AURORA, ON, May 1 /PRNewswire-FirstCall/ - Magna International Inc. (TSX:MG.A; NYSE: MGA) today reported financial results for the first quarter endedMarch 31, 2008.
------------------------------------------------------------------------- THREE MONTHS ENDED ------------------------- March 31, March 31, 2008 2007 ------------ ------------
Sales $ 6,622 $ 6,423
Operating income $ 286 $ 305
Net income $ 207 $ 218
Diluted earnings per share $ 1.78 $ 1.96
------------------------------------------------------------------------- All results are reported in millions of U.S. dollars, except per share figures, which are in U.S. dollars. -------------------------------------------------------------------------
We posted sales of $6.6 billion for the first quarter ended March 31,2008, an increase of 3% over the first quarter of 2007. This higher saleslevel was achieved as a result of increases in European and Rest of Worldproduction sales, offset in part by reductions in North American productionsales, complete vehicle assembly sales, and tooling, engineering and othersales.
During the first quarter of 2008, North American and European averagedollar content per vehicle increased 5% and 21%, respectively, over thecomparable period in 2007. Also, during the first quarter of 2008, NorthAmerican vehicle production declined 9% and European vehicle productiondeclined 1%, each compared to the first quarter of 2007.
Complete vehicle assembly sales decreased 2% to $1.09 billion for thefirst quarter of 2008 compared to $1.10 billion for the first quarter of 2007and complete vehicle assembly volumes declined 28% to 43,546 units.
During the first quarter of 2008, operating income was $286 million, netincome was $207 million and diluted earnings per share were $1.78. Operatingincome decreased $19 million, net income decreased $11 million, and dilutedearnings per share decreased $0.18, each compared to the first quarter of2007.
During the three months ended March 31, 2008, we generated cash fromoperations before changes in non-cash operating assets and liabilities of $442million, and invested $218 million in non-cash operating assets andliabilities. Total investment activities for the first quarter of 2008 were$168 million, including $128 million in fixed asset additions, a $32 millionincrease in investments and other assets, and $8 million to purchasesubsidiaries.
Pursuant to the terms of our normal course issuer bid program, during thefirst quarter of 2008, we purchased for cancellation 1.6 million Class ASubordinate Voting Shares for cash consideration of $111 million.
A more detailed discussion of our consolidated financial results for thefirst quarter ended March 31, 2008 is contained in the Management's Discussionand Analysis of Results of Operations and Financial Position, and theunaudited interim consolidated financial statements and notes thereto, whichare attached to this Press Release.
DIVIDENDS
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Yesterday, our Board of Directors declared a quarterly dividend withrespect to our outstanding Class A Subordinate Voting Shares and Class BShares for the quarter ended March 31, 2008. The dividend of U.S. $0.36 pershare is payable on June 16, 2008 to shareholders of record on May 30, 2008.
2008 OUTLOOK
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For the full year 2008, we expect consolidated sales to be between $25.5billion and $26.8 billion, based on full year 2008 light vehicle productionvolumes of approximately 14.2 million units in North America and approximately15.6 million units in Europe. Full year 2008 average dollar content pervehicle is expected to be between $845 and $875 in North America and between$485 and $510 in Europe. We expect full year 2008 complete vehicle assemblysales to be between $3.9 billion and $4.2 billion.
In addition, we expect that full year 2008 spending for fixed assets willbe in the range of $900 million to $950 million.
This 2008 outlook assumes no significant acquisitions or divestitures, andno significant labour disruptions in our principal markets. In addition, wehave assumed that foreign exchange rates for the most common currencies inwhich we conduct business relative to our U.S. dollar reporting currency willapproximate current rates.
We are the most diversified global automotive supplier. We design, developand manufacture technologically advanced automotive systems, assemblies,modules and components, and engineer and assemble complete vehicles, primarilyfor sale to original equipment manufacturers ('OEMs') of cars and lighttrucks. Our capabilities include the design, engineering, testing andmanufacture of automotive interior systems; seating systems; closure systems;metal body and chassis systems; vision systems; electronic systems; exteriorsystems; powertrain systems; roof systems; as well as complete vehicleengineering and assembly.
We have approximately 83,000 employees in 238 manufacturing operations and60 product development and engineering centres in 23 countries.
------------------------------------------------------------------------- We will hold a conference call for interested analysts and shareholders to discuss our first quarter results on Thursday, May 1, 2008 at 1:30 p.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 1-800-763-5615. The number for overseas callers is 1-212-231-2903. 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 Thursday prior to the call.
For further information, please contact Louis Tonelli, Vice-President, Investor Relations at 905-726-7035.
For teleconferencing questions, please call Karin Kaminski at 905-726-7103. -------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS --------------------------
The previous discussion may contain statements that, to the extent thatthey are not recitations of historical fact, constitute 'forward-lookingstatements' within the meaning of applicable securities legislation.Forward-looking statements may include financial and other projections, aswell as statements regarding our future plans, objectives or economicperformance, or the assumptions underlying any of the foregoing. We use wordssuch as 'may', 'would', 'could', 'will', 'likely', 'expect', 'anticipate','believe', 'intend', 'plan', 'forecast', 'project', 'estimate' and similarexpressions to identify forward-looking statements. Any such forward-lookingstatements are based on assumptions and analyses made by us in light of ourexperience and our perception of historical trends, current conditions andexpected future developments, as well as other factors we believe areappropriate in the circumstances. However, whether actual results anddevelopments will conform with our expectations and predictions is subject toa number of risks, assumptions and uncertainties. These risks, assumptions anduncertainties include, without limitation: shifting OEM market shares,declining production volumes and changes in consumer demand for vehicles; areduction in the production volumes of certain vehicles, such as certain lighttrucks; our ability to compete with suppliers with operations in low costcountries; our ability to offset price concessions demanded by our customers;our dependence on outsourcing by our customers; our ability to offsetincreases in the cost of commodities, such as steel and resins, as well asenergy prices; fluctuations in relative currency values; changes in our mix ofearnings between jurisdictions with lower tax rates and those with higher taxrates, as well as our ability to fully benefit tax losses; other potential taxexposures; the financial distress of some of our suppliers and customers; theinability of our customers to meet their financial obligations to us; thetermination or non-renewal by our customers of any material contracts; ourability to fully recover pre-production expenses; warranty and recall costs;product liability claims in excess of our insurance coverage; expenses relatedto the restructuring and rationalization of some of our operations; impairmentcharges; our ability to successfully identify, complete and integrateacquisitions; risks associated with program launches; legal claims against us;risks of conducting business in foreign countries, including Russia; workstoppages and labour relations disputes; changes in laws and governmentalregulations; costs associated with compliance with environmental laws andregulations; the fact that we may be considered to be effectively controlled,indirectly, by the Stronach Trust and OJSC Russian Machines ('RussianMachines') for so long as the governance arrangements remain in place betweenthem; potential conflicts of interest involving the Stronach Trust and RussianMachines; the risk that the benefits, growth prospects and strategicobjectives expected to be realized from the investment by, and strategicalliance with, Russian Machines may not be fully realized, may take longer torealize than expected or may not be realized at all; the possibility that thegovernance arrangements between the Stronach Trust and Russian Machines mayterminate in certain circumstances; and other factors set out in our AnnualInformation Form filed with securities commissions in Canada and our annualreport on Form 40-F filed with the United States Securities and ExchangeCommission, and subsequent filings. In evaluating forward-looking statements,readers should specifically consider the various factors which could causeactual events or results to differ materially from those indicated by suchforward-looking statements. Unless otherwise required by applicable securitieslaws, we do not intend, nor do we undertake any obligation, to update orrevise 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 ofOperations and Financial Position ('MD&A') are in U.S. dollars and all tabularamounts are in millions of U.S. dollars, except per share figures and averagedollar 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 MagnaInternational Inc. and its subsidiaries and jointly controlled entities,unless the context otherwise requires.
This MD&A should be read in conjunction with the unaudited interimconsolidated financial statements for the three months ended March 31, 2008included in this Press Release, and the audited consolidated financialstatements and MD&A for the year ended December 31, 2007 included in our 2007Annual Report to Shareholders. The unaudited interim consolidated financialstatements for the three months ended March 31, 2008 have been prepared inaccordance with Canadian generally accepted accounting principles ('GAAP')with respect to the preparation of interim financial information and theaudited consolidated financial statements for the year ended December 31, 2007have been prepared in accordance with Canadian GAAP.
This MD&A has been prepared as at April 30, 2008.
OVERVIEW -------------------------------------------------------------------------
We are the most diversified global automotive supplier. We design, developand manufacture technologically advanced automotive systems, assemblies,modules and components, and engineer and assemble complete vehicles, primarilyfor sale to original equipment manufacturers ('OEMs') of cars and lighttrucks. Our capabilities include the design, engineering, testing andmanufacture of automotive interior systems; seating systems; closure systems;metal body and chassis systems; vision systems; electronic systems; exteriorsystems; powertrain systems; roof systems; as well as complete vehicleengineering and assembly. We follow a corporate policy of functional andoperational decentralization, pursuant to which we conduct our operationsthrough divisions, each of which is an autonomous business unit operatingwithin pre-determined guidelines. As at March 31, 2008, we had 238manufacturing divisions and 60 product development and engineering centres in23 countries.
Our operations are segmented on a geographic basis between North America,Europe and Rest of World (primarily Asia, South America and Africa). ACo-Chief Executive Officer heads management in each of our two primarymarkets, North America and Europe. The role of the North American and Europeanmanagement teams is to manage our interests to ensure a coordinated effortacross our different capabilities. In addition to maintaining key customer,supplier and government contacts in their respective markets, our regionalmanagement teams centrally manage key aspects of our operations whilepermitting our divisions enough flexibility through our decentralizedstructure to foster an entrepreneurial environment.
HIGHLIGHTS
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During the first quarter of 2008, we posted sales of $6.6 billion, anincrease of 3% over the first quarter of 2007. This higher sales level wasachieved as a result of increases in our European and Rest of World productionsales offset in part by reductions in our North American production sales,complete vehicle assembly sales and tooling, engineering and other sales.During the first quarter of 2008, North American and European average dollarcontent per vehicle increased 5% and 21%, respectively, over the first quarterof 2007, while North American and European vehicle production declined 9% and1%, respectively, each compared to the first quarter of 2007.
During the first quarter of 2008 our largest OEM customers in NorthAmerica continued to reduce vehicle production levels compared to the firstquarter of 2007. While overall North American vehicle production volumesdeclined 9% in the first quarter of 2008 compared to the first quarter of2007, General Motors ('GM') and Chrysler vehicle production declined by 16%and 14%, respectively.
The production declines in the first quarter of 2008 reflect a number offactors that impacted our largest customers in North America. In particular,GM experienced production interruptions due to part shortages caused by labourdisruptions at American Axle & Manufacturing, declining market share, highinventory levels on certain vehicles, and a shift in consumer preferences awayfrom certain light trucks. The lower production levels at our largest OEMcustomers negatively impacted our sales and earnings, as our content on anumber of these programs is higher than our consolidated average dollarcontent per vehicle in North America.
Operating income for the first quarter of 2008 decreased 6% or $19 millionto $286 million from $305 million for the first quarter of 2007. The decreasein operating income was primarily due to decreased margins earned as a resultof lower production volumes on certain programs in North America, decreasedmargins earned on lower volumes for certain assembly programs, an additionalimpairment of our investments in asset-backed commercial paper ('ABCP'), (see'Cash Resources' section below), launch costs incurred at certain facilitiesin preparation for programs that will launch during or subsequent to 2008, aswell as incremental customer price concessions. These factors were partiallyoffset by additional margins earned on the launch of new programs during orsubsequent to the first quarter of 2007, an increase in margin due to thecurrency translation, and productivity improvements at certain divisions.
Net income for the first quarter of 2008 decreased 5% or $11 million to$207 million from $218 million for the first quarter of 2007. The decrease innet income was a result of the decrease in operating income partially offsetby lower income taxes.
Diluted earnings per share for the first quarter of 2008 decreased 9% or$0.18 to $1.78 from $1.96 for the first quarter of 2007 as a result of thedecrease in net income combined with an increase in the weighted averagenumber of diluted shares outstanding. The increase in the weighted averagenumber of diluted shares outstanding was primarily due to the Class ASubordinate Voting Shares issued in 2007 in connection with the court-approvedplan of arrangement (the 'Arrangement') whereby OJSC Russian Machines, awholly owned subsidiary of Basic Element Limited, made a major strategicinvestment in Magna. This increase was partially offset by the purchase andcancellation of Class A Subordinate Voting Shares under the terms of ourSubstantial Issuer Bid ('SIB'), which was fully completed in 2007, as well asour ongoing Normal Course Issuer Bid ('NCIB').
CAPITAL TRANSACTIONS
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On November 12, 2007, we commenced an NCIB to purchase for cancellationand/or for purposes of our long-term retention (restricted stock), restrictedstock unit and similar programs, up to 9 million of our Class A SubordinateVoting Shares. As at March 31, 2008, we had purchased for cancellationapproximately 4.1 million Class A Subordinate Voting Shares for an aggregatepurchase price of $318 million, of which 1.6 million shares were purchasedduring the first quarter of 2008 for an aggregate purchase price of $111million. The NCIB will expire on November 11, 2008, unless extended by usprior to that time.
INDUSTRY TRENDS AND RISKS
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Our success is primarily dependent upon the levels of North American andEuropean car and light truck production by our customers and the relativeamount of content we have on the various programs. OEM production volumes indifferent regions may be impacted by factors which may vary from one region tothe next, including general economic and political conditions, interest rates,credit availability, energy and fuel prices, international conflicts, labourrelations issues, regulatory requirements, trade agreements, infrastructure,legislative changes, and environmental emissions and safety issues. A numberof other economic, industry and risk factors discussed in our AnnualInformation Form and Annual Report on Form 40-F, each in respect of the yearended December 31, 2007, also affect our success, including such things asrelative currency values, commodities prices, price reduction pressures fromour customers, the financial condition of our supply base and competition frommanufacturers with operations in low cost countries.
The economic, industry and risk factors discussed in our AnnualInformation Form and Annual Report on Form 40-F, each in respect of the yearended December 31, 2007, remain substantially unchanged in respect of thefirst quarter ended March 31, 2008.
RESULTS OF OPERATIONS -------------------------------------------------------------------------
Average Foreign Exchange For the three months ended March 31, ------------------------- 2008 2007 Change -------------------------------------------------------------------------
1 Canadian dollar equals U.S. dollars 0.997 0.854 + 17% 1 euro equals U.S. dollars 1.499 1.311 + 14% 1 British pound equals U.S. dollars 1.979 1.954 + 1% -------------------------------------------------------------------------
The preceding table reflects the average foreign exchange rates betweenthe most common currencies in which we conduct business and our U.S. dollarreporting currency. The significant changes in these foreign exchange ratesfor the three months ended March 31, 2008 impacted the reported U.S. dollaramounts of our sales, expenses and income.
The results of operations whose functional currency is not the U.S. dollarare translated into U.S. dollars using the average exchange rates in the tableabove for the relevant period. Throughout this MD&A, reference is made to theimpact of translation of foreign operations on reported U.S. dollar amountswhere relevant.
Our results can also be affected by the impact of movements in exchangerates on foreign currency transactions (such as raw material purchases orsales denominated in foreign currencies). However, as a result of hedgingprograms employed by us, primarily in Canada, foreign currency transactions inthe current period have not been fully impacted by movements in exchangerates. We record foreign currency transactions at the hedged rate whereapplicable.
Finally, holding gains and losses on foreign currency denominated monetaryitems, which are recorded in selling, general and administrative expenses,impact reported results.
Sales For the three months ended March 31, ------------------------- 2008 2007 Change -------------------------------------------------------------------------
Vehicle Production Volumes (millions of units) North America 3.487 3.829 - 9% Europe 4.196 4.249 - 1% -------------------------------------------------------------------------
Average Dollar Content Per Vehicle North America $ 874 $ 832 + 5% Europe $ 473 $ 390 + 21% -------------------------------------------------------------------------
Sales External Production North America $ 3,049 $ 3,187 - 4% Europe 1,985 1,657 + 20% Rest of World 121 87 + 39% Complete Vehicle Assembly 1,086 1,104 - 2% Tooling, Engineering and Other 381 388 - 2% ------------------------------------------------------------------------- Total Sales $ 6,622 $ 6,423 + 3% ------------------------------------------------------------------------- -------------------------------------------------------------------------
External Production Sales - North America
External production sales in North America decreased 4% or $138 million to$3.05 billion for the first quarter of 2008 compared to $3.19 billion for thefirst quarter of 2007. This decrease in production sales reflects a 9%decrease in North American vehicle production volumes partially offset by a 5%increase in our North American average dollar content per vehicle. Moreimportantly, during the first quarter of 2008 our largest customers in NorthAmerica continued to reduce vehicle production volumes compared to the firstquarter of 2007. While North American vehicle production volumes declined 9%in the first quarter of 2008 compared to the first quarter of 2007, GM andChrysler vehicle production declined 16% and 14%, respectively.
Our average dollar content per vehicle grew by 5% or $42 to $874 for thefirst quarter of 2008 compared to $832 for the first quarter of 2007 primarilyas a result of an increase in reported U.S. dollar sales due to thestrengthening of the Canadian dollar against the U.S. dollar. Excluding theeffect of foreign exchange our average dollar content per vehicle decreasedprimarily as a result of:
- the impact of lower production and/or content on certain programs, including: - GM's full-sized pickups; - the Ford Expedition and Lincoln Navigator; - the Hummer H3; - the Chevrolet Trailblazer, GMC Envoy and Buick Rainier; and - the Dodge Nitro; - programs that ended production during or subsequent to the first quarter of 2007, including: - the Chrysler Pacifica; and - the Saturn ION; and - incremental customer price concessions.
These factors were partially offset by:
- the launch of new programs during or subsequent to the first quarter of 2007, including: - the Dodge Journey; - the Buick Enclave; - the Ford Escape, Mercury Mariner and Mazda Tribute; - the Jeep Liberty; and - the Cadillac CTS; and - increased production and/or content on certain programs, including: - the BMW X5; - the Chrysler 300 and 300C, and Dodge Charger and Magnum; - the Chevrolet Equinox, Pontiac Torrent and Suzuki XL7; - the Ford Fusion, Mercury Milan and Lincoln MKZ; - GM's full-sized sport utility vehicles; and - the Ford Edge and Lincoln MKX.
External Production Sales - Europe
External production sales in Europe increased 20% or $328 million to $1.99billion for the first quarter of 2008 compared to $1.66 billion for the firstquarter of 2007. This increase in production sales reflects a 21% increase inour European average dollar content per vehicle partially offset by a 1%decrease in European vehicle production volumes.
Our average dollar content per vehicle grew by 21% or $83 to $473 for thefirst quarter of 2008 compared to $390 for the first quarter of 2007,primarily as a result of:
- an increase in reported U.S. dollar sales due to the strengthening of the euro and British pound, each against the U.S. dollar; - the launch of new programs during or subsequent to the first quarter of 2007, including: - the Mercedes-Benz C-Class; - the MINI Clubman; and - the Volkswagen Tiguan; - increased production and/or content on certain programs, including - the smart fortwo; - the Volkswagen Transporter/Multivan; - the Porsche Cayenne and Volkswagen Touareg; - the BMW 1-Series and 1-Series Coupe/Convertible; and - the Volkswagen Caddy.
These factors were partially offset by:
- the impact of lower production and/or content on certain programs, including the MINI Cooper; - programs that ended production during or subsequent to the first quarter of 2007, including the Chrysler Voyager; - the sale of certain facilities during or subsequent to the first quarter of 2007; and - incremental customer price concessions.
External Production Sales - Rest of World
External production sales in the Rest of World increased 39% or $34million to $121 million for the first quarter of 2008 compared to $87 millionfor the first quarter of 2007. The increase in production sales is primarilyas a result of:
- the launch of new programs during or subsequent to the first quarter of 2007 in South Africa, China and Korea; - increased production and/or content on certain programs in China and Brazil; and - an increase in reported U.S. dollar sales as a result of the strengthening of the Brazilian real and Chinese Renminbi, each against the U.S. dollar.
Complete Vehicle Assembly Sales
The terms of our various vehicle assembly contracts differ with respect tothe ownership of components and supplies related to the assembly process andthe method of determining the selling price to the OEM customer. Under certaincontracts we are acting as principal, and purchased components and systems inassembled vehicles are included in our inventory and cost of sales. Thesecosts are reflected on a full-cost basis in the selling price of the finalassembled vehicle to the OEM customer. Other contracts provide that thirdparty components and systems are held on consignment by us, and the sellingprice to the OEM customer reflects a value-added assembly fee only.
Production levels of the various vehicles assembled by us have an impacton the level of our sales and profitability. In addition, the relativeproportion of programs accounted for on a full-cost basis and programsaccounted for on a value-added basis, also impacts our level of sales andoperating margin percentage, but may not necessarily affect our overall levelof profitability. Assuming no change in total vehicles assembled, a relativeincrease in the assembly of vehicles accounted for on a full-cost basis hasthe effect of increasing the level of total sales, however, because purchasedcomponents are included in cost of sales, profitability as a percentage oftotal sales is reduced. Conversely, a relative increase in the assembly ofvehicles accounted for on a value-added basis has the effect of reducing thelevel of total sales and increasing profitability as a percentage of totalsales.
For the three months ended March 31, ------------------------- 2008 2007 Change -------------------------------------------------------------------------
Complete Vehicle Assembly Sales $ 1,086 $ 1,104 - 2% -------------------------------------------------------------------------
Complete Vehicle Assembly Volumes (Units) Full-Costed: BMW X3, Mercedes-Benz G-Class, and Saab 9(3) Convertible 32,881 38,237 - 14% Value-Added: Jeep Grand Cherokee, Chrysler 300, Chrysler Voyager, and Jeep Commander 10,665 22,532 - 53% ------------------------------------------------------------------------- 43,546 60,769 - 28% ------------------------------------------------------------------------- -------------------------------------------------------------------------
Complete vehicle assembly sales decreased 2% or $18 million to $1.09billion for the first quarter of 2008 compared to $1.10 billion for the firstquarter of 2007 while assembly volumes decreased 28% or 17,223 units.
