,377,875 Cdn$89.19 1,958,375
Granted 320,000 Cdn$93.19 64,000
Exercised (33,350) Cdn$66.53 (33,350)
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Outstanding at March 31, 2003 3,664,525 Cdn$88.03 1,989,025
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(b) The Company does not recognize compensation expense for its
outstanding fixed price stock options. Under CICA 3870, the
Company is required to disclose compensation expense for fixed
price stock options issued subsequent to January 1, 2002,
assuming compensation expense for the stock option plan had been
determined based upon the fair value at the grant date.
The fair value of stock options is estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions:
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Risk free interest rate 5%
Expected dividend yield 1.45%
Expected volatility 24%
Expected time until exercise 4 years
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The Black-Scholes option valuation model used by the Company to
determine fair values was developed for use in estimating the
fair value of freely traded options which are fully transferable
and have no vesting restrictions. In addition, this model
requires the input of highly subjective assumptions, including
future stock price volatility and expected time until exercise.
Because the Company's outstanding stock options have
characteristics which are significantly different from those of
traded options, and because changes in any of the assumptions can
materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
For purposes of proforma disclosures, the Company's net income
and basic and diluted earnings per Class A Subordinate Voting or
Class B Share for the three months ended March 31, 2003 and 2002
would have been as follows:
Three months ended
March 31, March 31,
2003 2002
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Proforma net income $ 160 $ 146
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Proforma earnings per Class A Subordinate
Voting or Class B Share
Basic $ 1.62 $ 1.65
Diluted $ 1.62 $ 1.57
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The weighted average fair value of options granted during the
three months ended March 31, 2003 was Cdn$21.78 (2002 -
Cdn$25.08).
6. Segmented Information
Three months ended Three months ended
March 31, 2003 March 31, 2002
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Oper- Fixed Oper- Fixed
Total ating assets, Total ating assets,
sales income net sales income net
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Public Automotive
Operations
Decoma
International
Inc. $ 577 $ 45 $ 551 $ 515 $ 40 $ 480
Intier
Automotive
Inc. 1,032 29 470 879 26 406
Tesma
International
Inc. 269 25 268 211 21 257
Wholly Owned
Automotive
Operations
Magna Steyr 527 4 455 479 10 326
Other Automotive
Operations 1,126 109 981 816 96 828
Corporate
and other (35) 51 1,039 (28) 41 730
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Total Automotive
Operations 3,496 263 3,764 2,872 234 3,027
MEC 270 22 766 249 32 581
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Total reportable
segments $ 3,766 $ 285 4,530 $ 3,121 $ 266 3,608
Current assets 4,887 3,869
Investments,
goodwill and
other assets 1,389 754
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Consolidated
total assets $10,806 $ 8,231
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7. Subsequent Events
(a) On April 16, 2003, having received all necessary regulatory
approvals, MEC completed the acquisition of Flamboro Downs
Holdings Limited, the owner and operator of Flamboro Downs. The
shares of Ontario Racing Inc., the owner of Flamboro Downs
Holdings Limited, were transferred back to the Company.
(b) Subsequent to March 31, 2003, Decoma completed its agreement to
acquire Federal Mogul's original equipment automotive lighting
operations in Mexico, a distribution center in Texas, an assembly
operation in Ohio and certain of the contracts and equipment at
Federal Mogul's original equipment automotive lighting operations
in Virginia. The total purchase price is $2 million plus an
amount for inventory based on the final determination of the
value of inventory on hand. The transaction closed on
April 14, 2003 with a transition of the Virginia contracts and
assets subsequent to April 14, 2003.