Magna International Inc (MGA) 2003 Q2 法說會逐字稿

Thank you for standing by and welcome to the Magna International, Inc. second quarter 2003 results conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

At that time if you have a question, press the 1 followed by the 4 on your telephone.

As a reminder, this conference is being recorded Wednesday, August 6th, 2003.

I would now like to turn the conference over to Ms. Belinda Stronach, President and CEO of Magna International, Inc.

Please go ahead, ma'am.

Good afternoon, welcome to our second quarter conference call.

With me today are Vince Galifi, EVP and CFO, and Lewis Tinelli , Director of Investor Relations.

Earlier today, our Board of Directors met and approved our financial results for the second quarter ended June 30th, 2003.

Our Board also declared a quarterly dividend of $0.34 per share, payable on September 15th, to shareholders of record on August 29th.

We issued a press release this afternoon for the quarter.

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 the call today.

Our address is www.magna.com.

We apologize for holding the conference call at this time, however, we're accommodating those of you involved in industry related engagements tomorrow.

Our performance in the second quarter of 2003, was strong once again.

We continued to post excellent results, achieving record levels in sales, net income from operations, and cash flow from operations before and working capital.

We disclosed in our press release earlier today that we had extended our share buyback program originally announced in August of 2002, and set to expire next week on August 11th.

As many of you now know, we have been blocked out from most of the passed year from buying back shares as a result of the Donnelly acquisition, the MID spin-off and our regular quarter-end blackouts.

The extension is in respect of a buyback of up to 3m shares and not to exceed $200m worth of Magna class A shares in a normal course issuer bid.

This buyback will be subject to overall market conditions and the prospect for our business.

I want to remind all Magna shareholders that our special shareholders meeting to vote on the MID spin-off transaction is set for August 19th at the Design Exchange in Toronto.

We believe this transaction sets the corporate structure right for Magna going forward, and we hope all shareholders will support it.

We enjoyed an excellent quarter in business awards from our customers.

In addition, we're currently quoting on a significant amount of new business across all groups.

The high level of sourcing activity, bodes well for continued content growth at Magna in future years.

I would like to take a moment to discuss our revised forecast for vehicle volumes in North America and Europe.

Relatively strong June and July auto sales in North America, have relieved some of the inventory level concerns that existed at the end of last quarter.

We are holding our production outlook unchanged in North America for the second half of the year.

In May, we assumed annual volumes in North America of 15.8m units.

Second quarter production came in approximately 100,000 units above our assumption.

Thus, we are revising our assumption for north American production to 15.9m units, or about 3% below last year.

Our European annual production forecast has been adjusted down from 16.1m units, forecasted in May, to 16m units, for a decline of 2% from last year.

Vince will take you through the details of our outlook.

I had mentioned previously that 2003 is a critical launch year for Magna.

We're pleased that our production launches in the first half of the year have gone well, and that we are on track with the remaining launches that will take place during the second half of 2003.

Key launches in the first half in North America includes the new Chrysler Pacifica on which we have approximately 2,100 in content and the Mitsubishi Endeavor.

In Europe, we were involved in the launches of the Porsche Cayenne , the Nissan Micra and and the Toyota Evences .

Significant second half launches in North America includes the Ford FreeStar , which replaces the WinStar and on which our content has moved up to over $2000.

The Dodge Durango sporting our hydro formed truck frame, the Cadillac SRX and the Chevy Colorado.

In Europe, Magna Steyr began launching the SAAB 93 convertible at our garage facility and in the fourth quarter Magna Steyr will begin assembling the much anticipated BMW S-3.

We also have significant content, including the complete interior, excluding seats on the prestigious new BMW6 series launching in the fourth quarter.

I will now turn the call over to Lewis.

Thanks, Belinda.

Good afternoon, everyone.

I would like to begin with the review of our financial results for the second quarter ended June 30th, 2003.

All figures are in U.S. dollars.

Consolidated sales increased 18% to $3.8b in the second quarter of 2003.

Automotive sales were $3.7b for the quarter an increase of 16% over the comparable period.

In Q2, 2003, North American production sales grew by 12% from the comparable quarter.

This is despite a 9% decline in North American vehicle production to approximately 4.2m units.

North American content grew by 23% to $516.

The growth in content was attributed to the strengthening of the Canadian dollar against the U.S. dollar, which contributed approximately $28 to content growth.

The acquisition of Donnelly in the fourth quarter of 2002, and our involvement in new production programs, including the Chrysler Pacifica, the Mitsubishi Endeavor, which launched in the first quarter and the Ford Expedition, the Lincoln Aviator, the BMW S$, the Saturn Ion and the Mazda 6, all of which launched in 2002. with modestly positive on our top platforms in the quarter with strong production of the GMP800 program, largely offset by lower production on the Chrysler mini-van and Ford Explorer.

The end of production from the Lincoln Black Wood and the Camaro Firebird reduced content quarter over quarter.

European production sales grew to $1.2b, representing a 32% increase.

This improvement in Europe was a result of a 31% increase in content per vehicle to $284, and a 1% increase in European production volumes.

The strengthening of the euro and British pound against the U.S. dollar, which together increased European content by approximately $55, and the acquisition of Donnelly, were the most significant factors for this increase during the second quarter.

Some of the programs that also contributed to content growth were the Mini by BMW, and the Chrysler mini-van, as well as the launches of the Nissan Micra, the Volkswagen Turret and the Porsche Cayenne.

Offsetting this growth were programs that balanced out subsequent to the second quarter of 2000, including the Mercedes M class business at Magna Steyr and the PT cruiser, as well as lower volumes on the Mercedes G class and Mercedes E class assembled at Magna Steyr.

In summary, consolidated production sales increased approximately $535m in the second quarter, with acquisitions, the movement of currencies against the U.S. dollar, and growth in content in North America, contributing to sales, partially offset by declining sales largely related to the 9% decline in North American volumes.

Tooling and other sales were $281m for the quarter, down $20m from the comparable period.

The decline in June sales reflects the completion of tooling for programs previously launched, particularly at Tacoma and Cosma , partially offset by the positive impact of foreign exchange and tooling sales associated with upcoming launches.

Despite North American vehicle production being down 9% and increased launch cost related to the $3.3b of new and replacement business, launching during 2003, we posted strong growth margin as a percentage of sales of 18.1% for the second quarter of 2003 compared to 18.3% for Q2, 2002.

Gross margin was also affected by the following.

Foreign exchange movement.

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 the second quarter of 2003, compared to the comparable quarter.

This had the effect of decreasing Magna's overall growth margin percentage as gross margin as a percentage of sales is currently lower in Europe, compared to North America.

The acquisition of Donnelly, which currently operates at a margin lower than the Magna average and OEM price concessions.

These are largely offset by improved performance and productivity improvements, at a number of divisions, as well as a lower level of low margin tooling and other sales.

SG&A costs were 6.7% for the second quarter, compared to 6.1% for the comparable quarter.

The increase is largely attributable to the launch of a number of new facilities and programs this year which requires SG&A infrastructure in advance of related sales at those facilities, and the acquisition of Donnelly which has historically run at a higher level of SG&A as a percentage of sales than the Magna average.

Net income from operations increased to $174m in the quarter from $170min the second quarter of 2002.

Diluted EPS from operations was $1.76 per share, compared to $1.81 for the second quarter of 2002, primarily as a result of having approximately 5.2m additional shares outstanding, related to the acquisition of Donnelly in the fourth quarter of 2002.

The impact of Donnelly on Magna's results is expected to get progressively better throughout 2003 as synergies are realized and the Magna-Donnelly integration is completed.

Now to review our cash flows and investment activities.

During the second quarter of 2003, we generated a record $350m in cash from operations prior to changes in working capital.

We invested $291m in working capital, including $23m at NEC.

The increased working capital in our automotive business, relates to an increase in accounts receivable, due to higher sales, and because our normal quarter end cutoff came before the typical timing of receipts from a large customer.

Reduced payables related to the funding of our employee profit sharing plan for December of 2002 and our final tax payments for last year.

For the quarter, investment activities amounted to $253m, comprised of approximately $211m in fixed assets, including $196min the automotive business and $15m at NEC, as well as $42m in other assets.

Magna continues to generate strong returns on assets.

Magna's automotive return on funds employed, a key internal measurable, was 21% for the rolling 12-month period ended June 30th, 2003.

I'd now like to turn the call over to Vince.

Thanks, Lewis.

I would like to comment on our revised expectations for full-year 2003, as well as our expectation for the third quarter of this year.

First, our full-year assumptions.

As Belinda noted, our most recent assumptions for production volumes in 2003, which are implicit in our earnings outlook are as follows.

North American light vehicle production of approximately 15.9m units, or about 3% below 2002 levels.

European productions of approximately 16m units, down approximately 2% from 2002.

In terms of full-year 2003, our revised expectations are as follows.

North American contents of vehicle has been revised upwards substantially due to the strengthened Canadian dollar against the U.S. dollar and is expected to be in the $500-$520 range.

Some of the key launches expected to contribute to our content growth include the Chrysler Pacifica, the Mitsubishi Endeavor, the Cadillac SRX, the Ford FreeStar, the Dodge Durango and the Chevy Colorado.

Of these, only the Chrysler Pacifica and the Mitsubishi Endeavor launched in the first half of the year.

European content per vehicle has also been revised upwards, largely on the strength of the euro and British pound relative to the U.S. dollar and is expected to be in the $300 to $320 range.

Some of the launches in Europe that are expected to contribute to content growth are the Volkswagen Turret, the Porsche Cayenne, the Toyota Evensis, the Nissan Micra, the Saab 93 convertible and the BMW S3.

Of these, the VW Turret, the Porsche Cayenne, the Toyota Evensis and the Nissan Micra have launched.

We continue to be involved in new program launches and expect our tooling and other automotive sales to be in the $1.2b to $1.4b range.

In summary.

The automotive sales have been revised upwards and are expected to be in the range of $14b to $14.8b, exceeding 2002 levels, largely as a result of our expected growth in content.

We continue to expect gross margin to be in the high 16% to low 17% range.

SG&A as a percent of automotive sales is expected to be in the mid-6% range.

Depreciation and amortization is expected to be approximately $500m to $520m.

Our tax rate is now expected to be in the mid-34% range.

This is lower than our previous outlook as a result of shifts in income mix in a different countries in which we operate, and the strengthening euro relative to the U.S. dollar.

Given the above assumptions, I am pleased to report that we have moved up our EPS range.

Our expectations for diluted EPS from operations are now between $6.20 and $6.55 for 2003.

At this level, diluted EPS from operations would exceed our record performance of 2002.

Automotive capital expenditures are expected to be approximately $800m for 2003.

With respect to the third quarter of 2003, our expectations are as follows.

Light vehicle production volumes are assumed to be 3.7m units in both North America and Europe.

Representing a decline of 4% and an increase of 3% respectively from the comparable quarter in 2002.

We expect content per vehicle to be in the $510-$525 range in North America and $330-$345 in Europe.

Automotive sales are expected to be in the $3.4b to $3.6b range.

Diluted EPS from operations, based upon the above assumptions, is expected to be in the $1.05 to $1.25range.

We continue to have perhaps a strongest balance sheet in the industry.

Our debt to total capitalization at June 30th stood at 12%.

And our cash balance was approximately $1.5b.

We have the financial resources to pursue our automotive growth strategy.

This concludes our formal remarks.

Just as a reminder, the discussion today contains forward-looking statements within the meaning of applicable 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 today's press release for a complete description of our safe harbor disclaimer.

Thank you for your attention this afternoon.

We'll now open the call for questions.

Thank you, ladies and gentlemen.

If you would like to register 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 are using a speaker phone, please lift your handset before answering your request.

One moment please for the first question.

Our first question comes from the line of Rod Lache with Deutsche Bank.

Please proceed with your question.

Good afternoon.

Good afternoon.

A couple of things.

First of all, can you tell us what the impact was on the bottom line from currency, the Canadian dollar and the euro?

Rod, we've tried to look at it a number of ways in the quarter, and all I can say is we gave you some guidance in May regarding our second quarter numbers, you know, based on exchange rates in effect at that point in time.

I would say from that point to now, exchange rates have moved a bit, but there hasn't been a significant impact on the bottom line as a result of foreign exchange movements.

But on the year over year basis, can you give us a sense of what that is contributing?

Fairly insignificant, Rod.

We've got operations throughout the world, you know, we have hedges in place, and the amounts are low and insignificant, compared to the results we're showing for the quarter.

Separately, can you give us the Europe versus north American contribution from Donnelly?

What did that contribute on a CPV basis or on an absolute basis, either one?

Sure.

Bear with us for one moment.

With respect to North America, in the core of the Donnelly acquisition added content of about $35.

And in Europe, the Donnelly acquisition adds about $19 in content.

Okay.

In content per vehicle?

.

That's correct.

Okay.

And then I guess just two small things, one small thing and one kind of larger one.

This small issue is just your guidance on the SG&A, I guess -- are you implying that this mid-6% is kind of a temporary issue related to launches and that this is going to be going down in 2004?

What we're saying, we're looking at 2003 and that change in percentage of sales is a little higher than where we would have expected it to be.

That relates primarily to launches and we have a big backlog of business launching in the third and fourth quarter.

We're spending money today and expensing that money to make sure these launches proceed perfectly for us.

You know, the other impact as well as SG&A all relates to foreign exchange.

Our European operations currently operate on SG&A percentage a little higher than North America, so translation hurts us a bit, Donnelly is operating SG&A percentages higher than the Magna average.

So, as we move on past 2003, as we get the launches behind us, as we continue to integrate, Donnelly has realized the synergies that we were expecting to achieve.

We're expecting SG&A as a percentage to start to hedge downward again.

As a percentage of revenue second half versus first half will it be lower because the sales level is a bit lower, does it actually edge up?

I mean, I think, you know, if you look at it, we've talked about mid-6%.

Currently we're about 6.7%, so roughly about the same.

We talked about the 2003 launches, the substantial amount of revenues on that obviously come through in 2004.

Great.

Okay, thank you.

I'll get back in the queue.

Next question?

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

Please proceed with your question.

Yes, I was wondering if you could provide some insights into the other area, the margins seem to be improving sequentially.

Is this Donnelly?

And can you give us some sense of where this could peak out?

With respect to the results of Donnelly, we're not going to disclose those numbers separately.

We report that all of one segment in our financial statements.

When you look at that particular segment, you know, in the case of the G & T program, you know that's been a strong program in terms of production volumes for us.

With respect to Donnelly, certainly as we combine our operation with the Donnelly operations, we have seen an improvement in the overall margin.

That's translating through on the entire segment, including .

How far along is the Donnelly integration?

Is there significant more progress possible or is it well advanced?

I would say that, you know, Carlos Medran has done a good job and there is significant progress that has been made but there is still a ways to go.

We always want progress.

Fair enough.

Okay, thank you.

Our next question comes from the line of JP Benson with CIBC.

Please proceed with your question.

Are you there?

He seemed to have disconnected.

We'll go with the next question from the line of Peter Sklar.

I'm here.

Hello Peter.

If you look at your revised earnings guidance, it looks like earnings are going to be down year over year in the third quarter, and up, you know, could be up substantially in the fourth quarter.

I'm wondering what's underlying your thinking on that?

Is it the timing of the launches that you see, you know, ramp costs in the third quarter and then the programs begin to mature out in the fourth year quarter?

I guess a couple of things, Peter.

When you look at, you know, volumes, you know, we're expecting volumes in the third quarter to be less than-- I'm looking at North America right now.

Less than volumes in the third quarter of 2002.

The other thing in the third quarter is -- as we have talked about in the past, we have a substantial amount of programs that are launching.

If you look at North America, we have five programs that are launching, which includes the Cadillac SRS, the –Dodge Durango, the FreeStar, the F-150 and the Malibu and in Europe we have the Saab 93 launching in the third quarter.

In the fourth quarter we have nice programs launching in Europe.

The X3 gets off the ground.

The VW Golf, BMW 6 series where we do the complete interior for that vehicle.

It's a really nice vehicle when it gets off the production line.

In North America, Colorado, which you know is really the first of the small pickup trucks that are going to be redesigned.

And that product is going to do extremely well.

So, if you look at the third quarter, with all of the launches we have in third and fourth quarter, we do have an abnormal amount of launch cost in the third quarter and revenues are ramping up.

So about the time we get to the fourth quarter, as revenues ramp up, per content vehicle improves, we'll see a change to earnings per share.

That's reflected in our outlook.

And it's not just the number but the volume in those launches.

It's substantial with the Durango .

The F-150 obviously speaks for itself.

So big volumes on those programs as well.

And you realize as well that, you know, third quarter gets impacted by summer shutdowns and they have been extended a little bit as well as the OEMs have tried to adjust inventory levels.

Once we get through fourth quarter, we'll be back to full production.

Okay.

One last question.

I'm just wondering if you can tell me what Magna's underlying thinking was on the conversion of the Decoma preferred shares.

I thought you might have been content to collect a preferred preferred dividend rather than a common dividend, what was your thinking?

We've had discussions with the public fiduciaries and in the case of Decoma, they had $150m Canadian shares outstanding.

They had the right to force redemption as of August 1st, 2003.

We're the major shareholder in Decoma.

We own 69%.

It's in their interests to redeem.

Clearly the stock was in the money, and we support the company.

We believe in the company, so, you know, we got together and said you know what, we might as well just convert, we're going to do it any way.

That's why we decided to convert.

The ownership interest in Decoma after conversion is going to move up by 500 basis points from 69% to 74%.

Right.

Okay.

That's all I have, thank you.

Our next question comes from the line of Gary Lapidus with Goldman Sachs.

Hi, guys, how are you.

Good.

I apologize if you addressed this because I got in a little late, but sort of following on from some of the things had to say this morning, and you may have addressed some of this as well, but you know, the pricing environment, from your customers, are you seeing this getting worse and I know you don't want to get into sort of an '04 outlook in terms of your financials, but can you maybe sort of help us think about what, you know, what pricing might look like as we move out into next year, my sense is the car companies are being more aggressive, and you know, based on some of the comments and some of the actions of some of the suppliers, maybe it seems like it's getting harder to deal with that, because all of the, you know, all of the great ideas for reengineering are, a lot of them have been used up.

So maybe if you could just help us maybe think about what that pricing environment is going to look like.

You're right, Gary.

We do not comment on detailed, you know -- the relationship with our customers, but I am prepared to say that we have a good relationship with our customers, constructive relationship, and we continue to work together to make a better product for a better price for our customer.

Yeah, fair enough, but you know, is it your sense that the demands are increasing and then maybe to the extent that they are or are not, if you could talk a little bit about how we should think about the company's ability to offset that through, you know, through your own cost reduction initiatives?

Well, if you look -- if you look at the financial results of our customers, there is no question that they look to suppliers to reduce our costs, but that's nothing new for us, and we're -- it's something that we're used to and again, we have good relationships.

We continue to receive new business awards and we look to ways to reduce costs.

Would you second the comments made by Don at Intier as it relates to the environment and the difficulty in dealing with it?

We were in a Board meeting, so I was not on the call, but I would say, look, this industry is highly competitive industry.

The global industry we're used to competing on a quality product for a competitive price and for us that's no different.

We just have to look how do we continue to, you know, have a lean manufacturing process in place, how can we work constructively with our suppliers to reduce our costs and in an intelligent way, and work with our customers to look to the future to make sure we continue to win new business awards.

Okay.

Again, I apologize.

On this extension of the share repurchase program, did you -- did you make any sort of specific timetables in terms of when that would get --

We did not set a specific timetable, but as you know, due to the level of activity we've had with respect to Donnelly and the MID spinout, we've been blacked out from purchasing back some shares.

So we've extended the option to purchase back shares and we'll have to continue to evaluate as the market conditions -- you know, that the market conditions are appropriate and based on what business prospects we have in the near future.

Does the '03 earnings guidance presume any share repurchase activity?

What fell into our assumptions is shares out standing at the end of the quarter.

Okay.

Thank you.

We still think Magna shares are under valued and we'll continue to monitor it very carefully.

Great.

And balance it out with new business prospects.

Your next question comes from the line of Steve Girsky.

Please proceed with your question.

Hi, everybody, can you hear me?

Hi, Steve, we can hear you.

I'm just trying to back into this content per unit.

You said Donnelly added $19 in Europe.

Does that mean that X Donnelly and X currency Europe content per unit was down?

That's right, Steve.

Negative mix on some of the program.

It's purely mix?

It's mix.

We also have balancing out the M Class balanced out last year so that impacted content.

So the PT cruiser, as you know is down in Europe.

So content start to grow again in Europe in the second half of the year or no?

We're expecting content to actually grow in the quarter.

Okay. .

Donnelly even up in the third quarter, right?

Can you repeat?

The Donnelly anniversaries itself in the third quarter.

We acquired it in the third quarter last year.

So we still have one quarter of favorable comparisons for Donnelly?

Yes.

Right.

Okay.

So even excluding Donnelly and currency, you expect to grow content per unit in the third quarter in Europe?

Yeah, there is two things.

We have impact of foreign exchange, the rates have moved up versus our prior outlook.

So we've got that.

We also have positive mix Donnelly.

Now, the accounts receivable were up a lot, whether it was sequentially or year to year.

They were up more than sales, actually.

Is that one customer?

It seems like a lot of money to be lending to one customer.

There was one big payment from one customer, Steve, yeah, that we received a couple days after the quarter end cut off.

So it was a two-day kind of thing, so this will not show up next quarter, then?

That's right.

It wasn't the whole amount, obviously, but it was a big number.

So we should expect working capital the favorable and the third quarter, then?

Because this thing will go away?

Steve, we're expecting $100m, obviously, which is sort of the amount payable.

That's a reverse.

Remember, we are launching, so we're going to have more sales, which is going to impact as well as our working capital, we'll have a lot more receivables and payable.

The other thing that impacts working capital that is not going to continue, our EPSP funding which we paid 30% of our profit sharing to employees in cash.

That's all trued up in the second quarter.

That's all final tax installments for our tax liabilities.

So that's not going to continue in the third quarter.

Okay.

Can you just talk to the variable margin?

It seems like it keeps coming down, every dollar of sale seems like it's generating less income.

Is that a currency effect or is there anything behind that?

Actually, when we look at overall margins, we're really pleased with our performance Steve.

Whether we look at first quarter, second quarter, last year to this year, and from first quarter this year, the second quarter margins have moved up .7%, and in a quarter that we continue to expend money for our launches.

And then on a year over year basis, margins went down .2%.

Keep in mind a couple things.

One, we do have a cost in gross margins as it relates to launches that are taking place in 2003.

Donnelly is also having a negative impact on margins, because their business operates or has operated margins less than the Magna average.

Another big factor impacting margin is pure translation.

As the euro strengthens relative to the U.S. dollar and European margins are lower than North American margins as you wait for European sales and European margins, that has a negative impact.

Offsetting all of that, is improvement of number of divisions and productivity and efficiencies that we've been able to book in the second quarter.

Both had 9% decline in North American volumes is a substantial number if you think about it.

Okay.

Thank you.

Thanks, Steve.

Thank you.

Our next question comes from the line of J.P.

Benson with CIBC.

Good afternoon.

Hi.

J.P.

Just a question, Belinda on China, the hot topic of the day.

I know years ago your customers were pushing you to go to Brazil in a big way and fortunately, you didn't do that.

Is China different or is it inevitable that you'll be on the ground there in a major way?

Is this a year away?

Two years away or five years away, if it is inevitable.

Just help us with what the company is thinking?

I would venture to say it is inevitable.

When you look at the amount of units being produced out of China by the end of this year, it will replace France as the fourth largest vehicle producer in the world and we predict this trend at the same rate continues by the end of '05, it will replace Germany as the third larger car producer in the world.

So China having a presence there is inevitable.

We do have some facilities there already.

Intier has some facilities.

Donnelly has some joint venture facilities.

We do have a presence.

We've made efforts among all of our groups to set up a joint office, a joint purchasing office there, so that's one of the ways we're carefully listening going into China and taking a look at sourcing opportunities.

While at the same time looking at, you know, which customer we want to have a bigger investment with.

So it is inevitable.

Okay.

And you -- I can't pin you down on a timetable when you'll be on the ground there?

We're already on the ground.

I realize you're on the ground but I mean in a more meaningful way.

We're still evaluating that.

Okay, thank you.

Thank you.

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

Please proceed with your question.

Lewis, what was the $42m spent on the other assets in the quarter.

I haven't got that right in front of me actually, John, but I'll get back to you on that, if I could.

Okay.

And Magna Steyr results looked fairly reasonable.

Should we expect to see further improvement in Q3 or do the launches sort of delay that type of progress till into Q4?

We were happy with the overall performance at Magna Steyr.

We've seen, you know, last year one of the focus areas is the power Tran group with Magna Steyr.

And we've seen substantial improvement in our power Tran group.

On the assembly side in the second quarter, we've been impacted by launch times.

As you know, the number of large launches that are going to take place in the next couple of quarters at Magna Steyr.

So sequentially as we move forward, we're expecting improvements at Magna Steyr assembly.

So basically all of the launch costs in Q2 will also be there in Q3, no more, no less, so at least we should see it hold those levels and if not, probably show improvement?

I'm not going to get into those specifics.

I think you've got to step back a bit.

We're in the launch phase and it's really hard to predict what those costs are going to be and how quickly we ramp up.

We have production plans and all of that, but launches are a delicate situation to try to manage.

I certainly look at it in '03 and compare it to '04, certainly as we get through '03 and we start to generate some revenues from these launches and they start to ramp up, and launch costs diminish you'll see substantial improvements to Magna Steyr.

Okay.

And what percentage of time were you actually blacked out on your buyback last year?

I haven't calculated the exact percentage, John, but you know, we blocked out at the beginning with respect to the Donnelly transaction.

Typically we were blocked out when we come to the last day of the quarter and we're blocked out until two days after we released our numbers.

So that's typically a month and a half every quarter that we're blocked out just on results.

Keep in mind, John, we've been working on this initiative for sometime.

We went to the Board in the first week of January to present the to them, and we then established a special committee to review this transaction, and legal counsel advised us that since that time, we had been able to buy back stock.

We've been blocked out since the beginning of January until now.

That's the amount of time.

The biggest piece in there is the racing license – at NEC and the tools and engineering in Europe on a couple of big programs.

We also received an amount on a European program.

How come the racing license doesn't show up in the MEC capital expenditure?

Good question.

Don't know.

I'll see if I can find out for you, John.

Okay, thank you.

Our next question comes from the line of David German with Scotia Capital markets.

Please proceed with your question.

Yes, I just wanted to talk about two things.

New business, Belinda, you mentioned twice, do I take it that there being some particularly large awards that you've won in recent months?

I don't want to give the specific number, but in the second quarter, we outperformed the comparable quarter of 2002 by 300%.

So I think that was pretty good number.

Was Q2 '02 a decent quarter in its own right?

It was also a decent quarter.

So large -- and this would be mostly for what, '06 kind of time frames?

It's spread out across the groups and we've been looking at largely some in '05 and '06 and beyond.

Some '04, some '05, but big chunks of '06 and beyond.

On the acquisition side --

I should also add that Magna-Donnelly, we talked about earlier, also made good headway with respect to the new domestic and we had $40m in new domestic business.

I'm happy with the inroads we're making there.

Okay, good.

And on the acquisition front, I mean, you being front and center and rumors, I gather the chairman is involved in the press in Austria.

Can you provide insight to what is going on on the acquisition side right now?

With respect to we really have no comment.

I would say inactive, but no comment on that.

And we continue to look at acquisitions across all groups and whether they would complement the various product lines and have a number of smaller acquisitions in the pipe, you know, whether it be with the joint venture, perhaps Japanese joint venture partner and so there's -- they are across the board.

How do you see them fitting into your objective of hitting the $20b in 2006?

The $20b is not for acquisition.

That's strictly --

There may be some smaller ones, but it's not planned

Strictly internal?

Largely internal.

Thank you.

Our next question comes from the line of Fadi chamon with UBS, please proceed with your question.

Hi.

I have a couple of questions, one Belinda, you mentioned in your remark, the within the industry.

Can you elaborate a little bit on what segment of the business you are seeing the most quoting and what is driving that.

And my second question, can you give us an updated guidance on 2005 dollar content now that you've had a -- revised your for this year?

I think your first question, first part of your question was related to the level of outsourcing that we're seeing or the level of new contracts, the quoting where we're seeing it.

And that's across the board, across all of the Magna groups, we're seeing, you know, the big three, the product plans become stronger, we're certainly seeing that across the board.

And it's really across the board.

As to the second question you had on content for 2005, we have a thorough process at Magna when we prepare business plans that sort of bottoms out.

We update sort of our content per vehicle in a real formal way once a year.

That process isn't going to start or won't be completed until late this year.

In due course, as we revise guidance or give guidance for 2004, we'll update content for vehicle growth in the next two to three years.

One last question, can you comment a little bit on the new business wins in Q2?

You said in the last conference call that you had 1.4, I guess in Q1 of new business wins.

Fadi we talked about that last quarter.

We are excited about the Explorer contract that we talked about at the annual meeting.

The way we would like to sort of communicate, I think that's what you are trying to get at potentially is through content per vehicle.

Again, I'll give you back the same answer.

We'll do this once a year, as we talk about our guidance for 2004.

We'll give you content per vehicle which gives you a sense of where the sales may be heading.

We typically don't want to talk about sales on a quarter by quarter basis, other than as Belinda mentioned, we've had a good quarter, and what's out there in potential opportunities is very good as well.

Okay, thank you.

Thank you.

Our next question comes from the line of Jon Rogers with Wachovia Securities.

Most of my questions have been answered.

I want get a little bit more color on the Decoma convert.

Are you planning on just holding those shares or is there a potential to spin those out so Decoma gets better float?

John, we look at our investment in Decoma as a great investment.

They are undergoing substantial launches.

We look particularly in the case of Decoma, we think the stock is under value.

At this point in time, we want to hold off on the shares and see them appreciate in value.

The comment, when you were looking at gross margin, Vince, for the year, the number that you gave is your -- off of automotive sales.

Is that true?

That's only automotive sales.

That's correct.

Okay.

And so, then, really the -- if we look at kind of a cadence, I think the gross margin for the first half has been stronger than you thought and we're really going to see the impact of launches in the third and fourth quarter.

Is that true?

We're also going to see a number of other factors that are impacting.

We're thinking that overall volumes in North America are going to be 15.9m.

We already have 8.3m units of production so far in the first half of the year, so with fewer production units, that has an impact on margins.

I mean, there is that to consider, and there is launches also to consider.

Okay, thank you.

Our next question comes from the line of Barbara Gray with First Associates.

Please proceed with your question.

Good afternoon.

What's the pricing environment like in Europe compared to North America?

Is it a bit better?

Or is it --

Our customers are global, Barbara.

Right.

First impression is something we've had -- since I've been at Magna.

I've been at Magna for 14 years.

Again, sometimes they are a little stronger in one jurisdiction versus the other.

Sometimes one customer is stronger than the other, but overall for our strategy has been to work with our customers to help them reduce costs and a big way of doing that is to work on products that have advanced technologies in them, so that we can supply a better component that reduces cost for the OEM, but at the same time, improves the overall margins.

Right.

Okay.

In terms of on the call this morning, they said they were starting to have discussion was the unions.

Are you starting to see any pressure to unionize your plants?

Well, we've always had good constructive relationships with the unions and have had engaged in dialogue many years ago in Canada and more recently within the last several years, and in the United States with the UAW and as we go forward, you know, we have -- we assess, does it make sense if it's an integrator plant or if it's perhaps power tran business or, I know, whether it be appropriate or not to have a -- perhaps a model agreement in that facility.

So I would say overall we have good constructive dialogue with the union.

Are you willing -- are you going to follow JCIs lead, though?

They just signed the neutrality agreement with the UAW.

No.

Okay, thank you.

Our next question comes from the line of Nick Morton with RBC Capital Markets.

Please proceed with your question.

Nick?

Mr. Martin, your line is now open.

Please proceed with your question.

Nick, are you there?

We'll go with Mr. David Tyerman with Scotia Capital markets.

Please proceed with your question.

Yes, just wondering on the X3, I believe that starts in September, according to the press; is that correct?

And when would you see volumes hitting ramp or normal run rates on that program?

You mean which month of -- which month are we talking about or which year?

Which quarter, like is this ramped quickly or is it a drawn-out type of ramp?

Just trying to get an idea of the volume kind of profile.

David, we haven't got that detail for 2000-- it obviously will be 2004 at some point.

We haven't got that in front of us, David.

David, even if we did, we wouldn't be able to talk about it, you know, BMWs have been very strict with us in terms of what we can say publicly.

Okay.

Fair enough.

We're going to take one more call, operator.

One last question, sir?

Yes.

Thank you.

Our last question comes from the line of Nick Morton with RBC capital question.

Can you hear me now?

We can hear you.

Good.

My question was an accounting question.

Just on your guidance for the third quarter in the year, are you incorporating the spinout of MID?

No, we're not, Nick.

The $620 to $655 range assumes that with respect to MID at NEC, what we said before is that if you --

We should back out about $0.15 from the --

$0.15 and that's for a four-month period from September 1 to December 31st.

My other question was on the possible IPO of Magna Steyr and possibly Magna Donnelly, what are your thoughts on that?

I would say with Magna Steyr, our first priority is to continue to focus on flawless product launches.

As we go forward we're assessing the structure and timing and market conditions as to when we're going to go public with Magna Steyr.

As far as Magna Donnelly goes, we have lots of -- we've made great progress.

We still have lots of work to do within Magna Donnelly, and, again, we'll evaluate the appropriate timing.

Good.

Thank you very much.

Okay, so that would wrap up our conference call.

I think we had an excellent second quarter, and I'd like to thank everyone for participating, and we look forward to a strong second half of 2003 and we'll keep you apprised of our progress.

Thank you, everyone.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.