Magna International Inc (MGA) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter and year-end 2002 results conference call. During the presentation all participants will be in the listen-only mode. Afterwards we'll conduct a question and answer session.

At that time, if you have a question please press the one followed by the four on your telephone. As a reminder, this conference is being recorded Monday, February 24, 2003. I would now like to turn the conference over to Belinda Stronach, President and Chief Executive Officer with Magna International. Please proceed, ma'am.

Good evening and welcome to our fourth quarter conference call. My name is Belinda Stronach and I am President and Chief Executive Officer of Magna.

With me today are Vincent Galifi, Executive Vice President of Finance and Chief Financial Officer; Dave Carroll, Executive Vice President Marketing and Corporate Planning; and Louis Tonelli, Director of Investor Relations.

Our Board of Directors met earlier this afternoon and approved our financial results for the fourth quarter and for the fiscal year ended December 31, 2002. Our board officers declared a quarterly dividend of 34 cents per share payable on March 18, 2003. We issued a press release this afternoon for the fourth quarter and for the fiscal year ended December 31, 2002.

Both the press release and today's conference call are on our web site. We've also included a slide presentation on our web site to go along with our call today. Our address is www.magna.com. This evening I will highlight some of our achievements for 2002 as well as certain team priorities for 2003.

Vincent will then review our full year and fourth quarter financial performance, as well as our revised expectations for the first quarter of 2003. Upon completion of our formal results we will be pleased to answer any questions you may have.

2002 was a successful year for Magna. We've posted record sales of $13 billion, up 18 percent in a year when North American deals for production was up only six percent and European deals production declined one percent. Over the past decade, Magna's experience of compound average growth rate and sales of approximately 22 percent.

Excluding the non-cash impairment charges which Vincent will elaborate on, we earned record levels of both net income from operations and diluted earnings per share from operations of 584 million and $6.14 respectively. On the strategic front, we acquired Donnelly Corporation on October 1, making the combined Magna Donnelly route the largest exterior mirror supplier.

The acquisition also gave us significant interior mirror and EC glass capability as well as a strong electronics platform for which all of Magna can benefit. Perhaps most importantly, the acquisition strengthened Magna's strategic position in the global mirror market from the perspective of production locations , customer profiles, product diversification and innovative technology.

In Europe, we also strengthened our complete vehicle assembly operations at Magna Steyr to the purchase of the Eurostar assembly facility from DaimlerChrysler. This purchase provides us with the capacity and access to a highly trained workforce which will facilitate the launch of a BMW X3 complete vehicle program later this year while also offering us flexibility in the events that volume succeeds customer expectations. Longer term, the additional capacity at Eurostar will afford Magna Steyr the opportunity to pursue additional assembly business.

To prepare for additional revenue and profit growth, Magna invested approximately $800 million in property, plant and equipment in our automotive business. $106 million was used to purchase Eurostar and the majority of the balance was invested to support the launch of future product programs throughout the company.

I am particularly pleased with the financial performance of Magna's publishly traded subsidiaries, Tesma, Decoma, and Intier. Each of these companies posted strong operating results during 2002.

Turning now to our wholly owned subsidiaries, Cosma once again produced strong operating results while Magna Steyr, and the former Magna Donnelly's group , exited 2002 with considerable optimism for 2003. Magna Steyr had a challenging 2002, particularly in its powertrain business but also incurred significant launch costs throughout last year for the new programs going into production in 2003, including the new Mercedes E-class progmatic , the Sogmentry convertible and the BMW X3. The current Magna Steyr management team is focused on making improvements in powertrain and successfully launching its new assembly program.

We are also highly focused this year on the integration of the Magna Donnelly group as we expect to realize considerable synergies throughout the year. Kernels Mazerin and his management team are working hard on the issues and we are pleased with our progress to date.

I am also pleased with our other accomplishments in 2002 which included, the successful launch of three quarters of a billion dollars of new and replacement business in North America, Europe, and Korea, including complete systems and integrated programs, which will remain a key focus of Magna and each of its respective operating groups. The resolution of the outstanding issues with Ford on the cancellation of the Lincoln blackwits (ph) program in an amicable manner and has (ph) no material, financial impact and the award of approximately $3 billion of new and replacement business at full production volume. I am pleased to report that approximately 12 percent was source (ph) from new domestic manufacturers. While this is an improvement from previous years, I will not let up on Magna's focus to improve our standings with the new domestic manufacturers.

Turning now to 2003.

Geopolitical turmoil in Iraq continues to be the overriding issue in forecasting industry volume. Published Q1 production schedules points to North American industry production being higher than our previous guidance levels of four million units. However, inventory levels of 85 days in January and projected 78 days in February, based on the store of 16.1 million units, these will continue to be [Inaudible] for vehicle volumes for the balance of 2003. Therefore, we are not prepared to change our North American volume forecast of 16 million units for 2003, nor have we revised any other assumptions for the full year.

In Europe we had some concerns about vehicle production as the two largest markets, France and Germany, continued to experience lagging sales in recent months. I would like to briefly highlight some of our key priorities for 2003. First, as our industry faces a period of potential instability, I am working with our group president and Magna's senior management team to instill a downturn mindset with respect to expenditures, whether they are for current or capital nature. We will focus on successful product launches. As we have previously discussed, Magna will launch approximately $3.3 billion of new and replacement business over the next 12 months.

While this execution of complex launches has been and will remain a trademark of Magna, to date, the launch of the Tureg in Europe and the Pacifica in North America are progressing well. Magna will continue to refine its agent strategies consisting of increasing our business for new domestics and developing a strategy to enter the automotive market in China. In Europe, we will focus on increasing our penetration with the French OEMs. Under the guidance of Fred Gingl we will step up our efforts to develop innovative product and process technology which will be critical to retain our growth and margins in the future. Finally, we are increasing our efforts to improve the financial results at our under-performing divisions, particularly in Europe. While the number of under-performing divisions is not a source for concern, restoring these operations to break even levels of profitability will add tremendously to our overall financial performance.

In conclusion, Magna's entering 2003 with a strong foundation. Our organizations and product strategies are aligned on a global basis and we have a strong, competitive position. Our group management teams, assisted by Fred Gingl and Siegfried Wolf, are as strong as they have ever been. We continue to have the strongest balance sheet in the industry. Our launch and growth prospects going forward continue to be excellent and we are well-positioned strategically to leverage industry trends that impact each of our groups.

I want to thank our employees, customers, [Inaudible] , and management teams for making 2002 a great success for Magna. I am proud to lead 73,000 people whose success at building a better product at a better price has resulted in record performance in 2002 and a strong foundation for continued success in 2003.

I would now like to turn the call over to Vincent Galifi.

Thank you, Belinda. I would like to begin with a review of our financial results for the year-ended December 31st, 2002. All figures are in U.S. dollars. Consolidated sales increased 18 percent in 2002 to a record $13 billion. In 2002, North American production sales grew by 13 percent as a result of North American vehicle production increasing by six percent to 16.3 million units and North American content growing by seven percent to $441 for the year. The growth in content was attributable to our involvement in new production programs including the Cadillac CTS, the Dodge Ram pickup, the Ford Expedition and the Saturn Vue. The acquisition of Donnelly in the fourth quarter of 2002 also added approximately $9 to content.

In spite of a reduction, production volumes in Europe moved to 16.3 million units for the year. European production sales grew to $3.8 billion, representing a 29 percent increase. This improvement was the result of a 30 percent increase in European content per vehicle to $231. Some of the programs that contributed to content growth was the BMW MINI Cooper, the opal Spectra and the vaneo , the Mercedes Vaneo antique class, as well as increased Mercedes E and G class vehicles assembled at Magna Steyr.

In addition, the tracing of the Euro and British pound against the U.S. dollar and the acquisition of Donnelly also increased the European content during 2002. In summary, consolidated production sales increased approximately $1.7 billion in 2002, with organic growth contributing 1.2 billion to sales. Acquisitions net of disposal contributing approximately 300 million to sales and the movement of currencies against the U.S. dollar resulting in an increase of production sales of approximately $150 million.

Growth target as a percentage of sales was 17.3 percent for 2002, compared to 18.3 percent for 2001. Gross margin for 2002 was negatively affected by increased integration and assembly sales. In particular, increased Mercedes E and G class assembly sales, since such sales are accounted for on a full cost basis with a suspense production of the sales price being comprised of switched components.

Increases in Mercedes E and G class sales and integration program sales had the effect of increasing the level of full sales. However, because purchase components are included in cost per sales, gross margin as a percentage of total sales is negatively impacted. The strengthening of the Euro and British pound each against the U.S. dollar, resulted in relatively more of Magna's consolidated gross margin being earned in Europe in 2002 compared to 2001.

This has the effect of increasing Magna's overall gross margin percentage as gross margin as a percentage of sales is turning lower in Europe compared to North America. In addition, increased tooling and other automotive sales for gross margins are lower than on production programs, rank of cost for new programs launched an operational ineffeciency circuit division and OEM press concessions all negatively effected the gross margin percentage.

Partially offsetting these declines in gross margins was the positive impact of higher vehicle production in North America, an improved performance and productivity improvements at a number of divisions. In accordance with the new recommendations of the Canadian Institute of Charter Accountants, the company recorded a 36 million non-cash impairment charge related to goodwill and fixed assets at certain underperforming European interior and die-casting operation in the fourth quarter of 2002.

In addition, Magna Entertainment Corp. recorded an 18 million non-cash impairment charge related to the write down of racing licenses and [Inaudible] at two race tracks. These impairment charges were [Inaudible] net income for the fourth quarter and full year 2002 of $34 million, and diluted earnings per share for the fourth quarter and full year 2002 by 35 cents and 37 cents respectively.

Net income from operations, excluding the non-cash impairment charges, was a record $584 million, representing an increase of eight percent over our previous record performance achieved in 2001. Diluted [Inaudible] from operations, excluding the non-cash impairment charges was a record $6.14 per share, an increase of six percent over our 2001 [Inaudible] performance.

I will now review our cash flow and investment activities. During 2002, we generated a record $1.1 billion in cash from operations. Another $316 million was generated from prudent working capital management.

For the year, we invested on a consolidated basis $1.2 billion, which included approximately $275 million [Inaudible] . Automotive spending was comprised of approximately $800 million in fixed assets, which includes $106 million of the purchase of Eurostar and approximately $150 million in investments and other acquisitions.

Much of our fixed assets and other [Inaudible] spending was required to support the expected growth in per vehicle for 2003 to 2005.

I'd like to point out that Magna continues to generate a strong return on assets and equity. Excluding the non-cash impairment charge, Magna's automotive return on funds employed, a key internal measurable, increased to 22 percent from 20 percent in 2001. In return, equity from Magna increases of 12.3 percent for 2002.

I would now like to discuss our two-fold performance. For the fourth quarter of 2002, [Inaudible] sales increased 25 percent to a record $3.6 billion. In the quarter, North American production was essentially level with the prior year, at 3.9 million units. North America's production sales improved 21 percent over this period as a result of North American content growing by 20 percent from $500 per vehicle.

The acquisition of Donnelly, which adds approximately $40, and our involvement on the [Inaudible] , the Ford Expedition, the BMW [Inaudible] roadster, and the Saturn, all contributed to its content growth. In Europe, production volumes increased by approximately five percent from the comparable quarter [Inaudible] . Our European [Inaudible] per vehicle increased by $53, or 26 percent, over the comparable quarter, to $255. Thirty-one dollars of this increase related to the strengthening of the euro and British pound, each against the U.S. dollar.

The acquisition of Donnelly added approximately $19, and the balance [Inaudible] our involvement of [Inaudible] with the BMW Mini Cooper, Chrysler and a Mercedes manual. This resulted in European production sales for the third quarter of 1.1 billion, compared to 805 million a year ago, an increase of 33 percent.

In summary, Q4 2002 consulted and production sales increased 594 million with organic growth contributing 238 million to sales, acquisitions contributing 238 million to sales and the movement of currencies against the U.S. dollar contributing 118 million. Tooling another scale of 444 million for the quarter, that's up 115 million reflecting the large number of programs being launched during 2003.

I would now like to spend a few moments on gross margins and the percentage of total sales.

Third quarter gross margins were 15.8 percent, compared to 17.8 percent after the fourth quarter of 2001. The gross margin percentage was negatively impacted by the following items. Foreign exchange movements. As a result of the trading in the euro and the British pound, each again in U.S. dollar, the translation of euro denominated gross margin into U.S. dollars resulted in a higher percentage of margin being earned in Europe, thereby decreasing Magna's overall gross margin percentage. The acquisition of Donnelly, which upgrades our margin lower than the Magna average, as well as a higher level of lower margin tooling and other automotive sales, pre-launched design and engineering costs for new production programs, launched products and [Inaudible] the underperforming division all contributed to the time and gross margin. These are partially offset by the positive impact the new programs that are fully ramped up as prove performance at a number of positions.

SG&A cost was 6.4 percent for the fourth quarter, compared just to 6.7 percent for the comparable quarter in 2001.

Net income from operation, excluding the impairment charges discussed earlier, increased 15 percent to 144 million a quarter, compared to 125 million received for good growth in the fourth quarter of 2001.

Diluted EPS from operations, excluding the impairment charges, increased 7 percent to $1.45 in the quarter, compared to $1.36 we stated from in the fourth quarter of 2001.

During the quarter we generated 540 million in cash from operations, including 247 million from non-cash driven capital. Our consolidated basis, we vested approximately 530 million of which 200 million was at MDC. Automative spending was comprised of approximately 270 million in fixed assets and 70 million from acquisitions, investments and other assets. We believe our strong financial performance over the past couple of years is the combination of prudent investment decisions made in recent years. We continue to exercise discipline in investing just to maintain our profitable growth in the future.

I would now like to turn to our revised outlook expectations for the first quarter of 2003.

As Belinda discussed, Q1 OEM production schedules for North America have been running higher than our previous outlook of four million units. As a result, we have increased our volumes -- volume expectations in North America to 4.2 million units in Q1. Increased vehicle volumes are expected to result in higher automotive sales and we now expect diluted EPS from operations to be at the high end, or to exceed the $1.25 to $1.45 range provided back in January.

In summary, we're the strongest balance sheet in the industry as measured by the debt to capital [Inaudible] 12 percent and cash resources on hand of 1.2 billion at December 31st, 2002. Magna is well-positioned to take advantage of future opportunities in the global automotive industry.

This concludes our formal remarks. Just as a reminder, the discussion today contains forward-looking statements within the meaning of the [Inaudible] Securities legislation. Such statements involve certain risks, assumptions and uncertainties which may cause the Company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to yesterday's--please refer to today's press release for a complete description of our Safe Harbor disclaimer.

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

Thank you. Ladies and gentlemen, if you would like to register for a question, please press the 1, followed by the 4, on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1, followed by the 3. If you're using a speakerphone, please lift your handset before entering your request. One moment, please, for the first question.

Our first question comes from the line of David Bradley from JP Morgan. Please proceed with your question.

Good evening. Congratulations on the quarter.

Good evening.

Thanks, David.

A couple of things. One, I've been a little confused at the content of North America, just the volatility. We've been running about three percent for the last two quarters, surprisingly low, and now we're getting 20 percent. If I strip out I still get about 13 percent. So jumping from three percent to 13, is this product timing, cycle timing, you know, or is it mix issues? Why does this jump around so much and how should we think about that going forward?

David, there's a couple of things impacting content in the fourth quarter, but the first is the Donnelly acquisition which added about $40 of content in the fourth quarter. The balance of it is really just good old content growth and it's really a positive mix. Some of the programs have done extremely well in the fourth quarter for us, the Cadillac CTS, the Geometric [Inaudible] , the Ion, the Ford Expedition, the Saturn View as well as BMW's S-4 Roadster have all contributed substantially to our content growth in the fourth quarter. It's not an exact science in terms of trying to determine [Inaudible] what content the vehicles going to be in any quarter, there's a lot of different things that come into play; vehicle production on certain vehicles, mix, inflation rate of equipment. All that sort of gets bundled together and at the end you look at it and see what content for vehicles is. We know that, based on the programs that we've been awarded and are in place, we continue to expect content to grow and we're happy with the performance in the fourth quarter. And we look forward to continued content growth in '03 and beyond.

OK. And then in terms of margin, you gave us a list of things that hurt the margin, the gross margin in Q4. Obviously you more than made up with revenue. But it looks--if I look over that list, it looks like most of those things are going to be there for awhile. Should we--I mean, should we think about this kind of 17 percent automotive margin as a kind of a run rate or are we thinking about getting back to 18 or 19 and how soon might that happen?

Well, David, I'm going to refer you back to our guidance for 2003 that we talked about in early January. And our expectation for full year 2000 somewhere in the range of high 16 percent, below 17 percent. And if you recall back in January we talked about the wide margin and where we guidance and a big part of that is due to the substantial amount of launches that are taking place in 2003.

Belinda talked about $3.3 billion of business that we're launching, and that will have an impact for margin in 2003.

OK. And then one last thing, minority interest have been running, you know, between sort of 12 and 22 million. And it dipped down to one million. Some of the one timer's pulling through the minority line, is that why it fell off? And it's a sustainable runway? What kind of number should we think about there?

You're absolutely right. If you think about absent impairment charges that we discussed during our public subsidiaries at Steyr's and MC, so we're going to have the positive impact hitting minority interests.

You know, in terms of run rates, David, we haven't talked publicly about that. I think you've got an idea of the terms of where the performances launch for public subsidiaries. I think you should draw your own conclusion.

OK. Thank you.

Next question.

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

Thanks very much. Three questions. First, on cap acts, Vincent it looked a little bit higher than you were expecting in the fourth quarter if I take your 305 and subtract out Eurostar, which I think is in there. Is that correct? And why would that be?

Well, you're right. We were expecting cap acts to be a tad lower, John. But it came in a little higher, 30 to $35 million more than what we had anticipated. All of that really is just pull forward of capital spending from 2003 to 2002. It's really difficult to predict the exact amount of capital spending that's going to take place.

In particular, when I think about Magna Steyr and with the assembly programs that are coming online there, there was a lot of work that was performed and a lot of capital that was already in place that we actually had to certify that everything was in order. We took the opportunity over the Christmas holidays to certify that the work was complete and had faith in our accounting rules.

We were satisfied that things were in place. Title had costs, so we had to report the asset of the fixed assets. But to me, it's just moving things from '03 into '02. There isn't anything there that we haven't expected.

OK. Secondly, on the write down of NEC, I mean, you guys point it out as a special item. But is it sort of a part of just regular part of doing business write down? I mean, why would this be a special item?

It was - we called it a non-cash charge. As it relates really to FASB 142 and 144, the annual tests on indefinite life intangible assets.

I didn't realize. I didn't know that that was also 142, 144. I understand.

It's all 142, 144 related.

OK. And then just the last question, what's your latest view on the Steyr IPO? I know Frank has been talking about it happening pretty quickly. Have you guys anything to say on this?

Yes. We continue to work on this, preparing the Magna Steyr group for a public offering and to - but we will, you know, monitor the market and when we feel it's ready we're going to come out with it.

OK. So you're not endorsing or ...

No, we're not committing to a specific timetable.

OK. Thanks Belinda.

Thank you, John.

Our next question comes from the line of Rod Lache from Deutsche Bank. Please proceed with your question, sir.

Good evening everybody.

Good evening.

Good evening.

Two questions. One is, a lot of the business you've got ramping up in '03 in Europe, can you talk a little bit about what the margin differential is right now in Europe versus North America? And is there any reason for that to converge? And also, can you - you talked about this briefly, but I may have missed this. What was the resolution of the Blackwood contract?

I'll answer your second question first. We came to an agreement with Ford on the [Inaudible] of the Blackwood program, and there's been no material financial impact to us in the quarter. [Inaudible] will discuss the particular terms about that settlement with [Inaudible] , but we're pleased with how that came to a conclusion.

With respect to your margin question, currently Europe is operating at margins that are less than North America. And I would say that there are a couple of reasons. Maybe more than a couple of reasons for that.

The first reason that we keep on top of that investment quite a bit is that a potential portion of our sales [Inaudible] with respect to complete [Inaudible] . And with some of the programs at Magna [Inaudible] , we're purchasing a lot of components and we're selling the complete vehicle back to the OEM. So that's going to have the impact of reducing margins.

I also want to point out that, when you look at our complete vehicle assembly business, and you look at return on funds employed, i.e. return on assets, that business is attractive, just like any of the other mature businesses in North America. The other thing that's impacting our European margins in 2002 is that substantial costs are being incurred for the loss of new programs. Again, refer back to the Magna [Inaudible] and the BMW X3 and the [Inaudible] that are going to launch in 2003.

And we're investing today. We've invested in 2002. We'll have more [Inaudible] . So we'll see the benefits of those investments in 2003 - later on in 2003 and 2004.

I will also say that a lot of our sales in Europe originated from acquisitions. And we were every prudent in acquiring companies. None of these companies needed some work. We continued to work with the companies; we continued to Magna Steyr them. But the performance I would say in Europe is not yet at the level that [Inaudible] in North America. We are making progress; we continue to make progress. But we haven't made enough progress yet.

If I could just add to that. I'm not happy with our results in Europe, and we still have, you know, some problem divisions left [Inaudible] . And we sent out to replicate our capability that we have in North America in Europe. And what we do do is we continue to track all of our under-performing divisions. [Inaudible] divisions lose money or that are below budget. And [Inaudible] in particular in Europe takes this on as a top priority, and it's a little more difficult to fix in Europe.

But it's the focus of the management team and, like I said, in particular, [Inaudible] . And we're hoping that the margins improve.

So, Rod, we don't see a reason why margins in Europe couldn't equate to margins in North America. I think you've got to exclude the vehicle [Inaudible] business, because that is a different business. It's got to be evaluated on a different basis. But if you exclude that, I don't see any reason why we couldn't achieve the same margins in Europe over time.

Can I just follow up? Can you give us some quantification of the difference in margins between these regions? And, you know, relative to your repair non-assets comment, are you thinking that returns could be relatively flat in '03 versus '02, even if margins are coming off a bit?

I'm sorry. Can you repeat the last part of that question, Rob, I missed that.

Yes. Are you thinking that returns in 2003, return on assets, will be kind of flattish even with a decline in margins?

Rob, you really want to -- I mean, in terms of return on assets, we continue to focus on it. There -- with all things being equal return on its employee return asset is going to be the same. We talked about earlier in January but we do have a section on launching estimated impact, obviously, our income statement, our margins, which we've talked about, which may have some negative impact on return on assets.

Again, remember, we've got to invest today the business that's launching. We've got to make sure that it launches perfectly. We're comfortable that we're going to be able to do that like we've done in the past and we don't see any reason why internal assets won't be at good levels for '03 or beyond.

Do we have another question or . . .

Our next question comes from the line of Steve Girsky from Morgan Stanley.

Please proceed with your question, sir.

Hi everybody.

Hi, Steve.

Hi, Steve.

Can you hear me?

Yes.

galifi Yes.

Did you guys give a currency impact on profit in the fourth quarter at all?

No we didn't, Steve.

Do you have a number like that or no?

No, we don't. We -- no, we really left that -- the impact to gross margin and the fourth quarter the impact of gross margin with exchange was quite substantial.

So it aided -- I'm just trying to get this straight. Currency aided revenues by 5 percent ish but had not impact on gross profit?

I think what the -- . I think in terms of the -- just on revenue in the fourth quarter foreign exchange, when you look at production sales, probably helped us by about 30 odd million dollars.

Oh. Oh, OK. I . . .

In the fourth quarter, year over . . .

Annual then?

Year-over-year and, you know, margins -- it probably impacted us negatively by about half a point.

Negative?

Yes.

OK.

Unidentified Corporate Participant Magna International: In your retro math.

I'm just trying to figure out why it would be negative. Is the -- is the -- cause the euro has strengthened.

That's right. Well, Steve, the existing basic model is that Europe margins are lower than that of North America. So it's just the euro and the British pound tracking against the U.S. dollar was a bigger proportion of our revenue there and revenues in Europe.

could have added to profits, though. I mean it still -- it still . . .

the same amount -- the same ratio, right?

Yeah.

Well you don't have a negative impact on margins. We haven't talked about the impact of our ETS. What I just talked about is the impact of Magna's gross margin.

OK and it was negative to the percentage?

Yes.

All right. Did Donnelly make money in the quarter or no?

Yes, they made money. Definitely.

After interest?

With in -- yes, after interest. That's correct.

OK and when you talk about the cap ex being higher, the pull forward from '03, does that mean we're going to be at the low end of the 750 to 800 that we talked about before?

It's too early to tell. I like to where you're 750, 800. There could be some capital against first into 2004. As we move on there could be some capital from 2004 that moves into 2003. We think the 750, 800 is a good estimate at this time.

OK. And I may have missed it, but what's your appetite towards more acquisitions this year?

We continue to seek major acquisitions that come on the market. We evaluate it on a product by product basis and if it's something that will strategically complement one of our groups or our product lines, it's something that we will take a look at.

OK, thank you.

Our next question comes from the line of J.P. Benson from CIBC World Markets. Please proceed with your question.

Good evening. I've got two questions, one for Vincent and one for Belinda. First, Vincent, on Q1 '03 content, because I think you provided a range earlier of 4.60 to 4.75, are--is that the kind of number you're sticking with? Because it would be down quite a bit sequentially and it sounds like the wind was at your back a little bit on mix, on some of the programs in Q4. But have you updated that number?

The only change we've made is to North American and you've got to remember that when we--we had a call in January that involved a complete buildup of their business plan, division by division, through [Inaudible] up to Magna Consolidated. Now we haven't [Inaudible] a safe process for the recent [Inaudible] we've given. We just looked at production schedules, they're higher and based on that, we've moved up our earnings per share range. At this point in time, I just don't have the detailed information to determine whether the guidance [Inaudible] .

And Belinda, just on Steyr, if I heard right in your commentary, it sounded like the mirrors group in Steyr had a pretty strong finish to the year, unless I'm reading too much into your comments. I'm just wondering, Steyr I guess lost a million bucks in the third quarter at the operating line, it lost--or lost four million in the third quarter, lost a million in the fourth. Is this as bad as it gets at Steyr? You got a big launch, you got a couple of big launches this year, I guess. Just trying to think directionally where that profitability goes over the next few quarters.

I think Steyr has had a number of challenges. I think in the powertrain division, though, they're cleared up now and I'm comfortable with the progress that's being made; it's on track, there's a good management team in place. And going forward now, you know, they have a number of launches that they have to successfully complete. As you know, we've strengthened the management team through the addition of Herbert Demill and a number of other senior members to the management team at Steyr. So I'm confident that they're going to keep being on track and that they're going to--you know, the focus is definitely to make sure that these launches go off successfully and that's a top priority for myself and again, Siegfried Wolf in Europe and Herbert Demill. And so we continue to monitor that, but I'm happy with the progress that's been achieved.

J.P., just on that in the quarter for Magna was a loss of a million dollars, but keep in mind that's been happening at Magna Steyr as well. In the fourth quarter there was [Inaudible] for the new e-class program, the 4 x 2 version actually launched in the first quarter of 2003 at Magna Steyr. The old version was being rundown, so we had a lot of people preparing to launch the new vehicle. So when I look at Magna Steyr as a loss of a million, it relates to really one item. This launch stop (ph) to new programs and, you know, we're expecting in 2003 as these programs come online that we see improvements in Magna Tire's profitability.

The other positive thing is we've seen at Magna Tire we've talked in the past about, you know, power training somebody inefficiencies we've had there. And I'm happy with the progress that's been made in our power train group and we're expecting that to continue throughout the balance of 2003.

OK. So if I put your comments and Belinda's together, it does sound like the - we're sort of passing the bottom on profits for Steyr.

I see it as it has a strong future.

OK.

In Steyr.

That's all for me. Thanks very much.

Our next question comes from the line of Peter Sklar of BMO Nesbitt Burns. Please proceed with your question.

Three questions. First, in your discussion in the press release you talk about a 97 million investment in other assets. Can you tell me what that is or what's in there?

It is related to a couple of things. I'm just trying to sort through some information I have on my table here. It's related primarily to costs that were occurring at Magna Steyr. Where there's going to be recoverable from the customer.

There's cap acts tooling, engineering and other costs, the BMW program, the SEC program as the other costs have been recoverable from the customer. That's the big part of it. And there were some other receivable, again, on the SEC (ph) program that are recoverable from the customer and those are capitalized.

But that's the bulk of the additions and other assets.

OK. Next, Vincent, I'm having trouble extracting what your tax rate was net of all the impairment charges. Do you know what - would you know that off the top of your head?

Yes I do. It's - tax rate was approximately - for the quarter or for the year?

For the quarter.

For the quarter it was about 34 and a half percent, but let me - no, actually ...

Peter, if you have any ideas on how to lower that we'd be happy to listen.

About 34 percent, Peter. That's excluding the impairment charges and the tax refund of some profit distribution that we - about 34 percent.

OK. And lastly, on your segmented reporting Causma showed a big gain in operating profit. Obviously Donnelly had a lot to do with that, but I'm just wondering if you can talk generally how Causma (ph) is doing?

I can't recall, but I believe it does have some work on the Pacifica. And can you make any comments there?

Unidentified Corporate Participant Magna International: Well, on the Pacifica, Peter, you're right. We had the high performed front engine cradle and the high perform rear suspension module. Both that and the launch at Entire (ph) on the new seats have gone extremely well on the Pacifica.

So we're quite comfortable that that first launch is well underway.

The crux of that segment there, profitability in the quarter, Peter, you're right. Relates to profitability at Donnelly. The acquisition's already showing some positive returns as well as good results in our metal sinking (ph) operations as well.

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

Thank you.

Our next question comes from the line of John Novak of TD Newcrest. Please proceed with your question.

Vincent, I have a question with respect to the net assets at Steyr and also at Magna corporate. It appears that the fixed assets went down at Steyr and the corporate assets went up. Can you explain what's happening there?

John, I can't do that off the top of my head. I'm going to have to call you about that tomorrow. I apologize.

OK. Because it was in excess of $100 million in both cases.

John, you know what? I'm going to have to call you with that tomorrow. I just don't have that information handy with me. I'm sorry. [Inaudible] .

OK. And, Belinda, how much extra capacity is there right now at Eurostar?

Roughly - approximately $100,000 in extra capacity at the moment.

And that's assuming the more optimistic volumes with the X3?

No. We're not really allowed to talk about the volumes on the X3.

So the $100,000 excludes any X3 whatsoever? I mean the $100,000 extra capacity excludes any X3 volume?

It escludes any X3 volume, yes.

OK. And has any decision been made whether the powertrain at Steyr are going to remain within Steyr when it's IPO'd or taken out?

No. The power train assets will remain within Steyr, and the is crucial to Magna business. And one of the reasons why we do that, the [Inaudible] will [Inaudible] . So it will remain within the Steyr group.

OK. And was there any reason why interest to income was higher in Q4 than Q3? The cash balance didn't change significantly. Was it exchange related?

Unidentified Corporate Participant Magna International: John, part of that is going to be exchange related. We're going to have to look at that as well, John. I just don't have that handy.

OK, thank you.

Our next question comes from the line of Wendy Needham from Credit Suisse First Boston. Please proceed with your question.

Yes, good afternoon.

Good afternoon, Wendy. Or good evening.

Hi Wendy.

Good evening - sorry. The extra cash that you have, it does continue to creep up. Could you just go through again your priorities? And particularly since you talked about sinking - or establishing a downturn mindset, does that change what you're thinking about doing with the cash?

Well the downturn mindsets have played. And that's due to the global economic uncertainty that's out there at the moment with the, you know, likelihood of war in Iraq. And I think that's just good business sense to review all of our expenditures and to be prepared for that scenario.

We do have cash on hand; that's for a number of reasons. And you know that last August in 2003 we indicated the - we got permits from the [Inaudible] to execute a share buyback. It was approved by our board last August. And we have until this August, 2003, to [Inaudible] buybacks in Magna shares. So that could be one of [Inaudible] .

And, again, we had a question earlier about acquisitions. And, again, we are looking at acquisitions that will complement our various groups. So that's another source of potential use of cash.

OK. So nothing has really changed in what you're thinking about doing with the cash?

No. Acquisitions, shared buybacks, and it's also very to say from customers' standpoint to support a number of the large - the major programs that we undertake and make sure that we have the financial strength to take on an X3.

OK. Thank you.

Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four.

Maybe we take one more question, if there's one, and . . .

Absolutely. Our next question comes from the line of David Tyerman of Scotia Capital.

Please proceed with your question.

Yes. I wondering if you could identify how many underperforming divisions you have in Europe and what the losses are and also what the start-up costs are. It seems that this is a big swing factor.

Hi, David.

Hi.

We don't propose we state the number of underperforming divisions. However, we do track them very closely. I think we have the strongest tracking source (ph) that's ever in place. Underperforming divisions just means that they're losing money or that they're significantly below the budget. Each group president is responsible if there's an action (ph) plan to resolve the under performance and then we review that progress on a monthly basis, there's a financial review and on a quarterly basis there's a full operational review and, again, if we're not happy with the action plan, then the management team, you know, gets further involved here, including Ziggy (ph) in Europe, and Fred Gingles (ph) here in North America. However, we always try to drive, you know, the responsibility to fix the problem down to the group for the (ph) divisional management team.

OK. Would I be correct, though, in my assessment that these are big numbers, both on the underperforming and on the launch costs?

I would say, no comment to that. However, when you look at the size of Magna, there's always going to be some divisions that are underperforming or that are strategic in nature or better (ph) start business. So the focus of the management team but its, on an overall basis, is nothing to be overly concerned about.

David, I guess the evidence of that is when you look at our results for 2002. You know, we've had our best year ever. Good sales growth and as (ph) EPS growth.

Right.

Unidentified Corporate Participant Magna International: And we're always going to manage our business to make improvements, whether it's divisions or underperforming [Inaudible] divisions are doing well. We want them to do better.

Right. Fair enough. Another question. To John's question, I think Belinda said there is 100,000 capacity at Eurostar (ph) . How about for the whole excess capacity (ph) ? For the whole of the Grats (ph) operation, what would be the excess capacity that the 100,000?

Unidentified Corporate Participant Magna International: David, again, I don't know that you really want to get into how much capacity. We said that there's capacity there to build in excess of 200,000 units a year when we get everything ramped up. We can all take a look at it and there is some excess capacity. We're keeping that excess. It's minor in nature. We're keeping that excess capacity there to handle some potential volume increases should customer demand exceed what we're planning for but also, you know, we've got plans for future capacity growth too. We want to take on some additional assembly business. If its good business for us once we launch back (ph) , we're comfortable. So, again, you know, a lot of things can sway your capacity and excess capacity and so we don't want to talk about it.

So there is enough to -- additional programs.

Unidentified Corporate Participant Magna International: Absolutely, yes.

Unidentified Corporate Participant Magna International: There's enough to accommodate additional programs or an increase in volume.

Unidentified Corporate Participant Magna International: David, you also got to keep in mind when you sort of say what capacity is. You've got to make assumptions as to what vehicles are being assembled, how bit and how small, what the purpose is, that's all impact theoretical capacity at the number of units that can be assembled [Inaudible] .

OK. Thank you.

Unidentified Corporate Participant Magna International: Thank you.

Well, thank you everyone for participating in our conference call this evening. We anticipate another successful year for Magna in 2003 and we look forward to keeping you all up to date on our progress. Good night.

Ladies and gentlemen, that does conclude the conference call for today and we thank you for your participation and ask that you please disconnect lines.