Magna International Inc (MGA) 2002 Q1 法說會逐字稿

Ladies and Gentlemen, thank you for standing by. Welcome to the Magna International Inc. first-quarter results conference call. During the presentation all participates will be in a listen-only mode. After we will conduct a question-and- answer session. At that time, if you have a question, please press the one followed by a four on your telephone.

A reminder, this conference is being recorded Friday, May 10, 2002. I will now like to turn the conference call over to Vincent Galifi, Executive Vice President and Chief Financial Officer. Please, go ahead, sir.

Good afternoon, and welcome to our first-quarter conference call. My name is Vincent Galifi, and I'm the Executive Vice- President Finance and CFO of Magna International.

With me today is Belinda Stronach, Magna's President and Chief Executive Officer; Dave Carroll, Vice President of Marketing and Corporate Planning; and Louis Tonelli, Director of Investor Relations.

Earlier this week, our board of directors met and approved our financial results for the first quarter ending March 31, 2002. Our board also prepared a quarterly dividend of 34 cents per share, payable on June 14, 2002. We issued a press release yesterday for the first quarter ending March 31. Both the press release and today's conference call are on our Web Site. Our address is www.Magna.com.

This afternoon, Belinda will briefly comment on our strong Q1 results and provide an update with respect to Magna's management structure and reiterate Magna's roll going forward. They will discuss the overall industry environment and a revised 2002 outlook for vehicle volumes. Louis will then provide a specific discussion of our Q1 financial performance, and I will end with a review of our financial outlook for 2002.

Upon completion of our formal remarks, we'll be pleased to answer any questions you may have. I would now like to turn the call over to Belinda.

Thanks, Vince, and good afternoon, everyone.

Yesterday we held our annual shareholders meeting in Toronto, which I'm sure some of you attended in person or via our webcast. At the meeting we highlighted our exceptional operating results for 2001 and also showed that 2001 was a continuation of strong financial performance over a number of years.

Extending this trend, we are very pleased with our performance in the first quarter of 2002. We posted excellent results achieving first quarter record levels in sales, net income from operations, and diluted earnings per share from operations. We continue to believe that 2002 will be a strong solid year to a record year of 2001. Continued content growth in 2002 is expected to result in higher sales for the year.

Our focus on profitability will allow us to translate sales growth into solid earnings performance in an effort to further strengthen our balance sheet and improve cash flow. Last year we announced our intentions to redeem all of the - I'm sorry. Last week we announced our intention to redeem all of the outstanding 4 7/8 percent convertible debenture on June 6, 2002. The redemption improves our cash flow by reducing interest payments by $23 million annually, and results in no earnings dilutions to shareholders.

I would now like to provide an update on Magna's management structure. We have recently added considerable depths at the senior management level of Magna, I believe, that by working with me to the strongest and most respected automotive executives in the industry.

Siegfried Wolf, Executive Vice-Chairman of Magna and President and CEO of Magna Steyr, has been with Magna for seven years and was instrumental in helping grow Magna's European operations from annual sales of several hundred million to over $3 billion. In Siegfried's new role, he will focus on the transfer of new technology and products developing Europe to North America,

providing continued support and guidance for European operations, continuing to develop strategic relationships with their customers, continuing to develop cross-group synergies and opportunities within Magna and provide ongoing assistance to our managers in Europe.

Fred Gingl, Executive Vice-Chairman of Magna and CEO of Tesma International, has been with Magna for nearly four decades now and has helped build a great management team

. In Fred's new role he will undertaking the following: help Magna identify new products and technologies and new product groups; assisting me and the

President with operational issues in North America;

develop relationships with suppliers, technology partners and customers; assist Siggy in moving MagnaStar's complete vehicle engineering and assembly to North America; and finally, find future business opportunities for Magna on a global basis.

Both Fred and Sigfried will be an invaluable resource to the management of this company, with their years of operations experience, their firsthand knowledge of Magna's operating division, and the knowledge of our two major automotive markets, North America and Europe.

I would like to repeat how I described Magna's role going forward at yesterday's annual meeting. We nurture and grow

new businesses, through the development of new groups and companies.

and continue to develop strategic relationships with our customers. We provide overall

coordination and synergy. We continue to develop new technologies and products.

We are the guardian of

corporate culture and operating principles, and to coordinate

development and training of our employees and managers. In summary, Magna is much more than the sum of its parts. To ensure the ongoing and successful evolution of our company and our culture, to maximize the value of our business for all of our stakeholders. I will now turn over the call to Dave Carroll.

Thank you, Belinda. And good afternoon, everyone. I would like to comment on our revised vehicle volume expectations for 2002. Yesterday we provided our revised outlook for 2002, including an increase in light vehicle production, excluding medium and heavy trucks, to 16 million units in North America, which is right in line with our industry forecasters. And 16.2 million units for Europe.

We revised North American volumes to reflect strong year-to-date North American automotive sales, which have produced

of 17 million units, or a 2 percent decline from 2001. An increase in the average level of vehicle incentives, to a total of $1,758 per vehicle. A 16 percent improvement in March consumer confidence. However, we are seeing some weakness in the preliminary

data and vehicle inventory that are 12 percent below historical levels for March.

Based on strong OEM production schedules for the second quarter, we have a much higher degree of confidence that 2002 is shaping up to be a relatively string year for automotive production in North America. I would also like to note that most industry analysts and OEMs have raised production estimates in North America as well.

We do, however, remain cautious about the second half of 2002 due to the uncertainty about general economic conditions, including rising interest rates, the high level of consumer debt, rising unemployment, some softening of consumer confidence, as well as the potential impact of OEM labor disruptions in Canada later this year.

In Europe, Q1 came in higher than our earlier forecast. And our full year updated forecasts reflect this. However, the economic conditions in Europe remain a concern. In particular, the continued weakness of the domestic market in Germany presents a potential risk to near-term auto production.

OEM labor disruptions represent a risk in Europe as well. Thus we continue to expect 2002 volumes to fall below those of 2001.

Turning to our key vehicle platforms in North America, the following key platforms underperformed the market: the DaimlerChrysler minivan was down 9 percent; the Ford Escape was down 1 percent; the Ford Windstar was down 12 percent; and the DaimlerChrysler LE sedan was down 2 percent.

These reductions were offset by the following platforms that outperformed the market: the GMC 800 pickup and sport utility, that were both up 7 percent; the Ford Explorer, which was up 46 percent; the Ford F Series and Taurus, again up 7 percent each; and the DaimlerChrysler Jeep WJ, which was up 17 percent.

In Europe, our only underperforming key vehicle platform as compared to the market was the Ford Transit Van, which was down 6 percent. The key European platforms that outperformed the European market were the Mercedes G-Wagon, that was up 30 percent; the BMW Mini, where we produced 32,000 units in Q1 as compared to zero last year; and the BMW 3, which was up 1 percent.

In summary, both our European and North American key vehicle platforms increased 7 percent. This compares to a 5 percent decline in production in Europe and a 4 percent increase in North America. However, factoring

on these top vehicles, we did experience a modest negative mix in North America in the quarter.

growth in North America content per vehicle in 2002 is projected to be slower. We anticipate a return to more normal growth as we launch an impressive backlog of major product programs that I reviewed at yesterday's annual meeting. I would also like to point out that beginning in Q1 2002, Magna's stated vehicle volumes now exclude medium and heavy trucks.

The company does not have a substantial amount of North American medium and heavy truck content; therefore, this change will improve the comparability of the company's North American production sales with vehicle production volumes.

North American vehicle production volumes continue to include light vehicles produced in Canada, the United States, and Mexico.

All comparative period North American vehicle production and average content per vehicle amounts has been restated to conform with the current period's presentation. Western European vehicle production volumes as reported by the company have historically excluded medium and heavy trucks, and have not changed.

I will now turn the call over to Louis Tonelli.

Thanks Dave. Good afternoon, everyone. I would like to begin with a specific review of our financial results for the first quarter ended March 31, 2002. All figures are in U.S. dollars.

I would first like to mention that our March 31, 2001 comparable figures have been restated to reflect the adoption of new accounting standards for foreign currency translation and goodwill. These accounting changes, which are consistent with U.S. practice, result in a net increase in net income and diluted earnings per share of $1 million and one-

respectively in the first quarter of 2001.

Consolidated sales increased 9 percent to a record $3.1 billion in the first quarter of 2002. Automotive sales were $2.9 billion for the quarter, an increase of 10 percent over the comparable period. I would now like to take you through the specifics.

North American vehicle production increased 4 percent, to approximately 4.1 million units, in the quarter. Our North American production sales grew by 9 percent over the comparable period, as a result of increased production volume and North American content growth.

North American content grew by 4 percent, to $423 dollars for the quarter, reflecting our involvement in programs including the Cadillac CTS, the Ford Explorer, the GM Envoy Trailblazer, the GMT 800 truck program, the GM Rendezvous, the Ram pickup, and the Saturn

. Offset in part by negative mix on our top vehicles, as Dave mentioned, as well as the negative impact of foreign exchange.

In Europe, production volumes declined approximately 5 percent, to 12.3 million units for the quarter. The European content per vehicle increased 25 percent over the comparable period, to $207. Some of the programs that contributed to content growth were the

, where we began to assemble

vehicles, the Mercedes

class, the Jeep Grand Cherokee, and the BMW Mini Cooper.

This resulted in European production sales for the first quarter of $878 million, versus $740 million a year ago, an increase of 19 percent.

In summary, consolidated production sales increased $274 million over the comparable quarter, with organic growth contributing $326 million to sales and net acquisitions contributing $20 million to sales.

This growth in production sales was partially offset by the devaluation of currencies against the U.S. dollar, resulting in a reduction of production sales of $72 million.

Tooling and other sales were $277 million for the quarter, down $20 million from the comparable period. The lower tooling sales reflect the substantial completion of the Chrysler

minivan

program, as well as the negative impact of foreign exchange in the first quarter of 2001.

During the quarter, our gross margin was 17.8 percent, representing a half-point decline attributed to increased volume on both the Mercedes

vehicles assembles at

, where there's a high level of purchase component. In addition, gross margin was positively impacted by continued productivity improvements of certain divisions, a decline in low-margin tooling sales, and increased production volumes, largely offset by

costs at Magna's

volume shortfalls and cost overruns on the Cal-1 program and other performing divisions.

SG&A costs were 6.3 percent for the first quarter, compared to 6.6 percent for the comparable quarter. Net income for the first quarter was $153 million, a record first quarter from operations, compared to $148 million in Q1 2001. Diluted EPS for the first quarter was $1.65 versus adjusted EPS of $1.68 in the first quarter of 2001, representing an increase of

percent.

I would like to spend a few minutes on our review of our cash balances, working capital and investment activities. We generated a record $290 million in cash from operations, prior to changes in working capital, and $80 million from working capital in the first quarter before we invested $136 million, comprised of $123 million in fixed assets, $12 million in investments and other assets, and $1 million in acquisitions.

Our cash balance at March 31, 2002 was in excess of $1 billion, and our cash net of debt, before divestiture interest obligation, was approximately $496 million. Our debt for total capitalization ratio, excluding caps, was approximately 11 percent under Canadian

And I will now toss over to Vince Galifi.

Thanks

I would like to comment on our increased expectations for full year 2002, as well as our expectations for the second quarter of 2002. Our most recent assumptions for production volumes in 2002, which are implicit in our earnings outlook, are as follows.

We forecast North American light vehicle production

to be 3 percent above 2001 volumes to approximately 16 million units. We expect the European auto production for 2002 to be 2 percent lower than 2001 volumes to approximately 16.2 million units. This is a

for our previous forecast of 15.9 million units.

In terms of the full year of 2002, our revised expectations are as follows. North American

is expected to be in the $430 to $460 range. There are a number of launches expected to contribute to our content growth, including the Cadillac Escalade EXT, the Cadillac CTS, the Saturn

and beyond, the Dodge Ram and the Ford Expedition.

European

is expected to be in the $200 to $220 range. Some of the new launches in Europe that are expected to contribute to content growth are the Mercedes-Benz Vaneo, the Ford

, the Range Rover

, as well as full year volumes on programs launched during 2001, including the BMW Mini, the

and the Jaguar X-Type. We will also be assembling additional E and G class vehicles for DaimlerChrysler, which will contribute to content growth.

In summary, automotive production

are expected to exceed 2001 levels. This is substantially the result of our expected growth in content. As well, we continue to be involved in new program launches and expect our tooling and other automotive sales to be in the $1 billion to $1.2 billion range.

Gross margin has been revised upward and is expected to be in the range of high 17 percent to low 18 percent, reflecting the ongoing impact of increased E and G class business during 2002 versus 2001.

SG&A, as a percentage of automotive sales, is expected to be in the low 6 percent range. Depreciation and amortization is now expected to be approximately $420 to $435 million. Our tax rate is expected to be slightly below 35 percent.

Given the above assumptions, our expectations for diluted EPS from operations has been revised upward to be in the $5.65 to $6.15 range for 2002. The midpoint of that range exceed the record

EPS from operations that we required in 2001. Automotive capital expenditures are expected to be approximately $650 to $700 million for 2002.

With respect to the second quarter of 2002, our expectations are as follows. Light vehicle production volumes are assumed to be $4.4 million in North America, representing a 3 percent increase; and $4.2 million in Europe, a decline of 6 percent. In each case, relative to the comparable quarter in 2001. We expect content for vehicles to be in the $420 to $435 range in North America, and $200 to $220 in Europe.

Although the timing of tooling sales are more difficult to forecast, tooling sales are expected to be in the $250 to $300 million range. Gross margin as a percentage of automotive sales is expected to be in the low to mid 18 percent range. SG&A as a percentage of automotive sales is expected to be in the low 6 percent range. Depreciation and amortization is expected to be between $100 to $105 million. Our tax rate is expected to be slightly below 35 percent. Total EPS from operations, based on the above assumptions, is expected to be in the 170 to $190 range.

I would like to point out that we continue to have, perhaps, the strongest balance in the industry. Our debt for total capitalization at March 31 stood at 11 percent and our cash balance was over $1 billion. The call for redemption of our outstanding subordinated

as Belinda mentioned, improved our debt to cap ratio to 10 percent. We believe that this strong financial position will allow us to capitalize on opportunities that may arise in the current automotive environment.

Just as a reminder, the discussion today contains forward looking statements within the meaning of applicable security's legislation. Such statements involve certain risks and assumptions, and in certain case which may cause the company's actual future results in performance to be materially different from those expressed or applied in these statements. These factors include, but are not limited to

including reductions and increases in production volumes,

the company's financial performance, changes in the economic and competitive markets in which the company competes, relationships with OEM customers, customer price pressures, and the company's dependence on certain vehicle programs, current exposures and other factors as

up in the company's Form 40-F

financial year end at December 31, 2000 and subsequent SEC filings.

The company disclaims any intention and undertakes no obligation to update or revise any forward looking statements to reflect subsequent information, events or circumstances or otherwise.

Thank you for your attention this morning. We will now open the call for questions.

Ladies and gentlemen if you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the one followed by the three. If you're using a speaker phone, please lift your handset before entering your request.

One moment, please, for the first question.

Our first question comes from David Leiker from Robert W. Baird. Please proceed with your question.

Good afternoon. I was wondering with GM's announcement on the GMT 800 and the increased volume there, I guess, two questions. How much of that has already been filtered into your internal outlook for '03? And two, do you think you'll have any capacity constraints on meeting that increased demand?

Yes. David, you're talking about the third

the Pontiac, correct?

Exactly.

First of all, the capacity, we don't have any capacity concerns. I think, as you know, we've got two facilities that produce our 800 frames, both in format who does the majority of the pickup truck frames and the Suburban frame, and then we have Mexico where we're doing the sport utilities. And we're quite comfortable with our capacity outlook, particularly at format, and that's who will be supplying those extra frames.

The vehicle volumes, they're already been factored into our outlook.

OK.

Again, we get the information sort of above or way ahead of when it becomes public knowledge so that we can plan and wrap up our supply base, as well.

OK. And just secondly, a quick look at Tacoma and

numbers.

Looks like operating income there is up about 20 percent at the

level of about 10 percent. Can you walk through a little bit, realizing that those two pieces are only 30 percent of the total -- can you walk through some of the other variances in the pieces of your business?

Again really quickly, when we issue our financial statements, we have lots of segmented information as well. The

benefit in particular was strong

Explorer volumes and interior generally has benefited as well from

,

,

in terms of revenue and profitability.

When you look at in terms of the other partners of Magna, when you look at our Cosma group, obviously we benefited there from strong

volume. But some of the parts

have been pretty slow which have hurt some of our stamping operations from a revenue and profit side.

Turning to Europe, I'll just focus a bit on Magna Steyr. Magna certainly got us into a mixed bag of events that took place from an assembly and engineering standpoint, they've done extremely well but they do have

costs in the quarter relating to the BMW and the Saab program, and those costs are going to continue for the rest of this year as well as that sort of paratrained group there was

costs and some engineering costs

which has also impacted the results negatively.

OK. Great. Thank you very much.

Are there any questions?

Our next question comes from Gary Lapidus from Goldman Sachs. Please proceed with your question.

Thought that was deja vu again, guys.

Glad someone's there.

Absolutely. Did you give any specific -- make any specific comments about geographic gross margin in the first quarter?

I did not give any specific comments on gross margin in the quarter, but to give you some...

Just a flavor anyway.

Yes, just a flavor. I think when you look in North American quarter, you know we were in the sort of mid to 22 -- sorry, 22 to 23 percent range which is an improvement over about a year ago.

Yes.

On the European side, where we're sort of in the twelve and a half to thirteen percent, Gary, which is down from a year ago, and again we talked about several reasons for that already.

Yes, that would be the assembly, I guess.

It would be some of the start-up costs certainly with the new programs that are coming on board, the exciting new programs coming on board at Magna Steyr.

I would like to add to that too. I would say in a very general sense too you know we grew through Europe in part through acquisition and not as much green field operations.

And it does take some time for both factories to be magnetized, and we're working on that.

OK. Are you still sticking with the -- I think you had said that in '03, would you expect additional overall gross margin decline because of the increased assembly business.

Gary, I haven't given any specific guidance at all to '03 at this point in time.

OK, but it's fair to say that's probably the case. Is that...

I'm not going to give any specific guidance on '03. I think the only guy that's really given beyond 2002

to our confidence growth

2004 were expecting a average content growth of somewhere in the range of 11 to 16 percent per year.

OK. When you mentioned those content per vehicles for '02, were those full-year numbers or exit rates?

They were full-year numbers.

OK, and the guidance -- the '02 guidance fairly broad range, although you don't range the production, which you suggested would -- you know -- 16? Could you just talk about what some of the -- besides the obvious which I guess is production of various platforms -- what are some of the other swing factors that lead you to give that range? Or is that just to confuse us analysts?

Well, I had to make a number

. Gary, I think in terms of the range for 2002, we've actually narrowed that range over our previous outlook. Our range previously was 65 percent, but we have tightened the range this time around. With respect to why is there the range, there's a range on content both in North America and Europe and certainly swing in content is going to impact profitability and overall projects and foreign exchange rates as well could have a lot of positive or negative impact on sales as well as profitability.

Yes, OK, but it's definitely not -- that's not production variance.

No, we would assume that we made assumptions on production being 16 or 16.2 in both markets.

OK. Just one last question. You mentioned

some of your a lot of your platforms did reasonably well. You did mention negative mix on some of those platforms. Could you just give us some flavor for what -- I remember it seems like a couple of years ago maybe there was a minivan issue at one point with leather, and I'm just curious as to what some of these mix issues might look like.

Gary, it's Lewis. I just had some examples, the Chrysler minivan. I don't know if I would say too much about it

, but you just have pure volume declines on platforms that actually have very, very high content.

OK.

But it's really the application of volumes and content that drive production sales which has created that kind of issue.

So it's not a mix issue within platforms.

No.

You're just saying your relative mix of variance.

Right, looking at our top 10 or 15 platforms in North America and Europe, that's what we've done.

They're volume issues, Gary, not installation rate issues.

OK. I was concerned that maybe

was taking out stamping panels on some of the vehicles.

No. So far, so good.

OK. Take care guys.

Thanks, Gary.

Your next question comes from

with JP Morgan. Please proceed with your question.

Good afternoon and congratulations again.

Thank you.

Hi, David.

Couple of things. Couple of technical questions and a couple of broader ones. I guess we've seen minority interest running between 11 million and 14 million every quarter last year, and it spiked at 21 million. Is that going to be a new run rate going forward, or is that unusually high for some reason?

David, I think you've got to take into account number one, that first quarter to first quarter, on a year-over-year basis,

100 percent owned by Magna a year ago. And now we, as a result of the

have been

we have great minority interest

net income. And as well when you look at the performance

we've come about this year, the

certainly benefited from strong

production especially on the Explorer.

So that's going to have an impact on minority interest expense.

So going forward, all things being equal, I would expect minority interest expense to be higher than last year just as a result of some minority interest shareholders holding shares

.

You do have to keep in mind however the seasonality with respect to

. So if you can't quite straight-line the $21 million, you can sort of look at the increases that we have where you have to keep the seasonality in the

.

So it might be higher, it might be lower, but something around $80+ million a year is a reasonable number then. Would that be accurate?

I would say it's a

, David.

OK, a little lower than that. OK, secondly back to the content issue, last year you had an extraordinary year-end content growth in North America. And we expected a drop-off in the growth. It dropped off more sharply than I thought. Is this a temporary thing? I mean the quarter will be, I guess, only 4 percent, and your assumption is quite a bit higher than that.

So I assume that there are some temporary factors, and maybe it's the second half of the year where that comes back and then next year sounded like you're looking at something like 12 to 16 last year.

11 to 16 over the planning period from 2001 to 2004.

Every year. But it looks like this year is lower.

Correct, and I think if you listened yesterday, David, we and the industry know that 2002 is a relatively light year for major vehicle launches. I mean, there are a lot of launches, but the vehicle volumes aren't high on those specific vehicles. That really does start to turn around in 2003 and 2004. And we tried to give a flavor for that yesterday as, you know, we got night program backlogs on the vehicles that are launching in that period.

OK. And then lastly, another technical question. There were, I guess, two accounting changes, one to do with goodwill amortization, one to do with accounting for gains and losses on

. Would you be able to break out for the first quarter the

of each of those separately and give us a combined number? What was the Financial Instrument one, a negative or a positive?

The Financial Instrument one was a negative...

OK.

... and the goodwill and

amortization was a positive. The goodwill had an impact of about 4 cents per share positive.

first quarter 2001, you need to really up the number by 4 cents. And when you look at the foreign exchange, I believe the impact there was about 3 cents negative.

OK. So -- because I think most of us had taken into account the goodwill, knowing that was coming, but we hadn't taken into account the other effect, which would have been 3 cents the other way.

Correct.

OK. Thank you.

Our next question comes from John Casesa from Merrill Lynch. Please proceed with your question.

Thanks very much. Can you hear me, guys?

Yes.

Yes, we can.

Three quickies. One, on the Impala, how much

do you have on that, and is that -- I assume that that is comprehended in your numbers.

Secondly, on European margins, is it not fair, at least conceptually, to assume that once these big assembly programs are up and running and you're over these start-up costs, in addition you're efforts on magnetizing these operations continue because you've made some changes there, that the trend ought to be upward on those margins at some point, if it's not in '03, at least some point in the next couple years.

And the third one is, what

on all this cash?

John, it's Vince. I will

with the second and third questions while Louis and Dave are looking for the answer to your first question.

With respect to overall European margin, I think -- let's put the business into two. We've got out assembly operations and then we have our sort of

North American operations.

Yet Linda mentioned earlier, we grew in North America -- I'm sorry, in Europe, primarily through acquisitions, and our strategy was to replicate our capability that we had in North America in Europe.

And we've done that; we've put a lot of money into that. And we're now growing

, and we are magnetizing facilities and margins are improving in those facilities. We're still not at levels that they are in North America, but we do see continued improvements and we expect further continued improvements.

With respect to the assembly operations, you know, John, absolutely, once we get through the start-up costs we'll see the margins

improving. But you've got to keep in mind that overall assembly margins may be, and most likely will be, lower than our traditional business because of the level of purchase components.

What we focus on internally when we evaluate our business units is we shouldn't look at margin quarter over quarter or year over year to understand where the business is moving to

. And you know, our assembly business, when you take into account the start-up costs, the returns

employed was just as good as a mature business in North America.

Right. And then...

A longwinded answer to your question. With respect to cash balances, John, as we talked about during the call, we've got over a billion dollars of cash.

But, you know, we're really bullish on what we see

. There's a number of opportunities with customers on youth programs, and Dave yesterday talked about our program backlog. As well from an acquisition standpoint, we continue to look at acquisitions. And I would say that the quality of acquisitions that have come forward in the last six months is probably better than what it's been in the last year or two.

OK.

So given where we are today, you know, NASA's intention to keep the cash on our balance sheet and employ that in a positive way.

I'd say even within the last six months, the quality, let's say, of the acquisitions that we're seeing is better in terms of -- not quality, but as it would complement our various product groups and, you know, would have some new technology is better now.

And then, if -- I mean, you have been growing the business at a very fast clip and still piling up cash. And I'm just wondering generally -- I guess at the heart of my question was, I mean, will you expect, even if you use some of this cash for acquisition and still kept a lot of cash around, would you expect to try to accelerate the company's trend growth rate over time with this acquisitions, or do you just view them as sort of filling the strength in the businesses and maintaining your existing growth rate?

Because I'm just wondering if you have the human capital to grow any faster.

John, our strategy is to complement our existing business and look at new technologies that are certainly going to help us grow and continue to maintain a premium margin.

But in terms of growing the business, whether it's through acquisitions or through greenfield sites, there's a number of factors that are taken into consideration. You know, obviously there's financial factors. It's got to make a lot of business sense, and we've got to have the cash to do it.

We also look at customer concentration, and we certainly look at the human touch, the human element. We've got to be able to -- whether it's an acquisition of

puts the right people in place to make sure that we do earn a reasonable profit on our investment.

OK. Thanks.

John, I'll get to the estimate on the Impala, $532 of content. The good news is a significant amount of that content is at Cosma, so it does help our metal forming business and it is factored into our numbers going forward.

OK. That's terrific. Thanks Dave.

Our next question comes from

from BMO Nesbitt Burns. Please proceed with your question.

Good afternoon. First, I just had a question on the guidance that you provided. In your underlying assumptions, I believe your North American vehicle production assumptions, light vehicles, is up a million units since you initially provided guidance early in January.

Yet if you look at the top end of your guidance range, you've only moved that up 25 cents a share which seems pretty conservative relative to your underlying outlook for production. So I'm just wondering are you being conservative on the top end, or are there some negative factors that have come to light since you first provided guidance earlier in the year?

Actually, I think what we've implied in our numbers, Peter, is -- you're right. We have moved North American

production up a million units from our previous held up, but we've also in effect reduced cost expectations for both North America and Europe. You know, if you were to sort of adjust our previous outlooks for the volumes on light vehicles only, our content at that point was between 435 and 455. We're now saying between 430 and 450.

So content's down. You know it's low on the top end by five dollars, and then Europe content's down by $10. Again, it's the low end, and at the top end. And in North America, the change -- the reduction in our expectations for content whether it's bottom end or top end really reflects product mix. And in Europe, sort of product mix as well as foreign exchange, and in Europe, the reduction in our

content released entirely to e-class volumes at Magna Steyr where our previous projections were a little bit more bullish on assembled vehicles for Mercedes, and our vehicle value assumptions for the

for the year have been cut back a bit.

So that translates into -- you obviously write down to the bottom line.

OK, my next question is during the annual meeting a number of senior managers indicated that you're going to be bringing the -- or the intention is to bring the Steyr assembly capability to North America.

I'm just wondering if you can talk a little bit about when you would anticipate that happening, and what the capital requirements would be.

Well again, as we said in our media conference yesterday, I first of all think that the management team is still developing the strategy for that, and really it would be -- in terms of the timing, it would be at the request of our customers.

I'd also say, Peter, we'll probably start with building up our engineering expertise over here first, getting involved with customers, understanding our capability there, and then depending on where they want to move these vehicles. Because as you know in North America, up until this time, all

vehicle production for the Big Three has essentially happened in house. So it's got to be a change in mindset for them as well.

Hypothetically speaking, say that they did move on this. I mean, what would the capital requirements be to build an assembly facility with the capabilities that Steyr currently has?

It really depends on volumes, Peter, and what level of assembly we get into. The range is so wide you really can't get a number on it, depending until we understand what our specific customer request is.

Right. OK. My last question is just overall on Steyr power trains. You know, the Tesma circular had the segmented information for Steyr power train, which was not profitable. And you've mentioned in your comments today that there are some start up programs there. So I take it that Steyr power trains aren't profitable, and I'm just wondering if you could provide some outlook as to when you think you could get to a break even position on it?

Peter, I don't like to really comment specifically on, you know, one of our subgroups. I talked a little bit about our Magna Steyr, because that will be segmented separately. We continue to make progress there. And as revenues move forward and increase, then we'll see improvements, certainly, in the bottom line.

In particular, if I think about North America operations, as you know, Peter, Steyr power train group is involved in forming work for the Rendezvous and Aztec. And that vehicle certainly has not met GM's expectations or our expectations on sales. So that's certainly had an impact on our profitability. We've got the infrastructure in place for higher volumes, and the volumes just haven't materialized.

OK. That's all I have. Thank you.

Our next question is from John Novak from TD Newcrest. Please proceed with your question.

I have a question concerning the automotive gross margins. You seem to hit the top end of your volume projections, both in North America and Europe, yet you hit the low end of your gross margin outlook. Can you just give us a bit more insight into that?

I guess when we look at the first quarter, John, we talked about a gross margin of high 17 percent to low 18 percent

that 17.8 percent.

You know, a lot of it depends on overall product mix.

The other thing that has hurt us a little bit on the margin side is the Cal-1 at Ford. You know, the volumes have not been what we hoped for, had expected.

And, you know, we have had some start up costs, as well on that program, which have impacted us in a negative way on the margin line.

Sorry, which program was that, Vince? I didn't catch that.

Cal-1.

I'd like to just add to that, though, with respect to the Cal-1. We have a very good relationship with Ford. We're working very closely together on the Cal-1. And, you know, Magna's fulfilling all the requirements at Ford.

OK. And just one point of clarification. On your last projection for volumes in your old guidance -- sorry, in content from North America. It was $425 to $445.

That's right, John. But I think if you restate it and take away the medium and heavy trucks, it translates to $435 to $455.

OK.

The volumes we used in the last call were $15.3 million, included medium and heavy. And medium and heavy account for about 300,000 units.

OK. So that's with the changes.

That's right.

And are any of the strikes in Germany having an impact on any of your operations, as of yet?

Not right now, John.

Great. Thank you very much.

Our next question comes from Nick Morton from RBC Capital Markets. Please proceed with your question.

Good afternoon. I have two questions. The first one is, you're being pretty cautious about the last half of the year, and I wondered if you had any indications from your customers about their production plans for the last half at this point?

Nick, we haven't got it yet. You know, we factored in, obviously, Q-2 production schedules that are customers are

we're probably going to see them in the next month to get a good handle on where Q-3 stands. But we are concerned going out, you know, cautious, as opposed to concern.

You know, the unemployment numbers in the U.S. have spooked us a bit. The softening, a little bit of consumer confidence in the U.S. in April as compared to March, concerns us a little bit. And we're still looking at the incentive number. You know, again, almost $1,800 of vehicle and still up over last year has us a little bit concerned. If people won't start cutting that number back a bit, and once that will impact sales and production.

OK. The second question is about Magna Entertainment. How is it doing and any outlook there for us?

Well, I know they've reported their results...

... talk more about the future.

I specifically cannot give you an outlook for 2002. Greg and Jim at NEC have not provided

with respect to the first quarter, I think we can look at quarter over quarter, putting two pieces of their business

understand it impacts their profitabilities.

One is their main car, racing operations

business, as well as road safe.

If you look at their real estates sales in the first quarter of 2001, they were substantially higher than the first quarter of 2002.

So in the real estate business year over year, they've had fewer profits in real estate. And that's good, you know, depending on the timing of sales and what they're working on in particular.

But the good news is, when you look at their racing operations, you know, they had more racing days, racing revenues are up, profits are up. They're revising some efficiencies. So the real

business is looking better than what it did a year ago.

And if I can just add to that? They're recently just completed an equity offering of 140 million U.S. dollars and a ratings credit

of 75 million U.S. dollars, which allows them to continue forward with their strategic plan.

That's great. Thanks very much for the answers.

Our next question comes from Ron Tadross from Banc of America. Please proceed with your question.

These mixed issues you're talking about, in particular, I guess

the Ford Escape, seems to be happening in segments of the market that are just getting more competitive. There are more products there, more capacity there. I'm wondering, have you pondered what this means for that 11 to 16 percent content

per vehicle growth that you're looking at the next few years? It seems like these mixed issues may be a bit more permanent in nature, and I wonder how you think about that?

Yes. It's a good question. When we go out and do our vehicle forecast, we take it right down to a segment by segment analysis. And then we take it from a segment analysis down to a platform by platform analysis. And we do factor the competition and the new vehicles that are being launched in those vehicle volumes. So we have reflected, you know, declines in minivan volumes, as, you know, Honda's increased capacity on the Odyssey, for instance.

We've continued to do that on the small sport utility vehicle, like the Escape when Honda -- when Hyundai comes in with an offering. So we do reflect that, and that is reflected in our 11 to 16 percent content growth number, $202 to $204.

Does that 11 to 16 come down for these reasons?

It's

in it.

OK. So

OK. And a little more detailed; on the D&A number, your D&A was flat year over year in the quarter. You're guiding up for the year, I think up 10 percent. Is that because the

is gone, should it be flat now going forward, D&A for the year?

You're talking year-over-year, Ron?

I'm talking year-over-year for the quarter, it was flat. Now, what's the forecast for the year?

The forecast for the year, our D&A is between $420 to $435 million. That's after restatement for -- well, last year our D&A was $399 million.

So it should be back end loaded, I guess, the second half of this year, because it was flat the first quarter.

Yes.

(Inaudible) exchange, Ron.

Oh, that's from exchange.

Some of it is.

OK. And then, just last question. The cash balances, you have about $1 billion on the balance sheet. How much of that is that Magna subsidiaries?

I would say that the majority of that cash is sitting at Magna wholly-owned companies.

But not including like

and Tesma and

?

That's right. Because substantially, all of it's Magna

when we talk about a strong balance sheet and opportunities for us

in what our, you know, our role is. We think we're real excellent from the position to capitalize on opportunities that arrive for Magna.

You know, again, we've

you know, our focus is creating new products, new companies, looking at new technologies and acquisitions that will complement either, you know, our existing businesses. And so, we need cash to do that, and the cash affords us the opportunity to do so.

Are you talking about the gross cash substantially all at Magna or the net cash, net of debt?

I was referring to the gross cash.

All right. Good. Thank you very much.

Operator, we're going to take one more call.

Our next question is from

from First Associates. Please proceed with your question.

Yes, I was wondering if you could elaborate on the launch costs at Steyr. What quarter would you expect them to peak at -- did we see the peak this quarter or do they ramp up throughout the year?

I think you've got to

but I think we need to think about the programs the N3 is launching in the end of 2003 to the beginning of 2004. So we'll continue to have launch

until the

is launching

in 2003, sort of middle summer, so I expect that we'll continue to have launch costs until that time.

OK. And just on the Lincoln Blackwood, did you see some improvement over the fourth quarter? I know that's not necessarily all your problems that you're experiencing on that program, but did the costs go down a little bit on it, or is it still the same drag as you experienced last quarter?

I think when you look at the Lincoln Blackwood, the

ground up are production processes become more and more refined, so I would say that generally the launch costs are in better shape in the first quarter compared to fourth quarter last year.

Again, just to comment that we do have a stable production process, and we're fulfilling all the board's requirements at this time. We have a very close positive working relation with the board.

And then finally, you gave some guidance in terms of the gross margins for the quarter. I was wondering if you could give them for last year, just get a comparison for North America and Europe.

Last year, when you look at overall margins in North America, they were in the sort of around approximately 22 percent, plus or minus. In Europe, they were shy of 17 percent.

That's it for me. Thank you.

Thank you for everyone's attention today. I'm sorry we had the call late in the afternoon. Starting with next quarter, we will go back to our regular routine and schedule the calls in the morning. If there's any questions that haven't been answered, feel free to contact Louis Tonelli in our office.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation, and ask that you please disconnect your line.