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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 2015
Commission File Number 001-11444
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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)
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Indicate
by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
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.
If
"Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
82-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
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MAGNA INTERNATIONAL INC.
(Registrant) |
Date: March 27,
2015
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By: |
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/s/ BASSEM A. SHAKEEL
Bassem A. Shakeel,
Vice-President and Corporate Secretary
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EXHIBITS
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Exhibit 22.1 |
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Notice of Annual Meeting of Shareholders of the Registrant to be held on May 7, 2015 in Toronto, Ontario, Canada, and Management Information Circular/Proxy Statement. |
Exhibit 22.2 |
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Form of Proxy for Common Shares |
Exhibit 23 |
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Consent of Deloitte LLP |
Exhibit 99.1 |
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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, 2014. |
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SIGNATURES
EXHIBITS
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Exhibit
22.1
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MANAGEMENT
PROXY
CIRCULAR
Annual
Meeting May 7, 2015
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Corporate Governance We believe that strong corporate governance
practices are essential to fostering stakeholder trust and confidence,
management accountability and long-term shareholder value. Accordingly, our
current corporate governance practices reflect virtually all best practices
recognized in Canada. Majority Voting
Annual Say on Pay Vote Disclosure
Active Shareholder Engagement Independent Board Chair
Diverse, Independent Board Professionalized
Director Recruitment Restrictions on Interlocks
Minimum Director Attendance Annual Board Assessment
Robust Director Share Maintenance Oversight of Strategy,
Capital Allocation,Succession, Risk Management 91% Board Independence 1:1
Share Vote 100% Committee
Independence William Young, Board
Chair Magnas governance now ranks among the best in Canada and the
Boards commitment to the implementation of best practices has been solidly
endorsed by shareholders.
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2014 Highlights
Last year was another year of record fi nancial and operating results for
Magna. In addition, Magna reinvested a record amount in our business while
also returning $2.1 billion to shareholders. In light of the company's strong
performance, the Board declared a record fourth quarter dividend, which was
16% higher than the prior quarter. Refl ecting the Board's optimism for the
future, the Board also announced a two-for-one stock split which was
completed on March 25, 2015. Magna continued to make progress in the
implementation of its strategic plan, including further refi nement of its
product portfolio and achievement of productivity, effi ciency and other
operational improvements. Importantly, the Board adopted a new process
relating to long-term incentive grants, which directly connects a key
component of executive compensation with implementation of the Board-approved
strategic plan. Based in part on feedback received from shareholders, regular
time-vested stock options were replaced with performancevested stock options
for the company's most senior executives. Lastly, 2014 was notable for
recognition of Magna's achievements, including numerous customer awards, as
well as Donald Walker being named as Canada's 2014 Outstanding CEO of the Year.
Shares repurchased Returned to shareholders dividends Returned to
shareholders share repurchases 17.5M $316M $1.8B
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Nominees
Nominees for Election to the Board 64 Average Age (Years) 0 Interlocks 4.6
Average Tenure (Years) The Board believes that the 11 nominees to be
individually elected at the Meeting possess a diverse range of skills,
experience and backgrounds which will enable the Board to function
effectively. Each nominee has agreed to abide by our majority voting policy.
91% Independent Directors 100% 99% Board/Committee Attendance 2014 Average
Votes FOR PETER G. BOWIE Independent Age: 68 Joined: 2012 Other Boards: 1 DR.
INDIRA V. SAMARASEKERA Independent Age: 62 Joined: 2014 Other Boards: 1 HON.
J. TREVOR EYTON Independent Age: 80 Joined: 2010 Other Boards: 4 DONALD J.
WALKER Management Age: 58 Joined: 2005 Other Boards: 0 V. PETER HARDER
Independent Age: 62 Joined: 2012 Other Boards: 4 LAWRENCE D. WORRALL
Independent Age: 71 Joined: 2005 Other Boards: 0 LADY BARBARA JUDGE
Independent Age: 68 Joined: 2007 Other Boards: 2 WILLIAM L. YOUNG Independent
Age: 60 Joined: 2011 Other Boards: 0 CHAIRMAN CEO DR. KURT J. LAUK
Independent Age: 68 Joined: 2011 Other Boards: 2 SCOTT B. BONHAM Independent
Age: 53 Joined: 2012 Other Boards: 0 CYNTHIA A. NIEKAMP Independent Age: 55
Joined: 2014 Other Boards: 0 27% Female Directors
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Performance
Compensation Global light vehicle production grew once again in 2014, driving
our sales up 5% to a record $36.6 billion. This is the fifth straight yearly
increase following the 2008/2009 recession. Adjusted EBIT, which we believe
is the most appropriate measure of operating profitability or loss for our
reporting segments, increased 27% to $2.63 billion, Return on Funds Employed
increased by 27% and Diluted EPS increased 29% to $8.69. Magna's 46.7% total
shareholder return (TSX) and 34.4% (NYSE) placed it in the 95th percentile
compared to the S&P/TSX60 and 93rd percentile compared to the S&P500,
respectively. Magna's approach to compensation reflects the company's
entrepreneurial corporate culture. The executive compensation program
includes belowmarket base salaries, annual profit-based incentives, a portion
of which is deferred and paid in the form of shares, as well as long-term
incentives in the form of stock options. The program does not include
pensions or other retirement benefits for executives. Magna's compensation
system generates pay outcomes which are strongly aligned with the company's
performance and most shareholders agree over 82% of the votes cast on our
2014 Say on Pay resolution were in favour. 2014 COMPENSATION CHANGES Performance-adjusted
option pool directly tied to achievement of strategic priorities
Performance-vested stock options options only vest if relative TSR >
60th percentile 95th Percentile TSR vs S&P/TSX60 93rd Percentile TSR vs
S&P500 $36.6B +5% Sales $8.69 28.5% +29% Diluted EPS +27% ROFE $2.63B
+27% Adjusted EBIT FEATURES Minimal fixed compensation Significant
compensation "at risk" No pensions or retirement benefits Robust
share maintenance requirements Post-retirement hold-backs Clawbacks Anti-hedging
restrictions No tax gross-ups Limited perks 2 yrs. maximum severance Double-trigger
change in control with no enhanced severance Compensation risk management
This is a very tough industry and Magna's success is a direct reflection of
an exceptional executive team. William Young, Chairman
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Chairman's
Letter Notice of Annual Meeting Meeting Information Voting Information 2 How
to Vote Your Shares 3 Business of the Meeting 6 Nominees for Election to the
Board 12 Director Compensation 23 Corporate Governance Corporate Governance
Overview 28 Report of the Audit Committee 42 Report of the Corporate
Governance, Compensation and Nominating Committee 45 Report of the Enterprise
Risk Oversight Committee 48 Performance CGCNC Compensation and Performance
Report 52 Compensation Compensation Discussion & Analysis 60 Summary
Compensation Table 85 Incentive Plans and Awards 87 Additional Information
Interests of Management and Other Insiders in Certain Transactions 92
Additional Information 92 Defi nitions and Interpretation 94 Table of
Contents 27 51 59
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Magna International Inc.
337 Magna Drive
Aurora, Ontario, Canada L4G 7K1
Telephone: (905) 726-2462
Legal Fax: (905) 726-7164 |
March 25, 2015
Dear
Fellow Shareholder,
Magna
is an exceptional company a Canadian-based global innovation and manufacturing leader, a valued supplier to every major automobile assembler, an
employer of choice for over 130,000 dedicated people around the globe, a governance leader and a good corporate citizen committed to the many communities in which we operate. While
the Board has long recognized the many factors which make Magna exceptional, we are delighted to know that many others share our view. In November, Magna's CEO, Don Walker, was named
Canada's 2014 Outstanding CEO of the Year. Given that the judging panel considered factors such as Magna's corporate performance, global competitiveness and innovative
achievements, in addition to Don's vision, leadership and commitment to social responsibility, the award is a testament not just to Don's abilities, but to the success of the company, its
entire Management team and every one of the company's employees.
Last
year, you elected a diverse Board consisting of eleven directors. The following were some of the key topics on which we were focused in 2014, as well as some of the specific
accomplishments in these areas:
Long-term strategy Magna continues to execute on its long-term strategy, including with respect to
product portfolio, innovation, geographic diversification, World Class Manufacturing and capital structure. In order to better link executive compensation with the achievement of
the company's strategic objectives, we adopted a new process that performance-adjusts the long-term incentive award pool based on the Board's evaluation of Management's performance in
achieving strategic priorities and milestones. You can read more about this new process in Section B of the CD&A in the accompanying proxy circular.
Capital Structure the company is progressing in making Magna's balance sheet more efficient. We have
communicated our intent to achieve a target Adjusted Debt to Adjusted EBITDAR ratio of 1.0x to 1.5x by the end of 2015 and the company returned $2.1 billion of capital to shareholders
through dividends and share repurchases, issued $750 million of senior subordinated notes in June 2014 and continues to pursue M&A opportunities with the aim of achieving our
target leverage ratio by the end of this year.
Shareholder Engagement and Executive Compensation as a Board, we believe active shareholder engagement
is very important and we continued to engage during 2014 to understand your perspectives on key issues. The CGCNC Compensation and Performance Report in the Circular includes some of the key
messages we have heard through our engagement, as well as the actions we have taken in response to your feedback. A substantial majority of shareholders have indicated support for Magna's
approach to executive compensation, which features low base salaries and bonuses tied directly to Magna's profitability, but does not include pensions or retirement benefits. Nevertheless,
some shareholders encouraged us to consider introducing a relative performance metric to further align pay and performance. Section B of the CD&A in the accompanying proxy circular
includes a description of a performance-vested stock option program the Board implemented in place of time-vested stock options for our top executives.
Succession Planning the Board recognizes that a sustainable pipeline of talented employees is critical
to Magna's ability to succeed in the long-term. For this reason, the Board dedicated significant time to assessing the company's leading managerial talent and monitoring the company's
broad-based leadership development system, which currently includes around 4,000 employees. As a Board, we are comfortable that the company's short and long-term succession plans are
appropriate.
Risk Management we see risk and reward as being "flip sides of the same coin". No company can achieve
long-term reward without taking risks, but the risks must be reasonable. The Board and its Committees continue to engage with Management and oversee risk mitigation efforts in various
important areas, including operations, IT and cyber security, occupational health and safety, environmental practices, as well as legal and regulatory compliance.
Overall,
2014 was another outstanding year for Magna you can read about the company's financial and operational performance in the company's annual
report. The Board is very pleased with such performance and recently increased the quarterly dividend in respect of the fourth quarter of 2014 by 16%. We also implemented a two-for-one stock
split on March 25, 2015, reflecting our continued optimism in Magna's future.
On
May 7, 2015, Magna will hold its 2015 annual meeting of shareholders in Toronto, Canada. In connection with the annual meeting, we are seeking your support in re-electing the
Board's eleven directors, reappointing Deloitte LLP as Magna's external auditor and approving our annual advisory vote on executive compensation. The accompanying proxy circular
contains details on how you can vote, each of the items to be voted on and other important information which you should consider when voting your shares. Your vote is important and we
encourage you to vote in one of the ways detailed in the proxy circular.
Sincerely,
William L. Young
Chairman
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: |
Thursday, May 7, 2015 |
Time: |
10:00 a.m. (Toronto time) |
Place: |
The Westin Prince
900 York Mills Road
Toronto, Ontario
Canada |
The Meeting is being held to:
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receive Magna's consolidated financial statements and the independent auditors' report thereon for the fiscal year ended December 31, 2014; |
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elect eleven directors; |
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reappoint Deloitte LLP as our independent auditors and authorize the Audit Committee to fix the independent auditors' remuneration; |
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vote, in an advisory, non-binding manner, on Magna's approach to executive compensation described in the accompanying Management Information Circular/Proxy Statement; and |
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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 24, 2015, 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 5, 2015. 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.
A
live webcast of the Meeting will also be available through Magna's website at www.magna.com.
Accompanying
this Notice of Annual 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.
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/s/ "Bassem A. Shakeel" |
March 25, 2015 |
BASSEM A. SHAKEEL |
Aurora, Ontario |
Vice-President and Corporate Secretary |
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Voting
Information 2 How to Vote Your Shares 3 Business of the Meeting 6 Nominees
for Election to the Board 12 Director Compensation 23 Meeting Information
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Management Information Circular/Proxy Statement
This Circular is being provided to you in connection with the Annual Meeting of Magna's shareholders (the "Meeting"), which
will be held on Thursday, May 7, 2015 commencing at 10:00 a.m. (Toronto time) at The Westin Prince, 900 York Mills Road, Toronto, Ontario, Canada.
Voting Information
Record Date |
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March 24, 2015 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 |
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As of the Record Date, 205,258,333 Magna Common Shares were issued and outstanding. Each Magna Common Share is entitled to one vote. |
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Effective March 25, 2015, Magna's Common Shares will be split on a two-for-one basis. All references in this Circular to a number of shares or options reflects the pre-stock split number of shares or options. |
Principal Shareholders |
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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 (18 persons) owned beneficially or exercised control or direction over 1,169,977 Common Shares representing approximately 0.6% 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 10,451,763 Magna Common Shares
representing approximately 5.1% 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. |
2 Meeting
Information
How To Vote Your Shares
Your Vote Is Important |
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Your vote is important. Please read the information below to ensure your shares are properly voted. |
Registered vs. Non-Registered Shareholder |
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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". |
Proxies Are Being Solicited by Management |
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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. |
Proxy Solicitor Kingsdale |
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Magna has also retained Kingsdale to solicit shareholder proxies in connection with the Meeting. Kingsdale will be paid a fixed fee of C$21,500 plus out-of-pocket expenses, plus a "per call" fee of C$8.00 for each telephone call made by shareholders
to Kingsdale or by Kingsdale to shareholders in connection with the solicitation. 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 |
Meeting Information 3
These securityholder materials are being sent to both registered
and non-registered owners of Magna Common Shares.
HOW TO VOTE
REGISTERED SHAREHOLDERS
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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:
phone
internet
mail
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 5, 2015. 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; and
FOR the advisory resolution to accept the approach to executive compensation disclosed in this Circular.
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.
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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:
phone
internet
mail
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 4, 2015. 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". |
4 Meeting
Information
HOW TO VOTE
REGISTERED SHAREHOLDERS (cont'd)
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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 5, 2015 (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 5, 2015 (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 6, 2015
(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 Chairman of the Meeting, at or prior to the commencement of
the Meeting (including in the case of any adjournment or postponement of the Meeting). |
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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 5, 2015.
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. |
Meeting Information 5
Business of the Meeting
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Purpose of the Meeting |
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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, 2014; |
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2. elect eleven 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; and |
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5. 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. |
1. Financial Statements |
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Magna's consolidated financial statements and the independent auditors' report thereon for the fiscal year ended December 31, 2014 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. |
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. |
|
|
Board Size and Term
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 eleven and
the CGCNC believes that to be an appropriate size.
Each director is elected for a one-year term expiring at our next annual meeting of shareholders. |
6 Meeting
Information
|
|
Minimum Qualifications for Service as a Director of Magna |
|
|
We believe it is essential that the Board consists of directors who represent a diversity of skills, personal experience and backgrounds which will assist the Board in fulfilling its duties. Additionally, under our Board Charter each director must
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. |
|
|
2015 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
V. Peter Harder
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 2014 annual meeting of shareholders. On average, the nominees received 99% support from shareholders at our 2014 annual meeting of shareholders. None of our directors
serve together on any other boards, nor do any serve together on any board with a member of Magna's Management.
Refer to "Nominees for Election to the Board" for further information regarding the skills, expertise and other relevant information which you should consider in casting your vote for each nominee.
2015 Nomination Process
In recommending to the Board all eleven such nominees, 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 2014 annual meeting;
feedback from shareholders and shareholder representative organizations; and
feedback from the Board's independent advisors and other third parties. |
|
|
|
Meeting Information 7
|
|
CGCNC / Board Recommendation |
|
|
The CGCNC and the Board are confident that each of the eleven nominees:
has skills, experience and expertise that provide the Board with the necessary insight to effectively carry out its mandate;
exceeds the other minimum requirements set out in the Board Charter; and
will, if elected, provide responsible oversight as stewards of the corporation, together with prudent oversight of Management. |
|
|
Accordingly, 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.
|
|
|
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. |
|
|
Individual Elections, Majority Voting and Disclosure of Voting Results |
|
|
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. |
|
|
|
8 Meeting
Information
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. Deloitte performed reviews of Magna's interim consolidated financial statements for the first, second and third quarters
of 2014, and audited Magna's consolidated financial statements for the fiscal year ended December 31, 2014.
Services Provided by Deloitte
Deloitte provides Magna with four types of services: |
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 fees
incurred in connection with the audit of our internal control over financial reporting for purposes of Section 404 of the Sarbanes-Oxley Act of 2002. |
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 2014 consisted of: assurance services and procedures related to issuance of a comfort letter for a prospectus
supplement. |
Tax Services: |
|
services performed by Deloitte's tax professionals, except those services required in order to comply with the standards of the PCAOB which are included under "Audit Services". Tax services include tax compliance, tax planning and tax advice. The tax
services actually provided by Deloitte in respect of 2014 consisted of: domestic and international tax advisory, compliance and research services, as well as transfer pricing advisory services. |
Other Permitted Services: |
|
all permitted services not falling under any of the previous categories. |
|
|
|
Meeting Information 9
|
|
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 2014: |
|
|
|
|
|
|
|
|
2014 |
|
|
|
TYPE OF SERVICES
|
|
FEES
($) |
|
% OF TOTAL
|
|
Audit |
|
11,500,000 |
|
90.7 |
|
Audit-related |
|
99,000 |
|
0.8 |
|
Tax |
|
1,075,000 |
|
8.5 |
|
Other Permitted |
|
4,000 |
|
|
|
Total |
|
12,678,000 |
|
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 2014. |
|
|
Audit Committee Recommendation |
|
|
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.
|
|
|
Unless otherwise instructed, the persons designated in the form of proxy or Voting Instruction Form intend to vote FOR the resolution reappointing Deloitte. |
|
|
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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10 Meeting
Information
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." |
|
|
Our approach to executive compensation is set out in detail in the CGCNC Compensation and Performance Report and the Compensation Discussion & Analysis in this Circular. Included in the CGCNC 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. |
|
|
We most recently held an advisory vote on executive compensation at our May 8, 2014 annual meeting of shareholders. The say on pay resolution was supported by a significant majority (82%) of the votes cast on the resolution. In the
months which followed our 2014 say on pay vote, our Chairman engaged in discussions with a number of institutional shareholders, including some of those which were believed to have voted against our say on pay resolution. |
|
|
The CGCNC has carefully evaluated the feedback received from shareholders and has made further changes to our executive compensation system, including replacing time-vested stock options with performance-vested stock options for some of our most
senior executives. These changes are described in the CGCNC Compensation and Performance Report section of the Circular. Both the CGCNC and the Board as a whole believe that Magna's approach to executive compensation continues to be core to the
company's culture and prospects for future success, just as it has been critical to the company's historical success. |
|
|
Board Recommendation |
|
|
In light of all of the foregoing, the Board of Directors unanimously recommends that shareholders vote FOR the resolution relating to Magna's approach to executive compensation.
|
|
|
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. |
|
|
The Board will continue to monitor developments and evolving best practices and will continue to engage with shareholders, both at the request of shareholders and on the Board's own initiative, in order to understand their perspectives on various
matters of relevance to the company. |
Meeting Information 11
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:
-
- Accounting/Audit: accounting and audit expertise are valued in order to enable the Board to oversee Management's handling
of
financial and financial reporting matters, including by: critically assessing Magna's financial performance and projections; understanding the company's critical accounting policies, as well as
technical issues relevant to the internal and external audit; and evaluating the robustness of the company's internal controls.
-
- Automotive: as substantially all of Magna's business is derived from sales within the automotive
industry, the CGCNC seeks
candidates who possess a solid understanding of industry dynamics on a global and regional basis, preferably gained through management or board service with the company's customers, suppliers or
competitors. Automotive expertise also serves to align the Board with one of Magna's key strategic priorities achieving World Class Manufacturing excellence on
a consistent basis, globally. From time to time, we may also consider candidates with experience in capital-intensive manufacturing industries, since the experience gained in such industries is
typically applicable to the automotive industry.
-
- Emerging Markets: the CGCNC values candidates who have a track record of success in markets other than
North America and
Western Europe, since much of our and the automotive industry's growth is forecast to be in such markets. Priority markets include China, Brazil and India, but the automotive industry continues to
grow in other markets such as Indonesia, Thailand and Turkey, as well as various countries in Eastern Europe.
-
- Finance/Financial Advisory: while we generally seek to ensure that all candidates have a baseline level
of financial
literacy, we value candidates who have experience in senior financial roles and/or in financial advisory roles. Such experience enhances the Board's oversight of financial performance, assists it in
its assessment of strategic opportunities and risks and allows it to more effectively address issues relevant to capital and capital structure.
-
- Governance/Board: in light of the competing demands of stakeholders and the increasingly complex
governance environment in
which public companies operate, the CGCNC values candidates who possess a sophisticated understanding of corporate governance practices and norms, and/or board expertise.
-
- Large Cap Company: while experience with companies of different scale can be valuable, the CGCNC seeks
candidates who have
board, management and/or other applicable experience with companies that have a market capitalization in excess of $10 billion. Magna's own market capitalization as of the date of this
Circular is over $20 billion and the CGCNC's prioritization of large cap company experience reflects the fact that companies of such size face different challenges and opportunities than small
and mid-cap companies.
12 Meeting
Information
-
- Legal/Regulatory/Public Policy: Magna operates in, and is required to comply with, the laws of dozens of countries around
the
world. Candidates who possess an understanding of different legal systems and regulatory perspectives are valued by the CGCNC since such experiences assist the Board in more effectively carrying out
its compliance oversight responsibilities. Additionally, the CGCNC values candidates with experience in relevant areas of government and public policy to support the Board in understanding the
regulatory trends shaping the automotive industry and assessing the company's strategic response to such trends.
-
- Mergers & Acquisitions ("M&A"): the CGCNC views board-level M&A expertise as
critical to the Board's ability to
effectively fulfill its oversight responsibilities relating to corporate strategy, particularly since Magna intends to pursue strategic M&A opportunities in certain automotive product areas.
-
- R&D/Innovation/Technology: Magna has a long history of developing and bringing to market innovative
automotive products and
manufacturing techniques which have been significant contributors to the company's historic success. The CGCNC seeks candidates with technological expertise and skill to support the Board in assessing
Magna's efforts to build upon its technological advantages and thus further enhance long-term value. Board-level expertise and skill in technology/innovation also serves to align the Board with one of
Magna's key strategic priorities innovation.
-
- Risk Management: the CGCNC seeks candidates with practical expertise in enterprise risk management
frameworks, systems,
processes, tools and techniques, to assist the Board in understanding and assessing the risks and opportunities faced by the company generally, including those inherent in its strategic plan.
-
- Senior/Executive Leadership: the CGCNC seeks business and other leaders who have demonstrated
leadership, mature judgment,
operating success and an understanding of complex organizations in progressively challenging roles. Such individuals are believed to provide the most effective counsel to Management, as well as
critical oversight on behalf of stakeholders.
-
- Strategy Development: recognizing the importance of the Board's oversight role with respect to
corporate strategy, the CGCNC
seeks candidates who possess board, senior management and/or other experience in strategy development or analysis.
-
- Talent Management/Compensation: the CGCNC values candidates with hands-on roles in developing, managing,
compensating and
motivating employees. Such skills and experience assist the Board in fulfilling its responsibility to ensure that the company maintains effective incentive programs which attract, motivate and retain
top talent, while at the same time reinforcing the company's strategic priorities. Talent management and compensation expertise also serve to align the Board with one of Magna's key strategic
priorities leadership development/succession planning.
Meeting Information 13
A
skills matrix showing the skills, expertise and qualifications for each of the nominees is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott B. Bonham |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
MBA |
|
Peter G. Bowie |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
|
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
FCA, MBA |
|
Hon. J. Trevor Eyton |
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
JD |
|
V. Peter Harder |
|
|
|
|
|
/*/ |
|
|
|
/*/ |
|
|
|
/*/ |
|
|
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
MA |
|
Lady Barbara Judge |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
JD |
|
Dr. Kurt J. Lauk |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
MBA, PhD |
|
Cynthia A. Niekamp |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
MBA |
|
Dr. Indira V. Samarasekera |
|
|
|
|
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
|
|
|
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
PhD, PEng |
|
Lawrence D. Worrall |
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
|
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
|
|
CMA |
|
William L. Young |
|
|
|
|
|
|
|
/*/ |
|
/*/ |
|
|
|
|
|
/*/ |
|
|
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
MBA, PEng |
|
Donald J. Walker |
|
|
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
|
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
/*/ |
|
PEng |
|
Nominee Independence
Ten out of eleven, or 91%, 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
|
|
|
|
|
|
|
|
|
Scott B. Bonham |
|
ü |
|
|
|
No material relationship |
|
Peter G. Bowie |
|
ü |
|
|
|
No material relationship |
|
Hon. J. Trevor Eyton |
|
ü |
|
|
|
No material relationship |
|
V. Peter Harder |
|
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 |
|
Lawrence D. Worrall |
|
ü |
|
|
|
No material relationship |
|
William L. Young |
|
ü |
|
|
|
No material relationship |
|
Donald J. Walker |
|
|
|
ü |
|
Management |
|
14 Meeting
Information
Director 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. During 2014, directors achieved 100% attendance at all Board and applicable Committee meetings, as set forth below.
|
|
|
BOARD (6 meetings) |
|
AUDIT(2) (7 meetings) |
|
CGCNC(2) (11 meetings) |
|
EROC(2) (5 meetings) |
|
TOTAL |
|
|
|
NOMINEE(1) |
|
# |
|
% |
|
# |
|
% |
|
# |
|
% |
|
# |
|
% |
|
# |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott B. Bonham |
|
6/6 |
|
100 |
|
7/7 |
|
100 |
|
|
|
|
|
5/5 |
|
100 |
|
18/18 |
|
100 |
|
Peter G. Bowie |
|
6/6 |
|
100 |
|
7/7 |
|
100 |
|
|
|
|
|
|
|
|
|
13/13 |
|
100 |
|
Hon. J. Trevor Eyton |
|
6/6 |
|
100 |
|
|
|
|
|
11/11 |
|
100 |
|
|
|
|
|
17/17 |
|
100 |
|
V. Peter Harder |
|
6/6 |
|
100 |
|
|
|
|
|
11/11 |
|
100 |
|
5/5 |
|
100 |
|
22/22 |
|
100 |
|
Lady Barbara Judge |
|
6/6 |
|
100 |
|
|
|
|
|
|
|
|
|
5/5 |
|
100 |
|
11/11 |
|
100 |
|
Dr. Kurt J. Lauk |
|
6/6 |
|
100 |
|
7/7 |
|
100 |
|
|
|
|
|
|
|
|
|
13/13 |
|
100 |
|
Cynthia A. Niekamp |
|
3/3 |
|
100 |
|
|
|
|
|
|
|
|
|
3/3 |
|
100 |
|
6/6 |
|
100 |
|
Dr. Indira V. Samarasekera |
|
3/3 |
|
100 |
|
|
|
|
|
4/4 |
|
100 |
|
|
|
|
|
7/7 |
|
100 |
|
Lawrence D. Worrall |
|
6/6 |
|
100 |
|
7/7 |
|
100 |
|
|
|
|
|
5/5 |
|
100 |
|
18/18 |
|
100 |
|
William L. Young |
|
6/6 |
|
100 |
|
|
|
|
|
11/11 |
|
100 |
|
|
|
|
|
17/17 |
|
100 |
|
Donald J. Walker |
|
6/6 |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6/6 |
|
100 |
|
Notes:
- 1.
- For
the dates on which each Nominee served on the Board Committees, refer to the Committee Reports under "Corporate Governance" below.
- 2.
- Attendance
figures for Audit, CGCNC and EROC include only those directors who served as members of such committees during 2014.
2014 Annual Meeting Vote Results
Each of the eleven nominees who was elected at our 2014 annual meeting of shareholders received a substantial majority of votes "for"
his or her election, as set forth in the table below.
|
|
|
2014 |
|
|
|
|
|
VOTES FOR
(%) |
|
VOTES WITHHELD
(%) |
|
|
|
|
|
|
Scott B. Bonham |
|
99.5 |
|
0.5 |
|
Peter G. Bowie |
|
99.9 |
|
0.1 |
|
Hon. J. Trevor Eyton |
|
98.9 |
|
1.1 |
|
V. Peter Harder |
|
97.8 |
|
2.2 |
|
Lady Barbara Judge |
|
99.3 |
|
0.7 |
|
Dr. Kurt J. Lauk |
|
99.4 |
|
0.6 |
|
Cynthia A. Niekamp |
|
99.9 |
|
0.1 |
|
Dr. Indira V. Samarasekera |
|
99.9 |
|
0.1 |
|
Donald J. Walker |
|
99.8 |
|
0.2 |
|
Lawrence D. Worrall |
|
99.8 |
|
0.2 |
|
William L. Young |
|
99.5 |
|
0.5 |
|
Meeting Information 15
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:
-
- Deferred Share Units ("DSUs"): 60% of the Independent Director annual retainer is paid in the form of DSUs. DSUs are
notional
units, the value of which is tied to the market value of our Common Shares. The value represented by an Independent Director's DSUs can only be realized following his or her retirement from the Board
and remains "at risk" until that time.
-
- Equity Maintenance Requirement: Each Independent Director other than the Chairman is required to hold a
minimum of $750,000
of Magna Common Shares and/or DSUs within five years of joining the Board. The Chairman is required to hold a minimum of $1,500,000 of Magna Common Shares and/or DSUs within three years of becoming
Chairman.
Each
of Magna's nominees is in compliance with the minimum equity maintenance requirement and many exceed it. New directors are entitled to a five year period in which to accumulate the minimum
required value of Common Shares and/or DSUs.
The
eleven nominees held Magna Common Shares and/or DSUs with the following total value, as of December 31, 2014:
|
|
|
COMMON SHARES
|
|
DSUS
|
|
TOTAL EQUITY "AT RISK"(1)
($)
|
|
EQUITY MAINTENANCE
REQUIREMENT
|
|
|
|
|
|
|
|
|
|
|
Scott B. Bonham |
|
|
|
12,713 |
|
1,382,000 |
|
Exceeds |
|
Peter G. Bowie |
|
3,500 |
|
10,790 |
|
1,553,000 |
|
Exceeds |
|
Hon. J. Trevor Eyton |
|
|
|
11,808 |
|
1,283,000 |
|
Exceeds |
|
V. Peter Harder |
|
|
|
12,117 |
|
1,317,000 |
|
Exceeds |
|
Lady Barbara Judge |
|
4,000 |
|
47,854 |
|
5,636,000 |
|
Exceeds |
|
Dr. Kurt J. Lauk |
|
|
|
7,974 |
|
867,000 |
|
Exceeds |
|
Cynthia A. Niekamp |
|
500 |
|
792 |
|
140,000 |
|
Complies |
|
Dr. Indira V. Samarasekera |
|
|
|
1,980 |
|
215,000 |
|
Complies |
|
Donald J. Walker |
|
479,114 |
|
159,174 |
(2) |
69,376,000 |
|
Exceeds |
|
Lawrence D. Worrall |
|
6,814 |
|
22,373 |
|
3,172,000 |
|
Exceeds |
|
William L. Young |
|
930 |
|
27,271 |
|
3,065,000 |
|
Exceeds |
|
Notes:
- 1.
- In
calculating the value of total equity at risk, we have used the closing price of Magna Common Shares on NYSE on December 31, 2014.
- 2.
- Represents
Mr. Walker's RSUs, as discussed further in the Compensation Discussion & Analysis section of this Circular.
16 Meeting
Information
Biographies of 2015 Nominees
Scott B. Bonham |
Independent |
|
|
California, U.S.A.
Age: 53
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 Co-Founder of GGV Capital, an expansion stage venture capital firm with investments in the U.S. and China. 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. Mr. Bonham has a B.Sc in electrical engineering (Queen's) and an MBA (Harvard). |
|
|
|
|
Other Public Company Boards: None |
Peter G. Bowie |
Independent |
|
|
Ontario, Canada
Age: 68
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 17
Hon. J. Trevor Eyton |
Independent |
|
|
Ontario, Canada
Age: 80
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); Ivernia Inc. (Compensation
(Chair)); Cancana Resources Corp. (Audit, Compensation & Governance); and Brookfield Real Estate Services Inc. (Compensation and Governance) |
V. Peter Harder |
Independent |
|
|
Ontario, Canada
Age: 62
Director Since:
May 10, 2012 |
|
Mr. Harder brings to the Board a Canadian-centred, globally-aware perspective which draws upon his extensive experience in foreign affairs and international trade. In particular, he possesses a valuable
understanding of the workings of China's political establishment, as well as its economic drivers, in addition to Canada-China trade and investment issues. Mr. Harder also brings demonstrated expertise regarding compensation issues and
compensation governance.
Mr. Harder is Senior Policy Advisor to Dentons LLP since 2007. He possesses extensive expertise in public policy as a result of his involvement in decision-making within the Government of Canada for over thirty years. Prior to joining
Dentons, Mr. Harder was a long serving Deputy Minister in the Government of Canada, having first been appointed as Deputy Minister in 1991 and serving as the most senior public servant in a number of federal departments including Treasury Board,
Solicitor General, Citizenship and Immigration, Industry and Foreign Affairs and International Trade until 2007. While Deputy Minister of Foreign Affairs, Mr. Harder served as the first co-chair of the Canada-China Strategic Working Group which
had been established by the Canadian and Chinese governments to make recommendations on improving trade and investment flows between Canada and China. Mr. Harder currently serves as the President of the Canada-China Business Council (since 2008)
and as Vice-Chairman of the Canadian Defence and Foreign Affairs Institute. Mr. Harder has a B.A. (Waterloo) as well as an M.A. (Queen's) and has received an honorary doctorate in law (Waterloo). |
|
|
|
|
Other Public Company Boards*: Northland Power Corporation (Compensation (Chair); Audit); Power Financial Corporation (Related Party & Conduct Review
(Chair); Compensation); IGM Financial Corporation (Executive Committee; Community Affairs; Investment; Compensation); Energizer Resources Corporation |
- *
- Mr. Harder
was a director of Arise Technologies Corporation ("Arise") until June 24, 2011. Arise was deemed to have made an assignment into bankruptcy on
April 11, 2012.
18 Meeting
Information
Lady Barbara Judge |
Independent |
|
|
London, England
Age: 68
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. Effective May 1, 2015, Lady Judge assumes 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) and was a director of the Energy Group of the United Kingdom's Department of
Trade and Industry (from 2002 to 2004). In addition, Lady Judge formerly served as a Commissioner of the U.S. Securities Exchange Commission, Deputy Chairman of the U.K. Financial Reporting Council and Co-Chairman of the U.K./U.S. Task
Force on Corporate Governance. 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). |
|
|
|
|
Other Public Company Boards: Bekaert NV (Audit & Finance; Nomination); Portmeirion Group plc (Audit; Compensation) |
Dr. Kurt J. Lauk |
Independent |
|
|
Baden-Württemberg, Germany
Age: 68
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*: Ciber Inc. (Audit); Solera Holdings Inc. (Audit; Corporate Governance) |
- *
- Dr. Lauk
was a director of Papierfabrik Scheuffelen GmbH, a private company, when it filed for bankruptcy protection under German law on July 17, 2008.
Meeting Information 19
Cynthia A. Niekamp |
Independent |
|
|
Michigan, U.S.A.
Age: 55
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 the Senior Vice-President, Automotive Coatings, of PPG Industries, Inc. She possesses over 30 years of automotive and other industrial manufacturing experience through her current and prior roles at PPG (since 2009);
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). Ms. Niekamp is a fellow of
the National Association of Corporate Directors.
Ms. Niekamp's current employer, PPG Industries, is a supplier to Magna, with global sales to Magna of approximately $75 million on consolidated sales of over $15 billion. Given the immateriality of such sales to both Magna and PPG, the
CGCNC believes that Ms. Niekamp's employment by PPG does not affect her independence as a director of Magna. In the event of a potential conflict of interest arising on any matter, Ms. Niekamp 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 2014. Other Public Company Boards: None |
- *
- Ms. Niekamp
served as a director of Delphi Corporation from October 2003 until July 2005. On October 8, 2005, Delphi filed a voluntary petition for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. On October 11, 2005, the NYSE suspended trading in Delphi's securities, which were subsequently delisted on
November 11, 2005.
Dr. Indira V. Samarasekera |
Independent |
|
|
Alberta, Canada
Age: 62
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 remains one of the
company's top priorities.
Dr. Samarasekera currently serves as the President and Vice-Chancellor of the University of Alberta (since 2005), for the second of two terms which will end in June 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). Under her leadership, the University of Alberta has built strong international partnerships, including with the Helmholtz Association of
German Research Centres, the Li Ka Shing Foundation, as well as the Indian Institutes of Technology Bombay, Delhi and Roorkee. Additionally, during Dr. Samarasekera's Presidency at the University of Alberta, she has overseen the
completion of $1.5 billion in capital construction, including the National Institute for Nanotechnology. 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. and appointed as a Fellow of the Canadian Academy of Engineering.
Dr. Samarasekera serves as a director at the Bank of Nova Scotia. The Bank of Nova Scotia provides routine banking services to Magna in Canada. Magna's fees to the Bank of Nova Scotia in 2014 amounted to $2.1 million, in relation
to the bank's total 2014 revenues of over $23.6 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 2014. Other Public Company Boards: Bank of Nova Scotia (Human Resources; Corporate Governance) |
20 Meeting
Information
Donald J. Walker |
Management |
|
|
Ontario, Canada
Age: 58
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. In November 2014, Mr. Walker was named Canada's
2014 Outstanding CEO of the Year.
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 |
Lawrence D. Worrall |
Independent |
|
|
Ontario, Canada
Age: 71
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 |
Meeting Information 21
William L. Young |
Independent |
|
|
Massachusetts, U.S.A.
Age: 60
Director Since:
May 4, 2011 |
|
Mr. Young, the Chairman of the Board, 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 |
- *
- Mr. Young
was a director of American Fiber & Yarns and Recycled Paper Greetings, both of which were private companies, when they filed voluntary petitions for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code on September 23, 2008 and January 2, 2009, respectively.
22 Meeting
Information
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:
-
- Annual Retainer: Since 2008, this retainer has been fixed at $150,000, of which $90,000 or 60% is automatically deferred
until retirement in the form of DSUs and $60,000 or 40% is paid in cash. In addition to the portion automatically deferred in the form of DSUs, Independent Directors may defer up to 100% of their cash
compensation in the form of DSUs.
-
- Board Chair Retainer: The Chairman is paid a flat annual retainer of $500,000 for all work performed in
any capacity other
than as a special committee chair. Of such amount, $300,000 or 60% is automatically deferred in the form of DSUs and $200,000 or 40% is paid in cash, subject to the Chairman's election to defer up to
100% of his cash compensation in the form of DSUs.
-
- Committee Chair and Committee Member Retainers: In recognition of the additional workload of our
Committee Chairs and
Committee members, additional retainers are paid to each Independent Director acting in any such capacity. These retainers are set at $25,000 for each standing Board Committee. In the case of special
committees which may be formed from time to time, the retainer is set at $25,000, unless otherwise determined by the Board. Committee Chair retainers are payable in cash, subject to an Independent
Director's election to defer up to 100% of his or her cash compensation in the form of DSUs.
-
- Meeting and Work Fees: Meeting and work fees are intended to compensate Independent Directors based on
their respective
contributions of time and effort to Magna matters. The amounts of these fees are listed in the fee schedule below and are payable in cash, subject to an Independent Director's election to defer up to
100% of his or her cash compensation in the form of DSUs.
The
CGCNC has responsibility for reviewing Independent Director compensation and typically reviews it approximately every two years. 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 are higher than
those
Meeting Information 23
of
the S&P/TSX60 peer group, Magna falls within the competitive norms of both peer groups. Hugessen also noted that Magna's Independent Directors have 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 their review, Hugessen concluded that there was no need at the present time to
modify Magna's Independent Director compensation. The CGCNC agreed with Hugessen's conclusion and chose to leave 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 |
|
2014 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, 2014.
|
|
|
FEES
EARNED(1) |
|
SHARE-
BASED
AWARDS(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAME |
|
($) |
|
% OF
FEES |
|
($) |
|
% OF
FEES |
|
OPTION-
BASED
AWARDS
($) |
|
NON-EQUITY
INCENTIVE PLAN
COMPENSATION
($) |
|
PENSION
VALUE
($) |
|
ALL
OTHER(3)
($) |
|
TOTAL
($) |
|
Scott B. Bonham |
|
NIL |
|
|
|
319,000 |
|
100% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
319,000 |
|
Peter G. Bowie |
|
NIL |
|
|
|
252,000 |
|
100% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
252,000 |
|
Hon. J. Trevor Eyton |
|
66,000 |
|
30% |
|
156,000 |
|
70% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
222,000 |
|
V. Peter Harder |
|
NIL |
|
|
|
289,000 |
|
100% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
289,000 |
|
Lady Barbara Judge |
|
NIL |
|
|
|
269,000 |
|
100% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
269,000 |
|
Dr. Kurt J. Lauk |
|
44,000 |
|
17% |
|
222,000 |
|
83% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
266,000 |
|
Cynthia A. Niekamp |
|
100,000 |
|
63% |
|
58,000 |
|
37% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
158,000 |
|
Dr. Indira V. Samarasekara |
|
|
|
|
|
160,000 |
|
100% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
160,000 |
|
Lawrence D. Worrall |
|
212,000 |
|
70% |
|
90,000 |
|
30% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
302,000 |
|
William L. Young |
|
200,000 |
|
40% |
|
300,000 |
|
60% |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
500,000 |
|
Notes:
- 1.
- Consists
of all retainers and fees paid to the director in cash. NIL indicates that 100% of the retainers and fees earned were deferred in the form of DSUs.
- 2.
- Consists
of retainers and fees deferred in the form of DSUs pursuant to the DSU Plan (as defined under "Deferred Share Units").
24 Meeting
Information
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, 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
10,000 previously granted options are fully vested and remain unexercised. Such options expire in May 2017.
Outstanding Option-Based & Share-Based Awards
Outstanding option-based and share-based awards (DSUs) for each of our Independent Directors as of December 31, 2014 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)
($) |
|
Scott B. Bonham |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
1,332,000 |
|
Peter G. Bowie |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
1,129,000 |
|
Hon. J. Trevor Eyton |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
1,250,000 |
|
V. Peter Harder |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
1,267,000 |
|
Lady Barbara Judge |
|
10,000 |
|
35.98 |
|
05/09/17 |
|
775,000 |
|
NIL |
|
NIL |
|
5,151,000 |
|
Dr. Kurt J. Lauk |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
828,000 |
|
Cynthia A. Niekamp |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
64,000 |
|
Dr. Indira V. Samarasekera |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
172,000 |
|
Lawrence D. Worrall |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
2,398,000 |
|
William L. Young |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
2,889,000 |
|
Notes:
- 1.
- Determined
using the closing price of Magna Common Shares on the TSX on December 31, 2014 and the BoC noon spot rate on such date, since these options are denominated
in C$.
- 2.
- Represents
the value of Independent Directors' DSUs based on the closing price of Magna Common Shares on the NYSE on December 31, 2014.
Meeting Information 25
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, 2014 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 |
|
336,000 |
|
NIL |
|
Peter G. Bowie |
|
NIL |
|
266,000 |
|
NIL |
|
Hon. J. Trevor Eyton |
|
NIL |
|
172,000 |
|
NIL |
|
V. Peter Harder |
|
NIL |
|
304,000 |
|
NIL |
|
Lady Barbara Judge |
|
NIL |
|
339,000 |
|
NIL |
|
Dr. Kurt J. Lauk |
|
NIL |
|
232,000 |
|
NIL |
|
Cynthia A. Niekamp |
|
NIL |
|
59,000 |
|
NIL |
|
Dr. Indira V. Samarasekera |
|
NIL |
|
161,000 |
|
NIL |
|
Lawrence D. Worrall |
|
NIL |
|
123,000 |
|
NIL |
|
William L. Young |
|
NIL |
|
338,000 |
|
NIL
|
|
Note:
- 1.
- Represents
the aggregate grant date value of retainers and fees deferred in the form of DSUs in 2014, together with dividends credited in the form of additional DSUs on
Independent Directors' aggregate DSU balance, which includes DSUs granted in prior years.
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", "calls", "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.
26 Meeting
Information
|
Corporate
Governance Overview 28 Report of the Audit Committee 42 Report of the
Corporate Governance, Compensation and Nominating Committee 45 Report of the
Enterprise Risk Oversight Committee 48 Corporate Governance
|
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.
Board Mandate
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
28 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:
-
- Corporate Culture and Approach to Corporate Governance: Magna maintains a unique entrepreneurial corporate culture which we
believe has been critical to our past success and expect will be critical to our future success. The Board oversees and reinforces that culture and Magna's overall approach to corporate governance,
including by determining the specific policies and practices which the Board believes to be in the best interests of the company. The Board has delegated to the CGCNC the responsibility for making
recommendations with respect to corporate governance matters.
-
- Oversight of Executive Management: The Board selects our Chief Executive Officer and provides oversight
and advice to the
Chief Executive Officer regarding other members of the executive management team. Additionally, the Board is responsible for satisfying itself as to the integrity of each member of Executive
Management and the creation by the Executive Management team of a culture of integrity and ethical business conduct throughout the company.
-
- Executive Compensation: The Board seeks to ensure that our overall system of executive compensation
remains consistent with
our Corporate Constitution and the long-standing compensation principles which are critical to our corporate culture, as well as effective in attracting, retaining and motivating skilled executives.
In fulfilling these responsibilities, the Board considers the policies and practices which have been proven effective over Magna's history, general trends and developments in executive compensation,
the advice of the Board's independent advisors, as well as feedback received from shareholders and investors through the company's annual advisory vote on executive compensation and shareholder
engagement efforts. The Board has delegated to the CGCNC the responsibility for making recommendations on executive compensation matters.
-
- Succession Planning: The Board satisfies itself that the Chief Executive Officer has developed
appropriate succession plans
identifying potential future candidates for his own position, as well as the positions of other members of Executive Management, management of Magna's Operating Groups and other key positions in the
company. In fulfilling these responsibilities, the Board aims to:
-
- place
itself in a position to promptly appoint a qualified interim Chief Executive Officer in the event of the sudden departure of, or emergency involving, the Chief
Executive Officer;
-
- satisfy
itself that Executive Management maintains robust and effective talent management practices to identify, reward, retain and promote high-performing employees who
could be future internal candidates for positions within Operating Group Management, as well as Executive Management, including the Chief Executive Officer role; and
-
- familiarize
itself with employees within Executive Management, Operating Group management and other key functional leaders within the organization, particularly those with
future leadership potential.
Corporate Governance 29
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 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.
-
- Strategic Planning: The Board is responsible for overseeing the company's long-term strategy. In fulfilling this
responsibility, the Board meets with Executive Management and Operating Group management in a dedicated business and strategic planning session held early each calendar year. At this session, the
Board aims to enhance its understanding of trends, opportunities and risks over a three to seven-year horizon. It also provides Executive Management and Operating Group management with such advice and
counsel needed to help ensure that any business and strategic plans approved by the Board fully reflect the Board's strategic priorities and appropriately address the trends, opportunities and risks
facing the company. The Board typically receives quarterly updates from the Chief Executive Officer and other members of Executive Management regarding progress in achieving the company's strategic
priorities. During 2014, the Board adopted a new process relating to long-term incentive grants, which directly connects a key component of executive compensation with the implementation of the
strategic plan, as well as achievement of strategic priorities identified by the Board.
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.
-
- Enterprise Risk Management: While the Board oversees enterprise risk, Management (at all levels) is responsible for
actually managing the company's risks. In fulfilling its oversight responsibility, the Board satisfies itself that Management has implemented effective strategies to address the strategic and
competitive challenges faced by the company over different time horizons, manage day-to-day operational risks, promote legal and regulatory compliance and ethical conduct, safeguard corporate assets
and maintain appropriate financial and internal controls designed to protect the integrity of Magna's financial statements. The Board's approach to enterprise risk recognizes that risk and reward are
"flip sides of the same coin", but that management decision-making must be infused with both an awareness and understanding of such risks, as well as a clear understanding of the limits of risk that
the Board will accept.
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 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.
30 Corporate
Governance
The
enterprise risk management framework employed by Management is substantially based on the COSO enterprise risk management framework. Risks are categorized into one of five categories (instead of
four in the COSO framework): strategic; operational; legal/compliance; financial/financial reporting; and safeguarding of corporate assets. A risk catalogue containing a broad universe of risks
organized and categorized in accordance with such framework has been prepared and presented to the EROC, along with a summary assessment of the top risks identified by Executive Management in each
category. The risk catalogue is periodically updated and the top risks summary is quarterly updated, with changes presented to the EROC. In addition, the strategic and business planning materials
prepared for the Board in connection with the annual strategy/business planning meeting contain significant detail regarding trends, opportunities and risks in the company's product areas, geographic
reporting segments and macroeconomic environment to facilitate the development of risk-aware corporate strategy.
-
- Shareholder Engagement: We value constructive dialogue with shareholders and investors and regularly engage with
shareholders
throughout the year to better understand their perspectives regarding Magna. Where possible, we consider the feedback received from such meetings in refining Magna's policies, practices and/or public
disclosures. For example, recent changes to Magna's executive compensation system, which are described in the CGCNC Compensation and Performance Report in this Circular, reflect the efforts of the
CGCNC and Board to respond appropriately to feedback from shareholders.
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.
The
Board Charter also 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
We support the following basic principles of shareholder democracy:
-
- One Share, One Vote: We have a single class of shares, with each share entitled to one vote.
-
- Majority Voting: Under applicable corporate law, shareholders can only vote "for" or "withhold" their
vote for director
nominees. A "withhold" vote is an abstention or non-vote instead of a vote against the nominee. 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 in our Board Charter, 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 is legally elected as a director but receives more "withhold" votes than "for" votes must promptly
tender a resignation to the Chair of the CGCNC for its consideration. 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.
Corporate Governance 31
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:
-
- leave
the resulting vacancy unfilled;
-
- fill
the vacancy by appointing someone other than the director who resigned; or
-
- call
a special meeting of shareholders at which a nominee other than the one who resigned will be proposed for election.
-
- Shareholder Proposals: Subject to meeting certain technical requirements, shareholders are entitled under applicable
corporate law to put forward proposals to be voted on at a meeting of shareholders. The Board will give serious consideration to the voting results for shareholder proposals, even if they are only
advisory in nature.
-
- Corporate Transactions Involving the Issuance of 25% or More of Our Issued and Outstanding Common Shares: We recognize that
corporate transactions involving the issuance of a significant proportion of Common Shares may be material and should be approved by shareholders. In the event of a transaction which would involve the
issuance of 25% or more of our issued and outstanding Common Shares, we will obtain shareholder approval before proceeding with the transaction.
Ethical Business Conduct
We maintain a Code of Conduct & Ethics which applies equally to all of our directors, officers and employees. The Code articulates our
compliance-oriented values and expectations generally, while also articulating our standards in the following specific areas:
-
- employment
practices and employee rights;
-
- respect
for human rights;
-
- compliance
with law, generally;
-
- conducting
business with integrity, fairness and respect;
-
- fair
dealing, including a prohibition on giving or receiving bribes;
-
- accurate
financial reporting;
-
- standards
of conduct for senior financial officers;
-
- insider
trading and derivative monetization transactions;
-
- timely
public disclosure of material information;
-
- compliance
with antitrust and competition laws;
32 Corporate
Governance
-
- environmental
responsibility;
-
- occupational
health and safety;
-
- management
of conflicts of interest;
-
- protection
of employees' confidential information; and
-
- compliance
with our corporate policies.
The
Code of Conduct & Ethics, which is disclosed on the corporate governance section of our website (www.magna.com) in multiple languages, is administered by the
Audit Committee. Any waivers of the Code for directors or executive officers must be approved by the Audit Committee, 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 2014. The Audit Committee reviews the Code at least annually and recommends to the Board any revisions that
may be advisable from time to time.
We
maintain a confidential and anonymous whistle-blower procedure known as the Good Business Lines ("GBL") for employees and other stakeholders such as customers and suppliers.
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, the head of which reports directly to the Chair of the Audit Committee. The Audit Committee receives quarterly presentations regarding GBL activity and details of submissions are
discussed by the head of Internal Audit with the Audit Committee, without members of Management present.
The
Board 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.
Corporate Social Responsibility
For decades, Magna has not only believed in the principle of being a good corporate citizen, but has backed-up that commitment by allocating up to two percent
of our Pre-Tax Profits Before Profit Sharing (as defined in the Corporate Constitution) to supporting 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, such as the Red Cross, in support of earthquake, tsunami, hurricane and other
disaster relief.
In
addition to such charitable giving, Magna's commitment to social responsibility is reflected in our long-standing concern for our environmental impact, as well as the health and safety of our
employees and visitors to our facilities. Our Health, Safety and Environmental Policy (the "HSE Policy") articulates the company's goal of being an industry leader in health, safety and
environmental practices, with the intention of minimizing the impact of our operations on the environment and providing safe and healthful working conditions. The HSE Policy also commits Magna to
regular evaluation and monitoring of its activities impacting employee health and safety and the environment, the efficient use of natural resources, minimization of waste streams and emissions and
innovation to reduce the environmental impact of our products. A rigorous system of environmental controls and best practices applies to all of our facilities globally, which has been supplemented by
a program of regular third party and internal audits and inspections, the results of which are reported quarterly to the EROC. In connection with our commitment to environmental stewardship, 220 or
70% of our manufacturing facilities were ISO 14001 certified as at December 31, 2014.
Corporate Governance 33
Our manufacturing facilities are not significant greenhouse gas emitters or water users. Nevertheless, we participate in the Carbon Disclosure Project, a not-for-profit
project providing investors with information relating to corporate greenhouse gas emissions and perceived corporate risk due to climate change.
Our
commitment regarding the health and safety of our people is also reflected in our Employee's Charter, Code of Conduct & Ethics, as well as our Global Working Conditions. The Employee's
Charter reiterates our promise to provide employees with a safe and healthful working environment. To the extent an employee believes we have not fulfilled our promise, he or she has numerous avenues
to elevate the concern, including our Employee Hotline. Our Global Working Conditions reflect our commitment to providing working conditions and standards that result in dignified and respectful
treatment of all of our employees globally, as well as those within our supply chain. Our Global Working Conditions, together with our Code of Conduct & Ethics, prohibit use of child, underage,
slave or forced labour. Among other things, the Global Working Conditions also articulate our belief that workers have the right to associate freely and join labour unions or workers' councils in
accordance with applicable laws. Our Global Working Conditions are an integral part of our supplier package and a failure by any of our suppliers to comply with its terms can result in the termination
by Magna of the supply relationship.
Although
not a participant, Magna supports the ten principles underlying the United Nations Global Compact ("UNGC"). The UNGC is a public-private initiative offering a policy framework for the
development, implementation and disclosure of sustainability principles and practices related to four core areas: human rights, labour, the environment and anti-corruption. The ten principles of the
UNGC include: respect for internationally proclaimed human rights; non-complicity in human rights abuses; upholding the freedom of association and right to collective bargaining; elimination of all
forms of forced and compulsory labour; abolition of child labour; elimination of discrimination in employment; support for a precautionary approach to environmental challenges; undertaking initiatives
to promote greater environmental responsibility; encouraging the development and diffusion of environmentally friendly technologies; and working against all forms of corruption.
Magna
also supports efforts to rid automotive parts and assemblies of conflict minerals such as gold, tantalite, tungsten and tin which are sourced from mines under the control of armed groups in the
Democratic Republic of Congo and certain neighboring countries. We continue to work with our customers, suppliers and other fellow
members of the Automotive Industry Action Group ("AIAG") to identify products and materials which contain such "conflict minerals" and to increase awareness and accuracy of conflict minerals
reporting. In May 2014, we filed our initial conflict minerals report with the SEC, which is available via the SEC's EDGAR website (www.sec.gov/edgar.shtml) and
will file our second such report in May 2015.
Diversity in Senior Management
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 enable
employees to seek redress where they believe Magna has not lived-up to any of the principles of 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-four (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.
34 Corporate
Governance
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 Chairman 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:
-
- representing
the Board in discussions with third parties;
-
- representing
the Board in discussions with Executive Management;
-
- generally
ensuring that the Board functions independently of Management;
-
- assisting
in recruiting to the Board director candidates who have been identified by the CGCNC; and
-
- overseeing
the annual evaluation process of the Board and its Committees.
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, ten out of eleven, or 91%, 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.
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
Corporate Governance 35
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:
-
- separation
of the roles of Chairman and Chief Executive Officer, together with position descriptions defining such roles;
-
- a
requirement that the Chief Executive Officer resign from the Board when he or she retires from Management;
-
- the
use of in camera sessions at every Board and Committee meeting;
-
- the
right of the Board and each Committee to engage independent legal, financial and other advisors at Magna's expense;
-
- limitations
on board interlocks;
-
- the
Board and Committee Chair's authority over meeting agendas and attendees; and
-
- Independent
Directors' right to discuss any matter with any employee or any advisor to the company (in addition to independent advisors).
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:
-
- overall
direction of Magna's operations, including top-level customer contact;
-
- development
and implementation of Magna's product, geographic, customer, merger/acquisition and growth strategies;
-
- promotion
of Magna's decentralized, entrepreneurial corporate culture;
-
- development
of Magna's management reporting structure;
-
- management
succession planning;
-
- together
with the CGCNC, determination of compensation for members of Corporate Management;
-
- human
resources management;
-
- interaction
with the Board on behalf of Management; and
-
- communication
with key stakeholders.
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.
36 Corporate
Governance
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 related party transactions during 2014.
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
4.6 years. The CGCNC believes that the average age of our Directors (64 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. Typically, in the Fall of
each year, the CGCNC will review the composition of the Board and make 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 will consider input received from the Board as a whole, including through the Board's most recent Board self-assessment process, as well as from
shareholders in the course of the Board's shareholder engagement activities. The CGCNC may also consider input received from its external advisors and others from time to time.
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. Candidate searches are conducted in a manner which is "blind" to
characteristics or attributes unrelated to a candidate's skill or expertise. 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 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
Corporate Governance 37
recruitment
of female directors. Currently, three of ten (30%) Independent Directors and three of eleven (27%) members of the Board as a whole, are women 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 comments in this regard received from other directors in the course of 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, 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. |
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.
38 Corporate
Governance
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 serves on EROC. These 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. Current committee membership is as follows:
|
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:
-
- use
of in camera sessions at every Committee meeting;
-
- right
of each Committee to retain independent advisors at Magna's expense;
-
- inclusion
in each Committee Charter of a position description for the Committee Chair;
-
- Committee
Chairs' authority over meeting agendas and attendees;
-
- Committee
members' right to discuss any matter with any employee or any advisor to the company (in addition to independent advisors); and
-
- right
of any Committee member to call a Committee meeting.
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 2014.
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. During 2014, all of our directors maintained 100%
attendance at all Board and Committee meetings.
Corporate Governance 39
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:
-
- our
business and operations;
-
- consolidated
and Operating Group strategic and business plans;
-
- automotive
industry dynamics, trends and risks;
-
- our
capital structure;
-
- key
enterprise risks and risk mitigation policies and practices;
-
- our
system of internal controls;
-
- our
internal audit program;
-
- the
external auditors' audit approach and areas of emphasis;
-
- our
human resources policies and practices, including succession planning;
-
- our
environmental and health/safety policies and practices;
-
- our
Code of Conduct & Ethics, as well as our legal compliance program;
-
- our
system of corporate governance;
-
- fiduciary
duties and legal responsibilities applicable to directors of an Ontario corporation; and
-
- other
matters.
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;
-
- risk
management;
-
- development
of human capital;
-
- executive
compensation;
-
- ethics
and compliance;
-
- mergers
and acquisitions; and
-
- legal/regulatory
matters.
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.
40 Corporate
Governance
Independent
Directors are encouraged to participate in additional director education activities of their choosing, at our expense. We maintain a Board membership to the Institute of Canadian Directors
("ICD") and encourage Independent Directors to attend various ICD conferences, seminars and webinars, as well as those of similar organizations, including the National Association of Corporate
Directors. 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 2014 included the following and each session was attended by all directors then serving:
-
- global
macroeconomic updates;
-
- World
Class Manufacturing;
-
- auto
industry trends;
-
- detailed
overviews of each of Magna's Operating Groups;
-
- government
regulation impacting the auto industry;
-
- shareholder
activism;
-
- capital
structure; and
-
- legal
compliance.
Additionally,
Magna seeks opportunities to provide Independent Directors with tours of Magna's manufacturing facilities. In 2014, the Board toured Magna Powertrain's manufacturing facility in Lannach,
Austria. In addition to observing manufacturing processes and standards, the tour enabled the Board an opportunity to meet a broad group of Magna Powertrain management, develop a better understanding
of Magna Powertrain and Magna Electronics' technologies and receive product demonstrations related to autonomous driving technologies. A number of Independent Directors also participated in an
optional tour of Magna Steyr's complete vehicle assembly facility in Graz, Austria, which provided them a deeper understanding of Magna Steyr's capabilities and management. Directors who
opted not to participate in the Magna Steyr tour had previously visited the facility at least once. 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 2014 and to date in 2015. In addition, a separate CGCNC report on compensation and performance precedes the Compensation Discussion & Analysis section of
this Circular.
Corporate Governance 41
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:
-
- Magna's
independent auditors and internal audit department;
-
- internal
control over financial reporting;
-
- critical
accounting policies;
-
- material
risk exposures relating to financial and financial reporting matters and our actions to identify, monitor and mitigate such exposures; and
-
- the
implementation, operation and effectiveness of our Code of Conduct & Ethics, as well as Good Business Line.
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 complies with these requirements.
|
MEMBERS
|
|
INDEPENDENT
|
|
FINANCIALLY
LITERATE
|
|
FINANCIAL
EXPERT
|
|
SERVES ON 3
OR FEWER
AUDIT
COMMITTEES
|
|
2014
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.
2014 Accomplishments and Key Areas of Focus
The Audit Committee views the following as its primary accomplishments during 2014:
-
- Auditor Transition: In 2013 the Audit Committee initiated a review of the company's external audit, which resulted in the
rotation of auditors that was approved by Magna's shareholders at the company's 2014 annual meeting. Throughout 2014, the Audit Committee worked closely with Deloitte, the company's Internal Audit
Department ("IAD") and members of Management to ensure an effective and efficient auditor transition.
42 Corporate
Governance
-
- Integrity of Financial Statements: 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 2014 and the first few months of 2015, including its communications and interactions with Deloitte, IAD and Management, the Audit Committee has satisfied itself regarding the integrity
of Magna's financial statements and financial reporting. Accordingly, the Audit Committee recommended and the Board approved Magna's 2014 consolidated audited financial statements.
-
- Internal Audit Activities and Management Response: The Audit Committee reviewed and approved IAD's
annual work plan and
received quarterly updates regarding IAD's progress against such plan. In such quarterly meetings, the Audit Committee reviews with IAD the various audits and reviews conducted by it in the quarter,
and reviews with Management its responses to any issues identified. In between quarterly meetings, the Chairman of the Audit Committee follows up with Management to ensure that any open issues are
appropriately addressed, and follows up with IAD and Deloitte to ensure that applicable matters are re-tested, as appropriate.
-
- IT Transformation and IT Risks: The Audit Committee received periodic updates regarding the status of
the company's IT
transformation project, as well as: the company's critical data assets; IT general controls; IT security risks and risk mitigation activities; as well as staffing and stewardship of the company's
IT function.
-
- Material Litigation and Regulatory Matters: Both the Audit Committee and the EROC receive quarterly
updates regarding the
company's potentially material litigation exposures and outstanding regulatory matters. The Audit Committee reviewed with Management developments regarding antitrust investigations involving the
company, Magna's internal investigations and global antitrust review, the scope of the company's compliance training program and the company's potential risks and exposures.
-
- M&A Lessons Learned: Given the strategic importance of acquisitions to the company's mid to
long-term growth, the Audit
Committee reviewed with Management an analysis of the company's acquisitions over the prior ten years. The review was primarily aimed at assisting Audit Committee members in understanding the extent
to which such prior transactions accomplished the strategic objectives identified at the time of acquisition and how they performed financially, as well as identifying the lessons learned and applied
to the company's current approach to M&A.
The
following topics addressed in 2014 are expected to be continuing areas of focus for the Audit Committee during 2015:
-
- financial
reporting, including significant accounting policies, management estimates, unusual or significant items and material contingent and other liabilities;
-
- internal
controls over financial reporting, including information technology general controls;
-
- financial
and financial reporting risk management, including information technology systems, treasury management, as well as tax and transfer pricing;
-
- oversight
of the company's IAD, together with Management's responses to any issues identified by IAD from time to time;
-
- incidents
reported under the company's whistle-blowing system, including the outcome of investigations of all such reports;
-
- financial
performance of the company in its reporting segments; and
-
- continuing
education of Audit Committee members.
Corporate Governance 43
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:
-
- Magna's
consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"); and
-
- the
effectiveness of Magna's internal control over financial reporting, in accordance with the standards of the PCAOB.
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, 2014:
-
- inclusion
of the consolidated financial statements in Magna's Annual Report;
-
- MD&A;
-
- Annual
Information Form/Form 40-F in respect of 2014; and
-
- other
forms and reports required to be filed with applicable Canadian securities commissions, the SEC, the TSX and NYSE.
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, 2014. This Audit Committee
report is dated as of March 19, 2015 and is submitted by the Audit Committee.
|
|
Lawrence D. Worrall
(Chairman) |
|
|
Scott B. Bonham |
|
Peter G. Bowie |
|
Dr. Kurt J. Lauk |
44 Corporate
Governance
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:
-
- Magna's
overall system of corporate governance;
-
- the
relationship between the Board and Executive Management;
-
- the
effectiveness of the Board and its Committees;
-
- compensation
for Corporate Management (as defined in the Corporate Constitution), as well as incentive and equity compensation generally;
-
- Independent
Director compensation;
-
- executive
succession planning; and
-
- nomination
of candidates for election by shareholders.
Composition
The CGCNC Charter mandates a committee of between three and five Independent Directors. The CGCNC complies with this requirement.
|
MEMBERS
|
|
INDEPENDENT
|
|
2014 ATTENDANCE
|
|
|
|
|
|
|
William L. Young (Chairman) |
|
ü |
|
100% |
|
Hon. J. Trevor Eyton |
|
ü |
|
100% |
|
V. Peter Harder |
|
ü |
|
100% |
|
Dr. Indira V. Samarasekera (from May 8, 2014) |
|
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.
Corporate Governance 45
2014 Accomplishments and Key Areas of Focus
The CGCNC views the following as its primary accomplishments during 2014:
-
- Shareholder Engagement: Mr. Young, in his capacity as Chairman of the Board and the CGCNC, continued to engage with a
number of institutional shareholders, with the aim of further understanding those shareholders' views regarding the company's system of corporate governance and approach to executive compensation.
Feedback received from such shareholders and others was considered in formulating the executive compensation changes discussed below and in the CGCNC Compensation and Performance Report.
-
- Executive Compensation: Early in 2014, the CGCNC approved a number of important changes to Magna's
compensation system,
including further measures to moderate profit sharing on Magna's Pre-Tax Profits Before Profit Sharing in excess of $1.5 billion, as well as reduction of the aggregate cap on compensation from
a maximum of 6% to a maximum 3% of Magna's Pre-Tax Profits Before Profit Sharing. Such changes were detailed in Magna's management information circular/proxy statement related to its 2014 annual
meeting of shareholders.
-
- Development of Long-Term Incentive Plan ("LTIP") Grant Framework: During 2013, the CGCNC developed and
approved a set of
qualitative criteria to be considered by it in connection with stock option grants. In 2014, the CGCNC further formalized its approach to stock option grants, including by establishing an objective
framework to determine the size of option pools for named executive officers. The framework includes a methodology for Board assessment of the company's performance in areas related to Magna's
strategic objectives. For 2014, these areas were product strategy, growth strategy, operational improvement, succession and innovation. The framework approved by the CGCNC seeks to enhance Management
accountability for achieving the company's strategic objectives and increase Board/Management dialogue around the definition, refinement and measurement of strategic goals.
-
- Performance-Vested Option Grant Framework: During 2014 and early 2015, the CGCNC approved a new
framework for long-term
incentives. This framework, discussed further in the CGCNC Compensation and Performance Report, replaces time-vested stock options with performance-vested stock options for Magna's most senior
officers. Since the performance hurdle is total shareholder return relative to an appropriate industry peer group, the new framework seeks to better align executive
compensation and shareholder interests. Moreover, the combination of the enhanced option pool determination process plus performance-vested options is expected to result in improved alignment between
executive compensation and the achievement of strategic priorities.
-
- Alignment Between Pay and Performance: The CGCNC engaged its compensation advisor to verify the link
between executive
compensation and corporate performance. In addition to the pay for performance analysis described in the CGCNC Compensation and Performance Report, the CGCNC engaged its advisor to perform
realized/realizable pay back-testing. On the basis of such pay for performance analysis and realized/realizable pay back-testing, the CGCNC satisfied itself that Magna's compensation system continues
to generate compensation outcomes that are aligned with the company's performance.
-
- Succession Planning: During 2014, the CGCNC dedicated significant time to its oversight of management
succession planning. In
addition to the regular updates regarding the continued implementation of the company's broad-based Leadership Development and Succession ("LDS") program which currently includes 4,000 leaders
within the company, the CGCNC engaged external advisors to assist in the development or updating of critical position descriptions and the conduct of detailed assessments of high potential future
candidates for such roles. As a result of its continuing work, the
46 Corporate
Governance
The
CGCNC expects that shareholder engagement, executive compensation, succession planning and Board effectiveness will continue to be key areas of focus for the Committee during 2015.
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, 2014. This CGCNC Committee report is dated as of March 19, 2015 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. This includes coordination with the Board's other
Committees in connection with their respective risk oversight activities. Financial as well as financial reporting risks remain within the mandate of the Audit Committee, and corporate governance,
compensation and succession risks remain 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:
-
- identification,
monitoring and mitigation of Magna's material risk exposures; and
-
- legal
and regulatory compliance.
Composition
The EROC Charter mandates a committee composed of between three and five Independent Directors. The EROC complies with this
requirement.
|
MEMBERS
|
|
INDEPENDENT
|
|
2014 ATTENDANCE
|
|
|
|
|
|
|
Lady Barbara Judge (Chair) |
|
ü |
|
100% |
|
Scott B. Bonham |
|
ü |
|
100% |
|
V. Peter Harder |
|
ü |
|
100% |
|
Cynthia A. Niekamp (from May 8, 2014) |
|
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 serves on the CGCNC. These 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.
2014 Accomplishments and Key Areas of Focus
The EROC views the following as its primary accomplishments during 2014:
-
- Legal/Regulatory Compliance: With the continuing focus by antitrust and other regulators on the automotive industry, the
regulatory investigations by the German Bundeskartellamt (Federal Cartel Office) and the Brazilian Conselho Administrativo de Defesa Econômica (CADE) have been areas of continuing
oversight by the EROC. In addition to receiving regular updates on these matters from both Management and the company's external counsel, the EROC received periodic updates regarding enhancements to
the
48 Corporate
Governance
The
EROC anticipates that oversight of emerging risks, operational risks, occupational health/safety and environmental compliance, as well as legal/regulatory compliance will continue to be key areas
of focus for the Committee during 2015.
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, 2014. This EROC report is dated as of March 19, 2015 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
|
CGCNC
Compensation and Performance Report 52 Performance
|
CGCNC Compensation and Performance Report
March 19, 2015
Dear
Shareholder,
As
was the case the last three years, 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:
-
- minimal
fixed compensation in the form of salaries;
-
- annual
profit-based incentive bonuses, a portion of which is deferred for almost three years and delivered in the form of equity;
-
- long-term
incentives in the form of stock options; and
-
- the
absence of pensions or other retirement benefits.
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 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.
Corporate
profitability is the central element of our compensation system for each level of Management throughout the company. This ties directly into our fair enterprise culture which includes a
defined formula for sharing profits, including among: shareholders (in the form of dividends); employees (in the form of deferred profit sharing bonuses); and managers (in the
form of annual profit sharing bonuses). The formula for sharing profits is embedded in our long-standing Corporate Constitution, which also establishes a minimum profit allocation for the lifeblood of
the company research and development, as well as an allocation for charitable contributions to help support the basic fabric of society, particularly in the
communities in which we operate.
Magna's 2014 Say on Pay Result
At Magna's 2014 annual meeting, over 82% of the votes cast on the advisory shareholder vote were in favour of Magna's existing
approach to executive compensation. Magna held similar votes in the prior two years and the 2014 result represented an improvement over the votes held in 2013 (78% in favour) and 2012 (80% in favour).
In order to build on such improvement, the CGCNC continued its program of engagement with institutional shareholders and others to understand their perspectives regarding the company's performance,
corporate governance and executive compensation system.
52 Performance
Shareholder Engagement in 2014
Through its shareholder engagement in 2014, the Board and CGCNC heard the following messages from shareholders and took the following
actions in response:
|
WHAT THE CGCNC HEARD FROM SHAREHOLDERS
|
|
WHAT THE CGCNC DID IN RESPONSE
|
|
Magna's compensation system appears to be working effectively in generating strong performance and aligning pay/performance |
|
Maintained core elements of compensation system |
|
|
|
|
Profit sharing is central to Magna's culture and compensation system, but an additional metric should be introduced for determination of compensation |
|
Introduced relative TSR as metric to be used in determining vesting of performance stock options |
|
|
|
|
Some aspect(s) of executive compensation should be subject to performance conditioning relative to an appropriate peer group |
|
Replaced time-vested stock options for NEOs with performance-vested stock options, subject to relative TSR performance hurdle |
|
|
|
|
The process to determine long-term incentive grants should be enhanced to better link compensation with the achievement of long-term objectives |
|
Introduced performance-adjusted stock option pool, based on Board assessment of Management performance in achieving milestones related to Board-identified strategic priorities |
|
|
|
|
The proportion of compensation delivered in the form of long-term incentives should be increased relative to short-term incentives |
|
The CGCNC continues to explore ways to address such feedback in a manner which maintains the core elements of Magna's compensation system |
|
|
|
|
The changes implemented by the CGCNC with respect to stock option pool sizing and performance-vested stock options are described further in Section C of
the Compensation Discussion & Analysis.
The
shareholder engagement process also enabled the Board and CGCNC to reinforce key messages to shareholders on various matters of concern to them, including:
-
- Expiration of Frank Stronach's Consulting Agreements Mr. Stronach's consulting
agreements expired on December 31, 2014 and were not renewed, extended or replaced with any other form of compensation. The Board values the legacy left by
Mr. Stronach, but continues to build on it independently of him.
-
- Reduction of Aggregate Profit Sharing Cap From 6% to 3% of Pre-Tax Profits Before Profit
Sharing the aggregate cap on profit sharing contained in Magna's Corporate Constitution will formally be
reduced from 6% to 3% of Magna's Pre-Tax Profits Before Profit Sharing. Pending the amendment of Magna's articles of incorporation to formally implement such change, the CGCNC will treat the Corporate
Constitution as if it limited profit sharing to a maximum of 3% of Pre-Tax Profits Before Profit Sharing. In any event, the CGCNC recognizes that the amount of compensation (in dollars) which
could be paid at the 3% level remains significant based on current profit levels and, accordingly, intends to manage profit-sharing to ensure that bonuses actually set on the basis of the company's
profit sharing formula remain below the 3% level.
-
- Profit-Sharing Step-Downs Continue to Moderate Compensation Growth the CGCNC's
decisions in 2012 and 2014 to reduce NEO profit sharing on Pre-Tax Profits Before Profit Sharing in excess of $1.5 billion continue to moderate executive compensation growth. For example, while
the bonus base on which profit sharing bonuses are calculated increased by 24% due to the company's increased profitability in 2014, annual NEO incentive bonuses increased 13% in 2014, with the
difference relating primarily to the impact of the profit sharing "step-downs."
Performance 53
Magna's Named Executive Officers and Compensation Outcomes in 2014
Magna's 2014 NEOs remain unchanged from 2013:
-
- Donald
Walker Chief Executive Officer
-
- Vincent
Galifi Executive Vice-President and Chief Financial Officer
-
- Tommy
Skudutis Chief Operating Officer, Exteriors, Interiors, Seating, Mirrors, Closures and Cosma
-
- Jeffrey
Palmer Executive Vice-President and Chief Legal Officer
-
- Guenther
Apfalter President, Magna Europe and Magna Steyr
The
accompanying Compensation Discussion & Analysis contains a detailed discussion of 2014 pay outcomes for Magna's five most highly compensated executive officers and the Summary Compensation
Table summarizes compensation for each NEO in each of 2014, 2013 and 2012.
In
general terms, 2014 NEO total compensation increased compared to 2013, reflecting Magna's strong operating and financial performance. Base salaries for the Corporate NEOs remained unchanged from
2013, while profit sharing bonuses (in dollars) increased at a rate (13%) that was lower than the growth rate (24%) of the Pre-Tax Profits Before Profit Sharing bonus pool. Absent the profit
sharing step-downs implemented by the CGCNC over the last few years, the NEOs' profit sharing bonuses would have increased in lock-step with the increase in Pre-Tax Profits Before Profit Sharing. As
discussed earlier, performance stock options were granted to the NEOs in place of the time-vested stock options granted in prior years. The aggregate value of compensation delivered to the NEOs in the
form of options increased 13.7% compared to the value delivered in the form of options in 2013, reflecting Management's performance in achieving milestones related to Board-identified strategic
priorities. The number of options granted to NEOs increased 19.7% over 2013, reflecting the increased value of compensation intended to be delivered in the form of options, as well as the change in
value of Magna options in 2014 compared to 2013, particularly due to the performance conditions. Overall, the CGCNC believes that NEO total compensation continues to be appropriate when considered in
the context of Magna's operating and financial performance (discussed below) as well as other relevant factors such as NEO length of tenure.
Magna's Operating and Financial Performance in 2014
As you will note from Magna's Annual Report accompanying this Circular, 2014 was a strong year when considered on the basis of almost
any metric. For example, as compared to 2013, Sales increased 5% to $36.6 billion; Adjusted EBIT(1) rose 27% to $2.6 billion; Return on Funds Employed(2)
increased 27% to 28.5%; and Diluted Earnings Per Share increased 29% to $8.69.
Notes:
- 1.
- Adjusted
EBIT represents income from operations before: taxes; interest expense, net; and other expense, net. Magna believes that Adjusted EBIT is the most appropriate measure of
operational profitability or loss of its financial reporting segments.
- 2.
- Return
on Funds Employed is calculated as Adjusted EBIT/Assets Employed (excluding unusual items).
Additionally, Magna invested almost $1.8 billion for future growth and returned a further $2.1 billion to
shareholders in the form of share repurchases ($1.8 billion) and dividends ($0.3 billion). Dividends, which were at a record level in 2014, were increased 16% in respect of the fourth
quarter of 2014 and the Board declared a two-for-one stock split by way of stock dividend, reflecting the Board's confidence in our future prospects.
We
encourage shareholders to read the consolidated financial statements and Management's Discussion & Analysis of Results of Operations and Financial Position found in Magna's 2014 Annual
Report, to gain a better understanding of the company's operating and financial performance in 2014.
54 Performance
2014 Total Shareholder Return
The performance of Magna's Common Shares during 2014 reflected the company's strong operating and financial performance. TSR, which
includes share price appreciation plus dividends, is commonly used as the preferred measure of stock market performance. For 2014, Magna's 46.7% TSR ranked at the 95th percentile
compared to companies in the S&P/TSX60 index and its 34.4% TSR ranked at the 93rd percentile compared to companies in the S&P 500 index.
When
viewed over a longer term period of five years, Magna's TSR is particularly impressive. If a shareholder had invested C$100 in Magna Common Shares on the TSX on December 31, 2009, the
cumulative value of that investment would be C$518, which is over 3.5 times the cumulative return of C$144 for the S&P/TSX 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 $471, which is over 2.3 times the cumulative return of $205 for the S&P500 composite index.
In each case, the total cumulative return assumes the reinvestment of dividends.
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, 2009 and reinvestment of dividends.
|
FISCAL YEARS
|
|
DECEMBER 31,
2010
|
|
DECEMBER 31,
2011
|
|
DECEMBER 31,
2012
|
|
DECEMBER 31,
2013
|
|
DECEMBER 31,
2014
|
|
Magna Common Shares (TSX) |
|
C$196.90 |
|
C$132.10 |
|
C$197.90 |
|
C$353.30 |
|
C$518.10 |
|
S&P/TSX Total Return
|
|
Magna Common Shares (NYSE) |
|
$207.70 |
|
$136.30 |
|
$209.80 |
|
$350.50 |
|
$471.10 |
|
S&P500 Total Return |
|
$115.10 |
|
$117.50 |
|
$136.30 |
|
$180.40 |
|
$205.10 |
|
Alignment Between Pay and Performance
Magna's compensation system generates pay outcomes which are strongly aligned with the company's performance. While there are
different ways in which the alignment between pay and performance can be measured, one of the more widely accepted methods involves graphing compensation rank (percentile) against TSR rank
(percentile). In presenting such information below, we have shown compensation against relative TSR for both our compensation peer
Performance 55
group
and also the S&P/TSX60 companies. This 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 2014 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, 2013. These graphs evidence the close alignment between Magna's pay and performance on a three-year basis.
56 Performance
Looking Forward Compensation in 2015 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 2014 advisory vote on executive compensation. Nevertheless, the changes adopted in respect of 2014 NEO compensation are intended to respond to feedback received from certain
shareholders through the company's shareholder engagement activities and are expected to strengthen the connection between compensation and achievement of the Board's long-term strategic priorities.
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.
Parallel
with the CGCNC's ongoing work on succession planning, the Committee intends to review and, where possible, reset profit sharing percentages for successors to the Corporate NEOs at levels
which appropriately account for factors such as experience, tenure and peer compensation levels. The CGCNC also intends to consider such other changes as may be necessary, including whether to
continue the use of employment contracts for current NEOs' successors and relative proportions of the short, mid and long-term elements of the company's compensation system.
Lastly,
the CGCNC intends to continue to engage with shareholders throughout 2015 to hear their perspectives regarding Magna's performance, the Board's priorities, the company's corporate governance
and approach to executive compensation.
In Closing
At our May 7, 2015 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:
-
- Magna's
record operating and financial performance in 2014;
-
- the
strong alignment between pay and performance generated by Magna's compensation system;
-
- enhancements
implemented by the CGCNC in respect of 2014, including the changes to performance-adjust option pool size and the replacement of time-vested stock options with
performance-vested stock options; and
-
- the
CGCNC's continuing efforts to evolve Magna's compensation system in response to feedback from shareholders, while maintaining the core elements of a system which the
CGCNC continues to believe is successful in achieving its underlying objectives.
We
look forward to your support at our 2015 annual meeting.
|
|
William L. Young
(Chairman) |
|
|
Hon. J. Trevor Eyton |
|
V. Peter Harder |
|
Dr. Indira V. Samarasekera |
Performance 57
|
Compensation
Discussion & Analysis 60 Summary Compensation Table 85 Incentive Plans
and Awards 87 Compensation
|
Compensation Discussion & Analysis
Key Terms Used in This Section
CD&A: |
|
the Compensation Discussion & Analysis section of this Circular |
Corporate NEOs: |
|
the four NEOs with Magna-wide roles and responsibilities: Donald Walker, Vincent Galifi, Tommy Skudutis and Jeffrey Palmer |
executive compensation peer group: |
|
the group of 14 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 13 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 |
|
61 |
|
|
|
|
|
|
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 |
|
62 |
|
|
|
|
|
|
C |
|
Provides an overview and detailed description of the elements of our executive compensation program |
|
69 |
|
|
|
|
|
|
D |
|
Describes our compensation risk mitigation practices |
|
83 |
|
|
|
|
|
|
The Summary Compensation Table follows on page 85.
60 Compensation
A. Compensation Philosophy & Objectives
Corporate Culture and Compensation
Our unique, entrepreneurial corporate culture seeks to balance the interests of various stakeholders, including shareholders, employees and management. This
culture is reflected in our Corporate Constitution which articulates our approach to the sharing of profits among our stakeholders, including:
-
- shareholders,
through our dividend policy;
-
- employees,
through an employee profit sharing program;
-
- management,
through an annual profit sharing bonus that comprises the largest part of their compensation; and
-
- communities
in which we operate, through social, charitable and political contributions.
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:
-
- minimal
fixed compensation, as reflected in below-market base salaries;
-
- highly
variable, annual profit-sharing bonuses paid in cash;
-
- deferred
equity awards (RSUs), the initial value of which is determined based on our annual profitability, but the realizable value of which is tied to our share price over
a two to three year period;
-
- performance
stock options, the vesting of which depends on our TSR performance relative to a group of industry peers; and
-
- significant
personal wealth "at risk" through equity ownership for example, our Chief Executive Officer held over $68 million
of Magna equity as of December 31, 2014, directly aligning his interests with those of all shareholders.
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 61
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 our Corporate Constitution and the
long-standing compensation principles which are critical to our corporate culture, while remaining effective in attracting, retaining and motivating skilled executives.
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, may be present during CGCNC meetings, final compensation decisions affecting NEOs are 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 and make recommendations regarding the compensation levels of his direct reports. Such
performance assessments are one of the factors considered by the CGCNC in granting long-term incentive awards to members of the executive team, but will also be considered in the context of
compensation changes which may be proposed from time to time 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 2014.
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 2014 included:
-
- review
of Magna's compensation practices;
-
- analysis
of Magna's relative performance and compensation on both a reported and realizable basis;
62 Compensation
-
- assistance
with the refinement of Magna's stock option grant process, including development of the performance adjustment mechanism for option pool sizing;
-
- support
with the development of a performance stock option program, including assistance in identifying an appropriate peer group for TSR benchmarking purposes;
-
- analysis
of director compensation; and
-
- ongoing
review and advice on compensation recommendations presented for CGCNC approval.
The
information and advice provided by Hugessen 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 paid to Hugessen for the services it provided to the CGCNC in respect of 2014 and 2013 were:
|
DESCRIPTION |
|
2014 |
|
2013 |
|
|
|
|
|
($)(1) |
|
(%) |
|
($)(2) |
|
(%) |
|
Executive compensation services provided to CGCNC |
|
270,000 |
|
100 |
|
212,000 |
|
100 |
|
All other services for Magna |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Total |
|
270,000 |
|
|
|
212,000 |
|
|
|
Notes:
- 1.
- Converted
from C$ at the BoC noon spot rate on December 31, 2014.
- 2.
- Converted
from C$ at the BoC noon spot rate on December 31, 2013.
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:
-
- core
operating and compensation philosophies and principles developed since our founding, such as entrepreneurialism, operational decentralization and profit sharing;
-
- the
terms of our Corporate Constitution;
-
- alignment
of management, employee and shareholder interests to create long-term shareholder value;
-
- our
financial, operating and stock price/TSR performance;
-
- considerations
related to the relationship between incentive compensation and achievement of long-term strategic objectives;
-
- compensation
risk considerations;
-
- compensation
benchmarking data;
-
- pay
for performance alignment data;
-
- the
recommendations of our Chief Executive Officer with respect to his direct reports;
Compensation 63
-
- the
advice and recommendations of the CGCNC's independent advisors;
-
- feedback
received from shareholders and others; and
-
- general
information relating to executive compensation trends and developments.
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:
-
- appropriateness
of base salary levels;
-
- the
size of the LTI pool; and
-
- the
amounts to be delivered to the NEOs and other key executives in the form of LTIs.
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:
-
- analysis
by the CGCNC and its independent advisors of the forecast compensation level based on the proposed profit share forecast profit levels as per our most current
Board-approved three-year business plan;
-
- benchmarking
of the proposed compensation for the executive as compared to equivalent positions within our compensation peer group; and
-
- in
the case of an executive who reports to our Chief Executive Officer, the Chief Executive Officer's recommendation regarding the level of compensation believed to be
necessary to competitively compensate the executive.
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.
64 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:
-
- Magna's
financial, operating and stock price/TSR performance;
-
- overall
profit sharing levels;
-
- the
achievements of each executive in relation to long-term strategic and other criteria approved by the CGCNC (discussed below);
-
- relative
proposed option grant awards among members of Executive Management and other optionees;
-
- the
grant value of proposed options and recent prior option grants;
-
- aggregate
stock option expense of the proposed grant and potential dilutive impact to shareholders; and
-
- retention,
succession and other relevant considerations.
In
2014, the CGCNC enhanced its process around LTI grants with the goals of achieving greater accountability for achievement of the company's strategic objectives and increasing dialogue around the
definition, refinement and measurement of strategic goals. Under this new process, 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.
While
there may be some variation from one year to the next in the strategic criteria considered by the Board in determining NEO option pool size, or in the relative weighting of the criteria used,
Executive Management's performance in respect of the following five criteria was assessed to determine the size of the 2014 NEO option pool:
|
STRATEGIC CRITERIA
|
|
DESCRIPTION
|
|
WEIGHTING
|
|
|
|
|
|
|
Product Strategy |
|
Objectives and measurables related to growth in priority product areas, including organic growth and growth by acquisition. Includes objectives and measurables related to disposition of non-core
products/business units. |
|
20% |
|
Growth Strategy |
|
Objectives and measurables related to growth in priority geographic areas, including growth by acquisition. Includes organizational objectives in support of growth strategy. |
|
20% |
|
Operational Long-Term Improvement |
|
Objectives and measurables related to improvement of operational performance, including through continued implementation of World Class Manufacturing. Includes objectives related to functional areas such as information technology and compliance
training. In some years, may include measurables related to health, safety and environmental or other functional areas. |
|
20% |
|
Succession Planning |
|
Objectives and measurables related to short, medium and long-term succession planning, including in respect of the most critical positions in the company. Also includes measurables related to continued roll-out of Leadership Development
System. |
|
20% |
|
Innovation |
|
Objectives and measurables related to continued enhancement of the company's innovation processes, as well as specific developments/achievements. |
|
20% |
|
Compensation 65
Early in 2015, the Board Chair initiated the assessment process in respect of management's performance in the above areas. Quantitative performance ratings
relative to the Board's target/expectations were submitted by Independent Directors and then aggregated to determine a performance factor that was applied to the baseline stock option pool. The
performance factor can range from 0% for performance well below target 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.
The
performance factor determined by the CGCNC is applied to a 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 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 2014. 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.
66 Compensation
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 14 Automotive and Industrial Companies
Magna's executive compensation peer group consists of 14 companies identified by Hugessen in 2013 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 screened 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 |
In arriving at the peer group, Hugessen considered feedback from the CGCNC and Management and also applied its judgment to the numeric screens. Given the
rigorous process applied in 2013 to develop the current peer group, the CGCNC believes that the peer group continues to be appropriate. However, the CGCNC will continue to monitor and assess the
appropriateness of the peer group.
Based
on the above approach, the executive compensation peer group approved by the CGCNC consists of the following companies:
|
2014 EXECUTIVE COMPENSATION PEER GROUP |
|
|
|
|
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 |
|
TRW Automotive Holdings Corp.(1) |
|
Note:
- 1.
- Assuming
completion of the pending takeover of TRW Automotive Holdings Corp. by ZF Friedrichshafen, TRW will cease to be included in the executive compensation peer
group.
Compensation 67
Performance Stock Option Peer Group Consists of 13 Automotive Companies
Magna's performance stock option peer group consists of 13 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.
Hugessen
recommended, and the CGCNC approved in early 2015, a performance stock option peer group consisting of the following companies:
|
2014 PERFORMANCE STOCK OPTION PEER GROUP |
|
|
|
|
American Axle Manufacturing & Holdings Inc. |
|
Lear Corp. |
|
Autoliv, Inc. |
|
Linamar Corp. |
|
BorgWarner Inc. |
|
Martinrea International Inc. |
|
Dana Holding Corporation |
|
Tenneco Inc. |
|
Delphi Automotive plc |
|
TRW Automotive Holdings Corp.(1) |
|
Gentex Corp. |
|
Visteon Corp. |
|
Johnson Controls Inc. |
|
|
|
Note:
- 1.
- Assuming
completion of the pending takeover of TRW Automotive Holdings Corp. by ZF Friedrichshafen, TRW will cease to be included in the performance stock option
peer group.
68 Compensation
C. Elements of Magna's 2014 Executive Compensation Program
2014 NEOs |
|
For 2014, our Named Executive Officers consisted of: |
|
|
|
|
|
|
|
Donald J. Walker |
|
Chief Executive Officer |
|
|
Vincent J. Galifi |
|
Executive Vice-President and Chief Financial Officer |
|
|
Tommy J. Skudutis |
|
Chief Operating Officer, Exteriors, Interiors, Seating, Mirrors, Closures and Cosma |
|
|
Jeffrey O. Palmer |
|
Executive Vice-President and Chief Legal Officer |
|
|
Guenther Apfalter |
|
President, Magna Europe and Magna Steyr |
|
|
Our NEOs are unchanged from 2013. |
Employment Contracts |
|
Each NEO is subject to an employment agreement which specifies: |
|
|
his base salary and profit sharing percentages, including the proportions of the annual profit sharing bonus payable in cash and RSUs; |
|
|
standard benefits to be provided; |
|
|
terms on which compensation can be clawed-back; |
|
|
the securities maintenance formula applicable to the executive; and |
|
|
the basis on which the executive's employment may be terminated. |
Overview |
|
Our 2014 compensation program for the NEOs consisted of the following elements: |
|
|
|
|
Compensation 69
|
|
The elements of compensation described above represented the following percentages of 2014 total compensation: |
|
|
Average NEO
Total Compensation |
|
|
|
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; |
|
|
reinforce the link between executive pay and corporate performance; and |
|
|
reflect and reinforce our entrepreneurial corporate culture. |
|
|
During 2014, the Corporate NEOs received identical base salaries of $325,000. Mr. Apfalter's salary was EUR200,000. |
|
|
NAME
|
|
BASE SALARY
($)
|
|
|
|
Donald J. Walker |
|
325,000 |
|
|
|
Vincent J. Galifi |
|
325,000 |
|
|
|
Tommy J. Skudutis |
|
325,000 |
|
|
|
Jeffrey O. Palmer |
|
325,000 |
|
|
|
Guenther Apfalter |
|
242,000 |
(1) |
|
|
Note: |
|
1. Converted from Euros to US$ based on the BoC noon spot rate on December 31, 2014. |
|
70 Compensation
Annual Profit Sharing Bonus |
|
Each NEO is contractually entitled to receive a specified percentage of our Pre-Tax Profits Before Profit Sharing (defined in our Corporate Constitution) as an annual profit sharing bonus. 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 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. |
|
|
This specified 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 2014, Mr. Walker's effective profit sharing percentage was 0.6145% of our Pre-Tax Profits Before Profit Sharing. |
|
|
In the case of Mr. Apfalter, as he is the highest ranking officer responsible for Magna Europe and Magna Steyr, his compensation has been structured to include profit sharing in respect of both of those units, in addition to a
specified percentage of our Pre-Tax Profits Before Profit Sharing. |
Compensation 71
|
|
Due to the impact of the profit sharing step-downs, the aggregate effective profit sharing percentages for NEOs were as follows in 2014: |
|
NAME
|
|
2014
AGGREGATE
SPECIFIED
PROFIT
SHARING
PERCENTAGE
(%)
|
|
2014
AGGREGATE
EFFECTIVE
PROFIT
SHARING
PERCENTAGE
(%)
|
|
Donald J. Walker |
|
0.750 |
|
0.6145 |
|
Vincent J. Galifi |
|
0.300 |
|
0.2458 |
|
Tommy J. Skudutis |
|
0.300 |
|
0.2458 |
|
Jeffrey O. Palmer |
|
0.225 |
|
0.1844 |
|
Guenther Apfalter(1) |
|
0.014 |
|
0.0115 |
|
Note: |
1. Mr. Apfalter's profit sharing percentage shown only reflects his profit sharing in respect of Magna's Pre-Tax Profits Before Profit Sharing. |
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. Eighty percent of Mr. Apfalter's profit sharing
bonuses in respect of Magna, Magna Europe and Magna Steyr was paid in cash, with the remaining 20% paid in the form of RSUs. |
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: |
|
|
consistent profitability to achieve stable levels of annual compensation; and |
|
|
long-term growth in profitability to achieve long-term compensation growth. |
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. |
72 Compensation
2.
Annual Profit Sharing Bonus Cash Portion: |
|
Annual profit sharing bonuses paid in cash to NEOs were as follows in 2014: |
|
NAME
|
|
2014 EFFECTIVE
PROFIT
SHARING CASH
(%)
|
|
2014 EFFECTIVE
PROFIT
SHARING CASH
($)
|
|
Donald J. Walker |
|
0.3687 |
|
10,535,000 |
|
Vincent J. Galifi |
|
0.1475 |
|
4,214,000 |
|
Tommy J. Skudutis |
|
0.1475 |
|
4,214,000 |
|
Jeffrey O. Palmer |
|
0.1106 |
|
3,161,000 |
|
Guenther Apfalter(1) |
|
0.0092 |
|
262,000 |
|
Note: |
1. For comparability, Mr. Apfalter's effective profit sharing percentage and dollar value only reflects his profit sharing in respect of Magna's consolidated Pre-Tax Profits Before Profit Sharing. The aggregate amount paid to
Mr. Apfalter in 2014 as cash profit sharing in respect of Magna Europe and Magna Steyr was $1,902,000 (converted from Euros to US$ based on the BoC noon spot rate on December 31, 2014), resulting in total cash profit sharing of $2,164,000
for 2014. |
|
|
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. The cash portion of Mr. Apfalter's profit sharing bonus is paid in 14 installments. |
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. |
|
|
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. |
Compensation 73
|
|
Annual NEO profit sharing bonuses deferred in the form of RSUs were as follows in 2014: |
|
NAME
|
|
2014 EFFECTIVE
PROFIT
SHARING RSUS
(%)
|
|
2014 EFFECTIVE
PROFIT
SHARING RSUS
($)
|
|
Donald J. Walker |
|
0.2458 |
|
7,024,000 |
|
Vincent J. Galifi |
|
0.0983 |
|
2,809,000 |
|
Tommy J. Skudutis |
|
0.0983 |
|
2,809,000 |
|
Jeffrey O. Palmer |
|
0.0738 |
|
2,107,000 |
|
Guenther Apfalter(1) |
|
0.0023 |
|
66,000 |
|
Note: |
1. For comparability, Mr. Apfalter's effective profit sharing percentage and dollar value only reflects his profit sharing in respect of Magna's consolidated Pre-Tax Profits Before Profit Sharing. The aggregate amount deferred
to Mr. Apfalter's RSU account in 2014 in respect of Magna Europe and Magna Steyr was $475,000 (converted from Euros to US$ based on the BoC noon spot rate on December 31, 2014), resulting in total profit sharing of $541,000
for 2014. |
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. |
RSUs are Deferred for Over Two Fiscal Years |
|
As discussed above, RSUs are redeemed in December of the second year after the year in which they were granted. For example, RSUs which were granted in 2014 will be redeemed in December 2016. On redemption, we deliver Magna Common Shares equal
to the number of RSUs. |
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 2015 relate to the optionees' performance in 2014 and, in the case of NEOs, have been
included as 2014 compensation in the Summary Compensation Table. Annual stock option grants are not expected to exceed 1% of our issued and outstanding shares. |
74 Compensation
|
|
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 new 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 on or after each vesting date 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
|
|
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 |
|
|
|
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. |
|
|
The following graphic depicts the mechanics of the relative TSR performance hurdle, as applied to a theoretical grant of 60,000 options: |
|
|
|
Compensation 75
|
|
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 27, 2015: |
|
TYPE OF OPTION
|
|
EXERCISE
PRICE
($)
|
|
ELIGIBLE
OPTIONEES
|
|
NO. OF
OPTIONS
|
|
OPTION BURN
RATE(1)
(%)
|
|
Performance-vested Options |
|
109.06 |
|
6 |
|
334,117 |
|
0.16 |
|
Time-vested Options |
|
C$136.48/109.06 |
|
101 |
|
466,421 |
|
0.23 |
|
|
Total |
|
|
|
107 |
|
800,538 |
|
0.39 |
|
Note: |
|
|
1. Represents the applicable number of options, stated as a percentage of Magna's issued and outstanding shares on the grant date. |
|
|
|
|
For a discussion of the process and criteria used to determine the overall size of option grants, please refer to Section B of this CD&A. |
|
|
A total of 311,194 of the 334,117 performance stock options granted on February 27, 2015 were granted to NEOs, as follows: |
|
NAME
|
|
NO. OF
OPTIONS
(#)
|
|
GRANT DATE
FAIR VALUE(1)
($)
|
|
Donald J. Walker |
|
160,207 |
|
3,145,000 |
|
Vincent J. Galifi |
|
56,391 |
|
1,107,000 |
|
Tommy J. Skudutis |
|
50,635 |
|
994,000 |
|
Jeffrey O. Palmer |
|
21,038 |
|
413,000 |
|
Guenther Apfalter |
|
22,923 |
|
450,000 |
|
Note: |
1. See Note 2 to "Summary Compensation Table" for details regarding the methodology and assumptions used to calculate the grant date fair value. |
|
|
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 27, 2015, Magna's option dilution and overhang were as follows: |
|
|
|
|
|
Notes: |
|
|
1. Represents all stock options previously granted but not exercised as of February 27, 2015, expressed as a proportion of the number of Magna's Common Shares which were issued
and outstanding as of such date. |
|
|
2. Represents all stock options available for grant and all stock options previously granted but not exercised as of February 27, 2015, expressed as a proportion of the number of
Magna's Common Shares which were issued and outstanding as of such date. |
|
|
|
76 Compensation
Stock Option Plans |
|
Current stock option grants are made under our 2009 Incentive Stock Option Plan, which was approved by shareholders in May 2010. Stock options granted prior to December 31, 2009 were made under our Amended and Restated Incentive Stock
Option Plan, which has been discontinued for grants after December 31, 2009. Both option plans are discussed in further detail under "Incentive Plan Awards". |
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. |
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. |
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. |
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: |
|
|
during the ten-year release period, the executive competes with Magna, solicits Magna employees or discloses confidential Magna information to a third party; |
|
|
while employed by Magna, the executive fails to devote his full time and attention to Magna's business; or |
|
|
the executive's employment is terminated due to theft, bribery or fraud. |
|
|
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. |
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", "calls",
"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. |
Compensation 77
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. |
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. |
Medical, Dental and Disability Benefits |
|
NEOs receive the same medical, dental and disability benefits as other employees in the same country. |
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 2014, the premiums reimbursed were as follows: |
|
|
Donald Walker: $143,000(1) |
|
|
Vincent Galifi: $52,000(1) |
|
|
|
|
|
Note: |
|
|
1. Converted from C$ at the BoC noon spot rate on December 31, 2014. |
|
|
Life insurance premium reimbursements are not grossed-up for income tax. |
"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. In addition,
Mr. Apfalter is provided with a car leased at the company's expense. |
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". |
|
|
|
78 Compensation
Occasional Access to Corporate Facilities Is Subject to Reimbursement |
|
During 2014, we held one property in each of North America and Europe which were available primarily for business purposes. Subject to availability, executives are allowed to rent either property for occasional personal use. The nightly rental
rates for the properties were previously set with reference to comparable facilities. Any personal use is billed to an executive and must be reimbursed in full. The North American property is expected to be sold in 2015. |
|
|
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. |
Executive Equity Ownership |
|
|
Executive Management Exceeds 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. |
|
NAME
|
|
NO. OF
SHARES
AND RSUS
TO BE HELD
(#)
|
|
NO. OF
SHARES
AND RSUS
HELD AS OF
12/31/14
(#)
|
|
MEETS OR
EXCEEDS
|
|
12/31/14
VALUE(1)
($)
|
|
Donald J. Walker |
|
103,989 |
|
627,217 |
|
Exceeds |
|
68,172,200 |
|
Vincent J. Galifi |
|
126,020 |
|
400,171 |
|
Exceeds |
|
43,494,600 |
|
Tommy J. Skudutis |
|
58,268 |
|
170,070 |
|
Exceeds |
|
18,484,900 |
|
Jeffrey O. Palmer |
|
65,699 |
|
163,499 |
|
Exceeds |
|
17,770,700 |
|
Guenther Apfalter |
|
17,404 |
|
32,628 |
|
Exceeds |
|
3,546,300 |
|
Note: |
1. Based on the closing price of Magna Common Shares on the NYSE on December 31, 2014. |
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. Mr. Apfalter is entitled to 12 months' severance pay in the
event of termination without cause. |
Compensation 79
|
NAME
|
|
TENURE WITH
(MAGNA)
(YEARS)
|
|
SEVERANCE
ENTITLEMENT
(# MONTHS)
|
|
Donald J. Walker |
|
27+ |
|
24 |
|
Vincent J. Galifi |
|
25+ |
|
24 |
|
Tommy J. Skudutis |
|
23+ |
|
24 |
|
Jeffrey O. Palmer |
|
14+ |
|
24 |
|
Guenther Apfalter |
|
13+ |
|
12 |
|
|
|
Severance payments are based on the average of an NEO's total compensation excluding LTIs for the 12 fiscal quarters prior to the termination. |
|
|
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". |
Change in Control Protections |
|
|
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. |
|
|
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. |
|
|
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. |
|
|
|
80 Compensation
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
|
|
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 |
|
1987 Plan: Unvested and unexercised options expire on effective date of resignation.
2009 Plan: Unvested and unexercised options expire on earlier of option expiry date and three months after effective date of resignation. |
|
1987 Plan: Unvested and unexercised options expire on earlier of option expiry date and three years after effective date of retirement.
2009 Plan: Same. |
|
1987 Plan: All unexercised options expire on effective date of termination.
2009 Plan: Same. |
|
1987 Plan: Unvested and unexercised options expire on earlier of option expiry date and three months after effective date of termination. Same applies to
performance stock options.
2009 Plan: Same. |
|
1987 Plan: 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.
2009 Plan: Same. |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation 81
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 |
|
31,808,000 |
|
31,808,000 |
|
|
RSUs |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Stock Options |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
15,677,000 |
(1) |
|
Benefits & Perks |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Pension |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
47,485,000 |
|
|
|
Vincent J. Galifi |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
NIL |
|
NIL |
|
NIL |
|
13,113,000 |
|
13,113,000 |
|
|
RSUs |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Stock Options |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
5,763,000 |
(1) |
|
Benefits & Perks |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Pension |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
18,876,000 |
|
|
|
Tommy J. Skudutis |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
NIL |
|
NIL |
|
NIL |
|
13,446,000 |
|
13,446,000 |
|
|
RSUs |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Stock Options |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
4,743,000 |
(1) |
|
Benefits & Perks |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Pension |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
18,189,000 |
|
|
|
Jeffrey O. Palmer |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
NIL |
|
NIL |
|
NIL |
|
9,997,000 |
|
9,997,000 |
|
|
RSUs |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Stock Options |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
2,634,000 |
(1) |
|
Benefits & Perks |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Pension |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
12,631,000 |
|
|
|
Guenther Apfalter |
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
NIL |
|
NIL |
|
NIL |
|
2,636,000 |
|
2,636,000 |
|
|
RSUs |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Stock Options |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Benefits & Perks |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
Pension |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
NIL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
2,636,000 |
|
|
|
|
|
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, 2014, converted at the BoC noon spot rate on such date since these options are denominated in C$. |
82 Compensation
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 Corporate 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 Directly Reduce Executive Compensation |
|
Under Magna's profit sharing formula, impairments and restructuring charges directly 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 Corporate NEOs and shareholders over the deferral period. |
Compensation 83
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 during 2012 and afterwards are subject to forfeiture in the event of theft, bribery and fraud. |
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 member, 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"
($)
|
|
Donald J. Walker |
|
51,466,000 |
|
17,098,000 |
|
92,984,000 |
|
161,548,000 |
|
Vincent J. Galifi |
|
36,623,000 |
|
6,840,000 |
|
20,558,000 |
|
64,021,000 |
|
Tommy J. Skudutis |
|
11,905,000 |
|
6,840,000 |
|
5,118,000 |
|
23,863,000 |
|
Jeffrey O. Palmer |
|
12,790,000 |
|
5,130,000 |
|
24,495,000 |
|
42,415,000 |
|
Guenther Apfalter |
|
2,173,000 |
|
1,480,000 |
|
5,925,000 |
|
9,578,000 |
|
|
|
Notes: |
|
|
1. Calculated using the closing price of Magna Common Shares on the NYSE on the Record Date.
2. Calculated using the closing price of Magna Common Shares on the TSX or NYSE, as applicable, and the BoC noon spot rate on the Record Date for options denominated in C$. |
|
|
|
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 |
|
The provisions of Magna's Code of Conduct & Ethics prohibit all Magna employees, including NEOs, from hedging their exposure to declines in Magna's share price. This measure seeks to maintain alignment of interests between executives and
shareholders. |
84 Compensation
Summary Compensation Table
The following table sets forth a summary of all compensation earned in respect of 2014, 2013 and 2012 by the individuals who were our
Named Executive Officers in respect of 2014. 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 |
|
2014 |
|
325,000 |
|
7,024,000 |
|
3,145,000 |
|
10,535,000 |
|
NIL |
|
NIL |
|
175,000 |
(4) |
21,204,000 |
Chief Executive Officer |
|
2013 |
|
325,000 |
|
6,298,000 |
|
2,727,000 |
|
9,447,000 |
|
NIL |
|
NIL |
|
182,000 |
(4) |
18,979,000 |
|
|
2012 |
|
325,000 |
|
5,373,000 |
|
2,722,000 |
|
8,059,000 |
|
NIL |
|
NIL |
|
216,000 |
(4) |
16,695,000 |
|
Vincent J. Galifi |
|
2014 |
|
325,000 |
|
2,809,000 |
|
1,107,000 |
|
4,214,000 |
|
NIL |
|
NIL |
|
66,000 |
(5) |
8,521,000 |
Executive Vice-President |
|
2013 |
|
325,000 |
|
2,519,000 |
|
950,000 |
|
3,779,000 |
|
NIL |
|
NIL |
|
88,000 |
(5) |
7,661,000 |
and Chief Financial Officer |
|
2012 |
|
325,000 |
|
2,149,000 |
|
953,000 |
|
3,224,000 |
|
NIL |
|
NIL |
|
75,000 |
(5) |
6,726,000 |
|
Tommy J. Skudutis |
|
2014 |
|
325,000 |
|
2,809,000 |
|
994,000 |
|
4,214,000 |
|
NIL |
|
NIL |
|
14,000 |
(6) |
8,356,000 |
Chief Operating Officer, |
|
2013 |
|
325,000 |
|
2,519,000 |
|
868,000 |
|
3,779,000 |
|
NIL |
|
NIL |
|
11,000 |
(6) |
7,502,000 |
Exteriors, Interiors, Seating, |
|
2012 |
|
325,000 |
|
2,649,000 |
|
817,000 |
|
3,224,000 |
|
NIL |
|
NIL |
|
39,000 |
(6) |
7,054,000 |
Mirrors, Closures and Cosma |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey O. Palmer |
|
2014 |
|
325,000 |
|
2,107,000 |
|
413,000 |
|
3,161,000 |
|
NIL |
|
NIL |
|
NIL |
|
6,006,000 |
Executive Vice-President |
|
2013 |
|
325,000 |
|
1,889,000 |
|
413,000 |
|
2,834,000 |
|
NIL |
|
NIL |
|
35,000 |
(7) |
5,496,000 |
and Chief Legal Officer |
|
2012 |
|
325,000 |
|
1,612,000 |
|
408,000 |
|
2,418,000 |
|
NIL |
|
NIL |
|
50,000 |
(7) |
4,813,000 |
|
Guenther Apfalter |
|
2014 |
|
242,000 |
|
541,000 |
|
450,000 |
|
2,164,000 |
|
NIL |
|
NIL |
|
37,000 |
(8) |
3,434,000 |
President, Magna Europe |
|
2013 |
|
276,000 |
|
567,000 |
|
413,000 |
|
2,266,000 |
|
NIL |
|
NIL |
|
32,000 |
(8) |
3,554,000 |
and Magna Steyr |
|
2012 |
|
264,000 |
|
318,000 |
|
701,000 |
|
1,270,000 |
|
NIL |
|
NIL |
|
52,000 |
(8) |
2,605,000 |
|
Notes:
- 1.
- Amounts
disclosed in this column represent the grant date fair value of annual profit sharing bonuses deferred in the form of RSUs.
- 2.
- Option
values shown for 2014 represent the grant date fair value of performance-vested stock options granted effective February 27, 2015 in respect of each NEO's performance in
2014. Such option value was determined by the CGCNC with initial reference to the value of a time-vested stock option determined using the Black-Scholes option pricing model, as set forth in the table
below. Since the inputs and assumptions used in the Black-Scholes option pricing model would have resulted in a a value of 15.6% of the option exercise price, a value which the CGCNC deemed to be
unreasonably low, the CGCNC imposed a "floor" value of 20% of the exercise price. The CGCNC then assigned a 10% discount to the "floor" value to reflect the impact of the relative performance hurdle
and risk of forfeiture inherent in the performance-vested stock options. In determining the discount to be 10%, 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.
The
compensation value of the options shown for 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 2014 options, based on an exercise price of $109.06 (being the closing price of Magna Common Shares on
February 26, 2015) was as follows:
|
2014 PERFORMANCE STOCK OPTION VESTING TRANCHE
|
|
PERCENT OF GRANT
|
|
SIMULATED FAIR VALUE
|
|
|
|
|
|
|
Tranche 1 |
|
21.86% |
|
$23.84 |
|
Tranche 2 |
|
23.07% |
|
$25.16 |
|
Tranche 3 |
|
24.05% |
|
$26.23 |
|
Amounts
disclosed in the "Option-Based Awards" column in respect of 2013 and 2012 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 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.
Compensation 85
The
weighted average assumptions used in measuring the Black-Scholes fair value of stock options granted in respect of 2014, 2013 and 2012, as well as the "floor" value determined in respect of 2014,
are as follows:
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
0.63% |
|
1.60% |
|
1.32% |
|
Expected dividend yield |
|
2.00% |
|
2.00% |
|
2.00% |
|
Expected volatility |
|
23% |
|
29% |
|
34% |
|
Expected time until exercise |
|
4.5 years |
|
4.5 years |
|
4.5 years |
|
Grant Date Fair Value per option (Black-Scholes) |
|
C$21.32 / $17.04 |
|
C$22.94 / $20.66 |
|
C$14.02 / $13.61 |
|
"Floor" Value |
|
C$27.30 / $21.81 |
|
|
|
|
|
- 3.
- Amounts
disclosed in this column represent annual profit sharing bonuses paid in cash.
- 4.
- These
amounts are comprised of:
|
DESCRIPTION
|
|
2014
($)
|
|
2013
($)
|
|
2012
($)
|
|
Amounts reimbursed by Magna in respect of premiums paid by Mr. Walker on a life insurance policy |
|
143,000 |
|
156,000 |
|
166,000 |
|
Personal use of corporate aircraft |
|
32,000 |
|
26,000 |
|
50,000 |
|
|
Total |
|
175,000 |
|
182,000 |
|
216,000 |
|
- 5.
- These
amounts are comprised of:
|
DESCRIPTION
|
|
2014
($)
|
|
2013
($)
|
|
2012
($)
|
|
Amounts reimbursed by Magna in respect of premiums paid by Mr. Galifi on a life insurance policy |
|
52,000 |
|
56,000 |
|
60,000 |
|
Personal use of corporate aircraft |
|
14,000 |
|
32,000 |
|
15,000 |
|
|
Total |
|
66,000 |
|
88,000 |
|
75,000 |
|
- 6.
- These
amounts are comprised of:
|
DESCRIPTION
|
|
2014
($)
|
|
2013
($)
|
|
2012
($)
|
|
Personal use of corporate aircraft |
|
14,000 |
|
11,000 |
|
39,000 |
|
- 7.
- These
amounts are comprised of:
|
DESCRIPTION
|
|
2014
($)
|
|
2013
($)
|
|
2012
($)
|
|
Personal use of corporate aircraft |
|
NIL |
|
35,000 |
|
50,000 |
|
- 8.
- These
amounts are comprised of:
|
DESCRIPTION
|
|
2014
($)
|
|
2013
($)
|
|
2012
($)
|
|
Personal use of corporate aircraft |
|
9,000 |
|
NIL |
|
22,000 |
|
Company vehicle |
|
28,000 |
|
32,000 |
|
30,000 |
|
|
Total |
|
37,000 |
|
32,000 |
|
52,000 |
|
86 Compensation
Incentive Plans and Awards
Stock Option Plans |
|
We currently have two incentive stock option plans, both administered by the CGCNC, under which stock options have been granted: |
|
|
the 2009 Plan, which was approved by shareholders on May 6, 2010; and |
|
|
the 1987 Plan, which was approved by shareholders on December 10, 1987, and subsequently amended on May 18, 2000 and May 10, 2007. |
No Future Grants Under 1987 Plan |
|
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. As of December 31, 2014, a total of
350,341 previously granted options are fully vested and remained unexercised under the 1987 Plan. Such options expire in February 2016. |
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 |
|
Options granted to employees and consultants 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. Subject to accelerated expiry in certain circumstances,
options granted under the 2009 Plan expire seven years after grant, unless otherwise determined by the CGCNC. The additional terms applicable to the performance stock options issued on February 27, 2015 are described in Section C of the
CD&A. 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. |
Compensation 87
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 2014. |
Copies of Option Plans on Magna.com |
|
The full text of the amended and restated 2009 Plan and the 1987 Plan are available on our website (www.magna.com). |
Equity Compensation Plan Information |
|
As of December 31, 2014 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 |
|
|
|
|
|
12/31/2014
(#) |
|
RECORD
DATE
(#) |
|
12/31/2014
($) |
|
RECORD
DATE
($) |
|
12/31/2014
(#) |
|
RECORD
DATE
(#) |
|
Equity compensation plans approved by securityholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
1987 Plan |
|
350,341 |
|
350,341 |
|
C$16.55 |
|
C$16.55 |
|
|
|
|
|
2009 Plan |
|
3,806,988 |
|
4,466,792 |
|
C$57.51 |
|
C$71.61 |
|
6,793,030 |
|
6,037,528 |
|
|
|
|
Total |
|
4,157,329 |
|
4,817,133 |
|
C$54.05 |
|
C$67.60 |
|
6,793,030 |
|
6,037,528 |
|
88 Compensation
Outstanding Option-Based Awards |
|
Outstanding option-based awards for each of our Named Executive Officers as of December 31, 2014 were as follows: |
|
|
|
OPTION-BASED AWARDS
|
|
SHARE-BASED AWARDS
|
|
|
|
NAME
|
|
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
OPTIONS
(#)
|
|
OPTION EXERCISE PRICE
|
|
OPTION EXPIRATION DATE
(MM/DD/YY)
|
|
VALUE OF UNEXERCISED
IN-THE-MONEY
OPTIONS(1)
($)
|
|
NUMBER OF SHARE-BASED AWARDS THAT HAVE NOT VESTED
(#)
|
|
MARKET OR PAYOUT VALUE OF SHARE-BASED AWARDS THAT HAVE NOT VESTED
($)
|
|
MARKET OR PAYOUT VALUE OF VESTED SHARE-BASED AWARDS NOT PAID OUT OR DISTRIBUTED(2)
($)
|
|
Donald J. Walker |
|
200,000 |
|
C$16.545 |
|
02/26/2016 |
|
18,851,100 |
|
NIL |
|
NIL |
|
16,097,300 |
|
|
500,000 |
|
C$30.00 |
|
02/25/2017 |
|
41,328,600 |
|
|
|
|
|
|
|
|
250,000 |
|
C$48.22 |
|
03/01/2019 |
|
16,737,900 |
|
|
|
|
|
|
|
|
200,000 |
|
C$57.02 |
|
03/03/2020 |
|
11,873,200 |
|
|
|
|
|
|
|
|
132,000 |
|
C$106.71 |
|
03/04/2021 |
|
2,182,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
1,282,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincent J. Galifi |
|
100,000 |
|
C$30.00 |
|
02/25/2017 |
|
8,265,700 |
|
NIL |
|
NIL |
|
6,439,000 |
|
|
100,000 |
|
C$48.22 |
|
03/01/2019 |
|
6,695,200 |
|
|
|
|
|
|
|
|
70,000 |
|
C$57.02 |
|
03/03/2020 |
|
4,155,600 |
|
|
|
|
|
|
|
|
46,000 |
|
C$106.71 |
|
03/04/2021 |
|
760,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
316,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tommy J. Skudutis |
|
25,000 |
|
C$48.22 |
|
03/01/2019 |
|
1,673,800 |
|
NIL |
|
NIL |
|
4,829,200 |
|
|
40,000 |
|
C$57.02 |
|
03/03/2020 |
|
2,374,600 |
|
|
|
|
|
|
|
|
42,000 |
|
C$106.71 |
|
03/04/2021 |
|
694,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
107,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey O. Palmer |
|
225,000 |
|
C$30.00 |
|
02/25/2017 |
|
18,597,900 |
|
NIL |
|
NIL |
|
6,439,000 |
|
|
50,000 |
|
C$48.22 |
|
03/01/2019 |
|
3,347,600 |
|
|
|
|
|
|
|
|
30,000 |
|
C$57.02 |
|
03/03/2020 |
|
1,781,000 |
|
|
|
|
|
|
|
|
20,000 |
|
C$106.71 |
|
03/04/2021 |
|
330,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
325,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guenther Apfalter |
|
20,000 |
|
C$50.66 |
|
12/31/2017 |
|
1,297,000 |
|
NIL |
|
NIL |
|
1,347,500 |
|
|
33,333 |
|
C$48.22 |
|
03/01/2019 |
|
2,231,700 |
|
|
|
|
|
|
|
|
30,000 |
|
C$57.02 |
|
03/03/2020 |
|
1,781,000 |
|
|
|
|
|
|
|
|
20,000 |
|
C$106.71 |
|
03/04/2021 |
|
330,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
103,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
- 1.
- Determined
using the closing price of Magna Common Shares on the TSX on December 31, 2014 and the BoC noon spot rate on such date since these options are denominated
in C$.
- 2.
- Represents
the market value of previously granted, unreleased restricted shares and any RSUs which had not been redeemed as at December 31, 2014. The value shown was determined
using the closing price of Magna Common Shares on the NYSE on December 31, 2014.
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, 2014, 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 |
|
7,152,900 |
|
7,375,000 |
|
10,535,000 |
|
Vincent J. Galifi |
|
2,712,100 |
|
2,956,000 |
|
4,214,000 |
|
Tommy J. Skudutis |
|
2,145,900 |
|
2,956,000 |
|
4,214,000 |
|
Jeffrey O. Palmer |
|
1,281,600 |
|
2,218,000 |
|
3,161,000 |
|
Guenther Apfalter |
|
1,281,600 |
|
670,000 |
|
2,466,000 |
|
Notes:
- 1.
- Represents
the vesting date value of previouly granted stock options which vested during 2014 and assumes that any such options which were in-the-money were exercised on the vesting
date.
- 2.
- Represents
the value of profit sharing bonuses deferred in the form of RSUs in respect of 2014, all of which vested in 2014. Also includes dividends credited on NEO's aggregate
RSU balance, which includes RSUs granted in prior years.
- 3.
- Represents
the value of profit sharing bonuses paid in cash in respect of 2014.
Compensation 89
|
Interests of
Management and Other Insiders in Certain Transactions 92 Additional
Information 92 Definitions and Interpretation 94 Additional Information
|
Interests of Management and Other Insiders in Certain Transactions
|
|
|
Purchases of Common Shares by Non-Independent Trust |
|
During 2014, 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 $63 million from Magna to facilitate the purchase of Common Shares. At December 31, 2014, the Trusts' indebtedness to Magna was $63 million. |
Additional Information
|
|
|
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 2014 to Magna or its subsidiaries. None of Magna's or its subsidiaries' present or former employees were indebted
at any time during 2014 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 $1.6 million in the case of present and former employees of Magna and its subsidiaries. |
Directors' and Officers' Insurance |
|
Effective September 1, 2014, Magna renewed its directors' and officers' liability insurance for a one-year renewal period. This insurance provides, among other coverages, coverage of up to $270 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, 2014 to September 1, 2015 for the directors' and officers' liability portion of this insurance policy was approximately $2.0 million. |
Shareholder Proposals and Communication |
|
Proposals of shareholders intended to be presented at our Annual Meeting of Shareholders to be held in 2016 must be received by us at our principal executive offices on or before March 7, 2016 in order to be included in our 2016 Management
Information Circular/Proxy Statement. |
92 Additional
Information
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. |
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 25, 2015 |
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 2014. For more information about Magna, visit Magna's website at www.magna.com.
Additional Information 93
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: |
Board: |
|
our Board of Directors. |
BoC: |
|
the Bank of Canada. |
C$: |
|
Canadian dollars. |
CGCNC: |
|
the Corporate Governance, Compensation and Nominating Committee of our Board. |
Deloitte: |
|
Deloitte LLP |
DSUs: |
|
deferred share units. |
EROC: |
|
the Enterprise Risk Oversight Committee of our Board. |
EUR: |
|
Euros |
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". |
Kingsdale: |
|
Kingsdale Shareholder Services, Magna's proxy solicitation agent for the Meeting. |
NYSE: |
|
The New York Stock Exchange. |
OBCA: |
|
the Business Corporations Act (Ontario). |
RSUs: |
|
restricted stock units. |
TSX: |
|
the Toronto Stock Exchange. |
Currency, Exchange Rates and Share Prices |
|
Dollar amounts in this Circular are stated in U.S. dollars, unless otherwise indicated, and have been rounded. 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$1.00 = US$) |
|
December 31, 2014 |
|
108.69 |
|
125.89 |
|
0.8620 |
|
March 24, 2015 |
|
107.42 |
|
134.31 |
|
0.7993 |
|
Information Currency |
|
The information in this Circular is current as of March 24, 2015, unless otherwise stated. Effective March 25, 2015, Magna's Common Shares will be split on a two-for-one basis. All references in
this Circular to a number of shares or options reflects the pre-stock split number of shares or options. |
94 Additional
Information
|
Transfer Agent
and Registrar Computershare Trust Company of Canada 100 University Avenue,
8th Floor Toronto, Ontario, Canada M5J 2Y1 Telephone: 1 (800) 564-6253
Computershare Trust Company N.A. 250 Royall Street Canton, MA, USA 02021
Telephone: (781) 575-3120 www.computershare.com Exchange Listings Common
Shares Toronto Stock Exchange MG New York Stock Exchange MGA Corporate Office
Magna International Inc. 337 Magna Drive, Aurora, Ontario Canada L4G 7K1
Telephone: (905) 726-2462 Fax: (905) 726-7164 magna.com
|
|
magna.com
|
QuickLinks
Exhibit 22.2
|
. MR SAM SAMPLE
123 SAMPLES STREET SAMPLETOWN SS X9X 9X9 0143UD 8th Floor, 100 University
Avenue Toronto, Ontario M5J 2Y1 www.computershare.com Fold Fold Form of Proxy
- Annual Meeting (the Meeting) to be held on Thursday, May 7, 2015 VOTE
USING THE TELEPHONE, INTERNET OR MAIL: Instead of mailing this Proxy, you may
choose ONE of the two other voting methods outlined in this Proxy (phone or
internet), subject to the following: Voting by mail may be the only method
for holdings held in the name of a corporation or holdings being voted on
behalf of another individual. Voting by mail or internet are the only methods
by which a holder may appoint a person as proxyholder other than the
Management appointees named on the reverse of this Proxy. If you vote by
telephone or the internet, DO NOT mail back this Proxy. Proxies submitted
must be received by 5:00 p.m. (Toronto Time) on Tuesday, May 5, 2015. To vote
by telephone or the internet, you will need to provide your CONTROL NUMBER
listed below CONTROL NUMBER 123456 Security Class COMMON C1234567890 X X X
Holder Account Number Complete, sign and date the reverse hereof. Return
this Proxy in the envelope provided. To Vote by Mail To Vote Using the
Internet . Call the number listed BELOW from a touch tone telephone. To
Vote Using the Telephone . You can enroll to receive future securityholder
communications electronically by visiting www. computershare.com/eDelivery
and clicking on eDelivery Signup. To Receive Documents Electronically .
Go to the following web site: www.investorvote.com Smartphone? Scan the QR
code to vote now. 1-866-732-VOTE (8683) Toll Free This Form of Proxy is
solicited by and on behalf of Management of Magna International Inc. (the
Corporation) 1. Every shareholder has the right to appoint some other
person of their choice, who need not be a shareholder, to attend and act on
their behalf at the Meeting. If you wish to appoint a person other than the
Magna offi cers whose names are printed herein, please insert the name of
your chosen proxyholder in the space provided (see reverse). 2. If the
securities are registered in the name of more than one owner (for example,
joint ownership, trustees, executors, etc.), then all those registered should
sign this Proxy. If you are voting on behalf of a corporation or another
individual you may be required to provide documentation evidencing your power
to sign this Proxy with signing capacity stated. 3. This Proxy should be
signed in the exact manner as the shareholders name appears on the Proxy. 4.
If this Proxy is not dated, it will be deemed to bear the date on which it
was mailed by Management to the shareholder. 5. The securities represented by
this Proxy will be voted as directed by the shareholder, however, if such a
direction is not made in respect of any matter, this Proxy will be voted FOR
the election of the Management nominees listed in Item 1, FOR the
re-appointment of Deloitte LLP as the Corporations independent auditor and
authorization of the Audit Committee to fi x the independent auditors
remuneration in Item 2 and FOR the advisory resolution to accept the approach
to executive compensation disclosed in the accompanying Management
Information Circular / Proxy Statement in Item 3. 6. The securities
represented by this Proxy will be voted in accordance with the instructions
of the shareholder on any ballot that may be called for and, if the
shareholder has specifi ed a choice with respect to any matter to be acted
on, the securities will be voted accordingly. 7. This Proxy confers
discretionary authority in respect of amendments or variations to the matters
identifi ed in the Notice of Meeting and in respect of all other business or
matters that may properly come before the Meeting or any adjourned or
postponed meeting. 8. Please refer to the accompanying Management Information
Circular / Proxy Statement for further information regarding completion of
this Proxy and other information pertaining to the Meeting. Notes to Proxy:
|
|
. MGCQ 0143VB
999999999999 Appointment of Proxyholder Authorized Signature(s) - Sign Here -
This section must be completed for your instructions to be executed. I/We
authorize you to act in accordance with my/our instructions set out above.
I/We hereby revoke any Proxy previously given with respect to the Meeting. If
no voting instructions are indicated above, this Proxy will be voted FOR the
election of the Management nominees listed in Item 1, FOR the appointment of
the independent auditor, and authorization of the Audit Committee to fi x the
independent auditors remuneration in Item 2 and FOR the advisory resolution
to accept the approach to executive compensation disclosed in the
accompanying Management Information Circular/Proxy Statement in Item 3. MR
SAM SAMPLE 123 C1234567890 XXX 9 X X 0 5 2 2 3 3 Signature(s) Date Fold Fold
This Proxy is solicited by and on behalf of Management of the Corporation.
The undersigned shareholder of the Corporation hereby appoints Donald J.
Walker, or failing him, Vincent J. Galifi , or failing him, Jeffrey O.
Palmer, or instead of any of them the undersigned wishes to appoint (insert
name in box to the right), as the proxyholder of the undersigned, with full
power of substitution to attend at, and to act and vote on behalf of the
undersigned in respect of all matters that may come before the Annual Meeting
of the Shareholders of the Corporation to be held at The Westin Prince Hotel,
900 York Mills Road, Toronto, Ontario, Canada on Thursday, May 7, 2015 at
10:00 a.m. (Toronto time), and any and all adjourned or postponed meetings,
but with specifi c instructions as follows: If you are not mailing back your
Proxy, you may register online to receive the above fi nancial report(s) by
mail at www.computershare.com/mailinglist. Interim Financial Statements Mark
this box if you would like to receive interim fi nancial statements and
accompanying Managements Discussion and Analysis by mail. Annual Report Mark
this box if you would like to receive the Annual Report and accompanying
Managements Discussion and Analysis by mail. AR1 1. Election of Directors
For 01. Scott B. Bonham 04. V. Peter Harder Withhold 07. Cynthia A. Niekamp
Withhold For 02. Peter G. Bowie 05. Lady Barbara Judge 08. Dr. Indira V.
Samarasekera Withhold For 03. Hon. J. Trevor Eyton 06. Dr. Kurt J. Lauk 09.
Donald J. Walker 2. Appointment of Auditors Re-appointment of Deloitte LLP as
the independent auditor of the Corporation and authorization of the Audit
Committee to fi x the independent auditors remuneration. For Withhold 3.
Advisory Resolution on Executive Compensation 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. For
Against 10. Lawrence D. Worrall 11. William L. Young
|
Exhibit 23
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 5, 2015 relating to the consolidated financial statements of Magna International Inc. and subsidiaries (the Company), and the effectiveness of the Companys internal control over financial reporting, incorporated by reference from the Companys Current Report on Form 6-K dated March 27, 2015 to this Annual Report on Form 40-F of Magna International Inc. for the year ended December 31, 2014.
/s/ Deloitte LLP |
|
|
|
|
|
Chartered Professional Accountants, Chartered Accountants |
|
Licensed Public Accountants |
|
March 27, 2015 |
|
Toronto, Canada |
|
Exhibit 99.1
|
[LOGO]
|
|
[LOGO]
|
|
Multi-Material
Lightweight Vehicle (MMLV) This lightweight concept was designed, built, and
validated by Magna in partnership with Ford and the US Department of Energy.
The vehicle is based on a 2013 production Ford Fusion and through the use of
innovative metal forming and joining technologies and the use of multi
materials achieved a 23.3% mass reduction. Magna's contribution to the
development of lightweight BIW, closures, cradles and bumpers resulted in
54.5% of the total vehicle mass savings.
|
|
*Reported as
United States generally accepted accounting principles. **Reported as
Canadian generally accepted accounting principles. SALES (U.S. $ Billions) 45
40 35 30 25 20 15 10 5 '05** '06** '07** '08** '09* '10* '11* '12* '13* '14*
36.6 $36.6B Sales +5% $8.69 Diluted EPS +29% $2.5B Operating Income +33%
$1.9B Net Income +21% 17.5M Shares Repurchased $1.8B Returned to Shareholders
- Share Repurchases $316M Returned to Shareholders - Dividends
|
|
Financial
Highlights 2014 DILUTED EARNINGS PER SHARE (U.S. $) 9.00 8.00 7.00 6.00 5.00
4.00 6.76 6.09 8.69 '12 '13 '14 OPERATING INCOME (U.S. $ Millions) 3,000
2,500 2,000 1,500 1,000 500 1,905 1,750 2,539 '12 '13 '14 2,000 1,500 1,000
500 1,561 1,433 1,882 '12 '13 '14 NET INCOME ATTRIBUTABLE TO MAGNA
INTERNATIONAL INC. (U.S. $ Millions)
|
|
Germany 40 22
Hungary 4 Ireland 1 Italy 3 2 Poland 7 Romania 1 Russia 5 Serbia 1 Slovak
Republic 3 Spain 4 Sweden 2 Turkey 3 EUROPE Austria 18 9 Belgium 2 Bulgaria 1
Czech Republic 10 1 England 9 1 France 4 2 ASIA China 31 9 India 8 5 Japan 1
3 Korea 5 2 Thailand 1 1 NORTH AMERICA Canada 47 10 United States 61 12
Mexico 30 1 SOUTH AMERICA Argentina 3 Brazil 10 2 Manufacturing / Assembly
(Total: 313) Engineering / Product Development / Sales (Total: 84) Number of
Employees (Approximate Total: 131,000) Europe 46,150 Asia 12,400 South
America 4,400 116 39 46 20 13 2 United States 23,450 61 12 Mexico 24,625 30 1
Canada 20,200 47 10 (as of December 31, 2014) Global Operations
|
|
Magna's entrepreneurial
corporate culture, highlighted in the principles shown below, is one of the
main reasons for Magna's success and our greatest competitive advantage.
Decentralized Operating Structure Magna's manufacturing divisions operate as
independent profit centres aligned by geographic region in each of our
product areas. This decentralized structure prevents bureaucracy and makes
Magna more responsive to customer needs and changes within the global
automotive industry, as well as within specific regions. Employee Involvement
By keeping operating units relatively small and flexible, Magna fosters
greater employee involvement and initiative. This environment also allows
Magna to recognize and reward individuals' contributions and maintain open
communications. Sustainability The Magna commitment to sustainability is
embedded in our Operational Principles. As such, we operate with a
responsibility to meet the current and future needs of our customers,
employees, and investors. Holding ourselves to the standards of a world-class
manufacturer, we remain focused on balancing the impact of our practices,
processes and products with the need for ongoing efficiencies in the use of
resources. At the same time, we ensure a safe and ethical workplace for our
employees and partners, ultimately making a positive impact on the
communities where we live and work. Entrepreneurial Managers Entrepreneurial,
hands-on managers with strong tooling, engineering and manufacturing
backgrounds run Magna's divisions. Division managers are responsible for
ensuring profitability, achieving customer satisfaction and upholding the
essential principles of the Magna Employee's Charter. Employee Profit Sharing
and Ownership Through the Employee Equity and Profit Participation Program,
eligible employees share ten percent of Magna's qualifying annual profits
before tax. As partowners working in an environment where productivity is
rewarded, Magna employees are motivated to produce quality products at
competitive prices. Code of Conduct & Ethics Magna is committed to being
an ethical and responsible corporate citizen. Driving integrity through our
Code of Conduct and Ethics sets a standard for all Magna employees and the
companies we do business with. Making the right choices and following the laws
that govern our business is a fundamental value to our Company. Magna expects
our employees and partners to know it, live it and speak it every day when it
comes to our Code. Our zero-tolerance mentality reinforces our commitment and
upholds the Company's credibility and reputation. Global Operating Philosophy
|
|
Management's
Message to Shareholders Magna completed another very successful year in 2014.
For the third consecutive year, we posted record sales, net income, earnings
per share and cash flow from operations. Each of our reporting segments
posted year over year improvements in earnings before interest and taxes.
Although many of our operations have demonstrated consistently strong
performance, certain facilities have disappointed. We are taking steps to
improve underperforming divisions, which should benefit our operating results
in the future. Magna's share price also reached new highs in 2014, ending the
year up 32% on the New York Stock Exchange, outperforming for the third
consecutive year both the Dow Jones Industrial Average and the average of our
closest peers. In 2014, we invested $1.8 billion in our business, including
fixed assets, acquisitions, investments and other assets. We also returned
nearly $2.1 billion to our shareholders, through a combination of dividends
and the repurchase of our Common Shares. These actions assist us in our
objective of putting our cash to use and moving towards a capital structure
that we believe is appropriate for our business. Despite these significant uses
of cash during 2014, our balance sheet remains strong and we are poised for
further growth. Our customers continued to recognize our efforts in driving
quality and world-class manufacturing, reflected in the many supplier awards
we earned in 2014, including from FIAT, Ford Motor Company, General Motors,
JATCO, PSA Peugeot-Citroën, Qoros Automotive, Volkswagen, and Volvo, as well
as from a number of our customers' Chinese joint ventures. Innovation and new
technology development are the lifeblood of successful companies, and at
Magna we have had a history of success in commercializing new ideas.
Accelerating our focus in this area has been a key priority of ours for a few
years now. "We remain focused on positioning our product portfolio to
meet the requirements of the car of the future."
|
|
Vincent J.
Galifi Executive Vice-President and Chief Financial Officer Donald J. Walker
Chief Executive Officer Some of our more recent technologies include: Our
new EYERIS Gen 2.5 vision system, which adds new features such as Lane
Keeping Assistance, Glare-Free High Beam, and Collision Mitigation, as well
as increased memory and processing power; The industry-first SmartLatch
electronic side-door latch, the benefits of which include significant weight
savings, fewer components, increased flexibility, and improved safety, sound
quality and craftsmanship; The industry-first laser-welded, hot-stamped
door ring for the 2014 Acura MDX, which together with ArcelorMittal and
Honda, won a 2014 Automotive News PACE Award in the "Manufacturing
Process and Capital Equipment" category; Developments in certain
composites which have led to our production of a lightweight composite
liftgate assembly on the BMW i3, as well as the award of new business to
supply painted body panels made from carbon fiber composite material for two
2016 model-year vehicles; First-to-market PureView seamless sliding
window, which is a finalist in the "Product" category for the 2015
Automotive News PACE Awards, and which is on the 2015 Ford F-150; and
Hidden Turn Signal on the BMW i8, an industry-first, using a unique design of
outside mirrors that include fully integrated hidden turn signals. We
continue to launch a significant amount of new business around the world,
reflecting not only the high degree of innovation and new technology that we
bring to our products and processes, but our global footprint and strong
engineering and manufacturing capabilities. Going Forward We expect further
growth in light global vehicle production in 2015, driven by a number of
markets including Asia, and to a lesser extent North America. Beyond 2015, we
expect continued growth in global automotive sales and production, reflecting
further development of expanding economies with a desire for increased mobility.
As Magna continues to grow around the world, we remain committed to being an
ethical and responsible corporate citizen. Our Code of Conduct and Ethics
sets a global standard for all Magna employees and partners to make the right
choices and follow the laws that govern our business around the world. With
increased legislative pressure on the automotive industry, particularly
related to reducing CO2 emissions, and consumer demands for smarter and safer
vehicles, our industry is expected to experience significant change in the
next ten years. We remain focused on positioning our product portfolio to
meet the requirements of the car of the future. We believe these trends
provide tremendous opportunities for Magna. In closing, we would like to
thank our shareholders for trusting us to invest wisely, and our customers
for allowing us to support their global businesses. We would also like to
thank our employees and managers around the world for their continued
commitment to producing world-class automotive parts. More than anything
else, our people and their spirit are what make Magna great. Sincerely, /s/
Donald J. Walker /s/ Vincent J. Galifi
|
|
Competitive
Wages and Benefits Magna will provide you with information which will enable
you to compare your total compensation, including wages and benefits, with
those earned by employees of your direct competitors and local companies your
division competes with for people. If your total compensation is found not to
be competitive, your total compensation will be adjusted. Job Security Being
competitive by making a better product for a better price is the best way to
enhance job security. Magna is committed to working together with you to help
protect your job security. To assist you, Magna will provide job counselling,
training and employee assistance programs. Magna Employee's Charter Magna is
committed to an operating philosophy which is based on fairness and concern
for people. This philosophy is part of Magna's Fair Enterprise culture in
which employees and management share in the responsibility to ensure the
success of the Company. It includes these principles: Employee Equity and
Profit Participation Magna believes that every employee should share in the
financial success of the Company. Communication and Information Through
regular monthly meetings between management and employees and through
publications, Magna will provide you with information so that you will know
what is going on in your Company and within the industry. A Safe and
Healthful Workplace Magna is committed to providing you with a working
environment which is safe and healthful. Fair Treatment Magna offers equal
opportunities based on an individual's qualifications and performance, free
from discrimination or favouritism. The Hotline Should you have a problem, or
feel the above principles are not being met, we encourage you to contact the
Hotline to register your complaints. You do not have to give your name, but
if you do, it will be held in strict confidence. Hotline Investigators will
respond to you.The Hotline is committed to investigate and resolve all
concerns or complaints and must report the outcome to Magna's Global Human
Resources Department.
|
|
Magna
Operational Principles In our world-class manufacturing journey at Magna,
employees and management work in partnership to achieve operational
excellence based on the following principles: Scrap and Waste Elimination
Through Lean methods and Mafact, ensure every step of each process is
value-added and prevent defects Eliminate waste with tools such as Value
Stream Mapping (VSM), Standardized Work, Quick Changeover, Visual Management,
5S and other Lean tools within Mafact Focus on identifying and eliminating
the seven forms of waste - Waiting, Motion, Material Movement, Corrections,
Over Production, Inventory and Processing - and strive for gains in
efficiency, floor space availability and inventory reduction Employee Focus
Recognize that all employees are stakeholders in the business Motivate,
energize and empower employees by reinforcing the values of the Employee's
Charter Achieve employee satisfaction by focusing on people and taking
actions to improve employees' quality of work life Recognition and Rewards
Recognize teams and individuals for a job well done Reward teams and individuals
for operational improvement ideas Safe and Healthful Work Environment
Ensure that all employees have a safe, clean and healthful work environment
Ensure that all equipment and the work environment comply with applicable
laws, regulations and policies Constantly work toward our target of Zero
Incidents and Zero Lost Days Pride in Craftsmanship and Total Quality Be
customer driven; understand and meet or exceed customer expectations
Maintain focus, accountability and discipline in every process to promote a
culture of "Total Quality" Use simple, effective error proofing
to support our Zero Defects objective In every job we perform, do not
accept, produce or pass-on any defects Integrity and Respect Act with
honesty and integrity in all dealings with employees, customers, suppliers,
government officials and others In all activities, respect both the letter
and the spirit of Magna's Code of Conduct and Ethics and applicable laws
Use common sense and good judgment to determine what constitutes fair and
ethical business practice Communication Communicate respectfully, openly,
honestly and in a timely manner Ensure that regular departmental meetings
are held to give employees direction and to share information about projects,
improvements and daily performance Encourage feedback through frequent
interaction with everyone in the facility, the Open Door process and other
communication methods Operational Availability Follow a Total Productive
Maintenance program to ensure that equipment is available 100 percent of the
time when needed and to improve process capability and reduce maintenance
costs Always focus on change-over of production lines, dies, molds, etc.
Sustainability Minimize the impact of our practices, processes and products
Ensure cost and process efficiencies, premium performance and reduction of
the carbon footprint of every product Ensure safe, ethical, dignified and
respectful treatment of employees and partners Positively impact the
communities in which we operate Operational Effectiveness Focus on
efficiency and always meeting production standards and output requirements
Clearly display operational goals, objectives and performance on the shop
floor so everyone is aware of them and all activities are aligned to their
improvement and the Company's targets Ensure that all teams are accountable
and participate in the achievement of operational goals and objectives
Utilize operational creativity before making any capital expenditure
decisions and use Lean methods, as well as employees' process knowledge, to
simplify and maintain flexibility Ensure that inventory levels, lead times
and material flow are Key Operating Indicators (KOIs) to improve working
capital "Go and See" to solve problems where they occur -
operational problems cannot be solved in the office
|
|
mirrors
produced in China truck frames in North America 24M rearview cameras transfer
cases Ford vehicles equipped with Magna seats vehicles assembled for BMW
Group front end modules for Dodge Ram 10M 11M 1M 1M 1M 125M side door latches
for Audi Group 50M of Mercedes-Benz G-Class production 35YRS Magna Milestones
Each milestone is just a stepping-stone to the future. From humble beginnings
in 1957 to becoming the third largest automotive supplier in the world, we
have grown to support every major automaker. We design, develop and
manufacture automotive systems, assemblies, modules, components and complete
vehicles. Over this time, we've also built some fairly impressive statistics.
Vision We aim to be our customers' preferred global supplier partner for the
automotive industry, by delivering the best value built on innovative
products and processes and world-class manufacturing. We strive to be the
employer of choice, an ethical and responsible corporate citizen, and a
superior long-term investment for our shareholders.
|
|
Seating Vehicle
Engineering & Contract Manufacturing Vision Systems Interiors Electronics
Exteriors Powertrain Closures Roof Systems Body & Chassis Our Three
Priorities provide a consistent focus across hundreds of facilities located
on four continents. We believe the key to our continued success lies at the
axis of these priorities, harnessing and guiding our energies in the right
direction.
|
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SmartLatchTM
Hidden Turn Signal EYERISTM PureViewTM BMW i3 Liftgate Smarter. Comfort,
Convenience and Connectivity Designing and delivering an inspired,
best-in-class cabin experience. Safer. Active and Passive Safety Engineering
protection and peace-of-mind for all who share the road. Cleaner. Efficiency
and Sustainability Optimizing the use of energy to meet the needs of our
customers and our planet. Lighter. Lightweight Material and Science Driving
performance and quality through innovative mass reduction. BMW i3 Liftgate
Integrated composite liftgate module PureViewTM Seamless sliding rear window
for trucks EYERISTM Image and machine vision systems Hidden Turn Signal
Outside mirrors including fully integrated hidden turn signals SmartLatchTM
Cable and rod-free electronic door latch Innovation We believe innovation is
more than finding the right answers; it's about asking the right questions.
How do we make vehicles Smarter, Cleaner, Safer and Lighter? These Pillars of
Innovation provide a framework, ensuring our improvements to products,
processes, materials and business practices align with market needs, trends
and regulations, resulting in value to all of our stakeholders. Curiosity
drives innovation, and innovation drives Magna.
|
Managements Discussion and Analysis
of Results of Operations and Financial Position
Magna International Inc.
December 31, 2014
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.
This MD&A should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2014.
This MD&A has been prepared as at March 5, 2015.
OVERVIEW
We are a leading global automotive supplier with 313 manufacturing operations and 84 product development, engineering and sales centres in 28 countries. We have approximately 131,000 employees focused on delivering superior value to our customers through innovative products, processes and World Class Manufacturing. Our product capabilities include producing body, chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing. Our common shares trade on the Toronto Stock Exchange (MG) and the New York Stock Exchange (MGA). For further information about Magna, visit our website at www.magna.com.
HIGHLIGHTS
Operations
Global light vehicle production grew once again in 2014, the fifth straight yearly increase following the 2008-2009 recession. In our two most significant markets, North American light vehicle production increased 5% in 2014 to 17.0 million units, and European light vehicle production rose 4% to 20.1 million units.
Our 2014 sales were a record $36.64 billion, an increase of 5% over 2013. Our North America, Europe, and Asia production sales, as well as our tooling, engineering and other sales all rose to record levels in 2014, and complete vehicle assembly sales increased modestly over 2013.
Adjusted EBIT1 for 2014 was a record $2.63 billion, compared to $2.07 billion in 2013, representing an increase of 27%.
In our North America segment, 2014 was another year of excellent results. Total sales increased 10% over 2013 to $19.71 billion, reflecting the launch of new programs and higher North American light vehicle production. Adjusted EBIT of $1.99 billion increased 10% from 2013, excluding $158 million of amortization in 2013 related to the August 2012 acquisition of Magna E-Car Systems Partnership (E-Car).This increase was mainly driven by our higher sales in 2014.
In our Europe segment, we continued to improve operating results. Total sales declined modestly to $14.71 billion from $14.72 billion in 2013. Adjusted EBIT rose for the third consecutive year, up 16% to $434 million in 2014 compared to $375 million in 2013. The largest factors contributing to the net increase in Adjusted EBIT were productivity and efficiency improvements at certain facilities and the benefit of restructuring and downsizing activities recently undertaken, partially offset by higher launch costs, including inefficiencies at certain interiors facilities in the United Kingdom.
In our Asia segment, total sales increased $299 million or 18% in 2014 compared to 2013 mainly as a result of the launch of new programs with Magna content, particularly in China, together with higher light vehicle production in Asia. Adjusted EBIT was $162 million for 2014, an increase of 91% over $85 million in 2013. The higher Adjusted EBIT largely reflects margins earned on the higher sales.
In our Rest of World segment, total sales decreased 22% to $695 million, mainly reflecting the impact of the weakening of foreign currencies against the U.S. dollar, and lower production volumes on certain vehicle programs. Our Rest of World Adjusted EBIT loss declined by $41 million in 2014 to a loss of $35 million largely through a combination of productivity and efficiency improvements at certain facilities and the benefit of restructuring and downsizing activities recently undertaken.
1 We believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from operations before income taxes; interest expense, net; and other expense (income), net.
Magna International Inc. 2014 Annual MD&A
1
Stock Split
On February 24, 2015, our Board of Directors approved a two-for-one stock split, to be implemented by way of a stock dividend, whereby our shareholders will receive an additional Common Share for each Common Share held. The stock dividend will be payable on March 25, 2015, to shareholders of record at the close of business on March 11, 2015. All equity-based compensation plans or arrangements and our normal course issuer bid (discussed below) will be adjusted to reflect the stock split.
Capital Allocation
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. We expect to reach our desired cash and debt levels by the end of 2015 through a combination of investment in our business (predominantly through capital spending and acquisitions) and return of capital to shareholders (through dividends and repurchases of our Common Shares). To this end:
· We invested $1.78 billion in our business during 2014, including fixed assets, acquisitions, investments and other assets.
· Aggregate dividends paid to shareholders in 2014 amounted to $316 million. On February 24, 2015, our Board of Directors declared a dividend of U.S. $0.44 per share (U.S. $0.22 after giving effect to the two-for-one stock split referred to above). This dividend rate is a new record, representing an increase of 16% over the third quarter of 2014 dividend.
· We repurchased 17.5 million shares in 2014, returning an additional $1.78 billion to shareholders. In November 2014, our Board of Directors approved a new normal course issuer bid (NCIB) to purchase up to 20 million of our Common Shares (40 million Common Shares after giving effect to the stock split), representing approximately 9.7% of our public float of Common Shares. Approximately 17.6 million shares (approximately 35.2 million Common Shares after giving effect to the stock split) remain available under the current NCIB, which will terminate in November 2015.
· During the second quarter of 2014, we issued $750 million of 3.625% fixed-rate Senior Notes which mature on June 15, 2024.
Going Forward
We anticipate another year of increased global light vehicle production in 2015, including modest increases in each of North America and Europe, and further strong production growth in China.
While we continue to launch additional business on a large number of new programs around the world, the weakening of a number of currencies, in particular the Canadian dollar and the euro, each against our U.S. dollar reporting currency, is expected to negatively impact our reported sales and earnings.
We remain positive about our operations around the world, exclusive of currency translation. Continued strong performance in a number of our facilities, improving underperforming operations and launching a significant number of new programs and facilities around the world together should contribute meaningfully to consolidated sales and earnings in the future.
FINANCIAL RESULTS SUMMARY
During 2014, we posted sales of $36.64 billion, an increase of 5% from 2013. This higher sales level was a result of increases in our North American, European and Asian production sales as well as complete vehicle assembly sales and tooling, engineering and other sales partially offset by lower Rest of World production sales. Comparing 2014 to 2013:
· North American vehicle production increased 5% and our North American production sales increased 9% to $18.28 billion;
· European vehicle production increased 4% and our European production sales increased 1% to $10.01 billion;
· Asian production sales increased 18% to $1.64 billion;
· Rest of World production sales decreased 22% to $668 million;
· Complete vehicle assembly volumes decreased 8% while sales increased $5 million to $3.07 billion; and
· Tooling, engineering and other sales increased 5% to $2.97 billion.
2
During 2014, we earned income from operations before income taxes of $2.54 billion compared to $1.91 billion for 2013. Excluding other expense (income), net (Other Expense or Other Income) recorded in 2014 and 2013, as discussed in the Other Expense section, the $554 million increase in income from operations before income taxes was primarily as a result of:
· margins earned on higher production sales;
· incremental margin earned on new programs that launched during or subsequent to 2013;
· intangible asset amortization of $158 million, recorded in 2013, related to the acquisition and re-measurement of E-Car;
· productivity and efficiency improvements at certain facilities;
· the benefit of restructuring and downsizing activities recently undertaken;
· higher equity income; and
· lower downsizing costs.
These factors were partially offset by:
· higher launch costs, including unanticipated costs at certain interiors facilities;
· higher incentive compensation;
· increased pre-operating costs incurred at new facilities;
· a greater amount of employee profit sharing;
· operational inefficiencies and other costs at certain facilities;
· approximately $15 million of costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America;
· increased commodity costs;
· $10 million of cash received related to the settlement of asset-backed commercial paper (ABCP) between the Investment Industry Regulatory Organization of Canada and financial institutions in the first quarter of 2013;
· higher warranty costs of $7 million;
· a favourable earn-out settlement during 2013 in Rest of World;
· a $5 million net decrease in valuation gains in respect of ABCP; and
· net customer price concessions subsequent to 2013.
During 2014, net income attributable to Magna International Inc. was $1.88 billion, an increase of $321 million compared to 2013 and diluted earnings per share increased $1.93 to $8.69 for 2014 compared to $6.76 for 2013. Other Expense, after tax and the Austrian Tax Reform and Deferred Tax Adjustments, as discussed in the Other Expense and Income Taxes sections, respectively, impacted net income attributable to Magna International Inc. and diluted earnings per share as follows:
|
|
2014 |
|
2013 |
|
|
|
Net Income |
|
Diluted |
|
Net Income |
|
Diluted |
|
|
|
Attributable |
|
Earnings |
|
Attributable |
|
Earnings |
|
|
|
to Magna |
|
per Share |
|
to Magna |
|
per Share |
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
$ |
64 |
|
$ |
0.29 |
|
$ |
144 |
|
0.63 |
|
Income tax effect: |
|
|
|
|
|
|
|
|
|
Other expense |
|
(11 |
) |
(0.05 |
) |
(28 |
) |
(0.12 |
) |
Austrian tax reform |
|
32 |
|
0.15 |
|
|
|
|
|
Deferred tax adjustments |
|
|
|
|
|
(57 |
) |
(0.25 |
) |
Net income impact |
|
85 |
|
0.39 |
|
59 |
|
0.26 |
|
Non-controlling interests |
|
|
|
|
|
(9 |
) |
(0.04 |
) |
|
|
$ |
85 |
|
$ |
0.39 |
|
$ |
50 |
|
0.22 |
|
Excluding, from the proceeding table, the negative impact for 2014 and 2013 of $85 million and $50 million, respectively, net income attributable to Magna International Inc. for 2014 increased $356 million compared to 2013.
Excluding, from the proceeding table, the $0.39 and the $0.22 per share negative impact for 2014 and 2013, respectively, diluted earnings per share increased $2.10, as a result of the increase in net income attributable to Magna International Inc. and a decrease in the weighted average number of diluted shares outstanding during 2014. 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 2013, pursuant to our normal course issuer bids partially offset by an increase in the number of diluted options outstanding as a result of an increase in the trading price of our common stock and the issue of Common Shares related to the exercise of stock options.
3
INDUSTRY TRENDS AND RISKS
A number of general trends which have been impacting the automotive industry and our business in recent years are expected to continue, including the following:
· the consolidation of vehicle platforms and proliferation of high-volume platforms supporting multiple vehicles and produced in multiple locations;
· the long-term growth of the automotive industry in China, India and other high-growth/low cost markets, including accelerated movement of component and vehicle design, development, engineering and manufacturing to certain of these markets;
· the growth of the 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, which has a significant impact on consumer demand for vehicles. Vehicle production is closely related to consumer demand. A significant decline in production volumes from current levels could have a material adverse effect on our profitability.
· Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in Canadian dollars, euros, British pounds and other currencies. Our profitability is affected by movements of the U.S. dollar against the Canadian dollar, the euro, the British pound and other currencies in which we generate revenues and incur expenses. Significant long-term fluctuations in relative currency values, in particular a significant change in the relative values of the U.S. dollar, Canadian dollar, euro or British pound, could have an adverse effect on our profitability and financial condition and any sustained change in such relative currency values could adversely impact our competitiveness in certain geographic regions.
· 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 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 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.
4
In the case of the German Federal Cartel Office, absent aggravating factors, the maximum fine under the guidelines is typically 10% of the affected sales for the infringement period multiplied by a factor based on the consolidated sales of the group of companies to which the offending entity belongs. If applied to a company with Magnas level of consolidated sales, this factor is approximately five, which could result in a maximum fine of approximately 50% of the affected sales for the relevant period. Additional information regarding these guidelines is publicly available on the German Federal Cartel Offices website. At this time, management is unable to predict the duration or outcome of the German and Brazilian investigations, 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.
· We may sell some product lines and/or downsize, close or sell some of our operating divisions. By taking such actions, we may incur restructuring, downsizing and/or other significant non-recurring costs. These costs may be higher in some countries than others and could have a material adverse effect on our profitability.
· Although we are working to turn around financially underperforming operating divisions, there is no guarantee that we will be successful in doing so in the short to medium term 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; 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 as a result of 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 major 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 and manufacturing processes, as well as factors related to tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch material new or takeover business could have an adverse effect on our profitability.
· Although we supply parts to all of the leading OEMs, a significant majority of our sales are to six customers: General Motors, Fiat-Chrysler, Ford, BMW, Daimler and Volkswagen. 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 Asian-based OEMs, including Toyota, Nissan, Hyundai/Kia and Honda, generally lags that of our largest customers, due in part to the existing relationships between such Asian-based OEMs and their preferred suppliers. There is no certainty that we can achieve growth with Asian-based OEMs, nor that any such growth will offset slower growth we may experience with our largest customers in North America and Europe. As a result, our inability to grow our business with OEMs could have a material adverse effect on our profitability.
5
· 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 in each of our product capabilities have greater market share than we do, or increasing market share in product areas which are experiencing higher growth rates. As the trend towards consolidation of automotive suppliers continues, we expect our competitors will be larger and have greater access to financial and other resources than is currently the case. 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.
· 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.
6
· 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.
· 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.
· 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 on the due diligence process. As a result, we may become subject to liabilities or risks not discovered through our due diligence efforts, which could have a material adverse effect on our profitability.
· Our customers continue to demand that we bear the cost of the repair and replacement of defective products which are either covered under their warranty or are the subject of a recall by them. Warranty provisions are established based on our best estimate of the amounts necessary to settle existing or probable claims on product defect issues. Recall costs are costs incurred when government regulators and/or our customers decide to recall a product due to a known or suspected performance issue and we are required to participate either voluntarily or involuntarily. Currently, under most customer agreements, we only account for existing or probable warranty claims. Under certain complete vehicle engineering and assembly contracts, we record an estimate of future warranty-related costs based on the terms of the specific customer agreements and the specific 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 could cause the total or partial destruction of a manufacturing facility, thus preventing us from supplying products to our customers and disrupting production at their facilities for an indeterminate period of time. The inability to promptly resume the supply of products following a natural disaster 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 MD&A, 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.
7
· 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 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 balance sheet 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, |
|
|
|
2014 |
|
2013 |
|
Change |
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Canadian dollar equals U.S. dollars |
|
0.881 |
|
0.953 |
|
- |
8 |
% |
0.906 |
|
0.971 |
|
- |
7 |
% |
1 euro equals U.S. dollars |
|
1.250 |
|
1.361 |
|
- |
8 |
% |
1.330 |
|
1.328 |
|
|
|
|
1 British pound equals U.S. dollars |
|
1.583 |
|
1.619 |
|
- |
2 |
% |
1.648 |
|
1.564 |
|
+ |
5 |
% |
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, 2014 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.
8
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2014
Sales
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes (millions of units) |
|
|
|
|
|
|
|
|
North America |
|
17.019 |
|
16.180 |
|
+ |
5 |
% |
Europe |
|
20.086 |
|
19.348 |
|
+ |
4 |
% |
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
|
North America |
|
$ |
18,282 |
|
$ |
16,744 |
|
+ |
9 |
% |
Europe |
|
10,013 |
|
9,957 |
|
+ |
1 |
% |
Asia |
|
1,640 |
|
1,391 |
|
+ |
18 |
% |
Rest of World |
|
668 |
|
858 |
|
- |
22 |
% |
Complete Vehicle Assembly |
|
3,067 |
|
3,062 |
|
|
|
|
Tooling, Engineering and Other |
|
2,971 |
|
2,823 |
|
+ |
5 |
% |
Total Sales |
|
$ |
36,641 |
|
$ |
34,835 |
|
+ |
5 |
% |
External Production Sales - North America
External production sales in North America increased 9% or $1.54 billion to $18.28 billion for 2014 compared to $16.74 billion for 2013, primarily as a result of:
· the launch of new programs during or subsequent to 2013, including the:
· Jeep Cherokee;
· GM full-size pickups and SUVs;
· Lincoln MKC;
· Nissan Rogue; and
· BWM X4; and
· higher production volumes on certain existing programs.
These factors were partially offset by:
· a $433 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar;
· programs that ended production during or subsequent to 2013; and
· net customer price concessions subsequent to 2013.
External Production Sales - Europe
External production sales in Europe increased 1% or $56 million to $10.01 billion for 2014 compared to $9.96 billion for 2013, primarily as a result of:
· the launch of new programs during or subsequent to 2013, including the:
· Mercedes-Benz GLA;
· Porsche Macan;
· Skoda Octavia;
· Mercedes-Benz A-Class;
· Range Rover Sport; and
· Mercedes-Benz S-Class.
This factor was partially offset by:
· lower production volumes on certain existing programs;
· a decrease in content on certain programs, including the MINI Cooper and the Mercedes-Benz C-Class;
· programs that ended production during or subsequent to 2013;
· a $45 million decrease in reported U.S. dollar sales primarily as a result of the net weakening of foreign currencies against the U.S. dollar, including the Russian ruble; and
· net customer price concessions subsequent to 2013.
9
External Production Sales - Asia
External production sales in Asia increased 18% or $249 million to $1.64 billion for 2014 compared to $1.39 billion for 2013, primarily as a result of:
· the launch of new programs during or subsequent to 2013, primarily in China, India and South Korea, including the Audi Q3 and the Ford EcoSport; and
· higher production volumes on certain existing programs.
These factors were partially offset by net customer price concessions subsequent to 2013.
External Production Sales - Rest of World
External production sales in Rest of World decreased 22% or $190 million to $668 million for 2014 compared to $858 million for 2013, primarily as a result of:
· a $108 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar, including the Argentine peso and Brazilian real;
· lower production volumes on certain existing programs;
· programs that ended production during or subsequent to 2013; and
· a decrease in content on certain programs, including the Mercedes-Benz C-Class.
These factors were partially offset by:
· the launch of new programs during or subsequent to 2013, primarily in Brazil; and
· net customer price increases subsequent to 2013.
Complete Vehicle Assembly Sales
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Sales |
|
$ |
3,067 |
|
$ |
3,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Complete Vehicle Assembly Volumes (Units) |
|
135,126 |
|
146,566 |
|
- |
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Complete vehicle assembly sales increased $5 million, to $3.07 billion for 2014 compared to $3.06 billion for 2013 while assembly volumes decreased 8% or 11,440 units.
The increase in complete vehicle assembly sales is primarily as a result of:
· an increase in assembly volumes for the Mercedes-Benz G-Class; and
· an $11 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.
These factors were partially offset by a decrease in assembly volumes for the MINI Paceman and the Peugeot RCZ.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales increased 5% or $148 million to $2.97 billion for 2014 compared to $2.82 billion for 2013.
In 2014, the major programs for which we recorded tooling, engineering and other sales were the:
· Ford Transit;
· MINI Countryman;
· Ford F-Series and F-Series Super Duty;
· QOROS 3;
· Ford Mustang;
· BMW X6;
· Mercedes-Benz M-Class;
· BMW X4; and
· Porsche Panamera.
10
In 2013, the major programs for which we recorded tooling, engineering and other sales were the:
· GM full-size pickups and SUVs;
· Ford Transit;
· QOROS 3;
· Ford Fusion;
· Mercedes-Benz M-Class;
· MINI Countryman;
· Skoda Octavia;
· MINI Cooper;
· MINI Paceman; and
· Jeep Grand Cherokee.
In addition, tooling, engineering and other sales decreased as a result of the weakening of certain foreign currencies against the U.S dollar, including the Canadian dollar and Russian ruble.
Cost of Goods Sold and Gross Margin
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Sales |
|
$ |
36,641 |
|
$ |
34,835 |
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
Material |
|
23,344 |
|
22,293 |
|
Direct labour |
|
2,310 |
|
2,272 |
|
Overhead |
|
5,969 |
|
5,722 |
|
|
|
31,623 |
|
30,287 |
|
Gross margin |
|
$ |
5,018 |
|
$ |
4,548 |
|
|
|
|
|
|
|
Gross margin as a percentage of sales |
|
13.7 |
% |
13.1 |
% |
Cost of goods sold increased $1.34 billion to $31.62 billion for 2014 compared to $30.29 billion for 2013 primarily as a result of:
· higher material, overhead and labour costs associated with the increase in sales, including wage increases at certain operations;
· higher launch costs, including unanticipated costs at certain interiors facilities;
· increased pre-operating costs incurred at new facilities; and
· a greater amount of employee profit sharing.
These factors were partially offset by:
· a decrease in cost of goods sold as a result of the net weakening of foreign currencies against the U.S. dollar, including the weakening of the Canadian dollar, Russian ruble, Argentine peso and Brazilian real partially offset by the strengthening of the British pound and euro; and
· productivity and efficiency improvements at certain facilities.
Gross margin increased $470 million to $5.02 billion for 2014 compared to $4.55 billion for 2013 and gross margin as a percentage of sales increased to 13.7% for 2014 compared to 13.1% for 2013. The increase in gross margin as a percentage of sales was primarily due to:
· productivity and efficiency improvements at certain facilities; and
· a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content than our consolidated average.
These factors were partially offset by:
· higher launch costs, including unanticipated costs at certain interiors facilities;
· operational inefficiencies and other costs at certain facilities;
· increased pre-operating costs incurred at new facilities;
· a greater amount of employee profit sharing;
· an increase in tooling, engineering and other sales that have low or no margins;
· increased commodity costs; and
· higher warranty costs.
11
Depreciation and Amortization
Depreciation and amortization costs decreased $173 million to $0.89 billion for 2014 compared to $1.06 billion for 2013. The lower depreciation and amortization was primarily as a result of:
· intangible asset amortization of $158 million recorded in 2013 related to the acquisition and re-measurement of E-Car; and
· a decrease in reported U.S. dollar depreciation and amortization primarily as a result of the weakening of the Canadian dollar and Russian ruble, each against the U.S. dollar.
Selling, General and Administrative (SG&A)
SG&A expense as a percentage of sales was 4.7% for 2014 compared to 4.6% for 2013. SG&A expense increased $91 million to $1.71 billion for 2014 compared to $1.62 billion for 2013 primarily as a result of:
· higher incentive compensation;
· higher labour and other costs to support the growth in sales, including wage increases at certain operations;
· increased costs incurred at new facilities;
· $10 million of cash received related to the settlement of ABCP between the Investment Industry Regulatory Organization of Canada and financial institutions in 2013;
· a $5 million net decrease in revaluation gains in respect of ABCP; and
· a greater amount of employee profit sharing.
Equity Income
Equity income increased $15 million to $211 million for 2014 compared to $196 million for 2013.
Other Expense (Income), net
During 2014 and 2013, we recorded Other Expense items as follows:
|
|
2014 |
|
2013 |
|
|
|
|
|
Net Income |
|
Diluted |
|
|
|
Net Income |
|
Diluted |
|
|
|
Operating |
|
Attributable |
|
Earnings |
|
Operating |
|
Attributable |
|
Earnings |
|
|
|
Income |
|
to Magna |
|
per Share |
|
Income |
|
to Magna |
|
per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
$ |
6 |
|
$ |
5 |
|
$ |
0.02 |
|
$ |
35 |
|
$ |
25 |
|
$ |
0.11 |
|
Impairment of long-lived assets (1) |
|
18 |
|
12 |
|
0.06 |
|
33 |
|
21 |
|
0.09 |
|
Impairment of goodwill (1) |
|
|
|
|
|
|
|
22 |
|
22 |
|
0.10 |
|
|
|
24 |
|
17 |
|
0.08 |
|
90 |
|
68 |
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
7 |
|
6 |
|
0.03 |
|
48 |
|
33 |
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
11 |
|
10 |
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
22 |
|
20 |
|
0.09 |
|
6 |
|
6 |
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full year other expense, net |
|
$ |
64 |
|
$ |
53 |
|
$ |
0.24 |
|
$ |
144 |
|
$ |
107 |
|
$ |
0.47 |
|
12
(1) Restructuring and Impairment Charges
[a] For the year ended December 31, 2014
(i) Restructuring
During 2014, we recorded net restructuring charges of $46 million ($41 million after tax) in Europe at our exterior and interior systems operations.
During 2015, we expect to record additional restructuring charges of approximately $40 million.
(ii) Impairments of long-lived assets
In conjunction with our annual business planning cycle, during the fourth quarter of 2014, we recorded long-lived asset impairment charges of $18 million ($12 million after tax). The impairment related to fixed assets at an interiors operation in the United States.
[b] For the year ended December 31, 2013
(i) Restructuring
During 2013, we recorded net restructuring charges of $89 million ($64 million after tax), in Europe at our exterior and interior systems operations related primarily to the closure of a facility in Belgium.
(ii) Impairments of long-lived assets
During the fourth quarter of 2013, we recorded long-lived asset impairment charges of $33 million ($21 million after tax and non-controlling interests) consisting of $23 million in North America and $10 million in Rest of World. The impairment charges related to battery research equipment in North America and fixed assets at our Seating operations in South America.
(iii) Impairment of goodwill
During the fourth quarter of 2013, we recorded goodwill impairment charges of $22 million ($22 million after tax) in Rest of World related to our metal stamping operations.
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 operations before income taxes; interest expense, net; and other expense (income), net.
|
|
External Sales |
|
Adjusted EBIT |
|
|
|
2014 |
|
2013 |
|
Change |
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
19,603 |
|
$ |
17,859 |
|
$ |
1,744 |
|
$ |
1,992 |
|
$ |
1,645 |
|
$ |
347 |
|
Europe |
|
14,494 |
|
14,525 |
|
(31 |
) |
434 |
|
375 |
|
59 |
|
Asia |
|
1,837 |
|
1,539 |
|
298 |
|
162 |
|
85 |
|
77 |
|
Rest of World |
|
694 |
|
889 |
|
(195 |
) |
(35 |
) |
(76 |
) |
41 |
|
Corporate and Other |
|
13 |
|
23 |
|
(10 |
) |
79 |
|
36 |
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reportable segments |
|
$ |
36,641 |
|
$ |
34,835 |
|
$ |
1,806 |
|
$ |
2,632 |
|
$ |
2,065 |
|
$ |
567 |
|
13
Excluded from Adjusted EBIT for 2014 and 2013 were the following Other Expense items, which have been discussed in the Other Expense section.
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
North America |
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
18 |
|
$ |
23 |
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
Restructuring |
|
46 |
|
89 |
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
Impairment of goodwill |
|
|
|
32 |
|
|
|
$ |
64 |
|
$ |
144 |
|
North America
Adjusted EBIT in North America increased $347 million to $1.99 billion for 2014 compared to $1.65 billion for 2013 primarily as a result of:
· margins earned on higher production sales;
· intangible asset amortization of $158 million, recorded in 2013, related to the acquisition and re-measurement of E-Car;
· productivity and efficiency improvements at certain facilities; and
· higher equity income.
These factors were partially offset by:
· higher launch costs, including unanticipated costs at certain interiors facilities;
· operational inefficiencies and other costs at certain facilities;
· increased pre-operating costs incurred at new facilities;
· higher affiliation fees paid to Corporate;
· a greater amount of employee profit sharing;
· a decrease in reported U.S. dollar EBIT due to the weakening of the Canadian dollar against the U.S. dollar;
· higher warranty costs of $18 million;
· higher incentive compensation;
· approximately $15 million of costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility;
· increased commodity costs;
· increased stock-based compensation; and
· net customer price concessions subsequent to 2013.
Europe
Adjusted EBIT in Europe increased $59 million to $434 million for 2014 compared to $375 million for 2013 primarily as a result of:
· margins earned on higher production sales;
· the benefit of restructuring and downsizing activities recently undertaken;
· lower warranty costs of $15 million;
· productivity and efficiency improvements at certain facilities;
· lower downsizing costs;
· higher equity income; and
· decreased commodity costs.
These factors were partially offset by:
· higher launch costs, including unanticipated costs at certain interiors facilities in the United Kingdom;
· increased pre-operating costs incurred at new facilities;
· higher affiliation fees paid to Corporate;
· a greater amount of employee profit sharing;
· operational inefficiencies and other costs at certain facilities;
· increased stock-based compensation; and
· net customer price concessions subsequent to 2013.
14
Asia
Adjusted EBIT in Asia increased $77 million to $162 million for 2014 compared to $85 million for 2013 primarily as a result of:
· margins earned on higher production sales, including margins earned on the launch of new facilities and new programs;
· higher equity income; and
· decreased pre-operating costs incurred at new facilities.
These factors were partially offset by:
· higher launch costs;
· higher affiliation fees paid to Corporate;
· higher warranty costs of $2 million; and
· net customer price concessions subsequent to 2013.
Rest of World
Adjusted EBIT in Rest of World increased $41 million to a loss of $35 million for 2014 compared to a loss of $76 million for 2013 primarily as a result of:
· productivity and efficiency improvements at certain facilities;
· the benefit of restructuring and downsizing activities recently undertaken;
· a decrease in reported U.S. dollar EBIT loss due to the weakening of the Brazilian real and Argentine peso, each against the U.S. dollar;
· lower affiliation fees paid to Corporate; and
· net customer price increases subsequent to 2013.
These factors were partially offset by:
· higher production costs, including inflationary increases, that we have not been fully successful in passing through to our customers;
· a favourable earn-out settlement during 2013;
· increased commodity costs;
· higher launch costs;
· higher warranty costs of $1 million; and
· higher incentive compensation.
Corporate and Other
Corporate and Other Adjusted EBIT increased $43 million to $79 million for 2014 compared to $36 million for 2013 primarily as a result of:
· an increase in affiliation fees earned from our divisions; and
· decreased stock-based compensation.
These factors were partially offset by:
· higher incentive compensation;
· $10 million of cash received related to the settlement of ABCP between the Investment Industry Regulatory Organization of Canada and financial institutions in the first quarter of 2013; and
· a $5 million net decrease in valuation gains in respect of ABCP.
Interest Expense, net
During 2014, we recorded net interest expense of $29 million compared to $16 million for 2013. The $13 million increase is primarily as a result of interest expense on the $750 million 3.625% fixed rate Senior Notes issued during the second quarter of 2014 (the Senior Notes), partially offset by interest income earned on higher investment balances.
Income from Operations before Income Taxes
Income from operations before income taxes increased $634 million to $2.54 billion for 2014 compared to $1.91 billion for 2013. Excluding Other Expense, discussed in the Other Expense section, income from operations before income taxes for 2014 increased $554 million. The increase in income from operations before income taxes is the result of the increase in Adjusted EBIT partially offset by the increase in net interest expense, as discussed above.
15
Income Taxes
|
|
2014 |
|
2013 |
|
|
|
$ |
|
% |
|
$ |
|
% |
|
|
|
|
|
|
|
|
|
|
|
Income taxes as reported |
|
$ |
659 |
|
26.0 |
|
$ |
360 |
|
18.9 |
|
Tax effect on Other expense, net |
|
11 |
|
(0.2 |
) |
28 |
|
|
|
Austrian Tax Reform |
|
(32 |
) |
(1.3 |
) |
|
|
|
|
Mexican flat tax |
|
|
|
|
|
36 |
|
1.8 |
|
Valuation allowances |
|
|
|
|
|
21 |
|
1.0 |
|
|
|
$ |
638 |
|
24.5 |
|
$ |
445 |
|
21.7 |
|
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, we have taken a charge to income tax expense of $32 million (Austrian Tax Reform).
For 2013, we had valuation allowances against our deferred tax assets in certain European countries. These valuation allowances were required because of historical losses and uncertainty as to the timing of when we would be able to generate the necessary level of earnings to recover these deferred tax assets. Over the past few years, some of our European operations have delivered sustained profits which, together with forecasted profits have allowed us to release a portion of the valuation allowances set up against our European deferred tax assets. Additionally, during 2013, we released a portion of our valuation allowance in China. The effect of these valuation allowance releases in 2013 is $21 million. Finally, we recorded a $36 million deferred tax benefit as a result of the elimination of the Mexican flat tax. The valuation allowances and elimination of the Mexican flat tax (the Deferred Tax Adjustments) totaled $57 million in 2013.
Excluding Other Expense, after tax, the Austrian Tax Reform and the Deferred Tax Adjustments, the effective income tax rate increased to 24.5% for 2014 compared to 21.7% for 2013 primarily as a result of:
· lower favourable audit settlements; and
· an increase in permanent items.
These factors were partially offset by:
· a reduction in losses not benefitted in South America and Asia; and
· non-creditable withholding tax recorded in 2013.
Net Income
Net income of $1.88 billion for 2014 increased $335 million compared to 2013. Excluding Other Expense, after tax, as discussed in the Other Expense section and the Austrian Tax Reform and Deferred Tax Adjustments as discussed in the Income Taxes section, net income increased $361 million. The increase in net income is the result of the increase in income from operations before income taxes partially offset by higher income taxes.
Net Loss Attributable to Non-controlling Interests
Net loss attributable to non-controlling interests decreased $14 million to $2 million for 2014 compared to $16 million for 2013 primarily as a result of impairments of long-lived assets in 2013 as discussed in the Other Expense section and improved operating performance at certain subsidiaries in China that have non-controlling interests.
Net Income Attributable to Magna International Inc.
Net income attributable to Magna International Inc. of $1.88 billion for 2014 increased $321 million compared to 2013. Excluding Other Expense, after tax and net loss attributable to non-controlling interests, as discussed in the Other Expense section and the Austrian Tax Reform and Deferred Tax Adjustments as discussed in the Income Taxes section, net income attributable to Magna International Inc. increased $356 million primarily as a result of the increase in net income, as discussed above.
16
Earnings per Share
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Earnings per Common Share |
|
|
|
|
|
|
|
Basic |
|
$ |
8.81 |
|
$ |
6.85 |
|
+ |
29 |
% |
Diluted |
|
$ |
8.69 |
|
$ |
6.76 |
|
+ |
29 |
% |
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding (millions) |
|
|
|
|
|
|
|
|
Basic |
|
213.6 |
|
227.9 |
|
- |
6 |
% |
Diluted |
|
216.6 |
|
230.8 |
|
- |
6 |
% |
Diluted earnings per share increased $1.93 to $8.69 for 2014 compared to $6.76 for 2013. Other Expense, after tax, net loss attributable to non-controlling interests and the Austrian Tax Reform and Deferred Tax Adjustments, negatively impacted diluted earnings per share by $0.39 and $0.22 in 2014 and 2013, respectively. Other Expense and the Austrian Tax Reform and Deferred Tax Adjustments are discussed in the Other Expense and Income Taxes sections, respectively. Excluding the $0.39 and the $0.22 per share negative impact for 2014 and 2013, respectively, diluted earnings per share increased $2.10, as a result of the increase in net income attributable to Magna International Inc. and a decrease in the weighted average number of diluted shares outstanding during 2014.
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 2013, pursuant to our normal course issuer bids partially offset by an increase in the number of diluted options outstanding as a result of an increase in the trading price of our common stock and the issue of Common Shares related to the exercise of stock options.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,880 |
|
$ |
1,545 |
|
|
|
Items not involving current cash flows |
|
1,157 |
|
1,149 |
|
|
|
|
|
3,037 |
|
2,694 |
|
$ |
343 |
|
Changes in operating assets and liabilities |
|
(245 |
) |
(127 |
) |
|
|
Cash provided from operating activities |
|
$ |
2,792 |
|
$ |
2,567 |
|
$ |
225 |
|
Cash flow from operations before changes in operating assets and liabilities increased $343 million to $3.04 billion for 2014 compared to $2.69 billion for 2013. The increase in cash flow from operations was due to a $335 million increase in net income, as discussed above and an $8 million increase in items not involving current cash flows. Items not involving current cash flows are comprised of the following:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
890 |
|
$ |
1,063 |
|
Amortization of other assets included in cost of goods sold |
|
148 |
|
138 |
|
Deferred income taxes |
|
94 |
|
(100 |
) |
Other non-cash charges |
|
36 |
|
23 |
|
Impairment charges |
|
18 |
|
55 |
|
Equity income in excess of dividends received |
|
(29 |
) |
(30 |
) |
Items not involving current cash flows |
|
$ |
1,157 |
|
$ |
1,149 |
|
Cash invested in operating assets and liabilities amounted to $245 million for 2014 compared to $127 million for 2013. The change in operating assets and liabilities is comprised of the following sources (and uses) of cash:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(767 |
) |
$ |
(584 |
) |
Inventories |
|
(343 |
) |
(141 |
) |
Prepaid expenses and other |
|
5 |
|
(56 |
) |
Accounts payable |
|
677 |
|
325 |
|
Accrued salaries and wages |
|
82 |
|
87 |
|
Other accrued liabilities |
|
79 |
|
298 |
|
Income taxes payable |
|
22 |
|
(56 |
) |
Changes in operating assets and liabilities |
|
$ |
(245 |
) |
$ |
(127 |
) |
17
Higher accounts receivable relate primarily to the timing of cash receipts from customers for production sales and increased accrued tooling and engineering receivables in December 2014. The increase in inventories was primarily due to increased tooling inventory in Europe and higher production inventory to support higher sales activities and for upcoming launches. The increase in accounts payable was primarily due to timing of payments. The increase in accrued salaries and wages was primarily due to timing of accrued wages, increased incentive compensation and employee profit sharing accruals.
Capital and Investment Spending
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
$ |
(1,586 |
) |
$ |
(1,169 |
) |
|
|
Investments and other assets |
|
(175 |
) |
(192 |
) |
|
|
Fixed assets, investments and other assets additions |
|
(1,761 |
) |
(1,361 |
) |
|
|
Purchase of subsidiaries |
|
(23 |
) |
(9 |
) |
|
|
Proceeds from disposition |
|
167 |
|
163 |
|
|
|
Cash used for investment activities |
|
$ |
(1,617 |
) |
$ |
(1,207 |
) |
$ |
(410 |
) |
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, investments and other assets additions
In 2014, 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 2014 was for manufacturing equipment for programs that will be launching subsequent to 2014 and for facilities, including $105 million for the purchase of eight leased facilities in Mexico from Granite Real Estate Investment Trust.
In 2014, we invested $153 million in other assets related primarily to fully reimbursable tooling and engineering costs for programs that launched during 2014 or will be launching subsequent to 2014. In addition, we invested $22 million in equity accounted investments.
Purchase of subsidiaries
In October 2014, we 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.
In November 2013, we acquired the remaining 49% interest of Textile Competence Centre Kft, a textile plant in Germany for cash consideration of $9 million. Prior to the acquisition, we were fully consolidating this entity with non-controlling interest equal to the 49% interest not owned by us.
Proceeds from disposition
In 2014, the $167 million of proceeds include cash related to the disposal of certain non-core exteriors facilities in North America and normal course fixed and other asset disposals.
Financing
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Issues of debt |
|
$ |
860 |
|
$ |
151 |
|
|
|
Issues of Common Shares on exercise of stock options |
|
49 |
|
63 |
|
|
|
Increase (decrease) in bank indebtedness |
|
1 |
|
(18 |
) |
|
|
Repayments of debt |
|
(189 |
) |
(173 |
) |
|
|
Repurchase of Common Shares |
|
(1,783 |
) |
(1,020 |
) |
|
|
Settlement of stock options |
|
|
|
(23 |
) |
|
|
Contribution to subsidiaries by non-controlling interests |
|
|
|
4 |
|
|
|
Dividends paid |
|
(316 |
) |
(284 |
) |
|
|
Cash used for financing activities |
|
$ |
(1,378 |
) |
$ |
(1,300 |
) |
$ |
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
Issues of debt relates primarily to the issue of the $750 million Senior Notes. The Senior Notes are senior unsecured obligations, interest is payable on June 15 and December 15 of each year, and do not include any financial covenants. We may redeem the Senior Notes in whole or in part at any time, and from time to time, at specified redemption prices determined in accordance with the terms of the indenture governing the Senior Notes.
During 2014, we purchased for cancellation 17.4 million Common Shares for an aggregate purchase price of $1.78 billion under our normal course issuer bids.
Cash dividends paid per Common Share were $1.52 for 2014, for a total of $316 million.
18
Financing Resources
|
|
As at |
|
As at |
|
|
|
|
|
December 31, |
|
December 31, |
|
|
|
|
|
2014 |
|
2013 |
|
Change |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
33 |
|
$ |
41 |
|
|
|
Long-term debt due within one year |
|
184 |
|
230 |
|
|
|
Long-term debt |
|
811 |
|
102 |
|
|
|
|
|
1,028 |
|
373 |
|
|
|
Non-controlling interests |
|
14 |
|
16 |
|
|
|
Shareholders equity |
|
8,659 |
|
9,623 |
|
|
|
Total capitalization |
|
$ |
9,701 |
|
$ |
10,012 |
|
$ |
(311 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization decreased by $311 million to $9.70 billion at December 31, 2014 compared to $10.01 billion at December 31, 2013, primarily as a result of a $964 million decrease in shareholders equity partially offset by a $655 million increase in liabilities.
The decrease in shareholders equity was primarily as a result of:
· the $1.78 billion repurchase and cancellation of 17.4 million Common Shares under our normal course issuer bids during 2014;
· the $681 million net unrealized loss on translation of our net investment in foreign operations;
· $316 million of dividends paid during 2014; and
· the $103 million net unrealized loss on cash flow hedges.
These factors were partially offset by the $1.88 billion of net income earned in 2014.
The increase in liabilities relates primarily to long-term debt issued in relation to the $750 million Senior Notes partially offset by net repayments of our bank term debt.
Cash Resources
During 2014, our cash resources decreased by $301 million to $1.25 billion as a result of the cash used for investing and financing activities partially offset by cash provided from operating activities, as discussed above. In addition to our cash resources at December 31, 2014, we had term and operating lines of credit totalling $2.57 billion of which $2.29 billion was unused and available.
On May 16, 2014, our $2.25 billion revolving credit facility maturing June 20, 2018 was extended to June 20, 2019. 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 in Ontario and the United States of up to an aggregate of $2.00 billion of debt securities from time to time over a 25 month period. During the second quarter of 2014, we issued $750 million of Senior Notes 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 5, 2015 were exercised:
Common Shares |
|
205,179,261 |
|
Stock options (i) |
|
4,898,935 |
|
|
|
210,078,196 |
|
(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.
19
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, 2014, we had contractual obligations requiring annual payments as follows:
|
|
|
|
2016- |
|
2018- |
|
|
|
|
|
|
|
2015 |
|
2017 |
|
2019 |
|
Thereafter |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
306 |
|
$ |
510 |
|
$ |
356 |
|
$ |
382 |
|
$ |
1,554 |
|
Long-term debt |
|
184 |
|
37 |
|
18 |
|
757 |
|
996 |
|
Unconditional Purchase Obligations: |
|
|
|
|
|
|
|
|
|
|
|
Materials and Services |
|
2,052 |
|
158 |
|
7 |
|
6 |
|
2,223 |
|
Capital |
|
420 |
|
36 |
|
12 |
|
1 |
|
469 |
|
Total contractual obligations |
|
$ |
2,962 |
|
$ |
741 |
|
$ |
393 |
|
$ |
1,146 |
|
$ |
5,242 |
|
Our unfunded obligations with respect to employee future benefit plans, which have been actuarially determined, were $574 million at December 31, 2014. These obligations are as follows:
|
|
|
|
|
|
Termination and |
|
|
|
|
|
Pension |
|
Retirement |
|
Long Service |
|
|
|
|
|
Liability |
|
Liability |
|
Arrangements |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
540 |
|
$ |
41 |
|
$ |
340 |
|
$ |
921 |
|
Less plan assets |
|
(347 |
) |
|
|
|
|
(347 |
) |
Unfunded amount |
|
$ |
193 |
|
$ |
41 |
|
$ |
340 |
|
$ |
574 |
|
Our off-balance sheet financing arrangements are limited to operating lease contracts.
The majority of our facilities are subject to operating leases. Operating lease payments in 2014 for facilities were $286 million. Operating lease commitments in 2015 for facilities are expected to be $258 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 $58 million for 2014, and are expected to be $48 million in 2015.
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).
20
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.
[b] Contracts with Purchased Components
(i) Tooling and Engineering Services
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.
(ii) 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.
21
(iii) 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.
Amortized Engineering and Customer Owned Tooling Arrangements
We incur pre-production engineering research and development (ER&D) costs related to the products we produce for OEMs under long-term supply agreements. We expense ER&D costs, which are paid for as part of the subsequent related production and assembly program, as incurred unless a contractual guarantee for reimbursement exists.
In addition, we expense all costs as incurred related to the design and development of moulds, dies and other tools that we will not own and that will be used in, and reimbursed as part of the piece price amount for, subsequent related production or assembly program unless the supply agreement provides us with a contractual guarantee for reimbursement of costs or the non-cancellable right to use the moulds, dies and other tools during the supply agreement, in which case the costs are capitalized.
ER&D and customer-owned tooling costs capitalized in Other assets are amortized on a units of production basis over the related long-term supply agreement.
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.
22
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, 2014, we had recorded deferred tax assets (net of related valuation allowances) in respect of loss carryforwards and other deductible temporary differences of $49 million and $315 million, respectively. The deferred tax assets in respect of loss carryforwards relate primarily to Canadian and Mexican subsidiaries.
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, 2014, we had domestic and foreign operating loss carryforwards of $2.27 billion and tax credit carryforwards of $25 million, which relate primarily to operations in Germany, Austria, the United States, the United Kingdom, Spain, Brazil, India, and China. Approximately $1.61 billion of the operating losses can be carried forward indefinitely. The remaining operating losses and tax credit carryforwards expire between 2015 and 2034.
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.
For the year ended December 31, 2013, based on financial forecasts and continued growth, we released a portion of the valuation allowances set up against our deferred tax assets in certain European countries. Additionally, during 2013, we released a portion of our valuation allowance in China. The effect of these valuation allowance releases in 2013 is $21 million. Finally, we recorded a $36 million deferred tax benefit as a result of the elimination of the Mexican flat tax.
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, 2014, we had past service costs and actuarial experience losses of $222 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.
Restructuring costs
We record accruals in conjunction with our restructuring actions. These accruals include estimates primarily related to workforce reduction costs such as employee termination costs, contract termination costs and other costs related to the consolidation and/or rationalization of facilities. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and with changes to restructuring actions being appropriately recognized when identified.
23
FUTURE CHANGES IN ACCOUNTING POLICIES
Discontinued Operations
In April 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has [or will have] a major effect on an entitys operations and financial results. ASU 2014-08 is effective for us in the first quarter of fiscal 2015. The adoption of this ASU is not expected to have a significant impact on our consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update 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 us 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. We are currently evaluating the impact of the pending adoption of ASU 2014-09 on our consolidated financial statements.
SUBSEQUENT EVENT
Stock Split
On February 24, 2015, our Board of Directors approved a two-for-one stock split, to be implemented by way of a stock dividend, whereby our shareholders will receive an additional Common Share for each Common Share held. The stock dividend will be payable on March 25, 2015, to shareholders of record at the close of business on March 11, 2015. All equity-based compensation plans or arrangements and our normal course issuer bid will be adjusted to reflect the stock split.
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 22 of our audited consolidated financial statements for the year ended December 31, 2014, 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.
24
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, 2014 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) (1992) framework 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, 2014, 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, 2014.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
25
SELECTED ANNUAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data has been derived from, and should be read in conjunction with the accompanying audited consolidated financial statements for the year ended December 31, 2014.
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
Income Statement Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Production Volumes (millions of units) |
|
|
|
|
|
|
|
North America |
|
17.019 |
|
16.180 |
|
15.448 |
|
Europe |
|
20.086 |
|
19.348 |
|
19.424 |
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
External Production |
|
|
|
|
|
|
|
North America |
|
$ |
18,282 |
|
$ |
16,744 |
|
$ |
15,336 |
|
Europe |
|
10,013 |
|
9,957 |
|
8,786 |
|
Asia |
|
1,640 |
|
1,391 |
|
1,034 |
|
Rest of World |
|
668 |
|
858 |
|
803 |
|
Complete Vehicle Assembly |
|
3,067 |
|
3,062 |
|
2,561 |
|
Tooling, Engineering and Other |
|
2,971 |
|
2,823 |
|
2,317 |
|
Total sales |
|
$ |
36,641 |
|
$ |
34,835 |
|
$ |
30,837 |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,880 |
|
$ |
1,545 |
|
$ |
1,426 |
|
|
|
|
|
|
|
|
|
Earnings per Common Share: |
|
|
|
|
|
|
|
Basic |
|
$ |
8.81 |
|
$ |
6.85 |
|
$ |
6.17 |
|
Diluted |
|
$ |
8.69 |
|
$ |
6.76 |
|
$ |
6.09 |
|
|
|
|
|
|
|
|
|
Cash dividends paid per Common Share |
|
$ |
1.52 |
|
$ |
1.28 |
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
Financial Position Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,253 |
|
$ |
1,554 |
|
$ |
1,522 |
|
Working capital (1) |
|
$ |
2,396 |
|
$ |
2,614 |
|
$ |
2,451 |
|
Total assets |
|
$ |
18,139 |
|
$ |
17,990 |
|
$ |
17,109 |
|
|
|
|
|
|
|
|
|
Financing Resources |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
33 |
|
$ |
41 |
|
$ |
71 |
|
Long-term debt due within one year |
|
184 |
|
230 |
|
249 |
|
Long-term debt |
|
811 |
|
102 |
|
112 |
|
|
|
1,028 |
|
373 |
|
432 |
|
Non-controlling interests |
|
14 |
|
16 |
|
29 |
|
Shareholders equity |
|
8,659 |
|
9,623 |
|
9,429 |
|
Total capitalization |
|
$ |
9,701 |
|
$ |
10,012 |
|
$ |
9,890 |
|
Changes from 2013 to 2014 are explained in Results of Operations For the Year Ended December 31, 2014 section above.
1 Working capital represents current assets less current liabilities as presented in our consolidated balance sheet
26
2013 COMPARED TO 2012
SALES
External Production Sales - North America
External production sales in North America increased 9% or $1.40 billion to $16.74 billion for 2013 compared to $15.34 billion for 2012, primarily as a result of:
· the launch of new programs during or subsequent to 2012, including the:
· Ford Fusion and Lincoln MKZ;
· Jeep Cherokee;
· GM full-size pickups;
· Honda Accord;
· Chevrolet Impala; and
· Tesla Model S;
· higher production volumes on certain existing programs;
· acquisitions completed during or subsequent to 2012 which positively impacted sales by $155 million, including STT Technologies (STT); and
· an increase in content on certain programs, including the:
· Buick Enclave, GMC Acadia and Chevrolet Traverse; and
· Jeep Grand Cherokee.
These factors were partially offset by:
· programs that ended production during or subsequent to 2012, including the Jeep Liberty;
· a decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the U.S. dollar;
· a decrease in content on certain programs, including the Jeep Patriot and Compass; and
· net customer price concessions subsequent to 2012.
External Production Sales - Europe
External production sales in Europe increased 13% or $1.17 billion to $9.96 billion for 2013 compared to $8.79 billion for 2012, primarily as a result of:
· the launch of new programs during or subsequent to 2012, including the:
· Mercedes-Benz A-Class;
· MINI Paceman;
· Mercedes-Benz CLA-Class;
· Ford Kuga; and
· Skoda Rapid and SEAT Toledo;
· acquisitions completed during or subsequent to 2012, which positively impacted sales by $466 million, including ixetic Verwaltungs Gmbh (ixetic) and BDW technologies group and the re-acquisition of an interior systems operation; and
· a $233 million increase in reported U.S. dollar sales primarily as a result of the strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
· lower production volumes on certain existing programs;
· programs that ended production during or subsequent to 2012; and
· net customer price concessions subsequent to 2012.
External Production Sales - Asia
External production sales in Asia increased 35% or $357 million to $1.39 billion for 2013 compared to $1.03 billion for 2012, primarily as a result of:
· higher production volumes on certain existing programs;
· the launch of new programs during or subsequent to 2012, primarily in China;
· a $25 million increase in reported U.S. dollar sales as a result of the net strengthening of foreign currencies against the U.S. dollar, including the Chinese Renminbi; and
· acquisitions completed during or subsequent to 2012, which positively impacted sales by $18 million, including ixetic.
These factors were partially offset by net customer price concessions subsequent to 2012.
27
External Production Sales - Rest of World
External production sales in Rest of World increased 7% or $55 million to $858 million for 2013 compared to $803 million for 2012, primarily as a result of:
· the launch of new programs during or subsequent to 2012, primarily in Argentina and Brazil;
· higher production volumes on certain existing programs; and
· net customer price increases subsequent to 2012.
These factors were partially offset by:
· a $106 million decrease in reported U.S. dollar sales as a result of the net weakening of foreign currencies against the U.S. dollar, including the Brazilian real and Argentine peso; and
· programs that ended production during or subsequent to 2012.
Complete Vehicle Assembly Sales
Complete vehicle assembly sales increased 20%, or $501 million, to $3.06 billion for 2013 compared to $2.56 billion for 2012 and assembly volumes increased 19% or 22,964 units.
The increase in complete vehicle assembly sales is primarily as a result of:
· the launch of the MINI Paceman during the fourth quarter of 2012;
· an increase in assembly volumes for the Mercedes-Benz G-Class; and
· a $93 million increase in reported U.S. dollar sales as a result of the strengthening of the euro against the U.S. dollar.
These factors were partially offset by:
· the end of production of the Aston Martin Rapide at our Magna Steyr facility during the second quarter of 2012; and
· a decrease in assembly volumes for the Peugeot RCZ.
Tooling, Engineering and Other
Tooling, engineering and other sales increased 22% or $506 million to $2.82 billion for 2013 compared to $2.32 billion for 2012.
In 2012, the major programs for which we recorded tooling, engineering and other sales were the:
· Ford Fusion;
· MINI Countryman;
· Mercedes-Benz M-Class;
· Chevrolet Trax;
· QOROS C/Sedan/Hatch;
· Opel Cascada Convertible;
· Chevrolet Spin;
· Ford Escape;
· Infiniti hatchback program;
· Dodge Dart; and
· Ford Transit.
In addition, tooling, engineering and other sales increased as a result of the net strengthening of foreign currencies against the U.S dollar, including the strengthening of the euro partially offset by the weakening of the Canadian dollar.
Cost of Goods Sold and Gross Margin
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
Sales |
|
$ |
34,835 |
|
$ |
30,837 |
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
Material |
|
22,293 |
|
19,706 |
|
Direct labour |
|
2,272 |
|
2,038 |
|
Overhead |
|
5,722 |
|
5,275 |
|
|
|
30,287 |
|
27,019 |
|
Gross margin |
|
$ |
4,548 |
|
$ |
3,818 |
|
|
|
|
|
|
|
Gross margin as a percentage of sales |
|
13.1 |
% |
12.4 |
% |
28
Cost of goods sold increased $3.27 billion to $30.29 billion for 2013 compared to $27.02 billion for 2012 primarily as a result of:
· higher material, overhead and labour costs associated with the increase in sales, including wage increases at certain operations;
· $684 million related to acquisitions completed during or subsequent to 2012, including ixetic, STT, E-Car and the re-acquisition of an interior systems operation;
· increased pre-operating costs incurred at new facilities;
· a net increase in reported U.S. dollar cost of goods sold primarily due to the strengthening of the euro against the U.S. dollar partially offset by the weakening of the Canadian dollar, Brazilian real and Argentine peso, each against the U.S. dollar; and
· a greater amount of employee profit sharing.
Gross margin increased $730 million to $4.55 billion for 2013 compared to $3.82 billion for 2012 and gross margin as a percentage of sales increased to 13.1% for 2013 compared to 12.4% for 2012. The increase in gross margin as a percentage of sales was primarily due to:
· margins earned on higher production sales;
· incremental margin earned on new programs that launched during or subsequent to 2012;
· improved pricing on certain unprofitable contracts;
· lower commodity costs;
· the closure of certain facilities;
· lower warranty costs; and
· productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
· an increase in complete vehicle assembly sales which have a higher material content than our consolidated average;
· a greater amount of employee profit sharing;
· an increase in tooling, engineering and other sales that have low or no margins;
· the re-acquisition, during 2012, of an interior systems operation;
· higher costs incurred in preparation for upcoming launches;
· increased pre-operating costs incurred at new facilities;
· programs that ended production during or subsequent to 2012; and
· operational inefficiencies and other costs at certain facilities.
Depreciation and Amortization
Depreciation and amortization costs increased $262 million to $1.06 billion for 2013 compared to $0.80 billion for 2012. The higher depreciation and amortization was primarily as a result of:
· incremental intangible asset amortization of $106 million related to the acquisition and re-measurement of E-Car;
· $80 million related to acquisitions completed during or subsequent to 2012, including ixetic, E-Car and STT;
· depreciation related to new facilities; and
· other capital spending during or subsequent to 2012.
Selling, General and Administrative
SG&A expense as a percentage of sales was 4.6% for 2013 compared to 4.9% for 2012. SG&A expense increased $106 million to $1.62 billion for 2013 compared to $1.51 billion for 2012 primarily as a result of:
· higher labour and other costs to support the growth in sales, including wage increases at certain operations;
· increased costs incurred at new facilities;
· $25 million related to acquisitions completed during or subsequent to 2012, including ixetic, E-Car, and STT;
· higher incentive compensation;
· a $7 million net decrease in revaluation gains in respect of ABCP; and
· a greater amount of employee profit sharing.
These factors were partially offset by:
· lower restructuring and downsizing costs;
· $10 million of cash received related to the settlement of ABCP between the Investment Industry Regulatory Organization of Canada and financial institutions;
· a loss on disposal of an investment in 2012; and
· lower stock-based compensation.
29
Equity Income
Equity income increased $45 million to $196 million for 2013 compared to $151 million for 2012. Equity income for 2012 included $35 million of equity loss related to our investment in E-Car and $5 million of equity income related to our investment in STT. Excluding this $30 million net equity loss, the $15 million increase in equity income is primarily as a result of higher income from most of our equity accounted investments.
Other Expense (Income), net
Other expense (income), net consist of significant non-operational items such as: restructuring charges generally related to plant closures; impairment charges; gains or losses on disposal of facilities; and other items not reflective of on-going operating profit or loss.
During 2013 and 2012, we recorded other expense (income), net as follows:
|
|
2013 |
|
2012 |
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
Diluted |
|
|
|
Operating |
|
Net |
|
Earnings |
|
Operating |
|
Net |
|
Earnings |
|
|
|
Income |
|
Income |
|
per Share |
|
Income |
|
Income |
|
per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring (1) |
|
$ |
89 |
|
$ |
64 |
|
$ |
0.28 |
|
$ |
55 |
|
$ |
53 |
|
$ |
0.23 |
|
Impairment of long-lived assets (1) |
|
33 |
|
21 |
|
0.09 |
|
25 |
|
23 |
|
0.10 |
|
Impairment of goodwill |
|
22 |
|
22 |
|
0.10 |
|
|
|
|
|
|
|
Re-measurement gain of STT (2) |
|
|
|
|
|
|
|
(35 |
) |
(35 |
) |
(0.15 |
) |
Re-measurement gain of E-Car (2) |
|
|
|
|
|
|
|
(153 |
) |
(125 |
) |
(0.53 |
) |
Total other expense (income), net |
|
$ |
144 |
|
$ |
107 |
|
$ |
0.47 |
|
$ |
(108 |
) |
$ |
(84 |
) |
$ |
(0.35 |
) |
The other expense (income), net items for 2013 have been discussed in the Other Expense, net section above. During 2012, other expense (income), net items were as follows:
(1) Restructuring and Impairment Charges
(i) Restructuring
During the fourth quarter of 2012, we recorded restructuring charges of $55 million ($53 million after tax) in Europe primarily at our exterior and interior systems and complete vehicle and engineering services operations.
(ii) Impairment of long-lived assets
During the fourth quarter of 2012 we recorded long-lived asset impairment charges of $23 million ($22 million after tax) in Europe and $2 million ($1 million after tax) in North America. In Europe, the impairment charges related primarily to fixed assets at our exterior and interior systems operations.
(2) Re-measurement gains
(i) STT Technologies Inc.
On October 26, 2012, we acquired the remaining 50% interest in STT for cash consideration of $55 million. STT is a manufacturer of automotive pumps with operations in Canada and Mexico. Prior to the acquisition, we accounted for this investment using the equity method of accounting.
The incremental investment in STT was accounted for under the business acquisition method of accounting as a step acquisition which requires that we re-measure our pre-existing investment in STT at fair value and recognize any gains or losses in income. The estimated fair value of our investment immediately before the closing date was $55 million, which resulted in the recognition of a non-cash gain of $35 million ($35 million after tax).
(ii) Magna E-Car Systems LP
On August 31, 2012, we acquired the controlling 27% interest in E-Car from a company affiliated with the Stronach Group for cash consideration of $75 million.
Prior to the acquisition, we held the 73% non-controlling interest in E-Car and accounted for this investment using the equity method of accounting. The incremental investment in E-Car was accounted for under the business acquisition method of accounting as a step acquisition which requires that we re-measure our pre-existing investment in E-Car at fair value and recognize any gains or losses in income. The estimated fair value of our partnership interest immediately before the closing date was $205 million, which resulted in the recognition of a non-cash gain of $153 million ($125 million after tax).
30
Net Income
Net income of $1.55 billion for 2013 increased $119 million compared to 2012. Excluding Other Expense and Other Income, after tax, as discussed in the Other Expense section and the Deferred Tax Adjustments as discussed in the Income Taxes section, net income increased $351 million. The increase in net income is the result of the increase in income from operations before income taxes partially offset by higher income taxes.
Earnings per Share
Diluted earnings per share increased $0.67 to $6.76 for 2013 compared to $6.09 for 2012. Other Expense and Other Income, after tax and net loss attributable to non-controlling interests and the Deferred Tax Adjustments, negatively impacted diluted earnings per share in 2013 by $0.22 and positively impacted diluted earnings per share in 2012 by $0.73. Other Expense and Other Income and the Deferred Tax Adjustments are discussed in the Other Expense and Income Taxes sections, respectively. Excluding the $0.22 per share negative impact for 2013 and the $0.73 per share positive impact for 2012, diluted earnings per share increased $1.62, as a result of the increase in net income attributable to Magna International Inc. and a decrease in the weighted average number of diluted shares outstanding during 2013.
The decrease in the weighted average number of diluted shares outstanding was due to the purchase and cancellation of Common Shares, during or subsequent to 2012, pursuant to our normal course issuer bids and the cashless exercise of options, partially offset by the issue of Common Shares related to the exercise of stock options, an increase in the number of diluted options outstanding as a result of an increase in the trading price of our common stock and stock options issued subsequent to 2012.
Financing Resources
Total capitalization increased by $122 million to $10.01 billion at December 31, 2013 compared to $9.89 billion at December 31, 2012, primarily as a result of a $194 million increase in shareholders equity partially offset by a $59 million decrease in liabilities.
The increase in shareholders equity was primarily as a result of net income earned in 2013 partially offset by:
· the repurchase of Common Shares in connection with our normal course issuer bids;
· dividends paid during 2013; and
· the $134 million net unrealized loss on translation of net investment in foreign operations.
The decrease in liabilities relates primarily to reduced bank indebtedness and lower bank term debt in our Asia and Rest of World segments.
Cash Resources
During 2013, our cash resources increased by $32 million to $1.55 billion as a result of the cash provided from operating activities partially offset by cash used for investing and financing activities, as discussed above. In addition to our cash resources at December 31, 2013, we had term and operating lines of credit totalling $2.56 billion of which $2.20 billion was unused and available.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2014
The discussion of our results of operations for the three months ended December 31, 2014 contained in the MD&A attached to our press release dated February 25, 2015, as filed via the Canadian Securities Administrators System for Electronic Document Analysis and Retrieval (SEDAR) (www.sedar.com), is incorporated by reference herein.
31
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, |
|
|
|
2014 |
|
2014 |
|
2014 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
8,961 |
|
$ |
9,464 |
|
$ |
8,820 |
|
$ |
9,396 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
392 |
|
$ |
510 |
|
$ |
469 |
|
$ |
509 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.78 |
|
$ |
2.36 |
|
$ |
2.22 |
|
$ |
2.47 |
|
Diluted |
|
$ |
1.76 |
|
$ |
2.32 |
|
$ |
2.19 |
|
$ |
2.44 |
|
|
|
For the three month periods ended |
|
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
|
|
|
2013 |
|
2013 |
|
2013 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
8,361 |
|
$ |
8,962 |
|
$ |
8,338 |
|
$ |
9,174 |
|
Net income |
|
$ |
367 |
|
$ |
412 |
|
$ |
318 |
|
$ |
448 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.59 |
|
$ |
1.80 |
|
$ |
1.41 |
|
$ |
2.06 |
|
Diluted |
|
$ |
1.57 |
|
$ |
1.78 |
|
$ |
1.39 |
|
$ |
2.03 |
|
In general, sales increased from 2013 to 2014 as a result of product launches. 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 expense (income), net items that have been discussed above:
|
|
For the three month periods ended |
|
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
|
|
|
2014 |
|
2014 |
|
2014 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
$ |
22 |
|
$ |
11 |
|
$ |
7 |
|
$ |
6 |
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
18 |
|
|
|
$ |
22 |
|
$ |
11 |
|
$ |
7 |
|
$ |
24 |
|
|
|
For the three month periods ended |
|
|
|
Mar 31, |
|
Jun 30, |
|
Sep 30, |
|
Dec 31, |
|
|
|
2013 |
|
2013 |
|
2013 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
$ |
6 |
|
$ |
|
|
$ |
33 |
|
$ |
25 |
|
Impairment of goodwill |
|
|
|
|
|
|
|
22 |
|
Impairment of long-lived assets |
|
|
|
|
|
|
|
21 |
|
|
|
$ |
6 |
|
$ |
|
|
$ |
33 |
|
$ |
68 |
|
For more information regarding our quarter over quarter results, please refer to our first, second and third quarter 2014 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.
32
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: Magnas forecasts of light vehicle production globally and in North America, Europe and China; implementation of our capital strategy, including investments in our business through capital expenditures and acquisitions, and returns of capital to our shareholders through dividends and share repurchases; the timing and success of new program launches; expected operating performance and earnings in our operating segments; and implementation of improvement plans in our underperforming operations, and/or restructuring actions, including the expected level of restructuring charges for 2015. 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 impact of economic or political conditions on consumer confidence, consumer demand for vehicles and vehicle production; fluctuations in relative currency values; restructuring, downsizing and/or other significant non-recurring costs; continued underperformance of one or more of our operating Divisions; ongoing pricing pressures, including our ability to offset price concessions demanded by our customers; our ability to successfully launch material new or takeover business; shifts in market share away from our top customers; inability to grow our business with OEMs; shifts in market shares among vehicles or vehicle segments, or shifts away from vehicles on which we have significant content; risks of conducting business in foreign markets, including China, India, Russia, Eastern Europe, Thailand, Brazil, Argentina and other non-traditional markets for us; a prolonged disruption in the supply of components to us from our suppliers; shutdown of our or our customers or sub-suppliers production facilities due to a labour disruption; 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; reduction in outsourcing by our customers or the loss of a material production or assembly program; the termination or non-renewal by our customers of any material production purchase order; our ability to consistently develop innovative products or processes; impairment charges related to goodwill and long-lived assets; exposure to, and ability to offset, volatile commodities prices; our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our ability to conduct appropriate due diligence on acquisition targets; warranty and recall costs; risk of production disruptions due to natural disasters or other catastrophic events; the security and reliability of our IT systems; pension liabilities; legal claims and/or regulatory actions against us, including the ongoing antitrust investigations being conducted by German and Brazilian authorities; changes in our mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as our ability to fully benefit tax losses; other potential tax exposures; changes in credit ratings assigned to us; changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; liquidity risks as a result of an unanticipated deterioration of economic conditions; our ability 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.
33
|
Magna International Inc. |
337 Magna Drive |
Aurora, Ontario L4G 7K1 |
Tel |
(905) 726-2462 |
Fax |
(905) 726-7164 |
Consolidated Financial Statements
Magna International Inc.
December 31, 2014
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING
Magnas management is responsible for the preparation and presentation of the consolidated financial statements and all the information in the accompanying Managements Discussion and Analysis of Results of Operations and Financial Position (MD&A). The consolidated financial statements were prepared by management in accordance with accounting principles generally accepted in the United States.
Where alternative accounting methods exist, management has selected those it considered to be most appropriate in the circumstances. Financial statements include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis designed to ensure that the consolidated financial statements are presented fairly, in all material respects. Financial information presented in the accompanying MD&A has been prepared by management to ensure consistency with that in the consolidated financial statements. The consolidated financial statements have been reviewed by the Audit Committee, audited by independent registered public accounting firms and approved by the Board of Directors of the Company.
Management is responsible for the development and maintenance of systems of internal accounting and administrative cost controls of high quality, consistent with reasonable cost. Such systems are designed to provide reasonable assurance that financial information is accurate, relevant and reliable, and that the Companys activities are appropriately accounted for and assets are adequately safeguarded. In compliance with U.S. Securities and Exchange Commission (SEC) requirements and Section 404 of the U.S. Sarbanes-Oxley Act (SOX), management has determined that as at December 31, 2014 internal control over financial reporting is, in all material respects, effective. In making this assessment, the Companys management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework (1992). The Companys Chief Executive Officer and Chief Financial Officer, in compliance with Section 302 of SOX, provide a certification related to the Companys annual disclosure document in the U.S. (Form 40-F) to the SEC. According to National Instrument 52-109, the same certification is provided to the Canadian Securities Administrators.
The Companys Audit Committee is appointed by its Board of Directors annually and is comprised solely of independent directors. The Audit Committee meets regularly with management, as well as with the independent registered public accounting firms, to satisfy itself that each is properly discharging its responsibilities, to review the consolidated financial statements and the independent registered public accounting firms report and to discuss significant financial reporting issues and auditing matters. The Audit Committee reports its findings to the Board of Directors for consideration when approving the consolidated financial statements for issuance to the shareholders.
The consolidated financial statements and the effectiveness of internal control over financial reporting have been audited by Deloitte LLP, the independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States) on behalf of the shareholders. The Independent Registered Accounting Firms Reports on the consolidated financial statements and internal control over financial reporting outline the nature of their examinations and their opinions. The independent registered public accounting firms have full and unrestricted access to the Audit Committee.
/s/ Donald J. Walker |
|
/s/ Vincent J. Galifi |
|
|
|
Donald J. Walker |
|
Vincent J. Galifi |
Chief Executive Officer |
|
Executive Vice-President |
|
|
and Chief Financial Officer |
Toronto, Canada
March 5, 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 sheet of Magna International Inc. and subsidiaries (the Company) as of December 31, 2014, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year ended December 31, 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 audit. The consolidated financial statements of the Company as at and for the year ended December 31, 2013 were audited by other auditors whose report, dated March 7, 2014, expressed an unqualified opinion on those statements.
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 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 audit provides 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, 2014, and the results of their operations and their cash flows for the year ended December 31, 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, 2014, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2015 expressed an unqualified opinion thereon.
/s/ Deloitte LLP
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 5, 2015
Toronto, Canada
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, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) 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 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, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) 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, 2014 of the Company and our report dated March 5, 2015 expressed an unqualified opinion thereon.
/s/ Deloitte LLP
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 5, 2015
Toronto, Canada
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. (the Company) as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2013. 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Magna International Inc. at December 31, 2013, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
March 7, 2014
Toronto, Canada
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF INCOME
[U.S. dollars in millions, except per share figures]
Years ended December 31, |
|
Note |
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
$ |
36,641 |
|
$ |
34,835 |
|
$ |
30,837 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
31,623 |
|
30,287 |
|
27,019 |
|
Depreciation and amortization |
|
|
|
890 |
|
1,063 |
|
801 |
|
Selling, general and administrative |
|
8, 18 |
|
1,707 |
|
1,616 |
|
1,510 |
|
Interest expense, net |
|
15 |
|
29 |
|
16 |
|
16 |
|
Equity income |
|
|
|
(211 |
) |
(196 |
) |
(151 |
) |
Other expense (income), net |
|
3 |
|
64 |
|
144 |
|
(108 |
) |
Income from operations before income taxes |
|
|
|
2,539 |
|
1,905 |
|
1,750 |
|
Income taxes |
|
11 |
|
659 |
|
360 |
|
324 |
|
Net income |
|
|
|
1,880 |
|
1,545 |
|
1,426 |
|
Net loss attributable to non-controlling interests |
|
|
|
2 |
|
16 |
|
7 |
|
Net income attributable to Magna International Inc. |
|
|
|
$ |
1,882 |
|
$ |
1,561 |
|
$ |
1,433 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share: |
|
4 |
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
8.81 |
|
$ |
6.85 |
|
$ |
6.17 |
|
Diluted |
|
|
|
$ |
8.69 |
|
$ |
6.76 |
|
$ |
6.09 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding during the year [in millions]: |
|
4 |
|
|
|
|
|
|
|
Basic |
|
|
|
213.6 |
|
227.9 |
|
232.4 |
|
Diluted |
|
|
|
216.6 |
|
230.8 |
|
235.2 |
|
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[U.S. dollars in millions]
Years ended December 31, |
|
Note |
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
1,880 |
|
$ |
1,545 |
|
$ |
1,426 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax: |
|
20 |
|
|
|
|
|
|
|
Net unrealized (loss) gain on translation of net investment in foreign operations |
|
|
|
(681 |
) |
(134 |
) |
88 |
|
Net unrealized (loss) gain on cash flow hedges |
|
|
|
(103 |
) |
(39 |
) |
75 |
|
Reclassification of net loss (gain) on cash flow hedges to net income |
|
|
|
10 |
|
(15 |
) |
(18 |
) |
Reclassification of net loss on pensions to net income |
|
|
|
3 |
|
7 |
|
11 |
|
Pension and post-retirement benefits |
|
|
|
(72 |
) |
44 |
|
(72 |
) |
Net unrealized loss on available-for-sale investments |
|
|
|
|
|
(5 |
) |
(4 |
) |
Other comprehensive (loss) income |
|
|
|
(843 |
) |
(142 |
) |
80 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
1,037 |
|
1,403 |
|
1,506 |
|
Comprehensive loss attributable to non-controlling interests |
|
|
|
2 |
|
17 |
|
5 |
|
Comprehensive income attributable to Magna International Inc. |
|
|
|
$ |
1,039 |
|
$ |
1,420 |
|
$ |
1,511 |
|
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars in millions]
Years ended December 31, |
|
Note |
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
1,880 |
|
$ |
1,545 |
|
$ |
1,426 |
|
Items not involving current cash flows |
|
5 |
|
1,157 |
|
1,149 |
|
708 |
|
|
|
|
|
3,037 |
|
2,694 |
|
2,134 |
|
Changes in operating assets and liabilities |
|
5 |
|
(245 |
) |
(127 |
) |
72 |
|
Cash provided from operating activities |
|
|
|
2,792 |
|
2,567 |
|
2,206 |
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT ACTIVITIES |
|
|
|
|
|
|
|
|
|
Fixed asset additions |
|
|
|
(1,586 |
) |
(1,169 |
) |
(1,274 |
) |
Purchase of subsidiaries |
|
6 |
|
(23 |
) |
(9 |
) |
(525 |
) |
Increase in investments and other assets |
|
|
|
(175 |
) |
(192 |
) |
(122 |
) |
Proceeds from disposition |
|
|
|
167 |
|
163 |
|
106 |
|
Cash used for investment activities |
|
|
|
(1,617 |
) |
(1,207 |
) |
(1,815 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Issues of debt |
|
15 |
|
860 |
|
151 |
|
348 |
|
Increase (decrease) in bank indebtedness |
|
|
|
1 |
|
(18 |
) |
42 |
|
Repayments of debt |
|
15 |
|
(189 |
) |
(173 |
) |
(309 |
) |
Issues of Common Shares |
|
|
|
49 |
|
63 |
|
14 |
|
Settlement of stock options |
|
18 |
|
|
|
(23 |
) |
(19 |
) |
Repurchase of Common Shares |
|
19 |
|
(1,783 |
) |
(1,020 |
) |
(40 |
) |
Contribution to subsidiaries by non-controlling interests |
|
|
|
|
|
4 |
|
|
|
Dividends paid |
|
|
|
(316 |
) |
(284 |
) |
(252 |
) |
Cash used for financing activities |
|
|
|
(1,378 |
) |
(1,300 |
) |
(216 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
(98 |
) |
(28 |
) |
22 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents during the year |
|
|
|
(301 |
) |
32 |
|
197 |
|
Cash and cash equivalents, beginning of year |
|
|
|
1,554 |
|
1,522 |
|
1,325 |
|
Cash and cash equivalents, end of year |
|
|
|
$ |
1,253 |
|
$ |
1,554 |
|
$ |
1,522 |
|
See accompanying notes
MAGNA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
[U.S. dollars in millions, except shares issued]
As at December 31, |
|
Note |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
5 |
|
$ |
1,253 |
|
$ |
1,554 |
|
Accounts receivable |
|
|
|
5,635 |
|
5,246 |
|
Inventories |
|
7 |
|
2,757 |
|
2,637 |
|
Income taxes receivable |
|
|
|
16 |
|
|
|
Deferred tax assets |
|
11 |
|
186 |
|
275 |
|
Prepaid expenses and other |
|
|
|
160 |
|
211 |
|
|
|
|
|
10,007 |
|
9,923 |
|
Investments |
|
8, 16, 21 |
|
419 |
|
391 |
|
Fixed assets, net |
|
3, 9 |
|
5,664 |
|
5,441 |
|
Goodwill |
|
3, 10 |
|
1,350 |
|
1,440 |
|
Deferred tax assets |
|
11 |
|
147 |
|
120 |
|
Other assets |
|
12, 16 |
|
552 |
|
675 |
|
|
|
|
|
$ |
18,139 |
|
$ |
17,990 |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Bank indebtedness |
|
15 |
|
$ |
33 |
|
$ |
41 |
|
Accounts payable |
|
|
|
5,105 |
|
4,781 |
|
Accrued salaries and wages |
|
13 |
|
730 |
|
704 |
|
Other accrued liabilities |
|
14 |
|
1,538 |
|
1,538 |
|
Income taxes payable |
|
|
|
|
|
6 |
|
Deferred tax liabilities |
|
11 |
|
21 |
|
9 |
|
Long-term debt due within one year |
|
15 |
|
184 |
|
230 |
|
|
|
|
|
7,611 |
|
7,309 |
|
Long-term debt |
|
15 |
|
811 |
|
102 |
|
Long-term employee benefit liabilities |
|
16 |
|
580 |
|
532 |
|
Other long-term liabilities |
|
17 |
|
292 |
|
208 |
|
Deferred tax liabilities |
|
11 |
|
172 |
|
200 |
|
|
|
|
|
9,466 |
|
8,351 |
|
Shareholders equity |
|
|
|
|
|
|
|
Common Shares [issued: 205,162,635; 2013 221,151,704] |
|
19 |
|
3,979 |
|
4,230 |
|
Contributed surplus |
|
|
|
83 |
|
69 |
|
Retained earnings |
|
19 |
|
5,155 |
|
5,011 |
|
Accumulated other comprehensive (loss) income |
|
20 |
|
(558 |
) |
313 |
|
|
|
|
|
8,659 |
|
9,623 |
|
Non-controlling interests |
|
|
|
14 |
|
16 |
|
|
|
|
|
8,673 |
|
9,639 |
|
|
|
|
|
$ |
18,139 |
|
$ |
17,990 |
|
Commitments and contingencies [notes 15, 21 and 22]
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]
|
|
Common Shares |
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
Stated |
|
Contributed |
|
Retained |
|
|
|
controlling |
|
Total |
|
|
|
Number |
|
Value |
|
Surplus |
|
Earnings |
|
AOCI [i] |
|
Interests |
|
Equity |
|
|
|
[in millions] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011 |
|
233.3 |
|
$ |
4,373 |
|
$ |
63 |
|
$ |
3,317 |
|
$ |
422 |
|
$ |
27 |
|
$ |
8,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
1,433 |
|
|
|
(7 |
) |
1,426 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
78 |
|
2 |
|
80 |
|
Acquisition of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
7 |
|
Shares issued on exercise of stock options |
|
0.4 |
|
19 |
|
(5 |
) |
|
|
|
|
|
|
14 |
|
Release of restricted stock |
|
|
|
5 |
|
(5 |
) |
|
|
|
|
|
|
|
|
Release of restricted stock units |
|
|
|
5 |
|
(5 |
) |
|
|
|
|
|
|
|
|
Repurchase and cancellation under normal course issuer bid [note 19] |
|
(0.8 |
) |
(18 |
) |
|
|
(20 |
) |
(4 |
) |
|
|
(42 |
) |
Stock-based compensation expense [note 18] |
|
|
|
|
|
39 |
|
|
|
|
|
|
|
39 |
|
Settlement of stock options [note 18] |
|
|
|
|
|
(7 |
) |
(9 |
) |
|
|
|
|
(16 |
) |
Dividends paid [$1.10 per share] |
|
0.2 |
|
7 |
|
|
|
(259 |
) |
|
|
|
|
(252 |
) |
Balance, December 31, 2012 |
|
233.1 |
|
4,391 |
|
80 |
|
4,462 |
|
496 |
|
29 |
|
9,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
1,561 |
|
|
|
(16 |
) |
1,545 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(141 |
) |
(1 |
) |
(142 |
) |
Issues of shares by subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
4 |
|
Shares issued on exercise of stock options |
|
2.0 |
|
84 |
|
(21 |
) |
|
|
|
|
|
|
63 |
|
Release of restricted stock |
|
|
|
6 |
|
(6 |
) |
|
|
|
|
|
|
|
|
Release of restricted stock units |
|
|
|
9 |
|
(9 |
) |
|
|
|
|
|
|
|
|
Repurchase and cancellation under normal course issuer bids [note 19] |
|
(14.1 |
) |
(271 |
) |
|
|
(707 |
) |
(42 |
) |
|
|
(1,020 |
) |
Stock-based compensation expense [note 18] |
|
|
|
|
|
34 |
|
|
|
|
|
|
|
34 |
|
Settlement of stock options [note 18] |
|
|
|
|
|
(9 |
) |
(10 |
) |
|
|
|
|
(19 |
) |
Dividends paid [$1.28 per share] |
|
0.2 |
|
11 |
|
|
|
(295 |
) |
|
|
|
|
(284 |
) |
Balance, December 31, 2013 |
|
221.2 |
|
4,230 |
|
69 |
|
5,011 |
|
313 |
|
16 |
|
9,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
1,882 |
|
|
|
(2 |
) |
1,880 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(843 |
) |
|
|
(843 |
) |
Shares issued on exercise of stock options |
|
1.3 |
|
63 |
|
(12 |
) |
|
|
|
|
|
|
51 |
|
Release of restricted stock |
|
|
|
5 |
|
(5 |
) |
|
|
|
|
|
|
|
|
Release of restricted stock units |
|
|
|
14 |
|
(14 |
) |
|
|
|
|
|
|
|
|
Repurchase and cancellation under normal course issuer bids [note 19] |
|
(17.4 |
) |
(342 |
) |
|
|
(1,413 |
) |
(28 |
) |
|
|
(1,783 |
) |
Stock-based compensation expense [note 18] |
|
|
|
|
|
38 |
|
|
|
|
|
|
|
38 |
|
Reclassification of liability [note 18] |
|
|
|
|
|
7 |
|
|
|
|
|
|
|
7 |
|
Dividends paid [$1.52 per share] |
|
0.1 |
|
9 |
|
|
|
(325 |
) |
|
|
|
|
(316 |
) |
Balance, December 31, 2014 |
|
205.2 |
|
$ |
3,979 |
|
$ |
83 |
|
$ |
5,155 |
|
$ |
(558 |
) |
$ |
14 |
|
$ |
8,673 |
|
[i] AOCI is Accumulated Other Comprehensive Income.
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, interior, 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 controlled subsidiaries, some of which have a non-controlling interest.
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.
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.
2014 Annual Financial Statements
1
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]
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.
Investments
The Company accounts for its investments in which it has significant influence on the equity basis. Investments also include the Companys investment in ABCP, public company shares and long-term interest bearing government securities held to partially fund certain Austrian lump sum termination and long service payment arrangements pursuant to local tax laws.
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 the 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.
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.
2
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]
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.
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.
3
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]
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.
For revenue arrangements entered into prior to January 1, 2011, 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 and there is objective and reliable evidence of the fair value of the subsequent parts production or vehicle assembly. For revenue arrangements entered into or materially modified on or after January 1, 2011, 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, where Magna is acting as principal with respect to purchased components and systems, the selling price to the customer includes the costs of such inputs. These programs are accounted for on a full-cost basis under which sales and cost of goods sold include these input costs.
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.
4
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]
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 will be 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.
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.
5
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]
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.
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
Future Accounting Standards
Discontinued Operations
In April 2014, the FASB issued Accounting Standards Update [ASU] No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has [or will have] a major effect on an entitys operations and financial results. ASU 2014-08 is effective for the Company in the first quarter of fiscal 2015. The adoption of this ASU is not expected to have a significant impact on the Companys consolidated financial statements.
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.
6
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]
3. OTHER EXPENSE (INCOME), NET
Other expense (income), net consists of significant items such as: restructuring charges generally related to significant plant closures or consolidations; impairment charges; gains or losses on disposal of facilities; re-measurement gains on acquisitions; and other items not reflective of on-going operating profit or loss. Other expense (income), net consists of:
|
|
2014 |
|
2013 |
|
2012 |
|
North America [a] |
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
$ |
18 |
|
$ |
23 |
|
$ |
2 |
|
Re-measurement gain of STT |
|
|
|
|
|
(35 |
) |
|
|
18 |
|
23 |
|
(33 |
) |
Europe [b] |
|
|
|
|
|
|
|
Restructuring charges |
|
46 |
|
89 |
|
55 |
|
Impairment of long-lived assets |
|
|
|
|
|
23 |
|
|
|
46 |
|
89 |
|
78 |
|
Rest of World [c] |
|
|
|
|
|
|
|
Impairment of long-lived assets |
|
|
|
10 |
|
|
|
Impairment of goodwill |
|
|
|
22 |
|
|
|
|
|
|
|
32 |
|
|
|
Corporate [d] |
|
|
|
|
|
|
|
Re-measurement gain of E-Car |
|
|
|
|
|
(153 |
) |
|
|
|
|
|
|
(153 |
) |
|
|
$ |
64 |
|
$ |
144 |
|
$ |
(108 |
) |
[a] North America
For the year ended December 31, 2014
In conjunction with its annual business planning cycle, during the fourth quarter of 2014, the Company recorded long-lived asset impairment charges of $18 million [$12 million after tax] in North America related to fixed assets at an interior systems facility in the United States.
For the year ended December 31, 2013
During 2013, the Company recorded long-lived asset impairment charges of $23 million [$11 million after tax and non-controlling interests] in North America related to battery research equipment in Canada.
For the year ended December 31, 2012
During 2012 the Company recorded long-lived asset impairment charges of $2 million [$1 million after tax] in North America related to specific fixed assets at a metal fabricating facility in the United States.
On October 26, 2012, the Company acquired the remaining 50% interest in STT Technologies Inc. [STT] for cash consideration of $55 million. STT is a manufacturer of automotive pumps with operations in Canada and Mexico. Prior to the acquisition, the Company accounted for this investment using the equity method of accounting.
7
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 incremental investment in STT was accounted for under the business acquisition method of accounting as a step acquisition which required that Magna re-measure its pre-existing investment in STT at fair value and recognize any gain or loss in income. The estimated fair value of Magnas investment immediately before the closing date was $55 million, which resulted in the recognition of a non-cash gain of $35 million [$35 million after tax].
[b] Europe
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 and interior systems operations.
For the year ended December 31, 2013
During 2013, the Company recorded net restructuring charges of $89 million [$64 million after tax] in Europe at its exterior and interior systems operations related primarily to the closure of a facility in Belgium.
For the year ended December 31, 2012
During 2012, the Company recorded restructuring charges of $55 million [$53 million after tax] in Europe primarily at its exterior and interior systems and complete vehicle and engineering services operations.
During the fourth quarter of 2012, the Company recorded long-lived asset impairment charges of $23 million [$22 million after tax] primarily related to exterior and interior systems facilities.
[c] Rest of World
For the year ended December 31, 2013
During 2013, the Company recorded long-lived asset impairment charges of $10 million [$10 million after tax], related primarily to fixed assets at the Companys Seating operations in South America.
In addition, during 2013 the Company recorded goodwill impairment charges of $22 million [$22 million after tax] related to the Companys metal stamping operations.
[d] Corporate
For the year ended December 31, 2012
On August 31, 2012, the Company acquired the controlling 27% interest in the Magna E-Car Systems L.P. [E-Car] partnership from a company affiliated with the Stronach Group for cash consideration of $75 million.
Prior to the acquisition, the Company held the remaining 73% non-controlling interest in E-Car and accounted for this investment using the equity method of accounting. The incremental investment in E-Car was accounted for under the business acquisition method of accounting as a step acquisition which required that Magna re-measure its pre-existing investment in E-Car at fair value and recognize any gain or loss in income. The estimated fair value of Magnas partnership interest immediately before the closing date was $205 million, which resulted in the recognition of a non-cash gain of $153 million [$125 million after tax].
8
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]
4. EARNINGS PER SHARE
Earnings per share are computed as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International Inc. |
|
$ |
1,882 |
|
$ |
1,561 |
|
$ |
1,433 |
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding during the year |
|
213.6 |
|
227.9 |
|
232.4 |
|
|
|
|
|
|
|
|
|
Basic earnings per Common Share |
|
$ |
8.81 |
|
$ |
6.85 |
|
$ |
6.17 |
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Magna International Inc. |
|
$ |
1,882 |
|
$ |
1,561 |
|
$ |
1,433 |
|
|
|
|
|
|
|
|
|
Weighted average number of Common Shares outstanding during the year |
|
213.6 |
|
227.9 |
|
232.4 |
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock [a] |
|
3.0 |
|
2.9 |
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
216.6 |
|
230.8 |
|
235.2 |
|
|
|
|
|
|
|
|
|
Diluted earnings per Common Share |
|
$ |
8.69 |
|
$ |
6.76 |
|
$ |
6.09 |
|
[a] Diluted earnings per Common Share exclude 0.1 million [2013 0.1 million; 2012 2.3 million] Common Shares issuable under the Companys Incentive Stock Option Plan because these options were not in-the-money.
9
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. DETAILS OF CONSOLIDATED STATEMENTS OF CASH FLOWS
[a] Cash and cash equivalents consist of:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Bank term deposits, bankers acceptances and government paper |
|
$ |
1,058 |
|
$ |
1,331 |
|
Cash |
|
195 |
|
223 |
|
|
|
$ |
1,253 |
|
$ |
1,554 |
|
[b] Items not involving current cash flows:
|
|
2014 |
|
2013 |
|
2012 |
|
Depreciation and amortization |
|
$ |
890 |
|
$ |
1,063 |
|
$ |
801 |
|
Amortization of other assets included in cost of goods sold |
|
148 |
|
138 |
|
113 |
|
Deferred income taxes [note 11] |
|
94 |
|
(100 |
) |
(46 |
) |
Other non-cash charges |
|
36 |
|
23 |
|
8 |
|
Impairment charges [note 3] |
|
18 |
|
55 |
|
25 |
|
Non-cash portion of Other expense, net [note 3] |
|
|
|
|
|
(188 |
) |
Equity income in excess of dividends received |
|
(29 |
) |
(30 |
) |
(5 |
) |
|
|
$ |
1,157 |
|
$ |
1,149 |
|
$ |
708 |
|
[c] Changes in operating assets and liabilities:
|
|
2014 |
|
2013 |
|
2012 |
|
Accounts receivable |
|
$ |
(767 |
) |
$ |
(584 |
) |
$ |
(46 |
) |
Inventories |
|
(343 |
) |
(141 |
) |
(315 |
) |
Prepaid expenses and other |
|
5 |
|
(56 |
) |
36 |
|
Accounts payable |
|
677 |
|
325 |
|
247 |
|
Accrued salaries and wages |
|
82 |
|
87 |
|
37 |
|
Other accrued liabilities |
|
79 |
|
298 |
|
97 |
|
Income taxes payable |
|
22 |
|
(56 |
) |
16 |
|
|
|
$ |
(245 |
) |
$ |
(127 |
) |
$ |
72 |
|
10
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. BUSINESS ACQUISITIONS
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.
Acquisitions in the year ended December 31, 2013
In November 2013, the Company acquired the remaining 49% interest of Textile Competence Centre Kft, a textile plant in Germany; along with certain fixed assets and licenses employed in the business that were owned by the non-controlling shareholder, for cash consideration of $9 million. Prior to the acquisition, the Company was fully consolidating this entity and recording a non-controlling interest equal to the 49% interest not owned by the Company.
The net effect of this and other small acquisitions on the Companys 2013 consolidated balance sheet were increases in fixed assets of $5 million, goodwill of $3 million, other assets of $2 million, and other long-term liabilities of $2 million and a reduction of non-controlling interest of $1 million.
Acquisitions in the year ended December 31, 2012
In January 2012, the Company acquired BDW technologies group, a structural casting supplier of aluminium components, which has operations in Germany, Poland and Hungary. The acquired business has sales primarily to Volkswagen, Audi, Porsche, Mercedes-Benz, Ferrari and ZF.
During the third quarter of 2011 the Company sold an interior systems operation [the Business] located in Germany. Subsequent to disposal, the Business continued to incur significant financial losses and on June 4, 2012, the Company re-acquired the Business.
As more fully described in note 3, on August 31, 2012 the Company acquired the controlling 27% interest in the E-Car partnership for cash consideration of $56 million [net of $19 million cash acquired]. The incremental investment in E-Car was accounted for under the business acquisition method of accounting as a step acquisition which requires that all assets acquired and liabilities of E-Car be measured at fair value.
As more fully described in note 3, on October 26, 2012 the Company acquired the remaining 50% interest in STT. The incremental investment in STT required that all assets acquired and liabilities of STT be measured at fair value.
In December 2012, the Company acquired ixetic Verwaltungs GmbH [ixetic], a manufacturer of automotive vacuum, engine and transmission pumps, which has operations in Germany, Bulgaria and China as well as representation in Brazil, India, Japan and the United States. The acquired business has sales primarily to BMW, Daimler, Volkswagen, Schaeffler, ZF, Ford, Chrysler, Renault-Nissan and Toyota.
The total consideration for these acquisitions was $525 million paid in cash [net of cash acquired].
11
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 net effect of the acquisitions on the Companys 2012 consolidated balance sheet and as well as certain adjustments recorded during 2013 to the preliminary purchase price allocations are as follows:
|
|
2012 |
|
|
|
|
|
|
|
Preliminary |
|
2013 |
|
Final |
|
|
|
Allocation |
|
Adjustments |
|
Allocation |
|
Non-cash working capital |
|
$ |
(129 |
) |
$ |
(47 |
) |
$ |
(176 |
) |
Investments |
|
3 |
|
(3 |
) |
|
|
Fixed assets |
|
501 |
|
(36 |
) |
465 |
|
Goodwill |
|
289 |
|
(2 |
) |
287 |
|
Other assets |
|
94 |
|
99 |
|
193 |
|
Deferred tax assets |
|
|
|
5 |
|
5 |
|
Purchase intangibles |
|
215 |
|
|
|
215 |
|
Long-term employee benefit liabilities |
|
(49 |
) |
1 |
|
(48 |
) |
Long-term debt |
|
(25 |
) |
(2 |
) |
(27 |
) |
Other long-term liabilities |
|
(35 |
) |
|
|
(35 |
) |
Deferred tax liabilities |
|
(68 |
) |
(15 |
) |
(83 |
) |
Non-controlling interests |
|
(11 |
) |
|
|
(11 |
) |
Fair value of net assets (excluding cash) |
|
$ |
785 |
|
$ |
|
|
$ |
785 |
|
The above adjustments had an insignificant impact on the 2013 consolidated statement of income since the adjustments related primarily to the acquisitions that were completed in the fourth quarter of 2012.
Pro forma impact [unaudited]
If the acquisitions completed during 2014 and 2013 occurred on January 1, 2013, the Companys unaudited pro forma consolidated sales for the year ended December 31, 2014 would have been $36.7 billion [2013 - $34.9 billion] and the unaudited pro forma consolidated net income would have been $1.9 billion [2013 - $1.6 billion].
These acquisitions are not material to the consolidated financial statements individually and in the aggregate.
7. INVENTORIES
Inventories consist of:
|
|
2014 |
|
2013 |
|
Raw materials and supplies |
|
$ |
914 |
|
$ |
947 |
|
Work-in-process |
|
241 |
|
273 |
|
Finished goods |
|
362 |
|
339 |
|
Tooling and engineering |
|
1,240 |
|
1,078 |
|
|
|
$ |
2,757 |
|
$ |
2,637 |
|
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of billed and unbilled amounts included in accounts receivable.
12
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. INVESTMENTS
[a] At December 31, 2014, the Company held Canadian third party ABCP with a face value of Cdn$107 million [2013 - Cdn$107 million]. The following is a continuity of the Companys investment in ABCP:
|
|
2014 |
|
2013 |
|
2012 |
|
Balance, beginning of year |
|
$ |
92 |
|
$ |
90 |
|
$ |
82 |
|
Valuation adjustment [i] |
|
3 |
|
8 |
|
15 |
|
Cash receipts |
|
|
|
|
|
(9 |
) |
Foreign exchange and other |
|
(7 |
) |
(6 |
) |
2 |
|
|
|
$ |
88 |
|
$ |
92 |
|
$ |
90 |
|
[i] The carrying value of this investment was based on a valuation technique estimating the fair value from the perspective of a market participant. The valuation adjustment is recorded in selling, general and administrative expense.
[b] 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
|
|
2014 |
|
2013 |
|
Current assets |
|
$ |
479 |
|
$ |
373 |
|
Long-term assets |
|
$ |
289 |
|
$ |
82 |
|
Current liabilities |
|
$ |
364 |
|
$ |
167 |
|
Long-term liabilities |
|
$ |
124 |
|
$ |
76 |
|
Statements of Income
|
|
2014 |
|
2013 |
|
2012 |
|
Sales |
|
$ |
1,732 |
|
$ |
1,013 |
|
$ |
967 |
|
Cost of goods sold, expenses and income taxes |
|
1,521 |
|
839 |
|
814 |
|
Net income |
|
$ |
211 |
|
$ |
174 |
|
$ |
153 |
|
Sales to equity method investees were approximately $135 million, $144 million and $171 million in 2014, 2013 and 2012, respectively.
13
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. FIXED ASSETS
Fixed assets consist of:
|
|
2014 |
|
2013 |
|
Cost |
|
|
|
|
|
Land |
|
$ |
267 |
|
$ |
236 |
|
Buildings |
|
1,718 |
|
1,592 |
|
Machinery and equipment |
|
11,643 |
|
11,510 |
|
|
|
13,628 |
|
13,338 |
|
Accumulated depreciation |
|
|
|
|
|
Buildings |
|
(605 |
) |
(579 |
) |
Machinery and equipment |
|
(7,359 |
) |
(7,318 |
) |
|
|
$ |
5,664 |
|
$ |
5,441 |
|
Included in the cost of fixed assets are construction in progress expenditures of $843 million [2013 - $762 million] that have not been depreciated.
10. GOODWILL
The following is a continuity of the Companys goodwill by segment:
|
|
North |
|
|
|
|
|
Rest of |
|
|
|
|
|
America |
|
Europe |
|
Asia |
|
World |
|
Total |
|
Balance, December 31, 2012 |
|
$ |
701 |
|
$ |
611 |
|
$ |
74 |
|
$ |
87 |
|
$ |
1,473 |
|
Acquisitions [note 6] |
|
(24 |
) |
22 |
|
3 |
|
|
|
1 |
|
Impairments [note 3] |
|
|
|
|
|
|
|
(22 |
) |
(22 |
) |
Reallocation between reporting segments [i] |
|
|
|
|
|
51 |
|
(51 |
) |
|
|
Foreign exchange and other |
|
(21 |
) |
22 |
|
1 |
|
(14 |
) |
(12 |
) |
Balance, December 31, 2013 |
|
656 |
|
655 |
|
129 |
|
|
|
1,440 |
|
Acquisitions [note 6] |
|
3 |
|
|
|
|
|
|
|
3 |
|
Foreign exchange and other |
|
(24 |
) |
(67 |
) |
(2 |
) |
|
|
(93 |
) |
Balance, December 31, 2014 |
|
$ |
635 |
|
$ |
588 |
|
$ |
127 |
|
$ |
|
|
$ |
1,350 |
|
[i] During the fourth quarter of 2013, the Company began reporting Asia and Rest of World as separate reporting segments [note 23]. As a result, goodwill was assigned to the reporting segments using a relative fair value allocation.
14
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. 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:
|
|
2014 |
|
2013 |
|
2012 |
|
Canadian statutory income tax rate |
|
26.5 |
% |
26.5 |
% |
26.5 |
% |
Manufacturing and processing profits deduction |
|
(0.4 |
) |
(0.4 |
) |
(0.7 |
) |
Foreign rate differentials |
|
(0.1 |
) |
(1.5 |
) |
(1.5 |
) |
Losses not benefited |
|
1.3 |
|
5.3 |
|
5.8 |
|
Utilization of losses previously not benefited |
|
(0.3 |
) |
(1.0 |
) |
(0.3 |
) |
Earnings of equity accounted investees |
|
(1.1 |
) |
(1.1 |
) |
(1.2 |
) |
Tax on repatriation of foreign earnings |
|
0.6 |
|
1.4 |
|
|
|
Valuation allowance on deferred tax assets [i] |
|
(0.1 |
) |
(1.1 |
) |
(5.0 |
) |
Austrian tax reform [ii] |
|
1.3 |
|
|
|
|
|
Mexican flat tax [iii] |
|
|
|
(1.9 |
) |
|
|
Research and development tax credits [iv] |
|
(1.6 |
) |
(4.3 |
) |
(2.3 |
) |
Reserve for uncertain tax positions |
|
(1.7 |
) |
(2.3 |
) |
(1.0 |
) |
Re-measurement gains [note 3] |
|
|
|
|
|
(1.1 |
) |
Others |
|
1.6 |
|
(0.7 |
) |
(0.7 |
) |
Effective income tax rate |
|
26.0 |
% |
18.9 |
% |
18.5 |
% |
[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. Based on these criteria, the Company released a portion of its valuation allowances pertaining to its operations in Europe, Mexico and China. These were partially offset by a valuation allowance set up against all of its deferred tax assets in Brazil. The net effect of all these valuation allowance adjustments was $4 million, $21 million and $89 million in 2014, 2013 and 2012, respectively.
[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 the fourth quarter of 2013, the Company recorded a tax benefit of $36 million as a result of the elimination of the Mexican flat tax, which became effective on January 1, 2014.
[iv] For the year ended December 31, 2013, research and development tax credits included a tax benefit of $36 million in connection with a settlement covering years 2008 and 2009 and a resulting change in the Companys estimate of the amount of similar claims for subsequent periods.
15
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:
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
Canadian |
|
$ |
838 |
|
$ |
653 |
|
$ |
944 |
|
Foreign |
|
1,701 |
|
1,252 |
|
806 |
|
|
|
$ |
2,539 |
|
$ |
1,905 |
|
$ |
1,750 |
|
[c] The details of the income tax provision are as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
Current |
|
|
|
|
|
|
|
Canadian |
|
$ |
200 |
|
$ |
159 |
|
$ |
170 |
|
Foreign |
|
365 |
|
301 |
|
200 |
|
|
|
565 |
|
460 |
|
370 |
|
Deferred |
|
|
|
|
|
|
|
Canadian |
|
1 |
|
(29 |
) |
(6 |
) |
Foreign |
|
93 |
|
(71 |
) |
(40 |
) |
|
|
94 |
|
(100 |
) |
(46 |
) |
|
|
$ |
659 |
|
$ |
360 |
|
$ |
324 |
|
[d] Deferred income taxes have been provided on temporary differences, which consist of the following:
|
|
2014 |
|
2013 |
|
2012 |
|
Tax depreciation greater (less) than book depreciation |
|
$ |
41 |
|
$ |
(23 |
) |
$ |
13 |
|
Book amortization (in excess of) less than tax amortization |
|
(24 |
) |
(57 |
) |
16 |
|
Liabilities currently not deductible for tax |
|
18 |
|
(48 |
) |
(29 |
) |
Net tax losses utilized (benefited) |
|
27 |
|
50 |
|
(11 |
) |
Change in valuation allowance on deferred tax assets |
|
(3 |
) |
(21 |
) |
(89 |
) |
Austrian tax reform |
|
32 |
|
|
|
|
|
Net tax credits utilized |
|
10 |
|
2 |
|
53 |
|
Others |
|
(7 |
) |
(3 |
) |
1 |
|
|
|
$ |
94 |
|
$ |
(100 |
) |
$ |
(46 |
) |
16
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:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
Tax benefit of loss carryforwards |
|
$ |
712 |
|
$ |
610 |
|
Liabilities currently not deductible for tax |
|
238 |
|
342 |
|
Tax credit carryforwards |
|
25 |
|
34 |
|
Unrealized loss on cash flow hedges and retirement liabilities |
|
120 |
|
39 |
|
Others |
|
11 |
|
11 |
|
|
|
1,106 |
|
1,036 |
|
Valuation allowance against tax benefit of loss carryforwards |
|
(663 |
) |
(528 |
) |
Other valuation allowance |
|
(79 |
) |
(111 |
) |
|
|
364 |
|
397 |
|
Liabilities |
|
|
|
|
|
Tax depreciation in excess of book depreciation |
|
208 |
|
170 |
|
Other assets book value in excess of tax value |
|
|
|
15 |
|
Tax on undistributed foreign earnings |
|
7 |
|
5 |
|
Unrealized gain on cash flow hedges and retirement liabilities |
|
9 |
|
21 |
|
|
|
224 |
|
211 |
|
Net deferred tax assets |
|
$ |
140 |
|
$ |
186 |
|
The net deferred tax assets are presented on the consolidated balance sheet in the following categories:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
Current deferred tax assets |
|
$ |
186 |
|
$ |
275 |
|
Current deferred tax liabilities |
|
(21 |
) |
(9 |
) |
Long-term deferred tax assets |
|
147 |
|
120 |
|
Long-term deferred tax liabilities |
|
(172 |
) |
(200 |
) |
|
|
$ |
140 |
|
$ |
186 |
|
[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 $3.99 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 $547 million for the year ended December 31, 2014 [2013 - $507 million; 2012 - $347 million].
[h] As of December 31, 2014, the Company had domestic and foreign operating loss carryforwards of $2.27 billion and tax credit carryforwards of $25 million. Approximately $1.61 billion of the operating losses can be carried forward indefinitely. The remaining operating losses and tax credit carryforwards expire between 2015 and 2034.
17
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, 2014, 2013 and 2012, the Companys gross unrecognized tax benefits were $202 million, $238 million and $279 million, respectively [excluding interest and penalties], of which $177 million, $219 million and $240 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:
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
238 |
|
$ |
279 |
|
$ |
252 |
|
Increase based on tax positions related to current year |
|
21 |
|
35 |
|
68 |
|
Decrease based on tax positions of prior years |
|
(23 |
) |
(44 |
) |
(31 |
) |
Settlements |
|
(8 |
) |
(24 |
) |
(10 |
) |
Statute expirations |
|
(10 |
) |
(7 |
) |
(5 |
) |
Foreign currency translation |
|
(16 |
) |
(1 |
) |
5 |
|
|
|
$ |
202 |
|
$ |
238 |
|
$ |
279 |
|
The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As at December 31, 2014, 2013 and 2012, the Company had recorded interest and penalties on the unrecognized tax benefits of $24 million, $42 million and $49 million, respectively, which reflects recoveries/(expenses) related to changes in its reserves for interest and penalties of $18 million, $7 million and ($7 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 $38 million, of which $35 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 and Mexico for years after 2008, and in Canada and the U.S. federal jurisdiction for years after 2010.
12. OTHER ASSETS
Other assets consist of:
|
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
Preproduction costs related to long-term supply agreements with contractual guarantee for reimbursement |
|
$ |
259 |
|
$ |
291 |
|
Customer relationship intangibles [note 6] |
|
108 |
|
143 |
|
Long-term receivables [note 21[c]] |
|
87 |
|
111 |
|
Patents and licenses, net |
|
36 |
|
44 |
|
Pension overfunded status [note 16[a]] |
|
13 |
|
26 |
|
Unrealized gain on cash flow hedges [note 21] |
|
8 |
|
20 |
|
Other, net |
|
41 |
|
40 |
|
|
|
$ |
552 |
|
$ |
675 |
|
18
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. EMPLOYEE EQUITY AND PROFIT PARTICIPATION PROGRAM
During the year ended December 31, 2014, 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 $63 million [2013 - $39 million; 2012 - $18 million] from the Company to facilitate the purchase of Common Shares. At December 31, 2014, the trusts indebtedness to Magna was $63 million [2013 - $39 million]. The Company nets the receivable from the trust with the Companys accrued EEPPP payable in accrued wages and salaries.
14. WARRANTY
The following is a continuity of the Companys warranty accruals:
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
91 |
|
$ |
94 |
|
$ |
76 |
|
Expense, net |
|
47 |
|
40 |
|
43 |
|
Settlements |
|
(40 |
) |
(46 |
) |
(46 |
) |
Acquisitions [note 6] |
|
|
|
1 |
|
17 |
|
Foreign exchange and other |
|
(10 |
) |
2 |
|
4 |
|
|
|
$ |
88 |
|
$ |
91 |
|
$ |
94 |
|
15. DEBT AND COMMITMENTS
[a] The Companys long-term debt, which is substantially uncollateralized, consists of the following:
|
|
2014 |
|
2013 |
|
Senior Notes at interest rate of 3.625% [note 15[c]] |
|
$ |
750 |
|
$ |
|
|
Bank term debt at a weighted average interest rate of approximately 8.2% [2013 6.3%], denominated primarily in Chinese renminbi and Brazilian real |
|
173 |
|
239 |
|
Government loans at a weighted average interest rate of approximately 5.5% [2013 5.9%], denominated primarily in euros and Brazilian real |
|
19 |
|
26 |
|
Other |
|
53 |
|
67 |
|
|
|
995 |
|
332 |
|
Less due within one year |
|
184 |
|
230 |
|
|
|
$ |
811 |
|
$ |
102 |
|
[b] Future principal repayments on long-term debt are estimated to be as follows:
2015 |
|
$ |
184 |
|
2016 |
|
25 |
|
2017 |
|
12 |
|
2018 |
|
16 |
|
2019 |
|
2 |
|
Thereafter |
|
756 |
|
|
|
$ |
995 |
|
19
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] On June 16, 2014, the Company issued $750 million of 3.625% fixed-rate Senior Notes which mature on June 15, 2024. The Senior Notes are senior unsecured obligations, interest is payable on June 15 and December 15 of each year, and do not include any financial covenants. The Company may redeem the Senior Notes in whole or in part at any time, and from time to time, at specified redemption prices determined in accordance with the terms of the indenture governing the Senior Notes.
[d] On May 16, 2014, the Companys $2.25 billion revolving credit facility maturing June 20, 2018 was extended to June 20, 2019. 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:
|
|
2014 |
|
2013 |
|
2012 |
|
Interest expense |
|
|
|
|
|
|
|
Current |
|
$ |
26 |
|
$ |
26 |
|
$ |
27 |
|
Long-term |
|
21 |
|
8 |
|
7 |
|
|
|
47 |
|
34 |
|
34 |
|
Interest income |
|
(18 |
) |
(18 |
) |
(18 |
) |
Interest expense, net |
|
$ |
29 |
|
$ |
16 |
|
$ |
16 |
|
[f] Interest paid in cash was $45 million for the year ended December 31, 2014 [2013 - $32 million; 2012 - $32 million].
[g] At December 31, 2014, the Company had commitments under operating leases requiring annual rental payments as follows:
|
|
Total |
|
2015 |
|
$ |
306 |
|
2016 |
|
273 |
|
2017 |
|
237 |
|
2018 |
|
188 |
|
2019 |
|
168 |
|
Thereafter |
|
382 |
|
|
|
$ |
1,554 |
|
For the year ended December 31, 2014, operating lease expense was $344 million [2013 - $363 million; 2012 - $325 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 [2013 - $52 million; 2012 - $47 million].
20
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]
16. LONG-TERM EMPLOYEE BENEFIT LIABILITIES
Long-term employee benefit liabilities consist of:
|
|
2014 |
|
2013 |
|
2012 |
|
Defined benefit pension plans and other [a] |
|
$ |
203 |
|
$ |
149 |
|
$ |
212 |
|
Termination and long service arrangements [b] |
|
330 |
|
343 |
|
304 |
|
Retirement medical benefits plans [c] |
|
39 |
|
34 |
|
39 |
|
Other long-term employee benefits |
|
8 |
|
6 |
|
5 |
|
Long-term employee benefit obligations |
|
$ |
580 |
|
$ |
532 |
|
$ |
560 |
|
[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:
|
|
2014 |
|
2013 |
|
2012 |
|
Projected benefit obligation |
|
|
|
|
|
|
|
Discount rate |
|
3.7 |
% |
4.7 |
% |
4.1 |
% |
Rate of compensation increase |
|
2.7 |
% |
2.9 |
% |
2.8 |
% |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
|
|
|
|
|
Discount rate |
|
4.7 |
% |
4.1 |
% |
4.7 |
% |
Rate of compensation increase |
|
2.8 |
% |
2.8 |
% |
2.8 |
% |
Expected return on plan assets |
|
6.0 |
% |
6.5 |
% |
7.0 |
% |
21
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:
|
|
2014 |
|
2013 |
|
2012 |
|
Projected benefit obligation |
|
|
|
|
|
|
|
Beginning of year |
|
$ |
454 |
|
$ |
502 |
|
$ |
388 |
|
Current service cost |
|
13 |
|
13 |
|
11 |
|
Interest cost |
|
20 |
|
19 |
|
18 |
|
Actuarial losses (gains) and changes in actuarial assumptions |
|
93 |
|
(56 |
) |
50 |
|
Benefits paid |
|
(16 |
) |
(18 |
) |
(18 |
) |
Acquisition |
|
|
|
|
|
47 |
|
Foreign exchange |
|
(24 |
) |
(6 |
) |
6 |
|
End of year |
|
540 |
|
454 |
|
502 |
|
Plan assets at fair value [i] |
|
|
|
|
|
|
|
Beginning of year |
|
328 |
|
288 |
|
259 |
|
Return on plan assets |
|
25 |
|
38 |
|
26 |
|
Employer contributions |
|
24 |
|
30 |
|
19 |
|
Benefits paid |
|
(16 |
) |
(18 |
) |
(19 |
) |
Foreign exchange |
|
(14 |
) |
(10 |
) |
3 |
|
End of year |
|
347 |
|
328 |
|
288 |
|
Ending funded status |
|
$ |
193 |
|
$ |
126 |
|
$ |
214 |
|
Amounts recorded in the consolidated balance sheet |
|
|
|
|
|
|
|
Non-current asset [note 12] |
|
$ |
(13 |
) |
$ |
(26 |
) |
$ |
|
|
Current liability |
|
3 |
|
3 |
|
2 |
|
Non-current liability |
|
203 |
|
149 |
|
212 |
|
Net amount |
|
$ |
193 |
|
$ |
126 |
|
$ |
214 |
|
Amounts recorded in accumulated other comprehensive income |
|
|
|
|
|
|
|
Unrecognized actuarial losses |
|
$ |
(147 |
) |
$ |
(61 |
) |
$ |
(141 |
) |
Net periodic benefit cost |
|
|
|
|
|
|
|
Current service cost |
|
$ |
13 |
|
$ |
13 |
|
$ |
11 |
|
Interest cost |
|
20 |
|
19 |
|
18 |
|
Return on plan assets |
|
(19 |
) |
(19 |
) |
(19 |
) |
Actuarial losses |
|
1 |
|
5 |
|
3 |
|
Net periodic benefit cost |
|
$ |
15 |
|
$ |
18 |
|
$ |
13 |
|
[i] The asset allocation of the Companys defined benefit pension plans at December 31, 2014 and 2013, and the target allocation for 2015 is as follows:
|
|
2015 |
|
2014 |
|
2013 |
|
Equity securities |
|
55-75% |
|
58 |
% |
58 |
% |
Fixed income securities |
|
25-45% |
|
41 |
% |
41 |
% |
Cash and cash equivalents |
|
0-15% |
|
1 |
% |
1 |
% |
|
|
100% |
|
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.
22
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:
|
|
2014 |
|
2013 |
|
2012 |
|
Discount rate |
|
3.0 |
% |
3.9 |
% |
4.2 |
% |
Rate of compensation increase |
|
2.7 |
% |
3.9 |
% |
3.9 |
% |
Information about the Companys termination and long service arrangements is as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
Projected benefit obligation |
|
|
|
|
|
|
|
Beginning of year |
|
$ |
354 |
|
$ |
314 |
|
$ |
252 |
|
Current service cost |
|
20 |
|
24 |
|
16 |
|
Interest cost |
|
12 |
|
13 |
|
13 |
|
Actuarial losses and changes in actuarial assumptions |
|
15 |
|
12 |
|
41 |
|
Benefits paid |
|
(18 |
) |
(21 |
) |
(13 |
) |
Acquisition |
|
|
|
|
|
2 |
|
Curtailment |
|
|
|
|
|
(4 |
) |
Foreign exchange |
|
(43 |
) |
12 |
|
7 |
|
Ending funded status |
|
$ |
340 |
|
$ |
354 |
|
$ |
314 |
|
|
|
|
|
|
|
|
|
Amounts recorded in the consolidated balance sheet |
|
|
|
|
|
|
|
Current liability |
|
$ |
10 |
|
$ |
11 |
|
$ |
10 |
|
Non-current liability |
|
330 |
|
343 |
|
304 |
|
Net amount |
|
$ |
340 |
|
$ |
354 |
|
$ |
314 |
|
|
|
|
|
|
|
|
|
Amounts recorded in accumulated other comprehensive income |
|
|
|
|
|
|
|
Unrecognized actuarial losses |
|
$ |
(81 |
) |
$ |
(82 |
) |
$ |
(74 |
) |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
|
|
|
|
|
Current service cost |
|
$ |
20 |
|
$ |
24 |
|
$ |
16 |
|
Interest cost |
|
12 |
|
13 |
|
13 |
|
Actuarial losses |
|
16 |
|
4 |
|
12 |
|
Net periodic benefit cost |
|
$ |
48 |
|
$ |
41 |
|
$ |
41 |
|
23
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:
|
|
2014 |
|
2013 |
|
2012 |
|
Retirement medical benefit obligations |
|
3.7 |
% |
4.5 |
% |
3.6 |
% |
Net periodic benefit cost |
|
4.5 |
% |
3.6 |
% |
4.2 |
% |
Health care cost inflation |
|
7.0 |
% |
7.7 |
% |
8.0 |
% |
Information about the Companys retirement medical benefits plans are as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
Projected benefit obligation |
|
|
|
|
|
|
|
Beginning of year |
|
$ |
36 |
|
$ |
41 |
|
$ |
39 |
|
Interest cost |
|
2 |
|
2 |
|
2 |
|
Actuarial losses (gains) and changes in actuarial assumptions |
|
5 |
|
(4 |
) |
3 |
|
Benefits paid |
|
(2 |
) |
(2 |
) |
(3 |
) |
Foreign exchange |
|
|
|
(1 |
) |
|
|
Ending funded status |
|
$ |
41 |
|
$ |
36 |
|
$ |
41 |
|
|
|
|
|
|
|
|
|
Amounts recorded in the consolidated balance sheet |
|
|
|
|
|
|
|
Current liability |
|
$ |
2 |
|
$ |
2 |
|
$ |
2 |
|
Non-current liability |
|
39 |
|
34 |
|
39 |
|
Net amount |
|
$ |
41 |
|
$ |
36 |
|
$ |
41 |
|
|
|
|
|
|
|
|
|
Amounts recorded in accumulated other comprehensive income |
|
|
|
|
|
|
|
Unrecognized past service costs |
|
$ |
2 |
|
$ |
2 |
|
$ |
3 |
|
Unrecognized actuarial gains |
|
4 |
|
10 |
|
8 |
|
Total accumulated other comprehensive income |
|
$ |
6 |
|
$ |
12 |
|
$ |
11 |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
|
|
|
|
|
|
Interest cost |
|
$ |
2 |
|
$ |
2 |
|
$ |
2 |
|
Actuarial gains |
|
(1 |
) |
(2 |
) |
(1 |
) |
Past service cost amortization |
|
(1 |
) |
(1 |
) |
|
|
Net periodic benefit cost |
|
$ |
|
|
$ |
(1 |
) |
$ |
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.
24
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 - 2015 |
|
$ |
20 |
|
$ |
9 |
|
$ |
2 |
|
$ |
31 |
|
Expected benefit payments: |
|
|
|
|
|
|
|
|
|
2015 |
|
$ |
16 |
|
$ |
9 |
|
$ |
2 |
|
$ |
27 |
|
2016 |
|
17 |
|
9 |
|
2 |
|
28 |
|
2017 |
|
17 |
|
10 |
|
2 |
|
29 |
|
2018 |
|
18 |
|
11 |
|
3 |
|
32 |
|
2019 |
|
19 |
|
14 |
|
2 |
|
35 |
|
Thereafter |
|
113 |
|
96 |
|
12 |
|
221 |
|
|
|
$ |
200 |
|
$ |
149 |
|
$ |
23 |
|
$ |
372 |
|
17. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of:
|
|
2014 |
|
2013 |
|
Long-term portion of income taxes payable |
|
$ |
144 |
|
$ |
133 |
|
Long-term portion of fair value of hedges [note 21] |
|
82 |
|
28 |
|
Asset retirement obligation |
|
37 |
|
40 |
|
Long-term lease inducements |
|
24 |
|
|
|
Deferred revenue |
|
5 |
|
7 |
|
|
|
$ |
292 |
|
$ |
208 |
|
18. 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.
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 16,000,000 shares. The number of shares available to be granted at December 31, 2014 was 6,793,030 [2013 7,516,831]. 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. 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.
25
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]
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]:
|
|
Options outstanding |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
average |
|
Number |
|
|
|
Number |
|
exercise |
|
of options |
|
|
|
of options |
|
price |
|
exercisable |
|
Outstanding at December 31, 2011 |
|
6,867,367 |
|
Cdn$ |
31.54 |
|
2,066,700 |
|
Granted |
|
1,389,000 |
|
48.22 |
|
|
|
Exercised [i] |
|
(1,525,159 |
) |
28.46 |
|
(1,525,159 |
) |
Cancelled |
|
(107,966 |
) |
53.14 |
|
(58,967 |
) |
Vested |
|
|
|
|
|
2,745,000 |
|
Outstanding at December 31, 2012 |
|
6,623,242 |
|
Cdn$ |
35.39 |
|
3,227,574 |
|
Granted |
|
1,060,000 |
|
57.02 |
|
|
|
Exercised [i] |
|
(2,805,969 |
) |
31.99 |
|
(2,805,969 |
) |
Cancelled |
|
(119,165 |
) |
51.46 |
|
(31,667 |
) |
Vested |
|
|
|
|
|
2,457,171 |
|
Outstanding at December 31, 2013 |
|
4,758,108 |
|
Cdn$ |
41.82 |
|
2,847,109 |
|
Granted |
|
751,300 |
|
106.71 |
|
|
|
Exercised |
|
(1,324,580 |
) |
39.83 |
|
(1,324,580 |
) |
Cancelled |
|
(27,499 |
) |
60.46 |
|
(6,000 |
) |
Vested |
|
|
|
|
|
790,715 |
|
Outstanding at December 31, 2014 |
|
4,157,329 |
|
Cdn$ |
54.05 |
|
2,307,244 |
|
The total intrinsic value of options exercised during 2014 was $85 million [2013 - $56 million; 2012 - $6 million].
[i] During 2013, 849,999 [2012 1,100,001] options were exercised on a cashless basis in accordance with the applicable stock option plans. On exercise, cash payments totalling $23 million [2012 - $19 million] were made to the stock option holders.
All cash payments were calculated using the difference between the aggregate fair market value of the Option Shares based on the closing price of the Companys Common Shares on the Toronto Stock Exchange [TSX] on the date of exercise and the aggregate Exercise Price of all such options surrendered.
26
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, 2014, 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 |
|
$15 to $20 |
|
350,341 |
|
1.2 |
|
350,341 |
|
$25 to $30 |
|
925,000 |
|
2.2 |
|
925,000 |
|
$35 to $40 |
|
10,000 |
|
2.4 |
|
10,000 |
|
$45 to $50 |
|
917,364 |
|
4.2 |
|
489,225 |
|
$50 to $55 |
|
315,498 |
|
3.0 |
|
315,498 |
|
$55 to $60 |
|
891,826 |
|
5.2 |
|
217,180 |
|
Over $100 |
|
747,300 |
|
6.2 |
|
|
|
|
|
4,157,329 |
|
|
|
2,307,244 |
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
Cdn$ |
54.05 |
|
|
|
Cdn$ |
37.21 |
|
Weighted average life remaining [years] |
|
3.95 |
|
|
|
2.83 |
|
Aggregate intrinsic value at December 31, 2014 |
|
$ |
255 |
|
|
|
$ |
175 |
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used in measuring the fair value of stock options granted are as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
Risk-free interest rate |
|
1.60 |
% |
1.32 |
% |
2.23 |
% |
Expected dividend yield |
|
2.00 |
% |
2.00 |
% |
2.00 |
% |
Expected volatility |
|
29 |
% |
34 |
% |
43 |
% |
Expected time until exercise |
|
4.5 years |
|
4.5 years |
|
4.5 years |
|
Weighted average fair value of options granted in year [Cdn$] |
|
$ |
22.94 |
|
$ |
14.02 |
|
$ |
15.37 |
|
|
|
|
|
|
|
|
|
|
|
|
[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.
27
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]:
|
|
Number |
|
Stated |
|
|
|
of shares |
|
value |
|
Awarded and not released, December 31, 2011 |
|
1,026,304 |
|
$ |
35 |
|
Release of restricted stock |
|
(143,316 |
) |
(5 |
) |
Awarded and not released, December 31, 2012 |
|
882,988 |
|
30 |
|
Release of restricted stock |
|
(152,512 |
) |
(5 |
) |
Awarded and not released, December 31, 2013 |
|
730,476 |
|
25 |
|
Release of restricted stock |
|
(143,152 |
) |
(5 |
) |
Awarded and not released, December 31, 2014 |
|
587,324 |
|
$ |
20 |
|
[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. Effective January 1, 2014, the DSUs will be settled upon an Independent Directors retirement from the Board by delivering Magna Common Shares equal to the whole DSUs credited to the Independent Director. Previously, the DSUs were settled in cash. Accordingly, effective January 1, 2014, the DSUs are accounted for through equity.
28
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]:
|
|
|
|
|
|
Liability/ |
|
|
|
|
|
Equity |
|
Liability |
|
Equity |
|
|
|
|
|
classified |
|
classified |
|
classified |
|
|
|
|
|
RSUs |
|
RSUs |
|
DSUs |
|
Total |
|
Outstanding at December 31, 2011 |
|
367,726 |
|
29,806 |
|
198,446 |
|
595,978 |
|
Granted |
|
320,131 |
|
15,364 |
|
37,456 |
|
372,951 |
|
Dividend equivalents |
|
1,895 |
|
1,133 |
|
5,145 |
|
8,173 |
|
Redeemed |
|
(84,322 |
) |
(26,204 |
) |
(34,124 |
) |
(144,650 |
) |
Outstanding at December 31, 2012 |
|
605,430 |
|
20,099 |
|
206,923 |
|
832,452 |
|
Granted |
|
224,841 |
|
13,825 |
|
30,716 |
|
269,382 |
|
Dividend equivalents |
|
1,262 |
|
624 |
|
2,815 |
|
4,701 |
|
Redeemed |
|
(199,679 |
) |
(4,429 |
) |
(113,007 |
) |
(317,115 |
) |
Outstanding at December 31, 2013 |
|
631,854 |
|
30,119 |
|
127,447 |
|
789,420 |
|
Granted |
|
181,526 |
|
9,025 |
|
22,136 |
|
212,687 |
|
Dividend equivalents |
|
839 |
|
566 |
|
2,047 |
|
3,452 |
|
Forfeitures |
|
|
|
(410 |
) |
|
|
(410 |
) |
Redeemed |
|
(321,580 |
) |
(16,274 |
) |
|
|
(337,854 |
) |
Outstanding at December 31, 2014 |
|
492,639 |
|
23,026 |
|
151,630 |
|
667,295 |
|
[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:
|
|
2014 |
|
2013 |
|
2012 |
|
Incentive Stock Option Plan |
|
$ |
15 |
|
$ |
15 |
|
$ |
19 |
|
Long-term retention |
|
4 |
|
4 |
|
5 |
|
Restricted stock unit |
|
21 |
|
16 |
|
14 |
|
|
|
40 |
|
35 |
|
38 |
|
Fair value adjustment for liability classified DSUs |
|
|
|
5 |
|
4 |
|
Total stock-based compensation expense |
|
$ |
40 |
|
$ |
40 |
|
$ |
42 |
|
29
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]
19. CAPITAL STOCK
[a] At December 31, 2014, 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, 2014, 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 20,000,000 Magna Common Shares [the 2014 Bid], representing 9.7% of the Companys public float of Common Shares. The Bid commenced on November 13, 2014 and will terminate no later than November 12, 2015.
Previously, the Company had Normal Course Issuer Bids in place for the 12 month periods beginning in November 2013, 2012 and 2011.
The following is a summary of the Normal Course Issuer Bids [number of shares in the table below are expressed in whole numbers]:
|
|
Maximum |
|
2014 |
|
2013 |
|
2012 |
|
|
|
number |
|
Shares |
|
Cash |
|
Shares |
|
Cash |
|
Shares |
|
Cash |
|
|
|
of shares |
|
purchased |
|
amount |
|
purchased |
|
amount |
|
purchased |
|
amount |
|
2011 Bid |
|
12,000,000 |
|
|
|
$ |
|
|
|
|
$ |
|
|
467,630 |
|
$ |
21 |
|
2012 Bid |
|
12,000,000 |
|
|
|
|
|
11,572,598 |
|
814 |
|
427,402 |
|
19 |
|
2013 Bid |
|
20,000,000 |
|
15,135,714 |
|
1,525 |
|
2,509,723 |
|
199 |
|
|
|
|
|
2014 Bid |
|
20,000,000 |
|
2,399,188 |
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
17,534,902 |
|
$ |
1,766 |
|
14,082,321 |
|
$ |
1,013 |
|
895,032 |
|
$ |
40 |
|
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 5, 2015 were exercised or converted:
Common Shares |
|
205,179,261 |
|
Stock options [note 18] |
|
4,898,935 |
|
|
|
210,078,196 |
|
30
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]
20. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following is a continuity schedule of accumulated other comprehensive (loss) income:
|
|
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on translation of net investment in foreign operations |
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
454 |
|
$ |
629 |
|
$ |
547 |
|
Net unrealized (loss) gain |
|
(681 |
) |
(133 |
) |
86 |
|
Repurchase of shares under normal course issuer bids [note 19] |
|
(28 |
) |
(42 |
) |
(4 |
) |
Balance, end of year |
|
(255 |
) |
454 |
|
629 |
|
|
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on cash flow hedges [b] |
|
|
|
|
|
|
|
Balance, beginning of year |
|
(20 |
) |
34 |
|
(23 |
) |
Net unrealized (loss) gain |
|
(103 |
) |
(39 |
) |
75 |
|
Reclassification of net loss (gain) to net income [a] |
|
10 |
|
(15 |
) |
(18 |
) |
Balance, end of year |
|
(113 |
) |
(20 |
) |
34 |
|
|
|
|
|
|
|
|
|
Accumulated net unrealized loss on other long-term liabilities [b] |
|
|
|
|
|
|
|
Balance, beginning of year |
|
(117 |
) |
(168 |
) |
(107 |
) |
Net unrealized (loss) gain |
|
(72 |
) |
44 |
|
(72 |
) |
Reclassification of net loss to net income [a] |
|
3 |
|
7 |
|
11 |
|
Balance, end of year |
|
(186 |
) |
(117 |
) |
(168 |
) |
|
|
|
|
|
|
|
|
Accumulated net unrealized (loss) gain on available-for-sale investments |
|
|
|
|
|
|
|
Balance, beginning of year |
|
(4 |
) |
1 |
|
5 |
|
Net unrealized loss |
|
|
|
(5 |
) |
(4 |
) |
Balance, end of year |
|
(4 |
) |
(4 |
) |
1 |
|
Total accumulated other comprehensive (loss) income [c] |
|
$ |
(558 |
) |
$ |
313 |
|
$ |
496 |
|
31
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 AOCI, with presentation location, were as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
Cash flow hedges |
|
|
|
|
|
|
|
Sales |
|
$ |
(28 |
) |
$ |
3 |
|
$ |
24 |
|
Cost of sales |
|
17 |
|
18 |
|
(1 |
) |
Income tax |
|
1 |
|
(6 |
) |
(5 |
) |
Net of tax |
|
(10 |
) |
15 |
|
18 |
|
Other long-term liabilities |
|
|
|
|
|
|
|
Cost of sales |
|
(4 |
) |
(8 |
) |
(14 |
) |
Income tax |
|
1 |
|
1 |
|
3 |
|
Net of tax |
|
(3 |
) |
(7 |
) |
(11 |
) |
|
|
|
|
|
|
|
|
Total (loss) gain reclassified to net income |
|
$ |
(13 |
) |
$ |
8 |
|
$ |
7 |
|
[b] The amount of income tax benefit that has been allocated to each component of other comprehensive income is as follows:
|
|
2014 |
|
2013 |
|
2012 |
|
Accumulated net unrealized (loss) gain on cash flow hedges |
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
4 |
|
$ |
(13 |
) |
$ |
12 |
|
Net unrealized loss (gain) |
|
41 |
|
11 |
|
(30 |
) |
Reclassification of net (loss) gain to net income |
|
(1 |
) |
6 |
|
5 |
|
Balance, end of year |
|
44 |
|
4 |
|
(13 |
) |
Accumulated net unrealized loss on other long-term liabilities |
|
|
|
|
|
|
|
Balance, beginning of year |
|
14 |
|
36 |
|
24 |
|
Net unrealized loss (gain) |
|
23 |
|
(21 |
) |
15 |
|
Reclassification of net loss to net income |
|
(1 |
) |
(1 |
) |
(3 |
) |
Balance, end of year |
|
36 |
|
14 |
|
36 |
|
|
|
|
|
|
|
|
|
Total income tax benefit |
|
$ |
80 |
|
$ |
18 |
|
$ |
23 |
|
[c] The amount of other comprehensive loss that is expected to be reclassified to net income during 2015 is $55 million [net of income tax of $21 million].
32
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. FINANCIAL INSTRUMENTS
[a] Foreign exchange contracts
At December 31, 2014, 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 |
|
2015 |
|
235 |
|
1.10195 |
|
42 |
|
1.47805 |
|
4,390 |
|
0.07221 |
|
2015 |
|
(617 |
) |
0.92552 |
|
(15 |
) |
0.69344 |
|
(123 |
) |
13.47236 |
|
2016 |
|
30 |
|
1.07317 |
|
23 |
|
1.48303 |
|
2,766 |
|
0.07135 |
|
2016 |
|
(370 |
) |
0.91253 |
|
|
|
|
|
|
|
|
|
2017 |
|
2 |
|
1.09970 |
|
|
|
|
|
911 |
|
0.06884 |
|
2017 |
|
(226 |
) |
0.89597 |
|
|
|
|
|
|
|
|
|
2018 |
|
(76 |
) |
0.87961 |
|
|
|
|
|
|
|
|
|
2019 |
|
(39 |
) |
0.87043 |
|
|
|
|
|
|
|
|
|
|
|
(1,061 |
) |
|
|
50 |
|
|
|
7,944 |
|
|
|
|
|
For euros |
|
|
|
U.S. |
|
Weighted |
|
|
|
Weighted |
|
Czech |
|
Weighted |
|
Buy |
|
dollar |
|
average |
|
GBP |
|
average |
|
koruna |
|
average |
|
(Sell) |
|
amount |
|
rate |
|
amount |
|
rate |
|
amount |
|
rate |
|
2015 |
|
85 |
|
0.76616 |
|
13 |
|
1.19170 |
|
2,571 |
|
0.03800 |
|
2015 |
|
(152 |
) |
1.31120 |
|
(15 |
) |
0.85706 |
|
|
|
|
|
2016 |
|
24 |
|
0.76905 |
|
|
|
|
|
1,609 |
|
0.03698 |
|
2016 |
|
(81 |
) |
1.30607 |
|
(13 |
) |
0.80758 |
|
|
|
|
|
2017 |
|
3 |
|
0.78725 |
|
|
|
|
|
755 |
|
0.03656 |
|
2017 |
|
(43 |
) |
1.33328 |
|
(9 |
) |
0.81324 |
|
|
|
|
|
2018 |
|
(12 |
) |
1.31030 |
|
(1 |
) |
0.81930 |
|
|
|
|
|
|
|
(176 |
) |
|
|
(25 |
) |
|
|
4,935 |
|
|
|
Based on forward foreign exchange rates as at December 31, 2014 for contracts with similar remaining terms to maturity, the gains and losses relating to the Companys foreign exchange forward contracts recognized in other comprehensive income are approximately $30 million and $174 million, respectively [note 20].
The Company does not enter into foreign exchange forward contracts for speculative purposes.
33
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:
|
|
2014 |
|
2013 |
|
Trading |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,253 |
|
$ |
1,554 |
|
Investment in ABCP [note 8] |
|
88 |
|
92 |
|
|
|
$ |
1,341 |
|
$ |
1,646 |
|
Held-to-maturity investments |
|
|
|
|
|
Severance investments |
|
$ |
4 |
|
$ |
5 |
|
Available-for-sale investments |
|
|
|
|
|
Equity investments |
|
$ |
5 |
|
$ |
4 |
|
Loans and receivables |
|
|
|
|
|
Accounts receivable |
|
$ |
5,635 |
|
$ |
5,246 |
|
Long-term receivables included in other assets [note 12] |
|
87 |
|
111 |
|
|
|
$ |
5,722 |
|
$ |
5,357 |
|
Other financial liabilities |
|
|
|
|
|
Bank indebtedness |
|
$ |
33 |
|
$ |
41 |
|
Long-term debt (including portion due within one year) |
|
995 |
|
332 |
|
Accounts payable |
|
5,105 |
|
4,781 |
|
|
|
$ |
6,133 |
|
$ |
5,154 |
|
Derivatives designated as effective hedges, measured at fair value |
|
|
|
|
|
Foreign currency contracts |
|
|
|
|
|
Prepaid expenses and other |
|
$ |
22 |
|
$ |
42 |
|
Other assets |
|
8 |
|
20 |
|
Other accrued liabilities |
|
(93 |
) |
(37 |
) |
Other long-term liabilities |
|
(82 |
) |
(28 |
) |
|
|
(145 |
) |
(3 |
) |
Commodity contracts |
|
|
|
|
|
Other accrued liabilities |
|
(1 |
) |
(1 |
) |
|
|
$ |
(146 |
) |
$ |
(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]
[c] Derivatives designated as effective hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges at gross fair values in the consolidated balance sheets. However, master netting and other similar arrangements allow net settlements under certain conditions. The following table shows the Companys derivative foreign currency contracts at gross fair value as reflected in the consolidated balance sheets and the unrecognized impacts of master netting arrangements:
|
|
Gross |
|
Gross |
|
|
|
|
|
amounts |
|
amounts |
|
|
|
|
|
presented |
|
not offset |
|
|
|
|
|
in consolidated |
|
in consolidated |
|
Net |
|
|
|
balance sheets |
|
balance sheets |
|
amounts |
|
December 31, 2014 |
|
|
|
|
|
|
|
Assets |
|
$ |
30 |
|
$ |
28 |
|
$ |
2 |
|
Liabilities |
|
$ |
(174 |
) |
$ |
(28 |
) |
$ |
(146 |
) |
|
|
|
|
|
|
|
|
December 31, 2013 |
|
|
|
|
|
|
|
Assets |
|
$ |
62 |
|
$ |
42 |
|
$ |
20 |
|
Liabilities |
|
$ |
(65 |
) |
$ |
(42 |
) |
$ |
(23 |
) |
[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, 2014, the Company held Canadian third party ABCP with a face value of Cdn$107 million [2013 - Cdn$107 million]. The carrying value and estimated fair value of this investment was Cdn$102 million [2013 - Cdn$99 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 [note 8].
At December 31, 2014, the Company held available-for-sale investments in publicly traded companies. At December 31, 2014, the carrying value and fair value of these investments was $5 million [2013 - $4 million], which was based on the closing share prices of these investments.
Term debt
The Companys term debt includes $184 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.
35
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]
Senior Notes
At December 31, 2014, the total estimated fair value of the Senior Notes was approximately $755 million, determined primarily using active market prices, categorized as Level 1 inputs within the GAAPs fair value hierarchy.
[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 Companys trading investments include an investment in ABCP [note 8]. Given the continuing uncertainties regarding the value of the underlying assets, the amount and timing of cash flows and the risk of collateral calls in the event that spreads widened considerably, the Company could be exposed to further losses on its investment.
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, 2014, sales to the Companys six largest customers represented 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 21[a]].
As at December 31, 2014, the net foreign exchange exposure, after considering the impact of foreign exchange contracts, was not significant.
[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.
36
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. 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. The amended statement of claim alleges, among other things:
· breach of fiduciary duty by the Company and two of its subsidiaries;
· breach by the Company of its binding letter of intent with KS Centoco Ltd., including its covenant not to have any interest, directly or indirectly, in any entity that carries on the airbag business in North America, other than through MST Automotive Inc., a company to be 77% owned by Magna and 23% owned by Centoco Holdings Limited;
· the plaintiffs exclusive entitlement to certain airbag technologies in North America pursuant to an exclusive licence agreement, together with an accounting of all revenues and profits resulting from the alleged use by the Company, TRW Inc. [TRW] and other unrelated third party automotive supplier defendants of such technology in North America;
· a conspiracy by the Company, TRW and others to deprive KS Centoco Ltd. of the benefits of such airbag technology in North America and to cause Centoco Holdings Limited to sell to TRW its interest in KS Centoco Ltd. in conjunction with the 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$3.5 billion. Document production, completion of undertakings and examinations for discovery are substantially complete, although limited additional examinations for discovery may occur. A trial is not expected to commence until 2016, at the earliest. 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.
37
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 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. In the case of the German Federal Cartel Office, administrative fines are tied to the level of affected sales and the consolidated sales of the group of companies to which the offending entity belongs. At this time, management is unable to predict the duration or outcome of the German and Brazilian investigations, 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 14]; 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.
38
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. SEGMENTED INFORMATION
[a] Magna is a global automotive supplier whose product capabilities include producing body, chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and contract manufacturing.
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. Beginning in the fourth quarter of 2013, 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.
39
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:
|
|
2014 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
Fixed |
|
Fixed |
|
|
|
Total |
|
External |
|
and |
|
Adjusted |
|
|
|
asset |
|
assets, |
|
|
|
sales |
|
sales |
|
amortization |
|
EBIT [iii] |
|
Goodwill |
|
additions |
|
net |
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,799 |
|
$ |
6,324 |
|
|
|
|
|
|
|
$ |
204 |
|
$ |
638 |
|
United States |
|
9,780 |
|
9,252 |
|
|
|
|
|
|
|
351 |
|
1,260 |
|
Mexico |
|
4,357 |
|
4,027 |
|
|
|
|
|
|
|
160 |
|
655 |
|
Eliminations |
|
(1,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
19,712 |
|
19,603 |
|
$ |
421 |
|
$ |
1,992 |
|
$ |
635 |
|
715 |
|
2,553 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great Britain) |
|
11,775 |
|
11,487 |
|
|
|
|
|
|
|
375 |
|
1,359 |
|
Great Britain |
|
783 |
|
781 |
|
|
|
|
|
|
|
51 |
|
98 |
|
Eastern Europe |
|
2,580 |
|
2,226 |
|
|
|
|
|
|
|
91 |
|
555 |
|
Eliminations |
|
(432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
14,706 |
|
14,494 |
|
357 |
|
434 |
|
588 |
|
517 |
|
2,012 |
|
Asia |
|
1,983 |
|
1,837 |
|
71 |
|
162 |
|
127 |
|
141 |
|
650 |
|
Rest of World |
|
695 |
|
694 |
|
17 |
|
(35 |
) |
|
|
8 |
|
82 |
|
Corporate and Other [i] |
|
(455 |
) |
13 |
|
24 |
|
79 |
|
|
|
206 |
|
367 |
|
Total reportable segments |
|
$ |
36,641 |
|
$ |
36,641 |
|
$ |
890 |
|
$ |
2,632 |
|
$ |
1,350 |
|
$ |
1,587 |
|
$ |
5,664 |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,007 |
|
Investments, goodwill, deferred tax assets and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,468 |
|
Consolidated total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,139 |
|
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]
|
|
2013 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
Fixed |
|
Fixed |
|
|
|
Total |
|
External |
|
and |
|
Adjusted |
|
|
|
asset |
|
assets, |
|
|
|
sales |
|
sales |
|
amortization |
|
EBIT [iii] |
|
Goodwill |
|
additions |
|
net |
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,734 |
|
$ |
6,223 |
|
|
|
|
|
|
|
$ |
167 |
|
$ |
601 |
|
United States |
|
8,409 |
|
7,938 |
|
|
|
|
|
|
|
349 |
|
1,135 |
|
Mexico |
|
3,993 |
|
3,698 |
|
|
|
|
|
|
|
129 |
|
611 |
|
Eliminations |
|
(1,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
17,954 |
|
17,859 |
|
$ |
598 |
|
$ |
1,645 |
|
$ |
656 |
|
645 |
|
2,347 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great Britain) |
|
11,813 |
|
11,544 |
|
|
|
|
|
|
|
225 |
|
1,463 |
|
Great Britain |
|
975 |
|
968 |
|
|
|
|
|
|
|
24 |
|
70 |
|
Eastern Europe |
|
2,317 |
|
2,013 |
|
|
|
|
|
|
|
112 |
|
636 |
|
Eliminations |
|
(387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
14,718 |
|
14,525 |
|
355 |
|
375 |
|
655 |
|
361 |
|
2,169 |
|
Asia |
|
1,684 |
|
1,539 |
|
64 |
|
85 |
|
129 |
|
114 |
|
597 |
|
Rest of World |
|
889 |
|
889 |
|
20 |
|
(76 |
) |
|
|
20 |
|
102 |
|
Corporate and Other [i] |
|
(410 |
) |
23 |
|
26 |
|
36 |
|
|
|
30 |
|
226 |
|
Total reportable segments |
|
$ |
34,835 |
|
$ |
34,835 |
|
$ |
1,063 |
|
$ |
2,065 |
|
$ |
1,440 |
|
$ |
1,170 |
|
$ |
5,441 |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,923 |
|
Investments, goodwill, deferred tax assets and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,626 |
|
Consolidated total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,990 |
|
41
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]
|
|
2012 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
Fixed |
|
Fixed |
|
|
|
Total |
|
External |
|
and |
|
Adjusted |
|
|
|
asset |
|
assets, |
|
|
|
sales |
|
sales |
|
amortization |
|
EBIT [iii] |
|
Goodwill |
|
additions |
|
net |
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
$ |
6,343 |
|
$ |
5,907 |
|
|
|
|
|
|
|
$ |
158 |
|
$ |
660 |
|
United States |
|
7,518 |
|
7,053 |
|
|
|
|
|
|
|
294 |
|
973 |
|
Mexico |
|
3,520 |
|
3,281 |
|
|
|
|
|
|
|
163 |
|
573 |
|
Eliminations |
|
(1,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
16,335 |
|
16,241 |
|
$ |
432 |
|
$ |
1,521 |
|
$ |
701 |
|
615 |
|
2,206 |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Europe (excluding Great Britain) |
|
10,089 |
|
9,927 |
|
|
|
|
|
|
|
246 |
|
1,490 |
|
Great Britain |
|
961 |
|
952 |
|
|
|
|
|
|
|
15 |
|
58 |
|
Eastern Europe |
|
1,847 |
|
1,684 |
|
|
|
|
|
|
|
117 |
|
584 |
|
Eliminations |
|
(188 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
12,709 |
|
12,563 |
|
283 |
|
165 |
|
611 |
|
378 |
|
2,132 |
|
Asia |
|
1,289 |
|
1,188 |
|
42 |
|
49 |
|
74 |
|
214 |
|
558 |
|
Rest of World |
|
822 |
|
822 |
|
17 |
|
(77 |
) |
87 |
|
56 |
|
128 |
|
Corporate and Other [i, ii] |
|
(318 |
) |
23 |
|
27 |
|
|
|
|
|
11 |
|
249 |
|
Total reportable segments |
|
$ |
30,837 |
|
$ |
30,837 |
|
$ |
801 |
|
$ |
1,658 |
|
$ |
1,473 |
|
$ |
1,274 |
|
$ |
5,273 |
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,135 |
|
Investments, goodwill, deferred tax assets and other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,701 |
|
Consolidated total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,109 |
|
[i] Included in Corporate and Other Adjusted EBIT are intercompany fees charged to the automotive segments.
[ii] For the year ended December 31, 2012, Corporate and Other includes $35 million equity loss related to the Companys investment in E-Car.
[iii] The following table reconciles Adjusted EBIT to Income from operations before income taxes:
|
|
2014 |
|
2013 |
|
2012 |
|
Adjusted EBIT |
|
$ |
2,632 |
|
$ |
2,065 |
|
$ |
1,658 |
|
Other (expense) income, net |
|
(64 |
) |
(144 |
) |
108 |
|
Interest expense, net |
|
(29 |
) |
(16 |
) |
(16 |
) |
Income from operations before income taxes |
|
$ |
2,539 |
|
$ |
1,905 |
|
$ |
1,750 |
|
42
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:
|
|
2014 |
|
2013 |
|
2012 |
|
General Motors |
|
$ |
6,734 |
|
$ |
6,394 |
|
$ |
5,704 |
|
Fiat / Chrysler Group |
|
5,897 |
|
5,137 |
|
4,637 |
|
Ford Motor Company |
|
4,714 |
|
4,450 |
|
3,848 |
|
BMW |
|
4,649 |
|
4,882 |
|
4,100 |
|
Daimler AG |
|
4,262 |
|
3,949 |
|
3,367 |
|
Volkswagen |
|
4,144 |
|
4,047 |
|
3,835 |
|
Other |
|
6,241 |
|
5,976 |
|
5,346 |
|
|
|
$ |
36,641 |
|
$ |
34,835 |
|
$ |
30,837 |
|
[c] The following table summarizes external revenues generated by automotive products and services:
|
|
2014 |
|
2013 |
|
2012 |
|
Exterior and interior systems |
|
$ |
12,840 |
|
$ |
12,308 |
|
$ |
11,673 |
|
Body systems and chassis systems |
|
8,079 |
|
7,874 |
|
7,123 |
|
Powertrain systems |
|
4,954 |
|
4,634 |
|
3,825 |
|
Complete vehicle assembly |
|
3,067 |
|
3,062 |
|
2,561 |
|
Tooling, engineering and other |
|
2,971 |
|
2,823 |
|
2,317 |
|
Vision and electronic systems |
|
2,644 |
|
2,193 |
|
2,132 |
|
Closure systems |
|
2,086 |
|
1,941 |
|
1,206 |
|
|
|
$ |
36,641 |
|
$ |
34,835 |
|
$ |
30,837 |
|
24. SUBSEQUENT EVENT
Stock Split
On February 24, 2015, the Board of Directors approved a two-for-one stock split, to be implemented by way of a stock dividend, whereby shareholders of the Company will receive an additional Common Share for each Common Share held. The stock dividend will be payable on March 25, 2015, to shareholders of record at the close of business on March 11, 2015. All equity-based compensation plans or arrangements and normal course issuer bid will be adjusted to reflect the issuance of additional Common Shares due to the declaration of the stock split.
43
|
Corporate
Directory As a "foreign private issuer" listed on the New York
Stock Exchange (NYSE), Magna is required to disclose the significant ways in
which our corporate governance practices differ from those to be followed by
U.S. domestic issuers under the NYSE listing standards. Please see the
corporate governance section of our website (www.magna.com) for our Statement
of Significant Corporate Governance Differences (NYSE). Additionally, please
refer to the Management Information Circular/ Proxy Statement for our 2015
Annual Meeting of Shareholders for a description of our corporate governance
practices in comparison with the requirements and guidelines of the Canadian
securities administrators. Shareholders wishing to communicate with the
non-management members of the Magna Board of Directors may do so by
contacting the Chairman of the Board through the office of Magna's Corporate
Secretary at 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 (905) 726-7070.
Shareholders wishing to obtain a copy of Magna's Notice of Intention to Make
a Normal Course Issuer Bid, referred to in Note 19 to the consolidated
financial statements contained in this Annual Report may also do so by
contacting Magna's Corporate Secretary. The 2015 Annual Meeting of
Shareholders The 2015 Annual Meeting of Shareholders will be held at The
Westin Prince, 900 York Mills Road, Toronto, Ontario, Canada on Thursday, May
7, 2015 commencing at 10:00 a.m. (Eastern Daylight Time). 2014 Annual Report
Additional copies of this 2014 Annual Report or copies of our quarterly
reports may be obtained from: The Corporate Secretary, Magna International
Inc., 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1 or www.magna.com.
Copies of financial data and other publicly filed documents are available through
the internet on the Canadian Securities Administrators' System for Electronic
Document Analysis and Retrieval (SEDAR) which can be accessed at
www.sedar.com and on the United States Securities and Exchange Commission's
Electronic Data Gathering, Analysis and Retrieval System (EDGAR) which can be
accessed at www.sec.gov. ©Magna International Inc. 2015. Magna and the logo
are registered trademarks of Magna International Inc. Donald J. Walker Chief
Executive Officer Vincent J. Galifi Executive Vice-President and Chief
Financial Officer Jeffrey O. Palmer Executive Vice-President and Chief Legal
Officer Guenther Apfalter President, Magna Europe Seetarama Kotagiri
Executive Vice-President and Chief Technology Officer Marc J. Neeb Executive
Vice-President and Chief Human Resources Officer James J. Tobin, Sr. Chief
Marketing Officer and President, Magna Asia Tommy J. Skudutis Chief Operating
Officer, Exteriors, Interiors, Seating, Mirrors, Closures and Cosma Executive
Officers Paul Bellack Vice-President, Global IT Paul H. Brock Vice-President
and Treasurer Gary M. Cohn Vice-President, Mergers and Acquisitions Joanne N.
Horibe Vice-President, Ethics and Legal Compliance Patrick W. D. McCann
Vice-President, Finance Atul Mehta Vice-President, Taxation Robert D. Merkley
Vice-President, Enterprise Risk Scott E. Paradise Vice-President, Marketing
and New Business Development The Americas Thomas A. Schultheiss
Vice-President and General Counsel Europe Bassem A. Shakeel Vice-President
and Corporate Secretary Michael G. R. Sinnaeve Vice-President, Operational
Improvement and Quality Doug R. Tatters Vice-President, Business Improvement
and IT Transformation Louis B. Tonelli Vice-President, Investor Relations
Riccardo C. Trecroce Vice-President and General Counsel Americas and Asia
Robert G. Cecutti Controller Other Officers Directors William L. Young
(Chairman of the Board) Scott B. Bonham Peter G. Bowie Hon. J. Trevor Eyton
V. Peter Harder Lady Barbara Judge Dr. Kurt J. Lauk Cynthia A. Niekamp Dr.
Indira V. Samarasekera Donald J. Walker Lawrence D. Worrall Corporate Office
Magna International Inc. 337 Magna Drive Aurora, Ontario Canada L4G 7K1
Telephone: (905) 726-2462 www.magna.com Exchange Listings Common Shares
Toronto Stock Exchange MG New York Stock Exchange MGA Transfer Agent and
Registrar Computershare Trust Company N.A. 250 Royall Street Canton, MA, USA
02021 Telephone: (781) 575-3120 Toll Free: 1-800-962-4284
www.computershare.com Computershare Trust Company of Canada 100 University
Avenue, 8th Floor Toronto, Ontario, Canada M5J 2Y1 Telephone: 1 (800)
564-6253
|
|
2014 ANNUAL
REPORT Printed in Canada Magna International Inc. 337 Magna Drive, Aurora,
Ontario Canada L4G 7K1 Telephone: (905) 726-2462 magna.com
|
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