Magna International Inc 6-K, filed Aug 6, 2021
Magna International Inc (MGA)
About this 6-K
Magna International Inc filed this 6-K on August 6, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934
For the month of August 2021
Commission File Number 001-11444
| MAGNA INTERNATIONAL INC. | ||
(Exact Name of Registrant as specified in its Charter)
| ||
| 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 | ||
| (Address of principal executive office) | ||
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ¨ Form 40-F x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: August 6, 2021 |
MAGNA INTERNATIONAL INC. | |
| By: | /s/ “Bassem Shakeel” | |
| Bassem A. Shakeel, | ||
| Vice-President and Corporate Secretary | ||
EXHIBITS
Exhibit 99.1
 |
PRESS RELEASE |
| MAGNA ANNOUNCES SECOND QUARTER 2021 RESULTS |
| · | Sales more than doubled to $9.0 billion, reflecting global light vehicle production increase of 58% |
| · | Diluted earnings per share and adjusted diluted earnings per share of $1.40, compared to losses of $2.17 and $1.71 last year, respectively |
| · | Reduced outlook, largely reflecting reduction in expected global light vehicle production due to continued industry semiconductor chip shortage |
AURORA, Ontario, August 6, 2021 — Magna International Inc. (TSX: MG; NYSE: MGA) today reported financial results for the second quarter ended June 30, 2021.
| THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Reported | ||||||||||||||||
| Sales | $ | 9,034 | $ | 4,293 | $ | 19,213 | $ | 12,950 | ||||||||
| Income (loss) from operations before income taxes | $ | 540 | $ | (789 | ) | $ | 1,345 | $ | (403 | ) | ||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | $ | 1,039 | $ | (386 | ) | ||||||
| Diluted earnings (loss) per share | $ | 1.40 | $ | (2.17 | ) | $ | 3.42 | $ | (1.29 | ) | ||||||
| Non-GAAP Financial Measures(1) | ||||||||||||||||
| Adjusted EBIT | $ | 557 | $ | (600 | ) | $ | 1,327 | $ | (197 | ) | ||||||
| Adjusted diluted earnings (loss) per share | $ | 1.40 | $ | (1.71 | ) | $ | 3.27 | $ | (0.83 | ) | ||||||
| All results are reported in millions of U.S. dollars, except per share figures, which are in U.S. dollars | |
| (1) | Adjusted EBIT and Adjusted diluted earnings per share are Non-GAAP financial measures that have no standardized meaning under U.S. GAAP, and as a result may not be comparable to the calculation of similar measures by other companies. A reconciliation of these Non-GAAP financial measures is included in the back of this press release. |
 |
“Considering the extent of the unexpected production disruptions in the second quarter as a result of the semiconductor chip shortage, we were pleased with our overall performance for the quarter. I attribute this to our operating model, which allows us to remain flexible and nimble in adapting to changes in the production environment.
We continue to be highly focused on driving operational excellence across the Company to ensure we further enhance our competitive position in the industry.”
- Swamy Kotagiri, Magna’s Chief Executive Officer |
| Magna Announces SECOND quarter 2021 results | CONNECT WITH MAGNA | 1 |
THREE MONTHS ENDED JUNE 30, 2021
As a result of significant production disruptions due to the global semiconductor chip shortage that continues to negatively impact global light vehicle production, our sales, Adjusted EBIT and diluted earnings per share came in well below our expectations for the second quarter of 2021.
The second quarter of 2020 included unprecedented, industry-wide production suspensions due to the COVID-19 pandemic, while the second quarter of 2021 included the production disruptions due to the ongoing global semiconductor chip shortage, making the quarters difficult to compare.
We posted sales of $9.0 billion for the second quarter of 2021, an increase of 110% over the second quarter of 2020, as global light vehicle production increased 58%, largely driven by increases in North America and Europe.
Adjusted EBIT of $557 million in the second quarter of 2021 increased $1.2 billion over the second quarter of 2020, largely driven by higher sales.
Income (loss) from operations before income taxes was $540 million for the second quarter of 2021 compared to $(789) million in the second quarter of 2020. Included in income from operations before income taxes in the second quarter of 2021 were Other expense, net items totaling $6 million, comprised of net restructuring costs, partially offset by unrealized gains related to the revaluation of public company warrants and certain public and private equity investments. Included in loss from operations before income taxes in the second quarter of 2020 were Other expense, net items totaling $168 million comprised of restructuring and impairment charges. Excluding Other expense, net from both periods, income from operations before income taxes increased $1.2 billion in the second quarter of 2021 compared to the second quarter of 2020.
Net income (loss) attributable to Magna International Inc. was $424 million for the second quarter of 2021 compared to $(647) million for the second quarter of 2020. Included in net income attributable to Magna International Inc. in the second quarters of 2021 and 2020 were Other expense, net items totaling $2 million and $136 million after tax, respectively. Excluding Other income, net from both periods, net income attributable to Magna International Inc. increased $937 million in the second quarter of 2021 compared to the second quarter of 2020.
Diluted earnings (loss) per share increased to $1.40 in the second quarter of 2021, compared to $(2.17) in the comparable period and adjusted diluted earnings (loss) per share increased 182% to $1.40 compared to $(1.71).
In the second quarter of 2021, we generated cash from operations before changes in operating assets and liabilities of $777 million and used $249 million in operating assets and liabilities. Investment activities for the second quarter of 2021 included $277 million in fixed asset additions, a $93 million increase in investments, other assets and intangible assets, $21 million in acquisitions, and $17 million in public and private equity investments.
| Magna Announces SECOND quarter 2021 results | CONNECT WITH MAGNA | 2 |
SIX MONTHS ENDED JUNE 30, 2021
We posted sales of $19.2 billion for the six months ended June 30, 2021, an increase of 48% from the six months ended June 30, 2020, as global light vehicle production increased 36%, largely driven by a 41% increase in North America and a 37% increase in Europe.
Adjusted EBIT was $1.3 billion for the six months ended June 30, 2021 compared to an Adjusted EBIT loss of $197 million for the six months ended June 30, 2020, largely driven by higher sales.
During the six months ended June 30, 2021, income from operations before income taxes was $1.3 billion, net income attributable to Magna International Inc. was $1.0 billion and diluted earnings per share was $3.42, increases of $1.7 billion, $1.4 billion and $4.71, respectively, each compared to the first six months of 2020.
During the first six months ended June 30, 2021, Adjusted EBIT increased to $1.3 billion and Adjusted diluted earnings per share increased to $3.27, each compared to the first six months of 2020.
For the six months ended June 30, 2021, we generated cash from operations before changes in operating assets and liabilities of $1.7 billion and used $559 million in operating assets and liabilities. Investment activities for the six months ended June 30, 2021 included $489 million in fixed asset additions, a $197 million increase in investments, other assets and intangible assets, and $20 million in public and private equity investments. We also assumed net cash of $18 million related to business combinations.
RETURN OF CAPITAL TO SHAREHOLDERS
During the three months ended June 30, 2021, we paid dividends of $127 million and repurchased for cancellation 1.0 million shares for $99 million.
Our Board of Directors declared a second quarter dividend of $0.43 per Common Share, payable on September 3, 2021 to shareholders of record as of the close of business on August 20, 2021.
 |
“The short-term industry production disruptions have led us to reduce our outlook. Nevertheless, we have maintained our expectations for free cash flow in 2021. In addition, we anticipate that the coming years will see some recovery of lost industry production, which should be a positive for our sales, earnings and free cash flow.”
- Vince Galifi, Magna’s Chief Financial Officer |
| Magna Announces SECOND quarter 2021 results | CONNECT WITH MAGNA | 3 |
SEGMENT SUMMARY
| For the three months ended June 30, | ||||||||||||||||||||||||
| Sales | Adjusted EBIT | |||||||||||||||||||||||
| ($Millions unless otherwise noted) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||
| Body Exteriors & Structures | $ | 3,647 | $ | 1,623 | $ | 2,024 | $ | 227 | $ | (315 | ) | $ | 542 | |||||||||||
| Power & Vision | 2,881 | 1,298 | 1,583 | 203 | (226 | ) | 429 | |||||||||||||||||
| Seating Systems | 1,166 | 524 | 642 | 26 | (84 | ) | 110 | |||||||||||||||||
| Complete Vehicles | 1,490 | 933 | 557 | 79 | 44 | 35 | ||||||||||||||||||
| Corporate and Other | (150 | ) | (85 | ) | (65 | ) | 22 | (19 | ) | 41 | ||||||||||||||
| Total Reportable Segments | $ | 9,034 | $ | 4,293 | $ | 4,741 | $ | 557 | $ | (600 | ) | $ | 1,157 | |||||||||||
| For the three months ended June 30, | ||||||||||||
Adjusted EBIT as a percentage of sales | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Body Exteriors & Structures | 6.2 | % | (19.4 | )% | 25.6 | % | ||||||
| Power & Vision | 7.0 | % | (17.4 | )% | 24.4 | % | ||||||
| Seating Systems | 2.2 | % | (16.0 | )% | 18.2 | % | ||||||
| Complete Vehicles | 5.3 | % | 4.7 | % | 0.6 | % | ||||||
| Consolidated Average | 6.2 | % | (14.0 | )% | 20.2 | % | ||||||
| For the six months ended June 30, | ||||||||||||||||||||||||
| Sales | Adjusted EBIT | |||||||||||||||||||||||
| ($Millions unless otherwise noted) | 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||
| Body Exteriors & Structures | $ | 7,672 | $ | 5,299 | $ | 2,373 | $ | 554 | $ | (116 | ) | $ | 670 | |||||||||||
| Power & Vision | 6,037 | 3,821 | 2,216 | 500 | (91 | ) | 591 | |||||||||||||||||
| Seating Systems | 2,469 | 1,785 | 684 | 81 | (44 | ) | 125 | |||||||||||||||||
| Complete Vehicles | 3,340 | 2,254 | 1,086 | 159 | 94 | 65 | ||||||||||||||||||
| Corporate and Other | (305 | ) | (209 | ) | (96 | ) | 33 | (40 | ) | 73 | ||||||||||||||
| Total Reportable Segments | $ | 19,213 | $ | 12,950 | $ | 6,263 | $ | 1,327 | $ | (197 | ) | $ | 1,524 | |||||||||||
| For the six months ended June 30, | ||||||||||||
Adjusted EBIT as a percentage of sales | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Body Exteriors & Structures | 7.2 | % | (2.2 | )% | 9.4 | % | ||||||
| Power & Vision | 8.3 | % | (2.4 | )% | 10.7 | % | ||||||
| Seating Systems | 3.3 | % | (2.5 | )% | 5.8 | % | ||||||
| Complete Vehicles | 4.8 | % | 4.2 | % | 0.6 | % | ||||||
| Consolidated Average | 6.9 | % | (1.5 | )% | 8.4 | % | ||||||
For further details on our segment results, please see our Management’s Discussion and Analysis of Results of Operations and Financial Position and our Interim Financial Statements.
| Magna Announces SECOND quarter 2021 results | CONNECT WITH MAGNA | 4 |
2021 OUTLOOK
We first disclose a full-year Outlook annually in February, with quarterly updates. The following Outlook is an update to our previous Outlook in May 2021.
Updated 2021 Outlook Assumptions
| Current | Previous | |||||||
| Light Vehicle Production (millions of units) | ||||||||
| North America | 14.4 | 15.6 | ||||||
| Europe | 18.1 | 18.5 | ||||||
| China | 24.7 | 24.7 | ||||||
| Average Foreign exchange rates: | ||||||||
| 1 Canadian dollar equals | U.S. $0.801 | U.S. $0.797 | ||||||
| 1 euro equals | U.S. $1.193 | U.S. $1.201 | ||||||
Updated 2021 Outlook
| Current | Previous | |||||||
| Segment Sales | ||||||||
| Body Exteriors & Structures | $15.3 - $15.9 billion | $16.5 - $17.1 billion | ||||||
| Power & Vision | $11.8 - $12.2 billion | $12.0 - $12.4 billion | ||||||
| Seating Systems | $5.1 - $5.4 billion | $5.6 - $5.9 billion | ||||||
| Complete Vehicles | $6.3 - $6.6 billion | $6.7 - $7.0 billion | ||||||
| Total Sales | $38.0 - $39.5 billion | $40.2 - $41.8 billion | ||||||
| Adjusted EBIT Margin(3) | 7.0% - 7.4% | 7.2% - 7.6% | ||||||
| Equity Income (included in EBIT) | $115 - $145 million | $120 - $150 million | ||||||
| Interest Expense, net | Approximately $80 million | Approximately $100 million | ||||||
| Income Tax Rate(4) | Approximately 23% | Approximately 23% | ||||||
| Net Income attributable to Magna(5) | $2.0 - $2.2 billion | $2.2 - $2.4 billion | ||||||
| Capital Spending | Approximately $1.6 billion | Approximately $1.6 billion |
Notes:
(3) Adjusted EBIT Margin is the ratio of Adjusted EBIT to Total Sales
(4) The Income Tax Rate has been calculated using Adjusted EBIT and is based on current tax legislation
(5) Net Income attributable to Magna represents Net Income excluding Other expense (income), net
Our Outlook is intended to provide information about management's current expectations and plans and may not be appropriate for other purposes. Although considered reasonable by Magna as of the date of this document, the 2021 Outlook above and the underlying assumptions may prove to be inaccurate. Accordingly, our actual results could differ materially from our expectations as set forth herein. The risks identified in the “Forward-Looking Statements” section below represent the primary factors which we believe could cause actual results to differ materially from our expectations.
| MAGNA ANNOUNCES SECOND QUARTER 2021 RESULTS | CONNECT WITH MAGNA
| 5 |
Key Drivers of Our Business
Our operating results are primarily dependent on the levels of North American, European and Chinese car and light truck production by our customers. While we supply systems and components to every major original equipment manufacturer (“OEM”), we do not supply systems and components for every vehicle, nor is the value of our content consistent from one vehicle to the next. As a result, customer and program mix relative to market trends, as well as the value of our content on specific vehicle production programs, are also important drivers of our results.
OEM production volumes are generally aligned with vehicle sales levels and thus affected by changes in such levels. Aside from vehicle sales levels, production volumes are typically impacted by a range of factors, including: general economic and political conditions; labour disruptions; free trade arrangements; tariffs; relative currency values; commodities prices; supply chains; infrastructure; availability and relative cost of skilled labour; regulatory considerations, including those related to environmental emissions and safety standards; and other factors. Additionally, COVID-19 can impact vehicle production volumes, including through: mandatory stay-at-home orders which restrict production; elevated employee absenteeism; and supply chain disruptions.
Overall vehicle sales levels are significantly affected by changes in consumer confidence levels, which may in turn be impacted by consumer perceptions and general trends related to the job, housing and stock markets, as well as other macroeconomic and political factors. Other factors which typically impact vehicle sales levels and thus production volumes include: interest rates and/or availability of credit; fuel and energy prices; relative currency values; regulatory restrictions on use of vehicles in certain megacities; and other factors. Additionally, COVID-19 can impact vehicle sales, including through mandatory stay-at-home orders which restrict operations of car dealerships, as well as through deterioration in consumer confidence.
| MAGNA ANNOUNCES SECOND QUARTER 2021 RESULTS | CONNECT WITH MAGNA
| 6 |
NON-GAAP FINANCIAL MEASURES RECONCILIATION
Adjusted EBIT
The following table reconciles net income to Adjusted EBIT:
| For the three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) | $ | 436 | $ | (652 | ) | |||
| Add (deduct): | ||||||||
| Interest expense, net | 11 | 21 | ||||||
| Other expense, net | 6 | 168 | ||||||
| Income taxes | 104 | (137 | ) | |||||
| Adjusted EBIT | $ | 557 | $ | (600 | ) | |||
Adjusted EBIT as a percentage of sales (“Adjusted EBIT margin”)
Adjusted EBIT as a percentage of sales is calculated in the table below:
| For the three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 9,034 | $ | 4,293 | ||||
| Adjusted EBIT | $ | 557 | $ | (600 | ) | |||
| Adjusted EBIT as a percentage of sales | 6.2 | % | (14.0 | )% | ||||
Adjusted diluted earnings per share
The following table reconciles net income attributable to Magna International Inc. to Adjusted diluted earnings per share:
| For the three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | |||
| Add (deduct): | ||||||||
| Other expense, net | 6 | 168 | ||||||
| Tax effect on Other expense, net | (4 | ) | (32 | ) | ||||
| Adjusted net income (loss) attributable to Magna International Inc. | $ | 426 | $ | (511 | ) | |||
| Diluted weighted average number of Common Shares outstanding during the period (millions): | 303.6 | 298.4 | ||||||
| Adjusted diluted earnings (loss) per share | $ | 1.40 | $ | (1.71 | ) | |||
| MAGNA ANNOUNCES SECOND QUARTER 2021 RESULTS | CONNECT WITH MAGNA
| 7 |
NON-GAAP FINANCIAL MEASURES RECONCILIATION
| Adjusted EBIT |
| The following table reconciles net income to Adjusted EBIT: |
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) | $ | 1,058 | $ | (400 | ) | |||
| Add (deduct): | ||||||||
| Interest expense, net | 34 | 38 | ||||||
| Other (income) expense, net | (52 | ) | 168 | |||||
| Income taxes | 287 | (3 | ) | |||||
| Adjusted EBIT | $ | 1,327 | $ | (197 | ) | |||
| Adjusted EBIT as a percentage of sales (“Adjusted EBIT margin”) |
| Adjusted EBIT as a percentage of sales is calculated in the table below: |
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales | $ | 19,213 | $ | 12,950 | ||||
| Adjusted EBIT | $ | 1,327 | $ | (197 | ) | |||
| Adjusted EBIT as a percentage of sales | 6.9 | % | (1.5 | )% | ||||
| Adjusted diluted earnings per share |
| The following table reconciles net income attributable to Magna International Inc. to Adjusted diluted earnings per share: |
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) attributable to Magna International Inc. | $ | 1,039 | $ | (386 | ) | |||
| Add (deduct): | ||||||||
| Other (income) expense, net | (52 | ) | 168 | |||||
| Tax effect on Other (income) expense, net | 5 | (32 | ) | |||||
| Adjusted net income (loss) attributable to Magna International Inc. | $ | 992 | $ | (250 | ) | |||
| Diluted weighted average number of Common Shares outstanding during the period (millions): | 303.6 | 300.3 | ||||||
| Adjusted diluted earnings (loss) per share | $ | 3.27 | $ | (0.83 | ) | |||
| Magna Announces SECOND quarter 2021 results | CONNECT
WITH MAGNA | 8 |
Certain of the forward-looking financial measures above are provided on a Non-GAAP basis. We do not provide a reconciliation of such forward-looking measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. To do so would be potentially misleading and not practical given the difficulty of projecting items that are not reflective of on-going operations in any future period. The magnitude of these items, however, may be significant.
This press release together with our Management’s Discussion and Analysis of Results of Operations and Financial Position and our Interim Financial Statements are available in the Investor Relations section of our website at www.magna.com/company/investors and filed electronically through the System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com as well as 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.
We will hold a conference call for interested analysts and shareholders to discuss our second quarter ended June 30, 2021 results on Friday, August 6, 2021 at 7:00 a.m. ET. The conference call will be chaired by Swamy Kotagiri, Chief Executive Officer. The number to use for this call from North America is 1-800-950-7243. International callers should use 1-416-981-9010. Please call in at least 10 minutes prior to the call start time. We will also webcast the conference call at www.magna.com. The slide presentation accompanying the conference call as well as our financial review summary will be available on our website Friday prior to the call.
TAGS
Quarterly earnings, financial results, vehicle production
INVESTOR CONTACT
Louis Tonelli, Vice-President, Investor Relations
louis.tonelli@magna.com │ 905.726.7035
MEDIA CONTACT
Tracy Fuerst, Vice-President, Corporate Communications & PR
tracy.fuerst@magna.com │ 248.631.5396
TELECONFERENCE CONTACT
Nancy Hansford, Executive Assistant, Investor Relations
nancy.hansford@magna.com │ 905.726.7108
OUR BUSINESS (6)
Magna is more than one of the world’s largest suppliers in the automotive space. We are a mobility technology company with a global, entrepreneurial-minded team of 158,000 employees and an organizational structure designed to innovate like a startup. With 60+ years of expertise, and a systems approach to design, engineering and manufacturing that touches nearly every aspect of the vehicle, we are positioned to support advancing mobility in a transforming industry. Our global network includes 347 manufacturing operations and 87 product development, engineering and sales centres spanning 28 countries.
For further information about Magna (NYSE:MGA; TSX:MG), please visit www.magna.com or follow us on Twitter @MagnaInt.
(6) Manufacturing operations, product development, engineering and sales centres and employee figures include certain equity-accounted operations.
| Magna Announces SECOND quarter 2021 results | CONNECT
WITH MAGNA | 9 |
FORWARD-LOOKING STATEMENTS
Certain statements in this press release constitute "forward-looking information" or "forward-looking statements" (collectively, "forward-looking statements"). Any such forward-looking statements are intended to provide information about management's current expectations and plans and may not be appropriate for other purposes. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, strategic objectives or economic performance, or the assumptions underlying any of the foregoing, and other statements that are not recitations of historical fact. We use words such as "may", "would", "could", "should", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "aim", "forecast", "outlook", "project", "estimate", "target" and similar expressions suggesting future outcomes or events to identify forward-looking statements. The following table identifies the material forward-looking statements contained in this document, together with the material potential risks that we currently believe could cause actual results to differ materially from such forward-looking statements. Readers should also consider all of the risk factors which follow below the table:
| Material Forward-Looking Statement | Material Potential Risks Related to Applicable Forward-Looking Statement |
|
Total Sales Segment Sales |
· Mandatory stay-at-home orders and other restrictions to help contain COVID-19 spread could impact vehicle sales, vehicle production and our own production · Economic impact of COVID-19 on consumer confidence · Supply disruptions, including as a result of a semiconductor chip shortage currently being experienced in the industry · Concentration of sales with six customers · Shifts in market shares among vehicles or vehicle segments · Shifts in consumer “take rates” for products we sell |
|
Adjusted EBIT Margin Net Income Attributable to Magna |
· Same risks as for Total Sales and Segment Sales above · Operational underperformance · Higher costs incurred to mitigate the risk of supply disruptions, including: materials price increases; higher-priced substitute supplies; premium freight costs to expedite shipments; production inefficiencies due to production lines being stopped/restarted unexpectedly based on customers’ production schedules; price increases from sub-suppliers that have been negatively impacted by production inefficiencies; and potential claims against us if customer production is disrupted · Price concessions · Commodity cost volatility · Higher labour costs · Tax risks |
| Equity Income |
· Same risks as Adjusted EBIT Margin and Net Income Attributable to Magna · Risks related to conducting business through joint ventures |
| Free Cash Flow | · Same risks as for Total Sales/Segment Sales, and Adjusted EBIT Margin and Net Income Attributable to Magna above |
Forward-looking statements are based on information currently available to us and 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. While we believe we have a reasonable basis for making any such forward-looking statements, they are not a guarantee of future performance or outcomes. In addition to the factors in the table above, whether actual results and developments conform to our expectations and predictions is subject to a number of risks, assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict, including, without limitation:
Risks Related to the Automotive Industry
· economic cyclicality;
· regional production volume declines, including as a result of the COVID-19 pandemic;
· intense competition;
· potential restrictions on free trade;
· trade disputes/tariffs;
Customer and Supplier Related Risks
· concentration of sales with six customers;
· emergence of potentially disruptive Electric Vehicle OEMs;
· OEM consolidation and cooperation;
· shifts in market shares among vehicles or vehicle segments;
· shifts in consumer "take rates" for products we sell;
· quarterly sales fluctuations;
· potential loss of any material purchase orders;
· a deterioration in the financial condition of our supply base, including as a result of the COVID-19 pandemic;
Manufacturing Operational Risks
· product and new facility launch risks;
· operational underperformance;
· restructuring costs;
· impairment charges;
· labour disruptions;
· COVID-19 shutdowns;
· supply disruptions, including with respect to semiconductor chips;
· higher costs to mitigate supply disruptions;
· climate change risks;
· attraction/retention of skilled labour and leadership succession;
IT Security/Cybersecurity Risk
· IT/Cybersecurity breach;
· Product Cybersecurity breach;
Pricing Risks
· pricing risks between time of quote and start of production;
· price concessions;
· commodity cost volatility;
· declines in scrap steel/aluminum prices;
Warranty / Recall Risks
· costs related to repair or replacement of defective products, including due to a recall;
· warranty or recall costs that exceed warranty provision or insurance coverage limits;
· product liability claims;
Acquisition Risks
· competition for strategic acquisition targets;
· inherent merger and acquisition risks;
· acquisition integration risk;
Other Business Risks
· risks related to conducting business through joint ventures;
· our ability to consistently develop and commercialize innovative products or processes;
· our changing business risk profile as a result of increased investment in electrification and autonomous driving, including: higher R&D and engineering costs, and challenges in quoting for profitable returns on products for which we may not have significant quoting experience;
· risks of conducting business in foreign markets;
· fluctuations in relative currency values;
· tax risks;
· reduced financial flexibility as a result of an economic shock;
· changes in credit ratings assigned to us;
Legal, Regulatory and Other Risks
· antitrust risk;
· legal claims and/or regulatory actions against us; and
· changes in laws and regulations, including those related to vehicle emissions or made as a result of the COVID-19 pandemic.
In evaluating forward-looking statements or forward-looking information, we caution readers not to place undue reliance on any forward-looking statement. Additionally, 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, including the risks, assumptions and uncertainties above which are:
| · | discussed under the “Industry Trends and Risks” heading of our Management’s Discussion and Analysis; and |
| · | set out in our Annual Information Form filed with securities commissions in Canada, our annual report on Form 40-F filed with the United States Securities and Exchange commission, and subsequent filings. |
Readers should also consider discussion of our risk mitigation activities with respect to certain risk factors, which can be also found in our Annual Information Form.
| Magna Announces SECOND quarter 2021 results | CONNECT
WITH MAGNA | 10 |
Exhibit 99.2
Magna International Inc.
Second Quarter Report
2021
MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations and Financial Position
Unless otherwise noted, 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, which are in U.S. dollars. 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 and six months ended June 30, 2021 included in this Quarterly Report, and the audited consolidated financial statements and MD&A for the year ended December 31, 2020 included in our 2020 Annual Report to Shareholders.
This MD&A may contain statements that are forward looking. Refer to the "Forward-Looking Statements" section in this MD&A for a more detailed discussion of our use of forward-looking statements.
This MD&A has been prepared as at August 5, 2021.
USE OF NON-GAAP FINANCIAL MEASURES
In addition to results presented in accordance with accounting principles generally accepted in the United States of America ["U.S. GAAP"], this report includes the use of Adjusted earnings (loss) before interest and taxes ["Adjusted EBIT"], Adjusted EBIT as a percentage of sales, Adjusted diluted earnings (loss) per share, Return on Invested Capital, Adjusted Return on Invested Capital and Return on Equity [collectively, the "Non-GAAP Measures"]. We believe these non-GAAP financial measures provide additional information that is useful to investors in understanding our underlying performance and trends through the same financial measures employed by our management for this purpose. Readers should be aware that Non-GAAP Measures have no standardized meaning under U.S. GAAP and accordingly may not be comparable to the calculation of similar measures by other companies. We believe that Return on Invested Capital and Return on Equity are useful to both management and investors in their analysis of our results of operations and reflect our ability to generate returns. Similarly, we believe that Adjusted EBIT, Adjusted EBIT as a percentage of sales, Adjusted diluted (loss) earnings per share and Adjusted Return on Invested Capital provide useful information to our investors for measuring our operational performance as they exclude certain items that are not reflective of ongoing operating profit or loss and facilitate a comparison with prior periods. The presentation of any Non-GAAP Measures should not be considered in isolation or as a substitute for our related financial results prepared in accordance with U.S. GAAP. Non-GAAP financial measures are presented together with the most directly comparable U.S. GAAP financial measure, and a reconciliation to the most directly comparable U.S. GAAP financial measure, can be found in the "Non-GAAP Financial Measures Reconciliation" section of this MD&A.
HIGHLIGHTS
Specific circumstances during the second quarters of 2021 and 2020 make the quarters difficult to compare. The second quarter of 2020 included unprecedented, industry-wide production suspensions due to the COVID-19 pandemic, while the second quarter of 2021 included production disruptions as a result of an ongoing global semiconductor chip shortage.
In the second quarter of 2021:
| · | Global light vehicle production increased 58% over the second quarter of 2020, driven by production in our two largest markets North America and Europe. The increase in global light vehicle production is largely attributable to unprecedented, industry-wide production suspensions in the second quarter of 2020 due to the COVID-19 pandemic, partially offset by the negative impact of production disruptions as a result of the global semiconductor chip shortage on light vehicle production in the second quarter of 2021. |
| · | Total sales increased 110% to $9.0 billion, compared to $4.3 billion in the second quarter of 2020. The increase largely reflects higher global light vehicle production and higher assembly volumes, the net strengthening of currencies against the U.S. dollar, business combinations subsequent to the second quarter of 2020, and the launch of new programs. |
| · | Diluted earnings per share and adjusted diluted earnings per share were $1.40. Adjusted diluted earnings per share increased $3.11, largely reflecting contribution on higher sales and continued cost savings and operating efficiencies, including as a result of implemented restructuring actions. |
| · | Cash from operating activities was $528 million, an increase of $1.8 billion over the second quarter of 2020. |
| · | We returned $226 million to shareholders through $127 million in dividends and $99 million in share repurchases. |
| · | We reached the second milestone in our cooperation with Fisker Inc. ["Fisker"], signing a long-term manufacturing agreement for the production of the Fisker Ocean at our vehicle assembly facility in Graz, Austria. Manufacturing is scheduled to begin in November of 2022. |
Subsequent to the end of the second quarter of 2021:
| · | We disposed of three Body Exteriors & Structures operations based in Germany. The facilities had combined sales of $353 million in 2020. We expect to record a loss of approximately $75 million on the disposition. |
| · | We entered into an agreement for the acquisition of Veoneer, Inc. ["Veoneer"], a leader in automotive safety systems, including active and passive safety, which is discussed in the “Subsequent Events” section below. |
| · | We acquired a 49% interest in the LG-Magna joint venture for $453 million. |
Magna International Inc. Second Quarter Report 2021 1
OVERVIEW
OUR BUSINESS(1)
Magna is more than one of the world’s largest suppliers in the automotive space. We are a mobility technology company with a global, entrepreneurial-minded team of 158,000 employees and an organizational structure designed to innovate like a startup. With 60+ years of expertise, and a systems approach to design, engineering and manufacturing that touches nearly every aspect of the vehicle, we are positioned to support advancing mobility in a transforming industry. Our global network includes 347 manufacturing operations and 87 product development, engineering and sales centres spanning 28 countries. Our common shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA).
INDUSTRY TRENDS & RISKS
Our operating results are primarily dependent on the levels of North American, European and Chinese car and light truck production by our customers. While we supply systems and components to every major original equipment manufacturer ["OEM"], we do not supply systems and components for every vehicle, nor is the value of our content consistent from one vehicle to the next. As a result, customer and program mix relative to market trends, as well as the value of our content on specific vehicle production programs, are also important drivers of our results.
OEM production volumes are generally aligned with vehicle sales levels and thus affected by changes in such levels. Aside from vehicle sales levels, production volumes are typically impacted by a range of factors, including: general economic and political conditions; labour disruptions; free trade arrangements; tariffs; relative currency values; commodities prices; supply chains; infrastructure; availability and relative cost of skilled labour; regulatory considerations, including those related to environmental emissions and safety standards; and other factors. Additionally, COVID-19 can impact vehicle production volumes, including through: mandatory stay-at-home orders which restrict production; elevated employee absenteeism; and supply chain disruptions.
Overall vehicle sales levels are significantly affected by changes in consumer confidence levels, which may in turn be impacted by consumer perceptions and general trends related to the job, housing and stock markets, as well as other macroeconomic and political factors. Other factors which typically impact vehicle sales levels and thus production volumes include: interest rates and/or availability of credit; fuel and energy prices; relative currency values; regulatory restrictions on use of vehicles in certain megacities; and other factors. Additionally, COVID-19 can impact vehicle sales, including through mandatory stay-at-home orders which restrict operations of car dealerships, as well as through a deterioration in consumer confidence.
While the foregoing economic, political and other factors are part of the general context in which the global automotive industry operates, there have been a number of significant industry trends that are shaping the future of the industry and creating opportunities and risks for automotive suppliers. We continue to implement a business strategy which is rooted in our best assessment as to the rate and direction of change in the automotive industry, including with respect to trends related to vehicle electrification and advanced driver assistance systems, as well as "mobility-as-a-service" ["MaaS"]. Our short- and medium-term operational success, as well as our ability to create long-term value through our business strategy, are subject to a number of risks and uncertainties. Significant industry trends, our business strategy and the major risks we face, are discussed in our Annual Information Form ["AIF"] and Annual Report on Form 40-F ["Form 40-F"] in respect of the year ended December 31, 2020, together with subsequent filings. Those industry trends and risk factors remain substantially unchanged in respect of the second quarter ended June 30, 2021, except as follows:
| · | Semiconductor Chip Shortages: While OEMs have experienced strong consumer demand for vehicles in key markets as COVID-related restrictions have eased, the global shortage of semiconductor chips continues to negatively impact global automotive production volumes. This combination of strong sales and reduced production has resulted in low inventories of new vehicles. |
OEMs have taken a number of actions in response to the semiconductor chip shortage, such as: unplanned shutdowns of production lines and/or plants; reductions in their vehicle production plans; and changes to their product mix. Such OEM responses can result in a number of consequences for Tier 1 suppliers like us, including: lower sales; production inefficiencies due to production lines being stopped/restarted unexpectedly based on OEMs' production priorities; premium freight costs to expedite shipments; and/or other unrecoverable costs. Additionally, Tier 1 suppliers which purchase semiconductor chips or products containing such chips may not be able to deliver applicable products to OEM customers, in which case such Tier 1 suppliers may be at risk for customer claims related to disruption of OEM production. Furthermore, Tier 1 suppliers may face price increases from sub-suppliers that have been negatively impacted by production inefficiencies, premium freight costs and/or other costs related to the semiconductor chip shortage. While we expect to recover some of the lost production volumes, it remains unclear when supply and demand for automotive semiconductor chips will rebalance and continues to be difficult to predict the full impact of the chip shortage.
1 Manufacturing operations, product development, engineering and sales centres and employee figures include certain operations accounted for under the equity method.
| · | Inflationary Risks: there appears to be an increasing risk of inflationary price increases as economic activity rebounds in our primary production markets. During the second quarter, we witnessed increasing commodity costs for steel, aluminum and resin, as well as wage pressures in certain markets. These trends are expected to continue in coming quarters and could expand to other areas. The inability to offset inflationary price increases through continuous improvement actions, price increases or adjustments on our own products or otherwise, could have an adverse effect on our earnings. |
| · | COVID-19: despite increasing vaccination levels, the development and spread of highly-transmissible COVID-19 variants such as the "Delta" variant creates continued risk of further disruptions to the automotive industry, including through further mandatory stay-at-home orders or other restrictions. These orders may: restrict consumers' ability to purchase vehicles; restrict production; cause elevated employee absenteeism; and lead to supply chain disruptions. Over the medium- to long-term, the pandemic may result in societal changes that impact the automotive industry, positively or negatively, including as a result of: expanded work-from-home practices that reduce consumers' reliance on vehicles; and/or increased reluctance by people to utilize modes of public transit and/or shared mobility. |
| · | Veoneer: On July 22, 2021, we entered into an agreement for the acquisition of Veoneer. The agreement includes an offer price, which if accepted, would enable us to acquire all of the issued and outstanding shares of Veoneer for $31.25 per share in cash, representing an equity value of $3.8 billion. On August 5, 2021 an alternative bidder proposed to acquire all of Veoneer’s shares for a price that represents a premium over our offer price. In the event that our agreement to acquire Veoneer is not ultimately terminated by Veoneer in the face of the higher offer, our acquisition of Veoneer is expected to close near the end of 2021, subject to the approval of Veoneer’s stockholders, certain regulatory approvals and other customary closing conditions. The transaction is not subject to any financing conditions. |
The acquisition of Veoneer is subject to a number of risks, including those discussed in our AIF and Form 40-F in respect of the year ended December 31, 2020. Due to the emergence of an alternative bidder, there is a risk that Veoneer could ultimately terminate its agreement with us. If our agreement to acquire Veoneer is not ultimately terminated by Veoneer, the following further risks may apply: diversion of management attention to the acquisition and/or integration of Veoneer; disruption to Veoneer’s business during the time period between announcement and closing of the transaction; failure to retain key employees; inability of Veoneer to secure shareholder approval for the transaction; failure of the parties to obtain required regulatory approvals altogether or within the timeframe expected; imposition of unacceptable conditions to regulatory approval; and the initiation of litigation challenging the transaction, which could delay or defeat the merger. Additionally, Veoneer’s perception software products directly compete with software products supplied by a competitor which is an important supplier to us. Accordingly, there is a risk that such competitor may cease cooperation with us in bidding on future ADAS programs.
RESULTS OF OPERATIONS
AVERAGE FOREIGN EXCHANGE
| For the
three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||
| 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||
| 1 Canadian dollar equals U.S. dollars | 0.814 | 0.722 | +13% | 0.802 | 0.733 | +9% | ||||||||||||||||
| 1 euro equals U.S. dollars | 1.206 | 1.101 | +10% | 1.205 | 1.102 | +9% | ||||||||||||||||
| 1 Chinese renminbi equals U.S. dollars | 0.155 | 0.141 | +10% | 0.155 | 0.142 | +9% | ||||||||||||||||
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 results of operations for which the functional currency is not the U.S. dollar are translated into U.S. dollars using the average exchange rates 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.
LIGHT VEHICLE PRODUCTION VOLUMES
Our operating results are mostly dependent on light vehicle production in the regions reflected in the table below:
Light Vehicle Production Volumes (thousands of units)
| For
the three months ended June 30, | For
the six months ended June 30, | |||||||||||||||||||||
| 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||
| North America | 3,288 | 1,240 | +165 | % | 7,049 | 5,017 | +41 | % | ||||||||||||||
| Europe | 4,379 | 2,084 | +110 | % | 9,310 | 6,784 | +37 | % | ||||||||||||||
| China | 6,001 | 5,844 | +3 | % | 12,072 | 9,079 | +33 | % | ||||||||||||||
Magna International Inc. Second Quarter Report 2021 3
RESULTS OF OPERATIONS – FOR THE THREE MONTHS ENDED JUNE 30, 2021
SALES
Sales increased 110% or $4.74 billion to $9.03 billion for the second quarter of 2021 compared to $4.29 billion for the second quarter of 2020 primarily due to higher global light vehicle production and higher assembly volumes, including:
| · | an estimated $5.5 billion negative impact of the COVID-19 pandemic during the second quarter of 2020 partially offset by; |
| · | the negative impact of production disruptions due to semiconductor chip shortages during the second quarter of 2021. |
In addition, sales increased in the second quarter of 2021 due to:
| · | the launch of new programs during or subsequent to the second quarter of 2020; |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. sales by $500 million; and |
| · | business combinations subsequent to the second quarter of 2020 which increased sales by $266 million. |
These factors were partially offset by the end of production of certain programs and net customer price concessions subsequent to the second quarter of 2020.
COST OF GOODS SOLD
| For
the three months ended June 30, | ||||||||||||
2021 | 2020 | Change | ||||||||||
| Material | $ | 5,365 | $ | 2,645 | $ | 2,720 | ||||||
| Direct labour | 718 | 404 | 314 | |||||||||
| Overhead | 1,645 | 1,157 | 488 | |||||||||
| Cost of goods sold | $ | 7,728 | $ | 4,206 | $ | 3,522 | ||||||
Cost of goods sold increased $3.52 billion to $7.73 billion for the second quarter of 2021 compared to $4.21 billion for the second quarter of 2020, primarily due to:
| · | higher material, direct labour and overhead costs associated with higher sales; |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar cost of goods sold by $427 million; and |
| · | business combinations subsequent to the second quarter of 2020. |
These factors were partially offset by cost savings and operating efficiencies, including as a result of implemented restructuring actions and higher employee profit sharing and incentive compensation due to improved financial performance.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $40 million to $374 million for the second quarter of 2021 compared to $334 million for the second quarter of 2020 primarily due to:
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar depreciation and amortization by $22 million; and |
| · | business combinations subsequent to the second quarter of 2020 which increased depreciation and amortization by $12 million. |
SELLING, GENERAL AND ADMINISTRATIVE ["SG&A"]
SG&A expense increased $41 million to $419 million for the second quarter of 2021 compared to $378 million for the second quarter of 2020, primarily as a result of:
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar SG&A expense by $24 million; |
| · | higher incentive compensation and employee profit sharing due to improved financial performance; |
| · | higher labour and benefit costs; and |
| · | business combinations subsequent to the second quarter of 2020 which increased SG&A by $9 million. |
These factors were partially offset by:
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021; |
| · | transactional foreign exchange gains in the second quarter of 2021 compared transactional foreign exchange losses in the second quarter of 2020; and |
| · | a loss on sale of assets during the second quarter of 2020. |
INTEREST EXPENSE, NET
During the second quarter of 2021 we recorded net interest expense of $11 million compared to $21 million for the second quarter of 2020. The $10 million decrease is primarily as a result of interest income recognized on a favourable value-added tax settlement in Brazil during the second quarter of 2021 and higher cash balances partially offset by an increase in long-term borrowings due to the issuance of $750 million of 2.45% fixed rate Senior notes during the second quarter of 2020.
EQUITY INCOME
Equity income increased $19 million to $44 million for the second quarter of 2021 compared to $25 million for the second quarter of 2020, primarily as a result of earnings on higher sales at our equity-accounted operations and restructuring certain transmission joint ventures which resulted in these entities no longer being equity-accounted for.
OTHER EXPENSE (INCOME), NET
| For the three months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Restructuring and impairments (1) | $ | 44 | $ | 168 | ||||
| Gains on investments (2) | (38 | ) | $ | — | ||||
| $ | 6 | $ | 168 | |||||
| (1) | Restructuring and impairments |
During the second quarter of 2021 we recorded net restructuring charges of $44 million [$31 million after tax] in our Power & Vision segment.
During the second quarter of 2020 we recorded restructuring and impairment charges of $115 million [$90 million after tax] in our Power & Vision segment and $37 million [$32 million after tax] in our Body Exteriors & Structures segment. Restructuring charges of $16 million [$14 million after tax] were also recorded in our Seating Systems segment.
| (2) | Gains on investments |
During the second quarter of 2021, we recorded unrealized gains of $29 million [$22 million after tax] related to the revaluation of certain public company warrants, and $9 million [$7 million after tax] on the revaluation of certain public and private equity investments.
Magna International Inc. Second Quarter Report 2021 5
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES
Income from operations before income taxes was $540 million for the second quarter of 2021 compared to a loss of $789 million for the second quarter of 2020. This $1.33 billion increase is a result of the following changes, each as discussed above:
| For the three months | ||||||||||||
| ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Sales | $ | 9,034 | $ | 4,293 | $ | 4,741 | ||||||
| Costs and expenses | ||||||||||||
| Cost of goods sold | 7,728 | 4,206 | 3,522 | |||||||||
| Depreciation and amortization | 374 | 334 | 40 | |||||||||
| Selling, general & administrative | 419 | 378 | 41 | |||||||||
| Interest expense, net | 11 | 21 | (10 | ) | ||||||||
| Equity income | (44 | ) | (25 | ) | (19 | ) | ||||||
| Other expense (Income), net | 6 | 168 | (162 | ) | ||||||||
| Income (loss) from operations before income taxes | $ | 540 | $ | (789 | ) | $ | 1,329 | |||||
INCOME TAXES
| For the three months ended June 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Income Taxes as reported | $ | 104 | 19.3 | % | $ | (137 | ) | 17.4 | % | |||||||
| Tax effect on Other expense (Income), net | 4 | 0.5 | 32 | (0.5 | ) | |||||||||||
| $ | 108 | 19.8 | % | $ | (105 | ) | 16.9 | % | ||||||||
Excluding the tax effect on Other Expense (Income), net, our effective income tax rate in the second quarter of 2021 was 19.8%, which decreased from the customary tax rates primarily due to a reduction in our reserves for uncertain tax positions.
INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
Income attributable to non-controlling interests was $12 million for the second quarter of 2021 compared to a loss attributable to non-controlling interests of $5 million for the second quarter of 2020. This $17 million change was primarily due to a $14 million increase as a result of consolidating with non-controlling interest certain transmission joint ventures that were previously equity-accounted. In addition, improved net income at our non-wholly owned operations in China contributed to this change.
NET INCOME (LOSS) ATTRIBUTABLE TO MAGNA INTERNATIONAL INC.
Net income (loss) attributable to Magna International Inc. was income of $424 million for the second quarter of 2021 compared to a loss of $647 million for the second quarter of 2020. This $1.1 billion increase was as a result of: an increase in income from operations before income taxes of $1.33 billion; partially offset by an increase in income taxes of $241 million; and an increase of $17 million in income attributable to non-controlling interests.
EARNINGS (LOSS) PER SHARE
| For the three months | ||||||||||||
| ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Earnings (loss) per Common Share | ||||||||||||
| Basic | $ | 1.41 | $ | (2.17 | ) | ¾ | ||||||
| Diluted | $ | 1.40 | $ | (2.17 | ) | ¾ | ||||||
| Weighted average number of Common Shares outstanding (millions) | ||||||||||||
| Basic | 301.1 | 298.4 | +1 | % | ||||||||
| Diluted | 303.6 | 298.4 | +2 | % | ||||||||
| Adjusted diluted earnings (loss) per share | $ | 1.40 | $ | (1.71 | ) | ¾ | ||||||
Diluted earnings per share was $1.40 for the second quarter of 2021 compared to diluted loss per share of $2.17 for the second quarter of 2020. The $3.57 increase was substantially a result of higher net income attributable to Magna International Inc., as discussed above, partially offset by an increase in the weighted average number of diluted shares outstanding during the second quarter of 2021. The increase in the weighted average number of diluted shares outstanding was primarily due to the exercise of stock options during or subsequent to the second quarter of 2020 and an increase in diluted shares related to stock options outstanding as a result of the increase in our share price. This increase was partially offset by the purchase and cancellation of Common Shares, during or subsequent to the second quarter of 2020, pursuant to our normal course issuer bids.
Other expense (Income), net, after tax, negatively impacted diluted earnings per share by $0.46 in the second quarter of 2020, as discussed in the "Other expense (Income), net" and "Income Taxes" sections above.
Adjusted diluted earnings (loss) per share, as reconciled in the "Non-GAAP Financial Measures Reconciliation" section, was earnings of $1.40 for the second quarter of 2021 compared to a loss of $1.71 in the second quarter of 2020, an increase of $3.11.
Magna International Inc. Second Quarter Report 2021 7
NON-GAAP PERFORMANCE MEASURES – FOR THE THREE MONTHS ENDED JUNE 30, 2021
ADJUSTED EBIT AS A PERCENTAGE OF SALES
The table below shows the change in Magna's Sales and Adjusted EBIT by segment and the impact each segment's changes had on Magna's Adjusted EBIT as a percentage of sales for the second quarter of 2021 compared to the second quarter of 2020:
| Adjusted EBIT | |||||||||||
| Adjusted | as a percentage | ||||||||||
| Sales | EBIT | of sales | |||||||||
| Second quarter of 2020 | $ | 4,293 | $ | (600 | ) | -14.0 | % | ||||
| Increase (decrease) related to: | |||||||||||
| Body Exteriors & Structures | 2,024 | 542 | + 9.2 | % | |||||||
| Power & Vision | 1,583 | 429 | + 7.2 | % | |||||||
| Seating Systems | 642 | 110 | + 2.2 | % | |||||||
| Complete Vehicles | 557 | 35 | + 1.2 | % | |||||||
| Corporate and Other | (65 | ) | 41 | + 0.4 | % | ||||||
| Second quarter of 2021 | $ | 9,034 | $ | 557 | +6.2 | % | |||||
Adjusted EBIT as a percentage of sales increased to 6.2% for the second quarter of 2021 compared to -14.0% for the second quarter of 2020 primarily due to:
| · | the negative impact of the COVID-19 pandemic in the second quarter of 2020; |
| · | cost savings and operating efficiencies, including as a result of implemented restructuring actions; |
| · | business combinations subsequent to the second quarter of 2020; |
| · | higher tooling contribution in the second quarter of 2021 compared to the second quarter of 2020; |
| · | lower net application engineering costs related to three upcoming ADAS program launches; |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021; |
| · | net provisions for customer claims during the second quarter of 2020; and |
| · | transactional foreign exchange gains in the second quarter of 2021 compared to losses in the second quarter of 2020. |
These factors were partially offset by:
| · | the negative impact of production disruptions due to semiconductor chip shortages during the second quarter of 2021; |
| · | higher employee profit sharing and incentive compensation due to improved financial performance; |
| · | higher launch costs; and |
| · | net customer price concessions subsequent to the second quarter of 2020. |
ADJUSTED RETURN ON INVESTED CAPITAL AND RETURN ON INVESTED CAPITAL
Adjusted Return on Invested Capital increased to 11.2% for the second quarter of 2021 compared to -12.5% for the second quarter of 2020 as a result of an increase in Adjusted After-tax operating profits partially offset by higher Average Invested Capital. Other expense (income), net, after tax negatively impacted Return on Invested Capital by 0.1% in the second quarter of 2021 and by 3.4% in the second quarter of 2020.
Average Invested Capital increased $74 million to $16.02 billion for the second quarter of 2021 compared to $15.94 billion for the second quarter of 2020, primarily due to:
| · | the net strengthening of foreign currencies against the U.S. dollar; |
| · | business combinations subsequent to the second quarter of 2020; |
| · | recognition of the initial value and subsequent revaluation of the vested portion of the Fisker warrants in the first and second quarters of 2021; and |
| · | investments in and favourable revaluations of certain public and private equity investments. |
These factors were partially offset by:
| · | a decrease in average non-cash working capital; |
| · | the impairment of assets recorded during the third quarter of 2020; |
| · | average depreciation expense on fixed assets in excess of our average investment in fixed assets; and |
| · | divestitures of assets subsequent to the second quarter of 2020. |
RETURN ON EQUITY
Return on Equity was 13.8% for the second quarter of 2021 compared to -25.3% for the second quarter of 2020. This increase was due to higher net income attributable to Magna partially offset by higher average shareholders' equity. Other expense (income), net, after tax negatively impacted Return on Equity by 0.1% in the second quarter of 2021 and by 5.4% in the second quarter of 2020.
Magna International Inc. Second Quarter Report 2021 9
SEGMENT ANALYSIS
We are a global automotive supplier that has complete vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior, seating, powertrain, active driver assistance, electronics, mechatronics, mirrors, lighting and roof systems. We also have electronic and software capabilities across many of these areas.
Our reporting segments are: Body Exteriors & Structures; Power & Vision; Seating Systems; and Complete Vehicles.
| For the three months ended June 30, | ||||||||||||||||||||||||
| Sales | Adjusted EBIT | |||||||||||||||||||||||
| 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||
| Body Exteriors & Structures | $ | 3,647 | $ | 1,623 | $ | 2,024 | $ | 227 | $ | (315 | ) | $ | 542 | |||||||||||
| Power & Vision | 2,881 | 1,298 | 1,583 | 203 | (226 | ) | 429 | |||||||||||||||||
| Seating Systems | 1,166 | 524 | 642 | 26 | (84 | ) | 110 | |||||||||||||||||
| Complete Vehicles | 1,490 | 933 | 557 | 79 | 44 | 35 | ||||||||||||||||||
| Corporate and Other | (150 | ) | (85 | ) | (65 | ) | 22 | (19 | ) | 41 | ||||||||||||||
| Total reportable segments | $ | 9,034 | $ | 4,293 | $ | 4,741 | $ | 557 | $ | (600 | ) | $ | 1,157 | |||||||||||
BODY EXTERIORS & STRUCTURES
| For the three months ended June 30, |
||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Sales | $ | 3,647 | $ | 1,623 | $ | 2,024 | +125% | |||||||||
| Adjusted EBIT | $ | 227 | $ | (315 | ) | $ | 542 | — | ||||||||
| Adjusted EBIT as a percentage of sales | 6.2 | % | (19.4 | )% | +25.6 | % | ||||||||||
Sales – Body Exteriors & Structures
Sales increased 125% or $2.02 billion to $3.65 billion for the second quarter of 2021 compared to $1.62 billion for the second quarter of 2020 primarily due to:
| · | higher global light vehicle production, including an estimated $2.65 billion negative impact of the COVID-19 pandemic during the second quarter of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the second quarter of 2021; |
| · | the launch of programs during or subsequent to the second quarter of 2020, including the: |
· GM full-size SUV’s;
· Ford Bronco Sport;
· Jeep Grand Cherokee L; and
· Ford Mustang Mach E; and
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar sales by $173 million. |
These factors were partially offset by:
| · | the end of production of certain programs; and |
| · | net customer price concessions subsequent to the second quarter of 2020. |
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Body Exteriors & Structures
Adjusted EBIT increased $542 million to $227 million for the second quarter of 2021 compared to a loss of $315 million for the second quarter of 2020 and Adjusted EBIT as a percentage of sales increased 25.6% to 6.2% primarily due to:
| · | earnings on higher sales; |
| · | cost savings and operating efficiencies, including as a result of implemented restructuring actions; |
| · | higher tooling contribution in the second quarter of 2021 compared to the second quarter of 2020; |
| · | net provisions for customer claims during the second quarter of 2020; |
| · | lower transactional foreign exchange losses in the second quarter of 2021 compared to the second quarter of 2020; |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021; and |
| · | the net strengthening of foreign currencies against the U.S. dollar had a favourable $8 million impact on reported U.S. dollar Adjusted EBIT. |
These factors were partially offset by:
| · | higher employee profit sharing and incentive compensation due to improved financial performance; |
| · | higher launch costs; |
| · | the negative impact of incremental labour costs due to a change in Mexico labour law introduced during the second quarter of 2021; and |
| · | net customer price concessions subsequent to the second quarter of 2020. |
POWER & VISION
| For the three months ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Sales | $ | 2,881 | $ | 1,298 | $ | 1,583 | +122 | % | ||||||||
| Adjusted EBIT | $ | 203 | $ | (226 | ) | $ | 429 | — | ||||||||
| Adjusted EBIT as a percentage of sales | 7.0 | % | (17.4 | )% | +24.4 | % | ||||||||||
Magna International Inc. Second Quarter Report 2021 11
Sales – Power & Vision
Sales increased 122% or $1.58 billion to $2.88 billion for the second quarter of 2021 compared to $1.30 billion for the second quarter of 2020 primarily due to:
| · | higher global light vehicle production, including an estimated $1.45 billion negative impact of the COVID-19 pandemic during the second quarter of 2020 partially offset by the negative impact production disruptions due to semiconductor chip shortages during the second quarter of 2021; |
| · | the launch of programs during or subsequent to the second quarter of 2020, including the: |
· GM full-size SUV’s;
· Jeep Grand Cherokee L; and
· Genesis GV70;
| · | business combinations subsequent to the second quarter of 2020 which increased sales by $175 million; and |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar sales by $170 million. |
These factors were partially offset by net customer price concessions subsequent to the second quarter of 2020.
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Power & Vision
Adjusted EBIT increased $429 million to $203 million for the second quarter of 2021 compared to a loss of $226 million for the second quarter of 2020 and Adjusted EBIT as a percentage of sales increased 24.4% to 7.0% primarily due to:
| · | earnings on higher sales; |
| · | lower net application engineering costs related to three upcoming ADAS program launches; |
| · | cost savings and operating efficiencies, including as a result of implemented restructuring actions; |
| · | lower net warranty costs of $13 million; |
| · | the net strengthening of foreign currencies against the U.S. dollar had a favourable $12 million impact on reported U.S. dollar Adjusted EBIT; |
| · | higher equity income of $10 million; |
| · | business combinations subsequent to the second quarter of 2020 which positively impacted earnings; and |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021. |
These factors were partially offset by higher employee profit sharing and incentive compensation due to improved financial performance, higher commodity costs, and net customer price concessions subsequent to the second quarter of 2020.
12 Magna International Inc. Second Quarter Report 2021
SEATING SYSTEMS
| For the three months
ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Sales | $ | 1,166 | $ | 524 | $ | 642 | +123 | % | ||||||||
| Adjusted EBIT | $ | 26 | $ | (84 | ) | $ | 110 | — | ||||||||
| Adjusted EBIT as a percentage of sales | 2.2 | % | (16.0 | )% | +18.2 | % | ||||||||||
Sales – Seating Systems
Sales increased 123% or $642 million to $1.17 billion for the second quarter of 2021 compared to $524 million for the second quarter of 2020 primarily due to:
| · | higher global light vehicle production, including an estimated $1.0 billion negative impact of the COVID-19 pandemic during the second quarter of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the second quarter of 2021, which disproportionately impacted programs supplied by our Seating operations; |
| · | the launch of programs during or subsequent to the second quarter of 2020, including the: |
| · | Jeep Grand Cherokee L; |
| · | Skoda Enyaq; and |
| · | Chevrolet Bolt EUV; |
| · | business combinations subsequent to the second quarter of 2020 which increased sales by $92 million; |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar sales by $41 million. |
These factors were partially offset by net customer price concessions subsequent to the second quarter of 2020.
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Seating Systems
The negative impact of production disruptions due to semiconductor chip shortages during the second quarter of 2021, was more pronounced in Seating Systems compared to our other reporting segments due to the mix of programs impacted. Adjusted EBIT increased $110 million to $26 million for the second quarter of 2021 compared to a loss of $84 million for the second quarter of 2020 and Adjusted EBIT as a percentage of sales increased 18.2% to 2.2% primarily as a result of:
| · | earnings on higher sales; |
| · | productivity and efficiency improvements at an underperforming facility; |
| · | favourable commercial settlements during the second quarter of 2021; and |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021. |
These factors were partially offset by higher launch costs, higher employee profit sharing and incentive compensation due to improved financial performance and net customer price concessions subsequent to the second quarter of 2020.
Magna International Inc. Second Quarter Report 2021 13
COMPLETE VEHICLES
| For the three months ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Complete Vehicle Assembly Volumes (thousands of units)(i) | 29.5 | 16.8 | 12.7 | +76 | % | |||||||||||
| Sales | $ | 1,490 | $ | 933 | $ | 557 | +60 | % | ||||||||
| Adjusted EBIT | $ | 79 | $ | 44 | $ | 35 | +80 | % | ||||||||
| Adjusted EBIT as a percentage of sales | 5.3 | % | 4.7 | % | +0.6 | % | ||||||||||
(i) Vehicles produced at our Complete Vehicle operations are included in Europe Light Vehicle Production volumes.
Sales – Complete Vehicles
Sales increased 60% or $557 million to $1.49 billion for the second quarter of 2021 compared to $933 million for the second quarter of 2020 and assembly volumes increased 76%. The increase in sales is primarily as a result of higher assembly volumes, including an estimated $400 million negative impact of the COVID-19 pandemic during the second quarter of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the second quarter of 2021. In addition, sales were positively impacted by a $126 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Complete Vehicles
Adjusted EBIT increased $35 million to $79 million for the second quarter of 2021 compared to $44 million for the second quarter of 2020 and Adjusted EBIT as a percentage of sales increased 0.6% to 5.3% primarily as a result of:
| · | higher earnings due to higher assembly volumes, net of contractual fixed cost recoveries on certain programs; |
| · | higher margins on engineering programs; and |
| · | the strengthening of the euro against the U.S. dollar had a favourable $7 million impact on reported U.S. dollar Adjusted EBIT. |
These factors were partially offset by higher employee profit sharing and incentive compensation due to improved financial performance and net customer price concessions subsequent to the second quarter of 2020.
14 Magna International Inc. Second Quarter Report 2021
CORPORATE AND OTHER
Adjusted EBIT was $22 million for the second quarter of 2021 compared to a loss of $19 million for the second quarter of 2020. The $41 million improvement was primarily the result of:
| · | an increase in fees received from our divisions; |
| · | amortization related to the initial value of the vested portion of the Fisker warrants; and |
| · | a loss on sale of assets during the second quarter of 2020. |
These factors were partially offset by higher incentive compensation and employee profit sharing due to improved financial performance.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
| For the three months ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Net income (loss) | $ | 436 | $ | (652 | ) | |||||||
| Items not involving current cash flows | 341 | 335 | ||||||||||
| 777 | (317 | ) | $ | 1,094 | ||||||||
| Changes in operating assets and liabilities | (249 | ) | (915 | ) | 666 | |||||||
| Cash provided from (used for) operating activities | $ | 528 | $ | (1,232 | ) | $ | 1,760 | |||||
Cash provided from operating activities
Comparing the second quarters of 2021 to 2020, cash provided from operating activities increased $1.76 billion primarily as a result of an increase production volumes compared to the second quarter of 2020 discussed above. Specifically, we collected an additional $5.0 billion from our customers, but used additional cash of $2.6 billion for materials and overhead and $587 million for labour.
Changes in operating assets and liabilities
During the second quarter of 2021, we used $249 million for operating assets and liabilities primarily as result of increased production inventory related to ongoing supply chain and customers disruptions.
Magna International Inc. Second Quarter Report 2021 15
INVESTING ACTIVITIES
| For the three months | ||||||||||||
| ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Fixed asset additions | $ | (277 | ) | $ | (169 | ) | ||||||
| Increase in investments, other assets and intangible assets | (93 | ) | (72 | ) | ||||||||
| Increase in public and private equity investments | (17 | ) | (2 | ) | ||||||||
| Fixed assets, investments, other assets and intangible assets additions | (387 | ) | (243 | ) | ||||||||
| Proceeds from dispositions | 20 | 11 | ||||||||||
| Acquisitions | (21 | ) | — | |||||||||
| Cash used for investing activities | $ | (388 | ) | $ | (232 | ) | $ | (156 | ) | |||
Cash used for investing activities in the second quarter of 2021 was $156 million higher compared to the second quarter of 2020, primarily due to a $144 million increase in fixed assets, investments, other assets and intangible assets additions.
FINANCING ACTIVITIES
| For the three months | ||||||||||||
| ended June 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Issues of debt | $ | 14 | $ | 817 | ||||||||
| Increase in short-term borrowings | — | 177 | ||||||||||
| Repayments of debt | (47 | ) | (32 | ) | ||||||||
| Issue of Common Shares on exercise of stock options | 50 | 1 | ||||||||||
| Repurchase of Common Shares | (99 | ) | — | |||||||||
| Dividend paid to non-controlling interests | (8 | ) | (3 | ) | ||||||||
| Dividends paid | (127 | ) | (116 | ) | ||||||||
| Cash (used for) provided from financing activities | $ | (217 | ) | $ | 844 | $ | (1,061 | ) | ||||
During the second quarter of 2021 we repurchased 1.0 million Common Shares under normal course issuer bids for aggregate cash consideration of $99 million.
Cash dividends paid per Common Share were $0.43 for the second quarter of 2021 compared to $0.40 for the second quarter of 2020.
FINANCING RESOURCES
| As at | As at | |||||||||||
| June 30, | December 31, | |||||||||||
| 2021 | 2020 | Change | ||||||||||
| Liabilities | ||||||||||||
| Long-term debt due within one year | $ | 117 | $ | 129 | ||||||||
| Current portion of operating lease liabilities | 278 | 241 | ||||||||||
| Long-term debt | 3,941 | 3,973 | ||||||||||
| Operating lease liabilities | 1,563 | 1,656 | ||||||||||
| 5,899 | 5,999 | $ | (100 | ) | ||||||||
| Non-controlling interests | 382 | 350 | 32 | |||||||||
| Shareholders' equity | 12,058 | 11,370 | 688 | |||||||||
| Total capitalization | $ | 18,339 | $ | 17,719 | $ | 620 | ||||||
Total capitalization increased $620 million to $18.34 billion as at June 30, 2021 compared to $17.72 billion at December 31, 2020, primarily as a result of a $688 million increase in shareholder's equity and a $32 million increase in non-controlling interest partially offset by a $100 million decrease in financial liabilities.
The increase in shareholder's equity in the first six months of 2021 was primarily the result of:
| · | $1.04 billion of net income attributable to Magna; |
| · | $132 million of stock options exercised; and |
| · | $29 million net unrealized gain on translation of our net investment in foreign operations whose functional currency is not in U.S. dollars. |
These factors were partially offset by:
| · | $260 million related to the repurchase for cancellation of 2.8 million Common Shares; and |
| · | $257 million of dividends paid. |
CASH RESOURCES
In the second quarter of 2021, our cash resources decreased by $38 million to $3.4 billion, primarily as a result of cash used for investing and financing activities, partially offset by cash provided from operating activities, as discussed above. In addition to our cash resources at June 30, 2021, we had term and operating lines of credit totaling $3.8 billion, of which $3.5 billion was unused and available.
MAXIMUM NUMBER OF SHARES ISSUABLE
The following table presents the maximum number of shares that would be outstanding if all of the outstanding options at August 5, 2021 were exercised:
| Common Shares | 300,655,552 | |
| Stock options (i) | 5,727,013 | |
| 306,382,565 |
| (i) | Options to purchase Common 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
There have been no material changes with respect to the contractual obligations requiring annual payments during the second quarter of 2021 that are outside the ordinary course of our business. Refer to our MD&A included in our 2020 Annual Report.
RESULTS OF OPERATIONS – FOR THE SIX MONTHS ENDED JUNE 30, 2020
| For the six months ended June 30, | ||||||||||||||||||||||||
| Sales | Adjusted EBIT | |||||||||||||||||||||||
| 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||
| Body Exteriors & Structures | $ | 7,672 | $ | 5,299 | $ | 2,373 | $ | 554 | $ | (116 | ) | $ | 670 | |||||||||||
| Power & Vision | 6,037 | 3,821 | 2,216 | 500 | (91 | ) | 591 | |||||||||||||||||
| Seating Systems | 2,469 | 1,785 | 684 | 81 | (44 | ) | 125 | |||||||||||||||||
| Complete Vehicles | 3,340 | 2,254 | 1,086 | 159 | 94 | 65 | ||||||||||||||||||
| Corporate and Other | (350 | ) | (209 | ) | (96 | ) | 33 | (40 | ) | 73 | ||||||||||||||
| Total reportable segments | $ | 19,213 | $ | 12,950 | $ | 6,263 | $ | 1,327 | $ | (197 | ) | $ | 1,524 | |||||||||||
BODY EXTERIORS & STRUCTURES
| For the six months | ||||||||||||||||
| ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Sales | $ | 7,672 | $ | 5,299 | $ | 2,373 | + 45% | |||||||||
| Adjusted EBIT | $ | 554 | $ | (116 | ) | $ | 670 | — | ||||||||
| Adjusted EBIT as a percentage of sales | 7.2 | % | (2.2 | )% | + 9.4% | |||||||||||
Sales – Body Exteriors & Structures
Sales increased 45% or $2.37 billion to $7.67 billion for the six months ended June 30, 2021 compared to $5.30 billion for the six months ended June 30, 2020, primarily due to:
| · | higher global light vehicle production, including an estimated $3.08 billion negative impact of the COVID-19 pandemic during the first six months of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the first six months of 2021; |
| · | the launch of programs during or subsequent to the first six months of 2020, including the: |
| · | Ford Bronco Sport; |
| · | GM full-size SUV’s; |
| · | Ford Mustang Mach E; and |
| · | Jeep Grand Cherokee L; and |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar sales by $303 million. |
These factors were partially offset by:
| · | the end of production of certain programs; and |
| · | net customer price concessions subsequent to the first six months of 2020. |
 |  |
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Body Exteriors & Structures
Adjusted EBIT increased $670 million to $554 million for the six months ended June 30, 2021 compared to a loss of $116 million for the six months ended June 30, 2020 and Adjusted EBIT as a percentage of sales increased 9.4% to 7.2% primarily as a result of:
| · | earnings on higher sales; |
| · | cost savings and operating efficiencies, including as a result of implemented restructuring actions; |
| · | higher tooling contribution in the first six months of 2021 compared to the first six months of 2020; |
| · | higher scrap steel and aluminum recoveries partially offset by higher commodity costs; |
| · | the net strengthening of foreign currencies against the U.S. dollar had a favourable $19 million impact on reported U.S. dollar Adjusted EBIT; and |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021. |
These factors were partially offset by:
| · | higher employee profit sharing and incentive compensation due to improved financial performance; |
| · | higher launch costs; |
| · | the negative impact of incremental labour costs due to a change in Mexico labour law introduced during the second quarter of 2021; and |
| · | net customer price concessions subsequent to the first six months of 2020. |
POWER & VISION
| For the six months | ||||||||||||||||
| ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Sales | $ | 6,037 | $ | 3,821 | $ | 2,216 | +58% | |||||||||
| Adjusted EBIT | $ | 500 | $ | (91 | ) | $ | 591 | — | ||||||||
| Adjusted EBIT as a percentage of sales | 8.3 | % | (2.4 | )% | +10.7% | |||||||||||
Sales – Power & Vision
Sales increased 58% or $2.22 billion to $6.04 billion for the six months ended June 30, 2021 compared to $3.82 billion for the six months ended June 30, 2020, primarily due to:
| · | higher global light vehicle production, including an estimated $1.75 billion negative impact of the COVID-19 pandemic during the first six months of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the first six months of 2021; |
| · | the launch of programs during or subsequent to the first six months of 2020, including the: |
| · | GM full-size SUV’s; |
| · | Jeep Grand Cherokee L; |
| · | Mercedes-Benz GLA; and |
| · | Genesis GV70; |
| · | business combinations subsequent to the first six months of 2020 which increased sales by $337 million; and |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar sales by $330 million. |
These factors were partially offset by net customer price concessions subsequent to the first six months of 2020.
 |  |
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Power & Vision
Adjusted EBIT increased $591 million to $500 million for the six months ended June 30, 2021 compared to a loss of $91 million for the six months ended June 30, 2020 and Adjusted EBIT as a percentage of sales increased 10.7% to 8.3% primarily as a result of:
| · | earnings on higher sales; |
| · | lower net application engineering costs related to three upcoming ADAS program launches; |
| · | cost savings and operating efficiencies, including as a result of implemented restructuring actions; |
| · | the net strengthening of foreign currencies against the U.S. dollar had a favourable $25 million impact on reported U.S. dollar Adjusted EBIT; |
| · | business combinations subsequent to the first six months of 2020; |
| · | higher equity income of $18 million; |
| · | lower net warranty costs of $14 million; and |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021. |
These factors were partially offset by higher employee profit sharing and incentive compensation due to improved financial performance, higher commodity costs and net customer price concessions subsequent to the first six months of 2020.
SEATING SYSTEMS
| For the six months ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Sales | $ | 2,469 | $ | 1,785 | $ | 684 | +38 | % | ||||||||
| Adjusted EBIT | $ | 81 | $ | (44 | ) | $ | 125 | — | ||||||||
| Adjusted EBIT as a percentage of sales | 3.3 | % | (2.5 | )% | +5.8 | % | ||||||||||
Sales – Seating Systems
Sales increased 38% or $684 million to $2.47 billion for the six months ended June 30, 2021 compared to $1.79 billion for the six months ended June 30, 2020, primarily due to:
| · | higher global light vehicle production, including an estimated $1.15 billion negative impact of the COVID-19 pandemic during the first six months of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the first six months of 2021, which disproportionately impacted programs supplied by our Seating operations; |
| · | business combinations subsequent to the first six months of 2020 which increased sales by $168 million; |
| · | the launch of programs during or subsequent to the first six months of 2020, including the: |
| · | Jeep Grand Cherokee L; |
| · | Skoda Enyaq; and |
| · | Chevrolet Bolt EUV; and |
| · | the net strengthening of foreign currencies against the U.S. dollar, which increased reported U.S. dollar sales by $72 million. |
These factors were partially offset by net customer price concessions subsequent to the first six months of 2020.
 |  |
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Seating Systems
The negative impact of production disruptions due to semiconductor chip shortages during the first six months of 2021 was more pronounced in Seating Systems compared to our other reporting segments due to the mix of programs impacted. Adjusted EBIT increased $125 million to $81 million for the six months ended June 30, 2021 compared to a loss of $44 million for the six months ended June 30, 2020 and Adjusted EBIT as a percentage of sales increased 5.8% to 3.3% primarily as a result of:
| · | earnings on higher sales; |
| · | favourable commercial settlements during the first six months of 2021; |
| · | productivity and efficiency improvements at an underperforming facility; |
| · | higher equity income of $6 million; and |
| · | a favourable value-added tax settlement in Brazil during the second quarter of 2021. |
These factors were partially offset by higher employee profit sharing and incentive compensation due to improved financial performance, higher launch costs, and net customer price concessions subsequent to the first six months of 2020.
Magna International Inc. Second Quarter Report 2021 21
COMPLETE VEHICLES
| For the six months ended June 30, | ||||||||||||||||
| 2021 | 2020 | Change | ||||||||||||||
| Complete Vehicle Assembly Volumes (thousands of units)(i) | 69.6 | 47.7 | 21.9 | +46 | % | |||||||||||
| Sales | $ | 3,340 | $ | 2,254 | $ | 1,086 | +48 | % | ||||||||
| Adjusted EBIT | $ | 159 | $ | 94 | $ | 65 | +69 | % | ||||||||
| Adjusted EBIT as a percentage of sales | 4.8 | % | 4.2 | % | +0.6 | % | ||||||||||
(i) Vehicles produced at our Complete Vehicle operations are included in Europe Light Vehicle Production volumes.
 |  |
Sales – Complete Vehicles
Sales increased 48% or $1.09 billion to $3.34 billion for the six months ended June 30, 2021 compared to $2.25 billion for the six months ended June 30, 2020 and assembly volumes increased 46%. The increase in sales is primarily as a result of the impact of higher assembly volumes during the first six months of 2021, which includes an approximate $625 million negative impact of the COVID-19 pandemic in the first six months of 2020 partially offset by the negative impact of production disruptions due to semiconductor chip shortages during the first six months of 2021. In addition, sales were positively impacted by a $281 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.
 |  |
Adjusted EBIT and Adjusted EBIT as a percentage of sales – Complete Vehicles
Adjusted EBIT increased $65 million to $159 million for the six months ended June 30, 2021 compared to $94 million for the six months ended June 30, 2020 and Adjusted EBIT as a percentage of sales increased 0.6% to 4.8% primarily as a result of:
| · | higher earnings due to higher assembly volumes, net of contractual fixed cost recoveries on certain programs; |
| · | higher margins on engineering programs; and |
| · | the strengthening of the euro against the U.S. dollar had a favourable $13 million impact on reported U.S. dollar Adjusted EBIT. |
These factors were partially offset by a favourable engineering program resolution in the first quarter of 2020 and higher employee profit sharing and incentive compensation due to improved financial performance.
22 Magna International Inc. Second Quarter Report 2021
CORPORATE AND OTHER
Adjusted EBIT was $33 million for the six months ended June 30, 2021 compared to a loss of $40 million for the six months ended June 30, 2020. The $73 million improvement was primarily the result of:
| · | an increase in fees received from our divisions; |
| · | transactional foreign exchange gains in the six months ended June 30, 2021 compared to transactional foreign exchange losses in the six months ended June 30, 2020; |
| · | amortization related to the initial value of the vested portion of the Fisker warrants; and |
| · | a loss on sale of assets during the first six months of 2020. |
These factors were partially offset by higher incentive compensation and employee profit sharing due to improved financial performance.
NON-GAAP PERFORMANCE MEASURES - FOR THE SIX MONTHS ENDED JUNE 30, 2021
ADJUSTED EBIT AS A PERCENTAGE OF SALES
The table below shows the change in Magna's Sales and Adjusted EBIT by segment and the impact each segment's changes have on Magna's Adjusted EBIT as a percentage of sales for the six months ended June 30, 2021 compared to the six months ended June 30, 2020:
| Adjusted EBIT | ||||||||||||
| Adjusted | as a percentage | |||||||||||
| Sales | EBIT | of sales | ||||||||||
| Six months ended June 30, 2020 | $ | 12,950 | $ | (197 | ) | -1.5 | % | |||||
| Increase related to: | ||||||||||||
| Body Exteriors & Structures | 2,373 | 670 | +3.7 | % | ||||||||
| Power & Vision | 2,216 | 591 | +3.2 | % | ||||||||
| Seating Systems | 684 | 125 | +0.7 | % | ||||||||
| Complete Vehicles | 1,086 | 65 | +0.4 | % | ||||||||
| Corporate and Other | (96 | ) | 73 | +0.4 | % | |||||||
| Six months ended June 30, 2021 | $ | 19,213 | $ | 1,327 | +6.9 | % | ||||||
Adjusted EBIT as a percentage of sales increased to 6.9% for the six months ended June 30, 2021 compared to -1.5% for the six months ended June 30, 2020 primarily due to:
| · | the negative impact of the COVID-19 pandemic in the six months ended June 30, 2020; |
| · | cost savings and operating efficiencies, including as a result of implemented restructuring actions; |
| · | lower net application engineering costs related to three upcoming ADAS program launches; |
| · | higher tooling contribution in the first six months of 2021 compared to the first six months of 2020; and |
| · | business combinations subsequent to the first six months of 2020 which positively impacted earnings. |
These factors were partially offset by:
| · | the negative impact of production disruptions due to semiconductor chip shortages during the first six months of 2021; |
| · | higher employee profit sharing and incentive compensation due to improved financial performance; |
| · | higher launch costs; |
| · | a favourable engineering program resolution in the first quarter of 2020 in our Complete Vehicle segment; and |
| · | net customer price concessions subsequent to the first six months of 2020. |
Magna International Inc. Second Quarter Report 2021 23
RETURN ON INVESTED CAPITAL
 |  |
Adjusted Return on Invested Capital increased to 13.1% for the six months ended June 30, 2021 compared to -3.0% for the six months ended June 30, 2020 as a result of an increase in Adjusted After-tax operating profits and lower Average Invested Capital. Other expense (income), net, after tax positively impacted Return on Invested Capital by 0.6% in the first six months of 2021 and negatively impacted Return on Invested Capital by 1.7% in the first six months of 2020.
Average Invested Capital decreased $89 million to $15.87 billion for the six months ended June 30, 2021 compared to $15.96 billion for the six months ended June 30, 2020 primarily due to:
| · | a decrease in average non-cash working capital; |
| · | the impairment of assets recorded during the third quarter of 2020; |
| · | average depreciation expense on fixed assets in excess of our average investment in fixed assets; and |
| · | divestitures of assets subsequent to the second quarter of 2020. |
These factors were partially offset by:
| · | the net strengthening of foreign currencies against the U.S. dollar; |
| · | business combinations subsequent to the first six months of 2020; |
| · | investments in and favourable revaluations of certain public and private equity investments; and |
| · | recognition of the initial value and subsequent revaluation of the vested portion of the Fisker warrants in the first and second quarters of 2021. |
RETURN ON EQUITY
Return on Equity was 17.2% for the six months ended June 30, 2021 compared to -7.3% for the six months ended June 30, 2020. This increase was due to higher net income attributable to Magna, partially offset by higher average shareholders' equity. Other expense (income), net, after tax negatively impacted Return on Equity by 0.8% in the first six months of 2021 and positively impacted Return on Equity by 2.6% in the first six months of 2020.
24 Magna International Inc. Second Quarter Report 2021
NON-GAAP FINANCIAL MEASURES RECONCILIATION
The reconciliation of Non-GAAP financial measures is as follows:
ADJUSTED EBIT
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Income (Loss) | $ | 436 | $ | (652 | ) | $ | 1,058 | $ | (400 | ) | ||||||
| Add: | ||||||||||||||||
| Interest Expense, net | 11 | 21 | 34 | 38 | ||||||||||||
| Other Expense (Income), net | 6 | 168 | (52 | ) | 168 | |||||||||||
| Income Taxes | 104 | (137 | ) | 287 | (3 | ) | ||||||||||
| Adjusted EBIT | $ | 557 | $ | (600 | ) | $ | 1,327 | $ | (197 | ) | ||||||
ADJUSTED EBIT AS A PERCENTAGE OF SALES
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales | $ | 9,034 | $ | 4,293 | $ | 19,213 | $ | 12,950 | ||||||||
| Adjusted EBIT | $ | 557 | $ | (600 | ) | $ | 1,327 | $ | (197 | ) | ||||||
| Adjusted EBIT as a percentage of sales | 6.2 | % | (14.0 | )% | 6.9 | % | (1.5 | )% | ||||||||
ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | $ | 1,039 | $ | (386 | ) | ||||||
| Add: | ||||||||||||||||
| Other Expense (Income), net | 6 | 168 | (52 | ) | 168 | |||||||||||
| Tax effect on Other Expense (Income), net | (4 | ) | (32 | ) | 5 | (32 | ) | |||||||||
| Adjusted net income (loss) attributable to Magna International Inc. | 426 | (511 | ) | 992 | (250 | ) | ||||||||||
| Diluted weighted average number of Common Shares | ||||||||||||||||
| outstanding during the period (millions) | 303.6 | 298.4 | 303.6 | 300.3 | ||||||||||||
| Adjusted diluted earnings (loss) per share | $ | 1.40 | $ | (1.71 | ) | $ | 3.27 | $ | (0.83 | ) | ||||||
Magna International Inc. Second Quarter Report 2021 25
RETURN ON INVESTED CAPITAL AND ADJUSTED RETURN ON INVESTED CAPITAL
Return on Invested Capital is calculated as After-tax operating profits divided by Average Invested Capital for the period. Adjusted Return on Invested Capital is calculated as Adjusted After-tax operating profits divided by Average Invested Capital for the period. Average Invested Capital for the three month period is averaged on a two-fiscal quarter basis and for the six month period is averaged on a three-fiscal quarter basis.
| For the three months | For the six months | |||||||||||||||
| ended June 30, | ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Income (Loss) | $ | 436 | $ | (652 | ) | $ | 1,058 | $ | (400 | ) | ||||||
| Add: | ||||||||||||||||
| Interest Expense, net | 11 | 21 | 34 | 38 | ||||||||||||
| Income taxes on Interest Expense, net | ||||||||||||||||
| at Magna's effective income tax rate: | (2 | ) | (4 | ) | (7 | ) | (10 | ) | ||||||||
| After-tax operating profits | 445 | (635 | ) | 1,085 | (372 | ) | ||||||||||
| Other Expense (Income), net | 6 | 168 | (52 | ) | 168 | |||||||||||
| Tax effect on Other Expense (Income), net | (4 | ) | (32 | ) | 5 | (32 | ) | |||||||||
| Adjusted After-tax operating profits | $ | 447 | $ | (499 | ) | $ | 1,038 | $ | (236 | ) | ||||||
| As at June 30, | ||||||||
| 2021 | 2020 | |||||||
| Total Assets | $ | 29,546 | $ | 24,280 | ||||
| Excluding: | ||||||||
| Cash and cash equivalents | (3,426 | ) | (533 | ) | ||||
| Deferred tax assets | (389 | ) | (353 | ) | ||||
| Less Current Liabilities | (9,864 | ) | (7,551 | ) | ||||
| Excluding: | ||||||||
| Short-term borrowings | — | 188 | ||||||
| Long-term debt due within one year | 117 | 150 | ||||||
| Current portion of operating lease liabilities | 278 | 221 | ||||||
| Invested Capital | $ | 16,262 | $ | 16,402 | ||||
| For the three months | For the six months | |||||||||||||||
| ended June 30, | ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| After-tax operating profits | $ | 445 | $ | (635 | ) | $ | 1,085 | $ | (372 | ) | ||||||
| Average Invested Capital | $ | 16,015 | $ | 15,941 | $ | 15,874 | $ | 15,963 | ||||||||
| Return on Invested Capital | 11.1 | % | (15.9 | )% | 13.7 | % | (4.7 | )% | ||||||||
| For the three months | For the six months | |||||||||||||||
| ended June 30, | ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Adjusted After-tax operating profits | $ | 447 | $ | (499 | ) | $ | 1,038 | $ | (236 | ) | ||||||
| Average Invested Capital | $ | 16,015 | $ | 15,941 | $ | 15,874 | $ | 15,963 | ||||||||
| Adjusted Return on Invested Capital | 11.2 | % | (12.5 | )% | 13.1 | % | (3.0 | )% | ||||||||
26 Magna International Inc. Second Quarter Report 2021
RETURN ON EQUITY
Return on Equity is discussed in the "Non-GAAP Performance Measures" section and is calculated in the table below:
| For the three months | For the six months | |||||||||||||||
| ended June 30, | ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | $ | 1,039 | $ | (386 | ) | ||||||
| Average Shareholders' Equity | $ | 12,246 | $ | 10,248 | $ | 12,071 | $ | 10,542 | ||||||||
| Return on Equity | 13.8 | % | (25.3 | )% | 17.2 | % | (7.3 | )% | ||||||||
SUBSEQUENT EVENTS
DIVESTITURE
On May 17, 2021 we signed an agreement to sell three Body Exteriors & Structures operations in Germany. As at June 30, 2021, these operations had net assets of $27 million (primarily comprised of non-cash working capital and operating lease assets and liabilities). Under the terms of the arrangement, which closed on July 3, 2021, we will provide the buyer with $39 million of funding, subject to working capital adjustments, and as a result record a loss on disposal of approximately $75 million.
VEONEER, INC.
On July 22, 2021, we entered into an agreement for the acquisition of Veoneer, Inc. ["Veoneer"], a leader in automotive safety technology. The agreement includes an offer price, which if accepted, would enable us to acquire all of the issued and outstanding shares of Veoneer for $31.25 per share in cash, representing an equity value of $3.8 billion. On August 5, 2021, an alternative bidder proposed to acquire all of Veoneer’s shares for a price that represents a premium over our offer price. In the event that our agreement to acquire Veoneer is not ultimately terminated by Veoneer in the face of the higher offer, our acquisition of Veoneer is expected to close near the end of 2021, subject to the approval of Veoneer’s stockholders, certain regulatory approvals and other customary closing conditions.
LG ELECTRONICS INC. JOINT VENTURE
On July 28, 2021, we formed a new joint venture with LG Electronics ["LG"] within our Power & Vision segment to manufacture e-motors, inverters, on board chargers and, for certain automakers, related e-drive systems. Under the terms of the agreement, we acquired a 49% non-controlling ownership interest in the new entity for cash consideration of $453 million.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other claims. Refer to Note 14, "Contingencies" of our unaudited interim consolidated financial statements for the three months ended June 30, 2021, which describes these claims.
For a discussion of risk factors relating to legal and other claims/actions against us, refer to "Item 5. Risk Factors" in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended December 31, 2020.
CONTROLS AND PROCEDURES
There have been no changes in our internal controls over financial reporting that occurred during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Magna International Inc. Second Quarter Report 2021 27
FORWARD-LOOKING STATEMENTS
Certain statements in this MD&A may constitute "forward-looking information" or "forward-looking statements" (collectively, "forward-looking statements"). Any such forward-looking statements are intended to provide information about management's current expectations and plans and may not be appropriate for other purposes. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, strategic objectives or economic performance, or the assumptions underlying any of the foregoing, and other statements that are not recitations of historical fact. We use words such as "may", "would", "could", "should", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "aim", "forecast", "outlook", "project", "estimate", "target" and similar expressions suggesting future outcomes or events to identify forward-looking statements.
The following table identifies the material forward-looking statements contained in this document, together with the material potential risks that we currently believe could cause actual results to differ materially from such forward-looking statements. Readers should also consider all of the risk factors which follow below the table:
| Material Forward-Looking Statement | Material Potential Risks Related to Applicable Forward-Looking Statement | |
| Impact of the global semiconductor shortage | · Risks related to OEM actions in response to the semiconductor chip shortage such as unplanned shutdowns of production lines and/or plants; reductions in OEM vehicle production plans; and changes to OEM product mix. These risks include: | |
| · Lower sales | ||
| · Production inefficiencies due to production lines being stopped/restarted unexpectedly based on OEMs' production schedules | ||
| · Premium freight costs to expedite shipments; and/or other unrecoverable costs | ||
| · OEM claims related to disruption of their production | ||
| · Price increases from sub-suppliers that have been negatively impacted by production inefficiencies, premium freight costs and/or other costs related to the semiconductor chip shortage | ||
| · Price concessions | ||
| Inflationary price increases | · Commodity cost volatility | |
| · Inability to offset inflationary price increases through continuous improvement actions, price increases, adjustments to our own operations or otherwise | ||
| · Skilled labour attraction/retention | ||
| Completion of the Veoneer acquisition | · Inherent merger and acquisitions risks, including: the potential termination of our merger agreement with Veoneer as a result of the offer by an alternative bidder to acquire Veoneer at a premium over Magna’s offer price; unexpected costs, liabilities or delays; inability or failure to achieve intended benefits from the transaction; and/or loss of customers, suppliers, employees or other forms of business disruption, including diversion of management attention; failure to satisfy the conditions to completion of the transaction, including approval of the merger by Veoneer’s stockholders, and receipt of required governmental / regulatory approvals on the terms or at the timing expected; litigation challenging the merger | |
| · Acquisition integration risks, including the failure to realize anticipated synergies | ||
| · Technology and innovation risks, including competitiveness of acquired technologies | ||
| · Program launch risks | ||
| · Loss of cooperation from an important supplier | ||
| · Intense competition | ||
| Launch of the Fisker Ocean SUV | · Program launch risks |
28 Magna International Inc. Second Quarter Report 2021
Forward-looking statements are based on information currently available to us, and 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. While we believe we have a reasonable basis for making any such forward-looking statements, they are not a guarantee of future performance or outcomes. Whether actual results and developments conform to our expectations and predictions is subject to a number of risks, assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict, including, without limitation:
Risks Related to the Automotive Industry
| · | economic cyclicality; |
| · | regional production volume declines, including as a result of the COVID-19 pandemic; |
| · | intense competition; |
| · | potential restrictions on free trade; |
| · | trade disputes/tariffs; |
Customer and Supplier Related Risks
| · | concentration of sales with six customers; |
| · | emergence of potentially disruptive Electric Vehicle OEMs; |
| · | OEM consolidation and cooperation; |
| · | shifts in market shares among vehicles or vehicle segments; |
| · | shifts in consumer "take rates" for products we sell; |
| · | dependence on outsourcing; |
| · | quarterly sales fluctuations; |
| · | potential loss of any material purchase orders; |
| · | a deterioration in the financial condition of our supply base, including as a result of the COVID-19 pandemic; |
Manufacturing Operational Risks
| · | product and new facility launch risks; |
| · | operational underperformance; |
| · | restructuring costs; |
| · | impairment charges; |
| · | labour disruptions; |
| · | COVID-19 shutdowns; |
| · | supply disruptions, including with respect to semiconductor chips; |
| · | higher costs to mitigate supply disruptions; |
| · | climate change risks; |
| · | skilled labour attraction/retention and leadership succession; |
IT Security/Cybersecurity Risks
| · | IT/Cybersecurity breach; |
| · | Product cybersecurity breach; |
Pricing Risks
| · | pricing risks between time of quote and start of production; |
| · | price concessions; |
| · | commodity cost volatility; |
| · | declines in scrap steel/aluminum prices; |
Warranty / Recall Risks
| · | costs related to repair or replace defective products, including due to a recall; |
| · | warranty or recall costs that exceed warranty provisions or insurance coverage limits; |
| · | product liability claims; |
Acquisition Risks
| · | competition for strategic acquisition targets; |
| · | inherent merger and acquisition risks; |
| · | acquisition integration risk; |
Other Business Risks
| · | risks related to conducting business through joint ventures; |
| · | our ability to consistently develop and commercialize innovative products or processes; |
| · | our changing business risk profile as a result of increased investment in electrification and autonomous/assisted driving, including: higher R&D and engineering costs, and challenges in quoting for profitable returns on products for which we may not have significant quoting experience; |
| · | risks of conducting business in foreign markets; |
| · | fluctuations in relative currency values; |
| · | tax risks; |
| · | reduced financial flexibility as a result of an economic shock; |
| · | changes in credit ratings assigned to us; |
| Legal, Regulatory and Other Risks | |
| · | antitrust risk; |
| · | legal claims and/or regulatory actions against us; and changes in laws and regulations, including those related to vehicle emissions or made as a result of the COVID-19 pandemic. |
In evaluating forward-looking statements, we caution readers not to place undue reliance on any forward-looking statement. Additionally, 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, including the risks, assumptions and uncertainties above which are:
| · | discussed under the "Industry Trends and Risks" heading of our Management's Discussion and Analysis; and |
| · | set out in our Annual Information Form filed with securities commissions in Canada, our annual report on Form 40-F filed with the United States Securities and Exchange Commission, and subsequent filings. |
Readers should also consider discussion of our risk mitigation activities with respect to certain risk factors, which can also be found in our Annual Information Form.
Magna International Inc. Second Quarter Report 2021 29
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
[Unaudited]
[U.S. dollars in millions, except per share figures]
| Three months ended | Six months ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| Note | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
| Sales | 14 | $ | 9,034 | $ | 4,293 | $ | 19,213 | $ | 12,950 | |||||||||||
| Costs and expenses | ||||||||||||||||||||
| Cost of goods sold | 7,728 | 4,206 | 16,390 | 11,773 | ||||||||||||||||
| Depreciation and amortization | 374 | 334 | 738 | 670 | ||||||||||||||||
| Selling, general and administrative | 419 | 378 | 849 | 759 | ||||||||||||||||
| Interest expense, net | 11 | 21 | 34 | 38 | ||||||||||||||||
| Equity income | (44 | ) | (25 | ) | (91 | ) | (55 | ) | ||||||||||||
| Other expense (income), net | 2 | 6 | 168 | (52 | ) | 168 | ||||||||||||||
| Income (loss) from operations before income taxes | 540 | (789 | ) | 1,345 | (403 | ) | ||||||||||||||
| Income taxes | 9 | 104 | (137 | ) | 287 | (3 | ) | |||||||||||||
| Net income (loss) | 436 | (652 | ) | 1,058 | (400 | ) | ||||||||||||||
| (Income) loss attributable to non-controlling interests | (12 | ) | 5 | (19 | ) | 14 | ||||||||||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | $ | 1,039 | $ | (386 | ) | ||||||||||
| Earnings (loss) per Common Share: | 3 | |||||||||||||||||||
| Basic | $ | 1.41 | $ | (2.17 | ) | $ | 3.45 | $ | (1.29 | ) | ||||||||||
| Diluted | $ | 1.40 | $ | (2.17 | ) | $ | 3.42 | $ | (1.29 | ) | ||||||||||
| Cash dividends paid per Common Share | $ | 0.43 | $ | 0.40 | $ | 0.86 | $ | 0.80 | ||||||||||||
| Weighted average number of Common Shares outstanding during the period [in millions]: | 3 | |||||||||||||||||||
| Basic | 301.1 | 298.4 | 301.0 | 300.3 | ||||||||||||||||
| Diluted | 303.6 | 298.4 | 303.6 | 300.3 | ||||||||||||||||
See accompanying notes
30 Magna International Inc. Second Quarter Report 2021
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
[Unaudited]
[U.S. dollars in millions]
| Three months ended | Six months ended | ||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||
| Note | 2021 | 2020 | 2021 | 2020 | |||||||||||||||
| Net income (loss) | $ | 436 | $ | (652 | ) | $ | 1,058 | $ | (400 | ) | |||||||||
| Other comprehensive income (loss), net of tax: | 11 | ||||||||||||||||||
| Net unrealized gain (loss) on translation of net investment in foreign operations | 105 | 87 | (3 | ) | (233 | ) | |||||||||||||
| Net unrealized gain (loss) on cash flow hedges | 34 | 60 | 47 | (124 | ) | ||||||||||||||
| Reclassification of net (gain) loss on cash flow hedges to net income | (10 | ) | 25 | (18 | ) | 17 | |||||||||||||
| Reclassification of net loss on pensions to net income | 1 | 1 | 4 | 3 | |||||||||||||||
| Pension and post retirement benefits | 1 | — | 1 | — | |||||||||||||||
| Other comprehensive income (loss) | 131 | 173 | 31 | (337 | ) | ||||||||||||||
| Comprehensive income (loss) | 567 | (479 | ) | 1,089 | (737 | ) | |||||||||||||
| Comprehensive (income) loss attributable to non-controlling interests | (17 | ) | 6 | (21 | ) | 21 | |||||||||||||
| Comprehensive income (loss) attributable to Magna International Inc. | $ | 550 | $ | (473 | ) | $ | 1,068 | $ | (716 | ) | |||||||||
See accompanying notes
Magna International Inc. Second Quarter Report 2021 31
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[Unaudited]
[U.S. dollars in millions]
| As at | As at | |||||||||||
| June 30, | December 31, | |||||||||||
| Note | 2021 | 2020 | ||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | 4 | $ | 3,426 | $ | 3,268 | |||||||
| Accounts receivable | 6,531 | 6,394 | ||||||||||
| Inventories | 5 | 3,999 | 3,444 | |||||||||
| Prepaid expenses and other | 294 | 260 | ||||||||||
| 14,250 | 13,366 | |||||||||||
| Investments | 6 | 1,124 | 947 | |||||||||
| Fixed assets, net | 8,297 | 8,475 | ||||||||||
| Operating lease right-of-use assets | 1,854 | 1,906 | ||||||||||
| Intangible assets, net | 521 | 481 | ||||||||||
| Goodwill | 2,155 | 2,095 | ||||||||||
| Deferred tax assets | 389 | 372 | ||||||||||
| Other assets | 7 | 956 | 963 | |||||||||
| $ | 29,546 | $ | 28,605 | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable | $ | 6,248 | $ | 6,266 | ||||||||
| Other accrued liabilities | 8 | 2,186 | 2,254 | |||||||||
| Accrued salaries and wages | 912 | 815 | ||||||||||
| Income taxes payable | 123 | 38 | ||||||||||
| Long-term debt due within one year | 117 | 129 | ||||||||||
| Current portion of operating lease liabilities | 278 | 241 | ||||||||||
| 9,864 | 9,743 | |||||||||||
| Long-term debt | 3,941 | 3,973 | ||||||||||
| Operating lease liabilities | 1,563 | 1,656 | ||||||||||
| Long-term employee benefit liabilities | 743 | 729 | ||||||||||
| Other long-term liabilities | 482 | 332 | ||||||||||
| Deferred tax liabilities | 513 | 452 | ||||||||||
| 17,106 | 16,885 | |||||||||||
| Shareholders' equity | ||||||||||||
| Capital stock | ||||||||||||
| Common Shares | ||||||||||||
| [issued: 300,655,552; December 31, 2020 – 300,527,416] | 10 | 3,416 | 3,271 | |||||||||
| Contributed surplus | 104 | 128 | ||||||||||
| Retained earnings | 9,241 | 8,704 | ||||||||||
| Accumulated other comprehensive loss | 11 | (703 | ) | (733 | ) | |||||||
| 12,058 | 11,370 | |||||||||||
| Non-controlling interests | 382 | 350 | ||||||||||
| 12,440 | 11,720 | |||||||||||
| $ | 29,546 | $ | 28,605 | |||||||||
See accompanying notes
32 Magna International Inc. Second Quarter Report 2021
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 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
| Cash provided from (used for): | ||||||||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||||||
| Net income (loss) | $ | 436 | $ | (652 | ) | $ | 1,058 | $ | (400 | ) | ||||||||||
| Items not involving current cash flows | 4 | 341 | 335 | 690 | 679 | |||||||||||||||
| 777 | (317 | ) | 1,748 | 279 | ||||||||||||||||
| Changes in operating assets and liabilities | 4 | (249 | ) | (915 | ) | (559 | ) | (872 | ) | |||||||||||
| Cash provided from (used for) operating activities | 528 | (1,232 | ) | 1,189 | (593 | ) | ||||||||||||||
| INVESTMENT ACTIVITIES | ||||||||||||||||||||
| Fixed asset additions | (277 | ) | (169 | ) | (489 | ) | (372 | ) | ||||||||||||
| Increase in public and private equity investments | (17 | ) | (2 | ) | (20 | ) | (102 | ) | ||||||||||||
| Increase in investments, other assets and intangible assets | (93 | ) | (72 | ) | (197 | ) | (165 | ) | ||||||||||||
| Settlement of long-term receivable from non-consolidated joint venture | — | — | 50 | — | ||||||||||||||||
| Proceeds from disposition | 20 | 11 | 39 | 34 | ||||||||||||||||
| Acquisitions | (21 | ) | — | 18 | (7 | ) | ||||||||||||||
| Cash used for investing activities | (388 | ) | (232 | ) | (599 | ) | (612 | ) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||||||
| Issues of debt | 14 | 817 | 23 | 825 | ||||||||||||||||
| Increase (decrease) in short-term borrowings | — | 177 | (101 | ) | 176 | |||||||||||||||
| Repayments of debt | (47 | ) | (32 | ) | (81 | ) | (45 | ) | ||||||||||||
| Issue of Common Shares on exercise of stock options | 50 | 1 | 133 | 2 | ||||||||||||||||
| Shares repurchased for tax withholdings on vesting of equity awards | — | — | (12 | ) | (10 | ) | ||||||||||||||
| Repurchase of Common Shares | 10 | (99 | ) | — | (261 | ) | (201 | ) | ||||||||||||
| Dividends paid to non-controlling interests | (8 | ) | (3 | ) | (8 | ) | (6 | ) | ||||||||||||
| Dividends paid | (127 | ) | (116 | ) | (257 | ) | (237 | ) | ||||||||||||
| Cash (used for) provided from financing activities | (217 | ) | 844 | (564 | ) | 504 | ||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalents | 39 | 9 | 26 | (43 | ) | |||||||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash equivalents during the period | (38 | ) | (611 | ) | 52 | (744 | ) | |||||||||||||
| Cash, cash equivalents and restricted cash equivalents, beginning of period | 3,464 | 1,259 | 3,374 | 1,392 | ||||||||||||||||
| Cash, cash equivalents and restricted cash equivalents, end of period | 4 | $ | 3,426 | $ | 648 | $ | 3,426 | $ | 648 | |||||||||||
See accompanying notes
Magna International Inc. Second Quarter Report 2021 33
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
| Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Common Shares | ||||||||||||||||||||||||||||||||
| Note | Number | Stated Value | Contri- buted Surplus | Retained Earnings | AOCL (i) | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
| [in millions] | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 300.5 | $ | 3,271 | $ | 128 | $ | 8,704 | $ | (733 | ) | $ | 350 | $ | 11,720 | ||||||||||||||||||
| Net income | 1,039 | 19 | 1,058 | |||||||||||||||||||||||||||||
| Other comprehensive gain | 29 | 2 | 31 | |||||||||||||||||||||||||||||
| Business combinations | 19 | 19 | ||||||||||||||||||||||||||||||
| Shares issued on exercise of stock options | 2.8 | 160 | (27 | ) | 133 | |||||||||||||||||||||||||||
| Release of stock and stock units | 0.3 | 14 | (14 | ) | — | |||||||||||||||||||||||||||
| Tax withholdings on vesting of equity rewards | (2 | ) | (10 | ) | (12 | ) | ||||||||||||||||||||||||||
| Repurchase and cancellation under normal course issuer bid | 10 | (3.0 | ) | (32 | ) | (230 | ) | 1 | (261 | ) | ||||||||||||||||||||||
| Stock-based compensation expense | 17 | 17 | ||||||||||||||||||||||||||||||
| Dividends paid to non-controlling interests | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||
| Dividends paid | 0.1 | 5 | (262 | ) | (257 | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2021 | 300.7 | $ | 3,416 | $ | 104 | $ | 9,241 | $ | (703 | ) | $ | 382 | $ | 12,440 | ||||||||||||||||||
| Three months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Common Shares | ||||||||||||||||||||||||||||||||
| Note | Number | Stated Value | Contri- buted Surplus | Retained Earnings | AOCL (i) | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
| [in millions] | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 300.6 | $ | 3,366 | $ | 107 | $ | 9,034 | $ | (829) | $ | 374 | $ | 12,052 | |||||||||||||||||||
| Net income | 424 | 12 | 436 | |||||||||||||||||||||||||||||
| Other comprehensive gain | 126 | 5 | 131 | |||||||||||||||||||||||||||||
| Business combinations | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||
| Shares issued on exercise of stock options | 1.1 | 59 | (9 | ) | 50 | |||||||||||||||||||||||||||
| Repurchase and cancellation under normal course issuer bid | 10 | (1.0 | ) | (12 | ) | (87 | ) | (99 | ) | |||||||||||||||||||||||
| Stock-based compensation expense | 6 | 6 | ||||||||||||||||||||||||||||||
| Dividends paid to non-controlling interests | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||
| Dividends paid | 3 | (130 | ) | (127 | ) | |||||||||||||||||||||||||||
| Balance, June 30, 2021 | 300.7 | $ | 3,416 | $ | 104 | $ | 9,241 | $ | (703 | ) | $ | 382 | $ | 12,440 | ||||||||||||||||||
| (i) | AOCL is Accumulated Other Comprehensive Loss. |
See accompanying notes
34 Magna International Inc. Second Quarter Report 2021
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[Unaudited]
[U.S. dollars in millions]
| Six months ended June 30, 2020 | ||||||||||||||||||||||||||||||||
| Common Shares | ||||||||||||||||||||||||||||||||
| Note | Number | Stated Value | Contri- buted Surplus | Retained Earnings | AOCL (i) | Non- controlling Interest | Total Equity | |||||||||||||||||||||||||
| [in millions] | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 303.2 | $ | 3,198 | $ | 127 | $ | 8,596 | $ | (1,090 | ) | $ | 300 | $ | 11,131 | ||||||||||||||||||
| Net loss | (386 | ) | (14 | ) | (400 | ) | ||||||||||||||||||||||||||
| Other comprehensive loss | (330 | ) | (7 | ) | (337 | ) | ||||||||||||||||||||||||||
| Shares issued on exercise of stock options | 0.1 | 2 | 2 | |||||||||||||||||||||||||||||
| Release of stock and stock units | 0.4 | 13 | (13 | ) | — | |||||||||||||||||||||||||||
| Tax withholdings on vesting of equity rewards | (0.2 | ) | (2 | ) | (8 | ) | (10 | ) | ||||||||||||||||||||||||
| Repurchase and cancellation under normal course issuer bid | 10 | (5.0 | ) | (53 | ) | (155 | ) | 7 | (201 | ) | ||||||||||||||||||||||
| Stock-based compensation expense | 11 | 11 | ||||||||||||||||||||||||||||||
| Dividends paid to non-controlling interests | (6 | ) | (6 | ) | ||||||||||||||||||||||||||||
| Dividends paid | 0.1 | 6 | (243 | ) | (237 | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2020 | 298.6 | $ | 3,164 | $ | 125 | $ | 7,804 | $ | (1,413 | ) | $ | 273 | $ | 9,953 | ||||||||||||||||||
| Three months ended June 30, 2020 | ||||||||||||||||||||||||||||
| Common Shares | ||||||||||||||||||||||||||||
| Number | Stated Value | Contri- buted Surplus | Retained Earnings | AOCL (i) | Non- controlling Interest | Total Equity | ||||||||||||||||||||||
| [in millions] | ||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 298.5 | $ | 3,159 | $ | 117 | $ | 8,571 | $ | (1,587 | ) | $ | 282 | $ | 10,542 | ||||||||||||||
| Net loss | (647 | ) | (5 | ) | (652 | ) | ||||||||||||||||||||||
| Other comprehensive income | 174 | (1 | ) | 173 | ||||||||||||||||||||||||
| Shares issued on exercise of stock options | 0.1 | 1 | 1 | |||||||||||||||||||||||||
| Stock-based compensation expense | 8 | 8 | ||||||||||||||||||||||||||
| Dividends paid to non-controlling interests | (3 | ) | (3 | ) | ||||||||||||||||||||||||
| Dividends paid | 4 | (120 | ) | (116 | ) | |||||||||||||||||||||||
| Balance, June 30, 2020 | 298.6 | $ | 3,164 | $ | 125 | $ | 7,804 | $ | (1,413) | $ | 273 | $ | 9,953 | |||||||||||||||
| (ii) | AOCL is Accumulated Other Comprehensive Loss. |
See accompanying notes
Magna International Inc. Second Quarter Report 2021 35
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. | significant accounting policies |
[a] 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 U.S. dollars following accounting principles generally accepted in the United States of America ["GAAP"]. The unaudited interim consolidated financial statements do not conform in all respects to the requirements of GAAP for annual financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the December 31, 2020 audited consolidated financial statements and notes thereto included in the Company's 2020 Annual Report.
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, 2021 and the results of operations, changes in equity and cash flows for the three and six-month periods ended June 30, 2021 and 2020.
Certain amounts in prior periods have been reclassified to conform with current period presentation.
| 2. | other EXPENSE (INCOME), net |
| Three months ended | Six months ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||
| Restructuring and impairments | [a] | $ | 44 | $ | 168 | $ | 59 | $ | 168 | |||||||||||
| Gains on investments | [b] | (38 | ) | — | (71 | ) | — | |||||||||||||
| Gain on business combinations | [c] | — | — | (40 | ) | — | ||||||||||||||
| $ | 6 | $ | 168 | $ | (52 | ) | $ | 168 | ||||||||||||
[a] Restructuring and impairments
For the three and six months ended June 30, 2021, the Company recorded restructuring charges of $44 million [$31 million after tax] and $59 million [$46 million after tax], respectively for its Power & Vision operations.
For the three and six months ended June 30, 2020, the Company recorded restructuring and impairment charges of $115 million [$90 million after tax] for its Power & Vision segment and $37 million [$32 million after tax] for its Body Exteriors & Structures segment. Restructuring charges of $16 million [$14 million after tax] were also recorded in the Seating Systems segment.
[b] Gains on investments
During the second quarter of 2021, the Company recorded unrealized gains of $29 million [$22 million after tax] related to the revaluation of certain public company warrants and $9 million [$7 million after tax] on the revaluation of certain public and private equity investments [note 6].
For the six months ended June 30, 2021, the Company recorded unrealized gains of $44 million [$33 million after tax] related to the revaluation of certain public company warrants and $27 million [$20 million after tax] on the revaluation of certain public and private equity investments [note 6].
[c] Gain on business combinations
During the six months ended June 30, 2021, the Company acquired a 65% equity interest and a controlling financial interest in Chongqing Hongli Zhixin Scientific Technology Development Group LLC. The acquisition included an additional 15% equity interest in two entities that were previously equity accounted for by the Company. On the change in basis of accounting, the Company recognized a $22 million gain [$22 million after tax].
The Company also recorded a gain of $18 million [$18 million after tax] in connection with the distribution of substantially all of the assets of the Company's European joint venture, Getrag Ford Transmission GmbH.
36 Magna International Inc. Second Quarter Report 2021
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]
3. EARNINGS (LOSS) PER SHARE
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Basic earnings (loss) per Common Share: | ||||||||||||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | $ | 1,039 | $ | (386 | ) | ||||||
| Weighted average number of Common Shares outstanding | 301.1 | 298.4 | 301.0 | 300.3 | ||||||||||||
| Basic earnings (loss) per Common Share | $ | 1.41 | $ | (2.17 | ) | $ | 3.45 | $ | (1.29 | ) | ||||||
| Diluted earnings (loss) per Common Share [a]: | ||||||||||||||||
| Net income (loss) attributable to Magna International Inc. | $ | 424 | $ | (647 | ) | $ | 1,039 | $ | (386 | ) | ||||||
| Weighted average number of Common Shares outstanding | 303.6 | 298.4 | 303.6 | 300.3 | ||||||||||||
| Diluted earnings (loss) per Common Share | $ | 1.40 | $ | (2.17 | ) | $ | 3.42 | $ | (1.29 | ) | ||||||
| [a] | For the six months ended June 30, 2021, diluted earnings per Common Share excluded 0.1 million, Common Shares issuable under the Company's Incentive Stock Option Plan because the effect of including them would have been anti-dilutive. The dilutive effect of participating securities using the two-class method was excluded from the calculation of earnings per share because the effect would be immaterial. |
For the three and six months ended June 30, 2020, diluted earnings per Common Share excluded 9.7 million and 9.3 million Common Shares, respectively, issuable under the Company's Incentive Stock Option Plan because the effect of including them would have been anti-dilutive.
Magna International Inc. Second Quarter Report 2021 37
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]
| 4. | DETAILS OF CASH FROM OPERATING ACTIVITIES |
| [a] | Cash, cash equivalents and restricted cash equivalents: |
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Bank term deposits and bankers' acceptances | $ | 2,295 | $ | 1,987 | ||||
| Cash | 1,131 | 1,281 | ||||||
| Cash and cash equivalents | 3,426 | 3,268 | ||||||
| Restricted cash equivalents included in prepaid expenses | - | 106 | ||||||
| $ | 3,426 | $ | 3,374 |
| [b] | Items not involving current cash flows: |
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Depreciation and amortization | $ | 374 | $ | 334 | $ | 738 | $ | 670 | ||||||||
| Amortization of other assets included in cost of goods sold | 67 | 37 | 135 | 90 | ||||||||||||
| Amortization of deferred revenue and deferred cost recoveries | (58 | ) | (19 | ) | (120 | ) | (38 | ) | ||||||||
| Other non-cash (recoveries) charges | (15 | ) | 40 | 21 | 36 | |||||||||||
| Deferred income taxes | 12 | (98 | ) | 26 | (102 | ) | ||||||||||
| Equity income in excess of dividends received | — | 22 | 2 | 4 | ||||||||||||
| Non-cash portion of Other expense (income), net [note 2] | (39 | ) | 19 | (112 | ) | 19 | ||||||||||
| $ | 341 | $ | 335 | $ | 690 | $ | 679 | |||||||||
| [c] | Changes in operating assets and liabilities: |
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Accounts receivable | $ | 705 | $ | 442 | $ | 57 | $ | 535 | ||||||||
| Inventories | (348 | ) | 63 | (561 | ) | (214 | ) | |||||||||
| Prepaid expenses and other | 16 | 15 | (7 | ) | (13 | ) | ||||||||||
| Accounts payable | (547 | ) | (1,405 | ) | (200 | ) | (1,296 | ) | ||||||||
| Accrued salaries and wages | 10 | (120 | ) | 87 | (48 | ) | ||||||||||
| Other accrued liabilities | (66 | ) | 195 | 24 | 235 | |||||||||||
| Income taxes payable | (19 | ) | (105 | ) | 41 | (71 | ) | |||||||||
| $ | (249 | ) | $ | (915 | ) | $ | (559 | ) | $ | (872 | ) | |||||
38 Magna International Inc. Second Quarter Report 2021
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]
| 5. | INVENTORIES |
Inventories consist of:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials and supplies | $ | 1,478 | $ | 1,226 | ||||
| Work-in-process | 409 | 340 | ||||||
| Finished goods | 614 | 470 | ||||||
| Tooling and engineering | 1,498 | 1,408 | ||||||
| $ | 3,999 | $ | 3,444 | |||||
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.
6. Investments
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Equity method investments | $ | 550 | $ | 677 | ||||
| Public and private equity investments | 323 | 267 | ||||||
| Warrants [a] | 250 | — | ||||||
| Other | 1 | 3 | ||||||
| $ | 1,124 | $ | 947 | |||||
| [a] | In October 2020, the Company signed agreements that provide a framework with Fisker Inc. ["Fisker"] for the platform sharing, engineering and manufacturing of the Fisker Ocean SUV. In connection with the arrangement, Fisker issued approximately 19.5 million penny warrants to the Company to purchase common stock, which vest based on specified milestones. During each of the first and second quarters of 2021, one third of the warrants vested with a value of $98 million and $108 million, respectively. The initial value attributable to the warrants is deferred within other accrued liabilities and other long-term liabilities on the consolidated balance sheet and will be recognized in the consolidated statement of income as performance obligations are satisfied. The Company also recorded an unrealized gain of $44 million for the six months ended June 30, 2021 related to the revaluation of the vested warrants [note 2]. |
Cumulative unrealized gains on equity securities still held at the reporting date were $137 million and $65 million as at June 30, 2021 and December 31, 2020, respectively.
Magna International Inc. Second Quarter Report 2021 39
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]
| 7. | Other assets |
Other assets consist of:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Preproduction costs related to long-term supply agreements | $ | 709 | $ | 694 | ||||
| Long-term receivables | 168 | 209 | ||||||
| Pension overfunded status | 4 | 4 | ||||||
| Unrealized gain on cash flow hedges | 22 | 16 | ||||||
| Other, net | 53 | 40 | ||||||
| $ | 956 | $ | 963 | |||||
| 8. | Warranty |
The following is a continuity of the Company's warranty accruals, included in Other accrued liabilities:
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | 284 | $ | 252 | ||||
| Expense, net | 27 | 22 | ||||||
| Settlements | (28 | ) | (73 | ) | ||||
| Business combinations | 2 | — | ||||||
| Foreign exchange and other | (6 | ) | (2 | ) | ||||
| Balance, March 31 | 279 | 199 | ||||||
| Expense, net | 26 | 37 | ||||||
| Settlements | (12 | ) | (32 | ) | ||||
| Foreign exchange and other | 2 | 1 | ||||||
| Balance, June 30 | $ | 295 | $ | 205 | ||||
| 9. | INCOME TAXES |
For the three and six months ended June 30, 2021, the Company's effective income tax rate decreased from the customary tax rate primarily due to a reduction in reserves for uncertain tax positions.
For the three months ended June 30, 2020, the Company's income tax benefit does not reflect the customary tax rate mainly as a result of losses in Europe that could not be recognized.
For the six months ended June 30, 2020, the Company's income tax benefit does not reflect the customary tax rate mainly as a result of losses in Europe that could not be recognized, and the tax on foreign exchange gains reported on U.S. dollar denominated assets for Mexican tax purposes that are not recognized for U.S. GAAP purposes.
| 10. | CAPITAL STOCK |
| [a] | During the second quarter of 2021, the Company repurchased 1.0 million shares under a normal course issuer bid for cash consideration of $99 million. |
| [b] | The following table presents the maximum number of shares that would be outstanding if all the dilutive instruments outstanding at August 5, 2021 were exercised or converted: |
| Common Shares | 300,655,552 | |||
| Stock options (i) | 5,727,013 | |||
| 306,382,565 |
| (i) | Options to purchase Common 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. |
40 Magna International Inc. Second Quarter Report 2021
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]
| 11. | ACCUMULATED other comprehensive loss |
The following is a continuity schedule of accumulated other comprehensive loss:
| 2021 | 2020 | |||||||
| Accumulated net unrealized loss on translation of net investment in foreign Operations | ||||||||
| Balance, beginning of period | $ | (551 | ) | $ | (907 | ) | ||
| Net unrealized loss | (105 | ) | (314 | ) | ||||
| Repurchase of shares under normal course issuer bid | 1 | 7 | ||||||
| Balance, March 31 | (655 | ) | (1,214 | ) | ||||
| Net unrealized gain | 100 | 88 | ||||||
| Balance, June 30 | (555 | ) | (1,126 | ) | ||||
| Accumulated net unrealized gain (loss) on cash flow hedges (i) | ||||||||
| Balance, beginning of period | 42 | 38 | ||||||
| Net unrealized gain (loss) | 13 | (184 | ) | |||||
| Reclassification of net gain to net income | (8 | ) | (8 | ) | ||||
| Balance, March 31 | 47 | (154 | ) | |||||
| Net unrealized gain | 34 | 60 | ||||||
| Reclassification of net (gain) loss to net income | (10 | ) | 25 | |||||
| Balance, June 30 | 71 | (69 | ) | |||||
| Accumulated net unrealized loss on pensions | ||||||||
| Balance, beginning of period | (224 | ) | (221 | ) | ||||
| Reclassification of net loss to net income | 3 | 2 | ||||||
| Balance, March 31 | (221 | ) | (219 | ) | ||||
| Revaluation - Pension | 1 | — | ||||||
| Reclassification of net loss to net income | 1 | 1 | ||||||
| Balance, June 30 | (219 | ) | (218 | ) | ||||
| Total accumulated other comprehensive loss | $ | (703 | ) | $ | (1,413 | ) | ||
| (i) | The amount of income tax (expense) benefit that has been netted in the accumulated net unrealized gain on cash flow hedges is as follows: |
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | (15 | ) | $ | (14 | ) | ||
| Net unrealized (gain) loss | (4 | ) | 66 | |||||
| Reclassification of net gain to net income | 3 | 3 | ||||||
| Balance, March 31 | (16 | ) | 55 | |||||
| Net unrealized gain | (12 | ) | (21 | ) | ||||
| Reclassifications of net gain (loss) to net income | 4 | (9 | ) | |||||
| Balance, June 30 | $ | (24 | ) | $ | 25 | |||
The amount of other comprehensive loss that is expected to be reclassified to net income over the next 12 months is $71 million.
Magna International Inc. Second Quarter Report 2021 41
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]
| 12. | Financial instruments |
| [a] | Financial assets and liabilities |
The Company's financial assets and financial liabilities consist of the following:
| June
30, 2021 | December 31,2020 | |||||||
| Financial assets | ||||||||
| Cash, cash equivalents and restricted cash equivalents | $ | 3,426 | $ | 3,374 | ||||
| Accounts receivable | 6,531 | 6,394 | ||||||
| Warrants and public and private equity investments | 573 | 267 | ||||||
| Long-term receivables included in other assets | 168 | 209 | ||||||
| $ | 10,698 | $ | 10,244 | |||||
| Financial liabilities | ||||||||
| Long-term debt (including portion due within one year) | $ | 4,058 | $ | 4,102 | ||||
| Accounts payable | 6,248 | 6,266 | ||||||
| $ | 10,306 | $ | 10,368 | |||||
| Derivatives designated as effective hedges, measured at fair value | ||||||||
| Foreign currency contracts | ||||||||
| Prepaid expenses | $ | 76 | $ | 52 | ||||
| Other assets | 22 | 16 | ||||||
| Other accrued liabilities | (11 | ) | (11 | ) | ||||
| Other long-term liabilities | (3 | ) | (5 | ) | ||||
| $ | 84 | $ | 52 | |||||
| [b] | Derivatives designated as effective hedges, measured at fair value |
The Company presents derivatives that are designated as effective hedges at gross fair values in the consolidated balance sheets. However, master netting and other similar arrangements allow net settlements under certain conditions. The following table shows the Company's derivative foreign currency contracts at gross fair value as reflected in the consolidated balance sheets and the unrecognized impacts of master netting arrangements:
| Gross
amounts presented in consolidated balance sheets | Gross
amounts not offset in consolidated balance sheets | Net amounts | ||||||||||
| June 30, 2021 | ||||||||||||
| Assets | $ | 98 | $ | 11 | $ | 87 | ||||||
| Liabilities | $ | (14 | ) | $ | (11 | ) | $ | (3 | ) | |||
| December 31, 2020 | ||||||||||||
| Assets | $ | 68 | $ | 13 | $ | 55 | ||||||
| Liabilities | $ | (16 | ) | $ | (13 | ) | $ | (3 | ) | |||
42 Magna International Inc. Second Quarter Report 2021
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]
| 12. | Financial instruments (CONTINUED) |
| [c] | 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, accounts receivable and accounts payable.
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.
Publicly traded and private equity securities
The fair value of the Company’s investments in publicly traded equity securities is determined using the closing price on the measurement date, as reported on the stock exchange on which the securities are traded. [Level 1 input based on the GAAP fair value hierarchy.]
The Company estimates the value of its private equity securities based on valuation methods using the observable transaction price at the transaction date and other observable inputs including rights and obligations of the securities held by the Company. [Level 3 input based on the GAAP fair value hierarchy.]
Warrants
The Company estimates the value of its warrants based on the quoted prices in the active market for Fisker's common shares. [Level 2 inputs based on the GAAP fair value hierarchy.]
Term debt
The Company's term debt includes $117 million due within one year. Due to the short period to maturity of this debt, the carrying value as presented in the consolidated balance sheets is a reasonable estimate of its fair value.
Senior Notes
The fair value of the Company’s Senior Notes are classified as Level 1 when quoted prices in active markets are used and Level 2 when the quoted prices are from less active markets or when other observable inputs are used to determine fair value. At June 30, 2021, the net book value of the Company's Senior Notes was $3.9 billion and the estimated fair value was $4.1 billion.
| [d] | Credit risk |
The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, and foreign exchange forward contracts with positive fair values.
Cash and cash equivalents which consists of short-term investments, are only invested in bank term deposits and bank commercial paper with primarily an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in certain major financial institutions.
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.
Magna International Inc. Second Quarter Report 2021 43
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]
| 12. | Financial instruments (CONTINUED) |
| [d] | Credit risk (continued) |
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. For the three and six month periods ended June 30, 2021, sales to the Company's six largest customers represented 78% of the Company's sales, and substantially all of the Company's sales are to customers with which it has ongoing contractual relationships. In determining the allowance for expected credit losses, the Company considers changes in customer's credit ratings, liquidity, customer’s historical payments and loss experience, current economic conditions, and the Company's expectations of future economic conditions.
| [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 cash and cash equivalents is impacted more by investment decisions made and the demands to have available cash on hand, than by movements in interest rates over a given period.
In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on these instruments are fixed.
| [f] | Currency risk and foreign exchange contracts |
The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to the delivery of products, and/or the purchase of materials and equipment 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.
At June 30, 2021, the Company had outstanding foreign exchange forward contracts representing commitments to buy and sell various foreign currencies. Significant commitments are as follows:
| For Canadian dollars | For U.S. dollars | For Euros | ||||||||||||||||||||||||||||||
| U.S.
dollar amount | Weighted
average rate | Peso
amount | Weighted
average rate | U.S.
dollar amount | Weighted
average rate | Czech
Koruna Amount | Weighted
average rate | |||||||||||||||||||||||||
| Buy | 199 | 0.79041 | 9,994 | 0.04597 | 410 | 0.83287 | 7,967 | 0.03785 | ||||||||||||||||||||||||
| (Sell) | (1,274 | ) | 1.29433 | — | — | (181 | ) | 1.20549 | (317 | ) | 25.66536 | |||||||||||||||||||||
Forward contracts mature at various dates through 2025. Foreign currency exposures are reviewed quarterly.
| [g] | Equity price risk |
Public equity securities and warrants
The Company's public equity securities and warrants are subject to market price risk due to the risk of loss in value that would result from a decline in the market price of the common shares or underlying common shares.
44 Magna International Inc. Second Quarter Report 2021
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]
| 13. | CONTINGENCIES |
From time to time, the Company may become involved in regulatory proceedings, or become liable for legal, contractual and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others. On an ongoing basis, the Company attempts to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, together with potential ranges of probable costs and losses. A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue. The required provision may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
| [a] | In September 2014, the Conselho Administrativo de Defesa Economica ["CADE"], Brazil's Federal competition authority, attended at one of the Company's operating divisions in Brazil to obtain information in connection with an ongoing antitrust investigation relating to suppliers of automotive door latches and related products ["access mechanisms"]. |
In May 2019, CADE informed the Company that it completed its preliminary investigation and, based on a review of the evidence, had commenced a formal administrative proceeding into alleged anticompetitive behaviour relating to access mechanisms involving the Company.
Administrative proceedings of this nature can often continue for several years. At this time, management is unable to predict the duration or outcome of the Brazilian administrative proceeding, including whether any operating divisions of the Company will be found liable for any violation of law or the extent or magnitude of any liability, if any. In the event that wrongful conduct is found, CADE may impose administrative penalties or fines taking into account several mitigating and aggravating factors. Administrative fines are tied to the sales in Brazil of the applicable Magna companies in the fiscal year prior to the commencement of the formal administrative proceeding.
The Company's policy is to comply with all applicable laws, including antitrust and competition laws. Based on a previously completed global review of legacy antitrust risks which led to a September 2020 settlement with the European Commission where Magna received full immunity regarding two separate bilateral cartels involving the supply of closure systems, Magna does not currently anticipate any material liabilities. However, we could be subject to restitution settlements, civil proceedings, reputational damage and other consequences, including as a result of the matters specifically referred to above.
| [b] | The Company is at risk for product warranty costs, which include product liability and recall costs, and is currently experiencing increased customer pressure to assume greater warranty responsibility. For most types of products, the Company only accounts for existing or probable product warranty claims. However, for certain complete vehicle assembly, powertrain systems and electronics contracts, the Company records an estimate of future warranty-related costs based on the terms of the specific customer agreements and/or the Company's warranty experience. Product liability and recall provisions are established based on the Company's best estimate of the amounts necessary to settle existing claims, which typically take into account: the number of units that may be returned; the cost of the product being replaced; labour to remove and replace the defective part; and the customer's administrative costs relating to the recall. Where applicable, such provisions are booked net of recoveries from sub-suppliers and along with related insurance recoveries. Due to the uncertain nature of the net costs, actual product liability costs could be materially different from the Company's best estimates of future costs [note 8]. |
Magna International Inc. Second Quarter Report 2021 45
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]
| 14. | Segmented Information |
Magna is a global automotive supplier which has complete vehicle engineering and contract manufacturing expertise, as well as product capabilities which include body, chassis, exterior, seating, powertrain, active driver assistance, electronics, mirrors & lighting, mechatronics and roof systems. Magna also has electronic and software capabilities across many of these areas.
The Company is organized under four operating segments: Body Exteriors & Structures, Power & Vision, Seating Systems and Complete Vehicles. These segments have been determined on the basis of technological opportunities, product similarities, and market and operating factors, and are also the Company's reportable segments.
The Company's chief operating decision maker uses Adjusted Earnings before Interest and Income Taxes ["Adjusted EBIT"] as the measure of segment profit or loss, since management believes Adjusted EBIT is the most appropriate measure of operational profitability or loss for its reporting segments. Adjusted EBIT is calculated by taking net income (loss) and adding back income taxes, interest expense, net, and other expense (income), net.
46 Magna International Inc. Second Quarter Report 2021
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]
| 14. | Segmented Information (CONTINUED) |
| [a] | The following tables show segment information for the Company's reporting segments and a reconciliation of Adjusted EBIT to the Company's consolidated net income (loss): |
| Three months ended June 30, 2021 | ||||||||||||||||||||||||
| Depreciation | Equity | Fixed | ||||||||||||||||||||||
| Total | External | Adjusted | and | (income) | asset | |||||||||||||||||||
| sales | sales | EBIT [ii] | amortization | loss | additions | |||||||||||||||||||
| Body Exteriors & Structures | $ | 3,647 | $ | 3,576 | $ | 227 | $ | 184 | $ | 3 | $ | 138 | ||||||||||||
| Power & Vision | 2,881 | 2,825 | 203 | 135 | (41 | ) | 107 | |||||||||||||||||
| Seating Systems | 1,166 | 1,152 | 26 | 24 | (2 | ) | 12 | |||||||||||||||||
| Complete Vehicles | 1,490 | 1,477 | 79 | 27 | (1 | ) | 18 | |||||||||||||||||
| Corporate & Other [i] | (150 | ) | 4 | 22 | 4 | (3 | ) | 2 | ||||||||||||||||
| Total Reportable Segments | $ | 9,034 | $ | 9,034 | $ | 557 | $ | 374 | $ | (44 | ) | $ | 277 | |||||||||||
| Three months ended June 30, 2020 | ||||||||||||||||||||||||
| Depreciation | Equity | Fixed | ||||||||||||||||||||||
| Total | External | Adjusted | and | (income) | asset | |||||||||||||||||||
| sales | sales | EBIT [ii] | amortization | loss | additions | |||||||||||||||||||
| Body Exteriors & Structures | $ | 1,623 | $ | 1,578 | $ | (315 | ) | $ | 177 | $ | 2 | $ | 85 | |||||||||||
| Power & Vision | 1,298 | 1,271 | (226 | ) | 115 | (28 | ) | 70 | ||||||||||||||||
| Seating Systems | 524 | 521 | (84 | ) | 19 | (1 | ) | 6 | ||||||||||||||||
| Complete Vehicles | 933 | 921 | 44 | 20 | — | 6 | ||||||||||||||||||
| Corporate & Other [i] | (85 | ) | 2 | (19 | ) | 3 | 2 | 2 | ||||||||||||||||
| Total Reportable Segments | $ | 4,293 | $ | 4,293 | $ | (600 | ) | $ | 334 | $ | (25 | ) | $ | 169 | ||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||||||||||
| Depreciation | Equity | Fixed | ||||||||||||||||||||||
| Total | External | Adjusted | and | (income) | asset | |||||||||||||||||||
| sales | sales | EBIT [ii] | amortization | loss | additions | |||||||||||||||||||
| Body Exteriors & Structures | $ | 7,672 | $ | 7,527 | $ | 554 | $ | 365 | $ | 5 | $ | 232 | ||||||||||||
| Power & Vision | 6,037 | 5,922 | 500 | 268 | (85 | ) | 205 | |||||||||||||||||
| Seating Systems | 2,469 | 2,444 | 81 | 46 | (4 | ) | 22 | |||||||||||||||||
| Complete Vehicles | 3,340 | 3,314 | 159 | 50 | (2 | ) | 26 | |||||||||||||||||
| Corporate & Other [i] | (305 | ) | 6 | 33 | 9 | (5 | ) | 4 | ||||||||||||||||
| Total Reportable Segments | $ | 19,213 | $ | 19,213 | $ | 1,327 | $ | 738 | $ | (91 | ) | $ | 489 | |||||||||||
| Six months ended June 30, 2020 | ||||||||||||||||||||||||
| Depreciation | Equity | Fixed | ||||||||||||||||||||||
| Total | External | Adjusted | and | (income) | asset | |||||||||||||||||||
| sales | sales | EBIT [ii] | amortization | loss | additions | |||||||||||||||||||
| Body Exteriors & Structures | $ | 5,299 | $ | 5,188 | $ | (116 | ) | $ | 356 | $ | 2 | $ | 187 | |||||||||||
| Power & Vision | 3,821 | 3,751 | (91 | ) | 230 | (62 | ) | 150 | ||||||||||||||||
| Seating Systems | 1,785 | 1,777 | (44 | ) | 36 | 2 | 21 | |||||||||||||||||
| Complete Vehicles | 2,254 | 2,232 | 94 | 40 | — | 10 | ||||||||||||||||||
| Corporate & Other [i] | (209 | ) | 2 | (40 | ) | 8 | 3 | 4 | ||||||||||||||||
| Total Reportable Segments | $ | 12,950 | $ | 12,950 | $ | (197 | ) | $ | 670 | $ | (55 | ) | $ | 372 | ||||||||||
| [i] | Included in Corporate and Other Adjusted EBIT are intercompany fees charged to the automotive segments. |
Magna International Inc. Second Quarter Report 2021 47
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]
| 14. | Segmented Information (CONTINUED) |
| [ii] | The following table reconciles Net income (loss) to Adjusted EBIT: |
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net income (loss) | $ | 436 | $ | (652 | ) | $ | 1,058 | $ | (400 | ) | ||||||
| Add: | ||||||||||||||||
| Interest expense, net | 11 | 21 | 34 | 38 | ||||||||||||
| Other expense (income), net | 6 | 168 | (52 | ) | 168 | |||||||||||
| Income taxes | 104 | (137 | ) | 287 | (3 | ) | ||||||||||
| Adjusted EBIT | $ | 557 | $ | (600 | ) | $ | 1,327 | $ | (197 | ) | ||||||
[b] The following table shows Goodwill for the Company's reporting segments:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Body Exteriors & Structures | $ | 476 | $ | 483 | ||||
| Power & Vision | 1,297 | 1,315 | ||||||
| Seating Systems | 265 | 176 | ||||||
| Complete Vehicles | 117 | 121 | ||||||
| Total Reportable Segments | $ | 2,155 | $ | 2,095 | ||||
| [c] | The following table shows Net Assets for the Company's reporting segments: |
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Body Exteriors & Structures | $ | 7,653 | $ | 7,536 | ||||
| Power & Vision | 5,589 | 5,529 | ||||||
| Seating Systems | 1,293 | 1,118 | ||||||
| Complete Vehicles | 809 | 671 | ||||||
| Corporate & Other | 1,023 | 710 | ||||||
| Total Reportable Segments | $ | 16,367 | $ | 15,564 | ||||
The following table reconciles Total Assets to Net Assets:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Total Assets | $ | 29,546 | $ | 28,605 | ||||
| Deduct assets not included in segment net assets: | ||||||||
| Cash and cash equivalents | (3,426 | ) | (3,268 | ) | ||||
| Deferred tax assets | (389 | ) | (372 | ) | ||||
| Long-term receivables from joint venture partners | (16 | ) | (66 | ) | ||||
| Deduct liabilities included in segment net assets: | ||||||||
| Accounts payable | (6,250 | ) | (6,266 | ) | ||||
| Accrued salaries and wages | (912 | ) | (815 | ) | ||||
| Other accrued liabilities | (2,186 | ) | (2,254 | ) | ||||
| Segment Net Assets | $ | 16,367 | $ | 15,564 | ||||
48 Magna International Inc. Second Quarter Report 2021
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]
| 15. | SUBSEQUENT EVENTS |
Divestiture
On May 17, 2021 the Company signed an agreement to sell three Body Exteriors & Structures operations in Germany. As at June 30, 2021, these operations had net assets of $27 million (primarily comprised of non-cash working capital and operating lease assets and liabilities). Under the terms of the arrangement, which closed on July 3, 2021, the Company will provide the buyer with $39 million of funding, subject to working capital adjustments, and as a result record a loss on disposal of approximately $75 million.
Veoneer, Inc.
On July 22, 2021, the Company entered into an agreement for the acquisition of Veoneer, Inc. ["Veoneer"], a leader in automotive safety technology. The agreement includes an offer price, which if accepted, would enable the Company to acquire all of the issued and outstanding shares of Veoneer for $31.25 per share in cash, representing an equity value of $3.8 billion. On August 5, 2021, an alternative bidder proposed to acquire all of Veoneer’s shares for a price that represents a premium over our offer price. In the event that the Company’s agreement to acquire Veoneer is not ultimately terminated by Veoneer in the face of the higher offer, our acquisition of Veoneer is expected to close near the end of 2021, subject to the approval of Veoneer’s stockholders, certain regulatory approvals and other customary closing conditions.
LG Electronics Inc. Joint Venture
On July 28, 2021, the Company formed a new joint venture with LG Electronics (“LG”) within its Power & Vision segment to manufacture e-motors, inverters, on board chargers and, for certain automakers, related e-drive systems. Under the terms of the agreement, the Company acquired a 49% non-controlling ownership interest in the new entity for cash consideration of $453 million.
Magna International Inc. Second Quarter Report 2021 49
CORPORATE OFFICE
Magna International Inc.
337 Magna Drive
Aurora, Ontario
Canada L4G 7K1
Telephone: (905) 726-2462
www.magna.com
TRANSFER AGENT AND REGISTRAR
Canada – Common Shares
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone: 1 (800) 564-6253
United States – Common Shares
Computershare Trust Company N.A.
462 S. 4th Street
Louisville, Kentucky, USA 40202
Telephone: 1 (800) 962-4284
From all other countries
Telephone: 1 (514) 982-7555
www.computershare.com
EXCHANGE LISTINGS
Common Shares
| Toronto Stock Exchange | MG |
| The New York Stock Exchange | MGA |
Shareholders wishing to communicate with the non-management members of the Magna Board of Directors may do so by contacting the Chairman of Board through the office of Magna’s Corporate Secretary at 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 (905) 726-7070.
Annual Report
Copies of the Annual Report may be obtained from: The Corporate Secretary, Magna International Inc., 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 or 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.
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Seetarama (Swamy) Kotagiri, Chief Executive Officer of Magna International Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Magna International Inc. (the “issuer”) for the interim period ended June 30, 2021.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 N/A
5.3 N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2021 and ended on June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: August 6, 2021.
| /s/ “Swamy Kotagiri” | |
| Seetarama (Swamy) Kotagiri | |
| Chief Executive Officer |
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Vincent J. Galifi, Executive Vice-President and Chief Financial Officer of Magna International Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Magna International Inc. (the “issuer”) for the interim period ended June 30, 2021.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings, for the issuer.
5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings
(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
5.2 N/A
5.3 N/A
6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on April 1, 2021 and ended on June 30, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: August 6, 2021.
| /s/ “Vincent J. Galifi” | |
| Vincent J. Galifi | |
| Executive Vice-President and | |
| Chief Financial Officer |