Magna International Inc (MGA) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Magna International fourth-quarter and year-end results conference call.

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

Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Friday, February 27, 2004.

I would like now to turn the conference over to Vince Galifi, Executive Vice President and Chief Financial Officer.

Good morning and welcome to our fourth quarter conference call.

With me today is Louis Tonelli, Vice President Investor Relations.

Yesterday our Board of Directors met and approved our financial results for the fourth quarter and fiscal year ended December 31, 2003.

Our Board also declared a quarterly dividend of 34 cents per share payable on March 18 to shareholders of record on March 9, 2004.

We issued a press release yesterday for the fourth quarter and fiscal year ended December 31, 2003.

Both the press release and today's conference call are on our website at magnet.com.

We have also included a slide presentation on our website to go along with our call today.

We apologize that the PDF (ph) version of the slide is not yet available on our website, as our supplier has had technical difficulties this morning.

This morning I will briefly discuss some of our achievements for 2003, as well as our key priorities for 2004, followed by a brief recap of our outlook for 2004.

Louis will then review in some detail our fourth quarter and full year financial performance.

Upon completion of our formal remarks, we will be pleased to answer any questions.

2003 was another successful year for Magna.

We posted record sales of $15.3 billion, up 24 percent in a year when North American vehicle production declined three percent and European vehicle production was level with the prior year.

Excluding non-cash impairment charges, which Louis will elaborate on, we earned record levels of both net income from operations and diluted EPS from operations of $619 million and $6.20 respectively.

Some of our other accomplishments in 2003 included the launch of more than $3 billion at full volumes in new and replacement business across all of our operating groups and across a wide number of customers in North America, Europe, and Asia.

And overall we were pleased with the execution of these launches.

A record level of more than $6 billion of new and replacement business awards at full production volumes.

These program awards demonstrate the continued level of confidence that our customers have in our capabilities globally.

The business awarded to Magna, to name only a few, includes the transfer case on GM's Next Generation full-size pickups and sport utilities, the frame for the Ford Explorer program and complete seat programs in North America.

In Europe we were awarded metal stampings and subassemblies for a French based OEM and exterior mirrors for the Mercedes C-Class and Volkswagen Passat programs.

We completed the spinoff of MI developments including our previous investment in MEC to Magna shareholders.

This transaction unlocked value for Magna shareholders and simplified Magna's corporate structure going forward, making it easier for investors to determine the true value of Magna.

We established our seventh automotive operating group, Magna Drivetrain.

This group has experienced and will continue to experience a significant rate of growth, having demonstrated its capabilities to a variety of customers including DaimlerChrysler, BMW, Renault, General Motors, Volkswagen, and Audi.

In addition to the transfer case on the next generation of GM's full-size pickups and sport utilities, we were recently awarded a contract with Volkswagen for the development and production of a new generation of all wheel drive transfer cases for future Volkswagen models.

We are excited about the prospects for our Magna Drivetrain group as a result of the continued acceptance and penetration of four-wheel-drive and all wheel drive systems, as well as a broader trend towards greater outsourcing of drivetrain systems.

And recently Cosma International, our wholly-owned metal forming group, was awarded DaimlerChrysler's prestigious global supplier of the year award.

Of the 12th Cosma facilities in North America and Europe supplying metallic components to DaimlerChrysler, eleven rated 93 or greater out of 100, with the other rating an 88.

Our hydroformed frame on the Dodge Durango was DaimlerChrysler's first frame ever to achieve process sign-off prior to launch, demonstrating our quality leadership in frame manufacturing.

Prior to the 1998 launch of our hydroformed frame for GM's full-size pickups and sport utilities, Magna had never built a truck frame.

By the time we launch our frame of on the Ford Explorer next year, we will be the world's largest producer of truck frames.

During 2003 we generated a total shareholder return of approximately 66 percent, exceeding both the S&P return 29 percent and the S&P all parts index of 44 percent.

And if shareholders held onto their MID shares subsequent to the spinoff, the return would have been closer to 70 percent.

We invested 801 million in fixed assets, of which 754 million was related to Magna's ongoing automotive operations associated with the 2003 launches, as well as to support continued launch activity during 2004.

We generated a pro forma return on funds employed for 2003 reflecting the spinoff of MID and excluding impairment charges of approximately 23 percent.

This represents strong returns in a challenging industry.

Our Tesma subsidiary completed the acquisition of Davis Industries a supplier of stamp and power train components and assemblies using $45 million of cash and assuming $30 million of debt.

The acquisition increases Tesma's presence in the United States.

Perhaps more importantly more than a third of Davis' sales are Toyota, Nissan, Honda, and BMW for their Tier 1 (ph) suppliers.

We finished the year with a very strong fourth quarter, generating record sales of $4.6 billion and record diluted earnings per share from operations excluding impairment charges of $1.61.

Finally Magna's culture allows us to thrive in the challenging automotive industry.

I want to take this opportunity to thank our employees, customers, our Board, and management team for making 2003 a great success for Magna.

I would also like to pay a special thanks to Belinda Stronach for outstanding contribution to our success.

Magma is built on the dedication and hard work of these people who position Magna worldwide to remain flexible, productive, and responsive to our customers' needs and build innovative products at competitive prices.

This has been the cornerstone of our growth in success and it will be instrumental in our growth in 2004 and beyond.

I would like to briefly highlight some of our key priorities for 2004.

From an operational perspective, the execution of successful product launches remains a key focus area for Magna.

While we were pleased with the launch of the BMW X3 in the fourth quarter 2003, we remain highly focused on the ramp up to ensure that we can reach maximum production without bottlenecks.

We will continue to emphasize innovation and technology to remain top-of-the-line with our customers, who constantly look at improving their product offerings to compete.

While we have had some successes in improving European performance, we will push to make our European successes more broad-based.

On the marketing front a further diversification of Magna's customer base is a priority, with a particular emphasis on accelerating program awards from the new domestic manufacturers.

Further development of business with PSA (ph) and Renault, with which we are currently underrepresented, is also a priority.

During 2004, our Asia Pacific strategy shifts from refine to implementation.

From a financial perspective, a continued focus on the efficient use of capital in both fixed asset spending as well as working capital management is a key priority for 2004.

Success in executing our 2004 priorities is expected to result in enhanced shareholder value.

In our press release issued yesterday, we reaffirmed the outlook provided in our press release dated January 7, 2004.

Just to recap, we expect North American light vehicle production of 16.1 million units, up modestly from 2003.

In Western Europe we expect 2004 auto production to be a proximately 16.4 million units, essentially level with 2003 volumes.

North American content per vehicle for 2004 is expected to be between 575 and $595, up approximately 9 to 12 percent from 2003.

In Europe 2004 content per vehicle is expected to be in the range of 465 to $490 or approximately 40 to 48 percent higher than 2003.

Total sales are expected to be in the range of 17.9 to $18.8 billion, surpassing our 2003 record automotive sales by approximately 17 to 23 percent.

Capital spending is expected to be between 800 and $850 million for 2004, compared to 754 million for 2003 restated to reflect the spinoff of MID.

Capital investments will be made across all groups to support new production programs, improve efficiencies, and maintain our existing fixed asset base.

I would now like to turn the call over to Louis.

Thanks, Vince, and good morning, everyone.

I would like to start with a review of our financial results for the fourth quarter ended December 31, 2003.

All figures are in U.S. dollars.

I would first like to mention that our quarterly figures for 2003 have been restated to reflect the adoption of the Canadian Institute of Chartered Accountants new recommendation on stock based compensation.

We have prospectively adopted the fair value method for recognizing compensation expense for stock options beginning January 1, 2003.

The P&L impact of this policy adoption is an expense of approximately $2 million or two cents per share for the fourth quarter and $4 million or four cents per share for the full year 2003.

Further details can be found in note 11 to our financial statements included with yesterday's press release.

For the fourth quarter of 2003, automotive sales increased 34 percent to a record $4.6 billion.

In the quarter, North American vehicle production was essentially level with the prior year at 3.9 million units.

North American production sales improved 22 percent over this period as a result of North American content growing by 21 percent to $603.

Key drivers of this growth in content were the strengthening of the Canadian dollar against the U.S. dollar and the launch of new programs.

New launches contributing to content growth included Ford Freestar, Mercury Monterey, and Ford F-150, Chrysler Pacifica, Cadillac SRX, GMC Canyon, and Chevy Colorado, Chevy Malibu, Dodge Durango, and Mitsubishi Endeavor, all of which launched during 2003.

Mixed on our top platforms with negative in the quarter with lower production on the Chrysler Minivan, Ford Explorer, and Ford Taurus, Mercury Sable partially offset by strong production of the GMT 800 and the Ford Escape and Mazda Tribute programs.

End of production for the Chrysler LH program in 2003 also reduced content year-over-year.

In Europe production volumes were essentially level with a comparable quarter at approximately 4.2 million units.

Our European content per vehicle increased by $163 or 64 percent over the comparable quarter to $418.

The launch of new programs and the strengthening of the euro and British pound each against the U.S. dollar were the most significant factors for this increase during the fourth quarter.

Some of the new launches that contributed to content growth included the BMW X3 and Saab 9-3 convertible, both of which are assembled at Magna Steyr, the Nissan Micra, the Toyota Avensis, the Volkswagen Touareg and the Porsche Cayenne.

Continued strong production volumes for the Mercedes G-Class and the mini BMW also contributed to content growth.

Offsetting this growth was the impact of lower volumes on the Mercedes G-Class and BMW 3 series programs.

In summary, Q4 2003 production sales increased $1.1 billion, with global content growth and the movement in currencies against the U.S. dollar contributing to sales.

Tooling and other sales were 538 million for the quarter, up 94 million primarily as a result of an increase in reported U.S. dollar sales to strengthening of currencies against the U.S. dollar.

I would like to spend a few moments on gross margin as a percentage of total sales.

Fourth quarter gross margin was 14.8 percent compared to 16.8 percent for Q4, 2002.

Note that on a pro forma basis fourth quarter of 2002 gross margin reflecting the spinout of MID would have been 16.2 percent.

The gross margin percentage was negatively impacted by the following items; a higher level of lower margin assembly sales largely related to Saab 9-3 convertible and BMW X3 programs on which a substantial amount of purchase components exist, foreign exchange movements as a result of a strengthening of the euro and British pound each against the U.S. dollar, the translation of euro denominated gross margin into U.S. dollars resulted in a higher proportion of margin burned in Europe where we currently earn lower margins, thereby decreasing Magna's overall gross margin percentage.

Restructuring in Europe at Tacoma associated with its review of European operations, increased launch costs, and ongoing price conceptions.

These were partially offset by the positive contribution from new programs that launched recently and improved performance at a number of divisions.

SG&A costs were 6 percent for the fourth quarter compared to 6.4 percent for the comparable quarter.

The decline primarily relates to the substantial increase in assembly sales during the quarter.

I would now like to reconcile net income and diluted earnings per share in a matter that clearly reflects the impact of the changes that we disclosed in our press release dated December 19, 2003.

Excuse me -- the impact of the charges that we disclosed.

For the fourth quarter we reported net income and diluted earnings per share of $140 million and $1.38 respectively.

In our December press release we disclosed two charges that we expected to incur in the fourth quarter.

The first was a future income tax charge of $10 million or 10 cents per share associated with an increase in future corporate income tax rates Ontario, which resulted in a revaluation of our net future tax liability.

This charge is excluded from income from operations.

Note that in 2001 we reported a future income tax recovery, which we also excluded from operations.

The second charge was approximately $18 million or 18 cents related to our Tacoma group's review of its United Kingdom and continental Europe operations.

Of the $18 million, 13 million or 13 cents represents a non-cash impairment charge.

Excluding the impairment charge and the future income tax charge, Q4 2003 net income from operations would be 163 million and diluted earnings per share from operations would be $1.61 compared to $1.45 in Q4, 2002.

The remaining charge of $5 million or five cents per share at Tacoma relates to restructuring costs associated with Tacoma rightsizing its European operations.

Net income and diluted earnings per share adjusted to reflect future income tax charge and both Tacoma amounts totaled $168 million and $1.66 per share respectively. $1.66 per share compares to the $1.50 to $1.70 outlook range that we provided in our third-quarter press release dated November 5, 2003.

Now for the fourth quarter of 2003, this was the first full quarter subsequent to the spinoff of MID.

The appropriate comparative to Q4, 2003 was disclosed in the appendix to our third-quarter press release in November.

In that appendix we provided a reconciliation of pro forma earnings reflecting the spinoff of MID by quarter for the first three quarters of 2003 and all of 2002.

Pro forma diluted earnings per share from operations excluding impairment for the fourth quarter of 2002 was $1.43.

The $1.61 reported in the fourth quarter of 2003 represents a 13 percent increase over the comparable quarter.

During the fourth quarter we generated 327 million in cash from operations prior to changes in working capital and approximately 538 million in working capital, recovering a substantial amount of our investment in working capital built up in the second and third quarters of 2003.

The substantially reduced working capital is primarily to attributable to the year-end cutoff date of January 3, 2004.

Investment activities amounted to 437 million for the quarter, comprised of approximate 302 million in fixed assets, 93 million in other assets, 9 million and investments as well as 33 million for purchased subsidiaries.

I would now like to turn to the full year 2003 performance.

Consistent with our disclosure for the third quarter, we would like to remind you that in accordance with Canadian GAAP we reflected the disclosure of NEC as discontinued operations until August 29, the date of the distribution of the shares of MID to Magna shareholders.

The real estate operations of MID are disclosed in continuing operations in the financials until August 29, as Magna continues to occupy facilities under long-term leases with MID, therefore under Canadian GAAP it cannot be reflected as discontinued operations.

We have also reported on the press release net income and diluted EPS from operations, which exclude the results of both NEC and MID for the period up to August 29, since most analysts full-year estimates for Magna still reflect the inclusion of both NEC and MID for the first eight months of 2003.

Automotive sales increased 24 percent in 2003 to a record $15.3 billion for the year.

In 2003 North American production sales grew by 17 percent to approximately $8.4 billion from 2002.

This is despite a 3 percent decline in North American vehicle production to approximately 15.9 million units.

North American content grew 20 percent to $529 for the year.

Key drivers of this growth in content were the launch of new programs, the strengthening of the Canadian dollar against the U.S. dollar, and the acquisition of Donnelly in the fourth quarter of 2002.

New launches contributing to content growth included but were not limited to the Chrysler Pacifica, Ford Freestar Mercury Monterey and Cadillac SRX, all of which launched in 2003, as well as the BMW X4, Saturn Ion and Mazda 6 which were one of the programs that launched in 2002.

Mix in our top platforms was negative for the year with lower production on a number of programs including the Chrysler minivan, partially offset by strong production on various programs including the GMT800.

End of production for the Chrysler LH program in 2003 and the Lincoln Blackwood in 2002 as well as continued customer pricing concessions also reduced content year-over-year.

European production and assembly sales grew to $5.4 billion, representing a 44 percent increase over 2002.

The improvement in Europe was a result of the 43 percent increase in content per vehicle to $331.

The strengthening of the euro and British pound against the U.S. dollar, the launch of new programs, and the acquisition of Donnelly in the fourth quarter of 2002 were the most significant factors to this increase during the year.

New launches that contributed to content growth include the BMW X3, the Saab 9-3 convertible, Mercedes SE and C class sequencing, the Nissan Micra, the Toyota Avensis, the Volkswagen Touareg, and the Porsche Cayenne.

Strong program volumes on the mini by BMW also contributed to content growth.

Offsetting this growth was lower volumes on the Mercedes G-Class and the BMW 3 series.

In summary, consolidated production sales increased approximately $2.9 billion in 2003.

Sales contributors included the movement of currencies against the U.S. dollar, global growth in content, and acquisitions, partially offset by a decline in sales related to the decline in North American volumes.

Tooling, engineering net of sales were $1.5 billion for the year, up 4 percent or 63 million from the comparable period.

The increase in tooling sales was primarily the result of an increase in reported U.S. dollar sales due to the strengthening of currencies against the U.S. dollar.

I would now like to go over net income and diluted EPS in a manner similar to our role for the fourth quarter of 2003.

We reported net income of $522 million and diluted EPS of $5.21 for 2003.

These amounts included two non-cash impairment losses, both reported in the third quarter 2003 associated with the spinoff of MID.

The first loss was 68 million or 70 cents per share related to NEC and the second for 6 million or six cents per share related to certain real estate properties at MID.

Net income and diluted earnings per share for 2003 also includes the fourth quarter charges discussed earlier.

A future income tax charge of $10 million or 10 cents per share and the Decoma impairment charge of 13 million or 13 cents per share.

Adding back these four amounts, results in 2003 net income and diluted earnings per share each from operations and excluding impairment charges of $619 million and $6.20 respectively.

Further, adding back the $5 million or five cents per share for the Decoma restructuring charge results in an adjusted net income and diluted EPS of $624 million and $6.25 respectively.

2003 diluted EPS from operations excluding impairment charges of $6.20 exceeds our previous record of $6.14 reported for 2002.

Note that the $6.20 for 2003 also includes four cents of stock option expense that is not included in our 2002 results.

Now to our review of our cash flows and investment activities.

During 2003 we generated $1.3 billion in cash from operations prior to changes in working capital.

We invested approximately $82 million working capital to support our sales growth in 2003.

Investment activities amounted to approximately $1.1 billion in 2003 comprised of approximately 800 million in fixed assets, 210 million in other assets, as well as 41 million to purchase subsidiaries.

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 yesterday's press release for a complete description of our Safe Harbor disclaimer.

Thank you for your attention this morning.

We will now open the call for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) and John Casesa of Merrill Lynch.

Vince, I just want to run through three things.

First on this gross margin run rate, even if we adjust for MID, the gross margin is down a lot for the factors that Louis described.

Would we expect through '04 because of these factors that we will continue to see a year-over-year decline of 150, 160, 170 basis points?

Is that realistic?

Do you want to ask me all of your questions first and I will answer them all John?

The second one is can you tell us how many X3 and Saab 9-3 units you made in the fourth quarter?

And finally on the write-down at Decoma, the UK operations, what were the original acquisitions that were made there?

I can't recall.

What were those businesses that you're writing down now?

Alright.

Let me start with your gross margin question, John, and the run rate.

If we just focus on -- why don't we look at quarter-to-quarter '02 to '03.

Overall gross margin went from 16.8 percent to 14.8 percent.

There's a number of factors, John, that are impacting margins.

Some of these will continue to impact our margins for 2004, but remember I keep on referring to return on funds employed as sort of a better measure to evaluate our performance as opposed to gross margin as the nature of our business changes.

But if I try to roll margins quarter-to-quarter, just the BMW and Saab 9-3 programs reduced margins by about one percent and even those programs we are doing a complete vehicle assembly for the BMW X3 and the Saab 9-3 convertible and we're purchasing a number of components.

Some of the components we manufacturer ourselves, we assemble the complete vehicle and sell it back to the customer so it is a high level of purchase component which has a tendency to reduce your overall margins, but that was about one percent in the quarter.

The other impact that Louis alluded to in his comments was the MID spinoff.

In the fourth quarter of 2002, we were consolidating MID.

In the fourth quarter of 2003 we are not consolidating MID, so what we now have in our financials is increased lease expense but reduced depreciation.

The lease expense is recorded in gross margin, and that impacted us in the quarter by about 0.5 percent.

John, I would expect that sort of number to continue for the balance of 2004.

And the offset being a depreciation expense?

There's going to be some offset in depreciation but remember overall the spinoff of MID reduced our earnings because MID was generating positive earnings, so there will be some offset in depreciation.

The other big impact to gross margins was translation that Louis referred to.

We look at our European sales, convert those to U.S. dollars.

Since the U.S. dollar has weakened against euro, the euro substantially appreciated against the U.S. dollar, if our mix in North American versus European sales changes, Europe is a bigger weight to our overall gross margin and European margins currently don't operate -- our level with those in North American margins.

That impact alone was about three quarters of one percent.

And then you've got other pluses and minuses in there, but that is pretty well reconciles margin year-over-year for the fourth quarter.

You can take some of those comments and apply that to 2004.

With respect to units of production on the X3 and the Saab I will have Louis answer that question.

John, we produced 9728 Saab 9-3's in 2003.

I can't recall exactly how many was Q3 but it is in our third quarter report.

And the BMW X3 we produced 8770.

Its actually in our MD&A in the Magna Steyr segment.

And that was all in the fourth quarter?

Right?

Right, with respect to our breakdowns in Decoma, the breakdowns actually related to two operations.

There was an operation in Germany and an operation in the UK.

There was the Decoform (ph) facility that I think John was part of the Habera (ph) acquisition but I am not absolutely sure, I think it was the Habera acquisition and Decoma is basically mothballing that operation to improve efficiencies going forward.

The UK operation is a Sybex operation which used to be called Banbury (ph) and I am looking at Louis if he remembers the name of that acquisition.

It was actually Banbury.

Was it Banbury?

Okay, I remember.

That's great.

Thanks.

Steve Girsky, Morgan Stanley.

Good morning, everybody.

Could you break out the content growth FX versus base content growth at all?

John, let's start with Europe because foreign exchange on European sales is easy to calculate.

It is a little more difficult in North America.

Do you want it for the year or for the quarter, Steve?

Both if you can.

Alright.

Let me start with a quarter then.

Last year's content in Europe is $255 per vehicle.

When you look at the BMW and the Saab and total they added about $80 in content.

Our other operations in Europe generated about $13 in content.

The balance of about $70 was translation.

And for the full year, our content last year was about $231.

About $28 of that growth related to the BMW and the Saab program, $15 relates to the acquisition of Donnelly and content changes in our existing facilities, and translation was about $57.

Turning to North America, last year in the quarter our content was about $500 per vehicle and content growth was about $45 in the fourth quarter, with the balance being translation of about 58.

But that $58 is not an absolutely exact number.

When you start looking at Canadian operations and translating them into U.s. dollars, it's difficult for us to look at all the hedge contracts that we've got in place where we hedged particular contracts, so it's about $58 plus or minus.

Full year, last year was $441 of content in North America.

Acquisitions added about $30.

That's primarily Donnelly, and content -- to content growth was about plus or minus $26, with the balance again plus or minus being translation, Steve.

Now when you talked to the margin side on John's question, what about Canada versus U.S. margins?

Shouldn't that have a -- currency have a favorable impact on margin or no?

When you look at our North American operations, Steve, first of all we have many more operations in North America compared to Europe and in Europe one of our substantial operations is Magna Steyr, but North American margins whether you're looking at Canada or the U.S., they are roughly the same for the same type of business, so that's not going to have a translation impact on margins.

What is impacting margins what we look at is European sales because of the euro and compare that to North American sales, so the Canadian translation is not going to have any significant impact on margins.

The European margins by translating those sales at a higher exchange rates does have impact on margins.

Right.

So your Canada operations and your U.S. operations have the same margins roughly?

If they are the same operation, they are roughly going to have the same margin, that is correct.

Donnelly is even up in the quarter so that doesn't affect anything, right?

That's right.

And have you gotten anything on New Venture Gear, any update their?

The only update I can give you at this point, Steve, is that we continue our discussions with DaimlerChrysler regarding the New Venture Gear transaction.

We are not in any position to provide any more information, but when you look at what we are trying to do with our drivetrain business and why we are looking at NVG is clearly our goals are to become the leading global drivetrain supplier, and what we're trying to do is to leverage on our world-class complete vehicle engineering competence and we're trying to broaden our customer base and if we're successful with the New Venture Gear transaction and we've talked about a number of customers who already have that will broaden our base.

And it will certainly broaden our global manufacture presence.

But this point, Steve, I am not able to provide any additional information on those transactions.

Thanks a lot.

Peter Sklar of BMO Nesbitt Burns.

Vince, three questions.

The first one is on foreign exchange.

Some of your subsidiaries, Decoma and Intier, provide a little more disclosure on the impact of the foreign currency.

They disclosed what the total translation impact was during the quarter and as well what the scope of the foreign exchange loss or gain that they booked through their SG&A line.

Are you able to provide any further disclosures along that line?

Is that your only question?

The second question is in your segment of reporting note under the wholly-owned businesses, specifically the Cosma mirrors group, your operating margin relative to sales declined both year-over-year and quarter-over-quarter.

I'm wondering if there is any explanation for that?

And lastly I am looking at your North American content during the fourth quarter.

It was a very high number relative to the guidance you're providing for 2004, so it appears to me you're looking for that number to come down and what would be the factors underlying that?

Alright, let me start with the foreign exchange question.

Peter, I said over and over that as a result of translating our Canadian operations into U.S. dollars that that's certainly has benefited us on the sales line.

We talked about that in my reply to the content per vehicle.

With respect to the impact on income, I have always said that the impact of a strengthening Canadian dollar has had some positive impact on income and earnings.

I have also said over and over is that with the operations in North America the various contracts we have in place, foreign exchange contracts, it's difficult to come up with an exact number.

And if you recall, Peter, years and years ago when the Canadian dollar was depreciating against the U.S. dollar back then we never talked about what impact negatively that had on the income statement for the same reason I am talking about today.

It's difficult to measure.

But has it been positive?

The answer to that is yes.

I just can't tell you the quantum (ph) of that.

With respect in the impact of holding monetary items and the FX impact, there has been some impact in the year, and that is included in our SG&A costs.

That impact is approximately $20 million, Peter, on a consolidated basis.

And that is a positive or a negative impact?

Negative impact.

With respect to the question on Cosma and Mirus (ph), I'm going to turn that question over to Louis.

In terms of, if we look at the quarter first, Peter, there was two or three things that affected the numbers, 2003 relative to 2002.

First of all, the closure of a facility that impacted us.

We had some launch costs in 2003 in excess of what we had in 2002 on some new programs that are launching in 2004, and pricing concessions.

Those are the big drivers of quarter-over-quarter impact on that one segment.

Some of those things, obviously, had an impact on the year as well for the full year; obviously, launch costs and the same closure costs at one facility.

Peter, with respect to content per vehicle in terms of full year for 2004 versus our actual numbers for 2003 in the fourth quarter, if we go back to the guidance we gave on content for the fourth quarter of 2003, we're expecting content to be somewhere in the range of 560 to 575.

We came in higher than that at 603.

A couple of reasons for that.

One is mix, positive mix on some of our higher content vehicles.

The other impact, Peter, was foreign exchange rates, particularly the Canadian dollar appreciating versus the U.S. dollar.

Our forecast for the fourth quarter of 2003 had assumed a lower Canadian dollar versus the U.S. dollar.

So we came in stronger for the fourth quarter than expected.

When you look out to 2004, Peter, we haven't updated our forecast for 2004.

As you know, it's the same forecast we gave in January.

Exchange rates have moved up and down.

Exchange rates are going to continue to move up and down in the quarter.

We've built up content per vehicle program by program.

There could be mix issues.

There could be foreign exchange assumptions.

So I would not read too much into our fourth-quarter number and the guidance we gave for 2004.

We need to wait and see what happens with foreign exchange, and that is going to have a big impact on content.

Okay, thanks very much.

John Novak of Westwind Partners.

Vince, can you just review the major contract wins in the quarter and can you break out which is actually new and what is actually replacement?

John, we're not going to get into that kind of detail.

We talked about the GMT900 award, and we talked a little bit about an award with Volkswagen, but we're not talking about anything beyond that, in terms of -- obviously, those are new awards for us.

We're not going to get into details of program awards for the quarter.

You mentioned a contract.

Was it the Ford Explorer, both seats and frames?

No, it was just the frames on the Explorer.

We talked about some seating programs in North America, but we can't describe anything more beyond that.

I just wanted to add sort of the evidence of incremental business awards is really the guidance we've talked about with respect to content per vehicle growth to 2006, and we've talked about North American content per vehicle by 2006 growing to somewhere in the range of 690 to $730.

We did have an excellent year for program awards.

It was a record year for us where we were awarded new and replacement business of over $6 billion.

In that 6, Vince, can you tell us what's new and what's replacement?

John, I think the best indication of what is new and what is replacement is to look at our content per vehicle growth ranges that we have given up to 2006.

In '03 you had about 3 billion worth of business launching.

How much new business do you have launching in '04?

Don't have the exact number in front of me, John, but it's less than the 3 billion that we had in 2003.

What is the appropriate pro forma comparable for Q1 '03?

Comparable to Q1 '03?

Yes, if we exclude MEC, MID and all that, what is the actual EPS comparison number?

Let me take it up and I'll get back to you on that.

JP Benson, CIBC World Markets.

Good morning.

I've got two questions.

First of all, if you look at -- if I've done my math right, if you look beyond the launch of the X3 and look at sort of your longer-term European content guidance, there doesn't seem to be a whole lot of growth in just, call it the base parts business in Europe the next few years.

Has this been a conscious effort to slow down the new order wins to hopefully get margins up, or what is going on there?

That's my first question.

The second question relates to a note in your financial statements where you talk about 117 million invested in other assets, and you mention among other things planning costs for the Saab 9-3 convertible and BMW X3 programs at Magna Steyr.

Can you describe what that means exactly?

Sure, let me start with your very first question in terms of wins in Europe.

When you look at our European operations, Magna Steyr, and you know, is a big chunk of sales.

And Magna Steyr will grow in steps as it wins incremental assembly business you will see a big jump in sales and Magna Steyr might be (indiscernible) for the a year or two or three until the next program comes along and then we (indiscernible) our incremental revenues.

When you look at the other parts of our business, the other parts of our business have been growing and when you look at the awards that we have in that we were awarded in 2003, there is incremental content in the rest of Europe across all groups, so we have not from our perspective slowed down our strategy with respect to European growth.

We see that Europe is an important market for us.

Its an opportunity to continue to grow.

But what our focus has been in Europe in 2003 and will continue to be in 2004 is to really focus on operations and improve the performances for our operations.

We have made progress in 2003 in that respect and we expect to continue to make more progress in 2004.

With respect to other assets, keep in mind that there's $45 million related to the Davis acquisition that is included in other asset spending in the quarter.

Tesma made a deposit that was held in escrow prior to the end of the year, and that $45 million is shown as other assets on the balance sheet.

The balance with respect to plant costs for Saab and for BMW, it relates to the contractual arrangements we have with both of those OEMs and those programs, and those assets will be recovered through production later on in the years to come.

I am just trying to understand.

I thought you expensed all those kinds of costs?

If you flip through our accounting policies, what we talk about is expensing design and engineering costs as well as in certain cases, tooling unless we have a contractual right or guarantee to those payments, and our financial statements are very clear on that matter, JP.

Okay, so if we take the 117 we minus 45 for Tesma and 48 for the long-term tooling receivable, the balance relates to the 93 and X3?

I don't have the numbers in front of me, J.P.

It is going to a BMW X3, but there's also other assets across all of Magna -- it is not just Magna Steyr.

Okay, thank you.

Just to answer John Novak's question on the comp, excluding MID, it is $1.45 for the first quarter 2003.

Fadi Chamoun of UBS.

Good morning, gentlemen.

Three quick questions.

One, can you remind us of the EBIT and gross margin guidance that you gave us in Detroit early January?

Second question is the GMT900 business I presume you have to start the new plan for it.

What is the leadtime that you'll need to start the plan by?

If this is going into production in sort of 12 to 18 months, do you have to start in two quarters to build this plan and if you have any detail about a plan around on that?

And thirdly, if you can provide us a quick update on the CEO search at this point?

Sure, just what we talked about in Detroit about the full year outlook, we have gone through the sales.

The other items we talked about was tax rates, we expect tax rates to approximately 36 percent.

We also said EPS from operations expect to be higher than 2003 performance.

With respect to operating income percentage, what we've talked about is operating income percentage in the low to mid 6 percent.

With respect to the GMT900 transfer case business, the program is not going to start until the middle all of 2007, so we're still obviously working on that program at this point in time, but I'm not going to elaborate on where we are going to manufacture, how we're going to manufacture.

We still have some time and we're in the planning stages of that at this point in time.

With respect to the status of the search for our replacement for our CEO, the Independent Board Members who make up the search committee are at work to find a replacement for Mrs. Stronach.

On the GMT900, can you -- do have an idea how much time do you still have before you have to start the plan?

Are we one year away or nine months away from --?

I don't want to put a timeline.

It needs to December of 2004.

In due course we're going to decide, as we often do.

As to do with any other program whether we build new plants, or what we do with a facility, I don't want to say a certain time.

We are working towards being ready for 2007 and that's all we're going to say about it right now.

Perfect, thank you.

Jon Rogers of Wachovia Securities.

Yes, I just have a couple questions.

Vince, did you buy any stock back in the fourth quarter?

No.

Can you give us an update with respect to the outstanding authorization and given that you're in discussions with ongoing sessions with New Venture Gear, that doesn't prohibit you from buying back shares at this point, does it?

We have until August of 2004 to make further purchases under that stock buyback.

We are currently as we've done the past, looking at the best opportunities for our cash resources and how to use that cash.

And we always assess what we've got on our plate, what the potentials are, and at that point make a determination as to the quantum of stock we may buy on the market.

Is there anything that is going on right now that would prohibit you from buying back stock?

Today we're blocked out, I will tell you that.

At this point in time there aren't things that would prohibit us other than from management's perspective how we want to use those resources.

Okay.

And then just the last question, can you tell us where the Decoma charge appears on the consolidated Magna income statement?

It's actually -- there's really a couple of charges.

Tacoma talked about a total charge of --.

They have a $17 million charge and $6.5 million charge --?

They talked about a charge of a sort of 23, $24 million charge. $17 million of that charge is reflected in an impairment charge on our financial statement for the quarter.

It's actually the entire charge in the quarter related to Tacoma.

The balance of the charge is included in gross margin.

Okay, thank you very much.

Chris Ceraso, Credit Suisse First Boston.

A few questions.

First I know this is probably oversimplistic but maybe at least we can talk to how much we think launch costs might go down from '03 to '04?

But sales were up nearly 3 billion from '02 to '03.

Earnings per share were up 11 cents.

Do you get a better contribution on the new revenues in '04 than that?

And is it primarily a decline in launch costs?

Well what we talked about for 2003 if we were burdened with -- we're always burdened with launch costs because we're always launching programs but in 2003 there was an extraordinary large amount of launches that took place during 2003 and we're going to continue to ramp up in 2004.

And we have always talked about that the launch costs on a relative basis are going to be less in 2004 versus 2003, so that is going to have a positive impact on our overall earnings.

With respect to if you're looking at incremental margin with respect to additional sales, I just turn you back to the guidance I spoke about earlier to Fadi in that we are expecting operating income percentage to be in the low to mid 6 percent.

We have made it clear in the past as we're launching full vehicle assembly programs, we're purchasing all the components, that that's going to have negative impact on consolidated margins because we are purchasing so many components.

But we've also stated very clearly that the appropriate measure to look at is the churn on funds employed, i.e. the churn on assets.

From our perspective whether we are investing $1000 in something where we are assembling a complete vehicle for our customer or $1000 in our stamping press at Cosma our targets for return on the asset component of that business are similar.

Just two more.

One, the 6 billion of new business that you won in '03, obviously you can't take about any contracts specifically but can you maybe put it into three big buckets of how much is North America, how much is Europe, how much is Asia?

I don't have that detail in front of me, Chris.

I'm not sure I really want to get into that.

The best indication of where that business is going to be is the content per vehicle guidance that we've given for both North America and Europe after 2006.

Okay and the last question, obviously capital spending was a lot stronger than depreciation in '03.

Should we look for a big increase in depreciation in '04?

Have you given D&A guidance for '04?

No we haven't given any -- for depreciation specifically?

Yes.

No, we haven't other than the fact that if you look at the trend that we have historically every quarter from our analyst -- quarterly analysts reports, other than for exchange you can pretty much track that.

Its going to continue to go up incrementally butt no major jumps, no.

Thanks a lot.

Rod Lache of Deutsche Bank.

Most of my questions have been answered but I do have a couple.

First of all to what extent would be able to extrapolate from the margins we're seeing in the quarter at Steyr?

Obviously you're still I would imagine experiencing some launch costs and production will continue to rise.

Other any thoughts that you can provide us on the kind of progression of margins over 2004 would be helpful.

Secondly I'm wondering whether the outlook for volume in the European assembly business is affected at all by where the euro is versus the dollar, at least in your mind.

And lastly can you just clarify the tax charge that you took for the future increase in taxes;

I was unclear on what that was about.

Sure, with respect to the BMW X3 and margins, as you know, Rod, we just launched the program in the fourth-quarter.

We're going to continue to ramp up for at least the first half of this year.

At this point in time it's really too early to comment on the margins.

I would like to say that the ramp up so far has gone very, very well.

We are very pleased with the ramp up, and so is BMW.

With respect to the strengthening of the euro and the impact that that might have on obviously in Europe, I am not in a position to comment on that.

Nothing has come to my attention that that means we're going to have any sort of issue for 2004.

What the tax charge relates to Rod is in Ontario -- led to back track.

On our balance sheet, we have deferred tax assets and deferred tax liabilities.

We are at a net liability position.

Under the accounting rules, that liability is recorded based on expected inactive future tax rates.

The Ontario government that came into power this year has come to the conclusion that some of the promised enacted rates for the future were not going to come to be, which means that the future Ontario tax rates are going to be higher than what we were anticipating or what we had anticipated in the third quarter of 2003.

The accounting rules require us to revalue those net liabilities on our balance sheet.

That reevaluation has resulted in an increase in $10 million -- approximately $10 million of liabilities on the balance sheet and a $10 million charge to income tax for the quarter.

Okay, just one follow-up.

Can you give us a sense of the volume on the X3 and the 93 in Q1?

No we can't actually comment on that.

We have been forbidden from talking about volumes going forward.

The total X3 volume expectations you have for the year, I believe that is on (indiscernible) comment in the past, correct?

No we haven't commented at all on diesel volumes for the X3.

Everyone else has certainly, but we haven't.

Okay, thanks.

David Tyerman of Scotia Capital.

Three questions.

Coming back to the Steyr margins as you keep saying that you look at our return on invested capital, the problem is we can't look at it because we can't know the invested capital, so the question basically is where can this business go in terms of margin potential?

That's the first question.

The second question is on the Cosma and other category.

Louis outlined the factors negatively impacting the unit in the quarter.

It looks like the last couple of quarters actually.

Can you give us some sense of the progression there?

Are we at the bottom and we start up now?

And the third question is on some of the 6 billion that you announced.

I noticed that you have engineering contracts, the safety systems and vehicle engineering for several Japanese customers, could those turn into production contracts?

David, let me take the one on Steyr numbers.

We don't talk about margins by specifically by Magna Steyr and our assembly business as you know.

There's some detail that is out there from Magna Steyr Tesma report that we had a couple years ago, but we don't talk about Magna Steyr's margins.

What I can say is that in terms of the programs that we have launched, we expect to hit the hurdle rates that we established before we get into the contract.

So we are confident that we are going to be able to hit the numbers that we are expecting in those contracts.

And that's really the way we're looking at the business.

Not so much from a margin point of view.

Right but we don't know what ROFE, that is the problem.

We talked about the fact that we the ROFE rate over the life of the program that is sort of in the range of where our business is currently.

In fact even in excess of that.

So I think that is enough to give you some idea of where we expect to be on ROFE.

Can you give us some idea of the denominator then?

No we don't disclose funds employed by segment like that other than the public companies.

I think, David, we're going to see it next year in a segment reporting we talked about the sales as well as the operating performance of Magna Steyr -- you'll see the benefits of the BMW X3 showing up in sales and profits next year -- or I should say in 2004.

Right, okay.

With respect the $6 billion of business, which we're really happy with, we've also in that $6 billion have been awarded some contracts with new domestics.

David, some of those contracts are engineering contracts.

We, as you know at Magna, we have got a major commitment across Magna and in all of our groups to raise the amount of new domestic business.

We've done that in a number of ways.

We are expanding our Japanese presses.

We opened our second office in Japan, increasing engineering presses in Japan.

We have now established a Korean office.

We are also looking at expanding our process in China.

So we have been making some progress and it does take some time with the new domestics and certainly engineering is one way to prove our capabilities with the new domestics.

And we're hopeful that those engineering contracts sooner or later are going to lead to production contracts.

But I do have some good news on the new domestics front.

If you look at our 2002 sales for the new domestics and our 2003 sales for the new domestics, they've grown.

Remember they don't represent a big part of Magna's overall business, but year-over-year sales to the new domestics has grown by 60 percent, so clearly our efforts to expand our sales to the new domestics is working and again we've got a small base, we have talked about we have got to work real hard to grow that small base, but we have had some strong performance in 2003.

David in terms of the other segment, I can't give you a lot of details going forward -- but just a couple of factors that I would like to talk about qualitatively.

The Magna Donnelly group continues to put up some better numbers each quarter, so that could be beneficial to us, and in the Concorde group we actually have a fair bit of launch activity coming up between the business we have in Hermosillo (ph) and the Explorer frame that launches next year so we are going to incur some costs in that segment throughout 2004 and into 2005.

That's helpful.

Going back, one quick follow up on the engineering.

Vehicle engineering, are you referring to full vehicles here?

No.

Not necessarily.

Operator, we are going to take one more call.

Ron Tadross of Banc of America Securities.

Good morning.

Three questions.

First, could you elaborate on your 2004 priority to focus on fixed asset spending and working capital?

What can you do difference there?

Second, maybe you can just go through if you can the range of time that it takes new business in general to get the full margins?

Is it 12 to 18 months or something like that?

Then lastly maybe you can just mention for the fourth quarter what the mix effect and/or the cost reduction -- the net cost reduction over price was on EBIT, if there was positive or negative?

With respect to our priority on fixed asset spending and working capital, fixed asset spending is always a priority at Magna and across all of our groups.

We have a very disciplined approach to capital spending.

We want to understand exactly what commitment we are being asked to sign up for, what the program involves, what the returns are going to be.

It's a constant priority for us and it's one of the reasons that we are successful in growing sales and profitability.

And that never really comes off the priority list.

With respect to working capital, with a strong growth in sales that we are expecting for 2004, we just have an extra effort across the company to try to tighten up on our working capital management and you can see in the fourth quarter we generated quite a bit from working capital.

Some of that is going to slip away as we move into the first quarter, so I'd like to ensure that a little as possible slips away from a working capital standpoint.

With respect to the mix of price kick backs and cost reductions, Ron, I'm not going to get into the specifics.

It varies by customer.

All I can tell you is that pricing pressures have been great in 2003 and we focused on obviously looking at new processes and innovations to try to offset these.

But more importantly, to help our customers at a time when there's global (indiscernible) capacity, help our customers with new products that hopefully are better priced for them, which makes them more competitive.

Bud was -- did mix help you in the quarter?

It looked like your customers -- your platforms that you shipped to were down at least in North America.

Was mix positive?

No, mix was negative.

Look at North America in particular.

Mix was slightly negative.

It's easier if you calculate down the sales line.

It's more difficult to calculate that at the EBIT line or below that obviously.

Because it's got all kinds of plants with various products and programs going on, so trying to measure that is a difficult thing for us.

Okay and is there a rough rule of thumb here on how long it could take for a new business to get to your full margins?

Is 12 to 18 months a safe range?

There is never rough rule of thumb, Ron.

It depends on the program.

It depends how quickly the program ramps up for the customer.

It depends whether if it is a takeover business, depends whether its a highly complicated assembly, whether it is stamping operation.

So I am not going to give you a rough rule of thumb, because there isn't one.

Okay, thanks.

I would like to thank everyone for participating in our conference call this morning.

We look forward to strong 2004.

Goodbye.

Ladies and gentlemen, this concludes the conference call for today.

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