Magna Announces 1998 Second Quarter Results
12 March 1998
Magna Announces 1998 Second Quarter Results
AURORA, Ont., March 11 /CNW-PRN/ - Magna International Inc. (TSE: MG.A,
MG.B; ME: MG.A; NYSE: MGA) today reported sales, profits and earnings per
share for the second quarter ended January 31, 1998.
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Six Months Ended Three Months Ended
January 31 January 31
1998 1997 1998 1997
Sales $4252.1 $3632.4 $2167.8 $1795.7
Operating Income $ 306.8 $ 310.4 $ 159.5 $ 142.9
Net Income $ 233.4 (2) $ 366.0 (1) $ 138.3 (2) $ 231.2 (1)
Excl. MST/TBCA Gain $ 197.6 $ 197.3 $ 102.5 $ 92.5
Fully diluted earnings
per share $ 2.97 $ 4.34 $ 1.75 $ 2.97
Excl. MST/TBCA Gain $ 2.53 $ 2.58 $ 1.31 $ 1.21
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(1) Includes a $138.7 million gain on the sale of an 80% interest in
MST/TBCA
(2) Includes a $35.8 million gain on the sale of the reamining 20%
interest in MST/TBCA
All results are reported in millions of Canadian dollars,
except per share figures.
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Sales for the second quarter and first half of fiscal 1998 were a record
$2.17 billion and $4.25 billion respectively, an increase of approximately 21%
and 17% over the comparable periods of fiscal 1997. The higher sales levels
in the second quarter reflect a 12% increase in North American content per
vehicle over the comparable period of fiscal 1997, a period in which North
American vehicle production increased approximately 3% to 3.46 million
vehicles, a 31% increase in European production sales and higher tooling
sales, which reflect increased involvement by Magna in new programs and
vehicle launches by OEM customers in fiscal years 1998 and 1999.
Net income for the second quarter increased 11% to $102.5 million compared
to $92.5 million in the second quarter of fiscal 1997, excluding the gains on
the sale to TRW Inc. of the Company's European airbag and steering wheel
business (MST/TBCA). The Company recognized a gain, net of tax, of $138.7
million from the sale of an 80% equity interest in MST/TBCA in the second
quarter of fiscal 1997 and recognized a gain, net of tax, of $35.8 million on
the sale of the remaining 20% interest in the second quarter of fiscal 1998.
Including these gains, net income was $138.3 million in the second quarter
compared to $231.2 million in the second quarter of the prior year.
Fully diluted earnings per share increased to $1.31 in the second quarter
compared to $1.21 for the second quarter of fiscal 1997, excluding the
MST/TBCA gain in each period. Including the gains, fully diluted earnings per
share was $1.75 in the second quarter of fiscal 1998 compared to $2.97 in the
prior fiscal year.
During the first half of fiscal 1998, cash generated from operations was
$354 million. Net investment activities were $732 million, including $498
million invested in fixed assets and $184 million for the purchase of
subsidiaries, principally for the acquisition of the YMOS Automotive Group.
The Board of Directors declared a dividend of $0.33 per share with respect
to the Class A Subordinate Voting Shares and Class B Shares for the quarter
ended January 31, 1998 payable on April 15, 1998 to shareholders of record on
March 31, 1998.
Magna announced that it has concluded the previously disclosed acquisition
of 100% of the shares of Roltra Morse S.p.A. (``Roltra Morse''). Roltra Morse
is a leading supplier of automotive latches, window regulators, cable systems,
door modules and gear shift mechanisms to OEMs in Europe, South America and
Turkey. It had calendar 1997 sales of approximately Cdn $150 million to Fiat,
Saab, Porsche and Rolls Royce and employs approximately 1,050 people in Italy,
Poland, Brazil and Turkey.
Frank Stronach, Chairman of the Board, has written the attached Letter to
Shareholders clarifying statements made in recent news articles concerning the
Company's intention to invest in non-automotive businesses.
Magna, one of the most diversified automotive suppliers in the world,
designs, develops and manufactures automotive systems, assemblies and
components primarily for sale to original equipment manufacturers of cars and
light trucks in North America, Mexico, South America and Europe. Magna's
products include exterior decorative systems, interior products including
seating systems, door and other panels, and sound insulation systems, stamped
and welded metal parts and assemblies, sunroofs, electro-mechanical devices
and assemblies, and through Decoma International Inc., a variety of plastic
parts, including body panels and fascias and through Tesma International Inc.,
various engine, powertrain and fueling and cooling components.
Magna has over 40,000 employees in 141 manufacturing operations and 27
product development and engineering centres in 16 countries.
<<
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
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(Unaudited)
(Canadian dollars in millions,
except per share figures) Six Months Ended Three Months Ended
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January 31 January 31
1998 1997 1998 1997
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Sales $4,252.1 $3,632.4 $2,167.8 $1,795.7
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Cost of goods sold 3,528.1 2,996.7 1,797.6 1,489.5
Depreciation and amortization 136.3 113.0 70.5 57.1
Selling, general and
administrative 291.5 232.8 143.9 115.5
Interest expense (income) 0.9 (6.9) 1.6 (2.1)
Equity income (11.5) (13.6) (5.3) (7.2)
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Operating income 306.8 310.4 159.5 142.9
Other income 38.3 148.7 38.3 148.7
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Income before income taxes
and minority interest 345.1 459.1 197.8 291.6
Income taxes 107.3 114.0 57.2 57.5
Minority interest 4.4 9.1 2.3 2.9
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Net income 233.4 336.0 138.3 231.2
Retained earnings,
beginning of period 1,302.3 798.3 1,370.9 880.0
Accretion of other paid-in
capital (10.3) (9.6) (5.2) (4.9)
Dividends on Class A Subordinate
Voting Shares and Class B Shares (44.7) (37.3) (23.3) (18.9)
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Retained earnings, end
of period $1,480.7 $1,087.4 $1,480.7 $1,087.4
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Earnings per Class A Subordinate
Voting Share or Class B Share:
Basic $ 3.13 $ 4.69 $ 1.87 $ 3.25
Fully diluted $ 2.97 $ 4.34 $ 1.75 $ 2.97
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Cash dividends paid per
Class A Subordinate Voting
Share or Class B Share $ 0.63 $ 0.54 $ 0.33 $ 0.27
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Average number of Class A
Subordinate Voting Shares and
Class B Shares outstanding
during the period (in millions):
Basic 71.2 69.7 71.2 69.7
Fully diluted 80.2 78.6 80.2 78.7
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MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
(Canadian dollars in millions) Six Months Ended Three Months Ended
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January 31 January 31
1998 1997 1998 1997
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Cash provided from (used for):
OPERATING ACTIVITIES
Net income $233.4 $ 336.0 $138.3 $ 231.2
Items not involving current
cash flows 120.5 (23.3) 48.5 (83.4)
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353.9 312.7 186.8 147.8
Changes in non-cash working
capital (300.1) (40.6) (89.5) (53.5)
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53.8 272.1 97.3 94.3
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INVESTMENT ACTIVITIES
Fixed asset additions (498.3) (297.9) (251.8) (124.5)
Purchase of subsidiaries (184.3) (262.6) (151.8) (79.6)
Increase in investments
and other (49.7) (15.3) (32.7) (8.3)
Proceeds from disposition
of fixed assets and other 166.2 374.9 164.1 360.2
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(566.1) (200.9) (272.2) 147.8
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FINANCING ACTIVITIES
Net issue of debt 144.8 28.0 7.3 1.4
Repayment of debentures' interest
obligation (10.8) (9.8) (2.6) (2.4)
Issues of Class A Subordinate
Voting Shares 0.4 23.1 0.2 23.1
Conversion of convertible
subordinated debentures (0.1)
Issue of shares by subsidiary 1.1 1.1
Dividends paid to minority interests (1.2) (8.7) (0.6) (8.0)
Dividends (44.7) (37.3) (23.3) (18.9)
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89.5 (4.7) (17.9) (4.8)
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Net (decrease) increase in cash (422.8) 66.5 (192.8) 237.3
Cash, beginning of period 878.8 1,089.8 648.8 919.0
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Cash, end of period $456.0 $1,156.3 $456.0 $1,156.3
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MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
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(Unaudited)
(Canadian dollars in millions)
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January 31 July 31
1998 1997
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ASSETS
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Current assets:
Cash $ 456.0 $ 878.8
Accounts receivable 1,499.0 1,165.0
Inventories 703.5 669.3
Prepaid expenses and other 46.1 34.9
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2,704.6 2,748.0
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Investments 54.3 99.9
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Fixed assets (net) 2,691.1 2,071.1
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Goodwill 332.1 297.8
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Other assets 146.6 111.9
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$5,928.7 $5,328.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Bank indebtedness $ 188.6 $ 30.3
Accounts payable and other accruals 1,635.8 1,535.8
Long-term debt due within one year 21.3 14.2
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1,845.7 1,580.3
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Long-term debt 94.5 80.8
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Debentures' interest obligation 162.8 168.1
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Deferred income taxes 124.6 120.0
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Minority interest 128.2 113.5
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Shareholders' equity:
Capital stock issued and outstanding -
Class A Subordinate Voting Shares
(issued: 70,088,566; July 31, 1997 - 70,084,554) 1,568.4 1,568.0
Class B Shares
(convertible into Class A Subordinate
Voting Shares)
(issued: 1,098,309) 1.3 1.3
Other paid-in capital 472.3 457.8
Retained earnings 1,480.7 1,302.3
Currency translation adjustment 50.2 (63.4)
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3,572.9 3,266.0
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$5,928.7 $5,328.7
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>>
Wednesday, March 11, 1998
LETTER TO SHAREHOLDERS
A Strong Automotive Focus
There has been a number of recent news articles reporting on Magna's
intention to invest in non-automotive businesses. I would like to set the
record straight concerning the inaccurate and misleading statements that have
been made in many of these media articles.
First of all, let me be perfectly clear about the business direction and
future growth of Magna International: Magna is, always has been, and always
will be an automotive parts company. That has been the vision for this Company
since I first founded Magna more than 40 years ago. From the small tool and
die shop that I opened in 1957, Magna has grown into a global corporation with
more than 40,000 employees. During that time, we have consistently provided
our shareholders with above average returns on a per share basis, and my own
track record shows that I have been consistently focused and disciplined in my
approach to business growth. My original vision for Magna, supported by an
entrepreneurial corporate culture which rewards innovation and productivity,
remains as strong today as it has always been.
Corporate Vision: Building A $30 Billion Company With Magna's Proven
Operating Principles
As we continue to put in place the building blocks of a truly global
corporation, I remain driven by a passion to make Magna the pre-eminent
automotive systems company in the world. Going forward, my personal goal and
vision for Magna is to see our Company triple in size, becoming a company with
$30 billion in consolidated sales that provides our shareholders with superior
returns relative to our peer group. Magna, which currently has three percent
of the global automotive parts market, will strive to capture ten percent of
the world's automotive parts business by providing superior service and
quality products to our customers, thereby ensuring great growth and increased
earnings per share for our shareholders.
As the founder and Chairman of Magna, I have never been content to let the
Company rest on its laurels. I have never been complacent in our approach to
seizing new opportunities and growing our business in a dynamic and profitable
way. I am proud to say that we have always been at the forefront of change and
competitive developments on behalf of our customers. We intend to remain
aggressive in our pursuit of bottom-line growth as measured by earnings and
return on capital.
A Track Record of Achievement: On The Leading Edge of New Developments
A review of the history of our growth over the past two decades reveals
that we have been at the leading edge of change in our industry. In the 1980s,
Magna was a component supplier. I realized that the industry was evolving
toward the supply of larger, more complex automotive components and systems
and that automotive customers were looking to their suppliers to provide more
design and engineering capabilities. I began to reposition Magna from being
strictly a components supplier to a large systems supplier with advanced
in-house design, engineering and prototyping capabilities.
During the latter part of the 1980s, the automotive industry entered into
a severe cyclical downturn, and automotive vehicle production declined
substantially. Admittedly, Magna had allowed itself to become financially
overextended in order to support rapid growth and maintain customer
commitments. In the process, our financial results suffered. I want to point
out that some have wrongly characterized our financial problems during that
time as the result of investments in non-automotive businesses. Nothing could
be further from the truth. Clearly, the automotive recession, a high fixed
cost burden and high levels of debt were responsible for the financial
problems Magna experienced. It is for these reasons that we intend to keep
debt at a minimum level relative to our equity.
In the early 1990s, I recognized that the automotive industry was becoming
more global. At that time we made a strategic decision to reposition Magna
from being a predominantly North American supplier to being a major global
supplier. As a result, we began expanding our operations base into Europe,
primarily via acquisitions of underperforming assets with key technologies and
systems capabilities.
Many shareholders were concerned and some openly critical when the Company
began expanding our European operations. Our strategy was to develop superior
technological and engineering assets, adding our management expertise and
operating know-how to improve profitability. We were fortunate in that we were
able to acquire such assets at attractive prices. At the same time, profit
margins on those assets were far below what Magna was accustomed to achieving.
Critics believed that we would be unable to boost margins. The record shows
that we not only improved margins but exceeded our own internal goals. Five
years later, our European operations now exceed $2 billion in revenues and are
contributing significantly to the profitability and cash flow of our Company.
Many of the underperforming assets we purchased have been turned around and
have enjoyed a significant appreciation in value.
Today, Magna stands as one of the premier automotive systems suppliers in
the world with approximately $10 billion in projected consolidated annual
sales. Looking ahead, I firmly believe that we have enormous opportunities for
growth. I wish to repeat my firmly-held conviction that Magna is well on the
road to tripling in size. But at the same time I want to stress that we are
not interested in growing simply for growth's sake. On the contrary, we want
to provide our shareholders with consistent, bottom-line returns. In any
strategic development we have undertaken, it has always been my goal to
maximize the bottom-line results of our Company.
New Venture Capital Company: Providing Even Greater Returns
That same goal applies to the new venture capital company which Magna is
in the process of establishing, and which has been the recent focus of some
shareholder concern. The mandate of this new company is to explore investment
opportunities in non-automotive businesses. It will be committed to investing
in businesses where we expect to yield higher returns than those that could be
obtained by investing strictly in the automotive business. I want to stress
that any venture capital projects currently under review are at a very early
stage of assessment and we have made no financial or other commitments in this
regard.
I also want to stress it is our intention that this venture capital
company will be a separate public company with a separate management team,
completely removed from Magna's automotive operations, so that Magna's
management team can continue to remain entirely focused on the development and
expansion of our core automotive business. This approach is in keeping with
the strong, decentralized operating principles we have established at Magna
over the years.
Furthermore, the venture capital company will remain a non-core and
non-strategic element of Magna's overall business profile -- a profile which
will continue to be dominated by our business as an automotive systems
supplier.
Shareholders should know that, as the founder of Magna, our Company is
much more to me than just a business. I've spent most of my life building
Magna into the company it is today. I will continue to remain extremely
focused on developing our core automotive business and in maximizing both top
and bottom line growth in the best interests of our customers, employees and
shareholders. In summary, I strongly believe Magna is a great company with a
great future.
Sincerely,
(signed) Frank Stronach
Frank Stronach
Chairman of the Board