Magna announces second quarter and year to date results
AURORA, ON, Aug. 7, 2009 -- Magna International Inc. (TSX: MG.A; NYSE: MGA) today reported financial results for the second quarter and six months ended June 30, 2009.
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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2009 2008 2009 2008
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Sales $ 3,705(2) $ 6,713 $ 7,279 $ 13,335
Operating (loss) income $ (237) $ 319 $ (467) $ 605
Net (loss) income $ (205) $ 227 $ (405) $ 434
Diluted (loss) earnings per
share $ (1.83) $ 1.98 $ (3.62) $ 3.75
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All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars.
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THREE MONTHS ENDED JUNE 30, 2009
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During the second quarter of 2009, vehicle production declined 49% to 1.8 million units in North America and 28% to 3.1 million units in Europe, each compared to the second quarter of 2008.
Also during the second quarter of 2009, our North American and European average dollar content per vehicle decreased 10% and 7% respectively, each compared to the second quarter of 2008.
Complete vehicle assembly sales decreased 60% to $423 million for the second quarter of 2009 compared to $1.1 billion for the second quarter of 2008, while complete vehicle assembly volumes declined 65% to approximately 14,100 units.
Substantially as a result of the significant declines in vehicle production in North America and Europe, lower average dollar content per vehicle in these two markets, and decreases in assembly sales and tooling, engineering and other sales, our total sales decreased 45% to $3.7 billion for the second quarter of 2009 as compared to $6.7 billion for the second quarter of 2008.
During the second quarter of 2009, operating loss was $237 million, net loss was $205 million and diluted loss per share was $1.83, decreases of $556 million, $432 million and $3.81, respectively, each compared to the second quarter of 2008.
During the second quarter ended June 30, 2009, we generated cash from operations before changes in non-cash operating assets and liabilities of $87 million, and invested $55 million in non-cash operating assets and liabilities. Total investment activities for the second quarter of 2009 were $273 million, including $150 million in fixed asset additions, $39 million to purchase subsidiaries and an $84 million increase in investments and other assets.
SIX MONTHS ENDED JUNE 30, 2009 ------------------------------
During the six months ended June 30, 2009, vehicle production declined 50% to 3.5 million units in North America and 34% to 5.6 million units in Europe, each compared to the first six months of 2008.
Also during the first six months of 2009, our North American and European average dollar content per vehicle decreased 3% and 5% respectively, each compared to the first six months of 2008.
Complete vehicle assembly sales decreased 61% to $824 million for the six months ended June 30, 2009 compared to $2.1 billion for the six months ended June 30, 2008, while complete vehicle assembly volumes declined 69% to approximately 26,100.
As a result of the significant declines in vehicle production in North America and Europe, lower average dollar content per vehicle in these two markets, and decreases in Rest of World sales, assembly sales and tooling, engineering and other sales, our total sales decreased 45% to $7.3 billion for the six months ended June 30, 2009 as compared to $13.3 billion for the six months ended June 30, 2008.
During the six months ended June 30, 2009, operating loss was $467 million, net loss was $405 million and diluted loss per share was $3.62, decreases of $1.1 billion, $839 million and $7.37, respectively, each compared to the first six months of 2008.
During the six months ended June 30, 2009, we generated cash from operations before changes in non-cash operating assets and liabilities of $96 million, and invested $107 million in non-cash operating assets and liabilities. Total investment activities for the first six months of 2009 were $391 million, including $246 million in fixed asset additions, $39 million to purchase subsidiaries, and a $106 million increase in investments and other assets.
A more detailed discussion of our consolidated financial results for the second quarter and six months ended June 30, 2009 is contained in the Management's Discussion and Analysis of Results of Operations and Financial Position, and the unaudited interim consolidated financial statements and notes thereto, which are attached to this Press Release.
We are the most diversified global automotive supplier. We design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Our capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; as well as complete vehicle engineering and assembly.
We have approximately 71,000 employees in 247 manufacturing operations and 86 product development and engineering centres in 25 countries.
------------------------------------------------------------------------- We will hold a conference call for interested analysts and shareholders to discuss our second quarter results on Friday, August 7, 2009 at 8:30 a.m. EDT. The conference call will be chaired by Vincent J. Galifi, Executive Vice-President and Chief Financial Officer. The number to use for this call is 1-800-909-4147. The number for overseas callers is 1-212-231-2911. Please call in 10 minutes prior to the call. We will also webcast the conference call at www.magna.com. The slide presentation accompanying the conference call will be available on our website Friday morning prior to the call. For further information, please contact Louis Tonelli, Vice-President, Investor Relations at 905-726-7035. For teleconferencing questions, please contact Karin Kaminski at 905-726- 7103. ------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS --------------------------
The previous discussion may contain statements that, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. We use words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, assumptions and uncertainties, including, without limitation: the potential for an extended global recession, including its impact on our liquidity; the persistence of low production volumes and sales levels; restructuring of the global automotive industry and the impact on the financial condition and credit worthiness of some of our OEM customers, including the potential that such customers may not make, or may seek to delay or reduce, payments owed to us; the financial distress of some of our suppliers and the risk of their insolvency, bankruptcy or financial restructuring; restructuring and/or downsizing costs related to the rationalization of some of our operations; impairment charges; shifts in technology; our ability to successfully grow our sales to non-traditional customers; a reduction in the production volumes of certain vehicles, such as certain light trucks; our dependence on outsourcing by our customers; risks of conducting business in foreign countries, including Russia, India and China; our ability to quickly shift our manufacturing footprint to take advantage of lower cost manufacturing opportunities; the termination or non-renewal by our customers of any material contracts; fluctuations in relative currency values; our ability to successfully identify, complete and integrate acquisitions; our proposed purchase of an equity stake in Opel and the potential impact of an ownership stake in an OEM; the continued exertion of pricing pressures by our customers and our ability to offset price concessions demanded by our customers; the impact of government financial intervention in the automotive industry; disruptions in the capital and credit markets; warranty and recall costs; product liability claims in excess of our insurance coverage; changes in our mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as our ability to fully benefit tax losses; other potential tax exposures; legal claims against us; work stoppages and labour relations disputes; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; potential conflicts of interest involving our indirect controlling shareholder, the Stronach Trust; and other factors set out in our Annual Information Form filed with securities commissions in Canada and our annual report on Form 40-F filed with the United States Securities and Exchange Commission, and subsequent filings. In evaluating forward-looking statements, 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. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements to reflect subsequent information, events, results or circumstances or otherwise.
------------------------------------------------------------------------- For further information about Magna, please see our website at www.magna.com. Copies of financial data and other publicly filed documents are available through the internet on the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be accessed at www.sec.gov. ------------------------------------------------------------------------- MAGNA INTERNATIONAL INC. Management's Discussion and Analysis of Results of Operations and Financial Position -------------------------------------------------------------------------
All amounts in this Management's Discussion and Analysis of Results of Operations and Financial Position ("MD A") are in U.S. dollars and all tabular amounts are in millions of U.S. dollars, except per share figures and average dollar content per vehicle, which are in U.S. dollars, unless otherwise noted. When we use the terms "we", "us", "our" or "Magna", we are referring to Magna International Inc. and its subsidiaries and jointly controlled entities, unless the context otherwise requires.
This MD A should be read in conjunction with the unaudited interim consolidated financial statements for the three months and six months ended June 30, 2009 included in this Press Release, and the audited consolidated financial statements and MD A for the year ended December 31, 2008 included in our 2008 Annual Report to Shareholders. The unaudited interim consolidated financial statements for the three months and six months ended June 30, 2009 have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") with respect to the preparation of interim financial information and the audited consolidated financial statements for the year ended December 31, 2008 have been prepared in accordance with Canadian GAAP.
This MD A has been prepared as at August 6, 2009. OVERVIEW -------------------------------------------------------------------------
We are the most diversified global automotive supplier. We design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Our capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; as well as complete vehicle engineering and assembly. We follow a corporate policy of functional and operational decentralization, pursuant to which we conduct our operations through divisions, each of which is an autonomous business unit operating within pre-determined guidelines. As at June 30, 2009, we had 247 manufacturing divisions and 86 product development, engineering and sales centres in 25 countries.
Our operations are segmented on a geographic basis between North America, Europe and Rest of World (primarily Asia, South America and Africa). A Co-Chief Executive Officer heads management in each of our two primary markets, North America and Europe. The role of the North American and European management teams is to manage our interests to ensure a coordinated effort across our different capabilities. In addition to maintaining key customer, supplier and government contacts in their respective markets, our regional management teams centrally manage key aspects of our operations while permitting our divisions enough flexibility through our decentralized structure to foster an entrepreneurial environment.
HIGHLIGHTS -------------------------------------------------------------------------
The second quarter of 2009 was another challenging period for Magna, particularly in North America. Vehicle production in North America declined 49% compared to the second quarter of 2008, and increased only modestly compared to the depressed production levels in the first quarter of 2009. Continued weak automotive sales and high dealer inventories for many vehicles were largely responsible for the significant year-over-year decline in vehicle production. In addition, during the second quarter of 2009, both General Motors and Chrysler (our largest and fourth largest customers, respectively, based on 2008 sales) filed for bankruptcy protection in the United States. Chrysler substantially ceased its vehicle production for the duration of the period it was under bankruptcy protection and, consequently, Chrysler's North American vehicle production in the second quarter of 2009 declined 84% as compared to the second quarter of 2008. Although General Motors did not cease operations at all of its North American vehicle assembly facilities while under bankruptcy protection, a number of its facilities were shut down for extended periods of time, leading to a 53% decline in General Motors vehicle production in the second quarter of 2009 as compared to the second quarter of 2008.
European vehicle production for the second quarter of 2009 declined 28% compared to the second quarter of 2008, although it improved 21% from the first quarter of 2009. Vehicle "scrappage" programs in effect this year in a number of European countries have benefitted European automotive sales and contributed in large part to the quarterly improvement in European vehicle production from the first quarter to the second quarter of 2009. Recently, the United States implemented the Car Allowance Rebate System ("CARS"), an incentive program effective July 24, 2009 (for vehicles purchased on or after July 1, 2009), which appears to be stimulating sales of new vehicles in the United States.
The difficult automotive environment, particularly in North America, adversely impacted our financial results for the second quarter of 2009. Our total sales decreased by 45% for the second quarter of 2009 as compared to the second quarter of 2008 as a result of: the significant declines in vehicle production in our two principal markets; a 60% decrease in complete vehicle assembly sales; and a 16% decrease in tooling and other sales. Operating income for the second quarter of 2009 decreased $556 million to a loss of $237 million, from operating income of $319 million in the second quarter of 2008.
Despite the significant year-over-year declines in sales and operating income we improved our financial results, excluding unusual items, from the first quarter of 2009 to the second quarter of 2009. While total sales in the second quarter of 2009 increased only $131 million from the first quarter of 2009, we reduced our operating loss, excluding unusual items, by $48 million. Second quarter 2009 financial results benefitted from the higher sequential European automotive production, continued restructuring activities, the implementation of additional cost-saving measures, and recent acquisitions, all relative to the first quarter of 2009.
New Chrysler and General Motors companies were formed in June and July of this year, respectively, in connection with the bankruptcies of these OEMs, and the continuing operations of these new companies are no longer subject to bankruptcy protection. As a result of the U.S. Administration's efforts to protect the automotive supply base in the bankruptcy process, we were able to avoid a significant adverse impact on our profitability and financial condition.
There appear to be signs of improvement in certain key automotive markets. Recent U.S. monthly sales rates appear to have stabilized, with July's U.S. auto sales rate being the highest thus far in 2009, driven in part by the CARS incentive program. North American dealer inventories have declined, and are now below long-term average levels, while Western European auto sales have been improving in recent months. OEM production schedules in North America and Europe, while still low by recent historical standards, point to increases in the second half of 2009, compared to the first half of 2009.
We have taken steps to further improve our competitive position. In the second quarter of 2009, we secured a significant amount of takeover business, in addition to the amount awarded to us in the first quarter of 2009. We continue to make selective acquisitions, such as Cadence Innovation s.r.o, located primarily in the Czech Republic ("Cadence"), and several facilities in Mexico and the U.S. from Meridian Automotive Systems Inc. ("Meridian"). We also continue to restructure our operations in our traditional markets to right-size our capacity. In addition to reduced discretionary spending, we have initiated a number of cost saving actions, including employee reductions, short work week schedules, reduced bonuses, voluntary wage reductions and benefit plan changes. Some of these actions began to benefit our operating results in the second quarter of 2009, while others will impact results in future quarters.
Our strong financial position allows us to continue to invest in innovation. In particular, over the past few years, we have been investing to expand our capabilities and footprint in the electronics area. We see electronics content, particularly in the area of driver assistance systems, as an area of future growth for the automotive industry and for Magna. However, further investments are required in the coming years before we generate appropriate returns from these investments. In the meantime, we expect our electronics investments to continue to negatively impact our earnings, as such investments did in the second quarter of 2009.
More recently, we have been investing to develop our component, system and integration capabilities in the growing hybrid/electric vehicle market. This market is becoming more significant globally each year, and certain long-term industry forecasts indicate considerable future growth. We are developing capabilities across a number of areas/systems that are unique to hybrid/electric vehicles, including motors and controllers, inverters, converters, chargers, transfer cases and electric pumps. However, additional investments are also required in this area, and we expect our continued investments to negatively impact our earnings in the near term, as such investments did in the second quarter of 2009.
Last month we announced that, together with the Savings Bank of the Russian Federation ("Sberbank"), we jointly submitted a revised offer to acquire a 55% interest in Adam Opel GmbH ("Opel") as part of a proposed solution that is intended to assure the long-term viability of Opel. Under the offer, the acquired 55% interest in Opel would be owned by a 50:50 Magna/Sberbank consortium (the "Consortium"), with General Motors Company ("General Motors") retaining a 35% interest and Opel employees acquiring 10% as part of a new labour framework. The offer was made in response to a request by General Motors for final offers regarding Opel. The offer contemplates a total equity investment by the Consortium of (euro)500 million over time.
The Opel Trust, whose Advisory Board includes two representatives of the German government and two representatives of General Motors, owns 65% of Opel and is expected to review the submitted offers and supervise the sale process.
If the offer is successful, any transaction between the Consortium and General Motors would be subject to finalization of definitive agreements and other conditions, including government-backed financing. Therefore, there is no assurance at this time that any transaction will result from the current involvement of Magna and Sberbank.
If the Consortium is successful in completing the acquisition, Magna will put in place appropriate "firewalls" to ensure that its current business will operate independently from Opel.
FINANCIAL RESULTS SUMMARY -------------------------------------------------------------------------
During the second quarter of 2009, we posted sales of $3.7 billion, a decrease of 45% from the second quarter of 2008. This lower sales level was a result of decreases in our North American and European production sales, complete vehicle assembly sales and tooling, engineering and other sales offset in part by increases in our Rest of World production sales. Comparing the second quarter of 2009 to the second quarter of 2008:
- North American average dollar content per vehicle decreased 10%,
while vehicle production declined 49%;
- European average dollar content per vehicle decreased 7%, while
vehicle production declined 28%; and
- Complete vehicle assembly sales decreased 60% to $423 million from
$1,054 million and complete vehicle assembly volumes declined 65%.
During the second quarter of 2009, we incurred an operating loss of $237 million compared to operating income of $319 million for the second quarter of 2008. Excluding the unusual items recorded in the second quarters of 2009 and 2008, as discussed in the "Unusual Items" section, the $510 million decrease in operating income was substantially due to decreased margin earned on reduced sales as a result of significantly lower vehicle production volumes, in particular at Chrysler and General Motors. In addition, the remaining decrease in operating income was primarily due to:
- a favourable settlement on research and development incentives during
the second quarter of 2008;
- incremental costs associated with restructuring and downsizing
activities;
- a favourable revaluation of warranty accruals during the second
quarter of 2008;
- electric vehicle development costs;
- costs incurred at new facilities in Russia as we continue to pursue
opportunities in this market;
- increased commodity costs;
- additional supplier insolvency costs;
- costs incurred to develop and grow our electronics capabilities; and
- amortization of deferred wage buydown assets at a powertrain systems
facility in the United States.
These factors were partially offset by:
- no employee profit sharing to for the second quarter of 2009;
- productivity and efficiency improvements at certain facilities;
- the benefit of restructuring and downsizing activities undertaken
during or subsequent to the second quarter of 2008;
- lower incentive compensation;
- cost savings initiatives, including reduced discretionary spending,
employee reductions, short work week schedules, reduced bonuses,
voluntary wage reductions and benefit plan changes;
- incremental margin earned from acquisitions completed during or
subsequent to the second quarter of 2008; and
- the sale of certain underperforming divisions during or subsequent to
the second quarter of 2008.
During the second quarter of 2009, we incurred a net loss of $205 million compared to net income of $227 million for the second quarter of 2008. Excluding the unusual items recorded in the second quarters of 2009 and 2008, as discussed in the "Unusual Items" section, net income for the second quarter of 2009 decreased $378 million. The decrease in net income was as a result of the decrease in operating income partially offset by lower income taxes.
During the second quarter of 2009, our diluted loss per share was $1.83 compared to diluted earnings per share of $1.98 for the second quarter of 2008. Excluding the unusual items recorded in the second quarters of 2009 and 2008, as discussed in the "Unusual Items" section, diluted earnings per share for the second quarter of 2009 decreased $3.33. The decrease in diluted earnings per share is as a result of the decrease in net income combined with a decrease in the weighted average number of diluted shares outstanding. The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of Class A Subordinate Voting Shares during or subsequent to the second quarter of 2008 under the terms of our ongoing Normal Course Issuer Bid and a reduction in the number of diluted shares associated with debentures and stock options, since such shares were anti-dilutive in the second quarter of 2009.
UNUSUAL ITEMS -------------------------------------------------------------------------
During the three months ended March 31, 2009 and 2008 there were no unusual items recorded. During the three months and six months ended June 30, 2009 and 2008, we recorded certain unusual items as follows:
2009 2008
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Diluted Diluted
Operat- Earnings Operat- Earnings
ing Net per ing Net per
Income Income Share Income Income Share
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Impairment
charges(1) $ (75) $ (75) $ (0.67) $ (9) $ (7) $ (0.06)
Restructuring
charges(1) (6) (6) (0.05) - - -
Curtailment gain(2) 26 20 0.18 - - -
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Total second quarter
and year to date
unusual items $ (55) $ (61) $ (0.54) $ (9) $ (7) $ (0.06)
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(1) Restructuring and Impairment Charges
(a) For the six months ended June 30, 2009
Historically, we complete our annual goodwill and long-lived
impairment analyses in the fourth quarter of each year in
conjunction with our annual business planning process. However,
goodwill must be tested for impairment when an event or
circumstance occurs that more likely than not reduces the fair
value of a reporting unit below its carrying amount.
After failing to reach a favourable labour agreement at a
powertrain systems facility in Syracuse, New York, during the
second quarter of 2009, we decided to wind down these
operations. Given the significance of the facility's cashflows
in relation to the reporting unit, we determined that it was
more likely than not that goodwill at the Powertrain North
America reporting unit could potentially be impaired.
Therefore, we made a reasonable estimate of the goodwill
impairment by determining the implied fair value of goodwill in
the same manner as if we had acquired the reporting unit as at
June 30, 2009. As a result, during the second quarter of 2009,
we recorded a $75 million goodwill impairment at our Powertrain
North America reporting unit, representing our best estimate of
the impairment. Due to the judgment involved in determining the
fair value of the reporting unit's assets and liabilities, the
final amount of the goodwill impairment charge could differ
from the amount estimated. An adjustment, if any, to the
estimated impairment charge, based on finalization of the
impairment analysis, would be recorded during the fourth
quarter of 2009.
During the second quarter of 2009, we recorded restructuring
costs of $6 million related to the planned closure of this
powertrain systems facility, substantially all of which will be
paid subsequent to 2009.
(b) For the six months ended June 30, 2008
During the second quarter of 2008, we recorded asset
impairments of $5 million relating to specific assets at a
seating systems facility in North America and $4 million
relating to specific assets at an interior systems facility in
Europe.
(2) Curtailment gain
During the second quarter of 2009, we amended our Retiree Premium
Reimbursement Plan in Canada and the United States, such that
employees retiring on or after August 1, 2009 will no longer
participate in the plan. The amendment will reduce service costs and
retirement medical benefit expense in 2009 and future years. As a
result of amending the plan, a curtailment gain of $26 million was
recorded in cost of goods sold in the second quarter of 2009.
INDUSTRY TRENDS AND RISKS
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Our success is primarily dependent upon the levels of North American and European car and light truck production by our customers and the relative amount of content we have on their various vehicle programs. A number of other economic, industry and risk factors discussed in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended December 31, 2008, also affect our success. The economic, industry and risk factors remain substantially unchanged in respect of the second quarter ended June 30, 2009, except that:
- On June 1, 2009, the U.S. Bankruptcy Court, Southern District of
New York approved the sale, pursuant to Section 363 of the
U.S. Bankruptcy Code, of Chrysler LLC's principal assets and
operations to Chrysler Group LLC, a new company formed in alliance
with Fiat SpA. As a result of the sale, which was completed on
June 10, 2009, the continuing operations of the new Chrysler are no
longer subject to bankruptcy protection.
On July 6, 2009, the U.S. Bankruptcy Court, Southern District of
New York approved the sale, pursuant to Section 363 of the
U.S. Bankruptcy Code, of General Motors Corporation's principal
assets and operations to General Motors Company, a new company owned
primarily by the United States, Canadian and Ontario governments, and
by a trust for providing medical benefits to United Auto Workers
retirees. As a result of the sale, which was completed on July 10,
2009, the continuing operations of the new General Motors are no
longer subject to bankruptcy protection.
- As a result of the successful restructuring of Chrysler's and
General Motors' operations out of bankruptcy, our credit risk related
to Chrysler and General Motors has significantly diminished.
- As previously disclosed, Magna and Sberbank have jointly submitted a
revised offer to acquire a 55% equity interest in General Motors'
European subsidiary, Opel through the Consortium. The Opel Trust is
expected to review the submitted offers and supervise the sale
process. There is no assurance as at the date of this MD&A that any
transaction will result from the current involvement of Magna and
Sberbank.
If we complete the purchase of an equity stake in Opel, we will be
subject to a number of risks, including:
- the possibility that the terms and conditions of the definitive
agreements we enter into in connection with the acquisition may
differ from those currently proposed;
- the risk that, despite any "firewalls" we implement to separate
our operations from those of Opel's, some of our OEM customers may
prefer to purchase components and systems from suppliers which do
not own an equity stake in an OEM;
- the likelihood that we will cease to be in compliance with certain
covenants relating to our credit facility and will, as a result,
need to renegotiate credit terms with our lending syndicate; and
- various risks associated with the operation of an automotive OEM
business.
- On June 24, 2009, the United States Government passed legislation
establishing the CARS program, effective July 24, 2009 (for vehicles
purchased on or after July 1, 2009). Under the CARS program, vehicle
owners meeting specified criteria can receive monetary credit for
trading in their older, less efficient vehicles and purchasing or
leasing newer, more efficient vehicles. As at the date of this MD&A,
the initial funds allocated to the CARS program had been effectively
exhausted, however, the U.S. Congress appears set to pass legislation
that will allocate an additional $2 billion in funding to the
program. Similar programs in certain European countries have had a
positive short-term effect on vehicle production and sales to date in
2009, however, it is too early to determine the impact of the CARS
program on North American vehicle production and sales for the full
year 2009 and beyond.
RESULTS OF OPERATIONS
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Average Foreign Exchange
For the three months For the six months
ended June 30, ended June 30,
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2009 2008 Change 2009 2008 Change
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1 Canadian dollar equals
U.S. dollars 0.863 0.991 - 13% 0.832 0.994 - 16%
1 euro equals U.S. dollars 1.369 1.562 - 12% 1.335 1.530 - 13%
1 British pound equals
U.S. dollars 1.554 1.970 - 21% 1.494 1.974 - 24%
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The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct business and our U.S. dollar reporting currency. The significant changes in these foreign exchange rates for the three months and six months ended June 30, 2009 impacted the reported U.S. dollar amounts of our sales, expenses and income.
The results of operations whose functional currency is not the U.S. dollar are translated into U.S. dollars using the average exchange rates in the table above for the relevant period. Throughout this MD A, reference is made to the impact of translation of foreign operations on reported U.S. dollar amounts where relevant.
Our results can also be affected by the impact of movements in exchange rates on foreign currency transactions (such as raw material purchases or sales denominated in foreign currencies). However, as a result of hedging programs employed by us, primarily in Canada, 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, holding gains and losses on foreign currency denominated monetary items, which are recorded in selling, general and administrative expenses, impact reported results.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 2009
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Sales
For the three months
ended June 30,
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2009 2008 Change
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Vehicle Production Volumes (millions of
units)
North America 1.768 3.479 - 49%
Europe 3.075 4.251 - 28%
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Average Dollar Content Per Vehicle
North America $ 768 $ 858 - 10%
Europe $ 467 $ 500 - 7%
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Sales
External Production
North America $ 1,357 $ 2,986 - 55%
Europe 1,435 2,126 - 33%
Rest of World 154 148 + 4%
Complete Vehicle Assembly 423 1,054 - 60%
Tooling, Engineering and Other 336 399 - 16%
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Total Sales $ 3,705 $ 6,713 - 45%
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External Production Sales - North America
External production sales in North America decreased 55% or $1.6 billion to $1.4 billion for the second quarter of 2009 compared to $3.0 billion for the second quarter of 2008. This decrease in production sales reflects a 49% decrease in North American vehicle production volumes as discussed in the "Highlights" section above combined with a 10% decrease in our North American average dollar content per vehicle. More importantly, during the second quarter of 2009 our largest customers in North America continued to reduce vehicle production volumes compared to the second quarter of 2008. While North American vehicle production volumes declined 49% in the second quarter of 2009 compared to the second quarter of 2008, Chrysler and GM vehicle production declined 84% and 53%, respectively. Due in part to their bankruptcy protection filings, Chrysler and GM stopped or reduced vehicle production at many of their North American assembly operations during the second quarter of 2009.
Our average dollar content per vehicle declined by 10% or $90 to $768 for the second quarter of 2009 compared to $858 for the second quarter of 2008 primarily as a result of:
- Chrysler and GM programs impacted by the stoppages and reductions in
vehicle production, as noted above including the:
- Dodge Grand Caravan, Chrysler Town & Country and Volkswagen
Routan;
- Chrysler 300 and 300C and Dodge Charger;
- Dodge Journey;
- Jeep Wrangler;
- Jeep Liberty;
- Dodge Avenger and Chrysler Sebring; and
- Jeep Grand Cherokee;
- GM full-sized SUVs and pickups;
- Chevrolet Cobalt and Pontiac G5; and
- Saturn Vue;
- a decrease in reported U.S. dollar sales due to the weakening of the
Canadian dollar against the U.S. dollar;
- programs that ended production during or subsequent to the second
quarter of 2008, including the:
- Chevrolet Trailblazer and GMC Envoy; and
- Dodge Durango and Chrysler Aspen; and
- customer price concessions subsequent to the second quarter of 2008.
These factors were partially offset by:
- increased production and/or content on certain programs, including
the:
- Ford Escape, Mercury Mariner and Mazda Tribute;
- Ford Fusion, Mercury Milan and Lincoln MKZ;
- Ford Edge, Lincoln MKX;
- Mercedes-Benz R-Class, M-Class and GL-Class; and
- Saturn Outlook, Buick Enclave and GMC Acadia;
- the launch of new programs during or subsequent to the second quarter
of 2008, including the:
- Chevrolet Traverse;
- Ford F-Series and Lincoln Mark LT; and
- Chevrolet Camaro; and
- acquisitions completed during or subsequent to the second quarter of
2008, including a substantial portion of Plastech Engineered Products
Inc.'s ("Plastech") exteriors business.
External Production Sales - Europe
External production sales in Europe decreased 33% or $0.7 billion to $1.4 billion for the second quarter of 2009 compared to $2.1 billion for the second quarter of 2008. This decrease in production sales reflects a 28% decrease in European vehicle production volumes as discussed in the "Highlights" section above combined with a 7% decrease in our European average dollar content per vehicle.
Our average dollar content per vehicle declined by 7% or $33 to $467 for the second quarter of 2009 compared to $500 for the second quarter of 2008, primarily as a result of:
- the impact of lower production and/or content on certain programs,
including the:
- Mercedes-Benz C-Class;
- Ford Transit;
- Porsche Cayenne and Volkswagen Touareg;
- Volkswagen Transporter;
- Opel/Vauxhall Vivaro, Nissan Primastar and Renault Trafic;
- Mercedes-Benz SLK;
- BMW X3;
- Opel/Vauxhall Astra Twin Top; and
- Audi Q7;
- a decrease in reported U.S. dollar sales due to the weakening of the
euro and British pound, each against the U.S. dollar;
- the sale of certain facilities during or subsequent to the second
quarter of 2008; and
- customer price concessions subsequent to the second quarter of 2008.
These factors were partially offset by:
- the launch of new programs during or subsequent to the second quarter
of 2008, including the:
- Audi Q5;
- Volkswagen Golf;
- MINI Cooper Convertible;
- Audi A5 Cabrio; and
- Peugeot 308 CC;
- acquisitions completed during or subsequent to the second quarter of
2008, including:
- Cadence, a manufacturer of exterior and interior systems primarily
located in the Czech Republic; and
- Technoplast ("Technoplast"), a supplier of plastic exterior and
interior components located in Russia; and
- increased production and/or content on certain programs, including
the:
- Opel/Vauxhall Insignia; and
- Volkswagen Tiguan.
External Production Sales - Rest of World
External production sales in Rest of World increased 4% or $6 million to $154 million for the second quarter of 2009 compared to $148 million for the second quarter of 2008 primarily as a result of:
- increased production and/or content on certain programs in China and
Brazil;
- the launch of new programs during or subsequent to the second quarter
of 2008 in China; and
- an increase in reported U.S. dollar sales as a result of the
strengthening of the Chinese Renminbi against the U.S. dollar.
These factors were partially offset by:
- a decrease in reported U.S. dollar sales as a result of the weakening
of the Brazilian real and Korean Won, each against the U.S. dollar;
and
- decreased production and/or content on certain programs, particularly
in Korea and South Africa.
Complete Vehicle Assembly Sales
The terms of our various vehicle assembly contracts differ with respect to the ownership of components and supplies related to the assembly process and the method of determining the selling price to the OEM customer. Under certain contracts we are acting as principal, and purchased components and systems in assembled vehicles are included in our inventory and cost of sales. These costs are reflected on a full-cost basis in the selling price of the final assembled vehicle to the OEM customer. Other contracts provide that third-party components and systems are held on consignment by us, and the selling price to the OEM customer reflects a value-added assembly fee only.
Production levels of the various vehicles assembled by us have an impact on the level of our sales and profitability. In addition, the relative proportion of programs accounted for on a full-cost basis and programs accounted for on a value-added basis also impacts our level of sales and operating margin percentage, but may not necessarily affect our overall level of profitability. Assuming no change in total vehicles assembled, a relative increase in the assembly of vehicles accounted for on a full-cost basis has the effect of increasing the level of total sales, however, because purchased components are included in cost of sales, profitability as a percentage of total sales is reduced. Conversely, a relative increase in the assembly of vehicles accounted for on a value-added basis has the effect of reducing the level of total sales and increasing profitability as a percentage of total sales.
For the three months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Complete Vehicle Assembly Sales $ 423 $ 1,054 - 60%
-------------------------------------------------------------------------
Complete Vehicle Assembly Volumes (Units)
Full-Costed:
BMW X3, Mercedes-Benz G-Class, and Saab
93 Convertible 13,268 31,413 - 58%
Value-Added:
Jeep Grand Cherokee, Chrysler 300, and
Jeep Commander 783 8,313 - 91%
-------------------------------------------------------------------------
14,051 39,726 - 65%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Complete vehicle assembly sales decreased 60% or $631 million to $423 million for the second quarter of 2009 compared to $1.05 billion for the second quarter of 2008 and assembly volumes decreased 65% or 25,675 units. In general, the decrease in complete vehicle assembly volumes is due to a combination of general economic conditions as discussed previously; the natural decline in volumes as certain models that we currently assemble approach their scheduled end of production; and a decrease in reported U.S. dollar sales due to the weakening of the euro against the U.S. dollar. Several new complete vehicle assembly programs have been awarded and are scheduled to launch throughout 2009 to 2013.
Tooling, Engineering and Other
Tooling, engineering and other sales decreased 16% or $63 million to $336 million for the second quarter of 2009 compared to $399 million for the second quarter of 2008.
In the second quarter of 2009, the major programs for which we recorded tooling, engineering and other sales were the:
- MINI Cooper, Clubman, Crossman; - Chevrolet Silverado and GMC Sierra; - Buick LaCrosse; - Audi Q3; - Porsche 911; - Opel/Vauxhall Astra; - Dodge Journey; - BMW X3; - Volkswagen Golf; - Porsche Cayenne and Volkswagen Touareg; and - Chevrolet Equinox and GMC Terrain.
In the second quarter of 2008, the major programs for which we recorded tooling, engineering and other sales were the:
- Mazda 6; - MINI Cooper, Clubman, Crossman; - Mercedes-Benz C-Class; - Renault Trafic and Nissan Primastar; - Suzuki XL7; - GM full-size pickups; - BMW X3; - Audi A5; - Honda Pilot; and - Porsche Boxster.
In addition, tooling, engineering and other sales decreased as a result of the weakening of the euro and Canadian dollar, each against the U.S. dollar.
Gross Margin
Gross margin decreased $596 million to $299 million for the second quarter of 2009 compared to $895 million for the second quarter of 2008 and gross margin as a percentage of total sales decreased to 8.1% for the second quarter of 2009 compared to 13.3% for the second quarter of 2008. The unusual items discussed in the "Unusual Items" section positively impacted gross margin as a percentage of total sales in the second quarter of 2009 by 0.6%. Excluding these unusual items, the 5.8% decrease in gross margin as a percentage of total sales was substantially as a result of lower gross margin earned due to the significant decline in vehicle production volumes. In addition, gross margin as a percentage of total sales was negatively impacted by:
- a favourable settlement on research and development incentives during
the second quarter of 2008;
- a favourable revaluation of warranty accruals during the second
quarter of 2008;
- electric vehicle development costs;
- increased commodity costs;
- incremental costs associated with restructuring and downsizing
activities, primarily in North America;
- amortization of deferred wage buydown assets at a powertrain systems
facility in the United States;
- costs incurred to develop and grow our electronics capabilities;
- costs incurred in preparation for upcoming launches;
- additional supplier insolvency costs; and
- customer price concessions subsequent to the second quarter of 2008.
These factors were partially offset by:
- productivity and efficiency improvements at certain facilities;
- lower employee profit sharing;
- a decrease in complete vehicle assembly sales which have a lower
gross margin than our consolidated average;
- the decrease in tooling and other sales that earn low or no margins;
- the benefit of restructuring and downsizing activities that were
undertaken during or subsequent to the second quarter of 2008; and
- the benefit of cost saving initiatives, including employee
reductions, short work week schedules and benefit plan changes.
Depreciation and Amortization
Depreciation and amortization costs decreased 21% or $47 million to $181 million for the second quarter of 2009 compared to $228 million for the second quarter of 2008. The decrease in depreciation and amortization was primarily as a result of:
- the impairment of certain assets subsequent to the second quarter of
2008, in particular at a powertrain systems facility in the United
States and certain interiors and exteriors systems facilities in
North America;
- a decrease in reported U.S. dollar depreciation and amortization due
to the weakening of the Canadian dollar and euro, each against the
U.S. dollar; and
- the sale or disposition of certain facilities subsequent to the
second quarter of 2008.
These factors were partially offset by acquisitions completed and capital spending during or subsequent to the second quarter of 2008.
Selling, General and Administrative ("SG A")
SG A expense as a percentage of sales was 7.4% for the second quarter of 2009, compared to 5.4% for the second quarter of 2008. This increase was substantially due to the significant decrease in sales as a result of significantly lower vehicle production volumes. SG A expense decreased 24% or $89 million to $275 million for the second quarter of 2009 compared to $364 million for the second quarter of 2008. The decrease in SG A expense was primarily as a result of:
- lower incentive compensation;
- reduced spending at certain facilities as a result of restructuring
activities and downsizing that were initiated subsequent to the
second quarter of 2008;
- management cost saving initiatives, including reduced discretionary
spending, employee reductions, reduced bonuses, voluntary wage
reductions and benefit plan changes;
- a decrease in reported U.S. dollar SG&A expense due to the weakening
of the Canadian dollar and euro, each against the U.S. dollar; and
- the sale or disposition of certain facilities during or subsequent to
the second quarter of 2008.
These factors were partially offset by:
- higher restructuring and downsizing costs; and
- acquisitions completed during or subsequent to the second quarter of
2008.
Impairment Charges
Impairment charges increased to $75 million for the second quarter of 2009 compared to $9 million for the second quarter of 2008. Impairment charges have been discussed in the "Unusual Items" section.
Earnings (loss) before Interest and Taxes ("EBIT")(1)
For the three months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
North America $ (199) $ 141 $ (340)
Europe (40) 145 (185)
Rest of World 8 13 (5)
Corporate and Other (3) 5 (8)
-------------------------------------------------------------------------
Total EBIT $ (234) $ 304 $ (538)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in EBIT for the second quarters of 2009 and 2008 were the following unusual items, which have been discussed in the "Unusual Items" section.
For the three months
ended June 30,
---------------------
2009 2008
-------------------------------------------------------------------------
North America
Impairment charges $ (75) $ (5)
Restructuring charges (6) -
Curtailment gain 26 -
-------------------------------------------------------------------------
(55) (5)
-------------------------------------------------------------------------
Europe
Impairment charges - (4)
-------------------------------------------------------------------------
$ (55) $ (9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) EBIT is defined as income (loss) from operations before income taxes
as presented on our unaudited interim consolidated financial
statements before net interest expense (income).
North America
EBIT in North America decreased $340 million to a loss of $199 million for the second quarter of 2009 compared to earnings of $141 million for the second quarter of 2008. Excluding the North American unusual items discussed in the "Unusual Items" section, the $290 million decrease in EBIT was substantially due to decreased margins earned on reduced sales as a result of significantly lower vehicle production volumes, in particular on most Chrysler and General Motors programs. In addition, EBIT was negatively impacted by:
- a favourable settlement on research and development incentives during
the second quarter of 2008;
- incremental costs associated with restructuring and downsizing
activities;
- electric vehicle development costs;
- additional supplier insolvency costs;
- amortization of deferred wage buydown assets at a powertrain systems
facility in the United States;
- increased commodity costs;
- costs incurred to develop and grow our electronics capabilities; and
- customer price concessions subsequent to the second quarter of 2008.
These factors were partially offset by:
- lower affiliation fees paid to corporate;
- no employee profit sharing for the second quarter of 2009;
- productivity and efficiency improvements at certain facilities;
- the benefit of restructuring and downsizing activities undertaken
during or subsequent to the second quarter of 2008;
- lower incentive compensation;
- lower warranty costs; and
- incremental margin earned from the acquisition from Plastech; and
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, reduced bonuses, and
benefit plan changes.
Europe
EBIT in Europe decreased $185 million to a loss of $40 million for the second quarter of 2009 compared to earnings of $145 million for the second quarter of 2008. Excluding the European unusual items discussed in the "Unusual Items" section above, the $189 million decrease in EBIT was substantially due to decreased margins earned on reduced sales as a result of significantly lower vehicle production volumes, in particular on many high content programs. In addition, EBIT was negatively impacted by:
- a favourable revaluation of warranty accruals during the second
quarter of 2008;
- costs incurred at new facilities in Russia as we continue to pursue
opportunities in this market;
- costs incurred in preparation for upcoming launches or for programs
that have not fully ramped up production;
- increased commodity costs;
- incremental costs associated with downsizing activities;
- costs incurred to develop and grow our electronics capabilities; and
- customer price concessions subsequent to the second quarter of 2008.
These factors were partially offset by:
- lower affiliation fees paid to corporate;
- no employee profit sharing for the second quarter of 2009;
- incremental margin earned related to the acquisition of Cadence;
- lower incentive compensation;
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, short work week
schedules, reduced bonuses, and voluntary wage reductions; and
- the sale of certain underperforming divisions during or subsequent to
the second quarter of 2008.
Rest of World
Rest of World EBIT decreased $5 million to $8 million for the second quarter of 2009 compared to $13 million for the second quarter of 2008 primarily as a result of costs incurred at new facilities, substantially in India partially offset by incremental margin earned on new programs that launched during or subsequent to the second quarter of 2008 in China.
Corporate and Other
Corporate and Other EBIT decreased $8 million to a loss of $3 million for the second quarter of 2009 compared to earnings of $5 million for the second quarter of 2008 primarily as a result of:
- a decrease in affiliation fees earned from our divisions; and
- a decrease in equity income earned.
These factors were partially offset by:
- lower executive compensation; and
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, short work week
schedules, reduced bonuses, voluntary wage reductions and benefit
plan changes.
Interest Expense (Income), net
During the second quarter of 2009, we recorded net interest expense of $3 million, compared to $15 million of net interest income for the second quarter of 2008. The $18 million decrease in net interest income is as a result of:
- a decrease in interest income earned on lower cash and cash
equivalent balances;
- a decrease in interest income earned due to lower interest rates; and
- an increase in interest expense paid on higher short-term borrowings.
These factors were partially offset by a reduction in interest expense on long-term debt due to the repayment of our senior unsecured notes.
Operating Income (Loss)
Operating income decreased $556 million to a loss of $237 million for the second quarter of 2009 compared to earnings of $319 million for the second quarter of 2008. Excluding the unusual items discussed in the "Unusual Items" section, operating income for the second quarter of 2009 decreased $510 million. The decrease in operating income is the result of the decreases in EBIT and net interest income earned, both as discussed above.
Income Taxes
Our effective income tax rate on operating income (excluding equity income) decreased to 13.6% for the second quarter of 2009 compared to 29.8% for the second quarter of 2008. In the second quarters of 2009 and 2008, income tax rates were impacted by the unusual items discussed in the "Unusual Items" section. Excluding unusual items, our effective income tax rate decreased to 21.1% for the second quarter of 2009 compared to 29.6% for the second quarter of 2008. The change in the effective income tax rate is substantially as a result of an increase in losses not benefitted, primarily at certain facilities in the United States and Europe.
Net Income (Loss)
Net income decreased $432 million to a net loss of $205 million for the second quarter of 2009 compared to net income of $227 million for the second quarter of 2008. Excluding the unusual items discussed in the "Unusual Items" section, net income decreased $378 million. This decrease in net income is the result of the decrease in operating income partially offset by lower income taxes, both as discussed above.
Earnings (Loss) per Share
For the three months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Earnings (loss) per Class A Subordinate
Voting or Class B Share
Basic $ (1.83) $ 2.01 $ (3.84)
Diluted $ (1.83) $ 1.98 $ (3.81)
-------------------------------------------------------------------------
Average number of Class A Subordinate
Voting and Class B Shares outstanding
(millions)
Basic 111.7 113.1 - 1%
Diluted 111.7 115.5 - 3%
-------------------------------------------------------------------------
Diluted earnings per share decreased $3.81 to a loss of $1.83 for the second quarter of 2009 compared to earnings of $1.98 for the second quarter of 2008. Excluding the unusual items, discussed in the "Unusual Items" section, diluted earnings per share decreased $3.33 from the second quarter of 2008 as a result of a decrease in net income (excluding unusual items) described above, combined with a decrease in the weighted average number of diluted shares outstanding during the quarter.
The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of Class A Subordinate Voting Shares subsequent to the second quarter of 2008 under the terms of our ongoing Normal Course Issuer Bid and a reduction in the number of diluted shares associated with debentures and stock options since such shares were anti-dilutive in the second quarter of 2009, and.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
------------------------------------------------------------------------
Cash Flow from Operations
For the three months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Net (loss) income $ (205) $ 227
Items not involving current cash flows 292 266
-------------------------------------------------------------------------
87 493 $ (406)
Changes in non-cash operating assets and
liabilities (55) (289)
-------------------------------------------------------------------------
Cash provided from operating activities $ 32 $ 204 $ (172)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow from operations before changes in non-cash operating assets and liabilities decreased $406 million to $87 million for the second quarter of 2009 compared to $493 million for the second quarter of 2008. The decrease in cash flow from operations was due to a $432 million decrease in net income, as discussed above, partially offset by a $26 million increase in items not involving current cash flows primarily as a result of the $75 million goodwill impairment charge offset in part by the $26 million curtailment gain. Items not involving current cash flows are comprised of the following:
For the three months
ended June 30,
---------------------
2009 2008
-------------------------------------------------------------------------
Depreciation and amortization $ 181 $ 228
Long-lived asset impairments 75 9
Amortization of other assets included in cost of
goods sold 23 17
Other non-cash charges 20 16
Amortization of employee wage buydown 6 10
Equity income 2 (10)
Future income taxes and non-cash portion of current
taxes 11 (4)
Curtailment gain (26) -
-------------------------------------------------------------------------
Items not involving current cash flows $ 292 $ 266
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash invested in non-cash operating assets and liabilities amounted to $55 million for the second quarter of 2009 compared to $289 million for the second quarter of 2008. The change in non-cash operating assets and liabilities is comprised of the following sources (and uses) of cash:
For the three months
ended June 30,
---------------------
2009 2008
-------------------------------------------------------------------------
Accounts receivable $ 192 $ (20)
Inventories (25) (81)
Income taxes receivable (24) (58)
Prepaid expenses and other 3 (90)
Accounts payable (111) 37
Accrued salaries and wages (96) (81)
Other accrued liabilities 11 9
Deferred revenue (5) (5)
-------------------------------------------------------------------------
Changes in non-cash operating assets and
liabilities $ (55) $ (289)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The decrease in accounts receivable and accounts payable in the second quarter of 2009 was primarily due to lower sales related to the downturn in the automotive sector, offset in part by Chrysler receivables that were collected subsequent to June 30, 2009. The increase in inventories relates to several tooling programs in Europe and production inventory builds substantially in North America to ensure availability of parts in the event of supply disruptions. The decrease in accrued salaries and wages was primarily due to the reduction in employee profit sharing and the payment of the second instalment of wage buydowns at a powertrain systems facility in the United States. The increase in income taxes receivable was primarily due to losses that can be carried back to prior years in Canada net of tax refunds received in Canada and the United States.
Capital and Investment Spending
For the three months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Fixed asset additions $ (150) $ (187)
Investments and other assets (84) (82)
-------------------------------------------------------------------------
Fixed assets, investments and other assets
additions (234) (269)
Purchase of subsidiaries (39) (97)
Proceeds from disposition 7 19
-------------------------------------------------------------------------
Cash used for investing activities $ (266) $ (347) $ 81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fixed and other assets additions
In the second quarter of 2009, we invested $150 million in fixed assets. While investments were made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in the second quarter of 2009 was for manufacturing equipment for programs that will be launching subsequent to the second quarter of 2009 and capital related to takeover business awarded during 2009.
In the second quarter of 2009, we invested $84 million in other assets related primarily to fully reimbursable planning and engineering costs at our complete vehicle engineering and assembly operations and our roof systems operations for programs that will be launching subsequent to the second quarter of 2009.
Purchase of subsidiaries
During the second quarter of 2009, we invested $39 million to purchase subsidiaries, including:
- Cadence, a manufacturer of exterior and interior systems primarily
located in the Czech Republic; and
- several facilities in the United States and Mexico from Meridian,
which supply interior and exterior composites.
Proceeds from disposition
Proceeds from disposition in the second quarter of 2009 and 2008 were $7 million and $19 million, respectively, which represent normal course fixed and other asset disposals.
Financing
For the three months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Increase in bank indebtedness $ 159 $ 27
Repayments of debt (10) (16)
Issues of debt 1 -
Repurchase of Class A Subordinate Voting
Shares - (134)
Cash dividends paid - (40)
-------------------------------------------------------------------------
Cash provided from (used for) financing
activities $ 150 $ (163) $ 313
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The increase in bank indebtedness during the second quarter of 2009 relates primarily to the draw down on our term and operating lines of credit in Europe that was required to fund current European operations. Subsequent to June 30, 2009 substantially all of the indebtedness was repaid through cash resources.
During the second quarter of 2008, we purchased 1.9 million Class A Subordinate Voting Shares for an aggregate purchase price of $134 million under a normal course issuer bid.
During the second quarter of 2009, our Board of Directors suspended payment of dividends. As a result, no cash dividends were paid on our Class A Subordinate Voting or Class B Share for the second quarter of 2009. This compares to a dividend payment of $0.36 per Class A Subordinate Voting or Class B Share for the second quarter of 2008.
Financing Resources
As at As at
June 30, December
2009 31, 2008 Change
-------------------------------------------------------------------------
Liabilities
Bank indebtedness $ 291 $ 909
Long-term debt due within one year 250 157
Long-term debt 123 143
-------------------------------------------------------------------------
664 1,209
Shareholders' equity 7,123 7,363
-------------------------------------------------------------------------
Total capitalization $ 7,787 $ 8,572 $ (785)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total capitalization decreased by $0.8 billion to $7.8 billion at June 30, 2009 compared to $8.6 billion at December 31, 2008. The decrease in capitalization was a result of a $0.6 billion decrease in liabilities and a $0.2 billion decrease in shareholders' equity.
The decrease in liabilities is primarily as a result of a $767 million repayment on our outstanding lines of credit in February and March 2009 partially offset by the draw down on our lines of credit during the second quarter of 2009 in Europe and debt assumed on the Cadence acquisition.
The decrease in shareholders' equity was primarily as a result of:
- net loss incurred during the first six months of 2009; and
- dividends paid during the first quarter of 2009.
These factors were partially offset by:
- a $93 million increase in accumulated net unrealized gains on
translation of net investment in foreign operations, primarily as a
result of the strengthening of the Canadian dollar and British pound,
each against the U.S. dollar between December 31, 2008 and June 30,
2009; and
- net unrealized gains on cash flow hedges and the reclassification of
net losses on cash flow hedges from accumulated other comprehensive
income to net loss.
Cash Resources
During the first six months of 2009, our cash resources decreased by $1.0 billion to $1.7 billion primarily as a result of the repayment of $0.6 billion on our outstanding lines of credit as discussed previously. In addition to our cash resources, we had term and operating lines of credit totalling $2.1 billion. The unused and available portion of our lines of credit increased $0.6 billion to $1.6 billion during the first six months of 2009 due to the repayment on our operating lines.
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that would be outstanding if all of the outstanding options and Subordinated Debentures issued and outstanding at August 6, 2009 were exercised or converted:
Class A Subordinate Voting and Class B Shares 112,613,071
Subordinated Debentures(i) 1,096,589
Stock options(ii) 3,805,701
-------------------------------------------------------------------------
117,515,361
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) The above amounts include shares issuable if the holders of the 6.5%
Convertible Subordinated Debentures exercise their conversion option
but exclude Class A Subordinate Voting Shares issuable, only at our
option, to settle interest and principal related to the 6.5%
Convertible Subordinated Debentures on redemption or maturity. The
number of Class A Subordinate Voting Shares issuable at our option
is dependent on the trading price of Class A Subordinate Voting
Shares at the time we elect to settle the 6.5% Convertible
Subordinated Debenture interest and principal with shares.
The above amounts also exclude Class A Subordinate Voting Shares
issuable, only at our option, to settle the 7.08% Subordinated
Debentures on redemption or maturity. The number of shares issuable
is dependent on the trading price of Class A Subordinate Voting
Shares at redemption or maturity of the 7.08% Subordinated
Debentures.
(ii) Options to purchase Class A Subordinate Voting Shares are
exercisable by the holder in accordance with the vesting provisions
and upon payment of the exercise price as may be determined from
time to time pursuant to our stock option plans.
Contractual Obligations and Off-Balance Sheet Financing
There have been no material changes with respect to the contractual obligations requiring annual payments during the second quarter of 2009 that are outside the ordinary course of our business. Refer to our MD&A included in our 2008 Annual Report.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2009
-------------------------------------------------------------------------
Sales
For the six months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Vehicle Production Volumes
(millions of units)
North America 3.496 6.966 - 50%
Europe 5.612 8.447 - 34%
-------------------------------------------------------------------------
Average Dollar Content Per Vehicle
North America $ 838 $ 866 - 3%
Europe $ 461 $ 487 - 5%
-------------------------------------------------------------------------
Sales
External Production
North America $ 2,928 $ 6,035 - 51%
Europe 2,587 4,111 - 37%
Rest of World 262 269 - 3%
Complete Vehicle Assembly 824 2,140 - 61%
Tooling, Engineering and Other 678 780 - 13%
-------------------------------------------------------------------------
Total Sales $ 7,279 $ 13,335 - 45%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
External Production Sales - North America
External production sales in North America decreased 51% or $3.1 billion to $2.9 billion for the six months ended June 30, 2009 compared to $6.0 billion for the six months ended June 30, 2008. This decrease in production sales reflects a 50% decrease in North American vehicle production volumes combined with a 3% decrease in our North American average dollar content per vehicle. More importantly, during the first half of 2009 our largest customers in North America continued to reduce vehicle production volumes compared to the first half of 2008. While North American vehicle production volumes declined 50% in the first six months of 2009 compared to the first six months of 2008, Chrysler and GM vehicle production declined 69% and 55%, respectively.
Our average dollar content per vehicle declined by 3% or $28 to $838 for the six months ended June 30, 2009 compared to $866 for the six months ended June 30, 2008 primarily as a result of:
- plant closures at Chrysler during most of May and June 2009 for all
programs including the:
- Dodge Grand Caravan, Chrysler Town & Country and Volkswagen
Routan;
- Chrysler 300 and 300C and Dodge Charger;
- Jeep Wrangler;
- Dodge Avenger and Chrysler Sebring;
- Jeep Liberty; and
- Dodge Caliber;
- the impact of lower production and/or content on certain programs,
including the:
- Chevrolet Cobalt and Pontiac G5;
- GM full-sized SUVs;
- Saturn Vue;
- Saturn Outlook, Buick Enclave and GMC Acadia; and
- Chevrolet Impala;
- a decrease in reported U.S. dollar sales due to the weakening of the
Canadian dollar against the U.S. dollar;
- programs that ended production during or subsequent to the six months
ended June 30, 2008, including the:
- Chevrolet Trailblazer and GMC Envoy; and
- Dodge Durango and Chrysler Aspen; and
- customer price concessions subsequent to the six months ended
June 30, 2008.
These factors were partially offset by:
- the launch of new programs during or subsequent to the six months
ended June 30, 2008, including the:
- Ford F-Series and Lincoln Mark LT;
- Chevrolet Traverse;
- Dodge Ram;
- BMW X6;
- Ford Flex; and
- Chevrolet Camaro;
- increased production and/or content on certain programs, including
the:
- Ford Escape, Mercury Mariner and Mazda Tribute;
- GM full-sized pickups; and
- Ford Fusion, Mercury Milan and Lincoln MKZ; and
- acquisitions completed during or subsequent to the six months ended
June 30, 2008, including
- a substantial portion of Plastech's exteriors business;
- a stamping and sub-assembly facility in Birmingham, Alabama from
Ogihara America Corporation.
External Production Sales - Europe
External production sales in Europe decreased 37% or $1.5 billion to $2.6 billion for the six months ended June 30, 2009 compared to $4.1 billion for the six months ended June 30, 2008. This decrease in production sales reflects a 34% decrease in European vehicle production volumes combined with a 5% decrease in our European average dollar content per vehicle.
Our average dollar content per vehicle declined by 5% or $26 to $461 for the six months ended June 30, 2009 compared to $487 for the six months ended June 30, 2008, primarily as a result of:
- the impact of lower production and/or content on certain programs,
including the:
- Ford Transit;
- Mercedes-Benz C-Class;
- Porsche Cayenne and Volkswagen Touareg;
- BMW X3;
- Opel/Vauxhall Vivaro, Nissan Primastar and Renault Trafic;
- Mercedes-Benz SLK; and
- Volkswagen Transporter;
- a decrease in reported U.S. dollar sales due to the weakening of the
euro and British pound, each against the U.S. dollar;
- the sale of certain facilities during or subsequent to the six months
ended June 30, 2008; and
- customer price concessions subsequent to the six months ended
June 30, 2008.
These factors were partially offset by:
- the launch of new programs during or subsequent to the six months
ended June 30, 2008, including the:
- Audi Q5;
- Volkswagen Golf;
- Opel/Vauxhall Insignia; and
- MINI Cooper Convertible;
- acquisitions completed during or subsequent to the six months ended
June 30, 2008, including Cadence and Technoplast; and
- increased production and/or content on certain programs, including
the Volkswagen Tiguan.
External Production Sales - Rest of World
External production sales in Rest of World decreased 3% or $7 million to $262 million for the second quarter of 2009 compared to $269 million for the second quarter of 2008 primarily as a result of:
- a decrease in reported U.S. dollar sales as a result of the weakening
of the Brazilian real, Korean Won and South African Rand, each
against the U.S. dollar; and
- decreased production and/or content on certain programs, particularly
in Korea and South Africa.
These factors were partially offset by:
- increased production and/or content on certain programs in China and
Brazil;
- the launch of new programs during or subsequent to the first six
months of 2008 in China; and
- an increase in reported U.S. dollar sales as a result of the
strengthening of the Chinese Renminbi against the U.S. dollar.
Complete Vehicle Assembly Sales
For the six months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
Complete Vehicle Assembly Sales $ 824 $ 2,140 - 61%
-------------------------------------------------------------------------
Complete Vehicle Assembly Volumes
(Units)
Full-Costed:
BMW X3, Mercedes-Benz G-Class, and
Saab 9(3) Convertible 25,019 64,294 - 61%
Value-Added:
Jeep Grand Cherokee, Chrysler 300,
and Jeep Commander 1,075 18,978 - 94%
-------------------------------------------------------------------------
26,094 83,272 - 69%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Complete vehicle assembly sales decreased 61% or $1.3 billion to $0.8 billion for the six months ended June 30, 2009 compared to $2.1 billion for the six months ended June 30, 2008 while assembly volumes decreased 69% or 57,178 units. In general, the decrease in complete vehicle assembly volumes is due to a combination of general economic conditions as discussed previously; the natural decline in volumes as certain models that we currently assemble approach their scheduled end of production; and a decrease in reported U.S. dollar sales due to the weakening of the euro against the U.S. dollar. Several new complete vehicle assembly programs have been awarded and are scheduled to launch throughout 2009 to 2013.
Tooling, Engineering and Other
Tooling, engineering and other sales decreased 13% or $102 million to $678 million for the six months ended June 30, 2009 compared to $780 million for the six months ended June 30, 2008.
In the six months ended June 30, 2009, the major programs for which we recorded tooling, engineering and other sales were the:
- MINI Cooper, Clubman and Crossman; - Chevrolet Silverado and GMC Sierra; - Cadillac SRX and Saab 9-4X; - Chevrolet Equinox and GMC Terrain; - BMW X3; - Porsche Panamera; - Buick LaCrosse; - Audi Q3; and - Opel/Vauxhall Astra.
In the six months ended June 30, 2008, the major programs for which we recorded tooling, engineering and other sales were the:
- BMW Z4, X3 and 1-Series; - GM full-size pickups; - Mazda 6; - MINI Cooper, Clubman and Crossman; - Mercedes-Benz C-Class; - Audi A5; - Peugeot A58; - Renault Trafic and Nissan Primastar; - Ford F-Series; and - Suzuki XL7.
In addition, tooling, engineering and other sales decreased as a result of the weakening of the euro and Canadian dollar, each against the U.S. dollar.
EBIT
For the six months
ended June 30,
---------------------
2009 2008 Change
-------------------------------------------------------------------------
North America $ (288) $ 288 $ (576)
Europe (159) 264 (423)
Rest of World 7 20 (13)
Corporate and Other (21) (1) (20)
-------------------------------------------------------------------------
Total EBIT $ (461) $ 571 $ (1,032)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in EBIT for the six-month periods ended June 30, 2009 and 2008 were the following unusual items, which have been discussed in the "Unusual Items" section above.
For the six months
ended June 30,
---------------------
2009 2008
-------------------------------------------------------------------------
North America
Impairment charges $ (75) $ (5)
Restructuring charges (6) -
Curtailment gain 26 -
-------------------------------------------------------------------------
(55) (5)
-------------------------------------------------------------------------
Europe
Impairment charges - (4)
-------------------------------------------------------------------------
$ (55) $ (9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America
EBIT in North America decreased $576 million to a loss of $288 million for the six months ended June 30, 2009 compared to earnings of $288 million for the six months ended June 30, 2008. Excluding the North American unusual items discussed in the "Unusual Items" section, the $526 million decrease in EBIT was substantially due to decreased margins earned on reduced sales as a result of significantly lower vehicle production volumes, in particular on many high content programs. In addition, EBIT was negatively impacted by:
- incremental costs associated with restructuring and downsizing
activities;
- a favourable settlement on research and development incentives during
the first six months 2008;
- electric vehicle development costs;
- additional supplier insolvency costs;
- amortization of deferred wage buydown assets at a powertrain systems
facility in the United States;
- increased commodity costs;
- costs incurred to develop and grow our electronics capabilities; and
- customer price concessions subsequent to the first six months of
2008.
These factors were partially offset by:
- lower affiliation fees paid to corporate;
- no employee profit sharing for the first six months of 2009;
- lower incentive compensation;
- productivity and efficiency improvements at certain facilities;
- the benefit of restructuring and downsizing activities undertaken
during or subsequent to the second quarter of 2008;
- lower warranty costs;
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, reduced bonuses, and
benefit plan changes; and
- incremental margin earned related to the acquisition from Plastech.
Europe
EBIT in Europe decreased $423 million to a loss of $159 million for the six months ended June 30, 2009 compared to earnings of $264 million for the six months ended June 30, 2008. Excluding the European unusual items discussed in the "Unusual Items" section, the $427 million decrease in EBIT was substantially due to decreased margins earned on reduced sales as a result of significantly lower vehicle production volumes, in particular on many high content programs. In addition, EBIT was negatively impacted by:
- a favourable revaluation of warranty accruals during the second
quarter of 2008;
- costs incurred at new facilities in Russia as we continue to pursue
opportunities in this market;
- increased commodity costs;
- incremental costs associated with downsizing activities;
- costs incurred in preparation for upcoming launches or for programs
that have not fully ramped up production;
- costs incurred to develop and grow our electronics capabilities; and
- customer price concessions subsequent to the second quarter of 2008.
These factors were partially offset by:
- lower affiliation fees paid to corporate;
- no employee profit sharing for the first six months of 2009;
- incremental margin earned related to the acquisition of Cadence;
- lower incentive compensation;
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, short work week
schedules, reduced bonuses, and voluntary wage reductions; and
- the sale of certain underperforming divisions during or subsequent to
the first six months of 2008.
Rest of World
EBIT in Rest of World decreased $13 million to $7 million for the six months ended June 30, 2009 compared to $20 million for the six months ended June 30, 2008 primarily as a result of costs incurred at new facilities, substantially in India partially offset by incremental margin earned on new programs that launched during or subsequent to the first six months of 2008 in China.
Corporate and Other
Corporate and Other EBIT decreased $20 million to a loss of $21 million for the six months ended June 30, 2009 compared to a loss of $1 million for the six months ended June 30, 2008 primarily as a result of:
- a decrease in affiliation fees earned from our divisions; and
- a decrease in equity income earned.
These factors were partially offset by:
- a $17 million write-down of our investment in asset-backed commercial
paper during the first six months of 2008;
- decreased executive compensation; and
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, short work week
schedules, reduced bonuses, voluntary wage reductions and benefit
plan changes.
COMMITMENTS AND CONTINGENCIES
-------------------------------------------------------------------------
From time to time, we may be contingently liable for litigation and other claims.
Refer to note 24 of our 2008 audited consolidated financial statements, which describes these claims.
CONTROLS AND PROCEDURES -------------------------------------------------------------------------
There have been no changes in our internal controls over financial reporting that occurred during the six months ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS -------------------------------------------------------------------------
The previous discussion may contain statements that, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. We use words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, assumptions and uncertainties, including, without limitation: the potential for an extended global recession, including its impact on our liquidity; the persistence of low production volumes and sales levels; restructuring of the global automotive industry and the impact on the financial condition and credit worthiness of some of our OEM customers, including the potential that such customers may not make, or may seek to delay or reduce, payments owed to us; the financial distress of some of our suppliers and the risk of their insolvency, bankruptcy or financial restructuring; restructuring and/or downsizing costs related to the rationalization of some of our operations; impairment charges; shifts in technology; our ability to successfully grow our sales to non-traditional customers; a reduction in the production volumes of certain vehicles, such as certain light trucks; our dependence on outsourcing by our customers; risks of conducting business in foreign countries, including Russia, India and China; our ability to quickly shift our manufacturing footprint to take advantage of lower cost manufacturing opportunities; the termination or non-renewal by our customers of any material contracts; fluctuations in relative currency values; our ability to successfully identify, complete and integrate acquisitions; our proposed purchase of an equity stake in Opel and the potential impact of an ownership stake in an OEM; the continued exertion of pricing pressures by our customers and our ability to offset price concessions demanded by our customers; the impact of government financial intervention in the automotive industry; disruptions in the capital and credit markets; warranty and recall costs; product liability claims in excess of our insurance coverage; changes in our mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as our ability to fully benefit tax losses; other potential tax exposures; legal claims against us; work stoppages and labour relations disputes; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; potential conflicts of interest involving our indirect controlling shareholder, the Stronach Trust; and other factors set out in our Annual Information Form filed with securities commissions in Canada and our annual report on Form 40-F filed with the United States Securities and Exchange Commission, and subsequent filings. In evaluating forward-looking statements, 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. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements to reflect subsequent information, events, results or circumstances or otherwise.
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(U.S. dollars in millions, except per share figures)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
Note 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales $ 3,705 $ 6,713 $ 7,279 $ 13,335
-------------------------------------------------------------------------
Costs and expenses
Cost of goods sold 7 3,406 5,818 6,736 11,602
Depreciation and
amortization 181 228 350 447
Selling, general and
administrative 8 275 364 577 723
Interest expense
(income), net 3 (15) 6 (34)
Equity loss (income) 2 (10) 2 (17)
Impairment charges 2 75 9 75 9
-------------------------------------------------------------------------
Income (loss) from
operations before
income taxes (237) 319 (467) 605
Income taxes (32) 92 (62) 171
-------------------------------------------------------------------------
Net (loss) income (205) 227 (405) 434
Other comprehensive
income (loss): 11
Net unrealized gains
on translation of net
investment in foreign
operations 228 10 93 60
Repurchase of shares - (17) - (32)
Net unrealized gains
on cash flow hedges 41 19 45 6
Reclassifications of
net losses (gains) on
cash flow hedges to net
(loss) income 9 3 43 (2)
-------------------------------------------------------------------------
Comprehensive income (loss) $ 73 $ 242 $ (224) $ 466
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss) per Class A
Subordinate Voting or
Class B Share:
Basic $ (1.83) $ 2.01 $ (3.62) $ 3.81
Diluted $ (1.83) $ 1.98 $ (3.62) $ 3.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash dividends paid per
Class A Subordinate Voting
or Class B Share $ - $ 0.36 $ 0.18 $ 0.72
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of Class A
Subordinate Voting and
Class B Shares
outstanding during the
period (in millions):
Basic 111.7 113.1 111.7 114.0
Diluted 111.7 115.5 111.7 116.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(U.S. dollars in millions)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
Retained earnings, beginning
of period $ 3,136 $ 3,647 $ 3,357 $ 3,526
Net (loss) income (205) 227 (405) 434
Dividends on Class A
Subordinate Voting and
Class B Shares - (41) (21) (82)
Repurchase of Class A
Subordinate Voting Shares - (53) - (98)
-------------------------------------------------------------------------
Retained earnings, end of
period $ 2,931 $ 3,780 $ 2,931 $ 3,780
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in millions)
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
Note 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided from
(used for):
OPERATING ACTIVITIES
Net (loss) income $ (205) $ 227 $ (405) $ 434
Items not involving
current cash flows 3 292 266 501 501
-------------------------------------------------------------------------
87 493 96 935
Changes in non-cash
operating assets and
liabilities 3 (55) (289) (107) (507)
-------------------------------------------------------------------------
Cash provided from
(used for) operating
activities 32 204 (11) 428
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Fixed asset additions (150) (187) (246) (315)
Purchase of subsidiaries 4 (39) (97) (39) (105)
Increase in investments
and other assets (84) (82) (106) (114)
Proceeds from disposition 7 19 11 25
-------------------------------------------------------------------------
Cash used for investing
activities (266) (347) (380) (509)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in
bank indebtedness 159 27 (603) 18
Repayments of debt (10) (16) (15) (83)
Issues of debt 1 - 2 2
Repurchase of Class A
Subordinate Voting Shares - (134) - (247)
Dividends - (40) (21) (81)
-------------------------------------------------------------------------
Cash provided from (used
for) financing activities 150 (163) (637) (391)
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents 65 (6) - 38
-------------------------------------------------------------------------
Net decrease in cash and
cash equivalents during
the period (19) (312) (1,028) (434)
Cash and cash equivalents,
beginning of period 1,748 2,832 2,757 2,954
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 1,729 $ 2,520 $ 1,729 $ 2,520
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions)
As at As at
June 30, December 31,
Note 2009 2008
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 1,729 $ 2,757
Accounts receivable 2,498 2,821
Inventories 1,669 1,647
Income taxes receivable 100 11
Prepaid expenses and other 138 115
-------------------------------------------------------------------------
6,134 7,351
-------------------------------------------------------------------------
Investments 205 194
Fixed assets, net 3,721 3,701
Goodwill 2 1,102 1,160
Future tax assets 157 182
Other assets 5 656 601
-------------------------------------------------------------------------
$ 11,975 $ 13,189
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 291 $ 909
Accounts payable 2,533 2,744
Accrued salaries and wages 385 448
Other accrued liabilities 6 734 835
Long-term debt due within one year 250 157
-------------------------------------------------------------------------
4,193 5,093
-------------------------------------------------------------------------
Deferred revenue 20 31
Long-term debt 123 143
Other long-term liabilities 7 370 423
Future tax liabilities 146 136
-------------------------------------------------------------------------
4,852 5,826
-------------------------------------------------------------------------
Shareholders' equity
Capital stock 9
Class A Subordinate Voting Shares
(issued: 111,886,242; December 31,
2008 - 111,879,059) 3,611 3,605
Class B Shares
(convertible into Class A
Subordinate Voting Shares)
(issued: 726,829) - -
Contributed surplus 10 66 67
Retained earnings 2,931 3,357
Accumulated other comprehensive income 11 515 334
-------------------------------------------------------------------------
7,123 7,363
-------------------------------------------------------------------------
$ 11,975 $ 13,189
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes
MAGNA INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars and all tabular amounts in millions unless
otherwise noted)
-------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of Magna
International Inc. and its subsidiaries (collectively "Magna" or the
"Company") have been prepared in United States dollars following
Canadian generally accepted accounting principles ("GAAP") with
respect to the preparation of interim financial information.
Accordingly, they do not include all the information and footnotes
required in the preparation of annual financial statements and
therefore should be read in conjunction with the December 31, 2008
audited consolidated financial statements and notes included in the
Company's 2008 Annual Report. These interim consolidated financial
statements have been prepared using the same accounting policies as
the December 31, 2008 annual consolidated financial statements,
except the Company retrospectively adopted the new Canadian Institute
of Chartered Accountants Handbook Section 3064, "Goodwill and
Intangible Assets", with no restatement of prior periods. The
adoption of these recommendations had no material impact on the
interim consolidated financial statements.
In the opinion of management, the unaudited interim consolidated
financial statements reflect all adjustments, which consist only of
normal and recurring adjustments, necessary to present fairly the
financial position at June 30, 2009 and the results of operations and
cash flows for the three-month and six-month periods ended June 30,
2009 and 2008.
2. IMPAIRMENT CHARGES
The Company completes its annual goodwill and long-lived impairment
analyses in the fourth quarter of each year in conjunction with its
annual business planning process. However, goodwill must be tested
for impairment when an event or circumstance occurs that more likely
than not reduces the fair value of a reporting unit below its
carrying amount.
After failing to reach a favourable labour agreement at a powertrain
facility in Syracuse, New York, the Company decided to wind down
these operations. Given the significance of the facility's cashflows
in relation to the reporting unit, management determined that it was
more likely than not that goodwill at the Powertrain North America
reporting unit could potentially be impaired.
Therefore, the Company made a reasonable estimate of the goodwill
impairment by determining the implied fair value of goodwill in the
same manner as if it had acquired the reporting unit as at June 30,
2009. As a result, during the second quarter of 2009 the Company
recorded a $75 million goodwill impairment at its Powertrain North
America reporting unit, representing its best estimate of the
impairment. Due to the judgment involved in determining the fair
value of the reporting unit's assets and liabilities, the final
amount of the goodwill impairment charge could differ from the amount
estimated. An adjustment, if any, to the estimated impairment charge,
based on finalization of the impairment analysis, would be recorded
during the fourth quarter of 2009.
During the second quarter of 2009, the Company recorded restructuring
costs of $6 million ($6 million after tax) related to the planned
closure of the powertrain facility, substantially all of which will
be paid subsequent to 2009.
During the second quarter of 2008, the Company recorded asset
impairments of $9 million ($7 million after tax) relating to certain
assets in the United States and the United Kingdom.
3. DETAILS OF CASH FROM OPERATING ACTIVITIES
(a) Items not involving current cash flows:
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2009 2008 2009 2008
-----------------------------------------------------------------
Depreciation and
amortization $ 181 $ 228 $ 350 $ 447
Impairment charges 75 9 75 9
Amortization of other
assets included in
cost of goods sold 23 17 43 34
Other non-cash charges 20 16 32 45
Amortization of employee
wage buydown (note 5) 6 10 12 10
Future income taxes and
non-cash portion of
current taxes 11 (4) 13 (27)
Equity loss (income) 2 (10) 2 (17)
Curtailment Gain (note 7) (26) - (26) -
-----------------------------------------------------------------
$ 292 $ 266 $ 501 $ 501
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) Changes in non-cash operating assets and liabilities:
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2009 2008 2009 2008
-----------------------------------------------------------------
Accounts receivable $ 192 $ (20) $ 426 $ (433)
Inventories (25) (81) 11 (131)
Income taxes receivable (24) (58) (87) (187)
Prepaid expenses and
other 3 (90) 1 (91)
Accounts payable (111) 37 (384) 303
Accrued salaries and
wages (96) (81) (67) (4)
Other accrued
liabilities 11 9 4 49
Deferred revenue (5) (5) (11) (13)
-----------------------------------------------------------------
$ (55) $ (289) $ (107) $ (507)
-----------------------------------------------------------------
-----------------------------------------------------------------
4. ACQUISITIONS
On May 11, 2009, Magna acquired Cadence Innovation s.r.o., a
manufacturer of exterior and interior systems. The acquired business
is primarily located in the Czech Republic with sales to various
customers, including Skoda.
On June 1, 2009, Magna acquired several facilities from Meridian
Automotive Systems Inc. The facilities located in the United States
and Mexico manufacture composites for various customers.
The total consideration for these acquisitions and certain other
acquisitions was $119 million, consisting of $39 million paid in cash
and $80 million of assumed debt.
The purchase price allocations for these acquisitions are preliminary
and adjustments to the allocations may occur as a result of obtaining
more information regarding asset valuations. On a preliminary basis,
an allocation of the excess purchase price over the book value of
assets acquired and liabilities assumed has been made to fixed assets
and intangible assets.
5. OTHER ASSETS
Other assets consist of:
June 30, December 31,
2009 2008
---------------------------------------------------------------------
Preproduction costs related to long-term
supply agreements with contractual
guarantee for reimbursement $ 334 $ 230
Long-term receivables 68 67
Patents and licences, net 50 54
Employee wage buydown, net 40 52
Other, net 164 198
---------------------------------------------------------------------
$ 656 $ 601
---------------------------------------------------------------------
---------------------------------------------------------------------
6. WARRANTY
The following is a continuity of the Company's warranty accruals:
2009 2008
---------------------------------------------------------------------
Balance, beginning of period $ 75 $ 103
Expense, net 5 10
Settlements (10) (11)
Foreign exchange and other (2) 3
---------------------------------------------------------------------
Balance, March 31, 68 105
Income, net (1) (17)
Settlements (6) 4
Foreign exchange and other 4 1
---------------------------------------------------------------------
Balance, June 30, $ 65 $ 93
---------------------------------------------------------------------
---------------------------------------------------------------------
7. EMPLOYEE FUTURE BENEFIT PLANS
The Company recorded employee future benefit expenses as follows:
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2009 2008 2009 2008
---------------------------------------------------------------------
Defined benefit pension
plans and other $ 3 $ 2 $ 6 $ 7
Termination and long
service arrangements 8 7 16 16
Retirement medical
benefits plan(a) (25) 4 (22) 7
---------------------------------------------------------------------
$ (14) $ 13 $ - $ 30
---------------------------------------------------------------------
---------------------------------------------------------------------
(a) During the three months ended June 30, 2009, the Company amended
its Retiree Premium Reimbursement Plan in Canada and the United
States, such that employees retiring on or after August 1, 2009
will no longer participate in the plan. The amendment will reduce
service costs and retirement medical benefit expense in 2009. As
a result of amending the plan a curtailment gain of $26 million
was recorded in cost of goods sold in the three-month period
ended June 30, 2009.
8. STOCK-BASED COMPENSATION
(a) Incentive Stock Option Plan
The following is a continuity schedule of options outstanding
(number of options in the table below are expressed in whole
numbers):
2009 2008
----------------------------- -----------------------------
Options outstanding Options outstanding
------------------- -------------------
Number of Number of
Number options Number options
of Exercise exercis- of Exercise exercis-
options price(i) able options price(i) able
-------------------------------------------------------------------------
Beginning of
period 2,746,145 82.01 2,724,145 2,942,203 82.66 2,912,877
Granted 1,075,000 33.09 - 5,000 74.50 -
Exercised - - - (1,230) 55.00 (1,230)
Cancelled (1,085) 68.55 (1,085) (10,000) 97.47 (10,000)
Vested - - 2,000 - - 10,326
-------------------------------------------------------------------------
March 31 3,820,060 68.25 2,725,060 2,935,973 82.61 2,911,973
Exercised - - - (383) 55.00 (383)
Cancelled (14,359) 79.16 (4,359) - - -
Vested - - 1,000 - - 1,000
-------------------------------------------------------------------------
June 30 3,805,701 68.20 2,721,701 2,935,590 82.62 2,912,590
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(i) The exercise price noted above represents the weighted average
exercise price in Canadian dollars.
The weighted average assumptions used in measuring the fair value
of stock options granted or modified and the compensation expense
recorded in selling, general and administrative expenses are as
follows:
Six months ended
June 30,
-----------------------
2009 2008
-----------------------------------------------------------------
Risk free interest rate 1.66% 3.56%
Expected dividend yield 2.05% 2.02%
Expected volatility 31% 22%
Expected time until exercise 4 years 4 years
-----------------------------------------------------------------
Weighted average fair value of options
granted or modified in period (Cdn$) $ 7.20 $ 13.65
-----------------------------------------------------------------
Compensation expense recorded in selling, general and
administrative expenses during the three and six month periods
ended June 30, 2009 was $1 million (2008 - $2 million), and
$1 million (2008 - $4 million), respectively.
(b) Long-term retention program
Information about the Company's long-term retention program is as
follows:
June 30, December 31,
2009 2008
-----------------------------------------------------------------
Class A Subordinate Voting Shares awarded
and not released 685,989 780,609
-----------------------------------------------------------------
Reduction in stated value of Class A
Subordinate Voting Shares $ 45 $ 51
-----------------------------------------------------------------
Unamortized compensation expense recorded
as a reduction of shareholder's equity $ 32 $ 36
-----------------------------------------------------------------
Compensation expense recorded in selling, general and
administrative expenses during the three and six month periods
ended June 30, 2009 was $2 million (2008 - $2 million), and
$4 million (2008 - $4 million), respectively.
9. CAPITAL STOCK
(a) Changes in Class A Subordinate Voting Shares for the three-month
and six-month periods ended June 30, 2009 consist of the
following (numbers of shares in the following table are expressed
in whole numbers):
Subordinate Voting
-------------------------
Number of Stated
shares value
-----------------------------------------------------------------
Issued and outstanding at December 31,
2008 111,879,059 $ 3,605
Issued under the Dividend Reinvestment
Plan 7,183 -
Release of restricted stock - 6
-----------------------------------------------------------------
Issued and outstanding at March 31 and
June 30, 2009 111,886,242 $ 3,611
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) The following table presents the maximum number of shares that
would be outstanding if all the dilutive instruments outstanding
at August 6, 2009 were exercised or converted:
Class A Subordinate Voting and Class B Shares 112,613,071
Subordinated Debentures(i) 1,096,589
Stock options(ii) 3,805,701
-----------------------------------------------------------------
117,515,361
-----------------------------------------------------------------
-----------------------------------------------------------------
(i) The above amounts include shares issuable if the holders of
the 6.5% Convertible Subordinated Debentures exercise their
conversion option but exclude Class A Subordinate Voting
Shares issuable, only at the Company's option, to settle
interest and principal related to the 6.5% Convertible
Subordinated Debentures on redemption or maturity. The
number of Class A Subordinate Voting Shares issuable at the
Company's option is dependent on the trading price of Class
A Subordinate Voting Shares at the time the Company elects
to settle the 6.5% Convertible Subordinated Debenture
interest and principal with shares. All or part of the 6.5%
Convertible Subordinate Debentures are currently redeemable
at the Company's option.
The above amounts also exclude Class A Subordinate Voting
Shares issuable, only at the Company's option, to settle the
7.08% Subordinated Debentures on redemption or maturity. The
number of shares issuable is dependent on the trading price
of Class A Subordinate Voting Shares at redemption or
maturity of the 7.08% Subordinated Debentures.
(ii) Options to purchase Class A Subordinate Voting Shares are
exercisable by the holder in accordance with the vesting
provisions and upon payment of the exercise price as may be
determined from time to time pursuant to the Company's stock
option plans.
10. CONTRIBUTED SURPLUS
Contributed surplus consists of accumulated stock option compensation
expense less the fair value of options at the grant date that have
been exercised and credited to Class A Subordinate Voting Shares, the
accumulated restricted stock compensation expense and the value of
the holders' conversion option on the 6.5% Convertible Subordinated
Debentures. The following is a continuity schedule of contributed
surplus:
2009 2008
---------------------------------------------------------------------
Stock-based compensation
Balance, beginning of period $ 64 $ 55
Stock-based compensation expense 2 2
Release of restricted stock (6) (4)
---------------------------------------------------------------------
Balance, March 31, 60 53
Stock-based compensation expense 3 2
---------------------------------------------------------------------
Balance, June 30, 63 55
Holders' conversion option 3 3
---------------------------------------------------------------------
$ 66 $ 58
---------------------------------------------------------------------
---------------------------------------------------------------------
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following is a continuity schedule of accumulated other
comprehensive income:
2009 2008
---------------------------------------------------------------------
Accumulated net unrealized gains on
translation of net investment in foreign
operations
Balance, beginning of period $ 447 $ 1,360
Net unrealized (losses) gains on
translation of net investment in foreign
operations (135) 50
Repurchase of shares - (15)
---------------------------------------------------------------------
Balance, March 31 312 1,395
Net unrealized gains on translation of
net investment in foreign operations 228 10
Repurchase of shares - (17)
---------------------------------------------------------------------
Balance, June 30 540 1,388
---------------------------------------------------------------------
Accumulated net loss on cash flow hedges(i)
Balance, beginning of period (113) (10)
Net unrealized gains (losses) on cash flow
hedges 4 (13)
Reclassifications of net losses (gains) on
cash flow hedges to net (loss) income 34 (5)
---------------------------------------------------------------------
Balance, March 31 (75) (28)
Net unrealized gains on cash flow hedges 41 19
Reclassifications of net losses on cash
flow hedges to net (loss) income 9 3
---------------------------------------------------------------------
Balance, June 30 (25) (6)
---------------------------------------------------------------------
Total accumulated other comprehensive income $ 515 $ 1,382
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) The amount of income tax benefit (expense) that has been
netted in the amounts above is as follows:
2009 2008
--------------------------------------------------------------
Balance, beginning of period $ 48 $ 4
Net unrealized (gains) losses on
cash flow hedges (4) 6
Reclassifications of net gains (losses)
on cash flow hedges to net (loss)
income (15) 2
--------------------------------------------------------------
Balance, March 31 $ 29 $ 12
Net unrealized gains on cash flow hedges (9) (8)
Reclassifications of net losses on cash
flow hedges to net (loss) income (3) (1)
--------------------------------------------------------------
Balance, June 30 $ 17 $ 3
--------------------------------------------------------------
The amount of other comprehensive income (loss) that is expected to
be reclassified to net income (loss) over the next 12 months is $11
million (net of income tax benefit of $8 million).
12. CAPITAL DISCLOSURES
The Company manages capital in order to ensure the Company has
adequate borrowing capacity and financial structure to allow
financial flexibility and to provide an adequate return to
shareholders. In order to maintain or adjust the capital structure,
the Company may adjust the amount of dividends paid to shareholders,
issue new shares, purchase shares for cancellation, or increase or
decrease the amount of debt outstanding.
The Company monitors capital using the ratio of debt to total
capitalization. Debt includes bank indebtedness and term debt as
shown in the balance sheets. Total capitalization includes debt and
all components of shareholders' equity.
The Company's capitalization and debt to total capitalization is as
follows:
June 30, December 31,
2009 2008
---------------------------------------------------------------------
Liabilities
Bank indebtedness $ 291 $ 909
Long-term debt due within one year 250 157
Long-term debt 123 143
---------------------------------------------------------------------
664 1,209
Shareholders' equity 7,123 7,363
---------------------------------------------------------------------
Total capitalization $ 7,787 $ 8,572
---------------------------------------------------------------------
---------------------------------------------------------------------
Debt to total capitalization 8.5% 14.1%
---------------------------------------------------------------------
---------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS
(a) The Company's financial assets and financial liabilities consist
of the following:
June 30, December 31,
2009 2008
-----------------------------------------------------------------
Held for trading
Cash and cash equivalents $ 1,729 $ 2,757
Investment in ABCP 67 -
-----------------------------------------------------------------
$ 1,796 $ 2,757
-----------------------------------------------------------------
-----------------------------------------------------------------
Held to maturity investments
Investment in ABCP $ - $ 64
Severance investments 15 9
-----------------------------------------------------------------
$ 15 $ 73
-----------------------------------------------------------------
-----------------------------------------------------------------
Loans and receivables
Accounts receivable $ 2,498 $ 2,821
Long-term receivables included in
other assets 68 67
Income taxes receivable 100 11
-----------------------------------------------------------------
$ 2,666 $ 2,899
-----------------------------------------------------------------
-----------------------------------------------------------------
Other financial liabilities
Bank indebtedness $ 291 $ 909
Long-term debt (including portion due
within one year) 373 300
Accounts payable 2,533 2,744
Accrued salaries and wages 385 448
Other accrued liabilities 734 835
-----------------------------------------------------------------
$ 4,316 $ 5,236
-----------------------------------------------------------------
-----------------------------------------------------------------
(b) Fair value
The Company determined the estimated fair values of its financial
instruments based on valuation methodologies it believes are
appropriate; however, considerable judgment is required to
develop these estimates. Accordingly, these estimated fair values
are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The estimated fair value
amounts can be materially affected by the use of different
assumptions or methodologies. The methods and assumptions used to
estimate the fair value of financial instruments are described
below:
Cash and cash equivalents, bank indebtedness, accounts payable,
accrued salaries and wages, other accrued liabilities and income
taxes receivable.
Due to the short period to maturity of the instruments, the
carrying values as presented in the consolidated balance sheets
are reasonable estimates of fair values.
Investments
At June 30, 2009, the Company held Canadian third party
asset-backed commercial paper ("ABCP") with a face value of
Cdn$134 million. The carrying value and estimated fair value of
this investment was Cdn$79 million (December 31, 2008 - Cdn$79
million). As fair value information is not readily determinable
for the Company's investment in ABCP, the fair value was based on
a valuation technique estimating the fair value from the
perspective of a market participant.
Term debt
The Company's term debt includes $250 million due within one
year. Due to the short period to maturity of this debt, the
carrying value as presented in the consolidated balance sheet is
a reasonable estimate of its fair value.
(c) Credit risk
The Company's financial assets that are exposed to credit risk
consist primarily of cash and cash equivalents, accounts
receivable, held to maturity investments, and foreign exchange
forward contracts with positive fair values.
The Company's held for trading investments include an investment
in ABCP. Given the continuing uncertainties regarding the value
of the underlying assets, the amount and timing over cash flows
and the risk of collateral calls in the event that spreads
widened considerably, the Company could be exposed to further
losses on its investment.
Cash and cash equivalents, which consists of short-term
investments, are only invested in governments, bank term deposits
and bank commercial paper with an investment grade credit rating.
Credit risk is further reduced by limiting the amount which is
invested in certain governments or any major financial
institution.
The Company is also exposed to credit risk from the potential
default by any of its counterparties on its foreign exchange
forward contracts. The Company mitigates this credit risk by
dealing with counterparties who are major financial institutions
that the Company anticipates will satisfy their obligations under
the contracts.
In the normal course of business, the Company is exposed to
credit risk from its customers, substantially all of which are in
the automotive industry and are subject to credit risks
associated with the automotive industry. Sales to the Company's
three largest customers, General Motors, Ford and Chrysler for
the three and six months ended June 30, 2009 represented 41% and
38% of the Company's total sales, respectively.
On June 1, 2009, the U.S. Bankruptcy Court, Southern District of
New York approved the sale, pursuant to Section 363 of the U.S.
Bankruptcy Code, of Chrysler LLC's principal assets and
operations to Chrysler Group LLC, a new company formed in
alliance with Fiat SpA. As a result of the sale, which was
completed on June 10, 2009, the continuing operations of the new
Chrysler are no longer subject to bankruptcy protection. The
Company's sales to Chrysler for the three and six months ended
June 30, 2009 were $175 million or 4.7% of consolidated sales and
$563 million or 7.7% of consolidated sales, respectively. As at
June 30, 2009, accounts receivable from Chrysler were
$156 million.
On July 6, 2009, the U.S. Bankruptcy Court, Southern District of
New York approved the sale, pursuant to Section 363 of the U.S.
Bankruptcy Code, of General Motors Corporation's principal assets
and operations to General Motors Company, a new company owned
primarily by the United States, Canadian and Ontario governments,
and by a trust for providing medical benefits to United Auto
Workers retirees. As a result of the sale, which was completed on
July 10, 2009, the continuing operations of the new General
Motors are no longer subject to bankruptcy protection. The
Company's sales to General Motors for the three and six months
ended June 30, 2009 were $587 million or 15.8% of consolidated
sales and $1,266 million or 17.4% of consolidated sales,
respectively. As at June 30, 2009, accounts receivable from
General Motors were $273 million.
For the three and six months ended June 30, 2009, sales to the
Company's six largest customers (including the Detroit 3)
represented 81% and 82% of our total sales, respectively, and
substantially all of our sales are to customers in which the
Company has ongoing contractual relationships.
(d) Currency risk
The Company is exposed to fluctuations in foreign exchange rates
when manufacturing facilities have committed to the delivery of
products for which the selling price has been quoted in
currencies other than the facilities' functional currency, or
when materials and equipment are purchased in currencies other
than the facilities' functional currency. In an effort to manage
this net foreign exchange exposure, the Company employs hedging
programs, primarily through the use of foreign exchange forward
contracts.
As at June 30, 2009, the net foreign exchange exposure was not
material.
(e) Interest rate risk
The Company is not exposed to significant interest rate risk due
to the short-term maturity of its monetary current assets and
current liabilities. In particular, the amount of interest income
earned on our cash and cash equivalents is impacted more by the
investment decisions made and the demands to have available cash
on hand, than by movements in the interest rates over a given
period.
In addition, the Company is not exposed to interest rate risk on
its term debt instruments as the interest rates on these
instruments are fixed.
14. SEGMENTED INFORMATION
Three months ended
June 30, 2009
-------------------------------------------
Fixed
Total External assets,
sales sales EBIT(i) net
---------------------------------------------------------------------
North America
Canada $ 663 $ 584 $ 654
United States 751 715 720
Mexico 223 203 376
Eliminations (111) - -
---------------------------------------------------------------------
1,526 1,502 $ (199) 1,750
Europe
Euroland 1,633 1,603 1,077
Great Britain 168 168 70
Other European countries 277 250 324
Eliminations (41) - -
---------------------------------------------------------------------
2,037 2,021 (40) 1,471
Rest of World 190 175 8 176
Corporate and Other (48) 7 (3) 324
---------------------------------------------------------------------
Total reportable
segments $ 3,705 $ 3,705 $ (234) 3,721
Current assets 6,134
Investments, goodwill and
other assets 2,120
---------------------------------------------------------------------
Consolidated total assets $ 11,975
---------------------------------------------------------------------
---------------------------------------------------------------------
Three months ended
June 30, 2008
-------------------------------------------
Fixed
Total External assets,
sales sales EBIT(i) net
---------------------------------------------------------------------
North America
Canada $ 1,533 $ 1,438 $ 1,008
United States 1,371 1,314 1,005
Mexico 465 408 366
Eliminations (183) - -
---------------------------------------------------------------------
3,186 3,160 $ 141 2,379
Europe
Euroland 2,913 2,852 1,183
Great Britain 322 319 92
Other European countries 261 219 159
Eliminations (75) - -
---------------------------------------------------------------------
3,421 3,390 145 1,434
Rest of World 172 156 13 172
Corporate and Other (66) 7 5 328
---------------------------------------------------------------------
Total reportable
segments $ 6,713 $ 6,713 $ 304 4,313
Current assets 9,088
Investments, goodwill and
other assets 2,356
---------------------------------------------------------------------
Consolidated total assets $ 15,757
---------------------------------------------------------------------
---------------------------------------------------------------------
Six months ended
June 30, 2009
-------------------------------------------
Fixed
Total External assets,
sales sales EBIT(i) net
---------------------------------------------------------------------
North America
Canada $ 1,386 $ 1,239 $ 654
United States 1,653 1,579 720
Mexico 498 449 376
Eliminations (229) - -
---------------------------------------------------------------------
3,308 3,267 $ (288) 1,750
Europe
Euroland 3,074 3,014 1,077
Great Britain 310 310 70
Other European countries 438 384 324
Eliminations (81) - -
---------------------------------------------------------------------
3,741 3,708 (159) 1,471
Rest of World 320 296 7 176
Corporate and Other (90) 8 (21) 324
---------------------------------------------------------------------
Total reportable
segments $ 7,279 $ 7,279 $ (461) 3,721
Current assets 6,134
Investments, goodwill and
other assets 2,120
---------------------------------------------------------------------
Consolidated total assets $ 11,975
---------------------------------------------------------------------
---------------------------------------------------------------------
Six months ended
June 30, 2008
-------------------------------------------
Fixed
Total External assets,
sales sales EBIT(i) net
---------------------------------------------------------------------
North America
Canada $ 3,120 $ 2,939 $ 1,008
United States 2,760 2,653 1,005
Mexico 914 806 366
Eliminations (349) - -
---------------------------------------------------------------------
6,445 6,398 $ 288 2,379
Europe
Euroland 5,684 5,569 1,183
Great Britain 642 639 92
Other European countries 513 436 159
Eliminations (139) - -
---------------------------------------------------------------------
6,700 6,644 264 1,434
Rest of World 313 284 20 172
Corporate and Other (123) 9 (1) 328
---------------------------------------------------------------------
Total reportable
segments $ 13,335 $ 13,335 $ 571 4,313
Current assets 9,088
Investments, goodwill and
other assets 2,356
---------------------------------------------------------------------
Consolidated total assets $ 15,757
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) EBIT represents operating income before interest income or
expense.
15. Comparative Figures
Certain of the comparative figures have been reclassified to conform
to the current period's method of presentation.