UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of March 2016
Commission File Number 001-11444
MAGNA INTERNATIONAL INC.
(Exact Name of Registrant as specified in its Charter)
337 Magna Drive, Aurora, Ontario, Canada L4G 7K1
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F o Form 40-F ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether the registrant, by furnishing the information contained in this Form, is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes o No ý
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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MAGNA INTERNATIONAL INC. | |||
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(Registrant) |
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Date: March 28, 2016 |
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By: |
/s/ Bassem A. Shakeel |
Exhibit 22.1 |
Notice of Annual and Special Meeting of Shareholders of the Registrant to be held on May 5, 2016 in Toronto, Ontario, Canada, and Management Information Circular/Proxy Statement. | |
Exhibit 22.2 |
Form of Proxy for Common Shares |
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Exhibit 22.3 |
Consent of Deloitte LLP |
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Exhibit 99.1 |
Annual Report to Shareholders of the Registrant including the Management's Discussion and Analysis of Results of Operations and Financial Position and the audited consolidated financial statements of the Registrant for the year ended December 31, 2015. |
Exhibit 22.1
Notice of Annual and Special Meeting of Shareholders
Date: | Thursday, May 5, 2016 |
Time: |
10:00 a.m. (Toronto time) |
Place: |
The Westin Prince 900 York Mills Road Toronto, Ontario Canada |
The Meeting is being held to:
1. | receive Magna's consolidated financial statements and the independent auditors' report thereon for the fiscal year ended December 31, 2015; | |
2. |
elect ten directors; |
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3. |
reappoint Deloitte LLP as our independent auditors and authorize the Audit Committee to fix the independent auditors' remuneration; |
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4. |
vote, in an advisory, non-binding manner, on Magna's approach to executive compensation described in the accompanying Management Information Circular/Proxy Statement; |
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5. |
vote on a special resolution to approve the amendment of Magna's articles of incorporation; |
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6. |
vote on a resolution ratifying and confirming a new general by-law; and |
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7. |
transact any other business that may properly come before the Meeting. |
As a holder of record of Magna Common Shares at the close of business on March 18, 2016, you are entitled to receive notice of and vote at the Meeting.
If you are unable to attend the Meeting and want to ensure that your shares are voted, please submit your votes by proxy as described under "How to Vote Your Shares" in the accompanying circular. To be valid, our transfer agent, Computershare Trust Company of Canada, must receive your proxy by 5:00 p.m. (Toronto time) on May 3, 2016. If the Meeting is adjourned or postponed, Computershare must receive your proxy not later than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of the adjourned or postponed Meeting. The time limit for deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion, without notice.
A live webcast of the Meeting will also be available through Magna's website at www.magna.com.
Accompanying this Notice of Annual and Special Meeting is Magna's Management Information Circular/Proxy Statement, which contains more information on the matters to be addressed at the Meeting.
By order of the Board of Directors.
/s/ "Bassem A. Shakeel" |
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March 28, 2016 | BASSEM A. SHAKEEL |
Aurora, Ontario | Vice-President and Corporate Secretary |
Management Information Circular/Proxy Statement
This Circular is being provided to you in connection with the Annual and Special Meeting of Magna's shareholders (the "Meeting"), which will be held on Thursday, May 5, 2016 commencing at 10:00 a.m. (Toronto time) at The Westin Prince, 900 York Mills Road, Toronto, Ontario, Canada.
Voting Information
Record Date | March 18, 2016 is the record date for the Meeting (the "Record Date"). Only holders of our Common Shares as of the close of business on the Record Date are entitled to receive notice of and to attend (in person or by proxy) and vote at the Meeting. | |
Shares and Votes |
As of the Record Date, 398,592,739 Magna Common Shares were issued and outstanding. Each Magna Common Share is entitled to one vote. |
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Principal Shareholders |
To our knowledge, no shareholder beneficially owns or exercises control or direction, directly or indirectly, over 10% or more of Magna's Common Shares outstanding as at the Record Date. |
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All of Magna's directors and executive officers as a group (19 persons) owned beneficially or exercised control or direction over 3,155,005 Common Shares representing approximately 0.8% of the class as at the Record Date. |
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The Magna Deferred Profit Sharing Plan (Canada) and Employees Deferred Profit Sharing Plan (U.S.) (the "NADPSPs"), deferred profit sharing plans for Magna's participating employees, collectively hold 20,678,502 Magna Common Shares representing approximately 5.2% of the class as at the Record Date. The shares held by the NADPSPs will be voted FOR each of the items to be voted on at the Meeting. |
Meeting Information 3
How To Vote Your Shares
Your Vote Is Important | Your vote is important. Please read the information below to ensure your shares are properly voted. | |
Registered vs. Non-Registered Shareholder |
How you vote your shares depends on whether you are a registered shareholder or a non-registered shareholder. In either case, there are two ways you can vote at the Meeting by appointing a proxyholder or by attending in person, although the specifics may differ slightly. |
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Registered Shareholder: You are a registered shareholder if you hold one or more share certificates which indicate your name and the number of Magna Common Shares which you own. As a registered shareholder, you will receive a form of proxy from Computershare Trust Company of Canada ("Computershare") representing the shares you hold. If you are a registered shareholder, refer to "How to Vote Registered Shareholders". |
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Non-Registered Shareholder: You are a non-registered shareholder if a securities dealer, broker, bank, trust company or other nominee holds your shares for you, or for someone else on your behalf. As a non-registered shareholder, you will most likely receive a Voting Instruction Form from either Broadridge Canada or Broadridge US, although in some cases you may receive a form of proxy from the securities dealer, broker, bank, trust company or other nominee holding your shares. If you are a non-registered shareholder, refer to "How to Vote Non-Registered Shareholders". |
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Proxies Are Being Solicited by Management |
Management is soliciting your proxy in connection with the matters to be addressed at the Meeting (or any adjournment(s) or postponement(s) thereof) to be held at the time and place set out in the accompanying Notice of Annual Meeting. We will bear all costs incurred in connection with Management's solicitation of proxies, including the cost of preparing and mailing this Circular and accompanying materials. Proxies will be solicited primarily by mail, although our officers and employees may (for no additional compensation) also directly solicit proxies by phone, fax or other electronic methods. Banks, brokerage houses and other custodians, nominees or fiduciaries will be requested to forward proxy solicitation material to the persons on whose behalf they hold Magna shares and to obtain authorizations for the execution of proxies. These institutions will be reimbursed for their reasonable expenses in doing so. |
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Proxy Solicitor Kingsdale |
Magna has also retained Kingsdale as proxy solicitation agent and will pay a fee of C$22,050 for such service, in addition to certain out-of-pocket expenses. Magna may also reimburse brokers and other persons holding Common Shares in their name or in the name of nominees for their costs incurred in sending proxy material to their principals in order to obtain their proxies. If you have any questions about the information contained in this Circular or need assistance in completing your proxy form, please contact Kingsdale by e-mail at contactus@kingsdaleshareholder.com or at the following telephone numbers: |
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within Canada or the U.S. (toll-free): 1-888-518-1552 |
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outside Canada and the U.S. (by collect call): 416-867-2272 |
4 Meeting Information
These securityholder materials are being sent to both registered
and non-registered owners of Magna Common Shares.
HOW TO VOTE REGISTERED SHAREHOLDERS |
HOW TO VOTE NON-REGISTERED SHAREHOLDERS |
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If you are a registered shareholder, you may vote either by proxy or in person at the Meeting. Submitting Votes by Proxy There are three ways to submit your vote by proxy: ![]() ![]() ![]() in accordance with the instructions on the form of proxy. If you are voting by phone or internet, you will need the pre-printed Control Number, Holder Account Number and Access Number on your form of proxy. A proxy submitted by mail must be in writing, dated the date on which you signed it and be signed by you (or your authorized attorney). If such a proxy is being submitted on behalf of a corporate shareholder, the proxy must be signed by an authorized officer or attorney of that corporation. If a proxy submitted by mail is not dated, it will be deemed to bear the date on which it was sent to you. If you are voting your shares by proxy, you must ensure that your completed and signed proxy form or your phone or internet vote is received by Computershare not later than 5:00 p.m. (Toronto time) on May 3, 2016. If the Meeting is adjourned or postponed, you must ensure that your completed and signed proxy form or your phone or internet vote is received by Computershare not later than 48 hours (excluding Saturdays, Sundays and holidays) prior to the time of the Meeting. Appointment of Proxyholder Unless you specify a different proxyholder or specify how you want your shares to be voted, the Magna officers whose names are pre-printed on the form of proxy will vote your shares: FOR the election to the Magna Board of Directors of all of the nominees named in this Circular; FOR the reappointment of Deloitte as Magna's independent auditors and the authorization of the Audit Committee to fix the independent auditors' remuneration; FOR the advisory resolution to accept the approach to executive compensation disclosed in this Circular; FOR the special resolution amending the articles; and FOR the resolution ratifying and confirming the new general by-law. You have the right to appoint someone else (who need not be a shareholder) as your proxyholder; however, if you do, that person must vote your shares in person on your behalf at the Meeting. To appoint someone else as your proxyholder, insert the person's name in the blank space provided on the form of proxy or complete, sign, date and submit another proper form of proxy naming that person as your proxyholder. |
If you are a non-registered shareholder, the intermediary holding on your behalf (and not Magna) has assumed responsibility for (i) delivering these materials to you and (ii) executing your
proper voting instructions. Submitting Voting Instructions There are three ways to submit your vote by Voting Instruction Form: ![]() ![]() ![]() in accordance with the instructions on the Voting Instruction Form. If you are a non-registered shareholder and have received a Voting Instruction Form from Broadridge, you must complete and submit your vote by phone, internet or mail, in accordance with the instructions on the form. We have been advised by Broadridge that, on receipt of a properly completed and submitted form, a form of proxy will be submitted on your behalf. You must ensure that your completed, signed and dated Voting Instruction Form or your phone or internet vote is received by no later than any deadline specified by Broadridge, which we expect will be 5:00 p.m. (Toronto time) on May 2, 2016. If the Meeting is adjourned or postponed, you must ensure that your completed, signed and dated Voting Instruction Form or your phone or internet vote is received by Broadridge Canada or Broadridge US, as applicable, not later than 72 hours (excluding Saturdays, Sundays and holidays) prior to the time of the Meeting. If a Voting Instruction Form submitted by mail or fax is not dated, it will be deemed to bear the date on which it was sent to you. In some cases, you may have received a form of proxy instead of a Voting Instruction Form, even though you are a non-registered shareholder. Such a form of proxy will likely be stamped by the securities dealer, broker, bank, trust company or other nominee or intermediary holding your shares and be restricted as to the number of shares to which it relates. In this case, you must complete the form of proxy and submit it to Computershare as described to the left under "How to Vote Registered Shareholders Submitting Votes By Proxy". |
Meeting Information 5
HOW TO VOTE REGISTERED SHAREHOLDERS (cont'd) |
HOW TO VOTE NON-REGISTERED SHAREHOLDERS (cont'd) |
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Appointment of Proxyholder (cont'd) If you choose to vote by proxy, you are giving the person (referred to as a "proxyholder") or people named on your form of proxy the authority to vote your shares on your behalf at the Meeting (including any adjournment or postponement of the Meeting). You may indicate on the form of proxy how you want your proxyholder to vote your shares, or you can let your proxyholder decide for you. If you do not specify on the form of proxy how you want your shares to be voted, your proxyholder will have the discretion to vote your shares as they see fit. The form of proxy accompanying this Circular gives the proxyholder discretion with respect to any amendments or changes to matters described in the Notice of Annual Meeting and with respect to any other matters which may properly come before the Meeting (including any adjournment or postponement of the Meeting). As of the date of this Circular, we are not aware of any amendments, changes or other matters to be addressed at the Meeting. Voting in Person If you attend in person, you do not need to complete or return your form of proxy. When you arrive at the Meeting, a Computershare representative will register your attendance before you enter the Meeting. If you vote in person at the Meeting and had previously completed and returned your form of proxy, your proxy will be automatically revoked and any votes you cast on a poll at the Meeting will count. Revoking a Vote Made by Proxy You have the right to revoke a proxy by ANY of the following methods: Vote again by phone or internet not later than 5:00 p.m. (Toronto time) on May 3, 2016 (or not later than 48 hours prior to the time of the adjourned or postponed Meeting); Deliver by mail another completed and signed form of proxy, dated later than the first form of proxy, such that it is received by Computershare not later than 5:00 p.m. (Toronto time) on May 3, 2016 (or not later than 48 hours prior to the time of the adjourned or postponed Meeting); Deliver to us at the following address a signed written notice revoking the proxy, provided it is received not later than 5:00 p.m. (Toronto time) on May 4, 2016 (or not later than 5:00 p.m. on the last business day prior to the date of the adjourned or postponed Meeting): Magna International Inc. 337 Magna Drive Aurora, Ontario, Canada L4G 7K1 Attention: Corporate Secretary Deliver a signed written notice revoking the proxy to the scrutineers of the Meeting, to the attention of the Chair of the Meeting, at or prior to the commencement of the Meeting (including in the case of any adjournment or postponement of the Meeting). |
Voting in Person If you have received a Voting Instruction Form from your Canadian intermediary and wish to attend the Meeting in person or have someone else attend on your behalf, you must complete, sign and return the Voting Instruction Form or complete the equivalent electronic form online, in each case in accordance with the instructions on the form. If you have received a Voting Instruction Form from your US intermediary and wish to attend the Meeting in person or have someone else attend on your behalf, you must complete, sign and return the Voting Instruction Form in accordance with the instructions on the form. Your intermediary will send you a legal proxy giving you or your designate the right to attend the meeting. If you have received a form of proxy and wish to attend the Meeting in person or have someone else attend on your behalf, you must insert your name, or the name of the person you wish to attend on your behalf, in the blank space provided on the form of proxy. If you are voting your shares by proxy, you must ensure that your completed and signed proxy form or your phone or internet vote is received by Computershare not later than 5:00 p.m. (Toronto time) on May 3, 2016. If the Meeting is adjourned or postponed, you must ensure that: your completed and signed Voting Instruction Form (or equivalent electronic form online) is received by Broadridge Canada or Broadridge US, as applicable, not later than 72 hours (excluding Saturdays, Sundays and holidays) prior to the time of the adjourned or postponed Meeting; or your completed and signed proxy form or your phone or internet vote is received by Computershare not later than 48 hours (excluding Saturdays, Sundays and holidays) prior to any adjournment or postponement of the Meeting. When you arrive at the Meeting, a Computershare representative will register your attendance before you enter the Meeting. Revoking a Voting Instruction Form or Proxy If you wish to revoke a Voting Instruction Form or form of proxy for any matter on which a vote has not already been cast, you must contact your securities dealer, broker, bank, trust company or other nominee or intermediary (for a form of proxy sent to you by such intermediary) and comply with any applicable requirements relating to the revocation of votes made by Voting Instruction Form or proxy. |
6 Meeting Information
Business of the Meeting
Purpose of the Meeting |
The Meeting is being held for shareholders to: 1. receive Magna's consolidated financial statements and the independent auditors' report thereon for the fiscal year ended December 31, 2015; |
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2. elect ten directors; |
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3. reappoint Deloitte as our independent auditors and authorize the Audit Committee to fix the independent auditors' remuneration; |
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4. vote, in an advisory, non-binding manner, on Magna's approach to executive compensation described in this Circular; |
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5. vote on a special resolution to approve the amendment of Magna's articles of incorporation; |
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6. vote on a resolution ratifying and confirming a new general by-law; and |
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7. transact any other business that may properly come before the Meeting. |
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As of the date of this Circular, we are not aware of any other business to be transacted at the Meeting. |
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1. Financial Statements |
Magna's consolidated financial statements and the independent auditors' report thereon for the fiscal year ended December 31, 2015 are included in the Annual Report, which was provided to shareholders with this Circular. The financial statements will be presented at the Meeting, but no shareholder vote is required in connection with them. |
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2. Election of Directors |
Directors are elected by shareholders to act as stewards of the company. The Board is Magna's highest decision-making body, except to the extent certain rights have been reserved for shareholders under applicable law or Magna's articles of incorporation or by-laws. Among other things, the Board is responsible for appointing our Chief Executive Officer and overseeing Management. In fulfilling their duties, directors are required under applicable law to act in the best interests of the company. |
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Board Size and Term |
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The CGCNC is responsible for making recommendations to the Board regarding optimal Board size and candidates for service on the Board. Some of the factors relevant to the CGCNC's consideration of optimal Board size include the scale and complexity of Magna's business, the markets in which it operates, the company's strategic priorities, the need for a diverse range of skills and perspectives, Committee staffing needs and other factors. Magna's articles of incorporation permit the Board to determine its size within a range of five to fifteen directors. Over the last ten years, the Board size has ranged between nine and fourteen, with an average of eleven directors. The number of directors to be elected at the Meeting is ten and the CGCNC believes that to be an appropriate size at the present time. |
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Meeting Information 7
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Each director is elected for a one-year term expiring at our next annual meeting of shareholders. ![]() Minimum Qualifications for Service as a Director of Magna In addition to the minimum qualifications specified in the OBCA, our Board Charter requires that each director possess the following attributes: personal and professional integrity; significant achievement in his or her field; experience and expertise relevant to our business; a reputation for sound and mature business judgment; the commitment and ability to devote the necessary time and effort in order to conduct his or her duties effectively; and financial literacy. |
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2016 Nominees The CGCNC has unanimously recommended, and the Board has unanimously approved, the nomination of the following individuals for election at the Meeting: |
Scott B. Bonham Peter G. Bowie Hon. J. Trevor Eyton Lady Barbara Judge Dr. Kurt J. Lauk |
Cynthia A. Niekamp Dr. Indira V. Samarasekera Donald J. Walker Lawrence D. Worrall William L. Young |
All of the nominees for election at the Meeting were previously elected at our 2015 annual meeting of shareholders. On average, the nominees received 99% support at our 2015 annual meeting of shareholders. Two of our directors (Ms. Samarasekera and Mr. Bonham) serve together on one other board, but no directors serve on any other board together with a member of Magna's Management. |
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One director who was elected at our 2015 annual meeting of shareholders, V. Peter Harder, resigned effective March 21, 2016 to accept an appointment to the Senate of Canada and thus is not standing for re-election. |
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8 Meeting Information
In recommending the ten nominees to the Board, the CGCNC considered a number of factors, including: the nominees' respective skills, expertise and experience, as well as the extent to which the nominees meet the minimum qualifications described above; results of the Board's annual self-assessment process, which incorporates both a self-evaluation and a peer review process; individual voting results from the 2015 annual meeting; and feedback from the Board's independent advisors and others. The CGCNC and the Board are confident that each of the ten nominees: exceeds the minimum requirements set out in our Board Charter and the OBCA; has skills, experience and expertise that provide the Board with the necessary insight to effectively carry out its mandate; and will, if elected, provide responsible oversight as a steward of the corporation, including prudent oversight of Management. Refer to "Nominees for Election to the Board" for detailed information regarding the skills, expertise and other relevant information which you should consider in casting your vote for each nominee. |
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CGCNC / Board Recommendation |
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The CGCNC and the Board of Directors unanimously recommend that shareholders vote FOR the election of each nominee listed above and described in detail in "Nominees for Election to the Board" below. |
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Unless otherwise instructed, the Magna officers whose names have been pre-printed on the form of proxy or Voting Instruction Form intend to vote FOR each such nominee. |
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Individual Elections, Majority Voting and Disclosure of Voting Results |
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At the Meeting, you will have the opportunity to vote for each nominee individually. We do not utilize slate voting. Under Ontario corporate law, shareholders can only vote "for" or "withhold" (i.e. abstain) their vote for director nominees. As a result, a single "for" vote can result in a nominee being elected, no matter how many votes were withheld. We have adopted a majority voting policy under which we treat "withhold" votes as if they were votes against a nominee in the case of an uncontested election (i.e. one in which the number of nominees equals the number of Board positions). A nominee who receives more "withhold" votes than "for" votes must promptly tender a resignation to the Chair of the CGCNC for its consideration. Our majority voting policy is described in further detail below under "Corporate Governance" and each nominee has agreed to abide by such policy. Detailed voting results are promptly disclosed after shareholder meetings, so that shareholders can easily understand the level of support for each nominee, as well as each other item of business at the meeting. |
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Meeting Information 9
3. Reappointment of Deloitte as Magna's Independent Auditors |
Deloitte, an Independent Registered Public Accounting Firm, was first appointed Magna's independent auditors on May 8, 2014 and has audited Magna's consolidated financial statements for the fiscal years ended December 31, 2014 and 2015. Services provided by independent auditors may fall into one of the following categories: |
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Audit Services: |
services performed in order to comply with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), including integrated audit of the consolidated financial statements, quarterly reviews and statutory audits of foreign subsidiaries. In some cases, these may include an appropriate allocation of fees for tax services or accounting consultations, to the extent such services were necessary to comply with the standards of the PCAOB. This category includes the audit of our internal control over financial reporting for purposes of Section 404 of the Sarbanes-Oxley Act of 2002. |
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Audit- Related Services: |
assurance and related services, including such things as due diligence relating to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards. Audit-related services actually provided by Deloitte in respect of 2015 consisted of: assurance services and procedures related to the audit of carve-out financial statements for Magna's interiors business, issuance of comfort letters for prospectus supplements, assessments in connection with the COSO 2013 Internal Controls Integrated Framework and other assurance services. |
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Tax Services: |
tax compliance, planning and advisory services, excluding any such services required in order to comply with the standards of the PCAOB which are included under "Audit Services". The tax services actually provided by Deloitte in respect of 2015 consisted of: domestic and international tax advisory, compliance and research services, as well as transfer pricing advisory services. |
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Other Permitted Services: |
all permitted services not falling under any of the previous categories. |
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10 Meeting Information
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Deloitte's Independence In order to protect Deloitte's independence from being compromised by engagements for other services, the Audit Committee has established and maintains a process for the review and pre-approval of all services and related fees to be paid to Deloitte. Pursuant to this approval process, the Audit Committee approved and Magna was billed the following fees for services provided by Deloitte in respect of 2015: |
2015 | 2014 | |||||||
TYPE OF SERVICES |
FEES ($) |
% OF TOTAL |
FEES ($) |
% OF TOTAL |
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Audit | 10,016,000 | 78 | 12,159,000 | 91 | ||||
Audit-related | 1,726,000 | 13 | 99,000 | 1 | ||||
Tax | 1,044,000 | 8 | 1,075,000 | 8 | ||||
Other Permitted | 49,000 | <1 | 4,000 | <1 | ||||
Total | 12,835,000 | 100 | 13,337,000 | 100 | ||||
The Audit Committee has also established a process to pre-approve the future hiring (if any) of current and former partners and employees of Deloitte engaged on Magna's account. No such partners or employees were hired in 2015. |
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Audit Committee Recommendation |
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The Audit Committee unanimously recommends that shareholders vote FOR the resolution reappointing Deloitte as Magna's independent auditors and authorizing the Audit Committee to fix Deloitte's remuneration. |
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Unless otherwise instructed, the persons designated in the form of proxy or Voting Instruction Form intend to vote FOR the resolution reappointing Deloitte. |
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Representatives of Deloitte are expected to attend the Meeting, will have the opportunity to make a statement if they so desire and are expected to be available to respond to appropriate questions from shareholders. |
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Meeting Information 11
4. Advisory Vote on Approach to Executive Compensation |
At the Meeting, shareholders will again have the opportunity to cast an advisory, non-binding vote on Magna's approach to executive compensation this is often referred to as "say on pay". Although the vote is non-binding, the CGCNC will consider the results when assessing future compensation decisions. The text of the resolution reads as follows: "Resolved, on an advisory basis and not to diminish the roles and responsibilities of the board of directors, that the shareholders accept the approach to executive compensation disclosed in the accompanying Management Information Circular/Proxy Statement." |
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Our approach to executive compensation is set out in detail in the Compensation and Performance Report and the Compensation Discussion & Analysis in this Circular. Included in the Compensation and Performance Report is a detailed discussion and benchmarking results demonstrating the strong connection between executive compensation and corporate performance over a three-year period. We encourage you to carefully read these sections of this Circular. |
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We most recently held an advisory vote on executive compensation at our May 7, 2015 annual meeting of shareholders. The say on pay resolution was supported by a significant majority (93%) of the votes cast on the resolution. |
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Board Recommendation |
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The Board of Directors unanimously recommends that shareholders vote FOR the resolution relating to Magna's approach to executive compensation. |
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Unless otherwise instructed, the Magna officers whose names have been pre-printed on the form of proxy or Voting Instruction Form intend to vote FOR such resolution. |
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5. Amendment of Articles of Incorporation |
At the Meeting, shareholders will be asked to approve the following special resolution amending Magna's articles to remove the Corporate Constitution: "Resolved as a special resolution that the articles of the corporation be amended to remove the Corporate Constitution contained in Section 10 thereof." A special resolution requires the support of two-thirds of the votes cast at the Meeting. |
12 Meeting Information
Our Corporate Constitution was adopted by shareholders as part of the articles in 1984. At that time, Magna was a controlled company through a dual class share structure and, in that context, the Corporate Constitution served to balance the interests of various stakeholders, including shareholders, employees and management by prescribing their respective rights to participate in our profits. The Corporate Constitution also acted as a restraint on the exercise of voting power by our former controlling shareholder, who had sufficient votes through multiple voting shares to elect the entire board of directors. For example, one of the key features of the Corporate Constitution was a provision which gave minority shareholders the right to separately elect two directors to our Board if we failed to fulfill certain obligations to shareholders. This provision was deleted from the Corporate Constitution when Magna became a widely-held company with a single class of shares in August 2010. In the years which followed the elimination of the dual class share structure, we have adopted multiple corporate governance best practices aimed at enhancing board oversight and direct accountability to shareholders, including a minimum two-thirds board independence requirement, majority voting and say on pay. In light of all of these factors, the Board believes that the Corporate Constitution is no longer necessary as it does not provide relevant or meaningful protections and its removal from our articles will not adversely affect the corporation or the rights of shareholders. The Corporate Constitution contains a dividend policy which requires distribution annually of 10% and, on average over a three-year period not less than 20%, of our after-tax profits. We intend to continue paying a quarterly dividend from our cash flow from operations, with the aim of regularly increasing the dividend consistent with our practice since 2010. The declaration and payment of dividends, including the dividend rate, is subject to the Board's discretion taking into account our cash flow, earnings, capital requirements, financial condition and other relevant factors. One element of the Corporate Constitution that remains relevant is the 10% profit sharing for eligible employees. Employee profit sharing remains a core element of our unique corporate culture and, accordingly, we intend to maintain it as a way of incenting, motivating and rewarding employees for their contribution to our success. Employee profit sharing remains entrenched in our Employee's Charter, a key continuing policy articulating our operating philosophy and approach towards employees. The Employee's Charter is reinforced by our Operational Principles, another continuing policy which articulates core elements of our operating philosophy and culture. Magna's unique culture, including the core principles on which the company's success was built, is not expected to change and will continue to be reflected in the Employee's Charter and Operational Principles. |
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Board Recommendation |
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The Board of Directors unanimously recommends that shareholders vote FOR the special resolution approving the amendment of Magna's articles of incorporation to remove the Corporate Constitution contained in Section 10 thereof. |
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Unless otherwise instructed, the Magna officers whose names have been pre-printed on the form of proxy or Voting Instruction Form intend to vote FOR such special resolution. |
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Meeting Information 13
6. Adoption of New General By-Laws |
Magna's former general by-law, By-Law No. 1B-92 (the "Former By-Law"), largely dates back to 1992, with minor amendments made in 2007 and 2010. The Former By-law did not reflect a state-of-the-art public company by-law, contained some provisions which reflected the company's prior status as a controlled company and omitted some elements which are advisable for a widely-held public company. Accordingly, Magna's Board adopted a new by-law on March 17, 2016 ("By-Law No. 1"), which is included as an appendix to this Circular, and shareholders are being asked to approve the following resolution at the Meeting: |
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"Resolved that the repeal of By-Law 1B-92 and the adoption of By-Law No. 1 are hereby ratified and confirmed." |
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The most significant change reflected in By-Law No. 1 is the inclusion of an advance notice provision relating to nominations of directors by shareholders. This advance notice provision has been drafted to comply with best practices in Canada aimed at: enabling all shareholders to have sufficient notice regarding the intention of a shareholder to nominate one or more directors at a shareholder meeting; and not unduly restricting shareholders from exercising their right to nominate directors. |
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In order for a shareholder's nomination of a director to be valid, notice must generally be given to the company at least 30 days prior to the date of the company's annual shareholder meeting. Where an annual shareholder meeting has been called on less than 50 days' notice, a shareholder's nomination of a director will be valid if the shareholder notifies the company by the close of business on the tenth day following the first public announcement of the meeting. Where the company has called a special meeting, a shareholder's nomination of a director will be valid if the shareholder notifies the company by close of business on the fifteenth day following the first public announcement of the special shareholders' meeting. There is no maximum notice period for a shareholder's nomination of a director. |
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In addition to the advance notice provision, By-Law No. 1 provides a more complete set of default rules relating to procedural matters than the Former By-Law, including: |
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Calling Directors' Meetings each of the Chair, Chief Executive Officer and any director, or the Secretary on the direction of one of the foregoing, now has the power to call a directors' meeting. The Former By-Law did not permit any director (other than the Chair) to call a directors' meeting, requiring instead a quorum of such directors to call such a meeting. |
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Participation in Directors' Meetings by Electronic Means By-Law No. 1 contains an express provision allowing directors to participate in directors' meetings by electronic means which permit simultaneous/instantaneous communication among participants. |
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Voting at Directors' Meetings By-Law No. 1 expressly states that the Chair does not have a second/casting vote in the event of a deadlock on any matter voted on at a directors' meeting. |
14 Meeting Information
Delegation to Board Committees By-Law No. 1 lists specific matters which cannot lawfully be delegated to a committee of the board. |
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Issuance of Securities in contemplation of the future transition away from physical share certificates for registered shareholders, By-Law No. 1 specifically gives the board the authority to provide by resolution that any securities of the company can be represented by uncertificated securities. |
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Shareholder Meetings by Electronic Means similar to the provision allowing for directors' meetings held by electronic means, By-Law No. 1 expressly allows for shareholder meetings to be held by electronic means that permit all participants to adequately communicate with each other. |
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More Detailed Provisions Relating to Shareholder Meetings By-Law No. 1 contains more detailed provisions relating to matters such as the notice period for shareholder meetings, the impact of an accidental omission in giving notice, rights of representatives of corporate shareholders, rights of joint security holders, the use and revocation of proxies, as well as matters relating to shareholder meeting procedure, including votes by show of hands and use of ballots. |
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Quorum and Voting at Shareholder Meetings consistent with current best practices, By-Law No. 1 sets quorum for shareholder meetings at two shareholders representing at least 25% of the issued and outstanding votes eligible to be cast at the meeting. Additionally, in the event of a deadlock on any matter voted at a shareholder meeting, the Chair does not have a second/casting vote. |
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Unclaimed Dividends By-Law No. 1 states that dividends which remain unclaimed two years after the date they were declared will be forfeited. The two-year period is consistent with the current statutory limitation period in Ontario, but represents a change from the six-year period under the Former By-Law, which reflected the former statutory limitation period. |
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Board Recommendation |
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The Board of Directors unanimously recommends that shareholders vote FOR the resolution ratifying and confirming the repeal of By-Law 1B-92 and the adoption of By-Law No. 1. |
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Unless otherwise instructed, the Magna officers whose names have been pre-printed on the form of proxy or Voting Instruction Form intend to vote FOR such resolution. |
Meeting Information 15
Nominees for Election to the Board
Board Skills and Expertise
The CGCNC seeks to recruit candidates who reflect a diversity of skills, experience and perspectives which are relevant to Magna's business. While the specific mix may vary from time to time and alternative categories may be considered in addition to or instead of those below, the following skills and types of experience are generally sought by the CGCNC:
16 Meeting Information
Meeting Information 17
A skills matrix showing the skills, expertise and qualifications for each of the nominees is set forth below.
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Scott B. Bonham | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | MBA | |||||||||||||||
Peter G. Bowie | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | FCA, MBA | ||||||||||||||||||
Hon. J. Trevor Eyton | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | JD | |||||||||||||||||
Lady Barbara Judge | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | JD | ||||||||||||||||
Dr. Kurt J. Lauk | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | MBA, PhD | |||||||||||||||
Cynthia A. Niekamp | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | MBA | ||||||||||||||||
Dr. Indira V. Samarasekera | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | PhD, PEng | ||||||||||||||||||||
Donald J. Walker | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | PEng | |||||||||||||||||
Lawrence D. Worrall | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | CMA | |||||||||||||||||||
William L. Young | /*/ | /*/ | /*/ | /*/ | /*/ | /*/ | MBA, PEng | |||||||||||||||||||||
Nominee Independence
Nine out of ten, or 90%, of the nominees for election at the Meeting are independent. A summary of the independence determination for each nominee is set forth below:
NOMINEE NAME |
INDEPENDENT |
NON- INDEPENDENT |
BASIS FOR DETERMINATION |
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Scott B. Bonham | ü | No material relationship | ||||
Peter G. Bowie | ü | No material relationship | ||||
Hon. J. Trevor Eyton | ü | No material relationship | ||||
Lady Barbara Judge | ü | No material relationship | ||||
Dr. Kurt J. Lauk | ü | No material relationship | ||||
Cynthia A. Niekamp | ü | No material relationship | ||||
Dr. Indira V. Samarasekera | ü | No material relationship | ||||
Donald J. Walker | ü | Management | ||||
Lawrence D. Worrall | ü | No material relationship | ||||
William L. Young | ü | No material relationship | ||||
18 Meeting Information
Nominees' Meeting Attendance
Directors are expected to attend all Board meetings, as well as all meetings of standing Committees on which they serve, and are welcome to attend any other Committee meetings. However, we recognize that scheduling conflicts are unavoidable from time to time, particularly where meetings are called on short notice. Our Board Charter requires Directors to attend a minimum of 75% of regularly scheduled Board and applicable standing Committee meetings, except where an absence is due to medical or other valid reason. The ten nominees standing for re-election at the Meeting achieved 100% attendance at all Board and applicable Committee meetings (in aggregate), as set forth below.
BOARD | AUDIT(1) | CGCNC(1) | EROC(1) | TOTAL |
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NOMINEE | # | % | # | % | # | % | # | % | # | % | ||||||||||
Scott B. Bonham | 7/7 | 100 | 6/6 | 100 | | | 6/6 | 100 | 19/19 | 100 | ||||||||||
Peter G. Bowie | 7/7 | 100 | 6/6 | 100 | | | | | 13/13 | 100 | ||||||||||
Hon. J. Trevor Eyton | 7/7 | 100 | | | 8/8 | 100 | | | 15/15 | 100 | ||||||||||
Lady Barbara Judge | 7/7 | 100 | | | | | 6/6 | 100 | 13/13 | 100 | ||||||||||
Dr. Kurt J. Lauk | 7/7 | 100 | 6/6 | 100 | | | | | 13/13 | 100 | ||||||||||
Cynthia A. Niekamp | 7/7 | 100 | | | | | 6/6 | 100 | 13/13 | 100 | ||||||||||
Dr. Indira V. Samarasekera | 7/7 | 100 | | | 8/8 | 100 | | | 15/15 | 100 | ||||||||||
Donald J. Walker | 7/7 | 100 | | | | | | | 7/7 | 100 | ||||||||||
Lawrence D. Worrall | 7/7 | 100 | 6/6 | 100 | | | 6/6 | 100 | 19/19 | 100 | ||||||||||
William L. Young | 7/7 | 100 | | | 8/8 | 100 | | | 15/15 | 100 | ||||||||||
Notes:
2015 Annual Meeting Vote Results
Each of the ten nominees standing for re-election received a substantial majority of votes "for" his or her election at our 2015 annual meeting of shareholders, as set forth in the table below.
2015 | ||||
VOTES FOR (%) |
VOTES WITHHELD (%) |
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Scott B. Bonham | 99.5 | 0.5 | ||
Peter G. Bowie | 99.9 | 0.1 | ||
Hon. J. Trevor Eyton | 97.8 | 2.2 | ||
Lady Barbara Judge | 99.9 | 0.1 | ||
Dr. Kurt J. Lauk | 99.5 | 0.5 | ||
Cynthia A. Niekamp | 99.9 | 0.1 | ||
Dr. Indira V. Samarasekera | 99.9 | 0.1 | ||
Donald J. Walker | 99.9 | 0.1 | ||
Lawrence D. Worrall | 99.7 | 0.3 | ||
William L. Young | 99.3 | 0.7 | ||
Meeting Information 19
Nominees' Magna Equity Ownership
We believe it is important that each Independent Director be economically aligned with shareholders. We try to achieve such alignment in two principal ways:
Each of Magna's nominees is in compliance with the minimum equity maintenance requirement and many exceed it. New directors are entitled to a five year period in which to accumulate the minimum required value of Common Shares and/or DSUs.
The ten nominees held Magna Common Shares and/or DSUs with the following total value, as of December 31, 2015:
|
COMMON SHARES |
DSUS |
TOTAL EQUITY "AT RISK"(1) ($) |
EQUITY MAINTENANCE REQUIREMENT |
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Scott B. Bonham | | 32,778 | 1,329,000 | Exceeds | ||||
Peter G. Bowie | 7,000 | 25,388 | 1,314,000 | Exceeds | ||||
Hon. J. Trevor Eyton | | 26,355 | 1,069,000 | Exceeds | ||||
Lady Barbara Judge | 8,000 | 101,814 | 4,454,000 | Exceeds | ||||
Dr. Kurt J. Lauk | 110 | 19,835 | 809,000 | Exceeds | ||||
Cynthia A. Niekamp | 1,000 | 2,905 | 158,000 | Complies | ||||
Dr. Indira V. Samarasekera | | 8,310 | 337,000 | Complies | ||||
Donald J. Walker | 1,400,210 | 244,305 | (2) | 66,702,000 | Exceeds | |||
Lawrence D. Worrall | 13,628 | 46,535 | 2,440,000 | Exceeds | ||||
William L. Young | 1,860 | 59,708 | 2,497,000 | Exceeds | ||||
Notes:
20 Meeting Information
Biographies of 2016 Nominees
Independent | ||
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Scott B. Bonham California, U.S.A. Age: 54 Director Since: May 10, 2012 |
Mr. Bonham brings to the Board a technology/innovation-centred perspective which reflects his deep understanding of the long-term value creation potential possessed by some of the world's most innovative companies.
Mr. Bonham is the Co-Founder and Partner of The Fueling Station, a real estate management company that manages properties serving Canadian entrepreneurs and start-up companies. He co-founded GGV Capital, an expansion stage venture capital firm with investments in the U.S. and China, where he served as a Venture Partner (2011-2015) and a Partner (2000-2011). Prior to co-founding GGV in 2000, Mr. Bonham served as Vice-President of the Capital Group of Companies, where he managed technology investments across several mutual funds (1996-2000). Mr. Bonham also previously served in various marketing roles at Silicon Graphics (1992-1996), as a manufacturing and information systems strategy consultant at Booz, Allen & Hamilton (1989-1992) and systems engineer and maintenance foreman at General Motors of Canada. Mr. Bonham has previously served on a number of private and public company boards and audit committees, including Hurray! Holding Co. Ltd., the shares of which were quoted on the Nasdaq National Market. He is currently a board member of the C100, an association that connects Canadian entrepreneurs and companies with its Silicon Valley network. Mr. Bonham has a B.Sc in electrical engineering (Queen's) and an MBA (Harvard).
Mr. Bonham serves as a director of the Bank of Nova Scotia, which provides routine banking services to Magna. Magna's fees to the Bank of Nova Scotia in 2015 amounted to approximately $2.5 million, in relation to the bank's total 2015 revenues of over $24 billion. In the event of a conflict of interest on any matter, Mr. Bonham will not participate in the portion of the meeting at which the matter is discussed, nor in any Board decision on the matter. No such issues arose in 2015.
Other Public Company Boards: Bank of Nova Scotia
Independent | ||
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Peter G. Bowie Ontario, Canada Age: 69 Director Since: May 10, 2012 |
Mr. Bowie brings to the Board financial expertise, a dedication to Audit Committee excellence, a strong understanding of strategy and risk, as well as detailed insight of political and economic dynamics within China.
Mr. Bowie is a corporate director who most recently served as the Chief Executive of Deloitte China from 2003 to 2008, as well as senior partner and a member of the board and the management committee of Deloitte China until his retirement from the firm in 2010. Mr. Bowie was previously Chairman of Deloitte Canada (1998-2000), a member of the firm's management committee and a member of the board and governance committees of Deloitte International. He is a past member of the board of the Asian Corporate Governance Association and has served on a variety of boards in the private and non-governmental organization sectors. Mr. Bowie has a B.Comm (St. Mary's), as well as an MBA (Ottawa) and has received an honorary doctorate (Ottawa). Mr. Bowie completed the Advanced Management Program (Harvard) and is a Fellow of the Institute of Chartered Accountants of Ontario, as well as the Australian Institute of Corporate Directors.
Other Public Company Boards: China COSCO Holding Company Ltd. (Strategic Development (Chair); Risk)
Meeting Information 21
Independent | ||
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Hon. J. Trevor Eyton Ontario, Canada Age: 81 Director Since: May 6, 2010 |
Mr. Eyton brings to the Board broad-based counsel which reflects his extensive legal expertise, business acumen and "blue-chip" board experience. He also brings a balanced perspective reflecting a strong appreciation for issues from the perspectives of both senior management and board.
Mr. Eyton is a corporate director who served as a Member of the Senate of Canada from 1990 until his retirement in 2009. He is highly respected for his lengthy service with Brascan Limited, now known as Brookfield Asset Management, a Canadian-based, global asset manager focused on property, renewable power, infrastructure assets and private equity. Mr. Eyton served as Brascan's President and Chief Executive Officer (1979 to 1991), as well as its Chairman and Senior Chairman (to 1997) and as a director (to 2014). Prior to his service with Brascan, Mr. Eyton was a partner with the law firm Torys and has served on numerous public and private company boards, including that of General Motors Canada. Mr. Eyton has been appointed an Officer of the Order of Canada and Queen's Counsel for Ontario. He has a B.A. (Toronto), as well as a J.D. (Toronto) and has received two honorary doctorates of law (Waterloo; King's College (Dalhousie)).
Other Public Company Boards: Silver Bear Resources Inc. (Audit; Compensation; Governance & Environmental); LeadFX (Compensation (Chair)); Cancana Resources Corp. (Audit, Compensation & Governance); and Brookfield Real Estate Services Inc. (Compensation and Governance)
Independent | ||
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Lady Barbara Judge London, England Age: 69 Director Since: September 20, 2007 |
Lady Judge brings to the Board a broad-based global business perspective, complemented by significant legal and regulatory expertise, as well as practical corporate governance and risk management experience. Lady Judge's risk awareness and understanding of risk management processes, drawn in part from her experience in the nuclear industry and as a securities regulator, have been particularly valuable to the EROC, which she chairs.
Lady Judge is a corporate director who previously enjoyed a successful international career as a law firm partner, senior executive, chairman and non-executive director in both the private and public sectors and is highly regarded for her governance expertise. In 2015, Lady Judge assumed the role of National Chair of the Institute of Directors (U.K.), a representative organization for directors with approximately 38,000 members in the U.K. and elsewhere. Lady Judge previously served as Chairman of the Board of the United Kingdom Atomic Energy Authority (from 2004 to 2010), prior to which she was a Board member (since 2002). In addition, Lady Judge formerly served as a Commissioner of the U.S. Securities Exchange Commission and Deputy Chairman of the U.K. Financial Reporting Council. In 2010, she was appointed a Commander of the Order of the British Empire for her contributions to the financial services and nuclear industries. Lady Judge has a B.A. (U. Penn) and a J.D. (NYU School of Law).
Lady Judge serves as the non-executive chair of the U.K. Pension Protection Fund (the "PPF"), but will retire in June 2016. In 2015, Magna purchased a U.K.-based automotive supplier, Stadco Automotive Limited, the largest shareholder of which was the PPF. Lady Judge declared her interest, recused herself from the discussion of the transaction and abstained from approval of the transaction.
Other Public Company Boards*: Portmeirion Group plc (Audit; Compensation); Lixil Group Corporation
22 Meeting Information
Independent | ||
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Dr. Kurt J. Lauk Baden-Württemberg, Germany Age: 69 Director Since: May 4, 2011 |
Dr. Lauk brings to the Board valuable insights regarding the European automotive industry and the global activities of European OEMs and suppliers, together with a focus on long-term strategy and a strong understanding of technology/innovation both within and outside the automotive industry. Dr. Lauk's analytical perspective also draws upon his significant expertise in global political, economic and strategic affairs.
Dr. Lauk is the co-founder and President of Globe CP GmbH, a private investment firm. He possesses extensive European automotive industry experience, primarily through his positions as Member of the Board of Management and Head of World Wide Commercial Vehicles Division of Daimler Chrysler (1996-1999), as well as Deputy Chief Executive Officer and Chief Financial Officer (with responsibility for finance, controlling and marketing) of Audi AG (1989-1992). Dr. Lauk has other extensive senior management experience, including as Chief Financial Officer and Controller of Veba AG (now known as E.On AG) (1992-1996), Chief Executive Officer of Zinser Textil Machinery GmbH (1984-1989) and as a Partner and Vice-President of the German practice of Boston Consulting Group (1978-1984). Dr. Lauk served as a Member of European Parliament (2004-2009), including as a Member of the Economic and Monetary Affairs Committee and Deputy Member of the Foreign and Security Affairs Committee. He currently serves as a Trustee of the International Institute for Strategic Studies in London and is an honorary professor with a chair for international studies at the prestigious European Business School in Reichartshausen, Germany. Dr. Lauk possesses both a PhD in international politics (Kiel), as well as an MBA (Stanford).
Other Public Company Boards*: Solera Holdings Inc. (Audit; Corporate Governance)
Independent | ||
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Cynthia A. Niekamp Michigan, U.S.A. Age: 56 Director Since: May 8, 2014 |
Ms. Niekamp brings to the Board extensive senior management experience within the automotive parts industry, including a highly technical understanding of operational matters derived from her engineering background.
Ms. Niekamp is a corporate director who most recently served as the Senior Vice-President, Automotive Coatings, of PPG Industries, Inc. She possesses over 30 years of automotive and other industrial manufacturing experience through her prior roles at PPG (2009 to 2016); BorgWarner, where she served as President & General Manager, BorgWarner Torq Transfer Systems (2004 to 2008); MeadWestvaco Corporation, where she served in various roles (1995 to 2004), including Senior Vice-President & Chief Financial Officer (2003 to 2004) and President, Special Paper Division (1998 to 2002); TRW (1990 to 1995); and General Motors (1983 to 1990). Ms. Niekamp currently serves as a Trustee of Kettering University and previously served on the boards of Rockwood Holdings, Delphi Corp. and Cooper Tire and Rubber, as well as Berkshire Applied Technology Council. Ms. Niekamp has a B.S. in industrial engineering (Purdue), as well as an MBA (Harvard).
During 2015, Ms. Niekamp was employed by PPG Industries, which is a supplier to Magna with global sales to the company of approximately $75 million on consolidated sales of over $15 billion. No conflicts of interest arose during 2015 in respect of Ms. Niekamp's role as an officer of PPG and service as a director of Magna.
Other Public Company Boards: None
Meeting Information 23
Independent | ||
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Dr. Indira V. Samarasekera British Columbia, Canada Age: 63 Director Since: May 8, 2014 |
Dr. Samarasekera brings to the Board a proven record of technical expertise, demonstrated leadership success, tangible success in building international relationships and a long-standing commitment to R&D/innovation, which is one of the company's top priorities.
Dr. Samarasekera is a corporate director and Senior Advisor at Bennett Jones, LLP, who most recently served as the President and Vice-Chancellor of the University of Alberta (2005 to 2015). Dr. Samarasekera is internationally recognized as a leading metallurgical engineer, including for her work on steel process engineering for which she was appointed an Officer of the Order of Canada. Prior to becoming the President of the University of Alberta, Dr. Samarasekera was Vice-President Research and held the Dofasco Chair in Advanced Steel Processing at the University of British Columbia (1996 to 2001). Among other things, Dr. Samarasekera formerly served as Chair of the Worldwide Universities Network and was previously a member of Canada's Science, Technology and Innovation Council as well as Canada's Global Commerce Strategy. Dr. Samarasekera has an M.Sc in mechanical engineering (California), as well as a PhD in metallurgical engineering (British Columbia) and is a Professional Engineer (P.Eng) who has been elected as a Foreign Associate of the National Academy of Engineering in the U.S.
Dr. Samarasekera serves as a director at the Bank of Nova Scotia, which provides routine banking services to Magna. Magna's fees to the Bank of Nova Scotia in 2015 amounted to approximately $2.5 million, in relation to the bank's total 2015 revenues of over $24 billion. In the event of a potential conflict of interest on any matter, Dr. Samarasekera will not participate in the portion of the meeting at which the matter is discussed, nor in any Board decision on the matter. No such issues arose in 2015.
Other Public Company Boards: Bank of Nova Scotia (Human Resources; Corporate Governance); TransCanada Corporation
Management | ||
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Donald J. Walker Ontario, Canada Age: 59 Director Since: November 7, 2005 |
Mr. Walker, Magna's Chief Executive Officer, is Management's sole representative on the Board. He brings extensive knowledge and understanding of the automotive industry, as well as the company's culture, operations, key personnel, customers, suppliers and the complex drivers of its success. He has demonstrated a commitment to transparent and effective leadership, responsiveness to the Board and integrity in all aspects of the company's business, while pushing the organization to reach its full potential through World Class Manufacturing, innovation and leadership development. Mr. Walker continues to actively shape Magna's strategic vision and mission in conjunction with the Board, with an unwavering focus on excellence in execution/implementation and legal/regulatory compliance, as well as prudence in stewardship over the company's assets, employees, reputation and value. Mr. Walker was Canada's 2014 Outstanding CEO of the Year and named to Fortune Magazine's Businessperson of the Year list in 2015.
Mr. Walker previously served as Magna's Co-Chief Executive Officer (2005-2010) and President and Chief Executive Officer (1994-2001). He was formerly the President, Chief Executive Officer and Chairman of Intier Automotive Inc. (2001-2005), one of Magna's former "spinco" public subsidiaries. Prior to joining Magna in 1987, Mr. Walker spent seven years at General Motors in various engineering and manufacturing positions. He is currently the Chair (since October 2011, previously Co-Chair since 2002), of the Canadian Automotive Partnership Council (CAPC) with the Canadian federal and provincial governments, which serves to identify both short- and long-term priorities to help ensure the future health of the automotive industry in Canada. Mr. Walker is also the past Chairman of the Automotive Parts Manufacturers Association (APMA). Mr. Walker is a professional engineer with a B.Sc in mechanical engineering (Waterloo).
Other Public Company Boards: None
24 Meeting Information
Independent | ||
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Lawrence D. Worrall Ontario, Canada Age: 72 Director Since: November 7, 2005 |
Mr. Worrall brings to the Board extensive automotive industry experience, together with a dedication to Audit Committee excellence and a commitment to the integrity of Magna's financial statements. As Chairman of Magna's Audit Committee, Mr. Worrall worked extensively with representatives of Deloitte and Management to help maximize the benefits to the Board, Audit Committee and the company's shareholders arising from the rotation of auditors in 2014.
Mr. Worrall is a corporate director and certified management accountant who formerly served as the Vice-President, Purchasing, Strategic Planning and Operations, as well as a Director of General Motors of Canada Limited (1995-2000). In his capacity as an officer of GM Canada, Mr. Worrall had responsibility for a number of significant matters, including: purchasing, logistics, GM Canada's manufacturing facilities, forward product planning and the execution of the manufacturing plan for all plants.
Other Public Company Boards: None
Independent | ||
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William L. Young Massachusetts, U.S.A. Age: 61 Director Since: May 4, 2011 |
Mr. Young, the Chairman of the Board (since 2012), brings to the Board a highly effective consensus-building leadership style anchored by strong business acumen developed across a broad range of businesses and industries. He has been highly effective in cultivating a constructive but independent relationship with Management, as well as an open, constructive dialogue with shareholders, potential investors, shareholder representative organizations and others in the corporate governance community. In his capacity as Chairman of the CGCNC, Mr. Young has been active in engagement with shareholders and instrumental in the evolution of Magna's unique compensation structure in a manner which reasonably preserves its core elements while responsively addressing constructive feedback received from shareholders and others.
Mr. Young is a co-founder and partner of Monitor Clipper Partners, a private equity firm established in 1998. Through his role at Monitor Clipper Partners, together with roles as founding partner of Westbourne Management Group (since 1988) and a partner in the European practice of Bain & Company (1981-1988), Mr. Young possesses significant operational experience, as well as extensive mergers and acquisitions experience. He is Chair Emeritus of the Board of Trustees of Queen's University (Kingston, Ontario) (which he chaired from 2006 to 2012) and has significant private company board and board leadership experience over the last 20 years, including a number of European and U.S.-based companies. Mr. Young has a B.Sc in chemical engineering (Queen's) and an MBA (Harvard).
Other Public Company Boards*: None
Meeting Information 25
Director Compensation
Objectives of Director Compensation
We have structured the compensation for our Independent Directors with the aim of attracting and retaining skilled independent directors and aligning their interests with the interests of our long-term shareholders. To accomplish these objectives, we believe that such compensation must be competitive with that paid by our S&P/TSX60 peer companies, as well as the global automotive and industrial peers in our executive compensation peer group. Additionally, we believe that the majority of such compensation must be deferred until retirement, thus tying the redemption value to the market value of our Common Shares and placing it "at risk" to align the interests of Independent Directors with those of shareholders. Management directors do not receive any compensation for serving as directors.
Compensation Structure
We compensate Independent Directors through a combination of:
The CGCNC has responsibility for reviewing Independent Director compensation and typically reviews it approximately every two years. When last reviewed in 2014, the CGCNC engaged its independent compensation advisor, Hugessen Consulting, to review and benchmark Magna's compensation for Independent Directors against two peer groups one consisting of large capitalization companies in the S&P/TSX60 index and the other consisting of the global automotive and industrial peers in Magna's executive compensation peer group. Hugessen reviewed both the structure of Magna's director compensation program and actual compensation earned against the two peer groups. Its analysis found that while director compensation levels in the industry peer group were
26 Meeting Information
higher than those of the S&P/TSX60 peer group, Magna fell within the competitive norms of both peer groups. Hugessen also noted that Magna's Independent Directors had a greater proportion of their compensation paid in equity (DSUs) and they were subject to more stringent equity maintenance requirements than their peers. Based on Hugessen's review, the CGCNC kept Magna's Independent Director compensation unchanged.
The current schedule of retainers and fees payable to our Independent Directors is set forth below.
RETAINER/FEE TYPE |
AMOUNT ($) |
||
---|---|---|---|
Comprehensive Board Chair annual retainer (minimum 60% DSUs; maximum 40% cash) | 500,000 | ||
Independent Director annual retainer (minimum 60% DSUs; maximum 40% cash) | 150,000 | ||
Committee member annual retainer | 25,000 | ||
Additional Committee Chair annual retainer | |||
Audit | 25,000 | ||
CGCNC | 25,000 | ||
EROC | 25,000 | ||
Special Committees (unless otherwise determined by the Board) | 25,000 | ||
Per meeting fee | 2,000 | ||
Written resolution | 400 | ||
Additional services (per day) | 4,000 | ||
Travel days (per day) | 4,000 | ||
2015 Independent Directors' Compensation
The following table sets forth a summary of the compensation earned by all individuals who served as Independent Directors during the year ended December 31, 2015.
FEES EARNED(1) |
SHARE- BASED AWARDS(2) |
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NAME | ($) | % OF FEES |
($) | % OF FEES |
OPTION- BASED AWARDS ($) |
NON-EQUITY INCENTIVE PLAN COMPENSATION ($) |
PENSION VALUE ($) |
ALL OTHER(3) ($) |
TOTAL ($) |
||||||||||
Scott B. Bonham | NIL | | 394,000 | 100% | NIL | NIL | NIL | NIL | 394,000 | (3) | |||||||||
Peter G. Bowie | NIL | | 219,000 | 100% | NIL | NIL | NIL | NIL | 219,000 | ||||||||||
Hon. J. Trevor Eyton | 66,000 | 30% | 156,000 | 70% | NIL | NIL | NIL | NIL | 222,000 | ||||||||||
V. Peter Harder | NIL | | 276,000 | 100% | NIL | NIL | NIL | NIL | 276,000 | ||||||||||
Lady Barbara Judge | NIL | | 277,000 | 100% | NIL | NIL | NIL | NIL | 277,000 | ||||||||||
Dr. Kurt J. Lauk | 43,000 | 16% | 218,000 | 84% | NIL | NIL | NIL | NIL | 261,000 | ||||||||||
Cynthia A. Niekamp | 137,000 | 60% | 90,000 | 40% | NIL | NIL | NIL | NIL | 227,000 | ||||||||||
Dr. Indira V. Samarasekara | | | 261,000 | 100% | NIL | NIL | NIL | NIL | 261,000 | ||||||||||
Lawrence D. Worrall | 191,000 | 68% | 90,000 | 32% | NIL | NIL | NIL | NIL | 281,000 | ||||||||||
William L. Young | 200,000 | 40% | 300,000 | 60% | NIL | NIL | NIL | NIL | 500,000 | ||||||||||
Notes:
Meeting Information 27
Deferred Share Units
Mandatory Deferral Creates Alignment With Shareholders
We maintain a Non-Employee Director Share-Based Compensation Plan (the "DSU Plan") which governs the retainers and fees that are deferred in the form of DSUs. In addition to the 60% of the annual retainer that is automatically deferred, each Independent Director may annually elect to defer up to 100% (in increments of 25%) of his or her total annual cash compensation from Magna (including Board and Committee retainers, meeting attendance fees, work and travel day payments and written resolution fees). All DSUs are fully vested on the date allocated to an Independent Director under the DSU Plan. Amounts deferred under the DSU Plan cannot be redeemed until an Independent Director's retirement from the Board. The mandatory deferral until retirement aims to align the interests of Independent Directors with those of shareholders.
DSU Value is "At Risk"
DSUs are notional stock units. The value of a DSU increases or decreases in relation to the NYSE market price of one Magna Common Share and dividend equivalents are credited in the form of additional DSUs at the same times and in the same amounts as dividends that are declared and paid on our Common Shares. Upon an Independent Director's retirement from the Board, we will deliver Magna Common Shares equal to the number of whole DSUs credited to the Independent Director in satisfaction of the redemption value of the DSUs.
Director Stock Options
We previously granted stock options to Independent Directors, with the last such grant having been made in May 2010. We amended and restated our 2009 Stock Option Plan in 2013 to, among other things, eliminate Independent Directors as eligible participants for future awards under the plan. A total of 20,000 previously granted options are fully vested, remain unexercised and will expire in May 2017 if not exercised prior to the expiry date.
Outstanding Option-Based & Share-Based Awards
Outstanding option-based and share-based awards (DSUs) for each of our Independent Directors as of December 31, 2015 were as follows:
OPTION-BASED AWARDS | SHARE-BASED AWARDS | |||||||||||||
NAME |
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) |
OPTION EXERCISE PRICE (C$) |
OPTION EXPIRATION DATE (MM/DD/YY) |
VALUE OF UNEXERCISED IN-THE- MONEY OPTIONS(1) ($) |
NUMBER OF SHARES OR UNITS THAT HAVE NOT VESTED (#) |
MARKET OR PAYOUT VALUE OF SHARE- BASED AWARDS THAT HAVE NOT VESTED ($) |
MARKET OR PAYOUT VALUE OF VESTED SHARE-BASED AWARDS NOT PAID OUT OR DISTRIBUTED(2) ($) |
|||||||
Scott B. Bonham | NIL | NIL | NIL | NIL | NIL | NIL | 1,329,000 | |||||||
Peter G. Bowie | NIL | NIL | NIL | NIL | NIL | NIL | 1,030,000 | |||||||
Hon. J. Trevor Eyton | NIL | NIL | NIL | NIL | NIL | NIL | 1,069,000 | |||||||
V. Peter Harder | NIL | NIL | NIL | NIL | NIL | NIL | 1,178,000 | |||||||
Lady Barbara Judge | 20,000 | 17.99 | 05/09/17 | 551,000 | NIL | NIL | 4,130,000 | |||||||
Dr. Kurt J. Lauk | NIL | NIL | NIL | NIL | NIL | NIL | 805,000 | |||||||
Cynthia A. Niekamp | NIL | NIL | NIL | NIL | NIL | NIL | 118,000 | |||||||
Dr. Indira V. Samarasekera | NIL | NIL | NIL | NIL | NIL | NIL | 337,000 | |||||||
Lawrence D. Worrall | NIL | NIL | NIL | NIL | NIL | NIL | 1,887,000 | |||||||
William L. Young | NIL | NIL | NIL | NIL | NIL | NIL | 2,422,000 | |||||||
Notes:
28 Meeting Information
Incentive Plan-Awards Value Vested During the Year
The values of option-based and share-based awards (DSUs) which vested in the year ended December 31, 2015 are set forth below in respect of each of our Independent Directors:
NAME |
OPTION-BASED AWARDS VALUE VESTED DURING THE YEAR ($) |
SHARE-BASED AWARDS VALUE VESTED DURING THE YEAR(1) ($) |
NON-EQUITY INCENTIVE PLAN COMPENSATION VALUE EARNED DURING THE YEAR ($) |
|||
---|---|---|---|---|---|---|
Scott B. Bonham | NIL | 419,000 | NIL | |||
Peter G. Bowie | NIL | 239,000 | NIL | |||
Hon. J. Trevor Eyton | NIL | 175,000 | NIL | |||
V. Peter Harder | NIL | 299,000 | NIL | |||
Lady Barbara Judge | NIL | 364,000 | NIL | |||
Dr. Kurt J. Lauk | NIL | 231,000 | NIL | |||
Cynthia A. Niekamp | NIL | 92,000 | NIL | |||
Dr. Indira V. Samarasekera | NIL | 265,000 | NIL | |||
Lawrence D. Worrall | NIL | 125,000 | NIL | |||
William L. Young | NIL | 343,000 | NIL |
|||
Note:
Trading Blackouts and Restriction on Hedging Magna Securities
Trading Blackouts
Directors are subject to the terms of our Insider Trading and Reporting Policy and Code of Conduct & Ethics, both of which restrict directors from trading in Magna securities while they have knowledge of material, non-public information. One way in which we enforce trading restrictions is by imposing trading "blackouts" on directors for specified periods prior to the release of our financial statements and as required in connection with material acquisitions, divestitures or other transactions. The regular quarterly trading blackouts commence at 11:59 p.m. on the last day of each fiscal quarter and end 48 hours after the public release of our quarterly financial statements. Special trading blackouts related to material transactions extend to 48 hours after the public disclosure of the material transaction or other conclusion of the transaction.
Anti-Hedging Restrictions
Directors are not permitted to engage in activities which would enable them to improperly profit from changes in our stock price or reduce their economic exposure to a decrease in our stock price. Prohibited activities include "puts", "collars", equity swaps, hedges, derivative transactions and any transaction aimed at limiting a director's exposure to a loss or risk of loss in the value of the Magna securities which he or she holds.
Meeting Information 29
Corporate Governance Overview
Magna believes that strong corporate governance practices are essential to fostering stakeholder trust and confidence, management accountability and long-term shareholder value. Since 2010, Magna has embarked on a program of corporate governance renewal which has been well-received by shareholders and recognized in the corporate governance community as well as the media. We believe that our current corporate governance practices reflect virtually all corporate governance best practices recognized in Canada and the significant improvement in third-party corporate governance rankings and ratings of our governance evidences this. Nevertheless, we will continue to monitor and, where appropriate, adapt our practices as corporate governance practices in Canada continue to evolve.
Governance Regulation
Magna's Common Shares are listed on the TSX (stock symbol: MG) and the NYSE (stock symbol: MGA). In addition to being subject to regulation by these stock exchanges, we are subject to securities and corporate governance regulation by the Canadian Securities Administrators ("CSA"), including the Ontario Securities Commission, which is Magna's primary securities regulator. Magna is also regulated by the United States Securities and Exchange Commission ("SEC") as a "foreign private issuer".
We meet or exceed all of the guidelines established by the CSA in National Policy 58-201 Corporate Governance Guidelines. Additionally, although we are not required to comply with most of NYSE's Corporate Governance Standards, our practices do not differ significantly from them. Any such differences are discussed in the "Statement of Significant Governance Differences (NYSE)" which can be found on our website (www.magna.com) under "Corporate Governance".
Magna also monitors the voting policies, corporate governance guidelines and recommended best practices of our largest institutional shareholders, shareholder representative organizations, such as the Canadian Coalition for Good Governance, as well as proxy advisory firms, such as Institutional Shareholder Services and Glass Lewis & Co.
Approach to Corporate Governance
Board's Stewardship Role
The Board is responsible for the overall stewardship of Magna. To this end, the Board: supervises the management of the business and affairs of Magna in accordance with the legal requirements set out in the Business Corporations Act (Ontario) ("OBCA"), as well as other applicable law; and, jointly with Management, seeks to create long-term shareholder value. The Board's stewardship role, specific responsibilities, compositional requirements and various other matters are set forth in the Board Charter, which can be found on our website (www.magna.com) under "Corporate Governance".
Consistent with the standard of care for directors under the OBCA, each director on the Board seeks to act honestly and in good faith with a view to the best interests of the corporation and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The standard of care under Ontario corporate law differs from that of some other common law jurisdictions, by requiring directors to act in the "best interests of the corporation" as opposed to the "best interests of shareholders". This distinction effectively recognizes that while individual shareholders may have conflicting interests, investment intents and
30 Corporate Governance
investing horizons, the stewards of a corporation must act with a view to the interests of the corporation as a whole. Consistent with case law developed under the OBCA and equivalent federal and provincial corporate statutes in Canada, Magna's Board seeks to consider and balance the impact of its decisions on its affected stakeholders, including shareholders, other security holders and employees.
Board Charter
Our corporate governance framework is set forth in our Board Charter, which has been filed on SEDAR (www.sedar.com) and is available on our website (www.magna.com) under "Corporate Governance". The Board Charter articulates the stewardship role mentioned above and identifies specific responsibilities to be fulfilled by the Board, including:
The Board receives regular updates on Magna's leadership development and succession planning activities, from our Chief Executive Officer and our Chief Human Resources Officer. Overall, the Board is satisfied that Magna has in place appropriate succession plans addressing key positions within the company, including the Chief Executive Officer's, as well as a leadership development system which supports the company's succession planning objectives more generally. The Board has had the
Corporate Governance 31
opportunity to engage with a number of future potential leaders of the company and is satisfied that there is a pool of qualified internal candidates to fill critical Management positions which become available from time to time.
The Board also oversees the allocation of capital and annually approves the capital expenditures budget for that fiscal year at the business and strategic planning session. In approving capital, the Board is focused on ensuring that the company can deliver on the Board-approved strategic priorities and meet its product and program commitments to customers. Updates regarding changes in capital expenditure needs are presented quarterly and further Board approval is required where the company's capital expenditures are forecast to exceed the Board-approved amount for that year.
The Board has delegated specific areas of risk oversight to its standing Committees so that the directors on such Committees can bring their particular knowledge and expertise to the risks falling within the Committee's authority. For example, the Board has delegated to the Audit Committee the oversight responsibility for financial and financial reporting risks, while the CGCNC has been delegated oversight responsibilities for governance, compensation and succession risks. The EROC has been delegated oversight responsibility for health, safety, environmental, legal/regulatory compliance and operational risks, as well as risks not falling within the other Committees' mandates and it seeks to coordinate with the Audit Committee and CGCNC in respect of their risk responsibilities. Directors have been cross-appointed between the Audit Committee and EROC, as well as the CGCNC and EROC, to assist the Committees in sharing their risk management knowledge and coordinating their risk oversight activities.
32 Corporate Governance
The Board's shareholder engagement activities are led by Mr. Young, the Chairman of the Board and the CGCNC. Board-led discussions typically relate to matters such as corporate governance and executive compensation. Significant shareholder and investor outreach is also conducted by members of our Executive Management team as part of our regular investor relations activities. Feedback communicated by shareholders and investors to the Executive Management team is shared with the CGCNC on a quarterly basis and the Chairman of the Board reports to the CGCNC and the full Board on a quarterly basis regarding shareholder engagement activities conducted by him.
In addition to identifying the above responsibilities, the Board Charter helps to define the role of the Board with respect to various fundamental actions, such as financial statements, material public disclosure documents, business plans and capital expenditure budgets, material financing documents, major organizational restructurings, material acquisitions and divestitures, as well as major corporate policies. We believe that the identification and definition of Board responsibility for the foregoing items promotes Board independence.
Shareholder Democracy
Magna's approach to corporate governance reflects the following basic principles of shareholder democracy:
A director who has tendered a resignation under our majority voting policy is not permitted to participate in the CGCNC's consideration of how to handle the resignation. Unless there are extraordinary circumstances, the CGCNC will recommend that the Independent Directors accept the resignation, effective within no more than 90 days after the annual meeting. We will promptly disclose in a press release the determination made by the Independent Directors and, in the event they reject a resignation under the majority voting policy, we will disclose the reasons for the rejection.
Where the CGCNC accepts a director's resignation under our majority voting policy, it may recommend and the Independent Directors may accept one of the following three outcomes:
Corporate Governance 33
The Board will give serious consideration to the voting results for shareholder proposals, even if they are only advisory in nature.
Ethical Business Conduct
We maintain a Code of Conduct & Ethics, which is disclosed on the corporate governance section of our website (www.magna.com) in multiple languages. The Code, which is administered and overseen by the EROC, applies equally to all of our directors, officers and employees. The Code is reviewed at least annually and proposed amendments must be approved by the Board. Any waivers of the Code for directors or executive officers must be approved by the EROC, while waivers for other employees must be approved by our Chief Legal Officer, Corporate Secretary or Chief Human Resources Officer. No waivers of the Code were granted in 2015.
The EROC also oversees our compliance training program, which aims to assist employees in understanding the values, standards and principles underlying the Code of Conduct & Ethics, as well as the application of such values, standards and principles to real-life situations encountered by employees in different roles. Our compliance program involves multiple elements, including live and online training, with live training typically conducted by external and/or in-house lawyers.
We maintain a confidential and anonymous whistle-blowing line known as the Good Business Lines ("GBL"), which is overseen by the Audit Committee. Stakeholders may make submissions to the GBL by phone or internet. The intake of all such submissions is managed by a third-party service provider and submissions are investigated by Magna's Internal Audit Department and/or external counsel (where applicable).
Corporate Social Responsibility
For decades, Magna has not only believed in the principle of being a good corporate citizen, but has demonstrated that commitment through our support for numerous social and charitable causes, primarily in the communities around the world in which our employees live and work. Through our donations and sponsorships, we provide significant support to local communities in areas such as health/wellness, youth sports, technical and vocational training and education, as well as culture. Aside from our local communities, we recognize the devastation that may be inflicted on communities by natural disasters and thus have contributed significant amounts to reputable charitable organizations, in support of refugee aid, as well as earthquake, tsunami, hurricane and other disaster relief.
In addition to such charitable giving, Magna's commitment to social responsibility is reflected in our approach to the following issues.
34 Corporate Governance
and inspections, the results of which are reported to the EROC. In connection with our commitment to environmental stewardship, 198 or 68% of our manufacturing facilities were ISO 14001 certified as at December 31, 2015 and 23 facilities were ISO 50001 certified as of such date.
Corporate Governance 35
Diversity
Magna is committed to an operating philosophy, reflected in the company's long-standing Employee's Charter, which is based on fairness and concern for people. One of the core principles in the Employee's Charter is that of fair treatment Magna offers equal opportunities based on an individual's qualifications and performance, free from discrimination or favouritism. Employees' personal career growth and advancement are intended to be based on merit. Any employee who believes that the company is not living up to any of the principles in the Employee's Charter, including the principle of fair treatment, can seek redress through the Hotline, a confidential and anonymous process established to give employees a mechanism to hold Magna accountable for implementing the principles in the Employee's Charter.
In light of the principles underlying Magna's fair enterprise culture and the arbitrariness of targets, Magna has not adopted targets regarding gender or other forms of diversity in its workforce generally, or within the ranks of its executive officers. Currently, one of twenty-five (4%) corporate officers is female and none of the senior managers of Magna's Operating Groups is female. Nevertheless, the subject of gender diversity within management ranks is one which is considered by both Management and the Board in the context of succession planning for key positions throughout the company.
Board Leadership
We believe that an independent Board Chair is a necessity for a high-functioning, independent and effective Board. Accordingly, the Independent Directors elected at each annual meeting select from among themselves one Independent Director who will serve as Chair of the Board. William Young has acted in that capacity since May 2012.
The primary duties and responsibilities of the Board Chair are set out in a position description contained in our Board Charter and include:
The Board can delegate additional responsibilities to the Board Chair at any time. Any change to the basic responsibilities listed in the Board Charter must be approved by the Board.
Board Independence
Shareholders are best served by a strong Board which exercises independent judgment, as well as prudent and effective oversight on behalf of shareholders. Assuming all of the Nominees listed in this Circular are re-elected with a majority of votes, nine out of ten, or 90%, of the directors on our Board will be "independent". This exceeds the minimum two-thirds independence requirement contained in our Board Charter and recommended by the Canadian Coalition for Good Governance, as well as the recommendation in National Policy 58-201 that a majority of directors be independent.
36 Corporate Governance
Definition of Independence
A Magna director is considered to be independent only after the Board has affirmatively determined that the director has no direct or indirect material relationship which could interfere with the exercise of his or her independent judgment. This approach to determining director independence draws upon the definition contained in Section 1.4 of National Instrument 52-110 ("NI 52-110") and Section 303A.02 of the NYSE's Corporate Governance Listing Standards, as well as the specific relationships identified in those instruments as precluding a person from being determined to be an independent director.
Audit Committee members are subject to a higher standard of independence than other directors, consistent with Section 1.5 of NI 52-110. Under this standard, a person cannot be considered an independent director for purposes of Audit Committee membership if he or she is a partner, member, executive officer, managing director or person in similar position at an accounting, consulting, legal, investment banking or financial advisory services firm providing services to Magna (including any subsidiary) for consulting, advisory or other compensatory fees.
In determining whether any candidate for service on the Board is independent, information is typically compiled from a variety of sources, including: written questionnaires completed by directors/candidates; information previously provided to us by directors; our records relating to relationships with accounting, consulting, legal, investment banking or financial advisory services firms, together with information provided to us by such firms; and publicly available information. The CGCNC is provided with a summary of all such relationships (whether or not material) known by Magna based on the foregoing sources. Following the CGCNC's consideration and assessment of such information, it presents its recommendation to the Board for approval.
Additional Ways In Which Independence is Fostered
Aside from the two-thirds independence requirement, there are other ways in which Board independence is fostered, including:
CEO Position Description
A position description has been developed for the Chief Executive Officer to further promote the independence of the Board and to define the limits of Mr. Walker's authority. His basic duties and responsibilities include:
Corporate Governance 37
Director Conflicts of Interest and Related Party Transactions
Where a director has a conflict of interest regarding any matter before the Board, the conflicted director must declare his or her interest, depart the portion of the meeting during which the matter is discussed and abstain from voting on the matter. However, as permitted by the OBCA, directors are permitted to vote on their own compensation for serving as directors.
The CGCNC is generally responsible for reviewing and making recommendations to the Board regarding related party transactions. In the case of a related party transaction which is material in value, the unconflicted members of the Board may choose to establish a special committee composed only of Independent Directors to review and make recommendations to the Board. Related party transactions include those between Magna (including any subsidiary) and a director, officer or person owning more than 10% of our Common Shares. In reviewing and making recommendations regarding related party transactions, the CGCNC seeks to ensure that transaction terms reflect those which would typically be negotiated between arm's length parties, any value paid in the transaction represents fair market value and that the transaction is in the best interests of the company. There were no such related party transactions during 2015.
Board Renewal and Director Recruitment
Board Renewal
Magna's Board has undergone significant renewal in the last five years, the result of which is that the average tenure of directors on the Board is 5.6 years. The CGCNC believes that the average age of our Directors (65 years) is appropriate and that there is a reasonable balance of relevant skills/expertise, gender and geographic expertise.
Nomination Process
The CGCNC is responsible for recommending to the Board the nominees for election at each annual meeting of the company's shareholders. The CGCNC annually considers the composition of the Board and makes an assessment as to any potential skill/expertise gaps which may need to be filled through recruitment of one or more additional directors. In making its assessment, the CGCNC considers input received from the Board as a whole, including through the Board's most recent Board self-assessment process, as well as from shareholders and other stakeholders.
Where the CGCNC decides that there may be a skill/expertise gap which needs to be addressed, it typically retains a professional search firm to help identify the broadest range of candidates with the skill/expertise being sought. Potential candidates may also be recommended by existing directors, members of Management, external advisors, shareholders or others. Additionally, the Corporate Secretary maintains an "evergreen" list of potential candidates, which includes candidates from prior searches, in addition to those recommended by any of the foregoing parties. The names of candidates coming from other sources are provided to the search firm retained by the CGCNC for its recommendation as to suitability. The CGCNC will typically interview a short list of three to five candidates for each Board seat it seeks to fill. Once the CGCNC has identified its preferred candidate(s), it will
38 Corporate Governance
seek feedback from the Board as a whole and will use its best efforts to provide Board members with an opportunity to meet the preferred candidate(s) in person. Feedback from any such meetings is considered by the CGCNC before making its formal recommendation to the Board.
Board Diversity
We value and welcome a diversity of views and perspectives on the Board and, accordingly, the CGCNC aims to recruit candidates who reflect a range of views, perspectives, expertise, experience and backgrounds. The Board has not adopted a diversity policy, nor has it set specific targets to be met with respect to diverse candidates, since such targets may be arbitrary. Instead, the CGCNC has focused on reinforcing a Board culture in which candidates of all backgrounds are valued equally and on professionalizing the director search process. In doing so, the CGCNC seeks to ensure that the broadest possible range of qualified candidates is considered, with no qualified candidate excluded based on any personal characteristic or attribute which is unrelated to the individual's ability to effectively carry out his or her duties as a director. This view frames the CGCNC's approach to the recruitment of female directors. Currently, three of nine (33%) Independent Directors and three of ten (30%) members of the Board as a whole, are female directors.
Age and Term Limits
We have not established age or term limits for directors, since such targets may be arbitrary. However, the CGCNC is committed to ensuring that Independent Directors remain active, engaged and effective participants and that they are able to function independently of Management. In considering whether to nominate a director for re-election, the CGCNC will take into account the director's level of engagement and participation in the Board's activities, including on the basis of feedback received through the Board's annual self-assessment process, which includes peer review components. The CGCNC will also consider whether the length of an Independent Director's tenure on the Board could or could reasonably be viewed as affecting his or her independence.
Annual Board Effectiveness Assessment
Magna maintains an annual Board effectiveness assessment process which aims to assist in the identification of short and long-term Board priorities, as well as the assessment of the overall functioning of the Board, its Committees and individual directors. The effectiveness assessment, which is overseen by the CGCNC, typically consists of three components:
![]() |
a detailed, standardized questionnaire completed by each director, which includes self-assessment and peer review components; confidential one-on-one interviews of each director by the Board Chair to follow-up on comments received by each director in his or her questionnaire, elicit any other feedback which a director may prefer to communicate in person and communicate to each director general feedback from the peer review questions in the questionnaire; and confidential one-on-one interviews of each director by an external facilitator, to elicit feedback regarding the Board Chair's performance, as well as any other feedback which a director may prefer to communicate anonymously. Following completion of the effectiveness assessment process, the Board Chair and the external facilitator will review overall findings with the CGCNC. Such findings and the CGCNC's recommendations are then presented to and discussed with the Board, following which the Board Chair and the Chief Executive Officer meet to agree on an action plan to address the feedback and implement the Board's recommendations. |
Corporate Governance 39
Board Structure and Effectiveness
In order to enable it to effectively fulfill its responsibilities, the Board has established three standing Committees Audit Committee, CGCNC and EROC. The mandate of each standing Committee is detailed in a Committee charter, which has been filed on SEDAR (www.sedar.com) and is available on our website (www.magna.com) under "Corporate Governance".
Committee Composition and Independence
The CGCNC makes recommendations to the Board regarding the staffing of Board Committees with Independent Directors. Management directors are not allowed to serve on any Board Committees.
The CGCNC considers the skills and experience of each Independent Director in relation to each Committee's mandate and aims to place Independent Directors on the Committee(s) for which their skills and expertise are most relevant. Several Independent Directors currently serve on more than one Committee for example, two Audit Committee members also serve on the EROC and one CGCNC member served on EROC during 2015. Such cross-appointments are intended to facilitate the sharing of knowledge and expertise between Committees, as well as to better enable a Committee such as EROC to coordinate its activities across the Board's Committees. Committee membership was as follows during 2015:
NAME |
AUDIT |
CGCNC |
EROC |
|||
---|---|---|---|---|---|---|
Scott B. Bonham | /*/ | /*/ | ||||
Peter G. Bowie | /*/ | |||||
Hon. J. Trevor Eyton | /*/ | |||||
V. Peter Harder | /*/ | /*/ | ||||
Lady Barbara Judge | Chair | |||||
Dr. Kurt J. Lauk | /*/ | |||||
Cynthia A. Niekamp | /*/ | |||||
Dr. Indira V. Samarasekera | /*/ | |||||
Lawrence D. Worrall | Chair | /*/ | ||||
William L. Young | Chair | |||||
The Board believes that Committee independence is critical to enabling the Board to exercise prudent and effective oversight. In addition to permitting only Independent Directors to serve on Committees, Committee independence is promoted in a number of ways, including the:
40 Corporate Governance
Special Committees
In addition to its standing Committees, the Board has from time to time established special committees composed entirely of Independent Directors to review and make recommendations on specific matters or transactions. There were no special committees during 2015.
Director Attendance
We expect directors to attend all Board meetings, as well as all meetings of the Committees on which they serve, and are welcome to attend any other Committee meeting. However, we recognize that scheduling conflicts are unavoidable from time to time, particularly where meetings are called on short notice. Our Board Charter contains a minimum attendance requirement of 75% for all regularly scheduled Board and Committee meetings, except where an absence is due to a medical or other valid reason. In 2015, attendance by directors at all Board and Committee meetings (in aggregate) was 99%.
Director Orientation and Education
We are committed to ensuring that Independent Directors are provided with a comprehensive orientation aimed at providing them with a solid understanding of a broad range of topics, including:
We also aim to provide all directors with a continuing education program to assist them in furthering their understanding of our business and operations and the automotive industry, as well as emerging trends and issues in such areas as:
Corporate Governance 41
Our director education program is developed based on priorities identified by the Board and may include various elements, including: site visits to our facilities or those of our customers or suppliers; in-boardroom presentations by members of Management, external advisors or others; third-party led training programs; membership in organizations representing independent directors; and subscriptions to relevant periodicals or other educational resources.
Independent Directors are encouraged to participate in additional director education activities of their choosing, at our expense. We maintain Board memberships to the Institute of Corporate Directors ("ICD"), as well as the National Association of Corporate Directors and encourage Independent Directors to attend conferences, seminars and webinars organized by such organizations. Additionally, directors are routinely provided with reading materials on a range of topics from a number of respected external sources, including: investor representative organizations such as the Canadian Coalition for Good Governance; various Canadian and U.S. law, accounting, management consulting and executive compensation firms; automotive industry news sources; and general publications relating to public companies. Further, we regularly distribute media articles relating to Magna and the automotive industry, as well as analyst reports and updates relating to Magna, its competitors and the automotive industry.
Board education topics during 2015 included the following:
Additionally, Magna seeks opportunities to provide Independent Directors with tours of Magna's facilities. In 2015, the Board toured Magna's Tech Centre near Detroit, Michigan, at which time they received demonstrations of various innovative technologies and products. Given the high number of Magna manufacturing facilities globally, it is often difficult for Independent Directors to tour more than a few facilities each year. As a result, Magna prepares brief video overviews of a number of facilities each year and makes such videos available to Independent Directors.
Committee Reports
A report of each standing Board Committee follows. Each report summarizes the Committee's mandate, composition and principal activities in respect of 2015 and to date in 2016. In addition, a separate CGCNC report on compensation and performance precedes the Compensation Discussion & Analysis section of this Circular.
42 Corporate Governance
Report of the Audit Committee
Mandate
The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to financial and financial reporting matters. The mandate of the Audit Committee, which has been filed on SEDAR (www.sedar.com) and is available on the corporate governance section of Magna's website (www.magna.com), includes oversight responsibilities relating to:
Composition
The Audit Committee Charter requires that the committee be composed of between three and five Independent Directors, each of whom is "financially literate" and at least one of whom is a "financial expert", as those terms are defined under applicable law. Audit Committee members cannot serve on the audit committees of more than three boards of public companies in total. The Audit Committee complied with these requirements in 2015.
MEMBERS |
INDEPENDENT |
FINANCIALLY LITERATE |
FINANCIAL EXPERT |
SERVES ON 3 OR FEWER AUDIT COMMITTEES |
2015 ATTENDANCE |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Lawrence D. Worrall (Chairman) | ü | ü | ü | ü | 100% | |||||
Scott B. Bonham | ü | ü | ü | ü | 100% | |||||
Peter G. Bowie | ü | ü | ü | ü | 100% | |||||
Dr. Kurt J. Lauk | ü | ü | ü | ü | 100% | |||||
In appointing the current members to the Audit Committee, the Board considered the relevant expertise brought to the Audit Committee by each member, including through the financial leadership and oversight experience gained by each of them in their principal occupations and/or other boards on which they serve, as described in their biographies elsewhere in this Circular. Messrs. Worrall and Bonham have been cross-appointed to the EROC to help maximize the effectiveness of risk oversight activities, as well as the coordination of such activities across the Board's Committees.
2015 Accomplishments and Key Areas of Focus
The Audit Committee's primary role is to satisfy itself on behalf of shareholders that the company's financial statements are accurate in all material respects and can be relied upon by shareholders. This necessarily involves diligent oversight of the company's system of internal controls, finance and accounting policies, internal and external audits, financial risk mitigation strategies and the integrity of its financial reports and disclosures. Through the Audit Committee's work during 2015 and the first few months of 2016, the Audit Committee has fulfilled all of the requirements under its charter, including satisfying itself regarding the integrity of Magna's financial statements
Corporate Governance 43
and financial reporting. Accordingly, the Audit Committee recommended and the Board approved Magna's 2015 consolidated audited financial statements. Some of the specific elements of work in this regard included:
In addition to its core efforts related to the integrity of Magna's financial statements, the Audit Committee also addressed the following topics in 2015:
44 Corporate Governance
For 2016, the Audit Committee will continue to focus on the various elements of work aimed at ensuring the company's financial statements continue to be accurate in all material respects and can be relied upon by shareholders. In addition, the Audit Committee has identified the following areas of focus for 2016:
Committee Approval of Report
Management is responsible for the preparation and presentation of Magna's consolidated financial statements, the financial reporting process and the development and maintenance of Magna's system of internal controls. The company's external auditors are responsible for performing an independent audit on, and issuing their reports in respect of:
The Audit Committee monitors and oversees these processes in accordance with the Audit Committee Charter and applicable law.
Based on these reviews and discussions, including a review of Deloitte's Report on Financial Statements and Report on Internal Controls, the Audit Committee has recommended to the Board and the Board has approved the following in respect of the fiscal year ended December 31, 2015:
The Audit Committee is satisfied that it has fulfilled the duties and responsibilities assigned to it under its charter in respect of the year ended December 31, 2015. This Audit Committee report is dated as of March 17, 2016 and is submitted by the Audit Committee.
![]() Lawrence D. Worrall (Chairman) |
![]() Scott B. Bonham |
![]() Peter G. Bowie |
![]() Dr. Kurt J. Lauk |
Corporate Governance 45
Report of the Corporate Governance, Compensation and Nominating Committee
Mandate
The CGCNC assists the Board in fulfilling its oversight responsibilities with respect to corporate governance and executive compensation, as well as recruitment and nomination of individuals to serve as directors. The mandate of the CGCNC, which has been filed on SEDAR and is available on the corporate governance section of Magna's website (www.magna.com), includes oversight responsibilities relating to:
Composition
The CGCNC Charter mandates a committee of between three and five Independent Directors. The CGCNC complied with this requirement in 2015.
MEMBERS |
INDEPENDENT |
2015 ATTENDANCE |
||
---|---|---|---|---|
William L. Young (Chairman) | ü | 100% | ||
Hon. J. Trevor Eyton | ü | 100% | ||
V. Peter Harder | ü | 100% | ||
Dr. Indira V. Samarasekera | ü | 100% | ||
In appointing the current members to the CGCNC, the Board considered the relevant expertise brought to the CGCNC by each member, including through the leadership, compensation and governance experience gained by each of them in their principal occupations and/or other boards on which they serve, as described in their biographies elsewhere in this Circular.
2015 Accomplishments and Key Areas of Focus
During 2015, the CGCNC fulfilled all of the requirements under its Charter, including with respect to Magna's overall system of corporate governance, executive and incentive compensation, Board composition, succession planning and other matters. Some of the CGCNC's significant activities and accomplishments in these areas in respect of 2015 include:
46 Corporate Governance
Looking forward, the CGCNC expects that Magna's future compensation framework, succession planning, Board effectiveness and shareholder engagement will continue to be key areas of focus for the Committee during 2016.
Committee Approval of Report
Based on the foregoing and all other activities undertaken or overseen by the CGCNC, the CGCNC is satisfied that it has fulfilled the duties and responsibilities assigned to it under its charter in respect of the year ended December 31, 2015. This CGCNC Committee report is dated as of March 17, 2016 and is submitted by the CGCNC.
![]() William L. Young (Chairman) |
![]() Hon. J. Trevor Eyton |
![]() V. Peter Harder |
![]() Dr. Indira V. Samarasekera |
Corporate Governance 47
Report of the Enterprise Risk Oversight Committee
Mandate
The EROC assists the Board in fulfilling its risk oversight responsibilities, including by coordinating with the Board's other Committees in connection with their respective risk oversight activities. Financial as well as financial reporting risks fall within the mandate of the Audit Committee, and corporate governance, compensation and succession risks fall within the mandate of the CGCNC. The mandate of the EROC, which has been filed on SEDAR and is available on the corporate governance section of Magna's website (www.magna.com), includes various oversight responsibilities relating to:
Composition
The EROC Charter mandates a committee composed of between three and five Independent Directors. The EROC complied with this requirement in 2015.
MEMBERS |
INDEPENDENT |
2015 ATTENDANCE |
||
---|---|---|---|---|
Lady Barbara Judge (Chair) | ü | 100% | ||
Scott B. Bonham | ü | 100% | ||
V. Peter Harder | ü | 83% | ||
Cynthia A. Niekamp | ü | 100% | ||
Lawrence D. Worrall | ü | 100% | ||
In appointing the current members to the EROC, the Board considered the relevant expertise brought to the EROC by each member, including through the leadership and risk management experience gained by each of them in their principal occupations and/or other boards on which they serve, as described in their biographies elsewhere in this Circular. Messrs. Worrall and Bonham also serve on the Audit Committee, while Mr. Harder also served on the CGCNC.
Such cross-appointments are intended to promote the effectiveness of each Committee in its respective risk oversight areas, as well as the coordination of such activities across the Board's Committees.
2015 Accomplishments and Key Areas of Focus
The EROC fulfilled all of the requirements under its Charter and significantly enhanced its risk oversight activities in 2015 by identifying key strategic and other risks from the Board's perspective and structuring its work plan for the year to prioritize detailed reviews of such risks and the company's related risk mitigation processes. While continuing to receive updates and presentations from Management on risk topics of general importance, including macroeconomic conditions and risks, the EROC dedicated a significant portion of its meeting time in 2015 to the following topics:
48 Corporate Governance
on the company's practices to minimize risks in these areas. The EROC received regular reports relating to the results of HSE audits, as well as Management's responses to any issues identified. The EROC remains satisfied that Magna's HSE policies, practices, systems and monitoring are mature and effective in achieving their intended goals.
Committee Approval of Report
Based on the foregoing and all other activities undertaken or overseen by the EROC, the EROC is satisfied that it has fulfilled the duties and responsibilities assigned to it under its charter in respect of the year ended December 31, 2015. This EROC report is dated as of March 17, 2016 and is submitted by the EROC.
![]() Lady Barbara Judge (Chair) |
![]() Scott B. Bonham |
![]() V. Peter Harder |
![]() Cynthia A. Niekamp |
![]() Lawrence D. Worrall |
Corporate Governance 49
Compensation and Performance Report
March 17, 2016
Dear Shareholder,
In connection with the Meeting, you are being asked to approve an advisory vote on Magna's executive compensation system. Before casting your vote, we encourage you to read this report together with the Compensation Discussion & Analysis section of this Circular.
Magna's Approach to Executive Compensation
Magna's approach to executive compensation reflects the company's entrepreneurial corporate culture, including:
To ensure that executives' interests are aligned with the best interests of the company, impairment charges, restructuring costs, regulatory fines/penalties and other expenses and charges typically reduce Magna's bonus pool on a dollar-for-dollar basis. We believe that this structure promotes responsible decision-making by directly connecting the impact of management decisions with executive compensation, including in areas such as operations management, acquisition due diligence and integration, legal compliance as well as health, safety and environmental management.
In typical years, the largest component of an executive's compensation will come from the annual profit-based incentive. However, Magna's executive compensation structure is highly variable, meaning that annual bonuses will decrease as Magna's profits decrease, potentially resulting in compensation for an executive which is well below the median of Magna's compensation peers for an executive in a comparable role. As Magna's profit increases, annual bonuses will increase as well, but compensation will not grow at the same rate as profit growth, due to the profit sharing "step-downs" discussed in Section C of the CD&A section of this Circular. This "direct drive" compensation structure is a long-standing element of Magna's entrepreneurial compensation system and culture, which the CGCNC believes creates a true pay for performance system. The CGCNC's belief in this regard has been validated by data demonstrating strong alignment between executive compensation and performance as measured by relative Total Shareholder Return, as you will read in the "Alignment Between Pay and Performance" section of this report.
Magna's 2015 Say on Pay Result
Through the Board's engagement with shareholders and through recent "say on pay" votes, shareholders have sent a strong message of support for Magna's approach to compensation. For example, at Magna's 2015 annual meeting, almost 93% of the votes cast on the advisory shareholder vote were in favour of Magna's approach to executive compensation. Magna held similar votes in the prior two years and the 2015 result represented an improvement over the votes held in 2014 (82% in favour) and 2013 (78% in favour). The "Business of the Meeting" section earlier in this Circular includes the Board's recommendation that you vote for the resolution relating to Magna's approach to executive compensation and the CGCNC reiterates that recommendation.
50 Performance
Magna's Named Executive Officers and Compensation Outcomes in 2015
Magna's 2015 NEOs consisted of the following:
The accompanying Compensation Discussion & Analysis contains a detailed discussion of 2015 pay outcomes for Magna's five most highly compensated executive officers and the Summary Compensation Table summarizes compensation for each NEO in each of 2015, 2014 and 2013.
Magna's Operating and Financial Performance in 2015
Magna's 2015 fiscal year was characterized by significant progress in executing on long-term strategic objectives related to the repositioning of the company's product portfolio and realignment of its capital structure. During 2015, Magna reached an agreement to enter the transmissions product area through its purchase of the Getrag Group of Companies ("Getrag") while also completing the sale of substantially all of its interiors business (excluding seating). The effect of these transactions was to expand in a product segment which is expected to grow more rapidly, while exiting a product segment which was not viewed as critical to the company's future. In terms of capital structure, with the completion of the Getrag transaction at the start of 2016, Magna achieved an Adjusted Debt to Adjusted EBITDA ratio which was roughly in the middle of the range the company had previously disclosed as its target, as well as a reduction of its cash to a more appropriate level. The target capital structure was reached through a combination of investments for future growth in the form of capital spending and acquisitions, as well as return of capital through dividends and share repurchases.
In addition to the progress on long-term objectives, Magna had a strong year in terms of its operating and financial performance. Excluding the impact of foreign currency translation, Magna's 2015 Sales grew at a rate of 3% as compared to 2014. While Magna reports its financial results in U.S. dollars, it generates sales in various other currencies, including the euro and Canadian dollar. In light of the impact of foreign currency translation, Magna's Sales as reported in its financial statements decreased 7% to $32.13 billion in 2015.
Magna's short- and mid-term incentive compensation for NEO's is driven by Pre-Tax Profits Before Profit Sharing. This metric is derived from Net Income as reported in Magna's financial statements, adjusted to (among other things) add-back the provisions for income taxes and minority interests, employee profit sharing and aggregate incentive bonuses for Executive Management. Magna's reported Net Income increased 1% to $1.9 billion in 2015 compared to 2014, but decreased by 7% on a normalized basis excluding unusual items. Some of the factors underlying the decrease in normalized Net Income include the impact of foreign currency translation, higher program launch costs, operational inefficiencies at certain of Magna's body and chassis operations and other factors. For a full discussion of Magna's 2015 results, please refer to Magna's Management Discussion & Analysis of Results of Operations and Financial Position.
Performance 51
2015 Compensation Outcomes
NEO compensation for 2015 was generally aligned with Magna's operating and financial results with an average decrease in total compensation of 3%. Base salaries were unchanged from 2014 at $325,000 for each NEO, including Magna's Chief Executive Officer. Annual NEO profit sharing bonuses (cash and RSUs) decreased by 2.5% on average in 2015 compared to 2014. The decrease in profit sharing bonuses directionally reflects the factors which reduced normalized Net Income, including foreign currency translation, program launch costs, operational inefficiencies and other factors. The average dollar value of long-term incentives granted to the NEOs in the form of performance stock options decreased by 8% for 2015 as compared to 2014. Details of the process used by the Board to determine performance stock option grants is described in detail in Section B the CD&A of this Circular.
The company's performance-vested stock options are structured to vest in tranches on the later of: (1) the first/second/third anniversaries of the grant and (2) satisfaction of the performance condition, being a relative one/two/three-year TSR greater than or equal to the 60th percentile relative to the performance stock option peer group identified in the CD&A. Since Magna's TSR for calendar 2015 fell below the 60th percentile of the peer group, the first tranche of the performance-vested stock options granted to the NEOs in respect of 2014 did not vest on the earliest potential vesting date. However, the NEOs remain incented to achieve superior TSR performance for the benefit of all shareholders since the option tranche which failed to vest may vest at a future date if the relative TSR condition is met for a period running from January 1, 2015 to such future date.
Alignment Between Pay and Performance
There are different ways in which the alignment between pay and performance can be measured. One of the more widely accepted methods involves an assessment of compensation rank (percentile) against TSR rank (percentile). We have shown (below) CEO compensation against relative TSR for both our compensation peer group and also the S&P/TSX60 companies. Additionally, we have shown average NEO compensation against relative TSR for our compensation per group. Measurement of pay/performance alignment against S&P/TSX60 companies recognizes that while we compete against companies which are largely U.S.-based companies, Magna is an Ontario company which is often assessed against other Canadian companies in terms of compensation and corporate governance.
In the graphs below, the diagonal line from bottom left to top right represents perfect alignment, while the space between the dashed lines generally represents an acceptable range of alignment. Since 2015 compensation information for many of the comparator companies was not yet available at the time the analysis was completed, the graphs below depict the three-year period ended December 31, 2014. These graphs demonstrate close alignment between Magna's pay and performance on a three-year basis.
![]() |
![]() |
52 Performance
![]() |
In light of the fact that the above TSR analysis covers a three-year period ending December 31, 2014, the CGCNC considered Magna's relative TSR performance for 2015 as compared to the foregoing peer groups. On a one-year basis, Magna's TSR was at the 23rd percentile and 42nd percentile in comparison to Magna's compensation peer group and the S&P/TSX60 index, respectively. Magna's NEO compensation is driven primarily by actual profitability for a year, whereas TSR reflects investors' forward-looking sentiment as to the company's expected performance, as well as macro-economic, industry and other general factors. As a result, compensation and TSR will not necessarily show a direct corelation from one year to the next.
Magna's stock price appears to have been significantly impacted by two key events in 2015. Market perceptions as to Magna's prospects for 2015 and beyond appear to have caused its stock price to diverge from the average of its publicly-traded automotive parts peer companies when Magna announced its outlook in January 2015. One of the significant contributing factors to such divergence appears to have been the market's interpretation of the impact of foreign currency translation on Magna's sales and the other elements of its outlook. While the gap between Magna's stock price and the average of its peers closed partially on announcement of first quarter results in May 2015, the gap expanded significantly following release of Magna's third quarter results and revised guidance in November 2015. Among other things, the third quarter results reflected the impact of the higher launch costs and operational inefficiencies at certain of Magna's body and chassis operations, which reduced NEO compensation in 2015, as intended. Demonstration of such a direct link between operational performance and compensation reinforces the CGCNC's view that Magna's compensation system is aligned with performance. This conclusion was further reinforced by the CGCNC's consideration of the impact of stock price performance on NEOs wealth-at-risk and on the first tranche of the 2014 performance-vested stock options.
2015 Total Shareholder Return
If a shareholder had invested C$100 in Magna Common Shares on the TSX on December 31, 2010, the cumulative value of that investment would be C$239, which is more than double the cumulative return of C$112 for the S&P/TSX60 index. In the case of an investment of $100 in Magna Common Shares on the NYSE on the same date, the total cumulative shareholder value of that investment would be $172, which is lower than the cumulative return of $181 for the S&P500 composite index. The difference in Magna's TSR performance against such indices reflects significant differences in the composition of the indices, foreign currency translation and other factors. In each case the total cumulative return assumes the reinvestment of dividends.
Performance 53
The graph below shows the five-year returns of Magna Common Shares on the TSX and NYSE as compared to the S&P/TSX and S&P500 composite indices, respectively, assuming investment of C$100 and $100 on December 31, 2010 and reinvestment of dividends.
FISCAL YEARS |
DECEMBER 31, 2011 |
DECEMBER 31, 2012 |
DECEMBER 31, 2013 |
DECEMBER 31, 2014 |
DECEMBER 31, 2015 |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Magna Common Shares (TSX) | C$67.10 | C$100.50 | C$179.40 | C$263.10 | C$239.20 | |||||
S&P/TSX Total Return |
||||||||||
Magna Common Shares (NYSE) | $65.60 | $101.00 | $168.70 | $226.80 | $171.80 | |||||
S&P500 Total Return | $102.10 | $118.50 | $156.80 | $178.30 | $180.80 | |||||
Looking Forward Compensation in 2016 and Beyond
The CGCNC has spent considerable time and effort working with its advisors and Executive Management over the last few years to refine the company's approach to executive compensation. The CGCNC believes that Magna's approach to compensation is effective in achieving desired outcomes, a view validated by the level of shareholder support for Magna's 2015 advisory vote on executive compensation.
The CGCNC and Executive Management previously reached a common understanding that, as part of the Board's review of the terms of any proposed material acquisition or disposition, the CGCNC will work with Executive Management to identify potential changes to NEOs' current employment contracts to ensure executive compensation arrangements remain appropriate following such transactions. This includes the possibility of adjusting the NEOs' profit sharing percentages to take into account the anticipated impact of such transactions on the company's strategy and financial position, as well as on overall compensation levels. The CGCNC reviewed business plan forecasts and compensation forecasts for 2016 through 2018, such forecasts reflecting Magna's acquisitions/dispositions in 2015, including the purchase of Getrag and sale of substantially all of Magna's interiors business. Based on the net impact of all acquisitions/disposition in 2015, the CGCNC does not believe that profit sharing percentages need to be adjusted at this time. However, the CGCNC will continue to monitor the impact of these and other transactions on executive compensation.
54 Performance
In parallel with the CGCNC's ongoing work on succession planning, the Committee is reviewing potential compensation redesign alternatives for future NEOs as part of its efforts to satisfy itself that Magna's executive compensation system will continue to appropriately incent the company's next generation of senior executives to achieve the company's long-term objectives. One of the CGCNC's areas of focus is the balance of compensation paid over the short, medium and long-term, an area highlighted by several shareholders in our shareholder engagement meetings.
Lastly, the CGCNC intends to continue to engage with shareholders throughout 2016 to hear their perspectives regarding the company's corporate governance, approach to executive compensation board oversight of strategy and other matters.
In Closing
At our May 5, 2016 annual meeting, you will have the opportunity to express your views on Magna's approach to executive compensation through the advisory "say on pay" vote. In casting your vote, we trust that you will consider:
We look forward to your support at our 2016 annual meeting.
William L. Young (Chairman) |
||||
Hon. J. Trevor Eyton |
V. Peter Harder |
Dr. Indira V. Samarasekera |
Performance 55
Compensation Discussion & Analysis
Key Terms Used in This Section
CD&A: | the Compensation Discussion & Analysis section of this Circular | |
executive compensation peer group: |
the group of 13 companies discussed in Section B of this CD&A, against which the compensation of our Executives is compared or benchmarked |
|
Fasken: |
the CGCNC's independent legal advisors, Fasken Martineau DuMoulin LLP |
|
Hugessen: |
the CGCNC's independent compensation advisor, Hugessen Consulting |
|
LTIs: |
long-term incentives |
|
Named Executive Officers or NEOs: |
our five most highly compensated executive officers |
|
performance stock option peer group: |
the group of 12 companies discussed in Section B of this CD&A, against which Magna's TSR is measured in order to determine the vesting of performance-vested stock options |
|
RSUs: |
restricted stock units |
|
TSR: |
Total Shareholder Return |
Section Summary
This CD&A is divided into the following sub-sections:
SUB-SECTION |
DESCRIPTION |
PAGE |
||
---|---|---|---|---|
A | Discusses the role of compensation in our corporate culture, the centrality of entrepreneurialism to our compensation program and the objectives of our executive compensation program and other matters | 57 | ||
B | Addresses the Board's responsibility for executive compensation, as well as the scope of the CGCNC's role and discusses the CGCNC's process for making compensation decisions | 58 | ||
C | Provides an overview and detailed description of the elements of our executive compensation program | 64 | ||
D | Describes our compensation risk mitigation practices | 78 | ||
The Summary Compensation Table follows on page 80.
56 Compensation
A. Compensation Philosophy & Objectives
Corporate Culture and Compensation
Our unique, entrepreneurial corporate culture seeks to balance the interests of key stakeholders, such as shareholders, employees and management, including by defining such stakeholders' entitlements to share in our profitability. We believe that our corporate culture has been a critical factor in our past growth and success and expect it will continue to be a critical factor in our ability to create long-term shareholder value. In particular, the employee and management profit sharing elements of our culture have proven to be essential to our ability to attract and retain our skilled, entrepreneurial employees and managers, as well as to create effective incentives for them to achieve strong performance in a cyclical and highly competitive industry.
Executive Compensation Philosophy
Our executive compensation program has been structured to attract, motivate and retain world-class, entrepreneurial managers, align their interests with those of our long-term shareholders and directly link their compensation with our performance. Some of the ways we seek to achieve these objectives include:
Consistent with our overall philosophy, we do not provide executives with any pension or retirement benefits.
What Does the Executive Compensation Program Reward?
The combination of minimal fixed compensation and highly variable annual incentive compensation is intended to reward the consistent achievement of profitability, while the deferred equity awards and performance stock options are intended to reward mid- to long-term growth as well as relative TSR outperformance compared to peer companies. At the same time, all of these elements are intended to align the interests of Executive Management with those of the company's shareholders.
As discussed earlier, our executive compensation program was developed within the context of an entrepreneurial culture which, by definition, requires some degree of risk-taking in order to achieve growth. Recognizing that the consequences of excessive risk-taking may be felt most acutely by shareholders, our executive compensation program seeks to encourage and reward responsible business decision-making and reasonable risk-taking. We seek to achieve this through a variety of methods, including stringent equity ownership requirements.
Compensation 57
B. Compensation Decision-Making: Responsibility and Process
Role of Our Board
Our Board is responsible for overseeing our system of executive compensation including by ensuring that it is consistent with the long-standing compensation principles which are critical to our corporate culture, while remaining effective in attracting, retaining and motivating skilled executives. The Board also annually assesses the company's performance and that of the Chief Executive Officer in relation to pre-defined objectives approved by the Board. This performance assessment is one of the factors considered by the CGCNC in granting long-term incentive awards to the Chief Executive Officer.
Role of the CGCNC
The Board has delegated to the CGCNC responsibility for annually reviewing, considering and making recommendations related to executive compensation matters generally. More specifically, the CGCNC has been delegated responsibility for making recommendations with respect to the application of our executive compensation program to certain members of Corporate Management, including the NEOs discussed in this CD&A.
While some NEOs, such as our Chief Executive Officer and Chief Financial Officer, are invited to participate in CGCNC meetings, final compensation decisions affecting NEOs are typically made by the CGCNC without any NEOs present in order to ensure the independence of the decision-making process.
Role of Our Chief Executive Officer
The CGCNC looks to the Chief Executive Officer to assess the performance of and make recommendations regarding the compensation levels of his direct reports. Such performance assessments will be considered by the CGCNC in the context of long-term incentive awards to members of the executive team, as well as proposed compensation changes for such executives. The CGCNC also looks to the Chief Executive Officer to put forward his general recommendation regarding long-term incentive awards to all other proposed recipients.
CGCNC Selects and Retains Its Own Independent Advisors
In reviewing, considering and making recommendations on executive compensation matters, the CGCNC considers the advice of its independent advisors, Hugessen and Fasken, both of which have been selected and retained directly by the CGCNC. The CGCNC met in camera with its independent advisors as part of each of the CGCNC's meetings attended by them during 2015.
Role of the Independent Compensation Advisor
The CGCNC selected and has retained Hugessen as its compensation advisor since December 2012. Hugessen only provides board-side advice, had no relationship with Magna or its Board prior to December 2012 and does not provide any services to Magna other than the advisory services provided to the CGCNC. One or more representatives of Hugessen are invited to attend CGCNC meetings at which executive compensation matters are to be discussed. Hugessen reports directly to and seeks its instructions directly from the CGCNC and communicates as needed with the CGCNC Chair between meetings.
The scope of Hugessen's services generally includes advice related to executive and director compensation program structure and design, benchmarking data and observations, as well as pay for performance analytics. In addition, Hugessen provides the CGCNC with contextual information relating to compensation best practices and emerging trends. The services provided by Hugessen to the CGCNC in respect of 2015 included:
58 Compensation
Hugessen's advice was only one of a number of factors (discussed below) which were reviewed and considered by the CGCNC in making its executive compensation recommendations to the Board.
The fees billed by Hugessen for the services it provided to the CGCNC in respect of 2015 and 2014 were:
DESCRIPTION OF SERVICES | 2015 | 2014 | |||||||
($)(1) | (%) | ($)(2) | (%) | ||||||
Executive compensation services provided to CGCNC | 196,000 | 100 | 270,000 | 100 | |||||
All other services for Magna | NIL | NIL | NIL | NIL | |||||
Total | 196,000 | 270,000 | |||||||
Notes:
CGCNC Considers a Wide Range of Factors in its Executive Compensation Decisions
In connection with executive compensation decisions, the CGCNC will normally consider a wide range of factors, including:
Compensation 59
In making recommendations to the Independent Directors, the CGCNC does not rely solely on any one of the above or other factors. In a typical year, the key executive compensation matters to be decided by the CGCNC based on its review and consideration of the above factors are:
Annual Bonuses Determined by Objective Profit-Based Formula, not Target-Setting
Annual bonuses in our executive compensation system are formula-based instead of target-based. The annual bonus for an executive is a specified percentage of our Pre-Tax Profits Before Profit Sharing under a formula which is discussed further in Section C of this CD&A. This formula-based approach helps to achieve a simple, objective and transparent compensation program which seeks to motivate executives to responsibly generate profits, which ultimately benefits all of our stakeholders.
When an executive first becomes a corporate "profit participator" that is, entitled to an annual bonus based on Magna's profits, the CGCNC must determine the appropriate percentage of profits to be paid to him or her as an annual bonus. In addition to consideration of the general factors described above, the process of initially setting the executive's profit share typically involves:
Once an executive's profit sharing percentage has been approved by the CGCNC and the Independent Directors, it is not adjusted annually. However, if an executive changes responsibilities, his or her profit-share may need to be adjusted in order to ensure he or she is competitively compensated. In making an adjustment to an executive's profit sharing percentage, the CGCNC will typically follow a similar process to that used when a profit share is first established. Additionally, the CGCNC and Executive Management have a common understanding that, as part of the Board's review of the terms of any proposed material acquisition or disposition, the CGCNC will work with Executive Management to identify potential changes to executives' current employment contract terms, possibly including profit sharing percentages, to ensure that executive compensation arrangements remain appropriate following such transactions.
60 Compensation
CGCNC Discretion
The CGCNC maintains complete discretion with respect to the grant of LTIs, typically in the form of stock options. In connection with proposed stock option grants, the CGCNC considers a number of specific factors in addition to the general factors described earlier, including:
The CGCNC's process around LTI grants seeks to enhance accountability for achievement of the company's strategic objectives and increase dialogue around the definition, refinement and measurement of strategic goals. In 2014, the CGCNC established a baseline stock option pool of $5.4 million for NEOs, based on a variety of considerations, including pay mix, historical grant sizes, dilution and quantum of total compensation. The CGCNC also established a baseline option pool of $10.2 million for all other optionees. The NEO baseline pool will be adjusted up or down based on the Board's annual assessment of Executive Management's performance on advancing strategic initiatives identified through the Board's strategic planning process, while the option pool for all other employees is expected to remain relatively stable year over year. Individual awards in each option pool are based on individual performance and other relevant considerations.
Executive Management's performance in respect of the five criteria below was assessed to determine the size of the 2015 NEO option pool. Quantitative performance ratings relative to the Board's target/expectations are submitted by Independent Directors to the Board Chair and then aggregated to determine a performance factor that is applied to the baseline stock option pool. The performance factor can range from 0% for performance well below target to 100% for performance which fully meets the target and up to a maximum of 140% for performance far in excess of target, with full gradation along that scale. The CGCNC maintains the discretion to adjust the performance multiplier to account for qualitative considerations, overall compensation levels or other factors, as it sees fit. Additionally, the CGNC may, from one year to the next, modify the strategic criteria used in determining NEO option pool size, or in the relative weighting of the criteria used.
STRATEGIC CRITERIA |
WEIGHTING |
RAW PERFORMANCE FACTOR |
||
---|---|---|---|---|
Product Strategy | 15% | 95% | ||
Growth Strategy |
30% |
99% |
||
Operational Long-Term Improvement |
20% |
101.5% |
||
Succession Planning |
15% |
121.5% |
||
Innovation |
20% |
112.5% |
||
Raw Total |
100% |
105.9% |
||
Weighted Total |
105.4% |
|||
Compensation 61
The performance factor determined by the CGCNC is applied to the baseline option grant amount for the Chief Executive Officer to determine his award. The balance of the NEO option pool may be split among the four other NEOs based on their individual performance and other relevant considerations, as assessed by the CGCNC and the Chief Executive Officer. As noted, the above process is used by the CGCNC to determine the maximum NEO option pool size and award size. Actual option awards for NEOs are then subject to performance conditions prior to any options vesting, as discussed further in Section C of this CD&A.
The CGCNC exercised its discretion in several respects in connection with the grant of stock options in respect of 2015. In determining the value of each performance stock option, the CGCNC considered as a starting point the Black-Scholes value of a "plain vanilla" time-vested option. Since the inputs and assumptions disclosed in Note 2 to the Summary Compensation Table would have resulted in a Black-Scholes value per time-vested option which the CGCNC deemed to be unreasonably low, the CGCNC imposed a "floor" value of 20% of the exercise price. The impact of this determination by the CGCNC was to reduce the total number of options granted, moderating dilution from the option grant and reducing the potential for optionees to realize excessive gains over the option life. With respect to the performance stock options granted to the NEOs, the CGCNC also exercised its discretion in determining an appropriate discount to the "floor" value determined in respect of the time-vested options. Such discount was intended to reflect the fact that options with relative performance conditions and risk of forfeiture do not have the same economic value as time-vested options which have no risk of forfeiture. In assigning a 10% discount to the performance stock options, the CGCNC considered various valuation approaches, assumptions and scenarios, as well as the advice of its independent advisors and equity compensation consultants retained to assist Magna in determining the accounting value of the performance stock options.
How is Compensation Benchmarking Data Used by the CGCNC?
In light of Magna's formula-driven compensation system, compensation benchmarking data is not used for setting target pay within a range determined for a compensation peer group. However, compensation benchmarking data for senior officers is used to provide the CGCNC with a basis for determining Magna's pay for performance, including through "back-testing" of realizable pay, as well as a general market reference point to help it ensure that compensation falls within a reasonable competitive range.
Executive Compensation Peer Group Consists of 13 Automotive and Industrial Companies
Magna's executive compensation peer group consists of 13 companies from a broad comparator universe composed primarily of North American public companies which are direct industry peers or capital goods comparables. The broad universe of comparator companies was identified and screened by Hugessen using a three-tiered approach, with broader screening criteria for companies in the automotive industry and narrower criteria for companies in other industries, as follows:
Automotive: | 1/5x to 5x Magna's Total Revenue and Total Enterprise Value ("TEV") | |
Close Capital Goods: |
1/3x to 3x Magna's Total Revenue and TEV |
|
Other Capital Goods: |
1/2x to 1.5x Magna's Total Revenue and TEV |
62 Compensation
In arriving at the peer group, Hugessen considered feedback from the CGCNC and Management and also applied its judgment to the numeric screens. Based on the above approach, the executive compensation peer group approved by the CGCNC consists of the following companies:
2015 EXECUTIVE COMPENSATION PEER GROUP(1) | ||
BorgWarner Inc. | Johnson Controls Inc. | |
Cummins Inc. | Lear Corp. | |
Deere & Company | Navistar International Corp. | |
Delphi Automotive PLC | PACCAR Inc. | |
Eaton Corp. | Parker-Hannifin Corp. | |
Illinois Tool Works Inc. | Textron Inc. | |
Ingersoll-Rand PLC | ||
Note:
Performance Stock Option Peer Group Consists of 12 Automotive Companies
Magna's performance stock option peer group consists of 12 automotive companies selected from a comparator universe of publicly traded North American companies in the automotive industry. The selected peers are considered to be Magna's most direct competitors for business and investor capital, based on such factors as coverage by equity research analysts, as well as inclusion in industry indices and in the peer groups of peer companies.
The performance stock option peer group approved by the CGCNC consists of the following companies:
2015 PERFORMANCE STOCK OPTION PEER GROUP(1) | ||
American Axle Manufacturing & Holdings Inc. | Johnson Controls Inc. | |
Autoliv, Inc. | Lear Corp. | |
BorgWarner Inc. | Linamar Corp. | |
Dana Holding Corporation | Martinrea International Inc. | |
Delphi Automotive plc | Tenneco Inc. | |
Gentex Corp. | Visteon Corp. | |
Note:
Compensation 63
C. Elements of Magna's 2015 Executive Compensation Program
2015 NEOs | For 2015, our Named Executive Officers consisted of: | |||
Donald J. Walker |
Chief Executive Officer |
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Vincent J. Galifi | Executive Vice-President and Chief Financial Officer | |||
Tommy J. Skudutis | Chief Operating Officer, Exteriors, Seating, Mirrors, Closures and Cosma | |||
Jeffrey O. Palmer | Executive Vice-President and Chief Legal Officer | |||
James J. Tobin | Chief Marketing Officer and President, Magna Asia |
Mr. Tobin replaced Guenther Apfalter as an NEO for 2015, due in significant part to the impact of conversion of Mr. Apfalter's compensation from Euros to U.S. dollars. | ||
Employment Contracts |
Each NEO is subject to an employment agreement which specifies: |
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his base salary and profit sharing percentages, including the proportions of the annual profit sharing bonus payable in cash and RSUs; |
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standard benefits to be provided; |
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terms on which compensation can be clawed-back; |
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the securities maintenance formula applicable to the executive; and |
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the basis on which the executive's employment may be terminated. |
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Overview |
Our 2015 compensation program for the NEOs consisted of the following elements: |
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64 Compensation
The elements of compensation described above represented the following percentages of 2015 total compensation: |
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Average NEO Total Compensation |
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1. Base Salaries: |
We maintain base salaries for NEOs which are positioned significantly below base salaries in our peer group. These low base salaries are intended to: maximize the incentive for each executive to pursue profitability for the benefit of all of Magna's stakeholders; |
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reinforce the link between executive pay and corporate performance; and |
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reflect and reinforce our entrepreneurial corporate culture. |
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During 2015, the NEOs received identical base salaries of $325,000. |
NAME |
BASE SALARY ($) |
|
---|---|---|
Donald J. Walker | 325,000 | |
Vincent J. Galifi | 325,000 | |
Tommy J. Skudutis | 325,000 | |
Jeffrey O. Palmer | 325,000 | |
James J. Tobin | 325,000 |
|
Compensation 65
Annual Profit Sharing Bonus | Each NEO is contractually entitled to receive a specified percentage of our Pre-Tax Profits Before Profit Sharing as an annual profit sharing bonus. This measure is derived from Net Income as reported in our financial statements, adjusted to (among other things) add-back the provisions for income taxes and minority interests, employee profit sharing and aggregate incentive bonuses for specified members of our corporate management, including the NEOs. As disclosed earlier in this CD&A, the annual profit sharing bonus provides a direct link between an executive's compensation and the company's performance. Profit sharing bonuses are deeply rooted in our entrepreneurial culture we believe that they have been a critical factor to our past success and will continue to be critical to our continued success in the future. These bonuses are highly variable if Magna fails to generate a profit, no bonus will be paid. We believe this motivates executives to strive to achieve consistent profitability, as well as year over year profit growth. The CGCNC has implemented measures to moderate the growth of profit sharing bonuses above specified profit levels, as discussed further below. These measures, combined with measures described in Section D of this CD&A to manage compensation risk, seek to achieve a reasonable balance between risk and reward. | |
The specified profit sharing percentage represents the maximum percentage of our Pre-Tax Profits Before Profit Sharing that an executive is entitled to receive his actual or effective profit sharing percentage may be lower in a year, since profit sharing declines as our Pre-Tax Profits Before Profit Sharing exceeds $1.5 billion, as follows: |
PRE-TAX PROFITS BEFORE PROFIT SHARING |
PROPORTION OF SPECIFIED PROFIT SHARING PERCENTAGE |
|
---|---|---|
$0 to $1.5 billion | 100% | |
$1.5 billion to $1.75 billion | 85% | |
$1.75 billion to $2.0 billion | 70% | |
$2.0 billion to $2.25 billion | 60% | |
>$2.25 billion | 50% | |
By way of example, our Chief Executive Officer's aggregate specified profit sharing bonus is 0.75% of our Pre-Tax Profits Before Profit Sharing. However, as a result of Magna's Pre-Tax Profits Before Profit Sharing exceeding $1.5 billion in 2015, Mr. Walker's effective profit sharing percentage was 0.6180% of our Pre-Tax Profits Before Profit Sharing. |
66 Compensation
Due to the impact of the foregoing profit sharing step-downs, the aggregate effective profit sharing percentages for NEOs were as follows in 2015: |
NAME |
2015 AGGREGATE SPECIFIED PROFIT SHARING PERCENTAGE (%) |
2015 AGGREGATE EFFECTIVE PROFIT SHARING PERCENTAGE (%) |
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---|---|---|---|---|
Donald J. Walker | 0.7500 | 0.6180 | ||
Vincent J. Galifi | 0.3000 | 0.2472 | ||
Tommy J. Skudutis | 0.3000 | 0.2472 | ||
Jeffrey O. Palmer | 0.2025 | 0.1669 | ||
James J. Tobin | 0.1100 | 0.0906 |
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For 2015, Mr. Palmer's profit sharing percentage was reduced by 10% compared to 2014 in connection with a mutually agreed pre-retirement leave arrangement. His profit share will reduce a further 10% in 2016 and continue at that level until his retirement. | ||
Annual Profit Share Split Between Cash and RSUs |
Sixty percent of the annual profit sharing bonus for each Corporate NEO was paid in cash, with the remaining 40% deferred in the form of RSUs. Since the value of compensation deferred in the form of RSUs is contingent on annual profitability, the RSUs are effectively front-end performance conditioned. |
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Annual Profit Sharing Bonus "At Risk": |
In order to create maximum incentive to achieve profitability, profit sharing bonuses are earned from the first dollar of Pre-Tax Profits Before Profit Sharing generated by Magna and are completely "at risk" since they increase or decrease directly with changes in Magna's Pre-Tax Profits Before Profit Sharing. The combination of low base salaries, as discussed above, together with a highly variable annual profit sharing bonus can result in significant fluctuation in executive compensation from one year to the next, depending on our profitability. We believe that low base salaries combined with a highly variable annual profit sharing bonus motivates NEOs to strive for: |
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consistent profitability to achieve stable levels of annual compensation; and |
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long-term growth in profitability to achieve long-term compensation growth. |
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Recognition of Individual and Team Performance: |
The specified percentage of our Pre-Tax Profits Before Profit Sharing which an executive is entitled to receive as an annual profit sharing bonus is intended to reflect the executive's individual contribution to management team performance. However, the direct link to Magna's Pre-Tax Profits Before Profit Sharing ultimately reflects Magna's overall performance. An executive's specified profit sharing percentage is not adjusted annually once it has been set, but may be adjusted from time to time if an executive's responsibilities change significantly. |
Compensation 67
2. Annual Profit Sharing Bonus Cash Portion: |
Annual profit sharing bonuses paid in cash to NEOs were as follows in 2015: |
NAME |
2015 EFFECTIVE PROFIT SHARING CASH (%) |
2015 EFFECTIVE PROFIT SHARING CASH ($) |
||
---|---|---|---|---|
Donald J. Walker | 0.3708 | 10,444,000 | ||
Vincent J. Galifi | 0.1483 | 4,177,000 | ||
Tommy J. Skudutis | 0.1483 | 4,177,000 | ||
Jeffrey O. Palmer | 0.1001 | 2,820,000 | ||
James J. Tobin | 0.0544 | 1,532,000 |
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Since Magna does not provide pensions, SERPs or other retirement benefits, a portion of the annual cash profit sharing bonus is intended to fund NEOs' retirement savings. We believe that this is an important consideration when comparing the structure of Magna's executive compensation against that of other companies which provide pensions, SERPs or other retirement benefits. | ||
Cash Portion Paid in Quarterly Installments |
The cash portion of the annual profit sharing bonus is paid in installments. Installments for the first three fiscal quarters of each year are paid to the Corporate NEOs following the end of each fiscal quarter, based on our year to date Pre-Tax Profits Before Profit Sharing. Following the end of each fiscal year, we calculate the profit sharing bonus each Corporate NEO is entitled to for that fiscal year, subtract the installments paid for the first three quarters and pay the difference as the final installment. |
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3. Annual Profit Sharing Bonus RSU Portion: |
Deferral of a portion of the annual profit-sharing bonus serves a number of important functions in our executive compensation program, including alignment of interests with shareholders, promotion of responsible decision-making, discouragement of excessive risk-taking, balancing the time horizon of different compensation tools, as well as motivation and retention of executives. |
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The portion of the annual profit sharing bonus deferred in the form of RSUs is completely "at risk". The initial bonus value deferred into RSUs is dependent on Magna's annual profitability and, once credited, remains "at risk" since RSU value fluctuates with the market price of our Common Shares. RSUs are redeemed by delivery of Common Shares in December of the second year after the year of grant. For example, RSUs that were granted in 2015 will be redeemed in December 2017. |
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Annual NEO profit sharing bonuses deferred in the form of RSUs were as follows in 2015: |
NAME |
2015 EFFECTIVE PROFIT SHARING RSUS (%) |
2015 EFFECTIVE PROFIT SHARING RSUS ($) |
||
---|---|---|---|---|
Donald J. Walker | 0.2472 | 6,962,000 | ||
Vincent J. Galifi | 0.0989 | 2,785,000 | ||
Tommy J. Skudutis | 0.0989 | 2,785,000 | ||
Jeffrey O. Palmer | 0.0668 | 1,880,000 | ||
James J. Tobin | 0.0362 | 1,021,000 |
||
68 Compensation
RSUs Deferred in Quarterly Installments | Installments of the RSU portion of the annual profit sharing bonus for the first three fiscal quarters of each year are credited to each NEO following the end of each fiscal quarter, based on our year to date Pre-Tax Profits Before Profit Sharing. The number of RSUs deferred is calculated by taking 40% of the dollar value of an NEO's quarterly profit share and dividing it by the average of the closing prices of our Common Shares on NYSE over the twenty trading days ending on the last business day of the fiscal quarter. Following the end of each fiscal year, we calculate the amount each NEO is entitled to for that fiscal year, subtract the installments credited for the first three quarters and defer an amount equal to the difference. Dividends on RSUs are paid in cash at the same time and in the same amounts as dividends on our Common Shares. |
4. Performance Stock Options: |
We utilize stock options as a long-term incentive. Stock options help ensure a medium (three years) to long (seven years) term focus on share returns, which serves to align the interest of management and shareholders over that time period. Stock options also support the goal of executive retention over the vesting period since an executive who resigns will forfeit unvested options. | |
Stock options are typically granted in late February or early March of a year in respect of the prior year. For example, stock options granted in February 2016 relate to the optionees' performance in 2015 and, in the case of NEOs, have been included as 2015 compensation in the Summary Compensation Table. Annual stock option grants are not expected to exceed 1% of our issued and outstanding shares. |
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Commencing in February 2015, the CGCNC recommended and our Board approved a modified approach to option grants for our most senior executives, including the NEOs. This approach is intended to incent and reward executives for creating superior absolute and relative shareholder value, by imposing a relative TSR performance hurdle as a condition to vesting. Performance stock options are eligible to vest in tranches over the first three anniversaries of the grant date. However, a relative TSR threshold of 60th percentile must also be met before options can vest, as described below. Unlike our time-vested options, performance stock options vest in different proportions, with a greater proportion of performance stock options vesting on the later vesting dates. The relative TSR measurement periods for each vesting date are matched to the vesting period to incent the achievement of higher TSR over short and medium terms, as follows: |
VESTING DATE |
PROPORTION OF OPTIONS VESTING |
PERFORMANCE HURDLE |
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---|---|---|---|---|
First anniversary | 17% | 1-year TSR ³ 60th percentile | ||
Second anniversary | 33% | 2-year TSR ³ 60th percentile | ||
Third anniversary | 50% | 3-year TSR ³ 60th percentile | ||
Compensation 69
If the relative TSR hurdle is not met at a vesting date, performance stock options will not vest. However, the performance stock options which did not vest at such anniversary date will vest and become exercisable at any date afterwards during the remaining term of the options if Magna's relative TSR measured from the grant date is at or above the 60th percentile of the performance stock option peer group. We believe this feature is important to provide a continuing incentive for NEOs to strive to achieve or exceed the missed performance hurdle. In addition to promoting alignment with shareholders, such a feature supports the objectives of retaining and motivating valued executives. | ||
The following graphic depicts the mechanics of the relative TSR performance hurdle, as applied to a theoretical grant of 60,000 options: |
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Stock options granted to NEOs prior to 2015 were only subject to time vesting. Time-vested stock options continue to be granted to certain other employees and managers who are not part of Executive Management. The following options were granted on February 29, 2016: |
TYPE OF OPTION |
EXERCISE PRICE ($) |
ELIGIBLE OPTIONEES |
NO. OF OPTIONS |
OPTION BURN RATE(1) (%) |
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---|---|---|---|---|---|---|---|---|---|
Performance-vested Options | 38.23 | 14 | 1,269,914 | 0.32 | |||||
Time-vested Options | C$51.62 / 38.23 | 106 | 984,846 | 0.24 | |||||
Total | | 120 | 2,254,760 | 0.56 | |||||
Note: |
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1. Represents the applicable number of options, stated as a percentage of Magna's issued and outstanding shares on the grant date. |
For a discussion of the process and criteria used to determine the overall size of option grants, please refer to Section B of this CD&A. |
70 Compensation
A total of 809,884 of the 1,269,914 performance stock options granted on February 29, 2016 were granted to NEOs, as follows: |
NAME |
NO. OF OPTIONS (#) |
COMPENSATION VALUE(1) ($) |
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---|---|---|---|---|
Donald J. Walker | 417,878 | 2,875,000 | ||
Vincent J. Galifi | 144,186 | 992,000 | ||
Tommy J. Skudutis | 136,628 | 940,000 | ||
Jeffrey O. Palmer | 49,419 | 340,000 | ||
James J. Tobin | 61,773 | 425,000 |
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Note: |
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1. Represents the compensation value intended to be conferred by the Board in the form of performance stock options. See Note 2 to "Summary Compensation Table" for details regarding the methodology and assumptions used to value the options granted to the NEOs. |
We typically grant stock options with a seven year term or life. The applicable option exercise price is the market price of our Common Shares on the TSX (for options denominated in C$) or NYSE (for options denominated in US$). We do not grant options at a discount to market price. | ||
Option Plan Dilution and Overhang |
Taking into account the options granted on February 29, 2016, Magna's option dilution and overhang were as follows: |
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Notes: |
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1. Represents all stock options previously granted but not exercised as of February 29, 2016, expressed as a proportion of the number of Magna's Common Shares which were issued and outstanding as of such date. |
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2. Represents all stock options available for grant and all stock options previously granted but not exercised as of February 29, 2016, expressed as a proportion of the number of Magna's Common Shares which were issued and outstanding as of such date. |
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Stock Option Plans |
Current stock option grants are made under our 2009 Incentive Stock Option Plan, which was approved by shareholders in May 2010, which is discussed in further detail under "Incentive Plan Awards". |
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Option Exercise Increases an Executive's Securities Maintenance Requirement |
We treat a stock option gain (being market price at time of exercise, less exercise price and deemed taxes on the gain) as if it was income earned in the year of the option exercise. As a result, the number of shares to be held pursuant to an NEO's securities maintenance requirement will increase in respect of a year in which stock options are exercised. If the executive already owns a sufficient number of Common Shares and RSUs to meet this increased securities maintenance requirement, no further shares need to be held from the option exercise. If an NEO does not own enough shares to meet this increased securities maintenance requirement, the additional required number of shares will need to be held following the option exercise. |
Compensation 71
Post-Retirement Hold-Back |
If an NEO ceases to be employed by Magna (including any affiliates) within one year following the date of a stock option exercise, he must hold shares with a market value (at the exercise date) equal to the net after-tax gain until the one-year anniversary of the exercise date. |
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Restricted Shares |
In the past, we made restricted share grants to Donald Walker, Vincent Galifi, Jeffrey Palmer and Tommy Skudutis. The last such grant was made in 2008. Restricted share grants are not expected to be an ongoing feature of our executive compensation program; however, previously granted restricted shares continue to be released to the Corporate NEOs in accordance with their original terms of grant. |
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Forfeiture of Restricted Shares |
Restricted shares are released to an executive in equal 10% increments over a ten-year period immediately following an initial five-year qualification period. However, restricted shares are subject to forfeiture if: |
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during the ten-year release period, the executive competes with Magna, solicits Magna employees or discloses confidential Magna information to a third party; |
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while employed by Magna, the executive fails to devote his full time and attention to Magna's business; or |
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the executive's employment is terminated due to theft, bribery or fraud. |
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Since the restricted shares were taxed in the year of grant, forfeiture of the shares also effectively results in forfeiture of amounts paid personally by the executive as taxes on the restricted shares. |
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Anti-Hedging Restrictions |
Executives are not permitted to engage in activities which would enable them to improperly profit from changes in our stock price or reduce their economic exposure to a decrease in our stock price. Prohibited activities include "puts", "collars", equity swaps, hedges, derivative transactions and any transaction aimed at limiting an executive's exposure to a loss or risk of loss in the value of the Magna securities which he holds. |
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Automatic Securities Disposition Plans |
Executives are permitted to enter into automatic securities disposition plans ("ASDPs"), which are also known as Rule 10b5-1 Plans. Such plans allow executives to establish a plan for the sale of Common Shares held by the executive and exercise of stock options granted to them, subject to meeting all legal requirements applicable to such plans. Among other things, an executive may only enter into, modify or terminate a plan while he or she is not under a trading blackout or otherwise in possession of material undisclosed information. |
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5. Benefits |
Benefits provided to NEOs are the same as those provided to other employees in the same country, with a few exceptions discussed below. As discussed earlier, Magna does not provide a defined benefit pension plan or other retirement benefits to NEOs, consistent with our compensation approach to employees generally. |
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Medical, Dental and Disability Benefits |
NEOs receive the same medical, dental and disability benefits as other employees in the same country. |
72 Compensation
CEO and CFO Life Insurance Premiums Are Reimbursed |
NEOs other than Donald Walker and Vincent Galifi receive the same insurance benefits as those available to other employees in the same country. In addition to these standard insurance benefits, we reimbursed life insurance premiums on insurance policies for Donald Walker and Vincent Galifi. During 2015, the premiums reimbursed were as follows: |
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Donald Walker: $120,000(1) |
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Vincent Galifi: $43,000(1) |
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Note: |
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1. Converted from C$ at the BoC noon spot rate on December 31, 2015. |
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Life insurance premium reimbursements are not grossed-up for income tax. |
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"Perks" are Limited |
We provide limited "perks" to NEOs consisting of occasional personal use of corporate aircraft and access to corporate facilities, in each case when not required for business purposes and subject to reimbursement as discussed below. |
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Occasional Personal Use of Corporate Aircraft Is Subject to Partial Reimbursement |
NEOs are permitted occasional personal use of corporate aircraft, in accordance with policies approved by the CGCNC. Any such personal use must be reimbursed at 150% of an equivalent business class airfare for the same route. However, the difference between the "aggregate variable operating cost" of the personal flight and the amount reimbursed by the executive is treated as a "perk" and is disclosed in the Summary Compensation Table under "All Other Compensation". We add together all variable costs for operating the aircraft for a fiscal year, including fuel, maintenance, customs charges, landing and handling fees, data and communications charges and any other similar costs and divide that total by the number of hours flown during the year to calculate a cost per flight hour. The cost per flight hour multiplied by the flight hours for a personal flight, minus the amount reimbursed by the executive, is the value of the "perk". |
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Occasional Access to Corporate Facilities Is Subject to Reimbursement |
During 2015, we held one property in North America which was available primarily for business purposes. Subject to availability, executives were allowed to rent such property for occasional personal use, based on a nightly rental rate that was set with reference to comparable facilities. Any personal use was billed to an executive and was reimbursed in full. The property was sold in 2015. |
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NEOs are also entitled to access the Magna Golf Club adjacent to the Company's head office for business purposes. Applicable charges relating to personal use are paid for by the executive at the club's regular rates. |
Compensation 73
Executive Equity Ownership |
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Executive Management Securities Maintenance Requirements |
Each NEO is subject to a securities maintenance requirement which takes one-third of his compensation in respect of each of the prior three calendar years consisting of base salary, profit sharing bonus and other incentive compensation, including gains realized from the exercise of stock options, after deducting income tax at a deemed rate of 50%, then divides the result by the average daily closing prices of our Common Shares on NYSE over those three years. In the event an NEO falls below the securities maintenance requirement, the NEO's bonus is withheld until he demonstrates compliance with the requirement. |
NAME |
NO. OF SHARES AND RSUS TO BE HELD (#) |
NO. OF SHARES AND RSUS HELD AS OF 12/31/15 (#) |
STATUS |
12/31/15 VALUE(1) ($) |
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Donald J. Walker | 246,957 | 1,644,515 | Exceeds | 66,702,000 | ||||
Vincent J. Galifi | 238,054 | 1,016,375 | Exceeds | 41,224,000 | ||||
Tommy J. Skudutis | 101,783 | 319,379 | Exceeds | 12,954,000 | ||||
Jeffrey O. Palmer | 162,898 | 785,873 | Exceeds | 31,875,000 | ||||
James J. Tobin(2) | 64,098 | 44,646 | Below | 1,811,000 |
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Note: |
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1. Based on the closing price of Magna Common Shares on the NYSE on December 31, 2015. |
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2. Mr. Tobin was unable to purchase shares to meet his requirement due to trading blackouts in 2015. He acquired 24,070 shares on February 29, 2016, following expiry of Magna's blackout relating to fourth quarter and full-year financial results. |
Termination/ Severance | ||
Termination/ Severance Payments are Limited to a Maximum of 24 Months Compensation |
Each Corporate NEO is entitled to 12 months' severance pay, plus one additional month of severance pay for each year employed by Magna (including any subsidiaries), to a maximum of 24 months' severance (the "Notice Period") in the event of termination without cause. Based on their years of service to Magna, each Corporate NEO would be entitled to 24 months' severance pay if terminated without cause. |
NAME |
TENURE WITH (MAGNA) (YEARS) |
SEVERANCE ENTITLEMENT (# MONTHS) |
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Donald J. Walker | 28+ | 24 | ||
Vincent J. Galifi | 26+ | 24 | ||
Tommy J. Skudutis | 24+ | 24 | ||
Jeffrey O. Palmer | 15+ | 24 | ||
James J. Tobin | 13+ | 24 |
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Severance payments are based on the average of an NEO's total compensation excluding LTIs for the 12 fiscal quarters prior to the termination. |
74 Compensation
A summary showing the treatment of each compensation element in different termination scenarios is set forth below under "Summary of Treatment of Compensation on Resignation, Retirement, Termination or Change in Control". |
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Change in Control Protections |
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Double-Trigger |
We maintain "double trigger" change in control protection for the Corporate NEOs; however, such protection does not provide any enhanced severance. The primary benefit is the acceleration of any unvested stock options in the event that a change in control is followed by termination of employment or constructive dismissal for "good reason". In most foreseeable situations, all outstanding stock options would likely become automatically exercisable in the event of a Change in Control, in which case there would be no incremental benefit to the executive of such protection. |
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The definition of "good reason" for purposes of the change in control protection covers a number of standard events that would ordinarily be a basis for constructive dismissal. In addition, the definition includes as an event of good reason the implementation of a financing, sale, merger, reorganization or other transaction related to a change in control, which would reasonably be expected to reduce Pre-Tax Profits Before Profit Sharing by 20% over the following two-year period from the last Board-approved business plan (a "Leverage Transaction"). The principal intent of this provision is to address a scenario whereby a purchaser of Magna could add significant debt to Magna's balance sheet, but could also include other restructuring transactions following a change in control, the effect of which in each case could be to materially reduce or eliminate profits and thus annual profit sharing bonuses for any Corporate NEO whose employment continued following the change in control. In any such scenario, there could be a misalignment of interests between Corporate NEOs and shareholders since Corporate NEOs could have a disincentive to support a change in control transaction involving a potential purchaser who plans to implement a Leverage Transaction following completion of the change in control. |
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To address this concern, in the event a purchaser of Magna implements a Leverage Transaction following a change in control, any Corporate NEO whose employment continues could claim that the second "trigger" of the double-trigger protection had been activated, thus entitling him to standard severance. Additionally, if such Corporate NEO's stock options had not been automatically exercised in connection with the change in control, any unvested stock options other than performance stock options would then become exercisable. However, in most foreseeable situations, all outstanding stock options would be automatically exercised in connection with the completion of the change in control transaction. |
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Compensation 75
Summary of Treatment of Compensation on Resignation, Retirement, Termination, or Change in Control |
Element of Compensation |
Resignation |
Retirement |
Termination Cause |
Termination No Cause |
Termination Without Cause on Change in Control |
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---|---|---|---|---|---|---|---|---|---|---|
Base Salary | Pro-rated to effective date | Pro-rated to effective date | Pro-rated to effective date | Average of compensation excluding LTIs for the last 12 fiscal quarters | Average of compensation excluding LTIs for the last 12 fiscal quarters | |||||
Annual Bonus Cash | Pro-rated to effective date | Pro-rated to effective date | Pro-rated to effective date | paid out over severance period (up to 24 months) as | paid out over severance period (up to 24 months) as | |||||
Annual Bonus RSUs | Pro-rated to effective date. Redeemed on regular payout date (2+ years after earned). | Pro-rated to effective date. Redeemed on regular payout date (2+ years after earned). | Pro-rated to effective date. Redeemed on regular payout date (2+ years after earned). | salary continuation (bi-weekly) or lump-sum. | salary continuation (bi-weekly) or lump-sum. | |||||
Stock Options | Unvested and unexercised options expire on earlier of option expiry date and three months after effective date of resignation. | Unvested and unexercised options expire on earlier of option expiry date and three years after effective date of retirement. No acceleration of performance stock options. | All unexercised options expire on effective date of termination. | Unvested and unexercised options expire on earlier of option expiry date and three months after effective date of termination. No acceleration of performance stock options. | Vested options can be exercised until earlier of option expiry date and 12 months after Notice Period (as defined above). Unvested time-vested options accelerate and can be exercised until same date. No acceleration of performance stock options. | |||||
Restricted Shares | After qualifying period, released in 1/10 tranches per year provided conditions of confidentiality, non-solicitation and non-competition are observed. | After qualifying period, released in 1/10 tranches per year provided conditions of confidentiality, non-solicitation and non-competition are observed. | After qualifying period, released in 1/10 tranches per year provided conditions of confidentiality, non-solicitation and non-competition are observed. Where termination is due to theft, bribery or fraud, unreleased restricted shares are forfeited. | After qualifying period, released in 1/10 tranches per year provided conditions of confidentiality, non-solicitation and non-competition are observed. | After qualifying period, released in 1/10 tranches per year provided conditions of confidentiality, non-solicitation and non-competition are observed. | |||||
Benefits & Perks | None | None | None | None | None | |||||
Pension | None | None | None | None | None | |||||
76 Compensation
Summary of Incremental Severance, Termination and Change in Control Payments | The table below shows the value of the estimated incremental payments or benefits that would accrue to each NEO upon termination of his or her employment following resignation, normal retirement, termination without cause, termination with cause and termination without cause on change in control. For stock options, the values shown represent the in-the-money value of any grants the vesting of which would accelerate as a result of each termination circumstance below. |
|
Resignation |
Retirement |
Termination Cause |
Termination Without Cause |
Termination Without Cause on Change in Control |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Donald J. Walker | ||||||||||||
Severance | NIL | NIL | NIL | 34,457,000 | 34,457,000 | |||||||
RSUs | NIL | NIL | NIL | NIL | NIL | |||||||
Stock Options | NIL | NIL | NIL | NIL | 3,011,000 | (1) | ||||||
Benefits & Perks | NIL | NIL | NIL | NIL | NIL | |||||||
Pension | NIL | NIL | NIL | NIL | NIL | |||||||
Total | 37,468,000 | |||||||||||
Vincent J. Galifi | ||||||||||||
Severance | NIL | NIL | NIL | 14,172,000 | 14,172,000 | |||||||
RSUs | NIL | NIL | NIL | NIL | NIL | |||||||
Stock Options | NIL | NIL | NIL | NIL | 1,053,000 | (1) | ||||||
Benefits & Perks | NIL | NIL | NIL | NIL | NIL | |||||||
Pension | NIL | NIL | NIL | NIL | NIL | |||||||
Total | 15,225,000 | |||||||||||
Tommy J. Skudutis | ||||||||||||
Severance | NIL | NIL | NIL | 14,172,000 | 14,172,000 | |||||||
RSUs | NIL | NIL | NIL | NIL | NIL | |||||||
Stock Options | NIL | NIL | NIL | NIL | 910,000 | (1) | ||||||
Benefits & Perks | NIL | NIL | NIL | NIL | NIL | |||||||
Pension | NIL | NIL | NIL | NIL | NIL | |||||||
Total | 15,082,000 | |||||||||||
Jeffrey O. Palmer | ||||||||||||
Severance | NIL | NIL | NIL | 10,444,000 | 10,444,000 | |||||||
RSUs | NIL | NIL | NIL | NIL | NIL | |||||||
Stock Options | NIL | NIL | NIL | NIL | 452,000 | (1) | ||||||
Benefits & Perks | NIL | NIL | NIL | NIL | NIL | |||||||
Pension | NIL | NIL | NIL | NIL | NIL | |||||||
Total | 10,896,000 | |||||||||||
James J. Tobin | ||||||||||||
Severance | NIL | NIL | NIL | 5,609,000 | 5,609,000 | |||||||
RSUs | NIL | NIL | NIL | NIL | NIL | |||||||
Stock Options | NIL | NIL | NIL | NIL | 256,000 | (1) | ||||||
Benefits & Perks | NIL | NIL | NIL | NIL | NIL | |||||||
Pension | NIL | NIL | NIL | NIL | NIL | |||||||
Total | 5,865,000 | |||||||||||
Note: | ||
1. Represents the in-the-money value of options, the vesting of which is accelerated as a result of a change in control, using the closing price of Magna Common Shares on the TSX on December 31, 2015, converted at the BoC noon spot rate on such date since these options are denominated in C$. |
Compensation 77
D. Compensation Risk Management
Overall Level of Compensation Risk is Reasonable in Light of Nature of Magna's Business and Industry |
The CGCNC has considered whether Magna's executive compensation system may encourage excessive risk taking. The CGCNC concluded that the potential risks created by any particular element of the system are appropriately mitigated by other elements and that the overall level of risk is reasonable in light of the nature of Magna's business and the automotive industry. In reaching this conclusion, the CGCNC considered the methods described below which are employed to help establish an appropriate balance between risk and reward, as well as to encourage responsible decision-making. |
|
Board/CGCNC Oversight Of Executive Compensation |
The Board maintains oversight responsibility for total compensation of the NEOs, profit sharing for all members of Executive Management and incentive compensation generally, including stock option grants for all employees. In fulfilling its oversight responsibilities with respect to executive compensation, the Board is assisted by the CGCNC, which makes its recommendations to the Board. The CGCNC is assisted by independent compensation and legal advisors selected and overseen directly by it. |
|
In connection with its general oversight responsibilities, the Board maintains approval responsibility for a number of matters which affect executive compensation, including long-term corporate strategy, consolidated business plans, Magna's annual capital expenditure budget, material acquisitions/dispositions, as well as financing strategy. The Board also monitors and receives regular updates on a broad range of financial and other measures, including return on funds employed, which assists the Board in assessing the company's performance on a risk-adjusted basis. |
||
Mix of Compensation |
Magna's compensation system includes a mix of short, medium and long-term compensation to incent performance over a range of time horizons. |
|
Profit Sharing Percentages Decline as Profits Increase |
As Magna's Pre-Tax Profits Before Profit Sharing exceed $1.5 billion, profit sharing percentages for Executive Management decline, which serves to mitigate the risks of an uncapped compensation system while still providing incentive to achieve profits in excess of that threshold. |
|
Impairments and Restructuring Charges Typically Reduce Executive Compensation |
Under Magna's profit sharing formula, impairments and restructuring charges typically reduce Pre-Tax Profits Before Profit Sharing and thus executive compensation. This outcome is desirable since it serves to align the interests of executives and shareholders and reinforce the link between pay and performance. |
|
Deferral of Significant Proportion of Annual Compensation |
The deferral of 40% of the annual profit sharing bonus in the form of RSUs for over two years serves to encourage longer-term decision-making and maintain alignment between NEOs and shareholders over the deferral period. |
78 Compensation
Clawback Provisions |
The employment contract between Magna and each NEO contains a clawback provision in the event of a financial restatement with respect to any fiscal year (excluding a restatement resulting from retroactive application of a change to GAAP). In this circumstance, each executive must return the difference between: (a) the compensation payable based on the restated financial statements, and (b) the amount actually paid to him. Moreover, the clawback extends to both the cash and RSU portions of the profit sharing bonus. Any amount to be clawed-back can be set-off by Magna against future compensation. |
|
Forfeiture Provisions |
Where an executive's employment is terminated for "cause", he or she forfeits his unreleased restricted shares. Since the restricted shares were taxed in the year of grant, forfeiture of the shares also effectively results in forfeiture of amounts paid personally by the executive as taxes on the restricted shares. The term "cause" for this purpose is defined as termination for theft, bribery or fraud. |
|
Additionally, unexercised stock options granted in 2012 and afterwards are subject to forfeiture in the event of theft, bribery and fraud, while options granted in 2015 and afterwards are also subject to forfeiture for a material breach of our Code of Conduct & Ethics. |
||
Significant Wealth "At Risk" |
The significant equity exposure faced by each NEO, as demonstrated by the value of all Common Shares and RSUs held by each such NEO, serves to create strong alignment between executives and shareholders generally. Additionally, the risk of loss of equity value creates a powerful incentive to make responsible business decisions and avoid excessive risk-taking. Equity-based wealth at risk for each NEO is as follows as of the Record Date: |
NAME |
RECORD DATE VALUE OF COMMON SHARES(1) ($) |
RECORD DATE VALUE OF RSUS(1) ($) |
RECORD DATE IN- THE-MONEY VALUE OF OPTIONS(2) ($) |
AGGREGATE RECORD DATE WEALTH "AT RISK" ($) |
||||
---|---|---|---|---|---|---|---|---|
Donald J. Walker | 59,901,000 | 11,666,000 | 38,701,000 | 110,268,000 | ||||
Vincent J. Galifi | 39,300,000 | 4,666,000 | 8,648,000 | 52,614,000 | ||||
Tommy J. Skudutis | 9,482,000 | 4,666,000 | 997,000 | 15,145,000 | ||||
Jeffrey O. Palmer | 16,074,000 | 3,328,000 | 300,000 | 19,702,000 | ||||
James J. Tobin | 1,030,000 | 1,711,000 | 1,902,000 | 4,643,000 |
||||
Notes: | ||
1. Calculated using the closing price of Magna Common Shares on the NYSE on the Record Date. 2. Calculated using the closing price of Magna Common Shares on the TSX or NYSE, as applicable, and the BoC noon spot rate on the Record Date for options denominated in C$. |
||
Stock Option Exercises Add to Securities Maintenance Requirement |
When an executive exercises stock options, the gain arising from the sale of underlying shares (being market price at time of exercise, less exercise price) is treated as if it was compensation earned in the year of option exercise. This has the effect of increasing the number of shares an executive is required to hold as part of his securities maintenance requirement, as described under "Executive Equity Ownership". |
|
Post-Retirement Holdback of Option Shares |
Where an executive ceases to be employed by Magna within one year following the date of a stock option exercise, a portion of the option shares must continue to be held by him or her until the first anniversary of the date of exercise. |
|
Anti-Hedging Restrictions |
Magna employees, including NEOs, are prohibited from hedging their exposure to declines in Magna's share price. This measure seeks to maintain alignment of interests between executives and shareholders. |
Compensation 79
Summary Compensation Table
The following table sets forth a summary of all compensation earned in respect of 2015, 2014 and 2013 by the individuals who were our Named Executive Officers in respect of 2015. All amounts are presented in U.S. dollars and any applicable amounts in other currencies have been converted to U.S. dollars.
NON-EQUITY INCENTIVE PLAN COMPENSATION ($) |
||||||||||||||||||
NAME AND PRINCIPAL POSITION |
YEAR |
SALARY ($) |
SHARE-BASED AWARDS(1) ($) |
OPTION-BASED AWARDS(2) ($) |
ANNUAL(3) ($) |
LONG- TERM ($) |
PENSION VALUE ($) |
ALL OTHER COMPENSATION ($) |
TOTAL COMPENSATION ($) |
|||||||||
Donald J. Walker | 2015 | 325,000 | 6,962,000 | 2,875,000 | 10,444,000 | NIL | NIL | 155,000 | 20,761,000 | |||||||||
Chief Executive Officer | 2014 | 325,000 | 7,024,000 | 3,145,000 | 10,535,000 | NIL | NIL | 175,000(4) | 21,204,000 | |||||||||
2013 | 325,000 | 6,298,000 | 2,727,000 | 9,447,000 | NIL | NIL | 182,000(4) | 18,979,000 | ||||||||||
Vincent J. Galifi | 2015 | 325,000 | 2,785,000 | 992,000 | 4,177,000 | NIL | NIL | 66,000 | 8,345,000 | |||||||||
Executive Vice-President | 2014 | 325,000 | 2,809,000 | 1,107,000 | 4,214,000 | NIL | NIL | 66,000(5) | 8,521,000 | |||||||||
and Chief Financial Officer | 2013 | 325,000 | 2,519,000 | 950,000 | 3,779,000 | NIL | NIL | 88,000(5) | 7,661,000 | |||||||||
Tommy J. Skudutis | 2015 | 325,000 | 2,785,000 | 940,000 | 4,177,000 | NIL | NIL | 4,000 | 8,231,000 | |||||||||
Chief Operating Officer, | 2014 | 325,000 | 2,809,000 | 994,000 | 4,214,000 | NIL | NIL | 14,000(6) | 8,356,000 | |||||||||
Exteriors, Seating, | 2013 | 325,000 | 2,519,000 | 868,000 | 3,779,000 | NIL | NIL | 11,000(6) | 7,502,000 | |||||||||
Mirrors, Closures and Cosma | ||||||||||||||||||
Jeffrey O. Palmer | 2015 | 325,000 | 1,880,000 | 340,000 | 2,820,000 | NIL | NIL | 23,000 | 5,388,000 | |||||||||
Executive Vice-President | 2014 | 325,000 | 2,107,000 | 413,000 | 3,161,000 | NIL | NIL | NIL | 6,006,000 | |||||||||
and Chief Legal Officer | 2013 | 325,000 | 1,889,000 | 413,000 | 2,834,000 | NIL | NIL | 35,000(7) | 5,496,000 | |||||||||
James J. Tobin | 2015 | 325,000 | 1,021,000 | 425,000 | 1,532,000 | NIL | NIL | NIL | 3,303,000 | |||||||||
Chief Marketing Officer | 2014 | 325,000 | 1,030,000 | 450,000 | 1,545,000 | NIL | NIL | NIL | 3,350,000 | |||||||||
and President, Magna Asia | 2013 | 325,000 | 924,000 | 413,000 | 1,386,000 | NIL | NIL | NIL | 3,048,000 |
|||||||||
Notes:
The compensation value of the options shown for 2015 and 2014, as determined above, differs from the accounting value of such options, which was determined using a Monte Carlo simulation model. A Monte Carlo simulation is a generally accepted statistical technique, which was used to simulate a range of possible future stock prices over the seven-year option term for Magna and the companies in its performance stock option peer group. The simulation generates an estimate of the fair value of a performance-vested stock option for purposes of financial accounting under the Financial Accounting Standards Board's ASC 718. The simulated fair value estimate per vesting tranche of the 2015 and 2014 options, based on exercise prices of $38.23 (being the NYSE closing price of Magna Common Shares on February 26, 2016) and $54.53 (being the NYSE closing price of Magna Common Shares on February 26, 2015) were as follows:
2015 SIMULATED FAIR VALUE |
2014 SIMULATED FAIR VALUE |
|||
Tranche 1 | $7.89 | $11.92 | ||
Tranche 2 | $8.29 | $12.58 | ||
Tranche 3 | $8.54 | $13.12 | ||
Amounts disclosed in the "Option-Based Awards" column in respect of 2013 represent the grant date fair value of stock options, determined using the Black-Scholes option pricing model. This model requires the input of a number of assumptions, including expected dividend yields, expected stock price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect our best estimates, they involve
80 Compensation
inherent
uncertainties based on market conditions generally outside Magna's control. If other assumptions are used, the stock option value disclosed could be significantly impacted. Disclosure of the
value of stock options in our financial statements is also based on the grant date fair value determined using the Black-Scholes option pricing model and amortized to compensation expense from the
effective date of the grant to the final vesting date in selling, general and administrative expense, with a corresponding increase to contributed surplus. As stock options are exercised, the proceeds
received on exercise, in addition to the portion of the contributed surplus balance related to those stock options, is credited to Common Shares and released from contributed surplus.
The weighted average assumptions used in measuring the Black-Scholes fair value of stock options granted in respect of 2015, 2014 and 2013, as well as the "floor" value determined in respect of 2015
and 2014, are as follows:
|
2015 |
2014 |
2013 |
|||
---|---|---|---|---|---|---|
Risk-free interest rate | 0.64% / 1.22% | 0.63% | 1.60% | |||
Expected dividend yield | 2.00% | 2.00% | 2.00% | |||
Expected volatility | 25% / 27% | 23% | 29% | |||
Expected time until exercise | 4.5 years | 4.5 years | 4.5 years | |||
Grant Date Fair Value per option (Black-Scholes) | C$8.81 / $7.33 | C$10.66 / $8.52 | C$11.47 / $10.33 | |||
"Floor" Value | C$10.32 / $7.65 | C$13.65 / $10.91 | | |||
DESCRIPTION |
2015 ($) |
2014 ($) |
2013 ($) |
||||
---|---|---|---|---|---|---|---|
Amounts reimbursed by Magna in respect of premiums paid by Mr. Walker on a life insurance policy | 120,000 | 143,000 | 156,000 | ||||
Personal use of corporate aircraft | 35,000 | 32,000 | 26,000 | ||||
Total | 155,000 | 175,000 | 182,000 | ||||
DESCRIPTION |
2015 ($) |
2014 ($) |
2013 ($) |
||||
---|---|---|---|---|---|---|---|
Amounts reimbursed by Magna in respect of premiums paid by Mr. Galifi on a life insurance policy | 43,000 | 52,000 | 56,000 | ||||
Personal use of corporate aircraft | 23,000 | 14,000 | 32,000 | ||||
Total | 66,000 | 66,000 | 88,000 | ||||
DESCRIPTION |
2015 ($) |
2014 ($) |
2013 ($) |
|||
---|---|---|---|---|---|---|
Personal use of corporate aircraft | 4,000 | 14,000 | 11,000 | |||
DESCRIPTION |
2015 ($) |
2014 ($) |
2013 ($) |
|||
---|---|---|---|---|---|---|
Personal use of corporate aircraft | 23,000 | NIL | 35,000 | |||
Compensation 81
Incentive Plans and Awards
Stock Option Plans | Stock option grants are made under the 2009 Plan, which was approved by shareholders on May 6, 2010 and is administered by the CGCNC. | |
Prior to adoption of the 2009 Plan, options were granted under the 1987 Plan, which was approved by shareholders on December 10, 1987, and subsequently amended on May 18, 2000 and May 10, 2007. As of December 31, 2015, a total of 300,682 previously granted options were fully vested and remained unexercised under the 1987 Plan. However, as of the Record Date, all outstanding options under the 1987 Plan had been exercised and the plan has terminated. |
||
Eligible Participants Under 2009 Plan |
Under the 2009 Plan, stock options may be granted to employees of and consultants to Magna and its subsidiaries. The CGCNC does not foresee options being granted to consultants, except in limited circumstances such as where an individual performs services for Magna through a consulting arrangement for tax or other similar reasons. |
|
2009 Plan Limits |
The maximum number of Common Shares: |
|
issued to Magna "insiders" within any one-year period; and |
||
issuable to Magna insiders at any time, |
||
under the option plans and any other security-based compensation arrangements (as defined in the TSX Company Manual) cannot exceed 10% of our total issued and outstanding Common Shares, respectively. |
||
Option Exercise Prices are at or Above Market Price on Date of Grant |
Exercise prices are determined at the time of grant, but cannot be less than the closing price of a Common Share on the TSX (for options denominated in Canadian dollars) or NYSE (for options denominated in U.S. dollars) on the trading day immediately prior to the date of grant. |
|
3-Year Option Vesting; 7-Year Option Life |
Time-vested options granted under the 2009 Plan vest in equal proportions on each of the first three anniversaries of the grant date, unless otherwise determined by the CGCNC. Performance-vested options granted under the 2009 Plan vest as to one-sixth, one-third and one-half on the first three anniversaries of the grant date, respectively, subject to satisfaction of a relative TSR performance hurdle described in Section C of the CD&A. Subject to accelerated expiry of time-vested options in certain circumstances, options granted under the 2009 Plan expire seven years after grant, unless otherwise determined by the CGCNC. On cancellation or surrender of options under the 2009 Plan, the underlying shares are added back to the number of Common Shares reserved for issuance and are available for re-grant. |
82 Compensation
Amending the 2009 Plan |
The 2009 Plan gives the Board the power to amend the plan, except for the following types of amendments which require shareholder approval: |
|
increases to the number of shares reserved for issuance under the plan (excluding an equitable increase in connection with certain capital reorganizations); |
||
a reduction in the exercise price of an option; |
||
an extension of an option term (excluding certain limited extensions to allow the exercise of options which expire during or within two business days after the end of a trading blackout); |
||
an increase in the 10% limit on option shares issuable to insiders, as described above; and |
||
amendment of the amending provision of the plan. |
||
There were no amendments to the 2009 Plan during 2015. |
||
Copies of Option Plans on Magna.com |
The full text of the amended and restated 2009 Plan is available on our website (www.magna.com). |
|
Equity Compensation Plan Information |
As of December 31, 2015 and the Record Date, compensation plans under which our Common Shares are authorized for issuance are as follows: |
PLAN CATEGORY | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |
WEIGHTED-AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |
NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS |
||||||||||||
12/31/2015 (#) |
RECORD DATE (#) |
12/31/2015 ($) |
RECORD DATE ($) |
12/31/2015 (#) |
RECORD DATE (#) |
||||||||||
Equity compensation plans approved by securityholders: | |||||||||||||||
1987 Plan | 300,682 | | C$8.27 | | | | |||||||||
2009 Plan | 7,048,734 | 9,101,738 | C$39.88 | C$42.99 | 12,164,270 | 9,948,766 | |||||||||
Total | 7,349,416 | 9,101,738 | C$38.59 | C$42.99 | 12,164,270 | 9,948,766 | |||||||||
Compensation 83
Outstanding Option-Based Awards | Outstanding option-based awards for each of our Named Executive Officers as of December 31, 2015 were as follows: |
|
OPTION-BASED AWARDS |
SHARE-BASED AWARDS |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
NUMBER OF SECURITIES UNDERLYING EXERCISED OPTIONS (#) |
OPTION EXERCISE PRICE |
OPTION EXPIRATION DATE (MM/DD/YY) |
VALUE OF UNEXERCISED IN-THE- MONEY OPTIONS(1) ($) |
NUMBER OF SHARE-BASED AWARDS THAT HAVE NOT VESTED (#) |
MARKET OR PAYOUT VALUE OF SHARE-BASED AWARDS THAT HAVE NOT VESTED ($) |
MARKET OR PAYOUT VALUE OF VESTED SHARE-BASED AWARDS NOT PAID OUT OR DISTRIBUTED ($) |
|||||||
Donald J. Walker | 500,000 | C$15.00 | 02/25/17 | 14,855,000 | NIL | NIL | 9,909,000 | |||||||
500,000 | C$24.11 | 03/01/19 | 11,564,000 | |||||||||||
400,000 | C$28.51 | 03/03/20 | 7,979,000 | |||||||||||
264,000 | C$53.35 | 03/04/21 | 527,000 | |||||||||||
320,414 | $54.53 | 02/25/22 | | |||||||||||
Total | 1,984,414 | |||||||||||||
Vincent J. Galifi | 200,000 | C$24.11 | 03/01/19 | 4,625,000 | NIL | NIL | 3,964,000 | |||||||
140,000 | C$28.51 | 03/03/20 | 2,793,000 | |||||||||||
92,000 | C$53.35 | 03/04/21 | 184,000 | |||||||||||
112,782 | $54.53 | 02/25/22 | | |||||||||||
Total | 544,782 | |||||||||||||
Tommy J. Skudutis | 40,000 | C$28.51 | 03/03/20 | 798,000 | NIL | NIL | 3,964,000 | |||||||
84,000 | C$53.35 | 03/04/21 | 168,000 | |||||||||||
101,270 | $54.53 | 02/25/22 | | |||||||||||
Total | 225,270 | |||||||||||||
Jeffrey O. Palmer | 100,000 | C$24.11 | 03/01/19 | 2,313,000 | NIL | NIL | 2,845,000 | |||||||
60,000 | C$28.51 | 03/03/20 | 1,197,000 | |||||||||||
40,000 | C$53.35 | 03/04/21 | 80,000 | |||||||||||
42,076 | $54.53 | 02/25/22 | | |||||||||||
Total | 242,076 | |||||||||||||
James J. Tobin | 34,014 | $6.59 | 02/26/16 | 1,156,000 | NIL | NIL | 1,453,000 | |||||||
55,576 | $24.44 | 03/01/19 | 896,000 | |||||||||||
40,000 | $27.76 | 03/03/20 | 512,000 | |||||||||||
40,000 | $48.05 | 03/04/21 | | |||||||||||
45,846 | $54.53 | 02/25/22 | | |||||||||||
Total | 215,436 | |||||||||||||
Notes:
84 Compensation
Incentive Plan Awards Value Vested During the Year | The values of option-based and share-based awards which vested, and non-equity incentive plan compensation earned, during the year ended December 31, 2015, are set forth below: |
NAME |
OPTION-BASED AWARDS VALUE VESTED DURING THE YEAR(1) ($) |
SHARE-BASED AWARDS VALUE VESTED DURING THE YEAR(2) ($) |
NON-EQUITY INCENTIVE PLAN COMPENSATION VALUE EARNED DURING THE YEAR(3) ($) |
|||
---|---|---|---|---|---|---|
Donald J. Walker | 11,099,000 | 7,292,000 | 10,444,000 | |||
Vincent J. Galifi | 4,182,000 | 2,917,000 | 4,177,000 | |||
Tommy J. Skudutis | 3,347,000 | 2,917,000 | 4,177,000 | |||
Jeffrey O. Palmer | 1,965,000 | 1,978,000 | 2,820,000 | |||
James J. Tobin | 814,000 | 1,069,000 | 1,532,000 | |||
Notes:
Compensation 85
Additional Information
Interests of Management and Other Insiders in Certain Transactions |
During 2015, non-independent trusts (the "Trusts") which exist to make orderly purchases of Magna shares for employees, either for transfer to Magna's Employee Equity and Profit Participation Program or to recipients of either bonuses or rights to purchase such shares from the Trusts, borrowed up to $55 million from Magna to facilitate the purchase of Common Shares. At December 31, 2015, the Trusts' indebtedness to Magna was $5 million. |
Indebtedness of Directors, Executive Officers and Employees |
None of Magna's present or former directors or executive officers (including any of their associates) were indebted at any time during 2015 to Magna or its subsidiaries. None of Magna's or its subsidiaries' present or former employees were indebted at any time during 2015 to Magna or its subsidiaries in connection with the purchase of Magna's securities or securities of any of Magna's subsidiaries. As at the Record Date, the aggregate amount of indebtedness to Magna and its subsidiaries was approximately $0.2 million in the case of present and former employees of Magna and its subsidiaries. |
|
Directors' and Officers' Insurance |
Effective September 1, 2015, Magna renewed its directors' and officers' liability insurance for a one-year renewal period. This insurance provides, among other coverages, coverage of up to $300 million (in the aggregate for all claims made during the policy year) for officers and directors of Magna and its subsidiaries, subject to a self-insured retention of $5 million for securities claims and $1 million for all other claims. This policy does not provide coverage for losses arising from the intentional breach of fiduciary responsibilities under statutory or common law or from violations of or the enforcement of pollutant laws and regulations. The aggregate premium payable in respect of the policy year September 1, 2015 to September 1, 2016 for the directors' and officers' liability portion of this insurance policy was approximately $2.1 million. |
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Shareholder Proposals and Communication |
Proposals of shareholders intended to be presented at our Annual Meeting of Shareholders to be held in 2017 must be received by us at our principal executive offices on or before March 5, 2017 in order to be included in our 2017 Management Information Circular/Proxy Statement. |
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Contacting the Board |
Shareholders wishing to communicate with any Independent Director may do so by contacting Magna's Chairman through the office of the Corporate Secretary at 337 Magna Drive, Aurora, Ontario, Canada, L4G 7K1, telephone (905) 726-7070. |
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86 Additional Information
Approval of Circular |
The Board has approved the contents and mailing of this Circular. |
/s/ "Bassem A. Shakeel" Bassem A. Shakeel Vice-President and Corporate Secretary March 28, 2016 |
Magna files an Annual Information Form with the Ontario Securities Commission and a Form 40-F with the U.S. Securities and Exchange Commission. A copy of Magna's most recent Annual Information Form, this Circular and the Annual Report containing Magna's consolidated financial statements and MD&A, will be sent to any person upon request in writing addressed to the Secretary at Magna's principal executive offices set out in this Circular. Such copies will be sent to any shareholder without charge. Copies of Magna's disclosure documents and additional information relating to Magna may be obtained by accessing the disclosure documents available on the internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. Financial information is provided in Magna's comparative consolidated financial statements and MD&A for fiscal 2015. For more information about Magna, visit Magna's website at www.magna.com.
Additional Information 87
Definitions and Interpretation
Certain Defined Terms | In this document, referred to as this "Circular", the terms "you" and "your" refer to the shareholder, while "we", "us", "our", the "company" and "Magna" refer to Magna International Inc. and, where applicable, its subsidiaries. In this Circular, a reference to "fiscal year" is a reference to the fiscal or financial year from January 1 to December 31 of the year stated. | |
We also use the following defined terms throughout this Circular: |
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Board: |
our Board of Directors. |
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BoC: |
the Bank of Canada. |
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C$: |
Canadian dollars. |
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CGCNC: |
the Corporate Governance, Compensation and Nominating Committee of our Board. |
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Deloitte: |
Deloitte LLP |
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DSUs: |
deferred share units. |
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EROC: |
the Enterprise Risk Oversight Committee of our Board. |
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Independent Directors: |
our directors or nominees who have been determined to be independent on the basis described under "Nominees for Election to the Board Nominee Independence". |
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Kingsdale: |
Kingsdale Shareholder Services, Magna's proxy solicitation agent for the Meeting. |
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NYSE: |
The New York Stock Exchange. |
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OBCA: |
the Business Corporations Act (Ontario). |
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RSUs: |
restricted stock units. |
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TSX: |
the Toronto Stock Exchange. |
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Currency, Exchange Rates and Share Prices |
Dollar amounts in this Circular are stated in U.S. dollars, unless otherwise indicated, and have been rounded to the nearest thousand. In a number of instances in this Circular, information based on our share price has been calculated on the basis of the Canadian dollar closing price of our Common Shares on the TSX and converted to U.S. dollars based on the BoC noon spot rate on the applicable date. |
REFERENCE DATE |
NYSE SHARE PRICE (US$) |
TSX SHARE PRICE (C$) |
BOC NOON SPOT RATE (C$1.00 = US$) |
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December 31, 2015 | 40.56 | 56.12 | 0.7225 | |||
March 18, 2016 | 42.78 | 55.78 | 0.7703 | |||
Effective March 25, 2015, Magna's Common Shares were split on a two-for-one basis. All references in this Circular to a number or value of shares or options reflects the post-stock split number or value (as applicable) of shares or options. | ||
Information Currency |
The information in this Circular is current as of March 24, 2016, unless otherwise stated. |
88 Additional Information
Appendix
MAGNA INTERNATIONAL INC.
(the "Corporation")
BY-LAW NO. 1
Section
1 | Business of the Corporation | |
2 | Directors | |
3 | Delegation by the Board of Directors | |
4 | Officers | |
5 | Protection of Directors, Officers and Others | |
6 | Securities | |
7 | Meetings of Shareholders | |
8 | Dividends and Rights | |
9 | Notices | |
10 | Repeal and Effective Date | |
11 | General |
BE IT ENACTED as a by-law of the Corporation as follows:
SECTION 1
BUSINESS OF THE CORPORATION
Appendix A- 1
SECTION 2
DIRECTORS
Each director shall hold office until the close of the next annual meeting of shareholders following his or her election or appointment.
A-2 Appendix
To give "timely notice", a Nominating Shareholder must give notice to the corporate secretary:
Appendix A- 3
A-4 Appendix
Appendix A- 5
Provided a quorum of directors is present, each newly elected board may without notice hold its first meeting without notice on the same day as the meeting of shareholders at which such board is elected.
A-6 Appendix
SECTION 3
DELEGATION BY THE BOARD OF DIRECTORS
Appendix A- 7
SECTION 4
OFFICERS
SECTION 5
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 6
SECURITIES
A-8 Appendix
and, subject to section 48 of the Act, one person may be appointed for both of the foregoing purposes in respect of all securities of the Corporation or any class or classes thereof.
Appendix A- 9
SECTION 7
MEETINGS OF SHAREHOLDERS
subject to the Act, as well as such guidelines and procedures as the board may adopt, shareholders and proxy holders not physically present at a meeting of shareholders may participate in a meeting of shareholders by means of a telephonic, videoconference or other electronic communication facility that permits all participants to communicate adequately with each other during the meeting. Such shareholders participating in a meeting of shareholders being conducted by means of an electronic communication facility shall be deemed for the purposes of the Act to be present in person at the meeting of shareholders.
not less than 21 days and not more than 50 days before the date on which the meeting is to be held. Any notice sent pursuant to this Section 7.5 shall be addressed to the latest address of each applicable person as shown in the records of the Corporation or its transfer agent, or if no address is shown therein, then to the last address of each such person known to the corporate secretary.
A-10 Appendix
For business to be properly brought before an annual meeting by a shareholder of the Corporation, such shareholder must submit a proposal to the Corporation for inclusion in the Corporation's management information circular in accordance with the requirements of the Act; provided that any proposal that includes nominations for the election of directors shall be submitted to the Corporation in accordance with the requirements set forth in Section 2.4. The Corporation shall set out the proposal in the management information circular or attach the proposal thereto, subject to the exemptions and bases for refusal set forth in the Act.
Other persons may be permitted to attend on the invitation of the chair of the meeting or with the consent of the meeting.
Appendix A- 11
meeting may require such shareholder or such individual authorized by it to furnish a certified copy of such resolution or other appropriate evidence of the authority of such individual.
Notwithstanding any specified time limits for the deposit of proxies by shareholders, the chair of any meeting or the chair of the board may, at his or her sole discretion, waive the time limits for the deposit of proxies by shareholders, including any deadline set out in the notice calling the meeting of shareholders or in any proxy circular, and any such waiver made in good faith shall be final and conclusive.
A-12 Appendix
without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of such question, and the result of the vote so taken shall be the decision of the shareholders upon such question.
SECTION 8
DIVIDENDS AND RIGHTS
but such record date shall not precede by more than 50 days the particular action to be taken. Such shareholders shall be determined as at the close of business on the date fixed by the directors, unless otherwise specified by the directors.
If no record date is fixed, the record date for the determination of shareholders for any purpose, other than to establish a record date for the determination of shareholders entitled to receive notice of a meeting of shareholders or to vote, shall be the close of business on the day on which the directors pass the resolution relating thereto.
Appendix A- 13
that the Corporation is required to and does withhold shall, unless such payment is not paid on due presentation, if applicable, satisfy and discharge the liability for the payment.
SECTION 9
NOTICES
A notice to a director, officer or auditor will be deemed to be received as follows:
A-14 Appendix
A notice to a shareholder shall be deemed to be received as follows:
If a shareholder has consented to a method for delivery of a notice, document or other information, the shareholder may revoke such shareholder's consent to receiving any notice, document or information by fax or e-mail by giving written notice of such revocation to the corporate secretary.
Appendix A- 15
notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon.
SECTION 10
REPEAL AND EFFECTIVE DATE
SECTION 11
GENERAL
A-16 Appendix
executive officer, chief financial officer, directors, employees, executive vice-presidents, officers, corporate secretary, shareholders, special resolutions and vice-presidents (if any) of the Corporation at the relevant time.
APPROVED BY THE BOARD: |
March 17, 2016 |
Appendix A- 17
Exhibit 22.2
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement No. 333-194892 on Form F-10 and Registration Statement No. 333-128257 on Form S-8 and to the use of our reports dated March 3, 2016 relating to the consolidated financial statements of Magna International Inc. and its subsidiaries (the "Company"), and the effectiveness of the Company's internal control over financial reporting, incorporated by reference from the Company's Current Report on Form 6-K dated March 28, 2016 to this Annual Report on Form 40-F of Magna International Inc. for the year ended December 31, 2015.
/s/ Deloitte LLP
Chartered
Professional Accountants
Licensed Public Accountants
March 28, 2016
Toronto, Canada
Exhibit 99.1
Managements Discussion and Analysis
of Results of Operations and Financial Position
Magna International Inc.
December 31, 2015
MAGNA INTERNATIONAL INC.
Managements Discussion and Analysis of Results of Operations and Financial Position
Unless otherwise noted, all amounts in this Managements 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.
In 2015, we sold substantially all of our interiors operations (excluding our seating operations). The assets and liabilities, and operating results for the previously reported interiors operations are presented as discontinued operations and have therefore been excluded from both continuing operations and segment results for all periods presented in the attached financial statements. This Managements Discussion and Analysis reflects the results of continuing operations, unless otherwise noted.
This MD&A should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015.
This MD&A has been prepared as at March 3, 2016.
OVERVIEW
We are a leading global automotive supplier with 292 manufacturing operations and 83 product development, engineering and sales centres in 29 countries. As of December 31, 2015, we have approximately 129,000 employees focused on delivering superior value to our customers through innovative products and processes, and World Class Manufacturing. Our product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing. Our common shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further information about Magna, visit our website at www.magna.com.
HIGHLIGHTS
Operations
2015 marked the sixth consecutive year of increased global light vehicle production. In our two most significant markets, North American light vehicle production increased 3% to 17.5 million units and European light vehicle production increased 4% to 21.0 million units, each in 2015 compared to 2014.
We posted consolidated sales of $32.13 billion in 2015, a decrease of $2.27 billion or 7% from 2014. Although our financial results are reported in U.S. dollars, we also generate sales in various other currencies, including the euro and Canadian dollar. The weakening of these and other functional currencies against the U.S. dollar reduced our reported sales by approximately $3.35 billion in 2015 as compared to 2014. Excluding the negative impact of foreign currency translation, our sales increased 3% compared to 2014.
Overall, our Adjusted EBIT(1) decreased 6% to $2.53 billion in 2015 compared to $2.68 billion in 2014.
During 2015, net income attributable to Magna International Inc. from continuing operations was $1.95 billion, an increase of $22 million compared to 2014 and diluted earnings per share from continuing operations increased $0.28 to $4.72 for 2015 compared to 2014. Excluding the after tax impact of other (income) expense, net, and the Austrian Tax Reform, as discussed in the Other (income) expense, net and Income Taxes sections, respectively, net Income attributable to Magna International Inc. from continuing operations decreased $146 million and diluted earnings per share from continuing operations decreased $0.12.
1 We believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from continuing operations before income taxes; interest expense, net; and other (income) expense, net.
Magna International Inc. 2015 Annual MD&A
Strategic Repositioning of Product Portfolio
We undertook a number of actions in 2015 to reposition our product portfolio including the expansion of our powertrain product segment, which is expected to grow more rapidly, while exiting other product areas which are not critical to our future growth plans. Some of these actions include:
· Agreeing to acquire the Getrag Group of Companies (Getrag), one of the worlds largest suppliers of transmissions;
· Acquiring Stadco Automotive Ltd. (Stadco) a supplier of steel and aluminum stampings as well as vehicle assemblies based in the United Kingdom;
· Forming a partnership in China with Chongqing Xingqiaorui (the Xingqiaorui Partnership), a Tier one supplier of automotive body-in-white components to Changan Ford;
· Buying the head-up display and electronic components business units of Philips & Lite-On Digital Solutions (PLDS) in Germany, as well as the PLDS ultrasonic sensor business in Taiwan;
· Contributing our aftermarket Jeep roof tops business into a joint venture;
· Selling substantially all of our interiors operations (excluding our seating operations); and
· Selling our battery pack business.
Capital Structure
In early 2014, we announced our intention to move towards a capital structure that we believe is appropriate for our business, and also to reduce cash levels, while retaining enough cash to manage our day-to-day needs throughout the year. After giving effect to the closing of the Getrag transaction, we have achieved the target capital structure through investments for future growth in the form of capital spending and acquisitions, together with return of capital to shareholders through dividends and share repurchases. Some specific actions that realigned our capital structure include:
· Investing $1.29 billion in our business during 2015, including fixed assets, acquisitions net of divestitures, investments and other assets. In addition, we invested approximately 1.75 billion in cash plus assumed debt in January 2016, to acquire Getrag;
· Returning a total of $354 million to shareholders in the form of dividends. On February 25, 2016, our Board of Directors declared a dividend of U.S. $0.25 per share;
· Returning an additional $515 million to shareholders through the repurchase of 10.6 million shares in 2015; and
· Issuance of senior, unsecured debt denominated in U.S. dollars, Canadian dollars and euro, respectively.
INDUSTRY TRENDS AND RISKS
A number of general trends which have been impacting the automotive industry and our business in recent years are expected to continue, including the following:
· the consolidation of vehicle platforms and proliferation of high-volume platforms supporting multiple vehicles and produced in multiple locations;
· the long-term growth of the automotive industry in China, India and other non-traditional markets, including accelerated movement of component and vehicle design, development, engineering and manufacturing to certain of these markets;
· the growth of the B to D vehicle segments (subcompact to mid-size cars), particularly in developing markets;
· the extent to which innovation in the automotive industry is being driven by governmental regulation of fuel economy and carbon dioxide/greenhouse gas emissions, vehicle safety and vehicle recyclability;
· the growth of cooperative alliances and arrangements among competing automotive OEMs, including shared purchasing of components; joint engine, powertrain and/or platform development; engine, powertrain and platform sharing; and joint vehicle hybridization and electrification initiatives and other forms of cooperation;
· the growing importance of electronics in the automotive value chain;
· the consolidation of automotive suppliers; and
· the 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, rising unemployment, increasing energy prices, declining real estate values, increased volatility in global capital markets, international conflicts, sovereign debt concerns, an increase in protectionist measures and/or other factors, may result in lower consumer confidence. Consumer confidence has a significant impact on consumer demand for vehicles, which in turn impacts, vehicle production. A significant decline in vehicle production volumes from current levels could have a material 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 and other currencies. Our profitability is affected by movements of the U.S. dollar against the Canadian dollar, the euro 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 or euro, 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.
· The automotive industry has in recent years been the subject of increased government enforcement of antitrust and competition laws, particularly by the United States Department of Justice and the European Commission. Currently, investigations are being conducted in several product areas, and these regulators or those in other jurisdictions could choose to initiate investigations in these or other product areas.
In September 2014, the Conselho Administrativo de Defesa Economica, Brazils Federal competition authority, attended at one of the Companys operating divisions in Brazil to obtain information in connection with an ongoing antitrust investigation relating to suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years. Where wrongful conduct is found, the relevant antitrust authority can, depending on the jurisdiction, initiate administrative or criminal legal proceedings and impose administrative or criminal fines or penalties taking into account several mitigating and aggravating factors.
At this time, management is unable to predict the duration or outcome of the Brazilian investigation, including whether any operating divisions of the Company will be found liable for any violation of law or the extent or magnitude of any liability, if found to be liable.
The Companys policy is to comply with all applicable laws, including antitrust and competition laws. The Company has initiated a global review focused on antitrust risk led by a team of external counsel. If any antitrust violation is found as a result of the above-referenced investigation or otherwise, Magna could be subject to fines, penalties and civil, administrative or criminal legal proceedings that could have a material adverse effect on Magnas profitability in the year in which any such fine or penalty is imposed or the outcome of any such proceeding is determined. Additionally, Magna could be subject to other consequences, including reputational damage, which could have a material adverse effect on the Company.
· We may sell some product lines and/or downsize, close or sell some of our operating divisions. By taking such actions, we may incur restructuring, downsizing and/or other significant non-recurring costs. These costs may be higher in some countries than others and could have a material adverse effect on our profitability.
· Although we are working to turn around underperforming operating divisions, there is no guarantee that we will be successful in doing so in the short to medium term or that the expected improvements will be fully realized or realized at all. The continued underperformance of one or more operating divisions could have a material adverse effect on our profitability and operations.
· We face ongoing pricing pressure from OEMs, including through: long-term supply agreements with mutually agreed price reductions over the life of the agreement; incremental annual price concession demands; and pressure to absorb costs related to product design, engineering and tooling and other items previously paid for directly by OEMs; pressure to assume or offset commodities cost increases; and refusal to fully offset inflationary price increases. OEMs possess significant leverage over their suppliers due to their purchasing power and the highly competitive nature of the automotive supply industry. As a result of the broad portfolio of parts we supply to our six largest OEM customers, such customers may be able to exert greater leverage over us as compared to our competitors. We attempt to offset price concessions and costs in a number of ways, including through negotiations with our customers, improved operating efficiencies and cost reduction efforts. Our inability to fully offset price concessions or costs previously paid for by OEMs could have a material adverse effect on our profitability.
· The launch of new business is a complex process, the success of which depends on a wide range of factors, including the production readiness of our and our suppliers manufacturing facilities, as well as factors related to manufacturing processes, 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 intend to continue to pursue acquisitions in those product areas which we have identified as key to our business strategy. However, we may not be able to identify suitable acquisition targets or successfully acquire any suitable targets which we identify. Additionally, we may not be able to successfully integrate or achieve anticipated synergies from those acquisitions which we do complete, and/or such acquisitions may be dilutive in the short to medium term, which could have a material adverse effect on our profitability.
· The successful completion of one or more significant acquisitions could increase our risk profile, including through the assumption of incremental regulatory/compliance, pricing, supply chain, commodities, labour relations, litigation, environmental, pensions, warranty, recall, IT, tax or other risks. 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 facilities and/or personnel or other limitations in the due diligence process. Additionally, we may identify risks and liabilities through our acquisition due diligence efforts that we are not able to sufficiently mitigate through appropriate contractual protections. The realization of any such risks 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 customers: General Motors, Fiat Chrysler, Ford, Daimler, Volkswagen and BMW. 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.
· In light of the amount of business we currently have with our largest customers in North America and Europe, our opportunities for incremental growth with these customers may be limited. The amount of business we have with Japanese, Korean and Chinese-based OEMs generally lags that of our largest customers, due in part to the existing relationships between such OEMs and their preferred suppliers. There is no certainty that we can achieve growth with Asian-based OEMs, nor that any such growth will offset slower growth we may experience with our largest customers in North America and Europe. As a result, our inability to grow our business with Asian-based OEMs could have a material adverse effect on our profitability.
· While we continue to expand our manufacturing footprint with a view to taking advantage of opportunities in markets such as China, India, Eastern Europe, Thailand, Brazil and other non-traditional markets for us, we cannot guarantee that we will be able to fully realize such opportunities. Additionally, the establishment of manufacturing operations in new markets carries its own risks, including those relating to: political, civil and economic instability and uncertainty; corruption risks; high inflation and our ability to recover inflation-related cost increases; trade, customs and tax risks; expropriation risks; currency exchange rates; currency controls; limitations on the repatriation of funds; insufficient infrastructure; competition to attract and retain qualified employees; and other risks associated with conducting business internationally. Expansion of our business in non-traditional markets is an important element of our strategy and, as a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable, however, the occurrence of any such risks could have an adverse effect on our operations, financial condition and profitability.
· A disruption in the supply of components to us from our suppliers could cause the temporary shut-down of our or our customers production lines. Any prolonged supply disruption, including due to the inability to re-source or in-source production, could have a material adverse effect on our profitability.
· Some of our manufacturing facilities are unionized, as are many manufacturing facilities of our customers and suppliers. Unionized facilities are subject to the risk of labour disruptions from time to time, including as a result of restructuring actions taken by us, our customers and other suppliers. We cannot predict whether or when any labour disruption may arise, or how long such a disruption could last. 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.
· Our business is generally not seasonal. However, our sales and profits are closely related to our automotive customers vehicle production schedules. Our largest North American customers typically halt production for approximately two weeks in July and one week in December. In addition, many of our customers in Europe typically shut down vehicle production during portions of August and one week in December. These scheduled shutdowns of our customers production facilities could cause our sales and profitability to fluctuate when comparing fiscal quarters in any given year.
· The automotive supply industry is highly competitive. As a result of our diversified automotive business, some competitors have greater market share than we do in some product areas or geographic regions, or increasing market share in product areas or geographic regions which are experiencing higher growth rates. As the trends towards globalization and consolidation of automotive suppliers continue, we expect our competitors will be larger and have greater access to financial and other resources than is currently the case. We may also face new, global competitors in some product areas which emerge from non-traditional markets, such as China, and act as industry consolidators. 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 customers annual requirements for a particular vehicle, instead of a specific quantity of products. These blanket purchase orders can be terminated by a customer at any time and, if terminated, could result in our incurring various pre-production, engineering and other costs which we may not recover from our customer and which could have an adverse effect on our profitability.
· We continue to invest in technology and innovation which we believe will be critical to our long-term growth. Our ability to anticipate changes in technology and to successfully develop and introduce new and enhanced products and/or manufacturing processes on a timely basis will be a significant factor in our ability to remain competitive. If we are unsuccessful or are less successful than our competitors in consistently developing innovative products and/or processes, we may be placed at a competitive disadvantage, which could have a material adverse effect on our profitability and financial condition.
· Prices for certain key raw materials and commodities used in our parts, including steel and resin, continue to be volatile. To the extent we are unable to offset commodity price increases by passing such increases to our customers, by engineering products with reduced commodity content, through hedging strategies, or otherwise, such additional commodity costs could have an adverse effect on our profitability. Some of our manufacturing facilities generate a significant amount of scrap steel and recover some of the value through scrap steel sales. Scrap steel prices declined significantly in 2015 and may decline further, which 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 customers 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 or acquired by us. 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 or other catastrophic events, including fires, floods, hurricanes and earthquakes. The occurrence of any of these disasters or catastrophic events could cause the total or partial destruction of our or our sub-suppliers 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 or catastrophic event at a manufacturing facility could have a material adverse effect on our operations and profitability.
· The reliability and security of our information technology (IT) systems is important to our business and operations. Although we have established and continue to enhance security controls intended to protect our IT systems and infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical access or cyber-attacks. A significant breach of our IT systems could: cause disruptions in our manufacturing operations; lead to the loss, destruction or inappropriate use of sensitive data; or result in theft of our or our customers intellectual property or confidential information. If any of the foregoing events occurs, we may be subject to a number of consequences, including reputational damage, which could have a material adverse effect on our Company.
· 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 a material adverse effect on our profitability and financial condition.
· From time to time, we may become involved in regulatory proceedings, or become liable for legal, contractual and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others. Depending on the nature or duration of any potential proceedings or claims, we may incur substantial costs and expenses and may be required to devote significant management time and resources to the matters. On an ongoing basis, we attempt to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, although it is difficult to predict final outcomes with any degree of certainty. Except as disclosed from time to time in our consolidated financial statements and/or our Managements Discussion & Analysis, we do not believe that any of the proceedings or claims to which we are party will have a material adverse effect on our profitability; however, we cannot provide any assurance to this effect.
· We have incurred losses in some countries which we may not be able to fully or partially offset against income we have earned in those countries. In some cases, we may not be able to utilize these losses at all if we cannot generate profits in those countries and/or if we have ceased conducting business in those countries altogether. Our inability to utilize tax losses could materially adversely affect our profitability. At any given time, we may face other tax exposures arising out of changes in tax or transfer pricing laws, tax reassessments or otherwise. To the extent we cannot implement measures to offset these exposures, they may have a material adverse effect on our profitability.
· We recorded significant impairment charges related to goodwill and long-lived assets in recent years and may continue to do so in the future. The early termination, loss, renegotiation of the terms of, or delay in the implementation of, any significant production contract could be indicators of impairment. In addition, to the extent that forward-looking assumptions regarding: the impact of turnaround plans on underperforming operations; new business opportunities; program price and cost assumptions on current and future business; the timing and success of new program launches; and forecast production volumes; are not met, any resulting impairment loss could have a material adverse effect on our profitability.
· We believe we will have sufficient financial resources available to successfully execute our business plan, even in the event of another global recession similar to that of 2008-2009. However, as a result of the reduction of our excess cash in connection with our capital structure strategy, we may have less financial flexibility than we have had in the last few years. 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.
· In recent years, we have invested significant amounts of money in our business through capital expenditures to support new facilities, expansion of existing facilities, purchases of production equipment and acquisitions. Returns achieved on such investments in the past are not necessarily indicative of the returns we may achieve on future investments and our inability to achieve returns on future investments which equal or exceed returns on past investments could have a material adverse effect on our level of profitability.
· Trading prices of our Common Shares cannot be predicted and may fluctuate significantly due to a variety of factors, many of which are outside our control, including: general economic and stock market conditions; variations in our operating results and financial condition; differences between our actual operating and financial results and those expected by investors and stock analysts; changes in recommendations made by stock analysts, whether due to factors relating to us, our customers, the automotive industry or otherwise; significant news or events relating to our primary customers, including the release of vehicle production and sales data; investor and stock analyst perceptions about the prospects for our or our primary customers respective businesses or the automotive industry; and other factors.
RESULTS OF OPERATIONS
Average Foreign Exchange
|
|
For the three months |
|
For the year |
| ||||||||
|
|
ended December 31, |
|
ended December 31, |
| ||||||||
|
|
2015 |
|
2014 |
|
Change |
|
2015 |
|
2014 |
|
Change |
|
1 Canadian dollar equals U.S. dollars |
|
0.749 |
|
0.881 |
|
- 15 |
% |
0.784 |
|
0.906 |
|
- 13 |
% |
1 euro equals U.S. dollars |
|
1.094 |
|
1.250 |
|
- 12 |
% |
1.111 |
|
1.330 |
|
- 16 |
% |
1 British pound equals U.S. dollars |
|
1.516 |
|
1.583 |
|
- 4 |
% |
1.529 |
|
1.648 |
|
- 7 |
% |
1 Chinese renminbi equals U.S. dollars |
|
0.156 |
|
0.163 |
|
- 4 |
% |
0.159 |
|
0.162 |
|
- 2 |
% |
1 Brazilian real equals U.S. dollars |
|
0.260 |
|
0.393 |
|
- 34 |
% |
0.305 |
|
0.426 |
|
- 28 |
% |
The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct business and our U.S. dollar reporting currency. The changes in these foreign exchange rates for the three months and year ended December 31, 2015 impacted the reported U.S. dollar amounts of our sales, expenses and income.
The results of operations whose functional currency is not the U.S. dollar are translated into U.S. dollars using the average exchange rates in the table above for the relevant period. Throughout this MD&A, reference is made to the impact of translation of foreign operations on reported U.S. dollar amounts where relevant.
Our results can also be affected by the impact of movements in exchange rates on foreign currency transactions (such as raw material purchases or sales denominated in foreign currencies). However, as a result of hedging programs employed by us, foreign currency transactions in the current period have not been fully impacted by movements in exchange rates. We record foreign currency transactions at the hedged rate where applicable.
Finally, foreign exchange gains and losses on revaluation and/or settlement of monetary items denominated in a currency other than an operations functional currency impact reported results. These gains and losses are recorded in selling, general and administrative expense.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2015
Sales
|
|
2015 |
|
2014 |
|
Change |
| ||
Vehicle Production Volumes (millions of units) |
|
|
|
|
|
|
| ||
North America |
|
17.473 |
|
17.003 |
|
+ 3 |
% | ||
Europe |
|
20.992 |
|
20.108 |
|
+ 4 |
% | ||
Sales |
|
|
|
|
|
|
| ||
External Production |
|
|
|
|
|
|
| ||
North America |
|
$ |
17,759 |
|
$ |
17,398 |
|
+ 2 |
% |
Europe |
|
7,252 |
|
8,843 |
|
- 18 |
% | ||
Asia |
|
1,612 |
|
1,579 |
|
+ 2 |
% | ||
Rest of World |
|
454 |
|
668 |
|
- 32 |
% | ||
Complete Vehicle Assembly |
|
2,357 |
|
3,160 |
|
- 25 |
% | ||
Tooling, Engineering and Other |
|
2,700 |
|
2,755 |
|
- 2 |
% | ||
Total Sales |
|
$ |
32,134 |
|
$ |
34,403 |
|
- 7 |
% |
External Production Sales - North America
External production sales in North America increased 2% or $361 million to $17.76 billion for 2015 compared to $17.40 billion for 2014, primarily as a result of the launch of new programs during or subsequent to 2014, including the:
· Ford Transit;
· Ford Mustang;
· Ford Edge;
· Chevrolet Colorado and GMC Canyon;
· Mercedes-Benz C-Class; and
· GM full-size SUVs.
These factors were partially offset by:
· an $863 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar;
· lower production sales on existing programs;
· net divestitures during or subsequent to 2014, which negatively impacted sales by $87 million; and
· net customer price concessions subsequent to 2014.
External Production Sales - Europe
External production sales in Europe decreased 18% or $1.59 billion to $7.25 billion for 2015 compared to $8.84 billion for 2014, primarily as a result of:
· a $1.46 billion decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the euro, Russian ruble, Czech koruna and Polish zloty;
· lower production sales on existing programs;
· programs that ended production during or subsequent to 2014; and
· net customer price concessions subsequent to 2014.
These factors were partially offset by the launch of new programs during or subsequent to 2014, including the:
· Volkswagen Caddy;
· Volkswagen Passat;
· Ford Transit;
· BMW 2-Series; and
· BMW X4.
External Production Sales - Asia
External production sales in Asia increased 2% or $33 million to $1.61 billion for 2015 compared to $1.58 billion for 2014, primarily as a result of:
· the launch of new programs during or subsequent to 2014, primarily in China and India; and
· acquisitions subsequent to 2014, including the Xingqiaorui Partnership, which positively impacted sales by $18 million.
These factors were partially offset by:
· a $47 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Chinese renminbi;
· lower production sales on existing programs; and
· net customer price concessions subsequent to 2014.
External Production Sales - Rest of World
External production sales in Rest of World decreased 32% or $214 million to $454 million for 2015 compared to $668 million for 2014, primarily as a result of:
· a $149 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Brazilian real; and
· lower production sales on existing programs.
These factors were partially offset by:
· the launch of new programs during or subsequent to 2014, primarily in Brazil; and
· net customer price increases subsequent to 2014.
Complete Vehicle Assembly Sales
|
|
2015 |
|
2014 |
|
Change |
| ||
Complete Vehicle Assembly Sales |
|
$ |
2,357 |
|
$ |
3,160 |
|
- 25 |
% |
Complete Vehicle Assembly Volumes (Units) |
|
103,904 |
|
135,126 |
|
- 23 |
% | ||
Complete vehicle assembly sales decreased 25% or $803 million to $2.36 billion for 2015 compared to $3.16 billion for 2014 and assembly volumes decreased 23% or 31,222 units.
The decrease in complete vehicle assembly sales is primarily as a result of:
· a $494 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 MINI Countryman and Paceman, as these programs near the end of production; and
· the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of 2015.
These factors were partially offset by an increase in assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased 2% or $55 million to $2.70 billion for 2015 compared to $2.76 billion for 2014.
In 2015, the major programs for which we recorded tooling, engineering and other sales were the:
· Chevrolet Cruze;
· GMC Acadia, Buick Enclave and Chevrolet Traverse;
· Ford F-Series and F-Series Super Duty;
· Audi A4;
· MINI Countryman;
· Chevrolet Equinox and GMC Terrain;
· Ford Edge;
· Chrysler Pacifica and Dodge Caravan;
· BMW 2-Series; and
· Mercedes-Benz M-Class.
In 2014, the major programs for which we recorded tooling, engineering and other sales were the:
· Ford Transit;
· MINI Countryman;
· Ford Mustang;
· QOROS 3;
· Ford F-Series and F-Series Super Duty;
· Mercedes-Benz M-Class;
· BMW X4;
· Mercedes-Benz C-Class; and
· Volkswagen Golf.
The weakening of certain foreign currencies against the U.S. dollar, including the euro, Canadian dollar and Czech koruna had an unfavourable impact of $332 million on our reported tooling, engineering and other sales.
Cost of Goods Sold and Gross Margin
|
|
2015 |
|
2014 |
| ||
Sales |
|
$ |
32,134 |
|
$ |
34,403 |
|
Cost of goods sold |
|
|
|
|
| ||
Material |
|
20,270 |
|
21,864 |
| ||
Direct labour |
|
2,115 |
|
2,130 |
| ||
Overhead |
|
5,174 |
|
5,474 |
| ||
|
|
27,559 |
|
29,468 |
| ||
Gross margin |
|
$ |
4,575 |
|
$ |
4,935 |
|
Gross margin as a percentage of sales |
|
14.2 |
% |
14.3 |
% |
Cost of goods sold decreased $1.91 billion to $27.56 billion for 2015 compared to $29.47 billion for 2014 primarily as a result of:
· a decrease in reported U.S. dollar cost of goods sold as a result of the weakening of foreign currencies against the U.S. dollar, including the euro and Canadian dollar;
· decreased commodity costs;
· lower warranty costs of $20 million;
· costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America, during 2014; and
· productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
· higher material, overhead and labour costs associated with the increase in local currency sales, in particular in North America;
· operational inefficiencies at certain facilities, in particular at certain body and chassis operations in North America;
· lower recoveries associated with scrap steel; and
· higher launch costs.
Gross margin decreased $360 million to $4.58 billion for 2015 compared to $4.94 billion for 2014 and gross margin as a percentage of sales decreased to 14.2% for 2015 compared to 14.3% for 2014. The decrease in gross margin as a percentage of sales was primarily due to:
· lower recoveries associated with scrap steel;
· operational inefficiencies at certain facilities, in particular at certain body and chassis operations in North America;
· higher launch costs; and
· an increase in the proportion of tooling, engineering and other sales relative to total sales, that have low or no margins.
These factors were partially offset by:
· a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content than our consolidated average;
· a decrease in the proportion of sales earned in Europe relative to total sales, which have a lower margin than our consolidated average;
· decreased commodity costs;
· lower warranty costs;
· costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America, during 2014; and
· productivity and efficiency improvements at certain facilities.
Depreciation and Amortization
Depreciation and amortization costs decreased $43 million to $802 million for 2015 compared to $845 million for 2014. The lower depreciation and amortization was primarily as a result of a decrease in reported U.S. dollar depreciation and amortization largely as a result of the weakening of the euro, Canadian dollar and Russian ruble, each against the U.S. dollar partially offset by higher depreciation related to new facilities and increased capital employed at existing facilities.
Selling, General and Administrative (SG&A)
SG&A expense as a percentage of sales was 4.5% for 2015 compared to 4.7% for 2014. SG&A expense decreased $164 million to $1.45 billion for 2015 compared to $1.61 billion for 2014 primarily as a result of:
· the weakening of the euro, Canadian dollar, Russian ruble and Brazilian real, each against the U.S. dollar; and
· the expiration, at the end of 2014, of our consulting agreements with Frank Stronach.
These factors were partially offset by:
· higher costs to support our global compliance programs;
· costs related to the investment in our information technology infrastructure;
· higher professional and consulting costs; and
· a $4 million net decrease in valuation gains in respect of asset-backed commercial paper (ABCP).
Equity Income
Equity income increased $1 million to $204 million for 2015 compared to $203 million for 2014.
Other (Income) Expense, net
During the three months and years ended December 31, 2015 and 2014, we recorded other (income) expense, net (Other Income or Other Expense) items as follows:
|
|
2015 |
|
2014 |
| ||||||||||||||
|
|
Operating |
|
Net Income |
|
Diluted |
|
Operating |
|
Net Income |
|
Diluted |
| ||||||
Fourth Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Restructuring (1) |
|
$ |
15 |
|
$ |
15 |
|
$ |
0.03 |
|
$ |
6 |
|
$ |
5 |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gain on disposal (2) |
|
(136 |
) |
(80 |
) |
(0.19 |
) |
|
|
|
|
|
| ||||||
Restructuring (1) |
|
12 |
|
12 |
|
0.03 |
|
7 |
|
6 |
|
0.01 |
| ||||||
|
|
(124 |
) |
(68 |
) |
(0.16 |
) |
7 |
|
6 |
|
0.01 |
| ||||||
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gain on disposal (2) |
|
(57 |
) |
(42 |
) |
(0.10 |
) |
|
|
|
|
|
| ||||||
Restructuring (1) |
|
|
|
|
|
|
|
11 |
|
10 |
|
0.02 |
| ||||||
|
|
(57 |
) |
(42 |
) |
(0.10 |
) |
11 |
|
10 |
|
0.02 |
| ||||||
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Restructuring (1) |
|
|
|
|
|
|
|
22 |
|
20 |
|
0.05 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Full year other (income) expense, net |
|
$ |
(166 |
) |
$ |
(95 |
) |
$ |
(0.23 |
) |
$ |
46 |
|
$ |
41 |
|
$ |
0.09 |
|
(1) Restructuring
[a] For the year ended December 31, 2015
During 2015, we recorded net restructuring charges of $27 million ($27 million after tax) primarily in Germany at our exterior systems and roof systems operations.
[b] For the year ended December 31, 2014
During 2014, we recorded net restructuring charges of $46 million ($41 million after tax), in Europe at our exterior systems operations.
(2) Gains on disposal
During the third quarter of 2015, we entered into a joint venture arrangement for the manufacture and sale of roof and other accessories for the Jeep market to original equipment manufacturers as well as aftermarket customers. We contributed two manufacturing facilities and received a 49% interest in the newly formed joint venture and cash proceeds of $118 million. Total consideration was valued at $160 million and as a result we recognized a gain of $136 million ($80 million after tax). We account for our ownership as an equity investment since we have significant influence through our voting rights, but do not control the joint venture.
During the second quarter of 2015, we sold our battery pack business to Samsung SDI for gross proceeds of $120 million, resulting in a gain of $57 million ($42 million after tax).
Segment Analysis
Given the differences between the regions in which we operate, our operations are segmented on a geographic basis. Consistent with the above, our internal financial reporting separately segments key internal operating performance measures between North America, Europe, Asia and Rest of World for purposes of presentation to the chief operating decision maker to assist in the assessment of operating performance, the allocation of resources, and our long-term strategic direction and future global growth.
Our chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since we believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from continuing operations before income taxes; interest expense, net; and other (income) expense, net.
|
|
Total Sales |
|
Adjusted EBIT |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
Change |
|
2015 |
|
2014 |
|
Change |
| ||||||
North America |
|
$ |
19,015 |
|
$ |
18,761 |
|
$ |
254 |
|
$ |
1,934 |
|
$ |
2,003 |
|
$ |
(69 |
) |
Europe |
|
11,123 |
|
13,502 |
|
(2,379 |
) |
451 |
|
502 |
|
(51 |
) | ||||||
Asia |
|
1,981 |
|
1,919 |
|
62 |
|
149 |
|
150 |
|
(1 |
) | ||||||
Rest of World |
|
461 |
|
695 |
|
(234 |
) |
(25 |
) |
(35 |
) |
10 |
| ||||||
Corporate and Other |
|
(446 |
) |
(474 |
) |
28 |
|
20 |
|
61 |
|
(41 |
) | ||||||
Total reportable segments |
|
$ |
32,134 |
|
$ |
34,403 |
|
$ |
(2,269 |
) |
$ |
2,529 |
|
$ |
2,681 |
|
$ |
(152 |
) |
Excluded from Adjusted EBIT for 2015 and 2014 were the following other (income) expense, net items, which have been discussed in the Other Expense section.
|
|
For the year |
| ||||
|
|
2015 |
|
2014 |
| ||
North America |
|
|
|
|
| ||
Gain on sale |
|
$ |
(136 |
) |
$ |
|
|
Europe |
|
|
|
|
| ||
Gain on sale |
|
(57 |
) |
|
| ||
Restructuring |
|
27 |
|
46 |
| ||
|
|
(30 |
) |
46 |
| ||
|
|
$ |
(166 |
) |
$ |
46 |
|
North America
Adjusted EBIT in North America decreased $69 million to $1.93 billion for 2015 compared to $2.00 billion for 2014 primarily as a result of:
· lower recoveries associated with scrap steel;
· a decrease in reported U.S. dollar EBIT due to the weakening of the Canadian dollar against the U.S. dollar;
· higher launch costs;
· operational inefficiencies at certain facilities, in particular at certain body and chassis operations;
· a higher amount of employee profit sharing; and
· net customer price concessions subsequent to 2014.
These factors were partially offset by:
· margins earned on higher production sales;
· lower affiliation fees paid to Corporate;
· decreased commodity costs;
· costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility, during the second quarter of 2014;
· lower warranty costs of $11 million;
· higher equity income; and
· productivity and efficiency improvements at certain facilities.
Europe
Adjusted EBIT in Europe decreased $51 million to $451 million for 2015 compared to $502 million for 2014 primarily as a result of:
· a decrease in reported U.S. dollar EBIT as a result of the weakening of foreign currencies against the U.S. dollar, including the euro, Czech koruna and Russian ruble;
· higher launch costs;
· decreased margins earned on lower production sales;
· operational inefficiencies at certain facilities;
· lower equity income; and
· net customer price concessions subsequent to 2014.
These factors were partially offset by:
· lower affiliation fees paid to Corporate;
· decreased commodity costs;
· lower warranty costs of $5 million;
· productivity and efficiency improvements at certain facilities; and
· a lower amount of employee profit sharing.
Asia
Adjusted EBIT in Asia decreased $1 million to $149 million for 2015 compared to $150 million for 2014 primarily as a result of:
· increased pre-operating costs incurred at new facilities;
· higher launch costs;
· a decrease in reported U.S. dollar EBIT as a result of the weakening of foreign currencies against the U.S. dollar, including the Chinese renminbi; and
· net customer price concessions subsequent to 2014.
These factors were partially offset by:
· increased margins due to higher production sales;
· a lower amount of employee profit sharing;
· lower affiliation fees paid to Corporate;
· lower warranty costs of $4 million;
· higher equity income; and
· decreased commodity costs.
Rest of World
Adjusted EBIT in Rest of World increased $10 million to a loss of $25 million for 2015 compared to a loss of $35 million for 2014 primarily as a result of:
· productivity and efficiency improvements at certain facilities;
· a decrease in reported U.S. dollar EBIT loss due to the weakening of the Brazilian real against the U.S. dollar;
· decreased commodity costs;
· lower affiliation fees paid to Corporate; and
· net customer price increases subsequent to 2014.
These factors were partially offset by:
· decreased margins earned on lower production sales;
· higher production costs, including inflationary increases, that we have not been fully successful in passing through to our customers; and
· lower equity income.
Corporate and Other
Corporate and Other Adjusted EBIT decreased $41 million to $20 million for 2015 compared to $61 million for 2014 primarily as a result of:
· a decrease in affiliation fees earned from our divisions;
· higher costs to support our global compliance program;
· costs related to the investment in our information technology infrastructure;
· higher professional and consulting costs;
· a $4 million net decrease in valuation gains in respect of ABCP;
· increased stock-based compensation; and
· a higher amount of employee profit sharing.
These factors were partially offset by the expiration, at the end of 2014, of our consulting agreements with Frank Stronach.
Interest Expense, net
During 2015, we recorded net interest expense of $44 million compared to $30 million for 2014. The $14 million increase is primarily as a result of interest expense on:
· the following issuances of senior, unsecure debt (the Senior Debt) during 2015:
· $650 million of 4.150% fixed-rate senior notes maturing on October 1, 2025;
· 550 million of 1.900% fixed-rate senior notes maturing on November 24, 2023; and
· Cdn$425 million of 3.100% fixed-rate senior notes maturing on December 15, 2022; and
· $750 million of 3.625% fixed-rate senior notes issued during 2014.
These factors were partially offset by lower interest expense as a result of lower debt in Asia and South America.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased $46 million to $2.65 billion for 2015 compared to $2.61 billion for 2014. Excluding Other Income and Other Expense, discussed in the Other Expense section, income from continuing operations before income taxes for 2015 decreased $166 million primarily as a result of:
· the negative impact of foreign exchange translation from the weakening of foreign currencies, including the Canadian dollar and euro, each against the U.S. dollar;
· operational inefficiencies at certain facilities, in particular at certain body and chassis operations in North America;
· lower recoveries associated with scrap steel;
· higher launch costs;
· the $14 million increase in interest expense, net, as discussed above;
· a $4 million net decrease in valuation gains in respect of ABCP;
· a higher amount of employee profit sharing;
· increased pre-operating costs incurred at new facilities; and
· net customer price concessions subsequent to 2014.
These factors were partially offset by:
· increased margins due to higher production sales;
· the expiration, at the end of 2014, of our consulting agreements with Frank Stronach;
· decreased commodity costs;
· lower warranty costs of $20 million;
· costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America, during 2014;
· lower incentive compensation; and
· productivity and efficiency improvements at certain facilities.
Income Taxes
|
|
2015 |
|
2014 |
| ||||||
|
|
$ |
|
% |
|
$ |
|
% |
| ||
|
|
|
|
|
|
|
|
|
| ||
Income taxes as reported |
|
$ |
711 |
|
26.8 |
|
$ |
683 |
|
26.2 |
|
Tax effect on Other Income and Other Expense |
|
(71 |
) |
(1.0 |
) |
5 |
|
(0.3 |
) | ||
Austrian Tax Reform |
|
|
|
|
|
(32 |
) |
(1.2 |
) | ||
|
|
$ |
640 |
|
25.8 |
|
$ |
656 |
|
24.7 |
|
For 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses where the foreign subsidiary is not a member of the European Union. Furthermore, any foreign losses used by Austrian entities arising in those non European Union subsidiaries are subject to recapture in Austria. As a consequence of this change, in 2014 we have recorded a charge to income tax expense of $32 million (Austrian Tax Reform).
Excluding Other Income and Other Expense, after tax, and the Austrian Tax Reform, the effective income tax rate increased to 25.8% for 2015 compared to 24.7% for 2014 primarily as a result of:
· higher non-creditable withholding tax;
· lower favourable audit settlements in 2015; and
· an increase in permanent items.
These factors were partially offset by a benefit recorded on the write-off of historical tax basis in one of our South American subsidiaries.
Income (loss) from Discontinued Operations, net of tax
Income (loss) from discontinued operations, net of tax reflects the results of our interiors operations which are classified as discontinued operations. During the third quarter of 2015, we sold these operations.
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Sales |
|
$ |
1,737 |
|
$ |
2,394 |
|
|
|
|
|
|
| ||
Costs and expenses |
|
|
|
|
| ||
Cost of goods sold |
|
1,635 |
|
2,310 |
| ||
Depreciation and amortization |
|
13 |
|
45 |
| ||
Selling, general and administrative |
|
58 |
|
95 |
| ||
Equity income |
|
(11 |
) |
(8 |
) | ||
Other expense, net |
|
|
|
18 |
| ||
|
|
|
|
|
| ||
Income (loss) from discontinued operations before income taxes |
|
42 |
|
(66 |
) | ||
Income taxes |
|
20 |
|
(24 |
) | ||
|
|
22 |
|
(42 |
) | ||
Gain on divestiture of discontinued operations, net of tax |
|
45 |
|
|
| ||
Income (loss) from discontinued operations, net of tax |
|
$ |
67 |
|
$ |
(42 |
) |
Income (loss) from discontinued operations, net of tax increased $109 million to $67 million for 2015 compared to a loss of $42 million for 2014 primarily as a result of the $45 million after-tax gain on divestiture, lower SG&A and depreciation costs partially offset by increased income taxes.
Loss from Continuing Operations Attributable to Non-controlling Interests
Loss from continuing operations attributable to non-controlling interests increased $4 million to $6 million for 2015 compared to $2 million for 2014.
Net Income Attributable to Magna International Inc.
Net income attributable to Magna International Inc. of $2.01 billion for 2015 increased $131 million compared to 2014. Excluding Other Income and Other Expense, after tax, and the Austrian Tax Reform as discussed in the Other Expense and the Income Taxes sections, respectively, net income attributable to Magna International Inc. decreased $37 million primarily as a result of the decrease in net income from continuing operations before income taxes partially offset by the income from discontinued operations, net of tax and lower income taxes, as discussed above.
Earnings per Share (restated)
|
|
2015 |
|
2014 |
|
Change |
| ||
|
|
|
|
|
|
|
| ||
Basic earnings per Common Share |
|
|
|
|
|
|
| ||
Continuing operations |
|
$ |
4.78 |
|
$ |
4.50 |
|
+ 6 |
% |
Attributable to Magna International Inc. |
|
$ |
4.94 |
|
$ |
4.41 |
|
+ 12 |
% |
|
|
|
|
|
|
|
| ||
Diluted earnings per Common Share |
|
|
|
|
|
|
| ||
Continuing operations |
|
$ |
4.72 |
|
$ |
4.44 |
|
+ 6 |
% |
Attributable to Magna International Inc. |
|
$ |
4.88 |
|
$ |
4.34 |
|
+ 12 |
% |
|
|
|
|
|
|
|
| ||
Weighted average number of Common Shares outstanding (millions) |
|
|
|
|
|
|
| ||
Basic |
|
407.5 |
|
427.1 |
|
- 5 |
% | ||
Diluted |
|
412.7 |
|
433.2 |
|
- 5 |
% |
Diluted earnings per share from continuing operations increased $0.28 to $4.72 for 2015 compared to $4.44 for 2014. Other Income and Other Expense, after tax, and the Austrian Tax Reform positively impacted diluted earnings per share from continuing operations by $0.23 in 2015 and negatively impacted diluted earnings per share from continuing operations by $0.17 in 2014. Other Income and Other Expense and the Austrian Tax Reform are discussed in the Other Income and Income Taxes sections, respectively. Excluding these impacts, diluted earnings per share from continuing operations decreased $0.12 as a result of the decrease in net income attributable to Magna International Inc. from continuing operations partially offset by a decrease in the weighted average number of diluted shares outstanding during 2015.
The decrease in the weighted average number of diluted shares outstanding was due to the purchase and cancellation of Common Shares, during or subsequent to 2014, pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
2015 |
|
2014 |
|
Change |
| |||
|
|
|
|
|
|
|
| |||
Net income from continuing operations |
|
$ |
1,940 |
|
$ |
1,922 |
|
|
| |
Items not involving current cash flows |
|
736 |
|
1,102 |
|
|
| |||
|
|
2,676 |
|
3,024 |
|
$ |
(348 |
) | ||
Changes in operating assets and liabilities |
|
(344 |
) |
(202 |
) |
|
| |||
Cash provided from operating activities |
|
$ |
2,332 |
|
$ |
2,822 |
|
$ |
(490 |
) |
Cash flow from operations before changes in operating assets and liabilities decreased $348 million to $2.68 billion for 2015 compared to $3.02 billion for 2014. The decrease in cash flow from operations was due to a $366 million decrease in items not involving current cash flows partially offset by an $18 million increase in net income from continuing operations. Items not involving current cash flows are comprised of the following:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Depreciation and amortization |
|
$ |
802 |
|
$ |
845 |
|
Amortization of other assets included in cost of goods sold |
|
110 |
|
132 |
| ||
Other non-cash charges |
|
44 |
|
35 |
| ||
Deferred income taxes |
|
(7 |
) |
113 |
| ||
Equity income in excess of dividends received |
|
(20 |
) |
(23 |
) | ||
Non-cash portion of Other Income |
|
(193 |
) |
|
| ||
Items not involving current cash flows |
|
$ |
736 |
|
$ |
1,102 |
|
Cash invested in operating assets and liabilities amounted to $344 million for 2015 compared to $202 million for 2014. The change in operating assets and liabilities is comprised of the following sources (and uses) of cash:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Accounts receivable |
|
$ |
(410 |
) |
$ |
(760 |
) |
Inventories |
|
(241 |
) |
(275 |
) | ||
Prepaid expenses and other |
|
13 |
|
3 |
| ||
Accounts payable |
|
139 |
|
634 |
| ||
Accrued salaries and wages |
|
43 |
|
74 |
| ||
Other accrued liabilities |
|
72 |
|
80 |
| ||
Income taxes payable |
|
40 |
|
42 |
| ||
Changes in non-cash operating assets and liabilities |
|
$ |
(344 |
) |
$ |
(202 |
) |
Higher accounts receivable relate primarily to higher tooling receivables related to program launches. The increase in inventories was primarily due to higher production inventory to support launch activities and increased tooling inventory in North America. The increase in accounts payable was primarily due to timing of payments.
Capital and Investment Spending
|
|
2015 |
|
2014 |
|
Change |
| |||
|
|
|
|
|
|
|
| |||
Fixed asset additions |
|
$ |
(1,591 |
) |
$ |
(1,495 |
) |
|
| |
Investments and other assets |
|
(221 |
) |
(172 |
) |
|
| |||
Fixed assets, investments and other assets additions |
|
(1,812 |
) |
(1,667 |
) |
|
| |||
Purchase of subsidiaries |
|
(222 |
) |
(23 |
) |
|
| |||
Proceeds from disposition |
|
61 |
|
164 |
|
|
| |||
Proceeds on disposal of facilities |
|
221 |
|
|
|
|
| |||
Sale of Interiors |
|
520 |
|
|
|
|
| |||
Cash used in discontinued operations |
|
(56 |
) |
(120 |
) |
|
| |||
Cash used for investment activities |
|
$ |
(1,288 |
) |
$ |
(1,646 |
) |
$ |
358 |
|
Fixed assets, investments and other assets additions
In 2015, we invested $1.59 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 2015 was for manufacturing equipment for programs that will be launching subsequent to 2015.
In 2015, we invested $200 million in other assets related primarily to fully reimbursable tooling and engineering costs for programs that launched during 2015 or will be launching subsequent to 2015. In addition, we invested $21 million in equity accounted investments.
Purchase of subsidiaries
During 2015, we invested $222 million to purchase subsidiaries, including:
· forming the Xingqiaorui Partnership. Under the terms of the arrangement, Chongqing Xingqiaorui (Xingqiaorui) transferred a 53% controlling interest in its three China manufacturing facilities and cash consideration of $36 million. In exchange, we transferred a 47% non-controlling equity interest in our Chongqing manufacturing facility and cash consideration of $130 million to Xingqiaorui; and
· Stadco, based in the United Kingdom, is a supplier of steel and aluminum stampings as well as vehicle assemblies primarily to Jaguar and Land Rover.
Proceeds from disposition
In 2015, the $61 million of proceeds include normal course fixed and other asset disposal.
Proceeds on disposal of facilities
During 2015, we received $221 million of proceeds on disposal of facilities related to the:
· sale of our battery pack business to Samsung SDI; and
· formation of a joint venture for the manufacture and sale of roof and other accessories for the Jeep market to original equipment manufacturers as well as aftermarket customers.
Sale of Interiors
On August 31, 2015, we sold substantially all of our interiors operations (excluding our seating operations) and received $520 million of proceeds, net of transaction costs.
Financing
|
|
2015 |
|
2014 |
|
Change |
| |||
|
|
|
|
|
|
|
| |||
Issues of debt |
|
$ |
1,608 |
|
$ |
860 |
|
|
| |
Increase (decrease) in bank indebtedness |
|
25 |
|
(2 |
) |
|
| |||
Repayments of debt |
|
(99 |
) |
(188 |
) |
|
| |||
Issues of Common Shares |
|
35 |
|
49 |
|
|
| |||
Repurchase of Common Shares |
|
(515 |
) |
(1,783 |
) |
|
| |||
Contribution to subsidiaries by non-controlling interests |
|
41 |
|
|
|
|
| |||
Dividends paid |
|
(354 |
) |
(316 |
) |
|
| |||
Cash provided by (used for) financing activities |
|
$ |
741 |
|
$ |
(1,380 |
) |
$ |
2,121 |
|
Issues of debt relates primarily to the issue of the Senior Debt during 2015. The Senior Debt are senior unsecured obligations and do not include any financial covenants. We may redeem the Senior Debt in whole or in part at any time, at specified redemption prices determined in accordance with the terms of each of the respective indentures governing the Senior Debt. The funds raised through these offerings were used for general corporate purposes, including capital expenditures, as well as the acquisition of Getrag.
During 2015, we purchased for cancellation 10.6 million Common Shares for an aggregate purchase price of $515 million under our normal course issuer bids.
Cash dividends paid per Common Share were $0.88 for 2015, for a total of $354 million.
Financing Resources
|
|
As at |
|
As at |
|
|
| |||
|
|
December 31, |
|
December 31, |
|
|
| |||
|
|
2015 |
|
2014 |
|
Change |
| |||
|
|
|
|
|
|
|
| |||
Liabilities |
|
|
|
|
|
|
| |||
Bank indebtedness |
|
$ |
25 |
|
$ |
30 |
|
|
| |
Long-term debt due within one year |
|
211 |
|
183 |
|
|
| |||
Long-term debt |
|
2,346 |
|
812 |
|
|
| |||
|
|
2,582 |
|
1,025 |
|
|
| |||
Non-controlling interest |
|
151 |
|
14 |
|
|
| |||
Shareholders equity |
|
8,966 |
|
8,659 |
|
|
| |||
Total capitalization |
|
$ |
11,699 |
|
$ |
9,698 |
|
$ |
2,001 |
|
Total capitalization increased by $2.00 billion to $11.70 billion at December 31, 2015 compared to $9.70 billion at December 31, 2014 as a result of a $1.56 billion increase in liabilities, a $307 million increase in shareholders equity and a $137 million increase in non-controlling interest.
The increase in liabilities relates primarily to the Senior Debt issued during 2015.
The increase in shareholders equity was primarily as a result of the $2.01 billion of net income earned in 2015.
This factor was partially offset by:
· the $798 million net unrealized loss on translation of our net investment in foreign operations whose functional currency is not the U.S. dollar;
· the $515 million repurchase and cancellation of 10.6 million Common Shares under our normal course issuer bid during 2015;
· $354 million of dividends paid during 2015; and
· the $244 million net unrealized loss on cash flow hedges.
The increase in non-controlling interest primarily relates to the formation of the Xingqiaorui Partnership.
Cash Resources
During 2015, our cash resources increased by $1.61 billion to $2.86 billion as a result of the cash provided from operating and financing activities partially offset by cash used for investing activities, as discussed above. In addition to our cash resources at December 31, 2015, we had term and operating lines of credit totalling $2.55 billion of which $2.25 billion was unused and available.
On April 24, 2015, our $2.25 billion revolving credit facility maturing June 20, 2019 was extended to June 22, 2020. The facility includes a $200 million Asian tranche, a $50 million Mexican tranche and a tranche for Canada, U.S. and Europe, which is fully transferable between jurisdictions and can be drawn in U.S. dollars, Canadian dollars or euros.
During the first quarter of 2014, we filed a short form base shelf prospectus with the Ontario Securities Commission and a corresponding shelf registration statement with the United States Securities and Exchange Commission on Form F-10. The filings provide for the potential offering of up to an aggregate of $2.00 billion of debt securities from time to time over a 25 month period. During 2015, we issued $650 million of 4.150% fixed-rate senior notes maturing on October 1, 2025 and 550 million of 1.900% fixed-rate senior notes maturing on November 24, 2023 under the filings. We also issued Cdn$425 million of 3.100% fixed-rate senior notes maturing on December 15, 2022 by way of private placement to accredited investors in Canada. The funds raised through these offerings were used for general corporate purposes, including capital expenditures, as well as the acquisition of Getrag. During the second quarter of 2014, we issued $750 million of 3.625% fixed-rate senior notes which mature on June 15, 2024 under the filings.
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that would be outstanding if all of the outstanding options at March 3, 2016 were exercised:
Common Shares |
|
401,643,203 |
|
Stock options (i) |
|
9,117,224 |
|
|
|
410,760,427 |
|
(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 Financing
A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Consistent with our customer obligations, substantially all of our purchases are made under purchase orders with our suppliers which are requirements based and accordingly do not specify minimum quantities. Other long-term liabilities are defined as long-term liabilities that are recorded on our consolidated balance sheet. Based on this definition, the following table includes only those contracts which include fixed or minimum obligations.
At December 31, 2015, we had contractual obligations requiring annual payments as follows:
|
|
|
|
2017- |
|
2019- |
|
|
|
|
| |||||
|
|
2016 |
|
2018 |
|
2020 |
|
Thereafter |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating leases |
|
$ |
268 |
|
$ |
417 |
|
$ |
299 |
|
$ |
283 |
|
$ |
1,267 |
|
Long-term debt |
|
211 |
|
30 |
|
5 |
|
2,311 |
|
2,557 |
| |||||
Unconditional purchase obligations: |
|
|
|
|
|
|
|
|
|
|
| |||||
Materials and services |
|
2,325 |
|
144 |
|
26 |
|
6 |
|
2,501 |
| |||||
Capital |
|
442 |
|
73 |
|
40 |
|
18 |
|
573 |
| |||||
Total contractual obligations |
|
$ |
3,246 |
|
$ |
664 |
|
$ |
370 |
|
$ |
2,618 |
|
$ |
6,898 |
|
Our unfunded obligations with respect to employee future benefit plans, which have been actuarially determined, were $494 million at December 31, 2015. These obligations are as follows:
|
|
|
|
|
|
Termination and |
|
|
| ||||
|
|
Pension |
|
Retirement |
|
Long Service |
|
|
| ||||
|
|
Liability |
|
Liability |
|
Arrangements |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Projected benefit obligation |
|
$ |
493 |
|
$ |
32 |
|
$ |
295 |
|
$ |
820 |
|
Less plan assets |
|
(326 |
) |
|
|
|
|
(326 |
) | ||||
Unfunded amount |
|
$ |
167 |
|
$ |
32 |
|
$ |
295 |
|
$ |
494 |
|
Our off-balance sheet financing arrangements are limited to operating lease contracts.
We have facilities that are subject to operating leases. Operating lease payments in 2015 for facilities were $232 million. Operating lease commitments in 2016 for facilities are expected to be $227 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 $53 million for 2015, and are expected to be $41 million in 2016.
Although our consolidated contractual annual lease commitments decline year by year, we expect that existing leases will either be renewed or replaced, or alternatively, we will incur capital expenditures to acquire equivalent capacity.
Foreign Currency Activities
Our North American operations negotiate sales contracts with OEMs for payment in both U.S. and Canadian dollars. Materials and equipment are purchased in various currencies depending upon competitive factors, including relative currency values. Our North American operations use labour and materials which are paid for in both U.S. and Canadian dollars. Our Mexican operations generally use the U.S. dollar as the functional currency.
Our European operations negotiate sales contracts with OEMs for payment principally in euros and British pounds. The European operations material, equipment and labour are paid for principally in euros and British pounds.
We employ hedging programs, primarily through the use of foreign exchange forward contracts, in an effort to manage our foreign exchange exposure, which arises when manufacturing facilities have committed to the delivery of products for which the selling price has been quoted in foreign currencies. These commitments represent our contractual obligations to deliver products over the duration of the product programs, which can last a number of years. The amount and timing of the forward contracts will be dependent upon a number of factors, including anticipated production delivery schedules and anticipated production costs, which may be paid in the foreign currency. In addition, we enter into foreign exchange contracts to manage foreign exchange exposure with respect to internal funding arrangements. Despite these measures, significant long-term fluctuations in relative currency values, in particular a significant change in the relative values of the U.S. dollar, Canadian dollar, euro or British pound, could have an adverse effect on our profitability and financial condition (as discussed throughout this MD&A).
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are more fully described in Note 1, Significant Accounting Policies, to the consolidated financial statements included in this Report. The preparation of the audited consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities, as of the date of the consolidated financial statements. These estimates and assumptions are based on our historical experience, and various other assumptions we believe to be reasonable in the circumstances. Since these estimates and assumptions are subject to an inherent degree of uncertainty, actual results in these areas may differ significantly from our estimates.
We believe the following critical accounting policies and estimates affect the more subjective or complex judgments and estimates used in the preparation of our consolidated financial statements and accompanying notes. Management has discussed the development and selection of the following critical accounting policies with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed our disclosure relating to critical accounting policies in this MD&A.
Revenue Recognition
[a] Tooling and Engineering Service Contracts
With respect to our contracts with OEMs for particular vehicle programs, we perform multiple revenue-generating activities. The most common arrangement is where, in addition to contracting for the production and sale of parts, we also have a contract with the OEM for engineering services, related tooling, and in some cases subsequent assembly activities. Under these arrangements, we either construct the tools at our in-house tool shops or contract with third party tooling vendors to construct and supply tooling to be used by us in the production of parts for the OEM. On completion of the tooling build, and upon acceptance of the tooling by the OEM, we sell the tooling to the OEM pursuant to a separate tooling purchase order.
Revenues from significant engineering services and tooling contracts that qualify as separate revenue elements are recognized on a percentage of completion basis. The percentage of completion method recognizes revenue and cost of sales over the term of the contract based on estimates of the state of completion, total contract revenue and total contract costs. Contract costs are estimated at the time of signing the contract and are reviewed at each reporting date. Adjustments to the original estimates of total contract costs are often required as work progresses under the contract and as experience is gained, even though the scope of the work under the contract may not change.
Tooling and engineering contract prices are generally fixed; however, price changes, change orders and program cancellations may affect the ultimate amount of revenue recorded with respect to a contract. When the current estimates of total contract revenue and total contract costs indicate a loss, a provision for the entire loss on the contract is made. Factors that are considered in arriving at the forecasted loss on a contract include, amongst others, cost over-runs, non-reimbursable costs, change orders and potential price changes.
Revenues and cost of sales from tooling and engineering services contracts are presented on a gross basis in the consolidated statements of income when we are acting as principal and are subject to significant risks and rewards of the business. Otherwise, components of revenue and related costs are presented on a net basis. To date, substantially all engineering services and tooling contracts have been recorded on a gross basis.
[b] Contracts with Purchased Components
(i) Assembly Contracts
The terms of our various vehicle assembly contracts differ with respect to the ownership of components and supplies related to the assembly process and the method of determining the selling price to the OEM customer. Under certain contracts we are acting as principal, and purchased components and systems in assembled vehicles are included in our inventory and cost of sales. These costs are reflected on a full-cost basis in the selling price of the final assembled vehicle to the OEM customer. Other contracts provide that third-party components and systems are held on consignment by us, and the selling price to the OEM customer reflects a value added assembly fee only. All current programs are accounted for on a full-cost basis.
(ii) Modular Systems
In addition to our assembly business, we also enter into production contracts where we are required to coordinate the design, manufacture, integration and assembly of a large number of individual parts and components into a modular system for delivery to the OEMs vehicle assembly plant. Under these contracts, we manufacture a portion of the products included in the module but also purchase components from various sub-suppliers and assemble such components into the completed module. We recognize module revenues and cost of sales on a gross basis when we have a combination of:
· primary responsibility for providing the module to the OEM;
· responsibility for styling and/or product design specifications;
· latitude in establishing sub-supplier pricing;
· responsibility for validation of sub-supplier part quality;
· inventory risk on sub-supplier parts;
· exposure to warranty; and
· exposure to credit risk on the sale of the module to the OEM.
To date, revenues and cost of sales on our module contracts have been reported on a gross basis.
Acquisitions
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.
Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and assumed liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary.
Impairment of Goodwill and Other Long-lived Assets
We review goodwill at the reporting unit level for impairment annually or more frequently if events or changes in circumstances indicate that goodwill might be impaired. We perform a two step goodwill impairment test in conjunction with our annual business plan during the fourth quarter of each year. In step one, the fair value of a reporting unit is compared to its carrying value. If the fair value is greater than its carrying amount, goodwill is not considered to be impaired and the second step is not required. However, if the fair value of the reporting unit is less than its carrying amount, the second step must be performed to measure the amount of the impairment loss, if any. The second step requires a reporting unit to compare its implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, the reporting unit would recognize an impairment loss for that excess.
We evaluate fixed assets and other long-lived assets for impairment whenever indicators of impairment exist. Indicators of impairment include the bankruptcy of a significant customer or the early termination, loss, renegotiation of the terms of, or delay in the implementation of, any significant production contract. If the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges, is less than the reported value of the asset, an asset impairment would be recognized in the consolidated financial statements. The amount of impairment to be recognized is calculated by subtracting the fair value of the asset from the reported value of the asset.
We believe that accounting estimates related to goodwill and long-lived asset impairment assessments are critical accounting estimates because: (i) they are subject to significant measurement uncertainty and are susceptible to change as management is required to make forward-looking assumptions regarding the impact of improvement plans on current operations, in-sourcing and other new business opportunities, program pricing and cost assumptions on current and future business, the timing of new program launches and future forecasted production volumes; and (ii) any resulting impairment loss could have a material impact on our consolidated net income and on the amount of assets reported in our consolidated balance sheet.
Warranty
We record product warranty liabilities based on individual customer agreements. Under most customer agreements, we only account for existing or probable claims on product default issues when amounts related to such issues are probable and reasonably estimable. 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 customers warranty experience.
Product liability provisions are established based on our best estimate of the amounts necessary to settle existing claims on product default 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. Costs typically include the cost of the product being replaced, the customers cost of the recall and labour to remove and replace the defective part. When a decision to recall a product has been made or is probable, our estimated cost of the recall is recorded as a charge to income in that period. In making this estimate, judgment is required as to the number of units that may be returned as a result of the recall, the total cost of the recall campaign, the ultimate negotiated sharing of the cost between us, the customer and, in some cases a supplier.
We monitor our warranty activity on an ongoing basis and adjust our reserve estimates when it is probable that future warranty costs will be different than those estimates.
Deferred Tax Assets
At December 31, 2015, we had recorded deferred tax assets (net of related valuation allowances) in respect of loss carryforwards and other deductible temporary differences of $52 million and $355 million, respectively. The deferred tax assets in respect of loss carryforwards relate primarily to operations in Germany, Canada, Mexico and the United States.
On a quarterly basis, we evaluate the realizability of deferred tax assets by assessing our valuation allowances and by adjusting the amount of such allowances as necessary. We use tax planning strategies to realize deferred tax assets to avoid the potential loss of benefits.
Accounting standards require that we assess whether valuation allowances should be established or maintained against our deferred income tax assets, based on consideration of all available evidence, using a more-likely-than-not standard. The factors used to assess the likelihood of realization are: history of losses, forecasts of future pre-tax income and tax planning strategies that could be implemented to realize the deferred tax assets.
At December 31, 2015, we had domestic and foreign operating loss carryforwards of $1.9 billion and tax credit carryforwards of $24 million, which relate primarily to operations in Germany, the United States, Austria Spain, China, Brazil, and India. Approximately $1.2 billion of the operating losses can be carried forward indefinitely. The remaining operating losses and tax credit carryforwards expire between 2016 and 2035.
For the year ended December 31, 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses, where the foreign subsidiary is not a member of the European Union. Furthermore, any foreign losses used by Austrian entities arising in those non European Union subsidiaries are subject to recapture in Austria. As a consequence of this change, we have taken a charge to income tax expense of $32 million.
Employee Future Benefit Plans
The determination of the obligation and expense for defined benefit pension, termination and long service arrangements and other post retirement benefits, such as retiree healthcare and medical benefits, is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation costs. Actual results that differ from the assumptions used are accumulated and amortized over future periods and therefore impact the recognized expense in future periods. Significant changes in assumptions or significant plan amendments could materially affect our future employee benefit obligations and future expense.
At December 31, 2015, we had past service costs and actuarial experience losses of $195 million included in accumulated other comprehensive income that will be amortized to future employee benefit expense over the expected average remaining service life of employees or over the expected average life expectancy of retired employees, depending on the status of the plan.
FUTURE CHANGES IN ACCOUNTING POLICIES
Refer to Note 2. Accounting Standards to the audited consolidated financial statements included in this report for the impact of recently issued accounting pronouncements.
SUBSEQUENT EVENT
Acquisition of Getrag
In the third quarter of 2015, we signed an agreement to acquire 100% of the common shares and voting interest of Getrag. Getrag is a global supplier of automotive transmission systems including manual, automated-manual, dual clutch, hybrid and other advanced systems. The transaction was completed on January 4, 2016.
The total consideration transferred by Magna was approximately 1.75 billion in cash, and is subject to working capital and other customary purchase price adjustments. The acquisition of Getrag will be accounted for as a business combination under the acquisition method of accounting. We will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. Due to the limited amount of time since the acquisition date, the preliminary acquisition valuation for the business combination is incomplete at this time. As a result, we are unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other claims.
Refer to note 18 of our unaudited interim consolidated financial statements for the three months and year ended December 31, 2015, 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, 2014.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable, but not absolute, assurance that material information required to be publicly disclosed by a public company is communicated in a timely manner to senior management to enable them to make timely decisions regarding public disclosure of such information. We have conducted an evaluation of our disclosure controls and procedures as of December 31, 2015 under the supervision, and with the participation of, our Chief Executive Officer and our Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures (as this term is defined in the rules adopted by Canadian securities regulatory authorities and the United States Securities and Exchange Commission) are effective in providing reasonable assurance that material information relating to Magna is made known to them and information required to be disclosed by us is recorded, processed, summarized and reported within the time periods specified under applicable law.
Managements Annual Report on Internal Control over Financial Reporting
Internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Additionally, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control-Integrated Framework (2013) to evaluate the effectiveness of internal control over financial reporting. Our Chief Executive Officer and our Chief Financial Officer have assessed the effectiveness of our internal control over financial reporting and concluded that, as at December 31, 2015, such internal control over financial reporting is effective and that there were no material weaknesses. Our independent auditor, Deloitte LLP, has also issued a report on our internal controls. This report precedes our audited consolidated financial statements for the year ended December 31, 2015.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2015
The discussion of our results of operations for the three months ended December 31, 2015 contained in the MD&A attached to our press release dated February 26, 2016, as filed via the Canadian Securities Administrators System for Electronic Document Analysis and Retrieval (SEDAR) (www.sedar.com), is incorporated by reference herein.
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data has been prepared in accordance with U.S. GAAP.
|
|
For the three month periods ended |
| ||||||||||
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
| ||||
|
|
2015 |
|
2015 |
|
2015 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Sales |
|
$ |
7,772 |
|
$ |
8,133 |
|
$ |
7,661 |
|
$ |
8,568 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
464 |
|
$ |
480 |
|
$ |
588 |
|
$ |
475 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per Common Share (restated) |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
|
$ |
1.11 |
|
$ |
1.31 |
|
$ |
1.15 |
|
$ |
1.20 |
|
Attributable to Magna International Inc. |
|
$ |
1.14 |
|
$ |
1.18 |
|
$ |
1.44 |
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per Common Share (restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.10 |
|
$ |
1.29 |
|
$ |
1.13 |
|
$ |
1.19 |
|
Attributable to Magna International Inc. |
|
$ |
1.12 |
|
$ |
1.16 |
|
$ |
1.42 |
|
$ |
1.17 |
|
|
|
For the three month periods ended |
| ||||||||||
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
| ||||
|
|
2014 |
|
2014 |
|
2014 |
|
2014 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Sales |
|
$ |
8,455 |
|
$ |
8,911 |
|
$ |
8,247 |
|
$ |
8,790 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
392 |
|
$ |
510 |
|
$ |
469 |
|
$ |
509 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per Common Share (restated) |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
|
$ |
0.91 |
|
$ |
1.20 |
|
$ |
1.15 |
|
$ |
1.25 |
|
Attributable to Magna International Inc. |
|
$ |
0.89 |
|
$ |
1.18 |
|
$ |
1.11 |
|
$ |
1.23 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per Common Share (restated) |
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
|
$ |
0.90 |
|
$ |
1.18 |
|
$ |
1.14 |
|
$ |
1.23 |
|
Attributable to Magna International Inc. |
|
$ |
0.88 |
|
$ |
1.16 |
|
$ |
1.10 |
|
$ |
1.22 |
|
The third quarter of the year is generally affected by the normal seasonal effects of lower vehicle production volumes as a result of OEM summer shutdowns.
Included in the quarterly net income attributable to Magna International Inc. are the following other (income) expense, net items that have been discussed above:
|
|
For the three month periods ended |
| ||||||||||
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
| ||||
|
|
2015 |
|
2015 |
|
2015 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Restructuring |
|
$ |
|
|
$ |
|
|
$ |
12 |
|
$ |
15 |
|
Gain on disposal |
|
|
|
(57 |
) |
(136 |
) |
|
| ||||
|
|
$ |
|
|
$ |
(57 |
) |
$ |
(124 |
) |
$ |
15 |
|
|
|
For the three month periods ended |
| ||||||||||
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
| ||||
|
|
2014 |
|
2014 |
|
2014 |
|
2014 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Restructuring |
|
$ |
22 |
|
$ |
11 |
|
$ |
7 |
|
$ |
6 |
|
For more information regarding our quarter over quarter results, please refer to our first, second and third quarter 2015 quarterly reports which 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.
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: the expected growth of the powertrain product segment; and continued implementation of our capital structure strategy, including investments in our business through capital expenditures and acquisitions, and returns of capital to our shareholders through dividends and share repurchases. The forward-looking statements or forward-looking information in this press release is presented for the purpose of providing information about managements current expectations and plans and such information may not be appropriate for other purposes. Forward-looking statements or forward-looking information 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 or forward-looking information. Any such forward-looking statements or forward-looking information 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; fluctuations in relative currency values; continuing global or regional economic uncertainty; restructuring, downsizing and/or other significant non-recurring costs; underperformance of one or more of our operating divisions; ongoing pricing pressures, including our ability to offset price concessions demanded by our customers; our ability to successfully launch material new or takeover business; our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to conduct appropriate due diligence on acquisition targets; an increase in our risk profile as a result of completed acquisitions; 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; inability to sustain or grow our business; risks of conducting business in foreign markets, including China, India, Eastern Europe, Brazil and other non-traditional markets for us; a prolonged disruption in the supply of components to us from our suppliers; work stoppages and labour relations disputes; scheduled shutdowns of our customers production facilities (typically in the third and fourth quarters of each calendar year); our ability to successfully compete with other automotive suppliers; a reduction in outsourcing by our customers or the loss of a material production or assembly program; the termination or non-renewal by our customers of any material production purchase order; our ability to consistently develop innovative products or processes; exposure to, and ability to offset, volatile commodities prices; warranty and recall costs; restructuring actions by OEMs, including plant closures; shutdown of our or our customers or sub-suppliers production facilities due to a labour disruption; risk of production disruptions due to natural disasters or catastrophic event; the security and reliability of our information technology systems; pension liabilities; legal claims and/or regulatory actions against us; 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; impairment charges related to goodwill, long-lived assets and deferred tax assets; other potential tax exposures; changes in credit ratings assigned to us; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; liquidity risks; 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; 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 or forward-looking information, we caution readers not to place undue reliance on any forward-looking statements or forward-looking information, 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 or forward-looking information. 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 or forward-looking information to reflect subsequent information, events, results or circumstances or otherwise.
|
Magna International Inc. | |
|
Tel |
(905) 726-2462 |
|
Fax |
(905) 726-7164 |
Consolidated Financial Statements
Magna International Inc.
December 31, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Magna International Inc.
We have audited the accompanying consolidated balance sheets of Magna International Inc. and subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and 2014. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Magna International Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2015 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2016 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ Deloitte LLP |
|
|
|
Chartered Professional Accountants |
|
Licensed Public Accountants |
|
March 3, 2016 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Magna International Inc.
We have audited the internal control over financial reporting of Magna International Inc. and subsidiaries (the Company) as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the consolidated financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements, as of and for the year ended December 31, 2015 of the Company and our report dated March 3, 2016 expressed an unqualified opinion on those financial statements.
/s/ Deloitte LLP |
|
|
|
|
|
Chartered Professional Accountants |
|
Licensed Public Accountants |
|
March 3, 2016 |
|
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[U.S. dollars in millions, except per share figures]
Years ended December 31, |
|
Note |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
| ||
Sales |
|
|
|
$ |
32,134 |
|
$ |
34,403 |
|
|
|
|
|
|
|
|
| ||
Costs and expenses |
|
|
|
|
|
|
| ||
Cost of goods sold |
|
|
|
27,559 |
|
29,468 |
| ||
Depreciation and amortization |
|
|
|
802 |
|
845 |
| ||
Selling, general and administrative |
|
10, 20 |
|
1,448 |
|
1,612 |
| ||
Interest expense, net |
|
17 |
|
44 |
|
30 |
| ||
Equity income |
|
|
|
(204 |
) |
(203 |
) | ||
Other (income) expense, net |
|
5 |
|
(166 |
) |
46 |
| ||
Income from continuing operations before income taxes |
|
|
|
2,651 |
|
2,605 |
| ||
Income taxes |
|
13 |
|
711 |
|
683 |
| ||
Net income from continuing operations |
|
|
|
1,940 |
|
1,922 |
| ||
Income (loss) from discontinued operations, net of tax |
|
4 |
|
67 |
|
(42 |
) | ||
Net income |
|
|
|
2,007 |
|
1,880 |
| ||
Loss from continuing operations attributable to non-controlling interests |
|
|
|
6 |
|
2 |
| ||
Net income attributable to Magna International Inc. |
|
|
|
$ |
2,013 |
|
$ |
1,882 |
|
|
|
|
|
|
|
|
| ||
Basic Earnings per Common Share (restated note 3): |
|
6 |
|
|
|
|
| ||
Continuing operations |
|
|
|
$ |
4.78 |
|
$ |
4.50 |
|
Discontinued operations |
|
|
|
0.16 |
|
(0.09 |
) | ||
Attributable to Magna International Inc. |
|
|
|
$ |
4.94 |
|
$ |
4.41 |
|
|
|
|
|
|
|
|
| ||
Diluted Earnings per Common Share (restated note 3): |
|
6 |
|
|
|
|
| ||
Continuing operations |
|
|
|
$ |
4.72 |
|
$ |
4.44 |
|
Discontinued operations |
|
|
|
0.16 |
|
(0.10 |
) | ||
Attributable to Magna International Inc. |
|
|
|
$ |
4.88 |
|
$ |
4.34 |
|
|
|
|
|
|
|
|
| ||
Weighted average number of Common Shares outstanding during the year [in millions] (restated note 3): |
|
6 |
|
|
|
|
| ||
Basic |
|
|
|
407.5 |
|
427.1 |
| ||
Diluted |
|
|
|
412.7 |
|
433.2 |
|
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[U.S. dollars in millions]
Years ended December 31, |
|
Note |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
| ||
Net income |
|
|
|
$ |
2,007 |
|
$ |
1,880 |
|
|
|
|
|
|
|
|
| ||
Other comprehensive loss, net of tax: |
|
22 |
|
|
|
|
| ||
Net unrealized loss on translation of net investment in foreign operations |
|
|
|
(800 |
) |
(681 |
) | ||
Net unrealized loss on cash flow hedges |
|
|
|
(244 |
) |
(103 |
) | ||
Reclassification of net loss on cash flow hedges to net income |
|
|
|
95 |
|
10 |
| ||
Reclassification of net loss on investments to net income |
|
|
|
3 |
|
|
| ||
Reclassification of net loss on pensions to net income |
|
|
|
7 |
|
3 |
| ||
Pension and post-retirement benefits |
|
|
|
14 |
|
(72 |
) | ||
Other comprehensive loss |
|
|
|
(925 |
) |
(843 |
) | ||
|
|
|
|
|
|
|
| ||
Comprehensive income |
|
|
|
1,082 |
|
1,037 |
| ||
Comprehensive loss attributable to non-controlling interests |
|
|
|
8 |
|
2 |
| ||
Comprehensive income attributable to Magna International Inc. |
|
|
|
$ |
1,090 |
|
$ |
1,039 |
|
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars in millions]
Years ended December 31, |
|
Note |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
| ||
OPERATING ACTIVITIES |
|
|
|
|
|
|
| ||
Net income from continuing operations |
|
|
|
$ |
1,940 |
|
$ |
1,922 |
|
Items not involving current cash flows |
|
7 |
|
736 |
|
1,102 |
| ||
|
|
|
|
2,676 |
|
3,024 |
| ||
Changes in operating assets and liabilities |
|
7 |
|
(344 |
) |
(202 |
) | ||
Cash provided from operating activities |
|
|
|
2,332 |
|
2,822 |
| ||
|
|
|
|
|
|
|
| ||
INVESTMENT ACTIVITIES |
|
|
|
|
|
|
| ||
Fixed asset additions |
|
|
|
(1,591 |
) |
(1,495 |
) | ||
Purchase of subsidiaries |
|
8 |
|
(222 |
) |
(23 |
) | ||
Increase in investments and other assets |
|
|
|
(221 |
) |
(172 |
) | ||
Proceeds from disposition |
|
|
|
61 |
|
164 |
| ||
Proceeds on disposal of facilities |
|
5 |
|
221 |
|
|
| ||
Sale of Interiors |
|
4 |
|
520 |
|
|
| ||
Cash used in discontinued operations |
|
4 |
|
(56 |
) |
(120 |
) | ||
Cash used for investment activities |
|
|
|
(1,288 |
) |
(1,646 |
) | ||
|
|
|
|
|
|
|
| ||
FINANCING ACTIVITIES |
|
|
|
|
|
|
| ||
Issues of debt |
|
17 |
|
1,608 |
|
860 |
| ||
Increase (decrease) in bank indebtedness |
|
|
|
25 |
|
(2 |
) | ||
Repayments of debt |
|
17 |
|
(99 |
) |
(188 |
) | ||
Issues of Common Shares on exercise of stock options |
|
|
|
35 |
|
49 |
| ||
Repurchase of Common Shares |
|
21 |
|
(515 |
) |
(1,783 |
) | ||
Contribution to subsidiaries by non-controlling interests |
|
|
|
41 |
|
|
| ||
Dividends paid |
|
|
|
(354 |
) |
(316 |
) | ||
Cash provided from (used for) financing activities |
|
|
|
741 |
|
(1,380 |
) | ||
|
|
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
(171 |
) |
(98 |
) | ||
|
|
|
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents during the year |
|
|
|
1,614 |
|
(302 |
) | ||
Cash and cash equivalents, beginning of year |
|
|
|
1,249 |
|
1,551 |
| ||
Cash and cash equivalents, end of year |
|
|
|
$ |
2,863 |
|
$ |
1,249 |
|
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[U.S. dollars in millions, except shares issued]
As at December 31, |
|
Note |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
|
| ||
Cash and cash equivalents |
|
7 |
|
$ |
2,863 |
|
$ |
1,249 |
|
Accounts receivable |
|
|
|
5,439 |
|
5,316 |
| ||
Inventories |
|
9 |
|
2,564 |
|
2,525 |
| ||
Income taxes receivable |
|
|
|
|
|
13 |
| ||
Prepaid expenses and other |
|
|
|
278 |
|
150 |
| ||
Assets held for sale |
|
4 |
|
|
|
609 |
| ||
|
|
|
|
11,144 |
|
9,862 |
| ||
Investments |
|
10, 18, 23 |
|
399 |
|
379 |
| ||
Fixed assets, net |
|
11 |
|
6,005 |
|
5,402 |
| ||
Goodwill |
|
8, 12 |
|
1,344 |
|
1,337 |
| ||
Deferred tax assets |
|
13 |
|
271 |
|
220 |
| ||
Other assets |
|
14, 18 |
|
543 |
|
526 |
| ||
Noncurrent assets held for sale |
|
4 |
|
|
|
348 |
| ||
|
|
|
|
$ |
19,706 |
|
$ |
18,074 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
| ||
Bank indebtedness |
|
17 |
|
$ |
25 |
|
$ |
30 |
|
Accounts payable |
|
|
|
4,746 |
|
4,765 |
| ||
Accrued salaries and wages |
|
15 |
|
660 |
|
686 |
| ||
Other accrued liabilities |
|
16 |
|
1,512 |
|
1,448 |
| ||
Income taxes payable |
|
|
|
122 |
|
|
| ||
Long-term debt due within one year |
|
17 |
|
211 |
|
183 |
| ||
Liabilities held for sale |
|
4 |
|
|
|
514 |
| ||
|
|
|
|
7,276 |
|
7,626 |
| ||
Long-term debt |
|
17 |
|
2,346 |
|
812 |
| ||
Long-term employee benefit liabilities |
|
18 |
|
504 |
|
559 |
| ||
Other long-term liabilities |
|
19 |
|
331 |
|
278 |
| ||
Deferred tax liabilities |
|
13 |
|
132 |
|
92 |
| ||
Long-term liabilities held for sale |
|
4 |
|
|
|
34 |
| ||
|
|
|
|
10,589 |
|
9,401 |
| ||
Shareholders equity |
|
|
|
|
|
|
| ||
Common Shares [issued: 402,264,201; 2014 410,325,270 (restated note 3)] |
|
21 |
|
3,942 |
|
3,979 |
| ||
Contributed surplus |
|
|
|
107 |
|
83 |
| ||
Retained earnings |
|
21 |
|
6,387 |
|
5,155 |
| ||
Accumulated other comprehensive loss |
|
22 |
|
(1,470 |
) |
(558 |
) | ||
|
|
|
|
8,966 |
|
8,659 |
| ||
Non-controlling interests |
|
|
|
151 |
|
14 |
| ||
|
|
|
|
9,117 |
|
8,673 |
| ||
|
|
|
|
$ |
19,706 |
|
$ |
18,074 |
|
Commitments and contingencies [notes 17, 23 and 24]
See accompanying notes
On behalf of the Board: |
|
|
|
|
|
|
|
|
/s/ Lawrence D. Worrall |
|
/s/ William L. Young |
|
Director |
|
Chairman of the Board |
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
[U.S. dollars in millions, except number of common shares]
[i] AOCL is Accumulated Other Comprehensive Loss.
See accompanying notes
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
1. SIGNIFICANT ACCOUNTING POLICIES
Magna International Inc. [collectively Magna or the Company] is a global automotive supplier whose product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing.
The consolidated financial statements have been prepared in U.S. dollars following accounting principles generally accepted in the United States [GAAP].
Principles of consolidation
The Consolidated Financial Statements include the accounts of Magna and its subsidiaries in which Magna has a controlling financial interest or is the primary beneficiary. Magna accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling interest under the equity method, and records its proportionate share of income or losses in Equity income in the Consolidated Statements of Income. The Company presents non-controlling interests as a separate component within Shareholders equity in the Consolidated Balance Sheets.
Retrospective changes
In connection with the adoption of Accounting Standards Update (ASU) 2015-17, as defined and further described in Note 2, prior year amounts related to deferred taxes have been reclassified in the consolidated balance sheet. Prior period information has also been reclassified to present the interiors operations as discontinued operations for all periods presented. Refer to Note 4 Discontinued Operations for further information. Additionally, in March 2015 the Company completed a two-for-one stock split. All equity-based compensation plans or arrangements, earnings per Common Share, Cash dividends paid per Common Share, the weighted average exercise price for stock options and the weighted average fair value of options granted, have been restated for all periods presented to reflect the stock split. Refer to Note 3 Stock Split for more information.
Financial instruments
The Company classifies all of its financial assets and financial liabilities as trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets, or other financial liabilities. Held-for-trading financial instruments, which include cash and cash equivalents and the Companys investment in asset-backed commercial paper [ABCP] are measured at fair value and all gains and losses are included in net income in the period in which they arise. Held-to-maturity investments, which include long-term interest bearing government securities held to partially fund certain Austrian lump sum termination and long service payment arrangements, are recorded at amortized cost using the effective interest method. Loans and receivables, which include accounts receivable, long-term receivables and accounts payable, are recorded at amortized cost using the effective interest method. Available-for-sale financial assets are recorded at cost and are subsequently measured at fair value with all revaluation gains and losses included in other comprehensive income.
Foreign currency translation
The 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.
Assets and liabilities of the Companys operations having a functional currency other than the U.S. dollar are translated into U.S. dollars using the exchange rate in effect at year end, and revenues and expenses are translated at the average rate during the year. Exchange gains or losses on translation of the Companys net investment in these operations are included in comprehensive income and are deferred in accumulated other comprehensive income. Foreign exchange gains or losses on debt that was designated as a hedge of the Companys net investment in these operations are also recorded in accumulated other comprehensive income.
2015 Annual Financial Statements
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Foreign exchange gains and losses on transactions occurring in a currency other than an operations functional currency are reflected in income, except for gains and losses on foreign exchange contracts used to hedge specific future commitments in foreign currencies and on intercompany balances which are designated as long-term investments. In particular, the Company uses foreign exchange forward contracts for the sole purpose of hedging certain of the Companys future committed foreign currency based outflows and inflows. Most of the Companys foreign exchange contracts are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. All derivative instruments, including foreign exchange contracts, are recorded on the consolidated balance sheet at fair value. The fair values of derivatives are recorded on a gross basis in prepaid expenses and other, other assets, other accrued liabilities or other long-term liabilities. 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.
If the Companys foreign exchange forward contracts cease to be effective as hedges, for example, if projected foreign cash inflows or outflows declined significantly, gains or losses pertaining to the portion of the hedging transactions in excess of projected foreign currency denominated cash flows would be recognized in income at the time this condition was identified.
Cash and cash equivalents
Cash and cash equivalents include cash on account, demand deposits and short-term investments with remaining maturities of less than three months at acquisition.
Inventories
Production inventories and tooling inventories manufactured in-house are valued at the lower of cost and market, with cost being determined substantially on a first-in, first-out basis. Cost includes the cost of materials plus direct labour applied to the product and the applicable share of manufacturing overhead.
Outsourced tooling inventories are valued at the lower of subcontracted costs and market.
Long-lived assets
Fixed assets are recorded at historical cost. Depreciation is provided on a straight-line basis over the estimated useful lives of fixed assets at annual rates of 2½% to 5% for buildings, 7% to 10% for general purpose equipment and 10% to 33% for special purpose equipment.
Definite-lived intangible assets, which have arisen principally through acquisitions and include customer relationship intangibles and patents and licences, are recorded in other assets and are amortized on a straight-line basis over their estimated useful lives, typically over periods not exceeding five years.
The Company assesses fixed and definite-lived intangible assets for recoverability whenever indicators of impairment exist. If the carrying value of the asset exceeds the estimated undiscounted cash flows from the use of the asset, then an impairment loss is recognized to write the asset down to fair value. The fair value of fixed and definite-lived intangible assets is generally determined using estimated discounted future cash flows.
Goodwill
Goodwill represents the excess of the cost of an acquired enterprise over the fair value of the identifiable assets acquired and liabilities assumed less any subsequent writedowns for impairment. Goodwill is reviewed for impairment on December 31 of each year. Goodwill impairment is evaluated between annual tests upon the occurrence of certain events or circumstances. Goodwill impairment is assessed based on a comparison of the fair value of a reporting unit to the underlying carrying value of the reporting units net assets, including goodwill. When the carrying amount of the reporting unit exceeds its fair value, the fair value of the reporting units goodwill is compared with its carrying amount to measure the amount of impairment, if any. The fair value of a reporting unit is determined using the estimated discounted future cash flows of the reporting unit.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Other assets
Other assets include the long-term portion of certain receivables, which represent the recognized sales value of tooling and design and engineering services provided to customers under certain long-term contracts. The receivables will be paid in full upon completion of the contracts or in instalments based on forecasted production volumes. In the event that actual production volumes are less than those forecasted, a reimbursement for any shortfall will be made.
Preproduction costs related to long-term supply agreements
Pre-operating costs incurred in establishing new facilities that require substantial time to reach commercial production capability are expensed as incurred.
Costs incurred [net of customer subsidies] related to design and engineering, which are paid for as part of subsequent production piece price amounts, are expensed as incurred unless a contractual guarantee for reimbursement exists.
Costs incurred [net of customer subsidies] related to design and development costs for moulds, dies and other tools that the Company does not own [and that will be used in, and paid for as part of the piece price amount for, subsequent production] are expensed as incurred unless the supply agreement provides a contractual guarantee for reimbursement or the non-cancellable right to use the moulds, dies and other tools during the supply agreement.
Where these preproduction costs are deemed to be a single unit of account combined with a subsequent parts production, the costs deferred in the above circumstances are included in other assets and amortized on a units-of-production basis to cost of goods sold over the anticipated term of the supply agreement.
Warranty
The Company records product warranty liabilities based on its individual customer agreements. Under most customer agreements, the Company only accounts for existing or probable claims on product default issues when amounts related to such issues are probable and reasonably estimable. 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 customers warranty experience.
Product liability provisions are established based on the Companys best estimate of the amounts necessary to settle existing claims on product default issues. Recall costs are costs incurred when government regulators and/or the customer decides to recall a product due to a known or suspected performance issue, and the Company is required to participate, either voluntarily or involuntarily. Costs typically include the cost of the product being replaced, the customers cost of the recall and labour to remove and replace the defective part. When a decision to recall a product has been made or is probable, the Companys portion of the estimated cost of the recall is recorded as a charge to income in that period. In making this estimate, judgment is required as to the number of units that may be returned as a result of the recall, the total cost of the recall campaign and the ultimate negotiated sharing of the cost between the Company, the customer and, in some cases, a supplier to the Company.
The Company monitors warranty activity on an ongoing basis and adjusts reserve estimates when it is probable that future warranty costs will be different than those estimates.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Employee future benefit plans
The cost of providing benefits through defined benefit pensions, lump sum termination and long service payment arrangements, and post-retirement benefits other than pensions is actuarially determined and recognized in income using the projected benefit method pro-rated on service and managements best estimate of expected plan investment performance, salary escalation, retirement ages of employees and, with respect to medical benefits, expected health care costs. Differences arising from plan amendments, changes in assumptions and experience gains and losses that are greater than 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair value, or market related value, of plan assets at the beginning of the year, are recognized in income over the expected average remaining service life of employees. Gains related to plan curtailments are recognized when the event giving rise to the curtailment has occurred. Plan assets are valued at fair value. The cost of providing benefits through defined contribution pension plans is charged to income in the period in respect of which contributions become payable.
The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation [PBO]. The aggregate of all overfunded plans is recorded in other assets, and the aggregate of all underfunded plans in long-term employee benefit liabilities. The portion of the amount by which the actuarial present value of benefits included in the PBO exceeds the fair value of plan assets, payable in the next twelve months, is reflected in other accrued liabilities. This is determined on a plan by plan basis.
Asset retirement obligation
The Company recognizes its obligation to restore leased premises at the end of the lease by recording at lease inception the estimated fair value of this obligation as other long-term liabilities with a corresponding amount recognized as fixed assets. The fixed asset amount is amortized over the period from lease inception to the time the Company expects to vacate the premises, resulting in both depreciation and interest charges. The estimated fair value of the obligation is assessed for changes in the expected timing and extent of expenditures with changes related to the time value of money recorded as interest expense.
Revenue recognition
Revenue from the sale of manufactured products is recognized when the price is fixed or determinable, collectability is reasonably assured and upon shipment to [or receipt by customers, depending on contractual terms], and acceptance by customers.
Revenue from tooling and engineering services are accounted for as a separate revenue element only in circumstances where the tooling and engineering has value to the customer on a standalone basis. Revenues from significant engineering services and tooling contracts that qualify as separate revenue elements are recognized on a percentage-of-completion basis. Percentage-of-completion is generally determined based on the proportion of accumulated expenditures to date as compared to total anticipated expenditures.
Revenue and cost of goods sold, including amounts from engineering and tooling contracts, are presented on a gross basis in the consolidated statements of income and comprehensive income when the Company is acting as principal and is subject to significant risks and rewards in connection with the process of bringing the product to its final state and in the post-sale dealings with its customers. Otherwise, components of revenues and related costs are presented on a net basis.
With respect to vehicle assembly sales, given that Magna is acting as principal with respect to purchased components and systems, the selling price to the customer includes the costs of such inputs.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Government assistance
The Company makes periodic applications for financial assistance under available government assistance programs in the various jurisdictions that the Company operates. Grants relating to capital expenditures are reflected as a reduction of the cost of the related assets. Grants relating to current operating expenditures are generally recorded as a reduction of the related expense at the time the eligible expenses are incurred. The Company also receives tax credits and tax super allowances, the benefits of which are recorded as a reduction of income tax expense. In addition, the Company receives loans which are recorded as liabilities in amounts equal to the cash received. When a government loan is issued to the Company at a below-market rate of interest, the loan is initially recorded at its net present value, and accreted to its face value over the period of the loan. The benefit of the below-market rate of interest is accounted for like a government grant. It is measured as the difference between the initial carrying value of the loan and the cash proceeds received.
Income taxes
The Company uses the liability method of tax allocation to account for income taxes. Under the liability method of tax allocation, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
No deferred tax liability is recorded for taxes on undistributed earnings and translation adjustments of foreign subsidiaries if these items are either considered to be reinvested for the foreseeable future or if they are available for repatriation and are not subject to further tax on remittance. Taxes are recorded on such foreign undistributed earnings and translation adjustments when it becomes apparent that such earnings will be distributed in the foreseeable future and the Company will incur further significant tax on remittance.
Recognition of uncertain tax positions is dependent on whether it is more-likely-than-not that a tax position taken or expected to be taken in a tax return will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the consolidated financial statements. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Stock-based compensation
Compensation expense is recognized for stock options based upon the fair value of the options at the grant or modification date. The fair value of the options is recognized over the vesting period of the options as compensation expense in selling, general and administrative expense with a corresponding increase to contributed surplus.
The fair value of stock options is estimated at the grant or modification date using the Black-Scholes option pricing model. This model requires the input of a number of assumptions, including expected dividend yields, expected stock price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect managements best estimates, they involve inherent uncertainties based on market conditions generally outside the Companys control. If other assumptions are used, stock-based compensation expense could be significantly impacted.
As stock options are exercised, the proceeds received on exercise, in addition to the portion of the contributed surplus balance related to those stock options, is credited to Common Shares and contributed surplus is reduced accordingly.
The Companys restricted stock plans and certain restricted share unit plans are measured at fair value at the date of grant or modification and amortized to compensation expense from the effective date of the grant to the final vesting date in selling, general and administrative expense with a corresponding increase to contributed surplus. As restricted stock or restricted share units are released under the plans, the portion of the contributed surplus balance relating to the restricted stock or restricted share units is credited to Common Shares and released from contributed surplus. Certain other restricted share unit plans are recorded as liabilities at the date of grant and are marked to market in selling, general and administrative expenses each period until settled.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Comprehensive income
Other comprehensive income includes unrealized gains and losses on translation of the Companys foreign operations that use the local currency as the functional currency, the change in fair value of available-for-sale investments, net of taxes, the change in unamortized actuarial amounts, net of taxes and to the extent that cash flow hedges are effective, the change in their fair value, net of income taxes.
Accumulated other comprehensive income is a separate component of shareholders equity which includes the accumulated balances of all components of other comprehensive income which are recognized in comprehensive income but excluded from net income.
Earnings per Common Share
Basic earnings per Common Share are calculated on net income attributable to Magna International Inc. using the weighted average number of Common Shares outstanding during the year.
Diluted earnings per Common Share are calculated on the weighted average number of Common Shares outstanding, including an adjustment for stock options outstanding using the treasury stock method.
Common Shares that have not been released under the Companys restricted stock plan or are being held in trust for purposes of the Companys restricted stock unit program have been excluded from the calculation of basic earnings per share but have been included in the calculation of diluted earnings per share.
Discontinued operations
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting only occurs when the disposal of a component or a group of components of the Company represents a strategic shift that will have a major impact on the Companys operations and financial results. In the third quarter of 2015, the Company sold substantially all of its interiors operations. Accordingly, the assets and liabilities, operating results and operating cash flows for the previously reported interiors operations are presented as discontinued operations separate from the Companys continuing operations. Prior period financial information has been reclassified to present the interiors operations as a discontinued operation, and has therefore been excluded from both continuing operations and segment results in these consolidated financial statements and the notes to the consolidated financial statements, unless otherwise noted. Refer to Note 4 Discontinued Operations for further information regarding the Companys discontinued operations.
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
2. ACCOUNTING STANDARDS
Accounting Changes
In November 2015, the Financial Accounting Standards Board [FASB] issued Accounting Standards Update [ASU] No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This guidance requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. The guidance is effective for interim and annual periods beginning after December 15, 2016, and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. As permitted, the Company elected to early adopt this guidance effective December 31, 2015, and has applied the guidance retrospectively. Accordingly, current deferred tax assets, current deferred tax liabilities and long-term deferred tax liabilities have been reduced by $181 million, $21 million and $79 million respectively, and long-term deferred tax assets has increased by $81 million in the accompanying consolidated balance sheet as at December 31, 2014.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Future Accounting Standards
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This guidance requires debt issuance costs to be recorded as a direct reduction of the debt liability on the balance sheet rather than as an asset. The provisions of this update are effective as of January 1, 2016, and are not expected to have a significant impact on the Company.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2017 using either of two methods: [i] retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or [ii] retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases: Topic 842 (ASU 2016-02), to supersede nearly all existing lease guidance under GAAP. The guidance would require lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for the Company in the first quarter of fiscal 2019 using a modified retrospective approach with the option to elect certain practical expedients. Early adoption is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated financial statements.
3. STOCK SPLIT
On March 25, 2015, the Company completed a two-for-one stock split, which was implemented by way of a stock dividend, whereby shareholders received an additional Common Share for each Common Share held. All equity-based compensation plans or arrangements were adjusted to reflect the issuance of additional Common Shares.
Accordingly, all of the Companys issued and outstanding Common Shares, incentive stock options, and restricted and deferred stock units have been restated for all periods presented to reflect the stock split. In addition, earnings per Common Share, Cash dividends paid per Common Share, weighted average exercise price for stock options and the weighted average fair value of options granted have been restated for all periods presented to reflect the stock split.
4. DISCONTINUED OPERATIONS
On August 31, 2015, the Company sold substantially all of its interiors operations [the interiors operations]. The Company recognized a gain on the divestiture within income from discontinued operations as follows:
Proceeds on disposal, net of transaction costs |
|
$ |
549 |
|
Net assets disposed |
|
438 |
| |
Pretax gain on divestiture |
|
111 |
| |
Income taxes |
|
66 |
| |
Gain on divestiture, net of tax |
|
$ |
45 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
The following table summarizes the carrying value of the major classes of assets and liabilities of the discontinued operations which were reflected as held for sale in the consolidated balance sheet at December 31, 2014:
Cash and cash equivalents |
|
$ |
4 |
|
Accounts receivable |
|
355 |
| |
Inventories |
|
232 |
| |
Income taxes receivable |
|
3 |
| |
Prepaid expenses and other |
|
10 |
| |
Deferred tax assets |
|
12 |
| |
Fixed assets, net |
|
263 |
| |
Goodwill |
|
12 |
| |
Investments |
|
40 |
| |
Other assets |
|
26 |
| |
Total assets of the discontinued operations classified as held for sale |
|
$ |
957 |
|
|
|
|
| |
Bank indebtedness |
|
$ |
3 |
|
Accounts payable |
|
376 |
| |
Accrued salaries and wages |
|
44 |
| |
Other accrued liabilities |
|
91 |
| |
Long-term debt due within one year |
|
1 |
| |
Long-term employee benefit liabilities |
|
20 |
| |
Other long-term liabilities |
|
12 |
| |
Deferred tax liabilities |
|
1 |
| |
Total liabilities of the discontinued operations classified as held for sale |
|
$ |
548 |
|
A reconciliation of the major classes of line items constituting income (loss) from discontinued operations, net of tax as presented in the statements of income is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Sales |
|
$ |
1,737 |
|
$ |
2,394 |
|
Costs and expenses |
|
|
|
|
| ||
Cost of goods sold |
|
1,635 |
|
2,310 |
| ||
Depreciation and amortization |
|
13 |
|
45 |
| ||
Selling, general and administrative |
|
58 |
|
95 |
| ||
Equity income |
|
(11 |
) |
(8 |
) | ||
Other expense |
|
|
|
18 |
| ||
Income (loss) from discontinued operations before income taxes and gain on divestiture |
|
42 |
|
(66 |
) | ||
Income taxes |
|
20 |
|
(24 |
) | ||
Income (loss) from discontinued operations before gain on divestiture |
|
22 |
|
(42 |
) | ||
Gain on divestiture of discontinued operations, net of tax |
|
45 |
|
|
| ||
Income (loss) from discontinued operations, net of tax |
|
$ |
67 |
|
$ |
(42 |
) |
The interiors operations were previously included within all of the Companys reporting segments except for Rest of World.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
5. OTHER (INCOME) EXPENSE, NET
Other (income) expense, net consists of significant items such as: restructuring charges generally related to significant plant closures or consolidations; gains or losses on disposal of facilities; and other items not reflective of on-going operating profit or loss. Other (income) expense, net consists of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
North America [a] |
|
|
|
|
| ||
Gain on disposal of Bestop |
|
$ |
(136 |
) |
$ |
|
|
|
|
|
|
|
| ||
Europe [b] |
|
|
|
|
| ||
Restructuring charges |
|
27 |
|
46 |
| ||
Gain on disposal of battery pack business |
|
(57 |
) |
|
| ||
|
|
(30 |
) |
46 |
| ||
|
|
|
|
|
| ||
|
|
$ |
(166 |
) |
$ |
46 |
|
[a] North America
For the year ended December 31, 2015
During 2015, the Company entered into a joint venture arrangement for the manufacture and sale of roof and other accessories for the Jeep market to original equipment manufacturers as well as aftermarket customers. The Company contributed two manufacturing facilities and received a 49% interest in the newly formed joint venture and cash proceeds of $118 million. Total consideration was valued at $160 million and as a result the Company recognized a gain of $136 million [$80 million after tax]. The Company accounts for its ownership as an equity investment since Magna has significant influence through its voting rights, but does not control the joint venture.
[b] Europe
For the year ended December 31, 2015
During 2015, the Company recorded net restructuring charges of $27 million [$27 million after tax] primarily in Germany at its exterior systems and roof systems operations.
During 2015, the Company sold its battery pack business to Samsung SDI for gross proceeds of approximately $120 million, resulting in a gain of $57 million [$42 million after tax].
For the year ended December 31, 2014
During 2014, the Company recorded net restructuring charges of $46 million [$41 million after tax] in Europe at its exterior systems operations.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
6. EARNINGS PER SHARE
Earnings per share are computed as follows [restated [note 3]]:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Income available to Common shareholders: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Net income from continuing operations |
|
$ |
1,940 |
|
$ |
1,922 |
|
Loss from continuing operations attributable to non-controlling interests |
|
6 |
|
2 |
| ||
Net income attributable to Magna International Inc. from continuing operations |
|
1,946 |
|
1,924 |
| ||
|
|
|
|
|
| ||
Income (loss) from discontinued operations, net of tax |
|
67 |
|
(42 |
) | ||
Net income attributable to Magna International Inc. |
|
$ |
2,013 |
|
$ |
1,882 |
|
|
|
|
|
|
| ||
Weighted average shares outstanding: |
|
|
|
|
| ||
|
|
|
|
|
| ||
Basic |
|
407.5 |
|
427.1 |
| ||
Adjustments |
|
|
|
|
| ||
Stock options and restricted stock [a] |
|
5.2 |
|
6.1 |
| ||
Diluted |
|
412.7 |
|
433.2 |
|
[a] Diluted earnings per Common Share exclude 0.9 million [2014 0.1 million] Common Shares issuable under the Companys Incentive Stock Option Plan because these options were not in-the-money.
Earnings per Common Share:
Basic: |
|
|
|
|
| ||
Continuing operations |
|
$ |
4.78 |
|
$ |
4.50 |
|
Discontinued operations |
|
0.16 |
|
(0.09 |
) | ||
Attributable to Magna International Inc. |
|
$ |
4.94 |
|
$ |
4.41 |
|
|
|
|
|
|
| ||
Diluted: |
|
|
|
|
| ||
Continuing operations |
|
$ |
4.72 |
|
$ |
4.44 |
|
Discontinued operations |
|
0.16 |
|
(0.10 |
) | ||
Attributable to Magna International Inc. |
|
$ |
4.88 |
|
$ |
4.34 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
7. DETAILS OF CONSOLIDATED STATEMENTS OF CASH FLOWS
[a] Cash and cash equivalents consist of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Bank term deposits, bankers acceptances and government paper |
|
$ |
2,572 |
|
$ |
1,058 |
|
Cash |
|
291 |
|
191 |
| ||
|
|
$ |
2,863 |
|
$ |
1,249 |
|
[b] Items not involving current cash flows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Depreciation and amortization |
|
$ |
802 |
|
$ |
845 |
|
Amortization of other assets included in cost of goods sold |
|
110 |
|
132 |
| ||
Other non-cash charges |
|
44 |
|
35 |
| ||
Deferred income taxes [note 13] |
|
(7 |
) |
113 |
| ||
Equity income in excess of dividends received |
|
(20 |
) |
(23 |
) | ||
Non-cash portion of Other (income) expense, net [note 5] |
|
(193 |
) |
|
| ||
|
|
$ |
736 |
|
$ |
1,102 |
|
[c] Changes in operating assets and liabilities:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Accounts receivable |
|
$ |
(410 |
) |
$ |
(760 |
) |
Inventories |
|
(241 |
) |
(275 |
) | ||
Prepaid expenses and other |
|
13 |
|
3 |
| ||
Accounts payable |
|
139 |
|
634 |
| ||
Accrued salaries and wages |
|
43 |
|
74 |
| ||
Other accrued liabilities |
|
72 |
|
80 |
| ||
Income taxes payable |
|
40 |
|
42 |
| ||
|
|
$ |
(344 |
) |
$ |
(202 |
) |
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
8. BUSINESS COMBINATIONS
Acquisitions in the year ended December 31, 2015
On December 10, 2015, the Company entered into a partnership agreement in China [the Xingqiaorui Partnership] with Chongqing Xingqiaorui. Chongqing Xingqiaorui [Xingqiaorui] is a Tier one supplier of automotive body-in-white components to Changan Ford. Under the terms of the arrangement, Xingqiaorui transferred a 53% controlling interest in its three China manufacturing facilities and cash consideration of $36 million. In exchange, the Company transferred a 47% non-controlling equity interest in its Chongqing manufacturing facility and cash consideration of $130 million to Xingqiaorui.
The acquisition of the 53% controlling interest in the China manufacturing facilities was accounted for as a business combination, and the Company recorded the assets acquired and liabilities assumed at their acquisition date fair values. For the partial sale of the Companys Chongqing manufacturing facility, no revaluation occurred since the Company maintained its controlling interest. The difference between the cash consideration received and the amount allocated to the Non-controlling interest resulted in a gain of $20 million [$17 million after tax], which was credited to contributed surplus.
On November 30, 2015, the Company acquired a 100% interest in Stadco Automotive Ltd. [Stadco] for total cash consideration of $115 million. Stadco, based in the United Kingdom, is a supplier of steel and aluminum stampings as well as vehicle assemblies primarily to Jaguar and Land Rover.
The net effect of the acquisitions on the Companys 2015 consolidated balance sheet is as follows:
|
|
Xingqiaorui |
|
|
|
|
|
|
| ||||
|
|
Partnership |
|
Stadco |
|
Other |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash |
|
$ |
23 |
|
$ |
1 |
|
$ |
|
|
$ |
24 |
|
Non-cash working capital |
|
(35 |
) |
(3 |
) |
1 |
|
(37 |
) | ||||
Fixed assets |
|
164 |
|
107 |
|
|
|
271 |
| ||||
Goodwill, net |
|
107 |
|
13 |
|
|
|
120 |
| ||||
Other assets |
|
10 |
|
|
|
1 |
|
11 |
| ||||
Long-term employee benefit liabilities |
|
|
|
|
|
(1 |
) |
(1 |
) | ||||
Other long-term liabilities |
|
(5 |
) |
|
|
|
|
(5 |
) | ||||
Deferred tax liabilities |
|
(18 |
) |
(3 |
) |
|
|
(21 |
) | ||||
Non-controlling interests |
|
(116 |
) |
|
|
|
|
(116 |
) | ||||
Consideration paid |
|
130 |
|
115 |
|
1 |
|
246 |
| ||||
Less: Cash acquired |
|
(23 |
) |
(1 |
) |
|
|
(24 |
) | ||||
Net cash outflow |
|
$ |
107 |
|
$ |
114 |
|
$ |
1 |
|
$ |
222 |
|
The Companys purchase price allocations are preliminary and subject to revision as additional information regarding the fair value of assets and liabilities becomes available. Adjustments in the purchase price allocations may require an adjustment to the amounts allocated to goodwill.
Acquisitions in the year ended December 31, 2014
In October 2014, the Company acquired Techform Group of Companies, an automotive supplier of hinges, door locking rods and other closure products, which has operations in Canada, the United States and China, for cash consideration of $23 million.
The net effect of this acquisition on the Companys 2014 consolidated balance sheet were increases in fixed assets of $21 million, goodwill of $3 million, other assets of $4 million, long-term debt of $4 million and deferred tax liabilities of $1 million.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
9. INVENTORIES
Inventories consist of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Raw materials and supplies |
|
$ |
843 |
|
$ |
846 |
|
Work-in-process |
|
246 |
|
233 |
| ||
Finished goods |
|
311 |
|
338 |
| ||
Tooling and engineering |
|
1,164 |
|
1,108 |
| ||
|
|
$ |
2,564 |
|
$ |
2,525 |
|
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.
10. INVESTMENTS
The Companys net income includes the proportionate share of net income or loss of its equity method investees, including the Companys 76% interest in an entity subject to shared control. When a proportionate share of net income is recorded, it increases equity income in the consolidated statements of income and the carrying value of those investments. Conversely, when a proportionate share of a net loss is recorded, it decreases equity income in the consolidated statements of income and the carrying value of those investments. The following is the Companys combined proportionate share of the major components of the financial statements of the entities in which the Company accounts for using the equity method:
Balance Sheets |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Current assets |
|
$ |
491 |
|
$ |
418 |
|
Long-term assets |
|
$ |
343 |
|
$ |
262 |
|
Current liabilities |
|
$ |
392 |
|
$ |
315 |
|
Long-term liabilities |
|
$ |
167 |
|
$ |
123 |
|
|
|
|
|
|
| ||
Statements of Income |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Sales |
|
$ |
1,726 |
|
$ |
1,601 |
|
Cost of goods sold, expenses and income taxes |
|
1,522 |
|
1,396 |
| ||
Net income |
|
$ |
204 |
|
$ |
205 |
|
Sales to equity method investees were approximately $98 million and $116 million in 2015 and 2014, respectively.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
11. FIXED ASSETS
Fixed assets consist of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Cost |
|
|
|
|
| ||
Land |
|
$ |
259 |
|
$ |
266 |
|
Buildings |
|
1,659 |
|
1,653 |
| ||
Machinery and equipment |
|
11,294 |
|
11,003 |
| ||
|
|
13,212 |
|
12,922 |
| ||
Accumulated depreciation |
|
|
|
|
| ||
Buildings |
|
(590 |
) |
(577 |
) | ||
Machinery and equipment |
|
(6,617 |
) |
(6,943 |
) | ||
|
|
$ |
6,005 |
|
$ |
5,402 |
|
Included in the cost of fixed assets are construction in progress expenditures of $1.3 billion [2014 - $942 million] that have not been depreciated.
12. GOODWILL
The following is a continuity of the Companys goodwill by segment:
|
|
North |
|
|
|
|
|
|
| ||||
|
|
America |
|
Europe |
|
Asia |
|
Total |
| ||||
Balance, December 31, 2013 |
|
$ |
654 |
|
$ |
644 |
|
$ |
129 |
|
$ |
1,427 |
|
Acquisitions [note 8] |
|
3 |
|
|
|
|
|
3 |
| ||||
Foreign exchange and other |
|
(24 |
) |
(67 |
) |
(2 |
) |
(93 |
) | ||||
Balance, December 31, 2014 |
|
633 |
|
577 |
|
127 |
|
1,337 |
| ||||
Acquisitions [note 8] |
|
|
|
13 |
|
107 |
|
120 |
| ||||
Foreign exchange and other |
|
(43 |
) |
(65 |
) |
(5 |
) |
(113 |
) | ||||
Balance, December 31, 2015 |
|
$ |
590 |
|
$ |
525 |
|
$ |
229 |
|
$ |
1,344 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
13. INCOME TAXES
[a] The provision for income taxes differs from the expense that would be obtained by applying the Canadian statutory income tax rate as a result of the following:
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
Canadian statutory income tax rate |
|
26.5 |
% |
26.5 |
% |
Manufacturing and processing profits deduction |
|
(0.4 |
) |
(0.4 |
) |
Foreign rate differentials |
|
0.8 |
|
0.5 |
|
Losses not benefited |
|
1.1 |
|
1.2 |
|
Utilization of losses previously not benefited |
|
(0.1 |
) |
(0.2 |
) |
Earnings of equity accounted investees |
|
(0.8 |
) |
(1.0 |
) |
Tax on repatriation of foreign earnings |
|
2.1 |
|
0.7 |
|
Valuation allowance on deferred tax assets [i] |
|
|
|
(0.1 |
) |
Austrian tax reform [ii] |
|
|
|
1.2 |
|
Write off of investment [iii] |
|
(1.4 |
) |
|
|
Research and development tax credits |
|
(1.3 |
) |
(1.6 |
) |
Reserve for uncertain tax positions |
|
(0.3 |
) |
(1.7 |
) |
Others |
|
0.6 |
|
1.1 |
|
Effective income tax rate |
|
26.8 |
% |
26.2 |
% |
[i] GAAP requires 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.
[ii] During 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses, where the foreign subsidiary is not a member of the European Union. Furthermore, any foreign losses previously used by Austrian entities arising in those non European Union subsidiaries are subject to recapture in Austria. As a consequence of this change, the Company recorded a charge to income tax expense of $32 million [Austrian tax reform].
[iii] During 2015, the Company recorded a benefit related to the write-off of historical tax basis in one of its South American subsidiaries.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[b] The details of income before income taxes by jurisdiction are as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
|
|
Canadian |
|
$ |
590 |
|
$ |
821 |
|
Foreign |
|
2,061 |
|
1,784 |
| ||
|
|
$ |
2,651 |
|
$ |
2,605 |
|
[c] The details of the income tax provision are as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Current |
|
|
|
|
| ||
Canadian |
|
$ |
140 |
|
$ |
196 |
|
Foreign |
|
578 |
|
374 |
| ||
|
|
718 |
|
570 |
| ||
Deferred |
|
|
|
|
| ||
Canadian |
|
14 |
|
1 |
| ||
Foreign |
|
(21 |
) |
112 |
| ||
|
|
(7 |
) |
113 |
| ||
|
|
$ |
711 |
|
$ |
683 |
|
[d] Deferred income taxes have been provided on temporary differences, which consist of the following:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Tax depreciation greater than book depreciation |
|
$ |
12 |
|
$ |
40 |
|
Book amortization less than (in excess of) tax amortization |
|
7 |
|
(25 |
) | ||
Liabilities currently not deductible for tax |
|
|
|
20 |
| ||
Net tax losses (benefited) utilized |
|
(13 |
) |
46 |
| ||
Change in valuation allowance on deferred tax assets |
|
(1 |
) |
(3 |
) | ||
Austrian tax reform |
|
|
|
32 |
| ||
Net tax credits utilized |
|
|
|
10 |
| ||
Others |
|
(12 |
) |
(7 |
) | ||
|
|
$ |
(7 |
) |
$ |
113 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[e] Deferred tax assets and liabilities consist of the following temporary differences:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
Tax benefit of loss carryforwards |
|
$ |
614 |
|
$ |
686 |
|
Liabilities currently not deductible for tax |
|
211 |
|
231 |
| ||
Tax credit carryforwards |
|
24 |
|
25 |
| ||
Unrealized loss on cash flow hedges and retirement liabilities |
|
154 |
|
119 |
| ||
Others |
|
16 |
|
12 |
| ||
|
|
1,019 |
|
1,073 |
| ||
Valuation allowance against tax benefit of loss carryforwards |
|
(562 |
) |
(637 |
) | ||
Other valuation allowance |
|
(50 |
) |
(80 |
) | ||
|
|
407 |
|
356 |
| ||
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
| ||
Tax depreciation in excess of book depreciation |
|
249 |
|
212 |
| ||
Tax on undistributed foreign earnings |
|
10 |
|
7 |
| ||
Unrealized gain on cash flow hedges and retirement liabilities |
|
9 |
|
9 |
| ||
|
|
268 |
|
228 |
| ||
|
|
|
|
|
| ||
Net deferred tax assets |
|
$ |
139 |
|
$ |
128 |
|
The net deferred tax assets are presented on the consolidated balance sheet in the following categories:
|
|
2015 |
|
2014 |
| ||
Long-term deferred tax assets |
|
$ |
271 |
|
$ |
220 |
|
Long-term deferred tax liabilities |
|
(132 |
) |
(92 |
) | ||
|
|
$ |
139 |
|
$ |
128 |
|
[f] The Company has provided for deferred income taxes for the estimated tax cost of distributable earnings of its subsidiaries. Deferred income taxes have not been provided on approximately $3.90 billion of undistributed earnings of certain foreign subsidiaries, as the Company has concluded that such earnings should not give rise to additional tax liabilities upon repatriation or are indefinitely reinvested. A determination of the amount of the unrecognized tax liability relating to the remittance of such undistributed earnings is not practicable.
[g] Income taxes paid in cash [net of refunds] were $647 million for the year ended December 31, 2015 [2014 - $527 million].
[h] As of December 31, 2015, the Company had domestic and foreign operating loss carryforwards of $1.92 billion and tax credit carryforwards of $24 million. Approximately $1.25 billion of the operating losses can be carried forward indefinitely. The remaining operating losses and tax credit carryforwards expire between 2016 and 2035.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[i] As at December 31, 2015 and 2014, the Companys gross unrecognized tax benefits were $221 million and $202 million, respectively [excluding interest and penalties], of which $158 million and $177 million, respectively, if recognized, would affect the Companys effective tax rate. The gross unrecognized tax benefits differ from the amount that would affect the Companys effective tax rate due primarily to the impact of the valuation allowance on deferred tax assets. A summary of the changes in gross unrecognized tax benefits is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Balance, beginning of year |
|
$ |
202 |
|
$ |
238 |
|
Increase based on tax positions related to current year |
|
17 |
|
21 |
| ||
Increase (decrease) based on tax positions of prior years |
|
53 |
|
(23 |
) | ||
Settlements |
|
(15 |
) |
(8 |
) | ||
Statute expirations |
|
(20 |
) |
(10 |
) | ||
Foreign currency translation |
|
(16 |
) |
(16 |
) | ||
|
|
$ |
221 |
|
$ |
202 |
|
The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As at December 31, 2015 and 2014, the Company had recorded interest and penalties on the unrecognized tax benefits of $21 million and $24 million, respectively, which reflects recoveries related to changes in its reserves for interest and penalties of $3 million and $18 million, respectively.
The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign tax authorities. During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in several jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits [including interest and penalties] by approximately $50 million, of which $49 million, if recognized, would affect its effective tax rate.
The Company considers its significant tax jurisdictions to include Canada, the United States, Austria, Germany and Mexico. With few exceptions, the Company remains subject to income tax examination in Germany for years after 2007, in Austria for years after 2008, Mexico for years after 2009, and in Canada and the U.S. federal jurisdiction for years after 2011.
14. OTHER ASSETS
Other assets consist of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Preproduction costs related to long-term supply agreements with contractual guarantee for reimbursement |
|
$ |
276 |
|
$ |
243 |
|
Long-term receivables [note 23[c]] |
|
87 |
|
85 |
| ||
Customer relationship intangibles [note 8] |
|
75 |
|
108 |
| ||
Patents and licenses, net |
|
37 |
|
32 |
| ||
Pension overfunded status [note 18[a]] |
|
17 |
|
13 |
| ||
Unrealized gain on cash flow hedges [note 23] |
|
5 |
|
8 |
| ||
Other, net |
|
46 |
|
37 |
| ||
|
|
$ |
543 |
|
$ |
526 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
15. EMPLOYEE EQUITY AND PROFIT PARTICIPATION PROGRAM
During the year ended December 31, 2015, a trust, which exists to make orderly purchases of the Companys shares for employees for transfer to the Employee Equity and Profit Participation Program [EEPPP], borrowed up to $55 million [2014 - $63 million] from the Company to facilitate the purchase of Common Shares. At December 31, 2015, the trusts indebtedness to Magna was $5 million [2014 - $63 million]. The Company nets the receivable from the trust with the Companys accrued EEPPP payable in accrued wages and salaries.
16. WARRANTY
The following is a continuity of the Companys warranty accruals:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Balance, beginning of year |
|
$ |
80 |
|
$ |
81 |
|
Expense, net |
|
26 |
|
46 |
| ||
Settlements |
|
(53 |
) |
(38 |
) | ||
Foreign exchange and other |
|
6 |
|
(9 |
) | ||
|
|
$ |
59 |
|
$ |
80 |
|
17. DEBT AND COMMITMENTS
[a] The Companys long-term debt, which is substantially uncollateralized, consists of the following:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Senior Notes [note 17 [c]] |
|
|
|
|
| ||
$ 750 million Senior Notes due 2024 at 3.625% |
|
$ |
750 |
|
$ |
750 |
|
$ 650 million Senior Notes due 2025 at 4.150% |
|
650 |
|
|
| ||
550 million Senior Notes due 2023 at 1.900% |
|
597 |
|
|
| ||
Cdn$425 million Senior Notes due 2022 at 3.100% |
|
307 |
|
|
| ||
Bank term debt at a weighted average interest rate of approximately 8.1% [2014 8.2%], denominated primarily in Chinese renminbi and Brazilian real |
|
202 |
|
173 |
| ||
Government loans at a weighted average interest rate of approximately 3.7% [2014 5.5%], denominated primarily in euros and Brazilian real |
|
9 |
|
19 |
| ||
Other |
|
42 |
|
53 |
| ||
|
|
2,557 |
|
995 |
| ||
Less due within one year |
|
211 |
|
183 |
| ||
|
|
$ |
2,346 |
|
$ |
812 |
|
[b] Future principal repayments on long-term debt are estimated to be as follows:
2016 |
|
$ |
211 |
|
2017 |
|
23 |
| |
2018 |
|
7 |
| |
2019 |
|
4 |
| |
2020 |
|
1 |
| |
Thereafter |
|
2,311 |
| |
|
|
$ |
2,557 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[c] All of the Senior Notes pay a fixed rate of interest semi-annually except for the 550 million Senior Notes which pay a fixed rate of interest annually. The Senior Notes are unsecured obligations and do not include any financial covenants. The Company may redeem the Senior Notes in whole or in part at any time, at specified redemption prices determined in accordance with the terms of each of the respective indentures governing the Senior Notes. All of the Senior Notes were issued for general corporate purposes.
[d] On April 24, 2015, the Companys $2.25 billion revolving credit facility maturing June 20, 2019 was extended to June 22, 2020. The facility includes a $200 million Asian tranche, a $50 million Mexican tranche and a tranche for Canada, U.S. and Europe, which is fully transferable between jurisdictions and can be drawn in U.S. dollars, Canadian dollars or euros.
[e] Interest expense, net includes:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Interest expense |
|
|
|
|
| ||
Current |
|
$ |
20 |
|
$ |
27 |
|
Long-term |
|
38 |
|
20 |
| ||
|
|
58 |
|
47 |
| ||
Interest income |
|
(14 |
) |
(17 |
) | ||
Interest expense, net |
|
$ |
44 |
|
$ |
30 |
|
[f] Interest paid in cash was $54 million for the year ended December 31, 2015 [2014 - $44 million].
[g] At December 31, 2015, the Company had commitments under operating leases requiring annual rental payments as follows:
|
|
Total |
| |
|
|
|
| |
2016 |
|
$ |
268 |
|
2017 |
|
232 |
| |
2018 |
|
185 |
| |
2019 |
|
161 |
| |
2020 |
|
138 |
| |
Thereafter |
|
283 |
| |
|
|
$ |
1,267 |
|
For the year ended December 31, 2015, operating lease expense was $285 million [2014 - $319 million].
[h] The Company had agreements with its founder and certain affiliated entities for the provision of business development, consulting and other business services which ended on December 31, 2014. The cost of these agreements was measured at the exchange amount. The aggregate amount expensed under these agreements with respect to the year ended December 31, 2014 was $57 million.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
18. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
Long-term employee benefit liabilities consist of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Defined benefit pension plans and other [a] |
|
$ |
181 |
|
$ |
199 |
|
Termination and long service arrangements [b] |
|
287 |
|
313 |
| ||
Retirement medical benefits plans [c] |
|
30 |
|
39 |
| ||
Other long-term employee benefits |
|
6 |
|
8 |
| ||
Long-term employee benefit obligations |
|
$ |
504 |
|
$ |
559 |
|
[a] Defined benefit pension plans
The Company sponsors a number of defined benefit pension plans and similar arrangements for its employees. All pension plans are funded to at least the minimum legal funding requirements, while European defined benefit pension plans are unfunded.
The weighted average significant actuarial assumptions adopted in measuring the Companys obligations and costs are as follows:
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
Projected benefit obligation |
|
|
|
|
|
Discount rate |
|
3.8 |
% |
3.7 |
% |
Rate of compensation increase |
|
2.5 |
% |
2.7 |
% |
|
|
|
|
|
|
Net periodic benefit cost |
|
|
|
|
|
Discount rate |
|
3.7 |
% |
4.7 |
% |
Rate of compensation increase |
|
2.7 |
% |
2.8 |
% |
Expected return on plan assets |
|
5.9 |
% |
6.0 |
% |
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
Information about the Companys defined benefit pension plans is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Projected benefit obligation |
|
|
|
|
| ||
Beginning of year |
|
$ |
536 |
|
$ |
450 |
|
Current service cost |
|
12 |
|
13 |
| ||
Interest cost |
|
18 |
|
20 |
| ||
Actuarial (gains) losses and changes in actuarial assumptions |
|
(18 |
) |
93 |
| ||
Benefits paid |
|
(18 |
) |
(16 |
) | ||
Acquisition |
|
1 |
|
|
| ||
Foreign exchange |
|
(38 |
) |
(24 |
) | ||
End of year |
|
493 |
|
536 |
| ||
|
|
|
|
|
| ||
Plan assets at fair value [i] |
|
|
|
|
| ||
Beginning of year |
|
347 |
|
328 |
| ||
Return on plan assets |
|
7 |
|
25 |
| ||
Employer contributions |
|
19 |
|
24 |
| ||
Benefits paid |
|
(18 |
) |
(16 |
) | ||
Foreign exchange |
|
(29 |
) |
(14 |
) | ||
End of year |
|
326 |
|
347 |
| ||
|
|
|
|
|
| ||
Ending funded status |
|
$ |
167 |
|
$ |
189 |
|
|
|
|
|
|
| ||
Amounts recorded in the consolidated balance sheet |
|
|
|
|
| ||
Non-current asset [note 14] |
|
$ |
(17 |
) |
$ |
(13 |
) |
Current liability |
|
3 |
|
3 |
| ||
Non-current liability |
|
181 |
|
199 |
| ||
Net amount |
|
$ |
167 |
|
$ |
189 |
|
|
|
|
|
|
| ||
Amounts recorded in accumulated other comprehensive loss |
|
|
|
|
| ||
Unrecognized actuarial losses |
|
$ |
(138 |
) |
$ |
(147 |
) |
|
|
|
|
|
| ||
Net periodic benefit cost |
|
|
|
|
| ||
Current service cost |
|
$ |
12 |
|
$ |
13 |
|
Interest cost |
|
18 |
|
20 |
| ||
Return on plan assets |
|
(20 |
) |
(19 |
) | ||
Actuarial losses |
|
4 |
|
1 |
| ||
Net periodic benefit cost |
|
$ |
14 |
|
$ |
15 |
|
[i] The asset allocation of the Companys defined benefit pension plans at December 31, 2015 and the target allocation for 2016 is as follows:
|
|
2016 |
|
2015 |
|
|
|
|
|
|
|
Equity securities |
|
40-80% |
|
58 |
% |
Fixed income securities |
|
30-50% |
|
41 |
% |
Cash and cash equivalents |
|
0-10% |
|
1 |
% |
|
|
100% |
|
100 |
% |
Substantially all of the plan assets fair value has been determined using significant observable inputs (level 2) from indirect market prices on regulated financial exchanges.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
The expected rate of return on plan assets was determined by considering the Companys current investment mix, the historic performance of these investment categories and expected future performance of these investment categories.
[b] Termination and long service arrangements
Pursuant to labour laws and national labour agreements in certain European countries and Mexico, the Company is obligated to provide lump sum termination payments to employees on retirement or involuntary termination, and long service payments contingent upon persons reaching a predefined number of years of service.
The weighted average significant actuarial assumptions adopted in measuring the Companys projected termination and long service benefit obligations and net periodic benefit cost are as follows:
|
|
2015 |
|
2014 |
|
|
|
|
|
|
|
Discount rate |
|
3.1 |
% |
3.0 |
% |
Rate of compensation increase |
|
2.8 |
% |
2.7 |
% |
Information about the Companys termination and long service arrangements is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Projected benefit obligation |
|
|
|
|
| ||
Beginning of year |
|
$ |
323 |
|
$ |
336 |
|
Current service cost |
|
15 |
|
18 |
| ||
Interest cost |
|
8 |
|
11 |
| ||
Actuarial losses and changes in actuarial assumptions |
|
2 |
|
15 |
| ||
Benefits paid |
|
(12 |
) |
(17 |
) | ||
Divestiture |
|
(4 |
) |
|
| ||
Foreign exchange |
|
(37 |
) |
(40 |
) | ||
Ending funded status |
|
$ |
295 |
|
$ |
323 |
|
|
|
|
|
|
| ||
Amounts recorded in the consolidated balance sheet |
|
|
|
|
| ||
Current liability |
|
$ |
8 |
|
$ |
10 |
|
Non-current liability |
|
287 |
|
313 |
| ||
Net amount |
|
$ |
295 |
|
$ |
323 |
|
|
|
|
|
|
| ||
Amounts recorded in accumulated other comprehensive loss |
|
|
|
|
| ||
Unrecognized actuarial losses |
|
$ |
(69 |
) |
$ |
(81 |
) |
|
|
|
|
|
| ||
Net periodic benefit cost |
|
|
|
|
| ||
Current service cost |
|
$ |
15 |
|
$ |
20 |
|
Interest cost |
|
8 |
|
11 |
| ||
Actuarial losses |
|
18 |
|
16 |
| ||
Net periodic benefit cost |
|
$ |
41 |
|
$ |
47 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[c] Retirement medical benefits plans
The Company sponsors a number of retirement medical plans which were assumed on certain acquisitions in prior years. These plans are frozen to new employees and incur no current service costs.
In addition, the Company sponsors a retirement medical benefits plan that was amended during 2009 such that substantially all employees retiring on or after August 1, 2009 no longer participate in the plan.
The weighted average discount rates used in measuring the Companys projected retirement medical benefit obligations and net periodic benefit cost are as follows:
|
|
2015 |
|
2014 |
|
Retirement medical benefit obligations |
|
3.9 |
% |
3.7 |
% |
Net periodic benefit cost |
|
3.7 |
% |
4.5 |
% |
Health care cost inflation |
|
6.5 |
% |
7.0 |
% |
Information about the Companys retirement medical benefits plans are as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Projected benefit obligation |
|
|
|
|
| ||
Beginning of year |
|
$ |
41 |
|
$ |
36 |
|
Interest cost |
|
1 |
|
2 |
| ||
Actuarial (gains) losses and changes in actuarial assumptions |
|
(7 |
) |
5 |
| ||
Benefits paid |
|
(2 |
) |
(2 |
) | ||
Foreign exchange |
|
(1 |
) |
|
| ||
Ending funded status |
|
$ |
32 |
|
$ |
41 |
|
|
|
|
|
|
| ||
Amounts recorded in the consolidated balance sheet |
|
|
|
|
| ||
Current liability |
|
$ |
2 |
|
$ |
2 |
|
Non-current liability |
|
30 |
|
39 |
| ||
Net amount |
|
$ |
32 |
|
$ |
41 |
|
|
|
|
|
|
| ||
Amounts recorded in accumulated other comprehensive loss |
|
|
|
|
| ||
Unrecognized past service costs |
|
$ |
1 |
|
$ |
2 |
|
Unrecognized actuarial gains |
|
11 |
|
4 |
| ||
Total amounts included in accumulated other comprehensive loss |
|
$ |
12 |
|
$ |
6 |
|
|
|
|
|
|
| ||
Net periodic benefit cost |
|
|
|
|
| ||
Interest cost |
|
$ |
2 |
|
$ |
2 |
|
Actuarial gains |
|
|
|
(1 |
) | ||
Past service cost amortization |
|
(1 |
) |
(1 |
) | ||
Net periodic benefit cost |
|
$ |
1 |
|
$ |
|
|
The effect of a one-percentage point increase or decrease in health care trend rates would not have a significant impact on the Companys income.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[d] Future benefit payments
|
|
|
|
Termination |
|
|
|
|
| ||||
|
|
Defined |
|
and long |
|
Retirement |
|
|
| ||||
|
|
benefit |
|
service |
|
medical |
|
|
| ||||
|
|
pension plans |
|
arrangements |
|
benefits plans |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Expected employer contributions - 2016 |
|
$ |
17 |
|
$ |
8 |
|
$ |
2 |
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
| ||||
Expected benefit payments: |
|
|
|
|
|
|
|
|
| ||||
2016 |
|
$ |
17 |
|
$ |
8 |
|
$ |
2 |
|
$ |
27 |
|
2017 |
|
17 |
|
8 |
|
2 |
|
27 |
| ||||
2018 |
|
17 |
|
9 |
|
2 |
|
28 |
| ||||
2019 |
|
18 |
|
12 |
|
2 |
|
32 |
| ||||
2020 |
|
19 |
|
14 |
|
2 |
|
35 |
| ||||
Thereafter |
|
111 |
|
86 |
|
9 |
|
206 |
| ||||
|
|
$ |
199 |
|
$ |
137 |
|
$ |
19 |
|
$ |
355 |
|
19. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Long-term portion of fair value of hedges [note 23] |
|
$ |
152 |
|
$ |
80 |
|
Long-term portion of income taxes payable |
|
131 |
|
144 |
| ||
Asset retirement obligation |
|
26 |
|
26 |
| ||
Long-term lease inducements |
|
19 |
|
24 |
| ||
Deferred revenue |
|
3 |
|
4 |
| ||
|
|
$ |
331 |
|
$ |
278 |
|
20. STOCK-BASED COMPENSATION
[a] Incentive Stock Option Plan
The Company currently has two incentive stock option plans in effect: the 2009 Stock Option Plan, which was adopted by the Companys shareholders on May 6, 2010; and the Amended and Restated Incentive Stock Option Plan [the 1987 Stock Option Plan], which was adopted by shareholders on December 10, 1987, and subsequently amended on May 18, 2000 and May 10, 2007.
Upon adoption of the 2009 Plan, new grants under the 1987 Plan were frozen, but all outstanding options were permitted to continue to vest and be exercisable in accordance with their terms.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
2009 Stock Option Plan
Under the 2009 Stock Option Plan, the Company may grant options to purchase Common Shares to full-time employees and consultants of the Company and its subsidiaries. The maximum number of shares that can be reserved for issuance under the option plan is 32,000,000 shares. The number of shares available to be granted at December 31, 2015 was 12,164,270 [2014 13,586,060]. All options granted are for terms of up to seven years from the grant date. Options issued under the 2009 Option Plan to employees and consultants generally vest as to one-third on each of the first three anniversaries of the date of grant. Performance-vested options are granted to some of the Companys most senior executives, with vesting as to one-sixth, one-third and one-half on the first three anniversaries of the date of grant, subject to satisfaction of a minimum total shareholder return condition. All options allow the holder to purchase Common Shares at a price equal to or greater than the closing market price of such shares on the date prior to the date of the grant.
1987 Stock Option Plan
The Company previously granted options to purchase Common Shares to full-time employees, outside directors or consultants of the Company under the 1987 Stock Option Plan. Upon shareholder approval of the Companys 2009 Stock Option Plan, the 1987 Stock Option Plan was terminated such that no future grants could be made, but previously granted options would continue to vest and be exercisable in accordance with their original terms of grant. All options granted under the 1987 Stock Option Plan are for terms of up to seven years from the grant date. All options allow the holder to purchase Common Shares at a price equal to or greater than the closing market price of such shares on the date prior to the date of the grant or modification.
The following is a continuity schedule of all options outstanding [number of options in the table below are expressed in whole numbers restated [note 3]]:
|
|
Options outstanding |
|
|
| |||
|
|
|
|
Weighted |
|
|
| |
|
|
|
|
average |
|
Number |
| |
|
|
Number |
|
exercise |
|
of options |
| |
|
|
of options |
|
price |
|
exercisable |
| |
|
|
|
|
|
|
|
| |
Outstanding at December 31, 2013 |
|
9,516,216 |
|
Cdn$ |
20.91 |
|
5,694,218 |
|
Granted |
|
1,502,600 |
|
53.36 |
|
|
| |
Exercised |
|
(2,649,160 |
) |
19.92 |
|
(2,649,160 |
) | |
Cancelled |
|
(54,998 |
) |
30.23 |
|
(12,000 |
) | |
Vested |
|
|
|
|
|
1,581,430 |
| |
Outstanding at December 31, 2014 |
|
8,314,658 |
|
Cdn$ |
27.03 |
|
4,614,488 |
|
Granted |
|
1,614,336 |
|
68.24 |
|
|
| |
Exercised |
|
(2,387,032 |
) |
18.17 |
|
(2,387,032 |
) | |
Cancelled |
|
(192,546 |
) |
41.08 |
|
(2 |
) | |
Vested |
|
|
|
|
|
1,965,905 |
| |
Outstanding at December 31, 2015 |
|
7,349,416 |
|
Cdn$ |
38.59 |
|
4,193,359 |
|
The total intrinsic value of options exercised during 2015 was $86 million [2014 - $85 million].
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
At December 31, 2015, the outstanding options consist of [number of options in the table below are expressed in whole numbers]:
|
|
Options outstanding |
| ||||||||
|
|
|
|
Remaining |
|
Number |
| ||||
|
|
Number |
|
contractual |
|
of options |
| ||||
|
|
of options |
|
life [years] |
|
exercisable |
| ||||
|
|
|
|
|
|
|
| ||||
Cdn$10 to $15 |
|
1,000,682 |
|
0.9 |
|
1,000,682 |
| ||||
Cdn$15 to $20 |
|
20,000 |
|
1.4 |
|
20,000 |
| ||||
Cdn$20 to $25 |
|
1,480,560 |
|
3.2 |
|
1,487,226 |
| ||||
Cdn$25 to $30 |
|
1,877,018 |
|
3.8 |
|
1,247,757 |
| ||||
Over Cdn$50 |
|
2,971,156 |
|
5.7 |
|
437,694 |
| ||||
|
|
7,349,416 |
|
|
|
4,193,359 |
| ||||
|
|
|
|
|
|
|
| ||||
Weighted average exercise price |
|
Cdn$ |
38.59 |
|
|
|
Cdn$ |
25.53 |
| ||
Weighted average life remaining [years] |
|
4.03 |
|
|
|
2.94 |
| ||||
Aggregate intrinsic value at December 31, 2015 |
|
$ |
93 |
|
|
|
$ |
93 |
| ||
The weighted average assumptions used in measuring the fair value of stock options granted are as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Risk-free interest rate |
|
0.97% |
|
1.60% |
| ||
Expected dividend yield |
|
2.00% |
|
2.00% |
| ||
Expected volatility |
|
26% |
|
29% |
| ||
Expected time until exercise |
|
4.6 years |
|
4.5 years |
| ||
|
|
|
|
|
| ||
Weighted average fair value of options granted in year [Cdn$] [restated [note 3]] |
|
$ |
12.84 |
|
$ |
11.47 |
|
[b] Long-term retention program
The Company awarded certain executives an entitlement to Common Shares in the form of restricted stock. Such shares become available to the executives, subject to acceleration on death or disability, after an approximate four-year holding period, provided certain conditions are met, and are to be released in equal amounts over a 10-year period, subject to forfeiture under certain circumstances. The stock that has not been released to the executives is reflected as a reduction in the stated value of the Companys Common Shares.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
The 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 Companys Common Shares [number of Common Shares in the table below are expressed in whole numbers restated [note 3]]:
|
|
Number |
|
Stated |
| |
|
|
of shares |
|
value |
| |
|
|
|
|
|
| |
Awarded and not released, December 31, 2013 |
|
1,460,952 |
|
$ |
25 |
|
Release of restricted stock |
|
(286,304 |
) |
(5 |
) | |
Awarded and not released, December 31, 2014 |
|
1,174,648 |
|
20 |
| |
Release of restricted stock |
|
(286,312 |
) |
(4 |
) | |
Awarded and not released, December 31, 2015 |
|
888,336 |
|
$ |
16 |
|
[c] Restricted stock unit program
In a number of different circumstances, the Company awards restricted stock units [RSUs] to certain executives and other employees as part of the Companys compensation program. These RSUs are notional units, each of which is equivalent to one Magna Common Share. In most cases, the RSUs are redeemable solely at the Companys option, either by delivery of the specified number of Common Shares or the cash value on the redemption date [based on the 20-day weighted average trading price]. Redemption of the RSUs generally occurs on December 15 of the second year after the date of grant, subject to earlier redemption or cancellation in specified circumstances. In some cases, RSUs are subject to vesting and other conditions and quarterly dividend equivalents are paid to the grantees.
The Company maintains a Non-Employee Director Share-Based Compensation Plan [DSU Plan] which governs the 60% portion of the annual retainer payable to Independent Directors which is mandatorily deferred in the form of Deferred Share Units [DSUs]. Additionally, each Independent Director may annually elect to defer up to 100% of his or her total annual cash compensation from Magna [including committee retainers, meeting and other fees]. The amounts deferred in the DSU Plan are reflected in DSUs, which are notional units, the value of which increases or decreases in direct relation to the New York Stock Exchange [NYSE] market price of Magna Common Shares. Dividend equivalents are credited on DSUs at the times and in the amounts of dividends that are declared and paid on Magnas Common Shares. All DSUs are fully vested on the date allocated to an Independent Director under the DSU Plan. The DSUs are settled upon an Independent Directors retirement from the Board by delivering Magna Common Shares equal to the whole DSUs credited to the Independent Director.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
The following is a continuity schedule of restricted stock unit programs outstanding [number of stock units in the table below are expressed in whole numbers restated [note 3]]:
|
|
Equity |
|
Liability |
|
Equity |
|
|
|
|
|
classified |
|
classified |
|
classified |
|
|
|
|
|
RSUs |
|
RSUs |
|
DSUs |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
|
1,263,709 |
|
60,238 |
|
254,894 |
|
1,578,841 |
|
Granted |
|
363,053 |
|
18,050 |
|
44,272 |
|
425,375 |
|
Dividend equivalents |
|
1,678 |
|
1,132 |
|
4,095 |
|
6,905 |
|
Forfeitures |
|
|
|
(820 |
) |
|
|
(820 |
) |
Redeemed |
|
(643,162 |
) |
(32,548 |
) |
|
|
(675,710 |
) |
Outstanding at December 31, 2014 |
|
985,278 |
|
46,052 |
|
303,261 |
|
1,334,591 |
|
Granted |
|
356,422 |
|
15,922 |
|
43,955 |
|
416,299 |
|
Dividend equivalents |
|
1,633 |
|
1,094 |
|
5,468 |
|
8,195 |
|
Redeemed |
|
(495,627 |
) |
(28,236 |
) |
|
|
(523,863 |
) |
Outstanding at December 31, 2015 |
|
847,706 |
|
34,832 |
|
352,684 |
|
1,235,222 |
|
[d] Compensation expense related to stock-based compensation
Stock-based compensation expense recorded in selling, general and administrative expenses related to the above programs is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Incentive Stock Option Plan |
|
$ |
12 |
|
$ |
15 |
|
Long-term retention |
|
4 |
|
4 |
| ||
Restricted stock unit |
|
20 |
|
21 |
| ||
Total stock-based compensation expense |
|
$ |
36 |
|
$ |
40 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
21. CAPITAL STOCK
[a] At December 31, 2015, the Companys authorized, issued and outstanding capital stock are as follows:
Preference shares - issuable in series -
The Companys authorized capital stock includes 99,760,000 preference shares, issuable in series. None of these shares are currently issued or outstanding.
Common Shares -
Common Shares without par value [unlimited amount authorized] have the following attributes:
[i] Each share is entitled to one vote per share at all meetings of shareholders.
[ii] Each share shall participate equally as to dividends.
[b] On November 10, 2015, the TSX accepted the Companys Notice of Intention to Make a Normal Course Issuer Bid relating to the purchase for cancellation, as well as purchases to fund the Companys stock-based compensation awards or programs and/or the Companys obligations to its deferred profit sharing plans, of up to 40 million Magna Common Shares [the 2015 Bid], representing 9.9% of the Companys public float of Common Shares. The Bid commenced on November 13, 2015 and will terminate no later than November 12, 2016.
Previously, the Company had Normal Course Issuer Bids in place for the 12 month periods beginning in November 2014 and 2013.
The following is a summary of the Normal Course Issuer Bids [number of shares in the table below are expressed in whole numbers]:
|
|
Maximum |
|
2015 |
|
2014 |
| ||||||
|
|
number |
|
Shares |
|
Cash |
|
Shares |
|
Cash |
| ||
|
|
of shares |
|
purchased |
|
amount |
|
purchased |
|
amount |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
2013 Bid |
|
40,000,000 |
|
|
|
$ |
|
|
30,271,428 |
|
$ |
1,525 |
|
2014 Bid |
|
40,000,000 |
|
8,166,514 |
|
388 |
|
4,798,376 |
|
241 |
| ||
2015 Bid |
|
40,000,000 |
|
2,585,970 |
|
113 |
|
|
|
|
| ||
|
|
|
|
10,752,484 |
|
$ |
501 |
|
35,069,804 |
|
$ |
1,766 |
|
Certain purchases were made by way of private agreements entered into with arms length, third party sellers. Such private agreement purchases were made at a discount to the prevailing market price for the Companys Common Shares and pursuant to issuer bid exemption orders issued by the Ontario Securities Commission. All other 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.
[c] The following table presents the maximum number of shares that would be outstanding if all the dilutive instruments outstanding at March 3, 2016 were exercised or converted:
Common Shares |
|
401,643,203 |
|
Stock options [note 20] |
|
9,117,224 |
|
|
|
410,760,427 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
22. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a continuity schedule of accumulated other comprehensive loss:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Accumulated net unrealized loss on translation of net investment in foreign operations |
|
|
|
|
| ||
Balance, beginning of year |
|
$ |
(255 |
) |
$ |
454 |
|
Net unrealized loss |
|
(798 |
) |
(681 |
) | ||
Repurchase of shares under normal course issuer bids [note 21] |
|
11 |
|
(28 |
) | ||
Balance, end of year |
|
(1,042 |
) |
(255 |
) | ||
|
|
|
|
|
| ||
Accumulated net unrealized loss on cash flow hedges [b] |
|
|
|
|
| ||
Balance, beginning of year |
|
(113 |
) |
(20) |
| ||
Net unrealized loss |
|
(244 |
) |
(103 |
) | ||
Reclassification of net loss to net income [a] |
|
95 |
|
10 |
| ||
Balance, end of year |
|
(262 |
) |
(113 |
) | ||
|
|
|
|
|
| ||
Accumulated net unrealized loss on other long-term liabilities [b] |
|
|
|
|
| ||
Balance, beginning of year |
|
(186 |
) |
(117 |
) | ||
Net unrealized gain (loss) |
|
14 |
|
(72 |
) | ||
Reclassification of net loss to net income [a] |
|
7 |
|
3 |
| ||
Balance, end of year |
|
(165 |
) |
(186 |
) | ||
|
|
|
|
|
| ||
Accumulated net unrealized loss on available-for-sale investments |
|
|
|
|
| ||
Balance, beginning of year |
|
(4 |
) |
(4 |
) | ||
Net unrealized loss |
|
3 |
|
|
| ||
Balance, end of year |
|
(1 |
) |
(4 |
) | ||
|
|
|
|
|
| ||
Total accumulated other comprehensive loss [c] |
|
$ |
(1,470 |
) |
$ |
(558 |
) |
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[a] The effects on net income of amounts reclassified from AOCL, with presentation location, were as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Cash flow hedges |
|
|
|
|
| ||
Sales |
|
$ |
(86 |
) |
$ |
(28 |
) |
Cost of sales |
|
(45 |
) |
17 |
| ||
Interest |
|
(3 |
) |
|
| ||
Income tax |
|
39 |
|
1 |
| ||
Net of tax |
|
(95 |
) |
(10 |
) | ||
|
|
|
|
|
| ||
Other long-term liabilities |
|
|
|
|
| ||
Cost of sales |
|
(9 |
) |
(4 |
) | ||
Income tax |
|
2 |
|
1 |
| ||
Net of tax |
|
(7 |
) |
(3 |
) | ||
|
|
|
|
|
| ||
Total loss reclassified to net income |
|
$ |
(102 |
) |
$ |
(13 |
) |
[b] The amount of income tax benefit that has been allocated to each component of other comprehensive loss is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Accumulated net unrealized loss on cash flow hedges |
|
|
|
|
| ||
Balance, beginning of year |
|
$ |
44 |
|
$ |
4 |
|
Net unrealized loss |
|
92 |
|
41 |
| ||
Reclassification of net loss to net income |
|
(39 |
) |
(1 |
) | ||
Balance, end of year |
|
97 |
|
44 |
| ||
|
|
|
|
|
| ||
Accumulated net unrealized loss on other long-term liabilities |
|
|
|
|
| ||
Balance, beginning of year |
|
36 |
|
14 |
| ||
Net unrealized (gain) loss |
|
(3 |
) |
23 |
| ||
Reclassification of net loss to net income |
|
(2 |
) |
(1 |
) | ||
Balance, end of year |
|
31 |
|
36 |
| ||
|
|
|
|
|
| ||
Total income tax benefit |
|
$ |
128 |
|
$ |
80 |
|
[c] The amount of other comprehensive loss that is expected to be reclassified to net income during 2016 is $185 million.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
23. FINANCIAL INSTRUMENTS
[a] Foreign exchange contracts
At December 31, 2015, the Company had outstanding foreign exchange forward contracts representing commitments to buy and sell various foreign currencies. Significant commitments are as follows:
|
|
For Canadian dollars |
|
For U.S. dollars |
| ||||||||
|
|
U.S. |
|
Weighted |
|
|
|
Weighted |
|
|
|
Weighted |
|
Buy |
|
dollar |
|
average |
|
Euro |
|
average |
|
Peso |
|
average |
|
(Sell) |
|
amount |
|
rate |
|
amount |
|
rate |
|
amount |
|
rate |
|
2016 |
|
276 |
|
1.30051 |
|
44 |
|
1.45543 |
|
4,248 |
|
0.06751 |
|
2016 |
|
(932 |
) |
0.82317 |
|
(11 |
) |
0.67901 |
|
|
|
|
|
2017 |
|
7 |
|
1.23553 |
|
14 |
|
1.44220 |
|
2,689 |
|
0.06269 |
|
2017 |
|
(577 |
) |
0.81685 |
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
780 |
|
0.05619 |
|
2018 |
|
(416 |
) |
0.79299 |
|
|
|
|
|
|
|
|
|
2019 |
|
(278 |
) |
0.78519 |
|
|
|
|
|
|
|
|
|
2020 |
|
(117 |
) |
0.76577 |
|
|
|
|
|
|
|
|
|
|
|
(2,037 |
) |
|
|
47 |
|
|
|
7,717 |
|
|
|
|
|
For euros |
| ||||||||||
|
|
U.S. |
|
Weighted |
|
|
|
Weighted |
|
Czech |
|
Weighted |
|
Buy |
|
dollar |
|
average |
|
GBP |
|
average |
|
koruna |
|
average |
|
(Sell) |
|
amount |
|
rate |
|
amount |
|
rate |
|
amount |
|
rate |
|
2016 |
|
101 |
|
0.87463 |
|
11 |
|
1.40949 |
|
3,377 |
|
0.03709 |
|
2016 |
|
(153 |
) |
1.20933 |
|
(13 |
) |
0.80758 |
|
(2 |
) |
26.84500 |
|
2017 |
|
38 |
|
0.88127 |
|
|
|
|
|
2,168 |
|
0.03720 |
|
2017 |
|
(84 |
) |
1.23216 |
|
(9 |
) |
0.81324 |
|
|
|
|
|
2018 |
|
15 |
|
0.87239 |
|
|
|
|
|
1,031 |
|
0.03774 |
|
2018 |
|
(45 |
) |
1.18114 |
|
(7 |
) |
0.73974 |
|
|
|
|
|
2019 |
|
5 |
|
0.85873 |
|
|
|
|
|
|
|
|
|
2019 |
|
(17 |
) |
1.16813 |
|
(4 |
) |
0.74603 |
|
|
|
|
|
2020 |
|
(2 |
) |
1.17400 |
|
|
|
|
|
|
|
|
|
|
|
(142 |
) |
|
|
(22 |
) |
|
|
6,574 |
|
|
|
Based on forward foreign exchange rates as at December 31, 2015 for contracts with similar remaining terms to maturity, gains of $31 million and losses of $343 million relating to the Companys foreign exchange forward contracts have been recognized in other comprehensive loss [note 22].
The Company does not enter into foreign exchange forward contracts for speculative purposes.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[b] Financial assets and liabilities
The Companys financial assets and liabilities consist of the following:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Trading |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
2,863 |
|
$ |
1,249 |
|
Investment in ABCP |
|
73 |
|
88 |
| ||
Equity investments |
|
4 |
|
|
| ||
|
|
$ |
2,940 |
|
$ |
1,337 |
|
Available-for-sale investments |
|
|
|
|
| ||
Equity investments |
|
$ |
|
|
$ |
5 |
|
|
|
|
|
|
| ||
Held-to-maturity investments |
|
|
|
|
| ||
Severance investments |
|
$ |
3 |
|
$ |
4 |
|
|
|
|
|
|
| ||
Loans and receivables |
|
|
|
|
| ||
Accounts receivable |
|
$ |
5,439 |
|
$ |
5,316 |
|
Long-term receivables included in other assets [note 14] |
|
87 |
|
85 |
| ||
|
|
$ |
5,526 |
|
$ |
5,401 |
|
Other financial liabilities |
|
|
|
|
| ||
Bank indebtedness |
|
$ |
25 |
|
$ |
30 |
|
Long-term debt (including portion due within one year) |
|
2,557 |
|
995 |
| ||
Accounts payable |
|
4,746 |
|
4,765 |
| ||
|
|
$ |
7,328 |
|
$ |
5,790 |
|
Derivatives designated as effective hedges, measured at fair value |
|
|
|
|
| ||
Foreign currency contracts |
|
|
|
|
| ||
Prepaid expenses and other |
|
$ |
27 |
|
$ |
21 |
|
Other assets |
|
4 |
|
8 |
| ||
Other accrued liabilities |
|
(191 |
) |
(90 |
) | ||
Other long-term liabilities |
|
(152 |
) |
(80 |
) | ||
|
|
(312 |
) |
(141 |
) | ||
Commodity contracts |
|
|
|
|
| ||
Other accrued liabilities |
|
|
|
(1 |
) | ||
|
|
$ |
(312 |
) |
$ |
(142 |
) |
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[c] Derivatives designated as effective hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges at gross fair value in the consolidated balance sheets. However, master netting and other similar arrangements allow net settlements under certain conditions. The following table shows the Companys derivative foreign currency contracts at gross fair value as reflected in the consolidated balance sheets and the unrecognized impact of master netting arrangements:
|
|
Gross |
|
Gross |
|
|
| |||
|
|
amounts |
|
amounts |
|
|
| |||
|
|
presented |
|
not offset |
|
|
| |||
|
|
in consolidated |
|
in consolidated |
|
Net |
| |||
|
|
balance sheets |
|
balance sheets |
|
amounts |
| |||
|
|
|
|
|
|
|
| |||
December 31, 2015 |
|
|
|
|
|
|
| |||
Assets |
|
$ |
31 |
|
$ |
30 |
|
$ |
1 |
|
Liabilities |
|
$ |
(343 |
) |
$ |
(30 |
) |
$ |
(313 |
) |
|
|
|
|
|
|
|
| |||
December 31, 2014 |
|
|
|
|
|
|
| |||
Assets |
|
$ |
29 |
|
$ |
28 |
|
$ |
1 |
|
Liabilities |
|
$ |
(170 |
) |
$ |
(28 |
) |
$ |
(142 |
) |
[d] Fair value
The Company determined the estimated fair values of its financial instruments based on valuation methodologies it believes are appropriate; however, considerable judgment is required to develop these estimates. Accordingly, these estimated fair values are not necessarily indicative of the amounts the Company could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of financial instruments are described below:
Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable.
Due to the short period to maturity of the instruments, the carrying values as presented in the consolidated balance sheets are reasonable estimates of fair values.
Investments
At December 31, 2015, the Company held Canadian third party ABCP with a face value of Cdn$107 million [2014 - Cdn$107 million]. The carrying value and estimated fair value of this investment was Cdn$101 million [2014 - Cdn$102 million]. As fair value information is not readily determinable for the Companys investment in ABCP, the fair value was based on a valuation technique estimating the fair value from the perspective of a market participant.
Term debt
The Companys term debt includes $211 million due within one year. Due to the short period to maturity of this debt, the carrying value as presented in the consolidated balance sheet is a reasonable estimate of its fair value.
Senior Notes
At December 31, 2015, the net book value of the Companys Senior Notes was $2.30 billion and the total estimated fair value of the Senior Notes was approximately $2.31 billion, determined primarily using active market prices, categorized as Level 1 inputs within the Accounting Standards Codification 820 fair value hierarchy.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[e] Credit risk
The Companys financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, held-to-maturity investments and foreign exchange and commodity forward contracts with positive fair values.
Cash and cash equivalents, which consist 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 the year ended December 31, 2015, sales to the Companys six largest customers represented 83% [2014 - 83%] of the Companys total sales; and substantially all of its sales are to customers in which the Company has ongoing contractual relationships.
[f] Currency risk
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, and 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 employs hedging programs, primarily through the use of foreign exchange forward contracts [note 23[a]].
[g] Interest rate risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. In particular, the amount of interest income earned on cash and cash equivalents is impacted more by investment decisions made and the demands to have available cash on hand, than by movements in interest rates over a given period.
In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on these instruments are fixed.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
24. CONTINGENCIES
From time to time, the Company may become involved in regulatory proceedings, or become liable for legal, contractual and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others. On an ongoing basis, the Company attempts to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, together with potential ranges of probable costs and losses. A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue. The required provision may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
[a] In 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. In February 2016, a consent order was granted allowing the Plaintiffs to file a fresh statement of claim which includes an additional remedy and reduces certain aggravated and punitive damages claimed. The fresh 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 plaintiffs exclusive entitlement to certain airbag technologies in North America pursuant to an exclusive licence agreement [the 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;
· inducement by the Company of a breach of the Licence Agreement by TRW;
· 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 Companys sale to TRW of its interest in MST Automotive GmbH and TEMIC Bayern-Chemie Airbag GmbH; and
· oppression by the defendants.
The plaintiffs are seeking, amongst other things, damages of approximately Cdn$2.56 billion. Document production, completion of undertakings and examinations for discovery are substantially complete, although limited additional examinations for discovery are expected to occur. A trial is not expected to commence until 2017. The Company believes it has valid defences to the plaintiffs claims and therefore intends to continue to vigorously defend this case. 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.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[b] In September 2013, representatives of the Bundeskartellamt, the German Federal Cartel Office, attended at one of the Companys operating divisions in Germany to obtain information in connection with an ongoing antitrust investigation relating to suppliers of automotive textile coverings and components, particularly trunk linings. In January 2016, the German Federal Cartel Office closed its investigation without taking any action against the Company or any of its operating divisions.
In September 2014, the Conselho Administrativo de Defesa Economica, Brazils Federal competition authority, attended at one of the Companys operating divisions in Brazil to obtain information in connection with an ongoing antitrust investigation relating to suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years. Where wrongful conduct is found, the relevant antitrust authority can, depending on the jurisdiction, initiate administrative or criminal legal proceedings and impose administrative or criminal fines or penalties taking into account several mitigating and aggravating factors. At this time, management is unable to predict the duration or outcome of the Brazilian investigation, including whether any operating divisions of the Company will be found liable for any violation of law or the extent or magnitude of any liability, if found to be liable.
The Companys policy is to comply with all applicable laws, including antitrust and competition laws. The Company has initiated a global review focused on antitrust risk led by a team of external counsel. If any antitrust violation is found as a result of the above-referenced investigations or otherwise, Magna could be subject to fines, penalties and civil, administrative or criminal legal proceedings that could have a material adverse effect on Magnas profitability in the year in which any such fine or penalty is imposed or the outcome of any such proceeding is determined. Additionally, Magna could be subject to other consequences, including reputational damage, which could have a material adverse effect on the Company.
[c] 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 16]; 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 customers warranty experience.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
25. SEGMENTED INFORMATION
[a] Magna is a global automotive supplier whose product capabilities include producing body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing.
Magnas success is directly dependent upon the levels of North American and European [and currently to a lesser extent on Asia and Rest of World] car and light truck production by its customers. OEM production volumes in each of North America and Europe may be impacted by a number of geographic factors, including general economic conditions, interest rates, consumer credit availability, fuel prices and availability, infrastructure, legislative changes, environmental emission and safety issues, and labour and/or trade relations.
Given the differences between the regions in which the Company operates, Magnas operations are segmented on a geographic basis. The Companys segments consist of North America, Europe, Asia and Rest of World. The Company maintains management teams in each of the Companys two primary markets, North America and Europe. The role of the North American and European management teams is to manage Magnas interests to ensure a coordinated effort across the Companys different product capabilities. In addition to maintaining key customer, supplier and government contacts in their respective markets, the regional management teams centrally manage key aspects of the Companys operations while permitting the divisions enough flexibility through Magnas decentralized structure to foster an entrepreneurial environment.
Consistent with the above, the Companys internal financial reporting separately segments key internal operating performance measures between North America, Europe, Asia and Rest of World for purposes of presentation to the chief operating decision maker to assist in the assessment of operating performance, the allocation of resources, and the long-term strategic direction and future global growth in the Company.
The Companys 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, 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.
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
The following tables show certain information with respect to segment disclosures:
|
|
2015 |
| |||||||||||||||||||
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
Fixed |
|
Fixed |
| |||||||
|
|
Total |
|
External |
|
and |
|
Adjusted |
|
|
|
asset |
|
assets, |
| |||||||
|
|
sales |
|
sales |
|
amortization |
|
EBIT [ii] |
|
Goodwill |
|
additions |
|
net |
| |||||||
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Canada |
|
$ |
6,329 |
|
$ |
5,856 |
|
|
|
|
|
|
|
$ |
242 |
|
$ |
647 |
| |||
United States |
|
9,603 |
|
9,183 |
|
|
|
|
|
|
|
421 |
|
1,431 |
| |||||||
Mexico |
|
4,261 |
|
3,869 |
|
|
|
|
|
|
|
233 |
|
756 |
| |||||||
Eliminations |
|
(1,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
North America |
|
19,015 |
|
18,908 |
|
$ |
411 |
|
$ |
1,934 |
|
$ |
590 |
|
896 |
|
2,834 |
| ||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Western Europe (excluding Great Britain) |
|
8,936 |
|
8,635 |
|
|
|
|
|
|
|
357 |
|
1,279 |
| |||||||
Great Britain |
|
404 |
|
404 |
|
|
|
|
|
|
|
26 |
|
145 |
| |||||||
Eastern Europe |
|
2,110 |
|
1,873 |
|
|
|
|
|
|
|
112 |
|
474 |
| |||||||
Eliminations |
|
(327 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Europe |
|
11,123 |
|
10,912 |
|
276 |
|
451 |
|
525 |
|
495 |
|
1,898 |
| |||||||
Asia |
|
1,981 |
|
1,846 |
|
77 |
|
149 |
|
229 |
|
121 |
|
820 |
| |||||||
Rest of World |
|
461 |
|
461 |
|
17 |
|
(25 |
) |
|
|
15 |
|
54 |
| |||||||
Corporate and Other [i] |
|
(446 |
) |
7 |
|
21 |
|
20 |
|
|
|
64 |
|
399 |
| |||||||
Total reportable segments |
|
$ |
32,134 |
|
$ |
32,134 |
|
$ |
802 |
|
$ |
2,529 |
|
$ |
1,344 |
|
$ |
1,591 |
|
$ |
6,005 |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
11,144 |
| |||||||
Investments, goodwill, deferred tax assets and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,557 |
| |||||||
Consolidated total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,706 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
|
|
2014 |
| |||||||||||||||||||
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
Fixed |
|
Fixed |
| |||||||
|
|
Total |
|
External |
|
and |
|
Adjusted |
|
|
|
asset |
|
assets, |
| |||||||
|
|
sales |
|
sales |
|
amortization |
|
EBIT [ii] |
|
Goodwill |
|
additions |
|
net |
| |||||||
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Canada |
|
$ |
6,799 |
|
$ |
6,324 |
|
|
|
|
|
|
|
$ |
204 |
|
$ |
638 |
| |||
United States |
|
9,194 |
|
8,666 |
|
|
|
|
|
|
|
328 |
|
1,204 |
| |||||||
Mexico |
|
3,984 |
|
3,653 |
|
|
|
|
|
|
|
153 |
|
626 |
| |||||||
Eliminations |
|
(1,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
North America |
|
18,761 |
|
18,643 |
|
$ |
407 |
|
$ |
2,003 |
|
$ |
633 |
|
685 |
|
2,468 |
| ||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Western Europe (excluding Great Britain) |
|
11,086 |
|
10,794 |
|
|
|
|
|
|
|
334 |
|
1,302 |
| |||||||
Great Britain |
|
385 |
|
384 |
|
|
|
|
|
|
|
13 |
|
36 |
| |||||||
Eastern Europe |
|
2,397 |
|
2,102 |
|
|
|
|
|
|
|
80 |
|
498 |
| |||||||
Eliminations |
|
(366 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Europe |
|
13,502 |
|
13,280 |
|
327 |
|
502 |
|
577 |
|
427 |
|
1,836 |
| |||||||
Asia |
|
1,919 |
|
1,773 |
|
71 |
|
150 |
|
127 |
|
140 |
|
648 |
| |||||||
Rest of World |
|
695 |
|
694 |
|
17 |
|
(35 |
) |
|
|
8 |
|
82 |
| |||||||
Corporate and Other [i] |
|
(474 |
) |
13 |
|
23 |
|
61 |
|
|
|
234 |
|
368 |
| |||||||
Total reportable segments |
|
$ |
34,403 |
|
$ |
34,403 |
|
$ |
845 |
|
$ |
2,681 |
|
$ |
1,337 |
|
$ |
1,494 |
|
$ |
5,402 |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,862 |
| |||||||
Investments, goodwill, deferred tax assets and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,462 |
| |||||||
Noncurrent assets held for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
348 |
| |||||||
Consolidated total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,074 |
|
[i] Included in Corporate and Other Adjusted EBIT are intercompany fees charged to the automotive segments.
[ii] The following table reconciles Adjusted EBIT to Income from operations before income taxes:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Adjusted EBIT |
|
$ |
2,529 |
|
$ |
2,681 |
|
Other income (expense), net |
|
166 |
|
(46 |
) | ||
Interest expense, net |
|
(44 |
) |
(30 |
) | ||
Income from continuing operations before income taxes |
|
$ |
2,651 |
|
$ |
2,605 |
|
MAGNA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
[b] The following table aggregates external revenues by customer as follows:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
General Motors |
|
$ |
6,424 |
|
$ |
6,361 |
|
Fiat / Chrysler Group |
|
5,094 |
|
5,505 |
| ||
Ford Motor Company |
|
4,923 |
|
4,660 |
| ||
Daimler AG |
|
3,779 |
|
4,009 |
| ||
Volkswagen |
|
3,301 |
|
3,872 |
| ||
BMW |
|
3,300 |
|
4,153 |
| ||
Other |
|
5,313 |
|
5,843 |
| ||
|
|
$ |
32,134 |
|
$ |
34,403 |
|
[c] The following table summarizes external revenues generated by automotive products and services:
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Body systems and chassis systems |
|
$ |
7,790 |
|
$ |
8,078 |
|
Exterior systems |
|
5,155 |
|
5,435 |
| ||
Powertrain systems |
|
4,755 |
|
5,083 |
| ||
Seating systems |
|
4,497 |
|
4,969 |
| ||
Tooling, engineering and other |
|
2,700 |
|
2,755 |
| ||
Vision and electronic systems |
|
2,583 |
|
2,518 |
| ||
Complete vehicle assembly |
|
2,357 |
|
3,160 |
| ||
Closure systems |
|
2,297 |
|
2,405 |
| ||
|
|
$ |
32,134 |
|
$ |
34,403 |
|
26. SUBSEQUENT EVENT
Acquisition of Getrag
In the third quarter of 2015, the Company signed an agreement to acquire 100% of the common shares and voting interest of the Getrag Group of Companies [Getrag]. Getrag is a global supplier of automotive transmission systems including manual, automated-manual, dual clutch, hybrid and other advanced systems. The transaction was completed on January 4, 2016.
The total consideration transferred by the Company was approximately 1.75 billion in cash, and is subject to working capital and other customary purchase price adjustments. The acquisition of Getrag will be accounted for as a business combination under the acquisition method of accounting. The Company will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. Due to the limited amount of time since the acquisition date, the preliminary acquisition valuation for the business combination is incomplete at this time. As a result, the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.
MAGNA INTERNATIONAL INC.
Supplementary Financial and Share Information
FINANCIAL SUMMARY
(US dollars in millions, except per share figures)
(unaudited)
Years ended December 31, |
|
2015 |
|
2014 |
|
2013 |
|
2012* |
|
2011* |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
32,134 |
|
34,403 |
|
32,538 |
|
30,837 |
|
28,748 |
|
Depreciation and amortization |
|
802 |
|
845 |
|
1,019 |
|
801 |
|
686 |
|
Net income attributable to Magna International Inc. from continuing operations |
|
1,946 |
|
1,924 |
|
1,530 |
|
1,433 |
|
1,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per Common share from continuing operations |
|
4.72 |
|
4.44 |
|
3.31 |
|
3.05 |
|
2.10 |
|
Weighted average number of Common shares outstanding - Diluted |
|
412.7 |
|
433.2 |
|
461.6 |
|
470.4 |
|
485.6 |
|
Cash dividends paid per share |
|
0.88 |
|
0.76 |
|
0.64 |
|
0.55 |
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operations |
|
2,332 |
|
2,822 |
|
2,502 |
|
2,206 |
|
1,210 |
|
Capital expenditures |
|
1,591 |
|
1,495 |
|
1,094 |
|
1,274 |
|
1,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
3,868 |
|
2,236 |
|
2,613 |
|
2,451 |
|
2,422 |
|
Fixed assets, net |
|
6,005 |
|
5,402 |
|
5,189 |
|
5,273 |
|
4,236 |
|
Total assets |
|
19,706 |
|
18,074 |
|
18,024 |
|
17,109 |
|
14,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
2,346 |
|
812 |
|
102 |
|
112 |
|
46 |
|
Shareholders equity |
|
9,117 |
|
8,673 |
|
9,639 |
|
9,458 |
|
8,202 |
|
Long-term debt to equity ratio |
|
0.26:1 |
|
0.09:1 |
|
0.01:1 |
|
0.01:1 |
|
0.01:1 |
|
All amounts are from continuing operations except noted below.
* 2011 and 2012 figures have not been restated to reflect discontinued operations.
Share Information
The Common Shares are listed and traded in Canada on the Toronto Stock Exchange (TSX) under the stock symbol MG and in the United States on the New York Stock Exchange (NYSE) under the stock symbol MGA. As of February 29, 2016, there were 1,433 registered holders of Common Shares.
Distribution of Shares held by Registered Shareholders
|
|
Common Shares |
|
|
|
|
|
Canada |
|
81.62 |
% |
United States |
|
18.28 |
% |
Other |
|
0.10 |
% |
Dividends
Dividends for 2015 on Magnas Common Shares were paid on each of March 27, June 12, September 11 and December 11 at a rate of U.S.$0.22. Magnas dividends have been designated as eligible dividends as defined in subsection 89(1) of the Income Tax Act (Canada) and, accordingly, are eligible for an enhanced tax credit. Additional details are found on Magnas website (www.magna.com), under Investors - Shareholder Information Dividends & Interest.
Price Range of Shares
The following table sets forth, for the years indicated, the high and low sales prices and volumes of Common Shares traded in each case as reported by the TSX and NYSE, respectively.
Common Shares (TSX) (Cdn$)
|
|
Year ended December 31, 2015 |
|
Year ended December 31, 2014 |
| ||||||||
Quarter |
|
Volume |
|
High |
|
Low |
|
Volume |
|
High |
|
Low |
|
1st |
|
34,520,227 |
|
69.71 |
* |
64.62 |
|
33,243,962 |
|
108.96 |
|
85.08 |
|
2nd |
|
58,550,351 |
|
74.24 |
|
60.80 |
|
25,916,641 |
|
118.24 |
|
101.72 |
|
3rd |
|
73,070,176 |
|
74.50 |
|
56.49 |
|
28,974,256 |
|
125.39 |
|
105.70 |
|
4th |
|
69,201,347 |
|
71.10 |
|
55.96 |
|
38,720,355 |
|
127.96 |
|
92.89 |
|
Common Shares (NYSE) (US$)
|
|
Year ended December 31, 2015 |
|
Year ended December 31, 2014 |
| ||||||||
Quarter |
|
Volume |
|
High |
|
Low |
|
Volume |
|
High |
|
Low |
|
1st |
|
45,981,685 |
|
55.61 |
* |
45.28 |
|
39,989,432 |
|
89.30 |
|
87.83 |
|
2nd |
|
88,723,846 |
|
59.42 |
|
50.33 |
|
33,380,501 |
|
102.52 |
|
100.78 |
|
3rd |
|
114,082,297 |
|
57.62 |
|
42.77 |
|
30,578,436 |
|
110.53 |
|
108.91 |
|
4th |
|
114,739,117 |
|
53.89 |
|
40.31 |
|
43,333,349 |
|
111.94 |
|
82.42 |
|
* Price adjusted to reflect a two-for-one stock split implemented on March 25, 2015
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