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Press release from CNW Group

Magna Announces Fourth Quarter and 2012 Results

Friday, March 01, 2013

Magna Announces Fourth Quarter and 2012 Results05:00 EST Friday, March 01, 2013AURORA, ON, March 1, 2013 /CNW/ - Magna International Inc. (TSX: MG) (NYSE: MGA) today reported financial results for the fourth quarter and year ended December 31, 2012.           THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,  2012 2011 2012 2011             Sales $8,033 $7,251 $30,837  $28,748             Adjusted EBIT(1) $387 $321 $1,658  $1,367             Income from operations before income taxes  $341  $291 $1,750  $1,217             Net income attributable to Magna   International Inc. $351  $312 $1,433  $1,018             Diluted earnings per share $1.49  $1.32 $6.09  $4.20             All results are reported in millions of U.S. dollars, except per share figures, which are in U.S. dollars. (1)  Adjusted EBIT is the measure of segment profit or loss as reported in the Company's attached unaudited interim consolidated financial statements.Adjusted EBIT represents income from operations before income taxes; interest expense (income), net; and other expense (income), net THREE MONTHS ENDED DECEMBER 31, 2012We posted sales of $8.03 billion for the fourth quarter ended December 31, 2012, an increase of 11% over the fourth quarter of 2011. We achieved this sales increase in a period when vehicle production increased 12% in North America and declined 8% in Western Europe, both relative to the fourth quarter of 2011. In the fourth quarter of 2012, our North American, Europe, and Rest of World production sales, as well as tooling, engineering and other sales and complete vehicle assembly sales all increased relative to the comparable quarter in 2011.Complete vehicle assembly sales increased 12% to $697 million for the fourth quarter of 2012 compared to $625 million for the fourth quarter of 2011, while complete vehicle assembly volumes increased 5% to approximately 31,500 units.For the fourth quarter of 2012, adjusted EBIT increased 21% to $387 million compared to $321 million for the fourth quarter of 2011.For the fourth quarter of 2012, income from operations before income taxes was $341 million, net income attributable to Magna International Inc. was $351 million and diluted earnings per share were $1.49, increases of $50 million, $39 million and $0.17, respectively, each compared to the fourth quarter of 2011.Excluding other expense (income), net, and the income tax valuation allowance releases recorded in the fourth quarters of 2012 and 2011, income from operations before income taxes, net income attributable to Magna International Inc. and diluted earnings per share increased $62 million, $37 million and $0.16, respectively, each compared to the fourth quarter of 2011.For the fourth quarter ended December 31, 2012, we generated cash from operations of $514 million before changes in non‑cash operating assets and liabilities, and $559 million in non‑cash operating assets and liabilities. Total investment activities for the fourth quarter of 2012 were $949 million, including $478 million in fixed asset additions, $446 million to purchase subsidiaries and $25 million in investments and other assets.YEAR ENDED DECEMBER 31, 2012We posted sales of $30.84 billion for the year ended December 31, 2012, an increase of 7% over the year ended December 31, 2011. This higher sales level reflected increases in our North American, European, and Rest of World production sales as well as higher tooling, engineering and other sales, partially offset by lower complete vehicle assembly sales.For the year ended December 31, 2012, vehicle production increased 18% to 15.5 million units in North America and decreased 7% to 12.7 million units in Western Europe, each compared to 2011.Complete vehicle assembly sales decreased 5% to $2.56 billion for the year ended December 31, 2012 compared to $2.69 billion for the year ended December 31, 2011, while complete vehicle assembly volumes decreased 5% to approximately 124,000 units.For the year ended December 31, 2012, adjusted EBIT increased 21% to $1.66 billion compared to $1.37 billion for the year ended December 31, 2011.For the year ended December 31, 2012, income from operations before income taxes was $1.75 billion, net income attributable to Magna International Inc. was $1.43 billion and diluted earnings per share were $6.09, increases of $533 million, $415 million and $1.89, respectively, each compared to 2011. Excluding other expense (income), net, and the income tax valuation allowance releases recorded in 2012 and 2011, income from operations before income taxes, net income attributable to Magna International Inc. and diluted earnings per share increased $269 million, $165 million and $0.83, respectively, each compared to 2011.For the year ended December 31, 2012, we generated cash from operations before changes in non‑cash operating assets and liabilities of $2.13 billion, and $72 million in non‑cash operating assets and liabilities. Total investment activities for the year of 2012 were $1.92 billion, including $1.27 billion in fixed asset additions, $525 million to purchase subsidiaries and a $122 million increase in investments and other assets.Don Walker, Magna's Chief Executive Officer commented: "Overall, we are satisfied with our operating results for 2012.  We continued our strong performance in North America.  In Europe, we saw better operating results and a return to profitability.  In the rest of the world, Asia remains profitable, despite the significant new facility activity, and we are taking steps to improve results in South America."A more detailed discussion of our consolidated financial results for the fourth quarter and year ended December 31, 2012 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.DIVIDENDSYesterday, our Board of Directors declared a quarterly dividend of $0.32 with respect to our outstanding Common Shares for the quarter ended December 31, 2012. This dividend is payable on March 27, 2013 to shareholders of record on March 13, 2013.Vince Galifi, Magna's Chief Financial Officer, stated:  "The 16% increase in our quarterly dividend per share to $0.32, which is a new record for us, reflects our continued strong performance and the confidence our Board has in Magna's future."UPDATED 2013 OUTLOOK     Light Vehicle Production (Units)     North America15.8 million Western Europe11.9 million     Production Sales     North America$15.4 billion - $15.8 billion Europe$9.4 billion - $9.7 billion Rest of World$2.2 billion - $2.5 billion Total Production Sales $27.0 billion - $28.0 billion       Complete Vehicle Assembly Sales $2.6 billion - $2.9 billion       Total Sales $32.0 billion - $33.4 billion       Operating Margin*┼ Mid 5% range       Tax Rate* Approximately 24.5%       Capital Spending Approximately $1.4 billion       * Excluding other expense (income), net┼ Excluding $158 million amortization of intangibles related to acquisition of E-Car In this 2013 outlook, in addition to 2013 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 MAGNAWe are a leading global automotive supplier with 313 manufacturing operations and 88 product development, engineering and sales centres in 29 countries. Our 119,000 employees are focused on delivering superior value to our customers through innovative processes and World Class Manufacturing. Our product capabilities include producing body, chassis, interiors, exteriors, seating, powertrain, electronics, mirrors, closures 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 2012 results on Friday, March 1, 2013 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 1-800-699-3428. The number for overseas callers is 1-416-641-6715. 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 Friday morning prior to the call. FORWARD‑LOOKING STATEMENTSThe previous discussion 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 expected production sales, based on expected light vehicle production in North America and Western Europe; Magna's expected production sales in the North America, Europe and Rest of World segments; total sales; complete vehicle assembly sales; consolidated operating margin; effective income tax rate; fixed asset expenditures; implementation of improvement plans in our underperforming operations, including South America; and future purchases of our Common Shares under the Normal Course Issuer Bid. 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; risks arising from the recession in Europe, including the potential for a deterioration of sales of our three largest German-based OEM customers; 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; our ability to successfully launch material new or takeover business; liquidity risks; bankruptcy or insolvency of a major customer or supplier; 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; a shift away from technologies in which we are investing; risks arising due to the failure of a major financial institution; impairment charges related to goodwill, long-lived assets and deferred tax assets; 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, India, South America and other non-traditional markets for us; 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; ongoing pricing pressures, including our ability to offset price concessions demanded by our customers; warranty and recall costs; risks related to natural disasters and potential production disruptions; factors that could cause an increase in our pension funding obligations; legal claims and/or regulatory actions against us; our ability to understand and compete successfully in non-automotive businesses in which we pursue opportunities; 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.govMAGNA INTERNATIONAL INC.Management's Discussion and Analysis of Results of Operations and Financial PositionUnless 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, 2012 included in this press release, and the audited consolidated financial statements and MD&A for the year ended December 31, 2011 included in our 2011 Annual Report to Shareholders.This MD&A has been prepared as at February 28, 2013.OVERVIEWWe are a leading global automotive supplier with 313 manufacturing operations and 88 product development, engineering and sales centres in 29 countries. Our 119,000 employees are focused on delivering superior value to our customers through innovative processes and World Class Manufacturing. Our product capabilities include body, chassis, interiors, exteriors, seating, powertrain, electronics, mirrors, closures 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.HIGHLIGHTSOperationsGlobal light vehicle production increased in 2012, representing the third straight year of production growth. In our two primary markets, North American light vehicle production increased 18% to 15.5 million units, while Western European light vehicle production declined 7% to 12.7 million units.Our 2012 total sales were a record $30.84 billion, an increase of 7% over 2011. North American, European and Rest of World production sales, as well as tooling and other sales all increased to record levels in 2012, while complete vehicle assembly sales declined 5% in 2012, compared to 2011.Income from operations before income taxes for 2012 was a record $1.75 billion for 2012, compared to $1.22 billion for 2011. Excluding other expense (income), net, ("Other Expense" or "Other Income") income from operations before income taxes increased $269 million. Operating margin earned on the higher sales as well as a higher operating margin percentage of sales were the primary reasons for the $269 million increase over 2011.In our North America segment, our strong performance across operating units continued in 2012. Total sales increased 10% over 2011 to $16.34 billion, driven by the higher North American light vehicle production, and Adjusted EBIT(1) increased 11% as compared to 2011 to $1.52 billion.In our Europe segment, we increased total sales by $153 million to $12.71 billion, despite the 7% decline in Western European vehicle production. This reflects the continued resilientsales and production performance of our largest OEM customers in Europe. We reported Adjusted EBIT in our Europe segment of $165 million for 2012, compared to a loss of $22 million for 2011. Better results at certain underperforming operations were the primary driver of improved earnings in Europe.Over the past number of years, we have experienced significant growth in our Rest of World segment. Our operations in this segment that are established and have reached an appropriate level of capacity utilization, for the most part, generate positive EBIT. However, there are a number of factors that are currently more than offsetting the aggregate results from our established operations. In our Rest of World segment, we reported an Adjusted EBIT loss of $28 million for 2012, compared to Adjusted EBIT of $56 million for 2011. Costs related to the large number of facilities under construction or launching in Asia and South America, operating inefficiencies and other costs in certain operations in South America, and the integration of acquisitions in South America were the primary reasons for the decline in Adjusted EBIT during 2012 compared to 2011.____________________________1 Adjusted EBIT represents income from operations before income taxes; interest expense (income), net; and other expense (income), netInvestmentsIn 2012, we once again made significant investments in our business, totalling $1.92 billion, including fixed assets, investments, other assets and acquisitions.Our fixed asset spending in 2012 was an all-time high $1.27 billion, as we continued to invest both in our traditional markets and to further expand our footprint in growing regions such as Asia, Eastern Europe and South America. Furthermore, we spent $122 million for investments and other assets.Lastly, in 2012 we invested $525 million in acquisitions to enhance our capabilities.In January 2012 we acquired BDW technologies group ("BDW"), a structural casting supplier of aluminium components, which has operations in Germany, Poland and Hungary. BDW provides us with high-pressure casting capabilities that can provide meaningful weight savings to our customers.We strengthened our position in automotive pumps through two acquisitions. In November, we acquired ixetic Verwaltungs GmbH ("ixetic"), a manufacturer of automotive vacuum, engine and transmission pumps with two manufacturing facilities in Germany and one in each of Bulgaria and China. In addition, we acquired the remaining 50% interest in STT Technologies ("STT") from our joint venture partner. STT is a leading supplier of transmission and engine related oil pumps serving the North American market. We believe the automotive pump market will continue to grow, partly as a result of the global trend towards improved fuel efficiency. The combined cost of these acquisitions was $437 million.We also acquired the controlling 27% interest in Magna E-Car Systems partnership ("E-Car"), and integrated the former E-Car operations into our existing operating units. E-Car's component business was integrated into our Magna Powertrain operation, in order to take advantage of opportunities for the electrification of vehicle powertrains and E-Car's battery pack business and vehicle integration operations were integrated into our Magna Steyr operating unit.DividendsIn 2012, aggregate dividends paid to shareholders amounted to $252 million.On February 28, 2013 our Board of Directors declared a dividend of U.S. $0.32 per share, representing an increase of 16% over the third quarter of 2012 dividend.Normal Course Issuer BidIn November 2012 our Board of Directors approved a normal course issuer bid to purchase up to 12 million of our issued and outstanding Common Shares, representing 5.2% of our public float of Common Shares. The normal course issuer bid will terminate in November 2013.Going ForwardWe expect another year of strong light vehicle production in North America, driven by the ongoing strengthening of North American auto sales. In addition, we expect continued solid operating performance in our North America segment.We remain cautious about the macroeconomic environment in Europe, and expect Western Europe light vehicle production in 2013 to decline relative to 2012, representing the second straight year of decline. In addition, certain of our OEM customers have announced plant closures in Europe, and similar announcements by other customers and their European operations are possible. We have been taking, and will continue to take, restructuring actions in Europe, reflecting both our ongoing strategic assessment of our business and in response to OEM facility actions. During 2013, we expect to record additional restructuring charges of approximately $150 million. We do expect our restructuring and other operational improvement plans to yield improved operating results in Europe over time.We expect to generate improved results in our Rest of World segment, driven by lower new facility costs, as we launch new facilities, as well as by actions we are taking to increase operational efficiencies and integrate previous acquisitions in South America.FINANCIAL RESULTS SUMMARYDuring 2012, we posted sales of $30.84 billion, an increase of 7% from 2011. This higher sales level was a result of increases in our North American, Rest of World and European production sales and tooling, engineering and other sales partially offset by a decrease in our complete vehicle assembly sales. Comparing 2012 to 2011:North American vehicle production increased 18% and our North American production sales increased 10% to $15.34 billion;Western European vehicle production decreased 7% while our European production sales increased 2% to 8.79 billion;Rest of World production sales increased 31% to $1.84 billion;Complete vehicle assembly sales declined 5% to $2.56 billion, as complete vehicle assembly volumes decreased 5%; andTooling, engineering and other sales increased by 12% to $2.32 billion.During 2012, we earned income from operations before income taxes of $1.75 billion compared to $1.22 billion for 2011. Excluding Other Income and Expense recorded in 2012 and 2011, as discussed in the "Other Income" section, the $269 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 2011;productivity and efficiency improvements at certain facilities;lower costs incurred in preparation for upcoming launches;higher equity income;a $15 million revaluation gain in respect of asset-backed commercial paper ("ABCP");the recovery of due diligence costs;favourable settlement of certain commercial items;lower warranty costs of $3 million; andlower stock-based compensation.These factors were partially offset by:increased pre-operating costs incurred at new facilities;intangible asset amortization of $52 million related to the acquisition and re-measurement of E-Car;programs that ended production during or subsequent to 2011;a larger amount of employee profit sharing;higher incentive compensation;rising commodity costs;the loss on disposal of an investment;operational inefficiencies and other costs at certain facilities; andnet customer price concessions subsequent to 2011.During 2012, net income of $1.43 billion increased $411 million compared to 2011. Net income was impacted by Other Income and Expense, as discussed in the "Other Income" section and by the valuation allowances as discussed in the "Income Taxes" section. Other Income positively impacted net income in 2012 by $84 million and Other Expense negatively impacted net income in 2011 by $155 million, while the valuation allowances as discussed in the "Income Taxes" section positively impacted net income in 2012 by $89 million and in 2011 by $78 million. Excluding Other Income and Expense, after tax, and the valuation allowances as discussed in the "Income Taxes" section, net income for 2012 increased $161 million.During 2012, our diluted earnings per share increased $1.89 to $6.09 for 2012 compared to $4.20 for 2011. Other Income, after tax, positively impacted diluted earnings per share in 2012 by $0.35 and Other Expense, after tax, negatively impacted diluted earnings per share in 2011 by $0.65, both as discussed in the "Other Income" section, while the valuation allowances as discussed in the "Income Taxes" section positively impacted diluted earnings per share in 2012 and 2011 by $0.38 and $0.32, respectively. Excluding Other Income and Expense, after tax, and the valuation allowances as discussed in the "Income Taxes" section, the $0.83 increase in diluted earnings per share is 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 2012. The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of Common Shares, during or subsequent to 2011, pursuant to our normal course issuer bids and the cashless exercise of options.INDUSTRY TRENDS AND RISKSA 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 emissions, vehicle recyclability and vehicle safety;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 consolidation of automotive suppliers; andthe 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, the potential for a "currency war", 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 and thus vehicle production. 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 have announced plans to restructure their European operations, including through plant closures, while other OEMs may take similar actions. In light of the prevailing conditions in Europe, 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.A majority of our European sales are to three German-based OEMs - BMW, Volkswagen Group and Daimler. In recent quarters, these three customers have outperformed the Western European automotive market despite the recession in Europe, due in part to strong demand for their vehicles in Asia and North America. A deterioration of the sales of one or more of our three largest German-based customers could have a material adverse effect on our sales and profitability.In light of the amount of business we currently have with our largest customers in certain regions, our opportunities for incremental growth with these customers may be limited. The amount of business we have with Asian-based OEMs, including Toyota, Honda, Nissan and Hyundai/Kia, 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. Our inability to sustain or grow our business with OEMs 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.It is likely that we may 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 short-term 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.We believe we will have sufficient available cash to successfully execute our business plan, 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.While the North American automotive industry appears to have stabilized following the 2008-2009 recession, there is no certainty regarding the long-term financial health of our customers and suppliers. The bankruptcy or insolvency of a major customer or supplier to us could have a material adverse effect on our 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. 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 there is a shift away from the use of technologies in which we are investing, our costs may not be fully recovered. We may be placed at a competitive disadvantage if other technologies emerge as industry-leading technologies, which could have a material adverse effect on our profitability and financial condition.The failure of any major financial institutions in the future could adversely affect our ability, as well as our customers' and suppliers' ability, to access liquidity needed to support our operating activities. Additionally, the failure of a financial institution in which we invest our cash reserves or that is a counterparty in a derivatives transaction (primarily currency and commodities hedges) with us, could increase the risk that our cash reserves and amounts owing to us pursuant to derivative transactions may not be fully recoverable. Any of these risks could have an adverse effect on our financial condition.We recorded significant impairment charges related to goodwill, long-lived assets and future tax 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.Although we supply parts to all of the leading OEMs, a significant majority of our sales are to six such customers. 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 manufacturing opportunities in markets such as China, India, South America 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 and economic instability; 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.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 commodity price 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 have completed a number of acquisitions and may continue to do so in the future. In those product areas in which we have identified acquisitions as a key aspect of our business strategy, 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.We face ongoing pricing pressure, as well as pressure to absorb costs related to product design, engineering and tooling, as well as other items previously paid for directly by OEMs. Our inability to fully offset price concessions or costs previously paid for by OEMs could have an 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. 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 financial position; however, we cannot provide any assurance to this effect.We continue to pursue opportunities in areas that are complementary to our existing automotive design, engineering and manufacturing capabilities all in order to more efficiently use our capital assets, technological know-how and manufacturing capacity. Many "non-automotive" industries are subject to some of the same types of risks as our automotive business, including: sensitivity to economic conditions, cyclicality and technology risks. We also face a diverse number of competitors possessing varying degrees of financial and operational strength and experience in their industry. Failure to adequately understand the non-automotive businesses in which we pursue opportunities, including with respect to warranty issues, pricing and other factors, could have an adverse effect on our operations and 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 profitability.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 OPERATIONSAverage Foreign Exchange                        For the three months   For the year    ended December 31,    ended December 31,    2012  2011  Change   2012  2011  Change1 Canadian dollar equals U.S. dollars    1.010  0.978  + 3%   1.001  1.012  - 1%1 euro equals U.S. dollars    1.298  1.349  - 4%   1.286  1.392  - 8%1 British pound equals U.S. dollars    1.607  1.572  + 2%   1.585  1.604  - 1%                     The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct business and our U.S. dollar reporting currency. The significant changes in these foreign exchange rates for the three months and year ended December 31, 2012 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, holding gains and losses on transactions occurring in a currency other than an operation's functional currency, which are recorded in selling, general and administrative expenses, impact reported results.RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2012Sales                For the year        ended December 31,        2012    2011   ChangeVehicle Production Volumes (millions of units)             North America     15.471    13.137  + 18% Western Europe     12.689    13.671  - 7%Sales             External Production              North America    $15,336  $ 13,940  + 10%  Europe      8,786     8,651   + 2%  Rest of World      1,837     1,402  + 31% Complete Vehicle Assembly      2,561    2,690   - 5% Tooling, Engineering and Other      2,317    2,065  + 12%Total Sales    $30,837  $ 28,748   + 7%           External Production Sales - North AmericaExternal production sales in North America increased 10% or $1.40 billion to $15.34 billion for 2012 compared to $13.94 billion for 2011. The increase in external production sales is primarily as a result of:higher production volumes on certain existing programs;the launch of new programs during or subsequent to 2011, including the:Volkswagen Passat;Mercedes-Benz M-Class and GL-Class;Chevrolet Sonic; andDodge Dart;acquisitions completed during or subsequent to 2011, which positively impacted sales by $69 million; andan increase in content on certain programs.These factors were partially offset by:a decrease in content on certain programs, including the:Ford Escape; andRam Pickup;programs that ended production during or subsequent to 2011, including the:Ford Crown Victoria and Mercury Grand Marquis;Chevrolet HHR;Ford Ranger; andDodge Caliber;a decrease in reported U.S. dollar sales due to the weakening of the Canadian dollar against the U.S. dollar; andnet customer price concessions subsequent to 2011.External Production Sales - EuropeExternal production sales in Europe increased $135 million to $8.79 billion for 2012 compared to $8.65 billion for 2011. The increase in external production sales is primarily as a result of:the launch of new programs during or subsequent to 2011, including the:Range Rover Evoque;Kia Rio;Volkswagen up!, SEAT Mii and Skoda Citigo;Hyundai Solaris;Audi Q3; andMercedes-Benz B-Class;acquisitions completed during or subsequent to 2011, which positively impacted sales by $245 million, including BDW and ixetic; andan increase in content on certain programs.These factors were partially offset by:a decrease in reported U.S. dollar sales primarily as a result of the weakening of the euro against the U.S. dollar;lower production volumes on certain existing programs;a decrease in content on certain programs;programs that ended production during or subsequent to 2011; andnet customer price concessions subsequent to 2011.External Production Sales - Rest of WorldExternal production sales in Rest of World increased 31% or $435 million to $1.84 billion for 2012 compared to $1.40 billion for 2011, primarily as a result of:acquisitions completed during or subsequent to 2011, which positively impacted sales by $251 million, including ThyssenKrupp Automotive Systems Industrial do Brasil Ltda; ("TKASB");the launch of new programs during or subsequent to 2011, primarily in Brazil and China; andan increase in content on certain programs.These factors were partially offset by a $108 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.Complete Vehicle Assembly Sales                For the year       ended December 31,        2012    2011   ChangeComplete Vehicle Assembly Sales    $ 2,561  $ 2,690   - 5%Complete Vehicle Assembly Volumes (Units)             MINI Countryman, Mercedes-Benz G-Class, Peugeot RCZ             MINI Paceman and Aston Martin Rapide     123,602   130,343   - 5%              Complete vehicle assembly sales decreased 5% or $129 million to $2.56 billion for 2012 compared to $2.69 billion for 2011 while assembly volumes decreased 5% or 6,741 units.The decrease in complete vehicle assembly sales is primarily as a result of:a $202 million decrease in reported U.S. dollar sales as a result of the weakening of the euro against the U.S. dollar;a decrease in assembly volumes for the Peugeot RCZ; andthe end of production of the Aston Martin Rapide at our Magna Steyr facility during the second quarter of 2012.These factors were partially offset by:an increase in assembly volumes for the:Mercedes-Benz G-Class; andMINI Countryman; andthe launch of the MINI Paceman during the fourth quarter of 2012.Tooling, Engineering and Other SalesTooling, engineering and other sales increased 12% or $252 million to $2.32 billion for 2012 compared to $2.07 billion for 2011.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 C/Sedan/Hatch;Opel Cascada Convertible;Chevrolet Spin;Ford Escape;Infiniti hatchback program;Dodge Dart; andFord Transit.In 2011, the major programs for which we recorded tooling, engineering and other sales were the:MINI Countryman;Mercedes-Benz M-Class;Opel Calibra;Chery A6 Coupe;Chrysler 300C, Dodge Charger and Challenger;BMW X3;Peugeot RCZ;Ford Fusion;Dodge Journey;Skoda Fabia; andChevrolet Camaro.In addition, tooling, engineering and other sales were negatively impacted by the weakening of the euro against the U.S. dollar.Cost of Goods Sold and Gross Margin                 For the year      ended December 31,       2012    2011Sales      $ 30,837  $ 28,748Cost of goods sold            Material        19,706    18,533 Direct labour        2,044    1,912 Overhead        5,260     4,989       27,010     25,434Gross margin      $ 3,827  $ 3,314Gross margin as a percentage of sales       12.4%    11.5%            Cost of goods sold increased $1.58 billion to $27.01 billion for 2012 compared to $25.43 billion for 2011 primarily as a result of:higher material, overhead and labour costs associated with the increase in sales, including wage increases at certain operations;$552 million related to acquisitions completed during or subsequent to 2011, including TKASB and BDW;a larger amount of employee profit sharing; andrising commodity costs.These factors were partially offset by:a decrease in reported U.S. dollar cost of goods sold primarily due to the weakening of the euro, Brazilian real, Canadian dollar and Czech koruna, each against the U.S. dollar; andlower warranty costs of $3 million.Gross margin increased $513 million to $3.83 billion for 2012 compared to $3.31 billion for 2011 and gross margin as a percentage of sales increased to 12.4% for 2012 compared to 11.5% for 2011. The increase in gross margin as a percentage of sales was substantially due to:lower costs incurred in preparation for upcoming launches;favourable settlement of certain commercial items;lower warranty costs; andproductivity and efficiency improvements at certain facilities.These factors were partially offset by:increased pre-operating costs incurred at new facilities;an increase in tooling, engineering and other sales that have low or no margins;rising commodity costs;a larger amount of employee profit sharing;operational inefficiencies and other costs at certain facilities; andnet customer price concessions subsequent to 2011.Depreciation and AmortizationDepreciation and amortization costs increased $115 million to $801 million for 2012 compared to $686 million for 2011. The higher depreciation and amortization was primarily as a result of:intangible asset amortization of $52 million related to the acquisition and re-measurement of E-Car;$48 million related to acquisitions completed during or subsequent to 2011, including BDW, TKASB and E-Car;capital spending during or subsequent to 2011; anddepreciation related to new facilities.These factors were partially offset by a decrease in reported U.S. dollar depreciation and amortization due to the weakening of the euro, Brazilian real and Canadian dollar, each against the U.S. dollar.Selling, General and Administrative ("SG&A")SG&A expense as a percentage of sales was 4.9% for 2012 compared to 4.8% for 2011. SG&A expense increased $137 million to $1.52 billion for 2012 compared to $1.38 billion for 2011 primarily as a result of:$78 million related to acquisitions completed during or subsequent to 2011, including TKASB, BDW, E-Car and ixetic;higher labour, including wage increases at certain operations, and other costs to support the growth in sales;higher incentive compensation;increased costs incurred at new facilities;a loss on disposal of an investment; andhigher employee profit sharing.These factors were partially offset by:a decrease in reported U.S. dollar SG&A due to the weakening of the euro, Brazilian real, Czech koruna and Polish zloty, each against the U.S. dollar;a $15 million revaluation gain in respect of ABCP; andthe recovery of due diligence costs.Equity IncomeEquity income increased $30 million to $151 million for 2012 compared to $121 million for 2011. Excluding the $31 million reduction in the equity loss related to E-Car, the $1 million decrease in equity income is primarily as a result of the disposal of an equity accounted investment during 2011 partially offset by higher income from most of our equity accounted investments.Other (Income) Expense, netDuring 2012 and 2011, we recorded Other Income and Expense items as follows:     2012   2011 OperatingIncomeNetIncomeDilutedEarningsper ShareOperatingIncomeNetIncomeDilutedEarningsper ShareFourth Quarter                          Re-measurement gain of STT (1)    $(35)  $ (35)  $  (0.15)  $ —  $ —  $— Impairment charges (2)      25     23      0.10     21     20     0.08 Restructuring charges (2)      55     53      0.23     —     —     — Loss on disposal of facility (3)      —     —      —     16     16     0.07 Customer bankruptcy (4)      —     —      —     11     11     0.05 Insurance proceeds (5)      —     —      —     (15)     (15)     (0.06)     45     41     0.18     33     32     0.14Third Quarter                          Re-measurement gain of E-Car (1)      (153)     (125)      (0.53)     —     —     — Loss on disposal of facility (3)      —     —      —     113     113     0.47 Settlement agreement (6)      —     —      —     11     11     0.05     (153)     (125)     (0.53)     124     124     0.52Second Quarter                          Gain on disposal (7)      —     —      —     (10)     (10)     (0.04)First Quarter                          Write down of real estate (8)      —     —     —     9     9     0.04                          Total full year other (income)                           expense, net    $(108)  $ (84)  $  (0.35)  $ 156  $ 155  $ 0.65                          (1) 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 net of $13 million cash acquired. 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 a 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.(ii) Magna E-Car Systems LPOn 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. The purchase was reviewed, negotiated and approved by our independent directors with the benefit of independent legal advice from Fasken Martineau DuMoulin LLP, independent financial advice from TD Securities Inc. ("TD") and an independent valuation prepared by PricewaterhouseCoopers LLP ("PwC"). The purchase price represents the midpoint of the valuation range determined by PwC and TD delivered a fairness opinion to the independent directors to the effect that the transaction is fair, from a financial point of view, to the Company.Prior to the acquisition, we 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. 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).In addition, the preliminary purchase equation of the incremental investment in E-Car allocated $210 million to intangible assets. The intangible assets are primarily customer relationships and 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, we have determined that the intangible assets should be amortized on a straight-line basis over the period ending December 31, 2013.(2) Restructuring and Impairment ChargesDuring 2012 and 2011, we recorded long-lived asset impairment charges as follows:       2012      2011OperatingIncomeNetIncomeOperating IncomeNet IncomeFourth Quarter                      North America      $ 2   $  1  $ 7   $  7 Europe        23      22    14     13Total full year impairment charges      $ 25   $  23   $ 21   $  20                      [a] For the year ended December 31, 2012(i)     Impairments of Long-lived AssetsIn conjunction with our annual business planning cycle, during the fourth quarter of 2012, we completed our annual goodwill impairment and long-lived asset analysis and recorded long-lived asset impairment charges of $25 million.In Europe, the impairment charges related primarily to fixed assets at our exteriors and interior systems operations.(ii)     Restructuring CostsAs a result of continuing economic uncertainty in Europe, 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 certain European markets in order to remain cost competitive over the long-term. As a result, 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.Furthermore, based on our review above and subject to commercial settlements with stakeholders, during 2013 we expect to record additional restructuring charges of approximately $150 million.Substantially all of these restructuring costs remain to be paid subsequent to 2012.[b] For the year ended December 31, 2011(i)     Impairments of Long-lived AssetsIn North America, we recorded impairment charges of $7 million related to a roof systems facility in the United States. In Europe, we recorded long-lived asset impairment charges of $7 million related to exteriors and interiors systems facilities, one in each of Spain and Belgium, and in Germany we recorded long-lived asset impairment charges of $7 million related to an electronics facility and a roof systems operation.(3) Loss on disposal of facilityDuring the third quarter of 2011, we sold an interior systems operation located in Germany and recorded a loss on disposal of $113 million. This operation, whose long-lived assets were substantially impaired in 2010, had a history of losses which were projected to continue throughout the business planning period. Under the terms of the 2011 sale arrangements (the "SPA"), we agreed to fund the buyer $67 million, to be satisfied with certain working capital items, cash and the assumption of certain liabilities. The remaining net assets of the operation of $26 million were assigned no value by the buyer and accordingly, were expensed as part of the total loss on disposal. Simultaneously, we reached a commercial settlement with one of the facility's customers regarding the cancellation of certain production orders whereby we reimbursed the customer costs of $20 million.Final settlement of the SPA did not occur during 2011 and in the fourth quarter of 2011 an additional $16 million was accrued in relation to the ongoing disputes with the purchaser bringing the total loss on disposal to $129 million.As more fully described in Note 5 of our unaudited interim consolidated financial statements, on June 4, 2012, we re-acquired the above operation.(4) Customer bankruptcyDuring 2011, we recorded an $11 million charge related to the insolvency of Saab.(5) Insurance proceedsDuring 2011, we received proceeds pursuant to an insurance claim for fire damages related to an interior systems facility in the United States. The proceeds received were $15 million in excess of the damaged assets net book value and the losses previously recognized and was recorded in income.(6) Settlement agreementDuring 2011, a settlement agreement was finalized in connection with the settlement of certain patent infringement and other claims. We recorded an $11 million expense in the third quarter of 2011 in relation to these arrangements.(7) Gain on disposalDuring 2011, we sold our 40% non-controlling interest in an equity accounted investment for $151 million and realized a $10 million gain on the disposition.(8) Write down of real estateDuring 2011, five excess corporate real estate assets were sold to entities associated with our Founder and Honorary Chairman, Mr. Stronach and/or our former Co-Chief Executive Officer, Siegfried Wolf. Based on the appraisals obtained by the former Corporate Governance and Compensation Committee, the appraised fair value range for the properties was less than their carrying value and, accordingly, we recorded a $9 million impairment charge in the second quarter of 2011. The sales were approved by the independent members of our Board of Directors based on the recommendation of the former Corporate Governance and Compensation Committee and were completed during 2011.Segment AnalysisGiven the differences between the regions in which we operate, our operations are segmented on a geographic basis between North America, Europe and Rest of World. Consistent with the above, our internal financial reporting segments key internal operating performance measures between North America, Europe 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 (income), net; and other (income) expense, net.As more fully described in Notes 2 and 5 of our unaudited interim consolidated financial statements for the three months and year ended December 31, 2012, on August 31, 2012 we acquired the controlling 27% interest in the E-Car partnership. Prior to the acquisition, we held the remaining 73% non-controlling interest in E-Car and accounted for this investment using the equity method of accounting. For segment reporting purposes, prior to the closing date we recorded our proportionate share of the losses of E-Car in the Corporate and Other segment. Beginning on August 31, 2012, the consolidated results of E-Car are recorded in our North America and Europe segments as follows:     For the three months ended   For the four months ended      December 31, 2012   December 31, 2012 NorthAmericaEuropeTotal   NorthAmericaEuropeTotalTotal Sales    $ 9  $ 9  $ 18  $ 12  $ 12  $ 24Adjusted EBIT    $ (59)  $ (4)  $ (63)  $ (76)  $ (6)  $ (82)Amortization of E-car Intangibles                           included in Adjusted EBIT    $ (39)  $ —  $ (39)  $ (52)  $ —  $ (52)                                For the year ended December 31,      External Sales   Adjusted EBIT     2012    2011    Change    2012    2011   ChangeNorth America    $ 16,241  $ 14,764  $ 1,477  $ 1,521  $ 1,373  $ 148Europe      12,563     12,429     134     165     (22)     187Rest of World      2,010     1,506     504     (28)     56     (84)Corporate and Other      23     49     (26)     —     (40)     40Total reportable                          segments    $ 30,837  $ 28,748  $ 2,089  $ 1,658  $1,367  $291                           Excluded from Adjusted EBIT for 2012 and 2011 were the following Other Income and Expense items, which have been discussed in the "Other Income" section.For the yearended December 31,             2012     2011North America                   Re-measurement gain of STT           $  (35)  $  — Impairment charges              2      7 Settlement agreement              —      11 Insurance proceeds              —      (15)             (33)      3Europe                   Impairment charges              23      14 Restructuring charges              55      — Loss on disposal of facility              —      129 Customer bankruptcy              —      11             78      154Corporate and Other                   Re-measurement gain of E-Car             (153)      — Gain on disposal of investment              —      (10) Write down of real estate              —      9             (153)      (1)           $  (108)  $  156                   North AmericaAdjusted EBIT in North America increased $148 million to $1.52 billion for 2012 compared to $1.37 billion for 2011 primarily as a result of:margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;lower costs incurred in preparation for upcoming launches; andproductivity and efficiency improvements at certain facilities.These factors were partially offset by:intangible asset amortization of $52 million related to the acquisition and re-measurement of E-Car;programs that ended production during or subsequent to 2011;increased pre-operating costs incurred at new facilities;operational inefficiencies and other costs at certain facilities;higher affiliation fees paid to corporate;higher warranty costs of $13 million;a larger amount of employee profit sharing;higher incentive compensation; andnet customer price concessions subsequent to 2011.EuropeAdjusted EBIT in Europe increased $187 million to $165 million for 2012 compared to a loss of $22 million for 2011 primarily as a result of:lower warranty costs of $16 million;productivity and efficiency improvements at certain facilities;favourable settlement of certain commercial items;higher equity income; andlower costs incurred in preparation for upcoming launches.These factors were partially offset by:a larger amount of employee profit sharing;rising commodity costs;higher affiliation fees paid to corporate;programs that ended production during or subsequent to the fourth quarter of 2011;higher pre-operating costs incurred at new facilities;higher incentive compensation; andoperational inefficiencies and other costs at certain facilities.Rest of WorldRest of World Adjusted EBIT decreased $84 million to a loss of $28 million for 2012 compared to income of $56 million for 2011 primarily as a result of:higher costs related to new facilities;operational inefficiencies and other costs at certain facilities, substantially at certain facilities in South America, including the inability to recover inflationary related cost increases from our customers;higher affiliation fees paid to Corporate; andnet customer price concessions subsequent to the fourth quarter of 2011.These factors were partially offset by:higher equity income; andlower launch costs.Corporate and OtherCorporate and Other Adjusted EBIT increased $40 million to $nil for 2012 compared to a loss of $40 million for 2011. The loss related to our equity accounted investment in E-Car included in Corporate and Other was $35 million for 2012 and $66 million for 2011. Excluding E-Car, Corporate and Other Adjusted EBIT increased $9 million to $35 million for 2012 compared to $26 million for 2011 primarily as a result of:an increase in affiliation fees earned from our divisions;a $15 million revaluation gain in respect of ABCP;the recovery of due diligence costs; andlower stock-based compensation.These factors were partially offset by:higher incentive compensation;lower equity income;a loss on disposal of an investment; anda larger amount of employee profit sharing.Interest Expense (Income), netDuring 2012, we recorded net interest expense of $16 million compared to net interest income of $6 million for 2011. The increase in interest expense is primarily as a result of:an increase in interest expense as a result of higher debt in Asia Pacific and South America;lower interest income; andinterest expense on debt assumed as part of the BDW acquisition.Income from Operations before Income TaxesIncome from operations before income taxes increased $533 million to $1.75 billion for 2012 compared to $1.22 billion for 2011. Excluding Other Income and Expense, discussed in the "Other Income" section, income from operations before income taxes for 2012 increased $269 million. The increase in income from operations before income taxes is the result of the increase in EBIT partially offset by the increase in net interest expense, as discussed above.Income TaxesFor the year ended December 31, 2012, we had valuation allowances against our deferred tax assets in the United Kingdom and Germany. These valuation allowances were required based on 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, certain divisions in the United Kingdom have delivered sustained profits. 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. The BDW and ixetic acquisitions in 2012 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.For the year ended December 31, 2011, we had valuation allowances against all of our deferred tax assets in the United States. The U.S. valuation allowances were required based on 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. During 2010 and 2011, our United States operations delivered sustained profits. Based on financial forecasts and the continued anticipated growth for the U.S. market, we released $78 million of the U.S. valuation allowances in the fourth quarter of 2011. As at December 31, 2012, we have remaining U.S. valuation allowances of $94 million, relating to deferred tax assets with restrictions on their usability.The effective income tax rate on income from operations before income taxes was 18.5% for 2012 compared to 16.6% for 2011. In 2012 and 2011, income tax rates were impacted by the items discussed in the "Other Income" section and the valuation allowances described above. Excluding Other Income and Expense, after tax, and the valuation allowances, the effective income tax rate increased to 23.7% for 2012 compared to 20.5% for 2011 primarily as result of a reduction in the utilization of unbenefited losses in the United States partially offset by a decrease in losses not benefited in Europe and permanent items.Net IncomeNet income of $1.43 billion for 2012 increased $411 million compared to 2011. Excluding Other Income and Expense, after tax, discussed in the "Other Income" section, net income increased $161 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, both as discussed above.Net Loss Attributable to Non-controlling InterestsThe net loss attributable to non-controlling interests of $7 million for 2012 increased $4 million compared to 2011.Net Income attributable to Magna International Inc.Net income attributable to Magna International Inc. of $1.43 billion for 2012 increased $415 million compared to 2011. Excluding Other Income and Expense, after tax, discussed in the "Other Income" section, net income attributable to Magna International Inc. increased $165 million as a result of the increases in net income and net loss attributable to non-controlling interests, both as discussed above.Earnings per Share     For the year           ended December 31,          2012   2011    ChangeEarnings per Common Share               Basic   $6.17$   4.26   +45% Diluted    $6.09$  4.20   +45%Average number of Common Shares outstanding (millions) Basic     232.4   239.3   -3% Diluted     235.2   242.8   -3%Diluted earnings per share increased $1.89 to $6.09 for 2012 compared to $4.20 for 2011. Other Income, after tax, positively impacted diluted earnings per share in 2012 by $0.35 and Other Expense negatively impacted diluted earnings per share in 2011 by $0.65, both as discussed in the "Other Income" section, while the valuation allowances as discussed in the "Income Taxes" section positively impacted diluted earnings per share in 2012 and 2011 by $0.38 and $0.32, respectively. Excluding Other Income and Expense, after tax, and the valuation allowances as discussed in the "Income Taxes" section, the $0.83 increase in diluted earnings per share is 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 2012.The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of Common Shares, during or subsequent to 2011, pursuant to our normal course issuer bids and the cashless exercise of options.FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCESCash Flow from Operations     For the year           ended December 31,           2012   2011    ChangeNet income   $ 1,426  $1,015     Items not involving current cash flows      708   826          2,134   1,841   $ 293Changes in non-cash operating assets and liabilities      72   (631)     Cash provided from operating activities    $ 2,206  $ 1,210   $ 996Cash flow from operations before changes in non-cash operating assets and liabilities increased $293 million to $2.13 billion for 2012 compared to $1.84 billion for 2011. The increase in cash flow from operations was due to a $411 million increase in net income, as discussed above, partially offset by a $118 million decrease in items not involving current cash flows. Items not involving current cash flows are comprised of the following:     For the year      ended December 31,      2012  2011Depreciation and amortization      $ 801 $ 686Other non-cash charges        154  110Amortization of other assets included in cost of goods sold      113  80Deferred income taxes        (46)  (76)Equity income        (151)  (121)Non-cash portion of Other expense (income), net        (163)  147Items not involving current cash flows      $ 708 $ 826Cash provided from non-cash operating assets and liabilities amounted to $72 million for 2012 compared to cash invested of $631 million for 2011. The change in non-cash operating assets and liabilities is comprised of the following sources (and uses) of cash:     For the year      ended December 31,      2012  2011Accounts receivable      $ (46) $ (909)Inventories        (315)  (282)Prepaid expenses and other        36  (49)Accounts payable        249  475Accrued salaries and wages        37  80Other accrued liabilities       97  87Income taxes payable        16  (29)Deferred revenue        (2)  (4) Changes in non-cash operating assets and liabilities      $ 72 $ (631)The increase in inventories in 2012 was primarily due to higher tooling inventory and increased production inventory to support launch activities. The increase in accounts payable in 2012 was primarily due to increased production activities at the end of 2012 and the timing of payments.Capital and Investment Spending     For the year           ended December 31,           2012   2011    ChangeFixed asset additions    $ (1,274)  $ (1,236)     Investments and other assets      (122)   (196)     Fixed assets, investments and other assets additions     (1,396)   (1,432)     Purchase of subsidiaries      (525)   (120)     Disposal of facility      ―   112     Proceeds from disposition      106   168     Cash used for investment activities    $ (1,815)  $ (1,272)   $ (543)Fixed assets, investments and other assets additionsIn 2012, we invested $1.27 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 2012 was for facilities and manufacturing equipment for programs that will be launching subsequent to 2012. Consistent with our strategy to expand in developing markets, approximately 24% (2011 - 23%) of this investment was in China, India, Brazil and Russia.In 2012, we invested $113 million in other assets related primarily to fully reimbursable engineering costs and tooling for programs that launched during 2012 or will be launching subsequent to 2012, as well as $9 million in equity accounted investments.Purchase of subsidiariesDuring 2012, we invested $525 million to purchase subsidiaries, including the acquisition 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; andBDW, 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 2011, we invested $120 million to purchase subsidiaries, including the acquisition of TKASB, which consists of four manufacturing facilities in Brazil that assemble chassis structural components and modules. The acquired business has sales to Ford, Fiat, Renault Nissan, Honda and PSA.Proceeds from dispositionThe $106 million of proceeds include:normal course fixed and other asset disposals;$18 million cash proceeds received with respect to the sale of non-core real estate; and$9 million cash proceeds received with respect to the disposal of ABCP.Financing     For the year          ended December 31,          2012   2011    ChangeIncrease in bank indebtedness    $ 42  $ 38    Repayments of debt      (309)   (47)    Issues of debt      348   146    Settlement of stock options      (19)   (30)    Issue of Common Shares      14   59    Contribution to subsidiaries by non-controlling interest     ―   20    Repurchase of Common Shares      (40)   (407)    Dividends paid      (252)   (236)    Cash used for financing activities    $ (216)   $ (457)  $ 241Repayments of debt for 2012 relate primarily to BDW and Pabsa S.A. debt payments subsequent to acquisition and repayments of our term lines of credit in our Rest of World segment, while issues of debt relates primarily to higher debt levels in our Rest of World segment.During 2012, our Honorary Chairman and Founder, Mr. Stronach, exercised 900,001 options on a cashless basis in accordance with the applicable stock option plans. On exercise, cash payments totalling $15 million were made to Mr. Stronach 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.During 2012, we repurchased 0.8 million Common Shares for an aggregate purchase price of $40 million under our normal course issuer bid.Cash dividends paid per Common Share were $1.10 for 2012, for a total of $252 million.Financing Resources     As at   As at         December 31,  December 31,         2012   2011     ChangeLiabilities             Bank indebtedness    $ 71  $ 36     Long-term debt due within one year      249  151     Long-term debt      112  46         432  233    Non-controlling interest      29  27    Shareholders' equity      9,429  8,175    Total capitalization    $ 9,890  $ 8,435  $ 1,455Total capitalization increased by $1.45 billion to $9.89 billion at December 31, 2012 compared to $8.44 billion at December 31, 2011, primarily as a result of a $1.25 billion increase in shareholders' equity and a $199 million increase in liabilities.The increase in shareholders' equity was primarily as a result of net income earned in 2012 partially offset by dividends paid.The increase in liabilities relates primarily to an increase in debt in our Rest of World segment and debt assumed in connection with the BDW acquisition.Cash ResourcesDuring 2012, our cash resources increased by $197 million to $1.52 billion as a result of the cash provided from operating activities and the favourable effect of foreign exchange partially offset by cash used for investing and financing activities, as discussed above. In addition to our cash resources at December 31, 2012, we had term and operating lines of credit totalling $2.48 billion of which $2.05 billion was unused and available.Maximum Number of Shares IssuableThe following table presents the maximum number of shares that would be outstanding if all of the outstanding options at February 28, 2013 were exercised:Common Shares                                                  233,363,125Stock options (i) 6,355,900 239,719,025(i) Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to our stock option plans. Contractual Obligations and Off-Balance Sheet FinancingA 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, 2012, we had contractual obligations requiring annual payments as follows:         2014-   2016-             2013   2015   2017   Thereafter   TotalOperating leases    $ 318  $ 543  $ 437  $ 336  $ 1,634Long-term debt      249   55   32   24   360Unconditional Purchase Obligations:                      Materials and Services      1,498   118   8   7   1,631 Capital      192   37   9   1    239Total contractual obligations    $ 2,257  $ 753  $ 486  $ 368  $ 3,864Our unfunded obligations with respect to employee future benefit plans, which have been actuarially determined, were $569 million at December 31, 2012. These obligations are as follows:             Termination and         Pension   Retirement   Long Service         Liability   Liability   Arrangements   TotalProjected benefit obligation     $ 521  $ 41  $ 296  $ 858Less plan assets        (289)    —   —   (289)Unfunded amount      $ 232  $ 41  $ 296  $ 569Our 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 2012 for facilities were $277 million. Operating lease commitments in 2013 for facilities are expected to be $274 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 $48 million for 2012, and are expected to be $44 million in 2013.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 ActivitiesOur 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 an adverse effect on our profitability and financial condition (as discussed throughout this MD&A).RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED DECEMBER 31, 2012Sales                   For the three months          ended December 31,           2012   2011    ChangeVehicle Production Volumes (millions of units)               North America     3.846   3.438   + 12% Western Europe     3.120   3.391   - 8%Sales               External Production                North America    $ 3,878  $ 3,462   + 12%  Europe      2,209   2,167   + 2%  Rest of World      521   386   + 35% Complete Vehicle Assembly      697   625   + 12% Tooling, Engineering and Other      728    611   + 19%Total Sales    $ 8,033  $ 7,251   +11%External Production Sales - North AmericaExternal production sales in North America increased 12% or $416 million to $3.88 billion for the fourth quarter of 2012 compared to $3.46 billion for the fourth quarter of 2011. The increase in external production sales is 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 2011, including the:Ford Fusion and Lincoln MKZ;Cadillac ATS; andDodge Dart;an increase in reported U.S. dollar sales due to the strengthening of the Canadian dollar against the U.S. dollar;growth in sales for non-traditional markets; andacquisitions completed during or subsequent to the fourth quarter of 2011, which positively impacted sales by $24 million.These factors were partially offset by:programs that ended production during or subsequent to the fourth quarter of 2011, including the:Jeep Liberty; andMazda 6;a decrease in content on certain programs, including the Ford Escape; andnet customer price concessions subsequent to the fourth quarter of 2011.External Production Sales - EuropeExternal production sales in Europe increased 2% or $42 million to $2.21 billion for the fourth quarter of 2012 compared to $2.17 billion for the fourth quarter of 2011. The increase in external production sales is primarily as a result of:the launch of new programs during or subsequent to the fourth quarter of 2011, including the:Ford Transit Custom;Kia Rio;Mercedes-Benz B-Class;Volkswagen up!, SEAT Mii and Skoda Citigo; andFord Kuga; andacquisitions completed during or subsequent to the fourth quarter of 2011, which positively impacted sales by $120 million, including BDW, the re-acquisition of an interiors systems operation and ixetic.These factors were partially offset by:lower production volumes on certain existing programs;a decrease in reported U.S. dollar sales primarily as a result of the weakening of the euro against the U.S. dollar; andnet customer price concessions subsequent to the fourth quarter of 2011.External Production Sales - Rest of WorldExternal production sales in Rest of World increased 35% or $135 million to $521 million for the fourth quarter of 2012 compared to $386 million for the fourth quarter of 2011, primarily as a result of:the launch of new programs during or subsequent to the fourth quarter of 2011, primarily in China and Brazil;acquisitions completed during or subsequent to the fourth quarter of 2011, which positively impacted sales by $47 million, including TKASB; andan increase in content on certain programs.These factors were partially offset by a $20 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.Complete Vehicle Assembly Sales     For the three months          ended December 31,           2012   2011    ChangeComplete Vehicle Assembly Sales    $ 697  $ 625   + 12%Complete Vehicle Assembly Volumes (Units)              MINI Countryman, Peugeot RCZ, Mercedes-Benz G-Class              MINI Paceman and Aston Martin Rapide     31,450   29,878   + 5% Complete vehicle assembly sales increased 12% or $72 million to $697 million for the fourth quarter of 2012 compared to $625 million for the fourth quarter of 2011 while assembly volumes increased 5% or 1,572 units.The increase in complete vehicle assembly sales is primarily as a result of:an increase in assembly volumes and favourable content for the Mercedes-Benz G-Class;an increase in assembly volumes for the  MINI Countryman; andthe launch of the MINI Paceman during the fourth quarter of 2012.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;a $28 million decrease in reported U.S. dollar sales as a result of the weakening of the euro against the U.S. dollar; anda decrease in assembly volumes for the Peugeot RCZ.Tooling, Engineering and Other SalesTooling, engineering and other sales increased 19% or $117 million to $728 million for the fourth quarter of 2012 compared to $611 million for the fourth quarter of 2011.In the fourth quarter of 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!; andFord Escape.In the fourth quarter of 2011, the major programs for which we recorded tooling, engineering and other sales were the:Ford Fusion;MINI Countryman;Chery A6 Coupe;Peugeot RCZ;Audi A1;Mercedes-Benz SLS;BMW 6-Series; andOpel Calibra.In addition, tooling, engineering and other sales were negatively impacted by the weakening of the euro against the U.S. dollar.Segment Analysis  For the three months ended December 31,   External Sales      Adjusted EBIT   2012  2011   Change     2012  2011 ChangeNorth America $ 4,098 $ 3,650  $ 448    $ 373  $ 335$ 38Europe   3,333   3,165   168    24   (3) 27Rest of World   596  425  171    (8)   14 (22)Corporate and Other   6  11  (5)     (2)   (25) 23 Total reportable                   segments $ 8,033 $ 7,251 $ 782   $ 387 $ 321$ 66Excluded from Adjusted EBIT for the fourth quarters of 2012 and 2011 were the following Other Income and Expense items, which have been discussed in the "Other Income" section.     For the three months      ended December 31,      2012   2011North America          Re-measurement gain of STT   $ (35)   $ — Impairment charges      2   7 Insurance proceeds     —   (15)     (33)   (8)Europe          Impairment charges      23   14 Restructuring charges      55   — Loss on disposal of facility     —   16 Customer bankruptcy      —   11     78   41    $ 45  $ 33North AmericaAdjusted EBIT in North America increased $38 million to $373 million for the fourth quarter of 2012 compared to $335 million for the fourth quarter of 2011 primarily as a result of:margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;lower costs incurred in preparation for upcoming launches; andproductivity and efficiency improvements at certain facilities.These factors were partially offset by:intangible asset amortization of $39 million related to the acquisition and re-measurement of E-Car;programs that ended production during or subsequent to the fourth quarter of 2011;higher warranty costs of $6 million;increased pre-operating costs incurred at new facilities;higher restructuring and downsizing costs;higher affiliation fees paid to corporate;a larger amount of employee profit sharing;operational inefficiencies and other costs at certain facilities; andnet customer price concessions subsequent to the fourth quarter of 2011.EuropeAdjusted EBIT in Europe increased $27 million to $24 million for the fourth quarter of 2012 compared to a loss of $3 million for the fourth quarter of 2011 primarily as a result of:productivity and efficiency improvements at certain facilities;a smaller amount of employee profit sharing;lower restructuring and downsizing costs; andhigher equity income.These factors were partially offset by:higher warranty costs of $6 million;increased pre-operating costs incurred at new facilities;the net effect of the disposition during the third quarter of 2011 and subsequent acquisition in the third quarter of 2012 of an interior systems operation;rising commodity costs;higher affiliation fees paid to corporate;higher costs incurred in preparation for upcoming launches;operational inefficiencies and other costs at certain facilities; andprograms that ended production during or subsequent to the fourth quarter of 2011.Rest of WorldRest of World Adjusted EBIT decreased $22 million to a loss of $8 million for the fourth quarter of 2012 compared to income of $14 million for the fourth quarter of 2011 primarily as a result of:higher costs related to new facilities;operational inefficiencies and other costs at certain facilities, in particular at certain facilities in South America;higher affiliation fees paid to Corporate; andnet customer price concessions subsequent to the fourth quarter of 2011.These factors were partially offset by:lower warranty costs of $3 million; andhigher equity income.Corporate and OtherCorporate and Other Adjusted EBIT increased $23 million to a loss of $2 million for the fourth quarter of 2012 compared to a loss of $25 million for the fourth quarter of 2011. The loss related to our equity accounted investment in E-Car included in Corporate and Other was $13 million for the fourth quarter of 2011. Excluding E-Car, Corporate and Other Adjusted EBIT increased $10 million to a loss of $2 million for the fourth quarter of 2012 compared to a loss of $12 million for the fourth quarter of 2011 primarily as a result of:an increase in affiliation fees earned from our divisions; anda $2 million revaluation gain in respect of ABCP.These factors were partially offset by:higher stock-based compensation; andhigher incentive compensation.FUTURE CHANGES IN ACCOUNTING POLICIESIntangiblesIn July 2012, the FASB issued 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. This new standard will be effective for us in the first quarter of 2013. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.COMMITMENTS AND CONTINGENCIESFrom time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other claims.Refer to note 17 of our unaudited interim consolidated financial statements for the three months and year ended December 31, 2012, 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, 2011.CONTROLS AND PROCEDURESChanges in Internal Controls over Financial ReportingThere have been no changes in our internal controls over financial reporting that occurred during 2012 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 expected light vehicle production and operating performance in North America and Europe; implementation of improvement plans in our underperforming operations, and/or restructuring actions, particularly in Europe; improved future results in ROW and Europe; the impact to Adjusted EBIT of new facilities launches and acquisitions in Rest of World, particularly Asia and South America; the future growth of the automotive pump market and the potential benefits expected to be achieved from our acquisitions of ixetic Verwaltungs GmbH and the remaining 50% interest in STT Technologies Inc.; the integration of and potential benefits expected to be achieved from our completed acquisition of the outstanding 27% interest in Magna E-Car Systems; and future purchases of our Common Shares under the 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; risks arising from the recession in Europe, including the potential for a deterioration of sales of our three largest German-based OEM customers; 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; our ability to successfully launch material new or takeover business; liquidity risks; bankruptcy or insolvency of a major customer or supplier; 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; a shift away from technologies in which we are investing; risks arising due to the failure of a major financial institution; impairment charges related to goodwill, long-lived assets and deferred tax assets; 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, India, South America and other non-traditional markets for us; 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; ongoing pricing pressures, including our ability to offset price concessions demanded by our customers; warranty and recall costs; risks related to natural disasters and potential production disruptions; factors that could cause an increase in our pension funding obligations; legal claims and/or regulatory actions against us; our ability to understand and compete successfully in non-automotive businesses in which we pursue opportunities; 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.CONSOLIDATED STATEMENTS OF INCOME[Unaudited][U.S. dollars in millions, except per share figures]   Three months ended    Year ended    December 31,    December 31,  Note  2012    2011   2012    2011Sales   $ 8,033   $ 7,251  $ 30,837   $ 28,748Costs and expenses               Cost of goods sold    7,038   6,419  27,010    25,434 Depreciation and amortization    243   179  801   686 Selling, general and administrative 13  409   360  1,519   1,382 Interest expense (income), net   1   (3)  16   (6) Equity income    (44)   (28)   (151)    (121) Other expense (income), net 2  45   33   (108)   156Income from operations before income taxes   341   291  1,750   1,217Income taxes 12  (9)   (20)  324   202Net income    350   311  1,426   1,015Net loss attributable to non-controlling interests   1   1   7   3Net income attributable to Magna International Inc.   $ 351  $ 312  $ 1,433   $ 1,018Earnings per Common Share: 3              Basic   $1.51   $ 1.33 $ 6.17   $ 4.26 Diluted   $ 1.49  $ 1.32   $ 6.09   $ 4.20Cash dividends paid per Common Share   $ 0.275  $ 0.250  $ 1.100  $ 1.000Average number of Common Shares outstanding duringthe period [in millions]:3              Basic    232.0   234.5  232.4   239.3 Diluted     234.8   236.9  235.2   242.8See accompanying notes CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME[Unaudited][U.S. dollars in millions]   Three months ended   Year ended    December 31,    December 31,  Note  2012   2011   2012  2011Net income   $ 350 $ 311 $ 1,426 $ 1,015Other comprehensive income (loss), net of tax: 15            Net unrealized gain (loss) on translation of net investmentin foreign operations   56  (61)   88  (171) Net unrealized (loss) gain on available-for-sale investments    (2)   3   (4)  (6) Net unrealized (loss) gain on cash flow hedges    (1)   (2)  75   (41) Reclassification of net (gain) loss on cash flow hedgesto net income    (11)  6   (18)  (22) Reclassification of net gain on pensions to net income    (42)   —   (42)   — Pension and post retirement benefits    (19)  (50)  (19)  (49)Other comprehensive (loss) income   (19)   (104)  80  (289)Comprehensive income   331  207  1,506  726Comprehensive (income) loss attributable to non-controllinginterests    (1)  -  5  3Comprehensive income attributable to Magna International Inc.   $ 330  $ 207  $ 1,511 $ 729See accompanying notesMAGNA INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CASH FLOWS[Unaudited][U.S. dollars in millions]   Three months ended     Year ended    December 31,     December 31,  Note  2012   2011   2012   2011Cash provided from (used for):                         OPERATING ACTIVITIES            Net income  $ 350 $ 311 $ 1,426 $ 1,015Items not involving current cash flows 4 164  156  708  826   514  467  2,134  1,841Changes in non-cash operating assets and liabilities 4  559  295  72   (631)Cash provided from operating activities    1,073  762  2,206   1,210             INVESTMENT ACTIVITIES            Fixed asset additions   (478)   (528)  (1,274)  (1,236)Purchase of subsidiaries 5  (446)  (101)   (525)  (120)Increase in investments and other assets    (25)  (56)  (122)  (196)Disposals of facilities    —  —   —  112Proceeds from disposition 2  13  58  106  168Cash used for investing activities    (936)  (627)   (1,815)  (1,272)             FINANCING ACTIVITIES            Increase in bank indebtedness    22   18  42  38Repayments of debt    (28)  (5)   (309)   (47)Settlement of stock options    —  —  (19)  (30)Issues of debt   19  30  348   146Issue of Common Shares    9  1  14   59Repurchase of Common Shares    (19)  (122)  (40)   (407)Contribution to subsidiaries by non-controlling interests    —  11   —  20Dividends paid    (63)  (59)   (252)   (236)Cash used for financing activities    (60)  (126)   (216)  (457)             Effect of exchange rate changes on cash and cash equivalents    (2)   (11)  22   (37)Net increase (decrease) in cash and cash equivalentsduring the period    75   (2)  197   (556)Cash and cash equivalents, beginning of period    1,447  1,327  1,325   1,881Cash and cash equivalents, end of period   $ 1,522 $ 1,325 $ 1,522 $ 1,325See accompanying notesMAGNA INTERNATIONAL INC.CONSOLIDATED BALANCE SHEETS[Unaudited][U.S. dollars in millions]            As at December 31, Note     2012    2011ASSETS           Current assets           Cash and cash equivalents 4   $ 1,522   $ 1,325Accounts receivable       4,774    4,398Inventories 6     2,512    2,045Deferred tax assets 12     170    206Prepaid expenses and other       157    172      9,135    8,146            Investments 16     385    438Fixed assets, net       5,273    4,236Goodwill 7     1,473    1,196Deferred tax assets       90    69Other assets 8     753    594     $ 17,109   $ 14,679            LIABILITIES AND SHAREHOLDERS' EQUITY           Current liabilities           Bank indebtedness       $ 71   $ 36Accounts payable      4,450    3,961Accrued salaries and wages       617    525Other accrued liabilities 9    1,185    1,002Income taxes payable      93    5Deferred tax liabilities       19    44Long-term debt due within one year        249    151      6,684    5,724            Long-term employee benefit liabilities 10     560    419Long-term debt       112    46Other long-term liabilities 11    154    207Deferred tax liabilities       141    81      7,651    6,477            Shareholders' equity           Capital stock            Common Shares             [issued: 233,115,783; 2011 - 233,317,792]       4,391    4,373Contributed surplus       80    63Retained earnings      4,462    3,317Accumulated other comprehensive income 15    496    422      9,429    8,175            Non-controlling interests       29    27      9,458    8,202     $ 17,109   $ 14,679See accompanying notesMAGNA INTERNATIONAL INC.CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY[Unaudited][U.S. dollars in millions]  Common Shares                     Stated   Contributed   Retained     Non-  controlling   Total NoteNumber   Value  Surplus   Earnings   AOCI (i)   Interest   Equity  [in millions]                  Balance, December 31, 2010    242.6 $4,500 $ 56 $ 2,715 $ 752 $ 3 $ 8,026                     Net income               1,018     (3)  1,015Other comprehensive loss                   (289)      (289)Contributions to subsidiaries bynon-controlling interests                       20  20Acquisition of subsidiaries                       7   7Shares issued on exercise of stockoptions   1.4  69  (10)           59Release of restricted stock       6  (6)           —Repurchase and cancellation undernormal course issuer bid   (10.7)  (204)     (162)  (41)     (407)Stock-based compensation expense 13        31           31Settlement of stock options 13        (8)  (16)         (24)Dividends paid       2     (238)          (236)Balance, December 31, 2011    233.3  4,373  63   3,317  422  27  8,202                     Net income               1,433     (7)  1,426Other comprehensive loss                   78  2  80Acquisitions of subsidiaries                       7  7Shares issued on exercise of stockoptions  0.4  19  (5)           14Repurchase and cancellation undernormal course issuer bid   (0.8)  (18)      (20)  (4)      (42)Release of restricted stock       5  (5)            —Release of restricted stock units       5  (5)             —Stock-based compensation expense 13        39           39Settlement of stock options 13       (7)   (9)        (16)Dividends paid   0.2  7     (259)          (252)Balance, December 31, 2012    233.1 $ 4,391 $ 80 $ 4,462 $ 496 $ 29 $ 9,458(i)     AOCI is Accumulated Other Comprehensive Income. See accompanying notesMAGNA 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 PresentationThe unaudited interim consolidated financial statements of Magna International Inc. and its subsidiaries [collectively "Magna" or the "Company"] have been prepared in United States dollars following United States 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, 2011.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, 2011 audited consolidated financial statements and notes included in the Company's 2011 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, 2012 and the results of operations, changes in equity and cash flows for the three-month periods and years ended December 31, 2012 and 2011.[b] Accounting ChangesComprehensive IncomeDuring 2011, the Financial Accounting Standards Board ["FASB"] issued Accounting Standards Update ["ASU"] 2011-05 and ASU 2011-12, "Comprehensive Income (Topic 220)", requiring entities to present net income and other comprehensive income in either a single continuous statement or in two consecutive statements of net income and other comprehensive income. The adoption of this ASU did not have a material impact on the unaudited interim consolidated financial statements.Fair Value MeasurementDuring 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820)", clarifying the existing measurement and disclosure requirements and expanding the disclosure requirements for certain fair value measurements. The adoption of this ASU did not have a material impact on the unaudited interim consolidated financial statements.GoodwillIn September 2011, the FASB issued ASU 2011-08, "Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment". ASU 2011-08 provides an option to perform a qualitative assessment to determine whether further goodwill impairment testing is necessary. If, as a result of the qualitative assessment, it is determined that it is more-likely-than-not that a reporting unit's fair value is less than its carrying amount, the two-step quantitative impairment test is required. Otherwise, no further testing is required. ASU 2011-08 is effective for the Company for the year ending December 31, 2012. The adoption of this ASU did not have a material impact on the unaudited interim consolidated financial statements.[c] Future Accounting StandardsIntangiblesIn July 2012, the FASB issued 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. This new standard will be effective for the Company in the first quarter of 2013. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.[d] SeasonalityThe 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        Year ended       December 31,        2012   2011Fourth Quarter           Re-measurement gain of STT  [a]    $ (35) $ — Impairment of long-lived assets  [b, d]      25  21 Restructuring  [c]      55   — Loss on disposal of facility  [e]      —  16 Insurance proceeds  [f]      —  (15) Customer bankruptcy  [g]      —  11       45  33Third Quarter           Re-measurement gain of E-Car [a]      (153)  — Loss on disposal of facility  [e]      —  113 Settlement agreement  [h]      —  11       (153)  124Second Quarter           Gain on disposal of investment  [i]      —  (10)       —  (10)First Quarter           Write down of real estate [j]     —  9       —  9      $ (108) $ 156           For the year ended December 31, 2012:[a] 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 LPOn 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. The purchase was reviewed, negotiated and approved by the Company's independent directors with the benefit of independent legal advice from Fasken Martineau DuMoulin LLP, independent financial advice from TD Securities Inc. ["TD"] and an independent valuation prepared by PricewaterhouseCoopers LLP ["PwC"]. The purchase price represents the midpoint of the valuation range determined by PwC and TD delivered a fairness opinion to the independent directors to the effect that the transaction is fair, from a financial point of view, to the Company.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. 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].[b] Impairment of long-lived assetsIn conjunction with its annual business planning cycle, 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 exteriors and interior systems operations.[c] RestructuringAs a result of continuing economic uncertainty in Europe, 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 its traditional European markets in order to remain cost competitive over the long-term.  As a result, 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.Substantially all of these restructuring costs will be paid subsequent to 2012.For the year ended December 31, 2011:[d] Impairment of long-lived assetsDuring the fourth quarter of 2011, the Company recorded long-lived asset impairment charges of $21 million; $14 million related to Europe and $7 million related to North America.[e] Loss on disposal of facilityDuring the third quarter of 2011, the Company sold an interior systems operation located in Germany and recorded a loss on disposal of $113 million. This operation, whose long-lived assets were substantially impaired in 2010, had a history of losses which were projected to continue throughout the business planning period. Under the terms of the 2011 sale arrangements [the "SPA"], the Company agreed to fund the buyer $67 million, to be satisfied with certain working capital items, cash and the assumption of certain liabilities. The remaining net assets of the operation of $26 million were assigned no value by the buyer and accordingly, were expensed as part of the total loss on disposal. Simultaneously, the Company reached a commercial settlement with one of the facility's customers regarding the cancellation of certain production orders whereby the Company reimbursed the customer costs of $20 million.Final settlement of the SPA did not occur during 2011 and in the fourth quarter of 2011 an additional $16 million was accrued in relation to the ongoing disputes with the purchaser bringing the total loss on disposal to $129 million.As more fully described in note 5, on June 4, 2012, the Company re-acquired the above operation.[f] Insurance proceedsDuring the fourth quarter of 2011, the Company received proceeds pursuant to an insurance claim for fire damages related to an interior systems facility in the United States. The proceeds received were $15 million in excess of the damaged assets net book value and the losses previously recognized and was recorded in income.[g] Customer bankruptcy During the fourth quarter of 2011, the Company recorded an $11 million charge related to the insolvency of SAAB.[h] Settlement agreementDuring the third quarter of 2011, a settlement agreement was finalized in connection with the settlement of certain patent infringement and other claims. The Company recorded an $11 million expense in the third quarter of 2011 in relation to these arrangements.[i] Gain on disposal of investmentDuring the second quarter of 2011, the Company sold its 40% non-controlling interest in an equity accounted investment for proceeds of $151 million [Cdn$147 million] and recognized a $10 million gain on disposal.[j] Write down of real estateDuring 2011, five excess corporate real estate assets were sold to entities associated with the Company's Founder and Honorary Chairman, Mr. Stronach and/or the Company's former Co-Chief Executive Officer, Siegfried Wolf. Based on the appraisals obtained by the Corporate Governance and Compensation Committee, the appraised fair value range for the properties was less than their carrying value and, accordingly, the Company recorded a $9 million impairment charge in the first quarter of 2011. The sales were approved by the independent members of Magna's Board of Directors based on the recommendation of the Corporate Governance and Compensation Committee and were completed during 2011.3. EARNINGS PER SHARE     Three months ended     Year ended     December 31,     December 31,     2012   2011   2012  2011Basic earnings per Common Share:                           Net income attributable to Magna International Inc.    $ 351 $ 312 $ 1,433  $ 1,018Average number of Common Shares outstanding      232.0   234.5  232.4   239.3Basic earnings per Common Share    $ 1.51 $ 1.33  $ 6.17  $ 4.26              Diluted earnings per Common Share:                           Net income attributable to Magna International Inc.    $ 351  $ 312 $ 1,433  $ 1,018              Average number of Common Shares outstanding      232.0    234.5  232.4    239.3Adjustments              Stock options and restricted stock [a]      2.8  2.4  2.8  3.5    234.8  236.9  235.2  242.8Diluted earnings per Common Share    $ 1.49 $ 1.32 $ 6.09  $ 4.20[a] For the three months and year ended December 31, 2012, diluted earnings per Common Share exclude 2.5 million [2011 - 2.9 million] and 2.3 million [2011 - 2.1 million] Common Shares issuable under the Company's Incentive Stock Option Plan, respectively, because these options were not "in-the-money".4.DETAILS OF CASH FROM OPERATING ACTIVITIES[a] Cash and cash equivalents:     December 31,  December 31,     2012  2011Bank term deposits, bankers' acceptances and government paper   $ 1,220 $ 968Cash     302  357    $ 1,522 $ 1,325         [b] Items not involving current cash flows:     Three months ended   Year ended      December 31,     December 31,      2012  2011   2012  2011Depreciation and amortization     $ 243  $ 179 $ 801 $ 686Other non-cash charges      48  16  154  110Amortization of other assets included in cost of goods sold     31  24   113   80Non-cash portion of Other expense (income), net      (10)  35  (163)  147Equity income      (44)  (28)  (151)   (121)Deferred income taxes     (104)   (70)   (46)   (76)    $ 164 $ 156  $ 708 $ 826[c] Changes in non-cash operating assets and liabilities:     Three months ended  Year ended     December 31,  December 31,     2012  2011   2012  2011Accounts receivable     $ 580 $ 328  $ (46)  $ (909)Inventories       60   41  (315)  (282)Prepaid expenses and other     40  (28)  36   (49)Accounts payable     27  (38)  249  475Accrued salaries and wages     (21)  (4)  37   80Other accrued liabilities      (117)  (33)  97   87Income taxes receivable (payable)     (11)  28  16   (29)Deferred revenue      1  1  (2)  (4)    $ 559 $ 295 $ 72 $ (631)5.ACQUISITIONSFor year ended December 31, 2012[i]     BDW Technology GroupIn 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.[ii]     Interior SystemsAs more fully described in note 2, 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. This acquisition resulted in acquired cash of $19 million [net of $1 million cash paid].As part of the acquisition, the Company was able to obtain some pricing concessions from a majority of the Business' customers. However, the Business is still expected to incur significant losses over the next three years.[iii]     Magna E-Car Systems LPAs 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 assumed are recorded at fair value.The preliminary 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 has determined that the intangible assets should be amortized on a straight-line basis over the period ending December 31, 2013.[iv]     STT Technologies Inc.As more fully described in note 2, on October 26, 2012 the Company acquired the remaining 50% interest in STT for cash considerations of $42 million [net of $13 million cash acquired].  The incremental investment in STT required that all assets acquired and liabilities were assumed at fair value.  This transaction also resulted in $58 million of goodwill recorded.[v]     ixetic Verwaltungs GmbHIn 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 purchase price was $395 million [net of $64 million cash acquired] resulting in $169 million of goodwill. The acquired business has sales primarily to BMW, Daimler, Volkswagen, Schaeffler, ZF, Ford, Chrysler, Renault-Nissan and Toyota.The preliminary purchase equations for these acquisitions are as follows:   BDW   E-Car   STT    ixetic   Other    TotalCash  $ 11  $ 19  $ 13  $ 64  $ 20  $ 127Non-cash working capital   (122)   (48)    9   54    (22)   (129)Investments   —   —   —   3   —   3Fixed assets   188    87   30   186   10   501Goodwill, net   32   16   58   169   14   289Other assets   17    9   —   68   —    94Purchase intangibles   —   210   5    —   —   215Long-term employee benefit liabilities   —   (2)   —   (45)   (2)   (49)Long-term debt   (24)   —   —   (1)    —   (25)Other long-term liabilities   (35)   —   —   —   —   (35)Deferred tax liabilities   (23)   —   (5)   (39)   (1)   (68)Non-controlling interests   —   (11)   —     --    --   (11)Fair value of net assets   44   280   110   459   19   912Less: Carrying value of Magna's equity                        accounted investment    —   (52)   (20)   —   —    (72) Gain on re-measurement  —   (153)   (35)   —   —    (188)Consideration paid   44   75   55   459   19   652Less: Cash acquired   (11)    (19)   (13)   (64)   (20)   (127)Net cash outflow  $ 33  $ 56  $ 42  $ 395  $ (1)  $ 525The purchase price allocations for these acquisitions are preliminary and adjustments to the allocations may occur as a result of obtaining more information regarding asset valuations.For the year ended December 31, 2011In December 2011, Magna invested $93 million to purchase ThyssenKrupp Automotive Systems do Brasil Ltda ["TKASB"], which consists of four manufacturing facilities in Brazil that assemble chassis structural components and modules. The acquired business has sales to Ford, Fiat, Renault Nissan, Honda and PSA.The total consideration for this acquisition and certain other acquisitions was $157 million, consisting of $120 million paid in cash [net of cash acquired] and $37 million of assumed debt.The net effect of the acquisitions on the Company's 2011 consolidated balance sheet was an increase in non-cash working capital of $35 million, and increases in fixed assets of $95 million, goodwill of $29 million, deferred tax assets of $6 million, other long-term liabilities of $28 million, and non-controlling interest of $7 million.6.INVENTORIES Inventories consist of:               December 31,   December 31,    2012   2011Raw materials and supplies    $ 911   $ 800Work-in-process     260    229Finished goods     283    253Tooling and engineering     1,058    763    $ 2,512   $ 2,045Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.7.GOODWILLThe following is a continuity of the Company's goodwill:     2012    2011Balance, beginning of period    $ 1,196   $ 1,194Acquisitions     34     —Foreign exchange and other     (23)     34Balance, March 31      1,207      1,228Acquisitions      10     5Foreign exchange and other      (13)     8Balance, June 30      1,204      1,241Acquisitions      14     8Foreign exchange and other      14     (65)Balance, September 30      1,232      1,184Acquisitions      231    16Foreign exchange and other      10     (4)Balance, December 31   $ 1,473   $ 1,1968.Other assetsOther assets consist of:     December 31,     December 31,     2012     2011Preproduction costs related to long-term supply agreements with contractual guarantee for reimbursement    $ 297    $ 301Long-term receivables      95      176Patents and licences, net      34     30Unrealized gain on cash flow hedges      32      15E-Car intangible [note 5]      158      —Other, net      137      72     $ 753    $5949.WarrantyThe following is a continuity of the Company's warranty accruals:     2012     2011Balance, beginning of period   $ 76   $ 68Expense, net     10     10Settlements     (5)     (9)Foreign exchange and other     2    4Balance, March 31      83      73Expense, net      9    9Settlements      (7)    (12)Foreign exchange and other      (1)    3Balance, June 30      84     73Expense, net      4    17Settlements      (10)    (5)Foreign exchange and other      5    (5)Balance, September 30     83     80Expense, net      20    10Settlements      (24)     (12)Foreign exchange and other      15    (2)Balance, December 31   $ 94   $ 7610.LONG-TERM EMPLOYEE BENEFIT LIABILITIESThe Company recorded long-term employee benefit expenses as follows:    Three months ended   Year ended    December 31,   December 31,    2012  2011    2012   2011Defined benefit pension plan and other    $ 7  $ 2   $ 15  $ 13Termination and long service arrangements      19   4    39  25Retirement medical benefit plan      (1)    (1)    1  —   $ 25  $ 5   $ 55 $ 3811.OTHER LONG-TERM LIABILITIESOther long-term liabilities consist of:     December 31,     December 31,     2012    2011Long-term portion of income taxes payable     $ 94    $ 119Asset retirement obligation      39     36Long-term portion of fair value of hedges      10     41Deferred revenue      11     11     $ 154    $ 20712.INCOME TAXESAccounting standards require that the Company assess whether valuation allowances should be established or maintained against its deferred tax assets, based on consideration of all available evidence, using a "more likely than not" standard. The factors the Company uses to assess the likelihood of realization are its history of losses, forecasts of future pre-tax income and tax planning strategies that could be implemented to realize the deferred tax assets.For the year ended December 31, 2012The Company had valuation allowances against its deferred tax assets in the United Kingdom and Germany.  These valuation allowances were required based on historical losses and uncertainty as to the timing of when the Company would be able to generate the necessary level of earnings to recover these deferred tax assets.  Over the past few years, certain divisions in the United Kingdom have delivered sustained profits.  Based on financial forecasts and continued anticipated growth, the Company released a portion of the valuation allowance set up against its deferred tax assets in the United Kingdom.  The BDW and ixetic acquisitions in 2012 have allowed the Company to release a portion of the valuation allowance set up against its German deferred tax assets, during the fourth quarter of 2012.  Additionally, during the fourth quarter of 2012, the Company has released a portion of its valuation allowances in Mexico and China, which were partially offset by a new valuation allowance against all of its deferred tax assets in Brazil. The net effect of all of these valuation allowance releases is $89 million.For the year ended December 31, 2011The Company had valuation allowances against all of its deferred tax assets in the United States. The U.S. valuation allowances were required based on historical losses and uncertainty as to the timing of when the Company would be able to generate the necessary level of earnings to recover these deferred tax assets. During 2010 and 2011, the Company's United States operations delivered sustained profits. Based on financial forecasts and the continued anticipated growth for the U.S. market, the Company released $78 million of the U.S. valuation allowances in the fourth quarter of 2011. As at December 31, 2012, the Company has remaining U.S. valuation allowances of $94 million, relating to deferred tax assets with restrictions on their usability.13.STOCK-BASED COMPENSATION[a] Incentive Stock Option PlanThe following is a continuity schedule of options outstanding [number of options in the table below are expressed in whole numbers]:   2012     2011    Options outstanding         Options outstanding             Number         Number   Number   Exercise  of options   Number   Exercise   of options   of options   price (i)   exercisable   of options  price (i)   exercisableBeginning of period   6,867,367   31.54   2,066,700   11,142,450  34.22   3,362,116Granted   1,341,500   48.22   —   —   —   —Exercised   (321,454)   25.83   (321,454)   (1,079,779)   44.94  (1,079,779)Vested   —   —   2,366,667   —   —   2,400,001March 31   7,887,413   34.61   4,111,913   10,062,671   33.07   4,682,338Granted   47,500   48.22   —   —   —   —Exercised (ii)   (5,000)   32.75   (5,000)   (1,216,973)   25.72  (1,216,973)Cancelled   (46,966)   57.14   (36,966)   (66,666)   30.00   —Vested   —   —   —   —   —   72,000June 30   7,882,947   34.56   4,069,947   8,779,032   34.11  3,537,365Exercised (iii)   (950,405)   27.46   (950,405)   (426,501)   25.57   (426,501)Cancelled   (6,000)   50.66   (2,000)  —   —   —Vested   —   —   —   —   —   2,000September 30   6,926,542   35.52   3,117,542   8,352,531   34.55  3,112,864Exercised   (248,300)   35.62   (248,300)   (14,000)  26.03  (14,000)Cancelled   (55,000)   49.99   (20,001)   (1,471,164)   48.68   (1,426,164)Vested   —   —   378,333  —   —   394,000December 31   6,623,242   35.39   3,227,574   6,867,367   31.54   2,066,700(i)  The exercise price noted above represents the weighted average exercise price in Canadian dollars.(ii)  During the second quarter of 2011, the Company's Honorary Chairman and Founder, Mr. Stronach exercised 1,083,333 options on a cashless basis in accordance with the applicable stock option plans. On exercise, cash payments totalling $25 million were made to Mr. Stronach. (iii) During the third quarter of 2012, Mr. Stronach exercised 900,001 options on a cashless basis in accordance with the applicable stock option plans. On exercise, cash payments totalling $15 million were made to Mr. Stronach.   All cash payments were calculated usingthe difference between the aggregate fair market value of the Option Shares based on the closing price of the Company's Common Shares on the Toronto Stock Exchange ["TSX"] on the date of exercise and the aggregate Exercise Price of all such options surrendered.The weighted average assumptions used in measuring the fair value of stock options granted or modified and the compensation expense recorded in selling, general and administrative expenses are as follows:    Year ended    December 31,    2012    2011         Risk free interest rate      2.23%    —Expected dividend yield      2.00%    —Expected volatility       43%    —Expected time until exercise      4.5 years    —          Weighted average fair value of options granted or modified in period [Cdn$]   $ 15.37     —[b] Long-term retention programThe following is a continuity of the stock that has not been released to the executives and is reflected as a reduction in the stated value of the Company's Common Shares [number of Common Shares in the table below are expressed in whole numbers]:   2012  2011   Number    Stated  Number  Stated   of shares    value   of shares   valueAwarded and not released, beginning of period   1,026,304   $ 35   1,182,736   $ 40Release of restricted stock   (143,316)     (5)   (156,432)      (5)Awarded and not released, March 31, June 30, September 30 and December 31   882,988   $ 30  1,026,304   $ 35[c] Restricted stock unit programThe following is a continuity schedule of Restricted stock units ["RSUs"] and Independent Director stock units ["DSUs"] outstanding [number of stock units in the table below are expressed in whole numbers]:  2012 2011  Equity  Liability  Liability    Equity  Liability  Liability    classified classified classified   classified classified classified    RSUs  RSUs  DSUs Total  RSUs  RSUs  DSUs Total                 Balance, beginning of period  367,726  29,806 198,446   595,978 181,732 34,242 186,348 402,322Granted  94,238  15,364  8,565 118,167  87,866  3,150  4,248  95,264Dividend equivalents  467  263  1,201 1,931  471  188  958  1,617Released  (8,259)  —  —  (8,259)  (8,259)  —  —  (8,259)Balance, March 31  454,172  45,433 208,212  707,817 261,810  37,580   191,554 490,944Granted  101,672  —  8,838  110,510  42,614  1,000  5,101  48,715Dividend equivalents  558  325 1,522  2,405  420  204  982  1,606Released  (10,123)  —  —  (10,123)  (16,227)  —  (15,267) (31,494)Balance, June 30  546,279  45,758   218,572  810,609  288,617  38,784   182,370 509,771Granted  68,540  —  9,778  78,318  30,088  —  5,340 35,428Dividend equivalents  438  279  1,252 1,969  551  261  1,266  2,078Released  —  —  (34,124) (34,124)  —  —  — —Balance, September 30  615,257  46,037 195,478  856,772  319,256  39,045  188,976 547,277Granted  55,681 —  10,275  65,956  47,890 —  7,980  55,870Dividend equivalents  432  266  1,170  1,868  580  293  1,490  2,363Released  (65,940)  (26,204)  —  (92,144)  —  (9,532)  —  (9,532)Balance, December 31  605,430  20,099   206,923  832,452  367,726  29,806   198,446 595,978[d] Compensation expense related to stock-based compensationStock-based compensation expense recorded in selling, general and administrative expenses related to the above programs is as follows:    Three months ended   Year ended    December 31,   December 31,    2012   2011    2012   2011Incentive Stock Option Plan  $ 5  $4  $ 19  $ 21Long-term retention    2    2   5   7Restricted stock unit    3    1   14    6    10    7   38    34Fair value adjustment for liability classified DSUs     1    (1)   4    (3)Total stock-based compensation expense   $ 11  $ 6  $ 42  $ 3114.COMMON SHARES[a]  On November 9, 2011, the TSX accepted the Company's Notice of Intention to Make a Normal Course Issuer Bid relating to the purchase for cancellation, as well as purchases to fund the Company's stock-based compensation awards or programs and/or the Company's obligations to its deferred profit sharing plans, of up to 12,000,000 Magna Common Shares [the "2011 Bid"], representing 5.1% of the Company's public float of Common Shares. The 2011 Bid commenced on November 11, 2011 and terminated on November 10, 2012 pursuant to which the Company has purchased 3,668,430 shares related to the 2011 Bid.On November 9, 2012, the TSX accepted the Company's Notice of Intention to Make a Normal Course Issuer Bid relating to the purchase for cancellation, as well as purchases to fund the Company's stock-based compensation awards or programs and/or the Company's obligations to its deferred profit sharing plans, of up to 12,000,000 Magna Common Shares [the "2012 Bid"], representing 5.2% of the Company's public float of Common Shares. The 2012 Bid commenced on November 13, 2012 and will terminate no later than November 12, 2013. As at December 31, 2012, the Company has purchased 427,402 shares.During 2012, the Company purchased for cancellation 895,032 [2011 - 10,747,300] Common Shares under a normal course issuer bid for cash consideration of $39 million [2011 - $407 million].All purchases of Common Shares are made at the market price at the time of purchase in accordance with the rules and policies of the TSX. Purchases may also be made on the NYSE in compliance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934.[b]  The following table presents the maximum number of shares that would be outstanding if all the dilutive instruments outstanding at February 28, 2013 were exercised or converted:Common Shares       233,363,125Stock options (i)       6,355,900       239,719,025(i)  Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment of the exercise price as may be determined from time to time pursuant to the Company's stock option plans.15. ACCUMULATED OTHER COMPREHENSIVE INCOMEThe following is a continuity schedule of accumulated other comprehensive income:     2012     2011           Accumulated net unrealized gain on translation of net investment in foreign operations           Balance, beginning of period    $ 547    $ 759 Net unrealized gain on translation of net investment in foreign operations     98     235 Repurchase of shares under normal course issuer bid     —     (9) Balance, March 31     645     985 Net unrealized (loss) gain on translation of net investment in foreign operations     (194)     71 Balance, June 30     451     1,056 Net unrealized gain (loss) on translation of net investment in foreign operations     128     (415) Repurchase of shares under normal course issuer bid     (2)     (21) Balance, September 30     577     620 Net unrealized gain (loss) on translation of net investment in foreign operations     54     (62) Repurchase of shares under normal course issuer bid     (2)     (11) Balance, December 31     629     547           Accumulated net unrealized gain (loss) on cash flow hedges (i)           Balance, beginning of period      (23)     40 Net unrealized gain on cash flow hedges      51      25 Reclassification of net loss (gain) on cash flow hedges to net income     3     (7) Balance, March 31     31     58 Net unrealized (loss) gain on cash flow hedges      (14)      5 Reclassification of net gain on cash flow hedges to net income     (8)     (11) Balance, June 30     9     52 Net unrealized gain (loss) on cash flow hedges      39      (69) Reclassification of net gain on cash flow hedges to net income     (2)     (10) Balance, September 30     46     (27) Net unrealized loss on cash flow hedges      (1)      (2) Reclassification of net (gain) loss on cash flow hedges to net income     (11)     6 Balance, December 31     34     (23)           Accumulated net unrealized gain on available-for-sale investments           Balance, beginning of period      5      11 Net unrealized loss on investments      (3)      (3) Balance, March 31     2     8 Net unrealized loss on investments      (1)      — Balance, June 30     1    8 Net unrealized gain (loss) on investments      2      (6) Balance, September 30     3     2 Net unrealized (loss) gain on investments     (2)    3 Balance, December 31     1    5           Accumulated net unrealized loss on other long-term liabilities (ii)           Balance, beginning of period      (107)      (58) Net unrealized gain on other long-term liabilities      —     1 Balance, March 31, June 30, September 30     (107)     (57) Net unrealized loss on other long-term liabilities      (19)      (50) Reclassification of net gain to net income      (42)    — Balance, December 31     (168)    (107)           Total accumulated other comprehensive income   $ 496   $ 422(i) The amount of income tax (obligation) benefit that has been netted in the accumulated net unrealized gain (loss) on cash flow hedges is as follows:     2012    2011           Balance, beginning of period   $12   $(15)Net unrealized gain     (21)     (8)Reclassifications of net (loss) gain to net income      (1)    3Balance, March 31      (10)     (20)Net unrealized loss (gain)      7    (4)Reclassifications of net gain to net income      2     3Balance, June 30      (1)      (21)Net unrealized (gain) loss      (14)    26Reclassifications of net gain to net income      1     4Balance, September 30      (14)      9Net unrealized (gain) loss     (2)     4Reclassifications of net gain (loss) to net income      3    (1)Balance, December 31    $ (13)   $ 12(ii) The amount of income tax benefit that has been netted in the accumulated net unrealized loss on other long-term liabilities is as follows:     2012    2011           Balance, beginning of period    $ 24   $ 1Net unrealized loss      —     1Balance, March 31      24     2Reclassification of net gain to net income      1     —Balance, June 30      25      2Reclassification of net gain to net income      —     —Balance, September 30      25     2Reclassification of net gain to net income      4     —Net unrealized gain      7     22Balance, December 31    $ 36   $ 24The amount of other comprehensive income that is expected to be reclassified to net income over the next 12 months is $7 million [net of income taxes of $18 million].16. FINANCIAL INSTRUMENTS[a] The Company's financial assets and financial liabilities consist of the following:    December 31,     December 31,    2012     2011           Held for trading           Cash and cash equivalents   $ 1,522   $ 1,325 Investment in asset-backed commercial paper      90    82    $ 1,612   $ 1,407Held to maturity investments           Severance investments    $ 8   $ 5           Available-for-sale           Equity investments   $ 9   $ 12           Loans and receivables           Accounts receivable    $ 4,774   $ 4,398 Long-term receivables included in other assets     95    176    $ 4,869   $ 4,574           Other financial liabilities           Bank indebtedness   $ 71   $36 Long-term debt [including portion due within one year]     361    197 Accounts payable     4,450    3,961    $ 4,882   $ 4,194           Derivatives designated as effective hedges, measured at fair value           Foreign currency contracts            Prepaid expenses    $ 37   $ 21  Other assets     32    15  Other accrued liabilities     (11)     (31)  Other long-term liabilities     (9)     (38)     49     (33) Commodity contracts            Prepaid expenses     2    —  Other accrued liabilities     (3)     (6)  Other long-term liabilities     (1)    (3)     (2)     (9)    $ 47   $ (42)[b] Fair valueThe Company determined the estimated fair values of its financial instruments based on valuation methodologies it believes are appropriate; however, considerable judgment is required to develop these estimates. Accordingly, these estimated fair values are not necessarily indicative of the amounts the Company could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of financial instruments are described below:Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable.Due to the short period to maturity of the instruments, the carrying values as presented in the interim consolidated balance sheets are reasonable estimates of fair values.InvestmentsAt December 31, 2012, the Company held Canadian third party asset-backed commercial paper ["ABCP"] with a face value of Cdn$107 million [December 31, 2011 - Cdn$125 million]. The carrying value and estimated fair value of this investment was Cdn$90 million [December 31, 2011 - Cdn$84 million]. As fair value information is not readily determinable for the Company's investment in ABCP, the fair value was based on a valuation technique estimating the fair value from the perspective of a market participant.At December 31, 2012, the Company held available-for-sale investments in publicly traded companies. The carrying value and fair value of these investments was $9 million, which was based on the closing share price of the investments on December 31, 2012.Term debtThe Company's term debt includes $249 million due within one year. Due to the short period to maturity of this debt, the carrying value as presented in the interim consolidated balance sheets is a reasonable estimate of its fair value.[c] Credit riskThe Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, held to maturity investments, and foreign exchange forward contracts with positive fair values.The Company's held for trading investments include an investment in ABCP. Given the continuing uncertainties regarding the value of the underlying assets, the amount and timing over cash flows and the risk of collateral calls in the event that spreads widened considerably, the Company could be exposed to further losses on its investment.Cash and cash equivalents, which consists of short-term investments, are only invested in governments, bank term deposits and bank commercial paper with an investment grade credit rating. Credit risk is further reduced by limiting the amount which is invested in certain governments or any major financial institution.The Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign exchange forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major financial institutions that the Company anticipates will satisfy their obligations under the contracts.In the normal course of business, the Company is exposed to credit risk from its customers, substantially all of which are in the automotive industry and are subject to credit risks associated with the automotive industry. For both the three month period and year ended December 31, 2012, sales to the Company's six largest customers represented 83% of the Company's total sales and substantially all of the Company's sales are to customers in which it has ongoing contractual relationships.[d] Interest rate riskThe Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In particular, the amount of interest income earned on the Company's cash and cash equivalents is impacted more by the investment decisions made and the demands to have available cash on hand, than by movements in the interest rates over a given period.In addition, the Company is not exposed to interest rate risk on its term debt instruments as the interest rates on these instruments are fixed.[e] Currency risk and foreign exchange contractsThe Company operates globally, which gives rise to a risk that its earnings and cash flows may be adversely impacted by fluctuations in foreign exchange rates. The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to the delivery of products for which the selling price has been quoted in currencies other than the facilities' functional currency, or when materials and equipment are purchased in currencies other than the facilities' functional currency.In an effort to manage this net foreign exchange exposure, the Company uses foreign exchange forward contracts for the sole purpose of hedging certain of the Company's future committed Canadian dollar, U.S. dollar and euro outflows and inflows. All derivative instruments, including foreign exchange contracts, are recorded on the interim consolidated balance sheet at fair value. To the extent that cash flow hedges are effective, the change in their fair value is recorded in other comprehensive income; any ineffective portion is recorded in net income. Amounts accumulated in other comprehensive income are reclassified to net income in the period in which the hedged item affects net income.At December 31, 2012, the Company had outstanding foreign exchange forward contracts representing commitments to buy and sell various foreign currencies. Significant commitments are as follows:     Buys    Sells           For Canadian dollars           U.S. amount     295     979 euro amount     82     8           For U.S. dollars           Peso amount     6,049     —           For euros           U.S. amount     70     194 GBP amount     85     14 Czech Koruna amount     4,844     11 Polish Zlotys amount     127     —Forward contracts mature at various dates through 2016. Foreign currency exposures are reviewed quarterly.As a result of the hedging programs employed, foreign currency transactions in any given period may not be fully impacted by movements in exchange rates. As at December 31, 2012, the net foreign exchange exposure was not material.17. CONTINGENCIES[a] In the ordinary course of business activities, the Company may be contingently liable for litigation and claims with customers, suppliers, former employees and other parties. In addition, the Company may be, or could become, liable to incur environmental remediation costs to bring environmental contamination levels back within acceptable legal limits. On an ongoing basis, the Company assesses the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable costs and losses.A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue. The required provision may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.In November 1997, the Company and two of its subsidiaries were sued by KS Centoco Ltd., an Ontario-based steering wheel manufacturer in which the Company has a 23% equity interest, and by Centoco Holdings Limited, the owner of the remaining 77% equity interest in KS Centoco Ltd. In March 1999, the plaintiffs were granted leave to make substantial amendments to the original statement of claim in order to add several new defendants and claim additional remedies, and in February 2006, the plaintiffs further amended their claim to add an additional remedy. The amended statement of claim alleges, among other things:breach of fiduciary duty by the Company and two of its subsidiaries;breach by the Company of its binding letter of intent with KS Centoco Ltd., including its covenant not to have any interest, directly or indirectly, in any entity that carries on the airbag business in North America, other than through MST Automotive Inc., a company to be 77% owned by Magna and 23% owned by Centoco Holdings Limited;the plaintiff's exclusive entitlement to certain airbag technologies in North America pursuant to an exclusive licence agreement, together with an accounting of all revenues and profits resulting from the alleged use by the Company, TRW Inc. ["TRW"] and other unrelated third party automotive supplier defendants of such technology in North America;a conspiracy by the Company, TRW and others to deprive KS Centoco Ltd. of the benefits of such airbag technology in North America and to cause Centoco Holdings Limited to sell to TRW its interest in KS Centoco Ltd. in conjunction with the Company's sale to TRW of its interest in MST Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; andoppression by the defendants.The plaintiffs are seeking, amongst other things, damages of approximately Cdn$3.5 billion. Document production, completion of undertakings and examinations for discovery are substantially complete, although limited additional examinations for discovery may occur. A trial is not expected to commence until late 2014, at the earliest. The Company believes it has valid defences to the plaintiffs' claims and therefore intends to continue to vigorously defend this case. At this time, notwithstanding the amount of time which has transpired since the claim was filed, these legal proceedings remain at an early stage and, accordingly, it is not possible to predict their outcome.[b] During the fourth quarter of 2011, the Company announced that it was cooperating with the United States Department of Justice ["DOJ"] with respect to an antitrust investigation of the automobile tooling industry. The scope of the DOJ inquiry subsequently changed to include tooling quotation and program management practices. The DOJ's investigation has since been concluded without any action being taken by the DOJ.[c] A putative class action lawsuit alleging violations of the United States Securities Exchange Act of 1934 has been filed in the United States District Court, Southern District of New York, against the Company, as well as its Chief Executive Officer, Chief Financial Officer and Founder and Honorary Chairman. Boilermaker-Blacksmith National Pension Trust ["BBNPT"] was appointed the lead plaintiff on an uncontested motion. BBNPT subsequently filed an amended complaint, following which the defendants' filed motion materials seeking dismissal of the lawsuit. The motion to dismiss is expected to be heard by the end of the second quarter of 2013. The defendants believe the lawsuit is without merit and therefore intend to vigorously defend the case. Given the early stages of the legal proceedings, it is not possible to predict the outcome of the claim.[d] In certain circumstances, the Company is at risk for warranty costs including product liability and recall costs. Due to the nature of the costs, the Company makes its best estimate of the expected future costs [note 9]; however, the ultimate amount of such costs could be materially different. The Company continues to experience increased customer pressure to assume greater warranty responsibility. Currently, under most customer agreements, the Company only accounts for existing or probable claims. Under certain complete vehicle engineering and assembly contracts, the Company records an estimate of future warranty-related costs based on the terms of the specific customer agreements, and the specific customer's warranty experience.18. SEGMENTED INFORMATIONGiven the differences between the regions in which the Company operates, Magna's operations are segmented on a geographic basis between North America, Europe and Rest of World. Consistent with the above, the Company's internal financial reporting segments key internal operating performance measures between North America, Europe 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 the long-term strategic direction and future global growth of the Company.The Company's chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since management believes Adjusted EBIT is the most appropriate measure of operational profitability or loss for its reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense (income), net; and other expense (income), net.The accounting policies of each segment are the same as those set out under "Significant Accounting Policies" [note 1] and intersegment sales and transfers are accounted for at fair market value.As more fully described in notes 2 and 5, on August 31, 2012 the Company acquired the controlling 27% interest in the E-Car partnership. 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. For segment reporting purposes, prior to the closing date the Company recorded its proportionate share of the losses of E-Car in the Corporate and Other segment.  Beginning on August 31, 2012, the consolidated results of E-Car are recorded in the Company's North America and Europe segments as follows:    For the three months ended     For the four months ended    December 31, 2012     December 31, 2012                                North             North             America   Europe    Total   America    Europe     TotalTotal Sales   $ 9   $ 9   $ 18   $ 12   $12   $24Adjusted EBIT   $ (59)   $ (4)   $ (63)   $ (76)   $(6)   $(82)Amortization of E-car Intangibles included in Adjusted EBIT [note 5]    $ (39)   $ —   $ (39)   $ (52)   $—    $(52)The following tables show segment information for the Company's reporting segments and a reconciliation of Adjusted EBIT to the Company's consolidated income from operations before income taxes:   Three months ended    Three months ended    December 31, 2012     December 31, 2011    Total   External  Adjusted  Fixedassets,  Total   External   Adjusted    Fixedassets,   sales   sales   EBIT   net   sales   sales   EBIT   net                         North America                         Canada  $ 1,621 $ 1,496    $ 660 $1,441 $1,347     $586 United States   1,902  1,788     973  1,728  1,612      804 Mexico   882  814     573   740  691     477 Eliminations   (280)   —     —   (234)   —     —   4,125  4,098 $ 373  2,206  3,675   3,650 $ 335   1,867Europe                         Western Europe (excluding Great Britain)    2,653   2,606     1,490  2,555   2,513      1,111 Great Britain    261  257       58   264    262      53 Eastern Europe    516  470       584   451   390     438 Eliminations    (57)   —       —    (70)   —        —   3,373  3,333   24   2,132   3,200   3,165   (3)   1,602Rest of World   622   596   (8)   686   451  425   14  485Corporate and Other (i)   (87)   6   (2)  249   (75)   11   (25)   282Total reportable segments    8,033   8,033   387   5,273  7,251    7,251   321    4,236Other expense, net              (45)                (33)   Interest (expense) income, net              (1)            3     $ 8,033  $8,033  $ 341   5,273 $7,251 $7,251 $291   4,236Current assets                 9,135            8,146Investments, goodwill, deferred tax assets, and other assets                 2,701             2,297Consolidated total assets              $ 17,109          $14,679(i)     Prior to the Company's acquisition of the 27% controlling interest in E-Car, Corporate and Other includes the Company's proportionate share of the net loss in E-Car which was recorded as equity loss. For the three months ended December 31, 2011, the partnership recorded sales of $30 million and an EBIT loss of $18 million. Year ended Year ended December 31, 2012 December 31, 2011            Fixed           Fixed   Total  External   Adjusted  assets,  Total  External  Adjusted  assets,   sales  sales  EBIT  net  sales  sales  EBIT  netNorth America                         Canada $ 6,343 $ 5,907    $ 660 $ 5,951 $ 5,552    $ 586 United States   7,518  7,053     973    7,025  6,514     804 Mexico   3,520  3,281     573  2,902  2,698     477 Eliminations   (1,046)  —     —  (1,023)  —     —   16,335  16,241 $ 1,521  2,206  14,855  14,764 $ 1,373  1,867Europe                         Western Europe (excluding                          Great Britain)    10,089  9,927     1,490  10,124  9,963     1,111 Great Britain    961  952     58  913  909     53 Eastern Europe    1,847  1,684     584  1,708  1,557     438 Eliminations    (188)  —     —  (189)  —     —   12,709  12,563  165  2,132  12,556  12,429  (22)  1,602Rest of World   2,111  2,010  (28)   686  1,599  1,506  56  485Corporate and Other (i)   (318)  23  —  249  (262)  49  (40)  282Total reportable segments    30,837  30,837  1,658  5,273  28,748  28,748  1,367  4,236Other income (expense), net              108           (156)   Interest (expense) income,                         net              (16)           6     $ 30,837 $ 30,837 $ 1,750  5,273 $ 28,748 $ 28,748 $ 1,217  4,236Current assets                 9,135           8,146Investments, goodwill                         deferred tax assets and                         other assets                 2,701            2,297Consolidated total assets              $ 17,109           $ 14,679  (i)     Prior to the Company's acquisition of the 27% controlling interest in E-Car, Corporate and Other includes the Company's proportionate share of the net loss in E-Car which was recorded as equity loss. For the eight months ended August 31, 2012, the partnership recorded sales of $67 million and an EBIT loss of $49 million.  For the year ended December 31, 2011, the partnership recorded sales of $92 million and an EBIT loss of $91 million.19. COMPARATIVE FIGURESCertain of the comparative figures have been reclassified to conform to the current period's method of presentation.        SOURCE: Magna International Inc.For further information: For further information, please contact Louis Tonelli, Vice-President, Investor Relations at 905-726‑7035.  For teleconferencing questions, please contact Karin Kaminski at 905-726‑7103.