2015 ANNUAL REPORT
Magna_AR_FINAL_OUTPUT_tuesday.indd 1
2016-03-22 8:27 PM
24.75''
Magna is more
than what we make.
We are 129,000 of the
best, brightest and
most passionate
automotive people,
focused on the
entire vehicle,
seeking out every
opportunity to
make vehicles
Smarter, Cleaner,
Safer and Lighter
while respecting
our planet.
Message to
Shareholders
Driving Excellence.
Inspiring Innovation.
Innovation is what our industry
was built on. It is what created
the automobile and what makes
this industry one of the greatest
to be a part of. It is what guides
our decisions and our investments.
It is what will drive the future of Magna.
2015 was a significant year for Magna. We refined our product portfolio. We established
new partnerships and strengthened existing ones. We were recognized with several awards
including Forbes Magazine's Most Trustworthy Large Cap Companies in America and our
second Automotive News PACE Award in two years. We maintained a strong cash flow,
which allowed us to both invest in future growth and return capital to shareholders.
We strengthened our product portfolio. We divested business lines not aligned with our
core market or financial strategies and used the proceeds from these activities to bolster our
offerings in areas with higher future growth potential. We focused on entering product areas
with greater strategic potential that strengthen our existing capabilities, footprint and customer
base. The acquisition of the GETRAG Group of Companies, one of the world's leading
independent suppliers of automotive transmissions, is a great example of complementing
our powertrain expertise and providing us with new opportunities.
We further diversified our customer base by signing a contract with Jaguar Land Rover
for engineering and contract manufacturing, an entirely new customer to our vehicle contract
manufacturing plant in Graz, Austria. In addition, we formed a strategic joint venture in China
with Xingqiaorui, a Tier 1 supplier of automotive body-in-white components and a key supplier
to Changan Ford.
We continued to accelerate our competitive differentiation through our diverse
product expertise. This allows our team to take a holistic view of the vehicle. This capability is
increasingly important as each component and system becomes more and more connected.
We continue to think about the consumers of the future, the roads of the future, and the
towns, villages and cities of the future. As requirements to reduce CO2 emissions continue
to increase, we place a heavy emphasis on reducing mass and creating lightweight products
and systems that retain the necessary vehicle performance characteristics. From composite
materials to die-cast body structures to eDrive systems, having diverse parts and systems
knowledge is critical to our ability to help shape the car of the future. This holistic expertise
is our main differentiator and key in accelerating the growth of the company.
We built on our culture of innovation. We have a history of taking great ideas and
developing them from innovation to industry standard, and we also know that great thinking
can happen outside our four walls. Establishing and expanding our valuable partnerships
with universities, inventors, entrepreneurs and startups is key to understanding the changing
landscape and helping bring ideas to market. In 2015, we announced a key partnership with
a mentorship-driven technology accelerator company and a cyber security specialist to
co-develop and bring to market a solution that defends against vehicle cyber-attacks.
We are preparing for the future by helping to create it. We are doing this by building
on our foundation of world-class manufacturing, developing a dedicated, skilled workforce
and fostering leaders from within our ranks. By tapping into the brightest minds both inside
and outside of our company and industry, we are empowering people, creating innovation,
and growing our business in the most ethical and responsible way.
We believe Magna is a superior long-term investment based on our growth history and
excellent reputation. Thank you to our shareholders for taking this journey with us and
trusting us to invest wisely, having confidence in our capabilities, and believing in our
ability to deliver innovation.
Sincerely,
Don Walker
Chief Executive Officer
Magna_AR_FINAL_OUTPUT_tuesday.indd 2
2016-03-22 8:27 PM
Key Figures at-a-Glance
(2013 to 2015 totals)
$4.3B
NET INVESTMENT
IN THE BUSINESS1
$1.0B
RETURNED TO
SHAREHOLDERS -
DIVIDENDS
$3.3B
RETURNED TO
SHAREHOLDERS -
SHARE REPURCHASES
$7.7B
CASHFLOW FROM
OPERATIONS
71%
TOTAL
SHAREHOLDER
RETURN 2
SALES (U.S. $ Billions)
40
35
30
25
20
15
10
5
0
'113
'12 3
'13
'14
'15
1 Includes capital spending, investments and other assets, and acquisitions net of divestitures
2 Includes share price appreciation on the NYSE plus dividends from December 31, 2012 to December 31, 2015
3 2011 and 2012 figures have not been restated to reflect discontinued operations
GLOBAL OPERATIONS
A Worldwide Network
Magna's global network spans hundreds of facilities
and thousands of employees. Our innovative
thinking and world-class manufacturing are
what brought us here, and that is what will
allow us to continue to deliver superior
value to our customers as we shape the
car of the future.
129,000 People*
29 Countries*
375 Facilities*
$32.1 Billion in Sales
55M
We have electronic products on 224 vehicle name
plates and 22M new vehicles in 2015. That number
is expected to increase to 55M vehicles by 2022.
We plan to open 29 new manufacturing
facilities by 2018.
We employ more than 10,000 engineers.
66%
We will support the launch of 285 vehicles
globally from 2016 to 2018 –
66% of the overall industry release.
The Magna Advantage
Magna is the only supplier in the
world today that can look at a vehicle
holistically with unmatched engineering
and manufacturing capabilities, including
integrated electronics throughout.
C o m b i n e d w i t h o u r c o m p l e t e v e h i c l e
capabilities, Magna has a value proposition
like no other in the automotive industry. That is
our competitive advantage and that is what
will continue to accelerate our growth.
We are not just making vehicle
systems. We are driving the
future of mobility.
ASIA
15K
44
23
The rapid economic growth and industrialization
of Asia continues, bolstered in large part by its
increasing importance in the global automotive
industry. Magna continues to increase our presence
throughout the region as we grow with new
and existing customers.
China 28 10
India 11 6
Japan 1 3
Korea 3 2
Taiwan 1
Thailand 1 1
AMERICAS
71K
142
25
North America is home to one of the world's largest
automotive markets and remains one of Magna's most
important in terms of both sales and production.
We continue to operate cautiously in South America
as the region's automotive industry faces many
ongoing challenges.
Canada 49 11
Argentina 3
United States 53 11
Brazil 10 2
Mexico 27 1
EUROPE
43K
106
35
Europe is one of the world's largest producers
of light vehicles, and the automotive industry
is central to its economic performance. Magna
is one of the leading suppliers in this region.
Austria 15 6
Belgium 1
Bulgaria 1
Germany 38 22
Hungary 2
Ireland 1
Russia 7
Serbia 1
Slovak Republic 2
Czech Republic 8 1
Italy 3 2
England 8 1
France 4 2
Poland 7
Romania 1
Spain 3
Sweden 1
Turkey 4
Employees
Manufacturing / Assembly
Engineering / Product Development / Sales
*as of December 31, 2015
Magna_AR_FINAL_OUTPUT_tuesday.indd 3
2016-03-22 8:27 PM
24.75''
Magna is more
than what we make.
We are 129,000 of the
best, brightest and
most passionate
automotive people,
focused on the
entire vehicle,
seeking out every
opportunity to
make vehicles
Smarter, Cleaner,
Safer and Lighter
while respecting
our planet.
Message to
Shareholders
Driving Excellence.
Inspiring Innovation.
Innovation is what our industry
was built on. It is what created
the automobile and what makes
this industry one of the greatest
to be a part of. It is what guides
our decisions and our investments.
It is what will drive the future of Magna.
2015 was a significant year for Magna. We refined our product portfolio. We established
new partnerships and strengthened existing ones. We were recognized with several awards
including Forbes Magazine's Most Trustworthy Large Cap Companies in America and our
second Automotive News PACE Award in two years. We maintained a strong cash flow,
which allowed us to both invest in future growth and return capital to shareholders.
We strengthened our product portfolio. We divested business lines not aligned with our
core market or financial strategies and used the proceeds from these activities to bolster our
offerings in areas with higher future growth potential. We focused on entering product areas
with greater strategic potential that strengthen our existing capabilities, footprint and customer
base. The acquisition of the GETRAG Group of Companies, one of the world's leading
independent suppliers of automotive transmissions, is a great example of complementing
our powertrain expertise and providing us with new opportunities.
We further diversified our customer base by signing a contract with Jaguar Land Rover
for engineering and contract manufacturing, an entirely new customer to our vehicle contract
manufacturing plant in Graz, Austria. In addition, we formed a strategic joint venture in China
with Xingqiaorui, a Tier 1 supplier of automotive body-in-white components and a key supplier
to Changan Ford.
We continued to accelerate our competitive differentiation through our diverse
product expertise. This allows our team to take a holistic view of the vehicle. This capability is
increasingly important as each component and system becomes more and more connected.
We continue to think about the consumers of the future, the roads of the future, and the
towns, villages and cities of the future. As requirements to reduce CO2 emissions continue
to increase, we place a heavy emphasis on reducing mass and creating lightweight products
and systems that retain the necessary vehicle performance characteristics. From composite
materials to die-cast body structures to eDrive systems, having diverse parts and systems
knowledge is critical to our ability to help shape the car of the future. This holistic expertise
is our main differentiator and key in accelerating the growth of the company.
We built on our culture of innovation. We have a history of taking great ideas and
developing them from innovation to industry standard, and we also know that great thinking
can happen outside our four walls. Establishing and expanding our valuable partnerships
with universities, inventors, entrepreneurs and startups is key to understanding the changing
landscape and helping bring ideas to market. In 2015, we announced a key partnership with
a mentorship-driven technology accelerator company and a cyber security specialist to
co-develop and bring to market a solution that defends against vehicle cyber-attacks.
We are preparing for the future by helping to create it. We are doing this by building
on our foundation of world-class manufacturing, developing a dedicated, skilled workforce
and fostering leaders from within our ranks. By tapping into the brightest minds both inside
and outside of our company and industry, we are empowering people, creating innovation,
and growing our business in the most ethical and responsible way.
We believe Magna is a superior long-term investment based on our growth history and
excellent reputation. Thank you to our shareholders for taking this journey with us and
trusting us to invest wisely, having confidence in our capabilities, and believing in our
ability to deliver innovation.
Sincerely,
Don Walker
Chief Executive Officer
Magna_AR_FINAL_OUTPUT_tuesday.indd 2
2016-03-22 8:27 PM
24.75''
Magna is more
than what we make.
We are 129,000 of the
best, brightest and
most passionate
automotive people,
focused on the
entire vehicle,
seeking out every
opportunity to
make vehicles
Smarter, Cleaner,
Safer and Lighter
while respecting
our planet.
Message to
Shareholders
Driving Excellence.
Inspiring Innovation.
Innovation is what our industry
was built on. It is what created
the automobile and what makes
this industry one of the greatest
to be a part of. It is what guides
our decisions and our investments.
It is what will drive the future of Magna.
2015 was a significant year for Magna. We refined our product portfolio. We established
new partnerships and strengthened existing ones. We were recognized with several awards
including Forbes Magazine's Most Trustworthy Large Cap Companies in America and our
second Automotive News PACE Award in two years. We maintained a strong cash flow,
which allowed us to both invest in future growth and return capital to shareholders.
We strengthened our product portfolio. We divested business lines not aligned with our
core market or financial strategies and used the proceeds from these activities to bolster our
offerings in areas with higher future growth potential. We focused on entering product areas
with greater strategic potential that strengthen our existing capabilities, footprint and customer
base. The acquisition of the GETRAG Group of Companies, one of the world's leading
independent suppliers of automotive transmissions, is a great example of complementing
our powertrain expertise and providing us with new opportunities.
We further diversified our customer base by signing a contract with Jaguar Land Rover
for engineering and contract manufacturing, an entirely new customer to our vehicle contract
manufacturing plant in Graz, Austria. In addition, we formed a strategic joint venture in China
with Xingqiaorui, a Tier 1 supplier of automotive body-in-white components and a key supplier
to Changan Ford.
We continued to accelerate our competitive differentiation through our diverse
product expertise. This allows our team to take a holistic view of the vehicle. This capability is
increasingly important as each component and system becomes more and more connected.
We continue to think about the consumers of the future, the roads of the future, and the
towns, villages and cities of the future. As requirements to reduce CO2 emissions continue
to increase, we place a heavy emphasis on reducing mass and creating lightweight products
and systems that retain the necessary vehicle performance characteristics. From composite
materials to die-cast body structures to eDrive systems, having diverse parts and systems
knowledge is critical to our ability to help shape the car of the future. This holistic expertise
is our main differentiator and key in accelerating the growth of the company.
We built on our culture of innovation. We have a history of taking great ideas and
developing them from innovation to industry standard, and we also know that great thinking
can happen outside our four walls. Establishing and expanding our valuable partnerships
with universities, inventors, entrepreneurs and startups is key to understanding the changing
landscape and helping bring ideas to market. In 2015, we announced a key partnership with
a mentorship-driven technology accelerator company and a cyber security specialist to
co-develop and bring to market a solution that defends against vehicle cyber-attacks.
We are preparing for the future by helping to create it. We are doing this by building
on our foundation of world-class manufacturing, developing a dedicated, skilled workforce
and fostering leaders from within our ranks. By tapping into the brightest minds both inside
and outside of our company and industry, we are empowering people, creating innovation,
and growing our business in the most ethical and responsible way.
We believe Magna is a superior long-term investment based on our growth history and
excellent reputation. Thank you to our shareholders for taking this journey with us and
trusting us to invest wisely, having confidence in our capabilities, and believing in our
ability to deliver innovation.
Sincerely,
Don Walker
Chief Executive Officer
Magna_AR_FINAL_OUTPUT_tuesday.indd 2
2016-03-22 8:27 PM
Key Figures at-a-Glance
(2013 to 2015 totals)
$4.3B
NET INVESTMENT
IN THE BUSINESS1
$1.0B
RETURNED TO
SHAREHOLDERS -
DIVIDENDS
$3.3B
RETURNED TO
SHAREHOLDERS -
SHARE REPURCHASES
$7.7B
CASHFLOW FROM
OPERATIONS
71%
TOTAL
SHAREHOLDER
RETURN 2
SALES (U.S. $ Billions)
40
35
30
25
20
15
10
5
0
'113
'12 3
'13
'14
'15
1 Includes capital spending, investments and other assets, and acquisitions net of divestitures
2 Includes share price appreciation on the NYSE plus dividends from December 31, 2012 to December 31, 2015
3 2011 and 2012 figures have not been restated to reflect discontinued operations
GLOBAL OPERATIONS
A Worldwide Network
Magna's global network spans hundreds of facilities
and thousands of employees. Our innovative
thinking and world-class manufacturing are
what brought us here, and that is what will
allow us to continue to deliver superior
value to our customers as we shape the
car of the future.
129,000 People*
29 Countries*
375 Facilities*
$32.1 Billion in Sales
55M
We have electronic products on 224 vehicle name
plates and 22M new vehicles in 2015. That number
is expected to increase to 55M vehicles by 2022.
We plan to open 29 new manufacturing
facilities by 2018.
We employ more than 10,000 engineers.
66%
We will support the launch of 285 vehicles
globally from 2016 to 2018 –
66% of the overall industry release.
The Magna Advantage
Magna is the only supplier in the
world today that can look at a vehicle
holistically with unmatched engineering
and manufacturing capabilities, including
integrated electronics throughout.
C o m b i n e d w i t h o u r c o m p l e t e v e h i c l e
capabilities, Magna has a value proposition
like no other in the automotive industry. That is
our competitive advantage and that is what
will continue to accelerate our growth.
We are not just making vehicle
systems. We are driving the
future of mobility.
ASIA
15K
44
23
The rapid economic growth and industrialization
of Asia continues, bolstered in large part by its
increasing importance in the global automotive
industry. Magna continues to increase our presence
throughout the region as we grow with new
and existing customers.
China 28 10
India 11 6
Japan 1 3
Korea 3 2
Taiwan 1
Thailand 1 1
AMERICAS
71K
142
25
North America is home to one of the world's largest
automotive markets and remains one of Magna's most
important in terms of both sales and production.
We continue to operate cautiously in South America
as the region's automotive industry faces many
ongoing challenges.
Canada 49 11
Argentina 3
United States 53 11
Brazil 10 2
Mexico 27 1
EUROPE
43K
106
35
Europe is one of the world's largest producers
of light vehicles, and the automotive industry
is central to its economic performance. Magna
is one of the leading suppliers in this region.
Austria 15 6
Belgium 1
Bulgaria 1
Germany 38 22
Hungary 2
Ireland 1
Russia 7
Serbia 1
Slovak Republic 2
Czech Republic 8 1
Italy 3 2
England 8 1
France 4 2
Poland 7
Romania 1
Spain 3
Sweden 1
Turkey 4
Employees
Manufacturing / Assembly
Engineering / Product Development / Sales
*as of December 31, 2015
Magna_AR_FINAL_OUTPUT_tuesday.indd 3
2016-03-22 8:27 PM
Key Figures at-a-Glance
(2013 to 2015 totals)
$4.3B
NET INVESTMENT
IN THE BUSINESS1
$1.0B
RETURNED TO
SHAREHOLDERS -
DIVIDENDS
$3.3B
RETURNED TO
SHAREHOLDERS -
SHARE REPURCHASES
$7.7B
CASHFLOW FROM
OPERATIONS
71%
TOTAL
SHAREHOLDER
RETURN 2
SALES (U.S. $ Billions)
40
35
30
25
20
15
10
5
0
'113
'12 3
'13
'14
'15
1 Includes capital spending, investments and other assets, and acquisitions net of divestitures
2 Includes share price appreciation on the NYSE plus dividends from December 31, 2012 to December 31, 2015
3 2011 and 2012 figures have not been restated to reflect discontinued operations
GLOBAL OPERATIONS
A Worldwide Network
Magna's global network spans hundreds of facilities
and thousands of employees. Our innovative
thinking and world-class manufacturing are
what brought us here, and that is what will
allow us to continue to deliver superior
value to our customers as we shape the
car of the future.
129,000 People*
29 Countries*
375 Facilities*
$32.1 Billion in Sales
55M
We have electronic products on 224 vehicle name
plates and 22M new vehicles in 2015. That number
is expected to increase to 55M vehicles by 2022.
We plan to open 29 new manufacturing
facilities by 2018.
We employ more than 10,000 engineers.
66%
We will support the launch of 285 vehicles
globally from 2016 to 2018 –
66% of the overall industry release.
The Magna Advantage
Magna is the only supplier in the
world today that can look at a vehicle
holistically with unmatched engineering
and manufacturing capabilities, including
integrated electronics throughout.
C o m b i n e d w i t h o u r c o m p l e t e v e h i c l e
capabilities, Magna has a value proposition
like no other in the automotive industry. That is
our competitive advantage and that is what
will continue to accelerate our growth.
We are not just making vehicle
systems. We are driving the
future of mobility.
ASIA
15K
44
23
The rapid economic growth and industrialization
of Asia continues, bolstered in large part by its
increasing importance in the global automotive
industry. Magna continues to increase our presence
throughout the region as we grow with new
and existing customers.
China 28 10
India 11 6
Japan 1 3
Korea 3 2
Taiwan 1
Thailand 1 1
AMERICAS
71K
142
25
North America is home to one of the world's largest
automotive markets and remains one of Magna's most
important in terms of both sales and production.
We continue to operate cautiously in South America
as the region's automotive industry faces many
ongoing challenges.
Canada 49 11
Argentina 3
United States 53 11
Brazil 10 2
Mexico 27 1
EUROPE
43K
106
35
Europe is one of the world's largest producers
of light vehicles, and the automotive industry
is central to its economic performance. Magna
is one of the leading suppliers in this region.
Austria 15 6
Belgium 1
Bulgaria 1
Germany 38 22
Hungary 2
Ireland 1
Russia 7
Serbia 1
Slovak Republic 2
Czech Republic 8 1
Italy 3 2
England 8 1
France 4 2
Poland 7
Romania 1
Spain 3
Sweden 1
Turkey 4
Employees
Manufacturing / Assembly
Engineering / Product Development / Sales
*as of December 31, 2015
Magna_AR_FINAL_OUTPUT_tuesday.indd 3
2016-03-22 8:27 PM
Lighter – Lightweight
Material and Science
Magna is more
than what we make.
DRIVING PERFORMANCE AND QUALITY THROUGH INNOVATIVE MASS REDUCTION
best, brightest and
We are 129,000 of the
"The automobile is becoming far more than just a means
of transportation. As global megatrends over the next
25+ years drive our innovation and development activities,
it is critical that we continue to leverage our ability to look at
vehicles holistically and deliver solutions that are Smarter,
seeking out every
Cleaner, Safer, Lighter and affordable to the market."
opportunity to
automotive people,
focused on the
entire vehicle,
most passionate
Swamy Kotagiri
Chief Technology Officer
make vehicles
Smarter, Cleaner,
Safer and Lighter
l a c C T 6 B o d y i n W h i t e
while respecting
our planet.
C a d i
l
Message to
Shareholders
Driving Excellence.
Inspiring Innovation.
Innovation is what our industry
was built on. It is what created
the automobile and what makes
this industry one of the greatest
to be a part of. It is what guides
our decisions and our investments.
It is what will drive the future of Magna.
2015 was a significant year for Magna. We refined our product portfolio. We established
new partnerships and strengthened existing ones. We were recognized with several awards
including Forbes Magazine's Most Trustworthy Large Cap Companies in America and our
second Automotive News PACE Award in two years. We maintained a strong cash flow,
which allowed us to both invest in future growth and return capital to shareholders.
We strengthened our product portfolio. We divested business lines not aligned with our
core market or financial strategies and used the proceeds from these activities to bolster our
offerings in areas with higher future growth potential. We focused on entering product areas
with greater strategic potential that strengthen our existing capabilities, footprint and customer
base. The acquisition of the GETRAG Group of Companies, one of the world's leading
independent suppliers of automotive transmissions, is a great example of complementing
our powertrain expertise and providing us with new opportunities.
We further diversified our customer base by signing a contract with Jaguar Land Rover
for engineering and contract manufacturing, an entirely new customer to our vehicle contract
manufacturing plant in Graz, Austria. In addition, we formed a strategic joint venture in China
with Xingqiaorui, a Tier 1 supplier of automotive body-in-white components and a key supplier
to Changan Ford.
We continued to accelerate our competitive differentiation through our diverse
product expertise. This allows our team to take a holistic view of the vehicle. This capability is
increasingly important as each component and system becomes more and more connected.
We continue to think about the consumers of the future, the roads of the future, and the
towns, villages and cities of the future. As requirements to reduce CO2 emissions continue
to increase, we place a heavy emphasis on reducing mass and creating lightweight products
and systems that retain the necessary vehicle performance characteristics. From composite
materials to die-cast body structures to eDrive systems, having diverse parts and systems
knowledge is critical to our ability to help shape the car of the future. This holistic expertise
is our main differentiator and key in accelerating the growth of the company.
We built on our culture of innovation. We have a history of taking great ideas and
developing them from innovation to industry standard, and we also know that great thinking
can happen outside our four walls. Establishing and expanding our valuable partnerships
with universities, inventors, entrepreneurs and startups is key to understanding the changing
landscape and helping bring ideas to market. In 2015, we announced a key partnership with
a mentorship-driven technology accelerator company and a cyber security specialist to
co-develop and bring to market a solution that defends against vehicle cyber-attacks.
We are preparing for the future by helping to create it. We are doing this by building
on our foundation of world-class manufacturing, developing a dedicated, skilled workforce
and fostering leaders from within our ranks. By tapping into the brightest minds both inside
and outside of our company and industry, we are empowering people, creating innovation,
and growing our business in the most ethical and responsible way.
We believe Magna is a superior long-term investment based on our growth history and
excellent reputation. Thank you to our shareholders for taking this journey with us and
trusting us to invest wisely, having confidence in our capabilities, and believing in our
ability to deliver innovation.
Sincerely,
Don Walker
Chief Executive Officer
There are mounting legislative
pressures on the automotive industry,
particularly surrounding CO2 emissions
and fuel efficiency. Magna is in a unique
position to help automakers meet these
increasingly rigorous demands. For example,
Magna's numerous contributions to Cadillac's
high performance models demonstrate our ability
to bring lighter vehicles to the road through improved
materials and lightweight technologies.
These weight-saving innovations have enabled Magna
customers like General Motors to design and build lighter,
more fuel-efficient and lower-emission vehicles, all while
continuing to deliver exceptional value, styling and
performance.This is proof of our product diversity
and our ability to deliver innovative and affordable
solutions across multiple vehicles and product areas.
This is Magna's competitive advantage.
Magna manufactures 13 high-pressure aluminum
die-cast components for the body and chassis of the
all-new Cadillac CT6, which has one of the industry's most
advanced body structures. Just one of these 13 components
provides the functionality of 35 parts and reduces the total
number of components by 20%. In addition to the die-casting,
we developed aluminum transmission oil pans, which result in
a part that is 2.5 to 3 pounds lighter than its steel counterpart,
a weight savings of approximately 60%.
We also manufactured the auto industry's first volume
production of carbon fiber hoods, which appear in the new
2016 Cadillac ATS-V and CTS-V. The hoods are more than
27% lighter than aluminum hoods and 72% lighter than steel hoods.
Magna has
produced innovative
carbon fiber hoods
that are 27% lighter
than aluminum and
72% lighter
than steel.
l a c C T 6 B o d y i n W h i t e
C a d i
l
Smarter – Comfort,
Convenience and Connectivity
DESIGNING AND DELIVERING AN INSPIRED, BEST-IN-CLASS CABIN EXPERIENCE
The automotive industry is among the most complex
and high-tech in the world. We develop and produce
advanced technologies on a massive scale.
At Magna, we lead the way.
When Ford designed a sophisticated new seat for
Smarter technology can give consumers
the Lincoln Continental, they turned to Magna to
a better driving experience. Magna's camera
manufacture it. Their seat design had over six times
and image processing technologies are
the features of a standard seat. We moved from
incorporated in Ford's Pro Trailer Back-up Assist
Ford's design to successful manufacturing in less
System, which makes parking a trailer safer
than 18 months.
and easier.
We balance complexity at all stages of production,
The industry is witnessing an increase in
and innovative thinking can reduce overall
vehicle-to-vehicle and vehicle-to-infrastructure
complication. For example, the BMW i8 benefits
communication. In fact, the modern vehicle
from Magna's SmartLatch™ technology: an industry-
utilizes more computing power than
first electronic side-door latch system. SmartLatch
the Space Shuttle. We are dedicated
requires no cables, rods, or moving handles in the
to limiting distraction while providing
door, which results in significant weight savings,
drivers and vehicles with information
a reduced number of components and the
they need, when they need it.
flexibility to be used in any type of car or truck.
Lincoln Continental Seat
Smarter – Comfort,
Convenience and Connectivity
DESIGNING AND DELIVERING AN INSPIRED, BEST-IN-CLASS CABIN EXPERIENCE
The Pro Trailer
Back-up Assist System
leverages Magna's
advanced camera and
image processing
technology.
Lincoln Continental Seat
Safer – Active and
Passive Safety
ENGINEERING PROTECTION AND PEACE OF MIND FOR ALL WHO SHARE THE ROAD
As the industry shifts from passive to more active safety,
the end goal is to get to zero: zero collisions, zero
accidents, zero injuries. We have a laser focus on what
technologies will help us get there.
The Insurance Institute for Highway Safety has
As computing sophistication increases, cyber
cited studies which show that automatic front
security becomes an increasingly important
emergency braking and forward collision warning
concern. Unlike typical defenses that simply set
systems reduce rear-end crashes in the U.S. by
up a firewall, our Secure Connectivity solution
40% and 23%, respectively. These findings have
proactively monitors for suspicious or malicious
led to an agreement between automakers to make
activity, resulting in early threat detection and
automatic braking technology standard on all
intrusion prevention.
vehicles in the future.
We are providing these integrated solutions to
Magna is leading the way by leveraging our
customers such as General Motors, Honda
leadership position in camera technology, as well
and Fiat Chrysler Automobiles as they pursue
as by developing adaptable systems that can be
the advances in active safety and
used in sensor fusion applications. For instance,
semi-autonomous driving technology
the EYERIS™ Generation 3.0 camera system
that consumers demand.
features exceptional resolution and field-of-view,
and integrates with vehicle radar to perform
functions like lane keeping, automatic high beam,
automatic emergency braking, adaptive cruise
control and more.
Our Secure
Connectivity solution
proactively defends
against cyber-attacks
and leverages the cloud
for unmatched
protection.
m erg e n cy B ra kin g S yste m
A uto m atic E
a n s m i s s ion
h T r
c
t
a l - C l u
G E T R A G D u
Cleaner – Efficiency
and Sustainability
OPTIMIZING THE USE OF ENERGY TO MEET THE NEEDS OF OUR CUSTOMERS
AND OUR PLANET
Magna is focused on using the Earth's energy efficiently
over the entire vehicle production lifecycle. We aim to
minimize the environmental footprint of our practices,
processes and products.
For example, our plant pilot energy program simultaneously generates electricity on-site
and captures waste heat for use in production processes. This increases operational
efficiency and reduces a plant's carbon footprint.
Magna also manufactures cleaner, more fuel-efficient systems. For example, our Dynamax™
all-wheel drive (AWD) coupling on the new 2017 Kia Sportage is the first continuous
and fully active AWD system that exchanges information with the control electronics
of the car, allowing it to anticipate events and adjust early on to changing conditions.
Dynamax ensures ideal torque and traction which can significantly improve stability,
performance and fuel efficiency.
Aerodynamic drag is another major contributor to a vehicle's fuel consumption,
and our dynamic Active Aero solutions take drag reduction technology to new
levels, significantly improving fuel economy. In 2012, Active Aero technologies
were featured on 21 programs; that number is expected to grow to 73 by 2018.
Dual-Clutch Transmissions (DCT) improve fuel efficiency, offer the lowest
mass in class and have high torque capabilities. Magna has acquired
GETRAG, a leader in supplying transmission innovations. This acquisition
strategically positions us to respond to the growing demand
for DCT technology.
Magna is in an excellent position to help make tomorrow cleaner
and more efficient, and we take that responsibility seriously.
Cleaner – Efficiency
and Sustainability
OPTIMIZING THE USE OF ENERGY TO MEET THE NEEDS OF OUR CUSTOMERS
AND OUR PLANET
Magna is focused on using the Earth's energy efficiently
over the entire vehicle production lifecycle. We aim to
minimize the environmental footprint of our practices,
processes and products.
Magna's Active
Aero technologies
are expected to be
on a significant
number of vehicle
programs by 2018.
a n s m i s s ion
h T r
c
t
a l - C l u
G E T R A G D u
Message
from the CFO
We financed the GETRAG transaction through
a combination of:
• raising of senior unsecured long-term debt in key
geographic markets at attractive interest rates;
• cash generated in our business, net of
investments; and
• proceeds from divestitures made during the year.
Higher Return on Equity
Our capital structure moves have improved balance
sheet efficiency. This, together with our strong
operating results, has allowed us to generate
higher returns on shareholders' equity over the
past couple of years. On a normalized basis, we
generated a return on shareholders' equity of 21%
for both 2014 and 2015.
Invested for the Future
Our capital allocation strategy is sound. We believe
the global automotive industry will grow significantly
in the future, so we want to continue to invest in our
business. We will do this through capital spending
to support new programs, investment in innovation
to maintain and expand our positions in our
products and processes, and through acquisitions
that fit our product strategy. At the same time
as investing for the future, we want to grow our
dividend over time as earnings grow. To the extent
we generate and have excess cash after these
actions, we expect to return even more capital to
shareholders through share repurchases.
We are excited about the opportunities available to
us as the industry continues to transform, and we
plan to continue investing wisely to be a leading
supplier for the car of the future.
Vince Galifi
Executive Vice-President and
Chief Financial Officer
Magna took a number of positive steps forward
once again in 2015. We posted strong operating
results despite significant headwinds, reached our
target capital structure, delivered solid return on
equity, and invested for the future.
Strong Operating Results
Overall, we are pleased with our operating results
for 2015. Both sales and earnings faced significant
headwinds from foreign currency translation.
Earnings were also negatively impacted by higher
launch-related costs, including inefficiencies, as
well as lower recoveries associated with scrap steel
due to lower steel market prices. These factors
were partially offset by increased margins on
higher production sales.
Once again we delivered higher adjusted EBIT
margin percent of sales in Europe, and reduced
our adjusted EBIT losses in Rest of World, in both
cases in 2015 compared to 2014. In North America
and Asia we again posted strong adjusted EBIT
margin percent of sales in 2015.
Reached Our Target Capital Structure
We announced in 2014 our intention to move
towards a capital structure that we believe is
appropriate for our business. After giving effect to
the closing of the GETRAG acquisition in the first
week of 2016, we have achieved our target capital
structure through investments for future growth
in the form of capital spending and acquisitions
net of divestitures, together with the return of
capital to shareholders through dividends
and share repurchases.
Magna International Inc.
Financial
Review 2015
and Other Information
1 Management's Discussion and Analysis of Results of
Operations and Financial Position
25 Reports of Independent Registered Public Accounting Firms
27 Consolidated Statements of Income
28 Consolidated Statements of Comprehensive Income
29 Consolidated Statements of Cash Flows
30 Consolidated Balance Sheets
31 Consolidated Statements of Changes in Equity
32 Notes to the Consolidated Financial Statements
62 Supplementary Financial and Share Information
Corporate Directory (inside back cover)
MAGNA INTERNATIONAL INC.
Management's Discussion and Analysis of Results of Operations and
Financial Position
Unless otherwise noted, all amounts in this Management's Discussion and Analysis of Results of Operations and Financial Position
("MD&A") are in U.S. dollars and all tabular amounts are in millions of U.S. dollars, except per share figures, which are in U.S. dollars.
When we use the terms "we", "us", "our" or "Magna", we are referring to Magna International Inc. and its subsidiaries and jointly
controlled entities, unless the context otherwise requires.
In 2015, we sold substantially all of our interiors operations (excluding our seating operations). The assets and liabilities, and operating
results for the previously reported interiors operations are presented as discontinued operations and have therefore been excluded from
both continuing operations and segment results for all periods presented in the attached financial statements. This Management's
Discussion and Analysis reflects the results of continuing operations, unless otherwise noted.
This MD&A should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015.
This MD&A has been prepared as at March 3, 2016.
OVERVIEW
We are a leading global automotive supplier with 292 manufacturing operations and 83 product development, engineering and sales
centres in 29 countries. As of December 31, 2015, we have approximately 129,000 employees focused on delivering superior value
to our customers through innovative products and processes, and World Class Manufacturing. Our product capabilities include
producing body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as complete
vehicle engineering and contract manufacturing. Our common shares trade on the Toronto Stock Exchange (MG) and the New York
Stock Exchange (MGA). For further information about Magna, visit our website at www.magna.com.
HIGHLIGHTS
Operations
2015 marked the sixth consecutive year of increased global light vehicle production. In our two most significant markets, North American
light vehicle production increased 3% to 17.5 million units and European light vehicle production increased 4% to 21.0 million units,
each in 2015 compared to 2014.
We posted consolidated sales of $32.13 billion in 2015, a decrease of $2.27 billion or 7% from 2014. Although our financial results
are reported in U.S. dollars, we also generate sales in various other currencies, including the euro and Canadian dollar. The weakening
of these and other functional currencies against the U.S. dollar reduced our reported sales by approximately $3.35 billion in 2015 as
compared to 2014. Excluding the negative impact of foreign currency translation, our sales increased 3% compared to 2014.
Overall, our Adjusted EBIT(1) decreased 6% to $2.53 billion in 2015 compared to $2.68 billion in 2014.
During 2015, net income attributable to Magna International Inc. from continuing operations was $1.95 billion, an increase of $22 million
compared to 2014 and diluted earnings per share from continuing operations increased $0.28 to $4.72 for 2015 compared to 2014.
Excluding the after tax impact of other (income) expense, net, and the Austrian Tax Reform, as discussed in the "Other (income)
expense, net" and "Income Taxes" sections, respectively, net Income attributable to Magna International Inc. from continuing
operations decreased $146 million and diluted earnings per share from continuing operations decreased $0.12.
1 We believe Adjusted EBIT is the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents
income from continuing operations before income taxes; interest expense, net; and other (income) expense, net.
1
MAGNA INTERNATIONAL INC.
Strategic Repositioning of Product Portfolio
We undertook a number of actions in 2015 to reposition our product portfolio including the expansion of our powertrain product
segment, which is expected to grow more rapidly, while exiting other product areas which are not critical to our future growth plans.
Some of these actions include:
• Agreeing to acquire the Getrag Group of Companies ("Getrag"), one of the world's largest suppliers of transmissions;
• Acquiring Stadco Automotive Ltd. ("Stadco") a supplier of steel and aluminum stampings as well as vehicle assemblies based in
•
the United Kingdom;
Forming a partnership in China with Chongqing Xingqiaorui (the "Xingqiaorui Partnership"), a Tier one supplier of automotive
body-in-white components to Changan Ford;
• Buying the head-up display and electronic components business units of Philips & Lite-On Digital Solutions ("PLDS") in Germany,
as well as the PLDS ultrasonic sensor business in Taiwan;
• Contributing our aftermarket Jeep roof tops business into a joint venture;
•
•
Selling substantially all of our interiors operations (excluding our seating operations); and
Selling our battery pack business.
Capital Structure
In early 2014, we announced our intention to move towards a capital structure that we believe is appropriate for our business, and
also to reduce cash levels, while retaining enough cash to manage our day-to-day needs throughout the year. After giving effect to
the closing of the Getrag transaction, we have achieved the target capital structure through investments for future growth in the
form of capital spending and acquisitions, together with return of capital to shareholders through dividends and share repurchases.
Some specific actions that realigned our capital structure include:
•
Investing $1.29 billion in our business during 2015, including fixed assets, acquisitions net of divestitures, investments and
other assets. In addition, we invested approximately €1.75 billion in cash plus assumed debt in January 2016, to acquire Getrag;
• Returning a total of $354 million to shareholders in the form of dividends. On February 25, 2016, our Board of Directors declared
a dividend of U.S $0.25 per share;
• Returning an additional $515 million to shareholders through the repurchase of 10.6 million shares in 2015; and
•
Issuance of senior, unsecured debt denominated in U.S. dollars, Canadian dollars and euro, respectively.
INDUSTRY TRENDS AND RISKS
A number of general trends which have been impacting the automotive industry and our business in recent years are expected to
continue, including the following:
•
•
•
•
•
•
•
•
the consolidation of vehicle platforms and proliferation of high-volume platforms supporting multiple vehicles and produced in
multiple locations;
the long-term growth of the automotive industry in China, India and other non-traditional markets, including accelerated
movement of component and vehicle design, development, engineering and manufacturing to certain of these markets;
the growth of the B to D vehicle segments (subcompact to mid-size cars), particularly in developing markets;
the extent to which innovation in the automotive industry is being driven by governmental regulation of fuel economy and
carbon dioxide/greenhouse gas emissions, vehicle safety and vehicle recyclability;
the growth of cooperative alliances and arrangements among competing automotive OEMs, including shared purchasing of
components; joint engine, powertrain and/or platform development; engine, powertrain and platform sharing; and joint vehicle
hybridization and electrification initiatives and other forms of cooperation;
the growing importance of electronics in the automotive value chain;
the consolidation of automotive suppliers; and
the exertion of pricing pressure by OEMs.
The following are some of the more significant risks that could affect our ability to achieve our desired results:
•
The global automotive industry is cyclical. A worsening of economic and political conditions, including through rising interest
rates or inflation, rising unemployment, increasing energy prices, declining real estate values, increased volatility in global capital
markets, international conflicts, sovereign debt concerns, an increase in protectionist measures and/or other factors, may result
in lower consumer confidence. Consumer confidence has a significant impact on consumer demand for vehicles, which in
turn impacts, vehicle production. A significant decline in vehicle production volumes from current levels could have a material
adverse effect on our profitability.
2015 Annual Report – MD&A
2
• Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are realized in
Canadian dollars, euros and other currencies. Our profitability is affected by movements of the U.S. dollar against the Canadian
dollar, the euro and other currencies in which we generate revenues and incur expenses. Significant long-term fluctuations in
relative currency values, in particular a significant change in the relative values of the U.S. dollar, Canadian dollar or euro, could
have an adverse effect on our profitability and financial condition and any sustained change in such relative currency values
could adversely impact our competitiveness in certain geographic regions.
•
The automotive industry has in recent years been the subject of increased government enforcement of antitrust and competition
laws, particularly by the United States Department of Justice and the European Commission. Currently, investigations are being
conducted in several product areas, and these regulators or those in other jurisdictions could choose to initiate investigations in
these or other product areas.
In September 2014, the Conselho Administrativo de Defesa Economica, Brazil's Federal competition authority, attended at one
of the Company's operating divisions in Brazil to obtain information in connection with an ongoing antitrust investigation relating
to suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years. Where wrongful conduct is found, the relevant antitrust authority
can, depending on the jurisdiction, initiate administrative or criminal legal proceedings and impose administrative or criminal
fines or penalties taking into account several mitigating and aggravating factors.
At this time, management is unable to predict the duration or outcome of the Brazilian investigation, including whether any
operating divisions of the Company will be found liable for any violation of law or the extent or magnitude of any liability, if found
to be liable.
The Company's policy is to comply with all applicable laws, including antitrust and competition laws. The Company has initiated
a global review focused on antitrust risk led by a team of external counsel. If any antitrust violation is found as a result of the
above-referenced investigation or otherwise, Magna could be subject to fines, penalties and civil, administrative or criminal legal
proceedings that could have a material adverse effect on Magna's profitability in the year in which any such fine or penalty is
imposed or the outcome of any such proceeding is determined. Additionally, Magna could be subject to other consequences,
including reputational damage, which could have a material adverse effect on the Company.
• We may sell some product lines and/or downsize, close or sell some of our operating divisions. By taking such actions, we may
incur restructuring, downsizing and/or other significant non-recurring costs. These costs may be higher in some countries than
others and could have a material adverse effect on our profitability.
• Although we are working to turn around underperforming operating divisions, there is no guarantee that we will be successful
in doing so in the short to medium term or that the expected improvements will be fully realized or realized at all. The continued
underperformance of one or more operating divisions could have a material adverse effect on our profitability and operations.
• We face ongoing pricing pressure from OEMs, including through: long-term supply agreements with mutually agreed price
reductions over the life of the agreement; incremental annual price concession demands; and pressure to absorb costs related
to product design, engineering and tooling and other items previously paid for directly by OEMs; pressure to assume or offset
commodities cost increases; and refusal to fully offset inflationary price increases. OEMs possess significant leverage over their
suppliers due to their purchasing power and the highly competitive nature of the automotive supply industry. As a result of the
broad portfolio of parts we supply to our six largest OEM customers, such customers may be able to exert greater leverage over
us as compared to our competitors. We attempt to offset price concessions and costs in a number of ways, including through
negotiations with our customers, improved operating efficiencies and cost reduction efforts. Our inability to fully offset price
concessions or costs previously paid for by OEMs could have a material adverse effect on our profitability.
•
The launch of new business is a complex process, the success of which depends on a wide range of factors, including the
production readiness of our and our suppliers' manufacturing facilities, as well as factors related to manufacturing processes,
tooling, equipment, employees, initial product quality and other factors. Our failure to successfully launch material new or
takeover business could have an adverse effect on our profitability.
• We intend to continue to pursue acquisitions in those product areas which we have identified as key to our business strategy.
However, we may not be able to identify suitable acquisition targets or successfully acquire any suitable targets which we
identify. Additionally, we may not be able to successfully integrate or achieve anticipated synergies from those acquisitions
which we do complete, and/or such acquisitions may be dilutive in the short to medium term, which could have a material
adverse effect on our profitability.
3
MAGNA INTERNATIONAL INC.
•
The successful completion of one or more significant acquisitions could increase our risk profile, including through the assumption
of incremental regulatory/compliance, pricing, supply chain, commodities, labour relations, litigation, environmental, pensions,
warranty, recall, IT, tax or other risks. Although we seek to conduct appropriate levels of due diligence of our acquisition targets,
these efforts may not always prove to be sufficient in identifying all risks and liabilities related to the acquisition, including as a
result of limited access to information, time constraints for conducting due diligence, inability to access target company facilities
and/or personnel or other limitations in the due diligence process. Additionally, we may identify risks and liabilities through our
acquisition due diligence efforts that we are not able to sufficiently mitigate through appropriate contractual protections.
The realization of any such risks could have a material adverse effect on our profitability.
• Although we supply parts to all of the leading OEMs, a significant majority of our sales are to six customers: General Motors,
Fiat Chrysler, Ford, Daimler, Volkswagen and BMW. While we have diversified our customer base somewhat in recent years
and continue to attempt to further diversify, there is no assurance we will be successful. Shifts in market share away from our
top customers could have a material adverse effect on our profitability.
• While we supply parts for a wide variety of vehicles produced globally, we do not supply parts for all vehicles produced, nor is
the number or value of parts evenly distributed among the vehicles for which we do supply parts. Shifts in market shares among
vehicles or vehicle segments, particularly shifts away from vehicles on which we have significant content and shifts away from
vehicle segments in which our sales may be more heavily concentrated, could have a material adverse effect on our profitability.
•
In light of the amount of business we currently have with our largest customers in North America and Europe, our opportunities
for incremental growth with these customers may be limited. The amount of business we have with Japanese, Korean and
Chinese-based OEMs generally lags that of our largest customers, due in part to the existing relationships between such OEMs
and their preferred suppliers. There is no certainty that we can achieve growth with Asian-based OEMs, nor that any such
growth will offset slower growth we may experience with our largest customers in North America and Europe. As a result, our
inability to grow our business with Asian-based OEMs could have a material adverse effect on our profitability.
• While we continue to expand our manufacturing footprint with a view to taking advantage of opportunities in markets such as
China, India, Eastern Europe, Thailand, Brazil and other non-traditional markets for us, we cannot guarantee that we will be able
to fully realize such opportunities. Additionally, the establishment of manufacturing operations in new markets carries its own
risks, including those relating to: political, civil and economic instability and uncertainty; corruption risks; high inflation and our
ability to recover inflation-related cost increases; trade, customs and tax risks; expropriation risks; currency exchange rates;
currency controls; limitations on the repatriation of funds; insufficient infrastructure; competition to attract and retain qualified
employees; and other risks associated with conducting business internationally. Expansion of our business in non-traditional
markets is an important element of our strategy and, as a result, our exposure to the risks described above may be greater in the
future. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable,
however, the occurrence of any such risks could have an adverse effect on our operations, financial condition and profitability.
• A disruption in the supply of components to us from our suppliers could cause the temporary shut-down of our or our customers'
production lines. Any prolonged supply disruption, including due to the inability to re-source or in-source production, could have
a material adverse effect on our profitability.
•
Some of our manufacturing facilities are unionized, as are many manufacturing facilities of our customers and suppliers.
Unionized facilities are subject to the risk of labour disruptions from time to time, including as a result of restructuring actions
taken by us, our customers and other suppliers. We cannot predict whether or when any labour disruption may arise, or how
long such a disruption could last. A significant labour disruption could lead to a lengthy shutdown of our or our customers' and/or
our suppliers' production lines, which could have a material adverse effect on our operations and profitability.
• Our business is generally not seasonal. However, our sales and profits are closely related to our automotive customers' vehicle
production schedules. Our largest North American customers typically halt production for approximately two weeks in July and
one week in December. In addition, many of our customers in Europe typically shut down vehicle production during portions of
August and one week in December. These scheduled shutdowns of our customers' production facilities could cause our sales
and profitability to fluctuate when comparing fiscal quarters in any given year.
•
The automotive supply industry is highly competitive. As a result of our diversified automotive business, some competitors
have greater market share than we do in some product areas or geographic regions, or increasing market share in product
areas or geographic regions which are experiencing higher growth rates. As the trends towards globalization and consolidation
of automotive suppliers continue, we expect our competitors will be larger and have greater access to financial and other
resources than is currently the case. We may also face new, global competitors in some product areas which emerge from
non-traditional markets, such as China, and act as industry consolidators. Failure to successfully compete with existing or new
competitors could have an adverse effect on our operations and profitability.
• We depend on the outsourcing of components, modules and assemblies, as well as complete vehicles, by OEMs. The extent of
OEM outsourcing is influenced by a number of factors, including: relative cost, quality and timeliness of production by suppliers as
compared to OEMs; capacity utilization; OEMs' perceptions regarding the strategic importance of certain components/modules
to them; labour relations among OEMs, their employees and unions; and other considerations. A reduction in outsourcing by
OEMs, or the loss of any material production or assembly programs combined with the failure to secure alternative programs
with sufficient volumes and margins, could have a material adverse effect on our profitability.
2015 Annual Report – MD&A
4
• Contracts from our customers consist of blanket purchase orders which generally provide for the supply of components for
a customer's annual requirements for a particular vehicle, instead of a specific quantity of products. These blanket purchase
orders can be terminated by a customer at any time and, if terminated, could result in our incurring various pre-production,
engineering and other costs which we may not recover from our customer and which could have an adverse effect on our
profitability.
• We continue to invest in technology and innovation which we believe will be critical to our long-term growth. Our ability to
anticipate changes in technology and to successfully develop and introduce new and enhanced products and/or manufacturing
processes on a timely basis will be a significant factor in our ability to remain competitive. If we are unsuccessful or are less
successful than our competitors in consistently developing innovative products and/or processes, we may be placed at a
competitive disadvantage, which could have a material adverse effect on our profitability and financial condition.
•
Prices for certain key raw materials and commodities used in our parts, including steel and resin, continue to be volatile. To the
extent we are unable to offset commodity price increases by passing such increases to our customers, by engineering products
with reduced commodity content, through hedging strategies, or otherwise, such additional commodity costs could have an
adverse effect on our profitability. Some of our manufacturing facilities generate a significant amount of scrap steel and recover
some of the value through scrap steel sales. Scrap steel prices declined significantly in 2015 and may decline further, which
could have an adverse effect on our profitability.
• Our customers continue to demand that we bear the cost of the repair and replacement of defective products which are either
covered under their warranty or are the subject of a recall by them. Warranty provisions are established based on our best estimate
of the amounts necessary to settle existing or probable claims on product defect issues. Recall costs are costs incurred when
government regulators and/or our customers decide to recall a product due to a known or suspected performance issue and
we are required to participate either voluntarily or involuntarily. Currently, under most customer agreements, we only account
for existing or probable warranty claims. Under certain complete vehicle engineering and assembly contracts, we record an
estimate of future warranty-related costs based on the terms of the specific customer agreements and the specific customer's
warranty experience. While we possess considerable historical warranty and recall data and experience with respect to the
products we currently produce, we have little or no warranty and recall data which allows us to establish accurate estimates
of, or provisions for, future warranty or recall costs relating to new products, assembly programs or technologies being brought
into production or acquired by us. The obligation to repair or replace such products could have a material adverse effect on our
profitability and financial condition.
• Our manufacturing facilities are subject to risks associated with natural disasters or other catastrophic events, including fires,
floods, hurricanes and earthquakes. The occurrence of any of these disasters or catastrophic events could cause the total
or partial destruction of our or our sub-supplier's 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 Management's
Discussion & Analysis, we do not believe that any of the proceedings or claims to which we are party will have a material
adverse effect on our profitability; however, we cannot provide any assurance to this effect.
5
MAGNA INTERNATIONAL INC.
• We have incurred losses in some countries which we may not be able to fully or partially offset against income we have earned
in those countries. In some cases, we may not be able to utilize these losses at all if we cannot generate profits in those
countries and/or if we have ceased conducting business in those countries altogether. Our inability to utilize tax losses could
materially adversely affect our profitability. At any given time, we may face other tax exposures arising out of changes in tax or
transfer pricing laws, tax reassessments or otherwise. To the extent we cannot implement measures to offset these exposures,
they may have a material adverse effect on our profitability.
• We recorded significant impairment charges related to goodwill and long-lived assets in recent years and may continue to do
so in the future. The early termination, loss, renegotiation of the terms of, or delay in the implementation of, any significant
production contract could be indicators of impairment. In addition, to the extent that forward-looking assumptions regarding: the
impact of turnaround plans on underperforming operations; new business opportunities; program price and cost assumptions
on current and future business; the timing and success of new program launches; and forecast production volumes; are not
met, any resulting impairment loss could have a material adverse effect on our profitability.
• We believe we will have sufficient financial resources available to successfully execute our business plan, even in the event of
another global recession similar to that of 2008-2009. However, as a result of the reduction of our excess cash in connection
with our capital structure strategy, we may have less financial flexibility than we have had in the last few years. The occurrence
of an economic shock not contemplated in our business plan, a rapid deterioration of economic conditions or a more prolonged
recession than that experienced in 2008-2009 could result in the depletion of our cash resources, which could have a material
adverse effect on our operations and financial condition.
•
•
In recent years, we have invested significant amounts of money in our business through capital expenditures to support
new facilities, expansion of existing facilities, purchases of production equipment and acquisitions. Returns achieved on such
investments in the past are not necessarily indicative of the returns we may achieve on future investments and our inability to
achieve returns on future investments which equal or exceed returns on past investments could have a material adverse effect
on our level of profitability.
Trading prices of our Common Shares cannot be predicted and may fluctuate significantly due to a variety of factors, many
of which are outside our control, including: general economic and stock market conditions; variations in our operating results
and financial condition; differences between our actual operating and financial results and those expected by investors and
stock analysts; changes in recommendations made by stock analysts, whether due to factors relating to us, our customers,
the automotive industry or otherwise; significant news or events relating to our primary customers, including the release of
vehicle production and sales data; investor and stock analyst perceptions about the prospects for our or our primary customers'
respective businesses or the automotive industry; and other factors.
RESULTS OF OPERATIONS
Average Foreign Exchange
For the three months
ended December 31,
2014
2015
Change
For the year
ended December 31,
2014
Change
2015
1 Canadian dollar equals U.S. dollars
1 euro equals U.S. dollars
1 British pound equals U.S. dollars
1 Chinese renminbi equals U.S. dollars
1 Brazilian real equals U.S. dollars
0.749
1.094
1.516
0.156
0.260
0.881
1.250
1.583
0.163
0.393
- 15%
- 12%
-
4%
-
4%
- 34%
0.784
1.111
1.529
0.159
0.305
0.906
1.330
1.648
0.162
0.426
- 13%
- 16%
-
7%
-
2%
- 28%
The preceding table reflects the average foreign exchange rates between the most common currencies in which we conduct
business and our U.S. dollar reporting currency. The changes in these foreign exchange rates for the three months and year ended
December 31, 2015 impacted the reported U.S. dollar amounts of our sales, expenses and income.
The results of operations whose functional currency is not the U.S. dollar are translated into U.S. dollars using the average exchange
rates in the table above for the relevant period. Throughout this MD&A, reference is made to the impact of translation of foreign
operations on reported U.S. dollar amounts where relevant.
Our results can also be affected by the impact of movements in exchange rates on foreign currency transactions (such as raw
material purchases or sales denominated in foreign currencies). However, as a result of hedging programs employed by us, foreign
currency transactions in the current period have not been fully impacted by movements in exchange rates. We record foreign
currency transactions at the hedged rate where applicable.
Finally, foreign exchange gains and losses on revaluation and/or settlement of monetary items denominated in a currency other than
an operation's functional currency impact reported results. These gains and losses are recorded in selling, general and administrative
expense.
2015 Annual Report – MD&A
6
RESULTS OF OPERATIONS – FOR THE YEAR ENDED DECEMBER 31, 2015
Sales
Vehicle Production Volumes (millions of units)
North America
Europe
Sales
External Production
North America
Europe
Asia
Rest of World
Complete Vehicle Assembly
Tooling, Engineering and Other
Total Sales
External Production Sales - North America
2015
2014
Change
17.473
20.992
17.003
20.108
$ 17,759
7,252
1,612
454
2,357
2,700
$ 32,134
$ 17,398
8,843
1,579
668
3,160
2,755
$ 34,403
+ 3%
+ 4%
+ 2%
- 18%
+ 2%
- 32%
- 25%
- 2%
- 7%
External production sales in North America increased 2% or $361 million to $17.76 billion for 2015 compared to $17.40 billion for
2014, primarily as a result of the launch of new programs during or subsequent to 2014, including the:
Ford Transit;
Ford Mustang;
Ford Edge;
•
•
•
• Chevrolet Colorado and GMC Canyon;
• Mercedes-Benz C-Class; and
• GM full-size SUVs.
These factors were partially offset by:
•
•
•
•
an $863 million decrease in reported U.S. dollar sales primarily as a result of the weakening of the Canadian dollar against the
U.S. dollar;
lower production sales on existing programs;
net divestitures during or subsequent to 2014, which negatively impacted sales by $87 million; and
net customer price concessions subsequent to 2014.
External Production Sales - Europe
External production sales in Europe decreased 18% or $1.59 billion to $7.25 billion for 2015 compared to $8.84 billion for 2014,
primarily as a result of:
•
•
•
•
a $1.46 billion decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar,
including the euro, Russian ruble, Czech koruna and Polish zloty;
lower production sales on existing programs;
programs that ended production during or subsequent to 2014; and
net customer price concessions subsequent to 2014.
These factors were partially offset by the launch of new programs during or subsequent to 2014, including the:
Volkswagen Caddy;
Volkswagen Passat;
Ford Transit;
•
•
•
• BMW 2-Series; and
• BMW X4.
External Production Sales - Asia
External production sales in Asia increased 2% or $33 million to $1.61 billion for 2015 compared to $1.58 billion for 2014, primarily
as a result of:
•
•
the launch of new programs during or subsequent to 2014, primarily in China and India; and
acquisitions subsequent to 2014, including the Xingqiaorui Partnership, which positively impacted sales by $18 million.
7
MAGNA INTERNATIONAL INC.
These factors were partially offset by:
•
•
•
a $47 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar,
including the Chinese renminbi;
lower production sales on existing programs; and
net customer price concessions subsequent to 2014.
External Production Sales - Rest of World
External production sales in Rest of World decreased 32% or $214 million to $454 million for 2015 compared to $668 million for
2014, primarily as a result of:
•
•
a $149 million decrease in reported U.S. dollar sales as a result of the weakening of foreign currencies against the U.S. dollar,
including the Brazilian real; and
lower production sales on existing programs.
These factors were partially offset by:
•
•
the launch of new programs during or subsequent to 2014, primarily in Brazil; and
net customer price increases subsequent to 2014.
Complete Vehicle Assembly Sales
2015
2014
Change
Complete Vehicle Assembly Sales
$ 2,357
$ 3,160
Complete Vehicle Assembly Volumes (Units)
103,904
135,126
- 25%
- 23%
Complete vehicle assembly sales decreased 25% or $803 million to $2.36 billion for 2015 compared to $3.16 billion for 2014 and
assembly volumes decreased 23% or 31,222 units.
The decrease in complete vehicle assembly sales is primarily as a result of:
•
•
•
a $494 million decrease in reported U.S. dollar sales as a result of the weakening of the euro against the U.S. dollar;
a decrease in assembly volumes for the MINI Countryman and Paceman, as these programs near the end of production; and
the end of production of the Peugeot RCZ at our Magna Steyr facility during the third quarter of 2015.
These factors were partially offset by an increase in assembly volumes for the Mercedes-Benz G-Class.
Tooling, Engineering and Other Sales
Tooling, engineering and other sales decreased 2% or $55 million to $2.70 billion for 2015 compared to $2.76 billion for 2014.
In 2015, the major programs for which we recorded tooling, engineering and other sales were the:
Ford F-Series and F-Series Super Duty;
• Chevrolet Cruze;
• GMC Acadia, Buick Enclave and Chevrolet Traverse;
•
• Audi A4;
• MINI Countryman;
• Chevrolet Equinox and GMC Terrain;
•
• Chrysler Pacifica and Dodge Caravan;
• BMW 2-Series; and
• Mercedes-Benz M-Class.
Ford Edge;
2015 Annual Report – MD&A
8
In 2014, the major programs for which we recorded tooling, engineering and other sales were the:
•
Ford Transit;
• MINI Countryman;
•
Ford Mustang;
• QOROS 3;
•
• Mercedes-Benz M-Class;
• BMW X4;
• Mercedes-Benz C-Class; and
•
Volkswagen Golf.
Ford F-Series and F-Series Super Duty;
The weakening of certain foreign currencies against the U.S. dollar, including the euro, Canadian dollar and Czech koruna had an
unfavourable impact of $332 million on our reported tooling, engineering and other sales.
Cost of Goods Sold and Gross Margin
Sales
Cost of goods sold
Material
Direct labour
Overhead
Gross margin
2015
2014
$ 32,134
$ 34,403
20,270
2,115
5,174
27,559
$ 4,575
21,864
2,130
5,474
29,468
$ 4,935
Gross margin as a percentage of sales
14.2%
14.3%
Cost of goods sold decreased $1.91 billion to $27.56 billion for 2015 compared to $29.47 billion for 2014 primarily as a result of:
•
•
•
•
•
a decrease in reported U.S. dollar cost of goods sold as a result of the weakening of foreign currencies against the U.S. dollar,
including the euro and Canadian dollar;
decreased commodity costs;
lower warranty costs of $20 million;
costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America, during 2014; and
productivity and efficiency improvements at certain facilities.
These factors were partially offset by:
•
•
•
•
higher material, overhead and labour costs associated with the increase in local currency sales, in particular in North America;
operational inefficiencies at certain facilities, in particular at certain body and chassis operations in North America;
lower recoveries associated with scrap steel; and
higher launch costs.
Gross margin decreased $360 million to $4.58 billion for 2015 compared to $4.94 billion for 2014 and gross margin as a percentage
of sales decreased to 14.2% for 2015 compared to 14.3% for 2014. The decrease in gross margin as a percentage of sales was
primarily due to:
•
•
•
•
lower recoveries associated with scrap steel;
operational inefficiencies at certain facilities, in particular at certain body and chassis operations in North America;
higher launch costs; and
an increase in the proportion of tooling, engineering and other sales relative to total sales, that have low or no margins.
These factors were partially offset by:
•
•
•
•
•
•
a decrease in the proportion of complete vehicle assembly sales relative to total sales, which have a higher material content
than our consolidated average;
a decrease in the proportion of sales earned in Europe relative to total sales, which have a lower margin than our consolidated
average;
decreased commodity costs;
lower warranty costs;
costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America, during 2014; and
productivity and efficiency improvements at certain facilities.
9
MAGNA INTERNATIONAL INC.
Depreciation and Amortization
Depreciation and amortization costs decreased $43 million to $802 million for 2015 compared to $845 million for 2014. The lower
depreciation and amortization was primarily as a result of a decrease in reported U.S. dollar depreciation and amortization largely
as a result of the weakening of the euro, Canadian dollar and Russian ruble, each against the U.S. dollar partially offset by higher
depreciation related to new facilities and increased capital employed at existing facilities.
Selling, General and Administrative ("SG&A")
SG&A expense as a percentage of sales was 4.5% for 2015 compared to 4.7% for 2014. SG&A expense decreased $164 million to
$1.45 billion for 2015 compared to $1.61 billion for 2014 primarily as a result of:
•
•
the weakening of the euro, Canadian dollar, Russian ruble and Brazilian real, each against the U.S. dollar; and
the expiration, at the end of 2014, of our consulting agreements with Frank Stronach.
These factors were partially offset by:
•
•
•
•
higher costs to support our global compliance programs;
costs related to the investment in our information technology infrastructure;
higher professional and consulting costs; and
a $4 million net decrease in valuation gains in respect of asset-backed commercial paper ("ABCP").
Equity Income
Equity income increased $1 million to $204 million for 2015 compared to $203 million for 2014.
Other (Income) Expense, net
During the three months and years ended December 31, 2015 and 2014, we recorded other (income) expense, net ("Other Income"
or "Other Expense") items as follows:
Fourth Quarter
Restructuring (1)
Third Quarter
Gain on disposal (2)
Restructuring (1)
Second Quarter
Gain on disposal (2)
Restructuring (1)
First Quarter
Restructuring (1)
2015
Net Income
Operating Attributable
to Magna
Income
Diluted
Earnings
per Share
Operating
Income
2014
Net Income
Attributable
to Magna
Diluted
Earnings
per Share
$
15
$
15
$ 0.03
$
6
$
5
$ 0.01
(136)
12
(124)
(57)
–
(57)
(80)
12
(68)
(42)
–
(42)
(0.19)
0.03
(0.16)
(0.10)
–
(0.10)
–
–
–
–
7
7
–
11
11
22
–
6
6
–
10
10
20
–
0.01
0.01
–
0.02
0.02
0.05
Full year other (income) expense, net
$ (166)
$
(95)
$ (0.23)
$
46
$
41
$ 0.09
(1) Restructuring
[a] For the year ended December 31, 2015
During 2015, we recorded net restructuring charges of $27 million ($27 million after tax) primarily in Germany at our exterior
systems and roof systems operations.
[b] For the year ended December 31, 2014
During 2014, we recorded net restructuring charges of $46 million ($41 million after tax), in Europe at our exterior systems
operations.
2015 Annual Report – MD&A
10
(2) Gains on disposal
During the third quarter of 2015, we entered into a joint venture arrangement for the manufacture and sale of roof and other
accessories for the Jeep market to original equipment manufacturers as well as aftermarket customers. We contributed two
manufacturing facilities and received a 49% interest in the newly formed joint venture and cash proceeds of $118 million.
Total consideration was valued at $160 million and as a result we recognized a gain of $136 million ($80 million after tax).
We account for our ownership as an equity investment since we have significant influence through our voting rights, but do not
control the joint venture.
During the second quarter of 2015, we sold our battery pack business to Samsung SDI for gross proceeds of $120 million,
resulting in a gain of $57 million ($42 million after tax).
Segment Analysis
Given the differences between the regions in which we operate, our operations are segmented on a geographic basis. Consistent
with the above, our internal financial reporting separately segments key internal operating performance measures between North
America, Europe, Asia and Rest of World for purposes of presentation to the chief operating decision maker to assist in the
assessment of operating performance, the allocation of resources, and our long-term strategic direction and future global growth.
Our chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since we believe Adjusted EBIT is
the most appropriate measure of operational profitability or loss for our reporting segments. Adjusted EBIT represents income from
continuing operations before income taxes; interest expense, net; and other (income) expense, net.
2015
Total Sales
2014
Change
2015
2014
Change
Adjusted EBIT
North America
Europe
Asia
Rest of World
Corporate and Other
Total reportable segments
$ 19,015
11,123
1,981
461
(446)
$ 32,134
$ 18,761
13,502
1,919
695
(474)
$ 34,403
$
$
254
(2,379)
62
(234)
28
(2,269)
$ 1,934
451
149
(25)
20
$ 2,529
$ 2,003
502
150
(35)
61
$ 2,681
$
$
(69)
(51)
(1)
10
(41)
(152)
Excluded from Adjusted EBIT for 2015 and 2014 were the following other (income) expense, net items, which have been discussed
in the "Other Expense" section.
North America
Gain on sale
Europe
Gain on sale
Restructuring
North America
For the year
ended December 31,
2015
2014
$
(136)
$
–
(57)
27
(30)
$
(166)
$
–
46
46
46
Adjusted EBIT in North America decreased $69 million to $1.93 billion for 2015 compared to $2.00 billion for 2014 primarily as a
result of:
•
•
•
•
•
•
lower recoveries associated with scrap steel;
a decrease in reported U.S. dollar EBIT due to the weakening of the Canadian dollar against the U.S. dollar;
higher launch costs;
operational inefficiencies at certain facilities, in particular at certain body and chassis operations;
a higher amount of employee profit sharing; and
net customer price concessions subsequent to 2014.
11
MAGNA INTERNATIONAL INC.
These factors were partially offset by:
• margins earned on higher production sales;
lower affiliation fees paid to Corporate;
•
decreased commodity costs;
•
costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility, during the second quarter of 2014;
•
lower warranty costs of $11 million;
•
higher equity income; and
•
productivity and efficiency improvements at certain facilities.
•
Europe
Adjusted EBIT in Europe decreased $51 million to $451 million for 2015 compared to $502 million for 2014 primarily as a result of:
•
•
•
•
•
•
a decrease in reported U.S. dollar EBIT as a result of the weakening of foreign currencies against the U.S. dollar, including the
euro, Czech koruna and Russian ruble;
higher launch costs;
decreased margins earned on lower production sales;
operational inefficiencies at certain facilities;
lower equity income; and
net customer price concessions subsequent to 2014.
These factors were partially offset by:
•
•
•
•
•
lower affiliation fees paid to Corporate;
decreased commodity costs;
lower warranty costs of $5 million;
productivity and efficiency improvements at certain facilities; and
a lower amount of employee profit sharing.
Asia
Adjusted EBIT in Asia decreased $1 million to $149 million for 2015 compared to $150 million for 2014 primarily as a result of:
•
•
•
•
increased pre-operating costs incurred at new facilities;
higher launch costs;
a decrease in reported U.S. dollar EBIT as a result of the weakening of foreign currencies against the U.S. dollar, including the
Chinese renminbi; and
net customer price concessions subsequent to 2014.
These factors were partially offset by:
•
•
•
•
•
•
increased margins due to higher production sales;
a lower amount of employee profit sharing;
lower affiliation fees paid to Corporate;
lower warranty costs of $4 million;
higher equity income; and
decreased commodity costs.
Rest of World
Adjusted EBIT in Rest of World increased $10 million to a loss of $25 million for 2015 compared to a loss of $35 million for 2014
primarily as a result of:
•
•
•
•
•
productivity and efficiency improvements at certain facilities;
a decrease in reported U.S. dollar EBIT loss due to the weakening of the Brazilian real against the U.S. dollar;
decreased commodity costs;
lower affiliation fees paid to Corporate; and
net customer price increases subsequent to 2014.
These factors were partially offset by:
•
•
•
decreased margins earned on lower production sales;
higher production costs, including inflationary increases, that we have not been fully successful in passing through to our
customers; and
lower equity income.
2015 Annual Report – MD&A
12
Corporate and Other
Corporate and Other Adjusted EBIT decreased $41 million to $20 million for 2015 compared to $61 million for 2014 primarily as a
result of:
•
•
•
•
•
•
•
a decrease in affiliation fees earned from our divisions;
higher costs to support our global compliance program;
costs related to the investment in our information technology infrastructure;
higher professional and consulting costs;
a $4 million net decrease in valuation gains in respect of ABCP;
increased stock-based compensation; and
a higher amount of employee profit sharing.
These factors were partially offset by the expiration, at the end of 2014, of our consulting agreements with Frank Stronach.
Interest Expense, net
During 2015, we recorded net interest expense of $44 million compared to $30 million for 2014. The $14 million increase is primarily
as a result of interest expense on:
•
•
the following issuances of senior, unsecure debt (the "Senior Debt") during 2015:
$650 million of 4.150% fixed-rate senior notes maturing on October 1, 2025;
•
•
€550 million of 1.900% fixed-rate senior notes maturing on November 24, 2023; and
• Cdn$425 million of 3.100% fixed-rate senior notes maturing on December 15, 2022; and
$750 million of 3.625% fixed-rate senior notes issued during 2014.
These factors were partially offset by lower interest expense as a result of lower debt in Asia and South America.
Income from Continuing Operations before Income Taxes
Income from continuing operations before income taxes increased $46 million to $2.65 billion for 2015 compared to $2.61 billion for
2014. Excluding Other Income and Other Expense, discussed in the "Other Expense" section, income from continuing operations
before income taxes for 2015 decreased $166 million primarily as a result of:
•
•
•
•
•
•
•
•
•
the negative impact of foreign exchange translation from the weakening of foreign currencies, including the Canadian dollar and
euro, each against the U.S. dollar;
operational inefficiencies at certain facilities, in particular at certain body and chassis operations in North America;
lower recoveries associated with scrap steel;
higher launch costs;
the $14 million increase in interest expense, net, as discussed above;
a $4 million net decrease in valuation gains in respect of ABCP;
a higher amount of employee profit sharing;
increased pre-operating costs incurred at new facilities; and
net customer price concessions subsequent to 2014.
These factors were partially offset by:
•
•
•
•
•
•
•
increased margins due to higher production sales;
the expiration, at the end of 2014, of our consulting agreements with Frank Stronach;
decreased commodity costs;
lower warranty costs of $20 million;
costs incurred, net of insurance recoveries, related to a fire at a body and chassis facility in North America, during 2014;
lower incentive compensation; and
productivity and efficiency improvements at certain facilities.
Income Taxes
Income taxes as reported
Tax effect on Other Income and Other Expense
Austrian Tax Reform
2015
2014
$
711
(71)
–
640
$
$
%
26.8
(1.0)
–
25.8
$
683
5
(32)
656
$
$
%
26.2
(0.3)
(1.2)
24.7
13
MAGNA INTERNATIONAL INC.
For 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses where the foreign subsidiary is not
a member of the European Union. Furthermore, any foreign losses used by Austrian entities arising in those non European Union
subsidiaries are subject to recapture in Austria. As a consequence of this change, in 2014 we have recorded a charge to income tax
expense of $32 million ("Austrian Tax Reform").
Excluding Other Income and Other Expense, after tax, and the Austrian Tax Reform, the effective income tax rate increased to
25.8% for 2015 compared to 24.7% for 2014 primarily as a result of:
•
•
•
higher non-creditable withholding tax;
lower favourable audit settlements in 2015; and
an increase in permanent items.
These factors were partially offset by a benefit recorded on the write-off of historical tax basis in one of our South American subsidiaries.
Income (loss) from Discontinued Operations, net of tax
Income (loss) from discontinued operations, net of tax reflects the results of our interiors operations which are classified as
discontinued operations. During the third quarter of 2015, we sold these operations.
Sales
Costs and expenses
Cost of goods sold
Depreciation and amortization
Selling, general and administrative
Equity income
Other expense, net
Income (loss) from discontinued operations before income taxes
Income taxes
Gain on divestiture of discontinued operations, net of tax
Income (loss) from discontinued operations, net of tax
2015
2014
$ 1,737
$ 2,394
1,635
13
58
(11)
–
42
20
22
45
67
$
2,310
45
95
(8)
18
(66)
(24)
(42)
–
(42)
$
Income (loss) from discontinued operations, net of tax increased $109 million to $67 million for 2015 compared to a loss of $42 million
for 2014 primarily as a result of the $45 million after-tax gain on divestiture, lower SG&A and depreciation costs partially offset by
increased income taxes.
Loss from Continuing Operations Attributable to Non-controlling Interests
Loss from continuing operations attributable to non-controlling interests increased $4 million to $6 million for 2015 compared to $2 million
for 2014.
Net Income Attributable to Magna International Inc.
Net income attributable to Magna International Inc. of $2.01 billion for 2015 increased $131 million compared to 2014. Excluding
Other Income and Other Expense, after tax, and the Austrian Tax Reform as discussed in the "Other Expense" and the "Income
Taxes" sections, respectively, net income attributable to Magna International Inc. decreased $37 million primarily as a result of the
decrease in net income from continuing operations before income taxes partially offset by the income from discontinued operations,
net of tax and lower income taxes, as discussed above.
Earnings per Share (restated)
Basic earnings per Common Share
Continuing operations
Attributable to Magna International Inc.
Diluted earnings per Common Share
Continuing operations
Attributable to Magna International Inc.
Weighted average number of Common Shares outstanding (millions)
Basic
Diluted
2015 Annual Report – MD&A
2015
2014
Change
$
$
$
$
4.78
4.94
4.72
4.88
$
$
$
$
4.50
4.41
4.44
4.34
407.5
412.7
427.1
433.2
+ 6%
+ 12%
+ 6%
+ 12%
- 5%
- 5%
14
Diluted earnings per share from continuing operations increased $0.28 to $4.72 for 2015 compared to $4.44 for 2014. Other Income
and Other Expense, after tax, and the Austrian Tax Reform positively impacted diluted earnings per share from continuing operations
by $0.23 in 2015 and negatively impacted diluted earnings per share from continuing operations by $0.17 in 2014. Other Income
and Other Expense and the Austrian Tax Reform are discussed in the "Other Income" and "Income Taxes" sections, respectively.
Excluding these impacts, diluted earnings per share from continuing operations decreased $0.12 as a result of the decrease in net
income attributable to Magna International Inc. from continuing operations partially offset by a decrease in the weighted average
number of diluted shares outstanding during 2015.
The decrease in the weighted average number of diluted shares outstanding was due to the purchase and cancellation of Common
Shares, during or subsequent to 2014, pursuant to our normal course issuer bids.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operations
Net income from continuing operations
Items not involving current cash flows
Changes in operating assets and liabilities
Cash provided from operating activities
2015
2014
Change
$ 1,940
736
2,676
(344)
$ 2,332
$ 1,922
1,102
3,024
(202)
$ 2,822
$
$
(348)
(490)
Cash flow from operations before changes in operating assets and liabilities decreased $348 million to $2.68 billion for 2015
compared to $3.02 billion for 2014. The decrease in cash flow from operations was due to a $366 million decrease in items not
involving current cash flows partially offset by an $18 million increase in net income from continuing operations. Items not involving
current cash flows are comprised of the following:
Depreciation and amortization
Amortization of other assets included in cost of goods sold
Other non-cash charges
Deferred income taxes
Equity income in excess of dividends received
Non-cash portion of Other Income
Items not involving current cash flows
2015
2014
$
$
802
110
44
(7)
(20)
(193)
736
$
845
132
35
113
(23)
–
$ 1,102
Cash invested in operating assets and liabilities amounted to $344 million for 2015 compared to $202 million for 2014. The change
in operating assets and liabilities is comprised of the following sources (and uses) of cash:
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable
Accrued salaries and wages
Other accrued liabilities
Income taxes payable
Changes in non-cash operating assets and liabilities
2015
2014
$
$
(410)
(241)
13
139
43
72
40
(344)
$
$
(760)
(275)
3
634
74
80
42
(202)
Higher accounts receivable relate primarily to higher tooling receivables related to program launches. The increase in inventories was
primarily due to higher production inventory to support launch activities and increased tooling inventory in North America. The increase
in accounts payable was primarily due to timing of payments.
15
MAGNA INTERNATIONAL INC.
Capital and Investment Spending
Fixed asset additions
Investments and other assets
Fixed assets, investments and other assets additions
Purchase of subsidiaries
Proceeds from disposition
Proceeds on disposal of facilities
Sale of Interiors
Cash used in discontinued operations
Cash used for investment activities
Fixed assets, investments and other assets additions
2015
2014
Change
$ (1,591)
(221)
(1,812)
(222)
61
221
520
(56)
$ (1,288)
$
$
(1,495)
(172)
(1,667)
(23)
164
–
–
(120)
(1,646)
$
358
In 2015, we invested $1.59 billion in fixed assets. While investments were made to refurbish or replace assets consumed in the
normal course of business and for productivity improvements, a large portion of the investment in 2015 was for manufacturing
equipment for programs that will be launching subsequent to 2015.
In 2015, we invested $200 million in other assets related primarily to fully reimbursable tooling and engineering costs for programs
that launched during 2015 or will be launching subsequent to 2015. In addition, we invested $21 million in equity accounted
investments.
Purchase of subsidiaries
During 2015, we invested $222 million to purchase subsidiaries, including:
•
•
forming the Xingqiaorui Partnership. Under the terms of the arrangement, Chongqing Xingqiaorui ("Xingqiaorui") transferred
a 53% controlling interest in its three China manufacturing facilities and cash consideration of $36 million. In exchange, we
transferred a 47% non-controlling equity interest in our Chongqing manufacturing facility and cash consideration of $130 million
to Xingqiaorui; and
Stadco, based in the United Kingdom, is a supplier of steel and aluminum stampings as well as vehicle assemblies primarily to
Jaguar and Land Rover.
Proceeds from disposition
In 2015, the $61 million of proceeds include normal course fixed and other asset disposal.
Proceeds on disposal of facilities
During 2015, we received $221 million of proceeds on disposal of facilities related to the:
•
•
sale of our battery pack business to Samsung SDI; and
formation of a joint venture for the manufacture and sale of roof and other accessories for the Jeep market to original equipment
manufacturers as well as aftermarket customers.
Sale of Interiors
On August 31, 2015, we sold substantially all of our interiors operations (excluding our seating operations) and received $520 million
of proceeds, net of transaction costs.
Financing
Issues of debt
Increase (decrease) in bank indebtedness
Repayments of debt
Issues of Common Shares
Repurchase of Common Shares
Contribution to subsidiaries by non-controlling interests
Dividends paid
Cash provided by (used for) financing activities
2015 Annual Report – MD&A
2015
2014
Change
$ 1,608
25
(99)
35
(515)
41
(354)
741
$
$
$
860
(2)
(188)
49
(1,783)
—
(316)
(1,380)
$ 2,121
16
Issues of debt relates primarily to the issue of the Senior Debt during 2015. The Senior Debt are senior unsecured obligations and do
not include any financial covenants. We may redeem the Senior Debt in whole or in part at any time, at specified redemption prices
determined in accordance with the terms of each of the respective indentures governing the Senior Debt. The funds raised through
these offerings were used for general corporate purposes, including capital expenditures, as well as the acquisition of Getrag.
During 2015, we purchased for cancellation 10.6 million Common Shares for an aggregate purchase price of $515 million under our
normal course issuer bids.
Cash dividends paid per Common Share were $0.88 for 2015, for a total of $354 million.
Financing Resources
As at
As at
December 31, December 31,
2014
2015
Liabilities
Bank indebtedness
Long-term debt due within one year
Long-term debt
Non-controlling interest
Shareholders' equity
Total capitalization
$
25
211
2,346
2,582
151
8,966
$ 11,699
$
30
183
812
1,025
14
8,659
$ 9,698
Change
$ 2,001
Total capitalization increased by $2.00 billion to $11.70 billion at December 31, 2015 compared to $9.70 billion at December 31, 2014
as a result of a $1.56 billion increase in liabilities, a $307 million increase in shareholders' equity and a $137 million increase in non-
controlling interest.
The increase in liabilities relates primarily to the Senior Debt issued during 2015.
The increase in shareholders' equity was primarily as a result of the $2.01 billion of net income earned in 2015.
This factor was partially offset by:
•
•
•
•
the $798 million net unrealized loss on translation of our net investment in foreign operations whose functional currency is not
the U.S. dollar;
the $515 million repurchase and cancellation of 10.6 million Common Shares under our normal course issuer bid during 2015;
$354 million of dividends paid during 2015; and
the $244 million net unrealized loss on cash flow hedges.
The increase in non-controlling interest primarily relates to the formation of the Xingqiaorui Partnership.
Cash Resources
During 2015, our cash resources increased by $1.61 billion to $2.86 billion as a result of the cash provided from operating and
financing activities partially offset by cash used for investing activities, as discussed above. In addition to our cash resources at
December 31, 2015, we had term and operating lines of credit totalling $2.55 billion of which $2.25 billion was unused and available.
On April 24, 2015, our $2.25 billion revolving credit facility maturing June 20, 2019 was extended to June 22, 2020. The facility
includes a $200 million Asian tranche, a $50 million Mexican tranche and a tranche for Canada, U.S. and Europe, which is fully
transferable between jurisdictions and can be drawn in U.S. dollars, Canadian dollars or euros.
During the first quarter of 2014, we filed a short form base shelf prospectus with the Ontario Securities Commission and a
corresponding shelf registration statement with the United States Securities and Exchange Commission on Form F-10. The filings
provide for the potential offering of up to an aggregate of $2.00 billion of debt securities from time to time over a 25 month period.
During 2015, we issued $650 million of 4.150% fixed-rate senior notes maturing on October 1, 2025 and €550 million of 1.900%
fixed-rate senior notes maturing on November 24, 2023 under the filings. We also issued Cdn$425 million of 3.100% fixed-rate
senior notes maturing on December 15, 2022 by way of private placement to accredited investors in Canada. The funds raised
through these offerings were used for general corporate purposes, including capital expenditures, as well as the acquisition of
Getrag. During the second quarter of 2014, we issued $750 million of 3.625% fixed-rate senior notes which mature on June 15, 2024
under the filings.
17
MAGNA INTERNATIONAL INC.
Maximum Number of Shares Issuable
The following table presents the maximum number of shares that would be outstanding if all of the outstanding options at March 3,
2016 were exercised:
Common Shares
Stock options (i)
401,643,203
9,117,224
410,760,427
(i) Options to purchase Common Shares are exercisable by the holder in accordance with the vesting provisions and upon payment
of the exercise price as may be determined from time to time pursuant to our stock option plans.
Contractual Obligations and Off-Balance Sheet Financing
A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on us and that
specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions;
and the approximate timing of the transaction. Consistent with our customer obligations, substantially all of our purchases are made
under purchase orders with our suppliers which are requirements based and accordingly do not specify minimum quantities.
Other long-term liabilities are defined as long-term liabilities that are recorded on our consolidated balance sheet. Based on this
definition, the following table includes only those contracts which include fixed or minimum obligations.
At December 31, 2015, we had contractual obligations requiring annual payments as follows:
Operating leases
Long-term debt
Unconditional purchase obligations:
Materials and services
Capital
Total contractual obligations
2016
268
211
$
2,325
442
$ 3,246
2017-
2018
417
30
144
73
664
$
$
2019-
2020
299
5
26
40
370
$
$
Thereafter
Total
$
283
2,311
6
18
$ 2,618
$ 1,267
2,557
2,501
573
$ 6,898
Our unfunded obligations with respect to employee future benefit plans, which have been actuarially determined, were $494 million
at December 31, 2015. These obligations are as follows:
Projected benefit obligation
Less plan assets
Unfunded amount
Pension
Liability
Retirement
Liability
Long Service
Arrangements
Termination and
$
$
493
(326)
167
$
$
32
–
32
$
$
295
–
295
Total
820
(326)
494
$
$
Our off-balance sheet financing arrangements are limited to operating lease contracts.
We have facilities that are subject to operating leases. Operating lease payments in 2015 for facilities were $232 million. Operating lease
commitments in 2016 for facilities are expected to be $227 million. A majority of our existing lease agreements generally provide
for periodic rent escalations based either on fixed-rate step increases, or on the basis of a consumer price index adjustment (subject
to certain caps).
We also have operating lease commitments for equipment. These leases are generally of shorter duration. Operating lease payments
for equipment were $53 million for 2015, and are expected to be $41 million in 2016.
Although our consolidated contractual annual lease commitments decline year by year, we expect that existing leases will either be
renewed or replaced, or alternatively, we will incur capital expenditures to acquire equivalent capacity.
Foreign Currency Activities
Our North American operations negotiate sales contracts with OEMs for payment in both U.S. and Canadian dollars. Materials and
equipment are purchased in various currencies depending upon competitive factors, including relative currency values. Our North
American operations use labour and materials which are paid for in both U.S. and Canadian dollars. Our Mexican operations generally
use the U.S. dollar as the functional currency.
Our European operations negotiate sales contracts with OEMs for payment principally in euros and British pounds. The European
operations' material, equipment and labour are paid for principally in euros and British pounds.
2015 Annual Report – MD&A
18
We employ hedging programs, primarily through the use of foreign exchange forward contracts, in an effort to manage our foreign
exchange exposure, which arises when manufacturing facilities have committed to the delivery of products for which the selling
price has been quoted in foreign currencies. These commitments represent our contractual obligations to deliver products over
the duration of the product programs, which can last a number of years. The amount and timing of the forward contracts will be
dependent upon a number of factors, including anticipated production delivery schedules and anticipated production costs, which
may be paid in the foreign currency. In addition, we enter into foreign exchange contracts to manage foreign exchange exposure with
respect to internal funding arrangements. Despite these measures, significant long-term fluctuations in relative currency values, in
particular a significant change in the relative values of the U.S. dollar, Canadian dollar, euro or British pound, could have an adverse
effect on our profitability and financial condition (as discussed throughout this MD&A).
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
Our significant accounting policies are more fully described in Note 1, "Significant Accounting Policies," to the consolidated financial
statements included in this Report. The preparation of the audited consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure
of contingent assets and liabilities, as of the date of the consolidated financial statements. These estimates and assumptions are
based on our historical experience, and various other assumptions we believe to be reasonable in the circumstances. Since these
estimates and assumptions are subject to an inherent degree of uncertainty, actual results in these areas may differ significantly
from our estimates.
We believe the following critical accounting policies and estimates affect the more subjective or complex judgments and estimates
used in the preparation of our consolidated financial statements and accompanying notes. Management has discussed the
development and selection of the following critical accounting policies with the Audit Committee of the Board of Directors, and the
Audit Committee has reviewed our disclosure relating to critical accounting policies in this MD&A.
Revenue Recognition
[a] Tooling and Engineering Service Contracts
With respect to our contracts with OEMs for particular vehicle programs, we perform multiple revenue-generating activities. The most
common arrangement is where, in addition to contracting for the production and sale of parts, we also have a contract with the
OEM for engineering services, related tooling, and in some cases subsequent assembly activities. Under these arrangements, we
either construct the tools at our in-house tool shops or contract with third party tooling vendors to construct and supply tooling
to be used by us in the production of parts for the OEM. On completion of the tooling build, and upon acceptance of the tooling
by the OEM, we sell the tooling to the OEM pursuant to a separate tooling purchase order.
Revenues from significant engineering services and tooling contracts that qualify as separate revenue elements are recognized
on a percentage of completion basis. The percentage of completion method recognizes revenue and cost of sales over the term
of the contract based on estimates of the state of completion, total contract revenue and total contract costs. Contract costs
are estimated at the time of signing the contract and are reviewed at each reporting date. Adjustments to the original estimates
of total contract costs are often required as work progresses under the contract and as experience is gained, even though the
scope of the work under the contract may not change.
Tooling and engineering contract prices are generally fixed; however, price changes, change orders and program cancellations
may affect the ultimate amount of revenue recorded with respect to a contract. When the current estimates of total contract
revenue and total contract costs indicate a loss, a provision for the entire loss on the contract is made. Factors that are
considered in arriving at the forecasted loss on a contract include, amongst others, cost over-runs, non-reimbursable costs,
change orders and potential price changes.
Revenues and cost of sales from tooling and engineering services contracts are presented on a gross basis in the consolidated
statements of income when we are acting as principal and are subject to significant risks and rewards of the business. Otherwise,
components of revenue and related costs are presented on a net basis. To date, substantially all engineering services and
tooling contracts have been recorded on a gross basis.
[b] Contracts with Purchased Components
(i) Assembly Contracts
The terms of our various vehicle assembly contracts differ with respect to the ownership of components and supplies
related to the assembly process and the method of determining the selling price to the OEM customer. Under certain
contracts we are acting as principal, and purchased components and systems in assembled vehicles are included in our
inventory and cost of sales. These costs are reflected on a full-cost basis in the selling price of the final assembled vehicle
to the OEM customer. Other contracts provide that third-party components and systems are held on consignment by us,
and the selling price to the OEM customer reflects a value added assembly fee only. All current programs are accounted
for on a full-cost basis.
19
MAGNA INTERNATIONAL INC.
(ii) Modular Systems
In addition to our assembly business, we also enter into production contracts where we are required to coordinate the
design, manufacture, integration and assembly of a large number of individual parts and components into a modular
system for delivery to the OEM's vehicle assembly plant. Under these contracts, we manufacture a portion of the products
included in the module but also purchase components from various sub-suppliers and assemble such components into the
completed module. We recognize module revenues and cost of sales on a gross basis when we have a combination of:
•
•
•
•
•
•
•
primary responsibility for providing the module to the OEM;
responsibility for styling and/or product design specifications;
latitude in establishing sub-supplier pricing;
responsibility for validation of sub-supplier part quality;
inventory risk on sub-supplier parts;
exposure to warranty; and
exposure to credit risk on the sale of the module to the OEM.
To date, revenues and cost of sales on our module contracts have been reported on a gross basis.
Acquisitions
We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess
of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill. When determining the
fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with
respect to intangible assets.
Our purchase price allocation methodology contains uncertainties because it requires management to make assumptions and to
apply judgment to estimate the fair value of acquired assets and assumed liabilities. Management estimates the fair value of assets
and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques,
including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could
affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.
Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and
actual results could vary.
Impairment of Goodwill and Other Long-lived Assets
We review goodwill at the reporting unit level for impairment annually or more frequently if events or changes in circumstances
indicate that goodwill might be impaired. We perform a two step goodwill impairment test in conjunction with our annual business
plan during the fourth quarter of each year. In step one, the fair value of a reporting unit is compared to its carrying value. If the fair
value is greater than its carrying amount, goodwill is not considered to be impaired and the second step is not required. However,
if the fair value of the reporting unit is less than its carrying amount, the second step must be performed to measure the amount
of the impairment loss, if any. The second step requires a reporting unit to compare its implied fair value of goodwill to its carrying
amount. If the carrying amount of goodwill exceeds its implied fair value, the reporting unit would recognize an impairment loss for
that excess.
We evaluate fixed assets and other long-lived assets for impairment whenever indicators of impairment exist. Indicators of
impairment include the bankruptcy of a significant customer or the early termination, loss, renegotiation of the terms of, or delay in
the implementation of, any significant production contract. If the sum of the future cash flows expected to result from the asset,
undiscounted and without interest charges, is less than the reported value of the asset, an asset impairment would be recognized in
the consolidated financial statements. The amount of impairment to be recognized is calculated by subtracting the fair value of the
asset from the reported value of the asset.
We believe that accounting estimates related to goodwill and long-lived asset impairment assessments are "critical accounting
estimates" because: (i) they are subject to significant measurement uncertainty and are susceptible to change as management is
required to make forward-looking assumptions regarding the impact of improvement plans on current operations, in-sourcing and
other new business opportunities, program pricing and cost assumptions on current and future business, the timing of new program
launches and future forecasted production volumes; and (ii) any resulting impairment loss could have a material impact on our
consolidated net income and on the amount of assets reported in our consolidated balance sheet.
2015 Annual Report – MD&A
20
Warranty
We record product warranty liabilities based on individual customer agreements. Under most customer agreements, we only
account for existing or probable claims on product default issues when amounts related to such issues are probable and reasonably
estimable. Under certain complete vehicle engineering and assembly contracts, we record an estimate of future warranty-related
costs based on the terms of the specific customer agreements and the specific customers' warranty experience.
Product liability provisions are established based on our best estimate of the amounts necessary to settle existing claims on product
default issues. Recall costs are costs incurred when government regulators and/or our customers decide to recall a product due to
a known or suspected performance issue, and we are required to participate either voluntarily or involuntarily. Costs typically include
the cost of the product being replaced, the customer's cost of the recall and labour to remove and replace the defective part. When a
decision to recall a product has been made or is probable, our estimated cost of the recall is recorded as a charge to income in that
period. In making this estimate, judgment is required as to the number of units that may be returned as a result of the recall, the total
cost of the recall campaign, the ultimate negotiated sharing of the cost between us, the customer and, in some cases a supplier.
We monitor our warranty activity on an ongoing basis and adjust our reserve estimates when it is probable that future warranty costs
will be different than those estimates.
Deferred Tax Assets
At December 31, 2015, we had recorded deferred tax assets (net of related valuation allowances) in respect of loss carryforwards
and other deductible temporary differences of $52 million and $355 million, respectively. The deferred tax assets in respect of loss
carryforwards relate primarily to operations in Germany, Canada, Mexico and the United States.
On a quarterly basis, we evaluate the realizability of deferred tax assets by assessing our valuation allowances and by adjusting the
amount of such allowances as necessary. We use tax planning strategies to realize deferred tax assets to avoid the potential loss
of benefits.
Accounting standards require that we assess whether valuation allowances should be established or maintained against our deferred
income tax assets, based on consideration of all available evidence, using a "more-likely-than-not" standard. The factors used to
assess the likelihood of realization are: history of losses, forecasts of future pre-tax income and tax planning strategies that could be
implemented to realize the deferred tax assets.
At December 31, 2015, we had domestic and foreign operating loss carryforwards of $1.9 billion and tax credit carryforwards of $24 million,
which relate primarily to operations in Germany, the United States, Austria, Spain, China, Brazil, and India. Approximately $1.2 billion of
the operating losses can be carried forward indefinitely. The remaining operating losses and tax credit carryforwards expire between
2016 and 2035.
For the year ended December 31, 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses,
where the foreign subsidiary is not a member of the European Union. Furthermore, any foreign losses used by Austrian entities
arising in those non European Union subsidiaries are subject to recapture in Austria. As a consequence of this change, we have
taken a charge to income tax expense of $32 million.
Employee Future Benefit Plans
The determination of the obligation and expense for defined benefit pension, termination and long service arrangements and other
post retirement benefits, such as retiree healthcare and medical benefits, is dependent on the selection of certain assumptions
used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term
rate of return on plan assets and rates of increase in compensation costs. Actual results that differ from the assumptions used are
accumulated and amortized over future periods and therefore impact the recognized expense in future periods. Significant changes
in assumptions or significant plan amendments could materially affect our future employee benefit obligations and future expense.
At December 31, 2015, we had past service costs and actuarial experience losses of $195 million included in accumulated other
comprehensive income that will be amortized to future employee benefit expense over the expected average remaining service life
of employees or over the expected average life expectancy of retired employees, depending on the status of the plan.
FUTURE CHANGES IN ACCOUNTING POLICIES
Refer to Note 2. Accounting Standards to the audited consolidated financial statements included in this report for the impact of
recently issued accounting pronouncements.
21
MAGNA INTERNATIONAL INC.
SUBSEQUENT EVENT
Acquisition of Getrag
In the third quarter of 2015, we signed an agreement to acquire 100% of the common shares and voting interest of Getrag. Getrag
is a global supplier of automotive transmission systems including manual, automated-manual, dual clutch, hybrid and other advanced
systems. The transaction was completed on January 4, 2016.
The total consideration transferred by Magna was approximately €1.75 billion in cash, and is subject to working capital and other
customary purchase price adjustments. The acquisition of Getrag will be accounted for as a business combination under the
acquisition method of accounting. We will record the assets acquired and liabilities assumed at their fair values as of the acquisition
date. Due to the limited amount of time since the acquisition date, the preliminary acquisition valuation for the business combination
is incomplete at this time. As a result, we are unable to provide the amounts recognized as of the acquisition date for the major
classes of assets acquired and liabilities assumed, including the information required for valuation of intangible assets and goodwill.
COMMITMENTS AND CONTINGENCIES
From time to time, we may be contingently liable for litigation, legal and/or regulatory actions and proceedings and other claims.
Refer to note 18 of our unaudited interim consolidated financial statements for the three months and year ended December 31, 2015,
which describes these claims.
For a discussion of risk factors relating to legal and other claims/actions against us, refer to "Item 3. Description of the Business – Risk
Factors" in our Annual Information Form and Annual Report on Form 40-F, each in respect of the year ended December 31, 2014.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable, but not absolute, assurance that material information
required to be publicly disclosed by a public company is communicated in a timely manner to senior management to enable them to
make timely decisions regarding public disclosure of such information. We have conducted an evaluation of our disclosure controls
and procedures as of December 31, 2015 under the supervision, and with the participation of, our Chief Executive Officer and our
Chief Financial Officer. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures (as this term is defined in the rules adopted by Canadian securities regulatory authorities and
the United States Securities and Exchange Commission) are effective in providing reasonable assurance that material information
relating to Magna is made known to them and information required to be disclosed by us is recorded, processed, summarized and
reported within the time periods specified under applicable law.
Management's Annual Report on Internal Control over Financial Reporting
Internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the
reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely
basis. Additionally, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Our management used the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) Internal Control-Integrated Framework (2013) to evaluate the effectiveness of internal control over financial
reporting. Our Chief Executive Officer and our Chief Financial Officer have assessed the effectiveness of our internal control over
financial reporting and concluded that, as at December 31, 2015, such internal control over financial reporting is effective and that
there were no material weaknesses. Our independent auditor, Deloitte LLP, has also issued a report on our internal controls. This report
precedes our audited consolidated financial statements for the year ended December 31, 2015.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during 2015 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
RESULTS OF OPERATIONS – FOR THE THREE MONTHS ENDED DECEMBER 31, 2015
The discussion of our results of operations for the three months ended December 31, 2015 contained in the MD&A attached to our
press release dated February 26, 2016, as filed via the Canadian Securities Administrators' System for Electronic Document Analysis
and Retrieval (SEDAR) (www.sedar.com), is incorporated by reference herein.
2015 Annual Report – MD&A
22
SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data has been prepared in accordance with U.S. GAAP.
Sales
Net income
Basic earnings per Common Share (restated)
Continuing operations
Attributable to Magna International Inc.
Diluted earnings per Common Share (restated)
Continuing operations
Attributable to Magna International Inc.
Sales
Net income
Basic earnings per Common Share (restated)
Continuing operations
Attributable to Magna International Inc.
Diluted earnings per Common Share (restated)
Continuing operations
Attributable to Magna International Inc.
For the three month periods ended
Mar 31,
2015
Jun 30,
2015
Sep 30,
2015
Dec 31,
2015
$ 7,772
$ 8,133
$ 7,661
$ 8,568
$
464
$
480
$
588
$
475
$
$
$
$
1.11
1.14
1.10
1.12
$
$
$
$
1.31
1.18
1.29
1.16
$
$
$
$
1.15
1.44
1.13
1.42
$
$
$
$
1.20
1.18
1.19
1.17
For the three month periods ended
Mar 31,
2014
Jun 30,
2014
Sep 30,
2014
Dec 31,
2014
$ 8,455
$ 8,911
$ 8,247
$ 8,790
$
392
$
510
$
469
$
509
$
$
$
$
0.91
0.89
0.90
0.88
$
$
$
$
1.20
1.18
1.18
1.16
$
$
$
$
1.15
1.11
1.14
1.10
$
$
$
$
1.25
1.23
1.23
1.22
The third quarter of the year is generally affected by the normal seasonal effects of lower vehicle production volumes as a result of
OEM summer shutdowns.
Included in the quarterly net income attributable to Magna International Inc. are the following other (income) expense, net items that
have been discussed above:
Restructuring
Gain on disposal
For the three month periods ended
Mar 31,
2015
Jun 30,
2015
Sep 30,
2015
$
$
–
–
–
$
$
–
(57)
(57)
$
$
12
(136)
(124)
Dec 31,
2015
$
$
15
–
15
For the three month periods ended
Mar 31,
2014
Jun 30,
2014
Sep 30,
2014
Dec 31,
2014
Restructuring
$
22
$
11
$
7
$
6
For more information regarding our quarter over quarter results, please refer to our first, second and third quarter 2015 quarterly
reports which are available through the internet on the Canadian Securities Administrators' System for Electronic Document Analysis
and Retrieval (SEDAR) which can be accessed at www.sedar.com.
23
MAGNA INTERNATIONAL INC.
FORWARD-LOOKING STATEMENTS
The previous discussion contains statements that constitute "forward-looking statements" or "forward-looking information" within
the meaning of applicable securities legislation, including, but not limited to, statements relating to: the expected growth of the
powertrain product segment; and continued implementation of our capital structure strategy, including investments in our business
through capital expenditures and acquisitions, and returns of capital to our shareholders through dividends and share repurchases.
The forward-looking statements or forward-looking information in this press release is presented for the purpose of providing
information about management's current expectations and plans and such information may not be appropriate for other purposes.
Forward-looking statements or forward-looking information may include financial and other projections, as well as statements
regarding our future plans, objectives or economic performance, or the assumptions underlying any of the foregoing, and other
statements that are not recitations of historical fact. We use words such as "may", "would", "could", "should", "will", "likely", "expect",
"anticipate", "believe", "intend", "plan", "forecast", "outlook", "project", "estimate" and similar expressions suggesting future outcomes
or events to identify forward-looking statements or forward-looking information. Any such forward-looking statements or forward-
looking information are based on information currently available to us, and are based on assumptions and analyses made by us in
light of our experience and our perception of historical trends, current conditions and expected future developments, as well as
other factors we believe are appropriate in the circumstances. However, whether actual results and developments will conform
with our expectations and predictions is subject to a number of risks, assumptions and uncertainties, many of which are beyond
our control, and the effects of which can be difficult to predict, including, without limitation: the potential for a deterioration of
economic conditions or an extended period of economic uncertainty; declines in consumer confidence and the impact on production
volume levels; fluctuations in relative currency values; continuing global or regional economic uncertainty; restructuring, downsizing
and/or other significant non-recurring costs; underperformance of one or more of our operating divisions; ongoing pricing pressures,
including our ability to offset price concessions demanded by our customers; our ability to successfully launch material new or
takeover business; our ability to successfully identify, complete and integrate acquisitions or achieve anticipated synergies; our
ability to conduct appropriate due diligence on acquisition targets; an increase in our risk profile as a result of completed acquisitions;
shifts in market share away from our top customers; shifts in market shares among vehicles or vehicle segments, or shifts away
from vehicles on which we have significant content; inability to sustain or grow our business; risks of conducting business in foreign
markets, including China, India, Eastern Europe, Brazil and other non-traditional markets for us; a prolonged disruption in the supply
of components to us from our suppliers; work stoppages and labour relations disputes; scheduled shutdowns of our customers'
production facilities (typically in the third and fourth quarters of each calendar year); our ability to successfully compete with other
automotive suppliers; a reduction in outsourcing by our customers or the loss of a material production or assembly program; the
termination or non-renewal by our customers of any material production purchase order; our ability to consistently develop innovative
products or processes; exposure to, and ability to offset, volatile commodities prices; warranty and recall costs; restructuring
actions by OEMs, including plant closures; shutdown of our or our customers' or sub-suppliers' production facilities due to a labour
disruption; risk of production disruptions due to natural disasters or catastrophic event; the security and reliability of our information
technology systems; pension liabilities; legal claims and/or regulatory actions against us; changes in our mix of earnings between
jurisdictions with lower tax rates and those with higher tax rates, as well as our ability to fully benefit tax losses; impairment charges
related to goodwill, long-lived assets and deferred tax assets; other potential tax exposures; changes in credit ratings assigned to us;
changes in laws and governmental regulations; costs associated with compliance with environmental laws and regulations; liquidity
risks; inability to achieve future investment returns that equal or exceed past returns; the unpredictability of, and fluctuation in, the
trading price of our Common Shares; and other factors set out in our Annual Information Form filed with securities commissions
in Canada and our annual report on Form 40-F filed with the United States Securities and Exchange Commission, and subsequent
filings. In evaluating forward-looking statements or forward-looking information, we caution readers not to place undue reliance on
any forward-looking statements or forward-looking information, and readers should specifically consider the various factors which
could cause actual events or results to differ materially from those indicated by such forward-looking statements or forward-looking
information. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to
update or revise any forward-looking statements or forward-looking information to reflect subsequent information, events, results
or circumstances or otherwise.
2015 Annual Report – MD&A
24
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Magna International Inc.
We have audited the accompanying consolidated balance sheets of Magna International Inc. and subsidiaries (the "Company") as of
December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity and
cash flows for the years ended December 31, 2015 and 2014. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Magna
International Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for
the years ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of December 31, 2015 based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 3, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.
Chartered Professional Accountants
Licensed Public Accountants
March 3, 2016
25
MAGNA INTERNATIONAL INC.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Magna International Inc.
We have audited the internal control over financial reporting of Magna International Inc. and subsidiaries (the "Company") as of
December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. The Company's 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 Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company's 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 company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's 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 company's 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 company's assets that could have a material effect on the consolidated financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject
to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements, as of and for the year ended December 31, 2015 of the Company and our report dated March 3,
2016 expressed an unqualified opinion on those financial statements.
Chartered Professional Accountants
Licensed Public Accountants
March 3, 2016
2015 Annual Report – Financial Statements
26
MAGNA INTERNATIONAL INC.
Consolidated Statements of Income
[U.S. dollars in millions, except per share figures]
Years ended December 31,
Sales
Costs and expenses
Cost of goods sold
Depreciation and amortization
Selling, general and administrative
Interest expense, net
Equity income
Other (income) expense, net
Income from continuing operations before income taxes
Income taxes
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Loss from continuing operations attributable to non-controlling interests
Net income attributable to Magna International Inc.
Basic Earnings per Common Share [restated – note 3]:
Continuing operations
Discontinued operations
Attributable to Magna International Inc.
Diluted Earnings per Common Share [restated – note 3]:
Continuing operations
Discontinued operations
Attributable to Magna International Inc.
Weighted average number of Common Shares outstanding during the year
[in millions] [restated – note 3]:
Basic
Diluted
See accompanying notes
Note
2015
2014
$ 32,134
$ 34,403
10, 20
17
5
13
4
6
6
6
27,559
802
1,448
44
(204)
(166)
2,651
711
1,940
67
2,007
6
$ 2,013
$
$
$
$
4.78
0.16
4.94
4.72
0.16
4.88
29,468
845
1,612
30
(203)
46
2,605
683
1,922
(42)
1,880
2
$ 1,882
$
$
$
$
4.50
(0.09)
4.41
4.44
(0.10)
4.34
407.5
412.7
427.1
433.2
27
MAGNA INTERNATIONAL INC.
MAGNA INTERNATIONAL INC.
Consolidated Statements of Comprehensive Income
[U.S. dollars in millions]
Years ended December 31,
Note
2015
2014
Net income
$ 2,007
$ 1,880
Other comprehensive loss, net of tax:
Net unrealized loss on translation of net investment in foreign operations
Net unrealized loss on cash flow hedges
Reclassification of net loss on cash flow hedges to net income
Reclassification of net loss on investments to net income
Reclassification of net loss on pensions to net income
Pension and post-retirement benefits
Other comprehensive loss
Comprehensive income
Comprehensive loss attributable to non-controlling interests
Comprehensive income attributable to Magna International Inc.
See accompanying notes
22
(800)
(244)
95
3
7
14
(925)
(681)
(103)
10
–
3
(72)
(843)
1,082
8
$ 1,090
1,037
2
1,039
$
2015 Annual Report – Financial Statements
28
MAGNA INTERNATIONAL INC.
Consolidated Statements of Cash Flows
[U.S. dollars in millions]
Years ended December 31,
OPERATING ACTIVITIES
Net income from continuing operations
Items not involving current cash flows
Changes in operating assets and liabilities
Cash provided from operating activities
INVESTMENT ACTIVITIES
Fixed asset additions
Purchase of subsidiaries
Increase in investments and other assets
Proceeds from disposition
Proceeds on disposal of facilities
Sale of Interiors
Cash used in discontinued operations
Cash used for investment activities
FINANCING ACTIVITIES
Issues of debt
Increase (decrease) in bank indebtedness
Repayments of debt
Issues of Common Shares on exercise of stock options
Repurchase of Common Shares
Contribution to subsidiaries by non-controlling interests
Dividends paid
Cash provided from (used for) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes
Note
2015
2014
7
7
8
5
4
4
17
17
21
$ 1,940
736
2,676
(344)
2,332
$ 1,922
1,102
3,024
(202)
2,822
(1,591)
(222)
(221)
61
221
520
(56)
(1,288)
1,608
25
(99)
35
(515)
41
(354)
741
(171)
(1,495)
(23)
(172)
164
–
–
(120)
(1,646)
860
(2)
(188)
49
(1,783)
–
(316)
(1,380)
(98)
1,614
1,249
$ 2,863
(302)
1,551
$ 1,249
29
MAGNA INTERNATIONAL INC.
MAGNA INTERNATIONAL INC.
Consolidated Balance Sheets
[U.S. dollars in millions, except per share figures]
As at December 31,
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Income taxes receivable
Prepaid expenses and other
Assets held for sale
Investments
Fixed assets, net
Goodwill
Deferred tax assets
Other assets
Non-current assets held for sale
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness
Accounts payable
Accrued salaries and wages
Other accrued liabilities
Income taxes payable
Long-term debt due within one year
Liabilities held for sale
Long-term debt
Long-term employee benefit liabilities
Other long-term liabilities
Deferred tax liabilities
Long-term liabilities held for sale
Shareholders' equity
Common Shares [issued: 402,264,201; 2014 – 410,325,270 [restated – note 3]]
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Non-controlling interests
Commitments and contingencies [notes 17, 23 and 24]
See accompanying notes
On behalf of the Board:
Note
2015
2014
7
9
4
10, 18, 23
11
8, 12
13
14, 18
4
17
15
16
17
4
17
18
19
13
4
21
21
22
$ 2,863
5,439
2,564
–
278
–
11,144
399
6,005
1,344
271
543
–
$ 19,706
$
25
4,746
660
1,512
122
211
–
7,276
2,346
504
331
132
–
10,589
3,942
107
6,387
(1,470)
8,966
$ 1,249
5,316
2,525
13
150
609
9,862
379
5,402
1,337
220
526
348
$ 18,074
$
30
4,765
686
1,448
–
183
514
7,626
812
559
278
92
34
9,401
3,979
83
5,155
(558)
8,659
151
9,117
$ 19,706
14
8,673
$ 18,074
2015 Annual Report – Financial Statements
30
Lawrence D. Worrall
Director
William L. Young
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
Number
[in millions]
Stated
Value
Contri-
buted
Surplus
Retained
Earnings
AOCL [i]
Non-
controlling
Interests
Total
Equity
Balance, December 31, 2013
442.3
$
4,230
$
69
$
5,011
$
313
$
16
$
9,639
Net income
Other comprehensive loss
Shares issued on exercise of stock options
Release of restricted stock
Release of restricted stock units
Repurchase and cancellation under
normal course issuer bids [note 21]
Stock-based compensation expense [note 20]
Reclassification of liability [note 20]
Dividends paid [$0.76 per share]
Balance, December 31, 2014
Net income
Other comprehensive loss
Shares issued on exercise of stock options
Release of restricted stock
Release of restricted stock units
Repurchase and cancellation under
normal course issuer bids [note 21]
Contribution by non-controlling interests [note 8]
Purchase of non-controlling interests
Acquisition [note 8]
Stock-based compensation expense [note 20]
Dividends paid [$0.88 per share]
Balance, December 31, 2015
2.6
63
5
14
(34.8)
(342)
0.2
410.3
9
3,979
2.4
45
5
12
(10.6)
(108)
1,882
(2)
(843)
(1,413)
(28)
(325)
5,155
2,013
(558)
(923)
(418)
11
14
(6)
(2)
29
116
(12)
(5)
(14)
38
7
83
(10)
(5)
(12)
17
(2)
36
0.2
402.3
9
3,942
$
$
107
$
(363)
6,387
$
(1,470)
$
151
$
1,880
(843)
51
–
–
(1,783)
38
7
(316)
8,673
2,007
(925)
35
–
–
(515)
46
(2)
116
36
(354)
9,117
[i] AOCL is Accumulated Other Comprehensive Loss.
See accompanying notes
31
MAGNA INTERNATIONAL INC.
MAGNA INTERNATIONAL INC.
Notes to Consolidated Financial Statements
[All amounts in U.S. dollars and all tabular amounts in millions, except per share figures, unless otherwise noted]
1.
SIGNIFICANT ACCOUNTING POLICIES
Magna International Inc. [collectively "Magna" or the "Company"] is a global automotive supplier whose product capabilities
include producing body, chassis, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as
well as complete vehicle engineering and contract manufacturing.
The consolidated financial statements have been prepared in U.S. dollars following accounting principles generally accepted
in the United States ["GAAP"].
Principles of consolidation
The Consolidated Financial Statements include the accounts of Magna and its subsidiaries in which Magna has a controlling
financial interest or is the primary beneficiary. Magna accounts for investments in companies over which it has the ability to
exercise significant influence but does not hold a controlling interest under the equity method, and records its proportionate
share of income or losses in Equity income in the Consolidated Statements of Income. The Company presents non-
controlling interests as a separate component within Shareholder's equity in the Consolidated Balance Sheets.
Retrospective changes
In connection with the adoption of Accounting Standards Update ("ASU") 2015-17, as defined and further described in
Note 2, prior year amounts related to deferred taxes have been reclassified in the consolidated balance sheet. Prior
period information has also been reclassified to present the interiors operations as discontinued operations for all periods
presented. Refer to Note 4 Discontinued Operations for further information. Additionally, in March 2015 the Company
completed a two-for-one stock split. All equity-based compensation plans or arrangements, earnings per Common Share,
Cash dividends paid per Common Share, the weighted average exercise price for stock options and the weighted average
fair value of options granted, have been restated for all periods presented to reflect the stock split. Refer to Note 3 Stock
Split for more information.
Financial instruments
The Company classifies all of its financial assets and financial liabilities as trading, held-to-maturity investments, loans
and receivables, available-for-sale financial assets, or other financial liabilities. Held-for-trading financial instruments,
which include cash and cash equivalents and the Company's 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 Company's 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 Company's 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 Company's net investment in these operations are also recorded
in accumulated other comprehensive income.
2015 Annual Report – Financial Statements
32
Foreign exchange gains and losses on transactions occurring in a currency other than an operation's 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 Company's future
committed foreign currency based outflows and inflows. Most of the Company's 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 Company's foreign exchange forward contracts cease to be effective as hedges, for example, if projected foreign
cash inflows or outflows declined significantly, gains or losses pertaining to the portion of the hedging transactions in
excess of projected foreign currency denominated cash flows would be recognized in income at the time this condition
was identified.
Cash and cash equivalents
Cash and cash equivalents include cash on account, demand deposits and short-term investments with remaining maturities
of less than three months at acquisition.
Inventories
Production inventories and tooling inventories manufactured in-house are valued at the lower of cost and market, with cost
being determined substantially on a first-in, first-out basis. Cost includes the cost of materials plus direct labour applied to
the product and the applicable share of manufacturing overhead.
Outsourced tooling inventories are valued at the lower of subcontracted costs and market.
Long-lived assets
Fixed assets are recorded at historical cost. Depreciation is provided on a straight-line basis over the estimated useful lives
of fixed assets at annual rates of 2½% to 5% for buildings, 7% to 10% for general purpose equipment and 10% to 33%
for special purpose equipment.
Definite-lived intangible assets, which have arisen principally through acquisitions and include customer relationship
intangibles and patents and licences, are recorded in other assets and are amortized on a straight-line basis over their
estimated useful lives, typically over periods not exceeding five years.
The Company assesses fixed and definite-lived intangible assets for recoverability whenever indicators of impairment
exist. If the carrying value of the asset exceeds the estimated undiscounted cash flows from the use of the asset, then
an impairment loss is recognized to write the asset down to fair value. The fair value of fixed and definite-lived intangible
assets is generally determined using estimated discounted future cash flows.
Goodwill
Goodwill represents the excess of the cost of an acquired enterprise over the fair value of the identifiable assets
acquired and liabilities assumed less any subsequent writedowns for impairment. Goodwill is reviewed for impairment on
December 31 of each year. Goodwill impairment is evaluated between annual tests upon the occurrence of certain events
or circumstances. Goodwill impairment is assessed based on a comparison of the fair value of a reporting unit to the
underlying carrying value of the reporting unit's net assets, including goodwill. When the carrying amount of the reporting
unit exceeds its fair value, the fair value of the reporting unit's 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.
33
MAGNA INTERNATIONAL INC.
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 customer's warranty experience.
Product liability provisions are established based on the Company's 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 customer's 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 Company's 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 management's best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and, with respect to medical benefits, expected health
care costs. Differences arising from plan amendments, changes in assumptions and experience gains and losses that are
greater than 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair value, or market
related value, of plan assets at the beginning of the year, are recognized in income over the expected average remaining
service life of employees. Gains related to plan curtailments are recognized when the event giving rise to the curtailment
has occurred. Plan assets are valued at fair value. The cost of providing benefits through defined contribution pension plans
is charged to income in the period in respect of which contributions become payable.
The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit
obligation ["PBO"]. The aggregate of all overfunded plans is recorded in other assets, and the aggregate of all underfunded
plans in long-term employee benefit liabilities. The portion of the amount by which the actuarial present value of benefits
included in the PBO exceeds the fair value of plan assets, payable in the next twelve months, is reflected in other accrued
liabilities. This is determined on a plan by plan basis.
Asset retirement obligation
The Company recognizes its obligation to restore leased premises at the end of the lease by recording at lease inception
the estimated fair value of this obligation as other long-term liabilities with a corresponding amount recognized as fixed
assets. The fixed asset amount is amortized over the period from lease inception to the time the Company expects to
vacate the premises, resulting in both depreciation and interest charges. The estimated fair value of the obligation is
assessed for changes in the expected timing and extent of expenditures with changes related to the time value of money
recorded as interest expense.
2015 Annual Report – Financial Statements
34
Revenue recognition
Revenue from the sale of manufactured products is recognized when the price is fixed or determinable, collectability is
reasonably assured and upon shipment to [or receipt by customers, depending on contractual terms], and acceptance by
customers.
Revenue from tooling and engineering services are accounted for as a separate revenue element only in circumstances
where the tooling and engineering has value to the customer on a standalone basis. Revenues from significant engineering
services and tooling contracts that qualify as separate revenue elements are recognized on a percentage-of-completion-basis.
Percentage-of-completion is generally determined based on the proportion of accumulated expenditures to date as
compared to total anticipated expenditures.
Revenue and cost of goods sold, including amounts from engineering and tooling contracts, are presented on a gross
basis in the consolidated statements of income and comprehensive income when the Company is acting as principal and
is subject to significant risks and rewards in connection with the process of bringing the product to its final state and in the
post-sale dealings with its customers. Otherwise, components of revenues and related costs are presented on a net basis.
With respect to vehicle assembly sales, given that Magna is acting as principal with respect to purchased components and
systems, the selling price to the customer includes the costs of such inputs.
Government assistance
The Company makes periodic applications for financial assistance under available government assistance programs in
the various jurisdictions that the Company operates. Grants relating to capital expenditures are reflected as a reduction of
the cost of the related assets. Grants relating to current operating expenditures are generally recorded as a reduction of
the related expense at the time the eligible expenses are incurred. The Company also receives tax credits and tax super
allowances, the benefits of which are recorded as a reduction of income tax expense. In addition, the Company receives
loans which are recorded as liabilities in amounts equal to the cash received. When a government loan is issued to the
Company at a below-market rate of interest, the loan is initially recorded at its net present value, and accreted to its face
value over the period of the loan. The benefit of the below-market rate of interest is accounted for like a government grant.
It is measured as the difference between the initial carrying value of the loan and the cash proceeds received.
Income taxes
The Company uses the liability method of tax allocation to account for income taxes. Under the liability method of tax
allocation, deferred tax assets and liabilities are determined based on differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
No deferred tax liability is recorded for taxes on undistributed earnings and translation adjustments of foreign subsidiaries
if these items are either considered to be reinvested for the foreseeable future or if they are available for repatriation and
are not subject to further tax on remittance. Taxes are recorded on such foreign undistributed earnings and translation
adjustments when it becomes apparent that such earnings will be distributed in the foreseeable future and the Company
will incur further significant tax on remittance.
Recognition of uncertain tax positions is dependent on whether it is more-likely-than-not that a tax position taken or
expected to be taken in a tax return will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. If a tax position meets the more-likely-than-not recognition
threshold, it is measured to determine the amount of benefit to recognize in the consolidated financial statements. The
Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Stock-based compensation
Compensation expense is recognized for stock options based upon the fair value of the options at the grant or modification
date. The fair value of the options is recognized over the vesting period of the options as compensation expense in selling,
general and administrative expense with a corresponding increase to contributed surplus.
The fair value of stock options is estimated at the grant or modification date using the Black-Scholes option pricing model.
This model requires the input of a number of assumptions, including expected dividend yields, expected stock price
volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect management's
best estimates, they involve inherent uncertainties based on market conditions generally outside the Company's 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.
35
MAGNA INTERNATIONAL INC.
The Company's 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 Company's foreign operations that
use the local currency as the functional currency, the change in fair value of available-for-sale investments, net of taxes, the
change in unamortized actuarial amounts, net of taxes and to the extent that cash flow hedges are effective, the change in
their fair value, net of income taxes.
Accumulated other comprehensive income is a separate component of shareholders' equity which includes the accumulated
balances of all components of other comprehensive income which are recognized in comprehensive income but excluded
from net income.
Earnings per Common Share
Basic earnings per Common Share are calculated on net income attributable to Magna International Inc. using the weighted
average number of Common Shares outstanding during the year.
Diluted earnings per Common Share are calculated on the weighted average number of Common Shares outstanding,
including an adjustment for stock options outstanding using the treasury stock method.
Common Shares that have not been released under the Company's restricted stock plan or are being held in trust for
purposes of the Company's restricted stock unit program have been excluded from the calculation of basic earnings per
share but have been included in the calculation of diluted earnings per share.
Discontinued operations
The Company reports financial results for discontinued operations separately from continuing operations to distinguish the
financial impact of disposal transactions from ongoing operations. Discontinued operations reporting only occurs when
the disposal of a component or a group of components of the Company represents a strategic shift that will have a major
impact on the Company's operations and financial results. In the third quarter of 2015, the Company sold substantially
all of its interiors operations. Accordingly, the assets and liabilities, operating results and operating cash flows for the
previously reported interiors operations are presented as discontinued operations separate from the Company's continuing
operations. Prior period financial information has been reclassified to present the interiors operations as a discontinued
operation, and has therefore been excluded from both continuing operations and segment results in these consolidated
financial statements and the notes to the consolidated financial statements, unless otherwise noted. Refer to Note 4
Discontinued Operations for further information regarding the Company's discontinued operations.
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
2.
ACCOUNTING STANDARDS
Accounting Changes
In November 2015, the Financial Accounting Standards Board ["FASB"] issued Accounting Standards Update ["ASU"] No.
2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes". This guidance requires entities to
classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. The guidance is
effective for interim and annual periods beginning after December 15, 2016, and may be applied either prospectively
to all deferred tax liabilities and assets or retrospectively to all periods presented. As permitted, the Company elected
to early adopt this guidance effective December 31, 2015, and has applied the guidance retrospectively. Accordingly,
current deferred tax assets, current deferred tax liabilities and long-term deferred tax liabilities have been reduced by $181
million, $21 million and $79 million respectively, and long-term deferred tax assets has increased by $81 million in the
accompanying consolidated balance sheet as at December 31, 2014.
2015 Annual Report – Financial Statements
36
Future Accounting Standards
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs". This guidance requires debt issuance costs to be recorded as a direct reduction of
the debt liability on the balance sheet rather than as an asset. The provisions of this update are effective as of January 1,
2016, and are not expected to have a significant impact on the Company.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers: Topic 606 (ASU 2014-09)", to
supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration
that is expected to be received for those goods or services. ASU 2014-09 is effective for the Company in the first quarter
of fiscal 2017 using either of two methods: [i] retrospective to each prior reporting period presented with the option to
elect certain practical expedients as defined within ASU 2014-09; or [ii] retrospective with the cumulative effect of initially
applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per
ASU 2014-09. The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated
financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases: Topic 842 (ASU 2016-02)", to supersede nearly all existing
lease guidance under GAAP. The guidance would require lessees to recognize most leases on their balance sheets as
lease liabilities with corresponding right-of-use assets. ASU 2016-02 is effective for the Company in the first quarter of
fiscal 2019 using a modified retrospective approach with the option to elect certain practical expedients. Early adoption
is permitted. The Company is currently evaluating the impact of its pending adoption of ASU 2016-02 on its consolidated
financial statements.
3.
STOCK SPLIT
On March 25, 2015, the Company completed a two-for-one stock split, which was implemented by way of a stock dividend,
whereby shareholders received an additional Common Share for each Common Share held. All equity-based compensation
plans or arrangements were adjusted to reflect the issuance of additional Common Shares.
Accordingly, all of the Company's issued and outstanding Common Shares, incentive stock options, and restricted and
deferred stock units have been restated for all periods presented to reflect the stock split. In addition, earnings per Common
Share, Cash dividends paid per Common Share, weighted average exercise price for stock options and the weighted
average fair value of options granted have been restated for all periods presented to reflect the stock split.
4.
DISCONTINUED OPERATIONS
On August 31, 2015, the Company sold substantially all of its interiors operations ["the interiors operations"]. The Company
recognized a gain on the divestiture within income from discontinued operations as follows:
Proceeds on disposal, net of transaction costs
Net assets disposed
Pretax gain on divestiture
Income taxes
Gain on divestiture, net of tax
$
$
549
438
111
66
45
37
MAGNA INTERNATIONAL INC.
The following table summarizes the carrying value of the major classes of assets and liabilities of the discontinued
operations which were reflected as held for sale in the consolidated balance sheet at December 31, 2014:
Cash and cash equivalents
Accounts receivable
Inventories
Income taxes receivable
Prepaid expenses and other
Deferred tax assets
Fixed assets, net
Goodwill
Investments
Other assets
Total assets of the discontinued operations classified as held for sale
Bank indebtedness
Accounts payable
Accrued salaries and wages
Other accrued liabilities
Long-term debt due within one year
Long-term employee benefit liabilities
Other long-term liabilities
Deferred tax liabilities
Total liabilities of the discontinued operations classified as held for sale
$
$
$
$
4
355
232
3
10
12
263
12
40
26
957
3
376
44
91
1
20
12
1
548
A reconciliation of the major classes of line items constituting income (loss) from discontinued operations, net of tax as
presented in the statements of income is as follows:
Sales
Costs and expenses
Cost of goods sold
Depreciation and amortization
Selling, general and administrative
Equity income
Other expense
Income (loss) from discontinued operations before income taxes and gain on divestiture
Income taxes
Income (loss) from discontinued operations before gain on divestiture
Gain on divestiture of discontinued operations, net of tax
Income (loss) from discontinued operations, net of tax
2015
2014
$ 1,737
$ 2,394
1,635
13
58
(11)
–
42
20
22
45
67
2,310
45
95
(8)
18
(66)
(24)
(42)
–
(42)
$
$
The interiors operations were previously included within all of the Company's reporting segments except for Rest of World.
5.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net consists of significant items such as: restructuring charges generally related to significant
plant closures or consolidations; gains or losses on disposal of facilities; and other items not reflective of on-going operating
profit or loss. Other (income) expense, net consists of:
North America [a]
Gain on disposal of Bestop
Europe [b]
Restructuring charges
Gain on disposal of battery pack business
2015 Annual Report – Financial Statements
2015
2014
$
(136) $
–
27
(57)
(30)
$
(166) $
46
–
46
46
38
[a] North America
For the year ended December 31, 2015
During 2015, the Company entered into a joint venture arrangement for the manufacture and sale of roof and other
accessories for the Jeep market to original equipment manufacturers as well as aftermarket customers. The Company
contributed two manufacturing facilities and received a 49% interest in the newly formed joint venture and cash
proceeds of $118 million. Total consideration was valued at $160 million and as a result the Company recognized a gain
of $136 million [$80 million after tax]. The Company accounts for its ownership as an equity investment since Magna
has significant influence through its voting rights, but does not control the joint venture.
[b] Europe
For the year ended December 31, 2015
During 2015, the Company recorded net restructuring charges of $27 million [$27 million after tax] primarily in Germany
at its exterior systems and roof systems operations.
During 2015, the Company sold its battery pack business to Samsung SDI for gross proceeds of approximately $120
million, resulting in a gain of $57 million [$42 million after tax].
For the year ended December 31, 2014
During 2014, the Company recorded net restructuring charges of $46 million [$41 million after tax] in Europe at its
exterior systems operations.
6.
EARNINGS PER SHARE
Earnings per share are computed as follows [restated [note 3]]:
Income available to Common shareholders:
Net income from continuing operations
Loss from continuing operations attributable to non-controlling interests
Net income attributable to Magna International Inc. from continuing operations
Income (loss) from discontinued operations, net of tax
Net income attributable to Magna International Inc.
Weighted average shares outstanding:
Basic
Adjustments
Stock options and restricted stock [a]
Diluted
2015
2014
$ 1,940
6
1,946
67
$ 2,013
$ 1,922
2
1,924
(42)
$ 1,882
407.5
427.1
5.2
412.7
6.1
433.2
[a] Diluted earnings per Common Share exclude 0.9 million [2014 - 0.1 million] Common Shares issuable under the
Company's Incentive Stock Option Plan because these options were not "in-the-money".
Earnings per Common Share:
Basic:
Continuing operations
Discontinued operations
Attributable to Magna International Inc.
Diluted:
Continuing operations
Discontinued operations
Attributable to Magna International Inc.
$
$
$
$
4.78
0.16
4.94
4.72
0.16
4.88
$
$
$
$
4.50
(0.09)
4.41
4.44
(0.10)
4.34
39
MAGNA INTERNATIONAL INC.
7.
DETAILS OF CONSOLIDATED STATEMENTS OF CASH FLOWS
[a] Cash and cash equivalents consist of:
Bank term deposits, bankers' acceptances and government paper
Cash
[b]
Items not involving current cash flows:
Depreciation and amortization
Amortization of other assets included in cost of goods sold
Other non-cash charges
Deferred income taxes [note 13]
Equity income in excess of dividends received
Non-cash portion of Other (income) expense, net [note 5]
[c] Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable
Accrued salaries and wages
Other accrued liabilities
Income taxes payable
8.
BUSINESS COMBINATIONS
Acquisitions in the year ended December 31, 2015
2015
2014
$ 2,572
291
$ 2,863
$ 1,058
191
$ 1,249
2015
2014
802
110
44
(7)
(20)
(193)
736
$
845
132
35
113
(23)
–
$ 1,102
2015
2014
(410) $
(241)
13
139
43
72
40
(344) $
(760)
(275)
3
634
74
80
42
(202)
$
$
$
$
On December 10, 2015, the Company entered into a partnership agreement in China [the "Xingqiaorui Partnership"] with
Chongqing Xingqiaorui. Chongqing Xingqiaorui ["Xingqiaorui"] is a Tier one supplier of automotive body-in-white components
to Changan Ford. Under the terms of the arrangement, Xingqiaorui transferred a 53% controlling interest in its three China
manufacturing facilities and cash consideration of $36 million. In exchange, the Company transferred a 47% non-controlling
equity interest in its Chongqing manufacturing facility and cash consideration of $130 million to Xingqiaorui.
The acquisition of the 53% controlling interest in the China manufacturing facilities was accounted for as a business
combination, and the Company recorded the assets acquired and liabilities assumed at their acquisition date fair values. For the
partial sale of the Company's Chongqing manufacturing facility, no revaluation occurred since the Company maintained
its controlling interest. The difference between the cash consideration received and the amount allocated to the Non-
controlling interest resulted in a gain of $20 million [$17 million after tax], which was credited to contributed surplus.
On November 30, 2015, the Company acquired a 100% interest in Stadco Automotive Ltd. ["Stadco"] for total cash
consideration of $115 million. Stadco, based in the United Kingdom, is a supplier of steel and aluminum stampings as well
as vehicle assemblies primarily to Jaguar and Land Rover.
2015 Annual Report – Financial Statements
40
The net effect of the acquisitions on the Company's 2015 consolidated balance sheet is as follows:
Cash
Non-cash working capital
Fixed assets
Goodwill, net
Other assets
Long-term employee benefit liabilities
Other long-term liabilities
Deferred tax liabilities
Non-controlling interests
Consideration paid
Less: Cash acquired
Net cash outflow
Xingqiaorui
Partnership
$
$
23
(35)
164
107
10
–
(5)
(18)
(116)
130
(23)
107
Stadco
Other
Total
$
$
1
(3)
107
13
–
–
–
(3)
–
115
(1)
114
$
$
–
1
–
–
1
(1)
–
–
–
1
–
1
$
$
24
(37)
271
120
11
(1)
(5)
(21)
(116)
246
(24)
222
The Company's purchase price allocations are preliminary and subject to revision as additional information regarding the fair
value of assets and liabilities becomes available. Adjustments in the purchase price allocations may require an adjustment
to the amounts allocated to goodwill.
Acquisitions in the year ended December 31, 2014
In October 2014, the Company acquired Techform Group of Companies, an automotive supplier of hinges, door locking rods
and other closure products, which has operations in Canada, the United States and China, for cash consideration of $23
million.
The net effect of this acquisition on the Company's 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.
9.
INVENTORIES
Inventories consist of:
Raw materials and supplies
Work-in-process
Finished goods
Tooling and engineering
2015
2014
$
843
246
311
1,164
$ 2,564
$
846
233
338
1,108
$ 2,525
Tooling and engineering inventory represents costs incurred on tooling and engineering services contracts in excess of
billed and unbilled amounts included in accounts receivable.
41
MAGNA INTERNATIONAL INC.
10.
INVESTMENTS
The Company's net income includes the proportionate share of net income or loss of its equity method investees, including
the Company's 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 Company's 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
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Statements of Income
Sales
Cost of goods sold, expenses and income taxes
Net income
2015
2014
$
$
$
$
491
343
392
167
$
$
$
$
418
262
315
123
2015
2014
$ 1,726
1,522
204
$
$ 1,601
1,396
205
$
Sales to equity method investees were approximately $98 million and $116 million in 2015 and 2014, respectively.
11.
FIXED ASSETS
Fixed assets consist of:
Cost
Land
Buildings
Machinery and equipment
Accumulated depreciation
Buildings
Machinery and equipment
2015
2014
$
259
1,659
11,294
13,212
$
266
1,653
11,003
12,922
(590)
(6,617)
$ 6,005
(577)
(6,943)
$ 5,402
Included in the cost of fixed assets are construction in progress expenditures of $1.3 billion [2014 - $942 million] that have
not been depreciated.
2015 Annual Report – Financial Statements
42
12. GOODWILL
The following is a continuity of the Company's goodwill by segment:
Balance, December 31, 2013
Acquisitions [note 8]
Foreign exchange and other
Balance, December 31, 2014
Acquisitions [note 8]
Foreign exchange and other
Balance, December 31, 2015
13.
INCOME TAXES
North
America
Europe
Asia
Total
$
$
654
3
(24)
633
–
(43)
590
$
$
644
–
(67)
577
13
(65)
525
$
$
129
–
(2)
127
107
(5)
229
$ 1,427
3
(93)
1,337
120
(113)
$ 1,344
[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:
Canadian statutory income tax rate
Manufacturing and processing profits deduction
Foreign rate differentials
Losses not benefited
Utilization of losses previously not benefited
Earnings of equity accounted investees
Tax on repatriation of foreign earnings
Valuation allowance on deferred tax assets [i]
Austrian tax reform [ii]
Write-off of investment [iii]
Research and development tax credits
Reserve for uncertain tax positions
Others
Effective income tax rate
2015
2014
26.5%
(0.4)
0.8
1.1
(0.1)
(0.8)
2.1
–
–
(1.4)
(1.3)
(0.3)
0.6
26.8%
26.5%
(0.4)
0.5
1.2
(0.2)
(1.0)
0.7
(0.1)
1.2
–
(1.6)
(1.7)
1.1
26.2%
[i] GAAP requires that the Company assess whether valuation allowances should be established or maintained
against its deferred tax assets, based on consideration of all available evidence, using a "more-likely-than-not"
standard. The factors the Company uses to assess the likelihood of realization are its history of losses, forecasts
of future pre-tax income and tax planning strategies that could be implemented to realize the deferred tax assets.
[ii] During 2014, the Austrian government enacted legislation abolishing the utilization of foreign losses, where the
foreign subsidiary is not a member of the European Union. Furthermore, any foreign losses previously used
by Austrian entities arising in those non-European Union subsidiaries are subject to recapture in Austria. As a
consequence of this change, the Company recorded a charge to income tax expense of $32 million ["Austrian tax
reform"].
[iii] During 2015, the Company recorded a benefit related to the write-off of historical tax basis in one of its South
American subsidiaries.
[b] The details of income before income taxes by jurisdiction are as follows:
Canadian
Foreign
2015
2014
$
590
2,061
$ 2,651
$
821
1,784
$ 2,605
43
MAGNA INTERNATIONAL INC.
[c] The details of the income tax provision are as follows:
Current
Canadian
Foreign
Deferred
Canadian
Foreign
2015
2014
$
$
$
140
578
718
14
(21)
(7)
711
$
196
374
570
1
112
113
683
[d] Deferred income taxes have been provided on temporary differences, which consist of the following:
Tax depreciation greater than book depreciation
Book amortization less than (in excess of) tax amortization
Liabilities currently not deductible for tax
Net tax losses (benefited) utilized
Change in valuation allowance on deferred tax assets
Austrian tax reform
Net tax credits utilized
Others
[e] Deferred tax assets and liabilities consist of the following temporary differences:
Assets
Tax benefit of loss carryforwards
Liabilities currently not deductible for tax
Tax credit carryforwards
Unrealized loss on cash flow hedges and retirement liabilities
Others
Valuation allowance against tax benefit of loss carryforwards
Other valuation allowance
Liabilities
Tax depreciation in excess of book depreciation
Tax on undistributed foreign earnings
Unrealized gain on cash flow hedges and retirement liabilities
2015
2014
$
$
12
7
–
(13)
(1)
–
–
(12)
$
(7) $
40
(25)
20
46
(3)
32
10
(7)
113
$
2015
2014
614
211
24
154
16
1,019
(562)
(50)
407
249
10
9
268
$
686
231
25
119
12
1,073
(637)
(80)
356
212
7
9
228
Net deferred tax assets
$
139
$
128
The net deferred tax assets are presented on the consolidated balance sheet in the following categories:
Long-term deferred tax assets
Long-term deferred tax liabilities
2015
2014
$
$
271
(132)
139
$
$
220
(92)
128
[f] The Company has provided for deferred income taxes for the estimated tax cost of distributable earnings of its
subsidiaries. Deferred income taxes have not been provided on approximately $3.90 billion of undistributed earnings
of certain foreign subsidiaries, as the Company has concluded that such earnings should not give rise to additional tax
liabilities upon repatriation or are indefinitely reinvested. A determination of the amount of the unrecognized tax liability
relating to the remittance of such undistributed earnings is not practicable.
2015 Annual Report – Financial Statements
44
[g]
Income taxes paid in cash [net of refunds] were $647 million for the year ended December 31, 2015 [2014 - $527 million].
[h] As of December 31, 2015, the Company had domestic and foreign operating loss carryforwards of $1.92 billion and
tax credit carryforwards of $24 million. Approximately $1.25 billion of the operating losses can be carried forward
indefinitely. The remaining operating losses and tax credit carryforwards expire between 2016 and 2035.
[i] As at December 31, 2015 and 2014, the Company's gross unrecognized tax benefits were $221 million and $202 million,
respectively [excluding interest and penalties], of which $158 million and $177 million, respectively, if recognized,
would affect the Company's effective tax rate. The gross unrecognized tax benefits differ from the amount that would
affect the Company's 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:
Balance, beginning of year
Increase based on tax positions related to current year
Increase (decrease) based on tax positions of prior years
Settlements
Statute expirations
Foreign currency translation
2015
2014
$
$
202
17
53
(15)
(20)
(16)
221
$
$
238
21
(23)
(8)
(10)
(16)
202
The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As
at December 31, 2015 and 2014, the Company had recorded interest and penalties on the unrecognized tax benefits
of $21 million and $24 million, respectively, which reflects recoveries related to changes in its reserves for interest and
penalties of $3 million and $18 million, respectively.
The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited
or subject to review by both domestic and foreign tax authorities. During the next twelve months, it is reasonably
possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute
of limitations in several jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits
[including interest and penalties] by approximately $50 million, of which $49 million, if recognized, would affect its
effective tax rate.
The Company considers its significant tax jurisdictions to include Canada, the United States, Austria, Germany and
Mexico. With few exceptions, the Company remains subject to income tax examination in Germany for years after
2007, in Austria for years after 2008, Mexico for years after 2009, and in Canada and the U.S. federal jurisdiction for
years after 2011.
14. OTHER ASSETS
Other assets consist of:
Preproduction costs related to long-term supply agreements
with contractual guarantee for reimbursement
Long-term receivables [note 23[c]]
Customer relationship intangibles [note 8]
Patents and licenses, net
Pension overfunded status [note 18[a]]
Unrealized gain on cash flow hedges [note 23]
Other, net
2015
2014
$
$
276
87
75
37
17
5
46
543
$
$
243
85
108
32
13
8
37
526
15.
EMPLOYEE EQUITY AND PROFIT PARTICIPATION PROGRAM
During the year ended December 31, 2015, a trust, which exists to make orderly purchases of the Company's shares for
employees for transfer to the Employee Equity and Profit Participation Program ["EEPPP"], borrowed up to $55 million
[2014 - $63 million] from the Company to facilitate the purchase of Common Shares. At December 31, 2015, the trust's
indebtedness to Magna was $5 million [2014 - $63 million]. The Company nets the receivable from the trust with the
Company's accrued EEPPP payable in accrued wages and salaries.
45
MAGNA INTERNATIONAL INC.
16. WARRANTY
The following is a continuity of the Company's warranty accruals:
Balance, beginning of year
Expense, net
Settlements
Foreign exchange and other
17. DEBT AND COMMITMENTS
2015
2014
$
$
80
26
(53)
6
59
$
$
81
46
(38)
(9)
80
[a] The Company's long-term debt, which is substantially uncollateralized, consists of the following:
Senior Notes [note 17 [c]]
$750 million Senior Notes due 2024 at 3.625%
$650 million Senior Notes due 2025 at 4.150%
€550 million Senior Notes due 2023 at 1.900%
Cdn$425 million Senior Notes due 2022 at 3.100%
Bank term debt at a weighted average interest rate of approximately 8.1%
[2014 – 8.2%], denominated primarily in Chinese renminbi and Brazilian real
Government loans at a weighted average interest rate of approximately 3.7%
[2014 – 5.5%], denominated primarily in euros and Brazilian real
Other
Less due within one year
[b] Future principal repayments on long-term debt are estimated to be as follows:
2016
2017
2018
2019
2020
Thereafter
2015
2014
$
750
650
597
307
202
9
42
2,557
211
$ 2,346
$
$
750
–
–
–
173
19
53
995
183
812
$
211
23
7
4
1
2,311
$ 2,557
[c] All of the Senior Notes pay a fixed rate of interest semi-annually except for the €550 million Senior Notes which pay a
fixed rate of interest annually. The Senior Notes are unsecured obligations and do not include any financial covenants.
The Company may redeem the Senior Notes in whole or in part at any time, at specified redemption prices determined
in accordance with the terms of each of the respective indentures governing the Senior Notes. All of the Senior Notes
were issued for general corporate purposes.
[d] On April 24, 2015, the Company's $2.25 billion revolving credit facility maturing June 20, 2019 was extended to June 22,
2020. The facility includes a $200 million Asian tranche, a $50 million Mexican tranche and a tranche for Canada, U.S.
and Europe, which is fully transferable between jurisdictions and can be drawn in U.S. dollars, Canadian dollars or
euros.
[e]
Interest expense, net includes:
Interest expense
Current
Long-term
Interest income
Interest expense, net
2015 Annual Report – Financial Statements
2015
2014
$
$
20
38
58
(14)
44
$
$
27
20
47
(17)
30
46
[f]
Interest paid in cash was $54 million for the year ended December 31, 2015 [2014 - $44 million].
[g] At December 31, 2015, the Company had commitments under operating leases requiring annual rental payments as
follows:
2016
2017
2018
2019
2020
Thereafter
Total
$
268
232
185
161
138
283
$ 1,267
For the year ended December 31, 2015, operating lease expense was $285 million [2014 - $319 million].
[h] The Company had agreements with its founder and certain affiliated entities for the provision of business development,
consulting and other business services which ended on December 31, 2014. The cost of these agreements was
measured at the exchange amount. The aggregate amount expensed under these agreements with respect to the year
ended December 31, 2014 was $57 million.
18.
LONG-TERM EMPLOYEE BENEFIT LIABILITIES
Long-term employee benefit liabilities consist of:
Defined benefit pension plans and other [a]
Termination and long service arrangements [b]
Retirement medical benefits plans [c]
Other long-term employee benefits
Long-term employee benefit obligations
[a] Defined benefit pension plans
2015
2014
$
$
181
287
30
6
504
$
$
199
313
39
8
559
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 Company's obligations and costs are
as follows:
Projected benefit obligation
Discount rate
Rate of compensation increase
Net periodic benefit cost
Discount rate
Rate of compensation increase
Expected return on plan assets
2015
2014
3.8%
2.5%
3.7%
2.7%
5.9%
3.7%
2.7%
4.7%
2.8%
6.0%
47
MAGNA INTERNATIONAL INC.
Information about the Company's defined benefit pension plans is as follows:
Projected benefit obligation
Beginning of year
Current service cost
Interest cost
Actuarial (gains) losses and changes in actuarial assumptions
Benefits paid
Acquisition
Foreign exchange
End of year
Plan assets at fair value [i]
Beginning of year
Return on plan assets
Employer contributions
Benefits paid
Foreign exchange
End of year
Ending funded status
Amounts recorded in the consolidated balance sheet
Non-current asset [note 14]
Current liability
Non-current liability
Net amount
Amounts recorded in accumulated other comprehensive loss
Unrecognized actuarial losses
Net periodic benefit cost
Current service cost
Interest cost
Return on plan assets
Actuarial losses
Net periodic benefit cost
$
2015
2014
$
536
12
18
(18)
(18)
1
(38)
493
347
7
19
(18)
(29)
326
450
13
20
93
(16)
–
(24)
536
328
25
24
(16)
(14)
347
$
167
$
189
$
(17) $
3
181
167
$
$
(13)
3
199
189
$
(138) $
(147)
$
$
12
18
(20)
4
14
$
$
13
20
(19)
1
15
[i] The asset allocation of the Company's defined benefit pension plans at December 31, 2015 and the target
allocation for 2016 is as follows:
Equity securities
Fixed income securities
Cash and cash equivalents
2016
2015
40-80%
30-50%
0-10%
100%
58%
41%
1%
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.
The expected rate of return on plan assets was determined by considering the Company's current investment mix, the
historic performance of these investment categories and expected future performance of these investment categories.
2015 Annual Report – Financial Statements
48
[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 Company's projected termination
and long service benefit obligations and net periodic benefit cost are as follows:
Discount rate
Rate of compensation increase
Information about the Company's termination and long service arrangements is as follows:
Projected benefit obligation
Beginning of year
Current service cost
Interest cost
Actuarial losses and changes in actuarial assumptions
Benefits paid
Divestiture
Foreign exchange
Ending funded status
Amounts recorded in the consolidated balance sheet
Current liability
Non-current liability
Net amount
Amounts recorded in accumulated other comprehensive loss
Unrecognized actuarial losses
Net periodic benefit cost
Current service cost
Interest cost
Actuarial losses
Net periodic benefit cost
[c] Retirement medical benefits plans
2015
3.1%
2.8%
2014
3.0%
2.7%
2015
2014
$
$
$
$
323
15
8
2
(12)
(4)
(37)
295
8
287
295
$
$
$
$
336
18
11
15
(17)
–
(40)
323
10
313
323
$
(69) $
(81)
$
$
15
8
18
41
$
$
20
11
16
47
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 Company's projected retirement medical benefit
obligations and net periodic benefit cost are as follows:
Retirement medical benefit obligations
Net periodic benefit cost
Health care cost inflation
2015
3.9%
3.7%
6.5%
2014
3.7%
4.5%
7.0%
49
MAGNA INTERNATIONAL INC.
Information about the Company's retirement medical benefits plans are as follows:
Projected benefit obligation
Beginning of year
Interest cost
Actuarial (gains) losses and changes in actuarial assumptions
Benefits paid
Foreign exchange
Ending funded status
Amounts recorded in the consolidated balance sheet
Current liability
Non-current liability
Net amount
Amounts recorded in accumulated other comprehensive loss
Unrecognized past service costs
Unrecognized actuarial gains
Total amounts included in other comprehensive loss
Net periodic benefit cost
Interest cost
Actuarial gains
Past service cost amortization
Net periodic benefit cost
2015
2014
$
$
$
$
$
$
$
$
41
1
(7)
(2)
(1)
32
2
30
32
1
11
12
2
–
(1)
1
$
$
$
$
$
$
$
$
36
2
5
(2)
–
41
2
39
41
2
4
6
2
(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 Company's income.
[d] Future benefit payments
Expected employer contributions - 2016
Expected benefit payments:
2016
2017
2018
2019
2020
Thereafter
Defined
benefit
pension plans
Termination
and long
service
arrangements
Retirement
medical
benefits plans
$
$
$
17
17
17
17
18
19
111
199
$
$
$
8
8
8
9
12
14
86
137
$
$
$
2
2
2
2
2
2
9
19
Total
27
27
27
28
32
35
206
355
$
$
$
19. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of:
Long-term portion of fair value of hedges [note 23]
Long-term portion of income taxes payable
Asset retirement obligation
Long-term lease inducements
Deferred revenue
2015
2014
$
$
152
131
26
19
3
331
$
$
80
144
26
24
4
278
2015 Annual Report – Financial Statements
50
20.
STOCK-BASED COMPENSATION
[a] Incentive Stock Option Plan
The Company currently has two incentive stock option plans in effect: the 2009 Stock Option Plan, which was adopted
by the Company's 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 32,000,000 shares. The number of shares available to be granted at December 31,
2015 was 12,164,270 [2014 – 13,586,060]. All options granted are for terms of up to seven years from the grant date.
Options issued under the 2009 Option Plan to employees and consultants generally vest as to one-third on each of the
first three anniversaries of the date of grant. Performance-vested options are granted to some of the Company's most
senior executives, with vesting as to one-sixth, one-third and one-half on the first three anniversaries of the date of
grant, subject to satisfaction of a minimum total shareholder return condition. All options allow the holder to purchase
Common Shares at a price equal to or greater than the closing market price of such shares on the date prior to the
date of the grant.
1987 Stock Option Plan
The Company previously granted options to purchase Common Shares to full-time employees, outside directors or
consultants of the Company under the 1987 Stock Option Plan. Upon shareholder approval of the Company's 2009
Stock Option Plan, the 1987 Stock Option Plan was terminated such that no future grants could be made, but previously
granted options would continue to vest and be exercisable in accordance with their original terms of grant. All options
granted under the 1987 Stock Option Plan are for terms of up to seven years from the grant date. All options allow the
holder to purchase Common Shares at a price equal to or greater than the closing market price of such shares on the
date prior to the date of the grant or modification.
The following is a continuity schedule of all options outstanding [number of options in the table below are expressed
in whole numbers – restated [note 3]]:
Outstanding at December 31, 2013
Granted
Exercised
Cancelled
Vested
Outstanding at December 31, 2014
Granted
Exercised
Cancelled
Vested
Outstanding at December 31, 2015
Options outstanding
Weighted
average
exercise
price
Cdn$20.91
53.36
19.92
30.23
–
Cdn$27.03
68.24
18.17
41.08
–
Cdn$38.59
Number
of options
exercisable
5,694,218
–
(2,649,160)
(12,000)
1,581,430
4,614,488
–
(2,387,032)
(2)
1,965,905
4,193,359
Number
of options
9,516,216
1,502,600
(2,649,160)
(54,998)
–
8,314,658
1,614,336
(2,387,032)
(192,546)
–
7,349,416
The total intrinsic value of options exercised during 2015 was $86 million [2014 - $85 million].
51
MAGNA INTERNATIONAL INC.
At December 31, 2015, the outstanding options consist of [number of options in the table below are expressed in
whole numbers]:
Cdn$10 to $15
Cdn$15 to $20
Cdn$20 to $25
Cdn$25 to $30
Over Cdn$50
Weighted average exercise price
Weighted average life remaining [years]
Aggregate intrinsic value at December 31, 2015
Options outstanding
Remaining
contractual
life [years]
Number
of options
exercisable
0.9
1.4
3.2
3.8
5.7
1,000,682
20,000
1,487,226
1,247,757
437,694
4,193,359
Cdn$25.53
2.94
93
$
Number
of options
1,000,682
20,000
1,480,560
1,877,018
2,971,156
7,349,416
Cdn$38.59
4.03
93
$
The weighted average assumptions used in measuring the fair value of stock options granted are as follows:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected time until exercise
Weighted average fair value of options granted in year [Cdn$]
[restated [note 3]]
[b] Long-term retention program
2015
2014
0.97%
2.00%
26%
4.6 years
1.60%
2.00%
29%
4.5 years
$ 12.84
$ 11.47
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 Company's Common Shares.
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 Company's Common Shares [number of Common Shares in the table below are expressed
in whole numbers – restated [note 3]]:
Awarded and not released, December 31, 2013
Release of restricted stock
Awarded and not released, December 31, 2014
Release of restricted stock
Awarded and not released, December 31, 2015
[c] Restricted stock unit program
Number
of shares
1,460,952
(286,304)
1,174,648
(286,312)
888,336
Stated
value
$
$
25
(5)
20
(4)
16
In a number of different circumstances, the Company awards restricted stock units ["RSUs"] to certain executives and
other employees as part of the Company's 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 Company's 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.
2015 Annual Report – Financial Statements
52
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 Magna's Common
Shares. All DSUs are fully vested on the date allocated to an Independent Director under the DSU Plan. The DSUs are
settled upon an Independent Director's retirement from the Board by delivering Magna Common Shares equal to the
whole DSUs credited to the Independent Director.
The following is a continuity schedule of restricted stock unit programs outstanding [number of stock units in the table
below are expressed in whole numbers – restated [note 3]]:
Outstanding at December 31, 2013
Granted
Dividend equivalents
Forfeitures
Redeemed
Outstanding at December 31, 2014
Granted
Dividend equivalents
Redeemed
Outstanding at December 31, 2015
Equity
classified
RSUs
Liability
classified
RSUs
Equity
classified
DSUs
1,263,709
363,053
1,678
–
(643,162)
985,278
356,422
1,633
(495,627)
847,706
60,238
18,050
1,132
(820)
(32,548)
46,052
15,922
1,094
(28,236)
34,832
254,894
44,272
4,095
–
–
303,261
43,955
5,468
–
352,684
Total
1,578,841
425,375
6,905
(820)
(675,710)
1,334,591
416,299
8,195
(523,863)
1,235,222
[d] Compensation expense related to stock-based compensation
Stock-based compensation expense recorded in selling, general and administrative expenses related to the above
programs is as follows:
Incentive Stock Option Plan
Long-term retention
Restricted stock unit
Total stock-based compensation expense
21.
CAPITAL STOCK
2015
2014
$
$
12
4
20
36
$
$
15
4
21
40
[a] At December 31, 2015, the Company's authorized, issued and outstanding capital stock are as follows:
Preference shares - issuable in series -
The Company's authorized capital stock includes 99,760,000 preference shares, issuable in series. None of these
shares are currently issued or outstanding.
Common Shares -
Common Shares without par value [unlimited amount authorized] have the following attributes:
[i] Each share is entitled to one vote per share at all meetings of shareholders.
[ii] Each share shall participate equally as to dividends.
[b] On November 10, 2015, the TSX accepted the Company's Notice of Intention to Make a Normal Course Issuer Bid
relating to the purchase for cancellation, as well as purchases to fund the Company's stock-based compensation
awards or programs and/or the Company's obligations to its deferred profit sharing plans, of up to 40 million Magna
Common Shares [the "2015 Bid"], representing 9.9% of the Company's public float of Common Shares. The Bid
commenced on November 13, 2015 and will terminate no later than November 12, 2016.
Previously, the Company had Normal Course Issuer Bids in place for the 12 month periods beginning in November
2014 and 2013.
53
MAGNA INTERNATIONAL INC.
The following is a summary of the Normal Course Issuer Bids [number of shares in the table below are expressed in
whole numbers]:
2013 Bid
2014 Bid
2015 Bid
Maximum
number
of shares
40,000,000
40,000,000
40,000,000
2015
2014
Shares
purchased
Cash
amount
Shares
purchased
Cash
amount
–
8,166,514
2,585,970
10,752,484
$
$
–
388
113
501
30,271,428
4,798,376
–
35,069,804
$ 1,525
241
–
$ 1,766
Certain purchases were made by way of private agreements entered into with arm's length, third party sellers. Such private
agreement purchases were made at a discount to the prevailing market price for the Company's Common Shares and
pursuant to issuer bid exemption orders issued by the Ontario Securities Commission. All other purchases of Common
Shares are made at the market price at the time of purchase in accordance with the rules and policies of the TSX.
Purchases may also be made on the NYSE in compliance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934.
[c] The following table presents the maximum number of shares that would be outstanding if all the dilutive instruments
outstanding at March 3, 2016 were exercised or converted:
Common Shares
Stock options [note 20]
22. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following is a continuity schedule of accumulated other comprehensive loss:
401,643,203
9,117,224
410,760,427
2015
2014
Accumulated net unrealized loss on translation of net investment in foreign operations
Balance, beginning of year
Net unrealized loss
Repurchase of shares under normal course issuer bids [note 21]
Balance, end of year
$
(255) $
(798)
11
(1,042)
Accumulated net unrealized loss on cash flow hedges [b]
Balance, beginning of year
Net unrealized loss
Reclassification of net loss to net income [a]
Balance, end of year
Accumulated net unrealized loss on other long-term liabilities [b]
Balance, beginning of year
Net unrealized gain (loss)
Reclassification of net loss to net income [a]
Balance, end of year
Accumulated net unrealized loss on available-for-sale investments
Balance, beginning of year
Net unrealized loss
Balance, end of year
(113)
(244)
95
(262)
(186)
14
7
(165)
(4)
3
(1)
454
(681)
(28)
(255)
(20)
(103)
10
(113)
(117)
(72)
3
(186)
(4)
–
(4)
Total accumulated other comprehensive loss [c]
$ (1,470) $
(558)
2015 Annual Report – Financial Statements
54
[a] The effects on net income of amounts reclassified from AOCL, with presentation location, were as follows:
Cash flow hedges
Sales
Cost of sales
Interest
Income tax
Net of tax
Other long-term liabilities
Cost of sales
Income tax
Net of tax
2015
2014
$
(86) $
(45)
(3)
39
(95)
(9)
2
(7)
(28)
17
–
1
(10)
(4)
1
(3)
Total loss reclassified to net income
$
(102) $
(13)
[b] The amount of income tax benefit that has been allocated to each component of other comprehensive loss is as follows:
2015
2014
Accumulated net unrealized loss on cash flow hedges
Balance, beginning of year
Net unrealized loss
Reclassification of net loss to net income
Balance, end of year
Accumulated net unrealized loss on other long-term liabilities
Balance, beginning of year
Net unrealized (gain) loss
Reclassification of net loss to net income
Balance, end of year
$
$
44
92
(39)
97
36
(3)
(2)
31
Total income tax benefit
$
128
$
4
41
(1)
44
14
23
(1)
36
80
[c] The amount of other comprehensive loss that is expected to be reclassified to net income during 2016 is $185 million.
23.
FINANCIAL INSTRUMENTS
[a] Foreign exchange contracts
At December 31, 2015, the Company had outstanding foreign exchange forward contracts representing commitments
to buy and sell various foreign currencies. Significant commitments are as follows:
Buy
(Sell)
2016
2016
2017
2017
2018
2018
2019
2020
For Canadian dollars
U.S. Weighted
dollar
average
rate
amount
276
1.30051
(932)
0.82317
7
1.23553
0.81685
(577)
–
–
0.79299
(416)
0.78519
(278)
0.76577
(117)
(2,037)
Weighted
average
rate
1.45543
0.67901
1.44220
–
–
–
–
–
Euro
amount
44
(11)
14
–
–
–
–
–
47
For U.S. dollars
Weighted
average
rate
0.06751
–
0.06269
–
0.05619
–
–
–
Peso
amount
4,248
–
2,689
–
780
–
–
–
7,717
55
MAGNA INTERNATIONAL INC.
Buy
(Sell)
2016
2016
2017
2017
2018
2018
2019
2019
2020
U.S. Weighted
dollar
average
amount
rate
101
0.87463
1.20933
(153)
0.88127
38
(84)
1.23216
0.87239
15
(45)
1.18114
0.85873
5
1.16813
(17)
(2)
1.17400
(142)
For euros
Weighted
average
rate
1.40949
0.80758
–
0.81324
–
0.73974
–
0.74603
–
GBP
amount
11
(13)
–
(9)
–
(7)
–
(4)
–
(22)
Czech Weighted
koruna
average
rate
amount
3,377
0.03709
26.84500
(2)
0.03720
2,168
–
–
0.03774
1,031
–
–
–
–
–
–
–
–
6,574
Based on forward foreign exchange rates as at December 31, 2015 for contracts with similar remaining terms to
maturity, the gains of $31 million and losses of $343 million relating to the Company's foreign exchange forward contracts
recognized in other comprehensive loss [note 22].
The Company does not enter into foreign exchange forward contracts for speculative purposes.
[b] Financial assets and liabilities
The Company's financial assets and liabilities consist of the following:
Trading
Cash and cash equivalents
Investment in ABCP
Equity investments
Available-for-sale investments
Equity investments
Held-to-maturity investments
Severance investments
Loans and receivables
Accounts receivable
Long-term receivables included in other assets [note 14]
Other financial liabilities
Bank indebtedness
Long-term debt (including portion due within one year)
Accounts payable
Derivatives designated as effective hedges, measured at fair value
Foreign currency contracts
Prepaid expenses and other
Other assets
Other accrued liabilities
Other long-term liabilities
Commodity contracts
Other accrued liabilities
2015
2014
$ 2,863
73
4
$ 2,940
$ 1,249
88
–
$ 1,337
$
$
–
$
3
$
5
4
$ 5,439
87
$ 5,526
$ 5,316
85
$ 5,401
$
25
2,557
4,746
$ 7,328
$
30
995
4,765
$ 5,790
$
$
27
4
(191)
(152)
(312)
21
8
(90)
(80)
(141)
–
(312) $
(1)
(142)
$
2015 Annual Report – Financial Statements
56
[c] Derivatives designated as effective hedges, measured at fair value
The Company presents derivatives that are designated as effective hedges at gross fair value in the consolidated
balance sheets. However, master netting and other similar arrangements allow net settlements under certain conditions.
The following table shows the Company's derivative foreign currency contracts at gross fair value as reflected in the
consolidated balance sheets and the unrecognized impact of master netting arrangements:
Gross
amounts
presented
in consolidated
balance sheets
Gross
amounts
not offset
in consolidated
balance sheets
$
$
31
(343)
$
$
29
(170)
$
$
$
$
30
(30)
28
(28)
Net
amounts
$
$
1
(313)
$
$
1
(142)
December 31, 2015
Assets
Liabilities
December 31, 2014
Assets
Liabilities
[d] Fair value
The Company determined the estimated fair values of its financial instruments based on valuation methodologies
it believes are appropriate; however, considerable judgment is required to develop these estimates. Accordingly,
these estimated fair values are not necessarily indicative of the amounts the Company could realize in a current
market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or
methodologies. The methods and assumptions used to estimate the fair value of financial instruments are described
below:
Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable.
Due to the short period to maturity of the instruments, the carrying values as presented in the consolidated balance
sheets are reasonable estimates of fair values.
Investments
At December 31, 2015, the Company held Canadian third party ABCP with a face value of Cdn$107 million [2014 -
Cdn$107 million]. The carrying value and estimated fair value of this investment was Cdn$101 million [2014 - Cdn$102
million]. As fair value information is not readily determinable for the Company's investment in ABCP, the fair value was
based on a valuation technique estimating the fair value from the perspective of a market participant.
Term debt
The Company's term debt includes $211 million due within one year. Due to the short period to maturity of this debt,
the carrying value as presented in the consolidated balance sheet is a reasonable estimate of its fair value.
Senior Notes
At December 31, 2015, the net book value of the Company's Senior Notes was $2.30 billion and the total estimated fair
value of the Senior Notes was approximately $2.31 billion, determined primarily using active market prices, categorized
as Level 1 inputs within the Accounting Standards Codification 820 fair value hierarchy.
[e] Credit risk
The Company's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts
receivable, held-to-maturity investments and foreign exchange and commodity forward contracts with positive fair
values.
Cash and cash equivalents, which consist of short-term investments, are only invested in governments, bank term
deposits and bank commercial paper with an investment grade credit rating. Credit risk is further reduced by limiting
the amount which is invested in certain governments or any major financial institution.
The Company is also exposed to credit risk from the potential default by any of its counterparties on its foreign
exchange forward contracts. The Company mitigates this credit risk by dealing with counterparties who are major
financial institutions that the Company anticipates will satisfy their obligations under the contracts.
57
MAGNA INTERNATIONAL INC.
In the normal course of business, the Company is exposed to credit risk from its customers, substantially all of which
are in the automotive industry and are subject to credit risks associated with the automotive industry. For the year
ended December 31, 2015, sales to the Company's six largest customers represented 83% [2014 - 83%] of the
Company's total sales; and substantially all of its sales are to customers in which the Company has ongoing contractual
relationships.
[f] Currency risk
The Company is exposed to fluctuations in foreign exchange rates when manufacturing facilities have committed to
the delivery of products for which the selling price has been quoted in currencies other than the facilities' functional
currency, and when materials and equipment are purchased in currencies other than the facilities' functional currency.
In an effort to manage this net foreign exchange exposure, the Company employs hedging programs, primarily through
the use of foreign exchange forward contracts [note 23[a]].
[g] Interest rate risk
The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current
assets and current liabilities. In particular, the amount of interest income earned on cash and cash equivalents is
impacted more by investment decisions made and the demands to have available cash on hand, than by movements
in interest rates over a given period.
In addition, the Company is not exposed to interest rate risk on its term debt and Senior Notes as the interest rates on
these instruments are fixed.
24.
CONTINGENCIES
From time to time, the Company may become involved in regulatory proceedings, or become liable for legal, contractual
and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others.
On an ongoing basis, the Company attempts to assess the likelihood of any adverse judgments or outcomes to these
proceedings or claims, together with potential ranges of probable costs and losses. A determination of the provision
required, if any, for these contingencies is made after analysis of each individual issue. The required provision may change
in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in
dealing with these matters.
[a]
In November 1997, the Company and two of its subsidiaries were sued by KS Centoco Ltd., an Ontario-based steering
wheel manufacturer in which the Company has a 23% equity interest, and by Centoco Holdings Limited, the owner
of the remaining 77% equity interest in KS Centoco Ltd. In March 1999, the plaintiffs were granted leave to make
substantial amendments to the original statement of claim in order to add several new defendants and claim additional
remedies and, in February 2006, the plaintiffs further amended their claim to add an additional remedy. In February
2016, a consent order was granted allowing the Plaintiffs to file a fresh statement of claim which includes an additional
remedy and reduces certain aggravated and punitive damages claimed. The fresh statement of claim alleges, among
other things:
•
•
•
•
•
breach of fiduciary duty by the Company and two of its subsidiaries;
breach by the Company of its binding letter of intent with KS Centoco Ltd., including its covenant not to have any
interest, directly or indirectly, in any entity that carries on the airbag business in North America, other than through
MST Automotive Inc., a company to be 77% owned by Magna and 23% owned by Centoco Holdings Limited;
the plaintiff's exclusive entitlement to certain airbag technologies in North America pursuant to an exclusive
licence agreement [the "Licence Agreement"], together with an accounting of all revenues and profits resulting
from the alleged use by the Company, TRW Inc. ["TRW"] and other unrelated third party automotive supplier
defendants of such technology in North America;
inducement by the Company of a breach of the Licence Agreement by TRW;
a conspiracy by the Company, TRW and others to deprive KS Centoco Ltd. of the benefits of such airbag technology
in North America and to cause Centoco Holdings Limited to sell to TRW its interest in KS Centoco Ltd. in conjunction
with the Company's sale to TRW of its interest in MST Automotive GmbH and TEMIC Bayern-Chemie Airbag
GmbH; and
•
oppression by the defendants.
2015 Annual Report – Financial Statements
58
The plaintiffs are seeking, amongst other things, damages of approximately Cdn$2.56 billion. Document production,
completion of undertakings and examinations for discovery are substantially complete, although limited additional
examinations for discovery are expected to occur. A trial is not expected to commence until 2017. The Company
believes it has valid defences to the plaintiffs' claims and therefore intends to continue to vigorously defend this case.
Notwithstanding the amount of time which has transpired since the claim was filed, these legal proceedings remain at
an early stage and, accordingly, it is not possible to predict their outcome.
[b]
In September 2013, representatives of the Bundeskartellamt, the German Federal Cartel Office, attended at one of the
Company's operating divisions in Germany to obtain information in connection with an ongoing antitrust investigation
relating to suppliers of automotive textile coverings and components, particularly trunk linings. In January 2016, the
German Federal Cartel Office closed its investigation without taking any action against the Company or any of its
operating divisions.
In September 2014, the Conselho Administrativo de Defesa Economica, Brazil's Federal competition authority,
attended at one of the Company's operating divisions in Brazil to obtain information in connection with an ongoing
antitrust investigation relating to suppliers of automotive door latches and related products.
Proceedings of this nature can often continue for several years. Where wrongful conduct is found, the relevant
antitrust authority can, depending on the jurisdiction, initiate administrative or criminal legal proceedings and impose
administrative or criminal fines or penalties taking into account several mitigating and aggravating factors. At this
time, management is unable to predict the duration or outcome of the Brazilian investigation, including whether any
operating divisions of the Company will be found liable for any violation of law or the extent or magnitude of any
liability, if found to be liable.
The Company's 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 Magna's profitability in the
year in which any such fine or penalty is imposed or the outcome of any such proceeding is determined. Additionally,
Magna could be subject to other consequences, including reputational damage, which could have a material adverse
effect on the Company.
[c]
In certain circumstances, the Company is at risk for warranty costs including product liability and recall costs. Due to the
nature of the costs, the Company makes its best estimate of the expected future costs [note 16]; however, the ultimate
amount of such costs could be materially different. The Company continues to experience increased customer pressure
to assume greater warranty responsibility. Currently, under most customer agreements, the Company only accounts
for existing or probable claims. Under certain complete vehicle engineering and assembly contracts, the Company
records an estimate of future warranty-related costs based on the terms of the specific customer agreements, and the
specific customer's warranty experience.
25.
SEGMENTED INFORMATION
[a] Magna is a global automotive supplier whose product capabilities include producing body, chassis, exterior, seating,
powertrain, electronic, vision, closure and roof systems and modules, as well as complete vehicle engineering and
contract manufacturing.
Magna's 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, Magna's operations are segmented on a
geographic basis. The Company's segments consist of North America, Europe, Asia and Rest of World. The Company
maintains management teams in each of the Company's two primary markets, North America and Europe. The role of
the North American and European management teams is to manage Magna's interests to ensure a coordinated effort
across the Company's 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 Company's
operations while permitting the divisions enough flexibility through Magna's decentralized structure to foster an
entrepreneurial environment.
Consistent with the above, the Company's 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.
59
MAGNA INTERNATIONAL INC.
The Company's chief operating decision maker uses Adjusted EBIT as the measure of segment profit or loss, since
management believes Adjusted EBIT is the most appropriate measure of operational profitability or loss for its reporting
segments. Adjusted EBIT represents income from operations before income taxes; interest expense, 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.
The following tables show certain information with respect to segment disclosures:
$
Total
sales
6,329
9,603
4,261
(1,178)
19,015
North America
Canada
United States
Mexico
Eliminations
North America
Europe
Western Europe
(excluding Great Britain)
8,936
Great Britain
404
Eastern Europe
2,110
Eliminations
(327)
11,123
Europe
1,981
Asia
461
Rest of World
Corporate and Other [i]
(446)
Total reportable segments $ 32,134
Current assets
Investments, goodwill,
deferred tax assets
and other assets
Consolidated total assets
$
Total
sales
6,799
9,194
3,984
(1,216)
18,761
North America
Canada
United States
Mexico
Eliminations
North America
Europe
Western Europe
(excluding Great Britain)
11,086
385
Great Britain
2,397
Eastern Europe
(366)
Eliminations
13,502
Europe
1,919
Asia
695
Rest of World
(474)
Corporate and Other [i]
Total reportable segments $ 34,403
Current assets
Investments, goodwill,
deferred tax assets
and other assets
Noncurrent assets
held for sale
Consolidated total assets
External
Depreciation
and
sales amortization
2015
Adjusted
EBIT [ii]
Fixed
asset
additions
Goodwill
$
5,856
9,183
3,869
–
18,908
8,635
404
1,873
–
10,912
1,846
461
7
$ 32,134
$
$
411
$
1,934
$
590
276
77
17
21
802
451
149
(25)
20
2,529
$
525
229
–
–
1,344
$
$
$
242
421
233
–
896
357
26
112
–
495
121
15
64
1,591
Fixed
assets,
net
647
1,431
756
–
2,834
1,279
145
474
–
1,898
820
54
399
6,005
11,144
$
$
2,557
$ 19,706
External
sales
Depreciation
and
amortization
2014
Adjusted
EBIT [ii]
Fixed
asset
additions
Fixed
assets,
net
Goodwill
$
6,324
8,666
3,653
–
18,643
10,794
384
2,102
–
13,280
1,773
694
13
$ 34,403
$
$
407
$
2,003
$
633
327
71
17
23
845
502
150
(35)
61
2,681
$
577
127
–
–
1,337
$
$
$
204
328
153
–
685
334
13
80
–
427
140
8
234
1,494
$
$
638
1,204
626
–
2,468
1,302
36
498
–
1,836
648
82
368
5,402
9,862
2,462
348
$ 18,074
[i]
Included in Corporate and Other Adjusted EBIT are intercompany fees charged to the automotive segments.
2015 Annual Report – Financial Statements
60
[ii] The following table reconciles Adjusted EBIT to Income from operations before income taxes:
Adjusted EBIT
Other income (expense), net
Interest expense, net
Income from continuing operations before income taxes
[b] The following table aggregates external revenues by customer as follows:
General Motors
Fiat / Chrysler Group
Ford Motor Company
Daimler AG
Volkswagen
BMW
Other
2015
2014
$ 2,529
166
(44)
$ 2,651
$ 2,681
(46)
(30)
$ 2,605
2015
2014
$ 6,424
5,094
4,923
3,779
3,301
3,300
5,313
$ 32,134
$ 6,361
5,505
4,660
4,009
3,872
4,153
5,843
$ 34,403
[c] The following table summarizes external revenues generated by automotive products and services:
Body systems and chassis systems
Exterior systems
Powertrain systems
Seating systems
Tooling, engineering and other
Vision and electronic systems
Complete vehicle assembly
Closure systems
26.
SUBSEQUENT EVENT
Acquisition of Getrag
2015
2014
$ 7,790
5,155
4,755
4,497
2,700
2,583
2,357
2,297
$ 32,134
$ 8,078
5,435
5,083
4,969
2,755
2,518
3,160
2,405
$ 34,403
In the third quarter of 2015, the Company signed an agreement to acquire 100% of the common shares and voting interest
of the Getrag Group of Companies ["Getrag"]. Getrag is a global supplier of automotive transmission systems including
manual, automated-manual, dual clutch, hybrid and other advanced systems. The transaction was completed on January 4, 2016.
The total consideration transferred by the Company was approximately €1.75 billion in cash, and is subject to working
capital and other customary purchase price adjustments. The acquisition of Getrag will be accounted for as a business
combination under the acquisition method of accounting. The Company will record the assets acquired and liabilities
assumed at their fair values as of the acquisition date. Due to the limited amount of time since the acquisition date, the
preliminary acquisition valuation for the business combination is incomplete at this time. As a result, the Company is
unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities
assumed, including the information required for valuation of intangible assets and goodwill.
61
MAGNA INTERNATIONAL INC.
MAGNA INTERNATIONAL INC.
Supplementary Financial and Share Information
FINANCIAL SUMMARY
(US dollars in millions, except per share figures)
(unaudited)
Years ended December 31,
Total sales
Depreciation and amortization
Net income attributable to Magna International Inc. from continuing operations
Diluted earnings per Common share from continuing operations
Weighted average number of Common shares outstanding - Diluted
Cash dividends paid per share
Cash flow from operations
Capital expenditures
Working capital
Fixed assets, net
Total assets
Long-term debt
Shareholders' equity
Long-term debt to equity ratio
All amounts are from continuing operations except noted below.
* 2011 and 2012 figures have not been restated to reflect discontinued operations.
2015
2014
2013
2012*
2011*
32,134
802
1,946
4.72
412.7
34,403
845
1,924
4.44
433.2
32,538
1,019
1,530
3.31
461.6
30,837
801
1,433
3.05
470.4
28,748
686
1,018
2.10
485.6
0.88
0.76
0.64
0.55
0.50
2,332
1,591
3,868
6,005
19,706
2,346
9,117
0.26:1
2,822
1,495
2,236
5,402
18,074
812
8,673
0.09:1
2,502
1,094
2,613
5,189
18,024
102
9,639
0.01:1
2,206
1,274
2,451
5,273
17,109
112
9,458
0.01:1
1,210
1,236
2,422
4,236
14,679
46
8,202
0.01:1
2015 Annual Report – Financial Statements
62
Share Information
The Common Shares are listed and traded in Canada on the Toronto Stock Exchange ("TSX") under the stock symbol "MG" and in the
United States on the New York Stock Exchange ("NYSE") under the stock symbol "MGA". As of February 29, 2016, there were 1,433
registered holders of Common Shares.
Distribution of Shares held by Registered Shareholders
Canada
United States
Other
Dividends
Common Shares
81.62%
18.28%
0.10%
Dividends for 2015 on Magna's Common Shares were paid on each of March 27, June 12, September 11 and December 11 at a
rate of U.S.$0.22. Magna's dividends have been designated as "eligible dividends" as defined in subsection 89(1) of the Income Tax Act
(Canada) and, accordingly, are eligible for an enhanced tax credit. Additional details are found on Magna's website (www.magna.com),
under "Investors - Shareholder Information – Dividends & Interest".
Price Range of Shares
The following table sets forth, for the years indicated, the high and low sales prices and volumes of Common Shares traded in each
case as reported by the TSX and NYSE, respectively.
Common Shares (TSX) (Cdn$)
Quarter
1st
2nd
3rd
4th
Year ended December 31, 2015
Year ended December 31, 2014
Volume
34,520,227
58,550,351
73,070,176
69,201,347
High
69.71*
74.24
74.50
71.10
Low
64.62
60.80
56.49
55.96
Volume
33,243,962
25,916,641
28,974,256
38,720,355
High
108.96
118.24
125.39
127.96
Low
85.08
101.72
105.70
92.89
Common Shares (NYSE) (US$)
Quarter
1st
2nd
3rd
4th
Year ended December 31, 2015
Year ended December 31, 2014
Volume
45,981,685
88,723,846
114,082,297
114,739,117
High
55.61*
59.42
57.62
53.89
Low
45.28
50.33
42.77
40.31
Volume
39,989,432
33,380,501
30,578,436
43,333,349
High
89.30
102.52
110.53
111.94
Low
87.83
100.78
108.91
82.42
* Price adjusted to reflect a two-for-one stock split implemented on March 25, 2015
63
MAGNA INTERNATIONAL INC.
Corporate
Directory
Directors
William L. Young (Chairman of the Board)
Scott B. Bonham
Peter G. Bowie
Hon. J. Trevor Eyton
Lady Barbara Judge
Dr. Kurt J. Lauk
Cynthia A. Niekamp
Dr. Indira V. Samarasekera
Donald J. Walker
Lawrence D. Worrall
Corporate Office
Magna International Inc.
337 Magna Drive
Aurora, Ontario
Canada L4G 7K1
Telephone: (905) 726-2462
www.magna.com
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
Toll Free: 1 (800) 962-4294
www.computershare.com
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,
Seating, Mirrors, Closures and
Cosma
Frank C. Seguin
Executive Vice-President,
Corporate Projects and
Strategy Development
Executive Officers
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,
Chief Technology Officer
and President, Magna Electronics
Exchange Listings
Common Shares
Toronto Stock Exchange MG
New York Stock Exchange MGA
©Magna International Inc. 2016. Magna and the logo are registered trademarks of Magna International Inc.
Magna_AR_FINAL_OUTPUT_tuesday.indd 14
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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 2016 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 21 to the consolidated financial statements contained in this Annual Report, may do so by contacting Magna's Corporate Secretary.The 2016 Annual Meeting of ShareholdersThe 2016 Annual Meeting of Shareholders will be held at The Westin Prince, 900 York Mills Road, Toronto, Ontario, Canada on Thursday, May 5, 2016 commencing at 10:00 a.m. (Eastern Daylight Time).2015 Annual ReportAdditional copies of this 2015 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. 2015 ANNUAL REPORT
Magna International Inc.
337 Magna Drive, Aurora, Ontario
Canada L4G 7K1
Telephone: (905) 726-2462
magna.com
Printed in Canada
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