Magna International Inc. : Press Release - Magna Announces Fourth Quarter and 2013 Results

AURORA, ON, March 3, 2014 /PRNewswire/ - Magna International Inc. (TSX: MG; NYSE: MGA) today reported financial results for the fourth quarter and year ended December 31, 2013.

THREE MONTHS ENDED DECEMBER 31, 2013

We posted sales of $9.17 billion for the fourth quarter ended December 31, 2013, an increase of 14% over the fourth quarter of 2012. We achieved this sales increase in a period when vehicle production increased 6% in North America and 5% in Europe, both relative to the fourth quarter of 2012. In the fourth quarter of 2013, our North American, European, and Asian production sales, as well as tooling, engineering and other sales and complete vehicle assembly sales all increased while our Rest of World production sales declined relative to the comparable quarter in 2012.

Complete vehicle assembly sales increased 13% to $788 million for the fourth quarter of 2013 compared to $697 million for the fourth quarter of 2012, while complete vehicle assembly volumes increased 17% to approximately 37,000 units.

For the fourth quarter of 2013, adjusted EBIT increased 57% to $607 million compared to $387 million for the fourth quarter of 2012.

For the fourth quarter of 2013, income from operations before income taxes was $514 million, net income attributable to Magna International Inc. was $458 million and diluted earnings per share were $2.03, increases of $173 million, $107 million and $0.54, respectively, each compared to the fourth quarter of 2012.

Excluding other expense (income), net after tax and net loss attributable to non-controlling interests, the income tax valuation allowance releases and the impact of the elimination of the Mexican flat tax recorded in the fourth quarters of 2013 and 2012, income from operations before income taxes, net income attributable to Magna International Inc. and diluted earnings per share increased $218 million, $166 million and $0.79, respectively, each compared to the fourth quarter of 2012.

For the fourth quarter ended December 31, 2013, we generated cash from operations of $809 million before changes in non-cash operating assets and liabilities, and $451 million in non-cash operating assets and liabilities. Total investment activities for the fourth quarter of 2013 were $506 million, including $463 million in fixed asset additions, $34 million in investments and other assets and $9 million to purchase subsidiaries.

YEAR ENDED DECEMBER 31, 2013

We posted sales of $34.84 billion for the year ended December 31, 2013, an increase of 13% over the year ended December 31, 2012. This higher sales level reflected increases in our North American, European, Asian and Rest of World production sales as well as higher tooling, engineering and other sales, and complete vehicle assembly sales.

For the year ended December 31, 2013, vehicle production increased 5% to 16.2 million units in North America and decreased 1% to 19.3 million units in Europe, each compared to 2012.

Complete vehicle assembly sales increased 20% to $3.06 billion for the year ended December 31, 2013 compared to $2.56 billion for the year ended December 31, 2012, while complete vehicle assembly volumes increased 19% to approximately 147,000 units.

For the year ended December 31, 2013, adjusted EBIT increased 25% to $2.07 billion compared to $1.66 billion for the year ended December 31, 2012.

For the year ended December 31, 2013, income from operations before income taxes was $1.91 billion, net income attributable to Magna International Inc. was $1.56 billion and diluted earnings per share were $6.76, increases of $155 million, $128 million and $0.67, respectively, each compared to 2012.

Excluding other expense (income), net after tax and net loss attributable to non-controlling interests, the income tax valuation allowance releases and the impact of the elimination of the Mexican flat tax recorded in 2013 and 2012, income from operations before income taxes, net income attributable to Magna International Inc. and diluted earnings per share increased $407 million, $351 million and $1.62, respectively, each compared to 2012.

For the year ended December 31, 2013, we generated cash from operations before changes in non-cash operating assets and liabilities of $2.69 billion, and invested $127 million in non-cash operating assets and liabilities. Total investment activities for the year of 2013 were $1.37 billion, including $1.17 billion in fixed asset additions, a $192 million increase in investments and other assets and $9 million to purchase subsidiaries.

Don Walker, Magna's Chief Executive Officer commented: "2013 was another strong year for Magna.  We maintained our solid performance in North America, and made further progress in improving profitability in Europe.  Recent investments in Asia have begun to yield returns, even while we continue to invest in the region.  Lastly, our business in South America, while still challenging, is poised to generate some improvement going forward."

A more detailed discussion of our consolidated financial results for the fourth quarter and year ended December 31, 2013 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.

DIVIDENDS

Friday, our Board of Directors declared a quarterly dividend of $0.38 per share with respect to our outstanding Common Shares for the quarter ended December 31, 2013. This dividend is payable on March 28, 2014 to shareholders of record on March 14, 2014.

Vince Galifi, Magna's Chief Financial Officer, stated:  "Our quarterly dividend per share of $0.38, an increase of 19%, is a new record for us. In addition, we recently stated our intention to accelerate the utilization of our balance sheet to further invest in our business and return capital to shareholders over the next two years. These actions reflect our ongoing strong results and the confidence our Board has in Magna's future."

In this 2014 outlook, in addition to 2014 light vehicle production, we have assumed no material acquisitions or divestitures. In addition, we have assumed that foreign exchange rates for the most common currencies in which we conduct business relative to our U.S. dollar reporting currency will approximate current rates.

ABOUT MAGNA

We are a leading global automotive supplier with 316 manufacturing operations and 84 product development, engineering and sales centres in 29 countries. We have over 125,000 employees focused on delivering superior value to our customers through innovative processes and World Class Manufacturing. Our product capabilities include producing body, chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing. Our common shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further information about Magna, visit our website at www.magna.com.

We will hold a conference call for interested analysts and shareholders to discuss our fourth quarter and year end 2013 results on Monday, March 3, 2014 at 8:00 a.m. EST. The conference call will be chaired by Donald J. Walker, Chief Executive Officer. The number to use for this call is 1-800-381-7839. The number for overseas callers is 1-212-231-2901. Please call in at least 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 Monday morning prior to the call.

FORWARD-LOOKING STATEMENTS

This press release contains statements that constitute "forward-looking statements" or "forward-looking information" within the meaning of applicable securities legislation, including, but not limited to, statements relating to: Magna's: forecasts of light vehicle production in North America and Western Europe; expected consolidated sales, based on such light vehicle production volumes; production sales, including expected split by segment, in its North America, Europe, Asia and Rest of World segments for 2014; complete vehicle assembly sales; consolidated operating margin, effective income tax rate; fixed asset expenditures; implementation of action plans and operating results improvement in our underperforming operations; expansion of our business in high growth regions, including Asia; and implementation of our balance sheet strategy, including through returns of capital to our shareholders. The forward-looking information in this document is presented for the purpose of providing information about management's current expectations and plans and such information may not be appropriate for other purposes. 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, 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", "forecast", "outlook", "project", "estimate" and similar expressions suggesting future outcomes or events to identify forward-looking statements. Any such 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. However, whether actual results and developments will conform with 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: the potential for a deterioration of economic conditions or an extended period of economic uncertainty; declines in consumer confidence and the impact on production volume levels; continuing economic uncertainty in various geographic regions, including Western Europe; inability to sustain or grow our business with OEMs; restructuring actions by OEMs, including plant closures; restructuring, downsizing and/or other significant non-recurring costs; continued underperformance of one or more of our operating divisions; ongoing pricing pressures, including our ability to offset price concessions demanded by our customers; our ability to successfully launch material new or takeover business; shifts in market share away from our top customers; shifts in market shares among vehicles or vehicle segments, or shifts away from vehicles on which we have significant content; risks of conducting business in foreign markets, including China, Russia, India, Argentina and Brazil and other non-traditional markets for us; a prolonged disruption in the supply of components to us from our suppliers; scheduled shutdowns of our customers' production facilities (typically in the third and fourth quarters of each calendar year); shutdown of our or our customers' or sub-suppliers' production facilities due to a labour disruption; our ability to successfully compete with other automotive suppliers; a reduction in outsourcing by our customers or the loss of a material production or assembly program; the termination or non-renewal by our customers of any material production purchase order; our inability to consistently develop innovative products or processes; impairment charges related to goodwill and long-lived assets; exposure to, and ability to offset, volatile commodities prices; fluctuations in relative currency values; our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to conduct appropriate due diligence on acquisition targets; warranty and recall costs; risk of production disruptions due to natural disasters; pension liabilities; legal claims and/or regulatory actions against us, including the ongoing antitrust investigation being conducted by the German Federal Cartel Office; 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; inability to achieve future investment returns that equal or exceed past returns; the unpredictability of, and fluctuation in, the trading price of our Common Shares; work stoppages and labour relations disputes; changes in credit ratings assigned to us; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; 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, we caution readers not to place undue reliance on any forward-looking statements and readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements to reflect subsequent information, events, results or circumstances or otherwise.

For further information about Magna, please see our website at www.magna.com. Copies of financial data and other publicly filed documents are available through the internet on the Canadian Securities Administrators' System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at www.sedar.com and on the United States Securities and Exchange Commission's Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be accessed at www.sec.gov

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 months and year ended December 31, 2013 included in this press release, and the audited consolidated financial statements and MD&A for the year ended December 31, 2012 included in our 2012 Annual Report to Shareholders.

This MD&A has been prepared as at February 28, 2014.

OVERVIEW

We are a leading global automotive supplier with 316 manufacturing operations and 84 product development, engineering and sales centres in 29 countries. We have over 125,000 employees focused on delivering superior value to our customers through innovative processes and World Class Manufacturing. Our product capabilities include producing body, chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing. Our Common Shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). 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.

HIGHLIGHTS

Operations

Global light vehicle production increased once again in 2013, representing the fourth straight year of production growth. In our two primary markets, North American light vehicle production increased 5% to 16.2 million units, while European light vehicle production declined 1% to 19.3 million units.

Our 2013 total sales were a record $34.84 billion, an increase of 13% over 2012. North American, European, Asian and Rest of World production sales, as well as tooling and other sales all increased to record levels in 2013, and complete vehicle assembly sales increased 20% in 2013, compared to 2012.

Adjusted EBIT1 for 2013 was a record $2.07 billion, compared to $1.66 billion for 2012, representing an increase of 25%. Margin earned on the higher sales as well as a higher Adjusted EBIT percentage of sales drove the $407 million increase over 2012.

In our North America segment, our strong performance continued in 2013. Total sales increased 10% over 2012 to $17.95 billion, driven by the launch of new programs and higher North American light vehicle production, and Adjusted EBIT increased 8% as compared to 2012 to $1.65 billion. Adjusted EBIT for 2013 included $158 million of amortization related to the August 2012 acquisition of Magna E-Car Systems Partnership ("E-Car"), while Adjusted EBIT for 2012 included $52 million of amortization related to the E-Car acquisition.

In our Europe segment, total sales increased by $2.01 billion or 16% to $14.72 billion in 2013, despite the 1% decline in European light vehicle production. This largely reflects the higher average euro relative to the U.S. dollar, acquisitions previously completed and the launch of new business during 2013 compared to 2012. We reported a 127% increase in Adjusted EBIT in our Europe segment to $375 million for 2013, compared to $165 million for 2012. Margins earned on higher sales, including sales related to new launches, improved results at certain underperforming operations and the benefits of restructuring and downsizing activities were the primary drivers of improved earnings in Europe.

In our Asia segment, total sales increased $395 million or 31% in 2013 compared to 2012, driven by higher light vehicle production as well as the launch of new business, particularly in China. Adjusted EBIT was $85 million for 2013, a 73% increase over $49 million in 2012. The improvement mainly reflects margins earned on the higher sales level in 2013 compared to 2012.

In our Rest of World segment, total sales increased $67 million or 8% during 2013, while our Adjusted EBIT loss was $76 million for 2013, compared to an Adjusted EBIT loss of $77 million for 2012. Our South American operations continued to be hampered in 2013 by higher production costs, particularly inflationary increases that we have been unable to pass on to our customers.

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1 Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense (income), net

Investments

In 2013, we once again made significant investments in our business, totalling $1.37 billion, including fixed assets, investments, and other assets.

Our fixed asset spending in 2013 was $1.17 billion, as we continued to invest both in our traditional markets and to further expand our footprint in growing regions. Furthermore, we spent $192 million for investments and other assets.

Return of Capital to Shareholders

In 2013, aggregate dividends paid to shareholders amounted to $284 million. On February 28, 2014 our Board of Directors declared a dividend of U.S. $0.38 per share, a new record, representing an increase of 19% over the third quarter of 2013 dividend.

In 2013, we also repurchased 14.1 million shares, returning an additional $1.02 billion to shareholders.

In November 2013, our Board of Directors approved a normal course issuer bid to purchase up to 12 million of our issued and outstanding Common Shares, representing 5.4% of our public float of Common Shares. Approximately 9.49 million shares remain available under the normal course issuer bid, which will terminate in November 2014.

Going Forward

We are forecasting another year of light vehicle production growth in North America, driven by the ongoing strengthening of North American auto sales. In addition, we anticipate continued strong operating performance in our North America segment.

We are forecasting European light vehicle production in 2014 to be approximately in line with 2013. We have made improvements to our European operations and have been increasing our footprint in Eastern Europe. In addition, we have been taking, and will continue to take, restructuring actions, predominantly in Western Europe, reflecting both our ongoing strategic assessment of our business and our response to OEM facility actions. During 2014, we expect to record additional restructuring charges of approximately $75 million in Europe. We expect our restructuring and continued operational improvement plans to yield further increased earnings in Europe over time.

We expect to generate improved results in our Asia segment, driven by lower new facility costs and higher sales, as new facilities ramp-up. Lastly, in our Rest of World segment we expect to benefit from actions we are taking to address commercial challenges and to improve on operational inefficiencies in South America.

FINANCIAL RESULTS SUMMARY

During 2013, we posted sales of $34.84 billion, an increase of 13% from 2012. This higher sales level was a result of increases in our North American, European, Asian and Rest of World production sales, our complete vehicle assembly sales and tooling, engineering and other sales. Comparing 2013 to 2012:

• North American vehicle production increased 5% and our North American production sales increased 9% to $16.74 billion;
• European vehicle production decreased 1% while our European production sales increased 13% to $9.96 billion;
• Asia production sales increased 35% to $1.39 billion;
• Rest of World production sales increased 7% to $858 million;
• Complete vehicle assembly volumes increased 19% and sales increased 20% to $3.06 billion; and
• Tooling, engineering and other sales increased 22% to $2.82 billion.

During 2013, we earned income from operations before income taxes of $1.91 billion compared to $1.75 billion for 2012. Excluding other expense (income), net ("Other Expense" or "Other Income") recorded in 2013 and 2012, as discussed in the "Other Expense" section, the $407 million increase in income from operations before income taxes was primarily as a result of:

• margins earned on higher production sales;
• incremental margin earned on new programs that launched during or subsequent to 2012;
• the benefit of restructuring and downsizing activities recently undertaken in Europe;
• productivity and efficiency improvements at certain facilities;
• higher equity income;
• acquisitions completed during or subsequent to 2012, including ixetic Verwaltungs GmbH ("ixetic");
• improved pricing on certain unprofitable contracts, primarily in Europe;
• lower restructuring and downsizing costs;
• $10 million of cash received related to the settlement of asset-backed commercial paper ("ABCP") between the Investment Industry Regulatory Organization of Canada and financial institutions;
• a loss on disposal of an investment in the second quarter of 2012;
• net favourable settlement of certain commercial items, primarily in Europe;
• favourable earn-out settlement in Rest of World;
• lower commodity costs;
• lower stock-based compensation; and
• lower warranty costs of $3 million.

These factors were partially offset by:

• incremental intangible asset amortization of $106 million related to the acquisition and re-measurement of E-Car;
• programs that ended production during or subsequent to 2012;
• a larger amount of employee profit sharing;
• higher costs incurred in preparation for upcoming launches;
• higher incentive compensation;
• the recovery of due diligence costs in the second quarter of 2012;
• a $7 million net decrease in revaluation gain in respect of ABCP;
• increased pre-operating costs incurred at new facilities; and
• operational inefficiencies and other costs at certain facilities.

During 2013, net income attributable to Magna International Inc. was $1.56 billion, an increase of $128 million compared to 2012 and diluted earnings per share increased $0.67 to $6.76 for 2013 compared to $6.09 for 2012. Other Expense and Other Income, after tax and the Deferred Tax Adjustments impacted net Income attributable to Magna International Inc. and diluted earnings per share as follows:

Other Expense and Other Income, and the Deferred Tax Adjustments are discussed in the "Other Expense" and "Income Taxes" sections, respectively.

Excluding the $50 million negative impact for 2013 and the $173 million positive impact for 2012, Net income attributable to Magna International Inc. for 2013 increased $351 million compared to 2012.

Excluding the $0.22 per share negative impact for 2013 and the $0.73 per share positive impact for 2012, diluted earnings per share increased $1.62, as a result of the increase in net income attributable to Magna International Inc. and a decrease in the weighted average number of diluted shares outstanding during 2013. The decrease in the weighted average number of diluted shares outstanding was due to the purchase and cancellation of Common Shares, during or subsequent to 2012, pursuant to our normal course issuer bids and the cashless exercise of options, partially offset by the issue of Common Shares related to the exercise of stock options, an increase in the number of diluted options outstanding as a result of an increase in the trading price of our common stock and stock options issued subsequent to 2012.

INDUSTRY TRENDS AND RISKS

A number of general trends which have been impacting the automotive industry and our business in recent years are expected to continue, including the following:

• the consolidation of vehicle platforms and proliferation of high-volume platforms supporting multiple vehicles and produced in multiple locations;

• the long-term growth of the automotive industry in China, India and other high-growth/low cost markets, including accelerated movement of component and vehicle design, development, engineering and manufacturing to certain of these markets;

• the growth of the A to C vehicle segments (micro to compact cars), particularly in developing markets;

• the extent to which innovation in the automotive industry is being driven by governmental regulation of fuel economy and carbon dioxide/greenhouse gas emissions, vehicle safety and vehicle recyclability;

• the growth of cooperative alliances and arrangements among competing automotive OEMs, including shared purchasing of components; joint engine, powertrain and/or platform development; engine, powertrain and platform sharing; and joint vehicle hybridization and electrification initiatives and other forms of cooperation;

• the growing importance of electronics in the automotive value chain;

• the consolidation of automotive suppliers; and

• the ongoing exertion of pricing pressure by OEMs.

The following are some of the more significant risks that could affect our ability to achieve our desired results:

• The global automotive industry is cyclical. A worsening of economic and political conditions, including through rising interest rates or inflation, high unemployment, increasing energy prices, declining real estate values, increased volatility in global capital markets, international conflicts, sovereign debt concerns, an increase in protectionist measures and/or other factors, may result in lower consumer confidence, which has a significant impact on consumer demand for vehicles. Vehicle production is closely related to consumer demand. A significant decline in production volumes from current levels could have a material adverse effect on our profitability.
  

• The European automotive industry continues to experience significant overcapacity, elevated levels of vehicle inventory, reduced consumer demand for vehicles and depressed production volumes and sales levels. In response to these conditions, some OEMs are restructuring their European operations, including through plant closures, and other OEMs may take similar actions. In addition to planned actions, we may take additional restructuring or downsizing actions. In such an event, we may incur restructuring, downsizing and/or other significant non-recurring costs in our European operations, which could have a material adverse effect on our profitability.

• The automotive industry has in recent years been the subject of increased government enforcement of antitrust and competition laws, particularly by the United States Department of Justice and the European Commission. Currently, investigations are being conducted in several product areas. We understand that investigations of this nature can continue for several years, and regulators in other jurisdictions could choose to initiate investigations in existing or other product areas. Where wrongful conduct is found, antitrust regulators have the authority to impose significant civil or criminal penalties.
  
  On September 24, 2013, representatives of the Bundeskartellamt, the German Federal Cartel Office (the "Cartel Office"), attended at one of the Company's operating Divisions in Germany to obtain information in connection with an ongoing antitrust investigation relating to suppliers of automobile textile coverings and components, particularly trunk linings. In light of the early stage of the Cartel Office investigation, we are unable to predict its duration or outcome, including whether any operating Division of the Company could be found liable for any violation of law or the extent of any fine, if found to be liable. The Cartel Office has the authority to impose administrative fines which it calculates in accordance with formula-based guidelines tied to the level of affected sales. The formula also takes into account the gravity of the infringement, as well as other mitigating and aggravating factors. Absent aggravating factors, the maximum fine is typically 10% of the affected sales for the infringement period multiplied by a factor based on the consolidated sales of the group of companies to which the offending entity belongs. If applied to a company with Magna's level of consolidated sales, this factor is approximately five, which could result in a maximum fine of approximately 50% of the affected sales. Additional information regarding these guidelines is publicly available on the Cartel Office's website.
  
  Our policy is to comply with all applicable laws, including antitrust and competition laws. In the event of any violation of such laws, any fines imposed by a regulatory authority, including by the Cartel Office under the guidelines referred to above, could have a material adverse effect on our profitability in the year such fine is imposed.

• In light of the amount of business we currently have with our largest customers in North America and Europe, our opportunities for incremental growth with these customers may be limited. The amount of business we have with Asian-based OEMs, including Toyota, Nissan, Hyundai/Kia and Honda, generally lags that of our largest customers, due in part to the existing relationships between such Asian-based OEMs and their preferred suppliers. There is no certainty that we can achieve growth with Asian-based OEMs, nor that any such growth will offset slower growth we may experience with our largest customers in North America and Europe. Our inability to sustain or grow our business with OEMs could have a material adverse effect on our profitability.
  
  
• We may sell some product lines and/or downsize, close or sell some of our operating divisions. By taking such actions, we may incur restructuring, downsizing and/or other significant non-recurring costs. These costs may be higher in some countries than others and could have a material adverse effect on our profitability.
  
  
• Although we are working to turn around financially underperforming operating divisions, there is no guarantee that we will be successful in doing so in the short to medium term. The continued underperformance of one or more operating divisions could have a material adverse effect on our profitability and operations.
  
  
• We face ongoing pricing pressure from OEMs, including through: long-term supply agreements with mutually agreed price reductions over the life of the agreement; incremental annual price concession demands; and pressure to absorb costs related to product design, engineering and tooling and other items previously paid for directly by OEMs. OEMs possess significant leverage over their suppliers as a result of their purchasing power and the highly competitive nature of the automotive supply industry. We attempt to offset price concessions and costs in a number of ways, including through negotiations with our customers, improved operating efficiencies and cost reduction efforts. Our inability to fully offset price concessions or costs previously paid for by OEMs could have an adverse effect on our profitability.
  
  
• The launch of new business is a complex process, the success of which depends on a wide range of factors, including the production readiness of our and our suppliers' manufacturing facilities and manufacturing processes, as well as factors related to tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch material new or takeover business could have an adverse effect on our profitability.
  
  
• Although we supply parts to all of the leading OEMs, a significant majority of our sales are to six customers: General Motors, Fiat-Chrysler, BMW, Ford, Volkswagen and Daimler. While we have diversified our customer base somewhat in recent years and continue to attempt to further diversify, there is no assurance we will be successful. Shifts in market share away from our top customers could have a material adverse effect on our profitability.
  
  
• While we supply parts for a wide variety of vehicles produced globally, we do not supply parts for all vehicles produced, nor is the number or value of parts evenly distributed among the vehicles for which we do supply parts. Shifts in market shares among vehicles or vehicle segments, particularly shifts away from vehicles on which we have significant content and shifts away from vehicle segments in which our sales may be more heavily concentrated, could have a material adverse effect on our profitability.

• While we continue to expand our manufacturing footprint with a view to taking advantage of opportunities in markets such as China, Russia, India and Brazil and other non-traditional markets for us, we cannot guarantee that we will be able to fully realize such opportunities. Additionally, the establishment of manufacturing operations in new markets carries its own risks, including those relating to political, civil and economic instability and uncertainty; corruption risks; high inflation and our ability to recover inflation-related cost increases; trade, customs and tax risks; expropriation risks; currency exchange rates; currency controls; limitations on the repatriation of funds; insufficient infrastructure; and other risks associated with conducting business internationally. Expansion of our business in non-traditional markets is an important element of our strategy and, as a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable, however, the occurrence of any such risks could have an adverse effect on our operations, financial condition and profitability.
  
  
• A disruption in the supply of components to us from our suppliers could cause the temporary shut-down of our or our customers' production lines. Any prolonged supply disruption, including due to the inability to re-source or in-source production, could have a material adverse effect on our profitability.
  
  
• Some of our manufacturing facilities are unionized, as are many manufacturing facilities of our customers and suppliers. Unionized facilities are subject to the risk of labour disruptions from time to time, including as a result of restructuring actions taken by us, our customers and other suppliers. We cannot predict whether or when any labour disruption may arise, or how long it lasts if it does arise. A significant labour disruption could lead to a lengthy shutdown of our or our customers' and/or our suppliers' production lines, which could have a material adverse effect on our operations and profitability.
  
  
• The automotive supply industry is highly competitive. As a result of our diversified automotive business, some competitors in each of our product capabilities have greater market share than we do. Failure to successfully compete with existing or new competitors could have an adverse effect on our operations and profitability.
  
  
• We depend on the outsourcing of components, modules and assemblies, as well as complete vehicles, by OEMs. The extent of OEM outsourcing is influenced by a number of factors, including: relative cost, quality and timeliness of production by suppliers as compared to OEMs; capacity utilization; OEMs' perceptions regarding the strategic importance of certain components/modules to them; labour relations among OEMs, their employees and unions; and other considerations. A reduction in outsourcing by OEMs, or the loss of any material production or assembly programs combined with the failure to secure alternative programs with sufficient volumes and margins, could have a material adverse effect on our profitability.
  
  
• Contracts from our customers consist of blanket purchase orders which generally provide for the supply of components for a customer's annual requirements for a particular vehicle, instead of a specific quantity of products. These blanket purchase orders can be terminated by a customer at any time and, if terminated, could result in our incurring various pre-production, engineering and other costs which we may not recover from our customer and which could have an adverse effect on our profitability.
  
  
• We continue to invest in technology and innovation which we believe will be critical to our long-term growth. Our ability to anticipate changes in technology and to successfully develop and introduce new and enhanced products and/or manufacturing processes on a timely basis will be a significant factor in our ability to remain competitive. If we are unsuccessful or are less successful than our competitors in consistently developing innovative products and/or processes, we may be placed at a competitive disadvantage, which could have a material adverse effect on our profitability and financial condition.
  
  
• We recorded significant impairment charges related to goodwill and long-lived assets in recent years and may continue to do so in the future. The early termination, loss, renegotiation of the terms of, or delay in the implementation of, any significant production contract could be indicators of impairment. In addition, to the extent that forward-looking assumptions regarding: the impact of turnaround plans on underperforming operations; new business opportunities; program price and cost assumptions on current and future business; the timing and success of new program launches; and forecast production volumes; are not met, any resulting impairment loss could have a material adverse effect on our profitability.
  
  
• Prices for certain key raw materials and commodities used in our parts, including steel and resin, continue to be volatile. To the extent we are unable to offset commodity price increases by passing such increases to our customers, by engineering products with reduced commodity content, through hedging strategies, or otherwise, such additional commodity costs could have an adverse effect on our profitability.

• Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in Canadian dollars, euros, British pounds and other currencies. Our profitability is affected by movements of the U.S. dollar against the Canadian dollar, the euro, the British pound and other currencies in which we generate revenues and incur expenses. Significant long-term fluctuations in relative currency values, in particular a significant change in the relative values of the U.S. dollar, Canadian dollar, euro or British pound, could have an adverse effect on our profitability and financial condition and any sustained change in such relative currency values could adversely impact our competitiveness in certain geographic regions
  
  
• We intend to continue to pursue acquisitions in those product areas which we have identified as key to our business strategy. However, we may not be able to identify suitable acquisition targets or successfully acquire any suitable targets which we identify. Additionally, we may not be able to successfully integrate or achieve anticipated synergies from those acquisitions which we do complete, which could have a material adverse effect on our profitability.
  
  
• Although we seek to conduct appropriate levels of due diligence of our acquisition targets, these efforts may not always prove to be sufficient in identifying all risks and liabilities related to the acquisition, including as a result of limited access to information, time constraints for conducting due diligence, inability to access target company plants and/or personnel or other limitations on the due diligence process. As a result, we may become subject to liabilities or risks not discovered through our due diligence efforts, which could have a material adverse effect on our profitability.
  
  
• Our customers continue to demand that we bear the cost of the repair and replacement of defective products which are either covered under their warranty or are the subject of a recall by them. Warranty provisions are established based on our best estimate of the amounts necessary to settle existing or probable claims on product defect issues. Recall costs are costs incurred when government regulators and/or our customers decide to recall a product due to a known or suspected performance issue and we are required to participate either voluntarily or involuntarily. Currently, under most customer agreements, we only account for existing or probable warranty claims. Under certain complete vehicle engineering and assembly contracts, we record an estimate of future warranty-related costs based on the terms of the specific customer agreements and the specific customer's warranty experience. While we possess considerable historical warranty and recall data and experience with respect to the products we currently produce, we have little or no warranty and recall data which allows us to establish accurate estimates of, or provisions for, future warranty or recall costs relating to new products, assembly programs or technologies being brought into production. The obligation to repair or replace such products could have a material adverse effect on our profitability and financial condition.
  
  
• Our manufacturing facilities are subject to risks associated with natural disasters, including fires, floods, hurricanes and earthquakes. The occurrence of any of these disasters could cause the total or partial destruction of a manufacturing facility, thus preventing us from supplying products to our customers and disrupting production at their facilities for an indeterminate period of time. The inability to promptly resume the supply of products following a natural disaster at a manufacturing facility could have a material adverse effect on our operations and profitability.
  
  
• Some of our current and former employees in Canada and the United States participate in defined benefit pension plans. Although these plans have been closed to new participants, existing participants in Canada continue to accrue benefits. Our defined benefit pension plans are not fully funded and our pension funding obligations could increase significantly due to a reduction in the funding status caused by a variety of factors, including: weak performance of capital markets; declining interest rates; failure to achieve sufficient investment returns; investment risks inherent in the investment portfolios of the plans; and other factors. A significant increase in our pension funding obligations could have an adverse effect on our profitability and financial condition.
  
  
• From time to time, we 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. Depending on the nature or duration of any potential proceedings or claims, we may incur substantial costs and expenses and may be required to devote significant management time and resources to the matters. On an ongoing basis, we attempt to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, although it is difficult to predict final outcomes with any degree of certainty. Except as disclosed from time to time in our consolidated financial statements, we do not believe that any of the proceedings or claims to which we are party will have a material adverse effect on our profitability; however, we cannot provide any assurance to this effect.
  
  
• We have incurred losses in some countries which we may not be able to fully or partially offset against income we have earned in those countries. In some cases, we may not be able to utilize these losses at all if we cannot generate profits in those countries and/or if we have ceased conducting business in those countries altogether. Our inability to utilize tax losses could materially adversely affect our profitability. At any given time, we may face other tax exposures arising out of changes in tax or transfer pricing laws, tax reassessments or otherwise. To the extent we cannot implement measures to offset these exposures, they may have a material adverse effect on our profitability.

• In recent years, we have invested significant amounts of money in our business through capital expenditures to support new facilities, expansion of existing facilities, purchases of production equipment and acquisitions. Returns achieved on such investments in the past are not necessarily indicative of the returns we may achieve on future investments and our inability to achieve returns on future investments which equal or exceed returns on past investments could have a material adverse effect on our level of profitability.
  
  
• We believe we will have sufficient available cash to successfully execute our business plan and balance sheet strategy, even in the event of another global recession similar to that of 2008-2009. However, uncertain economic conditions create significant planning risks for us. The occurrence of an economic shock not contemplated in our business plan, a rapid deterioration of economic conditions or a more prolonged recession than that experienced in 2008-2009 could result in the depletion of our cash resources, which could have a material adverse effect on our operations and financial condition.
  
  
• Trading prices of our Common Shares cannot be predicted and may fluctuate significantly due to a variety of factors, many of which are outside our control, including: general economic and stock market conditions; variations in our operating results and financial condition; differences between our actual operating and financial results and those expected by investors and stock analysts; changes in recommendations made by stock analysts, whether due to factors relating to us, our customers, the automotive industry or otherwise; significant news or events relating to our primary customers, including the release of vehicle production and sales data; investor and stock analyst perceptions about the prospects for our or our primary customers' respective businesses or the automotive industry; and other factors.

RESULTS OF OPERATIONS

Average Foreign Exchange

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 changes in these foreign exchange rates for the three months and year ended December 31, 2013 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, 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, foreign exchange gains and losses on revaluation and/or settlement of monetary items denominated in a currency other than an operation's functional currency impact reported results. These gains and losses are recorded in selling, general and administrative expense.

RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2013

Sales

External Production Sales - North America

External production sales in North America increased 9% or $1.40 billion to $16.74 billion for 2013 compared to $15.34 billion for 2012, primarily as a result of:

• the launch of new programs during or subsequent to 2012, including the:
  • Ford Fusion and Lincoln MKZ;
  • Jeep Cherokee;
  • GM full-size pickups;
  • Honda Accord;
  • Chevrolet Impala; and
  • Tesla Model S;
• higher production volumes on certain existing programs;
• acquisitions completed during or subsequent to 2012 which positively impacted sales by $155 million, including STT Technologies ("STT"); and
• an increase in content on certain programs, including the:
  • Buick Enclave, GMC Acadia and Chevrolet Traverse; and
  • Jeep Grand Cherokee.

These factors were partially offset by:

• programs that ended production during or subsequent to 2012, including the Jeep Liberty;
• a decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar;
• a decrease in content on certain programs, including the Jeep Patriot and Compass; and
• net customer price concessions subsequent to 2012.

External Production Sales - Europe

External production sales in Europe increased 13% or $1.17 billion to $9.96 billion for 2013 compared to $8.79 billion for 2012, primarily as a result of:

• the launch of new programs during or subsequent to 2012, including the:
  • Mercedes-Benz A-Class;
  • MINI Paceman;
  • Mercedes-Benz CLA-Class;
  • Ford Kuga; and
  • Skoda Rapid and SEAT Toledo;
• acquisitions completed during or subsequent to 2012, which positively impacted sales by $466 million, including ixetic and BDW technologies group ("BDW") and the re-acquisition of an interior systems operation; and
• a $233 million increase in reported U.S. dollar sales primarily as a result of the strengthening of the euro against the U.S. dollar.

These factors were partially offset by:

• lower production volumes on certain existing programs;
• programs that ended production during or subsequent to 2012; and
• net customer price concessions subsequent to 2012.

External Production Sales - Asia

External production sales in Asia increased 35% or $357 million to $1.39 billion for 2013 compared to $1.03 billion for 2012, primarily as a result of:

• higher production volumes on certain existing programs;
• the launch of new programs during or subsequent to 2012, primarily in China;
• a $25 million increase in reported U.S. dollar sales as a result of the net strengthening of foreign currencies against the U.S. dollar, including the Chinese Renminbi; and
• acquisitions completed during or subsequent to 2012, which positively impacted sales by $18 million, including ixetic.

These factors were partially offset by net customer price concessions subsequent to 2012.

External Production Sales - Rest of World

External production sales in Rest of World increased 7% or $55 million to $858 million for 2013 compared to $803 million for 2012, primarily as a result of:

• the launch of new programs during or subsequent to 2012, primarily in Argentina and Brazil;
• higher production volumes on certain existing programs; and
• net customer price increases subsequent to 2012.

These factors were partially offset by:

• a $106 million decrease in reported U.S. dollar sales as a result of the net weakening of foreign currencies against the U.S. dollar, including the Brazilian real and Argentine peso; and
• programs that ended production during or subsequent to 2012.

Complete Vehicle Assembly Sales

Complete vehicle assembly sales increased 20%, or $501 million, to $3.06 billion for 2013 compared to $2.56 billion for 2012 and assembly volumes increased 19% or 22,964 units.

The increase in complete vehicle assembly sales is primarily as a result of:

• the launch of the MINI Paceman during the fourth quarter of 2012;
• an increase in assembly volumes for the Mercedes-Benz G-Class; and
• a $93 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.

These factors were partially offset by:

• the end of production of the Aston Martin Rapide at our Magna Steyr facility during the second quarter of 2012; and
• a decrease in assembly volumes for the Peugeot RCZ.

Tooling, Engineering and Other Sales

Tooling, engineering and other sales increased 22% or $506 million to $2.82 billion for 2013 compared to $2.32 billion for 2012.

In 2013, the major programs for which we recorded tooling, engineering and other sales were the:

• GM full-size pickups and SUVs;
• Ford Transit;
• Qoros 3;
• Ford Fusion;
• Mercedes-Benz M-Class;
• MINI Countryman;
• Skoda Octavia;
• MINI Cooper;
• MINI Paceman; and
• Jeep Grand Cherokee;

In 2012, the major programs for which we recorded tooling, engineering and other sales were the:

• Ford Fusion;
• MINI Countryman;
• Mercedes-Benz M-Class;
• Chevrolet Trax;
• Qoros 3;
• Opel Cascada Convertible;
• Chevrolet Spin;
• Ford Escape;
• Infiniti hatchback program;
• Dodge Dart; and
• Ford Transit.

In addition, tooling, engineering and other sales increased as a result of the net strengthening of foreign currencies against the U.S dollar, including the strengthening of the euro partially offset by the weakening of the Canadian dollar.

Cost of Goods Sold and Gross Margin

Cost of goods sold increased $3.27 billion to $30.29 billion for 2013 compared to $27.02 billion for 2012 primarily as a result of:

• higher material, overhead and labour costs associated with the increase in sales, including wage increases at certain operations;
• $684 million related to acquisitions completed during or subsequent to 2012, including ixetic, STT, E-Car and the re-acquisition of an interior systems operation;
• increased pre-operating costs incurred at new facilities;
• a net increase in reported U.S. dollar cost of goods sold primarily due to the strengthening of the euro against the U.S. dollar partially offset by the weakening of the Canadian dollar, Brazilian real and Argentine peso, each against the U.S. dollar; and
• a larger amount of employee profit sharing.

Gross margin increased $730 million to $4.55 billion for 2013 compared to $3.82 billion for 2012 and gross margin as a percentage of sales increased to 13.1% for 2013 compared to 12.4% for 2012. The increase in gross margin as a percentage of sales was primarily due to:

• margins earned on higher production sales;
• incremental margin earned on new programs that launched during or subsequent to 2012;
• improved pricing on certain unprofitable contracts;
• lower commodity costs;
• the closure of certain facilities;
• lower warranty costs; and
• productivity and efficiency improvements at certain facilities.

These factors were partially offset by:

• an increase in complete vehicle assembly sales which have a higher material content than our consolidated average;
• a larger amount of employee profit sharing;
• an increase in tooling, engineering and other sales that have low or no margins;
• the re-acquisition, during 2012, of an interior systems operation;
• higher costs incurred in preparation for upcoming launches;
• increased pre-operating costs incurred at new facilities;
• programs that ended production during or subsequent to 2012; and
• operational inefficiencies and other costs at certain facilities.

Depreciation and Amortization

Depreciation and amortization costs increased $262 million to $1.06 billion for 2013 compared to $0.80 billion for 2012. The higher depreciation and amortization was primarily as a result of:

• incremental intangible asset amortization of $106 million related to the acquisition and re-measurement of E-Car;
• $80 million related to acquisitions completed during or subsequent to 2012, including ixetic, E-Car and STT;
• depreciation related to new facilities; and
• other capital spending during or subsequent to 2012.

Selling, General and Administrative ("SG&A")

SG&A expense as a percentage of sales was 4.6% for 2013 compared to 4.9% for 2012. SG&A expense increased $106 million to $1.62 billion for 2013 compared to $1.51 billion for 2012 primarily as a result of:

• higher labour and other costs to support the growth in sales, including wage increases at certain operations;
• increased costs incurred at new facilities;
• $25 million related to acquisitions completed during or subsequent to 2012, including ixetic, E-Car, and STT;
• higher incentive compensation;
• a $7 million net decrease in revaluation gains in respect of ABCP; and
• higher employee profit sharing.

These factors were partially offset by:

• lower restructuring and downsizing costs;
• $10 million of cash received related to the settlement of ABCP between the Investment Industry Regulatory Organization of Canada and financial institutions;
• a loss on disposal of an investment in 2012; and
• lower stock-based compensation.

Equity Income

Equity income increased $45 million to $196 million for 2013 compared to $151 million for 2012. Equity income for 2012 included $35 million of equity loss related to our investment in E-Car and $5 million of equity income related to our investment in STT. Excluding this $30 million net equity loss, the $15 million increase in equity income is primarily as a result of higher income from most of our equity accounted investments.

Other Expense (Income), net

During the three months and years ended December 31, 2013 and 2012, we recorded Other Expense and Other Income items as follows:

(1) Restructuring and Impairment Charges

[a] For the year ended December 31, 2013

(i)Restructuring Costs

As a result of recent customer announcements related to plant closures, the profitability of certain facilities and the level of future booked business, we determined that restructuring would have to be completed in our traditional European markets in order to remain cost competitive over the long-term. As a result, during the fourth, third and first quarters of 2013, we recorded net restructuring charges of $35 million ($25 million after tax), $48 million ($33 million after tax) and $6 million ($6 million after tax), respectively, in Europe at our exterior and interior systems operations related primarily to the closure of a facility in Belgium.

Substantially all of these restructuring costs remain to be paid subsequent to 2013.

During 2014, we expect to record additional restructuring charges of approximately $75 million.

(ii)Impairments of Long-lived Assets

In conjunction with our annual business planning cycle, during the fourth quarter of 2013 we recorded long-lived asset impairment charges of $33 million ($21 million after tax and non-controlling interests) consisting of $23 million in North America and $10 million in Rest of World. The impairment charges related to battery research equipment in North America and fixed assets at our Seating operations in South America.

(iii)Impairment of Goodwill

In conjunction with our annual business planning cycle, during the fourth quarter of 2013 we recorded goodwill impairment charges of $22 million ($22 million after tax) in Rest of World related to our metal stamping operations.

[b] For the year ended December 31, 2012

(i)Restructuring Costs

During the fourth quarter of 2012, we recorded restructuring charges of $55 million ($53 million after tax) in Europe primarily at our exterior and interior systems and complete vehicle and engineering services operations.

(ii)Impairments of Long-lived Assets

During the fourth quarter of 2012 we recorded long-lived asset impairment charges of $23 million ($22 million after tax) in Europe and $2 million ($1 million after tax) in North America. In Europe, the impairment charges related primarily to fixed assets at our exterior and interior systems operations.

(2) Re-measurement gains

(i)STT Technologies Inc.

On October 26, 2012, we acquired the remaining 50% interest in STT for cash consideration of $55 million. STT is a manufacturer of automotive pumps with operations in Canada and Mexico. Prior to the acquisition, we accounted for this investment using the equity method of accounting.

The incremental investment in STT was accounted for under the business acquisition method of accounting as a step acquisition which requires that we re-measure our pre-existing investment in STT at fair value and recognize any gains or losses in income. The estimated fair value of our investment immediately before the closing date was $55 million, which resulted in the recognition of a non-cash gain of $35 million ($35 million after tax).

(ii)Magna E-Car Systems LP

On August 31, 2012, we acquired the controlling 27% interest in E-Car from a company affiliated with the Stronach Group for cash consideration of $75 million.

Prior to the acquisition, we held the 73% non-controlling interest in E-Car and accounted for this investment using the equity method of accounting. The incremental investment in E-Car was accounted for under the business acquisition method of accounting as a step acquisition which requires that we re-measure our pre-existing investment in E-Car at fair value and recognize any gains or losses in income. The estimated fair value of our partnership interest immediately before the closing date was $205 million, which resulted in the recognition of a non-cash gain of $153 million ($125 million after tax).

Segment Analysis

Given the differences between the regions in which we operate, our operations are segmented on a geographic basis. Beginning in the fourth quarter of 2013, our segments consist of North America, Europe, Asia and Rest of World. Consistent with the above, our internal financial reporting segments key internal operating performance measures between North America, Europe, Asia and Rest of World for purposes of presentation to the chief operating decision maker to assist in the assessment of operating performance, the allocation of resources, and our long-term strategic direction and future global growth.

Our chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since we believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense (income), net.

Excluded from Adjusted EBIT for 2013 and 2012 were the following Other Expense and Other Income items, which have been discussed in the "Other Expense" section.

North America

Adjusted EBIT in North America increased $124 million to $1.65 billion for 2013 compared to $1.52 million for 2012 primarily as a result of:

• margins earned on higher production sales;
• incremental margin earned on new programs that launched during or subsequent to 2012;
• lower restructuring and downsizing costs;
• decreased pre-operating costs incurred at new facilities;
• the benefit of restructuring and downsizing activities recently undertaken; and
• productivity and efficiency improvements at certain facilities.

These factors were partially offset by:

• incremental intangible asset amortization of $106 million related to the acquisition and re-measurement of E-Car;
• programs that ended production during or subsequent to 2012;
• operational inefficiencies and other costs at certain facilities;
• higher costs incurred in preparation for upcoming launches;
• a larger amount of employee profit sharing;
• higher affiliation fees paid to Corporate; and
• increased commodity costs.

Europe

Adjusted EBIT in Europe increased $210 million to $375 million for 2013 compared to $165 million for 2012 primarily as a result of:

• margins earned on higher production sales;
• incremental margin earned on new programs that launched during or subsequent to 2012;
• improved pricing on certain unprofitable contracts;
• acquisitions completed during or subsequent to 2012, including ixetic;
• the benefit of restructuring and downsizing activities recently undertaken;
• lower costs incurred in preparation for upcoming launches;
• decreased commodity costs;
• net favourable settlement of certain commercial items;
• higher equity income;
• decreased pre-operating costs incurred at new facilities; and
• productivity and efficiency improvements at certain facilities.

These factors were partially offset by:

• a larger amount of employee profit sharing;
• higher affiliation fees paid to corporate;
• higher restructuring and downsizing costs;
• higher incentive compensation; and
• operational inefficiencies and other costs at certain facilities.

Asia

Asia Adjusted EBIT increased $36 million to $85 million for 2013 compared to $49 million for 2012 primarily as a result of:

• margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;
• productivity and efficiency improvements at certain facilities;
• higher equity income; and
• lower warranty costs of $2 million.

These factors were partially offset by:

• increased costs related to new facilities;
• a larger amount of employee profit sharing;
• higher costs incurred in preparation for upcoming launches;
• higher affiliation fees paid to Corporate; and
• higher incentive compensation.

Rest of World

Rest of World Adjusted EBIT increased $1 million to a loss of $76 million for 2013 compared to a loss of $77 million for 2012 primarily as a result of:

• margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;
• productivity and efficiency improvements at certain facilities;
• favourable earn-out settlement;
• lower restructuring and downsizing costs; and
• net customer price increases subsequent to 2012.

These factors were partially offset by:

• higher production costs, including inflationary increases, that we have not been fully successful in passing through to our customers;
• increased costs related to new facilities;
• higher affiliation fees paid to Corporate;
• higher costs incurred in preparation for upcoming launches; and
• higher incentive compensation.

Corporate and Other

Corporate and Other Adjusted EBIT increased $36 million to $36 million for 2013 compared to $nil for 2012. The loss related to our equity accounted investment in E-Car included in Corporate and Other was $35 million for 2012. Excluding E-Car, Corporate and Other Adjusted EBIT increased $1 million to $36 million for 2013 compared to $35 million for 2012 primarily as a result of:

• an increase in affiliation fees earned from our divisions;
• $10 million of cash received related to the settlement of ABCP between the Investment Industry Regulatory Organization of Canada and financial institutions;
• a loss on disposal of an investment in the second quarter of 2012; and
• lower stock-based compensation.

These factors were partially offset by:

• costs incurred to evaluate the effectiveness of our supply base;
• higher incentive compensation;
• the recovery of due diligence costs in the second quarter of 2012; and
• a $7 million net decrease in revaluation gains in respect of ABCP.

Interest Expense, net

During 2013 and 2012, we recorded net interest expense of $16 million.

Income from Operations before Income Taxes

Income from operations before income taxes increased $155 million to $1.91 billion for 2013 compared to $1.75 billion for 2012. Excluding Other Expense and Other Income, discussed in the "Other Expense" section, income from operations before income taxes for 2013 increased $407 million. The increase in income from operations before income taxes is the result of the increase in EBIT, as discussed above.

Income Taxes

For the year ended December 31, 2013, we had a valuation allowance against our deferred tax assets in certain European countries. These valuation allowances were required because of historical losses and uncertainty as to the timing of when we would be able to generate the necessary level of earnings to recover these deferred tax assets. Over the past few years, some of our European operations have delivered sustained profits which, together with forecasted profits have allowed us to release a portion of the valuation allowances set up against our European deferred tax assets. Additionally, during 2013, we released a portion of our valuation allowance in China. The effect of these valuation allowance releases in 2013 is $21 million. Finally, we recorded a $36 million deferred tax benefit as a result of the elimination of the Mexican flat tax.

For the year ended December 31, 2012, we had valuation allowances against our deferred tax assets in the United Kingdom and Germany. Based on financial forecasts and continued anticipated growth, we released a portion of the valuation allowance set up against our deferred tax assets in the United Kingdom; and in Germany, the BDW and ixetic acquisitions allowed us to release a portion of the valuation allowance set up against our German deferred tax assets. Additionally, during 2012 we released a portion of our valuation allowances in Mexico and China, which were partially offset by a new valuation allowance against all of our deferred tax assets in Brazil. The net effect of all these valuation allowance releases in 2012 is $89 million.

The valuation allowances and elimination of the Mexican flat tax (the "Deferred Tax Adjustments") totaled $57 million and $89 million in 2013 and 2012, respectively.

Excluding Other Expense and Other Income, after tax, and the Deferred Tax Adjustments, the effective income tax rate decreased to 21.7% for 2013 compared to 23.7% for 2012 primarily as result of favourable audit settlements of prior taxation years and a reduction in losses not benefitted in Europe partially offset by non-creditable withholding tax on the repatriation of funds to Canada.

Net Income

Net income of $1.55 billion for 2013 increased $119 million compared to 2012. Excluding Other Expense and Other Income, after tax, as discussed in the "Other Expense" section and the Deferred Tax Adjustments as discussed in the "Income Taxes" section, net income increased $351 million. The increase in net income is the result of the increase in income from operations before income taxes partially offset by higher income taxes.

Net Loss Attributable to Non-controlling Interests

Net loss attributable to non-controlling interests increased $9 million to $16 million for 2013 compared to $7 million for 2012 as a result of impairments of long-lived assets discussed in the "Other Expense" section.

Net Income Attributable to Magna International Inc.

Net income attributable to Magna International Inc. of $1.56 billion for 2013 increased $128 million compared to 2012. Excluding Other Expense and Other Income, after tax and net loss attributable to non-controlling interests, as discussed in the "Other Expense" section and the Deferred Tax Adjustments as discussed in the "Income Taxes" section, net income attributable to Magna International Inc. increased $351 million as a result of the increase in net income, as discussed above.

Earnings per Share

Diluted earnings per share increased $0.67 to $6.76 for 2013 compared to $6.09 for 2012. Other Expense and Other Income, after tax and net loss attributable to non-controlling interests and the Deferred Tax Adjustments, negatively impacted diluted earnings per share in 2013 by $0.22 and positively impacted diluted earnings per share in 2012 by $0.73. Other Expense and Other Income and the Deferred Tax Adjustments are discussed in the "Other Expense" and "Income Taxes" sections, respectively. Excluding the $0.22 per share negative impact for 2013 and the $0.73 per share positive impact for 2012, diluted earnings per share increased $1.62, as a result of the increase in net income attributable to Magna International Inc. and a decrease in the weighted average number of diluted shares outstanding during 2013.

The decrease in the weighted average number of diluted shares outstanding was due to the purchase and cancellation of Common Shares, during or subsequent to 2012, pursuant to our normal course issuer bids and the cashless exercise of options, partially offset by the issue of Common Shares related to the exercise of stock options, an increase in the number of diluted options outstanding as a result of an increase in the trading price of our common stock and stock options issued subsequent to 2012.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flow from Operations

Cash flow from operations before changes in non-cash operating assets and liabilities increased $560 million to $2.69 million for 2013 compared to $2.13 billion for 2012. The increase in cash flow from operations was due to a $441 million increase in items not involving current cash flows and a $119 million increase in net income, as discussed above. Items not involving current cash flows are comprised of the following:

Cash invested in non-cash operating assets and liabilities amounted to $127 million for 2013 compared to cash provided from operations of $72 million for 2012. The change in non-cash operating assets and liabilities is comprised of the following sources (and uses) of cash:

Higher accounts receivable relate primarily to the increase in production sales during 2013, particularly in December 2013 compared to December 2012. The increase in inventories was primarily due to increased production inventory to support higher sales activities and for upcoming launches. The increase in accounts payable was primarily due to timing of payments. The increase in accrued salaries and wages was primarily due to restructuring, employee profit sharing and vacation accruals. Higher other accrued liabilities relate to the increase in sales and restructuring costs.

Capital and Investment Spending

Fixed assets, investments and other assets additions

In 2013, we invested $1.17 billion in fixed assets. While investments were made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in 2013 was for manufacturing equipment for programs that will be launching subsequent to 2013.

In 2013, we invested $188 million in other assets related primarily to fully reimbursable tooling and engineering costs for programs that launched during 2013 or will be launching subsequent to 2013.

Purchase of subsidiaries

During November 2013, we acquired the remaining 49% interest of Textile Competence Centre Kft, a textile plant in Germany for cash consideration of $9 million. Prior to the acquisition, we were fully consolidating this entity with non-controlling interest equal to the 49% interest not owned by us.

During 2012, we invested $525 million to purchase subsidiaries, including the acquisitions of:

• ixetic, a manufacturer of automotive vacuum, engine and transmission pumps, which has operations in Germany, Bulgaria and China as well as representation in Brazil, India, Japan and the United States. The acquired business has sales primarily to BMW, Daimler, Volkswagen, Schaeffler, ZF, Ford, Chrysler, Renault-Nissan and Toyota;
• the controlling 27% interest in the E-Car partnership;
• the remaining 50% interest in STT; and
• BDW, a structural casting supplier of aluminium components, which has operations in Germany, Poland and Hungary with sales primarily to Volkswagen, Audi, Porsche, Mercedes-Benz, Ferrari and ZF.

Proceeds from disposition

In 2013, the $163 million of proceeds include normal course fixed and other asset disposals.

Financing

During 2013, we purchased for cancellation 14.1 million Common Shares for an aggregate purchase price of $1.02 billion under our normal course issuer bids.

During 2013, 849,999 options were exercised on a cashless basis in accordance with the applicable stock option plans. On exercise, cash payments totalling $23 million were made to the stock option holders which represented the difference between the aggregate fair market value of the Option Shares based on the closing price of our Common Shares on the Toronto Stock Exchange ("TSX") on the date of exercise and the aggregate Exercise Price of all such options surrendered.

Cash dividends paid per Common Share were $1.28 for 2013, for a total of $284 million.

Financing Resources

Total capitalization increased by $122 million to $10.01 billion at December 31, 2013 compared to $9.89 billion at December 31, 2012, primarily as a result of a $194 million increase in shareholders' equity partially offset by a $59 million decrease in liabilities.

The increase in shareholders' equity was primarily as a result of net income earned in 2013 partially offset by:

• the repurchase of Common Shares in connection with our normal course issuer bids;
• dividends paid during 2013; and
• the $134 million net unrealized loss on translation of net investment in foreign operations.

The decrease in liabilities relates primarily to reduced bank indebtedness and lower bank term debt in our Asia and Rest of World segments.

Cash Resources

During 2013, our cash resources increased by $32 million to $1.55 billion as a result of the cash provided from operating activities partially offset by cash used for investing and financing activities, as discussed above. In addition to our cash resources at December 31, 2013, we had term and operating lines of credit totalling $2.56 billion of which $2.20 billion was unused and available.

On June 20, 2013, we amended our previous $2.25 billion revolving credit facility to become a five year facility with a maturity of June 20, 2018. The facility now includes a $200 million Asian tranche, a $50 million Mexican tranche and a tranche for Canada, U.S. and Europe, which is fully transferable between jurisdictions and can be drawn in U.S. dollars, Canadian dollars or euros.

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 February 28, 2014 were exercised:

Contractual Obligations and Off-Balance Sheet Financing

A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Consistent with our customer obligations, substantially all of our purchases are made under purchase orders with our suppliers which are requirements based and accordingly do not specify minimum quantities. Other long-term liabilities are defined as long-term liabilities that are recorded on our consolidated balance sheet. Based on this definition, the following table includes only those contracts which include fixed or minimum obligations.

At December 31, 2013, we had contractual obligations requiring annual payments as follows:

Our unfunded obligations with respect to employee future benefit plans, which have been actuarially determined, were $516 million at December 31, 2013. These obligations are as follows:

Our off-balance sheet financing arrangements are limited to operating lease contracts.

The majority of our facilities are subject to operating leases. Operating lease payments in 2013 for facilities were $304 million. Operating lease commitments in 2014 for facilities are expected to be $293 million. A majority of our existing lease agreements generally provide for periodic rent escalations based either on fixed-rate step increases, or on the basis of a consumer price index adjustment (subject to certain caps).

We also have operating lease commitments for equipment. These leases are generally of shorter duration. Operating lease payments for equipment were $59 million for 2013, and are expected to be $50 million in 2014.

Although our consolidated contractual annual lease commitments decline year by year, we expect that existing leases will either be renewed or replaced, or alternatively, we will incur capital expenditures to acquire equivalent capacity.

Foreign Currency Activities

Our North American operations negotiate sales contracts with OEMs for payment in both U.S. and Canadian dollars. Materials and equipment are purchased in various currencies depending upon competitive factors, including relative currency values. Our North American operations use labour and materials which are paid for in both U.S. and Canadian dollars. Our Mexican operations generally use the U.S. dollar as the functional currency.

Our European operations negotiate sales contracts with OEMs for payment principally in euros and British pounds. The European operations' material, equipment and labour are paid for principally in euros and British pounds.

We employ hedging programs, primarily through the use of foreign exchange forward contracts, in an effort to manage our foreign exchange exposure, which arises when manufacturing facilities have committed to the delivery of products for which the selling price has been quoted in foreign currencies. These commitments represent our contractual obligations to deliver products over the duration of the product programs, which can last a number of years. The amount and timing of the forward contracts will be dependent upon a number of factors, including anticipated production delivery schedules and anticipated production costs, which may be paid in the foreign currency. In addition, we enter into foreign exchange contracts to manage foreign exchange exposure with respect to internal funding arrangements. Despite these measures, significant long-term fluctuations in relative currency values, in particular a significant change in the relative values of the U.S. dollar, Canadian dollar, euro or British pound, could have anadverse effect on our profitability and financial condition (as discussed throughout this MD&A).

RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED DECEMBER 31, 2013

Sales

External Production Sales - North America

External production sales in North America increased 13% or $493 million to $4.37 billion for the three months ended December 31, 2013 compared to $3.88 billion for the three months ended December 31, 2012, primarily as a result of:

• the launch of new programs during or subsequent to the fourth quarter of 2012, including the:
  • Jeep Cherokee;
  • Ford Fusion and Lincoln MKZ;
  • GM full-size pickups; and
  • Chevrolet Impala;
• higher production volumes on certain existing programs;
• an increase in content on certain programs, including the;
  • Jeep Grand Cherokee; and
  • Buick Enclave, GMC Acadia and Chevrolet Traverse; and
• acquisitions completed during or subsequent to the fourth quarter of 2012 which positively impacted sales by $21 million, including STT.

These factors were partially offset by:

• a decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar; and
• net customer price concessions subsequent to the fourth quarter of 2012.

External Production Sales - Europe

External production sales in Europe increased 17% or $378 million to $2.59 billion for the three months ended December 31, 2013 compared to $2.21 billion for the three months ended December 31, 2012, primarily as a result of:

• a $93 million increase in reported U.S. dollar sales primarily as a result of the strengthening of the euro against the U.S. dollar;
• acquisitions completed during or subsequent to the fourth quarter of 2012, which positively impacted sales by $75 million, including ixetic;
• the launch of new programs during or subsequent to the fourth quarter of 2012, including the:
  • Mercedes-Benz CLA-Class;
  • MINI Paceman; and
  • Volkswagen Jetta; and
• higher production volumes on certain existing programs.

These factors were partially offset by:

• a decrease in content on certain programs, including the MINI Cooper; and
• net customer price concessions subsequent to the fourth quarter of 2012.

External Production Sales - Asia

External production sales in Asia increased 29% or $89 million to $399 million for the three months ended December 31, 2013 compared to $310 million for the three months ended December 31, 2012, primarily as a result of:

• higher production volumes on certain existing programs;
• the launch of new programs during or subsequent to the fourth quarter of 2012, primarily in China; and
• a $7 million increase in reported U.S. dollar sales as a result of the net strengthening of foreign currencies against the U.S. dollar, including the Chinese Renminbi.

These factors were partially offset by net customer price concessions subsequent to the fourth quarter of 2012.

External Production Sales - Rest of World

External production sales in Rest of World decreased 11% or $23 million to $188 million for the three months ended December 31, 2013 compared to $211 million for the three months ended December 31, 2012, primarily as a result of a $26 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Brazilian real and Argentine peso partially offset by:

• net customer price increases subsequent to the fourth quarter of 2012; and
• higher production volumes on certain existing programs.

Complete Vehicle Assembly Sales

Complete vehicle assembly sales increased 13%, or $91 million, to $788 million for the three months ended December 31, 2013 compared to $697 million for the three months ended December 31, 2012 and assembly volumes increased 17% or 5,254 units.

The increase in complete vehicle assembly sales is primarily as a result of:

• the launch of the MINI Paceman during the fourth quarter of 2012;
• a $37 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar; and
• an increase in assembly volumes for the Mercedes-Benz G-Class.

These factors were partially offset by a decrease in assembly volumes for the Peugeot RCZ.

Tooling, Engineering and Other Sales

Tooling, engineering and other sales increased 16% or $113 million to $841 million for the three months ended December 31, 2013 compared to $728 million for the three months ended December 31, 2012.

In the three months ended December 31, 2013, the major programs for which we recorded tooling, engineering and other sales were the:

• MINI Cooper;
• Mercedes-Benz M-Class;
• GM full-size pickups and SUVs;
• Qoros 3;
• Opel Zafira
• MINI Countryman;
• Mercedes-Benz Vito;
• Volkswagen Golf; and
• Ford Transit.

In the three months ended December 31, 2012, the major programs for which we recorded tooling, engineering and other sales were the:

• Fiat Viaggio;
• MINI Countryman;
• Mercedes-Benz M-Class;
• BMW 6-Series;
• Opel Cascada Convertible;
• Ford Transit;
• Volkswagen up!; and
• Ford Escape.

In addition, tooling, engineering and other sales increased as a result of the net strengthening of foreign currencies against the U.S dollar, including the strengthening of the euro partially offset by the weakening of the Canadian dollar.

Segment Analysis

Excluded from Adjusted EBIT for the three months ended December 31, 2013 and 2012 were the following Other Expense and Other Income items, which have been discussed in the "Other Expense" section.

North America

Adjusted EBIT in North America increased $104 million to $477 million for the three months ended December 31, 2013 compared to $373 million for the three months ended December 31, 2012 primarily as a result of:

• margins earned on higher production sales;
• incremental margin earned on new programs that launched during or subsequent to the three months ended December 31, 2012;
• decreased commodity costs;
• higher equity income;
• decreased pre-operating costs incurred at new facilities; and
• productivity and efficiency improvements at certain facilities.

These factors were partially offset by:

• operational inefficiencies and other costs at certain facilities;
• higher costs incurred in preparation for upcoming launches;
• a larger amount of employee profit sharing;
• higher affiliation fees paid to Corporate; and
• higher incentive compensation.

Europe

Adjusted EBIT in Europe increased $87 million to $111 million for the three months ended December 31, 2013 compared to $24 million for the three months ended December 31, 2012 primarily as a result of:

• margins earned on higher production sales;
• incremental margin earned on new programs that launched during or subsequent to the three months ended December 31, 2012;
• improved pricing on certain unprofitable contracts;
• lower costs incurred in preparation for upcoming launches;
• the benefit of restructuring and downsizing activities recently undertaken;
• acquisitions completed during or subsequent to the three months ended December 31, 2012, including ixetic;
• decreased pre-operating costs incurred at new facilities;
• higher equity income;
• decreased commodity costs;
• lower warranty costs of $1 million; and
• productivity and efficiency improvements at certain facilities.

These factors were partially offset by:

• a larger amount of employee profit sharing;
• higher affiliation fees paid to Corporate;
• higher restructuring and downsizing costs;
• higher incentive compensation; and
• operational inefficiencies and other costs at certain facilities.

Asia

Asia Adjusted EBIT increased $6 million to $26 million for the three months ended December 31, 2013 compared to $20 million for the three months ended December 31, 2012 primarily as a result of:

• margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;
• productivity and efficiency improvements at certain facilities;
• decreased costs related to new facilities; and
• higher equity income.

These factors were partially offset by:

• higher costs incurred in preparation for upcoming launches;
• a larger amount of employee profit sharing; and
• higher affiliation fees paid to Corporate.

Rest of World

Rest of World Adjusted EBIT increased $7 million to a loss of $21 million for the three months ended December 31, 2013 compared to a loss of $28 million for the three months ended December 31, 2012 primarily as a result of:

• productivity and efficiency improvements at certain facilities;
• favourable earn-out settlement; and
• decreased costs related to new facilities.

These factors were partially offset by:

• higher production costs, including inflationary increases, that we have not been fully successful in passing through to our customers;
• higher costs incurred in preparation for upcoming launches;
• lower equity income; and
• higher incentive compensation.

Corporate and Other

Corporate and Other Adjusted EBIT increased $16 million to $14 million for the three months ended December 31, 2013 compared to a loss of $2 million for the three months ended December 31, 2012 primarily as a result of:

• an increase in affiliation fees earned from our divisions;
• lower stock-based compensation; and
• a $1 million net increase in revaluation gains in respect of ABCP.

These factors were partially offset by:

• costs incurred to evaluate the effectiveness of our supply base;
• lower equity income; and
• higher incentive compensation.

FUTURE CHANGES IN ACCOUNTING POLICIES

Unrecognized tax benefits

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. The guidance is effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. We currently present our unrecognized tax benefits in accordance with ASU 2013-11 and therefore this pronouncement will not result in a change to our consolidated financial statements.

Joint and several liability arrangements

In February 2013, the FASB issued ASU 2013-04, "Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date". ASU 2013-04 requires reporting and disclosure about obligations resulting from joint and several liability arrangements within the scope of Subtopic 405-40 for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 is effective for fiscal years and interim periods beginning after December 15, 2013. The impact, if any, on our consolidated financial statements is currently being assessed.

SUBSEQUENT EVENTS

Under Austria's current group taxation system, an Austrian entity may utilize the tax losses of all direct foreign subsidiaries. On February 28, 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses, where the direct foreign subsidiary is not a member of the European Union. Furthermore, any foreign losses previously used by Austrian entities arising in those direct non European Union subsidiaries will be subject to recapture in Austria. Currently, we have Austrian entities that directly hold subsidiaries in Russia and India that will be affected by this new rule. In light of this legislation, we anticipate taking a charge to tax expense of approximately $25 million to $30 million during the first quarter of 2014. The tax is payable over three years, commencing in 2015.

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 18 of our unaudited interim consolidated financial statements for the three months and year ended December 31, 2013, which describes these claims.

For a discussion of risk factors relating to legal and other claims/actions against us, refer to "Item 3. Description of the Business - Risk Factors" in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended December 31, 2012.

CONTROLS AND PROCEDURES

There have been no changes in our internal controls over financial reporting that occurred during 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

The previous discussion contains statements that constitute "forward-looking information" or "forward-looking statements" within the meaning of applicable securities legislation, including, but not limited to, statements relating to: light vehicle production and operating performance in our reporting segments; implementation of improvement plans in our underperforming operations, and/or restructuring actions, including but not limited to, Western Europe and South America; the expected amount of restructuring charges; continued strong operating performance in North America; improved future earnings in Europe; expected results improvements and higher sales in Asia; and future repurchases of Common Shares under our Normal Course Issuer Bid. The forward-looking information in this MD&A is presented for the purpose of providing information about management's current expectations and plans and such information may not be appropriate for other purposes. 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, 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", "forecast", "outlook", "project", "estimate" and similar expressions suggesting future outcomes or events to identify forward-looking statements. Any such 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. However, whether actual results and developments will conform with 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: the potential for a deterioration of economic conditions or an extended period of economic uncertainty; declines in consumer confidence and the impact on production volume levels; continuing economic uncertainty in various geographic regions, including Western Europe; our ability to sustain or grow our business with OEMs; restructuring actions by OEMs, including plant closures; restructuring, downsizing and/or other significant non-recurring costs; continued underperformance of one or more of our operating divisions; ongoing pricing pressures, including our ability to offset price concessions demanded by our customers; our ability to successfully launch material new or takeover business; shifts in market share away from our top customers; shifts in market shares among vehicles or vehicle segments, or shifts away from vehicles on which we have significant content; risks of conducting business in foreign markets, including China, Russia, India, Argentina and Brazil and other non-traditional markets for us; a prolonged disruption in the supply of components to us from our suppliers; scheduled shutdowns of our customers' production facilities (typically in the third and fourth quarters of each calendar year); shutdown of our or our customers' or sub-suppliers' production facilities due to a labour disruption; our ability to successfully compete with other automotive suppliers; a reduction in outsourcing by our customers or the loss of a material production or assembly program; the termination or non-renewal by our customers of any material production purchase order; our ability to consistently develop innovative products or processes; impairment charges related to goodwill and long-lived assets; exposure to, and ability to offset, volatile commodities prices; fluctuations in relative currency values; our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to conduct appropriate due diligence on acquisition targets; warranty and recall costs; risk of production disruptions due to natural disasters; pension liabilities; legal claims and/or regulatory actions against us, including the ongoing antitrust investigation being conducted by the German Federal Cartel Office; 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; inability to achieve future investment returns that equal or exceed past returns; the unpredictability of, and fluctuation in, the trading price of our Common Shares; work stoppages and labour relations disputes; changes in credit ratings assigned to us; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; 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, we caution readers not to place undue reliance on any forward-looking statements and readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking statements to reflect subsequent information, events, results or circumstances or otherwise. 

MAGNA INTERNATIONAL INC.
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 U.S. generally accepted accounting principles ["GAAP"] as further discussed in note 1[b] and the accounting policies as set out in note 1 to the annual consolidated financial statements for the year ended December 31, 2012.

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, 2012 audited consolidated financial statements and notes included in the Company's 2012 Annual Report.

In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which consist only of normal and recurring adjustments, necessary to present fairly the financial position at December 31, 2013 and the results of operations, changes in equity and cash flows for the three-month periods and years ended December 31, 2013 and 2012.

[b] Accounting Changes

Intangibles

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update ["ASU"] 2012-02, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment". ASU 2012-02 provides an option to first perform a qualitative assessment to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

[c] Seasonality

The Company's businesses are generally not seasonal. However, the Company's sales and profits are closely related to its automotive customers' vehicle production schedules. The Company's largest North American customers typically halt production for approximately two weeks in July and one week in December. Additionally, many of the Company's customers in Europe typically shutdown vehicle production during portions of August and one week in December.

2. OTHER EXPENSE (INCOME), NET

For the year ended December 31, 2013:

[a] Restructuring

As a result of recent customer announcements related to plant closures, the profitability of certain facilities and the level of future booked business, management determined that restructuring would have to be completed in our traditional European markets in order to remain cost competitive over the long-term.  As a result, during the fourth, third and first quarters of 2013, the Company recorded net restructuring charges of $35 million [$25 million after tax], $48 million [$33 million after tax] and $6 million [$6 million after tax], respectively, in Europe at its exterior and interior systems operations related primarily to the closure of a facility in Belgium.

Substantially all of these restructuring costs will be paid subsequent to 2013.

[b] Impairment of long-lived assets

In conjunction with its annual business planning cycle, during the fourth quarter of 2013 the Company recorded long-lived asset impairment charges of $33 million [$21 million after tax and non-controlling interests] consisting of $23 million in North America and $10 million in Rest of World.  The impairment charges related to battery research equipment in North America and fixed assets at the Company's Seating operations in South America.

[c] Impairment of goodwill

In conjunction with its annual business planning cycle, during the fourth quarter of 2013 the Company recorded goodwill impairment charges of $22 million [$22 million after tax] in Rest of World related to the Company's metal stamping operations.

For the year ended December 31, 2012:

[d] Restructuring

During the fourth quarter of 2012, the Company recorded restructuring charges of $55 million [$53 million after tax] in Europe primarily at its exterior and interior systems and complete vehicle and engineering services operations.

[e] Impairment of long-lived assets

During the fourth quarter of 2012 the Company recorded long-lived asset impairment charges of $23 million [$22 million after tax] in Europe and $2 million [$1 million after tax] in North America.  In Europe, the impairment charges related primarily to fixed assets at the Company's exterior and interior systems operations.

[f] Re-measurement gains

[i]STT Technologies Inc.

On October 26, 2012, the Company acquired the remaining 50% interest in STT Technologies Inc. ["STT"] for cash consideration of $55 million.  STT is a manufacturer of automotive pumps with operations in Canada and Mexico. Prior to the acquisition, the Company accounted for this investment using the equity method of accounting.

The incremental investment in STT was accounted for under the business acquisition method of accounting as a step acquisition which requires that Magna re-measures its pre-existing investment in STT at a fair value and recognize any gains or losses in income. The estimated fair value of Magna's investment immediately before the closing date was $55 million, which resulted in the recognition of a non-cash gain of $35 million [$35 million after tax].

[ii]Magna E-Car Systems LP

On August 31, 2012, the Company acquired the controlling 27% interest in the Magna E-Car Systems L.P. ["E-Car"] partnership from a company affiliated with the Stronach Group for cash consideration of $75 million.

Prior to the acquisition, the Company held the remaining 73% non-controlling interest in E-Car and accounted for this investment using the equity method of accounting.  The incremental investment in E-Car was accounted for under the business acquisition method of accounting as a step acquisition which requires that Magna re-measure its pre-existing investment in E-Car at fair value and recognize any gains or losses in income. The estimated fair value of Magna's partnership interest immediately before the closing date was $205 million, which resulted in the recognition of a non-cash gain of $153 million [$125 million after tax], which is recorded in Other expense (income), net on the Consolidated Statements of Income.

3. EARNINGS PER SHARE

4. DETAILS OF CASH FROM OPERATING ACTIVITIES

[a] Cash and cash equivalents:

[b] Items not involving current cash flows:

[c] Changes in non-cash operating assets and liabilities:

5. ACQUISITIONS

Acquisitions in the year ended December 31, 2013

In November 2013, the Company acquired the remaining 49% interest of Textile Competence Centre Kft, a textile plant in Germany for cash consideration of $9 million. Prior to the acquisition, the Company was fully consolidating this entity and recording a non-controlling interest equal to the 49% interest not owned by the Company.

The net effect of this and other small acquisitions on the Company's 2013 consolidated balance sheet were increases in fixed assets of $5 million, goodwill of $3 million, other assets of $2 million, and other long-term liabilities of $2 million and a reduction of non-controlling interest of $1 million.

Acquisitions in the year ended December 31, 2012

In January 2012, the Company acquired BDW technologies group, a structural casting supplier of aluminium components, which has operations in Germany, Poland and Hungary. The acquired business has sales primarily to Volkswagen, Audi, Porsche, Mercedes-Benz, Ferrari and ZF.

During the third quarter of 2011 the Company sold an interior systems operation [the "Business"] located in Germany. Subsequent to disposal, the Business continued to incur significant financial losses. By the end of the first quarter of 2012, the Business was experiencing severe liquidity issues. Although the Company had no legal obligation to do so, in light of customer relationship issues and other relevant considerations, on June 4, 2012, the Company re-acquired the Business.

As more fully described in note 2, on August 31, 2012 the Company acquired the controlling 27% interest in the E-Car partnership for cash consideration of $56 million [net of $19 million cash acquired]. The incremental investment in E-Car was accounted for under the business acquisition method of accounting as a step acquisition which requires that all assets acquired and liabilities of E-Car be measured at fair value. The purchase equation allocated $210 million to intangible assets which are primarily technology based intangibles. Given the continuing uncertainties regarding the timing and magnitude of a viable electric vehicle industry, competing electric vehicle technologies, significantly larger competitors, and other factors, the Company determined that the intangible assets would be amortized on a straight-line basis over the period ended December 31, 2013. At December 31, 2013, these intangible assets have been fully amortized [note 8].

As more fully described in note 2, on October 26, 2012 the Company acquired the remaining 50% interest in STT. The incremental investment in STT required that all assets acquired and liabilities of STT be measured at fair value.

In December 2012, the Company acquired ixetic Verwaltungs GmbH ["ixetic"], a manufacturer of automotive vacuum, engine and transmission pumps, which has operations in Germany, Bulgaria and China as well as representation in Brazil, India, Japan and the United States. The acquired business has sales primarily to BMW, Daimler, Volkswagen, Schaeffler, ZF, Ford, Chrysler, Renault-Nissan and Toyota.

The total consideration for these acquisitions was $525 million paid in cash [net of cash acquired].

The net effect of the acquisitions on the Company's 2012 consolidated balance sheet and as well as certain adjustments recorded during 2013 to the preliminary purchase price allocations are as follows:

The above adjustments had an insignificant impact on the 2013 consolidated statement of income since the adjustments related primarily to the acquisitions that were completed in the fourth quarter of 2012.

6. INVENTORIES

Inventories consist of:

Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.

7. GOODWILL

The following is a continuity of the Company's goodwill:

8. OTHER ASSETS

Other assets consist of: