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 Magna announces third quarter and year to date resultsNovember 5, 2009 TORONTO, Nov. 5 /PRNewswire-FirstCall/ - Magna International Inc. (TSX: MG.A; NYSE: MGA) today reported financial results for the third quarter and nine months ended September 30, 2009.
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2009 2008 2009 2008
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Sales $ 4,669 $ 5,533 $ 11,948 $ 18,868
Operating income (loss) $ 81 $ (112) $ (386) $ 493
Net income (loss) $ 51 $ (215) $ (354) $ 219
Diluted earnings (loss)
per share $ 0.45 $ (1.93) $ (3.17) $ 1.92
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All results are reported in millions of U.S. dollars, except per share
figures, which are in U.S. dollars.
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THREE MONTHS ENDED SEPTEMBER 30, 2009
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During the third quarter of 2009, vehicle production declined 20% to 2.3 million units in North America and 9% to 2.9 million units in Europe, each compared to the third quarter of 2008. Also during the third quarter of 2009, our North American average dollar content per vehicle increased 8%, while European average dollar content per vehicle was essentially unchanged, each compared to the third quarter of 2008. Complete vehicle assembly sales decreased 38% to $428 million for the third quarter of 2009 compared to $687 million for the third quarter of 2008, while complete vehicle assembly volumes declined 42% to approximately 14,700 units. Substantially as a result of the significant declines in vehicle production in North America and Europe, and decreases in assembly sales and tooling, engineering and other sales, partially offset by increased North American content per vehicle and Rest of World Sales, our total sales decreased 16% to $4.7 billion for the third quarter of 2009 as compared to $5.5 billion for the third quarter of 2008. During the third quarter of 2009, operating income was $81 million, net income was $51 million and diluted earnings per share were $0.45, increases of $193 million, $266 million and $2.38, respectively, each compared to the third quarter of 2008. During the third quarter ended September 30, 2009, we generated cash from operations before changes in non cash operating assets and liabilities of $258 million, and invested $234 million in non cash operating assets and liabilities. Total investment activities for the third quarter of 2009 were $250 million, including $153 million in fixed asset additions, a $100 million increase in investments and other assets and $11 million to purchase subsidiaries.
NINE MONTHS ENDED SEPTEMBER 30, 2009
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During the nine months ended September 30, 2009, vehicle production declined 41% to 5.8 million units in North America and 27% to 8.5 million units in Europe, each compared to the first nine months of 2008. Also during the first nine months of 2009, our North American average dollar content per vehicle increased 1%, while European average dollar content per vehicle decreased 3%, each compared to the first nine months of 2008. Complete vehicle assembly sales decreased 56% to $1.3 billion for the nine months ended September 30, 2009 compared to $2.8 billion for the nine months ended September 30, 2008, while complete vehicle assembly volumes declined 68% to approximately 40,800 units. As a result of the significant declines in vehicle production in North America and Europe, lower European average dollar content per vehicle, and decreases in assembly sales and tooling, engineering and other sales, partially offset by higher North American average content per vehicle and Rest of World Sales, our total sales decreased 37% to $11.9 billion for the nine months ended September 30, 2009 as compared to $18.9 billion for the nine months ended September 30, 2008. During the nine months ended September 30, 2009, operating loss was $386 million, net loss was $354 million and diluted loss per share was $3.17, decreases of $879 million, $573 million and $5.09, respectively, each compared to the first nine months of 2008. During the nine months ended September 30, 2009, we generated cash from operations before changes in non cash operating assets and liabilities of $354 million, and invested $341 million in non cash operating assets and liabilities. Total investment activities for the first nine months of 2009 were $630 million, including $399 million in fixed asset additions, a $206 million increase in investments and other assets and $50 million to purchase subsidiaries.
OTHER MATTERS
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Our Board of Directors has approved the redemption of all of our outstanding 6.5% Convertible Subordinated Debentures (the "Debentures") for cash on December 7, 2009. The Debentures are redeemable at a price equal to 100% of the principal amount of the Debentures to be redeemed, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. The aggregate principal amount of Debentures currently outstanding is Cdn. $99,998,000. A more detailed discussion of our consolidated financial results for the third quarter and nine months ended September 30, 2009 is contained in the Management's Discussion and Analysis of Results of Operations and Financial Position, and the unaudited interim consolidated financial statements and notes thereto, which are attached to this Press Release. We are the most diversified global automotive supplier. We design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Our capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; as well as complete vehicle engineering and assembly. We have approximately 72,000 employees in 242 manufacturing operations and 86 product development and engineering centres in 25 countries.
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We will hold a conference call for interested analysts and shareholders
to discuss our third quarter results on Thursday, November 5, 2009 at
5:30 p.m. EST. The conference call will be chaired by Vincent J. Galifi,
Executive Vice-President and Chief Financial Officer. The number to use
for this call is 1-800-891-8794. The number for overseas callers is 1-
212-231-2912. Please call in 10 minutes prior to the call. We will also
webcast the conference call at www.magna.com. The slide presentation
accompanying the conference call will be available on our website Friday
morning prior to the call.
For further information, please contact Louis Tonelli, Vice-President,
Investor Relations at (905) 726-7035.
For teleconferencing questions, please contact Karin Kaminski at
905-726 7103.
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FORWARD LOOKING STATEMENTS
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The previous discussion may contain statements that, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of applicable securities legislation. Forward-looking statements may include financial and other projections, as well as statements regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing. We use words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks, assumptions and uncertainties, including, without limitation: the potential for an extended global recession, including its impact on our liquidity; the persistence of low production volumes and sales levels; restructuring of the global automotive industry and the impact on the financial condition and credit worthiness of some of our OEM customers, including the potential that such customers may not make, or may seek to delay or reduce, payments owed to us; the financial distress of some of our suppliers and the risk of their insolvency, bankruptcy or financial restructuring; restructuring and/or downsizing costs related to the rationalization of some of our operations; impairment charges; shifts in technology; our ability to successfully grow our sales to non-traditional customers; a reduction in the production volumes of certain vehicles, such as certain light trucks; our dependence on outsourcing by our customers; risks of conducting business in foreign countries, including Russia, India and China; our ability to quickly shift our manufacturing footprint to take advantage of lower cost manufacturing opportunities; the termination or non renewal by our customers of any material contracts; fluctuations in relative currency values; our ability to successfully identify, complete and integrate acquisitions; the continued exertion of pricing pressures by our customers and our ability to offset price concessions demanded by our customers; the continuation, and impact, of government financial intervention in the automotive industry; disruptions in the capital and credit markets; warranty and recall costs; product liability claims in excess of our insurance coverage; changes in our mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as our ability to fully benefit tax losses; other potential tax exposures; legal claims against us; work stoppages and labour relations disputes; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; potential conflicts of interest involving our indirect controlling shareholder, the Stronach Trust; and other factors set out in our Annual Information Form filed with securities commissions in Canada and our annual report on Form 40-F filed with the United States Securities and Exchange Commission, and subsequent filings. In evaluating forward-looking statements, readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements to reflect subsequent information, events, results or circumstances or otherwise.
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For further information about Magna, please see our website at
www.magna.com. Copies of financial data and other publicly filed
documents are available through the internet on the Canadian Securities
Administrators' System for Electronic Document Analysis and Retrieval
(SEDAR) which can be accessed at www.sedar.com and on the United States
Securities and Exchange Commission's Electronic Data Gathering, Analysis
and Retrieval System (EDGAR) which can be accessed at www.sec.gov.
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MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations and
Financial Position
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All amounts in this Management's Discussion and Analysis of Results of Operations and Financial Position ("MD&A") are in U.S. dollars and all tabular amounts are in millions of U.S. dollars, except per share figures and average dollar content per vehicle, which are in U.S. dollars, unless otherwise noted. When we use the terms "we", "us", "our" or "Magna", we are referring to Magna International Inc. and its subsidiaries and jointly controlled entities, unless the context otherwise requires. This MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the three months and nine months ended September 30, 2009 included in this Press Release, and the audited consolidated financial statements and MD&A for the year ended December 31, 2008 included in our 2008 Annual Report to Shareholders. The unaudited interim consolidated financial statements for the three months and nine months ended September 30, 2009 have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") with respect to the preparation of interim financial information and the audited consolidated financial statements for the year ended December 31, 2008 have been prepared in accordance with Canadian GAAP. This MD&A has been prepared as at November 5, 2009.
OVERVIEW
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We are the most diversified global automotive supplier. We design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Our capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; as well as complete vehicle engineering and assembly. We follow a corporate policy of functional and operational decentralization, pursuant to which we conduct our operations through divisions, each of which is an autonomous business unit operating within pre-determined guidelines. As at September 30, 2009, we had 242 manufacturing divisions and 86 product development, engineering and sales centres in 25 countries. Our operations are segmented on a geographic basis between North America, Europe and Rest of World (primarily Asia, South America and Africa). A Co-Chief Executive Officer heads management in each of our two primary markets, North America and Europe. The role of the North American and European management teams is to manage our interests to ensure a coordinated effort across our different capabilities. In addition to maintaining key customer, supplier and government contacts in their respective markets, our regional management teams centrally manage key aspects of our operations while permitting our divisions enough flexibility through our decentralized structure to foster an entrepreneurial environment.
HIGHLIGHTS
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North American vehicle production experienced a significant sequential improvement in the third quarter of 2009, increasing 32% relative to the second quarter of 2009. In addition, North American vehicle production for the third quarter of 2009 declined 20% relative to the third quarter of 2008, compared to a 50% decline in the first half of 2009, relative to the first half of 2008. The increase in North American vehicle production in the third quarter of 2009, compared to the second quarter of 2009 reflected primarily the resumption of production at a number of Chrysler and General Motors assembly facilities following their emergence from bankruptcy protection, the historically low average levels of dealer vehicle inventories during the third quarter of 2009, as well as increased U.S. vehicle sales in the third quarter of 2009, due in particular to the implementation of the Car Allowance Rebate System ("CARS") in the United States in July 2009. In Europe, vehicle production for the third quarter of 2009 declined 9% from the third quarter of 2008. This decline is less substantial than the 34% decline in European vehicle production experienced during the first half of 2009, as compared to the first half of 2008. Various "scrappage" programs that have been in place in a number of European countries have assisted in supporting vehicle sales. Some of these programs have reached or are close to, their funding limit, which may have a negative impact on future vehicle sales and production in Europe. Our ongoing restructuring actions and implementation of a number of cost saving measures, all contributed to our improved financial results. Our total sales declined 16% in the third quarter of 2009, relative to the third quarter of 2008. In spite of the sales decline, operating income, excluding unusual items, increased $47 million to $81 million in the third quarter of 2009, from $34 million for the third quarter of 2008. Our operating results also improved considerably from the second quarter of 2009 to the third quarter of 2009. While sales increased $964 million from the second quarter to the third quarter of 2009, operating income, excluding unusual items, increased $263 million. In September, we announced that our offer, with Savings Bank of the Russian Federation, to acquire an equity interest in Adam Opel GmbH ("Opel") was selected by both General Motors Company ("GM") and the Opel Trust as the preferred solution to address the future of Opel. On November 3 2009, GM announced that its Board of Directors had decided to terminate the sale process for Opel.
FINANCIAL RESULTS SUMMARY
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During the third quarter of 2009, we posted sales of $4.7 billion, a decrease of 16% from the third quarter of 2008. This lower sales level was a result of decreases in our North American and European production sales, complete vehicle assembly sales and tooling, engineering and other sales offset in part by an increase in our Rest of World production sales. Comparing the third quarter of 2009 to the third quarter of 2008:
- North American average dollar content per vehicle increased 8%, while
vehicle production declined 20%;
- European average dollar content per vehicle was unchanged, while
vehicle production declined 9%; and
- Complete vehicle assembly sales decreased 38% to $428 million from
$687 million as complete vehicle assembly volumes declined 42%.
During the third quarter of 2009, we generated operating income of $81 million compared to an operating loss of $112 million for the third quarter of 2008. Excluding the $146 million of unusual items recorded in the third quarter of 2008, as discussed in the "Unusual Items" section, the $47 million increase in operating income was primarily due to:
- the benefit of restructuring and downsizing activities and cost
savings initiatives (including reduced discretionary spending,
employee reductions, short work week schedules, reduced bonuses,
voluntary wage reductions and benefit plan changes), undertaken
during or subsequent to the third quarter of 2008;
- a $9 million favourable adjustment (Q3 2008 - $24 million impairment)
of our investment in asset-backed commercial paper as discussed in
the "Cash Resources" section below;
- lower amortization of deferred wage buydown assets at a powertrain
systems facility in the United States;
- productivity and efficiency improvements at certain facilities;
- lower commodity costs; and
- incremental margin earned from acquisitions completed during or
subsequent to the third quarter of 2008.
These factors were partially offset by:
- decreased margin earned on reduced sales as a result of significantly
lower vehicle production volumes;
- costs incurred in preparation for upcoming launches or for programs
that have not fully ramped up production;
- operational inefficiencies and other costs at certain facilities;
- an accounts receivable valuation allowance;
- electric vehicle development costs;
- a favourable revaluation of warranty accruals during the third
quarter of 2008;
- costs incurred at new facilities in Russia as we continue to pursue
opportunities in this market;
- incremental costs associated with restructuring and downsizing
activities;
- costs incurred to develop and grow our electronics capabilities; and
- net customer price concessions.
During the third quarter of 2009, net income was $51 million compared to net loss of $215 million for the third quarter of 2008. Excluding the $234 million of unusual items recorded in the third quarter of 2008, as discussed in the "Unusual Items" section, net income for the third quarter of 2009 increased $32 million. The increase in net income was as a result of the increase in operating income partially offset by higher income taxes. During the third quarter of 2009, our diluted earnings per share was $0.45 compared to diluted loss per share of $1.93 for the third quarter of 2008. Excluding the unusual items recorded in the third quarter of 2008, as discussed in the "Unusual Items" section, diluted earnings per share for the third quarter of 2009 increased $0.28. The increase in diluted earnings per share is as a result of the increase in net income, excluding unusual items, partially offset by an increase in the weighted average number of diluted shares outstanding. The increase in the weighted average number of diluted shares outstanding was primarily due to an increase in the number of diluted shares associated with restricted stock and stock options, since such shares were anti-dilutive in the third quarter of 2008.
UNUSUAL ITEMS
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During the three months and nine months ended September 30, 2009 and 2008, we recorded certain unusual items as follows:
2009 2008
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Diluted Diluted
Earnings Operat- Earnings
Operating Net per ing Net per
Income Income Share Income Income Share
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Third Quarter
Impairment
charges(1) $ - $ - $ - $ (258) $ (223) $ (2.00)
Restructuring
charges(1) - - - (4) (4) (0.04)
Foreign currency
gain(2) - - - 116 116 1.04
Valuation
allowance on
future tax
assets(3) - - - - (123) (1.10)
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Total third quarter
unusual items - - - (146) (234) (2.10)
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Second Quarter
Impairment
charges(1) (75) (75) (0.67) (9) (7) (0.06)
Restructuring
charges(1) (6) (6) (0.05) - - -
Curtailment
gain(4) 26 20 0.18 - - -
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Total second
quarter
unusual items (55) (61) (0.54) (9) (7) (0.06)
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Total year to
date
unusual items $ (55) $ (61) $ (0.54) $ (155) $ (241) $ (2.11)
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(1) Restructuring and Impairment Charges
(a) For the nine months ended September 30, 2009
Historically, we complete our annual goodwill and long-lived
impairment analyses in the fourth quarter of each year in
conjunction with our annual business planning process. However,
goodwill must be tested for impairment when an event or
circumstance occurs that more likely than not reduces the fair
value of a reporting unit below its carrying amount.
After failing to reach a favourable labour agreement at a
powertrain systems facility in Syracuse, New York, during the
second quarter of 2009, we decided to wind down these operations.
Given the significance of the facility's cashflows in relation to
the reporting unit, we determined that it was more likely than
not that goodwill at the Powertrain North America reporting unit
could potentially be impaired.
Therefore, we made a reasonable estimate of the goodwill
impairment by determining the implied fair value of goodwill in
the same manner as if we had acquired the reporting unit as at
June 30, 2009. As a result, during the second quarter of 2009, we
recorded a $75 million goodwill impairment at our Powertrain
North America reporting unit, representing our best estimate of
the impairment. Due to the judgment involved in determining the
fair value of the reporting unit's assets and liabilities, the
final amount of the goodwill impairment charge could differ from
the amount estimated. An adjustment, if any, to the estimated
impairment charge, based on finalization of the impairment
analysis, would be recorded during the fourth quarter of 2009.
During the second quarter of 2009, we recorded restructuring
costs of $6 million related to the planned closure of this
powertrain systems facility, substantially all of which will be
paid subsequent to 2009.
(b) For the nine months ended September 30, 2008
As a result of the significant and accelerated declines in
vehicle production volumes primarily in North America, we
reviewed goodwill and long-lived assets for impairment during the
third quarter of 2008.
Based on this analysis, during the third quarter of 2008 we
recorded long-lived asset impairment charges of $258 million
($223 million after tax), related primarily to our powertrain and
interior and exterior systems operations in the United States and
Canada.
At our powertrain operations, particularly a facility in
Syracuse, New York, asset impairment charges were $186 million
($166 million after tax).
At our interior and exteriors systems operations, asset
impairment charges were $65 million ($52 million after tax).
During the second quarter of 2008, we recorded a $5 million asset
impairment related to specific assets at a seating systems
facility that supplied complete seats to Chrysler's minivan
facility in St. Louis. In Europe, we recorded a $4 million asset
impairment relating to specific assets at an interior systems
facility that was disposed.
In addition to the impairment charges recorded above, during the
third quarter of 2008 we recorded restructuring and
rationalization costs of $4 million related to the closure of a
seating facility.
(2) Foreign Currency Gains
In the normal course of business, we review our cash investment and
tax planning strategies, including where such funds are invested. As
a result of these reviews, during the third quarter of 2008 we
repatriated funds from Europe and as a result recorded foreign
currency gains of $116 million.
(3) Income Taxes
During the third quarter of 2008, we recorded a $123 million charge
to establish valuation allowances against all of our future tax
assets in the United States.
The valuation allowances were required in the United States based on
historical consolidated losses at our U.S. operations, that were
expected to continue in the near-term, the accelerated deterioration
of near-term automotive market conditions in the United States and
the significant and inherent uncertainty as to the timing of when we
would be able to generate the necessary level of earnings to recover
these future tax assets.
(4) Curtailment gain
During the second quarter of 2009, we amended our Retiree Premium
Reimbursement Plan in Canada and the United States, such that most
employees retiring on or after August 1, 2009 will no longer
participate in the plan. The amendment will reduce service costs and
retirement medical benefit expense in 2009 and future years. As a
result of amending the plan, a curtailment gain of $26 million was
recorded in cost of goods sold in the second quarter of 2009.
INDUSTRY TRENDS AND RISKS
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Our success is primarily dependent upon the levels of North American and European car and light truck production by our customers and the relative amount of content we have on their various vehicle programs. A number of other economic, industry and risk factors discussed in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended December 31, 2008, also affect our success. The economic, industry and risk factors remain substantially unchanged in respect of the third quarter ended September 30, 2009, except that:
- On November 3, 2009 GM announced that its Board of Directors had
decided to terminate the sale process for Opel. As a result, we are
no longer subject to the previously disclosed risks relating to an
ownership stake in an OEM.
- North American vehicle production increased significantly in the
third quarter of 2009, compared to the second quarter of 2009, driven
in part by increased U.S. vehicle sales in the third quarter of 2009.
The increased vehicle sales resulted largely from the implementation
of the CARS program, which saw approximately 700,000 older, less
efficient vehicles traded in for newer, more efficient vehicles.
Similar programs in certain European countries have also had a
positive effect on vehicle production and sales to date in 2009.
The CARS program and similar programs in Europe may have the effect
of accelerating or "pulling forward" vehicle sales that may otherwise
have been made in future quarters. Given that the CARS program ended
in the third quarter of 2009 and several European programs have
reached, or are close to their funding limit, future vehicles sales
and production may be negatively impacted.
RESULTS OF OPERATIONS
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Average Foreign Exchange
For the three months For the nine months
ended September 30, ended September 30,
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2009 2008 Change 2009 2008 Change
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1 Canadian dollar
equals U.S. dollars 0.914 0.960 - 5% 0.860 0.982 - 13%
1 euro equals
U.S. dollars 1.433 1.501 - 5% 1.368 1.521 - 10%
1 British pound
equals U.S. dollars 1.638 1.890 - 13% 1.542 1.946 - 21%
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The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct business and our U.S. dollar reporting currency. The significant changes in these foreign exchange rates for the three months and nine months ended September 30, 2009 impacted the reported U.S. dollar amounts of our sales, expenses and income. The results of operations whose functional currency is not the U.S. dollar are translated into U.S. dollars using the average exchange rates in the table above for the relevant period. Throughout this MD&A, reference is made to the impact of translation of foreign operations on reported U.S. dollar amounts where relevant. Our results can also be affected by the impact of movements in exchange rates on foreign currency transactions (such as raw material purchases or sales denominated in foreign currencies). However, as a result of hedging programs employed by us, primarily in Canada, foreign currency transactions in the current period have not been fully impacted by movements in exchange rates. We record foreign currency transactions at the hedged rate where applicable. Finally, holding gains and losses on foreign currency denominated monetary items, which are recorded in selling, general and administrative expenses, impact reported results.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
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Sales
For the three months
ended September 30,
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2009 2008 Change
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Vehicle Production Volumes
(millions of units)
North America 2.342 2.917 - 20%
Europe 2.928 3.229 - 9%
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Average Dollar Content Per Vehicle
North America $ 927 860 + 8%
Europe $ 529 528 -
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Sales
External Production
North America $ 2,170 $ 2,510 - 14%
Europe 1,548 1,706 - 9%
Rest of World 193 143 + 35%
Complete Vehicle Assembly 428 687 - 38%
Tooling, Engineering and Other 330 487 - 32%
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Total Sales $ 4,669 $ 5,533 - 16%
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External Production Sales - North America External production sales in North America decreased 14% or $340 million to $2.2 billion for the third quarter of 2009 compared to $2.5 billion for the third quarter of 2008. This decrease in production sales reflects a 20% decrease in North American vehicle production volumes as discussed in the "Highlights" section above partially offset by an 8% increase in our North American average dollar content per vehicle. Our average dollar content per vehicle grew by 8% or $67 to $927 for the third quarter of 2009 compared to $860 for the third quarter of 2008 primarily as a result of:
- the launch of new programs during or subsequent to the third quarter
of 2008, including the:
- Ford F-Series and Lincoln Mark LT;
- Chevrolet Traverse;
- Chevrolet Equinox, GMC Terrain and Pontiac Torrent; and
- Chevrolet Camaro;
- favourable production (relative to industry volumes) and/or increased
content on certain programs, including the:
- Ford Escape, Mercury Mariner and Mazda Tribute;
- GM full-sized SUVs and pickups;
- Dodge Grand Caravan, Chrysler Town & Country and Volkswagen
Routan;
- Ford F-Series SuperDuty; and
- Ford Fusion, Mercury Milan and Lincoln MKZ;
- takeover business awarded subsequent to the third quarter of 2008;
and
- acquisitions completed during or subsequent to the third quarter of
2008, including several facilities from Meridian Automotive Systems
Inc. ("Meridian").
These factors were partially offset by:
- unfavourable production (relative to industry volumes) and/or lower
content on certain programs, including the:
- Chevrolet Cobalt;
- Chevrolet Impala;
- Buick Enclave and GMC Acadia;
- Chevrolet HHR; and
- Ford Flex;
- programs that ended production during or subsequent to the third
quarter of 2008, including the:
- Saturn Vue, Outlook and Aura;
- Chevrolet Trailblazer and GMC Envoy; and
- Pontiac G5;
- a decrease in reported U.S. dollar sales due to the weakening of the
Canadian dollar against the U.S. dollar; and
- net customer price concessions subsequent to the third quarter of
2008.
External Production Sales - Europe External production sales in Europe decreased 9% or $158 million to $1.5 billion for the third quarter of 2009 compared to $1.7 billion for the third quarter of 2008. This decrease in production sales reflects a 9% decrease in European vehicle production volumes as discussed in the "Highlights" section. Our average dollar content per vehicle grew by $1 to $529 for the third quarter of 2009 compared to $528 for the third quarter of 2008, primarily as a result of:
- the launch of new programs during or subsequent to the third quarter
of 2008, including the:
- Volkswagen Golf;
- Porsche Panamera;
- Peugeot 308 CC; and
- Mercedes-Benz E-Class;
- acquisitions completed during or subsequent to the third quarter of
2008, including Cadence Innovation s.r.o. ("Cadence"), a manufacturer
of exterior and interior systems primarily located in the Czech
Republic; and
- favourable production (relative to industry volumes) and/or increased
content on certain programs, including the Audi Q5.
These factors were partially offset by:
- unfavourable production (relative to industry volumes) and/or lower
content on certain programs, including the:
- Porsche Cayenne and Volkswagen Touareg; and
- Mercedes-Benz C-Class;
- a decrease in reported U.S. dollar sales due to the weakening of the
euro and British pound, each against the U.S. dollar;
- the sale of certain facilities during or subsequent to the third
quarter of 2008; and
- net customer price concessions subsequent to the third quarter of
2008.
External Production Sales - Rest of World External production sales in Rest of World increased 35% or $50 million to $193 million for the third quarter of 2009 compared to $143 million for the third quarter of 2008 primarily as a result of:
- increased production and/or content on certain programs in China,
Korea and Brazil; and
- the launch of new programs during or subsequent to the third quarter
of 2008 in China and Japan.
These factors were partially offset by:
- a decrease in reported U.S. dollar sales as a result of the weakening
of the Korean Won and Brazilian real, each against the U.S. dollar;
and
- decreased production and/or content on certain programs, particularly
in South Africa.
Complete Vehicle Assembly Sales The terms of our various vehicle assembly contracts differ with respect to the ownership of components and supplies related to the assembly process and the method of determining the selling price to the OEM customer. Under certain contracts we are acting as principal, and purchased components and systems in assembled vehicles are included in our inventory and cost of sales. These costs are reflected on a full cost basis in the selling price of the final assembled vehicle to the OEM customer. Other contracts provide that third-party components and systems are held on consignment by us, and the selling price to the OEM customer reflects a value added assembly fee only. Production levels of the various vehicles assembled by us have an impact on the level of our sales and profitability. In addition, the relative proportion of programs accounted for on a full cost basis and programs accounted for on a value added basis also impacts our level of sales and operating margin percentage, but may not necessarily affect our overall level of profitability. Assuming no change in total vehicles assembled, a relative increase in the assembly of vehicles accounted for on a full cost basis has the effect of increasing the level of total sales, however, because purchased components are included in cost of sales, profitability as a percentage of total sales is reduced. Conversely, a relative increase in the assembly of vehicles accounted for on a value added basis has the effect of reducing the level of total sales and increasing profitability as a percentage of total sales.
For the three months
ended September 30,
--------------------
2009 2008 Change
-------------------------------------------------------------------------
Complete Vehicle Assembly Sales $ 428 $ 687 - 38%
-------------------------------------------------------------------------
Complete Vehicle Assembly Volumes (Units)
Full-Costed:
BMW X3, Mercedes-Benz G-Class, and
Saab 9(3) Convertible 12,344 18,974 - 35%
Value-Added:
Jeep Grand Cherokee, Chrysler 300,
and Jeep Commander 2,330 6,257 - 63%
-------------------------------------------------------------------------
14,674 25,231 - 42%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Complete vehicle assembly sales decreased 38% or $259 million to $428 million for the third quarter of 2009 compared to $687 million for the third quarter of 2008 and assembly volumes decreased 42% or 10,557 units. In general, the decrease in complete vehicle assembly volumes is due to a combination of general economic conditions; the natural decline in volumes as certain models that we currently assemble approach their scheduled end of production; and a decrease in reported U.S. dollar sales due to the weakening of the euro against the U.S. dollar. Several new complete vehicle assembly programs have been awarded and are scheduled to launch throughout the fourth quarter of 2009 to 2013. Tooling, Engineering and Other Tooling, engineering and other sales decreased 32% or $157 million to $330 million for the third quarter of 2009 compared to $487 million for the third quarter of 2008. In the third quarter of 2009, the major programs for which we recorded tooling, engineering and other sales were the:
- Opel/Vauxhall Astra;
- MINI Cooper, Clubman and Crossman;
- Chevrolet Silverado and GMC Sierra;
- BMW X3;
- Ford F-Series;
- Porsche Panamera;
- Opel Insignia;
- Ford Freestar; and
- Audi Q5.
In the third quarter of 2008, the major programs for which we recorded tooling, engineering and other sales were the:
- Lincoln MKS;
- Cadillac BRX and Saab 9-4X;
- Mercedes-Benz M-Class;
- Mazda 6;
- BMW Z4;
- Dodge Ram; and
- Opel Insignia.
In addition, tooling, engineering and other sales decreased as a result of the weakening of the euro and Canadian dollar, each against the U.S. dollar. Gross Margin Gross margin decreased $48 million to $552 million for the third quarter of 2009 compared to $600 million for the third quarter of 2008 while gross margin as a percentage of total sales increased to 11.8% for the third quarter of 2009 compared to 10.8% for the third quarter of 2008. The unusual items discussed in the "Unusual Items" section negatively impacted gross margin as a percentage of total sales in the third quarter of 2008 by 0.1%. Excluding these unusual items, the 0.9% increase in gross margin as a percentage of total sales was primarily as a result of:
- the benefit of restructuring and downsizing activities and cost
saving initiatives, (including employee reductions, short work week
schedules and benefit plan changes) undertaken during or subsequent
to the third quarter of 2008;
- lower amortization of deferred wage buydown assets at a powertrain
systems facility in the United States;
- productivity and efficiency improvements at certain facilities;
- lower commodity costs; and
- the decrease in tooling and other sales that earn low or no margins.
These factors were partially offset by:
- lower gross margin earned due to the significant decline in vehicle
production volumes;
- costs incurred in preparation for upcoming launches;
- electric vehicle development costs;
- operational inefficiencies and other costs at certain facilities;
- a favourable revaluation of warranty accruals during the third
quarter of 2008;
- incremental costs associated with restructuring and downsizing
activities, primarily in Europe;
- costs incurred to develop and grow our electronics capabilities; and
- net customer price concessions subsequent to the third quarter of
2008.
Depreciation and Amortization Depreciation and amortization costs decreased 14% or $31 million to $186 million for the third quarter of 2009 compared to $217 million for the third quarter of 2008. The decrease in depreciation and amortization was primarily as a result of:
- the impairment of certain assets subsequent to the third quarter of
2008, in particular at a powertrain systems facility in the United
States and certain interiors and exteriors systems facilities in
North America; and
- a decrease in reported U.S. dollar depreciation and amortization due
to the weakening of the Canadian dollar and euro, each against the
U.S. dollar.
These factors were partially offset by acquisitions and capital spending during or subsequent to the third quarter of 2008. Selling, General and Administrative ("SG&A") SG&A expense as a percentage of sales was 6.1% for the third quarter of 2009, compared to 4.6% for the third quarter of 2008. The unusual items discussed in the "Unusual Items" section positively impacted SG&A as a percentage of total sales in the third quarter of 2008 by 2.1%. Excluding these unusual items, SG&A as a percentage of total sales decreased 0.6%. SG&A expense increased 13% or $33 million to $286 million for the third quarter of 2009 compared to $253 million for the third quarter of 2008. Excluding the $116 million of unusual items recorded in the third quarter of 2008 (as discussed in the "Unusual Items" section), SG&A expenses decreased by $83 million primarily as a result of:
- cost saving initiatives, including reduced discretionary spending,
employee reductions, reduced bonuses, voluntary wage reductions and
benefit plan changes;
- a $9 million favourable adjustment (Q3 2008 - $24 million impairment)
of our investment in asset-backed commercial paper as discussed in
the "Cash Resources" section below;
- reduced spending at certain facilities as a result of restructuring
activities and downsizing that were initiated subsequent to the third
quarter of 2008;
- a decrease in reported U.S. dollar SG&A expense due to the weakening
of the Canadian dollar and euro, each against the U.S. dollar; and
- the sale or disposition of certain facilities during or subsequent to
the third quarter of 2008.
These factors were partially offset by:
- an accounts receivable valuation allowance; and
- acquisitions completed during or subsequent to the third quarter of
2008.
Impairment Charges Impairment charges for the third quarter of 2008 were $258 million as discussed in the "Unusual Items" section. Earnings (loss) before Interest and Taxes ("EBIT")(1)
For the three months ended September 30,
----------------------------------------------------
Sales EBIT
------------------------ -------------------------
2009 2008 Change 2009 2008 Change
-------------------------------------------------------------------------
North America $ 2,304 $ 2,761 $ (457) $ 91 $ (303) $ 394
Europe 2,159 2,613 (454) (54) 52 (106)
Rest of World 201 155 46 18 9 9
Corporate and Other 5 4 1 28 116 (88)
-------------------------------------------------------------------------
Total EBIT $ 4,669 $ 5,533 $ (864) $ 83 $ (126) $ 209
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in EBIT for the third quarters of 2009 and 2008 were the following unusual items, which have been discussed in the "Unusual Items" section.
For the three months
ended September 30,
----------------------
2009 2008
-------------------------------------------------------------------------
North America
Impairment charges $ - $ (258)
Restructuring charges - (4)
-------------------------------------------------------------------------
- (262)
-------------------------------------------------------------------------
Corporate and Other
Foreign currency gain - 116
-------------------------------------------------------------------------
$ - $ (146)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) EBIT is defined as income (loss) from operations before income taxes
as presented on our unaudited interim consolidated financial
statements before net interest expense (income).
North America EBIT in North America increased $394 million to $91 million for the third quarter of 2009 compared to a loss of $303 million for the third quarter of 2008. Excluding the North American unusual items discussed in the "Unusual Items" section, the $132 million increase in EBIT was substantially due to:
- the benefit of restructuring and downsizing activities and cost
saving initiatives, (including reduced discretionary spending,
employee reductions, reduced bonuses, and benefit plan changes)
undertaken during or subsequent to the third quarter of 2008;
- lower amortization of deferred wage buydown assets at a powertrain
systems facility in the United States;
- productivity and efficiency improvements at certain facilities;
- lower affiliation fees paid to corporate;
- no employee profit sharing for the third quarter of 2009;
- lower incentive compensation;
- lower warranty costs; and
- incremental margin earned from acquisitions subsequent to the third
quarter of 2008.
These factors were partially offset by:
- lower earnings due to the significant decline in vehicle production
volumes;
- electric vehicle development costs;
- operational inefficiencies and other costs at certain facilities; and
- net customer price concessions subsequent to the third quarter of
2008.
Europe EBIT in Europe decreased $106 million to a loss of $54 million for the third quarter of 2009 compared to earnings of $52 million for the third quarter of 2008. The decrease in EBIT was substantially due to decreased margins earned on reduced sales as a result of significantly lower vehicle production volumes. In addition, EBIT was negatively impacted by:
- costs incurred in preparation for upcoming launches or for programs
that have not fully ramped up production;
- operational inefficiencies and other costs at certain facilities;
- an accounts receivable valuation allowance;
- a favourable revaluation of warranty accruals during the third
quarter of 2008;
- incremental costs associated with downsizing activities;
- costs incurred at new facilities in Russia as we continue to pursue
opportunities in this market;
- costs incurred to develop and grow our electronics capabilities; and
- net customer price concessions subsequent to the third quarter of
2008.
These factors were partially offset by:
- lower commodity costs;
- incremental margin earned related to the acquisition of Cadence
during the second quarter of 2009;
- productivity and efficiency improvements at certain facilities;
- lower affiliation fees paid to corporate;
- lower incentive compensation; and
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, short work week
schedules, reduced bonuses, and voluntary wage reductions.
Rest of World Rest of World EBIT increased $9 million to $18 million for the third quarter of 2009 compared to $9 million for the third quarter of 2008 primarily as a result of incremental margin earned on new programs that launched during or subsequent to the third quarter of 2008 in China partially offset by costs incurred at new facilities, primarily in India and Japan. Corporate and Other Corporate and Other EBIT decreased $88 million to $28 million for the third quarter of 2009 compared to $116 million for the third quarter of 2008. Excluding the Corporate and Other unusual items discussed in the "Unusual Items" section, the $28 million increase in EBIT was primarily as a result of:
- a $9 million favourable adjustment (Q3 2008 - $24 million impairment)
of our investment in asset-backed commercial paper as discussed in
the "Cash Resources" section below; and
- the benefit of cost saving initiatives, including reduced
discretionary spending, employee reductions, voluntary wage
reductions and benefit plan changes.
These factors were partially offset by:
- a decrease in affiliation fees earned from our divisions;
- a favourable revaluation of incentive compensation accruals during
the third quarter of 2008; and
- a decrease in equity income earned.
Interest Expense (Income), net During the third quarter of 2009, we recorded net interest expense of $2 million, compared to $14 million of net interest income for the third quarter of 2008. The $16 million decrease in net interest is as a result of:
- a decrease in interest income earned on lower cash and cash
equivalent balances;
- a decrease in interest income earned due to lower interest rates; and
- an increase in interest expense paid on higher short-term borrowings.
These factors were partially offset by a reduction in interest expense on long-term debt due to the repayment of our senior unsecured notes. Operating Income (Loss) Operating income increased $193 million to $81 million for the third quarter of 2009 compared to a loss of $112 million for the third quarter of 2008. Excluding the unusual items discussed in the "Unusual Items" section, operating income for the third quarter of 2009 increased $47 million. The increase in operating income is the result of the increases in EBIT partially offset by the decrease in net interest income earned, both as discussed above. Income Taxes Our effective income tax rate on operating income (excluding equity income) for the third quarter of 2008 was significantly impacted by the unusual items discussed in the "Unusual Items" section. Excluding unusual items, our effective income tax rate decreased to 38.5% for the third quarter of 2009 compared to 46.9% for the third quarter of 2008. The decrease in the effective income tax rate is primarily a result of a decrease in losses and other items not benefited, partially offset by a change in mix of earnings, whereby proportionately more income was earned in jurisdictions with higher income tax rates. Net Income (Loss) Net income increased $266 million to $51 million for the third quarter of 2009 compared to a net loss of $215 million for the third quarter of 2008. Excluding the unusual items discussed in the "Unusual Items" section, net income increased $32 million. This increase in net income is the result of the increase in operating income partially offset by higher income taxes, both as discussed above. Earnings (Loss) per Share
For the three months
ended September 30,
--------------------
2009 2008 Change
-------------------------------------------------------------------------
Earnings (loss) per Class A Subordinate
Voting or Class B Share
Basic $ 0.45 $ (1.93) $ 2.38
Diluted $ 0.45 $ (1.93) $ 2.38
-------------------------------------------------------------------------
Average number of Class A Subordinate
Voting and Class B Shares outstanding
(millions)
Basic 111.7 111.6 -
Diluted 112.9 111.6 + 1%
-------------------------------------------------------------------------
Diluted earnings per share increased $2.38 to earnings of $0.45 for the third quarter of 2009 compared to a loss of $1.93 for the third quarter of 2008. Excluding the unusual items, discussed in the "Unusual Items" section, diluted earnings per share increased $0.28 from the third quarter of 2008 as a result of an increase in net income (excluding unusual items) described above, partially offset by an increase in the weighted average number of diluted shares outstanding during the quarter. The increase in the weighted average number of diluted shares outstanding was primarily due to an increase in the number of diluted shares associated with restricted stock and stock options since such shares were anti-dilutive in the third quarter of 2008.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
-------------------------------------------------------------------------
Cash Flow from Operations
For the three months
ended September 30,
--------------------
2009 2008 Change
-------------------------------------------------------------------------
Net income (loss) $ 51 $ (215)
Items not involving current cash flows 207 490
-------------------------------------------------------------------------
258 275 $ (17)
Changes in non-cash operating assets
and liabilities (234) (25)
-------------------------------------------------------------------------
Cash provided from operating activities $ 24 $ 250 $ (226)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow from operations before changes in non-cash operating assets and liabilities decreased $17 million to $258 million for the third quarter of 2009 compared to $275 million for the third quarter of 2008. The decrease in cash flow from operations was due to a $25 million reduction in wage buydown amortization and a $21 million reduction in depreciation and amortization, offset in pa Come And Visit
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